-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, L2kmU8Nzd3LpOfB8uBOzlEsKFIVGILPLOpDkIBaA7bAGkoij1KI/kNyIo6HeMC8a 51BSrx72fL3sGActTwMyKg== 0001047469-03-010349.txt : 20030326 0001047469-03-010349.hdr.sgml : 20030325 20030326164757 ACCESSION NUMBER: 0001047469-03-010349 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 14 CONFORMED PERIOD OF REPORT: 20021231 FILED AS OF DATE: 20030326 FILER: COMPANY DATA: COMPANY CONFORMED NAME: IBASIS INC CENTRAL INDEX KEY: 0001091756 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-BUSINESS SERVICES, NEC [7389] IRS NUMBER: 043332534 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-27127 FILM NUMBER: 03618681 BUSINESS ADDRESS: STREET 1: 20 SECOND AVE CITY: BURLINGTON STATE: MA ZIP: 01803 BUSINESS PHONE: 7815057500 MAIL ADDRESS: STREET 1: 20 SECOND AVE CITY: BURLINGTON STATE: MA ZIP: 01803 10-K 1 a2104304z10-k.htm 10-K
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

(Mark One)

ý	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2002

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 000-27127

iBasis, Inc.

(Exact name of registrant as specified in its charter)

Delaware		04-3332534
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

20 Second Avenue, Burlington, MA 01803
(Address of principal executive offices, including zip code)

(781) 505-7500
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $0.001 par value per share

(Title of Class)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-X is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes o No ý

The aggregate market value of the registrant's common stock, $0.001 par value per share ("Common Stock"), held by non-affiliates of the registrant as of June 28, 2002 was approximately $14,383,123 based on 38,873,307 shares held by such non-affiliates at the closing price of a share of Common Stock of $0.37 as reported on the Nasdaq National Market on such date. Affiliates of the Company (defined as officers, directors and owners of 10 percent or more of the outstanding share of Common Stock) owned 6,788,601 shares of Common Stock outstanding on such date. The number of outstanding shares of Common Stock of the Company on March 18, 2003 was 44,649,942.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant's definitive Proxy Statement to be delivered to stockholders in connection with the Annual Meeting of Stockholders to be held on May 29, 2003, are incorporated by reference into Part III hereof. With the exception of the portions of such Proxy Statement expressly incorporated into this Annual Report on Form 10-K by reference, such Proxy Statement shall not be deemed filed as part of this Annual Report on Form 10-K.

iBASIS, INC.

FORM 10-K
For the Year Ended December 31, 2002

	Table of Contents	Page
	PART I
Item 1.	Business	3
Item 2.	Properties	10
Item 3.	Legal Proceedings	11
Item 4.	Submission of Matters to a Vote of Security Holders	11
	PART II
Item 5.	Market for the Registrant's Common Equity and Related Stockholder Matters	12
Item 6.	Selected Financial Data	13
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	15
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	39
Item 8.	Financial Statements and Supplementary Data	40
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	74
	PART III
Item 10.	Directors and Executive Officers of the Registrant	75
Item 11.	Executive Compensation	75
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	75
Item 13.	Certain Relationships and Related Transactions	75
Item 14.	Controls and Procedures	75
	PART IV
Item 15.	Exhibits, Financial Statement Schedules, and Reports on Form 8-K	76
Signatures		81

This annual report on Form 10-K and the documents incorporated by reference contain forward-looking statements based on current expectations, estimates and projections about iBasis' industry and management's beliefs and assumptions. In some cases you can identify these statements by forward-looking words such as "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "should," "will," and "would" or similar words. You should read statements that contain these words carefully because they discuss future expectations, contain projections of future results of operations or of financial position or state other "forward-looking" information. The important factors listed in the section captioned "Risk Factors," as well as any cautionary language in this annual report, provide examples of risks, uncertainties and events that may cause the actual results to differ materially from the expectations described in these forward-looking statements. You should be aware that the occurrence of the events described in these risk factors and elsewhere in this annual report could have an adverse effect on the business, results of operations and financial position of iBasis.

Any forward-looking statements in this annual report are not guarantees of future performance, and actual results, developments and business decisions may differ from those envisaged by these forward-looking statements, possibly materially. iBasis disclaims any duty to update any forward-looking statements, even if new information becomes available or other events occur in the future.

PART I

Item 1. Business

Company Overview

iBasis is a leading provider of advanced Internet-based communications services that enable retail-level telecoms to offer international voice, fax and other services. Our business joins the flexibility and power of the Internet with the explosive growth in international communications. By outsourcing the delivery of international communications services to iBasis, our customers are able to lower costs and to generate new revenue while maintaining service quality comparable to that of traditional voice networks.

In 2002, iBasis refocused on its core wholesale international business and sold two enhanced services business units that provided messaging and speech solution services.

Industry Overview

Market Overview. The international voice and fax traffic market is estimated to be worth more than US$60 billion. We believe that this market will continue to grow as countries around the world continue to deregulate their telecommunication markets, prices fall and underlying trends in migration and economic integration drive fundamental demand.

Global deregulation combined with rapid technological advances has enabled the emergence of many new communications service providers in dozens of local markets. In their efforts to remain competitive, national carriers are focusing their capital spending on 'last-mile' services such as fixed-line, wireless, and cable that account for the most of their revenues. Consequently, communications service providers are looking for ways to expand their ability to serve all of their customers' telecoms needs, while simultaneously reducing the cost of providing international services. Increasingly, the world's carriers are seeking to outsource international voice traffic to efficient Voice over Internet Protocol or VoIP networks, such as The iBasis Network™, whose inherently lower infrastructure and transport costs improve a carrier's competitiveness and bottom line, without compromising service quality.

Emergence of Internet Telephony. Although it has been possible to transmit VoIP since 1995, only recently has the technology improved such that phone-to-phone calls can be transmitted over data networks with quality nearly indistinguishable from that of traditional voice networks. International VoIP traffic has grown rapidly; according to industry analyst, TeleGeography, traffic grew from 1.6 billion minutes in 1999 to 5.3 billion in 2000, to 9.9 billion in 2001, and was forecast to reach 18 billion in 2002.

Internet telephony's principal benefits are:

•: Cost Advantage from Internet Transport. Traditional voice networks use circuit-switching technology, which establishes dedicated channels between an originating and terminating point for the duration of a call. Physical facilities (typically fiber and associated equipment) are dedicated to voice traffic between switching nodes, regardless of changes in demand. In contrast, Internet telephony is based on packet-switching technology. This technology completes a call by digitizing and dividing a speaker's voice into small packets that travel to their destination along lines carrying packets of other Internet traffic, in much the same way as email travels. Using a network of service facilities connected to the public Internet for transport is less costly than building a dedicated network as our calls share the Internet with other traffic.
•: Cost Advantage from IP Technology. Internet telephony gateway equipment that is used to convert and route phone calls over the Internet is less expensive and requires less physical space in telecom facilities than traditional telecommunications equipment.

•: Cost Advantage from Bypass of International Settlement Rates. Traditional international long distance calls are completed through international toll switches that provide access to the terminating network. These networks are often owned by government bodies or telecommunications carriers who charge settlement rates (or tariffs) well in excess of costs. Although these fees are being reduced in many countries as industry deregulation continues, these charges remain significant. Calls routed over the Internet bypass these toll switches, avoiding a significant portion of these fees, which further lowers the cost of completing such calls.
•: Positioning for New Services. In contrast to the closed, proprietary structure inherent in a traditional circuit-switched voice network, Internet telephony embraces an open architecture and open standards, which facilitates innovation at lower cost. Traditional voice networks have been designed specifically to provide one basic service, making it difficult and costly to introduce new services over those networks and their proprietary platforms. As data networks convert all services into data packets, new services are delivered from industry standard servers, integrating the Internet with the revolution in commodity computing.

Outsourcing Internet Telephony services. Given the advantages, many carriers have begun to carry some portion of their voice traffic over IP networks. Despite the move by some large carriers to develop their own international VoIP infrastructures, carriers have been more interested in outsourcing international traffic to providers such as iBasis. The reasons for the preference to outsource international traffic include:

•: the relatively low percentage of revenue that international service represents for many large carriers;
•: the disproportionate cost and complexity of deploying and supporting international service infrastructure as compared with domestic investment opportunities;
•: a hesitation to build new networks and cannibalize traffic from their traditional voice networks;
•: concerns over sufficient in-house VoIP expertise to ensure that voice quality and network reliability are comparable to that of the public-switched telephone network, especially when routing traffic over the Internet versus private networks; and
•: generally reduced capital budgets for network investment of any kind.

iBasis Services and Solutions

iBasis wholesale international Internet telephony enables carriers and other communications service providers to outsource international voice and fax traffic, substantially lowering their transport and service support costs, without compromising quality. We provide our carrier customers access to The iBasis Network, our international Internet telephony network, through "Internet Central Offices" or "ICOs" and "Internet Branch Offices" or "IBOs" as described below under the section captioned "The iBasis Network". ICOs are strategically located in major telecommunications hubs in the U.S., Asia, and Europe. Our services provide the following key benefits to our customers:

High Quality Call Completion. Our network, monitoring and management technologies enable us to complete international voice and fax calls with quality comparable to that of traditional circuit-switched voice networks. This high quality is reflected in the fact that carriers choose to provide our Internet telephony services to their retail customers undifferentiated from their traditional services. We achieve high quality over the Internet through a variety of controls and technologies. At our 24x7, expert-staffed global Network Operations Centers (NOCs) in Burlington, Massachusetts, USA and Hong Kong, we are able to monitor our carrier customers' voice traffic and add/remove routing choices according to real time performance. Using our patent-pending Assured Quality Routing® technology,

we dynamically route customers' traffic over multiple Internet backbones, completing calls on our partners' phone networks in destination countries.

Cost Effective Solutions. Our call transport costs are lower because packet switching is more efficient than traditional circuit-switching. Because we use the Internet, rather than a private IP network, to deliver international voice traffic, we have greater infrastructure flexibility and lower costs than service providers that employ dedicated point-to-point connections. VoIP equipment is less costly and has lower facilities costs (due to its smaller physical footprint) than equivalent capacity circuit-switched equipment. We offer an open, scalable architecture that enables carriers and communications service providers to connect within a short period of time and without investment or special expertise. An additional advantage derives from our ability to bypass many of the international tariffs or settlement rates associated with some international traffic carried over circuit-switched voice networks, which produces additional cost savings. Our enhanced services—IP Call Card, ConnectPoint® Global Access—all build upon the underlying network to create cost effective value-added solutions for our customers.

Simple Value Propositions that Reduce Complexity and Solve Current Customer Problems. In the current global telecom environment, carriers are spending money only on what is necessary for their immediate business plans. The iBasis service portfolio does not rely on expectations that customers will choose to begin and will be successful with new services. While some customers buy our routes individually, some customers give to iBasis all of their international traffic which they pick-up as a "byproduct" of their locally-focused operations. We help them do the 'small but essential' job of terminating their international traffic—conveniently and effectively. Likewise, our customers find themselves with rapidly growing demand for prepay and audio-conferencing services where outsourcing to iBasis enables them to eliminate an old-technology audio-conferencing platform or to quickly create an option for customers to prepay while the market window still exists, all without expenditure of generally scarce capital. ConnectPoint Global Access provides customers local access numbers in countries around the world, delivering traffic across our network to a central point(s). The service enables our customers' customers to easily access resources (such as an out-of-country call center) that would otherwise require an international long distance direct dial or an international toll free call. ConnectPoint saves our customers the time and cost of developing their own global arrangements for local access and transport to the central point(s).

The iBasis Network

The iBasis Network is the company's growing international network, over which it delivers large volumes of high quality international voice, fax and enhanced services at significant cost savings to its customers. iBasis transported almost 2.6 billion minutes of traffic over its network in 2002, a traffic volume that would position iBasis among the fifteen largest carriers of international traffic in the world, based on global traffic statistics contained in the industry analyst publication TeleGeography 2003. At year-end 2002 there were 771 Points of Presence—generally referred to as POPs—in 85 countries. POPs designate points where the iBasis network connects to local telephone networks for call origination or termination.

In 2002, we completed the deployment of our next generation switchless architecture, leveraging our existing Cisco AS5000 gateways and SC 2200 SS7 technology, as well as new patent-pending iBasis technology for quality management and advanced routing. Our Assured Quality Routing® and PathEngine™ technology enable ongoing monitoring of network quality and automatic selection of best quality routes based on near real-time performance data. The new architecture provides iBasis significant savings in operational costs and capital expense by eliminating the need for costly telecommunications switches and other equipment and connectivity in central offices. It also has enabled iBasis to simplify provisioning, real-time route monitoring, and network management by decreasing the number of network components involved in carrying a call. The result for iBasis customers is higher voice quality, call completion and call duration.

The iBasis Network consists of four principal elements:

•: Internet Central Offices (ICOs) and Internet Branch Offices (IBOs) that convert circuit-switched voice traffic into data for transmission and reception over the Internet or vice versa;
•: the transmission medium, which is principally the Internet;
•: Assured Quality Routing® (AQR), our proprietary traffic monitoring and routing management software; and
•: our network operations centers (NOCs), from which we oversee and coordinate the operation of the ICOs and IBOs.

Internet Central Offices and Internet Branch Offices. Our customers can interconnect with our network by connecting dedicated voice circuits from their facilities to one of our ICOs, which are strategically located in Amsterdam, Frankfurt, Hong Kong, London, Los Angeles, New York, Paris, and Tokyo. Alternatively, our customers may elect to install an iBasis IBO at their facilities. ICOs and IBOs receive calls directly from a local carrier's switched network. VoIP gateways in each ICO or IBO digitize, compress and packetize voice and fax calls and then transmit them over the Internet. At the destination, another ICO or IBO reverses the process and the call is switched back from the Internet to a local carrier's circuit-switched network in the destination country. Some of our customers and termination partners have their own VoIP gateway equipment—we generally interconnect with these customers and partners via the Internet. As this trend progresses, our already asset-effective business model gains further strength, as iBasis no longer bears all the cost of converting calls between traditional voice network and the Internet and dedicated physical circuit-switched interconnects are eliminated altogether.

The Internet. We use the Internet to transmit the substantial majority of our voice and fax traffic because of its global coverage, low cost and flexible connectivity. As a result, we have avoided the expense and delay of deploying and maintaining a private, dedicated network of fiber and cable connections. In addition, because we do not have fixed, point-to-point connections, we can adapt to changes in international traffic flows rapidly and at minimal cost. We effectively address the challenges of using the Internet for high quality, real-time voice communications by:

•: selecting only high quality, service-oriented Internet service providers as our vendors;
•: purchasing multiple, high-speed connections into the Internet backbone; and
•: continuously monitoring the quality of the connections between our PoPs and the Internet.

In certain infrequent circumstances we use private leased lines or traditional circuit-based voice networks to terminate traffic to destinations where there is insufficient Internet bandwidth available to meet our quality standards.

Assured Quality Routing. We have deployed a proprietary patent-pending system of tools — collectively known as, Assured Quality Routing to maintain high quality service over the Internet. AQR optimizes the quality of calls placed over The iBasis Network by integrating quality parameters into routing decisions. These parameters include measures of quality that are of direct importance to carriers including call duration, call completion and post-dial delay as well as underlying determinants of successful data transmission, namely packet loss, jitter and latency. AQR automatically reroutes traffic in anticipation of quality dropping below specific thresholds, sending subsequent calls through another Internet path, to an alternative terminating IP partner or to a circuit-switched backup vendor if necessary.

Global Network Operations Centers. We manage our network and implement AQR through our network operations centers (NOCs). iBasis NOCs use leading network management tools from Hewlett-

Packard and a number of other vendors, which are integrated with our AQR systems to enable us to monitor, test and diagnose all components of The iBasis Network. NOCs in Burlington, Massachusetts and Hong Kong are staffed by network and traffic engineers to provide expert coverage 7 days a week, 24 hours a day, 365 days of the year, and are equipped with:

•: tools that support the monitoring and analysis of various components of The iBasis Network to identify and address potential network problems before they affect our customers;
•: system redundancy, including power back-up; and
•: a help desk that allows us to respond quickly to our customer's needs and concerns.

Markets and Customers

Our customer base can be segregated by size into Tier 1, Tier 2 and Tier 3 carriers. Generally, Tier 1 carriers are large domestic and international carriers, such as AT&T, WorldCom, Sprint, Cable & Wireless, and certain government-affiliated or privatized dominant carriers, such as the Japanese telecommunications carrier KDD. Tier 1 carriers generally have annual revenues in excess of $2 billion. Tier 2 carriers have revenues generally in the range of $750 million to $2 billion, but have fewer direct operating agreements with other carriers and fewer international facilities. Tier 3 carriers are typically switch-based resellers with revenues of less than $750 million.

The majority of traffic carried over The iBasis Network is from Tier 1 carriers. In the fourth quarter of 2002, Tier 1 carriers, the world's largest and most demanding carriers, accounted for 72 percent of our traffic. The ability to provide quality call completion consistently acceptable to Tier 1 carriers is of vital importance because these carriers control the vast majority of the world's retail traffic. Tier 1 carriers will continue to be a main area of focus for our sales force.

During 2002, the proportion of our traffic origination from outside of the United States continued to grow to 49% of total revenue and 41% of total traffic in the fourth quarter. Non-U.S. origination generally produces higher margins than US-originated traffic. As of December 31, 2002, iBasis provided services to more than 170 carriers worldwide and only one carrier, Qwest Communications, accounted for more than 10 percent of our sales revenues for the year. No carrier represented greater than 10% of our sales in the fourth quarter of 2002. For further discussion of our revenues related to customers in other countries and other geographic information, please refer to Note 9 to our consolidated financial statements.

In countries where we terminate our traffic, we have established relationships with local service providers that have strong local market expertise and relationships. Some of our overseas partners are very large, well-established national carriers. Others are emerging carriers or Internet Service Providers (ISPs) who are able to provide the interconnection necessary to terminate minutes for us in their country.

Increasingly, traffic flows are becoming reciprocal—formerly distinct customers and suppliers are becoming "trading-partners"—as deregulation and competition erode the distinction between the business models of our customers and suppliers. iBasis expects continued growth in both size and profitability as this trend progresses and we further consolidate our position as a leading carrier that interconnects the world's local service providers.

Sales and Marketing

Sales Strategy. Our sales efforts for Internet telephony target leading telecommunications carriers globally. Our sales force is composed of experienced personnel with well-established relationships in the telecommunications industry, based in key markets worldwide and typically responsible for business development in a small number of countries regionally. Our sales process often involves a test by our

potential customers of our services in which they route traffic over our network to a particular country. Our experience to date has been that once a carrier has begun to use our network for a single country and finds our quality to be acceptable, the sales process for increasing the volume of traffic they send to us and growing the number of destinations for which they use our network becomes incrementally easier.

We also seek to establish and grow relationships with service providers that can terminate the local leg of international calls. We believe that our ability to deliver a high volume of minutes makes us an attractive potential partner for local service providers.

As deregulation and competition push all local service providers to both originate and terminate as much traffic as possible on their local networks, iBasis will increasingly enjoy "reciprocal" relationships with the providers with which we do business, further improving sales productivity.

We have offices providing sales coverage in Europe, Africa, the Middle East, Latin America, the Caribbean, the Asia-Pacific region, and North America.

Marketing Strategy. iBasis seeks to attract termination partners as well as customers and consequently addresses its marketing efforts to both. Most retail origination is controlled by the largest (Tier 1) retail carriers. iBasis believes that we have largely achieved our primary marketing objectives of awareness and acceptance among much of this customer segment, as evidenced by our penetration of these carriers, particularly in the United States, Western Europe and China. We will continue to reinforce our brand presence with this segment in 2003 to help increase our share of their international traffic. Also, we will concentrate on state-owned carriers, known as PTTs—in Asia and in developing economies generally—whom we view as natural customers. While we increasingly expect our customers to also be our termination partners, local circumstances in many countries still are such that iBasis looks to partner with ISPs, new Competitive Local Exchange Carriers (CLECs) and specialist termination providers. Unlike marketing to the well-known Tier 1 carriers, iBasis actively identifies and attracts smaller termination partners in many countries, many of which are start-ups formed specifically to terminate international traffic. Our marketing plan includes public relations activity, outreach with industry analysts and the trade press, participation in industry trade shows and conferences, targeted mailings and a comprehensive Website. We expect our Web-based marketing efforts to continue to increase in prominence in attracting and qualifying leads.

Strategic Technology Relationships

Strategic technology relationships are important because they give us early access to new technologies, a voice in vendors' development direction and because strategic partners engage with us in support of our sales and marketing programs.

Cisco Systems

Since its founding in 1996, iBasis has maintained a strong, strategic technology and business relationship with Cisco Systems. The iBasis Network is the largest international Cisco Powered Network™ for Internet telephony. This designation means that The iBasis Network is built end-to-end with Cisco products and technologies, and meets a high standard of reliability and performance. As a Cisco Powered Network, we have enhanced access to Cisco technical resources and are able to more quickly deliver new capabilities and service features. We have regularly engaged in numerous early field trials of Cisco VoIP technologies, during which we gain experience with new features before they are available to the marketplace. We have also conducted joint sales and marketing activities with Cisco. Our management team regularly meets with Cisco executives at Cisco's Executive Briefing Center. iBasis is a founding member of Cisco's Service Carrier Community, a program that helps connect us to potential business development opportunities with other VoIP carriers.

Competition

As described more completely in the section captioned "Risk Factors," the market for international voice and fax call completion services is highly competitive. We face competition from a variety of sources including large internationally-oriented service providers with more resources, longer operating histories and more established positions in the telecommunications marketplace, some of whom have begun to develop Internet telephony capabilities. We also compete with smaller companies, including those that may be specialists in just one or two routes. We also compete against our customers' ability to carry traffic themselves, whereby either retail carriers develop their own international networks or interconnect with one another and exchange international traffic by "meeting" in a major telecoms hub, such as London. We compete principally on quality of service and price. Although the market for wholesale international traffic is highly competitive and will almost certainly remain so, we believe that our brand-strength, customer base, established global distribution and patented ability to manage traffic across the (low-cost) Internet, while maintaining required quality, collectively represent a competitive advantage that will allow us to continue expanding both volumes and margins.

Government Regulation

As more fully described in the "Risk Factors", our business is subject to U.S. and foreign laws, which may include those relating to telecommunications.

We believe that under United States law, the Internet-related services that we provide constitute information services, rather than telecommunications services. As such, our services are generally not regulated by the U.S. Federal Communications Commission or state agencies responsible for regulating telecommunications carriers. However, aspects of our operations not wholly related to the Internet may be subject to state or federal regulation such as regulations governing, among other things, licensing, universal service funding, confidentiality of communications, copyright and excise taxes.

The regulatory treatment of Internet telephony and other iBasis services varies widely among other countries and is subject to constant change. Until recently, most countries did not have regulations addressing Internet telephony or other VoIP services such as calling cards, in some cases classifying these services as unregulated enhanced services. As the Internet telephony market has grown and matured, increasing numbers of regulators have begun to reconsider whether to regulate Internet telephony and other VoIP services. Some countries currently impose little or no regulation on Internet telephony or VoIP services. Conversely, other countries that prohibit or limit competition for traditional voice telephony services generally do not permit Internet telephony or VoIP services or strictly limit the terms under which such services may be provided. Still other countries regulate Internet telephony and VoIP services like traditional voice telephony services, requiring Internet telephony companies to obtain licenses, incorporate local subsidiaries, make universal service contributions and pay other taxes.

We have advocated and supported deregulation for free and open market competition in a variety of countries.

Intellectual Property

We regard our copyrights, service marks, trademarks, trade dress, trade secrets, patents, patent applications and similar intellectual property as critical to our success and we rely on trademark and copyright law, trade secret protection and confidentiality and/or license agreements with our employees, customers, partners and others to protect our proprietary rights. We intend to rely on patent law and confidentiality and/or license agreements with our employees, customers, partners and others to protect our proprietary rights in such patents and patent applications. We have filed several patents for The iBasis Network and other inventions related to our business. We pursue the registration of our trademarks and service marks in the United States and overseas. We have been granted trademark registration for the marks iBasis, Assured Quality Routing, and ConnectPoint in the United States, and iBasis in the European community and have pending registration applications for other service marks.

Employees

As of December 31, 2002, we employed 209 people. Our employees are not represented by a labor union and we consider our relations with our employees to be good.

Geographic Areas

For financial information about geographic areas, including information about revenues and long-lived assets, see Note 9. "Segment and Geographic Information" to our Consolidated Financial Statements.

Item 2. Properties

We lease the following facilities:

Location	Square Footage	Expiration of Lease	Facility Use
Burlington, MA	59,734	Various, 2003-2005	Office space and a global network operations center
New York, NY	11,654	Various, 2008-2010	House telecommunications equipment
Miami, FL	10,500	February 2010	Vacant
Hong Kong, China	6,446	October 2003	Office space and a global network operations center
Los Angeles, CA	3,156	April 2008	House telecommunications equipment

In addition to the facilities listed above, we have obtained collocation space in special facilities around the world that are dedicated to housing equipment of multiple competitive telephony carriers. We lease these smaller spaces to house Internet routing and related equipment. We lease collocation space in Amsterdam, Frankfurt, Hong Kong, London, Paris, and Tokyo. We also rent smaller office space in London and Beijing. We believe that our existing facilities are adequate for our current needs and that suitable additional or alternative space will be available in the future on commercially reasonable terms.

Item 3. Legal Proceedings

In addition to litigation that we have initiated or responded to in the ordinary course of business, we are currently party to the following potentially material legal proceedings:

Beginning August 1, 2001, we were served with several class action complaints that were filed in the United States District Court for the Southern District of New York against us and several of our officers, directors, and former officers and directors, as well as against the investment banking firms that underwrote our November 11, 1999 initial public offering of common stock and our March 9, 2000 secondary offering of common stock. The complaints were filed on behalf of persons who purchased our common stock during different time periods, all beginning on or after November 10, 1999 and ending on or before December 6, 2000. The complaints are similar to each other and to hundreds of other complaints filed recently against other issuers and their underwriters, and allege violations of the Securities Act of 1933 and the Securities Exchange Act of 1934 primarily based on the assertion that there was undisclosed compensation received by our underwriters in connection with our public offerings. The plaintiffs are seeking an as-yet undetermined amount of monetary damages in relation to these claims. On September 4, 2001, the cases against iBasis were consolidated. On October 9, 2002, the individual defendants were dismissed from the litigation by stipulation and without prejudice. Although iBasis has not filed an answer in any of these matters, iBasis believes that it and the individual defendants have meritorious defenses to the claims made in the complaints and intends to contest the lawsuits vigorously. In doing so or deciding whether to pursue a settlement, we will consider, among other factors, the substantial costs and the diversion of our management's attention and resources that would be required by litigation. We cannot assure you that we will be successful should we decide to litigate. In addition, even though we have insurance and contractual protections that could cover some or all of the potential damages in these cases, or amounts that we might have to pay in settlement of these cases, an adverse resolution of one or more of these lawsuits could have a material adverse affect on our financial position and results of operations in the period in which the lawsuits are resolved. We are not presently able to estimate potential losses, if any, related to the lawsuits.

We have also received claims including lawsuits from estates of bankrupt companies alleging that we received preferential payments from such companies prior to their bankruptcy filings. We intend to employ all available defenses in contesting such claims. The results of any suit may have a material adverse affect on our business.

Item 4. Submission of Matters to a Vote of Security Holders

None.

PART II

Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters

Market Information

Our common stock began trading publicly on the Nasdaq National Market on November 10, 1999 and was traded under the symbol "IBAS." On November 13, 2002, we received a determination from Nasdaq that shares of our common stock would no longer trade on the Nasdaq National Market because we failed to meet certain minimum listing requirements. Our common stock began trading on the Nasdaq operated Over-the-Counter Bulletin Board on November 14, 2002 under the same symbol "IBAS." The following table shows the range of the high and low per share prices of our common stock, as reported by the Nasdaq National Market and the Over-the-Counter Bulletin Board for the period indicated. Over-the-Counter market quotations reflect interdealer prices, without retail mark-up, mark-down or commission and may not necessarily reflect actual transactions.

		High		Low
Fiscal 2002:
	First Quarter	$	1.78	$	0.71
	Second Quarter		1.10		0.31
	Third Quarter		0.65		0.22
	Fourth Quarter		0.55		0.20
Fiscal 2001:
	First Quarter	$	9.81	$	2.53
	Second Quarter		5.36		2.12
	Third Quarter		4.24		0.41
	Fourth Quarter		1.86		0.36

Holders

As of March 18, 2002, there were 250 stockholders of record. This does not reflect persons or entities who hold their stock in nominee or "street" name through various brokerage firms. We estimate that there are approximately 11,500 holders of iBasis stock.

Dividends

iBasis has never declared or paid cash dividends on its common stock. Our existing financing arrangements place restrictions on the Company's ability to pay cash dividends. iBasis intends to retain all future earnings to finance future growth, and, therefore, does not anticipate paying any cash dividends in the foreseeable future.

Securities Authorized for Issuance Under Equity Compensation Plans

As of the year ended December 31, 2002, the following securities were authorized for issuance under our equity compensation plans:

Plan category		Number of securities to be issued upon exercise of outstanding options	Weighted average exercise price of outstanding options		Number of options remaining available for future issuance under equity compensation plans (excluding options reflected in column (a))
		(a)	(b)		(c)
Equity compensation plans approved by security holders		2,555,641	$	2.67	6,444,359
Equity compensation plans not approved by security holders		None		N/A	N/A

	Total	2,555,641	$	2.67	6,444,359

Item 6. Selected Financial Data

The following historical selected financial information of iBasis is qualified by reference to, and should be read in conjunction with, the consolidated financial statements and related notes included elsewhere in this document.

During July 2002, the Company sold its Speech Solutions Business. Accordingly, the Consolidated Statements of Operations have been reclassified to present the results of the Speech Solutions Business separately from continuing operations as discontinued operations. Furthermore, the assets and liabilities of the Speech Solutions Business are classified separately on the Consolidated Balance Sheet as of December 31, 2001.

	Year Ended December 31,
	2002			2001			2000			1999			1998
	(in thousands, except per share data)
Consolidated Statements of Operations Data:
Net revenue	$	164,942		$	110,180		$	61,218		$	19,417		$	1,978
Cost and operating expenses:
Data communications and telecommunications		142,847			102,320			60,594			21,007			2,730
Research and development		17,781			23,939			15,168			6,183			1,674
Selling and marketing		11,279			20,323			19,352			5,568			1,160
General and administrative		24,185			25,563			18,596			5,111			1,365
Depreciation and amortization		31,871			32,364			15,718			2,997			364
Non-cash stock-based compensation		967			1,368			1,061			198			—
Loss on sale of messaging business		2,066			—			—			—			—
Restructuring costs		5,536			51,834			—			—			—
(Gain) loss on disposal of property and equipment		—			—			—			(15	)		531

Total cost and operating expenses		236,532			257,711			130,489			41,049			7,824
Operating loss		(71,591	)		(147,531	)		(69,271	)		(21,632	)		(5,846	)
Interest income		1,290			9,169			19,824			1,329			179
Interest expense		(11,608	)		(16,518	)		(12,844	)		(836	)		(53	)
Other (expense), income net		(383	)		(587	)		—			3			(7	)
Minority interest in loss of joint venture		—			—			—			49			—

Loss from continuing operations before extraordinary gain on repurchase of Convertible Subordinated Notes		(82,291	)		(155,467	)		(62,291	)		(21,087	)		(5,727	)
Loss from discontinued operations		(65,222	)		(49,771	)		—			—			—

Loss before extraordinary gain on repurchase of Convertible Subordinated Notes and accretion of dividends on redeemable convertible preferred stock		(147,513	)		(205,238	)		(62,291	)		(21,087	)		(5,727	)
Extraordinary gain on repurchase of Convertible Subordinated Notes		25,790			14,549			—			—			—

Net loss		(121,723	)		(190,689	)		(62,291	)		(21,087	)		(5,727	)
Accretion of dividends on redeemable convertible preferred stock		—			—			—			(1,020	)		(219	)

Net loss applicable to common stockholders	$	(121,723	)	$	(190,689	)	$	(62,291	)	$	(22,107	)	$	(5,946	)

Pro forma net loss applicable to common stockholders										$	(21,087	)	$	(5,727	)

Basic and diluted net loss per share:
Loss applicable to common stockholders from continuing operations before extraordinary gain on repurchase of Convertible Subordinated Notes	$	(1.82	)	$	(3.64	)	$	(1.85	)	$	(2.29	)	$	(0.99	)
Loss from discontinued operations		(1.45	)		(1.17	)		—			—			—

Loss before extraordinary gain on repurchase of Convertible Subordinated Notes		(3.27	)		(4.81	)		(1.85	)		(2.29	)		(0.99	)
Extraordinary gain on repurchase of Convertible Subordinated Notes		0.57			0.34			—			—			—

Basic and diluted net loss per share	$	(2.70	)	$	(4.47	)	$	(1.85	)	$	(2.29	)	$	(0.99	)

Basic and diluted weighted average common shares outstanding (1)		45,164			42,645			33,612			9,655			6,023

Pro forma basic and diluted net loss per share (1)(2)										$	(0.89	)	$	(0.44	)

Pro forma basic and diluted weighted average common shares outstanding (1)(2)											23,678			13,068

	December 31,
	2002			2001		2000		1999		1998
	(in thousands)
Consolidated Balance Sheet Data:
Cash and cash equivalents, restricted cash and marketable securities	$	32,317		$	118,690	$	300,327	$	123,666	$	7,399
Working capital		19,638			155,509		258,513		27,915		4,241
Total assets		98,524			328,825		447,818		153,473		12,772
Long term debt, net of current portion		93,590			171,343		190,880		11,689		213
Total stockholders' (deficit) equity		(33,972	)		86,717		206,896		126,904		(2,697	)

(1): Computed on the basis described in Note 2 of the notes to our consolidated financial statements appearing elsewhere in this annual report.
(2): Adjusted to give effect to the conversion of all shares of preferred stock, Class A and Class B common stock from the date of original issuance. Does not include the shares of common stock issued upon the conversion of notes issued by the Company in March 2000.

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

This annual report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. This Act provides a "safe harbor" for forward-looking statements to encourage companies to provide prospective information about themselves so long as they identify these statements as forward looking and provide meaningful cautionary statements identifying important factors that could cause actual results to differ from the projected results. All statements other than statements of historical fact made in this annual report are forward looking. In particular, the statements herein regarding industry prospects and future results of operations or financial position are forward-looking statements. Forward-looking statements reflect management's current expectations and are inherently uncertain. iBasis's actual results may differ significantly from management's expectations. We disclaim any duty to update any forward-looking statements, all of which should be read in conjunction with the "Risk Factors" section of this annual report.

Overview

We are an international telecommunications carrier that utilizes the Internet to provide economical international telecommunications services to carriers and telephony resellers around the world. Our continuing operations consists of our VoIP business including incorporated subsidiaries around the world designed to enhance our global operations. We currently operate through various service agreements with local service providers in the United States, Europe, Asia, the Middle East, Latin America, Africa and Australia.

During July 2002, we sold our Speech Solutions Business. Accordingly, the Consolidated Statements of Operations have been reclassified to present the results of the Speech Solutions Business separately from continuing operations as discontinued operations. Furthermore, the assets and liabilities of the Speech Solutions Business are classified separately on the Consolidated Balance Sheet as of December 31, 2001.

Performance Highlights:

•: We refocused our core wholesale VoIP business in part through the sales of our messaging and speech solutions businesses;
•: For the full year 2002, revenue from continuing operations totaled $164.9 million, an increase of 50% over our full year 2001 revenue from continuing operations of $110.2 million;
•: Minutes of telephone calls carried over The iBasis Network increased to approximately 2.6 billion, almost double the minutes carried in 2001;
•: Gross margin (defined as net revenue less data communications and telecommunications expenses) increased dramatically during 2002 from approximately 10% in Q2 to 16% in Q4;
•: In Q4 2002 the percentage of iBasis traffic that was originated outside of the U.S. was 41% of all iBasis traffic, compared to 32% at the end of 2001 which is indicative of the increase in the breadth of our network;
•: We have established a strong customer base of Tier One carriers—72% of the traffic carried by iBasis in Q4 2002 was from Tier One carriers as compared to 59% for Q4 2001:
•: We continued a debt reduction program that was launched during Q4 of 2001. Since then, we have reduced our long-term debt by approximately $131 million. The program has included, subsequent to 2002, a series of exchanges of the company's Convertible Subordinated Notes for new debt instruments at 50% of the face value of the retired notes;

•: During 2002, we recorded a net aggregate restructuring charge of approximately $5.5 million relating to the write-down of our fixed assets in our Miami and Singapore Internet Central Offices, the anticipated costs of termination or negotiated settlement of certain related contractual obligations, and certain severance expenses directly associated with reductions in our workforce.
•: During the first and second quarter the Company had workforce reductions totalling approximately 80 employees, including 44 who left the Company as part of our June restructuring plan. In addition, 15 employees associated with our messaging business that was sold in the first quarter of 2002, were transferred to the acquirer of that business.

Critical Accounting Policies

Revenue Recognition. Net revenue, which is derived from fees charged to terminate voice and fax services over our network, is recognized, net of reserves, when services are rendered and future collection of such amounts is reasonably assured. We reserve for potential billing disputes at the time revenue is recognized. This is a standard practice in the industry. Such disputes can result from disagreements with customers regarding the duration, destination or rates charged for each call.

Increased competition from other providers of telephony services could materially adversely affect revenue in future periods. The loss of a major customer could have a material adverse affect on our business, financial condition, operating results and future prospects.

Accounts Receivable. We perform ongoing credit evaluations of our customers and adjust credit limits based upon payment history and the customer's current credit worthiness, as determined by our review of their current credit information. We continuously monitor collections and payments from our customers and maintain a provision for estimated credit losses based upon our historical experience and any specific customer collection issues that we have identified. We have been able to mitigate our credit risk by using reciprocal arrangements with customers, who are also iBasis' suppliers, to offset our outstanding receivables. A majority of our accounts receivable are from international carriers. A significant change in the liquidity or financial position of our customers, or a change in the telecommunications industry, could have a material adverse impact on the collectability of our accounts receivables and our future operating results.

Impairment of Long Lived Assets. Our long lived assets consist primarily of property and equipment. We have assessed the realizability of these assets and determined that there was no asset impairment as of December 31, 2002 for these assets. We do not anticipate impairment losses related to the assets in the future. As described in Note 3 to our Consolidated Financial Statements, during 2002, we sold our Speech Solutions Business. In connection with that sale, we recorded an impairment loss of approximately $57 million.

Restructuring Charges. During 2002 and 2001, we recorded significant charges to operations in connection with our restructuring programs. The related reserves reflect estimates, including those pertaining to severance costs and facility exit costs. We reassess the reserve requirements to complete each restructuring program at the end of each reporting period. Actual experience may be different from these estimates.

Results from Continuing Operations

Year Ended December 31, 2002 Compared to Year Ended December 31, 2001

Net revenue. Our primary source of revenue is the fees that we charge customers for completing voice and fax calls over our network. Revenue is dependent on the volume of voice and fax traffic carried over the network, which is measured in minutes. We charge our customers fees, per minute of traffic, that are dependent on the length and destination of the call and recognize this revenue in the period in which the call is completed.

Our net revenue increased by approximately $54.7 million to $164.9 million for 2002 from $110.2 million for 2001. The increase in revenue from 2001 was the result of an increase in traffic carried over our network to 2.6 billion minutes for 2002 from 1.4 billion minutes for 2001, offset by the decline in the average rate per minute. We do not expect our average rate per minute to significantly decline in the future.

Data communications and telecommunications expenses. Data communications and telecommunications expenses are composed primarily of termination and circuit costs. Termination costs are paid to local service providers to terminate voice and fax calls received from our network. Terminating costs are negotiated with the local service provider. Should competition cause a decrease in the prices we charge our customers and, as a result, a decrease in our profit margins, our contracts provide us with the flexibility to renegotiate the per-minute termination fees. Circuit costs include charges for Internet access at our Internet Central Offices, fees for the connections between our Internet Central Offices and our customers and/or service provider partners, facilities charges for overseas Internet access and phone lines to the primary telecommunications carriers in particular countries, and charges for the limited number of dedicated international private line circuits we use.

Data communications and telecommunications expenses increased by $40.5 million to $142.8 million for 2002 from $102.3 million for 2001. The increase in data communications and telecommunications expense was primarily driven by the increase in traffic described above, offset by the decline in the average rate per minute. The largest component of the expense, termination costs, increased to $131.8 million for 2002 from $87.3 million for 2001. Circuit and other costs decreased to $11.0 million for 2002 from $15.0 million for 2001. The decrease in these circuit costs was due to our efforts to further improve our network operations and make it more cost efficient. We achieved cost savings by renegotiating prices with vendors and service provider partners, entering into more variable rather than fixed cost arrangements, reducing the number of service providers, conducting extensive studies of our circuit needs and eliminating under-utilized circuits by re-engineering more cost-effective solutions. As a percentage of net revenue, data communications and telecommunications expenses decreased to 87% for 2002 from 93% for 2001. We expect data communications and telecommunications expenses to continue to decrease as a percentage of net revenue as we further increase utilization and efficiency of our network and achieve economies of scale.

Research and development expenses. Research and development expenses include the expenses associated with developing, operating, supporting and expanding our international and domestic network, expenses for improving and operating our global network operations centers, salaries, and payroll taxes and benefits paid for employees directly involved in the development and operation of our global network operations centers and the rest of our network. Also included in this category are research and development expenses that consist primarily of expenses incurred in enhancing, developing, updating and supporting our network and our proprietary software applications.

Research and development expenses decreased by $6.1 million to $17.8 million for 2002 from $23.9 million for 2001. This decrease in research and development expenses is due to the decreased expenditures related to the support of The iBasis Network, as well as a reduction in personnel costs due to workforce reductions in the first and second quarter of 2002. As a percentage of net revenue,

research and development expenses decreased to 11% for 2002 from 22% for 2001. We expect that research and development expenses will remain constant and continue to decrease as a percentage of net revenue.

Selling and marketing expenses. Selling and marketing expenses include expenses relating to the salaries, payroll taxes, benefits and commissions that we pay for sales personnel and the expenses associated with the development and implementation of our promotion and marketing campaigns. Selling and marketing expenses decreased by $9.0 million to $11.3 million for 2002 from $20.3 million for 2001. This decrease is primarily attributable to decreasing expenditures for selling, promotional and marketing activities, as well as workforce reductions in the first and second quarter of 2002. As a percentage of net revenue, selling and marketing expenses decreased to 7% for 2002 from 18% for 2001. We anticipate that selling and marketing expenses will remain relatively level in 2003 and will continue to decrease as a percentage of net revenue.

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, finance and administration, legal and regulatory, facilities, information technology and human resources. General and administrative expenses decreased by $1.4 million to $24.2 million for 2002 from $25.6 million for 2001. During 2002, our cost reduction measures for general and administrative expenses included workforce reductions in the first and second quarter of 2002. These 2002 cost reductions were partially offset by a $0.9 million increase in bad debt expense primarily recorded in second quarter of 2002 to cover at risk accounts. As a percentage of net revenue, general and administrative expenses decreased to 15% for 2002 from 23% for 2001. We expect general and administrative expenses to decrease as a percentage of revenues as we leverage our current employee base through automation and other efficiency improvement projects.

Depreciation and amortization expenses. Depreciation and amortization expenses decreased by $0.5 million to $31.9 million for 2002 from $32.4 million for 2001. This decrease was due to the reduction in historical cost value of our network equipment due to our agreement to settle the majority of our capital lease obligations with our primary equipment vendor (see Note 6) as well as the write-off of property and equipment as a part of our restructuring plans (see Note 11). As a percentage of net revenue, depreciation and amortization expenses decreased to 19% for 2002 from 29% for 2001. We expect depreciation and amortization expenses to decrease as a percentage of net revenues due to an expected increase in revenues, a decrease in future capital expenditures, an increase in fully depreciated assets and the decrease in the historical value of the underlying assets as a result of the reduction in capital lease obligations with our primary equipment vendor.

Non-cash stock-based compensation. Non-cash stock-based compensation represents compensation expense incurred in connection with the grant of stock options to our employees with exercise prices less than the fair value of our common stock at the respective dates of grant. Such grants were either made prior to our initial public stock offering or were assumed in connection with our acquisition of PriceInteractive, Inc., and are being expensed over the vesting periods of the options granted. For 2002 and 2001, we recorded $1.0 million and $1.4 million, respectively, in non-cash stock-based compensation expense.

Loss on sale of messaging business. In March 2002, we sold our messaging line of business to Call Sciences, an enhanced communications service provider. The sale included all of our messaging business, including, among other items, our Santa Clara, California data center, our customers, revenue streams, and customer prospects in exchange for $168,000 and a future royalty stream. During 2002, we recognized a loss on the sale of $2.1 million, net of the royalty stream.

Restructuring costs. During 2002, we restructured to better align the organization and resources with our corporate strategy and recorded a net charge of totalling approximately $5.5 million. Included in

the charges are the write-off of property and equipment, the termination of contractual obligations and, in Q2, employee severance.

The components of the restructuring and other non-recurring costs were as follows:

Write off of fixed assets and facilities costs	$	2,427,162
Termination of contractual lease obligations		2,793,831
Employee severance costs		750,000
Less: Change in estimate of 2001 restructuring costs		(434,512	)

Total restructuring and other non-recurring costs	$	5,536,481

The fixed asset write-off is primarily related to the closure and abandonment of our Miami and Singapore internet central offices. The costs include the write-off of leasehold improvements as well as an estimated provision for termination costs for the facility space and telecommunication circuits. As we continue to focus on serving the largest international carriers, Tier One carriers, who tend to maintain greater geographic footprints, management approved a plan to close our Miami and Singapore Internet Central Offices and route traffic through our other central facilities. In addition, we wrote-off certain assets relating to our transitioning to a new switchless architecture in its VoIP network.

The employee severance costs resulted from a reduction in the workforce as the Company terminated 44 employees on June 28, 2002. Of these 44 people, 19 were within research and development, 10 were from sales and marketing and 15 were from general and administrative departments.

In addition our 2002 restructuring expense was reduced by a change in estimated restructuring costs relating to our 2001 restructuring and specifically related to a reduction in the estimated cost of terminating contractual lease obligations.

These cost reduction measures will be completed in the first quarter of 2003 and had a minimal impact on business operations during 2002.

Interest income. Interest income is primarily composed of income earned on our cash and cash equivalents, restricted cash and marketable securities. Interest income decreased by $7.9 million to $1.3 million in 2002 and $9.2 million in 2001. This decrease was primarily attributable to a decrease in our cash and cash equivalents, restricted cash and marketable securities as well as a decline in interest rates.

Interest expense. Interest expense is primarily composed of interest paid on the Convertible Subordinated Notes and various capital lease agreements established to finance a substantial majority of the hardware and software components of our network. Interest expense decreased by $4.9 million to $11.6 million in 2002 from $16.5 million in 2001. This decrease was attributable to reduced interest paid on capital equipment financing, the early extinguishment of $40.6 million of our Convertible Subordinated Notes and the early extinguishment of $50.8 million of our capital lease obligations (see Note 6). We expect interest expense to decrease in 2003 as current capital lease obligations mature and due to complete fiscal year impact of the early extinguishment of our convertible subordinated notes and capital lease obligations in 2003.

Loss from discontinued operations. On July 15, 2002 we sold our Speech Solutions Business for $18.5 million in cash ($1.5 million of this amount is in escrow). Additionally, $8 million in earn-out payments may be earned upon the achievement of certain revenue milestones by the Speech Solutions Business in 2003, when the earn-out agreement terminates. The Company cannot be certain that any amounts will be earned in 2003 related to the earn-out. No earn-out payments were earned during 2002.

The operating loss and the loss on the disposal of the business totalled $65.2 million in 2002. The loss on the disposal of the discontinued operation of $58.9 million included the write-off of goodwill and other purchased intangibles of $57.3 million and costs to sell the operation of $1.6 million.

Extraordinary gain on repurchase of Convertible Subordinated Notes. During 2002 and 2001, we recognized an extraordinary gain of $25.8 million and $14.5 million, respectively, in connection with the early extinguishment of $40.6 million and $20.8 million, respectively, of our Convertible Subordinated Notes. As described in Note 6 to our consolidated financial statements, we will record an additional gain on exchanges of our convertible subordinated notes during 2003.

Income Taxes. We have not recorded an income tax benefit for the losses associated with its operating losses as it is more likely than not that those benefits will not be realized.

Year Ended December 31, 2001 Compared to Year Ended December 31, 2000

Net revenue. Our net revenue increased by $49.0 million to $110.2 million for 2001 from $61.2 million for 2000. The increase in revenue from 2000 was the result of an increase in traffic carried over our network to 1.3 billion minutes for 2001 from 600 million minutes for 2000, offset by the decline in the average rate per minute.

Data communications and telecommunications expenses. Data communications and telecommunications expenses increased by $41.7 million to $102.3 million for 2001 from $60.6 million for 2000. The increase in data communications and telecommunications expense was primarily driven by the increase in traffic described above, offset by the decline in the average rate per minute. Termination costs, the largest component of the expense, increased to $87.3 million in 2001 from $49.6 million in 2000. Circuit and other costs increased to $15.0 million for 2001 from $11.0 million for 2000. The decrease in these circuit costs was due to our efforts to further increase the efficiency of our network operations. As a percentage of net revenue, data communications and telecommunications expenses decreased to 93% for 2001 from 99% in 2000.

Research and development expenses. Research and development expenses increased by $8.7 million to $23.9 million in 2001 from $15.2 million in 2000. This increase in research and development expenses is due principally to the expansion of The iBasis Network. As a percentage of net revenue, research and development expenses decreased to 22% for 2001 from 25% in 2000.

Selling and marketing expenses. Selling and marketing expenses increased by $0.9 million to $20.3 million in 2001 from $19.4 million in 2000. This increase is primarily attributed to increased activity within our public relations program and to correspond with the expansion of the iBasis Network. As a percentage of net revenue, selling and marketing expenses decreased to 18% in 2001 from 32% in 2000.

General and administrative expenses. General and administrative expenses increased by $7.0 million to $25.6 million in 2001 from $18.6 million in 2000. General and administrative expenses increased primarily due to charges for bad debt expense to build reserves that we believe will be sufficient to cover potential credit risk. As a percentage of net revenue, general and administrative expenses decreased to 23% in 2001 from 30% in 2000. We expect general and administrative expenses to decrease as a percentage of revenues as we leverage our current employee base through automation and other efficiency improvement projects.

Depreciation and amortization expenses. Depreciation and amortization expenses increased by $16.7 million to $32.4 million in 2001 from $15.7 million in 2000. This increase resulted from additional purchases of capital equipment and software that were needed to support our expanded network. As a percentage of net revenue, depreciation and amortization expenses increased to 29% in 2001 from 26% in 2000.

Non-cash stock-based compensation. Non-cash stock-based compensation represents compensation expense incurred in connection with the grant of stock options to our employees with exercise prices less than the fair value of our common stock at the respective dates of grant. Such grants were either made prior to our initial public stock offering or were assumed in connection with our acquisition of PriceInteractive, Inc. and are being expensed over the vesting periods of the options granted. For 2001 and 2000, we recorded $1.4 million and $1.1 million, respectively in non-cash stock-based compensation expense. The increase in non-cash stock-based compensation from 2000 to 2001 was due to our acquisition of PriceInteractive, Inc. in February 2001.

Restructuring costs. During 2001, we announced a restructuring plan to better align the organization with our corporate strategy and recorded a charge of approximately $51.8 million in accordance with management plans as approved by the Board of Directors.

The components of the restructuring charge were as follows:

Write-off of property and equipment	$	42,629,436
Termination of contractual obligations		7,441,837
Employee severance costs		1,763,045

Total	$	51,834,318

The fixed asset write-off relates primarily to the abandonment of particular equipment in a number of network data centers and ICOs. As a result of adopting the Openwave platform for our unified messaging business, certain equipment, which was previously deployed in our New York City and Cambridge, Massachusetts data centers, was no longer required. In addition, the write-down of equipment at ICOs is related to our increasing focus within our wholesale VoIP business on serving the largest international, Tier 1 carriers. Large international carriers tend to maintain greater geographic footprints and the ability to cost efficiently connect their networks to our network. As a result, the equipment located in some of our ICOs is no longer required and has therefore been written down to its estimated net realizable value.

The termination of contractual obligations is the anticipated cost of negotiated settlements with providers of facility space and telecommunications circuits related to the network data centers and ICOs which are no longer in operation.

The employee severance costs relate to a reduction in the workforce of 136 full-time employees on a worldwide basis, 71 of which were in research and development, 39 of which were in sales and marketing and the remaining 26 in general and administrative functions.

These cost reduction measures were completed during 2002 and did not affect business operations during either 2002 or 2001. The total cash impact of the restructuring was approximately $9.2 million, of which, $5.7 million was paid during 2001 while the remaining $3.5 million was paid by the end of the second quarter of 2002. Management believes that these measures have better positioned the organization to meet its strategic goals.

Interest income. Interest income is primarily composed of income earned on our cash, cash equivalents and marketable securities. Interest income decreased by $10.7 million to $9.2 in 2001 from $19.8 million in 2000. This decrease was primarily attributable to a decrease in our cash, cash equivalents and marketable securities as well as a decline in interest rates.

Subordinated Notes, which were issued in March 2000 as well as interest paid on capital equipment financing.

Loss from discontinued operations. Loss on discontinued operations represents the operations of the Company's Speech Solutions Business which was sold during July, 2002. Approximately $24.4 million of the $49.8 million represents the write-off of in-process research and development acquired in the acquisition of the Speech Solutions Business. Further, approximately $27.5 million of the loss represents depreciation related to fixed assets and amortization of intangible assets of the Speech Solutions Business.

Extraordinary gain on repurchase of Convertible Subordinated Notes. During the fourth quarter of 2001, we recognized an extraordinary after-tax gain of $14.5 million in connection with the early extinguishment of $20.8 million of our Convertible Subordinated Notes.

Income Taxes. We have not recorded an income tax benefit for the losses associated with its operating losses as it is more likely than not that those benefits will not be realized.

Liquidity and Capital Resources

Our principal capital and liquidity needs historically have related to the development of our network infrastructure, our sales and marketing activities, research and development expenses, and general capital needs. Our capital needs have been met, in large part, from the net proceeds from public offerings of common stock and Convertible Subordinated Notes. In addition, we have also met our capital needs through vendor capital leases and other equipment financings. We expect to continue to utilize equipment financing in the future to partially fund our capital equipment needs.

Net cash used in continuing operating activities was $43.0 million and $68.4 million for 2002 and 2001, respectively. Cash used in continuing operating activities for both years was principally related to the cash necessary to fund our operating losses.

Net cash used in discontinued operating activities was $1.9 million and $13.3 million for 2002 and 2001, respectively.

Net cash provided by investing activities was $46.6 million for 2002, which was primarily related to the sale and maturity of marketable securities, which generated $34.0 million in cash, and the $17.0 million in proceeds received from the sale of the Speech Solutions Business. The Company expended $5.6 million in cash for capital expenditures. Net cash provided by investing activities was $15.1 million for 2001. This primarily reflected $38.1 million in cash paid for the acquisition of PriceInteractive, and $35.1 million used to purchase capital equipment, which partially offset the sale and maturity of marketable securities, which generated $58.1 million in cash.

Net cash used in financing activities was $45.2 million for 2002. This primarily reflects $14.0 million in cash utilized to repurchase $40.6 million face value of the our Convertible Subordinated Notes, and $38.9 million used for payments of our capital lease and other debt obligations including the early extinguishment of certain capital lease obligations, which utilized $28.5 million in cash. In the fourth quarter, we borrowed $2.3 million under a revised credit agreement. This credit agreement did not require cash collateral and, therefore, $8.9 million of previously restricted cash is reported as a cash inflow due to the termination of this collateral requirement.

