SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted
by Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-12
IBASIS, INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the
Registrant)
Payment of Filing Fee (Check the appropriate box):
/ / No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction
applies:
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(2) Aggregate number of securities to which transaction
applies:
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(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how
it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) TOTAL FEE PAID:
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/X/ Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or
Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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[LOGO]
Fellow Stockholders:
iBasis, Inc. and PriceInteractive, Inc. have entered into a merger agreement
pursuant to which PriceInteractive, Inc. will be merged with and into a
wholly-owned subsidiary of iBasis. The board of directors of iBasis is seeking
your approval of the issuance of shares of iBasis common stock in connection
with this important transaction. The board of directors and stockholders of
PriceInteractive have already approved the merger and the merger agreement, and
certain shareholders of iBasis who held, in the aggregate, approximately 29.6%
of the outstanding shares of iBasis common stock on the record date referred to
below, have agreed with PriceInteractive to vote their shares in favor of the
issuance of the shares in the merger. We are sending you this proxy statement to
describe the proposed merger.
As more fully described in this proxy statement, as a result of the merger,
iBasis expects to issue an aggregate of approximately 10,232,243 shares of
iBasis common stock, and approximately $46.0 million in cash, to the holders of
the issued and outstanding capital stock of PriceInteractive and "vested"
options to acquire PriceInteractive common stock. The actual number of shares of
iBasis common stock issued upon the closing of the merger will be subject to
increase on a proportional basis if the number of outstanding iBasis shares on a
fully-diluted basis, as provided in the merger agreement, increases prior to the
effective time of the merger, and may also be increased in the sole discretion
of the board of directors of iBasis, if it determines it is necessary to do so
to obtain "reorganization" tax treatment for the transaction. iBasis will also
assume all outstanding unvested options to purchase PriceInteractive common
stock up to a maximum number, which will become options to purchase iBasis
common stock and cash in the same ratio as the outstanding shares of
PriceInteractive stock convert into iBasis common stock and cash. In the event
that the maximum number of such options become exercisable and are exercised,
iBasis would issue an additional 1,021,434 shares of iBasis common stock, based
on the $9.28 per share closing price on January 30, 2001, and approximately $4.2
million in cash upon exercise thereof. The number of shares issuable upon
exercise of options to be assumed will also increase if the number of shares to
be issued at the closing of the merger increases, or if the market price of the
iBasis common stock changes. In the event that the board of directors elects to
increase the number of shares to be issued at the closing of the merger, you
will not have an opportunity to vote again on this transaction.
iBasis' common stock is traded on the Nasdaq Stock Market under the trading
symbol "IBAS". On January 30, 2001, our common stock closed at approximately
$9.28 per share. Based on the $6.69 closing price per share of iBasis common
stock on December 12, 2000, the last full day of trading prior to the public
announcement of the proposed merger, the total value of the consideration, in
cash and stock, to be received at closing would be $114.0 million. Based on the
number of shares of iBasis' common stock outstanding as of December 31, 2000,
following the merger, assuming no exercise of presently outstanding iBasis stock
options or options to purchase PriceInteractive stock, including options that
will be assumed by iBasis in the merger, and no increase in the number of shares
issued at closing, the shares of iBasis common stock owned by PriceInteractive
stockholders will represent approximately 23% of the outstanding common stock of
iBasis.
In connection with the proposed merger, and for other reasons discussed in
this proxy statement, the iBasis board of directors is also asking you to
approve an amendment to our 1997 Stock Incentive Plan in order to increase the
number of shares of common stock that may be issued under the plan.
The board of directors of iBasis has unanimously approved the merger and
recommends that you vote "FOR" the issuance of shares of iBasis common stock
pursuant to the merger agreement and "FOR" the amendment to the 1997 Stock
Incentive Plan. We cannot complete the merger or ratify the amendment to the
1997 Stock Incentive Plan unless a majority of the iBasis stockholders present
at the meeting and entitled to vote, approve the issuance of shares of iBasis
common stock pursuant to the merger agreement and the amendment. This proxy
statement provides you with detailed information about the merger and the
amendment to the 1997 Stock Incentive Plan. We encourage you to read this proxy
statement carefully.
The date and time of the special meeting is as follows:
DATE: FEBRUARY 27, 2001
TIME: 9 A.M.
PLACE: 20 SECOND AVE.
BURLINGTON, MA 01803
Your vote is very important, regardless of the number of shares you own.
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE TAKE THE TIME TO
VOTE BY COMPLETING AND MAILING THE ENCLOSED PROXY CARD.
[LOGO]
Ofer Gneezy
PRESIDENT AND CHIEF EXECUTIVE OFFICER
IBASIS, INC.
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NOTICE OF SPECIAL STOCKHOLDERS' MEETING
DATE: FEBRUARY 27, 2001
TIME: 9 A.M.
PLACE: 20 SECOND AVE.
BURLINGTON, MA
01803
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To the Stockholders of iBasis, Inc.:
Notice is hereby given that a special meeting of stockholders of iBasis,
Inc. will be held on February 27, 2001 at 9 a.m. at the offices of iBasis, Inc.
located at 20 Second Ave, Burlington, Massachusetts. At the meeting you will be
asked to consider and vote on:
1. The approval of the issuance of shares of iBasis common stock pursuant to an
Agreement and Plan of Merger and Reorganization among iBasis, Inc.,
PriceInteractive, Inc., a majority of PriceInteractive's stockholders and
Penguin Acquisition Corp., a wholly owned subsidiary of iBasis, whereby (i)
PriceInteractive will be merged with and into Penguin Acquisition Corp.,
(ii) iBasis will issue an aggregate of approximately 10,232,243 shares of
iBasis common stock, such number subject to increase on a proportional basis
if the number of outstanding shares of iBasis common stock on a
fully-diluted basis, as provided in the merger agreement, increases between
the date of this proxy statement and the effective time of the merger, or in
the sole discretion of iBasis' board of directors, if it determines that it
is necessary to do so to obtain "reorganization" tax treatment for the
transaction, and approximately $46.0 million in cash to the holders of the
issued and outstanding capital stock of PriceInteractive and "vested"
options to acquire PriceInteractive Stock, with such cash and stock issued
in respect of options being distributed upon the exercise of these options,
(iii) iBasis will assume up to a maximum number of outstanding unvested
options to purchase PriceInteractive stock, which will become options to
purchase iBasis common stock and cash in the same ratio as the outstanding
shares of PriceInteractive convert into iBasis common stock and cash, and
(iv) Daniel J. Price will be appointed to the Board of Directors of iBasis
to fill a vacancy;
2. The approval of an increase in the aggregate number of shares of iBasis
common stock that may be issued or transferred pursuant to options or
restricted stock awards under iBasis' 1997 Stock Incentive Plan from
5,700,000 shares to 9,000,000 shares; and
3. Such other business as may properly come before the iBasis special meeting
or any adjournments or postponements, including potential postponements or
adjournments for the purpose of soliciting additional proxies in order to
approve the above proposals.
The iBasis board of directors has carefully considered the terms of the
proposed merger and has determined that the terms of the merger agreement are
fair and in the best interests of iBasis and its stockholders. The iBasis board
of directors has unanimously approved the merger agreement and recommends that
you vote "FOR" the approval of the issuance of shares of iBasis common stock
pursuant to the merger agreement. In additional, the iBasis board of directors
has unanimously approved the amendment to the 1997 Stock Incentive Plan and
recommends that you vote "FOR" the ratification of such approval.
Only holders of record of voting shares of iBasis common stock at the close
of business on December 29, 2000, the record date for the iBasis special
meeting, are entitled to notice of, and to vote at, the special meeting and any
adjournment or postponement of the special meeting. All costs associated with
the solicitation of your vote will be borne by iBasis. Each of the approval of
the issuance of shares of iBasis common stock pursuant to the merger agreement
and the ratification of the
amendment to the 1997 Stock Incentive Plan will require the affirmative vote of
a majority of the shares of iBasis common stock entitled to vote and present at
the special meeting.
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE, SIGN
AND DATE THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED POSTAGE-PAID
ENVELOPE. YOU MAY VOTE IN PERSON AT THE SPECIAL MEETING, EVEN IF YOU HAVE
RETURNED A PROXY.
By order of the board of directors of iBasis,
Inc.
[LOGO]
JONATHAN DRALUCK, SECRETARY
Burlington, Massachusetts
January 31, 2001
TABLE OF CONTENTS
THE SPECIAL MEETING......................................... 1
Time & Place.............................................. 1
Purpose................................................... 1
Record Date............................................... 1
Quorum.................................................... 1
Proxies................................................... 2
Solicitation of Proxies................................... 2
QUESTIONS AND ANSWERS ABOUT THE MERGER...................... 3
PROPOSAL NO. 1--ISSUANCE OF SHARES IN THE MERGER............ 5
Summary of the Transaction.................................. 5
Selected Financial Data of iBasis........................... 10
Selected Financial Data of PriceInteractive................. 11
Selected Unaudited Pro Forma Condensed Combined Financial 12
Information...............................................
Comparative Per Share Data iBasis and PriceInteractive...... 14
Market Price and Dividend Data of iBasis and 15
PriceInteractive..........................................
The Merger.................................................. 16
Background of the Merger.................................. 16
Reasons for the Merger.................................... 18
Recommendation of the Boards of Directors................. 18
Interests of Directors and Management of iBasis in the 22
Merger..................................................
Effective Time of the Merger.............................. 22
Material United States Federal Income Tax Consequences.... 22
Accounting Treatment...................................... 24
Regulatory Approvals...................................... 24
Listing of Shares of iBasis Common Stock on the Nasdaq 24
Stock Market............................................
Appraisal Rights.......................................... 24
Opinion of Robertson Stephens, Inc.......................... 24
The Merger Agreement........................................ 31
General; Conversion of Shares............................. 31
Board of Directors and Certificate of Incorporation....... 32
Exchange Of Shares........................................ 32
Surrender of Shares of PriceInteractive Stock........... 32
Dissenting Shares....................................... 32
Distributions with Respect to Unexchanged Shares........ 32
No Further Ownership Rights in PriceInteractive stock... 32
Fractional Shares....................................... 33
Treatment of PriceInteractive Options..................... 33
Representations and Warranties............................ 33
Covenants................................................. 34
Additional Agreements..................................... 37
Non-Negotiable Convertible Subordinated Promissory 37
Note...................................................
Amended and Restated Registration Rights Agreement...... 37
Amended and Restated Stockholders Agreement............. 37
iBasis Registration Rights Agreement.................... 37
Escrow Agreement........................................ 38
iBasis Voting Agreement................................. 38
Lock-up Agreement....................................... 38
Non-competition and Non-solicitation Agreement.......... 38
i
Conditions................................................ 38
Stockholder Representatives............................... 40
Indemnification........................................... 40
Termination............................................... 41
The Escrow Agreement........................................ 42
The Voting Agreement........................................ 43
The Registration Rights Agreement........................... 43
Management's Discussion and Analysis of Financial Condition 44
and Results of Operations of PriceInteractive.............
PriceInteractive Disclosure on Market Risk.................. 49
Information Concerning PriceInteractive..................... 50
Principal Stockholders of iBasis............................ 53
Principal Stockholders of PriceInteractive.................. 55
PROPOSAL NO. 2--RATIFICATION OF ADOPTION AND APPROVAL OF 57
AMENDMENT TO 1997 STOCK INCENTIVE PLAN....................
Financial Statements........................................ F-1
ATTACHMENTS
Appendix A-- Merger Agreement
Appendix B--Escrow Agreement
Appendix C--Voting Agreement
Appendix D--Opinion of Robertson Stephens, Inc.
Appendix E--1997 Stock Incentive Plan
Form of iBasis Proxy Card
ii
[LOGO]
This Proxy Statement is being furnished to the stockholders of iBasis, Inc.,
in connection with a special meeting of stockholders to be held on February 27,
2001, at 9 a.m. at the corporate offices of iBasis which are located at 20
Second Avenue, Burlington, Massachusetts, and at any adjournments or
postponements of that special meeting. At the special meeting, the stockholders
of iBasis will consider and vote upon the following proposals:
1. The approval of the issuance of shares of iBasis common stock pursuant to an
Agreement and Plan of Merger and Reorganization among iBasis, Inc.,
PriceInteractive, Inc., a majority of PriceInteractive's stockholders and
Penguin Acquisition Corp., a wholly owned subsidiary of iBasis, whereby (i)
PriceInteractive will be merged with and into Penguin Acquisition Corp.,
(ii) iBasis will issue an aggregate of approximately 10,232,243 shares of
iBasis common stock, such number subject to increase on a proportioal basis
if the number of outstanding shares of iBasis common stock on a
fully-diluted basis, as provided in the merger agreement, increases between
the date of this proxy statement and the effective time of the merger, or in
the sole discretion of iBasis' board of directors, if it determines that it
is necessary to do so to obtain "reorganization" tax treatment for the
transaction, and approximately $46.0 million in cash to the holders of the
issued and outstanding capital stock of PriceInteractive and "vested"
options to acquire PriceInteractive Stock, with such cash and stock issued
in respect of options being distributed upon the exercise of these options,
(iii) iBasis will assume up to a maximum number of outstanding unvested
options to purchase PriceInteractive stock, which will become options to
purchase iBasis common stock and cash in the same ratio as the outstanding
shares of PriceInteractive convert into iBasis common stock and cash, and
(iv) Daniel J. Price will be appointed to the Board of Directors of iBasis
to fill a vacancy;
2. The approval of an increase in the aggregate number of shares of iBasis
common stock that may be issued or transferred pursuant to options or
restricted stock awards under iBasis' 1997 Stock Incentive Plan from
5,700,000 shares to 9,000,000 shares; and
3. Such other business as may properly come before the iBasis special meeting
or any adjournments or postponements, including potential postponements or
adjournments for the purpose of soliciting additional proxies in order to
approve the above proposals.
RECORD DATE. iBasis has established the close of business on December 29,
2000, as the record date to determine iBasis stockholders entitled to vote at
the special meeting. At the close of business on the record date, 34,201,833
shares of iBasis common stock were outstanding and entitled to vote at the
special meeting, and were held by approximately 332 record holders. These iBasis
shares constitute the only outstanding class of iBasis voting securities. Each
holder of a share of iBasis common stock is entitled to one vote on the merger
agreement. Votes may be cast at the meeting in person or by proxy.
QUORUM. The presence at the special meeting, either in person or by proxy,
of a majority of the iBasis common shares outstanding on the record date is
necessary to constitute a quorum to transact business at that meeting. If a
quorum is not present, it is expected that the special meeting will be adjourned
or postponed in order to solicit additional proxies.
Abstentions will be counted solely for the purpose of determining whether a
quorum is present.
VOTE REQUIRED. Each of the approval of the issuance of shares of iBasis
common stock pursuant to the merger agreement and the ratification of the
amendment to the 1997 Stock Incentive Plan will require the affirmative vote of
a majority of the shares of iBasis common stock present at the special meeting
and entitled to vote. Failure to vote or broker "non-votes" will not be deemed
to be cast
1
either "FOR" or "AGAINST" the proposals. Because approval of the issuance of
shares pursuant to the merger agreement requires the affirmative vote of a
majority of the shares present at the special meeting and entitled to vote,
abstentions will have the effect of a vote cast "AGAINST" a proposal.
iBasis' directors and executive officers owned, as of the record date,
approximately 10.6 million shares of iBasis common stock, which represented
approximately 30.9% of the outstanding shares of iBasis common stock. As a
condition to PriceInteractive's willingness to enter into the merger agreement,
certain iBasis stockholders holding, in the aggregate, approximately 29.6% of
the outstanding shares of iBasis common stock on the record date have agreed to
vote their shares "FOR" the merger agreement. This voting agreement is described
more fully in the section entitled "The Voting Agreement."
PROXIES. iBasis shares represented by properly executed proxies, if such
proxies are received in time and are not revoked, will be voted in accordance
with instructions indicated on the proxies. If no instructions are indicated,
those proxies will be voted "FOR" approval of each of the proposals, and as
determined by iBasis' board of directors as to any other matter that may
properly come before the special meeting. In the event that a quorum is not
present at the time the special meeting is convened, iBasis may postpone the
meeting or may adjourn the meeting with or without a vote of stockholders. If
iBasis proposes to postpone or adjourn the special meeting by a vote of
stockholders, the persons named in the enclosed form of proxy will vote all
iBasis shares for which they have voting authority in favor of a postponement or
adjournment. However, those persons will not vote any iBasis shares for which
they have been instructed to vote against the approval of the issuance of shares
of iBasis common stock pursuant to the merger agreement or the amendment to the
1997 Stock Incentive Plan in favor of that postponement or adjournment.
Any iBasis stockholder that executes and returns a proxy may revoke it at
any time prior to the voting of the proxies by giving written notice to the
secretary of iBasis, by executing a later dated proxy, or by attending the
iBasis special meeting and voting in person.
All written notices of revocation and other communications with respect to
revocation of proxies should be addressed to iBasis, 20 Second Ave., Burlington,
MA, 01803, Attention: Investor Relations. A proxy appointment will not be
revoked by death or incapacity of the iBasis stockholder executing the proxy
unless, before the shares are voted, notice of such death or incapacity is filed
with iBasis' secretary or other person responsible for tabulating votes on
iBasis' behalf.
Your attendance at the special meeting will not by itself constitute
revocation of your proxy--you must also vote in person at the special meeting.
SOLICITATION OF PROXIES. iBasis will pay all expenses incurred in
connection with the printing and mailing of this proxy statement to iBasis'
stockholders and the fees related to the filing of this proxy statement with the
SEC. It is expected that approximately $100,000 will be spent in connection with
the solicitation of iBasis' stockholders.
All information concerning iBasis contained in this Proxy Statement has been
furnished by iBasis and all information concerning PriceInteractive, Inc. has
been furnished by PriceInteractive. iBasis has warranted to PriceInteractive,
and PriceInteractive has warranted to iBasis, that the particular information
furnished by them does not contain any untrue statement of a material fact or
omit to state a material fact necessary to make such information not misleading
This proxy statement is dated January 31, 2001, and was first mailed to
stockholders of iBasis on or about February 2, 2001.
2
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHAT IS THE PROPOSED MERGER?
A PriceInteractive, Inc. will merge with and into a wholly owned subsidiary of
iBasis. As a result, the separate corporate existence of PriceInteractive
will cease, and PriceInteractive stockholders and holders of vested options
to purchase PriceInteractive common stock will exchange their shares of
PriceInteractive capital stock or options for their proportional share of
approximately 10,232,243 shares of iBasis common stock and approximately
$46.0 million in cash, with the cash and stock issued in respect of options
being distributed upon the exercise of these options. The actual number of
shares of iBasis common stock issued upon the closing of the merger will be
subject to increase on a proportional basis if the number of outstanding
iBasis shares on a fully-diluted basis, as provided in the merger agreement,
increases prior to the effective time of the merger. In addition, iBasis
will assume up to a maximum number of outstanding unvested options to
purchase PriceInteractive stock, the exercise of all of which after the
closing of the merger would require iBasis to issue an additional 1,021,434
shares of iBasis common stock, based upon the $9.28 per share closing price
on January 30, 2001, and approximately $4.2 million in cash. Further, iBasis
has the right, exercisable in the sole discretion of its board of directors,
to increase the number of shares of iBasis common stock to be issued to the
PriceInteractive stockholders at the closing of the merger. iBasis does not
currently intend to exercise this right, although it may choose to do so if
it determines that it is necessary to do so to obtain "reorganization" tax
treatment for the transaction. Any increase in the number of shares issued
at the closing of the merger, or a change in the market price of iBasis
common stock, would also result in an increase in the number of shares
issuable upon the exercise of options assumed by iBasis. In the event that
the iBasis board of directors elects to increase the number of shares of
stock issued in the transaction, you will not have an opportunity to vote
again on the transaction.
Q: WHY IS IBASIS PROPOSING TO ACQUIRE PRICEINTERACTIVE?
A: The acquisition of PriceInteractive is an important step in iBasis' strategy
to enhance the capabilities of its global voice Internet telephony
infrastructure with new, speech-enabled services that combine the power of
the Internet with the convenience, simplicity and ubiquity of the phone.
Q: WHAT DO I NEED TO DO NOW?
A: After carefully reading and considering the information contained in this
proxy statement, please complete and sign your proxy and return it in the
enclosed return envelope as soon as possible, so that your shares may be
represented and voted at the iBasis special meeting of stockholders. If you
sign and send in your proxy and do not indicate how you want to vote, your
proxy will be counted as a vote FOR the issuance of shares of iBasis common
stock pursuant to the merger agreement and the proposed amendment to iBasis'
1997 Stock Incentive Plan. If you do not attend the special meeting and you
do not return your proxy card, it will have no effect on the adoption of the
merger agreement or the ratification of the amendment to our stock incentive
plan.
Q: CAN I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY?
A: Yes. You can change your vote at any time before your proxy is voted at the
special meeting. First, you can send a written notice stating that you would
like to revoke your proxy. Second, you can complete and submit a new proxy.
If you choose either of these two methods, you must submit your notice of
revocation or your new proxy to the secretary of iBasis at the address set
forth in the answer to the last question below. Third, you can attend the
special meeting and vote in person.
3
Q: HOW DOES THE IBASIS BOARD OF DIRECTORS RECOMMEND I VOTE MY SHARES?
A: After considering all of the factors and risks associated with the merger,
the iBasis board of directors concluded that the terms of the merger and the
amendment of the stock incentive plan, are fair to, and in the best
interests of, the stockholders, and the board recommends that you vote your
shares in favor of the issuance of shares of iBasis common stock pursuant to
the merger agreement and the amendment of the stock incentive plan.
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: We expect to complete the merger in the first quarter of 2001. However,
because the merger is subject to governmental approvals, we cannot predict
the exact timing.
Q: IS THE MERGER TAXABLE?
A: iBasis expects that, for U.S. federal income tax purposes, the merger will
not cause iBasis, PriceInteractive, or Penguin Acquisition Corp., the
wholly-owned subsidiary of iBasis into which PriceInteractive will merge, to
recognize any gain or loss. We describe the material U.S. federal income tax
consequences of the merger in more detail elsewhere in this proxy statement.
For a discussion of the federal income tax consequences of the merger,
please see the section entitled "The Merger--Material United States Federal
Income Tax Consequences" elsewhere in this proxy statement.
Q: WHO CAN HELP ANSWER MY QUESTIONS?
A: If you have any questions about the merger or the related amendment to the
stock incentive plan or if you need additional copies of this proxy
statement, you should contact:
iBasis, Inc.
Attn.: Jonathan Draluck, General Counsel
20 Second Ave.
Burlington, MA 01803
Tel.: (781) 505-7500
4
PROPOSAL NO. 1: ISSUANCE OF SHARES IN THE MERGER
SUMMARY OF THE TRANSACTION
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS PROXY STATEMENT AND
MAY NOT CONTAIN ALL OF THE INFORMATION THAT IS IMPORTANT TO YOU. TO BETTER
UNDERSTAND THE PROPOSED MERGER AND ISSUANCE OF SHARES OF IBASIS COMMON STOCK,
YOU SHOULD READ CAREFULLY THIS ENTIRE PROXY STATEMENT AND THE DOCUMENTS TO WHICH
WE HAVE REFERRED YOU. WE HAVE SOMETIMES INCLUDED PAGE REFERENCES OR SECTION
REFERENCES TO DIRECT YOU TO MORE COMPLETE DESCRIPTIONS OF THE TOPICS PRESENTED
IN THIS SUMMARY.
THE COMPANIES
IBASIS, INC.
We are a leading provider of high quality Internet telephony services that
enable telecommunications carriers and other communications service providers to
offer international voice, fax and other value-added applications over the
Internet. By outsourcing international communications services to us, our
customers are able to lower costs, generate new revenue and extend their
business into Internet-based services quickly, while maintaining service quality
comparable to that of traditional voice networks. Substantially all of our
revenue to date has come from fees we charge our customers to carry voice and
fax traffic over the iBasis Network, our international telecommunications
network. We have not been profitable since inception, and there can be no
assurance that we will ever be profitable.
We provide telecommunications carriers and other communications service
providers with access to the iBasis Network through "Internet branch offices"
strategically located in major cities in Asia, Latin America, Europe and Africa.
Internet branch offices are composed of gateways, which digitize, compress and
packetize voice and fax transmissions at both the originating and terminating
points and enable calls to be routed via the Internet.
iBasis, Inc. is a Delaware corporation organized in 1996. We changed our
name to iBasis, Inc. from VIP Calling, Inc. in July 1999. Our principal
executive offices are located at 20 Second Avenue in Burlington, Massachusetts
and our telephone number is (781) 505-7500. Our Website is located at
WWW.IBASIS.NET. Information contained on our Website should not be considered a
part of this proxy statement.
PRICEINTERACTIVE, INC.
Founded in 1997, PriceInteractive is a recognized speech application service
provider to Fortune 500 enterprises, telecommunications carriers and operators
of e-commerce sites and portals. PriceInteractive's mission is to voice-enable
the Internet economy by rapidly extending Web-based applications to telephones
and wireless devices.
PriceInteractive recently announced its high capacity flagship service,
SpeechPort, which makes available "Web-bound" content, customer relationship
management applications and e-commerce opportunities to wireless and fixed
telephones through an advanced speech recognition interface. PriceInteractive
believes that SpeechPort is one of the first application service provider
services specifically focused on bringing Web content to telephones and wireless
devices. Initial customers include AT&T, Worldcom and MicroStrategy.
PriceInteractive believes that SpeechPort enables ubiquitous access for a
business' information in support of its e-business, e-commerce, e-customer
relationship management, or ERP initiatives. Although the service is designed
primarily to extend Web-based applications, it also provides the ability to
extend legacy applications to the telephone. PriceInteractive also provides a
line of interactive voice response services under the name IPort. IPort services
accounted for approximately 87% of PriceInteractive's total revenue during the
nine months ended September 30, 2000.
PriceInteractive, Inc. is a Delaware corporation organized in 1997.
PriceInteractive's principal executive offices are located at 11800 Sunrise
Valley Drive, Suite 820 in Reston, Virginia and their telephone number is (703)
620-4700. The PriceInteractive Website is located at WWW.PRICEINTERACTIVE.COM.
5
Information contained on the PriceInteractive Website should not be considered a
part of this proxy statement.
REASONS FOR THE MERGER (SEE PAGE 18)
The iBasis board of directors considered a number of factors in determining
to approve the merger.
- The potential for iBasis to establish an immediate presence in the global
market for value added telecom services;
- The opportunity to diversify iBasis' revenue stream into high growth
markets for value added services;
- The products and services offered by the combined company are anticipated
to increase demand for additional minutes of use across the global iBasis
network; and
- The potential to accelerate iBasis' profitability.
To review these and other considerations in more detail, see "Reasons for
the Merger" on page 18.
THE MERGER (SEE PAGE 16)
iBasis and PriceInteractive have entered into a definitive agreement that
provides for the merger of PriceInteractive with and into a wholly owned
subsidiary of iBasis. As a result of the merger, the separate corporate
existence of PriceInteractive will cease, but its business will be carried on by
the wholly-owned subsidiary of iBasis. We encourage you to read the merger
agreement, which is attached to this proxy statement as APPENDIX A, as it is the
principal legal document that governs the merger.
If the issuance of shares of iBasis common stock pursuant to the merger
agreement is approved, as a result of the merger, PriceInteractive stockholders
and holders of vested options to purchase PriceInteractive common stock will
exchange their shares of PriceInteractive capital stock or options for their
proportional share of approximately 10,232,243 shares of iBasis common stock,
subject to increase on a proportional basis if the number of outstanding shares
of iBasis common stock on a fully-diluted basis, as provided in the merger
agreement, increases between the date of this proxy statement and the effective
time of the merger, or in the sole discretion of iBasis' board of directors, if
it determines that it is necessary to do so to obtain "reorganization" tax
treatment for the transaction, and approximately $46.0 million in cash, with the
cash and stock issued in respect of options being distributed upon the exercise
of these options. In addition, iBasis will assume up to a maximum number of
outstanding unvested options to purchase PriceInteractive stock, the exercise of
all of which after the closing of the merger would require iBasis to issue an
additional 1,021,434 shares of iBasis common stock, based on the $9.28 per share
closing price on January 30, 2001, and approximately $4.2 million in cash. Any
increase in the number of shares issued at the closing of the merger, or a
change in the market price of the iBasis common stock, would also result in an
increase in the number of shares issuable upon the exercise of options assumed
by iBasis.
VOTE REQUIRED OF IBASIS STOCKHOLDERS (SEE PAGE 1)
Under the rules and regulations of the Nasdaq Stock Market, the issuance of
shares of iBasis common stock pursuant to the merger agreement must be approved
by a majority of the shares of iBasis stock present and entitled to vote at the
special meeting. iBasis stockholders holding in excess of 29.6% of the shares of
iBasis common stock currently outstanding and entitled to vote have entered into
a voting agreement with PriceInteractive. Under the terms of this voting
agreement, these iBasis stockholders have agreed to vote their shares for the
approval of the issuance of shares of iBasis common stock pursuant to the merger
agreement. For more information, please see "The Voting Agreement" on page 43 of
this proxy statement.
6
OWNERSHIP OF IBASIS FOLLOWING THE MERGER (SEE PAGE 31)
PriceInteractive stockholders and holders of vested options to purchase
PriceInteractive common stock will exchange their shares of PriceInteractive
capital stock or options for their proportional share of approximately
10,232,243 shares of iBasis common stock, subject to increase on a proportional
basis if the number of outstanding shares of iBasis common stock on a
fully-diluted basis increases between the date of this proxy statement and the
effective time of the merger, or in the sole discretion of iBasis' board of
directors, if it determines that it is necessary to do so to obtain
"reorganization" tax treatment for the transaction, and approximately $46.0
million in cash, with the cash and stock issued in respect of options being
distributed upon the exercise of these options. In addition, iBasis will assume
up to a maximum number of outstanding unvested options to purchase
PriceInteractive stock, the exercise of all of which after the closing of the
merger would require iBasis to issue an additional 1,021,434 shares of iBasis
common stock, based on the $9.28 closing price per share on January 30, 2001,
and approximately $4.2 million in cash. Based on the number of shares of iBasis
common stock outstanding as of December 31, 2000, following the merger, assuming
no exercise of presently outstanding iBasis stock options or options to purchase
PriceInteractive stock, including options that will be assumed by iBasis in the
merger, and assuming no increase in the number of shares issued by iBasis at the
closing, the shares of iBasis common stock owned by PriceInteractive
stockholders will represent approximately 23% of the outstanding common stock of
iBasis.
CONDITIONS TO THE MERGER (SEE PAGE 38)
iBasis and PriceInteractive are not obligated to complete the merger unless
a number of conditions and events are satisfied and have occurred. As the
conditions to complete the merger, in many cases, may be waived by the parties,
stockholders should not unduly rely on the satisfaction of these conditions
prior to, or even after, the completion of the merger. These conditions and
events include the following:
- the affirmative vote of the iBasis stockholders on the issuance of shares
of iBasis common stock pursuant to the merger agreement has been obtained;
- no more than 5% of the issued and outstanding PriceInteractive stock will
have exercised dissenters' rights;
- any applicable waiting periods under antitrust laws must expire or be
terminated, and any other required government approvals must have been
obtained;
- a registration statement on Form S-3 registering the shares of iBasis
common stock received in the merger for resale by the holders of such
stock must have become effective under the Securities Act and must not be
the subject of any stop order or proceedings seeking a stop order;
- certain named employees of PriceInteractive must have entered into
non-competition and non-solicitation agreements;
- each PriceInteractive stockholder required to do so will have executed a
lock-up agreement relating to sales of the iBasis common stock received in
the merger;
- the holders of certain options to purchase PriceInteractive stock that
would not have become vested if not for the merger will have agreed to
modify the terms of such options so that their vesting is not accelerated
by the merger;
- the existing employment agreements between PriceInteractive and certain of
its employees will have been terminated and replaced by new employment
agreements with iBasis;
- no governmental orders or statutes, rules or regulations may have been
enacted that would have the effect of making the merger illegal or
otherwise prohibiting consummation of the merger;
- the iBasis common stock to be issued in the merger must have been approved
for listing on the Nasdaq Stock Market;
7
- the representations and warranties of PriceInteractive and iBasis
contained in the merger agreement must be true and correct at the time
made and at the time of closing, except where the failures to be so would
not have a material adverse effect;
- no material adverse effect has occurred in either company, however, a
decline in the market price of iBasis common stock alone is not considered
to be a material adverse effect; and
- both PriceInteractive and iBasis must have performed their obligations
under the merger agreement in all material respects.
As a further condition to closing, both PriceInteractive and iBasis must
have received opinions of their respective tax counsel to the effect that the
merger will be treated for federal income tax purposes as a "reorganization"
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended. The ability of tax counsel to issue these opinions will be based in
large part on the merger meeting a "continuity of shareholder interest" test,
which will in turn depend upon the value of the iBasis stock issuable to the
PriceInteractive stockholders on the closing date. For more detail regarding the
condition that iBasis receive this tax opinion and related tax issues, please
see the section entitled "The Merger--Material United States Federal Income Tax
Consequences" elsewhere in this proxy statement.
TERMINATION OF THE MERGER AGREEMENT (SEE PAGE 41)
Notwithstanding the approval of the merger agreement and/or of the merger by
the board of directors and/or stockholders of PriceInteractive and/or iBasis,
the merger agreement may be terminated at any time before the effective date by
written agreement of iBasis and PriceInteractive.
In addition, either iBasis or PriceInteractive may terminate the merger
agreement by written notice to the other, if:
- any restraining order, injunction, or other order issued by any court of
competent jurisdiction, or other binding legal restraint or prohibition
permanently preventing the consummation of the merger is at any time in
effect for more than 20 consecutive days;
- the effective time of the merger has not occurred on or before
January 31, 2001, but only if the terminating party is not in material
breach of the merger agreement; PROVIDED, that iBasis may extend the date
beyond January 31, 2001, but not beyond March 31, 2001, if specified
conditions are met; or
- the other party has materially or willfully, in the case of
PriceInteractive, breached any of its representations, warranties,
covenants, promises and other agreements set forth in the merger agreement
and has not cured such breach within fifteen days after written notice
thereof from the terminating party.
REGULATORY APPROVALS (SEE PAGE 24)
United States antitrust laws prohibit iBasis and PriceInteractive from
completing the merger until after they have furnished information and materials
to the Antitrust Division of the Department of Justice and the Federal Trade
Commission and a required waiting period has ended or been terminated early.
iBasis and PriceInteractive each filed the required notification and report
forms with the Antitrust Division and the Federal Trade Commission on
December 22, 2000, and iBasis supplemented its filing with additional supporting
materials on December 27, 2000.
COMPARATIVE PER SHARE MARKET PRICE INFORMATION (SEE PAGE 14)
iBasis common stock has been traded on the Nasdaq Stock Market under the
symbol "IBAS" since November 19, 1999. From November 19, 1999 until the date of
this proxy statement, the high and low closing prices on such market for the
iBasis common stock were $90.50 and $3.78. As of December 12, 2000, the day
immediately prior to the public announcement of the proposed merger, the closing
price of iBasis common stock was approximately $6.69 per share.
8
There is no public market for the common stock of PriceInteractive. As of
September 30, 2000, PriceInteractive common stock had a book value per share of
$0.14.
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES (SEE PAGE 22)
iBasis expects that the merger will qualify as a "reorganization" within the
meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended, and,
as a result, that the merger will not cause iBasis, PriceInteractive, or Penguin
Acquisition Corp., the wholly-owned subsidiary of iBasis into which
PriceInteractive will merge, to recognize any gain or loss for federal income
tax purposes. The merger is conditioned upon each of iBasis and PriceInteractive
receiving an opinion of its tax counsel that the merger will qualify as a
"reorganization." For more information about this condition and the material
federal income tax consequences of the merger, please see the section entitled
"The Merger--Material United States Federal Income Tax Consequences" elsewhere
in this proxy statement.
ACCOUNTING TREATMENT (SEE PAGE 23)
We expect the merger to be accounted for under the purchase method of
accounting in accordance with United States generally accepted accounting
principles, with iBasis being deemed to have acquired PriceInteractive as of the
closing date of the merger.
APPRAISAL RIGHTS OF DISSENTING STOCKHOLDERS (SEE PAGE 24)
Under Delaware law, holders of iBasis voting stock are not entitled to
dissenters' rights of appraisal in connection with the merger.
THE ESCROW AGREEMENT (SEE PAGE 42)
In connection with the merger, the parties have agreed that a number of
shares of iBasis common stock equaling 12.5% of the total value of the
consideration which the PriceInteractive stockholders, and certain vested
optionholders, would otherwise receive at the closing of the merger, will be
placed into an escrow account at the closing to compensate iBasis in the event
it is entitled to indemnification under the merger agreement as more fully
described in the section entitled "The Escrow Agreement." The final number of
shares subject to the escrow will be determined at the consummation of the
merger and will in part be based on the 20 day weighted average of the closing
price of iBasis common stock including and ending on the day that is two trading
days prior to the effective time of the merger.
THE VOTING AGREEMENT (SEE PAGE 43)
iBasis' directors and executive officers owned, as of the record date,
approximately 10.6 million shares of iBasis common stock, which represented
30.9% of the outstanding shares of iBasis common stock on such date. As a
condition to PriceInteractive's willingness to enter into the merger agreement,
certain iBasis stockholders holding, in the aggregate, approximately 29.6% of
the outstanding shares of iBasis common stock on the record date for the special
meeting have agreed to vote their shares "FOR" the issuance of shares of iBasis
common stock pursuant to the merger agreement.
REGISTRATION RIGHTS AGREEMENT (SEE PAGE 43)
In connection with the execution of the merger agreement, iBasis entered
into a registration rights agreement with PriceInteractive. Under the terms of
the registration rights agreement, iBasis has agreed to register for resale the
unregistered shares of iBasis common stock received by the PriceInteractive
stockholders in the merger.
NON-NEGOTIABLE CONVERTIBLE SUBORDINATED PROMISSORY NOTE (SEE PAGE 37)
In connection with the execution of the merger agreement, iBasis loaned the
principal amount of $10.0 million to PriceInteractive, and PriceInteractive
executed and delivered a non-negotiable convertible subordinated promissory note
to iBasis. In the event the merger is not consummated, the note will convert
into a specified amount of shares of common stock of PriceInteractive, iBasis
will receive specified rights as a stockholder of PriceInteractive equivalent to
those of other common stockholders and Ofer Gneezy, the Chairman of the Board
and Chief Executive Officer of iBasis will be elected to the PriceInteractive
board of directors. In the event that the merger does not close before
February 28, 2001 and the merger agreement has not been terminated, at the
request of PriceInteractive iBasis will be required to make an additional loan
of $5.0 million to PriceInteractive.
9
SELECTED CONSOLIDATED FINANCIAL DATA OF IBASIS, INC.
The following historical selected financial information of iBasis, Inc. is
qualified by reference to, and should be read in conjunction with, the
consolidated financial statements of iBasis, Inc. and related notes.
PERIOD FROM INCEPTION
(AUGUST 2, 1996) NINE MONTHS ENDED
TO DECEMBER 31, YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------- ------------------------------ -------------------
1996 1997 1998 1999 1999 2000
--------------------- -------- -------- -------- -------- --------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Net revenue................................ $ -- $ 127 $ 1,978 $ 19,417 $ 11,817 $ 40,546
Operating expenses:
Data communications and
telecommunications....................... -- 187 2,730 21,007 12,819 40,917
Research and development................... 76 317 1,674 6,183 4,020 10,231
Selling and marketing...................... -- 97 1,160 5,568 3,582 13,278
General and administrative................. -- 454 1,365 5,309 2,962 13,505
Depreciation and amortization.............. -- 19 364 2,997 1,890 10,011
Loss (gain) on disposal of property and
equipment................................ -- -- 531 (15) (15) --
------ ------ ------- -------- -------- --------
Total operating expenses................. 76 1,074 7,824 41,049 25,258 87,942
Loss from operations..................... (76) (947) (5,846) (21,632) (13,441) (47,396)
------ ------ ------- -------- -------- --------
Interest income............................ -- 17 179 1,329 305 14,440
Interest expense........................... -- (4) (53) (836) (446) (8,505)
Other income (expense), net................ -- 8 (7) 3 (3) --
Minority interest in loss of joint
venture.................................. -- -- -- 49 49 --
------ ------ ------- -------- -------- --------
Net loss................................. (76) (926) (5,727) (21,087) (13,536) (41,461)
Accretion of dividends on redeemable
convertible preferred stock.............. -- -- (219) (1,020) (786) --
------ ------ ------- -------- -------- --------
Net loss applicable to common
stockholders........................... $ (76) $ (926) $(5,946) $(22,107) $(14,322) $(41,461)
====== ====== ======= ======== ======== ========
Pro forma net loss applicable to common
stockholders............................. $(5,727) $(21,087) $(13,536) $(41,461)
======= ======== ======== ========
Basic and diluted net loss per share
applicable to common stockholders........ $(0.01) $(0.15) $ (0.99) $ (2.29) $ (1.89) $ (1.24)
====== ====== ======= ======== ======== ========
Basic and diluted weighted average common
shares outstanding (1)................... 6,000 6,006 6,023 9,655 7,557 33,416
Pro forma basic and diluted net loss per
share (1)................................ $ (0.44) $ (0.89) $ (0.69) $ (1.24)
======= ======== ======== ========
Pro forma basic and diluted weighted
average common shares outstanding (1).... 13,068 23,678 19,553 33,416
DECEMBER 31, SEPTEMBER 30,
------------------- -------------
1998 1999 2000
-------- -------- -------------
(UNAUDITED)
(IN THOUSANDS)
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and marketable securities............ $ 7,399 $123,666 $340,495
Working capital............................................. 4,241 115,154 317,590
Total assets................................................ 12,772 153,473 455,097
Long-term debt, net of current portion...................... 213 11,689 187,659
Redeemable convertible preferred stock...................... 10,719 -- --
Total stockholders' (deficit) equity........................ (2,697) 126,904 227,172
- --------------------------
(1) Adjusted to give effect to the conversion of all shares of preferred stock,
Class A and Class B Common Stock into common stock from the date of original
issuance. Does not include the pro forma effects of the acquisition of
PriceInteractive.
10
SELECTED CONSOLIDATED FINANCIAL DATA OF PRICEINTERACTIVE, INC.
The following historical selected financial information of PriceInteractive,
Inc. is qualified by reference to, and should be read in conjunction with, the
consolidated financial statements of PriceInteractive, Inc. and related notes
included elsewhere in this proxy statement.
PERIOD FROM INCEPTION
(NOVEMBER 18, 1996) TO NINE MONTHS ENDED
DECEMBER 31, YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------- ------------------------------ -------------------------
1996 1997 1998 1999 1999 2000
---------------------- -------- -------- -------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Revenues.................. $ -- $4,244 $9,972 $11,838 $8,531 $12,033
Cost of revenues.......... -- 1,517 4,212 5,610 4,282 6,001
Selling, general and
administrative
expenses................ -- 1,513 3,490 5,182 3,814 5,458
------ ------ ------ ------- ------ -------
Income from operations.. -- 1,214 2,270 1,045 435 574
Interest expense.......... -- (101) (47) (47) (28) (101)
Interest and other
income.................. -- 5 121 109 72 124
------ ------ ------ ------- ------ -------
Income before provision
for income taxes...... -- 1,119 2,345 1,107 479 597
Provision for income
taxes................... -- -- 39 455 196 245
------ ------ ------ ------- ------ -------
Income before cumulative
effect of change in
accounting
principle............. -- 1,119 2,306 652 283 352
Cumulative effect of
change in accounting
principle, net of tax
effect.................. -- -- -- 56 55 --
------ ------ ------ ------- ------ -------
Net income.............. $ -- $1,119 $2,306 $ 707 $ 338 $ 352
Accretion and dividends on
preferred stock......... -- 0 (506) (907) (680) (723)
------ ------ ------ ------- ------ -------
Net income (loss)
applicable to common
stockholders.......... -- 1,119 1,800 (199) (342) (371)
====== ====== ====== ======= ====== =======
DECEMBER 31, SEPTEMBER 30,
------------------------------ -------------
1997 1998 1999 2000
-------- -------- -------- -------------
(UNAUDITED)
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments....... 26 $2,148 $3,355 3,862
Working capital......................................... 624 2,903 3,544 5,222
Total assets............................................ 2,522 7,071 9,103 18,143
Notes payable, net of current portion................... 372 318 620 1,287
Redeemable convertible preferred stock.................. -- 6,430 7,044 7,531
Total stockholders' equity (deficit).................... 1,119 (1,395) (1,302) 3,592
11
SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following Unaudited Pro Forma Condensed Combined Balance Sheet data has
been prepared based upon the historical condensed consolidated balance sheets of
iBasis, Inc. and PriceInteractive, Inc. as of September 30, 2000. The Pro Forma
Balance Sheet data gives effect to the acquisition of PriceInteractive, Inc. as
if the acquisition had occurred as of September 30, 2000.
The following Unaudited Pro Forma Condensed Combined Statement of Operations
for the nine months ended September 30, 2000 is based upon the historical
condensed consolidated statements of operations of iBasis, Inc. and
PriceInteractive, Inc. for the nine months ended September 30, 2000. The 2000
Pro Forma Statement of Operations gives effect to (a) the acquisition of
PriceInteractive, Inc., (b) the sale of 2,026,637 shares of iBasis, Inc.'s
common stock in an underwritten public offering which was completed in
March 2000 and the use of the net proceeds from such offering, and (c) the use
of the net proceeds from the sale of $150.0 million principal amount of 5 3/4%
convertible subordinated notes also completed in March 2000 as if each had
occurred as of January 1, 2000.
The following Unaudited Pro Forma Condensed Combined Statement of Operations
for the year ended December 31, 1999 is based upon the historical condensed
consolidated statements of operations of iBasis, Inc. and PriceInteractive, Inc.
for the year ended December 31, 1999. The 1999 Pro Forma Statement of Operations
gives effect to (a) the acquisition of PriceInteractive, Inc., (b) the sale of
2,026,637 shares of iBasis, Inc.'s common stock in an underwritten public
offering which was completed in March 2000 and the use of the net proceeds from
such offering, (c) the use of the net proceeds from the sale of $150.0 million
principal amount of 5 3/4% convertible subordinated notes also completed in
March 2000, and (d) iBasis, Inc.'s initial public offering of 7,820,000 shares
completed in November 1999 as if each had occurred as of January 1, 1999.
Pro forma adjustments are described in the pro forma condensed combined
financial statements and related notes included elsewhere in this proxy
statement and are calculated using iBasis, Inc.'s January 30, 2001 closing stock
price of $9.28 per share. In addition to the purchase price reflected in these
pro forma financial statements, iBasis will pay a maximum of approximately
$4.2 million in cash upon the conversion, vesting and exercise of
PriceInteractive options that will vest from time to time after the closing of
the merger. Any amounts paid to these option holders in the future will be
recorded by iBasis as compensation expense. The Unaudited Pro Forma Statements
of Operations presented elsewhere in this proxy statement do not include any
adjustment for compensation expense related to the amounts up to $4.2 million
that may be paid for the future, or the amortization of approximately
$6.8 million of deferred compensation related to iBasis options issued in
exchange for PriceInteractive options that have vested as of the closing.
The 1999 and 2000 Pro Forma Statements of Operations do not necessarily
indicate the actual results of operations that iBasis, Inc. would have reported
if the events described above had occurred as of January 1, 1999 and 2000,
respectively nor do they necessarily indicate the results of iBasis, Inc.'s
future operations. Furthermore, the pro forma results do not give effect to cost
savings or incremental costs that may occur as a result of the integration and
consolidation of iBasis, Inc. and PriceInteractive, Inc. In the opinion of
management, all adjustments necessary to fairly present these pro forma
financial statements have been made.
The acquisition of PriceInteractive, Inc. has been accounted for using the
purchase method of accounting.
The selected pro forma condensed combined financial information should also
be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and with the financial statements and
footnotes thereto of PriceInteractive, Inc. included elsewhere in this proxy
statement.
Certain reclassifications have been made to the PriceInteractive, Inc.
Statement of Operations in order to conform to the iBasis presentation.
12
SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
(CONTINUED)
The following selected unaudited pro forma condensed combined financial
information of iBasis, Inc. and PriceInteractive, Inc. is qualified by reference
to, and should be read in conjunction with, the consolidated financial
statements of PriceInteractive, Inc. and the related notes included elsewhere in
this proxy statement.
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1999 SEPTEMBER 30, 2000
----------------- ------------------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Net revenue................................................ $ 31,255 $ 52,579
Operating expenses:
Data communications and telecommunications................. 23,859 43,499
Research and development................................... 9,537 14,715
Selling and marketing...................................... 7,125 15,103
General and administrative................................. 7,541 14,982
Depreciation and amortization.............................. 24,467 26,607
Loss (gain) on disposal of property and equipment.......... (15) --
Acquired in-process research and development............... 30,874 30,874
-------- --------
Total operating expenses................................. 103,388 145,780
-------- --------
Loss from operations..................................... (72,133) (93,201)
Interest income............................................ 24,708 16,749
Interest expense........................................... (10,542) (10,458)
Other income (expense), net................................ 3 --
Minority interest in loss of joint venture................. 49 --
-------- --------
Loss before provision for income taxes..................... (57,915) (86,910)
Provision for income taxes................................. (455) (245)
Loss before cumulative effect of change in accounting
principle................................................ (58,370) --
Cumulative effect of change in accounting principle........ 55 --
-------- --------
Net loss................................................. (58,315) (87,155)
Accretion of dividends on redeemable convertible preferred
stock.................................................... (1,927) --
-------- --------
Net loss applicable to common stockholders............... $(60,242) $(87,155)
Net loss per share:
Basic and diluted net loss per share..................... $ (2.10) $ (1.97)
======== ========
Basic and diluted weighted average common shares
outstanding............................................ 28,697 44,174
======== ========
SEPTEMBER 30, 2000
------------------
(UNAUDITED)
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short term investments........... $296,234
Working capital............................................. 274,690
Total assets................................................ 528,479
Long term debt, net of current portion...................... 188,946
Total stockholders' equity.................................. 293,534
- ------------------------
(1) Adjusted to give effect to (i) the conversion of all shares of preferred
stock, Class A and Class B Common Stock into common stock from the date of
original issuance, and (ii) the acquisition of PriceInteractive.
13
COMPARATIVE PER SHARE DATA
Set forth below are net loss and book value per share data for iBasis and
PriceInteractive on both historical and pro forma combined bases and on a
per-share equivalent pro forma basis for PriceInteractive. The presentation is
made on the following bases:
- Pro forma combined net loss per share and book value per share are derived
from the Unaudited Pro Forma Condensed Combined Financial Information
presented elsewhere in this proxy statement.
- The information set forth below should be read in conjunction with the
historical financial statements of PriceInteractive included elsewhere in
this proxy statement and the "Unaudited Pro Forma Condensed Combined
Summary Financial Information" and the notes to each of them presented
elsewhere herein.
- The pro forma combined summary financial information is not necessarily
indicative of the operating results or financial position that would have
been achieved if the merger had been consummated as of the beginning of
the period presented nor is it necessarily indicative of the future
operating results or financial position of iBasis or PriceInteractive.
NINE MONTHS
ENDED
SEPTEMBER 30,
YEAR ENDED -------------------
DECEMBER 31, 1999 1999 2000
----------------- -------- --------
IBASIS HISTORICAL PER SHARE DATA:
Basic and diluted net loss per share...................... $(2.29) $(1.89) $(1.24)
Book value per share...................................... 4.01 6.65
PRICEINTERACTIVE HISTORICAL PER SHARE DATA:
Basic and diluted net loss per share...................... $(0.02) $(0.04) $(0.04)
Basic and diluted net loss per share before cumulative
effect of change in accounting principle................ (0.03) (0.04) (0.04)
Book value per share...................................... (0.14) 0.37
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1999 SEPTEMBER 30, 2000
----------------- ------------------
UNAUDITED PRO FORMA COMBINED PER SHARE DATA:
Basic and diluted net loss per iBasis share............... $(1.35) $(1.51)
Basic and diluted net loss per equivalent PriceInteractive
share................................................... (0.75) (0.46)
Book value per iBasis share............................... $ 5.11
Book value per equivalent PriceInteractive share.......... 1.53
14
MARKET PRICE AND DIVIDEND DATA
IBASIS MARKET PRICE DATA
The following table reflects the range of the reported high and low sale
prices of shares of iBasis' common stock on the Nasdaq National Market tier of
the Nasdaq Stock Market.
HIGH LOW
-------- --------
Year ended December 31, 1999:
Fourth quarter(1)........................................... $45.00 $24.13
Year ended December 31, 2000:
First quarter............................................... $94.25 $28.00
Second quarter.............................................. $51.63 $13.00
Third quarter............................................... $42.63 $14.13
Fourth quarter.............................................. $15.88 $ 4.00
Year ended December 31, 2001:
First quarter (through January 30).......................... $ 9.53 $ 3.78
- ------------------------
(1) iBasis' common stock began trading on the Nasdaq Stock Market on
November 10, 1999.
iBasis' common stock is listed on the Nasdaq Stock Market under the symbol
"IBAS". The common stock of iBasis has been listed on the Nasdaq Stock Market
since November 10, 1999. Prior to November 10, 1999, the iBasis common stock was
not publicly traded. The information set forth above reflects inter-dealer
prices, without retail mark-up, mark-down or commission and may not necessarily
represent actual transactions.
On December 12, 2000, the last full trading day prior to the announcement of
the merger, the closing price per share of iBasis common stock was approximately
$6.69, as reported on the Nasdaq Stock Market. Based on the number of shares of
iBasis common stock to be issued at the closing of the merger, the pro forma
equivalent value of a share of PriceInteractive common stock at the close of
trading on December 12, 2000 was approximately $2.39.
The following table presents information regarding the sales of iBasis
common stock on December 12, 2000, which was the last full trading day prior to
the public announcement of the proposed merger.
HIGH LOW CLOSE
-------- -------- --------
December 12, 2000...................................... $7.06 $5.75 $6.69
Because the market price of iBasis common stock is subject to fluctuation,
the market value of the shares of iBasis common stock that the PriceInteractive
stockholders will receive in the merger may increase or decrease prior to and
following the merger. We cannot predict what the future price for iBasis common
stock will be, or if iBasis common stock will continue to be listed on the
Nasdaq Stock Market.
PRICEINTERACTIVE MARKET PRICE DATA
PriceInteractive common stock is not traded on any public securities market.
DIVIDEND DATA
iBasis has never paid any cash dividends on its common stock and iBasis does
not anticipate paying any cash dividends in the foreseeable future. Payment of
future dividends, if any, will be at the discretion of iBasis' board of
directors.
15
THE MERGER
BACKGROUND OF THE MERGER
Both iBasis and PriceInteractive have in the past considered potential
strategic combinations, including strategic investments, joint ventures and
business combinations with various parties that they have believed would be in
their respective best interests and those of their stockholders. Recently,
iBasis has focused on strategic relationships and transactions that would enable
iBasis to increase the number of enhanced services it would be able to offer
over the iBasis Network, or increase or diversify its sources of revenue,
including by adding new customers. During the same time period, PriceInteractive
has focused on the strategic relationships and transactions that would provide
PriceInteractive with additional capital to fund PriceInteractive's expansion,
as well as to provide other avenues for PriceInteractive to offer and provide
its services.
It was in furtherance of these aims that, on October 5, 2000, Mr. Ofer
Gneezy, CEO and President of iBasis, Inc., along with Mr. Gordon VanderBrug,
Executive Vice President of iBasis, Mr. D.J. Long, Vice President of Corporate
Development of iBasis, and Roger Matus, Vice President of New Products and
Technologies of iBasis, met at iBasis headquarters in Burlington, Massachusetts
with Mr. Daniel Price, CEO and President of PriceInteractive, Mr. Timothy Price,
Executive Vice President and Chief Architect of PriceInteractive, Mr. Kenneth
Rokoff, Vice President of Strategic Marketing of PriceInteractive, and Mr.
Vishal Dhawan, Chief Technology Officer of PriceInteractive, to discuss ways in
which the two companies could work together. At this meeting, the
representatives of PriceInteractive informed the iBasis representatives that
their company was about to begin the process of raising a new round of
investment capital, and invited iBasis to consider participation as a strategic
investor. At the conclusion of the meeting, it was agreed that this option would
be evaluated by iBasis. PriceInteractive considered iBasis to be an attractive
strategic investor in the round of capital raising that PriceInteractive was
beginning to undertake because of the complementary vision the companies share
on the long-term potential of the "global speech web" and because of iBasis'
international telephony network and capabilities.
On or about October 10, 2000, Mr. Gneezy called Mr. Daniel Price and
suggested that rather than invest in PriceInteractive, the companies consider a
transaction in which iBasis would acquire PriceInteractive for a combination of
cash and iBasis stock. Mr. Gneezy and Mr. Price discussed potential approaches
to the valuation of PriceInteractive, and issues surrounding such a transaction.
On October 18, 2000, Mr. Daniel Moore, Chief Financial Officer and Chief
Operating Officer of PriceInteractive, met with Mr. Gneezy, Mr. VanderBrug and
Mr. Long at iBasis headquarters in Burlington, Massachusetts to continue to
discussions relative to valuation and acquisition-related issues.
As of October 18, 2000, PriceInteractive engaged Broadview International
LLC, an investment banking firm specialized in advising technology-related
companies on merger and acquisition activities, to represent it in connection
with capital raising and related matters, including a possible combination with
iBasis.
On October 24, 2000, Mr. Long commenced acquisition discussions directly
with representatives of Broadview International. These discussions focused
principally on an exchange ratio for the shares of iBasis stock to be issued in
the merger and which PriceInteractive constituencies would participate in the
merger consideration and to what extent.
On November 8, 2000, the iBasis board of directors met by teleconference
with members of management to review, discuss and evaluate the status of the
acquisition discussions between iBasis and PriceInteractive. iBasis management
in attendance at this meeting included Mr. Gneezy, Mr. VanderBrug, Mr. Michael
Hughes, CFO of iBasis, Mr. Long, and Mr. Jonathan Draluck, Vice President of
Business Affairs and General Counsel of iBasis. After its discussions, the board
authorized iBasis management to continue negotiations with PriceInteractive.
16
Also on November 8, 2000, Mr. Gneezy, Mr. VanderBrug and Mr. Hughes met with
Mr. Daniel Price at iBasis' headquarters to discuss the principal terms of the
merger.
Between November 8 and November 14, 2000, representatives of iBasis and
Bingham Dana LLP, iBasis' outside corporate counsel on the one hand, and
representatives of PriceInteractive, including its legal counsel, and Broadview
International, on the other hand, continued to discuss and negotiate the
principal terms of the merger by teleconference.
On November 13, 2000, Mr. Gneezy, Mr. VanderBrug, Mr. Long and Mr. Johan V.
Brigham, a partner of Bingham Dana, LLP, met with Daniel Price, Timothy Price,
Mr. Moore, Mr. Rokoff and Mr. James Maiwurm, a legal consultant for
PriceInteractive, at PriceInteractive's headquarters in Reston, Virginia to
discuss various acquisition-related issues. At this meeting, the parties agreed
upon general parameters of a possible combination, including in particular,
which PriceInteractive constituencies would share in the cash portion of the
merger consideration.
On November 15, 2000, the iBasis board of directors met at iBasis
headquarters in Burlington, Massachusetts, to review, discuss and evaluate the
status of the acquisition discussions between iBasis and PriceInteractive.
iBasis management in attendance at this meeting included Mr. Gneezy,
Mr. VanderBrug, Mr. Hughes, Mr. Long, and Mr. Draluck. Mr. Dan Price, Mr. Tim
Price, Mr. Dhawan and Mr. Rokoff attended a portion of the meeting, and made a
presentation to the iBasis board of directors. After its discussions, the board
approved a resolution to authorize iBasis management to continue negotiations
with PriceInteractive in accordance with the terms of the proposed combination
as described in the oral presentation made to the board at that time.
Also on November 15, 2000, the Board of Directors of iBasis engaged
Robertson Stephens, Inc. to render an opinion as to the fairness to iBasis of
the purchase price to be paid in a possible combination, from a financial point
of view.
On November 15, 2000, Mr. Long provided a draft of a proposed merger
agreement to Mr. Moore of PriceInteractive. Between November 15, 2000 and
December 12, 2000, the management of iBasis and PriceInteractive and their
respective legal advisors and Broadview held a number of teleconference calls to
review, discuss and negotiate the terms and conditions of the merger agreement.
On November 16 and 17, 2000, several iBasis employees and representatives of
Bingham Dana, Robertson Stephens, Arthur Andersen LLP, iBasis' outside auditors,
and an outside industry consultant engaged by iBasis visited PriceInteractive
headquarters in Reston, Virginia to conduct a due diligence investigation of
PriceInteractive business records, customer relationships and technology.
On November 20 and 21, 2000, representatives of Arthur Andersen visited
PriceInteractive headquarters in Reston, Virginia to meet with PriceInteractive
representatives and KPMG LLP, their outside auditors, to review the accounting
records of PriceInteractive.
On November 20, 2000 several members of the PriceInteractive management team
and consultants retained by PriceInteractive visited iBasis corporate
headquarters in Burlington, Massachusetts for a series of meetings with iBasis
representatives to review and discuss iBasis' business model, network and
technology.
On November 22, 2000, the terms of the proposed combination were considered
at a telephonic meeting of PriceInteractive board of directors that was attended
by all members of the Board (including Messrs. Daniel and Timothy Price), Mr.
Daniel Moore, representatives of Broadview, and Mr. Maiwurm. After being updated
on the status of negotiations, the Board of Directors directed management and
PriceInteractive's advisors to continue negotiations with iBasis in an effort to
reach a favorable conclusion.
On December 1, 2000, the iBasis board of directors met by telephone. Also
attending the meeting were representatives of Bingham Dana and Robertson
Stephens. The board deliberated on various
17
aspects of the terms proposed acquisition as presented by management, and
Robertson Stephens indicated that it currently expected to be in a position to
deliver an opinion on the date of a definitive agreement regarding the proposed
acquisition that, as of such date and based on the matters considered and the
limitations on the review undertaken described therein, the purchase price in
the proposed acquisition is fair, from a financial point of view, to iBasis. The
board authorized the executive officers of iBasis to negotiate the final terms
of the agreements associated with the acquisition. At the conclusion of the
meeting, some of the board discussed entering into a voting agreement with
iBasis, and agreed to execute it. For a description of the voting agreement,
please see the section entitled "The Voting Agreement" below.
Between December 1 and December 12, 2000, various members of the iBasis
board of directors continued informal discussions about the ongoing negotiations
of iBasis, PriceInteractive and their respective legal counsel and Broadview
continued to negotiate the final terms of the acquisition agreements.
On December 12, 2000, Robertson Stephens delivered its opinion that, as of
such date and based on the matters considered and the limitations on the review
undertaken described therein, the purchase price in the proposed acquisition is
fair, from a financial point of view, to iBasis and the Board of Directors of
iBasis gave its final approval of the transaction.
The Board of Directors of PriceInteractive also held a telephonic meeting on
December 12, 2000, to formally consider the terms of the proposed merger and the
agreement and plan of merger. After consideration of these terms, and the
various factors relating to PriceInteractive described under the heading
"Reasons for the Merger; Recommendation of the Board of Directors" below, the
PriceInteractive Board of Directors unanimously approved the terms of the merger
and entrance by PriceInteractive into the merger agreement. By written consent
dated as of December 12, 2000, the stockholders of PriceInteractive approved the
merger agreement and the transactions contemplated thereby, including the
merger.
After receipt of these respective approvals, on December 12, 2000, iBasis,
Penguin Acquisition Corp., iBasis' wholly-owned subsidiary formed for purposes
of consummating the merger, PriceInteractive, certain stockholders of
PriceInteractive named therein and the stockholder representatives named
therein, executed and delivered the Agreement and Plan of Merger and
Reorganization. In addition, holders of iBasis common stock entered into the
Voting Agreement with PriceInteractive, iBasis entered into the Registration
Rights Agreement with certain stockholders of PriceInteractive, iBasis entered
into a letter regarding certain notification matters with PriceInteractive, and
iBasis made a loan of $10.0 million to PriceInteractive pursuant to a
convertible subordinated promissory note.
REASONS FOR THE MERGER; RECOMMENDATION OF THE BOARDS OF DIRECTORS
IBASIS' REASONS FOR THE MERGER
The board of directors of iBasis has determined that, compared to continuing
to operate iBasis and PriceInteractive on a stand-alone basis, a combined
company would have better potential to improve long-term operating and financial
results, and has therefore approved the merger agreement and the issuance of
shares of iBasis common stock pursuant to the merger agreement.
Headquartered in Reston, Virginia, PriceInteractive is a Speech Application
Service Provider whose products and services give enterprises and service
providers the ability to speech-enable business-critical, customer-facing
solutions, such as e-commerce, call-center, employee self-service, product and
sales information, customer care and other interactive applications.
