<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 10, 2000
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ARBINET HOLDINGS, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 7389 13-3930916
(State or other jurisdiction (Primary standard industrial (IRS employer
of classification code number) identification number)
incorporation or
organization)
</TABLE>
------------------------
33 WHITEHALL STREET, 19TH FLOOR
NEW YORK, NEW YORK 10004
(212) 797-9060
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive office)
------------------------------
ANTHONY L. CRAIG
CHAIRMAN OF THE BOARD, CHIEF EXECUTIVE OFFICER AND PRESIDENT
ARBINET HOLDINGS, INC.
33 WHITEHALL STREET, 19TH FLOOR
NEW YORK, NEW YORK 10004
(212) 797-9060
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
COPIES TO:
<TABLE>
<S> <C>
WILLIAM F. SCHWITTER, ESQ. STEPHEN H. COOPER, ESQ.
PAUL, HASTINGS, JANOFSKY & WALKER LLP WEIL, GOTSHAL & MANGES LLP
399 PARK AVENUE 767 FIFTH AVENUE
NEW YORK, NEW YORK 10022 NEW YORK, NEW YORK 10153
(212) 318-6000 (212) 310-8000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
------------------------
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, 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 effective 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 effective 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 OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED PER SHARE(2) OFFERING PRICE(2) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, $.001 par value............... shares (1) $ $115,000,000 $30,360
</TABLE>
(1) Includes shares issuable upon exercise of the underwriters' over-allotment
option.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 under the Securities Act.
--------------------------
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 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED MARCH 10, 2000
THE INFORMATION 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 THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
Shares
[LOGO]
Arbinet Holdings, Inc.
Common Stock
-----------
Prior to this offering, there has been no public market for our common
stock. The initial public offering price is expected to be between $
and $ per share. We have applied to list our common stock on The Nasdaq
Stock Market's National Market under the symbol " ."
We have granted the underwriters an option to purchase a maximum of
additional shares to cover over-allotments of shares.
Investing in our common stock involves risks. See "Risk Factors" on page 6.
<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public Commissions Arbinet
------------------ ------------------ ------------------
<S> <C> <C> <C>
Per Share............................................. $ $ $
Total................................................. $ $ $
</TABLE>
Delivery of the shares of common stock will be made on or about ,
2000.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
Credit Suisse First Boston
Robertson Stephens
U.S. Bancorp Piper Jaffray
The date of this prospectus is , 2000.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
PROSPECTUS SUMMARY.................. 1
RISK FACTORS........................ 6
FORWARD-LOOKING STATEMENTS.......... 16
USE OF PROCEEDS..................... 17
DIVIDEND POLICY..................... 17
CAPITALIZATION...................... 18
DILUTION............................ 19
SELECTED CONSOLIDATED FINANCIAL
DATA.............................. 21
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS..................... 23
BUSINESS............................ 30
</TABLE>
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
MANAGEMENT.......................... 38
CERTAIN RELATIONSHIPS AND
RELATED PARTY TRANSACTIONS........ 46
PRINCIPAL STOCKHOLDERS.............. 48
DESCRIPTION OF CAPITAL STOCK........ 51
SHARES ELIGIBLE FOR FUTURE SALE..... 55
UNDERWRITING........................ 57
NOTICE TO CANADIAN RESIDENTS........ 59
LEGAL MATTERS....................... 60
EXPERTS............................. 60
ADDITIONAL INFORMATION.............. 60
INDEX TO FINANCIAL STATEMENTS....... F-1
</TABLE>
------------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS OR TO
WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS PROSPECTUS MAY ONLY BE USED WHERE IT IS
LEGAL TO SELL THESE SECURITIES. THE INFORMATION IN THIS PROSPECTUS MAY ONLY BE
ACCURATE ON THE DATE OF THIS PROSPECTUS.
------------------------
This prospectus includes statistical data regarding the telecommunications
industry throughout the world as well as commerce between business users of the
Internet. We have obtained these statistics from publicly available sources,
including:
- the U.S. Federal Communications Commission;
- the International Telecommunication Union, a leading international
telecommunications standards-setting organization;
- Gartner Group, an independent information technology research firm; and
- TeleGeography, Inc., an independent telecommunications industry research
firm.
ALTHOUGH WE BELIEVE THAT THE DATA CITED IN THIS PROSPECTUS IS GENERALLY
CORRECT, STATISTICAL INFORMATION IS INHERENTLY IMPRECISE, AND YOU SHOULD NOT
PLACE UNDUE RELIANCE ON IT.
------------------------
DEALER PROSPECTUS DELIVERY OBLIGATION
UNTIL , 2000 (25 DAYS AFTER THE COMMENCEMENT OF THIS OFFERING), ALL
DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE DEALER'S OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS AN
UNDERWRITER AND WITH RESPECT TO UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
i
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS.
IT DOES NOT CONTAIN ALL THE INFORMATION THAT YOU MAY CONSIDER IMPORTANT IN
MAKING YOUR INVESTMENT DECISION. THEREFORE, YOU SHOULD READ THE ENTIRE
PROSPECTUS CAREFULLY, INCLUDING IN PARTICULAR THE "RISK FACTORS" SECTION.
ARBINET HOLDINGS, INC.
OVERVIEW
Arbinet has created the only Internet-based business-to-business, or B2B,
trading exchange through which telecommunications service providers can buy,
sell and deliver to each other network capacity, expressed in minutes of
available calling time, for international and domestic long distance voice and
fax calls. Our exchange is neutral, favoring neither buyers nor sellers, and
allows participants to trade anonymously. Physical delivery of traded capacity
is made automatically through our multi-port switch using software that we
developed and a process that we patented. We handle all invoicing, collection
and payment for trades effected on our exchange, evaluate and assume the risk of
the creditworthiness of each buyer and provide continuous monitoring and on-line
rating of the service quality of each seller's network. By trading capacity on
our on-line exchange, telecommunications service providers can enhance the
utilization of their networks, increase their revenues and reduce their
operating and administrative costs.
THE GLOBAL TELECOMMUNICATIONS INDUSTRY
The $877 billion global telecommunications services industry is
characterized by rapid growth, fragmentation, operating inefficiencies, high
fixed costs, and declining prices and margins. This has resulted from, among
other things, global deregulation, the development and deployment of new
technologies and declining technology costs. The construction of new
high-capacity telecommunications networks has led to dramatic growth in the
industry's ability to carry telecommunications traffic. Most of this capacity
remains unused, except in peak periods. As a result, carriers are under pressure
to sell their excess capacity, since available minutes of calling time expire
worthless unless used. Current industry practices for trading network capacity
typically involve a one-to-one contract process that takes place in the absence
of information regarding prevailing market prices and without competitive
bidding. Most telecommunications service providers employ large staffs and
expend significant resources to find a buyer or seller on a desired route at
acceptable price and quality levels. They must then negotiate a contract for the
sale or purchase of network capacity, evaluate the creditworthiness or network
quality of their counterparty, set up a physical interconnection with that
party, and establish and implement procedures for invoicing and payment. This
one-to-one process is expensive, can take from three to six months for each
transaction, binds each party to a contract that may well become obsolete as
market conditions change, and burdens them with numerous interconnections that
must be maintained and managed.
ARBINET--THEXCHANGE
In stark contrast to traditional industry practices, once interconnected to
our exchange, telecommunications service providers can efficiently trade network
capacity with other users of our exchange. Our on-line exchange automatically
matches a buyer's posted bid for network capacity on a specified route with the
lowest priced offer of capacity on that route posted by a seller that can meet
the buyer's specified price and quality criteria. All bids, offers and trades
are anonymous, although bid and offer prices are available to all exchange users
to facilitate market transparency. With a single interconnection to our central
communications switch, a user of our exchange can send call traffic to or
receive traffic from the networks of all other exchange users without further
interconnections. All trades become effective, and a buyer's obligation for
payment arises, upon physical delivery of calls, which are routed automatically
from the seller's network to the buyer's network when they are made. We evaluate
the creditworthiness of each buyer that seeks to trade on our exchange and
assume responsibility for collections from those buyers and remittances to
sellers. We currently generate
<PAGE>
revenues from minutes traded on our exchange and exchange fees. We commenced
trading on our exchange in October 1999. From October 1999 through
February 2000, 17.2 million minutes were traded on our exchange.
Our exchange serves the growing market for international and domestic long
distance voice and fax calls. In 1998, calls in the international market
aggregated 93 billion minutes, generating $69 billion in total revenues. The
number of minutes in this market is expected to grow at a rate of approximately
12% annually, and total revenue is expected to grow at a rate of approximately
1.5% annually. We estimate that the service providers in this market include
over 1,000 international long distance carriers, over 500 competitive local
exchange carriers and over 250 voice over Internet protocol service providers
worldwide.
BENEFITS OF ARBINET--THEXCHANGE
The benefits of our exchange to buyers include:
- lower operating costs;
- access to multiple sellers;
- automatic least-cost traffic routing;
- availability of network quality ratings; and
- convenience and confidentiality.
The benefits of our exchange to sellers include:
- lower operating costs;
- access to multiple buyers;
- anonymity;
- increased revenues;
- reduced financial exposure; and
- convenience and confidentiality.
OUR STRATEGY
We intend to be the primary centralized market for the purchase, sale and
delivery of telecommunications capacity. Key elements of our strategy include:
- increasing participation on our exchange;
- expanding our geographic presence;
- expanding the services offered through our exchange; and
- enhancing our technology offerings.
RECENT DEVELOPMENTS
On March 7, 2000, we completed the private placement of 2,120,228 shares of
our Series D preferred stock for a total purchase price of approximately
$41.0 million. Purchasers of the Series D preferred stock included investors
affiliated with Van Wagoner Capital Management, Breakaway Capital, Amerindo
Investment Advisors, Inc., Communications Ventures III, L.P., Bedrock Capital
Partners I, L.P., Internet Capital Group, Inc., J.P. Morgan Investment
Corporation, Chase Capital Partners and BancBoston Ventures Inc.
WHERE YOU CAN FIND US
We were incorporated in Delaware in November 1996. Our principal offices are
located at 33 Whitehall Street, New York, NY 10004 and our telephone number is
(212) 797-9060. Our website address is WWW.ARBINET.COM. The information found on
our website is not part of this prospectus.
2
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common stock we are offering: shares
Common stock to be outstanding shares (1)
after this offering:
Use of proceeds............... Approximately $15.5 million of the net proceeds of this
offering will be used to redeem our outstanding Series B
preferred stock, which was issued in November 1999. We
intend to use the balance of the net proceeds for general
corporate purposes, including working capital, capital
expenditures, geographic expansion of our operations and
possible future acquisitions of or investments in
complementary businesses, assets or technologies.
Proposed Nasdaq National
Market symbol...............
</TABLE>
- ------------------------
(1) The common stock to be outstanding after this offering is based on the
number of shares outstanding as of March 1, 2000, and excludes:
- shares that the underwriters have an option to purchase to cover
over-allotments;
- 3,327,659 shares issuable upon exercise of stock options outstanding as of
March 1, 2000 under our stock option plan at a weighted average exercise
price of $1.03 per share;
- 2,036,538 shares available for future issuance under our stock option
plan;
- 19,225,775 shares issuable upon conversion of our Series A-1, Series C and
Series D preferred stock (excluding the conversion of accrued preferred
dividends); and
- 184,924 shares issuable upon the exercise of warrants outstanding as of
March 1, 2000 at a weighted average price of $0.05 per share.
3
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1997 1998 1999
----------- ----------- ------------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.............................................. $ -- $ -- $ 649,393
Cost of revenues...................................... -- -- 2,925,012
----------- ----------- ------------
Gross profit (loss)................................... -- -- (2,275,619)
Development expenses.................................. 243,295 253,898 1,481,357
Sales and marketing expenses.......................... 327,881 531,235 1,264,133
General and administrative expenses................... 970,153 1,476,877 5,159,580
Non-cash compensation and consulting services......... 20,751 40,384 1,794,270
Depreciation and amortization......................... -- 36,996 279,794
----------- ----------- ------------
Loss from operations.................................. (1,562,080) (2,339,390) (12,254,753)
Interest and other income (expense), net.............. (3,094) (121,771) 49,994
----------- ----------- ------------
Net loss (1).......................................... $(1,565,174) $(2,461,161) $(12,204,759)
=========== =========== ============
Net loss attributable to common stockholders (1)...... $(1,565,174) $(2,461,161) $(12,848,801)
=========== =========== ============
Basic and diluted net loss per share (1).............. $ (0.42) $ (0.66) $ (2.37)
=========== =========== ============
Weighted average common shares outstanding, basic
and diluted......................................... 3,725,400 3,725,400 5,422,278
Pro forma basic and diluted net loss per share (1)....
Pro forma weighted average common shares
outstanding, basic and diluted......................
</TABLE>
- ------------------------
(1) Does not include income (loss) of ($221,352), $2,061,330 and ($2,699,086) in
1997, 1998 and 1999, respectively, related to discontinued operations.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
---------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
----------- ----------- -----------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................... $25,768,227 $51,398,763 $
Working capital......................................... 19,678,842 45,309,378
Total assets............................................ 31,095,845 56,726,381
Capital lease obligations, less current portion......... 813,232 813,232
Series A-1 convertible preferred
stock--redeemable..................................... 6,150,810 --
Series B cumulative redeemable
senior preferred stock................................ 15,182,365 --
Series C cumulative convertible senior
preferred stock--redeemable........................... 15,182,366 --
Series D convertible preferred stock.................... --
Total common stockholders' equity (deficiency).......... (13,654,166) 48,491,911
</TABLE>
The pro forma financial information gives effect to:
- the private placement of 2,120,228 shares of our Series D preferred stock
on March 7, 2000 for proceeds of approximately $41.0 million;
4
<PAGE>
- the redemption of all 11,980,561 shares of our Series B preferred stock
for approximately $15.5 million upon the closing of this offering; and
- the conversion of all of our Series A-1, C and D preferred stock into an
aggregate of 19,225,775 shares of our common stock upon the closing of
this offering (excluding the conversion of accrued preferred dividends).
The pro forma as adjusted financial information gives effect to our sale of
shares of our common stock in this offering at an assumed initial public
offering price of $ per share and our receipt of the net proceeds of that
sale, after deducting our estimated offering expenses, including underwriting
discounts and commissions.
5
<PAGE>
RISK FACTORS
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. YOU SHOULD CONSIDER THE
FOLLOWING RISK FACTORS CAREFULLY AND REVIEW THIS ENTIRE PROSPECTUS BEFORE
INVESTING IN THE COMMON STOCK.
FOR PURPOSES OF THIS "RISK FACTORS" SECTION OF THIS PROSPECTUS, WHEN WE
STATE THAT A RISK, UNCERTAINTY OR PROBLEM MAY, COULD OR WOULD HAVE AN "ADVERSE
EFFECT ON OUR COMPANY," WE MEAN THAT THE RISK, UNCERTAINTY OR PROBLEM MAY, COULD
OR WOULD HAVE AN "ADVERSE EFFECT ON THE BUSINESS, RESULTS OF OPERATIONS,
FINANCIAL CONDITION, CASH FLOW OR PROSPECTS (FINANCIAL OR OTHERWISE) OF OUR
COMPANY," IN EACH CASE EXCEPT AS OTHERWISE INDICATED OR AS THE CONTEXT MAY
OTHERWISE REQUIRE. YOU SHOULD VIEW SIMILAR EXPRESSIONS IN THIS SECTION AS HAVING
A SIMILAR MEANING.
RISKS RELATING TO OUR BUSINESS
OUR LIMITED HISTORY OPERATING AS A B2B ON-LINE EXCHANGE MAKES OUR BUSINESS AND
FUTURE PROSPECTS DIFFICULT TO EVALUATE.
In October 1999, we modified our business strategy to focus exclusively on
our B2B on-line exchange for international and domestic long distance voice and
fax calls and we discontinued our previous operations. Because our business
focus has so recently changed, it is very difficult to evaluate our business and
our future prospects.
We will encounter risks and difficulties frequently encountered by companies
in an early stage of commercial development in new and rapidly evolving markets.
In order to overcome these risks and difficulties, we must, among other things:
- attract a sufficient number of users to our exchange to achieve and
sustain liquidity and competitive prices in our marketplace;
- execute our business strategy successfully;
- manage our rapidly expanding operations;
- upgrade our technology and information systems so that they are more
adaptable as our exchange grows and are able to provide a wider variety of
services to exchange users; and
- continue to attract, hire, motivate and retain qualified personnel in a
timely and effective manner.
Our failure to achieve one or more of these objectives may have an adverse
effect on our company.
OUR BUSINESS MODEL MAY NOT BE SUCCESSFUL.
Our business is new and unproven, and depends upon the adoption by
telecommunications service providers of a new way to trade network capacity. If
these service providers do not adopt our trading model, our business will not
succeed. Our competitors may develop business models that achieve greater
acceptance among service providers than our business model, which would impair
our ability to compete. We may not be able to modify our business model in a
timely or effective manner.
WE ARE USING SIGNIFICANTLY MORE CASH THAN WE GENERATE AND ANTICIPATE CONTINUED
LOSSES.
Since October 1999, when we modified our business strategy to focus
exclusively on our on-line exchange, our operating activities have used more
cash than they have generated. We incurred a total net loss of approximately
$14.9 million and negative net cash flow from continuing operating activities of
approximately $7.4 million in 1999. Because we will continue to need substantial
amounts of cash to
6
<PAGE>
fund the growth of our business, we expect to continue to experience significant
negative operating cash flows for the foreseeable future. We also expect to
continue to incur losses for the foreseeable future as we fund operating and
capital expenditures.
TELECOMMUNICATIONS SERVICE PROVIDERS MAY NOT TRADE ON OUR EXCHANGE.
Buyers and sellers of telecommunications network capacity will not trade on
our exchange unless it provides them a liquid market. Liquidity depends upon the
number of buyers and sellers that are actively trading. As of March 1, 2000, 48
telecommunications service providers were interconnected to our exchange. Of
these service providers, only 27 had begun to trade actively, either offering
minutes for sale or buying minutes offered. For the three month period ended
January 31, 2000, five service providers accounted for approximately 74% of the
total minutes sold through our exchange and five providers accounted for
approximately 85% of the total minutes purchased through our exchange.
Our ability to increase the number of buyers that actively trade on our
exchange will depend upon the willingness and ability of prospective sellers to
satisfy the call quality criteria imposed by prospective buyers, and upon the
participation of competing sellers from which a buyer can choose in order to
obtain favorable pricing and achieve cost savings. Our ability to increase the
number of sellers that actively trade on our exchange will depend upon the
extent to which there is a sufficient number of buyers available to increase the
likelihood that sellers will generate meaningful sales revenues. In addition, if
we are unable to increase awareness of our services among telecommunications
service providers, our ability to attract these providers will be limited.
On the other hand, if our exchange develops into a liquid market in which
lower priced call routing alternatives are available to buyers, sellers may
conclude that further development of our exchange will erode their profits and
they may stop offering network capacity on our exchange. Since our exchange
provides full disclosure of prices offered by participating sellers, buyers may
choose to purchase network capacity through our exchange instead of sending
minutes to their existing suppliers at pre-determined, and often higher,
contract prices. If suppliers of network capacity fear or determine that the
price disclosure and spot market limit order mechanisms provided by our exchange
will "cannibalize" the greater profit-generating potential of their existing
business, they may choose to withdraw from our exchange, which ultimately could
cause our exchange to fail as a marketplace.
OUR USER ENROLLMENT CYCLE IS LONG AND UNCERTAIN AND MAY NOT RESULT IN REVENUES.
Our user enrollment cycle is long, typically taking from two to twelve
months from our initial contact with a service provider until that provider
signs our membership contract. Further, not every member actually purchases or
sells telecommunications capacity through our exchange. Because we offer a new
method of purchasing and selling telecommunications capacity, we must educate
service providers regarding the benefits of our exchange. Factors that
contribute to the length and uncertainty of our user enrollment cycle and that
may reduce the likelihood that an exchange user will purchase or sell
telecommunications capacity through our exchange include:
- incentive structures that do not reward decision-makers for savings
achieved through cost-cutting;
- the strength of pre-existing one-to-one trading relationships; and
- an aversion to new methods for buying and selling telecommunications
capacity.
If additional telecommunications service providers do not join our exchange
and trade on a consistent basis, our business could be adversely affected.
7
<PAGE>
FACTORS OUTSIDE OF OUR CONTROL COULD RESULT IN DISAPPOINTING TRADING RESULTS,
CAUSING TELECOMMUNICATIONS SERVICE PROVIDERS TO CEASE USING OUR EXCHANGE.
The actual economic results achieved by a user of our exchange may vary
widely and depend upon many factors outside of our control. These factors
include:
- the current state of supply and demand in the market for
telecommunications network capacity;
- the prior experience of exchange users in independently negotiating
favorable terms with sellers and buyers;
- the number of users offering or bidding for telecommunications network
capacity through our exchange;
- reductions in the number of potential buyers or sellers in particular
markets due to mergers, acquisitions or business failures; and
- seasonal and cyclical trends that influence all industrial purchasing
decisions.
Because factors outside of our control affect the perception among service
providers of the value of trading on our exchange, they may choose not to trade
on our exchange even if we have performed well. Any significant reduction in
trading on our exchange would adversely affect our business.
OUR SETTLEMENT PROCEDURES SUBJECT US TO FINANCIAL RISK, PARTICULARLY IN THE
EVENT WE ARE UNABLE TO COLLECT AMOUNTS DUE FROM BUYERS.
Under our settlement procedures, we pay the seller the purchase price for
the minutes that have been routed through our switch, but may not collect the
purchase price from the buyer until after we have paid the seller. We are
therefore subject to financial risk during the time prior to receipt of payment
from the buyer. We seek to mitigate that risk by evaluating the creditworthiness
of each buyer prior to its joining our exchange. However, our credit evaluations
do not assure that buyers can or will pay us for minutes they purchase through
our exchange. If buyers fail to pay us for any reason, our business would be
adversely affected.
THE MARKET FOR OUR SERVICES IS COMPETITIVE; WE MAY BE UNABLE TO COMPETE
SUCCESSFULLY.
We are one of a number of companies seeking to provide telecommunications
service providers with an ability to trade telecommunications capacity. We
expect competition to intensify as current competitors expand their service
offerings and new competitors enter the market. We cannot assure you that we
will be able to compete successfully against current or future competitors, or
that the competitive pressures we face will not have an adverse effect on our
business.
Many of our existing competitors have, and new or potential competitors may
have, larger technical staffs, larger customer bases and greater financial and
other resources than we have. In addition, they may be able to develop services
that are superior to our services or that achieve greater industry acceptance.
We cannot assure you that the services offered by our competitors now or in the
future will not be perceived by buyers and sellers as superior to ours.
ESTABLISHING INTERNATIONAL OPERATIONS WILL SUBJECT US TO RISKS AND
UNCERTAINTIES.
We plan on expanding our operations internationally, which will subject us
to additional risks. Although our existing exchange is based in New York City,
we intend to establish similar exchange switching sites in various locations,
including Frankfurt, Hong Kong, London, Los Angeles, Paris, Sao
8
<PAGE>
Paulo, Sydney and Tokyo. Foreign operations are subject to a variety of
additional risks that could have an adverse effect on our company, including:
- currency exchange risks;
- difficulties in collecting accounts receivable and longer collection
periods;
- changing and conflicting regulatory requirements;
- potentially adverse tax consequences;
- tariffs and general export restrictions;
- difficulties in staffing and managing foreign operations;
- political instability;
- seasonal reductions in business activity during the summer months in
Europe and certain other parts of the world;
- the impact of local economic conditions and practices; and
- potential non-enforceability of our intellectual property and proprietary
rights in foreign countries.
WE MAY NEED TO RAISE ADDITIONAL FINANCING, WHICH MAY NOT BE AVAILABLE WHEN WE
NEED IT OR ON ACCEPTABLE TERMS.
We may need to raise more money following this offering. Our future capital
requirements will depend on many factors, including:
- the timing of our deployment of additional telecommunications switches in
various locations around the world;
- the dates on which we further upgrade our systems and expand the services
available to users of our exchange;
- our staffing levels;
- whether or not we elect to make any acquisitions of other businesses,
assets or technologies;
- the growth in the number of users of our exchange;
- competitive conditions;
- developments in domestic and foreign government regulation of the
telecommunications industry; and
- our capital costs.
If we require additional funds, these funds may not be available in
sufficient amounts or on terms favorable to us or our stockholders. If we raise
funds through the issuance of common stock, the issuance of the additional
shares could adversely affect the market price of our common stock.
IF WE ACQUIRE OTHER BUSINESSES, ASSETS OR TECHNOLOGIES, WE MAY BE UNABLE TO
INTEGRATE THEM WITH OUR BUSINESS, OR WE MAY IMPAIR OUR FINANCIAL PERFORMANCE.
If appropriate opportunities present themselves, we may acquire businesses,
assets or technologies that we believe will complement or expand our existing
business, assets or technologies. We do not currently have any understandings,
commitments or agreements with respect to any acquisition. We may not be able to
identify, negotiate or finance any future acquisition successfully. Even if we
do succeed
9
<PAGE>
in acquiring a business, asset or technology, we have no experience in
integrating an acquisition into our business. The process of integration may
produce unforeseen operating difficulties and expenditures and may absorb
significant attention of our management that would otherwise be available for
the ongoing development of our business.
GOVERNMENTAL REGULATIONS MAY ADVERSELY AFFECT OUR COMPANY.
The telecommunications industry is highly regulated in the United States and
foreign countries. Our business may be subject to various United States and
foreign laws, regulations, agency actions and court decisions. In addition, any
such regulatory obligations and requirements are subject to change, which may
adversely affect our ability to remain in compliance with our regulatory
obligations. If the Federal Communications Commission determined on its own
motion or in response to a third party's filing, that certain of our services,
arrangements, agreements or reports did not comply with FCC policies and rules,
the FCC could order us to terminate noncompliant services or arrangements, fine
us or revoke our authorizations. Any of these actions could have an adverse
effect on our company.
GOVERNMENTAL REGULATIONS REGARDING THE INTERNET MAY BE PASSED, WHICH COULD
ADVERSELY AFFECT OUR BUSINESS.
The legal and regulatory environment that pertains to the Internet is
uncertain and is changing rapidly as use of the Internet increases. For example,
in the United States, the FCC is considering whether to impose surcharges or
additional regulations upon certain providers of Internet telephony. In
addition, regulatory treatment of Internet telephony outside the United States
varies from country to country. Certain actions in foreign countries may
adversely affect our continuing ability to offer our services in these and other
countries, causing us to lose customers and revenue. New regulations could
increase our costs of doing business and prevent us from delivering our services
over the Internet, which would adversely affect our business. The growth of the
Internet may also be significantly slowed. This could delay growth in demand for
our services and limit the growth of our revenue. In addition to new regulations
being adopted, existing laws may be applied to the Internet.
NOT ALL OF OUR SYSTEMS HAVE BEEN CONFIRMED YEAR 2000 COMPLIANT.
Prior to the year 2000, many computer systems and software products were
coded to accept or recognize only two digit entries in the date code field. To
date we have not encountered any material year 2000-related disruptions or
failures of our systems or services, nor have we been notified of any
disruptions or failures in the systems of any of our third parties with whom we
deal. There is an ongoing risk that year 2000-related problems could still occur
and we will continue to evaluate these risks. However, we believe that the year
2000 issue will not pose any significant operational problems for us.
RISKS RELATING TO OUR TECHNOLOGY
WE MAY NOT BE ABLE TO KEEP PACE WITH RAPID TECHNOLOGICAL CHANGES IN THE
TELECOMMUNICATIONS SERVICES INDUSTRY.
Our industry is subject to rapid technological change. We cannot predict the
effect of technological changes on our business. In addition, widely accepted
standards have not yet been developed for the technologies we use. New services
and technologies may be superior to the services and technologies, or these new
services may render our services and technologies obsolete.
To be successful, we must adapt to our rapidly changing market by
continually improving and expanding the scope of services we offer and by
developing new services and technologies to meet customer needs. Our success
will depend, in part, on our ability to develop, purchase or license new
technologies and respond to technological advances and emerging industry
standards on a cost-effective
10
<PAGE>
and timely basis. We will need to spend significant amounts of capital to
enhance and expand our services to keep pace with changing technologies.
SYSTEM FAILURES AND SECURITY BREACHES COULD CAUSE US TO LOSE CUSTOMERS AND
EXPOSE US TO LIABILITY.
The telecommunications service providers that use our exchange depend on us
to accurately track, rate, store and report the traffic and trades that are
conducted over our exchange. Software defects, system failures, natural
disasters, human error and other factors could lead to inaccurate or lost
information or the inability to access our exchange. From time to time, we have
experienced temporary service interruptions. This kind of interruption may occur
in the future. In addition, users of our exchange may consider the data that we
collect and store to be highly sensitive, including the identity of those users.
Our systems could be vulnerable to computer viruses and physical and electronic
break-ins, and third parties may attempt to breach our security. Our loss of
information or the delivery of inaccurate information or a breach or failure of
our security mechanisms that leads to unauthorized disclosure of sensitive
information could lead to users' dissatisfaction and possible claims against us
for damages. Our failure to maintain the continuous availability of our exchange
for trading, to consistently deliver accurate information to users of our
exchange or to maintain the security of their confidential information, could
have an adverse affect on our company.
WE CURRENTLY DO NOT HAVE A BACK-UP TELECOMMUNICATIONS SWITCH OR OTHER REDUNDANT
SYSTEMS AT AN ALTERNATE SITE. ANY FAILURE OF OUR CENTRAL TELECOMMUNICATIONS
SWITCH WOULD MAKE OUR EXCHANGE INACCESSIBLE AND COULD HAVE AN ADVERSE EFFECT ON
OUR COMPANY.
Our business depends upon the efficient and uninterrupted operation of our
switch and related network systems. We maintain our central telecommunications
switch in one of our facilities in New York City. We currently do not have a
back-up switch or other redundant systems at an alternate site. Any interruption
in service because of the failure of our switch would make our exchange
inaccessible and, unless quickly repaired, would have an adverse effect on our
company.
UNDETECTED DEFECTS IN OUR TECHNOLOGY COULD ADVERSELY AFFECT OUR COMPANY.
Technology as complex as ours frequently contains errors, defects or
performance problems, commonly called "bugs." Although we regularly test our
software and systems extensively, we cannot assure you that our testing will
detect every potential error, defect or performance problem. The discovery of a
serious software or systems defect, error or performance problem could result
in:
- the diversion of scarce resources away from customer service and
technology development;
- lost revenues;
- delays in acceptance of our exchange; and
- damage to our reputation.
Any of these problems would have an adverse effect on our company. Users and
potential users of our exchange may be particularly sensitive to any defects,
errors or performance problems in our systems because a failure of our systems
to accurately monitor transactions could adversely affect their own operations.
THE EXPECTED INTRODUCTION OF SOFTWARE TO ENHANCE OUR WEBSITE AND REPLACEMENT OF
OUR CURRENT TELECOMMUNICATIONS SWITCH COULD RESULT IN UNFORESEEN TECHNOLOGICAL
PROBLEMS.
We intend to introduce new software in mid-2000 that will enhance our
website, which is the interface upon which users trade on our exchange. Although
we have tested and will test our new software extensively prior to introduction,
unforeseen problems with our new software or the ability of
11
<PAGE>
our new software to interface with our other technology could inhibit our
ability to maintain a stable trading environment. Our inability to provide a
stable trading environment for users of our exchange could result in lost or
reduced revenue for them and, in turn, us.
By the end of 2000, we expect to replace our central telecommunications
switch, which is manufactured by Lucent, with a switch manufactured by Nortel.
Although the Nortel switch is being manufactured according to our specifications
and will be tested extensively prior to installation, its installation could
result in unforeseen problems. The new switch may not interface properly with
our other technology or it may prove unable to operate according to its
specifications. If the Nortel switch fails, our ability to provide for the
physical delivery of traded network capacity would be adversely affected, which
could have an adverse effect on our company.
FAILURE OF OUR SOFTWARE, HARDWARE AND OTHER TECHNOLOGIES TO OPERATE PROPERLY
COULD ADVERSELY AFFECT OUR BUSINESS.
We use software, hardware and other technologies specifically created for us
and/or purchased from various vendors. We cannot assure you that:
- our hardware, software and other technologies will operate according to
our expectations;
- we will be able to integrate our hardware, software and other technologies
into our systems; or
- our hardware, software and other technologies will be sufficient to
accommodate our needs as our business expands.
WE MAY NOT BE ABLE TO PROTECT OUR INTELLECTUAL PROPERTY AND WE MAY INFRINGE THE
RIGHTS OF OTHERS.
Our proprietary rights in intellectual property are important to our success
and our competitive position. We have been issued one United States patent, and
we have applied for additional patents, on various aspects of our business
technology and processes. Although we seek to protect our intellectual property
through patents, copyrights, trademark and service mark registrations and other
means, these actions may be inadequate. Patents, copyrights and trademark and
service mark registrations may be invalid or unenforceable or offer only limited
protection in some foreign countries. We cannot be certain that any of our
intellectual property rights would withstand challenge by a third party or will
be of value in the future. The validity, enforceability and scope of protection
of some intellectual property rights in Internet-related industries is uncertain
and still evolving. To date, we have not been notified that any of our
technologies infringe the rights of third parties, but there can be no assurance
that third parties will not claim infringement of their rights as a result of
our past, current or future activities. Any such claim, whether meritorious or
not, could be time-consuming, result in costly litigation, divert our management
and other resources and require us to enter into royalty or licensing
agreements.
RISKS RELATING TO OUR MANAGEMENT
WE MAY BE UNABLE TO MANAGE OUR GROWTH.
The rapid expansion of our business may strain our infrastructure,
management, internal controls and financial systems. We may not be able to
effectively manage that expansion. To support our growth to date, we hired the
majority of our employees within the last year, which has strained our ability
to integrate and properly train our new employees. If we are unable to undertake
new business due to a shortage of staff or technology resources, our growth will
be impeded. There may be times when our opportunities for growth may be limited
by the capacity of our internal resources or other factors.
12
<PAGE>
WE MAY NOT BE ABLE TO HIRE OR RETAIN QUALIFIED PERSONNEL IN A TIMELY MANNER.
Our business depends on having a highly trained staff. We will need to
continue hiring additional personnel as our business grows. Competition for
employees with technical expertise is intense and the costs of hiring and
retaining these employees are high. Our failure to recruit or retain the caliber
of personnel required to carry out our business may impede our growth and have
an adverse effect on our company.
THE LOSS OF ANY OF OUR KEY EMPLOYEES WOULD DISRUPT OUR BUSINESS.
The loss of any key member of our management team would have an adverse
effect on our company. We rely on the leadership of key members of our
management team, including Anthony L. Craig, our chairman of the board, chief
executive officer and president; Alex Mashinsky, our vice chairman and founder;
and Robert S. Vaters, our executive vice president and chief financial officer.
The loss of any of these key employees could disrupt our growth and have an
adverse effect on our company.
RISKS RELATING TO THIS OFFERING
OUR MANAGEMENT HAS BROAD DISCRETION AS TO HOW TO USE THE PROCEEDS FROM THIS
OFFERING AND THOSE PROCEEDS MAY NOT BE USED APPROPRIATELY.
Except for a limited amount of proceeds needed for redemption of our
Series B preferred stock, we intend to use the proceeds from this offering for
general corporate purposes, including working capital, capital expenditures,
geographic expansion of our operations and possible future acquisitions of or
investments in businesses, assets or technologies. Our management will have
broad discretion over how we use these proceeds. You will not have the
opportunity to evaluate the economic, financial or other information on which we
base our decisions regarding use of the proceeds from this offering, and we may
spend those proceeds in ways with which you may disagree. Pending any of these
uses, we will invest the proceeds of this offering in short term,
investment-grade, interest-bearing securities. We cannot predict whether any of
these uses or investments will yield a favorable return.
OUR COMMON STOCK HAS NEVER BEEN PUBLICLY TRADED, AND YOU MAY NOT BE ABLE TO SELL
YOUR SHARES AT OR ABOVE THE INITIAL OFFERING PRICE.
There has not been a public market for our common stock prior to this
offering. We cannot predict the extent to which a trading market will develop or
how liquid that market might become. Further, the market price of our common
stock may decline below the initial public offering price. The initial public
offering price will be determined by negotiations between our management and
representatives of the underwriters and may not be indicative of prices at which
our stock may trade in the open market.
INTERNET-RELATED STOCK PRICES ARE ESPECIALLY VOLATILE, AND THIS VOLATILITY MAY
DEPRESS OUR STOCK PRICE. WE MAY BE SUBJECT TO LAWSUITS AS A RESULT OF
FLUCTUATIONS IN OUR STOCK PRICE.
The market price of our common stock is likely to be highly volatile as the
stock market in general, and the market for Internet-related and technology
companies in particular, has been highly volatile. The market price of our
common stock is also likely to be affected by our quarterly operating results,
which have varied significantly in the past and will likely vary significantly
in the future. Investors may not be able to resell their shares of our common
stock following periods of high volatility because of the market's adverse
reaction to that volatility. The trading prices of shares of many technology and
Internet-related companies have reached historical highs within the last 52
weeks and have reflected relative valuations substantially above historical
levels. During the same period, prices for the shares of these companies have
been highly volatile and many have recorded lows well below
13
<PAGE>
their historical highs. We cannot assure you that our common stock will trade at
the same levels as other Internet stocks or that Internet stocks in general will
sustain their current market prices.
Factors that could cause volatility in the market price of our stock may
include:
- actual or anticipated variations in quarterly operating results;
- announcements of technological innovations or problems;
- new sales formats or new services;
- changes in financial estimates by securities analysts;
- conditions or trends in the Internet and technology industries;
- changes in the market valuations of other Internet and technology
companies;
- announcements by us or our competitors of significant acquisitions,
strategic partnerships or joint ventures;
- our capital commitments;
- additions or departures of key personnel; and
- sales of additional shares of common stock.
Many of these factors are beyond our control and may materially and
adversely affect the market price of our common stock, regardless of our
operating performance.
Following periods of high volatility in the market price of a company's
securities, securities class action litigation is occasionally instituted. If
this were to happen to us, even if the claims were without merit, the litigation
would be expensive and would divert management's attention from the operation of
our business.
WE ARE CONTROLLED BY A FEW MAJOR STOCKHOLDERS WHOSE INTERESTS MAY BE DIFFERENT
THAN YOURS.
Following the closing of this offering, Messrs. Craig, Mashinsky and Vaters
will beneficially own %, % and %, respectively, of our outstanding common
stock, and our directors and executive officers as a group will beneficially own
%. In addition, Communications Ventures III, L.P., Bedrock Capital Partners I,
L.P., J.P. Morgan Investment Corporation, Internet Capital Group, Inc., CB
Capital Investors, L.P. and BancBoston Ventures Inc., along with their
respective affiliates, will beneficially own %, %, %, %, % and % of
our outstanding common stock, respectively. As a result, these stockholders,
together with our directors and executive officers as a group, will be able to
determine the outcome of any matter requiring a stockholder vote, including the
election of the directors who are responsible for the management of our affairs.
Matters that typically require stockholder approval include, in addition to the
election of directors, the following:
- amendment of our corporate charter;
- acquisitions of other companies or assets;
- mergers or consolidations of our company with another company;
- sale of all or substantially all of our assets; and
- our liquidation.
Some of our existing stockholders have significant, and in some cases,
controlling, interests in a growing number of businesses. Some of these
businesses may be or may in the future become competitors or strategic partners
of ours, and conflicts of interests may arise as a result of our stockholders'
investment in these or other businesses. The investment objectives of these
stockholders may differ from those of our other stockholders, including our
future public stockholders. The concentration of ownership of our company may
also delay, deter or prevent a change of control, which could reduce the market
price of our common stock.
14
<PAGE>
YOU WILL SUFFER IMMEDIATE AND SUBSTANTIAL DILUTION IN THE BOOK VALUE OF YOUR
INVESTMENT.
The initial public offering price per share will significantly exceed our
net tangible book value per share. If we were to liquidate our company
immediately after this offering, investors purchasing shares in this offering
would receive a per share amount of tangible assets net of liabilities that
would be less than the initial public offering price per share. If you purchase
shares of our common stock in this offering, you will suffer immediate dilution
of $ in the net tangible book value per share from the price you pay for
our common stock.
THE SUBSTANTIAL NUMBER OF OUR SHARES THAT WILL BE ELIGIBLE FOR SALE IN THE NEAR
FUTURE MAY CAUSE THE MARKET PRICE OF OUR COMMON STOCK TO DECLINE.
A substantial number of shares of our common stock will be available for
sale in the public market following this offering, which could adversely affect
the market price for our common stock. See "Shares Eligible for Future Sale" for
a more detailed description of the eligibility of shares of our common stock for
future sale.
WE HAVE ADOPTED VARIOUS MECHANISMS TO DISCOURAGE A TAKEOVER OF OUR COMPANY.
Certain provisions of our certificate of incorporation and bylaws may
discourage, delay or prevent a change in control of our company. Some
stockholders may consider these provisions unfavorable. These provisions include
the following:
- authorizing the issuance of "blank check" preferred stock that could be
issued by our board of directors to increase the number of outstanding
shares and thwart a takeover attempt;
- classifying our board of directors with staggered three-year terms, which
may lengthen the time required to gain control of our board of directors;
- prohibiting cumulative voting in the election of directors, which would
otherwise allow less than a majority of stockholders to elect director
candidates;
- limiting who may call special meetings of stockholders;
- prohibiting stockholder action by written consent, thereby requiring all
stockholder actions to be taken at a meeting of the stockholders; and
- establishing advance notice requirements for nominations of candidates for
election to the board of directors or for proposing matters that can be
acted upon by stockholders at stockholder meetings.
In addition, our board of directors has authorized adoption of a
shareholders rights plan. The rights plan is a takeover defense mechanism, which
will involve the declaration of a dividend to our existing stockholders of a
"right" to purchase additional shares at a designated price on a triggering
event. The rights plan will include provisions which will enable holders, in the
event of a merger or acquisition with or by a hostile party in which we survive,
to purchase our shares at a discount. The rights plan will also include
provisions which will enable holders, in the event of a merger or acquisition
with or by a hostile party in which the hostile party survives, to purchase
shares of that party at a discount.
In addition, Section 203 of the Delaware General Corporation Law and the
potential issuance of options under our stock incentive plan may discourage,
delay or prevent a change in control of our company.
15
<PAGE>
FORWARD-LOOKING STATEMENTS
Many statements under the captions "Prospectus Summary," "Risk Factors,"
"Use of Proceeds," "Management's Discussion and Analysis of Financial Condition
and Results of Operations," "Business" and elsewhere in this prospectus are
"forward-looking statements." These forward-looking statements include, but are
not limited to, statements about our plans, objectives, expectations and
intentions and other statements contained in the prospectus that are not
historical facts. When used in this prospectus, the words "expects,"
"anticipates," "intends," "plans," "believes," "seeks," "estimates" and similar
expressions are generally intended to identify forward-looking statements.
Because these forward-looking statements involve risks and uncertainties, there
are important factors that could cause actual results to differ materially from
those expressed or implied by these forward-looking statements, including our
plans, objectives, expectations and intentions and other factors discussed under
"Risk Factors" and other parts of this prospectus. You should not place undue
reliance on these forward-looking statements, which reflect our management's
view only as of the date of this prospectus.
16
<PAGE>
USE OF PROCEEDS
We expect to realize net proceeds of $ million from this offering after
deducting the underwriting discount and commissions and estimated offering
expenses, assuming an initial public offering price of $ per share. If the
underwriters' over-allotment option is exercised in full, our estimated net
proceeds will be $ million.
Approximately $15.5 million of these net proceeds will be used to redeem our
Series B preferred stock, which was issued in December 1999. We intend to use
the balance of the net proceeds for general corporate purposes, including
working capital, capital expenditures, geographic expansion of our operations
and possible future acquisitions of or investments in businesses, assets or
technologies. We currently have no commitments or agreements for any acquisition
or investment, and we are not engaged in negotiations with respect to any such
transaction. Pending actual use, we intend to invest the net proceeds in
short-term interest-bearing, investment-grade securities.
DIVIDEND POLICY
We have never paid any dividends on our common stock, and we do not
anticipate paying cash dividends in the foreseeable future. Payment of dividends
in the future will be at the discretion of our board of directors after taking
into account our financial condition, operating results, current and anticipated
cash needs and plans for growth.
17
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1999 on an
actual basis and on a pro forma and pro forma as adjusted basis.
The pro forma financial information gives effect to:
- the private placement of 2,120,228 shares of our Series D preferred stock
on March 7, 2000 for net proceeds of approximately $41.0 million;
- the redemption of 11,980,561 shares of our Series B preferred stock for
approximately $15.5 million upon the closing of this offering; and
- the conversion of all of our Series A-1, C and D preferred stock
(excluding the conversion of accrued preferred dividends) into an
aggregate of 19,225,775 shares of our common stock upon the closing of
this offering.
The pro forma as adjusted financial information gives effect to our sale of
shares of our common stock in this offering at an assumed initial public
offering price of $ per share and our receipt of the net proceeds of that
sale, after deducting our estimated offering expenses, including underwriting
discounts and commissions.
This table should be read in conjunction with our financial statements
included elsewhere in this prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
------------------------------------------
PRO FORMA AS
ACTUAL PRO FORMA ADJUSTED
------------ ------------ ------------
<S> <C> <C> <C>
Cash and cash equivalents............................ $ 25,768,227 $ 51,398,763 $
============ ============ ======
Capital lease obligations............................ 1,005,029 $ 1,005,029
Series A-1 convertible preferred stock--redeemable,
$.001 par value; 10,000,000 shares authorized,
5,124,985
shares outstanding for actual and 0 shares on a pro
forma and pro forma as adjusted basis.............. 6,150,810 --
Series B cumulative redeemable senior preferred
stock, $.001 par value; 12,000,000 shares
authorized, 11,980,561
shares outstanding for actual and 0 shares on a pro
forma and pro forma as adjusted basis.............. 15,182,365 --
Series C cumulative convertible senior preferred
stock--redeemable, $.001 par value, 12,000,000
shares authorized, 11,980,562 shares outstanding
for actual and 0 shares on a pro forma and pro
forma as adjusted
basis.............................................. 15,182,366 --
Series D cumulative convertible preferred stock,
$.001 par value, 3,000,000 shares authorized,
0 shares outstanding on an actual, pro forma, and
pro forma as adjusted
basis.............................................. -- --
Common stockholders' equity (deficiency):
Common stock, par value $.001 per share;
150,000,000
shares authorized; 8,966,797 shares outstanding
on an actual basis; 28,192,572 shares on a pro
forma basis; shares on a pro forma as
adjusted basis (1)............................... 8,967 28,193
Additional paid-in capital......................... 7,770,586 69,897,437
Deferred compensation.............................. (4,655,295) (4,655,295)
Accumulated deficit................................ (16,778,424) (16,778,424)
------------ ------------ ------
Total common stockholders' equity (deficiency)....... $(13,654,166) $ 48,491,911 $
------------ ------------ ------
Total capitalization................................. $ 23,866,404 $ 49,496,940 $
============ ============ ======
</TABLE>
- ------------------------
(1) For pro forma purposes, excludes 3,781,562 shares of common stock issuable
upon the exercise of outstanding stock options and 184,924 shares of common
stock issuable upon the exercise of outstanding warrants as of December 31,
1999.
18
<PAGE>
DILUTION
If you invest in our common stock, your interest will be diluted to the
extent of the difference between the public offering price per share of our
common stock and the pro forma as adjusted net tangible book value per share of
our common stock. As of December 31, 1999, the net tangible book value of our
common stock was $48.5 million or $1.72 per share of common stock, on a pro
forma basis after giving effect to:
- the private placement of 2,120,228 shares of our Series D preferred stock
on March 7, 2000 for net proceeds of approximately $41.0 million;
- the redemption of 11,980,561 shares of our Series B preferred stock for
approximately $15.5 million upon the closing of this offering; and
- the conversion of all of our Series A-1, C and D preferred stock
(excluding the conversion of accrued preferred dividends) into an
aggregate of 19,225,775 shares of our common stock upon the closing of
this offering.
"Net tangible book value" per share represents the amount of our total
tangible assets reduced by the amount of our total liabilities, divided by the
number of shares of common stock outstanding. As of December 31, 1999, the net
tangible book value of our common stock, on a pro forma basis as adjusted for
the sale of shares offered in this offering and the application of the estimated
net proceeds from that sale of $ million, would have been approximately
$ per share. This value is based on an assumed initial public offering
price of $ per share and the deduction of underwriting discounts and
commissions and our other estimated offering expenses. The difference between
the pro forma and pro forma as adjusted net tangible book value of our common
stock represents an immediate increase of $ per share to our existing
stockholders and an immediate dilution of $ per share to new investors who
purchase shares in this offering. The following table illustrates this per share
dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share........... $
Pro forma net tangible book value per share
of common stock before this offering.................. $ 1.72
Estimated increase in net tangible book value
per share of common stock attributable to this
offering..............................................
Pro forma as adjusted net tangible book value
per share after this offering...........................
-------
Dilution of net tangible book value per share
of common stock to new stockholders..................... $
=======
</TABLE>
The following table sets forth, on a pro forma basis as of December 31,
1999, the number of shares of common stock purchased from us, the total
consideration paid and the average price per share paid by the existing
stockholders and by new stockholders, based upon an assumed initial public
offering price of $ per share:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------- ------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
-------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders............................. % $ % $
New stockholders.................................. % % $
------ --- ------- ---
Total......................................... % $ %
====== === ======= ===
</TABLE>
19
<PAGE>
The foregoing tables assume no exercise of outstanding stock options to
purchase 3,781,562 shares of common stock, no purchase of 184,924 shares of
common stock issuable under outstanding warrants and no exercise of the
over-allotment options to purchase up to shares of common stock granted by
us to the underwriters. Assuming exercise of such over-allotment option,
investors purchasing shares in this offering would experience immediate dilution
of $ per share and the net tangible book value of our common stock after
this offering would be $ per share. Following this offering, assuming the
exercise of the over-allotment option and the exercise of the outstanding stock
options, the net tangible book value would be $ per share and investors
purchasing shares in this offering would experience immediate dilution of
$ per share.
20
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following financial data should be read in conjunction with the
consolidated financial statements and the unaudited pro forma financial
information, "Summary Consolidated Financial Information" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in
this prospectus.
The pro forma balance sheet financial information gives effect to:
- the private placement of 2,120,228 shares of our Series D preferred stock
on March 7, 2000 for net proceeds of approximately $41.0 million;
- the redemption of 11,980,561 shares of our Series B preferred stock for
approximately $15.5 million upon the closing of this offering; and
- the conversion of all of our Series A-1, C and D preferred stock into an
aggregate of 19,225,775 shares of our common stock upon the closing of
this offering (excluding the conversion of accrued preferred dividends).
The pro forma as adjusted financial information gives effect to the sale of
the shares of our common stock in this offering at an assumed initial
public offering price of $ per share and the receipt of the net proceeds of
that sale, after deducting our estimated offering expenses, including
underwriting discounts and commissions.
The selected consolidated financial data presented below for the years ended
December 31, 1997, 1998 and 1999, have been derived from our Consolidated
Financial Statements and the accompanying notes in this prospectus. You should
not assume that the results of operations below are indicative of the financial
results we can achieve in the future.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1997 1998 1999
----------- ----------- ------------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.............................................. $ -- $ -- $ 649,393
Cost of revenues...................................... -- -- 2,925,012
----------- ----------- ------------
Gross profit (loss)................................... -- -- (2,275,619)
Development expenses.................................. 243,295 253,898 1,481,357
Sales and marketing expenses.......................... 327,881 531,235 1,264,133
General and administrative expenses................... 970,153 1,476,877 5,159,580
Non-cash compensation and consulting services......... 20,751 40,384 1,794,270
Depreciation and amortization......................... -- 36,996 279,794
----------- ----------- ------------
Loss from operations.................................. (1,562,080) (2,339,390) (12,254,753)
Interest and other income (expense), net.............. (3,094) (121,771) 49,994
----------- ----------- ------------
Net loss (1).......................................... $(1,565,174) $(2,461,161) $(12,204,759)
=========== =========== ============
Net loss attributable to common stockholders (1)...... $(1,565,174) $(2,461,161) $(12,848,801)
=========== =========== ============
Basic and diluted net loss per share (1).............. $ (0.42) $ (0.66) $ (2.37)
=========== =========== ============
Weighted average common shares outstanding,
basic and diluted................................... 3,725,400 3,725,400 5,422,278
Pro forma basic and diluted net loss per share (1)....
Pro forma weighted average common shares
outstanding basic and diluted.......................
</TABLE>
- ------------------------
(1) Does not include income (loss) of ($221,352), $2,061,330 and ($2,699,086) in
1997, 1998 and 1999, respectively, related to discontinued operations.
21
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------
1998 1999
----------- --------------------------------------
PRO FORMA
AS
ACTUAL PRO FORMA ADJUSTED
------------ ----------- ---------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.................. $ -- $ 25,768,227 $51,398,763 $
Working capital............................ (3,917,769) 19,678,842 45,309,378
Total assets............................... 5,207,797 31,095,845 56,726,381
Capital lease obligations, less current
portion.................................. 13,270 813,232 813,232
Series A-1 convertible preferred stock--
redeemable............................... -- 6,150,810 --
Series B cumulative redeemable senior
preferred stock.......................... -- 15,182,365 --
Series C cumulative convertible senior
preferred stock--redeemable.............. -- 15,182,366 --
Series D convertible preferred stock....... -- -- --
Total common stockholders' equity
(deficiency)............................. (1,811,965) (13,654,166) 48,491,911
</TABLE>
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH OUR FINANCIAL
STATEMENTS AND THE NOTES THERETO INCLUDED ELSEWHERE IN THIS PROSPECTUS. THE
FOLLOWING DISCUSSION INCLUDES CERTAIN FORWARD-LOOKING STATEMENTS. FOR A
DISCUSSION OF IMPORTANT FACTORS, INCLUDING THE CONTINUED DEVELOPMENT OF OUR
BUSINESS, ACTIONS OF REGULATORY AUTHORITIES AND COMPETITORS, PRICE DECLINES AND
OTHER FACTORS WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE
RESULTS REFERRED TO IN THE FORWARD-LOOKING STATEMENTS, SEE THE DISCUSSION IN
"RISK FACTORS" IN THE "BUSINESS" SECTION OF THIS PROSPECTUS.
OVERVIEW
Arbinet has created the only Internet-based business-to-business, or B2B,
trading exchange through which telecommunications service providers can buy,
sell and deliver to each other network capacity, expressed in minutes of
available calling time, for international and domestic long-distance voice and
fax calls. Our exchange is neutral, favoring neither buyers nor sellers, and
allows participants to trade anonymously. Physical delivery of traded capacity
is made automatically through our multi-port switch using software that we
developed and a process that we patented. We handle all invoicing, collection
and payment for trades effected on our exchange, evaluate and assume the risk
for the creditworthiness of each buyer and provide continuous monitoring and
on-line rating of the service quality of each seller's network. By trading
capacity on our on-line exchange, telecommunications service providers can
enhance the utilization of their networks, increase their revenues and reduce
their operating and administrative costs.
In October 1999, we modified our business strategy to focus on our exchange,
and ceased operations of our wholly-owned subsidiary, Bellfax, Inc. We discuss
Bellfax's operations below under "--Historical Results of Operations."
SOURCES OF REVENUE AND REVENUE RECOGNITION POLICY
We currently generate revenues from minutes traded on our exchange and
exchange fees. Our revenues from minutes traded represent the price per minute
for network capacity purchased by buyers through our exchange. Our revenues from
exchange fees represent the amounts we charge sellers and buyers on a per minute
basis for network capacity traded on our exchange. For example, if a 10-minute
call originates in France, is routed through our switch to a destination in
Brazil for $0.15 per minute and the applicable exchange fee is $0.005 per
minute, we record $1.60 of revenue for this call. This amount consists of a
$1.50 fee charged to the buyer for minutes traded, and a $0.05 exchange fee
charged to both buyer and seller.
We record revenues from minutes traded because:
- all traffic traded on our exchange is routed through our switch;
- we are obligated to pay sellers for the minutes traded regardless of
whether we ultimately collect from buyers; and
- we are responsible for monitoring and routing the minutes to our exchange
users in accordance with the quality and pricing criteria they have
specified on our exchange.
We expect that our fees in the future will also include one-time
registration fees, annual membership fees, monthly port fees and premium service
fees. The registration fees, membership fees and port fees we intend to charge
to our exchange users will be fixed fees, whereas premium service fees will be
variable depending upon the amount of minutes being traded through our exchange.
23
<PAGE>
COSTS AND EXPENSES
Our cost of revenues consists of cost of revenues from minutes traded and
costs related to the operation of our exchange. The cost of revenues from
minutes traded represents the cost of the minutes delivered through our exchange
to buyers on behalf of sellers; in the example above, we would record cost of
revenues equal to $1.50, an amount which would be payable to the seller. Our
costs related to the operations of our exchange consist of personnel and related
overhead and the costs of operating our switch facilities, including the portion
of our overhead expenses directly attributable to operations. We had a loss for
1999. The primary reason for this loss was the costs associated with
establishing and commencing trading on our exchange.
A substantial portion of our total operating expenses for 1999 was related
to the development of the administrative systems of our exchange. During 1999,
we recorded the cost of this development in accordance with Statement of
Position 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use." In accordance with SOP 98-1, costs incurred by us
after the initial research and design phase of developing the administrative
systems of our exchange are capitalized and will be amortized in future periods,
beginning on the date these systems are placed in service. The administrative
systems consist of sales and customer support, billing reconciliation and
settlement, and accounting systems. In addition, we recorded non-cash deferred
compensation in connection with stock options granted to our employees. This
charge represents the difference between the value of our common stock as of the
date of granting of the options and the exercise price of the options. This
amount is being amortized over the vesting period of these options. As of
December 31, 1999, our total deferred stock-based compensation was
$4.7 million. Amortization of deferred stock-based compensation for 1999 was
$1.4 million. In addition, we recorded non-cash stock-based consulting services
expenses of $434,971 for 1999 in connection with options granted to consultants.
HISTORICAL RESULTS OF OPERATIONS
In view of the rapidly changing nature of the telecommunications services
industry and our limited operating history, we believe that a historical
comparison of revenue and operating results may not be meaningful and should not
be relied upon as an indication of our future performance. This is particularly
true because:
- we operate in a new and rapidly evolving market; and
- our revenue fluctuates from period to period due to changes in activity on
our exchange.
As a result, our prospects must be considered in light of the risks, expenses
and difficulties encountered by companies in their early stage of development.
For 1997 through 1999, Bellfax derived revenues from (1) sales and rental of
telecommunications equipment and (2) operating international routes. In
October 1999, we decided to devote our resources to the development of our
exchange, and ceased the operations of Bellfax. Bellfax's operations focused on
the transfer of telecommunications capacity in specific markets for an
individual telecommunications company, using Bellfax's proprietary software and
network infrastructure. We are in the process of liquidating Bellfax's assets,
which we expect to achieve by the end of 2000. For each of the periods
presented, the results of operations of Bellfax are included in "Income (loss)
from discontinued operations."
FISCAL YEAR 1999 COMPARED TO FISCAL YEAR 1998
REVENUES. No revenue was derived from minutes traded or exchange fees for
1998. Our revenue from minutes traded and exchange fees was $649,393 for 1999.
The recognition of this revenue in 1999 was attributable to the commencement of
trading on our exchange during the year.
24
<PAGE>
COST OF REVENUES. Cost of revenues includes costs associated with minutes
traded and exchange operations. Our cost of revenues increased from $0 for 1998
to $2.9 million for 1999. The increase in cost of revenues was attributable to
the costs associated with establishing and commencing trading on our exchange.
DEVELOPMENT EXPENSES. Our development expenses consist primarily of
salaries and related costs of development personnel, fees paid to third-party
vendors for software in the initial research phase and overhead allocated to our
development department. Development expenses increased from $253,898 for 1998 to
$1.5 million for 1999. This increase was primarily attributable to increased
costs associated with the hiring of additional development personnel and
increased fees paid to third-party vendors for software and other technology.
SALES AND MARKETING EXPENSES. Sales and marketing expenses consist
primarily of costs associated with salaries and related costs of sales and
marketing personnel, office overhead allocated to our sales and marketing
department, and trade show and advertising expenses. Sales and marketing
expenses increased from $531,235 for 1998 to $1.3 million for 1999. This
increase was primarily attributable to increased costs associated with the
hiring of sales and marketing personnel, as well as higher advertising and trade
show costs in 1999. Advertising, trade show and promotion expenses have
increased substantially and are expected to continue to be a significant
component of our sales and marketing expenses.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
consist primarily of:
- salaries, recruiting and related costs for general corporate functions,
including executive, accounting and administrative personnel;
- facility expenses, including rent;
- professional fees; and
- other general corporate expenses.
General and administrative expenses increased from $1.5 million for 1998 to
$5.2 million for 1999. These expenses were primarily attributable to higher
overhead costs associated with the hiring of additional management and
administrative personnel. We expect to incur additional expenses as we continue
to hire senior-and mid-level management and invest in our operational
infrastructure.
NON-CASH COMPENSATION AND CONSULTING SERVICES. Non-cash compensation and
consulting services resulted from the issuance of stock options and common stock
to employees and consultants. Non-cash compensation and consulting expense
increased from $40,384 in 1998 to $1.8 million in 1999. Deferred non-cash
stock-based compensation in connection with stock options granted through
December 31, 1999, will be amortized over the vesting periods of these stock
options. In addition, we expect to record a significant amount of additional
non-cash stock-based compensation expense for stock options granted after
December 31, 1999.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased from
$36,996 in 1998 to $279,794 in 1999. The increase was primarily attributable to
increased capital expenditures related to the development of our exchange.
INTEREST AND OTHER INCOME (EXPENSE), NET. Interest and other income
(expense), net, consists of interest income earned on short-term investments,
offset by interest expense on notes payable and capital lease obligations. Net
interest income improved from a net interest expense of $121,771 for 1998 to net
interest income of $49,994 for 1999. This improvement was a result of
maintaining larger cash and investment balances during 1999 as compared to 1998
and reduced interest expense as a result of decreased outstanding long-term
debt.
25
<PAGE>
FISCAL YEAR 1998 COMPARED TO FISCAL YEAR 1997
REVENUES. No revenue was derived from minutes traded or exchange fees in
1997 or 1998.
COST OF REVENUES. For 1997 and 1998, we incurred no cost of revenues since
commencement of trading on our exchange had not begun.
DEVELOPMENT EXPENSES. Development expenses increased from $243,295 for 1997
to $253,898 for 1998. This increase was primarily attributable to increased
costs associated with the hiring of additional development personnel.
SALES AND MARKETING EXPENSES. Sales and marketing expenses increased from
$327,881 for 1997 to $531,235 for 1998. This increase was primarily attributable
to increased costs associated with the hiring of sales and marketing personnel
as well as higher advertising and trade-show related expenses in 1998.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased from $970,153 for 1997 to $1.5 million for 1998. The increase was
primarily attributable to higher overhead costs associated with increased office
rental expenses, as well as the hiring of additional management and
administrative personnel.
NON-CASH COMPENSATION AND CONSULTING SERVICES. Non-cash compensation and
consulting services resulted from the issuance of stock options and common stock
to employees and consultants. Non-cash compensation and consulting expense
increased from $20,751 in 1997 to $40,384 in 1998. The increase was primarily
related to the increase in options granted and the difference between the
exercise price and the fair market value of stock options granted.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased from
$0 in 1997 to $36,996 in 1998. The increase was primarily attributable to
increased capital expenditures related to the development of our exchange.
INTEREST AND OTHER INCOME (EXPENSE), NET. Net interest expense increased
from $3,094 for 1997 to $121,771 for 1998. The increase resulted primarily from
increases in outstanding indebtedness.
26
<PAGE>
QUARTERLY RESULTS
The following table summarizes our results of operations for our four most
recent fiscal quarters. The results of operations for any quarter should not be
deemed indicative of the results of operations which may be achieved for any
future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------------------------
MARCH 31, 1999 JUNE 30, 1999 SEPTEMBER 30, 1999 DECEMBER 31, 1999
-------------- ------------- ------------------ -----------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues.............................. $ 41,326 $ 36,491 $ 90,748 $ 480,828
Cost of revenues...................... 292,560 739,445 733,633 1,159,374
----------- ----------- ----------- -----------
Gross profit (loss)................... (251,234) (702,954) (642,885) (678,546)
----------- ----------- ----------- -----------
Development expenses.................. 235,598 291,283 424,920 529,556
Sales and marketing expenses.......... 96,762 262,838 514,639 389,894
General and administrative expenses... 186,875 778,942 811,371 3,382,392
Non-cash compensation and consulting
services............................ 36,808 520,484 616,052 620,926
Depreciation and amortization......... 17,983 42,543 72,408 146,860
----------- ----------- ----------- -----------
Total cost and expenses............... 574,026 1,896,090 2,439,390 5,069,628
----------- ----------- ----------- -----------
Loss from operations.................. (825,260) (2,599,044) (3,082,275) (5,748,174)
Interest and other income (expense),
net................................. (35,126) 21,450 (4,873) 68,543
----------- ----------- ----------- -----------
Loss from continuing operations....... (860,386) (2,577,594) (3,087,148) (5,679,631)
Loss from discontinued operations..... (307,735) (49,233) (481,234) (1,860,884)
----------- ----------- ----------- -----------
Net loss.............................. $(1,168,121) $(2,626,827) $(3,568,382) $(7,540,515)
=========== =========== =========== ===========
</TABLE>
REVENUES. Revenues increased from $41,326 in the quarter ended March 31,
1999 to $480,828 for the quarter ended December 31, 1999. The growth in revenues
was attributable to increased numbers of buyers and sellers using our exchange.
COST OF REVENUES. Cost of revenues increased from $292,560 in the quarter
ended March 31, 1999 to $1.2 million for the quarter ended December 31, 1999.
The increase in cost of revenues was attributable to the costs associated with
establishing and commencing trading on our exchange.
DEVELOPMENT EXPENSES. Development costs increased from $235,598 for the
quarter ended March 31, 1999 to $529,556 for the quarter ended December 31,
1999. We expect development costs to increase substantially in future periods as
we hire additional personnel and incur additional development costs to enhance
and upgrade our existing services and to develop new services.
SALES AND MARKETING EXPENSES. Sales and marketing expenses increased in
each quarter from $96,762 for the quarter ended March 31, 1999 to $389,894 for
the quarter ended December 31, 1999. The increases in sales and marketing
expenses were due to higher advertising, marketing and trade show expenses, as
well as higher personnel costs associated with our increased number of sales and
marketing staff. We anticipate that sales and marketing expenses will increase
significantly for the foreseeable future as we implement new advertising,
branding and marketing campaigns, pursue our growth strategy and hire additional
sales and marketing personnel.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased from $186,875 for the quarter ended March 31, 1999 to $3.4 million for
the quarter ended December 31, 1999. Increases in general and administrative
expenses were primarily attributable to the increase in administrative staff and
leasing additional facilities. We expect to incur higher general and
administrative expenses in the foreseeable future as we hire additional
personnel to support our operations.
27
<PAGE>
NON-CASH COMPENSATION AND CONSULTING SERVICES. Non-cash compensation and
consulting services resulted from the issuance of stock options and common stock
to employees and consultants. Non-cash compensation and consulting services
expense increased from $36,808 for the quarter ended March 31, 1999 to $620,926
for the quarter ended December 31, 1999. The increase was primarily related to
the increase in stock options granted and the difference between the exercise
price and the fair market value of options granted. Deferred non-cash
stock-based compensation in connection with stock options granted through
December 31, 1999, will be amortized over the vesting periods of these stock
options. In addition, we expect to record a significant amount of additional
non-cash stock-based compensation expense for stock options granted after
December 31, 1999.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased from
$17,983 for the quarter ended March 31, 1999 to $146,860 for the quarter ended
December 31, 1999. The increase was primarily related to increased capital
expenditures related to the development of our exchange.
INTEREST AND OTHER INCOME (EXPENSE), NET. Our interest and other income
(expense) varied during the periods listed above depending on the cash, cash
equivalents and notes payable we maintained. Interest and other income (expense)
increased from $(35,126) for the quarter ended March 31, 1999 to $68,543 for the
quarter ended December 31, 1999.
LIQUIDITY AND CAPITAL RESOURCES
We have incurred losses from operating activities in each of the last three
years of operations and expect to continue to incur operating and net losses in
the near term. Since inception, we have utilized cash provided by financing
activities to fund operating losses, interest expense and capital expenditures.
The sources of this cash have primarily been private equity financings and, to a
lesser extent, equipment-based financing. As of December 31, 1999, we had
approximately $25.8 million of cash and cash equivalents.
Net cash used in continuing operating activities was $1.3 million for 1997,
$2.1 million for 1998 and $7.4 million for 1999. Net cash used in operating
activities in each period funded net losses in these periods.
Net cash provided by (used in) continuing investing activities was $22,855
for 1997, ($111,534) for 1998 and ($987,579) for 1999. The increases in each
period resulted primarily from the acquisition of capital assets, primarily
computer and office equipment.
Net cash provided by continuing financing activities was $87,201 for 1997,
$1.4 million for 1998 and $36.0 million for 1999. The increase was primarily due
to the capital raised through the issuance of notes payable in 1998 and
preferred stock in 1999.
On March 7, 2000, we completed an offering of 2,120,228 shares of our
Series D convertible preferred stock. The proceeds from the offering were
approximately $41.0 million. We intend to use the proceeds of the offering for
working capital and general corporate purposes.
On November 24, 1999, we completed an offering of 11,980,561 shares of our
Series B redeemable preferred stock and 11,980,562 shares of our Series C
convertible preferred stock. The proceeds of the offering were approximately
$30.5 million and have been used primarily to fund the continued development of
our exchange and for working capital and general corporate purposes.
On April 15, 1999, we completed offerings of an aggregate of 5,124,985
shares of Series A-1 convertible preferred stock. The proceeds from these
offerings were approximately $6.0 million. We used the proceeds of this offering
for working capital and general corporate expenses.
We believe that the net proceeds from the offerings discussed above,
together with the proceeds from this offering and the revenue from trading on
our exchange, will provide sufficient funds for us to
28
<PAGE>
expand our business as planned and to fund our operations for at least the next
12 to 18 months. However, the amount of our future capital requirements will
depend on a number of factors, including:
- the timing of the deployment of additional telecommunications switches in
various locations around the world;
- the dates on which we further upgrade our systems and expand the services
available to users of our exchange;
- our staffing levels;
- whether or not we elect to make any acquisitions of other businesses,
assets or technologies;
- growth in the number of users of our exchange;
- competitive conditions;
- developments in domestic and foreign government regulation of the
telecommunications industry; and
- our capital costs.
We may be required to delay or abandon some or all of our development and
expansion plans or we may be required to seek additional sources of financing
earlier than currently anticipated, in the event (1) our plans or assumptions
change or prove to be inaccurate or (2) the net proceeds of our offerings, cash
and investments on hand, equity offerings and future revenues from trading on
our exchange prove to be insufficient to fund our growth in the manner and at
the rate currently anticipated. In the event we are required to seek additional
financing, we cannot assure you that financing will be available on acceptable
terms, or at all. Our forecast of the period of time through which our financial
resources will be adequate to support operations is a forward-looking statement
that involves risks and uncertainties, and actual results could vary materially
as a result of the factors described above. If we require additional sources of
capital, we may seek to sell additional equity or debt securities or secure a
bank line of credit. The sale of additional equity or convertible debt could
result in additional dilution to our stockholders. We cannot assure you that any
financing arrangements will be available in amounts or on terms acceptable to
us, or at all.
The development of our business has required substantial capital. Capital
additions consist of capital expenditures, the net increase in property and
equipment purchases payable, assets acquired under capital lease obligations and
capitalized development costs during the relevant period. During 1999, capital
additions totaled $2.7 million and consisted of capital expenditures of
approximately $728,000, and a net increase of $1.9 million in property and
equipment purchases payable and assets acquired under capital lease obligations.
We have also entered into certain agreements associated with the development of
our back-office systems, purchase commitments for network expansion and other
items. We expect to continue to have substantial capital expenditures in the
future.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTs
In June 1998, the Financial Accounting Standards Board, or FASB, issued SFAS
No. 133, "Accounting for Derivatives and Hedging Activities," which establishes
accounting and reporting standards of derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities.
We do not currently engage in derivative activity and do not expect the adoption
of this standard to have a material effect on our business. In July 1999, the
FASB approved SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities--Deferral of the Effective Date of FASB Statement No. 133," which
amends SFAS No. 133 to be effective for all fiscal quarters of all fiscal years
beginning after June 15, 2000.
29
<PAGE>
BUSINESS
OVERVIEW
Arbinet has created the only Internet-based business-to-business, or B2B,
trading exchange through which telecommunications service providers can buy,
sell and deliver to each other network capacity, expressed in minutes of
available calling time, for international and domestic long distance voice and
fax calls. Our exchange is neutral, favoring neither buyers nor sellers, and
allows participants to trade anonymously. Physical delivery of traded capacity
is made automatically through our multi-port switch using software that we
developed and a process that we patented. We handle all invoicing, collection
and payment for trades effected on our exchange, evaluate and assume the risk of
the creditworthiness of each buyer and provide continuous monitoring and on-line
rating of the service quality of each seller's network. By trading capacity on
our on-line exchange, telecommunications service providers can enhance the
utilization of their networks, increase their revenues and reduce their
operating and administrative costs.
INDUSTRY OVERVIEW
THE GROWTH OF B2B E-COMMERCE
The Internet is one of the fastest-growing means of communication, reaching
consumers and businesses globally. As a result of the explosive growth in the
adoption of the Internet as a tool for global commerce and communication,
businesses have increasingly developed Internet strategies to improve and expand
their businesses. Companies have begun to use the Internet to create business to
business, or B2B, networks to streamline complex processes, reduce costs,
improve efficiency and exchange information among fragmented groups of buyers
and sellers. According to Gartner Group, the volume of non-financial goods and
services sold through B2B e-commerce is expected to grow from $145 billion in
1999 to $7.3 trillion in 2004.
THE GLOBAL TELECOMMUNICATIONS SERVICES INDUSTRY
The global telecommunications services industry is an $877 billion market
characterized by rapid growth, fragmentation, operating inefficiencies, high
fixed costs and declining prices. Global deregulation, development and
deployment of new technologies and declining technology costs have significantly
impacted the industry.
Until recently, the global telecommunications services industry was
dominated by a few large monopolistic telecommunications companies, some of
which were government owned. As a result of deregulation and privatization, new
national, multi-national and regional companies have entered the market. The
development of new, less-expensive, better-performing technologies, such as
fiber optics, has enabled these companies to build new high-capacity networks
and led to substantial increases in their ability to carry telecommunications
traffic. We estimate that approximately 80% of existing international voice
telecommunications capacity remains unused, except in peak periods. This growth
in competition and capacity has led to declining prices, eroding margins and an
industry cost-structure characterized by high fixed costs, related primarily to
network construction expenses, and low variable costs. As a result, carriers are
under pressure to sell their excess capacity, since available minutes of calling
time expire worthless unless used. Historically, there has not existed an
expedient centralized mechanism to enable carriers to optimize their existing
network capacity. Telecommunications service providers buy and sell capacity
based on a labor-intensive, costly and time-consuming bilateral, or one-to-one,
contract process.
These market forces also have led to an extremely high level of operating
expenses. In the United States, selling, general and administrative expenses
currently represent approximately 25% of the industry's revenues as compared to
an average of approximately 16% for all companies.
30
<PAGE>
We believe the global telecommunications services industry has a fundamental
need for an efficient means of trading network capacity in order to optimize
network utilization, increase revenues, reduce operating costs and improve
profitability.
We are currently focusing on the market for international and domestic long
distance voice and fax calls. According to TeleGeography and the International
Telecommunication Union, in 1998 international long distance voice and fax calls
aggregated 93 billion minutes, generating $69 billion in total revenues. The
number of calling minutes in this market is expected to grow at a rate of
approximately 12% annually, and total revenue is expected to grow at a rate of
approximately 1.5% annually. We estimate that the service providers in this
market include over 1,000 international long distance carriers, over 500
competitive local exchange carriers, or CLECs, and over 250 voice over Internet
protocol service providers worldwide.
TRADITIONAL TELECOMMUNICATIONS SERVICES INDUSTRY BUSINESS PRACTICES
The current methods by which telecommunications service providers allocate
network capacity are labor-intensive, costly, time-consuming and take place in
the absence of information regarding prevailing market prices and without
competitive bidding. A typical transaction in which one telecommunications
service provider buys network capacity from another includes the following
steps:
STEP 1: A buyer must identify a seller with available capacity on the
desired route at an acceptable price and at the quality level required.
Similarly, a seller must identify a buyer requiring capacity on the seller's
available route, at the quality level available on the route, and at the
price offered by the seller;
STEP 2: Once the buyer or seller has been identified, the parties negotiate
a contract for the purchase and sale of the network capacity;
STEP 3: The seller evaluates the creditworthiness of the buyer;
STEP 4: Once a contract has been entered into, the buyer and seller need to
establish interconnections with each other requiring substantial investments
in physical infrastructure;
STEP 5: Once interconnection is achieved, the buyer tests the quality of
the seller's network; and
STEP 6: The parties establish administrative procedures for the invoicing
and payment for calls. These settlements typically occur quarterly and
involve different procedures for each transaction.
This one-to-one process is expensive, can take from three to six months for
each transaction, binds each party to a contract that may well become obsolete
as market conditions change and burdens them with numerous interconnections that
must be maintained and managed. In addition, a party has no ability to monitor
on a comparative basis the network quality of the other party to which it is
interconnected.
OUR SOLUTION
We believe a centralized exchange-based system for trading network capacity
can reduce the operating costs and time and other inefficiencies of existing
industry practices for buying and selling network capacity. Our exchange-based
trading system permits buyers and sellers to transact business in a broad,
liquid, open and transparent market, rather than on a one-to-one basis. An
exchange, such as ours, is characterized by:
- aggregation of buyers and sellers in one location or site;
- low entry costs required for participation; and
31
<PAGE>
- access to prices and information relating to availability of services on
the exchange.
We have created the only Internet-based trading exchange providing for the
purchase, sale and delivery of international and domestic long distance voice
and fax calls. In addition to having all the features of the standard
exchange-based trading system, our exchange also incorporates the following
attributes:
- NEUTRAL AND ANONYMOUS. Our exchange is neutral, in that we favor neither
buyers nor sellers, and allows participants to trade anonymously.
- SINGLE POINT OF ACCESS. Using our website, participants in our exchange
can continually update the routing, pricing and quality parameters they
desire to buy or sell, and then buy or sell accordingly.
- STANDARDIZED QUALITY CONTROL. We assess and rate the quality of each call
transferred on our exchange and simultaneously adjust the seller's quality
profile to reflect any changes in the quality of minutes offered on the
seller's network.
- AUTOMATED PHYSICAL DELIVERY. Once an order to purchase is made, our
proprietary software automatically interfaces with our switching
facilities to route the call to the destination desired at the quality
sought for the lowest price available.
- CENTRALIZED SETTLEMENT. We provide a single invoice for all transactions
on our exchange by each seller and buyer in the relevant settlement
period. Settlements on our exchange presently occur bi-weekly.
Use of our exchange to buy or sell network capacity eliminates many of the
steps found in traditional one-to-one transactions. Buyers and sellers who use
our exchange follow three simple steps:
STEP 1: A telecommunications service provider registers with our exchange by
entering into a standard agreement with us and interconnecting to our
switch. Before any trades occur, the provider completes a detailed profile,
specifically describing the routes and quality of minutes it proposes to buy
or sell. This profile can be changed by the provider at any time by simply
accessing our website.
STEP 2: Once interconnected to our switch, the service provider may trade
minutes on our exchange. After a trade is executed, the minutes are routed
through our switch according to the route and quality specifications
provided by the buyer. Trades take place as the buyer utilizes the minutes.
STEP 3: The provider settles every two weeks according to a single invoice
for all transactions made during the settlement period.
THE BENEFITS OF OUR SOLUTION TO BUYERS AND SELLERS
Our exchange enables telecommunications service providers to more
efficiently utilize their current network capacity, increase revenues, reduce
their operating costs relating to network capacity trading and, consequently,
significantly improve productivity and profitability.
The benefits of our exchange to buyers of telecommunications capacity
include:
- LOWER OPERATING COSTS. We expect buyers to experience lower operating
costs as a result of reduced labor requirements, as they decrease the
level of staff and related expenses required for buying network capacity.
We also expect buyers to be able to reduce their network costs, because
they will be able to reduce the number of direct interconnections to
sellers of network capacity.
32
<PAGE>
- ACCESS TO MULTIPLE SELLERS. By executing a standard membership contract
and establishing a single interconnection to our switch, buyers gain
immediate access to and a link with numerous sellers. This eliminates the
need for buyers to spend time and resources searching for pricing and
route availability information from, and interconnecting with, many
different sellers.
- AUTOMATIC LEAST-COST TRAFFIC ROUTING. Our proprietary software
automatically routes traffic to the seller offering the lowest price for
the route and quality level designated by the buyer.
- AVAILABILITY OF NETWORK QUALITY RATINGS. We eliminate the necessity for
buyers to assess the quality of each seller's network by providing a
centralized and up-to-date source of call quality rating, grading and
routing information on our website, enabling buyers to make quality
comparisons between sellers based on a variety of criteria.
- CONVENIENCE AND CONFIDENTIALITY. Trading on our exchange is automated and
anonymous. Trades can be completed in minutes and settlement procedures
are standardized and centralized; buyers receive a single invoice
reflecting all minutes they buy on our exchange.
The benefits of our exchange to sellers include:
- LOWER OPERATING COSTS. We expect sellers to experience lower operating
costs as they decrease the level of staff required for selling their
unused network capacity. We also expect sellers to reduce their network
costs by reducing the number of direct interconnections with buyers of
network capacity.
- ACCESS TO MULTIPLE BUYERS. By executing a standard membership contract and
establishing a single interconnection to our switch, sellers gain
immediate access to and a link with numerous buyers who require the
sellers' available routes at prices the sellers are willing to offer. This
eliminates the need for sellers to spend time and resources searching for
and interconnecting to numerous buyers.
- ANONYMITY. Sales on our exchange are made on an anonymous basis and, if
made at prices lower than those offered by a service provider to its
customers in non-exchange transactions, will not lead to requests by those
customers for similarly low prices.
- INCREASED REVENUES. Using our exchange, sellers can monetize unused
network capacity by finding buyers for unused capacity and pricing that
capacity at a level at which it may be sold. Because of the very low
variable costs associated with selling this excess capacity, selling this
capacity generally represents a profit opportunity for these service
providers.
- REDUCED FINANCIAL EXPOSURE. We expect sellers to experience reduced
financial exposure, since we assume the risk of the creditworthiness of
buyers trading on our exchange. We pay sellers for minutes they sell
through our exchange prior to collecting payment from buyers of those
minutes.
- CONVENIENCE AND CONFIDENTIALITY. Trading on our exchange is automated and
anonymous. Trades can be completed in minutes, and settlement procedures
are standardized and centralized. We handle all invoicing for minutes sold
on our exchange; sellers receive a single payment from us for reflecting
minutes they sell on our exchange.
OUR STRATEGY
We intend to be the primary centralized market for the purchase, sale and
delivery of telecommunications capacity. The following are the key elements of
our strategy:
- INCREASE PARTICIPATION ON OUR EXCHANGE. We intend to continue to add
buyers and sellers to our exchange in order to increase liquidity and
become the most comprehensive Internet-based exchange for international
and domestic long distance voice and fax calls. As a market leader,
33
<PAGE>
we expect to benefit from a "network effect," meaning that, we expect
sellers to gravitate to the marketplace with the most potential buyers,
and buyers to gravitate to the market place with the greatest selection
and price competition.
- EXPAND OUR GEOGRAPHIC PRESENCE. Initially, we are focusing on our first
exchange based in New York City. We intend to replicate this exchange by
establishing additional switching facilities in various locations,
including Frankfurt, Hong Kong, London, Los Angeles, Paris, Sao Paulo,
Sydney and Tokyo. Because a significant portion of all global
telecommunications traffic is routed through these cities, we believe the
establishment of switching facilities there will enable us to better serve
existing and potential exchange users worldwide.
- EXPAND THE SERVICES OFFERED THROUGH OUR EXCHANGE. We intend to enter into
and capitalize on strategic alliances with leading Internet,
telecommunications and technology companies that will enable us to expand
our service offerings by providing us access to telecommunications
content, as well as new potential markets. By expanding our service
offerings, we believe that we can secure and extend our position as the
primary centralized marketplace for the purchase, sale and delivery of
telecommunications network capacity.
- ENHANCE OUR TECHNOLOGY OFFERINGS. We intend to continue to improve our
technology to meet the evolving needs of buyers and sellers using our
exchange. We expect to continue to develop new technologies that will
further automate portions of our trading process, which in turn we expect
to improve our ability to process more effectively a large volume of
trading on our exchange. We also intend to continue to expend substantial
efforts to develop, purchase or license technological advancements that
will enhance both the reliability of our exchange and the value we can
provide to our users. In addition, we intend to seek acquisition or
investment opportunities with businesses that will enhance our technology
or expand the range of our services offered through our markekplace.
USERS OF ARBINET--THEXCHANGE
Users of our exchange consist of telecommunications service providers
seeking to buy or sell network capacity. Sellers on our exchange include
national, multinational and regional telecommunications carriers and voice over
Internet protocol, or VoIP, service providers. Buyers on our exchange include
long distance carriers, CLECs, and VoIP service providers.
As of March 1, 2000, 48 telecommunications service providers were
interconnected to our exchange. Of these service users, only 27 had begun to
trade actively, either offering minutes for sale or buying minutes offered. For
the three month period ended January 31, 2000, five service providers accounted
for approximately 74% of the total minutes sold through our exchange. For the
same period, five providers accounted for approximately 85% of the total minutes
purchased through our exchange.
TECHNOLOGY
Our business is supported by a state-of-the-art systems platform, which was
designed with an emphasis on scaleability, performance and reliability. Our core
trading processing systems are patented and proprietary to us. This internal
platform was designed to provide real-time connectivity to our users. Our
Internet servers utilize standard software to help us conduct secure
communications and transactions. We have integrated technology manufactured by
Cisco, Clarent and Vocaltec with our systems in order to support and process
VoIP transactions. Our systems are located at our facilities in New York City.
Our staff provides 24-hour monitoring and engineering support to all of our
systems.
We employ proprietary routing software that automatically and without human
intervention directs a buyer's traffic to the seller with the lowest priced
minutes and the highest quality within the parameters selected by the buyer for
the designated route. We are developing a proprietary operating
34
<PAGE>
support system to manage our billing and settlement functions. We provide
exchange users with interconnection to our exchange through an in-house switch
that is interconnected to the global telecommunications network backbone,
eliminating the need for separate direct connections between sellers and buyers
of capacity.
INTELLECTUAL PROPERTY
Our future success depends in part on our proprietary rights and technology.
We rely on a combination of patent, copyright, trademark and trade secret laws,
employee and third-party non-disclosure agreements and other methods to protect
our proprietary rights.
We own one United States patent, three United States patent applications,
and certain corresponding foreign patent applications that relate to a process
for clearing telecommunications trading transactions. These patents relate to a
process that collects requests to purchase and offers to sell blocks of
telecommunications capacity from buyers to sellers of minutes, matches the
offers and requests, and delivers the traded minutes between sellers and buyers.
We also own three United States patents, six United States patent
applications, and certain corresponding foreign patent applications that relate
to other aspects of telecommunications technology. Although these applications
do not explicitly refer to a telecommunications exchange, some of the concepts
that they use could be adapted to improve the quantity and quality of
telecommunications services offered by a telecommunications exchange.
While we believe that our issued patents and pending patent applications
will help to protect our business, we cannot assure you that:
- any of our patents can be successfully defended against challenges by
third parties;
- the pending patent applications will be approved and the requested patents
will be issued;
- our competitors or potential competitors will not devise new methods of
competing with us that are not covered by our patents or patent
applications;
- our patents will be effective in preventing one or more third parties from
utilizing a market system similar to the one disclosed in our patents to
offer products or services not covered by our patents;
- technology pre-dating ours will not be discovered which may diminish the
value of or invalidate one or more of our issued patents; or
- a third party will not have or obtain one or more patents that prevent us
from engaging in aspects of our business or will require us to pay for a
license to use those features.
We also own six United States trademark registrations, three United States
trademark applications and certain corresponding foreign trademark applications.
SALES AND MARKETING
We market and sell our services through our direct sales force. Our sales
offices are located in Miami, Hong Kong, New York and Tokyo. Since our services
relate to multiple departments within an organization, our sales efforts are
directed at multiple decision makers, frequently including the chief financial
officer, chief information officer and vice president of procurement. We target
our sales efforts at the telecommunications industry, and, in particular, the
market for international switched long distance voice minutes.
35
<PAGE>
Our marketing activities include seminar programs, trade shows, Web-site
programs, public relations events and direct mailings. We are also engaged in an
on-going effort to maintain relationships with key industry analysts.
As of March 1, 2000, we had 13 employees in our sales and marketing
department.
COMPETITION
The market for our services is competitive, rapidly changing and
significantly affected by new service introductions and other market activities
of industry participants. We primarily face competition from wholesale
telecommunications carriers, wholesale divisions of international long distance
carriers, providers of long-haul fiber services, principal trading firms,
Internet brokers of telecommunications services and other B2B online exchanges.
Our current and potential competitors include Enron, AIG Telecom, Band-X and
RateXchange. In addition, there are a number of companies, such as Commerce One
and Ariba, developing and marketing B2B online solutions targeted at the market
for trading telecommunications capacity. Some of these competitors offer
Web-based solutions that are designed to enable a telecommunications service
provider to more effectively buy or sell telecommunications network capacity.
Some of our current and potential competitors have longer operating
histories, larger customer bases, greater brand recognition and significantly
greater financial, marketing and other resources than we do and may enter into
relationships with larger, more established and well-financed companies. Some of
our competitors may be able to secure alliances with customers and affiliates on
more favorable terms, devote greater resources to marketing and promotional
campaigns and devote substantially more resources to systems development than we
do. In addition, new technologies and the expansion of existing technologies may
increase competitive pressures on us. We cannot assure you that we will be able
to compete successfully against current and future competitors, and competitive
pressures faced by us could adversely affect our business.
GOVERNMENT REGULATION
FEDERAL
The FCC has jurisdiction over interstate and international communications.
The FCC's rules, regulations and policies impose obligations on carriers
providing facilities-based and/or resale telecommunications services.
We believe our Internet-based exchange is not subject to regulation by the
FCC. We do not establish rates for our exchange users and do not present
ourselves as a common carrier to the public. We act as a facilitator for
telecommunications service providers desiring to exchange minutes. However,
absent a ruling from the FCC, there can be no assurance that our operations will
be exempt from FCC regulation.
Should our business operations be found to be subject to FCC regulation, we
believe our current FCC Section 214 authorization for the provision of
international facilities-based and resale services will allow us to continue our
business operations. The FCC reserves the right to condition, modify or revoke
any FCC authorizations and may impose fines for violations of the Communications
Act or the FCC's rules, regulations or policies promulgated thereunder, or for
violations of the telecommunications laws of other countries.
STATE
Our intrastate long distance telecommunications services, once provided,
will be subject to state laws and regulations, including prior certification,
notification, registration, universal service and/or
36
<PAGE>
tariff requirements. We currently hold a Certificate of Public Convenience and
Necessity to operate as a facilities-based common carrier and reseller of
telephone services, including local exchange services, within the State of New
York, where our facility is located.
FACILITIES
Our headquarters are located at 33 Whitehall Street, 19th Floor, New York,
NY, where we lease approximately 11,744 square feet. In addition, we lease
approximately 7,000 square feet at 226 East 54th Street, New York, NY, and
approximately 17,000 square feet at 75 Broad Street, New York, NY. We lease
approximately 175 square feet in Miami, Florida and 857 square feet in Hong
Kong.
EMPLOYEES
As of March 1, 2000, we had 49 employees, including 21 in operations, 13 in
sales and marketing, and 8 in finance and administration. None of our employees
are represented by a labor union. We have not experienced any work stoppages and
consider our relations with our employees to be good.
LEGAL PROCEEDINGS
There are no material legal proceedings pending or, to our knowledge,
threatened against us.
37
<PAGE>
MANAGEMENT
The following table sets forth information with respect to our directors and
principal executive officers:
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
- ---- -------- ------------------------------------------
<S> <C> <C>
Anthony L. Craig.......................... 54 Chairman of the Board, Chief Executive
Officer and President
Alex Mashinsky............................ 34 Vice Chairman, Founder and Director
Robert S. Vaters.......................... 39 Executive Vice President and Chief
Financial Officer
Neil A. Torpey............................ 39 Executive Vice President, General Counsel
and Secretary
Norris M. Hall, III....................... 39 Senior Vice President, Director of Network
Operations
Douglas A. Alexander...................... 38 Director
Philip Summe.............................. 30 Director
Paul G. Theunissen........................ 33 Director
Roland A. Van der Meer.................... 39 Director
</TABLE>
ANTHONY L. CRAIG has served as our chairman of the board, president, and
chief executive officer since December 1999. From May 1999 until December 1999,
Mr. Craig served as a consultant to our company. From August 1998 to May 1999,
Mr. Craig was a private investor. From January 1996 through August 1998,
Mr. Craig served as president and chief executive officer of Global Knowledge
Network, an employee training company specializing in the technology industry.
From September 1993 to December 1995, Mr. Craig served as corporate vice
president for Digital Equipment Corporation. From June 1992 through July 1993,
Mr. Craig served as senior vice president for Oracle Systems Corp. From
June 1990 through March 1992, Mr. Craig served as president and chief executive
officer of C3, Inc., a U.S. government systems integrator. From October 1988
through August 1989, Mr. Craig served as president and chief executive officer
of Prime Computer. From June 1983 through September 1988, Mr. Craig served as
vice president of General Electric Company and as president and chief executive
officer of GE Information Services. Prior to his service with GE, Mr. Craig had
a seventeen-year career at IBM Corp., including founding and serving as director
of IBM's Alternate Channels Marketing division. Mr. Craig currently serves on
the boards of Global Knowledge Network, Mitel Corporation and Bell Industries.
ALEX MASHINSKY is our founder and serves as our vice chairman and as one of
our directors. Mr. Mashinsky served as our chairman, chief executive officer and
president from our inception until December 1999. From 1991 to 1996,
Mr. Mashinsky also served as the president of VoiceSmart, a company that
provided interactive voice response systems to the telecommunications industry.
VoiceSmart was dissolved in 1998 following an involuntary bankruptcy proceeding.
Mr. Mashinsky is also a founder and member of the board of director of ComGates,
a privately held Internet telephony equipment manufacturer.
ROBERT S. VATERS has served as our executive vice president and chief
financial officer since January 2000. From August 1999 to January 2000,
Mr. Vaters served as executive vice president of finance and administration and
chief financial officer of Premiere Technologies, Inc., a global supplier of
enhanced communications services. From March 1998 to August 1999, Mr. Vaters
served as Premiere's managing director for Asia Pacific. From June 1996 to
March 1998, Mr. Vaters served as executive vice president of finance and
administration and chief financial officer of Xpedite Systems, Inc., a provider
of enhanced fax services. From March 1993 to June 1996, Mr. Vaters served as
senior vice president and treasurer of Young & Rubicam, a marketing and
communications company. From 1996 to 1999, Mr. Vaters served as a member of the
board of directors of Rockford Industries.