On November 13, 2002, we received a determination from Nasdaq that shares of our common stock would no longer trade on the Nasdaq National Market because we failed to meet certain minimum listing requirements. Our common stock began trading on the Nasdaq operated Over-the-Counter Bulletin Board on November 14, 2002 under the symbol "IBAS." This transition may have an impact on our ability to obtain future equity financing.

Throughout 2001 and 2002, management has taken a series of actions to reduce operating expenses and to restructure operations, which consisted primarily of reductions in workforce, the consolidation of internet central offices, the sale of the messaging business the sale of the Speech Solutions Business and the settlement of certain capital lease agreements. Moreover, management continues to control operating expenses and capital expenditures as well as to monitor and manage accounts payable and accounts receivable in order to fund us until we reach profitability.

Management's plans include the:

•: aggressive management of credit risk
•: monitoring and reduction of capital expenditures
•: monitoring and reduction of selling, general and administrative expenses
•: offsetting of accounts receivable and accounts payable balances with carriers
•: reduction in circuit costs as a result of improving network utilization
•: use of our new switchless architecture which eliminates the need for costly telecommunications switches and other equipment
•: exploration of alternative financing arrangements to partially replace or supplement those currently in place in order to provide us with long-term financing to support our working capital needs.

On August 5, 2002 we completed an agreement with our primary equipment vendor to reduce our capital lease obligations and related future cash commitments. Under the terms of the agreement, we paid our vendor $28.5 million in exchange for the elimination of $50.8 million in existing vendor debt, $9.0 million in future interest obligations (assuming the debt was held to maturity) and $4.0 million in tax and other obligations for a total of $63.8 million of future obligations. The difference between the cash paid and the recorded outstanding obligation on that date was accounted for as a reduction in the carrying value of the underlying capital assets. This transaction reduced interest expense by $2.5 million and depreciation and amortization by $3.3 million in the months subsequent to the transaction from the amounts that would have otherwise been recognized in 2002.

We lease equipment from various vendors under master agreements and multiple sublease agreements. Each of the multiple equipment leases specifies its own term, rate and payment schedule, depending upon the value and amount of equipment leased. Based upon existing lease agreements, we anticipate cash payments of approximately $8.8 million as repayment of these obligations with $6.1 million to be paid in 2003.

On December 30, 2002, we entered into two secured line of credit agreements (the "2002 Credit Lines") with the Silicon Valley Bank (the "Bank") providing a total available line of credit of $15 million which replaced our previous credit facilities and $4.0 million term loan. The maximum aggregate borrowings outstanding at any one time is limited to the lesser of $15.0 million or the specified borrowing base. The borrowing base is equal to 75% or 70% of eligible receivables, as defined in the agreements. Letters of credit drawn under this agreement will reduce the maximum borrowings available to us. Borrowings under these lines of credit bear interest at the Bank's prime rate plus 1% and are collateralized by substantially all of our assets. The credit lines require us to comply with various financial and non-financial covenants, including the maintenance of certain minimum financial ratios and restrictions on the payment of cash dividends. These agreements mature on December 29, 2004. At December 31, 2002, under the 2002 credit lines we borrowed $2.3 million, had issued and outstanding under these credit lines letters of credit totaling $3.3 million and $6.5 million was available for borrowings based upon our estimate of eligible receivables as defined by the 2002 credit lines agreements. On December 30, 2002, in conjunction with these agreements, we issued a five-year

warrant to the Bank for the purchase of 337,500 shares of our common stock at an exercise price of $0.337 per share.

Subsequent Events—During the first quarter of 2003 we entered into agreements with principal holders of the Company's 5.75% Convertible Subordinated Notes which resulted in the retirement of $38.2 million of the notes in exchange for a new debt instrument at 50% of the face value of the retired notes.

Under the terms of the agreements, the bond holders surrendered an aggregate principal amount of $38.2 million of iBasis' outstanding 5.75% Convertible Subordinated Notes in exchange for $19.1 million aggregate principal amount of newly issued 11.5% senior secured notes and warrants for 3,798,811 shares of our common stock. Each warrant will have an initial exercise price of $0.65 per share of Common Stock and a term of five years.

The new Notes, which mature on January 15, 2005, share in a second priority lien on our assets and are subordinated to our senior bank debt.

We will record a gain on these exchanges of approximately $12.9 million in the first quarter of 2003.

We anticipate that the December 31, 2002 balance of $32.3 million in cash, cash equivalents and marketable securities will be sufficient to fund operations for the next twelve months. However, in the event we fail to execute on our plan, we experience events described in "Risk Factors" below, or that circumstances currently unknown or unforeseen by us arise, we cannot be certain that we will not require additional financings within this time frame or that any additional financings, if needed, will be available to us on terms acceptable to us, if at all.

Under accounting principles generally accepted in the U.S., certain obligations and commitments are not required to be included in the consolidated balance sheets and statements of operations. These obligations and commitments, while entered into in the normal course of business, may have a material impact on liquidity. The following commitments as of December 31, 2002 have not been included in the consolidated balance sheets and statements of operations included under Item 8. Financial Statements and Supplemental Data, however, they have been disclosed in the following table in order to provide a more accurate picture of our financial position and liquidity. We do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As such, we are not exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships.

	Payments Due by Period
	Total		Less than 1 Year		1-3 Years		4-5 Years		After 5 Years
	(In millions)
Operating leases	$	16.4	$	4.0	$	5.7	$	3.4	$	3.3

Total commitments	$	16.4	$	4.0	$	5.7	$	3.4	$	3.3

The following table summarizes our future contractual obligations as of December 31, 2002 and includes obligations both reported with our consolidated balance sheet and future commitments not included within our consolidated balance sheet at December 31, 2002:

	Total		Less than 1 year		1-3 Years		4-5 Years		After 5 Years
5.75% Convertible Subordinated Notes	$	88.5	$	—	$	88.5	$	—	$	—
Capital Lease Obligations		8.1		5.3		2.8		—		—
2002 Credit Lines		2.3		—		2.3		—		—
Operating Leases		16.4		4.0		5.7		3.4		3.3

	$	115.3	$	9.3	$	99.3	$	3.4	$	3.3

The following table summarizes our future contractual obligations as of March 1, 2003 and displays our future contractual obligations subsequent to the issuance of our 11.5% Senior Secured Notes in exchange for our 5.75% Convertible Subordinated Notes and represents a prepayment of our revolving line of credit.

	Total		Less than 1 year		1-3 Years		4-5 Years		After 5 Years
5.75% Convertible Subordinated Notes	$	50.3	$	—	$	50.3	$	—	$	—
11.5% Senior Secured Notes		19.1		—		19.1		—		—
Capital Lease Obligations		7.2		4.7		2.6		—		—
2002 Credit Lines		—		—		—		—		—
Operating Leases		15.7		3.9		5.6		3.4		2.8

	$	92.3	$	8.6	$	77.6	$	3.4	$	2.8

Recently Adopted Accounting Pronouncements

Effective January 1, 2002, we adopted the provisions of Statement on Financial Accounting Standards No.142, "Goodwill and Other Intangible Assets" ("SFAS 142"). Under the provisions of SFAS 142, if an intangible asset is determined to have an indefinite useful life, it shall not be amortized until its useful life is determined to be no longer indefinite. An intangible asset that is not subject to amortization shall be tested for impairment annually, or more frequently if events or changes in circumstances indicate that the asset might be impaired. Goodwill is not amortized but is tested for impairment, for each reporting unit, on an annual basis and between annual tests in certain circumstances. Upon adoption of SFAS 142, we performed an impairment review and concluded that there were no necessary adjustments.

In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." This statement supercedes FASB Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," and the accounting and reporting provisions of APB Opinion No. 30, Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions. Under this statement it is required that one accounting model be used for long-lived assets to be disposed of by sale, whether previously held and used or newly acquired, and it broadens the presentation of discontinued operations to include more disposal transactions. The provisions of this statement are effective for financial statements issued for fiscal years beginning after December 15, 2001, and interim periods within those fiscal years, with early adoption permitted. We have evaluated the ultimate impact of this statement, and the adoption of FAS 144 did not materially effect our results of operations or financial position.

In November 2002, the FASB issued FASB Interpretation ("FIN") No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others." FIN No. 45 clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The initial recognition and initial measurement provisions of FIN No. 45 are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. The disclosure requirements of FIN No. 45 are applicable for financial statements of interim or annual periods ending after December 15, 2002. We will adopt the recognition and measurement requirements of FIN No. 45 in the first quarter of fiscal year 2003 and have included the new disclosure requirements in the Notes to the Consolidated Financial Statements.

In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation—Transition and Disclosure," which amends SFAS No. 123, "Accounting for Stock-Based Compensation," to provide alternative methods of transition to the fair value method of accounting for stock-based employee compensation, and also amends the disclosure provision of SFAS No. 123 to require disclosure in the summary of significant accounting policies the effects of an entity's accounting policy with respect to stock-based employee compensation on reported net income and earnings per share in annual and interim financial statements. The disclosure provision is required for all companies with stock-based employee compensation, regardless of whether the company utilizes the fair value method of accounting described in SFAS No. 123 or the intrinsic value method described in APB Opinion No. 25, "Accounting for Stock Issued to Employees." SFAS No. 148's amendment of the transition and annual disclosure provisions of SFAS No. 123 are effective for fiscal years ending after December 15, 2002. The disclosure requirements for interim financial statements containing condensed consolidated financial statements are effective for interim periods beginning after December 15, 2002. We currently account for stock based compensation utilizing the intrinsic value method of accounting for stock-based employee compensation described by APB Opinion No. 25.

Future Adoption of Accounting Pronouncements

In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations." This statement addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. It applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and (or) the normal operation of a long-lived asset, except for certain obligations of leases. This statement applies to all entities and is effective for financial statements issued for fiscal years beginning after June 15, 2002. We are currently evaluating the impact of this statement on our results of operations or financial position until such time as its provisions are applied.

In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections." This statement amends, among others, the classification on the statement of operations for gains and losses from the extinguishment of debt. Currently such gains and losses are reported as extraordinary items, however the adoption of SFAS No. 145 may require the classification of the gains and losses from the extinguishment of debt within income or loss from continuing operations unless the transactions meet the criteria for extraordinary treatment as infrequent and unusual as described in Accounting Principles Board Opinion No. 30, "Reporting the Results of Operations—Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions." The extraordinary gain resulting from the early extinguishment of the convertible Subordinated Notes (see Note 3) will be reclassified to a component of operating loss within the Consolidated Statements of Operations upon adoption on January 1, 2003.

In June 2002, the FASB issues SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." This statement supersedes Emerging Issues Task Force (EITF) No. 94-3, "Liability

Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity." Under this statement, a liability for a cost associated with a disposal or exit activity is recognized at fair value when the liability is incurred rather than at the date of an entity's commitment to an exit plan as required under EITF 94-3. The provisions of this statement are effective for exit or disposal activities that are initiated after December 31, 2002, with early adoption permitted. All restructuring activity undertaken prior to this date has been and will be accounted for under the provisions of EITF 94-3.

We do not expect the adoption of the above mentioned pronouncements to have a material impact on our consolidated financial statements.

Factors That May Affect Future Results and Financial Condition

RISK FACTORS

Any investment in our common stock involves a high degree of risk. You should carefully consider the risks described below, which we believe are all the material risks to our business, together with the information contained elsewhere in this report, before you make a decision to invest in our company.

Risks Related to Our Company

A failure to obtain necessary additional capital in the future on acceptable terms could prevent us from executing our business plan.

We may need additional capital in the future to fund our operations, finance investments in equipment and corporate infrastructure, expand our network, increase the range of services we offer and respond to competitive pressures and perceived opportunities. Cash flow from operations, and cash on hand may not be sufficient to cover our operating expenses, working capital and capital investment needs. We cannot assure you that additional financing will be available on terms acceptable to us, if at all. A failure to obtain additional funding could prevent us from making expenditures that are needed to allow us to grow or maintain our operations.

If we raise additional funds by selling equity securities, the relative equity ownership of our existing investors could be diluted or the new investors could obtain terms more favorable than previous investors. If we raise additional funds through debt financing, we could incur significant borrowing costs. The failure to obtain additional financing when required could result in us being unable to grow as required to attain profitable operations.

Our financial condition, and the restrictive covenants contained in our credit facility may limit our ability to borrow additional funds or raise additional equity as may be required to fund our future operations.

We incurred significant losses from continuing operations before extraordinary gain on repurchase of Convertible Subordinated Notes of $82.3 million, or 50% of net revenue for the year ended December 31, 2002; $155.5 million, or 141% of revenues, for the year ended December 31, 2001; and $62.3 million, or 102% of revenues, for the year ended December 31, 2000. Our accumulated deficit, and stockholders' deficit was approximately $403 million and $34 million, respectively, as of December 31, 2002. Moreover, the terms of our $15 million revolving credit facility limit our ability to, among other things:

•: incur additional debt, particularly unsubordinated debt;
•: pay cash dividends, redeem, retire or repurchase our stock or change our capital structure;
•: acquire assets or businesses or make investments in other entities;
•: enter into certain transactions with affiliates;
•: merge or consolidate with other entities;
•: sell or otherwise dispose of assets or use the proceeds from any asset sale or other disposition; and
•: create additional liens on our assets.

Although we expect that our available cash, and the remaining borrowing capacity under our credit facility will be sufficient to fund our operating and capital expenditure requirements in the foreseeable future, there can be no assurance that this will be the case. Our ability to borrow additional funds or raise additional equity is limited by the terms of our outstanding debt and/or our financial condition.

Additionally, events such as our inability to continue to reduce our loss from continuing operations, could adversely affect our liquidity and are ability to attract additional funding as required.

The market value and liquidity of our stock may be affected by our transition to the Over-the-Counter Bulletin Board.

On November 13, 2002, we received a determination from Nasdaq that shares of our common stock would no longer trade on the Nasdaq National Market because we failed to meet certain minimum listing requirements. Our stock began trading on the NASD-operated Over-the-Counter Bulletin Board on November 14, 2002. It is unclear what affect this transition will have on our stock; among other things, the market value and liquidity of our common stock could be materially and adversely affected.

We may not be able to pay our debt and other obligations.

We may not generate the cash flow required to pay our liabilities as they become due. As of March 15, 2003, we had approximately $50.4 million of 5.75% Convertible Subordinated Notes and $19.1 million of 11.5% Senior Secured Notes. We must pay interest on these notes twice a year. All notes are due in 2005. We cannot assure you that we will be able to pay interest and other amounts, including the principal amount, due on the notes as and when they become due and payable. If our cash flow is inadequate to meet our obligations, we will default on the notes. Any default of the Convertible Subordinated Notes and Senior Secured Notes could have a material adverse effect on our business, prospects, financial condition and operating results and our ability to raise future capital.

Additionally, as of March 15, 2003, we had no outstanding balance on our Lines of Credit from Silicon Valley Bank totalling $15 million, although we did have approximately $3.0 million of outstanding letters of credit issued under these agreements. If we fail to pay our liabilities under these Lines of Credit, Silicon Valley Bank may enforce all available remedies and seize our assets or receivable, to satisfy any amounts owed.

We may be required to repurchase our Convertible Subordinated Notes upon a repurchase event.

The holders of the Convertible Subordinated Notes may require us to repurchase all or any portion of the outstanding notes upon a "repurchase event." A repurchase event includes a change in control of iBasis, or if our shares of common stock are no longer approved for trading on an established automated over-the-counter trading market. We may not have sufficient cash reserves to repurchase the notes, which would cause an event of default under the existing indenture and under our other debt obligations.

The market price of our shares may experience extreme price and volume fluctuations for reasons over which we have little control.

The stock market has, from time to time, experienced, and is likely to continue to experience, extreme price and volume fluctuations. Prices of securities of Internet-related companies have been especially volatile and have often fluctuated for reasons that are unrelated to the operating performance of the affected companies. The market price of shares of our common stock has fluctuated greatly since our initial public offering and could continue to fluctuate due to a variety of factors, some of which we cannot reliably identify. In the past, companies that have experienced volatility in the market price of their stock have been the objects of securities class action litigation.

Provisions of our governing documents and Delaware law could discourage acquisition proposals or delay a change in control.

Our certificate of incorporation and by-laws contain anti-takeover provisions, including those listed below, that could make it more difficult for a third party to acquire control of our company, even if that change in control would be beneficial to stockholders:

•: our board of directors has the authority to issue common stock and preferred stock, and to determine the price, rights and preferences of any new series of preferred stock, without stockholder approval;
•: our board of directors is divided into three classes, each serving three-year terms;
•: our stockholders need a supermajority of votes to amend key provisions of our certificate of incorporation and by-laws;
•: there are limitations on who can call special meetings of stockholders;
•: our stockholders may not take action by written consent; and
•: our stockholders must provide specified advance notice to nominate directors or submit stockholder proposals.

In addition, provisions of Delaware law and our stock option plan may also discourage, delay or prevent a change of control of our company or unsolicited acquisition proposals.

International governmental regulation and legal uncertainties could limit our ability to provide our services or make them more expensive.

A number of countries currently prohibit or limit competition in the provision of traditional voice telephony services. In some of those countries, licensed telephony carriers as well as government regulators have questioned our legal authority and/or the legal authority of our service partners or affiliated entities to offer our services. We may face similar questions in additional countries.

Some countries have indicated they will evaluate proposed Internet telephony service on a case-by-case basis and determine whether to regulate it as a voice service or as another telecommunications service, and in doing so potentially impose subsidies or other costs on Internet telephony providers. In addition, many countries have not yet addressed Internet telephony in their legislation or regulations. Increased regulation of the Internet and/or Internet telephony providers, or the prohibition of Internet telephony or related services, in one or more countries, could limit our ability or the ability of our service partners or affiliates to provide our services. Finally, international organizations such as the International Telecommunications Union and the European Commission are continuing to examine whether Internet telephony should continue to be subject to light regulation. Adverse recommendations by these bodies could also limit our ability to provide services profitably.

It is also possible that countries may apply to our activities laws otherwise relating to services provided over the Internet, including laws governing:

•: sales and other taxes, including payroll-withholding applications;
•: user privacy;
•: pricing controls and termination costs;
•: characteristics and quality of products and services;
•: consumer protection;

•: cross-border commerce, including laws that would impose tariffs, duties and other import restrictions;
•: copyright, trademark and patent infringement; and
•: claims based on the nature and content of Internet materials, including defamation, negligence and the failure to meet necessary obligations.

If foreign governments or other bodies begin to impose related restrictions on Internet telephony or our other services or otherwise enforce criminal or other laws against us, our affiliates or employees, such activities could have a material adverse effect on our ability to attain and maintain profitability.

As we continue to operate abroad and expand into additional foreign countries, such countries may assert that we are required to qualify to do business in the particular foreign country, that we are otherwise subject to regulation, or that we are prohibited from conducting our business in that country. Our failure to qualify as a foreign corporation in a jurisdiction in which we are required to do so, or to comply with foreign laws and regulations, would materially adversely affect our business, financial condition and results of operations, including subjecting us to taxes and criminal or other penalties and/or by precluding us from, or limiting us in, enforcing contracts in such jurisdictions. We cannot be certain that our customers, service partners, or other affiliates are currently in compliance with regulatory or other legal requirements in their respective countries, that they or we will be able to comply with existing or future requirements, and/or that they or we will continue in compliance with any requirements. Our failure or the failure of those with whom we transact business to comply with these requirements could materially adversely affect our business, financial conditions and results of operations.

The telecommunications industry is subject to domestic governmental regulation and legal uncertainties and other laws that could prevent us from executing our business plan.

While the FCC has tentatively decided that information service providers, including Internet telephony providers, are not telecommunications carriers for regulatory purposes, various entities have challenged that decision. In addition, some members of Congress are dissatisfied with the conclusions of the FCC, which could result in the imposition of greater or lesser regulation on our industry. State government agencies may also increasingly regulate Internet-related services. These types of regulation may negatively impact the cost of doing business over the Internet and materially adversely affect our ability to attain or maintain profitability.

We are not licensed to offer traditional telecommunications services in any U.S. state and we have not filed tariffs for any service at the Federal Communications Commission or at any state regulatory commission. Nonetheless, aspects of our operations may currently be, or become, subject to state or federal regulations governing licensing, universal service funding, disclosure of confidential communications or other information, excise taxes, transactions restricted by U.S. embargo and other reporting or compliance requirements.

Our prepaid international calling card services are offered on a wholesale basis to international carrier customers, and others, some of which provide these services to end-user customers, enabling them to call internationally over The iBasis Network from the U.S. Although we do not market the calling cards for domestic interstate or intrastate use, we have not blocked the ability to place such calls or required our wholesale customers to show evidence of their compliance with U.S. and state regulations. As a result, there may be incidental domestic use of the cards. Domestic calling may employ transport and switching that is not connected to the Internet and, therefore, may not enjoy the lighter regulation to which our Internet-based services are subject. Because we provide wholesale international services, we do not believe that we are subject to federal or state regulation for the possible uses of these services described here and, accordingly, we have not obtained state licenses, filed state or federal tariffs, posted

bonds, or undertaken other possible compliance steps. There can be no assurance that the FCC and state regulatory authorities will agree with our position. If they do not, we could become subject to regulation at the federal and state level for these services, and could become subject to licensing and bonding requirements, and federal and state fees and taxes, including universal service contributions and other subsidies, all of which could materially affect our business.

The FCC also requires all calling card service providers that enable users to place toll-free calls from payphones in the United States to compensate the payphone operator for each call placed from a payphone. Future change in FCC payphone compensation rules and/or the failure of a company that provides toll-free numbers to us to compensate payphone companies could affect our revenues.

In addition to specific telecommunications regulation, we are subject to other laws. As an example, the Office of Foreign Asset Control of the U.S. Department of the Treasury, or OFAC, administers the United States' sanctions against certain countries. OFAC rules restrict many business transactions with such countries and, in some cases, require that licenses be obtained for such transactions. We may currently, or in the future, transmit telecommunications between the U.S. and countries subject to U.S. sanctions regulations and undertake other transactions related to those services. We have undertaken such activities via our network or through various reciprocal traffic exchange agreements to which we are a party. We have received licenses from OFAC to send traffic to some countries and, if necessary, will remain in contact with OFAC with regard to other transactions.

Risks Related to Our Operations

We have a limited operating history upon which to base your investment decision, and you may inaccurately assess our prospects for success.

We were incorporated in August 1996, and first began to offer commercial services in May 1997. Due to our limited operating history, it is difficult for us to predict future results of operations for our core business. Moreover, we cannot be sure that we have accurately identified all of the risks to our business, especially because we use new, and in many cases, unproven technologies and provide new services. The technical implementation of such technologies and services on a commercial scale and subsequent widespread commercial acceptance, is yet unproven. As a result, our past results and rates of growth may not be meaningful indicators of our future results of operations. Also, your assessment of the prospects for our success may prove inaccurate.

We have a history of operating losses and may never become profitable.

We have incurred and expect to continue to incur operating losses and negative cash flows as we incur operating expenses and make capital investments in our business. Our future profitability will depend on our being able to deliver calls over our network at a cost to us that is less than what we are able to charge for our calls, collect payments from customers, and otherwise utilize our network on a profitable basis.

Our costs to deliver calls are dependent on a number of factors, including the countries to which we direct calls and whether we are able to use the Internet, rather than another component of our network or more expensive back-up networks. The prices that we are able to charge to deliver calls over our network vary, based primarily on the prices currently prevailing in the international long distance carrier market to specific countries. While we are currently able to terminate a substantial number of the calls carried over our network, we have been unable to operate our entire network profitably on an operating basis for sustained periods.

We may not ever generate sufficient revenues or reduce costs to the extent necessary, to permit us to achieve profitability or pay our liabilities as they become due. Even if we do become profitable, we may not sustain or increase profitability on a quarterly or annual basis.

Fluctuations in our quarterly results of operations that result from various factors inherent in our business may cause the market price of our common stock to fall.

Our revenue and results of operations have fluctuated and may continue to fluctuate significantly from quarter to quarter in the future due to a number of factors, many of which are not in our control, including, among others:

•: the amount of traffic we are able to sell to our customers, and their decisions on whether to route traffic over our network;
•: increased competitive pricing pressure in the international long distance market;
•: the percentage of traffic that we are able to carry over the Internet rather than over the more costly traditional public-switched telephone network;
•: loss of arbitrage opportunities resulting from declines in international settlement rates or tariffs;
•: our ability to negotiate lower termination fees charged by our local providers if our pricing deteriorates;
•: our continuing ability to negotiate competitive costs to interconnect our network with those of other carriers and Internet backbone providers;
•: capital expenditures required to expand or upgrade our network;
•: changes in call volume among the countries to which we complete calls;
•: the portion of our total traffic that we carry over more attractive routes could fall, independent of route-specific price, cost or volume changes;
•: technical difficulties or failures of our network systems or third party delays in expansion or provisioning system problems;
•: our ability to manage our traffic so that routes are profitable; and
•: our ability to collect from our customers
•: currency fluctuations in countries where we operate.

Because of these factors, you should not rely on quarter-to-quarter comparisons of our results of operations as an indication of our future performance. It is possible that, in future periods, our results of operations will be significantly lower than the estimates of public market analysts, investors or our own estimates. Such a discrepancy could cause the price of our common stock to decline significantly.

We may never generate sufficient revenue to attain profitability if telecommunications carriers and other communications service providers are reluctant to use our services or do not use our services, including any new services, in sufficient volume.

If the market for Internet telephony and new services does not develop as we expect, or develops more slowly than expected, our business, financial condition and results of operations will be materially and adversely affected.

Our customers may be reluctant to use our Internet telephony services for a number of reasons, including:

•: perceptions that the quality of voice transmitted over the Internet is low;
•: perceptions that Internet telephony is unreliable;
•: our inability to deliver traffic over the Internet with significant cost advantages;

•: development of their own capacity on routes served by us; and
•: an increase in termination costs of international calls.

The growth of our core business depends on carriers and other communications service providers generating an increased volume of international voice and fax traffic and selecting our network to carry at least some of this traffic. If the volume of international voice and fax traffic fails to increase, or decreases, and these third parties do not employ our network, our ability to become profitable will be materially and adversely affected.

We may not be able to collect amounts due to us from our customers and we may have to disgorge amounts already paid.

Some of our customers have filed for bankruptcy owing us money for services we have provided to them in the past. Despite our efforts to collect these overdue funds, we may never be paid. Certain customers have filed for bankruptcy protection owing us amounts we have not yet received. The bankruptcy court may require us to continue to provide services to these companies during their reorganizations. Other customers may discontinue their use of our services at any time and without notice, or delay payments that are owed to us. Additionally, we may have difficulty in collecting amounts from them. Although we have internal credit risk policies to identify companies with poor credit histories, we may not effectively manage these policies and provide services to companies that refuse to pay. The risk is even greater in foreign countries, where the legal and collection systems available may not be adequate or impartial for us to enforce the payment provisions of our contracts. Our cash reserves will be reduced and our results of operations will be materially adversely affected if we are unable to collect amounts from our customers.

We have received claims including lawsuits from estates of bankrupt companies alleging that we received preferential payments prior to bankruptcy filing. We intend to employ all available defenses in contesting such claims or, in the alternative settle such claims. The results of any suit or settlement may have a material adverse affect on our business.

We may face technical problems or increased costs in our business by relying on third parties.

Vendors. We rely upon third-party vendors to provide us with the equipment, software, circuits, and other facilities that we use to provide our services. For example, we purchase substantially all of our Internet telephony equipment from Cisco Systems. We cannot assure you that we will be able to continue purchasing such equipment, software, network elements and other components from our vendors. We may be forced to try to renegotiate terms with vendors for products or services that have become obsolete. Some vendors may be unwilling to renegotiate such contracts. If we become unable to purchase the software and equipment needed to maintain and expand our network or customer service applications, we may not be able to continue to provide services and we may consequently be unable to generate the revenues to become profitable.

Parties that Maintain Phone and Data Lines. Our business model depends on the availability of the Internet and traditional telephone networks to transmit voice and fax calls. Third parties maintain and own these networks and other components that comprise the Internet. Some of these third parties are telephone companies. They may increase their charges for using these lines at any time and decrease our profitability. They may also fail to maintain their lines properly or otherwise disrupt our ability to provide service to our customers. Any failure by these third parties to maintain these lines and networks that leads to a material disruption of our ability to complete calls or provide other services could discourage our customers from using our network, which could have the effect of delaying or preventing our ability to become profitable.

Local Communications Service Providers. We maintain relationships with local communications service providers in many countries, some of whom own the equipment that translates calls from traditional voice networks to the Internet, and vice versa. We rely upon these third parties both to provide lines over which we complete calls and to increase their capacity when necessary as the volume of our traffic increases. There is a risk that these third parties may be slow, or fail, to provide lines, which would affect our ability to complete calls to those destinations. We cannot assure you that we will be able to continue our relationships with these local service providers on acceptable terms, if at all. Because we rely upon entering into relationships with local service providers to expand into additional countries, we cannot assure you that we will be able to increase the number of countries to which we provide service. We also may not be able to enter into relationships with enough overseas local service providers to handle increases in the volume of calls that we receive from our customers. Finally, any technical difficulties that these providers suffer could affect our ability to transmit calls to the countries that those providers help serve.

Strategic Relationships. We depend in part on our strategic relationships to expand our distribution channels and develop and market our services. In particular, we depend in large part on our joint marketing and product development efforts with Cisco Systems to achieve market acceptance and brand recognition in certain markets. Strategic relationship partners may choose not to renew existing arrangements on commercially acceptable terms, if at all. In general, if we lose these key strategic relationships, or if we fail to maintain or develop new relationships in the future, our ability to expand the scope and capacity of our network and services provided, and to maintain state-of-the-art technology, would be materially adversely affected.

We may not be able to succeed in the intensely competitive market for our various services.

The market for Internet voice and fax is extremely competitive and will likely become more competitive. Internet protocol and other Internet telephony service providers route traffic to destinations worldwide and compete directly with us. Also, Internet telephony service providers that presently focus on retail customers may in the future enter our market and compete with us. Such retail-oriented carriers also provide PC-to-PC services at very low prices or for free. Perceived competition with this market segment could drive our prices down. In addition, major telecommunications carriers, such as AT&T, British Telecom, Deutsche Telekom, MCI WorldCom and Qwest Communications all compete with our services.

We are subject to downward pricing pressures on our wholesale international Internet telephony services and a continuing need to renegotiate overseas rates, which could delay or prevent our profitability.

As a result of numerous factors, including increased competition and global deregulation of telecommunications services, prices for international long distance calls have been decreasing. This downward trend of prices to end-users has caused us to lower the prices we charge communications service providers for call completion on our network. If this downward pricing pressure continues, we cannot assure you that we will be able to offer Internet telephony services at costs lower than, or competitive with, the traditional voice network services with which we compete. Moreover, in order for us to lower our prices, we have to renegotiate rates with our overseas local service providers who complete calls for us. We may not be able to renegotiate these terms favorably enough, or fast enough, to allow us to continue to offer services in a particular country on a cost-effective basis. The continued downward pressure on prices and our failure to renegotiate favorable terms in a particular country would have a material adverse effect on our ability to operate our network and Internet telephony business profitably.

A variety of risks associated with our international operations could materially adversely affect our business.

Because we provide many of our services internationally, we are subject to additional risks related to operating in foreign countries. In particular, in order to provide services and operate facilities in some countries, we have established subsidiaries or other legal entities or have forged relationships with service partners or entities set up by our employees. Associated risks include:

•: unexpected changes in tariffs, trade barriers and regulatory requirements relating to Internet access or Internet telephony;
•: economic weakness, including inflation, or political instability in particular foreign economies and markets;
•: difficulty in collecting accounts receivable;
•: compliance with tax, employment, securities, immigration, labor and other laws for employees living and traveling abroad;
•: foreign taxes including withholding of payroll taxes;
•: foreign currency fluctuations, which could result in increased operating expenses and reduced revenues;
•: exposure to liability under the Foreign Corrupt Practices Act; and
•: other obligations or restrictions, including, but not limited to, criminal penalties incident to doing business or operating a subsidiary or other entity in another country.
•: The personal safety of our employees and their families who at times have received threats of, or who may in any case be subject to, violence, may not be adequately protected by legal authorities or other means.

Delivering calls outside of the United States generates a significant portion of our revenue. Many countries in these geographic regions have experienced political and economic instability over the past decade. Repeated political or economic instability in countries to which we deliver substantial volumes of traffic could lead to difficulties in completing calls through our regional service providers or decreased call volume to such countries. These and other risks associated with our international operations may materially adversely affect our ability to attain or maintain profitable operations.

If we are not able to keep up with rapid technological change in a cost-effective way, the relative quality of our services could suffer.

The technology upon which our services depends is changing rapidly. Significant technological changes could render the hardware and software which we use obsolete, and competitors may begin to offer new services that we are unable to offer. We must adapt to our rapidly changing market by continually improving the responsiveness, reliability, services and features of our network and by developing new features and applications to meet customer needs. If we are unable to respond successfully to these developments or do not respond in a cost-effective way, we may not be able to offer competitive services.

We may not be able to expand and upgrade our network adequately and cost-effectively to accommodate any future growth.

Our Internet telephony business requires that we handle a large number of international calls simultaneously. As we expand our operations, we expect to handle significantly more calls. We will need to expand and upgrade our hardware and software to accommodate such increased traffic. If we

do not expand and upgrade quickly enough, we will not have sufficient capacity to handle the increased traffic and growth in our operating performance would suffer as a result. Even with such expansion, we may be unable to manage new deployments or utilize them in a cost-effective manner. In addition to lost growth opportunities, any such failure could adversely affect customer confidence in The iBasis Network and could result in us losing business outright.

We depend on our key personnel and may have difficulty attracting and retaining the skilled employees we need to execute our growth plans.

We depend heavily on our key management. Our future success will depend, in large part, on the continued service of our key management and technical personnel, including Ofer Gneezy, our President and Chief Executive Officer, Gordon VanderBrug, our Executive Vice President, Richard Tennant, our Chief Financial Officer, Paul Floyd, our Senior Vice President of Research & Development, Engineering, and Operations, Dan Powdermaker, our Senior Vice President of Worldwide Sales, and Sean O'Leary, Senior Vice President of Marketing. If any of these individuals or others at the Company are unable or unwilling to continue in their present positions, our business, financial condition and results of operations could suffer. We do not carry key person life insurance on our personnel. While each of the individuals named above has entered into an employment agreement with us, these agreements do not ensure their continued employment with us.

We will need to retain skilled personnel to execute our plans. Our future success will depend, in large part, on our ability to attract, retain and motivate highly skilled employees, particularly engineering and technical personnel. Recent workforce reductions have resulted in reallocations of employee duties that could result in employee and contractor uncertainty. Reductions in our workforce or restrictions on salary increases or payment of bonuses may make it difficult to motivate and retain employees and contractors, which could affect our ability to deliver our services in a timely fashion and otherwise negatively affect our business.

If we are unable to protect our intellectual property, our competitive position would be adversely affected.

We rely on patent, trademark and copyright law, trade secret protection and confidentiality and/or license agreements with our employees, customers, partners and others to protect our intellectual property. Unauthorized third parties may copy our services or reverse engineer or obtain and use information that we regard as proprietary. End-user license provisions protecting against unauthorized use, copying, transfer and disclosure of any licensed program may be unenforceable under the laws of certain jurisdictions and foreign countries. We may seek to patent certain processes or equipment in the future. We do not know if any of our patent applications will be issued with the scope of the claims we seek, if at all. In addition, the laws of some foreign countries do not protect proprietary rights to the same extent as do the laws of the United States. Our means of protecting our proprietary rights in the United States or abroad may not be adequate and third parties may infringe or misappropriate our copyrights, trademarks and similar proprietary rights. If we fail to protect our intellectual property and proprietary rights, our business, financial condition and results of operations would suffer.

We believe that we do not infringe upon the proprietary rights of any third party. It is possible, however, that such a claim might be asserted successfully against us in the future. Our ability to provide our services depends on our freedom to operate. That is, we must ensure that we do not infringe upon the proprietary rights of others or have licensed all such rights. A party making an infringement claim could secure a substantial monetary award or obtain injunctive relief that could effectively block our ability to provide services in the United States or abroad.

We have received letters and other notices claiming that certain of our products and services may infringe patents or other intellectual property of other parties. To date, none of these has resulted in a

material restriction on any use of our intellectual property or has had a material adverse impact on our business. We may be unaware of intellectual property rights of others that may, or may be claimed, to cover our technology. Current or future claims could result in costly litigation and divert the attention of management and key personnel from other business issues. The complexity of the technology involved and the uncertainty of intellectual property litigation increase these risks. Claims of intellectual property infringement also might require us to enter into costly royalty or license agreements to the extent necessary for the conduct of our business. However, we may be unable to obtain royalty or license agreements on terms acceptable to us or at all. We also may be subject to significant damages or an injunction against use of our proprietary or licenses systems. A successful claim of patent or other intellectual property infringement against us could materially adversely affect our business and profitability.

We rely on a variety of technologies, primarily software, which is licensed from third parties.

Continued use of this technology by us requires that we purchase new or additional licenses from third parties. We cannot assure you that we can obtain those third-party licenses needed for our business or that the third party technology licenses that we do have will continue to be available to us on commercially reasonable terms or at all. The loss or inability to maintain or obtain upgrades to any of these technology licenses could result in delays or breakdowns in our ability to continue developing and providing our services or to enhance and upgrade our services.

We may undertake strategic acquisitions or dispositions that could damage our ability to attain or maintain profitability.

We may acquire additional businesses and technologies that complement or augment our existing businesses, services and technologies. We may need to raise additional funds through public or private debt or equity financing to acquire any businesses, which may result in dilution for stockholders and the incurrence of indebtedness. We may not be able to operate acquired businesses profitably or otherwise implement our growth strategy successfully.

We may need to sell existing assets or businesses in the future to generate cash or focus our efforts in making our core business, Internet telephony, profitable. As with many companies in the telecommunications sector that experienced rapid growth in recent years, we may need to reach profitability in one market before entering another. In the future, we may need to sell assets to cut costs or generate liquidity.

Risks Related to the Internet and Internet Telephony Industry

If the Internet does not continue to grow as a medium for voice and fax communications, our business will suffer.

Historically, the sound quality of calls placed over the Internet was poor. As the Internet telephony industry has grown, sound quality has improved, but the technology may require further refinement. Additionally, as a result of the Internet's capacity constraints, callers could experience delays, errors in transmissions or other interruptions in service. Transmitting telephone calls over the Internet, and other uses of the Internet, must also be accepted by customers as an alternative to traditional services. Because the Internet telephony market is new and evolving, predicting the size of these markets and their growth rate is difficult. If our market fails to develop, then we will be unable to grow our customer base and our results of operations will be materially adversely affected.

If the Internet infrastructure is not adequately maintained, we may be unable to maintain the quality of our services and provide them in a timely and consistent manner.

Our future success will depend upon the maintenance of the Internet infrastructure, including a reliable network backbone with the necessary speed, data capacity and security for providing reliability and timely Internet access and services. To the extent that the Internet continues to experience increased numbers of users, frequency of use or bandwidth requirements, the Internet may become congested and be unable to support the demands placed on it and its performance or reliability may decline thereby impairing our ability to complete calls and provide other services using the Internet at consistently high quality. The Internet has experienced a variety of outages and other delays as a result of failures of portions of its infrastructure or otherwise. Future outages or delays could adversely affect our ability to complete calls and provide other services. Moreover, critical issues concerning the commercial use of the Internet, including security, cost, ease of use and access, intellectual property ownership and other legal liability issues, remain unresolved and could materially and adversely affect both the growth of Internet usage generally and our business in particular. Finally, important opportunities to increase traffic on The iBasis Network will not be realized if the underlying infrastructure of the Internet does not continue to be expanded to more locations worldwide.

We cannot be certain that our ability to provide our services using the Internet will not be adversely affected by computer vandalism.

If the overall performance of the Internet is seriously downgraded by website attacks or other acts of computer vandalism or virus infection, our ability to deliver our communication services over the Internet could be adversely impacted, which could cause us to have to increase the amount of traffic we have to carry over alternative networks, including the more costly public-switched telephone network. In addition, traditional business interruption insurance may not cover losses we could incur because of any such disruption of the Internet. While some insurers are beginning to offer products purporting to cover these losses, we do not have any of this insurance at this time.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Our primary market risk exposure is related to interest rates and foreign currency exchange rates. To date, we have not engaged in trading market risk sensitive instruments or purchasing hedging instruments, whether interest rate, foreign currency exchange, commodity price or equity price risk. We have not purchased options or entered into swaps or forward or futures contracts.

Our investments in commercial paper and debt instruments are subject to interest rate risk, but due to the short-term nature of these investments, interest rates would not have a material impact on their value at December 31, 2002. Our primary interest rate risk is the risk on borrowings under our line of credit agreements, which are subject to interest rates based on the bank's prime rate. A change in the applicable interest rates would also affect the rate at which we could borrow funds or finance equipment purchases. All other debt, including capital lease obligations, are fixed rate debt.

We conduct our business in various regions of the world, but most of our revenues are denominated in U.S. dollars with the remaining being generally denominated in Euros or British pounds. Although most of our costs are U.S. dollar denominated, some of our costs are in Euros or British pounds which partially offsets our risk from revenues denominated in these currencies.

Item 8. Financial Statements and Supplementary Data

Index to Consolidated Financial Statements

		Page
Consolidated Financial Statements:
	Independent Auditors' Report	41
	Consolidated Balance Sheets as of December 31, 2002 and 2001	43
	Consolidated Statements of Operations for the Years Ended December 31, 2002, 2001 and 2000	44
	Consolidated Statements of Stockholders' Equity (Deficit) for the Years Ended December 31, 2002, 2001 and 2000	45
	Consolidated Statements of Cash Flows for the Years Ended December 31, 2002, 2001 and 2000	47
	Notes to Consolidated Financial Statements	49

Independent Auditors' Report

To iBasis, Inc.:

We have audited the accompanying consolidated balance sheets of iBasis, Inc. and subsidiaries as of December 31, 2002 and 2001, and the related consolidated statements of operations, stockholders' equity (deficit) and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. The financial statements of iBasis, Inc. for the year ended December 31, 2000 were audited by other auditors whose report, dated February 1, 2002, expressed an unqualified opinion on those statements.

We conducted our audits 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 audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of iBasis, Inc. and subsidiaries as of December 31, 2002 and 2001, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 2 to the consolidated financial statements, in 2002 the Company changed its method of accounting for goodwill and other intangible assets to conform to Statement of Financial Accounting Standards No. 142.

/s/ Deloitte & Touche LLP

Boston, Massachusetts
March 7, 2003

This is a copy of the audit report previously issued by Arthur Andersen LLP in connection with iBasis, Inc.'s filing on Form 10-K for the year ended December 31, 2001. This audit report has not been reissued by Arthur Andersen LLP in connection with this filing on Form 10-K. The consolidated financial statements as of and for the year ended December 31, 2001 have been reaudited by Deloitte & Touche LLP and, accordingly, the report of Deloitte & Touche LLP supercedes that of Arthur Andersen LLP as it pertains to that period. The consolidated balance sheet as of December 31, 2000 referred to in this report and the consolidated statements of operations, redeemable convertible preferred stock and stockholders' equity (deficit) and cash flows for the year ended December 31, 1999 included in the three year period ended December 31, 2001 have not been included in the accompanying financial statements.

Report of Independent Public Accountants

To iBasis, Inc.:

We have audited the accompanying consolidated balance sheets of iBasis, Inc. (a Delaware corporation) and subsidiaries as of December 31, 2001 and 2000 and the related consolidated statements of operations, redeemable convertible preferred stock and stockholders' equity (deficit) and cash flows for the three years ended December 31, 2001. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of iBasis, Inc. and subsidiaries as of December 31, 2001 and 2000, and the results of its operations and its cash flows for the three years ended December 31, 2001 in conformity with accounting principles generally accepted in the United States.

		ARTHUR ANDERSEN LLP
Boston, Massachusetts February 1, 2002

iBasis, Inc.

Consolidated Balance Sheets

			December 31,
			2002			2001
Assets
Current assets:
	Cash and cash equivalents		$	32,316,609		$	75,798,935
	Restricted cash			—			8,866,667
	Marketable securities			—			25,613,530
	Accounts receivable, net of allowance for doubtful accounts of approximately $7.8 million and $5.9 million, respectively			20,853,573			24,449,173
	Prepaid expenses and other current assets			5,374,390			7,292,483
	Assets of discontinued operation			—			84,253,779

		Total current assets		58,544,572			226,274,567

Property and equipment, at cost:
	Network equipment			56,371,694			39,087,361
	Equipment under capital lease			19,480,591			70,783,992
	Computer software			6,724,282			8,804,445
	Construction in process			—			5,280,192
	Leasehold improvements			6,285,384			4,831,794
	Furniture and fixtures			1,047,249			1,060,771

				89,909,200			129,848,555
	Less — Accumulated depreciation and amortization			(57,551,709	)		(45,569,484	)

				32,357,491			84,279,071

Deferred debt financing costs, net				1,381,927			2,859,814
Long-term investments in marketable securities				—			8,411,362
Long-term investment in non-marketable security				5,000,000			5,000,000
Other assets				1,240,321			2,000,266

			$	98,524,311		$	328,825,080

Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
	Accounts payable		$	13,142,280		$	10,659,138
	Accrued expenses			20,415,910			28,847,080
	Liabilities of discontinued operation			—			4,949,313
	Current portion of long-term debt			5,348,852			26,309,611

		Total current liabilities		38,907,042			70,765,142
Long-term debt, net of current portion				93,589,694			171,343,316
Commitments and contingencies
Stockholders' equity (deficit):
	Common stock, $0.001 par value, authorized—85,000,000 shares; issued—45,785,055 and 45,271,318 shares, respectively;			45,785			45,271
	Preferred stock, $.001 par value, authorized 15,000,000 shares; issued and outstanding; none			—			—
	Treasury stock, 1,135,113 shares at cost			(340,534	)		—
	Additional paid-in capital			368,927,164			369,692,193
	Deferred compensation			(85,756	)		(2,225,074	)
	Accumulated deficit			(402,519,084	)		(280,795,768	)

		Total stockholders' equity (deficit)		(33,972,425	)		86,716,622

			$	98,524,311		$	328,825,080

The accompanying notes are an integral part of these consolidated financial statements.

iBasis, Inc.

Consolidated Statements of Operations

		Years Ended December 31,
		2002			2001			2000
Net revenue		$	164,941,789		$	110,179,765		$	61,217,737
Cost and operating expenses:
Data communications and telecommunications			142,846,999			102,319,685			60,594,423
Research and development			17,781,195			23,939,218			15,167,902
Selling and marketing			11,278,629			20,322,758			19,351,822
General and administrative			24,185,648			25,563,466			18,596,204
Depreciation and amortization			31,870,800			32,363,609			15,717,929
Non-cash stock-based compensation			966,574			1,367,991			1,061,142
Loss on sale of messaging business			2,066,080			—			—
Restructuring costs			5,536,481			51,834,318			—

	Total cost and operating expenses		236,532,406			257,711,045			130,489,422

Operating loss			(71,590,617	)		(147,531,280	)		(69,271,685	)
Interest income			1,290,066			9,168,903			19,824,259
Interest expense			(11,607,853	)		(16,517,693	)		(12,844,162	)
Other expenses, net			(382,621	)		(587,316	)		—

Loss from continuing operations before extraordinary gain on repurchase of Convertible Subordinated Notes			(82,291,025	)		(155,467,386	)		(62,291,588	)
Loss from discontinued operations			(65,222,320	)		(49,770,957	)		—

Loss before extraordinary gain on repurchase of Convertible Subordinated Notes			(147,513,345	)		(205,238,343	)		(62,291,588	)
Extraordinary gain on repurchase of Convertible Subordinated Notes			25,790,029			14,548,973			—

Net loss		$	(121,723,316	)	$	(190,689,370	)	$	(62,291,588	)

Basic and diluted net loss per share:
Loss from continuing operations before extraordinary gain on repurchase of Convertible Subordinated Notes		$	(1.82	)	$	(3.64	)	$	(1.85	)
Loss from discontinued operations			(1.45	)		(1.17	)		—

Loss before extraordinary gain on repurchase of Convertible Subordinated Notes			(3.27	)		(4.81	)		(1.85	)
Extraordinary gain on repurchase of Convertible Subordinated Notes			0.57			0.34			—

Net loss		$	(2.70	)	$	(4.47	)	$	(1.85	)

Basic and diluted weighted average common shares outstanding			45,163,945			42,644,700			33,611,538

The accompanying notes are an integral part of these consolidated financial statements.

iBasis, Inc.

Consolidated Statements of Stockholders' Equity (Deficit)

		Common Stock			Treasury Stock
		Common Stock			Treasury Stock											Total Stockholders' Equity (Deficit)
		Number of Shares	$0.001 Par Value		Number of Shares	Amount		Additional Paid In Capital		Deferred Compensation			Accumulated Deficit			Total Stockholders' Equity (Deficit)
Balance, January 1, 2000		31,642,728	$	31,642	—		—	$	156,887,447	$	(2,200,547	)	$	(27,814,810	)	$	126,903,732
	Sale of common stock under secondary public offering, net of issuance costs of approximately $949,000	2,026,637		2,027	—		—		140,336,040		—			—			140,338,067
	Exercise of common stock options and warrants	525,959		526	—		—		676,987		—			—			677,513
	Sale of common stock related to employee stock purchase plan	7,759		8	—		—		320,050		—			—			320,058
	Amortization of deferred compensation	—		—	—		—		—		596,085			—			596,085
	Compensation expense related to acceleration of option vesting	—		—	—		—		352,318		—			—			352,318
	Net loss	—		—	—		—		—		—			(62,291,588	)		(62,291,588	)

Balance, December 31, 2000		34,203,083		34,203	—		—		298,572,842		(1,604,462	)		(90,106,398	)		206,896,185
	Issuance of common stock related to the purchase of PriceInteractive, Inc., net of filing fees of $6,905	9,281,645		9,282	—		—		58,362,215		—			—			58,371,497
	Issuance of restricted common stock related to the purchase of PriceInteractive, Inc., net of forfeited shares	948,543		948	—		—		5,966,162		—			—			5,967,110
	Issuance of options to buy common stock related to the purchase of PriceInteractive	—		—	—		—		5,200,876		(1,834,178	)		—			3,366,698
	Exercise of common stock options and warrants	706,440		706	—		—		955,434		—			—			956,140
	Sale of common stock related to employee stock purchase plan	131,607		132	—		—		480,239		—			—			480,371
	Amortization of deferred compensation	—		—	—		—		—		1,213,566			—			1,213,566
	Compensation expense related to acceleration of option vesting	—		—	—		—		154,425		—			—			154,425
	Net loss	—		—	—		—		—		—			(190,689,370	)		(190,689,370	)

Balance, December 31, 2001		45,271,318		45,271	—		—		369,692,193		(2,225,074	)		(280,795,768	)		86,716,622

	Acquisition of treasury shares from escrow settlement with PriceInteractive, Inc.	—		—	(1,135,113	)		(340,534	)		—			—			—			(340,534	)
	Exercise of common stock options	149,206		149	—			—			122,599			—			—			122,748
	Sale of common stock related to employee stock purchase plan	364,531		365	—			—			285,116			—			—			285,481
	Reduction in deferred compensation	—		—	—			—			(1,172,744	)		1,172,744			—			—
	Amortization of deferred compensation	—		—	—			—			—			966,574			—			966,574
	Net loss	—		—	—			—			—			—			(121,723,316	)		(121,723,316	)

Balance, December 31, 2002		45,785,055	$	45,785	(1,135,113	)	$	(340,534	)	$	368,927,164		$	(85,756	)	$	(402,519,084	)	$	(33,972,425	)

The accompanying notes are an integral part of these consolidated financial statements.

iBasis, Inc.

Consolidated Statements of Cash Flows

					Years ended December 31,
					2002			2001			2000
Cash flows from operating activities:
	Loss from continuing operations				$	(82,291,025	)	$	(155,467,386	)	$	(62,291,588	)
	Adjustments to reconcile loss from continuing operations to net cash used in operating activities
		Restructuring costs				5,536,481			51,834,318			—
		Depreciation and amortization				31,870,800			32,363,609			15,717,929
		Loss on sale of messaging business				2,066,078			—			—
		Amortization of deferred debt financing costs				672,505			1,026,417			816,349
		Amortization of deferred compensation				966,574			1,213,566			596,085
		Non cash compensation expense related to stock options				—			154,425			352,318
		Changes in current assets and liabilities
			Accounts receivable, net			3,595,600			(7,105,879	)		(11,938,956	)
			Prepaid expenses and other current assets			3,606,790			(1,408,923	)		(4,918,885	)
			Decrease in other assets			670,226			3,036,383			—
			Accounts payable			2,483,142			1,578,729			2,967,471
			Accrued expenses			(12,143,598	)		4,415,968			10,463,730

				Net cash used in continuing operating activities		(42,966,427	)		(68,358,773	)		(48,235,547	)
				Net cash used in operating activities of discontinued operations		(1,874,388	)		(13,251,852	)		—

				Net cash used in operating activities		(44,840,815	)		(81,610,625	)		(48,235,547	)

Cash flows from investing activities:
	Purchase of PriceInteractive, Inc., net of cash acquired					—			(38,118,266	)		—
	Increase in other assets					—			—			(3,988,649	)
	Purchases of property and equipment					(4,632,049	)		(35,066,918	)		(32,378,531	)
	Due from PriceInteractive, Inc.					—			—			(10,000,000	)
	Decrease (increase) in marketable securities					25,613,530			58,121,881			(77,146,773	)
	Decrease (increase) in long-term marketable securities					8,411,362			—			(15,000,000	)
	Increase in long-term investment in non-marketable security					—			—			(5,000,000	)
	Proceeds from sale of messaging business					168,000			—			—
	Proceeds from sale of Speech Solutions business					17,000,000			—			—

				Net cash provided by (used in) investing activities		46,560,843			(15,063,303	)		(143,513,953	)

Cash flows from financing activities:
	Decrease (increase) in restricted cash					8,866,667			(8,866,667	)		—
	Bank borrowings					2,300,000			4,000,000			—
	Payments of principal of long-term debt					(3,866,667	)		(2,654,941	)		—
	Payments of principal on capital lease obligations					(38,917,994	)		(23,760,115	)		(9,898,417	)
	Repurchase of Convertible Subordinated Notes					(13,992,589	)		(5,862,550	)		—
	Proceeds from issuance of shares related to employee stock purchase plan					285,481			480,371			320,058
	Proceeds from exercise of warrants and common stock options					122,748			956,140			677,513
	Proceeds from secondary public offering					—			—			140,338,067
	Proceeds from issuance of Convertible Subordinated Notes					—			—			144,826,943

				Net cash (used in) provided by financing activities		(45,202,354	)		(35,707,762	)		276,264,164

Net (decrease) increase in cash and cash equivalents						(43,482,326	)		(132,381,690	)		84,514,664
Cash and cash equivalents, beginning of year						75,798,935			208,180,625			123,665,961

Cash and cash equivalents, end of year					$	32,316,609		$	75,798,935		$	208,180,625

Supplemental disclosure of cash flow information:
	Cash paid during the year for interest	$	10,738,432	$	15,144,369	$	9,211,824

	Acquisition of PriceInteractive, Inc.:
	Fair value of common stock issued	$	—	$	64,345,512	$	—

	Fair value of options issued	$	—		3,366,698	$	—

	Liabilities assumed	$	—	$	21,784,821	$	—

	Treasury stock-settlement of escrow	$	340,534	$	—	$	—

Supplemental disclosure of non-cash investing and financing activities:
	Equipment acquired under capital lease obligations	$	3,247,032	$	23,963,884	$	60,822,136

	Reduction in carrying value certain of property and equipment as a result of the settlement of capital lease obligations	$	23,905,916	$	—	$	—

Escrow receivable related to sale of Speech Solutions Business		$	1,500,000	$	—	$	—

Conversion of accrued interest to capital lease obligations		$	2,096,351	$	—	$	—

The accompanying notes are an integral part of these consolidated financial statements.

iBasis, Inc.