By leveraging the iBasis Network and its global footprint with these hosted
speech-enabled services, iBasis expects to accelerate its generation of revenue
from enhanced services. This expanding
18
portfolio of comprehensive, outsourced solutions will enable the combined
companies' enterprise and service provider customers to affordably extend global
access to customer service solutions--from mobile and fixed phones anywhere in
the world. The acquisition of PriceInteractive is an important step in iBasis'
strategy to enhance the capabilities of its global voice-over Internet
infrastructure with new, speech-enabled services that combine the power of the
Internet with the convenience, simplicity and ubiquity of the phone.
During the course of its deliberations, the iBasis board of directors
considered a number of factors, with the assistance of management and its
financial and other advisors. The following discussion of the factors considered
by the iBasis board is not intended to be exhaustive.
The iBasis board of directors believes that the proposed merger will
accelerate the pace of iBasis' global expansion and enhance its position as a
leader in the provision of voice over Internet services, or VoIP, and enhanced
internet based communications services. The board considered the following
factors to be reasons that the merger might be beneficial to iBasis and its
stockholders:
- the potential to enable iBasis to establish an immediate presence in the
global market for value added telecom services;
- the merger is expected to enable iBasis to diversify its revenue stream
into high growth markets for value added services;
- the products and services offered by the combined companies are
anticipated to increase demand for additional minutes of use across the
global iBasis network;
- the merger is expected to accelerate iBasis' profitability;
- the merger will enable iBasis to diversify and expand its customer base;
- the merger will enable iBasis to recognize potential cost savings through
a reduction in telecom and equipment costs incurred by PriceInteractive;
- the merger will enable iBasis to recognize revenue synergies from an
increase in VoIP minutes from the use of value-added applications, an
increase in VoIP minutes from users of the iBasis international network,
and an expansion of the PriceInteractive line of business to international
markets; and
- the merger will enable iBasis to add many new customers to its user base.
In the course of its deliberations, the iBasis board of directors also
considered a number of other factors relevant to the merger, including:
- the financial condition, results of operations, business and prospects of
PriceInteractive before and giving effect to the merger;
- current financial market conditions and historical market prices, market
volatility and trading information with respect to iBasis common stock;
- reports from management, iBasis' legal and accounting advisors and an
outside industry consultant as to the results of their due diligence
investigation of PriceInteractive;
- the opinion dated December 12, 2000, delivered by Robertson Stephens as to
the fairness of the purchase price for PriceInteractive, from a financial
point of view, to iBasis;
- the terms of the merger agreement, including the parties' representations,
warranties and covenants, and the conditions to their respective
obligations;
- historical information regarding iBasis and PriceInteractive's businesses,
prospects, financial performance and condition, operations, technology,
management and competitive position;
19
- a comparison of comparable merger transactions;
- the technical expertise and experience of PriceInteractive employees;
- the depth of experience of the combined management; and
- the impact of the merger on iBasis' customers and employees.
The iBasis board of directors also identified and considered a number of
potentially negative factors in its deliberations concerning the merger,
including but not limited to:
- the risk that potential benefits sought in the merger might not be fully
realized, if at all;
- the risk of disruption of sales or existing customer relationships as a
result of uncertainties created by the announcement of the merger and the
integration of the companies operations;
- the challenge of integrating the management teams, strategies, cultures,
and organizations of the companies;
- the risk that despite the efforts of iBasis, key management and other
personnel of PriceInteractive might not remain employed by iBasis after
the merger;
- the effect of the public announcement of the merger, and the possibility
that the merger might not be completed, on (a) the demand for iBasis'
services, its relationships with strategic partners, operating results and
stock price, and (b) iBasis' ability to attract and retain key management
and marketing, sales, and other personnel;
- the increased cash needs of the combined company, which will be more
difficult for iBasis to meet than its current capital needs without the
combination;
- the adverse impact on the financial results of iBasis after the merger due
to the amortization of goodwill and other intangibles as a result of
purchase accounting for the merger; and
- the substantial costs and related charges to be incurred in connection
with the merger, including costs of integrating the businesses, and
transaction expenses arising from the merger.
On balance, considering all of the foregoing factors and risks, the iBasis
board of directors concluded that the terms of the merger are fair to, and in
the best interests of iBasis stockholders, and the iBasis board of directors
unanimously approved the merger agreement and the issuance of shares of iBasis
common stock pursuant to the merger agreement.
This discussion of information and factors considered by the iBasis board of
directors is not intended to be exhaustive but is believed to include material
factors considered by the iBasis board of directors. The iBasis board of
directors did not assign relative weight to, or quantify the importance of, the
factors considered. Accordingly, individual members of the iBasis board of
directors may have given different weights to different factors and may have
viewed different factors as affecting the determination of fairness differently.
PRICEINTERACTIVE'S REASONS FOR THE MERGER
After careful consideration of the terms of the merger agreement and the
merger as well as the other transaction agreements referred to in this proxy
statement, the PriceInteractive board of directors unanimously adopted
resolutions approving the merger agreement and recommending that the merger
agreement be approved by PriceInteractive shareholders. The PriceInteractive
board of directors believes that the merger is fair to, and in the best
interests of PriceInteractive and its shareholders. In
20
reaching its decision, the PriceInteractive board of directors considered a
number of factors, including, among others:
- the current and anticipated market value of the consideration to be
received by PriceInteractive shareholders in the merger;
- the opportunity that will be afforded by the merger to PriceInteractive
shareholders to participate in the growth of the combined companies;
- Connecting PriceInteractive's speech-enabled services to the iBasis
Network, with its extensive global reach and significantly reduced network
costs, is expected to increase the value and scope of the solutions
PriceInteractive provides to its large enterprise and carrier customers;
- the difficulty of maximizing the potential for PriceInteractive within a
relatively small, privately-owned business in an increasingly competitive
marketplace;
- iBasis' existing and forecast customer base was viewed as a potential
market to which PriceInteractive could market its services;
- the shares of iBasis common stock that PriceInteractive shareholders will
receive in the merger are publicly traded and therefore provide
substantially more liquidity for PriceInteractive's shareholders than
PriceInteractive common and preferred stock which is not publicly-traded;
- the combination with iBasis will create a larger company with greater
financial and marketing resources, enabling the combined company to more
effectively compete with those of its competitors who have substantially
greater financial and other resources;
- because PriceInteractive's and iBasis' technologies are complementary,
significant synergies could result from the combination of the two
companies;
- the likelihood that the merger will be treated as a tax-free
reorganization under Section 368(a) of the Internal Revenue Code;
- capital markets were at the time becoming increasingly difficult for
technology-oriented companies, and although PriceInteractive remained
confident it would be able to raise $25.0 million to $50.0 million
necessary to fund its business plan and related expansion,
PriceInteractive recognized there was a risk that its planned financing
could take longer, and might be on less favorable terms, than originally
anticipated;
- iBasis not only provided a complementary business model, but also had
sufficient cash resources to fund both its business plan and
PriceInteractive's planned business opportunities; and
- PriceInteractive believed that the management teams and functional
organizations would be complementary and capable of leveraging the
strengths of one another.
In the course of its deliberations concerning the plan of merger and the
merger, the PriceInteractive board of directors reviewed with its management and
outside advisors a number of other factors that the PriceInteractive board of
directors deemed relevant, including:
- the PriceInteractive board of directors' familiarity with the business and
prospects of PriceInteractive if it were to continue operations as a
private independent company; and
- the strategic and financial alternatives available to PriceInteractive,
including the risks and uncertainties of potential future financings,
including an initial public offering.
The PriceInteractive board of directors also identified and considered a
number of potentially negative factors that could result from the merger,
including, among others:
- the potential negative effect that the public announcement of the merger
could have on the market price of iBasis common stock;
21
- the fixed nature of the exchange ratio and the resulting risk that, should
there be a significant decrease in the market value of iBasis common
stock, the value of the consideration to be received in the merger would
decrease;
- the possibility that the merger might not be completed;
- the possibility that all or a substantial portion of the merger
consideration which is to be held in escrow will not be released to the
former PriceInteractive shareholders if the relevant escrow release
conditions are not achieved;
- the risk that the public announcement of the merger might have an adverse
effect on PriceInteractive's relationship with current and potential
customers;
- the risk that key technical, marketing and management personnel of
PriceInteractive might choose not to remain employed by the combined
companies following the merger; and
- the effects of the diversion of management resources to negotiate and
complete the merger and the integration of the two companies.
The PriceInteractive board of directors determined that these risks were
outweighed by the potential benefits resulting from the merger.
The preceding discussion of PriceInteractive's reasons for the merger and
the other information and factors considered by the PriceInteractive board of
directors highlights only the most material reasons, information and factors,
and is not intended to be exhaustive. In view of the wide variety of information
and factors considered by the PriceInteractive board of directors, the
PriceInteractive board of directors did not find it practicable and did not
quantify or otherwise assign relative weight or value to the specific
information and factors set forth above in making its determination concerning
the merger. In addition, different directors likely assigned different weight or
value to different factors.
INTERESTS OF DIRECTORS AND MANAGEMENT OF IBASIS IN THE MERGER
During the merger negotiations and at the time of signing none of the
officers or directors of iBasis has interests in the merger that are different
from, or that are in addition to, their interests as stockholders of iBasis.
EFFECTIVE TIME OF THE MERGER
The merger will occur as soon as reasonably practicable after iBasis
stockholder approval is obtained and the conditions set forth in the merger
agreement are either waived or satisfied. The merger will become effective upon
filing of the articles of merger with the Secretary of State of the State of
Delaware or on such later date and time as may be specified in the articles of
merger. The time at which the merger becomes effective is referred to in this
proxy statement as the "effective time of the merger."
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the principal United States federal
income tax consequences of the merger that are generally relevant to current
holders of iBasis common stock. The discussion does not deal with all income tax
considerations that may be relevant to current iBasis stockholders. In addition,
this discussion does not address the tax consequences of transactions
effectuated prior to or after the merger, whether or not those transactions are
in connection with the merger, including any transactions in which shares of
iBasis common stock were or are acquired or sold, and does not address tax
considerations that may be relevant to PriceInteractive stockholders. No
foreign, state, local, or other tax considerations are addressed in this
discussion.
22
The discussion below is based on currently existing provisions of the
Internal Revenue Code of 1986, as amended, Treasury Department regulations
thereunder, published positions of the Internal Revenue Service and court
decisions. All of the foregoing are subject to change, and any such change could
adversely affect the continuing validity of this discussion. Any future
legislation or regulations could apply retroactively. iBasis does not intend to
request a ruling from the IRS with regard to any of the federal income tax
consequences of the merger. Moreover, the opinions of counsel described below
represent only counsel's best judgment, and are not binding on the IRS or on any
court considering the matter. Accordingly, there can be no assurance that the
IRS will not challenge the conclusions reflected in the opinions of counsel
described below or that a court will not sustain such a challenge.
iBasis and PriceInteractive intend the merger to be treated as a
"reorganization" within the meaning of Section 368(a) of the Internal Revenue
Code. In order to be treated as a "reorganization," the merger must satisfy, in
addition to other requirements, a "continuity of shareholder interest" test.
Under this test, for the merger to qualify as a reorganization under Section
368(a) of the Internal Revenue Code, the PriceInteractive stockholders, as a
group, must preserve a substantial part of the value of the proprietary interest
in PriceInteractive in the reorganization through continued stock ownership in
iBasis. There is no definitive statement regarding what percentage of
shareholder continuity is required in order to satisfy this test; however, it is
generally believed that the continuity of shareholder interest requirement will
be satisfied if the percentage of the value of the consideration received by
PriceInteractive stockholders in the merger in the form of iBasis common stock
is no less than between 40 and 45 percent of the total consideration received by
the PriceInteractive stockholders in the merger, based upon the closing date
value of iBasis common stock.
Completion of the merger is conditioned upon receipt by iBasis of an opinion
of Bingham Dana LLP, counsel to iBasis, and receipt by PriceInteractive of an
opinion of Crowell & Moring LLP, counsel to PriceInteractive, each dated the
closing date of the merger. Those opinions must be substantially to the effect
that, on the basis of certain representations obtained from iBasis,
PriceInteractive, and Penguin Acquisition Corp. reflecting the parameters of the
merger and certain factual assumptions intended to reflect the state of facts
existing at the effective time of the merger, and assuming the merger is
implemented in the manner described herein and in the merger agreement, the
merger will constitute a "reorganization" for federal income tax purposes within
the meaning of Section 368(a) of the Internal Revenue Code. In this context, the
merger agreement provides that it would be reasonable for counsel to iBasis and
PriceInteractive not to render these opinions if the percentage of the
consideration received by PriceInteractive stockholders in the merger in the
form of iBasis common stock is less than 45 percent of the total consideration
received by the PriceInteractive stockholders in the merger.
Assuming the transaction qualifies as a "reorganization" for this purpose,
no gain or loss will be recognized by iBasis, by Penguin Acquisition Corp., the
wholly-owned subsidiary of iBasis into which PriceInteractive will merge, or by
PriceInteractive solely by reason of the merger.
If the merger is not a "reorganization" for this purpose, PriceInteractive
will recognize taxable gain or loss with respect to the deemed sale of all of
its assets to Penguin Acquisition Corp. in an aggregate amount equal to the
difference between (a) the total fair market value of the cash paid in the
merger, the fair market value of the iBasis common stock issued in the merger,
and the liabilities of PriceInteractive assumed by Penguin Acquisition Corp. in
the merger, and (b) PriceInteractive's aggregate tax basis in its assets. By
reason of the merger, Penguin Acquisition Corp. would assume any resulting tax
liability.
THE FOREGOING SUMMARY IS NOT INTENDED, AND SHOULD NOT BE CONSIDERED, AS TAX
ADVICE. IBASIS STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS
REGARDING THE TAX CONSEQUENCES TO THEM OF THE MERGER UNDER APPLICABLE FEDERAL,
STATE, LOCAL, FOREIGN, AND OTHER TAX LAWS.
23
ACCOUNTING TREATMENT
The merger will be accounted for under the purchase method of accounting in
accordance with United States generally accepted accounting principles, with
iBasis acquiring PriceInteractive. After the completion of the merger, the
results of operations of PriceInteractive will be included in the consolidated
financial statements of iBasis. Under the purchase method of accounting, the
purchase price will be allocated to the tangible and identifiable intangible
assets acquired and liabilities assumed based on their estimated fair values.
The excess of the purchase price, including estimated fees and expenses related
to the merger, over the fair value of net assets acquired is classified as
goodwill and will be amortized by charges to operations. The amount of goodwill
and other intangible assets, the amount of the in-process research and
development charge and amortization of goodwill will be material and will
therefore have a significant negative impact on iBasis' operating results.
REGULATORY APPROVALS
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and related
rules, the merger cannot be completed until notifications have been given and
information has been furnished to the Federal Trade Commission and the Antitrust
Division of the Department of Justice and specified waiting period requirements
have been satisfied. iBasis and PriceInteractive filed notification and report
forms with the Federal Trade Commission and the Antitrust Division on December
22, 2000. On December 27, 2000, iBasis filed additional supporting documentation
with the Federal Trade Commission which supplemented its initial filing. On
January 11, 2001, iBasis and PriceInteractive received notice that the waiting
period under the Hart-Scott-Rodino Act had been terminated. However, at any time
before or after consummation of the merger, the Antitrust Division or the
Federal Trade Commission, or any state, could take such action under the
antitrust laws as it deems necessary or desirable in the public interest,
including seeking to enjoin the consummation of the merger or seeking
divestiture of particular assets of iBasis or PriceInteractive. Private parties
also may seek to take legal action under the antitrust laws. In addition,
non-United States governmental and regulatory authorities may seek to take
action under applicable antitrust laws. We cannot assure you that a challenge to
the merger will not be made or, if such challenge is made, that iBasis and
PriceInteractive will prevail.
LISTING OF SHARES OF IBASIS COMMON STOCK ON THE NASDAQ STOCK MARKET
When required to do so, iBasis will file a listing application with the
Nasdaq Stock Market to try to cause the shares of iBasis common stock that are
to be issued in the merger, and upon exercise of options granted to employees of
PriceInteractive, to be listed for trading on the Nasdaq Stock Market.
APPRAISAL RIGHTS
Under the Delaware General Corporation Law, holders of iBasis common stock
are not entitled to appraisal rights in connection with the merger.
OPINION OF ROBERTSON STEPHENS, INC.
Under a letter agreement dated November 15, 2000, iBasis engaged Robertson
Stephens to render an opinion as to the fairness of the purchase price, from a
financial point of view, to iBasis.
In connection with the evaluation and approval by the iBasis board of the
proposed merger, Robertson Stephens delivered a written opinion, dated December
12, 2000, that as of such date and based on the matters considered and the
limitations on the review undertaken described in the opinion, the purchase
price was fair from a financial point of view to iBasis. Robertson Stephens has
consented to the use of its opinion in this proxy statement, and the full text
of this opinion is reprinted as APPENDIX D to this proxy statement. No
limitations were imposed by iBasis' board on Robertson
24
Stephens with respect to the investigations made or procedures followed by it in
furnishing its opinion. The purchase price was determined through negotiations
between the management of iBasis and PriceInteractive. Robertson Stephens was
not asked by iBasis to propose or recommend, and did not propose or recommend,
any specific purchase price for the merger.
You should consider the following when reading the discussion of the opinion
of Robertson Stephens in this document:
- We urge you to read carefully the entire opinion of Robertson Stephens,
which is set forth in APPENDIX D to this proxy statement and is
incorporated by reference.
- The following description of the Robertson Stephens opinion is qualified
by reference to the full opinion located in APPENDIX D to this proxy
statement. The full opinion sets forth, among other things, the
assumptions by Robertson Stephens, the matters it considered and the
limitations on the review undertaken.
- The Robertson Stephens opinion was prepared for the benefit and use of the
iBasis board in its consideration of the merger and does not constitute a
recommendation to stockholders of iBasis as to how they should vote at the
special meeting, or take any other action, in connection with the merger.
- The Robertson Stephens opinion does not address the relative merits of the
merger and any other transactions or business strategies discussed by the
iBasis board as alternatives to the merger agreement or the underlying
business decision of the iBasis board to proceed with or effect the
merger.
Although developments following the date of the Robertson Stephens opinion
may affect the opinion, Robertson Stephens assumed no obligation to update,
revise or reaffirm its opinion. The Robertson Stephens opinion is necessarily
based upon market, economic and other conditions that were in effect on, and
information made available to Robertson Stephens as of, the date of the opinion.
It should be understood that subsequent developments may affect the conclusion
expressed in the Robertson Stephens opinion, and that Robertson Stephens
disclaims any undertaking or obligation to advise any person of any change in
any fact or matter affecting its opinion. The Robertson Stephens opinion is
limited to the fairness, from a financial point of view and as of the date
thereof, of the purchase price to iBasis.
In connection with the preparation of this opinion, Robertson Stephens has,
among other things:
- reviewed certain publicly available financial statements and other
business and financial information of iBasis;
- reviewed certain internal financial statements and other financial and
operating data concerning iBasis and PriceInteractive prepared by the
managements of iBasis and PriceInteractive, respectively;
- reviewed certain financial forecasts and other forward looking financial
information relating to iBasis and PriceInteractive prepared by the
managements of iBasis and PriceInteractive, respectively;
- held discussions with the respective managements of iBasis and
PriceInteractive concerning the businesses, past and current operations,
financial condition and future prospects of both iBasis and
PriceInteractive, independently and combined, including discussions with
the management of iBasis regarding the strategic rationale for the merger;
- reviewed the financial terms and conditions set forth in the draft
agreement;
- reviewed the stock price and trading history of iBasis common stock;
25
- compared the financial performance of PriceInteractive with that of
certain publicly traded companies comparable with PriceInteractive;
- compared the financial terms of the merger with the financial terms, to
the extent publicly available, of other transactions that Robertson
Stephens deemed relevant;
- reviewed the pro forma impact of the merger; and
- made such other studies and inquiries, and reviewed such other data, as it
deemed relevant.
In its review and analysis, and in arriving at its opinion, Robertson
Stephens assumed and relied upon the accuracy and completeness of all the
financial and other information provided to it, including information furnished
to it orally or otherwise discussed with Robertson Stephens by the managements
of iBasis and PriceInteractive, or publicly available and neither attempted
independently to verify, nor assumed responsibility for verifying, any of such
information. Robertson Stephens relied upon the assurances of the managements of
iBasis and PriceInteractive that they were not aware of any facts that would
make such information inaccurate or misleading. Furthermore, Robertson Stephens
did not obtain or make, or assume any responsibility for obtaining or making,
any independent evaluation or appraisal of the properties or assets and
liabilities, contingent or otherwise, of iBasis or PriceInteractive, nor was it
furnished with any such evaluation or appraisal.
With respect to the financial forecasts and projections, and the assumptions
and bases therefor, for each of iBasis and PriceInteractive that Robertson
Stephens reviewed, upon the advice of the managements of iBasis and
PriceInteractive, Robertson Stephens assumed that:
- these forecasts and projections were reasonably prepared in good faith on
the basis of reasonable assumptions;
- these forecasts and projections reflected the best currently available
estimates and judgments as to the future financial condition and
performance of iBasis and PriceInteractive, respectively; and
- these projections and forecasts would be realized in the amounts and in
the time periods currently estimated.
In addition, Robertson Stephens assumed that:
- the merger will be consummated upon the terms set forth in the draft
agreement made available to it without material alteration, including,
among other things, that the merger will be accounted for as a "purchase"
business combination in accordance with U.S. generally accepted accounting
principles;
- the merger will be treated as a tax-free "reorganization" as defined in
the Internal Revenue Code of 1986, as amended; and
- the historical financial statements of each of iBasis and PriceInteractive
reviewed by it were prepared and fairly presented in accordance with U.S.
generally accepted accounting principles consistently applied.
Robertson Stephens relied as to all legal matters relevant to rendering its
opinion on the advice of its legal counsel.
Robertson Stephens expressed no opinion as to:
- the value of any employee agreements or other arrangements entered into in
connection with the merger;
- any tax or other consequences that may result from the merger; or
26
- the value of the iBasis common stock when issued to PriceInteractive's
stockholders in connection with the merger or the price at which the
shares of iBasis common stock that are issued in connection with the
merger will be traded in the future. The Robertson Stephens opinion did
not address the relative merits of the merger and the other business
strategies that iBasis' board of directors had considered or may have been
considering, nor did it address the decision of iBasis' board of directors
to proceed with the merger.
The following is a summary of the material financial analyses performed by
Robertson Stephens in connection with rendering its opinion. The summary of the
financial analyses is not a complete description of all of the analyses
performed by Robertson Stephens. Certain of the information in this section is
presented in tabular form. IN ORDER TO UNDERSTAND BETTER THE FINANCIAL ANALYSES
PERFORMED BY ROBERTSON STEPHENS, THESE TABLES MUST BE READ TOGETHER WITH THE
TEXT OF EACH SUMMARY. THE ROBERTSON STEPHENS OPINION IS BASED ON THE TOTALITY OF
THE VARIOUS ANALYSES THAT IT PERFORMED, AND NO PARTICULAR PORTION OF THE
ANALYSIS HAS ANY MERIT STANDING ALONE.
27
COMPARABLE COMPANY ANALYSIS. Using publicly available information,
Robertson Stephens analyzed, among other things, the trading multiples of
selected publicly traded companies in the interactive voice response, or IVR,
and Web-based voice recognition industries, as well as the trading multiples of
a company that combines both IVR and Web-based voice recognition, including:
INTERACTIVE VOICE RESPONSE
- Interactive Telesis
- West Teleservices
WEB-BASED VOICE RECOGNITION
- General Magic
- NetSpeak Corporation
- Nuance Communications
- Speechworks International
IVR/WEB-BASED VOICE RECOGNITION
- TALX Corporation
As set forth in the following table, applying a range of multiples for these
companies for calendar year 2001 to 2001 revenue data for PriceInteractive
estimated by iBasis Management resulted in the following range of implied equity
values.
Interactive Voice Response and Web-Based Voice Recognition Combined:
($'s in MM)
IMPLIED
CALENDAR YEAR PRICEINTERACTIVE
EQUITY VALUE(A)
2001 $50.1 - $151.2
Revenues
IVR/Web-Based Voice Recognition:
IMPLIED
CALENDAR YEAR PRICEINTERACTIVE
EQUITY VALUE(A)
2001 $103.2 - $143.9
Revenues...
- ------------------------
(a) Adjusted for $3.86 million of cash and $2.14 million of debt.
28
SELECTED PRIVATE PRECEDENT TRANSACTION ANALYSIS. Robertson Stephens
analyzed the adjusted aggregate value paid or proposed to be paid in selected
private precedent transactions in the IVR, Web-based speech recognition platform
and related voice-enabled portal, software and eCommerce services segments,
including:
Locus Dialogue / Infospace
Resource Information Management Systems / TriZetto Group
Metacode Technologies / Interwoven
Ajuba Solutions / Interwoven
Phobos Corp / SonicWALL
Digital Archaeology / Delano Technology
Renaissance Software / Vertex Interactive
Servicesoft Technologies / Broadbase Software
Quack.com / AOL
Decisionism / Broadbase Software
C2Net Software / Red Hat
PeerLogic / Critical Path
OnLink Technologies / Siebel Systems
Extensibility / Tibco Software
eFusion Inc / ITXC Corp
SupplierMarket / Ariba
OpenSite / Siebel Systems
AudioTalk Networks / Hearme
Supplybase.com / i2 Technologies
Tradeum / Vertical Net
Onebox.com / Phone.com
Mergent Systems / Commerce One
@Motion / Phone.com
Tradex / Ariba
TradingDynamics / Ariba
CommerceBid.com / CommerceOne
29
Robertson Stephens compared, among other things, the aggregate value in
these transactions as a multiple of last post money valuation. The multiples
used were adjusted to reflect the most recent closing acquiror stock prices at
the time of the opinion, as contrasted with the prevailing acquiror prices at
the time of transaction announcement. Applying these multiples to
PriceInteractive's post money valuation from its latest round of financing
resulted in the following range of implied equity values.
($'s in MM)
POST $ VALUATION PREMIUM TO IMPLIED PRICEINTERACTIVE
VALUE POST $ VALUE EQUITY VALUE(A)
$100.0 0.5X TO 3.0X $51.7 - $301.7
- ------------------------
(a) Adjusted for $3.86 million of cash and $2.14 million of debt.
Robertson Stephens also analyzed such adjusted market consideration paid as
a multiple of employees in the selected private precedent transactions listed
above. As set forth in the following table, Robertson Stephens applied a range
of these per employee values (in dollar terms) to the number of PriceInteractive
employees, breaking out SpeechPort, the company's Web-based voice recognition
platform.
($'s in MM)
NUMBER OF PRICE PER IMPLIED PRICEINTERACTIVE
EMPLOYEES EMPLOYEE EQUITY VALUE(A)
Speech Port
65 $0.5 - $2.4 $34.2 - $157.7
All
133 $0.5 - $2.4 $68.2 - $320.9
- ------------------------
(a) Adjusted for $3.86 million of cash and $2.14 million of debt.
No company, transaction or business used in the Comparable Company Analysis
or the Selected Private Precedent Transaction Analysis as a comparison is
identical to iBasis, PriceInteractive or the merger. Accordingly, an analysis of
the results of the foregoing is not entirely mathematical; rather it involves
complex considerations and judgments concerning differences in financial and
operating characteristics and other factors and trends that could affect the
acquisition, public trading and other values of the comparable companies or the
business segment, company or transactions to which they are compared.
PRO FORMA MERGER ANALYSIS. Robertson Stephens analyzed the impact of the
merger on the revenues and earnings before interest, tax, depreciation and
amortization of the combined company for fiscal year 2001 based on the iBasis
guidance made public upon announcement of the merger for iBasis and on iBasis
management estimates for PriceInteractive. Without taking into account certain
synergies that the combined company may realize in its operations, the results
of this analysis suggested that the merger is dilutive to iBasis' revenue per
share and accretive to iBasis' EBITDA per share in fiscal year 2001, excluding
the opportunity cost of cash used in the transaction. The following table
summarizes the results of this analysis:
Fiscal year 2001 estimated revenue per share dilution....... 5.8%
Fiscal year 2001 estimated EBITDA per share accretion....... 29.1%
30
The actual results achieved by the combined company may vary from projected
results and such variations may be material.
OTHER FACTORS. While the foregoing summary describes the analysis and
factors that Robertson Stephens deemed material in its presentation to the
iBasis board, it is not a comprehensive description of all analysis and factors
considered by Robertson Stephens. The preparation of a fairness opinion is a
complex process that involves various determinations as to the most appropriate
and relevant methods of financial analysis to the particular circumstances.
Therefore, a fairness opinion is not readily susceptible to partial analysis or
summary description. In arriving at its opinion, Robertson Stephens did not
attribute any particular weight to any analysis or factor considered by it, but
rather made qualitative judgments as to the significance and relevance of each
analysis and factor. Accordingly, Robertson Stephens believes that its analyses
must be considered as a whole and that selecting portions of its analyses and of
the factors considered by it, without considering all analyses and factors,
could create a misleading or incomplete view of the evaluation process
underlying its opinion. Several analytical methodologies were employed and no
one method of analysis should be regarded as critical to the overall conclusion
reached by Robertson Stephens. Each analytical technique has inherent strengths
and weaknesses, and the nature of the available information may further affect
the value of particular techniques. The conclusion reached by Robertson Stephens
is based on all analyses and factors taken as a whole and also on application of
Robertson Stephens' own experience and judgment. This conclusion may involve
significant elements of subjective judgment and qualitative analysis. Robertson
Stephens therefore gives no opinion as to the value or merit standing alone of
any one or more parts of the analysis it performed. In performing its analyses,
Robertson Stephens made numerous assumptions with respect to industry
performance, general business and other conditions and matters, and industry and
transaction trends, many of which are beyond the control of iBasis or Robertson
Stephens. Any estimates contained in these analyses are not necessarily
indicative of actual values or predictive of future results or values, which may
be significantly more or less favorable than those suggested by these analyses.
Accordingly, analyses relating to the value of businesses do not purport to be
appraisals or to reflect the prices at which these businesses actually may be
sold in the future, and these estimates are inherently subject to uncertainty.
Furthermore, no opinion is being expressed as to the prices at which shares of
iBasis common stock may be traded at any future time.
iBasis engaged Robertson Stephens under a letter agreement dated November
15, 2000. The agreement provides that, for its services, Robertson Stephens is
entitled to receive a fee which was payable upon the delivery of its opinion. In
addition, iBasis has agreed to indemnify Robertson Stephens for certain
liabilities that may arise out of the engagement. The terms of the fee
arrangement with Robertson Stephens were negotiated at arm's length between
iBasis and Robertson Stephens, and the iBasis board was aware of these fee
arrangements. Robertson Stephens was retained based on Robertson Stephens'
experience in connection with mergers and acquisitions and in securities
valuations generally, as well as Robertson Stephens' investment banking
relationship and familiarity with iBasis.
Robertson Stephens is an internationally recognized investment banking firm.
As part of its investment banking business, Robertson Stephens is frequently
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, secondary distributions of
securities, private placements and other purposes.
31
THE MERGER AGREEMENT
IN THIS SECTION OF THE PROXY STATEMENT, WE DESCRIBE THE MATERIAL PROVISIONS
OF THE MERGER AGREEMENT. WE HAVE ATTACHED A COPY OF THE MERGER AGREEMENT AS
APPENDIX A TO THIS PROXY STATEMENT AND INCORPORATE THE MERGER AGREEMENT IN ITS
ENTIRETY INTO THIS PROXY STATEMENT BY REFERENCE. THE SUMMARY OF THE MERGER
AGREEMENT WE PROVIDE BELOW IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
MERGER AGREEMENT. WE ENCOURAGE YOU TO READ THE MERGER AGREEMENT FOR A COMPLETE
UNDERSTANDING OF ITS TERMS.
GENERAL; CONVERSION OF SHARES
Following the approval of the issuance of shares of iBasis common stock
pursuant to the merger agreement by the stockholders of iBasis and the
satisfaction or waiver of the other conditions to the merger, PriceInteractive
will be merged with and into Penguin Acquisition Corp., a wholly owned
subsidiary of iBasis. Penguin Acquisition Corp., the surviving corporation, will
continue as a wholly owned subsidiary of iBasis.
As a result of the merger, iBasis expects to issue an aggregate of
approximately 10,232,243 shares of iBasis common stock and approximately $46.0
million in cash to the holders of the issued and outstanding capital stock of
PriceInteractive and "vested" options to acquire PriceInteractive stock,
including options the vesting of which is accelerated by the consummation of the
merger, with such consideration to be issued to the holders of such options upon
the exercise of those options in accordance with the terms thereof. The actual
number of shares of iBasis common stock issued upon the closing of the merger
will be subject to increase on a proportional basis if the number of outstanding
iBasis shares on a fully-diluted basis, as provided in the merger agreement,
increases prior to the effective time of the merger, or if the iBasis board of
directors determines that it is necessary to do so to obtain "reorganization"
tax treatment for the transaction as discussed below. Under the terms of the
merger agreement, iBasis will also assume up to a maximum number of outstanding
unvested options to purchase PriceInteractive stock. In the event that iBasis
assumes the maximum number of unvested options and all such options become
exercisable and are exercised, iBasis would issue an additional 1,021,434 shares
of iBasis common stock, based on the $9.28 per share closing price on
January 30, 2001, and approximately $4.2 million in cash upon exercise thereof.
Based on the closing price of $6.69 share of iBasis common stock on December 12,
2000, the day immediately preceding the public announcement of the proposed
merger, the total value of the consideration to be received at closing would be
$114.0 million.
Under the merger agreement, iBasis has the right, exercisable at its sole
discretion, to increase the number of shares of iBasis common stock to be issued
to the PriceInteractive stockholders at the closing of the merger. iBasis does
not currently intend to increase the number of shares. iBasis may, however,
choose to do so if it is advised that the number of shares issuable to the
PriceInteractive stockholders in the merger must be increased in order to meet a
"continuity of shareholder interest" test required for the merger to qualify as
a "reorganization" for federal income tax purposes. For more information
regarding this test, please see the section of this proxy statement entitled
"The Merger--Material United States Federal Income Tax Consequences." Under
those circumstances, iBasis may, in its sole discretion, increase the number of
shares issued to the PriceInteractive stockholders to the extent it determines
to be necessary for the merger to so qualify as a "reorganization." iBasis has
not, however, made any commitment to increase the number of shares issuable to
PriceInteractive stockholders by any amount under any circumstances.
In connection with the merger, iBasis made a bridge loan to PriceInteractive
in the initial principal amount of $10.0 million immediately after the merger
agreement was executed. If the closing has not occurred prior to February 28,
2001 and the merger agreement has not been terminated, iBasis has agreed to loan
PriceInteractive an additional $5.0 million upon request. For more information
32
regarding the bridge loans, see "The Merger Agreement--Additional Agreements"
elsewhere in this proxy statement.
After the effective time, holders of PriceInteractive stock will cease to
be, and have no continuing rights as, stockholders of PriceInteractive, and will
have only the rights to receive shares of iBasis common stock, and all stock
certificates representing shares of PriceInteractive common stock, redeemable
preferred stock, convertible preferred stock and restricted stock will
thereafter represent only the shares of iBasis common stock, or rights to
receive cash, into which they have been converted. For a discussion of the
treatment of option shares, please see the section entitled "Treatment of
PriceInteractive Options" below.
In connection with the merger, the parties have agreed that a number of
shares of iBasis common stock that would otherwise be issued to the stockholders
of PriceInteractive and certain named holders of PriceInteractive options and
restricted stock at the closing of the merger, equal in value to 12.5% of the
total value of consideration that would otherwise be received by the
PriceInteractive stockholders and vested option holders at the closing, will be
placed into an escrow account. For more details concerning the escrow agreement,
see the section entitled "The Escrow Agreement" below.
If all conditions to the merger are either satisfied or waived, the merger
will become effective at the time of the filing of the Certificate of Merger
with the Delaware Secretary of State. It is expected that the effective time of
the merger will take place shortly after the satisfaction or waiver of all of
the conditions to the merger, which is expected to be no later than the first
quarter of 2001.
BOARD OF DIRECTORS AND CERTIFICATE OF INCORPORATION
In connection with the merger, the directors of Penguin Acquisition Corp.
will continue to be the board of directors of the surviving corporation. The
Certificate of Incorporation and by-laws of Penguin Acquisition Corp. will
continue to be those of the surviving corporation.
EXCHANGE OF SHARES
SURRENDER OF SHARES OF PRICEINTERACTIVE STOCK
iBasis will retain the services of EquiServe Trust Company, N.A. to act as
exchange agent to facilitate the exchange of shares. When a PriceInteractive
stockholder surrenders share certificates to the exchange agent, the stockholder
will be entitled to receive a certificate for the number of whole shares of
iBasis common stock into which the stockholder's PriceInteractive stock had been
converted, as described above.
DISSENTING SHARES
As an iBasis stockholder, you are not entitled to dissenter's rights in
connection with the merger.
DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES
No dividends or distributions declared or made after the effective time of
the merger with respect to shares of iBasis common stock will be paid to the
holder of any unsurrendered certificate with respect to shares of
PriceInteractive stock and no cash payment in lieu of fractional shares will be
paid to any such holder until the holder surrenders the PriceInteractive stock
certificate as provided above.
NO FURTHER OWNERSHIP RIGHTS IN PRICEINTERACTIVE STOCK
Shares of iBasis common stock issued upon the surrender of certificates for
PriceInteractive stock will be in full satisfaction of all rights to such stock.
The stock transfer books of PriceInteractive will close upon the consummation of
the merger and no further transfers of PriceInteractive stock will take
33
place. After the merger, PriceInteractive certificates surrendered in accordance
with the merger agreement will be canceled and exchanged for shares of iBasis
common stock.
FRACTIONAL SHARES
iBasis will not issue any fractional shares. Instead of fractional shares,
PriceInteractive stockholders will receive cash equal to the product of the same
fraction multiplied by the 20 day weighted average closing price of iBasis
common stock including and ending on the day that is two trading days prior to
the closing.
TREATMENT OF PRICEINTERACTIVE OPTIONS
Immediately following the consummation of the merger, the option and
restricted stock plans of PriceInteractive will be assumed by iBasis. Each right
to receive PriceInteractive stock prior to the merger will be converted into the
right to receive shares of iBasis and cash, on the same terms as the common
stock of PriceInteractive as described above. iBasis has agreed to use its
reasonable best efforts to register the shares of iBasis common stock issuable
upon the exercise of all converted options with the SEC no later than the
closing date of the merger.
REPRESENTATIONS AND WARRANTIES
In the merger agreement, PriceInteractive, each of its principal
stockholders, and iBasis have each made a number of representations and
warranties about their businesses, financial condition, corporate structure and
other facts pertinent to the merger.
Each of iBasis and PriceInteractive has made representations regarding the
following matters:
- its corporate organization and authority to own its assets and conduct its
business;
- its authorized and outstanding capital stock;
- its authority to enter into the merger agreement, the enforceability of
the merger agreement against it, the absence of required consents,
licenses, permits, orders and authorizations from governmental authorities
relating to the merger agreement and the absence of conflict between the
requirements of the merger agreement and its obligations under its
organizational documents, law or contracts;
- the absence of undisclosed material liabilities;
- the absence of specified changes in its business;
- its intellectual property matters;
- the absence of litigation that could materially harm it;
- regulatory matters relating to it;
- its employee benefit plans;
- the absence of registration rights in any third parties;
- the truth and accuracy of the information supplied by it in connection
with the merger agreement and the filing of any SEC documents; and
- its relationships with brokers in connection with the merger agreement.
PriceInteractive has made additional representations and warranties relating to
the following:
- its qualification and good standing;
34
- its subsidiaries and the absence of any undisclosed subsidiaries;
- the sound preparation and reflective character of its financial
statements;
- its assets and properties are in all respects sufficient to conduct its
business, and it has good and marketable title to all such assets and
properties;
- its leased real property;
- the lack of undisclosed material indebtedness;
- the filing of tax returns and payment of taxes;
- safety and environmental matters;
- its compliance with labor and employment regulation;
- its accounts receivable and payable;
- its material contracts;
- its potential conflicts of interest;
- its insurance coverage;
- its bank accounts;
- its relationships with its suppliers and customers;
- matters regarding its employees;
- the accuracy of its minute books; and
- its compliance with applicable laws, regulations and other contracts or
agreements.
The principal stockholders of PriceInteractive have each made additional
representations and warranties relating to the following:
- their good title to the shares offered and sold in the merger; and
- their investment intent with respect to the shares of iBasis which they
receive in the merger.
iBasis has made additional representations and warranties relating to the
following:
- the organization of Penguin Acquisition Corp.;
- the accuracy of its SEC filings; and
- its intent to continue at least one of PriceInteractive's significant
historical lines of business in connection with the tax-free status of the
reorganization.
COVENANTS
IBASIS' COVENANTS
- the certificate of incorporation and by-laws of Penguin Acquisition Corp.
will contain provisions with respect to indemnification and elimination of
liability for monetary damages for directors, officers, employees, and
agents of PriceInteractive for a period of six years from the effective
time;
- after the effective time of the merger, iBasis will indemnify and hold
harmless each present or former director or officer of PriceInteractive or
any of its subsidiaries against any costs or expenses in connection with
any claim, action, suit, proceeding or investigation to the extent
35
arising out of any action or omission in his or her capacity as a
director, officer, employee or agent of PriceInteractive occurring prior
to the effective time of the merger;
- for a period of six years after the effective time of the merger, iBasis
will use all commercially reasonable efforts to maintain in effect
directors' and officers' liability insurance covering those persons who
are currently covered by PriceInteractive's directors and officers
liability insurance policies;
- iBasis will honor PriceInteractive's employee benefit plans or offer
substantially comparable benefit plans for a period of one year following
the effective time of the merger;
- iBasis shall call a special meeting of its stockholders, to consider and
vote upon the approval of the Merger and the other transactions
contemplated thereby; and
- iBasis will provide funds for the Merger Sub necessary to fulfill its
obligations.
PRICEINTERACTIVE'S COVENANTS
- PriceInteractive will grant iBasis full access to its property, records,
and documents as a reasonable investigation may require, and any
information obtained by way of such investigation will remain
confidential;
- PriceInteractive will carry on its business in the ordinary course;
- PriceInteractive will not incur any material additional indebtedness;
- PriceInteractive will not declare or pay dividends on or make any other
distributions in respect of any of its capital stock, or issue, redeem or
otherwise acquire for value any of its capital stock, except in connection
with the exercise of PriceInteractive options in accordance with their
terms;
- PriceInteractive will not issue any options, warrants or other convertible
securities, subject to certain exceptions relating to the issuance of
restricted shares under its restricted stock plan and to a limited number
of options granted to new hires;
- PriceInteractive may not increase compensation payable to its officers or
employees, or increase any bonus, compensation, pension or other plan for
the benefit of any directors, officers or employees outside of the
ordinary course of business;
- PriceInteractive will not enter into any material contract, commitment, or
transaction, with any of its affiliates, other than in the usual and
ordinary course of business and consistent with its normal past business
practices;
- PriceInteractive will not purchase, lease, license, acquire any interest,
or dispose of any interest in, any capital asset(s) (1) other than in the
ordinary course of business, or (2) having a market value in excess of
$10,000 in any instance, or in excess of $50,000 in the aggregate;
- PriceInteractive will not establish any subsidiaries nor will it make an
investment in any subsidiary;
- PriceInteractive will maintain all its insurance policies currently in
place;
- PriceInteractive will use its reasonable best efforts to preserve its
business organizations intact, to keep available its present officers and
key employees and consultants, and to preserve its present business
relationships with its material suppliers and customers and others having
business relationships with it;
36
- PriceInteractive will not take or omit to take any action, or permit any
action or omission to act, that would cause a material default under or a
material breach of any of its contracts, commitments, or obligations;
- PriceInteractive will comply in all material respects with all applicable
laws, regulations, and orders;
- PriceInteractive will not directly or indirectly negotiate for, solicit,
initiate, or enter into any agreement or understanding with respect to
any, merger, consolidation, business combination, purchase, asset sale,
stock issuance or similar transaction, or discuss or negotiate any such
transaction, with any third party;
- PriceInteractive will not make any election with respect to taxes or adopt
any change in any method of accounting for federal income tax purposes
without the written consent of iBasis;
- PriceInteractive will cooperate in the orderly modification or, if
necessary, termination of PriceInteractive's 401(k) Retirement Plan; and
- PriceInteractive shall adopt its 2000 Restricted Stock Plan.
COVENANTS OF THE PRINCIPAL STOCKHOLDERS OF PRICEINTERACTIVE
The principal stockholders of PriceInteractive have agreed to maintain the
confidentiality of iBasis' confidential information.
MUTUAL COVENANTS
PriceInteractive and iBasis have each agreed that from and after the date of
the merger agreement and until the consummation of the merger:
- they will use their reasonable best efforts to cause the satisfaction of
all conditions precedent;
- they will use their reasonable best efforts to effect the merger;
- they will cooperate in the preparation of a proxy statement to be
delivered to iBasis' stockholders;
- they will make all filings required by the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 and cooperate in connection with resolving any
governmental inquiry or investigation relating thereto;
- they will make all necessary filings with respect to the merger under the
federal securities laws;
- they will make all reasonable efforts to cause the merger to be treated as
a "reorganization" within the meaning of Section 368(a) of the Internal
Revenue Code and will report the transaction as such on their tax returns;
- they will supplement and correct as necessary their respective disclosure
schedules to the merger agreement;
- they will promptly advise each other in writing of any material adverse
change with respect to themselves;
- they will obtain all required consents and approvals of third parties; and
- they will treat the loans made under the Non-Negotiable Convertible
Subordinated Promissory Note, described below, as indebtedness of
PriceInteractive for all purposes.
In the merger agreement, the parties have also agreed that they will consult
with each other before issuing any press releases or making public statements
with respect to the merger.
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ADDITIONAL AGREEMENTS
NON-NEGOTIABLE CONVERTIBLE SUBORDINATED PROMISSORY NOTE
In connection with the bridge financing provided to PriceInteractive by
iBasis, PriceInteractive has executed a Non-Negotiable Convertible Subordinated
Promissory Note in the principal amount of up to $15.0 million in favor of
iBasis. In addition to repayment terms, the promissory note also includes
provisions for accelerated maturity or conversion in the event that the merger
agreement is terminated. In the event of terminations other than as a result of
uncured willful breaches by PriceInteractive of the merger agreement, the amount
owed will convert into an amount of PriceInteractive Class A common stock, such
amount to be determined by the nature of the termination.
In connection with the making of the bridge loan, iBasis entered into a
Subordination Agreement with SunTrust Bank pursuant to which iBasis agreed to
subordinate its rights under the promissory note to PriceInteractive's
obligations to SunTrust under PriceInteractive's existing credit facility with
SunTrust.
AMENDED AND RESTATED PRICEINTERACTIVE REGISTRATION RIGHTS AGREEMENT
In contemplation of a possible conversion of the promissory note
representing the bridge loan, PriceInteractive, iBasis, and certain holders of
PriceInteractive capital stock, have entered into an Amended and Restated
Registration Rights Agreement, dated as of December 12, 2000, pursuant to which
the shares of PriceInteractive stock iBasis could acquire upon a possible
conversion of the promissory note would be included among the securities
entitled to be registered under that agreement. PriceInteractive has generally
agreed to use its best efforts to cause such securities to be registered for
sale upon certain demands by such stockholders and under certain registration
statements that PriceInteractive proposes to file from time to time, whether on
its behalf or on behalf of other of its stockholders. The amended and restated
registration rights agreement also provides customary indemnification rights to
the stockholders in connection with registered sales of their stock.
AMENDED AND RESTATED STOCKHOLDERS AGREEMENT
In contemplation of a possible conversion of the promissory note,
PriceInteractive, iBasis and certain holders of PriceInteractive stock, have
also entered into an Amended and Restated Stockholders Agreement, dated as of
December 12, 2000, which contains, among other things, provisions for the
policies and constitution of PriceInteractive's board of directors, limitations
on the sale of the parties' PriceInteractive stock and an agreement to enter
into a lock-up agreement in the event of an initial public offering of
PriceInteractive common stock. The Amended and Restated Stockholders Agreement
provides that, in the event the amount owed under the promissory note is
converted into PriceInteractive common stock, Mr. Gneezy, President and Chief
Executive Officer of iBasis, will become a member of the PriceInteractive board
of directors.
IBASIS REGISTRATION RIGHTS AGREEMENT
iBasis has entered into a Registration Rights Agreement, dated as of
December 12, 2000, with the holders of PriceInteractive's Class A and Class B
common stock, its 1998 Redeemable Preferred Stock and its Series A Convertible
Preferred Stock. In this registration rights agreement, subject to specified
limitations, iBasis agreed to file a registration statement on Form S-3 to
register the shares of iBasis common stock issued in connection with the merger
for resale by the holders thereof within a specified time, and generally agreed
to use its reasonable best efforts to cause any remaining shares of iBasis
common stock held by these stockholders to be registered for sale on any
registration statement that iBasis proposes to file in the future whether on its
own behalf or on behalf of other of its stockholders. The registration rights
agreement also provides customary indemnification rights to the stockholders in
connection with registered sales of their stock.
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ESCROW AGREEMENT
In connection with the merger, the parties have agreed that a number of
shares of iBasis common stock equaling 12.5% of the total value of the
consideration which the PriceInteractive stockholders and vested option holders
would otherwise receive at the closing of the merger, will be placed into an
escrow account. Twenty percent of the shares of iBasis common stock held in
escrow will be available to indemnify iBasis against specific, scheduled costs
and will be released from escrow 18 months after the closing, if no successful
claims have been made against these escrowed shares by iBasis. The remaining 80%
of the escrowed shares will be available to indemnify iBasis against any costs
or damages related to or arising out of any breach by PriceInteractive of any
representation, warranty, covenant, agreement, obligation or undertaking,
including the specific, scheduled costs referred to above, and will be released
from escrow 12 months after the closing, if no successful claims have been made
against these escrowed shares of iBasis common stock. Depending on the amounts
of any successful indemnification claims that iBasis may make under the merger
agreement, the PriceInteractive stockholders may never receive some or all of
these escrowed shares of iBasis common stock. For more information, please see
the section entitled "The Escrow Agreement" elsewhere in this proxy statement.
IBASIS VOTING AGREEMENT
iBasis, PriceInteractive and stockholders of iBasis holding, in the
aggregate, approximately 29.6% of the outstanding shares of iBasis common stock
on the record date, have agreed with PriceInteractive to vote their shares in
favor of the merger. For more information, please see the section entitled "The
Voting Agreement" elsewhere in this proxy statement.
LOCK-UP AGREEMENT
As a condition precedent to the merger, each principal PriceInteractive
stockholder is, and certain other PriceInteractive stockholders are, required
under the merger agreement to execute and deliver to iBasis a lock-up agreement,
wherein these PriceInteractive stockholders agree not to sell or otherwise
transfer their interest, other than in certain private transactions with
affiliated parties, in the iBasis shares received in the merger for a period of
180 days following the effective time of the merger without the prior written
consent of iBasis unless the iBasis' share price increases beyond certain
thresholds for defined periods of time, after each of which a portion of the
shares covered by the lock-up agreement will be released from the transfer
restrictions.
NON-COMPETITION AND NON-SOLICITATION AGREEMENT
In connection with the merger, various employees of PriceInteractive will
enter into non-competition and non-solicitation agreements with iBasis. In such
agreements, the employee agrees that upon termination of their employment with
iBasis they will not engage in activity that is competitive with iBasis'
business activities, for a certain period of time and within certain
geographical areas.
CONDITIONS
Neither iBasis nor PriceInteractive will be obligated to complete the merger
unless specified conditions are satisfied or waived, including the following:
- no temporary restraining order, preliminary or permanent injunction, or
other order issued by any court of competent jurisdiction, or other legal
restraint or prohibition preventing the consummation of the merger, will
be in effect, and no petition or request by any governmental authority for
any such injunction or other order will be pending;
- all proceedings in connection with the transaction and all documents
delivered in connection with the closing must be satisfactory to the
respective parties;
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- all required parties must have entered into the escrow agreement;
- the waiting period under applicable federal antitrust laws must have
expired or been terminated;
- all authorizations, consents, orders or approvals of, or declarations or
filings with, or expirations of waiting periods imposed by, any
governmental entity must have been filed, been obtained or occurred; and
- the shares of iBasis common stock issuable to PriceInteractive
stockholders in the merger will have been approved for quotation on the
Nasdaq Stock Market.
ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF PRICEINTERACTIVE
The obligation of PriceInteractive to effect the merger is also subject to
the satisfaction or waiver of the following additional conditions:
- the representations and warranties of iBasis and Penguin Acquisition Corp.
contained in the merger agreement must be true and correct in all material
respects when made and on the closing date;
- iBasis and Penguin Acquisition Corp. must have performed in all material
respects all of their obligations under the merger agreement;
- Bingham Dana LLP, counsel to iBasis, will have delivered a legal opinion
in a certain form to PriceInteractive;
- there must have been no material adverse effect on iBasis, but such
material adverse affect will not result simply from a decrease in the
price of iBasis' common stock;
- the registration statement on Form S-3 that iBasis agreed to file under
the registration rights agreement it entered into with the
PriceInteractive stockholders must have become effective under the
Securities Act and must not be the subject of a stop order or proceeding
seeking a stop order;
- Daniel J. Price must have been appointed as a Class I director of iBasis,
subject to the consummation of the merger;
- MicroStrategy and iBasis must have entered into an assurance letter
agreement relating to a contract between MicroStrategy and
PriceInteractive;
- PriceInteractive shall have received information on all of iBasis'
"employee benefit plans" within the meaning of Section 3(3) of ERISA;
- PriceInteractive shall have terminated its 401(k) plan, provided
satisfactory arrangements have been made to avoid acceleration of
outstanding plan loans; and
- iBasis shall have entered into employment agreements with certain
employees of PriceInteractive.
In addition, as a condition to closing, PriceInteractive must have received
a written opinion of its special outside legal counsel, Crowell & Moring LLP,
dated as of the closing date to the effect that in such counsel's opinion, the
merger will constitute a "reorganization" under Section 368(a) of the Internal
Revenue Code. Counsel's ability to render this opinion will be based in large
part on the merger meeting a "continuity of shareholder interest" test, which
will in turn depend upon the value of the iBasis stock issuable to the
PriceInteractive stockholders on the closing date. For more information about
this condition and related tax issues, please see the section of this proxy
statement entitled "The Merger--Material United States Federal Income Tax
Consequences".
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ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF IBASIS
The obligations of iBasis and its wholly owned subsidiary to effect the
merger are also subject to the satisfaction or waiver of the following
additional conditions:
- PriceInteractive's representations and warranties contained in the merger
agreement must be true and correct in all material respects when made and
on the closing date;
- PriceInteractive must have performed in all material respects all of its
obligations under the merger agreement;
- there must have been no material adverse effect on PriceInteractive;
- counsel to PriceInteractive will have delivered a legal opinion in a
specified form to iBasis;
- certain named employees of PriceInteractive must have entered into
non-competition and non-solicitation agreements;
- each PriceInteractive stockholder required to do so will have executed a
lock-up agreement relating to sales of the shares of iBasis common stock
received in the merger;
- holders of no more than 5% of the issued and outstanding common stock of
PriceInteractive will have elected to, or have contingent rights to,
exercise dissenters rights under the Delaware General Corporation Law;
- the stockholders of iBasis will have approved the issuance of shares of
iBasis common stock pursuant to the merger agreement and related
transactions;
- iBasis will have received from PriceInteractive a written statement
certifying that PriceInteractive has not been a United States real
property holding corporation for federal income tax purposes;
- the holders of certain options to purchase PriceInteractive stock that
would not have become vested if not for the merger will have agreed to
modify the terms of such options so that their vesting is not accelerated
by the merger; and
- the existing employment agreements between PriceInteractive and certain of
its employees will have been terminated and replaced by new employment
agreements with iBasis.
In addition, as a condition to closing, iBasis must have received a written
opinion from Bingham Dana LLP, counsel to iBasis, dated as of the closing date
to the effect that, in such counsel's opinion, the merger will constitute a
"reorganization" under Section 368(a) of the Internal Revenue Code. Counsel's
ability to render this opinion will be based in large part on the merger meeting
a "continuity of shareholder interest" test, which will in turn depend upon the
value of the iBasis stock issuable to the PriceInteractive stockholders on the
closing date. For more information about this condition and related tax issues,
please see the section of this proxy statement entitled "The Merger--Material
United States Federal Income Tax Consequences".
STOCKHOLDER REPRESENTATIVES
By approving the merger agreement, PriceInteractive and PriceInteractive's
stockholders, other than a group of stockholders associated with Summit Ventures
IV, L.P., who we refer to as the Summit stockholders, have appointed Daniel J.
Price as their stockholder representative, and the Summit stockholders have
appointed Summit Ventures IV, L.P. as their representative, granting them powers
as the respective agents and attorneys-in-fact of such stockholders, for
particular purposes, including for purposes of administering their rights under
the escrow agreement.
INDEMNIFICATION
After the effective time of the merger, iBasis and Penguin Acquisition Corp.
will indemnify and hold harmless the former PriceInteractive stockholders and
certain related parties, from all damages
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related to any breach by iBasis or Penguin Acquisition Corp. of any
representation, warranty, covenant, agreement, obligation or undertaking made by
iBasis or Penguin Acquisition Corp. in the merger agreement or any other
agreement, instrument, certificate, or other document delivered by iBasis or
Penguin Acquisition Corp. in connection with the merger agreement, or any other
transactions contemplated therein.
After the effective time of the merger, subject to limitations set forth in
the merger agreement each of certain named former PriceInteractive stockholders
will indemnify, severally and not jointly, iBasis, the surviving corporation of
the merger of PriceInteractive and Penguin Acquisition Corp. and certain related
parties from all damages related to a breach by PriceInteractive or such named
stockholder of any representation, warranty, covenant, agreement, obligation or
undertaking made by PriceInteractive or such named stockholder in the merger
agreement or any other agreement, instrument, certificate or other document
delivered by PriceInteractive or such named stockholder in connection with the
merger agreement, or any other transactions contemplated therein.
Any successful claim for indemnification by iBasis, other than in certain
limited circumstances, will be paid solely out of the escrow account, however,
no indemnification will be required until the aggregate amount of damages
suffered by a party or related group of parties exceeds $1.0 million, and then
only to the extent that the damages exceed $1.0 million, except that in the
event that a single claim is made for an amount over $200,000, the indemnified
party may pursue the claim to the extent that the amount exceeds $200,000. Such
limitations do not apply to specified types of claims for which there is no
maximum liability, and to certain other costs.
The liability for indemnification described above expires one year after the
effective time of the merger, except when the claim involves a breach of
representations made by the parties with respect to taxes, in which case
liability expires when the applicable statute of limitations has run, or in the
case of misrepresentations relating to a party's capitalization or to the
engagement of brokers, in which case liability continues indefinitely. If the
merger is consummated, indemnification claims are the parties' exclusive remedy
available in connection with the merger, other than in connection with specified
types of claims for which there is no maximum liability, and certain other
costs.
You are encouraged to read the merger agreement for a more detailed
discussion of the indemnification provisions.
TERMINATION
Notwithstanding the approval of the merger agreement and/or of the merger by
the board of directors and/or stockholders of PriceInteractive and/or iBasis,
the merger agreement may be terminated at any time before the effective date:
- by written agreement of iBasis and PriceInteractive;
- any restraining order, injunction, or other order issued by any court of
competent jurisdiction, or other binding legal restraint or prohibition
permanently preventing the consummation of the merger is in effect for a
period of more than 20 consecutive days;
- the other party has materially or willfully, in the case of
PriceInteractive, breached any of its representations, warranties,
covenants, promises and other agreements set forth in the merger agreement
and has not cured such breach within fifteen (15) days after written
notice thereof from the terminating party;
- the effective time of the merger has not occurred on or before January 31,
2001, but only if the terminating party is not in material breach of the
merger agreement; PROVIDED, that iBasis may extend that date beyond
January 31, 2001, in the event that the merger has not been consummated
because:
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(i) all necessary regulatory approvals have not been obtained or all
waiting periods have not elapsed;
(ii) the registration statement relating to the resale of iBasis
shares received in the merger by PriceInteractive stockholders has not
been declared effective by the SEC; or
(iii) iBasis has not received approval of the issuance of shares of
iBasis common stock pursuant to the merger agreement from its
stockholders;
PROVIDED, in any such case that the Buyer is continuing to use diligent
efforts to obtain such approvals during any such extension.
In addition, iBasis may not extend the date past February 28, 2001 unless
iBasis has complied with its obligations to make a second bridge loan in an
amount of $5.0 million to PriceInteractive upon request. Notwithstanding
anything else to the contrary, the merger agreement will terminate on March 31,
2001, unless otherwise extended by mutual agreement of iBasis and
PriceInteractive.
THE ESCROW AGREEMENT
The following description summarizes the material provisions of the Escrow
Agreement to be entered into by iBasis, Daniel J. Price, as a representative of
the stockholders of PriceInteractive, other than entities affiliated with Summit
Ventures IV, L.P., and Summit Ventures IV, L.P., as representative of certain
stockholders related to it and an independent escrow agent. You should read
carefully the escrow agreement, which is attached as APPENDIX B to this proxy
statement.
Under the escrow agreement, on the closing date iBasis will deposit stock
certificates into escrow representing shares of iBasis common stock that the
principal stockholders of PriceInteractive, and certain named holders of
PriceInteractive options and restricted stock, would otherwise be entitled to
receive at the closing of the merger having a value equal to 12.5% of the
aggregate consideration that would otherwise be received by the PriceInteractive
stockholders, and vested optionholders, at the closing of the merger, as
determined using the weighted average closing price of iBasis stock on the
twenty days, including and ending on the day that is two trading days before the
effective time of the merger.
Twenty percent of the shares of iBasis common stock held in escrow will be
available to indemnify iBasis against specific, scheduled costs and will be
released from escrow 18 months after the closing, if no successful claims have
been made against these escrowed shares by iBasis. The remaining 80% of the
escrowed shares will be available to indemnify iBasis against any costs or
damages related to or arising out of any breach by PriceInteractive or certain
PriceInteractive stockholders of any representation, warranty, covenant,
agreement, obligation or undertaking made by such parties, including the
specific, scheduled costs referred to above, and will be released from escrow 12
months following the closing, if no successful claims have been made against
these escrowed shares of iBasis common stock.
Indemnification claims by iBasis against the escrowed shares are subject to
a deductible, or basket, of $1.0 million, other than for single claims in excess
of $200,000. This means that if any claims by iBasis are less than $1.0 million
in the aggregate, or $200,000 for any one claim, there will be no release of
escrowed shares to iBasis with respect to such claims. If however, there are
claims totaling more than $1.0 million, or any one claim which is in excess of
$200,000, then iBasis may make a claim against the escrowed shares for the
amount in excess of the $1.0 million or $200,000, as the case may be. The escrow
agreement represents the maximum claim for which iBasis may seek
indemnification, with limited exceptions.
Until the proceeds of the escrow account are distributed, all cash dividends
and other cash distributions on the shares of iBasis common stock held in the
escrow account will be paid to the former PriceInteractive stockholders to whom
the underlying shares are attributable, and all non-cash
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dividends and other non-cash distributions will become part of the escrow fund.
A stockholder that has an interest in some of the escrowed shares will be
entitled to vote those shares during the period that they are held in escrow.
THE VOTING AGREEMENT
The following description summarizes the material provisions of a voting
agreement by and among iBasis and the iBasis stockholders named therein, which
is attached as APPENDIX C to this proxy statement. In connection with the
execution of the merger agreement, stockholders holding, in the aggregate,
approximately 29.6% of the outstanding shares of iBasis common stock on the
record date, entered into the Voting Agreement, dated as of December 12, 2000,
with PriceInteractive, pursuant to which such stockholders have agreed to vote
their shares in favor of the issuance of shares of iBasis common stock pursuant
to the merger agreement and against any action that would result in a breach of
any obligation or agreement of iBasis under the merger agreement or prevent or
materially delay consummation of the merger. The voting agreement also contains
restrictions on the transfer of shares of iBasis common stock by the parties
thereto.
THE REGISTRATION RIGHTS AGREEMENT
In connection with the execution of the merger agreement, iBasis entered
into a Registration Rights Agreement, dated as of December 12, 2000, with
substantially all of the stockholders of PriceInteractive pursuant to which
iBasis has generally agreed, subject to specified limitations, to use its
reasonable best efforts to cause the shares of iBasis common stock held by these
stockholders of the PriceInteractive registrable stock to be registered for sale
on any registration statement that iBasis proposes to file from time to time
whether on its behalf or on behalf of other of its stockholders.
Under the terms of the registration rights agreement and the merger
agreement, iBasis has agreed to file a registration statement on Form S-3 with
the SEC to register the resale of the shares of iBasis common stock which will
be issued to former stockholders of PriceInteractive in connection with the
exchange of PriceInteractive stock for iBasis common stock. The former
PriceInteractive stockholders listed as selling stockholders in the registration
statement will be permitted to offer the registered securities on either a
continuous or delayed basis.