38
<PAGE>
NEIL A. TORPEY has served as our executive vice president, general counsel
and secretary since January 2000 and as our secretary since April 1999. From
February 1995 until January 2000, Mr. Torpey was a partner in the Business Law
Department in the New York office of Paul, Hastings, Janofsky & Walker LLP, an
international law firm.
NORRIS M. HALL, III has served as our executive director of network
operations since February 2000. From December 1999 to February 2000, Mr. Hall
served as senior vice president of Network Operations of Talk.com, an
Internet-based telecommunications service provider. From August 1998 to
December 1999, Mr. Hall served as senior vice president of network operations of
Premiere Technologies, Inc. From January 1997 through August 1998, Mr. Hall
served as vice president of network operations of Cable and Wireless, Inc. From
February 1995 through August 1997, Mr. Hall served as vice president of data
operations of Cable and Wireless, and as vice president of its Internet Exchange
operations.
DOUGLAS A. ALEXANDER has served as one of our directors since April 1999.
Mr. Alexander has served as the chairman of the board of directors of
VerticalNet, Inc. since 1997. From September 1997 to the present, Mr. Alexander
has served as a managing director of Internet Capital Group, Inc. In 1986,
Mr. Alexander co-founded Reality Online, Inc., which he sold to Reuters Group in
1994. Mr. Alexander continued to serve as president and chief executive officer
of Reality Online, Inc. after its acquisition by Reuters through September 1997.
Mr. Alexander currently serves as the chairman of the board of VerticalNet, Inc.
and is a member of the board of directors of several Internet companies
including Blackboard Inc., ComputerJobs.com, Inc., Deja.com, Inc., eMerge
Interactive, Inc., LinkShare Corporation, SageMaker, Inc., StarCite, Inc. and
Traffic.com, Inc.
PHILIP SUMME has served as one of our directors since December 1999. Since
July 1998, Mr. Summe has served as a principal at Chase Capital Partners, where
he focuses on e-commerce and Internet-related investments. From August 1996 to
June 1998, Mr. Summe served as a vice president in corporate finance with the
DMG Technology Group. From August 1994 to May 1996, Mr. Summe attended the
University of Chicago Graduate School of Business. From August 1991 to
May 1994, Mr. Summe served as a Senior Consultant with Andersen Consulting in
its systems integration practice. He currently serves as a director of
Buildpoint.com, IWON.com, Starbelly.com, and Paraform and is a board observer at
Stamps.com.
PAUL G. THEUNISSEN has served one of our directors since December 1999.
Since 1995, Mr. Theunissen has served as a vice president of J.P. Morgan Capital
Corporation, a subsidiary of J.P. Morgan & Co. Mr. Theunissen also serves as a
director of Broadslate Networks and Quintessent Communications, and is board
observer at Lightship, Inc.
ROLAND A. VAN DER MEER has served as one of our directors since April 1999.
In June 1997, Mr. Van der Meer founded and became a general partner of
ComVentures, a venture capital firm. From June 1993 to June 1997, Mr. Van der
Meer was a partner of Partech International, a venture capital investment firm.
Mr. Van der Meer also serves as a director of Broadview Networks, SiteSmith,
Universal Access and Zantaz.com.
39
<PAGE>
CLASSES OF THE BOARD
Upon the completion of this offering, our board of directors will be divided
into three classes that serve staggered three-year terms as follows:
<TABLE>
<CAPTION>
CLASS EXPIRATION MEMBER
- ----- ---------- ------------------------------
<S> <C> <C>
Class I........................... 2001 Roland A. Van der Meer,
Douglas A. Alexander and Alex
Mashinsky
Class II.......................... 2002 Philip Summe and Paul G.
Theunissen
Class III......................... 2003 Anthony L. Craig
</TABLE>
COMMITTEES OF THE BOARD OF DIRECTORS
Our board of directors has standing audit and compensation committees.
The audit committee consists of Messrs. Summe, Theunissen and Alexander.
Among other functions, the audit committee:
- makes recommendations to the board of directors regarding the selection of
independent auditors;
- reviews the results and scope of the audit and other services provided by
our independent auditors;
- reviews our financial statements; and
- reviews and evaluates our internal control functions.
The compensation committee consists of Messrs. Van der Meer and Theunissen.
The compensation committee makes recommendations to the board of directors
regarding the following matters:
- executive compensation;
- salaries and incentive compensation for our employees and consultants; and
- the administration of our stock option plans.
NON-EMPLOYEE DIRECTOR COMPENSATION
We reimburse directors for any expenses incurred in attending meetings of
our board of directors and committees of our board.
EXECUTIVE COMPENSATION
The following table sets forth information for the fiscal year ended
December 31, 1999 concerning compensation we paid to our chief executive officer
and our other four most highly compensated executive officers during 1999.
40
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
-------------------------------------- ------------
OTHER SECURITIES
ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS
- --------------------------- -------- -------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Anthony L. Craig, Chairman of the
Board, Chief Executive Officer and
President.......................... 1999 $ --(1) $ -- $ (2) 1,747,636
Alex Mashinsky,
Vice-Chairman and Founder (3)...... 1999 224,653 16,000 646,005 2,647,561
Rachelle Rees McCarthy, Chief
Operating Officer.................. 1999 153,639 13,000 1,806 152,250
Robert Barbiere, Vice President,
Product Development................ 1999 137,535 12,000 5,773 62,125
Robert Sorrentino, Vice President,
Network Infrastructure Planning.... 1999 92,500 18,300 -- 36,750
</TABLE>
- ------------------------
(1) Mr. Craig entered into an employment agreement with us in December 1999. He
did not earn any salary for the year ended December 31, 1999 in his capacity
as chairman of the board, chief executive officer and president.
(2) For the year ended December 31, 1999, Mr. Craig earned $94,980 for
consulting services he provided to us.
(3) Mr. Mashinsky served as our chairman of the board, chief executive officer
and president until Mr. Craig's appointment to those positions in
December 1999.
STOCK OPTION INFORMATION
The following table sets forth certain information regarding options granted
in 1999 to the executive officers named in the Summary Compensation Table above.
OPTION GRANTS DURING YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
% OF TOTAL
NUMBER OF OPTIONS POTENTIAL REALIZABLE VALUE AT
SECURITIES GRANTED ASSUMED ANNUAL RATES OF
UNDERLYING TO EXERCISE STOCK PRICE APPRECIATION FOR
OPTIONS EMPLOYEES OR OPTION TERM (1)
GRANTED IN FISCAL BASE PRICE EXPIRATION ------------------------------
NAME (#) YEAR (PER SH.) DATE 5% 10%
- ---- ---------- ---------- ---------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Anthony L. Craig........... 313,772 5.4% $0.11 May 24, 2004 $101,717 $ 128,355
1,433,864 24.5% 0.25 -- 464,824 586,550
Alex Mashinsky............. 2,647,561 45.3% 0.01 April 14, 2004 858,274 1,083,037
Rachelle Rees McCarthy..... 152,250 2.6% 0.11 April 14, 2004 49,356 62,281
Robert Barbiere............ 62,125 1.1% 0.11 April 14, 2004 20,139 25,413
Robert Sorrentino.......... 36,750 .6% 0.11 April 14, 2004 11,913 15,033
</TABLE>
- ------------------------
(1) There was no public market for our common stock as of December 31, 1999.
Therefore, the amounts set forth in this column represent the fair market
value of each of our shares of common stock as of December 31, 1999 and on
the date of grant, as determined by our board. Our board determined the fair
market value of our common stock on December 31, 1999 was $.0254 per share.
41
<PAGE>
The following table sets forth certain information concerning options held
by executive officers named in the Summary Compensation Table on December 31,
1999.
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY
ACQUIRED VALUE OPTIONS AT FISCAL YEAR-END (#) OPTIONS AT FISCAL YEAR-END (1)
ON EXERCISE REALIZED ------------------------------- -------------------------------
NAME (#) (1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Anthony L. Craig.......... -- -- 1,747,636 -- $45,183 $ --
Alex Mashinsky............ 2,647,561 $646,005 -- -- -- --
Rachelle Rees McCarthy.... 12,538 1,806 -- 189,866 -- 27,341
Robert Barbiere........... -- -- 14,017 62,143 3,418 8,949
Robert Sorrentino......... -- -- 3,500 47,250 504 6,804
</TABLE>
- ------------------------
(1) There was no public market for our common stock as of December 31, 1999.
Therefore, the amounts set forth in this column represent the fair market
value of each of our shares of common stock as of December 31, 1999 and on
the date of grant, as determined by our board. Our board determined the fair
market value of our common stock on December 31, 1999 was $.0254 per share.
AMENDED AND RESTATED 1997 STOCK INCENTIVE PLAN
We view share options as a key financial incentive to attract, motivate and
retain our talented employees. Accordingly, we have adopted our 1997 stock
incentive plan which, as amended, provides for the issuance of up to 10,426,918
shares of common stock. Our 1997 stock incentive plan allows for the grant of
incentive stock options qualified within the meaning of Section 422 of the U.S.
Internal Revenue Code of 1986 and non-qualified stock options, which do not so
qualify. Each option granted under the plan is evidenced by an agreement that
specifies the terms and conditions of the grant. The plan also provides for the
issuance of stock appreciation rights, dividend equivalent rights, restricted
stock and restricted stock units.
Our 1997 stock incentive plan is administered by the compensation committee
of our board of directors. Although subject to the limitations in our 1997 stock
incentive plan, the compensation committee has authority to determine to whom
options may be granted. The compensation committee also has the authority to
determine the specific terms of any options granted, including the exercise
price, the number of shares subject to each option, the conditions for vesting,
the expiration date and the form of consideration payable upon exercise. All of
our directors, officers, employees and consultants are eligible for
non-qualified stock option grants, dividend equivalent rights, restricted stock
and restricted stock units; however, incentive stock options may only be granted
to our employees.
The exercise price of an incentive stock option cannot be less than 100% of
the fair market value of a common share on the grant date, provided that no
person who owns, directly or indirectly, more than 10% of the total combined
voting power of all classes of our shares, referred to below as a "Ten-Percent
Shareholder," may receive incentive stock options unless the exercise price is
at least 110% of the fair market value of a share of common stock on the grant
date. Options granted under the 1997 stock incentive plan are not transferable
by the optionee, other than by will or by the laws of descent and distribution.
All options issued under the 1997 stock incentive plan will have a term no
longer than 10 years from the grant date, except that in the case of incentive
stock options granted to a Ten-Percent Shareholder, the term shall not exceed
five years. The 1997 stock incentive plan terminates on August 20, 2007 but such
termination will not affect the validity of any outstanding option.
42
<PAGE>
At March 1, 2000, options to purchase 3,327,659 shares of common stock were
outstanding under the 1997 stock incentive plan and 2,036,538 shares remained
available for future option grants. The average weighted exercise price for
these outstanding options is $1.03 per share. Most of these outstanding options
become exercisable in tranches (25% of the options on the first anniversary of
the grant date, and the remaining 75% of the options vest monthly over a three
year period).
Our board of directors may amend, alter, suspend, or terminate the 1997
stock incentive plan at any time, provided however, that the board must first
seek the approval of stockholders, if required by law or regulation, and that of
each affected optionee if such amendment, alteration, suspension or termination
would adversely affect his or her obligations under any option granted prior to
that date.
EMPLOYMENT AGREEMENTS
We entered into an employment agreement with Anthony L. Craig, our chairman
of the board, chief executive officer and president, as of December 3, 1999.
Pursuant to this agreement, Mr. Craig is entitled to an annual base salary of
$300,000 prior to our initial public offering; his salary will increase to
$350,000 after this offering. While Mr. Craig remains employed by us, we will
pay him a living allowance of up to $10,000 per month to cover his housing,
automobile and other living expenses in New York and his travel to and from his
permanent residence. In addition, the agreement grants Mr. Craig the right to
purchase up to 1,147,091 shares of our common stock at a price of $0.254 per
share, subject to our right to repurchase these shares for $0.254 per share,
subject to adjustment to take into account any intervening stock split,
recapitalization, extraordinary distribution, or other transaction affecting our
capital structure. This right of repurchase will lapse as to 1/48th of the
granted shares on each one-month anniversary of December 1, 1999 that Mr. Craig
remains employed by us and as to 100% of the granted shares in the event of a
change of control. The agreement also provides Mr. Craig with an additional
right to purchase up to 286,773 shares of our common stock at a price of $0.254
per share, subject to our right to repurchase these shares for $0.254 per share.
This repurchase right expires in two equal tranches according to the following
schedule:
- 50% upon implementation of back office systems, including but not limited
to operations support systems and clearing and settlement systems, of
sufficient quality and scale to support our projected volume of
telecommunications traffic; and
- 50% upon completion of an initial public offering of our common stock
resulting in a pre-offering valuation of our company of at least
$500 million.
This additional right, to the extent not exercised, will terminate upon the
termination of Mr. Craig's employment. Mr. Craig has been provided by us with a
loan to purchase these additional shares. If Mr. Craig's employment is
terminated without cause after the hiring of a new chief executive officer, then
the repurchase rights will lapse completely as to 30/48ths of the shares. The
repurchase rights with respect to the remaining shares will lapse ratably during
the 18 month period following the date of Mr. Craig's termination in return for
his ongoing commitment, on a full-time or part-time basis as requested by our
then acting chief executive officer, to assist us in transition during the 12
month period immediately after the hiring of the new chief executive officer.
Further, we are required to reimburse Mr. Craig for all reasonable and
necessary travel, business entertainment and other business expenses reasonably
incurred by him in connection with the performance of his duties under his
employment agreement. In addition, Mr. Craig is entitled to participate in any
and all medical insurance, group health, disability insurance, life insurance,
and other benefit plans which are made generally available by us to our most
senior executives, which we, in our sole discretion, may at any time amend or
terminate. Under this agreement, if Mr. Craig is terminated other than for cause
he will be entitled to severance pay equal to six months' base salary,
reimbursements for certain COBRA payments, an amount equal to potential employer
contributions to our retirement plans and accrued but unpaid salary, vacation
and expenses.
43
<PAGE>
We entered into an agreement with Alex Mashinsky, our vice chairman and
founder, as of December 2, 1999. Pursuant to this agreement, Mr. Mashinsky is
entitled to an annual salary of $200,000. In addition, Mr. Mashinsky is entitled
to participate in any and all medical insurance, group health, disability
insurance, life insurance, and other benefit plans which are made generally
available by us to our most senior executives, which we, in our sole discretion,
may at any time amend or terminate. Furthermore, the agreement provides that
2,059,214 shares of common stock held by Mr. Mashinsky are subject to a right of
repurchase by us at $.01 per share in the event that Mr. Mashinsky's employment
with us is terminated by us for cause or by Mr. Mashinsky for any reason. The
price per share under the repurchase right shall be adjusted to take into
account any intervening stock split, recapitalization, extraordinary
distribution or other transaction affecting our capital structure. The
repurchase right will lapse as to 1/28th of the shares on each one-month
anniversary of the date of the agreement and as to 100% of the shares in the
event that Mr. Mashinsky's employment is terminated for good reason, as defined
in the agreement. The agreement also contains a noncompetition clause which
prevents Mr. Mashinsky from working for one of our competitors for a period of
one year after Mr. Mashinsky ceases to be employed by us.
We entered into an agreement with Robert S. Vaters, our executive vice
president and chief financial officer, as of December 27, 1999. Pursuant to this
agreement, Mr. Vaters is entitled to a base salary of $225,000 prior to an
initial public offering; his salary will increase to $250,000 after such
offering. In addition, we granted Mr. Vaters a $50,000 "sign-on" bonus for
accepting our employment offer. Mr. Vaters' agreement also provides for the
grant of options to purchase 350,000 shares of our common stock at an exercise
price of $0.254, which vest in the following manner:
- 1/48th of the shares become exercisable on the last day of every month
that Mr. Vaters is employed;
- if an initial public offering occurs within the first year of Mr. Vaters'
employment, the vesting will accelerate to effect 12 months of vesting on
the last day of the month in which the closing of this offering occurs;
- unvested options will vest 1/36th per month after the month in which the
closing of this offering occurs; and
- all of the shares will vest immediately before a change of control event,
as defined in the agreement.
The agreement also contains a noncompetition clause which prevents Mr. Vaters
from working for any of our competitors for a period of one year after
Mr. Vaters ceases to be employed by us. In addition, Mr. Vaters is entitled to
participate in all of our employee benefit programs. Furthermore, under his
agreement, if Mr. Vaters is terminated other than for cause he will be entitled
to severance pay equal to twelve months' base salary, reimbursements for certain
COBRA payments, an amount equal to potential employer contributions to our
retirement plans and accrued but unpaid salary, vacation and expenses.
We entered into an agreement with Neil A. Torpey, our executive vice
president, general counsel and secretary, as of January 6, 2000. Pursuant to
this agreement, Mr. Torpey is entitled to a base salary of $200,000. In
addition, we granted Mr. Torpey a $25,000 "sign-on" bonus for accepting our
employment offer. Mr. Torpey's agreement also provides for the grant of options
to purchase 175,000 shares of our common stock at an exercise price of $0.254,
which vest in the following manner:
- 1/48th of the shares become exercisable on the last day of every month
that Mr. Torpey is employed;
44
<PAGE>
- if an initial public offering occurs within the first year of
Mr. Torpey's employment, the vesting will accelerate to effect 12 months
of vesting on the last day of the month in which the closing of this
offering occurs;
- unvested options will vest 1/36th per month after the month in which the
closing of this offering occurs; and
- all of the shares will vest immediately before a change of control event,
as defined in the agreement.
The agreement also contains a noncompetition clause which prevents Mr. Torpey
from working for any of our competitors for a period of one year after
Mr. Torpey ceases to be employed by us. In addition, Mr. Torpey is entitled to
participate in all of our employee benefit programs. Furthermore, under his
agreement, if Mr. Torpey is terminated other than for cause he will be entitled
to severance pay equal to twelve months' base salary, reimbursements for certain
COBRA payments, an amount equal to potential employer contributions to our
retirement plans and accrued but unpaid salary, vacation and expenses.
We entered into an agreement with Norris M. Hall, III, our senior vice
president and director of network operations, as of February 18, 2000. Pursuant
to this agreement, Mr. Hall is entitled to a base salary of $212,500. In
addition, we granted Mr. Hall a $100,000 "sign-on" bonus for accepting our
employment offer. Mr. Hall's agreement also provides for the grant of options to
purchase 200,000 shares of our common stock at an exercise price of $0.254,
which vest in the following manner:
- 1/48th of the shares become exercisable on the last day of every month
that Mr. Hall is employed;
- if an initial public offering occurs within the first year of Mr. Hall's
employment, the vesting will accelerate to effect 12 months of vesting on
the last day of the month in which the closing of this offering occurs;
- unvested options will vest 1/36th per month after the month in which the
closing of this offering occurs; and
- all of the shares will vest immediately before a change of control event,
as defined in the agreement.
The agreement also contains a noncompetition clause which prevents Mr. Hall from
working for any of our competitors for a period of one year after Mr. Hall
ceases to be employed by us. In addition, Mr. Hall is entitled to participate in
all of our employee benefit programs. Furthermore, under his agreement, if
Mr. Hall is terminated other than for cause he will be entitled to severance pay
equal to twelve months' base salary, reimbursements for certain COBRA payments,
an amount equal to potential employer contributions to our retirement plans and
accrued but unpaid salary, vacation and expenses.
45
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
OUR INDEBTEDNESS TO STOCKHOLDERS AND DIRECTORS
From January 1999 to August 1999, Alex Mashinsky, our founder and vice
chairman, loaned an aggregate of approximately $175,000 to us, the principal of
which we repaid in full in September 1999. In January 1999, we issued 674,647
shares of common stock to Mr. Mashinsky to pay the accrued interest on these
loans.
In March 1998, we entered into a loan agreement with Robert Stavis, one of
our former directors, pursuant to which he loaned to us an aggregate amount of
approximately $450,000. In April 1999, Mr. Stavis agreed to exchange this loan,
including principal and accrued interest totaling $540,000, for 350,341 shares
of our common stock and options to purchase 86,557 shares of our common stock at
an exercise price of $.09 per share.
INDEBTEDNESS OF STOCKHOLDERS AND DIRECTORS TO US
On December 2, 1999, we entered into a loan agreement with Alex Mashinsky,
our founder and vice chairman. Pursuant to this agreement, we loaned
Mr. Mashinsky $236,476 to enable him to acquire 2,647,561 shares of our common
stock.
On February 8, 2000, we entered into two separate loan agreements with
Anthony L. Craig, our chairman of the board, chief executive officer and
president. Pursuant to these agreements, we loaned Mr. Craig an aggregate of
approximately $364,201 to enable him to exercise his right to acquire 1,433,864
shares of our common stock which he was granted under his employment agreement.
STOCK PURCHASES BY OUR STOCKHOLDERS AND DIRECTORS
On April 15, 1999, we completed the private placement of an aggregate of
5,124,985 shares of Series A-1 preferred stock for a total purchase price of
$6.0 million. Investors included Communications Ventures III, L.P.,
Communications Ventures III CEO & Entrepreneurs' Fund, L.P., Bedrock Capital
Partners I, L.P., VBW Employee Bedrock Fund, L.P., Credit Suisse First Boston
Bedrock Fund, L.P., and Internet Capital Group, Inc. Our directors, Roland A.
Van der Meer and Douglas A. Alexander, are affiliated with Communications
Ventures III, L.P. and Communications Ventures III CEO & Entrepreneurs' Fund,
L.P. and Internet Capital Group, respectively. Credit Suisse First Boston
Corporation, one of our underwriters, is an affiliate of the Bedrock Capital
Partners I, L.P. and Credit Suisse First Boston Bedrock Fund, L.P.
On September 30, 1999, we amended the purchase agreement entered into on
April 15, 1999 and completed the private placement of 1,259,659 shares of
Series A-2 preferred stock and 722,163 warrants to purchase common stock for a
total purchase price of approximately $2.3 million. Investors included
Communications Ventures III, L.P., Communications Ventures III CEO &
Entrepreneurs' Fund, L.P., Bedrock Capital Partners I, L.P., VBW Employee
Bedrock Fund, L.P., Credit Suisse First Boston Bedrock Fund, L.P., Internet
Capital Group, Inc. and Robert Stavis. Mr. Stavis acquired 26,801 shares of
Series A-2 preferred stock in connection with this financing.
On December 2, 1999, we completed the private placement of 11,980,561 shares
of Series B cumulative redeemable senior preferred stock and 11,980,562 shares
of Series C cumulative convertible senior preferred stock for a total purchase
price of approximately $30.5 million. Investors included Communications Ventures
III, L.P., Communications Ventures III CEO & Entrepreneurs' Fund, L.P., Bedrock
Capital Partners I, L.P., VBW Employee Bedrock Fund, L.P., Credit Suisse First
Boston Bedrock Fund, L.P., Internet Capital Group, Inc., J.P. Morgan Investment
Corporation, Sixty Wall Street SBIC Fund, L.P., CB Capital Investors, L.P.,
BancBoston Ventures Inc., Robert Stavis, Bayview I, L.P., Bayview II, L.P.,
Belfrey Partners, L.P. and Augusta Partners L.P. BancBoston Ventures, Inc.,
Bayview I, L.P. and Bayview II, L.P. are affiliated with FleetBoston Robertson
Stephens Inc., one of our
46
<PAGE>
underwriters. Two of our directors, Paul G. Theunissen and Philip Summe, are
affiliated with J.P. Morgan Investment Corporation and CB Capital Investors,
L.P., respectively. Belfrey Partners, L.P. is an affiliate of U.S. Bancorp Piper
Jaffray Inc., one of our underwriters. Augusta Partners L.P. is an affiliate of
Neil A. Torpey, our executive vice president, general counsel and secretary.
On March 7, 2000, we completed the private placement of 2,120,228 shares of
Series D preferred stock for a total purchase price of approximately
$41.0 million. Investors included Van Wagoner Capital Management, Breakaway
Capital (an affiliate of Internet Capital Group, Inc.), investors affiliated
with Amerindo Investment Advisors, Inc., Communications Ventures III, L.P.,
Communications Ventures III CEO & Entrepreneurs' Fund, L.P., Bedrock Capital
Partners I, L.P., Credit Suisse First Boston Bedrock Fund, L.P., Internet
Capital Group, Inc., J.P. Morgan Investment Corporation, Sixty Wall Street SBIC
Fund, L.P., CB Capital Investors, L.P., BancBoston Ventures, Inc., Robert
Stavis, Belfrey Partners, L.P. and Augusta Partners L.P.
OUR STOCK REPURCHASES
We entered into a Series A-2 Restructuring Agreement, dated as of
November 24, 1999 with some of our existing shareholders. Pursuant to the
Restructuring Agreement, we purchased from these shareholders all the
outstanding shares of Series A-2 convertible preferred stock and related
warrants which were sold to the shareholders in September 1999, and issued in
return Series B and C preferred stock as part of the transaction described
above. Under the Restructuring Agreement, and in lieu of payment to these
shareholders of interest accrued on their respective shares of Series A-2
preferred stock, we issued to our related parties warrants to purchase 184,924
common shares, with an exercise price per share of $0.05 in the amounts as
follows:
<TABLE>
<CAPTION>
NAME OF SHAREHOLDER NUMBER OF WARRANTS
- ------------------- ------------------
<S> <C>
Bedrock Capital Partners I, L.P............................ 54,810
Communications Ventures III, L.P........................... 56,208
Communications Ventures III CEO & Entrepreneurs' Fund,
L.P...................................................... 2,810
Credit Suisse First Boston Bedrock Fund, L.P............... 2,296
Internet Capital Group, Inc................................ 59,018
Robert Stavis.............................................. 3,935
VBW Employee Bedrock Fund, L.P............................. 1,912
</TABLE>
AGREEMENTS WITH RELATED PARTIES
In July 1999, we entered into a consulting agreement with Breakaway
Solutions, Inc. Pursuant to the terms of the consulting agreement, we retained
Breakaway to assess the current state of our online exchange initiative and
provide us with recommended systems solutions. Internet Capital Group, Inc., one
of our principal stockholders, owns 39.9% of Breakaway's common stock.
Breakaway's chairman of the board, Christopher H. Greendale, serves as a
managing director of operations of Internet Capital Group, Inc. and another
Breakaway director, Walter W. Buckley, is a co-founder and serves as president,
chief executive officer and a director of Internet Capital Group, Inc.
Additionally, Douglas A. Alexander, one of our directors, is a managing director
of Internet Capital Group, Inc.
TRANSACTIONS WITH AFFILIATES OF OUR EXECUTIVE OFFICERS
During 1999, Paul, Hastings, Janofsky & Walker, LLP, a law firm of which
Neil A. Torpey, our executive vice president, general counsel and secretary was
formerly a partner, provided us with various legal services. Fees for these
services were approximately $400,000.
47
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth as of March 8, 2000 and as adjusted to give
effect to the sale of common stock offered hereby, certain information regarding
beneficial ownership of our common stock by:
- each person who is known to us to be the beneficial owner of more than 5%
of the outstanding shares of our common stock;
- each director;
- each executive officer named in the "Summary Compensation Table"; and
- all directors and executive officers as a group.
The amounts and percentage of common stock beneficially owned are reported
on the basis of regulations of the SEC governing the determination of beneficial
ownership of securities. Under the rules of the SEC, a person is deemed to be a
"beneficial owner" of a security if that person has or shares "voting power,"
which includes the power to vote or to direct the voting of such security, or
"investment power," which includes the power to dispose of or direct the
disposition of such security. A person is also deemed to be a beneficial owner
of any securities of which that person has a right to acquire beneficial
ownership within 60 days. All persons listed have sole voting and investment
power with respect to their shares unless otherwise indicated.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED (1)
--------------------------------------
PERCENTAGE PERCENTAGE
OWNED OWNED
NAME AND BUSINESS ADDRESS OF NUMBER OF BEFORE THE AFTER
BENEFICIAL OWNER SHARES OFFERING THE OFFERING
- ---------------------------- ---------- ---------- ------------
<S> <C> <C> <C>
PRINCIPAL STOCKHOLDERS
ComVentures (2)............................................ 3,679,228 12.16%
505 Hamilton Avenue, Suite 305
Palo Alto, CA 94301
Bedrock Capital Partners I, L.P. (3)....................... 3,649,946 12.13%
One Boston Place, Suite 3310
Boston, MA 02108
CB Capital Investors, L.P.................................. 3,157,111 10.51%
380 Madison Avenue, 12th Floor
New York, NY 10017
JP Morgan Investment Corporation (4)....................... 3,157,111 10.51%
60 Wall Street
New York, NY 10260
Internet Capital Group, Inc. (5)........................... 2,389,721 7.94%
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087
BancBoston Ventures, Inc................................... 2,057,798 6.85%
175 Federal Street, 10th Floor
Boston, MA 02110
DIRECTORS AND EXECUTIVE OFFICERS
Anthony L. Craig (6) (7)................................... 1,747,636 5.82%
Alex Mashinsky (7)......................................... 6,752,209 22.49%
Robert S. Vaters (7) (8)................................... 43,750 *
Neil A. Torpey (7) (9)..................................... 28,730 *
Norris M. Hall, III (7) (10)............................... 20,833 *
</TABLE>
48
<PAGE>
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED (1)
--------------------------------------
PERCENTAGE PERCENTAGE
OWNED OWNED
NAME AND BUSINESS ADDRESS OF NUMBER OF BEFORE THE AFTER
BENEFICIAL OWNER SHARES OFFERING THE OFFERING
- ---------------------------- ---------- ---------- ------------
<S> <C> <C> <C>
Douglas A. Alexander (11).................................. 2,389,721 7.94%
Philip Summe (12).......................................... 3,157,111 10.51%
Paul G. Theunissen (13).................................... 3,157,111 10.51%
Roland A. Van der Meer (14)................................ 3,679,228 12.16%
All directors and executive officers as a group
(nine persons) (15)...................................... 20,976,329 69.37%
</TABLE>
- ------------------------
* Less than 1%.
(1) Calculated according to Rule 13d-3(d) of the Securities Exchange Act of
1934. Under Rule 13d-3(d), shares not outstanding that are subject to
options, warrants, rights or conversion privileges exercisable within
60 days are deemed outstanding for the purpose of calculating the number and
percentage owned by the holder of the options, warrants, rights or
conversion privileges. However, these shares are not deemed outstanding for
the purpose of calculating the percentage owned by any other person listed.
As of March 1, 2000, we had 10,800,952 shares of common stock outstanding.
(2) Includes 3,446,161 shares of common stock and warrants to purchase 56,208
shares of common stock owned by Communications Ventures III, L.P. and
174,049 shares of common stock and warrants to purchase 2,810 shares of
common stock which are owned by Communications Ventures III CEO &
Entrepreneurs' Fund, L.P.
(3) Includes 3,334,859 shares of common stock and warrants to purchase 54,810
shares of common stock owned by Bedrock Capital Partners I, L.P., 116,346
shares of common stock and warrants to purchase 1,912 shares of common stock
owned by VBW Employee Bedrock Fund, L.P. and 139,723 shares of common stock
and warrants to purchase 2,296 shares of common stock owned by Credit Suisse
First Boston Bedrock Fund, L.P.
(4) Includes 2,810,465 shares of common stock owned by JP Morgan Investment
Corporation and 346,646 shares of common stock which are owned by Sixty Wall
Street SBIC Fund, L.P.
(5) Includes warrants to purchase 59,018 shares of common stock.
(6) Includes 1,433,864 shares of common stock which are subject to a right of
repurchase by Arbinet, pursuant to the terms of Mr. Craig's employment
agreement with Arbinet dated as of December 3, 1999.
(7) The business address of these persons is Arbinet Holdings, Inc., 33
Whitehall Street, 19th Floor, New York, NY 10004.
(8) Excludes options to purchase 306,250 shares of common stock granted to
Mr. Vaters under our 1997 stock incentive plan which are not exercisable
within 60 days of March 8, 2000.
(9) Includes 10,501 shares of common stock owned by Augusta Partners L.P., which
are included as a result of Mr. Torpey's affiliation with Augusta Partners
L.P. Excludes options to purchase 156,771 shares of common stock granted to
Mr. Torpey under our 1997 stock incentive plan which are not exercisable
within 60 days of March 8, 2000.
(10) Excludes options to purchase 179,167 shares common stock granted to
Mr. Hall under our 1997 stock incentive plan which are not exercisable
within 60 days of March 8, 2000.
49
<PAGE>
(11) Consists of shares of common stock owned by Internet Capital Group, Inc.,
which are included as a result of Mr. Alexander's affiliation with Internet
Capital Group, Inc. Mr. Alexander disclaims beneficial ownership of all
shares owned by Internet Capital Group, Inc. The business address of
Mr. Alexander is Internet Capital Group, Inc., 800 The Safeguard Building,
435 Devon Park Drive, Wayne, PA 19087.
(12) Consists of shares of common stock owned by CB Capital Investors, L.P.
which are included as a result of Mr. Summe's affiliation with CB Capital
Investors, L.P. Mr. Summe disclaims beneficial ownership of all shares owned
by CB Capital Investors, L.P. The business address of Mr. Summe is CB
Capital Investors, L.P., 380 Madison Avenue, 12th Floor, New York, NY 10017.
(13) Consists of shares of common stock owned by J.P. Morgan Investment
Corporation and shares of common stock owned by Sixty Wall Street SBIC Fund,
L.P., which are included as a result of Mr. Theunissen's affiliation with
both J.P. Morgan Investment Corporation and Sixty Wall Street SBIC Fund,
L.P. Mr. Theunissen disclaims beneficial ownership of all shares owned by
both J.P. Morgan Investment Corporation and Sixty Wall Street SBIC Fund,
L.P. The business address of Mr. Theunissen is J.P. Morgan Investment
Corporation, 60 Wall Street, New York, NY 10260.
(14) Consists of shares of common stock owned by Communications Ventures III,
L.P. and shares of common stock which are owned by Communications Ventures
III CEO & Entrepreneurs' Fund, L.P. which are included as a result of
Mr. Van der Meer's affiliation with ComVen III, LLC, the general partner of
each of Communications Ventures III, L.P. and Communications Ventures III
CEO & Entrepreneurs' Fund, L.P. Mr. Van der Meer disclaims beneficial
ownership of all shares owned by ComVen III, LLC. The business address of
Mr. Van der Meer is ComVentures, 505 Hamilton Avenue, Suite 305, Palo Alton,
CA 94301.
(15) Includes an aggregate of 82,812 shares of common stock which are issuable
to our directors and officers as a group under options which are exercisable
within 60 days of March 8, 2000 and excludes an aggregate of 642,188 shares
of common stock which are issuable to our directors and officers as a group
under options which are not exerciseable within 60 days of March 8, 2000.
The above table includes our Series A-1, C and D convertible preferred
stock, but does not include the following transactions or arrangements with
respect to our common stock:
- 2,036,538 shares of common stock reserved for issuance upon exercise of
options we may grant under the plan; and
- the redemption of 11,980,561 shares of Series B preferred stock.
50
<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
We are authorized to issue 150,000,000 shares of common stock, $0.001 par
value, and 40,000,000 shares of preferred stock, $0.001 par value, with
10,000,000 shares of preferred stock designated as Series A-1 preferred stock,
12,000,000 shares of preferred stock designated as Series B cumulative
redeemable senior preferred stock, 12,000,000 designated as Series C cumulative
convertible senior preferred stock and 3,000,000 designated as Series D
convertible preferred stock.
COMMON STOCK
As of March 1, 2000, there were 10,800,952 shares of common stock
outstanding. All outstanding shares of common stock are fully paid and
non-assessable.
The holders of common stock are entitled to one vote per share on all
matters to be voted upon by our stockholders.
Subject to preferences that may be applicable to any outstanding preferred
stock, the holders of common stock are entitled to receive ratably such
dividends, if any, as may be declared from time to time by our board of
directors out of funds legally available for that purpose. In the event of our
liquidation, dissolution or winding up, the holders of common stock are entitled
to share ratably in all assets remaining after payment of liabilities, subject
to prior distribution rights of preferred stock, if any, then outstanding. The
common stock has no preemptive or conversion rights or other subscription
rights. There are no redemption or sinking fund provisions applicable to the
common stock.
PREFERRED STOCK
Authorized preferred stock may be issued from time to time by our board of
directors, in one or more series. Subject to the provisions of our amended and
restated articles of incorporation and the limitations prescribed by law, our
board of directors is authorized to adopt resolutions to issue the authorized
preferred stock, to fix the number of shares and to change the number of shares
constituting any series. The board of directors is also authorized to provide
for or change the rights and powers thereof, including dividend rights, dividend
rates, terms of redemption, redemption prices, conversion rights and liquidation
preferences of the preferred stock of any class or series, in each case without
any further action or vote by the shareholders.
One of the effects of undesignated preferred stock may be to enable our
board of directors to render more difficult or to discourage an attempt to
obtain control of our company by means of a tender offer, proxy contest, merger
or otherwise, and thereby to protect continuity of our management. The issuance
of preferred stock may adversely affect the rights of the holders of common
stock. For example, our preferred stock may rank prior to the common stock as to
dividend rights, liquidation preference or both, may have full or limited voting
rights and may be convertible into common stock. Accordingly, the issuance of
preferred stock may discourage bids for the common stock at a premium or may
otherwise adversely affect the market price of the common stock.
SERIES A-1 PREFERRED STOCK
We have 5,124,985 shares of Series A-1 preferred stock outstanding. Each
share of Series A-1 preferred stock will automatically convert into one share of
common stock upon the consummation of this offering, subject to certain
specified adjustments.
51
<PAGE>
SERIES B CUMULATIVE REDEEMABLE SENIOR PREFERRED STOCK
We have 11,980,561 shares of Series B cumulative redeemable senior preferred
stock outstanding. The shares of Series B preferred stock are not convertible.
The Series B preferred stock is subject to redemption on the earlier of the
closing of this offering or on November 24, 2004, at a price equal to the
original Series B stock issue price, plus any accrued but unpaid dividends on
such shares of Series B cumulative redeemable senior preferred stock. We will
redeem the Series B preferred stock upon completion of this offering.
SERIES C CUMULATIVE CONVERTIBLE SENIOR PREFERRED STOCK
We have 11,980,562 Series C cumulative convertible senior preferred stock
outstanding. Each share of Series C preferred stock shall automatically convert
into one share of common stock upon the consummation of this offering, subject
to certain specified adjustments.
SERIES D CONVERTIBLE PREFERRED STOCK
We have 2,120,228 Series D convertible preferred stock outstanding. Each
share of Series D preferred stock shall automatically convert into one share of
common stock upon the consummation of this offering, subject to certain
specified adjustments.
COMMON STOCK WARRANTS
In connection with the Series A-2 Restructuring Agreement entered into on
November 24, 1999, we issued warrants to some of our stockholders to purchase
184,924 shares of common stock at an exercise price of $0.05 per share. As of
the closing of this offering, these warrants, if not previously exercised, will
terminate.
DELAWARE ANTI-TAKEOVER LAW
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law regulating corporate takeovers. This section prevents certain
Delaware corporations, under certain circumstances, from engaging in a "business
combination" with:
- a stockholder who owns 15% or more of our outstanding voting stock
(otherwise known as an "interested stockholder"),
- an affiliate of an interested stockholder, or
- an associate of an interested stockholder
for three years following the date that the stockholder became an "interested
stockholder." A "business combination" includes a merger or sale of more than
10% of our assets.
However, the above provisions of Section 203 do not apply if:
- our board approves the transaction that made the stockholder an
"interested stockholder," prior to the date of that transaction;
- after the completion of the transaction that resulted in the stockholder
becoming an "interested stockholder," that stockholder owned at least 85%
of our voting stock outstanding at the time the transaction commenced,
excluding shares owned by persons who are officers and directors of our
company; or
- on or subsequent to the date of the transaction, the business combination
is approved by our board and authorized at a meeting of our stockholders
by an affirmative vote of at least two-thirds of the outstanding voting
stock not owned by the "interested stockholder."
52
<PAGE>
This statute could prohibit or delay mergers or other change in control
attempts, and thus may discourage attempts to acquire us.
CLASSIFIED BOARD OF DIRECTORS
Upon completion of this offering, our directors will be divided into three
classes, with regular three-year staggered terms and initial terms of three
years for class III directors, two years for class II directors and one year for
class I directors. This could prevent a party who acquires control of the
majority of the outstanding voting stock from immediately obtaining control of
our board of directors.
SHAREHOLDERS RIGHTS PLAN
Our board of directors has authorized adoption of a shareholders rights
plan. The rights plan is a takeover defense mechanism, which will involve the
declaration of a dividend to our existing stockholders of a "right" to purchase
additional shares at a designated price on a triggering event. The rights plan
will include provisions which will enable holders, in the event of a merger or
acquisition with or by a hostile party in which we survive, to purchase our
shares at a discount. The rights plan will also include provisions which will
enable holders, in the event of a merger or acquisition with or by a hostile
party in which the hostile party survives, to purchase shares of that party at a
discount.
SPECIAL MEETINGS OF STOCKHOLDERS
Our bylaws provide that special meetings of our stockholders may only be
called by our president, board or the holders of at least one-fifth of all the
shares of any class outstanding and entitled to vote. This may have the effect
of delaying or preventing a change in control.
LIMITATIONS ON LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
Our certificate of incorporation, as amended, includes a provision that
eliminates the personal liability of its directors for monetary damages for
breach of fiduciary duty as a director, except for liability:
- for any breach of the director's duty of loyalty to us or our
stockholders;
- for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
- under section 174 of the Delaware General Corporation Law regarding
unlawful dividends and stock purchases; or
- for any transaction from which the director derived an improper personal
benefit.
These provisions are permitted under Delaware law.
Our bylaws provide that:
- we must indemnify our directors and officers to the fullest extent
permitted by Delaware law, subject to very limited exceptions;
- we may indemnify our other employees and agents to the same extent that we
indemnify our officers and directors, unless otherwise required by law,
our certificate of incorporation, as amended, our bylaws or agreements;
and
- we must advance expenses, as incurred, to our directors and executive
officers in connection with a legal proceeding to the fullest extent
permitted by Delaware law, subject to very limited exceptions.
53
<PAGE>
We intend to obtain directors' and officers' insurance for our directors,
officers and some employees for specified liabilities.
The limitation of liability and indemnification provisions in our
certificate of incorporation, as amended, and bylaws may discourage stockholders
from bringing a lawsuit against our directors for breach of their fiduciary
duty. They may also have the effect of reducing the likelihood of derivative
litigation against our directors and officers, even though an action of this
kind, if successful, might otherwise benefit us and our stockholders.
Furthermore, a stockholder's investment may be adversely affected to the extent
we pay the costs of settlement and damage awards against directors and officers
pursuant to these indemnification provisions. However, we believe that these
indemnification provisions are necessary to attract and retain qualified
directors and officers.
At present, there is no pending litigation or proceeding involving any of
our directors, officers or employees regarding which indemnification is sought,
nor are we aware of any threatened litigation that may result in claims for
indemnification.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is .
54
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Before this offering, there has been no public market for our common stock.
Future sales of substantial amounts of our common stock in the public market
following this offering, including shares issued upon exercise of outstanding
options or options that may be granted after this offering, could harm market
prices and could impair our ability to raise capital through the sale of our
equity securities. As described below, less than % of our shares currently
outstanding will be available for sale immediately after this offering because
of restrictions on resale. Sales of a substantial amount of our common stock in
the public market after the restrictions lapse could adversely affect the
prevailing market price of our common stock and our ability to raise equity
capital in the future.
Upon the closing of this offering and assuming that none of our outstanding
options are exercised, we will have outstanding shares of common
stock, or shares if the underwriters exercise their over-allotment
option in full. Of these outstanding shares, shares, or shares
if the underwriters exercise their over-allotment option in full, will be freely
tradable without restriction under the Securities Act, except for shares
purchased by our "affiliates," as that term is defined in Rule 144 under the
Securities Act. Any shares purchased by our affiliates generally may be sold in
compliance with Rule 144 as described below.
The remaining shares outstanding are "restricted securities" within
the meaning of Rule 144. Restricted securities may be sold in the public market
only if registered or if they qualify for an exemption from registration under
Rules 144, 144(k) or 701 promulgated under the Securities Act, which are
summarized below. Sales of the restricted securities in the public market, or
the availability of these shares for sale, could adversely affect the market
price of our common stock.
As of March 1, 2000, options for a total of 8,390,380 shares of common stock
had been granted under our 1997 stock incentive plan. Approximately of
those options are vested and exercisable. Of those vested shares, are
subject to 180-day lock-up agreements described below.
We anticipate that our current stockholders will enter into lock-up
agreements or other contractual restrictions providing that they will not offer,
sell, contract to sell or otherwise dispose of any shares of our common stock
for a period of 180 days after the date of this prospectus, without the prior
written consent of Credit Suisse First Boston Corporation. As a result of these
lock-up agreements and other contractual restrictions, notwithstanding possible
earlier eligibility for sale under the provisions of Rule 144, none of these
shares will be resellable until 181 days after the date of this prospectus.
Credit Suisse First Boston Corporation may, in its sole discretion and at any
time without notice, release any portion of the securities subject to lock-up
agreements or other contractual restrictions.
In general, under Rule 144 as currently in effect, after the expiration of
the lockup agreements, a person who has beneficially owned restricted shares for
at least one year would be entitled to sell within any three-month period a
number of shares that does not exceed the greater of:
- 1% of the number of shares of our common stock then outstanding, which
will equal approximately shares immediately after this
offering; or
- the average weekly trading volume of our common stock during the four
calendar weeks preceding the sale.
Sales under Rule 144 are also subject to manner of sale provisions, notice
requirements and the availability of current public information about us. Under
Rule 144(k), a person who is not deemed to have been an affiliate of ours at any
time during the six months preceding a sale, and who has beneficially owned the
shares proposed to be sold for at least two years, is entitled to sell such
shares without complying with the manner of sale, public information, volume
limitation or notice provisions of Rule 144.
55
<PAGE>
Rule 701 permits our employees, officers, directors or consultants who
purchased shares pursuant to a written compensatory plan or contract to resell
these shares in reliance upon Rule 144 but without compliance with specific
restrictions. Rule 701 provides that affiliates may sell their Rule 701 shares
under Rule 144 without complying with the holding period requirement and that
non-affiliates may sell these shares in reliance on Rule 144 without complying
with the holding period, public information, volume limitation or notice
provisions of Rule 144.
Following the closing of this offering, we intend to file a registration
statement on Form S-8 to register shares of our common stock subject to
outstanding options or reserved for future issuance under our 1997 stock
incentive plan. As of March 1, 2000, options to purchase approximately 3,327,659
shares of our common stock were outstanding and approximately 2,036,538 shares
of our common stock were reserved for future issuance under our 1997 stock
incentive plan. This registration statement will automatically become effective
upon filing. As a result, the common stock issued upon exercise of outstanding
vested options, other than the common stock issued to our affiliates, will be
available for immediate resale in the open market, subject to any applicable
lock-up agreement.
Following the closing of this offering, an aggregate of 1,433,864 shares of
our common stock held by Anthony Craig, and 2,059,214 shares of our common stock
held by Alex Mashinsky, will be deemed restricted securities. Both Mr. Craig and
Mr. Mashinsky pledged these respective shares as security for loans from us to
purchase this stock. Therefore, the shares will remain restricted until these
loans have been fully paid.
56
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated , 2000, we have agreed to sell to the underwriters named
below, for whom Credit Suisse First Boston Corporation, FleetBoston Robertson
Stephens Inc. and U.S. Bancorp Piper Jaffray Inc. are acting as representatives,
the following respective numbers of shares of common stock:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
------------ ----------
<S> <C>
Credit Suisse First Boston Corporation......................
FleetBoston Robertson Stephens Inc..........................
U.S. Bancorp Piper Jaffray Inc..............................
Total...................................................
==========
</TABLE>
The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of common stock in the offering, if any are purchased,
other than those shares covered by the over-allotment option described below.
The underwriting agreement also provides that if an underwriter defaults, the
purchase commitments of non-defaulting underwriters may be increased or the
offering of common stock may be terminated.
We have granted to the underwriters a 30-day option to purchase on a pro
rata basis up to additional shares from us at the initial public
offering price less the underwriting discounts and commissions. The option may
be exercised only to cover over-allotments of common stock.
The underwriters propose to offer the shares to the public initially at the
public offering price on the cover page of this prospectus and to selling group
members at that price less a concession of $ per share. The
underwriters and selling group members may allow a discount of $
per share on sales to other broker/dealers. After the initial public offering,
the public offering price and concession and discount to broker/dealers may be
changed by the representatives.
The following table summarizes the compensation and estimated expenses we
will pay.
<TABLE>
<CAPTION>
PER SHARE TOTAL
------------------------------- -------------------------------
WITHOUT WITH WITHOUT WITH
OVER-ALLOTMENT OVER-ALLOTMENT OVER-ALLOTMENT OVER-ALLOTMENT
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Underwriting discounts and commissions
paid by us............................ $ $ $ $
Expenses payable by us.................. $ $ $ $
</TABLE>
The underwriters have informed us that they do not expect discretionary
sales to exceed 5% of the shares of common stock being offered.
We, our officers and directors and several other stockholders have agreed
that we will not:
- offer, sell, contract to sell, announce an intention to sell, pledge or
otherwise dispose of, directly or indirectly, any shares of our common
stock;
- file with the SEC a registration statement under the Securities Act
relating to any additional shares of common stock or securities
convertible into or exchangeable or exercisable for any of our common
stock; or
- publicly disclose the intention to make any such offer, sale, pledge,
disposition or filing;
57
<PAGE>
without the prior written consent of Credit Suisse First Boston Corporation for
a period of 180 days after the date of this prospectus, except in the case of
issuances by us upon the exercise of employee stock options outstanding on the
date hereof.
The underwriters have reserved for sale, at the initial public offering
price, up to shares of the common stock for employees, directors and
certain other persons associated with us who have expressed an interest in
purchasing common stock in the offering. The number of shares available for sale
to the general public in the offering will be reduced to the extent these
persons purchase the reserved shares. Any reserved shares not purchased will be
offered by the underwriters to the general public on the same terms as the other
shares.
We have agreed to indemnify the underwriters against liabilities under the
Securities Act or to contribute to payments which the underwriters may be
required to make in that respect.
We have applied to list our shares on The Nasdaq Stock Market's National
Market under the symbol " ."
Prior to this offering, there has been no public market for our common
stock. The initial public offering price will be determined by negotiation
between our management and representatives of the underwriters. The principal
factors considered in determining the public offering price include:
- the information in this prospectus and otherwise available to the
underwriters;
- the history and the prospects for the industry in which we will compete;
- our management's ability;
- the prospects for our future earnings;
- the present state of our development and our current financial condition;
- the general condition of the securities markets at the time of this
offering; and
- the recent market prices of, and the demand for, publicly traded common
stock of generally comparable companies.
The representatives may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with
Regulation M under the Exchange Act.
- Over-allotment involves syndicate sales in excess of the offering size,
which creates a syndicate short position.
- Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.
- Syndicate covering transactions involve purchases of the common stock in
the open market after the distribution has been completed in order to
cover syndicate short positions.
- Penalty bids permit the representatives to reclaim a selling concession
from a syndicate member when the common stock originally sold by the
syndicate member is purchased in a syndicate covering transaction to cover
syndicate short positions.
These stabilizing transactions, syndicate covering transactions and penalty
bids may cause the price of the common stock to be higher than it would
otherwise be in the absence of such transactions. These transactions may be
effected on The Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.
Affiliates of each of Credit Suisse First Boston Corporation, FleetBoston
Robertson Stephens Inc. and U.S. Bancorp Piper Jaffray Inc. own shares of
various series of our outstanding preferred stock and warrants to purchase
shares of our common stock, all of which were acquired in private placements at
the same prices as those paid by all other institutional investors that were
participants in those private placements.
58
<PAGE>
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that we prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of common stock are effected. Accordingly, any resale of our common stock
in Canada must be made in accordance with applicable securities laws which will
vary depending on the relevant jurisdiction, and which may require resales to be
made in accordance with available statutory regulatory authority. Purchasers are
advised to seek legal advice prior to any resale of the common stock.
REPRESENTATION OF PURCHASERS
Each purchaser of common stock in Canada who receives a purchase
confirmation will be deemed to represent to us and the dealer from whom the
purchase confirmation is received that (i) the purchaser is entitled under
applicable provincial securities laws to purchase the common stock without the
benefit of a prospectus qualified under Canadian securities laws; (ii) where
required by law, that the purchaser is purchasing as principal and not as agent;
and (iii) the purchaser has reviewed the text above under "Resale Restrictions."
RIGHTS OF ACTION FOR ONTARIO PURCHASERS
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or rescission or rights of action under the civil liability provisions
of the U.S. federal securities laws.
ENFORCEMENT OF LEGAL RIGHTS
All of the issuer's directors and officers as well as the experts named in
this prospectus may be located outside of Canada and, as a result, it may not be
possible for Canadian purchasers to effect service of process within Canada upon
the issuer or those persons. All or a substantial portion of the assets of the
issuer and those persons may be located outside of Canada and, as a result, it
may not be possible to satisfy a judgment against the issuer or those persons in
Canada or to enforce a judgment obtained in Canadian courts against the issuer
or persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of common stock to whom the Securities Act (British Columbia)
applies is advised that the purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
common stock acquired by the purchaser pursuant to this offering. The report
must be in the form attached to British Columbia Securities Commission Blanket
Order BOR #95/17, a copy of which may be obtained from us. Only one report must
be filed in respect of common stock acquired on the same date and under the same
prospectus exemption.
TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of common stock should consult their own legal and tax
advisors with respect to the tax consequences of an investment in our common
stock in their particular circumstances and with respect to the eligibility of
our common stock for investment by the purchaser under relevant Canadian
legislation.
59
<PAGE>
LEGAL MATTERS
The validity of our common stock offered hereby will be passed upon for us
by Paul, Hastings, Janofsky & Walker LLP, New York, New York. Weil, Gotshal &
Manges LLP, New York, New York, is acting as counsel to the underwriters in
connection with this offering.
EXPERTS
The consolidated financial statements included in this prospectus and
elsewhere in the registration statement have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said report.
ADDITIONAL INFORMATION
We have filed with the SEC a registration statement on Form S-1, including
its exhibits and schedules, under the Securities Act with respect to the shares
to be sold in this offering. This prospectus, which forms a part of the
registration statement, does not contain all the information included in the
registration statement. You should refer to the registration statement,
including its exhibits and schedules, for further information about us or the
shares to be sold in this offering. Statements contained in this prospectus as
to the contents of any contract or other document referred to are not
necessarily complete, and where any contract or other document is an exhibit to
the registration statement, we refer you to that exhibit for a more complete
description of the matter involved.
We are not currently subject to the informational requirements of the
Securities Exchange Act of 1934. However, as a result of this offering, we will
become subject to the informational requirements of the Securities Exchange Act.
Accordingly, following this offering, we will file reports and other information
with the SEC.
You may read and copy the registration statement or any reports, statements
or other information we file with the SEC at the SEC's public reference room at
450 Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at
1-800-SEC-0330 for further information on the public reference rooms. Our SEC
filings, including the registration statement, are also available to you on the
SEC Internet site (HTTP://WWW.SEC.GOV). In addition, reports, proxy statements
and other information concerning Arbinet may be inspected at the National
Association of Securities Dealers, Inc. at 1735 K Street, N.W., Washington, D.C.
20006.
60
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS.................... F-2
CONSOLIDATED FINANCIAL STATEMENTS:
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 Stockholders' Equity
(Deficiency) 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 the Board of Directors and Stockholders of
Arbinet Holdings, Inc.:
We have audited the accompanying consolidated balance sheets of Arbinet
Holdings, Inc. (a Delaware corporation) and subsidiaries as of December 31, 1998
and 1999, and the related consolidated statements of operations, changes in
stockholders' equity (deficiency) and cash flows for each of the three years
ended December 31, 1999. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
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 Arbinet
Holdings, Inc. and subsidiaries as of December 31, 1998 and 1999, and the
results of their operations and their cash flows for each of the three years
ended December 31, 1999 in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
New York, New York
March 8, 2000
F-2
<PAGE>
ARBINET HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1999
<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
------------------------ DECEMBER 31,
1998 1999 1999
---------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................... $ -- $25,768,227 $10,414,763
Trade accounts receivable................................... -- 465,962
Other current assets........................................ 161,988 71,393
Current assets of discontinued operations................... 2,740,064 794,498
---------- -----------
Total current assets........................................ 2,902,052 27,100,080
PROPERTY AND EQUIPMENT, net of accumulated depreciation and
amortization of $36,996 and $316,790, respectively........ 868,662 3,266,296
LOAN RECEIVABLE--STOCKHOLDER................................ -- 259,226
OTHER ASSETS................................................ 171,280 470,243
OTHER ASSETS OF DISCONTINUED OPERATIONS..................... 1,265,803 --
---------- -----------
Total assets................................................ $5,207,797 $31,095,845
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Notes payable............................................... $1,431,753 $ --
Capital lease obligations--current portion.................. 22,216 191,797
Accounts payable............................................ 1,071,976 1,607,526
Accrued expenses and other current liabilities.............. 324,533 3,945,010
Loan payable--stockholder................................... 152,269 --
Current liabilities of discontinued operations.............. 3,817,074 1,676,905
---------- -----------
Total current liabilities................................... 6,819,821 7,421,238
CAPITAL LEASE OBLIGATIONS, less current portion............. 13,270 813,232
CAPITAL LEASE OBLIGATION OF DISCONTINUED OPERATIONS......... 186,671 --
---------- -----------
Total liabilities........................................... 7,019,762 8,234,470
---------- -----------
COMMITMENTS AND CONTINGENCIES
REDEEMABLE PREFERRED STOCK:
Series A-1, convertible preferred stock--redeemable, $0.001
par value; 10,000,000 shares authorized, 0, 5,124,985 and
0 shares outstanding at December 31, 1998, 1999 and pro
forma, respectively....................................... -- 6,150,810 --
Series B, cumulative redeemable senior preferred stock,
$0.001 par value; 12,000,000 shares authorized, 0,
11,980,561 and 0 shares outstanding at December 31, 1998,
1999 and pro forma, respectively.......................... -- 15,182,365 --
Series C, cumulative convertible senior preferred
stock--redeemable, $0.001 par value; 12,000,000 shares
authorized, 0, 11,980,562 and 0 shares outstanding at
December 31, 1998, 1999 and pro forma, respectively....... -- 15,182,366 --
COMMON STOCKHOLDERS' EQUITY (DEFICIENCY):
Common stock $.001 par value, 150,000,000 shares authorized,
3,725,400, 8,966,797 and 26,471,013 shares issued and
outstanding at December 31, 1998, 1999 and pro forma,
respectively.............................................. 3,725 8,967 26,471
Additional paid-in capital.................................. 193,327 7,770,586 28,915,159
Deferred compensation....................................... (134,438) (4,655,295) (4,655,295)
Accumulated deficit......................................... (1,874,579) (16,778,424) (16,778,424)
---------- ----------- -----------
Total common stockholders' equity (deficiency).............. (1,811,965) (13,654,166) 7,507,911
---------- ----------- -----------
Total liabilities and stockholders' equity (deficiency)..... $5,207,797 $31,095,845
========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-3
<PAGE>
ARBINET HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
<TABLE>
<CAPTION>
1997 1998 1999
----------- ----------- ------------
<S> <C> <C> <C>
REVENUES.............................................. $ -- $ -- $ 649,393
COST OF REVENUES...................................... -- -- 2,925,012
----------- ----------- ------------
Gross profit (loss)................................... -- -- (2,275,619)
----------- ----------- ------------
COSTS AND EXPENSES:
Development expenses.................................. 243,295 253,898 1,481,357
Sales and marketing expenses.......................... 327,881 531,235 1,264,133
General and administrative expenses................... 970,153 1,476,877 5,159,580
Non-cash compensation and consulting services......... 20,751 40,384 1,794,270
Depreciation and amortization......................... -- 36,996 279,794
----------- ----------- ------------
Total cost and expenses............................... 1,562,080 2,339,390 9,979,134
----------- ----------- ------------
Loss from operations.................................. (1,562,080) (2,339,390) (12,254,753)
INTEREST AND OTHER INCOME (EXPENSE), net.............. (3,094) (121,771) 49,994
----------- ----------- ------------
Loss from continuing operations....................... (1,565,174) (2,461,161) (12,204,759)
DISCONTINUED OPERATIONS:
Income (loss) from operations of discontinued
Bellfax............................................. (221,352) 2,061,330 (1,406,203)
Loss on disposal of Bellfax........................... -- -- (1,292,883)
----------- ----------- ------------
Income (loss) from discontinued operations............ (221,352) 2,061,330 (2,699,086)
----------- ----------- ------------
Net loss.......................................... $(1,786,526) $ (399,831) $(14,903,845)
=========== =========== ============
INCOME (LOSS) PER SHARE INFORMATION,
BASIC AND DILUTED:
Continuing operations................................. $ (0.42) $ (0.66) $ (2.37)
Discontinued operations............................... (0.06) 0.55 (0.50)
----------- ----------- ------------
Net loss per share, basic and diluted............. $ (0.48) $ (0.11) $ (2.87)
=========== =========== ============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING, BASIC AND
DILUTED............................................. 3,725,400 3,725,400 5,422,278
=========== =========== ============
PRO FORMA INCOME (LOSS) PER SHARE INFORMATION, BASIC
AND DILUTED (UNAUDITED):
Continuing operations................................. $ (1.14)
Discontinued operations
Net loss per share, basic and diluted............. (0.25)
------------
$ (1.39)
============
PRO FORMA WEIGHTED AVERAGE COMMON SHARES OUTSTANDING,
BASIC AND DILUTED................................... 10,696,717
============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-4
<PAGE>
ARBINET HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
<TABLE>
<CAPTION>
RETAINED
EARNINGS
COMMON STOCK ADDITIONAL DEFERRED (ACCUMU-
-------------------- PAID-IN COMPEN- LATED)
SHARES AMOUNT CAPITAL SATION DEFICIT) TOTAL
--------- -------- ---------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, January 1, 1997......................... 3,725,400 $3,725 $ 8,120 $ (10,366) $ 311,778 $ 313,257
Recognition of deferred compensation............. -- -- 33,728 (33,728) -- --
Amortization of deferred compensation............ -- -- -- 20,751 -- 20,751
Net loss......................................... -- -- -- -- (1,786,526) (1,786,526)
--------- ------ ---------- ----------- ------------ ------------
BALANCE, December 31, 1997....................... 3,725,400 3,725 41,848 (23,343) (1,474,748) (1,452,518)
Recognition of deferred compensation............. -- -- 151,479 (151,479) -- --
Amortization of deferred compensation............ -- -- -- 40,384 -- 40,384
Net loss......................................... -- -- -- -- (399,831) (399,831)
--------- ------ ---------- ----------- ------------ ------------
BALANCE, December 31, 1998....................... 3,725,400 3,725 193,327 (134,438) (1,874,579) (1,811,965)
Conversion of notes payable...................... 1,278,182 1,278 1,478,722 -- -- 1,480,000
Issuance of common stock......................... 734,647 735 309,265 -- -- 310,000
Exercise of options.............................. 3,228,568 3,229 118,187 -- -- 121,416
Recognition of deferred compensation............. -- -- 5,880,156 (5,880,156) -- --
Amortization of deferred compensation............ -- -- -- 1,359,299 -- 1,359,299
Options granted in consideration for
consulting services............................ -- -- 434,971 -- -- 434,971
Accretion of redeemable preferred stock.......... -- -- (38,910) -- -- (38,910)
Dividends on redeemable preferred stock.......... -- -- (605,132) -- -- (605,132)
Net loss......................................... -- -- -- -- (14,903,845) (14,903,845)
--------- ------ ---------- ----------- ------------ ------------
BALANCE, December 31, 1999....................... 8,966,797 $8,967 $7,770,586 $(4,655,295) $(16,778,424) $(13,654,166)
========= ====== ========== =========== ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE>
ARBINET HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
<TABLE>
<CAPTION>
1997 1998 1999
----------- ----------- ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.............................................. $(1,786,526) $ (399,831) $(14,903,845)
Adjustments to reconcile net loss to net cash used in
continuing operating activities-
(Income) loss from discontinued operations.......... 221,352 (2,061,330) 2,699,086
Depreciation and amortization....................... -- 36,996 279,794
Amortization of deferred compensation............... 20,751 40,384 1,359,299
Options granted in consideration for consulting
services.......................................... -- -- 434,971
Non-cash interest................................... -- 131,753 48,247
Changes in operating assets and liabilities--
Trade accounts receivable......................... -- -- (465,962)
Other assets...................................... (191,015) (142,253) (208,368)
Accounts payable.................................. 329,552 111,043 326,783
Accrued expenses and other current liabilities.... 98,768 225,765 3,048,875
----------- ----------- ------------
Net cash used in continuing operating activities...... (1,307,118) (2,057,473) (7,381,120)
----------- ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment................... (127,257) (111,534) (728,353)
Loan to stockholder, net.............................. 150,112 -- (259,226)
----------- ----------- ------------
Net cash provided by (used in) investing activities of
continuing operations............................... 22,855 (111,534) (987,579)
----------- ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of notes payable............................. -- 1,300,000 --
Issuance of common stock.............................. -- -- 371,416
Issuance of preferred stock........................... -- -- 35,871,499
Advances from stockholder, net........................ 87,201 65,068 (152,269)
Payments of obligations under capital leases.......... -- -- (139,163)
----------- ----------- ------------
Net cash provided by financing activities of
continuing operations............................... 87,201 1,365,068 35,951,483
----------- ----------- ------------
NET CASH PROVIDED BY (USED IN) DISCONTINUED
OPERATIONS.......................................... 1,197,062 803,939 (1,814,557)
----------- ----------- ------------
Net increase in cash and cash equivalents............. -- -- 25,768,227
CASH AND CASH EQUIVALENTS, beginning of year.......... -- -- --
----------- ----------- ------------
CASH AND CASH EQUIVALENTS, end of year................ $ -- $ -- $ 25,768,227
=========== =========== ============
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
Assets acquired under capital leases and other
nonmonetary transactions............................ $ -- $ 631,381 $ 1,949,075
Conversion of notes payable into common stock......... -- -- 1,480,000
Non-cash stock issuance............................... -- -- 60,000
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE>
ARBINET HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
Arbinet Holdings, Inc. and subsidiaries ("Arbinet" or the "Company") operate
an Internet-based business-to-business trading exchange through which
telecommunications service providers can buy, sell and deliver to each other
network capacity, expressed in minutes of available calling time, for
international and domestic long-distance voice and fax calls. Physical delivery
of traded capacity is made automatically through the Company's multi-port switch
using software that it developed and a process that it patented. Arbinet handles
all invoicing, collection and payment for trades effected on its exchange,
evaluates and assumes the risk of the creditworthiness of each buyer, and
provides continuous monitoring and on-line rating of the service quality of each
seller's network.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Arbinet
Holdings, Inc. and its wholly-owned subsidiaries. All material intercompany
accounts and transactions have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments, with original maturity
dates of three months or less, to be cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, net of accumulated depreciation
and amortization. Depreciation is computed using the straight-line method over
the estimated useful lives of the assets.
Expenditures for repairs and maintenance are expensed as incurred while
renewals and betterments are capitalized.
During 1999, the Company adopted Statement of Position 98-1, "Accounting for
the Costs of Computer Software Developed or Obtained for Internal Use" ("SOP
98-1"), which requires the capitalization of internal use software and other
related costs under certain circumstances. The Company is implementing an
enterprise-wide operational support system. External direct costs of materials
and services and payroll costs of employees working solely on the application
development stage of the project have been capitalized in accordance with SOP
98-1. Capitalized costs of the project will be amortized on a straight-line
method over the estimated useful life of three years commencing with when the
system is placed in service.
OTHER ASSETS
Other assets include an investment in an affiliated company, in which the
Company owns approximately 24% of the affiliated company's capital stock. The
investment is stated at cost (approximately $45,000), as the Company has no
significant influence over the operating and financial policies of this
affiliated company.
F-7
<PAGE>
ARBINET HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LONG-LIVED ASSETS
The Company records its long-lived assets at cost. In accordance with
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of," the Company reviews its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amounts of the assets may
not be recoverable. Furthermore, the assets are evaluated for continuing value
and proper useful lives by comparison to expected future cash projections.
Management has performed a review of all long-lived assets and has determined
that no impairment of the respective carrying values has occurred as of
December 31, 1999.
REVENUE RECOGNITION
The Company generates revenues from minutes traded on its exchange and
exchange fees. Revenues from minutes traded represent the price per minute for
network capacity purchased by buyers through the Company's exchange. Revenues
from exchange fees represent the amounts the Company charges sellers and buyers
on a per minute basis for network capacity traded on its exchange.
The Company records revenue from minutes traded because:
(1) all traffic traded on its exchange is routed through its switch;
(2) the Company is obligated to pay sellers for the minutes traded
regardless of whether it ultimately collects from buyers; and
(3) the Company is responsible for monitoring and routing the minutes to its
exchange users in accordance with the quality and pricing criteria these
users specify on the Company's exchange.
INCOME TAXES
The Company adopted SFAS No. 109, "Accounting for Income Taxes." Under SFAS
No. 109, deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their tax bases.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets or liabilities of a change in tax rates is recognized in the period in
which the tax change occurs. Valuation allowances are established, when
necessary, to reduce deferred tax assets amounts expected to be realized.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, accounts receivable, and
accounts payable approximate fair value due to the short-term maturity of these
instruments. The carrying amounts of capital lease obligations approximate fair
value.
F-8
<PAGE>
ARBINET HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CONCENTRATION OF CREDIT RISK
Financial instruments which subject the Company to concentration of credit
risk consist primarily of cash and cash equivalents. The Company maintains cash
with various financial institutions. The Company performs periodic evaluations
of the relative credit standing of these institutions.
STOCK-BASED COMPENSATION
The Company adopted the provisions of SFAS No. 123, "Accounting for
Stock-Based Compensation," and elected to continue the accounting set forth in
Accounting Policies Board No. 25, "Accounting for Stock Issued to Employees"
("APB No. 25"), and to provide the necessary pro forma disclosures as if the
fair value method has been applied.
USE OF ESTIMATES
The preparation of the consolidated 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 dates of the consolidated
financial statements and the reported amounts of revenue and expenses during the
reporting periods. Actual results may differ from those estimates.
UNAUDITED PRO FORMA INFORMATION
The Company's historical capital structure is not indicative of its
prospective structure due to the automatic conversion of all shares of
Series A-1 convertible preferred stock and Series C cumulative convertible
senior preferred stock into common stock as well as the redemption of Series B
cumulative redeemable senior preferred stock concurrent with the closing of the
Company's anticipated initial public offering ("IPO").
The unaudited pro forma consolidated balance sheet as of December 31, 1999,
reflects the conversion of Series A-1 and Series C preferred stock into common
stock, as well as the redemption of Series B preferred stock.
Pro forma net loss per share is calculated assuming conversion of
Series A-1 and Series C preferred stock (including accumulated dividends
thereon) into common stock upon the completion of the IPO.
PER SHARE DATA
The Company adopted the provisions of SFAS No. 128, "Earnings per Share,"
which establishes new standards for computing and presenting earnings per share
("EPS"). The new standard requires the presentation of basic EPS and diluted
EPS. Basic EPS is calculated by dividing income available to common shareholders
by the weighted average number of shares of common stock outstanding during the
period. Diluted EPS is calculated by dividing income available to common
shareholders by the weighted average number of common shares outstanding
adjusted to reflect potentially dilutive securities. All outstanding options,
warrants and convertible preferred shares have been excluded from the
calculation of diluted EPS, as they would be antidilutive.
F-9
<PAGE>
ARBINET HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The following table reconciles the numerator and denominator for the
calculation of EPS for the years ended December 31, 1997, 1998 and 1999:
<TABLE>
<CAPTION>
1997 1998 1999
----------- ---------- ------------
<S> <C> <C> <C>
Numerator:
Net loss............................. $(1,786,526) $ (399,831) $(14,903,845)
Dividends on redeemable preferred
stock.............................. -- -- (605,132)
Accretion of redeemable preferred
stock.............................. -- -- (38,910)
----------- ---------- ------------
Net loss available to common
shareholders....................... $(1,786,526) $ (399,831) $(15,547,887)
=========== ========== ============
Denominator:
Weighted average common shares
outstanding, basic and diluted..... 3,725,400 3,725,400 5,422,278
=========== ========== ============
Options, warrants and convertible
preferred shares excluded.......... 1,103,909 1,314,769 21,072,033
=========== ========== ============
</TABLE>
Pro forma net loss per share for the year ended December 31, 1999 is
calculated assuming conversion of the convertible preferred stock and
accumulated dividends thereon into common stock in connection with the IPO as
follows:
<TABLE>
<CAPTION>
1999
------------
<S> <C>
Numerator--Pro forma:
Net loss available to common shareholders................. $(15,547,887)
Dividends on redeemable preferred stock................... 605,132
Accretion of redeemable preferred stock................... 38,910
------------
Pro forma net loss........................................ $(14,903,845)
============
Denominator--Pro forma:
Weighted average common shares outstanding, basic and
diluted................................................. 5,422,278
Assumed conversion of redeemable convertible preferred
stock................................................... 4,875,770
Preferred stock dividends................................. 398,669
------------
Pro forma basic and diluted weighted average shares
outstanding............................................. 10,696,717
============
Pro forma net loss per share basic and diluted............ $ (1.39)
============
</TABLE>
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivatives and Hedging Activities," which establishes
accounting and reporting standards of derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities.
The Company does not currently engage in derivative activity and does not expect
the adoption of this standard to have a material effect on the Company's results
of consolidated operations, financial position or cash flows.
F-10
<PAGE>
ARBINET HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In July 1999, the FASB approved SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities--Deferral of the Effective Date of FASB
Statement No. 133," which amends SFAS No. 133 to be effective for all fiscal
quarters of all fiscal years beginning after June 15, 2000.
2. DISCONTINUED OPERATIONS
In October 1999, the Company ceased the operations of Bellfax, Inc.
("Bellfax"), a wholly-owned subsidiary. Bellfax was engaged in sales and rental
of telecommunication equipment and operating international routes. Bellfax's
operations focused on the transfer of telecommunications capacity in specific
markets for an individual telecommunications company, using Bellfax's
proprietary software and network infrastructure. Accordingly, Bellfax has been
accounted for as discontinued operations. The accompanying financial statements
have been restated to report separately the assets, liabilities, operating
results and net cash flows of these discontinued operations. Loss from the
disposal of Bellfax includes write-downs of certain assets and operating losses
expected to occur before the completion of Bellfax's disposal. Summarized
financial information for the discontinued operations is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------
1997 1998 1999
---------- ----------- -----------
<S> <C> <C> <C>
Revenues................................ $6,061,061 $13,238,405 $ 2,244,867
Net income (loss)....................... (221,352) 2,061,330 (2,699,086)
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1998 1999
----------- -----------
<S> <C> <C>
Current assets..................................... $ 2,740,064 $ 794,498
Other assets....................................... 1,265,803 --
----------- -----------
Total assets................................... 4,005,867 794,498
----------- -----------
Current liabilities................................ (3,817,074) (1,676,905)
Other liabilities.................................. (186,671) --
----------- -----------
Total liabilities.............................. (4,003,745) (1,676,905)
----------- -----------
Net assets (liabilities) of discontinued
operations................................... $ 2,122 $ (882,407)
=========== ===========
</TABLE>
F-11
<PAGE>
ARBINET HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31, 1998 and
1999:
<TABLE>
<CAPTION>
ESTIMATED
1998 1999 USEFUL LIFE
-------- ---------- ---------------------------------------
<S> <C> <C> <C>
Telecommunications equipment and 3-5 years
software......................... $905,658 $3,132,256
Furniture and fixtures............. -- 256,775 5-7 years
Leasehold improvements............. -- 194,055 Shorter of term of lease or useful life
-------- ----------
905,658 3,583,086
Less accumulated depreciation and
amortization..................... (36,996) (316,790)
-------- ----------
Property and equipment, net........ $868,662 $3,266,296
======== ==========
</TABLE>
Property and equipment include equipment under capital lease of $1,015,757
(net of accumulated depreciation of $112,862) in 1999 and $15,290 in 1998.
Certain leased assets of the Company are used as security for the related
lease obligations.
Depreciation and amortization expenses for the years ended December 31,
1997, 1998 and 1999 were $0, $36,996 and $279,794, respectively.
4. LOAN RECEIVABLE/PAYABLE--STOCKHOLDER
The loan receivable to a principal stockholder bears interest at 8% per
annum and is due on the earlier of (i) December 2, 2002, and (ii) 60 days
following the termination of this stockholder's, employment agreement with the
Company. The loan is secured by shares issued to this stockholder.
The loan payable to a principal stockholder bears interest at 12% per annum
and is due on demand. The loan was fully paid in 1999. In January 1999, the
Company issued 674,647 shares of Common Stock to retire accrued interest to this
stockholder. Based on the fair value of the stock issued, additional
compensation of approximately $40,000 was recorded in 1998.
5. NOTES PAYABLE
During 1998, the Company borrowed $1,500,000 from another corporation
("lender"). Under the terms of the agreement, borrowings by the Company bore
interest at 12% per annum and were due April 29, 2001. The lender also had an
option to convert the debt into common stock of the Company. In addition to the
borrowings, the Company owed the lender certain amounts for telecommunication
charges. During April 1999, the parties entered into a settlement agreement,
according to which the total obligation of the Company to the lender at the date
of the settlement was $2,200,000. The Company paid $1,800,000 to the lender and
the remaining portion of the obligation was satisfied by the issuance of 577,500
shares of the Company's common stock.
F-12
<PAGE>
ARBINET HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In March 1998, the Company borrowed $900,000 from a former director and
another individual. The borrowings bore interest at a rate of 12% per annum and
were due March 27, 1999. The outstanding principal balances were convertible
into a maximum of 4.5% of the outstanding common stock of the Company, at the
date of conversion. In addition, the lenders were to receive warrants to
purchase additional shares of common stock of the Company, upon conversion, at
an exercise price of $0.09 per share. On April 19, 1999, the obligation and
accrued interest thereon of $1,080,000 were converted into 700,682 shares of the
Company's common stock. In addition, at the date of conversion, the lenders
received options to purchase 173,114 shares of the Company's common stock at an
exercise price of $0.09 per share. The options are exercisable immediately.
Interest expense on the above obligations aggregated approximately $180,000
and $145,000 during 1998 and 1999, respectively.
6. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consist of the following:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
---------------------
1998 1999
-------- ----------
<S> <C> <C>
Accrued settlement costs(*)........................... $ -- $2,000,000
Accrued capital expenditures.......................... -- 832,518
Accrued telecommunication costs....................... -- 343,270
Accrued professional fees............................. 40,000 311,344
Other................................................. 284,533 457,878
-------- ----------
$324,533 $3,945,010
======== ==========
</TABLE>
- ------------------------
(*) Certain stockholders previously asserted claims against the Company relating
to, among other things, their rights under options granted to them. The
Company has settled all such claims and has established a reserve in the
amount of approximately $2,000,000 for accrued settlement costs. This amount
has been reflected as of December 31, 1999.
7. STOCKHOLDERS' EQUITY
On April 5, 1999, the Board of Directors approved a 35 for 1 stock split.
All share and per share data was restated in order to reflect such split
retroactively.
On March 7, 2000, the Company amended its certificate of incorporation to
increase the amount of authorized common stock, par value $.001 per share, from
40,000,000 to 150,000,000 shares. In addition, the Company is authorized to
issue 40,000,000 shares of preferred stock, par value $.001 per share. Of these
shares of preferred stock, the Company designated 10,000,000 shares as Series A
preferred stock, 12,000,000 shares as Series B preferred stock, 12,000,000
shares as Series C preferred stock and 3,000,000 shares as Series D preferred
stock. The amendment also allows for the Board of Directors to designate the
remaining undesignated preferred stock in any manner they may determine.
PREFERRED STOCK
The holders of shares of preferred stock are entitled to preference in
liquidation and to a cumulative dividend at a rate of 8% per annum.
F-13
<PAGE>
ARBINET HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. STOCKHOLDERS' EQUITY (CONTINUED)
On April 15, 1999, the Company issued, in a private placement, an aggregate
of 5,124,985 shares of Series A-1 preferred stock at an aggregate price of
$6,000,000. Based on the Company's amended certificate of incorporation, the
Series A-1 shares are redeemable upon the earlier of (i) the closing of the IPO,
or (ii) November 24, 2004. Series A-1 shares are also convertible into shares of
common stock at any time after the date of issuance at the option of the holder
and are automatically convertible into shares of common stock upon the IPO.
On September 30, 1999, the Company issued in a private placement 1,259,659
shares of Series A-2 preferred stock at an aggregate price of $2,350,000. In
connection with the preferred stock issuance, the Company issued warrants to
purchase 772,163 of the Company's common stock at an exercise price of $0.05 per
share. On November 24, 1999, the Company entered into a restructuring agreement
with the A-2 stockholders, according to which the Company repurchased the
aforementioned securities and issued in return Series B and C preferred stock.
Under the restructuring agreement, the Company issued the A-2 stockholders
warrants to purchase 184,924 shares of the Company's common stock at an exercise
price of $0.05 per share. The warrants are exercisable at any time prior to
November 24, 2004, and are automatically terminated upon the IPO.
On November 24, 1999, the Company issued 11,980,561 shares of Series B
preferred stock and 11,980,562 shares of Series C preferred stock at an
aggregate price of $30,449,796. The Series B shares are redeemable upon the
earlier of (i) the closing of an IPO, or (ii) November 24, 2004. The Series C
shares have the same redemption rights as Series B shares. Series C shares are
also convertible into shares of common stock at any time after the date of
issuance at the option of the holder and are automatically convertible into
shares of common stock upon the IPO.
Shares issued and outstanding of each series of the preferred stock through
December 31, 1999, are as follows:
<TABLE>
<CAPTION>
SERIES A-1 SERIES B SERIES C
---------- ----------- -----------
<S> <C> <C> <C>
Balance, December 31, 1998............. $ -- $ -- $ --
Issued, net of issuance costs...... 5,770,850 15,050,324 15,050,325
Accretion-
Accrued dividends................ 348,000 128,566 128,566
Amortization of issuance costs... 31,960 3,475 3,475
---------- ----------- -----------
Balance, December 31, 1999............. $6,150,810 $15,182,365 $15,182,366
========== =========== ===========
</TABLE>
8. STOCK COMPENSATION
The Company has established a stock incentive plan (the "Plan") which
provides the granting of up to 10,426,918 options to officers, employees,
directors, and consultants of the Company to purchase shares of its common stock
within prescribed periods. As of December 31, 1999, 3,416,788 options were
available for future grants.
The Company applies APB No. 25 and related interpretations in accounting for
its Plan. Accordingly, compensation cost has been recognized for stock option
plan based on the intrinsic value of the option at the date of grant. The
compensation cost that has been charged for stock options was $20,751, $40,384
and $1,794,270 for the years ended December 31, 1997, 1998 and 1999. If
F-14
<PAGE>
ARBINET HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. STOCK COMPENSATION (CONTINUED)
compensation cost for the Company's plan had been determined based on the fair
value at the grant dates, consistent with SFAS No. 123, the Company's net loss
would have remained unchanged.
A summary of the Company's stock options activity during 1997, 1998 and 1999
is presented below:
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
1997 PRICE 1998 PRICE 1999 PRICE
--------- -------- --------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of year........... 917,840 $3.25 1,103,909 $2.72 1,314,749 $2.30
Granted................................ 186,069 0.07 210,840 0.10 5,847,722 0.11
Exercised.............................. -- -- (3,228,568) 0.04
Forfeited.............................. -- -- (152,341) 0.10
--------- --------- ----------
Outstanding, end of year................. 1,103,909 $2.72 1,314,749 $2.30 3,781,562 $0.92
========= ===== ========= ===== ========== =====
Options exercisable at year-end.......... 764,437 $3.89 862,087 $3.46 2,658,235 $1.25
========= ===== ========= ===== ========== =====
Weighted average fair value of options
granted during the year................ $ 0.30 $ 0.68 $ 0.92
========= ========= ==========
</TABLE>
The fair market value of each option grant for all years presented has been
estimated on the date of grant using the Black-Scholes Option Pricing Model with
the following assumptions:
<TABLE>
<S> <C>
Expected option lives....................................... 4 years
Risk-free interest rates.................................... 6%
Expected volatility......................................... 0%
Dividend yield.............................................. 0%
</TABLE>
The following table summarizes information with respect to stock options
outstanding and exercisable at December 31, 1999:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
REMAINING ON WEIGHTED WEIGHTED
RANGE OF NUMBER CONTRACTUAL AVERAGE NUMBER AVERAGE
PRICE EXERCISE OUTSTANDING LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- -------------------------- ----------- ------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
0.01...................... 159,163 2.37 0.01 146,037 0.01
0.09...................... 173,114 4.50 0.09 173,114 0.09
0.11...................... 1,297,120 4.23 0.11 478,693 0.11
0.25...................... 1,438,865 4.90 0.25 1,147,091 0.25
4.17...................... 713,300 2.00 4.17 713,300 4.17
--------- ---------
3,781,562 2,658,235
========= =========
</TABLE>
9. COST OF REVENUES
Cost of revenues consist of the following:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1997 1998 1999
-------- -------- ----------
<S> <C> <C> <C>
Minute and port costs........................... $ -- $ -- $1,556,965
Payroll and related expenses.................... -- -- 860,284
Other........................................... -- -- 507,763
------ ------ ----------
$ -- $ -- $2,925,012
====== ====== ==========
</TABLE>
F-15
<PAGE>
ARBINET HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. INCOME TAXES
The Company files its federal income tax returns on a consolidated basis and
has selected September 30 as its income tax reporting year-end.
At December 31, 1999, the Company had federal and state net operating loss
carryforwards of approximately $13.0 million. Such losses can be utilized
against future taxable income and expire primarily between 2012 and 2019. Under
Section 382 of the Internal Revenue Code, these losses may be limited due to
ownership changes.
A full valuation allowance of approximately $7.0 million has been provided
on the deferred tax asset associated mainly with the loss carryforwards since
the Company has no assurance of realizing such asset.
11. 401(K) PLAN
During 1998 the Company began sponsoring the Arbinet Holdings, Inc. 401(k)
Plan (the "401(k) Plan"), a defined contribution plan. The Company contributions
under the 401(k) Plan computed at 10% of an employee's gross compensation
subject to certain limits. Contributions in 1997, 1998 and 1999 were
approximately $0, $1,000 and $10,000.
12. COMMITMENTS AND CONTINGENCIES
LEGAL PROCEEDINGS
The Company is a party to certain litigation and regulatory proceedings
arising in the ordinary course of business. In the opinion of management, based
upon the advice of the Company's counsel, the ultimate disposition of these
matters will not have a material adverse effect on the Company's consolidated
financial position or results of operations.
OPERATING LEASES
The Company leases office facilities under operating leases expiring through
2010. Aggregate future minimum rental payments are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31:
- ------------------------
<S> <C>
2000........................................................ $ 529,348
2001........................................................ 467,757
2002........................................................ 583,149
2003........................................................ 569,691
2004........................................................ 591,398
Thereafter.................................................. 3,834,242
----------
$6,575,585
==========
</TABLE>
Rent expense for the years ended December 31, 1997, 1998 and 1999, was
approximately $100,000, $220,000 and $180,000.
F-16
<PAGE>
ARBINET HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. COMMITMENTS AND CONTINGENCIES (CONTINUED)
CAPITAL LEASES
The Company leases certain equipment under capital leases which expire at
various dates through 2004.
The minimum future lease obligations as of December 31, 1999, under these
noncancelable capital leases are approximately as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31:
- ------------------------
<S> <C>
2000........................................................ $ 328,595
2001........................................................ 320,288
2002........................................................ 306,065
2003........................................................ 297,056
2004........................................................ 102,092
----------
1,354,096
Less amounts representing interest and executory costs...... (349,067)
----------
Present value of minimum lease payments..................... 1,005,029
Less current portion........................................ (191,797)
----------
Long-term obligations under capital leases.................. $ 813,232
==========
</TABLE>
13. AGREEMENTS WITH RELATED PARTIES
The Company has an employment agreement with a principal stockholder which
expires December 2, 2001. The agreement provides for annual base compensation of
$200,000.
On April 1, 1999, the Company issued to a principal stockholder options to
purchase 2,647,561 of the Company's common stock at a price of $0.01 per share.
The options are exercisable immediately. The options and any underlying shares
are subject to a right of repurchase by the Company upon termination of the
employment agreement. Such repurchase right lapses at the rate of 1/36th per
month.
The Company has an employment agreement with its chairman of the board,
chief executive officer and president. The agreement provides for annual base
compensation of $300,000 which will increase to $350,000 upon the IPO. In
addition, the agreement grants the officer options to purchase 1,147,091 shares
of the Company's common stock at a price $0.254 per share. The options and any
underlying shares are subject to a right of repurchase by the Company upon
termination of the employment agreement. Such repurchase right will lapse at the
rate of 1/48th per month. The agreement also provides the officer with the right
to purchase 286,773 shares of the Company's common stock at a price of $0.254
per share. The options and the underlying shares are subject to a right of
repurchase by the Company upon termination of the employment agreement. The
repurchase right expires (i) 50% upon implementation of the Company's back
office systems and (ii) 50% upon completion of the IPO.
On May 24, 1999, the Company granted the officer options to purchase 313,772
shares of the Company's common stock at a price of $0.11 per share. The options
vested over a four-month period.
During 1999 the Company entered into a consulting agreement with an
affiliated company. Consulting fees in 1999 were approximately $1.0 million.
F-17
<PAGE>
ARBINET HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. SUBSEQUENT EVENTS
On March 7, 2000, the Company issued 2,120,228 shares of Series D preferred
stock for an aggregate price of approximately $41.0 million. Series D shares are
convertible into shares of common stock at any time after the date of issuance
at the option of the holder and are automatically convertible into shares of
common stock upon the IPO.
Subsequent to December 31, 1999, the Company entered into a 15-year lease
agreement for an additional facility. Minimum base rent under this agreement
amounted to approximately $14.0 million.
Subsequent to December 31, 1999, the Company entered into several employment
agreements with certain officers. The agreements provide for annual base
compensation including "sign-on" bonuses of approximately $800,000 in aggregate.
These agreements also provide for the grant of options to purchase 800,000
shares of the Company's common stock at an exercise price of $0.25. In addition,
the Company granted to other new and existing employees options to purchase
approximately 600,000 shares of the Company's common stock at an exercise price
of $0.25. Based upon preliminary estimates, the Company expects to record an
amount in excess of $10 million for additional deferred compensation in
connection with these options, which will be amortized over the vesting period
of such options.
F-18
<PAGE>
[ARBINET LOGO]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, to be paid in connection with the sale
of the Common Stock being registered, all of which will be paid by the
Registrant. All amounts are estimates except the registration fee and the NASD
filing fee.
<TABLE>
<S> <C>
Registration fee............................................ $30,360
NASD filing fee............................................. 12,000
Nasdaq National Market listing fee..........................
Blue Sky fees and expenses.................................. *
Accounting fees and expenses................................ *
Legal fees and expenses..................................... *
Transfer agent and registrar fees........................... *
Printing and engraving expenses............................. *
Miscellaneous expenses......................................
-------
Total................................................. $ *
=======
</TABLE>
- ------------------------
* To be completed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145(a) of the General Corporation Law of the State of Delaware (the
"DGCL") provides that a Delaware corporation shall have the power to indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the corporation) by reason of the fact that he is or was a director,
officer, employee or agent of the corporation or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation or business, against expenses, judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
cause to believe his conduct was unlawful.
Section 145(b) of the DGCL provides that a Delaware corporation may
similarly indemnify any person who was or is a party or is threatened to be made
a party to any threatened, pending or completed action or suit by or in the
right of the corporation to procure a judgment in its favor by reason of the
fact that such person acted in any of the capacities set forth above, against
expenses actually and reasonably incurred by him in connection with the defense
or settlement of any action or suit by or in the right of the corporation if he
acted under similar standards, except that no indemnification may be made in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless and only to the extent that the
court in which such action or suit was brought shall determine that despite the
adjudication of liability, but in view of all of the circumstances of the case,
such person is fairly and reasonably entitled to be indemnified for such
expenses which the court shall deem proper.
Section 145 of the DGCL further provides: (i) that to the extent a director
or officer of a corporation has been successful in the defense of any action,
suit or proceeding referred to in subsections (a) and (b) or in the defense of
any claim, issue, or matter therein, he shall be indemnified
II-1
<PAGE>
against any expenses actually and reasonably incurred by him in connection
therewith; (ii) that indemnification provided for by Section 145 shall not be
deemed exclusive of any rights to which the indemnified party may be entitled;
(iii) and that the corporation may purchase and maintain insurance on behalf of
a director or officer of the corporation against any liability asserted against
him or incurred by him in any such capacity or arising out of his status as such
whether or not the corporation would have the power to indemnify him against
such liabilities under Section 145.
Section 102(b)(7) of the DGCL provides certificate of incorporation may
contain a provision eliminating or limiting the personal liability of a director
to the corporation or its stockholders for money damages for breach of fiduciary
duty as director. However, no such provision may eliminate or limit the
liability of a director for breaching his duty of loyalty, failing to act in
good faith, engaging in intentional misconduct or knowingly violating a law,
paying a dividend or approving a stock repurchase which was illegal, or
obtaining an improper personal benefit. A provision of this type has no effect
on the availability of equitable remedies, such as injunction or rescission, for
breach of fiduciary duty. Arbinet's Certificate of Incorporation contains such a
provision.
Arbinet's certificate of incorporation and bylaws provide that Arbinet shall
indemnify officers and directors and, to the extent permitted by the board of
directors, employees and agents of Arbinet, to the full extent permitted by and
in the manner permissible under the laws of the State of Delaware. In addition,
the bylaws permit the board of directors to authorize Arbinet to purchase and
maintain insurance against any liability asserted against any director, officer,
employee or agent of Arbinet arising out of his capacity as such.
Prior to completion of this offering, Arbinet and each of its directors will
enter into an indemnification agreement. The indemnification agreements will
provide that Arbinet will indemnify the directors to the full extent permitted
by, and in the manner permissible under, the laws of the State of Delaware and
by the certificate of incorporation and the bylaws.
Reference is made to the proposed form of Underwriting Agreement filed as
Exhibit 1.1 to this Registration Statement for information concerning
indemnification arrangements among Arbinet and the Underwriters.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
On April 15, 1999, we completed the private placement of an aggregate of
5,124,985 shares of Series A-1 preferred stock for a total purchase price of
$6.0 million. Investors included Communications Ventures III, L.P.,
Communications Ventures III CEO & Entrepreneurs' Fund, L.P., Bedrock Capital
Partners I, L.P., VBW Employee Bedrock Fund, L.P., Credit Suisse First Boston
Bedrock Fund, L.P., and Internet Capital Group, Inc. The private placement was
exempt from registration under the Securities Act in reliance upon the exemption
provided by Section 4(2) under that Act.
On September 30, 1999, we amended the purchase agreement entered into on
April 15, 1999, and completed the private placement of 1,259,659 shares of
Series A-2 preferred stock and 722,163 warrants to purchase common stock for a
total purchase price of approximately $2.3 million. Investors included
Communications Ventures III, L.P., Communications Ventures III CEO &
Entrepreneurs' Fund, L.P., Bedrock Capital Partners I, L.P., VBW Employee
Bedrock Fund, L.P., Credit Suisse First Boston Bedrock Fund, L.P., Internet
Capital Group, Inc. and Robert Stavis. The private placement was exempt from
registration under the Securities Act in reliance upon the exemption provided by
Section 4(2) under that Act.