Notes to Consolidated Financial Statements

(1) Business and Management Plans

Business—iBasis, Inc. (the "Company") is an international telecommunications carrier that utilizes the Internet to provide economical international telecommunications services to carriers and telephony resellers around the world. The Company's continuing operations consists of its Voice-Over-Internet-Protocol ("VoIP") business. The Company currently operates through various service agreements with local service providers in the United States, Europe, Asia, the Middle East, Latin America, Africa and Australia.

Management Plans—As shown in the consolidated financial statements, the Company has incurred cumulative net losses of $402.5 million since inception and used $43.0 of cash in continuing operations during 2002. These results are primarily attributable to the expenditures necessary to develop and expand our market.

Throughout 2001 and 2002, management has taken a series of actions to reduce operating expenses and to restructure operations, which consisted primarily of reductions in workforce, the consolidation of internet central offices, the sale of the messaging business, the sale of the assets associated with the Speech Solutions business, the settlement of certain capital lease agreements and the repurchase of a portion of the Company's 5.75% Convertible Subordinated Notes. Moreover, management continues to implement plans to control operating expenses and capital expenditures, as well as, to monitor and manage accounts payable and accounts receivable and restructure existing debt to enhance cash flow in order to fund the Company until we reach profitability.

Management's plans include the:

•: aggressive management of credit risk
•: monitoring and reduction of capital expenditures
•: monitoring and reduction of selling, general and administrative expenses
•: offsetting of accounts receivable and accounts payable balances with carriers
•: reduction in circuit costs reflecting efforts to further improve network operations and make it more cost efficient
•: use of our new switchless architecture which eliminates the need for costly telecommunications switches and other equipment.

In order to further assure that adequate cash balances are available, the Company has entered into, and will continue to explore, alternative financing arrangements to partially replace or supplement those currently in place in order to provide the Company with long-term financing to support its funding needs.

require the Company to comply with various financial and non-financial covenants, including the maintenance of certain minimum financial ratios and restrictions on the payment of cash dividends. These agreements mature on December 29, 2004. On December 30, 2002, in conjunction with these agreements, the Company issued a five-year warrant to the Bank for the purchase of 337,500 shares of its common stock at an exercise price of $0.337 per share.

During the first quarter of 2003 the Company entered into agreements with principal holders of the Company's 5.75% Convertible Subordinated Notes which resulted in the retirement of $38.2 million of the notes in exchange for a new debt instrument at 50% of the face value of the retired notes.

Under the terms of the agreements, the bond holders surrendered an aggregate principal amount of $38.2 million of iBasis' outstanding 5.75% Convertible Subordinated Notes in exchange for $19.1 million aggregate principal amount of new 11.5% Senior Secured Notes issued by iBasis and warrants for 3,798,811 shares of iBasis common stock. Each warrant will have an initial exercise price of $0.65 per share of Common Stock and an exercisable term of five years.

The new Notes, which mature on January 15, 2005, share in a second priority lien on the Company's assets and are subordinated to iBasis' senior bank debt.

The Company will record a gain on this exchange of approximately $12.9 million in 2003.

Management anticipates that the December 31, 2002 balance of $32.3 million in cash, cash equivalents and marketable securities will be sufficient to fund operations for the next twelve months. However, in the event that management fails to execute its plan, or that circumstances currently unknown or unforeseen arise, the Company may require additional financings. If any additional financings are needed, they may not be available on terms acceptable to the Company, if at all.

(2) Summary of Significant Accounting Policies

Principles of Consolidation—The accompanying consolidated financial statements include the accounts of iBasis, Inc. and its subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

Basis of Presentation—During July 2002, the Company sold its Speech Solutions Business. Accordingly, the Consolidated Statements of Operations have been reclassified to present the results of the Speech Solutions Business separately from continuing operations as discontinued operations. Furthermore, the assets and liabilities of the Speech Solutions Business are classified separately on the Consolidated Balance Sheet as of December 31, 2001.

Use of Estimates—The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Revenue Recognition—Substantially all of the Company's sales transactions are derived from the resale of international minutes of calling time. Revenue from the resale of minutes is recognized when all of the following criteria are met: persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the seller's price to the buyer is fixed or determinable and collectibility is

reasonably assured. The Company recognizes revenue in the period the service is provided, net of revenue reserves for potential billing credits.

Net Loss Per Share—Basic and diluted net loss per common share are determined by dividing net loss by the weighted average common shares outstanding during the period. Basic net loss per share and diluted net loss per share are the same, as the outstanding common stock options and convertible subordinated notes are antidilutive since the Company has recorded a net loss for all periods presented.

The following have been excluded from the computation of diluted weighted average common shares for the periods presented:

	Years Ended December 31,
	2002	2001	2000
Options to purchase common shares	2,256,518	7,768,323	1,209,614
Common shares related to the conversion of the Convertible Subordinated Notes	1,027,746	1,498,932	1,741,351

Total common shares excluded	3,284,264	9,267,255	2,950,965

The following table reconciles the weighted average common shares outstanding to the shares used in the computation of basic and diluted weighted average common shares outstanding:

	Years Ended December 31,
	2002	2001	2000
Weighted average common shares outstanding	45,387,450	43,410,002	33,626,517
Less: Weighted average unvested common shares outstanding	—	3,699	14,979
Weighted average unvested restricted common shares outstanding	223,505	761,603	—

Basic and diluted weighted average common shares outstanding	45,163,945	42,644,700	33,611,538

Cash, Cash Equivalents and Restricted Cash—The Company considers highly liquid investments purchased with an original maturity of 90 days or less at the time of purchase to be cash equivalents. Cash equivalents include money market accounts and commercial paper that are readily convertible into cash. During 2001, and as part of a financing arrangement with a bank, the Company was required to restrict approximately $8.9 million with that bank as collateral. The Company classified this amount as restricted cash on the accompanying consolidated balance sheet as of December 31, 2001. During 2002, the Company entered into a new financing arrangement with the bank which did not require any restrictions on the Company's cash (see Note 6).

Property and Equipment—Property and equipment are stated at cost. Assets under capital leases are recorded at the present value of minimum lease payments. These assets are depreciated over the lesser of the lease term or the estimated useful lives of the assets using the straight-line method. Significant improvements and betterments are capitalized if they extend the useful life of the asset. Routine repairs and maintenance are expensed when incurred.

Construction in process represents those assets that were acquired by the Company, but were not placed in service as of the balance sheet date. For assets that have been placed in service, the Company provides for depreciation and amortization using the straight-line method over the useful life of the asset, as follows:

Asset Classification		Estimated Useful Life
Network equipment		3 years
Equipment under capital lease		Life of lease
Computer software		3 years
Leasehold improvements		Life of lease
Furniture and fixtures		5 years

The Company reviews long-lived assets 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 recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. Total depreciation expense included in the consolidated statements of operations was approximately $26.3 million, $14.6 million, and $6.6 million for the years ended December 31, 2002, 2001 and 2000, respectively. Total amortization of equipment under lease included in the consolidated statements of operations was approximately $5.5 million, $17.8 million, and $9.1 million for the years ended December 31, 2002, 2001, and 2000, respectively.

Deferred Debt Financing Costs—In March 2000, the Company sold $150.0 million of 5.75% Convertible Subordinated Notes (the "Notes") which mature in March 2005. Underwriter discounts of $4.5 million and other costs of approximately $700,000 incurred in connection with the sale are being amortized to interest expense using the straight-line method which is not materially different than the effective interest rate method over the term of the Notes. During 2001 and 2002, the Company repurchased a portion of these Notes and netted the applicable portion of the net book value of the deferred debt financing costs against the extraordinary gain recorded on those repurchases. In early 2003, the Company entered into agreements to exchange a portion of the Notes for new debt instruments. In connection with the exchange, a ratable portion of deferred debt financing costs will be netted against the gain in the transaction (see Note 6). The Company will continue to amortize the remaining deferred debt financing costs, using the straight-line method, until March 2005, when the Notes mature.

Investments in Short-Term and Long-Term Marketable and Non-marketable Securities—Investments purchased with an original maturity of greater than 90 days but less than one year are classified on the accompanying balance sheet as short-term investments. Investments held as of December 31, 2001 that were scheduled to mature after December 31, 2002 were considered long term investments. In accordance with Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity Securities," and based on the Company's intentions regarding these instruments, the Company classified all marketable debt securities and long-term debt investments as held-to-maturity and accounted for these investments at amortized cost. During 2002, the Company utilized the proceeds from these investments for working capital and debt service purposes.

At December 31, 2001, the amortized cost basis, aggregate fair value and gross unrealized holding gains and losses by major security type were as follows:

			Unrealized
	Amortized Cost		Gain		Loss			Market Value
Commercial paper	$	14,006,722	$	77,106	$	—		$	14,083,828
Corporate bonds		98,912		—		—			98,912
Government bonds		11,507,896		46,880		—			11,554,776

Total short-term marketable securities	$	25,613,530	$	123,986	$	—		$	25,737,516

Corporate bonds	$	6,181,162	$	95,175	$	—		$	6,276,337
Government bonds		2,230,200		—		(6,384	)		2,223,816

Total long-term marketable securities	$	8,411,362	$	95,175	$	(6,384	)	$	8,500,153

Total marketable securities	$	34,024,892	$	219,161	$	(6,384	)	$	34,237,669

The long-term investment in non-marketable security represents an equity investment in a privately held telecommunications company that is not readily convertible into cash. The investment has been recorded at cost in the accompanying consolidated balance sheet. Management believes that there has been no impairment in value of this investment as of December 31, 2002.

Other Assets—Other assets at December 31, 2002 and 2001 consist primarily of deposits for call termination services and leased facilities.

Research and Development Expenses—The Company charges research and development expenses to operations as incurred

Concentration of Credit Risk/Significant Customers—Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash investments and accounts receivable. The Company places its cash investments with a high quality financial institution and limits the amount of credit exposure. The Company's management has established certain credit requirements that its customers must meet before sales credit is extended. The Company monitors the financial condition of its customers to help ensure collections and to minimize losses.

The following table represents customers that accounted for greater than 10% of accounts receivable at December 31:

	2002		2001
Customer A	17	%	9	%
Customer B	5	%	11	%
Customer C	—		11	%

The Company had one customer account for 12%, 14%, and 7% of net revenue for the years ended December 31, 2002, 2001, and 2000, respectively.

Fair Value of Financial Instruments—Financial instruments consist principally of cash and cash equivalents, accounts receivable, long-term investments in marketable securities and long-term investments in non-marketable securities, long-term debt and accounts payable. The estimated fair value of these instruments, except for the Convertible Subordinated Notes, approximates their carrying value. The fair value of the Convertible Subordinated Notes at December 31, 2002 is approximately $28.6 million.

Stock-Based Compensation—The Company accounts for stock-based compensation in accordance with Accounting Principles Board ("APB") Opinion No. 25 using the intrinsic-value method as permitted by SFAS No. 123, "Accounting for Stock-Based Compensation." SFAS No. 123 encourages, but does not require, the recognition of compensation expense for the fair value of stock options and other equity instruments issued to employees and nonemployee directors.

At December 31, 2002, the Company had two stock-based employee compensation plans, which are described more fully in Note 7. The following table illustrates the effect on net loss and net loss per share if the Company had applied the fair value recognition provisions of SFAS No. 123.

		December 31,
		2002			2001			2000
Net loss:
	As reported	$	(121,723,316	)	$	(190,689,370	)	$	(62,291,588	)
	Deduct: Stock-based employee compensation expense included in reported net loss		966,574			1,367,991			948,403
	Add: Total stock-based employee compensation expense determined under fair value based method for all awards		(7,553,956	)		(8,053,921	)		(8,312,624	)

	Pro forma	$	(128,310,698	)	$	(197,375,300	)	$	(69,655,809	)

Basic and diluted net loss per share:
	As reported	$	(2.70	)	$	(4.47	)	$	(1.85	)

	Pro forma	$	(2.84	)	$	(4.63	)	$	(2.07	)

Income Taxes—The Company accounts for income taxes in accordance with SFAS No. 109, "Accounting for Income Taxes." This statement requires an asset and liability approach to accounting for income taxes based upon the future expected values of the related assets and liabilities. Deferred income taxes are provided for basis differences between assets and liabilities for financial reporting and tax purposes.

Recently Adopted Accounting Pronouncements

Effective January 1, 2002, the Company adopted the provisions of Statement on Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"). Under the provisions of SFAS 142, if an intangible asset is determined to have an indefinite useful life, it shall not be amortized until its useful life is determined to be no longer indefinite. An intangible asset that is not subject to amortization shall be tested for impairment annually, or more frequently if events or changes in circumstances indicate that the asset might be impaired. Goodwill is not amortized but is tested for impairment, for each reporting unit, on an annual basis and between annual tests in certain

circumstances. Upon adoption of SFAS 142, the Company performed an impairment review and concluded that there were no necessary adjustments.

In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." This statement supercedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," and the accounting and reporting provisions of APB Opinion No. 30, "Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions." Under this statement it is required that one accounting model be used for long-lived assets to be disposed of by sale, whether previously held and used or newly acquired, and it broadens the presentation of discontinued operations to include more disposal transactions. The Company adopted SFAS No. 144 on January 1, 2002 and such adoption did not materially effect our results of operations or financial position.

Future Adoption of Accounting Pronouncements—

In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations." This statement addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. It applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and/or the normal operation of a long-lived asset, except for certain lease obligations. This statement applies to all entities and is effective for financial statements issued for fiscal years beginning after June 15, 2002. We are currently evaluating the impact of this statement on our results of operations or financial position until such time as its provisions are applied.

In April 2002, the FASB issued SFAS No. 145 "Rescission of FASB Statements Nos. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections." This statement amends, among others, the classification on the statement of operations for gains and losses from the extinguishment of debt. Currently such gains and losses are reported as extraordinary items, however the adoption of SFAS No. 145 will require the classification of the gains and losses from the extinguishment of debt within income or loss from continuing operations unless the transactions meet the criteria for

extraordinary treatment as infrequent and unusual as described in Accounting Principles Board Opinion No. 30 "Reporting the Results of Operations—Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions." The extraordinary gain resulting from the early extinguishment of the convertible Subordinated Notes (see Note 6) will be reclassified to other expense, net within the consolidated statements of operations upon adoption on January 1, 2003.

In June 2002, the FASB issues SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." This statement supersedes Emerging Issues Task Force ("EITF") No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity." Under this statement, a liability for a cost associated with a disposal or exit activity is recognized at fair value when the liability is incurred rather than at the date of an entity's commitment to an exit plan as required under EITF 94-3. The provisions of this statement are effective for exit or disposal activities that are initiated after December 31, 2002. All restructuring activity undertaken prior to that date has been accounted for under the provision of EITF 94-3.

In November 2002, the FASB issued FASB Interpretation ("FIN") No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others." FIN No. 45 clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The initial recognition and initial measurement provisions of FIN No. 45 are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. The Company will adopt these requirements on January 1, 2003. The disclosure requirements of FIN No. 45 are applicable for financial statements of interim or annual periods ending after December 15, 2002 and, therefore, have been adopted for these Consolidated Financial Statements.

We do not expect the adoption of the above mentioned pronouncements to have a material impact on our consolidated financial statements.

(3) Acquisition of PriceInteractive, Inc. and Discontinued Operations

Acquisition—On February 27, 2001, the Company completed its acquisition of all of the outstanding capital stock and options to purchase common stock of PriceInteractive Inc., a leading provider of speech application services ("PriceInteractive"). The acquisition was accounted for using the purchase method of accounting in accordance with APB Opinion No. 16, "Business Combinations," and, accordingly, the results of operations for PriceInteractive have been included in the consolidated results of the Company since the acquisition date. The aggregate purchase price, which was comprised of cash of $45.3 million, approximately 9.3 million shares of common stock (including 2.1 million shares placed in escrow), approximately 1.0 million shares of restricted common stock and options to purchase approximately 1.0 million shares of common stock, was allocated to the tangible and intangible assets of PriceInteractive based upon the fair value of such assets acquired. Fair value of intangible assets was determined by an independent appraisal. The restricted common stock, issued in the acquisition, vested 50% on December 31, 2001 while the remaining 50% was scheduled to vest on January 1, 2003, subject to acceleration upon certain events. In addition, the Company also recorded $1,834,178 of deferred stock-based compensation, relating to the options issued in connection with the acquisition, which was being amortized over two to four years, the vesting periods of the options granted.

Subsequent to the acquisition, the Company changed the name of the acquired entity to iBasis Speech Solutions, Inc.

A summary of the total consideration and the allocation of the aggregate purchase price was as follows:

Purchase Price:
	Cash paid		$	45,250,917
	Professional fees and other acquisition costs			6,258,679
	Fair value of common stock issued			64,338,607
	Fair value of common stock options issued			3,366,698

		Total purchase price	$	119,214,901

Allocation of Purchase Price:
	Cash and cash equivalents		$	13,384,425
	Other current assets			6,940,155
	Property and equipment			9,203,412
	Developed technology and know-how			15,447,698
	Installed customer base			7,559,512
	Assembled workforce			1,424,256
	Goodwill			62,570,521
	Other assets			38,277
	Current liabilities			(8,800,717	)
	Long term debt			(12,984,104	)
	In-process research and development			24,431,466

		Total allocation of purchase price	$	119,214,901

The $24.4 million allocated to purchased in-process research and development ("in-process R&D") represented the appraised fair value of a project that did not have future alternative uses. This allocation represented the estimated fair value based on risk-adjusted cash flows related to the in-process research and development project. The development of the project had not yet reached technological feasibility and the research and development in process had no alternative uses. Accordingly, these costs were expensed as of the acquisition date.

In-process research and development value was comprised of one primary research and development project. This project included the introduction of certain new technologies. At the acquisition date, this project was approximately 70% to 80% complete based on cost data and technological progress. The research and development investment in this project made by the Company from the date of acquisition through December 31, 2001 was $6.0 million.

The value assigned to purchased in-process technology was determined by estimating the costs to develop the purchased in-process technology into commercially viable products, estimating the resulting net cash flows from the project and discounting the net cash flows to their present value. The revenue projection used to value the in-process research and development is based on the expected timing of new products, management's estimate of the product life cycle and expected revenue contribution. The rates utilized to discount the net cash flows to their present value are based on the Company's

weighted average cost of capital. This discount rate was commensurate with the Company's corporate maturity and the uncertainties in the economic estimates described above.

Discontinued Operation—On July 15, 2002 the Company completed the sale of substantially all of the assets of its Speech Solutions Business for $18.5 million in cash of which $1.5 million of this amount was placed in escrow until December 31, 2003, and up to $8 million in earn-out payments that may be earned upon the achievement of certain revenue milestones of the Speech Solutions Business in 2003. No earnout payments were earned in 2002.

The Company has reported its Speech Solutions Business as a discontinued operation under the provisions of SFAS No. 144 "Accounting for the Impairment or Disposal of Long Lived Assets." The Consolidated Financial Statements have been reclassified to segregate the net assets and operating results of this discontinued operation for all periods presented.

The loss on the disposal of the discontinued operation of $58,943,734 included the write-off of goodwill and other purchased intangibles of $57,272,765 and the costs to sell the operation of $1,670,969. The amount of the loss will be adjusted in the future to reflect any contingent consideration received, and the settlement of the $1.5 million held in escrow.

Summary operating results of the discontinued operation for 2002 and 2001 were as follows:

	Years Ended December 31,
	2002			2001
Revenue	$	12,306,262		$	23,589,920
Operating loss		(5,905,772	)		(49,262,850	)
Pre-tax loss from discontinued operations		(65,222,320	)		(49,770,957	)

The operating losses for 2002 and 2001 include depreciation of $2,608,907 and $3,561,121 and amortization of intangibles of $3,314,133 and $23,908,202 respectively. Also included in 2001 is a write-off of in-process research and development costs of $24,431,466 in connection with the acquisition of PriceInteractive.

Assets and liabilities of the discontinued operation related to the Company's Speech Solutions Business at December 31, 2001 are as follows:

Accounts receivable, net		$	6,899,134
Property and equipment, net			13,417,644
Goodwill and other purchased intangibles, net			63,093,785
Other current assets			843,216

	Assets of discontinued operation	$	84,253,779

	Liabilities of discontinued operation	$	4,949,313

(4) Accrued Expenses

Accrued expenses at December 31, consist of the following:

	2002		2001
Termination fees and circuit costs	$	8,603,948	$	9,619,326
Restructuring and other non-recurring costs		3,194,455		3,883,578
Interest		1,484,722		3,384,308
Acquisition related costs		2,884,000		4,495,960
Costs relating to repurchase of convertible subordinated notes		—		1,578,418
Professional services		794,412		1,281,456
Payroll and related costs		787,203		675,946
Equipment purchases		323,034		469,200
Customer deposits		348,576		107,165
Accrued other		1,995,560		3,351,723

	$	20,415,910	$	28,847,080

(5) Income Taxes

No provision for federal or state income taxes has been recorded, as the Company incurred net operating losses for all periods presented. As of December 31, 2002, the Company has net operating loss carryforwards of approximately $282.7 million available to reduce future federal and state income taxes, if any. If not utilized, these carryforwards expire at various dates through 2022. If substantial changes in the Company's ownership should occur, as defined by Section 382 of the Internal Revenue Code (the "Code"), there could be annual limitations on the amount of carryforwards which can be realized in future periods. The Company has completed several financings since its inception and believes that it may have incurred an ownership change as defined under the Code.

The approximate income tax effects of temporary differences and carryforwards are as follows:

	December 31,
	2002			2001
Net operating loss carryforwards	$	103,534,600		$	76,479,100
Accruals		20,816,800			39,073,800
Depreciation		8,224,800			(1,270,500	)
Accounts receivable		4,508,900			3,482,900
Other		(356,300	)		(1,893,000	)
Valuation allowance		(136,728,800	)		(115,872,300	)

	$	—		$	—

The Company has recorded a 100% valuation allowance against the net deferred tax asset as of December 31, 2002 and 2001, as management has determined that it is more likely than not that such assets will not be realized. The increase in the valuation allowance during the year primarily relates to the increase in the net operating loss carryforward.

The major components of the Company's income tax expense (benefit) for the years ended December 31 are:

	2002			2001			2000
Net operation loss carryforwards	$	27,055,500		$	46,945,100		$	19,271,000
Deferred tax items		(6,199,000	)		37,879,200			936,000
Valuation Allowance		(20,856,500	)		(84,824,300	)	$	(20,207,000	)

	$	—		$	—		$	—

(6) Long-Term Debt

Long-term debt consists of the following as of December 31:

	2002		2001
5.75% Convertible Subordinated Notes	$	88,530,000	$	129,118,000
Capital lease obligations		8,108,546		64,668,260
Revolving line of credit		2,300,000		—
Term loan		—		3,866,667

		98,938,546		197,652,927
Less: Current portion		5,348,852		26,309,611

	$	93,589,694	$	171,343,316

5.75% Convertible Subordinated Notes—In March of 2000, the Company issued $150.0 million aggregate principal amount of Notes, resulting in net proceeds to the Company of approximately $144.8 million. The Notes bear interest at the annual rate of 5.75% with interest payable on each March 15^th and September 15^th, beginning September 15, 2000. The Notes have no required principal payments prior to maturity on March 15, 2005 ("Maturity"). The Notes are unsecured and subordinated to the Company's capital lease obligations. Prior to Maturity, the Notes are convertible into common stock at a conversion price of $86.14 per share, subject to adjustment upon certain events as defined in the Note agreement. The Company may redeem some or all of the Notes at any time prior to March 20, 2003 if the price of the Company's common stock has exceeded 150% of the conversion price for at least 20 out of 30 consecutive trading days prior to redemption. If some or all of the Notes are redeemed prior to March 20, 2003, the Company is required to make an additional payment on the redeemed Notes equal to $152.54 per $1,000 note, less the amount of interest actually paid on the Note. The Company may redeem some or all of the Notes after March 20, 2003 at the following redemption prices for the three 12-month periods beginning March 20, 2003, expressed as a percentage of principal amount: 102.3%, 101.15% and 100%, respectively. In each case, the Company will also pay accrued but unpaid interest up to, but excluding the redemption date. Management has represented that the Company has no intention to redeem any of the Notes.

Upon a repurchase event, as defined in the Note Agreement, the holder can require the Company to repurchase the Notes in cash, or at the Company's option upon satisfaction of certain conditions as defined in the Note Agreement, in common stock, at 105% of the principal amount of the Notes, plus accrued and unpaid interest.

A repurchase event is defined as being either:

i): the Company's common stock or other common stock into which the Notes are convertible is neither listed for trading on a United States national securities exchange nor approved for trading on an established automated over-the-counter trading market in the United States, or
ii): a change in control event, as defined in the Note Agreement.

As of December 31, 2002, management believes that a repurchase event had not occurred.

Extraordinary Gain on Repurchase of Convertible Subordinated Notes—During 2002 and 2001, the Company repurchased (as opposed to "redeemed") a portion of its outstanding 5.75% Convertible Subordinated Notes and recorded an extraordinary gain. The gain was calculated as follows:

	2002			2001
Carrying value of repurchased Notes	$	40,588,000		$	20,882,000
Less: Cost of repurchase of Notes		(13,992,740	)		(5,862,550	)
Write-off of deferred debt financing costs		(805,231	)		(470,477	)

Gain	$	25,790,029		$	14,548,973

Subsequent Events—During the first quarter of 2003 the Company entered into agreements with principal holders of the Company's 5.75% Convertible Subordinated Notes which resulted in the retirement of $38.2 million of the Notes in exchange for a new debt instrument at 50% of the face value of the retired Notes.

Under the terms of the agreements, the bond holders surrendered an aggregate principal amount of $38.2 million of iBasis' outstanding 5.75% Convertible Subordinated Notes in exchange for $19.1 million aggregate principal amount of new 11.5% senior secured notes issued by iBasis and warrants for 3,798,811 shares of iBasis common stock. Each warrant will have an initial exercise price of $0.65 per share of Common Stock and an exercisable term of five years.

The new notes, which mature on January 15, 2005, share in a second priority lien on the Company's assets and are subordinated to iBasis' senior bank debt.

The Company will record a gain on this exchange of approximately $12.9 million in the first quarter of 2003. As discussed in Note 2, with the adoption of SFAS 145 on January 1, 2003, the Company will report gains on the extinguishment of debt as a component of other expense, net in the consolidated statements of operations.

Capital Leases—During 2002 the Company completed an agreement with its primary equipment vendor to reduce its capital lease obligations and related future cash commitments. Under the terms of the agreement, the Company paid its vendor $28.5 million to purchase the leased assets. In exchange the vendor eliminated $63.8 million in existing debt, future interest obligations and other fees ($50.8 million in principal, $9.0 million in interest assuming the vendor debt was held to maturity, and $4.0 million in tax obligations). The difference between the cash paid and the recorded outstanding obligation on that date was accounted for as a reduction in the carrying value of the underlying capital assets.

Credit Facilities and Term Loan—The Company had borrowed approximately $500,000 from a bank (the "Equipment Note") during 1999 for purposes of equipment purchases. Borrowings under the Equipment Note were bearing interest at the bank's prime rate plus 1.5% and were payable in 36 equal monthly installments of principal and interest through August 2002. This note was repaid and canceled in full during October 2001.

During February 2001, in connection with the acquisition of PriceInteractive, the Company assumed a credit facility consisting of two term loans and two lines of credit. The original maturity dates of the term loans were November 2001 and July 2002 with interest rates of 6.85% and 8.81%, respectively. The original maturity dates of the lines of credit were June 2003 and May 2004 and with interest rate of LIBOR plus 2.5%. These notes and lines of credit were repaid and canceled in full during October 2001.

In October 2001, the Company entered into a $5.0 million revolving line of credit with a bank (the "2001 Revolver"). The 2001 Revolver was to mature in October 2002 and was bearing interest at the bank's prime rate. In October 2002, the maturity date of the 2001 Revolver was extended until December 2002, when it was replaced by two secured lines of credit agreements with Silicon Valley Bank.

In October 2001, the Company entered into a $4.0 million term loan (the "2001 Term Loan") which was to mature in April 2003, was bearing interest at the bank's prime rate plus 0.5%, and required equal monthly repayments of principal of $133,000 plus accrued interest until maturity. As collateral, the Company deposited cash with the bank of approximately $8.9 million as of December 31, 2001 and had been classified the amount as restricted cash in the accompanying balance sheet. In December 2002, the 2001 Term Loan was paid-off and the related cash collateral was released.

On December 30, 2002, the Company entered into two secured line of credit agreements (the "2002 Credit Lines") with Silicon Valley Bank (the "Bank") providing a total available line of credit of $15 million which replaced both the 2001 Revolver and 2001 Term Loan. The maximum aggregate borrowings outstanding at any one time is limited to the lesser of $15 million or the specified borrowing base. The borrowing base is equal to 75% or 70% of eligible receivables, as defined in the agreements. Outstanding Letters of Credit drawn by the Company will reduce the maximum borrowings under this agreement at any time. Borrowings under these lines of credit bear interest at the Bank's prime rate plus 1% and are collateralized by substantially all assets of the Company. The credit lines require the Company to comply with various financial and non-financial covenants, including the maintenance of certain minimum financial ratios and restrictions on the payment of cash dividends. These agreements mature on December 29, 2004. At December 31, 2002, $2,300,000 was borrowed under the 2002 Credit Lines and $6,230,000 was available for borrowings. On December 30, 2002, in conjunction with these agreements, the Company issued a five-year warrant to the Bank for the purchase of 337,500 shares of its common stock at an exercise price of $0.337 per share.

At December 31, 2002, the Company had outstanding letters of credit aggregating $3.3 million.

Repayments of debt—Scheduled maturities of long-term debt as of December 31, 2002 are as follows:

Year	Capital Leases		Convertible Subordinated Notes		2002 Credit Lines		Total
2003	$	6,075,817	$	—	$	—	$	6,075,817
2004		2,072,165		—		2,300,000		4,372,165
2005		624,174		88,530,000		—		89,154,174
2006		—		—		—		—
2007		—		—		—		—
Thereafter		—		—		—		—

Total future minimum payments		8,772,156		88,530,000		2,300,000		99,602,156
Less: Amounts representing interest		663,610		—		—		663,610

Present value of minimum repayments		8,108,546		88,530,000		2,300,000		98,938,546
Less: Current portion of long-term debt		5,348,852		—		—		5,348,852

Long-term debt, net of current portion	$	2,759,694	$	88,530,000	$	2,300,000	$	93,589,694

(7) Stockholders' Equity

(a) Authorized Capital Stock

The Company has authorized for issuance 85,000,000 shares of common stock, $0.001 par value per share ("Common Stock") and 15,000,000 shares of preferred stock, $0.001 par value per share ("Preferred Stock").

(b) Treasury Stock

During 2002, the Company negotiated a settlement of the 2,070,225 shares of common stock that the Company placed into escrow in connection with the acquisition of PriceInteractive, Inc. in 2001. As a part of this settlement, 1,135,113 shares were returned to the Company and have been accounted for on the accompanying balance sheet as treasury stock, stated at the fair value of the shares on the date of the settlement.

(c) Stock Incentive Plan

The Company's 1997 Stock Incentive Plan (the "Plan") provides for the granting of restricted stock awards and incentive stock options ("ISOs") and nonqualified options to purchase shares of Common Stock to key employees, directors and consultants. Under the terms of the Plan, the exercise price of options granted shall be determined by the Board of Directors and for ISOs shall not be less than fair market value of the Common Stock on the date of grant. Options vest quarterly in equal installments over two to four years, provided that no options shall vest during the employees' first year of employment. The expiration date of each stock option shall be determined by the Board of Directors, but shall not exceed 10 years from the date of grant.

As a result of a special meeting of the Company's stockholders, held in February 2001, the maximum number of shares of Common Stock that could be purchased under the Plan increased from 5.7 million to 9.0 million. In addition, as a result of that meeting, the Company assumed the PriceInteractive Stock Option Plan (the "PriceInteractive Plan") and all of the outstanding options to purchase the common stock of PriceInteractive, Inc. and converted such assumed options into options to purchase 1,021,434 shares of the Company's Common Stock.

The following table summarizes the option activity for the years ended December 31, 2002, 2001 and 2000:

		Number of Shares		Exercise Price Per Share		Weighted Average Exercise Price
Outstanding, January 1, 2000		2,947,725		$	0.03-37.94	$	4.37
	Granted	2,175,000			4.13-74.63		12.91
	Exercised	(511,702	)		0.03-13.50		1.30
	Forfeited	(371,940	)		0.50-74.63		7.95

Outstanding, December 31, 2000		4,239,083			0.03-74.63		8.76
	Granted	4,523,110			0.43-3.71		2.16
	Options assumed in connection with the acquisition of PriceInteractive, Inc	1,021,434			0.85-5.89		2.52
	Exercised	(706,440	)		0.41-7.00		3.52
	Forfeited	(1,308,864	)		0.03-74.63		7.26

Outstanding, December 31, 2001		7,768,323			0.43-74.63		5.04
	Granted	312,200			0.25-0.97		0.61
	Exercised	(149,206	)		0.50-2.13		0.82
	Forfeited	(5,674,799	)		0.37-74.63		6.06

Outstanding, December 31, 2002		2,256,518		$	0.25-28.75	$	2.02

Exercisable, December 31, 2002		1,159,910		$	0.43-28.75	$	2.29

Exercisable, December 31, 2001		1,693,899		$	0.43-74.63	$	7.69

Exercisable, December 31, 2000		854,528		$	0.03-37.94	$	4.88

The following table summarizes information relating to currently outstanding and exercisable stock options as of December 31, 2002:

		Outstanding
		Outstanding				Exercisable
			Weighted Average Remaining Contractual Life (in Years)			Exercisable
Range of Exercise Prices		Options Outstanding	Weighted Average Remaining Contractual Life (in Years)	Weighted Average Exercise Price		Options Outstanding	Weighted Average Exercise Price
$	0.25-$0.69	304,962	8.83	$	0.54	77,185	$	0.60
	0.72	1,124,000	8.87		0.72	521,244		0.72
	0.97-1.10	258,106	5.18		1.06	240,818		1.06
	1.50-3.71	234,050	8.12		2.95	93,257		2.69
	4.00-5.00	225,350	7.00		4.67	158,848		4.71
	11.00-13.50	54,550	7.38		13.41	34,341		13.39
	14.81	14,000	7.74		14.81	8,092		14.81
	14.85	40,000	7.40		14.85	25,000		14.85
	28.75	1,500	7.00		28.75	1,125		28.75

		2,256,518				1,159,910

At December 31, 2002, options to purchase 5,286,107 shares of Common Stock were available for future grants under the Plan.

The Company applies the accounting provisions prescribed in APB No. 25 and related Interpretations. During September 1999, the Company issued stock options with an exercise price less than the fair market value of the Common Stock as determined for accounting purposes. Deferred compensation related to these stock options of approximately $2,384,000 was recorded during the year ended December 31, 1999 and is being amortized over four years, the vesting period of those options. In connection with the 2001 acquisition of PriceInteractive, Inc., the Company assumed vested options with exercise prices that were less than the fair market value of the Company's Common Stock as determined for accounting purposes. As such, the Company recorded approximately $1,834,000 of deferred compensation which was being amortized over the remaining life of those options of up to four years. Deferred compensation was reduced in 2002 due to the settlement with the former shareholders of PriceInteractive and due to the forfeit of options by Company employees.

During 2001 and 2000, the Company accelerated vesting on 92,500 and 118,750 options, respectively, to purchase common stock in relation to severance agreements with employees. Accordingly, the Company recorded non-cash compensation expense of approximately $154,000 and $352,000, respectively, which is included in general and administrative expenses in the accompanying consolidated statements of operations for the years then ended.

Total compensation cost recognized in the statements of operations as a result of stock-based employee compensation awards was $966,574, $1,367,991 and $948,403 for the years ended December 31, 2002, 2001, and 2000, respectively.

(d) Stock Option Exchange Program

In December 2002 the Company announced an offer to exchange outstanding employee stock options in return for new stock options to be granted by the Company. In exchange for existing options, each option holder received a commitment to receive new options to be issued exercisable for the same number of shares of common stock tendered by the option holder and accepted for exchange. A total of 1,786,950 options were accepted for exchange under the exchange offers and, accordingly, were canceled in 2002. The new option grants are expected to be granted in the second quarter of 2003, no sooner than six months and one day from the date on which each exchange offer terminated. The new options granted to the Company's employees will vest quarterly over a two year period.

(e) Employee Stock Purchase Plan

On September 9, 1999, the Company's Board of Directors and stockholders approved the 1999 iBasis, Inc. Employee Stock Purchase Plan (the "ESPP"), which enables eligible employees to acquire shares of the Company's common stock through payroll deductions. The ESPP is intended to qualify as an employee stock purchase plan under Section 423 of the Internal Revenue Code. The offering periods under the ESPP start on January 1 and July 1 of each year and end on June 30 and December 31 of each year, unless otherwise determined by the Board of Directors. During each offering period, an eligible employee may select a rate of payroll deduction from 1% to 10% of compensation, up to an aggregate of $12,500 in any offering period. The purchase price for common stock purchased under the Purchase Plan is 85% of the lesser of the fair market value of the shares on the first or last day of the offering period. The Company issued 364,531, 131,607 and 7,759 shares

under the ESPP during 2002, 2001 and 2000 respectively. At December 31, 2002, all shares authorized under the ESPP have been issued.

(f) Stock-Based Compensation

The Company uses the intrinsic value method to account for stock-based awards to employees. The Company estimated the fair value of its stock-based awards to employees using the Black-Scholes option pricing model. The Black-Scholes model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, the Black-Scholes model requires the input of highly subjective assumptions including the expected stock price volatility. Because stock-based awards to employees have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of stock-based awards to employees. The fair value of stock-based awards to employees was estimated assuming no expected dividends and the following weighted-average assumptions:

	December 31,
	2002		2001		2000
Risk-free interest rate	3.000	%	4.669	%	6.19	%
Expected life	5 years		5 years		5 years
Expected volatility	146	%	155	%	146	%
Weighted average remaining contractual life	8.00 years		9.56 years		8.96 years
Weighted average fair value of options granted	$0.61		$1.04		$11.76

See "Stock-Based Compensation" in Note 2, "Summary of Significant Accounting Policies", for the pro forma disclosures of net loss and loss per share required under SFAS No. 123.

(g) Reserved Shares

At December 31, 2002, the Company has 7,841,748 shares reserved for issuance under the Company's Stock Incentive Plan and 337,500 shares reserved for exercise of certain stock warrants.

(8) Commitments and Contingencies

Operating Leases—The Company leases its administrative and operating facilities and certain equipment under non-cancelable operating leases, which expire at various dates through 2009. The future approximate minimum lease payments under such operating leases consist of the following:

Year
2003	$	4,032,000
2004		3,394,000
2005		2,233,000
2006		1,709,000
2007		1,709,000
Thereafter		3,300,000

Total future minimum lease payments	$	16,377,000

Total rent expense included in the consolidated statements of operations was approximately $3,918,000, $4,384,000, and $3,742,000 for the years ended December 31, 2002, 2001, and 2000, respectively.

Litigation—From time to time, the Company is subject to various legal proceedings and claims, either asserted or unasserted, which arise in the ordinary course of business. While the outcome of these claims cannot be predicted with certainty, management is not aware of any current legal matters that would have a material adverse effect on the Company's consolidated financial position, results of operations, or cash flows.

(9) Segment and Geographic Information

SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, establishes standards for reporting information about operating segments in annual financial statements and requires selected information about operating segments in interim financial reports issued to stockholders. It also establishes standards for related disclosures about products and services, and geographic areas. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision- making group, in deciding how to allocate resources and in assessing performance. The Company's chief operating decision-making group is composed of the chief executive officer, members of senior management and the Board of Directors. The Company has viewed its operations and manages its business principally as one operating segment

The following table represents percentage revenue derived from individual countries:

	Year Ended December 31,
	2002		2001		2000
United States	55	%	58	%	89	%
United Kingdom	11		13		1
China	10		13		7
Hong Kong	3		2		2
Other	21		14		1

	100	%	100	%	100	%

The net book value of long-lived tangible assets by geographic area was as follows:

Geographic Location	2002		2001
North America	$	29,197,727	$	74,836,554
Europe		1,628,457		4,839,578
Asia		922,673		4,127,119
Other		608,634		475,820

	$	32,357,491	$	84,279,071

(10) Valuation and Qualifying Accounts

The allowance for doubtful accounts reflects management's best estimate of probable losses inherent in the account receivable balance. Management determines the allowance based on known troubled accounts, historical experience, and other currently available evidence. Activity in the allowance for doubtful accounts is as follows:

Year Ended December 31,	Balance at Beginning of Year		Charged to costs and expenses	Write-offs and other		Balance at End of Year
2000	$	633,121	1,944,560	(398,313	)	$	2,179,368
2001	$	2,179,368	9,160,500	(5,473,112	)	$	5,866,756
2002	$	5,866,756	10,026,500	(8,059,919	)	$	7,833,337

(11) Restructuring and Other Non-Recurring Costs

2001 Restructuring—During 2001, the Company announced a restructuring plan to better align the organization with its corporate strategy and recorded a charge of approximately $51.8 million in accordance with the criteria set forth in EITF 94-3 and SEC Staff Accounting Bulletin 100. The restructuring included the write-off of property and equipment, the termination of certain contractual obligations and the reduction in the Company's workforce resulting in employee benefit costs.

The write-off of property and equipment related primarily to the abandonment and related costs of certain equipment in a limited number of network data centers and internet central offices. As a result of adopting the Openwave platform for the Company's former unified messaging business, certain equipment, which was previously deployed in its New York City and Cambridge, Massachusetts data centers, were no longer required. In addition, the write-down of equipment at internet central offices was related to the Company's increasing focus within its wholesale VoIP business on serving the largest international carriers (Tier One). Large Tier One carriers tend to maintain greater geographic footprints and the ability to cost efficiently connect their networks to the Company's network. As a result, the equipment located in some of the Company's internet central offices was no longer required and has therefore been written down to its estimated net realizable value.

The termination of contractual obligations represented the anticipated cost of negotiated settlements with providers of facility space and telecommunications circuits related to the network data centers and internet central offices which are no longer in operation.

The employee severance costs related to a reduction in the workforce of 136 full time employees on a worldwide basis, 71 of which were in research and development, 39 of which were in sales and marketing and the remaining 26 in general and administrative functions.

The components of the restructuring charge were as follows:

Write-off of property and equipment	$	42,629,436
Termination of contractual obligations		7,441,837
Employee severance costs		1,763,045

Total	$	51,834,318

At December 31, 2001, accrued restructuring costs were approximately $3.9 million. A summary of the accrual is as follows:

Restructuring and other non-recurring costs	$	51,834,318
Less: Write off of property and equipment		(42,258,232	)
Payment of termination and contractual obligations		(4,232,258	)
Payment of employee severance costs		(1,460,250	)

Accrual as of December 31, 2001	$	3,883,578

These cost reduction measures were completed by the end of the second quarter of 2002 and did not have a material impact on business operations during 2001. The total cash impact of the restructuring was approximately $9.2 million, of which $5.7 million was paid in 2001 while the remaining $3.5 million was paid during 2002.

2002 Restructuring—During 2002, the Company announced cost reduction measures and recorded a charge of approximately $5.5 million in the accompanying consolidated statement of operations:

The components of the restructuring and other non-recurring costs were as follows:

Write off of fixed assets and facilities costs	$	2,427,162
Termination of contractual lease obligations		2,793,831
Employee severance costs		750,000
Less: Change in estimate of 2001 restructuring costs		(434,512	)

Total restructuring and other non-recurring costs	$	5,536,481

The write-off of fixed assets relates primarily to the closure and abandonment of the Company's Miami and Singapore internet central offices. The costs include the write-off of leasehold improvements as well as a provision for termination costs for the facility space and telecommunication circuits. As the Company continues to focus on serving the largest international, Tier-One carriers who tend to maintain greater geographic footprints, management approved a plan to close the Miami and Singapore internet central offices and route traffic through our other central facilities. In addition, the Company wrote off certain assets which were considered to be impaired due to the Company's plan to move to a new switchless architecture in its VoIP network.

The employee severance costs relate to a reduction in the workforce as the Company terminated 44 employees on June 28, 2002. Of these 44 people, 19 were within research and development, 10 were from sales and marketing and 15 were from general and administrative departments.

In addition the 2002 restructuring expense was reduced by a change in estimated restructuring costs related to the 2001 restructuring and specifically related to a reduction in the estimated cost of terminating contractual lease obligations.

At December 31, 2002, accrued restructuring costs were approximately $3.2 million. A summary of the restructuring accrual is as follows:

Accrual as of December 31, 2001	$	3,883,578
2002 net restructuring and other non-recurring costs		5,536,481
Less: Write off of property and equipment		(2,427,162	)
Payment of termination and contractual obligations		(2,770,647	)
Payment of employee severance costs		(1,027,795	)

Accrual as of December 31, 2002	$	3,194,455

At December 31, 2002, the accrued restructuring costs consist of accrued costs for the termination of contractual lease obligations of which approximately $1,949,455 relates to amounts originally accrued in 2002 and approximately $1,245,000 relates to amounts originally accrued in 2001.

(12) Summary of Quarterly Information (Unaudited)

Quarterly financial information for 2002 and 2001 is as follows:

2002		First Quarter(1)			Second Quarter			Third Quarter			Fourth Quarter(2)			Total Year
Net revenue		$	41,726,210		$	41,922,786		$	38,358,442		$	42,934,351		$	164,941,789
Total cost and operating expenses			62,609,245			71,150,861			50,261,259			52,511,041			236,532,406
Loss from continuing operations before extraordinary item			(24,518,598	)		(32,614,990	)		(13,629,459	)		(11,527,978	)		(82,291,025	)
Income (loss) from discontinued operations			(3,838,512	)		(61,531,424	)		(531,664	)		679,280			(65,222,320	)

Loss before extraordinary gain			(28,357,110	)		(94,146,414	)		(14,161,123	)		(10,848,698	)		(147,513,345	)
Extraordinary gain			10,394,431			12,960,120			2,435,478			—			25,790,029

Net loss		$	(17,962,679	)	$	(81,186,294	)	$	(11,725,645	)	$	(10,848,698	)	$	(121,723,316	)

Basic and diluted net loss per share:
	Loss from continuing operations before extraordinary item	$	(0.54	)	$	(0.72	)	$	(0.30	)	$	(0.26	)	$	(1.82	)
	Income (loss) from discontinued operations		(0.10	)		(1.36	)		(0.01	)		0.02			(1.45	)

	Loss before extraordinary gain		(0.64	)		(2.08	)		(0.31	)		(0.24	)		(3.27	)
	Extraordinary gain		0.24			0.28			0.05			—			0.57

	Net loss	$	(0.40	)	$	(1.80	)	$	(0.26	)	$	(0.24	)	$	(2.70	)

(1): Amounts vary from those originally filed on Form 10-Q due to the reclassification of the operating results of the Company's Speech Solutions Business as a discontinued operation beginning in the second quarter 2002.
(2): The results for the fourth quarter 2002 includes a restructuring charge of approximately $1.6 million.

2001		First Quarter(1)			Second Quarter			Third Quarter			Fourth Quarter			Total Year
Net revenue		$	24,547,030		$	27,900,017		$	26,022,997		$	31,709,721		$	110,179,765
Total cost and operating expenses			50,809,320			85,121,830			53,229,225			68,550,670			257,711,045
Loss from continuing operations before extraordinary item			(26,373,892	)		(59,030,390	)		(29,786,439	)		(40,276,665	)		(155,467,386	)
Loss from discontinued operations			(26,772,797	)		(7,764,821	)		(7,317,193	)		(7,916,146	)		(49,770,957	)

Loss before extraordinary gain			(53,146,689	)		(66,795,211	)		(37,103,632	)		(48,192,811	)		(205,238,343	)
Extraordinary gain			—			—			—			14,548,973			14,548,973

Net loss		$	(53,146,689	)	$	(66,795,211	)	$	(37,103,632	)	$	(33,643,838	)	$	(190,689,370	)

Basic and diluted net loss per share:
	Loss from continuing operations before extraordinary item	$	(0.70	)	$	(1.34	)	$	(0.67	)	$	(0.93	)	$	(3.64	)
	Loss from discontinued operations		(0.65	)		(0.18	)		(0.17	)		(0.17	)		(1.17	)

	Loss before extraordinary gain		(1.35	)		(1.52	)		(0.84	)		(1.10	)		(4.81	)
	Extraordinary gain		—			—			—			0.34			0.34

	Net loss	$	(1.35	)	$	(1.52	)	$	(0.84	)	$	(0.76	)	$	(4.47	)

(1): Amounts vary from those originally filed on Form 10-Q due to the reclassification of the operating results of the Company's Speech Solutions Business as a discontinued operation beginning in the second quarter 2002.

Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

iBasis, Inc. ("iBasis") dismissed Arthur Andersen LLP ("Andersen"), as its independent accountants and appointed Deloitte & Touche LLP ("D&T") as its new independent accountants, effective May 14, 2002. This determination followed iBasis' decision to seek proposals from independent accountants to audit iBasis' financial statements for fiscal year ending December 31, 2002. The decision to dismiss Andersen and to retain D&T was approved by iBasis' Board of Directors upon the recommendation of its Audit Committee.

During iBasis' two most recent fiscal years ended December 31, 2001 and 2000, and the subsequent interim period through May 14, 2002, there were no disagreements between iBasis and Andersen on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements if not resolved to Andersen's satisfaction would have caused them to make reference to the subject matter of the disagreement in connection with their reports.

None of the reportable events described under Item 304(a)(1)(v) of Regulations S-K occurred within iBasis' two most recent fiscal years and the subsequent interim period through May 14, 2002.

The audit reports of Andersen on the consolidated financial statements of iBasis and its subsidiaries as of and for the fiscal years ended December 31, 2001 and 2000 did not contain any adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope, or accounting principles.

iBasis provided Andersen with a copy of these disclosures filed by incorporation as Exhibit 16.1 is a copy of Andersen's letter, dated May 20, 2002 stating its agreement with these disclosure statements.

During iBasis' two most recent fiscal years ended December 31, 2001 and 2000, and the subsequent interim period through May 14, 2002, iBasis did not consult with D&T with respect to the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on iBasis' consolidated financial statements, or any other matters or reportable events as set forth in Items 304(a)(2)(i) and (ii) of Regulation S-K.

PART III

Item 10. Directors and Executive Officers of the Registrant

Information required by Part III, Item 10, regarding iBasis' directors may be found in iBasis' Proxy Statement relating to iBasis' annual meeting of stockholders to be held on May 29, 2003, and is incorporated herein by reference. Information relating to compliance with Section 16(a) of the Securities Exchange Act of 1934, as amended, may be found in the Proxy Statement and is incorporated herein by reference.

Item 11. Executive Compensation

Information required by Part III, Item 11, may be found in iBasis' Proxy Statement relating to iBasis' annual meeting of stockholders to be held on May 29, 2003, and is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Information required by Part III, Item 12, may be found in iBasis' Proxy Statement relating to iBasis' annual meeting of stockholders to be held on May 29, 2003, and is incorporated herein by reference.

Item 13. Certain Relationships and Related Transactions

Information required by Part III, Item 13, may be found in iBasis' Proxy Statement relating to iBasis' annual meeting of stockholders to be held on May 29, 2003, and is incorporated herein by reference.

Item 14. Controls and Procedures

(a) Evaluation of disclosure controls and procedures. Based on their evaluation of iBasis' disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934) as of a date within 90 days of the filing date of this Annual Report on Form 10-K, iBasis' chief executive officer and chief financial officer have concluded that iBasis' disclosure controls and procedures are designed to ensure that information required to be disclosed by iBasis in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and are operating in an effective manner.

(b) Changes in internal controls. There were no significant changes in iBasis' internal controls or in other factors that could significantly affect these controls subsequent to the date of their most recent evaluation.

PART IV

Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K

(A) List of Documents Filed as a Part of This Annual Report:

(1): Financial Statements:

Independent Auditors' Report

Consolidated Balance Sheets

Consolidated Statements of Operations

Consolidated Statements of Stockholders' Equity (Deficit)

Consolidated Statements of Cash Flows

Notes to Consolidated Financial Statements

(2): Index to Financial Statements Schedules:

All financial statement schedules have been omitted because the required information is included in our consolidated financial statements, or the related notes, or is not applicable.

(3) Index to Exhibits:

Exhibit Number		Description
2.1		Asset Purchase Agreement, dated as of July 12, 2002, by and among iBasis, ISS and Purchaser (incorporated by reference from Exhibit 2.1 to the Registrant's Current Report on Form 8-K dated July 15, 2002 (file no. 000-27127)).
3.1		Amended and Restated Certificate of Incorporation of the Registrant (incorporated by reference from Exhibit 3.1 to the Registrant's Registration Statement on Form S-1 (file no. 333-96535)).
3.2		Amended and Restated By-Laws of the Registrant (incorporated by reference from Exhibit 3.2 to the Registrant's Registration Statement on Form S-1 (file no. 333-96535)).
4.1		Specimen Certificate for shares of the Registrant's common stock (incorporated by reference from Exhibit 4.1 to the Registrant's Registration Statement on Form S-1 (file no. 333-85545)).
10.1		Lease, dated January 8, 1999, as amended, between the Registrant and Rodger P. Nordblum and Peter C. Nordblum as Trustees of Northwest Associates under Declaration of Trust dated December 9, 1971 with respect to property located at 20 Second Avenue, Burlington, Massachusetts (incorporated by reference from Exhibit 10.1 to the Registrant's Registration Statement on Form S-1 (file no. 333-85545)).
10.2		Reserved.
10.3		Lease, dated as of August 7, 1998, between the Registrant and 111 Eighth Avenue LLC, relating to property located at 111 Eighth Avenue, New York, New York (incorporated by reference from Exhibit 10.3 to the Registrant's Registration Statement on Form S-1 (file no. 333-85545)).
10.4		Lease, dated December 11, 1998 between the Registrant and Downtown Properties L.L.C., with respect to property located at 611 Wilshire Boulevard, Los Angeles, California (incorporated by reference from Exhibit 10.4 to the Registrant's Registration Statement on Form S-1 (file no. 333-85545)).
10.5		Warrant, dated as of September 10, 1997, for the purchase of shares of preferred stock of the Company issued to TLP Leasing Programs, Inc. (incorporated by reference from Exhibit 10.5 to the Registrant's Registration Statement on Form S-1 (file no. 333-85545)).