The registration rights agreement grants, subject to limitations contained
in the agreement, the former PriceInteractive stockholders additional rights to
cause the inclusion of their unregistered shares in any registration iBasis
proposes. These so called "piggy-back" registration rights may be exercised upon
written notice by the former PriceInteractive stockholders whenever iBasis
proposes to register shares of iBasis for its own account, or for the account of
any other stockholder, subject to the same terms and conditions as the proposed
offering.
In addition, if 20% of the former PriceInteractive stockholders request that
their shares be registered, iBasis has agreed to register their shares on an
additional short form registration statement on Form S-3, provided that the
aggregate proposed offering price of these shares is at least $1.0 million and
that iBasis is S-3 eligible at the time of the request.
All expenses associated with the registration of iBasis stock under the
registration rights agreement, excluding underwriters commissions and discounts
and specified state securities filing requirements, will be borne by iBasis.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF PRICEINTERACTIVE
OVERVIEW
Founded in 1997, PriceInteractive is a recognized Speech Application Service
Provider to Fortune 500 enterprises, telecom carriers and operators of
e-commerce sites and portals. PriceInteractive's mission is to voice enable the
Internet economy by rapidly extending Web-based applications to telephones and
wireless devices.
PriceInteractive's annual revenues have grown from $4 million for the year
ended December 31, 1997 to $12 million for the nine months ended September 30,
2000, primarily through a line of interactive voice response, or IVR, services
it calls IPort. IPort services are expected to account for approximately 90% of
2000 revenues.
PriceInteractive recently announced its high capacity flagship service,
SpeechPort, which makes available "Web-bound" content, customer relationship
management applications and e-commerce opportunities to wireless and fixed
telephones through an advanced speech recognition interface. SpeechPort enables
ubiquitous access for a business' information--whether content, commerce or
customer support--in support of its e-business, e-commerce, e-customer
relationship management, or ERP initiatives. While the service is designed to
primarily extend Web-based applications, it also provides the ability to extend
legacy applications to the telephone.
During 1999 and 2000, PriceInteractive's results have been affected by a
variety of trends related to its growth, including an increase in the number of
employees, a shift towards increased professional services revenue, the decision
to invest heavily in the development of the SpeechPort platform and an increased
emphasis on sales and marketing. PriceInteractive expects revenues from the
SpeechPort platform to grow more rapidly than revenues from IVR services
utilizing the IPort platform.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
REVENUES
REVENUES. PriceInteractive's revenues are generated from two principal
sources: fees received from customers for hosting application services on our
SpeechPort and IPort platforms, and fees received from customers for providing
professional services to design, develop and test speech applications. Hosting
services revenue is dependent on the volume of traffic carried over the
platform, which is measured in minutes. Customers are charged fees based on
minutes of traffic across the platform. The volume of such traffic is dependent
on the length of the call. PriceInteractive recognizes this revenue in the
period in which the call is completed. Professional service revenue is billed on
an hourly basis and is dependent upon the number of employees engaged in the
process of designing, developing, and testing speech and other IVR applications.
PriceInteractive recognizes this revenue when services are performed. During
2000 approximately $0.7 million of professional service revenue related to the
connection of developed applications to our IPort and SpeechPort platforms was
deferred and recognized over the life of the hosting period. During 1999,
comparable revenues were recognized as the services were rendered.
PriceInteractive also derives a limited amount of revenue from the sale of
equipment to its customers.
Revenue increased by $3.5 million to $12.0 million for the nine months ended
September 30, 2000, from $8.5 million for the nine months ended September 30,
1999. This increase was primarily driven by a $2.1 million increase in revenue
derived from PriceInteractive's professional services group to $3.3 million for
the nine months ended September 30, 2000, from $1.2 million for the nine months
ended September 30, 1999. The increase in professional service revenue was
primarily the result of the
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expansion of PriceInteractive's professional services division to 53 employees
as of September 30, 2000 from 29 as of September 30, 1999. The remaining
increase in revenue of $1.4 million resulted primarily from an increase in the
amount of traffic carried over the IPort platform to 49.1 million minutes for
the nine months ended September 30, 2000, from 47.8 million minutes for the nine
months ended September 30, 1999.
COST OF REVENUES
Cost of revenues includes data communications and telecommunication expenses
and R&D expenses. Cost of revenues increased by $1.7 million to $6.0 million for
the nine months ended September 30, 2000 from $4.3 million for the nine months
ended September 30, 1999. This increase was the result of a $0.5 million
increase in data communication and telecommunications expenses and a
$1.2 million increase in research and development expenses as discussed below.
DATA COMMUNICATIONS AND TELECOMMUNICATIONS EXPENSES. Data communications
and telecommunications expenses are composed primarily of purchased minutes,
equipment depreciation expense, and other expenses associated with data
communications and telecommunications.
Purchased minutes are fees paid to telecommunications carriers for
completing calls over the public circuit-switched network to our platforms. The
amount of these fees depends on the volume of voice and data traffic carried
over the public circuit-switched network, which is measured in minutes of
traffic. The per minute rate charge for purchased minutes is negotiated with
public circuit-switched network carriers based on the origination point of the
call.
Equipment depreciation costs result from the amortization of all equipment
and software purchased to build PriceInteractive's platforms.
Other data communication and telecommunications expenses include charges
paid to local service providers for access to the public circuit-switched
network from our platforms located at PriceInteractive's Reston, VA, St Louis,
MO and Ashburn, VA facilities, direct equipment expenses and data processing
expenses. The local access charges consist of set monthy fees for direct lines
into our platforms. Direct equipment expenses consist of component parts of
equipment purchased from a variety of vendors. These expenses are recorded when
the equipment is installed and operational. Data processing expenses consist of
labor costs to transcribe customer data and voice recording costs for customer
applications.
Data communications and telecommunications expenses increased by
$0.5 million to $3.3 million for the nine months ended September 30, 2000, from
$2.8 million for the nine months ended September 30, 1999. The increase in data
communications and telecommunications expense was driven by increases in
platform equipment depreciation and purchased minute costs associated with the
buildout of the SpeechPort platform and the increase in traffic described above.
Depreciation costs increased to $0.6 million for the nine months ended
September 30, 2000, from $0.3 million for the nine months ended September 30,
1999. Purchased minute costs increased to $1.4 million for the nine months ended
September 30, 2000, from $1.3 million for the nine months ended September 30,
1999. Equipment expenses directly related to equipment sales increased to
$0.3 million for the nine months ended September 30, 2000, from approximately $0
for the nine months ended September 30, 1999. Other data communications and
telecommunications expenses, data processing, public circuit-switched network
access, and data processing fees, decreased slightly to $1.0 million for the
nine months ended September 30, 2000, from $1.2 million for September 30, 1999.
As a percentage of total revenue, data communications and telecommunications
expenses decreased to approximately 28% for the nine months ended September 30,
2000, from approximately 33% for the nine months ended September 30, 1999. This
reflects both lower total communications costs per minute and the increase in
professional services revenue.
46
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
include the expense of operating and supporting our platforms and consist mainly
of salary and payroll taxes and benefits paid for employees directly involved in
operating and supporting our platforms and our software applications.
Research and development expenses increased by $1.2 million to $2.7 million
for the nine months ended September 30, 2000, from $1.5 million for the nine
months ended September 30, 1999. This increase is due principally to the
increase in personnel needed to operate and support the platforms. As a
percentage of total revenue, research and development expenses increased to
approximately 23% for the nine months ended September 30, 2000, from
approximately 18% for the nine months ended September 30, 1999.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses consist of sales and marketing
expenses, general and administrative expenses, and depreciation and amortization
expenses. Selling, general and administrative expenses increased by
$1.6 million to $5.4 million for the nine months ended September 30, 2000 from
$3.8 million for the nine months ended September 30, 1999. This increase was the
result of a $0.5 million increase in sales and marketing expenses, a
$1.0 million increase in general and administrative expenses and a $0.1 million
increase in depreciation and amortization expenses as discussed below.
SALES AND MARKETING EXPENSES. Selling and marketing expenses include
expenses relating to the salaries, payroll taxes and benefits that
PriceInteractive pays for sales and marketing personnel and the expenses
associated with the development and implementation of our promotion and
marketing campaigns, including expenses relating to our outside public relations
firm and industry analysts.
Sales and marketing expenses increased by $0.5 million to $1.3 million for
the nine months ended September 30, 2000, from $0.8 million for the nine months
ended September 30, 1999. This increase is attributable to an increase in the
number of personnel and increased marketing expenses, particularly in connection
with public relations campaigns. As a percentage of total revenue, sales and
marketing expenses increased to approximately 11% from approximately 9% for the
nine months ended September 30, 2000, and 1999, respectively.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
include salary, payroll tax and benefit expenses and related costs for general
corporate functions, including executive management, administration, information
technology and human resources.
General and administrative expenses. General and administrative expenses
increased by $1.0 million to $3.6 million for the nine months ended
September 30, 2000, from $2.6 million for the nine months ended September 30,
1999. General and administrative expenses increased primarily due to an increase
in the number of personnel, and the associated rent, recruiting, travel and
training costs, offset by a decline in the allowance for doubtful accounts. As a
percentage of total revenue, general and administrative expenses remained
constant at approximately 30% for the nine months ended September 30, 2000 and
1999.
DEPRECIATION AND AMORTIZATION EXPENSES. Depreciation and amortization
expenses increased by $0.1 to $0.5 million for the nine months ended
September 30, 2000, from $0.4 million for the nine months ended September 30,
1999. This increase resulted primarily from additional purchases of capital
equipment and software that were needed to support our expanded headcount. As a
percentage of total revenue, depreciation and amortization expense decreased to
approximately 4% from approximately 5% for the nine months ended September 30,
2000 and 1999, respectively.
47
INTEREST INCOME AND INTEREST EXPENSE
INTEREST INCOME AND INTEREST EXPENSE. Interest expense is primarily
comprised of interest on PriceInteractive's LIBOR plus 2.50% floating
$4.5 million bank equipment facility and various capital leases pursuant to
which PriceInteractive has financed an additional portion of the hardware and
software components of our platforms. Interest income is primarily composed of
income earned on cash, cash equivalents and marketable securities.
Interest income increased slightly to $0.1 million for the nine months ended
September 30, 2000. This increase was primarily attributable to increased
interest earnings on our cash, cash equivalents and marketable securities as a
result of a $5.0 million equity investment received from a strategic partner in
August, 2000. Interest expense increased slightly to $0.1 million for the nine
months ended September 30, 2000. This increase was attributable to capital
equipment financing.
YEARS ENDED DECEMBER 31, 1999 AND 1998
REVENUES
REVENUES. Revenue increased by $1.8 million to $11.8 million for the year
ended December 31, 1999, from $10.0 million for the year ended December 31,
1998. This increase was primarily driven by an increase in revenue from hosting
services of $1.0 million to $7.8 million for the year ended December 31, 1999
from $6.8 million for the year ending December 31, 1998. This increase was the
result of an increase in the amount of traffic carried over PriceInteractive's
IPort platform to 57.8 million minutes for the year ended December 31, 1999,
from 31.8 million minutes for the year ended December 31, 1998. The remaining
$0.8 million increase in revenue was primarily attributable to
PriceInteractive's professional services group. The increase in professional
service revenue was the result of the expansion of PriceInteractive's
professional services division to 32 employees as of December 31, 1999 from 16
as of December 31, 1998.
COST OF REVENUES
Cost of revenues includes data communications and telecommunication expenses
and R&D expenses. Cost of revenues increased by $1.4 million to $5.6 million for
the year ended December 31, 1999 from $4.2 million for the year ended
December 31, 1998. This increase was the result of a $0.7 million increase in
data communication and telecommunications expenses and a $0.7 million increase
in research and development expenses as discussed below.
DATA COMMUNICATIONS AND TELECOMMUNICATIONS EXPENSES. Data communications
and telecommunications expenses increased by $0.7 million to $3.5 million for
the year ended December 31, 1999, from $2.8 million for the year ended
December 31, 1998. The increase in data communications and telecommunications
expense was driven by increases in platform equipment depreciation and purchased
minute costs associated with the buildout of the SpeechPort platform and the
increase in traffic described above. Depreciation costs increased to
$0.4 million for the year ended December 31, 1999, from $0.1 million for the
year ended December 31, 1998. Purchased minute costs increased to $1.7 million
for the year ended December 31, 1999, from $1.5 million for the year ended
December 31, 1998. There were no equipment expenses directly related to
equipment sales for the years ended December 31, 1999 and 1998. Other data
communications and telecommunications expenses, data processing, public
circuit-switched network access, and data processing fees, increased to
$1.5 million for the year ended December 31, 1999 from $1.2 million at
December 31, 1998. As a percentage of total revenue, data communications and
telecommunications expenses increased to approximately 30% for the year ended
December 31, 1999, from approximately 28% for the year ended December 31, 1998.
48
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
increased by $0.7 million to $2.1 million for the year ended December 31, 1999,
from $1.4 million for the year ended December 31, 1998. This increase in
research and development expenses is due principally to the increase in
personnel needed to operate and support the IPort platform. As a percentage of
total revenue, research and development expenses increased to approximately 17%
for the year ended December 31, 1999, from approximately 14% for the year ended
December 31, 1998.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses consist of sales and marketing
expenses, general and administrative expenses, and depreciation and amortization
expenses. Selling, general and administrative expenses increased by
$1.7 million to $5.2 million for the year ended December 31, 1999 from
$3.5 million for the year ended December 31, 1998. This increase was the result
of a $0.5 million increase in sales and marketing expenses, a $1.1 increase in
general and administrative expenses and a $0.1 million increase in depreciation
and amortization expenses discussed below.
Sales and marketing expenses increased by $0.5 million to $1.2 million for
the year ended December 31, 1999, from $0.7 million for the year ended
December 31, 1998. This increase is attributable to an increase in the number of
personnel and increased marketing expenses, particularly in connection with
public relations campaigns. As a percentage of total revenue, sales and
marketing expenses increased to approximately 10% from approximately 7% for the
years ended December 31, 1999, and 1998, respectively.
General and administrative expenses. General and administrative expenses
increased by $1.0 million to $3.4 million for the year ended December 31, 1999,
from $2.4 million for the year ended December 31, 1998. General and
administrative expenses increased primarily due to an increase in the number of
personnel, and the associated rent, recruiting, travel and training costs and a
$0.5 million increase in the allowance for doubtful accounts related to a single
client. As a percentage of total revenue, general and administrative expenses
increased to approximately 29% for the year ended December 31, 1999, from
approximately 24% for the year ended December 31, 1998.
DEPRECIATION AND AMORTIZATION EXPENSES. Depreciation and amortization
expenses increased by $0.1 million to $0.5 million for the year ended
December 31, 1999, from $0.4 million for the year ended December 31, 1998. This
increase primarily resulted from additional purchases of capital equipment and
software that were needed to support PriceInteractive's expanded headcount. As a
percentage of total revenue, depreciation and amortization expense remained
constant at approximately 4% for the years ended December 31, 1999 and 1998.
INTEREST INCOME AND INTEREST EXPENSE
Interest income and interest expenses remained constant at less than
$0.1 million. Interest income is primarily attributable to interest earnings on
our cash, cash equivalents and short term investments. Interest expense is
primarily attributable to capital equipment financing.
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE
In 1999, PriceInteractive changed to the straight-line method of
depreciation from the double declining balance method. The change resulted in a
$55,000 increase in income after tax. PriceInteractive believes that the
straight-line method of depreciation more appropriately measures the economic
benefits received from its assets and that the change will increase the
comparability of its results with those of its competitors.
49
LIQUIDITY AND CAPITAL RESOURCES
PriceInteractive's principal capital and liquidity needs historically have
related to the development of its platform, sales and marketing activities and
research and development expenses. PriceInteractive's capital needs have in
large part been financed through cashflow from operations and the net proceeds
from its initial equity investment. As PriceInteractive has placed greater
emphasis on expanding and enhancing its platform infrastructure, it has also
sought to meet its capital needs through bank equipment financing and vendor
capital leases. PriceInteractive also has an unused line of credit with the same
bank that provides the majority of its equipment financing. As of September 30,
2000, approximately $1.0 million was available under that facility. As of the
same date PriceInteractive's cash and cash equivalents were $3.9 million.
During 2000, PriceInteractive concluded that it would be necessary to raise
additional equity capital of at least $25.0 million and perhaps as much as
$50.0 million, to fund the construction of the SpeechPort platform and
PriceInteractive's continued growth. In August 2000, PriceInteractive concluded
a $5.0 million strategic investment from MicroStrategy, Incorporated.
PriceInteractive was engaged in preliminary efforts to raise additional capital
when discussions of a possible acquisition by iBasis commenced. If for any
reason the proposed merger with iBasis does not close, PriceInteractive will
need to reinitiate efforts to raise additional equity capital.
Net cash used in operating activities was $0.1 million for the nine months
ended September 30, 2000, as compared to cash provided by operations of
$0.7 million for the nine months ended September 30, 1999.
For the nine months ended September 30, 2000, cash used in operating
activities was primarily attributable to increases in accounts receivable and
prepaid expenses associated with the growth of the business and, for accounts
receivable, two large pre-bills totaling $1.7 million to two major telecom
carriers. For the nine months ended September 30, 1999, the amount was primarily
attributable to net income and an increase in the deferred tax liability.
Net cash used in investing activities was $5.4 million for the nine months
ended September 30, 2000, as compared to $1.5 million for the nine months ended
September 30, 1999. For the nine months ended September 30, 2000 and 1999, cash
used in investing activities was primarily attributable to the purchases of
equipment.
Net cash provided by financing activities was $6.0 million for the nine
months ended September 30, 2000, as compared to net cash provided by financing
activities of $0.3 million for the nine months ended September 30, 1999. For the
nine months ended September 30, 2000, the increase was primarily attributable to
the $5.0 million strategic investment by MicroStrategy, Incorporated and
financing of equipment purchases. For the nine months ended September 30, 1999,
the increase was primarily attributable to financing of equipment purchases.
PriceInteractive believes that inflation does not have a significant impact
on its financial results.
DISCLOSURES ABOUT MARKET RISK
PriceInteractive does not enter in to hedging or derivative securities
transactions that would subject it to market risk. PriceInteractive does not
enter into transactions in foreign denominated currencies and does not have any
material obligations that are subject to volatility in foreign currency exchange
rates or in interest rates.
50
INFORMATION CONCERNING PRICEINTERACTIVE
OVERVIEW
Founded in 1997, PriceInteractive is a recognized speech application service
provider to Fortune 500 enterprises, telecommunications carriers and operators
of e-commerce sites and portals. PriceInteractive's mission is to voice enable
the Internet economy by rapidly extending Web-based applications to telephones
and wireless devices.
PriceInteractive recently announced its high capacity flagship service,
SpeechPort, which makes available "Web-bound" content, customer relationship
management applications and e-commerce opportunities to wireless and fixed
telephones through an advanced speech recognition interface. PriceInteractive
believes that SpeechPort is one of the first application service provider
services specifically focused on bringing Web content to telephones and wireless
devices. Initial customers include AT&T, Worldcom and MicroStrategy.
PriceInteractive believes that SpeechPort enables ubiquitous access for a
business' information in support of its e-business, e-commerce, e-customer
relationship management, or ERP initiatives. Although the service is designed
primarily to extend Web-based applications, it also provides the ability to
extend legacy applications to the telephone. PriceInteractive also provides a
line of interactive voice response services under the name IPort. IPort services
accounted for approximately 87% of PriceInteractive's total revenue during the
nine months ended September 30, 2000.
Since 1999, PriceInteractive has doubled in both organization size, to
approximately 138 employees, and infrastructure capacity, to 8,000 IPort and
5,500 SpeechPort ports, while remaining profitable.
In August 2000, PriceInteractive purchased substantially all of the assets
of FusionTec, an established e-business technology consulting firm in Northern
Virginia, adding depth to technology development for SpeechPort. Later in
August, PriceInteractive secured a $5.0 million strategic investment from
MicroStrategy Incorporated. Additional terms provide that PriceInteractive
became the voice portal ASP for MicroStrategy, Strategy.com, Angel.com and
related speech-enabled businesses.
SPEECHPORT SERVICES
The convergence of wireless, Internet and automated speech recognition
technologies has created a new market for "voice-enabled Web services"
encompassing a broad range of voice-directed applications for accessing content,
commerce and customer service over the telephone. It has become increasingly
clear that telecommunications carriers and e-commerce companies will seek to
leverage their software infrastructure investments by providing customers with
inbound and outbound telephone access to Web information, e-commerce and
customer relationship management capabilities. Recognizing these technology and
business trends, PriceInteractive developed SpeechPort, which enables businesses
to rapidly extend their Web-based content or other applications to any person
with a telephone or wireless device. The SpeechPort service delivers Web site
content and applications to telephones and wireless devices through advanced
speech recognition. By leveraging the existing Web infrastructure, end-users are
ensured access to uniform content across all media.
The centerpiece of the service offering is the SpeechPort platform, an
advanced communications infrastructure, scheduled to be placed into service in
the first quarter of 2001, that is based on industry standards such as Java and
is designed to easily integrate emerging standards such as VoiceXML. The
platform utilizes an advanced speech recognition interface as its primary
mechanism for allowing end-users to "browse" the Web-based content or
application over the telephone. Through this speech interface, it is possible
for the end-user to direct the Web content to other devices, such as wireless
application protocol-enabled telephones and handheld computing devices.
51
The SpeechPort service is designed to support both "push" and "pull"
environments. For example, inbound callers can interact with a Web-based
application using speech commands and request delivery of content through a
number of options, including speech, wireless, email and fax. Alternately,
applications such as narrowcasting--which are "notification" or "push"
based--can cause the service to initiate an outbound call which can then
establish an interactive session.
PROFESSIONAL SERVICES
PriceInteractive also offers a broad array of professional services,
designed to ensure that its products are integrated into the customer's network
to meet its specific needs and that PriceInteractive customers realize the
maximum value from their networking technology investments. PriceInteractive's
professional services practices and competencies are focused on providing
design, implementation, integration, testing and support to its service provider
customers directly or in partnership with other strategic network equipment
providers. The range of professional services offered can vary, depending on the
nature of the customer's requirements, and could include consultation on the
initial design of an application, the development of the software application,
and integration into PriceInteractive's products. Historically, the initial
design and software development phases of a project have been significant,
depending on the level of customization required.
COMPETITION
PriceInteractive's primary competitors are traditional interactive voice
response companies that are attempting to enter the speech recognition arena,
new speech application service provider, or ASP, entrants and
business-to-consumer portals attempting to provide speech-enabled application
service provider services.
In addition to the direct competitors described above, PriceInteractive
faces potential competition from--as well as partnering opportunities
with--several other types of businesses that may enter or border on the speech
ASP space. These include:
- mainstream application service providers that may forward integrate into
the communications or Speech ASP space; and
- other specialized ASPs, such as Internet telephony ASPs, like iBasis, or
application roll-up ASPs, that may enter the speech market.
Internet data center companies as well as hosting companies could either forward
integrate by incorporating Speech ASP offerings similar to PriceInteractive's or
form strategic alliances with competitive entities.
Recently, large communications carriers have increasingly emphasized
value-added, enhanced services, such as complex hosting. In addition, integrated
communications providers may increasingly focus on hosting to more tightly bind
themselves to customers and to create higher profit margins.
Finally, there are a number of startup companies offering voice portals.
These companies do not compete with PriceInteractive directly, but rather with
some of its customers, as they provide a focused and integrated speech plus
content and e-commerce service. AudioPoint, a Washington, D.C. based voice
portal to popular Web functions, is now offering service. This development stage
company is approximately 10% owned by PriceInteractive.
PriceInteractive believes that customers focus on the following elements
when selecting a Speech ASP:
- references,
- integration capabilities, and
- a vendor with the staying power to be a long-term strategic partner.
52
PriceInteractive believes that it is positioned to respond favorably to these
criteria and that its client base, expertise in developing hundreds of
applications, and high capacity platform are key competitive differentiators.
SALES AND MARKETING
During the 9 months ended September 30, 2000, interactive voice response
services utilizing the IPort platform accounted for approximately 87% of
PriceInteractive's revenues. PriceInteractive has marketed such services,
including related professional services, to carriers desiring to offer such
services to their customers and directly to end users. End user customers with
long-term agreements include Vicinity, Kelly Services, Home Shopping Network,
Western Union and Sabre. The three major U.S.-based telecommunications carriers,
AT&T, Worldcom, and Sprint, represented approximately 41% of all revenues during
the nine months ended September 30, 2000.
With respect to SpeechPort services, including related professional
services, PriceInteractive's marketing strategy is to leverage its market
position and establish the SpeechPort brand by promoting the brand with early
market success through PriceInteractive's direct sales organization; extensive
public relations, tradeshow and seminar participation; and cooperative marketing
with strategic channel partners. SpeechPort customers include AT&T,
MicroStrategy and Sprint.
INTELLECTUAL PROPERTY
PriceInteractive regards its copyrights, service marks, trademarks, trade
dress, trade secrets and similar intellectual property as critical to its
success and they rely on trademark and copyright law, trade secret protection
and confidentiality and/or license agreements with its employees, customers,
partners and others to protect its proprietary rights.
EMPLOYEES
As of December 31, 2000, PriceInteractive had 138 full time employees and 4
part time employees, with approximately 18 in sales and marketing, 37 in
engineering and operations, 68 in professional services, and 19 in general and
administrative. As of December 31, 2000, PriceInteractive engaged approximately
6 independent contractor firms and employed a limited number of temporary
employees. PriceInteractive's employees are not represented by a labor union.
FACILITIES
PriceInteractive leases 42,000 square feet in Reston, Virginia, where its
primary business offices and the main service platform are located. In addition,
PriceInteractive leases space in St. Louis, Missouri, providing platform back-up
to its Reston facility. In the third quarter of 2000, PriceInteractive occupied
an Equinix outsource data center facility located in nearby Ashburn, Virginia,
to host the planned expansion of the SpeechPort platform.
LEGAL PROCEEDINGS
PriceInteractive is not presently party to any pending legal proceedings
that it believes are material to its business.
53
PRINCIPAL STOCKHOLDERS OF IBASIS
The following table sets forth certain information regarding beneficial
ownership of common stock as of December 31, 2000, by:
- each person or entity we know owns beneficially more than 5% of our common
stock;
- each of our directors;
- each of our executive officers; and
- all executive officers and directors as a group.
Beneficial ownership is determined in accordance with the rules and
regulations of the Securities and Exchange Commission. In computing the number
of shares beneficially owned by a person and the percentage ownership of that
person, shares of common stock subject to options held by that person that are
currently exercisable or exercisable within 60 days of December 31, 2000 are
deemed outstanding. These shares, however, are not deemed outstanding for the
purposes of computing the percentage ownership of any other person. Except as
indicated in the footnotes to this table and pursuant to applicable community
property laws, each stockholder named in the table has sole voting and
investment power with respect to the shares set forth opposite such
stockholder's name. Unless otherwise indicated, the address for each of the
following stockholders is c/o iBasis, Inc., 20 Second Avenue, Burlington,
Massachusetts 01803.
SHARES
BENEFICIALLY OWNED
------------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT
- ------------------------ ---------- --------
Ofer Gneezy(1).............................................. 3,689,438 10.77%
Menlo Ventures VII, L.P. and affiliated entities(2)......... 3,430,351 10.03%
John Jarve(2)............................................... 3,430,351 10.03%
Gordon J. VanderBrug(3)..................................... 1,800,876 5.26%
Charles N. Corfield(4)...................................... 1,314,416 3.84%
Charles Giambalvo(5)........................................ 46,874 *
Charles S. Houser(6)........................................ 200,400 *
Michael J. Hughes(7)........................................ 135,513 *
Carl Redfield(8)............................................ 41,800 *
Charles M. Skibo(9)......................................... 0 *
All directors and executive officers as a group (9
persons)(10).............................................. 10,659,668 30.95%
- ------------------------
* Represents less than 1% of the outstanding shares of common stock.
(1) Includes 47,499 shares of common stock issuable upon exercise of options
within 60 days of December 31, 2000. Also includes 50,000 shares held by
The Ofer Gneezy 1999 Family Trust for the benefit of Mr. Gneezy's children.
Mr. Gneezy disclaims beneficial ownership of the shares held by The Ofer
Gneezy 1999 Family Trust. Mr. Gneezy is our President, CEO and one of our
directors.
(2) Consists of 3,657,869 shares held by Menlo Ventures VII, L.P. and 153,631
shares held by Menlo Entrepreneurs Fund VII, L.P. Mr. Jarve, one of our
directors, is managing director of MV Management VII, LLC, the general
partner of Menlo Ventures VII, L.P. and Menlo Entrepreneurs Fund VII, L.P.
Mr. Jarve disclaims beneficial ownership of the shares held by the entities
affiliated with Menlo Ventures, except to the extent of his pecuniary
interest therein. The address for Mr. Jarve and Menlo Ventures is
3000 Sand Hill Road, Building 4, Suite 100, Menlo Park, California 94025.
54
(3) Includes 35,625 shares of common stock issuable upon exercise of options
within 60 days of December 31, 2000. Also includes 1,317,345 shares held by
the G.J. & C.E. VanderBrug Family Limited Partnership. Dr. VanderBrug
disclaims beneficial ownership of the shares held by the G.J. & C.E.
VanderBrug Family Limited Partnership, except to the extent of his
pecuniary interest therein. Does not include 37,865 shares of common stock
held by Dr. VanderBrug's spouse. Dr. VanderBrug disclaims beneficial
ownership of the shares held by his spouse. Dr. VanderBrug is our Executive
Vice President and one of our directors.
(4) Consists of 1,114,416 shares held by the Charles N. Corfield Trust u/a/d
12/19/91, a revocable trust of which Mr. Corfield is the sole trustee and
200,000 shares held by Mr. Corfield, individually. Mr. Corfield is one of
our directors.
(5) Consists entirely of 46,874 shares of common stock issuable upon exercise
of options within 60 days of December 31, 2000.
(6) Mr. Houser is one of our directors.
(7) Includes 43,436 shares of common stock issuable upon the exercise of
options within 60 days of December 31 2000. Mr. Hughes is our Vice
President, Finance and our Chief Financial Officer.
(8) Mr. Redfield is one of our directors.
(9) Mr. Skibo is one of our directors.
(10) Includes 243,434 shares of common stock issuable upon exercise of options
within 60 days of December 31, 2000 and certain shares held by affiliates
of such directors and executive officers.
55
PRINCIPAL STOCKHOLDERS OF PRICEINTERACTIVE
As of December 31, 2000, there were 10,955,500 shares of PriceInteractive
Class A and Class B common stock, 2,428,000 shares of PriceInteractive
convertible preferred stock, and 6,500 shares of PriceInteractive Redeemable
Preferred stock issued and outstanding. Each share of Class A common stock is
entitled to one vote per share, and each share of Class B common stock is
entitled to 10 votes per share. The 2,428,000 shares of PriceInteractive
convertible preferred stock is presently convertible into 9,327,144 shares of
Class B common stock.
The following table sets forth information with respect to beneficial
ownership of PriceInteractive common stock and preferred stock, including the
percent of the total voting power, as of December 31, 2000 by
- each holder of more than 5% of either class of common stock;
- Daniel J. Price, the only director or executive officer of
PriceInteractive who will be a director or executive officer of iBasis
after consummation of the merger;
- each of PriceInteractive's directors; and
- all of PriceInteractive's executive officers and directors as a group.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission, and includes voting and investment power
with respect to shares. Unless otherwise indicated below, to our knowledge, all
persons named in the table have sole voting and investment power with respect to
their shares of common stock, except to the extent authority is shared by
spouses under applicable law.
In computing the number of shares beneficially owned by a person named in
the following table and the percentage ownership of that person, shares of
PriceInteractive common stock that are subject to options held by that person
that are currently exercisable or exercisable within 60 days of November 30,
2000 are deemed outstanding. These shares are not, however, deemed outstanding
for the purpose of computing the percentage ownership of any other person.
For the purposes of the table below, shares of PriceInteractive Convertible
Preferred stock are presented on an as converted to PriceInteractive common
stock basis.
Unless otherwise indicated below, the address of each listed stockholder is
care of PriceInteractive, Inc., 11800 Sunrise Valley Drive, Reston, Virginia.
SHARES BENEFICIALLY OWNED AS OF
DECEMBER 31, 2000
COMMON
---------------------- PERCENTAGE OF REDEEMABLE
NAME OF BENEFICIAL OWNER CLASS A CLASS B VOTES PREFERRED STOCK
- ------------------------ --------- ---------- ------------- ---------------
--
Daniel J. Price(1)............................ -- 4,760,000 25.0% --
Timothy M. Price(2)........................... -- 4,760,000 25.0% --
Entities affiliated with Summit Partners(3)... -- 9,327,144 49.1% 6,500
Scott C. Collins(4)........................... -- -- -- --
MicroStrategy(5).............................. 1,266,000 -- * --
Stephen S. Trundle(6)......................... -- -- -- --
All directors and executive officers as a
group
(6 persons)(7).............................. 3,200,000 9,520,000 51.8% --
- --------------------------
* Represents less than 1% of the voting power of PriceInteractive's capital
stock.
56
(1) Daniel J. Price is the President and CEO of PriceInteractive, a member of
the Board of Directors, and the brother of Timothy M. Price.
(2) Timothy M. Price is the Executive Vice President, Chief Architect and
Secretary of PriceInteractive, a member of the Board of Directors, and the
brother of Daniel J. Price.
(3) Summit Partners is the name used to refer to a group of investment
partnerships. The sole general partner for Summit Ventures IV, L.P. is
Summit Partners IV, L.P., the sole general partner of which is Stamps,
Woodsum & Co. IV. The general partner for each of Summit Ventures V, L.P.,
Summit V Companion Fund, L.P., Summit V Advisors Fund, L.P., and Summit V
Advisors Fund (QP), L.P. is Summit Partners V, L.P., the general partner of
which is Summit Partners LLC. Summit Partners LLC, through an investment
committee, exercises sole voting and investment power with respect to the
shares owned by these entities, Summit Investors III, L.P. and Summit
Ventures IV, L.P.; individually no member of Summit Partners LLC is deemed
to have or share such voting or investment power and such members expressly
disclaim beneficial ownership of these shares, except to the extent of their
respective pecuniary interests therein.
The following Summit entities own in the aggregate 2,428,000 shares of
PriceInteractive Series A Convertible Preferred Stock, which are presently
convertible into 9,327,144 shares of PriceInteractive Class B Common Stock,
and 6,500 shares of 1998 Redeemable Preferred Stock, as follows:
CONVERTIBLE REDEEMABLE
SUMMIT PARTNERSHIP PREFERRED STOCK PREFERRED STOCK
- ------------------ --------------- ---------------
Summit Ventures V, L.P...................................... 965,696 2585.6
Summit Ventures IV, L.P..................................... 1,127,174 3017.6
Summit V Companion Fund, L.P................................ 161,478 432
Summit V Advisors Fund, L.P................................. 19,739 52.8
Summit V Advisors Fund (QP), L.P............................ 64,592 172.9
Summit Investors III, L.P................................... 89,321 239.1
--------- ------
Totals...................................................... 2,428,000 6,500
The address of the Summit partnerships is 600 Atlantic Avenue, Suite 2800,
Boston, Massachusetts 02210.
(4) Mr. Collins is a member of the Board of Directors of PriceInteractive
designated by the Summit partnerships. He disclaims beneficial ownership of
the PriceInteractive securities owned by the Summit partnerships. His
address is the same as the Summit partnerships.
(5) The address of MicroStrategy Incorporated is 8000 Towers Crescent Drive,
Vienna, Virginia 22182.
(6) Mr. Trundle is a member of the Board of Directors of PriceInteractive
designated by MicroStrategy Incorporated. He disclaims beneficial ownership
of the PriceInteractive securities owned by MicroStrategy Incorporated. His
address is the same as MicroStrategy Incorporated.
(7) Includes Messrs. D. Price, T. Price, S. Collins (see note 4 above),
S. Trundle (see note 6 above), Dana Skaddan (2,400,000 options to purchase
Class A Common Stock) and Daniel Moore (1,015,000 options to purchase
Class A Common Stock of which 800,000 are exercisable within 60 days).
THE BOARD OF DIRECTORS OF IBASIS DEEMS PROPOSAL NO. 1 TO BE IN THE BEST
INTERESTS OF IBASIS AND ITS STOCKHOLDERS AND RECOMMENDS A VOTE "FOR" APPROVAL
THEREOF. Unless authority to do so is withheld, the persons named in each proxy
will vote the shares represented thereby "FOR" the approval of the merger
agreement.
57
PROPOSAL NO. 2
RATIFICATION OF ADOPTION AND APPROVAL OF
AMENDMENT TO 1997 STOCK INCENTIVE PLAN
On December 12, 2000, our board of directors, subject to stockholder
approval, adopted and approved an amendment to the 1997 Stock Incentive Plan for
the purpose of increasing the number of shares of common stock authorized for
issuance under the plan from 5,700,000 shares to 9,000,000 shares.
iBasis expects to increase its employee base by at least 140 employees upon
the closing of the acquisition of PriceInteractive. In addition, the board of
directors believes that an increase in the number of shares available for
issuance under the plan will enable iBasis to continue its general practice of
making annual grants of stock options to key employees, officers and directors,
thereby encouraging stock ownership by key employees, officers and directors of
iBasis and its subsidiaries and providing additional incentives for them to
promote the success of iBasis' business. As a result, the board of directors has
determined that it is necessary and in the best interest of iBasis to increase
the number of shares of common stock authorized for issuance pursuant to the
1997 Stock Incentive Plan.
The discussion below provides a summary description of certain provisions of
the 1997 Stock Incentive plan, as amended. We have attached a copy of the plan
as APPENDIX E to this proxy statement and incorporate the plan in its entirety
into this proxy statement by reference. The summary of the plan we provide below
is qualified in its entirety by reference to the plan. We encourage you to read
the plan for a complete understanding of its terms.
1997 STOCK INCENTIVE PLAN
In August 1997, our board of directors approved our 1997 Stock Incentive
Plan, which was amended in December 1998 and in September 1999. The initial
adoption of the plan and each of its amendments were subsequently approved by
our stockholders. Our stock incentive plan provides for the grant of incentive
stock options, nonqualified stock options and restricted stock awards.
Employees, including officers and employee directors, directors, consultants and
advisors are eligible for all awards except incentive stock options. Only
employees are eligible for incentive stock options. A maximum of 5,700,000
shares of common stock have been authorized for issuance under our stock
incentive plan. Under our stock incentive plan, as of December 31, 2000:
- options for the purchase of 5,734,900 shares of common stock had been
granted;
- 4,247,096 options for shares of common stock were outstanding under the
plan;
- 717,827 shares had been issued upon exercise of options granted under the
plan;
- grants of 0 shares of restricted stock had been made under the plan; and
- options for the purchase of 769,977 shares that were granted under the
plan had been cancelled.
735,077 shares of common stock remained available for the grant of awards
under the plan as of December 31, 2000. No participant in our stock incentive
plan may, in any year, be granted options or restricted stock awards with
respect to more than 100,000 shares of common stock.
The iBasis compensation committee, which is composed of members appointed by
the board of directors, administers our stock incentive plan and has the
authority to make all determinations required under our stock incentive plan,
including the eligible persons to whom, and the time or times at which, options
or restricted stock awards may be granted, the exercise price or purchase price,
if any, of each option or restricted stock award, whether each option is
intended to qualify as an incentive
58
stock option or a nonqualified stock option, and the number of shares subject to
each option or restricted stock award. The compensation committee also has
authority to:
- interpret our stock incentive plan;
- determine the terms and provisions of the option or restricted stock award
instruments; and
- make all other determinations necessary or advisable for administration of
our stock incentive plan.
The committee has authority to prescribe, amend, and rescind rules and
regulations relating to our stock incentive plan. The exercise price of options
granted under our stock incentive plan shall not be less than 100% of the fair
market value of the common stock on the date of grant, or 110% in the case of
incentive stock options issued to an employee who at the time of grant owns more
than 10% of the total combined voting power of all classes of iBasis stock. The
options become exercisable at such time or times, during such periods, and for
such numbers of shares as shall be determined by the compensation committee and
expire after a specified period that may not exceed ten years from the date of
grant.
The compensation committee may, in its discretion, provide for the
acceleration of one or more outstanding options and the vesting of unvested
shares held as restricted stock awards upon occurrence of a change of control of
iBasis.
In the event of a merger, consolidation, or sale, transfer, or other
disposition of all or substantially all of our assets, the compensation
committee may, in its discretion, provide for the automatic acceleration of one
or more outstanding options that are assumed or replaced and do not otherwise
accelerate by reason of the transaction. In addition, the compensation committee
may similarly provide for the termination of any of our repurchase rights that
may be assigned in connection with the merger, consolidation, or sale, transfer,
or other disposition of all or substantially all of our assets, in the event
that a holder of restricted stock's employment, directorship or consulting or
advising relationship should subsequently terminate following the transaction.
The board of directors may amend, modify, suspend or terminate our stock
incentive plan at any time, subject to applicable law and the rights of holders
of outstanding options and restricted rights awards. Our stock incentive plan
will terminate on August 11, 2007, unless the board of directors terminates it
prior to that time.
The stock incentive plan provides for grants of stock options intended to
qualify for preferential tax treatment under Section 422 of the Internal Revenue
Code of 1986, as amended, nonstatutory stock options that do not qualify for
such treatment and grants of restricted stock. All of our employees are eligible
for stock options or grants under the plan in amounts and at prices determined
by the compensation committee, provided that, in the case of incentive stock
options, the price will not be less than 100% of the fair market value of the
common stock on the date of grant, or not less than 110% of the fair market
value of the stock on the grant date if the optionee owns, directly or
indirectly, more than 10% of the total combined voting power of all classes of
stock.
The stock incentive plan is administered by the compensation committee. The
compensation committee selects participants and, in a manner consistent with the
terms of the 1997 plan, determine the number and duration of the options to be
granted and the terms and conditions of the option agreements. The compensation
committee has the right to alter, amend or revoke the 1997 plan.
Incentive stock options granted under the plan are not transferable except
by will or the laws of descent and distribution and may be exercised during the
life of the optionee only by the optionee. Nonstatutory stock options granted
under the 1997 plan are not transferable except by will of the laws of descent
and distribution and except that nonstatutory stock options may be transferred
if and to the extent authorized by the compensation committee.
59
The following table sets forth information as of December 31, 2000 with
respect to stock options which have been received since the 1997 plan was
adopted by iBasis by (i) each of our Chief Executive Officer and the other
executive officers of iBasis required to be named in a Summary Compensation
Table in an annual meeting proxy statement, (ii) all current executive officers
as a group, (iii) all current directors, (iv) all current directors, other than
those who are executive officers, as a group, and (v) all employees and
consultants, excluding executive officers, as a group since the 1997 plan was
adopted.
OPTION GRANTS UNDER 1997 STOCK INCENTIVE PLAN
NAME OPTIONS (SHARES)
- ---- ----------------
Ofer Gneezy................................................. 120,000
Gordon J. VanderBrug........................................ 90,000
Charles V. Giambalvo........................................ 150,000
Michael J. Hughes........................................... 275,000
Charles N. Corfield......................................... 40,000
Charles S. Houser........................................... 40,000
John Jarve.................................................. 40,000
Carl Redfield............................................... 80,000
Charles M. Skibo............................................ 80,000
All executive officers as a group........................... 635,000
All directors as a group.................................... 490,000
All directors, excluding executive officers, as a group..... 280,000
All employees and consultants, excluding executive officers,
as a group(1)............................................. 4,049,923
- ------------------------
(1) Does not include 769,977 shares subject to stock options previously granted
to former employees that were forfeited upon termination of their
employment.
The affirmative vote of the holders of a majority of the shares of iBasis
common stock voted on the issue at the meeting, in person or by proxy, is
required to ratify the adoption and approval by the board of directors of the
amendment to the 1997 plan. If the proposal to ratify the amendment to the 1997
plan is not approved at the meeting, the 1997 plan, as previously adopted by the
board of directors and ratified by the stockholders, will remain in full force
and effect.
THE BOARD OF DIRECTORS DEEMS PROPOSAL NO. 2 TO BE IN THE BEST INTERESTS OF
IBASIS AND ITS STOCKHOLDERS AND RECOMMENDS A VOTE "FOR" APPROVAL THEREOF. Unless
authority to do so is withheld, the persons named in each proxy will vote the
shares represented thereby "FOR"the ratification of the adoption and approval by
the board of directors of the amendment to the 1997 Stock Incentive plan.
60
THE SPECIAL MEETING
This proxy statement is furnished in connection with the solicitation of
proxies from iBasis stockholders by the board of directors for use at the iBasis
special meeting. This proxy statement and accompanying form of proxy are first
being mailed to iBasis stockholders on or about February 2, 2001.
TIME AND PLACE; PURPOSES
The special meeting will be held on February 27, 2001, at 9:00 a.m., at
iBasis offices at 20 Second Ave., Burlington, MA. At that meeting, iBasis
stockholders will be asked to vote on:
1. The approval of the issuance of shares of iBasis common stock pursuant to an
Agreement and Plan of Merger and Reorganization among iBasis, Inc.,
PriceInteractive, Inc., a majority of PriceInteractive's stockholders and
Penguin Acquisition Corp., a wholly owned subsidiary of iBasis, whereby (i)
PriceInteractive will be merged with and into Penguin Acquisition Corp.,
(ii) iBasis will issue an aggregate of approximately 10,232,243 shares of
iBasis common stock, such number subject to increase on a proportional basis
if the number of outstanding shares of iBasis common stock on a
fully-diluted basis, as provided in the merger agreement, increases between
the date of this proxy statement and the effective time of the merger or, in
the sole discretion of iBasis' board of directors, if it determines that it
is necessary to do so to obtain "reorganization" tax treatment for the
transaction, and approximately $46.0 million in cash to the holders of the
issued and outstanding capital stock of PriceInteractive and "vested"
options to acquire PriceInteractive Stock, with such cash and stock issued
in respect of options being distributed upon the exercise of these options,
(iii) iBasis will assume up to a maximum number of outstanding unvested
options to purchase PriceInteractive stock, which will become options to
purchase iBasis common stock and cash in the same ratio as the outstanding
shares of PriceInteractive convert into iBasis common stock and cash, and
(iv) Daniel J. Price will be appointed to the Board of Directors of iBasis
to fill a vacancy;
2. The approval of an increase in the aggregate number of shares of iBasis
common stock that may be issued or transferred pursuant to options or
restricted stock awards under iBasis' 1997 Stock Incentive Plan from
5,700,000 shares to 9,000,000 shares; and
3. Such other business as may properly come before the iBasis special meeting
or any adjournments or postponements, including potential postponements or
adjournments for the purpose of soliciting additional proxies in order to
approve the above proposals.
61
INDEX TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
Unaudited Pro Forma Condensed Combined Balance Sheet as of
September 30, 2000........................................ F-3
Unaudited Pro Forma Condensed Combined Statement of
Operations for the nine months ended September 30, 2000... F-4
Unaudited Pro Forma Condensed Combined Statement of
Operations for the year ended December 31, 1999........... F-5
Notes to Unaudited Pro Forma Condensed Combined Financial
Statements................................................ F-6
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS OF PRICEINTERACTIVE, INC.
AND SUBSIDIARY
DECEMBER 31, 1999
Independent Auditors' Report................................ F-9
Consolidated Balance Sheet.................................. F-10
Consolidated Statement of Operations........................ F-11
Consolidated Statement of Stockholders' Deficit............. F-12
Consolidated Statement of Cash Flows........................ F-13
Notes to Consolidated Financial Statements.................. F-14
INDEX TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF
PRICEINTERACTIVE, INC.
AND SUBSIDIARY
SEPTEMBER 30, 2000
Consolidated Balance Sheet.................................. F-24
Consolidated Statements of Operations....................... F-25
Consolidated Statements of Cash Flows....................... F-26
Notes to Condensed Consolidated Financial Statements........ F-27
F-1
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following Unaudited Pro Forma Condensed Combined Balance Sheet (the "Pro
Forma Balance Sheet") has been prepared based upon the historical condensed
consolidated balance sheets of iBasis, Inc. and PriceInteractive, Inc. as of
September 30, 2000. The Pro Forma Balance Sheet gives effect to the acquisition
of PriceInteractive, Inc. as if the acquisition had occurred as of
September 30, 2000.
The following Unaudited Pro Forma Condensed Combined Statement of Operations
for the nine months ended September 30, 2000 (the "2000 Pro Forma Statement of
Operations") is based upon the historical condensed consolidated statements of
operations of iBasis, Inc. and PriceInteractive, Inc. for the nine months ended
September 30, 2000. The 2000 Pro Forma Statement of Operations gives effect to
(a) the acquisition of PriceInteractive, Inc., (b) the sale of 2,026,637 shares
of iBasis, Inc.'s common stock in an underwritten public offering which was
completed in March 2000 and the use of the net proceeds from such offering, and
(c) the use of the net proceeds from the sale of 150.0 million 5 3/4%
convertible subordinated notes also completed in March 2000 as if each had
occurred as of January 1, 2000.
The following Unaudited Pro Forma Condensed Combined Statement of Operations
for the year ended December 31, 1999 (the "1999 Pro Forma Statement of
Operations") is based upon the historical condensed consolidated statements of
operations of iBasis, Inc. and PriceInteractive, Inc. for the year ended
December 31, 1999. The 1999 Pro Forma Statement of Operations gives effect to
(a) the acquisition of PriceInteractive, Inc., (b) the sale of 2,026,637 shares
of iBasis, Inc.'s common stock in an underwritten public offering which was
completed in March 2000 and the use of the net proceeds from such offering,
(c) the use of the net proceeds from the sale of 150.0 million 5 3/4%
convertible subordinated notes also completed in March 2000, and
(d) iBasis, Inc.'s initial public offering of 7,820,000 shares completed in
November 1999 as if each had occurred as of January 1, 1999.
Pro forma adjustments are described in the accompanying footnotes and are
calculated using iBasis, Inc.'s January 30, 2001 closing stock price of $9.28
per share. In addition to the purchase price reflected in these pro forma
financial statements, iBasis will pay a maximum of approximately $4 million in
cash upon the conversion, vesting and exercise of PriceInteractive options. Any
amounts paid to these option holders in the future will be recorded by iBasis as
compensation expense. The Unaudited Pro Forma Statements of Operations presented
herein do not include any adjustment for compensation expense related to the
amounts up to $4 million that may be paid for the future or the amortization of
approximately $6.8 million of deferred compensation related to iBasis options
issued in exchange for PriceInteractive options.
The 1999 and 2000 Pro Forma Statements of Operations do not necessarily
indicate the actual results of operations that iBasis, Inc. would have reported
if the events described above had occurred as of January 1, 1999 and 2000,
respectively nor do they necessarily indicate the results of iBasis, Inc.'s
future operations. Furthermore, the pro forma results do not give effect to cost
savings or incremental costs that may occur as a result of the integration and
consolidation of iBasis, Inc. and PriceInteractive, Inc. In the opinion of
management, all adjustments necessary to fairly present these pro forma
financial statements have been made.
The acquisition of PriceInteractive, Inc. has been accounted for using the
purchase method of accounting.
The pro forma condensed combined financial information should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and with the financial statements and footnotes
thereto of PriceInteractive, Inc. included elsewhere in this proxy statement.
Certain reclassifications have been made to the PriceInteractive Statement
of Operations in order to conform to iBasis' presentation.
F-2
IBASIS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 2000
PRO FORMA
IBASIS PRICEINTERACTIVE ADJUSTMENTS PRO FORMA
------------ ---------------- ------------ ------------
ASSETS
Cash, Cash Equivalents and Short Term
Investments........................ $340,494,810 $ 3,861,775 $(48,122,209)(1) $296,234,376
Other Current Assets................. 17,361,495 7,093,450 -- 24,454,945
Property and Equipment, net.......... 84,813,176 6,700,666 -- 91,513,842
Goodwill and other purchased
intangibles, net................... -- 406,641 103,360,866 (2) 103,767,507
Other Long Term Assets............... 12,427,323 80,810 -- 12,508,133
------------ ----------- ------------ ------------
Total Assets....................... $455,096,804 $18,143,342 $ 55,238,657 $528,478,803
============ =========== ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities.................. $ 40,266,639 $ 5,732,871 $ -- $ 45,999,510
Long term Debt....................... 187,658,500 1,287,174 -- 188,945,674
Stockholders' Equity................. 227,171,665 11,123,297 55,238,657 (3) 293,533,619
------------ ----------- ------------ ------------
Total Liabilities and Stockholders
Equity........................... $455,096,804 $18,143,342 $ 55,238,657 $528,478,803
============ =========== ============ ============
- ------------------------
(1) To record the aggregate cash consideration for the acquisition.
(2) To record goodwill and other purchased intangibles to be amortized over an
estimated useful life of 5 years.
(3) To record the common stock consideration paid for the acquisition at the
January 30, 2001 fair value of $9.28; remove PriceInteractive's equity and
record acquired in-process research and development costs ($30.9 million)
based on a preliminary estimate provided by a third party appraisal.
The accompanying notes are an integral part of these pro forma financial
statements.
F-3
IBASIS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
PRO FORMA
IBASIS PRICEINTERACTIVE ADJUSTMENTS PRO FORMA
------------ ---------------- ------------ ------------
Net Revenue.......................... $ 40,546,097 $12,032,858 $ -- $ 52,578,955
Operating Expenses:
Data communications and
telecommunications............... 40,916,783 2,582,011 43,498,794
Research and development........... 10,231,462 4,483,642 14,715,104
Selling and marketing.............. 13,278,069 1,825,322 15,103,391
General and administrative......... 13,504,784 1,477,060 14,981,844
Depreciation and amortization...... 10,011,294 1,091,463 15,504,130 (1) 26,606,887
Acquired in-process research and
development...................... -- -- 30,874,025 (2) 30,874,025
------------ ----------- ------------ ------------
Total operating expenses............. 87,942,392 11,459,498 46,378,155 145,780,045
------------ ----------- ------------ ------------
(Loss) income from operations........ (47,396,295) 573,360 (46,378,155) (93,201,090)
Interest income...................... 14,440,202 124,049 2,185,085 (3) 16,749,336
Interest expense..................... (8,504,811) (100,729) (1,852,528)(4) (10,458,068)
------------ ----------- ------------ ------------
(Loss) income before provision for
income taxes....................... (41,460,904) 596,680 (46,045,598) (86,909,822)
Provision for income taxes........... -- (245,000) -- (245,000)
------------ ----------- ------------ ------------
Net (loss) income.................. $(41,460,904) $ 351,680 $(46,045,598) $(87,154,822)
============ =========== ============ ============
Net loss per share:
Basic and diluted net loss per
share............................ $ (1.24) $ -- $ (1.97)
============ ============ ============
Basic and diluted weighted average
common shares outstanding........ 33,416,437 10,757,667 (5) 44,174,104
============ ============ ============
- ------------------------
(1) To record the amortization of goodwill and other purchased intangibles,
using an estimated useful life of 5 years.
(2) To record the acquired in-process research and development expense as
estimated by a third party appraisal.
(3) To record the net effect of the reduction in interest income as a result of
a decrease in cash and the effects of the issuance of shares of common stock
related to the Secondary Public Offering and the issuance of the 5 3/4%
Convertible Subordinated Notes.
(4) To record the interest expense related to the issuance of the 5 3/4%
Convertible Subordinated Notes.
(5) To record the shares to be issued in connection with the acquisition and
record the effect of the Company's secondary offering.
The accompanying notes are an integral part of these pro forma financial
statements.
F-4
IBASIS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
PRO FORMA
IBASIS PRICEINTERACTIVE ADJUSTMENTS PRO FORMA
------------ ---------------- ------------ ------------
Net Revenue........................... $ 19,417,102 $11,837,663 $ -- $ 31,254,765
Operating Expenses:
Data communications and
telecommunications................ 21,006,774 2,852,288 -- 23,859,062
Research and development............ 6,183,391 3,353,985 -- 9,537,376
Selling and marketing............... 5,568,399 1,556,275 -- 7,124,674
General and administrative.......... 5,308,465 2,232,462 -- 7,540,927
Depreciation and amortization....... 2,997,355 797,752 20,672,173 (1) 24,467,280
Gain on disposal of property and
equipment......................... (15,297) -- -- (15,297)
Acquired in-process research and
development....................... -- -- 30,874,025 (2) 30,874,025
------------ ----------- ------------ ------------
Total operating expenses.............. 41,049,087 10,792,762 51,546,198 103,388,047
------------ ----------- ------------ ------------
(Loss) income from operations......... (21,631,985) 1,044,901 (51,546,198) (72,133,282)
Interest income....................... 1,329,237 108,897 23,270,054 (3) 24,708,188
Interest expense...................... (835,593) (46,906) (9,659,611)(4) (10,542,110)
Other Income.......................... 2,826 -- -- 2,826
Minority interest in loss of joint
venture............................. 49,000 -- -- 49,000
------------ ----------- ------------ ------------
Income before provision for income
taxes............................... (21,086,515) 1,106,892 (37,935,755) (57,915,378)
Provision for income taxes............ -- (454,945) -- (454,945)
------------ ----------- ------------ ------------
(Loss) income before cumulative effect
of change in accounting principle... (21,086,515) 651,947 (37,935,755) (58,370,323)
Cumulative effect of change in
accounting principle................ -- 55,512 -- 55,512
------------ ----------- ------------ ------------
Net (loss) income................... (21,086,515) 707,459 (37,935,755) (58,314,811)
Accretion of dividends on redeemable
convertible preferred stock......... (1,020,366) (906,867) -- (1,927,233)
------------ ----------- ------------ ------------
Net loss applicable to common
stockholders...................... $(22,106,881) $ (199,408) $(37,935,755) $(60,242,044)
============ =========== ============ ============
Net loss per share:
Basic and diluted net loss per
share............................. $ (2.29) $ -- $ (2.10)
============ ============ ============
Basic and diluted weighted average
common shares outstanding......... 9,655,253 19,042,113 (5) 28,697,366
============ ============ ============
- ------------------------
(1) To record the amortization of goodwill and other purchased intangibles,
using an estimated useful life of 5 years.
(2) To record the acquired in-process research and development expense as
estimated by a third party appraisal.
(3) To record the net effect of the reduction in interest income as a result of
a decrease in cash and the effects of the issuance of shares of common stock
related to the Secondary Public Offering and the issuance of the 5 3/4%
Convertible Subordinated Notes.
(4) To record the interest expense related to the issuance of the 5 3/4%
Convertible Subordinated Notes.
(5) To record the shares to be issued in connection with the acquisition and
record the effect of the Company's secondary offering.
The accompanying notes are an integral part of these pro forma financial
statements.
F-5
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
BALANCE SHEET
Based upon the closing price of iBasis, Inc.'s stock of $9.28 per share as
of January 30, 2001, iBasis, Inc. will pay approximately $145.4 million in
aggregate consideration to acquire PriceInteractive, Inc. The purchase price
will be allocated to tangible and intangible assets, based on the estimate of
the fair value of the net assets acquired to be determined by an independent
appraisal. The following allocation of the aggregate purchase price is
preliminary and subject to adjustment, based on the final determination of the
fair value of the net assets acquired and does not consider any deferred income
taxes which may be required for the non-goodwill purchased intangibles as the
independent appraisal is not complete at this time.
(IN MILLIONS)
-------------
Cash, Cash Equivalents and Short Term Investments........... $ 3.8
Other Current Assets........................................ 7.1
Property and Equipment...................................... 6.7
Goodwill and Other Purchased Intangibles.................... 103.8
Other Assets................................................ 0.1
Current Liabilities......................................... (5.7)
Long Term Debt.............................................. (1.3)
In-process Research and Development......................... 30.9
------
Total Purchase Price........................................ $145.4
======
Pro forma adjustments to the balance sheet consist of the following:
CASH, CASH EQUIVALENTS GOODWILL AND OTHER
AND SHORT TERM INVESTMENTS PURCHASED INTANGIBLES, NET STOCKHOLDERS' EQUITY
-------------------------- -------------------------- --------------------
Record the aggregate
consideration paid for the
acquisition.................. $(48,122,209) $ -- $97,235,979
Record goodwill and other
purchased intangibles related
to the acquisition........... -- 103,360,866 --
Remove PriceInteractive's
equity not assumed in
acquisition.................. -- -- (11,123,297)
Write off acquired in-process
research and development
costs........................ -- -- (30,874,025)
------------ ------------ -----------
Total Pro Forma Adjustments to
Balance Sheet................ $(48,122,209) $103,360,866 $55,238,657
============ ============ ===========
F-6
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF OPERATIONS
Pro forma adjustments to the statement of operations for the nine months
ended September 30, 2000 consist of the following:
DEPRECIATION ACQUIRED IN- WEIGHTED
AND PROCESS RESEARCH INTEREST INTEREST AVERAGE SHARES
AMORTIZATION AND DEVELOPMENT INCOME EXPENSE OUTSTANDING
------------ ---------------- ----------- ---------- --------------
Write off of acquired in-
process research and
development costs......... $ -- $30,874,025 $ -- $ -- $ --
Amortization of goodwill and
other purchased
intangibles............... 15,504,130 -- -- -- --
Reduction in interest income
as a result of a decrease
in cash................... -- -- (2,297,475) -- --
Shares issued in connection
with this acquisition..... -- -- -- -- 10,232,243
Record effects of the
issuance of shares of
common stock relating to
the Secondary Public
Offering.................. -- -- 2,205,999 -- 525,424
Record effects of the
issuance of the 5 3/4%
Convertible Subordinated
Notes..................... -- -- 2,276,561 1,852,528 --
----------- ----------- ----------- ---------- -----------
Total Pro Forma Adjustments
to 2000 Statement of
Operations................ $15,504,130 $30,874,025 $ 2,185,085 $1,852,528 10,757,667
=========== =========== =========== ========== ===========
F-7
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS (CONTINUED)
Pro forma adjustments to the statement of operations for the year ended
December 31, 1999 consist of the following:
DEPRECIATION ACQUIRED IN- WEIGHTED
AND PROCESS RESEARCH INTEREST INTEREST AVERAGE SHARES
AMORTIZATION AND DEVELOPMENT INCOME EXPENSE OUTSTANDING
------------ ---------------- ----------- ---------- --------------
Write off of acquired in-
process research and
development costs......... $ -- $30,874,025 $ -- $ -- --
Amortization of goodwill and
other purchased
intangibles............... 20,672,173 -- -- -- --
Reduction in interest income
as a result of a decrease
in cash................... -- -- (3,063,299) -- --
Shares issued in connection
with this acquisition..... -- -- -- -- 10,232,243
Record effects of the
initial public offering... -- -- 7,084,714 -- 6,783,233
Record effects of the
issuance of shares of
common stock relating to
the Secondary Public
Offering.................. -- -- 9,472,820 -- 2,026,637
Record effects of the
issuance of the 5 3/4%
Convertible Subordinated
Notes..................... -- -- 9,775,819 9,659,611 --
----------- ----------- ----------- ---------- ----------
Total Pro Forma Adjustments
to 1999 Statement of
Operations................ $20,672,173 $30,874,025 $23,270,054 $9,659,611 19,042,113
=========== =========== =========== ========== ==========
F-8
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
PriceInteractive, Inc.:
We have audited the accompanying consolidated balance sheet of
PriceInteractive, Inc. and subsidiary as of December 31, 1999 and the related
consolidated statements of operations, stockholders' deficit and cash flows for
the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. 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 audit provides 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
PriceInteractive, Inc. and subsidiary as of December 31, 1999 and the results of
their operations and their cash flows for the year then ended in conformity with
accounting principles generally accepted in the United States of America.
As discussed in note 9 to the consolidated financial statements, the Company
changed its method of computing depreciation in 1999.
KPMG LLP
McLean, VA
January 31, 2000
F-9
PRICEINTERACTIVE, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1999
1999
----------
ASSETS
Current assets:
Cash and cash equivalents................................. $2,582,385
Short-term investments, at market......................... 772,646
Accounts receivable, net of allowance for doubtful
accounts of $540,000.................................... 2,677,874
Prepaid expenses and other assets......................... 184,515
----------
Total current assets.................................... 6,217,420
Property and equipment, at cost, less accumulated
depreciation and amortization of $1,074,615............... 2,355,168
Goodwill, less accumulated amortization of $374,686......... 530,627
----------
$9,103,215
==========
LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable.......................................... $ 881,057
Accrued expenses.......................................... 411,937
Accrued employee compensation and benefits................ 154,925
Income taxes payable...................................... 424,421
Deferred revenue.......................................... 203,016
Deferred tax liability.................................... 36,030
Notes payable, current portion............................ 561,903
----------
Total current liabilities............................... 2,673,289
Deferred tax liability, net of current portion.............. 67,271
Notes payable, net of current portion....................... 620,390
----------
Total liabilities....................................... 3,360,950
----------
Redeemable preferred stock:
Redeemable preferred stock, par value $0.01:
8% cumulative, redeemable, non-voting preferred stock,
6,500 shares issued and outstanding (entitled first in
liquidation to $7,348,000).............................. 7,043,837
----------
Total redeemable preferred stock........................ 7,043,837
Stockholder's deficit:
Preferred stock, par value $0.01:
Series A, 8% cumulative, voting, convertible preferred
stock, 2,428,000 shares issued and outstanding
(entitled second in liquidation to $3,956,000)......... 24,280
Common stock, Class B, par value $0.01, 10,000,000 shares
authorized, 4,760,000 shares issued and outstanding..... 47,600
Common stock, Class A, par value $0.01, 13,000,000 shares
authorized, 0 shares issued and outstanding............. --
Accumulated deficit....................................... (1,373,452)
----------
Total stockholders' deficit............................. (1,301,572)
Commitments and contingencies
----------
$9,103,215
==========
See accompanying notes to consolidated financial statements.