On December 2, 1999, we completed the private placement of 11,980,561 shares
of Series B cumulative redeemable senior preferred stock and 11,980,562 shares
of Series C cumulative convertible senior preferred stock for a total purchase
price of approximately $30.5 million. Investors included
II-2
<PAGE>
Communications Ventures III, L.P., Communications Ventures III CEO &
Entrepreneurs' Fund, L.P., Bedrock Capital Partners I, L.P., VBW Employee
Bedrock Fund, L.P., Credit Suisse First Boston Bedrock Fund, L.P., Internet
Capital Group, Inc., J.P. Morgan Investment Corporation, Sixty Wall Street SBIC
Fund, L.P., CB Capital Investors, L.P., BancBoston Ventures Inc., Robert Stavis,
Bayview I, L.P., Bayview II, L.P., Belfrey Partners, L.P. and Augusta Partners
L.P. The private placement was exempt from registration under the Securities Act
in reliance upon the exemption provided by Section 4(2) under that Act.
On March 7, 2000, we completed the private placement of 2,120,228 shares of
Series D preferred stock for a total purchase price of approximately
$41.0 million. Strategic investors included Van Wagoner Capital Management,
Breakaway Capital, investors affiliated with Amerindo Investment
Advisors, Inc., Communications Ventures III, L.P., Communications Ventures III
CEO & Entrepreneurs' Fund, L.P., Credit Suisse First Boston Bedrock Fund, L.P.,
Bedrock Capital Partners I, L.P., Internet Capital Group, Inc., J.P. Morgan
Investment Corporation, Sixty Wall Street SBIC Fund, L.P., CB Capital Investors,
L.P., BancBoston Ventures Inc., Robert Stavis, Belfrey Partners, L.P. and
Augusta Partners L.P. The private placement was exempt from registration under
the Securities Act in reliance upon the exemption provided by Section 4(2) under
that Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
<S> <C>
1.1 Form of Underwriting Agreement.*
3.1 Form of Restated Certificate of Incorporation of the
Registrant to be in effect after the closing of the offering
made under this Registration Statement.*
3.2 Form of Bylaws of the Registrant to be in effect after the
closing of the offering made under this Registration
Statement.
4.1 Form of certificate evidencing shares of Common Stock.
5.1 Opinion of Paul, Hastings, Janofsky & Walker LLP regarding
the legality of the shares being registered.*
10.1 Form of Indemnification Agreement between the Registrant and
each of its directors and officers.*
10.2 Amended and Restated 1997 Stock Incentive Plan.
10.3 Employment Agreement dated as of December 3, 1999 between
Arbinet Holdings, Inc. and Anthony L. Craig.
10.4 Employment Agreement dated as of December 27, 1999 between
Arbinet Holdings, Inc. and Robert S. Vaters.
10.5 Employment Agreement dated as of January 6, 2000 between
Arbinet Holdings, Inc. and Neil A. Torpey.*
10.6 Employment Agreement dated as of February 18, 2000 between
Arbinet Holdings, Inc. and Norris M. Hall, III.*
10.7 Amended and Restated Employment Agreement dated as of
December 2, 1999 between Arbinet Holdings, Inc. and Alex
Mashinsky.
10.8 Form of Arbinet Global Clearing Network Member Agreement.
10.9 Form of Employment, Nondisclosure and Assignment of
Inventions Agreement of Arbinet Holdings, Inc.
10.10 Form of Stock Option Agreement dated as of January 1, 2000
between Arbinet Holdings, Inc. and Robert S. Vaters.
10.11 Stock Option Agreement dated as of May 24, 1999 between
Arbinet Holdings and Anthony L. Craig.
10.12 Stock Option Agreement dated as of April 14, 1999 between
Arbinet Holdings, Inc. and Alex Mashinsky.*
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
10.13 Stock Option Agreement dated as of January 6, 2000 and
Arbinet Holdings, Inc. and Neil A. Torpey.*
10.14 Management Rights Agreement dated as of March 7, 2000
between Arbinet Holdings, Inc. and Communications Ventures
III, L.P.*
10.15 Global Purchase Agreement dated as of October 20, 1999
between Arbinet Holdings Corp. and Nortel Networks, Inc.
10.16 Series D Convertible Senior Preferred Stock Purchase
Agreement dated as of March 7, 2000 between Arbinet
Holdings, Inc., the Series D Investors, SBIC Investors and
the Other Investors.*
10.17 Series B and C Senior Preferred Stock Purchase Agreement
dated November 24, 1999 between Arbinet Holdings, Inc., J.P.
Morgan Investment Corporation, Sixty Wall Street SBIC Fund,
L.P., CB Capital Investors, L.P., Banc Boston
Ventures, Inc. and the Other Investors.
10.18 Amendment to Series A Preferred Stock Purchase Agreement
dated as of September 30, 1999 between Arbinet
Holdings, Inc., the Investors and the New Investors.*
10.19 Series A Preferred Stock Purchase Agreement dated as of
April 15, 1999 between Arbinet Holdings, Inc.,
Communications Ventures III, L.P., Communications Ventures
III CEO & Entrepreneurs' Fund, L.P., Internet Capital
Group, Inc., Bedrock Capital Partners I, L.P., VBW Employee
Bedrock Fund, L.P. and Credit Suisse First Boston Bedrock
Fund, L.P.
10.20 Second Amended and Restated Investors' Rights Agreement
dated March 7, 2000 between Arbinet Holdings, Inc. and
Communications Ventures III, L.P.*
10.21 Second Amended and Restated Co-Sale and Right of First
Refusal Agreement dated as of March 7, 2000 between Arbinet
Holdings, Inc. and certain parties thereto.*
10.22 Second Amended and Restated Voting Agreement dated as of
March 7, 2000 between Arbinet Holdings, Inc. and the
signatories thereto.*
10.23 Agreement of Lease dated as of September 30, 1999 between
Arbinet Communications, Inc. and Broad Financial Center
LLC.*
10.24 Consulting Agreement dated February 9, 2000 between Arbinet
Holdings, Inc. and PricewaterhouseCoopers L.L.P.
10.25 Consulting Agreement dated as of July 8, 1999 between
Arbinet Holdings, Inc. and Breakaway Solutions, Inc.
21.1 Subsidiaries of the Company.
23.1 Consent of Arthur Andersen LLP, Independent Auditors.
23.2 Consent of Paul, Hastings, Janofsky & Walker LLP (see
Exhibit 5.1).*
24.1 Power of Attorney (see page II-6).
27.1 Financial Data Schedule.
</TABLE>
* To be filed by amendment.
(b) Financial Statement Schedules
Not applicable.
ITEM 17. UNDERTAKINGS.
The Registrant hereby undertakes to provide to the Underwriters, at the
closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities 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
II-4
<PAGE>
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted against the Registrant 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 Securities Act and will be governed by the final adjudication
of such issue.
The Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
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 the Commission declared it effective.
(2) For purposes of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement for the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial BONA FIDE offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York,
State of New York, on March 10, 2000.
<TABLE>
<S> <C> <C>
ARBINET HOLDINGS, INC.
By: /s/ ROBERT S. VATERS
----------------------------------------
Name: Robert S. Vaters
Title: Executive Vice President and
Chief Financial Officer
</TABLE>
II-6
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Robert S. Vaters and Neil A. Torpey and each of
them his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and to sign any and all registration
statements relating to the same offering of securities as this Registration
Statement that are filed pursuant to Rule 462(b) of the Securities Act of 1933,
as amended, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission and any
other regulatory authority, granting unto said attorney-in-fact and agent, and
each of them, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in connection therewith, as fully to
all intents and purposes as such person might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent, or their or
his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <S> <C>
Chairman of the Board, Chief
/s/ ANTHONY L. CRAIG Executive Officer and
------------------------------------------- President (Principal March 10, 2000
Anthony L. Craig Executive Officer)
/s/ ALEX MASHINSKY
------------------------------------------- Vice Chairman, Founder and March 10, 2000
Alex Mashinsky Director
Executive Vice President and
/s/ ROBERT S. VATERS Chief Financial Officer
------------------------------------------- (Principal Financial and March 10, 2000
Robert S. Vaters Accounting Officer)
/s/ DOUGLAS A. ALEXANDER
------------------------------------------- Director March 10, 2000
Douglas A. Alexander
/s/ PHILIP SUMME
------------------------------------------- Director March 10, 2000
Philip Summe
/s/ PAUL G. THEUNISSEN
------------------------------------------- Director March 10, 2000
Paul G. Theunissen
/s/ ROLAND A. VAN DER MEER
------------------------------------------- Director March 10, 2000
Roland A. Van der Meer
</TABLE>
II-7
<PAGE>
Exhibit 3.2
BY - LAWS
of
ARBINET HOLDINGS, INC.
(A Delaware Corporation)
ARTICLE I
Stockholders
Section 1. Place of Meetings. Meetings of stockholders shall be held
at such place, either within or without the State of Delaware, as shall be
designated from time to time by the Board of Directors.
Section 2. Annual Meetings. Annual meetings of stockholders shall be
held on such date of each year and at such time as shall be designated from time
to time by the Board of Directors. At each annual meeting, the stockholders
shall elect a Board of Directors by plurality vote and transact such other
business as may be properly brought before the meeting.
Section 3. Special Meetings. Special meetings of the stockholders
may be called by the Board of Directors.
Section 4. Notice of Meetings. Written notice of each meeting of the
stockholders stating the place, date and hour of the meeting shall be given by
or at the direction of the Board of Directors to each stockholder entitled to
vote at the meeting at least ten, but not more than sixty, days prior to the
meeting. Notice of any special meeting shall state in general terms the purpose
or purposes for which the meeting is called.
Section 5. Quorum; Adjournments of Meetings. The holders of a
majority of the issued and outstanding shares of the capital stock of the
corporation entitled to vote at a meeting, present in person or represented by
proxy, shall constitute a quorum for the transaction of business at such
meeting; but, if there be less than a quorum, the holders of a
1
<PAGE>
majority of the stock so present or represented may adjourn the meeting to
another time or place, from time to time, until a quorum shall be present,
whereupon the meeting may be held, as adjourned, without further notice, except
as required by law, and any business may be transacted thereat which might have
been transacted at the meeting as originally called.
Section 6. Voting. At any meeting of the stockholders, every
registered owner of shares entitled to vote may vote in person or by proxy and,
except as otherwise provided by statute, in the Certificate of Incorporation or
these By-Laws, shall have one vote for each such share standing in his name on
the books of the corporation. Except as otherwise required by statute, the
Certificate of Incorporation or these By-Laws, all matters, other than the
election of directors, brought before any meeting of the stockholders shall be
decided by a vote of a majority in interest of the stockholders of the
corporation present in person or by proxy at such meeting and voting thereon, a
quorum being present.
Section 7. Inspectors of Election. The Board of Directors, or, if
the Board shall not have made the appointment, the chairman presiding at any
meeting of stockholders shall have power to appoint one or more persons to act
as inspectors of election at the meeting or any adjournment thereof, but no
candidate for the office of director shall be appointed as an inspector at any
meeting for the election of directors.
Section 8. Chairman of Meetings. The Chairman of the Board or, in
his absence, the President shall preside at all meetings of the stockholders. In
the absence of both the Chairman of the Board and the President, a majority of
the members of the Board of Directors present in person at such meeting may
appoint any other officer or director to act as chairman of the meeting.
Section 9. Secretary of Meetings. The Secretary of the corporation
shall act as secretary of all meetings of the stockholders. In the absence of
the Secretary, the chairman of the meeting shall appoint any other person to act
as secretary of the meeting.
2
<PAGE>
ARTICLE II
Board of Directors
Section 1. Number of Directors. The Board of Directors shall consist
of eight (8) members; provided, however, that such number may from time to time
be increased or decreased by the Board of Directors or by the stockholders.
Section 2. Vacancies. Whenever any vacancy shall occur in the Board
of Directors by reason Of death, resignation, removal, increase in the number of
directors or otherwise, it may be filled by a majority of the directors then in
office, although less than a quorum, or by a sole remaining director, for the
balance of the term, or, if the Board has not filled such vacancy, it may be
filled by the stockholders.
Section 3. First Meeting. The first meeting of each newly elected
Board of Directors, of which no notice shall be necessary, shall be held
immediately following the annual meeting of stockholders or any adjournment
thereof at the place the annual meeting of stockholders was held at which such
directors were elected, or at such other place as a majority of the members of
the newly elected Board who are then present shall determine, for the election
or appointment of officers for the ensuing year and the transaction of such
other business as may be brought before such meeting.
Section 4. Regular Meetings. Regular meetings of the Board of
Directors, other than the first meeting, may be held without notice at such
times and places as the Board of Directors may from time to time determine.
Section 5. Special Meetings. Special meetings of the Board of
Directors may be called by order of the Chairman of the Board, the President or
any two directors. Notice of the time and place of each special meeting shall be
given by or at the direction of the person or persons calling the meeting by
mailing the same at least three days before the meeting or by telephoning,
telegraphing or delivering personally the same at least twenty-four hours before
the meeting to each director. Except as otherwise specified in the notice
thereof, or as required by statute, the Certificate of Incorporation or these
By-Laws, any and all
3
<PAGE>
business may be transacted at any special meeting.
Section 6. Place of Conference Call Meeting. Any meeting at which
one or more of the members of the Board of Directors or of a committee
designated by the Board of Directors shall participate by means of conference
telephone or similar communications equipment shall be deemed to have been held
at the place designated for such meeting, provided that at least one member is
at such place while participating in the meeting.
Section 7. Organization. Every meeting of the Board of Directors
shall be presided over by the Chairman of the Board or, in his absence, the
President. In the absence of the Chairman of the Board and the President, a
presiding officer shall be chosen by a majority of the directors present. The
Secretary of the corporations all act as secretary of the meeting, but, in his
absence, the presiding officer may appoint any person to act as secretary of the
meeting.
Section 8. Quorum; Vote. A majority of the directors then in office
(but in no event less than one-third of the total number of directors) shall
constitute a quorum for the transaction of business, but less than a quorum may
adjourn any meeting to another time or place from time to time until a quorum
shall be present, whereupon the meeting may be held, as adjourned, without
further notice. Except as otherwise required by statute, the Certificate of
Incorporation or these By-Laws, all matters coming before any meeting of the
Board of Directors shall be decided by the vote of a majority of the directors
present at the meeting, a quorum being present.
Section 9. Removal of Directors. Any one or more of the directors
shall be subject to removal with or without cause at any time by the
stockholders.
4
<PAGE>
ARTICLE III
Officers
Section 1. General. The Board Of Directors shall elect the officers
of the corporation, which shall include a President, a Secretary and a Treasurer
and such other or additional officers (including, without limitation, a Chairman
of the Board, one or more Vice-Chairmen of the Board, Vice-Presidents, Assistant
Vice-Presidents, Assistant Secretaries and Assistant Treasurers) as the Board of
Directors may designate.
Section 2. Term of Office; Removal and Vacancy. Each officer shall
hold his office until his successor is elected and qualified or until his
earlier resignation or removal. Any officer or agent shall be subject to removal
with or without cause at any time by the Board of Directors. Vacancies in any
office, whether occurring by death, resignation, removal or otherwise, may be
filled by the Board of Directors.
Section 3. Powers and Duties. Each of the officers of the
corporation shall, unless otherwise ordered by the Board of Directors, have such
powers and duties as generally pertain to his respective office as well as such
powers and duties as from time to time may be conferred upon him by the Board of
Directors. Unless otherwise ordered by the Board of Directors after the adoption
of these By-Laws, the Chairman of the Board or, when the office of Chairman of
the Board is vacant, the President shall be the chief executive officer of the
corporation.
Section 4. Power to Vote Stock. Unless otherwise ordered by the
Board of Directors, the Chairman of the Board and the President each shall have
full power and authority on behalf of the corporation to attend and to vote at
any meeting of stockholders of any corporation in which the corporation may hold
stock, and may exercise on behalf of the
5
<PAGE>
corporation any and all of the rights and powers incident to the ownership of
such stock at any such meeting and shall have power and authority to execute and
deliver proxies, waivers and consents on behalf of the corporation in connection
with the exercise by the corporation of the rights and powers incident to the
ownership of such stock. The Board of Directors, from time to time, may confer
like powers upon any other person or persons.
ARTICLE IV
Capital Stock
Section 1. Certificates of Stock. Certificates for stock of the
corporation shall be in such form as the Board of Directors may from time to
time prescribe and shall be signed by the Chairman of the Board or a Vice
Chairman of the Board or the President or a Vice-President and by the Treasurer
or an Assistant Treasurer or the Secretary or an Assistant Secretary.
Section 2. Transfer of Stock. Shares of capital stock of the
corporation shall be transferable on the books of the corporation only by the
holder of record thereof, in person or by duly authorized attorney, upon
surrender and cancellation of certificates for a like number of shares, with an
assignment or power of transfer endorsed thereon or delivered therewith, duly
executed, and with such proof of the authenticity of the signature and of
authority to transfer, and of payment of transfer taxes, as the corporation or
its agents may require.
Section 3. Ownership of Stock. The corporation shall be entitled to
treat the holder of record of any share or shares of stock as the owner thereof
in fact and shall not be bound to recognize any equitable or other claim to or
interest in such shares on the part of any other person, whether or not it shall
have express or other notice thereof, except as otherwise expressly provided by
law.
6
<PAGE>
ARTICLE V
Miscellaneous
Section 1. Corporate Seal. The seal of the corporation shall be
circular in form and shall contain the name of the corporation and the year and
state of incorporation.
Section 2. Fiscal Year. The Board of Directors shall have power to
fix, and from time to time to change, the fiscal year of the corporation.
ARTICLE VI
Amendment
The Board of Directors shall have the power to make, alter or repeal
the By-Laws of the corporation subject to the power of the stockholders to alter
or repeal the By-Laws made or altered by the Board of Directors.
ARTICLE VII
Indemnification
The corporation shall indemnify any director, officer, employee or
agent of the corporation to the full extent permitted by law.
7
<PAGE>
Exhibit 4.1
Organized Under The Laws Of The State Of Delaware
NUMBER SHARES
ARBINET HOLDINGS, INC.
150,000,000 SHARES PAR VALUE $.001 EACH
COMMON STOCK
THIS CERTIFIES THAT _______________________________________ is the owner of
___________________ fully paid and non-assessable Shares of the above
Corporation transferable only on the books of the Corporation by the holder
hereof in person or by duly authorized attorney upon surrender of this
Certificate properly endorsed.
In Witness Whereof, the said Corporation has caused this Certificate to be
signed by its duly authorized officers and to be sealed with the seal of the
Corporation.
Dated ___________________
___________________________________ ________________________
Secretary Chairman
<PAGE>
The following abbreviations, when used in the inscription on the
face of this certificate, shall be construed as though they were written out in
full according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT - ____ Custodian _______
(Cust) (Minor)
TEN ENT - as tenants by the under Uniform Gifts to Minors
entireties Act __________________
(State)
JT TEN - as joint tenants with
right of survivorship
and not as tenants in
common
Additional abbreviations may also be used though not in the above list
FOR VALUE RECEIVED________________________ HEREBY SELL, ASSIGN AND TRANSFER UNTO
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
__________________________
________________________________________________________________________________
____
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING
POSTAL ZIP CODE OF ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
__________________________________________________________________________Shares
represented by the within Certificate, and do hereby irrevocably constitute and
appoint
_____________________________________________________________________ Attorney
to transfer the said Shares on the books of the within named Corporation with
full power of substitution in the premises.
Dated _________________________ 20____
In presence of
_________________________
THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE
ENCUMBERED, PLEDGED, HYPOTHECATED, SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT OR AN OPINION
OF COUNSEL SATISFACTORY TO THE CORPORATION AND CONCURRED IN BY THE CORPORATION'S
COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR SUCH
TRANSACTION COMPLIES WITH RULES PROMULGATED BY THE SECURITIES AND EXCHANGE
COMMISSION UNDER SAID ACT.
<PAGE>
Exhibit 10.2
AMENDED AND RESTATED ARBINET HOLDINGS, INC.
1997 STOCK INCENTIVE PLAN
<PAGE>
ARTICLE I
GENERAL
I.1 Purpose
The purpose of the ArbiNet Holdings, Inc. 1997 Amended and Restated
Stock Incentive Plan (the "Plan") is to provide for officers, other employees
and directors of, and consultants to, ArbiNet Holdings, Inc. (the "Company") and
its subsidiaries an incentive (a) to enter into and remain in the service of the
Company, (b) to enhance the long-term performance of the Company, and (c) to
acquire a proprietary interest in the success of the Company.
I.2 Administration
I.2.1 Subject to Section 1.2.6, the Plan shall be administered by
the Stock Option Committee (the "Committee") of the board of directors of the
Company (the "Board"), which shall consist of not less than two directors. The
members of the Committee shall be appointed by, and serve at the pleasure of,
the Board. To the extent required for transactions under the Plan to qualify for
the exemptions available under Rule 16b-3 ("Rule 16b-3") promulgated under the
Securities Exchange Act of 1934 (the "1934 Act"), all actions relating to awards
to persons subject to Section 16 of the 1934 Act shall be taken by the Board
unless each person who serves on the Committee is a "non-employee director"
within the meaning of Rule 16b-3 or such actions are taken by a sub-committee of
the Committee (or the Board) comprised solely of "non-employee directors." To
the extent required for compensation realized from awards under the Plan to be
deductible by the Company pursuant to section 162(m) of the Internal Revenue
1
<PAGE>
Code of 1986 (the "Code"), the members of the Committee shall be "outside
directors" within the meaning of section 162(m).
I.2.2 The Committee shall have the authority (a) to exercise all of
the powers granted to it under the Plan, (b) to construe, interpret and
implement the Plan and any Plan Agreements executed pursuant to Section 2. 1,
(c) to prescribe, amend and rescind rules and regulations relating to the Plan,
including rules governing its own operations, (d) to make all determinations
necessary or advisable in administering the Plan, (e) to correct any defect,
supply any omission and reconcile any inconsistency in the Plan, and (f) to
amend the Plan to reflect changes in applicable law.
I.2.3 Actions of the Committee shall be taken by the vote of a
majority of its members. Any action may be taken by a written instrument signed
by a majority of the Committee members, and action so taken shall be fully as
effective as if it had been taken by a vote at a meeting.
I.2.4 The determination of the Committee on all matters relating to
the Plan or any Plan Agreement shall be final, binding and conclusive.
I.2.5 No member of the Committee shall be liable for any action or
determination made in good faith with respect to the Plan or any award
thereunder.
I.2.6 Notwithstanding anything to the contrary contained herein: (a)
until the Board shall appoint the members of the Committee, the Plan shall be
administered by the Board; and (b) the Board may, in its sole discretion, at any
time and from time to time, grant awards or resolve to administer the Plan. In
either of the
2
<PAGE>
foregoing events, the Board shall have all of the authority and responsibility
granted to the Committee herein.
I.3 Persons Eligible for Awards
Awards under the Plan may be made to such directors, officers and
other employees of the Company and its subsidiaries (including prospective
employees conditioned on their becoming employees), and to such consultants to
the Company and its subsidiaries (collectively, "key persons") as the Committee
shall in its discretion select.
I.4 Types of Awards Under Plan
Awards may be made under the Plan in the form of (a) incentive stock
options (within the meaning of section 422 of the Code), (b) nonqualified stock
options, (c) stock appreciation rights, (d) dividend equivalent rights, (e)
restricted stock, (f) restricted stock units and (g) other stock-based awards,
all as more fully set forth in Article II. The term "award" means any of the
foregoing. No incentive stock option may be granted to a person who is not an
employee of the Company on the date of grant.
I.5 Shares Available for Awards
I.5.1 The total number of shares of common stock of the Company, par
value $.001 per share ("Common Stock"), which may be transferred pursuant to
awards granted under the Plan shall not exceed 10,426,918 shares. Such shares
may be authorized but unissued Common Stock or authorized and issued Common
Stock held in the Company's treasury or acquired by the Company for the purposes
of the Plan. The
3
<PAGE>
Committee may direct that any stock certificate evidencing shares issued
pursuant to the Plan shall bear a legend setting forth such restrictions on
transferability as may apply to such shares pursuant to the Plan.
I.5.2 Subject to any required action by the shareholders of the
Company, the number of shares of Common Stock covered by each outstanding award,
the number of shares available for awards, the number of shares that may be
subject to awards to any one employee, and the price per share of Common Stock
covered by each such outstanding award shall be proportionately adjusted for any
increase or decrease in the number of issued shares of Common Stock resulting
from a stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock, or any other increase or decrease in the
number of issued shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the
Committee, whose determination in that respect shall be final, binding and
conclusive. Except as expressly provided herein, no issuance by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares of Common Stock subject to an award.
After any adjustment made pursuant to this Section 1.5.2, the
4
<PAGE>
number of shares subject to each outstanding award shall be rounded to the
nearest whole number.
I.5.3 Except as provided in this Section 1.5 and in Section 2.3.7,
there shall be no limit on the number or the value of the shares of Common Stock
that may be subject to awards to any individual under the Plan.
I.6 Definitions of Certain Terms
I.6.1 The "Fair Market Value" of a share of Common Stock on any day
shall be determined as follows.
(a) If the principal market for the Common Stock (the Market")
is a national securities exchange or the National Association of Securities
Dealers Automated Quotation System ("NASDAQ") National Market, the last sale
price or, if no reported sales take place on the applicable date, the average of
the high bid and low asked price of Common Stock as reported for such Market on
such date or, if no such quotation is made on such date, on the next preceding
day on which there were quotations, provided that such quotations shall have
been made within the ten (10) business days preceding the applicable date;
(b) If the Market is a Market other than the NASDAQ National
Market, the average of the high bid and low asked price for the Common Stock on
the applicable date, or, if no such quotations shall have been made on such
date, on the next preceding day on which there were quotations, provided that
such quotations shall have been made within the ten (10) business days preceding
the applicable date; or,
5
<PAGE>
(c) In the event that neither paragraph (a) nor (b) shall
apply, the Fair Market Value of a share of Common Stock on any day shall be
determined in good faith by the Committee.
I.6.2 The term "incentive stock option" means an option that is
intended to qualify for special federal income tax treatment pursuant to
sections 421 and 422 of the Code, as now constituted or subsequently amended, or
pursuant to a successor provision of the Code, and which is so designated in the
applicable Plan Agreement. Any option that is not specifically designated as an
incentive stock option shall under no circumstances be considered an incentive
stock option. Any option that is not an incentive stock option is referred to
herein as a "nonqualified stock option."
I.6.3 The term "employment" means, in the case of a grantee of an
award under the Plan who is not an employee of the Company, the grantee's
association with the Company or a subsidiary as a director, consultant or
otherwise.
I.6.4 A grantee shall be deemed to have a "termination of
employment" upon ceasing to be employed by the Company and all of its
subsidiaries or by a corporation assuming awards in a transaction to which
section 424(a) of the Code applies. The Committee may in its discretion
determine (a) whether any leave of absence constitutes a termination of
employment for purposes of the Plan, (b) the impact, if any, of any such leave
of absence on awards theretofore made under the Plan, and (c) when a change in a
non-employee's association with the Company constitutes a termination of
employment for purposes of the Plan. The Committee shall have the right to
determine
6
<PAGE>
whether the termination of a grantee's employment is a dismissal for cause (as
defined herein) and the date of termination in such case, which date the
Committee may retroactively deem to be the date of the action that is cause for
dismissal. Such determinations of the Committee shall be final, binding and
conclusive.
I.6.5 The term "cause," when used in connection with termination of
a grantee's employment, shall have the meaning set forth in any then-effective
employment agreement between the grantee and the Company or a subsidiary
thereof. In the absence of such an employment agreement, "cause" means: (i) the
gross neglect or willful failure or refusal of the Optionee to perform
Optionee's duties under any agreement between the Optionee and the Company
(other than as a result of total or partial incapacity due to physical or mental
illness); (ii) the engaging by Optionee in misconduct which is injurious to the
Company, monetarily or otherwise; (iii) perpetration of an intentional and
knowing fraud against or affecting the Company or any customer, client, agent,
or employee thereof; (iv) any willful or intentional act that could reasonably
be expected to injure the reputation, business, or business relationships of the
Company or Employee's reputation or business relationships; (v) conviction
(including conviction on a nolo contendere plea) of a felony or any crime
involving, in the good faith judgment of the Company, fraud, dishonesty or moral
turpitude; or (vi) the breach of any covenant by the Optionee to the Company
relating to noncompetition, nonsolicitation, nondisclosure of proprietary
information or surrender of records, inventions or patents.
7
<PAGE>
ARTICLE II
AWARDS UNDER THE PLAN
II.1 Agreements Evidencing Awards
Each award granted under the Plan (except an award of unrestricted
stock) shall be evidenced by a written agreement ("Plan Agreement") which shall
contain such provisions as the Committee in its discretion deems necessary or
desirable. Such provisions may include, without limitation, a requirement that
the grantee become a party to a shareholders' agreement with respect to any
shares of Common Stock acquired pursuant to the award, a requirement that the
grantee acknowledge that such shares are acquired for investment purposes only,
a right of first refusal exercisable by the Company in the event that the
grantee wishes to transfer any such shares, and a call right exercisable by the
Company following the termination of employment. By accepting an award pursuant
to the Plan, a grantee thereby agrees that the award shall be subject to all of
the terms and provisions of the Plan and the applicable Plan Agreement.
II.2 No Rights as a Shareholder
No grantee of an option or stock appreciation right (or other person
having the right to exercise such award) shall have any of the rights of a
shareholder of the Company with respect to shares subject to such award until
the issuance of a stock certificate to such person for such shares. Except as
otherwise provided in Section 1.5.3, no adjustment shall be made for dividends,
distributions or other rights (whether ordinary or extraordinary, and whether in
cash, securities or other property) for which the record date is prior to the
date such stock certificate is issued.
8
<PAGE>
II.3 Grant of Stock Options, Stock Appreciation
Rights and Dividend Equivalent Rights
II.3.1 The Committee may grant incentive stock options and
nonqualified stock options (collectively, "options") to purchase shares of
Common Stock from the Company, to such key persons, in such amounts and subject
to such terms and conditions, as the Committee shall determine in its
discretion, subject to the provisions of the Plan.
II.3.2 The Committee may grant stock appreciation rights to such key
persons, in such amounts and subject to such terms and conditions, as the
Committee shall determine in its discretion, subject to the provisions of the
Plan. Stock appreciation rights may be granted in connection with all or any
part of, or independently of, any option granted under the Plan. A stock
appreciation right granted in connection with a nonqualified stock option may be
granted at or after the time of grant of such option. A stock appreciation right
granted in connection with an incentive stock option may be granted only at the
time of grant of such option.
II.3.3 The grantee of a stock appreciation right shall have the
right, subject to the terms of the Plan and the applicable Plan Agreement, to
receive from the Company an amount equal to (a) the excess of the Fair Market
Value of a share of Common Stock on the date of exercise of the stock
appreciation right over (b) the exercise price of such right as set forth in the
Plan Agreement (or over the option exercise price if the stock appreciation
right is granted in connection with an option), multiplied by (c) the number of
shares with respect to which the stock appreciation right is exercised. Payment
upon exercise of a stock appreciation right shall be in cash or in
9
<PAGE>
shares of Common Stock (valued at their Fair Market Value on the date of
exercise of the stock appreciation right) or both, all as the Committee shall
determine in its discretion. Upon the exercise of a stock appreciation right
granted in connection with an option, the number of shares subject to the option
shall be correspondingly reduced by the number of shares with respect to which
the stock appreciation right is exercised. Upon the exercise of an option in
connection with which a stock appreciation right has been granted, the number of
shares subject to the stock appreciation right shall be correspondingly reduced
by the number of shares with respect to which the option is exercised.
II.3.4 Each Plan Agreement with respect to an option shall set forth
the amount (the "option exercise price") payable by the grantee to the Company
upon exercise of the option evidenced thereby. The option exercise price per
share shall be determined by the Committee in its discretion; provided, however,
that the option exercise price of an incentive stock option shall be at least
100% of the Fair Market Value of a share of Common Stock on the date the option
is granted, and provided further that in no event shall the option exercise
price be less than the par value of a share of Common Stock.
II.3.5 Each Plan Agreement with respect to an option or stock
appreciation right shall set forth the periods during which the award evidenced
thereby shall be exercisable, whether in whole or in part. Such periods shall be
determined by the Committee in its discretion; provided, however, that no
incentive stock option (or a stock
10
<PAGE>
appreciation right granted in connection with an incentive stock option) shall
be exercisable more than 10 years after the date of grant.
II.3.6 The Committee may in its discretion include in any Plan
Agreement with respect to an option (the "original option") a provision that an
additional option (the "additional option") shall be granted to any grantee who,
pursuant to Section 2.4.3(b), delivers shares of Common Stock in partial or full
payment of the exercise price of the original option. The additional option
shall be for a number of shares of Common Stock equal to the number thus
delivered, shall have an exercise price equal to the Fair Market Value of a
share of Common Stock on the date of exercise of the original option, and shall
have an expiration date no later than the expiration date of the original
option. In the event that a Plan Agreement provides for the grant of an
additional option, such Agreement shall also provide that the exercise price of
the original option be no less than the Fair Market Value of a share of Common
Stock on its date of grant, and that any shares that are delivered pursuant to
Section 2.4.3(b) in payment of such exercise price shall have been held for at
least six months.
II.3.7 To the extent that the aggregate Fair Market Value
(determined as of the time the option is granted) of the stock with respect to
which incentive stock options granted under this Plan and all other plans of the
Company and any subsidiary are first exercisable by any employee during any
calendar year shall exceed the maximum limit (currently, $100,000), if any,
imposed from time to time under section 422 of the Code, such options shall be
treated as nonqualified stock options.
11
<PAGE>
II.3.8 Notwithstanding the provisions of Sections 2.3.4 and 2.3.5,
to the extent required under section 422 of the Code, an incentive stock option
may not be granted under the Plan to an individual who, at the time the option
is granted, owns stock possessing more than 10% of the total combined voting
power of all classes of stock of his employer corporation or of its parent or
subsidiary corporations (as such ownership may be determined for purposes of
section 422(b)(6) of the Code) unless (a) at the time such incentive stock
option is granted the option exercise price is at least 110% of the Fair Market
Value of the shares subject thereto and (b) the incentive stock option by its
terms is not exercisable after the expiration of five (5) years from the date it
is granted.
II.4 Exercise of Options and Stock Appreciation Rights
Subject to the provisions of this Article 11, each option or stock
appreciation right granted under the Plan shall be exercisable as follows:
II.4.1 An option or stock appreciation right shall become
exercisable as determined by the Committee and set forth in a Plan Agreement,
and once it becomes exercisable shall remain exercisable until expiration,
cancellation or termination of the award.
II.4.2 Unless the applicable Plan Agreement otherwise provides, an
option or stock appreciation right may be exercised from time to time as to all
or part of the shares as to which such award is then exercisable (but, in any
event, only for whole shares). A stock appreciation right granted in connection
with an option may be exercised at any time when, and to the same extent that,
the related option may be
12
<PAGE>
exercised. An option or stock appreciation right shall be exercised by the
filing of a written notice with the Company, on such form and in such manner as
the Committee shall prescribe.
II.4.3 Any written notice of exercise of an option shall be
accompanied by payment for the shares being purchased. Such payment shall be
made: (a) by certified or official bank check (or the equivalent thereof
acceptable to the Company) for the full option exercise price; or (b) unless the
applicable Plan Agreement provides otherwise, by delivery of shares of Common
Stock acquired at least six months prior to the option exercise date and having
a Fair Market Value (determined as of the exercise date) equal to all or part of
the option exercise price and a certified or official bank check (or the
equivalent thereof acceptable to the Company) for any remaining portion of the
full option exercise price; (c) on a "cashless" basis, by stating in the
exercise notice the number of shares the Optionee elects to purchase pursuant to
such exercise (in which case the Optionee shall receive a number of shares equal
to the number the Optionee would have received upon such exercise for cash less
such number of shares as shall then have a Fair Market Value in the aggregate
equal to the exercise price due in respect of such exercise); or (d) at the
discretion of the Committee and to the extent permitted by law, by such other
provision as the Committee may from time to time prescribe.
II.4.4 Promptly after receiving payment of the full option exercise
price, or after receiving notice of the exercise of a stock appreciation right
for which payment will be made partly or entirely in shares, the Company shall,
subject to the provisions of
13
<PAGE>
Section 3.3 (relating to certain restrictions), deliver to the grantee or to
such other person as may then have the right to exercise the award, a
certificate or certificates for the shares of Common Stock for which the award
has been exercised. If the method of payment employed upon option exercise so
requires, and if applicable law permits, an optionee may direct the Company to
deliver the certificate(s) to the optionee's stockbroker.
II.5 Termination of Employment; Death
II.5.1 Except to the extent otherwise provided in Section 2.5.2 or
2.5.3 or in the applicable Plan Agreement, all options and stock appreciation
rights not theretofore exercised shall terminate upon termination of the
grantee's employment for any reason (including death).
II.5.2 If a grantee's employment terminates for any reason other
than death or dismissal for cause, the grantee may exercise any outstanding
option or stock appreciation right on the following terms and conditions: (a)
exercise may be made only to the extent that the grantee was entitled to
exercise the award on the date of employment termination; and (b) exercise must
occur within three months after employment terminates, except that the
three-month period shall be increased to one year if the termination is by
reason of disability, but in no event after the expiration date of the award as
set forth in the Plan Agreement. In the case of an incentive stock option, the
term "disability" for purposes of the preceding sentence shall have the meaning
given to it by section 422(c)(7) of the Code.
14
<PAGE>
II.5.3 If a grantee dies while employed by the Company or any
subsidiary, or after employment termination but during the period in which the
grantee's awards are exercisable pursuant to Section 2.5.2, any outstanding
option or stock appreciation right shall be exercisable on the following terms
and conditions: (a) exercise may be made only to the extent that the grantee was
entitled to exercise the award on the date of death; and (b) exercise must occur
by the earlier of the first anniversary of the grantee's death or the expiration
date of the award. Any such exercise of an award following a grantee's death
shall be made only by the grantee's executor or administrator, unless the
grantee's will specifically disposes of such award, in which case such exercise
shall be made only by the recipient of such specific disposition. If a grantee's
personal representative or the recipient of a specific disposition under the
grantee's will shall be entitled to exercise any award pursuant to the preceding
sentence, such representative or recipient shall be bound by all the terms and
conditions of the Plan and the applicable Plan Agreement which would have
applied to the grantee including, without limitation, the provisions of Sections
3.3 and 3.7 hereof.
II.6 Grant of Restricted Stock
II.6.1 The Committee may grant restricted shares of Common Stock to
such key persons, in such amounts, and subject to such terms and conditions as
the Committee shall determine in its discretion, subject to the provisions of
the Plan. Restricted stock awards may be made independently of or in connection
with any other award under the Plan. A grantee of a restricted stock award shall
have no rights with
15
<PAGE>
respect to such award unless such grantee accepts the award within such period
as the Committee shall specify by executing a Plan Agreement in such form as the
Committee shall determine and, if the Committee shall so require, makes payment
to the Company by certified or official bank check (or the equivalent thereof
acceptable to the Company) in such amount as the Committee may determine.
II.6.2 Promptly after a grantee accepts a restricted stock award,
the Company shall issue in the grantee's name a certificate or certificates for
the shares of Common Stock covered by the award. Upon the issuance of such
certificate(s), the grantee shall have the rights of a shareholder with respect
to the restricted stock, subject to the nontransferability restrictions and
Company repurchase rights described in Sections 2.6.4 and 2.6.5 and to such
other restrictions and conditions as the Committee in its discretion may include
in the applicable Plan Agreement.
II.6.3 Unless the Committee shall otherwise determine, any
certificate issued evidencing shares of restricted stock shall remain in the
possession of the Company until such shares are free of any restrictions
specified in the applicable Plan Agreement.
II.6.4 Shares of restricted stock may not be sold, assigned,
transferred, pledged or otherwise encumbered or disposed of except as
specifically provided in this Plan or the applicable Plan Agreement. The
Committee at the time of grant shall specify the date or dates (which may depend
upon or be related to the attainment of performance goals and other conditions)
on which the nontransferability of the restricted stock shall
16
<PAGE>
lapse. Unless the applicable Plan Agreement provides otherwise, additional
shares of Common Stock or other property distributed to the grantee in respect
of shares of restricted stock, as dividends or otherwise, shall be subject to
the same restrictions applicable to such restricted stock.
II.6.5 During the 120 days following termination of the grantee's
employment for any reason, the Company shall have the right to require the
return of any shares to which restrictions on transferability apply, in exchange
for which the Company shall repay to the grantee (or the grantee's estate) any
amount paid by the grantee for such shares.
II.7 Grant of Restricted Stock Units
II.7.1 The Committee may grant awards of restricted stock units to
such key persons, in such amounts, and subject to such terms and conditions as
the Committee shall determine in its discretion, subject to the provisions of
the Plan. Restricted stock units may be awarded independently of or in
connection with any other award under the Plan.
II.7.2 At the time of grant, the Committee shall specify the date or
dates on which the restricted stock units shall become fully vested and
nonforfeitable, and may specify such conditions to vesting as it deems
appropriate. In the event of the termination of the grantee's employment by the
Company and its subsidiaries for any reason, restricted stock units that have
not become nonforfeitable shall be forfeited and cancelled.
17
<PAGE>
The Committee at any time may accelerate vesting dates and otherwise waive or
amend any conditions of an award of restricted stock units.
II.7.3 At the time of grant, the Committee shall specify the
maturity date applicable to each grant of restricted stock units, which may be
determined at the election of the grantee. Such date may be later than the
vesting date or dates of the award. On the maturity date, the Company shall
transfer to the grantee one unrestricted, fully transferable share of Common
Stock for each restricted stock unit scheduled to be paid out on such date and
not previously forfeited. The Committee shall specify the purchase price, if
any, to be paid by the grantee to the Company for such shares of Common Stock.
II.8 Other Stock-Based Awards
The Board may authorize other types of stock-based awards (including
the grant of unrestricted shares), which the Committee may grant to such key
persons, and in such amounts and subject to such terms and conditions, as the
Committee shall in its discretion determine, subject to the provisions of the
Plan. Such awards may entail the transfer of actual shares of Common Stock to
Plan participants, or payment in cash or otherwise of amounts based on the value
of shares of Common Stock.
II.9 Grant of Dividend Equivalent Rights
The Committee may in its discretion include in the Plan Agreement
with respect to any award a dividend equivalent right entitling the grantee to
receive amounts equal to the ordinary dividends that would be paid, during the
time such award is outstanding and unexercised, on the shares of Common Stock
covered by such award if
18
<PAGE>
such shares were then outstanding. In the event such a provision is included in
a Plan Agreement, the Committee shall determine whether such payments shall be
made in cash, in shares of Common Stock or in another form, whether they shall
be conditioned upon the exercise of the award to which they relate, the time or
times at which they shall be made, and such other terms and conditions as the
Committee shall deem appropriate.
ARTICLE III
MISCELLANEOUS
III.1 Amendment of the Plan; Modification of Awards
III.1.1 The Board may from time to time suspend, discontinue, revise
or amend the Plan in any respect whatsoever, except that no such amendment shall
materially impair any rights or materially increase any obligations under any
award theretofore made under the Plan without the consent of the grantee (or,
after the grantee's death, the person having the right to exercise the award).
For purposes of this Section 3.1, any action of the Board or the Committee that
alters or affects the tax treatment of any award shall not be considered to
materially impair any rights of any grantee.
III.1.2 Shareholder approval of any amendment shall be obtained to
the extent necessary to comply with section 422 of the Code (relating to
incentive stock options) or other applicable law or regulation.
III.1.3 The Committee may amend any outstanding Plan Agreement,
including, without limitation, by amendment which would accelerate the time or
times at which the award becomes unrestricted or may be exercised, or waive or
amend any goals,
19
<PAGE>
restrictions or conditions set forth in the Agreement. However, any such
amendment that materially impairs the rights or materially increases the
obligations of a grantee under an outstanding award shall be made only with the
consent of the grantee (or, upon the grantee's death, the person having the
right to exercise the award).
III.2 Tax Withholding
III.2.1 As a condition to the receipt of any shares of Common Stock
pursuant to any award or the lifting of restrictions on any award, or in
connection with any other event that gives rise to a federal or other
governmental tax withholding obligation on the part of the Company relating to
an award (including, without limitation, FICA tax), the Company shall be
entitled to require that the grantee remit to the Company an amount sufficient
in the opinion of the Company to satisfy such withholding obligation.
III.2.2 If the event giving rise to the withholding obligation is a
transfer of shares of Common Stock, then, unless otherwise specified in the
applicable Plan Agreement, the grantee may satisfy the withholding obligation
imposed under Section 3.2.1 by electing to have the Company withhold shares of
Common Stock having a Fair Market Value equal to the amount of tax to be
withheld. For this purpose, Fair Market Value shall be determined as of the date
on which the amount of tax to be withheld is determined (and any fractional
share amount shall be settled in cash).
III.3 Restrictions
20
<PAGE>
III.3.1 If the Committee shall at any time determine that any
consent (as hereinafter defined) is necessary or desirable as a condition of, or
in connection with, the granting of any award under the Plan, the issuance or
purchase of shares or other rights thereunder, or the taking of any other action
thereunder (each such action being hereinafter referred to as a "plan action"),
then such plan action shall not be taken, in whole or in part, unless and until
such consent shall have been effected or obtained to the full satisfaction of
the Committee.
III.3.2 The term "consent" as used herein with respect to any plan
action means (a) any and all listings, registrations or qualifications in
respect thereof upon any securities exchange or under any federal, state or
local law, rule or regulation, (b) any and all written agreements and
representations by the grantee with respect to the disposition of shares, or
with respect to any other matter, which the Committee shall deem necessary or
desirable to comply with the terms of any such listing, registration or
qualification or to obtain an exemption from the requirement that any such
listing, qualification or registration be made and (c) any and all consents,
clearances and approvals in respect of a plan action by any governmental or
other regulatory bodies.
III.4 Nonassignability
Except to the extent otherwise provided in the applicable Plan
Agreement, no award or right granted to any person under the Plan shall be
assignable or transferable other than by will or by the laws of descent and
distribution, and all such awards and
21
<PAGE>
rights shall be exercisable during the life of the grantee only by the grantee
or the grantee's legal representative.
III.5 Requirement of Notification of
Election Under Section 83(b) of the Code
If any grantee shall, in connection with the acquisition of shares
of Common Stock under the Plan, make the election permitted under section 83(b)
of the Code (that is, an election to include in gross income in the year of
transfer the amounts specified in section 83(b)), such grantee shall notify the
Company of such election within 10 days of filing notice of the election with
the Internal Revenue Service, in addition to any filing and notification
required pursuant to regulations issued under the authority of Code section
83(b).
III.6 Requirement of Notification Upon Disqualifying
Disposition Under Section 421(b) of the Code
If any grantee shall make any disposition of shares of Common Stock
issued pursuant to the exercise of an incentive stock option under the
circumstances described in section 421(b) of the Code (relating to certain
disqualifying dispositions), such grantee shall notify the Company of such
disposition within 10 days thereof.
III.7 Right of Discharge Reserved
Nothing in the Plan or in any Plan Agreement shall confer upon any
grantee the right to continue in the employ of the Company or affect any right
which the Company may have to terminate such employment.
III.8 Nature of Payments
22
<PAGE>
III.8.1 Any and all grants of awards and issuances of shares of
Common Stock under the Plan shall be in consideration of services performed for
the Company by the grantee.
III.8.2 All such grants and issuances shall constitute a special
incentive payment to the grantee and shall not be taken into account in
computing the amount of salary or compensation of the grantee for the purpose of
determining any benefits under any pension, retirement, profit-sharing, bonus,
life insurance or other benefit plan of the Company or under any agreement
between the Company and the grantee, unless such plan or agreement specifically
provides otherwise.
III.9 Non-Uniform Determinations
The Committee's determinations under the Plan need not be uniform
and may be made by it selectively among persons who receive, or are eligible to
receive, awards under the Plan (whether or not such persons are similarly
situated). Without limiting the generality of the foregoing, the Committee shall
be entitled, among other things, to make non-uniform and selective
determinations, and to enter into non-uniform and selective Plan agreements, as
to (a) the persons to receive awards under the Plan, (b) the terms and
provisions of awards under the Plan, and (c) the treatment of leaves of absence
pursuant to Section 1.6.4.
III.10 Other Payments or Awards
23
<PAGE>
Nothing contained in the Plan shall be deemed in any way to limit or
restrict the Company from making any award or payment to any person under any
other plan, arrangement or understanding, whether now existing or hereafter in
effect.
III.11 Section Headings
The section headings contained herein are for the purpose of
convenience only and are not intended to define or limit the contents of the
sections.
III.12 Effective Date and Term of Plan
III.12.1 The Plan was adopted by the Board and the Company's
shareholders on August 21, 1997, but effective as of November 14, 1996. All
awards under the Plan prior to such shareholder approval are subject in their
entirety to such approval. If such approval is not obtained prior to the first
anniversary of the date of adoption of the Plan, the Plan and all awards
thereunder shall terminate on that date.
III.12.2 Unless sooner terminated by the Board, the provisions of
the Plan respecting the grant of incentive stock options shall terminate on the
day before the tenth anniversary of the adoption of the Plan by the Board, and
no incentive stock option awards shall thereafter be made under the Plan. All
awards made under the Plan prior to its termination shall remain in effect until
such awards have been satisfied or terminated in accordance with the terms and
provisions of the Plan and the applicable Plan Agreements.
III.13 Governing Law
24
<PAGE>
All rights and obligations under the Plan shall be construed and
interpreted in accordance with the laws of the State of Delaware, without giving
effect to principles of conflict of laws.
25
<PAGE>
ARTICLE I
GENERAL
1.1 Purpose 1
1.2 Administration 1
1.3 Persons Eligible for Awards 3
1.4 Types of Awards Under Plan 3
1.5 Shares Available for Awards 3
1.6 Definitions of Certain Terms 5
ARTICLE II
AWARDS UNDER THE PLAN
2.1 Agreements Evidencing Awards 8
2.2 No Rights as a Shareholder 8
2.3 Grant of Stock Options, Stock Appreciation
Rights and Dividend Equivalent Rights 9
2.4 Exercise of Options and Stock Appreciation Rights 12
2.5 Termination of Employment; Death 14
2.6 Grant of Restricted Stock 15
2.7 Grant of Restricted Stock Units 17
2.8 Other Stock-Based Awards 18
2.9 Grant of Dividend Equivalent Rights 18
i
<PAGE>
ARTICLE III
MISCELLANEOUS
3.1 Amendment of the Plan; Modification of Awards 19
3.2 Tax Withholding 20
3.3 Restrictions 21
3.4 Nonassignability 21
3.5 Requirement of Notification of
Election Under Section 83(b) of the Code 22
3.6 Requirement of Notification Upon Disqualifying Disposition Under
Section 421(b) of the Code 22
3.7 Right of Discharge Reserved 22
3.8 Nature of Payments 23
3.9 Non-Uniform Determinations 23
3.10 Other Payments or Awards 24
3.11 Section Headings 24
3.12 Effective Date and Term of Plan 24
3.13 Governing Law 25
ii
<PAGE>
Exhibit 10.3
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (this "Agreement") is made as of the 3rd day of
December, 1999 (the "Effective Date"), by and between Arbinet Holdings, Inc., a
Delaware corporation (the "Company") and Anthony L. Craig (the "Employee").
W I T N E S S E T H:
WHEREAS, the Company and Employee entered into that certain Letter
Agreement dated December 2, 1999 (the "Letter Agreement").
WHEREAS, the Company and Employee desire to replace and supersede the
Letter Agreement on the terms set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
contained, the parties hereto hereby agree as follows:
1. Employment.
(a) Employee's employment will be "at-will" and may be terminated by
either Employee or the Company at any time for any reason (or no reason), by
providing sixty (60) days prior written notice to the other party.
(b) Employee shall serve as the Chief Executive Officer and Chairman
of the Board of Directors (the "Board") of the Company and shall report to the
Board. The Company shall use its commercially reasonable efforts to cause
Employee to be elected to the Board. If so elected, and if Employee is not
otherwise receiving compensation from the Company, Employee shall receive the
same compensation and benefits as the Company may provide to other members of
the Board who are not executive officers of the Company. In addition, at the
request of the Company, Employee shall serve on any advisory committee or
similar advisory body as may be established by the Company from time to time.
(c) From the Effective Date, until the termination of Employee's
employment with the Company, Employee shall devote his full business and
professional time to the business and affairs of the Company; provided that the
foregoing shall not prevent Employee from serving on the board of directors of
Mitel Corp., Global Knowledge Network and Bell Industries, Ltd., as long as
these activities do not interfere with the performance of Employee's duties
hereunder or create a conflict of interest with the Company. Employee may
substitute another outside board membership for one of the
<PAGE>
foregoing outside board memberships, subject to approval of the Board (which
shall not be unreasonably withheld).
(d) Employee shall be employed at the Company's offices in Florida,
and shall oversee its activities located in New York and Virginia. Performance
of Employee's duties hereunder may require travel from time-to-time.
2. Compensation.
(a) From the Effective Date, until the date on which the Company
consummates an initial public offering of the common stock of the Company (the
"IPO Date"), Company shall pay Employee salary compensation ("Salary") at a rate
of $300,000 per annum (the "Annual Rate"), payable semi-monthly and subject to
all legally required withholdings.
(b) From and after the IPO Date, and until the expiration of the
Transition Period (as defined below) the Company shall pay Employee Salary at an
Annual Rate equal to $350,000, payable semi-monthly and subject to all legally
required withholdings.
(c) While Employee remains employed by the Company, the Company
shall pay Employee a living allowance of up to Ten Thousand Dollars ($10,000)
per month to cover Employee's housing, automobile and other living expenses in
New York and Employee's travel to and from Employee's permanent residence in
Florida.
(d) Employee's Salary will be reviewed by the Board (or a duly
authorized committee thereof) on an annual basis and may be subject to
adjustment upward based on various factors including, without limitation,
Employee's performance or the Company's achievement of its business plan (as
determined by the Board). During the Transition Period (as defined below),
Employee's salary will be prorated based on the amount of time Employee actually
spends performing duties for the Company as agreed between Employee and the then
acting chief executive officer of the Company; provided that Employee's salary
will not be less than $100,000 annualized.
(e) Employee shall be entitled to participate in any other
compensation or bonus, including stock option and equity incentive plans the
Company makes generally available to its senior executives in accordance with
the terms of such plans and subject to (i) the Company's right to at any time
amend or terminate any such plan or program and (ii) terms not less favorable
than those granted to any other senior executive of the Company.
3. Benefits.
2
<PAGE>
(a) The Company agrees to reimburse Employee for all reasonable and
necessary travel, business entertainment and other business expenses reasonably
incurred by Employee in connection with the performance of his duties under this
Agreement. Such reimbursements shall be made by the Company on a timely basis
upon submission by Employee of vouchers in accordance with the Company's
standard procedures.
(b) Employee shall be entitled to participate in any and all medical
insurance, group health, disability insurance, life insurance, and other benefit
plans which are made generally available by the Company to its most senior
executives, which the Company, in its sole discretion, may at any time amend or
terminate. Employee shall be entitled to receive an annual paid vacation of five
calendar weeks each year and paid holidays made available pursuant to the
Company's policy to all employees of the Company.
(c) Employee shall be indemnified by the Company in accordance with
the Company's policies applicable to the Company's officers and/or directors.
(d) Employee has been granted the right to purchase 1, 147,091
shares of the Company's common stock (the "Shares"), at a price of $0.254 per
share, which, subject to the immediately following sentence and Sections 4(f)
and (g) below, are subject to a right (the "Repurchase Right") of repurchase by
the Company for a price of $0.254 per share (subject to adjustment to take into
account any intervening stock split, recapitalization, extraordinary
distribution, or other transaction affecting the capital structure of the
Company from and after the Effective Date). The Repurchase Right will lapse (i)
as to 1/48th of the Shares on each one-month anniversary of December 1, 1999
that Employee remains employed by the Company and (ii) as to 100% of the Shares
in the event of a change of control (as defined below). Employee shall not be
entitled to vote or receive dividends with respect to any Shares which are
subject to the Repurchase Right and, if requested by the Company, Employee shall
exercise a written proxy in favor of the Company with respect to such Shares.
Notwithstanding the foregoing, in the event that the Employee breaches any of
the provisions contained in Section 6 hereof during the Covered Time, the
Company shall have the right, at its option, exercisable by ten (10) days
written notice by the Company to Employee, to exercise the Repurchase Right with
respect to all of the Shares. During the Covered Time (as defined below in
Section 6(a)(i)), the Employee shall not sell, assign, pledge, encumber or
otherwise transfer any of the Shares without the prior written consent of the
Board. For purposes hereof, a "change of control" shall have occurred if the
Company consummates (a) a merger or consolidation of the Company with any other
company (other than a wholly-owned subsidiary of the Company), other than (i) a
merger or consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) 50% or more of the combined voting power of voting securities
of the Company or such surviving entity outstanding immediately after such
merger or consolidation (ii) a merger or consolidation affected to implement a
3
<PAGE>
recapitalization of the Company (or similar transaction), (b) the sale of 50% or
more of the voting securities of the Company in a single transaction or a series
of related transactions following an IPO; or (c) a plan of complete liquidation
of the Company or an agreement for the sale or disposition by the Company of all
or substantially all of the Company's assets.
(e) The Company hereby grants to Employee the right to purchase
286,773 shares (the "Bonus Shares") of Common Stock (the "Bonus Purchase
Right"), representing 1% of the fully diluted outstanding shares of the Company
as of December 1, 1999, at a price of $0.254 per share. The Bonus Purchase
Right, to the extent not exercised, will terminate upon the termination of
Employee's employment with the Company. Employee will be provided with a loan to
purchase the Bonus Shares, on substantially the terms of the loan provided for
the purchase of the Shares. Subject to the immediately following sentence and
Sections 4(f) and (g) below, the Bonus Shares will be subject to a right (the
"Bonus Share Repurchase Right") of repurchase by the Company for a price of
$0.254 per share (subject to adjustment to take into account any intervening
stock split, recapitalization, extraordinary distribution, or other transaction
affecting the capital structure of the Company from and after the Effective
Date). The Bonus Share Repurchase Right will lapse (i) as to 50% of the Bonus
Shares upon implementation of back office systems (including but not limited to
Operations Support Systems (OSS) and clearing and settlement systems) of
sufficient quality and scale to support the Company's projected volume of
telecommunications traffic (as determined in good faith by the Board in its sole
discretion based on consultations with the Company's auditors) and (ii) 50% of
the Bonus Shares upon completion of an initial public offering of the common
stock of the Company resulting in a pre-offering valuation of the Company of at
least $500 million (based on mid-point of the filing range in the related
registration statement). Employee shall not be entitled to vote or receive
dividends with respect to any Bonus Shares which are subject to the Bonus
Repurchase Right and if requested by the Company, Employee shall exercise a
written proxy in favor of the Company with respect to such Bonus Shares.
Notwithstanding the foregoing, in the event that the Employee breaches any of
the provisions contained in Section 6 hereof during the Covered Time, the
Company shall have the right, at its option, exercisable by ten (10) days
written notice by the Company to Employee, to exercise the Bonus Share
Repurchase Right with respect to all of the Bonus Shares. During the Covered
Time, the Employee shall not sell, assign, pledge, encumber or otherwise
transfer any of the Bonus Shares without the prior written consent of the Board.
(f) Except as otherwise provided in Section 4(g) below, Employee
shall forfeit to the Company all unvested Shares on the date Employee's
employment with the Company terminates.
(g) Notwithstanding anything else herein to the contrary, if
Employee's employment is terminated by the Company without cause (x) prior to
the hiring of another chief executive officer, the Repurchase Right and the
Bonus Share
4
<PAGE>
Repurchase Right will lapse completely and Employee's Shares and Bonus Shares
shall immediately vest upon such termination (y) after the hiring of a new chief
executive officer, then the Repurchase Right and the Bonus Share Repurchase
Right will lapse completely as to 30/48 of the Shares and the Bonus Shares and
such shares shall immediately vest upon such termination, and the Repurchase
Right and Bonus Share Repurchase Right with respect to the remaining Shares and
Bonus Shares will lapse ratably (i.e., 1/18th per month) during the 18-month
period following the date Employee's employment terminates in return for
Employee's ongoing commitment, on a full-time or part-time basis as requested by
the then acting chief executive officer of the Company, to assist the Company in
transition during the 12-month period immediately after the hiring of such new
Chief Executive Officer (the "Transition Period"); provided, that to the extent
any Shares or Bonus Shares have vested already as of the date of such
termination, then the foregoing provisions of clause (y) shall not be applicable
to such vested Shares or Bonus Shares. For purposes of this Agreement "cause"
shall mean any of the following: (i) Employee's willful misconduct in the
performance of Employee's duties to the Company, or Employee's willful failure
to implement any legal policy or action set forth in a duly and validly adopted
resolution of the Board, (ii) conviction of or plea of guilty or any other plea
other than "not guilty" to a felony; (iii) the violation by Employee of any
material provision of this Agreement which either is not cured within ten days
after a written notice is given to Employee by the Board or constitutes a
habitual breach; or (iv) Employee's dishonesty, misappropriation or fraud with
regard to the property of the Company or its affiliates.
4. Termination. Employee's employment hereunder may be terminated by
Employee or the Company at any time for any reason (or no reason), by providing
sixty (60) days prior written notice to the other party.
5. Compensation Following Termination. In the event that Employee's
employment hereunder is terminated, Employee shall be entitled only to the
following compensation and benefits upon such termination:
(a) Termination For Any Reason Other Than Cause. In the event that
Employee's employment is terminated for any reason other than for Cause, the
Company, subject to Employee's compliance with Section 6, shall pay the
following amounts to Employee:
(i) any accrued but unpaid Salary (as determined pursuant to
Section 2);
(ii) severance pay equal to six (6) months' base salary at the
Annual Rate in effect on the date of termination;
(iii) an amount reimbursing Employee for the applicable
premium payment for any COBRA coverage payable under a Company
health or welfare plan for Employee and Employee's dependents during
5
<PAGE>
the six (6) month period following the date of termination (the "Six
Month Period");
(iv) an amount equal to any employer contribution that would
have been made by the Company to any retirement plan of the Company
on Employee's behalf had Employee remained employed by the Company
during the Six Month Period assuming Employee contributed the
maximum amount to such plan;
(v) any accrued but unpaid expenses required to be reimbursed
pursuant to Section 3(a); and
(vi) any vacation accrued to the date of termination.
Notwithstanding the foregoing, the amounts paid to Employee pursuant to
subsections (iii) and (iv) of this Section 5(a) shall not exceed $25,000.
(b) Termination For Cause. In the event Employee's employment
hereunder is terminated by the Company for cause (including, without limitation,
a termination by the Company without cause on or after the commencement of the
Transition Period) the Company will pay Employee any unpaid base salary at the
Annual Rate in effect on the date of termination and compensation for accrued
vacation through the date of termination.
(c) No Other Benefits or Compensation. Except as may be provided
under this Agreement or under the terms of any incentive compensation, employee
benefit, or fringe benefit plan applicable to Employee at the time of the
termination of Employee's employment, Employee shall have no right to receive
any other compensation, or to participate in any other plan, arrangement or
benefit, with respect to any future period after such termination or
resignation.
6. Noncompetition: Nonsolicitation; Outside Business Activities;
Nondisclosure of Proprietary Information; Surrender of Records; Inventions and
Patents.
(a) Noncompetition: Nonsolicitation.
(i) Employee acknowledges and recognizes the highly
competitive nature of the Company's business and that access to the
Company's confidential records and proprietary information renders
him special and unique within the Company's industry. In
consideration of the payment by the Company to Employee of amounts
that may hereafter be paid to Employee pursuant to this Agreement
(including, without limitation, pursuant to Sections 2 and 5
hereof), Employee agrees that during the period commencing on the
Effective Date and ending on the date which is twelve (12) months
after the termination of Employee's
6
<PAGE>
employment with the Company (the "Covered Time"), without the prior
written consent of the Company, Employee will not enter into
Competition with the Company. "Competition" shall mean
participating, directly or indirectly, as an individual proprietor,
partner, stockholder, officer, employee, director, joint venturer,
investor, lender, consultant or in any capacity whatsover in a
business in competition with any business conducted by the Company
or its affiliates (a "Competitor") in any jurisdiction where the
Company and/or its affiliates conduct such business as of the date
Employee's employment terminates, which shall be deemed to include,
without limitation, any business activity or jurisdiction which is
covered by or included in a written proposal or business plan
existing on the date of the termination of Employee's employment
with the Company; provided, however, that such participation shall
not include (i) the ownership of not more than one percent (1%) of
the total outstanding stock of a publicly held company or (ii) the
performance of services for any enterprise to the extent such
services are not performed, directly or indirectly, for a business
unit of the enterprise in the aforesaid Competition.
(ii) In further consideration of the payment by the Company to
Employee of amounts that may hereafter be paid to Employee pursuant
to this Agreement (including, without limitation, pursuant to
Sections 2 and 5 hereof). Employee agrees that during the Covered
Time he shall not (i) directly or indirectly solicit or attempt to
solicit any of the employees (other than clerical or
non-administrative employees), agents, consultants or
representatives of the Company to terminate his, her or its
relationship with the Company; (ii) directly or indirectly solicit
or attempt to solicit any of the employees, agents, consultants or
representatives of the Company to become employees, agents,
representatives or consultants of any other person or entity
(including the Employee or any person or entity owned or controlled
by Employee); or (iii) directly or indirectly solicit or attempt to
solicit any customer, vendor or distributor of the Company with
respect to any product or service being furnished, made, sold or
leased by the Company or proposed to be furnished, made, sold or
leased by the Company and which is covered in a written proposal or
business plan by the Company.
(iii) Employee understands that the provisions of this Section
6(a) and Section 6(b) may limit his ability to earn a livelihood in
a business similar to the business of the Company but nevertheless
agrees and hereby acknowledges that the consideration provided under
this Agreement, including any amounts or benefits provided under
Sections 2 and 5 hereof, is sufficient to justify the restrictions
contained in such provisions. In consideration thereof and in light
of Employee's education,
7
<PAGE>
skills and abilities, Employee agrees that he will not assert in any
forum that such provisions prevent him from earning a living or
otherwise are void or unenforceable or should be held void or
unenforceable.
(b) Proprietary Information. Employee acknowledges that during the
course of his employment with the Company he will necessarily have access to and
make use of proprietary information and confidential records of the Company.
Employee covenants that he shall not during the Term or at any time thereafter,
directly or indirectly, use for his own purpose or for the benefit of any person
or entity other than the Company, nor otherwise disclose any proprietary
information to any individual or entity, unless such disclosure has been
authorized in writing by the Company or is otherwise required by law. Employee
acknowledges and understands that the term "proprietary information" includes,
but is not limited to: (i) the software products, programs, applications, and
processes utilized by the Company (other than pre-packaged "off the shelf"
products); (ii) the name and/or address of any customer or affiliate of the
Company or any information concerning the transactions or relations of any
customer, vendor or affiliates of the Company with the Company or any of its
partners, principals, stockholders, directors, officers or agents; (iii) any
information concerning any product, technology, or procedure employed by the
Company but not generally known to its customers, vendors or competitors, or
under development by or being tested by the Company but not at the time offered
by the Company generally to customers or vendors; (iv) any information relating
to the Company's computer software, computer systems, pricing or marketing
methods, sales margins, cost of goods, cost of material, capital structure,
operating results, borrowing arrangements or business plans; (v) any information
which is generally regarded as confidential or proprietary in any line of
business engaged in by the Company; (vi) any business plans, budgets,
advertising or marketing plans; (vii) any information contained in any of the
Company's written or oral policies and procedures or manuals; (viii) any
information belonging to customers, vendors or affiliates of the Company or any
other person or entity which the Company has agreed to hold in confidence; (ix)
any inventions, innovations or improvements covered by this Agreement; and (x)
all written, graphic and other material relating to any of the foregoing.
Employee acknowledges and understands that information that is not novel or
copyrighted or patented may nonetheless be proprietary information. The term
"proprietary information" shall not include information generally available to
the public or information that is or become available to Employee on a
non-confidential basis from a source other than the Company or the Company's
directors, officers, employees, partners, principals or agents (other than as a
result of a breach of any obligation of confidentiality).
(c) Confidentiality and Surrender of Records. Employee shall not
during the Term or at any time thereafter (irrespective of the circumstances
under which Employee's employment by the Company terminates), except as required
by law, directly or indirectly publish, make known or in any fashion disclose
any confidential records to, or permit any inspection or copying of confidential
records by, any individual or entity
8
<PAGE>
other than in the course of such individual's or entity's employment or
retention by the Company, nor shall Employee retain, and will deliver promptly
to the Company, any of the same following termination of his employment
hereunder for any reason or upon request by the Company. For the purposes
hereof, "confidential records" means all correspondence, memorandum, files,
manuals, books, lists, financial, operating or marketing records, magnetic tape,
or electronic or other media or equipment of any kind which may be in Employee's
possession or under his control or accessible to him which contain any
proprietary information. All confidential records shall be and remain the sole
property of the Company during the Term and thereafter.
(d) Inventions and Patents. All inventions, innovations or
improvements (including policies, procedures, products, improvements, software,
ideas and discoveries, whether patent, copyright, trademark, service mark, or
otherwise) conceived or made by Employee, either alone or jointly with others,
in the course of and since the beginning of his employment by the Company,
relating to the business of the Company, including without limitation, the
provision of local, long distance or international access telephony or data
services belong to the Company. Employee will promptly disclose in writing such
inventions, innovations or improvements to the Company and perform all actions
reasonably requested by the Company to establish and confirm such ownership by
the Company, including, but not limited to, cooperating with and assisting the
Company in obtaining patents, copyrights, trademarks, or service marks for the
Company in the United States and in foreign countries. The Company acknowledges
that the Employee may currently have and may hereafter develop inventions or
innovations not relating to the business of the Company which do not belong to
the Company; provided, that Employee shall have the burden of proof to establish
that any such inventions or innovations do not relate to the business of the
Company.
(e) No Other Obligations. Employee represents that he is not
precluded or limited in his ability to undertake or perform the duties described
herein by any contract, agreement or restrictive covenant. Employee covenants
that he shall not employ the trade secrets or proprietary information of any
other person in connection with his employment by the Company.
(f) Confidentiality. Employee agrees to keep confidential the terms
of this Agreement. This provision does not prohibit Employee from providing this
information to his attorneys or accountants for purposes of obtaining legal or
tax advice or as otherwise required by law. The Company shall not disclose the
terms of this Agreement except as necessary in the ordinary course of its
business or as required by law.
(g) Enforcement. Employee acknowledges and agrees that, by virtue of
his position, his services and access to and use of confidential records and
proprietary information, any violation by him of any of the undertakings
contained in this Section 6
9
<PAGE>
would cause the Company immediate, substantial and irreparable injury for which
it has no adequate remedy at law. Accordingly, Employee agrees and consents to
the entry of an injunction or other equitable relief by a court of competent
jurisdiction restraining any violation or threatened violation of any
undertaking contained in this Section 6. The Company agrees and consents to the
entry of an injunction or other equitable relief by a court of competent
jurisdiction restraining the Company from making any defamatory statements,
whether orally or in writing, relating to alleged violations or threatened
violations by Employee of any undertaking contained in this Section 6. Employee
and the Company each waive posting of any bond otherwise necessary to secure
such injunction or other equitable relief. Rights and remedies provided for in
this Section 6 are cumulative and shall be in addition to rights and remedies
otherwise available to the parties hereunder or under any other agreement or
applicable law.
(h) Notwithstanding anything in this Section 6 to the contrary, each
reference herein to the Company shall also include each subsidiary of the
Company unless the context expressly requires otherwise.
7. Key Man Insurance. Employee recognizes and acknowledges that the
Company or its affiliates may seek and purchase one or more policies providing
key man life insurance with respect to Employee, the proceeds of which would be
payable to the Company or such affiliate. Employee hereby consents to the
Company or its affiliates seeking and purchasing such insurance and will provide
such information, undergo such medical examinations (at the Company's expense),
execute such documents and otherwise take any and all actions reasonably
necessary or desirable in order from the Company or its affiliates to seek,
purchase and maintain in full force and effect such policy or policies.
8. Notices. Any notice, consent, request or other communication made or
given in accordance with this Agreement shall be in writing and shall be deemed
to have been duly given when actually received, or, if mailed, three days after
mailing by registered or certified mail, return receipt requested and postage
prepaid, to those listed below at their following respective addresses or at
such other address as each may specify by notice to the others:
To the Company:
Arbinet Holdings, Inc.
33 Whitehall Street
19th Floor
New York, New York 10004
Attention: Chief Executive Officer
With a copy to:
10
<PAGE>
Neil A. Torpey, Esq.
Paul, Hastings, Janofsky & Walker LLP
399 Park Avenue
New York, New York 10022
To Employee:
Anthony L. Craig
27421 Country Club Dr.
Bonita Springs, FL 34134
9. Assignability: Binding Effect. This Agreement is a personal services
contract calling for the provision of unique services by Employee, and
Employee's rights and obligations hereunder may not be sold, transferred,
assigned, pledged or hypothecated. In the event of any attempted assignment or
transfer of rights hereunder by Employee contrary to the provisions hereof
(other than as may be required by law), the Company will have no further
liability for payments hereunder. The rights and obligations of the Company
hereunder will be binding upon and run in favor of the successors and assigns of
the Company.
10. Complete Understanding: Amendment: Waiver. This Agreement constitutes
the complete understanding between the parties with respect to the employment of
Employee and supersedes all other prior agreements and understandings, both
written and oral, between the parties with respect to the subject matter hereof
including but not limited to the Letter Agreement, and no statement,
representation, warranty or covenant has been made by either party with respect
thereto except as expressly set forth herein. This Agreement shall not be
altered, modified, amended or terminated except by a written instrument signed
by each of the parties hereto. Any waiver of any term or provisions hereof, or
of the application of any such term or provision to any circumstances, shall be
in writing signed by the party charged with giving such waiver. Wavier by either
party hereto of any breach hereunder by the other party shall not operate as a
waiver of any other breach, whether similar to or different from the breach
waived. No delay on the part of the Company or Employee in the exercise of any
of their respective rights or remedies shall operate as a waiver thereof, and no
single or partial exercise by the Company or Employee of any such right or
remedy shall preclude other or further exercise thereof.
11. Severability. If any provision of this Agreement or the application of
any such provision to any party or circumstances shall be determined by any
court of
11
<PAGE>
competent jurisdiction to be invalid or unenforceable to any extent, the
remainder of this Agreement, or the application of such provision to such person
or circumstances other than those to which it is so determined to be invalid or
unenforceable, shall not be affected thereby, and each provision hereof shall be
enforced to the fullest extent permitted by law. If any provision of this
Agreement, or any part thereof, is held to be invalid or unenforceable because
of the scope or duration of or the area covered by such provision, the parties
hereto agree that the court making such determination shall reduce the scope,
duration and/or area of such provision (and shall substitute appropriate
provisions for any such invalid or unenforceable provisions) in order to make
such provision enforceable to the fullest extent permitted by law and or shall
delete specific words and phrases, and such modified provisions shall then be
enforceable and shall be enforced. The parties hereto recognize that if, in any
judicial proceedings, a court shall refuse to enforce any of the separate
covenants contained in this Agreement, then that invalid or unenforceable
covenant contained in this Agreement shall be deemed eliminated from these
provisions to the extent necessary to permit the remaining separate covenants to
be enforced. In the event that any court determines that the time period or the
area, or both, are unreasonable and that any of the covenants is to that extent
invalid or unenforceable, the parties hereto agree that such covenants will
remain in full force and effect, first, for the greatest time period, and
second, in the greatest geographical area that would not render them
unenforceable. To the extent that a court of competent jurisdiction determines
that Employee breached any undertaking in Section 6, the company's obligation to
make payments hereunder shall immediately cease, provided that the Company shall
be liable for such payments in the event that the determination of such court is
overturned or reversed by any higher court.
12. Survivability. The provisions of this Agreement which by their terms
call for performance subsequent to termination of Employee's employment
hereunder, or of this Agreement, shall so survive such termination.
13. Governing Law: Consent to Jurisdiction. This Agreement shall be
governed by and construed in accordance with the laws of the State of New York
applicable to agreements made and to be wholly performed within that State. Any
action to enforce this Agreement must be brought in a court situated in New York
and the parties hereby consent to the jurisdiction of courts situated in New
York. Whichever party prevails in any action relating to this Agreement, the
employment of Employee by the Company, or any other matter arising out of or
relating to the relationship between Employee and the Company shall be entitled
to recover reasonable attorneys' fees and costs incurred in bringing or
defending the proceeding.
14. Titles and Captions. All paragraph titles or captions in this
Agreement are for convenience only and in no way define, limit, extend or
describe the scope or intent of any provision hereof.
12
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has duly executed this
Agreement as of the date first above written.
ARBINET HOLDINGS, INC.
By: /s/ Neil A. Torpey
--------------------
Name: Neil A. Torpey
Title: Secretary
/s/ Anthony L. Craig
--------------------
Anthony L. Craig
<PAGE>
Exhibit 10.4
Arbinet Holdings, Inc.
33 Whitehall Street, 19th Floor
New York, New York
December 27, 1999
Mr. Robert S. Vaters
7 Barnsdale Road
Short Hills, New Jersey 07078
Dear Bob:
On behalf of Arbinet Holdings, Inc. (the "Company"), I am pleased to extend to
you an offer of employment in accordance with the following terms:
1. Title and Position. Effective immediately following your acceptance of this
offer you will serve as an executive of the Company, initially as Executive Vice
President and Chief Financial Officer of the Company. You will report to the
Chief Executive Officer of the Company.
2. Duties and Obligations. During your employment, you will devote your full
business time, interest and effort to the performance of your duties with the
Company; provided that the foregoing shall not prevent you from serving on the
Board of Directors of no more than two (2) companies as long as these activities
do not interfere with the performance of your duties hereunder or create a
conflict of interest with the Company.
3. Employment Relationship. Should you decide to accept the Company's offer,
your employment will be for a term of one (1) year and your employment may be
terminated by either you or the Company at any time for any reason (or no
reason), by providing sixty (60) days prior written notice to the other party.
Further, your participation in any Company benefit or equity program does not
constitute an agreement by the Company to employ or continue to employ you for
any period of time.
4. Salary. While you are employed on a full-time basis by the Company, the
Company will pay you a base salary which annualizes to (i) $250,000 or (ii) upon
and after an initial public offering of the Company's equity securities (an
"IPO"), $250,000, payable in accordance with the usual payroll practices of the
Company including the
<PAGE>
withholding of all income and employment taxes. Your base salary will be
reviewed by the CEO on an annual basis and may be subject to adjustment upward
based on various factors including, without limitation, your performance and the
Company's achievement of its business plan (as determined by the Board), but in
no case will the annual increase be less than the annual rate of increase in the
Consumer Price Index. You will be entitled to a $50,000 "sign-on" bonus.
5. Equity.
(a) The Board (or a duly authorized committee thereof) will grant to you,
in the form of stock options ("Options"), the right to purchase 350,000 shares
of Common Stock of the Company, at the lowest available employee plan price as
of the acceptance of this offer (the current price as approved by the board of
directors on December 9, 1999 being $0.25), subject to the following vesting
schedule: such Options will become exercisable as to 1/48th of the Options on
the last day of each full month you are employed by the Company (the "Vesting
Dates"), provided you are employed by the Company on the applicable Vesting
Dates; provided, further, that (i) if an IPO occurs during the first year of
your employment, vesting will accelerate to effect 12 months of vesting as of
the end of the month in which the IPO closing occurs, and unvested Options would
vest 1/36th per month over the 36 months after the month in which the IPO
closing occurs and (ii) all Options will vest immediately prior a "change in
control" event (which will not include an IPO or a private equity financing
transaction). To the maximum extent permissible, these will be incentive stock
options as defined by the Internal Revenue Code of 1986, as amended (the
"Code"), and the Arbinet Holdings, Inc. 1997 Stock Incentive Plan (the "Stock
Plan").
(b) Except as otherwise provided in the Stock Plan and Section 7 below,
you shall forfeit to the Company (without compensation) all unvested Options on
the date your employment with the Company terminates.
6. Benefits. You will participate, to the extent eligible and subject to
confirming coverage with the applicable underwriter (if any), in all of the
Company's employee benefit programs generally provided to the other executive
officers, in accordance with the terms thereof as in effect from time to time;
provided that your annual vacation shall not exceed 4 weeks.
7. Termination of Employment. (a) In the event your employment hereunder is
terminated by the Company without cause, the Company will pay you, subject to
your compliance with Section 8 and 9 below, (i) any unpaid base salary through
the date of termination and any accrued vacation; (ii) severance pay equal to
twelve (12) months' base salary at the rate in effect on the date of
termination, (iii) an amount reimbursing you for the applicable premium payment
for any COBRA coverage payable under a Company health or welfare plan for you
and your dependents during the twelve (12) month period following the date of
termination (the "Twelve Month Period"); and (iv) an amount equal to any
employer contribution that would have been made by the Company
<PAGE>
to any retirement plan of the Company on your behalf had you remained employed
by the Company during the Twelve Month Period assuming you contributed the
maximum amount to such plan. Notwithstanding the foregoing, the amounts paid to
you pursuant to subsection (iii) and (iv) of this Section 7(a) shall not exceed
$25,000.
(b) In the event your employment hereunder is terminated for any other
reason, the Company will pay you any unpaid base salary and compensation for
accrued vacation through the date of the termination.
(c) In addition, in all termination events, except as specifically
provided in Section 5 hereof, the Company will pay you any other amounts or
benefits owing to you under the then applicable employee benefit plans and
programs of the Company in accordance with such plans and programs
For purposes of this letter "cause" shall mean any of the following: (w)
your willful misconduct in the performance of your duties to the Company, or
your willful failure to implement any legal policy of the company, (x)
conviction of or plea of guilty or any other plea other than "not guilty" to a
felony; (y) the violation by you of any material provisions of this letter which
either is not cured within ten days after a written notice is given to you by
the Company or constitutes a habitual breach; or (z) your dishonesty,
misappropriation or fraud with regard to the property of the Company or its
affiliates.
8. Confidential Information. While providing your services, you will have access
to and will obtain confidential information as to the Company, its affiliates,
its employees and its customers and you may during the course of your employment
develop certain information, inventions or other intellectual property. As a
condition of your employment with the Company, you will be required to enter
into the Company's employee Inventions and Confidentiality Agreement (the
"Confidentiality Agreement"). The Confidentiality Agreement exists to assure the
Company and its investors that the Company's valuable intellectual property and
its rights thereto are protected.
9. Non-Competition/Non-Solicitation. (a) You agree that during the employment
term hereunder and for a period of one (1) year following the date your
employment terminates (the "Restricted Period"), you will not enter into
Competition with the Company. "Competition" shall mean participating, directly
or indirectly, as an individual proprietor, partner, stockholder, officer,
employee, director, joint venturer, investor, lender, consultant or in any
capacity whatsoever in a business in competition with any business conducted by
the Company or its affiliates (a "Competitor")in any jurisdiction where the
Company and/or its affiliates conduct as of the date your employment terminates
such business, which shall be deemed to include, without limitation, any
business activity or jurisdiction which is covered by or included in a written
proposal or business plan existing on the date of the termination of the
employment term hereunder; provided, however, that such participation shall not
include (i) the mere ownership of not more than one percent (1%) of the total
outstanding stock of a publicly held company;
<PAGE>
(ii) the performance of services for any enterprise to the extent such services
are not performed, directly or indirectly, for a business unit of the enterprise
in the aforesaid Competition; or (iii) any activity engaged in with the prior
written approval of the Board.
(b) You agree that, during the Restricted Period, you will not, directly
or indirectly (i) solicit, recruit or hire any non-administrative or
non-clerical employee of the Company for the purpose of being employed by you or
by any Competitor of the Company on whose behalf you are acting as an agent,
representative or employee and that you will not convey any confidential
information or trade secrets about other employees of the Company to any other
person or (ii) influence or attempt to influence customers or suppliers of the
Company or its affiliates to direct their business to any Competitor of the
Company.
(c) You acknowledge that Section 8 and 9 above are reasonable and
necessary for the protection of the business of the Company and its affiliates
and that part of the compensation paid under this letter is in consideration for
the provisions contained in Sections 8 and 9. If any restriction set forth with
regard to competition or solicitation of employees or customers is found by any
court of competent jurisdiction, to be unenforceable because it extends for too
long a period of time or over too great a range of activities or over too broad
a geographic area, it shall be interpreted to extend over a maximum period of
time, range of activities or geographic area as to which it may be enforceable.
You further acknowledge and consent that the Company would by reason of such
competition or solicitation of employees or customers be entitled to injunctive
relief in a court of appropriate jurisdiction prohibiting you from competing
with the Company or its affiliates or engaging in solicitation in violation of
this letter.
10. Governing Law/Miscellaneous. This letter is subject to the laws of the State
of New York. This letter, along with the Confidentiality Agreement, sets forth
the terms of your employment with the Company and supercedes all prior
agreements, arrangements and communications, whether oral or written, between
the Company and you. This letter may not be altered, modified or amended except
by written instrument signed by an individual authorized to sign on behalf of
the Company (other than you) and by you. This letter may not be assigned in
whole or in part, except that the Company may assign it to an acquiror of all or
substantially all of the assets of the Company. This letter shall be binding on
the successors and permitted assignees of the parties hereto.
<PAGE>
This offer is made to you based on your representation to the
Company that your acceptance of employment with the Company and performance of
the contemplated services does not and will not conflict with or result in any
breach or default under any agreement, contract or arrangement to which you are
a party or violate any other legal restriction. If you find this offer of
employment acceptable, please sign the enclosed copy of this letter and return
it to us.
Very truly yours,
Arbinet Holdings, Inc.
By: /s/ Anthony Craig
----------------------------------
Name: Anthony Craig
Title: Chairman & CEO
Agreed and accepted:
/s/ Robert S. Vaters
- --------------------------------
Robert S. Vaters
Dated: 12/27/99
- --------------------------------
<PAGE>
Exhibit 10.7
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
This Amended and Restated EMPLOYMENT AGREEMENT (this "Agreement") is made
as of the 2nd day of December, 1999 (the "Effective Date"), by and between
Arbinet Holdings, Inc., a Delaware corporation (the "Company") and Alex
Mashinsky, the founder of the Company (the "Founder").
W I T N E S S E T H:
WHEREAS, the Company and Founder entered into that certain Employment
Agreement dated February 1, 1998, as amended on April 9, 1999 (the "Original
Agreement").
WHEREAS, the Company and Founder desire to amend and to restate the
Original Agreement on the terms set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
contained, the parties hereto hereby agree as follows:
1. Employment: Term. The Company hereby employs Founder, and Founder
hereby accepts employment with the Company, in accordance with and subject to
the terms and conditions set forth herein. The term of this Agreement shall
commence on the date hereof and, unless earlier terminated in accordance with
Section 5 hereof shall terminate on December 2, 2001 (the "Term"). This
Agreement and the Term may be extended for one or more additional annual periods
by written agreement signed by Founder and the Company prior to the end of the
Term.
2. Employment.
(a) Founder shall serve as the Vice-Chairman of the board of
directors (the "Board") of the Company; have the titles of Vice-Chairman and
"Founder" and shall report to the Chief Executive Officer of the Company. The
Company will use its commercially reasonable efforts to cause the Founder to be
elected to the Board. If so elected, and if Founder is not otherwise receiving
compensation from the Company, Founder shall receive the same compensation and
benefits as the Company may provide to other members of the Board who are not
executive officers of the Company. In addition, at the request of the Company,
the Founder shall serve on any advisory board or similar advisory body as may be
established by the Company from time to time.
<PAGE>
(b) Founder shall have only such authority and responsibility as may
reasonably be assigned by the Chief Executive Officer of the Company (consistent
with this Agreement), which may include but not be limited to, at the direction
of the Chief Executive Officer of the Company, the Founder's participation in
any management or "road show" presentation of the Company in connection with any
public offering of the Company's securities or the sale of the Company. For the
avoidance of doubt, unless otherwise required by the Chief Executive Officer of
the Company, Founder shall not be required to, nor shall Founder, have
day-to-day operational or management responsibilities or the authority to bind
the Company; rather, Founder shall serve as the Company's chief architect and
advise the Chief Executive Officer regarding the Company's strategic business
plan.
(c) From the Effective Date, until the earlier of the date which is
(i) nine (9) months from the Effective Date and (ii) two (2) months immediately
following the closing of any initial public offering ("IPO") of the Company's
equity securities (such earlier date being the "Milestone Date"), Founder shall
devote his full business and professional time to the business and affairs of
the Company.
(d) From and after the Milestone Date, Founder shall devote an
amount of his business and professional time to the business and affairs of the
Company as is necessary for Founder to fulfill his obligations under this
Agreement; provided that Founder shall devote at least 60% (or such greater
amount as may be reasonably requested by the Chief Executive Officer of the
Company) of his business and professional time to the business and affairs of
the Company.
(e) Founder shall be employed at the Company's principal place of
business, located in New York, New York and the Company shall provide the
Founder with an office and administrative support, including a full-time
assistant at the Company's place of business. Performance of Founder's duties
hereunder may require travel from time-to-time. Apart from such travel, Founder
will not be required to work outside of New York City.
3. Compensation.
(a) From the Effective Date, until the date which is the first
anniversary of the Effective Date (the "First Anniversary"), Company shall pay
Founder salary compensation ("Salary") at a rate of $200,000 per annum (the
"Annual Rate"), payable semi-monthly and subject to all legally required
withholdings.
(b) From and after the First Anniversary, the Company shall pay
Founder Salary at the Annual Rate pro rated, to reflect the amount of business
and professional time devoted by Founder to the business and affairs of the
Company during such period, as may be required by the Chief Executive Officer of
the Company provided that in no event will the Founder's Salary be below
$120,000 per year.
2
<PAGE>
(c) Founder shall be entitled to participate in any other
compensation or bonus, including stock option and equity incentive, plans the
Company makes generally available to its senior executives in accordance with
the terms of such plans and subject to the (i) the sole discretion of the Board
of Directors of the Company; and (ii) the Company's right to at any time amend
or terminate any such plan or program.
4. Benefits.
(a) The Company agrees to reimburse Founder for all reasonable and
necessary travel, business entertainment and other business expenses reasonably
incurred by Founder in connection with the performance of his duties under this
Agreement. Such reimbursements shall be made by the Company on a timely basis
upon submission by Founder of vouchers in accordance with the Company's standard
procedures.
(b) Founder shall be entitled to participate in any and all medical
insurance, group health, disability insurance, life insurance, and other benefit
plans which are made generally available by the Company to its most senior
executives, which the Company, in its sole discretion, may at any time amend or
terminate. Employee shall be entitled to receive an annual paid vacation of four
calendar weeks each year during the Term and paid holidays made available
pursuant to the Company's policy to all employees of the Company.
(c) Founder shall be indemnified by the Company in accordance with
the Company's policies applicable to the Company's officers and/or directors.
(d) Founder is the holder of 2,059,214.35 shares of the Company's
common stock (the "Shares") which are subject to a right (the "Repurchase
Right") of repurchase by the Company for a price of one cent ($.01) per Share in
the event Founder's employment with the Company is terminated by the Company for
Cause (as defined below) or by the Founder. The price per share under the
Repurchase Right shall be adjusted to take into account any intervening stock
split, recapitalization, extraordinary distribution, or other transaction
affecting the capital structure of the Company from and after the Effective
Date. The Repurchase Right will lapse (i) as to 1/28th of the Shares on each
one-month anniversary of the date hereof and (ii) as to 100% of the Shares in
the event that Founder's employment with the Company is terminated for Good
Reason (as defined below). Founder shall not be entitled to vote any Shares
which are subject to the Repurchase Right and, if requested by the Company,
Founder shall exercise a written proxy in favor of the Company with respect to
such Shares. Notwithstanding the foregoing, in the event that the Founder
breaches any of the provisions contained in Section 7 hereof during the Covered
Time, the Company shall have the right, at its option, exercisable by ten (10)
days written notice by the Company to Founder, to exercise the Repurchase Right
with respect to all of the Shares. During the Term and the Covered Time (as
defined below in Section 7(a)(i)), the Founder shall not sell, assign, pledge,
encumber or otherwise transfer any of the Shares without the prior written
consent of the Board. Notwithstanding the foregoing, the Repurchase Right shall
3
<PAGE>
terminate upon the occurrence of a "change of control." For purposes hereof, a
"change of control" shall have occurred if the Company consummates (a) a merger
or consolidation of the Company with any other company (other than a
wholly-owned subsidiary of the Company), other than (i) a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) 50% or more of the combined voting power of voting securities
of the Company or such surviving entity outstanding immediately after such
merger or consolidation (ii) a merger or consolidation affected to implement a
recapitalization of the Company (or similar transaction), (b) the sale of all or
substantially all of the voting securities of the Company in a single
transaction or a series of related transactions; or (c) a plan of complete
liquidation of the Company or an agreement for the sale or disposition by the
Company of all or substantially all of the Company's assets.
5. Termination. Founder's employment hereunder may be terminated prior to
the end of the Term under the following circumstances:
(a) Death. Founder's employment hereunder shall terminate upon
Founder's death.
(b) Total Disability. The Company may terminate Founder's employment
hereunder at any time after Founder becomes "Totally Disabled". For purposes of
this Agreement, Founder shall be "Totally Disabled" as of the date Founder
becomes unable to perform the duties and responsibilities contemplated under
this Agreement for a period of more than 180 consecutive days due to physical or
mental incapacity or impairment as determined by a physician chosen by the
Company. Such termination shall become effective five days after the Company
gives notice of such termination to Founder, or to his spouse or legal
representative, in accordance with Section 10 below.
(c) Termination by the Company for Cause. The Company may terminate
Founder's employment hereunder for Cause at any time after providing written
notice to Founder. For purposes of this Agreement, the term "Cause" shall mean
any of the following: (i) the willful and continued failure or refusal of
Founder to perform Founder's duties hereunder (other than as a result of total
or partial incapacity due to physical or mental illness); (ii) perpetration of
an intentional and knowing fraud against or affecting the Company or any
customer, client, agent, or employee thereof; (iii) any willful or intentional
act that could reasonably be expected to injure the reputation, business, or
business relationships of the Company or Founder's reputation or business
relationships; (iv) conviction (including conviction on a nolo contendere plea)
of a felony or any crime involving, fraud, dishonesty or moral turpitude; or (v)
the breach of any covenant set forth in Section 7, provided, however, that, if
the termination for Cause occurs under clauses (i), (iii) or (v) of the
definition of "Cause", such termination shall not be effective unless Founder is
given not less than ten days' advance written notice of
4
<PAGE>
such termination, specifying in reasonable detail the grounds for termination,
and fails to cure such grounds for termination within such 30-day period.
(d) Termination by Founder for Good Reason. Founder may terminate
his employment hereunder if (i) the Company materially breaches this Agreement
or (ii) the Company effects a material diminution of Founder's title or duties,
as specified in Section 2 of this Agreement, and the Company fails to cure such
breach or material diminution within thirty (30) days after Founder gives the
Company written notice setting forth in reasonable detail the nature of such
breach or diminution.
(e) Termination by Founder. Founder may terminate his employment
hereunder for any reason or no reason by providing sixty (60) days prior written
notice to the Company, provided that the Company may, in its sole discretion,
reduce or eliminate such notice period.