10.6		Warrant, dated as of June 8, 1998, for the purchase of shares of preferred stock of the Company issued to TLP Leasing Programs, Inc. (incorporated by reference from Exhibit 10.6 to the Registrant's Registration Statement on Form S-1 (file no. 333-85545)).
10.7		Master Agreement of Terms and Conditions for Lease between the Registrant and Cisco Systems Capital Corporation, dated as of November 3, 1998, as amended incorporated by reference from Exhibit 10.7 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2001 file no. 000-27127)
10.8	†	1997 Stock Incentive Plan of the Registrant (incorporated by reference from Exhibit 10.8 to the Registrant's Registration Statement on Form S-1 (file no. 333-85545)).
10.9	†	Employment Agreement between the Registrant and Ofer Gneezy, dated as of August 11, 1997 (incorporated by reference from Exhibit 10.9 to the Registrant's Registration Statement on Form S-1 (file no. 333-85545)).
10.10	†	Employment Agreement between the Registrant and Gordon J. VanderBrug, dated as of August 11, 1997. (incorporated by reference from Exhibit 10.10 to the Registrant's Registration Statement on Form S-1 (file no. 333-85545)).
10.11		Reserved.
10.12		Reserved.
10.13		Series B Convertible Preferred Stock Purchase Agreement, dated as of August 26, 1998, between the Registrant and the "Purchaser" parties thereto (incorporated by reference from Exhibit 10.14 to the Registrant's Registration Statement on Form S-1 (file no. 333-85545)).
10.14		Series C Convertible Purchase Agreement, dated as of July 12, 1999, between the Registrant and the "Purchaser" parties thereto (incorporated by reference from Exhibit 10.15 to the Registrant's Registration Statement on Form S-1 (file no. 333-85545)).
10.15		Second Amended and Restated Shareholders' Agreement, dated as of July 12, 1999, among the Registrant and the holders of the capital stock of the Registrant who become parties thereto (incorporated by reference from Exhibit 10.16 to the Registrant's Registration Statement on Form S-1 (file no. 333-85545).
10.16		First Amended and Restated Registration Rights Agreement, dated as of July 12, 1999, among the Registrant and the holders of the capital stock of the Registrant who become parties thereto (incorporated by reference from Exhibit 10.17 to the Registrant's Registration Statement on Form S-1 (file no. 333-85545)).
10.17		Shareholders Agreement, dated as of March 28, 1998, relating to VIP Calling (Hong Kong) Limited (incorporated by reference from Exhibit 10.18 to the Registrant's Registration Statement on Form S-1 (file no. 333-85545)).
10.18		Amendment No. 1 to the Shareholders Agreement, dated as of March 28, 1998, relating to VIP Calling (Hong Kong) Limited (incorporated by reference from Exhibit 10.19 to the Registrant's Registration Statement on Form S-1 (file no. 333-85545)).
10.19		Amendment No. 2 to the Shareholders Agreement, dated as of March 28, 1998, relating to VIP Calling (Hong Kong) Limited (incorporated by reference from Exhibit 10.20 to the Registrant's Registration Statement on Form S-1 (file no. 333-85545)).
10.20		Reserved.
10.21		Stock Restriction Agreement, dated as of August 26, 1998, between the Registrant and Ofer Gneezy and Gordon VanderBrug (incorporated by reference from Exhibit 10.22 to the Registrant's Registration Statement on Form S-1 (file no. 333-85545)).
10.22		Alliance Agreement, dated January 4, 1999, between the Registrant and Cisco Systems, Inc. (incorporated by reference from Exhibit 10.23 to the Registrant's Registration Statement on Form S-1 (file no. 33-85545)).
10.23		Reserved.
10.24		Reserved.

10.25	†	1999 Employee Stock Purchase Plan of the Registrant, as amended (incorporated by reference from Exhibit 10.26 to the Registrant's Registration Statement on Form S-1 (file no. 333-96535)).
10.26		Lease, dated October 22, 1999, between the Registrant and Roger P. Nordblom and Peter C. Nordblom, as Trustees of N.W. Building 1 Associates under Declaration of Trust dated November 11, 1984 and filed with the Middlesex South Registry District of the Land Court as Document Number 674807 with respect to property located at 10 Second Avenue, Burlington, Massachusetts (incorporated by reference from Exhibit 10.28 to the Registrant's Registration Statement on Form S-1 (file no. 333-96535)).
10.27		Supply Contract, dated as of December 30, 1999, between the Registrant and Belle Systems A/S (incorporated by reference from Exhibit 10.30 to the Registrant's Registration Statement on Form S-1 (file no. 333-96535)).
10.28		Offer Letter between the Registrant and Richard Tennant, dated as of September 17, 2001 and Employment Agreement, dated as of September 20, 2001 (incorporated by reference from Exhibit 10.30 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2001 (file no. 000-27127)).
10.29		Offer Letter between the Registrant and Paul Floyd, dated as of April 2, 2001 and Proprietary Information and Inventions Agreement dated April 12, 2001 (incorporated by reference from Exhibit 10.31 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2001 (file no. 000-27127)).
10.30		Loan and Security Agreement between the Registrant and Silicon Valley Bank, dated as of October 9, 2001 (incorporated by reference from Exhibit 10.32 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2001 (file no. 000-27127)).
10.31		Securities Exchange Agreement, dated January 30, 2003, by and among iBasis, Inc., iBasis Global, Inc., iBasis Securities Corporation, the Symphony Funds signatories thereto and U.S. Bank National Association, as Collateral Agent (incorporated by reference from Exhibit 4.1 to the Registrant's Current Report on Form 8-K dated January 30, 2003 (file no. 000-27127)).
10.32		Global Note dated January 30, 2003 (incorporated by reference from Exhibit 4.2 to the Registrant's Current Report on Form 8-K dated January 30, 2003 (file no. 000-27127)).
10.33		Warrant and Registration Rights Agreement, dated January 29, 2003, by and among iBasis, Inc. and U.S. Bank National Association, as Collateral Agent (incorporated by reference from Exhibit 4.3 to the Registrant's Current Report on Form 8-K dated January 30, 2003 (file no. 000-27127)).
10.34		Global Warrant Certificate dated January 30, 2003 (incorporated by reference from Exhibit 4.4 to the Registrant's Current Report on Form 8-K dated January 30, 2003 (file no. 000-27127) ).
10.35		Security Exchange Agreement, dated January 30, 2003, by and among iBasis, Inc., iBasis Global, Inc., iBasis Securities Corporation, and U.S. Bank National Association, as Collateral Agent (incorporated by reference from Exhibit 4.5 to the Registrant's Current Report on Form 8-K dated January 30, 2003 (file no. 000-27127)).
10.36		Subordination Agreement, dated January 30, 2003, by and among iBasis, Inc., iBasis Global, Inc., iBasis Securities Corporation, Silicon Valley Bank, the Creditors party thereto, U.S. Bank National Association, as Collateral Agent and Fiscal Agent (incorporated by reference from Exhibit 4.6 to the Registrant's Current Report on Form 8-K dated January 30, 2003 (file no. 000-27127)).
10.37		Fiscal Agency Agreement, dated January 30, 2003, by and among iBasis, Inc., iBasis Global, Inc., iBasis Securities Corporation, and U.S. Bank National Association, as Fiscal Agent (incorporated by reference from Exhibit 4.7 to the Registrant's Current Report on Form 8-K dated January 30, 2003 (file no. 000-27127)).

10.38		Guarantee, dated January 30, 2003, by and between iBasis Securities Corporation and U.S. Bank National Association, as Collateral Agent (incorporated by reference from Exhibit 4.7 to the Registrant's Current Report on Form 8-K dated January 30, 2003 (file no. 000-27127)).
10.39		Security Exchange Agreement, dated February 21, 2003, by and among iBasis, Inc., iBasis Global, Inc., iBasis Securities Corporation, and U.S. Bank National Association, as Collateral Agent.
10.40		Global Note, dated February 21, 2003.
10.41		Global Warrant Certificate, dated February 21, 2003.
10.42		Amendment 1 to Securities Exchange Agreement, dated February 21, 2003, by and among iBasis, Inc., iBasis Global, Inc., iBasis Securities Corporation, JMG Triton Offshore Fund Limited CITCO signatories thereto and U.S. Bank National Association, as Collateral Agent.
10.43		Amendment No. 1 to Fiscal Agency Agreement, dated February 21, 2003, by and among iBasis, Inc., iBasis Global, Inc., iBasis Securities Corporation, and U.S. Bank National Association, as Fiscal Agent.
10.44		Amended and Restated Warrant and Registration Rights Agreement dated February 21, 2003, by and among iBasis, Inc. and U.S. Bank National Association, as Warrant Agent.
10.45		Collateral Agency and Intercreditor Agreement as of February 21, 2003, by and among U.S. Bank National Association, as Collateral Agent, the Exchanging Holders (as defined therein), iBasis Inc., iBasis Global, Inc. and iBasis Securities Corporation.
10.46		Guarantee, dated February 21, 2003, by and between iBasis Securities Corporation and U.S. Bank National Association, as Collateral Agent.
10.47		Security Agreement dated as of February 21, 2003, by and among iBasis, Inc., iBasis Global, Inc., iBasis Securities Corporation and U.S. Bank National Association, as Collateral Agent.
10.48		Master Agreement to Lease Equipment (incorporated by reference from Exhibit 99.3 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2002 (file no. 000-27127)).
10.49		Settlement Agreement made as of August 2, 2002 among Cisco Systems Capital Corporation, Cisco Systems, Inc and iBasis, Inc.(incorporated by reference from Exhibit 99.4 to the Registrant's Annual Report on Form 10-Q for the quarter ended September 30, 2002 (file no. 000-27127)).
10.50		Bill of Sale pursuant to the Settlement Agreement made as of August 2, 2002 among Cisco Systems Capital Corporation, Cisco Systems, Inc and iBasis, Inc. (incorporated by reference from Exhibit 99.5 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2002 (file no. 000-27127)).
10.51		Silicon Valley Bank Loan and Security Agreement, dated December 30, 2002, by and among Silicon Valley Bank, the Registrant and iBasis Global, Inc. (incorporated by reference from Exhibit 99.2 to the Registrant's Current Report on Form 8-K dated December 31, 2002 (file no. 000-27127)).
10.52		Export-Import Bank Loan and Security Agreement, dated December 30, 2002, by and among Silicon Valley Bank, the Registrant and iBasis Global, Inc. (incorporated by reference from Exhibit 99.3 to the Registrant's Current Report on Form 8-K dated December 31, 2002 (file no. 000-27127)).
10.53		Side Letter, dated February 5, 2003, by and among iBasis, Inc. and the Symphony Funds signatories thereto (incorporated by reference from Exhibit 99.2 to the Registrant's Current Report on Form 8-K dated December 31, 2002 (file no. 000-27127)).
16.1		Amended letter of Arthur Andersen LLP regarding change in certifying accountant (incorporated by reference from Exhibit 16.1 to the Registrant's Current Report on Form 8-K dated May 20, 2002 (file no .000-27127)).

21.1		Significant Subsidiaries of the Registrant.
23.1		Consent of Deloitte & Touche LLP.
99.1		Certificate of iBasis, Inc Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.2		Certificate of iBasis, Inc Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

†: Represents a management contract or compensatory plan or arrangement.

(B) Reports on Form 8-K during the fourth quarter of fiscal 2002:

None.

SIGNATURES

Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

		IBASIS, INC.
		By:		/s/ OFER GNEEZY Ofer Gneezy President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the registrant and in the capacities indicated.

Name	Title	Date

/s/ OFER GNEEZY Ofer Gneezy	President and Chief Executive Officer and Director (Principal Executive Officer)	March 26, 2003
/s/ GORDON J. VANDERBRUG Gordon J. VanderBrug	Executive Vice President and Director	March 26, 2003
/s/ RICHARD TENNANT Richard Tennant	Vice President, Finance and Chief Financial Officer (Principal Financial and Accounting Officer)	March 26, 2003
/s/ CHARLES N. CORFIELD Charles N. Corfield	Director	March 26, 2003
/s/ W. FRANK KING W. Frank King	Director	March 26, 2003
/s/ DAVID LEE David Lee	Director	March 26, 2003
/s/ CHARLES SKIBO Charles Skibo	Director	March 26, 2003

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002

Annual Certification
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Ofer Gneezy, President and CEO of iBasis, Inc., a Delaware corporation, doing business in Burlington, Massachusetts, certify that:

1. I have reviewed this annual report of Form 10-K of iBasis, Inc.;

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a): designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
b): evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and
c): presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; and

5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):

a): all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
b): any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

March 26, 2003
(Date)

/s/ OFER GNEEZY

Ofer Gneezy
Chief Executive Officer
(Principal Executive Officer)

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002

Annual Certification
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Richard Tennant, Chief Financial Officer of iBasis, Inc., a Delaware corporation, doing business in Burlington, Massachusetts, certify that:

1. I have reviewed this annual report of Form 10-K of iBasis, Inc.;

a): designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
b): evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and
c): presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; and

a): all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
b): any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

March 26, 2003
(Date)

/s/ RICHARD TENNANT

Richard Tennant
Chief Financial Officer
(Principal Financial Officer)

iBasis Corporate Information

Directors:

Ofer Gneezy
Gordon J. VanderBrug
Charles N. Corfield
W. Frank King
David Lee
Charles M. Skibo

Executive Officers:

Ofer Gneezy
President, Chief Executive Officer and Treasurer

Gordon J. VanderBrug
Executive Vice President and Assistant Secretary

Richard Tennant
Vice President, Finance and Administration, Chief Financial Officer

Dan Powdermaker
Senior Vice President, Worldwide Sales

Paul H. Floyd
Senior Vice President, R&D, Engineering and Operations

Sean O'Leary
Senior Vice President, Marketing

Transfer Agent and Registrar:

Equiserve
150 Royall Street
Canton, MA 02021

Annual Meeting Date:

iBasis, Inc. will conduct its annual meeting of stockholders on Thursday, May 29, 2003, 10:00 am at the Corporate Headquarters.

Corporate Headquarters:

iBasis, Inc.
20 Second Avenue
Burlington, MA 01803
www.ibasis.com

QuickLinks

iBASIS, INC.
FORM 10-K For the Year Ended December 31, 2002
PART I
PART II
Critical Accounting Policies
Results from Continuing Operations
RISK FACTORS
Risks Related to Our Company
Risks Related to Our Operations
Risks Related to the Internet and Internet Telephony Industry
Index to Consolidated Financial Statements
Independent Auditors' Report
Report of Independent Public Accountants
iBasis, Inc. Consolidated Balance Sheets
iBasis, Inc. Consolidated Statements of Operations
iBasis, Inc. Consolidated Statements of Stockholders' Equity (Deficit)
iBasis, Inc. Consolidated Statements of Cash Flows
iBasis, Inc. Notes to Consolidated Financial Statements
PART III
PART IV
SIGNATURES
iBasis Corporate Information
EX-10.39 3 a2104304zex-10_39.txt EXHIBIT 10.39 EXHIBIT 10.39 ================================================================================ SECURITIES EXCHANGE AGREEMENT among iBASIS, INC. iBASIS GLOBAL, INC. iBASIS SECURITIES CORPORATION JMG TRITON OFFSHORE FUND LIMITED CITCO AND EACH OTHER EXCHANGING HOLDER THAT BECOMES A PARTY HERETO PURSUANT TO A JOINDER AGREEMENT and U.S. BANK NATIONAL ASSOCIATION, AS COLLATERAL AGENT Dated as of February 21, 2003 11.5% SENIOR SECURED NOTES DUE 2005 WARRANTS TO PURCHASE COMMON SHARES ================================================================================ TABLE OF CONTENTS

-i- 5.16. ACCRUED INTEREST UNDER CONVERTIBLE NOTES.................................................................19 6. FEES............................................................................................................19 7. REPRESENTATIONS AND WARRANTIES OF THE OBLIGORS..................................................................19 7.1. CORPORATE STATUS.........................................................................................19 7.2. CORPORATE POWER AND AUTHORITY............................................................................20 7.3. NO VIOLATION.............................................................................................20 7.4. CAPITALIZATION...........................................................................................20 7.5. LITIGATION...............................................................................................20 7.6. MARGIN REGULATIONS.......................................................................................21 7.7. GOVERNMENTAL APPROVALS...................................................................................21 7.8. INVESTMENT COMPANY ACT...................................................................................21 7.9. PUBLIC UTILITY HOLDING COMPANY ACT.......................................................................21 7.10. CONFORMITY TO SECURITIES ACT AND EXCHANGE ACT; NO MISSTATEMENT OR OMISSION...............................21 7.11. FINANCIAL CONDITION; FINANCIAL STATEMENTS................................................................21 7.12. NO MATERIAL ADVERSE CHANGES..............................................................................22 7.13. TAX RETURNS AND PAYMENTS.................................................................................22 7.14. SUBSIDIARIES.............................................................................................22 7.15. INTELLECTUAL PROPERTY....................................................................................22 7.16. PROPERTIES...............................................................................................22 7.17. LABOR RELATIONS..........................................................................................23 7.18. COMPLIANCE WITH STATUTES, ETC............................................................................23 7.19. ERISA....................................................................................................23 8. EXCHANGING HOLDER REPRESENTATIONS...............................................................................23 8.1. AUTHORIZATION; NO CONTRAVENTION..........................................................................24 8.2. BINDING EFFECT...........................................................................................24 8.3. NO LEGAL BAR.............................................................................................24 8.4. PURCHASE FOR OWN ACCOUNT.................................................................................24 8.5. ACCREDITED INVESTOR......................................................................................24 8.6. RESTRICTED SECURITIES....................................................................................24 8.7. FINANCIAL CONDITION......................................................................................24 8.8. EXPERIENCE...............................................................................................24 8.9. LEGEND...................................................................................................25 8.10. SUBORDINATION LEGENDS....................................................................................25 8.11. ERISA....................................................................................................25 8.12. BROKER'S, FINDER'S OR SIMILAR FEES.......................................................................25 8.13. GOVERNMENTAL AUTHORIZATION; THIRD PARTY CONSENT..........................................................26 8.14. NO SOLICITATION..........................................................................................26 8.15. ACCESS TO INFORMATION; UNDUE PRESSURE....................................................................26 8.16. NO MINIMUM EXCHANGE......................................................................................26

-ii- 9. CONTINUING COVENANTS............................................................................................27 9.1. NEWLY CREATED ENTITY.....................................................................................27 9.2. SEC FILINGS AND REPORTS..................................................................................27 9.3. REPURCHASE OF CONVERTIBLE SUBORDINATED NOTES.............................................................27 9.4. EXCHANGE OF CONVERTIBLE NOTES............................................................................27 9.5. NON-PUBLIC INFORMATION...................................................................................27 9.6. INSURANCE................................................................................................28 9.7. LITIGATION COOPERATION...................................................................................28 9.8. BANKING RELATIONSHIP.....................................................................................28 9.9. SUBORDINATION OF INSIDE DEBT.............................................................................28 9.10. SUBORDINATION AGREEMENTS.................................................................................28 9.11. FURTHER ASSURANCES.......................................................................................29 10. CONTINGENT COVENANTS............................................................................................30 11. EVENTS OF DEFAULT; REMEDIES.....................................................................................30 11.1. EVENTS OF DEFAULT........................................................................................30 11.2. CERTAIN ACTIONS FOLLOWING AN EVENT OF DEFAULT............................................................32 11.3. ANNULMENT OF EVENTS OF DEFAULT...........................................................................33 11.4. WAIVERS..................................................................................................33 11.5. ACCELERATION FOLLOWING AN EVENT OF DEFAULT UNDER THE SENIOR LOAN AGREEMENT...............................34 12. COLLATERAL AGENT................................................................................................34 12.1. APPOINTMENT OF COLLATERAL AGENT..........................................................................34 12.2. ACTIONS BY THE COLLATERAL AGENT..........................................................................34 12.3. EXECUTION OF ADDITIONAL DOCUMENTS........................................................................34 12.4. INFORMATION REGARDING OBLIGORS, ETC......................................................................35 12.5. CONCERNING THE COLLATERAL AGENT..........................................................................35 12.6. COLLATERAL AGENT INDEMNITY...............................................................................36 12.7. COLLATERAL AGENT'S RESIGNATION OR REMOVAL................................................................37 12.8. MERGER, CONVERSION OR CONSOLIDATION......................................................................37 12.9. REPRESENTATIONS AND WARRANTIES OF THE COLLATERAL AGENT...................................................38 13. PRIOR CLAIMS EXTINGUISHED.......................................................................................38 14. GENERAL.........................................................................................................38 14.1. PAYMENT OF EXPENSES, ETC.................................................................................38 14.2. NOTICES..................................................................................................39 14.3. ASSIGNMENTS; PARTICIPATIONS..............................................................................40 14.4. AMENDMENT OR WAIVER......................................................................................40 14.5. NO WAIVER; REMEDIES CUMULATIVE...........................................................................40 14.6. NO STRICT CONSTRUCTION...................................................................................41

-iii- 14.7. CALCULATIONS; COMPUTATIONS...............................................................................41 14.8. INTERPRETATION; GOVERNING LAW; ETC.......................................................................41 14.9. WAIVER OF JURY TRIAL.....................................................................................42 14.10. COUNTERPARTS.............................................................................................42 14.11. EXECUTION................................................................................................42 14.12. HEADINGS DESCRIPTIVE.....................................................................................43 14.13. SURVIVAL.................................................................................................43 14.14. BENEFIT OF AGREEMENT.....................................................................................43