F-10
PRICEINTERACTIVE, INCORPORATED AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
1999
-----------
Revenue..................................................... $11,837,663
Cost of revenues............................................ 5,610,338
-----------
Gross profit............................................ 6,227,325
Selling, general and administrative expenses................ 5,182,424
-----------
Income from operations.................................. 1,044,901
Other income (expense):
Interest expense.......................................... (46,906)
Interest income........................................... 108,897
-----------
Income before provision for income taxes................ 1,106,892
Provision for income taxes.................................. 454,945
-----------
Income before cumulative effect of change in accounting
principle............................................. 651,947
Cumulative effect of change in accounting principle, net of
tax effect of $34,024..................................... 55,512
-----------
Net income.............................................. $ 707,459
Preferred stock dividends and accretion..................... (906,867)
-----------
Net loss applicable to common stockholders.............. $ (199,408)
===========
See accompanying notes to consolidated financial statements.
F-11
PRICEINTERACTIVE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
YEAR ENDED DECEMBER 31, 1999
SERIES A
CONVERTIBLE
PREFERRED STOCK COMMON STOCK TOTAL
-------------------- -------------------- ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT DEFICIT DEFICIT
--------- -------- --------- -------- ----------- -------------
Balance at December 31, 1998........ 2,428,000 $24,280 2,380,000 $ 2,380 $(1,421,824) $(1,395,164)
Increase in par value of common
stock from $0.001 per share to
$0.01 per share................... -- -- -- 21,420 (21,420) --
Two-for-one stock split............. -- -- 2,380,000 23,800 (23,800) --
Redeemable preferred stock dividends
and accretion..................... -- -- -- -- (613,867) (613,867)
Net income.......................... -- -- -- -- 707,459 707,459
--------- ------- --------- ------- ----------- -----------
Balance at December 31, 1999........ 2,428,000 $24,280 4,760,000 $47,600 $(1,373,452) $(1,301,572)
========= ======= ========= ======= =========== ===========
See accompanying notes to consolidated financial statements.
F-12
PRICEINTERACTIVE, INCORPORATED AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1999
1999
-----------
Cash flows from operating activities:
Net income................................................ $ 707,459
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization........................... 887,237
Deferred tax expense.................................... 30,523
Cumulative effect of change in account principle, net of
tax................................................... (55,512)
Change in assets and liabilities:
Increase in accounts receivable....................... (247,180)
Increase in prepaid expenses and other assets......... (142,360)
Increase in accounts payable, accrued expenses,
deferred revenue and other liabilities.............. 565,280
-----------
Net cash provided by operating activities........... 1,745,447
-----------
Cash flows from investing activities:
Purchase of available-for-sale securities................. (1,574,993)
Sale of available-for-sale securities..................... 1,002,044
Purchase of property and equipment........................ (1,233,680)
-----------
Net cash used in investing activities............... (1,806,629)
-----------
Cash flows from financing activities:
Proceeds from note payable................................ 852,043
Principal repayments on notes payable..................... (157,200)
-----------
Net cash provided by financing activities........... 694,843
-----------
Net increase in cash and cash equivalents........... 633,661
Cash and cash equivalents, beginning of year................ 1,948,724
-----------
Cash and cash equivalents, end of year...................... $ 2,582,385
===========
See accompanying notes to consolidated financial statements.
F-13
PRICEINTERACTIVE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) ORGANIZATION AND NATURE OF BUSINESS
PriceInteractive, Inc. (together with its subsidiary, the "Company")
was incorporated in November 1996. Headquartered in Reston, Virginia, the
Company provides outsourced services that enable its customers to quickly
and cost effectively deploy leading-edge interactive voice and Web
applications. The Company operates a high volume interactive call
processing platform that is capable of voice enabling Web content for
telephone users.
(B) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of
PriceInteractive, Inc. and its subsidiary. All material intercompany
accounts and transactions have been eliminated in consolidation.
(C) CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents. At December 31,
1999, cash equivalents consisted of a money market account carried at
cost, which approximates fair value.
(D) PROPERTY, EQUIPMENT, AND LEASEHOLD IMPROVEMENTS
Depreciation and amortization are provided for using the
straight-line method as follows:
Furniture and fixtures.............................. 5 years
Computer equipment and software..................... 3 years
Interactive voice response system components and
software.......................................... 5 years
Leasehold improvements.............................. shorter of estimated life
or lease term
(E) EXCESS PURCHASE PRICE OVER NET ASSETS ACQUIRED
Excess purchase price (goodwill) over tangible net assets acquired
resulting from the Company's acquisition of substantially all of the
assets and liabilities of Send-A-Song Corporation is being amortized on a
straight-line basis over its estimated useful life of 5 years.
Amortization expense for 1999 was $265,313. The Company periodically
assesses and evaluates the recoverability of such assets based on current
facts and circumstances and the operational performance of the acquired
business.
(F) SHORT-TERM INVESTMENTS
The Company classifies all investments as available-for-sale
securities as defined by Statement of Financial Accounting Standards
No. 115, ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES
("SFAS 115"). Accordingly, such investments are recorded at market value
with any unrealized holding gains and losses being recognized as a
separate component of stockholders' equity. As of December 31, 1999,
there were no holding gains or losses on
F-14
PRICEINTERACTIVE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
the Company's investments, nor were there any reclassifications from
holding gains or losses to net income.
(G) INCOME TAXES
The Company recognizes income taxes using the asset and liability
method. Under the asset and liability method, 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 respective tax bases. Deferred
tax assets and liabilities are measured using the 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 of a tax
rate change on deferred tax assets and liabilities is recognized as
income in the period that includes the enactment date.
(H) PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS
The preparation of 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 disclosures of contingent assets and liabilities at the
date of the consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could
differ from those estimates.
(I) STOCK-BASED COMPENSATION
The Company accounts for stock-based compensation under Statement of
Financial Accounting Standards No. 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION ("SFAS 123"), which requires companies to (i) recognize as
expense the fair value of all stock-based awards on the date of grant, or
(ii) continue to apply the provisions of Accounting Principles Board
Opinion 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES ("APB 25") and
provide pro forma net income disclosures for employee stock option grants
as if the fair value based method defined in SFAS 123 had been applied.
The Company has elected to continue to apply the provisions of APB 25 in
accounting for its stock option incentive plan.
(J) REVENUE RECOGNITION
The Company provides professional services to design, develop, and
test speech applications under time-and-materials and fixed-fee
contracts. Revenue on time-and-materials contracts is recognized as
services are performed. Revenue on fixed-fee contracts is recognized
using the percentage of completion method measured by labor hours
incurred to total estimated hours required. Estimates of costs to
complete are reviewed periodically and revised as required. Provisions
are made for the full amount of anticipated losses, if any, on all
contracts in the period in which the losses are first determinable.
Changes in estimates are also reflected in the period they become known.
Revenue for traffic carried over the Company's interactive call
processing platform, measured in minutes, is recognized at the
contractual rates in the period the services are provided and the related
call is completed.
Revenues related to additional services are recognized as services
are performed and costs are incurred.
F-15
PRICEINTERACTIVE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
Billings in advance of completing engagements are recorded as
deferred revenue and recognized as income in the period in which the
services are provided.
(K) COST OF REVENUES
Cost of revenues to provide professional services to design, develop,
and test speech applications consist of cash compensation and related
costs for program management, development, and voice recording personnel
and materials and research and development expenses. Cost of revenues to
carry traffic over the Company's interactive call processing platform
consists of data communications and telephone expenses and depreciation
on the interactive voice response system components and software.
(L) ADVERTISING
The Company expenses the production costs of advertising the first
time the advertising takes place, except for costs of direct-response
advertising, which are capitalized and amortized over the expected period
of future benefits. There were no direct-response advertising costs
during 1999.
(M) CAPITALIZED SOFTWARE COSTS
The Company capitalizes eligible software development and
installation costs in connection with its interactive call processing
platform in accordance with Statement of Position 98-1 ACCOUNTING FOR THE
COSTS OF COMPUTER SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL USE.
Capitalized software costs are amortized on a straight line basis over a
useful life of 5 years and are included in the accompanying balance sheet
as a component of interactive voice response system components and
software. For the year ended December 31, 1999, $241,434 of such costs
were capitalized. Amortization expense for the year ended December 31,
1999 was approximately $4,000.
(N) IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
The Company accounts for the impairment of long-lived assets under
the provisions of SFAS No. 121, ACCOUNTING FOR THE IMPAIRMENT OF
LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF. This
statement requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by
a comparison of the carrying amount of an asset to future undiscounted
net cash flows expected to be generated by the asset. If such assets are
considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the assets exceed the fair
value of the assets. Assets to be disposed of are reported at the lower
of the carrying amount or fair value less cost to sell.
(O) COMPREHENSIVE INCOME
The Company does not have any components of other comprehensive
income as defined by SFAS No. 130, REPORTING COMPREHENSIVE INCOME.
F-16
PRICEINTERACTIVE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
(P) RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, ACCOUNTING FOR
DERIVATIVES AND HEDGING ACTIVITIES, which establishes accounting and
reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts (collectively referred
to as derivatives) and for hedging activities. SFAS No. 133, as amended
by SFAS No. 137, is effective for all fiscal quarters of fiscal years
beginning after June 15, 2000. As the Company does not currently engage
in derivatives or hedging transactions, there will be no current impact
to the Company's results of operations, financial position or cash flows
upon the adoption of SFAS No. 133.
In December 1999, the Securities and Exchange Commission ("SEC")
issued Staff Accounting Bulletin ("SAB") No. 101 REVENUE RECOGNITION IN
FINANCIAL STATEMENTS. This SAB expresses the SEC's views in applying
generally accepted accounting principles to revenue recognition in
financial statements. Registrants can apply the accounting and disclosure
requirements of this SAB retrospectively, or registrants may report a
change in accounting principle no later than the first quarter of the
fiscal year beginning after December 15, 1999. The Company is unable to
determine the impact on its financial statements, if any, upon
application of this SAB.
(2) RETIREMENT PLAN
The Company maintains a defined contribution plan qualified under
Section 401(k) of the Internal Revenue Code of 1986, as amended. The Plan covers
substantially all employees with 6 months of eligible service. Under the Plan,
employees may make elective salary deferrals and the Company provides for a
50 percent matching of qualified deferrals. During the year ended December 31,
1999, the Company made matching contributions of approximately $51,200.
(3) LEASING ARRANGEMENTS
The Company occupies office space in facilities that are leased under a
6-year operating lease that expires in May 2004. The Company also has operating
leases for office equipment that expire in February 2000.
The following is a schedule of future minimum lease payments, net of
sublease rental income, for all operating leases as of December 31, 1999:
MINIMUM
LEASE
YEAR ENDING DECEMBER 31, COMMITMENTS
- ------------------------ -----------
2000........................................................ $ 440,000
2001........................................................ 473,000
2002........................................................ 487,000
2003........................................................ 502,000
2004........................................................ 212,000
----------
Total................................................... $2,114,000
==========
Rent expense, net of sublease rental income of approximately $36,000, was
approximately $442,000 for the year ended December 31, 1999.
F-17
PRICEINTERACTIVE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
(4) INCOME TAXES
Effective January 1, 1999, the Company converted from a cash basis taxpayer
to an accrual basis taxpayer.
The provision for income taxes from operations for the year ended
December 31, 1999, consists of the following:
1999
--------
Current:
U.S. federal.............................................. $357,338
State and local........................................... 67,084
--------
Total current........................................... 424,422
--------
Deferred:
U.S. federal.............................................. 25,704
State and local........................................... 4,819
--------
Total deferred.......................................... 30,523
--------
Total tax provision..................................... $454,945
========
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31, 1999, are presented below:
1999
--------
Deferred tax assets:
Accrued compensation...................................... $ 19,001
Goodwill.................................................. 91,225
--------
110,226
Deferred tax liabilities:
Change in tax accounting method........................... 165,094
Depreciation method....................................... 48,433
--------
213,527
--------
Net deferred tax liability.............................. $103,301
========
During the year ended December 31, 1999 the Company did not pay any income
taxes.
A reconciliation of the U.S. federal statutory tax rate to the actual tax
rate for the year ended December 31, 1999 is as follows:
Statutory U.S. federal income tax rate...................... 34.0%
State income taxes, net of federal benefit.................. 4.3
Nondeductible expenses...................................... 0.8
Other....................................................... 2.0
----
Effective income tax rate................................... 44.1%
====
F-18
PRICEINTERACTIVE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
(5) NOTES PAYABLE
The Company's existing credit facility consists of a term loan, a working
capital line of credit and an equipment line of credit. Advances under the
working capital line of credit and the equipment line of credit are limited to
80 percent of the underlying assets. At the end of six months, advances under
the equipment line of credit must be converted to a 30 month term loan at the
Lender's Prime Rate plus 2.25 percent. The line of credit is secured by
substantially all assets of the Company. The Company's credit facility contains
financial covenants which have debt service ratio and tangible net worth
requirements, among others. As of December 31, 1999, the Company was in
compliance with all covenants. Outstanding borrowings under the credit facility
at December 31, 1999 were as follows:
1999
----------
Note payable, interest accrues at 6.85% per annum. Due
October 22, 2001. Payable in monthly installments of
$15,404. Secured by all fixed assets and accounts
receivable................................................ $ 331,140
Line of credit, interest accrues at lenders LIBOR plus 2%
(8.5% at December 31, 1999) per annum, due July 31, 2000.
Secured by all fixed assets and accounts receivable....... 200,000
Note payable, interest accrues at 8.81% per annum, due
July 1, 2002. Payable in monthly installments of $14,355
beginning February 1, 2000. Secured by underlying
equipment................................................. 385,250
Note payable, interest accrues at 8.99% per annum, due
December 1, 2002. Payable in monthly installments of
$9,930, beginning July1, 2000. Secured by underlying
equipment................................................. 265,903
----------
Total..................................................... $1,182,293
==========
Future minimum principal payments as of December 31, 1999 are as follows:
YEAR ENDING DECEMBER 31,
- ------------------------
2000........................................................ $ 561,903
2001........................................................ 395,739
2002........................................................ 224,651
----------
1,182,293
Less, current portion....................................... 561,903
----------
Total long-term debt...................................... $ 620,390
==========
During the year ended December 31, 1999, the Company paid $44,133 in
interest.
(6) STOCK OPTIONS
The Company's Stock Incentive Plan (the "Plan") provides for awards of
incentive or non-qualified stock options and restricted stock to employees,
directors, and consultants of the Company and its subsidiary. Under the terms of
the Plan, options may not be issued at less than 100 percent of the fair market
value of the Company's Class A Common Stock on the date of grant. Options under
the Plan vest at a rate set forth by the Board of Directors in each individual
option agreement, generally over a
F-19
PRICEINTERACTIVE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
5-year period following the date of grant, subject to accelerated vesting
events. Options expire no more than 10 years following the grant date. The Board
of Directors may grant options to purchase up to 4,000,000 shares of its
Class A Common Stock. At December 31, 1999, there were 1,145,750 shares
available for grant under the Plan.
Stock option activity for the Plan during the period indicated is as
follows:
NUMBER OF WEIGHTED-AVERAGE
SHARES EXERCISE PRICE
--------- ----------------
December 31, 1998.................................. 2,525,000 0.84
Granted.......................................... 398,250 1.875
Exercised........................................ -- --
Forfeited/canceled............................... (69,000) 1.20
Expired.......................................... -- --
--------- ------
December 31, 1999.................................. 2,854,250 $ 0.97
========= ======
At December 31, 1999, the range of exercise prices for the options granted
under the Plan was $0.25 to $1.875 and the weighted-average remaining
contractual life of those options was 8.16 years. At December 31, 1999, the
number of options exercisable under the Plan totaled 1,724,000 and the
weighted-average exercise price of those options was $0.83.
The Company applies APB Opinion No. 25 in accounting for the Plan and,
accordingly, no compensation cost has been recognized for its stock options in
the accompanying consolidated financial statements. Had the Company determined
compensation cost based on the fair value at the grant date for its stock
options under SFAS No. 123, the Company's net income for the year ended
December 31, 1999 would have decreased to the pro forma amount indicated below:
Net income--as reported..................................... $707,459
========
Net income--pro forma....................................... $570,276
========
The per share weighted-average fair value of the options granted in 1999 was
$0.60 on the grant date using the Black-Scholes option pricing model with the
following weighted-average assumptions: expected dividend yield of 0.0 percent,
risk free rate of return of 5.64 percent, expected volatility of 0.0 percent,
and an expected life of 7 years.
(7) PREFERRED STOCK
The Company is authorized to issue 5,000,000 shares of preferred stock
amongst the following two classes:
(A) 1998 8% CUMULATIVE, REDEEMABLE, NON-VOTING PREFERRED STOCK
On June 2, 1998, the Company issued 6,500 shares of its 8 percent
Cumulative, Redeemable, Non-voting Preferred Stock ("redeemable preferred
stock") having a par value of $0.01 per share, for $6,500,000, less
issuance costs of approximately $413,000. The shares have a redemption
price of $1,000 per share, together with accrued and unpaid dividends
thereon. At any time before June 2, 2003, the Company, at its option, may
redeem some or all of the outstanding shares. On June 2, 2003, the
Company must then redeem one-half of the
F-20
PRICEINTERACTIVE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
then outstanding shares and on June 2, 2004, the Company must redeem all
of the remaining outstanding shares. In the event of any liquidation,
dissolution, or winding up of the affairs of the Company, holders of the
redeemable preferred stock shall be paid the redemption price plus all
accrued and unpaid dividends to the date of liquidation, dissolution, or
winding up of affairs before any payment to other stockholders. No shares
were redeemed during 1999. To date, no dividends have been declared on
the redeemable preferred stock. The accumulated unpaid dividends are
approximately $848,000 at December 31, 1999.
(B) SERIES A, 8% CUMULATIVE, VOTING, CONVERTIBLE PREFERRED STOCK
On June 2, 1998, the Company issued 2,428,000 shares of its
8 percent Cumulative, Voting, Convertible Preferred Stock ("convertible
preferred stock") having a par value of $0.01 per share, for $3,500,000,
less issuance costs of approximately $222,000. At any time, the holder of
the convertible preferred stock may convert all or some shares of
convertible stock into Class B common stock, par value $0.01. Initially,
the conversion rate was such that each share of convertible preferred
stock could be converted into one share of Class B common stock. On
January 2, 1999, in accordance with the original terms of the agreement,
the conversion rate was adjusted so that the number of shares of common
stock issued upon conversion would equal 40 percent of the fully diluted
common shares. On December 31, 1999, the convertible preferred stock was
convertible into 4,663,572 shares of Class B common stock.
The holders of the convertible preferred stock are entitled to vote
together with the holders of common stock. The total number of votes is
equal to the number of common shares that could be acquired upon
conversion into common stock at the conversion rate in effect at that
date. In the event of any liquidation, dissolution, or winding up of the
affairs of the Company, holders of the convertible preferred stock shall
be paid the liquidation price of $1.442 per share plus all accrued and
unpaid dividends to the date of liquidation, dissolution, or winding up
of affairs, after full payment to holders of the redeemable preferred
stock but before any payment is made to other stockholders. No shares
were converted to common stock during 1999. To date, no dividends have
been declared on the convertible preferred stock. The accumulated unpaid
dividends are approximately $456,000 at December 31, 1999.
(8) STOCK SPLIT
In September 1999, the shareholders approved an increase of the authorized
Class B common stock shares to 10,000,000. In addition, the Board of Directors
authorized a 2-for-1 stock split. The distribution of the additional shares to
effect the stock split in September 1999 increased the number of shares
outstanding from 2,380,000 to 4,760,000. The stock split has been recorded by a
transfer of $23,800 from accumulated deficit to common stock, representing a
$0.01 par value for each additional share issued.
In addition, the number of stock options granted before the stock splits
were increased and the exercise prices of those options were decreased to effect
the 2-for-1 stock split. As such, all stock option disclosures in the
consolidated financial statements have been retroactively restated to reflect
the stock split.
F-21
PRICEINTERACTIVE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
(9) PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31, 1999:
1999
-----------
Furniture and fixtures...................................... $ 296,018
Computer equipment and software............................. 556,526
Interactive voice response system components and software... 2,411,806
Leasehold improvements...................................... 165,433
-----------
3,429,783
Accumulated depreciation and amortization................... (1,074,615)
-----------
$ 2,355,168
===========
Depreciation of property and equipment has been computed using the
straight-line method in 1999. Depreciation of property and equipment in prior
years, beginning in 1997, was computed using the double declining balance
method. The Company believes that the straight-line method of depreciation more
appropriately measures the economic benefits received from these assets and
since the straight-line method is the predominant method used in the industry in
which it operates, this change increases the comparability of the Company's
results with those of its competitors. The new method of depreciation has been
applied retroactively to property and equipment acquisitions of prior years. The
effect of the change in 1999 was to increase income before provision for income
taxes by $37,918. The adjustment of $55,512 (after reduction for income taxes of
$34,024) to apply the new method retroactively to 1998 and 1997 is included in
income for 1999.
(10) MAJOR CUSTOMERS
For the year ended December 31, 1999, 43 percent of the Company's reported
revenue is from two customers.
(11) COMMITMENTS
The Company is obligated under various contracts with major
telecommunications carriers for the use of a minimum amount of service on a
monthly basis over the terms of the underlying contracts which expire at various
dates through 2002. The total commitments due under these contracts are as
follows:
MINIMUM
CONTRACT
YEAR ENDING DECEMBER 31, COMMITMENTS
- ------------------------ -----------
2000........................................................ $1,334,000
2001........................................................ 1,284,000
2002........................................................ 28,000
----------
$2,646,000
The Company has historically processed revenue generating traffic
over its interactive call processing platform sufficient to satisfy its
monthly commitment levels with the telecommunications carriers. The
Company believes that it will be able to continue to generate sufficient
revenue generating call traffic in order to satisfy its monthly
commitments.
F-22
PRICEINTERACTIVE, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
SEPTEMBER 30, 2000
------------------
ASSETS
Current assets:
Cash and cash equivalents................................. $ 3,033,869
Short-term investments, at market......................... 827,906
Accounts receivable, net of allowance for doubtful
accounts of $565,000.................................... 6,026,167
Prepaid expenses and other assets......................... 1,067,283
-----------
Total current assets.................................... 10,955,225
Property and equipment, net of accumulated depreciation and
amortization of $1,995,718................................ 6,700,666
Goodwill, less accumulated amortization of $573,671......... 406,641
Other assets................................................ 80,810
-----------
$18,143,342
===========
LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.......................................... $ 1,581,139
Accrued expenses and other liabilities.................... 798,123
Deferred revenue.......................................... 2,441,090
Deferred tax liability.................................... 61,707
Notes payable, current portion............................ 850,812
-----------
Total current liabilities............................... 5,732,871
Notes payable, net of current portion....................... 1,287,174
-----------
Total liabilities....................................... 7,020,045
-----------
Commitments and contingencies
Redeemable Preferred Stock:
Redeemable Preferred stock, par value $0.01, 1998, 8%
cumulative, redeemable, non-voting preferred stock,
6,500 shares issued and outstanding (entitled first in
liquidation to $7,784,000).............................. 7,531,263
-----------
Total redeemable preferred stock........................ 7,531,263
Stockholders' Equity:
Preferred stock, par value $0.01,
Series A, 8% cumulative, voting, convertible preferred
stock, 2,428,000 shares issued and outstanding (entitled
second in liquidation to $4,191,000).................... 24,280
Common stock, Class B, par value $0.01 30,000,000 shares
authorized, 9,520,000 shares issued and outstanding..... 95,200
Common stock, Class A, par value $0.01 40,000,000 shares
authorized, 1,426,000 shares issued and outstanding..... 14,260
-----------
Additional paid-in capital................................ 4,527,666
Accumulated deficit....................................... (1,069,372)
-----------
Total stockholders' equity.............................. 3,592,034
-----------
$18,143,342
===========
See accompanying notes to unaudited condensed consolidated interim financial
statements.
F-23
PRICEINTERACTIVE, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
SEPTEMBER 30, 2000 SEPTEMBER 30, 1999
------------------ ------------------
(UNAUDITED) (UNAUDITED)
Revenue..................................................... $12,032,858 $ 8,531,431
Cost of revenues............................................ 6,001,473 4,281,982
----------- -----------
Gross profit............................................ 6,031,385 4,249,449
Selling, general and administrative expenses................ 5,458,025 3,814,006
----------- -----------
Income from operations.................................. 573,360 435,443
Other income (expense):
Interest expense.......................................... (100,729) (27,905)
Interest and other income................................. 124,049 71,685
----------- -----------
Income before provision for income taxes................ 596,680 479,223
Provision for income taxes.................................. 245,000 196,481
----------- -----------
Income before cumulative effect of change in accounting
principle............................................. 351,680 282,742
----------- -----------
Cumulative effect of change in accounting principle net of
tax effect of $34,024..................................... -- 55,512
----------- -----------
Net income.............................................. $ 351,680 $ 338,254
=========== ===========
Preferred stock accretion and accrued dividends............. (722,690) (680,150)
----------- -----------
Net loss applicable to common stockholders.............. $ (371,010) $ (341,896)
=========== ===========
See accompanying notes to unaudited condensed consolidated interim financial
statements.
F-24
PRICEINTERACTIVE, INCORPORATED AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SEPTEMBER 30, 2000 SEPTEMBER 30, 1999
------------------ ------------------
(UNAUDITED) (UNAUDITED)
Cash flows from operating activities:
Net income................................................ $ 351,680 $ 338,254
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization........................... 1,120,088 651,026
Cumulative effect of change in accounting principle..... -- (89,536)
Non-cash compensation expense related to stock options
issued to consultants................................. 14,135 --
Provision (benefit) for deferred taxes................ (41,594) 197,730
Change in operating assets and liabilities, net of
effect of business combinations:
Increase in accounts receivable....................... (3,348,293) (400,384)
Increase in prepaid expenses and other assets......... (963,578) (27,354)
Increase in accounts payable, accrued expenses,
deferred revenue and other liabilities.............. 2,744,996 57,358
----------- ----------
Net cash (used in) provided by operating
activities........................................ (122,566) 727,094
----------- ----------
Cash flows from investing activities:
Purchase of available-for-sale securities................. (1,320,380) (1,355,710)
Sale of available-for-sale securities..................... 1,265,120 955,060
Purchase of property and equipment........................ (5,241,603) (1,056,423)
Cash paid in connection with business combination......... (100,000) --
----------- ----------
Net cash used in investing activities............... (5,396,863) (1,457,073)
----------- ----------
Cash flows from financing activities:
Proceeds from note payable................................ 955,693 390,020
Principal repayments of notes payable..................... -- (129,555)
Proceeds from issuance of common stock, net of issuance
costs................................................... 5,015,220 --
----------- ----------
Net cash provided by financing activities........... 5,970,913 260,465
----------- ----------
Net increase (decrease) in cash and cash
equivalents....................................... 451,484 (469,514)
Cash and cash equivalents, beginning of period.............. 2,582,385 1,948,724
----------- ----------
Cash and cash equivalents, end of period.................... $ 3,033,869 $1,479,210
=========== ==========
See accompanying notes to unaudited condensed consolidated interim financial
statements.
F-25
PRICEINTERACTIVE, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(1) GENERAL
The interim condensed consolidated financial statements presented herein
have been prepared by PriceInteractive, Inc. ("PriceInteractive" or the
"Company") without audit and, in the opinion of management, reflect all
adjustments of a normal recurring nature necessary for a fair presentation.
Interim results are not necessarily indicative of results for a full year.
The unaudited financial statements have been prepared pursuant to the rules
and regulations of the Securities and Exchange Commission. Certain information
and footnote disclosures normally included in the annual financial statements
prepared in accordance with generally accepted accounting principles have been
omitted pursuant to those rules and regulations, but the Company believes that
the disclosures are adequate to make the information presented not misleading.
The condensed consolidated financial statements and notes included herein should
be read in conjunction with the consolidated financial statements and notes for
the year ended December 31, 1999.
(2) LETTER OF INTENT WITH IBASIS
In December 2000, management entered into a letter of intent for the sale of
the Company's common stock to iBasis, Inc., a Massachusetts company. The terms
of the letter of intent include $50 million in cash and 10.1 million shares of
iBasis common stock to be distributed among the selling shareholders of the
Company.
(3) CREDIT FACILITY
In May 2000, the Company entered into an amended credit facility, consisting
of a working capital line of credit and an equipment line of credit. The working
capital line of credit and equipment line of credit permit borrowings of up to
$1.0 million and $2.0 million, respectively. At the end of 6 and 12 months from
the date of closing, advances under the equipment line of credit must be
converted to a 30-month term loan at LIBOR plus 2.5%. The credit facility is
secured by substantially all assets of the Company. The Company had $0 and
$2.1 million outstanding under the working capital and equipment lines of
credit, respectively, as of September 30, 2000.
In October 2000, the terms of the credit facility were revised. The amended
credit facility permits borrowings of up to $1.5 million for the working capital
line of credit and an additional $2.0 million under the equipment line of
credit. Pursuant to the terms of the credit facility, the equipment line of
credit matures on May 1, 2004. However, the unpaid balance on the term loans
shall be due in full on January 21, 2002, January 31, 2002, January 31, 2003 and
January 31, 2004, unless each such payment is waived by the bank.
(4) STOCK OPTIONS
For the nine months ended September 30, 2000, the Company granted 1,166,000
options to employees at an exercise price of $1.25.
In July 2000, the Company also issued 50,000 options to a consultant for
services related to the issuance of Class A Common Stock (Note 5). The options
were measured using the Black-Scholes option pricing model pursuant to SFAS
No. 123. The fair value of these options equals approximately $29,000, which has
treated as issuance costs and netted against the proceeds received from the
third party investor.
F-26
PRICEINTERACTIVE, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(CONTINUED)
SEPTEMBER 30, 2000
In June 2000, the Company issued 25,000 options to two consultants related
to services performed in conjunction with updating the Company's business plan.
The fair value of these options equals $14,135, which has been expensed as
incurred.
As of September 30, 2000, 6,329,500 options were issued and outstanding.
(5) SALE OF COMMON STOCK
In August 2000, the Company sold 1,266,000 shares of Class A Common Stock
for $5 million in cash to a third party investor.
(6) ACQUISITION OF FUSIONTEC
In August 2000, the Company purchased substantially all of the assets of
FusionTec, Inc., a software consulting firm, for $100,000 in cash. As part of
the agreement the Company entered into long term employment agreements with the
two principals of FusionTec.
(7) CAPITALIZED SOFTWARE COSTS
For the 9 months ended September 30, 2000, the Company capitalized costs
related to internally developed software totaling $650,000. These costs are
being amortized on a straight-line basis over a useful life of 3 years.
F-27
APPENDIX A
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
This Agreement and Plan of Merger and Reorganization (this "AGREEMENT"),
dated as of December 12, 2000, is by and among iBasis, Inc., a Delaware
corporation ("BUYER"); Penguin Acquisition Corp. ("MERGER SUB"), a Delaware
corporation that is a wholly owned subsidiary of Buyer; PriceInteractive, Inc.,
a Delaware corporation, (the "COMPANY"); the Stockholders listed on EXHIBIT A-1
attached hereto (the "PRINCIPAL COMPANY STOCKHOLDERS"); and Daniel J. Price and
Summit Ventures IV, L.P. in their capacity as the Stockholder Representatives
(as defined in Section 20.3).
WHEREAS, the parties desire that the Company be merged with and into Merger
Sub, subject to the terms and conditions set forth in this Agreement;
WHEREAS, the Board of Directors and stockholders of the Company have
authorized and approved (i) the execution and delivery of this Agreement by and
on behalf of the Company, and (ii) the transactions contemplated hereby,
including the Merger;
WHEREAS, the Boards of Directors of the Buyer and Merger Sub have authorized
and approved (i) the execution and delivery of this Agreement by and on behalf
of the Buyer and Merger Sub, and (ii) the transactions contemplated hereby,
including the Merger;
WHEREAS, the Company has entered into a Voting Agreement with those
stockholders of the Buyer named therein (the "PRINCIPAL BUYER STOCKHOLDERS"), as
of the date hereof (the "BUYER STOCKHOLDER VOTING AGREEMENT"), pursuant to which
such Principal Buyer Stockholders have agreed to vote in favor of the
transactions contemplated hereby at any stockholder meeting of the Buyer called
to consider such transactions or by written consent;
WHEREAS, Buyer, the Company and the Principal Company Stockholders have
entered into a Registration Rights Agreement, dated as of the date hereof (the
"REGISTRATION RIGHTS AGREEMENT"), pursuant to which Buyer has agreed to register
the shares of the Buyer's Common Stock, $0.001 par value per share ("BUYER
COMMON STOCK"), issuable in the Merger for resale by the Company Stockholders
pursuant to a registration statement on Form S-3 (the "REGISTRATION STATEMENT")
filed under the Securities Act; and
WHEREAS, in connection with the bridge loan contemplated by Section 5 below,
the existing stockholders of the Company and the Buyer have entered into an
amendment to the Amended and Restated Stockholders Agreement, dated as of
August 24, 2000, by and among the Company and the stockholders of the Company
named therein, providing for the Chief Executive Officer of Buyer to be elected
as a director of the Company upon the happening of certain events; and an
amendment to the Amended and Restated Registration Rights Agreement, dated as of
August 24, 2000, by and among the same parties.
NOW, THEREFORE, in consideration of the mutual promises and agreements set
forth in this Agreement, the parties hereto hereby agree as follows:
Certain terms used in this Agreement are defined in Section 19.
1. CLOSING. Subject to the other provisions of this Agreement, a closing
(the "CLOSING") will be held at the offices of Bingham Dana LLP, 150 Federal
Street, Boston, Massachusetts 02110, as soon as is reasonably practicable on or
after January 1, 2001 and following satisfaction or waiver of the conditions set
forth in Sections 12 through 14 (the date on which the Closing actually occurs
shall be referred to as the "CLOSING DATE"). On the Closing Date, Merger Sub and
the Company will execute a Certificate of Merger (the "MERGER CERTIFICATE")
substantially in the form of the attached EXHIBIT 1(A) and file the Merger
Certificate with the Delaware Secretary of State and the Recorder for the County
of New Castle, Delaware, in order to cause the merger of the Company with and
into Merger Sub (the "MERGER") to be effected in accordance with the laws of the
State of Delaware. The Merger will be effective under the Delaware General
Corporation Law ("DGCL") upon the filing of the Merger Certificate with the
Secretary of State of the State of Delaware (or such later time as may be agreed
by
each of the parties hereto, as specified in the Merger Certificate and in
accordance with the provisions of the applicable law of Delaware) (the
"EFFECTIVE TIME"). For all purposes, all of the document deliveries and other
actions to occur at the Closing will be conclusively presumed to have occurred
at the same time, immediately before the Effective Time.
2. EFFECT OF MERGER. At the Effective Time, automatically and without
further action:
2.1. SURVIVING CORPORATION. The Company will be merged with and into
Merger Sub and the separate existence of the Company will cease. Merger Sub
will continue in existence as the surviving corporation in the Merger (the
"SURVIVING CORPORATION"). The Merger shall have further effects as set forth
in the DGCL.
2.2. CERTIFICATE OF INCORPORATION. At the Effective Time, the
Certificate of Incorporation of the Merger Sub shall be the Certificate of
Incorporation of the Surviving Corporation.
2.3. BY-LAWS. At the Effective Time, the by-laws of the Merger Sub
shall be the by-laws of the Surviving Corporation.
2.4. DIRECTORS AND OFFICERS. From and after the Effective Time, the
respective officers and members of the Board of Directors of the Surviving
Corporation will consist of the respective officers and members of the Board
of Directors of Merger Sub as of immediately prior to the Merger, each such
person to hold office, subject to the applicable provisions of the
Certificate of Incorporation and the by-laws of the Surviving Corporation,
until the next annual meeting of directors or stockholders, as the case may
be, of the Surviving Corporation and until his or her successor will be duly
elected or appointed and will duly qualify.
2.5. CONVERSION OF COMPANY COMMON STOCK AND PREFERRED STOCK.
(a) REDEEMABLE PREFERRED STOCK. Each share of the Company's 1998
Redeemable Preferred Stock, $0.01 par value per share (the "COMPANY
REDEEMABLE PREFERRED STOCK"), issued and outstanding immediately prior to
the Effective Time (other than any Dissenting Shares (as defined in
Section 2.7), and other than any shares of Company Redeemable Preferred
Stock held directly or indirectly by Buyer or the Company or any of their
respective Subsidiaries), will be converted at the Effective Time into the
right to receive (i) an amount in cash equal to the RPS Cash Amount Per
Share (as defined in Section 19.1) and (ii) such number of shares of Buyer
Common Stock or portion thereof equal to one (1) multiplied by the
Redeemable Preferred Exchange Ratio (as defined in Section 19.1).
(b) COMPANY COMMON STOCK. Each share of the Company's Class A Common
Stock and Class B Common Stock, par value $0.01 per share (collectively, the
"COMPANY COMMON STOCK"), issued and outstanding immediately before the
Effective Time (other than any Dissenting Shares, any Company Restricted
Shares (as defined in Section 10.4(b)), and other than any shares held
directly or indirectly by Buyer or the Company or any of their respective
Subsidiaries), will be converted at the Effective Time into the right to
receive:
(i) such number of shares of Buyer Common Stock or portion thereof as is
equal to one (1) multiplied by the Common Stock Exchange Ratio (as defined
in Section 19.1);
(ii) cash in an amount equal to the Cash Payment Per Share (as defined
in Section 19.1); and
(iii) the payment of cash adjustments in lieu of the issuance of
fractional shares as provided in Section 3.6.
(c) COMPANY RESTRICTED SHARES. Each of the Company Restricted Shares
issued and outstanding immediately prior to the Effective Time (other than
any Dissenting Shares) will be converted at the Effective Time into a number
of shares of Buyer Common Stock or portion thereof equal to one
(1) multiplied by the Common Stock Exchange Ratio, and shall continue to
A-2
be subject to the same restrictions, terms and conditions of the Restricted
Stock Award Agreement applicable to such Company Restricted Share.
(d) CONVERTIBLE PREFERRED STOCK.
(i) Each share of the Company's Series A Convertible Preferred Stock,
$0.01 par value per share (the "COMPANY CONVERTIBLE PREFERRED STOCK"),
issued and outstanding immediately prior to the Effective Time (other than
any Dissenting Shares, and other than any shares of Company Convertible
Preferred Stock held directly by Buyer or the Company or any of their
respective Subsidiaries), will be converted at the Effective Time into such
number of shares of Buyer Common Stock or portion thereof and such amount of
cash as would have been issued pursuant to paragraph (b) above if such share
of Company Convertible Preferred Stock had been converted into Company
Common Stock immediately prior to the Effective Time.
(ii) In addition to the number of shares of Buyer Common Stock and
amount of cash issuable in respect of the Merger with respect to each share
of Company Convertible Preferred Stock as set forth in paragraph (d)(i)
above, the right to accrued dividends provided by the Company's Certificate
of Incorporation with respect to each share of the Company Convertible
Preferred Stock issued and outstanding immediately prior to the Effective
Time will be converted at the Effective Time into the right to receive such
number of shares of Buyer Common Stock having a value (based on the Closing
Date Price Per Share) equal to such accrued dividend right. The aggregate
number of such shares of Buyer Common Stock issued with respect to such
accrued dividend rights shall be referred to herein as the "CPS DIVIDEND
EQUIVALENT SHARE NUMBER".
2.6. CANCELLATION OF TREASURY STOCK, ETC. At the Effective Time, each
share of Company Common Stock held directly or indirectly by Buyer or the
Company or any of their respective Subsidiaries will be canceled and will
cease to exist, and no payment will be made with respect thereto.
2.7. DISSENTING SHARES. Each share of Company Common Stock, Company
Redeemable Preferred Stock or Company Convertible Preferred Stock that,
immediately before the Effective Time, was held by any person who has duly
exercised the appraisal rights afforded to dissenting stockholders pursuant
to DGCL (such shares, collectively, "DISSENTING SHARES") will be converted
into the right to receive the fair value of such shares as determined in
accordance with the provisions of the DGCL and shall not be converted into
the right to receive shares of Buyer Common Stock and cash in accordance
with Section 2.5.
2.8. OPTIONAL INCREASE IN CONSIDERATION. Notwithstanding anything to
the contrary in this Agreement, the Buyer shall be entitled, in the exercise
of its sole discretion, by notice delivered to the Stockholder
Representatives and the Company on or prior to the Effective Time, to
increase (but not decrease) the Closing Buyer Common Stock Consideration
Number above the number determined by the calculation included in the
definition of such amount set forth in Section 19.1. Subject to Buyer's
obligations under Section 16, in no event shall the Buyer be required to
increase the Closing Buyer Common Stock Consideration Number above the
number determined immediately prior to the Effective Time pursuant to the
definition thereof whether on account of the amount of the Closing Date
Price Per Share pursuant to this Section 2.8 or for any other reason. Any
increase in the Closing Buyer Common Stock Consideration Number pursuant to
this Section 2.8 will increase (and not decrease) the consideration payable
to the shareholders of the Company in the Merger in accordance with the
terms hereof.
3. PROCEDURES; ESCROWED MERGER CONSIDERATION.
3.1. CERTIFICATES. Immediately after the Effective Time, stock
certificates (each, a "CERTIFICATE," and collectively, the "CERTIFICATES")
representing shares of Company Common Stock, Company Convertible Preferred
Stock or Company Redeemable Preferred Stock that have been
A-3
converted into the right to receive shares of Buyer Common Stock in the
Merger will be conclusively deemed to represent such shares of Buyer Common
Stock until validly exchanged pursuant to Section 3.2.
3.2. EXCHANGE OF CERTIFICATES. As promptly as practicable after the
Effective Time, Buyer or its transfer agent for the Buyer Common Stock will
send to each Company Stockholder transmittal materials for use in exchanging
its Certificates for certificates for the shares of Buyer Common Stock and
Cash Payment Per Share into which such shares of Company Common Stock have
been converted. Upon surrender of a Certificate to Buyer or its transfer
agent, as the case may be, together with a duly executed letter of
transmittal and any other documents reasonably required by the Buyer, the
holder of such Certificate will be entitled to receive, in exchange
therefor, a certificate for the number of shares of Buyer Common Stock to
which such holder is entitled (subject to the escrow arrangements referred
to in Section 3.3), and an amount of cash equal to the aggregate Cash
Payment Per Share for the shares represented by such Certificate, together
with any cash payments required under Section 3.6, and such Certificate will
be canceled.
3.3. ESCROWED MERGER CONSIDERATION. (a) Notwithstanding any other
provision of this Agreement, at the Closing, Buyer, the Principal Company
Stockholders named therein, the Stockholders' Representatives, the Escrow
Agent named therein (the "ESCROW AGENT"), and the holders of Company Options
or Company Restricted Shares named therein (the "ADDITIONAL ESCROW PARTIES")
will execute and deliver an Escrow Agreement in the form of the attached
EXHIBIT 3.3 (the "ESCROW AGREEMENT") (with such additional revisions, prior
to the Closing, as Buyer, the Company and the Stockholder Representatives
may mutually agree after consultation with the Escrow Agent). A number of
the shares of Buyer Common Stock that would otherwise be issuable in the
Merger at the Effective Time to the Principal Company Stockholders and the
Additional Escrow Parties equal to the Indemnification Stock Number shall
not be distributable to the Principal Company Stockholders or the Additional
Escrow Parties but shall instead be deposited with the Escrow Agent in
accordance with the terms of the Escrow Agreement. The Shares of Buyer
Common Stock issued into escrow pursuant to this Section 3.3(a), shall be
referred to herein as the "ESCROWED MERGER CONSIDERATION." Twenty percent
(20%) of the Escrowed Merger Consideration (the "SCHEDULE 16.2 ESCROWED
SHARES") shall be used solely in respect of Schedule 16.2 Costs (as
hereinafter defined). The remaining portion of the Escrowed Merger
Consideration which is not Schedule 16.2 Escrowed Shares shall hereinafter
be referred to as the "OTHER ESCROWED MERGER CONSIDERATION". The Escrowed
Merger Consideration shall be subtracted from the shares of Buyer Common
Stock otherwise issuable to the Principal Company Stockholders and the
Additional Escrow Parties pursuant to the terms of this Agreement in
accordance with the respective amounts of merger consideration (without
regard to that received by the Summit Parties in respect of Company
Redeemable Preferred Stock or pursuant to Section 2.5(d)(ii)) received at
the Closing, measured by value with any shares of Buyer Common Stock being
valued at the Closing Date Price Per Share. Attached as SCHEDULE 3.3 hereto,
for illustrative purposes only, is a model calculation of the allocation of
the Escrowed Merger Consideration among the Principal Company Stockholders
and Additional Escrow Parties, which model is based on the assumptions set
forth therein. The Other Escrowed Merger Consideration and Third Party
License Escrowed Shares shall be held by the Escrow Agent pursuant to the
Escrow Agreement and distributed in accordance therewith.
(b) Notwithstanding the terms of paragraph (a) of this Section 3.3, the
Buyer shall be entitled, in the exercise of its sole discretion, by notice
delivered to the Stockholder Representatives, the Company and the Escrow
Agent on or prior to the Effective Time, to decrease (but not increase) the
number of shares of Buyer Common Stock included in the Escrowed Merger
Consideration from that determined pursuant to such paragraph (a). Such
decrease shall be applied first to the Other Escrowed Merger Consideration.
In no event shall the
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Buyer be required to decrease pursuant to this paragraph (b) the number of
shares of Buyer Common Stock included in the Escrowed Merger Consideration
below the amount determined pursuant to such paragraph (a), regardless of
the amount of the Closing Date Price Per Share.
3.4. DISTRIBUTIONS. No dividend or other distribution payable after
the Effective Time with respect to Buyer Common Stock will be paid to the
holder of any unsurrendered Certificate until the holder thereof surrenders
such Certificate, at which time such holder will receive all dividends and
distributions, without interest thereon, previously payable but withheld
from such holder pursuant hereto.
3.5. NO TRANSFERS. Immediately after the Effective Time, no transfers
of shares of Company Common Stock, Company Convertible Preferred Stock or
Company Redeemable Preferred Stock will be made in the stock transfer books
of the Company. If, after the Effective Time, Certificates are presented
(for transfer or otherwise) to the Surviving Corporation or its transfer
agent for Company Common Stock, Company Convertible Preferred Stock or
Company Redeemable Preferred Stock, they will be canceled and exchanged for
the shares of Buyer Common Stock and cash consideration deliverable in
respect thereof as determined in accordance with this Agreement (or returned
to the presenting person, if such Certificate represents Dissenting Shares).
3.6. NO FRACTIONAL SHARES. In lieu of the issuance of fractional
shares of Buyer Common Stock, cash adjustments will be paid (without
interest) to the Company Stockholders in respect of any fractional share of
Buyer Common Stock that would otherwise be issuable to them and the amount
of such cash adjustments will be determined by multiplying each relevant
holder's fractional interest by the Closing Date Price Per Share. For
purposes of determining whether, and in what amounts, a particular Company
Stockholder would be entitled to receive cash adjustments under this
section, all of the shares of record held by such holder will be aggregated.
3.7. TERMINATION OF RIGHTS. After the Effective Time, holders of
Company Common Stock, Company Convertible Preferred Stock and Company
Redeemable Preferred Stock will cease to be, and will have no rights as,
stockholders of the Company or the Surviving Corporation, other than (i) in
the case of shares of Company Common Stock and Company Convertible Preferred
Stock, other than Dissenting Shares, the rights to receive shares of Buyer
Common Stock into which such shares have been converted and/or payments in
lieu of fractional shares, as provided in this Agreement, and, except in the
case of any Company Restricted Shares, the right to receive the Cash Payment
Per Share attributable to such shares; (ii) in the case of Dissenting
Shares, the rights afforded to the holders thereof under Section 262 of the
DGCL; (iii) in the case of shares of the Company Redeemable Preferred Stock,
the right to receive the cash and stock referred to in Section 2.5(a); and
(iv) rights under this Agreement and the Escrow Agreement.
3.8. ABANDONED PROPERTY. Neither Buyer nor the Company nor any other
person will be liable to any holder or former holder of shares of Company
Common Stock, Company Convertible Preferred Stock or Company Redeemable
Preferred Stock for any shares, or any dividends or other distributions with
respect thereto, properly delivered to a public official pursuant to
applicable abandoned property, escheat, or similar laws.
3.9. LOST CERTIFICATES, ETC. In the event that any Certificate has
been lost, stolen, or destroyed, then upon receipt of appropriate evidence
as to such loss, theft, or destruction, and to the ownership of such
Certificate by the person claiming such Certificate to be lost, stolen, or
destroyed, and the receipt by Buyer or its transfer agent for Buyer Common
Stock of an appropriate and customary affidavit of loss or personal
indemnification undertaking documentation, Buyer or such transfer agent will
issue in exchange for such lost, stolen, or destroyed Certificate the shares
of Buyer Common Stock, the Cash Payment Per Share or other cash payment and
the fractional share payment, if any, deliverable in respect thereof as
determined in accordance with this Agreement.
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3.10. EXAMPLE CALCULATION OF MERGER CONSIDERATION AND ESCROWED MERGER
CONSIDERATION. Set forth on SCHEDULE 3.10 hereto, for illustrative purposes
only, is a model calculation of (a) the number of shares of Buyer Common
Stock and amount of cash issuable in the Merger with respect to the Company
Redeemable Preferred Stock, Company Common Stock, Company Restricted Shares
and Company Convertible Preferred Stock, as the case may be and (b) the
amount of Escrowed Merger Consideration, which model is based on the
assumptions included therein.
4. COMPANY COMMON STOCK OPTIONS. (a) Immediately after the Effective Time,
the Company's Stock Incentive Plan (the "COMPANY OPTION PLAN") and the Company
Restricted Stock Plan (as defined in Section 10.20 hereof) shall be assumed by
the Buyer. Each option to purchase shares of Company Common Stock granted under
the Company Option Plan (a "COMPANY OPTION") and outstanding at the Effective
Time shall be assumed by Buyer and be converted into (x) an option (each, a
"REPLACEMENT OPTION") to receive, on the terms set forth below, a number of
shares of Buyer Common Stock equal to the number of shares of Company Common
Stock that such option holder had a right to receive pursuant to such Company
Option ("FORMER SHARES"), multiplied by the Common Stock Exchange Ratio; and
(y) a right to receive, upon exercise of the Replacement Option, cash on the
terms set forth below (each, a "REPLACEMENT CASH RIGHT"). Each Replacement Cash
Right shall be a right to receive the excess of (a) the product of the
(i) number of Former Shares and (ii) the Cash Payment Per Share over (b) the
product of (i) the aggregate exercise price with respect to the correlative
Company Option and (ii) the Cash Ratio (as defined herein), subject to the same
vesting, expiration and other terms as such Company Option, all in accordance
with the terms of the applicable Company Option Plan and stock option agreement
governing such Company Option. The Cash Ratio shall be the ratio of (i) the Cash
Payment Per Share to (ii) the sum of (x) the Cash Payment Per Share and (y) the
product of (a) Closing Date Price Per Share and (b) the Common Stock Exchange
Ratio. For purposes of this Section 4, the "STOCK RATIO" shall be the difference
between one (1) and the Cash Ratio. Each Replacement Option and the related
Replacement Cash Right must be exercised together and may not be exercised
separately, PROVIDED that any Replacement Option may be exercised in part and
not in whole to the extent that the terms of the option grant and the Company
Option Plan so permit. Each such Replacement Option shall (i) have an exercise
price per share of Buyer Common Stock (a "REPLACEMENT EXERCISE PRICE PER SHARE")
equal to the quotient obtained by dividing (1) the product of the Stock Ratio
and the exercise price per share of Company Common Stock in effect at the
Effective Time of the Company Option of which such Replacement Option is a
replacement, by (2) the Common Stock Exchange Ratio (and rounding the result up
to the nearest whole cent), and (ii) have the same vesting, expiration and other
terms as such Company Option, all in accordance with the terms of the applicable
Company Option Plan and stock option agreement governing such Company Option,
PROVIDED, that in the event that clause (a) minus clause (b) in the calculation
of the Replacement Cash Right associated with a Replacement Option would yield a
negative amount upon exercise, the Replacement Exercise Price Per Share for the
Replacement Option associated with such Replacement Cash Right shall be
increased by an amount equal to (x) the amount (expressed as a positive number)
by which such negative amount is less than zero DIVIDED BY (y) the number of
shares of Buyer Common Stock that the holder has the right to receive pursuant
to the Replacement Option. In the event that a holder holds more than one
Company Option, each such Company Option shall be converted into a Replacement
Cash Right and a Replacement Option for purposes of implementing the assumption
and conversion provisions of this Section 4. Set forth on SCHEDULE 4(A) hereto,
for illustrative purposes only, is a model calculation of a Replacement Option
and Replacement Cash Right, and the related Stock Ratio and Replacement Exercise
Price Per Share, which is based on the assumptions included therein.
(b) Immediately after the Effective Time, the Compensation Committee of
the Board of Directors of Buyer shall take such actions as may be reasonably
required to provide that (i) the holders of Replacement Options shall be
permitted to exercise such Replacement Options and the related Replacement
Cash Rights on a "net" basis, whereby the holder of each Replacement Option
and the related Replacement Cash Right shall be entitled to reduce the cash
amount of
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the exercise price of such Replacement Option by the amount of any cash
issuable upon exercise of such Replacement Cash Right in lieu of receiving
such cash consideration; and (ii) the holders of Replacement Options shall
be permitted to exercise such Replacement Options on a "cash-less" basis
whereby the holder of a Replacement Option shall be entitled to surrender
the Replacement Option to a securities broker selected by the Buyer who
shall sell on a "same-day" basis some or all of the shares of Buyer Common
Stock issuable upon exercise of the Replacement Option and use the proceeds
therefrom to satisfy some or all of the exercise price of such Replacement
Option, PROVIDED, that the Buyer shall not be required to take any such
action with respect to a particular Replacement Option to the extent that it
could adversely affect the characterization of such option as an "Incentive
Stock Option" for purposes of Code Section 422, if applicable.
(c) The Buyer agrees to use its reasonable best efforts to file with the
SEC, no later than the Closing Date, a registration statement on Form S-8 or
other appropriate form under the Securities Act to register the maximum
number of shares of Buyer Common Stock issuable upon exercise of the
Replacement Options and to use its reasonable best efforts to cause such
registration statement to remain effective until the exercise or expiration
of such Replacement Options.
(d) Prior to the Effective Time, the Board of Directors of Buyer and the
Company, or an appropriate committee of non-employee directors thereof,
shall adopt a resolution providing that the acquisition of Replacement
Options and Buyer Common Stock pursuant to this Agreement shall be an exempt
transaction for purposes of Section 16 of the Exchange Act by any officer or
director of the Company who may become a covered person of Buyer for
purposes of such Section 16.
5. BRIDGE FINANCING.
5.1. INITIAL BRIDGE LOAN. Immediately after the execution of this
Agreement, the Buyer shall make a loan of $10,000,000 in cash (the "INITIAL
BRIDGE LOAN") to the Company. The Initial Bridge Loan (and any Second Bridge
Loan, each as defined below) shall be represented by a Non-Negotiable
Subordinated Convertible Promissory Note in the form of EXHIBIT 5.1 hereto
(the "BRIDGE NOTE"). In accordance with the terms of the Bridge Note, the
Company shall, until such time as the Bridge Note may mature or be converted
into shares of Company Common Stock, in accordance with the terms thereof,
use the proceeds of the Initial Bridge Loan only for the purposes set forth
on SCHEDULE 5.1 hereto, which SCHEDULE 5.1 contains the Company's cost
projections through March 31, 2001 (the "PERMITTED USES"). The Bridge Note
shall mature or convert into shares of Company Common Stock in accordance
with the terms thereof.
5.2. SECOND BRIDGE LOAN. (a) In the event that (i) the Effective Time
has not occurred prior to February 28, 2001 (the "SECOND LOAN DATE"),
(ii) the Termination Date (as defined in Section 18(b) hereof) has been
extended by the Buyer to a date beyond the Second Loan Date, and (iii) this
Agreement has not been terminated pursuant to Section 18, the Buyer shall,
at the request of the Company, make an additional loan of $5,000,000 in cash
(the "SECOND BRIDGE LOAN" and, collectively with the Initial Bridge Loan,
the "BRIDGE LOANS") to the Company on the Second Loan Date. The Second
Bridge Loan shall be represented by the Bridge Note. In accordance with the
terms of the Bridge Note, the Company shall, until such time as the Bridge
Note may mature or be converted into shares of Company Common Stock, use the
proceeds of the Second Bridge Loan only for the Permitted Uses.
(b) Notwithstanding anything to the contrary in paragraph 5.2(a) above,
in no event shall the Buyer be required to make the Second Bridge Loan
unless, at the time the Second Bridge Loan is to be made:
(i) The Company is not in material default or material breach of the
Bridge Note, this Agreement or the Escrow Agreement, which default or
breach, if not a payment default or breach, has not been cured within ten
days after notice thereof to the Company;
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(ii) The Company has applied the proceeds of the Initial Bridge Loan
only to the Permitted Uses; and
(iii) The Company shall not have (A) made an assignment for the
benefit of creditors, (B) been adjudicated bankrupt or insolvent,
(C) sought the appointment of, or be the subject of an order appointing,
a trustee, liquidator or receiver as to all or part of its assets,
(D) commenced, approved or consented to, any case or proceeding under any
bankruptcy, reorganization or similar law and, in the case of an
involuntary case or proceeding, such case or proceeding has not been
dismissed within forty-five (45) days following the commencement thereof,
(E) been the subject of an order for relief in an involuntary case under
federal bankruptcy law; (F) become unable to pay its debts as they
mature; or (G) have permitted to remain undischarged for more than thirty
(30) days any final judgment or execution action against the Company
that, together with other outstanding claims and execution actions
against the Company exceeds $500,000 in the aggregate.
6. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
Each of the Principal Company Stockholders and the Company hereby represents
and warrants, severally but not jointly, to Buyer and Merger Sub as follows,
subject in each case to such exceptions as are specifically contemplated by this
Agreement or as are set forth in the attached Disclosure Schedule of the Company
(the "COMPANY DISCLOSURE SCHEDULE"). Notwithstanding any other provision of this
Agreement or the Company Disclosure Schedule, each exception set forth in the
Company Disclosure Schedule will be deemed to qualify each representation and
warranty set forth in this Agreement (i) that is specifically identified (by
cross-reference or otherwise) in the Company Disclosure Schedule as being
qualified by such exception, or (ii) with respect to which the relevance of such
exception is reasonably apparent on the face of the disclosure of such exception
set forth in the Company Disclosure Schedule, PROVIDED, in either case, that the
relevant facts are set forth in reasonable detail in the Company Disclosure
Schedule.
6.1. INCORPORATION; AUTHORITY. The Company is a corporation duly
organized, validly existing, and in good standing under the laws of the
State of Delaware and has all requisite corporate power and authority to own
or lease and operate its properties and to carry on its business as now
conducted. The Company has delivered to Buyer complete and correct copies of
its Amended Certificate of Incorporation and by-laws, in each case with all
amendments thereto.
6.2. AUTHORIZATION AND ENFORCEABILITY. (a) The Company has all
requisite power and full legal right and authority (including due approval
of its Board of Directors and its stockholders, respectively) to enter into
this Agreement, to perform all of its agreements and obligations hereunder,
and to consummate the Merger and the other transactions contemplated hereby.
This Agreement has been duly executed and delivered by the Company and
constitutes a legal, valid, and binding obligation of the Company,
enforceable against the Company in accordance with its terms, except as such
enforceability may be limited by equitable principles and by applicable
bankruptcy, insolvency, reorganization, arrangement, moratorium or similar
laws relating to or affecting the rights of creditors generally.
(b) On or prior to the date of this Agreement, the Board of Directors of
the Company, by resolutions duly adopted by vote of those voting at a
meeting duly called and held and not subsequently rescinded or modified in
any way, has duly (i) determined that this Agreement and the Merger are fair
to and in the best interests of the Company and the Company Stockholders and
(ii) approved this Agreement and the Merger, and determined that the
execution, delivery and performance of this Agreement is advisable.
(c) On or prior to the date of this Agreement, the Company Stockholders
of the Company, by resolutions duly adopted by vote of those voting at a
meeting duly called and held, or by
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written consent, and not subsequently rescinded or modified in any way, has
duly approved this Agreement and the Merger.
6.3. GOVERNMENTAL AND OTHER THIRD-PARTY CONSENTS, NON-CONTRAVENTION,
ETC. No consent, approval, or authorization of or registration,
designation, declaration, or filing with any governmental authority, federal
or other, or any other person, is required on the part of the Company in
connection with the execution, delivery, and performance of this Agreement
or the consummation of the Merger and the other transactions contemplated
hereby, except (i) for applicable requirements, if any, of the Exchange Act,
the Securities Act, state securities or "blue sky" laws and state takeover
laws, the HSR Act (each as defined in Section 19.1), and filing and
recordation of appropriate merger documents as required by the DGCL,
(ii) as specified in Section 6.3 or Section 6.20 of the Company Disclosure
Schedule and (iii) such consents, approvals, authorizations, registrations,
designations, declarations, and filings) the failure of which to obtain or
make would not, individually or in the aggregate, result in a Material
Adverse Effect on the Company or the Surviving Corporation. Except as set
forth in Section 6.3 of the Company Disclosure Schedule, the execution,
delivery, and performance of this Agreement and the consummation of such
transactions will not violate (a) any provision of the Company's Amended
Certificate of Incorporation or by-laws, (b) any judgment, decree, order,
statute, rule or regulation to which the Company is a party or by or to
which it or any of its assets is bound, subject to or applicable, or
(c) any agreement, instrument or other obligation to which the Company is a
party or by or to which it or any of its assets is bound or subject, except
in the case of clause (c), where such violation would not cause a Material
Adverse Effect on the Company or the Surviving Corporation.
6.4. CAPITALIZATION. The authorized and outstanding capital stock and
other securities of the Company are as set forth in Section 6.4 of the
Company Disclosure Schedule. All of such outstanding shares of capital stock
of the Company are duly authorized, validly issued, fully paid, and
non-assessable, and all of such outstanding shares and other securities are
owned of record as set forth in Section 6.4 of the Company Disclosure
Schedule, and were issued in compliance with all applicable laws, including
securities laws, and all applicable preemptive or similar rights of any
person. No person has any valid right to rescind any purchase of any shares
of the Company's capital stock or other securities.
There are no agreements or other obligations on the part of the Company
to purchase or sell, and other than as set forth in Section 6.4 of the
Company Disclosure Schedule, there are no convertible or exchangeable
securities, options, warrants, or other rights to acquire from the Company
any shares of its capital stock or other securities. Section 6.4 of the
Company Disclosure Schedule sets forth the name of each person who holds any
option, warrant or other right to acquire shares of the Company's capital
stock, the number and type of shares subject to such option, warrant or
right, the per-share exercise price payable therefor, how many of the shares
subject to such option, warrant or other right were "vested"
(i.e., exercisable) as of the date of this Agreement, how many will vest or
become exercisable upon a "change of control" and whether the holder of such
option, warrant or other right is an employee of the Company.
6.5. QUALIFICATION. The Company is duly qualified and in good standing
as a foreign corporation in all jurisdictions in which the character of its
owned or leased properties or the nature of its activities makes such
qualification necessary, except where the failure to so qualify would not,
individually or in the aggregate, have a Material Adverse Effect on the
Company.
6.6. SUBSIDIARIES. Except as set forth in Section 6.6 of the Company
Disclosure Schedule, the Company does not have any Subsidiaries (as defined
in Section 19.1) or own any legal and/or beneficial interests in any person.