6. Compensation Following Termination Prior to End of the Term. In the
event that Founder's employment hereunder is terminated prior to the end of the
Term, Founder shall be entitled only to the following compensation and benefits
upon such termination:
(a) Termination by Reason of Death or Total Disability. In the event
that Founder's employment is terminated prior to the expiration of the Term by
reason of Founder's death or Total Disability pursuant to Section 5(a) or 5(b),
the Company shall pay the following amounts to Founder (or Founder's spouse or
estate, as the case may be):
(i) any accrued but unpaid Salary (as determined pursuant to
Section 3) and any bonus which the Board has declared to be paid to
Founder for periods ending before the date of termination but which
remains unpaid at the time of termination;
(ii) any accrued but unpaid expenses required to be reimbursed
pursuant to Section 4(a); and
(iii) any vacation accrued to the date of termination.
(b) Termination by the Company for Cause: Termination by Founder
Without Cause. In the event that Founder's employment is terminated by the
Company for Cause or by the Founder without Cause pursuant to Section 5(e), the
Company shall pay the following amounts to Founder:
(i) any accrued but unpaid Salary (as determined pursuant to
Section 3) and any bonus which the Board has declared to be paid to
Founder for periods ending before the date of termination but which
remains unpaid at the time of termination;
5
<PAGE>
(ii) any accrued but unpaid expenses required to be reimbursed
pursuant to Section 4(a); and
(iii) any vacation accrued to the date of termination.
(c) Termination by Founder for Good Reason. In the event that
Founder's employment is terminated by the Company without Cause or by Founder
for good reason pursuant to Section 5(d), the Company shall pay the following
amounts to Founder:
(i) any accrued but unpaid Salary (as determined pursuant to
Section 3);
(ii) any accrued but unpaid expenses required to be reimbursed
pursuant to Section 4(a);
(iii) any vacation accrued to the date of termination; and
(iv) continued payment of the Salary (as determined under
Section 3), at the rate in effect on the day of such termination,
for twelve (12) months or until the expiration of the Term,
whichever is earlier. Such payments shall be made in accordance with
the Company's standard payroll practices then in effect. Founder
shall not be entitled to any payment under this paragraph (iv) if he
is or has at any time been in breach of any covenant contained in
Section 7 hereof. The benefits to which Founder may be entitled upon
termination pursuant to the plans, policies and arrangements
referred to in Section 4(b) hereof shall be determined and paid in
accordance with the terms of such plans, policies and arrangements,
except that the Company shall, with respect to any major medical and
all other health, accident, or disability plans for which Founder,
or his spouse or legal representative, elects continuation in
accordance with COBRA, be responsible for payment of premiums
related to the maintenance of such plans for a period of ninety (90)
days following termination.
(d) No Other Benefits or Compensation. Except as may be provided
under this Agreement or under the terms of any incentive compensation, employee
benefit, or fringe benefit plan applicable to Founder at the time of the
termination of Founder's employment prior to the end of the Term, Founder shall
have no right to receive any other compensation, or to participate in any other
plan, arrangement or benefit, with respect to any future period after such
termination or resignation.
6
<PAGE>
7. Noncompetition: Nonsolicitation; Outside Business Activities;
Nondisclosure of Proprietary Information; Surrender of Records; Inventions and
Patents.
(a) Noncompetition: Nonsolicitation.
(i) Founder acknowledges and recognizes the highly competitive
nature of the Company's business and that access to the Company's
confidential records and proprietary information renders him special
and unique within the Company's industry. In consideration of the
payment by the Company to Founder of amounts that may hereafter be
paid to Founder pursuant to this Agreement (including, without
limitation, pursuant to Sections 3 and 6 hereof), Founder agrees
that during the period commencing on the Effective Date and ending
on the later of (A) the date which is twelve (12) months after the
expiration of the Term (and any extensions or renewals thereof) and
(B) the second anniversary of the Effective Date (such later period
being the "Covered Time"), without the prior written consent of the
Company, Founder will not compete with any business the Company is
then conducting or which is covered in a written proposal or
business plan existing on the Date of Termination and will not
engage, directly or indirectly, in any business that relies upon,
utilizes, attempts to re-create, or otherwise relates to the
products, applications, programs, or proprietary process utilized by
the Company, any patent, trademark, copyright or other intellectual
property obtained by or sought to be obtained by the Company, or any
proprietary software utilized by the Company (each such activity, a
"Competing Activity").
(ii) In further consideration of the payment by the Company to
Founder of amounts that may hereafter be paid to Founder pursuant to
this Agreement (including, without limitation, pursuant to Sections
3 and 6 hereof). Founder agrees that during the Term (including any
extensions thereof) and during the Covered Time he shall not (i)
directly or indirectly solicit or attempt to solicit any of the
employees, agents, consultants or representatives of the Company to
terminate his, her or its relationship with the Company; (ii)
directly or indirectly solicit or attempt to solicit any of the
employees, agents, consultants or representatives of the Company to
become employees, agents, representatives or consultants of any
other person or entity (including the Founder or any person or
entity owned or controlled by Founder); or (iii) directly or
indirectly solicit or attempt to solicit any customer, vendor or
distributor of the Company with respect to any product or service
being furnished, made, sold or leased by the Company or proposed to
be furnished, made, sold or leased by the
7
<PAGE>
Company and which is covered in a written proposal or business plan
by the Company.
(iii) During the Covered Time, Founder agrees that upon the
earlier of Founder's (a) negotiating with any Competitor (as defined
below) concerning the possible employment of Founder by the
Competitor, (b) receiving an offer of employment from a Competitor
or (c) becoming employed by a Competitor, Founder will (x)
immediately provide notice to the Company of such circumstances and
(y) provide copies of Section 7 of this Agreement to the Competitor.
Founder further agrees that the Company may provide notice to a
Competitor of Founder's obligations under this Agreement, including
without limitation Founder's obligations pursuant to Section 7
hereof. For purposes of this Agreement, "Competitor" shall mean any
entity (other than the Company) that engages, directly or
indirectly, in software development for any telephony related or
carrier related business.
(iv) Founder understands that the provisions of this Section
7(a) and Section 7(b) may limit his ability to earn a livelihood in
a business similar to the business of the Company but nevertheless
agrees and hereby acknowledges that the consideration provided under
this Agreement, including any amounts or benefits provided under
Sections 3 and 6 hereof, is sufficient to justify the restrictions
contained in such provisions. In consideration thereof and in light
of Founder's education, skills and abilities, Founder agrees that he
will not assert in any forum that such provisions prevent him from
earning a living or otherwise are void or unenforceable or should be
held void or unenforceable.
(b) Outside Business Activities. Notwithstanding any provision
contained herein to the contrary, during the Term, Founder will not pursue or be
engaged in, directly or indirectly, any business activity (whether or not such
activity is a Competing Activity) other than the performance of his duties
hereunder, without the prior written consent of the Board which will not be
unreasonably withheld; provided, however that in the event the Company fails to
reply to any request of Founder under this Section 7(b) within thirty (30) days
of the date thereof, the Company shall be deemed to have granted its consent to
such request by Founder.
(c) Proprietary Information. Founder acknowledges that during the
course of his employment with the Company he will necessarily have access to and
make use of proprietary information and confidential records of the Company.
Founder covenants that he shall not during the Term or at any time thereafter,
directly or indirectly, use for his own purpose or for the benefit of any person
or entity other than the Company, nor otherwise disclose any proprietary
information to any individual or entity, unless such disclosure has been
authorized in writing by the Company or is otherwise
8
<PAGE>
required by law. Founder acknowledges and understands that the term "proprietary
information" includes, but is not limited to: (i) the software products,
programs, applications, and processes utilized by the Company (other than
pre-packaged "off the shelf" products); (ii) the name and/or address of any
customer or affiliate of the Company or any information concerning the
transactions or relations of any customer, vendor or affiliates of the Company
with the Company or any of its partners, principals, stockholders, directors,
officers or agents; (iii) any information concerning any product, technology, or
procedure employed by the Company but not generally known to its customers,
vendors or competitors, or under development by or being tested by the Company
but not at the time offered by the Company generally to customers or vendors;
(iv) any information relating to the Company's computer software, computer
systems, pricing or marketing methods, sales margins, cost of goods, cost of
material, capital structure, operating results, borrowing arrangements or
business plans; (v) any information which is generally regarded as confidential
or proprietary in any line of business engaged in by the Company; (vi) any
business plans, budgets, advertising or marketing plans; (vii) any information
contained in any of the Company's written or oral policies and procedures or
manuals; (viii) any information belonging to customers, vendors or affiliates of
the Company or any other person or entity which the Company has agreed to hold
in confidence; (ix) any inventions, innovations or improvements covered by this
Agreement; and (x) all written, graphic and other material relating to any of
the foregoing. Founder acknowledges and understands that information that is not
novel or copyrighted or patented may nonetheless be proprietary information. The
term "proprietary information" shall not include information generally available
to the public or information that is or become available to Founder on a
non-confidential basis from a source other than the Company or the Company's
directors, officers, employees, partners, principals or agents (other than as a
result of a breach of any obligation of confidentiality).
(d) Confidentiality and Surrender of Records. Founder shall not
during the Term or at any time thereafter (irrespective of the circumstances
under which Founder's employment by the Company terminates), except as required
by law, directly or indirectly publish, make known or in any fashion disclose
any confidential records to, or permit any inspection or copying of confidential
records by, any individual or entity other than in the course of such
individual's or entity's employment or retention by the Company, nor shall
Founder retain, and will deliver promptly to the Company, any of the same
following termination of his employment hereunder for any reason or upon request
by the Company. For the purposes hereof, "confidential records" means all
correspondence, memorandum, files, manuals, books, lists, financial, operating
or marketing records, magnetic tape, or electronic or other media or equipment
of any kind which may be in Founder's possession or under his control or
accessible to him which contain any proprietary information. All confidential
records shall be and remain the sole property of the Company during the Term and
thereafter.
9
<PAGE>
(e) Inventions and Patents. All inventions, innovations or
improvements (including policies, procedures, products, improvements, software,
ideas and discoveries, whether patent, copyright, trademark, service mark, or
otherwise) conceived or made by Founder, either alone or jointly with others, in
the course of and since the beginning of his employment by the Company, relating
to the business of the Company, including without limitation, the provision of
local, long distance or international access telephony or data services belong
to the Company. Founder will promptly disclose in writing such inventions,
innovations or improvements to the Company and perform all actions reasonably
requested by the Company to establish and confirm such ownership by the Company,
including, but not limited to, cooperating with and assisting the Company in
obtaining patents, copyrights, trademarks, or service marks for the Company in
the United States and in foreign countries. The Company acknowledges that the
Founder may currently have and may hereafter develop inventions or innovations
not relating to the business of the Company which do not belong to the Company;
provided, that Founder shall have the burden of proof to establish that any such
inventions or innovations do not relate to the business of the Company.
(f) No Other Obligations. Founder represents that he is not
precluded or limited in his ability to undertake or perform the duties described
herein by any contract, agreement or restrictive covenant. Founder covenants
that he shall not employ the trade secrets or proprietary information of any
other person in connection with his employment by the Company.
(g) Confidentiality. Founder agrees to keep confidential the terms
of this Agreement. This provision does not prohibit Founder from providing this
information to his attorneys or accountants for purposes of obtaining legal or
tax advice or as otherwise required by law. The Company shall not disclose the
terms of this Agreement except as necessary in the ordinary course of its
business or as required by law.
(h) Enforcement. Founder acknowledges and agrees that, by virtue of
his position, his services and access to and use of confidential records and
proprietary information, any violation by him of any of the undertakings
contained in this Section 7 would cause the Company immediate, substantial and
irreparable injury for which it has no adequate remedy at law. Accordingly,
Founder agrees and consents to the entry of an injunction or other equitable
relief by a court of competent jurisdiction restraining any violation or
threatened violation of any undertaking contained in this Section 7. The Company
agrees and consents to the entry of an injunction or other equitable relief by a
court of competent jurisdiction restraining the Company from making any
defamatory statements, whether orally or in writing, relating to alleged
violations or threatened violations by Founder of any undertaking contained in
this Section 7. Founder and the Company each waive posting of any bond otherwise
necessary to secure such injunction or other equitable relief. Rights and
remedies provided for in this Section 7 are
10
<PAGE>
cumulative and shall be in addition to rights and remedies otherwise available
to the parties hereunder or under any other agreement or applicable law.
(i) Notwithstanding anything in this Section 7 to the contrary, each
reference herein to the Company shall also include each subsidiary of the
Company unless the context expressly requires otherwise.
8. Key Man Insurance. Founder recognizes and acknowledges that the Company
or its affiliates may seek and purchase one or more policies providing key man
life insurance with respect to Founder, the proceeds of which would be payable
to the Company or such affiliate. Founder hereby consents to the Company or its
affiliates seeking and purchasing such insurance and will provide such
information, undergo such medical examinations (at the Company's expense),
execute such documents and otherwise take any and all actions reasonably
necessary or desirable in order from the Company or its affiliates to seek,
purchase and maintain in full force and effect such policy or policies.
9. Notices. Any notice, consent, request or other communication made or
given in accordance with this Agreement shall be in writing and shall be deemed
to have been duly given when actually received, or, if mailed, three days after
mailing by registered or certified mail, return receipt requested and postage
prepaid, to those listed below at their following respective addresses or at
such other address as each may specify by notice to the others:
To the Company:
Arbinet Holdings, Inc.
266 East 54th Street
New York, New York 10022
Attention: Chief Executive Officer
With a copy to:
Neil A. Torpey, Esq.
Paul, Hastings, Janofsky & Walker LLP
399 Park Avenue
New York, New York 10022
To Founder:
Alex Mashinsky
495 West End Avenue
New York, New York 10024
11
<PAGE>
With a copy to:
Roberts & Holland LLP
Attention: David E. Kahen, Esq.
825 Eighth Avenue, 37th Floor
New York, New York 10019-7416
10. Assignability: Binding Effect. This Agreement is a personal services
contract calling for the provision of unique services by Founder, and Founder's
rights and obligations hereunder may not be sold, transferred, assigned, pledged
or hypothecated. In the event of any attempted assignment or transfer of rights
hereunder by Founder contrary to the provisions hereof (other than as may be
required by law), the Company will have no further liability for payments
hereunder. The rights and obligations of the Company hereunder will be binding
upon and run in favor of the successors and assigns of the Company.
11. Complete Understanding: Amendment: Waiver. This Agreement constitutes
the complete understanding between the parties with respect to the employment of
Founder and supersedes all other prior agreements and understandings, both
written and oral, between the parties with respect to the subject matter hereof,
and no statement, representation, warranty or covenant has been made by either
party with respect thereto except as expressly set forth herein. This Agreement
shall not be altered, modified, amended or terminated except by a written
instrument signed by each of the parties hereto. Any waiver of any term or
provisions hereof, or of the application of any such term or provision to any
circumstances, shall be in writing signed by the party charged with giving such
waiver. Wavier by either party hereto of any breach hereunder by the other party
shall not operate as a waiver of any other breach, whether similar to or
different from the breach waived. No delay on the part of the Company or Founder
in the exercise of any of their respective rights or remedies shall operate as a
waiver thereof, and no single or partial exercise by the Company or Founder of
any such right or remedy shall preclude other or further exercise thereof.
12. Severability. If any provision of this Agreement or the application of
any such provision to any party or circumstances shall be determined by any
court of competent jurisdiction to be invalid or unenforceable to any extent,
the remainder of this Agreement, or the application of such provision to such
person or circumstances other than those to which it is so determined to be
invalid or unenforceable, shall not be affected thereby, and each provision
hereof shall be enforced to the fullest extent permitted by law. If any
provision of this Agreement, or any part thereof, is held to be invalid or
unenforceable because of the scope or duration of or the area covered by such
provision, the parties hereto agree that the court making such determination
shall reduce the scope, duration and/or area of such provision (and shall
substitute appropriate provisions for any such invalid or unenforceable
provisions) in order to make such provision enforceable to the fullest extent
permitted by law and or shall delete specific
12
<PAGE>
words and phrases, and such modified provisions shall then be enforceable and
shall be enforced. The parties hereto recognize that if, in any judicial
proceedings, a court shall refuse to enforce any of the separate covenants
contained in this Agreement, then that invalid or unenforceable covenant
contained in this Agreement shall be deemed eliminated from these provisions to
the extent necessary to permit the remaining separate covenants to be enforced.
In the event that any court determines that the time period or the area, or
both, are unreasonable and that any of the covenants is to that extent invalid
or unenforceable, the parties hereto agree that such covenants will remain in
full force and effect, first, for the greatest time period, and second, in the
greatest geographical area that would not render them unenforceable. To the
extent that a court of competent jurisdiction determines that Founder breached
any undertaking in Section 7, the company's obligation to make payments
hereunder shall immediately cease, provided that the Company shall be liable for
such payments in the event that the determination of such court is overturned or
reversed by any higher court.
13. Survivability. The provisions of this Agreement which by their terms
call for performance subsequent to termination of Founder's employment
hereunder, or of this Agreement, shall so survive such termination.
14. Governing Law: Consent to Jurisdiction. This Agreement shall be
governed by and construed in accordance with the laws of the State of New York
applicable to agreements made and to be wholly performed within that State. Any
action to enforce this Agreement must be brought in a court situated in New York
and the parties hereby consent to the jurisdiction of courts situated in New
York. Whichever party prevails in any action relating to this Agreement, the
employment of Founder by the Company, or any other matter arising out of or
relating to the relationship between Founder and the Company shall be entitled
to recover reasonable attorneys' fees and costs incurred in bringing or
defending the proceeding.
15. Expenses. The Company shall pay all costs and expenses incurred in
connection with the execution and delivery of this Agreement, including fees for
counsel to the Founder, in an aggregate amount not to exceed $10,000.
16. Titles and Captions. All paragraph titles or captions in this
Agreement are for convenience only and in no way define, limit, extend or
describe the scope or intent of any provision hereof
13
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has duly executed this
Agreement as of the date first above written.
ARBINET HOLDINGS, INC.
By: /s/ Neil A. Torpey
-------------------------
Name: Neil A. Torpey
Title: Secretary
/s/ Alex Mashinsky
-------------------------
Alex Mashinsky
14
<PAGE>
Exhibit 10.8
[LOGO]
AGCN(TM)
MEMBER
AGREEMENT
Spot Market - Minutes
1. Introduction.
The AGCN is a clearinghouse for the sale and purchase of telecommunication
services by and between telecommunication carriers, internet
telephony service providers, prepaid card service providers, and
others. The AGCN is operated by Arbinet Communications, Inc.
(Arbinet(TM)) It is understood and agreed by entities who use the
AGCN to obtain telecommunications service that Arbinet's operation
of the AGCN does not constitute the provision by Arbinet of
telecommunications of common carrier services. Compliance with all
applicable legal and regulatory requirements governing the provision
of telecommunication services bought or sold through the AGCN is the
responsibility of those telecommunication carriers whose services
are made available through the AGCN.
This Agreement contains important information regarding the terms and
conditions which apply to your membership with the Arbinet Global
Clearing Network(TM) (AGCN(TM)). PLEASE READ THIS AGREEMENT
CAREFULLY and retain it for future reference. Please note that the
information contained herein is subject to change without notice.
In consideration for Arbinet approving your Membership Application and
allowing you access to the AGCN, you agree to the terms and
conditions contained in this Agreement, as amended from time to
time.
Arbinet may amend this Agreement at any time by posting the amended terms
at www.agcn.net. The amended terms shall automatically be effective
____ days after they are initially posted on our site. This
Agreement may not be otherwise amended except in a writing signed by
both parties. Member agrees that notification of changes to these
Terms and Conditions by virtue of posting on the Arbinet or AGCN
website constitute reasonable notice. This Agreement was last
revised on June 28, 1999.
Members may only begin trading through the AGCN after they have agreed in
writing to accept the terms and conditions of this Agreement. Such
acceptance must be received by a certified representative of Arbinet
prior to the commencement of any authorized AGCN trading activities.
2. Definitions.
The following terms as used in this Agreement have the meanings given to
such terms in this Section 2.
AGCN Node means Any Arbinet owned or operated interconnect facility that
provides a
<PAGE>
Member with the ability to route call traffic through or in
conjunction with the AGCN.
Answer Seizure Ratio or ASR means on a route or destination code basis,
and during a specified time interval, the ratio of the number of
seizures that result in an answer signal, to the total number of
seizures. (As defined by the International Telecommunications Union,
ITU-T Terms and Definitions of Traffic Engineering 3/93).
An Associate Member is defined as any person or entity that has been
approved by Arbinet to view-only the Buy and Sell Orders through the
AGCN.
Buying Members means any Member which offers to buy or buys any
telecommunications services through the AGCN.
E1 Facility means European digital signal level; 2.048 Mbits/s.
A Member is defined as any person or entity that has registered to buy
and/or sell telecommunication services through the AGCN and has been
approved by Arbinet as a trader of telecommunication services
through the AGCN, and whose network is capable of routing a call
through or in conjunction with an AGCN Node.
Post Dialing Delay or PDD means time interval between the end of dialing
by the user and the reception by him of the appropriate tone or
recorded announcement, or the abandonment of the call without tone.
(As defined by the International Telecommunications Union, ITU-T
Terms and Definitions of Traffic Engineering 3/93).
Selling Members means any Member which offers for sale or sells any
telecommunications services through the AGCN.
T1 Facility means transmission at DS-1, 1.544 Mbits/s.
Voice Quality of Service or VQOS means Arbinet's three state (A, B, C)
scale of rating the average overall voice quality of a seized call
during a specified time interval.
3. Eligibility for Membership
Our services are available only to entities that can form legally binding
contracts under applicable law. If you do not qualify, please do not
use our services. Arbinet may refuse its services or membership to
the AGCN to anyone at any time, in its sole discretion.
4. Arbinet is Only a Venue.
The AGCN acts as the venue for sellers and for buyers to sell and buy
telecommunication services. We are not involved in the actual
transaction between buyers and sellers. As a result, we have no
control over the quality, safety or legality of the items
advertised, the truth or accuracy of any information provided, the
ability of sellers to sell items or the ability of buyers to buy
items. We cannot and do not control whether or not sellers will
complete the sale of items they offer or buyers will complete the
purchase of items they
2
<PAGE>
have agreed to purchase. In the event that you have a dispute with
one or more Members, you release Arbinet (and our agents and
employees) from claims, demands and damages (actual and
consequential) of every kind and nature, known and unknown,
suspected and unsuspected, disclosed and undisclosed, arising out of
or in any way connected with any such dispute.
5. No Advice.
Members acknowledge that Arbinet will not provide Members with any legal,
tax or accounting advice or advice regarding the appropriateness,
suitability or profitability of any transaction which Members
undertake on or through the AGCN. Members also acknowledge that
Arbinet's employees are not authorized to give any such advice and
that Members will not solicit or rely upon any such advice from
Arbinet or any of its employees. Arbinet and its officers,
directors, employees, agents and affiliates will have no liability
with respect to any transaction which Members undertake on or
through the AGCN.
Arbinet or its agent(s) will evaluate each membership application and
Agreement individually. Arbinet reserves the right to impose such
financial risk reduction management conditions on Members as
detailed in the AGCN Risk Management Policy (attached hereto as
Addendum "A" and as amended from time to time), including, but not
limited to, requiring security deposits, advance payments and
letters of credit, as Arbinet deems necessary and appropriate.
Arbinet reserves the right to reject any membership application.
The AGCN Risk Management Policy may be posted at website address
www.agcn.net. Changes to such policy will be reflected in the posted
policy seven days before such changes take effect. Purchaser agrees
that notification of Risk Management Policy changes by posting a
revised policy on the AGCN website shall constitute reasonable
notice of such changes and agrees to comply with such policy as
amended from time to time.
6. Member Responsibilities.
A. General
Member shall perform its obligations under this Agreement and use the AGCN
in a manner consistent with applicable law, and shall not use the
AGCN, or permit the AGCN to be used, for any illegal purpose or in
any other unlawful manner. Any Member's transmission of any and all
material (including, but not limited to, copyrighted material or
material protected by trade secrets) in violation of any federal,
state or local law, order or regulation is prohibited.
Member is responsible for provision of, and expenses associated with,
installation of all interconnection facilities and maintenance of
such facilities, and other actions necessary for it to use the AGCN.
3
<PAGE>
Each Member acknowledges that it is solely responsible for the security
and confidentiality of any information transmitted through the AGCN
and that neither Arbinet nor any other Member will make any effort
to confirm the security or confidentiality of such Member's
information.
Arbinet will not be responsible for any losses or damages resulting from
delay's non-deliveries, misdeliveries, or service interruption.
Any Member offering to buy or sell services through the AGCN website
represents that it possesses all requisite legal and regulatory
authority to buy or sell such services at the rate and route
characteristics specified by it. Offers to sell services by Members
constitute a guarantee that the Member will meet all service
characteristics, including but not limited to, quality
characteristics, posted on the AGCN.
B. Selling Members
A Selling Member shall use its best efforts to verify that all services
provided through the AGCN meet or exceed all AGCN [and self defined
quantitive and qualitative] service standards and route
characteristics posted for and by Selling Members or Arbinet on the
AGCN.
A Selling Member must use its best efforts to quantify maximum available
minute capacity for each route employing an estimated formula of
250,000 minutes per month per T1 Facility and 300,000 minutes per
month per E1 Facility. It is the sole responsibility of the Selling
Member to maintain accurate capacity information on each individual
route offered by such Member through the AGCN.
A Selling Member must use its best efforts to quantify average Post Dial
Delay. The time period over which average PDD shall be calculated
daily using a twenty-four (24) hour period commencing at 12:00 am
(GMT) and concluding at 11:59 pm [(GMT). Further, all Selling
Members must make best effort to quantify average Answer Seizure
Ratio. The time period over which average PDD shall be calculated
daily using a twenty-four (24) hour period commencing at 12:00 am
(GMT) and concluding at 11:59 pm (GMT).
A Selling Member must use its best efforts to qualify average Voice
Quality of Service. The time period over which average PDD shall be
calculated daily using a twenty-four hour period commencing at 12:00
am (GMT) and concluding at 11:59 pm. The system and rating formula
to be employed is as follows:
VQOS Rating Route Characteristics
----------- ---------------------
A Little or no background noise, no echo, no
delay.
B 25% or more of calls contain one of the
following--background noise, echo, delay.
C 50% or more of the calls contain one of the
4
<PAGE>
following--background noise, echo, delay.
C. Buying Members. [Note to Arbinet: Please advise whether Buying Members
should be required to make any undertakings]
7. Member Acknowledgments
Each Member hereby acknowledges and agrees as follows:
Arbinet assumes no liability for any delays or errors in trade
execution or for misrouting of any telecommunications services
bought or sold by any Member through the AGCN, irrespective of
cause. Members agree to hold Arbinet harmless from liability
for any errors or delays in trade execution, including errors
as to prices quoted by other Members.
Sell prices posted on the AGCN represent the rates for Member calls
transiting through AGCN Nodes and are based on Member orders.
Members understand that other Members may make available
limited capacity at specified prices, and that a price
displayed on the AGCN may not be available for all calls of
similar characteristics at all times.
[Arbinet may test route characteristics both routinely and as a
result of Member complaints. Where incongruities are
identified between posted route characteristics and the
Member's provided route, Arbinet will perform appropriate
tests and render a final decision on what mitigation, if any,
is required. Any fees associated with such testing will be
levied against applicable Members in accordance with AGCN Fee
Schedule (set forth in Appendix One attached hereto).]1/
Arbinet may, in its sole discretion, modify the stated quality
characteristics of any AGCN sell order posted by any Member on
the AGCN. Arbinet also may, in its sole discretion, modify any
AGCN nodal routing plans so as to ensure that the routing
following the quality specified in Member buy orders as
modified by Arbinet.
Arbinet may, in its sole discretion, suspend or terminate any
Member's right to buy or sell services through the AGCN,
including removal of and declination to list any offer of any
Member to buy or sell services; revoke any Member's
participation in the AGCN at any time; and/or arrange for
disconnection of any Member's facilities interconnected with
any AGCN Node, without prior notice. All expenses incurred by
any Member as a result of such disconnection shall be
responsibility of such Member. Arbinet shall use reasonable
efforts to provide a Member whose facilities are to be
disconnected with advance notice of disconnection.
- --------
1/ Please advise whether this is a appropriate.
5
<PAGE>
Arbinet will undertake reasonable efforts to protect the identity of
Members. Arbinet may, in its discretion, share information with
other entities as necessary in monitoring the conduct of Members
with regard to their participation in the AGCN.
8. Payment/Settlement
Members agree to pay the applicable AGCN fees as specified in the AGCN Fee
Schedule attached hereto as Appendix One as amended from time to
time. All Fees will be deducted from payments distributed by Arbinet
to Selling Members, and added to the invoices presented by Arbinet
to Buying Members. Arbinet reserves the right to modify, impose new,
or remove fees from the AGCN Fee Schedule upon five (5) business
days notice to Members. The AGCN Fee Schedule changes will be posted
at website address www.agcn.net five (5) business days prior to
taking effect. Purchaser agrees that notification of fee schedule
changes by posting such notice on the AGCN website shall constitute
reasonable notice.
All traffic purchased or sold through the AGCN will be rated based on call
durations measured by a 30-second minimum period followed by six (6)
second billing increments. In certain circumstances, as posted in
Member buy and sell orders, call durations may be measured by a
one-minute minimum period followed by one-minute increments.
Arbinet, at its discretion, may, from time to time, introduce
additional call duration measurement intervals.
All calculations and ratings of calls will be performed to the one hundred
thousandth (xx.xxxxx) of a cent. Final settlements will be rounded
up to the nearest one hundredth of a cent (xx.xx).
Payment between Arbinet and Members will be settled twice monthly, the
fifteenth and the last day of each month (each a Settlement Date).
Arbinet will present settlement statements to Members within five
(5) business days of the end of each Settlement Date. Payments to
and from Arbinet will be due within five (5) business days of the
applicable settlement statement (each a Payment Date). All amounts
owed to Arbinet by Members that remain unpaid on the applicable
Payment Date will bear interest at a rate equal to 18% per annum or
the highest amount allowable by applicable law. Members disputing
settlement charges must provide Arbinet with notice of the dispute
and accompanying documentation to support each claim within five (5)
business days of the applicable Payment Date. Notification of such
disputes does not relieve Members from their obligation to remit
settlement payments in full as designated by the applicable
Settlement Statement on or prior to the applicable Payment Date.
Arbinet will work with Members in good faith to investigate and
resolve all such settlement disputes for which it receives timely
notification. Set-offs amounts, if any, will be applied to the
Member's succeeding monthly statement. Arbinet reserves the right to
reconcile Settlement Statements at any time for a period of six (6)
months after the original Settlement Statement has been issued.
Settlement Statements will be provided to Members either by next-day mail
and/or, the billing e-mail addresses provided to Arbinet at the time
of registration of such Member.
6
<PAGE>
Unless otherwise stated, all fees are quoted in U.S. Dollars. Members are
responsible for paying all applicable taxes and for other costs
Members incur to bid, buy, sell or access Arbinet servers or the
AGCN. All settlement payments between Members and Arbinet shall be
made via US Funds in the form of corporate check, wire transfer, or
electronic funds transfer. Members requiring the use of certified
checks shall be charged for the additional expense incurred by
Arbinet in processing such checks.
9. Miscellaneous
Should discrepancies exist as a result of multiple contracts between
Arbinet and Member, the current as defined by the terms herein and
as posted at website address www.agcn.net from time to time shall
govern, supercede and be employed as the sole determinant for all
resolution.
Nothing in this Agreement is intended to create any agency, partnership,
or joint venture arrangement between AGCN and any Member, nor are
there to be any third party beneficiaries under this Agreement.
Arbinet makes NO EXPRESS WARRANTIES AND DISCLAIMS ALL IMPLIED WARRANTIES,
INCLUDING WARRANTIES OF MERCHANTABILITY AND OF FITNESS, with regard
to the quality, capacity, availability, reliability, or other
characteristics of any service offered by any Member over the AGCN.
Upon being notified by Members of complaints regarding any service
obtained through the AGCN, Arbinet may investigate and modify
information posted on the AGCN where appropriate.
Members agree to indemnify and hold Arbinet harmless for any and all
errors in information, including pricing information, provided
through the AGCN, including information posted on the AGCN website.
Members further agree to indemnify and hold Arbinet harmless from
and against any and all claims against Arbinet made by any person
arising out of or related to any offer or transaction resulting from
any transaction made by any Member through the AGCN. The scope of
this indemnification shall include, but shall not be limited to,
reasonable attorneys' fees and other costs incurred by Arbinet in
the defense or resolution (including settlement) of any claim.
Arbinet's obligations under this Agreement are subject to, and it shall
not be responsible for, any delays, failure to perform, or operation
of the AGCN where such delays or failure are the result of fire,
flood, water, the elements, labor disputes or shortages, utility
cutailments, power failures, explosions, civil disturbances, war,
acts of God, governmental actions, including changes in regulations,
tariffs, or rates which make it impossible or impractical for
Members to provide the telecommunications services as represented on
the AGCN.
This Agreement is to be enforced under the laws of the State of New York
without regard to conflict of law principles. Members hereby consent
to the exclusive jurisdiction of federal or sate courts located in
the County of New York, with respect to all actions regarding this
Agreement or the AGCN.
7
<PAGE>
Members shall not transfer or assign this Agreement or their participation
in the AGCN to others except upon the written approval of an
authorized representative of Arbinet. In the event of such an
assignment or transfer, any such assignee shall be subject to and
shall execute this Agreement.
All rights to AGCN intellectual property, including copyrights, patents,
software, trademarks, and service marks, as well as websites, and
communications nodes, shall remain the sole property of Arbinet.
Members understand that certain features demonstrated in the tutorial
segment of the AGCN may not be available during live trading on the
AGCN, and vice versa, and that prices posted in the tutorial segment
are for demonstration purposes only.
This Agreement is made expressly subject to all present and future valid
orders and regulations of any regulatory body having jurisdiction
over the subject matter hereof and to the laws of the United States
of America, any of its states, or any foreign governmental agency
having jurisdiction. In the event this Agreement, or any of its
provisions, shall be found contrary to or in conflict with any such
order, rule, regulation or law, this Agreement shall be deemed
modified to the extent necessary to comply with any such order,
rule, regulation or law and shall be modified in such a way as is
consistent with the form, intent and purpose of this Agreement.
This Agreement, constitute the entire agreement between Arbinet and
Members. Arbinet may modify this agreement at any time upon
reasonable notice to Members. The Applicant agrees that posting of
such modifications on the AGCN website constitutes reasonable
notice. Upon such posting, this Agreement or any of its parts may be
modified immediately. New or modified paragraphs shall apply to any
and all transactions executed through the AGCN after the effect date
of such new or modified terms and conditions.
Member represents and warrants that: (a) the signatory shown below has the
authority to bind the party on whose behalf he/she is signing to the
terms of this Agreement; (ii) the execution and delivery of this
Agreement and the performance of such party's obligations hereunder
have been duly authorized; and (iii) the Agreement is a valid and
legal agreement binding on such parties and enforceable in
accordance with its terms.
8
<PAGE>
All notices, demands, requests and other communications required or
permitted hereunder shall be in writing and shall be deemed to be
delivered when actually received, when sent by certified mail,
return receipt requested, reputable overnight carrier, facsimile, to
the address set forth below:
Acknowledged and agreed to as of this _____ day of ___________________.
Member:
By:_____________________________
Printed Name:___________________
Title:__________________________
Address:
Telephone:
Fax:
<PAGE>
APPENDIX ONE
AGCN RISK MANAGEMENT POLICY
The following states Arbinet's Risk Management Policy with respect to AGCN
members. By subscribing as an AGCN Member, you indicate your agreement to the
terms and conditions set forth below.
Candidates for AGCN membership must submit to Arbinet Communications, Inc.
("Company") a completed credit application form, a sales and use tax
exemption certificate, and a copy of FCC 214 license if applicable.
Additionally, the Company's Controller may require a Candidate or a Member
to submit audited financial statements.
The AGCN operates two billing cycles, the first to the fifteenth (15th) of each
month and the sixteenth (16th) to last day of each month.
Security deposits must be in the form of (a) cash (held in a cash deposit
non-interest bearing escrow account), or (b) an irrevocable Letter of
Credit (confirmed and payable in USD at the counter of the Company's bank;
details provided on request). The security deposit must be not less than
200% of the estimated billing-cycle amount. The Company may require the
amount to be adjusted to reflect the actual billed amounts of the Member's
trading and transaction activities. Each Member will be able to buy and
transact up to an amount not exceeding 70% of their security deposit. An
increase to the security deposit will be required whenever the open
account balance reaches a threshold of 70% of the security deposit amount.
The Company must receive, within 24 hours of the time the threshold is
passed (a) a paydown of the balance owed, and/or (b) an appropriate
increase in the amount of the security deposit. If neither is received,
the Company will restrict the Member's buying activities and associated
AGCN node transactions until the security deposit is replenished to 200%
of the then-estimated billing-cycle amount.
The Company will bill back to Members for any bank fees charged in the
collection of the receivable or any deductions taken by the Member that
was not approved in writing by the Company.
Collection of Past Due Accounts:
Standard Terms: (a) Net 5 days from invoice date. (b) Interest charges
will begin on the 8th day from invoice date at 18% annually
(1.5%/month).
It is the responsibility of the Member to notify in writing the Company's
collection department the details of any disputed items before the
8th day from the date of invoice so interest is not charged on the
amount in dispute. Disputes should be resolved or paid within 15
days from date of invoice unless special consideration warrants
additional time.
Outstanding balances that are not cleared within 15 days will
automatically be presented to the Member's bank to draw down on the
security deposit, with concomitant effect on the Member's trading
floor buying and nodal transaction activities.
If reasonable collection efforts are unsuccessful in obtaining payments
for past due invoices the account, all of the delinquent Member's
buying activities will be placed on hold, and associated nodal
transactions will be terminated. The Company reserves the right to
refer delinquent accounts to an external collection agency.
<PAGE>
APPENDIX ONE
AGCN MEMBER FEE SCHEDULE
The following schedule defines fees assessed to Members of the AGCN upon their
enrollment and participation with the Arbinet Global Clearing Network(TM).
Registration/Interconnection
Registration/Set Up: No charge
T1/E1 Installation: Member responsibility
Monthly Recurring
Port Fee $500 Per T1 or E1
Exchange Fees for Calls Transmitted over a Single AGCN Node
Buyer and Seller each pay 5% of the Seller Offered Rate
Additional Provisioning Services
Trunk Group Change $500 per trunk group change
Testing Charges (based on seller-requested Arbinet VQoS Testing &
Posting)
$250 per batch of 5 individual routes -
Seller
$2,000 per batch of up to 50 individual
routes - Seller
$5,000 per batch of up to 150 individual
routes - Seller
$7,500 per batch of up to 300 individual
routes - Seller
Compliance Checking (based Member-Requested Compliance Checking)
$100 Per Route - Charged to requester if
route meets or exceeds seller's posted QoS
$100 Per Route - Charged to seller if route
fails to meet seller's posted QoS
$100 Per Route - Charged to seller if route
fails to meet Arbinet's earlier QoS
results.
Reporting
Custom Reports Onetime Set Up Fee - Price provided upon
request, based on $150 per programming
hour times the numbers of estimated hours
Call Detail Records $x.xx per record provided on CD-ROM
Late Payment See separate "AGCN Risk-Management Policy"
document, latest version
Risk Management See separate "AGCN Risk-Management Policy"
document, latest version
* Bills & Reports will normally be provided securely on the www.agcn.net
Website.
<PAGE>
Exhibit 10.9
ARBINET HOLDINGS, INC. EMPLOYMENT,
NONDISCLOSURE AND ASSIGNMENT OF INVENTIONS AGREEMENT
On this _____ day of ________, in exchange for my becoming employed
by Arbinet Holdings, Inc., or its subsidiaries, affiliates, or successors
(hereinafter referred to collectively as the "Company" or Employer"), I (also
referred to as "Employee") hereby agree as follows:
1. General. I understand that I have been hired by the Company as an
employee. As an obligation of starting as an employee or continuing my
employment, I will perform for the Company such duties as may be designated by
the Company from time to time, including, but not limited to, those described in
any Company employment offer letter to me. During my period of employment by the
Company, I will devote my best efforts to the interests of the Company and will
not engage in other employment or in any activities detrimental to the best
interests of the Company without the prior written consent of the Company, nor
will I engage in any activity which occupies my attention so as to interfere
with the proper and efficient performance of my duties at the Company. I
understand that my title, duties and reporting responsibilities will initially
be as set forth in any such employment letter, until changed, and that same may
change from those originally set forth in such letter. I understand that there
are no other terms of compensation or benefits except as set forth in the
employment letter. I further understand that I am an at will employee, and my
employment may be terminated by the Company in its discretion at any time. I
further understand that any representations to the contrary are unauthorized and
void, unless contained in a formal written employment contract signed by an
officer of the Company. I further understand that I can terminate my employment
at any time.
2. Assignment of Inventions. Without further compensation, I hereby
agree promptly to disclose to the Company, and I hereby assign and agree to
assign to the Company or its designee, my entire right, title, and interest in
and to all Inventions (as defined in paragraph 6) which (a) pertain to any line
of business activity of the Company, (b) are aided by the use of time,
equipment, supplies, materials, facilities, services, or trade secrets of the
Company, whether or not during working hours, or (c) relate to any of my work
during the period of my employment with the Company, whether or not during
working hours. I hereby waive and quitclaim to the Company any and all claims of
any nature whatsoever that I now or hereafter may have for infringement of any
patent resulting from any patent applications for any Inventions so assigned to
the Company. If in the course of my employment at the Company, I use in or
incorporate into or permit the Company to use in or incorporate into a released
or unreleased Company product, program, process, or machine, an invention owned
by me or in which I have an interest, the Company is hereby granted and shall
have an exclusive royalty-free, irrevocable, worldwide license to make, have
made, use, and sell that invention without restriction as to the extent of my
ownership or interest. No rights are hereby conveyed in Inventions, if any, made
by me prior to
<PAGE>
my employment with the Company which are identified in a sheet attached to and
made a part of this Agreement, if any (which attachment contains no confidential
information) or in Inventions to which the Company enjoys no claim under
applicable law.
3. Applications for Copyrights and Patents. I agree to perform, at
Company expense, during and after my employment, all acts deemed necessary or
desirable by the Company to permit and assist Company, in obtaining and
enforcing the full benefits, enjoyment, rights and title throughout the world in
the Inventions hereby assigned to the Company as set forth in paragraph 2 above.
Such acts may include, but are not limited to, execution of documents and
assistance or cooperation in legal proceedings. If I do not cooperate reasonably
in signing such documents, I hereby authorize Company to execute on my behalf as
my attorney in fact for the limited purpose of perfecting Company's rights in
such Inventions, as if I had signed same myself, any and all documents which are
reasonably necessary to perfect Company's rights in such Inventions.
4. Non-Disclosure. I agree to hold in confidence and not directly or
indirectly to use or disclose, either during or after termination of my
employment with the Company, any Confidential Information (as defined in
paragraph 6 below) I obtain or create during the period of my employment,
whether or not during working hours, except to the extent authorized by the
Company. I further agree to not disclose any Confidential Information to anyone
inside the Company except on a "need-to-know" basis. If I have any questions as
to what comprises such Confidential Information, or to whom if anyone it may be
disclosed, I will consult with my manager. I agree not to make copies of such
Confidential Information except as authorized by the Company. Upon termination
of my employment or upon an earlier request of the Company, I will return or
deliver to the Company all tangible forms of such Confidential Information in my
possession or control, including, but not limited to, drawings, specifications,
documents, records, devices, models, papers, notes, memoranda, manuals, designs,
diskettes, CD's, tapes, and any other material on any media containing or
disclosing any confidential or proprietary technical or business information, or
any other material and copies or reproductions thereof.
5. Prior Employer Information. I represent that my performance of
all the terms of this Agreement and as an employee of the Company does not and
will not breach any agreement to keep in confidence proprietary information,
knowledge or data acquired by me in confidence or in trust prior to my
employment with the Company, and I will not disclose to the Company, or induce
the Company to use, any confidential or proprietary information or material
belonging to any previous employer, principals, partners, co-venturers, clients,
customers, or suppliers of the vendors or customers of such persons or entities;
and I will not bring onto the premises of the Company any unpublished document
or any property belonging to any such persons or entities without their consent,
and I will not violate any non-disclosure or proprietary rights agreement I
might have signed in connection with any such person or entity. I agree not to
enter into any agreement, either written or oral, in conflict with this
Agreement.
6. Inventions and Confidential Information. As used in this
Agreement, the
<PAGE>
term "Inventions" includes, without limitation, electronic designs, hardware and
software creations, discoveries, formulae, processes, manufacturing techniques,
trade secrets, inventions, improvements, concepts, techniques, methods, systems,
designs, circuits, cost data, computer programs, development or experimental
work, work in progress, ideas and copyrightable or patentable works, including
all rights to obtain, register, perfect and enforce these proprietary interests.
The term "Confidential Information" means (a) information pertaining to any
aspect of the Company's business which is not known by actual or potential
competitors of the Company or (b) proprietary information of the Company or its
customers or suppliers, whether of a technical nature or otherwise, which the
Company (or its suppliers or vendors) takes reasonable measures to protect
against unauthorized disclosure to or use by third parties, including, without
limitation, technical, financial, marketing, manufacturing, or distribution
information, customer or client lists and names; addresses and phone numbers of
Company's customers, clients, and employees; or other technical or business
information or trade secrets of the Company.
7. Excluded Inventions. Company shall have no right to any Invention
or to claim that Employee shall have any obligation to assign to Company any
Invention that Employee develops or developed entirely on Employee's own time
without using the Company's equipment, supplies, facilities, material, services,
or trade secret information; provided, however, that the foregoing limitation
shall not apply to Invention(s) that either (i) relate at the time of conception
or reduction to practice of the Invention to the Company's business, or
Company's actual or demonstrably anticipated research or development or (ii)
result from work performed by the Employee for Company. I agree to disclose all
Inventions made by me to the Company in confidence in order to permit a
determination as to whether or not the Inventions should be the property of the
Company.
8. Non-Solicitation. I agree that, during the term of my employment
and for a period of one year thereafter, I will not solicit or encourage any
employee of the Company to terminate his employment with the Company or to
accept employment with any subsequent employer with whom I am affiliated in any
way. I further agree that for one year after the date my employment by Company
ceases, I will not solicit or attempt to solicit the employment for the benefit
of a third party of any Company employee.
9. Non-Competition. I agree that for a period of one year after
termination of my employment, I will not accept employment or engage in
activities directly or indirectly competitive with products (including actual or
demonstrably anticipated research or development) on which I worked or about
which I learned proprietary or confidential or trade secret information while
employed at the Company. I agree that I shall not use at any time during the
term of my employment or for any time afterwards, any proprietary or
confidential or trade secret information which I learned while employed at the
Company, in a manner which would be injurious to Company.
10. Return of Property. Upon termination of my employment or upon an
-3-
<PAGE>
earlier request of the Company, I will return any keys, pass cards,
identification cards, telephone cards, computer equipment, or other property
belonging to the Company.
11. Reimbursement. I hereby authorize the Company to withhold from
any monies due to me from the Company at or following the time of termination of
my employment (including without limitation salary, bonus, commissions, expense
reimbursement, ESPP refunds, etc.) any amounts which I owe to the Company
(including without limitation amounts for personal expenses charged to my
Company credit cards, phone cards, cash advances, etc.). Further, the Company
may condition the exercise of any stock options by requiring me to
simultaneously sell a sufficient number of shares to generate cash required to
repay any such amounts owed to the Company.
12. Personal Property. I agree that the Company will not be
responsible for loss of, disappearance, or damage to personal property on the
Company premises, or if applicable, on residential premises subsidized by the
Company (including apartments or temporary housing). I hereby release,
discharge, and hold the Company harmless from any and all claims relating to
loss of, disappearance, or damage to such personal property.
13. Equitable Relief. I acknowledge that any violation of this
Agreement by me will cause irreparable injury to the Company, and the Company
shall be entitled to extraordinary relief in court, including, but not limited
to, temporary restraining orders, preliminary injunctions, and permanent
injunctions, without the necessity of posting bond or security.
14. Attorneys' Fees. I agree that if court proceedings are required
to enforce any provision of this Agreement, the prevailing party shall be
entitled to an award of reasonable and necessary expenses of litigation,
including reasonable attorneys' fees.
15. Termination; Successors and Assigns. This Agreement shall (a)
survive my employment by the Company, (b) not in any way restrict my right or
the right of the Company to terminate my employment, (c) inure to the benefit of
successors and assigns of the Company, and (d) be binding upon my heirs and
legal representatives.
16. Headings. The headings of the paragraphs of this Agreement are
inserted for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction thereof.
17. Governing Law. I agree that irrespective of its place of
execution or performance, this Agreement shall be governed by, and enforced
pursuant to, the laws of the State of Delaware, without regard to its conflicts
of laws rules or provisions.
18. Severability. In the event that any of the terms or provisions
herein shall violate any statutory provision or may be otherwise unlawful or
inoperative, it is the intent and
-4-
<PAGE>
desire of the parties that the remainder of this Agreement shall stay in full
force and effect insofar as such terms do not violate any statutory provision or
are otherwise lawful and that this Agreement be enforced to the maximum extent
possible.
19. Entire Agreement. I certify that, to the best of my information
and belief, I am not a party to any other agreement which will interfere with my
full compliance with this Agreement. This Agreement sets forth the entire
Agreement of the parties as to my employment at the Company and any
representations, promises, or conditions in connection therewith not in writing
and signed by both parties shall not be binding upon either party.
-5-
<PAGE>
I CERTIFY AND ACKNOWLEDGE THAT I HAVE CAREFULLY READ ALL OF THE
PROVISIONS OF THIS AGREEMENT AND THAT I UNDERSTAND AND WILL FULLY AND FAITHFULLY
COMPLY WITH SUCH PROVISIONS.
ARBINET HOLDINGS, INC. EMPLOYEE
By ______________________________ Signature
Title ___________________________ Printed Name
-6-
<PAGE>
ATTACHMENT
The following "Inventions," as that term is defined in the Agreement to
which this Attachment is affixed, are claimed by Employee.
-7-
<PAGE>
Exhibit 10.10
ARBINET HOLDINGS, INC.
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT (the "Agreement"), dated as of January 1,
2000, between ARBINET HOLDINGS, INC., a Delaware corporation (the "Company"),
and Robert S. Vaters (the "Optionee").
The Company has engaged the Optionee as Executive Vice President and
Chief Financial Officer of the Company pursuant to an employment agreement dated
as of December 27, 1999 (the "Employment Agreement").
The board of directors of the Company (the "Board") has established
the Company's Amended and Restated 1997 Stock Incentive Plan (the "Plan") in
order to provide certain individuals with a favorable opportunity to acquire
shares of the Company's common stock, par value $.001 per share ("Common
Stock").
The Board has determined that the objectives of the Plan will be
furthered by granting to the Optionee a stock option pursuant to the Plan.
In consideration of the foregoing and of the mutual undertakings set
forth in this Agreement, the Company and the Optionee agree as follows:
SECTION 1. Definitions and Incorporation. Unless otherwise defined
herein, the terms used in the Agreement shall have the meanings given to such
terms in the Plan. The Plan is hereby incorporated in and made a part of this
Agreement as if fully set forth herein. The Optionee hereby acknowledges that he
or she has received a copy of the Plan.
SECTION 2. Grant of Option; Option Price. Pursuant to the Plan, the
Company hereby grants to the Optionee a stock option (the "Option") to purchase
an aggregate of 350,000 shares (the "Shares") of Common Stock. Each installment
of the Option shall be exercisable at a price per Share as set forth in Schedule
1 attached hereto and hereby made a part hereof (the "Exercise Price"). The
Option issued under this Agreement is intended to qualify as an Incentive Stock
Option ("ISO") under Section 422 of the Internal Revenue Code of 1986, as
amended. Nevertheless, to the extent that it exceeds the $100,000 rule of Code
Section 422(d), or to the extent the Option does not meet the ISO rules for some
other reason, this Option shall be treated as a Non-Qualified Stock Option
("NSO").
SECTION 3. Exercisability. Subject to the further terms of this
Agreement and the Plan, the right to exercise the Option shall vest in
accordance with Schedule 1 attached hereto and hereby made a part hereof.
Any Option which is not exercised in full on the applicable vesting
date for such Option shall not lapse but shall remain outstanding as to the
unexercised portion
<PAGE>
and shall continue in effect throughout remainder of the option term, except to
the extent otherwise provided in this Agreement, the Plan or Schedule 1.
Unless earlier terminated pursuant to the provisions of the Plan,
the unexercised portion of the Option shall expire and cease to be exercisable
at 12:01 a.m. on the date which is the fifth anniversary of the date hereof (the
"Expiration Date").
SECTION 4. Method of Exercise. The Option or any part thereof may be
exercised by delivery of a Notice of Exercise substantially in the form attached
hereto and as provided in Article II of the Plan.
SECTION 5. Upon termination of the Optionee's employment with or, as
the case may be, Optionee's association with the Company or a subsidiary or as a
director, consultant or otherwise, by reason of dismissal for cause, the Option
shall terminate and expire. As used herein the term "cause" shall have the
meaning set forth in Section 1.6.5 of the Plan.
SECTION 6. Investment Representations. The Optionee hereby
represents and warrants to and agrees with the Company, as of the date hereof,
as follows:
6.1 Review of Documents. The Optionee acknowledges that the Optionee
has been granted access to and has reviewed carefully the Plan and, before any
exercise of the Option, the Optionee will review such records of the Company as
may be necessary to permit the Optionee to evaluate the merits and risks of an
investment in Common Stock. The Optionee is entering into this Agreement and the
transactions contemplated hereby solely in reliance on the Optionee's own
investigation and such review. The Optionee has had an opportunity to meet with
the officers of the Company subsequent to review of such information to discuss
with them the Optionee's questions concerning the Company and the terms and
conditions of the acquisitions hereunder.
6.2 Acquisition of Shares for Own Account. The Optionee will acquire
the Shares, if at all, pursuant to this Agreement with the Optionee's own funds,
and not with the funds of anyone else. The Shares will be acquired, if at all,
for the Optionee's own account, not as a nominee or agent and not for the
account of any other person or firm. No one else has or will have on any
exercise of the Option any interest, beneficial or otherwise in the Shares to be
acquired on such exercise. The Optionee is not, and prior to any exercise of the
Option will not be, obligated to transfer the Shares or any interest therein to
anyone else and the Optionee does not and will not have any agreement or
understanding to do so. The Optionee will acquire the Shares, if at all, for
investment for an indefinite period and not with a view to the sale or
distribution of any part or all thereof, by public or private sale or other
disposition, and has no intention of selling, granting any participation in or
otherwise distributing or disposing of the Shares or any interest therein. The
Optionee does not, and on any exercise of the Option will not, intend to
subdivide the Optionee's acquisition of the Shares with anyone.
6.3 Restricted Nature of Shares. The Optionee is (or will be at the
time of any acquisition of the Shares) able to bear the economic risk of the
investment in such Shares and is aware that the Optionee must be prepared to
hold the Shares received for an indefinite period and that such Shares have not
been registered under the Securities Act of 1933, as amended (the "Act") or any
state securities laws, on the ground that no
2
<PAGE>
distribution or public offering of the Share is to be effected and such Shares
will be issued, if at all, by the Company in connection with transactions not
involving any public offering within the meaning of Section 4(2) of the Act. The
Optionee understands that the Company is relying in part on the Optionee's
representations as set forth herein for purposes of claiming the exemption from
registration under the Act provided by Section 4(2) thereof and that the basis
for such exemption may not be present if, notwithstanding the Optionee's
representations herein, the Optionee has in mind merely acquiring the Shares for
resale on the occurrence or nonoccurrence of some predetermined event. The
Optionee has no such intention.
6.4 Information about the Company. The Optionee has carefully
reviewed and will carefully review all the information regarding the Company
access to which has been and will be accorded to the Optionee hereunder, is
thoroughly familiar with the business, operations and properties of the Company
by virtue of such review and of the Optionee's relationship with the Company as
a key employee thereof and has discussed with the officers of the Company any
questions the Optionee may have had with respect to the Company.
6.5 Restrictions on Issuance and on Resales. (a) Optionee
acknowledges and agrees that if the Committee shall at any time determine that
any consent (as defined in Section 3.3.2 of the Plan) is necessary or desirable
as a condition of, or in connection with any exercise of the Option (any such
action being hereinafter referred to as a "plan action"), then such exercise
shall not be effective, in whole or in part, unless and until such consent shall
have been effected or obtained to the full satisfaction of the Committee.
(b) Without in any way limiting the Optionee's representations as
set forth herein, the Optionee further agrees that the Optionee shall in no
event make any disposition of all or any part of or interest in the Shares and
that such Shares shall not be encumbered, pledged, hypothecated, sold or
transferred by the Optionee nor shall the Optionee receive any consideration for
such Shares or for any interest therein from any person, unless and until prior
to any proposed transfer, encumbrance, disposition, pledge, hypothecation or
sale of any Shares, either (i) a registration statement on Form S-1 or S-8 (or
any other form replacing such form or appropriate for the purpose under the Act)
with respect to such share proposed to be transferred or otherwise disposed of
shall be then effective or (ii) (x) the Optionee shall have notified the Company
of the proposed disposition and shall have furnished the Company with a detailed
statement of the circumstances surrounding the proposed disposition, (y) the
Optionee shall have furnished the Company with an opinion of counsel in form and
substance satisfactory to the Company to the effect that such disposition will
not require registration of such Shares under the Act or qualification of any
such shares under any other securities law and (z) such opinion of counsel shall
have been concurred in by counsel for the Company and the Company shall have
advised the Optionee of such concurrence.
6.6 Shares Will Be "Restricted Securities". The Shares, if and when
issued, will be "restricted securities," as that term is defined in Rule 144
under the Act, and, accordingly, the Shares must be held indefinitely unless
they are subsequently registered under the Act or an exemption from such
registration is available. The Optionee understands and agrees that the Company
is not under any obligation to register the Shares under the Act or to comply
with Regulation A or any other exemption.
3
<PAGE>
6.7 Company May Refuse to Transfer. Notwithstanding the foregoing,
in the event that the Optionee has, in the opinion of counsel for the Company,
acted in any manner not consistent with the representations and agreements of
the Optionee in this Agreement, the Company may refuse to transfer the
Optionee's Shares until such time as counsel for the Company is of the opinion
that such transfer will not require registration of any Shares under the Act or
qualification of any Shares under any other securities law.
6.8 Indemnification. The Optionee hereby agrees to indemnify the
Company and hold it harmless from and against any and all liability, damage,
cost or expense incurred on account of or arising out of (a) any inaccuracy in
any of the representations, warranties or agreements set forth in this Section
6, (b) the disposition of any Share which the Optionee may receive, contrary to
the Optionee's representations, warranties and agreements set forth in this
Section 6 or (c) any action, suit or proceeding based on a claim that said
representations, warranties or agreements were inaccurate or misleading or
otherwise cause for obtaining damages or redress from the Company under the Act.
6.9 Certificates Representing Shares to Be Legended. The Optionee
understands and agrees that certificates representing any Shares received on
exercise of the Option may bear a legend on the face thereof (or on the reverse
thereof with a reference to such legend on the face thereof) substantially in
the form set forth below, which legend restricts the sale, transfer or
disposition of the Share otherwise than in accordance with this Agreement:
THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND MAY NOT BE ENCUMBERED, PLEDGED, HYPOTHECATED, SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT OR AN OPINION OF
COUNSEL SATISFACTORY TO THE CORPORATION AND CONCURRED IN BY THE
CORPORATION'S COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED
UNDER SAID ACT OR SUCH TRANSACTION COMPLIES WITH RULES
PROMULGATED BY THE SECURITIES AND EXCHANGE COMMISSION UNDER SAID
ACT. IN ADDITION, SALE, TRANSFER, ENCUMBRANCE, HYPOTHECATION,
GIFT OR OTHER DISPOSITION OR ALIENATION OF SUCH SHARES OR ANY
INTEREST THEREIN IS RESTRICTED BY AND SUBJECT TO A STOCK OPTION
AGREEMENT DATED AS OF DECEMBER 30, 1999, A COPY OF WHICH MAY BE
INSPECTED AT THE PRINCIPAL OFFICE OF THE CORPORATION AND ALL OF
THE PROVISIONS OF WHICH ARE INCORPORATED BY REFERENCE IN THIS
CERTIFICATE AND MAY ADDITIONALLY BE SUBJECT TO THE RESTRICTIONS
SET FORTH IN A STOCKHOLDERS AGREEMENT BETWEEN THE HOLDER AND THE
COMPANY.
4
<PAGE>
SECTION 7. Plan Provisions to Prevail. This Agreement is subject to
all of the terms and provisions of the Plan. Without limiting the generality of
the foregoing, by entering into this Agreement the Optionee agrees that no
member of the Committee shall be liable for any action or determination made in
good faith with respect to the Plan or any award thereunder or this Agreement.
In the event that there is any inconsistency between the provisions of this
Agreement and of the Plan, the provisions of the Plan shall govern.
SECTION 8. Notices. Any notice to be given to the Company hereunder
shall be in writing and shall be addressed to Arbinet Holdings, Inc., 33
Whitehall Street, 19th Floor, New York, New York 10004, or at such other address
as the Company may hereafter designate to the Optionee by notice as provided in
this Section 8. Any notice to be given to the Optionee hereunder shall be
addressed to the Optionee at the address set forth beneath such Optionee's
signature hereto, or at such other address as the Optionee may hereafter
designate to the Company by notice as provided herein. A notice shall be deemed
to have been duly given when personally delivered or mailed by registered or
certified mail to the party entitled to receive it.
SECTION 9. Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and the successors and
assigns of the Company and, to the extent consistent with Section 5 of this
Agreement and with the Plan, the heirs and personal representatives of the
Optionee.
SECTION 10. Governing Law. This Agreement shall be interpreted,
construed and administered in accordance with the laws of the State of Delaware.
SECTION 11. Entire Agreement. This Agreement (subject to the
provisions of the Plan) contains the entire agreement among the parties relating
to the subject matter hereof and there are no other or further agreements
outstanding not specifically mentioned herein; provided, however, that the
parties may by agreement amend and supplement this Agreement in writing from
time to time as provided herein. The parties agree that all options to purchase
shares of capital stock of the Company granted to Optionee prior to the date
hereof have expired and shall be deemed canceled and are of no further force or
effect.
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date and year first written above.
ARBINET HOLDINGS, INC
By:
----------------------------
Name:
Title:
-------------------------------
Robert S. Vaters
Address:
-------------------------------
Social Security Number
6
<PAGE>
SCHEDULE 1
RIGHT TO EXERCISE
1. Subject to the conditions set forth in this Agreement, the right to
exercise the Option with respect to 1/48th of the Shares shall vest on the last
day of each full month that the Optionee is employed by the Company (the
"Vesting Dates"); provided that the Optionee is employed by the Company on the
applicable Vesting Dates. The per share Exercise Price with respect to the
Shares shall be $.254.
2. Subject to the conditions set forth in this Agreement, notwithstanding
any provision herein to the contrary, (i) if an initial public offering of the
Common Stock (the "IPO") occurs during the first year of the Optionee's
employment, vesting shall accelerate to effect 12 months of vesting as of the
end of the month in which the IPO closing occurs, and unvested Options shall
vest 1/36th per month over the 36 months after the month in which the IPO
closing occurs; and (ii) all Options shall vest immediately prior to a "change
in control" event (which will not include an IPO or a private equity financing
transaction). For purposes hereof, a "change in control" shall have occurred if
the Company consummates (a) a merger or consolidation of the Company with any
other company (other than a wholly-owned subsidiary of the Company), other than
(i) a merger or consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) 50% or more of the combined voting power of voting securities
of the Company or such surviving entity outstanding immediately after such
merger or consolidation (ii) a merger or consolidation affected to implement a
recapitalization of the Company (or similar transaction), (b) the sale of 50% or
more of the voting securities of the Company in a single transaction or a series
of related transactions following an IPO; or (c) a plan of complete liquidation
of the Company or an agreement for the sale or disposition by the Company of all
or substantially all of the Company's assets.
7
<PAGE>
FORM OF NOTICE OF EXERCISE
TO: ARBINET HOLDINGS, INC.
33 Whitehall Street
19th Floor
New York, New York 10004
FROM: Robert S. Vaters
RE: Notice of Exercise of Stock Option
DATE: __________________________________
This letter shall constitute the written notice of exercise in accordance with
the terms of the Stock Option Agreement dated as of December 30, 1999 (the
"Stock Option Agreement") between Arbinet Holdings, Inc. (the "Company") and me,
required by terms of the Stock Option Agreement.
I hereby advise the Company that by means of this notice of exercise, I wish to
purchase, effective as of the date hereof, __________ shares of Common Stock at
an exercise price of $0.254 per share under the Stock Option Agreement.
(please check appropriate box below)
[ ] I am enclosing a check for a total of $_________ for such shares.
[ ] I am exercising the Option (as defined in the Stock Option Agreement) on a
"cashless" basis as provided in Section 2.4.3 of the Plan (as defined in the
Stock Option Agreement).
I authorize the certificate representing said shares to be issued in the name(s)
of:
Name _____________________________________________________________
Address __________________________________________________________
__________________________________________________________
Social Security Number ___________________________________________
(May be the name and address of Undersigned or Undersigned and Spouse.)
__________________________________
OPTIONEE (signature)
Receipt of Notice of Exercise is hereby acknowledged on ____________________
ARBINET HOLDINGS, INC.
By:____________________________
Name: _________________________
Title: Secretary
8
<PAGE>
Exhibit 10.11
ARBINET HOLDINGS, INC.
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT (the "Agreement"), dated as of May 24, 1999,
between ARBINET HOLDINGS, INC., a Delaware corporation (the "Company"), and
Anthony L. Craig, the acting chief executive officer of the Company (the
"Optionee").
The board of directors of the Company (the "Board") has established
the Company's Amended and Restated 1997 Stock Incentive Plan (the "Plan") in
order to provide certain individuals with a favorable opportunity to acquire
shares of the Company's common stock, par value $.001 per share ("Common
Stock").
The Board has determined that the objectives of the Plan will be
furthered by granting to the Optionee a stock option pursuant to the Plan.
In consideration of the foregoing and of the mutual undertakings set
forth in this Agreement, the Company and the Optionee agree as follows:
SECTION 1. Definitions and Incorporation. Unless otherwise defined
herein, the terms used in the Agreement shall have the meanings given to such
terms in the Plan. The Plan is hereby incorporated in and made a part of this
Agreement as if fully set forth herein. The Optionee hereby acknowledges that he
or she has received copy of the Plan.
SECTION 2. Grant of Option; Option Price. Pursuant to the Plan, the
Company hereby grants to the Optionee a stock option (the "Option") to purchase
an aggregate of 313,772.25 shares (the "Shares") of Common Stock. Each
installment of the Option shall be exercisable at a price per Share as set forth
in Schedule 1 attached hereto and hereby made a part hereof (the "Exercise
Price"). It is intended that the Option shall not qualify as an "incentive stock
option" as defined in section 422 of the Internal Revenue Code of 1986, as
amended.
SECTION 3. Exercisability. Subject to the further terms of this
Agreement and the Plan, the right to exercise the Option shall vest in
accordance with Schedule 1 attached hereto and hereby made a part hereof.
<PAGE>
Unless earlier terminated pursuant to the provisions of the Plan,
the unexercised portion of the Option shall expire and cease to be exercisable
at 12:01 a.m. on the date which is the fifth anniversary of the date hereof (the
"Expiration Date").
SECTION 4. Method of Exercise. The Option or any part thereof may be
exercised by delivery of a Notice of Exercise substantially in the form attached
hereto and as provided in Article II of the Plan.
SECTION 5. Upon termination of the Optionee's employment with or, as
the case may be, Optionee's association with the Company or a subsidiary or as a
director, consultant or otherwise, by reason of dismissal for cause, the Option
shall terminate and expire. As used herein the term "cause" shall have the
meaning set forth in Section 1.6.5 of the Plan.
SECTION 6. Investment Representations. The Optionee hereby
represents and warrants to and agrees with the Company, as of the date hereof,
as follows:
6.1 Review of Documents. The Optionee acknowledges that the Optionee
has been granted access to and has reviewed carefully the Plan and, before any
exercise of the Option, the Optionee will review such records of the Company as
may be necessary to permit the Optionee to evaluate the merits and risks of an
investment in Common Stock. The Optionee is entering into this Agreement and the
transactions contemplated hereby solely in reliance on the Optionee's own
investigation and such review. The Optionee has had an opportunity to meet with
the officers of the Company subsequent to review of such information to discuss
with them the Optionee's questions concerning the Company and the terms and
conditions of the acquisitions hereunder.
6.2 Acquisition of Shares for Own Account. The Optionee will acquire
the Shares, if at all, pursuant to this Agreement with the Optionee's own funds,
and not with the funds of anyone else. The Shares will be acquired, if at all,
for the Optionee's own account, not as a nominee or agent and not for the
account of any other person or firm. No one else has or will have on any
exercise of the Option any interest, beneficial or otherwise in the Shares to be
acquired on such exercise. The Optionee is not, and prior to any exercise of the
Option will not be, obligated to transfer the Shares or any interest therein to
anyone else and the Optionee does not and will not have any agreement or
understanding to do so. The Optionee will acquire the Shares, if at all, for
investment for an indefinite period and not with a view to the sale or
distribution of any part or all thereof, by public or private sale or other
disposition, and has no intention of selling, granting any participation in or
otherwise distributing or disposing of the Shares
-2-
<PAGE>
or any interest therein. The Optionee does not, and on any exercise of the
Option will not, intend to subdivide the Optionee's acquisition of the Shares
with anyone.
6.3 Restricted Nature of Shares. The Optionee is (or will be at the
time of any acquisition of the Shares) able to bear the economic risk of the
investment in such Shares and is aware that the Optionee must be prepared to
hold the Shares received for an indefinite period and that such Shares have not
been registered under the Securities Act of 1933, as amended (the "Act") or any
state securities laws, on the ground that no distribution or public offering of
the Share is to be effected and such Shares will be issued, if at all, by the
Company in connection with transactions not involving any public offering within
the meaning of Section 4(2) of the Act. The Optionee understands that the
Company is relying in part on the Optionee's representations as set forth herein
for purposes of claiming the exemption from registration under the Act provided
by Section 4(2) thereof and that the basis for such exemption may not be present
if, notwithstanding the Optionee's representations herein, the Optionee has in
mind merely acquiring the Shares for resale on the occurrence or nonoccurrence
of some predetermined event. The Optionee has no such intention.
6.4 Information about the Company. The Optionee has carefully
reviewed and will carefully review all the information regarding the Company
access to which has been and will be accorded to the Optionee hereunder, is
thoroughly familiar with the business, operations and properties of the Company
by virtue of such review and of the Optionee's relationship with the Company as
a key employee thereof and has discussed with the officers of the Company any
questions the Optionee may have had with respect to the Company.
6.5 Restrictions on Issuance and on Resales. (a) Optionee
acknowledges and agrees that if the Committee shall at any time determine that
any consent (as defined in Section 3.3.2 of the Plan) is necessary or desirable
as a condition of, or in connection with any exercise of the Option (any such
action being hereinafter referred to as a "plan action"), then such exercise
shall not be effective, in whole or in part, unless and until such consent shall
have been effected or obtained to the full satisfaction of the Committee.
(b) Without in any way limiting the Optionee's representations as
set forth herein, the Optionee further agrees that the Optionee shall in no
event make any disposition of all or any part of or interest in the Shares and
that such Shares shall not be encumbered, pledged, hypothecated, sold or
transferred by the Optionee nor shall the Optionee receive any consideration for
such Shares or for any interest therein from any person, unless and until prior
to any proposed transfer, encumbrance, disposition, pledge,
-3-
<PAGE>
hypothecation or sale of any Shares, either (1) a registration statement on form
S-1 or S-8 (or any other form replacing such form or appropriate for the purpose
under the Act) with respect to such share proposed to be transferred or
otherwise disposed of shall be then effective or (2) (i) the Optionee shall have
notified the Company of the proposed disposition and shall have furnished the
Company with a detailed statement of the circumstances surrounding the proposed
disposition, (ii) the Optionee shall have furnished the Company with an opinion
of counsel in form and substance satisfactory to the Company to the effect that
such disposition will not require registration of such Shares under the Act or
qualification of any such shares under any other securities law and (iii) such
opinion of counsel shall have been concurred in by counsel for the Company and
the Company shall have advised the Optionee of such concurrence.
6.6 Shares Will Be "Restricted Securities". The Shares, if and when
issued, will be "restricted securities," as that term is defined in Rule 144
under the Act, and, accordingly, the Shares must be held indefinitely unless
they are subsequently registered under the Act or an exemption from such
registration is available. The Optionee understands and agrees that the Company
is not under any obligation to register the Shares under the Act or to comply
with Regulation A or any other exemption.
6.7 Company May Refuse to Transfer. Notwithstanding the foregoing,
in the event that the Optionee has, in the opinion of counsel for the Company,
acted in any manner not consistent with the representations and agreements of
the Optionee in this Agreement, the Company may refuse to transfer the
Optionee's Shares until such time as counsel for the Company is of the opinion
that such transfer will not require registration of any Shares under the Act or
qualification of any Shares under any other securities law.
6.8 Indemnification. The Optionee hereby agrees to indemnify the
Company and hold it harmless from and against any and all liability, damage,
cost or expense incurred on account of or arising out of (1) any inaccuracy in
any of the representations, warranties or agreements set forth in this Section
6, (2) the disposition of any Share which the Optionee may receive, contrary to
the Optionee's representations, warranties and agreements set forth in this
Section 6 or (3) any action, suit or proceeding based on a claim that said
representations, warranties or agreements were inaccurate or misleading or
otherwise cause for obtaining damages or redress from the Company under the Act.
6.9 Certificates Representing Shares to Be Legended. The Optionee
understands and agrees that certificates representing any Shares received on
exercise of the Option may bear a legend on the face thereof (or on the reverse
thereof with a reference to such legend on the face thereof) substantially in
the form set forth below,
-4-
<PAGE>
which legend restricts the sale, transfer or disposition of the Share otherwise
than in accordance with this Agreement:
THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND
MAY NOT BE ENCUMBERED, PLEDGED, HYPOTHECATED, SOLD, TRANSFERRED OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER SAID ACT OR AN OPINION OF COUNSEL SATISFACTORY TO
THE CORPORATION AND CONCURRED IN BY THE CORPORATION'S COUNSEL THAT
SUCH REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR SUCH
TRANSACTION COMPLIES WITH RULES PROMULGATED BY THE SECURITIES AND
EXCHANGE COMMISSION UNDER SAID ACT. IN ADDITION, SALE, TRANSFER,
ENCUMBRANCE, HYPOTHECATION, GIFT OR OTHER DISPOSITION OR ALIENATION
OF SUCH SHARES OR ANY INTEREST THEREIN IS RESTRICTED BY AND SUBJECT
TO A STOCK OPTION AGREEMENT DATED AS OF MAY 24, 1999 A COPY OF
WHICH MAY BE INSPECTED AT THE PRINCIPAL OFFICE OF THE CORPORATION
AND ALL OF THE PROVISIONS OF WHICH ARE INCORPORATED BY REFERENCE IN
THIS CERTIFICATE AND MAY ADDITIONALLY BE SUBJECT TO THE
RESTRICTIONS SET FORTH IN A STOCKHOLDERS AGREEMENT BETWEEN THE
HOLDER AND THE COMPANY.
SECTION 7. Repurchase by Company. Upon termination of the Optionee's
employment or association with the Company or a subsidiary or as a director,
consultant or otherwise, by reason of dismissal as a result of (i) perpetration
of an intentional and knowing fraud against or affecting the Company or any
customer, client, agent, or employee thereof; or (ii) conviction (including
conviction on a nolo contendere plea) of a felony or any crime involving, fraud,
dishonesty or moral turpitude, the Company shall have the right at any time to
repurchase the Shares received by the Optionee (notwithstanding any subsequent
sale of such Shares by the Optionee) or this Option. The repurchase price
payable, in the case of the Shares (or any portion thereof), shall be equal to
the Exercise Price paid therefor and, in the case of Options, shall be $.01 per
Option.
SECTION 8. Plan Provisions to Prevail. This Agreement is subject to
all of the terms and provisions of the Plan. Without limiting the generality of
the foregoing,
-5-
<PAGE>
by entering into this Agreement the Optionee agrees that no member of the
Committee shall be liable for any action or determination made in good faith
with respect to the Plan or any award thereunder or this Agreement. In the event
that there is any inconsistency between the provisions of this Agreement and of
the Plan, the provisions of the Plan shall govern.
SECTION 9. Termination of Agreements; Release. (a) Effective as of
the date hereof, any and all agreements between the Optionee and the Company for
or relating to the grant to Optionee of any option to purchase shares of Common
Stock (any and each such agreement a "Prior Agreement") are hereby terminated
and of no further force or effect.
(b) Optionee on behalf of itself and its respective
affiliates, predecessors, heirs, executors, administrators, successors and
assigns (collectively, "Optionee Releasors"), for due consideration, receipt of
which is hereby acknowledged, does hereby release, remise, forever discharge and
covenant not to sue any of the Company, its officers, directors, stockholders,
employees, agents, affiliates, predecessors, successors and assigns
(individually a "Company Releasee" and collectively, the "Company Releasees"),
from all actions, causes of action, suits, debts, dues, sums of money, accounts,
covenants, contracts, controversies, agreements, promises, damages, judgments
and claims (including, without limitation, claims for litigation costs and
attorneys' fees, expenses and disbursements), executions and demands whatsoever,
in law, admiralty or equity, which the Optionee Releasors ever had, now have or
hereafter can, shall or may have against any Company Releasee through the date
hereof, for, upon, or by reason of any matter, cause or thing whatsoever,
including, without limitation, claims for installment and incremental payments
and other matters arising out of any Prior Agreement.
SECTION 10. Notices. Any notice to be given to the Company hereunder
shall be in writing and shall be addressed to ArbiNet Holdings, Inc., 226 East
54th Street, 2nd Floor, New York, New York 10022, or at such other address as
the Company may hereafter designate to the Optionee by notice as provided in
this Section 11. Any notice to be given to the Optionee hereunder shall be
addressed to the Optionee at the address set forth beneath such Optionee's
signature hereto, or at such other address as the Optionee may hereafter
designate to the Company by notice as provided herein. A notice shall be deemed
to have been duly given when personally delivered or mailed by registered or
certified mail to the party entitled to receive it.
SECTION 11. Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and the successors and
assigns of the
-6-
<PAGE>
Company and, to the extent consistent with Section 5 of this Agreement and with
the Plan, the heirs and personal representatives of the Optionee.
SECTION 12. Governing Law. This Agreement shall be interpreted,
construed and administered in accordance with the laws of the State of Delaware.
SECTION 13. Entire Agreement. This Agreement (subject to the
provisions of the Plan) contains the entire agreement among the parties relating
to the subject matter hereof and there are no other or further agreements
outstanding not specifically mentioned herein; provided, however, that the
parties may by agreement amend and supplement this Agreement in writing from
time to time as provided herein. The parties agree that all options to purchase
shares of capital stock of the Company granted to Optionee prior to the date
hereof have expired and shall be deemed canceled and are of no further force or
effect.
-7-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date and year first written above.
ARBINET HOLDINGS, INC.
By: /s/ Neil A. Torpey
---------------------------
Name: Neil A. Torpey
Title: Secretary
/s/ Anthony Craig
------------------------------
Anthony L. Craig
<PAGE>
SCHEDULE 1
RIGHT TO EXERCISE
1. Subject to the conditions set forth in this Agreement, the right to
exercise the Option with respect to twenty five percent (25%) of the
Shares shall vest on the date which is one month (the "One Month
Anniversary") from the date hereof, and thereafter, the right to exercise
the Option with respect to the remaining seventy five percent (75%) of the
Shares shall vest, monthly, in equal installments, over the three month
period commencing on the date which is one month after the One Month
Anniversary; provided, however, that the right to exercise all options
shall vest upon the hiring of a permanent chief executive officer of the
Company. The per share Exercise Price with respect to the Shares shall be
$.11.
<PAGE>
FORM OF NOTICE OF EXERCISE
TO: ARBINET HOLDINGS, INC.
226 E. 54TH Street
New York, New York 10022
FROM: ______________________________________
RE: Notice of Exercise of Stock Option
DATE: ______________________________________
This letter shall constitute the written notice of exercise in accordance with
the terms of the Stock Option Agreement dated as of ____________ (the "Stock
Option Agreement") between Arbinet Holdings, Inc. (the "Company") and me,
required by terms of the Stock Option Agreement.
I hereby advise the Company that by means of this notice of exercise, I wish to
purchase, effective as of the date hereof, __________ shares of Common Stock at
an exercise price of $___________ per share under the Stock Option Agreement.
(please check appropriate box below)
|_| I am enclosing a check for a total of $_________ for such shares.
|_| I am exercising the Option (as defined in the Stock Option Agreement) on a
"cashless" basis as provided in Section 2.4.3 of the Plan (as defined in the
Stock Option Agreement).
I authorize that the certificate representing said shares to be issued in the
name(s) of:
Name _____________________________________________________________
Address __________________________________________________________
__________________________________________________________
Social Security Number ___________________________________________
(May be the name and address of Undersigned or Undersigned and Spouse.)
___________________________________
OPTIONEE (signature)
Receipt of Notice of Exercise is hereby acknowledged on ______________________
ARBINET HOLDINGS, INC.
By:____________________________
Name: _________________________
Title: Secretary
<PAGE>
Exhibit 10.15
NORTEL
NETWORKS
Northern Telecom
2350 Lakeside Blvd.
Mail Stop (07J/03/A10)
Richardson, TX 75082-4399
Tel 972-685-1752
Fax 972-685-3284
www.nortelnetworks.com
Sharon J. Howard
Staff Manager
Contract Management
October 28, 1999
Ms. Rachelle Rees-McCarthy
Arbinet Holdings Corp.
226 East 54th Suite 200
New York, NY 10022
Dear Rachelle:
Enclosed please find a fully executed copy of the GPA between Nortel
and Arbinet.
If you have any questions, please give me a call at the above number.
Thank you for your assistance and for your business.
Sincerely,
Sharon J. Howard
<PAGE>
GLOBAL PURCHASE AGREEMENT
BETWEEN
ARBINET HOLDINGS CORPORATION
AND
NORTEL NETWORKS INC.
<PAGE>
ARBINET
GPSA
GLOBAL PURCHASE AGREEMENT
This Global Purchase Agreement ("Agreement"), effective as of the, 20th day of
October, 1999 ("Effective Date"), is entered into by and between Arbinet
Holdings Corporation (hereinafter "Company"), a Delaware corporation with its
principal place of business located at 226 East 54th Street, Suite 200, New
York, New York 10022 and Nortel Networks Inc. (hereinafter "Nortel Networks"), a
Delaware corporation with offices located at 2350 Lakeside Boulevard,
Richardson, Texas 75082-4399.
WHEREAS, Company is engaged in providing communication services and products,
and providing and maintaining public and private communication networks; and
WHEREAS, Nortel Networks, in conjunction with Nortel Networks Affiliates, is
engaged in the design, development, manufacture and sale of various products and
offers services associated with such products, which can be used in connection
with the communication services, products and networks of Company; and
WHEREAS, Company and Company Affiliates wish to be able to purchase and/or
license various products and services from Nortel Networks and Nortel Networks
Affiliates, which Company and Company Affiliates will use for their own internal
use and not for resale or as stock in trade, and Nortel Networks is willing to
sell and/or license such products to Company, subject to the terms and
conditions of this Agreement;
NOW, THEREFORE, in consideration of the premises and mutual covenants and
agreements herein set forth, the parties agree as follows:
1 DEFINITIONS
The following words shall have the meanings set forth below. Words in
the singular shall be held to include the plural and vice versa, and words of
gender shall be held to include the other gender as the context requires.
1.1 "Acceptance" shall mean that either (i) Company has indicated that
an ordered Product is operating substantially in accordance with the applicable
Specification; or (ii) an ordered Product has been deemed to be accepted
pursuant to criteria set forth in Article 6.
-3-
<PAGE>
Arbinet
GPSA
1.2 "Affiliate" shall mean any entity listed in Exhibit C in which
either Nortel Networks or Company directly or indirectly owns and controls, and
continues to own or control, more than fifty percent (50%) of the shares
entitled to elect the board of directors of such entity. Each party agrees that
the other party may add to Exhibit C any such entity, and any other entity shall
only be added upon mutual written consent of the parties. The Affiliates of
Nortel Networks are referred to herein as "Nortel Networks Affiliates", and the
Affiliates of Company are referred to herein as "Company Affiliates". Nortel
Networks Dasa GmbH of Germany and Matra Nortel Networks Communications S.A.S.,
for purposes of this Agreement, shall be treated as Affiliates of Nortel
Networks.
1.3 "Applications" shall mean any program, product, service,
development or invention developed by a party using the Building Blocks,
including any modified or created Building Blocks, created by Company.
1.4 "Background IPR" shall mean any Intellectual Property Rights that
are conceived, created, or developed by a party or its Affiliates prior to, or
independently of, any Services performed pursuant to this Agreement.
1.5 "Building Block(s)" shall mean those Software files provided by
Nortel Networks with Modifiable Software that are manipulatable or which may be
created by Company with such Modifiable Software and which can be used, created
or manipulated by Company to create Applications.
1.6 "Commencement Date" shall mean the date, as agreed to by the
parties, on which Nortel Networks is to commence performance of Services ordered
by Company pursuant to a Services Annex to this Agreement.
1.7 "Confidential Information" shall mean all information, including,
without limitation, specifications, drawings, documentation, designs, test
results, programs, know-how and pricing and market information, of every kind or
description which may be disclosed by one party to the other party in connection
with this Agreement; provided that, the disclosing party shall clearly mark all
such information disclosed in writing as the confidential or proprietary
property of the disclosing party and, in the case of oral disclosure, the
disclosing party shall identify the confidential or proprietary nature of any
such information at the time of such oral disclosure and shall provide a written
summary (labeled as confidential or proprietary) of the orally disclosed
information to the recipient within fifteen (15) business days following such
disclosure.
1.8 "Contract" shall mean an agreement for the supply of Products
and/or Services between (i) Company or an Affiliate and (ii) Nortel Networks or
a Nortel Networks Affiliate,
-4-
<PAGE>
Arbinet
GPSA
which comes into effect by the acceptance of an Order pursuant to the provisions
of this Agreement, and which Contract shall be governed solely by the terms and
conditions of this Agreement; and each reference to "Company" in this Agreement
shall for such Contract mean the ordering Company Affiliate.
1.9 "Customer" shall mean entities to whom Company provides
communications services as a result of Company's internal use of the Products.
1.10 "Company Information" or "Cl"shall mean the information provided
by Company to Nortel Networks in order for Nortel Networks to engineer and/or
provide the components of Systems.
1.11 "Customized Service(s)" shall mean, individually and collectively,
any Services other than Standard Services, including, without limitation, those
Services described in a Services Annex, if any.
1.12 "Documentation" shall mean the documents which Nortel Networks
generally makes available to its customers containing descriptive, operating,
installation, engineering and maintenance information for Products, including
Specifications, as such documents may be amended from time to time.
1.13 "Extension" shall mean Hardware and/or Software which is
engineered by Nortel Networks and added to an Initial System after the Turnover
Date of the Initial System.
1.14 "Ex Works" shall have the meaning ascribed to it in Incoterms
1990.
1.15 "Financing Commitment" shall mean a firm written commitment to
fund monies sufficient to pay for purchases made by Company pursuant to this
Agreement, whether that Financing Commitment is in the form of third party
financing from a financial institution, corporation or individual, or a lease
agreement between Company and a third party lessee covering the hardware and
Software purchased by Company from Nortel Networks.
1.16 "Foreground IPR" shall mean any Intellectual Property Rights that
are conceived, created, or developed by a party or its Affiliates in the course
of performing Services pursuant to a Services Annex to this Agreement.
1.17 "Hardware" shall mean, individually and collectively, the Nortel
Networks equipment listed in the Product Annexes of Exhibit A or otherwise
purchased by Company from Nortel Networks from time to time, and shall be deemed
to include any equipment which Nortel
-5-
<PAGE>
Arbinet
GPSA
Networks adds to its generally available Hardware price lists or so identifies
to Company in a Quotation.
1.18 "Hazardous Material" shall mean any pollutants or dangerous, toxic
or hazardous substances (including without limitation, asbestos) as defined in,
or pursuant to the OSHA Hazard Communication Standard (29 C.F.R. Part 1910,
Subpart Z), the Resource Conservation and Recovery Act (15 U.S.C. Section 6901,
et seq.), the Toxic Substances Control Act (15 U.S.C. Section 2601, et seq.),
the Comprehensive Environmental Response Compensation and Liability Act (42
U.S.C. Section 9601, et seq.), and any other federal, state or local
environmental law, ordinance, rule or regulation or equivalent law or regulation
in the location to which the Product is shipped by Nortel Networks.
1.19 "Initial System" shall mean Hardware and Software, inclusive of a
central processor unit, included in a configuration which Nortel Networks
identifies as a System and which is initially engineered by Nortel Networks and
installed at a specific Installation Site.
1.20 "Installation Site" shall mean the location or facility identified
in an Order at which the applicable Products will be installed.
1.21 "Intellectual Property Rights" shall mean any and all rights in
any invention, discovery, improvement, utility model, copyright, trademark,
service mark, patent, industrial design or mask work right, and any and all
rights of whatever nature in computer software and data, Confidential
Information, trade secrets or know-how, and any and all intangible rights and
privileges of a nature similar to any of the foregoing, in every case in any
part of the world and whether or not registered, and shall include all rights in
any applications and granted applications for any of the foregoing.
1.22 "Licensed Software" shall mean the Software which Company has
licensed pursuant to this Agreement.
1.23 "Merchandise" shall mean any Hardware or other parts or components
which are not ordered as part of a System and with respect to which no
engineering, installation or other Services are provided by Nortel Networks
1.24 "Modifiable Software" shall mean Software, or a portion of
Software that is identified as such by Nortel Networks in its applicable
Documentation, which Company may have certain rights to modify and potentially
create Applications or Building Blocks in accordance with the applicable
Documentation.
-6-
<PAGE>
Arbinet
GPSA
1.25 "Non-Licensed Software" shall mean Software for which Company has
not yet obtained a license nor paid applicable right to use fees, but which
Software may be included with Software loads delivered to Company hereunder.
1.26 "Object Code" shall mean Software either written directly, or
translated from Source Code, which when presented on a suitable medium may be
directly executed by and through computer hardware and/or firmware and which
Software may be stored on any storage medium whatsoever.
1.27 "Order" shall mean a numerically controlled purchase authorization
document issued by Company or a Company Affiliate to Nortel Networks or a Nortel
Networks Affiliate, specifying the types and quantities of Products and Services
to be furnished by Nortel Networks pursuant to this Agreement.
1.28 "Product(s)" shall mean, individually and collectively, the
Hardware, Software, and Documentation.
1.29 "Product Annex" shall mean, with respect to a specific Product,
additional or modified terms and conditions as set forth in Exhibit A, inclusive
of but not limited to those that may apply to any Third Party Hardware or Third
Party Software, unique to such Product.
1.30 "Quotation" shall mean a written budgetary or firm price quotation
issued by Nortel Networks to Company or a Company Affiliate for the supply of
any Products or Services pursuant to this Agreement.
1.31 "Service(s)" shall mean, individually and collectively, any of the
Standard and/or Customized Services set forth in this Agreement and Annexes that
Company may acquire from Nortel Networks, such as but not limited to
maintenance, engineering, installation, training, data management, program
management, project management, commissioning, testing, technical assistance
with respect to Products, installation, and consulting.
1.32 "Services Annex" shall mean, with respect to a specific type of
Service, the attachment hereto documenting the terms and conditions that relate
to such type of Service.
1.33 "Services Site" shall mean the location or facility identified
within an Order or Services Annex where the Services are to be performed.
1.34 "Services Software" shall mean that Software and related
documentation made available by Nortel Networks which may be used by Company for
estimation, planning or information purposes.
-7-
<PAGE>
Arbinet
GPSA
1.35 "Ship Date" shall mean the date on which a Product ordered by
Company is shipped from Nortel Networks facility, or in the case of Software
which is downloaded, the date upon which such Software is to be downloaded to
the System; however, Ship Date shall not mean the date on which Non-Licensed
Software is activated.
1.36 "Software" shall mean (i) computer programs in Object Code form or
firmware which (a) are owned by, or licensed to, Nortel Networks or Nortel
Networks Affiliates, (b) reside in Product memories, tapes, disks or other
media, and (c) provide basic logic operating instructions and user-related
application instructions; and (ii) documentation associated with such computer
programs, which may be furnished by Nortel Networks to Company from time to
time, including both Licensed Software and Non-Licensed Software, but in no
event shall Software include Source Code.
1.37 "Software Release" shall mean Software or revisions to Software
containing problem fixes, new features and/or enhancements.
1.38 "Source Code" shall mean Software in assembly language or any
higher-level source language and all available appropriate documentation.
1.39 "Specifications" shall mean with respect to any Product the
specifications and/or practices set forth in Nortel Networks Practices ("NNPs")
or similar documents published by Nortel Networks which Nortel Networks
identifies as the standard performance specifications and practices for such
Product.
1.40 "Standard Service(s)" shall mean, individually and collectively,
any of the Services described in a Services Annex and shall be deemed to include
any similar services which Nortel Networks adds to its generally available
Services offerings or so identifies to Company in writing.
1.41 "Statement of Work" shall mean a document that describes the
scope, activities, schedule, prices, deliverables (including, but not limited
to, any drawings, specifications, reports, designs, and test results to be
prepared or produced by Nortel Networks) related to, and/or any additional terms
and conditions pertaining to, such Customized Service(s) as may, from time to
time, be mutually agreed to in writing by Company and Nortel Networks pursuant
to this Agreement.
1.42 "System" shall mean a configuration of Hardware and Software
providing a specified functionality and includes an Initial System and its
Extensions, if any.
-8-
<PAGE>
Arbinet
GPSA
1.43 "Third Party Hardware" shall mean any hardware not of Nortel
Networks' manufacture, including any such hardware which Nortel Networks adds to
its generally available Third Party Hardware price lists or so identifies to
Company in a Quotation.
1.44 "Third Party Software" shall mean any Software where the
intellectual property rights thereto are not owned by Nortel Networks which is
included within Licensed Software or Non-Licensed Software.
1.45 "Territory" shall mean the countries in which Nortel Networks is
authorized and engaged in the design, development, manufacture and sale of its
Products and Services as set forth in Exhibit D.
1.46 "Turnover" shall mean, with respect to any System installed by
Nortel Networks, that Nortel Networks has completed its standard manufacturing
test procedures, as applicable, and that the System is ready for acceptance
testing by Company.
1.47 "Turnover Date" shall mean, with respect to any Product installed
by Nortel Networks hereunder, the date on which Nortel Networks provides a
notice of Turnover to Company.
2 SCOPE OF AGREEMENT
2.1 This Agreement sets forth the terms and conditions under which
Company or Company Affiliates may order Products and/or Services from Nortel
Networks and Nortel Networks Affiliates. Any Order placed by a Company
Affiliate, under this Agreement, shall be subject to the terms and conditions of
this Agreement, as if such Company Affiliate is the party that executed this
Agreement; provided, however, that Nortel Networks has the right to reject any
Order as specified in Section 3.2. Company may use the Product(s) itself,
including use to provide services to others, subject to the terms and conditions
of this Agreement. Company expressly represents that it is not buying Product
for resale.