EXHIBITS Exhibit A Form of Joinder Agreement Exhibit B Form of Warrant and Registration Rights Agreement Exhibit 5.2 Form of Officer's Certificate Exhibit 5.6 Form of Guarantee Schedule 1.1 Permitted Liens Schedule 7.14 Subsidiaries Schedule 7.19 ERISA Plans -iv- This SECURITIES EXCHANGE AGREEMENT, dated as of February 21, 2003 (this "AGREEMENT"), is among iBasis, Inc., a Delaware corporation (the "COMPANY"), iBasis Global, Inc., a Delaware corporation ("iBASIS GLOBAL", and together with the Company, the "BORROWER"), iBasis Securities corporation, a Massachusetts corporation (the "GUARANTOR"), JMG Triton Offshore Limited CITCO (the "EXCHANGER"), and such other holders of Convertible Notes that from time to time become parties to this Agreement in accordance with the terms hereof and who exchange Convertible Notes for Notes and Warrants in accordance with the terms hereof and such Joinder Agreement (collectively with the Exchanger, the "EXCHANGING HOLDERS") and U.S. Bank National Association as Collateral Agent for the Holders (with its successors and assigns, the "COLLATERAL AGENT"). The parties hereto agree as follows: RECITALS: Pursuant to this Agreement, the Exchanger is exchanging an aggregate principal amount of $7,950,000 of the Company's 5 3/4% Convertible Subordinated Notes due 2005 (the "CONVERTIBLE NOTES") for (a) an aggregate principal amount of $3,975,000 of the Borrower's 11.5% Senior Secured Notes due 2005 and (b) warrants (the "WARRANTS") exercisable for an aggregate of 727,627 shares of Common Stock, $0.001 par value, of the Company (the "COMMON STOCK"). The Notes mature on January 15, 2005. The Notes are guaranteed by each of the Borrower's Domestic Subsidiaries identified on the signature pages hereof, and are secured by second priority liens on substantially all the assets (including the stock of Subsidiaries) of the Borrower. Prior to the purchase and sale of the Notes and the Warrants pursuant to this Agreement, the Borrower has entered into a credit agreement (as amended, restated or supplemented from time to time, the "SENIOR LOAN AGREEMENT") among Borrower and Silicon Valley Bank. The Notes and Warrants to be purchased thereunder are collectively referred to as the "Securities". From and after the date hereof, additional holders of Convertible Notes may become party to this Agreement pursuant to the execution and delivery of a Joinder Agreement in the form of EXHIBIT A hereto, an executed counterpart copy of which shall be provided to and acknowledged by the Collateral Agent (each, a "JOINDER AGREEMENT") pursuant to which such holders may exchange such Convertible Notes for Notes and Warrants in accordance with the terms hereof and of such Joinder Agreement. 1. DEFINITIONS; CERTAIN RULES OF CONSTRUCTION. Certain capitalized terms are used in this Agreement and in the other Documents with the specific meanings defined below in this Section 1. Except as otherwise explicitly specified to the contrary or unless the context clearly requires otherwise, (a) the capitalized term "Section" refers to sections of this Agreement, (b) the capitalized term "Exhibit" refers to exhibits to this Agreement, (c) references to a particular Section include all subsections thereof, (d) the word "including" shall be construed as "including without limitation", (e) accounting terms not otherwise defined herein have the meaning provided under GAAP, (f) references to a particular statute or regulation include all rules and regulations thereunder and any successor statute, regulation or rules, in each case as from time to time in effect, (g) references to a particular Person include such Person's successors and assigns to the extent not prohibited by this Agreement and the other Documents and (h) references to "Dollars" or "$" mean United States Funds. References to "the date hereof" mean the date first set forth above. "ACCUMULATED FUNDING DEFICIENCY" shall have the meaning provided in section 302 of ERISA. "ADDITIONAL DOCUMENTS" is defined in Section 12.3. "AFFILIATE" means, with respect to any Person, any other Person directly or indirectly controlling (including all directors and officers of such Person), controlled by, or under direct or indirect common control with such Person. A Person shall be deemed to control a corporation if such Person possesses, directly or indirectly, the power (a) to vote 10% or more of the securities having ordinary voting power for the election of directors of such corporation or (b) to direct or cause the direction of the management and policies of such corporation, whether through the ownership of voting securities, by contract or otherwise. "AGGREGATE PREPAYMENT AMOUNT" means, as of any date, the sum of (a) the Notes and (b) accrued and unpaid interest, and all other amounts due, in respect of the Notes being prepaid on and as of such date. "AGREEMENT" is defined in the recitals hereto. "APPLICABLE ACCELERATION" is defined in Section 11.5. "AUTHORIZED OFFICER" means any senior officer of the Borrower designated in writing to the Holders by the Borrower, in each case to the extent acceptable to the Required Holders. "BANKRUPTCY CODE" is defined in Section 11.1.5. "BANKRUPTCY DEFAULT" means an Event of Default referred to in Section 11.1.5. "BENEFIT PLAN" means an employee pension benefit plan as defined in section 3(2) of ERISA (other than a Multiemployer Plan) for which the funding requirements under section 412 of the Code or section 302 of ERISA is, or within the immediately preceding six years was, in whole or in part, the responsibility of the Company, any of its Subsidiaries or any ERISA Affiliate. "BOOK-ENTRY SECURITY" is defined in Section 2.5. "BORROWER" is defined in the preamble to this Agreement. "BUSINESS DAY" means any day, excluding Saturday, Sunday and any day which shall be in New York, New York or Boston, Massachusetts a legal holiday or a day on which banking institutions are authorized by law or other governmental actions to close. "CAPITALIZED LEASE" means any lease which is required to be capitalized on the balance sheet of the lessee in accordance with GAAP, including Statement Nos. 13 and 98 of the Financial Accounting Standards Board. -2 "CAPITALIZED LEASE OBLIGATIONS" means the amount of the liability reflecting the aggregate discounted amount of future payments under all Capitalized Leases calculated in accordance with GAAP, including Statement Nos. 13 and 98 of the Financial Accounting Standards Board. "CHANGE OF CONTROL" means one or more of the following events: (a) any "person" or "group" (as such terms are used in sections 13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act) of shares representing more than 50% of the combined voting power of the then outstanding securities entitled to vote generally in elections of directors of the Company (the "VOTING STOCK"); (b) approval by stockholders of the Company of any plan or proposal for the liquidation, dissolution or winding up of the Company; (c) the Company (i) consolidates with or merges into any other corporation or any other corporation merges into the Company, and in the case of any such transaction, the outstanding Common Stock of the Company is changed or exchanged into other assets or securities as a result, unless the stockholders of the Company immediately before such transaction own, directly or indirectly immediately following such transaction, at least 51% of the combined voting power of the outstanding voting securities of the corporation resulting from such transaction in substantially the same proportion as their ownership of the Voting Stock immediately before such transaction, or (ii) conveys, transfers or leases all or substantially all of its assets to any person; or (d) any time Continuing Directors do not constitute a majority of the Board of Directors of the company (or, if applicable, a successor corporation to the Company); provided that a Change of Control shall not be deemed to have occurred if, in the case of a merger or consolidation otherwise constituting a Change in Control, all of the consideration (excluding cash payments for fractional shares) in such merger or consolidation constituting the Change in Control consists of common stock traded on a United States national securities exchange or quoted on the Nasdaq National Market (or which will be so traded or quoted when issued or exchanged in connection with such Change in Control) and as a result of such transaction or transactions all Convertible Notes become convertible solely into such common stock. "CLOSING DATE" means the date on which the Exchanger purchases Securities pursuant to this Agreement. "CODE" means the Internal Revenue Code of 1986. "COLLATERAL AGENT" is defined in the preamble to this Agreement. "COLLATERAL DOCUMENTS" means each of (a) the Security Agreement, (b) the Subordination Agreement and (c) such other documents as may be entered into to secure the payment and performance of the Obligations under the Credit Documents. "COMMON STOCK" is defined in the recitals hereto. "COMPANY" is defined the preamble to this Agreement. "CONTINUING DIRECTOR" means at any date a member of the Company's Board of Directors (a) who was a member of such board on the date hereof or (b) who was nominated or elected by -3 at least a majority of the directors who were Continuing Directors at the time of such nomination or election or whose election to the Company's Board of Directors was recommended or endorsed by at least a majority of the directors who were Continuing Directors at the time of such nomination or election or such lesser number comprising a majority of a nominating committee if authority for such nominations or elections has been delegated to a nominating committee whose authority and composition have been approved by at least a majority of the directors who were continuing directors at the time such committee was formed. (Under this definition, if the Board of Directors of the Company as of the date of this Agreement were to approve a new director or directors and then resign, no Change in Control would occur even though the current Board of Directors would thereafter cease to be in office). "CONTROL" means, with respect to any Person, the possession, directly or indirectly, of the power to (a) vote 10% or more of the Capital Securities having ordinary voting power for the election of directors of such Person or (b) direct or cause the direction of management and policies of such Person, whether through the ownership of voting Capital Securities, by contact or otherwise, either alone or in conjunction with others. The words "Controlling" and "Controlled" have correlative meanings. "CONVERTIBLE NOTES INDENTURE" means the Indenture dated as of March 15, 2000 between the Company and The Bank of New York, as trustee, governing the Convertible Notes (as amended, modified or supplemented from time to time). "CONVERTIBLE NOTES" is defined in the recitals hereto. "CREDIT DOCUMENTS" means each of this Agreement, the Fiscal Agency Agreement, the Notes, the Guarantee, the Intercreditor Agreement and the Collateral Documents. "CREDIT FACILITY" means the credit facility created under the Senior Loan Agreement in an aggregate maximum principal amount not to exceed $40,000,000, as reduced from time to time by permanent reductions thereto, and any refinancing or renewal of such Indebtedness, which in no event shall exceed $40,000,000. "CREDIT SECURITY" means all assets now or from time to time hereafter subjected to a security interest, mortgage or charge (or intended or required so to be subjected pursuant to the Collateral Documents or any other Credit Document) to secure the payment or performance of any of the Obligations. "DEFAULT" means any event or condition which with notice or lapse of time, or both, would constitute an Event of Default. "DEMAND HOLDERS" means Holders holding Notes in an outstanding principal amount greater than 25% of the total outstanding principal amount of all Notes. "DEPOSITARY" means the depositary appointed pursuant to Section 2.6, to which the Notes and Warrants in typewritten form representing Book-Entry Securities are delivered on the Closing Date pursuant to Section 2.6. -4 "DOCUMENTS" means each of the Credit Documents, the Warrant and the Warrant Agreement. "DOMESTIC SUBSIDIARIES" means the Subsidiaries of the Borrower organized under the laws of, or domesticated in, the United States of America or the states or governmental districts thereof. "EFFECTIVE DATE" is defined in Section 14.11. "EQUIPMENT" means all of the Borrower's present and hereafter acquired machinery, molds, machine tools, motors, furniture, equipment, furnishings, fixtures, trade fixtures, motor vehicles, tools, parts, dyes, jigs, goods and other tangible personal property (other than Inventory) of every kind and description used in the Borrower's operations or owned by the Borrower and any interest in any of the foregoing, and all attachments, accessories, accessions, replacements, substitutions, additions or improvements to any of the foregoing, wherever located. "ERISA" means the Employee Retirement Income Security Act of 1974. "ERISA AFFILIATE" means any Person required to be aggregated with the Borrower or any Subsidiary of the Borrower under sections 414(b), (c), (m) or (o) of the Code. "EVENT OF DEFAULT" is defined in Section 11.1. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. "EXCHANGE ACT REPORTS" means the Company's reports filed with the SEC since December 31, 2000 pursuant to Section 13 of the Exchange Act. "EXCHANGING HOLDERS" means the Exchanger and any other holders of Convertible Notes who become parties to this Agreement pursuant to the execution and delivery of a Joinder Agreement with the Company an executed counterpart copy of which shall be provided to and acknowledged by the Collateral Agent in writing, and who exchange Convertible Notes for Notes and Warrants in accordance with the terms hereof and such Joinder Agreement. "FISCAL AGENCY AGREEMENT" means that Fiscal Agency Agreement dated as of January 30, 2003, between the Company and the Fiscal Agent, as amended by that certain Amendment No. 1 to Fiscal Agency Agreement of even date herewith between the Company and the Fiscal Agent (and as it may be further amended, modified or supplemented from time to time in accordance with its terms). "FISCAL AGENT" means U.S. Bank National Association. "FOREIGN SUBSIDIARY" means a Subsidiary of the Borrower other than a Domestic Subsidiary. "GAAP" means generally accepted accounting principles in effect within the United States of America, consistently applied. -5 "GLOBAL SECURITY" is defined in Section 2.5. "GOVERNMENTAL AUTHORITY" means any nation or government, any state or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "GOVERNING DOCUMENTS" means, as to any Person, the certificate or articles of incorporation and by-laws or other organizational or governing documents of such Person. "GUARANTOR" means each of the Domestic Subsidiaries of the Borrower. "GUARANTEE" is defined in Section 5.6. "HOLDER" means the Person or Persons in whose name a Note is registered at any time, and, for purposes solely of Section 4.4, the Person or Persons for whose benefit a Note registered to the Depositary is held as reflected on the transfer records of the Depositary at any time. "INTEREST PAYMENT DATE" means the 15th day of each of July and January. "INDEBTEDNESS" means with respect to any Person, all obligations, contingent or otherwise, which in accordance with GAAP are required to be classified upon the balance sheet of such specified Person as liabilities, but in any event including (without duplication) the following: (a) all obligations of such Person for borrowed money or with respect to deposits or advances of any kind; (b) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments or upon which interest charges are customarily paid; (c) all obligations of such Person for the deferred purchase price of property or services, except current accounts payable arising in the ordinary course of business and not overdue beyond such period as is commercially reasonable for such Person's business; (d) all obligations of such Person under conditional sale or other title retention agreements relating to property purchased by such Person and all Capitalized Lease Obligations; (e) all payment obligations of such Person with respect to interest rate or currency protection agreements; (f) all obligations of such Person as an account party under any letter of credit or in respect of bankers' acceptances; (g) all obligations of any third party secured by property or assets of such Person (regardless of whether or not such Person is liable for repayment of such obligations); (h) all guarantees of such Person, including existing guarantees for lease obligations; -6 (i) all reimbursement obligations of such Person under letters of credit; and (j) the redemption price of all redeemable equity securities of such Person, but only to the extent that such securities are redeemable at the option of the holder, or require sinking funds or similar payments, at any time prior to the Maturity Date. "INTERCREDITOR AGREEMENT" means the Collateral Agency and Intercreditor Agreement of even date herewith, between the Symphony Funds identified on the signature pages hereto, the Exchanging Holders from time to time party thereto and the Collateral Agent (as amended, modified or supplemented from time to time). "INVENTORY" means all of the Borrower's now owned and hereafter acquired goods, merchandise or other personal property, wherever located, to be furnished under any contract of service or held for sale or lease (including without limitation all raw materials, work in process, finished goods and goods in transit), and all materials and supplies of every kind, nature and description which are or might be used or consumed in the Borrower's business or used in connection with the manufacture, packing, shipping, advertising, selling or finishing of such goods, merchandise or other personal property, and all warehouse receipts, documents of title and other documents representing any of the foregoing. "INVESTMENT" means, with respect to any specified Person: (a) any share of capital stock, partnership or other equity interest, evidence of Indebtedness or other security issued by any other Person; (b) any loan, advance or extension of credit to, or contribution to the capital of, any other Person; (c) any guarantee of the obligations of any other Person; (d) any acquisition of all, or any division or similar operating unit of, the business of any other Person or the assets comprising such business, division or unit; and (e) any other similar investment. The investments described in the foregoing clauses (a) through (e) shall be included in the term "Investment" whether they are made or acquired by purchase, exchange, issuance of stock or other securities, merger, reorganization or any other method; PROVIDED, HOWEVER, that the term "Investment" shall not include (i) trade and customer accounts receivable for property leased, goods furnished or services rendered in the ordinary course of business and payable within one year in accordance with customary trade terms, (ii) deposits, advances or prepayments to suppliers for property leased or licensed, goods furnished and services rendered in the ordinary course of business, (iii) advances to employees for relocation and travel expenses, drawing accounts and similar expenditures, (iv) stock or other securities acquired in connection with the -7 satisfaction or enforcement of Indebtedness or claims due to such specified Person or as security for any such Indebtedness or claim or (v) demand deposits in banks or similar financial institutions. "JOINDER AGREEMENT" is defined in the Recitals paragraph appearing on the first page of this Agreement. "LIEN" means any mortgage, pledge, security interest, encumbrance, lien or charge of any kind (including any agreement to give any of the foregoing, any conditional sale or other title retention agreement or any lease in the nature thereof). "MARGIN STOCK" is defined in Regulation U. "MATERIAL ADVERSE EFFECT" means a material adverse effect on the present or future business, assets, operations, prospects or condition (financial or otherwise) of the Borrower and its Subsidiaries taken as a whole. "MATURITY DATE" means January 15, 2005. "MAXIMUM EXCHANGE AMOUNT" means the aggregate principal amount of Convertible Notes equal to $19,350,000 LESS the aggregate principal amount of Convertible Notes exchanged from time to time pursuant to any Permitted Exchanges occurring after the date hereof which do not violate Section 9.4 herein. "MULTIEMPLOYER PLAN" means a "multiemployer plan" as defined in section 4001(a)(3) of ERISA (a) which is, or within the immediately preceding six years was, contributed to by the Borrower, any Subsidiary of the Borrower or any ERISA Affiliate or (b) with respect to which the Borrower or any Subsidiary of the Borrower may incur any liability. "NET ASSET SALE PROCEEDS" means the cash proceeds of the sale or disposition of assets (including any Equipment and by way of merger, but not including the proceeds of any sale of finished Inventory in the ordinary course of business permitted by Section 10(iv)), and the cash proceeds of any insurance payments or condemnation awards on account of the destruction or loss of property, by the Borrower or any of its Subsidiaries after the Closing Date, net of (a) any Indebtedness permitted by Section 5.5 (Senior Loan Agreement) or Section 9.10 (purchase money indebtedness and capitalized leases) in each case secured by assets being sold in such transaction required to be paid from such proceeds, (b) income taxes that, as estimated by the Borrower in good faith, will be required to be paid by the Borrower or any of its Subsidiaries in cash as a result of, and within 16 months after, such sale or disposition (provided that any such amounts that are not actually paid in taxes within such period shall automatically become Net Asset Sale Proceeds), (c) reasonable reserves for liabilities, indemnification, escrows and purchase price adjustments resulting from the sale of assets, (d) transfer, sales, use and other similar taxes payable in connection with such sale or disposition, (e) all reasonable expenses of the Borrower or any of its Subsidiaries payable in connection with the sale or disposition and (f) the amount of such proceeds applied to mandatory prepayments under the Senior Loan Agreement. -8 "NOTE PREPAYMENT PRICE" is defined in Section 4.2. "NOTES" means up to $28,750,000 aggregate principal amount of the Borrower's 11.5% Senior Secured Notes due 2005, issued pursuant to the Symphony Exchange Agreement or this Agreement (including Notes that may be issued pursuant to any Joinder Agreement as part of a Permitted Exchange in which such Notes are issued without violating Section 9.4 herein). "OBLIGATIONS" means any and all present and future liabilities, obligations and Indebtedness of the Borrower and any of its Subsidiaries or any other Obligor owing to the Collateral Agent or any Holder (or any Affiliate of a Holder or Collateral Agent) under or in connection with this Agreement or any other Credit Document, including, without limitation, obligations in respect of principal, interest, prepayment premium and all other reimbursement obligations under the Notes, all fees, charges, indemnities and expenses from time to time owing hereunder or under any other Credit Document (all whether accruing before or after a Bankruptcy Default and regardless of whether allowed as a claim in bankruptcy or similar proceedings). "OBLIGOR" means the Borrower, each Guarantor and each other Person guaranteeing or providing collateral for the Obligations. "PERMITTED EXCHANGE" is defined in Section 9.3. "PERMITTED INVESTMENTS" means the following: (i) subject to compliance with the terms of Section 9.1 and the Collateral Documents, immaterial Investments, loans and advances by the Company to Wholly Owned Subsidiaries of the Company (including newly created or acquired Wholly Owned Subsidiaries) which are guarantors of the Senior Subordinated Notes, (ii) Investments in commercial paper and loan participations maturing in 270 days or less from the date of issuance which at the time of acquisition are rated at least A-1 by S&P or Prime-1 by Moody's; (iii) Investments in securities of or guaranteed by the United States of America or agencies thereof, or securities issued by foreign governments of comparable credit quality maturing within one year of acquisition; (iv) Investments in bank instruments maturing within one year after their acquisition issued by banks which are rated at least A-2/A by S&P; and (v) repurchase agreements, having terms of less than 90 days, for government obligations of the type specified above with a commercial bank or trust company which is rated at least A-2/A by S&P. "PERMITTED LIENS" means the following: (i) Liens incurred in connection with the Credit Facility; (ii) purchase money security interests in, or leases of, specific items of Equipment existing on the date hereof and described on SCHEDULE 1.1; (iii) Liens on account of future purchase money security interests in, or Capitalized Leases of, specific items of Equipment, in each case incurred in the ordinary course of business, and in each case secured solely by the Equipment to which the Lien relates; (iv) Liens securing obligations incurred in connection with any exchange of Convertible Notes for new securities in a transaction not prohibited by Section 9.4, (v) Liens for taxes not yet payable; (vi) additional security interests and Liens consented to in writing by the Required Holders, which consent shall not be unreasonably withheld; (vii) security interests being terminated substantially concurrently with this Agreement; (viii) Liens of materialmen, mechanics, warehousemen, carriers, or other similar Liens arising in the ordinary course of business and securing obligations which are not delinquent or are otherwise being -9 contested in good faith and by appropriate proceedings; (ix) Liens incurred in connection with the extension, renewal or refinancing of the indebtedness secured by Liens of the type described above in clauses (i), (ii) or (iii) above, provided that any extension, renewal or replacement Lien is limited to the property encumbered by the existing Lien and the principal amount of the indebtedness being extended, renewed or refinanced does not increase; and (x) Liens in favor of customs and revenue authorities which secure payment of customs duties in connection with the importation of goods. Each of the Holders will have the right to require, as a condition to its consent under subsection (vi) above, that the holder of the additional security interest or Lien sign an intercreditor agreement on a customary form, acknowledging that the security interest is subordinate to the security interest in favor of the Holders, and agree not to take any action to enforce its subordinate security interest so long as any Obligations remain outstanding, and that the Borrower agrees that any uncured event of default in any obligation secured by the subordinate security interest shall also constitute an Event of Default under this Agreement. "PERSON" means any individual, partnership, joint venture, limited liability company, corporation, association, trust or other enterprise or any government or political subdivision or any agency, department or instrumentality thereof. "PLAN" means any employee benefit plan, program or arrangement, whether oral or written, maintained or contributed to by the Borrower, any Subsidiary of the Borrower or any ERISA Affiliate, or with respect to which the Borrower, any Subsidiary of the Borrower or any ERISA Affiliate may incur liability. "PROHIBITED TRANSACTION" means any transaction that is prohibited under Code section 4975 or ERISA section 406 and not exempt under Code section 4975 or ERISA section 408. "REGISTRATION STATEMENTS" means the Company's registration statements filed with the SEC since December 31, 2001 pursuant to the Securities Act. "REGULATION U" means Regulation U of the Board of Governors of the Federal Reserve System. "REPORTABLE EVENT" means any of the events described in section 4043 of ERISA. "REQUIRED HOLDERS" means Holders holding Notes in an outstanding principal amount greater than 50% of the total outstanding principal amount of all Notes. "REQUIREMENT OF LAW" means, as to any Person, the Governing Documents of such Person, and any law, treaty, rule, regulation, direction, ordinance, criterion or guideline or determination of a court or other Governmental Authority or determination of an arbitrator, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject. "SEC" means the U.S. Securities and Exchange Commission. "SEC REPORTS" means the Exchange Act Reports and the Registration Statements. -10 "SECURITIES" is defined in the recitals hereto. "SECURITIES ACT" means the Securities Act of 1933. "SECURITY AGREEMENT" means the Security Agreement dated as of the date hereof among the Borrower, the Guarantor and the Collateral Agent, as amended, restated or supplemented from time to time in accordance with the terms thereof. "SENIOR LENDER" means Silicon Valley Bank, a California chartered bank. "SENIOR LOAN AGREEMENT" is defined in the recitals hereto. "SENIOR LOAN EVENT OF DEFAULT" is defined in Section 11.5. "SENIOR LOANS" means the Loans and Letters of Credits under and as defined in the Senior Loan Agreement. "SUBORDINATION AGREEMENT" means the Subordination Agreement dated as of the January 30, 2003 among the Senior Lender, the Symphony Funds, as Holders of the then existing Notes, and the Collateral Agent, as amended, restated or supplemented from time to time in accordance with the terms thereof. "SUBSIDIARY" means with respect to any Person at any time, (a) any other Person the accounts of which would be consolidated with those of such first Person in its consolidated financial statements as of such time, and (b) any other Person (i) which is, at such time, Controlled by, or (ii) Capital Securities of which having ordinary voting power to elect a majority of the board of directors (or other persons having similar functions), or other ownership interest of which ordinarily constituting a majority voting interest, are at such time, directly or indirectly, owned or Controlled by, in the case of each of clauses (i) and (ii), such first Person or one or more of its Subsidiaries or by such first Person and one or more of its Subsidiaries. Unless otherwise expressly provided, all references herein to "Subsidiary" means a Subsidiary of the Company. "SYMPHONY EXCHANGE AGREEMENT" means that certain Securities Exchange Agreement dated as of January 30, 2003, by and among the Borrower, the Guarantor, the Symphony Funds identified on the signature pages thereto and the Collateral Agent. "TAX BENEFIT" is defined in Section 4.4.3. "TAXES" is defined in Section 4.4.1. "TERMINATION EVENT" means (a) a Reportable Event with respect to any Benefit Plan or Multiemployer Plan; (b) the withdrawal of the Borrower, any Subsidiary of the Borrower or any ERISA Affiliate from a Benefit Plan during a plan year in which such entity was a "substantial employer" as defined in section 4001(a)(2) of ERISA; (c) the providing of notice of intent to terminate a Benefit Plan in a distress termination described in section 4041(c) of ERISA or the treatment of any amendment as a termination under section 4041(e) of ERISA; (d) the institution -11 by the PBGC of proceedings to terminate a Benefit Plan or Multiemployer Plan; (e) any event or condition (i) that might constitute grounds under section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Benefit Plan or Multiemployer Plan, or (ii) that may result in termination of a Multiemployer Plan pursuant to section 4041A of ERISA; or (f) the partial or complete withdrawal within the meaning of sections 4203 and 4205 of ERISA, of the Borrower, any Subsidiary of the Borrower or any ERISA Affiliate from a Multiemployer Plan. "UCC" means the Uniform Commercial Code as in effect in The Commonwealth of Massachusetts. "U.S." means the United States of America. "WARRANT AGREEMENT" means the Amended and Restated Warrant and Registration Rights Agreement of even date herewith, between the Company and U.S. Bank National Association, as Warrant Agent, in substantially in the form of EXHIBIT B (as amended, modified or supplemented from time to time). "WARRANTS" is defined in the recitals hereto. "IN WRITING" means any form of written communication or a communication by means of telex, facsimile transmission, telegraph or cable. 2. PURCHASE AND SALE OF THE SECURITIES. 2.1. PURCHASE AND SALE OF THE NOTES TO THE EXCHANGER. Subject to the terms and conditions hereof, the Borrower agrees that it will issue and sell to the Exchanger, and the Exchanger agrees that it will acquire from the Borrower, on the Closing Date, Notes in the aggregate principal amount of $3,975,000. 2.2. PURCHASE AND SALE OF THE WARRANTS TO THE EXCHANGER. Subject to the terms and conditions hereof, the Borrower agrees that it will issue and sell to the Exchanger, and the Exchanger agrees that it will acquire from the Borrower, on the Closing Date, Warrants to purchase an aggregate 727,627 shares of Common Stock. 2.3. SUBSEQUENT EXCHANGES. From time to time after the Closing Date, the Company and any other holders of Convertible Notes who become party to this Agreement pursuant to the execution and delivery of a Joinder Agreement may exchange such Exchanging Holders' Convertible Notes for Notes and Warrants in accordance with the terms hereof and of such Joinder Agreement. 2.4. NOTE TERMS. Each Note issued pursuant to this Agreement to each Holder shall (a) be executed by the Borrower, (b) be payable to the order of such Holder and be dated the date of issuance thereof, (c) be in a stated principal amount of $3,975,000, in the case of the Exchanger, or in the stated amount set forth for such Holder in the applicable Joinder -12 Agreement, (d) mature on the Maturity Date, (e) bear interest as provided in Section 3, and (f) be entitled to the benefits of this Agreement and the other Credit Documents. 2.5. FORM OF SECURITIES. Each Note or Warrant issued pursuant to this Agreement, as applicable, will be issued only in fully registered form and will initially be represented by a global note or global warrant (each a "GLOBAL SECURITY") registered in the name of the Depositary or its nominee, and delivered to the Fiscal Agent, as custodian for the Depositary and recorded in the book-entry system maintained by the Depositary (a "BOOK-ENTRY SECURITY"). No beneficial owner of an interest in the Notes or the Warrants issued pursuant to this Agreement will be entitled to receive a certificate representing such Note or Warrant, as applicable, except as provided in the Fiscal Agency Agreement or the Warrant Agreement, as applicable. 2.6. DEPOSITARY. The Depositary for the Notes and the Warrants shall initially be The Depository Trust Company and such Notes and Warrants shall be registered in the name of Cede & Co., its nominee, and shall bear a legend in substantially the following form: "Unless this Certificate is presented by an authorized representative of the Depository Trust Company, a New York corporation ("DTC"), to the Issuer or its agent for registration of transfer, exchange, or payment, and any certificate issued is registered in the name of Cede & Co. or in such other name as requested by an authorized representative of DTC (and any payment is made to Cede & Co. or to such other entity as requested by an authorized representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has any interest herein." The Depositary shall at all times be a "clearing corporation" as defined in section 8-102(3) of the UCC or any successor provision thereto. 2.7. PURCHASE PRICE FOR SECURITIES. The purchase price to the Exchanger for the Securities is the Convertible Notes being exchanged in connection herewith in the aggregate principal amount of $7,950,000. The purchase price to each other Exchanging Holder for the Securities purchased by it hereunder shall be the principal amount of Convertible Notes exchanged by such Exchanging Holder as set forth in the applicable Joinder Agreement. 2.8. CLOSING. Unless otherwise agreed among the Borrower and the Exchanger, the purchase and issuance of the Securities shall take place on the Closing Date at the offices of Bingham McCutchen LLP, 150 Federal Street, Boston, Massachusetts 02110, at 10:00 a.m., local time. On the Closing Date, the Borrower shall deliver the Securities to be issued by it to the Exchanger against delivery by the Exchanger of the consideration therefor. Any subsequent closings will take place at the dates (each, a "SUBSEQUENT CLOSING DATE") and places specified in the applicable Joinder Agreement. 3. INTEREST. -13 3.1. RATE OF INTEREST. The principal amount of each Note shall bear interest from January 30, 2003 until maturity (whether by acceleration or otherwise) at 11.5% per annum. Interest shall be payable in full in cash in accordance with Section 3.3. 3.2. DEFAULT INTEREST. All overdue principal, any premium on and, to the extent permitted by applicable law, overdue interest in respect of any Note shall bear interest at a rate per annum equal to 2% in excess of the interest rate otherwise applicable to such Note. 3.3. INTEREST ACCRUAL AND COMPUTATION. Interest shall accrue on each Note from and including the date of issuance thereof to but excluding the date of any repayment thereof and shall be payable in cash semi-annually in arrears on each Interest Payment Date, on any prepayment (on the principal amount prepaid), at maturity (whether by acceleration or otherwise) and, after such maturity, on demand. All computations of interest hereunder shall be made on the actual number of days elapsed over a year of 360 days. 4. PAYMENTS. 4.1. PAYMENTS. All payments owing under this Agreement, any Note or any other Credit Document to a Holder shall be paid directly by the Borrower in immediately available funds by wire transfer to the Fiscal Agent for payment to the Holders pursuant to the Fiscal Agency Agreement. The Borrower shall cause all such amounts to be deposited with the Fiscal Agent not later than the Business Day immediately prior to the date on which such amounts are required to be paid to the Holders. 4.2. VOLUNTARY PREPAYMENTS. The Borrower shall have the right to prepay the Notes, in whole or in part, at any time and from time to time, prior to the Maturity Date. The Notes shall be prepaid at the following prepayment prices (expressed in percentages of the outstanding principal amount of the Note, as the case may be, being prepaid) plus accrued and unpaid interest on such prepaid principal amount to the prepayment date, MINUS the number of percentage points reflected by the product of (a) 10.1695 and (b) the difference between (i) the average closing trading price of the Common Stock for the five trading days immediately prior to, but not including, the date of such prepayment and (ii) the Common Stock price denoted below in the column titled "Minimum Common Stock Price" (the "NOTE PREPAYMENT PRICE"); PROVIDED, HOWEVER, that in no event shall the Note Prepayment Price be less than 100% of the outstanding principal amount of the Notes to be prepaid, plus accrued and unpaid interest on such principal amount to the prepayment date:
PERCENTAGE OF MINIMUM OUTSTANDING COMMON DATE OF PREPAYMENT PRINCIPAL AMOUNT STOCK PRICE - ------------------ ---------------- ----------- After Prior To and Including - ----- ---------------------- January 15, 2003 July 15, 2003 123.0000% $ 2.25 July 15, 2003 January 15, 2004 117.2500% $ 3.50 January 15, 2004 July 15, 2004 111.5000% $ 4.25 July 15, 2004 January 15, 2005 105.7500% $ 5.00
-14 Each prepayment under this Section 4.2 shall be made on the following terms and conditions: (a) the Borrower shall give each Holder written notice (or telephonic notice promptly confirmed in writing) of its intent to prepay the Notes and the amount of such prepayment, which notice shall be given by the Borrower at least 30 days prior to the date of such prepayment, (b) each partial prepayment shall be in an aggregate principal amount of at least $100,000, and (c) each prepayment shall be allocated PRO RATA among all the Holders holding the Notes being prepaid. 4.3. MANDATORY PREPAYMENTS. 4.3.1. Subject to Section 4.3.2, upon receipt of any Net Asset Sale Proceeds in excess of $250,000 (or, if a Default or an Event of Default shall then exist, regardless of amount) by the Borrower or any of its Subsidiaries, which in each such case does not result in a Change of Control, the Borrower shall, within one Business Day, pay (or cause its Subsidiary receiving such proceeds to pay) to the Holders as a prepayment of the Notes to be applied as provided in this Section 4.3 an amount determined by the Borrower that is the lesser of (a) the amount of such Net Asset Sale Proceeds and (b) the Aggregate Prepayment Amount (excluding any portion of such Net Asset Sale Proceeds which so long as no Default or Event of Default exists, (x) in the case of proceeds of business interruption insurance, is used in the ordinary course of the Borrower's and its Subsidiaries' business and (y) in the case of proceeds of casualty insurance, is applied for the purpose of replacing, repairing, restoring or rebuilding the relevant tangible property). 4.3.2. Upon a Change of Control, the Borrower shall, within one Business Day, make an offer to prepay all of the Notes then outstanding at the Note Prepayment Price set forth in Section 4.2. 4.3.3. All prepayments pursuant to this Section 4.3 shall be applied PRO RATA among the Holders holding the Notes being prepaid. 4.3.4. Notwithstanding anything to the contrary in this Agreement or the Symphony Exchange Agreement, in no event shall the Borrower be required to make any prepayments pursuant to this Section 4.3 and Section 4.3 of the Symphony Exchange Agreement in connection with a particular sale or disposition of assets by the Borrower in an aggregate amount in excess of the Net Asset Proceeds of such sale or disposition of assets. 4.4. NET PAYMENTS. 4.4.1. All payments made by the Company hereunder or under any Note will be made without setoff, counterclaim or other defense. Except as provided in Section 4.4.2, all such payments will be made free and clear of, and without deduction or withholding for, any present or future taxes, levies, imposts, duties, fees, assessments or other charges of whatever nature now or hereafter imposed by any jurisdiction or by any political subdivision or taxing authority thereof or therein with respect to such payments (but excluding any tax imposed on or measured by the net income or net profits, or franchise taxes imposed in lieu of net income or -15 net profit taxes, of a Holder pursuant to the laws of the jurisdiction in which it is organized or the jurisdiction in which the principal office or applicable lending office of such Holder, is located or any subdivision thereof) and all interest, penalties or similar liabilities with respect to such non-excluded taxes, levies, imposts, duties, fees, assessments or other charges (all such non-excluded taxes, levies, imposts, duties, fees, assessments or other charges being referred to collectively as "TAXES"). Subject to Section 4.4.2, if any Taxes are so levied or imposed, the Borrower agrees to pay promptly the full amount of such Taxes. The Borrower will furnish to the affected Holder within 60 days (or as soon thereafter as available) after the date the payment of any Taxes is due pursuant to applicable law, certified copies of tax receipts evidencing such payment by the Borrower or, if such receipts are not obtainable, other evidence of such payments by the Borrower reasonably satisfactory to such affected Holder. The Borrower agrees to indemnify and hold harmless each Holder, and reimburse such Holder within 30 days after its written request, for the amount of any Taxes so levied or imposed and paid by such Holder. 4.4.2. If any Holder is not created or organized in, or under the laws of, the United States of America or any state thereof, such Holder shall deliver to the Borrower such duly executed forms and statements from time to time as may be necessary so that such Holder is entitled to receive payments of the Obligations payable to it without deduction or withholding of any United States federal income taxes, to the extent such exemption is available to such Holder. If no such exemption is available at the time a Holder acquires any Note (or any beneficial interest therein) or if at any time the Borrower has not received all forms and statements (including any renewals thereof) required to be provided by any Holder pursuant to this Section 4.4.2, Section 4.4.1 above shall not apply with respect to any amount of United States federal income taxes required to be withheld from payments of the Obligations to such Holder. 4.4.3. If the Borrower pays any additional amount under this Section 4.4 to a Holder and such Holder determines in its sole and absolute discretion that it has actually received or realized in connection therewith any refund or any reduction of, or credit against, its Tax liabilities in or with respect to the taxable year in which the additional amount is paid (a "TAX BENEFIT"), such Holder shall promptly, but in no event later than 30 days following the receipt of any such refund or 30 days following the earlier of the filing of the applicable Tax return or the payment of the applicable Taxes, pay to the Borrower an amount that such Holder shall, in its sole and absolute discretion, determine is equal to the net benefit, after tax, which was obtained by the Holder in such year as a consequence of such Tax Benefit; PROVIDED, HOWEVER, that (a) any Holder may determine, in its sole and absolute discretion consistent with the policies of such Holder, whether to seek a Tax Benefit; (b) any Taxes that are imposed on a Holder as a result of a disallowance or reduction (including through the expiration of any tax credit carryover or carryback of such Holder that otherwise would not have expired) of any Tax Benefit with respect to which such Holder has made a payment to the Borrower pursuant to this Section 4.4.3 shall be treated as a Tax for which the Borrower is obligated to indemnify such Holder pursuant to this Section 4.4 without any exclusions or defenses; (c) nothing in this Section 4.4.3 shall require any Holder to disclose any confidential information to the Borrower (including its tax returns); and (d) no Holder shall be required to pay any amounts pursuant to this Section 4.4.3 at any time when a Default or Event of Default exists. -16 5. CONDITIONS PRECEDENT TO THE PURCHASE OF THE SECURITIES. The obligations of the Exchanger to purchase and pay for the Securities as of the Closing Date, and of any additional Exchanging Holders to purchase and pay for any Securities as of a Subsequent Closing Date, are subject to the satisfaction, prior to or on the Closing Date or such Subsequent Closing Date, as the case may be, of the following conditions: 5.1. ISSUANCE OF SECURITIES; CONTEMPORANEOUS INVESTMENT. (a) The Effective Date shall have occurred, (b) there shall have been delivered to the Depositary a Note executed by the Borrower in the amount, maturity and as otherwise provided herein, and (c) there shall have been delivered to the Depositary a Warrant to purchase the number of shares of Common Stock as provided herein. 5.2. CORPORATE PROCEEDINGS. (a) The Exchanging Holder shall have received a certificate from the Borrower and such other Obligors requested by the Exchanging Holder, dated the Closing Date or such Subsequent Closing Date, signed by the chairman, a vice chairman, the president, any vice president or representative director of such Obligor in the form of EXHIBIT 5.2 with appropriate insertions and deletions, together with (i) copies of the certificate of incorporation, by-laws or other organizational documents of each such Obligor, (ii) the resolutions of each Obligor referred to in such certificate and all of the foregoing (including each such certificate of incorporation and by-laws) shall be in form and substance reasonably satisfactory to the Exchanging Holder and (iii) a certification that all of the applicable conditions precedent set forth in Sections 5.2, 5.4, 5.5 and 5.6 shall have been satisfied as of such date. (b) On the Closing Date or such Subsequent Closing Date, all corporate and legal proceedings and all instruments and agreements in connection with the transactions contemplated by this Agreement and each other Document shall be reasonably satisfactory in form and substance to the Exchanging Holder, and the Exchanging Holder shall have received all information and copies of all certificates, documents and papers, including good standing certificates and any other records of corporate proceedings and governmental approvals, if any, which the Exchanging Holder may have reasonably requested in connection therewith, such documents and papers, where appropriate, to be certified by proper corporate or governmental authorities. 5.3. MATERIAL ADVERSE EFFECT, ETC. From September 30, 2002 to the Closing Date, nothing shall have occurred (and the Exchanging Holder shall not have become aware of any facts or conditions not previously known) which the Exchanging Holder shall determine has, or is reasonably likely to have, (a) a material adverse effect on the rights or remedies of the Holders or the Exchanging Holder hereunder or under any other Document, or on the ability of the Obligors taken as a whole to perform their obligations under the Documents or (b) a Material Adverse Effect. -17 5.4. LITIGATION. There shall be no actions, suits or proceedings pending or threatened (a) with respect to any Document or (b) which the Exchanger shall determine is reasonably likely to have (i) a Material Adverse Effect or (ii) a material adverse effect on the rights or remedies of the Holders or the Exchanging Holder hereunder or under any other Document or on the ability of the Obligors taken as a whole to perform their obligations under the Documents. 5.5. APPROVALS. The Obligors shall have received all authorizations, consents, approvals, licenses, franchises, permits and certificates by or of all governmental and third parties, in each case necessary for the issuance of the Securities and for the execution and delivery of the Documents to which they are parties, and all of the foregoing shall be in full force and effect on the Closing Date or such Subsequent Closing Date, as the case may be. 5.6. GUARANTEE. The Borrower and each Domestic Subsidiary (other than Ivanet, LLC and iBasis Holdings, Inc.) in existence on the Closing Date or such Subsequent Closing Date, as the case may be, shall have duly authorized, executed and delivered a Guarantee in the form of EXHIBIT 5.6 with respect to the Notes (as modified, amended or supplemented from time to time in accordance with the terms hereof and thereof, the "GUARANTEE"), and each Guarantee shall be in full force and effect. 5.7. COLLATERAL DOCUMENTS. Each Obligor, as appropriate, shall have duly authorized, executed and delivered to the Exchanging Holder each of the Collateral Documents, together with such other agreements and documents contemplated thereunder, each in form and substance reasonably satisfactory to the Exchanging Holder. The Exchanging Holder shall have received evidence that all actions necessary or, in the reasonable opinion of the Exchanging Holder, desirable, to perfect the security interests created by each of the Collateral Documents have been taken. 5.8. FISCAL AGENCY AGREEMENT. The Fiscal Agency Agreement shall have been duly executed and delivered by the parties thereto. 5.9. WARRANT AGREEMENT. The Warrant Agreement shall have been duly executed and delivered by all of the parties thereto. 5.10. INTERCREDITOR AGREEMENT. The Intercreditor Agreement shall have been duly executed and delivered by all of the parties thereto. 5.11. DTC ELIGIBILITY. The Notes and Warrants shall have become eligible for DTC book-entry delivery services. 5.12. CUSIP NUMBER. The Borrower shall have obtained CUSIP Numbers for each of the Notes and the Warrants. 5.13. CAPITALIZATION. The Company shall deliver evidence furnished by Equiserve as to the authorized and issued and outstanding Common Stock of the Company as of the Closing Date. -18 5.14. SENIOR LENDER POSSESSION OF STOCK CERTIFICATES. The Senior Lender (or its agent) shall have taken physical possession of the stock or other certificates representing (i) all issued and outstanding equity of each Domestic Subsidiary and (ii) 65% of the issued and outstanding equity of each Foreign Subsidiary, together in each case with appropriate undated stock or other transfer powers, duly executed by the holder of such equity in blank. 5.15. NO DEFAULT; REPRESENTATIONS AND WARRANTIES. On the Closing Date or such Subsequent Closing Date, as the case may be, and after giving effect to the transactions contemplated hereby or by applicable Joinder Agreement, (a) there shall exist no Default or Event of Default and (b) all representations and warranties made by any Obligor contained herein or in the other Credit Documents shall be true and correct in all material respects with the same effect as though such representations and warranties had been made on and as of such date, except to the extent that such representations and warranties expressly relate to an earlier date. 5.16. ACCRUED INTEREST UNDER CONVERTIBLE NOTES. On the Closing Date or such Subsequent Closing Date, as the case may be, the Borrower shall have paid to the Exchanging Holder an amount in cash equal to the amount of accrued and unpaid interest on the Convertible Notes being surrendered in exchange pursuant to Section 2.7 as of January 30, 2003 (with it being agreed by the Borrower and the Exchanging Holder that no payment shall be due with respect to any interest accrued or accruing on such surrendered Convertible Notes after January 30, 2003). All of the certificates, legal opinions and other documents and papers referred to in Section 5, unless otherwise specified, shall be delivered to the Exchanging Holder and shall be reasonably satisfactory in form and substance to the Exchanging Holder. 6. FEES. The Borrower shall have paid to the Exchanger and its representatives all reasonable costs, fees and expenses, and all other compensation contemplated by this Agreement and the other Documents (including reasonable legal fees and expenses); PROVIDED, HOWEVER, that the Borrower's reimbursement obligations pursuant to this Section 6 shall not exceed, in the aggregate, $10,000. 7. REPRESENTATIONS AND WARRANTIES OF THE OBLIGORS. In order to induce the Exchanging Holders and the Collateral Agent to enter into this Agreement and to purchase the Securities, each of the Obligors jointly and severally makes the following representations and warranties, all of which shall survive the execution and delivery of this Agreement and the purchase of the Securities: 7.1. CORPORATE STATUS. Each Obligor and each of its Subsidiaries (a) is a duly organized and validly existing corporation in good standing under the laws of the jurisdiction of its organization and has the corporate power and authority to own its property and assets and to transact the business in which it is engaged and presently proposes to engage and (b) has duly qualified to do business and is in good standing in each jurisdiction where it is required to be so qualified and where the failure to be so qualified is reasonably likely to have a Material Adverse Effect. -19 7.2. CORPORATE POWER AND AUTHORITY. Each Obligor has the corporate power and authority to execute, deliver and perform its obligations under each of the Documents to which it is a party and has taken all necessary corporate action to authorize the execution, delivery and performance of the Documents to which it is a party. Each Obligor has duly executed and delivered to the Exchanging Holders each Document to which it is a party and each such Document constitutes the legal, valid and binding obligation of such Person enforceable in accordance with its terms. 7.3. NO VIOLATION. Neither the execution, delivery and performance by any Obligor of the Documents to which it is a party nor compliance with the terms and provisions thereof (a) will contravene any applicable provision of any law, statute, rule, regulation, order, writ, injunction or decree of any court or governmental instrumentality, except as would not have a Material Adverse Effect, (b) will conflict or be inconsistent with or result in any breach of, any of the material terms, covenants, conditions or provisions of, or constitute a default under, or result in the creation or imposition of (or the obligation to create or impose) any Lien upon any of the property or assets of such Obligor pursuant to the terms of, any indenture, mortgage, deed of trust, agreement or other instrument to which such Person is a party or by which it or any of its property or assets are bound or to which it may be subject or (c) will violate any provision of the certificate of incorporation, by-laws or other organizational document of such Obligor. 7.4. CAPITALIZATION. As of January 30, 2003, the authorized capital stock of the Company consists of 85,000,000 shares of Common Stock, of which 45,785,055 are issued and outstanding as of the Closing Date. As of the Closing Date, (i) 2,542,035 of Common Stock were reserved for future issuance pursuant to outstanding options issued by the Company, (ii) 337,500 shares of Common Stock were reserved for future issuance pursuant to outstanding warrants issued by the Company and (iii) 1,027,397 shares of Common Stock were reserved for future issuance upon conversion of the Convertible Notes. Except as set forth above and for the exercise rights of the Warrants and the conversion rights of the Convertible Notes, after giving effect to the transactions contemplated by this Agreement, and except as set forth on SCHEDULE 7.4, there will be no other outstanding options, warrants, rights (including conversion or preemptive rights) or any agreement for the purchase or acquisition from the Company of any shares of the Company's capital stock or voting agreements with respect to equity of the Company. All shares of the capital stock of the Company subject to issuance as aforesaid, including the Warrants, upon issuance on the terms and conditions specified in the instruments pursuant to which they are issuable, shall be duly authorized, validly issued, fully paid and nonassessable. There are no obligations, contingent or otherwise, of the Company to repurchase, redeem or otherwise acquire any shares of Common Stock or to provide funds to or make any investment (in the form of a loan, capital contribution, guaranty or otherwise) in any other entity. None of the outstanding shares of capital stock of the Company were issued in violation of the Securities Act or any state securities laws. 7.5. LITIGATION. Except as disclosed in the SEC Reports, no actions, suits or proceedings are pending or, to the best of each Obligor's knowledge, threatened that are reasonably likely to have (a) a Material Adverse Effect or (b) a material adverse effect on the -20 rights or remedies of the Holders or the Exchanging Holders or on the ability of the Obligors taken as a whole to perform their obligations under the Documents. 7.6. MARGIN REGULATIONS. Neither the sale of any Securities, nor the use of the proceeds thereof, will violate Regulation T, U or X of the Board of Governors of the Federal Reserve System and no part of the proceeds from the sale of the Securities will be used to purchase or carry any Margin Stock or to extend credit for the purpose of purchasing or carrying any Margin Stock. 7.7. GOVERNMENTAL APPROVALS. Except for any required filings and recordings which have been made and are in full force and effect, no order, consent, approval, license, authorization or validation of, or filing, recording or registration with, or exemption by, any foreign or domestic governmental or public body or authority, or any subdivision thereof, is required to authorize or is required in connection with (a) the execution, delivery and performance of any Document or (b) the legality, validity, binding effect or enforceability of any Document. 7.8. INVESTMENT COMPANY ACT. None of the Obligors is an "investment company" or a company "controlled" by an "investment company," within the meaning of the Investment Company Act of 1940. 7.9. PUBLIC UTILITY HOLDING COMPANY ACT. None of the Obligors is a "holding company," or a "subsidiary company" of a "holding company," or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company," within the meaning of the Public Utility Holding Company Act of 1935. 7.10. CONFORMITY TO SECURITIES ACT AND EXCHANGE ACT; NO MISSTATEMENT OR OMISSION. Each of the SEC Reports as of the date it was filed with the SEC in the case of filings under the Exchange Act or declared effective in the case of the Registration Statements, complied in all material respects with the applicable requirements of the Securities Act or the Exchange Act and the respective rules and regulations of the SEC thereunder and did not contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein not misleading. 7.11. FINANCIAL CONDITION; FINANCIAL STATEMENTS. The financial statements and supporting schedules included in the Company's Annual Report on Form 10-K for the year ended December 31, 2001, and in the Company's Quarterly Reports on Form 10-Q for the quarters ended March 31, 2002, June 30, 2002 and September 30, 2002 and in any Registration Statements or other SEC Reports, in each case filed with the SEC, are complete and correct in all material respects and present fairly the consolidated financial position of the Company and its Subsidiaries as of the dates specified and the consolidated results of their operations for the periods specified, in each case, in conformity with generally accepted accounting principles applied on a consistent basis during the periods involved, except as indicated therein or in the notes thereto. -21 7.12. NO MATERIAL ADVERSE CHANGES. Since September 30, 2002 and except in connection with the exchange consummated pursuant to the Symphony Exchange Agreement and the exchanges contemplated by this Agreement, (a) there has been no Material Adverse Effect; (b) except as contemplated by this Agreement or described in the SEC Reports, there has been no transaction entered into by the Company or any of its Subsidiaries other than transactions in the ordinary course of business or transactions which would not, individually or in the aggregate, have a Material Adverse Effect; (c) there have not been any changes in the Borrower's authorized capital or, other than the borrowing made by the Borrower under the Senior Loan Agreement, any material increases in the debt of the Borrower and its Subsidiaries taken as a whole; and (d) there has been no actual or, to the knowledge of the Borrower, threatened revocation of, or default under, any material contract to which the Borrower or any of its Subsidiaries is a party, except as would not have a Material Adverse Effect. 7.13. TAX RETURNS AND PAYMENTS. Each of the Borrower and each of its Subsidiaries has filed all federal income tax returns and all other material domestic and foreign tax returns required to be filed by it and has paid all material taxes and assessments payable by it which have become due, except for those contested in good faith and adequately reserved against (in the good faith determination of the Borrower), all of which, to the extent outstanding on the Closing Date, have been disclosed by the Company in the SEC Reports. Each of the Borrower and each of its Subsidiaries has paid, or has provided adequate reserves (in the good faith judgment of the Borrower) for the payment of, all material federal, state and foreign taxes that are not yet due and payable for all fiscal years, including the current fiscal year, to date. No action, suit, proceeding, investigation, audit or claim is now pending or, to the knowledge of the Borrower or its Subsidiaries, threatened by any authority regarding any taxes relating to the Borrower or any of its Subsidiaries which is reasonably likely to have a Material Adverse Effect. As of the Closing Date, neither the Borrower nor any of its Subsidiaries has entered into an agreement or waiver or been requested to enter into an agreement or waiver extending any statute of limitations relating to the payment or collection of taxes of the Borrower or any of its Subsidiaries. 7.14. SUBSIDIARIES. As of the Closing Date, the Company has no directly held Subsidiary other than iBasis Global, iBasis Securities Corporation, and iBasis Speech Solutions, Inc., and such Subsidiaries have no Subsidiaries other than those listed on SCHEDULE 7.14. 