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6.7. FINANCIAL STATEMENTS. Included in Section 6.7 of the Company
Disclosure Schedule are copies of (i) the audited balance sheets of the
Company as of December 31, 1997 and 1998, and the related audited statements
of operations, shareholders' equity and cash flows of the Company, for the
fiscal years ended on such dates, accompanied by an audit report of
KPMG LLP, (ii) the audited balance sheet of the Company as of December 31,
1999 (the "MOST RECENT AUDITED BALANCE SHEET"), and the related audited
statements of operations, shareholders' equity and cash flows of the
Company, for the fiscal year ended on such date, accompanied by an audit
report of KPMG LLP, and (iii) the unaudited balance sheet of the Company as
of October 31, 2000 (the "MOST RECENT UNAUDITED BALANCE SHEET"), and the
related unaudited statements of operations and cash flows, respectively, of
the Company, for the ten-month period ended on such date. Except as set
forth in Section 6.7 of the Company Disclosure Schedule, each of such
financial statements has been prepared in accordance with GAAP applied on a
basis consistent with prior periods; each of such balance sheets fairly
presents in all material respects the financial condition of the Company as
of its respective date; and each of such statements of operations,
shareholders' equity and cash flows, respectively, fairly presents in all
material respects the results of operations and Shareholders' equity, or
cash flows, as the case may be, of the Company for the period covered
thereby; in each case, subject, with respect to the unaudited financial
statements referred to in clause (iii) of this section, to the absence of
footnote disclosure and to normal, recurring end-of-period adjustments which
shall, in the aggregate, not be material.
6.8. ABSENCE OF CERTAIN CHANGES. Except as set forth in Section 6.8 of
the Company Disclosure Schedule, since the Most Recent Audited Balance Sheet
Date, there has not been: (i) any change in the assets, liabilities, sales,
income, or business of the Company or in its relationships with suppliers,
customers, or lessors, other than changes that were both in the ordinary
course of business or have not had or could not reasonably be expected to
have, either in any case or in the aggregate, a Material Adverse Effect on
the Company; (ii) any acquisition or disposition by the Company of any
material asset or property other than in the ordinary course of business;
(iii) any damage, destruction or loss, whether or not covered by insurance,
materially and adversely affecting, either in any case or in the aggregate,
the property or business of the Company; (iv) any declaration, setting aside
or payment of any dividend or any other distributions in respect of any
shares of capital stock of the Company; (v) any direct or indirect
redemption, purchase, or other acquisition by the Company of any such
capital stock or rights to acquire capital stock; (vi) any increase in the
compensation, pension, or other benefits payable or to become payable by the
Company to any of its officers or key employees or consultants, or any bonus
or incentive compensation payments or arrangements made to or with any of
them; (vii) any forgiveness or cancellation of any debt or claim by the
Company or any waiver of any right of material value, other than compromises
of accounts receivable in the ordinary course of business; (viii) any entry
by the Company into any transaction with any of its Affiliates (as defined
in Section 19.1); (ix) any incurrence or imposition of any Lien other than
any Permitted Lien (each as defined in Section 19.1) on any of the material
assets, tangible or intangible, of the Company; or (x) any discharge or
satisfaction by the Company of any Lien or payment by the Company of any
obligation or liability (fixed or contingent) other than (A) current
liabilities included in the Most Recent Audited Balance Sheet, (B) current
liabilities to persons other than Affiliates of the Company incurred since
the date of the Most Recent Audited Balance Sheet in the ordinary course of
business, and (C) current liabilities incurred in connection with the
transactions contemplated hereby and disclosed in Section 6.8 of the Company
Disclosure Schedule.
6.9. PROPERTIES AND ASSETS. (a) The assets and properties of the
Company are, and as of the Closing Date will be, adequate and sufficient to
conduct the business of the Company as currently conducted. The Company has
good title to all of its assets and properties, including without limitation
all those reflected in the Most Recent Unaudited Balance Sheet (except for
properties or assets sold, consumed, or otherwise disposed of in the
ordinary course of business since the date of the Most Recent Unaudited
Balance Sheet), all free and clear of Liens other than Permitted
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Liens. All such properties and assets, in the aggregate, are in normal
condition and repair, reasonable wear-and-tear and normal maintenance
excepted, and, subject to the Company's need to continue to make capital
expenditures consistent with those reflected in SECTION 5.1 of the Company
Disclosure Schedule, are adequate and sufficient to carry on the business of
the Company as presently conducted. Section 6.9(a) of the Company Disclosure
Schedule sets forth a complete and correct list of all capital assets of the
Company having a net book value in excess of $10,000. To the Company's
knowledge (as defined in Section 19.1), there are no material defects, other
than Permitted Liens, in any such capital assets as to title or condition.
The Company owns all licenses required by law to use all software used by
the Company and its employees in the operation of the business of the
Company.
(b) The Company does not own, and has never owned, any real property.
The Company has not received any notice that either the whole or any portion
of any real property leased by it is to be condemned, requisitioned, or
otherwise taken by any public authority or is to be the subject of any
public improvements that may result in special assessments against or
otherwise affect such real property. Section 6.9(b) of the Company
Disclosure Schedule sets forth a complete and correct description of all
leases of real property to which the Company is a party. Complete and
correct copies of all such leases have been delivered to Buyer. Each such
lease is valid and subsisting and no event or condition exists that
constitutes, or after notice or lapse of time or both could constitute, a
default thereunder that would permit the landlord to exercise any remedies.
The leasehold interests of the Company are subject to no Lien, except for
Permitted Liens, and the Company is in quiet possession of the properties
covered by such leases.
6.10. INTELLECTUAL PROPERTIES.
(a) As used herein: "INTELLECTUAL PROPERTIES" means intellectual
property or proprietary rights of any description including without
limitation (i) rights in any patent, patent application, copyright,
industrial design, URL, domain name, trademark, service mark, logo, trade
dress or trade name, (ii) related registrations and applications for
registration, (iii) trade secrets, moral rights or publicity rights, (iv)
inventions, discoveries, or improvements, modification, know-how, technique,
methodology, writing, work of authorship, design or data that are necessary
or useful to operate the business of the Company as currently conducted and
proposed by the Company to be conducted or to market, sell, design, make,
have made, service, maintain, install, operate, use or test the Product(s)
and develop enhanced or new products, whether or not patented, patentable,
copyrightable or reduced to practice, including but not limited to any
inventions, discoveries, improvements, modification, know-how, technique,
methodology, writing, work of authorship, design or data embodied or
disclosed in any: (1) computer source codes (human readable format) and
object codes (machine readable format); (2) specifications; (3)
manufacturing, assembly, test, installation, service and inspection
instructions and procedures; (4) engineering, programming, service and
maintenance notes and logs; (5) technical, operating and service and
maintenance manuals and data; (6) hardware reference manuals; and (7) user
documentation, help files or training materials, and (v) good will related
to any of the foregoing. "PRODUCTS" means all products and services,
including all related software, now being provided by the Company, and those
products, services and software actively proposed to be provided by the
Company.
(b) Section 6.10(b) of the Company Disclosure Schedule lists the major
service categories of Company, and the patent, trademark, copyright and
domain name Intellectual Properties (other than off-the-shelf software
programs that have not been customized for its use) material to and used in
or necessary to the business of the Company as now being conducted and
proposed by the Company to be conducted (the "MAJOR INTELLECTUAL
PROPERTIES"). The Company owns, or is licensed or otherwise has the right to
use, all Major Intellectual Properties other than off-the-shelf software
programs that have not been customized for its use (the "COMPANY
INTELLECTUAL PROPERTIES"), free and clear of all liens, claims and
encumbrances, except for such liens, claims and encumbrances as do not
materially impair the Company's ability to use, exploit, license and
distribute such Company
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Intellectual Properties. Except as otherwise indicated in Section 6.10(b) of
the Company Disclosure Schedule, the Company is not required to pay any
royalties or further consideration for the use of any Company Intellectual
Properties that the Company has licensed from other Persons. The Company
possesses previous versions of any software (other than off-the-shelf
software that has not been customized for its use), whenever a previous
version exists, that are purchased or licensed from third parties and that
are used to provide Products such that the Company can recreate the current
and next most recent versions of any Company Intellectual Properties.
(c) The Company's Products, including all related software, are free
from material defects and perform in substantial accordance with all
published specifications (if any).
(d) Except as set forth in Section 6.10(d) of the Company Disclosure
Schedule, the Company has not granted any third party any right to
manufacture, reproduce, distribute or market any of the Company's Products
or any adaptations, translations, or derivative works based on the Company
Products or any portion thereof.
(e) Except as set forth in Section 6.10(d) of the Company Disclosure
Schedule, the Company has not granted any third party any right to license
any of the Company's Products except under valid and binding written
software license agreements.
(f) Except as set forth in Sections 6.10(d) and 6.10(f) of the Company
Disclosure Schedule, no third party has been licensed to use, or has lawful
access to any source code developed in respect of the Company's Products.
(g) Except as set forth in Section 6.10(g) of the Company Disclosure
Schedule, all of which have been resolved prior to the date of this
Agreement, no product liability or product warranty claims have been
communicated in writing to or threatened in writing against the Company.
(h) In any instance where the Company's rights to Company Intellectual
Properties arise under a license or similar agreement (other than for
off-the-shelf software programs that have not been customized for its use),
this is indicated in Section 6.10(b) of the Company Disclosure Schedule. No
other person has an interest in or right or license to use any of the
Company Intellectual Properties owned by the Company, except as set forth in
Section 6.10(d) of the Company Disclosure Schedule. To the Company's
knowledge, there is and has been no material unauthorized use, disclosure,
infringement or misappropriation of any Company Intellectual Properties
owned by the Company by any third party. To the Company's knowledge, none of
the Company Intellectual Properties owned by the Company or licensed to the
Company on an exclusive basis is being infringed by others, or is subject to
any outstanding order, decree, judgment, or stipulation. Except as set forth
in section 6.10(i) of the Company Disclosure Schedules, no litigation (or
other proceedings in or before any court or other governmental,
adjudicatory, arbitral, or administrative body) relating to the Company
Intellectual Properties owned by the Company or licensed to the Company on
an exclusive basis is pending, or to the Company's knowledge, threatened
against the Company, nor, to the Company's knowledge, is there any valid
basis for any such litigation or proceeding. None of the Company
Intellectual Properties owned by the Company or licensed to the Company on
an exclusive basis is subject to any outstanding order, decree, judgment, or
stipulation. The Company maintains reasonable security measures for the
preservation of the secrecy and proprietary nature of such of its Company
Intellectual Properties that constitute trade secrets or other confidential
information.
(i) Except as set forth in Section 6.10(i) of the Company Disclosure
Schedule, to the Company's knowledge, the Company has not infringed or made
unlawful use of, and is not infringing or making unlawful use of, any
Intellectual Properties of any other person. Except as set forth in Section
6.10(i) of the Company Disclosure Schedule, no litigation (or other
proceedings in or before any court or other governmental, adjudicatory,
arbitratory, or administrative body) charging the Company with infringement
or unlawful use of any Intellectual Properties is pending,
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or to the Company's knowledge, threatened against the Company, nor, to the
Company's knowledge, is there any valid basis for any such litigation or
proceeding.
(j) Each person presently or previously employed by the Company
(including independent contractors, if any) with access authorized by the
Company to confidential information relating to the Company Intellectual
Properties has executed a confidentiality and non-disclosure agreement
pursuant to an agreement substantially in the form of agreement previously
provided to Buyer or its representatives and such confidentiality and
non-disclosure agreements constitute valid and binding obligations of the
Company and, to the Company's knowledge, of such person, enforceable in
accordance with their respective terms. All Company Intellectual Properties
that are owned by the Company were written, developed and created solely and
exclusively by employees of the Company (and all rights in and to all
Company Intellectual Properties are owned by the Company) without the
assistance of any third party or entity or were created by or with the
assistance of third parties who assigned ownership of their rights
(including all intellectual property rights) in such Company Intellectual
Properties to the Company by means of valid and enforceable consultant
confidentiality and invention assignment agreements, copies of which have
been delivered to Buyer. All Company Intellectual Properties that are
licensed to the Company (other than off-the-shelf software programs that
have not been customized for its use) are identified in Schedule 6.10(b),
and copies of such license agreements have been made available to Buyer.
(k) All use, disclosure or appropriation by the Company (or its
employees or agents) of confidential information relating to Intellectual
Properties not otherwise protected by patents, patent applications or
copyright ("CONFIDENTIAL INFORMATION") owned by the Company and licensed to
a third party has been pursuant to the terms of a written agreement between
the Company and such third party. All use, disclosure or appropriation by
the Company (or its employees or agents) of Confidential Information not
owned by the Company has been made pursuant to the terms of a written
agreement between the Company and the owner of such Confidential
Information, or is otherwise lawful.
(l) Section 6.10(b) of the Company Disclosure Schedule contains an
accurate and complete description of all patents and patent applications,
trademarks (with separate listings of registered and unregistered
trademarks), trade names, major Internet Domain Names and registered or
unregistered copyrights in or related to the Company Products or otherwise
included in the Company Intellectual Properties and all applications and
registrations therefor. To the knowledge of Company, all of Company's
patents, patent rights, copyrights, trademark, trade name or Internet domain
name registrations related to or in the Company Products are valid and in
full force and effect; and consummation of the transactions contemplated by
this Agreement will not alter or impair any such rights.
(m) To the Company's knowledge, all of the Company's material
information technology systems and material non information technology
embedded systems (including systems or technology currently under
development) will record, store, process, calculate and present calendar
dates falling on or after (and, if applicable, during spans of time
including) January 1, 2000, and will calculate all information dependant on
or relating to such date in the same manner, and with the same
functionality, data integrity and performance, as the information technology
systems and non information technology embedded systems record, store,
process, calculate and present calendar dates on or before December 31,
1999, or calculate and information dependent on or relating to such date.
6.11. INDEBTEDNESS. At the date hereof, the Company has no
Indebtedness (as defined in Section 19.1) outstanding except as set forth in
Section 6.11 of the Company Disclosure Schedule or the Most Recent Audited
Balance Sheet. The Company is not in default with respect to any outstanding
Indebtedness or any agreement, instrument, or other obligation relating
thereto and no such Indebtedness or any agreement, instrument, or other
obligation relating thereto purports
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to limit the issuance of any securities by the Company or the operation of
its businesses. Complete and correct copies of all agreements, instruments,
and other obligations (including all amendments, supplements, waivers, and
consents) relating to any Indebtedness of the Company have been furnished to
Buyer.
6.12. ABSENCE OF UNDISCLOSED LIABILITIES. Except (a) to the extent (i)
set forth in Section 6.12 of the Company Disclosure Schedule or reflected or
reserved against in the Most Recent Audited Balance Sheet, or (ii) incurred
with persons other than any Affiliate of the Company in the ordinary course
of business after the date of the Most Recent Audited Balance Sheet, and (b)
either to be discharged before the Closing or described in Section 6.12 of
the Company Disclosure Schedule, the Company does not have any liabilities
or obligations of any nature, whether accrued, absolute, contingent, or
otherwise (including without limitation liabilities, as guarantor or
otherwise, in respect of obligations of others) other than liabilities and
obligations with respect to the contracts that would not be required to be
reflected or reserved against in a balance sheet prepared in accordance with
GAAP or referred to in the footnotes thereto, except any such liabilities
and obligations which, individually or in the aggregate, would not have a
Material Adverse Effect on the Company or the Surviving Corporation.
6.13. TAXES. Except as set forth in Section 6.13 of the Company
Disclosure Schedule:
(a) TAX ATTRIBUTES, ETC. Set forth in Section 6.13(a) of the Company
Disclosure Schedule are the net operating loss, net capital loss, credit,
minimum Tax (as defined in Section 19.1), charitable contribution, and other
Tax carryforwards (by type of carryforward and expiration date, if any) of
the Company.
(b) ELECTIONS. All material elections with respect to Taxes affecting
the Company are described in Section 6.13(b) of the Company Disclosure
Schedule.
(c) FILING OF TAX RETURNS AND PAYMENT OF TAXES. The Company has timely
filed all material Tax Returns (as defined in Section 19.1) required to be
filed by it, each such Tax Return has been prepared in compliance with all
applicable laws and regulations, and all such Tax Returns are true, accurate
and complete in all respects. All Taxes due and payable by the Company on
such Tax Returns have been paid, and the Company will not be liable for any
additional Taxes in respect of any taxable period or any portion thereof
ending on or before the Closing Date in an amount that exceeds the
corresponding reserve therefor, if any, reflected in the accounting records
of the Company (assuming that the parties' intended tax treatment as set
forth in Section 9.7 hereof is correct). The Company has delivered to Buyer
true, correct and complete copies of all Tax Returns with respect to income
taxes filed by or with respect to it with respect to taxable periods ended
on or after December 31, 1996, and all relevant documents and information
with respect thereto, including without limitation work papers, records,
examination reports, and statements of deficiencies assessed against or
agreed to by the Company.
(d) AUDIT HISTORY. With respect to each taxable period of the Company
ended on or before December 31, 1996, each such taxable period has closed
and such taxable period is not subject to review by any relevant taxing
authorities.
(e) DEFICIENCIES. No deficiency or proposed adjustment in respect of
Taxes that has not been settled or otherwise resolved has been asserted or
assessed by any taxing authority against the Company.
(f) LIENS. There are no Liens for Taxes (other than current Taxes not
yet due and payable) on the assets of the Company.
(g) EXTENSIONS TO STATUTE OF LIMITATIONS FOR ASSESSMENT OF TAXES. The
Company has not consented to extend the time in which any Tax may be
assessed or collected by any taxing authority.
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(h) EXTENSIONS OF THE TIME FOR FILING TAX RETURNS. The Company has not
requested or been granted an extension of the time for filing any Tax Return
to a date on or after the date hereof.
(i) PENDING PROCEEDINGS. There is no action, suit, taxing authority
proceeding, or audit with respect to any Tax now in progress, pending, or to
the Company's knowledge, threatened, against or with respect to the Company.
(j) NO FAILURES TO FILE TAX RETURNS. To the Company's knowledge, no
claim has ever been made by a taxing authority in a jurisdiction where the
Company does not pay Tax or file Tax Returns that the Company is or may be
subject to Taxes assessed by such jurisdiction.
(k) MEMBERSHIP IN AFFILIATED GROUPS, ETC. The Company has never been a
member of any affiliated group of corporations (as defined in Section
1504(a) of the Code), or filed or been included in a combined, consolidated,
or unitary Tax Return.
(l) ADJUSTMENTS UNDER SECTION 481. The Company will not be required,
as a result of a change in method of accounting for any period ending on or
before the Closing Date, to include any adjustment under Section 481(c) of
the Code (or any similar or corresponding provision or requirement under any
Tax law) in taxable income for any period ending on or after the Closing
Date.
(l) TAX SHARING, ALLOCATION, OR INDEMNITY AGREEMENTS. The Company is
not a party to or bound by any Tax sharing or allocation agreement or has
any current or potential contractual obligation to indemnify any other
person with respect to Taxes.
(n) WITHHOLDING TAXES. The Company has withheld and paid all Taxes
required to have been withheld and paid by it in connection with amounts
paid or owing to any employee, creditor or other person.
(o) FOREIGN PERMANENT ESTABLISHMENTS AND BRANCHES. The Company does
not have a permanent establishment in any foreign country with which the
United States of America has a relevant tax treaty, as defined in such
relevant tax treaty, and does not otherwise operate or conduct business
through any branch in any foreign country.
(p) U.S. REAL PROPERTY HOLDING CORPORATION. The Company is not and has
not been a United States real property holding corporation within the
meaning of Code Section 897(c)(2), during the applicable period specified in
Code Section 897(c)(1)(A)(ii).
(q) SAFE HARBOR LEASE PROPERTY. None of the property owned or used by
the Company is subject to a tax benefit transfer lease executed in
accordance with Section 168(f)(8) of the Internal Revenue Code of 1954, as
amended by the Economic Recovery Tax Act of 1981.
(r) TAX-EXEMPT USE PROPERTY. None of the property owned by the Company
is "tax-exempt use property" within the meaning of Section 168(h) of the
Code.
(s) SECURITY FOR TAX-EXEMPT OBLIGATIONS. None of the assets of the
Company directly or indirectly secures any indebtedness, the interest on
which is tax-exempt under Section 103(a) of the Code, and the Company is not
directly or indirectly an obligor or a guarantor with respect to any such
indebtedness.
(t) SECTION 341(F) CONSENT. The Company has not filed a consent under
Code Section 341(f) concerning collapsible corporations.
(u) PARACHUTE PAYMENTS. The Company has not made any payments, is not
obligated to make any payments, and is not a party to any agreement that
under certain circumstances could obligate it to make any payments, that
will not be deductible under Code Sections 162(m) or 280G.
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(v) OTHER PERSONS. The Company is not presently liable for the Taxes
of another person (i) under Treasury Regulation Section 1.1502-6 (or
comparable provision of state, local or foreign law), (ii) as transferee or
successor or (iii) by contract or indemnity or otherwise.
(w) RULINGS. There are no outstanding rulings of, or requests for
rulings by, any taxing authority addressed to the Company that are, or if
issued would be, binding on the Company.
(x) DIVISIVE TRANSACTIONS. The Company has never been either a
"distributing corporation" or a "controlled corporation" in connection with
a distribution of stock qualifying for tax-free treatment, in whole or in
part, pursuant to Section 355 of the Code.
(y) DISTRIBUTIONS AND REDEMPTIONS. Other than regular, normal
dividends, the Company has not made and will not make any distributions with
respect to or in redemption of its stock in contemplation of the Merger or
during the period beginning with the commencement of negotiations (whether
formal or informal) regarding the Merger and ending at the Effective Time
(the "Pre-Merger Period").
(z) ACQUISITION OF SUBSTANTIALLY ALL OF THE COMPANY'S ASSETS. As a
result of the Merger, Merger Sub will acquire at least ninety percent (90%)
of the fair market value of the net assets and at least seventy percent
(70%) of the fair market value of the gross assets held by the Company
immediately prior to the Merger. For purposes of this representation,
amounts paid by the Company to dissenters, amount paid by the Company to
stockholders who receive cash or other property, amounts used by the Company
to pay reorganization expenses, and all redemptions and distributions
(except for regular, normal dividends) made by the Company in contemplation
of the Merger or during the Pre-Merger Period will be included as assets of
the Company held immediately prior to the Merger.
(aa) LIABILITIES INCURRED IN THE ORDINARY COURSE. The liabilities of
the Company, if any, assumed by Merger Sub and the liabilities to which the
transferred assets of the Company are subject were incurred by the Company
in the ordinary course of business.
(bb) TRANSFERS OF ASSETS. Other than regular, normal dividends and
dispositions in the ordinary course of business, the Company has made no
transfer of any of its assets in contemplation of the Merger or during the
Pre-Merger Period.
(cc) REORGANIZATION EXPENSES. The Company and the stockholders of the
Company will each pay their respective expenses, if any, incurred in
connection with the Merger.
(dd) NO INTERCORPORATE INDEBTEDNESS. Other than loans made by Buyer to
the Company pursuant to Section 5 of this Agreement, there is, and at the
Effective Time there will be, no intercorporate indebtedness existing
between Buyer and the Company or between Merger Sub and the Company that was
issued, acquired or will be settled at a discount.
(ee) ASSETS EXCEED LIABILITIES. The fair market value of the assets of
the Company transferred to Merger Sub will equal or exceed the sum of the
liabilities assumed by Merger Sub, plus the amount of liabilities, if any,
to which the transferred assets are subject.
(ff) INVESTMENT COMPANY. The Company is not and will not be at the
Effective Time an "investment company" within the meaning of Section
368(a)(2)(F)(iii) of the Code.
(gg) BANKRUPTCY PROCEEDINGS. The Company is not and will not be at the
Effective Time under the jurisdiction of a court in a case under title 11 of
the United States Code or a receivership, foreclosure, or similar proceeding
in a federal or state court.
(hh) SHAREHOLDER COMPENSATION. None of the compensation received by
any stockholder employees of the Company will be separate consideration for,
or allocable to, any of their shares of Company stock, and the compensation
paid to any stockholder employees of the Company will be for services
actually rendered and will be commensurate with amounts paid to third
parties
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bargaining at arm's length for similar services. None of the Merger
consideration received by any shareholder-employees of the Company will be
separate consideration for, or allocable to, an employment agreement, and no
part of the consideration received by any Company shareholder in the Merger
will be received by such shareholder as a creditor, employee, independent
contractor or in any capacity other than that of a shareholder of the
Company.
6.14. EMPLOYEE BENEFIT PLANS.
(a) IDENTIFICATION OF PLANS. Except as set forth in Section 6.14 of
the Company Disclosure Schedule, the Company does not now maintain or
contribute to, and does not have any outstanding liability to or in respect
of or obligation under, any pension, profit-sharing, deferred compensation,
bonus, stock option, employment, share appreciation right, severance, group
or individual health, dental, medical, life insurance, survivor benefit, or
similar plan, policy, arrangement or agreement, whether formal or informal,
written or oral, for the benefit of any director, officer, consultant or
employee, whether active or terminated, of the Company. Each of the
arrangements set forth on Section 6.14(a) of the Company Disclosure Schedule
is here referred as an "Employee Benefit Plan", except that any such
arrangement which is a multi-employer plan shall be treated as an Employee
Benefit Plan only for purposes of Sections 6.14(d)(ii), (vi) and (viii) and
6.14(g) below.
(b) DELIVERY OF DOCUMENTS. The Company has heretofore delivered to
Buyer true, correct and complete copies of each Employee Benefit Plan, and
with respect to each such Plan true, correct and complete copies of (i) any
associated trust, custodial, insurance or service agreements, (ii) any
annual report, actuarial report, or disclosure materials (including
specifically any summary plan descriptions) submitted to any governmental
agency or distributed to participants or beneficiaries thereunder in the
current or any of the three (3) preceding calendar years and (iii) the most
recently received IRS determination letters, if any, and any governmental
advisory opinions, rulings, compliance statements, closing agreements, or
similar materials specific to such Plan.
(c) COMPLIANCE WITH TERMS AND LAW. Each Employee Benefit Plan is and
has heretofore been maintained and operated in compliance with the terms of
such Plan and in compliance, in all material respects, with the requirements
prescribed (whether as a matter of substantive law or as necessary to secure
favorable tax treatment) by any and all applicable statutes, governmental or
court orders, or governmental rules or regulations in effect from time to
time, including but not limited to the Employee Retirement Income Security
Act of 1974, as amended ("ERISA") and the Code and applicable to such Plan.
Each Employee Benefit Plan which is intended to qualify under Section 401(a)
of the Code and each trust or other entity intended to qualify as a
"voluntary employee benefit association" within the meaning of Section
501(c)(9) of the Code and associated with any Employee Benefit Plan is
expressly identified as such on Section 6.14(a) of the Company Disclosure
Schedule and has been determined to be so qualified by the IRS and, to the
knowledge of the Company, nothing has occurred as to each which has resulted
or is likely to result in the revocation of such determination or which
requires or could, to the knowledge of the Company, reasonably be expected
to require action under the compliance resolution programs of the Internal
Revenue Service to preserve such qualification.
(d) ABSENCE OF CERTAIN EVENTS AND ARRANGEMENTS. Except as set forth on
Section 6.14(d) of the Company Disclosure Schedule,
(i) there is no pending or, to the knowledge of the Company,
threatened legal action, proceeding or investigation, other than routine
claims for benefits, concerning any Employee Benefit Plan or to the
knowledge of the Company any fiduciary or service provider thereof and,
to the knowledge of the Company, there is no basis for any such legal
action or proceeding;
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(ii) no liability (contingent or otherwise) to the Pension Benefit
Guaranty Corporation ("PBGC") or any multi-employer plan has been
incurred by the Company or any of its Affiliates (other than insurance
premiums satisfied in due course);
(iii) no reportable event, or event or condition which presents a
material risk of termination by the PBGC, has occurred with respect to
any Employee Benefit Plan, or any retirement plan of an Affiliate of the
Company, which is subject to Title IV of ERISA;
(iv) neither the Company nor, to the Company's knowledge, any other
party in interest with respect to any Employee Benefit Plan, has engaged
in a prohibited transaction known to the Company which could subject the
Company directly or indirectly to liability under Section 409 or 502(i)
of ERISA or Section 4975 of the Code;
(v) no Employee Benefit Plan provides welfare benefits subsequent to
termination of employment to employees or their beneficiaries except to
the extent required by applicable state insurance laws and Title I, Part
6 of ERISA;
(vi) the Company has not announced its intention to modify or
terminate any Employee Benefit Plan or adopt any arrangement or program
which, once established, would come within the definition of an Employee
Benefit Plan; and
(vii) the Company has not undertaken to maintain any Employee Benefit
Plan for any period of time and each such Plan is terminable at the sole
discretion of the sponsor thereof, subject only to such constraints as
may imposed by applicable law.
(e) FUNDING OF CERTAIN PLANS. With respect to each Employee Benefit
Plan for which a separate fund of assets is or is required to be maintained,
full and timely payment has been made of all amounts required of the
Company, under the terms of each such Plan or applicable law, as applied
through the Closing Date, and no accumulated funding deficiency (as defined
in Section 302 of ERISA and Section 412 of the Code), whether or not waived,
exists with respect to any such Plan. The current value of the assets of
each such Employee Benefit Plan, as of the end of the most recently ended
plan year of that Plan, equals or exceeded the current value of all benefits
liabilities under that Plan.
(f) EFFECT OF TRANSACTIONS. Except as set forth in Section 6.14(f) of
the Company Disclosure Schedule, the execution of this Agreement and the
consummation of the transactions contemplated herein will not, by itself or
in combination in any other event (regardless of whether that other event
has or will occur), result in any payment (whether of severance pay or
otherwise) becoming due from or under any Employee Benefit Plan (including
any employment agreement) to any current or former director, officer,
consultant or employee of the Company or result in the vesting, acceleration
of payment or increases in the amount of any benefit payable to or in
respect of any such current or former director, officer, consultant or
employee.
(g) MULTI-EMPLOYER PLANS. No Employee Benefit Plan is a multi-employer
plan.
(h) DEFINITIONS. For purposes of this Section 6.14, "multi-employer
plan", "party in interest" "current value", "reportable event" and "benefit
liability" have the same meaning assigned such terms under Sections 3,
4043(b) or 4001(a) of ERISA, and "affiliate" means any entity which under
Section 414 of the Code is treated as a single employer with the Company.
6.15. SAFETY AND ENVIRONMENTAL MATTERS.
(a) ZONING, HEALTH, AND SAFETY. None of the plants, offices, or
properties occupied by the Company are in material violation of any zoning,
health, or safety law or regulation, including without limitation the
Occupational Safety and Health Act of 1970, as amended.
(b) COMPLIANCE. The Company is not in violation or, to the knowledge
of the Company, alleged violation of any judgment, decree, order, law,
license, rule or regulation pertaining to
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environmental matters, including without limitation the Resource
Conservation and Recovery Act ("RCRA"), the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended ("CERCLA"), the
Superfund Amendments and Reauthorization Act of 1986 ("SARA"), the Federal
Clean Water Act, the Federal Clean Air Act, the Toxic Substances Control
Act, and applicable federal, state, foreign, and local statutes,
regulations, ordinances, orders, and decrees relating to health, safety, or
the environment (all of the foregoing, collectively, "ENVIRONMENTAL LAWS").
(c) NOTICES. Except as set forth in Section 6.15 of the Company
Disclosure Schedule, the Company has not received written notice from any
third party, including without limitation any federal, state, foreign, or
local governmental authority, that (i) the Company has been identified by
the United States Environmental Protection Agency (the "EPA") as a
potentially responsible party under CERCLA with respect to a site listed on
the National Priorities List, 40 C.F.R. Part 300 Appendix B (1986); (ii) any
hazardous waste as defined by 42 U.S.C. Section 6903(5), any hazardous
substance as defined by 42 U.S.C. Section 9601(14), any pollutant or
contaminant as defined by 42 U.S.C. Section 9601(33) or any toxic substance,
oil, or hazardous material or other chemical or substance regulated by any
Environmental Laws (collectively, "HAZARDOUS SUBSTANCES") that the Company
has generated, transported, handled, used, or disposed of has been found in
violation of Environmental Laws at any site at which a federal, state,
foreign, or local agency or other third party has conducted or has ordered
that the Company conduct a remedial investigation, removal, or other
response action pursuant to any Environmental Law; or (iii) the Company is
or will be a named party to any claim, action, cause of action, complaint
(contingent or otherwise), or legal or administrative proceeding arising out
of any third party's incurrence of costs, expenses, losses, or damages of
any kind whatsoever in connection with the release of Hazardous Substances.
(d) HAZARDOUS SUBSTANCES; PERMITS. Except as set forth in Section 6.15
of the Company Disclosure Schedule, (i) no portion of any real property
presently owned, leased, or operated by the Company (the "COMPANY PROPERTY")
has been used by the Company, or to the Company's knowledge, by any other
person, for the handling, usage, manufacturing, processing, storage, or
disposal of Hazardous Substances except in accordance with applicable
Environmental Laws; and no underground tank or other underground storage
receptacle for Hazardous Substances is located on any real property
presently owned, leased, or operated by the Company, (ii) in the course of
the activities conducted by the Company and to the Company's knowledge,
those of any other operators of any real property presently owned, leased,
or operated by the Company, no Hazardous Substances have been generated,
stored, or used on such properties except in accordance with applicable
Environmental Laws; (iii) to the Company's knowledge, there have been no
releases (i.e. any past or present releasing, spilling, leaking, pumping,
pouring, emitting, emptying, discharging, injecting, escaping, disposing, or
dumping) or threatened releases of Hazardous Substances on, upon, into, or
from any real property presently owned, leased, or operated by the Company;
(iv) to the Company's knowledge, there have been no releases on, upon, from,
or into any real property in the vicinity of any real property presently
owned, leased, or operated by the Company that, through soil or groundwater
contamination, may have come to be located on, any of the real property
presently owned, leased, or operated by the Company; and (v) any Hazardous
Substances that have been generated by the Company, or to the Company's
knowledge, any other person, on any real property presently owned, leased,
or operated by the Company, have been transported offsite only by carriers
having an identification number issued by the EPA and treated or disposed of
only by treatment or disposal facilities maintaining valid permits as
required under applicable Environmental Laws, which transporters and
facilities, to the Company's knowledge, have been and are operating in
compliance with such permits and applicable Environmental Laws. The Company
has never owned, leased or occupied any real property or premises other than
the Company Property.
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(e) CLEANUP RESPONSIBILITY. Except as set forth in Section 6.15 of the
Company Disclosure Schedule, the Company Property is not, and to the
knowledge of the Company will not be, subject to any environmental cleanup
responsibility law or regulation or environmental restrictive transfer law
or regulation by reason of the Merger or the other transactions contemplated
hereby.
6.16. LABOR RELATIONS. The Company is and has been in compliance in
all material respects with all federal and state laws respecting employment
and employment practices, terms and conditions of employment, wages and
hours, nondiscrimination in employment, and unfair labor practices. There is
no charge or proceeding pending, or to the Company's knowledge, threatened,
against the Company alleging unlawful discrimination in employment practices
or unfair labor practice before any court or agency, including without
limitation the National Labor Relations Board. There is no labor strike,
work slow-down, or work stoppage pending or to the Company's knowledge
threatened against or involving the Company. No one has petitioned within
the last five years or, to the Company's knowledge, is now petitioning for
union representation of any of the employees of the Company. None of the
employees of the Company is covered by any collective bargaining agreement,
and no collective bargaining agreement is currently being negotiated by the
Company. The Company has not experienced any labor strike, work slowdown,
work stoppage or other material labor difficulty during the last five years.
6.17. LITIGATION. Except as set forth in Section 6.17 of the Company
Disclosure Schedule, no litigation, arbitration, action, suit, proceeding,
or to the Company's knowledge investigation (whether conducted by any
judicial or regulatory body, arbitrator, or other person) is pending or, to
the Company's knowledge, threatened, against the Company.
6.18. ACCOUNTS RECEIVABLE AND OTHER RECEIVABLES. The accounts
receivable and other receivables recorded in the records and books of
account of the Company as due to the Company as of the Closing Date,
represent all of the receivables that have arisen from bona fide
transactions in the ordinary course of business in connection with the
Company, consistent with past practice and the extensions of credit
reflected by such receivables have been extended, or will be extended, in
the manner consistent with past trade and credit practices of the Company.
Said receivables, less the amount of any reserve therefore, have been
recorded in the records and books of account of the Company in accordance
with GAAP (as defined in Section 19.1), consistent with past business
practices, and, except as set forth in Section 6.18 of the Company
Disclosure Schedule, shall be collectible in the ordinary course of business
(net of such reserves). Except as set forth on Section 6.18 of the Company
Disclosure Schedule, none of such accounts receivable or other credits is or
will at the Closing Date, be subject to any valid counterclaim or set off,
except to the extent of any such provision for reserve.
6.19. ACCOUNTS PAYABLE. Accounts payable recorded in the records and
books of account of the Company, represent all of the payables that have
arisen from bona fide transactions in the ordinary course of business in
connection with the Company, consistent with past practice and the payment
of such payables have been made in the manner consistent with past trade and
credit practices of the Company. Except as set forth in Section 6.19 of the
Company Disclosure Schedule, (a) said payables have been recorded in the
records and books of account of the Company in accordance with GAAP,
consistent with past business practices, and (b) no material account payable
is or will at the Closing Date, be payable for a period in excess of 90
days.
6.20. CONTRACTS. Section 6.20 of the Company Disclosure Schedule sets
forth a complete and accurate list of all material contracts to which the
Company is a party or by or to which it or any of its assets or properties
is bound or subject. As used in this Agreement, the word "contract" includes
every agreement or understanding of any kind, written or oral, that is
legally enforceable by or against or otherwise binding on the Company, and
specifically includes without limitation: (a) agreements with any current or
former officer, director, employee, consultant, or stockholder, or
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any partnership, corporation, joint venture, or any other entity in which
any such person has an interest and the Company has knowledge of such
person's interest (whether or not material); (b) agreements with any labor
union or association representing any employee; (c) agreements for the
provision of services by or to the Company; (d) bonds or other security
agreements provided by any party in connection with the business of the
Company; (e) agreements for the purchase or other acquisition or the sale or
other disposition of assets or properties, in each case other than in the
ordinary course of business, or for the grant to any person of any
preferential rights to purchase any of such assets or properties; (f) joint
venture agreements relating to the assets, properties, or business of the
Company or by or to which it or any of its assets or properties is bound or
subject; (g) agreements under which the Company agrees to indemnify any
party (other than customer contracts entered into in the ordinary course of
business), to share tax liability of any party, or to refrain from competing
with any party; (h) agreements with regard to Indebtedness; (i) any other
contract or other agreement, whether or not made in the ordinary course of
business, or (j) any other contract or other agreement which represents
commitments in excess of $100,000 in the aggregate. All of the contracts
listed in Section 6.20 of the Company Disclosure Schedule are in full force
and effect, and (A) the Company is not in material default under or material
breach of any of them, and (B) to the Company's knowledge, no other party
thereto, is in material default under or material breach of any of them, nor
to the Company's knowledge, does any event or condition exist that after
notice or lapse of time or both could constitute a material default
thereunder or material breach thereof on the part of the Company, or to the
Company's knowledge, any other party thereto. Except as specifically set
forth in Section 6.20 of the Company Disclosure Schedule, no approval or
consent of any person is needed in order that the contracts listed in
Section 6.20 of the Company Disclosure Schedule continue in full force and
effect following the consummation of the Merger and the other transactions
contemplated hereby, and except as set forth in Section 6.20 of the
Disclosure Schedule, no such contract includes any provision, the effect of
which may be to terminate (or give rise to a right of termination under)
such contract, to enlarge or accelerate any obligations of the Company
thereunder, or to give additional rights to any other person, upon
consummation of the Merger or the other transactions contemplated hereby.
All of the contracts referred to in Section 6.20 are embodied in written
agreements, true, correct and complete copies of which, including all
amendments, modifications and supplements thereto, have been made available
or delivered to Buyer.
6.21. POTENTIAL CONFLICTS OF INTEREST. Except as set forth on Section
6.21 of the Company Disclosure Schedule, no officer, director, or
stockholder of the Company (a) owns, directly or indirectly, any interest
(excepting not more than 1% stock holdings for investment purposes in
securities of publicly held and traded companies) in, or is an officer,
director, employee, or consultant of, any person that is a material
competitor, lessor, lessee, or supplier of the Company; (b) owns, directly
or indirectly, in whole or in part, any tangible or intangible property that
the Company is using or the use of which is necessary for the business of
the Company; or (c) to the Company's knowledge, has any cause of action or
other claim whatsoever against, or owes any amount to, the Company, except
for claims in the ordinary course of business, such as for accrued vacation
pay, accrued benefits under Employee Benefit Plans, and similar matters and
agreements. Except as set forth on Section 6.21 of the Company Disclosure
Schedule, no officer, director, employee or stockholder of the Company has
been party to any transaction with the Company, other than those relating to
employment in the ordinary course of business that have not been,
individually or in the aggregate, material.
6.22. INSURANCE. Section 6.22 of the Company Disclosure Schedule lists
the policies of theft, fire, liability, workmen's compensation, life,
property and casualty, and other insurance owned or held by the Company, and
describes for each such policy the annual premiums due thereunder, the
deductibles, if any, the coverage amounts and the expiration dates thereof.
Such policies of
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insurance are maintained with financially sound and reputable insurance
companies, funds, or underwriters, and are of the kinds, cover such risks,
and are in such amounts and with such deductibles and exclusions, as are
consistent, in the reasonable judgment of the Company, with prudent business
practice. In all material respects: all such policies are in full force and
effect, are sufficient for compliance by the Company with all requirements
of law and of all agreements to which the Company is a party, are valid,
outstanding, and enforceable policies and provide that they will remain in
full force and effect through the respective dates set forth in the Company
Disclosure Schedule, and will not in any way be affected by, or terminate or
lapse by reason of, the transactions contemplated by this Agreement.
6.23. BANK ACCOUNTS, SIGNING AUTHORITY, POWERS OF ATTORNEY. Section
6.23 of the Company Disclosure Schedule sets forth a complete and accurate
list of all bank, brokerage, and other accounts, and all safe-deposit boxes,
of the Company and the persons with signing or other authority to act with
respect thereto. Except as so listed, the Company does not have any account
or safe deposit box in any bank, and no person has any power, whether singly
or jointly, to sign any checks on behalf of the Company, to withdraw any
money or other property from any bank, brokerage, or other account of the
Company, or to act under any agency or power of attorney granted by the
Company at any time for any purpose. Section 6.23 of the Company Disclosure
Schedule also sets forth, the names of all persons authorized to borrow
money or sign notes on behalf of the Company.
6.24. SUPPLIERS AND CUSTOMERS. Section 6.24(a) of the Company
Disclosure Schedule lists the fifteen (15) largest suppliers of the Company
during the twelve calendar month period immediately preceding the date of
this Agreement. Except as set forth in Section 6.24 (a) and (b) of the
Company Disclosure Schedule, the relationships of the Company with its
suppliers and customers (as a whole) are good commercial working
relationships, and no supplier or customer of material importance to the
Company or material number of Company customers has canceled or otherwise
terminated, or threatened in writing to cancel or terminate, its
relationship with the Company or has during the last such twelve months
decreased materially, or threatened in writing to decrease or limit
materially, its services, supplies, or materials to the Company or its usage
or purchase of the services or products of the Company, except for normal
cyclical changes related to customers' businesses and changes in their
business needs. Except as set forth in Section 6.24 (a) and (b) of the
Company Disclosure Schedule, the Company has no knowledge that any such
supplier or any of the customers listed in Section 6.24(b) of the Company
Disclosure Schedule intends to cancel or otherwise substantially modify its
relationship with the Company or to decrease materially or limit its
services, supplies, or materials to the Company, or its usage or purchase of
the Company's services or products, except for normal cyclical changes
related to customers' or suppliers' businesses, and the consummation of the
transactions contemplated hereby will not, to the Company's knowledge,
adversely affect the relationship of the Company with any such supplier or
customers.
6.25. EMPLOYMENT OF OFFICERS, EMPLOYEES. Section 6.25 of the Company
Disclosure Schedule lists the name, positions, date of hire, current annual
salary and other compensation (including but not limited to wages, salary,
commissions, normal bonus, deferred compensation, and other extra
compensation) payable by the Company to each exempt non-hourly employee of
the Company, including the date and amount of the last raise received by
such employee. Section 6.25 of the Company Disclosure Schedule also lists
the amount of any incentive compensation paid to any employee of the Company
during 1999 and 2000. Except as set forth on Section 6.25 of the Company
Disclosure Schedule, no employee of the Company with base compensation in
excess of $60,000 has informed the Company in writing of his or her
intention to terminate employment with the Company.
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6.26. MINUTE BOOKS. Except for meetings of the Board of Directors
since November 1, 2000, the minute books of the Company made available to
Buyer for inspection accurately record therein all material actions taken by
its Board of Directors, all committees thereof, and its stockholders.
6.27. BROKERS. Except for Broadview, no finder, broker, agent, or
other intermediary has acted for or on behalf of the Company in connection
with the negotiation, preparation, execution, or delivery of this Agreement
or the consummation of the Merger or the other transactions contemplated
hereby.
6.28. COMPLIANCE WITH OTHER AGREEMENTS, LAWS, ETC. The Company has
complied with, and is in compliance with, (i) all laws, statutes,
governmental regulations and all judicial or administrative tribunal orders,
judgments, writs, injunctions, decrees or similar commands applicable to its
business, and (ii) its Amended Certificate of Incorporation and by-laws,
respectively, each as amended to date; in the case of the preceding clause
(i), excepting only any such noncompliances that, both individually and in
the aggregate, have not resulted, and are not reasonably anticipated to
result, in a Material Adverse Effect on the Company or the Surviving
Corporation. The Company has not been charged with, or to its knowledge,
been under investigation with respect to, any violation of any provision of
any federal, state, or local law or administrative regulation. Section 6.28
of the Company Disclosure Schedule sets forth a complete and correct list
of, all material licenses, permits, and other authorizations of governmental
authorities as are necessary or desirable for the conduct of its businesses
or in connection with the ownership or use of its properties, all of which
are in full force and effect, true and complete copies of all of which have
previously been delivered to Buyer. Except as set forth in Section 6.28 of
the Company Disclosure Schedule, none of such licenses, permits and
authorizations will be affected by the consummation of the Merger and the
other transactions contemplated hereby.
6.29. REGISTRATION RIGHTS. Except as set forth in Section 6.29 of the
Company Disclosure Schedule, no person has any right to cause the Company to
effect the registration under the Securities Act of any shares of Company
Common Stock or any other securities of the Company.
6.30. STATEMENTS TRUE AND CORRECT. None of the information supplied or
to be supplied by any Company or any Affiliate thereof for inclusion in the
Registration Statement (as defined in Section 9.4) to be filed by Buyer with
the SEC will, when the Registration Statement becomes effective, be false or
misleading with respect to any material fact, or omit to state any material
fact necessary to make the statements therein not misleading. None of the
information supplied or to be supplied by the Company or any Affiliate
thereof for inclusion in any documents to be filed by the Buyer or the
Company or any Affiliate thereof with any regulatory authority in connection
with the transactions contemplated hereby, will, at the respective time such
documents are filed, be false or misleading with respect to any material
fact, or omit to state any material fact necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. All documents that the Company or any Affiliate thereof is
responsible for filing with any regulatory authority in connection with the
transactions contemplated hereby will comply as to form in all material
respects with the provisions of applicable law.
7. REPRESENTATIONS AND WARRANTIES OF THE PRINCIPAL COMPANY STOCKHOLDERS.
In addition to the representations and warranties made by the Principal
Company Stockholders in Section 6, each of the Principal Company Stockholders
hereby further represents and warrants to Buyer, severally and not jointly, with
respect to him-, her-, or itself only, as follows:
7.1. AUTHORIZATION AND ENFORCEABILITY. Such Principal Company
Stockholder has all requisite power and full legal right and authority
(including, in the case of a Principal Company Stockholder who is not a
natural person, due approval of its Board of Directors, stockholders,
managers, and/or
A-23
other persons exercising similar powers) to enter into this Agreement, to
perform all of such Principal Company Stockholder's agreements and
obligations hereunder, and to consummate the Merger and the other
transactions contemplated hereby. This Agreement has been duly executed and
delivered by such Principal Company Stockholder and constitutes a legal,
valid, and binding obligation of such Principal Company Stockholder,
enforceable against such Principal Company Stockholder in accordance with
its terms, except as such enforceability may be limited by equitable
principles and by applicable bankruptcy, insolvency, reorganization,
arrangement, moratorium or similar laws relating to or affecting the rights
of creditors generally.
7.2. GOVERNMENTAL AND OTHER THIRD-PARTY CONSENTS, NON-CONTRAVENTION,
ETC. No consent, approval, or authorization of or registration,
designation, declaration, or filing with any governmental authority, federal
or other, or any other person is required on the part of such Principal
Company Stockholder in connection with this Agreement, the Merger, or any of
the other transactions contemplated hereby which has not been, or will be at
Closing, obtained. The execution, delivery, and performance of this
Agreement and the consummation of such transactions will not violate (a) in
the case of any Principal Company Stockholder who is not a natural person,
any provision of its Certificate of Incorporation, by-laws, partnership or
operating agreement, and/or other constituting documents, (b) any order,
judgment, injunction, award or decree of any court or state or federal
governmental or regulatory body applicable to such Principal Company
Stockholder, or (c) any judgment, decree, order, statute, rule, regulation,
agreement, instrument, or other obligation to which such Principal Company
Stockholder is a party or by or to which it or any of such Principal Company
Stockholder's assets is bound or subject, except where any such violations
would not, individually or in the aggregate, have a Material Adverse Effect
on the Company or the Surviving Corporation.
7.3. TITLE TO SHARES, ETC. Such Principal Company Stockholder owns, as
of the date hereof, and will own, as of the Closing, in each case both of
record and beneficially, the shares of the Company's capital stock and other
securities of the Company, if any, indicated with respect to such
Stockholder in Section 6.4 of the Company Disclosure Schedule, all free and
clear of Liens. Such Principal Company Stockholder does not own, either
legally or beneficially, any other shares of capital stock or other
securities of the Company.
7.4. INVESTMENT INTENT. Such Principal Company Stockholder has been
advised that the Buyer Common Stock being offered and sold pursuant to this
Agreement has not been registered under the Securities Act or any relevant
state securities laws, but is being offered and sold pursuant to exemptions
from such laws and that the Buyer's reliance upon such exemptions is
predicated in part on such Principal Company Stockholder's representations
to the Buyer as contained herein. Such Principal Company Stockholder
represents, warrants, covenants and agrees that (a) he, she or it is an
"accredited investor" as such term is defined in Rule 501 of SEC promulgated
under the Securities Act with respect to the transaction, (b) the shares of
Buyer Common Stock being acquired hereby are being acquired, for his, her or
its own account and for investment purposes only and without the intention
of reselling or redistributing such shares in a manner inconsistent with the
Securities Act, (c) he, she or it has made no agreement with others
regarding the sale or redistribution of such securities, and (d) his, her or
its financial condition is such that it is not likely that it will be
necessary to dispose of such shares, in the foreseeable future. Such
Principal Company Stockholder further represents, warrants, covenants and
agrees that if, contrary to his, her or its foregoing intentions, he, she or
it should later desire to sell, assign, pledge, transfer or otherwise
dispose of the shares of Buyer Common Stock acquired pursuant to this
Agreement, in any manner, he, she or it shall not do so without first
obtaining (i) the opinion of counsel satisfactory to the Buyer that such
proposed disposition or transfer lawfully may be made without the
registration of such securities pursuant to the Securities Act, and
applicable state securities laws or (ii) the registration of the shares of
Buyer Common Stock
A-24
received pursuant hereto under the Securities Act. Such Principal Company
Stockholder further agrees that, until registered and sold under the
Securities Act, or transferred pursuant to the provisions of Rule 144
thereunder, or any similar provision as promulgated by the SEC, the shares
of Buyer Common Stock acquired pursuant to this Agreement, whether upon
initial issuance or upon any transfer thereof, shall bear a legend,
prominently stamped or printed thereon, reading as set forth in the
Registration Rights Agreement and the Lock Up Agreements (each as defined
herein).
8. REPRESENTATIONS AND WARRANTIES OF BUYER AND MERGER SUB.
Buyer and Merger Sub, jointly and severally, hereby represent and warrant to
the Company and the Principal Company Stockholders as follows, subject in each
case to such exceptions as are specifically contemplated by this Agreement or as
are set forth in the attached Disclosure Schedule of the Buyer and Merger Sub
(the "BUYER DISCLOSURE SCHEDULE"). Notwithstanding any other provision of this
Agreement or the Buyer Disclosure Schedule, each exception set forth in the
Buyer Disclosure Schedule will be deemed to qualify each representation and
warranty set forth in this Agreement (i) that is specifically identified (by
cross-reference or otherwise) in the Buyer Disclosure Schedule as being
qualified by such exception, or (ii) with respect to which the relevance of such
exception is reasonably apparent on the face of the disclosure of such exception
set forth in the Buyer Disclosure Schedule PROVIDED, in either case, that the
relevant facts are set forth in reasonable detail in the Buyer Disclosure
Schedule.
8.1. INCORPORATION; AUTHORITY. Each of Buyer and Merger Sub is a
corporation duly organized, validly existing, and in good standing under the
laws of the State of Delaware and has all requisite corporate power and
authority to own or lease and operate its properties and to carry on its
business as now conducted. Buyer has delivered to the Company complete and
correct copies of its Amended and Restated Certificate of Incorporation and
Amended and Restated By-laws of Buyer and the Certificate of Incorporation
and by-laws of the Merger Sub, in each case with all amendments thereto.
8.2. AUTHORIZATION AND ENFORCEABILITY. (A) Each of Buyer and Merger
Sub has all requisite power and full legal right and authority (including
due approval of their respective Boards of Directors and in the case of
Merger Sub, its sole stockholder) to enter into this Agreement, to perform
all of its agreements and obligations hereunder, and to consummate the
Merger and the other transactions contemplated hereby, subject to approval
of Buyer's shareholders. This Agreement has been duly executed and delivered
by each of Buyer and Merger Sub and constitutes a legal, valid, and binding
obligation of each of them, enforceable against each of them in accordance
with its terms, except as such enforceability may be limited by equitable
principles and by applicable bankruptcy, insolvency, reorganization,
arrangement, moratorium or similar laws relating to or affecting the rights
of creditors generally.
(b) On or prior to the date of this Agreement, the Board of Directors of
Buyer, by resolutions duly adopted by vote of those voting at a meeting duly
called and held and not subsequently rescinded or modified in any way, has
duly (i) determined that this Agreement and the Merger are fair to and in
the best interests of Buyer and its stockholders and approved this Agreement
and the Merger, and determined that the execution, delivery and performance
of this Agreement is advisable, (ii) recommended that the stockholders of
Buyer approve the issuance of Buyer Common Stock pursuant to this Agreement,
and (iii) directed that this Agreement, the Merger and the issuance of such
shares be submitted for consideration by Buyer's stockholders.
8.3. GOVERNMENTAL AND OTHER THIRD-PARTY CONSENTS, NON-CONTRAVENTION,
ETC. No consent, approval, or authorization of or registration,
designation, declaration, or filing with any governmental authority, federal
or other, or any other person, is required on the part of Buyer or Merger
Sub in connection with the execution, delivery, and performance of this
Agreement or the
A-25
consummation of the Merger and the other transactions contemplated hereby,
except (i) for applicable requirements, if any, of the Exchange Act, the
Securities Act, state securities or "blue sky" laws and state takeover laws,
the HSR Act (each as defined in Section 19.1), regulations of the Nasdaq
National Market and the filing and recordation of appropriate merger
documents as required by the DGCL, (ii) as specified in Section 8.3 of the
Buyer Disclosure Schedule and (iii) such consents, approvals,
authorizations, registrations, designations, declarations, and filings) the
failure of which to obtain or make would not, individually or in the
aggregate, result in a Material Adverse Effect on Buyer or Merger Sub. The
execution, delivery, and performance of this Agreement and the consummation
of such transactions will not violate (a) any provision of Buyer's and
Merger Sub's Certificate of Incorporation or by-laws, (b) any order,
judgment, injunction, award or decree of any court or state or federal
governmental or regulatory body applicable to Buyer or Merger Sub, or (c)
any judgment, decree, order, statute, rule, regulation, agreement,
instrument or other obligation to which Buyer or Merger Sub is a party or by
or to which either of them or any of their respective assets is bound,
subject to or applicable except, in the case of clause (c), where such
violation would not have a Material Adverse Effect on the Buyer.
8.4. MERGER SUB. Merger Sub has been organized for the specific
purpose of engaging in the Merger and the other transactions contemplated
hereby and has not incurred any material liabilities, conducted any material
business, or entered into any material contracts or commitments, in each
case except such as are in furtherance of or incidental to such
transactions. The capitalization of Merger Sub consists of 100 shares of
common stock, all of which shares are owned directly by Buyer. At all times
prior to the Merger, Buyer has been, and will continue to be, in Control (as
defined in the next sentence) of Merger Sub. As used in this Section 8.4,
"Control" means control within the meaning of Section 368(c) of the Code.
8.5. BUYER'S SEC STATEMENTS, REPORTS AND DOCUMENTS. Since November 11,
1999, Buyer has timely filed with the SEC all forms, reports, registration
statements, and documents required to be filed by it under the Securities
Act or Exchange Act. Buyer has delivered to the Company true and complete
copies of (i) the Buyer's Annual Report on Form 10-K for its fiscal year
ended December 31, 1999, (ii) its Quarterly Report on Form 10-Q for its
fiscal quarter ended September 30, 2000 (the "SEPTEMBER 2000 10-Q"), and
(iii) all other forms, reports, registration statements, and documents filed
by Buyer with the SEC since November 11, 1999 (collectively, all of the
foregoing documents, "BUYER'S SEC REPORTS"). As of their respective dates,
Buyer's SEC Reports complied in all material respects with all applicable
requirements of the Securities Act and the Exchange Act and the rules and
regulations promulgated thereunder, and did not contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. None of Buyer's
SEC Reports is required to be amended or supplemented as of the date hereof.
The financial statements (including any related notes) of Buyer included in
Buyer's SEC Reports were prepared in conformity with generally accepted
accounting principles applied on a consistent basis (except as otherwise
stated in the financial statements or, in the case of audited statements,
the related report of Buyer's independent certified public accountants) and
present fairly, in all material respects, the consolidated financial
position, results of operations, changes in stockholders' equity, and cash
flows, as applicable, of Buyer and its consolidated Subsidiaries as of the
dates and for the periods indicated; subject, in the case of unaudited
interim consolidated financial statements included in the September 2000
10-Q, to condensation, the absence of footnote disclosure, and normal,
recurring end-of-period adjustments.
8.6. CAPITALIZATION. The authorized capital stock of Buyer consists of
85,000,000 shares of Buyer Common Stock, with one vote per share on all
matters on which shareholders are entitled to vote under the DGCL, and
15,000,000 shares of Preferred Stock, $0.001 par value per share. No shares
of such Preferred Stock are issued and outstanding. All of the outstanding
shares of Buyer
A-26
Common Stock were issued in compliance with all applicable laws, including
securities laws and all applicable preemptive and similar rights of any
person. No person has the right to rescind any purchase of any shares of
Buyer's capital stock or other securities.
As of December 12, 2000 (i) 34,200,458 shares of Buyer Common Stock were
issued and outstanding, all of which were duly authorized, validly issued,
fully paid and non-assessable, and (ii) outstanding options granted pursuant
to the Buyer's 1997 Stock Incentive Plan (the "BUYER STOCK PLAN") are
3,928,547. Since December 12, 2000, no shares of Buyer Common Stock have
been issued except upon the exercise of options granted under the Buyer
Stock Plan.
Except (i) as set forth in Section 8.6 of the Buyer Disclosure Schedule,
(ii) as set forth in Buyer's SEC Reports filed prior to the date hereof, and
(iii) for up to 668,499 shares exercisable under stock options issued or to
be issued pursuant to the Buyer Stock Plan, there are no agreements or other
obligations on the part of Buyer to purchase or sell, no convertible or
exchangeable securities, options, warrants or other rights to acquire from
Buyer any shares of its capital stock or other securities.
8.7. ABSENCE OF UNDISCLOSED LIABILITIES. Except to the extent (a)
reflected or reserved against in the balance sheet set forth in September
2000 10-Q, or (b) incurred with persons other than any Affiliate of Buyer in
the ordinary course of business after the filing date of the September 2000
10-Q, Buyer does not have any liabilities or obligations of any nature
(including obligations or liabilities relating to any violation of law),
whether accrued, absolute, contingent or otherwise (including, without
limitation, liabilities, as guarantor or otherwise, in respect of
obligations of others) other than performance obligations with respect to
the contracts that would not be required to be reflected or reserved against
in a balance sheet prepared in accordance with GAAP or referred to in the
footnotes thereto, except such liabilities and obligations which,
individually or in the aggregate, would not have a Material Adverse Effect
on Buyer.
8.8. REGISTRATION RIGHTS. Except as set forth in Section 8.8 of the
Buyer Disclosure Schedule or as provided by the Registration Rights
Agreement, no person has any right to cause Buyer to effect the registration
under the Securities Act of any shares of Buyer Common Stock or any other
securities of Buyer.
8.9. STATEMENTS TRUE AND CORRECT. No statement, certificate,
instrument or other writing furnished or to be furnished by Buyer or Merger
Sub or any Affiliate thereof to Company pursuant to this Agreement or any
other document, agreement or instrument referred to herein contains or will
contain any untrue statement of material fact or will omit to state a
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. None of the
information supplied or to be supplied by Buyer or Merger Sub or any
Affiliate thereof for inclusion in any documents to be filed by Buyer or
Merger Sub or any Affiliate thereof with the SEC or any other regulatory
authority in connection with the transactions contemplated hereby, will, at
the respective time such documents are filed, be false or misleading with
respect to any material fact, or omit to state any material fact necessary
to make the statements therein, in light of the circumstances under which
they were made, not misleading. All documents that Buyer of Merger Sub or
any Affiliate thereof is responsible for filing with any regulatory
authority in connection with the transactions contemplated hereby will
comply as to form in all material respects with the provisions of applicable
law.
8.10. LITIGATION. Except as set forth in Section 8.10 of the Buyer
Disclosure Schedule, no litigation, arbitration, action, suit, proceeding,
or to Buyer's knowledge investigation (whether conducted by any judicial or
regulatory body, arbitrator, or other person) is pending or, to Buyer's
knowledge, threatened, against Buyer or Merger Sub.
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8.11. BROKERS. Except for Robertson Stephens, no finder, broker,
agent, or other intermediary has acted for or on behalf of Buyer in
connection with the negotiation, preparation, execution, or delivery of this
Agreement or the consummation of the Merger or the other transactions
contemplated hereby.
8.12. ABSENCE OF CERTAIN CHANGES. Since the date of filing of the
September 10-Q, except as set forth in Section 8.12 of the Buyer Disclosure
Schedules there has not been: (i) any change in the assets, liabilities,
sales, income, or business of the Buyer or in its relationships with
suppliers, customers, or lessors, other than changes that (A) were both in
the ordinary course of business and would not have been required to be
disclosed pursuant to the Exchange Act or (B) have not had or could not
reasonably be expected to have, either in any case or in the aggregate, a
Material Adverse Effect on Buyer; (ii) any damage, destruction or loss,
whether or not covered by insurance, materially and adversely affecting,
either in any case or in the aggregate, the property or business of Buyer;
(iii) any declaration, setting aside or payment of any dividend or any other
distributions in respect of any shares of capital stock of Buyer; (iv) any
direct or indirect redemption, purchase, or other acquisition by Buyer of
any such capital stock or rights to acquire capital stock; or (v) any
forgiveness or cancellation of any debt or claim by Buyer or any waiver of
any right of material value, other than compromises of accounts receivable
in the ordinary course of business.
8.13. EMPLOYEE BENEFIT PLANS.
(a) IDENTIFICATION OF PLANS. Except as set forth in Section 8.13 of
the Buyer Disclosure Schedule, Buyer does not now maintain or contribute to,
and does not have any outstanding liability to or in respect of or
obligation under, any pension, profit-sharing, deferred compensation, bonus,
stock option, employment, share appreciation right, severance, group or
individual health, dental, medical, life insurance, survivor benefit, or
similar plan, policy, arrangement or agreement, whether formal or informal,
written or oral, for the benefit of any director, officer, consultant or
employee, whether active or terminated, of Buyer. Each of the arrangements
set forth on Section 8.13(a) of the Buyer Disclosure Schedule is here
referred as a "BUYER BENEFIT PLAN", except that any such arrangement which
is a multi-employer plan shall be treated as a Buyer Benefit Plan only for
purposes of Sections 8.13(d)(ii), (vi) and (viii) and 8.13(g) below.
(b) DELIVERY OF DOCUMENTS. Prior to the Effective Time, Buyer will
deliver to the Company true, correct and complete copies of each Buyer
Benefit Plan, and with respect to each such Plan true, correct and complete
copies of (i) any associated trust, custodial, insurance or service
agreements, (ii) any annual report, actuarial report, or disclosure
materials (including specifically any summary plan descriptions) submitted
to any governmental agency or distributed to participants or beneficiaries
thereunder in the current or any of the three (3) preceding calendar years
and (iii) the most recently received IRS determination letters, if any, and
any governmental advisory opinions, rulings, compliance statements, closing
agreements, or similar materials specific to such Plan.