2.2 To the extent any terms and conditions set forth in this Agreement
are inapplicable to a Product or type of Service, the applicable terms and
conditions and any additional terms and conditions for such Product or type of
Service shall be set forth in the respective Product or Services Annex. The
specific terms and conditions set forth in the Products or Services Annex shall
take precedence over any conflicting terms and conditions set forth in this
Agreement.
2.3 If specified in a Product or Services Annex as a requirement,
Company shall, fifteen (15) days prior to each calendar quarter, submit to
Nortel Networks a consolidated
-9-
<PAGE>
Arbinet
GPSA
nonbinding forecast of Products and Services by geographic region, that Company
anticipates purchasing or licensing over the next four (4) calendar quarters. In
addition to the type, quantity and cumulative dollar amount of Products or
Services, the parties may agree upon additional information to be included in
such forecast.
2.4 All references to prices, charges, fees or other amounts herein
shall be in U.S. dollars and all documentation, correspondence and communication
shall be in the English language. Unless otherwise set forth herein, any
reference in this Agreement to Company shall be deemed to include Company
Affiliates and any reference to Nortel Networks shall be deemed to include
Nortel Networks Affiliates.
2.5 Nortel Networks' obligations under this Agreement are contingent
upon Company providing Nortel Networks with satisfactory written documentation
that a Financing Commitment is in place. Nortel Networks' continuing obligations
under this Agreement are similarly contingent upon there being no material
changes in the Financing Commitment. If there is a breach of the Financing
Commitment by either party to the Financing Commitment, Nortel Networks shall
have the right to deem itself insecure and, at Nortel Networks' option, suspend
further performance under this Agreement. Company shall provide notice of any
Financing Commitment breach, by any party to the Financing Commitment, to Nortel
Networks within ten (10) days of a breach.
3 PLACEMENT OF ORDERS
3.1 To order Products and/or Services, Company shall submit to such
person as Nortel Networks shall designate, an Order which shall at a minimum
specify the following, if applicable:
(i) the name of the Company Affiliate placing the Order,
which shall be a Company Affiliate set forth in
Exhibit C for the country in which the Product is to
be placed;
(ii) the incorporation by reference of this Agreement;
(iii) the types and quantities of Products and Services to
be furnished by Nortel Networks;
(iv) the name and address, as set forth in Exhibit C, of
the Nortel Network Affiliate that will be providing
the Products and/or Services being ordered
-10-
<PAGE>
Arbinet
GPSA
in the country in which the Products and/or Services
are to be placed and/or performed, as appropriate;
(v) the applicable prices, charges and fees with respect
to such Products and/or Services;
(vi) the location or facility to which the Products are to
be delivered or where the Systems are located;
(vii) the Installation or Services Site, if known;
(viii) the requested Ship Date and Turnover Date of the
System or the requested Commencement Date of the
Services; and
(ix) any other information required under this Agreement
to be included in an Order.
3.2 All purchases pursuant to this Agreement shall be made by means of
Orders issued from time to time by Company or Company's Affiliate addressed to
Nortel Networks or Nortel Networks' Affiliate and accepted by Nortel Networks or
Nortel Networks' Affiliate in writing within fifteen (15) days after receipt of
the Order. An Order submitted by a Company Affiliate pursuant to the terms and
conditions of this Agreement, and which Nortel Networks has accepted,
constitutes a Contract between the Company Affiliate ordering and Nortel
Networks or the applicable Nortel Networks Affiliate. In the event that Nortel
Networks fails to provide its acceptance of an Order in writing within such
fifteen (15) day period, such Order shall be deemed to be accepted, subject to
Section 3.3. Nortel Networks shall have the right to reject any Order, or the
applicable portion of such Order, placed hereunder where Company or the Company
Affiliate placing the Order has a separate agreement with Nortel Networks for
the provision of the Products or Services requested in such Order or the Order
is otherwise not in accordance with this Agreement.
3.2.1 Nortel Networks reserves the right to amend
Exhibit C from time to time and shall provide ten (10) days
prior written notice of such amendment to Company. Exhibit C
may be subject to change in relation to Company's or a Company
Affiliate's purchases of different Products from Nortel
Networks or a Nortel Networks Affiliate. Subject to the terms
and conditions of this Agreement, Company or a Company
Affiliate may place an Order for a Product with the
appropriate Nortel Networks Affiliate in the territory where
the Product will be delivered as set forth in Exhibit C.
-11-
<PAGE>
Arbinet
GPSA
3.3 Pre-printed or additional or conflicting terms and conditions set
forth in Orders issued by Company, or in any prior Quotations, acknowledgments
or other related documentation issued by any party, shall be considered null and
void and shall have no force or effect unless the conflicting or special terms
have been expressly accepted by Nortel Networks in writing, in which case
acceptance is for such Order only, and supersedes the specific terms and
conditions contained in this Agreement, including all Exhibits attached hereto,
which are in conflict, but only to the extent of such conflict.
3.4 Company may at any time request additions, alterations, deductions
or deviations to an Order, subject to the condition that such changes and any
adjustments resulting from such changes, including, but not limited to,
schedules and prices, shall be mutually agreed upon and, if so agreed,
subsequently detailed in a written revision to the applicable Order ("Change
Order"). Company acknowledges that a premium charge may be applied by Nortel
Networks should Nortel Networks agree to process a Change Order outside of its
standard Order processing cycle for a Product or in the event that a Change
Order requires an additional amount of work (such as engineering) to be
undertaken to comply with such changes.
3.5 If Company desires to receive a budgetary or firm Quotation from
Nortel Networks for a Product or Service, Company shall submit such request in
writing to Nortel Networks' Director, Commercial Marketing, or such other person
as designated by Nortel Networks. The request for Quotation shall include the
information listed in Section 3.1, as applicable.
3.6 Nortel Networks shall respond in writing to requests for budgetary
Quotations and requests for firm Quotations. Unless otherwise specified in the
firm Quotation, such firm Quotation shall be valid for ninety (90) days from the
date of such Quotation. Budgetary Quotations shall be provided for information
and planning purposes only and shall not be considered to be a final or firm
statement binding on either party. All prices will be quoted in U.S. dollars,
unless otherwise agreed. The Quotations shall include the following information:
(i) Budgetary Quotations
(a) preliminary Hardware and Software lists;
(b) the estimated charges for the Products;
(c) the estimated charges for Services requested; and
(d) any other information requested by Company.
(ii) Firm Quotations
(a) the price to be paid by Company for the Products,
after applying the
applicable discounts, if any;
(b) fixed charges for Services requested;
-12-
<PAGE>
Arbinet
GPSA
(c) complete Hardware and Software lists and project
schedules; and
(d) any other information requested by Company.
3.7 If Company desires to receive a Statement of Work from Nortel
Networks for Consulting or Customized Services, Company shall submit such
request in writing to such person as Nortel Networks may designate. The request
for a Statement of Work shall include the information listed in Section 3. 1, as
applicable. Nortel Networks shall prepare a Statement of Work in response to
Company's request. Any changes to the proposed Statement of Work shall be
negotiated and agreed to in writing by the parties. Any Statement of Work and
any changes to an existing Statement of Work shall not be binding unless and
until the terms are reduced to a writing signed by the authorized
representatives of both parties. Company's Order(s) for the Consulting or
Customized Services described within a Statement of Work shall be based upon the
contents of the Statement of Work as mutually agreed to by the parties and
attached to such Order(s).
3.8 The Ship Date for Products shall be based on Nortel Networks'
standard intervals for the applicable Product; however, the parties shall always
mutually agree on the Ship Date and take into consideration any unique aspect of
the applicable project.
3.9 The Commencement Date for ordered Services shall be based on Nortel
Networks' standard intervals for the applicable Service; however, the parties
shall always mutually agree, in writing, on the Commencement Date taking into
consideration any unique aspect of the applicable project.
3.10 Orders may be issued either electronically, such as through
electronic data interchange, or via traditional manual methods.
3.11 Company and Nortel Networks absolutely, irrevocably and
unconditionally guarantees the performance of each of its respective Affiliates
with regard to Orders and/or otherwise acting under this Agreement and any
Contract created thereby. Both parties to this Agreement expressly waive any
other diligence, protest or notice as well as any requirement that the
non-breaching party exhaust any remedy or right against such breaching
Affiliate.
4 PRICE AND PAYMENT
4.1 Nortel Networks shall charge Company for each Product and/or
Service ordered by Company in accordance with the prices set forth in each
accepted Order, which prices shall be based upon prices identified in one of (i)
a Product or Services Annex; (ii) a Firm Quotation; (iii) a Statement of Work;
(iv) Nortel Networks' then current prices; or (v) as specified elsewhere in this
Agreement or as otherwise mutually agreed in writing.
-13-
<PAGE>
Arbinet
GPSA
4.1.1 All Products for delivery within the European
Union shall be priced and delivered in accordance with
Delivery Duty Paid ("D.D.P."), European Union site terms and
for other European countries in accordance with Carriage
Insurance Paid ("CIP") specified port/airport of entry. The
terms D.D.P. and CIP shall be interpreted in accordance with
Incoterms 1990. In all cases, prices are exclusive of Sales
Tax or Value Added Taxes ("VAT") which will be payable by the
Company in addition to the purchase price at the rate
applicable as of the date of invoice.
4.1.2 All Products for delivery within Australia
shall be priced and delivered in accordance with D.D.P.,
Australian site terms, as applicable. Prices are subject to
changes in statutory charges such as duties and taxes.
4.1.3 All Products for delivery within New Zealand
shall be priced and delivered in accordance with Delivered
Duty Unpaid ("D.D.U."), New Zealand site terms, as applicable.
Prices are subject to duties and General Sales Tax.
4.1.4 All Products for delivery within Japan shall be
priced and delivered in accordance with D.D.P., Japanese site
terms. In all cases, prices are exclusive of Sales Tax which
will be payable by the Company in addition to the purchase
price at the rate applicable as of the date of invoice.
4.1.5 All Products for delivery within countries not
otherwise specified above shall be priced and delivered in
accordance with Ex Works, Nortel Networks' applicable
facility.
4.2 Nortel Networks' prices, if set forth in attached Exhibits, may be
revised by Nortel Networks no more than once each calendar year, by providing
sixty (60) days prior written notice to Company. Such notice shall specify the
effective date of the price change and shall apply to all Orders received by
Nortel Networks on or after the effective date of the price change. However, in
the event that there is a recognized industry-wide shortage of a component that
is incorporated in a Product, Nortel Networks may increase the price of such
Product, following the provision of written notice to Company fifteen (15) days
prior to the effective date of such increase or such shorter date as is mutually
agreed in view of the shortage. The price increase of such Product due to a
component shortage shall be limited to a reasonable amount under the
then-current circumstances having regard for industry conditions for the period
of time during which such recognized shortage exists. Following the
implementation of a price increase due to a component shortage, the parties
shall jointly review every three (3) months or at such other time as is mutually
agreed, in good faith, whether such component shortage still exists. If the
component shortage has abated, the parties shall jointly determine whether there
still is a
-14-
<PAGE>
Arbinet
GPSA
need for such price increase. In addition, in the event that worldwide
hyperinflation occurs, the parties shall work together in good faith to
determine any applicable increase in prices of affected Products to cover Nortel
Networks' additional costs.
4.3 Unless otherwise set forth in a Product or Services Annex or
Statement of Work, Nortel Networks shall invoice Company for Products and
Services as follows, unless otherwise agreed to in writing:
(i) for Products and Systems, whether or not installation
has been ordered from Nortel Networks:
(a) Ten percent (10%) of the price of the
Products or System shall be due with the
Purchase Order; and,
(b) Seventy percent (70%) of the price of the
Products or System shall be invoiced on the
Ship Date; and,
(c) Twenty percent (20%) of the price of the
Products or System shall be invoiced on the
Acceptance Date.
(ii) for Merchandise or Documentation provided on a
furnish-only basis, one hundred percent (100%) of the
price on the Ship Date; and
(iii) for Orders covering Services only, one hundred
percent (100%) of the price for such Services
following completion of performance, except for
recurring support Services which shall be billed
quarterly in advance unless otherwise agreed. Some
Services may be subject to monthly invoicing as set
out in a Product or Services Annex. To the extent
such Services are to be invoiced differently than set
out in this paragraph (iii), such differences shall
be set forth in the applicable Product or Services
Annex and such provisions shall take precedence.
4.4 Each invoice shall be paid in full within thirty (30) days after
the date of such invoice. In the event that Company does not pay an invoice in
full within such thirty (30) day period, then Nortel Networks may charge Company
interest on the outstanding portion of such invoice from day thirty one (31)
forward, at the rate of one and one half percent (1.5%) simple interest per
month, or such lesser amount as may be the maximum permissible rate under
applicable law, until such time as the outstanding invoice is paid. In addition,
Company agrees to pay all collection costs and reasonable legal fees incurred by
Nortel Networks as a result of late payment or non-payment by Company.
-15-
<PAGE>
Arbinet
GPSA
5 SHIPMENT, TITLE, RISK OF LOSS, AND SECURITY INTEREST FOR
PRODUCTS PROVIDED HEREUNDER
5.1 Prior to the Ship Date, Company shall have the right to reschedule
any pending, Orders; provided that (i) a minimum period of notice prior to such
Ship Date is given to Nortel Networks by Company in accordance with the
applicable Product Annex; and (ii) the new Ship Date is within ninety (90) days
of the original Ship Date. However, each Order may only be rescheduled once.
Company shall reimburse Nortel Networks for any storage fees, insurance and
demurrage costs incurred with respect to such rescheduled Orders.
5.1.1 All Products for delivery within the European Union
shall be delivered in accordance with D.D.P., European Union site terms
and for other European countries in accordance with CIP specified
port/airport of entry. All Products for delivery within Australia or
Japan shall be priced and delivered in accordance with D.D.P.,
Australian or Japanese site terms, as applicable. All Products for
delivery within New Zealand shall be priced and delivered in accordance
with D.D.U., New Zealand site terms, as, applicable. Products to be
delivered in all other countries not specifically mentioned in this
Section 5.2 shall be delivered in accordance with Ex Works, Nortel
Networks' applicable facility, and risk of loss and damage to Products
shall be as provided therein. Company shall keep such Products fully
insured for the total amount then due Nortel Networks for such
Products.
5.1.2 Risk of loss and damage to Products for delivery in the
United States and Canada shall pass to Company upon delivery to the
loading dock at the Installation Site or other delivery location
specified by Company in an Order. Company shall keep such Products
fully insured for the total amount then due Nortel Networks for such
Products. Company shall pay transportation charges, including
insurance, associated with the shipment of Products; provided however,
that if the parties agree, Nortel Networks shall prepay transportation
charges, and insurance for delivery of Products to the Installation
Site or other delivery location or other designated receiving point as
specified in an Order. The charges therefor shall be invoiced by Nortel
Networks and paid by Company to Nortel Networks in accordance with
Article 4 above.
5.2 Good title to Hardware furnished hereunder, free and clear of all
liens and encumbrances, shall vest in Company upon full payment to Nortel
Networks of the total amount payable by Company for such Hardware and any
related Licensed Software or Services ("Total Fee") furnished by Nortel Networks
in connection with such Hardware. Prior to payment of the Total Fee for the
Products and Services in an Order, Company shall not sell or lease the Hardware,
or allow any liens or encumbrances to attach to the Hardware or Software, or
remove
-16-
<PAGE>
Arbinet
GPSA
the Hardware or Software from the Installation Site without the prior written
consent of Nortel Networks, such consent not to be unreasonably withheld.
5.3 If Company notifies Nortel Networks prior to a Ship Date that
Company does not wish to receive such Products on the Ship Date, or the
Installation Site or other delivery location is not prepared in sufficient time
for Nortel Networks to make delivery in accordance with such date, or Company
fails to take delivery of any portion of the Products in an Order when shipped,
Nortel Networks may place the applicable Products in storage. In that event,
Company shall be liable for all additional costs thereby incurred by Nortel
Networks. Delivery by Nortel Networks of any Products to a storage location as
provided above shall be deemed to constitute delivery of the Products to Company
for purposes of this Agreement, including, without limitation, provisions for
payment, invoicing, passage of risk of loss, and commencement of the warranty
period.
5.4 Until the Total Fee is paid, Company grants to Nortel Networks
and/or its agents a purchase money security interest in the Products in an Order
and their proceeds or such other similar protection as may be available in the
applicable jurisdiction. Company shall cooperate with Nortel Networks in
preserving and perfecting Nortel Networks' security interest in the Products and
Company shall promptly execute and deliver to Nortel Networks (i) such financing
statements and (ii) such other agreements, documents and instruments as Nortel
Networks may require to perfect and maintain the validity, effectiveness and
priority of the security interest created or intended to be created by this
Agreement.
5.5 Company authorizes Nortel Networks to file one or more financing or
continuation statements and amendments thereto, relating to all or any part of
the Products in an Order without signature of the Company where permitted by
law. A carbon, photographic or other or of any financing statement covering the
Products or any part thereof shall be sufficient as a financing statement and
may be filed as a financing statement.
6 COMPANY'S ADDITIONAL RESPONSIBILITIES
6.1 Company shall provide Nortel Networks or its subcontractors with
access to its Installation Sites or other Company facilities during the times
specified by Nortel Networks and as are reasonably necessary for Nortel Networks
to perform its obligations hereunder. Nortel Networks shall comply with
Company's reasonable site and security regulations of which Nortel Networks is
informed by Company.
6.2 All sites at which the Products shall be delivered or installed
shall be prepared by Company in accordance with Nortel Networks' standards,
including, without limitation, environmental requirements. Prior to and during
installation, Company shall ensure the timely
-17-
<PAGE>
Arbinet
GPSA
and adequate delivery, installation and functioning of the electrical and
communications connections and other environmental requirements, including but
not limited to, HVAC systems, specified in Nortel Networks' instructions,
Specifications, Documentation, or a Product Annex.
6.3 Company shall provide reasonable working space and facilities,
including heat, light, ventilation, telephones, electrical current, waste
removal and other necessary utilities, for use by Nortel Networks' personnel
performing installation or other Services, and adequate secure storage space, if
required by Nortel Networks, for Products and materials. Company shall also
provide adequate security against theft, damage or other loss for the Products
while on Company's Installation Site or other delivery location specified by
Company.
6.4 Company shall obtain all necessary governmental permits applicable
to Company in connection with the installation, operation, and maintenance of
Products furnished hereunder, excluding any applicable permits required in the
normal course of Nortel Networks' doing business. Any information which Nortel
Networks reasonably requests from Company and which is necessary for Nortel
Networks to properly install or maintain the Products shall be provided by
Company to Nortel Networks in a timely fashion and in a form reasonably
specified by Nortel Networks.
6.5 If Company (a) notifies Nortel Networks, prior to the Commencement
Date for ordered Services, that Company wishes to postpone the commencement of
such Services, or (b) at the Services Site (or other location), necessary
information or key Company representatives are not available or prepared in
sufficient time for Nortel Networks to commence such Services in accordance with
such date, then Company shall be liable for all additional costs related to the
postponed Services, including, without limitation, (i) standard rates (including
any overtime premium) for Nortel Networks' personnel and/or contractors who
travel to the Services Site or other location, and the actual travel and living
expenses (plus a fifteen percent (15%) administrative fee) and/or relocation
expenses incurred by such personnel and/or contractors, and (ii) any costs,
charges or expenses incurred by Nortel Networks under its arrangements with
third party vendors, licensors, lessors, and/or contractors. In addition, if
Company provides less than thirty (30) days' notice of the postponement, Company
shall pay to Nortel Networks a postponement charge equal to ten percent (10%) of
the Order amount for the postponed Services.
7 TESTING, TURNOVER AND ACCEPTANCE OF PRODUCT AND SERVICES
7.1 If installation Services are ordered by Company, Nortel Networks
shall, upon completion of such installation, test the Products in accordance
with Nortel Networks' Turnover procedures to verify that such Products function
substantially in accordance with the applicable Specifications. Upon completion
of such verification, Nortel Networks shall provide to Company a written notice
of Turnover. Company shall be permitted an opportunity to have an
-18-
<PAGE>
Arbinet
GPSA
appropriately qualified individual in attendance to observe the performance of
such tests, however, the absence of such Company individual for any reason shall
not invalidate the tests nor be a reason for Company to withhold Acceptance.
7.2 Within ten (10) business days after the Turnover Date, Company
shall either accept the Product in writing by execution of a notice of
Acceptance, or notify Nortel Networks in writing, specifying in reasonable
detail those particulars in which, in Company's opinion, the Product does not
materially conform with the Specifications. If Acceptance does not occur within
ten (10) days after the Turnover Date and Company has not indicated to Nortel
Networks in writing its basis for not accepting such Product, then Acceptance
shall be deemed to have occurred.
7.3 If Nortel Networks does not install Products furnished hereunder,
Nortel Networks shall, prior to delivery of the Products, perform such factory
tests as Nortel Networks determines to be appropriate in order to confirm that
such Products perform substantially in accordance with the applicable
Specifications. If Company does not provide written notice of defects in such
Products to Nortel Networks within five (5) days of delivery, Company shall be
deemed to have accepted the Products based upon such tests and Acceptance shall
be deemed to have occurred upon the Ship Date. In the event that Company or any
other entity intends to perform installation of Products, (except for
installation of Products which are not permitted to be installed other than by
Nortel Networks, as specified in the applicable Product Annex or Documentation)
Company or such entity may be required to complete prerequisite training or
certification prior to Company being allowed to install such Products.
7.4 In the event that Company is utilizing any Product in a
revenue-generating capacity, Acceptance shall be deemed to have occurred without
limitation or restriction, upon the date of placement of such Product into
revenue-generating service.
7.5 Products, such as Merchandise, which are purchased separately from
a System, shall be deemed accepted upon the Ship Date unless Company provides
written notice of defects to Nortel Networks within five (5) days of delivery of
such Products. Services that are purchased separately from a Product shall be
deemed to be accepted upon completion of such Services or upon specific
milestones as may be identified in a Product Annex.
7.6 Company shall not unreasonably withhold Acceptance. Nortel Networks
shall correct any deficiencies identified by Company in the manner described in
this Article whereby such Products do not materially conform to the
Specifications. When Nortel Networks has corrected such deficiencies, Company
shall accept the Products as described in Section 7.2, above.
-19-
<PAGE>
Arbinet
GPSA
7.7 Following Acceptance of Products, Company shall execute Nortel
Networks' Acceptance notice, confirming Acceptance without any conditions,
restrictions, or limitations of any nature whatsoever.
7.8 Acceptance shall not be withheld or postponed due to:
(i) Deficiencies of such Products resulting from causes
attributable to the Company or its agents, such as,
but not limited to (a) material change or inaccuracy
in Customer Information, (b) inadequacy or
deficiencies of any materials, information,
facilities or services provided directly or
indirectly by Company and tested in conjunction with
the applicable Products, or spurious outputs from
adjacent material, or (c) other conditions external
to the Products which are beyond the limits specified
by Nortel Networks in the Specifications for the
Products; or
(ii) Minor deficiencies or shortages with respect to such
Products which are, attributable to Nortel Networks,
but of a nature that do not prevent operation of the
Products in revenue-generating service.
7.9 With respect to any deficiencies of the type described in Section
7.8(i), Nortel Networks shall at Company's request and expense assist Company in
the elimination or minimization of any such deficiencies. With respect to any
deficiencies or shortages as described in Section 7.8(ii), Nortel Networks
shall, at Nortel Networks' expense, correct any such deficiencies or shortages
within thirty (30) days of the date of Acceptance or as otherwise agreed by the
parties.
7.10 In the event that Company notifies Nortel Networks of
non-acceptance of a Product and Nortel Networks personnel travel to the
Installation Site to remedy such non-acceptance and determine that
non-acceptance is due to a deficiency of the type described in Section 7.8(i),
Nortel Networks will invoice Company for Nortel Networks' investigation of the
matter, consisting of the standard labor rate for Nortel Networks' personnel who
travel to the Installation Site and the reasonable travel and living expenses
incurred by such personnel.
7.11 Services shall be deemed to be accepted upon: (i) completion of
such Services; or (ii) completion of specific milestones as may be identified in
a Services Annex or Statement of Work; or for ongoing Services purchased on an
annual basis, upon agreement of the parties in writing to purchase and provide
such Services.
-20-
<PAGE>
Arbinet
GPSA
8 ORDER CANCELLATION
8.1 If, prior to the Ship Date, Company cancels all or any part of an
Order, Company shall pay to Nortel Networks a cancellation charge for the
Products or each item of Third Party Hardware or Third Party Software that has
been canceled in accordance with the schedule set forth in the applicable
Product Annex.
8.2 Orders for Products that have been shipped may not be canceled.
Furthermore, Orders for Products which Nortel Networks customizes in accordance
with a specific Company request may not be canceled.
8.3 In the event that Company cancels all or part of an Order for
Products or Systems, Company shall pay to Nortel a cancellation charge for each
Product or each item of Third Party Hardware or Third Party Software that has
been canceled in accordance with the following schedule:
- 60 days or more prior to Ship Date 100% of Engineering Charges
- 30-59 days prior to Ship Date 25% of Order amount
- 15-29 days prior to Ship Date 35% of Order amount
- 0-14 days prior to Ship Date 50% of Order amount
8.4 Unless otherwise set forth in a Services Annex or Statement of
Work, in the event that Company cancels all or any part of an Order for
Services, Company shall pay to Nortel Networks a cancellation charge for the
Services that have been cancelled in accordance with the following schedule:
- 60 or more days prior to Commencement
Date No cancellation charge
- 45-59 days prior to Commencement Date 5% of Order amount
- 30-44 days prior to Commencement Date 10% of Order amount
- 0-29 days prior to Commencement Date 20% of Order amount
8.5 In addition, Company shall be liable for all additional costs
related to the cancelled Products or Services, including, without limitation,
(i) standard rates (including any overtime premium) for Nortel Networks'
personnel and/or contractors who travel to the Installation or Services Site or
other location, and the actual travel and living expenses (plus a fifteen
percent (15%) administrative fee) and/or relocation expenses incurred by such
personnel and/or contractors, and (ii) any costs, charges or expenses incurred
by Nortel Networks under its arrangements with third party vendors, licensors,
lessors and/or contractors.
-21-
<PAGE>
Arbinet
GPSA
9 WARRANTY
9.1 Nortel Networks warrants that for a period of twelve (12) months
from Acceptance of a System, the Hardware contained in such System under normal
use and service will be free from defective material and faulty workmanship and
shall comply with the applicable Specifications. The warranty period for
Merchandise shall be ninety (90) days from the Ship Date of such Merchandise.
The foregoing warranties shall not apply to items normally consumed during
operation of a System such as, but not limited to, lamps and fuses.
9.2 Nortel Networks warrants that any installation Services performed
by Nortel Networks with respect to a System will be free from defects in
workmanship for a period of twelve (12) months from the completion date of such
Services.
9.3 Nortel Networks warrants that any Licensed Software shall function
during the warranty period of the Hardware with respect to which such Licensed
Software is furnished without any material, service-affecting, nonconformance to
the applicable Specifications. Licensed Software that is delivered separately
from Hardware is warranted for a period of twelve (12) months from the
applicable Ship Date. If the Licensed Software fails to so function, Company's
exclusive remedy and Nortel Networks' sole obligation under this warranty is for
Nortel Networks to correct such failure through, at Nortel Networks' option, the
replacement or modification of the Licensed Software or such other actions as
Nortel Networks reasonably determines to be appropriate, all within a reasonable
time having regard to all of the circumstances and failing which the parties
agree to negotiate a commercially reasonable solution. Any modification to the
Software not performed by Nortel Networks, other than with respect to Modifiable
Software, shall void this warranty.
9.4 If Hardware is not free from defects in material or workmanship and
fails to comply with the applicable Specifications during the warranty period,
Nortel Networks will at its sole option repair, replace or modify the defective
Hardware so that it substantially complies with the applicable Specifications.
The warranty service shall be performed at the Installation Site or Nortel
Networks' facility as determined by Nortel Networks. If Nortel Networks is
unable to repair or modify the defective Hardware within a reasonable period of
time so that such Hardware conforms to the applicable Specification, Nortel
Networks shall replace the defective Hardware with Hardware that conforms to
such Specifications. Replacement Hardware may be new or reconditioned at Nortel
Networks' option. Nortel Networks' sole obligation and Company's exclusive
remedy under the warranty provisions of this Article with respect to Hardware
and installation Services shall be limited to repair, modification or
replacement of the defective Hardware or correction of the defective
Installation Services.
-22-
<PAGE>
Arbinet
GPSA
9.5 Notwithstanding the foregoing, the warranty period of Hardware
which has been subject to repair or replacement by Nortel Networks shall
commence upon the Ship Date of the repaired or replacement Hardware to Company
and shall expire on the later of ninety (90) days or the last day of the
original warranty period with respect to the Hardware which was repaired or
replaced. The warranty period of Licensed Software which has been corrected, due
to a material, service-affecting non-conformance found in such Licensed
Software, shall expire on the later of ninety (90) days from the Ship Date of
the corrected Licensed Software to Company or the last day of the original
warranty period with respect to such Licensed Software.
9.6 Nortel Networks warrants that its Products and deliverables shall
comply in all material aspects with all applicable laws and regulations known to
Nortel Networks, which are in force on the date of acceptance of the applicable
Order therefor, which laws or regulations directly impose obligations upon any
manufacturer, seller or, if applicable, installer of such Products. Upon request
therefor, Nortel Networks may implement such changes as are necessary to comply
with any applicable law and/or regulation which becomes effective after the date
of acceptance of the applicable Order; provided that the parties have reached
mutual agreement concerning the cost of such changes and which party will bear
them.
9.7 The performance by Nortel Networks of any of its obligations
described in this Article 9 shall not extend the applicable warranty period.
9.8 The warranties set forth in this Article shall not apply to any
Products where the defect or non-conformance is due to (i) accident, fire,
explosion, power failure, power surge or other power irregularity, lightning,
alteration, abuse, misuse or repair not performed by Nortel Networks; (ii)
improper storage; (iii) failure to comply with all applicable environmental
requirements for the Products as specified by Nortel Networks or any other
applicable supplier, such as but not limited to temperature or humidity ranges;
(iv) improper performance of installation, maintenance, operation or other
service in connection with the Products, provided that such service was not
performed by Nortel Networks or on Nortel Networks' behalf; (v) use in
conjunction with an incompatible product or a product not purchased under this
Agreement; (vi) any error, act or omission by anyone other than Nortel Networks;
or (vii) where written notice of the defect has not been given to Nortel
Networks within the applicable warranty period. The warranties set forth in this
Article shall not apply to (i) Non-Licensed Software for which the applicable
right-to-use fees have not been paid; or (ii) Third Party Software or Third
Party Hardware, provided however that Nortel Networks shall assign to Company
(to the extent of Nortel Networks' right to do so) the warranty rights granted
to Nortel Networks by the appropriate vendor of such Third Party Software or
Third Party Hardware.
9.9 Unless Nortel Networks elects to repair or replace defective
Hardware at Company's facility, all Hardware to be repaired or replaced, whether
in or out of warranty, shall
-23-
<PAGE>
Arbinet
GPSA
be de-installed and packed by Company in accordance with Nortel Networks'
instructions. Nortel Networks shall use reasonable efforts to ship repaired or
replacement Hardware within thirty (30) days of receipt of the defective
Hardware. To facilitate the processing of the defective Hardware returned
hereunder, Nortel Networks may ship replacement Hardware prior to Nortel
Networks receiving the defective Hardware. In the event that Company fails to
return defective Hardware and Nortel Networks has shipped such replacement
Hardware, Nortel Networks shall invoice Company at Nortel Networks' applicable
then-current prices for such replacement Hardware, thirty (30) days after the
Ship Date of such replacement Hardware. If mutually agreed, Nortel Networks will
make repairs on-site at Nortel Networks' then-current charge for such repairs.
9.10 If the Hardware returned to Nortel Networks pursuant to Section
9.9 is determined by Nortel Networks to be beyond repair and is outside the
warranty period, Nortel Networks shall notify Company and if requested Nortel
Networks shall sell Company replacement Hardware at Nortel Networks'
then-current prices for such replacement Hardware.
9.11 Company shall bear risk of loss or damage and shall pay for all
transportation charges for Hardware returned to Nortel Networks and Nortel
Networks shall bear risk of loss or damage and pay for transportation charges
for repaired or replacement Hardware shipped to Company. Title to returned
Hardware shall pass to Nortel Networks upon receipt. Title to replacement
Hardware shall pass to Company upon receipt.
9.12 Nortel Networks and Nortel Networks' vendors of Third Party
Hardware and Third Party Software, as appropriate, shall not have any
responsibility to Customers for warranties offered by Company to such Customers
and Company hereby indemnifies and holds harmless Nortel Networks and Nortel
Networks' vendors, as appropriate, from any claims, damages or liabilities
arising out of, or relating to, any warranties offered by Company to such
Customers.
9.13 If Company discloses to Nortel Networks that Company has purchased
Equipment from a party other than Nortel Networks for installation upon a
Product or if Nortel Networks determines in its sole discretion that any
Equipment installed upon a Product was not purchased by Company from Nortel
Networks, Nortel Networks shall have the right to immediately discontinue all of
its obligations, services and responsibilities with respect to such Product
pursuant to this Agreement until such time as such Product has successfully
completed Nortel Networks' certification process (the "Certification"), and
provide Company with written notice thereof. Company shall, upon receipt of
Nortel Networks' written notice, (i) issue an Order for Nortel Networks'
Certification of such Product at the purchase price to be determined pursuant to
Section 4.1; (ii) ensure that such Product successfully completes Nortel
Networks' Certification process, including, but not limited to, purchasing
additional Equipment from Nortel
-24-
<PAGE>
Arbinet
GPSA
Networks as required in order to successfully complete the Certification
process; and (iii) pay the prices, charges and fees for such Certification
within thirty (30) days after the date of invoice. Upon the successful
completion of the Certification process for such Product, Nortel Networks shall
resume its obligations, services and responsibilities with respect to such
Product pursuant to this Agreement.
9.14 THE WARRANTIES, CONDITIONS AND REMEDIES SET FORTH HEREIN
CONSTITUTE THE ONLY WARRANTIES, OBLIGATIONS OR CONDITIONS OF NORTEL NETWORKS
WITH RESPECT TO THE PRODUCTS AND SERVICES AND ARE COMPANY'S SOLE AND EXCLUSIVE
REMEDIES IN THE EVENT THAT SUCH WARRANTIES OR CONDITIONS ARE BREACHED. THEY ARE
IN LIEU OF ALL OTHER WARRANTIES OR CONDITIONS, WRITTEN OR ORAL, STATUTORY,
EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. NORTEL NETWORKS SHALL NOT
BE LIABLE FOR ANY INDIRECT, INCIDENTAL, SPECIAL, PUNITIVE OR CONSEQUENTIAL
DAMAGES, INCLUDING WITHOUT LIMITATION, LOST REVENUES OR PROFITS OR OTHER
ECONOMIC LOSS, OF ANY NATURE WHATSOEVER ARISING OUT OF NORTEL NETWORKS' BREACH
OF WARRANTY OR CONDITION.
10 NORTEL NETWORKS' ADDITIONAL OBLIGATIONS
10.1 Nortel Networks shall make training available to representatives
of Company with respect to the operation, configuration, installation, service,
maintenance and support of the Products at Nortel Networks' then current prices
and at Nortel Networks' facilities, subject to course and class availability.
The training provided under this Section 10.1 may be provided at a Nortel
Networks facility or other location, at Nortel Networks' discretion. Nortel
Networks shall provide Company with a certain number of training credits
("Training Credits"), as set forth in the applicable Product Annex, to be used
by Company in any of Nortel Networks' training courses related to the Products
that Company has purchased. The Training Credits for each Product may only be
used in connection with such Product and must be used within one (1) year from
the date such Training Credits were earned, after which such Training Credits
will be forfeited by Company.
10.2 Upon request, Nortel Networks shall provide Company with copies of
its then current training catalogue. Company shall provide Nortel Networks with
a reasonable number of names and addresses of people to whom this catalogue
should be sent. Upon the request of Company, Nortel Networks shall provide to
Company such additional training as Company requests, at a time and place
mutually agreed upon and at the prices to be quoted for such training. The
cancellation fees set forth in the training catalogues shall apply.
-25-
<PAGE>
Arbinet
GPSA
10.3 Nortel Networks shall include its standard Documentation package,
if any, with each shipment of Products. Nortel Networks shall make the
Documentation available on its choice of media, which may include CD-ROM or
other electronic media. Nortel Networks shall provide Company with any other
Documentation that is ordered at its then-current prices therefor. Documentation
provided via Nortel Networks' CD-ROM media may be printed and copied and
Documentation provided in paper format may be copied, to the extent such
Documentation so provides, and only to the extent such printing or copying is
necessary for the operation and maintenance of the Products to which the
Documentation pertains. However, Company may not press or burn any copies of
CD-ROM discs.
10.4 During the term of this Agreement, Company may receive various
support Services from Nortel Networks in connection with the Products Company
acquires from Nortel Networks under this Agreement. These Services may include,
but are not limited to the following: technical assistance Services,
installation Services, Hardware maintenance Services, Software maintenance
Services and parts repair and replacement Services. The various support Services
that Company may obtain and the manner in which they will be provided are set
forth in a Services Annex, which is attached hereto and incorporated herein. The
fees for these Services, if available upon execution of this Agreement are set
forth in Exhibit B. Fees for any support Services not specified in Exhibit B
shall be provided on an as-quoted basis or in a Statement of Work pursuant to
Nortel Networks' applicable terms and conditions.
11 SOFTWARE LICENSE
11.1 Company acknowledges that the Software may contain programs which
have been supplied by, and are proprietary to, Third Party Software vendors. In
addition to the terms and conditions herein, Company shall abide by any
additional terms and conditions specified in a Product Annex with respect to any
Software provided by any Third Party Software vendor.
11.2 Upon Company's payment to Nortel Networks of the applicable fees
with respect to any Software furnished to Company pursuant to this Agreement,
Nortel Networks hereby grants to Company, subject to the applicable terms and
conditions of this Article 11, a personal, non-exclusive, right and license to
use the Object Code version of the Licensed Software furnished to Company, but
only in conjunction with Company's use of the Hardware or the Documentation with
respect to which such Licensed Software was furnished. The duration of such
right to use shall last (i) with respect to Licensed Software furnished in
connection with Hardware, for the life of that Hardware as it may be repaired or
modified, and (ii) with respect to Licensed Software furnished in connection
with Documentation, for the duration of Company's right to use the
Documentation. Company shall be granted no title or ownership rights to the
Software, which rights shall remain in Nortel Networks or its suppliers.
-26-
<PAGE>
Arbinet
GPSA
11.3 As a condition precedent to this license and to the supply of
Software by Nortel Networks pursuant to this Agreement, Nortel Networks requires
Company to give proper assurances to Nortel Networks for the protection of the
Software. Accordingly, all Software supplied by Nortel Networks under or in
implementation of this Agreement shall be treated by Company as the exclusive
property, and as proprietary and a trade secret, of Nortel Networks and/or its
suppliers, as appropriate, and Company shall: (i) hold the Software, including,
without limitation, any methods or concepts utilized therein in confidence for
the benefit of Nortel Networks and/or its suppliers, as appropriate; (ii) not
provide or make the Software available to any person except to its employees on
a 'need to know' basis and then only under confidentiality obligations; (iii)
not reproduce, copy, or modify the Software in whole or in part except as
authorized by Nortel Networks; (iv) except as provided for under the Council of
the European Communities Directive on the legal protection of Computer Programs
dated the 14th of May, 1991 (91/250/EEC), not attempt to decompile, reverse
engineer, disassemble, reverse translate, or in any other manner decode the
Software; (v) issue adequate instructions to all persons, and take all actions
reasonably necessary to satisfy Company's obligations under this license; and
(vi) forthwith return to Nortel Networks, or with Nortel Networks' consent
destroy (a) upon termination of the license for any reason, or (b) upon receipt
of replacement, modified, or updated Software, any magnetic tape, disc,
semiconductor device or other memory device or system memory and/or
Documentation or other material regarding such Software, including, but not
limited to all printed material furnished by Nortel Networks to Company. An
appropriate officer or other authorized representative of Company shall certify
in writing to Nortel Networks that all copies of material in the possession or
control of Company have been destroyed as required in this Paragraph.
11.4 The obligations of Company hereunder shall not extend to any
information or data relating to the Software which is now available to the
general public or becomes available by reason of acts or failures to act not
attributable to Company. If Company is required or requested in a legal,
judicial, or administrative proceeding, or otherwise by law, to disclose such
information or data, Company shall use reasonable efforts to provide prior
notice to Nortel Networks and allow Nortel Networks to seek protective or other
court or administrative orders, and Company shall to the extent of its ability
protest such required disclosure and request that all information or data so
disclosed be protect to the full extent possible as confidential and disclosed
only under restrictive circumstances and orders to ensure such continued
protection.
11.5 Nortel Networks may issue updates to the Software from time to
time, and, upon Company's payment of applicable right to use fees, if any, shall
license such updates to Company. The right to use fees for such updates do not
include the price of any associated Hardware that may be required to use such
updates.
-27-
<PAGE>
Arbinet
GPSA
11.6 Unless agreed to in writing in advance by both Nortel Networks and
Company, which consent shall not be unreasonably withheld, neither Company nor
any successor to Company's title in the applicable Hardware shall have the right
to (i) assign this license as to the applicable Licensed Software to any other
person who acquires legal title to such Hardware; or (ii) sublicense the rights
herein granted as to such Licensed Software to any other person who subsequently
acquires the right to use such Hardware.
11.7 Company shall indemnify and hold Nortel Networks and its
suppliers, as appropriate, harmless from any loss or damage resulting from a
breach of this Article 11. The obligations of Company under this Article 11
shall survive the termination of the Agreement and shall continue if the
Software is removed from service.
NON-LICENSED SOFTWARE
11.8 Certain Software delivered by Nortel Networks may include
Non-Licensed Software. Non-Licensed Software includes (i) any Software for which
the applicable right to use fees have not been paid; and (ii) Software for which
a periodic right to use fee has expired and the applicable additional periodic
right to use fees have not been paid. Company shall submit to Nortel Networks an
Order for any Non-Licensed Software that Company desires to license or renew.
11.9 When Non-Licensed Software is placed into service, even without
the submission of an Order, the applicable right to use fees shall be payable.
Company shall also have the option to pay the applicable right to use fees for
any Non-Licensed Software upon installation of a Software load containing such
Non-Licensed Software.
11.10 To ensure Company's proper activation and/or usage of only the
appropriate Software, Company shall complete the appropriate form designated by
Nortel Networks prior to the activation and/or usage by Company of any
Non-Licensed Software. Company shall identify all Software desired to be
activated and/or used (including the number of lines or other units activated,
if applicable) in each System and shall transmit such fon-n to Nortel Networks.
11.11 Nortel Networks shall promptly review any form submitted pursuant
to Section 11.10 and respond in writing, identifying whether (i) any applicable
prerequisite Hardware or Software is required by Company prior to activation
and/or usage of the applicable Software; or (ii) whether the use of such
Software requires Nortel Networks to determine whether the current System
configuration will require additional elements, such as Hardware, other hardware
and/or System memory, prior to activation and/or usage; or (iii) whether Company
can use such Software without the addition of any additional Hardware or
Software.
-28-
<PAGE>
Arbinet
GPSA
11.12 Nortel Networks reserves the right to access by remote polling
any site in which Software has been installed to determine which Software has
been activated. Such polling shall be done so as not to unreasonably interfere
with Company's use of the Products.
11.13 Nortel Networks shall issue invoices to Company, in addition to
those amounts previously invoiced, for amounts found to be payable as a result
of Company's activation and/or usage of any Software which Nortel Networks
determines as a result of the remote polling of a site and for which Company has
not previously paid the appropriate right to use fees.
11.14 The warranty period for Software activated later than the
original Ship Date of the Software load shall commence on the date the Software
feature's right to use fees have been paid by Company; or, Nortel Networks has
been notified by Company of activation of such feature; or, remote polling
indicates that such feature has been activated, whichever occurs first.
11.15 Nortel Networks shall provide the Software support Services
specified in Article 10 or in a Services Annex or Statement of Work, provided
that Company operates the Software at Nortel Networks' current Software release
level or within at least two previous Software release levels, or as otherwise
specified in the Services agreement.
MODIFIABLE SOFTWARE
11.16 Notwithstanding anything to the contrary above, upon payment to
Nortel Networks of the applicable fees, Nortel Networks hereby grants to
Company, subject to the applicable terms and conditions of this Article 11, a
personal, non-transferable, non-assignable and non-exclusive right and license
to modify and prepare derivative works based on Licensed Software which Nortel
Networks identifies as Modifiable Software. Upon the modification or creation of
any Applications, or the modification or creation of any Building Blocks, Nortel
Networks shall have no obligations with regard to warranty under Article 9 or
indemnity under Article 14 for such Applications or Building Blocks.
11.17 Nothing contained in Sections 11.16 through 11.20 shall transfer,
or be deemed to transfer, or contemplate the transfer of, any rights in or to
the Software other than those rights specifically granted herein, and in
particular but without restricting the generality of the foregoing, Nortel
Networks does not in any way transfer any right, title or interest in or to the
Software or any element constituting a portion thereof to Company, other than
the right of Company to modify, create, or prepare derivative works based on
Building Blocks and Applications.
11.18 For any Building Blocks and Applications created solely by
Company, and for all Company-modified portions of the Nortel Networks-provided
Building Blocks with respect to
-29-
<PAGE>
Arbinet
GPSA
such modified portion only, Company shall own all forms of intellectual property
rights (including but not limited to patent, trade secret, copyright and mask
rights) pertaining to such Applications, Building Blocks or portions thereof and
shall have the right to file for or otherwise secure and protect such rights.
For all such Company created Applications or Building Blocks, or modified
portions of Building Blocks, the parties shall, on a case by case basis,
negotiate in good faith to determine whether Company may desire to license any
such Applications or Building Blocks to Nortel Networks, such license to be at
no charge to Nortel Networks as long as Company is licensed hereunder.
11.19 For any Applications created solely by Nortel Networks and for
the Nortel Networks- provided Building Blocks, Nortel Networks shall own all
forms of intellectual property rights (including but not limited to patent,
trade secret, copyright and mask rights) pertaining to such Applications or
Building Blocks and shall have the right to file for or otherwise secure and
protect such rights. For all such Nortel Networks Applications or Building
Blocks, Company may license any such additional Nortel Networks Products upon
Nortel Networks making such software generally available to its customers.
11.20 In the event that Company and Nortel Networks intend to jointly
create Applications or Building Blocks, the parties shall mutually agree in
writing as to applicable terms and conditions.
SERVICES SOFTWARE
11.21 With respect to Services Software, Company shall: (i) utilize
such Services Software and the results thereof solely for the purposes described
in Section 1.34; and (ii) comply with additional terms, if any, applicable to
such Services Software as specified in a Product Annex. Nortel Networks may, at
any time and without liability or obligation to Company, modify the Services
Software, any computer equipment of Nortel Networks or suppliers used in
connection with such Services Software, and identification codes, manuals or
other information or Documentation used in connection with the Services
Software.
11.22 SERVICES SOFTWARE IS PROVIDED AS IS AND WITHOUT WARRANTY OR
CONDITION OF ANY KIND, EITHER EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO,
THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
NORTEL NETWORKS DOES NOT AND CANNOT WARRANT THE PERFORMANCE OR RESULTS THAT MAY
BE OBTAINED BY USING SERVICES SOFTWARE. COMPANY ASSUMES SOLE RESPONSIBILITY FOR
THE SELECTION OF THE SERVICES SOFTWARE TO ACHIEVE COMPANY'S INTENDED RESULTS,
AND FOR THE INSTALLATION, USE, AND RESULTS OBTAINED FROM THE SERVICES
-30-
<PAGE>
Arbinet
GPSA
SOFTWARE. IN NO EVENT SHALL NORTEL NETWORKS BE LIABLE FOR ANY INDIRECT,
INCIDENTAL, SPECIAL, PUNITIVE, OR CONSEQUENTIAL DAMAGES, INCLUDING WITHOUT
LIMITATION, LOST REVENUES OR PROFITS OR OTHER ECONOMIC LOSS, OF ANY NATURE
WHATSOEVER ARISING OUT OF COMPANY'S USE OF SERVICES SOFTWARE.
12 HOMOLOGATION AND CERTIFICATION
12.1 Nortel Networks hereby warrants that it will comply with the
homologation requirements for a Product, unless otherwise specified in a Product
Annex, in each of the countries set forth on Exhibit D.
12.2 In the event that Nortel Networks or a Nortel Networks Affiliate
has complied or complies in the future with the homologation requirements for a
Product in any country not set forth on Exhibit D, Nortel Networks shall, to the
extent of its legal right to do so, grant Company the right to use the results
of such homologation. Any costs arising from such grant shall be subject to
agreement by the parties prior to such grant being made.
13 INTELLECTUAL PROPERTY RIGHTS
13.1 The Services performed by Nortel Networks and its Affiliates
pursuant to this Agreement (and any deliverables provided to Company in
connection therewith) are not "works for hire".
13.2 All Background IPR of a party or its Affiliate shall remain the
exclusive property of such party or its Affiliate, and the information contained
therein shall be deemed to be Confidential Information of such party or its
Affiliate.
13.3 With respect to any Background IPR of Company disclosed to Nortel
Networks, its Affiliates, and/or its contractors in connection with this
Agreement, Company hereby grants to Nortel Networks, Nortel Networks'
Affiliates, and Nortel Networks' contractors a nonexclusive, royalty-free,
worldwide right to make, use, and reproduce such Background IPR, but only to the
extent that such right is necessary for the performance of Nortel Networks'
obligations under this Agreement and the Services contemplated hereunder.
13.4 With respect to any Foreground IPR of Nortel Networks and its
Affiliates which is incorporated or contained within, or which is required for
the implementation of, any recommendation(s) or conclusion(s) advanced by Nortel
Networks in the course of performing Services under this Agreement, Nortel
Networks hereby grants to Company a non-exclusive, royalty-free, worldwide right
to use and disclose such Foreground IPR, but only to the extent
-31-
<PAGE>
Arbinet
GPSA
necessary for Company to implement such recommendation(s) or conclusion(s) in
the implementation, operation and maintenance of Company's communications
network or in Company's provision of communications services.
13.5 With respect to any Background IPR of Nortel Networks and its
Affiliates which is incorporated or contained within, or which is required for
the implementation of, any recommendation(s) or conclusion(s) advanced by Nortel
Networks in the course of performing Services under this Agreement, Nortel
Networks will grant to Company, upon reasonable commercial terms, a
non-exclusive, worldwide right to use and disclose such Background IPR, but only
to the extent necessary for Company to implement such recommendation(s) or
conclusion(s) in the implementation, operation and maintenance of Company's
communications network or in Company's provision of communications services.
Notwithstanding the foregoing, the grant to Company of rights in the Background
IPR of Nortel Networks and its affiliates shall not include product design
information of Nortel Networks and its Affiliates, but shall be limited to that
Background IPR within the scope of the technical information to be included
within the deliverables.
13.6 Prior to disclosing to any third party any Foreground IPR or
Background IPR of Nortel Networks and its Affiliates pursuant to Sections 13.2
or 13.5, Company shall (i) advise such third party in writing of the
confidential and proprietary nature and the limitations on use of the
information to be disclosed, as set forth in Sections 13.4 and 13.5, and shall
(ii) obtain from such third party a written undertaking to respect such
obligations.
13.7 Nothing contained in this Agreement shall transfer, or be deemed
to transfer or contemplate the transfer of, any Intellectual Property Right
other than those rights specifically granted herein, and in particular but
without restricting the generality of the foregoing, Nortel Networks does not in
any way grant any license in, to, or under any of its Intellectual Property
Rights.
13.8 Nothing contained in this Agreement shall prevent, or be deemed to
prevent, Nortel Networks or its Affiliates from providing to any third party the
same or similar Services (including the same or similar recommendations or
conclusions) as may be provided to Company pursuant to this Agreement.
14 LIABILITY FOR BODILY INJURY, PROPERTY DAMAGE AND PATENT
INFRINGEMENT
14.1 A party hereto shall defend the other party against any suit,
claim, or proceeding brought against the other party for direct damages due to
bodily injuries (including death) or damage to tangible property which allegedly
result from the defending party's negligence or
-32-
<PAGE>
Arbinet
GPSA
willful misconduct in the performance of this Agreement. The defending party
shall pay all litigation costs, reasonable attorney's fees, settlement payments
and such direct damages awarded or resulting from any such suit, claim or
proceeding. Nortel Networks' responsibility in respect of each Contract, except
in respect of death or personal injury, whether in contract or tort or resulting
from Nortel Networks' proven negligent acts or omissions, shall not exceed One
Million Dollars ($1,000,000.00) for any one or more separate claims having the
same cause or attributable to the same event or occurrence. Nortel Networks
shall at all times during the continuance of this Contract maintain insurance
against such liabilities.
14.2 Nortel Networks shall defend Company against any suit, claim or
proceeding brought against Company alleging that the sale to, or use by Company
of, any Products excluding Third Party Hardware or Third Party Software,
furnished hereunder infringes any patent, trademark, trade secret or copyright
("Infringement Claim"). Nortel Networks shall pay, subject to Section 14.3
below, all litigation costs, reasonable attorney's fees, settlement payments and
damages awarded or resulting from any such suit, claim or proceeding. With
respect to Third Party Hardware or Third Party Software, Nortel Networks shall
assign any rights with respect to infringement of patents granted to Nortel
Networks by the supplier of such items to the extent of Nortel Networks' right
to do so.
14.3 Except as provided for in Section 14.1, Nortel Networks'
cumulative liability, pursuant to this Article 14 and including its costs and
expenses incurred in satisfying its obligations set forth below, shall not
exceed one hundred fifty percent (150%) of the purchase price of the Products or
Services giving rise to the Infringement Claim.
14.4 Nortel Networks shall have no liability, in respect of any
Infringement Claim based on the use of a Product where such claim arises from a
Product that: (i) is manufactured, designed or supplied by Nortel Networks in
accordance with any design or any special instruction furnished by Company; (ii)
is used by Company in a manner or for a purpose not contemplated or authorized
by this Agreement; (iii) is used by Company in combination with other products
not provided by Nortel Networks, including, without limitation, any software
developed solely by Company through the permitted use of Products furnished
hereunder, provided that the Infringement Claim arises from such combination or
the use thereof, (iv) is modified by Company where such modification is not
authorized by Nortel Networks; or (v) is used or located by Company in a
location other than the location in which and for which it was supplied by
Nortel Networks. In the excepted cases stated above, Company shall indemnify and
hold Nortel Networks harmless against any loss, cost, expense, damage,
settlement or other liability, including, but not limited to, attorneys' fees,
which may be incurred by Nortel Networks with respect to any suit, claim, or
proceeding described in this Section 14.5.
-33-
<PAGE>
Arbinet
GPSA
14.5 Nortel Networks shall not be liable for, and Company shall
indemnify Nortel Networks in respect of, any damages awarded based on Company's
willful, knowing or deliberate infringement of a patent, copyright, trade
secret, trademark or other proprietary right where such infringement results in
a pecuniary damage award.
14.6 Nortel Networks may provide Company with notice of an actual or
potential Infringement Claim. Nortel Networks shall consult with Company
regarding the Infringement Claim and the course of action to be pursued as a
result thereof. In the event that the parties fail to agree on a satisfactory
course of action for dealing with the matter, Company may either: (i) return to
Nortel Networks the affected portion of the Product(s) or deliverables in return
for a refund of the depreciated value (as carried on the books of Company) of
the Product(s) or deliverables so returned; or (ii) continue to use the
Product(s), Services or deliverables at Company's own risk. Nortel Networks
shall not be liable for, and Company shall indemnify Nortel Networks in respect
of any Infringement Claim(s) where Nortel Networks has provided notice to
Company of the Infringement Claim(s) and Company elects to continue its use of
the Product(s) or deliverable related to or covered by the Infringement Claim.
14.7 If as a result of an Infringement Claim, other than those
contemplated in Section 14.6(i) and 14.6(ii) above, an injunction is obtained
against Company's use of any Product(s) Service(s) or deliverable(s) Nortel
Networks shall, at Nortel Networks' option: (i) procure for Company the right to
continue using the alleged infringing Product(s), Service(s) or deliverable(s);
(ii) replace or modify the same with equivalent or better Product(s), Service(s)
or deliverable(s) so that Company's use is non-infringing; or (iii) accept
return of the affected portion of the Product(s) or deliverable(s) and refund to
Company the purchase price of such Product(s) or deliverable(s) upon the
Products return.
14.8 The defense of any claim which is predominantly covered by the
provisions of this Agreement shall be controlled by the party upon whom the
majority of the ultimate liability is likely to be imposed. Such controlling
party shall give the other party a reasonable opportunity to participate in
negotiation or defense of the claim so that such other Party may reasonably
protect its own interests. Neither Party shall be liable for any settlement
obligation incurred without its written consent.
14.9 Company shall waive any and all claims that Company may have
against Nortel Networks that Company may have due to any use by Company of
Modifiable Software and any modification Company may have made to a Product
where such modification may have given rise to such claim. Further, Company
shall be responsible for any additional hardware, software or services required
as a result of such use.
-34-
<PAGE>
Arbinet
GPSA
14.10 THE REMEDIES SET FORTH IN THIS ARTICLE 14 ESTABLISH THE ENTIRE
OBLIGATION OF THE PARTIES IN REGARD TO CLAIMS RELATING TO INTELLECTUAL PROPERTY
RIGHTS INCLUDING CLAIMS DIRECTED TO THE INFRINGEMENT OF PATENTS, COPYRIGHT,
TRADE SECRETS AND OTHER PROPRIETARY RIGHTS. IN NO EVENT SHALL EITHER PARTY BE
LIABLE FOR ANY INDIRECT, INCIDENTAL, SPECIAL, PUNITIVE OR CONSEQUENTIAL DAMAGES,
INCLUDING WITHOUT LIMITATION, LOST REVENUES OR PROFITS OR OTHER ECONOMIC LOSS OF
ANY NATURE WHATSOEVER, ARISING FROM SUCH INFRINGEMENT CLAIMS AND/OR RELATED
MATTERS, OTHER THAN AS SPECIFICALLY SET FORTH HEREIN.
15 REMEDIES AND LIMITATION OF LIABILITY
15.1 Nortel Networks shall have the right to suspend its performance,
upon written notice to Company, and forthwith remove and take possession of all
Products or deliverables that have been delivered to Company, if, prior to
payment to Nortel Networks of any amounts due pursuant to this Agreement with
respect to such Products or Services, Company shall (i) become insolvent or
bankrupt or cease, be unable, or admit in writing its inability, to pay all
debts as they mature, or make a general assignment for the benefit of, or enter
into any arrangement with, creditors; (ii) authorize, apply for, or consent to
the appointment of, a receiver, trustee, or liquidator of all or a substantial
part of its assets or have proceedings seeking such appointment commenced
against it which are not terminated within sixty (60) days of such commencement;
or (iii) file a voluntary petition under any bankruptcy or insolvency law or
under the reorganization or arrangement provisions of the United States
Bankruptcy Code or any similar law of any jurisdiction or have proceedings under
any such law instituted against it which are not terminated within sixty (60)
days of such commencement.
15.2 In the event of any material breach of this Agreement which shall
continue for thirty (30) or more days after written notice of such breach
(including a reasonably detailed statement of the nature of such breach) shall
have been given to the breaching party by the aggrieved party, the aggrieved
party shall be entitled at its option to avail itself of any and all remedies
available at law or equity, except as otherwise limited in this Agreement;
provided however, that nothing contained in Section 15.2 or elsewhere in this
Agreement shall make Nortel Networks liable for any indirect, incidental,
punitive, special or consequential damages of any nature whatsoever for any
breach of this Agreement whether the claims for such damages arise in contract,
or otherwise.
15.3 Nortel Networks shall not be liable for any additional costs,
expenses, losses or damages resulting from errors, acts or omissions of Company,
including, but not limited to, inaccuracy, incompleteness or untimeliness in the
provision of information by Company to
-35-
<PAGE>
Arbinet
GPSA
Nortel Networks or fulfillment by Company of any of its obligations under this
Agreement. Company shall pay Nortel Networks the amount of any such costs,
expenses, losses or damage incurred by Nortel Networks.
15.4 Any action for breach of this Agreement or to enforce any right
hereunder shall be commenced within two (2) years after the cause of action
accrues or it shall be deemed waived and barred, except any action for
nonpayment by Company of any prices, charges, fees or other amounts payable
hereunder may be brought by Nortel Networks at any time permitted by applicable
law, and Nortel Networks may suspend performance of any of its obligations
hereunder until all such payments are made.
16 TERM AND TERMINATION
16.1 This Agreement will be in effect from the Effective Date for a
period of three (3) years (the "Original Term"). Thereafter, this Agreement
shall automatically renew for one (1) year terms (each, a "Renewal Period" and
collectively and together with the Original Term, the "Term"), unless either
party provides the other party with written notice of its intent not to renew at
least sixty (60) days prior to the end of the Original Term or any Renewal
Period.
16.2 Either party may delay performance under this Agreement or
terminate this Agreement, in whole or in part, in the event of a default by the
other, provided that the non-defaulting party so advises the defaulting party in
writing of the event of alleged default and the defaulting party does not remedy
the alleged default within thirty (30) days after written notice thereof. If the
alleged default is not capable of being remedied within thirty (30) days, the
defaulting party must commence to remedy the alleged default within such thirty
(30) day period and provide to the non-defaulting party a plan for timely
remedying the alleged default in order to avoid termination. A default shall
include:
(i) a party's insolvency or initiation of bankruptcy or
receivership proceedings by or against a party or the
execution of an assignment for the benefit of
creditors; or
(ii) either party's material breach of any of the terms or
conditions hereof including the failure to make any
payment when due.
16.3 The expiration or termination of this Agreement for any cause
shall not release either party from:
(i) any obligations and duties remaining under any Order
accepted by Nortel Networks prior to such expiration
or termination, except that Nortel
-36-
<PAGE>
Arbinet
GPSA
Networks shall not be required to fulfil the Order if
the termination is due to a breach or default by
Company;
(ii) any liability which at the time of expiration or
termination has already accrued to the other party,
or, which thereafter may accrue in respect to any
event prior to expiration or termination; or
(iii) any liability from any obligation specified in
Section 18.18 below to survive expiration or
termination.
16.4 Notwithstanding the foregoing, Nortel shall not be obligated to
provide any Services pursuant to this Agreement after termination of this
Agreement. Company shall pay the full price for Services performed prior to the
Effective Date of termination plus the costs to Nortel of, and necessarily
incidental to, termination, including such other costs, charges or expenses for
which Nortel has the right to reimbursement hereunder. Termination of this
Agreement shall not entitle Company to withhold payment of any amount due or
accruing to Nortel hereunder prior to the effective date of termination, or to
reimbursement of any amount previously paid to Nortel.
17 MISCELLANEOUS
17.1 Each party which receives the other party's Confidential
Information shall use reasonable care to hold such Confidential Information in
confidence and not disclose such Confidential Information to anyone other than
to its employees and employees of a Company Affiliate or a Nortel Networks
Affiliate, as applicable, with a need to know. A party that receives the other
party's Confidential Information shall not reproduce such Confidential
Information, except to the extent reasonably required for the performance of its
obligations pursuant to this Agreement and in connection with any permitted use
of such Confidential Information.
17.2 Company shall take reasonable care to use Nortel Networks'
Confidential Information only for study, operating, or maintenance purposes in
connection with Company's use of Products and/or Services furnished by Nortel
Networks pursuant to this Agreement.
17.3 Notwithstanding the foregoing, either party shall be free to use
that portion of the Confidential Information which may be retained in intangible
form by those employees who have had access to the Confidential Information, for
any purpose, including use in the development, manufacture, marketing and
maintenance of its products and services. The marketing of any product or
service, including the dissemination of supporting documentation, which
inherently discloses the disclosing party's Confidential Information shall not
be deemed a
-37-
<PAGE>
Arbinet
GPSA
breach by the recipient of such obligations; provided however, that ownership of
the Confidential Information and all intellectual property rights to such
Confidential Information remain with the disclosing party.
17.4 The obligations of either party pursuant to this Article 17 shall
not extend to any Confidential Information which a recipient can demonstrate
through written documentation was already known to the recipient prior to its
disclosure to the recipient and without confidential obligations was known or
generally available to the public at the time of disclosure to the recipient,
becomes known or generally available to the public (other than by act of the
recipient) subsequent to its disclosure to the recipient, is disclosed or made
available in writing to the recipient by a third party having a bona fide right
to do so and without similar confidentiality obligations, is independently
developed by recipient, or is required to be disclosed by subpoena or other
process of law, provided that the recipient shall notify the disclosing party
promptly of any such subpoena or other process of law requiring disclosure and
shall take steps to ensure the continued confidentiality of the Confidential
Information or shall allow the disclosing party to do so.
18 MISCELLANEOUS
18.1 PUBLICITY - A party shall not release any advertising or other
publicity relating to this Agreement or the contents hereof wherein such other
party may reasonably be identified without the prior written approval of the
other party. In addition, each party shall take reasonable precautions to keep
the existence and the contents of this Agreement confidential so long as this
Agreement remains in effect and for a period of five (5) years thereafter,
except as may be otherwise expressly provided in this Agreement or as may be
reasonably required to enforce this Agreement by law.
18.2 APPLICABLE LAW - The validity, construction and performance of
this Agreement shall be governed by and interpreted in accordance with the laws
of the State of New York, without giving effect to the principles of conflict of
laws thereof except to the extent that any mandatory provisions of local law in
any country take precedence over the provisions of this Agreement and New York
law. The United Nations convention on Contracts for the International Sale of
Goods shall not apply to this Agreement. The parties agree that when a Contract
is executed and performed by their respective Affiliates in the same country
outside the United States, the law for that country shall apply to such
Contract.
18.3 EFFECTS OF HEADINGS - All headings used herein are for index and
reference purposes only, and shall not be given any substantive effect. This
Agreement has been created jointly by the parties and no rule of construction
requiring interpretation against the drafter of this Agreement shall apply in
its interpretation.
-38-
<PAGE>
Arbinet
GPSA
18.4 ASSIGNMENT. - Notwithstanding anything in this Agreement to the
contrary, either party may assign or transfer this Agreement or any of its
rights hereunder with the prior written consent of the other party, such consent
not to be unreasonably withheld. A change in control of Company, including but
not limited to if ownership or control of more than fifty percent (50%) of the
shares of the Company entitled to elect the board of directors changes during
the Term of this Agreement, shall be deemed an assignment hereunder. Nortel
Networks consent shall not be required for any assignment or transfer by Company
to any of its Affiliates listed on Exhibit C to this Agreement. Company's
consent shall not be required for any assignment or transfer by Nortel Networks
(i) to any Nortel Networks Affiliate of all or any part of this Agreement or of
Nortel Networks' rights hereunder; or (ii) to any third party of Nortel
Networks' right to receive any monies ("Receivables") which may become due to
Nortel Networks pursuant to this Agreement. Company hereby consents to the sale
of Receivables by Nortel Networks without the necessity for any further notice
and without any qualification on such consent. Company grants permission for
Nortel Networks to disclose the provisions of this Agreement to purchasers and
prospective purchasers of Receivables, or their affiliates and others with a
present or prospective financial interest in such Receivables, and their
respective agents, attorneys, auditors, rating agencies and other advisors.
18.5 SUBCONTRACTING - Nortel Networks may subcontract any of its
obligations under this Agreement, but no such subcontract shall relieve Nortel
Networks of primary responsibility for performance of its obligations.
18.6 NON-WAIVER - The failure by either party hereto at any time to
require performance by the other party or to claim a breach of any provision of
this Agreement shall not be construed as affecting any subsequent breach or the
right to require the performance with respect thereto or to claim a breach with
respect thereto.
18.7 RELATIONSHIP OF THE PARTIES - The provisions of this Agreement
shall not be construed to establish any form of partnership, agency or joint
venture of any kind between Nortel Networks and Company, nor to constitute
either party as the agent, employee or legal representative of the other. To the
extent Nortel Networks provides Services under this Agreement, those Services
are provided as an independent contractor. All persons fumished by either party
to accomplish the intent of this Agreement shall be considered solely as the
furnishing party's employees or agents and the furnishing party shall be solely
responsible for compliance with respect to its employees with all laws, rules
and regulations involving, but not limited to, employment of labor, hours of
labor, working conditions, workers' compensation, payment of wages, and
withholding and payment of applicable taxes, including, but not limited to
income taxes, unemployment taxes, and social security taxes.
-39-
<PAGE>
Arbinet
GPSA
18.8 FORCE MAJEURE - If the performance by a party of any of its
obligations under this Agreement shall be interfered with by reason of any
circumstances beyond the reasonable control of that party, including without
limitation, fire, explosion, acts of God, war, revolution, civil commotion,
unavailability of supplies or sources of energy, power failure, breakdown of
machinery, delays regarding zoning, easements or deed restrictions, any legal
proceedings between parties unrelated to the parties hereto or labor
difficulties, including without limitation, strikes, slowdowns, picketing or
boycotts, then that party shall be excused from such performance for a period
equal to the delay resulting from the applicable circumstances and such
additional period as may be reasonably necessary to allow that party to resume
its performance. With respect to labor difficulties as described above, a party
shall not be obligated to accede to any demands being made by employees or other
personnel.
18.9 TAXES - Company shall at Nortel Networks' direction promptly
reimburse Nortel Networks or pay directly to the applicable government or taxing
authority all taxes and charges arising hereunder, including, without
limitation, penalties and interest, except for taxes computed upon the net
income of Nortel Networks. If Company provides Nortel Networks with a
certificate of exemption for the applicable taxes, in a timely manner, then
Nortel Networks shall not invoice Company for such taxes.
18.10 HAZARDOUS MATERIALS - Prior to issuing any Order for Services to
be performed at Company's facilities, Company shall identify and notify Nortel
Networks in writing of the existence of all Hazardous Materials which Nortel
Networks may encounter during the performance of such Services, including
without limitation, any Hazardous Materials contained within any equipment to be
removed by Nortel Networks.
If Company breaches its obligations pursuant to this Section 18.10, (i) Nortel
Networks may discontinue the performance of the applicable Services until all
the Hazardous Materials have been removed or abated to Nortel Networks'
satisfaction by Company at Company's sole expense; and (ii) Company shall
defend, indemnify and hold Nortel Networks harmless from any and all damages,
claims, losses, liabilities and expenses, including without limitation,
attorney's fees, which arise out of Company's breach of such obligations.
18.11 NOTICE-All notices required or permitted to be given here under
shall be in writing and shall be deemed given when delivered (i) by hand; or
(ii) by facsimile, transmission
-40-
<PAGE>
Arbinet
GPSA
(confirming the same by mail); or (iii) by certified, return receipt, or
next-day mail, or courier service, addressed as follows:
If to Company:
Arbinet Holdings Corporation
226 East 54th Street, Suite 200
New York, New York 10022
Attention:
Facsimile:
If to Nortel Networks:
Nortel Networks Inc.
2350 Lakeside Boulevard
Richardson, Texas 75082-4399
USA
Attention: Senior Manager, Contracts Mgmt & Negotiations
Facsimile: (972) 685-3284
Either party hereto may change its address by a notice given to the other party
hereto in the manner set forth above.
18.12 INFORMATION AND DOCUMENTATION - Company shall provide any
information and/or documentation that Nortel Networks reasonably requests from
Company and that is necessary for Nortel Networks to properly perform any of its
obligations hereunder. Such information shall be provided in a form reasonably
specified by Nortel Networks by the dates specified by Nortel Networks.
18.13 EXPORT - Company shall not export any Products or technical data
received from Nortel Networks pursuant to this Agreement, or release any such
Products or technical data with the knowledge or intent that such Products or
technical data will be exported or transmitted to any country or to foreign
nationals of any country, except in accordance with applicable laws and
regulations of the U.S. or Canada concerning the exporting of such items and
with Nortel Networks' prior written consent for these countries or other such
jurisdiction affecting the Products. Company shall obtain all appropriate
government authorizations in accordance with applicable law prior to exporting
or transmitting any such Products or technical data. Nortel Networks will
provide such assistance as Company reasonably requests to obtain such
authorizations.
18.13.1 Nortel Networks acknowledges that the transfer of
Systems or components thereof, and associated documentation, outside of
the United States may be
-41-
<PAGE>
Arbinet
GPSA
subject to the specific approval of the applicable Software suppliers
and other suppliers. All such approvals, if applicable, shall be
conditions precedent to any of the obligations of Nortel Networks
hereunder respecting such Systems or component thereof and associated
documentation. To the extent any such conditions exist, they shall be
listed in the applicable Product Annex.
18.13.2 Nortel Networks hereby agrees that its shareholders,
directors, officers, employees, agents or contractors of Nortel
Networks will not make, authorize or offer, or cause to be made or
offered, any payment, loan or gift of money or anything of value
directly or indirectly to: (i) any official or employee of any
government, or agency or instrumentality thereof; (ii) any political
Party or official thereof or any candidate for political office; or
(iii) any person; under circumstances in which the shareholders,
directors, officers, employees, agents or contractors of Nortel
Networks know, or have reason to know, that all or any portion of such
money or thing of value will be offered or given, directly or
indirectly, to any person named in clauses (i) and (ii) above to
influence a decision or to gain any advantage to Nortel Networks or its
shareholders, directors, officers, employees, agents or subcontractors,
or to retain business for or with, or directing business to, Nortel
Networks, or in connection with any transaction relating to this
Agreement which could result in a violation of the Foreign Corrupt
Practices Act, as amended and any other law, regulation, order, decree
or directive having the force of law and relating to bribery,
kick-backs, or similar business practices. For purposes of this
Agreement, the term "official" shall mean and include any employee or
officer in public service or in the private sector, any employee or
official of any governmental or quasi governmental department, agency
or instrumentality thereof, or any person or entity acting in an
official capacity for on behalf of any such government or department,
agency or instrumentality.
18.13.3 Each Party shall take all required or advisable steps
to ensure that, for the duration of this Agreement, it remains a
company in good standing, duly organized, registered and existing under
the laws of each country in which it is undertaking its obligations
hereunder, as well as any other applicable regional and local
jurisdiction.
18.14 SEVERABILITY - If any provision of this Agreement is declared or
judicially determined to be invalid or unenforceable under applicable law, the
remaining provisions shall continue in full force and effect and the parties
shall substitute for the invalid provision a valid provision which most closely
approximates the economic effect and intent of the invalid provision.
18.15 ENTIRE AGREEMENT - This Agreement, including the Exhibits and
Annexes which are attached hereto and incorporated herein, comprises all the
terms, conditions and agreements
-42-
<PAGE>
Arbinet
GPSA
of the parties hereto with respect to the subject matter hereof and supersedes
all previous negotiations, proposals, commitments, writings, publications and
understandings of any nature whatsoever. The parties hereto hereby acknowledges
and agrees that it has not relied on any representations or warranties other
than those expressly set forth in this Agreement.
18.16 MODIFICATION OF AGREEMENT - No addition to or modification of
this Agreement, including Exhibits, Schedules, or Annexes, shall be effective or
binding on either of the parties hereto unless reduced to writing and executed
by the respective duly authorized representatives of each of the parties hereto.
18.17 REGULATORY COMPLIANCE - In the event of any change in the
Specifications or Nortel Networks' manufacturing or delivery processes for any
Products as a result of the imposition of requirements by any government, Nortel
Networks may upon notice to Company, increase its prices, charges and fees to
cover the added costs and expenses directly and indirectly incurred by Nortel
Networks as a result of such change.
18.18 SURVIVORSHIP - Any terms of this Agreement which by their nature
are intended to survive including but not limited to those Articles titled
"Price and Payment", "Warranty," "Intellectual Property Rights," "Liability for
Bodily Injury, Property Damage and Patent Infringement," "Remedies and
Limitation of Liability," "Confidentiality," and "Miscellaneous," as well as
Sections 11.2, 11.3, 11.16, 13.3, 13.5 and 16.3, shall survive the termination
or expiration of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement.
NORTEL NETWORKS INC. ARBINET HOLDINGS CORPORATION
By: /s/ Jeff Kirchner By: /s/ Rachelle E. Rees McCarthy
-------------------------------- -------------------------------
Name: Jeff Kirchner Name: Rachelle E. Rees McCarthy
-------------------------------- -------------------------------
Title: Vice President Title: COO
-------------------------------- -------------------------------
Date: 28 Oct 99 Date: 10/19/99
-------------------------------- -------------------------------
-43-
<PAGE>
ARBINET
PRODUCT ANNEX A.1
ATTACHMENT 1
EXHIBIT A
PRODUCT ANNEX A.1
CARRIER NETWORKS PRODUCTS
The supplemental terms and conditions provided below take precedence over any
conflicting terms and conditions specified, in the Sections noted below or
elsewhere, in the Agreement as such terms and conditions apply to the DMS-250,
DMS-300, DMS300/250, DMS-500 or DMS-GSP Products ("Carrier Networks Products").
ARTICLE 2, SECTION 2.1
With regard to the scope of the Agreement, the following shall apply:
2.1.1. Within the first year of the Original Term, Company commits to
purchase and/or license, as applicable, and take delivery of the
Products described in Attachment 1, Part I (DMS-GSP Initial Systems)
and Part III (DMS-GSP Initial System Standard/Additional Software
Features), in a minimum dollar amount of Seven Million Six Hundred
Twenty Seven Thousand Five Hundred Seventy Two Dollars ($7,627,572.00)
(the "Initial Commitment Amount"), which amount shall include without
limitation no less than three (3) DMS-GSP Initial Systems as described
in Attachment 1, Part I. The prices, charges and fees for the Products
shall be paid in accordance with Article 4 of the Agreement.
2.1.2 Company may issue Orders for additional ports to be added to an
Initial System ("Extension Orders") after the Ship Date for such
System. If Company issues an Extension Order before the Turnover Date
for such System, the first Extension Order shall be priced at Add-On
prices described in Part III, Section III.1.2 If Company issues an
Order for additional ports to be added to an Initial System after the
Turnover Date for such System, the Order shall be priced at Extension
pricing.
2.1.3 Company may purchase Optional Software described in this
Agreement, or other Software not described in this Agreement based upon
a Firm Quotation for such Software. If the Optional Software is
purchased for installation in an Initial System prior to the Turnover
Date for such System, the Company will be entitled to a software
discount of seventy percent (70%) off the list price for such Software.
If Company issues an Order for Optional Software after the Turnover
Date for the Initial System in which the Software is to be installed,
the Company shall be entitled to a discount of thirty
1 of 5
<PAGE>
ARBINET
PRODUCT ANNEX A.1
ATTACHMENT 1
percent (30%) off the list price for such Software. The Firm Quotation
shall reflect the list price less the applicable discount.
ARTICLE 2, SECTION 2.3
With regard to the subject of forecasts, the following shall apply:
Company shall submit a non-binding forecast to Nortel, in accordance
with Section 2.3 of the Agreement as set forth in Attachment 2 to this
Annex A.1.
ARTICLE 2, SECTION 2.6
With regard to the subject of joint advertising, the following shall apply:
2.6 During the Original Term of this Agreement, each party commits to
pay Fifty Thousand Dollars ($50,000.00) for the purpose of jointly
undertaking a cooperative marketing and joint advertising campaign. The
parties shall mutually agree on the content and placement of such
cooperative marketing and advertising. Each party agrees to make an
expenditure of Fifty Thousand Dollars ($50,000.00) during the calendar
year 2000 for such cooperative marketing and joint advertising. Fifty
percent (50%) of the total amount to be expended by Nortel during the
calendar year of 2000 shall be available six (6) months after Nortel's
receipt of Company's Order for the first DMS-GSP Initial System
purchased hereunder.
ARTICLE 7, SECTION 7.3
With regard to the subject of Company performing installation of any of the
Carrier Networks Products, the following shall apply:
Company shall not have the right to perform installation Services.
ARTICLE 10, SECTION 10.1
With regard to the subject of Training Credits, the following shall apply:
2 of 5
<PAGE>
ARBINET
PRODUCT ANNEX A.1
ATTACHMENT 1
With the DMS-GSP Initial System purchased for New York hereunder,
Nortel shall provide to Company a total of one hundred (100) student
training days. With each DMS-GSP Initial System purchased hereafter,
Nortel shall provide to Company a total of fifty (50) student training
days, in accordance with Nortel's procedures related thereto.
ARTICLE 10, SECTION 10.5
With regard to the subject of Nortel Networks additional obligations, the
following shall apply:
"Nortel Networks shall cooperate with Company and Company's Third Party
Vendor(s) (approved by Nortel Networks) with respect to Company's network
management systems and customization of Company's CDR requirements. Upon
reasonable written notice to Nortel and the execution of a Non-Disclosure
Agreement between Nortel Networks, Company, and Company's Third Party Vendor,
Nortel Networks shall allow access to Nortel's test lab to Company's
representatives. If Company or its Third Party Vendor requests Nortel Networks'
personnel to perform substantial work or if such lab access is requested for an
extended period of time, Nortel Networks may, at its option, invoice Company for
reasonable costs and expenses associated with such lab access. If Company or its
representatives request Nortel Networks to undertake research or development of
Hardware or Software for Company's use, then Nortel shall provide a Firm Quote
to Company for such work."
ARTICLE 11, SECTION 11.5
With regard to the subject of Software updates, the following shall apply:
Nortel shall classify such updates as either (i) incremental Software
upgrades ("ISUs"), designed to correct any nonconformance to the
applicable Software specifications; or (ii) enhancements which will
provide additional features or functionality ("Enhancements"). Updates
classified as ISUs by Nortel will be provided at no cost to Company
during the warranty period for such Licensed Software. Updates
classified as Enhancements by Nortel will be made available to Company
at Nortel's applicable right to use fees. In the event that Nortel
determines that an update includes both ISUs and Enhancements, such
update shall be made available to Company. If Company elects to receive
the update, Nortel shall invoice Company only for the right to use fees
applicable to the Enhancements contained in such update.
Notwithstanding the foregoing, Company shall be provided Software
defect corrections ("Bug Fixes") at no additional charge.
3 of 5
<PAGE>
ARBINET
PRODUCT ANNEX A.1
ATTACHMENT 1
ARTICLE 11, SECTION 11.5.
With regard to the subject of Software upgrades, the following shall apply:
"11.5.1 Notwithstanding Part II, Section II.1.1 of Attachment 1 to this
Product Annex A.1, DMS-GSP Initial Systems ordered hereunder shall be
delivered with the then-current generally available base Software load.
Additionally, Nortel shall provide to Company, at no additional charge,
a base load Software upgrade(s) for each DMS-GSP ordered hereunder to
the GSP-09 Software release ("GSP-09 Upgrade") when it becomes
generally available. The GSP-09 Upgrade does not include additional
costs to Company associated with any Enhancements as set forth in
Section 11.5 above, or, the cost of ONP as described in Part IV,
Section IV.2.2. of Attachment 1 to this Product Annex A.1.
11.5.2 With regard to the foregoing Sections 10.5 and 11.5.1, the
parties understand that Nortel Networks will expand routing tables in
Software Release GSP-09 in accordance with the parameters set forth in
Part I, Section I.1.2(i.), Section I.2.2 (i), and Section I.3.2(f.) of
Attachment 1 to this Product Annex A.1. The parties also understand
that Company's Third Party Vendors shall develop an interface or other
products for their network management system that includes the ability
to update routing tables in frequent intervals. Nortel Networks,
Company and Company's Third Party Vendor shall cooperate to develop an
interface that accomplishes the updating of routing tables within
mutually agreed parameters.
ARTICLE 15, SECTION 15.9
With regard to the subject of taxes, the following shall apply:
The prices do not include any applicable taxes.
4 of 5
<PAGE>
ARBINET
GPA-EXHIBIT A
ATTACHMENT
ATTACHMENT 1 TO EXHIBIT A, PRODUCT ANNEX A.1
PART I. DMS-GSP INITIAL SYSTEMS
(FOR U.S.A. AND EUROPE ONLY)
NORTEL SHALL ENGINEER THE DMS-GSP INITIAL SYSTEM PROVIDED HEREUNDER IN
ACCORDANCE WITH NORTEL'S STANDARD ENGINEERING PRACTICES AND PROCEDURES. AFTER
NORTEL HAS ENGINEERED EACH DMS-GSP INITIAL SYSTEM ORDERED BY COMPANY HEREUNDER,
NORTEL SHALL PROVIDE COMPANY WITH A DETAILED LIST OF THE DMS-GSP INITIAL SYSTEM
COMPONENTS.
I.1.0 DMS-GSP SUPERNODE INITIAL SYSTEM (17,856 T1/E1 PORTS) FOR NEW YORK
I.1.1 DMS-GSP SUPERNODE INITIAL SYSTEM INCLUDES:
A DMS-GSP SuperNode Initial System (17,856 T1/E1 Ports) shall
consist of the following configuration of major Equipment and
Software:
a) SuperNode front end, 128K Enhanced Network, Link
Peripheral Processor and other common Equipment as
follows:
One (1) SuperNode equipped with BRISC-70EM
processor with 512 Meg on board memory per
plane and two (2) SLM III.
128K Enhanced Network to support an Initial
System wired and equipped for 17,856 speech
ports.
One (1) Link Peripheral Processor (LPP)
individually wired and equipped with Eighteen
(18) Link Interface Units (LIU7s), Four (4)
Network Interface units (NIUs) and Two (2)
Ethernet Interface Units (EIUs).
Two (2) ISME frames equipped with service and
test circuits as wen as two (2) Enhanced
Digital Recorded Announcement Machine circuit
packs each providing a maximum of four (4)
minutes of recordable announcement time.
The following input/output device/interfaces
will be provided:
Two (2) DAT drive
Four (4) SCSI Disk Drive Units
1 of 26
<PAGE>
ARBINET
GPA-EXHIBIT A
ATTACHMENT
ATTACHMENT 1 TO EXHIBIT A, PRODUCT ANNEX A.1
PART I. DMS-GSP INITIAL SYSTEMS
(FOR U.S.A. AND EUROPE ONLY)
Four (4) IOM Controllers providing
sixteen (16) RS-232 interface ports
each
Four (4) X.25 circuit packs
Two (2) MIS frames equipped with required
inverts and terminal block assemblies.
One (1) Meridian Cabinet Spare Storage (MCSS)
cabinet to house switch spares.
Two (2) Power Distribution Center (PDC) frames
equipped with "A" and "B" feed fuse panels &
fuses as required.
Miscellaneous Switch Room Equipment as follows:
One (1) Maintenance Administration
Position and MAP furniture
Two (2) UDS 2440 Modems
Two (2) RTIF Terminals
One (1) MAP Printers
One (1) Helmsman CD-ROM
documentation disk
b) SuperNode Trunk configurable equipment as follows:
Three (3) SPM frames wired with 12,096 DS-0
ports on OC-3s equipped as follows:
Five (5) Spectrum Peripheral Modules
(SPM) modules equipped with Ten
thousand eight (10,008) DS-0 OC-3
ports
Two (2) DTEO frames wired with 1,920 DS-0 ports
on E1s equipped as follows:
Two (2) Digital Trunk Controller
Offshore (DTCO) modules equipped
with Nine Hundred Sixty (960) DS-0
E1 ports
Two (2) DTEI frames wired with 1,920 DS-0 ports
on T1s equipped as follows:
2 of 26
<PAGE>
ARBINET
GPA-EXHIBIT A
ATTACHMENT
ATTACHMENT 1 TO EXHIBIT A, PRODUCT ANNEX A.1
PART I. DMS-GSP INITIAL SYSTEMS
(FOR U.S.A. AND EUROPE ONLY)
Two (2) Digital Trunk Controller
(DTC) modules equipped with Nine
Hundred Sixty (960) DS-0 T1 ports
Two (2) DTEI frames wired with 1,920 DS-0 ports
on PRI equipped as follows:
Two (2) Digital Trunk Controller
ISDN (DTCI) modules equipped with
Nine Hundred Sixty (960) DS-0 PRI
ports
c) DMS-GSP Standard/Additional Software Features as set forth
in Part II of this Attachment.
d) Nortel's standard compliment of switch spares.
e) Power plant with 1,200 amps of rectifiers and a 4 hour
battery back-up.
f) Digital Servuce Units (DSU) bay for V.35 Link Interface
Units (LIUs)
g) Tellabs echo cancelers - 32ms to support 960 DS-0 E1s
h) Helios Distribution Bay with Ten 10amp fuses and Fifteen
20amp fuses.
i) Nortel Networks commits to expand the Routing Tables of
the DMS-GSP to a total of 105,472 Route Lists and 843,776
Route Choices. This expansion is committed for the
Generally Available date of the GSP09 software release.
I.1.2 DMS-GSP SUPERNODE INITIAL SYSTEM (17,856 T1/E1 PORTS) PRICING FOR NEW
YORK
The price for each DMS-GSP SuperNode (17,856 T1/E1 Ports) is Two
Million Eight Hundred Sixty Two Thousand Five Hundred Eighty Six
($2,862,586.00) dollars.
I.2.0 DMS-GSP SUPERNODE INITIAL SYSTEM (17,856 T1/E1 PORTS) FOR LOS ANGELES
I.2.1 DMS-GSP SUPERNODE INITIAL SYSTEM INCLUDES:
A DMS-GSP SuperNode Initial System (17,856 T1/E1 Ports) shall
consist of the following configuration of major Equipment and
Software:
3 of 26
<PAGE>
ARBINET
GPA-EXHIBIT A
ATTACHMENT
ATTACHMENT 1 TO EXHIBIT A, PRODUCT ANNEX A.1
PART I. DMS-GSP INITIAL SYSTEMS
(FOR U.S.A. AND EUROPE ONLY)
a) SuperNode front end, 128K Enhanced Network,
Link Peripheral Processor and other common
Equipment as follows:
One (1) SuperNode equipped with BRISC-70EM
processor with 512 Meg on board memory per
plane and two (2) SLM III.
128K Enhanced Network to support an Initial
System wired and equipped for 17,856 speech
ports.
One (1) Link Peripheral Processor (LPP)
individually wired and equipped with Eighteen
(18) Link Interface Units (LIU7s), Four (4)
Network Interface units (NIUs) and Two (2)
Ethernet Interface Units (E1Us).
Two (2) ISME frames equipped with service and
test circuits as well as two (2) Enhanced
Digital Recorded Announcement Machine circuit
packs each providing a maximum of four (4)
minutes of recordable announcement time.
The following input/output device/interfaces
will be provided:
Two (2) DAT drive
Four (4) SCSI Disk Drive Units
Four (4) IOM Controllers providing
sixteen (16) RS-232 interface ports
each
Four (4) X.25 circuit packs
Two (2) MIS frames equipped with required
inverts and terminal block assemblies.
One (1) Meridian Cabinet Spare Storage (MCSS)
cabinet to house switch spares.
Two (2) Power Distribution Center (PDC) frames
equipped with "A" and "B" feed fuse panels &
fuses as required.
Miscellaneous Switch Room Equipment as follows:
4 of 26
<PAGE>
ARBINET
GPA-EXHIBIT A
ATTACHMENT
ATTACHMENT 1 TO EXHIBIT A, PRODUCT ANNEX A.1
PART I. DMS-GSP INITIAL SYSTEMS
(FOR U.S.A. AND EUROPE ONLY)
One (1) Maintenance Administration
Position and MAP furniture
Two (2) UDS 2440 Modems
Two (2) RTIF Terminals
One (1) MAP Printers
One (1) Helmsman CD-ROM
documentation disk
b) SuperNode Trunk configurable equipment as
follows:
Three (3) SPM frames wired with 12,096 DS-0
ports on OC-3s equipped as follows:
Five (5) Spectrum Peripheral Modules
(SPM) modules equipped with Ten
thousand eight (10,008) DS-0 OC-3
ports
Two (2) DTEO frames wired with 1,920 DS-0 ports
on E1s equipped as follows:
Two (2) Digital Trunk Controller
Offshore (DTCO) modules equipped
with Nine Hundred Sixty (960) DS-0
E1 ports
Two (2) DTEI frames wired with 1,920 DS-0 ports
on T1s equipped as follows:
Two (2) Digital Trunk Controller
(DTC) modules equipped with Nine
Hundred Sixty (960) DS-0 T1 ports
Two (2) DTEI frames wired with 1,920 DS-0 ports
on PRI equipped as follows:
Two (2) Digital Trunk Controller
ISDN (DTCI) modules equipped with
Nine Hundred Sixty (960) DS-0 PRI
ports
c) DMS-GSP Standard/Additional Software Features
as set forth in Part II of this Attachment.
d) Nortel's standard compliment of switch spares.
5 of 26
<PAGE>
ARBINET
GPA-EXHIBIT A
ATTACHMENT
ATTACHMENT 1 TO EXHIBIT A, PRODUCT ANNEX A.1
PART I. DMS-GSP INITIAL SYSTEMS
(FOR U.S.A. AND EUROPE ONLY)
e) Power plant with 1,200 amps of rectifiers and a
4 hour battery back-up.
f) Digital Servuce Units (DSU) bay for V.35 Link
Interface Units (LIUs)
g) Tellabs echo cancelers - 32ms to support 960
DS-0 E1s
h) Helios Distribution Bay with Ten 10amp fuses
and Fifteen 20amp fuses.
i) Nortel Networks commits to expand the Routing
Tables of the DMS-GSP to a total of 105,472
Route Lists and 843,776 Route Choices. This
expansion is committed for the Generally
Available date of the GSP09 software release.
I.2.2 DMS-GSP SUPERNODE INITIAL SYSTEM (17,856 T1/E1 PORTS) PRICING
FOR LOS ANGELES
The price for each DMS-GSP SuperNode (17,856 T1/E1 Ports) is Two
Million Seven Hundred Sixty Three Thousand Seven Hundred Eighty Six
($2,763,786) dollars.
I.3.0 DMS-GSP SUPERNODE INITIAL SYSTEM (9,600 T1/E1 PORTS) FOR LONDON
1.3.1 DMS-GSP SUPERNODE INITIAL SYSTEM INCLUDES:
A DMS-GSP SuperNode Initial System (9,600 T1/E1 Ports) shall consist of
the following configuration of major Equipment and Software:
a) SuperNode front end, 128K Enhanced Network, Link
Peripheral Processor and other common Equipment as
follows:
One (1) SuperNode equipped with BRISC-70EM processor with
512 Meg on board memory per plane and two (2) SLM III.
6 of 26
<PAGE>
ARBINET
GPA-EXHIBIT A
ATTACHMENT
ATTACHMENT 1 TO EXHIBIT A, PRODUCT ANNEX A.1
PART I. DMS-GSP INITIAL SYSTEMS
(FOR U.S.A. AND EUROPE ONLY)
128K Enhanced Network to support an Initial System wired
and equipped for 9,600 speech ports.
One (1) Link Peripheral Processor (LPP) individually wired
and equipped with Sixteen (16) Link Interface Units
(LIU7s), Four (4) Network Interface units (NIUs) and Two
(2) Ethernet Interface Units (EIUs).
Two (2) ISME frames equipped with service and test
circuits as well as two (2) Enhanced Digital Recorded
Announcement Machine circuit packs each providing a
maximum of four (4) minutes of recordable announcement
time.