7.15. INTELLECTUAL PROPERTY. The Borrower and each of its Subsidiaries have obtained all material patents, trademarks, service marks, trade names, copyrights, licenses and other rights, free from materially burdensome restrictions, that are necessary for the operation of their businesses taken as a whole as presently conducted, except for those for which the failure to obtain is not reasonably likely to have a Material Adverse Effect. 7.16. PROPERTIES. The Borrower and each of its Subsidiaries have good and valid title to all material properties owned by them, including all such properties reflected in their balance sheets included in the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2002, free and clear of all Liens, other than (a) as referred to in such balance sheet or in the notes thereto or (b) otherwise permitted by Section 9.10. -22 7.17. LABOR RELATIONS. No Obligor is engaged in any unfair labor practice that is reasonably likely to have a Material Adverse Effect. No unfair labor practice complaint is pending against any Obligor or, to the best of its knowledge, threatened against any of them, before the National Labor Relations Board or similar foreign labor relations authority, and no grievance or arbitration proceeding arising out of or under any collective bargaining agreement is so pending against any Obligor or, to the best of its knowledge, threatened against any of them. No strike, labor dispute, slowdown or stoppage is pending against any Obligor or, to the best of its knowledge, threatened against any Obligor. No union representation question exists with respect to the employees of any Obligor and no union organizing activities are taking place, except with respect to any matter specified above, either individually or in the aggregate, which is not reasonably likely to have a Material Adverse Effect. 7.18. COMPLIANCE WITH STATUTES, ETC. 7.18.1. Each Obligor is in compliance with all applicable statutes, regulations and orders of, and all applicable restrictions imposed by, all governmental authorities, domestic or foreign, in respect of the conduct of its business and the ownership of its property, except such non-compliance as is not reasonably likely, individually or in the aggregate, to have a Material Adverse Effect. 7.18.2. Except as has been disclosed by the Company in the SEC Reports, no Obligor has (a) any material liability of which any Obligor has knowledge or reasonably should have knowledge in connection with any release, generation, storage, use, transportation, disposal or other handling of any hazardous or toxic waste, substance or constituent material into the environment, or (b) received any written notice, letter or other indication of potential liability arising from the release, generation, storage, use, transportation, disposal or other handling of any hazardous or toxic waste, substance or constituent material into the environment. 7.18.3. To the best of each Obligor's knowledge, except as has been disclosed by the Company in the SEC Reports, none of the operations of the Company or any of its Subsidiaries is the subject of any federal or state or foreign investigation evaluating whether such Person disposed of any hazardous or toxic waste, substance or constituent material at any site that may require remedial action, or any federal or state or foreign investigation evaluating whether any remedial action is needed to respond to a release of any hazardous or toxic waste, substance or constituent material into the environment. 7.19. ERISA. Neither the Borrower, any Subsidiary of the Borrower nor any ERISA Affiliate maintains or contributes to any Plan other than those listed on SCHEDULE 7.19. 8. EXCHANGING HOLDER REPRESENTATIONS. Each Exchanging Holder, severally but not jointly, represents and warrants only as to itself as follows: -23 8.1. AUTHORIZATION; NO CONTRAVENTION. The execution, delivery and performance by it of this Agreement and any Joinder Agreement, as applicable,: (a) is within its power and authority and has been duly authorized by all necessary action and (b) does not contravene the terms of its organizational documents or any amendment thereof. 8.2. BINDING EFFECT. This Agreement and the applicable Joinder Agreement, as the case may be, has been duly executed and delivered by it and this Agreement and such Joinder Agreement constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms. 8.3. NO LEGAL BAR. The execution, delivery and performance of this Agreement and the applicable Joinder Agreement, as the case may be, by it will not violate any Requirement of Law applicable to it. 8.4. PURCHASE FOR OWN ACCOUNT. The Securities to be acquired by it pursuant to this Agreement are being acquired for its own account and with no intention of distributing or reselling such securities or any part thereof in any transaction that would violate the securities laws of the United States of America, or any state thereof, without prejudice, however, to its right at all times to sell or otherwise dispose of all or any part of its Securities, under an effective registration statement under the Securities Act, or under an exemption from such registration available under the Securities Act, and subject, nevertheless, to the disposition of its property being at all times within its control. 8.5. ACCREDITED INVESTOR. Such Exchanging Holder is an "accredited investor" as that term is defined in Rule 501 of Regulation D promulgated under the Securities Act, by virtue, INTER ALIA, of its being a corporation, Massachusetts or similar business trust, or partnership, not formed for the specific purpose of acquiring the Warrants or the shares of Common Stock issuable upon exercise of the Warrants, with total assets in excess of $5,000,000. 8.6. RESTRICTED SECURITIES. Such Exchanging Holder understands that the Warrants acquired by it may not be sold, transferred or otherwise disposed of without registration under the Securities Act or an exemption therefrom, and that in the absence of an effective registration statement covering the Warrants or an available exemption from registration under the Securities Act, the Warrants must be held indefinitely. In the absence of a registration statement covering the Warrants, such Exchanging Holder will sell, transfer or otherwise dispose of the Warrants only in a manner consistent with its representations and agreements set forth herein. 8.7. FINANCIAL CONDITION. Such Exchanging Holder's financial condition is such that it is able to bear the risk of holding the Securities acquired by it for an indefinite period of time and can bear the loss of its entire investment in the Securities. 8.8. EXPERIENCE. Such Exchanging Holder has such knowledge and experience in financial and business matters and in making high-risk investments of the type such as the -24 Securities that it is capable of evaluating the merits and risks of the acquisition of the Securities. 8.9. LEGEND. Such Exchanging Holder understands that the certificates evidencing the Securities may bear a legend substantially in the following form: "[THIS SECURITY] [THE NOTE EVIDENCED HEREBY] HAS NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT AS SET FORTH BELOW. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT), (2) AGREES THAT IT WILL NOT WITHIN TWO YEARS AFTER THE ORIGINAL ISSUANCE OF THIS SECURITY RESELL OR OTHERWISE TRANSFER THIS [SECURITY] [NOTE] EXCEPT (A) TO THE ISSUER OR ANY SUBSIDIARY THEREOF, (B) TO A QUALIFED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, OR (C) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT (AND WHICH CONTINUES TO BE EFFECTIVE AT THE TIME OF SUCH TRANSFER) AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS [SECURITY] [NOTE] IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND." 8.10. SUBORDINATION LEGENDS. Such Exchanging Holder understands that the Notes will bear legends substantially in the following form: "THE TERMS OF THIS NOTE ARE SUBJECT TO THAT CERTAIN SUBORDINATION AGREEMENT DATED AS OF JANUARY 30, 2003, AMONG SILICON VALLEY BANK, THE CREDITORS NAMED THEREIN AND U.S. BANK NATIONAL ASSOCIATION, AS COLLATERAL AGENT AND FISCAL AGENT, AS THE SAME MAY BE AMENDED, MODIFIED OR SUPPLEMENTED FROM TIME TO TIME." "THE TERMS OF THIS NOTE ARE FURTHER SUBJECT TO THAT CERTAIN COLLATERAL AGENCY AND INTERCREDITOR AGREEMENT DATED AS OF FEBRUARY 21, 2003, AMONG THE SYMPHONY FUNDS NAMED THEREIN, THE EXCHANGING HOLDERS NAMED THEREIN AND U.S. BANK NATIONAL ASSOCIATION, AS COLLATERAL AGENT, AS THE SAME MAY BE AMENDED, MODIFIED OR SUPPLEMENTED FROM TIME TO TIME." 8.11. ERISA. No part of the funds used by it to purchase the Securities hereunder constitutes assets of an "employee benefit plan" (as defined in section 3(3) of ERISA) or "plan" (as defined in section 4975 of the Code). 8.12. BROKER'S, FINDER'S OR SIMILAR FEES. No brokerage commissions, finder's fees or similar fees or commissions are payable in connection with the transactions contemplated hereby based on any agreement, arrangement or understanding with it or any action taken by it. Such Exchanging Holder hereby indemnifies each other party against and -25 agrees that it will hold each such party harmless from any claim, demand or liability for any such brokerage commissions, finder's fees or similar fees or commissions alleged to have been incurred by such Exchanging Holder with respect to the transactions contemplated hereby. 8.13. GOVERNMENTAL AUTHORIZATION; THIRD PARTY CONSENT. No approval, consent, compliance, exemption, authorization or other action by, or notice to or filing with, any Governmental Authority or any other Person in respect of any Requirement of Law, and no lapse of a waiting period under a Requirement of Law, is required in connection with the execution, delivery or performance by it of this Agreement or the transactions contemplated hereby. 8.14. NO SOLICITATION. Each Exchanging Holder hereby acknowledges and agrees that it was not solicited to exchange its Convertible Notes by the Borrower or any agent of the Borrower. Each Exchanging Holder hereby further acknowledges and agrees that it initiated the negotiations that have led to the execution and delivery of this Agreement and any Joiner Agreement and the closing of the transactions contemplated hereby or thereby. 8.15. ACCESS TO INFORMATION; UNDUE PRESSURE. Each Exchanging Holder hereby acknowledges and agrees that it had sufficient access to adequate information relevant to this Agreement and the transactions contemplated hereby and has had ample time to negotiate the terms of this Agreement or the applicable Joinder Agreement, as the case may be, and consider its investment decision regarding the exchange of the Convertible Notes for new Securities as contemplated hereby or thereby. In addition, each Exchanging Holder hereby further acknowledges and agrees that at no time during the negotiation or execution of this Agreement was such Exchanging Holder told that any counter-offer made by the Borrower was scheduled to expire by any particular date. Furthermore, such Exchanging Holder hereby further acknowledges and agrees that it has not experienced any pressure from the Borrower or any of its Affiliates or agents to exchange its Convertible Notes for new Securities. 8.16. NO MINIMUM EXCHANGE. Each Exchanging Holder hereby acknowledges and agrees that it understands that the execution of this Agreement and the closing of the transactions contemplated hereby, including the exchange of the Convertible Notes, is not contingent upon the exchange of a minimum number or aggregate principal amount of Convertible Notes. 8.17. EXCHANGING HOLDERS SUBJECT TO SUBORDINATION AGREEMENT, INTERCREDITOR AGREEMENT, ETC. Each Exchanging Holder hereby acknowledges and agrees, including each Exchanging Holder who is a party to a Joinder Agreement (who by the execution and delivery thereof shall be deemed to acknowledge and agree), that it shall be bound by and subject to the terms of the Subordination Agreement and the other Credit Documents, as each of the same may be amended, modified or supplemented in accordance with its terms from time to time. Without limiting the foregoing, each Exchanging Holder who is a party to a Joinder Agreement shall, by the execution and delivery thereof, be deemed to become a party to this Agreement and to the Intercreditor Agreement. -26 9. CONTINUING COVENANTS. The Borrower covenants and agrees that for so long as this Agreement is in effect and until each of the Notes and all other Obligations incurred hereunder are paid in full, the Borrower will comply with the following provisions and make the following representations and warranties: 9.1. NEWLY CREATED ENTITY. The Borrower shall (a) cause any newly created Domestic Subsidiary (or any existing Domestic Subsidiary that is not presently a Guarantor, but whose assets have a fair market value exceeding $1,000,000) to become a Guarantor and pledge its assets (including its stock) to secure the Obligations hereunder and (b) use reasonable efforts to pledge all of its interest in a newly created joint venture to secure the Obligations hereunder. 9.2. SEC FILINGS AND REPORTS. The Company will timely file all documents required to be filed with the SEC pursuant to section 13 or 15 of the Exchange Act, and shall provide to the Collateral Agent within one day of making any filing with the SEC copies, copies of all such documents, including all financial statements of the Company filed with the SEC, and all supplemental information packages given to securities analysts or investors. 9.3. REPURCHASE OF CONVERTIBLE SUBORDINATED NOTES. Other than in connection with an exchange of Convertible Notes at an exchange rate less than or equal to (a) $0.50 of principal amount of each new note to be issued in connection therewith and (b) warrants to purchase 0.101695 shares of Common Stock to be issued in connection therewith in exchange for each $1 of principal amount of Convertible Notes to be exchanged, whereby any new securities issued by the Borrower in connection with such exchange are not senior to the Securities and do not otherwise have terms (taken as a whole) more favorable to the holders thereof than the terms governing the Securities (a "PERMITTED EXCHANGE"), from and after the Closing Date, except as contemplated by this Agreement, the Borrower shall not repay principal of any outstanding Convertible Note, and shall not repurchase or otherwise acquire (including in any exchange or other acquisition of Convertible Notes in whole or in part for other debt securities) any outstanding Convertible Note, at a purchase price greater than 35% of the outstanding principal amount of such Convertible Note. 9.4. EXCHANGE OF CONVERTIBLE NOTES. In addition to the limitations set forth in Section 9.3, prior to July 30, 2003, the Borrower shall not effect any exchange of Convertible Notes other than pursuant to Permitted Exchanges for up to the Maximum Exchange Amount of Convertible Notes. Any new securities issued by the Company pursuant to a Permitted Exchange shall be in minimum denominations of $1,000 principal amount and integral multiples in excess thereof. The Borrower shall not effect any exchange of Convertible Notes for new debt securities to be issued by the Borrower or any Affiliate of the Borrower after July 30, 2003. 9.5. NON-PUBLIC INFORMATION. Except, in accordance with, or as required by, the Credit Documents, Borrower will not furnish to any Holder or any Exchanging Holder any non-public, confidential information regarding the Company or any of its Subsidiaries. -27 9.6. INSURANCE. The Borrower shall, at all times insure all of the tangible Credit Security and carry such other business insurance in such form and amounts as are customary and necessary for the operation of its business, and the Borrower shall provide evidence of such insurance to the Collateral Agent, of which evidence the Collateral Agent shall provide copies to any Holder upon its written request therefor. All such insurance policies shall name the Collateral Agent as an additional loss payee, and shall contain a lenders loss payee endorsement in form reasonably acceptable to the Collateral Agent. 9.7. LITIGATION COOPERATION. Should any suit or proceeding be instituted by or against the Holders, the Exchanging Holders or the Collateral Agent by a third party with respect to any Credit Security or in any manner relating to the Borrower, the Borrower shall, without expense to the Holders, the Exchanging Holders or the Collateral Agent, make available the Borrower and its officers, employees and agents and the Borrower's books and records, to the extent that the Holders or the Exchanging Holders, as applicable, may deem them reasonably necessary in order to prosecute or defend any such suit or proceeding by such third party. 9.8. BANKING RELATIONSHIP. In order for the Holders to properly monitor their arrangement with the Borrower, the Borrower shall at all times during the term of this Agreement maintain all of its depository, operating and securities accounts at institutions which are have agreed to a form of deposit account control agreement reasonably acceptable to the Holders. 9.9. SUBORDINATION OF INSIDE DEBT. All present and future Indebtedness of the Company to its officers, directors and shareholders other than to any lender under the Credit Facility ("INSIDE DEBT") shall, at all times, be subordinated to the Obligations pursuant to a subordination agreement on in form and substance satisfactory to the Required Holders. The Company represents and warrants that there is no Inside Debt presently outstanding. Prior to incurring any Inside Debt in the future, the Company shall cause the person to whom such Inside Debt will be owed to execute and deliver to the Holders and the Collateral Agent a subordination agreement in form and substance satisfactory to the Holders and the Collateral Agent. 9.10. SUBORDINATION AGREEMENTS. The Borrower represents and warrants that, other than the Senior Loans, the Convertible Notes, the Notes and indebtedness secured by Permitted Liens or otherwise incurred in the ordinary course of business, the Borrower has no Indebtedness for money borrowed. Prior to incurring any additional indebtedness, other than in connection with the Credit Facility or pursuant to any exchange of Convertible Notes for new securities in a transaction not prohibited by Section 9.4, the Borrower shall cause each new creditor to execute and deliver to the Holders and the Collateral Agent a subordination agreement subordinating to the Obligations the Indebtedness of the Borrower to any such creditor. The Borrower represents that none of the existing subordinated debt outstanding under the Convertible Notes Indenture is currently secured by any assets or property of the Borrower. In addition, as further described in Section 10, the Borrower covenants that at no time will any of the subordinated debt be secured by its assets or property. Notwithstanding the foregoing, the Convertible Notes may be exchanged for new securities pursuant to transactions -28 not prohibited by Section 9.3 or Section 9.4, and such Indebtedness shall be permitted hereunder and Liens securing such Indebtedness shall automatically be deemed a "Permitted Lien" hereunder. The Borrower acknowledges and agrees that the Obligations are and shall at all times constitute "Designated Senior Indebtedness" of the Borrower with respect to each of its subordinated creditors, including, without limitation, those subordinated creditors party to, or who are entitled to the benefits of, the Convertible Notes Indenture. The Borrower hereby represents, warrants and certifies that it has, on or about the date hereof, delivered to the Trustee under the Convertible Notes Indenture a notice in accordance with the terms of the Convertible Notes Indenture to confirm that the Obligations constitute Designated Senior Indebtedness thereunder. The Borrower hereby agrees that it will not materially modify any of the terms and conditions of the Convertible Notes Indenture without the Required Holders' prior written consent in each instance. Other than in connection with any exchange of Convertible Notes for new securities in transactions not prohibited by Section 9.3 or Section 9.4, the Borrower shall not make any payments of any kind (including, without limitation, pursuant to section 13.1 of the Convertible Notes Indenture) to, or for the benefit of, any of the subordinated debt holders or the Trustee under the Convertible Notes Indenture without the prior written consent of the Required Holders in each instance; PROVIDED, HOWEVER, that the Company shall be permitted to pay the compensation expenses of the Trustee (as such term is defined in the Convertible Notes Indenture) in accordance with section 8.6 of the Convertible Notes Indenture, and prior to the occurrence of an Event of Default, the Company may make regularly scheduled payments of interest in accordance with the terms of the Convertible Notes Indenture and may consummate one or more exchanges of Convertible Notes pursuant to transactions not prohibited by Section 9.3 or Section 9.4. 9.11. FURTHER ASSURANCES. The Borrower agrees, at its expense, on request by any of the Holders, to execute all documents and take all actions, as the Holders or the Collateral Agent may deem reasonably necessary or useful in order to perfect and maintain the Holders' perfected security interest in the Credit Security, and in order to fully consummate the transactions contemplated by this Agreement. 10. CONTINGENT COVENANTS. The Borrower makes the following representations and warranties and covenants and agrees that, following the termination or material modification (in the reasonable discretion of the Required Holders) of the Senior Loan Agreement (PROVIDED, HOWEVER, that neither a refinancing or renewal of such Indebtedness incurred pursuant to the Senior Loan Agreement of up to $40,000,000 nor any amendment or modification to the financial covenants contained in the Senior Loan Agreement shall, in and of itself, constitute a termination or material modification of the Senior Loan Agreement), for so long as this Agreement is in effect and until each of the Notes and all other Obligations incurred hereunder are paid in full, the Borrower shall not, without the Required Holders' prior written consent (which consent will not be unreasonably withheld or delayed), do any of the following: (i) merge or consolidate with another corporation or entity if such merger or consolidation results in a Change of Control; PROVIDED, HOWEVER, that iBasis Global and the Guarantor may (x) merge into the Company or (y) merge together; (ii) acquire any assets, except in the ordinary course of business; (iii) enter into any other transaction outside the ordinary course of business; (iv) sell or transfer any Credit Security, except for the sale of finished Inventory in the ordinary course of the Borrower's business, and except for the sale of obsolete or unneeded Equipment in the ordinary course of -29 business; (v) store any Inventory or other Credit Security with any warehouseman or other third party other than in the ordinary course of business; (vi) other than the sale of finished Inventory in the ordinary course of Borrower's business in accordance with Section 10(iv) above, sell any Inventory on a sale-or-return, guaranteed sale, consignment, or other contingent basis; (vii) other than as permitted by the Senior Loan Agreement or the Security Agreement or pursuant to transactions not prohibited by Section 9.4, use any of its assets as security for any Indebtedness; (viii) other than travel advances and similar loans to employees made in the ordinary course of business and the payment of salaries and the granting of other employee benefits in the ordinary course of business, make any loans of any money or transfer any of its assets, including loans and transfers to its Affiliates; (ix) other than under the Senior Loan Agreement, the Notes or in accordance with Sections 9.3 and 9.4, incur any debts outside the ordinary course of business; (x) guarantee or otherwise become liable with respect to the obligations of another party or entity; (xi) enter into any Lien with respect to a Capitalized Lease other than a Permitted Lien; (xii) pay or declare any dividends on Borrower's stock (except for dividends payable solely in stock of the Borrower and dividends payable by iBasis Global to the Company); (xiii) other than a cashless or "net" exercise of employee stock options pursuant to plans existing on the date hereof or otherwise approved by Borrower's board of directors, redeem, retire, purchase or otherwise acquire, directly or indirectly, any of the Borrower's stock; (xiv) enter into any agreement that restricts dividends to be paid by any Subsidiary of the Borrower; (xv) make any change in the Borrower's capital structure which would have a material adverse effect on the Borrower or on the prospect of repayment of the Obligations; (xvi) make any Investment other than Permitted Investments; or (xvii) dissolve or elect to dissolve. Transactions permitted by the foregoing provisions of this Section 10 are only permitted if no Default or Event of Default would occur as a result of such transaction. Notwithstanding anything to the contrary contained in this Section 10, nothing in this Section 10 shall prohibit the Borrower from repurchasing Convertible Notes or exchanging new securities for Convertible Notes in accordance with Sections 9.3 and 9.4, and the consummation of such transactions shall not be deemed to result in a breach of this Section 10. 11. EVENTS OF DEFAULT; REMEDIES. 11.1. EVENTS OF DEFAULT. The following events are referred to as "EVENTS OF DEFAULT": 11.1.1. PAYMENTS. The Borrower shall (a) default in the payment when due of any principal of the Notes or (b) default, and such default shall continue for three or more Business Days, in the payment when due of any interest on the Notes or any other amounts owing hereunder or under any other Credit Document. 11.1.2. REPRESENTATIONS, ETC. Any representation, warranty or certification made by any Obligor herein or in any other Credit Document or in any statement or certificate delivered or required to be delivered pursuant hereto or thereto shall prove to be untrue in any material respect as of the date made or deemed made. 11.1.3. COVENANTS. Any Obligor shall (a) default in the due performance or observance by it of any covenant or agreement contained in Section 9 or Section 10, or (b) -30 default in the due performance or observance by it of any covenant or agreement (other than those referred to in Sections 11.1.1 or clause (a) of this Section 11.1.3) contained in this Agreement or any other Credit Document and such default shall continue unremedied for a period of at least 30 days after written notice to the defaulting party by the Demand Holders or the Collateral Agent. 11.1.4. DEFAULT UNDER OTHER AGREEMENTS. The Borrower or any of its Subsidiaries shall (a) default in payment of the principal of any Indebtedness (other than the Obligations) at the final maturity thereof beyond the period of grace, if any, applicable thereto; or (b) default in the observance or performance of any agreement or condition relating to any such Indebtedness or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event shall occur or condition exist, the effect of which default or other event or condition is to cause any such Indebtedness to become due prior to its stated maturity; or (c) any such Indebtedness of the Borrower or any of its Subsidiaries shall be declared to be due and payable prior to the stated maturity thereof; or (d) an event of default under the Senior Loan Agreement occurs and is continuing or (e) an event of default under the Convertible Notes Indenture occurs and is continuing; PROVIDED, HOWEVER, that it shall not constitute an Event of Default pursuant to this Section 11.1.4 unless the aggregate amount of all Indebtedness referred to in clauses (a), (b) and (c) above exceeds at any one time $2,500,000 individually or in the aggregate. 11.1.5. BANKRUPTCY, ETC. The Borrower or any of its Subsidiaries shall commence a voluntary case under Title 11 of the United States Code (the "BANKRUPTCY CODE"); or an involuntary case is commenced against the Borrower or any of its Subsidiaries and the petition is not controverted within 10 days, or is not dismissed within 60 days, after commencement of the case; or a custodian (as defined in the Bankruptcy Code) is appointed for, or takes charge of, all or substantially all of the property of the Borrower or any of its Subsidiaries; or the Borrower or any of its Subsidiaries commences any other proceeding under any reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction whether now or hereafter in effect relating to the Borrower or any of its Subsidiaries; or any such proceeding is commenced against the Borrower or any of its Subsidiaries which remains undismissed for a period of 60 days; or the Borrower or any of its Subsidiaries is adjudicated insolvent or bankrupt; or any order of relief or other order approving any such case or proceeding is entered; the Borrower or any of its Subsidiaries suffers any appointment of any custodian or receiver for it or any substantial part of its property to continue undischarged or unstayed for a period of 60 days; or the Borrower or any of its Subsidiaries makes a general assignment for the benefit of creditors; or any corporate action is taken by the Borrower or any of its Subsidiaries for the purpose of effecting any of the foregoing. 11.1.6. ERISA. (a) Any Termination Event shall occur with respect to any Benefit Plan of the Borrower, any of its Subsidiaries or any ERISA Affiliate, (b) any Accumulated Funding Deficiency, whether or not waived, shall exist with respect to any such Benefit Plan, (c) any Person shall engage in any Prohibited Transaction involving any such Benefit Plan, (d) the Borrower, any of its Subsidiaries or any ERISA Affiliate shall be in "default" (as defined in ERISA section 4219(c)(5)) with respect to payments owing to any such -31 Benefit Plan that is a Multiemployer Plan as a result of such Person's complete or partial withdrawal (as described in ERISA sections 4203 or 4205) therefrom, (e) the Borrower, any of its Subsidiaries or any ERISA Affiliate shall fail to pay when due an amount that is payable by it to the PBGC or to any such Benefit Plan under Title IV of ERISA, (f) a proceeding shall be instituted by a fiduciary of any such Benefit Plan against the Borrower, any of its Subsidiaries or any ERISA Affiliate to enforce ERISA section 515 and such proceeding shall not have been dismissed within 30 days thereafter or (g) any other event or condition shall occur or exist with respect to any such Benefit Plan, except that no event or condition referred to in clauses (a) through (g) shall constitute an Event of Default if it, together with all other such events or conditions at the time existing, has not subjected, and in the reasonable determination of the Demand Holders will not subject, the Borrower or any of its Subsidiaries to any liability that, alone or in the aggregate with all such liabilities for all such Persons, exceeds $2,500,000. 11.1.7. ENFORCEABILITY, ETC. Any Credit Document shall cease for any reason (other than the scheduled termination thereof in accordance with its terms) to be enforceable in accordance with its terms or in full force and effect; or any party to any Credit Document (other than one or more of the Exchanging Holders) shall so assert in a judicial or similar proceeding; or the security interests created by any Credit Document shall cease to be enforceable and of the same effect and priority purported to be created thereby; or any Guarantor or any Person acting by or on behalf of such Guarantor shall deny or disaffirm such Guarantor's obligations under such Guarantee or any Guarantor shall default in the due performance or observance of any covenant or agreement on its part to be performed pursuant to such Guarantee and such default (other than a payment default) shall continue unremedied for a period of at least 30 days after written notice to the defaulting party by any Holder or the Collateral Agent. 11.1.8. JUDGMENTS. A final judgment (a) which, with other outstanding final judgments against the Borrower and its Subsidiaries, exceeds an aggregate of $2,500,000 in excess of applicable insurance coverage shall be rendered against the Borrower or any of its Subsidiaries, or (b) which grants injunctive relief that results, or creates a material risk of resulting, in a Material Adverse Effect and in either case if (i) within 30 days after entry thereof, such judgment shall not have been discharged or execution thereof stayed pending appeal or (ii) within 30 days after the expiration of any such stay, such judgment shall not have been discharge. 11.2. CERTAIN ACTIONS FOLLOWING AN EVENT OF DEFAULT. 11.2.1. SPECIFIC PERFORMANCE; EXERCISE OF RIGHTS. Upon the occurrence and during the continuance of an Event of Default, but only at the written direction of the Demand Holders, the Collateral Agent shall proceed to protect and enforce the Holders' rights by suit in equity, action at law and/or other appropriate proceeding, either for specific performance of any covenant or condition contained in this Agreement or any other Credit Document or in any instrument or assignment delivered to the Holders pursuant to this Agreement or any other Credit Document, or in aid of the exercise of any power granted in this Agreement or any other Credit Document or any such instrument or assignment. -32 11.2.2. ACCELERATION. Upon the occurrence and during the continuance of an Event of Default and upon the written request of the Demand Holders, the Collateral Agent shall by notice in writing to the Borrower declare all or any part of the unpaid balance of the Obligations then outstanding to be immediately due and payable; PROVIDED, HOWEVER, that if a Bankruptcy Default shall have occurred, the unpaid balance of the Obligations shall automatically become immediately due and payable. 11.2.3. ENFORCEMENT OF PAYMENT; CREDIT SECURITY; SETOFF. Upon the occurrence and during the continuance of an Event of Default, but only at the written direction of the Demand Holders, the Collateral Agent shall proceed to enforce payment of the Obligations in such manner as the Demand Holders may elect and to realize upon any and all rights of the Holders under the Credit Documents. The Holders may offset and apply toward the payment of the Obligations (and/or toward the curing of any Event of Default) any Indebtedness from the Holders to the respective Obligors, regardless of the adequacy of any security for the Obligations. The Holders shall have no duty to determine the adequacy of any such security in connection with any such offset. 11.2.4. CUMULATIVE REMEDIES. To the extent not prohibited by applicable law which cannot be waived, all of the Holders' rights hereunder and under each other Credit Document shall be cumulative. 11.3. ANNULMENT OF EVENTS OF DEFAULT. Once an Event of Default has occurred, such Event of Default shall be deemed to exist and be continuing for all purposes of the Credit Documents until the Required Holders or the Collateral Agent (with the consent of the Required Holders) shall have waived such Event of Default in writing, stating in writing that the same has been cured to such Holders' reasonable satisfaction or entered into an amendment to this Agreement which by its express terms cures such Event of Default, at which time such Event of Default shall no longer be deemed to exist or to have continued. No such action by the Holders or the Collateral Agent shall extend to or affect any subsequent Event of Default or impair any rights of the Holders upon the occurrence thereof. 11.4. WAIVERS. To the extent that any such waiver is not prohibited by the provisions of applicable law that cannot be waived, each of the Obligors waives: (a) all presentments, demands for performance, notices of nonperformance (except to the extent required by this Agreement or any other Credit Document), protests, notices of protest and notices of dishonor; (b) any requirement of diligence or promptness on the part of the Collateral Agent or any Holder in the enforcement of its rights under this Agreement or any other Credit Document; (c) any and all notices of every kind and description which may be required to be given by any statute or rule of law; and (d) any defense (other than indefeasible payment in full) which it may now or -33 hereafter have with respect to its liability under this Agreement or any other Credit Document or with respect to the Obligations. 11.5. ACCELERATION FOLLOWING AN EVENT OF DEFAULT UNDER THE SENIOR LOAN AGREEMENT. In the event of a declaration of acceleration by the Demand Holders (an "APPLICABLE ACCELERATION") because an Event of Default set forth in Section 11.1.4 above has occurred and is continuing under the Senior Loan Agreement (a "SENIOR LOAN EVENT OF DEFAULT") such Applicable Acceleration shall be automatically annulled if the holders of such Senior Loans have waived such Senior Loan Event of Default within 20 days thereafter and if (a) the annulment of such Senior Loan Event of Default would not conflict with any judgment or decree of a court of competent jurisdiction and (b) all existing Events of Default, except the non-payment of principal or interest on the Notes hereunder which shall have become due solely because of such Applicable Acceleration, have been cured or waived. 12. COLLATERAL AGENT. 12.1. APPOINTMENT OF COLLATERAL AGENT. Each of the Exchanging Holders hereby appoints and authorizes the Collateral Agent to act for them as their collateral agent in connection with the transactions contemplated by this Agreement and the other Credit Documents on the terms set forth herein and therein, and hereby agrees that all actions in connection with the Credit Security and the enforcement or exercise of any remedies in respect of the Obligations shall be taken by the Collateral Agent pursuant to this Agreement and the Intercreditor Agreement on behalf of the Holders. 12.2. ACTIONS BY THE COLLATERAL AGENT. The Collateral Agent shall not take any action under this Agreement or the other Credit Documents, including the enforcement or exercise of any remedies in respect of the Obligations, and shall not be obligated to take any such action, except to the extent expressly specified in a written notice received by the Collateral Agent signed by the Required Holders (or, pursuant to Sections 11.2 or 11.5 only, signed by the Demand Holders); PROVIDED, HOWEVER, that the Collateral Agent may execute releases and other collateral termination documents with respect to assets disposed of by the Obligors as permitted by Section 10. All actions taken by the Collateral Agent in accordance with this Section 12.2 shall be binding upon all Holders; PROVIDED, HOWEVER, that the foregoing shall not be deemed a waiver of any Holder's rights against any other party hereto with respect to the taking of such action. 12.3. EXECUTION OF ADDITIONAL DOCUMENTS. The Collateral Agent is hereby directed and authorized to execute and deliver each of the following documents (collectively, the "ADDITIONAL DOCUMENTS"): each Guarantee, the Subordination Agreement, the Security Agreement, the Intercreditor Agreement, the other Collateral Documents and any subsequent joinder agreements, amendments, modifications or supplements to any of the foregoing. Each of the Exchanging Holders hereby consents to and accepts the terms of each of the Additional Documents and the execution and delivery thereof by the Collateral Agent. Whether or not so stated therein, in entering into any such Additional Documents, and in performing or observing any of the terms of any such Additional Documents, and otherwise in respect of any matter arising under or in respect of any such Additional Documents, the -34 Collateral Agent shall enjoy and shall be protected by each of the rights, immunities, indemnities and other protections set forth in this Agreement; and any obligations, duties or liabilities to which the Collateral Agent may be or become subject under or in respect of any such Additional Documents shall be subject to and limited by the terms of this Agreement (including, without limitation, the terms of this Section 12). In no event shall the Collateral Agent have any liability under any such Additional Documents that it would not have, nor shall the Collateral Agent be obligated to take any action thereunder that it would not be required to take, under the terms of this Agreement. It is hereby expressly acknowledged that the Collateral Agent has not evaluated nor negotiated any of the terms of this Agreement or any such Additional Documents on behalf of the Exchanging Holders, has not performed any investigation of otherwise advised the Exchanging Holders in respect of this Agreement or any such Additional Documents and has no responsibility for terms of this Agreement or any such Additional Documents, or the sufficiency or validity hereof or thereof. The Collateral Agent is further authorized and directed to execute, upon the request of Borrower, such amendments to the Collateral Documents and such other instruments including, but not limited to, intercreditor agreements in such form as may be reasonably requested by the Borrower, as may be necessary to secure, on a pari passu basis (as to seniority and priority) with the security interests granted to new Holders in connection with this Agreement, the obligations of the Borrower, in respect of new securities issued by the Company pursuant to exchange transactions not prohibited by Section 9.4. 12.4. INFORMATION REGARDING OBLIGORS, ETC. Each of the Exchanging Holders expressly waives any duty which may now or hereafter exist on the part of the Collateral Agent to disclose to the Exchanging Holders any matter related to the business, operations, character, collateral, credit, condition (financial or otherwise), income or prospects of the Obligors or their Affiliates or their properties or management, whether now or hereafter known by the Collateral Agent other than matters related to the disposition of the Credit Security. Each of the Exchanging Holders represents, warrants and agrees that it assumes sole responsibility for obtaining from the Obligors all information concerning this Agreement and all other Credit Documents and all other information as to the Obligors and their Affiliates or their properties or management as such Exchanging Holder deems necessary or desirable. 12.5. CONCERNING THE COLLATERAL AGENT. 12.5.1. ACTION IN GOOD FAITH, ETC. The Collateral Agent and its officers, directors, employees and agents shall be under no duty to act except as expressly set forth in Section 12.2 and shall have no liability to the Holders for any action or failure to act taken or suffered without willful misconduct or gross negligence. The Collateral Agent shall in all cases be entitled to rely, and shall not be liable to the Holders for any action taken in reliance, on instructions given to the Collateral Agent in accordance with Section 12.2. 12.5.2. NO IMPLIED DUTIES, ETC. The Collateral Agent shall have and may exercise such powers as are specifically delegated to the Collateral Agent under this Agreement together with all other powers as may be incidental thereto. The Collateral Agent shall have no implied duties to any Person or any obligation to take any action under this Agreement or any -35 other Collateral Document except for any action specifically provided for in this Agreement or any other Collateral Document to be taken by the Collateral Agent. 12.5.3. VALIDITY, ETC. The Collateral Agent shall not be responsible to any Holder (a) for the legality, validity, enforceability or effectiveness of this Agreement or any Credit Document, (b) for any recitals, reports, representations, warranties or statements contained in or made in connection with this Agreement or any Credit Document, (c) for the existence or value of any assets included in the Credit Security, (d) for the effectiveness of any lien purported to be included in the Credit Security or (e) for the specification or failure to specify any particular assets to be included in the Credit Security. 12.5.4. COMPLIANCE. The Collateral Agent shall not be obligated to ascertain or inquire as to the performance or observance of any of the terms of this Agreement or any Collateral Document, including the occurrence of any Event of Default. 12.5.5. EMPLOYMENT OF AGENTS AND COUNSEL. The Collateral Agent may execute any of its duties as Collateral Agent under this Agreement by or through employees, agents and attorneys-in-fact and shall not be responsible to any Holder or any Obligor (except as to money or securities received by the Collateral Agent or the Collateral Agent's authorized agents) for the default or misconduct of any such agents or attorneys-in-fact selected by the Collateral Agent with reasonable care. The Collateral Agent shall be entitled to advice of counsel concerning all matters pertaining to the agency hereby created and its duties hereunder and shall be reimbursed by the Obligors for all reasonable attorneys' fees and costs incurred in connection with its responsibilities hereunder. 12.5.6. RELIANCE ON DOCUMENTS AND COUNSEL. The Collateral Agent shall be entitled to rely, and shall be fully protected in relying, upon any affidavit, certificate, cablegram, consent, instrument, letter, notice, order, document, statement, facsimile, telegram, telex or teletype message or writing believed in good faith by the Collateral Agent to be genuine and correct and to have been signed, sent or made by the Person in question, including without limitation any telephonic or oral statement made by such Person and, with respect to legal matters, upon the opinion of counsel selected by the Collateral Agent. 12.5.7. COLLATERAL AGENT'S REIMBURSEMENT. Each of the Holders shall, jointly and severally, reimburse the Collateral Agent for any expenses not reimbursed by the Obligors within 30 days (without limiting their obligations to make such reimbursement): (a) for which the Collateral Agent is entitled to reimbursement by the Obligors under this Agreement, and (b) after the occurrence of an Event of Default, for any other expenses incurred by the Collateral Agent on their behalf in connection with the enforcement of their rights under this Agreement or any other Collateral Document. 12.6. COLLATERAL AGENT INDEMNITY. The Holders shall, jointly and severally, be responsible for indemnifying and holding harmless the Collateral Agent and its directors, officers, employees, agents, professional advisers and representatives (to the extent that the Collateral Agent is not indemnified by the Obligors, and without in any way limiting the Obligations of the Obligors so to indemnify the Collateral Agent pursuant to Section 14.1 -36 or any other Credit Document) from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind whatsoever which may at any time be imposed on, incurred by or asserted against the Collateral Agent and its directors, officers, employees, agents, professional advisers and representatives relating to or arising out of this Agreement, the Credit Security, any other Collateral Document, the transactions contemplated hereby or thereby, or any action taken or omitted by the Collateral Agent in connection with any of the foregoing, PROVIDED, HOWEVER, that the foregoing shall not extend to actions or omissions which are taken by the Collateral Agent with gross negligence or willful misconduct. The foregoing indemnity shall survive the expiration of this Agreement or any of the agreements evidencing the Obligations. All amounts due under this Section 12.6 shall be immediately payable on written demand therefor. 12.7. COLLATERAL AGENT'S RESIGNATION OR REMOVAL. The Collateral Agent may resign at any time by giving at least 60 days' prior written notice of its intention to do so to each of the Holders and to the Borrower and upon the appointment by the Required Holders of a successor Collateral Agent reasonably satisfactory to the Borrower; PROVIDED, HOWEVER, if at the time of such appointment, an Event of Default shall have occurred, the consent of the Borrower to the appointment of a successor Collateral Agent shall not be required. If no successor Collateral Agent shall have been so appointed and shall have accepted such appointment within 45 days after the retiring Collateral Agent's giving of such notice of resignation, then the retiring Collateral Agent may with the consent of the Borrower, which consent shall not be unreasonably withheld, appoint a successor Collateral Agent which shall be a bank or a trust company organized under the laws of the United States of America or any state thereof and having a combined capital, surplus and undivided profit of at least $100,000,000; PROVIDED, HOWEVER, if at the time of such appointment, an Event of Default shall have occurred, the consent of the Borrower to the appointment of a successor Collateral Agent shall not be required. Any Collateral Agent may be removed upon the written request of the Required Holders, which request shall also appoint a successor Collateral Agent reasonably satisfactory to the Borrower; PROVIDED, HOWEVER, if at the time of such appointment, an Event of Default shall have occurred, the consent of the Borrower to the appointment of a successor Collateral Agent shall not be required. Upon the appointment of a new Collateral Agent hereunder, the term "Collateral Agent" shall for all purposes of this Agreement and any other Collateral Document thereafter mean such successor. After any retiring Collateral Agent's resignation hereunder as Collateral Agent, or the removal hereunder of any Collateral Agent, the provisions of this Agreement or any other Collateral Document shall continue to inure to the benefit of such Collateral Agent as to any actions taken or omitted to be taken by it while it was Collateral Agent under this Agreement or any other Collateral Document. 12.8. MERGER, CONVERSION OR CONSOLIDATION. Any corporation into which the Collateral Agent may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Collateral Agent shall be a party, or any corporation succeeding to all or substantially all of the corporate trust business of the Collateral Agent, shall be the successor of the Collateral Agent hereunder; PROVIDED that such corporation shall be otherwise qualified and eligible under this Agreement, without the execution or filing of any paper or any further act on the part of any of the parties hereto. -37 12.9. REPRESENTATIONS AND WARRANTIES OF THE COLLATERAL AGENT. The Collateral Agent represents and warrants to each of the other parties hereto that: 12.9.1. AUTHORITY. It has all necessary power and has taken all necessary action to enter into and perform this Agreement and to make this Agreement the legal, valid, binding and enforceable obligation it purports to be. 12.9.2. AUTHORIZATION AND ENFORCEABILITY. It has taken all corporate action required to execute, deliver and perform this Agreement and each Additional Document to which it is party. Each of this Agreement and each Additional Document constitutes its legal, valid and binding obligation and is enforceable against the Collateral Agent in accordance with their respective terms. 12.9.3. NO LEGAL OBSTACLE TO AGREEMENT. Neither the execution and delivery of this Agreement nor the consummation of any transaction contemplated hereby nor the fulfillment of the terms hereof or of any other agreement or instrument referred to herein has constituted or resulted in, or will constitute or result in, a breach of the provisions of any agreement, instrument, deed or lease to which it is a party or by which it is bound or of its charter or by-laws, or the violation of any law, judgment, decree or governmental or administrative order, rule or regulation applicable to it. No approval, authorization or other action by, or declaration to or filing with, any governmental or administrative authority or any other Person is required to be obtained or made by the Collateral Agent in connection with the execution, delivery and performance of this Agreement. 13. PRIOR CLAIMS EXTINGUISHED. Except for the obligations to be performed by the Borrower and the other Obligors on or after the date hereof as expressly stated in this Agreement and the other Credit Documents, each of the Exchanging Holders unconditionally releases, waives and forever discharges any and all liabilities, obligations, duties, promises or indebtedness of any kind of the Company or any other Obligor to such Exchanging Holder on account of any past or presently existing condition, act, omission, event, contract, liability, obligation, indebtedness, claim, cause of action, defense, circumstance or matter of any kind which relates in any manner to the Convertible Notes being exchanged in connection herewith, the Convertible Notes Indenture, but solely with respect to the Convertible Notes being exchanged herewith, or any other document executed in connection therewith, but solely with respect to the Convertible Notes being exchanged herewith. 14. GENERAL. 14.1. PAYMENT OF EXPENSES, ETC. The Borrower agrees: (a) subject to the provisions of Section 6 hereof and whether or not the transactions herein contemplated are consummated, to pay its share of all reasonable out-of-pocket costs and expenses of the Exchanging Holders and the Collateral Agent in connection with the negotiation, preparation, execution and delivery of the Credit Documents and the documents and instruments referred to therein and any amendment, waiver or consent relating thereto, together with, in each case, the reasonable fees and disbursements of counsel for the Exchanging Holders and the Collateral Agent and any enforcement (whether through negotiations, legal process or otherwise) of the -38 Credit Documents and the documents and instruments referred to therein (including the reasonable fees and disbursements of counsel for the Exchanging Holders and the Collateral Agent); (b) to pay the fees of the Collateral Agent as separately agreed to by the Collateral Agent and the Borrower; (c) to pay and hold each of the Exchanging Holders and Holders harmless from and against any and all present and future stamp and other similar taxes with respect to the foregoing matters and save each of the Exchanging Holders and Holders harmless from and against any and all liabilities with respect to or resulting from any delay or omission (other than to the extent attributable to such Exchanging Holder or Holder, as applicable) to pay such taxes; and (d) to indemnify each Exchanging Holder, each Holder, the Collateral Agent and their respective officers, directors, employees, representatives, partners, counsel, advisors and agents from and hold each of them harmless against any and all losses, liabilities, claims, damages or expenses incurred by any of them with respect to the entering into and/or performance of any Document or the consummation of any transactions contemplated in any Document (including as a result of, or arising out of, any investigation, litigation or other proceeding or preparation of a defense in connection therewith (whether or not any Exchanging Holder, any Holder or the Collateral Agent is a party thereto and whether or not any such investigation, litigation or other proceeding is between or among any Exchanging Holder, any Holder, or the Collateral Agent any Obligor or any third Person or otherwise)), and in each case including the reasonable fees and disbursements of counsel, but excluding in each case any such losses, liabilities, claims, damages or expenses to the extent incurred by reason of the gross negligence or willful misconduct of the Person to be indemnified. 14.2. NOTICES. Except as otherwise expressly provided herein, all notices, requests, consents, and other communications under this Agreement shall be in writing and shall be deemed delivered (a) two business days after being sent by registered or certified mail, return receipt requested, postage prepaid or (b) one business day after being sent via a reputable nationwide overnight courier service guaranteeing next business day delivery, in each case to the intended recipient as set forth below: If to the Borrower, at 20 Second Avenue, Burlington, MA 01803, Attention: Chief Financial Officer, or at such other address or addresses as may have been furnished in writing by the Company to the Holders and the Collateral Agent, with a copy to Johan V. Brigham, Bingham McCutchen LLP, 1900 University Avenue, East Palo Alto, CA 94303-2223; and If to the Exchanger, at JMG Capital Partners, 1 Sansome Street, 39th Floor, San Francisco, CA 94104, Attention: David Rubinstein, or at such other address or addresses as may have been furnished to the Borrower and the Collateral Agent in writing by the Exchanger: and If to any other Exchanging Holder, at the address set forth in the applicable Joinder Agreement or at such other address or addresses as may have been furnished to the Borrower in writing by such Exchanging Holder. If to the Collateral Agent, at One Federal Street, 3rd Floor, Boston, MA 02110, Attention: Corporate Trust Services, Re: iBasis, with a copy to Robert J. Coughlin, Esq., Nixon Peabody LLP, 101 Federal Street, Boston, MA 02110; or at such other address or addresses as may have been furnished to the Borrower and the Exchanging Holders by the Collateral Agent. -39 Any party may give any notice, request, consent or other communication under this Agreement using any other means (including personal delivery, messenger service, facsimile, first class mail or electronic mail), but no such notice, request, consent or other communication shall be deemed to have been duly given unless and until it is actually received by the party for whom it is intended. Any party may change the address to which notices, requests, consents or other communications hereunder are to be delivered by giving the other parties notice in the manner set forth in this Section 14.2. 14.3. ASSIGNMENTS; PARTICIPATIONS. 14.3.1. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective successors and assigns of the parties hereto; PROVIDED, HOWEVER, that the Borrower may not assign or transfer any of its rights or obligations hereunder without the prior written consent of each Holder. 14.4. AMENDMENT OR WAIVER. Neither this Agreement nor any other Document nor any terms hereof or thereof may be amended, changed, waived, discharged or terminated unless such change, waiver, discharge or termination is in writing signed by the respective Obligors party thereto and the Required Holders, and unless an executed copy thereof has been provided to and acknowledged in writing by the Collateral Agent (and, in the case of any other Document, subject to any other requirements applicable to such amendment, change, waiver, discharge or termination set forth in such Document; PROVIDED, HOWEVER, that no such change, waiver, discharge or termination shall, without the consent of each Holder directly affected thereby, (a) extend the Maturity Date (any waiver of any prepayment of, or the method of application of any prepayment of, the Notes shall not constitute any such extension), or reduce the rate or extend the time of payment of interest (other than as a result of waiving the applicability of any post-default increase in interest rates) thereon, or reduce the principal amount thereof, (b) amend, modify or waive any provision of this Section 14.4, (c) reduce the percentage specified in, or otherwise modify, the definition of "Required Holders" or "Demand Holders", (d) consent to the assignment or transfer by the Borrower of any of its rights and obligations under this Agreement, (e) establish any new obligations for any Holder not relating to the subject matter of the Agreement or (f) release all or substantially all the collateral or guarantees with respect to the Obligations; PROVIDED, FURTHER, HOWEVER, that no change, waiver, discharge or termination that alters the rights, immunities or duties of the Collateral Agent shall take effect without its express written consent. Notwithstanding anything to the contrary in this Agreement, all Holders of Notes shall be deemed to be third-party beneficiaries of all of the provisions of this Agreement that relate to Holders of Notes, including but not limited to any provisions that may only be waived or consented to by the "Requisite Holders", or that may be initiated only by the "Demand Holders", with such groups being determined for all purposes of this Agreement with regard to all Holders of Notes, whether issued pursuant to this Agreement, the Symphony Exchange Agreement, or otherwise. 14.5. NO WAIVER; REMEDIES CUMULATIVE. No failure or delay on the part of any Exchanging Holder, any Holder or Collateral Agent in exercising any right, power or privilege hereunder or under any other Document and no course of dealing between any Obligor, Collateral Agent and any Holder or Exchanging Holder shall operate as a waiver -40 thereof; nor shall any single or partial exercise of any right, power or privilege hereunder or under any other Document preclude any other or further exercise thereof or the exercise of any other right, power or privilege hereunder or thereunder. The rights and remedies herein expressly provided are cumulative and not exclusive of any rights or remedies which a Holder or Exchanging Holder would otherwise have. No notice to or demand on any Obligor in any case shall entitle any Obligor to any other or further notice or demand in similar or other circumstances or constitute a waiver of the rights of the Holders or the Exchanging Holders to any other or further action in any circumstances without notice or demand. 14.6. NO STRICT CONSTRUCTION. The parties have participated jointly in the negotiation and drafting of this Agreement and the other Documents with counsel sophisticated in financing transactions. In the event an ambiguity or question of intent or interpretation arises, this Agreement and the other Documents shall be construed as if drafted jointly by the parties and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provisions of this Agreement and the other Documents. 14.7. CALCULATIONS; COMPUTATIONS. The financial statements to be furnished to the Holders pursuant hereto shall be made and prepared in accordance with GAAP consistently applied throughout the periods involved (except as set forth in the notes thereto or as otherwise disclosed in writing by the Borrower to the Holders). 14.8. INTERPRETATION; GOVERNING LAW; ETC. 14.8.1. Time is (and shall be) of the essence in this Agreement and the other Documents. All covenants, agreements, representations and warranties made in this Agreement or any other Document or in certificates delivered pursuant hereto or thereto shall be deemed to have been relied on by each Exchanging Holder and the Collateral Agent, notwithstanding any investigation made by any such party on its behalf, and shall survive the execution and delivery to each such party hereof and thereof. The invalidity or unenforceability of any provision hereof shall not affect the validity or enforceability of any other provision hereof, and any invalid or unenforceable provision shall be modified so as to be enforced to the maximum extent of its validity or enforceability. This Agreement and the other Documents constitute the entire understanding of the parties with respect to the subject matter hereof and thereof and supersede all prior and contemporaneous understandings and agreements, whether written or oral. 14.8.2. This Agreement, and any issue, claim or proceeding arising out of or relating to this Agreement or any other Document or the conduct of the parties hereto, whether now existing or hereafter arising and whether in contract, tort or otherwise, shall be governed by, and shall be construed and enforced in accordance with, the laws of The Commonwealth of Massachusetts, without regard to the principles of conflicts of laws. Any legal action or proceeding with respect to this Agreement or any other Document may be brought in any state or federal court sitting in the Commonwealth of Massachusetts, and, by execution and delivery of this Agreement and the other Documents, as applicable, each Obligor irrevocably accepts for itself and in respect of its property, generally and unconditionally, the nonexclusive jurisdiction of the aforesaid courts for such action or proceeding. Each Obligor -41 further irrevocably consents to the service of process out of any of the aforementioned courts in any such action or proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, to each Obligor at its address for notices pursuant to Section 14.2, such service to become effective 15 days after such mailing. Nothing herein shall affect the right of any Holder or Exchanging Holder to serve process in any other manner permitted by law or to commence legal proceedings or otherwise proceed against any Obligor in any other jurisdiction. 