(c) COMPLIANCE WITH TERMS AND LAW. Each Buyer Benefit Plan is and has
heretofore been maintained and operated in compliance with the terms of such
Plan and in compliance, in all material respects, with the requirements
prescribed (whether as a matter of substantive law or as necessary to secure
favorable tax treatment) by any and all applicable statutes, governmental or
court orders, or governmental rules or regulations in effect from time to
time, including but not limited to the Employee Retirement Income Security
Act of 1974, as amended ("ERISA") and the Code and applicable to such Plan.
Each Buyer Benefit Plan which is intended to qualify under Section 401(a) of
the Code and each trust or other entity intended to qualify as a "voluntary
employee benefit association" within the meaning of Section 501(c)(9) of the
Code and associated with any Buyer Benefit Plan is expressly identified as
such on Section 8.13(a) of the Buyer
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Disclosure Schedule and has been determined to be so qualified by the IRS
and, to the knowledge of Buyer, nothing has occurred as to each which has
resulted or is likely to result in the revocation of such determination or
which requires or could, to the knowledge of Buyer, reasonably be expected
to require action under the compliance resolution programs of the Internal
Revenue Service to preserve such qualification.
(d) ABSENCE OF CERTAIN EVENTS AND ARRANGEMENTS. Except as set forth on
Section 8.13(d) of the Buyer Disclosure Schedule,
(i) there is no pending or, to the knowledge of Buyer, threatened
legal action, proceeding or investigation, other than routine claims for
benefits, concerning any Buyer Benefit Plan or to the knowledge of Buyer
any fiduciary or service provider thereof and, to the knowledge of Buyer,
there is no basis for any such legal action or proceeding;
(ii) no liability (contingent or otherwise) to the Pension Benefit
Guaranty Corporation ("PBGC") or any multi-employer plan has been
incurred by Buyer or any of its Affiliates (other than insurance premiums
satisfied in due course);
(iii) no reportable event, or event or condition which presents a
material risk of termination by the PBGC, has occurred with respect to
any Buyer Benefit Plan, or any retirement plan of an Affiliate of Buyer,
which is subject to Title IV of ERISA;
(iv) neither Buyer, nor, to Buyer's knowledge, any other party in
interest with respect to any Buyer Benefit Plan, has engaged in a
prohibited transaction known to Buyer which could subject Buyer directly
or indirectly to liability under Section 409 or 502(i) of ERISA or
Section 4975 of the Code;
(v) no Buyer Benefit Plan provides welfare benefits subsequent to
termination of employment to employees or their beneficiaries except to
the extent required by applicable state insurance laws and Title I, Part
6 of ERISA;
(vi) Buyer has not announced its intention to modify or terminate any
Buyer Benefit Plan or adopt any arrangement or program which, once
established, would come within the definition of an Buyer Benefit Plan;
and
(vii) Buyer has not undertaken to maintain any Buyer Benefit Plan for
any period of time and each such Plan is terminable at the sole
discretion of the sponsor thereof, subject only to such constraints as
may imposed by applicable law.
(e) FUNDING OF CERTAIN PLANS. With respect to each Buyer Benefit Plan
for which a separate fund of assets is or is required to be maintained, full
and timely payment has been made of all amounts required of Buyer, under the
terms of each such Plan or applicable law, as applied through the Closing
Date, and no accumulated funding deficiency (as defined in Section 302 of
ERISA and Section 412 of the Code), whether or not waived, exists with
respect to any such Plan. The current value of the assets of each such Buyer
Benefit Plan, as of the end of the most recently ended plan year of that
Plan, equals or exceeded the current value of all benefits liabilities under
that Plan.
(f) EFFECT OF TRANSACTIONS. Except as set forth in Section 8.13(f) of
the Buyer Disclosure Schedule, the execution of this Agreement and the
consummation of the transactions contemplated herein will not, by itself or
in combination in any other event (regardless of whether that other event
has or will occur), result in any payment (whether of severance pay or
otherwise) becoming due from or under any Buyer Benefit Plan (including any
employment agreement) to any current or former director, officer, consultant
or employee of Buyer or result in the vesting, acceleration of payment or
increases in the amount of any benefit payable to or in respect of any such
current or former director, officer, consultant or employee.
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(g) MULTI-EMPLOYER PLANS. No Buyer Benefit Plan is a multi-employer
plan.
(h) DEFINITIONS. For purposes of this Section 8.13, "multi-employer
plan", "party in interest" "current value", "reportable event" and "benefit
liability" have the same meaning assigned such terms under Sections 3,
4043(b) or 4001(a) of ERISA, and "affiliate" means any entity which under
Section 414 of the Code is treated as a single employer with Buyer.
8.14. INTELLECTUAL PROPERTY
(a) As used herein: "INTELLECTUAL PROPERTIES" means intellectual
property or proprietary rights of any description including without
limitation (i) rights in any patent, patent application, copyright,
industrial design, URL, domain name, trademark, service mark, logo, trade
dress or trade name, (ii) related registrations and applications for
registration, (iii) trade secrets, moral rights or publicity rights, (iv)
inventions, discoveries, or improvements, modification, know-how, technique,
methodology, writing, work of authorship, design or data that are necessary
or useful to operate the business of the Buyer as currently conducted and
proposed by the Buyer to be conducted or to market, sell, design, make, have
made, service, maintain, install, operate, use or test the Product(s) and
develop enhanced or new products, whether or not patented, patentable,
copyrightable or reduced to practice, including but not limited to any
inventions, discoveries, improvements, modification, know-how, technique,
methodology, writing, work of authorship, design or data embodied or
disclosed in any: (1) computer source codes (human readable format) and
object codes (machine readable format); (2) specifications; (3)
manufacturing, assembly, test, installation, service and inspection
instructions and procedures; (4) engineering, programming, service and
maintenance notes and logs; (5) technical, operating and service and
maintenance manuals and data; (6) hardware reference manuals; and (7) user
documentation, help files or training materials, and (v) good will related
to any of the foregoing. "PRODUCTS" means all products and services,
including all related software, now being provided by the Buyer, and those
products, services and software actively proposed to be provided by the
Buyer.
(b) Section 8.14(b) of the Buyer Disclosure Schedule lists the major
service categories of Buyer, and the patent, trademark, copyright and domain
name Intellectual Properties (other than off-the-shelf software programs
that have not been customized for its use) material to and used in or
necessary to the business of the Buyer as now being conducted and proposed
by the Buyer to be conducted (the "MAJOR INTELLECTUAL PROPERTIES"). The
Buyer owns, or is licensed or otherwise has the right to use, all Major
Intellectual Properties other than off-the-shelf software programs that have
not been customized for its use (the "BUYER INTELLECTUAL PROPERTIES"), free
and clear of all liens, claims and encumbrances, except for such liens,
claims and encumbrances as do not materially impair the Buyer's ability to
use, exploit, license and distribute such Buyer Intellectual Properties.
Except as otherwise indicated in Section 8.14(b) of the Buyer Disclosure
Schedule, the Buyer is not required to pay any royalties or further
consideration for the use of any Buyer Intellectual Properties that the
Buyer has licensed from other Persons. The Buyer possesses previous versions
of any software (other than off-the-shelf software that has not been
customized for its use), whenever a previous version exists, that are
purchased or licensed from third parties and that are used to provide
Products such that the Buyer can recreate the current and next most recent
versions of any Buyer Intellectual Properties.
(c) The Buyer's Products, including all related software, are free from
material defects and perform in substantial accordance with all published
specifications (if any).
(d) Except as set forth in Section 8.14(d) of the Buyer Disclosure
Schedule, the Buyer has not granted any third party any right to
manufacture, reproduce, distribute or market any of the Buyer's Products or
any adaptations, translations, or derivative works based on the Buyer's
Products or any portion thereof.
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(e) Except as set forth in Section 8.14(e) of the Buyer Disclosure
Schedule, the Buyer has not granted any third party any right to license any
of the Buyer's Products except under valid and binding written software
license agreements.
(f) Except as set forth in Sections 8.14(d) and 8.14(f) of the Buyer
Disclosure Schedule, no third party has been licensed to use, or has lawful
access to any source code developed in respect of the Buyer's Products.
(g) Except as set forth in Section 8.14(g) of the Buyer Disclosure
Schedule, all of which have been resolved prior to the date of this
Agreement, no product liability or product warranty claims have been
communicated in writing to or threatened in writing against the Buyer.
(h) In any instance where the Buyer's rights to Buyer Intellectual
Properties arise under a license or similar agreement (other than for
off-the-shelf software programs that have not been customized for its use),
this is indicated in Section 8.14(b) of the Buyer Disclosure Schedule. No
other person has an interest in or right or license to use any of the Buyer
Intellectual Properties owned by the Buyer, except as set forth in Section
8.14(d) of the Buyer Disclosure Schedule. To the Buyer's knowledge, there is
and has been no material unauthorized use, disclosure, infringement or
misappropriation of any Buyer Intellectual Properties owned by the Buyer by
any third party. To the Buyer's knowledge, none of the Buyer Intellectual
Properties owned by the Buyer or licensed to the Buyer on an exclusive basis
is being infringed by others, or is subject to any outstanding order,
decree, judgment, or stipulation. Except as set forth in section 8.14(i) of
the Buyer Disclosure Schedules, no litigation (or other proceedings in or
before any court or other governmental, adjudicatory, arbitral, or
administrative body) relating to the Buyer Intellectual Properties owned by
the Buyer or licensed to the Buyer on an exclusive basis is pending, or to
the Buyer's knowledge, threatened against the Buyer, nor, to the Buyer's
knowledge, is there any valid basis for any such litigation or proceeding.
None of the Buyer Intellectual Properties owned by the Buyer or licensed to
the Buyer on an exclusive basis is subject to any outstanding order, decree,
judgment, or stipulation. The Buyer maintains reasonable security measures
for the preservation of the secrecy and proprietary nature of such of its
Buyer Intellectual Properties that constitute trade secrets or other
confidential information.
(i) Except as set forth in Section 8.14(i) of the Buyer Disclosure
Schedule, to the Buyer's knowledge, the Buyer has not infringed or made
unlawful use of, and is not infringing or making unlawful use of, any
Intellectual Properties of any other person. Except as set forth in Section
8.14(i) of the Buyer Disclosure Schedule, no litigation (or other
proceedings in or before any court or other governmental, adjudicatory,
arbitratory, or administrative body) charging the Buyer with infringement or
unlawful use of any Intellectual Properties is pending, or to the Buyer's
knowledge, threatened against the Buyer, nor, to the Buyer's knowledge, is
there any valid basis for any such litigation or proceeding.
(j) Each person presently or previously employed by the Buyer (including
independent contractors, if any) with access authorized by the Buyer to
confidential information relating to the Buyer Intellectual Properties has
executed a confidentiality and non-disclosure agreement pursuant to an
agreement substantially in the form of agreement previously provided to
Buyer or its representatives and such confidentiality and non-disclosure
agreements constitute valid and binding obligations of the Buyer and, to the
Buyer's knowledge, of such person, enforceable in accordance with their
respective terms. All Buyer Intellectual Properties that are owned by the
Buyer were written, developed and created solely and exclusively by
employees of the Buyer (and all rights in and to all Buyer Intellectual
Properties are owned by the Buyer) without the assistance of any third party
or entity OR were created by or with the assistance of third parties who
assigned ownership of their rights (including all intellectual property
rights) in such Buyer Intellectual Properties to the Buyer by means of valid
and enforceable consultant confidentiality and invention assignment
agreements, copies of which have been delivered to Buyer. All Buyer
Intellectual
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Properties that are licensed to the Buyer (other than off-the-shelf software
programs that have not been customized for its use) are identified in
Schedule 8.14(b), and copies of such license agreements have been made
available to Buyer.
(k) All use, disclosure or appropriation by the Buyer (or its employees
or agents) of confidential information relating to Intellectual Properties
not otherwise protected by patents, patent applications or copyright
("CONFIDENTIAL INFORMATION") owned by the Buyer and licensed to a third
party has been pursuant to the terms of a written agreement between the
Buyer and such third party. All use, disclosure or appropriation by the
Buyer (or its employees or agents) of Confidential Information not owned by
the Buyer has been made pursuant to the terms of a written agreement between
the Buyer and the owner of such Confidential Information, or is otherwise
lawful.
(l) Section 8.14(b) of the Buyer Disclosure Schedule contains an
accurate and complete description of all patents and patent applications,
trademarks (with separate listings of registered and unregistered
trademarks), trade names, major Internet Domain Names and registered or
unregistered copyrights in or related to the Buyer Products or otherwise
included in the Buyer Intellectual Properties and all applications and
registrations therefor. To the knowledge of Buyer, all of Buyer's patents,
patent rights, copyrights, trademark, trade name or Internet domain name
registrations related to or in the Buyer Products are valid and in full
force and effect; and consummation of the transactions contemplated by this
Agreement will not alter or impair any such rights.
(m) To the Buyer's knowledge, all of the Buyer's material information
technology systems and material non information technology embedded systems
(including systems or technology currently under development) will record,
store, process, calculate and present calendar dates falling on or after
(and, if applicable, during spans of time including) January 1, 2000, and
will calculate all information dependant on or relating to such date in the
same manner, and with the same functionality, data integrity and
performance, as the information technology systems and non information
technology embedded systems record, store, process, calculate and present
calendar dates on or before December 31, 1999, or calculate and information
dependent on or relating to such date.
8.15 TAX-FREE REORGANIZATION. It is the present intention of Buyer to
continue at least one significant historic business line of the Company, or
to use at least a significant portion of the Company's historic business
assets in a business, in each case within the meaning of Treas.
Reg. Section 1.368-1(d).
9. MUTUAL COVENANTS; ADDITIONAL AGREEMENTS.
9.1. SATISFACTION OF CONDITIONS. Each of the parties will use its
reasonable best efforts to cause the satisfaction on or before January 30,
2001, of the conditions contained in Sections 12 through 14 of this
Agreement that impose obligations on it or require action on its part or the
part of any of its stockholders or Affiliates.
9.2. FURTHER ASSURANCES. Subject to the terms and conditions set forth
in this Agreement, from time to time both before and after the Effective
Time, each of the parties will use his or its reasonable best efforts, as
promptly as is practicable to take or cause to be taken all actions, and to
do or cause to be done all other things, as are necessary, proper, or
advisable to consummate and make effective the Merger and the other
transactions contemplated hereby. In the event the Secretary of State of the
State of Delaware raises any technical objection to the terms of this
Agreement as part of the Certificate of Merger, the parties hereto agree to
restate and amend this Agreement to eliminate such objection so long as such
amendment does not adversely affect any party hereto.
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9.3. HSR ACT. Each of the parties will:
(a) as promptly as is practicable, but in any event within ten (10)
business days following the execution of this Agreement, make its required
filings under the HSR Act;
(b) as promptly as is practicable after receiving any governmental
request under the HSR Act for additional information, documents, or other
materials, use its best reasonable efforts to comply with such request;
(c) cooperate with the other in connection with resolving any
governmental inquiry or investigation relating to their respective HSR Act
filings, the Merger, or any related inquiry or investigation;
(d) promptly inform the other of any communication with, and any
proposed understanding, agreement, or undertaking with any governmental
entity relating to their respective HSR Act filings, the Merger, or any
related inquiry or investigation; and
(e) to the extent reasonably practicable, give the other reasonable
advance notice of, and the opportunity to participate in (directly or
through its representatives), any meeting or conference with any
governmental entity relating to their respective HSR Act filings, the
Merger, or any related inquiry or investigation.
9.4. BUYER STOCKHOLDER MEETING; PROXY STATEMENT. Buyer shall call a
meeting of its stockholders, to be held as soon as reasonably practicable
after the date of this Agreement, for the purpose of voting upon adoption of
this Agreement and the Merger and such other related matters as it deems
appropriate, including the election, subject to the consummation of the
transactions contemplated hereby, of Daniel J. Price as a Class I Director
of Buyer. In connection with such meeting, (i) Buyer shall prepare mail to
its stockholders, a proxy statement and (ii) Company shall furnish to Buyer
all information concerning Company and its stockholders that Buyer may
reasonably request in connection with the preparation of such proxy
statement.
9.5. SECURITIES LAWS FILINGS. Buyer and Company shall make all
necessary filings with respect to the Merger under the Securities Laws.
9.6. FUNDING OF MERGER SUB OBLIGATIONS. Buyer shall provide Merger Sub
with the funding necessary to satisfy its obligations under this Agreement.
9.7. REORGANIZATION TREATMENT. Each of Buyer, Merger Sub, the Company
and the Company Stockholders shall (i) make all reasonable efforts to cause
the Merger to be treated as a reorganization described in Section 368(a) of
the Code and not take any action materially adverse to such treatment, (ii)
not file any return or take any position inconsistent with the treatment of
the Merger as a reorganization described in Section 368(a) of the Code,
(iii) comply with the record-keeping and information reporting requirements
set forth in Treas. Reg. Section 1.368-3 and (iv) not, to the extent not
inconsistent with any applicable law, rule, or regulation, file any return
or take any position inconsistent with the Company's prior position that the
Company Options designated on the Company's books and records as "INCENTIVE
STOCK OPTIONS" qualify as such under Code Section 422.
9.8. TREATMENT OF BRIDGE LOANS. Each of Buyer, Merger Sub and the
Company (i) acknowledges and agrees that the Bridge Loans are indebtedness
of the Company to Buyer, (ii) will treat the Bridge Loans as indebtedness of
the Company for all purposes, and (iii) will reflect the Bridge Loans on
their respective books, records, and tax returns in a manner consistent with
such treatment.
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10. CONDUCT OF THE COMPANY'S BUSINESS PENDING THE CLOSING. The Company
covenants and agrees that, from and after the date of this Agreement and until
the Closing, except as otherwise specifically consented to or approved by Buyer
in writing:
10.1. FULL ACCESS. The Company will afford to Buyer and its authorized
representatives, upon reasonable notice, full access during normal business
hours to all properties, books, records, contracts, and documents of the
Company and a full opportunity to make such investigations as they will
desire to make of the Company, and the Company will furnish or cause to be
furnished to Buyer and its authorized representatives all such information
with respect to the affairs and businesses of the Company as Buyer may
reasonably request, except to the extent that such access and opportunity
cannot be provided and such information can be furnished without
unreasonably interfering with the business of the Company.
10.2. CARRY ON IN REGULAR COURSE. The Company will maintain its owned
and leased properties in good operating condition and repair, will make all
necessary renewals, additions, and replacements thereto, will carry on its
businesses diligently and substantially in the same manner as heretofore,
and will not make or institute any material new, unusual, or novel methods
of manufacture, purchase, sale, lease, management, accounting, or operation
or take or permit to occur or exist any action or circumstance referred to
in Section 6.8 hereof, except to the extent necessary to comply with
outstanding contractual obligations otherwise disclosed in this Agreement or
as contemplated by this Agreement. The Company will not incur any material
additional Indebtedness (as defined in Section 19.1).
10.3. NO DIVIDENDS, ISSUANCES, REPURCHASES, ETC. Except pursuant to
the exercise of Company Options in accordance with the terms thereof, and as
required by the terms of those agreements listed on Schedule 10.3 of the
Company Disclosure Schedule, the Company will not declare, set aside, or pay
any dividends (whether in cash, shares of stock, other property, or
otherwise) on, or make any other distribution in respect of, any shares of
its capital stock or other securities, or issue, purchase, redeem, or
otherwise acquire for value any shares of its capital stock or other
securities.
10.4. NO COMPENSATION CHANGES OR ADDITIONAL PAYMENTS. (a) The Company
will not increase the compensation payable or to become payable to any of
its officers or directors or (except for increases made in the usual and
ordinary course of business and consistent with past practices) any of its
key employees or agents, or pay or commit to pay at any time in the future
any bonus, insurance, pension, or other benefit plan payment, or arrangement
made to, for, or with any such officers, directors, key employees or agents
other than those payments set forth in Section 10.4 of the Company
Disclosure Schedule, which Section 10.4 describes in reasonable detail the
circumstances under which such payments may be made, nor will it effect any
general or uniform increase in the compensation payable or to become payable
to its employees, including without limitation any increase in the benefits
under any bonus or pension plan or other contract or commitment.
(b) The Company shall not issue any options, warrants or other
securities exercisable for or convertible into shares of Company Common
Stock, or any other security of the Company, except that the Company may,
(i) immediately prior to the Effective Time, pursuant to the Company
Restricted Stock Plan (as defined in Section 10.20), issue up to 2,750,000
shares of Class A Common Stock of the Company to certain Company employees
in the respective amounts for such employees listed in Section 10.4(b) of
the Company Disclosure Schedule (the "COMPANY RESTRICTED SHARES"), and (ii)
from time to time prior to the Effective Time, issue options to purchase a
number of shares of Company Common Stock that, when added to the number of
shares of Company Common Stock issuable upon the exercise of Company Stock
Options issued on or after November 1, 2000, does not exceed 384,500 shares
of Company Common Stock (the "NEW OPTION NUMBER"), to new hires of the
Company pursuant to the Company Stock Plan, PROVIDED, that, in
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the event the Termination Date is extended past February 28, 2001, the
Company may issue additional Company Options to new hires in excess of the
New Option Number upon the consent of the Buyer, such consent not to be
unreasonably withheld, and PROVIDED, FURTHER, (i) any grant or grants of
options to purchase in excess of 40,000 shares of the Company Common Stock
in the aggregate to any single individual may be made only after
consultation with, and receipt of approval from, the Chief Executive Officer
of Buyer, which approval may be withheld by such Chief Executive Officer for
any reason or no reason in his sole discretion; (ii) such option grants are
made within the guidelines (including exercise price, number of shares and
vesting period) set forth in Section 10.4(b) of the Buyer Disclosure
Schedule, and (iii) such option grants are made with exercise or "strike"
prices equal to the fair market value of the underlying shares of Company
Common Stock (giving due consideration to the execution and delivery of this
Agreement and the transactions contemplated hereby). Any grants of
Restricted Shares shall be made pursuant to Restricted Stock Award
Agreements in a form mutually acceptable to Buyer and the Company (each, a
"RESTRICTED STOCK AWARD AGREEMENT").
10.5. CONTRACTS AND COMMITMENTS. Except for those contracts,
commitments or transactions for which the Company has received the prior
written consent of Buyer, the Company will not enter into any material
contract or commitment, or engage in any other transaction, with any of its
Affiliates, other than in the usual and ordinary course of business and
consistent with its normal past business practices.
10.6. PURCHASE AND SALE OF CAPITAL ASSETS. The Company will not
purchase, lease as lessee, license as licensee, or otherwise acquire any
interest in, or sell, lease as lessor, license as licensee, or otherwise
dispose of any interest in, any capital asset(s) other than (i) in the
ordinary course of business, (ii) with respect to dispositions, having a
market value of less than $10,000 in any instance, or less than $50,000 in
the aggregate, or (iii) in the case of acquisitions, as set forth in Section
10.6(iii) of the Company Disclosure Schedule, or (iv) to the extent
necessary in order to comply with outstanding contractual obligations under
agreements specified in Section 6.20 of the Company Disclosure Schedule or
as contemplated by this Agreement or the transactions contemplated hereby.
10.7. NO INVESTMENTS. The Company will not establish any subsidiary or
make or commit to make any investment in any subsidiary or other person.
10.8. INSURANCE. The Company will maintain with reputable insurance
companies, funds or underwriters adequate insurance (including without
limitation the insurance referred to on Section 6.22 of the Company
Disclosure Schedule) of the kinds, covering such risks, in such amounts, and
with such deductibles and exclusions, as are consistent, in the reasonable
judgment of the Company, with prudent business practice.
10.9. PRESERVATION OF ORGANIZATION. The Company will use its
reasonable best efforts to preserve its business organization intact, to
keep available for the benefit of the Surviving Corporation its present
officers and key employees and consultants, and to preserve for the benefit
of the Surviving Corporation its present business relationships with its
material suppliers and customers and others having business relationships
with it.
10.10. NO DEFAULT. The Company will not take or omit to take any
action, or permit any action or omission to act, within the Company's
reasonable control, that would cause a material default under or a material
breach of any of its contracts, commitments, or obligations.
10.11. COMPLIANCE WITH LAWS. The Company will duly comply in all
material respects with all applicable laws, regulations, and orders.
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10.12. ADVICE OF CHANGE. The Company will promptly advise Buyer in
writing of any material adverse change in the business, assets, condition
(financial or otherwise), or operations of the Company.
10.13. NO SOLICITATION OF TRANSACTIONS. (a) The Company shall not,
directly or indirectly, through any representative or otherwise, initiate,
solicit or encourage (including by way of furnishing information), or take
any other action to facilitate, any inquiries or the making of any proposal
that constitutes, or may reasonably be expected to lead to, any Competing
Transaction (as defined below), or enter into or maintain or continue
discussions or negotiate with any person or entity in furtherance of such
inquiries or to obtain a Competing Transaction, or agree to or endorse any
Competing Transaction, or authorize or permit any of its representatives to
take any such action.
(b) For purposes of this Agreement, "COMPETING TRANSACTION" shall mean
any of the following involving the Company (other than the Merger and the
other transactions contemplated in this Agreement): (i) any merger,
consolidation, share exchange, business combination, issuance or purchase of
securities or other similar transaction , (ii) any sale, lease, exchange,
mortgage, pledge, transfer or other disposition of the assets of the Company
in a single transaction or series of related transactions; (iii) any tender
offer or exchange offer for the Company's securities or the filing of a
registration statement under the Securities Act in connection with any such
exchange offer; in the case of clause (i), (ii) or (iii) above, which
transaction would result in a third party (or its shareholders) or
affiliates acquiring, individually or in the aggregate, more than 15% of the
voting securities of the Company then outstanding or more than 15% of the
assets of the Company and its subsidiaries, taken as a whole; (iv) any
solicitation in opposition to adoption by the Company's stockholders of this
Agreement; or (v) any announcement of an agreement, proposal, plan or
intention to do any of the foregoing, either during the effectiveness of
this Agreement or at any time thereafter.
10.14. CONSENT OF THIRD PARTIES. The Company shall employ its
reasonable best efforts to secure, before the Closing, the consent, in form
and substance reasonably satisfactory to Buyer and Buyer's counsel, to the
consummations of the transactions contemplated by the Agreement by each
party to the contracts, commitments or obligations of the Company listed in
Section 10.14 of the Company Disclosure Schedule.
10.15. SATISFACTION OF CONDITIONS PRECEDENT. The Company shall use its
reasonable best efforts to cause the satisfaction of the conditions
precedent contained in Sections 12 and 14 hereof.
10.16. DISCLOSURE SUPPLEMENTS. From time to time before the Closing,
and in any event immediately before the Closing, the Company will promptly
advise Buyer in writing of any matter hereafter arising or becoming known to
it that, if existing, occurring, or known at or before the date of this
Agreement, would have been required to be set forth or described in the
Company Disclosure Schedule, or that is necessary to correct any information
in the Company Disclosure Schedule that is or has become inaccurate
(collectively, the "COMPANY SUPPLEMENTAL DISCLOSURES"), and such Company
Supplemental Disclosures shall be deemed to update the information set forth
in the Company's and Principal Company Stockholders' representations and
warranties and Company Disclosure Schedule only for purposes of determining
the accuracy of such representations and warranties as of the Closing Date.
10.17. TAX ELECTIONS. The Company will not make any election with
respect to Taxes or adopt any change in any method of accounting for federal
income tax purposes without the written consent of Buyer.
10.18. 401(k) PLAN. If requested by the Buyer prior to the Effective
Time, the Company shall take all actions reasonably necessary or
appropriate, including any actions required to be
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taken by the Board of Directors of the Company, to cause the termination, or
other modification as contemplated by Section 11.8 hereof, of the Company's
401(k) plan, effective as of the Effective Time.
10.19. AUDIT ROLL-FORWARD. The Company shall use its reasonable best
efforts to cause KPMG, LLP to conduct such procedures as KPMG, LLP deems
reasonably necessary and appropriate as of a preliminary date to allow the
Company and Buyer to prepare, as soon as reasonably practicable after the
Effective Time, financial statements of the Company for the Company's fiscal
year ended December 31, 2000, and an opening balance sheet as of the
Effective Time, each to be prepared in accordance with GAAP.
10.20. COMPANY RESTRICTED STOCK PLAN. As soon as practicable following
the date of this Agreement, the Company shall adopt the Company's 2000
Restricted Stock Plan (the "COMPANY RESTRICTED STOCK PLAN") in the form
attached hereto as Exhibit 10.20.
11. BUYER'S AND MERGER SUB'S COVENANTS. Buyer and Merger Sub covenant and
agree that, except as otherwise specifically consented to or approved by the
Company in writing:
11.1. COMPLIANCE WITH LAWS. Buyer and each of its Subsidiaries will
duly comply in all material respects with all applicable laws, regulations,
and orders.
11.2. ADVICE OF CHANGE. Buyer will promptly advise the Company in
writing of any material adverse effect in the business, assets, condition
(financial or otherwise) or operations of Buyer.
11.3. CONSENT OF THIRD PARTIES. Buyer shall employ its reasonable best
efforts to secure, before the Closing, the consent, in form and substance
reasonably satisfactory to the Company and the Company's counsel, to the
consummation of the transactions contemplated by the Agreement, by each
party to any material contract, commitment or obligation of Buyer, in each
case under which such consent is required and the failure of which to obtain
such consent would be materially adverse to Buyer.
11.4. SATISFACTION OF CONDITIONS PRECEDENT. Buyer shall use its
reasonable best efforts to cause satisfaction of the conditions precedent
contained in Sections 12 and 13 hereof.
11.5. DISCLOSURE SUPPLEMENTS. From time to time before the Closing,
and in any event immediately before the Closing, Buyer will promptly advise
the Company in writing of any matter hereinafter arising or becoming known
to Buyer that, if occurring, or known to Buyer at or before the date of this
Agreement, would have been required to be set forth or described in the
Buyer Disclosure Schedule, or that is necessary to correct any information
in the Buyer Disclosure Schedule that is or has become inaccurate.
(collectively, the "BUYER SUPPLEMENTAL DISCLOSURES"), and such Buyer
Supplemental Disclosures shall be deemed to update the information set forth
in the Buyer's and Principal Buyer Stockholders' representations and
warranties and Buyer Disclosure Schedule only for purposes of determining
the accuracy of such representations and warranties as of the Closing Date.
11.6. STOCKHOLDERS MEETING. Buyer shall call a special meeting of
Buyer's stockholders, to be held as soon as reasonably practicable after the
date of this Agreement, to consider and vote upon the approval of this
Agreement and the Merger and the other transactions contemplated hereby,
including the election of Daniel J. Price as a Class I Director of the
Buyer. Buyer shall recommend to its stockholders the approval of this
Agreement and the Merger and the other transactions contemplated hereby and
shall use its reasonable best efforts to solicit and obtain the requisite
vote of approval. Nothing in this Section 11.6 shall be deemed to amend or
modify the obligations of any of the Principal Buyer Stockholders under any
separate agreement between the Company and such Principal Buyer
Stockholders, including but not limited to the Buyer Stockholder Voting
Agreement, requiring such Principal Buyer Stockholders to approve this
Agreement and the Merger.
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11.7. DIRECTORS' AND OFFICERS' INDEMNIFICATION AND INSURANCE. (a) The
By-Laws of the Surviving Corporation shall contain the respective provisions
that are set forth, as of the date of this Agreement, in Article Sixth of
the Company's Amended Certificate of Incorporation, which provisions shall
not be amended, repealed or otherwise modified for a period of six years
from the Effective Time in any manner that would affect adversely the rights
thereunder of individuals who at or at any time prior to the Effective Time
were directors, officers, employees, fiduciaries or agents of the Company.
(b) After the Effective Time, Buyer and the Surviving Corporation shall,
to the extent set forth under Article Sixth of the Company's Amended
Certificate of Incorporation, indemnify and hold harmless each current and
former director or officer of the Company and each Subsidiary of the Company
and each such person who served at the request of the Company or any
Subsidiary of the Company as a director, officer, trustee, partner,
fiduciary, employee or agent of another corporation, partnership, joint
venture, trust, pension or other employee benefit plan or enterprise
(collectively, for purposes of this Section 11.7 only, the "INDEMNIFIED
PARTIES") against all costs and expenses (including reasonable attorneys'
fees), judgments, fines, losses, claims, damages, liabilities and settlement
amounts paid in connection with any claim, action, suit, proceeding or
investigation (whether arising before or after the Effective Time), whether
civil, administrative, criminal or investigative, arising out of or
pertaining to any action or omission in their capacities as officers or
directors, in each case occurring before the Effective Time. Without
limiting the foregoing, in the event of any such claim, action, suit,
proceeding or investigation, (i) the Buyer and the Surviving Corporation, as
the case may be, shall pay the reasonable fees and expenses of one counsel
selected by any Indemnified Party, which counsel shall be reasonably
satisfactory to the Buyer and the Surviving Corporation, as the case may be,
promptly after statements therefor are received (unless the Surviving
Corporation shall elect to defend such action) and (ii) the Buyer and the
Surviving Corporation shall reasonably cooperate in the defense of any such
matter; provided, however, that neither the Buyer nor the Surviving
Corporation shall be liable for any settlement effected without its written
consent (which consent shall not be unreasonably withheld or delayed). In
the event that any claim or claims for indemnification are asserted or made
within such six-year period, all rights to indemnification in respect of any
such claim or claims shall continue until the disposition of any and all
such claims.
(c) For a period of six years after the Effective Time, Buyer shall
cause to be maintained in effect the current directors and officers
liability insurance policies maintained by the Company (provided that
coverage limits in the aggregate for the entire six year period are not less
than the current annual limits, and provided further that Buyer, with
consent of the Indemnified Parties, which consent shall not be unreasonably
withheld, may substitute policies of at least the same coverage with other
terms and conditions that are no less advantageous to the Indemnified
Parties) with respect to claims arising from facts or events that occurred
prior to the Effective Time; PROVIDED, HOWEVER, that in no event shall Buyer
be required to expend, pursuant to this Section 11.7(c), more than an amount
per year equal to 150% of current annual premiums paid by the Company for
such insurance; provided, further, however, that if the premiums for such
coverage exceed such amount, Buyer or the Surviving Corporation shall
purchase a policy with the greatest coverage available for such 150% of the
current annual premiums spent by the Company for its fiscal year ending
December 31, 2000.
(d) In the event Buyer or the Surviving Corporation or any of their
respective successors or assigns (i) consolidates with or merges into any
other person and shall not be the continuing or surviving corporation or
entity in such consolidation or merger or (ii) transfers all or
substantially all of its properties and assets to any person, then, and in
each case, proper provision shall be made so that the successors and assigns
of Buyer or the Surviving Corporation, as the case may be, honor the
indemnification obligations set forth in this Section 11.7.
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(e) Notwithstanding the foregoing, nothing in Section 11.7 shall limit
the Buyer's and the Merger Sub's remedies under Section 16.1 and 16.2 of
this Agreement or otherwise and arising in connection with this Agreement.
11.8. CERTAIN EMPLOYEE BENEFITS MATTERS.
(a) In the event the Merger is consummated, for a period of one year
following the Effective Time and effective upon the Effective Time, Buyer
shall, or shall cause the Surviving Corporation to, provide medical, 401(k),
life and disability benefits, and other employee benefit plans, generally,
to employees of the Surviving Corporation and its subsidiaries that, in the
aggregate, are substantially comparable to the medical, 401(k), life and
disability benefits and other benefits that were provided to such Surviving
Corporation employees under the employee benefit plans of the Company as in
effect immediately prior to the Effective Time and that have been disclosed
in the Company Disclosure Schedule. Without limiting the generality of the
foregoing:
(i) Buyer shall take such action or actions as may be necessary or
appropriate so that, under the iBasis, Inc. 401(k) Retirement Plan (the "IBASIS
PLAN"):
(A) Surviving Corporation employees who were participants in the
Company's 401(k) Retirement Plan (the "COMPANY PLAN") on the day before the
Effective Time shall become eligible to participate in the iBasis Plan as of
the Effective Time; and
(B) Surviving Corporation employees who were participants in the
PriceInteractive Plan on the day before the Effective Time shall, with
respect to their participation thereafter under the iBasis Plan, receive an
employer matching contribution approximating 50% of their pre-tax savings
contributions, to the extent not in excess of 6% of compensation; and
(ii) Buyer shall, or shall cause Surviving Corporation to, use its
reasonable best efforts to cause its medical insurance coverage to provide that,
for the plan year in which the Effective Time occurs, amounts incurred by
Surviving Corporation employees who were participants in the Company medical
plan as of the Effective Time will be recognized by the Buyer or Surviving
Corporation's medical plan for purposes of determining applicable out-of-pocket
deductibles, co-pays and maximums.
Nothing herein shall limit Buyer's authority under the iBasis Plan or Buyer's
medical insurance coverage to modify, amend or terminate either such program at
any time following the Effective Time. Any such modifications, amendments or
terminations within the initial year following the Effective Time shall be
considered in determining whether Buyer is in compliance with the initial
sentence of this Section 11.8(a), however.
(b) OPTION GRANTS. Notwithstanding anything to the contrary in this
Section 11.8, nothing in this Section 11.8 shall be deemed to require the
Buyer to make any option grants under the Buyer's Stock Plan or any other
stock-based plan of the Buyer (including the Company Option Plan, to the
extent assumed by the Buyer), PROVIDED, that the employees of the Surviving
Corporation shall be made eligible for grants of awards under the Buyer's
1999 Employee Stock Purchase Plan in accordance with the terms thereof; and
provided further that employees of the Surviving Corporation shall be deemed
to be employees of the Buyer for purposes of eligibility to receive stock
options pursuant to the Buyer Stock Plan.
12. MUTUAL CONDITIONS TO THE PARTIES' OBLIGATIONS. The parties'
obligations to consummate the Merger are subject to the satisfaction (or waiver
by the Company or Buyer, each in its sole discretion) of each of the conditions
set forth in this section on or before the Closing Date. If the Merger is
consummated, such conditions will conclusively be deemed to have been satisfied
or waived.
12.1. NO INJUNCTIONS OR RESTRAINTS. No temporary restraining order,
preliminary or permanent injunction, or other order issued by any court of
competent jurisdiction, or other legal
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restraint or prohibition preventing the consummation of the Merger, will be
in effect, and no petition or request for any such injunction or other order
will be pending.
12.2. PROCEEDINGS AND DOCUMENTS SATISFACTORY. All proceedings in
connection with the transactions contemplated by this Agreement and all
certificates and other documents delivered to such party pursuant to this
Agreement or in connection with the Closing will be reasonably satisfactory
to such party and his or its counsel.
12.3. ESCROW AGREEMENT. Buyer, the Stockholder Representatives, the
Principal Company Stockholders named therein, the Escrow Agent and the
Additional Escrow Parties shall have entered into the Escrow Agreement
substantially in the form attached as EXHIBIT 3.3 hereto.
12.4. GOVERNMENTAL CONSENTS. All consents, approvals, orders or
clearances of any governmental authority (including any approvals or
clearances under the HSR Act), the granting of which is required for the
consummation of the transactions contemplated by this Agreement, shall have
been obtained, and all waiting periods specified under applicable law, the
expiration of which is necessary for such consummation, shall have passed.
12.5. NASDAQ NATIONAL MARKET LISTING. The shares of Buyer Common Stock
into which shares of Company Common Stock will be converted in the Merger
will have been authorized for listing, subject to official notice of
issuance, on the Nasdaq National Market or such other exchange or automated
quotation system on which the Buyer Common Stock is then listed or quoted.
13. CONDITIONS TO THE COMPANY'S AND THE PRINCIPAL COMPANY STOCKHOLDERS'
OBLIGATIONS. The obligations of the Company and each of the Principal Company
Stockholders, respectively, to consummate the Merger are subject to the
satisfaction (or waiver by the Company, in its sole discretion) of each of the
conditions set forth in this section on or before the Closing Date. If the
Merger is consummated, such conditions will conclusively be deemed to have been
satisfied or waived.
13.1. REPRESENTATIONS AND WARRANTIES. Each of the representations and
warranties made by Buyer and/or Merger Sub in or pursuant to this Agreement
or in any statement, certificate, or other document delivered to the Company
or the Principal Company Stockholders in connection with this Agreement, the
Merger, or any of the other transactions contemplated hereby will have been
true and correct in all material respects (or in the case of matters
qualified either by materiality or Material Adverse Effect, in all respects)
when made and (after taking into account any supplement to or amendment of
this Agreement or any such statement, certificate or other document required
to correct any information therein that is or has become inaccurate) will be
true and correct in all material respects at and as of the Closing.
13.2. COMPLIANCE WITH AGREEMENT. Buyer and Merger Sub will have
performed and complied in all material respects with all of their respective
obligations under this Agreement to be performed or complied with by them
before or at the Closing, including without limitation the execution and
delivery of all documents to be executed and delivered by any of them in
connection with this Agreement and/or the consummation of the Merger and the
other transactions contemplated hereby.
13.3. CLOSING CERTIFICATE. Buyer and Merger Sub will have executed and
delivered to the Company, at and as of the Closing, a certificate (without
qualification as to knowledge or materiality) certifying that the conditions
referred to in Sections 13.1 and 13.2 have been satisfied.
13.4. OPINION OF COUNSEL. Bingham Dana LLP, counsel to Buyer and
Merger Sub, will have delivered to the Company a written legal opinion,
dated on and as of the Closing Date, and substantially in the form of the
attached EXHIBIT 13.4.
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13.5. NO MATERIAL CHANGE. There shall not have been any material
adverse change in the financial condition, business or assets of Buyer,
PROVIDED, HOWEVER, for the purposes of this Section 13.5, a decrease in the
trading price of Buyer Common Stock as reported on the Nasdaq National
Market or such other exchange or automated quotation system on which the
Buyer Common Stock is then listed or quoted, shall not, in and of itself be
deemed to constitute, a material adverse change.
13.6. REGISTRATION STATEMENT. The Registration Statement shall be
effective under the Securities Act, no stop orders suspending the
effectiveness of the Registration Statement shall have been issued, no
action, suit, proceeding or investigation by the SEC to suspend the
effectiveness thereof shall have been initiated and be continuing, and all
necessary approvals under state securities law or the Securities Act or
Exchange Act relating to the issuance or trading of the shares of Buyer
Common Stock issuable pursuant to the Merger shall have been received.
13.7. TAX OPINION. The Company shall have received an opinion of
Crowell & Moring LLP, dated the Closing Date, to the effect that the Merger
will qualify as a reorganization within the meaning of Section 368(a) of the
Code. In rendering its opinion, such counsel shall be entitled to require
and rely upon customary representations contained in certificates of the
officers of the Company, Buyer and Merger Sub. The parties agree that it
would be reasonable for tax counsel not to give such opinion in the event
that the equity component of the consideration in the transaction fell below
45% for purposes of the continuity of business interest test under
Section 368 of the Code and the regulations and cases thereunder.
13.8. ELECTION OF DANIEL J. PRICE. Daniel J. Price shall have been
elected, subject to the consummation of the transactions contemplated
hereby, as a Class I Director of Buyer.
13.9. MICROSTRATEGY ASSURANCE LETTER. The Buyer shall have entered
into a letter agreement with MicroStrategy Incorporated in the form of
EXHIBIT 13.9 hereto (the "MICROSTRATEGY ASSURANCE LETTER"), and the
MicroStrategy Assurance Letter shall be in full force and effect.
13.10. EMPLOYEE BENEFITS DOCUMENTS.
(a) For each Buyer Benefit Plan that is an "employee benefit plan"
within the meaning of Section 3(3) of ERISA, the Company shall have received
true, correct and complete copies of the following documents: (i) plan
document, and (ii) the three most recent Form 5500s filed by the Buyer
Benefit Plan.
(b) For each Buyer Benefit Plan that is an "employee pension benefit
plan" within the meaning of Section 3(2) of ERISA, the Company shall have
received true, correct and complete copies of the following documents: (i)
summary annual reports for the current or any of the three (3) preceding
calendar years, (ii) the latest summary plan description, and (iii) the most
recently received IRS determination letter.
(c) For each Buyer Benefit Plan that is an "employee benefit plan"
within the meaning of Section 3(3) of ERISA, the Company shall have received
true, correct and complete copies of the following documents or written
confirmation that such documents do not exist: (i) summaries of material
modifications to the latest summary plan description, (ii) any actuarial
report submitted to any governmental agency or distributed to participants
or beneficiaries thereunder in the current or any of the three (3) preceding
calendar years, (iii) any governmental advisory opinions, rulings,
compliance statements, closing agreements, or similar materials specific to
such Buyer Benefit Plan, and (iv) any trust agreement or insurance
agreements associated with a Buyer Benefit Plan.
(d) For each Buyer Benefit Plan that is an "employee welfare benefit
plan" within the meaning of Section 3(3) of ERISA, the Company shall have
received true, correct and complete
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copies of the following documents or written confirmation that such
documents do not exist: (i) the latest summary plan description, and (ii)
the most recently received IRS determination letter.
13.11. TERMINATION OF 401(K) PLAN. Provided satisfactory arrangements
have been made to avoid the acceleration of outstanding plan loans
(including through acceptance of such loans as part of a rollover to Buyer's
401(k) Plan), on request of Buyer, the Company shall have terminated its
401(k) Plan immediately prior to the Effective Time.
13.12. MODIFICATIONS OF CERTAIN EMPLOYMENT AGREEMENTS. At the
Effective Time, the Buyer and each of the employees referred to on
Section 14.13 of the Buyer Disclosure Schedule shall have entered into
employment agreements as contemplated by Section 14.13 of the Buyer
Disclosure Schedule and such employment agreements shall be in full force
and effect.
14. CONDITIONS TO BUYER'S AND MERGER SUB'S OBLIGATIONS. The obligations of
each of Buyer and Merger Sub, respectively, to consummate the Merger are subject
to the satisfaction (or waiver by Buyer, in its sole discretion) of each of the
conditions set forth in this section on or before the Closing Date. If the
Merger is consummated, such conditions will conclusively be deemed to have been
satisfied or waived.
14.1. REPRESENTATIONS AND WARRANTIES. Each of the representations and
warranties made by the Company and/or any of the Principal Company
Stockholders in or pursuant to this Agreement or in any statement,
certificate, or other document delivered to Buyer in connection with this
Agreement, the Merger, or any of the other transactions contemplated hereby
will have been true and correct in all material respects (or in the case of
matters qualified either by materiality or Material Adverse Effect, in all
respects) when made and (after taking into account any supplement to or
amendment of this Agreement or any such statement, certificate or other
document required to correct any information therein that is or has become
inaccurate) will be true and correct in all material respects at and as of
the Closing.
14.2. COMPLIANCE WITH AGREEMENT. The Company and each of the Principal
Company Stockholders will have performed and complied in all material
respects with all of their respective obligations under this Agreement to be
performed or complied with by them before or at the Closing, including
without limitation the execution and delivery of all documents to be
executed and delivered by any of them in connection with this Agreement
and/or the consummation of the Merger and the other transactions
contemplated hereby.
14.3. CLOSING CERTIFICATE. The Company will have executed and
delivered to Buyer, at and as of the Closing, a certificate (without
qualification as to knowledge or materiality or otherwise) certifying that
the conditions referred to in Sections 14.1 and 14.2 have been satisfied.
14.4. NO MATERIAL ADVERSE CHANGE. There shall not have been any
material adverse change in the financial condition, business or assets of
the Company.
14.5. OPINION OF COUNSEL. Squire, Sanders & Dempsey L.L.P, counsel to
the Company, will have delivered to Buyer a written legal opinion addressed
to Buyer, dated on and as of the Closing Date, and substantially in the form
of the attached EXHIBIT 14.5.
14.6. NON-COMPETITION AGREEMENTS. The employees of the Company
referred to on Section 14.13 of the Buyer Disclosure Schedule shall have
executed and delivered to Buyer a Non-Competition Agreement in the form of
the attached EXHIBIT 14.6, with the respective terms referred to on
Section 14.13 of the Buyer Disclosure Schedule.
14.7. LOCK-UP AGREEMENTS. (i) Each Company Stockholder, and each
person owning the right to acquire more than 50,000 shares of Company Common
Stock, other than Dana Skaddan, shall have executed and delivered to Buyer a
Lock-Up Agreement in the form of the attached
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EXHIBIT 14.7(A) and (ii) Dana Skaddan shall have executed and delivered to
Buyer a Lock-Up Agreement in the form of the attached EXHIBIT 14.7(B).
14.8. DISSENTING STOCKHOLDERS. Holders of no more than 5% of the
issued and outstanding Company Common Stock as of the Effective Time shall
have elected to, or continue to have contingent rights to, exercise
dissenters rights under the DGCL as to such shares.
14.9. APPROVAL BY BUYER STOCKHOLDERS. The Buyer Stockholders shall
have authorized and approved this Agreement, the Merger and the transactions
contemplated hereby as required by the DGCL, the Buyer's certificate of
incorporation and by-laws, and the Nasdaq National Market.
14.10. TAX OPINION. Buyer shall have received an opinion of Bingham
Dana LLP, dated the Closing Date, to the effect that the Merger will qualify
as a reorganization within the meaning of Section 368(a) of the Code. In
rendering its opinion, such counsel shall be entitled to require and rely
upon customary representations contained in certificates of the officers of
the Company, Buyer and Merger Sub. The parties agree that it would be
reasonable for tax counsel not to give such opinion in the event that the
equity component of the consideration in the transaction fell below 45% for
purposes of the continuity of business interest test under Section 368 of
the Code and the regulations and cases thereunder.
14.11. FIRPTA CERTIFICATE. On the Closing Date, the Company shall
deliver to Buyer a properly executed statement in a form reasonably
acceptable to Buyer conforming to the requirements of Treas. Reg. Section
1.1445-2(c)(3).
14.12. MODIFICATION OF CERTAIN OPTIONS. Each holder of Company Options
that would not have vested (i.e., become exercisable) on or prior to the
Effective Time, but for the Merger, shall agree that that such Company
Options shall be modified such that such Company Options shall not
accelerate as a result of the Merger or the consummation of the other
transactions contemplated hereby.
14.13. MODIFICATIONS OF CERTAIN EMPLOYMENT AGREEMENTS. Contemporaneous
with and contingent upon the occurrence of the Effective Time, the Company
and each of the employees referred to on Section 14.13 of the Buyer
Disclosure Schedule shall have terminated their existing employment
agreements and entered into new employment agreements as contemplated by
Section 14.13 of the Buyer Disclosure Schedule.
15. OTHER COVENANTS. In order to induce Buyer and Merger Sub to enter into
this Agreement and to consummate the Merger and the other transactions
contemplated hereby, each of the Principal Company Stockholders hereby severally
agrees and covenants (and such covenants will be in addition and without
prejudice to any other confidentiality, inventions, noncompetition,
nonsolicitation, and/or other agreements and covenants to which any of the
Principal Company Stockholders may be subject from time to time) that, unless
Buyer otherwise agrees in writing prior to such action, such Principal Company
Stockholder shall take such actions or refrain from taking such actions as are
set forth below.
15.1. CONFIDENTIAL INFORMATION. Whether or not the Merger is
consummated, such Principal Company Stockholder will maintain the
confidentiality of all confidential, sensitive, or proprietary information
of the Buyer or the Surviving Corporation, including without limitation with
respect to its businesses, finances, affairs, and technology, which will be
and remain the exclusive property of the Buyer or the Surviving Corporation,
as the case may be; and unless previously authorized in writing by Buyer,
and except with respect to information that (a) has otherwise become public
through no action or omission on the part of such Principal Company
Stockholder, (b) was known by such Principal Company Stockholder prior to
disclosure, (c) is independently developed by such Principal Company
Stockholder without reference to any Buyer information, or (d) required to
be disclosed by such Principal Company Stockholder by law, will not disclose
any such information to any third party, or use it for any purpose other
than (if applicable) in the discharge of such
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Principal Company Stockholder's employment responsibilities in the ordinary
course of the Surviving Corporation's business or to consummate the
transactions contemplated hereby.
15.2. EQUITABLE REMEDIES. Such Principal Company Stockholder hereby
acknowledges that any breach by him or her of his or her obligations under
this Section 15 could cause substantial and irreparable damage to Buyer and
the Surviving Corporation, and that money damages could be an inadequate
remedy therefor, and accordingly, acknowledges and agrees that each of Buyer
and the Surviving Corporation may be entitled to an injunction, specific
performance, and/or other equitable relief to prevent the breach of such
obligations (in addition to all other rights and remedies to which they may
be entitled in respect of any such breach).
16. INDEMNIFICATION.
16.1. INDEMNIFICATION BY BUYER AND MERGER SUB. Subject to the
limitations set forth in Section 16.5 hereof, if the Merger is consummated,
Buyer and the Surviving Corporation, jointly and severally, will indemnify,
defend, and hold harmless each of the Company Stockholders, and each of
their respective directors, officers, employees, representatives, and other
Affiliates, from and against any and all Damages (as defined in
Section 19.1) related to or arising out of or in connection with any breach
by Buyer and/or Merger Sub of any representation, warranty, covenant,
agreement, obligation, or undertaking made by Buyer and/or Merger Sub in
this Agreement (including any schedule or exhibit hereto), or any other
agreement, instrument, certificate, or other document delivered by or on
behalf of Buyer and/or Merger Sub in connection with this Agreement, the
Merger, or any of the other transactions contemplated hereby.
16.2. INDEMNIFICATION BY EACH PRINCIPAL COMPANY STOCKHOLDER. Subject
to the limitations set forth in Section 16.5 hereof, if the Merger is
consummated, the Principal Company Stockholders, severally and not jointly,
will indemnify, defend and hold harmless Buyer, the Surviving Corporation,
and each of their respective directors, officers, employees, representatives
and other Affiliates, from and against, any and all Damages related to or
arising out of or in connection with any breach by the Company of any
representation, warranty, covenant, agreement, obligation or undertaking
made by the Company or such Principal Company Stockholder in this Agreement
(including any schedule or exhibit hereto), or any other agreement,
instrument, certificate or other document delivered by or on behalf of the
Company or such Principal Company Stockholder at or prior to the Closing to
effect the transactions contemplated by this Agreement. The costs set forth
on SCHEDULE 16.2 hereto (the "SCHEDULE 16.2 COSTS") shall be indemnifiable
pursuant to this Section 16.2.
16.3. CLAIMS.
(a) In the event that any party hereto (the "INDEMNIFIED PARTY") desires
to make a claim against another party hereto (the "INDEMNIFYING PARTY",
which term includes all indemnifying parties if more than one) in connection
with any third-party litigation, arbitration, action, suit, proceeding,
claim or demand at any time instituted against or made upon it for which it
may seek indemnification hereunder (a "THIRD-PARTY CLAIM"), the Indemnified
Party will promptly notify the Indemnifying Party of such Third-Party Claim
and of its claims of indemnification with respect thereto; PROVIDED, that
failure to promptly give such notice will not relieve the Indemnifying Party
of its indemnification obligations under this Section except to the extent,
if any, that the Indemnifying Party has actually been prejudiced thereby.
In the event that any Indemnified Party desires to make an indemnity
claim (other than a Third-Party Claim) against an Indemnified Party, the
Indemnified Party will promptly notify the Indemnifying Party of its claims
of indemnification with respect thereto; PROVIDED, that failure to promptly
give such notice will not relieve the Indemnifying Party of its
indemnification obligations
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under this section except to the extent, if any, that the Indemnifying Party
has actually been prejudiced thereby.
(b) The Indemnifying Party will have the right to assume the defense of
the Third-Party Claim with counsel of its choice reasonably satisfactory to
the Indemnified Party by written notice to the Indemnified Party within
twenty days after the Indemnifying Party has received notice of the
Third-Party Claim; PROVIDED, HOWEVER, that the Indemnifying Party must
conduct the defense of the Third-Party Claim actively and diligently
thereafter in order to preserve its rights in this regard; and, PROVIDED,
FURTHER, that the Indemnified Party may retain separate co-counsel at its
sole cost and expense and participate in the defense of the Third-Party
Claim.
(c) The Indemnifying Party will not consent to the entry of any judgment
or enter into any settlement with respect to the Third-Party Claim without
the prior consent of the Indemnified Party (which will not be unreasonably
withheld or delayed) unless the judgment or proposed settlement (i) includes
an unconditional release of all liability of each Indemnified Party with
respect to such Third-Party Claim and (ii) involves only the payment of
money damages by the Indemnifying Party and does not impose an injunction or
other equitable relief upon the Indemnified Party. So long as the
Indemnifying Party has assumed and is conducting the defense of the
Third-Party Claim in accordance with Section 16.3(b) above the Indemnified
Party will not consent to the entry of any judgment or enter into any
settlement with respect to the Third-Party Claim without the prior written
consent of the Indemnifying Party (which will not be unreasonably withheld
or delayed).
(d) In the event the Indemnifying Party fails to assume the defense of
the Third-Party Claim in accordance with Section 16.3(b) above, (i) the
Indemnified Party may defend against, and consent to the entry of any
judgment or enter in any settlement with respect to, the Third-Party Claim
in any manner it reasonably may deem appropriate (and the Indemnified Party
need not consult with, or obtain any consent from, the Indemnifying Party in
connection therewith) and (ii) the Indemnifying Party will remain
responsible for any Damages the Indemnified Party may suffer as a result of
such Third-Party Claim to the extent provided in this Article 16.
16.4. PAYMENT OF CLAIMS. In the event of any bona fide claim for
indemnification hereunder, the Indemnified Party will advise the
Indemnifying Party that is required to provide indemnification therefor in
writing with reasonable specificity of the amount and circumstances
surrounding such claim. With respect to liquidated claims, if within thirty
(30) days the Indemnifying Party has not contested such claim in writing,
the Indemnifying Party will pay and/or the Escrow Agent shall pay, as
applicable, the full amount thereof, subject to the limitations set forth in
Section 16.5, within ten (10) days after the expiration of such period. Any
indemnification obligations pursuant to this Section 16 of the Buyer or
Merger Sub shall be paid, at such party's option (i) in cash, (ii) by
issuing Buyer Common Stock (each share of which shall be valued for such
purpose at the Closing Price Per Share on the date of issuance), or (iii)
through a combination of the methods specified in clauses (i) and (ii).
Subject to the limitations set forth in Section 16.5, any
indemnification obligations pursuant to this Section 16 of any Principal
Company Stockholder who is an Indemnifying Party (other than indemnification
obligations for Unlimited Claims) shall be satisfied solely (a) through the
terms and provisions of the Escrow Agreement and (b) if Buyer elects to
reduce the number of shares of Buyer Common Stock included in the Escrowed
Merger Consideration pursuant to Section 3.3(b) and the amount of Damages
for which such Principal Company Stockholder is liable under Section 16
exceeds the value of the Escrowed Merger Consideration then held by the
Escrow Agent on behalf of such Principal Company Stockholder, the amount of
such excess shall be settled in cash. Subject to the limitations set forth
in Section 16.5, indemnification obligations for Unlimited Claims pursuant
to this Section 16 of any Principal Company Stockholder who is an
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Indemnifying Party shall be satisfied (x) first, through the terms and
provisions of the Escrow Agreement and (y) second, to the extent not
satisfied through the terms and provisions of the Escrow Agreement, at the
option of such Principal Company Stockholder: (i) in cash, or (ii) by
delivery of a combination of cash and Buyer Common Stock (each share of
which shall be valued for such purpose at the Closing Price Per Share on the
date of delivery), PROVIDED, that in the event that any Principal
Stockholder elects to deliver a combination of cash and shares of Buyer
Common Stock, the portion of such delivery made up of Buyer Common Stock
shall not be more than, on a percentage basis, the portion of the merger
consideration received by such Principal Company Stockholder that was not
subject to the escrow in the form of Buyer Common Stock with any Buyer
Common Stock delivered in the Merger or pursuant to this Section 16.4 being
valued solely for purposes of this proviso at the Closing Date Price Per
Share (but not for any other purpose). Notwithstanding clause (y) of the
previous sentence, a Principal Company Stockholder may not use Buyer Common
Stock to satisfy an indemnification obligation for an Unlimited Claim if it
could reasonably be expected that satisfaction of such indemnification
obligation with Buyer Common Stock could disqualify the transactions
contemplated hereby as a reorganization within the meaning of
Section 368(a) of the Code. The parties agree that to the greatest extent
possible the payment of any indemnity hereunder shall be treated as an
adjustment to the merger consideration paid by Buyer hereunder for tax
purposes.
16.5. LIMITATIONS OF LIABILITY.
(a) BASKET. No Indemnifying Party will be required to indemnify an
Indemnified Party hereunder until such time as the aggregate amount of
Damages for which (i) Buyer, the Surviving Corporation, and their respective
directors, officers, employees, representatives, and other Affiliates, on
the one hand, or (ii) the Principal Company Stockholders and their
respective directors, officers, employees, representatives, and other
Affiliates, as the case may be, on the other, are otherwise entitled to
indemnification pursuant to this Agreement exceeds $1,000,000, but only to
the extent of such excess, PROVIDED, that in the event that a single claim
is made for Damages in excess of $200,000 by an Indemnified Party pursuant
to this Section 16, such claim may be pursued to the extent of the excess of
such claim over $200,000, regardless of this Section 16.5. Notwithstanding
anything to the contrary in this Section 16.5, the limits imposed by
Section 16.5(a) shall not apply to the Schedule 16.2 Costs or any Damages
arising out of or in connection with any breach of Buyer, Merger Sub, the
Company or the Principal Company Stockholders of any of their respective
warranties, representations, covenants, agreement or obligations under
Sections 6.4, 6.13, 6.27, 7, 8.6, or 8.11 of this Agreement (collectively,
the "UNLIMITED CLAIMS").
(b) MAXIMUM LIABILITY. If the Merger is consummated, the maximum
aggregate liability of each Principal Company Stockholder (other than with
respect to Unlimited Claims) will not exceed such Principal Company
Stockholder's portion of (i) the Escrowed Merger Consideration (which escrow
shall be reduced on the first anniversary of the Closing, as further
provided in the Escrow Agreement) plus (ii) if Buyer releases shares of
Buyer Common Stock from the Escrowed Merger Consideration pursuant to
Section 3.3(b) (the "RELEASED SHARES"), as of any date that Escrowed Merger
Consideration is delivered (or would be required to be delivered) to Buyer
in accordance with the terms of the Escrow Agreement, the amount of cash
equal to such Principal Company Stockholder's portion of the Released Shares
then held by such Principal Company Stockholder multiplied by the Closing
Price Per Share on such date; PROVIDED, that in the event that such
Principal Company Stockholder elects to sell such Principal Company
Stockholder's portion of the Released Shares as of such date, the Principal
Company Stockholder shall not be required to pay cash in respect of such
indemnity claim in excess of the amount of cash proceeds actually received
by the Principal Company Stockholder, net of reasonable and customary
brokerage commissions actually incurred, as a result of such sale or sales
of the Released Shares. In addition to the
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limitations set forth in the previous sentence, no Principal Company
Stockholder will be liable in the aggregate for any indemnity claim or
claims (other than claims in respect of Unlimited Claims and Section 16.2
Costs) in excess of such Principal Company Stockholder's portion of the
Other Escrowed Merger Consideration. Notwithstanding anything to the
contrary contained herein, as of a given date that an indemnity claim is
paid to Buyer, no Principal Company Stockholder will be liable in the
aggregate for any indemnity claim or claims made under this Merger Agreement
(including without limitation any indemnity claims made in respect of the
Unlimited Claims and the Schedule 16.2 Costs) in excess of (x) the aggregate
cash proceeds received by such Principal Company Stockholder pursuant to the
Merger plus (y) the aggregate cash proceeds received from the sale of any
shares of Buyer Common Stock received by such Principal Company Stockholder
as a result of the Merger, net of reasonable and customary brokerage
commissions actually incurred by such Principal Company Stockholder in
connection with such sale or sales, and (z) the amount of shares of Buyer
Common Stock, if any, held by such Principal Company as of such date,
multiplied by the Closing Price Per Share.
If the Merger is consummated, the maximum aggregate liability of the
Surviving Corporation, Merger Sub and the Buyer for indemnification
hereunder (other than with respect to any Unlimited Claims) will not exceed
the Maximum Indemnification Value (as defined in Section 19.1).
(c) TIME LIMIT. All representations and warranties in this Agreement
shall survive the Closing and any investigation at any time made by or on
behalf of an Indemnified Party and shall expire on the first anniversary of
the Effective Time, and no Indemnifying Party will be liable for any Damages
hereunder after the first anniversary of the Effective Time unless a written
claim for indemnification is given by the Indemnified Party to the
Indemnifying Party with respect thereto prior to the first anniversary of
the Effective Time (the "CUT-OFF DATE"). Notwithstanding the foregoing,
liability for (i) Damages resulting from a breach of the representations and
warranties contained in Section 6.13 shall continue until the expiration of
all applicable statute of limitations relating to any Taxes owed as a result
of such breach, and (ii) Damages resulting from a breach of the
representations and warranties contained in Sections 6.4, 6.27, 8.6 and 8.11
shall not expire. In addition, a written claim by an Indemnified Party with
respect to Schedule 16.2 Costs may be delivered at any time prior to the 18
month anniversary of the Closing Date).