The following input/output device/interfaces will be
provided:
Two (2) DAT drive
Four (4) SCSI Disk Drive Units
Four (4) IOM Controllers providing sixteen (16)
RS-232 interface ports each
Four (4) X.25 circuit packs
Two (2) MIS frames equipped with required inverts and
terminal block assemblies.
One (1) Meridian Cabinet Spare Storage (MCSS) cabinet to
house switch spares.
Two (2) Power Distribution Center (PDC) frames equipped
with "A" and "B" feed fuse panels & fuses as required.
Miscellaneous Switch Room Equipment as follows:
One (1) Maintenance Administration Position and
MAP furniture
Two (2) UDS 2440 Modems
Two (2) RTIF Terminals
One (1) MAP Printers
One (1) Helmsman CD-ROM documentation disk
b) SuperNode Trunk configurable equipment as follows:
7 of 26
<PAGE>
ARBINET
GPA-EXHIBIT A
ATTACHMENT
ATTACHMENT 1 TO EXHIBIT A, PRODUCT ANNEX A.1
PART I. DMS-GSP INITIAL SYSTEMS
(FOR U.S.A. AND EUROPE ONLY)
Eight (8) DTEO frames wired with 7,680 DS-0
ports on E1s equipped as follows:
Sixteen (16) Digital Trunk
Controller Offshore (DTCO) modules
equipped with Sixty thousand seven
hundred twenty (6,720) DS-0 E1 ports
Two (2) DTEI frames wired with 1,920 DS-0 ports
on PRI equipped as follows:
Two (2) Digital Trunk Controller Offshore ISDN
(DTCOI) modules equipped with Nine Hundred
Sixty (960) DS-0 PRI ports
c) DMS-GSP Standard/Additional Software Features as set forth
in Part II of this Attachment.
d) Nortel's standard compliment of switch spares.
e) Power plant with 800 amps of rectifiers and a 4 hour
battery back-up.
f) Nortel Networks commits to expand the Routing Tables of
the DMS-GSP to a total of 105,472 Route Lists and 843,776
Route Choices. This expansion is committed for the
Generally Available date of the GSP09 software release.
1.3.2 DMS-GSP SUPERNODE INITIAL SYSTEM (9,600 T1/E1 PORTS) PRICING FOR LONDON
The price for each DMS-GSP SuperNode (9,600 T1/El Ports) is Two Million
One Hundred Thousand ($2,100,000) dollars.
8 of 26
<PAGE>
ARBINET
GPA-EXHIBIT A
ATTACHMENT 1
ATTACHMENT 1 TO EXHIBIT A, PRODUCT ANNEX A.1
PART II. DMS-GSP STANDARD/ADDITIONAL SOFTWARE FEATURES
(FOR U.S.A. AND EUROPE ONLY)
II.1.0 DMS-GSP STANDARD SOFTWARE FEATURES
II.1.1 DMS-GSP INITIAL SYSTEM STANDARD SOFTWARE FEATURES INCLUDED IN
THE DMS-GSP INITIAL SYSTEM PRICE FOR NEW YORK AND LOS ANGELES.
The licensing fees for the following DMS-GSP GSP06 Standard Software
Features are included in the price of the DMS-GSP SuperNode Initial
Systems (17,856 model) set forth in Part I, Section I.1.0 above. The
following is a list of Software only and does not include any and/or
all required Equipment for feature functionality.
FEATURE/PACKAGE DESCRIPTION
--------------- -----------
BASE0001 Base
BASE0009 Supernode Series 70 EM Processor (SN Port Models)
GCSB0001 GCSB GCS Base
ISDN0001 ISDN Platform Supt
ISP70001 ISP BASE ISUP CCS7 Trunk
GTON0003 Per Country Tone Set
GSS70006 Per Country ISUP/TUP
TEL00001 TEL Telecom Layer
TEL00002 TEL Channelized Access
TEL00003 Gateway Screening
TEL00005 Multi-Point MTP Code
TEL00006 C7 Link Prot. Testor
TEL00007 C7 Link Fault Locator
TEL00008 TEL CCS7 Base
TEL00009 C7 Network Integrity Items
TEL00010 Multiple CCS7 Network Address
II.1.2 DMS-GSP INITIAL SYSTEM ADDITIONAL SOFTWARE FEATURES INCLUDED IN THE
DMS-GSP INITIAL SYSTEM PRICE FOR NEW YORK AND LOS ANGELES.
The licensing fees for the following DMS-GSP Additional Software features are
included in the price of the DMS-GSP SuperNode Initial Systems (17,856 port
model) set forth in Part I. The following is a list of Software only and does
not include any and/or all required Equipment for feature functionality.
9 of 26
<PAGE>
ARBINET
GPA-EXHIBIT A
ATTACHMENT 1
ATTACHMENT 1 TO EXHIBIT A, PRODUCT ANNEX A.1
PART II. DMS-GSP STANDARD/ADDITIONAL SOFTWARE FEATURES
(FOR U.S.A. AND EUROPE ONLY)
GSS70002 ANSI ISUP Plus
GTON0024 GTON US Tones
GSS70003 GSS7 ETSI ISUP V1
GWAY0002 GWAY per Call Echo Control
GWAY0001 Gateway Functions
GCSB0018 EIU for OAMP
II.2.1 DMS-GSP INITIAL SYSTEM STANDARD SOFTWARE FEATURES INCLUDED IN THE
DMS-GSP INITIAL SYSTEM PRICE FOR LONDON.
The licensing fees for the following DMS-GSP GSP06 Standard Software Features
are included in the price of the DMS-GSP SuperNode Initial Systems (9,600 model)
set forth in Part I, Section I.1.0 above. The following is a list of Software
only and does not include any and/or all required Equipment for feature
functionality.
FEATURE/PACKAGE DESCRIPTION
--------------- -----------
BASE0001 Base
BASE0009 Supernode Series 70 EM Processor (SN Port Models)
GCSB0001 GCSB GCS Base
ISDN0001 ISDN Platform Supt
ISP70001 ISP BASE ISUP CCS7 Trunk
GTON0003 Per Country Tone Set
GSS70006 Per Country ISUP/TUP
TEL00001 TEL Telecom Layer
TEL00002 TEL Channelized Access
TEL00003 Gateway Screening
TEL00005 Multi-Point MTP Code
TEL00006 C7 Link Prot. Testor
TEL00007 C7 Link Fault Locator
TEL00008 TEL CCS7 Base
TEL00009 C7 Network Integrity Items
TEL00010 Multiple CCS7 Network Address
10 of 26
<PAGE>
ARBINET
GPA-EXHIBIT A
ATTACHMENT 1
ATTACHMENT 1 TO EXHIBIT A, PRODUCT ANNEX A.1
PART II. DMS-GSP STANDARD/ADDITIONAL SOFTWARE FEATURES
(FOR U.S.A. AND EUROPE ONLY)
11.2.2 DMS-GSP INITIAL SYSTEM ADDITIONAL SOFTWARE FEATURES INCLUDED IN THE
DMS-GSP INITIAL SYSTEM PRICE FOR LONDON.
The licensing fees for the following DMS-GSP Additional Software features are
included in the price of the DMS-GSP SuperNode Initial Systems (9,600 port
model) set forth in Part I. The following is a list of Software only and does
not include any and/or all required Equipment for feature functionality.
GSS70005 GSS7 BTUP
GTON0006 GTON UK Tones
GSS70003 GSS7 ETSI ISUP Vl
GWAY0002 GWAY per Call Echo Control
GWAY0001 Gateway Functions
GCSB0018 EIU for OAMP
III.1.0 FULLY WIRED AND FULLY EQUIPPED DTEI PORT EXTENSION
III.1.1 DTEI PORT EXTENSION FULLY WIRED AND FULLY EQUIPPED
DTEI Port Extensions are sold in minimum increments of nine hundred
sixty (960) DS-0 ports, are configured for SS7/PTS or ISDN signaling at
Company's request and include the following:
a) DTEI hardware and XPM+;
b) Either UTR, STR, CTD for DTCs configured for SS7 or PTS
capability, or UTR and ISDN pre-processor circuit packs
configured for ISDN PRI capability;
c) Any required circuit packs associated with a 128K Dual Bay
ENET expansion, MS, or processor memory expansions for the
BRISC70EM processor;
d) Any required Service/Test Circuits;
e) Any ENET software license fee;
f) Any required Power Distribution Center (PDC) Equipment;
11 of 26
<PAGE>
ARBINET
GPA-EXHIBIT A
ATTACHMENT 1
ATTACHMENT 1 TO EXHIBIT A, PRODUCT ANNEX A.1
PART II. DMS-GSP STANDARD/ADDITIONAL SOFTWARE FEATURES
(FOR U.S.A. AND EUROPE ONLY)
g) Spare circuit packs, if required, based on Nortel's standard
engineering sparing guidelines; and
h) Engineering, installation at Nortel's non-standard union labor
rates, commissioning, program management and freight.
III.1.2 DTEO, DTEI AND SPM (WHEN AVAILABLE) PORT ADD-ON AND EXTENSION
PRICES
The price for each DS-0 Add-on or Extension port is as
follows:
III.1.2. A) ADD-ON PORTS T1 AND E1 DS-0 PORTS
<TABLE>
<CAPTION>
WIRED EQUIP TOTAL
----- ----- -----
<S> <C> <C>
$85.00 $37.00 $122.00
</TABLE>
III.1.2. B) ADD-ON PORTS PRI DS-0 PORTS
<TABLE>
<CAPTION>
WIRED EQUIP TOTAL
----- ----- -----
<S> <C> <C>
$105.00 $45.00 $150.00
</TABLE>
Add-on prices will apply when ordered before the Turnover Date
of the Initial System in which the extensions will be
installed.
III.1.2 C) EXTENSION PORTS TL AND EL DS-0 PORTS
<TABLE>
<CAPTION>
WIRED EQUIP TOTAL
----- ----- -----
<S> <C> <C>
$119.00 $51.00 $170.00
</TABLE>
III.1.2. D) EXTENSION PORTS PRI DS-0 PORTS
<TABLE>
<CAPTION>
WIRED EQUIP TOTAL
----- ----- -----
<S> <C> <C>
$131.00 $56.00 $187.00
</TABLE>
12 of 26
<PAGE>
ARBINET
GPA-EXHIBIT A
ATTACHMENT 1
ATTACHMENT 1 TO EXHIBIT A, PRODUCT ANNEX A.1
PART II. DMS-GSP STANDARD/ADDITIONAL SOFTWARE FEATURES
(FOR U.S.A. AND EUROPE ONLY)
Extension port prices will apply to Orders for extension ports
submitted by Company after the Turnover Date of the Initial
System in which the ports will be installed.
III.2.0 SPECIAL DTEO, DTEI AND PRI EXTENSION PORT PRICES
Arbinet may choose to purchase fully wired and equipped DS-0 ports in
bulk. The prices below are the prices for each DS-0 port purchased in
the minimum increments shown and deployed among a maximum number of
installation sites.
<TABLE>
<CAPTION>
MINIMUM PORT PURCHASE
------------------------------------------------------------------
INCREMENTS: 4,032 DS-0 8,064 DS-0 12,096 DS-0
- ------------- --------------------- --------------------- --------------------
<S> <C> <C> <C>
MAXIMUM # 1 SITE 2 SITES 4 SITES
OF SITES
T1/E1/SPM $155 $147 $140
PRI $167 $157 $150
</TABLE>
III.3.0 LINK PERIPHERAL PROCESSOR (LPP)
III.3.1 LINK PERIPHERAL PROCESSOR EXTENSIONS
A Link Peripheral Processor (LPP) Extension to a DMS-GSP Initial System
(either equipped with LPP hardware or not equipped with LPP hardware)
is Three Hundred Thousand Dollars ($300,000.00), wired for the maximum
capacity of first thirty-six (36) ASUs and ten (10) LIU7s equipped
units ordered by Company.
The LPP Extension for the above defined configuration includes the
following:
a) Link Peripheral Processor frame and equipment including
four (4) LIU7s and 2 NIUs;
b) Any required Message Switch (MS) expansions;
13 of 26
<PAGE>
ARBINET
GPA-EXHIBIT A
ATTACHMENT 1
ATTACHMENT 1 TO EXHIBIT A, PRODUCT ANNEX A.1
PART IV. DMS-GSP OPTIONAL SOFTWARE FEATURES
(FOR NORTH AMERICA ONLY)
c) Spare unique circuit packs, if any and as deemed
appropriate by Nortel, per Nortel's standard engineering
sparing rules; and
d) V.35 or DS-0A interface equipment to support wired
configurations.
III.3.2 LINK INTERFACE UNIT (LIU7) CARD EXTENSIONS TO EQUIP WIRED LPPS
The price per additional LIU7 for an existing LPP is Thirteen Thousand Dollars
($11,900.00), excluding Nortel's installation of the LIU7 cards. LIUs are priced
individually.
III. 3.3 ETHERNET INTERFACE UNIT (EIU) CARD EXTENSIONS TO EQUIP WIRED LPPS
The price per additional EIU for an existing LPP is Eleven Thousand Nine Hundred
Dollars ($11,900.00), excluding Nortel's installation of the EIU cards. EIUs are
priced individually.
III.3.4 NETWORK INTERFACE UNIT (NIU) CARD EXTENSIONS TO EQUIP WIRED LPPS
The price per additional NIU for an existing LPP is Ten Thousand Dollars
($10,000.00), excluding Nortel's installation of the NIU cards. NIUs are priced
individually.
IV.1.0 DMS-GSP OPTIONAL SOFTWARE FEATURES
IV.1.1 DMS-GSP OPTIONAL SOFTWARE
The licensing fees for the following GSP06 Optional Software
features are NOT included in the price of the DMS-GSP Initial
Systems (17,856 and 9,600 port model) set forth in Part I
above. The following Software features represents those
feature packages that may be ordered by Company at an
additional price for a DMS-GSP Initial System and does not
include any and/or all required Equipment to provide feature
functionality.
<TABLE>
<CAPTION>
ORDER CODE DESCRIPTION PRICE NOTES
---------- ----------- ----- -----
<S> <C> <C> <C>
GCAS0003 GCAS per country CAS $50,000
GCAS0009 GCAS AC15 $75,000
GCAS0018 GCAS C5 for the DMS-GSP $300,000
GCAS0011 GCAS CR11 HK CAS $85,000
14 of 26
<PAGE>
ARBINET
GPA-EXHIBIT A
ATTACHMENT 1
ATTACHMENT 1 TO EXHIBIT A, PRODUCT ANNEX A.1
PART IV. DMS-GSP OPTIONAL SOFTWARE FEATURES
(FOR NORTH AMERICA ONLY)
GCAS0012 GCAS CRI2 HK CAS $75,000
GCAS0010 GCAS DC5 $75,000
GCAS0013 Brazil R2 $200,000
GCAS0014 GCAS International R2 $75,000
GCAS0015 GCAS US CAS $93,000
GCAS0016 Japan T1 CAS $75,000 Need
GCAS0003
per country
code
GCAS0017 GCAS Taiwan R1 $75,000
GCIN0001 GCIN GCS Base CS1 SSP $200,000
GCIN0013 GCIN CS-2 Leg Manipulati $300,000
GCIN0003 GCIN EDP 4 $30,000
GCIN0004 GCIN EDP 5 $30,000
GCIN0005 GCIN EDP 6 $30,000
GCIN0006 GCIN EDP 7 $30,000
GCIN0010 GCIN EDP 8 $100,000
GCIN0011 GCIN EDP 9 $30,000
GCIN0012 GCIN External IP $100,000
GCIN0007 GCIN FCI Billing $30,000
GCIN0008 GCIN Internal IP $50,000
GCIN0009 GCIN TDP 2 $50,000
GCIN0002 GCIN TDP 3 $50,000
GCSB0003 GCSB AUTH Screening $100,000
GCSB0016 GCSB Acct Code Expansion $50,000
GCSB0023 GCSB Auto Collect Call for Brazil $50,000
GCSB0019 GCSB CLI Screen Freephon $50,000
GCSB0002 GCSB CLI Screening $100,000
GCSB0022 Dest. OM's $130,000
GCSB0021 Equal Access Enhancements $125,000
GCSB0020 GCSB CLIP/CLIR $100,000
15 of 26
<PAGE>
ARBINET
GPA-EXHIBIT A
ATTACHMENT 1
ATTACHMENT 1 TO EXHIBIT A, PRODUCT ANNEX A.1
PART IV. DMS-GSP OPTIONAL SOFTWARE FEATURES
(FOR NORTH AMERICA ONLY)
GCSB0015 GCSB Calling Card See Note The fee is
$100,000. If
GCSB0003 is
licensed then
the fee is
$50,000.
GCSB0018 GCSB EIU for OAMP $100,000
GCSB0007 GCSB GCSB Freephone $100,000
GCSB0014 GCSB GSM Roaming $100,000
GCSB0017 GCSB German Call Monitor $200,000
GCSB0024 GCSB Long Call Dur Audit $25,000
GCSB0005 GCSB Switch based VPN $200,000
GPRI0004 GPRI per country PRI $50,000
GPRI0002 GPRI ANSI PRI $25,000
GPRI0011 GPRI AOC German EuroISDN $25,000
GPRI0015 GPRI AOC for Swissnet3 $25,000
GPRI0018 AOC for ETSI PRI $25,000
GPRI0019 Japan PRI $50,000 Need
GPRI0004
per country
PRI
GPRI0020 AOC Italian PRI $25,000 Need
GPRI0004 per
country PRI &
GPRI0009
GPRI0008 GPRIDASS2 $25,000
GPRI0007 GPRI DPNSS $100,000
GPRI0005 GPRI Dutch PRI $50,000
GPRI0003 GPRI ETSI PRI $25,000
GPRI0010 GPRI German Eur0ISDN $50,000
GPRI0006 GPRI HK PRI CR13 $200,000
GPRI0009 GPRI Italian PRI $50,000
GPRI0013 GPRI QSig Basic Call $50,000
GPRI0017 GPRI Swedish PRI $47,500
16 of 26
<PAGE>
ARBINET
GPA-EXHIBIT A
ATTACHMENT 1
ATTACHMENT 1 TO EXHIBIT A, PRODUCT ANNEX A.1
PART IV. DMS-GSP OPTIONAL SOFTWARE FEATURES
(FOR NORTH AMERICA ONLY)
GPRI0014 GPRI Swissnet3 $50,000
GPRI0016 Australian PRI $54,000
GPRI0021 GPRI Taiwan PRI $50,000
GPRI0012 GPRI VN-4 Numeris $50,000
GSS70002 GSS7 ANSI ISUP PLUS $25,000
GSS70005 GSS7 BTUP $100,000
GSS70024 GSS7 Brazil ISUP $50,000
GSS70023 GSS7 Brazil TUP $50,000
GSS70008 GSS7 Colombian ISUP $50,000
GSS70011 GSS7 Danish ISUP $50,000
GSS70003 GSS7 ETSI ISUP Vl $25,000
GSS70010 GSS7 ETSI ISUP v2 $150,000
GSS70012 GSS7 French TUP $50,000
GSS70014 GSS7 German ISUP $50,000
GSS70007 GSS7 HK ISUP CR14 $50,000
GSS70013 GSS7 HK ISUP CR15 $50,000
GSS70015 GSS7 Australian I-ISUP $50,000
GSS70016 GSS7 New Zealand ISUP $50,000
GSS7G009 GSS7 Red Book TUP $50,000
GSS70018 GSS7 Spanish ISUP $50,000
GSS70017 GSS7 Swedish ISUP $50,000
GSS70025 GSS7 Taiwan ISUP $50,000
GSS70019 Japan NCCI ISUP v.2 $100,000 Need
GSS70006 per
country ISUP
GSS70021 Italian ISUP $50,000 Need SS70006
per country
ISUP
GSS70022 ISUP FG-D $125,000 Need
GSS70006 per
country ISUP
GTON0021 GTON Australian Tones $20,000
GTON0015 GTON Austrian Tones $20,000
17 of 26
<PAGE>
ARBINET
GPA-EXHIBIT A
ATTACHMENT 1
ATTACHMENT 1 TO EXHIBIT A, PRODUCT ANNEX A.1
PART IV. DMS-GSP OPTIONAL SOFTWARE FEATURES
(FOR NORTH AMERICA ONLY)
GTON0013 GTON Belgian Tones $20,000
GTON0011 GTON Brazilian tones $20,000
GTON0016 GTON Colombian Tones $20,000
GTON0019 GTON Danish Tones $20,000
GTON0020 GTON French Tones $20,000
GTON0024 GTON U.S.Tones $20,000
GTON0014 GTON German Tones $20,000
GTON0027 GTON Haiti Tones $20,000
GTON0005 GTON Hong Kong Tones $20,000
GTON0009 GTON Irish Tones $20,000
GTON0008 GTON Italian Tones $20,000
GTON0017 GTON Japanese Tones $20,000
GTON0018 GTON Korean Tones $20,000
GTON0004 GTON Netherlands Tones $20,000
GTON0022 GTON New Zealand Tones $20,000
GTON0028 GTON Norway Tones for GSP $20,000
GTON0026 GTON Singapore Tones $20,000
GTON0010 GTON Spanish tones $20,000
GTON0023 GTON Swedish Tones $20,000
GTON0012 GTON Swiss tones $20,000
GTON0025 GTON Taiwan Tones $20,000
GTON0006 GTON UK Tones $20,000
GWAY0001 GWAY Gateway Functions $50,000
GWAY0005 GWAY Closed User Group $30,000
GWAY0003 GWAY DCME Control $50,000
GWAY0004 GWAY TS 16 Echo Control $50,000
GWAY0002 GWAY per call Echo Control $50,000
DCR00001 DCR DCR See Note One-time network
software license fee of
$200,000 plus a per
switch license fee of
$50,000
18 of 26
<PAGE>
ARBINET
GPA-EXHIBIT A
ATTACHMENT 1
ATTACHMENT 1 TO EXHIBIT A, PRODUCT ANNEX A.1
PART IV. DMS-GSP OPTIONAL SOFTWARE FEATURES
(FOR NORTH AMERICA ONLY)
DCR00003 DCR Dual X25 link See Note One-time network
software license fee of
$20,000 plus a per
switch license fee of
$3,000
DCR00002 DCR Mult. Net. Access $75,000
DCR00004 DCR Univrsal Translation $16,000
ISP70003 ISP7 Aut Cngst Cntrls $25,000
ISP70004 ISP7 TFP/TFC Rtng Opts $15,000
STPB0001 STPB BASE See Note. The fee is no charge
for Standalone STP.
The fee is $350,000
for DMS-250 Inode.
STPE0001 STPE ENHANCED No Charge.
STPE0002 STPE DCIS6 $75,000
STPE0004 STPE Routeset Expansion See Note The fee is no charge
for the first 256 Route
Sets. The fee is
$200,000 for the
second group of 256
Route Sets plus
$25,000 for each
additional group of
256 Route Sets.
STPE0003 STPE XLIST Management $200,000
STPE0200 STPE NRC Items $317,500
STPE0300 STPE STP Integration $50,000
TEL00004 TEL C7 Routset Increment See Note. The fee is no charge
for the first 256 Route
Sets. The fee is
$200,000 for the
second group of 256
Route Sets plus
$25,000 for each
additional group of
256 Route Sets.
19 of 26
<PAGE>
ARBINET
GPA-EXHIBIT A
ATTACHMENT 1
ATTACHMENT 1 TO EXHIBIT A, PRODUCT ANNEX A.1
PART IV. DMS-GSP OPTIONAL SOFTWARE FEATURES
(FOR NORTH AMERICA ONLY)
TEL00011 TEL CSidel4-Extended Msg $25,000
</TABLE>
IV.2.0 LABOR CHARGES
IV.2.1 SOFTWARE ACTIVATION CHARGES
The labor charges for activating the optional Software
features set forth in Part IV, other than a Generic Software
upgrade is Five Hundred Forty Dollars ($540.00) for the first
feature and Two Hundred Seventy Dollars ($270.00) for each
additional feature requested in the same Order. There is no
labor charge for activating the above optional Software
features when activated in conjunction with a Generic Software
upgrade.
IV.2.2 SOFTWARE UPGRADE ONP
The labor charges associated with the installation and
activation of Software upgrades by overnight process are as
follows:
Weekday ONP $12,000.00 Weekend ONP $20,000.00
20 of 26
<PAGE>
Arbinet
GPSA-Exhibit A
Attachment 2
EXHIBIT A
ATTACHMENT 2 TO PRODUCT ANNEX A.1
FORECAST OF PRODUCT PURCHASES
Pursuant to Section 2.3 of Product Annex A.1, Company submits the
following forecast for the purchase of Nortel Networks Products:
Company comniits to purchasing three (3) DMS-GSP Initial Systems on the
following schedule and for the minimum purchase prices set forth below:
<TABLE>
<CAPTION>
SWITCH SITE: DELIVERY: PURCHASE PRICE:
------------ --------- ---------------
<S> <C> <C>
New York Oct. 1999 $2,763,786.00
Los Angeles May, 2000 $2,763,786.00
London,U.K. May, 2000 $2,100,000.00
</TABLE>
The pricing set forth above is inclusive of Initial System prices only
and does not include extension ports or any other Nortel Networks Products
offered under the Agreement.
Signed this ______ day of ______ 1999.
ARBINET HOLDINGS CORPORATION
By________________________________
21 of 26
<PAGE>
Arbinet
Exhibit B
EXHIBIT B
TO
GLOBAL PURCHASE
AND
SERVICES AGREEMENT
22 of 26
<PAGE>
ARBINET
GPSA-EXHIBIT B
ATTACHMENT 1 TO EXHIBIT B, PRODUCT ANNEX A.1
POST CUTOVER INTEGRATION SERVICES
ARTICLE 10, SECTION 10.4
10.4.1 Subsequent to the Turnover Date for an Initial System, Nortel
will assign one (1) technician to provide Post Cutover Integration Services
("PCI Services") at the Service Site during Normal Business Hours. PCI Services
will include testing of each Initial System to confirm that each Initial System
operates as designed ("Switch Grooming") and that the features engineered for
each Initial System operate correctly in accordance with Nortel's standards and
procedures ("Feature and Call Through Testing"). The tests to be performed by
Nortel will include, but will not be limited to, the following:
10.4.2 HARDWARE AND SOFTWARE TESTING
A. Install and Test Alarms
1) install cross connects, datafill scan and SD points
2) verify operation and detection of alarms
B. Patch Verification
1) verify patching of peripherals
C. REX Testing
1) set up switch to test its integral parts
D. Switch Grooming
1) set up switch to run Operation and Measurement ("OM") logs
2) set up switch to run maintenance reports
3) set up switch security measures
10.4.3 TRUNK TESTING
A. Install and Perform Transmission Tests
1) test Call Through Features
2) verify CDR trunks
3) verify SS7 Translations and confirm that datafill properly
performed
B. Wire and Cross Connect DSX
1) establish links between transmission facilities with all
testing being performed within the switch room
23 of 26
<PAGE>
ARBINET
GPSA-EXHIBIT B
ATTACHMENT 1 TO EXHIBIT B, PRODUCT ANNEX A.1
POST CUTOVER INTEGRATION SERVICES
C. Verification of DSX Cross Connect
D. Interconnection Testing
1) test Transmission and/or ROTL
2) test Call Through dial plan on one trunk member per card
10.4.4 REQUIRED LINE TESTING
A. Line to Line Matching
1) verify NPA's, NNX's and AMA's with the demarcation point
for testing set inside the main distribution frame within the
switch room
10.4.5 COMPANY'S RESPONSIBILITIES
In order for Nortel to commence the PCI Services, Company must
complete the following activities with respect to each Initial System at a
Service Site:
A. Ensure that all transmission links are terminated and
labeled on the DSX or distribution frame blocks;
B. Ensure that trunk facilities are connected to the
respective Local Exchange Carriers ("LEC") at the above
sites;
C. Order the appropriate translations from the LEC's access
tandem in order to translate Company's originated calls;
D. Establish a phone board for telephone set and feature
evaluations;
E. Provide a test unit or equivalent for DS-I/DS-3 testing,
as well as a PRI monitor; and
F. Provide a template which identifies specific cross-connect
allocations for trunk and any line facilities.
10.4.6 TERM
Nortel will provide to Company at no charge, initial PCI Services
("Initial PCI Services") for the Initial System in the total amount of two
hundred forty (240) hours. The Company may purchase Extended PCI Services in
increments of forty (40) hours. Company may purchase Extended PCI Services based
on a Firm Quote for such Services.
Nortel's overtime rate for PCI Services is Two Hundred Dollars
($200.00) per hour for each hour of PCI Services provided by Nortel after Normal
Business Hours.
24 of 26
<PAGE>
ARBINET
GPSA-EXHIBIT B
ATTACHMENT 1 TO EXHIBIT B, PRODUCT ANNEX A.1
POST CUTOVER INTEGRATION SERVICES
"Normal Business Hours" are from 8:00 a.m. until 5:00 p.m. (with a one
(1) hour lunch break), from Monday through Friday, excluding Nortel's standard
holidays.
25 of 26
<PAGE>
ARBINET
GPSA-EXHIBIT B
ATTACHMENT 2 TO EXHIBIT B, PRODUCT ANNEX A.1
Section 10.5 REMOTE HYBRID MAINTENANCE SERVICES
Nortel Networks' CSC Remote Hybrid Maintenance Services ("RHM Services") include
the CSC Remote Surveillance Services and the remote resolution of Switch alarms
for each Switch in Company's network pursuant to Company's instructions. In the
event of an emergency situation that requires on-site assistance, RM Services
will notify the appropriate Nortel Networks technician pursuant to Company's
instructions. Typical RM Services responsibilities include, but are not limited
to, the following:
Remedial and preventative maintenance, including initiation,
monitoring, documenting, controlling and escalating, in coordination
with the customer, until the problem is resolved;
Corrective action in response to alarm conditions, including
restoration of equipment, system diagnosis, software or hardware
problem location and alarm release procedures.
Emergency recovery procedures as required.
Environmental alarms, external to the switch, are restored to the
non-alarm state after investigation, if appropriate
Analysis of alarms, including root cause analysis, system
initialization, maintenance interruptions, critical and major alarms,
and hardware and software failures.
In order for Nortel Networks to perform RHM Services, either Nortel Networks or
Company must have a technician at the Service Site during Normal Business Hours.
Two options are available for Hybrid Maintenance services.
a) HYBRID MAINTENANCE 1: provides system monitoring as described in
Section 220 above during the following hours: 24 X 7, 365 days per
year; remote maintenance services as described in the section above
during the following hours: 5 p.m. to 8 a.m. Monday through Friday
(Customer Local Time), weekends and holidays.
b) HVBRID MAINTENANCE 2: provides remote monitoring and maintenance
during the hours of 5 p.m. to 6 a.m. Monday through Friday (Customer
Local Time), weekends and holidays only. No monitoring or maintenance
is available during customer local business hours of 8:00 a.m. to 5:00
p.m. Monday through Friday.
26 of 26
<PAGE>
ARBINET
GPSA-EXHIBIT B
ATTACHMENT 2 TO EXHIBIT B, PRODUCT ANNEX A.1
TERM
Nortel Networks shall provide six (6) months of RHM Services for the first three
(3) Initial Systems purchased by Company at no additional charge. RHM Services
shall commence on the Turnover Date for each Initial System. Company may
purchase additional RHM Services at Nortel Networks then current prices as set
forth in a Firm Quote issued by Nortel to Company.
<PAGE>
ARBINET
GPSA-EXHIBIT B
ATTACHMENT 3 TO EXHIBIT B, PRODUCT ANNEX A. 1
ON-SITE MAINTENANCE SUPPORT
- --------------------------------------------------------------------------------
SECTION 10.6 MAINTENANCE SUPPORT SERVICES
Nortel Networks will assign one (1) technician per each DMS-family switching
system ("Switch") to perform On-Site Maintenance Support Services ("Maintenance
Support Services") at the Service Site during Normal Business Hours. The
Maintenance Support Services technician(s) will perform preventative
maintenance, address Switch problems, perform emergency procedures, and perform
administrative functions, subject to the instructions provided by Company within
the Customer Specified Procedure ("CSP"), as directed by Nortel Networks'
Customer Support Center ("CSC") and/or Company's Network Operations Center
("NOC"). Maintenance Support Services will include, but will not be limited to,
the following services:
Provide preventative maintenance, as required by the customer
Work with Nortel Networks' Customer Support Center on technical and
procedural issues as required
Support switch software applications (new software loads and patches)
Work with the customer control/help desk to track and resolve user
trouble reports
Clear switch, trunk and transport troubles as received from the
Customer Support Center or the customer's help desk, etc.
Assist with data modification for routing and translation changes in
the trunk network and for customer groups
Perform routine tasks and procedures as scheduled and assigned by the
Customer Support Center or the customer help desk
Prepare back-up office image (to tape) as required
Process billing tapes, as required
Provide trunk problem resolution/coordination assistance with other
switches
Replace circuit packs as required under the direction of the Customer
Support Center or the customer help desk
Maintain a marked, proven set of maintenance spare cards
Maintain the following office Logs:
- AMA/CDR Tape Log
- Circuit Pack Replacement/Repair Log
- Site Trouble Ticket Log
Record MDF assignments and connections
Participate in all technical and service analysis meetings
Replenish printer paper on printer
1 of 9
<PAGE>
ARBINET
GPSA-EXHIBIT B
ATTACHMENT 3 TO EXHIBIT B, PRODUCT ANNEX A. 1
ON-SITE MAINTENANCE SUPPORT
Each Nortel Networks maintenance technician will have a standard issued tool
kit. Additional test and measurement equipment, computer terminals and on-line
documentation must be supplied by the customer.
TERM
Nortel Networks shall provide six (6) months of On-Site Support Services for the
DMS-GSP Initial System to be installed in New York. On-Site Support Services
shall commence on the Turnover Date for the New York System. Company may
purchase additional On-Site Support Services at Nortel Networks then current
prices as set forth in a Firm Quote issued by Nortel to Company.
2 of 9
<PAGE>
ARBINET HOLDINGS CORP
GPSA
EXHIBIT C
AFFILIATES
1.0 COMPANY AFRILIATES
1.1 For purposes of this Agreement, the Company Affiliates shall
include:
Present Company Name Place of Incorporation
- -------------------- ----------------------
[TO BE PROVIDED BY COMPANY]
2.0 NORTEL AFFILIATES
2.1 For purposes of this Agreement, the Nortel Affiliates shall
include:
NAME OF CORPORATION ADDRESS
- ------------------- -------
NORTHERN TELECOM DE ARGENTINA S.A. Leandro N. Alem 712
Piso 9, Buenos Aires 1001
ARGENTINA
NORTEL AUSTRALIA PTY. LIMITED Level 5, 495 Victoria Avenue
Chatswood, N.S.W. 2067
AUSTRALIA
NORTHERN TELECOM N.V. Belgicastraat 4
(For Nortel Products in Luxembourg also) 1930 Zaventem
Brussels, BELGIUM
NORTHERN TELECOM DO BRASIL Av. Das Nacoes Unidas, 17891
INDUSTRIA E COMERCIO LTDA. 4-Andar
San Amaro, Sao Paolo
State of Sao Paolo
CEP: 04795-100
BRAZIL
3 of 9
<PAGE>
ARBINET HOLDINGS CORP
GPSA
EXHIBIT C
AFFILIATES
NORTHERN TELECOM BULGARIA EOOD Datelina Residence
42 Damian Gruev Street
VII Floor, Apartment B
Sofia 1606
BULGARIA
NORTHERN TELECOM LIMITED 8200 Dixie Road, Suite 100
Brampton, Ontario
L6T 5P6
CANADA
NORTHERN TELECOM DE COLUMBIA Carrera 14, No. 94-81
SOCIEDAD ANONIMA Santa Fe de Bogota
COLUMBIA
MATRA NORTEL COMMUNICATIONS S.A.S 33 quai Paul Doumer
Paris la Defense
92415 Courbevoie Cedex
FRANCE
NORTEL DASA NETWORK SYSTEMS
GmbH & CO. Lyonerstrasse 15
D-60528 Frankfurt/Main.
GERMANY
NORTHERN TELECOM (ASIA) LIMITED 34th Floor, Central Plaza
18 Harbour Road
Wanchai
Hong Kong
HONG KONG
KOREA
TAIWAN
NORTHERN TELECOM (IRELAND) LIMITED 25 St. Stephens Green
Dublin
IRELAND
4 of 9
<PAGE>
ARBINET HOLDINGS CORP
GPSA
EXHIBIT C
AFFILIATES
NORTEL COMMUNICATIONS (ISRAEL) Kibbutz Galil Yam
LIMITED Herzliya
46905
ISRAEL
NORTEL ITALIA S.p.A. Ivrea (Torino)
Via Monte Navale2.
ITALY
NORTHERN TELECOM JAPAN INC. Oak Minami Azabu Building
19-23 Minami Azuba 3-chome
Minato-ku, Tokyo 106
JAPAN
NORTHERN TELECOM MAROC SA 6 rue Majob Mahfoud
Casablanca
MOROCCO
NORTEL NEW ZEALAND LIMITED Level 4, 36 Kitchener Street
Auckland
NEW ZEALAND
NORTHERN TELECOM SCANDINAVIA AS Nedre Slodttsgt, 15
P.O. Box 236 -Sentrum
N-0157 Oslo
NORWAY
NORTHERN TELECOM SINGAPORE 15 1, Lorong Chuan
PTE LIMITED #02-01 New Tech Park
1955
SINGAPORE
NORTHERN TELECOM B.V Siriusdreef 17-27
2132 WT Hoofddorp
THE NETHERLANDS
NORTEL SLOVENSKO SRO Hotel Danube
5 of 9
<PAGE>
ARBINET HOLDINGS CORP
GPSA
EXHIBIT C
AFFILIATES
Rybne Namestie 1
Bratislava
SLOVAK REPUBLIC
NORTEL HISPANIA S.A. Avenidas de los Dos
Castillas 33
Edificio Atica - 2
Pozuelo de Alarcon
28224 Madrid
SPAIN
NORTHERN TELECOM AG Drahzugstrasse 18
8008 Zurich
SWITZERLAND
NETAS - NORTHERN ELECTRIC Alemdag Caddesi
TELKOMUNIKASYON A.S. Umraniye 81 244
Istanbul
TURKEY
NORTEL plc. Maidenhead Office Park
Westacott Way
Maidenhead
Berkshire SL6 3QH
UNITED KINGDOM
NORTHERN TELECOM DE VENEZUELA Ave. Gonzales Rincones
COMPANIA ANONIMA La Trinidada
Edificio Centre-Van
Caracas
VENEZUELA
NOTES:
It is not possible to give a blanket undertaking for Austria as part of this
Agreement. Requirements for deployments in Austria will be considered on a case
by case by basis.
6 of 9
<PAGE>
ARBINET HOLDINGS CORP
GPSA
EXHIBIT C
AFFILIATES
For any other countries in Europe, the Nortel Affiliate is Nortel plc., United
Kingdom. For any other countries in the Middle East, Africa or elsewhere, the
Nortel Affiliate is Nortel Europe S.A. For other countries in Asia-Pacific or
the Caribbean and Latin America, Nortel shall advise Company in advance of
issuing an Order of the name and address of an applicable Nortel Affiliate.
7 of 9
<PAGE>
ARBINET HOLDINGS CORP
GPSA
EXHIBIT D
HOMOLOGATION
8 of 9
<PAGE>
ARBINET HOLDINGS CORP
GPSA
EXHIBIT D, PART II
DMS FAMILY HOMOLOGATION STATUS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
COUNTRY HOMOLOGATION EMC PSTN & NOTES APPROVAL
SAFETY AUTHORITY
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
US Compliance Achieved Compliance Achieved Approval Achieved UL1459, FCC BELLCORE
TR-NWT-00063
- ------------------------------------------------------------------------------------------------------------------------------------
UK Compliance Achieved Compliance Achieved PSTN via 100 & GSP. BABT
- ------------------------------------------------------------------------------------------------------------------------------------
GERMANY Compliance Achieved Compliance Achieved PSTN via 100 & GSP. BZT
- ------------------------------------------------------------------------------------------------------------------------------------
FRANCE Compliance Achieved Compliance Achieved PSTN via 100, planned DRG
on GSP.
- ------------------------------------------------------------------------------------------------------------------------------------
CANADA Compliance Achieved Compliance Achieved Approval Achieved CSA 22.2.225
- ------------------------------------------------------------------------------------------------------------------------------------
SWITZERLAND Compliance Achieved Compliance Achieved Planned on GSP. Bakom
- ------------------------------------------------------------------------------------------------------------------------------------
NETHERLANDS Compliance Achieved Compliance Achieved PSTN via 100 & GSP. HDTD
- ------------------------------------------------------------------------------------------------------------------------------------
ITALY Compliance Achieved Compliance Achieved PSTN via 100, planned IGT
on GSP.
- ------------------------------------------------------------------------------------------------------------------------------------
HONG KONG Compliance Achieved Compliance Achieved PSTN via 100 & GSP.
- ------------------------------------------------------------------------------------------------------------------------------------
JAPAN Compliance Achieved Compliance Achieved PSTN via 100, planned
on GSP.
- ------------------------------------------------------------------------------------------------------------------------------------
BELGIUM Compliance Achieved Compliance Achieved PSTN via 100 & GSP. BIPT
- ------------------------------------------------------------------------------------------------------------------------------------
SWEDEN Compliance Achieved Compliance Achieved Planned on 100 & GSP. NTA
- ------------------------------------------------------------------------------------------------------------------------------------
SPAIN Compliance Achieved Compliance Achieved PSTN via 100, planned DGT
on GSP.
- ------------------------------------------------------------------------------------------------------------------------------------
AUSTRIA Compliance Achieved Compliance Achieved PSTN via 100, planned ATRA
on GSP.
- ------------------------------------------------------------------------------------------------------------------------------------
NORWAY Compliance Achieved Compliance Achieved Planned on 100 & GSP
- ------------------------------------------------------------------------------------------------------------------------------------
MEXICO Compliance Achieved Compliance Achieved Approval Achieved
- ------------------------------------------------------------------------------------------------------------------------------------
9 of 9
<PAGE>
ARBINET HOLDINGS CORP
GPSA
EXHIBIT D, PART II
DMS FAMILY HOMOLOGATION STATUS
- ------------------------------------------------------------------------------------------------------------------------------------
AUSTRALIA Compliance Achieved Compliance Achieved PSTN via 100, planned AUSTEL
on GSP.
- ------------------------------------------------------------------------------------------------------------------------------------
DENMARK Compliance Achieved Compliance Achieved PSTN via GSP NTA
- ------------------------------------------------------------------------------------------------------------------------------------
LUXEMBORG Compliance Achieved Compliance Achieved TBD
- ------------------------------------------------------------------------------------------------------------------------------------
IRELAND Compliance Achieved Compliance Achieved TBD
- ------------------------------------------------------------------------------------------------------------------------------------
FINLAND Compliance Achieved Compliance Achieved Planned on 100 & GSP
- ------------------------------------------------------------------------------------------------------------------------------------
CHINA Compliance Achieved Compliance Achieved PSTN via 100.
- ------------------------------------------------------------------------------------------------------------------------------------
KOREA Pending Pending TBD
- ------------------------------------------------------------------------------------------------------------------------------------
JAMAICA Compliance Achieved Compliance Achieved Approval Achieved
- ------------------------------------------------------------------------------------------------------------------------------------
DOMINICAN Compliance Achieved Compliance Achieved Approval Achieved
- ------------------------------------------------------------------------------------------------------------------------------------
REPUBLIC
- ------------------------------------------------------------------------------------------------------------------------------------
PUERTO RICO Compliance Achieved Compliance Achieved Approval Achieved
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
10 of 9
<PAGE>
-------------------------------
EXHIBIT D, PART I, HOMOLOGATION
-------------------------------
<TABLE>
<CAPTION>
ASIA/SOUTH PACIFIC NORTH AMERICA CARIBBEAN
- ------------------ ------------- ---------
<S> <C> <C> <C>
Canada
Australia USA
Belau
China Antigua
Guam LATIN AMERICA Bahamas
Hong Kong ------------- Barbados
Japan Argentina El Salvador Belize
Malaysia Bolivia Guyana Bermuda
Marshall Islands Brazil Honduras British Virgin Islands
Micronesia Chile Mexico Dominica
New Zealand Colombia Paraguay Dominican Republic
Philippines Costa Rica Peru Grenada
South Korea Haiti
Vietnam EUROPE Jamaica
------ Montserrat
AFRICA/MIDDLE EAST Austria Ireland Puerto Rico
Bulgaria Netherlands St. Martin
Bahrain C.I.S. Poland St. Kitts
Burkina Faso UK Spain Trinidad
Morocco Germany Italy Turks Caicos
Saudi Arabia Hungary France US Virgin Islands
Tunisia
Turkey
</TABLE>
Exhibit D, Part I, discloses the countries where the DMS Family of Products
maintaians an established installation. Notwithstanding any provision to the
contrary, the parties hereto, understand that Homologation and/or PSTN
certification, if any, are required on a periodic basis as effectuated by but
not limited to revisions, upgrades or new equipment and/or software releases.
This Exhibit D, Part I and II constitute no warranty as to Homologation and/or
PSTN certification continuance.
Homologation is defined as meeting the requirements for safety and EMC in a
specific country, and may include formal certification on a case by case basis.
PSTN is defined as meeting the requirements for interface in a specific country
for the Public Switch Telephone Network, and may include formal certification on
a case by case basis.
<PAGE>
Exhibit 10.17
ARBINET HOLDINGS, INC.
SERIES B AND C SENIOR PREFERRED
STOCK PURCHASE AGREEMENT
(Sale by the Company of 11,980,561 shares of Series B Cumulative
Redeemable Senior Preferred Stock and 11,980,562 shares of
Series C Cumulative Convertible Senior Preferred Stock
Aggregate Sale Price $30,449,795.59)
November 24, 1999
Series B and C Senior Preferred Stock Purchase Agreement
<PAGE>
TABLE OF CONTENTS
Page
----
1. Basic Terms of Purchase and Sale. 1
1.1 Purchase and Sale of Senior Preferred Stock 1
1.2 The Closing 2
1.3 Additional Shares 2
2. Representations and Warranties of the Company 3
2.1 Organization Good Standing and Qualification 3
2.2 Capitalization; Stock Option Plan 3
2.3 Subsidiaries 5
2.4 Authorization 5
2.5 Consents 6
2.6 Permits 6
2.7 Litigation 7
2.8 Proprietary Information and Inventions Agreement 7
2.9 Intellectual Property 7
2.10 Manufacturing and Marketing Rights 10
2.11 Compliance with Other Instruments 10
2.12 Agreements, Action 10
2.13 Brokers or Finders 12
2.14 Disclosure 12
2.15 No Conflict of Interest 12
2.16 Rights of Registration 13
2.17 Private Placement 13
2.18 Corporate Documents; Board of Directors 13
2.19 Title to Property and Assets 13
2.20 Financial Statements 13
2.21 Changes 14
2.22 Employment Benefit Plans 15
2.23 Tax Returns and Payments 17
2.24 Insurance 17
2.25 Labor Agreements and Actions 17
2.26 Environmental and Safety Laws 18
2.27 Year 2000 Compliance 18
2.28 Minute Books 19
2.29 Small Business Concern 19
2.30 Section 897 of the Internal Revenue 20
2.31 Use of Proceeds 20
2.32 Absence of Certain Commercial Practices 20
i
<PAGE>
Page
----
3. Representations and Warranties of the Investor 21
3.1 Authorization 21
3.2 Purchase Entirely for Own Account 21
3.3 Investment Experience 21
3.4 Restricted Securities 21
3.5 No Public Market 22
3.6 Legends 22
3.7 Accredited Investor 22
3.8 Brokers or Finders 22
4. Conditions to Investors' Obligations at Closing 23
4.1 Accuracy of Representations and Warranties 23
4.2 Performance 23
4.3 Compliance Certificate 23
4.4 Qualifications and Consents 23
4.5 Proceedings and Documents 23
4.6 Opinion of Company Counsel 24
4.7 Board of Directors 24
4.8 Rights Agreement 24
4.9 Co-Sale Agreement 24
4.10 Voting Agreement 24
4.11 Series A-2 Restructuring 24
4.12 Officer's Certificate 24
4.13 Blue Sky Approvals 24
4.14 SBA Documentation 24
4.15 No Material Adverse Change 25
4.16 No Litigation 25
4.17 Satisfactory Completion of Due Diligence; Etc. 25
4.18 Payment of Expenses 25
4.19 Foundation Limited Partner Certificate 25
4.20 Management Rights Agreement 25
4.21 Regulatory Compliance Side Letter 25
4.22 Stock Certificates, etc. 25
5. Conditions of the Company's Obligations at Closing 25
5.1 Representations and Warranties True at Closing 25
5.2 Qualifications 26
5.3 Covenants 26
5.4 Rights Agreement 26
5.5 Co-Sale Agreement 26
5.6 Voting Agreement 26
5.7 Restated Amendment 26
5.8 Series A-2 Restructuring Agreement 26
ii
<PAGE>
Page
----
6. Affirmative Covenants of the Company 26
6.1 Observer Rights 26
6.2 Information 27
6.3 Exemption from Investment Company Act; FIRPTA 28
6.4 Accounting and Reserves 28
6.5 Payment of Taxes and Claims 29
6.6 Availability of Common Stock for Conversion 29
6.7 Governing Instruments 29
6.8 SBIC Covenants 29
6.9 Assistance in Sales 30
6.10 Employee Agreements 30
6.11 Stock Option Plan 31
7. Miscellaneous Provisions 31
7.1 Survival; Termination 31
7.2 Transfer of Successors and Assigns 31
7.3 Governing Law 31
7.4 Counterparts 31
7.5 Titles and Subtitles 31
7.6 Notices 31
7.7 Expenses 32
7.8 Indemnification. 32
7.9 Attorneys' Fees 32
7.10 Amendments and Waivers 32
7.11 Severability 33
7.12 Delays or Omissions 33
7.13 Entire Agreement 33
7.14 California Corporate Securities Law 33
7.15 Further Assurances 33
7.16 Specific Performance 33
7.17 Understanding Among Investors 34
7.18 Publicity 34
iii
<PAGE>
Page
----
SCHEDULE OF EXHIBITS
Designation Description
Schedule I Investors
Exhibit A Company's Amended and Restated Certificate of Incorporation
Exhibit B Schedule of Exceptions
Exhibit C Company's Stockholders
Exhibit D Amended and Restated Investor Rights Agreement
Exhibit E Amended and Restated Co-Sale and Right of First Refusal Agreement
Exhibit F Amended and Restated Voting Agreement
Exhibit G Series A-2 Restructuring Agreement
Exhibit H Opinion of Paul, Hastings, Janofsky & Walker LLP
Exhibit I By-Laws
Exhibit J Employee Proprietary Information and Inventions Agreement
Exhibit K Foundation Limited Partner Certificate
Exhibit L Management Rights Agreement
Exhibit M Regulatory Compliance Side Letter
<PAGE>
ARBINET HOLDINGS, INC.
SERIES B AND C SENIOR PREFERRED STOCK PURCHASE AGREEMENT
THIS SERIES B AND C SENIOR PREFERRED STOCK PURCHASE AGREEMENT (the
"Agreement") is made and entered into as of the 24th day of November, 1999, by
and among Arbinet Holdings, Inc., a Delaware corporation (the "Company"), J. P.
Morgan Investment Corporation, a Delaware corporation ("JPMIC"), Sixty Wall
Street SBIC Fund, L.P., a Delaware limited partnership ("Sixty Wall" and
together with JPMIC, the "JPM Investors"), CB Capital Investors, L.P., a
Delaware limited partnership ("Chase"), BancBoston Ventures Inc., a
Massachusetts corporation ("BBV" and, together with the JPM Investors and Chase,
the "SBIC Investors"), and each of the other parties listed on the signature
pages hereto under the caption "Other Investors" (collectively, the "Other
Investors" and together with the SBIC Investors, the "Investors").
WHEREAS, the Company desires to sell (i) Eleven Million Nine Hundred
Eighty Thousand Five Hundred Sixty One (11,980,561) of its authorized but
unissued shares of Series B Cumulative Redeemable Senior Preferred Stock, par
value $.001 per share (the "Series B Preferred Stock"), and (ii) Eleven Million
Nine Hundred Eighty Thousand Five Hundred Sixty Two (11,980,562) of its
authorized but unissued shares of Series C Cumulative Convertible Senior
Preferred Stock, par value $.001 per share (the "Series C Preferred Stock" and
collectively with the Series B Preferred Stock, the "Senior Preferred Stock" or
the "Shares") to the Investors at the Closing (as defined in Section 1.2 below)
for an aggregate cash consideration equal to Thirty Million Four Hundred Forty
Nine Thousand Seven Hundred Ninety Five Dollars Fifty Nine Cents
($30,449,795.59) in accordance with the terms hereof; and
WHEREAS, subject to the terms and conditions of this Agreement, the
Investors desire to purchase the Shares from the Company at the aggregate
purchase price set forth herein.
IT IS HEREBY AGREED AS FOLLOWS:
1
<PAGE>
Basic Terms of Purchase and Sale.
<PAGE>
Purchase and Sale of Senior Preferred Stock .
The Company shall adopt and file with the Secretary of State of Delaware on
or before the date of the Closing an Amended and Restated Certificate of
Incorporation in the form attached hereto as Exhibit A (the "Restated
Certificate"). The rights, preferences and privileges of the Shares will be
as provided in the Restated Certificate.
(a) Subject to the terms and conditions of this Agreement each of the
Investors agrees, severally and not jointly, to purchase from the Company at
the Closing, and the Company agrees to sell and issue to each of the
Investors at the Closing, (i) that number of shares of Series B Preferred
Stock as is set forth opposite such Investor's name on Schedule I for cash
equal to $1.2708 per share, and (ii) that number of shares of Series C
Preferred Stock as is set forth opposite such Investor's name on Schedule I
for cash equal to $1.2708 per share, with the aggregate amount to be paid by
each Investor for the Shares to be acquired by such Investor being as stated
on Schedule I opposite such Investor's name. The Company's agreements with
each of the Investors are separate agreements, and the sale of the Shares to
each of the Investors are separate sales.
1.2 The Closing. The closing of the sale and purchase of the Shares
pursuant to this Agreement shall take place at the offices of Paul, Hastings,
Janofsky & Walker LLP, 399 Park Avenue, New York, New York 10022-4692 on or
about November 24, 1999, at 10:00 a.m., eastern standard time, or at such
other time and place as the Company and each of the Investors may mutually
agree (the "Closing"). At the Closing, the Company shall deliver to each
Investor a certificate representing that number of the shares of Series B
Preferred Stock and Series C Preferred Stock, respectively, set forth on
Schedule I opposite the name of such Investor against delivery to the Company
by such Investor of a wire transfer of immediately available funds in the
amount set forth opposite such Investor's name on Schedule I. If, at the
Closing, any of the conditions specified in Section 4 of this Agreement shall
not have been fulfilled, each of the Investors shall, at its election, be
relieved of all of its obligations under this Agreement.
1.3 Additional Shares.
(a) Upon the earlier to occur of (i) May 24, 2001 or (ii) the effective
date of the Company's first registered public offering of its Common Stock,
par value $.001 per share, other than a registration relating either to the
sale of securities to employees of the Company pursuant to a stock option,
stock purchase or similar plan or any transaction described in Rule 145(a)
promulgated under the Securities Act of 1933, as amended, the Company shall
cause its Chief Executive Officer and Chief Financial Officer to execute and
deliver to the Investors a certificate certifying the Net Bellfax Liability
(as defined below) (the "Net Bellfax Liability Certificate"). If the Net
Bellfax Liability is greater than zero, the Company shall issue and deliver
to each Investor as a purchase price adjustment, without payment of any
additional consideration
<PAGE>
therefor, such Investor's pro rata share of the Additional Shares (as defined
below). The Additional Shares, when issued in accordance with the terms hereof,
will be validly issued, fully paid and nonassessable. The Additional Shares (and
the Common Stock issuable upon conversion thereof) will be free of any liens,
charges or encumbrances other than those created by or imposed upon the holders
thereof through no action of the Company, and the Additional Shares (and the
Common Stock issuable upon conversion thereof) will be free of restrictions on
transfer, other than the restrictions on transfer under this Agreement, the
Related Documents (as defined below) and under applicable state and federal
securities laws. Unless holders of a majority of the Shares dispute the
computation of the Net Bellfax Liability in accordance with Section 1.3(b), the
Additional Shares shall be delivered to the Investors on the 30th day following
the delivery of the Net Bellfax Liability Certificate.
(b) The Net Bellfax Liability Certificate shall present in reasonable
detail the Company's computation of the Net Bellfax Liability. Without
limitation of any other rights of the Investors under this Agreement or the
Related Documents, the Investors (and/or their representatives) shall have
the right at reasonable times and on reasonable notice to review and/or audit
the books and records of the Company and its subsidiaries for the purpose of
verifying any computation of the Net Bellfax Liability. The Company shall pay
the fees and expenses incurred by any representative or representatives
designated by the holders of a majority of the Shares (which may include an
Investor); provided, however, if it is ultimately determined that the
Company's computation of the Net Bellfax Liability was within five percent
(5%) of the actual amount thereof, then the total amount of such fees and
expenses shall be applied against, and therefore reduce, the Net Bellfax
Liability.
(c) Capitalized terms used in this Section 1.3 shall have the meaning
ascribed thereto elsewhere in this agreement, except the following terms used
in this Section 1.3 shall have the following meanings:
(i) "Additional Shares" shall mean a number of shares of Series C
Preferred Stock equal to the Net Bellfax Liability divided by the original
issuance price of the Series C Preferred Stock, or $1.2708, as such original
issuance price may be adjusted in accordance with the Restated Certificate.
(ii) "Net Bellfax Liability" shall mean the total amount of payments
made by the Company, indebtedness or obligations assumed, liabilities and
obligations, fixed or contingent, incurred or accrued by the Company, or
other credit support provided, or liability of any kind whatsoever suffered
(including, without limitation, all liabilities which the Company is required
to accrue in accordance with generally accepted accounting principles), by
the Company or any of its subsidiaries (other than Bell Fax (as defined
below)) which is attributable to the business and operations of Bell Fax,
Inc., a Delaware corporation and wholly-owned subsidiary of the Company
("Bell Fax"), unrelated to the principal business of the Company as
<PAGE>
described in the Business Plan (the "Principal Business"); provided, however,
such amount shall be reduced by the total net cash proceeds realized from (i)
the sale or other disposition of any assets of Bell Fax not used or useful in
the Principal Business or (ii) the sale or other disposition of the capital
stock or assets of ArbiNet Israel Ltd.
2. Representations and Warranties of the Company.
The Company hereby represents and warrants to each Investor that,
except as set forth on the Schedule of Exceptions attached hereto as Exhibit
B, specifically identifying the relevant subsection hereof (which exceptions
shall be deemed to be representations and warranties as if made hereunder),
the following are true and correct:
2.1 Organization Good Standing and Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and has the requisite corporate power and
authority to carry on its business as now conducted and as proposed to be
conducted. The Company is duly qualified to transact business and is in good
standing in each jurisdiction in which the failure so to qualify could
reasonably be expected to have a material adverse effect on its business,
operations, operating results, properties, prospects, assets, condition
(financial or otherwise) or liabilities.
2.2 Capitalization; Stock Option Plan. The authorized capital of the
Company consists, or will consist, contemporaneously with, or immediately
following the Closing (after giving effect to the Series A-2 Restructuring
(as such term is defined in Section 4.11 below)), of:
(i) Preferred Stock. Forty Million (40,000,000) shares of Preferred
Stock, par value $.001 per share, of which (x) Ten Million (10,000,000)
shares have been designated Series A Preferred Stock, of which Five Million
One Hundred Twenty Four Thousand Nine Hundred Eighty Five (5,124,985) have
been designated Series A-1 Preferred Stock, par value $.001 per share
("Series A-1 Junior Preferred Stock), and Five Million One Hundred Twenty
Four Thousand Nine Hundred Eighty Five (5,124,985) shares of Series A-1
Preferred Stock are issued and outstanding, (y) Twelve Million (12,000,000)
shares will have been designated Series B Preferred Stock, of which Eleven
Million Nine Hundred Eighty Thousand Five Hundred Sixty One (11,980,561)
shares of Series B Preferred Stock will be issued and outstanding and (z)
Twelve Million (12,000,000) shares have been designated Series C Preferred
Stock, of which Eleven Million Nine Hundred Eighty Thousand Five Hundred
Sixty Two (11,980,562) shares of Series C Preferred Stock will be issued and
outstanding. The rights, privileges and preferences of the Preferred Stock
are as stated in the Restated Certificate.
(ii) Common Stock. Forty Million (40,000,000) shares of Common Stock,
par value $.001 per share, Five Million Nine Hundred Two Thousand Nine
Hundred Thirty Nine and Forty One-Hundreths (5,902,939.40) shares of which
are issued and outstanding and (w) Five Million One Hundred Twenty Four
Thousand Nine Hundred Eighty Five (5,124,985) shares of Common Stock are
reserved for issuance upon conversion of issued and outstanding shares of
<PAGE>
Series A-1 Junior Preferred Stock, (x) Eleven Million Nine Hundred Eighty
Thousand Five Hundred Sixty Two (11,980,562) shares of Common Stock will be
reserved for issuance upon conversion of issued and outstanding shares of Series
C Preferred Stock, (y) Ten Million Four Hundred Twenty Six Thousand Nine Hundred
Eighteen (10,426,918) shares of Common Stock will be reserved for issuance to
key employees, officers, directors and consultants pursuant to the Company's
1997 Stock Incentive Plan, as amended (the "Stock Option Plan"), and (z) One
Hundred Eighty Four Thousand Nine Hundred Twenty Three (184,923) shares of
Common Stock will be reserved for issuance upon conversion of issued and
outstanding warrants issued pursuant to the Series A-2 Restructuring Agreement.
The rights, privileges and preferences of the Common Stock are as stated in the
Restated Certificate.
(iii) An accurate list of (x) the Company's stockholders and their
holdings and (y) those Persons (as defined below) holding options, warrants
or other rights to purchase any class of the Company's capital stock
(excluding conversion privileges of the Series A-1 Junior Preferred Stock and
Series C Preferred Stock) and their holdings is set forth in Exhibit C to
this Agreement. All of the issued and outstanding shares of the Company as of
the Closing (including the Shares) are duly authorized, validly issued, fully
paid and nonassessable and were issued in compliance with state and federal
securities laws. Based upon the representations of the Investors in this
Agreement and subject to the provisions of Section 2.5 below, the Shares (and
the Common Stock issuable upon conversion thereof) have been issued or will
be issued in compliance with all applicable federal and state securities laws.
(iv) Except for (A) conversion privileges of the Series A-1 Junior
Preferred Stock and Series C Preferred Stock and (B) options to purchase an
aggregate of Five Million Three Hundred Eighty Three Thousand Eight Hundred
Sixty Eight and Thirty One One-Hundreths (5,383,868.31) shares of Common
Stock granted to present or former employees, officers, directors or
consultants of the Company pursuant to the Stock Option Plan and (C) warrants
to purchase an aggregate of One Hundred Eighty Four Thousand Nine Hundred
Twenty Three (184,923) shares of Common Stock issued pursuant to the A-2
Restructuring Agreement, there are no outstanding options, warrants, rights
(including conversion or preemptive rights) or agreements, orally or in
writing, for the purchase, redemption or acquisition from the Company of any
shares of its capital stock. Except as otherwise contemplated herein, the
Company is not a party or subject to any agreement or understanding, and, to
the best of the Company's knowledge, there is no agreement or understanding
between any individual partnership, limited liability company, joint venture,
corporation, association trust or any other entity or organization
(collectively, a "Person") that affects or relates to (i) the voting or
giving of written consents with respect to any security of the Company
(including, without limitation, any voting agreements, voting trust
agreements, shareholder agreements or similar agreements) or the voting by a
director of the Company or (ii) the sale, transfer or other disposition with
respect to any security of the Company.
(b) The shares of Common Stock presently available for issuance under
the Stock Option Plan are sufficient to cover all grants of stock options to
eligible participants under the
<PAGE>
Stock Option Plan which the Company reasonably anticipates it will be necessary
or advisable to issue within the eighteen month period following the date of the
Closing.
2.3 Subsidiaries. Section 2.3 of Exhibit B sets forth a true and
complete list of all of the subsidiaries of the Company (collectively, the
"Subsidiaries") the place of incorporation of each such subsidiary and its
authorized capitalization, its shares of capital stock outstanding, and the
record and beneficial owner of those shares. Except as set forth in Section
2.3 of Exhibit B, none of the Subsidiaries has conducted any business or
entered into any contract, agreement or undertaking and have been inactive
from the date of its formation. Except for the Subsidiaries, the Company does
not, and prior to the Closing will not, own or control, directly or
indirectly, any partnership interests, stock or other equity interests in any
partnership, corporation, limited liability company or partnership or other
entity. There are no outstanding (and neither the Company nor any Subsidiary
has any plan to issue, grant or enter into any) options, warrants, rights
(including conversion or preemptive rights), subscriptions or agreements for
the purchase or acquisition from or by the Company or any Subsidiary of any
shares of capital stock of any Subsidiary or other entity. There are no
voting agreements, voting trust agreements, shareholder agreements or other
similar agreements relating to the capital stock of any of the Subsidiaries.
2.4 Authorization. The Company has all requisite corporate power to
execute and deliver this Agreement and to carry out and perform its
obligations under this Agreement. All corporate action on the part of the
Company, its officers, directors and stockholders (including, without
limitation, holders of Preferred Stock (other than holders of Senior
Preferred Stock)) necessary for the authorization, execution and delivery of
this Agreement, the Restated Certificate, the Amended and Restated Investors'
Rights Agreement in the form attached as Exhibit D (the "Rights Agreement"),
the Amended and Restated Co-Sale and Right of First Refusal Agreement in the
form attached as Exhibit E (the "Co-Sale Agreement"), the Amended and
Restated Voting Agreement in the form attached as Exhibit F (the "Voting
Agreement") and the Series A-2 Restructuring Agreement in the form attached
as Exhibit G (the "Series A-2 Restructuring Agreement" and, together with the
Restated Certificate, the Rights Agreement, the Co-Sale Agreement and the
Voting Agreement, the "Related Documents"), the performance of all
obligations of the Company hereunder and thereunder and the authorization,
issuance and delivery of the Shares (and the Common Stock issuable upon
conversion of the Shares) has been taken or will be taken prior to the
Closing, and this Agreement, the Restated Certificate, the Rights Agreement,
the Co-Sale Agreement, the Voting Agreement and the Series A-2 Restructuring
Agreement constitute valid and legally binding obligations of the Company,
enforceable against the Company in accordance with their respective terms,
except (i) as limited by applicable bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance, and other laws of general application
affecting enforcement of creditors rights generally, as limited by laws
relating to the availability of specific performance, injunctive relief, or
other equitable remedies, and (ii) to the extent the indemnification
provisions contained in the Rights Agreement may be limited by applicable
federal or state securities laws. The Shares, when issued in compliance with
the provisions of this Agreement, will be validly issued and will be fully
paid and nonassessable and will have the rights, preferences and privileges
described in the Restated
<PAGE>
Certificate. The shares of Common Stock issuable upon conversion of the Series C
Preferred Stock have been duly and validly reserved and, when issued in
compliance with the provisions of this Agreement and the Restated Certificate
will be validly issued, fully paid and nonassessable. The Shares (and the Common
Stock issuable upon conversion thereof) will be free of any liens, charges or
encumbrances other than those created by or imposed upon the holders thereof
through no action of the Company, and the Shares (and the Common Stock issuable
upon conversion thereof) will be free of restrictions on transfer, other than
the restrictions on transfer under this Agreement and the Related Documents
under the applicable state and federal securities laws.
2.5 Consents. No consent, approval, license, order or authorization of,
or registration, qualification, designation, declaration or filing with, any
federal, state or local governmental authority or any party to a Contract (as
defined in Section 2.11(a) below) or any other third party is required by the
Company or any Subsidiary in connection with (x) the valid execution and
delivery of this Agreement and the Related Documents, (y) the offer and sale
of the Shares (and the Common Stock issuable upon conversion of the Series C
Preferred Stock) or (z) the consummation of the transactions contemplated by
this Agreement and the Related Documents, except (i) the filing of the
Restated Certificate with the Secretary of State of the State of Delaware and
(ii) such filings as may be required under applicable state and federal
securities laws, which filings will be timely filed within the applicable
periods therefor.
2.6 Permits. The Company and each Subsidiary has all franchises,
permits, licenses and any similar authority as necessary for the conduct of
its business as now being conducted by it, and believes it can obtain,
without undue burden or expense, any similar authority for the conduct of its
business as planned to be conducted, except for those franchises, permits,
licenses or similar authority the failure of which to obtain could not
reasonably be expected to have a Material Adverse Effect. Neither the Company
nor any Subsidiary is in material default under any of such franchises,
permits, licenses or other similar authority. The execution, delivery and
performance of and compliance with this Agreement and Related Documents and
the issuance of the Shares and the Common Stock issuable upon conversion of
the Series C Preferred Stock will not result in suspension, revocation,
impairment, forfeiture or nonrenewal of any such franchise, permit, license
or similar authority which could not be reasonably expected to result in a
Material Adverse Effect (as defined below in Section 2.11).
2.7 Litigation. There is no action, suit, proceeding or investigation
pending or, to the Company's knowledge, currently threatened against the
Company or any Subsidiary or any of their respective properties nor is the
Company aware that there is any basis for the foregoing, including, without
limitation, any action, suit, proceeding or investigation which questions the
validity of this Agreement or any Related Document or any action to be taken
in connection herewith or therewith. The foregoing includes, without
limitation, actions pending or, to the Company's knowledge, threatened (or
any basis therefor known to the Company) involving the prior employment of
any of the Company's or any Subsidiary's employees, their use in connection
with the Company's or any Subsidiary's business of any information or
techniques
<PAGE>
allegedly proprietary to any of their former employers, or their obligations
under any agreements with prior employers. Neither the Company nor any
Subsidiary nor any of their respective properties is a party or subject to the
provisions of any order, writ, injunction, judgment or decree of any court or
government agency or instrumentality. There is no action, suit, proceeding or
investigation by the Company or any Subsidiary currently pending or which the
Company or any such Subsidiary currently intends to initiate.
2.8 Proprietary Information and Inventions Agreement. Each current and
prior employee, consultant and officer of the Company has executed an
agreement with the Company regarding confidentiality and proprietary
information with provisions addressing confidentiality and corporate
ownership of inventions in the form provided to counsel for the Investors.
The Company is not aware that any parties are in violation thereof.
2.9 Intellectual Property .
(a)(i) Set forth in Section 2.9 of the Schedule of Exceptions is a true,
correct and complete list of all patents, trademarks, service marks, trade
names, brand names, registered copyrights, franchises, technology, and areas
of know-how and processes, and any applications for any of the foregoing
(collectively, the "Intellectual Property") of any kind in which the Company
or any of the Subsidiaries has an interest or which is otherwise used in the
business of the Company or any of the Subsidiaries. Section 2.12 of the
Schedule of Exceptions also contains a true, correct and complete list of all
licenses, agreements or potential conflicts that materially affect the rights
of the Company and the Subsidiaries to any of the Intellectual Property or
any trade secret material of the Company and the Subsidiaries (the
"Intellectual Property Licenses").
(ii) The Company and the Subsidiaries are the sole and exclusive owners,
free and clear of all Liens, and have all right, title and interest in all of
the Intellectual Property. With respect to any Intellectual Property or trade
secret material to the conduct of its business, the Company and each of the
Subsidiaries owns or has the right to use such Intellectual Property or trade
secret in its business. The Company and each of the Subsidiaries has the
right to use all Intellectual Property necessary to conduct the business of
such Company or Subsidiary as now being conducted and as proposed to be
conducted by such Company or Subsidiary.
(iii) Each of the Intellectual Property Licenses is in full force and
effect and constitutes a legal, valid, binding and enforceable obligation in
accordance with its terms against the Company and each of the Subsidiaries
party thereto, except as the enforceability thereof may be limited by
bankruptcy, insolvency, moratorium or other similar laws affecting the
enforceability of creditors' rights in general or by general principles of
equity and, to the best knowledge of the Company, each other Person party
thereto. The Company and each of the Subsidiaries has performed all
obligations imposed upon it under each of the Intellectual Property Licenses
to which it is a party. Neither the Company or any of the Subsidiaries nor,
to the
<PAGE>
best knowledge of the Company, any other party thereto is in default thereunder,
nor, to the best knowledge of the Company, is there any event that with notice
or lapse of time, or both, would constitute a default thereunder. Neither the
Company nor any of its subsidiaries has received any notice that any other party
to any of the Intellectual Property Licenses intends to cancel, terminate or
refuse to renew the same or to exercise or decline to exercise any option or
other right thereunder. No licenses, sublicenses, covenants or agreements have
been granted or entered into by the Company or any of the Subsidiaries in
respect of any of the Intellectual Property or any trade secret material of the
Company or any of the Subsidiaries, except the Intellectual Property Licenses.
To the best knowledge of the Company, no director, officer, stockholder,
employee or other affiliate of the Company owns, directly or indirectly, in
whole or in part, any of the Intellectual Property or any trade secret material
to the Company or any of the Subsidiaries. To the best knowledge of the Company,
none of the officers, employees, consultants, distributors, agents,
representatives or advisors of the Company or any of the Subsidiaries have
entered into any agreement relating to the Company's or such Subsidiary's
business regarding the Intellectual Property, including know-how, trade secrets,
assignment of rights in inventions, or prohibition or restriction of competition
or solicitation of customers, or any other similar restrictive agreement or
covenant, whether written or oral, with any Person other than the Company and
the Subsidiaries.
(iv) Neither the Company nor any of the Subsidiaries has disclosed other
than in the ordinary course of business consistent with past practice any
proprietary information relating to the Intellectual Property or the
Intellectual Property Licenses to any Person other than the Investors and the
Company's and the Subsidiary's employees, consultants, accountants, lawyers
and other advisors. The Company and each of the Subsidiaries have at all
times maintained reasonable procedures to protect and have enforced all of
their respective trade secrets. The Company and each of the Subsidiaries has
disclosed trade secrets to other Persons solely as required for the conduct
of the Company's or such Subsidiary's business and solely under nondisclosure
agreements that are enforceable by the Company or such subsidiary. Neither
the Company nor any of the Subsidiaries is under any contractual or other
obligation to disclose any proprietary information relating to the
Intellectual Property, any trade secret material of the Company or any of the
Subsidiaries or the Intellectual Property Licenses, nor, to the best
knowledge of the Company, is any other party to the Intellectual Property
Licenses under any such obligation to disclose proprietary information
included in or relating to Intellectual Property, any trade secret material
to the Company or any of the Subsidiaries or the Intellectual Property
Licenses to any Person, and no event has taken place, including the execution
and delivery of this Agreement and the transactions contemplated hereby or
any related change in the business activities of the Company or any of the
Subsidiaries, that would give rise to such obligation.
(v) The consummation of the transactions contemplated hereby will not
alter or impair the rights of the Company or any of the Subsidiaries to any
of the Intellectual Property,
<PAGE>
any trade secret material to the Company or any of the Subsidiaries, or under
any of the Intellectual Property Licenses.
(b)(i) No claim with respect to the Intellectual Property, any trade
secret material to the Company or any of the Subsidiaries, or any
Intellectual Property License which would materially adversely affect the
ability of the Company or any of the Subsidiaries to conduct its business as
presently conducted and as proposed to be conducted or, to the best knowledge
of the Company, has been asserted, or threatened by any Person. Nor does the
Company know of any grounds for any claim against the Company or any of the
Subsidiaries, (A) to the effect that any operation or activity of the Company
or any of the Subsidiaries presently occurring or contemplated, including,
inter alia, the manufacture, use or sale of any software, product, device,
instrument, or other material made or used according to the patents or patent
applications included in the Intellectual Property or Intellectual Property
Licenses, infringes or misappropriates any United States or foreign
copyright, patent, trademark, service mark or trade secret; (B) to the effect
that any other Person infringes on the Intellectual Property or
misappropriates any trade secret or know-how or other proprietary rights
material to the Company or any of the Subsidiaries; (C) challenging the
ownership, validity or effectiveness of any of the Intellectual Property or
trade secret material to the Company or such Subsidiary; or (D) challenging
the license of the Company or any of the Subsidiaries or other legally
enforceable right under, any Intellectual Property or the Intellectual
Property Licenses.
(ii) Neither the Company nor any of the Subsidiaries is aware of any
presently existing United States or foreign patents or any patent
applications which if issued as patents would be infringed by any activity of
the Company or any Subsidiary.
(c)(i) The Intellectual Property listed in Section 2.9 of the Schedule
of Exceptions hereto as part of the Intellectual Property, to the best
knowledge of the Company, have been properly prepared and filed on behalf of
the Company and each of the Subsidiaries named therein and are being
diligently pursued by the Company and such Subsidiaries. The inventions and
marks described in the Intellectual Property are assigned or licensed to the
Company or a Subsidiary and no other entity or individual has any right or
claim in any of the inventions, marks, Intellectual Property or any patents
or registered trademarks to be issued therefrom. Neither the Company nor any
Subsidiary is aware of any material defects in any of the Intellectual
Property which would cause any of them to be held invalid or unenforceable.
The Company and each of the Subsidiaries named in any of the Intellectual
Property has filed or will file in the patent applications of the
Intellectual Property to which it is a party all relevant and noncumulative
prior art of which it is aware.
(ii) The Company has no knowledge of any objection or proceeding,
pending or threatened, that would affect the validity of any patent or
trademark issued pursuant thereto.
(iii) Except in connection with the prosecution of the patent and
trademark applications listed in Section 2.9 of the Schedule of Exceptions,
there are no pending judicial or
<PAGE>
governmental proceedings, including but not limited to interferences and
oppositions, relating to any of the Intellectual Property or any other
proprietary information to which the Company or any of the Subsidiaries is a
party or by which any property (such term "property" specifically to include
rights pursuant to licenses or options or other rights to acquire licenses) of
the Company or any of the Subsidiaries is subject, and no such proceedings are
threatened or contemplated by Governmental Authorities or other Persons.
(d) The Company will use its best, commercially reasonable, efforts to
prosecute all pending patent and trademark applications listed in Section 2.9
of the Schedule of Exceptions to issuance.
2.10 Manufacturing and Marketing Rights. Neither the Company nor any of
its Subsidiaries has granted rights to manufacture, produce, assemble,
license, market or sell its products to any other Person and is not bound by
any agreement that affects the Company's or any Subsidiary's exclusive right
to develop, manufacture, assemble, distribute, license, market or sell its
products.
2.11 Compliance with Other Instruments. Neither the Company nor any
Subsidiary is in violation or default of any provisions of (i) its
certificate of incorporation or by-laws (or comparable governing instruments)
or (ii) any instrument, contract, undertaking, understanding, indenture or
agreement to which it is a party or by which it is bound (each a "Contract")
or, of any federal or state judgment, order, writ, decree, statute, rule or
regulation applicable to the Company or any such Subsidiary (or any of their
respective properties), except, with respect to the subject matter of this
clause (ii) only, where any such violation or default could not reasonably be
expected to result in (x) the Company's or any Subsidiary's loss of any right
granted under any Contract or (y) a material adverse effect (financial or
otherwise) on the business, operations, operating results, properties,
prospects, assets, condition (financial or otherwise) or liabilities of the
Company and the Subsidiaries taken as a whole (such an effect, a "Material
Adverse Effect"). To the best of the Company's knowledge, all parties having
contracts, agreements and commitments with the Company or any Subsidiary are
in compliance therewith in all material respects. The execution, delivery and
performance of this Agreement, the Related Documents and the consummation of
the transactions contemplated hereby and thereby will not result in any
violation or be in conflict with or constitute, with or without the passage
of time and giving of notice, either a default under any such Contract,
judgment, order, writ, decree, statute, rule or regulation or an event which
results in the creation of any lien, charge or encumbrance upon any assets of
the Company or any Subsidiary.
2.12 Agreements, Action.
(a) Neither the Company nor any Subsidiary is a party to or bound by:
<PAGE>
(i) any note, bond debenture or other evidence of indebtedness, or any
Contract, judgment, order, writ, decree, commitment or understanding under
which it has borrowed any money or issued any note, bond, debenture or other
evidence of indebtedness, or any mortgage, pledge, security agreement, deed
of trust, financing statement or other document granting any lien,
encumbrance or security interest (including liens, encumbrances or security
interests upon properties acquired under conditional sales, capital leases
and other title retention or security devices), or any guaranty or
endorsement (other than endorsements for collection in the ordinary course of
business) of, or other contingent obligations in respect of, indebtedness for
borrowed money or other liabilities or obligations of others, in any separate
case in excess of $50,000 in principal amount or $250,000 in the aggregate;
(ii) any Contract, judgment, order, writ, decree, commitment, arrangement
or understanding relating to any joint venture, partnership or sharing of
profits or losses with any Person or entity or permitting any Person or
entity to utilize any technology, know-how or proprietary information of the
Company or any Subsidiary;
(iii) any Contract, instrument, judgment, order, writ, decree, commitment
for the future purchase by the Company or any Subsidiary of any materials,
equipment, services or supplies which (w) involves the payment of more than
$50,000, (x) continues for a period of more than six months, (y) by its terms
requires the Company or any Subsidiary to purchase the entire output or
services of a supplier or (z) provides that any supplier will be the
exclusive supplier of the Company or any Subsidiary;
(iv) any Contract, instrument, proposed transaction, judgment, order,
writ or decree for the sale or other disposition by the Company or any
Subsidiary of its assets or properties other than in the ordinary course of
business, or for the merger, or consolidation of the Company or any
Subsidiary with any other Person or entity;
(v) any Contract, instrument, judgment, order, writ or decree containing
covenants purporting to limit the freedom of the Company or any Subsidiary to
compete in any line of business or in any geographic area;
(vi) any Contract, instrument, judgment, order, writ or decree not
elsewhere specifically disclosed pursuant to this Agreement involving the
payment or receipt by the Company or any Subsidiary of more than $50,000 per
year or $100,000 over the term thereof;
(vii) any Contract with a consultant which provides for payment during the
term of the Contract of more than $50,000; or
(viii) any Contract with any employee of the Company which provides for
payment of $100,000 or more per annum.
<PAGE>
(b) True and complete copies of all Contracts identified in Section
2.12(a) of Exhibit B (collectively, the "Scheduled Contracts") have been made
available to counsel for the Investors. Neither the Company nor any
Subsidiary has received any written notification of any breach, or default
under any of the Scheduled Contracts and, to the knowledge of the Company, no
other party to any of the Scheduled Contracts has materially breached or
defaulted thereunder, and, to the knowledge of the Company, no event has
occurred and no condition or state of facts exists which, with the passage of
time or the giving of notice or both, would constitute such a default or
breach by any such other party. Neither the Company nor any Subsidiary is
currently paying liquidated damages in lieu of performance under any
Scheduled Contract.
(c) Neither the Company nor any Subsidiary has (i) declared or paid any
dividends, or authorized or made any distribution upon or with respect to any
class or series of its capital stock, (ii) other than as expressly set forth
in the Financial Statements (as defined below in Section 2.20), incurred any
indebtedness for money borrowed or incurred any other liabilities
individually in excess of $50,000 or in excess of $50,000 in the aggregate,
(iii) made any loans or advances to any Person or entity other than ordinary
advances for travel expenses for employees in the ordinary course of
business, or (iv) sold, exchanged or otherwise disposed of any of its assets
or rights, other than the sale of its inventory in the ordinary course of
business.
(d) Neither the Company nor any Subsidiary has engaged in the past six
(6) months in any material discussion (i) with any representative of any
corporation or corporations regarding the merger of the Company and/or such
Subsidiary with or into any such corporation or corporations, (ii) with any
corporation, partnership, association or other business entity or any
individual regarding the sale, conveyance or disposition of all or
substantially all of the assets of the Company and/or such Subsidiary or a
transaction or series of related transactions in which more than fifty
percent (50%) of the voting power of the Company and/or such Subsidiary is
disposed of, or (iii) regarding any other form of liquidation, dissolution or
winding up of the Company and/or such Subsidiary.
2.13 Brokers or Finders. Neither the Company nor any Subsidiary has
incurred, and will not incur, directly or indirectly, as a result of any
action taken by the Company and/or any such Subsidiary, any liability for
brokerage or finders' fees or agents' commissions or any similar charges in
connection with this Agreement and the Related Documents.
2.14 Disclosure. To its knowledge, the Company has fully provided the
Investors or their representatives with all the information which the
Investors have requested for deciding whether to purchase the Shares and all
information which the Company believes is reasonably necessary to enable the
Investors to make such a decision, including certain of the Company's
projections describing its proposed business (collectively, the "Business
Plan"). No representation or warranty of the Company contained in the
exhibits to this Agreement or the Business Plan contains any untrue statement
of a material fact or omits to state a material fact necessary in order to
make the statements contained herein or therein not misleading in light of
the circumstances under which they were made. The Business Plan and the
financial projections
<PAGE>
contained in the Business Plan were prepared in good faith and based upon
assumptions which the Company believes are reasonable; provided, however,
that the Company does not represent or warrant that it will achieve such
financial projections.
2.15 No Conflict of Interest. Except as described in the Financial
Statements, neither the Company nor any Subsidiary is indebted, directly or
indirectly, to any of its officers, directors or stockholders (including
holders of Preferred Stock), or to their respective spouses, parents,
children or siblings or any of their respective affiliates, in any amount
whatsoever other than in connection with expenses or advances of expenses
incurred in the ordinary course of business. None of the Company's or any of
its Subsidiaries' officers, directors or stockholders (including holders of
Preferred Stock), or any members of their immediate families, are indebted to
the Company and/or any Subsidiary or, to the best of the Company's knowledge,
have any direct or indirect ownership interest in any firm or corporation
with which the Company or any Subsidiary is affiliated or with which the
Company or any Subsidiary has a business relationship, or any firm or
corporation which competes with the Company or any Subsidiary, except that
officers, directors and/or stockholders of the Company may own up to 1% of
the outstanding stock in publicly traded companies which may compete with the
Company or any Subsidiary. To the best of the Company's knowledge, no
officer, director or stockholders (including holders of Preferred Stock) or
any member of their immediate families is, directly or indirectly, interested
in any Contract. Neither the Company nor any Subsidiary is a guarantor or
indemnitor of any indebtedness of any other Person, firm or corporation.
2.16 Rights of Registration. Except as contemplated in the Rights
Agreement, the Company has not granted or agreed to grant any registration
rights, including piggyback rights, to any Person or entity.
2.17 Private Placement. Subject to the truth and accuracy of each
Investor's representations set forth in this Agreement, the offer, sale and
issuance of the Shares as contemplated by this Agreement is and the issuance
of shares of Common Stock upon conversion of the Series C Preferred Stock
will be exempt from the registration requirements of the Securities Act of
1933, as amended (the "Securities Act"), and neither the Company nor any
authorized agent acting on its behalf will take any action hereafter that
would cause the loss of such exemption.
2.18 Corporate Documents; Board of Directors. A true and complete copy
of the Bylaws of the Company are in the form of Exhibit I. As of the Closing,
the Bylaws of the Company shall provide that the number of members of the
Board of Directors of the Company is eight (8). As of the Closing, the Board
of Directors of the Company shall be comprised of Roland Van der Meer, Doug
Alexander, Alex Mashinsky, Robert Stavis, the chief executive officer of the
Company, Paul Theunissen and Philip Summe and there shall be one (1) vacancy,
which shall be filled by a designee selected in accordance with the Restated
Certificate and the Voting Agreement. The current officers of the Company and
each Subsidiary are as set forth in Section 2.18 of Exhibit B.
<PAGE>
2.19 Title to Property and Assets. The Company and each Subsidiary owns its
property and assets free and clear of all mortgages, liens, loans and
encumbrances, except such mortgages, encumbrances, loans and liens which arise
in the ordinary course of business and do not materially impair the Company's or
any such Subsidiary's ownership or use of such property or any assets. With
respect to the property and assets it leases, the Company and each Subsidiary is
in compliance in all material respects with such leases and, to the best of the
Company's knowledge, holds a valid leasehold interest free of any material
liens, claims, loans or encumbrances.
2.20 Financial Statements. The Company has delivered to the Investors its
audited consolidated financial statements (including balance sheet and profit
and loss statement and statement of cash flows) for the fiscal year ended
December 31, 1998, as well as its unaudited, consolidated and consolidating
financial statements (including balance sheet and profit and loss statement)
for the ten months ended October 31, 1999 (collectively referred to as the
"Financial Statements"). The Financial Statements have been prepared in
accordance with generally accepted accounting principles applied on a
consistent basis throughout the periods indicated. The Financial Statements
fairly present the financial condition and operating results of the Company
as of the dates, and for the periods, indicated therein, subject to normal
year-end audit adjustments which are not expected in the aggregate to be
material. Except as set forth in the Financial Statements, neither the
Company nor any Subsidiary has any liabilities, contingent or otherwise,
other than (i) liabilities incurred in the ordinary course of business
subsequent to October 31, 1999 and (ii) obligations under contracts and
commitments incurred in the ordinary course of business and not required
under generally accepted accounting principles to be reflected in the
Financial Statements, which, in both cases, individually or in the aggregate
are not material to the financial condition or operating results of the
Company and its Subsidiaries taken as a whole. The Company and each
Subsidiary maintains a system of internal accounting controls that will
enable it to prepare financial statements in accordance with generally
accepted accounting principles.
2.21 Changes. Since October 31, 1999, there has not been:
(a) any change in the business, assets, properties, liabilities,
condition (financial or otherwise) or operating results of the Company or any
of its Subsidiaries from that reflected in the Financial Statements, except
changes in the ordinary course of business that have not been, individually
or in the aggregate, materially adverse;
(b) any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the business (as such business
is presently conducted and as it is proposed to be conducted), assets,
properties, liabilities, prospects, or condition (financial or otherwise) or
operating results of the Company or any of the Subsidiaries;
(c) any waiver (or partial waiver) or compromise by the Company of a
valuable right or of a material debt owed to it;
<PAGE>
(d) any satisfaction or discharge of any lien, claim or encumbrance or
payment of any obligation by the Company or any of the Subsidiaries, except
in the ordinary course of business and that is not material to the business
(as such business is presently conducted and as it is proposed to be
conducted), properties, prospects, or condition (financial or otherwise) of
the Company and the Subsidiaries taken as a whole;
(e) any material change to a Contract;
(f) any change in any compensation arrangement or agreement with any
employee, officer, director, stockholder, consultant or finder;
(g) any sale, assignment or transfer of any patents, trademarks,
copyrights, trade secrets or other intangible assets of the Company or any of
the Subsidiaries;
(h) any sale, assignment or transfer of any tangible assets of the
Company or any of the Subsidiaries, except for the sale of inventory in the
ordinary course of business;
(i) any resignation or termination of employment of any officer or key
employee of the Company or any of the Subsidiaries, and the Company, to the
best of its knowledge, does not know of any impending resignation or
termination of employment of any such officers or employees;
(j) receipt of notice that there has been a loss of, or order
cancellation by, any major customer of the Company or any of the Subsidiaries
or cancellation or discontinuance by any major supplier or service provider
of the Company or any of the Subsidiaries;
(k) any mortgage, pledge, transfer of a security interest in, or lien,
created by the Company or any of the Subsidiaries with respect to any of its
properties or assets, except liens for taxes not yet due or payable;
(l) any payment, loan, advance or guaranty made by the Company or any of
the Subsidiaries to, or any sale, transfer or lease of any properties or
assets by the Company or any of the Subsidiaries or any other agreement or
arrangement entered into by the Company or any of the Subsidiaries with or
for the benefit of, its employees, officers, directors or stockholders
(including holders of Preferred Stock), or any members of their immediate
families, other than travel advances to employees or directors made in the
ordinary course of its business consistent with past practice;
(m) any declaration, setting aside or payment or other distribution in
respect to any of the capital stock of the Company or any of the
Subsidiaries, or any direct or indirect redemption, purchase or other
acquisition of any of such stock by the Company or any of the Subsidiaries;
<PAGE>
(n) any labor trouble at the Company or any of the Subsidiaries which
could reasonably be expected to have a Material Adverse Effect;
(o) any change in the line of business of the Company or any of the
Subsidiaries;
(p) any dissolution, winding-up, liquidation or discontinuance of a line
of business involving the Company or any of the Subsidiaries;
(q) any other event or condition of any character which has had or could
reasonably be expected to have a Material Adverse Effect; or
(r) any arrangement or commitment by the Company or any of the
Subsidiaries to do any of the above items described in this Section 2.21.
2.22 Employment Benefit Plans .
(a) Except as listed in Section 2.22 of Exhibit B, neither the Company
nor any entity that would be deemed a "single employer" with the Company
under Section 414(b), (c), (m), or (o) of the Internal Revenue Code of 1986,
as amended (the "Code") or Section 4001 of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") (an "ERISA Affiliate") maintains,
sponsors, contributes to, or has or has had an obligation to, or otherwise
participated in or participates in or in any way, directly or indirectly, has
or has had any liability with respect to any "employee benefit plan," as
defined in Section 3(3) of ERISA, or any other bonus, profit sharing,
pension, deferred compensation, incentive, stock option, fringe benefit,
health, welfare, change in control, or other plan, agreement, policy, trust
fund, or arrangement, whether written or unwritten, insured or self-insured
(each a "Plan" and, collectively, the "Plans"). None of the Company, any
ERISA Affiliate, or any of their respective predecessors has ever contributed
to, contributes to, has ever been required to contribute to, or otherwise
participated in or participates in or in any way, directly or indirectly, has
any liability with respect to any plan subject to Section 412 of the Code,
Section 302 of ERISA or Title IV of ERISA, including, without limitation any,
"multiemployer plan" (within the meaning of Sections (3)(37) or 4001(a)(3) of
ERISA or Section 414(f) of the Code), or any single employer pension plan
(within the meaning of Section 4001(a)(15) of ERISA). No event, condition, or
circumstance exists that would prevent the amendment or termination of any
Plan.
(b) With respect to each of the Plans in Section 2.22 of Exhibit B:
(i) each Plan complies in all material respects and has been maintained
and administered at all times in accordance with its terms and all
applicable laws, rules and regulations, including, without limitation,
ERISA and the Code and any trust maintained pursuant thereto is exempt
from federal income taxation under Section 501 of the Code and nothing has
occurred or is expected to occur through the date of the
<PAGE>
Closing that caused or could cause the loss of such exemption or the
imposition of any penalty or tax liability;
(ii) no claim, lawsuit, arbitration or other action has been threatened,
asserted, instituted, or anticipated against the Plans (other than
non-material routine claims for benefits, and appeals of such claims), any
trustee or fiduciaries thereof, the Company, any ERISA Affiliate, any
director, officer, or employee thereof, or any of the assets of any trust
of the Plans;
(iii) no "prohibited transaction," within the meaning of Section 4975 of
the Code and Section 406 of ERISA, has occurred or is expected to occur
with respect to the Plan (and the consummation of the transactions
contemplated by this Agreement will not constitute or directly or
indirectly result in a "prohibited transaction");
(iv) with respect to each Plan that is funded mostly or partially through
an insurance policy, neither the Company nor any ERISA Affiliate has any
liability in the nature of retroactive rate adjustment, loss sharing
arrangement or other actual or contingent liability arising wholly or
partially out of events occurring on or before the Closing.