14.8.3. Each Obligor irrevocably waives any objection which it may now or hereafter have to the venue of any of the aforesaid actions or proceedings arising out of or in connection with this Agreement or any other Document brought in the courts referred to in Section 14.8.2 above and further irrevocably waives and agrees not to plead or claim in any such court that any such action or proceeding brought in any such court has been brought in an inconvenient forum. 14.8.4. Each of the parties to this Agreement waives to the extent not prohibited by applicable law that cannot be waived any right it may have to claim or recover in any legal action or proceeding any special, exemplary, punitive or consequential damages. 14.9. WAIVER OF JURY TRIAL. TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW THAT CANNOT BE WAIVED, EACH OF THE PARTIES HERETO WAIVES, AND COVENANTS THAT IT WILL NOT ASSERT (WHETHER AS PLAINTIFF, DEFENDANT OR OTHERWISE), ANY RIGHT TO TRIAL BY JURY IN ANY FORUM IN RESPECT OF ANY ISSUE, CLAIM OR PROCEEDING ARISING OUT OF THIS AGREEMENT OR ANY OTHER DOCUMENT OR THE SUBJECT MATTER HEREOF OR THEREOF OR ANY OBLIGATION OR IN ANY WAY CONNECTED WITH THE DEALINGS OF THE EXCHANGING HOLDERS, THE HOLDERS OR THE COLLATERAL AGENT, THE BORROWER OR ANY OTHER OBLIGOR IN CONNECTION WITH ANY OF THE ABOVE, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING AND WHETHER IN CONTRACT, TORT OR OTHERWISE. Each of the Borrower and the other Obligors acknowledges that it has been informed by the Exchanging Holders that the foregoing sentence constitutes a material inducement upon which each of the Exchanging Holders and Collateral Agent has relied and will rely in entering into this Agreement and any other Document. Any party hereto may file an original counterpart or a copy of this Agreement with any court as written evidence of the consent of each of the parties hereto to the waiver of their rights to trial by jury. 14.10. COUNTERPARTS. This Agreement may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. A set of counterparts executed by all the parties hereto shall be lodged with the Borrower, the Collateral Agent, each Holder and each Exchanging Holder. 14.11. EXECUTION. This Agreement shall become effective on the date (the "EFFECTIVE DATE") on which each of the Borrower, each other Obligor, the Collateral Agent and the Exchanger shall have signed a copy hereof (whether the same or different copies) and shall have delivered the same to one another. With respect to each Joinder Agreement, such -42 agreement's "Effective Date" shall be the date on which each of the applicable Exchanging Holders and the Collateral Agent shall have signed a copy of such Joinder Agreement (whether the same or different copies) and shall have delivered the same to one another. 14.12. HEADINGS DESCRIPTIVE. The headings of the several sections and subsections of this Agreement are inserted for convenience only and shall not in any way affect the meaning or construction of any provision of this Agreement. 14.13. SURVIVAL. All indemnities set forth herein including, without limitation, in Sections 12.6 or 14.1, shall survive the execution and delivery of this Agreement and the purchase, sale and repayment of the Notes. 14.14. BENEFIT OF AGREEMENT. Each beneficial holder of the Notes shall be entitled to the benefits of, and subject to the obligations of, a Holder under this Agreement. [THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK] -43 Each of the parties hereto has caused a counterpart of this Agreement to be duly executed and delivered as of the date first above written. THE BORROWER: iBASIS, INC. By: /s/ Ofer Gneezy ---------------------------------- Name: Ofer Gneezy Title: President & Chief Executive Officer iBASIS GLOBAL, INC. By: /s/ Richard Tennant ---------------------------------- Name: Richard Tennant Title: Treasurer and Chief Financial Officer THE GUARANTOR: iBASIS SECURITIES CORPORATION By: /s/ Gordon VanderBrug ---------------------------------- Name: Gordon VanderBrug Title: Executive Vice President THE EXCHANGING HOLDERS: JMG TRITON OFFSHORE FUND LIMITED CITCO By: /s/ David Rubinstein ----------------------------------- Name: David Rubinstein Title: Portfolio Manager THE COLLATERAL AGENT: U.S. BANK NATIONAL ASSOCIATION By: /s/ John A. Brennan ----------------------------------- Name: John A. Brennan Title: Trust Officer EXHIBIT A FORM OF JOINDER AGREEMENT EXHIBIT B FORM OF WARRANT AND REGISTRATION RIGHTS AGREEMENT 2.1B EXHIBIT 5.2 FORM OF OFFICER'S CERTIFICATE 5.3 EXHIBIT 5.6 FORM OF GUARANTEE 5.9 EX-10.40 4 a2104304zex-10_40.txt EXHIBIT 10.40 EXHIBIT 10.40 UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) (THE "DEPOSITARY", WHICH TERM INCLUDES ANY SUCCESSOR DEPOSITARY FOR THE CERTIFICATES) TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY (AND ANY PAYMENT HEREIN IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. THE NOTE EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND ACCORDINGLY MAY NOT BE OFFERED OR SOLD EXCEPT AS SET FORTH BELOW. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT IT IS (A) A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT), (2) AGREES THAT IT WILL NOT WITHIN TWO YEARS AFTER THE ORIGINAL ISSUANCE OF THIS NOTE RESELL OR OTHERWISE TRANSFER THIS NOTE EXCEPT (A) TO iBASIS, INC. OR ANY SUBSIDIARY THEREOF, (B) TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, OR (C) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT (AND WHICH CONTINUES TO BE EFFECTIVE AT THE TIME OF SUCH TRANSFER); (3) PRIOR TO SUCH TRANSFER (OTHER THAN A TRANSFER PURSUANT TO CLAUSE (2)(C) ABOVE), IT WILL FURNISH TO U.S. NATIONAL BANK ASSOCIATION, AS FISCAL AGENT (OR A SUCCESSOR FISCAL AGENT, AS APPLICABLE), SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS THE FISCAL AGENT MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT; AND (4) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS NOTE IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THIS NOTE, THE HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER OF SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO U.S. NATIONAL BANK ASSOCIATION, AS FISCAL AGENT (OR A SUCCESSOR FISCAL AGENT, AS APPLICABLE). THE FISCAL AGENCY AGREEMENT CONTAINS A PROVISION REQUIRING THE FISCAL AGENT TO REFUSE TO REGISTER ANY TRANSFER OF THIS NOTE IN VIOLATION OF THE FOREGIONG RESTRICTION. THE TERMS OF THIS NOTE ARE SUBJECT TO THAT CERTAIN SUBORDINATION AGREEMENT DATED AS OF JANUARY 30, 2003, AMONG SILICON VALLEY BANK, THE CREDITORS NAMED THEREIN AND U.S. BANK NATIONAL ASSOCIATION, AS COLLATERAL AGENT AND FISCAL AGENT. THE TERMS OF THIS NOTE ARE FURTHER SUBJECT TO THAT CERTAIN COLLATERAL AGENCY AND INTERCREDITOR AGREEMENT DATED AS OF FEBRUARY 21, 2003, AMONG THE SYMPHONY FUNDS NAMED THEREIN, THE EXCHANGING HOLDERS NAMED THEREIN AND U.S. BANK NATIONAL ASSOCIATION, AS COLLATERAL AGENT, AS THE SAME MAY BE AMENDED, MODIFIED OR SUPPLEMENTED FROM TIME TO TIME. iBASIS, INC. iBASIS GLOBAL, INC. 11.5% SENIOR SECURED NOTE DUE 2005 CUSIP: 450732 AB 8 No.: N-2 $19,075,000 iBasis, Inc., a corporation duly organized and validly existing under the laws of the State of Delaware, and iBasis Global, Inc., a corporation duly organized and validly existing under the laws of the State of Delaware (herein collectively called the "Issuer", which term includes any successor corporation under the Fiscal Agency Agreement referred to on the reverse hereof), for value received hereby, on a joint and several basis, promise to pay to Cede & Co. or registered assigns, the principal sum of Nineteen Million Seventy-five Thousand Dollars ($19,075,000) on January 15, 2005, at the office or agency of the Issuer maintained for that purpose in accordance with the terms of the Fiscal Agency Agreement, in such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts, and to pay interest, semi-annually on January 15 and July 15 of each year, commencing July 15, 2003, on said principal sum at said office or agency, in like coin or currency, at the rate per annum of 11.5%, from January 15 or July 15, as the case may be, next preceding the date of this Note to which interest has been paid or duly provided for, unless the date hereof is a date to which interest has been paid or duly provided for, in which case from the date of this Note, or unless no interest has been paid or duly provided for on the Notes, in which case from January 30, 2003 (regardless of whether such date occurs prior to the date on which this Note is issued), until payment of said principal sum has been made or duly provided for. Notwithstanding the foregoing, if the date hereof is after any January 1 or July 1, as the case may be, and before the following January 15 or July 15, this Note shall bear interest from such January 15 or July 15; provided, however, that if the Issuer shall default in the payment of interest due on such January 15 or July 15, then this Note shall bear interest from the next preceding January 15 or July 15 to which interest has been paid or duly provided for or, if no interest has been paid or duly provided for on such Note, from January 30, 2003 (regardless of whether such date occurs prior to the date on which this Note is issued). Except as otherwise provided in the Fiscal Agency Agreement or the Exchange Agreement referred to on the reverse hereof, the interest payable on the Note pursuant to the Exchange Agreement on any January 15 or July 15 will be paid to the Person entitled thereto as it appears in the Note register at the close of business on the record date, which shall be the January 1 or July 1 (whether or not a Business Day) next preceding such January 15 or July 15, as provided in the Fiscal Agency Agreement; provided, however, that any such interest not punctually paid or duly provided for shall be payable as provided in the Exchange Agreement or the Fiscal Agency Agreement. Interest may, at the option of the Issuer, be paid either (i) by check mailed to the registered address of such Person (provided that the holder of Notes with an aggregate principal amount in excess of $2,000,000 shall, at the written election of such holder, be paid by wire transfer of immediately available funds) or (ii) by transfer to an account maintained by such Person located in the United States; provided, however, that payments to the Depositary will be made by wire transfer of immediately available funds to the account of the Depositary or its nominee. Reference is made to the further provisions of this Note set forth on the reverse hereof, including, without limitation, provisions subordinating the payment of principal of and premium, if any, and interest on the Notes to the prior payment in full of all Senior Debt, as defined in the Subordination Agreement referred to on the reverse hereof. Such further provisions shall for all purposes have the same effect as though fully set forth at this place. This Note shall be deemed to be a contract made under the laws of The Commonwealth of Massachusetts, and for all purposes shall be construed in accordance with and governed by the laws of The Commonwealth of Massachusetts, without regard to the principles of conflicts of laws. This Note shall not be valid or become obligatory for any purpose until the certificate of authentication hereon shall have been manually signed by the Fiscal Agent or a duly authorized authenticating agent under the Fiscal Agency Agreement. IN WITNESS WHEREOF, the Issuer has caused this Note to be duly executed. iBASIS, INC. By: /s/ Ofer Gneezy ------------------------------------ Name: Ofer Gneezy ----------------------------- Title: President & CEO ----------------------------- iBASIS GLOBAL, INC. By: /s/ Richard Tennant ------------------------------------ Name: Richard Tennant ----------------------------- Title: Treasurer and CFO ----------------------------- Dated: February 21, 2003 FISCAL AGENT'S CERTIFICATE OF AUTHENTICATION This is one of the Notes described in the within-named Fiscal Agency Agreement. U.S. BANK NATIONAL ASSOCIATION, as Fiscal Agent By: /s/ John Brennan ------------------------------------ Name: John A. Brennan Title: Trust Officer By: ------------------------------------ As Authenticating Agent (if different from Fiscal Agent) REVERSE OF NOTE iBASIS, INC. iBASIS GLOBAL, INC. 11.5% SENIOR SECURED NOTES DUE 2005 This Note is one of a duly authorized issue of Notes of the Issuer, designated as its 11.5% Senior Secured Notes Due 2005 (herein called the "Notes"), limited to the aggregate principal amount of $19,075,000, all issued or to be issued under and pursuant to (x) a Securities Exchange Agreement dated as of January 30, 2003 (herein called the "Symphony Exchange Agreement"), among the Issuer, iBasis Securities Corporation, the Symphony Funds party thereto and U.S. Bank National Association, as collateral agent (herein called the "Collateral Agent"), and (y) a Securities Exchange Agreement dated as of February 21, 2003 (herein called the "Permitted Exchange Agreement" and, together with the Symphony Exchange Agreement, the "Exchange Agreements"), among the Issuer, iBasis Securities Corporation, the Exchanging Holders party thereto and the Collateral Agent, to which Exchange Agreements and all exchange agreements supplemental thereto reference is hereby made for a description of the rights, limitations of rights, obligations, duties and immunities thereunder of the Collateral Agent, the Issuer and the holders of the Notes. The Issuer has appointed U.S. Bank National Association as fiscal agent, (herein called the "Fiscal Agent") and as paying agent in respect of the Notes upon the terms and subject to the conditions contained in a Fiscal Agency Agreement dated as of January 30, 2003, as amended by Amendment No. 1 to Fiscal Agency Agreement dated as of February 21, 2003 (as amended, the "Fiscal Agency Agreement"), between the Issuer and the Fiscal Agent. In case an Event of Default (as defined in the Exchange Agreements) shall have occurred and be continuing, the principal of, premium, if any, and accrued interest on all Notes may be declared by either the Collateral Agent or the holders of not less than 25% in aggregate principal amount of the Notes then outstanding, and upon said declaration shall become, due and payable, in the manner, with the effect and subject to the conditions provided in the Exchange Agreements. The Exchange Agreements contain provisions prohibiting the changing, waiver, discharge or termination of the Exchange Agreements without the consent of each holder of a Note directly affected thereby if such change, waiver, discharge or termination shall (i) extend the fixed maturity of any Note, or reduce the rate or extend the time of payment of interest thereon, or reduce the principal amount thereof, (ii) amend, modify or waive the provisions of Section 13.4 of either Exchange Agreement, (iii) reduce the percentage specified in, or otherwise modify the definition of "Demand Holders" or "Required Holders" stated therein, (iv) consent to the assignment or transfer by the Issuer of any of its rights and obligations under the Exchange Agreements, (v) establish any new obligations for any holder of a Note not relating to the subject matter of the Exchange Agreements or (ii) release all or substantially all of the collateral or guarantees with respect to the Obligations specified in the Exchange Agreements. Subject to the provisions of the Exchange Agreements, the holders of a majority in aggregate principal amount of the Notes at the time outstanding may on behalf of the holders of all of the Notes waive any past Default or Event of Default under the Exchange Agreements and its consequences except a default in the payment of interest. Any such consent or waiver by the holder of this Note (unless revoked as provided in the Exchange Agreements) shall be conclusive and binding upon such holder and upon all future holders and owners of this Note and any Notes which may be issued in exchange or substitution hereof, irrespective of whether or not any notation thereof is made upon this Note or such other Notes. The indebtedness evidenced by the Notes is, to the extent and in the manner provided in the Subordination Agreement dated as of January 30, 2003 (herein called the "Subordination Agreement"), among the Investors party thereto, Silicon Valley Bank, and U.S. Bank National Association, subordinated and subject in right of payment to the prior payment in full of all Senior Debt (as defined in the Subordination Agreement), and this Note is issued subject to the provisions of the Subordination Agreement with respect to such subordination. Each holder of this Note, by accepting the same, agrees to and shall be bound by such provisions. No reference herein to the Exchange Agreements, the Fiscal Agency Agreement or the Subordination Agreement and no provision of this Note or of the Exchange Agreements, the Fiscal Agency Agreement or the Subordination Agreement shall alter or impair the obligation of the Issuer, which is absolute and unconditional, to pay the principal of and any premium and interest on this Note at the place, at the respective times, at the rate and in the coin or currency herein prescribed. Interest on the Notes shall be computed on the basis of a 360-day year of twelve 30-day months. The Notes are issuable in registered form, without coupons, in denominations of $1,000 principal amount and any integral multiple of $1,000. At the office or agency of the Issuer referred to on the face hereof, and in the manner and subject to the limitations provided in the Exchange Agreements, without payment of any service charge but with payment of a sum sufficient to cover any tax, assessment or other governmental charge that may be imposed in connection with any registration or exchange of Notes, Notes may be exchanged for a like aggregate principal amount of Notes of any other authorized denominations. The Notes may be prepaid at the election of the Issuer, as a whole or in part from time to time, at any time, upon notice as set forth in Section 4.2 of the Exchange Agreements, at the following prepayment prices (expressed in percentages of the outstanding principal amount of the Note, as the case may be, being prepaid) plus accrued and unpaid interest on such prepaid principal amount to the prepayment date, MINUS the number of percentage points reflected by the product of (i) 10.1695 and (ii) the difference between (A) the average closing trading price of the Common Stock of iBasis, Inc. (the "Common Stock") for the five trading days immediately prior to, but not including, the date of such prepayment and (B) the Common Stock price denoted below in the column titled "Minimum Common Stock Price" (the "Note Prepayment Price"); provided, however, that in no event shall the Note Prepayment Price be less than 100% of the outstanding principal amount of the Notes to be prepaid, plus accrued and unpaid interest on such principal amount to the prepayment date:
PERCENTAGE OF OUTSTANDING PRINCIPAL MINIMUM COMMON DATE OF PREPAYMENT AMOUNT STOCK PRICE - ------------------ --------------------- -------------- After Prior To and Including ----- ---------------------- January 15, 2003 July 15, 2003 123.0000% $ 2.25 July 15, 2003 January 15, 2004 117.2500% $ 3.50 January 15, 2004 July 15, 2004 111.5000% $ 4.25 July 15, 2004 January 15, 2005 105.7500% $ 5.00
If a Change of Control (as defined in the Exchange Agreements) occurs at any time prior to maturity of the Notes, the Issuer shall, within one Business Day, make an offer to prepay all of the Notes then outstanding at the Note Prepayment Price set forth above. If the Issuer or any Subsidiary receives any Net Asset Sale Proceeds (as defined in the Exchange Agreements) in excess of $250,000 (or if a Default or an Event of Default shall then exist, regardless of amount), which in each such case does not result in a Change of Control, then the Issuer shall, within one Business Day pay (or cause its Subsidiary receiving such proceeds to pay) to the holders as a prepayment of the Notes the lesser of (a) the amount of such Net Asset Sale Proceeds and (b) the Aggregate Prepayment Amount (excluding any portion of such Net Asset Sale Proceeds which so long as no Default or Event of Default exists, (x) in the case of proceeds of business interruption insurance, is used in the ordinary course of the Issuer's and its Subsidiaries' business and (y) in the case of proceeds of casualty insurance, is applied for the purpose of replacing, repairing, restoring or rebuilding the relevant tangible property). Upon due presentment for registration of transfer of this Note at the office or agency of the Issuer maintained for that purpose in accordance with the terms of the Fiscal Agency Agreement, a new Note or Notes of authorized denominations for an equal aggregate principal amount will be issued to the transferee in exchange thereof; subject to the limitations provided in the Exchange Agreements and the Fiscal Agency Agreement, without charge except for any tax, assessment or other governmental charge imposed in connection therewith. The Issuer, the Fiscal Agent, any authenticating agent, any paying agent and any Note registrar may deem and treat the registered holder hereof as the absolute owner of this Note (whether or not this Note shall be overdue and notwithstanding any notation of ownership or other writing hereon made by anyone other than the Issuer or any Note registrar) for the purpose of receiving payment hereof, or on account hereof, for the conversion hereof and for all other purposes, and neither the Issuer nor the Fiscal Agent nor any other authenticating agent nor any paying agent nor other conversion agent nor any Note registrar shall be affected by any notice to the contrary. All payments made to or upon the order of such registered holder shall, to the extent of the sum or sums paid, satisfy and discharge liability for monies payable on this Note. No recourse for the payment of the principal of or any premium or interest on this Note, or for any claim based hereon or otherwise in respect hereof, and no recourse under or upon any obligation, covenant or agreement of the Issuer in the Exchange Agreements or any supplemental exchange agreement or in any Note, or because of the creation of any indebtedness represented thereby, shall be had against any incorporator, stockholder, employee, agent, officer or director or subsidiary, as such, past, present or future, of the Issuer or of any successor corporation, either directly or through the Issuer or any successor corporation, whether by virtue of any constitution, statute or rule of law or by the enforcement of any assessment or penalty or otherwise, all such liability being, by acceptance hereof and as part of the consideration for the issue hereof, expressly waived and released. This Note shall be deemed to be a contract made under the laws of The Commonwealth of Massachusetts, and for all purposes shall be construed in accordance with the laws of The Commonwealth of Massachusetts, without regard to principles of conflicts of laws. Terms used in this Note and defined in the Exchange Agreements are used herein as therein defined. ABBREVIATIONS The following abbreviations, when used in the inscription of the face of this Note, shall be construed as though they were written out in full according to applicable laws or regulations. TEN COM - as tenants in common TEN ENT - as tenant by the entireties JT TEN - as joint tenants with right of survivorship and not as tenants in common UNIF GIFT MIN ACT - ____________ Custodian _____________ (Cust) (Minor) under Uniform Gifts to Minors Act -------------------------------------------- (State) Additional abbreviations may also be used though not in the above list. ASSIGNMENT FOR VALUE RECEIVED the undersigned hereby sell(s), assign(s) and transfer(s) unto - --------------------------------------------------------------- - --------------------------------------------------------------- PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE - -------------------------------------------------------------------------------- - --------------------------------------------------------------- - --------------------------------------------------------------- (Please print or typewrite name and address including postal zip code of assignee) - --------------------------------------------------------------- the within Note and all rights thereunder, and hereby irrevocably constitutes and appoints - --------------------------------------------------------------- Attorney to transfer said Note on the books of the Issuer, with full power of substitution in the premises. In connection with any transfer of the Note (other than any transfer pursuant to a registration statement that has been declared effective under the Securities Act), the undersigned confirms that such Note is being transferred: / / To iBasis, Inc. or a subsidiary thereof; or / / Pursuant to and in compliance with Rule 144A under the Securities Act of 1933, as amended; and unless the box below is checked, the undersigned confirms that such Note is not being transferred to an "affiliate" of the Issuer as defined in Rule 144 under the Securities Act of 1933, as amended (an "Affiliate"). / / The transferee is an Affiliate of the Issuer. Dated:____________ ---------------------------------- ---------------------------------- Signature(s) Signature(s) must be guaranteed by an "eligible guarantor institution" meeting the requirements of the Note registrar, which requirements include membership or participation in the Security Transfer Agent Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Note registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. ---------------------------------- Signature Guarantee NOTICE: The signature of the assignment must correspond with the name as written upon the face of the Note in every particular without alteration or enlargement or any change whatever. EX-10.41 5 a2104304zex-10_41.txt EXHIBIT 10.41 Exhibit 10.41 THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE AMENDED AND RESTATED WARRANT AND REGISTRATION RIGHTS AGREEMENT HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITORY OR A NOMINEE OF A DEPOSITORY OR A SUCCESSOR DEPOSITORY. THIS SECURITY IS NOT EXCHANGABLE FOR SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITORY OR ITS NOMINEE EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE AMENDED AND RESTATED WARRANT AND REGISTRATION RIGHTS AGREEMENT, AND NO TRANSFER OF THIS SECURITY (OTHER THAN A TRANSFER OF THIS SECURITY AS A WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY TO THE DEPOSITORY OR ANOTHER NOMINEE OF THE DEPOSITORY) MAY BE REGISTERED EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE AMENDED AND RESTATED WARRANT AND REGISTRATION RIGHTS AGREEMENT. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT AS SET FORTH BELOW. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT), (2) AGREES THAT IT WILL NOT WITHIN TWO YEARS AFTER THE ORIGINAL ISSUANCE OF THIS SECURITY RESELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO THE ISSUER OR ANY SUBSIDIARY THEREOF, (B) TO A QUALIFED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, OR (C) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT (AND WHICH CONTINUES TO BE EFFECTIVE AT THE TIME OF SUCH TRANSFER) AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. THE SHARES OF STOCK PURCHASABLE UPON EXERCISE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE ARE ALSO SUBJECT TO THE AMENDED AND RESTATED WARRANT AND REGISTRATION RIGHTS AGREEMENT TO WHICH THE ISSUER AND THE WARRANT AGENT ARE PARTY, A COPY OF WHICH MAY BE INSPECTED AT THE PRINCIPAL OFFICE OF THE ISSUER OR OBTAINED FROM THE ISSUER WITHOUT CHARGE. -2- iBASIS, INC. No. W-2 3,798,811 Warrants CUSIP NO: 450732 11 0 WARRANT CERTIFICATE This Warrant Certificate certifies that CEDE & Co., or its registered assigns, is the registered holder of warrants expiring January 15, 2008 (the "Warrants") to purchase shares of Common Stock, par value $0.001 per share (the "Common Stock"), of iBasis, Inc., a Delaware Corporation (the "Company"). Each Warrant entitles the holder upon exercise to receive from the Company on or after the date of issuance of such Warrant and on or before 5:00 P.M. Boston Time on January 15, 2008 (the "Expiration Date"), one fully paid and nonassessable share of Common Stock (a "Warrant Share") at the initial exercise price (the "Exercise Price") of $0.65 payable in lawful money of the United States of America upon surrender of this Warrant Certificate and payment of the Exercise Price at the office or agency of the Warrant Agent, but only subject to the conditions set forth herein and in the Amended and Restated Warrant and Registration Rights Agreement referred to on the reverse hereof. The Exercise Price and number of Warrant Shares issuable upon exercise of the Warrants are subject to adjustment upon the occurrence of certain events set forth in the Amended and Restated Warrant and Registration Rights Agreement. No Warrant may be exercised after the Expiration Date, and to the extent not exercised by such time such warrants shall become void. This Warrant Certificate shall not be valid unless countersigned by the Warrant Agent, as such term is used in the Amended and Restated Warrant and Registration Rights Agreement. This Warrant Certificate, and all actions, claims and conduct relating thereto, shall be governed by and construed in accordance with the laws of The Commonwealth of Massachusetts, without regard to the principles of conflicts of laws. -3- IN WITNESS WHEREOF, iBasis, Inc., has caused this Warrant Certificate to be duly executed. Dated: February 21, 2003 iBASIS, INC. By: /s/ Ofer Gneezy ----------------------------------- Name: Ofer Gneezy Title: President & CEO WARRANT AGENT'S CERTIFICATE OF AUTHENTICATION This is one of the Warrants described in the within-named Amended and Restated Warrant and Registration Rights Agreement. U.S. BANK NATIONAL ASSOCIATION, as Warrant Agent By: /s/ John A. Brennan ----------------------------------- Name: John A. Brennan Title: Trust Officer By: ----------------------------------- As Authenticating Agent (if different from Warrant Agent) iBASIS, INC. The Warrants evidenced by this Warrant Certificate are part of a duly authorized issue of Warrants expiring January 15, 2008, entitling the holder on exercise to receive shares of Common Stock and are issued or to be issued pursuant to the Amended and Restated Warrant and Registration Rights Agreement dated as of February 21, 2003 (the "Amended and Restated Warrant and Registration Rights Agreement"), duly executed and delivered by the Company to U.S. Bank National Association, as warrant agent (the "Warrant Agent"), which Amended and Restated Warrant and Registration Rights Agreement is hereby incorporated by reference in and made a part of this instrument and is hereby referred to for a description of the rights, limitation of rights, obligations, duties and immunities thereunder of the Warrant Agent, the Company and the holders (the words "holders" or "holder" meaning the registered holders or registered holder) of the Warrants. A copy of this Amended and Restated Warrant and Registration Rights Agreement may be obtained by the holder hereof upon written request to the Company. Capitalized terms used herein without being otherwise defined shall have the meaning ascribed to them in the Amended and Restated Warrant and Registration Rights Agreement. Each Warrant may be exercised at any time on or after the date of issuance of such Warrant and on or before the Expiration Date. The holder of Warrants evidenced by this Warrant Certificate may exercise them as follows: (I) The Warrants evidenced by this Warrant Certificate may be exercised by the holder hereof, in whole or in part, during normal business hours on any Business Day on or prior to the Expiration Date, by surrender of this Warrant Certificate to the Company at its principal office, accompanied by a subscription substantially in the form attached to this Warrant Certificate duly executed by such holder and accompanied by (a) wire transfer of immediately available funds or (b) certified or official bank check payable to the order of the Company, in each case in the amount obtained by multiplying (i) the number of shares of Common Stock (without giving effect to any adjustment thereof pursuant to the provisions of the Amended and Restated Warrant and Registration Rights Agreement) for which the Warrant evidenced by this Warrant Certificate is then being exercised, as designated in such subscription, by (ii) the Initial Exercise Price. Thereupon, such holder shall be entitled to receive the number of duly authorized, validly issued, fully paid and nonassessable shares of Common Stock (or Other Securities) determined as provided in Sections 6 and 7 of the Amended and Restated Warrant and Registration Rights Agreement. (II) The Warrants evidenced by this Warrant Certificate may be converted by the holder hereof, in whole or in part, into shares of Common Stock (or Other Securities), during normal business hours on any Business Day on or prior to the Expiration Date, by surrender of this Warrant Certificate to the Company at its principal office, accompanied by a conversion notice substantially in the form attached to this Warrant Certificate duly executed by such holder. Thereupon, such holder shall be entitled to receive a number of duly authorized, validly issued, fully paid and nonassessable shares of Common Stock (or Other Securities) equal to: (a) the excess of (i) (x) the number of shares of Common Stock (or Other Securities) determined as provided in Sections 6 and 7 of the Amended and Restated Warrant and Registration Rights Agreement which such holder would be entitled to receive upon exercise of the Warrants represented by this Warrant Certificate for the number of shares of Common Stock designated in such conversion notice (without giving effect to any adjustment thereof pursuant to Sections 6 or 7 of the Amended and Restated Warrant and Registration Rights Agreement) MULTIPLIED BY (y) the Current Market Price of each such share of Common Stock (or such Other Securities) so receivable upon such exercise OVER (ii) (x) the number of shares of Common Stock (without giving effect to any adjustment thereof pursuant to Sections 6 or 7 of the Amended and Restated Warrant and Registration Rights Agreement or other provisions thereof) which such holder would be entitled to receive upon exercise of the Warrants represented by this Warrant Certificate for the number of shares of Common Stock designated in such conversion notice (without giving effect to any adjustment thereof pursuant to Sections 6 or 7 of the Amended and Restated Warrant and Registration Rights Agreement) MULTIPLIED BY (y) the Initial Exercise Price DIVIDED BY (b) such Current Market Price of each such share of Common Stock (or Other Securities). (III) The Warrant represented by this Warrant Certificate may be exercised by the holder hereof, in whole or in part, during normal business hours on any Business Day on or prior to the Expiration Date, by surrender of this Warrant Certificate to the Company at its principal office, accompanied by a note tender notice substantially in the form attached to this Warrant Certificate duly executed by such holder and accompanied by a Note. Thereupon, such holder shall be deemed to have exercised the Warrant represented by this Warrant Certificate for the number of shares of Common Stock (up to the maximum number of shares of Common Stock set forth on the face of this Warrant Certificate and without giving effect to any adjustment thereof pursuant to Sections 6 or 7 of the Amended and Restated Warrant and Registration Rights Agreement or other provisions thereof) obtained by dividing (i) the sum of the outstanding face amount of such Note (or such lesser amount indicated on the note tender notice) PLUS any cash or payment-in-kind interest accrued on such Note, PLUS any accrued prepayment penalty or premium by (ii) the Exercise Price. Thereupon, such holder shall be entitled to receive the number of duly authorized, validly issued, fully paid and nonassessable shares of Common Stock (or Other Securities) determined as provided in Sections 6 and 7 of the Amended and Restated Warrant and Registration Rights Agreement. In the event that upon any exercise of Warrants evidenced hereby the number of Warrants exercised shall be less than the total number of Warrants evidenced hereby, there shall be issued to the holder hereof or its assignee a new Warrant Certificate of like tenor, dated the date hereof and calling in the aggregate on the face or faces thereof for the number of Warrants (without giving effect to any adjustment thereof pursuant to the terms of the Amended and -6- Restated Warrant and Registration Rights Agreement) to the number of Warrants called for on the face of this Warrant Certificate minus the number of Warrants designated by the holder upon such exercise. Upon the exercise of the Warrants evidenced by this Warrant Certificate as provided above, the Company may elect either (i) to comply with the requirements of Section 7.3(a) of the Amended and Restated Warrant and Registration Rights Agreement with respect to the issuance of shares of Common Stock in connection with such exercise or (ii) upon written notice to the holder not more than two Business Days following the date of exercise, to pay to the holder an amount equal to the Market Price for each share of Common Stock issuable upon such exercise (the "Cash Close Out") in lieu of issuing such Common Stock. Any Cash Close Out made in accordance with this paragraph shall be paid within two Business Days of the exercise of the Warrants evidenced by this Warrant Certificate by (a) wire transfer of immediately available funds or (b) certified or official bank check payable to the order of the holder hereof. The Company will not be required to issue fractional shares of Common Stock upon exercise of the Warrants or distribute share certificates that evidence fractional shares of Common Stock. In lieu of fractional shares of Common Stock, there may be paid to the registered Holder of this Warrant Certificate at the time such Warrant Certificate is exercised an amount in cash equal to the same fraction of the Current Market Value per share of Common Stock on the Business Day immediately proceeding the date this Warrant Certificate is surrendered for exercise. The holders of the Warrants are entitled to certain registration rights with respect to the Common Stock purchasable upon exercise thereof. Such registration rights are set forth in Section 8 of the Amended and Restated Warrant and Registration Rights Agreement. Warrant Certificates, when surrendered at the office of the Warrant Agent by the registered holder thereof in person or by legal representative or attorney duly authorized in writing, may be exchanged, in the manner and subject to the limitations provided in the Amended and Restated Warrant and Registration Rights Agreement, but without payment of any service charge, for another Warrant Certificate or Warrant Certificates of like tenor evidencing in the aggregate a like number of Warrants. Upon due presentation for registration of transfer of this Warrant Certificate at the office of the Warrant Agent a new Warrant Certificate or Warrant Certificates of like tenor and evidencing in the aggregate a like number of Warrants shall be issued to the transferee(s) in exchange for this Warrant Certificate, subject to the limitations provided in the Amended and Restated Warrant and Registration Rights Agreement, without charge except for any tax or other governmental charge imposed in connection therewith. The Company and the Warrant Agent may deem and treat the registered holder(s) thereof as the absolute owner(s) of this Warrant Certificate (notwithstanding any notation of ownership or other writing hereon made by anyone), for the purpose of any exercise hereof, of any distribution to the holder(s) hereof, and for all other purposes, and neither the Company nor the Warrant Agent shall be affected by any notice to the contrary. Neither the Warrants nor this Warrant Certificate entitled any holder hereof to any rights of a stockholder of the Company. -7- FORM OF SUBSCRIPTION [To be executed only upon exercise of Warrant] To iBasis, Inc.: The undersigned hereby irrevocably elects to exercise the right, represented by this Warrant Certificate, to receive __________(1) shares of the Common Stock and herewith makes payment of $_____ in accordance with the terms hereof, and requests that the certificates for such shares be issued in the name of, and delivered to _______________, whose address is as follows: Dated: ---------------------------------- (Signature must conform in all respects to name of holder as specified on the face of Warrant) ---------------------------------- (Street Address) ---------------------------------- (City) (State) (Zip Code) - ---------- (1) Insert here the number of shares called for on the face of this Warrant Certificate (or, in the case of a partial exercise, the portion thereof as to which the Warrant evidenced by this Warrant Certificate is being exercised), in either case without making any adjustment for any stock or other securities or property or cash which, pursuant to the adjustment provisions of the Warrant evidenced by this Warrant Certificate, may be delivered upon exercise. In the case of a partial exercise, a new Warrant Certificate will be issued and delivered, representing the unexercised portion of the Warrant evidenced by this Warrant Certificate, to the holder surrendering the Warrant Certificate. -8- FORM OF ASSIGNMENT [To be executed only upon transfer of Warrant] For value received, the undersigned registered holder of the Warrants evidenced by this Warrant Certificate hereby sells, assigns and transfers unto __________________the right represented by such Warrant Certificate to purchase _______(2) shares of Common Stock of iBasis, Inc. to which such Warrant Certificate relates, and appoints _______________Attorney to make such transfer on the books of iBasis, Inc. maintained for such purpose, with full power of substitution in the premises. Dated: ---------------------------------- (Signature must conform in all respects to name of holder as specified on the face of Warrant) ---------------------------------- (Street Address) ---------------------------------- (City) (State) (Zip Code) Signed in the presence of: - ---------- (2) Insert here the number of shares called for on the face of this Warrant Certificate (or, in the case of a partial transfer, the portion thereof as to which the Warrant evidenced by this Warrant Certificate is being transferred), in either case without making any adjustment for any stock or other securities or property or cash which, pursuant to the adjustment provisions of the Warrant evidenced by this Warrant Certificate, may be delivered upon exercise. In the case of a partial transfer, a new Warrant Certificate will be issued and delivered, representing the non-transferred portion of the Warrants evidenced by this Warrant Certificate, to the holder transferring the Warrants. -9- FORM OF CONVERSION NOTICE To iBasis, Inc.: The undersigned registered holder of the Warrants evidenced by this Warrant Certificate hereby irrevocably converts such Warrants with respect to _______(3) shares of the Common Stock which such holder would be entitled to receive upon the exercise hereof, and requests that the certificates for such shares be issued in the name of, and delivered to _________________, whose address is as follows: Dated: ---------------------------------- (Signature must conform in all respects to name of holder as specified on the face of Warrant) ---------------------------------- (Street Address) ---------------------------------- (City) (State) (Zip Code) - ---------- (3) Insert here the number of shares called for on the face of this Warrant Certificate (or, in the case of a partial conversion, the portion thereof as to which the Warrants evidenced by this Warrant Certificate are being converted), in either case without making any adjustment for additional shares of Common Stock or any other stock or other securities or property or cash which, pursuant to the adjustment provisions of the Warrant evidenced by this Warrant Certificate, may be delivered upon exercise. In the case of a partial conversion, a new Warrant Certificate will be issued and delivered, representing the unconverted portion of the Warrants, to the holder surrendering this Warrant Certificate. -10- FORM OF NOTE TENDER [To be executed only upon a note tender exercise of Warrant] To iBasis, Inc.: The undersigned registered holder of the Warrants evidenced by this Warrant Certificate hereby irrevocably exercises such Warrants for, and purchases thereunder, __________(4) shares of the Common Stock and herewith makes payment of $_____ therefore by virtue of tendering the attached Note, and requests that the certificates for such shares be issued in the name of, and delivered to _______________, whose address is as follows: Dated: ---------------------------------- (Signature must conform in all respects to name of holder as specified on the face of Warrant) ---------------------------------- (Street Address) ---------------------------------- (City) (State) (Zip Code) - ---------- (4) Insert here the number of shares called for on the face of this Warrant Certificate (or, in the case of a partial exercise, the portion thereof as to which the Warrants evidenced by this Warrant Certificate are being exercised), in either case without making any adjustment for any stock or other securities or property or cash which, pursuant to the adjustment provisions of the Warrants evidenced by this Warrant Certificate, may be delivered upon exercise. In the case of a partial exercise, a new Warrant Certificate will be issued and delivered, representing the unexercised portion of the Warrants, to the holder surrendering this Warrant Certificate. -11- SCHEDULE OF EXCHANGES The following exchanges of a part of this Global Warrant for Physical Warrants (or of Physical Warrants for an interest in the Global Warrant) have been made:
Number of Amount of Amount of Warrants of this decrease in increase in Global Warrant Signature of Number of Number of following such authorized Date of Warrants this Warrants of this decrease (or officer of Exchange Global Warrant Global Warrant increase) Warrant Agent - ---------- -------------- ---------------- ----------------- --------------
-12- EX-10.42 6 a2104304zex-10_42.txt EXHIBIT 10.42 EXHIBIT 10.42 AMENDMENT NO. 1 TO SECURITIES EXCHANGE AGREEMENT This AMENDMENT NO. 1 TO SECURITIES EXCHANGE AGREEMENT (this "AMENDMENT") dated as of February 21, 2002, is by and among iBasis, Inc., a Delaware corporation (the "COMPANY"), iBasis Global, Inc., a Delaware corporation ("iBASIS GLOBAL", and together with the Company, the "BORROWER"), iBasis Securities corporation, a Massachusetts corporation (the "GUARANTOR"), the Symphony Funds identified on the signature pages hereto (the "SYMPHONY FUNDS") and U.S. Bank National Association as Collateral Agent for the Holders (with its successors and assigns, the "COLLATERAL AGENT"). WHEREAS, the Borrowers, the Guarantor, the Symphony Funds and the Collateral Agent are parties to a Securities Exchange Agreement dated as of January 30, 2003 (as amended and in effect from time to time, the "SYMPHONY EXCHANGE AGREEMENT"), pursuant to which the Symphony Funds exchanged an aggregate principal amount of $30,200,000 of the Company's 5 3/4% Convertible Subordinated Notes due 2005 for (a) an aggregate principal amount of $15,100,000 of the Borrower's 11.5% Senior Secured Notes due 2005 and (b) warrants exercisable for an aggregate of 3,071,184 shares of Common Stock, $0.001 par value, of the Company; WHEREAS, the Borrowers, the Guarantor and the Symphony Funds have agreed, and the Collateral Agent has consented, on the terms and conditions set forth herein, to amend certain provisions of the Symphony Exchange Agreement; and WHEREAS, capitalized terms which are used herein without definition and which are defined in the Symphony Exchange Agreement shall have the same meanings herein as in the Symphony Exchange Agreement. NOW, THEREFORE, in consideration of the foregoing premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Borrowers, the Guarantor, the Symphony Funds and the Collateral Agent hereby agree as follows: Section 1. AMENDMENT TO THE RECITALS TO THE SYMPHONY EXCHANGE AGREEMENT. The Recitals to the Symphony Exchange Agreement are hereby amended by deleting the words "(the "NOTES")" in clause (a) therein. Section 2. AMENDMENT TO SECTION 1 OF THE SYMPHONY EXCHANGE AGREEMENT. Section 1 of the Symphony Exchange Agreement is hereby amended by deleting the definitions of "Fiscal Agency Agreement", "Notes" and "Warrant Agreement" in their entirety and inserting the following new definitions in proper alphabetical order in lieu thereof: "FISCAL AGENCY AGREEMENT" means that Fiscal Agency Agreement, dated as of the date hereof, between the Company and the Fiscal Agent, as the same may be amended, modified or supplemented from time to time in accordance with the terms thereof. "NOTES" means up to $28,750,000 aggregate principal amount of the Borrower's 11.5% Senior Secured Notes due 2005, issued pursuant to this Agreement or pursuant to a Permitted Exchange in which such Notes are issued without violating Section 8.4 herein. "WARRANT AGREEMENT" means the Amended and Restated Warrant and Registration Rights Agreement dated as of February 21, 2003, by the Company and U.S. Bank National Association, as Warrant Agent (as amended, modified or supplemented from time to time). Section 3. AMENDMENT TO SECTION 13 OF THE SYMPHONY EXCHANGE AGREEMENT. Section 13 of the Symphony Exchange Agreement is hereby amended by: (a) inserting the following text immediately after the words "Required Holders" and before the semi-colon in the fourth line of Section 13.4: ", and no such change, waiver, discharge or termination shall be effective against the Collateral Agent unless and until an executed copy thereof has been provided to the Collateral Agent (and, in the case of any other Document, subject to any other requirements applicable to such amendment, change, waiver, discharge or termination set forth in such Document)"; (b) inserting the following new proviso at the end of the first sentence of Section 13.4: "PROVIDED, FURTHER, HOWEVER, that no such change, waiver, discharge or termination that alters the rights, immunities or duties of the Collateral Agent shall take effect without the Collateral Agent's express written consent;" and (c) inserting the following new sentence at the end of Section 13.4 therein: "Notwithstanding anything to the contrary in this Agreement, all Holders shall be deemed to be third-party beneficiaries of all of the provisions of this Agreement that relate to Holders, including but not limited to any provisions that may only be waived or consented to by the "Required Holders", or that may be initiated only by the "Demand Holders", with such groups being determined for all purposes of this Agreement with regard to all Holders, whether issued pursuant to this Agreement or other exchanges in which such Notes are issued without violating Section 8.3 or Section 8.4 hereof." Section 4. CONSENT TO AMENDED AND RESTATED WARRANT AGREEMENT. Each of the Symphony Funds hereby consents to the terms and conditions of, and the execution and delivery by the Company and the Warrant Agent of, that certain Amended and Restated Warrant and Registration Rights Agreement dated as of February 21, 2003, by the Company and U.S. Bank National Association, as Warrant Agent. Section 5 REPRESENTATIONS AND WARRANTIES. Each of the Borrowers, the Guarantor, each Symphony Fund and the Collateral Agent, in each case solely with respect to itself and on its own behalf, hereby represents and warrants to the other parties as follows: 5.1 REPRESENTATION AND WARRANTIES IN THE SYMPHONY EXCHANGE AGREEMENT. The representations and warranties that it makes, if any, in the Symphony Exchange Agreement were true and correct in all material respects as of the date when made and continue to be true and correct in all material respects on the date hereof. 5.2 RATIFICATION, ETC. Except as expressly amended hereby, the Symphony Exchange Agreement is hereby ratified and confirmed in all respects and shall continue in full force and effect. The Symphony Exchange Agreement shall, together with this Amendment, be read and construed as a single agreement. All references in the Symphony Exchange Agreement or any related agreement or instrument shall hereafter refer to the Symphony Exchange Agreement as amended hereby. 5.3 AUTHORITY, ETC. Its execution and delivery of this Amendment and its performance of its agreements and obligations under the Symphony Exchange Agreement, as amended hereby, are within such party's corporate authority and have been duly authorized by all necessary corporate action on the part of such party. 5.4 ENFORCEABILITY. This Amendment and the Symphony Exchange Agreement, as amended hereby, constitute the legal, valid and binding obligations of such party enforceable against such party in accordance with their terms. Section 6. NO OTHER AMENDMENTS. Except as expressly provided in this Amendment, all of the terms and conditions of the Symphony Exchange Agreement remain in full force and effect. Section 7. EXECUTION IN COUNTERPARTS. This Amendment may be executed in any number of counterparts, but all such counterparts shall together constitute but one instrument. In making proof of this Amendment it shall not be necessary to produce or account for more than one counterpart signed by each party hereto by and against which enforcement hereof is sought. Section 8. MISCELLANEOUS. THIS AMENDMENT SHALL FOR ALL PURPOSES BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAWS). The captions in this Amendment are for convenience of reference only and shall not define or limit the provisions hereof. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] -4- IN WITNESS WHEREOF, the undersigned have duly executed this Amendment as of the date first set forth above. THE BORROWERS: iBASIS, INC. By: /s/ Ofer Gneezy -------------------------------------------- Name: Ofer Gneezy Title: President and Chief Executive Officer iBASIS GLOBAL, INC. By: /s/ Richard Tennant -------------------------------------------- Name: Richard Tennant Title: Treasurer and Chief Financial Officer THE GUARANTOR: iBASIS SECURITIES CORPORATION By: /s/ Gordon VanderBrug -------------------------------------------- Name: Gordon VanderBrug Title: Executive Vice President -5- THE SYMPHONY FUNDS: RHAPSODY FUND, LP BY SYMPHONY ASSET MANAGEMENT LLC, AS GENERAL PARTNER By: /s/ Neil Rudolph -------------------------------------------- Name: Neil Rudolph Title: Chief Operating Officer ARPEGGIO FUND BY SYMPHONY ASSET MANAGEMENT LLC, AS INVESTMENT ADVISOR By: /s/ Neil Rudolph -------------------------------------------- Name: Neil Rudolph Title: Chief Operating Officer INTERNATIONAL MONETARY FUND -CONVERTIBLE ARBITRAGE ACCOUNT BY SYMPHONY ASSET MANAGEMENT LLC, AS INVESTMENT ADVISOR By: /s/ Neil Rudolph -------------------------------- Name: Neil Rudolph Title: Chief Operating Officer CSV LIMITED BY SYMPHONY ASSET MANAGEMENT LLC, AS INVESTMENT ADVISOR By: /s/ Neil Rudolph -------------------------------- Name: Neil Rudolph Title: Chief Operating Officer -6- CITISAM, LTD. BY SYMPHONY ASSET MANAGEMENT LLC, AS INVESTMENT ADVISOR By: /s/ Neil Rudolph ------------------------------- Name: Neil Rudolph Title: Chief Operating Officer ANDANTE FUND, LP BY SYMPHONY ASSET MANAGEMENT LLC, AS GENERAL PARTNER By: /s/ Neil Rudolph ------------------------------- Name: Neil Rudolph Title: Chief Operating Officer VIVACE FUND, LP BY SYMPHONY ASSET MANAGEMENT LLC, AS GENERAL PARTNER By: /s/ Neil Rudolph ------------------------------- Name: Neil Rudolph Title: Chief Operating Officer ADAGIO FUND BY SYMPHONY ASSET MANAGEMENT LLC, AS INVESTMENT ADVISOR By: /s/ Neil Rudolph ------------------------------- Name: Neil Rudolph Title: Chief Operating Officer -7- THE COLLATERAL AGENT: U.S. BANK NATIONAL ASSOCIATION By: /s/ John A. Brennan ------------------------------- Name: John A. Brennan Title: Trust Officer EX-10.43 7 a2104304zex-10_43.txt EXHIBIT 10.43 EXHIBIT 10.43 AMENDMENT NO. 1 TO FISCAL AGENCY AGREEMENT This AMENDMENT NO. 1 TO FISCAL AGENCY AGREEMENT (this "AMENDMENT") dated as of February 21, 2002, is by and among iBASIS, INC., a Delaware corporation (together with its permitted successors and assigns, the "COMPANY"), iBASIS GLOBAL, INC., a Delaware corporation (together with its permitted successors and assigns, "iBASIS GLOBAL", and collectively with the Company, the "ISSUER"), and U.S. BANK NATIONAL ASSOCIATION, as the fiscal agent, paying agent, note registrar and authenticating agent (in such capacity, together with its permitted successors and assigns, the "FISCAL AGENT"). WHEREAS, the Issuer and the Fiscal Agent are parties to a Fiscal Agency Agreement dated as of January 30, 2003 (as amended and in effect from time to time, the "FISCAL AGENCY AGREEMENT"), pursuant to which the Issuer appointed the Fiscal Agent to act as paying agent, registrar and transfer agent in respect of the Issuer's 11.5% Senior Secured Notes due 2005 (the "NOTES"); WHEREAS, the Issuer and the Fiscal Agent have agreed, on the terms and conditions set forth herein, to amend certain provisions of the Fiscal Agency Agreement to increase the principal amount of the Notes that may be issued thereunder in accordance with Section 17(a)(vii) thereof; and WHEREAS, capitalized terms which are used herein without definition and which are defined in the Fiscal Agency Agreement shall have the same meanings herein as in the Fiscal Agency Agreement. NOW, THEREFORE, in consideration of the foregoing premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Issuer and the Fiscal Agent hereby agree as follows: Section 1. AMENDMENT TO SECTION 3(a) OF THE FISCAL AGENCY AGREEMENT. Section 3(a) of the Fiscal Agency Agreement is hereby amended to substitute "U.S. $28,750,000" for "U.S. $15,100,000." Section 2. AMENDMENT TO SECTION 17(a)(vii) OF THE FISCAL AGENCY AGREEMENT. Section 17(a)(vii) of the Fiscal Agency Agreement is hereby deleted in its entirety. Section 3. NO OTHER AMENDMENTS. Except as expressly provided in this Amendment, all of the terms and conditions of the Fiscal Agency Agreement remain in full force and effect. Section 4. EXECUTION IN COUNTERPARTS. This Amendment may be executed in any number of counterparts, but all such counterparts shall together constitute but one instrument. In making proof of this Amendment it shall not be necessary to produce or account for more than one counterpart signed by each party hereto by and against which enforcement hereof is sought. Section 5. MISCELLANEOUS. THIS AMENDMENT SHALL FOR ALL PURPOSES BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS (EXCLUDING THE LAWS APPLICABLE TO CONFLICTS OR CHOICE OF LAW). The captions in this Amendment are for convenience of reference only and shall not define or limit the provisions hereof. [Remainder of Page Intentionally Left Blank] -2- IN WITNESS WHEREOF, the undersigned have duly executed this Amendment as of the date first set forth above. THE ISSUER: iBASIS, INC. By: /s/ Ofer Gneezy ------------------------------- Name: Ofer Gneezy Title: President and Chief Executive Officer iBASIS GLOBAL, INC. By: /s/ Richard Tennant ------------------------------- Name: Richard Tennant Title: Treasurer and Chief Financial Officer THE FISCAL AGENT: U.S. BANK NATIONAL ASSOCIATION By: /s/ John A. Brennan ------------------------------- Name: John A. Brennan Title: Trust Officer EX-10.44 8 a2104304zex-10_44.txt EXHIBIT 10.44 EXHIBIT 10.44 iBASIS, INC. AND U.S. BANK NATIONAL ASSOCIATION, AS WARRANT AGENT ------------------------ AMENDED AND RESTATED WARRANT AND REGISTRATION RIGHTS AGREEMENT DATED AS OF FEBRUARY 21, 2003 TABLE OF CONTENTS
Page ---- Section 1. Appointment of Warrant Agent.......................................................................2 Section 2. Warrant Certificates; Warrant Shares...............................................................2 Section 3. Execution of Warrant Certificates and Warrant Share Certificates...................................2 Section 4. Registration and Countersignature..................................................................3 Section 5. Transfer and Exchange of Warrants..................................................................3 Section 6. Registration of Transfers and Exchanges............................................................4 6.1. Transfer and Exchange of Physical Warrants................................................4 6.2. Restrictions on Transfer of Physical Warrants for a Beneficial Interest in a Global Warrant............................................................................4 6.3. Transfer and Exchange of Global Warrants..................................................5 6.4. Transfer of a Beneficial Interest in a Global Warrant for a Physical Warrant..............5 6.5. Restrictions on Transfer and Exchange of Global Warrants..................................6 6.6. Authentication of Definitive Warrants in Absence of Depositary............................6 6.7. Legends...................................................................................6 6.8. Cancellation and/or Adjustment of a Global Warrant........................................7 Section 7. Issuance of Warrants; Terms of Warrants: Exercise of Warrants......................................7 7.1. Method of Exercise; Payment, Issuance of New Warrant; Transfer and Exchange...............7 7.2. Warrantholder Representations............................................................10 7.3. Stock Fully Paid; Reservation of Shares..................................................11 7.4. Adjustment of Exercise Price and Number of Shares........................................11 7.5. Adjustments for Consolidation, Merger, Sale of Assets, Reorganization, etc...............17 7.6. Notice of Adjustments....................................................................17 7.7. No Rights or Liabilities as Stockholder..................................................17 Section 8. Registration Rights...............................................................................17 8.1. Demand Registration Rights...............................................................17 8.2. Piggyback Registration Rights............................................................20 8.3. Certain Other Provisions.................................................................21 8.4. Indemnification and Contribution.........................................................24 8.5. Reports Under Exchange Act...............................................................26 Section 9. Definitions.......................................................................................27 Section 10. Payment of Taxes..................................................................................32 Section 11. Mutilated or Missing Warrant Certificates and Warrant Share Certificates..........................32 Section 12. Fractional Interests..............................................................................33 Section 13. Merger, Consolidation or Change of Name of Warrant Agent..........................................33 Section 14. Warrant Agent.....................................................................................34 Section 15. Change of Warrant Agent...........................................................................37 Section 16. Notices to Company and Warrant Agent..............................................................37 Section 17. Supplements and Amendments........................................................................39 Section 18. Successors........................................................................................39 Section 19. Survival of Registration Rights Provisions, Warrant Agent Provisions..............................39
Section 20. Governing Law; Submission to Jurisdiction: Waiver of Jury Trial...................................39 Section 21. Exercise of Rights and Remedies...................................................................40 Section 22. Benefits of This Agreement........................................................................40 Section 23. Counterparts......................................................................................40