(d) EFFECT OF KNOWLEDGE. Notwithstanding any other provisions contained
in this Agreement, in the event that the Merger is consummated, no party
shall be entitled to any indemnification under this Agreement with respect
to any fact or circumstances which was disclosed after the signing of this
Agreement pursuant to Section 10.16 to the extent that such disclosure would
have resulted in either of the conditions set forth in Sections 13.1 or 14.1
not being satisfied, the satisfaction of which condition is waived by such
party prior to the Effective Time, and any claims for indemnification any
party may have hereunder with respect to any breach of any representation,
warranty, agreement or covenant arising from such facts or circumstances
shall be deemed to be waived.
(e) INITIAL RECOURSE OF BUYER AND SURVIVING CORPORATION. Without
adversely affecting the limits on indemnification set forth in the other
paragraphs of this Section 16.5, any claims for indemnification by the Buyer
or the Surviving Corporation must first be pursued in accordance with the
terms of the Escrow Agreement against the Escrowed Merger Consideration,
before being pursued against the Principal Stockholders directly.
Notwithstanding anything to the contrary in this Agreement, including but
not limited to the several and not joint nature of the obligations of the
Principal Company Stockholders under Section 6 and Section 16.2, the Buyer
shall be entitled to make a claim for the full amount of any Damages for
which the Buyer is entitled to be indemnified pursuant to Section 16.1 in
accordance with the terms of the Escrow Agreement, without having to join
any or all of the Principal Company Stockholders to such action to seek such
Damages from the Escrowed Merger Consideration.
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16.6. EXCLUSIVITY; NO WAIVER.
(a) Other than in the case of fraud, in the event that the Merger is
consummated, the rights and remedies provided in this Section 16 and the
Escrow Agreement shall be the exclusive rights and remedies of the parties
hereto after the Closing in connection with the transactions contemplated by
this Agreement, and each of the parties hereto agrees to indemnify and hold
harmless each of the other parties hereto against any claims made by or on
behalf of such party other than pursuant to this Section 16 in connection
with or related to such transactions, regardless of the source of such claim
or cause of action.
(b) No party under this contract shall have any claims under this
Agreement in the event that this Agreement is terminated prior to the
Effective Time, except for claims arising out of fraud or an intentional
breach by the Company, on the one hand, or the Buyer, on the other hand, of
this Agreement, and except for any claim to enforce against the Company, and
not the Principal Company Stockholders, the provisions of the Bridge Note
and Section 5 hereof.
17. RELEASES. If the Merger is consummated, then effective as of the
Effective Time, each of the Principal Company Stockholders, for himself or
itself and his or its heirs, legatees, successors, and assigns, hereby fully and
irrevocably releases, remises, and discharges the Surviving Corporation and its
officers, directors, employees, agents, representatives, successors, and assigns
from any and all Damages, regardless of whether known, unknown, or unknowable,
and regardless of whether absolute, contingent, or otherwise, and regardless of
whether at law, in equity, or otherwise, without limitation, whether now
existing or arising in the future, in each case to the extent based on actions,
omissions, and/or events occurring at or before the Effective Time, including
without limitation all rights to indemnification and/or contribution, but
excluding Damages arising expressly under this Agreement; provided, however,
that notwithstanding any statement to the contrary in this Section 17, each
Principal Company Stockholder who, as of the date of this Agreement, is entitled
to indemnification from the Company for any actions taken by such Principal
Company Stockholder in his capacity as an officer and/or director of the Company
shall continue from and after the Effective Time to be entitled to
indemnification by the Surviving Corporation to the same extent to which such
Principal Company Stockholder would be entitled to indemnification therefor as
of the date of this Agreement. Furthermore, each of such releasing persons
hereby irrevocably agrees not to sue, or to commence, maintain, or aid in the
prosecution of any litigation, arbitration, or other action or proceeding
against or adverse to any of such released persons, or otherwise to seek any
recourse against any of such released persons, in respect of any matter hereby
released or purported or attempted to be released; except with respect to such
person's rights under this Agreement or any other transaction document
contemplated hereby.
18. TERMINATION.
(a) This Agreement may be terminated at any time before the Effective Time:
(i) by agreement of Buyer and the Company;
(ii) by Buyer, in the event of a willful breach by the Company of any
representation, warranty or agreement contained herein which has not been
cured or is not curable within fifteen (15) days after notice thereof to the
breaching party; or
(iii) by the Company, in the event of a material breach by Buyer of any
representation, warranty or agreement contained herein which has not been
cured or is not curable within fifteen (15) days after notice thereof to the
breaching party.
(b) If (i) any temporary restraining order, preliminary or permanent
injunction, or other order issued by any court of competent jurisdiction, or
other binding legal restraint or prohibition preventing the consummation of the
Merger or the other transactions contemplated hereby is at any time in effect
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for a period of more than 20 consecutive days, or (ii) the Closing does not
occur on or before January 31, 2001 (the "TERMINATION DATE") then either Buyer
or the Company may terminate this Agreement by delivering written notice to the
other at any time after the close of business on the date such termination right
arises hereunder, PROVIDED that such failure to close is not the result of a
breach of this Agreement by the terminating party (including, in the case of any
such termination by Buyer, any breach by Merger Sub, or in the case of any such
termination by the Company, any breach by any of the Principal Company
Stockholders) and, PROVIDED, FURTHER, that the Buyer may extend the Termination
Date beyond January 31, 2001 upon notice to the Company, in the event that the
Merger has not been consummated because (i) all necessary regulatory approvals,
including but not limited to those required under the HSR Act, have not been
obtained; (ii) the Registration Statement has not been declared effective by the
SEC; or (iii) the Buyer has not received approval of this Agreement and the
Merger from its stockholders, PROVIDED, in any such case that the Buyer is
continuing to use diligent efforts to obtain such approvals during any such
extension of the Termination Date. In addition, the Termination Date may not be
extended past February 28, 2001 unless the Buyer has complied with its
obligations to make the Second Bridge Loan under Section 5.2 in accordance with
the terms thereof. Notwithstanding anything else to the contrary contained
herein, this Agreement shall terminate on March 31, 2001, unless otherwise
extended by mutual agreement of the Buyer and the Company.
19. DEFINITIONS.
19.1. CERTAIN DEFINED TERMS. As used in this Agreement, the following
terms have the following respective meanings:
"AFFILIATE" means, with respect to any person or entity, any person or
entity that, directly or indirectly, through one or more intermediaries,
controls, is controlled by, or is under common control with, such person or
entity.
"AGGREGATE CASH CONSIDERATION means the sum of (i) Fifty Million Dollars
PLUS (ii) the product of (A) the quotient of (X) Fifty Million Dollars DIVIDED
by (Y) the Company Fully Diluted Shares Number MINUS the number of Company
Restricted Shares issued and outstanding at the Effective Time and (B) 100,000.
"AGGREGATE COMPANY COMMON STOCK CONSIDERATION NUMBER" means the product of
(i) the Company Fully Diluted Shares Number and (ii) the Calculation Ratio.
"AGGREGATE REDEMPTION VALUE" means the amount of cash payable to Company
Stockholders with respect to the Company Redeemable Preferred Stock pursuant to
Section 2.5.
"BRIDGE LOANS" means the Initial Bridge Loan and, in the event made by
Buyer, each of the Second Bridge Loan.
"BRIDGE NOTE CONVERSION SHARES" means the shares of Company Common Stock
issuable upon the conversion of the Bridge Note.
"BUYER FULLY DILUTED SHARE NUMBER" means, as of a particular time, the
fully-diluted number of shares of Buyer Common Stock outstanding, calculated as
the sum of (i) the number of shares of Buyer Common Stock issued and outstanding
at such time, PLUS (ii) the number of shares of Buyer Common Stock issuable upon
the exercise of all outstanding options, warrants and other rights to purchase,
subscribe for or otherwise acquire shares of Buyer Common Stock, whether or not
such options, warrants or other rights are exercisable for shares of Buyer
Common Stock at such time or become exercisable for Buyer Common Stock
immediately after such time or the Effective Time by virtue of the Merger, and
the conversion into Buyer Common Stock of any securities outstanding at the
Effective Time and convertible into Buyer Common Stock, whether or not such
securities are then convertible into shares of Buyer Common Stock. The foregoing
method of calculation shall be made on
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an actual basis without reference to any other method, including but not limited
the treasury stock method, for calculating the fully diluted and outstanding
shares of Buyer Common Stock.
"CALCULATION RATIO" means the fraction derived by dividing (i) the Closing
Buyer Common Stock Consideration Number, by (ii) the Closing Company Common
Stock Consideration Number.
"CASH CONSIDERATION" means the Aggregate Cash Consideration MINUS the
Aggregate Redemption Value.
"CASH PAYMENT PER SHARE" means the Cash Consideration, DIVIDED by the amount
equal to (i) the Company Fully Diluted Shares Number MINUS (ii) the number of
Company Restricted Shares issued and outstanding at the Effective Time.
"CLOSING BUYER COMMON STOCK CONSIDERATION NUMBER" means the number of shares
of Buyer Common Stock equal to (x) 10,125,642 MULTIPLIED by (y) a fraction, the
numerator of which is the Buyer Fully Diluted Share Number as of the Effective
Time over the Buyer Fully Diluted Share Number as of the date hereof, PROVIDED
that such number shall not be less than 10,125,642.
"CLOSING COMPANY COMMON STOCK CONSIDERATION NUMBER" means the amount equal
to (i) the Company Fully Diluted Shares Number MINUS (ii) up to 2,433,250 shares
of Company Common Stock issuable upon the exercise of any Company Options
outstanding as of October 31, 2000 that will be converted into Unvested
Replacement Options in accordance with Section 4, including any such options
that, but for the modifications to such options contemplated by Section 14.12
would, by their terms, vest on or before the Effective Time, and MINUS (iii) up
to 384,500 shares of Company Common Stock issuable upon the exercise of any
Company Options granted after October 31, 2000 but before the Effective Time
that will be converted into Unvested Replacement Options in accordance with
Section 4, PROVIDED, that the Closing Company Common Stock Consideration Number
shall not include any Bridge Note Conversion Shares.
"CLOSING DATE PRICE PER SHARE" means the Closing Price Per Share on the
Closing Date.
"CLOSING PRICE PER SHARE" means the weighted average closing sale price (in
thousandths) of Buyer Common Stock on the Nasdaq National Market for the 20
trading days up to and including the day that is two trading days prior to the
date for which such Closing Price Per Share is determined.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMON STOCK EXCHANGE RATIO" means (x) the Aggregate Company Common Stock
Consideration Number MINUS (i) the aggregate number of shares of Buyer Common
Stock issuable in respect of shares of Company Redeemable Preferred Stock and
(ii) the CPS Dividend Equivalent Share Number, DIVIDED by (y) the Company Fully
Diluted Shares Number.
"COMPANY COMMON STOCK" means, the Company's Common Shares, $0.01 par value
per share.
"COMPANY FULLY DILUTED SHARES NUMBER" means the sum of (i) the number of
shares of Company Common Stock issued and outstanding at the Effective Time,
PLUS (ii) the number of shares of Company Common Stock issuable upon the
exercise of all Company Options, Company Warrants and other rights to purchase,
subscribe for or otherwise acquire shares of Company Common Stock, whether or
not such Company Options, Company Warrants or other rights are exercisable for
shares of Company Common Stock at the Effective Time or become exercisable for
Company Common Stock or Buyer Common Stock immediately after the Effective Time
by virtue of the Merger, and the conversion into Company Common Stock of any
securities outstanding at the Effective Time and convertible into Company Common
Stock (including but not limited to the Company Convertible Preferred Stock, but
NOT including the Bridge Note Conversion Shares), whether or not such securities
are then convertible into shares of Company Common Stock. The foregoing method
of calculation shall be made on an
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actual basis without reference to any other method, including but not limited
the treasury stock method, for calculating the fully diluted and outstanding
shares of Company Common Stock.
"COMPANY STOCKHOLDER" means any stockholder of the Company other than the
Principal Company Stockholders.
"COMPANY STOCK PLAN" means the PriceInteractive, Inc. Stock Incentive Plan
as established effective January 1, 1997, as amended as of the date hereof.
"DAMAGES" means all damages, losses, claims, demands, actions, causes of
action, suits, litigations, arbitrations, liabilities, costs, and expenses,
including court costs and the reasonable fees and expenses of legal counsel.
"ESCROW AGENT" means the escrow agent named in the Escrow Agreement.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations of the SEC thereunder, as in effect as of the relevant
time of reference.
"GAAP" means United States generally accepted accounting principles, applied
on a consistent basis.
"HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, and the rules and regulations thereunder.
"INDEBTEDNESS," as applied to any person, means (a) all indebtedness of such
person for borrowed money, whether current or funded, or secured or unsecured,
(b) all indebtedness of such person for the deferred purchase price of property
or services represented by a note or other security, (c) all indebtedness of
such person created or arising under any conditional sale or other title
retention agreement (even if the rights and remedies of the seller or lender
under such agreement in the event of default are limited to repossession or sale
of specific property), (d) all indebtedness of such person secured by a purchase
money mortgage or other Lien to secure all or part of the purchase price of
property subject to such mortgage or other Lien, (e) all obligations of such
person under leases that have been or must be, in accordance with generally
accepted accounting principles, recorded as capital leases in respect of which
such person is liable as lessee, (f) any liability of such person in respect of
banker's acceptances or letters of credit, and (g) all indebtedness referred to
in clauses (a), (b), (c), (d), (e), or (f) above that is directly or indirectly
guaranteed by such person or which such person has agreed (contingently or
otherwise) to purchase or otherwise acquire or in respect of which such person
has otherwise assured a creditor against loss.
"INDEMNIFICATION STOCK NUMBER" shall mean that number of shares of Buyer
Common Stock equal to the 12.5% of (x) the sum of (A) the Cash Payment Per Share
multiplied by the difference of the Closing Company Common Stock Consideration
Number minus the number of Company Restricted Shares, PLUS (B) the Aggregate
Redemption Value, PLUS (C) the CPS Dividend Equivalent Share Number multiplied
by the Closing Date Price Per Share, and PLUS (D) the Closing Company Common
Stock Consideration Number multiplied by the Common Stock Exchange Ratio and the
Closing Date Price Per Share, PLUS (E) the Redeemable Preferred Exchange Ratio
multiplied by the number of shares of Company Redeemable Preferred Stock issued
and outstanding as of the Effective Time and further multiplied by the Closing
Date Price Per Share, DIVIDED by (y) the Closing Date Price Per Share.
"KNOWLEDGE," when used to qualify a representation or warranty in this
Agreement, has the following meaning: Where a representation or warranty is made
to the Company's knowledge, or with a similar qualification, the Company will be
deemed to have knowledge of any matter with respect to which any executive
officer or director of the Company has actual knowledge or would have knowledge
after conducting a reasonable investigation. Where a representation is made to
Buyer's or Merger Sub's knowledge or with a similar qualification, Buyer and the
Merger Sub will be deemed to have
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knowledge of any matter with respect to which any director or executive officer
of Buyer or Merger Sub has actual knowledge or would have knowledge after
conducting a reasonable investigation.
"LIENS" means any and all liens, claims, mortgages, security interests,
charges, encumbrances, and restrictions on transfer of any kind, except, in the
case of references to securities, those arising under applicable securities laws
solely by reason of the fact that such securities were issued pursuant to
exemptions from registration under such securities laws.
"MATERIAL ADVERSE EFFECT" with respect to a person means any change or
effect that is or is reasonable likely to be materially adverse to (i) the
business, results of operations, assets, prospects, or financial condition of
the person and any Subsidiaries, taken as a whole, or (ii) the ability of the
person to perform its obligations under this Agreement or to consummate the
Merger or the other transactions contemplated by this Agreement.
"MAXIMUM INDEMNIFICATION VALUE" shall mean with respect to the Buyer and the
Merger Sub as of any day the amount equal to (x) the Closing Price Per Share as
of such date multiplied by the Indemnification Stock Number, MINUS (y) the
aggregate value previously paid by such Indemnifying Party, or group of
Indemnifying Parties, in satisfaction of claims against such Indemnifying Party
or group of Indemnifying Parties under Section 16 (with any shares of Buyer
Common Stock delivered in satisfaction of indemnification obligations hereunder
being valued at the Closing Price Per Share on the date of delivery, regardless
of whether those shares are Escrowed Merger Consideration).
"MERGER CONSIDERATION PER SHARE" means that number of shares of Buyer Common
Stock equal to one (1) MULTIPLIED by the Common Stock Exchange Ratio PLUS an
amount in cash equal to the Cash Payment Per Share.
"PERMITTED LIENS" means (a) such imperfections of title, easements,
encumbrances or restrictions which do not materially impair the current use by
the Company of the assets subject thereto or the Company's ability to sell or
transfer such assets without discharging any obligation, (b) materialmen's,
mechanics', carriers', workmen's, warehousemen's, repairmen's, landlord's and
other like liens arising in the ordinary course of business, or deposits to
obtain the release of such Liens, (c) the Liens listed on Section 6.11 of the
Company Disclosure Schedule, (d) Liens under Company's Senior Credit Agreement,
(e) Liens related to leased furniture and equipment, and (f) purchase money
security interests incurred in the ordinary course of business.
"PERSON" (regardless of whether capitalized) means any natural person,
entity, or association, including without limitation any corporation,
partnership, limited liability company, government (or agency or subdivision
thereof), trust, joint venture, or proprietorship.
"RPS CASH AMOUNT PER SHARE" means (i) $4,094,245.80 (or such amount as the
Chief Executive Officer of the Company may determine in writing delivered to
Buyer and the Summit Parties on or before the business day prior to Closing, but
in no event more than the aggregate Redeemable Liquidation Value (as defined in
the Company's Certificate of Incorporation as amended from time to time) of all
shares of the Company Redeemable Preferred Stock issued and outstanding at the
Effective Time and subject to conversion pursuant to Section 2.5(a) hereof (the
"CONVERTED RPS SHARES")) DIVIDED BY (ii) the number of Converted RPS Shares.
"REDEEMABLE PREFERRED EXCHANGE RATIO" means the fraction derived by dividing
(i) the amount equal to the Redeemable Liquidation Value (as defined in the
Company's Amended and Restated Certificate of Incorporation, as amended to date)
of one share of Company Redeemable Preferred Stock MINUS the RPS Cash Amount Per
Share, by (ii) the Closing Date Price Per Share.
"SEC" means the United States Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and the rules
and regulations of the SEC thereunder, as in effect as of the relevant time of
reference.
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"SECURITIES LAWS" shall mean the Securities Act, the Exchange Act, the
Investment Company Act of 1940, as amended, the Investment Advisors Act of 1940,
as amended, the Trust Indenture Act of 1939, as amended, and the rules and
regulations of any regulatory authority promulgated thereunder.
"SEVERALLY BUT NOT JOINTLY" or "SEVERALLY AND NOT JOINTLY" shall, as among
the Principal Company Stockholders, be deemed to be made for purposes of the
representations, warranties, agreements, covenants and indemnification
obligations made or assumed hereunder by the Principal Company Stockholders in
proportion to the number of shares of Company Common Stock held by each
Principal Company Stockholder (treating the holders of Company Convertible
Preferred Stock and Company Options as holding the aggregate number of shares of
Company Common Stock for which such shares of Company Convertible Preferred
Stock are convertible into or such Company Options are exercisable for).
"SUBSIDIARY" or "SUBSIDIARIES" means, with respect to any person, any
corporation a majority (by number of votes) of the outstanding shares of any
class or classes of which will at the time be owned by such person or by a
Subsidiary of such person, if the holders of the shares of such class or classes
(a) are ordinarily, in the absence of contingencies, entitled to vote for the
election of a majority of the directors (or persons performing similar
functions) of the issuer thereof, even though the right so to vote has been
suspended by the happening of such a contingency, or (b) are at the time
entitled, as such holders, to vote for the election of a majority of the
directors (or persons performing similar functions) of the issuer thereof,
whether or not the right so to vote exists by reason of the happening of a
contingency.
"TAX" or "TAXES" (and with correlative meaning, "TAXABLE") means any
federal, state, local, or foreign income, gross receipts, franchise, estimated,
alternative minimum, add-on minimum, sales, use, transfer, registration, value
added, excise, natural resources, severance, stamp, occupation, premium,
windfall profit, environmental, customs, duties, real property, personal
property, capital stock, intangibles, social security, unemployment, disability,
payroll, license, employee, or other tax or levy, of any kind whatsoever,
including any interest, penalties, or additions to tax in respect of the
foregoing.
"TAX RETURN" means any return, declaration, report, claim for refund,
information return, or other document (including any related or supporting
estimates, elections, schedules, statements, or information) filed or required
to be filed in connection with the determination, assessment, or collection of
any Tax or the administration of any laws, regulations, or administrative
requirements relating to any Tax.
"THE SUMMIT PARTIES" means Summit Ventures V, L.P., Summit Ventures IV,
L.P., Summit V Advisors Fund, L.P, Summit V Advisors Funds (QP), L.P., Summit V
Companion Fund, L.P. and Summit Investors III, L.P., collectively.
"TREASURY REGULATION" means the Treasury Regulations promulgated under the
Code, including temporary and proposed Treasury Regulations, as such regulations
may be amended from time to time (including corresponding provisions of
succeeding regulations).
"UNVESTED REPLACEMENT OPTIONS" shall mean those options to purchase Buyer
Common Stock issuable upon the conversion into options to purchase Buyer Common
Stock of all Company Options that are not exercisable as of the Effective Time
or immediately after the Effective Time, including any Company Options, the
exercisability of which would have been accelerated at or around the Effective
Time had the holder of such Company Option not waived the acceleration of such
Company Option in connection with the Merger.
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19.2. TERMS DEFINED ELSEWHERE. The following terms are defined herein
in the sections identified below:
TERM SECTION TERM SECTION
- ---- ------- ---- -------
Additional Escrow Parties 3.3 Former Shares 4(a)
Agreement Preamble Hazardous Substances 6.15(c)
Bridge Note 5.1 iBasis Plan 11.8(a)(i)
Buyer Preamble Indemnified Parties 11.7(b)
Buyer Common Stock Preamble Indemnified Party 16.3(a)
Buyer Disclosure Schedule 8 Indemnifying Party 16.3(a)
Buyer's SEC Reports 8.5 Initial Bridge Loan 5.1
Buyer Stock Plan 8.6 Major Intellectual Properties 6.10(b)
Buyer Stockholder Merger 1
Voting Agreement Preamble Merger Certificate 1
Buyer Supplemental Disclosures 11.5 Merger Sub Preamble
CERCLA 6.15(b) MicroStrategy Assurance Letter 13.9
Certificate 3.1 Most Recent Audited
Closing 1 Balance Sheet 6.7
Closing Date 1 Most Recent Unaudited
Company Preamble Balance Sheet 6.7
Company Common New Option Number 10.4(b)
Stock 2.5(b) Other Escrowed Merger
Company Convertible Preferred Consideration 3.3
Stock 2.5(d)(i) PBGC 6.14(d)(ii)
Company Disclosure Permitted Uses 5.1
Schedule 6 Pre-Merger Period 6.13(y)
Company Intellectual Properties 6.10(b) Principal Buyer Stockholders Preamble
Company Option 4(a) Principal Company Stockholders Preamble
Company Option Plan 4(a) RCRA 6.15(b)
Company Plan 11.8(i)(A) Registration Rights Agreement Preamble
Company Property 6.15(d) Registration Statement Preamble
Company Redeemable Preferred Released Shares 16.5(b)
Stock 2.5(a) Replacement Cash Right 4(a)
Company Restricted Shares 10.4(b) Replacement Exercise Price
Company Restricted Stock Plan 10.20 Per Share 4(a)
Company Stockholder Replacement Option 4(a)
Representative 20.3(a) Restricted Stock Award Agreement 10.4(b)
Company Supplemental SARA 6.15(b)
Disclosures 10.16 Second Bridge Loan 5.2(a)
Confidential Information 6.10(k) Second Loan Date 5.2(a)
contract 6.20 September 2000 10-Q 8.5
Cut-off Date 16.5(c) Section 16.2 Costs 16.2
DGCL 1 Stockholder Representatives 20.3
Dissenting Shares 2.7 Summit Stockholder
Effective Time 1 Representative 20.3(a)
Employee Benefit Plan 6.14(a) Surviving Corporation 2.1
Environmental Laws 6.15(b) Termination Date 18(b)
EPA 6.15(c) Third-Party Claim 16.3(a)
ERISA 6.14(c) Third Party License
Escrow Agreement 3.3 Escrowed Shares 3.3
Escrowed Merger Consideration 3.3 Unlimited Claims 16.5(a)
20. GENERAL.
20.1. COOPERATION. Each of the parties will cooperate with the others
and use its reasonable best efforts to prepare all necessary documentation,
to effect all necessary filings, and to obtain all necessary permits,
consents, approvals, and authorizations of all governmental bodies and other
third parties necessary to consummate the transactions contemplated by this
Agreement.
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20.2. SURVIVAL OF PROVISIONS. The provisions of this Agreement,
including without limitation the representations and warranties of the
parties, and the provisions of the other documents executed and delivered in
connection with this Agreement, the Merger, and the other transactions
contemplated hereby will, notwithstanding any investigation by or on behalf
of any other party, be deemed to have been relied on by each other party,
and subject to the provisions of Section 16.5 hereof, will survive the
Closing and the consummation of the Merger and the other transactions
contemplated hereby.
20.3. STOCKHOLDER REPRESENTATIVES.
(a) APPOINTMENT OF STOCKHOLDER REPRESENTATIVE. Upon approval of the
Merger by the Company Stockholders, each of the Company Stockholders (other
than Summit and any holder of Dissenting Shares) shall be deemed to have
constituted and appointed, and each of the Principal Company Stockholders
(other than Summit and any holder of Dissenting Shares), hereby constitutes
and appoints effective from and after the date of such approval of this
Agreement, Daniel J. Price, as the agent and attorney-in-fact of each of the
Company Stockholders other than the Summit Parties and any holder of
Dissenting Shares (the "COMPANY STOCKHOLDER REPRESENTATIVE" and, together
with the Summit Stockholder Representative, the "STOCKHOLDER
REPRESENTATIVES"), and each of the Summit Parties hereby constitutes and
appoints, effective from and after the date of this Agreement hereof, (the
"SUMMIT STOCKHOLDER REPRESENTATIVE") as the agent and attorney-in-fact of
the Summit Parties, in each case to act as Stockholder Representative under
this Agreement and the Escrow Agreement in accordance with the terms of this
Section 20.3 and the Escrow Agreement. In the event of the resignation,
death or incapacity of the Company Stockholder Representative, a successor
Company Stockholder Representative shall thereafter be appointed by an
instrument in writing signed by such successor Company Stockholder
Representative and by those Principal Company Stockholders who immediately
prior to the Effective Time held a majority of the shares of outstanding
Company Common Stock on a fully-converted basis (other than Dissenting
Shares and the Summit Parties) held by all Company Stockholders other than
the Summit Parties and such appointment shall become effective as to any
such successor Company Stockholders' Representative when a copy of such
instrument shall have been delivered to Buyer. In the event of the
resignation, death or incapacity of the Summit Stockholder Representative, a
successor Summit Stockholder Representative shall thereafter be appointed by
an instrument in writing signed by such successor Summit Stockholder
Representative and by the Summit Parties and such appointment shall become
effective as to any such successor Summit Stockholders' Representative when
a copy of such instrument shall have been delivered to Buyer.
(b) AUTHORITY. The Stockholder Representatives are hereby fully
authorized by the Company Stockholders and the Summit Parties to, in each
case, on behalf of the parties for whom they are representative:
(i) execute and deliver the Escrow Agreement;
(ii) receive all notices or other documents given or to be given to the
Company Stockholders or the Summit Parties, as the case may be, by Buyer
under Sections 16 of this Agreement or to the Stockholder Representatives by
Buyer pursuant to the Escrow Agreement;
(iii) receive and accept service of legal process in connection with any
claim or other proceeding against the Company Stockholders arising under
Section 16 of this Agreement or the Escrow Agreement in respect of the
Escrowed Merger Consideration;
(iv) undertake, compromise, defend and settle any such suit or
proceeding;
(v) execute and deliver all agreements, certificates and documents
required or deemed appropriate by the Stockholder Representatives in
connection with any of the transactions
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contemplated by Section 16 of this Agreement or the Escrow Agreement
(including, without limitation, one or more blank stock powers relating to
the transfer of any Escrowed Shares);
(vi) engage special counsel, accountants and other advisors and incur
such other expenses on behalf of the Company Stockholders in connection with
any matter arising under Section 16 of this Agreement or the Escrow
Agreement as the Stockholder Representatives deems appropriate on behalf of
such Company Stockholders;
(vii) retain and liquidate any Escrowed Shares to which the Company
Stockholders are entitled and apply the proceeds thereof to the payment of
(or reimbursement of the Stockholder Representatives for) expenses and
liabilities for which the Stockholders' Representative may incur pursuant to
this Section 20.3; and
(viii) take such other action of the Company Stockholders as such
Stockholder Representatives may deem appropriate, including, without
limitation:
(A) agreeing to any modification or amendment of this Agreement or
the Escrow Agreement and executing and delivering an agreement of such
modification or amendment;
(B) taking any actions required or permitted under Section 16 of this
Agreement or the Escrow Agreement to protect or enforce the rights of the
Company Stockholders hereunder and thereunder to the Escrowed Merger
Consideration; and
(C) all such other matters as the Stockholder Representatives may
deem necessary or appropriate to carry out the intents and purposes of
Section 16 of this Agreement and the Escrow Agreement.
(c) EXTENT AND SURVIVAL OF AUTHORITY. The appointment of each of the
Stockholder Representatives is an agency coupled with an interest and is
irrevocable and any action taken by a Stockholder Representative pursuant to
the authority granted in this Section 20.3 or under the Escrow Agreement
shall be effective and absolutely binding on each Company Stockholder
notwithstanding any contrary action of or direction from such Company
Stockholder for whom they serve as representative, except for actions or
omissions of the Stockholder Representatives constituting willful misconduct
or gross negligence. The death or incapacity, or dissolution or other
termination of existence, of any Company Stockholder shall not terminate the
authority and agency of the Stockholder Representatives.
(d) RELEASE FROM LIABILITY; INDEMNIFICATION. Each Company Stockholder
hereby releases the Stockholder Representatives from, and each Company
Stockholder agrees to indemnify the Stockholder Representatives against,
liability for any action taken or not taken by him in his capacity as such
Agent (including the expenses referred to in Sections 20.3(b) and (e)
hereof), except for the liability of any such Stockholder Representative to
a Company Stockholder for loss which such Company Stockholder may suffer
from the willful misconduct or gross negligence of such Stockholder
Representative in carrying out his duties hereunder under the Escrow
Agreement.
(e) REIMBURSEMENT OF EXPENSES. The Stockholder Representatives shall
receive no compensation for services as such, but shall receive
reimbursement from, and be indemnified by, the Company Stockholders for whom
they serve as representative, pro rata, for any and all expenses, charges
and liabilities, including, but not limited to, reasonable attorneys' fees,
incurred by such Stockholder Representative in the performance or discharge
of his duties pursuant to this Section 20.3 and the Escrow Agreement. Unless
the Company Stockholders pay all such expenses, charges and liabilities upon
demand by the Stockholder Representative who represents such Company
Stockholders, such Stockholder Representative shall have no obligation to
incur such expenses, charges or liabilities, or to continue to perform any
duties hereunder.
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20.4. EXPENSES. Each of the parties will be responsible for and will
pay his or its own expenses in connection with the negotiation and
preparation of this Agreement and the consummation of the Merger and the
other transactions contemplated hereby.
20.5. BENEFITS OF AGREEMENT; NO ASSIGNMENTS; NO THIRD-PARTY
BENEFICIARIES.
(a) This Agreement will bind and inure to the benefit of the parties
hereto and their respective heirs, successors, and permitted assigns.
(b) No party will assign any rights or delegate any obligations
hereunder without the consent of the other parties, and any attempt to do so
will be void.
(c) Nothing in this Agreement is intended to or will confer any rights
or remedies on any person other than the parties hereto and their respective
heirs, successors, and permitted assigns.
20.6. NOTICES. All notices, requests, payments, instructions, or other
documents to be given hereunder will be in writing or by written
telecommunication, and will be deemed to have been duly given if (i)
delivered personally (effective upon delivery), (ii) mailed by registered or
certified mail, return receipt requested, postage prepaid (effective five
business days after dispatch), (iii) sent by a reputable, established
courier service that guarantees next business day delivery (effective the
next business day), or (iv) sent by telecopier followed within 24 hours by
confirmation by one of the foregoing methods (effective upon receipt of the
telecopy in complete, readable form), addressed as follows (or to such other
address as the recipient party may have furnished to the sending party for
the purpose pursuant to this section):
(a) If to Buyer, Merger Sub, and/or (after the Effective Time), the
Company to:
iBasis, Inc.
20 Second Avenue
Burlington, Massachusetts 01803
Attention: Ofer Gneezy
Telecopier: (781) 505-7304
with a copy sent at the same time and by the same means to:
David L. Engel, Esq. and
Johan V. Brigham, Esq.
Bingham Dana LLP
150 Federal Street
Boston, Massachusetts 02110
Telecopier No. (617) 951-8736
(b) If to any of the Principal Company Stockholders (other than the
Summit Parties) and/or (before the Effective Time) the Company, to the
Company Stockholder Representative at:
Daniel J. Price
c/o PriceInteractive, Inc.
11800 Sunrise Valley Drive
Reston, Virginia 20191
Telecopier: (703) 620-4385
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with a copy sent at the same time and by the same means to:
James J. Maiwurm, Esq. and Stephen M. L. Cohen, Esq.
c/o Squire, Sanders & Dempsey Choate, Hall & Stewart
L.L.P. 53 State Street
1201 Pennsylvania Avenue, N.W. Boston, MA 02109-2891
P.O. Box 407
Washington, D.C. 20044-0407
Telecopier No. (202) 626-6780 Telecopier No. (617) 248-4000
(c) If to any of the Summit Parties, to the Summit Stockholder
Representative at:
c/o Summit Partners
600 Atlantic Avenue
Suite 2800
Boston, Massachusetts 02210
Attn: Scott C. Collins
Telecopier No. (617) 824-1151
with a copy sent at the same time and by the same means to:
Stephen M. L. Cohen, Esq.
Choate, Hall & Stewart
53 State Street
Boston, MA 02109-2891
Telecopier No. (617) 248-4000
20.7. COUNTERPARTS. This Agreement may be executed by the parties in
separate counterparts, each of which when so executed and delivered will be
an original, but all of which together will constitute one and the same
agreement. In pleading or proving this Agreement, it will not be necessary
to produce or account for more than one such counterpart.
20.8. CAPTIONS. The captions of sections or subsections of this
Agreement are for reference only and will not affect the interpretation or
construction of this Agreement.
20.9. EQUITABLE RELIEF. Each of the parties hereby acknowledges that
any breach by him or it of his or its obligations under this Agreement would
cause substantial and irreparable damage to the parties, and that money
damages would be an inadequate remedy therefor, and accordingly,
acknowledges and agrees that each other party will be entitled to an
injunction, specific performance, and/or other equitable relief to prevent
the breach of such obligations.
20.10. CONSTRUCTION. The language used in this Agreement is the
language chosen by the parties to express their mutual intent, and no rule
of strict construction will be applied against any party.
20.11. WAIVERS. No waiver of any breach or default hereunder will be
valid unless in a writing signed by the waiving party. No failure or other
delay by any party exercising any right, power, or privilege hereunder will
be or operate as a waiver thereof, nor will any single or partial exercise
thereof preclude any other or further exercise thereof or the exercise of
any other right, power, or privilege.
20.12. ENTIRE AGREEMENT. This Agreement, together with the exhibits
and schedules hereto and the other agreements, instruments, certificates,
and other documents referred to herein as having been or to be executed and
delivered in connection with the transactions contemplated hereby, contains
the entire understanding and agreement among the parties, and supersedes any
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prior understandings or agreements among them, or between or among any of
them, with respect to the subject matter hereof. Notwithstanding the
foregoing, the provisions of the Confidentiality Agreements dated as of
November 9, 2000, by and between the Company and Buyer, will survive the
execution and delivery of this Agreement and the consummation of the Merger.
20.13. GOVERNING LAW. Except to the extent that the DGCL shall apply
to the Merger, this Agreement will be governed by and interpreted and
construed in accordance with the internal laws of the Commonwealth of
Massachusetts, as applied to contracts under seal made, and entirely to be
performed, within the Commonwealth of Massachusetts, and without reference
to principles of conflicts or choice of laws.
20.14. PUBLIC ANNOUNCEMENTS. Buyer, the Principal Company Stockholders
and the Company shall consult with each other before issuing any press
release or otherwise making any public statements with respect to this
Agreement or the Merger and related transactions and shall not issue any
such press release or make any such public statement prior to such
consultation, except that the Buyer may make such public statements or
announcements that may be required by applicable law or the rules of the
Nasdaq National Market or the National Association of Securities Dealers,
Inc. The parties have agreed on the text of a joint press release by which
Buyer and the Company will announce the execution of this Agreement.
Notwithstanding the foregoing, at any time after issuance of the press
release referred to in the preceding sentence the Summit Parties may
disclose (using publicly available information) to their respective
partners, representatives and other interested parties the transactions
contemplated by this Agreement.
20.15. AMENDMENT. This Agreement may not be amended or modified except
by an instrument in writing signed by each of the parties hereto.
[THE REST OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]
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Executed and delivered under seal as of the date first above written.
BUYER: IBASIS, INC.
By: /s/ OFER GNEEZY
---------------------------------------
Name: Ofer Gneezy
Title: President and Chief Executive
Officer
MERGER SUB: PENGUIN ACQUISITION CORP.
By: /s/ GORDON J. VANDERBRUG
---------------------------------------
Name: Gordon J. Vanderbrug
Title: Secretary
COMPANY: PRICEINTERACTIVE, INC.
By: /s/ DANIEL J. PRICE
---------------------------------------
Name: Daniel J. Price
Title: Chairman, President and Chief
Executive Officer
STOCKHOLDER
REPRESENTATIVES
/s/ DANIEL J. PRICE
-------------------------------------------
Daniel J. Price
not individually but solely as
Company Stockholder Representative
-------------------------------------------
-------------------------------------------
not individually but solely as
Summit Stockholder Representative
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The undersigned Company Stockholder hereby executes and delivers under seal
this Agreement and Plan of Merger and Reorganization by and among iBasis, Inc.,
Penguin Acquisition Corp., PriceInteractive, Inc. and the other parties hereto
as of the date first above written.
By: /s/ DANIEL J. PRICE
---------------------------------------
Name: Daniel J. Price
Title: Stockholder
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The undersigned Company Stockholder hereby executes and delivers under seal
this Agreement and Plan of Merger and Reorganization by and among iBasis, Inc.,
Penguin Acquisition Corp., PriceInteractive, Inc. and the other parties hereto
as of the date first above written.
By: /s/ TIMOTHY W. PRICE
---------------------------------------
Name: Timothy W. Price
Title: Stockholder
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The undersigned Company Stockholder hereby executes and delivers under seal
this Agreement and Plan of Merger and Reorganization by and among iBasis, Inc.,
Penguin Acquisition Corp., PriceInteractive, Inc. and the other parties hereto
as of the date first above written.
SUMMIT VENTURES V, L.P.
By: Summit Partners V, L.P
Its General Partner
By: Summit Partners, LLC
Its General Partner
By: /s/ BRUCE R. EVANS
-------------------------------
Name: Bruce R. Evans
Title: Member
SUMMIT VENTURES IV, L.P.,
By: Summit Partners IV, L.P.,
Its General Partner
By: Stamps, Woodsum & Co. IV, L.P.,
Its General Partner
By: /s/ BRUCE R. EVANS
-------------------------------
Name: Bruce R. Evans
Title: General Partner
SUMMIT INVESTORS III, L.P.
By: /s/ BRUCE R. EVANS
---------------------------------------
Name: Bruce R. Evans
Title: General Partner
SUMMIT V COMPANION FUND, L.P.
By: Summit Partners V, L.P
Its General Partner
By: Summit Partners, LLC
Its General Partner
By: /s/ BRUCE R. EVANS
-------------------------------
Name: Bruce R. Evans
Title: Member
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SUMMIT V ADVISORS FUND, L.P.
By: Summit Partners, LLC
Its General Partner
By: /s/ BRUCE R. EVANS
-------------------------------
Name: Bruce R. Evans
Title: Member
SUMMIT V ADVISORS FUND (QP), L.P.
By: Summit Partners, LLC
Its General Partner
By: /s/ BRUCE R. EVANS
-------------------------------
Name: Bruce R. Evans
Title: Member
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EXHIBIT A-1
Daniel J. Price
Timothy M. Price
Summit Ventures V, L.P.
Summit Ventures IV, L.P.
Summit V Advisors Fund, L.P.
Summit V Advisors Funds (QP), L.P.
Summit V Companion Fund, L.P.
Summit Investors III, L.P.
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APPENDIX B
EXHIBIT 3.3
ESCROW AGREEMENT
This ESCROW AGREEMENT (this "ESCROW AGREEMENT"), dated as of , 2001,
is among iBasis, Inc., a Delaware corporation (the "BUYER"), each of the
individuals and entities listed on SCHEDULE 1 hereto as Principal Stockholders
(each, a "PRINCIPAL STOCKHOLDER", and collectively the "PRINCIPAL STOCKHOLDERS")
and each of the individuals and entities listed on Schedule 1 hereto as
Additional Stockholders with respect to the securities referred to on Schedule 1
hereto (each, an "ADDITIONAL STOCKHOLDER", and collectively, the "ADDITIONAL
STOCKHOLDERS" and, collectively with the Principal Stockholders, the "COMPANY
STOCKHOLDERS") in their capacity as former stockholders of PriceInteractive,
Inc., a Delaware corporation (the "COMPANY"), Daniel J. Price and Summit
Ventures IV, L.P., in their capacities as the Stockholder Representatives under
the Merger Agreement described below and this Agreement (in such capacities,
each a "STOCKHOLDER REPRESENTATIVE" and collectively, the "STOCKHOLDER
REPRESENTATIVES"), and , as escrow agent (in such capacity, the
"ESCROW AGENT". Capitalized terms used herein without definition shall have the
meanings assigned to such terms in the Merger Agreement described below.
WHEREAS, the Buyer, the Principal Stockholders, the Stockholder
Representatives and the Company have entered into an Agreement and Plan of
Merger and Reorganization, dated as of December 12, 2000 (the "MERGER
AGREEMENT"), pursuant to which the Company has agreed to merge (the "MERGER")
with and into a wholly-owned subsidiary of the Buyer (the "MERGER SUB"), with
the Merger Sub being the surviving corporation, and all of the outstanding
shares of the Company's Class A Common Stock and Class B Common Stock, $0.01 par
value per share, 1998 Redeemable Preferred Stock, $0.01 par value per share, and
Series A Convertible Preferred Stock, $0.01 par value per share, will be
exchanged into the right to receive shares of the common stock of the Buyer, par
value $0.001 per share (the "BUYER COMMON STOCK"), and a specified amount of
cash (the "CASH CONSIDERATION"), as set forth in the Merger Agreement; and
WHEREAS, pursuant to the Merger Agreement, the Buyer shall deposit with the
Escrow Agent stock certificates representing certain shares of Buyer Common
Stock, which would otherwise be issuable to the Company Stockholders at or
following the Closing if shares of Buyer Common Stock were not to be issued into
escrow pursuant to Section 3.3 of the Merger Agreement, to be held and
distributed by the Escrow Agreement pursuant to the terms hereof.
NOW, THEREFORE, in consideration of the mutual promises and agreements set
forth in this Escrow Agreement, the parties hereto hereby agree as follows:
1. DEPOSIT OF ESCROWED CONSIDERATION; ADDITIONAL STOCKHOLDERS.
(a) ESCROWED SHARES. On the Closing Date the Buyer shall deposit with the
Escrow Agent stock certificates representing the shares of Buyer Common Stock
that would otherwise be issuable to the Company Stockholders at the Closing if
shares of Buyer Common Stock were not to be issued into escrow pursuant to
Section 3.3 of the Merger Agreement (the "ESCROWED SHARES"), together with stock
powers duly executed in blank by each Company Stockholder, as security for the
indemnification obligations of the Company Stockholders arising under Section 16
of the Merger Agreement.
(b) OWNERSHIP CERTIFICATE. Attached as Exhibit A hereto is a written
certificate (as the same may be amended from time to time in accordance with
this Agreement, the "OWNERSHIP CERTIFICATE") setting forth the respective
ownership interests of each Company Stockholder with respect to the Escrowed
Shares and any other property held by the Escrow Agent hereunder (collectively
with the Escrowed Shares, the "ESCROWED CONSIDERATION"). The Escrow Agent shall
establish on its books an account (the "ESCROW ACCOUNT") in which the Escrow
Agent shall note the amount of Escrowed Consideration from time to time held by
the Escrow Agent pursuant hereto, and the Company Stockholders to whom such
Escrowed Consideration is attributable.
2. RELEASE OF ESCROWED CONSIDERATION AND OTHER PROPERTY.
(a) RELEASE AT END OF ESCROW TERM. Subject to the provisions of paragraphs
(b) and (c) below, the Escrow Agent shall release any then-held Escrowed
Consideration pursuant to this Agreement to the Company Stockholders to whom
such Escrowed Consideration is allocated pursuant to the Ownership Certificate
as follows: the Other Escrowed Merger Consideration (as defined in Section 3.3
of the Merger Agreement) shall be released on the first anniversary of the
Closing Date and the Schedule 16.2 Escrowed Shares (as defined in Section 3.3 of
the Merger Agreement) shall be released on the eighteen month anniversary of the
Closing Date (such anniversaries the "RELEASE DATES"); PROVIDED, that the Escrow
Agent shall not release any Escrowed Consideration on the Release Dates to the
Company Stockholders to the extent that such Escrowed Consideration is subject
to an Indemnification Claim, as defined below.
(b) RELEASE IN SATISFACTION OF PRINCIPAL STOCKHOLDER INDEMNIFICATION
OBLIGATIONS.
(i) From time to time prior to the Release Dates, the Buyer may deliver
to the Escrow Agent, with a copy to each of the Stockholder Representatives,
a written notice (an "INDEMNIFICATION NOTICE") requesting distribution to
the Buyer of Escrowed Consideration having a value equal to the amount of
the Damages (as defined in the Merger Agreement) specified in such notice
for which the Buyer is seeking indemnification under Section 16.2 of the
Merger Agreement (an "INDEMNIFICATION CLAIM"), along with a delivery receipt
or other appropriate proof of delivery to the Stockholder Representatives of
a copy of such Indemnification Notice. Such Indemnification Notice shall
indicate which of the Principal Company Stockholders' obligations under the
Merger Agreement are the subject of such Indemnification Claim. If the
Escrow Agent is not in actual receipt of a written objection from one or
both of the Stockholder Representatives to such Indemnification Claim within
thirty (30) days following the date of the Escrow Agent's actual receipt of
such Company Indemnification Notice, then on the thirty-first (31st) day
following such actual receipt (or if the thirty-first (31st) day is not a
business day for the Escrow Agent, then on the first business day
thereafter), the Escrow Agent shall deliver to the Buyer (i) a certificate
representing the number of whole Escrowed Shares having a value, based upon
the Closing Price Per Share (as defined in the Merger Agreement), on the
date of delivery (or other Escrowed Consideration) equal to not less than
the amount of the Damages specified in the Indemnification Notice, and
thereafter, the Escrow Agent shall deduct from the Escrow Account that
number of shares of Buyer Common Stock or other Escrowed Consideration so
delivered to the Buyer. The Escrow Agent shall send a written confirmation
of such release to the Stockholder Representatives promptly after the
consummation of such release. Other than Indemnification Claims made in
respect of Section 7 of the Merger Agreement, any release of Escrowed
Consideration pursuant to this Section 2(b) shall be made on a PRO RATA
basis with respect to the Escrowed Consideration held on behalf of all
Company Shareholders based on their respective ownership percentages as set
forth in the latest Ownership Certificate, as amended or supplemented from
time to time. For Indemnification Claims made against a particular Principal
Company Stockholder pursuant to Section 7 of the Merger Agreement, any
release of Escrowed Consideration pursuant to this Section 2(b) shall not be
made on a PRO RATA basis with respect to the Escrowed Consideration held on
behalf of all Company Shareholders, rather the satisfaction of such
Indemnity Claim shall only be made against that portion of the Escrowed
Merger Consideration held on behalf of the Principal Company Stockholder
that breached the applicable representation or warranty in Section 7 of the
Merger Agreement. Immediately following any release pursuant to this Section
2(b), the Company and the Stockholder Representatives shall deliver to the
Escrow Agent a new Ownership Certificate reflecting the revised respective
ownership interests of the Company Stockholders in the Escrowed
Consideration.
(ii) If the Escrow Agent is in actual receipt of a written objection
from one or both of the Stockholder Representatives to a Company
Indemnification Claim made pursuant to the foregoing
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Section 2(b)(i) within thirty (30) days following the date of the Escrow
Agent's actual receipt of the applicable Indemnification Notice, the Escrow
Agent shall make no distribution of Escrowed Consideration subject to such
Indemnification Claim until it shall have received either (A) non-
conflicting written instructions from both of the Stockholder
Representatives and the Buyer or (B) an order of an arbitrator or court
having jurisdiction over the matter and directing distribution of such
Escrowed Consideration which is final and not subject to further court
proceedings or appeal. Upon receipt of any such written instructions or
order, the Escrow Agent shall recalculate the number of shares of Buyer
Common Stock and Related Escrowed Consideration to be delivered to the Buyer
pursuant hereto based on the Closing Price Per Share on the date of
delivery, shall distribute the stock certificates representing such Escrowed
Shares and Related Escrowed Consideration in accordance with such written
instructions or order and shall make a notation on the Escrow Account
accordingly.
3. CONCERNING THE BUYER COMMON STOCK.
3.1. CONVERSIONS, DIVIDENDS, STOCK SPLITS, MERGERS, ETC.
(a) So long as any of the Escrowed Shares are held by Escrow Agent
hereunder, all dividends and distributions paid or made in respect of the
Escrowed Shares paid to the Escrow Agent (including without limitation all
dividends and distributions made in connection with any recapitalization,
reclassification, split, combination or exchange of shares) shall be held by
Escrow Agent. All stock dividends shall be issued in the name of the
applicable Company Stockholder and shall be endorsed in blank for transfer
and deposited with the Escrow Agent as Escrowed Shares hereunder. All cash
dividends paid on or in respect of the Escrowed Shares held by the Escrow
Agent shall reasonably promptly after the receipt thereof be paid to the
Company Stockholders on or with respect to whose Escrowed Shares such
dividends were paid.
(b) If the Buyer shall merge or consolidate with another entity in a
transaction in which the holders of Buyer Common Stock receive cash,
securities or other property in exchange for Buyer Common Stock, the Escrow
Agent shall deposit such cash, securities or other property into the Escrow
Account as substitute Escrowed Consideration.
3.2. VOTING RIGHTS. All voting rights of the shares of Buyer Common
Stock held by the Escrow Agent shall be vested in the Company Stockholders
to whom such shares are attributed, as set forth on the most recent
Ownership Certificate delivered to the Escrow Agent unless and until such
shares of Buyer Common Stock are released to the Buyer pursuant to Section 2
hereof.
4. INVESTMENT OF ESCROWED FUNDS. Until the termination of this Escrow
Agreement and the release of the Escrowed Consideration and other property held
by the Escrow Agent pursuant hereto, the Escrow Agent shall invest and reinvest
any portion of the Escrowed Consideration held by the Escrow Agent hereunder
which consists of cash or cash equivalents (the "ESCROWED FUNDS") solely in (a)
marketable obligations of, or obligations guaranteed by, the United States of
America or (b) Federal Obligations (as defined below). The Escrow Agent shall
have no liability to the Company Stockholders or the Buyer arising, directly or
indirectly, from any investment made pursuant to this Section 4. As used herein,
the term "FEDERAL OBLIGATIONS" means obligations of, or obligations guaranteed
by, the United States or any agency thereof and to agreements to repurchase
Federal Obligations that are at least one hundred percent (100%) collateralized
by Federal Obligations marked to market on a daily basis.
5. TAX RELATED TERMS.
5.1. TAX REPORTING. For tax reporting purposes, all interest or other
income earned from the investment of the Escrowed Funds in any tax year
shall be allocated to such person or entity on whose behalf such Escrowed
Funds are held.
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5.2. CERTIFICATION OF TAX IDENTIFICATION NUMBER. Each of the Company
Stockholders and the Buyer hereto agree to provide the Escrow Agent with a
certified tax identification number by signing and returning a Form W-9 (or
Form W-8, in case of non-U.S. persons) to the Escrow Agent prior to the date
on which any income earned on the investment of the Escrow Funds is credited
to the Escrow Funds. Each of the Company Stockholders and the Buyer
understand that, in the event their tax identification numbers are not
certified to the Escrow Agent, the Internal Revenue Code, as amended from
time to time, may require withholding of a portion of any interest or other
income earned on the investment of the Escrow Funds.
5.3. TAX INDEMNIFICATION. Each of the Stockholder Representatives,
each of the Company Stockholders and the Buyer agree: (i) to instruct the
Escrow Agent in writing with respect to the Escrow Agent's responsibility
for withholding any other taxes, assessments or other governmental charges,
and to instruct the Escrow Agent with respect to any certifications that may
be required under any laws or regulations that may be applicable in
connection with its acting as Escrow Agent under this Agreement, and (ii) to
indemnify and hold the Escrow Agent harmless, severally and not jointly,
from any liability or obligation on account of taxes, assessments, additions
for late payment, interest, penalties, expenses and other governmental
charges that may be assessed or asserted against the Escrow Agent in
connection with or relating to any payment made or other activities
performed under the terms of this Agreement with respect to such party,
including without limitation any liability for the withholding or deduction
of (or the failure to withhold or deduct) the same, and any liability for
failure to obtain proper certifications or to report properly to
governmental authorities in connection with this Agreement, including costs
and expenses (including reasonable legal fees and expenses), interest and
penalties, except for (A) taxes paid on income earned by the Escrow Agent
and (B) any taxes, assessments, additions for late payment, interest
penalties, expenses and other governmental charges arising from the Escrow
Agent's gross negligence or willful misconduct. The foregoing
indemnification and agreement to hold harmless shall survive the termination
of this Agreement.
6. RESPONSIBILITY OF ESCROW AGENT. The Escrow Agent shall not be
responsible for the genuineness of any signature or document presented to it
pursuant to this Escrow Agreement and may rely conclusively upon and shall be
protected in acting upon any judicial order or decree, certificate, notice,
request, consent, statement, instruction or other instrument believed by it in
good faith to be genuine or to be signed or presented by the proper person
hereunder, or duly authorized by such person or properly made. Notwithstanding
anything to the contrary in this Escrow Agreement, prior to taking any action
hereunder, the Escrow Agent may, if in doubt regarding its duties and
obligations, seek instructions from the Buyer, the Company Stockholders, and the
Stockholder Representatives, and if such instructions are in conflict, the
Escrow Agent may seek instructions or other relief (including but not limited to
interpleader) from a court of competent jurisdiction, and further may request
such evidence, documents, certificates or opinions as it may deem appropriate.
The Escrow Agent shall be entitled to retain counsel both to advise it and in
connection with any court action, and such counsel's reasonable attorneys' fees
shall be borne equally by the Company Stockholders as a group on the one hand
and the Buyer on the other. The Escrow Agent shall be entitled to act in
reliance upon the advice of counsel in all matters pertaining to this Escrow
Agreement, and shall not be liable for any action taken or omitted by it in good
faith in accordance with such advice. The Escrow Agent shall not be responsible
for any of the agreements contained herein except the performance of its duties
as expressly set forth herein. The duties and obligations of the Escrow Agent
hereunder shall be governed solely by the provisions of this Escrow Agreement,
and the Escrow Agent shall have no duties other than the duties expressly
imposed herein and shall not be required to take any action other than in
accordance with the terms hereof. The Escrow Agent shall not be bound by any
notice of, or demand with respect to, any waiver, modification, amendment,
termination, cancellation, rescission or supersession of this Escrow Agreement,
unless in writing and signed by the Buyer, the Company Stockholders and the
Escrow Agent. In the event of any controversy or dispute hereunder or with
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respect to any question as to the construction of this Escrow Agreement, or any
action to be taken by the Escrow Agent hereunder, the Escrow Agent shall incur
no liability for any action taken or suffered in good faith, its liability
hereunder to be limited solely to gross negligence or willful misconduct on its
part. The Buyer and the Company Stockholders jointly and severally agree to
indemnify and hold the Escrow Agent harmless, and further to protect and defend
the Escrow Agent (with counsel selected by the Escrow Agent) against any losses,
liabilities and damages incurred by the Escrow Agent as a consequence of any
action taken or omitted to be taken by it in the performance of its obligations
hereunder (including, without limitation, the reasonable fees and disbursements
of counsel), with the exception of any losses, liabilities and damages arising
from the Escrow Agent's gross negligence or willful misconduct. The
representations and obligations of the Company Stockholders and the Buyer to the
Escrow Agent in this Escrow Agreement shall survive the termination of this
Escrow Agreement and shall be applicable whether or not is serving
as Escrow Agent.
7. FEES OF ESCROW AGENT. For its services hereunder, the Escrow Agent
shall receive fees and expenses as set forth on the SCHEDULE 7 attached hereto
(prorated for partial months) until it has delivered all of the Escrowed
Consideration pursuant to this Agreement. The Escrow Agent shall be reimbursed
for all reasonable out-of-pocket expenses incurred by the Escrow Agent necessary
to perform such services (other than taxes imposed in respect of the receipt of
the fees referred to in the preceding sentence). The fees and expenses referred
to in the attached schedule of fees and in the previous sentence shall be borne
by the Buyer.
8. NOTICES AND COMMUNICATIONS. All notices or other communications
hereunder shall be in writing and shall be deemed given if delivered personally
or mailed by prepaid registered or certified mail (return receipt requested) or
by telecopy, cable, telegram or telex addressed as follows:
(a) If to Company, to:
PriceInteractive, Inc.
11800 Sunrise Valley Drive
Reston, Virginia 20191
Attention: Daniel J. Price
Telecopier: (703) 620-4385
Copy to:
James J. Maiwurm, Esq. and Stephen M. L. Cohen, Esq.
c/o Squire, Sanders & Dempsey Choate, Hall & Stewart
L.L.P. 53 State Street
1201 Pennsylvania Avenue, N.W. Boston, MA 02109-2891
P.O. Box 407
Washington, D.C. 20044-0407
Telecopier No. (202) 626-6780 Telecopier No. (617) 248-4000
(b) If to Buyer, to:
iBasis, Inc.
20 Second Avenue
Burlington, Massachusetts 01803
Attention: Ofer Gneezy
Telecopier: (781) 505-7304
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Copy to:
Bingham Dana LLP
150 Federal Street
Boston, MA 02110
Attention: Johan V. Brigham, Esq.
Telecopier: (617) 951-8736
(c) If to the Company Stockholder Representative, at:
Daniel J. Price
c/o PriceInteractive, Inc.
11800 Sunrise Valley Drive
Reston, Virginia 20191
Telecopier: (703) 620-4385
with a copy sent at the same time and by the same means to:
James J. Maiwurm, Esq.
c/o Squire, Sanders & Dempsey L.L.P.
1201 Pennsylvania Avenue, N.W.
P.O. Box 407
Washington, D.C. 20044-0407
Telecopier No. (202) 626-6780
(d) If to the Summit Stockholder Representative, at:
c/o Summit Partners
600 Atlantic Avenue
Suite 2800
Boston, Massachusetts 02210
Attn: Scott C. Collins
Telecopier: (617) 824-1151
with a copy sent at the same time and by the same means to:
Stephen M. L. Cohen, Esq.
Choate, Hall & Stewart
53 State Street
Boston, MA 02109-2891
Telecopier No. (617) 248-4000
(e) If to Escrow Agent, to:
_____________________
_____________________
_____________________
Attention:_____________________
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Copy to:
_____________________
_____________________
_____________________
Attention:_____________________
and if to any of the Company Stockholders, to the address set forth next to
his/her name on SCHEDULE 1 hereto.
9. TERM; AMENDMENTS; SUCCESSORS. Except as otherwise provided herein, this
Agreement shall continue until the later of the first anniversary of the date
hereof, or if there are any unresolved or unpaid Indemnification Claims
outstanding on such date, the date on which such Indemnification Claims are
finally determined, settled or resolved, and the date on which all of the
Escrowed Consideration has been distributed as provided in Section 2 hereof,
PROVIDED that the Buyer, the Company Stockholders and the Stockholder
Representatives may terminate this Agreement upon their mutual written consent.
This Agreement may be amended only as provided in Section 6 hereof and shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective successors and assigns.
10. COUNTERPARTS. This Escrow Agreement may be executed in any number of
counterparts, each of which shall be an original and all of which taken together
shall constitute one and the same instrument. In making proof of this Escrow
Agreement it shall be necessary to produce or account for only one such
counterpart signed by or on behalf of the party sought to be charged herewith.
11. SUCCESSOR ESCROW AGENT. The Escrow Agent may resign upon thirty (30)
days' prior written notice to the Buyer, the Company Stockholders and the
Stockholder Representatives. Upon the resignation of the Escrow Agent, the
Buyer, the Company Stockholders, and the Stockholder Representatives shall
appoint a successor escrow agent or otherwise provide for the disposition of
shares or other property held by the Escrow Agent by notice in writing to the
Escrow Agent. The incumbent Escrow Agent shall deliver to the successor Escrow
Agent the stock certificates representing the Escrowed Shares and any other
property held by it in escrow hereunder, less any property sold or liquidated by
it to pay its unpaid fees and expenses, as provided in said notice.
12. ENTIRE AGREEMENT. This Escrow Agreement, except with respect to the
Buyer, the Company Stockholders, and the Stockholder Representatives, contains
the entire agreement and understanding of the parties with respect to the
transactions contemplated hereby. No prior agreement, either written or oral,
shall be construed to change, amend, alter, repeal or invalidate this Escrow
Agreement.
13. REPRESENTATIONS OF THE BUYER AND THE COMPANY STOCKHOLDERS. Each of the
Buyer and each Company Stockholder represents and warrants to the Escrow Agent
that it/he has the power and authority to enter into this Escrow Agreement and
to carry out its/his obligations hereunder, that it/he has duly authorized,
executed and delivered this Escrow Agreement, and this Escrow Agreement is
its/his valid and binding obligation.
14. GOVERNING LAW. The validity, enforceability and construction of this
Escrow Agreement shall be governed by the laws of the Commonwealth of
Massachusetts.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]
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IN WITNESS WHEREOF, the undersigned have executed this Escrow Agreement as
an instrument under seal as of the day and year first written above.
IBASIS, INC.
By: -----------------------------------------
Name:
Title:
[ESCROW AGENT],
as Escrow Agent
By: -----------------------------------------
Name:
Title:
Address:
STOCKHOLDER REPRESENTATIVES
---------------------------------------------
---------------------------------------------
not individually but solely as
Company Stockholder Representative
---------------------------------------------
---------------------------------------------
not individually but solely as
Summit Stockholder Representative
STOCKHOLDERS:
Attest:
- ------------------------------------------- ---------------------------------------------
Name:
Address:
Attest:
- ------------------------------------------- ---------------------------------------------
Name:
Address:
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Attest:
- ------------------------------------------- ---------------------------------------------
Name:
Address:
Attest:
- ------------------------------------------- ---------------------------------------------
Name:
Address:
Attest:
- ------------------------------------------- ---------------------------------------------
Name:
Address:
Attest:
- ------------------------------------------- ---------------------------------------------
Name:
Address:
Attest:
- ------------------------------------------- ---------------------------------------------
Name:
Address:
Attest:
- ------------------------------------------- ---------------------------------------------
Name:
Address:
Attest:
- ------------------------------------------- ---------------------------------------------
Name:
Address:
Attest:
- ------------------------------------------- ---------------------------------------------
Name:
Address:
B-9
EXHIBIT A
OWNERSHIP CERTIFICATE
In connection with that certain Escrow Agreement, dated ,2001
(the "ESCROW AGREEMENT") by and among iBasis, Inc., a Delaware corporation
(the "BUYER"), each of the COMPANY STOCKHOLDERS parties thereto, the Stockholder
Representatives, and , as escrow agent (in such capacity, the
"ESCROW AGENT"), each of (i) Daniel J. Price, in his capacity as Company
Stockholder Representative and (ii) in its capacity as Summit Stockholder
Representative, do hereby certify that following table sets forth the respective
ownership interests of each Company Stockholder with respect to the Escrowed
Shares and any other property held by the Escrow Agent pursuant to the Escrow
Agreement:
NAME OF COMPANY STOCKHOLDER: NUMBER OF ESCROWED SHARES: OTHER ESCROWED PROPERTY:
- ----------------------------- ----------------------------- -----------------------------
Stockholder Representatives
---------------------------------------------
Daniel J. Price
SUMMIT VENTURES IV, L.P.,
By: Summit Partners IV, L.P.,
Its General Partner
By: Stamps, Woodsum & Co. IV, L.P.,
Its General Partner
By: ------------------------------------
Name:
Title: General Partner
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SCHEDULE 1
COMPANY STOCKHOLDERS
1. PRINCIPAL STOCKHOLDERS
Daniel Price
Timothy Price
MicroStrategy Incorporated
Summit Ventures V, L.P.