(c) The consummation of the transactions contemplated by this Agreement
will not give rise to any liability, including, without limitation, liability
for severance pay, unemployment compensation, termination pay, or withdrawal
liability, or accelerate the time of payment or vesting or increase the
amount of compensation or benefits due to any employee, director,
shareholder, or beneficiary of the Company (whether current, former, or
retired) or their beneficiaries solely by reason of such transactions. No
amounts payable under any Plan will fail to be deductible for federal income
tax purposes by virtue of Section 280G or 162(m) of the Code. Neither the
Company nor any ERISA Affiliate maintains, contributes to, or in any way
provides for any benefits of any kind whatsoever (other than under Section
4980B of the Code, the Federal Social Security Act, or a plan qualified under
Section 401(a) of the Code) to any current or future retiree or terminee.
Neither the Company nor any ERISA Affiliate has any unfunded liabilities
pursuant to any Plan that is not intended to be qualified under Section
401(a) of the Code.
2.23 Tax Returns and Payments. The Company and the Subsidiaries have
filed or caused to be filed all required Tax Returns (as defined below) with
the appropriate governmental agencies in all jurisdictions in which such Tax
Returns are required to be filed by the Company or any of the Subsidiaries
and all Taxes (as defined below) shown on such Tax Returns payable by such
entity have been properly accrued or paid to the extent such Taxes have
become due or are being contested in good faith, and for which reserves
therefor have been established by the Company in accordance with generally
accepted accounting principles. Neither the Company, nor any Subsidiary has
executed any waiver or extensions of any statute of limitations on the
assessment or collection of any Tax or with respect to any liability arising
therefrom. None of the federal,
<PAGE>
state or local income Tax Returns for the Company or any of the Subsidiaries
have been audited by any taxing authority, including the United States Internal
Revenue Service. For purposes of this Section 2.23, "Taxes" means any federal,
state, or local taxes, assessments, interest, penalties, deficiencies, fees and
other governmental charges or impositions; and "Tax Return" means any federal,
state, or local tax return, report, statement and other similar filings required
to be filed by the Company or any of the Subsidiaries with respect to Taxes.
2.24 Insurance. The Company and the Subsidiaries have in full force and
effect fire, casualty and liability insurance policies issued by insurers of
recognized responsibility, with extended coverage, sufficient in amount to
allow any of them, as applicable, to replace any of its properties that might
be damaged or destroyed. Neither the Company nor any of the Subsidiaries have
been refused any insurance coverage sought or applied for, and the Company
has no reason to believe that the Company or any Subsidiary will be unable to
renew its existing insurance coverage.
2.25 Labor Agreements and Actions. Neither the Company nor any
Subsidiary is bound by or subject to (and none of its assets or properties is
bound by or subject to) any written or oral, express or implied, contract,
commitment or arrangement (including, without limitation, collective
bargaining agreements) with any labor union, and no labor union has requested
or, to the knowledge of the Company, has sought to represent any of the
employees, representatives or agents of the Company or any of the
Subsidiaries. There is no strike or other labor dispute involving the Company
or any of the Subsidiaries pending, or to the knowledge of the Company,
threatened, which could reasonably be expected to have a Material Adverse
Effect. The Company and the Subsidiaries have complied in all material
respects with all applicable state and federal equal employment opportunity
and other laws related to employment. Neither the Company nor any of the
Subsidiaries has engaged in any unfair labor practice which could reasonably
be expected to result in a Material Adverse Effect. Neither the Company nor
any of the Subsidiaries has any agreements or arrangements with persons
titled as independent contractors or consultants, as a result of which, by
virtue of the control exercised by the Company or the Subsidiaries, the type
of work performed by the persons or any other circumstances, said persons
could reasonably be deemed to be employees of the Company or the
Subsidiaries. Neither the Company nor any Subsidiary is aware that any
officer or key employee, or that any group of key employees, intends to
terminate their employment with the Company or any such Subsidiary, nor does
the Company or any such Subsidiary have a present intention to terminate the
employment of any of the foregoing. The employment of each officer and
employee of the Company and the Subsidiaries is terminable at the will of the
Company or the Subsidiaries to the extent permitted by law.
2.26 Environmental and Safety Laws. The business, assets and properties
of the Company and the Subsidiaries are and have been operated and maintained
in compliance with all applicable federal, state, city, county and local
environmental protection and occupational health and safety laws and
regulations (collectively, the "Environmental and Safety Laws"), except where
the failure to so comply could not reasonably be expected to have a Material
Adverse
<PAGE>
Effect. No event has occurred which, with or without the passage of time or the
giving of notice, or both, would constitute non-compliance by the Company or the
Subsidiaries with, or a violation by any of the Company or the Subsidiaries of,
the Environmental and Safety Laws, except for violations which could not
reasonably be expected to have a Material Adverse Effect. None of the Company
nor any of the Subsidiaries nor any of their respective predecessor companies
has caused or permitted to exist, as a result of an intentional or unintentional
act or omission by the Company, any such Subsidiary, any of their respective
predecessor companies or, to the best knowledge of the Company, by any
contractor or supplier of any of their raw materials, a disposal, discharge or
release of solid wastes, pollutants or hazardous substances, on or from any site
which currently is or formerly was owned, leased, occupied or used by any of the
Company, the Subsidiaries or any predecessor company, or, to the best knowledge
of the Company, any contractor or supplier of any of their raw materials, except
where such disposal, discharge or release was in compliance with the
Environmental and Safety Laws. Section 2.26 of Exhibit B hereto contains a
complete and correct list of the name and location of each site (i) which is
listed, or proposed for listing on a registry or inventory of inactive hazardous
waste sites maintained by any governmental authority and which currently is or
formerly was owned, leased, occupied or used by any of the Company, the
Subsidiaries or any predecessor company or (ii) with respect to which any of the
Company, the Subsidiaries or any predecessor company has received notice that
such company is considered to be a potentially responsible Person for cleanup or
other liability in respect of Environmental and Safety Laws.
2.27 Year 2000 Compliance. The computer software of the Company and the
Subsidiaries, including, without limitation, any software incorporated or
imbedded in any product or specification used or offered by the Company or
any Subsidiary or proposed for use or sale by the Company or any Subsidiary,
and including, to the Company's knowledge, software the Company or any
Subsidiary licenses from third parties, is "Millennium Compliant". As used in
this Agreement, "Millennium Compliant" means the ability of the software to
provide the following functions: (a) consistently handle date information
before, during and after January 1, 2000, including, but not limited to,
accepting date input, providing date output, and performing calculations on
dates or portions of dates; (b) function accurately in accordance with its
specifications and without interruption before, during and after January 1,
2000, without any change in operations associated with the advent of the new
century (defined for purposes of this paragraph as commencing at 12:00 A.M.,
January 1, 2000); (c) respond to two-digit date input in a way that resolves
any ambiguity as to century in a disclosed, defined and predetermined manner;
and (d) store and provide output of date information in ways that are
unambiguous as to century.
2.28 Minute Books. The copy of the minute books of the Company and its
Subsidiaries provided to the counsel for the Investors contains minutes of
all material meetings of directors (including committees thereof) and
stockholders and all material actions by written consent without a meeting by
the directors and stockholders since the date of incorporation and reflects
all actions by the directors (and any committee of directors) and
stockholders with respect to all transactions referred to in such minutes
accurately in all material respects.
<PAGE>
2.29 Small Business Concern .
(a) The Company, together with its "affiliates" (as that term is defined
in Title 13 of the United States Code of Federal Regulations) is a "Small
Business" within the meaning of the Small Business Investment Act of 1958, as
amended (the "Small Business Investment Act"), and the regulations
promulgated thereunder (including Part 107 and 121 of Title 13 of the United
States Code of Federal Regulations). The information provided by the Company
on SBA Forms 480, 652 and 1031 delivered in connection herewith is true and
correct.
(b) The proceeds from the sale of the Series B Preferred Stock and
Series C Preferred Stock to any Investor that is a small business investment
company (an "SBIC") will be used by the Company to fund working capital and
for general corporate purposes. No portion of such proceeds (i) will be used
to purchase stock in, provide capital to or repay any indebtedness incurred
for the purpose of investing in a company licensed under the Small Business
Investment Act, (ii) will be used to acquire realty or to discharge an
obligation relating to the prior acquisition of realty, (iii) will be used
outside the United States (except to acquire abroad materials and equipment
or property rights for use or sale in the United States), or (iv) will be
used for any purpose contrary to the public interest (including but not
limited to activities which are in violation of law) or inconsistent with
free competitive enterprise, in each case, within the meaning of ss. 107.720
of Title 13 of the United States Code of Federal Regulations.
(c) The Company's primary business activity does not involve, directly
or indirectly, providing funds to others, the purchase or discounting of debt
obligations, factoring or long-term leasing of equipment with no provision
for maintenance or repair, and the Company is not classified under Major
Group 65 (Real Estate) or Industry No. 1531 (Operative Builders) of the SIC
Manual. Not more than 49% of the Company's employees or tangible assets are
located outside of the United States.
(d) The Company confirms that it has been advised that each of the SBIC
Investors is a Federal licensee under the Small Business Investment Act.
2.30 Section 897 of the Internal Revenue. The Company is not a U.S. Real
Property Holding Company as defined in Section 897 of the Internal Revenue
Code of 1986, as amended (the "Code").
2.31 Use of Proceeds. The Company will use the proceeds from the sale of
the Shares to the SBIC Investors as set forth in Section 2.29(b). The Company
may also use such proceeds for research and development. The Company will use
the proceeds from the sale of Shares to the Other Investors for general,
corporate and working capital purposes. None of the proceeds from the sale of
the Shares will be used, directly or indirectly, by the Company for the
purpose of purchasing or carrying, or for the purpose of reducing or retiring
any indebtedness which was originally incurred to purchase or carry, any
"margin security" or "margin stock" within the meaning of Regulation U (12
CFR Part 221), of the Board of Governors of the Federal Reserve
<PAGE>
System or for any other purpose which might make the transactions contemplated
in this Agreement a "purpose credit" within the meaning of said Regulation U, or
cause this Agreement to violate any other regulation of the Board of Governors
of the Federal Reserve System or the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), or any rules or regulations promulgated under any of such
statutes. Neither the Company nor any of the Subsidiaries is engaged
principally, or as one of its important activities, in the business of extending
credit for the purpose of purchasing or carrying "margin security" or "margin
stock" within the meaning of Regulation U (12 CFR Part 221) of the Board of
Governors of the Federal Reserve System.
2.32 Absence of Certain Commercial Practices. Neither the Company nor
any of the Subsidiaries nor, to the knowledge of the Company, any officer,
director, employee or agent of the Company or any of the Subsidiaries (or any
Person acting on behalf of any of the foregoing), has (i) given or agreed to
give any gift or similar benefit of more than nominal value on behalf of the
Company or any Subsidiary to any official of any governmental authority
(domestic or foreign), to induce the recipient or his employer to do
business, grant favorable treatment or compromise or forego any claim, (ii)
made any payment which is illegal under prevailing law (regardless of the
jurisdiction in which such payment was made) to promote or retain sales or to
help procure or maintain good relations with suppliers, (iii) engaged in any
activity which constitutes a violation of the Foreign Corrupt Practices Act
of 1977, as amended, and the rules and regulations promulgated thereunder,
(iv) engaged in any practice violating any United States federal law
prohibiting compliance with an unsanctioned foreign boycott or (v) failed to
perform its obligations in any respect under any contract with, or violated
in any material respect any federal law known to the Company or any of the
Subsidiaries in its dealings with, the federal government or any agency or
department thereof, including, but not limited to, any law with respect to
conspiracy to defraud, false claims, conspiracy to defraud the United States,
embezzlement or theft of public money, fraud and false statements, false
demands against the United States, mail fraud, wire fraud, RICO, and truth in
negotiations, which failure or violation would result in a Material Adverse
Effect. No such gift or benefit is required in connection with the operations
of the Company or any of the Subsidiaries or their businesses to avoid any
fine, penalty, cost, expense or change in the business, assets, properties,
prospects, operations or financial condition of the Company or any of the
Subsidiaries which could reasonably be expected to result in a Material
Adverse Effect.
3. Representations and Warranties of the Investor.
Each Investor, severally and not jointly, hereby represents and
warrants to the Company as follows:
<PAGE>
3.1 Authorization. This Agreement and the Related Documents, when
executed and delivered by such Investor, will each constitute a valid and
legally binding obligation of such Investor, enforceable in accordance with
its terms, except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance, and any other laws of
general application affecting enforcement of creditors rights generally, and
as limited by laws relating to the availability of specific performance,
injunctive relief or other equitable remedies and (ii) to the extent the
indemnification provisions contained in the Rights Agreement may be limited
by applicable federal or state securities laws.
3.2 Purchase Entirely for Own Account. This Agreement is made with the
Investor in reliance upon the Investor's representation to the Company, which
by the Investor's execution of this Agreement the Investor hereby confirms,
that the Shares (and Common Stock issuable upon conversion thereof) to be
acquired by the Investor will be acquired for investment for the Investor's
own account, not as a nominee or agent, and not with a view to the resale or
distribution of any part thereof in violation of federal securities laws. The
Investor represents that it has the requisite power and authority to enter
into, execute, deliver and perform this Agreement.
3.3 Investment Experience. The Investor understands that the Shares
(and the Common Stock issuable upon conversion of the Series C Preferred
Stock) have not been, and will not be, registered under the Securities Act by
reason of a specific exemption from the registration provisions of the
Securities Act which depends upon, among other things, the bona fide nature
of the investment intent and the accuracy of the Investor's representations
as expressed herein. The Investor has not been formed for the specific
purpose of acquiring the Shares (or the Common Stock issuable upon conversion
of the Series C Preferred Stock).
3.4 Restricted Securities. The Investor understands that the Shares
(and the Common Stock issuable upon conversion of the Series C Preferred
Stock) are characterized as "restricted securities" under the federal
securities laws inasmuch as they are being acquired from the Company in a
transaction not involving a public offering and that under such laws and
applicable regulations such Shares (and the Common Stock issuable upon
conversion of the Series C Preferred Stock) may be resold without
registration under the Securities Act only in certain limited circumstances.
The Investor acknowledges that the Shares (and the Common Stock issuable upon
conversion of the Series C Preferred Stock) must be held indefinitely unless
subsequently registered under the Securities Act or an exemption from such
registration is available. The Investor is aware of the provisions of Rule
144 promulgated under the Securities Act which permit limited resale of
shares purchased in a private placement subject to the satisfaction of
certain conditions, including, among other things, the existence of a public
market for the shares, the availability of certain current public information
about the Company, the resale occurring not less than one year after a party
has purchased and paid for the security to be sold, the sale being effected
through a "broker's transaction" or in transactions directly with a "market
maker" (as provided by Rule 144(f)) and the number of shares being sold
during any three-month period not exceeding specified limitations.
<PAGE>
3.5 No Public Market. The Investor understands that no public market
now exists for any of the securities issued by the Company, that the Company
has made no assurances that a public market will ever exist for the Shares or
the Common Stock issuable upon conversion of the Series C Preferred Stock and
that, even if such a public market exists at some future time, the Company
may not then be satisfying the current public information requirements of
Rule 144.
3.6 Legends. The Investor understands that the Shares (and the Common
Stock issuable upon conversion of the Series C Preferred Stock), and any
securities issued in respect thereof or exchange therefor, may bear one or
all of the following legends:
(a) "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH
RESPECT TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED."
(b) Any legend required by the laws of the State of New York.
(c) Any legend required by the Blue Sky laws of any other state to the
extent such laws are applicable to the shares represented by the certificate
so legended.
The requirement that the foregoing legend(s) be placed upon
certificates evidencing any such securities shall cease and terminate upon
the earliest of the following events: (i) when such securities are
transferred in a public offering under the Securities Act, (ii) when such
securities are transferred pursuant to Rule 144 under the Securities Act or
(iii) when such shares are transferred in any other transaction if the seller
delivers to the Company an opinion of its counsel, which counsel and opinion
shall be reasonably satisfactory to the Company (it being agreed that Paul,
Hastings, Janofsky & Walker LLP, Proskauer Rose LLP, Bingham Dana LLP or
O'Sullivan Graev & Karabell, LLP shall be satisfactory), or a "no-action"
letter from the staff of the SEC, in either case, to the effect that such
legend is no longer necessary in order to protect the Company against a
violation by it of the Securities Act upon any sale or other disposition of
such shares without registration thereunder. Upon the occurrence of any event
permitting the removal of a legend hereunder, the Company, upon the surrender
of certificates containing such legend, shall, at its own expense, deliver to
the holder of any such shares as to which the requirement for such legend
shall have terminated, one or more new certificates evidencing such shares
not bearing such legend.
3.7 Accredited Investor. The Investor is an accredited investor as
defined in Rule 501 (a) of Regulation D promulgated under the Act.
3.8 Brokers or Finders. Except as disclosed in the Schedule of
Exceptions, the Company will not incur, directly or indirectly, as a result
of any action taken by the Investor, any liability
<PAGE>
for brokerage or finders' fees or agents' commissions or any similar charges in
connection with this Agreement.
4. Conditions to Investors' Obligations at Closing.
The obligations of each of the Investors under this Agreement are
subject to the fulfillment, or the waiver by each of the Investors, of the
conditions set forth in this Section 4 on or before the Closing.
4.1 Accuracy of Representations and Warranties. Each representation and
warranty of the Company contained in this Agreement shall be true in all
material respects on and as of the date of the Closing with the same effect
as though such representation and warranty had been made on and as of that
date. Immediately prior to the Closing, the Company shall provide each of the
Investors with a new Disclosure Schedule, updated for such Closing, provided
that, the obligation set forth in the preceding sentence with respect to the
accuracy of the representations and warranties of the Company as of the
Closing shall be based solely on Exhibit B, Schedule of Exceptions, provided
to the Investors at or prior to the execution of this Agreement.
4.2 Performance. The Company shall have performed and complied with all
covenants, agreements, obligations and conditions contained in this Agreement
that are required to be performed or complied with by it on or before the
Closing.
4.3 Compliance Certificate. The President of the Company shall deliver
to the Investors at the Closing a certificate certifying that the conditions
specified in Sections 4. 1 and 4.2 have been fulfilled.
4.4 Qualifications and Consents. All authorizations, approvals or
permits, if any, of any governmental authority or regulatory body and all
consents and approvals of any third party that are required in connection
with the lawful consummation of the transactions provided for herein and in
the Related Documents (including, without limitation, the lawful issuance and
sale of the Shares pursuant to this Agreement) shall be obtained and
effective as of the Closing without the imposition of any obligations,
liabilities or conditions adverse to the Company, the Subsidiaries or any
Investor. Without limiting the generality of the foregoing, each of the
Company's existing stockholders shall have waived any preemptive right or
right of first offer (or any comparable right) any such stockholder may have
to purchase any of the Shares (or the shares of Common Stock issuable upon
conversion of the Series C Preferred Stock).
4.5 Proceedings and Documents. On or prior to the date of the Closing,
the Restated Certificate shall have been filed with the Secretary of State of
the State of Delaware. All corporate and other proceedings in connection with
the transactions contemplated by this Agreement and the Related Documents at
the Closing and all documents incident thereto shall be reasonably
satisfactory in form and substance to the Investors'
<PAGE>
counsel, and the Investors' counsel shall have received all such counterpart
original and certified or other copies of such documents as it may reasonably
request.
4.6 Opinion of Company Counsel. The Investors shall have received from
(i) Paul, Hastings, Janofsky & Walker LLP, counsel for the Company, an
opinion, dated as of the Closing, in the form of Exhibit H and (ii) Pennie &
Edmonds LLP, special counsel for the Company, an opinion, dated as of the
Closing, in the form of Exhibit I.
4.7 Board of Directors. The Company's Bylaws shall reflect that the
size of the Board of Directors of the Company shall be set at eight (8). As
of the Closing, the Board of Directors of the Company shall be comprised of
Roland Van der Meer, Doug Alexander, Alex Mashinsky, Robert Stavis, the chief
executive officer of the Company, Paul Theunissen and Philip Summe, and there
shall be one (1) vacancy, which shall be filled by a designee selected in
accordance with the Restated Certificate and the Voting Agreement.
4.8 Rights Agreement. The Company and each holder of Series A-1 Junior
Preferred Stock shall have executed and delivered the Rights Agreement.
4.9 Co-Sale Agreement. The Company, Alex Mashinsky and each holder of
Series A-1 Junior Preferred Stock shall have executed and delivered the
Co-Sale Agreement.
4.10 Voting Agreement. The Company, Alex Mashinsky and each holder of
Series A-1 Junior Preferred Stock shall have executed and delivered the
Voting Agreement.
4.11 Series A-2 Restructuring. Prior to or concurrently with the
Closing, the Company shall have consummated the following (i) all existing
shares of the Company's Series A-2 Preferred Stock, par value $.001 per share
(the "Series A-2 Preferred Stock"), shall have been repurchased by the
Company and (ii) all warrants to purchase shares of Common Stock which were
issued in connection with the original issuance of the Series A-2 Preferred
Stock, shall have been canceled and of no further force or effect, in each
case, as more particularly set forth in the Series A-2 Restructuring
Agreement (the "Series A-2 Restructuring"). The terms and conditions of the
Series A-2 Restructuring Agreement and the transactions contemplated thereby
shall be satisfactory to each Investor and counsel to the Investors.
4.12 Officer's Certificate. The Company's Chairman shall have delivered
to each Investor a certificate dated as of the Closing and signed by the
Chairman certifying, among other things, copies of the Board of Directors and
stockholder resolutions approving the transactions contemplated by this
Agreement and the Related Documents and true and correct copies of the
Restated Certificate and the Bylaws.
4.13 Blue Sky Approvals. The Company shall have received all requisite
approvals, if any, of the securities authorities of each jurisdiction in
which such approval is required, and such approvals shall be in full force
and effect on and as of the date of the Closing.
<PAGE>
4.14 SBA Documentation. The Company shall have completed, executed
(where applicable) and delivered to the SBIC Investors, SBA Form 480, SBA
Form 652 and SBA Form 1031.
4.15 No Material Adverse Change. There shall not have occurred any
material adverse change in the business, assets, properties, prospects,
liabilities or condition (financial or otherwise) of the Company or the
Subsidiaries taken as a whole.
4.16 No Litigation. There shall not be any action, suit, proceeding or
investigation of or before any governmental authority pending or threatened
(i) with respect to this Agreement, the Related Documents or any of the
transactions contemplated hereby or thereby or (ii) which could reasonably be
expected to result in a Material Adverse Effect.
4.17 Satisfactory Completion of Due Diligence; Etc. The Investors and
their respective representatives (including, without limitation, attorneys,
agents and accountants) shall have completed their legal due diligence review
and accounting review of the business and affairs, assets and liabilities and
condition (financial and otherwise) of the Company and the Subsidiaries.
4.18 Payment of Expenses. The Company shall have paid all fees and
expenses in accordance with Section 7.7 hereof.
4.19 Foundation Limited Partner Certificate. The Company shall have
executed and delivered the Foundation Limited Partner Certificate in the form
of Exhibit K.
4.20 Management Rights Agreement. The Company shall have executed and
delivered the Management Rights Letter in the form of Exhibit L.
4.21 Regulatory Compliance Side Letter. The Company shall have executed
and delivered the Regulatory Compliance Side Letter in the form of Exhibit M.
4.22 Stock Certificates, etc. At the Closing, the Company shall have
tendered to each Investor a certificate representing shares of Senior
Preferred Stock in accordance with Schedule I hereof, all in form and
substance satisfactory to such Investor and sufficient to transfer to and
vest in such Investor good and valid title to the Shares, free and clear of
any lien, charge or encumbrance.
If at the Closing the Company fails to tender to the Investors the
documents specified herein which are required to be delivered to the
Investors at the Closing or if at the Closing any of the conditions specified
in this Section 4 shall not have been fulfilled to each Investor's
satisfaction, or waived by each Investor, such Investor shall, at its
election, be relieved of all further obligations under this Agreement.
<PAGE>
5. Conditions of the Company's Obligations at Closing.
The obligations of the Company under Section 1 of this Agreement are
subject to the fulfillment, or waiver by the Company, of each of the
following conditions on or before the Closing.
5.1 Representations and Warranties True at Closing. The representations
and warranties of the Investors contained in Section 3 hereof shall be true
in all material respects on and as of the date of the Closing with the same
effect as though said representations and warranties had been made on and as
of that date.
5.2 Qualifications. All authorizations, approvals or permits, if any,
of any governmental authority or regulatory body of the United States or of
any state that are required in connection with the lawful issuance and sale
of the Shares pursuant to this Agreement shall be obtained and effective as
of the date of the Closing.
5.3 Covenants. All covenants, agreements and conditions contained in
this Agreement to be performed by the Investors on or prior to the date of
the Closing shall have been performed or complied with.
5.4 Rights Agreement. Each Investor and each holder of Series A-1
Junior Preferred Stock shall have executed and delivered the Rights Agreement.
5.5 Co-Sale Agreement. Each Investor and each holder of Series A-1
Junior Preferred Stock shall have executed and delivered the Co-Sale
Agreement.
5.6 Voting Agreement. Each Investor and each holder of Series A-1
Junior Preferred Stock shall have executed and delivered the Voting Agreement.
5.7 Restated Amendment. The Restated Certificate shall have been filed
with the Secretary of State of the State of Delaware.
5.8 Series A-2 Restructuring Agreement. The transactions contemplated
by the Series A-2 Restructuring Agreement shall have been consummated in
accordance with the terms thereof.
6. Affirmative Covenants of the Company.
The Company hereby covenants and agrees with the Investors (except
that Section 6.8 shall be for the benefit of the SBIC Investors only) as
follows:
<PAGE>
6.1 Observer Rights. The Company shall give to BBV notice of each
meeting of the Board of Directors of the Company and its subsidiaries and of
each committee thereof at the same time and in the same manner as notice is
given to the directors of the Company or any such subsidiary. If no designee
of BBV shall then be serving on the Board of Directors of the Company, one
(1) designee of BBV shall be entitled to attend in person or by telephone, as
an observer, all meetings of the Board of Directors of the Company and each
of its subsidiaries and of each committee thereof. The Company shall provide
to BBV in connection with each meeting its respective observer designee is
entitled to attend, whether or not present at such meeting, copies of all
notices, minutes, consents, and all other materials or information that it
provides to the directors of the applicable company with respect to such
meeting, at the same time such materials and information are given to the
directors of such company (except that materials and information provided to
directors of the Company or any such subsidiary at meetings at which a
designee of BBV is not present (in person or by telephone) may be provided to
BBV promptly after the meeting). If the Board of Directors of any of the
Company or any of its subsidiaries or any committee thereof proposes to take
any action by written consent in lieu of a meeting, the Company shall give
written notice thereof to BBV prior to the effective date of such consent
describing in reasonable detail the nature and substance of such action.
Notwithstanding anything herein to contrary, if pursuant to applicable law or
regulations (or prevailing interpretation thereof), either the JPM Investors
or Chase is prohibited (or reasonably believes it is prohibited) from
designating a director to the Board of Directors of the Company and do not
designate such a director, then the JPM Investors and/or Chase, as the case
may be, shall be entitled to one (1) observer to the same extent as BBV.
6.2 Information. The Investors and their assignees shall be entitled to
receive, and the Company agrees to provide to such Investors and their
assignees, the following:
(a) Financial and Related Data.
(i) As soon as available, but in any event not later than forty-five
(45) days after the end of each month, the unaudited consolidated balance
sheet as at the end of such month of the Company and its subsidiaries and
the related unaudited consolidated statements of operations, stockholders'
equity and cash flows for such month and for the elapsed period in such
fiscal year, all in reasonable detail and stating in comparative form the
figures as of the end of and for the comparable period of the preceding
fiscal year and budgeted figures for the period. All such financial
statements shall be complete and correct in all material respects, and
shall be accompanied by a certificate of the President or chief financial
officer of the Company to such effect.
(ii) As soon as available, but in any event not later than 45 days after
the end of each fiscal quarter, the unaudited consolidated balance sheet
of the Company and its subsidiaries as at the end of such fiscal quarter
and the related unaudited consolidated statements of operations,
stockholders' equity and cash flows of the Company and its subsidiaries
for such fiscal quarter, all in reasonable detail and stating in
<PAGE>
comparative form the figures as at the end of and for such quarter in the
previous fiscal year and budgeted figures for the period. All such
financial statements shall be complete and correct in all material
respects and prepared in reasonable detail and in accordance with
generally accepted accounting principles applied, except as stated
therein, on a consistent basis throughout the periods reflected therein
(except that such financial statements may omit footnotes and may be
subject to normal year end adjustments which are not, in the aggregate,
material), and shall be accompanied by a certificate of the President or
chief financial officer of the Company to such effect.
(iii) As soon as available, but in any event within 90 days after the end
of each fiscal year of the Company, the audited consolidated and unaudited
consolidating balance sheet of the Company and its subsidiaries as at the
end of such fiscal year and the related audited consolidated statements
and unaudited consolidating statements of operations, stockholders' equity
and cash flows of the Company and its subsidiaries for such fiscal year,
all in reasonable detail and stating in comparative form the figures as at
the end of and for the previous fiscal year and budgeted figures for the
fiscal year accompanied by an opinion of an accounting firm of nationally
recognized standing selected by the Company with respect to the
consolidated statements, which opinion shall state that such accounting
firm's audit was conducted in accordance with generally accepted auditing
standards and, accordingly, included such tests of accounting records and
such other auditing procedures as were considered necessary under the
circumstances and which opinion shall not be subject to any qualification
resulting from a limit on the scope of the examination of the financial
statements or the underlying data or which could be eliminated by changes
in the financial statements or the notes thereto or by the creation of or
increase in a reserve or a decreased carrying value of assets, as such
standards may change from time to time. All such financial statements
shall be complete and correct in all material respects and prepared in
reasonable detail and in accordance with generally accepted accounting
principles applied, except as stated therein, on a consistent basis
throughout the periods reflected therein.
(iv) As soon as available, but in any event not later than 45 days prior
to the end of each fiscal year of the Company, the financial plan of the
Company for the next succeeding fiscal year to be submitted to the Board
of Directors of the Company for approval, including but not limited to, at
minimum, assumptions with respect to (a) revenues, (b) customers and
contracts, (c) operating costs and (d) capital expenditures and cash flow
and balance sheet projections and operating budget, calculated monthly,
comparisons to comparable periods in the prior year and any updates or
revisions as soon as available.
(v) Promptly after receipt, copies of all management letters from
accountants and all certificates prepared by or for the Company or its
subsidiaries as to compliance, defaults, material adverse changes,
material litigation or similar matters.
<PAGE>
(b) Access. The Company shall permit, and shall cause its subsidiaries
to permit, representatives designated by each of the JPM Investors, Chase and
BBV, upon reasonable prior notice to the Company, to visit and inspect each
of the Company's or its subsidiaries' properties, to examine their respective
corporate and financial records (and make copies thereof or extracts
therefrom), to discuss their respective affairs, finances and accounts with
the Company's or its subsidiaries' directors and officers, and, through the
President or chief financial officer of the Company or any of its
subsidiaries, as the case may be, such company's key employees and
accountants, all at such reasonable times as may be requested by any such
Investor during normal business hours of the Company or any such subsidiary;
provided, however, that such access shall not materially disrupt the
operation of the business of the Company or any such subsidiary.
6.3 Exemption from Investment Company Act; FIRPTA. The Company shall
conduct its business so that neither the Company nor any of its subsidiaries
shall become (i) an "investment company" within the meaning of the Investment
Company Act of 1940, as amended, or (ii) a United States real property
holding corporation (as defined in Section 897(c)(2) of the Code).
6.4 Accounting and Reserves. The Company shall, and the Company shall
cause each of its subsidiaries to, maintain a standard and uniform system of
accounting and shall keep proper books and records and accounts in which
full, true and correct entries shall be made of its transactions, all in
accordance with generally accepted accounting principles applied on a
consistent basis through all periods, and shall set aside on such books for
each fiscal year all such proper reserves for depreciation, obsolescence,
amortization, bad debts and other purposes in connection with its operations
as are required by such principles so applied.
6.5 Payment of Taxes and Claims. The Company shall, and the Company
shall cause each of its subsidiaries to, pay and discharge promptly all
lawful taxes, assessments and governmental charges or levies imposed upon it
or any such subsidiary, as the case may be, or upon their respective income
or profits or upon any of their respective properties, real, personal or
mixed, before the same shall become delinquent, as well as all lawful claims
for labor, materials and supplies which, if unpaid, would by law become a
lien or charge upon their respective properties; provided that if both of the
following conditions are met in any instance, the Company shall not be
obligated, and the Company shall not be obligated to cause any of its
subsidiaries, to pay or discharge, or to cause to be paid or discharged, such
tax, assessment, charge, levy or claim: (i) if and for so long as the Company
or such subsidiary, as the case may be, is contesting in good faith by
appropriate proceedings the amount, applicability or validity thereof, and
(ii) if the Company or such subsidiary, as the case may be, shall have set
aside on its books reserves deemed by it in accordance with generally
accepted accounting principles to be adequate with respect to such tax,
assessment, charge, levy or claim; provided further that notwithstanding the
previous provision, the Company shall pay or cause to be paid all such taxes,
assessments, charges, levies or claims forthwith upon the commencement of
proceedings to perfect or foreclose any lien which attached as security
therefor.
<PAGE>
6.6 Availability of Common Stock for Conversion. The Company shall at
all times reserve and keep available out of its authorized but unissued
shares of Common Stock, such number of its duly authorized shares of Common
Stock as shall be sufficient to effect the conversion of the Series C
Preferred Stock. If at any time the number of authorized but unissued shares
of Common Stock shall not be sufficient to effect the conversion of the
Series C Preferred Stock, or otherwise comply with the terms of this
Agreement or any Related Document, the Company shall forthwith take such
corporate action as may be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient for
such purposes.
6.7 Governing Instruments. The Company shall not amend the Restated
Certificate or the By-Laws in any manner adverse to the rights of the holders
of the Shares.
6.8 SBIC Covenants .
(a) The Company will provide to each Investor that is a Small Business
Investment Company (an "SBIC") (upon reasonable notice and during normal
business hours) and the U.S. Small Business Administration access to the
Company's books and records for the purpose of confirming the use of the
proceeds provided by such SBIC pursuant to this Agreement and for all other
purposes required by the U.S. Small Business Administration. Upon the request
of an SBIC, the Company will promptly provide to such SBIC and the U.S. Small
Business Administration a certificate of the chief financial officer (or
other executive officer) of the Company verifying the use of such proceeds
and certifying compliance by the Company with the provisions of Section 2.31
of this Purchase Agreement and paragraph (b) below.
(b) For a period of one year following the date hereof, the Company will
not change its business activity if such change would cause the Company to be
engaged in a business activity that would render the Company ineligible as a
"Small Business" under the Small Business Investment Act of 1958, as amended,
and the regulations thereunder.
(c) The Company will at all times comply with the non-discrimination
requirements of Parts 112, 113 and 117 of Title 13 of the United States Code
of Federal Regulations.
(d) Upon the request of an SBIC, the Company promptly (and in any event
within twenty (20) days of such request) will provide to such SBIC an
assessment, in form and substance satisfactory to such SBIC, of the economic
impact of the financing provided by such SBIC, specifying the full-time
equivalent jobs created or retained, the impact of the financing on the
Company's business, in terms of expanded revenue and profits, and on taxes
paid by the business and its employees. Upon the request of an SBIC, the
Company promptly (and in any event within twenty (20) days of such request)
will furnish to such SBIC all information requested by such SBIC in order for
it to prepare and file SBA Form 468 or any other filing required to be filed
by such SBIC.
<PAGE>
(e) The Company promptly will provide to each SBIC such financial
statements and other information as such SBIC may from time to time
reasonably request for the purpose of assessing the financial condition of
the Company and complying with any requirements of any governmental agency
asserting jurisdiction over such SBIC.
(f) Without the consent of each SBIC Investor, the Company will not
issue Securities to any SBIC in the future if such issuance would cause the
SBIC Investor to be deemed to be a member of an "Investor Group" in "Control"
of the Company (as such terms are defined in 13 C.F.R. ss. 107.865).
6.9 Assistance in Sales. Anything in this Agreement or any Related
Document to the contrary notwithstanding, in the event that it becomes
unlawful for any Investor to continue to hold all or some portion of the
Shares to be held by it, or restrictions are imposed on such Investor by any
law or regulation which, in the reasonable judgement of such Investor, make
it unduly burdensome to continue to hold all or some portion of such Shares,
then such Investor may sell or otherwise dispose of all or any portion of its
Shares, and the Company shall use reasonable efforts to assist such Investor
in disposing of such interest in a prompt and orderly manner, and, at the
request of any such Investor, shall provide (and authorize such Investor to
provide) financial and other information concerning the Company and its
subsidiaries to any prospective purchaser of such interest, subject to the
execution by the Person receiving such information of a confidentiality
agreement in a form reasonably acceptable to the Company; provided, however,
that in effecting any such sale or other disposition of such Shares, such
Investor shall use its best efforts to comply with Section 3 of the Co-Sale
Agreement.
6.10 Employee Agreements. For so long as the Investors own any of the
Shares, all employees of the Company shall enter into a proprietary
information and assignment of inventions agreement, substantially in the form
attached hereto as Exhibit K.
6.11 Stock Option Plan. The Company shall not issue any stock options or
other rights to acquire Common Stock under the Stock Option Plan to satisfy
any obligations which the Company may have to those former consultants to the
Company referred to in the capitalization chart of Arbinet Holdings, Inc. (as
of November 23, 1999) delivered to the Investors by the Company prior to the
Closing.
7. Miscellaneous Provisions.
7.1 Survival; Termination. Subject to the last sentence of this Section
7.1, the warranties, representations and covenants of the Company and the
Investors contained in or made pursuant to this Agreement shall survive the
execution and delivery of this Agreement and shall in no way be limited,
diminished or affected by any investigation made by or on behalf of the
Investors. This Agreement, including the representations, warranties and
covenants made herein, will terminate on the closing of a Qualified IPO (as
such term is defined in the Restated Certificate).
<PAGE>
7.2 Transfer of Successors and Assigns. The terms and conditions of
this Agreement shall inure to the benefit of and be binding upon the
respective successors and assigns of the parties hereto. This Agreement may
not be assigned by any party hereto without the prior written consent of the
other parties to this Agreement; provided, however, that this Agreement may
be assigned to any affiliate of an Investor or any subsequent holder of any
Shares. Nothing in this Agreement, express or implied, is intended to confer
upon any party other than the parties hereto or their respective permitted
successors and assigns any rights, remedies, obligations, or liabilities
under or by reason of this Agreement, except as expressly provided in this
Agreement.
7.3 Governing Law. It is the intention of the parties that the internal
laws of the State of New York, as such laws are applied to agreements between
New York residents entered into and to be performed entirely within New York,
shall govern this Agreement in all respects, whether or not all parties
hereto are residents of New York.
7.4 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
7.5 Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
7.6 Notices .
(a) All notices, requests, demands and other communications under this
Agreement or (i) in connection herewith shall be given to or made upon (i)
the Investors at each such Investors address set forth on Schedule I with a
copy to Proskauer Rose LLP, 1585 Broadway, New York, New York 10036-8299,
attention: Jack P. Jackson, Esq.; and (ii) the Company at 226 East 54th
Street, 2nd Floor, New York, NY 10022, attention: Chief Executive Officer,
with a copy to Paul, Hastings, Janofsky & Walker LLP, 399 Park Avenue, New
York, New York 10022-4697, attention: Neil A. Torpey, Esq.
(b) All notices, requests, demands and other communications given or
made in accordance with the provisions of this Agreement shall be in writing,
and shall be sent by airmail, return receipt requested, or by facsimile with
confirmation of receipt, and shall be deemed to be given or made when receipt
is so confirmed.
(c) Any party may, by written notice to the Company, alter its address
or respondent, and such notice shall be considered to have been given three
(3) days after the airmailing or faxing thereof.
7.7 Expenses. Each of the Company and the Investors shall bear their
own expenses incurred with respect to this Agreement, the Related Documents
and the transactions contemplated hereby and thereby; provided, however, the
Company will pay at the Closing and
<PAGE>
from time to time thereafter the reasonable out-of-pocket expenses of the
Investors, including, without limitation, the reasonable fees and expenses of
counsel to the SBIC Investors, attributable to the negotiation, execution,
delivery, amendment or enforcement of this Agreement, the Related Documents or
the transactions contemplated hereby, in any case, in an amount not to exceed
$100,000.
7.8 Indemnification. Notwithstanding anything herein to the contrary,
the Company agrees to indemnify each Investor and each officer, director,
employee, agent, partner, stockholder and affiliate of each Investor
(collectively, the "Indemnified Parties") for, and hold each Indemnified
Party harmless from and against: (i) any and all damages, losses, claims and
other liabilities of any and every kind, including, without limitation,
judgments and costs of settlement, and (ii) any and all out-of-pocket costs
and expenses of any and every kind, including, without limitation, reasonable
fees and disbursements of counsel for such Indemnified Parties (all of which
expenses periodically shall be reimbursed as incurred), in each case, arising
out of or suffered or incurred in connection with any of the following: (a)
any misrepresentation or any breach of any warranty made by the Company
herein or in any of the other covenant or agreement made by the Company
herein or in any of the other Related Documents, (b) any breach or
non-fulfillment by the Company of any Related Documents, (c) any claim
relating to or arising out of a violation of applicable federal or state
securities laws by the Company in connection with the sale of the Shares by
the Company to any such Investor other than any such claim resulting from,
arising out of, or relating to, any gross negligence or willful misconduct on
the part of any such Investor and (d) any failure by the Company to use the
proceeds from the sale of the Shares as specified herein.
7.9 Attorneys' Fees. If any action at law or in equity (including
arbitration) is necessary to enforce or interpret the terms of this Agreement
or any Related Document, the prevailing party shall be entitled to reasonable
attorneys' fees, costs and necessary disbursements in addition to any other
relief to which such party may be entitled as determined by such court,
equity or arbitration proceeding.
7.10 Amendments and Waivers. Any term of this Agreement may be amended
only with the written consent of the Company and the holders of a majority of
the Common Stock issued or issuable upon conversion of the Series C Preferred
Stock. Any amendment or waiver effected in accordance with this Section 7.10
shall be binding upon each of the Investors and each transferee of the Shares
(or the Common Stock issuable upon conversion of the Series C Preferred
Stock), each future holder of all such securities and the Company.
7.11 Severability. If one or more provisions of this Agreement are held
to be unenforceable under applicable law, portions of such provisions, or
such provisions in their entirety, to the extent necessary, shall be severed
from this Agreement and the balance of the Agreement shall be interpreted as
if such provision were so excluded and shall be enforceable in accordance
with its terms.
<PAGE>
7.12 Delays or Omissions. No delay or omission to exercise any right,
power or remedy accruing to any holder of any of the Shares, upon any breach
or default of the Company under this Agreement shall impair any such right,
power or remedy of such holder nor shall it be construed to be a waiver of
any such breach or default, or an acquiescence therein, or of or in any
similar breach or default thereafter occurring; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
theretofore or thereafter occurring. Any waiver, permit, consent or approval
of any kind or character on the part of any holder of any breach or default
under this Agreement, or any waiver on the part of any holder of any
provisions or conditions of this agreement, must be in writing and shall be
effective only to the extent specifically set forth in such writing. All
remedies, either under this Agreement or by law or otherwise afforded to any
holder shall be cumulative and not alternative.
7.13 Entire Agreement. This Agreement and the documents referred to
herein constitute the entire agreement between the parties hereto pertaining
to the subject matter hereof, and any and all other written or oral
agreements existing between the parties hereto are expressly canceled.
7.14 California Corporate Securities Law. THE SALE OF THE SECURITIES
WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE
COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF
SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION
THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL UNLESS AN EXEMPTION FROM
SUCH QUALIFICATION IS AVAILABLE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT
ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED OR SUCH
EXEMPTION BEING AVAILABLE.
7.15 Further Assurances. Upon request of any of the Investors, all
parties hereto agree to promptly execute and deliver all such other
instruments and take all such other actions as any Investor may reasonably
request from time to time in order to effectuate and carry out the purposes,
privileges, restrictions, rights and duties of the parties and the other
provisions of this Agreement and the Related Documents.
7.16 Specific Performance. The parties hereby declare that it is
impossible to measure in money the damages which will accrue to a party
hereto by reason of a failure to perform any of the obligations under this
Agreement and that a breach hereof shall cause irreparable injury and, in
addition to any other right or remedy available to the parties hereto at law
or in equity, any injured party hereunder shall be entitled to enforcement by
court injunction or specific performance of the obligations of the parties
hereunder, without the necessity for posting a bond. Notwithstanding the
foregoing sentence, nothing herein shall be construed as prohibiting any
injured party hereunder from also pursuing any other rights or remedies for
such breach or threatened breach, including receiving damages and attorneys'
fees. The election of any remedy shall not be construed as a waiver on the
part of any injured party hereunder of any right such party might otherwise
have at law or in equity, which rights and remedies shall be cumulative.
<PAGE>
7.17 Understanding Among Investors. The decision of each Investor to
purchase Shares pursuant to this Agreement has been made by such Investor
independently of any other Investor and independently of any statements or
opinions as to the condition (financial or otherwise) of the Company which
may have been made or given by any other Investor or by any agent or employee
of any other Investor. Each Investor acknowledges that no other Investor has
acted as agent for such Investor in connection with making its investment
hereunder and that no other Investor will be acting as agent of such Investor
in connection with monitoring its investment hereunder.
7.18 Publicity. Except as may be required by applicable law, the Company
shall not use the name of, or make reference to, any Investor or any of its
affiliates in any press release or in any public manner without such
Investor's prior written consent.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Series B and C
Senior Preferred Stock Purchase Agreement with the intent and agreement that the
same shall be effective as of the day and year first written above.
COMPANY:
Address: ARBINET HOLDINGS, INC.
33 Whitehall Street, 19 Floor
New York, NY 10004
Fax: (212) 797-9083
Attention: CEO
/s/ Alex Mashinsky
--------------------------------------------
By: Alex Mashinsky
Title: Chairman
INVESTORS:
Address: J.P. MORGAN INVESTMENT CORPORATION
60 Wall Street
New York, NY 10260 /s/ Paul G. Theunissen
Fax: (212) 648-5593 --------------------------------------------
Attention: Paul G. Theunissen By: Paul G. Theunissen
Title: Vice President
SIXTY WALL STREET SBIC FUND, L.P.
By: Sixty Wall Street SBIC Corporation, its
Address: general partner
60 Wall Street
New York, NY 10260 /s/ Paul G. Theunissen
Fax: (212) 648-5593 --------------------------------------------
Attention: Paul G. Theunissen By: Paul G. Theunissen
Title: Vice President
CB CAPITAL INVESTORS, L.P.
Address:
380 Madison Avenue By: CB Capital Investors, Inc., its General
12th Floor Partner
New York, NY 10017
Fax: (212) 622-3101 By: /s/ Mitchell J. Blutt
Attention: Philip Summe ----------------------------------------
Name: Mitchell J. Blutt
Title: Executive Partner
Signature Page to Series B and C Senior Preferred Stock Purchase Agreement.
<PAGE>
Address: BANCBOSTON VENTURES INC.
175 Federal Street, 10th Floor
Boston, MA 02110
Attention: Peter R. Roberts
Fax: (617) 434-1153 /s/ Peter R. Roberts
--------------------------------------------
By: Peter R. Roberts
Title: Vice President
BAYVIEW 99 I, LP
Address: By: BAYVIEW 99 GP, LLC, its General Partner
Fax: (415) 676-2990
Attention: By: /s/ Terry R. Otton
-----------------------------------------
Name: Terry R. Otton
Title: Authorized Signatory
BAYVIEW 99 II, LP
Address: By: BAYVIEW 99 GP, LLC, its General Partner
Fax: (415) 676-2990
Attention: By: /s/ Terry R. Otton
----------------------------------------
Name: Terry R. Otton
Title: Authorized Signatory
Address:
Sousa Road
Sands Point, NY 11054
Fax: (516) 883-3532 /s/ Jeffrey Rosenbluth
--------------------------------------------
Jeffery Rosenbluth
Address:
211 Hommocks Road
Larchmont, NY 10538 /s/ Robert Stavis
Fax: (914) 834-2291 --------------------------------------------
Robert Stavis
Signature Page to Series B and C Senior Preferred Stock Purchase Agreement.
<PAGE>
Address: GATEHOUSE INVESTORS, LLC
22 Gatehouse Road
Stamford, CT 06902-7908 By: /s/ Curt Snyder
Attention: Curt Snyder ----------------------------------------
Fax: (203) 462-7350 Name: Curt Snyder
Title: Managing Member
Address: MOMENTUM INVESTMENTS LLC
c/o Deutsche Bank Alex Brown
Attention: Stephen Todd Walker
1635 Market Street, 17 Floor By: /s/ Stephen Todd Walker
Philadelphia, Pa 19103 ----------------------------------------
Fax: (215) 854-1595 Name: Stephen Todd Walker
Title:
Address:
c/o FAC Equities/First Albany
Exchange Place
53 State Street, 29th Floor
Boston, MA 02109-2811 /s/ Ullas Naik
Fax: (617) 228-3015 --------------------------------------------
Ullas Naik
Address:
20 Patrol Court
Woodside, CA 94062-4220 /s/ Tom Kippola
Fax: (650) 529-0754 --------------------------------------------
Tom Kippola
Address: BELFREY PARTNERS, LP
Belfrey Partners, LP
c/o US Bancorp Piper Jaffray
222 South Ninth Street
Minneapolis, MN 55402-3804 By: /s/ Mark Copman
Fax: (612) 342-6360 ----------------------------------------
Attention: Mark Copman, General Name: Mark Copman
Partner Title: General Partner
Signature Page to Series B and C Senior Preferred Stock Purchase Agreement.
<PAGE>
Address: AUGUSTA PARTNERS
By: /s/ Neil A. Torpey
----------------------------------------
Name: Neil A. Torpey
Title: General Partner
OTHER INVESTORS
Address: COMMUNICATIONS VENTURES III, L.P.,
By its General Partner Communications
Ventures III, LLC
505 Hamilton Ave., Suite 305
Palo Alto, CA 94301
Attention: Roland A. Van der Meer By: /s/ Roland A. Van der Meer
Fax: (650) 325-9608 ----------------------------------------
Name: Roland A. Van der Meer
Title: Manager
COMMUNICATIONS VENTURES III CEO &
Address: ENTREPRENEURS' FUND, L.P.,
By its General Partner Communications
Ventures III, LLC
505 Hamilton Ave., Suite 305
Palo Alto, CA 94301
Attention: Roland Van der Meer By: /s/ Roland A. Van der Meer
Fax: (650) 325-9608 ----------------------------------------
Name: Roland A. Van der Meer
Title: Manager
Address: INTERNET CAPITAL GROUP, INC.
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087 By: /s/ Douglas A. Alexander
Attention: Douglas A. Alexander ----------------------------------------
Fax: (610) 989-0112 Name: Douglas A. Alexander
Title:
Signature Page to Series B and C Senior Preferred Stock Purchase Agreement.
<PAGE>
BEDROCK CAPITAL PARTNERS I, L.P.
Address: By: BEDROCK GENERAL PARTNER I, LLC
One Boston Place By: /s/ David J. Duval
Suite 3310 ----------------------------------------
Boston, MA 02108 Name: David J. Duval
Title: Managing Member
Signature Page to Series B and C Senior Preferred Stock Purchase Agreement.
<PAGE>
VBW EMPLOYEE BEDROCK FUND, L.P.
Address: By: BEDROCK GENERAL PARTNER I, LLC
One Boston Place By: /s/ David J. Duval
Suite 3310 ----------------------------------------
Boston, MA 02108 Name: David J. Duval
Title: Managing Member
CREDIT SUISSE FIRST BOSTON BEDROCK FUND,
L.P.
By: BEDROCK GENERAL PARTNER I, LLC, its
Address: Attorney in Fact
One Boston Place By: /s/ David J. Duval
Suite 3310 ----------------------------------------
Boston, MA 02108 Name: David J. Duval
Title: Managing Member
Signature Page to Series B and C Senior Preferred Stock Purchase Agreement.
<PAGE>
SCHEDULE I
INVESTORS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Name and Address No. of Shares of Series B No. of Shares of Series C Aggregate
of Each Investor Preferred Stock Being Preferred Stock Being Purchase
Purchased Purchased Price
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
J. P. Morgan Investment Corporation 2,655,789 2,655,789 $6,749,954.19
60 Wall Street
New York, New York 10260-0060
Attention: Paul G. Theunissen
Telecopy: (212) 648-5593
With a copy to:
Proskauer Rose LLP
1585 Broadway
New York, New York 10036
Attention: Jack P. Jackson, Esq
Telecopy: (212) 969-2900
- -------------------------------------------------------------------------------------------------------------------
Sixty Wall Street SBIC Fund, L.P. 295,088 295,088 $749,994.91
60 Wall Street
New York, New York 10260-0060
Attention: Paul G. Theunissen
Telecopy: (212) 648-5593
With a copy to:
Proskauer Rose LLP
1585 Broadway
New York, New York 10036
Attention: Jack P. Jackson, Esq
Telecopy: (212) 969-2900
- -------------------------------------------------------------------------------------------------------------------
CB Capital Investors, L.P. 2,950,877 2,950,877 $7,499,949.11
380 Madison Avenue, 12th Floor
New York, New York 10017
Attention: Philip Summe
Telecopy: (212) 622-3101
With a copy to:
O'Sullivan Graev & Karabell, LLP
30 Rockefeller Plaza
New York, New York 10112
Attention: Harvey M. Eisenberg, Esq.
Telecopy: (212) 728-5950
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------
BancBoston Ventures Inc. 1,967,265 1,967,265 $5,000,000
175 Federal Street, 10th Floor
Boston, Massachusetts 02110
Attention: Peter R. Roberts
Telecopy: (617) 434-1153
With a copy to:
Bingham Dana LLP
150 Federal Street
Boston, Massachusetts 02110
Attention: Roger D. Feldman, Esq.
Telecopy: (617) 951-8736
- -------------------------------------------------------------------------------------------------------------------
Communications Ventures III L.P. 1,592,546 1,592,546 $4,047,615.44
505 Hamilton Avenue, Suite 305
Palo Alto, CA 94304
Attention: Roland Van der Meer
Telecopy: (650) 325-9608
- -------------------------------------------------------------------------------------------------------------------
Communications Ventures III 79,612 79,612 $202,342.52
CEO & Intrepreneur's Fund L.P.
505 Hamilton Avenue, Suite 305
Palo Alto, CA 94301
Attention: Roland Van der Meer
Telecopy: (650) 325-9608
- -------------------------------------------------------------------------------------------------------------------
Bedrock Capital Partners I, L.P. 1,552,917 1,552,917 $3,946,893.85
One Boston Place
Suite 3310
Boston, Mass. 02108
Attention: [____________________]
Telecopy: (617) [_______________]
- -------------------------------------------------------------------------------------------------------------------
VBW Employee Bedrock Fund, L.P. 54,178 54,178 $137,698.80
One Boston Place
Suite 3310
Boston, Mass. 02108
Attention: [____________________]
Telecopy: (617) [_______________]
- -------------------------------------------------------------------------------------------------------------------
Credit Suisse First Boston 65,063 65,064 $165,365.39
Bedrock Fund, L.P.
One Boston Place
Suite 3310
Boston, Mass. 02108
Attention: [____________________]
Telecopy: (617) [_______________]
- -------------------------------------------------------------------------------------------------------------------
Internet Capital Group, Inc. 491,812 491,812 $1,249,989.44
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087
Attention: Douglas A. Alexander
Telecopy: (610) 989-0112
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------
Jeffrey Rosenbluth 19,672 19,672 $49,997.46
Sousa Road
Sands Point, NY 11054
Telecopy: (516) 883-3532
- -------------------------------------------------------------------------------------------------------------------
Robert Stavis 19,672 19,672 $49,997.46
211 Hommocks Road
Larchmont, NY 10538
Telecopy: (914) 834-2291
- -------------------------------------------------------------------------------------------------------------------
Bayview 99 I, L.P. 53,278 53,278 $135,410.09
- -------------------------------------------------------------------------------------------------------------------
Bayview 99 II, L.P. 45,086 45,086 $114,589.31
- -------------------------------------------------------------------------------------------------------------------
Gatehouse Investors, LLC 49,181.5 49,181.5 $124,999.15
22 Gatehouse Road
Stamford, CT 06902-7908
Telecopy: (203) 462-7350
- -------------------------------------------------------------------------------------------------------------------
Momentum Investments LLC 49,181.5 49,181.5 $124,999.15
c/o Deutsche Bank Alex Brown
Attention: Stephen Todd Walker
1635 Market Street, 17th Floor
Philadelphia, PA 19103
Telecopy: (215) 854-1595
- -------------------------------------------------------------------------------------------------------------------
Ullas Naik 9,836 9,836 $24,999.83
c/o FAC Equities/First Albany
Exchange Place
53 State Street, 29th Floor
Boston, MA 02109-2811
Telecopy: (617) 228-3015
- -------------------------------------------------------------------------------------------------------------------
Tom Kippola 9,836 9,836 $24,999.83
20 Patrol Court
Woodside, CA 94062-4220
Telecopy: (650) 529-0754
- -------------------------------------------------------------------------------------------------------------------
Belfrey Partners, L.P. 9,836 9,836 $24,999.83
c/o US Bancorp Piper Jaffray
222 South Ninth Street
Minneapolis, MN 55402-3804
Telecopy: (612) 342-6360
Attention: Mark Copman
- -------------------------------------------------------------------------------------------------------------------
Augusta Partners L.P. 9,836 9,836 $24,999.83
- -------------------------------------------------------------------------------------------------------------------
TOTALS 11,980,561 11,980,562 $30,449,795.59
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Signature Page to Series B and C Senior Preferred Stock Purchase Agreement.
<PAGE>
EXHIBIT A
COMPANY'S AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
<PAGE>
EXHIBIT B
SCHEDULE OF EXCEPTIONS
<PAGE>
EXHIBIT C
COMPANY'S STOCKHOLDERS
<PAGE>
EXHIBIT D
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
<PAGE>
EXHIBIT E
AMENDED AND RESTATED CO-SALE AGREEMENT
<PAGE>
EXHIBIT F
AMENDED AND RESTATED VOTING AGREEMENT
<PAGE>
EXHIBIT G
SERIES A-2 RESTRUCTURING AGREEMENT
<PAGE>
EXHIBIT H
OPINION OF PAUL, HASTINGS, JANOFSKY & WALKER LLP
<PAGE>
EXHIBIT I
BY-LAWS
<PAGE>
EXHIBIT J
EMPLOYEE PROPRIETARY INFORMATION
AND
INVENTIONS AGREEMENT
<PAGE>
EXHIBIT K
FOUNDATION LIMITED PARTNER CERTIFICATE
<PAGE>
EXHIBIT L
MANAGEMENT RIGHTS AGREEMENT
<PAGE>
EXHIBIT M
REGULATORY COMPLIANCE SIDE LETTER
<PAGE>
Exhibit 10.19
ARBINET HOLDINGS, INC.
SERIES A PREFERRED STOCK PURCHASE AGREEMENT
(Sale by the Company of 5,059,986 shares of Series A-1 Preferred Stock
and 3,216,150 shares of Series A-2 Preferred Stock
Aggregate Sale Price $12,000,000.76)
April 15, 1999
<PAGE>
Table of Contents
PAGE
----
1.0 BASIC TERMS OF PURCHASE AND SALE................................. 1
1.1 Purchase and Sale of Series A Preferred Stock.............. 1
1.2 The Closings............................................... 2
2.0 REPRESENTATIOS AND WARRANTIES OF THE COMPANY..................... 2
2.1 Organization, Good Standing and Qualification.............. 3
2.2 Capitalization............................................. 3
2.3 Subsidiaries............................................... 4
2.4 Authorization.............................................. 4
2.5 Governmental Consents...................................... 4
2.6 Permits.................................................... 4
2.7 Litigation................................................. 5
2.8 Proprietary Information and Inventions Agreement........... 5
2.9 Patents and Other Intangible Assets........................ 5
2.10 Manufacturing and Marketing Right.......................... 5
2.11 Compliance with Other Instruments.......................... 6
2.12 Agreements, Action......................................... 6
2.13 Brokers or Finders; Other Offers........................... 7
2.14 Disclosure................................................. 7
2.15 No Conflict of Interest.................................... 7
2.16 Rights of Registration..................................... 7
2.17 Private Placement.......................................... 8
2.18 Corporate Documents........................................ 8
2.19 Title to Property and Assets............................... 8
2.20 Financial Statements....................................... 8
2.21 Changes.................................................... 8
2.22 Employment Benefit Plans................................... 9
2.23 Tax Returns and Payments................................... 9
2.24 Insurance.................................................. 9
2.25 Labor Agreements and Actions............................... 9
2.26 Environmental and Safety Laws.............................. 10
2.27 Year 2000 Compliance....................................... 10
2.28 Minute Books............................................... 10
2.29 Section 1202 of the Internal Revenue Code.................. 10
2.30 Section 897 of the Internal Revenue Code................... 11
2.31 Use of Products............................................ 11
2.32 Board of Directors......................................... 12
3.0 REPRESENTATIONS AND WARRANTIES OF THE INVESTOR 12
3.1 Authorization.............................................. 12
3.2 Purchase Entirely for Own Account.......................... 12
i
<PAGE>
3.3 Investment Experience...................................... 12
3.4 Restricted Securities...................................... 12
3.5 No Public Market........................................... 13
3.6 Further Limitations on Disposition......................... 13
3.7 Legends.................................................... 13
3.8 Accredited Investor........................................ 14
3.9 Brokers or Finders......................................... 14
4.0 CONDITIONS TO INVESTORS' OBLIGATIONS AT CLOSING 14
4.1 Accuracy of Representations and Warranties................. 14
4.2 Performance................................................ 15
4.3 Compliance Certificate..................................... 15
4.4 Qualifications............................................. 15
4.5 Proceedings and Documents.................................. 15
4.6 Opinion of Company Counsel................................. 15
4.7 Board of Directors......................................... 15
4.8 Investor Rights Agreement.................................. 15
4.9 Co-Sale Agreement.......................................... 15
4.10 Voting Agreement........................................... 15
4.11 Management Rights Agreement................................ 15
4.12 Foundation Limited Partnership Certificate................. 15
4.13 Secretary's Certificate.................................... 16
4.14 Restated Amendment......................................... 16
4.15 Blue Sky Approvals......................................... 16
5.0 CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING 16
5.1 Representations and Warranties True at Closing............. 16
5.2 Qualifications............................................. 16
5.3 Covenants.................................................. 16
5.4 Amended Rights Agreement................................... 16
5.5 Co-Sale Agreement.......................................... 16
5.6 Voting Agreement........................................... 16
5.7 Restated Amendment......................................... 16
6.0 AFFIRMATIVE COVENANTS OF THE COMPANY 17
6.1 Employee Agreements........................................ 17
6.2 Stock Option Plan.......................................... 17
7.0 MISCELLANEOUS PROVISIONS 17
7.1 Survival of Warranties..................................... 17
7.2 Transfer of Successors and Assigns......................... 17
7.3 Governing Law.............................................. 17
7.4 Counterparts............................................... 17
7.5 Titles and Subtitles....................................... 17
7.6 Notices.................................................... 18
ii
<PAGE>
7.7 Expenses................................................... 18
7.8 Attorneys' Fees............................................ 18
7.9 Amendments and Waivers..................................... 18
7.10 Severability............................................... 18
7.11 Delays or Omissions........................................ 18
7.12 Entire Agreement........................................... 19
7.13 California Corporate Securities Law........................ 19
iii
<PAGE>
SCHEDULE OF EXHIBITS
Designation Description
- ----------- -----------
Schedule I Investors
Exhibit A Company's Amended and Restated Articles of Incorporation
Exhibit B Schedule of Exceptions
Exhibit C Company's Stockholders
Exhibit D Amended and Restated Investor Rights Agreement
Exhibit E Co-Sale Agreement
Exhibit F Voting Agreement
Exhibit G Opinion of Paul, Hastings, Janofsky & Walker LLP
Exhibit H Management Rights Agreement
Exhibit I Foundation Limited Partner Certificate
Exhibit J Employee Proprietary Information and Inventions Agreement
iv
<PAGE>
ARBINET HOLDINGS, INC
SERIES A PREFERRED STOCK PURCHASE AGREEMENT
THIS SERIES A PREFERRED STOCK PURCHASE AGREEMENT (the "Agreement") is made
and entered into as of the 15 day of April, 1999, by and among Arbinet Holdings,
Inc., a Delaware corporation (the "Company"), and each of the parties listed on
Schedule I attached hereto (individually, an "Investor" and collectively, the
"Investors").
WHEREAS, the Company desires to sell an aggregate of Five Million
Fifty-Nine Thousand Nine Hundred Eighty-Six (5,059,986) of its authorized but
unissued shares of Series A-1 Preferred Stock (the Series A-1 Preferred Stock")
and Three Million Two Hundred Sixteen Thousand One Hundred Fifty (3,216,150)
shares of its Series A-2 Preferred Stock (the "Series A-2 Preferred Stock" and,
collectively with the Series A-1 Preferred Stock, the "Series A Preferred Stock"
or the "Shares") to the Investors in two Closings (as defined below) for an
aggregate cash consideration equal to Twelve Million Dollars and Seventy Six
Cents ($12,000,000.76) in accordance with the terms hereof; and
WHEREAS, the Investors desire to purchase the Shares from the Company at
the aggregate purchase price set forth herein.
IT IS HEREBY AGREED AS FOLLOWS:
1.0 Basic Terms of Purchase and Sale.
1.1 Purchase and Sale of Series A Preferred Stock.
(a) The Company shall adopt and file with the Secretary of State of
Delaware on or before the Closing (as defined in Section 1.2 below) an Amended
and Restated Certificate of Incorporation in the form attached hereto as Exhibit
A (the "Restated Certificate"). The rights, preferences and privileges of the
Shares will be as provided in the Restated Certificate.
(b) Subject to the terms and conditions of this Agreement, (i) each
of the Investors agrees, severally and not jointly, to purchase from the Company
at the Initial Closing (as defined in Section 1.2(a)), and the Company agrees to
sell and issue to each of the Investors, that number of shares of Series A-1
Preferred Stock as is set forth opposite such Investor's name on Schedule I for
cash equal to $1.1857742 per share, with the aggregate amount to be paid by each
Investor being as stated on Schedule I opposite such Investor's name; and (ii)
if, and only if, the Company achieves the Second Closing Milestone as described
in Section 1.2(b), each of the Investors, severally and not jointly, agrees to
purchase from the Company at the Second Closing (as defined in Section 1.2(b)),
and the Company agrees to sell and issue to each of the Investors, that number
of shares of Series A-2 Preferred Stock as is set forth opposite such Investor's
name on Schedule II for cash equal to $1.8655846 per share, with the aggregate
amount to be paid by each Investor being as stated on Schedule II opposite such
Investor's name.
1
<PAGE>
The Company's agreements with each of the Investors are separate agreements, and
the sale of the Shares to each of the Investors are separate sales.
1.2 The Closings.
(a) The Initial Closing. The first closing of the sale and purchase
of Preferred Stock pursuant to this Agreement shall take place at the offices of
Paul, Hastings, Janofsky & Walker LLP, 399 Park Avenue, New York, New York
10022-4692 on or about April 15, 1999, at 2 p.m., eastern standard time, or at
such other time and place as the Company and each of the Investors may mutually
agree (the "Initial Closing"). At the Initial Closing, the Company shall deliver
to each Investor a certificate representing that number of the shares of Series
A-1 Preferred Stock set forth on Schedule I opposite the name of such Investor
against delivery to the Company by such Investor of a wire transfer of
immediately available funds in the amount set forth opposite such Investor's
name on Schedule I, or cancellation of indebtedness, or any combination thereof.
If, at the Initial Closing, any of the conditions specified in Section 4 of this
Agreement shall not have been fulfilled, each of the Investors shall, at its
election, be relieved of all of its obligations under this Agreement.
(b) The Second Closing. Upon the hiring by the Company of a Chief
Executive Officer acceptable to Investors holding a majority in interest of the
Shares on or before December 31, 1999 (which acceptance shall be evidenced by a
written consent signed by holders of a majority in interest of the Shares) (the
"Second Closing Milestone"), the Company shall deliver to each of the Investors
a notice (the "Second Closing Notice") of the attainment of the Second Closing
Milestone and specifying a date (the "Second Closing Date") for the closing (the
"Second Closing"; the Initial Closing and the Second Closing are referred to
individually as a "Closing" and collectively as the "Closings") of the purchase
and sales of the number of shares of Series A-2 Preferred Stock listed on
Schedule II, which date shall not be less than five or more than 25 days
following the date of delivery of the Second Closing Notice. The Second Closing
shall take place at the offices of Paul, Hastings, Janofsky & Walker LLP, 399
Park Avenue, New York, New York 10022-4692. At the Second Closing, the Company
shall deliver to each Investor a certificate representing that number of the
shares of Series A-2 Preferred Stock to be acquired by such Investor registered
in the name of the Investor (and set forth on Schedule II opposite the name of
such Investor) against delivery to the Company by wire transfer of immediately
available funds in the amount set forth opposite to such Investor's name on
Schedule II, or cancellation of indebtedness, or any combination thereof. If, at
the Second Closing, any of the conditions specified in Section 4 of this
Agreement shall not have been fulfilled, each of the Investors shall, at its
election, be relieved of its then remaining obligations under this Agreement.
Notwithstanding the foregoing, the Investors shall have no obligation to
purchase the shares of Series A-2 Preferred Stock set forth on Schedule II if
the Second Closing Milestone has not occurred on or before December 31, 1999.
2.0 Representations and Warranties of the Company.
The Company hereby represents and warrants to each Purchaser that, except as set
forth on the Schedule of Exceptions attached hereto as Exhibit B, specifically
identifying the relevant
2
<PAGE>
subsection hereof (which exceptions shall be deemed to be representations and
warranties as if made hereunder), the following are true and correct:
2.1 Organization Good Standing and Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has requisite corporate power and authority to
carry on its business as now conducted and as proposed to be conducted. The
Company is duly qualified to transact business and is in good standing in each
jurisdiction in which the failure so to qualify would have a material adverse
effect on its business or properties.
2.2 Capitalization. The authorized capital of the Company consists, or
will consist, immediately prior to the Closing, of:
(i) Preferred Stock. Forty Million (40,000,000) shares of Preferred
Stock, of which Ten Million (10,000,000) shares have been designated Series A
Preferred Stock Of the Series A Preferred Stock, Five Million Fifty Nine
Thousand Nine Hundred Eighty-Six (5,059,986) shall have been designated Series
A-1 Preferred Stock and Three Million Two Hundred Sixteen Thousand One Hundred
Fifty (3,216,150) shall have been designated Series A-2 Preferred Stock. Five
Million Fifty-Nine Thousand Nine Hundred Eighty-Six (5,059,986) shares of Series
A-1 Preferred Stock shall be issued and outstanding immediately following the
Initial Closing and, assuming the Second Closing occurs pursuant to Section 1.2
(b), Three Million Two Hundred Sixteen Thousand One Hundred Fifty (3,216,150)
shares of Series A-2 Preferred Stock shall be issued and outstanding immediately
following the Second Closing. The rights, privileges and preferences of the
Preferred Stock are as stated in the Restated Certificate.
(ii) Common Stock. Forty Million (40,000,000) shares of Common
Stock, Five Million Four Hundred Seventy Eight Thousand Two Hundred Twenty Nine
(5,478,229) shares of which shall be issued and outstanding as of the Closing.
(iii) An accurate list of the Company's stockholders and their
holdings is set forth in Exhibit C to this Agreement. All of the issued and
outstanding shares of the Company as of the Closing are duly authorized, validly
issued, fully paid and nonassessable and were issued in compliance with state
and federal securities laws. Based in part upon the representations of the
Investors in this Agreement and subject to the provisions of Section 2.5 below,
the Shares (and the Common Stock issuable upon conversion thereof) have been
issued or will be issued in compliance with all applicable federal and state
securities laws.
(iv) Except for (A) conversion privileges of the Series A Preferred
Stock, and (B) options to purchase an aggregate of Four Million Nine Hundred
Sixty Thousand Ninety Six (4,960,096) shares of Common Stock granted to present
or former employees, officers, directors and consultants of the Company pursuant
to the Company's stock option plan, there are no outstanding options, warrants,
rights (including conversion or preemptive rights) or agreements, orally or in
writing, for the purchase, redemption or acquisition from the Company of any
shares of its capital stock. The Company has, or will have prior to the Closing,
reserved an additional Two Million Two Hundred Three Thousand Six Hundred Ninety
Seven (2,203,697) shares of
3
<PAGE>
Common Stock for issuance, at the discretion of the Board of Directors, to
employees, officers, directors, and consultants. Except as otherwise
contemplated herein, the Company is not a party or subject to any agreement or
understanding, and, to the best of the Company's knowledge, there is no
agreement or understanding between any persons that affects or relates to the
voting or giving of written consents with respect to any security or the voting
by a director of the Company.
2.3 Subsidiaries. The Company does not currently own or control, directly
or indirectly, any interest in any other corporation, association, or other
business entity.
2.4 Authorization. All corporate action on the part of the Company, its
officers, directors and stockholders necessary for the authorization, execution
and delivery of this Agreement, the Investors Rights Agreement in the form
attached as Exhibit D (the "Rights Agreement"), the Co-Sale and Right of
Repurchase Agreement in the form attached as Exhibit E (the "Co-Sale
Agreement"), and the Voting Agreement in the form attached as Exhibit F (the
"Voting Agreement"), the performance of all obligations of the Company hereunder
and thereunder and the authorization, issuance and delivery of the Shares (and
the Common Stock issuable upon conversion of the Shares) has been taken or will
be taken prior to the Closing, and this Agreement, the Rights Agreement, the
Co-Sale Agreement and the Voting Agreement constitute valid and legally binding
obligations of the Company, enforceable against the Company in accordance with
their respective terms, except (i) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance, and other laws of
general application affecting enforcement of creditors rights generally, as
limited by laws relating to the availability of specific performance, injunctive
relief, or other equitable remedies, and (ii) to the extent the indemnification
provisions contained in the Rights Agreement may be limited by applicable
federal or state securities laws. The Shares, when issued in compliance with the
provisions of this Agreement, will be validly issued and will be fully paid and
nonassessable and will have the rights, preferences and privileges described in
the Restated Certificate. The shares of Common Stock issuable upon conversion of
the Shares have been duly and validly reserved and, when issued in compliance
with the provisions of this Agreement and the Restated Certificate will be
validly issued, fully paid and nonassessable. The Shares (and the Common Stock
issuable upon conversion thereof) will be free of any liens or encumbrances
other than those created by or imposed upon the holders thereof through no
action of the Company, and the Shares (and the Common Stock issuable upon
conversion thereof) will be free of restrictions on transfer, other than the
restrictions on transfer under this Agreement, the Rights Agreement and the
Co-Sale Agreement and under the applicable state and federal securities laws.
2.5 Governmental Consents. No consent, approval, order or authorization
of, or registration, qualification, designation, declaration or filing with, any
federal, state or local governmental authority on the part of the Company is
required in connection with the consummation of the transactions contemplated by
this Agreement, except (i) the filing of the Restated Certificate with the
Secretary of State of the State of Delaware and (ii) such filings as may be
required under applicable state and federal securities laws, which filings will
be timely filed within the applicable periods therefor.
4
<PAGE>
2.6 Permits. The Company has all franchises, permits, licenses and any
similar authority as necessary for the conduct of its business as now being
conducted by it, and believes it can obtain, without undue burden or expense,
any similar authority for the conduct of its business as planned to be
conducted. The Company is not in material default under any of such franchises,
permits, licenses or other similar authority.
2.7 Litigation. There is no action, suit, proceeding or investigation
pending or, to the Company's knowledge, currently threatened against the Company
nor is the Company aware that there is any basis for the foregoing. The
foregoing includes, without limitation, actions pending or, to the Company's
knowledge, threatened (or any basis therefor known to the Company) involving the
prior employment of any of the Company's employees, their use in connection with
the Company's business of any information or techniques allegedly proprietary to
any of their former employers, or their obligations under any agreements with
prior employers. The Company is not a party or subject to the provisions of any
order, writ, injunction, judgment or decree of any court or government agency or
instrumentality. There is no action, suit, proceeding or investigation by the
Company currently pending or which the Company currently intends to initiate.
2.8 Proprietary Information and Inventions Agreement. Each current and
prior employee, consultant and officer of the Company has executed an agreement
with the Company regarding confidentiality and proprietary information with
provisions addressing confidentiality and corporate ownership of inventions in
the form provided to counsel for the Investors. The Company is not aware that
any parties are in violation thereof.
2.9 Patents and Other Intangible Assets. The Company owns or possesses
sufficient legal rights to use all patents, trademarks, service marks, trade
names, copyrights, trade secrets, licenses, information and proprietary rights
and processes necessary for its business as now conducted and as proposed to be
conducted without any conflict with, or infringement with the rights of, others.
The Company has not received any written communications alleging that the
Company has violated or, by conducting its business as proposed, would violate
any of the patents, trademarks, service marks, trade names, copyrights, trade
secrets or other proprietary rights or processes of any other person or entity,
nor is the Company aware that there is any basis for the foregoing. The Company
is not aware that any of its employees is obligated under any contract
(including licenses, covenants or commitments of any nature) or other agreement,
or subject to any judgment, decree of order of any court or administrative
agency, that would interfere with the use of such employees' best efforts to
promote the interest of the Company or that would conflict with the Company's
business as conducted or as proposed to be conducted. Neither the execution or
delivery of this Agreement, nor the carrying on of the Company's business by the
employees of the Company as currently conducted, nor the conduct of the
Company's business as conducted or as proposed to be conducted, will, to the
best of the Company's knowledge, conflict with or result in a breach of the
terms, conditions, or provisions of, or constitute a default under, any
contract, covenant or instrument under which any such employee is now obligated.
The Company does not believe it is or will be necessary to use any inventions of
any of its employees (or persons it currently intends to hire) made prior to
their employment by the Company.
5
<PAGE>
2.10 Manufacturing and Marketing Right. The Company has not granted rights
to manufacture, produce, assemble, license, market or sell its products to any
other person and is not bound by any agreement that affects the Company's
exclusive right to develop, manufacture, assemble, distribute, market or sell
its products.
2.11 Compliance with Other Instruments.
(a) The Company is not in violation or default of any provisions of
its Restated Certificate or Bylaws or in any material respect of any instrument,
contract, indenture or agreement to which it is a party or by which it is bound
(each a "Contract") or, of any federal or state judgment, order, writ, decree,
statute, rule or regulation applicable to the Company. To the best of the
Company's knowledge, all parties having contracts and commitments with the
Company are in compliance therewith in all material respects. The execution,
delivery and performance of this Agreement, the Rights Agreement, the Co-Sale
Agreement and the Voting Agreement and the consummation of the transactions
contemplated hereby and thereby will not result in any such violation or be in
conflict with or constitute, with or without the passage of time and giving of
notice, either a default under any such provision, instrument, judgment, order,
writ, decree or contract or an event which results in the creation of any lien,
charge or encumbrance upon any assets of the Company.
(b) The Company has materially complied with all Contracts and has
not performed any act, the occurrence of which would result in the Company's
loss of any right granted under any Contract.
2.12 Agreements, Action.
(a) Except for agreements explicitly contemplated hereby and except
for employment agreements of employees of the Company earning less than $100,000
per year, there are no agreements, understandings, instruments, contracts or
proposed transactions to which the Company is a party or by which it is bound
that involve (i) obligations of, or payments to, the Company in excess of
$50,000, (ii) obligations that have a duration of greater than one year, or
(iii) the license of any patent, copyright, trade secret or other proprietary
right to or from the Company.
(b) The Company has not (i) declared or paid any dividends, or
authorized or made any distribution upon or with respect to any class or series
of its capital stock, (ii) other than as set forth on the face of the Financial
Statements (as defined below), incurred any indebtedness for money borrowed or
incurred any other liabilities individually in excess of $50,000 or in excess of
$50,000 in the aggregate, (iii) made any loans or advances to any person, other
than ordinary advances for travel expenses, or (iv) sold, exchanged or otherwise
disposed of any of its assets or rights, other than the sale of its inventory in
the ordinary course of business.
(c) The Company is not a party to and is not bound by any contract,
agreement or instrument, or subject to any restriction under its Restated
Certificate or Bylaws,
6
<PAGE>
that materially adversely affects its business as now conducted or as proposed
to be conducted, its properties or its financial condition.
(d) The Company has not engaged in the past six (6) months in any
material discussion (i) with any representative of any corporation or
corporations regarding the merger of the Company with or into any such
corporation or corporations, (ii) with any corporation, partnership, association
or other business entity or any individual regarding the sale, conveyance or
disposition of all or substantially all of the assets of the Company or a
transaction or series of related transactions in which more than fifty percent
(50%) of the voting power of the Company is disposed of, or (iii) regarding any
other form of liquidation, dissolution or winding up of the Company.
2.13 Brokers or Finders: Other Offers. The Company has not incurred, and
will not incur, directly or indirectly, as a result of any action taken by the
Company, any liability for brokerage or finders' fees or agents' commissions or
any similar charges in connection with this Agreement.
2.14 Disclosure. To the best knowledge of its knowledge, the Company has
fully provided the Investors or their representatives with all the information
which the Investors have requested for deciding whether to acquire the Shares
and all information which the Company believes is reasonably necessary to enable
the Investors to make such a decision, including certain of the Company's
projections describing its proposed business (collectively, the "Business
Plan"). No representation or warranty of the Company contained in the exhibits
to this Agreement or the Business Plan contains any untrue statement of a
material fact or omits to state a material fact necessary in order to make the
statements contained herein or therein not misleading in light of the
circumstances under which they were made. The Business Plan and the financial
projections contained in the Business Plan were prepared in good faith;
provided, however, that the Company does not represent or warrant that it will
achieve such financial projections.
2.15 No Conflict of Interest. Except as described in the Financial
Statements (as defined below), the Company is not indebted, directly or
indirectly, to any of its officers or directors or to their respective spouses
or children, in any amount whatsoever other than in connection with expenses or
advances of expenses incurred in the ordinary course of business. None of the
Company's officers or directors, or any members of their immediate families, are
indebted to the Company or, to the best of the Company's knowledge, have any
direct or indirect ownership interest in any firm or corporation with which the
Company is affiliated or with which the Company has a business relationship, or
any firm or corporation which competes with the Company except that officers,
directors and/or stockholders of the Company may own up to 1% of the outstanding
stock in publicly traded companies which may compete with the Company. To the
best of the Company's knowledge, no officer or director or any member of their
immediate families is, directly or indirectly, interested in any material
contract with the Company. The Company is not a guarantor or indemnity of any
indebtedness of any other person, firm or corporation.
7
<PAGE>
2.16 Rights of Registration. Except as contemplated in the Rights
Agreement, the Company has not granted or agreed to grant any registration
rights, including piggyback rights, to any person or entity.
2.17 Private Placement. Subject in part to the truth and accuracy of each
Investor's representations set forth in this Agreement, the offer, sale and
issuance of the Shares as contemplated by this Agreement is exempt from the
registration requirements of the Securities Act of 1933, as amended (the
"Securities Act"), and neither the Company nor any authorized agent acting on
its behalf will take any action hereafter that would cause the loss of such
exemption.
2.18 Corporate Documents. The Bylaws of the Company are in the form
provided to the Investors.
2.19 Title to Property and Assets. The Company owns its property and
assets free and clear of all mortgages, liens, loans and encumbrances, except
such encumbrances and liens which arise in the ordinary course of business and
do not materially impair the Company's ownership or use of such property or
assets. With respect to the property and assets it leases, the Company is in
compliance in all material respects with such leases and, to the best of its
knowledge, holds a valid leasehold interest free of any material liens, claims
or encumbrances.
2.20 Financial Statements. The Company has delivered to the Investors its
audited financial statements (including balance sheet and profit and loss
statement) for the period ended December 31, 1998, as well as its unaudited
balance sheet for the seventy-four day period ended March 15, 1999 (collectively
referred to as the "Financial Statements"). The Financial Statements have been
compiled on a consistent basis throughout the periods indicated and with each
other. The Financial Statements fairly present the financial condition and
operating results of the Company as of the dates, and for the periods, indicated
therein, subject to normal year-end audit adjustments. Except as set forth in
the Financial Statements, the Company has no material liabilities, contingent or
otherwise, other than (i) liabilities incurred in the ordinary course of
business subsequent to March 15, 1999 and (ii) obligations under contracts and
commitments incurred in the ordinary course of business and not required under
generally accepted accounting principles to be reflected in the Financial
Statements, which, in both cases, individually or in the aggregate are not
material to the financial condition or operating results of the Company.
2.21 Changes. Since March 15, 1999, there has not been:
(a) any change in the assets, liabilities, financial condition or
operating results of the Company from that reflected in the Financial
Statements, except changes in the ordinary course of business that have not
been, individually or in the aggregate, materially adverse;
(b) any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the business, properties,
prospects, or financial condition of the Company (as such business is presently
conducted and as it is proposed to be conducted);
8
<PAGE>
(c) any waiver or compromise by the Company of a valuable right or
of a material debt owed to it;
(d) any satisfaction or discharge of any lien, claim or encumbrance
or payment of any obligation by the Company, except in the ordinary course of
business and that is not material to the business, properties, or financial
condition of the Company (as such business is presently conducted and as it is
proposed to be conducted);
(e) any material change to a Contract;
(f) any change in any compensation arrangement or agreement with any
employee, officer, director or stockholder;
(g) any sale, assignment or transfer of any patents, trademarks,
copyrights, trade secrets or other intangible assets;
(h) any resignation or termination of employment of any officer or
key employee of the Company; and the Company, to the best of its knowledge, does
not know of any impending resignation or termination of employment of any such
officers or employees;
(i) receipt of notice that there has been a loss of, or order
cancellation by, any major customer of the Company;
(j) any mortgage, pledge, transfer of a security interest in, or
lien, created by the Company, with respect to any of its properties or assets,
except liens for taxes not yet due or payable;
(k) any loans or guarantees made by the Company to or for the
benefit of its employees, officers or directors, or any members of their
immediate families, other than travel advances made in the ordinary course of
its business;
(1) any declaration, setting aside or payment or other distribution
in respect to any of the capital stock of the Company, or any direct or indirect
redemption, purchase or other acquisition of any of such stock by the Company;
or
(m) any arrangement or commitment by the Company to do any of the
above items described in this Section 2.2 1.
2.22 Employment Benefit Plans. The Company does not have any Employee
Benefit Plan as defined in the Employee Retirement Income Security Act of 1974.
2.23 Tax Returns and Payments. The Company has filed all tax returns and
reports as required by law. These returns and reports are true and correct in
all material respects. The Company has paid all taxes and other assessments due.
9
<PAGE>
2.24 Insurance. The Company has in full force and effect fire and casualty
insurance policies, with extended coverage, sufficient in amount to allow it to
replace any of its properties that might be damaged or destroyed.
2.25 Labor Agreements and Actions. The Company is not bound by or subject
to (and none of its assets or properties is bound by or subject to) any written
or oral, express or implied, contract, commitment or arrangement with any labor
union, and no labor union has requested or, to the knowledge of the Company, has
sought to represent any of the employees, representatives or agents of the
Company. There is no strike or other labor dispute involving the Company
pending, or to the knowledge of the Company threatened, which could have a
material adverse effect on the assets, properties, prospects, financial
condition, operating results, or business of the Company (as such business is
presently conducted and as it is proposed to be conducted), nor is the Company
aware of any labor organization activity involving its employees. The Company is
not aware that any officer or key employee, or that any group of key employees,
intends to terminate their employment with the Company, nor does the Company
have a present intention to terminate the employment of any of the foregoing.
2.26 Environmental and Safety Laws. To the Company's knowledge, it is not
in violation of any applicable statute, law or regulation relating to the
environment or occupational health and safety which would have a material
adverse effect on its employees, and to the best of its knowledge, no material
expenditures are or will be required in order to comply with any such existing
statute, law or regulation.
2.27 Year 2000 Compliance. The Company's computer software, including,
without limitation, any software incorporated or imbedded in any product or
specification used or offered by the Company or proposed for use or sale by the
Company, and including, to the Company's knowledge, software the Company
licenses from third parties, is Millennium Compliant. As used in this Agreement,
"Millennium Compliant" means the ability of the software to provide the
following functions: (a) consistently handle date information before, during and
after January 1, 2000, including, but not limited to, accepting date input,
providing date output, and performing calculations on dates or portions of
dates; (b) function accurately in accordance with its specifications and without
interruption before, during and after January 1, 2000, without any change in
operations associated with the advent of the new century (defined for purposes
of this paragraph as commencing at 12:00 A.M., January 1, 2000); (c) respond to
two-digit date input in a way that resolves any ambiguity as to century in a
disclosed, defined and predetermined manner; and (d) store and provide output of
date information in ways that are unambiguous as to century.
2.28 Minute Books. The copy of the minute books of the Company provided to
the counsel for the Investors contains minutes of all material meetings of
directors and stockholders and all material actions by written consent without a
meeting by the directors and stockholders since the date of incorporation and
reflects all actions by the directors (and any committee of directors) and
stockholders with respect to all transactions referred to in such minutes
accurately in all material respects.
10
<PAGE>
2.29 Section 1202 of the Internal Revenue Code. The capital stock issuable
hereunder will constitute "qualified small business stock" within the meaning of
Section 1202 of the Internal Revenue Code of 1986, as amended (the "Code"), as
of the date of issuance and the Company hereby represents and warrants that it
shall continue to do the following:
(a) use its best efforts to comply with the reporting and record
keeping requirements of Section 1202 of the Code and any regulations promulgated
thereunder; and
(b) use its best efforts to provide the Investors with notice at
least ten (10) business days prior to taking any of the following actions:
(i) Within the two-year period ending one year from the date
hereof, purchase an amount of its own stock (within the meaning of Section
1202(c)(3) of the Code) having an aggregate value at the time(s) of purchase
exceeding five percent of the aggregate value of all of its outstanding stock
determined as of the start of such period;
(ii) Conduct any of the following businesses (as defined for
purposes of Section 1202(e)(3) of the Code):
(A) any business involving the performance of services
in the fields of law, accounting, actuarial science, performing arts, athletics,
or brokerage services;
(B) any banking or insurance business;
(C) any farming business (including the business of
raising or harvesting trees);
(D) any business involving the production or extraction
of natural resources with respect to which a deduction is allowable under
Section 613 or 613A of the Code;
(E) any business of operating a hotel, motel, restaurant
or similar establishment;
(iii) Permit more than 10 percent of the value of its assets
to consist of stock issued by other companies (other than stock of companies
that qualify as subsidiaries of the Company within the meaning of Section
1202(e)(5) of the Code or stock that is held as working capital or reasonably
expected to be sold within two years to finance research and experimentation
within the meaning of Section 1202(e)(6) of the Code);
(iv) Permit more than 10 percent of the value of its assets to
consist of real property which is not used in the active conduct of a qualified
trade or business within the meaning of Section 1202(e)(7) of the Code; or
(v) Make an election under Section 936 of the Code (relating
to the Puerto Rico and possessions tax credit) or permit a subsidiary to make
such an election.
11
<PAGE>
2.30 Section 897 of the Internal Revenue. The Company is not a U.S. Real
Property Holding Company as defined in Section 897 of the Code.
2.31 Use of Proceeds. The proceeds of the financing contemplated herein
shall be used for general corporate and working capital purposes.
2.32 Board of Directors. As of the Initial Closing the Bylaws of the
Company shall provide that the number of members of the Board of Directors of
the Company is seven (7). As of the Initial Closing, the Board of Directors of
the Company shall be comprised of Roland Van der Meer, Doug Alexander, Alex
Mashinsky, Robert Stavis and Rachelle Rees McCarthy, and there shall be two (2)
vacancies, which shall be filled by designees mutually acceptable to the holders
of the Common Stock and the holders of Series A Preferred Stock, voting together
as a single class.
3.0 Representations and Warranties of the Investor.
Each Investor, severally and not jointly, hereby represents and warrants
to the Company as follows:
3.1 Authorization. This Agreement, the Rights Agreement, the Co-Sale
Agreement and the Voting Agreement, when executed and delivered by such
Purchaser, will each constitute a valid and legally binding obligation of the
Purchaser, enforceable in accordance with its terms, except (i) as limited by
applicable bankruptcy, insolvency, reorganization, moratoriums, fraudulent
conveyance, and any other laws of general application affecting enforcement of
creditors rights generally, as limited by laws relating to the availability of
specific performance, injunctive relief or other equitable remedies, or (ii) to
the extent the indemnification provisions contained in the Rights Agreement may
be limited by applicable federal or state securities laws.
3.2 Purchase Entirely for Own Account. This Agreement is made with the
Investor in reliance upon the Investor's representation to the Company, which by
the Investor's execution of this Agreement the Investor hereby confirms, that
the Shares (and Common Stock issuable upon conversion thereof) to be acquired by
the Investor will be acquired for investment for the Investor's own account, not
as a nominee or agent, and not with a view to the resale or distribution of any
part thereof and that the Investor has no present intention of selling, granting
any participation in, or otherwise distributing the same. By executing this
Agreement, the Investor further represents that the Investor does not presently
have any contract, undertaking, agreement or arrangement with any person to
sell, transfer or grant participation to such person or to any third person,
with respect to any of the Shares (or the Common Stock issuable upon conversion
thereof). The Investor represents that it has full power and authority to enter
into, execute, deliver and perform this Agreement.
3.3 Investment Experience. The Investor understands that the Shares (and
the Common Stock issuable upon conversion thereof) have not been, and will not
be, registered under the Securities Act by reason of a specific exemption from
the registration provisions of the Securities Act which depends upon, among
other things, the bona fide nature of the investment intent and the accuracy of
the Investor's representations as expressed herein. The Investor has
12
<PAGE>
not been formed for the specific purpose of acquiring the Shares (or the Common
Stock issuable upon conversion thereof).
3.4 Restricted Securities. The Investor understands that the Shares (and
the Common Stock issuable upon conversion thereof) are characterized as
"restricted securities" under the federal securities laws inasmuch as they are
being acquired from the Company in a transaction not involving a public offering
and that under such laws and applicable regulations such Shares (and the Common
Stock issuable upon conversion thereof) may be resold without registration under
the Securities Act only in certain limited circumstances. The Investor
acknowledges that the Shares (and the Common Stock issuable upon conversion
thereof) must be held indefinitely unless subsequently registered under the
Securities Act or an exemption from such registration is available. The Investor
is aware of the provisions of Rule 144 promulgated under the Securities Act
which permit limited resale of shares purchased in a private placement subject
to the satisfaction of certain conditions, including, among other things, the
existence of a public market for the shares, the availability of certain current
public information about the Company, the resale occurring not less than one
year after a party has purchased and paid for the security to be sold, the sale
being effected through a "broker's transaction" or in transactions directly with
a "market maker" (as provided by Rule 144(f)) and the number of shares being
sold during any three-month period not exceeding specified limitations.
3.5 No Public Market. The Investor understands that no public market now
exists for any of the securities issued by the Company, that the Company has
made no assurances that a public market will ever exist for the Shares or the
underlying Common Stock and that, even if such a public market exists at some
future time, the Company may not then be satisfying the current public
information requirements of Rule 144.
3.6 Further Limitations on Disposition. Without in any way limiting the
representations set forth above, the Investor further agrees not to make any
disposition of all or any portion of the Shares (or the Common Stock issuable
upon conversion thereof) unless and until:
(a) There is then in effect a Registration Statement under the
Securities Act covering such proposed disposition and such disposition is made
in accordance with such Registration Statement; or
(b) (i) The Investor shall have notified the Company of the proposed
disposition and shall have furnished the Company with a detailed statement of
the circumstances surrounding the proposed disposition, and (ii) if reasonably
requested by the Company, the Investor shall have furnished the Company with an
opinion of counsel, reasonably satisfactory to the Company, that such
disposition will not require registration under the Act.