Summit Ventures IV, L.P.
Summit V Advisors Fund, L.P.
Summit V Advisors Funds (QP), L.P.
Summit Investors III, L.P.
Summit V Companion Fund, L.P.
2. ADDITIONAL STOCKHOLDERS AND COVERED SECURITIES
Daniel E. Moore--Company Options Vested and Exercised as of the Effective
Time and Company Restricted Shares
Dana Skaddan--Company Options Vested and Exercised as of the Effective Time
[ADD HOLDERS OF "COMPANY RESTRICTED SHARES--[OTHER HOLDERS OF 50,000 OR MORE
COMPANY RESTRICTED SHARES TO BE SUBJECT TO AGREEMENT ONLY AS TO RESTRICTED
SHARES, NOT OPTIONS]]
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SCHEDULE 7
FEES
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APPENDIX C
VOTING AGREEMENT
VOTING AGREEMENT (this "AGREEMENT"), dated as of December 12, 2000, among
PriceInteractive, Inc., a Delaware corporation (the "COMPANY"), and the
individuals named on ATTACHMENT A hereto (collectively, the "STOCKHOLDERS"),
beneficially owning certain shares (the "COMMON SHARES"), of common stock,
$0.001 par value per share (the "BUYER COMMON STOCK"), of iBasis, Inc., a
Delaware corporation (the "BUYER"). Capitalized terms used herein and not
otherwise defined shall have the meanings ascribed to such terms in the
Agreement and Plan of Merger and Reorganization (the "MERGER AGREEMENT"), dated
as of the date hereof, by and among the Company, Buyer, the Principal
Stockholders named therein, the Stockholder Representatives named therein and
Penguin Acquisition Corp., a Delaware corporation ("MERGER SUB").
W I T N E S S E T H:
WHEREAS, the Company, Buyer, Merger Sub and the other parties thereto intend
to enter into the Merger Agreement providing for the Merger, on the terms and
subject to the conditions set forth in the Merger Agreement;
WHEREAS, as of the date hereof, each Stockholder beneficially owns the
number of Common Shares set forth opposite such Stockholder's name on
ATTACHMENT A hereto (the "OWNED SHARES");
WHEREAS, pursuant to the terms of the Merger Agreement, the Amended and
Restated Certificate of Incorporation of the Buyer, the Amended and Restated
By-Laws of the Buyer, the rules of the Nasdaq Stock Market and applicable laws,
the Buyer shall seek to obtain the approval of the holders of the outstanding
shares of Buyer Common Stock of the execution and delivery of the Merger
Agreement and the consummation of the transactions contemplated thereby,
including the consummation of the Merger and the election of Daniel J. Price to
the Board of Directors of Buyer;
WHEREAS, the Owned Shares represent, as of the date hereof, approximately
30% of the outstanding shares of Buyer Common Stock entitled to vote on the
execution and delivery of the Merger Agreement and the consummation of the
transactions contemplated thereby, including the consummation of the Merger and
the election of Daniel J. Price to the Board of Directors of Buyer;
WHEREAS, the Stockholders desire to express their support for the Merger and
the transactions contemplated by the Merger Agreement; and
WHEREAS, as a condition to its willingness to enter into and perform its
obligations under the Merger Agreement, the Company has requested that each
Stockholder agree, and each Stockholder has agreed, to vote, or execute a
written consent in respect of, all the Owned Shares, together with any Common
Shares acquired after the date of this Agreement, whether upon the exercise of
options, conversion of convertible securities or otherwise, and any other voting
securities of the Buyer (whether acquired heretofore or hereafter) that are
beneficially owned by such Stockholder or over which such Stockholder has,
directly or indirectly, the right to vote (collectively, the "VOTING SHARES"),
in favor of the Merger and any other matters submitted to the holders of Common
Shares in furtherance of the Merger, including the election of Daniel J. Price
to the Board of Directors of the Buyer.
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration given to each party hereto, the receipt of which is
hereby acknowledged, the parties agree as follows:
1. AGREEMENT TO VOTE. Each Stockholder hereby agrees that, during the time
this Agreement is in effect, at any meeting of the Stockholders of the Buyer,
however called, or any adjournment thereof, or by written consent, such
Stockholder shall be present (in person or by proxy) and vote (or cause to be
voted), or execute a written consent in respect of, all of its Voting Shares (a)
in favor of approval of the Merger Agreement and any other matter that is
required to facilitate the transactions contemplated by the Merger Agreement,
including the election of Daniel J. Price to the Board of Directors of the
Buyer, and (b) against any action or agreement that would result in a breach in
any material respect of any covenant, representation or warranty or any other
obligation or agreement of the Buyer under the Merger Agreement or that would
otherwise prevent or materially delay the consummation of the Merger or of the
other transactions contemplated by the Merger Agreement, including the election
of Daniel J. Price to the Board of Directors of the Buyer.
2. TERMINATION.
2.1 TERMINATION OF THIS AGREEMENT. This Agreement shall terminate on
the earlier of (a) the consummation of the Merger, or (b) the termination of
the Merger Agreement in accordance with its terms.
2.2 EFFECT OF TERMINATION. In the event of termination of this
Agreement pursuant to Section 2.1, this Agreement shall become void and of
no effect with no liability on the part of any party hereto.
3. REPRESENTATIONS AND WARRANTIES OF STOCKHOLDERS. Each Stockholder hereby
represents and warrants to the Company, solely as to such Stockholder, as
follows:
3.1 DUE ORGANIZATION. Each such Stockholder that is not an individual
has been duly organized, is validly existing and is in good standing, as
applicable, under the laws of the jurisdiction of its organization.
3.2 POWER; DUE AUTHORIZATION; BINDING AGREEMENT. Such Stockholder has
full legal capacity, power and authority to execute and deliver this
Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby by
any such Stockholder that is a trust have been duly and validly authorized
by all necessary action on the part of such Stockholder's trustees, and no
other proceedings on the part of such Stockholder are necessary to authorize
this Agreement or to consummate the transactions contemplated hereby. This
Agreement has been duly and validly executed and delivered by such
Stockholder and constitutes a valid and binding agreement of such
Stockholder, enforceable against such Stockholder in accordance with its
terms, except that enforceability may be subject to the effect of any
applicable bankruptcy, reorganization, insolvency, moratorium or other
similar laws affecting or relating to the enforcement of creditors rights
generally and to general principles of equity.
3.3 OWNERSHIP OF SHARES. On the date hereof, the Owned Shares set
forth opposite such Stockholder's name on ATTACHMENT A hereto are owned of
record or beneficially by such Stockholder and constitute all of the Voting
Shares owned of record or beneficially by such Stockholder, free and clear
of any claims, liens, encumbrances and security interests, except as are
specified on ATTACHMENT B hereto. As of the date hereof, each Stockholder
has, and as of the date of the Stockholder meeting (or action by written
consent) in connection with the Merger Agreement and the transactions
contemplated thereby, such Stockholder will have (except as otherwise
permitted by this Agreement or pursuant to the matters referred to in the
preceding sentence), sole voting power and sole dispositive power with
respect to all of the Owned Shares of such Stockholder.
3.4 NO CONFLICTS. The execution and delivery of this Agreement by each
such Stockholder does not, and the performance of the terms of this
Agreement by each such Stockholder will not, (a) require such Stockholder to
obtain the consent or approval of, or make any filing with or notification
to, any governmental or regulatory authority, domestic or foreign, (b) in
the case of a Stockholder that is a trust, conflict with or violate the
Declaration of Trust or other trust agreement of such Stockholder, (c)
require the consent or approval of any other person pursuant to any material
agreement, obligation or instrument binding on such Stockholder or its
properties and assets, (d) conflict with or violate any organizational
document or law, rule, regulation, order,
C-2
judgment or decree applicable to such Stockholder or by which any property
or asset of such Stockholder is bound or (e) violate any other agreement to
which such Stockholder is a party including, without limitation, any voting
agreement, stockholders agreement, irrevocable proxy or voting trust, except
for any consent, approval, filing or notification which has been obtained as
of the date hereof or the failure of which to obtain, make or give would
not, or any conflict or violation which would not, prevent, delay or
materially adversely affect the consummation of the transactions
contemplated by this Agreement or the Merger Agreement.
3.5 ACKNOWLEDGMENT. Each Stockholder understands and acknowledges that
the Company is entering into the Merger Agreement in reliance upon such
Stockholder's execution and delivery of this Agreement with the Company.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to each Stockholder as follows: The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the state of Delaware. The Company has full corporate power and authority to
execute and deliver this Agreement, to perform its obligations hereunder and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement and the consummation by the Company of the transactions
contemplated hereby have been duly and validly authorized by all necessary
corporate action on the part of the Company, and no other proceedings on the
part of the Company are necessary to authorize this Agreement or to consummate
the transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by the Company and constitutes a valid and binding
agreement of the Company, except that enforceability may be subject to the
effect of any applicable bankruptcy, reorganization, insolvency, moratorium or
other similar laws affecting or relating to the enforcement of creditors rights
generally and to general principles of equity.
5. CERTAIN COVENANTS OF STOCKHOLDERS. Each Stockholder hereby covenants
and agrees (solely as to such Stockholder) as follows:
5.1 RESTRICTION ON TRANSFER, PROXIES AND NON-INTERFERENCE.
(a) Except as set forth in Section 5.1(b), each Stockholder hereby
agrees, while this Agreement is in effect, and except as contemplated
hereby, not to (i) sell, transfer, pledge, encumber, assign or otherwise
dispose of, or enter into any contract, option or other arrangement or
understanding with respect to the sale, transfer, pledge, encumbrance,
assignment or other disposition of, or limitation on the voting rights
of, any of the Voting Shares (any of such actions being referred to
herein as a "TRANSFER"), (ii) grant any proxies or powers of attorney,
deposit any Voting Shares into a voting trust or enter into a voting
agreement with respect to any Voting Shares, (iii) take any action that
would cause any representation or warranty of such Stockholder contained
herein to become untrue or incorrect or have the effect of preventing or
disabling such Stockholder from performing its obligations under this
Agreement or (iv) commit or agree to take any of the foregoing actions.
Any Transfer not permitted hereby shall be null and void. Each
Stockholder agrees that any such prohibited Transfer may and should be
enjoined and that the Company shall not be required to recognize any such
transfer on its books. If any involuntary Transfer of any of the Voting
Shares shall occur (including, but not limited to, a sale by a
Stockholder's trustee in bankruptcy, or a sale to a purchaser at any
creditor's or court sale), the transferee (which term, as used herein,
shall include any and all transferees and subsequent transferees of the
initial transferee) shall take and hold such Voting Shares subject to all
of the restrictions, liabilities and rights under this Agreement, which
shall continue in full force and effect.
(b) This Agreement shall not restrict any Stockholder from, during
the period in which this Agreement is in effect, (i) at any time after
the record date established by the Board of Directors of the Buyer for
the first meeting at which the matters set forth in Section 1 are to
C-3
be considered by the holders of the Buyer Common Stock (the "RECORD
DATE"), making any "Transfer" of any of such Stockholder's Owned Shares,
PROVIDED, that prior to consummating any such Transfer, such Stockholder
delivers an irrevocable proxy relating to the matters set forth in
Section 1 to a designee of the Company, and PROVIDED FURTHER, that Ofer
Gneezy and Gordon VanderBrug shall not be entitled to Transfer during the
term of this Agreement, pursuant to this clause (i), more than 5% of
their respective Owned Shares as of the date hereof; (ii) at any time
prior to or after the Record Date, using Owned Shares as collateral or a
pledge for borrowings from a financial institution, provided such
financial institution agrees in writing with the Buyer to be bound by all
of the terms hereof; or (iii) at any time prior to or after the Record
Date, disposing of Owned Shares to other entities controlled by such
Stockholder, or in connection with tax, estate or financial planning,
provided any such transferee agrees in writing with the Buyer to be bound
by all of the terms of this Agreement.
5.2 NO LIMITATIONS ON ACTIONS. No Stockholder executing this Agreement
who is or becomes during the term hereof a director or officer of Buyer
makes (or shall be deemed to have made) any agreement or understanding
herein in such person's capacity as such director or officer, and the
parties hereto acknowledge that any such Stockholder has fiduciary and other
obligations to Buyer in that capacity. Without limiting the generality of
the foregoing, each Stockholder signs this Agreement solely in such person's
capacity as the record and/or beneficial owner, as applicable, of such
Stockholder's Owned Shares, and nothing herein shall limit or affect any
actions taken by such Stockholder in such person's capacity as an officer or
director of Buyer or the Buyer's rights in connection with the Merger
Agreement.
6. FURTHER ASSURANCES. From time to time, at the Company's request and
without further consideration, each Stockholder shall execute and deliver such
additional documents and take all such further action as may be necessary or
desirable to consummate and make effective the transactions contemplated by
Section 1 and Section 2 of this Agreement.
7. MISCELLANEOUS.
7.1 NON-SURVIVAL. The representations and warranties made herein shall
not survive the termination of this Agreement.
7.2 ENTIRE AGREEMENT; ASSIGNMENT; LIMITED THIRD PARTY
BENEFICIARIES. This Agreement (i) constitutes the entire agreement among
the parties with respect to the subject matter hereof and supersedes all
other prior agreements and understandings, both written and oral, among the
parties with respect to the subject matter hereof, (ii) shall not be
assigned by operation of law or otherwise, and (iii) shall be binding upon
and inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, is intended to or shall confer upon any other
Person any right, benefit or remedy of any nature whatsoever under or by
reason of this Agreement.
7.3 AMENDMENTS. This Agreement may not be modified, amended, altered
or supplemented, except upon the execution and delivery of a written
agreement executed by each of the parties hereto.
7.4 NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly received if so given) by hand delivery, by facsimile
transmission or by mail (registered or certified mail, postage prepaid, return
C-4
receipt requested) or by any courier service, such as Federal Express, providing
proof of delivery. All communications hereunder shall be delivered to the
respective parties at the following addresses:
If to a Stockholder, to such Stockholder's address set forth on the
signature pages hereto, with a copy to:
---------------------------------------------
---------------------------------------------
Attention:
------------------------------------
Facsimile:
------------------------------------
If to the Company:
PriceInteractive, Inc.
11800 Sunrise Valley Drive
Reston, Virginia 20191
Attention: Daniel J. Price
Telecopier: (703) 620-4385
Copy to:
James J. Maiwurm, Esq. and Stephen M. L. Cohen, Esq.
c/o Squire, Sanders & Dempsey Choate, Hall & Stewart
L.L.P. 53 State Street
1201 Pennsylvania Avenue, N.W. Boston, MA 02109-2891
P.O. Box 407
Washington, D.C. 20044-0407
Telecopier No. (202) 626-6780 Telecopier No. (617) 248-4000
iBasis, Inc.
20 Second Avenue
Burlington, Massachusetts 01803
Attention: Ofer Gneezy
Telecopier: (781) 505-7304
with a copy to:
Bingham Dana LLP
150 Federal Street
Boston, Massachusetts 02110-1726
Attention: Johan V. Brigham, Esq.
Telecopier: (617) 951-8736
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
7.5 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the Commonwealth of Massachusetts, regardless
of the laws that might otherwise govern under applicable principles of
conflicts of laws thereof.
C-5
7.6 REMEDIES. Each Stockholder recognizes and acknowledges that a
breach by it of any covenants or agreements contained in this Agreement will
cause the Company to sustain irreparable injury and damages, for which money
damages would not provide an adequate remedy, and therefore each Stockholder
agrees that in the event of any such breach the Company shall be entitled to
the remedy of specific performance of such covenants and agreements and
injunctive and other equitable relief. Notwithstanding any provision of this
Agreement to the contrary, or any principle of law or of equity, the Company
agrees that its sole remedy for breach of this Agreement shall be specific
performance by each Stockholder of the terms of this Agreement, and that in
no case shall the Company be entitled to monetary or other damages in
connection with this Agreement, whether liquidated, special, consequential
or punitive or in any other form whatsoever. As a condition to each
Stockholder's willingness to enter into this Agreement, the Company hereby,
on its behalf and on that of its affiliates, irrevocably and unconditionally
waives any such claim for damages that it may have, whether in law or in
equity, in any jurisdiction and forum whatsoever.
7.7 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of
which together shall constitute one and the same Agreement.
7.8 DESCRIPTIVE HEADINGS. The descriptive headings used herein are
inserted for convenience of reference only and are not intended to be part
of or to affect the meaning or interpretation of this Agreement.
7.9 SEVERABILITY. Whenever possible, each provision or portion of any
provision of this Agreement will be interpreted in such manner as to be
effective and valid under applicable law but if any provision or portion of
any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not
affect any other provision or portion of any provision in such jurisdiction,
and this Agreement will be reformed, construed and enforced in such
jurisdiction as if such invalid, illegal or unenforceable provision or
portion of any provision had never been contained herein.
7.10 OBLIGATIONS SEVERAL. The obligations of the Stockholders under
this Agreement are several and not joint.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]
C-6
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year first above written.
PRICEINTERACTIVE, INC.
By: /s/ DANIEL J. PRICE
-----------------------------------------
Name: Daniel J. Price
Title: President
IBASIS, INC.
By: /s/ OFER GNEEZY
-----------------------------------------
Name: Ofer Gneezy
Title: President and Chief Executive
Officer
STOCKHOLDERS:
/s/ OFER GNEEZY
---------------------------------------------
Name: Ofer Gneezy
Address: 20 Second Avenue
---------------------------------
Burlington, MA 01803
---------------------------------
---------------------------------
/s/ GORDON J. VANDERBRUG
---------------------------------------------
Name: Gordon J. VanderBrug
Address: 23 Woodpark
---------------------------------
Lexington, MA 02421
---------------------------------
C-7
MENLO VENTURES VII, L.P.
By: MV Management VII, L.L.C.
Its General Partner
/s/ JOHN JARVE
---------------------------------------------
Name: John Jarve
Address:
---------------------------------
---------------------------------
---------------------------------
MENLO ENTREPRENEURS FUND VII, L.P.
By: MV Management VII, L.L.C.
Its General Partner
/s/ JOHN JARVE
---------------------------------------------
Name: John Jarve
Address:
---------------------------------
---------------------------------
---------------------------------
CHARLES CORFIELD TRUST U/A/D 12/19/91
/s/ CHARLES CORFIELD
---------------------------------------------
Name: Charles Corfield, as Trustee
Address: 1366 7th Street
---------------------------------
Boulder, CO 80302
---------------------------------
---------------------------------
/s/ CARL REDFIELD
---------------------------------------------
Name: Carl Redfield
Address:
---------------------------------
---------------------------------
---------------------------------
C-8
ATTACHMENT A
OWNED SHARES
STOCKHOLDER OWNED SHARES
- ----------- ------------
Corfield, Charles........................................... 1,114,416(1)
Gneezy, Ofer................................................ 3,661,939
Jarve, John................................................. 3,445,713
Redfield, Carl.............................................. 66,800
VanderBrug, Gordon.......................................... 1,835,001
- ------------------------
(1) Such shares attributable to Stockholder through the Charles Corfield Trust
C-9
ATTACHMENT B
CLAIMS, LIENS, ENCUMBRANCES AND SECURITY INTERESTS
Mr. Charles Corfield's Shares are contained in a fluctuating margin
brokerage account currently subject to margin call.
C-10
December 12, 2000
Board of Directors
iBasis, Inc.
20 Second Avenue
Burlington, Massachusetts 01803
Members of the Board:
We understand that PriceInteractive, Inc. (the "Company"), and iBasis, Inc.
("Acquiror") and PriceInteractive Acquisition Corp. (a wholly owned subsidiary
of Acquiror, "Merger Sub") are proposing to enter into an Agreement and Plan of
Merger and Reorganization (the "Agreement") which will provide, among other
things, for the merger (the "Merger") of the Company with and into Merger Sub.
Under the terms set forth in a draft of the Agreement dated December 12, 2000
(the "Draft Agreement"), at the effective time of the Merger, the outstanding
shares of Class A and Class B common stock of the Company, $0.01 par value per
share ("Company Common Stock"), the Company Restricted Shares (as defined in the
draft Agreement) and the outstanding shares of preferred stock of the Company
("Company Preferred Stock"), in each case other than (i) shares held by
shareholders who properly exercise dissenters' rights ("Dissenting Shares"),
(ii) shares owned by Acquiror or Merger Sub and (iii) shares held in the
Company's treasury, will be converted into the right to receive shares of the
common stock of Acquiror, par value $0.001 per share ("Acquiror Common Stock").
The maximum number of shares of Acquiror Common Stock to be issued (including
Acquiror Common Stock to be reserved for issuance upon exercise of outstanding
vested Company options to be assumed by Acquiror) in the Merger in exchange for
all outstanding shares of Company Common Stock and outstanding vested Company
Options shall be equal to 10,125,641 shares of Acquiror Common Stock and
$50 million in cash (the "Purchase Price") subject to adjustment under certain
circumstances as described in the Agreement. The terms and conditions of the
Merger are set out more fully in the Agreement.
You have asked us whether, in our opinion, the Purchase Price is fair from a
financial point of view and as of the date hereof to Acquiror.
For purposes of this opinion we have, among other things:
(i) reviewed certain publicly available financial statements and other
business and financial information of the Acquiror;
(ii) reviewed certain internal financial statements and other financial
and operating data concerning the Company and Acquiror, prepared by
the managements of the Company and Acquiror, respectively;
(iii) reviewed certain financial forecasts and other forward looking
financial information prepared by the managements of the Company
and Acquiror, respectively;
(iv) held discussions with the respective managements of the Company and
Acquiror concerning the businesses, past and current operations,
financial condition and future prospects of both the Company and
Acquiror, independently and combined, including discussions with
the management of Acquiror regarding the strategic rationale for
the Merger;
(v) reviewed the financial terms and conditions set forth in the Draft
Agreement;
(vi) reviewed the stock price and trading history of Acquiror Common
Stock;
D-1
Board of Directors
iBasis, Inc.
December 12, 2000
Page 2
(vii) compared the financial performance of the Company with that of
certain publicly traded companies comparable with the Company;
(viii) compared the financial terms of the Merger with the financial
terms, to the extent publicly available, of other transactions that
we deemed relevant;
(ix) reviewed the pro forma impact of the Merger; and
(x) made such other studies and inquiries, and reviewed such other data,
as we deemed relevant.
In our review and analysis, and in arriving at our opinion, we have assumed and
relied upon the accuracy and completeness of all of the financial and other
information provided to us (including information furnished to us orally or
otherwise discussed with us by the managements of the Company and Acquiror) or
publicly available and have neither attempted to verify, nor assumed
responsibility for verifying, any of such information. We have relied upon the
assurances of the managements of the Company and Acquiror that they are not
aware of any facts that would make such information inaccurate or misleading.
Furthermore, we did not obtain or make, or assume any responsibility for
obtaining or making, any independent evaluation or appraisal of the properties,
assets or liabilities (contingent or otherwise) of the Company or Acquiror, nor
were we furnished with any such evaluation or appraisal. With respect to the
financial forecasts and projections (and the assumptions and bases therefor) for
each of the Company and Acquiror that we have reviewed, upon the advice of the
managements of the Company and Acquiror, we have assumed that such forecasts and
projections have been reasonably prepared in good faith on the basis of
reasonable assumptions and reflect the best currently available estimates and
judgments as to the future financial condition and performance of the Company
and Acquiror, respectively, and we have further assumed that such projections
and forecasts will be realized in the amounts and in the time periods currently
estimated. We have assumed that the Merger will be consummated upon the terms
set forth in the Draft Agreement without material alteration thereof, including,
among other things, that the Merger will be accounted for as a "purchase"
business combination in accordance with U.S. generally accepted accounting
principles ("GAAP") and that the Merger will be treated as a tax-free
reorganization pursuant to the Internal Revenue Code of 1986, as amended. In
addition, we have assumed that the historical financial statements of each of
the Company and Acquiror reviewed by us have been prepared and fairly presented
in accordance with U.S. GAAP consistently applied. We have relied as to all
legal matters relevant to rendering our opinion on the advice of counsel.
This opinion is necessarily based upon market, economic and other conditions as
in effect on, and information made available to us as of, the date hereof. It
should be understood that subsequent developments may affect the conclusion
expressed in this opinion and that we disclaim any undertaking or obligation to
advise any person of any change in any matter affecting this opinion which may
come or be brought to our attention after the date of this opinion. Our opinion
is limited to the fairness, from a financial point of view and as to the date
hereof, to Acquiror of the Purchase Price.
D-2
Board of Directors
iBasis, Inc.
December 12, 2000
Page 3
We do not express any opinion as to (i) the value of any employee agreement or
other arrangement entered into in connection with the Merger, (ii) any tax or
other consequences that might result from the Merger or (iii) what the value of
Acquiror Common Stock will be when issued to the Company's shareholders pursuant
to the Merger or the price at which the shares of Acquiror Common Stock may be
traded in the future. Our opinion does not address the relative merits of the
Merger and the other business strategies that Acquiror's Board of Directors has
considered or may be considering, nor does it address the decision of Acquiror's
Board of Directors to proceed with the Merger.
We are acting as financial advisor to Acquiror in connection with the Merger and
will receive a fee which is payable upon the delivery of this opinion. In
addition, Acquiror has agreed to indemnify us for certain liabilities that may
arise out of our engagement. We maintain a market in the shares of Acquiror
Common Stock. In the ordinary course of business, we may trade in Acquiror's
securities for our own account and the account of our customers and,
accordingly, may at any time hold a long or short position in Acquiror's
securities.
Our opinion expressed herein is provided for the information of the Board of
Directors of Acquiror in connection with its evaluation of the Merger. Our
opinion is not intended to be and does not constitute a recommendation to any
stockholder of Acquiror or the Company as to how such stockholder should vote,
or take any other action, with respect to the Merger. This opinion may not be
summarized, described or referred to or furnished to any party except with our
express prior written consent.
Based upon and subject to the foregoing considerations, it is our opinion that,
as of the date hereof, the Purchase Price is fair to Acquiror from a financial
point of view.
Very truly yours,
ROBERTSON STEPHENS, INC.
- --------------------------------------------------------------------------------
D-3
IBASIS, INC.
THIRD AMENDMENT
TO
1997 STOCK INCENTIVE PLAN
Effective as of December 12, 2000, but subject to the approval of the
stockholders of iBasis, Inc., a Delaware corporation ("iBasis"), the 1997 Stock
Incentive Plan of iBasis, be hereby amended as follows:
(1) The number "5,700,000" is deleted from the fourth line of Section
3(a) and hereby replaced with the number "9,000,000."
IBASIS, INC.
SECOND AMENDMENT
TO
1997 STOCK INCENTIVE PLAN
Effective as of September 1999, the 1997 Stock Incentive Plan of
iBasis, Inc., a Delaware corporation, was amended as follows:
The number "2,700,000" was deleted from the fourth line of Section 3(a)
and was replaced with the number "5,700,000."
and:
The number "100,000" was deleted from the final sentence of
Section 5(b) and was replaced with the number "1,000,000."
VIP CALLING, INC.
FIRST AMENDMENT
TO
1997 STOCK INCENTIVE PLAN
Effective as of December 3, 1998, the 1997 Stock Incentive Plan of VIP
Calling, Inc., a Delaware corporation, was amended as follows:
The number "400,000" was deleted from the fourth line of Section 3(a)
and was replaced with the number "2,700,000."
E-1
EXHIBIT A
VIP CALLING, INC.
1997 STOCK INCENTIVE PLAN
1. PURPOSES OF THE PLAN.
The purposes of this 1997 Stock Incentive Plan of VIP Calling, Inc. (the
"Company") are to promote the interests of the Company and its stockholders by
strengthening the Company's ability to attract, motivate, and retain employees,
directors, consultants and advisors of exceptional ability and to provide a
means to encourage stock ownership and a proprietary interest in the Company to
selected employees and consultants of the Company upon whose judgment,
initiative, and efforts the financial success and growth of the business of the
Company largely depend.
2. DEFINITIONS.
(a) "Accelerate," "Accelerated," and "Acceleration," when used with respect
to an Option, mean that as of the relevant time of reference, such Option shall
become fully exercisable with respect to the total number of shares of Common
Stock subject to such Option and may be exercised for all or any portion of such
shares.
(b) "Acquisition" means
(i) a merger or consolidation in which securities possessing more than
50% of the total combined voting power of the Company's outstanding
securities are transferred to a person or persons different from the persons
who held those securities immediately prior to such transaction, or
(ii) the sale, transfer, or other disposition of all or substantially
all of the Company's assets to one or more persons (other than any wholly
owned subsidiary of the Company) in a single transaction or series of
related transactions.
(c) "Beneficial Ownership" means beneficial ownership determined pursuant to
Securities and Exchange Commission Rule 13d-3 promulgated under the Exchange
Act.
(d) "Board" means the Board of Directors of the Company.
(e) "Change in Control" means a change in ownership or control of the
Company effected through either of the following transactions:
(i) any person or related group of persons (other than the Company or a
person that directly or indirectly controls, is controlled by, or is under
common control with the Company) directly or indirectly acquires Beneficial
Ownership of securities possessing more than 50% of the total combined
voting power of the Company's outstanding securities pursuant to a tender or
exchange offer made directly to the Company's stockholders that the Board
does not recommend such stockholders to accept, or
(ii) over a period of 36 consecutive months or less, there is a change
in the composition of the Board such that a majority of the Board members
(rounded up to the next whole number, if a fraction) ceases, by reason of
one or more proxy contests for the election of Board members, to be composed
of individuals who either (A) have been Board members continuously since the
beginning of such period, or (B) have been elected or nominated for election
as Board members during such period by at least a majority of the Board
members described in the preceding clause (A) who were still in office at
the time such election or nomination was approved by the Board.
E-2
(f) "Committee" means the Compensation Committee of the Board; PROVIDED,
that the Board by resolution duly adopted may at any time or from time to time
determine to assume any or all of the functions of the Committee under the Plan,
and during the period of effectiveness of any such resolution, references herein
to the "Committee" shall mean the Board acting in such capacity.
(g) "Common Stock" means the authorized Class A Common Stock of the Company,
par value $0.001 per share.
(h) "Company" means VIP Calling, Inc.
(i) "Eligible Person" means any employee who is, at the time of the grant of
an Option or Restricted Stock Award, an employee (including officers and
employee directors), director, consultant or advisor of the Company or any
Subsidiary.
(j) "Exchange Act" means the Securities Exchange Act of 1934, as amended and
in effect from time to time.
(k) "Fair Market Value" means the value of a share of Common Stock as of the
relevant time of reference, as determined as follows. If the Common Stock is
then publicly traded, Fair Market Value shall be (i) the last sale price of a
share of Common Stock on the principal national securities exchange on which the
Common Stock is traded, if the Common Stock is then traded on a national
securities exchange; or (ii) the last sale price of the Common Stock reported in
the NASDAQ National Market System, if the Common Stock is not then traded on a
national securities exchange; or (iii) the average of the closing bid and asked
prices for the Common Stock quoted by an established quotation service for
over-the-counter securities, if the Common Stock is not then traded on a
national securities exchange or reported in the NASDAQ National Market System.
If the Common Stock is not then publicly traded, Fair Market Value shall be the
fair value of a share of the Common Stock as determined by the Board or the
Committee, taking into consideration such factors as it deems appropriate, which
may include recent sale and offer prices of Common Stock in arms'-length private
transactions.
(l) "Hostile Takeover" means a change in ownership of the Company effected
through the following transaction:
(i) any person or related group of persons (other than the Company or a
person that directly or indirectly controls, is controlled by, or is under
common control with the Company) directly or indirectly acquires Beneficial
Ownership of securities possessing more than 50% of the total combined
voting power of the Company's outstanding securities pursuant to a tender or
exchange offer made directly to the Company's stockholders that the Board
does not recommend such stockholders to accept, and
(ii) more than 50% of the securities so acquired in such tender or
exchange offer are accepted from holders other than the officers and
directors of the Company who are subject to the short-swing profit
restrictions of Section 16 of the Exchange Act.
(m) "Incentive Stock Option" means an Option intended to qualify as an
"incentive stock option" under Section 422 of the Internal Revenue Code and
regulations thereunder.
(n) "Nonqualified Stock Option" means an Option that is not an Incentive
Stock Option.
(o) "Option" means an Incentive Stock Option or a Nonqualified Stock Option.
(p) "Participant" means any Eligible Person selected to receive an Option or
Restricted Stock Award pursuant to Section 5 or any Permitted Transferee to whom
an Option or restricted shares of Common Stock granted pursuant to a Restricted
Stock Award have been transferred in accordance with Section 9.
E-3
(q) "Permitted Transferee" means any immediate family member of a person to
whom an Option or Restricted Stock Award has been granted pursuant to Section 5
or a trust maintained exclusively for the benefit of, or partnership all of the
interests in which are held by, one or more of such immediate family members.
(r) "Plan" means this 1997 Stock Incentive Plan as set forth herein and as
amended and/or restated from time to time.
(s) "Restricted Stock Award" means a right to the grant or purchase, at a
price determined by the Committee, of Common Stock which is nontransferable,
except in accordance with Section 4(e), and subject to substantial risk of
forfeiture until specific conditions of continuing employment or performance are
met.
(t) "Subsidiary" means any subsidiary corporation (as defined in
Section 424 of the Internal Revenue Code) of the Company.
(u) "Takeover Price" means, with respect to any Incentive Stock Option, the
Fair Market Value per share of Common Stock on the date such Option is
surrendered to the Company in connection with a Hostile Takeover, or in the case
of a Nonqualified Stock Option, such Fair Market Value or, if greater, the
highest reported price per share of Common Stock paid by the tender offeror in
effecting such Hostile Takeover.
3. SHARES OF COMMON STOCK SUBJECT TO THE PLAN.
(a) Subject to adjustment in accordance with the provisions of Section 3(c)
and Section 8 of the Plan, the aggregate number of shares of Common Stock that
may be issued or transferred pursuant to Options or Restricted Stock Awards
under the Plan shall not exceed 400,000 shares.
(b) The shares of Common Stock to be delivered under the Plan will be made
available, at the discretion of the Committee, from authorized but unissued
shares of Common Stock and/or from previously issued shares of Common Stock
reacquired by the Company.
(c) If shares covered by any Option cease to be issuable for any reason,
and/or shares covered by Restricted Stock Awards are forfeited, such number of
shares will no longer be charged against the limitation provided in
Section 3(a) and may again be made subject to Options or Restricted Stock
Awards.
4. ADMINISTRATION OF THE PLAN.
(a) The Plan will be governed by and interpreted and construed in accordance
with the internal laws of the State of Delaware (without reference to principles
of conflicts or choice of law). The captions of sections of the Plan are for
reference only and will not affect the interpretation or construction of the
Plan.
(b) The Plan will be administered by the Committee, which shall consist of
two or more persons. The Committee has and may exercise such powers and
authority of the Board as may be necessary or appropriate for the Committee to
carry out its functions as described in the Plan. The Committee shall make all
determinations required under the Plan, including the Eligible Persons to whom,
and the time or times at which, Options or Restricted Stock Awards may be
granted, the exercise price or purchase price (if any) of each Option or
Restricted Stock Award, whether each Option is intended to qualify as an
Incentive Stock Option or a Nonqualified Stock Option, and the number of shares
subject to each Option or Restricted Stock Award. The Committee also has
authority (i) to interpret the Plan, (ii) to determine the terms and provisions
of the Option or Restricted Stock Award instruments, and (iii) to make all other
determinations necessary or advisable for Plan administration. The Committee has
authority to prescribe, amend, and rescind rules and regulations relating to the
Plan. All
E-4
interpretations, determinations, and actions by the Committee will be final,
conclusive, and binding upon all parties.
(c) No member of the Committee will be liable for any action taken or
determination made in good faith by the Committee with respect to the Plan or
any Option or Restricted Stock Award granted under it.
5. GRANTS.
(a) The Committee shall determine and designate from time to time those
Eligible Persons who are to be granted Options or Restricted Stock Awards, the
type of each Option to be granted and the number of shares covered thereby or
issuable upon exercise thereof, and the number of shares covered by each
Restricted Stock Award. Each Option and Restricted Stock Award will be evidenced
by a written agreement or instrument and may include any other terms and
conditions consistent with the Plan, as the Committee may determine.
(b) No person will be eligible for the grant of an Incentive Stock Option
who owns or would own immediately before the grant of such Option, directly or
indirectly, stock possessing more than ten percent of the total combined voting
power of all classes of stock of the Company or of any parent corporation or
Subsidiary. This will not apply if, at the time such Incentive Stock Option is
granted, its exercise price is at least 110% of the Fair Market Value of the
Common Stock and by its terms, it is not exercisable after the expiration of
five years from the date of grant. Subject to adjustment in accordance with the
provisions of Section 8 of the Plan, no person may in any year be granted
Options or Restricted Stock Awards with respect to more than 100,000 shares of
Common Stock.
6. TERMS AND CONDITIONS OF STOCK OPTIONS.
(a) The price at which Common Stock may be purchased by a Participant under
an Option shall be determined by the Committee; PROVIDED, HOWEVER, that the
purchase price under an Incentive Stock Option shall not be less than 100% of
the Fair Market Value of the Common Stock on the date of grant of such Option.
(b) Each Option shall be exercisable at such time or times, during such
periods, and for such numbers of shares as shall be determined by the Committee
and set forth in the agreement or instrument evidencing the Option grant
(subject to Acceleration by the Committee, in its discretion). The Option shall
expire no later than three months following termination of the optionee's
employment or consulting relationship with the Company or a Subsidiary, except
in the event that such termination is due to death or disability, in which case
the Option may be exercisable for a maximum of twelve months after such
termination. In any event, the Option shall expire no later than the tenth
anniversary of the date of grant.
(c) Unless the Compensation Committee otherwise determines (whether at the
time the Option is granted or, if the Option is a Nonqualified Stock Option,
thereafter), upon the exercise of an Option, the purchase price will be payable
in full in cash.
(d) Incentive Stock Options may be granted under the Plan only to employees
of the Company or one of its Subsidiaries, and the aggregate Fair Market Value
(determined as of the date the Incentive Stock Option is granted) of the number
of shares with respect to which Incentive Stock Options are exercisable for the
first time by a Participant in any calendar year shall not exceed one hundred
thousand dollars ($100,000) or such other limit as may be required by the
Internal Revenue Code. Any Options that purport to be Incentive Stock Options
but which are granted to employees other than employees of the Company or one of
its Subsidiaries shall be, and any Options that purport to be Incentive Stock
Options but are granted in amounts in excess of those specified in this
Section 6(d), shall to the extent of such excess be, Nonqualified Stock Option.
E-5
(e) Subject to the short-swing profit restrictions of the Federal securities
laws, if applicable, each Option granted to any officer of the Company may
provide that upon the occurrence of a Hostile Takeover, such Option will
automatically be canceled in exchange for a cash distribution from the Company
in an amount equal to the excess of (i) the aggregate Takeover Price of the
shares of Common Stock at the time subject to the canceled Option (regardless of
whether the Option is otherwise then exercisable for such shares) over (ii) the
aggregate Option price payable for such shares. Such cash distribution shall be
made within five days after the consummation of the Hostile Takeover. No
subsequent approval of the Committee or of the Board shall be required in
connection with such Option cancellation and cash distribution.
7. TERMS AND CONDITIONS OF RESTRICTED STOCK AWARDS.
(a) All shares of Common Stock subject to Restricted Stock Awards granted or
sold pursuant to the Plan may be issued or transferred for such consideration
(which may consist wholly of services) as the Committee may determine, and will
be subject to the following conditions:
(i) Unless the Committee determines otherwise in accordance with
Section 9(e), the shares may not be sold, transferred, or otherwise
alienated or hypothecated, except to the Company, until the restrictions
thereon, if any, are removed or expire, unless the Committee determines
otherwise.
(ii) The Committee shall provide in the agreement or instrument
evidencing the grant of the Restricted Stock Awards that the certificates
representing shares subject to Restricted Stock Awards granted or sold
pursuant to the Plan will be held in escrow by the Company until the
restrictions on the shares lapse in accordance with the provisions of
subsection (b) of this Section 7.
(iii) Each certificate representing shares subject to Restricted Stock
Awards granted or sold pursuant to the Plan will bear a legend making
appropriate reference to the restrictions thereon, if any.
(iv) The Committee may impose other conditions on any shares subject to
Restricted Stock Awards granted or sold pursuant to the Plan as it may deem
advisable, including without limitation, restrictions under the Securities
Act of 1933, as amended, under the requirements of any stock exchange or
securities quotations system upon which such shares or shares of the same
class are then listed, and under any blue sky or other securities laws
applicable to such shares.
(b) Any restrictions imposed under subparagraph (a) above upon Restricted
Stock Awards will lapse at such time or times, and/or upon the achievement of
such predetermined performance objectives, as shall be determined by the
Committee and set forth in the agreement or instrument evidencing the Restricted
Stock Award. In the event a holder of a Restricted Stock Award ceases to be an
employee, director, consultant or advisor of the Company, all shares under the
Restricted Stock Award that remain subject to restrictions at the time his or
her employment, directorship or consulting or advising relationship terminates
will be returned to or repurchased by the Company unless the Committee
determines otherwise.
(c) Subject to the provisions of subparagraphs (a) and (b) above, the holder
will have all rights of a shareholder with respect to the shares covered by
Restricted Stock Awards granted or sold, including the right to receive all
dividends and other distributions paid or made with respect thereto; PROVIDED,
HOWEVER, that, if requested by the Company, he or she shall execute an
irrevocable proxy or enter into a voting agreement with the Company as
determined by the Committee for the purpose of granting the Company or its
nominee the right to vote all shares that remain subject to restrictions under
this Section 7 in the same proportions (for and against) as the outstanding
voting shares of the Company that are not subject to such restrictions are voted
by the other shareholders of the Company on any matter, unless the Committee
determines otherwise.
E-6
8. ADJUSTMENT PROVISIONS.
(a) All of the share numbers set forth in the Plan reflect the capital
structure of the Company at the time of the effectiveness of the Plan. Subject
to Section 8(b), if subsequent to such date the outstanding shares of Common
Stock of the Company are increased, decreased, or exchanged for a different
number or kind of shares or other securities, or if additional shares or new or
different shares or other securities are distributed with respect to such shares
of Common Stock or other securities, through merger, consolidation, sale of all
or substantially all the property of the Company, reorganization,
recapitalization, reclassification, stock dividend, stock split, reverse stock
split, or other distribution with respect to such shares of Common Stock, or
other securities, an appropriate and proportionate adjustment shall be made in
(i) the maximum numbers and kinds of shares provided in Sections 3 and 5,
(ii) the numbers and kinds of shares or other securities subject to the then
outstanding Options and Restricted Stock Awards, and (iii) the price for each
share or other unit of any other securities subject to then outstanding Options
(without change in the aggregate purchase price as to which such Options remain
exercisable).
(b) The Committee shall have discretion to provide for the Acceleration of
one or more outstanding Options and the vesting of unvested shares held as
Restricted Stock Awards upon the occurrence of a Change in Control of the
Company. Such Accelerated vesting may be conditioned on the subsequent
termination of the affected optionee's employment, directorship or consulting or
advising relationship. Any Options Accelerated in connection with a Change in
Control shall remain fully exercisable until the expiration or sooner
termination of the Option Term.
(c) In the event of an Acquisition, the unvested shares of Common Stock held
as Restricted Stock Awards shall immediately vest in full, except to the extent
that the Company determines that the Company's repurchase rights with respect to
those shares are to be assigned to the acquiring entity; and all outstanding
Options will Accelerate to the extent not assumed by the acquiring entity or
replaced by comparable options to purchase shares of the capital stock of the
successor or acquiring entity or parent thereof (the determination of
comparability to be made by the Committee, which determination shall be final,
binding, and conclusive). The Committee shall have discretion, exercisable
either in advance of an Acquisition or at the time thereof, to provide (upon
such terms as it may deem appropriate) for (i) the automatic Acceleration of one
or more outstanding Options that are assumed or replaced and do not otherwise
Accelerate by reason of the Acquisition, and/or (ii) the subsequent termination
of one or more of the Company's repurchase rights with respect to shares as
Restricted Stock Awards that are assigned in connection with the Acquisition and
do not otherwise terminate at that time, in the event that the employment,
directorship or consulting or advising relationship of the respective grantees
of such Options or Restricted Stock Awards should subsequently terminate
following such Acquisition.
(d) Each outstanding Option that is assumed in connection with an
Acquisition, or is otherwise to continue in effect subsequent to such
Acquisition, shall be appropriately adjusted, immediately after such
Acquisition, to apply to the number and class of securities that would have been
issued to the Option holder, upon consummation of such Acquisition, had such
holder exercised such Option immediately prior to such Acquisition. Appropriate
adjustments shall also be made to the Option price payable per share, PROVIDED,
that the aggregate Option price payable for such securities shall remain the
same. The class and number of securities available for issuance under the Plan
following the consummation of such Acquisition shall be appropriately adjusted.
(e) Adjustments under this Section 8 will be made by the Committee, whose
determination as to what adjustments will be made and the extent thereof so as
to effectuate the intent of this Section 8 will be final, binding, and
conclusive. No fractional shares will be issued under the Plan on account of any
such adjustments.
E-7
9. GENERAL PROVISIONS.
(a) Nothing in the Plan or in any instrument executed pursuant to the Plan
will confer upon any Participant any right to continue in the employ of or as a
director, consultant or adviser to the Company or any of its Subsidiaries or
affect the right of the Company or any Subsidiary to terminate the employment,
directorship or consulting or advising relationship of any Participant at any
time, with or without cause.
(b) No shares of Common Stock will be issued or transferred pursuant to an
Option or Restricted Stock Award unless and until all then applicable
requirements imposed by Federal and state securities and other laws, rules and
regulations and by any regulatory agencies having jurisdiction, and by any stock
exchanges or securities quotations systems upon which the Common Stock may be
listed, have been fully met. As a condition precedent to the issuance of shares
pursuant to the grant or exercise of an Option or Restricted Stock Award, the
Company may require the Participant to take any reasonable action to meet such
requirements.
(c) No Participant and no beneficiary or other person claiming under or
through such Participant will have any right, title, or interest in or to any
shares of Common Stock allocated or reserved under the Plan or subject to any
Option, except as to such shares of Common Stock, if any, that have been issued
or transferred to such Participant.
(d) Except as set forth in paragraph (e) below, no Option and no right under
the Plan, contingent or otherwise, will be transferable or assignable or subject
to any encumbrance, pledge, or charge of any nature except that, under such
rules and regulations as the Committee may establish pursuant to the terms of
the Plan, a beneficiary may be designated with respect to an Option in the event
of death of a Participant. If such beneficiary is the executor or administrator
of the estate of the Participant, any rights with respect to such Option may be
transferred to the person or persons or entity (including a trust) entitled
thereto under the will of the holder of such Option.
(e) The Committee may, upon the grant of a Nonqualified Stock Option or a
Restricted Stock Award or by amendment to any written agreement or instrument
evidencing such Nonqualified Stock Option or Restricted Stock Award, provide
that such Nonqualified Stock Option or Restricted Stock Award be transferable by
the person to whom such Nonqualified Stock Option or Restricted Stock Award was
granted, without payment of consideration, to a Permitted Transferee of such
person; PROVIDED, HOWEVER, that no transfer of a Nonqualified Stock Option or
Restricted Stock Award shall be valid unless first approved by the Committee,
acting in its sole discretion.
(f) The written agreements or instruments evidencing Restricted Stock Awards
or Options granted under the Plan may contain such other provisions as the
Committee may deem advisable. Without limiting the foregoing, and if so
authorized by the Committee, the Company may, with the consent of the
Participant and at any time or from time to time, cancel all or a portion of any
Option granted under the Plan then subject to exercise and discharge its
obligation with respect to the Option either by payment to the Participant of an
amount of cash equal to the excess, if any, of the Fair Market Value, at such
time, of the shares subject to the portion of the Option so canceled over the
aggregate purchase price specified in the Option covering such shares, or by
issuance or transfer to the Participant of shares of Common Stock with a Fair
Market Value at such time, equal to any such excess, or by a combination of cash
and shares. Upon any such payment of cash or issuance of shares, (i) there shall
be charged against the aggregate limitations set forth in Section 3(a) a number
of shares equal to the number of shares so issued plus the number of shares
purchasable with the amount of any cash paid to the Participant on the basis of
the Fair Market Value as of the date of payment, and (ii) the number of shares
subject to the portion of the Option so canceled, less the number of shares so
charged against such limitations, shall thereafter be available for other
grants.
E-8
10. AMENDMENT AND TERMINATION.
(a) The Board shall have the power, in its discretion, to amend, modify,
suspend, or terminate the Plan at any time, subject to applicable law and the
rights of holders of outstanding Options and Restricted Stock Awards on the date
of such action.
(b) The Committee may, with the consent of a Participant, make such
modifications in the terms and conditions of an Option or Restricted Stock Award
held by such Participant as it deems advisable.
(c) No amendment, suspension or termination of the Plan will, without the
consent of the Participant, alter, terminate, impair, or adversely affect any
right or obligation under any Option or Restricted Stock Award previously
granted to such Participant under the Plan.
11. EFFECTIVE DATE OF PLAN AND DURATION OF PLAN.
The Plan became effective upon its adoption by the Board and by the
Company's stockholders on August 11, 1997. Unless previously terminated, the
Plan will terminate on August 11, 2007.
E-9
VIP CALLING, INC.
INCENTIVE STOCK OPTION AGREEMENT
UNDER THE 1997 STOCK INCENTIVE PLAN
VIP Calling, Inc. (the "Company"), a Delaware corporation, hereby grants,
effective as of , 199 (the "Effective Date"), to (the
"Optionee") the right and option (the "Option") to purchase up to
shares of its Common Stock, $0.001 par value, at a price of $ per
share [NOTE: MUST BE AT LEAST 100% OF FAIR MARKET VALUE AS OF THE DATE OF GRANT
(110%, IN THE CASE OF A GREATER-THAN-10% STOCKHOLDER)], subject to the following
terms and conditions.
1. RELATIONSHIP TO PLAN. The Option is granted pursuant to the Company's
1997 Stock Incentive Plan (the "Plan"), and is in all respects subject to the
terms and conditions of the Plan, a copy of which has been provided to the
Optionee (the receipt of which the Optionee hereby acknowledges). Capitalized
terms used and not otherwise defined in this Agreement are used as defined in
the Plan. The Optionee hereby accepts the Option subject to all the terms and
provisions of the Plan (including without limitation provisions relating to
expiration and termination of the Option and adjustment of the number of shares
subject to the Option and the exercise price therefor). The Optionee further
agrees that all decisions under and interpretations of the Plan by the Company
shall be final, binding, and conclusive upon the Optionee and his or her
successors, permitted assigns, heirs, and legal representatives.
2. EXERCISE. The Option shall become exercisable only as follows, PROVIDED,
in each case, that the Optionee continues to be employed by the Company or a
Subsidiary (as defined in the Plan) of the Company on each applicable date:
NUMBER (OR PERCENTAGE) OF SHARES
DATE FOR WHICH OPTION EXERCISABLE
---- -----------------------------------------
- -------------------------------------- --------------------------------------
- -------------------------------------- --------------------------------------
- -------------------------------------- --------------------------------------
- -------------------------------------- --------------------------------------
3. TERMINATION OF OPTION. The Option shall terminate on the earlier of
(a) , 20 [NOTE: CANNOT BE LATER THAN THE TENTH ANNIVERSARY OF THE
DATE OF GRANT (FIFTH ANNIVERSARY, IN THE CASE OF A GREATER-THAN-10%
STOCKHOLDER)], and (b) if the Optionee's employment with the Company terminates
for any reason, the applicable date determined from the following table:
REASON FOR TERMINATION
OF EMPLOYMENT OPTION TERMINATION DATE(1)
---------------------------------------- ----------------------------------------
(i) death of employee Twelve months thereafter
(ii) total and permanent disability of Twelve months thereafter
employee (as defined in Section 22(e)(3)
of the Internal Revenue Code of 1986, as
amended)
(iii) termination of employment for any other Three months thereafter
reason
- ------------------------
(1) These are the maximum post-termination exercise periods allowable for
incentive stock option treatment under applicable federal income tax laws.
They can be shortened (generally, or in any particular instance), if the
Company so desires.
E-10
Military or sick leave shall not be deemed a termination of employment
provided that it does not exceed the longer of 90 days or the period during
which the absent employee's reemployment rights are guaranteed by statute or by
contract.
4. "LOCK-UP" AGREEMENT. The Optionee agrees that upon the Company's request
at any time, whether before or after the exercise of the Option, the Optionee
shall enter into an agreement pursuant to which, if the Company deems it
necessary or desirable to make any public offering of shares of Common Stock,
then without the prior written consent of the Company or the managing
underwriter, if any, of any such offering, the Optionee shall not sell, make any
short sale of, loan, grant any option for the purchase of, pledge, or otherwise
encumber or otherwise dispose of any shares of Common Stock issued or issuable
pursuant to the Option, during such period (not to exceed 180 days) commencing
on the effective date of the registration statement relating to such offering as
the Company may request.
5. METHODS OF EXERCISE. The Option shall be exercisable only by a written
notice in form and substance acceptable to the Company, specifying the number of
shares to be purchased and accompanied by payment in cash of the aggregate
purchase price for the shares for which the Option is being exercised.
6. CHARACTERIZATION OF OPTION FOR TAX PURPOSES. Although the Option is
intended to qualify as an "incentive stock option" under the Internal Revenue
Code of 1986, as amended, the Company makes no representation or warranty as to
the tax treatment to the Optionee upon receipt or exercise of the Option or sale
or other disposition of the shares covered by the Option. In addition, options
granted to the Optionee under the Plan and any and all other plans of the
Company and its affiliates shall not be treated as incentive stock options for
tax purposes to the extent that options covering in excess of $100,000 of stock
(based upon fair market value of the stock as of the respective dates of grant
of such options) become exercisable in any calendar year; and such options shall
be subject to different tax treatment (including the possibility of income tax
withholding in accordance with the Plan).
7. COMPLIANCE WITH LAWS. The obligations of the Company to sell and deliver
Shares upon exercise of the Option are subject to all applicable laws, rules,
and regulations, including all applicable federal and state securities laws, and
the obtaining of all such approvals by government agencies as may be deemed
necessary or appropriate by the Board or the relevant committee of the Board. If
so required by the Board or such committee, no shares shall be delivered upon
the exercise of the Option until the Optionee has given the Company a
satisfactory written statement that he is purchasing such shares for investment,
and not with a view to the sale or distribution of any such shares, and with
respect to such other matters as the Board may deem advisable in order to assure
compliance with applicable securities laws. All shares issued upon exercise of
the Option shall bear appropriate restrictive legends.
8. GENERAL. The Optionee may not transfer, assign, or encumber any of his
or her rights under this Agreement, and any attempt to do so shall be void. This
Agreement shall be governed by and interpreted and construed in accordance with
the internal laws of the State of Delaware (without reference to principles of
conflicts or choice of law). The captions of the sections of this Agreement are
for reference only and shall not affect the interpretation or construction of
this Agreement. This Agreement shall bind and inure to the benefit of the
parties and their respective successors, permitted assigns, heirs, devisees, and
legal representatives.
E-11
IN WITNESS WHEREOF, the Company and the Optionee have executed and delivered
this Agreement as an agreement under seal as of the Effective Date.
VIP CALLING, INC.
By:
-----------------------------------------
Name:
Title:
---------------------------------------------
Optionee
E-12
VIP CALLING, INC.
NONQUALIFIED STOCK OPTION AGREEMENT
UNDER THE 1997 STOCK INCENTIVE PLAN
VIP Calling, Inc. (the "Company"), a Delaware corporation, hereby grants,
effective as of , 199 (the "Effective Date"), to (the
"Optionee") the right and option (the "Option") to purchase up to
shares of its Common Stock, $0.001 par value, at a price of $ per
share, subject to the following terms and conditions.
1. RELATIONSHIP TO PLAN. The Option is granted pursuant to the Company's
1997 Stock Incentive Plan (the "Plan"), and is in all respects subject to the
terms and conditions of the Plan, a copy of which has been provided to the
Optionee (the receipt of which the Optionee hereby acknowledges). Capitalized
terms used and not otherwise defined in this Agreement are used as defined in
the Plan. The Optionee hereby accepts the Option subject to all the terms and
provisions of the Plan (including without limitation provisions relating to
expiration and termination of the Option and adjustment of the number of shares
subject to the Option and the exercise price therefor). The Optionee further
agrees that all decisions under and interpretations of the Plan by the Company
shall be final, binding, and conclusive upon the Optionee and his or her
successors, permitted assigns, heirs, and legal representatives.
2. EXERCISE. The Option shall become exercisable only as follows, PROVIDED,
in each case, that the Optionee continues to be employed by the Company or a
Subsidiary (as defined in the Plan) of the Company on each applicable date:
NUMBER (OR PERCENTAGE) OF SHARES
DATE FOR WHICH OPTION EXERCISABLE
---- -----------------------------------------
- -------------------------------------- --------------------------------------
- -------------------------------------- --------------------------------------
- -------------------------------------- --------------------------------------
- -------------------------------------- --------------------------------------
3. TERMINATION OF OPTION. The Option shall terminate on the earlier of
(a) , 20 , and (b) if the Optionee's employment, directorship or
consulting or advising relationship with the Company terminates for any reason,
the applicable date determined from the following table:
REASON FOR TERMINATION OPTION TERMINATION DATE(2)
---------------------------------------- ----------------------------------------
(i) death of Optionee Twelve months thereafter
(ii) total and permanent disability of Twelve months thereafter
Optionee (as defined in Section 22(e)(3)
of the Internal Revenue Code of 1986, as
amended)
(iii) termination for any other reason Three months thereafter
- ------------------------
(2) These are the maximum post-termination exercise periods allowable for
incentive stock option treatment under applicable federal income tax laws.
They do not apply to nonqualified stock options, and are shown here only for
purposes of comparison with the Company's (new) standard form of incentive
stock option agreement. Nonqualified options may be made to terminate before
or after the illustrative dates shown.
Military or sick leave shall not be deemed a termination provided that it
does not exceed the longer of 90 days or the period during which the absent
Optionee's reemployment (or similar) rights are guaranteed by statute or by
contract.
E-13
4. "LOCK-UP" AGREEMENT. The Optionee agrees that upon the Company's request
at any time, whether before or after the exercise of the Option, the Optionee
shall enter into an agreement pursuant to which, if the Company deems it
necessary or desirable to make any public offering of shares of Common Stock,
then without the prior written consent of the Company or the managing
underwriter, if any, of any such offering, the Optionee shall not sell, make any
short sale of, loan, grant any option for the purchase of, pledge, or otherwise
encumber or otherwise dispose of any shares of Common Stock issued or issuable
pursuant to the Option, during such period (not to exceed 180 days) commencing
on the effective date of the registration statement relating to such offering as
the Company may request.
5. METHODS OF EXERCISE. Except as may otherwise be agreed by the Optionee
and the Company, the Option shall be exercisable only by a written notice in
form and substance acceptable to the Company, specifying the number of shares to
be purchased and accompanied by payment in cash of the aggregate purchase price
for the shares for which the Option is being exercised.
6. CHARACTERIZATION OF OPTION FOR TAX PURPOSES. The Option is intended not
to qualify as an "incentive stock option" under the Internal Revenue Code of
1986, as amended, and shall be subject to different tax treatment than that
accorded incentive stock options (including the possibility of income tax
withholding in accordance with the Plan).
7. COMPLIANCE WITH LAWS. The obligations of the Company to sell and deliver
Shares upon exercise of the Option are subject to all applicable laws, rules,
and regulations, including all applicable federal and state securities laws, and
the obtaining of all such approvals by government agencies as may be deemed
necessary or appropriate by the Board or the relevant committee of the Board. If
so required by the Board or such committee, no shares shall be delivered upon
the exercise of the Option until the Optionee has given the Company a
satisfactory written statement that he is purchasing such shares for investment,
and not with a view to the sale or distribution of any such shares, and with
respect to such other matters as the Board may deem advisable in order to assure
compliance with applicable securities laws. All shares issued upon exercise of
the Option shall bear appropriate restrictive legends.
8. GENERAL. The Optionee may not transfer, assign, or encumber any of his
or her rights under this Agreement without the prior written consent of the
Company, and any attempt to do so shall be void. This Agreement shall be
governed by and interpreted and construed in accordance with the internal laws
of the State of Delaware (without reference to principles of conflicts or choice
of law). The captions of the sections of this Agreement are for reference only
and shall not affect the interpretation or construction of this Agreement. This
Agreement shall bind and inure to the benefit of the parties and their
respective successors, permitted assigns, heirs, devisees, and legal
representatives.
E-14
IN WITNESS WHEREOF, the Company and the Optionee have executed and delivered
this Agreement as an agreement under seal as of the Effective Date.
VIP CALLING, INC.
By:
-----------------------------------------
Name:
Title:
---------------------------------------------
Optionee
E-15
IBASIS, INC. PROXY PROXY SOLICITED BY THE BOARD OF DIRECTORS
20 SECOND AVE. FOR
BURLINGTON, MASSACHUSETTS SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON
- --------------------------------------------- FEBRUARY 27, 2001, 9:00 A.M., LOCAL TIME.
The undersigned hereby appoints Jonathan Draluck, with
full power of substitution, as proxy to vote at the
Special Meeting of Stockholders of iBasis, Inc., to be
held on February 27, 2001 (including any adjournments or
postponements thereof), with all the powers the
undersigned would possess if personally present as
specified on the reverse side and, in accordance with
their discretion, on any other business that may come
before the meeting, and revokes all proxies previously
given by the undersigned with respect to the shares
covered hereby.
This proxy when properly executed will be voted in the
manner directed herein by the stockholder. If no
contrary specification is made, this proxy will be voted
FOR the approval of the issuance of shares of iBasis
common stock pursuant to agreement and plan of merger
and amendment to iBasis' 1997 Stock Incentive Plan
referred to below.
THE BOARD OF DIRECTORS OF iBASIS, INC. /X/ Please mark your votes as in this
RECOMMENDS A VOTE FOR THE FOLLOWING: example using dark ink only.
1. The approval of the issuance of shares of iBasis common stock pursuant to an
Agreement and Plan of Merger and Reorganization among iBasis, Inc.,
PriceInteractive, Inc., a majority of PriceInteractive's stockholders and
Penguin Acquisition Corp., a wholly owned subsidiary of iBasis, whereby (i)
PriceInteractive will be merged with and into Penguin Acquisition Corp.,
(ii) iBasis will issue an aggregate of approximately 10,232,243 shares of
iBasis common stock, such number subject to increase on a proportional basis
if the number of outstanding shares of iBasis common stock on a
fully-diluted basis, as provided in the merger agreement, increases between
the date of this proxy statement and the effective time of the merger or, in
the sole discretion of iBasis' board of directors, if it determines that it
is necessary to do so to obtain "reorganization" tax treatment for the
transaction, and approximately $46.0 million in cash to the holders of the
issued and outstanding capital stock of PriceInteractive and "vested"
options to acquire PriceInteractive Stock, with such cash and stock issued
in respect of options being distributed upon the exercise of these options,
(iii) iBasis will assume up to a maximum number of outstanding unvested
options to purchase PriceInteractive stock, which will become options to
purchase iBasis common stock and cash in the same ratio as the outstanding
shares of PriceInteractive convert into iBasis common stock and cash, and
(iv) Daniel J. Price will be appointed to the Board of Directors of iBasis
to fill a vacancy;
/ / FOR / / AGAINST / / ABSTAIN
2. The approval of an increase in the aggregate number of shares of iBasis
common stock that may be issued or transferred pursuant to options or
restricted stock awards under iBasis' 1997 Stock Incentive Plan from
5,700,000 shares to 9,000,000 shares; and
/ / FOR / / AGAINST / / ABSTAIN
3. Such other business as may properly come before the iBasis special meeting
or any adjournments or postponements, including potential postponements or
adjournments for the purpose of soliciting additional proxies in order to
approve the above proposals.
(CONTINUED ON REVERSE SIDE)
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Please date, sign and mail your Proxy card as soon as possible!
Special Meeting of Stockholders
iBasis, Inc.
February 27, 2001
9:00 a.m., local time
20 Second Ave.
Burlington, MA 01803
The undersigned hereby acknowledge(s) receipt of a copy of the accompanying
Notice of Special Meeting and related proxy statement/prospectus.
NOTE: (EXECUTORS, ADMINISTRATORS, TRUSTEES, CUSTODIANS, ETC., SHOULD INDICATE
CAPACITY IN WHICH SIGNING. WHEN STOCK IS HELD IN THE NAME OF MORE THAN ONE
PERSON, EACH PERSON SHOULD SIGN THE PROXY).
DATED ---------------- , 2001 ------------------------------------------------------------
Please Sign Here
PLEASE MARK SIGN DATE AND RETURN THE PROXY ------------------------------------------------------------
CARD PROMPTLY USING THE ENCLOSED ENVELOPE Signature, if held jointly