(c) Notwithstanding the provisions of paragraphs (a) and (b) above,
no such registration statement or opinion of counsel shall be necessary for a
transfer by the Investor to a constituent stockholder, member or partner
(including any constituent of a constituent) of the
13
<PAGE>
Investor, if the transferee or transferees agree in writing to be subject to the
terms hereof to the same extent as if they were the Investor hereunder.
3.7 Legends. The Investor understands that the Shares (and the Common
Stock issuable upon conversion thereof), and any securities issued in respect
thereof or exchange therefor, may bear one or all of the following legends:
(a) "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT
TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED."
(b) Any legend required by the laws of the State of New York.
(c) Any legend required by the Blue Sky laws of any other
state to the extent such laws are applicable to the shares represented by the
certificate so legended.
A certificate shall not bear such legends if in the opinion of counsel
satisfactory to the Company (it being agreed that Paul, Hastings, Janofsky &
Walker LLP or Wise & Shepard LLP shall be satisfactory) the securities
represented thereby may be publicly sold without registration under the
Securities Act and any applicable state securities laws.
3.8 Accredited Investor. The Investor is an accredited investor as defined
in Rule 501 (a) of Regulation D promulgated under the Act.
3.9 Brokers or Finders. Except as disclosed in the Schedule of Exceptions,
the Company will not incur, directly or indirectly, as a result of any action
taken by the Investor, any liability for brokerage or finders' fees or agents'
commissions or any similar charges in connection with this Agreement.
4.0 Conditions to Investors' Obligations at Closing.
The obligations of each of the Investors under this Agreement are subject
to the fulfillment, or the waiver by each of the Investors, of the conditions
set forth in this Section 4 on or before each respective Closing, provided that
the satisfaction of the conditions described in Section 4.8, Section 4.9 and
Section 4.10 shall be satisfied for all Closings if satisfied at the Initial
Closing and the agreements referenced in such sections has not been amended or
terminated prior to the Second Closing, and the parties need not execute
separate additional documents for the Second Closing as called for in Sections
4.8, 4.9 and 4.10.
4.1 Accuracy of Representations and Warranties. Each representation and
warranty of the Company contained in this Agreement shall be true in all
material respects on and as of each Closing with the same effect as though such
representation and warranty had been made on and as of that date. Immediately
prior to each respective Closing, the Company shall
14
<PAGE>
provide each of the Investors with a new Disclosure Schedule, updated for each
such Closing, provided that, the obligation set forth in the preceding sentence
with respect to the accuracy of the representations and warranties of the
Company as of each Closing shall, for all Closings, be based solely on the
Disclosure Schedule, if any, provided to the Investors at or prior to the
execution of this Agreement.
4.2 Performance. The Company shall have performed and complied in all
material respects with all covenants, agreements, obligations and conditions
contained in this Agreement that are required to be performed or complied with
by it on or before the respective Closing.
4.3 Compliance Certificate. The President of the Company shall deliver to
the Investors at each of the Closings a certificate certifying that the
conditions specified in Sections 4. 1 and 4.2 have been fulfilled.
4.4 Qualifications. All authorizations, approvals or permits, if any, of
any governmental authority or regulatory body of the United States or of any
state that are required in connection with the lawful issuance and sale of the
Shares pursuant to this Agreement shall be obtained and effective as of each of
the Closings.
4.5 Proceedings and Documents. All corporate and other proceedings in
connection with the transactions contemplated at each Closing and all documents
incident thereto shall be reasonably satisfactory in form and substance to the
Investor' counsel, and the Investors' counsel shall have received all such
counterpart original and certified or other copies of such documents as it may
reasonably request.
4.6 Opinion of Company Counsel. The Investors shall have received from
Paul, Hastings, Janofsky & Walker LLP, counsel for the Company, an opinion,
dated as of each of the Closings, in the form of Exhibit G.
4.7 Board of Directors. The Company's Bylaws shall reflect that the size
of the Board of Directors of the Company and shall be set at seven (7). As of
the Initial Closing, the Board of Directors of the Company shall be comprised of
Roland Van der Meer, Doug Alexander, Alex Mashinsky, Robert Stavis and Rachelle
Rees McCarthy, and there shall be two (2) vacancies, which shall be filled by
designees mutually acceptable to the holders of the Common Stock and the holders
of the Series A Preferred Stock, voting together as a single class.
4.8 Investor Rights Agreement. The Company shall have executed and
delivered the Rights Agreement.
4.9 Co-Sale Agreement. The Company and Alex Mashinsky shall have executed
and delivered the Co-Sale Agreement.
4.10 Voting Agreement. The Company and Alex Mashinsky shall have executed
and delivered the Voting Agreement.
15
<PAGE>
4.11 Management Rights Agreement. The Company shall have executed and
delivered the Management Rights Letter in the form of Exhibit H.
4.12 Foundation Limited Partner Certificate. The Company shall have
executed and delivered the Foundation Limited Partner Certificate in the form of
Exhibit I.
4.13 Secretary's Certificate. The Company's Secretary shall have delivered
to the Investor a certificate dated as of the Initial Closing or the Second
Closing, as the case may be, and signed by the Secretary certifying the Board of
Directors and stockholder resolutions approving the transactions contemplated by
this Agreement and true and correct copies of the Restated Certificate and the
Company's bylaws.
4.14 Restated Amendment. The Restated Certificate shall have been filed
with the Secretary of State of the State of Delaware.
4.15 Blue Sky Approvals. The Company shall have received all requisite
approvals, if any, of the securities authorities of each jurisdiction in which
such approval is required, and such approvals shall be in full force and effect
on and as of the Initial Closing or the Second Closing, as the case may be.
5.0 Conditions of the Company's Obligations at Closing.
The obligations of the Company under Section 1 of this Agreement are
subject to the fulfillment, or waiver by the Company, of the each of the
following conditions on or before each respective Closing.
5.1 Representations and Warranties True at Closing. The representations
and warranties of the Investors contained in Section 3 hereof shall be true in
all material respects on and as of each Closing with the same effect as though
said representations and warranties had been made on and as of that date.
5.2 Qualifications. All authorizations, approvals or permits, if any, of
any governmental authority or regulatory body of the United States or of any
state that are required in connection with the lawful issuance and sale of the
Shares pursuant to this Agreement shall be obtained and effective as of each
respective Closing.
5.3 Covenants. All covenants, agreements and conditions contained in this
Agreement to be performed by the Investors on or prior to each respective
Closing shall have been performed or complied with in all material respects.
5.4 Amended Rights Agreement. Each Investor shall have executed and
delivered the Rights Agreement.
5.5 Co-Sale Agreement. Each Investor shall have executed and delivered the
Co-Sale Agreement.
16
<PAGE>
5.6 Voting Agreement. Each Investor shall have executed and delivered the
Voting Agreement.
5.7 Restated Amendment. The Restated Certificate shall have been filed
with the Secretary of State of the State of Delaware.
6.0 Affirmative Covenants of the Company.
The Company hereby covenants and agrees as follows:
6.1 Employee Agreements. For so long as the Investors own any of the
Shares, all employees of the Company shall enter into a proprietary information
and assignment of inventions agreement, substantially in the form attached
hereto as Exhibit J.
6.2 Stock Option Plan. Promptly and in any case within thirty (30) days
after the Initial Closing, the Board of Directors of the Company shall
unconditionally and forever waive Section 3.7 of the Arbinet Holdings, Inc. 1997
Stock Incentive Plan (the "Plan"), and the Company shall not permit to exist,
without the prior written consent of the holders of a majority in interest of
the shares of the Series A Preferred Stock then outstanding, any agreement or
other arrangement providing for the acceleration of the vesting of stock options
granted under the Plan (other than options granted to Alex Mashinsky) or any
similar plan based upon the happening of certain events or otherwise. This
Section 6.2 shall survive the execution and delivery of this Agreement.
7.0 Miscellaneous Provisions.
7.1 Survival of Warranties. Except for the covenants in Section 2.29 and
Section 6.1 which shall survive the Closing, unless otherwise set forth in this
Agreement, the warranties, representations and covenants of the Company and the
Investors contained in or made pursuant to this Agreement shall survive the
execution and delivery of this Agreement and the Initial Closing for a period of
one (1) year following the Initial Closing.
7.2 Transfer of Successors and Assigns. The terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties. Nothing in this Agreement, express or
implied is intended to confer upon any party other than the parties hereto or
their respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement. Notwithstanding any other provision of this Agreement to the
contrary, the rights and obligations of this Agreement may be expressly
transferred to any affiliate of an Investor.
7.3 Governing Law. This Agreement shall be governed by and construed under
the laws of the State of Delaware, without regard to its conflict of laws rules
or provisions.
17
<PAGE>
7.4 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
7.5 Titles and Subtitles. The titles and subtitles used in this Agreement
are used for convenience only and are not to be considered in construing or
interpreting this Agreement.
7.6 Notices.
(a) All notices, requests, demands and other communications under
this Agreement or (i) in connection herewith shall be given to or made upon (i)
the Investors at each such Investors address set forth on Schedule I with a copy
to Wise & Shepard LLP, 3030 Hansen Way, Suite 100, Palo Alto, California
94304-1006, attention: Jerrold F. Petruzzelli; and (ii) the Company at 226 East
54th Street, 2nd Floor, New York, NY 10022, attention: Chief Executive Officer,
with a copy to Paul, Hastings, Janofsky & Walker LLP, 399 Park Avenue, New York,
New York 10022-4697, attention: Neil Torpey.
(b) All notices, requests, demands and other communications given or
made in accordance with the provisions of this Agreement shall be in writing,
and shall be sent by airmail, return receipt requested, or by facsimile with
confirmation of receipt, and shall be deemed to be given or made when receipt is
so confirmed.
(c) Any party may, by written notice to the Company, alter its
address or respondent, and such notice shall be considered to have been given
three (3) days after the airmailing or taxing thereof
7.7 Expenses. Each of the Company and the Investors shall bear their own
expenses incurred with respect to this Agreement and the transactions
contemplated hereby; however, the Company will pay at the Closing and out of the
proceeds received hereunder, the reasonable fees and expenses of one special
counsel to the Investors, in an amount not to exceed $15,000.
7.8 Attorneys' Fees. If any action at law or in equity (including
arbitration) is necessary to enforce or interpret the terms of this Agreement,
the Investors Rights Agreement, the Co-Sale Agreement, the Voting Agreement or
the Restated Certificate the prevailing party shall be entitled to reasonable
attorneys' fees, costs and necessary disbursements in addition to any other
relief to which such party may be entitled as determined by such court, equity
or arbitration proceeding.
7.9 Amendments and Waivers. Any term of this Agreement may be amended only
with the written consent of the Company and the holders of a majority of the
Common Stock issued or issuable upon conversion of the Shares. Any amendment or
waiver effected in accordance with this Section 7.9 shall be binding upon each
of the Investors and each transferee of the Shares (or the Common Stock issuable
upon conversion thereof), each future holder of all such securities, and the
Company.
18
<PAGE>
7.10 Severability. If one or more provisions of this Agreement are held to
be unenforceable under applicable law, portions of such provisions, or such
provisions in their entirety, to the extent necessary, shall be severed from
this Agreement and the balance of the Agreement shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.
7.11 Delays or Omissions. No delay or omission to exercise any right,
power or remedy accruing to any holder of any of the Shares, upon any breach or
default of the Company under this Agreement shall impair any such right, power
or remedy of such holder nor shall it be construed to be a waiver of any such
breach or default, or an acquiescence therein, or of or in any similar breach or
default thereafter occurring; nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default theretofore or
thereafter occurring. Any waiver, permit, consent or approval of any kind or
character on the part of any holder of any breach or default under this
Agreement, or any waiver on the part of any holder of any provisions or
conditions of this agreement, must be in writing and shall be effective only to
the extent specifically set forth in such writing. All remedies, either under
this Agreement or by law or otherwise afforded to any holder shall be cumulative
and not alternative.
7.12 Entire Agreement. This Agreement and the documents referred to herein
constitute the entire agreement between the parties hereto pertaining to the
subject matter hereof, and any and all other written or oral agreements existing
between the parties hereto are expressly canceled.
7.13 California Corporate Securities Law. THE SALE OF THE SECURITIES WHICH
ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER
OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES
OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO
SUCH QUALIFICATION IS UNLAWFUL UNLESS AN EXEMPTION FROM SUCH QUALIFICATION IS
AVAILABLE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED
UPON SUCH QUALIFICATION BEING OBTAINED OR SUCH EXEMPTION BEING AVAILABLE.
19
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Series A
Preferred Stock Purchase Agreement with the intent and agreement that the same
shall be effective as of the day and year first above written.
COMPANY: ARBINET HOLDINGS, INC.
By: /s/ Alex Mashinsky
-----------------------------
Title: Chairman
Address:
INVESTORS: COMMUNICATIONS VENTURES III, L.P.
/s/ Roland Van der Meer
-----------------------------
By: Roland Van der Meer
Title: Managing Member
COMMUNICATIONS VENTURES III CEO &
ENTREPRENEURS' FUND, L.P.
/s/ Roland Van der Meer
-----------------------------
By: Roland Van der Meer
Title: Managing Member
INTERNET CAPITAL GROUP, INC.
/s/ Douglas A. Alexander
-----------------------------
By: Douglas A. Alexander
Title: Managing Director
20
<PAGE>
BEDROCK CAPITAL PARTNERS I, L.P.
By: BEDROCK GENERAL PARTNER I, LLC
/s/ David J. Duval
-----------------------------
By: David J. Duval
Title: Managing Member
VBW EMPLOYEE BEDROCK FUND, L.P.
By: BEDROCK GENERAL PARTNER I, LLC
/s/ David J. Duval
------------------------------
By: David J. Duval
Title: Managing Member
CREDIT SUISSE FIRST BOSTON BEDROCK FUND, L.P.
By: BEDROCK GENERAL PARTNER I, LLC
Title: Its Attorney in Fact
/s/ David J. Duval
-------------------------------
By: David J. Duval
Title: Managing Member
21
<PAGE>
86251v6
NY/241099.1
SCHEDULE I
INITIAL CLOSING
Investors Shares Purchase Price
- ---------------------------------------------------------------------
Communications Ventures III, L.P. 1,606,345 $1,904,762.46
- ---------------------------------------------------------------------
Communications Ventures III CEO & 80,317 $95,237.83
Entrepreneurs' Fund, L.P.
- ---------------------------------------------------------------------
Internet Capital Group, Inc. 1,686,662 $2,000,000.28
- ---------------------------------------------------------------------
Bedrock Capital Partners I, L.P. 1,566,386 $1,857,380.11
- ---------------------------------------------------------------------
VBW Employee Bedrock Fund, L.P. 54,648 $64,800.19
- ---------------------------------------------------------------------
Credit Suisse First Boston 65,628 $77,819.99
Bedrock Rund, L.P.
- ---------------------------------------------------------------------
Totals 5,059,986 $6,000,000.85
<PAGE>
SCHEDULE II
SECOND CLOSING
Investors Shares Purchase Price
- ---------------------------------------------------------------------
Communications Ventures III, L.P. 1,021,000 $1,904,761.88
- ---------------------------------------------------------------------
Communications Ventures III CEO & 51,050 $95,238.09
Entrepreneurs' Fund, L.P.
- ---------------------------------------------------------------------
Internet Capital Group, Inc. 1,072,050 $1,999,999.97
- ---------------------------------------------------------------------
Bedrock Capital Partners I, L.P. 995,602 $1,857,379.97
- ---------------------------------------------------------------------
VBW Employee Bedrock Fund, L.P. 34,734 $64,800.00
- ---------------------------------------------------------------------
Credit Suisse First Boston 41,713 $77,820.00
Bedrock Rund, L.P.
- ---------------------------------------------------------------------
Totals 3,216,150 $5,999,999.91
<PAGE>
EXHIBIT A
COMPANY'S AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
<PAGE>
EXHIBIT B
SCHEDULE OF EXCEPTIONS
<PAGE>
EXHIBIT C
COMPANY'S STOCKHOLDERS
<PAGE>
EXHIBIT D
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
<PAGE>
EXHIBIT E
CO-SALE AGREEMENT
<PAGE>
EXHIBIT F
VOTING AGREEMENT
<PAGE>
EXHIBIT G
OPINION OF PAUL, HASTINGS, JANOFSKY & WALKER LLP
<PAGE>
EXHIBIT H
MANAGEMENT RIGHTS AGREEMENT
<PAGE>
EXHIBIT I
FOUNDATION LIMITED PARTNERS CERTIFICATE
<PAGE>
EXHIBIT J
EMPLOYEE PROPRIETARY INFORMATION
AND
INVENTIONS AGREEMENT
<PAGE>
Exhibit 10.24
PRICEWATERHOUSECOOPERS LLP
11 Madison Avenue
New York NY 10010
Telephone (212) 596 8000
Facsimile (212) 591 4830
February 9, 2000
Mr. Robert Vaters
Arbinet
33 Whitehall St
New York, NY 10004
Dear Mr. Vaters,
PricewaterhouseCoopers L.L.P. (PwC) appreciates this opportunity to submit this
proposal to Arbinet to address the Phase 1 implementation of its enterprise wide
Operational Support Systems (OSS). This letter addresses the services that PwC
will provide in teaming with Arbinet to establish an initial set of scalable and
automated systems implementations and procedures.
We are looking forward to working together to establish a high performance
operational model and implementing Phase 1 systems, providing the infrastructure
and platform to enable and support Arbinet's rapidly growing customer and
transaction base.
OUR STATEMENT OF UNDERSTANDING
As Arbinet continues to enjoy its success and market differentiation, it must
also proactively invest in an improved technology infrastructure that is easy to
use, reliable, secure and scalable. This infrastructure needs to be based on the
Arbinet business strategy in terms of customers, markets, products and
competitors.
As part of the OSS Assessment project, envisioned business processes and
requirements were defined for each function in the end-to-end process vision.
Each of the envisioned processes were assigned to the process owners and the
process owners accepted responsibility for the envisioned environment. Based on
the envisioned process and business requirement, the target OSS architecture was
developed to support the to-be environment.
<PAGE>
Several components of the target environment will become automated in Phase I.
These include Switch Activation, Mediation, Summary Settlement & Reconciliation,
and Finance & Accounting.
OBJECTIVES/SCOPE
In order for Arbinet to achieve and maintain a leading position in the
marketplace, it must establish robust capabilities that allow it to maximize
capture of billable events, reduce revenue leakage, increase revenue assurance,
and begin to manage risk. Furthermore, manual procedures that have addressed the
financial aspects of the business need to be replaced so that Arbinet management
may keep better vigilance over the financial progress of the company. In
addition, as Arbinet's business model may be further defined during this period
(e.g., entry into new markets), Arbinet may decide to accelerate implementation
of Phase II initiatives.
Recognizing Arbinet's limitations with respect to resources and the expectations
for an aggressive implementation schedule, PwC's underlying objective will be to
streamline the work efforts where possible, while maintaining appropriate
discipline in areas such as validation of requirements and evaluation of
technical solutions.
Specific benefits of Phase I delivery include overall program management, robust
switch activation capabilities, statistical and reporting information in the
mediation layer that will allow Arbinet to monitor billable activities more
closely and identify trouble points, automated summary reconciliation
capabilities to minimize and allow focus on manual detailed reconciliation, and
more robust and scalable financial accounting capabilities.
PROGRAM MANAGEMENT OFFICE
Based on the operational assessment, PwC made a series of recommendations to
address the software and hardware environment that needs to be established in
order to deliver Arbinet's business plans and objectives. To better manage the
risk of a big undertaking such as an enterprise wide OSS, a Program Management
Office (PMO) will be established to oversee key project efforts. The PMO will
provide a liaison relationship between Arbinet and multiple vendors to track
progress of Phase 1 deployment, provide status reporting and issue resolution,
and communicate end-to-end process vision.
As part of the OSS development effort, the PMO will undertake the following
activities in Phase I:
Confirm the implementation strategy - addressing market entry dates,
service roll-out plans and network switch deployment
Develop milestone and deliverable tracking capabilities, highlighting
cross-project dependencies and milestones
2
<PAGE>
Develop and implement a risk management plan - (Project)
Define and gain agreement on common critical path milestones and
deliverables
Develop and track progress of Phase 1 deployment by establishing
success criteria, program workplan (including PwC, Breakaway, Nortel,
ECTel), and status reporting & issue resolution procedures
Develop and implement program communications approach
Manage resources, issues and priorities to meet the program's critical
path milestones and deliverables
Work with Arbinet to execute end-to-end process vision leveraging
industry expertise and best practices
Establish and measure key performance indicators as Arbinet continues
to grow
Provide management level reporting of project performance, benefit
delivery, and cost expenditures
Facilitate development of resource hiring plan and assist in securing
resources as required
Adopt formal issue and risk identification and response program to
address issues and jeopardies
SWITCH ACTIVATION
The Switch Activation process implements the routing plan on the switch
according to the pre-defined least cost route. This process occurs at the end of
each trading period (currently set at once daily) and is completed before the
end of the next trading period.
The automation of this process includes the implementation of the Architel tool
to execute route plan updates to the switch. Although this process is envisioned
to support multiple variations of switches as Arbinet deploys switches and Point
of Presence (POP) equipment throughout the world in the coming year, route plans
will be executed on Excel and Nortel switches in a single-node environment in
Phase I. Exceptions and errors will be monitored at the end of each update
process and appropriate alarms will be generated. If any of the processes fail,
then in addition to generating the alarms, the processes will be aborted to
maintain the integrity of the current route plan on the switch.
MEDIATION
The primary purpose of the mediation process is to collect, aggregate, format
and distribute the call detail records according to downstream application
requirements. This process will be automated by implementing the EHPT BMP tool
which accepts inputs from two (2) voice switches and five (5) VoIP gateway
sources, and produces outputs to the Rating and Network Quality applications.
Logic will be built to determine if call records were carried over different
switches or gateways, and if they should be consolidated or kept separate for
rating purposes. In the rating process, mediated call
3
<PAGE>
records are assigned a rate based on the route information contained in the CDR
and in the rate tables.
SUMMARY SETTLEMENT & RECONCILIATION
In order to reduce revenue leakage and increase revenue assurance, a method must
be established to monitor and track invoice reconciliation. The Settlement &
Reconciliation application is responsible for reconciling aggregate Arbinet
fixed and usage-based charges to supplier invoices to ensure that information
received from suppliers matches the information collected by Arbinet. This
application will support the following modules and functionality:
CDR Import - Arbinet call detail records are imported from the Rating
process
Reconciliation - Aggregates fixed and usage-based charges based upon
defined parameters for comparison
Dispute Management - Member dispute summary and detail tracking when
variance exceeds predefined thresholds
Arbinet and Supplier Data Input - Data entry for supplier invoice and
Arbinet fixed charges
Reporting - Summary level analysis to track reconciliation activity and
dispute status. Includes search capability for specific information
Exception Activity Logging - Exception processing and error logging
Maintenance - Arbinet data (thresholds, users, security, etc.) and
Member data (Member profile and contact information)
The application will be developed through an interactive prototyping approach.
Facilitated work sessions will be conducted to review prototype functionality
and validate requirements are being met as the modules are developed.
FINANCE & ACCOUNTING
Arbinet plans to expand its operation to international sites that will require
currency translation, and its current financial systems are not scalable or
integrated. To fully integrate internationally, Arbinet will need a system which
can provide strong multi-national and multi-currency functionality in the
future.
PwC has determined through initial requirements gathering that a "vanilla"
Oracle General Ledger, Payable, Cash Management, Receivable and Application
Desktop Integrator will address Arbinet's Phase 1 requirements. A "vanilla"
project assumes that core module functionality is deployed without the addition
of customizations, extensions, custom reports, or custom interfaces (i.e.,
standard Oracle functionality). PwC's approach will use our proprietary Oracle
RapidPath methodology tailored to the Arbinet project.
4
<PAGE>
In addition to the standard Oracle functionality, PwC scope includes the
development of 15 Financial Statement Generator (FSG) reports uniquely developed
to suit Arbinet requirements, complemented by a suite of standard reports
available by application to manage the process. During Conceptual Design, the
number and complexity of FSG reports will be confirmed. PwC has also included in
scope system-related user procedures, by application, tailored to Arbinet's
configuration and processes.
TECHNICAL INFRASTRUCTURE
Detailed requirements for the COTS solutions will be gathered and validated in
order to develop a Bill of Materials for the technical infrastructure
components. Technical infrastructure components include servers, storage arrays,
operating systems, and databases. They will be deployed in a development and
production environment for each application, and accompanied by operational
procedures to provide ongoing infrastructure support. Ongoing knowledge transfer
and training will be provided to Arbinet personnel during and after
implementation.
NETWORK INFRASTRUCTURE ANALYSIS
Network infrastructure analysis includes an investigation of current network
infrastructure, identification of bottlenecks and capacity planning requirements
according to growth projections, and development of recommendations. Activities
include:
Assistance with process execution in the areas of: Switch Activation,
Call Routing, Mediation, Call Distribution, ASR Analysis, including
selective call blocking (i.e., rationing)
Development of telecommunications network infrastructure (voice
switches and VoIP gateways) requirements across applications
Development of network infrastructure (LAN/WAN) requirements across
applications
Determination of capacity/bandwidth requirements to meet future volume
projections for route updates, mediation, and distribution of calls to
OSS applications on a 15 minute interval
Addressing physical network requirements across a multi-node platform
for the above processes (specifically the ability to perform mediation
and call distribution in a near-real time mode to address fraud and
credit risk)
Determination of appropriate call blocking methodology to address
multi-variant factors such as revenue-per-minute, customer segment,
etc.
Assistance in refinement of Quality of Service (QoS) metrics from a
call quality, ASR basis as it extends to both a single and multi-node
environment
5
<PAGE>
PROJECT PLAN
PwC has developed a project plan customized to Arbinet's project size and
complexity. A detailed work plan will be confirmed during the first week of the
project; however, a high-level project Gantt chart is provided below:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
WEEKS
- ---------------------------------------------------------------------------------------------------------
1-2 3-4 5-6 7-8 9-10 11-12 13-14 15-16 17-18
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ARBINET OSS PHASE 1
- ---------------------------------------------------------------------------------------------------------
Program Management Office
- ---------------------------------------------------------------------------------------------------------
Establish PMO management &
monitoring tools
- ---------------------------------------------------------------------------------------------------------
Manage program workplan
- ---------------------------------------------------------------------------------------------------------
Manage issue resolution
- ---------------------------------------------------------------------------------------------------------
Manage risk
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
MEDIATION
- ---------------------------------------------------------------------------------------------------------
Confirm vendor selection
- ---------------------------------------------------------------------------------------------------------
Configure application & confirm
detailed design
- ---------------------------------------------------------------------------------------------------------
Unit Test
- ---------------------------------------------------------------------------------------------------------
System Test
- ---------------------------------------------------------------------------------------------------------
User Acceptance Test
- ---------------------------------------------------------------------------------------------------------
Conduct Training
- ---------------------------------------------------------------------------------------------------------
Implementation
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
SWITCH ACTIVATION
- ---------------------------------------------------------------------------------------------------------
Confirm vendor selection
- ---------------------------------------------------------------------------------------------------------
Negotiate agreements with
vendor
- ---------------------------------------------------------------------------------------------------------
Conduct Conceptual Design
- ---------------------------------------------------------------------------------------------------------
Configure application & confirm
detailed design
- ---------------------------------------------------------------------------------------------------------
Unit Test
- ---------------------------------------------------------------------------------------------------------
System Test
- ---------------------------------------------------------------------------------------------------------
User Acceptance Test
- ---------------------------------------------------------------------------------------------------------
Conduct Training
- ---------------------------------------------------------------------------------------------------------
Implementation
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
SETTLEMENT & RECONCILIATION
- ---------------------------------------------------------------------------------------------------------
Confirm implementation
approach
- ---------------------------------------------------------------------------------------------------------
Conduct prototyping sessions
- ---------------------------------------------------------------------------------------------------------
Develop application prototype
(Conceptual design)
- ---------------------------------------------------------------------------------------------------------
Confirm prototype functionality
& detailed design
- ---------------------------------------------------------------------------------------------------------
Construct application
- ---------------------------------------------------------------------------------------------------------
Unit Test
- ---------------------------------------------------------------------------------------------------------
System Test
- ---------------------------------------------------------------------------------------------------------
User Acceptance Test
- ---------------------------------------------------------------------------------------------------------
Conduct Training
- ---------------------------------------------------------------------------------------------------------
Implementation
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
6
<PAGE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
WEEKS
- ---------------------------------------------------------------------------------------------------------
1-2 3-4 5-6 7-8 9-10 11-12 13-14 15-16 17-18
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FINANCIALS
- ---------------------------------------------------------------------------------------------------------
Confirm vendor selection
- ---------------------------------------------------------------------------------------------------------
Negotiate agreements with
vendor
- ---------------------------------------------------------------------------------------------------------
Conduct conference room pilot
- ---------------------------------------------------------------------------------------------------------
Conduct Conceptual Design
- ---------------------------------------------------------------------------------------------------------
Configure application & confirm
detailed design
- ---------------------------------------------------------------------------------------------------------
Unit Test
- ---------------------------------------------------------------------------------------------------------
System Test
- ---------------------------------------------------------------------------------------------------------
User Acceptance Test
- ---------------------------------------------------------------------------------------------------------
Conduct Training
- ---------------------------------------------------------------------------------------------------------
Implementation
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
NETWORK INFRASTRUCTURE
ANALYSIS
- ---------------------------------------------------------------------------------------------------------
Analyze current network
architecture
- ---------------------------------------------------------------------------------------------------------
Gather growth projections and
global rollout plans
- ---------------------------------------------------------------------------------------------------------
Analyze telecommunications
infrastructure
- ---------------------------------------------------------------------------------------------------------
Determine capacity/bandwidth
requirements to meet future
volume projects
- ---------------------------------------------------------------------------------------------------------
Address physical network
requirements across multi -node
platform
- ---------------------------------------------------------------------------------------------------------
Assist with process execution
- ---------------------------------------------------------------------------------------------------------
Assist with call blocking
methodology
- ---------------------------------------------------------------------------------------------------------
Develop recommendations
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
IT INFRASTRUCTURE SUPPORT
- ---------------------------------------------------------------------------------------------------------
Design technical architecture
- ---------------------------------------------------------------------------------------------------------
Create bill of materials
- ---------------------------------------------------------------------------------------------------------
Procure, install, and setup
development environment
- ---------------------------------------------------------------------------------------------------------
Develop Application
Architecture Strategy
- ---------------------------------------------------------------------------------------------------------
Support and maintain
development environment
- ---------------------------------------------------------------------------------------------------------
Develop Cutover Strategy
- ---------------------------------------------------------------------------------------------------------
Develop Operational Procedures
- ---------------------------------------------------------------------------------------------------------
Install, setup, and maintain
production environment
- ---------------------------------------------------------------------------------------------------------
Prepare and execute cutover
activities
- ---------------------------------------------------------------------------------------------------------
Implement production systems
& architecture
- ---------------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
OUR EXPERIENCE & METHODOLOGY
PwC has extensive experience implementing package and custom software as part of
our AscendantTM methodology. Using Ascendant, PwC addresses not only those tasks
which are required from a development perspective, but also acknowledges the
program management, process improvement, and technical infrastructure tasks that
must be addressed during all stages of the project. The Ascendant methodology
has been developed by integrating selected techniques from several of our
practice disciplines into a single, consistent and unified methodology which has
been uniquely tailored to meet Arbinet's needs. This approach provides a
structured yet flexible proven set of project tasks, proforma work products, and
integrated project management techniques.
Our team of telecommunications industry consultants will bring together these
industry tools, our "hands on" experience with vendor solutions, and the project
discipline required to address and meet Arbinet's OSS challenges. Our approach
continually emphasizes "knowledge transfer" so Arbinet staff can learn our
methodology, best practices, and specific OSS implementation skills.
DELIVERABLES
Project tasks in PwC's approach culminates in a tangible result or project
output. The association of tasks to outputs allows the project team to verify
the successful completion of each activity. It also allows Arbinet to leverage
the results of each activity across the project and to reuse outputs in
subsequent engagements. It is important to remember that the format of
deliverables will vary. Some project outputs may take the form of documents,
while others may be presentations, training material, agreements or source code.
Phase 1 will encompass the following work PwC products and deliverables:
<TABLE>
<CAPTION>
PROGRAM MANAGEMENT
- --------------------------------------------------------------------------------------------------------------------
DELIVERABLE DESCRIPTION FORMAT
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
PROGRAM WORKPLAN Defines work steps, schedules, resource loading and Document
associated deliverables/work products based on
cumulative work performed through Design,
Construction, and Implementation stages.
Completion assumes Arbinet's concurrence with
proposed revisions and underlying
assumptions.
- --------------------------------------------------------------------------------------------------------------------
OSS DASHBOARD A management reporting tool that Document
provides a consolidated overview of
each area of the project. This includes
schedule, function, cost, and progress along
key performance indicators.
- --------------------------------------------------------------------------------------------------------------------
<PAGE>
APPLICATIONS - SWITCH ACTIVATION, MEDIATION, SETTLEMENT & RECONCILIATION,
FINANCIALS
<CAPTION>
PROGRAM MANAGEMENT
- --------------------------------------------------------------------------------------------------------------------
DELIVERABLE DESCRIPTION FORMAT
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
STATUS REPORTING Regular status reporting will occur for each project in Document
& ISSUE RESOLUTION the program. In this status reporting will include key
PROCEDURES activities completed, % complete toward each
milestone, and key decisions.
- --------------------------------------------------------------------------------------------------------------------
RISK MANAGEMENT PLAN The risk management plan will be used to identify and Document
manage risks that may jeopardize the success of the
project.
- --------------------------------------------------------------------------------------------------------------------
COMMUNICATION PLAN This document creates a communication vehicle as part Document
of the process to prepare the organization for change.
Identifies audiences, message objectives, format for
conveying the messages, and frequency of planned
communication.
- --------------------------------------------------------------------------------------------------------------------
CONCEPTUAL DESIGN For the Switch Activation, Mediation, and Financials Document
package applications, a "gap" analysis of the out-of-box
package functionality against Arbinet's requirements
depicts complexity of configuration or
customization required. This document serves as a
confirmation of package configuration and
implementation functionality.
For the custom-developed Summary Settlement &
Reconciliation application, a high level design describes
detailed requirements, application scope and
functionality, and screen definition and layout. This
document serves as a confirmation of custom
implementation functionality.
- --------------------------------------------------------------------------------------------------------------------
DETAILED DESIGN For the custom-developed Summary Settlement & Document
Reconciliation application, this deliverable contains
detailed screen designs and definition, logical and
physical data model design and definition, and interface
definition. In addition, a data dictionary includes data
field definition and descriptions.
For the Switch Activation, Mediation, and Financials
package applications, detailed designs will be developed
for interfaces or required customizations to package
functionality. Package configuration parameters are
defined in the System Configuration deliverable.
- --------------------------------------------------------------------------------------------------------------------
SYSTEM CONFIGURATION This document provides package configuration Document
(PACKAGE APPLICATIONS) parameters configured to meet Arbinet's requirements. based on
This includes table definition, any changes to the data Executable
model, and initial set values. Code
- --------------------------------------------------------------------------------------------------------------------
9
<PAGE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
DELIVERABLE DESCRIPTION FORMAT
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
UNIT TEST PLANS & RESULTS For the custom Settlement & Reconciliation application, Document
confirms that unit-level components of the application based on
technically and functionally deliver the intended results, Executable
such as: Code
o menu/screen navigation
o menu/screen formats and usability
o object functionality and characteristics
o query/analysis/report results
o report, analysis manipulation/interaction
o satisfactory support of intended performance
measure
o edit/validation logic
o error handling, message processing
o query performance
o security
For the package applications, unit-level testing of
Arbinet-specific configuration is performed. The unit
test plans & results provide documentation of test cases,
conditions, steps, and expected results for each testing
step.
- --------------------------------------------------------------------------------------------------------------------
SYSTEM TEST PLANS & Demonstration that system components technically and Document
RESULTS functionally deliver the intended results. Includes based on
system test strategy, plans, expected results, actual Executable
results, and validation that each case passed. System Code
test plans consist of a series of related testing cycles to
be performed against the new application. Each cycle
consists of objectives, conditions, and steps, with
expected results for each testing step. Test data created
for each cycle. Results are documented and ensure that
expected results were met.
- --------------------------------------------------------------------------------------------------------------------
USER ACCEPTANCE TEST PLANS Demonstration that system components technically and Document
& RESULTS functionally deliver the intended results documented in Based on
the Acceptance Criteria. Acceptance test is conducted Executable
during prototyping sessions, and final acceptance is Code
conducted prior to deployment. Formal UAT plans
consist of instructions, test data and expected results for
UAT participants to use when performing UAT. This
will guide them through the UAT process, with
guidance on how to provide feedback to the
development team.
- --------------------------------------------------------------------------------------------------------------------
TRAINING MATERIALS Training manual for end-users which describes use of Document
system, navigation, system functionality as
designed/configured for Arbinet.
- --------------------------------------------------------------------------------------------------------------------
10
<PAGE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
DELIVERABLE DESCRIPTION FORMAT
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OSS PRODUCTION SYSTEMS Operational OSS components, ready for general Executable
availability. This includes the Switch Activation, Code
Mediation, Summary Settlement & Reconciliation, and
Finance & Accounting applications.
- --------------------------------------------------------------------------------------------------------------------
TECHNICAL INFRASTRUCTURE - SWITCH ACTIVATION, MEDIATION, SETTLEMENT & RECONCILIATION, FINANCIALS
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
DELIVERABLE DESCRIPTION FORMAT
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
TECHNICAL ARCHITECTURE The Technical Architecture Design includes required Document
DESIGN application. Components and infrastructure for each
application. This includes database servers, application
servers, and desktop requirements for the Switch
Activation, Mediation, Summary Settlement &
Reconciliation, and Finance & Accounting applications.
This information will be used to develop the Bill of
Materials.
- --------------------------------------------------------------------------------------------------------------------
APPLICATION ARCHITECTURE This document includes environment definition for the Document
STRATEGY Switch Activation, Mediation, Summary Settlement &
Reconciliation, and Finance & Accounting applications.
This will cover the following components for the
application architecture:
o Package Software Architectures
o Database Instance Definition & Migration
Strategy
o Backup & Recovery
o Archiving Strategy
o Software and Hardware Standards
o Security
- --------------------------------------------------------------------------------------------------------------------
TECHNICAL ARCHITECTURE Installation and configuration of development and Configured
IMPLEMENTATION production environments for the Switch Activation, Technical
Mediation, Summary Settlement & Reconciliation, and Architecture
Finance & Accounting applications. This includes Components
database servers and application servers with requisite
hardware and software.
- --------------------------------------------------------------------------------------------------------------------
CUTOVER STRATEGY This document will describe the migration of the current Document
technical infrastructure to the envisioned OSS
environment for each application. This includes
approach, schedule, and required activities.
- --------------------------------------------------------------------------------------------------------------------
11
<PAGE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
DELIVERABLE DESCRIPTION FORMAT
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONAL PROCEDURES The Operational Procedures document describes the Document
design and development procedures for the support of
the technical architecture. This includes the installation
and configuration of the environment as well as systems
support (database and system administration),
LAN/WAN administration, and desktop administration.
- --------------------------------------------------------------------------------------------------------------------
NETWORK INFRASTRUCTURE
- --------------------------------------------------------------------------------------------------------------------
NETWORK INFRASTRUCTURE The network infrastructure analysis and Document
ANALYSIS & recommendations will focus on Arbinet's current
RECOMMENDATIONS network infrastructure against its planned growth and
global rollout. Infrastructure components to be analyzed
include voice switches and IP gateways as well as the
LAN/WAN infrastructure. Capacity/bandwidth
requirements will be analyzed, and requirements to meet
future volume projects for route updates, mediation, and
distribution of calls on a 15 minute interval will be
documented. Additional analysis includes physical
network requirements across a multi-node platform for
the above processes (specifically the ability to perform
mediation and call distribution in a near-real time mode
to address fraud and credit risk).
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
PROJECT ORGANIZATION
PwC recommends a core team of experienced consultants with telecommunications
industry backgrounds and "hands-on" custom development and package experience.
This staffing model relies on an understanding of Arbinet's business strategy,
business model and proprietary technologies while PwC provides deep skills and
abilities in the areas of OSS applications, business processes, technology
infrastructure, vendor product capabilities, and project management.
12
<PAGE>
[GRAPHIC OMITTED]
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
ROLE RESPONSIBILITIES
- --------------------------------------------------------------------------------------------------------------------
<S> <C>
OSS PROJECT STEERING The Steering Committee is responsible for providing end-to-end process vision
COMMITTEE and necessary resources to the project team. The group provides executive
guidance and champions change in the organization, becoming a catalyst for
communication. The Steering Committee quickly resolves policy and
organizational issues raised by the project in addition to confirming project
team direction at key points throughout the project. They will meet twice per
month to review project team progress. This is composed of the Arbinet
project sponsors, PwC partner, and PwC Engagement Manager.
- --------------------------------------------------------------------------------------------------------------------
PROGRAM MANAGEMENT The Program Management Office is responsible for communicating the
OFFICE steering committee goals, guidance, and vision to the project teams and
reporting status and issues back to the Steering Committee. These individuals
also coordinate cross-project team work sessions and meeting schedules. The
PwC Program Manager has system development and project management
experience and is responsible for project planning and control.
- --------------------------------------------------------------------------------------------------------------------
13
<PAGE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
ROLE RESPONSIBILITIES
- --------------------------------------------------------------------------------------------------------------------
<S> <C>
PWC SUBJECT MATTER During the project, PwC will provide subject matter expertise to the project
EXPERTS team in the areas of industry, process, and technology. These subject matter
experts are seasoned professionals in functional and technical areas required
by the Arbinet project.
- --------------------------------------------------------------------------------------------------------------------
PROCESS IMPROVEMENT This individual is responsible for establishing and monitoring Arbinet key
SPECIALIST performance measures, developing and tracking the OSS dashboard, and
working with Arbinet to execute its envisioned combination of manual and
automated processes.
- --------------------------------------------------------------------------------------------------------------------
MEDIATION TEAM The Mediation Team has functional billing and mediation skills as well as
package implementation skills. This team is responsible for the design and
implementation of the mediation package to fit Arbinet's requirements. This
includes gathering inputs, producing outputs, and implementing Arbinet's
business logic for record consolidation.
- --------------------------------------------------------------------------------------------------------------------
SWITCH ACTIVATION TEAM The Switch Activation Team is responsible for the design and implementation
of the switch activation package to fit Arbinet's requirements. This team will
work closely with the trading desk development group to ensure that the
interface to switch activation is robust and addresses Arbinet's requirements.
- --------------------------------------------------------------------------------------------------------------------
SETTLEMENT & The Settlement & Reconciliation Team has custom design and development
RECONCILIATION TEAM experience with telecommunications industry knowledge. This team is
responsible for automating the summary reconciliation process of Arbinet
CDRs to supplier invoices.
- --------------------------------------------------------------------------------------------------------------------
FINANCE & ACCOUNTING The Financials Team has package implementation experience with the selected
TEAM financial package. This includes functional expertise with AP, AR, and GL
modules and implementation experience with Oracle Financials. This team
will be primarily responsible for identifying key requirements and configuring
the Oracle Financials Applications, planning and executing conference room
pilots, system testing, and verifying appropriate levels of security throughout
the system.
- --------------------------------------------------------------------------------------------------------------------
TECHNICAL INFRASTRUCTURE The Technical Infrastructure Team is responsible for the design and
TEAM development of the IT technical architecture including installation and
configuration of the development and production environments. This includes
systems support (database and system administration), LAN/WAN
administration, and desktop administration.
- --------------------------------------------------------------------------------------------------------------------
NETWORK INFRASTRUCTURE These individuals are responsible for analyzing Arbinet's current network
TEAM infrastructure and developing recommendations on required steps to achieving
scalability, reliability, and availability in the envisioned environment.
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE>
PROFESSIONAL FEES
PwC is committed to the delivery of high quality work products and deliverables
that meet the unique challenges facing Arbinet. We also recognize the need to
deliver the Phase 1 Arbinet OSS components during the next four months.
In order to demonstrate our commitment to quality, PwC is also prepared to
establish a 10% holdback of fees until formal Arbinet approval is obtained for
each deliverable. Fees that are held back will be released and invoiced at the
time of acceptance of the deliverable. Within 5 days of deliverable submission,
Arbinet will accept or state required resolution for acceptance of the
deliverable.
Our proposal provides for payments that are tied to the timely completion and
acceptance of project deliverables. Upon the completion of each deliverable for
each team, PwC will invoice Arbinet, on a time and materials basis, for actual
time and expenses associated with the deliverables. We estimate that expenses
will run an additional 10 to 15% of fees for this engagement. These expenses
will be invoiced on a monthly basis as incurred. Payment is due within 15 days
of invoice delivery.
Invoicing will be based upon specific deliverables according to the following
schedule:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
STAGE AREA ESTIMATED
PWC FEES
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
DESIGN PROGRAM MANAGEMENT OFFICE $724,370
Program Status Reporting and Issue
Resolution Procedures
Risk Management Plan
Program Workplan
OSS Dashboard
Communication Plan
TECHNICAL INFRASTRUCTURE
Technical Architecture Design
Application Architecture Strategy
CONCEPTUAL DESIGN
Switch Activation Conceptual Design
Mediation Conceptual Design
Financials Conceptual Design
Summary Settlement & Reconciliation
Conceptual Design
- --------------------------------------------------------------------------------------------------------------------
15
<PAGE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
STAGE AREA ESTIMATED
PWC FEES
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
DETAILED DESIGN
Switch Activation Detailed Design (if
applicable)
Mediation Detailed Design (if applicable)
Financials Detailed Design (if applicable)
Summary Settlement & Reconciliation
Detailed Design
- --------------------------------------------------------------------------------------------------------------------
CONSTRUCTION PROGRAM MANAGEMENT OFFICE $900,000
Program Status Reporting and Issue Log
Program Workplan
OSS Dashboard
TECHNICAL INFRASTRUCTURE
Development/Test Technical Infrastructure
Environments
Cutover Strategy
SYSTEM CONFIGURATION & UNIT TEST (PACKAGE
COMPONENTS)
Switch Activation Application (Configured &
Unit Tested)
Mediation Application (Configured & Unit
Tested)
Financials Application (Configured & Unit
Tested)
SYSTEM DEVELOPMENT & UNIT TEST (CUSTOM
COMPONENT)
Summary Settlement & Reconciliation
Application (Constructed & Unit Tested)
- --------------------------------------------------------------------------------------------------------------------
TESTING PROGRAM MANAGEMENT OFFICE $975,270
Program Status Reporting and Issue Log
Program Workplan
OSS Dashboard
TECHNICAL INFRASTRUCTURE
System Tested Technical Infrastructure
Environment
SYSTEM TEST PLANS & RESULTS
Switch Activation Application (System
Tested)
Mediation Application (System Tested)
Financials Application (System Tested)
Summary Settlement & Reconciliation
Application (System Tested)
- --------------------------------------------------------------------------------------------------------------------
16
<PAGE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
STAGE AREA ESTIMATED
PWC FEES
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
IMPLEMENTATION PROGRAM MANAGEMENT OFFICE $1,000,360
Program Status Reporting and Issue Log
Program Workplan
OSS Dashboard
TECHNICAL INFRASTRUCTURE
Production Technical Infrastructure
Environment
Operational Procedures
USER ACCEPTANCE TEST PLANS & RESULTS
Switch Activation Application (UAT Tested
System)
Mediation Application (UAT Tested System)
Financials Application (UAT Tested System)
Summary Settlement & Reconciliation (UAT
Tested System)
TRAINING MATERIALS
Switch Activation Training Materials
Mediation Training Materials
Financials Training Materials
Summary Settlement & Reconciliation
Training Materials
OSS PRODUCTION SYSTEMS
Switch Activation System
Mediation System
Financials System
Summary Settlement & Reconciliation
System
- --------------------------------------------------------------------------------------------------------------------
NETWORK MODELING Network Infrastructure Assessment & $250,000
Recommendations
- --------------------------------------------------------------------------------------------------------------------
TOTAL FEES $3,850,000
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
Based on this agreement and reduced pricing, PwC offers Arbinet its assistance
in:
Promotion of the Arbinet venture;
Investor relations presentations;
Speaking engagements at PwC global industry events;
Opportunities to network with senior executives at global
telecommunications companies;
PwC client referrals to Arbinet; and
Promotion of technology materials for prospectus.
17
<PAGE>
In the spirit of partnership, PwC requests from Arbinet:
A standard, referenceable citation;
Video testimonial describing successful partnership; and
Joint publications in key industry and technology journals.
Under this agreement, PwC is willing to offer Arbinet an additional 8% discount
off stated fees if signature is received by February 9, 2000.
ASSUMPTIONS
In preparing the time and fee estimates for this proposal, PwC has made the
following assumptions. If these assumptions should be invalid, or if these
assumptions change during the course of the assignment, we would be glad to
discuss and revise the impact on time and cost.
OVERALL
The project start date is February 9, 2000.
The project plan and level of effort estimates are based on an 18-week
implementation of Switch Activation, Mediation, Summary Settlement &
Reconciliation, and Finance & Accounting projects.
The PwC Ascendant integrated systems methodology as tailored for
Arbinet will be used as the primary methodology to guide the task
definition and standards of the PwC project efforts.
Specific PwC project team staffing will depend upon availability at
project start.
Estimated costs for this project include only PwC estimated fees and
expenses. Cost or level of effort estimates for third party
consultants, contractors, or software is not included in this proposal.
For the Switch Activation, Mediation, and Oracle Financial package
implementations, Conceptual Design will serve to confirm the level of
effort estimates and feasibility of implementation dates described
herein.
Acceptance criteria for each deliverable shall be mutually agreed upon
by PwC and Arbinet within the first two weeks of the project.
Phase 1 applications will not require a distributed, replicated
environment. For each application, users will access a single database
instance across the LAN infrastructure.
Proforma formats used by PwC will be acceptable to the Development
organization within Arbinet.
PwC reserves the right to subcontract to individuals with specific
expertise.
Phase 1 systems and processes will be configured for one AGCN
physically located in NY.
Package software will drive business process design where applicable.
Within each of our areas of expertise, Arbinet and PwC agree to work
together on the project in the spirit of partnership with full and open
communications relevant to the
18
<PAGE>
project and a common goal of delivering a quality implementation within
the project time frame.
Information required by the team from organizations or individuals
within Arbinet will be provided in a timely manner consistent with the
project workplan.
Arbinet shall identify resources to fill defined Arbinet project roles
within the first week of the project. Arbinet staff will be available
for the hours identified in the level of effort estimates and as
specified in the organizational chart and project plan to be developed
during the first week of the project. Additional Arbinet resources will
be made available for interviews, meetings, workshops and consultation
as per the project plan. If changes to project circumstances dictate a
higher level of effort, Arbinet shall provide the additional effort
required.
Members of the Arbinet project team will have the ability and authority
to make timely decisions and commitments on the analysis and design for
their respective areas of responsibility. Any delay may result in a
corresponding delay in implementation and an increase in cost.
Arbinet management shall be readily available to participate in
discussions, meetings, and walkthroughs of interim work products and
deliverables, and to participate in the timely resolution of issues.
Arbinet shall supply a Program Manager who shall be responsible for
planning, coordinating, and assigning its resources and otherwise
administering day-to-day activities.
Arbinet will adopt a timely and effective issue resolution process such
that any issues can be resolved within five business days of being
identified. The inability to resolve issues in the designated time
frame may adversely impact the project timeline.
Changes to key project decisions must be approved at the Steering
Committee level, along with the resulting changes to the program
timeline, cost, and associated deliverables.
"Key Decision Makers"/"Subject Matter Experts" identified to support
the Assessment project shall continue to work on the project for the
functional processes and technical areas as identified in the project
organization chart. If additional "Key Decision Makers"/"Subject Matter
Experts" are required, Arbinet shall identify "Key Decision
Makers"/"Subject Matter Experts" within two weeks from the start of the
project. The "Key Decision Makers"/"Subject Matter Experts" should have
the authority to make decisions that may impact functionality in their
respective areas. Members of the Arbinet project team shall have the
ability and authority to make timely decisions and commitments on the
analysis and design for their respective areas.
A joint project Steering Committee consisting of Arbinet and PwC
sponsors and program management shall be operational at the
commencement of the project and shall have the ability to resolve
project issues in a timely manner.
Deliverables or interim work products requiring sign-off from Arbinet
shall be approved or rejected with specific causes and recommended
resolution stated clearly in writing up to ten business days of
submission unless otherwise stated in the project schedule. If no reply
is received within this time frame, PwC shall assume the deliverable or
work
19
<PAGE>
product to be accepted and authorization received to proceed. The Phase
1 program is to be managed under a relatively aggressive timeline which
does not allow for 10 day review delays between milestones. Arbinet
leadership should be aware that deliverable review delays may impact
the program's overall time and cost.
Revision of requirements and acceptance of deliverables shall be
limited to the program management team. The Arbinet Program Manager,
David Sumka, shall have sole signature authority and deliverable
acceptance.
Each vendor will provide complete product user documentation. PwC
documentation will provide information on the specific configuration
for Arbinet.
Training scope for the Switch Activation, Mediation, Summary Settlement
& Reconciliation, and Finance & Accounting applications focuses on how
to use the system and does not include training on how to configure the
system.
Arbinet will communicate to the appropriate personnel the priority
placed on this project in order to alleviate scheduling conflicts.
Knowledge transfer is not considered a formal measurable deliverable,
rather it is an ongoing process. PwC will work diligently to achieve
"transfer of knowledge" to Arbinet related to the projects, tools and
methodologies as soon as is practical. Should a formal knowledge
transfer period be necessary, additional PwC effort would be required.
Arbinet will develop user acceptance test cases and provide resources
to perform user acceptance testing. User acceptance test cases will be
based on the requirements and design.
PROGRAM MANAGEMENT OFFICE
Third party vendors (Breakaway Solutions, Nortel, ECTel, and Excel )
shall be responsible for maintaining their respective project plans.
PwC will work with these vendors to understand any changes that arise
in their respective project plans to understand the impact, if any, to
the overall program. Any changes that have a material impact to the
program timeline or costs will be escalated through the agreed change
request process for review.
Third party vendors (Breakaway Solutions, Nortel, ECTel, and Excel)
shall be responsible for the delivery and quality of their work
products. PwC will work with these vendors to ensure requirements are
understood and program objectives are met.
Arbinet is responsible for procurement of services of Breakaway
Solutions, Nortel, Excel, and ECTel.
PwC is not responsible for managing project scope, costs, or resources
of Breakaway Solutions, Nortel, Excel, or ECTel. PwC is responsible for
highlighting and managing cross-project dependencies and issues through
to completion for these vendors.
PwC is responsible for managing project scope, costs, and resources for
the EHPT and Architel implementations.
20
<PAGE>
SWITCH ACTIVATION
Arbinet and Breakaway Solutions are responsible for generating switch
independent route plans and least cost routes.
Architel software must be procured and available to the development
team within two weeks of project start.
Arbinet and Breakaway Solutions will provide switch independent route
plans in the order of LCR. PwC is not responsible for determination of
least cost routing algorithms.
PwC will contract with Architel for implementation services as
necessary.
Breakaway Solutions is responsible for route plan generation and will
provide switch independent route plans in the standard interface file
(SIF) format required by Architel by the date designated in the project
plan.
The Architel application will be configured for Excel and Nortel switch
activation only.
The interface between the Trading System and the Switch Activation
Agent will be developed and tested by Arbinet and Breakaway Solutions.
The interface between Switch Activation and the current circuit
inventory system will be manual in Phase 1.
Network alarms generated by the Switch Activation agent will be sent to
the current HP OpenView network management system.
The Switch Activation application will be tested under conditions which
assume hourly switch updates.
Architel will be responsible for any core code changes required to
support the Excel and Nortel switches. Any impact from core
customizations will not be the responsibility of PwC, nor will it
affect PwC performance payments.
MEDIATION
EHPT BMP software selection will be confirmed and package software will
be available to the project team within 2 weeks of the project start
date.
Two voice inputs to the mediation platform include the Excel and Nortel
switches.
Three IP inputs to the mediation platform include the Cisco, Clarent,
and Vocaltech gateways.
The mediation component will provide record collection in a single-node
environment.
PwC will develop single standard interface files (SIF) as outputs to
the Call Rating and Quality Rating applications.
PwC will contract with EHPT for implementation services as necessary.
EHPT will be responsible for any core code changes required to support
Arbinet's mediation requirements. Any impact from core customizations
will not be the responsibility of PwC, nor will it affect PwC
performance payments.
SUMMARY SETTLEMENT & RECONCILIATION
The application development language will be Visual C++.
The application will include aggregate fixed and usage-based charges as
they are included on the supplier invoice. Total amounts for both
charge types will be compared against the pre-defined thresholds.
21
<PAGE>
Aggregate supplier invoice amounts will be manually entered into the
application. An automated interface for upload of supplier invoices is
not included in Phase I.
Summary reconciliation will be designed between Arbinet's usage records
and supplier invoices. Buyer to Arbinet reconciliation is not included
in Phase I.
Breakaway Solutions will make available rated CDRs to the
Reconciliation application in a specified format agreed by the date
designated in the project workplan. The PwC team will design this
format by the date specified in the project workplan.
Twelve screens of average complexity are estimated to provide summary
reconciliation functionality.
Four summary reports of average to moderate complexity will be included
in Phase I.
Reporting will utilize native Visual C++ print functionality. Report
extraction or formatting will not be included in Phase I.
Detailed reconciliation will occur manually in Phase I.
Rated records from the Rating application must include the bid price,
ask price, and Arbinet approved price to identify market-making
functionality.
Correction of un-rated usage will occur within the Rating application.
Automated workflow for approvals is not included in Phase I. Basic
approval functionality will be provided for waived disputed amounts.
Automated alerts for dispute resolution will not be included in Phase
I. The downstream systems to accept this information are currently
being planned.
Application security will be limited to user, management, and system
administrator privileges.
No on-line help is included in Phase I. Training materials will address
system functionality.
Payments, credits, and adjustments that may be determined as a result
of summary reconciliation will be manually processed through
Accounting; the Reconciliation application will not provide an
automated feed of adjusted amounts to the Billing system.
FINANCE & ACCOUNTING
The scope of Oracle applications Release 11.03 vanilla implementation
includes the following modules: Oracle General Ledger, Oracle Payable,
Oracle Cash Management, Oracle Receivables and Application Desktop
Integrator. Arbinet team members will attend Oracle training within two
months from the start of the project.
Oracle Financials software must be procured and available to the
development team within two weeks of the project start date.
A single set of books, legal entity, and a single operating unit are
included in the level of effort estimates. A single functional and
reporting currency (USD), calendar, and chart of accounts is assumed to
be sufficient to meet Arbinet's requirements in Phase I.
Arbinet will determine its chart of accounts structure and the
respective values within three weeks from the project start date.
Arbinet is responsible for developing and maintaining non-system
policies and procedures in accordance with the project plan.
22
<PAGE>
Implementation of Encumbrance accounting and budgetary control
functionality are not included in Phase 1 estimates.
Arbinet will pay invoices using the standard Oracle Payables check
format. Customizations to the format are not included in the level of
effort estimates. No other payment types are included in the scope of
this project. Standard invoicing and letters will be used for Phase I.
Oracle Applications standard functionality will drive process design
and configuration.
Standard Oracle Applications report submission and distribution are
included in the level of effort estimates. Additional report
distribution capabilities will not be analyzed or delivered as part of
this project.
Standard Oracle Applications security will be utilized. Other
non-standard security tools or software are not included in the level
of effort estimates.
Bank reconciliation to Oracle Payables will be performed utilizing Cash
Management reconciliation capabilities. Automated reconciliation is not
included in the scope of this project.
Testing will address functionality specifically configured for Arbinet.
The package is assumed unit and system-tested for out-of-box
functionality. As package bugs or issues are identified, PwC will work
with Oracle support to resolve bugs in a timely manner. PwC shall not
be responsible for application software bugs or issues that are not
resolved in a timely manner by Oracle. A detailed listing of "bugs" and
severity will be maintained and communicated to Arbinet on a regular
basis.
The PwC approach based upon proven experience assumes a cutover to
Oracle Applications from Great Plains with no parallel processing. The
Great Plains system should remain active for a period of time (as
determined by Arbinet) to support historical queries.
A payroll interface is assumed to be the only interface required for
the go-live date. It is assumed that Oracle's Application Desktop
Integrator will be used to import the payroll journal entries and that
the external payroll company can provide a file in the format required
by the Application Desktop Integrator. A payroll file must be provided
by Arbinet for testing purposes by March 1st, 2000.
Data conversion shall be performed manually. Arbinet shall be
responsible for manual data conversion and cleansing of legacy data in
support of the data conversion. Arbinet shall also be responsible for
reconciling converted data to legacy data.
Automated data conversion is not included within the scope of the
project. Arbinet will be responsible for manual data conversion for the
following entities:
General Ledger: Journal balances, chart of accounts,
budgets
Accounts Payable: Suppliers, open invoices
Accounts Receivable: Customer master, open invoices,
receipts
PricewaterhouseCoopers assumes 15 Financial Statement Generator (FSG)
reports will be designed, developed, and unit tested by the project
team.
The development of a program to reformat Oracle's standard positive pay
output file to Arbinet's bank's format is not included in the proposed
project scope.
23
<PAGE>
Arbinet is responsible for mapping the Great Plains Chart of Accounts
structure to the Oracle Chart of Accounts structure.
Standard package functionality will drive process design and
configuration.
PricewaterhouseCoopers will develop user documentation and training
materials to support the Oracle Applications project. Both system and
tangential procedures shall be included in the documentation. Arbinet
is responsible for developing or providing non-system policies and
procedures to the Training and User Documentation team.
PricewaterhouseCoopers shall be responsible for training up to 15
Arbinet users.
The Implementation stage includes post-implementation support through
the first period-end closing. The first period end closing is expected
to be completed within 10 days from the date of Oracle's first period
end.
Oracle Alerts are not included in the level of effort estimates.
Descriptive flexfields are included in the level of effort estimates.
Standard Oracle Workflow will be leveraged. Modifications to standard
Oracle Workflow are not included in the scope of the project.
Auto Lockbox is assumed to not be used in Phase 1 given the current
number of Arbinet Members.
Third party software costs (e.g., Vertex) are not included in the scope
of Phase 1.
TECHNICAL INFRASTRUCTURE
PwC is responsible for development and support of IT development and
production infrastructure environments to support the Switch
Activation, Mediation, Summary Settlement & Reconciliation, and Oracle
Financials applications.
Database standard for the Switch Activation, Mediation, Summary
Settlement & Reconciliation applications is Oracle 8.0.
Operations procedures will be provided for the Switch Activation,
Mediation, Summary Settlement & Reconciliation, and Oracle Financials
applications.
Development environments will be available within 2 weeks of the
project start date. The Production environments will be available 4
weeks prior to the scheduled "go-live" production date.
PwC will have immediate access to Arbinet's LAN and a TCP/IP and SQLNET
connection to a dedicated database environment by the end of the first
week of the project.
Technical infrastructure analysis will not include web hosting
outsourcing being considered by Arbinet. Should Arbinet require
assistance in this area, additional PwC resources can be provided.
PwC will assist Arbinet in designing a new LAN/WAN infrastructure.
Arbinet personnel will be responsible for deploying data network
infrastructure components (routers, switches, etc.).
Arbinet's system and database administrators will work with the PwC
technical infrastructure team to provide ongoing support to the OSS
project team(s).
Arbinet will designate a single point of contact for resolving
technical infrastructure issues.
24
<PAGE>
Vendor technical support will be provided under a Vendor Technical
Support agreement with Arbinet.
NETWORK INFRASTRUCTURE
Implementation of the network infrastructure recommendations is not
within the scope of this project.
Activities within this workstream will be governed by a time and
materials arrangement.
PROJECT ADMINISTRATION
The project start date is February 9, 2000. If the start date changes,
PwC will revise the project time line and professional fees
appropriately.
Out-of-town PwC staff who will be participating on the project for
longer than three months will be permitted to utilize the standard
PricewaterhouseCoopers long-term expense policy. Staff who may not be
on the project for longer than three months will remain on actual
expenses. PricewaterhouseCoopers staff on the long-term expense policy
are required to take a 22-day "tax break" at least 100 miles away from
the project site prior to one year from the staff's project start date.
Staff who do not take this "tax break" are subject to tax "gross ups"
which will be passed on Arbinet. PricewaterhouseCoopers will work with
Arbinet to identify a logical "tax break period" for "long term
expense" staff who are projected to be on the project for longer than
one year.
When possible, out-of-town PricewaterhouseCoopers staff will be present
at the client project site for four days and work from the respective
PricewaterhouseCoopers office on the fifth day.
The Summary Settlement & Reconciliation and Oracle Financials
development teams shall be primarily located at PwC's BWI office
location with travel to Manhattan as required by the project.
The Switch Activation and Mediation development teams shall be located
at Arbinet's Manhattan location.
Arbinet shall provide adequate facilities, equipment, and tools, such
as building access, offices, telephones, photocopiers, fax machines,
voice mail, and access to electronic mail and LAN connectivity for all
core team members and consultants, within the first week of the
engagement.
PwC will be entitled to an equitable adjustment in the price and/or
schedule, as applicable, for any additional tasks or activities in
which it may be required to engage as a result of the inaccuracy or
failure of any of the assumptions set forth above. PwC will not be
required to undertake any activity or obligation outside of the scope
of its obligations as defined in this proposal unless and until the fee
and/or schedule impact of such activity or obligation has been agreed
upon in writing by the parties.
25
<PAGE>
We are excited about the opportunity to work with you and the Arbinet team on
this critical effort. We are prepared to start this project immediately upon
your approval. For your convenience, we have included a copy of our General
Terms and Conditions for conducting this engagement.
Your signature below will indicate your approval of our proposal. Should you
have any questions or need additional clarifications of our proposal, please
feel free to contact Dan Nellius at (410) 412-7931 or Peter Halis at (973)
236-4131.
PRICEWATERHOUSECOOPERS, LLP
Arbinet, approval to proceed
By: /s/ Bob Vaters
------------------------
Name: Robert S. Vaters
------------------------
Title: EVP & CFO
------------------------
Date:
------------------------
26
<PAGE>
ATTACHMENT: TC-1 GENERAL TERMS AND CONDITIONS
1. ENTIRE AGREEMENT. These General Terms and Conditions and the engagement
letter (and its attachments) or the proposal (and its attachments), as the case
may be, to which these General Terms and Conditions are attached (collectively,
the "Agreement") constitutes the entire agreement between the client (the
"Client") to whom such engagement letter is addressed or to whom such proposal
is submitted, as the case may be, and PRICEWATERHOUSECOOPERS LLP, a limited
liability partnership organized under the laws of the State of Delaware ("PwC"),
regarding the project described in the engagement letter or the proposal, as the
case may be. If PwC has commenced work in connection with the matters described
in the engagement letter (and its attachments) or the proposal (and its
attachments), as the case may be, to which these General Terms and Conditions
are attached, all provisions in this Agreement for the benefit or protection of
either party shall apply to such activities. There are no prior or
contemporaneous, oral or written, representations, understandings or agreements
which are not fully expressed in this Agreement. No amendment, change order,
waiver or discharge shall be valid unless it is in writing and signed by an
authorized representative of the party against whom such amendment, change
order, waiver or discharge is sought to be enforced. In the event of a conflict
between these General Terms and Conditions and the engagement letter (and its
attachments) or proposal (and its attachments) to which they may be attached,
these General Terms and Conditions shall control.
2. RELATIONSHIP OF PARTIES. PwC, in furnishing services to the Client, is an
independent contractor. PwC does not undertake to perform any regulatory or
contractual obligation of the Client or to assume any responsibility for the
Client's business or operations. PwC shall supervise, perform or cause to be
performed all work to be accomplished by PwC and may call upon the expertise
and/or assistance of its Price Waterhouse affiliates in the performance of such
services. To the extent that circumstances permit, PwC is committed to offering
its staff a lifestyle which enables them to control their travel schedules.
Accordingly, if PwC's staff is required to work away from home for extended
periods, to the extent consistent with PwC's performance obligations, the Client
agrees to accept flexibility in the way PwC's staff divides their time between
the Client's sites and their home base. Except as may be otherwise agreed in
writing by the Client and PwC, during the term of this Agreement and for twelve
(12) months thereafter, neither the Client nor PwC, nor any of their respective
affiliates, shall offer employment to or employ any person employed then or
within the preceding twelve (12) months by the other or any affiliate of the
other if such person was involved, directly or indirectly, in the performance of
this Agreement.
3. TAXES. There shall be added to the charges under this Agreement, and the
Client shall pay to PwC, an amount equal to any taxes, levies and duties,
however designated or levied, domestic or foreign, based upon such charges, this
Agreement, the services or materials provided, or their use, including without
limitation state and local sales and use taxes, which are paid by or are payable
by PwC, plus interest and penalties, if any, exclusive, however, of United
States federal, state or local taxes based on the net income of PwC. Should
Client be required
27
<PAGE>
under any law or regulation of any governmental entity or authority, domestic or
foreign, to withhold or deduct any portion of the payments due to PwC, then the
sum payable to PwC shall be increased by the amount necessary to yield to PwC an
amount equal to the sum it would have received had no withholdings or deductions
been made. Notwithstanding two preceding sentences, PwC accepts full and
exclusive liability for the payment of all employer contributions and taxes
measured by the remuneration paid to PwC employees as required by all applicable
United States federal, state and local laws, rules and regulations.
4. WARRANTIES. PwC warrants that the services provided will be performed and
supervised by qualified personnel. NOTWITHSTANDING ANYTHING TO THE CONTRARY
CONTAINED IN THIS AGREEMENT, PWC MAKES NO OTHER WARRANTIES, EXPRESS OR IMPLIED,
OR WHETHER ARISING BY OPERATION OF LAW, COURSE OF PERFORMANCE OR DEALING,
CUSTOM, USAGE IN THE TRADE OR PROFESSION OR OTHERWISE, INCLUDING WITHOUT
LIMITATION IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR
PURPOSE. Except as expressly provided in the engagement letter, PwC is not
providing any Year 2000 services (for example, Year 2000 assessment, conversion
or testing), nor making any warranties with respect to the products or services
provided by PwC or by third parties under this Agreement to correctly process,
provide and/or receive date data within and between the twentieth and
twenty-first centuries. Except for the warranty expressly set forth in this
Paragraph 4, the Client acknowledges and agrees that it has relied on no other
representations or warranties and that no other representations or warranties
have formed the basis of its bargain hereunder.
5. INDEMNITY. (a) PwC and the Client each agree to indemnity, defend and hold
harmless the other from and against any and all amounts payable under any
judgment, verdict, court order or settlement for death or bodily injury or the
damage to or loss or destruction of any real or tangible personal property to
the extent arising out of the indemnitor's negligence in the performance of this
Agreement.
(b) PwC agrees to indemnify, defend and hold harmless the Client from and
against any and all amounts payable under any judgment, verdict, court order or
settlement to the extent resulting from any unaffiliated third party allegation
that the work performed by PwC under this Agreement infringes such third-party's
United States patent, copyright or trade secret. Should the Client's use of work
performed by PwC be determined to have infringed, or if, in PwC's judgment, such
use is likely to be infringing, PwC may, at its option: (1) procure for the
Client the right to continue to use the work performed by PwC; or (2) replace or
modify the work performed by PwC to make its use non-infringing while yielding
substantially equivalent results. If neither of such options are or would be
available on a basis that PwC finds commercially reasonable, PwC may terminate
this Agreement, the Client shall return work performed to PwC and PwC shall
refund the fees paid for the associated services, less a reasonable allowance
for use. The Client reserves any other legal or equitable rights or remedies it
may have. This indemnity does not cover alleged infringements caused by
28
<PAGE>
modifications to the work performed by PwC that are not made by PwC or that
result from the Client provided designs, specifications or other information or
from combination of such work with products or services not provided by PwC.
(c) The indemnities in this Paragraph 5 are contingent upon: (1) the indemnified
party promptly notifying the indemnifying party in writing of any claim which
may give rise to a claim for indemnification hereunder; (2) the indemnifying
party being allowed to control the defense and settlement of such claim; and (3)
the indemnified party cooperating with all reasonable requests of the
indemnifying party (at the indemnifying party's expense) in defending or
settling such claim. The indemnified party shall have the right, at its option
and expense, to participate in the defense of any action, suit or proceeding
relating to such a claim through a counsel of its own choosing.
6. LIMITATION OF LIABILITY. Other than the Client's obligations to make payments
that are due and owing under this Agreement, a party's and its affiliates'
entire and collective liability arising out of or relating to this Agreement,
including without limitation on account of performance or nonperformance of
obligations hereunder, regardless of the form of the cause of action, whether in
contract, tort (including without limitation negligence), statute or otherwise,
shall in no event exceed the amounts paid to PwC under this Agreement.
NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS AGREEMENT, NEITHER
PARTY NOR ITS AFFILIATES SHALL, UNDER ANY CIRCUMSTANCES, BE LIABLE TO THE OTHER
PARTY OR ITS AFFILIATES FOR ANY CLAIM BASED UPON ANY THIRD PARTY CLAIM (EXCEPT
AS PROVIDED FOR IN PARAGRAPH 5) OR FOR ANY CONSEQUENTIAL, INCIDENTAL, INDIRECT,
PUNITIVE, EXEMPLARY OR SPECIAL DAMAGES OF ANY NATURE WHATSOEVER, OR FOR ANY
DAMAGES ARISING OUT OF OR IN CONNECTION WITH ANY MALFUNCTIONS, DELAYS, LOSS OF
DATA, LOSS OF PROFIT, INTERRUPTION OF SERVICE OR LOSS OF BUSINESS OR
ANTICIPATORY PROFITS, EVEN IF A PARTY OR ITS AFFILIATES HAVE BEEN APPRAISED OF
THE LIKELIHOOD OF SUCH DAMAGES OCCURRING. No action,
regardless of form, arising out of this Agreement may be brought by either party
more than one (1) year after the cause of action has accrued.
7. OWNERSHIP. Title to all written material, originated and prepared for the
Client under this Agreement, shall belong to the Client. However, PwC's working
papers and PwC Confidential Information (as defined below) belong exclusively to
PwC. The ideas, concepts, know-how, techniques, inventions, discoveries,
improvements and other information relating to information processing,
telecommunications or business process re-engineering or design, developed
during the course of this Agreement by PwC and/or Client personnel, may be used
by either party, without an obligation to account, in any way it deems
appropriate, including without limitation by or for its clients or customers,
notwithstanding any provision in this Agreement to the contrary. PwC is in the
business of providing consulting services and developing computer software for a
wide variety of clients and the Client understands that PwC
29
<PAGE>
will continue these activities. Accordingly, nothing in this Agreement shall
preclude or limit PwC from providing consulting services and/or developming
software or materials for itself or other clients, irrespective of the possible
similarity of screen formats, structure, organization and sequence to materials
which might be delivered to the Client.
8. CONFIDENTIALITY. PwC agrees that all financial, statistical, marketing and
personnel data relating to the Client's business, and other information
identified as confidential information by the Client are confidential
information of the Client ("Client Confidential Information"). The Client agrees
that PwC's System Management Methodology, Change Integration(R) Methodology and
proprietary software, tools and other methodologies (including without
limitation its ChangePro(TM) software tool, KnowledgeView database and software,
BetterTech tools, and its industry and taxonomies templates), and any other
information identified as confidential by PwC, are confidential information of
PwC ("PwC Confidential Information"). Client Confidential Information and PwC
Confidential Information are collectively referred to as "Confidential
Information." Each party shall use Confidential Information of the other party
which is disclosed to it only for the purposes of this Agreement and shall not
disclose such Confidential Information to any third party, without the other
party's prior written consent, other than to PwC's subcontractors and to each
other's employees on a need-to-know basis. Each party agrees to take measures to
protect the confidentiality of the other party's Confidential Information that,
in the aggregate, are no less protective than those measures it uses to protect
the confidentiality of its own Confidential Information, but at a minimum, each
party shall take reasonable steps to advise their employees (and, in the case of
PwC, its subcontractors) of the confidential nature of the Confidential
Information and of the prohibitions on copying or revealing such Confidential
Information contained herein. PwC and the Client each agree to require that the
other party's Confidential Information be kept in a reasonably secure location.
Notwithstanding anything to the contrary contained in this Agreement, neither
party shall be obligated to treat as confidential, or otherwise be subject to
the restrictions to use, disclosure or treatment contained in this Agreement
for, any information disclosed by the other party (the "Disclosing Party")
which: (1) is rightfully known to the recipient prior to its disclosure by the
Disclosing Party; (2) is generally known or easily ascertainable by non-parties
of ordinary skill in computer or process design or programming or in the
business of the Client; (3) is released by the Disclosing Party to any other
person, firm or entity (including governmental agencies or bureaus) without
restriction; (4) is independently developed by the recipient without any
reliance on Confidential Information; or (5) is or later becomes publicly
available without violation of this Agreement or may be lawfully obtained by a
party from any nonparty. Neither party will be liable to the other for
inadvertent or accidental disclosure of Confidential Information if the
disclosure occurs notwithstanding the party's exercise of the same level of
protection and care that such party customarily uses in safeguarding its own
confidential information.
9. DELIVERABLES, MISC. Client will notify PwC, in writing within ten working
days of its receipt of any PwC deliverable under this Agreement, whether or not
the deliverable is accepted. If the deliverable is not accepted, the notice will
specify in reasonable detail the
30
<PAGE>
reasons that the deliverable fails to meet the requirements described in this
Agreement in all material respects. Acceptance by Client will not be
unreasonably withheld. The passage of ten working days without notice of
nonacceptance by Client, or use by Client of the deliverable, will constitute
acceptance by Client of the deliverable. PwC will take reasonable measures to
remedy any failure of the deliverable to meet the requirements described in this
Agreement in all material respects. Unless otherwise specifically agreed by PwC
and Client for a particular deliverable, any deliverable which has been accepted
as described above or which is used by the parties as the basis for subsequent
deliverables, will be considered to supersede (and prevail in the event of any
conflict with) any preceding deliverable created or provided pursuant to this
Agreement. The parties agree that a date or schedule contained in this Agreement
is important to achieve, but nonetheless represents an estimate and will likely
will be revised during the course of carrying out the services. However, PwC
will use all reasonably practical and diligent efforts to achieve the date or
schedule.
10. BINDING NATURE AND ASSIGNMENT. This Agreement shall be binding upon and
inure solely to the benefit of the parties hereto and their successors and
permitted assigns, and nothing in this Agreement shall confer upon any other
person or entity any legal or equitable right, benefit or remedy of any nature
whatsoever under or by reason of this Agreement, save for the parties'
affiliates as expressly provided in Paragraph 6, Limitation of Liability.
Neither party may, nor shall have the power to assign or transfer this Agreement
without the prior written consent of the other party, except that PwC may
without consent assign or transfer this Agreement to a successor to the business
of PwC to which this Agreement relates. Any claim relating to the provision of
services by PwC, its affiliates or their respective staff will be made against
PwC alone. The rights and obligations of the parties under these General Terms
and Conditions shall survive termination of this Agreement for any reason.
Without limiting the restrictions on PwC contained in Paragraph 8,
Confidentiality, PwC may refer to this engagement as an experience citation with
its clients and prospects.
11. APPROVALS AND SIMILAR ACTIONS. Where agreement, approval, acceptance,
consent or similar action by the Client or PwC is required under this Agreement,
such action shall not be unreasonably delayed or withheld.
12. CHOICE OF LAW. This Agreement will be governed by and construed in
accordance with the laws of the State of New York, without giving effect to the
conflicts of laws provisions thereof.
31
<PAGE>
Exhibit 10.25
July 8, 1999
Bob Barbiere
Vice President
Arbinet
226 E. 54th Street
New York, New York 10022
Re: IT Assessment
Dear Bob:
Thank you for selecting Breakaway, as a provider of business and technology
services to your company. Breakaway, provides quality services using
professional methods, procedures and personnel to help you and your company
accomplish your business objectives in a timely manner.
In order to begin this relationship between Arbinet and Breakaway, we recognize
the importance of having a clear definition of the goals and objectives of this
engagement. A successful relationship requires active and informed involvement
on the part of both organizations. Clearly defined ground rules reduce
misunderstandings that could impact the expected results and help maintain an
optimum delivery environment.
The following represents the consulting agreement and understanding between
Breakaway and Arbinet:
1. UNDERSTANDING AND SCOPE OF SERVICES
The scope of this project is to:
1. Assess the current state of Arbinet online exchange
initiative.
2. Provide the recommended solution as required.
The design of the IT Assessment is the following:
Balances business and technical perspectives
Evolved from architectural and organizational research funded by DARPA
Leverages Breakaway's insight and experiences into the venture space
<PAGE>
Packages consulting services into fixed price, tangible deliverable (8
to 10 page report)
Productize service to maximize the value, minimize the costs, and
ensure quality
Focus on rapid turn around to support deal cycle
The approach for the IT assessment is the following:
Review Business Plan
Construct detail Evaluation Workbook prior to visit based upon
industry, enabling technologies, and business plan review
One day visit to venture's facility
Conduct 1 hr structured interviews with a cross-section of the
venture's management & technical team: CEO, VP Marketing, VP of
Technology, and 2-3 developers
Post-visit research on key issues and competitors
Development of 8 to 10 page report by 7/19/99
The deliverable (report) format is the following:
Introduction
Findings
People
Business Model
Enabling Technology
Competitive Forces
Evaluation Steps
The overall benefits of this approach constitutes the following:
Proven approach that has been used on more than 30 engagements
Senior evaluators who have thrived in both the Fortune 500 and start-up
worlds
Objective and detailed review of business model and enabling technology
Frank assessment of management teams' experience and capacity
Identification of competitive forces
Rapid turn around with minimal impact on venture
Detailed/Actionable 8-10 page report
2
<PAGE>
2. ASSUMPTIONS
The following assumptions have been made in setting the pricing specified above.
Any deviation from these assumptions may increase the cost of the project.
The named resources from Arbinet must be available on a full time basis
during the one day IT Assessment session (i.e., Bob Barbiere, Tony
Craig, and members of the technical staff).
Breakaway must have access to the business plan prior to the beginning
of the assessment period.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
ARBINET RESOURCE PREP (DAYS) IT ASSESSMENT ASSESSMENT
SESSION (DAYS) REVIEW (DAYS)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Bob Barbiere, VP 0.25 1 0.25
- --------------------------------------------------------------------------------
Tony Craig, CEO 0 1 0.25
- --------------------------------------------------------------------------------
Ken Amron, VP
Development
- --------------------------------------------------------------------------------
Alex Mashinsky
Founder, Acting CTO
- --------------------------------------------------------------------------------
</TABLE>
NOTE: THE TIME NECESSARY FOR THESE RESOURCES MAY INCREASE AND/OR DECREASE
DEPENDING ON THE LEVEL OF SPECIFICITY REQUIRED BY THE CLIENT TEAM. WE ANTICIPATE
THAT EACH FULL DAY OF CLIENT TEAM EFFORT WILL CONSTITUTE 6 HOURS/DAY.
3. TIME FRAME
We will make every effort to begin this project as soon as possible, after
contract signing. Projects can generally begin, 2 weeks from receiving a signed
agreement based on staffing requirements. We will work with you to reach an
agreeable time frame. Our resource availability is highly dependent upon when
the services contract is signed by our client. We have schedule d a July 15th
date for this initiative.
Upon completion of the IT Assessment process Breakaway will assume that the
client (Arbinet) will proceed with the 360 Workshop and the development phase of
the project lifecycle.
3
<PAGE>
The first stage of our development process is termed an AIM (Accelerated
Implementation Model).
4. RESOURCES
Breakaway will provide resources for the project to be assigned on an as needed
basis. Project resources are described below:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
BREAKAWAY RESOURCE PREP SITE VISIT DELIVERABLE
(DAYS) SESSION (DAYS) PREPARATION
& REVIEW
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Internet Solutions VP 0 1 .5
- --------------------------------------------------------------------------------
Internet Solutions Managing 0 1 1.5
Director
- --------------------------------------------------------------------------------
Senior Consultant 1 1 1
- --------------------------------------------------------------------------------
</TABLE>
5. COST AND PAYMENT TERMS
Professional service fees stated below constitute a fixed price bid.
The fixed price bid is INCLUSIVE of out-of-pocket expenses. Out-of-pocket
expenses will include and not be limited to travel, hotel and meal per diems. In
building a business partnership with Arbinet, Breakaway is confident that this
will be a long-term and mutually beneficial one, and so expense payment is
waived at this time.
Professional service fees for the IT Assessment is listed below. We require a
50% deposit prior to beginning work. This bid is effective through July 14, 1999
and is subject to change.
ARBINET DISCOUNTED COST:
<TABLE>
<CAPTION>
- ---------------------------------------
PROJECT PHASE FIXED PRICE
- ---------------------------------------
<S> <C>
ITT Assessment $10,000
- ---------------------------------------
Total $10,000
- ---------------------------------------
</TABLE>
4
<PAGE>
The contents of the attached Standard Terms and Conditions of Breakaway are
hereby incorporated by reference, as fully stated herein.
We look forward to the opportunity to provide these services to you. Should you
have any questions, please call me at your convenience.
Very truly yours,
Thomas D. Berger
Regional Account Manager
Breakaway Solutions
5
<PAGE>
AGREEMENT
By evidence of their signature below, both parties agree to the terms and
conditions as set forth in this Engagement Letter.
Arbinet Breakaway Solutions, Inc.
By: /s/ Robert Barbierie By:
------------------------- -------------------------
Title: VP Bus & Mrkt. Dev. Title:
---------------------- ----------------------
Date: 7/11/99 Date:
----------------------- -----------------------
STANDARD TERMS AND CONDITIONS
Professional Fees & Expenses
Except for work within the scope of a fixed price engagement, we determine our
fees by actual time spent, based upon our standard rates, as stated in an
Engagement Letter. Our standard workday is normally 10 hours, but there are no
additional charges or fee premiums for "over-time." If during the course of the
engagement, we determine circumstances are such that substantially greater work
is required than is estimated we will not move forward without prior written
approval.
Reasonable out-of-pocket expenses are billed in addition to consulting time.
Out-of-pocket expenses are not normally included in estimates, but remain the
responsibility of the client.
DEPOSIT AND PAYMENT TERMS
Unless otherwise specified in an Engagement Letter, a deposit on account of 50%
of the Engagement Letter's _____ is payable upon execution of the Engagement
Letter. The deposit will be applied against the open balance at the conclusion
of the project. Invoices will be sent semi-monthly, and all invoices are payable
upon receipt.
6
<PAGE>
INTELLECTUAL PROPERTY RIGHTS
In the course of the consulting engagement, Breakaway Solutions Inc., may use
enhancements, discoveries, processes, methods, designs and know-how, whether or
not they may be copyrighted or patented, which Breakaway Solutions Inc.
conceived during the course of other consulting engagements. In addition,
Breakaway Solutions Inc. may independently develop enhancements, processes,
methods, designs or know-how during the term of this consulting engagement and
The Client acknowledges that Breakaway Solutions Inc. may use such enhancements,
processes, methods, designs and know-how in its business operations with other
clients.
LIMITATION LIABILITY
The entire liability of Breakaway Solutions Inc. to The Client, or any other
party for any loss or damage resulting from any claims, demands or actions
arising out of an Engagement Letter or the performance of or failure to perform
specific consulting services shall not exceed the fees paid to Breakaway
Solutions Inc. for the software and services rendered, except in the case of
gross negligence or intentional misconduct on the part of The Counsel Group, in
which case Breakaway Solutions Inc. will bear the cost of remedying the damage
caused by its gross negligence or intentional misconduct within 30 days of the
occurrence.
In no event will Breakaway Solutions Inc. be liable for any indirect,
incidental, consequential, special or exemplary damages whatsoever (including
without limitation damages for loss of business profits, business interruption,
loss of business information, or other pecuniary loss) arising out of this
Engagement Letter for the performance of specific consulting services or for
acts of negligence that are not reckless or intentional in nature, even if the
party has been advised of the possibility of such damages.
CONFIDENTIALITY
During the course of performing services, Breakaway Solutions Inc. and The
Client may have access to information that is confidential to one another
("Confidential Information"), including without limitation, source code,
documentation, specifications, data bases, system design, file layouts, tool
combinations, development methods. Confidential Information also includes
business or financial affairs, which may incorporate business methods, marketing
strategies, pricing, competitor information, product development strategies and
methods, costumer lists and financial results. Confidential Information also
includes information received from others, both written and oral, that each
party is obligated to treat as confidential. Confidential Information shall
7
<PAGE>
not include any information that (1) is already known by the recipient party or
its affiliates, free of any obligation to keep it confidential, (2) is or
becomes publicly known through no wrongful act of the receiving party or its
affiliates, (3) is received by the receiving party from a third party without
any restriction on confidentiality, (4) is independently developed by the
receiving party or its affiliates, (5) is disclosed to third parties by the
disclosing party without any obligation of confidentiality, or (6) is approved
for release by prior written authorization of the disclosing party.
The parties agree to maintain the confidentiality of the Confidential
Information and to protect as a trade secret any portion of the other party's
Confidential Information by preventing any unauthorized copying, use,
distribution, installation or transfer of possession of such information. Each
party agrees to maintain at least the same procedures regarding Confidential
Information that it maintains with respect to its own Confidential Information.
Each party may use the Confidential Information received from the other party
only in connection with fulfilling its obligations under a consulting
engagement.
INDEPENDENT CONTRACTOR
Breakaway Solutions Inc. is an independent contractor. Neither Breakaway
Solutions Inc. nor The Client are, or shall be deemed for any purpose to be,
employees or agents of the other and neither party shall have the power or
authority to bind the other party to any contract or obligation. Breakaway
Solutions Inc. shall retain the right to perform work for others during the term
of a consulting engagement.
REGARDING BREAKAWAY SOLUTIONS INC. EMPLOYEES
Whereas Breakaway Solutions Inc. regards its employees as valuable assets, it is
expected that The Client will in no way solicit for hire or for consulting
services outside of a consulting engagement with Breakaway Solutions Inc.
without written authorization from the President of Breakaway Solutions Inc. for
a period of at least one year following termination of such employee from
Breakaway Solutions Inc. If authorization is given to client to hire any
Breakaway Solutions Inc. employee, it is expected that satisfactory compensation
will be given to Breakaway Solutions Inc. for such privilege, which will be
agreed upon by both parties.
8
<PAGE>
INSURANCE
Breakaway Solutions Inc. warrants that it maintains all normal business
insurance required for a Delaware corporation doing business in the Commonwealth
of Massachusetts.
WARRANTIES
Breakaway Solutions Inc. warrants that it has full power and authority to enter
into a Consulting Engagement with The Client. Breakaway Solutions Inc. warrants
that all services will be performed consistent with generally accepted industry
standards and in a workmanlike manner by qualified personnel. Breakaway
Solutions Inc. disclaims all other warranties, either express or implied,
including but not limited to implied warranties of merchantability and fitness
for a particular purpose, with respect to products and services that may be
provided herein.
Third-party commercial software vendors offer warranties for software licenses
purchased by The Client. Breakaway Solutions Inc. DOES NOT warrant in any way
software manufactured by any third-party.
TERMINATION
Either party may terminate services performed under this agreement with 10 days
notice to the other party without cause, or immediately with reasonable cause.
Work not performed to the reasonable satisfaction of The Client, or failure
reasonably to pay invoices for services rendered shall be considered reasonable
cause. Upon termination for any reason, Breakaway Solutions Inc. shall be paid
all hourly fees earned to the point of termination.
Arbitration and Litigation
Any controversy or claim arising out of or relating to this Agreement or the
breach thereof will be settled by arbitration by a single arbitrator in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association (AAA) then in effect, and judgment upon the award rendered by the
arbitrator may be entered in any court having jurisdiction. Any such arbitration
will be conducted in or near Boston, Massachusetts. The prevailing party shall
be entitled to receive from the other party its attorney's fees and costs
incurred in connection with any action, proceeding or arbitration hereunder.
9
<PAGE>
Either party, before or during any arbitration, may apply to a court having
jurisdiction for a temporary restraining order or preliminary injunction, where
such relief is necessary to protect its interest pending completion of the
arbitration proceedings.
GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the laws of
the Commonwealth of Massachusetts.
SEVERABILITY
In the event any one or more of the provisions of this Agreement is held to be
invalid or otherwise unenforceable, the enforceability of the remaining
provisions shall be unimpaired.
ASSIGNMENT
This Agreement, and any right or obligation under this Agreement, may not be
assigned, transferred or delegated by either party without the express written
consent of the other party, which consent may be withheld by either party at its
sole discretion.
FORCE MAJEURE
Breakaway Solutions Inc. shall not be responsible for failure to perform in a
timely manner under a Consulting Engagement when its failure results from any of
the following causes: acts of God or public enemies, civil war, insurrection or
riot, fire, flood, explosion, earthquake or serious accident, strike, labor
trouble or work interruption or any cause beyond its reasonable control.
ENTIRE AGREEMENT
In conjunction with a fully executed Engagement Letter, these Terms & Conditions
constitutes the entire Agreement between the parties. Each party agrees that the
Engagement Letter and Terms & Conditions are the complete and exclusive
statement of the parties regarding the specific subject matter hereof and
supersedes and merges all prior proposals, understandings and agreements, oral
or written, between the parties
10
<PAGE>
relating to the subject matter hereof, including without limitation, the terms
of any request for proposal issued to The Client or the standard printed terms
on any purchase order issued by The Client. No modification, amendment,
supplements to or waiver of this Agreement shall be binding upon the parties
unless made in writing and duly signed by both parties.
11
<PAGE>
Exhibit 21.1
Subsidiaries of Arbinet Holdings, Inc.
Name Jurisdiction of Incorporation
- ---- -----------------------------
ArbinNet Services, Inc. Delaware
ABNT, Inc. Delaware
ANIP, Inc. (f/k/a SNIP, Inc.) Nevada
ArbiNET, Inc. Delaware
ArbiNet Communications, Inc. New Jersey
AriNet Japan Co., Ltd. Japan
ArbiNet Israel Ltd. Israel
ArbiNet Communications, Hong Kong, Ltd. Hong Kong
Bell Fax, Inc. Delaware
Bell Fax II, Inc. Delaware
ArbiNet Enhanced Services, Inc. Delaware
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
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.
Arthur Andersen LLP
New York, New York
March 8, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 25,768,227
<SECURITIES> 0
<RECEIVABLES> 465,962
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 27,100,080
<PP&E> 3,266,296
<DEPRECIATION> 316,790
<TOTAL-ASSETS> 31,095,845
<CURRENT-LIABILITIES> 7,421,238
<BONDS> 813,232
36,515,541
0
<COMMON> 8,967
<OTHER-SE> (13,663,133)
<TOTAL-LIABILITY-AND-EQUITY> 31,095,845
<SALES> 0
<TOTAL-REVENUES> 649,393
<CGS> 0
<TOTAL-COSTS> 2,925,012
<OTHER-EXPENSES> 9,979,134
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 88,204
<INCOME-PRETAX> (12,204,759)
<INCOME-TAX> 0
<INCOME-CONTINUING> (12,204,759)
<DISCONTINUED> (2,699,086)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (14,903,845)
<EPS-BASIC> (2.87)
<EPS-DILUTED> (2.87)
</TABLE>