AMENDED AND RESTATED WARRANT AND REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT"), dated as of February 21, 2003, between iBasis, Inc., a Delaware (the "COMPANY"), and U.S. Bank National Association, as Warrant Agent (the "WARRANT AGENT"). WHEREAS, the Company issued Warrants, as hereinafter described (the "SYMPHONY WARRANTS"), which in the aggregate initially entitle the holders of the Symphony Warrants to purchase, at an Initial Exercise Price of $0.65 per share, 3,071,184 shares of Common Stock of the Company (representing 5.58% of the Common Stock outstanding on a diluted basis, after giving effect to the exercise of such Warrants) on January 30, 2003 pursuant to that certain Securities Exchange Agreement (as amended, supplemented and otherwise modified from time to time, the "SYMPHONY EXCHANGE AGREEMENT") dated as of January 30, 2003, among the Company, iBasis Global, Inc., the guarantors named therein, the Symphony Funds named therein and U.S. Bank National Association, as Collateral Agent. WHEREAS, each holder of the Company's 11.5% Senior Secured Notes due 2005 issued in connection with the execution of the Symphony Exchange Agreement and the consummation of the transactions thereby received its proportionate share of Warrants to purchase 3,071,184 Warrant Shares. WHEREAS, the Company and the Warrant Agent entered into that certain Warrant and Registration Rights Agreement, dated as of January 30, 2003 granting holders of the Symphony Warrants certain registration and other rights with respect to their Warrants (the "ORIGINAL AGREEMENT"). WHEREAS, pursuant to that certain Securities Exchange Agreement (as amended, supplemented and otherwise modified from time to time, the "NEW EXCHANGE AGREEMENT") dated as of February 21, 2003, among the Company, iBasis Global, Inc., the guarantors named therein, JMG Triton Offshore Limited Fund CITCO and US National Bank Association, as Collateral Agent, the Company proposes to issue additional Warrants, as hereinafter described (the "NEW WARRANTS"), which in the aggregate will initially entitle the holders of the New Warrants to purchase at an Initial Exercise Price of $0.65 per share, 727,627 shares of Common Stock of the Company,. WHEREAS, the Company and the Warrant Agent desire to amend the Original Agreement to include the New Warrants and certain other Warrants that may be issued from time to time to Exchanging Holders in connection with any future exchange of Convertible Notes by the Company in connection with a Joinder Agreement entered into pursuant to the New Exchange Agreement. WHEREAS, upon exercise of any Warrants, the Warrantholder shall own Warrant Shares, which shall continue to be subject to the terms of this Agreement. WHEREAS, the Warrant Shares shall have registration rights as provided herein. WHEREAS, the Company desires the Warrant Agent to act on behalf of the Company, and the Warrant Agent is willing so to act, in connection with the issuance, transfer, exchange and exercise of Warrants, the issue, transfer and exchange of the Warrant Shares, and the registration rights with respect to such Warrant Shares, and other matters as provided herein. NOW, THEREFORE, in consideration of the premises and the mutual agreements herein set forth, the parties hereto agree as follows: Section 1. APPOINTMENT OF WARRANT AGENT. The Company hereby appoints the Warrant Agent to act as agent for the Company in accordance with the instructions set forth hereinafter in this Agreement, and the Warrant Agent hereby accepts such appointment. Section 2. WARRANT CERTIFICATES; WARRANT SHARES. The certificates evidencing the Warrants (the "WARRANT CERTIFICATES") to be delivered pursuant to this Agreement shall be in fully registered form only and shall initially be represented by one or more global warrants (each, a "GLOBAL WARRANT"), substantially in the form of Exhibit A, registered in the name of The Depositary Trust Company (the "DEPOSITARY") or its nominee and delivered to the Warrant Agent, as custodian for the Depository and recorded in the book-entry system maintained by the Depository. Upon written request, a beneficial owner of an interest in a Global Warrant will be entitled to receive a physical certificate representing such interest (a "PHYSICAL WARRANT"), as provided in Section 6. Each Global Warrant shall represent such of the outstanding Warrants as shall be specified therein and each shall provide that it shall represent the aggregate amount of outstanding Warrants from time to time endorsed thereon and that the aggregate amount of outstanding Warrants represented thereby may from time to time be reduced or increased, as appropriate. Any endorsement of a Global Warrant to reflect the amount of any increase or decrease in the amount of Warrant Shares represented thereby shall be made by the Warrant Agent and the Depositary in accordance with instructions given by the holder thereof. The certificates evidencing the Warrant Shares to be delivered upon exercise of a Warrant (the "WARRANT SHARE CERTIFICATES") shall be substantially in the form of the specimen certificate attached hereto as Exhibit B. Section 3. EXECUTION OF WARRANT CERTIFICATES AND WARRANT SHARE CERTIFICATES. Warrant Certificates shall be signed on behalf of the Company by its President or a Vice President and by its Secretary or an Assistant Secretary. Each such signature upon the Warrant Certificates may be in the form of a facsimile signature of the present or any future President, Vice President, Secretary or Assistant Secretary and may be imprinted or otherwise reproduced on the Warrant Certificates and for that purpose the Company may adopt and use the facsimile signature of any person who shall have been President, Vice President, Secretary or Assistant Secretary, notwithstanding the fact that at the time the Warrant Certificates shall be countersigned and delivered or disposed of he or she shall have ceased to hold such office. In case any officer of the Company who shall have signed any of the Warrant Certificates shall cease to be such officer before the Warrant Certificates so signed shall have been countersigned by the Warrant Agent, or disposed of by the Company, such Warrant Certificates nevertheless may be countersigned and delivered or disposed of as though such person had not ceased to be such officer of the Company; and any Warrant Certificate may be signed on behalf of the Company by any person who, at the actual date of the execution of such Warrant Certificate, shall be a proper officer of the Company to sign such Warrant Certificate, although at the date of the execution of this Warrant Agreement any such person was not such officer. - 2 - Warrant Certificates shall be dated the date of countersignature by the Warrant Agent. The Warrant Share Certificates shall be executed in accordance with the by-laws of the Company. Section 4. REGISTRATION AND COUNTERSIGNATURE. The Warrants shall be numbered and shall be registered on the books of the Company maintained at the principal office of the Warrant Agent in Boston, Massachusetts (the "WARRANT REGISTER") as they are issued. Warrant Certificates shall be manually countersigned by the Warrant Agent and shall not be valid for any purpose unless so countersigned. The Warrant Agent shall, upon written instructions of the President, a Vice President, the Treasurer or the Chief Financial Officer of the Company, initially countersign, issue and deliver such number of Warrants as are set forth in such written instructions, and the Warrant Agent shall be fully protected in conclusively relying on such written instructions. Such written instructions shall not instruct the Warrant Agent to countersign Warrants entitling the holders thereof to purchase more than the number of Warrant Shares referred to above in the first recital hereof. The Warrant Agent shall also countersign and deliver Warrants as otherwise provided in this Agreement. The Company and the Warrant Agent may deem and treat the registered holder(s) of the Warrant Certificates and the Warrant Shares as the absolute owner(s) thereof (notwithstanding any notation of ownership or other writing thereon made by anyone), for all purposes, and neither the Company nor the Warrant Agent shall be affected by any notice to the contrary. Section 5. TRANSFER AND EXCHANGE OF WARRANTS. The Warrant Agent shall from time to time, subject to the limitations set forth in Section 6, register the transfer of any outstanding Warrants upon the records to be maintained by it for that purpose, upon surrender thereof duly endorsed or accompanied (if so required by it) by a written instrument or instruments of transfer in form satisfactory to the Warrant Agent, duly executed by the registered Warrantholder or Warrantholders thereof or by the duly appointed legal representative thereof or by a duly authorized attorney. Subject to the terms of this Agreement, each Warrant Certificate may be exchanged for another certificate or certificates entitling the Warrantholder thereof to purchase a like aggregate number of Warrant Shares as the certificate or certificates surrendered then entitle such Warrantholder to purchase. Any Warrantholder desiring to exchange a Warrant Certificate or Warrant Certificates shall make such request in writing delivered to the Warrant Agent, and shall surrender, duly endorsed or accompanied (if so required by the Warrant Agent) by a written instrument or instruments of transfer in form satisfactory to the Warrant Agent, the Warrant Certificate or Warrant Certificates to be so exchanged. Upon registration of transfer, the Warrant Agent shall countersign and deliver by certified mail a new Warrant Certificate or Warrant Certificates to the Persons entitled thereto. The Warrant Certificates may be exchanged at the option of the Warrantholder thereof, when surrendered at the office or agency of the Company maintained for such purpose, which initially will be the corporate trust office of the Warrant Agent in Boston, Massachusetts for another Warrant Certificate, or other Warrant Certificates of different denominations, of like tenor and representing in the aggregate the right to purchase a like number of Warrant Shares. - 3 - No service charge shall be made for any exchange or registration of transfer of Warrant Certificates, but the Company may require payment of a sum sufficient to cover any stamp or other tax or other governmental charge that is imposed in connection with any such exchange or registration of transfer. Section 6. REGISTRATION OF TRANSFERS AND EXCHANGES. 6.1. TRANSFER AND EXCHANGE OF PHYSICAL WARRANTS. When Physical Warrants are presented to the Warrant Agent with a request: (i) to register the transfer of the Physical Warrants; or (ii) to exchange such Physical Warrants for an equal number of Physical Warrants of other authorized denominations, the Warrant Agent shall register the transfer or make the exchange as requested if the requirements under this Agreement as set forth in this Section 6 for such transactions are met; PROVIDED, HOWEVER, that the Physical Warrants presented or surrendered for registration of transfer or exchange: (1) shall be duly endorsed or accompanied by a written instrument of transfer in form satisfactory to the Warrant Agent, duly executed by the Warrantholder thereof or his attorney duly authorized in writing; and (2) in the case of Physical Warrants the offer and sale of which have not been registered under the Securities Act, such Physical Warrants shall be accompanied, in the sole discretion of the Company, by the following additional information and documents, as applicable: (A) if such Physical Warrants are being delivered to the Warrant Agent by a holder for registration in the name of such holder, without transfer, a certification from such holder to that effect (in substantially the form of Exhibit C hereto); or (B) if such Physical Warrants are being transferred to a "qualified institutional buyer" (as defined in Rule 144A under the Securities Act (a "QUALIFIED INSTITUTIONAL BUYER")) in accordance with Rule 144A under the Securities Act., a certification to that effect (in substantially the form of Exhibit C hereto). 6.2. RESTRICTIONS ON TRANSFER OF PHYSICAL WARRANTS FOR A BENEFICIAL INTEREST IN A GLOBAL WARRANT. A Physical Warrant may not be exchanged for a beneficial interest in a Global Warrant except upon satisfaction of the requirements set forth below. Upon receipt by the Warrant Agent of a Physical Warrant, duly endorsed or accompanied by appropriate instruments of transfer, in form satisfactory to the Warrant Agent, together with: - 4 - (A) a certification, in substantially the form of Exhibit C hereto, that such Physical Warrant is being transferred to a Qualified Institutional Buyer; and (B) written instructions directing the Warrant Agent to make, or to direct the Depositary to make, an endorsement on the Global Warrant to reflect an increase in the aggregate amount of the Warrants represented by the Global Warrant, then the Warrant Agent shall cancel such Physical Warrant and cause, or direct the Depositary to cause, in accordance with the standing instructions and procedures existing between the Depositary and the Warrant Agent, the number of Warrants represented by the Global Warrant to be increased accordingly. If no Global Warrant is then outstanding, the Company shall issue and the Warrant Agent shall upon written instructions from the Company authenticate a new Global Warrant in the appropriate amount. 6.3. TRANSFER AND EXCHANGE OF GLOBAL WARRANTS. The transfer and exchange of Global Warrants or beneficial interests therein shall be effected through the Depositary, in accordance with this Agreement (including the restrictions on transfer set forth herein) and the procedures of the Depositary therefore. 6.4. TRANSFER OF A BENEFICIAL INTEREST IN A GLOBAL WARRANT FOR A PHYSICAL WARRANT. 6.4.1. Any Person having a beneficial interest in a Global Warrant may upon request exchange such beneficial interest for a Physical Warrant. Upon receipt by the Warrant Agent of written instructions or such other form of instructions as is customary for the Depositary from the Depositary or its nominee on behalf of any person having a beneficial interest in a Global Warrant and upon receipt by the Warrant Agent of a written order or such other form of instructions as is customary for the Depositary or the person designated by the Depositary as having such a beneficial interest containing registration instructions and, in the case of any such transfer or exchange of a beneficial interest in a Global Warrant the offer and sale of which have not been registered under the Securities Act, the following additional information and documents: (A) if such beneficial interest is being transferred to the Person designated by the Depositary as being the beneficial owner, a certification from such person to that effect (in substantially the form of Exhibit C hereto); or (B) if such beneficial interest is being transferred to a Qualified Institutional Buyer in accordance with Rule 144A under the Securities Act, a certification to that effect (in substantially the form of Exhibit C hereto), then the Warrant Agent will cause, in accordance with the standing instructions and procedures existing between the Depositary and the Warrant Agent, the aggregate amount of the Global Warrant to be reduced and, following such reduction, the Company will execute and, upon receipt of an authentication order - 5 - in the form of an officers' certificate, the Warrant Agent will authenticate and deliver to the transferee a Physical Warrant. 6.4.2. Physical Warrants issued in exchange for a beneficial interest in a Global Warrant pursuant to this Section 6.4. shall be registered in such names and in such authorized denominations as the Depositary, pursuant to instructions from its direct or indirect participants or otherwise, shall instruct the Warrant Agent in writing. The Warrant Agent shall deliver such Physical Warrants to the Persons in whose names such Physical Warrants are so registered. 6.5. RESTRICTIONS ON TRANSFER AND EXCHANGE OF GLOBAL WARRANTS. Notwithstanding any other provisions of this Agreement, a Global Warrant may not be transferred as a whole except by the Depositary to a nominee of the Depositary or by a nominee of the Depositary to the Depositary or another nominee of the Depositary or by the Depositary or any such nominee to a successor Depositary or a nominee of such successor Depositary. 6.6. AUTHENTICATION OF DEFINITIVE WARRANTS IN ABSENCE OF DEPOSITARY. If at any time the Depositary for the Warrants notifies the Company that the Depositary is unwilling or unable to continue as Depositary for the Global Warrants and a successor Depositary for the Global Warrants cannot be appointed by the Company within 90 days after delivery of such notice, then the Company will execute, and the Warrant Agent, upon written instructions from the Company requesting the authentication and delivery of Physical Warrants as a result of the inability to retain a successor Depositary, will authenticate and deliver Physical Warrants, in an aggregate number equal to the aggregate number of Warrants represented by the Global Warrants, in exchange for such holder's beneficial interest in Global Warrants. 6.7. LEGENDS. For so long as transfer of a Warrant is not permitted without registration under the Securities Act, each Warrant Certificate evidencing such Warrant (and all Warrants issued in exchange therefor or substitution thereof) shall bear a legend substantially to the following effect: "THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT AS SET FORTH BELOW. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT), (2) AGREES THAT IT WILL NOT WITHIN TWO YEARS AFTER THE ORIGINAL ISSUANCE OF THIS SECURITY RESELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO THE ISSUER OR ANY SUBSIDIARY THEREOF, (B) TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE - 6 - WITH RULE 144A UNDER THE SECURITIES ACT, OR (C) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT (AND WHICH CONTINUES TO BE EFFECTIVE AT THE TIME OF SUCH TRANSFER) AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND." 6.8. CANCELLATION AND/OR ADJUSTMENT OF A GLOBAL WARRANT. At such time as all beneficial interests in a Global Warrant have either been exchanged for Physical Warrants, redeemed, repurchased or cancelled, such Global Warrant shall be returned to or retained and cancelled by the Warrant Agent. At any time prior to such cancellation, if any beneficial interest in a Global Warrant is exchanged for Physical Warrants, redeemed, repurchased or cancelled, the number of Warrants represented by such Global Warrant shall be reduced and an endorsement shall be made on such Global Warrant, by the Warrant Agent to reflect such reduction. 6.8.1. OBLIGATIONS WITH RESPECT TO TRANSFERS AND EXCHANGES OF PHYSICAL WARRANTS. (i) To permit registrations of transfers and exchanges, the Company shall execute, at the Warrant Agent's request, and the Warrant Agent shall authenticate Physical Warrants and Global Warrants. (ii) All Physical Warrants and Global Warrants issued upon any registration, transfer or exchange of Physical Warrants or Global Warrants shall be the valid obligations of the Company, entitled to the same benefits under this Agreement as the Physical Warrants or Global Warrants surrendered upon the registration of transfer or exchange. (iii) Prior to due presentment for registration of transfer of any Warrant, the Warrant Agent and the Company may deem and treat the person in whose name any Warrant is registered as the absolute owner of such Warrant, and neither the Warrant Agent nor the Company shall be affected by notice to the contrary. Section 7. ISSUANCE OF WARRANTS; TERMS OF WARRANTS: EXERCISE OF WARRANTS. 7.1. METHOD OF EXERCISE; PAYMENT, ISSUANCE OF NEW WARRANT; TRANSFER AND EXCHANGE. 7.1.1. METHOD OF EXERCISE. 7.1.1.1. CASH EXERCISE. Subject to the terms of this Agreement, each Warrant holder shall have the right to exercise the Warrants - 7 - evidenced by the Warrant Certificates it holds, in whole or in part, during normal business hours on any Business Day on or prior to the Expiration Date, by surrender of the Warrant Certificates held by it to the Company at its principal office, accompanied by a subscription substantially in the form attached to the Warrant Certificates duly executed by such holder and accompanied by (a) wire transfer of immediately available funds or (b) certified or official bank check payable to the order of the Company, in each case in the amount obtained by multiplying (i) the number of shares of Common Stock (without giving effect to any adjustment thereof pursuant to the provisions of hereof) for which the Warrant is then being exercised, as designated in such subscription, by (ii) the Initial Exercise Price. Thereupon, such holder shall be entitled to receive the number of duly authorized, validly issued, fully paid and nonassessable Warrant Shares (or Other Securities) determined as provided in Sections 7.4 and 7.5 hereof. 7.1.1.2. CONVERSION. Subject to the terms of this Agreement, each Warrant holder shall have the right to convert the Warrants evidenced by the Warrant Certificates it holds, in whole or in part, into Warrant Shares (or Other Securities), during normal business hours on any Business Day on or prior to the Expiration Date, by surrender of the Warrant Certificates held by it to the Company at its principal office, accompanied by a conversion notice substantially in the form attached to the Warrant Certificates duly executed by such holder. Thereupon, such holder shall be entitled to receive a number of duly authorized, validly issued, fully paid and nonassessable Warrant Shares (or Other Securities) equal to: (a) the excess of (i) (x) the number of Warrant Shares (or Other Securities) determined as provided in Sections 7.4 and 7.5 hereof which such holder would be entitled to receive upon exercise of such Warrant for the number of Warrant Shares designated in such conversion notice (without giving effect to any adjustment thereof pursuant to the provisions hereof) for which the Warrant is then being exercised, as designated in such conversion notice, MULTIPLIED BY (y) the Current Market Price of each such Warrant Share (or such Other Securities) so receivable upon such exercise OVER (ii) (x) the number of Warrant Shares (without giving effect to any adjustment thereof pursuant to the provisions hereof) which such holder would be entitled to receive upon exercise of such Warrant for the number of Warrant Shares designated in such conversion notice (without giving effect to any adjustment thereof - 8 - pursuant to the provisions hereof), MULTIPLIED BY (y) the Initial Exercise Price DIVIDED BY (b) such Current Market Price of each such Warrant Share (or Other Securities). 7.1.1.3. NOTE TENDER. Subject to the terms of this Agreement, each Warrant holder shall have the right to exercise the Warrants evidenced by the Warrant Certificates it holds, in whole or in part, during normal business hours on any Business Day on or prior to the Expiration Date, by surrender of the Warrant Certificates held by it to the Company at its principal office, accompanied by a note tender notice substantially in the form attached to the Warrant Certificates duly executed by such holder and accompanied by a Note. Thereupon, such holder shall be deemed to have exercised the Warrants represented by such Warrant Certificates for the number of Warrant Shares (up to the maximum number of Warrant Shares set forth on the face of such Warrant Certificates and without giving effect to any adjustment thereof pursuant to the provisions hereof) obtained by dividing (i) the sum of the outstanding face amount of such Note (or such lesser amount indicated on the note tender notice) PLUS any cash or payment-in-kind interest accrued on such Note, PLUS any accrued prepayment penalty or premium by (ii) the Initial Exercise Price. Thereupon, such holder shall be entitled to receive the number of duly authorized, validly issued, fully paid and nonassessable Warrant Shares (or Other Securities) determined as provided in Sections 7.4 and 7.5. 7.1.2. WHEN EXERCISE EFFECTIVE. Each exercise of a Warrant shall be deemed to have been effected immediately prior to the close of business on the Business Day on which such Warrant shall have been surrendered to the Company at the office of the Warrant Agent and payment made as provided in Section 7.1.1 hereof, and at such time the Person or Persons in whose name or names any certificate or certificates for Warrant Shares (or Other Securities) shall be issuable upon such exercise as provided in Section 7.1.3 hereof shall be deemed to have become the holder or holders of record thereof. 7.1.3. DELIVERY OF STOCK CERTIFICATES, ETC. As soon as practicable, but no later than five Business Days after each exercise of a Warrant, in whole or in part, except as otherwise provided in Section 7.1.4, the Company at its expense (including the payment by it of any applicable issue taxes) will cause to be issued in the name of and delivered to the holder thereof or, subject to the provisions of the Exchange Agreement, as such holder (upon payment by such holder of any applicable transfer taxes and subject to Section 6 above) may direct: (a) a certificate or certificates for the number of duly authorized, validly issued, fully paid and nonassessable Warrant Shares - 9 - (or Other Securities) to which such holder shall be entitled upon such exercise plus, in lieu of any fractional share to which such holder would otherwise be entitled, cash in an amount equal to the same fraction of the Current Market Price per share on the Business Day immediately preceding the date of such exercise; and (b) in case such exercise is in part only, a new Warrant or Warrants of like tenor, dated the date hereof and calling in the aggregate on the face or faces thereof for the number of Warrant Shares equal (without giving effect to any adjustment thereof pursuant to the terms hereof) to the number of such shares called for on the face of such Warrant minus the number of such shares designated by the holder upon such exercise as provided in Section 7.1.1 hereof; and (c) in case such exercise is by a partial tender of Notes, replacement Notes in the amount of the outstanding principal balance thereof, dated the date as of which all accrued interest thereon shall then most recently have been paid (including any payment effected in connection with a Note tender by including such accrued interest in the calculation provided by Section 7.1.3(i)). 7.1.4. CASH CLOSE OUT. Upon the exercise of the Warrants as provided in Section 7.1.1, the Company may elect either (i) to comply with the requirements of Section 7.1.3(a) with respect to the issuance of Warrant Shares in connection with such exercise or (ii) upon written notice to the holder not more than two Business Days following the date of exercise, to pay to the holder an amount equal to the Market Price for each Warrant Share issuable upon such exercise (the "CASH CLOSE OUT") in lieu of issuing such Warrant Shares. Any Cash Close Out made under this Section 7.1.4 shall be paid within two Business Days of the exercise of such Warrant by (a) wire transfer of immediately available funds or (b) certified or official bank check payable to the order of the holder. 7.1.5. COMPANY TO REAFFIRM OBLIGATIONS. The Company will, at the time of or at any time after each exercise of a Warrant, upon the request of the holder hereof, acknowledge in writing its continuing obligation to afford to such holder all rights to which such holder shall continue to be entitled after such exercise in accordance with the terms of this Warrant Agreement and the Warrants; provided that if any such holder shall fail to make any such request, the failure shall not affect the continuing obligation of the Company to afford such rights to such holder. 7.2. WARRANTHOLDER REPRESENTATIONS. Prior to the exercise of any Warrant, the Warrantholder must represent and warrant to the Company, in writing, as follows: (i) it is acquiring the Warrant Shares for its own account for investment and not with a view to, or for sale in connection with, any distribution thereof, nor with any present intention of distributing or selling the same; and the - 10 - Warrantholder has no present or contemplated agreement, undertaking, arrangement, obligation, indebtedness or commitment providing for the disposition thereof; (ii) the Warrantholder is an "accredited investor" as defined in Rule 501(a) under the Securities Act; and (iii) the Warrantholder has made such inquiry concerning the Company and its business and personnel as it has deemed appropriate; and the Warrantholder has sufficient knowledge and experience in finance and business that is capable of evaluating the risks and merits of investment in the Company. 7.3. STOCK FULLY PAID; RESERVATION OF SHARES. The Company represents, warrants, covenants and agrees that all Warrant Shares which may be issued upon the exercise of the rights represented by the Warrants will, upon issuance and payment therefor in accordance with the terms of the Warrant, be duly authorized, validly issued, fully paid and non-assessable. The Company further covenants and agrees that during the period within which the rights represented by the Warrants may be exercised, the Company will at all times have authorized and reserved solely for the purpose of the issuance upon exercise of the Warrants a sufficient number of shares of Common Stock to provide for the exercise of the rights represented by the Warrants. The Company will (a) not increase the par value of any shares of Common Stock receivable upon the exercise of any Warrant above the amount payable therefor upon such exercise immediately prior to such increase in par value, (b) take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and non-assessable Warrant Shares upon the exercise of each Warrant, and (c) use its reasonable efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof as may be necessary to enable the Company to perform its obligations under this Agreement and each Warrant. Without limiting the generality of the foregoing, the Company will from time to time take all such action as may be required to assure that the par value per share, if any, of the Common Stock is at all times equal to or less than the lowest quotient obtained by dividing the then current exercise price of each Warrant by the number of Warrant Shares into which such Warrant can from time to time be exercised. 7.4. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES. 7.4.1. GENERAL; NUMBER OF SHARES; EXERCISE PRICE. The number of Warrant Shares which the holder of a Warrant shall be entitled to receive upon each exercise thereof shall be determined by multiplying the number of shares of Common Stock which would otherwise (but for the provisions of this Section 7.4) be issuable upon such exercise, as designated by the holder hereof pursuant to Section 7.1.1 hereof, by a fraction of which (a) the numerator is the Initial Exercise Price of such Warrant and (b) the denominator is the Exercise Price of such Warrant in effect on the date of such exercise. The "Exercise Price" shall - 11 - initially be the Initial Exercise Price, and shall be adjusted and readjusted from time to time as provided in this Section 7.4 and, as so adjusted or readjusted, shall remain in effect until a further adjustment or readjustment thereof is required by this Section 7.4. 7.4.2. ISSUANCE OF ADDITIONAL WARRANTS DUE TO ISSUANCE OF ADDITIONAL COMMON SHARES. In case the Company at any time or from time to time after the date hereof shall issue or sell Additional Common Shares (including Additional Common Shares deemed to be issued pursuant to Section 7.4.4 or 7.4.5), other than an Excluded Issuance, without consideration or for a consideration per share less than the Fair Market Value, then in each such case such Exercise Price shall be reduced (but not increased), concurrently with such issue or sale, to a price (calculated to the nearest 0.000001 of a cent) determined by multiplying the Exercise Price in effect immediately prior to such issue or sale (the "ANTIDILUTION PRICE") by a fraction: (a) the numerator of which shall be the sum of (i) the number of shares of Common Stock outstanding immediately prior to such issue or sale MULTIPLIED BY the Antidilution Price PLUS (ii) the consideration, if any, deemed received by the Company upon such issue or sale; and (b) the denominator of which shall be the product of (i) the total number of shares of Common Stock deemed to be outstanding immediately after such issue or sale MULTIPLIED BY (ii) the Antidilution Price. In each case, the number of shares of Common Stock shall be calculated in accordance with Section 7.4.8. 7.4.3. DIVIDENDS AND DISTRIBUTIONS. In case the Company at any time or from time to time after the date hereof shall declare, order, pay or make a dividend or other distribution (including without limitation any distribution of additional stock or other securities or property or Options, by way of dividend or spin-off, distribution, reclassification, recapitalization or similar corporate rearrangement or otherwise) on the shares of Common Stock, other than a dividend payable in (or otherwise deemed to be an issuance of) Additional Common Shares or periodic cash dividends declared and paid in the ordinary course of business, then, and in each such case, the holder of a Warrant shall receive, upon the exercise of such Warrant at any time on or after such record date, the number of Warrant Shares to be received upon exercise of such Warrant determined as provided herein and, in addition and without further payment, and without any additional action required on the part of such holder, such dividend or other distribution to which such holder would have been entitled by way of such dividend or other distribution and subsequent dividends and other distributions through the date of exercise as if such holder (x) had exercised such Warrant immediately prior to such record date and (y) had retained such dividend or other distribution in respect of the shares of Common Stock and all subsequent - 12 - dividends and other distributions of any nature whatsoever in respect of any stock or securities paid as dividends and other distributions and originating directly or indirectly from such shares of Common Stock. 7.4.4. TREATMENT OF OPTIONS AND CONVERTIBLE SECURITIES. In case the Company at any time or from time to time after the date hereof shall issue, sell, grant or assume, or shall fix a record date for the determination of holders of any class of securities entitled to receive, any Options or Convertible Securities, then, and in each such case, the maximum number of Additional Common Shares (as set forth in the instrument relating thereto, without regard to any provisions contained therein for a subsequent adjustment of such number the purpose of which is to protect against dilution) at any time issuable upon the exercise of such Options or, in the case of Convertible Securities and Options therefor, the conversion or exchange of such Convertible Securities, shall be deemed to be Additional Common Shares issued as of the time of such issue, sale, grant or assumption or, in case such a record date shall have been fixed, as of the close of business on such record date. Notwithstanding the foregoing, this Section 7.4.4 shall not apply to (i.e., there shall not be a deemed issuance of Additional Common Shares with respect to) the issuance, sale, grant or assumption of, or fixing of a record date for determination of entitlement to receive, an Excluded Issuance. In addition: (a) no further adjustment of the Exercise Price shall be made upon the exercise of any Options or the conversion or exchange of Convertible Securities and the consequent issue or sale of Convertible Securities or shares of Common Stock; (b) if Options or Convertible Securities by their terms provide, with the passage of time or otherwise, for any increase in the consideration payable to the Company, or decrease in the number of Common Shares issuable, upon the exercise, conversion or exchange thereof (by change of rate or otherwise), the Exercise Prices computed upon the original issue, sale, grant or assumption thereof (or upon the occurrence of the record date with respect thereto), and any subsequent adjustments based thereon, shall, upon any such increase or decrease becoming effective, be recomputed to reflect such increase or decrease insofar as it affects such Options, or the rights of conversion or exchange under such Convertible Securities, which are outstanding at such time; (c) if the consideration provided for in any Option or the additional consideration, if any, payable upon the conversion or exchange of any Convertible Security shall be reduced, or the ratio at which any Option is exercisable or any Convertible Security is convertible into or exchangeable for shares of Common Stock shall be increased, at any time under or by reason of provisions with respect thereto designed to protect against dilution, then, effective concurrently with each such change, the Exercise Price then in effect shall first be adjusted to eliminate the - 13 - previous effects (if any) of the issuance (or deemed issuance) of such Option or Convertible Security on the Exercise Price and then readjusted as if such Option or Convertible Security had been issued on the date of such change with the terms in effect after such change; and (d) upon the expiration (or purchase by the Company and cancellation or retirement) of any Options which shall not have been exercised, or the expiration of any rights of conversion or exchange under any Convertible Securities which (or purchase by the Company and cancellation or retirement of any Convertible Securities the rights of conversion or exchange under which) shall not have been exercised, the Exercise Price computed upon the original issue, sale, grant or assumption thereof (or upon the occurrence of the record date with respect thereto), and any subsequent adjustments based thereon, shall, upon (and effective as of) such expiration (or such cancellation or retirement, as the case may be), be recomputed as if: (i) in the case of Options or Convertible Securities, the only Additional Common Shares issued or sold were the Additional Common Shares, if any, actually issued or sold upon the exercise of such Options or the conversion or exchange of such Convertible Securities and the consideration received therefor was the consideration actually received by the Company for the issue, sale, grant or assumption of all such Options, whether or not exercised, plus the additional consideration actually received by the Company upon any exercise thereof, or the consideration actually received by the Company for the issue or sale of all such Convertible Securities, whether or not actually converted or exchanged, plus the additional consideration actually received by the Company upon any conversion or exchange thereof, and (ii) in the case of Options for Convertible Securities, only the Convertible Securities, if any, actually issued or sold upon the exercise of such Options were issued at the time of the issue, sale, grant or assumption of such Options, and the consideration received by the Company for the Additional Common Shares deemed to have then been issued was the consideration actually received by the Company for the issue, sale, grant or assumption of all such Options, whether or not exercised, plus the consideration deemed to have been received by the Company (pursuant to Section 7.4.6 hereof) upon the issue or sale of such Convertible Securities with respect to which such Options were actually exercised. 7.4.5. TREATMENT OF STOCK DIVIDENDS, STOCK SPLITS, ETC. In case the Company at any time or from time to time after the date hereof shall declare or pay any dividend on the shares of Common - 14 - Stock payable in shares of Common Stock or other securities, or shall effect a subdivision of the outstanding shares of Common Stock into a greater number of shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock), then, and in each such case, Additional Common Shares shall be deemed to have been issued (a) in the case of any such dividend, immediately after the close of business on the record date for the determination of holders of any class of securities entitled to receive such dividend, or (b) in the case of any such subdivision, at the close of business on the day immediately prior to the day upon which such corporate action becomes effective. 7.4.6. COMPUTATION OF CONSIDERATION. For the purposes of this Section 7.4: (a) the consideration for the issue or sale of any Additional Common Shares shall, irrespective of the accounting treatment of such consideration, be computed at the fair value thereof at the time of such issue or sale, as determined in good faith by the Board, without deduction for any expenses paid or incurred by the Company or any commissions or compensations paid or concessions or discounts allowed to underwriters, dealers or others performing similar services in connection with such issue or sale. In the event Additional Common Shares are issued or sold together with other stock or securities or other assets of the Company for a consideration which covers both, the consideration for the issue or sale of Additional Common Shares shall be the portion of such consideration so received, computed as provided in this Section 7.4.6, allocable to such Additional Common Shares, all as determined in good faith by the Board. Notwithstanding the foregoing, if Additional Common Shares are issued (i) to an Affiliate of the Company or (ii) in connection with any acquisition by the Company of stock or assets of a third party or parties, the fair value of such Additional Common Shares at the time of such issue or sale shall be the value as determined in good faith by the Board, except that in the case of issuances to Affiliates of the Company, or in connection with acquisitions by the Company of stock or assets of a third party, such fair value shall be the value set forth in an opinion of independent accountants or investment bankers selected by the Company, if such engagement is reasonably requested by the Majority Warrantholders; (b) Additional Common Shares deemed to have been issued pursuant to Section 7.4.4 hereof shall be deemed to have been issued for a consideration per share determined by dividing: (i) the total amount of consideration, if any, received and/or receivable by the Company as direct consideration for the issue, sale, grant or assumption of the Options or Convertible Securities in question, plus the minimum aggregate amount of additional consideration (as set forth in the instruments relating thereto, without regard to any provision contained therein for a - 15 - subsequent adjustment of such consideration the purpose of which is to protect against dilution) payable to the Company upon the exercise in full of such Options or the conversion or exchange of such Convertible Securities or, in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities, in each case computing such consideration as provided in the foregoing clause (a), by (ii) the maximum number of shares of Common Stock (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such number the purpose of which is to protect against dilution) issuable upon the exercise of such Options or the conversion or exchange of such Convertible Securities; and (c) Additional Common Shares deemed to have been issued pursuant to Section 7.4.5 hereof shall be deemed to have been issued for no consideration, unless the Company actually receives consideration for any such issuance. 7.4.7. ADJUSTMENTS FOR COMBINATIONS, ETC. In case the outstanding shares of Common Stock shall be combined or consolidated, by reclassification or otherwise, into a lesser number of shares of Common Stock, the Exercise Price in effect immediately prior to such combination or consolidation shall, concurrently with the effectiveness of such combination or consolidation, be proportionately increased. 7.4.8. SHARES DEEMED OUTSTANDING. Unless otherwise specifically provided herein, for all purposes of the computations to be made pursuant to this Section 7.4, there shall be deemed to be outstanding all shares of Common Stock issuable pursuant to the exercise of Options and conversion of Convertible Securities outstanding at the time as of which such computation is made. No adjustment shall be made in the Exercise Price upon the issuance of shares of Common Stock pursuant to Options and Convertible Securities so deemed to be outstanding, but this Section 7.4.8 shall not prevent other adjustments in the Exercise Price arising by virtue of such outstanding Options or Convertible Securities pursuant to the provisions of Sections 7.4.2, 7.4.4 and 7.4.5 hereof. 7.4.9. WARRANT AGENT'S DISCLAIMER. The Warrant Agent shall have no duties or responsibilities under this Section 7.4, including, but not limited to, determining when an adjustment under this Section 7.4 should be made, how such adjustment should be made or what the adjustment should be. The Warrant Agent makes no representation as to the validity or value of any securities or assets issued upon exercise of Warrants. The Warrant Agent shall not be responsible for the Company's failure to comply with this Section 7.4. - 16 - 7.5. ADJUSTMENTS FOR CONSOLIDATION, MERGER, SALE OF ASSETS, REORGANIZATION, ETC. In case the Company after the date hereof (a) shall consolidate with or merge into any other Person and shall not be the continuing or surviving corporation of such consolidation or merger, or (b) shall permit any other Person to consolidate with or merge into the Company and the Company shall be the continuing or surviving Person and the holders of a majority of the Company's capital stock before such consolidation or merger shall cease to hold a majority of the Company's capital stock after such consolidation or merger, or (c) shall effect a capital reorganization or reclassification of the Common Stock or Other Securities, then in the case of each such transaction proper provision shall be made so that, upon the basis and the terms and in the manner provided in this Agreement, the holders of the Warrants, upon the exercise thereof at any time after the consummation of such transaction, shall be entitled to receive (at the aggregate Exercise Price in effect at the time of such consummation for all Common Stock or Other Securities issuable upon such exercise immediately prior to such consummation), in lieu of the Common Stock or Other Securities issuable upon such exercise prior to such consummation, the greatest amount of securities, cash or other property to which such holder would actually have been entitled as a shareholder upon such consummation if such holder had exercised the rights represented by the Warrant Certificate held by it immediately prior thereto. 7.6. NOTICE OF ADJUSTMENTS. Whenever the Exercise Price is adjusted, the Company will promptly deliver to the Warrant Agent and to each registered Warrantholder at the address provided to the Warrant Agent a certificate setting forth, in reasonable detail, the event that triggered the adjustment or issuance, the amount of the adjustment or issuance, the method by which such adjustment or issuance was calculated (including a description of the basis on which the Board made any determination hereunder), and the Exercise Price after giving effect to such adjustment. Unless and until the Warrant Agent receives such a certificate, it may assume without inquiry that the Exercise Price of any outstanding Warrants has not been adjusted. 7.7. NO RIGHTS OR LIABILITIES AS STOCKHOLDER. Nothing contained in this Agreement or in any Warrant shall be construed as conferring upon any Warrantholder who has not exercised a Warrant any rights as a stockholder of the Company prior to exercise of any Warrant or as imposing any obligation on such Warrantholder to purchase any Securities or as imposing any liabilities on such holder as a stockholder of the Company, whether such obligation or liabilities are asserted by the Company or by creditors of the Company. Section 8. REGISTRATION RIGHTS. The Company will perform and comply, and cause each of its Subsidiaries to perform and comply, with each of the following provisions as are applicable to it. Each holder of Warrant Shares will perform and comply with each of the following provisions as are applicable to such holder. 8.1. DEMAND REGISTRATION RIGHTS. 8.1.1. GENERAL. One or more holders of Warrants or Warrant Shares who at such time hold greater than 20% of the Warrant Shares that have been or may - 17 - be issued upon exercise, conversion or exchange of the Warrants ("INITIATING HOLDERS") may request, by written notice to the Company, that the Company effect the registration under the Securities Act for a Public Offering of all or a specified part of the Registrable Securities held by such Initiating Holders, without exercising, converting or exchanging the Warrants held by such Initiating Holders prior to making such request. Such notice shall specify the intended method or methods of distribution. Promptly after receipt of such notice from the Initiating Holders, the Company shall give notice of such requested registration to all other holders of Registrable Securities and Warrantholders in accordance with Section 8.2. The Company will then use its reasonable best efforts to effect the registration under the Securities Act of the Registrable Securities which the Company has been requested to register by such Initiating Holders, together with all other Registrable Securities which the Company has been requested to register pursuant to Section 8.2 or otherwise by notice delivered to the Company within 20 days after the Company has given the required notice of such requested registration (which request shall specify the intended method of disposition of such Registrable Securities), all to the extent requisite to permit the disposition (in accordance with the intended methods thereof as aforesaid) of the Registrable Securities which the Company has been so requested to register; PROVIDED, HOWEVER, that the Company shall not be obligated to take any action to effect any such registration pursuant to this Section 8.1.1 within 180 days immediately following the effective date of any registration statement pertaining to an underwritten public offering of securities of the Company for its own account (other than a Rule 145 Transaction, or a registration relating solely to employee benefit plans). 8.1.2. FORM; LIMITATIONS. Except as otherwise provided above, each registration requested pursuant to Section 8.1.1 shall be effected by the filing of a registration statement on Form S-1 (or any other form which includes substantially the same information as would be required to be included in a registration statement on such form as currently constituted), unless the use of a different form has been agreed to in writing by holders of at least a majority of the Registrable Securities to be included in the proposed registration statement in question (the "MAJORITY PARTICIPATING HOLDERS") or the Company is then eligible to use Form S-3 for a Public Offering by the Majority Participating Holders of their Warrant Shares; PROVIDED, HOWEVER, that the Company shall not be required to effect any registration requested pursuant to Section 8.1.1 on any form other than Form S-3 (or any successor form) if the Company has previously effected three or more registrations of Registrable Securities under Section 8.1.1 on any form other than Form S-3 (or any successor form). No registration of Registrable Securities which shall not have become and remained effective in accordance with this Section 8.1 shall be included in the calculation of the number of registrations contemplated by this Section 8.1.2 (unless the Initiating Holders withdraw their request for such registration, other than (i) if such withdrawal is a result of information concerning the business or financial condition of the Company which is made known after the date on which such registration was requested or (ii) if the Initiating Holders pay all the expenses of such registration otherwise payable - 18 - by the Company pursuant to Section 8.1.3). If at the time of any request to register Registrable Securities pursuant to this Section 8.1.1, the Company is engaged or has plans to engage in a registered public offering or is engaged in any other activity which, in the good faith determination of the Board, would be adversely affected by the requested registration, then the Company may at its option direct that such request be delayed for a period not in excess of 30 days from the date of such request, such right to delay a request to be exercised by the Company not more than once in any 12-month period. In the event that, in the judgment of the Company, it is advisable to suspend use of a prospectus included in a registration statement due to pending material developments or other events that have not yet been publicly disclosed and as to which the Company believes public disclosure would be detrimental to the Company, the Company shall notify all selling stockholders to such effect, and, upon receipt of such notice, each such selling stockholder shall immediately discontinue any sales of Registrable Securities pursuant to such registration statement until such selling stockholder has received copies of a supplemented or amended prospectus or until such selling stockholder is advised in writing by the Company that the then current prospectus may be used and has received copies of any additional or supplemental filings that are incorporated or deemed incorporated by reference in such prospectus. Notwithstanding anything to the contrary herein, the Company shall not exercise its rights under the foregoing sentence to suspend sales of Registrable Securities for a period in excess of 30 days consecutively or 60 days in any 365-day period. 8.1.3. PAYMENT OF EXPENSES. The Company shall pay all reasonable expenses of holders of Warrant Shares incurred in connection with the first three registrations of Registrable Securities requested pursuant to this Section 8.1 (including the reasonable fees and expenses of a single legal counsel representing all selling stockholders), other than underwriting discounts and commissions, if any, and applicable transfer taxes, if any. 8.1.4. ADDITIONAL PROCEDURES. In the case of a registration pursuant to this Section 8.1.2, whenever the Initiating Holders shall request that such registration shall be effected pursuant to an underwritten offering, the Company shall include such information in the written notices to holders of Registrable Securities referred to in Section 8.1.2. In such event, the right of any holder of Registrable Securities to have securities owned by such holder included in such registration pursuant to this Section 8.1.1 shall be conditioned upon such holder's participation in such underwriting and the inclusion of such holder's Registrable Securities in the underwriting (unless otherwise mutually agreed upon by the Majority Participating Holders and such holder). If requested by the underwriters of such registration, the Company, together with the holders of Registrable Securities proposing to distribute their securities through such underwriting, will enter into an underwriting agreement with such underwriters for such offering containing such representations and warranties by the Company and such holders and such other terms and provisions as are customarily contained in underwriting agreements with respect to secondary distributions, including, without limitation, - 19 - customary indemnity and contribution provisions (subject, in each case, to the limitations on such liabilities set forth in this Agreement). 8.2. PIGGYBACK REGISTRATION RIGHTS. 8.2.1. GENERAL. Each time the Company proposes to register any shares of Common Stock under the Securities Act on a form which would permit registration of Registrable Securities for sale to the public, for its own account and/or for the account of any holders of Registrable Securities or Affiliate of a holder of Registrable Securities (pursuant to Section 8.1 or otherwise), for sale in a Public Offering, the Company will give notice to all holders of Registrable Securities of its intention to do so. Any such holder may, by written response delivered to the Company within 20 days after the effectiveness of such notice, request that all or a specified part of the Registrable Securities held by such holder be included in such registration. The Company thereupon will use its reasonable efforts to cause to be included in such registration under the Securities Act all shares of Common Stock which the Company has been so requested to register by such holders, to the extent required to permit the disposition (in accordance with the methods to be used by the Company or other holders of shares of Common Stock in such Public Offering) of the Registrable Securities to be so registered. No registration of Registrable Securities effected under this Section 8.2 shall relieve the Company of any of its obligations to effect registrations of Registrable Securities pursuant to Section 8.1. The Company may withdraw or suspend any registration covered by this Section 8.2 at any time (subject, in the case of any registration also covered by Section 8.1, to any limitations set forth therein). 8.2.2. EXCLUDED TRANSACTIONS. The Company shall not be obligated to effect any registration of Registrable Securities under this Section 8.2 incidental to the registration of any of its securities in connection with: (a) Any Public Offering relating to employee benefit plans or dividend reinvestment plans; or (b) Any Public Offering relating to the acquisition or merger after the date hereof by the Company or any of its Subsidiaries of or with any other businesses. 8.2.3. PAYMENT OF EXPENSES. The Company shall pay all reasonable fees and expenses of a single legal counsel representing any and all holders of Registrable Securities incurred in connection with the first three registrations of Registrable Securities requested pursuant to this Section 8.2. 8.2.4. ADDITIONAL PROCEDURES. Holders of Warrant Shares participating in any Public Offering pursuant to this Section 8.2 shall take all such actions and execute all such documents and instruments that are reasonably requested by the Company to effect the sale of their Warrant Shares in such Public Offering, including, without limitation, being parties to the underwriting agreement entered - 20 - into by the Company and any other selling stockholders in connection therewith and being liable in respect of the representations and warranties by, and the other agreements (including without limitation customary selling stockholder representations, warranties, indemnifications and "lock-up" agreements) for the benefit of the underwriters; PROVIDED, HOWEVER, that (a) with respect to individual representations, warranties, indemnities and agreements of selling holders of Warrant Shares in such Public Offering, the aggregate amount of such liability shall not exceed such holder's net proceeds from such offering and (b) to the extent selling holders of Warrant Shares give further representations, warranties and indemnities, then with respect to all other representations, warranties and indemnities of sellers of shares in such Public Offering, the aggregate amount of such liability shall not exceed the lesser of (i) such holder's pro rata portion of any such liability, in accordance with such holder's portion of the total number of Warrant Shares included in the offering or (ii) such holder's net proceeds from such offering. 8.3. CERTAIN OTHER PROVISIONS. 8.3.1. UNDERWRITER'S CUTBACK. In connection with any registration of Warrant Shares, the underwriter may determine that marketing factors (including, without limitation, an adverse effect on the per share offering price) require a limitation of the number of Warrant Shares to be underwritten. Notwithstanding any contrary provision of Section 8.1 or Section 8.2, and subject to the terms of this Section 8.3.1, the underwriter may limit the number of shares which would otherwise be included in such registration by excluding any or all Registrable Securities from such registration (it being understood that the number of shares which the Company seeks to have registered in such registration shall not be subject to exclusion, in whole or in part, under this Section 8.3.1). Upon receipt of notice from the underwriter of the need to reduce the number of shares to be included in the registration, the Company shall advise all holders of the Company's securities that would otherwise be registered and underwritten pursuant hereto, and the number of shares of such securities, including Registrable Securities, that may be included in the registration shall be allocated in the following manner, unless the underwriter shall determine that marketing factors require a different allocation: (i) shares, other than Registrable Securities, requested to be included in such registration by stockholders shall be excluded unless (x) the Company has, prior to the date hereof, or after the date hereof with the consent of the Majority Holders, granted registration rights which are to be treated on an equal basis with Registrable Securities for the purpose of the exercise of the underwriter cutback (with it being specifically agreed and acknowledged that the registration rights granted to Silicon Valley Bank pursuant to the Registration Rights Agreement, dated on or around December 30, 2002, between the Company and Silicon Valley Bank are to be treated on an equal basis with Registrable Securities for the purposes of this underwriting cutback), or (y) such shares are issued upon the exercise of warrants to purchase Common Stock that are issued in connection with a Permitted Exchange (as defined in the Exchange Agreement), with it being specifically acknowledged that the - 21 - registration rights granted to the holders of any such shares of Common Stock are to be treated on an equal basis with Registrable Securities for purposes of this underwriting cutback; and (ii) if further limitation on the number of shares to be included in the offering is required, the number of Registrable Securities and other shares of Common Stock that may be included in such registration shall be allocated among holders thereof in proportion, as nearly as practicable, to the respective amounts of Common Stock which each stockholder requested be registered in such registration. No securities excluded from the underwriting by reason of the underwriter's marketing limitation shall be included in such registration. Upon delivery of a written request that Registrable Securities be included in an underwritten offering pursuant to Section 8.1.1 or Section 8.2.1, the holder thereof may not thereafter elect to withdraw therefrom without the written consent the Company and the Majority Participating Holders. 8.3.2. REGISTRATION PROCEDURES. If and in each case when the Company is required to use its reasonable best efforts to effect a registration of any Registrable Securities as provided in Section 8.1 or Section 8.2, the Company shall take appropriate and customary actions in furtherance thereof, including, without limitation: (a) promptly filing with the Commission a registration statement and using best efforts to cause such registration statement to become effective; (b) preparing and filing with the Commission such amendments and supplements to such registration statements as may be required to comply with the Securities Act and to keep such registration statement effective for a period not to exceed 270 days from the date of effectiveness or such earlier time as the Registrable Securities covered by such registration statement shall have been disposed of in accordance with the intended method of distribution therefor or the expiration of the time when a prospectus relating to such registration is required to be delivered under the Securities Act; PROVIDED, HOWEVER, that if the registration is effected by the filing of a registration statement on Form S-3, then the Company shall keep such registration statement effective for a period not to exceed 3 years from the date of effectiveness or such earlier time as the Registrable Securities covered by such registration statement have been disposed of in accordance with the intended method of distribution therefore, the expiration of the time when a prospectus relating to such registration is required to be delivered under the Securities Act, or such registration statement no longer covers Registrable Securities; (c) using its best efforts to register or qualify such Registrable Securities under the state securities or "blue sky" laws of such jurisdictions as the sellers shall reasonably request; PROVIDED, HOWEVER, that the Company shall not be obligated to file any general consent to service of process or to qualify as a foreign corporation in any jurisdiction - 22 - in which it is not so qualified or to subject itself to taxation in respect of doing business in any jurisdiction in which it would not otherwise be so subject; and (d) otherwise cooperating reasonably with, and taking such customary actions as may reasonably be requested by the holders of Registrable Securities in connection with, such registration. 8.3.3. SELECTION OF UNDERWRITERS AND COUNSEL. The underwriters and legal counsel to be retained in connection with any Public Offering shall be selected by the Board or, in the case of an offering following a request therefor under Section 8.1.1, the Initiating Holders with the consent of the Company (which consent shall not be unreasonably withheld). 8.3.4. LOCK-UP. Without the prior written consent of the underwriters managing any Public Offering, for a period beginning seven days immediately preceding and ending on the 90th day following the effective date of the registration statement used in connection with such offering, no holder of Warrant Shares (whether or not a selling stockholder pursuant to such registration statement) representing at least 1% of the outstanding Common Stock shall (a) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer, directly or indirectly, any shares of Common Stock or any securities convertible into or exercisable or exchangeable for such Common Stock or (b) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of Common Stock, whether any such transaction described in clause (a) or (b) above is to be settled by delivery of such Common Stock or such other securities, in cash or otherwise; PROVIDED, HOWEVER, that the foregoing restrictions shall not apply to (i) the sale of Common Stock pursuant to any such registration statement filed in accordance with Section 8.1 or Section 8.2; (ii) transactions relating to shares of Common Stock or other securities acquired in open market transactions; or (iii) the exercise, conversion or exchange of Warrants or conversions of shares of Common Stock into other classes of Common Stock without change of holder. 8.3.5. FUTURE REGISTRATION RIGHTS. If, after the date hereof, the Company enters into an agreement or other commitment with any other Person that has the effect of establishing registration rights with respect to the Company's capital stock the terms of which are more favorable, taken as a whole, to such Person than the registration rights established in favor of the holders of Registrable Securities and Warrantholders pursuant to Section 8.1 or Section 8.2, then the Company will promptly so notify the such holders in writing, and the Company shall, without the necessity of any action on the part of such holders, extend the benefits of such more favorable terms to such holders as if such terms were contained in this Agreement, or permit such holders to enter into such other agreement establishing such rights in lieu of this agreement. - 23 - 8.4. INDEMNIFICATION AND CONTRIBUTION. 8.4.1. INDEMNITIES OF THE COMPANY. In the event of any registration of any Registrable Securities or other debt or equity securities of the Company or any of its Subsidiaries under the Securities Act pursuant to Section 8.1, Section 8.2 or otherwise, and in connection with any registration statement or any other disclosure document produced by or on behalf of the Company or any of its Subsidiaries including, without limitation, reports required and other documents filed under the Exchange Act, and other documents pursuant to which any debt or equity securities of the Company or any of its Subsidiaries are sold (whether or not for the account of the Company or its Subsidiaries), the Company will, and hereby does, and will cause each of its Subsidiaries, jointly and severally, to indemnify and hold harmless each seller of Registrable Securities, any Person who is or might be deemed to be a controlling Person of the Company or any of its Subsidiaries within the meaning of section 15 of the Securities Act or section 20 of the Exchange Act, their respective direct and indirect partners, advisory board members, directors, officers, trustees, members and stockholders, and each other Person, if any, who controls any such seller or any such controlling Person within the meaning of section 15 of the Securities Act or section 20 of the Exchange Act (each such person being referred to herein as a "COVERED PERSON"), against any losses, claims, damages or liabilities (or actions or proceedings in respect thereof), joint or several, to which such Covered Person may be or become subject under the Securities Act, the Exchange Act, any other securities or other law of any jurisdiction, the common law or otherwise, insofar as such losses, claims, damages or liabilities (or actions or proceedings in respect thereof) arise out of or are based upon (i) any untrue statement or alleged untrue statement of any material fact contained or incorporated by reference in any registration statement under the Securities Act, any preliminary prospectus or final prospectus included therein, or any related summary prospectus, or any amendment or supplement thereto, or any document incorporated by reference therein, or any other such disclosure document (including without limitation reports and other documents filed under the Exchange Act and any document incorporated by reference therein) or other document or report, (ii) any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading or (iii) any violation or alleged violation by the Company or any of its subsidiaries of any federal, state, foreign or common law rule or regulation applicable to the Company or any of its Subsidiaries and relating to action or inaction in connection with any such registration, disclosure document or other document or report, and will reimburse such Covered Person for any legal or any other reasonable expenses incurred by it in connection with investigating or defending any such loss, claim, damage, liability, action or proceeding; PROVIDED, HOWEVER, that neither the Company nor any of its Subsidiaries shall be liable to any Covered Person in any such case to the extent that any such loss, claim, damage, liability, action or proceeding arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in such registration statement, preliminary prospectus, final prospectus, summary prospectus, amendment or supplement, - 24 - incorporated document or other such disclosure document or other document or report, in reliance upon and in conformity with written information furnished to the Company or to any of its Subsidiaries through an instrument duly executed by such Covered Person specifically stating that it is for use in the preparation thereof. The indemnities of the Company and of its subsidiaries contained in this Section 8.4.1 shall remain in full force and effect regardless of any investigation made by or on behalf of such Covered Person and shall survive any transfer of securities. 8.4.2. INDEMNITIES TO THE COMPANY. The Company and any of its Subsidiaries may require, as a condition to including any securities in any registration statement filed pursuant to this Agreement, that the Company and any of its Subsidiaries shall have received an undertaking satisfactory to it from the prospective seller of such securities, to indemnify and hold harmless the Company and any of its Subsidiaries, each director of the Company or any of its Subsidiaries, each officer of the Company or any of its Subsidiaries who shall sign such registration statement and each other Person (other than such seller), if any, who controls the Company and any of its Subsidiaries within the meaning of section 15 of the Securities Act or section 20 of the Exchange Act and each other prospective seller of such securities with respect to any statement in or omission from such registration statement, any preliminary prospectus, final prospectus or summary prospectus included therein, or any amendment or supplement thereto, or any other disclosure document (including, without limitation, reports and other documents filed under the Exchange Act or any document incorporated therein) or other document or report, if such statement or omission was made in reliance upon and in conformity with written information furnished to the Company or any of its Subsidiaries through an instrument executed by such seller specifically stating that it is for use in the preparation thereof. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the Company, any of its Subsidiaries or any such director, officer or controlling Person and shall survive any transfer of securities. 8.4.3. CONTRIBUTION. If the indemnification provided for in Section 8.4.1 or Section 8.4.2 hereof is unavailable to a party that would have been entitled to indemnification pursuant to the foregoing provisions of this Section 8.4 (an "INDEMNITEE") in respect of any losses, claims, damages or liabilities (or actions or proceedings in respect thereof) referred to therein, then each party that would have been an indemnifying party thereunder shall, in lieu of indemnifying such Indemnitee, contribute to the amount paid or payable by such Indemnitee as a result of such losses, claims, damages or liabilities (or actions or proceedings in respect thereof) in such proportion as is appropriate to reflect the relative fault of such indemnifying party on the one hand and such Indemnitee on the other in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities (or actions or proceedings in respect thereof). The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by such indemnifying party - 25 - or such Indemnitee and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The parties agree that it would not be just or equitable if contribution pursuant to this Section 8.4.3 were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in the preceding sentence. The amount paid or payable by a contributing party as a result of the losses, claims, damages or liabilities (or actions or proceedings in respect thereof) referred to above in this Section 8.4.3 shall include any legal or other expenses reasonably incurred by such Indemnitee in connection with investigating or defending any such action or claim. No Person guilty of fraudulent misrepresentation (within the meaning of section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. 8.4.4. LIMITATION ON LIABILITY OF HOLDERS OF REGISTRABLE SECURITIES. The liability of each holder of Registrable Securities in respect of any indemnification or contribution obligation of such holder arising under this Section 8.4 shall not in any event exceed an amount equal to the net proceeds to such holder (after deduction of all underwriters' discounts and commissions) from the disposition of the Registrable Securities disposed of by such holder pursuant to such registration. 8.5. REPORTS UNDER EXCHANGE ACT. In order to provide to the holders of Warrant Shares the benefits of Rule 144 and any other rule or regulation of the Commission that may at any time permit any such holder to sell securities of the Company to the public without registration, and in order to make it possible for the holders of Warrant Shares to register the sale of the Registrable Securities pursuant to a registration on Form S-3, the Company agrees to: (a) make and keep public information available, as those terms are understood and defined in Rule 144; (b) take such action, including the registration of its Common Stock under section 12 of the Exchange Act, as is necessary to enable the holders of Warrant Shares to utilize Form S-3 for the sale of their Registrable Securities (ignoring, for this purpose, the provisions of Items I.A.5 and I.B.3 of the General Instructions thereto); (c) file with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act; and (d) furnish to any holder of Warrant Shares, so long as the holder owns any Registrable Securities, forthwith upon request (i) a written statement by the Company that it has complied with the reporting requirements of Rule 144, the Securities Act and the Exchange Act, or that it qualifies as a registrant whose securities may be resold in a secondary - 26 - offering pursuant to Form S-3; (ii) a copy of the most recent annual or quarterly report of the Company filed with the Commission and such other reports and documents so filed by the Company; and (iii) such other information as may be reasonably requested in availing any holder of Shares any rule or regulation of the Commission which permits the selling of any such securities without registration or pursuant to such form. Section 9. DEFINITIONS. For the purposes of this Agreement, the following terms have the meanings below: "ADDITIONAL COMMON SHARES" shall mean, subject to Section 7.4.8, all shares of Common Stock (including treasury shares) issued or sold (or, pursuant to Section 7.4.4 or 7.4.5 hereof, deemed to be issued) by the Company after the date hereof, whether or not subsequently reacquired or retired by the Company, other than (i) shares of Common Stock issued or issuable upon conversion, exercise or exchange of the Warrants; and (ii) Excluded Issuances. "ADDITIONAL WARRANT NOTICE" shall mean a written notice from the Company to the Warrant Agent which states that it is an Additional Warrant Notice pursuant to this Agreement and which is signed by the Company, and in which (i) the Company notifies the Warrant Agent of additional Warrants to be issued by the Company in an exchange of Convertible Notes in connection with a Joinder Agreement entered into pursuant to the New Exchange Agreement and which the Company proposes to be governed by this Agreement, (ii) the Company sets forth the aggregate amount of such Additional Warrants to be issued (and the aggregate amount of Warrant Shares to be issued upon exercise thereof), the Initial Exercise Price for such Warrants, appropriate registration, countersignature and delivery instructions to the Warrant Agent with respect to the applicable Warrant Certificates being issued, and setting forth any applicable notice address for the Warrantholders pursuant to Section 16 hereof, (iii) the Company certifies that such additional Warrants, together with all other Warrants previously issued under this Agreement pursuant to any Joinder Agreement (which, for avoidance of doubt, does not include the Symphony Warrants and the New Warrants, as defined in this Agreement) in the aggregate, when issued, do not entitle the applicable Warrantholders to purchase more than 1,967,798 Warrant Shares, (iv) the Company certifies that the issuance of such additional Warrants is pursuant to a Permitted Exchange (as defined in Section 8.3 of the Symphony Exchange Agreement and Section 9.3 of the new Exchange Agreement) and is not otherwise prohibited by the terms of the Symphony Exchange Agreement or the New Exchange Agreement, and (v) the Company agrees that the Warrants issued thereunder shall be governed by this Agreement; and which is countersigned by the Warrant Agent agreeing that the Warrants described therein and to be issued thereunder shall be governed by this Agreement. The Warrant Agent shall be authorized to rely conclusively on any Additional Warrant Notice for all purposes hereunder, without liability on its part. "AFFILIATE" shall mean, with respect to the Company or any of its Subsidiaries (or any other specified Person), any other Person which, directly or indirectly controls or is controlled by or is under direct or indirect common control with the Company or such Subsidiary (or such specified Person), and, without limiting the generality of the - 27 - foregoing, shall include (a) any other Person which beneficially owns or holds 10% of more of any class of voting securities of such Person or 10% or more of the equity interest in such Person, (b) any other Person of which such Person beneficially owns or holds 10% or more of any class of voting securities or in which such Person beneficially owns or holds 10% or more of the equity interest in such Person and (c) any director or executive officer of such Person. For the purposes of this definition, the term "control" (including, with correlative meanings, the terms "controlled by" and "under common control with"), as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities or by contract or otherwise. "AGREEMENT" shall have the meaning set forth in the first paragraph of this Agreement. "ANTIDILUTION PRICE" has the meaning set forth in Section 7.4.2. "BOARD" shall mean the Board of Directors of the Company. "BUSINESS DAY" shall mean any day, excluding Saturday, Sunday and any day which shall be in New York, New York or Boston, Massachusetts a legal holiday or a day on which banking institutions are authorized by law or other governmental actions to close. "CASH CLOSE OUT" has the meaning set forth in Section 7.1.4. "COMMISSION" shall mean the Securities and Exchange Commission. "COMMON STOCK" shall mean the Company's common stock, par value $0.001 per share. "COMPANY" has the meaning set forth in the first paragraph of this Agreement. "COVERED PERSON" shall have the meaning set forth in Section 8.4.1. "CONVERTIBLE SECURITIES" shall mean any evidences of indebtedness, shares of stock (other than shares of Common Stock) or other securities, including warrants, directly or indirectly convertible into or exchangeable for shares of Common Stock. "CURRENT MARKET PRICE" shall mean on any date specified herein, the average daily Market Price during the period of the most recent 10 days, ending two trading days immediately preceding such date, on which the national securities exchanges were open for trading, except that if no Common Stock is then listed or admitted to trading on any national securities exchange or quoted in the over-the-counter market, the Current Market Price shall be the Market Price on such date. "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as in effect from time to time. - 28 - "EXCLUDED ISSUANCE" shall mean the issuance of shares of Common Stock (or options exercisable therefor) to officers, directors, and employees of the Company, which shares are either (a) currently subject to the Company's stock option plan or (b) 2,250,000 shares that are not currently subject to the Company's stock option plan. "EXERCISE PRICE" shall have the meaning set forth in Section 7.4.1. "EXPIRATION DATE" shall mean 5:00 P.M. Boston time on January 15, 2008. "FAIR MARKET VALUE" shall mean, as of any date, as to any share of Common Stock, the Board's good faith determination of the fair value of such shares as of the applicable reference date. "INDEMNITEE" shall have the meaning set forth in Section 8.4.3. "INITIAL EXERCISE PRICE" shall mean for (i) the Symphony Warrants and the New Warrants $0.65 per share of Common Stock; or (ii) with respect to any other Warrant, the initial exercise price therefore as may be determined by the Company and set forth in the related Additional Warrant Notice for such Warrants and any applicable Warrant Certificate. "INITIATING HOLDER" shall have the meaning set forth in Section 8.1.1. "MAJORITY HOLDERS" shall mean, as of any date, the holders of a majority of the Warrant Shares outstanding on such date. "MAJORITY PARTICIPATING HOLDERS" shall have the same meaning set forth in Section 8.1.2. "MAJORITY WARRANTHOLDERS" shall mean, at any time, holders of Warrants and/or Warrant Shares that (in any combination) represent more than 50% of the Warrant Shares that (i) are issuable under any outstanding Warrants (upon proper exercise thereof by the Warrantholder) and, (ii) in the case of Warrants have been exercised, have been issued and are outstanding at such time. "MARKET PRICE" shall mean on any date specified herein, the amount per share of Common Stock equal to (a) the last sale price of Common Stock, regular way, on such date or, if no such sale takes place on such date, the average of the closing bid and asked prices thereof on such date, in each case as officially reported on the principal national securities exchange on which Common Stock is then listed or admitted to trading, or (b) if Common Stock is not then listed or admitted to trading on any national securities exchange but is designated as a national market system security by the NASD, the last trading price of Common Stock on such date, or (c) if there shall have been no trading on such date or if Common Stock is not so designated, the average of the closing bid and asked prices of Common Stock on such date as shown by the NASD automated quotation system, or if applicable, the OTCBB, or (d) if the Common Stock is not then listed or admitted to trading on any national exchange or quoted in the over-the-counter market, the Market Price thereof determined by good faith mutual agreement of the Company and - 29 - the Majority Warrantholders. If, in the case of subsection (d), the Company and the Majority Warrantholders are unable to agree on the value of such Common Stock within 10 business days, the Market Price shall be determined in accordance with the following appraisal process: Within the following five business days, each of the Company and the Majority Warrantholders shall select and retain a firm of recognized expertise in the valuation of business to perform a valuation of the Market Price. Such firms shall then value the shares of the Common Stock, on a going concern basis, without regard to any minority, marketability or other discount resulting from consideration of a minority interest, the Company's status as a closely held corporation or the existence of any put or call rights. The Company shall provide to both valuation firms any information reasonably requested by either such firm in connection with its valuation. Each such firm shall deliver its valuation report to the Company and the holder within 20 days after receiving all requested information from the Company. If the greater of the valuations of a share of the Common Stock is no more than 110% of the lesser of such valuations, the Market Price shall be deemed to be the average of the two valuations. If the greater of such valuations exceeds 110% of the lesser of such valuations, the two valuation firms shall select a third mutually acceptable valuation firm within five business days of such determination. Such third valuation firm shall be directed to provide, within 15 business days, its valuation report, and the valuation determined by the first two valuation firms that is closest to the valuation determined by the third valuation firm shall be the Market Price as of the reference date. The Company shall bear all costs and expenses of this appraisal process. "NEW EXCHANGE AGREEMENT" shall have the meaning set forth in the fifth paragraph of this Agreement. "NEW WARRANTS" shall have the meaning set forth in the fifth paragraph of this Agreement. "NOTES" shall mean up to $28,750,000 aggregate principal amount of the Company's 11.5% Senior Secured Notes due 2005. "OPTIONS" shall mean options, warrants or other rights to subscribe for, purchase or otherwise acquire either Common Stock or Convertible Securities. "ORIGINAL AGREEMENT" shall have the meaning set forth in the fourth paragraph of this Agreement. "OTHER SECURITIES" shall mean any stock (other than Common Stock) and other securities of the Company or any other Person which the holders of the Warrants at any time shall be entitled to receive, or shall have received, upon the exercise of the Warrants, in lieu of or in addition to Common Stock, or which at any time shall be issuable or shall have been issued in exchange for or in replacement of Common Stock or Other Securities pursuant to Section 6 hereof or otherwise. - 30 - "PERSON" shall mean an individual, a corporation, a partnership, a limited liability company, a trust, an unincorporated organization or a government organization or an agency or political subdivision thereof. "PUBLIC OFFERING" shall mean a public offering and sale of Common Stock for cash pursuant to an effective registration statement under the Securities Act. "REGISTRABLE SECURITIES" shall mean the Warrant Shares and all shares of Common Stock directly or indirectly issued or issuable with respect to the Warrant Shares by way of stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization; PROVIDED, HOWEVER, that shares of Common Stock which are Registrable Shares shall cease to be Registrable Shares (i) upon any sale pursuant to a registration statement or Rule 144 under the Securities Act or (ii) at such time as they become eligible for sale pursuant to Rule 144(k) under the Securities Act. "RULE 144" shall mean Rule 144 under the Securities Act (or any successor Rule). "RULE 145 TRANSACTION" shall mean a registration on Form S-4 pursuant to Rule 145 of the Securities Act (or any successor Form or provision, as applicable). "SECURITIES" shall mean any debt or equity securities of the Company, whether now or hereafter authorized, and any instrument convertible into or exchangeable for Securities or a Security. "SECURITY" shall mean one of the Securities. "SECURITIES ACT" shall mean the Securities Act of 1933, as in effect from time to time. "STOCK" shall include any and all shares, interests or other equivalents (however designated) of, or participants in, the capital stock of a corporation of any class. "SUBSIDIARY" shall mean, for any Person, (i) a corporation a majority of whose voting stock is at the time, directly or indirectly, owned by such Person, by one or more Subsidiaries of such Person or by such Person and one or more Subsidiaries of such Person, (ii) a partnership in which such Person or a Subsidiary of such Person is, at the date of determination, a general or limited partner of such partnership, but only if such Person or its Subsidiary is entitled to receive more than 50% of the assets of such partnership upon its dissolution, (iii) a limited liability company, a majority of whose membership interests is, at the time, directly or indirectly owned by such Person or with respect to which such Person has a right, under any scenario, to receive 50% or more of the distributions of the assets of such limited liability company upon its dissolution, or (iv) any other Person (other than a corporation or partnership) in which such Person, a Subsidiary of such Person or such Person and one or more Subsidiaries of such Person, directly or indirectly, at the date of determination thereof, has (a) at least a majority ownership interest or (b) the power to elect or direct the election of a majority of the directors or other governing body of such Person. - 31 - "SYMPHONY EXCHANGE AGREEMENT" shall have the meaning set forth in the first paragraph of this Agreement. "SYMPHONY WARRANTS" shall have the meaning set forth in the second paragraph of this Agreement. "WARRANT AGENT" shall have the meaning set forth in the first paragraph of this Agreement. "WARRANT CERTIFICATES" has the meaning set forth in Section 2 of this Agreement. "WARRANTS" shall mean the Symphony Warrants, the New Warrants and any other Warrant issued by the Company in connection with a Joinder Agreement entered into pursuant to the New Exchange Agreement and in accordance with an Additional Warrant Notice in which the Company and the Warrant Agent mutually agree that such Warrants shall be governed by this Agreement (in each case including any Warrant Certificates subsequently issued upon transfer thereof or an exchange therefore from time to time pursuant to the terms of this Agreement). "WARRANTHOLDERS" shall mean the holders of the Warrants from time to time, together with any permitted transferees of such holders which subsequently acquire Warrants. "WARRANT SHARES" shall mean the shares received or to be received upon exercise, conversion or exchange of the Warrants. Section 10. PAYMENT OF TAXES. The Company will pay all documentary stamp taxes attributable to the initial issuance of Warrant Shares upon the exercise of Warrants; provided, however, that the Company shall not be required to pay any tax or governmental charge which may be payable in respect of any transfer involved in the issue of any Warrant Certificates or any Warrant Share Certificates in a name other than that of the registered holder of a Warrant Share Certificate or a Warrant Certificate surrendered upon the exercise of a Warrant, and the Company shall not be required to issue or deliver such Warrant Certificates or Warrant Share Certificates unless or until the person or persons requesting the issuance thereof shall have paid to the Company the amount of such tax or charge or shall have established to the satisfaction of the Company that such tax or charge has been paid. The Warrant Agent shall have no duty or obligation to take any action under any Section of this Agreement which requires the payment by a Warrantholder of applicable taxes and governmental charges unless and until the Warrant Agent is satisfied that all such taxes and/or charges have been paid. Section 11. MUTILATED OR MISSING WARRANT CERTIFICATES AND WARRANT SHARE CERTIFICATES. In case any of the Warrant Certificates shall be mutilated, lost, stolen or destroyed, the Company, at its expense, shall issue and the Warrant Agent shall countersign, in exchange and substitution for and upon cancellation of the mutilated Warrant Certificate, or in lieu of and substitution for the Warrant Certificate lost, stolen or destroyed, a new Warrant Certificate of like tenor and representing an equivalent number of Warrants, but only upon receipt of evidence reasonably satisfactory to the Company and the Warrant Agent of such loss, theft or destruction of such - 32 - Warrant Certificate and indemnity, if requested, satisfactory to the Company and the Warrant Agent. Section 12. FRACTIONAL INTERESTS. (a) The Company shall not be required to issue fractional Warrant Shares on the exercise of Warrants or otherwise. If more than one Warrant shall be presented for exercise in full at the same time by the same holder, the number of full Warrant Shares which shall be issuable upon the exercise thereof shall be computed on the basis of the aggregate number of Warrant Shares purchasable on exercise of the Warrants so presented. If any fraction of a Warrant Share would, except for the provisions of this Section 12, be issuable on the exercise of any Warrants (or specified portion thereof), the Company shall pay an amount in cash equal to the Current Market Price of such fractional Warrant Share as of the day immediately preceding the date the Warrant is presented for exercise, multiplied by such fraction. (b) Warrants may be issued in fractional interests. Holders of fractional interests in Warrants will be entitled to purchase a number of Warrant Shares equal to the product obtained by multiplying the number of Warrant Shares issuable with respect to a full Warrant multiplied by the fractional interest owned by such holder in the Warrant. (c) Whenever a payment for fractional Warrant Shares is to be made by the Warrant Agent, the Company shall (i) promptly prepare and deliver to the Warrant Agent a certificate setting forth in reasonable detail the facts related to such payment and the prices and/or formulas utilized in calculating such payments, and (ii) provide sufficient monies to the Warrant Agent in the form of fully collected funds to make such payments. The Warrant Agent shall be fully protected in relying upon such a certificate and shall have no duty with respect to, and shall not be deemed to have knowledge of any payment for fractional Warrant Shares under any Section of this Agreement relating to the payment of fractional Warrant Shares unless and until the Warrant Agent shall have received such a certificate and sufficient monies. Section 13. MERGER, CONSOLIDATION OR CHANGE OF NAME OF WARRANT AGENT. Any person into which the Warrant Agent may be merged or with which it may be consolidated, or any person resulting from any merger or consolidation to which the Warrant Agent shall be a party, or any person succeeding to substantially all of the business of the Warrant Agent (including the administration of this Agreement), shall be the successor to the Warrant Agent hereunder without the execution or filing of any paper or any further act on the part of any of the parties hereto, provided that such person would be eligible for appointment as a successor warrant agent under the provisions of Section 15. In case at the time such successor to the Warrant Agent shall succeed to the agency created by this Agreement, and in case at that time any of the Warrant Certificates shall have been countersigned but not delivered, any such successor to the Warrant Agent may adopt the countersignature of the original Warrant Agent; and in case at that time any of the Warrant Certificates shall not have been countersigned, any successor to the Warrant Agent may countersign such Warrant Certificates either in the name of the predecessor Warrant Agent or in the name of the successor to the Warrant Agent; and in all such cases such Warrant Certificates shall have the full force and effect provided in the Warrant Certificates and in this Agreement. - 33 - In case at any time the name of the Warrant Agent shall be changed and at such time any of the Warrant Certificates shall have been countersigned but not delivered, the Warrant Agent whose name has been changed may adopt the countersignature under its prior name, and in case at that time any of the Warrant Certificates shall not have been countersigned, the Warrant Agent may countersign such Warrant Certificates either in its prior name or in its changed name, and in all such cases such Warrant Certificates shall have the full force and effect provided in the Warrant Certificates and in this Agreement. Section 14. WARRANT AGENT. The Warrant Agent undertakes the duties and obligations imposed by this Agreement (and no implied duties or obligations shall be read into this Agreement against the Warrant Agent) upon the following terms and conditions, by all of which the Company and the Warrantholders, by their acceptance thereof, shall be bound: (a) The statements contained herein and in the Warrant Certificates shall be taken as statements of the Company and the Warrant Agent assumes no responsibility for the correctness of any of the same except such as describe the Warrant Agent or action taken or to be taken by it. The Warrant Agent assumes no responsibility with respect to the distribution of the Warrant Certificates and the Warrant Share Certificates except as herein otherwise provided. (b) The Warrant Agent shall not be responsible for any failure of the Company to comply with any of the covenants contained in this Agreement or in the Warrant Certificates to be complied with by the Company. (c) The Warrant Agent may consult at any time with counsel of its own selection (who may be counsel for the Company) and the Warrant Agent shall incur no liability or responsibility to the Company or to any Warrantholder in respect of any action taken, suffered or omitted to be taken by it hereunder in accordance with the opinion or the advice of such counsel. (d) The Warrant Agent shall incur no liability or responsibility to the Company or to any Warrantholder for any action taken in reliance on any Warrant Certificate, certificate of shares, notice, resolution, waiver, consent, order, certificate, or other paper, document or instrument (whether in its original or facsimile form) believed by it to be genuine and to have been signed, sent or presented by the proper party or parties. (e) The Company agrees (i) to pay to the Warrant Agent reasonable compensation for all services rendered by the Warrant Agent (including fees and expenses of its counsel) and to reimburse the Warrant Agent for all expenses, taxes and governmental charges and other charges and disbursements of any kind and nature incurred by the Warrant Agent in the preparation, delivery, execution, administration and amendment of this Agreement and the exercise and performance of its duties hereunder and (ii) to indemnify the Warrant Agent (and any predecessor Warrant Agent) and save it harmless against any and all claims (whether asserted by the Company, a holder or any other person), damages, losses, fines, penalties, settlements, expenses (including taxes other than taxes based on the income of the Warrant Agent), liabilities, including judgments, costs and counsel fees and expenses, for any action taken, suffered or omitted to be taken by the Warrant Agent in connection with the execution of this Agreement and the acceptance and administration of this Agreement, except as a result of its gross negligence or willful misconduct (each as finally determined by a court of competent - 34 - jurisdiction). The costs and expenses incurred in enforcing this right of indemnification shall be paid by the Company. The provisions of this Section 14 shall survive the expiration of the Warrants, the termination of this Agreement and the resignation or removal of the Warrant Agent. (f) The Warrant Agent shall be under no obligation to institute any action, suit or legal proceeding or to take any other action likely to involve expense unless the Company or one or more registered Warrantholders shall furnish the Warrant Agent with reasonable security and indemnity satisfactory to it for any costs and expenses which may be incurred, but this provision shall not limit the power of the Warrant Agent to take such action as it may consider proper, whether with or without any such security or indemnity. All rights of action under this Agreement or under any of the Warrants may be enforced by the Warrant Agent without the possession of any of the Warrant Certificates or Warrant Share Certificates or the production thereof at any trial or other proceeding relative thereto, and any such action, suit or proceeding instituted by the Warrant Agent shall be brought in its name as Warrant Agent and any recovery of judgment shall be for the ratable benefit of the registered holders of the Warrants, as their respective rights or interests may appear. (g) The Warrant Agent, and any stockholder, affiliate, director, officer or employee of it, may buy, sell or deal in any of the Warrants or other securities of the Company or become pecuniarily interested in any transaction in which the Company may be interested, or contract with or lend money to the Company or otherwise act as fully and freely as though it were not Warrant Agent under this Agreement. Nothing herein shall preclude the Warrant Agent from acting in any other capacity for the Company or for any other legal entity. (h) The Warrant Agent shall act hereunder solely as agent for the Company, and its duties shall be determined solely by the provisions hereof. The Warrant Agent shall not be liable for any action taken, suffered or omitted to be taken by it in connection with this Agreement except for its own gross negligence or willful misconduct, each as finally determined by a court of competent jurisdiction. Anything to the contrary notwithstanding, in no event shall the Warrant Agent be liable for special, punitive, indirect, consequential or incidental loss or damage of any kind whatsoever (including but not limited to lost profits), even if the Warrant Agent has been advised of the likelihood of such loss or damage. (i) The Warrant Agent shall not at any time be under any duty or responsibility to any Warrantholder to make or cause to be made any adjustment of the Exercise Price or number of the Warrant Shares or other securities or property deliverable as provided in this Agreement, or to determine whether any facts exist which may require any of such adjustments, or with respect to the nature or extent of any such adjustments, when made, or with respect to the method employed in making the same. The Warrant Agent shall not be accountable with respect to the validity or value or the kind or amount of any Warrant Shares or of any securities or property which may at any time be issued or delivered upon the exercise of any Warrant or with respect to whether any such Warrant Shares or other securities will when issued be validly issued and fully paid and nonassessable, and makes no representation with respect thereto. (j) Notwithstanding anything in this Agreement to the contrary, neither the Company nor the Warrant Agent shall have any liability to any Warrantholder or other person as a result of - 35 - its inability to perform any of its obligations under this Agreement by reason of any preliminary or permanent injunction or other order, decree or ruling issued by a court of competent jurisdiction or by a governmental, regulatory or administrative agency or commission, or any statute, rule, regulation or executive order promulgated or enacted by any governmental authority prohibiting or otherwise restraining performance of such obligation; provided that the Company must use its reasonable best efforts to have any such order, decree or ruling lifted or otherwise overturned as soon as possible. (k) With respect to the exercise by a Warrantholder of any Warrants in accordance with the terms of this Agreement and with respect to any other actions or omissions that may arise as a result of or under this Agreement, to the extent the Warrant Agent has any questions or uncertainties as to what actions it should take with respect thereto, the Warrant Agent may seek written direction from the Company as to what course of action the Warrant Agent should take and the Warrant Agent shall be fully protected and incur no liability in refraining from taking any action thereunder unless and until the Warrant Agent has received such written direction from the Company. Any application by the Warrant Agent for such written instructions from the Company may, at the option of the Warrant Agent, set forth in writing any action proposed to be taken or omitted by the Warrant Agent under this Agreement and the date on and/or after which such action shall be taken or such omission shall be effective. The Warrant Agent shall not be liable for any action taken by, or omission of, the Warrant Agent in accordance with a proposal included in such application on or after the date specified in such application (which date shall not be less than three Business Days after the date any officer of the Company actually receives such application, unless any such officer shall have consented in writing to any earlier date) unless prior to taking any such action (or the effective date in the case of an omission), the Warrant Agent shall have received written instructions in response to such application specifying the action to be taken or omitted. (l) No provision of this Agreement shall require the Warrant Agent to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder or in the exercise of its rights if there shall be reasonable grounds for believing that repayment of such funds or adequate indemnification against such risk or liability is not reasonably assured to it. (m) Whenever in the performance of its duties under this Agreement the Warrant Agent shall deem it necessary or desirable that any fact or matter be proved or established by the Company prior to taking, suffering or omitting to take any action hereunder, such fact or matter (unless other evidence in respect thereof be herein specifically prescribed) may be deemed to be conclusively proved and established by a certificate signed by any one of the President, a Vice President, the Treasurer or the Secretary of the Company and delivered to the Warrant Agent; and such certificate shall be full authorization and protection to the Warrant Agent for any action taken or suffered by it under the provisions of this Agreement in reliance upon such certificate. (n) The Warrant Agent is hereby authorized and directed to accept instructions with respect to the performance of its duties hereunder from any one of the President, a Vice President, the Secretary or the Treasurer of the Company, and to apply to such officers for advice or instructions in connection with its duties, and such instructions shall be full authorization and - 36 - protection to the Warrant Agent, and the Warrant Agent shall not be liable for any action taken, suffered or omitted to be taken by it in accordance with instructions of any such officer. (o) The Warrant Agent may execute and exercise any of the rights or powers hereby vested in it or perform any duty hereunder either itself or by or through its attorneys or agents, and the Warrant Agent shall not be answerable or accountable for any act, default, neglect or misconduct of any such attorneys or agents or for any loss to the Company resulting from any such act, default, neglect or misconduct, absent gross negligence or willful misconduct (each as finally determined by a court of competent jurisdiction) in the selection and continued employment thereof. Section 15. CHANGE OF WARRANT AGENT. The Warrant Agent or any successor Warrant Agent may resign and be discharged from its duties under this Agreement upon 60 days' notice in writing mailed to the Company. Upon such resignation or if the Warrant Agent shall become incapable of acting as Warrant Agent, the Company shall appoint a successor to such Warrant Agent. If the Company shall fail to make such appointment within a period of 60 days after it has been notified in writing of such resignation or incapacity by the Warrant Agent or by the registered holder of a Warrant Certificate or a Warrant Share Certificate, then the registered holder of any Warrant Certificate or Warrant Share Certificate may apply to any court of competent jurisdiction for the appointment of a successor to the Warrant Agent. Pending appointment of a successor to such Warrant Agent, either by the Company or by such a court, the duties of the Warrant Agent shall be carried out by the Company. The Majority Warrantholders shall be entitled at any time to remove the Warrant Agent and appoint a successor to such Warrant Agent. Such successor to the Warrant Agent must be approved by the Company, which shall not unreasonably withhold such approval. After appointment the successor to the Warrant Agent shall be vested with the same powers, rights, duties and responsibilities as if it had been originally named as Warrant Agent without further act or deed; but the former Warrant Agent upon payment of all fees and expenses due it and its agents and counsel shall deliver and transfer to the successor to the Warrant Agent any property at the time held by it hereunder and execute and deliver any further assurance, conveyance, act or deed necessary for the purpose. Failure to give any notice provided for in this Section 15, however, or any defect therein, shall not affect the legality or validity of the appointment of a successor to the Warrant Agent. Section 16. NOTICES TO COMPANY AND WARRANT AGENT. Any notice or demand authorized by this Agreement to be given or made by the Warrant Agent or by the registered holder of any Warrant Certificate to or on the Company shall be sufficiently given or made when and if delivered by facsimile transmission (provided confirmation of receipt is received immediately thereafter) or when received, if deposited in the mail, first class or registered, postage prepaid, addressed (until another address is filed in writing by the Company with the Warrant Agent), as follows: iBasis, Inc. 20 Second Avenue Burlington, MA 01803 Attention: Chief Financial Officer Facsimile No.: 781-505-7304 - 37 - with a copy to: Bingham, McCutchen LLP 1900 University Avenue Palo Alto, CA 94303-2223 Attn: Johan V. Brigham Facsimile No.: 650-849-4800 In case the Company shall fail to maintain such office or agency or shall fail to give such notice of the location or of any change in the location thereof, presentations may be made and notices and demands may be served at the office of the Warrant Agent designated for such purpose. Any notice pursuant to this Agreement to be given by the Company or by the registered holder(s) of any Warrant Certificate to the Warrant Agent shall be sufficiently given when and if delivered by facsimile transmission (provided confirmation of receipt is received immediately thereafter) or deposited in the mail, first-class or registered, postage prepaid, addressed (until another address is filed in writing by the Warrant Agent with the Company) to the Warrant Agent as follows: U.S. Bank National Association One Federal Street - 3rd Floor Boston, MA 02110 Attention: Corporate Trust Services Facsimile No.: 617-662-1458 with copies to: Nixon Peabody LLP 101 Federal Street Boston, MA 02110 Attn: Robert J. Coughlin Facsimile No.: 617-345-1300 Ropes & Gray One International Place Boston, MA 02110 Attn: Thomas B. Draper Facsimile No.: 617-951-7050 and JMG Capital Partners 1 Sansome Street, 39th Floor San Francisco, CA 94104 Attn: David Rubinstein Facsimile No.: 415-288-2313 - 38 - and with copies to any additional Warrantholder the notice address for which is set forth in an Additional Warrant Notice in which the Company and the Warrant Agent mutually agree that such Warrantholder's Warrants shall be governed by this Agreement. Upon written request by any Warrantholder or holder of Warrant Shares, the Company shall, and the Warrant Agent shall be authorized and permitted to, provide copies of any Additional Warrant Notices that have been delivered to and countersigned by the Warrant Agent. Section 17. SUPERCESSION OF ORIGINAL AGREEMENT SUPPLEMENTS AND AMENDMENTS. This Agreement shall be deemed to amend and restate the Original Agreement in its entirety. From and after execution of this Agreement the Original Agreement shall be deemed to be superceded and none of the parties thereto (and no Warrantholders or holders of Warrant Shares existing on the date hereof) shall have any continuing rights or obligations thereunder (except with respect to breaches of such Original Agreement occurring on or prior to the amendment and restatement contemplated hereby). The Company and the Warrant Agent may from time to time supplement or amend this Agreement or the Warrant Certificates without the approval of any Warrantholders or any holders of Warrant Shares in order to cure any ambiguity or to correct or supplement any provision contained herein or therein which may be defective or inconsistent with any other provision herein, to make any other revisions in regard to matters or questions arising hereunder which the Company and the Warrant Agent may deem necessary or desirable and which shall not in any way adversely affect the interests of the Warrantholders or in connection with the issuance of additional Warrants pursuant to an Additional Warrant Notice (as defined above). Any supplement or amendment not covered by the preceding sentence shall require the consent of the Majority Warrantholders, the Company and the Warrant Agent. Prior to executing any supplement or amendment, the Warrant Agent shall be entitled to receive and shall be entitled to rely conclusively upon an officer's certificate of the Company to the effect that such amendment or supplement complies with the terms of this Section 17. Notwithstanding anything in this Agreement to the contrary, the prior written consent of the Warrant Agent must be obtained in connection with any supplement or amendment which alters the rights, immunities or duties of the Warrant Agent. Section 18. SUCCESSORS. All the covenants and provisions of this Agreement by or for the benefit of the Company or the Warrant Agent shall bind and inure to the benefit of their respective successors and assigns hereunder. Section 19. SURVIVAL OF REGISTRATION RIGHTS PROVISIONS, WARRANT AGENT PROVISIONS. The provisions of Sections 8 and 14 shall survive the exercise or expiration of the Warrants. Section 20. GOVERNING LAW; SUBMISSION TO JURISDICTION: WAIVER OF JURY TRIAL. This Agreement and each Warrant Certificates issued hereunder shall be deemed to be a contract made under the laws of The Commonwealth of Massachusetts and for all purposes shall be governed by and construed in accordance with the internal laws of said State, without regard to principles of conflicts of laws. Each party hereto hereby submits to the nonexclusive jurisdiction of the United States District Court for the District of Massachusetts and of any Massachusetts state court sitting in Boston for purposes of all legal proceedings arising out of or relating to this agreement or the transactions contemplated hereby. Each party hereto irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of - 39 - the venue of any such proceeding brought in such a court and any claim that any such proceeding brought in such a court has been brought in an inconvenient forum. TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW WHICH CANNOT BE WAIVED, EACH PARTY HERETO HEREBY WAIVES AND COVENANTS THAT IT WILL NOT ASSERT (WHETHER AS PLAINTIFF, DEFENDANT OR OTHERWISE) ANY RIGHT TO TRIAL BY JURY IN ANY FORUM IN RESPECT OF ANY ISSUE OR ACTION, CLAIM, CAUSE OF ACTION OR SUIT (IN CONTRACT, TORT OR OTHERWISE), INQUIRY, PROCEEDING OR INVESTIGATION ARISING OUT OF OR BASED UPON THIS AGREEMENT OR THE SUBJECT MATTER HEREOF OR IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE TRANSACTIONS CONTEMPLATED HEREBY, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING. EACH PARTY HERETO ACKNOWLEDGES THAT IT HAS BEEN INFORMED BY THE OTHER PARTIES HERETO THAT THIS SECTION 20 CONSTITUTES A MATERIAL INDUCEMENT UPON WHICH THEY ARE RELYING AND WILL RELY IN ENTERING INTO THIS AGREEMENT. Any party hereto may file an original counterpart or a copy of this Section 20 with any court as written evidence of the consent of each party hereto to the waiver of its right to trial by jury. Section 21. EXERCISE OF RIGHTS AND REMEDIES. No delay of or omission in the exercise of any right, power or remedy accruing to any party as a result of any breach or default by any other party under this Agreement shall impair any such right, power or remedy, nor shall it be construed as a waiver of or acquiescence in any such breach or default, or of any similar breach or default occurring later; nor shall any such delay, omission or waiver of any single breach or default be deemed a waiver of any other breach or default occurring before or after that waiver. Section 22. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement shall be construed to give to any Person or corporation other than the Company, the Warrant Agent and the Warrantholders (including any holder of a beneficial interest in any Warrant) any legal or equitable right, remedy or claim under this Agreement, and this Agreement shall be for the sole and exclusive benefit of the Company, the Warrant Agent and the Warrantholders (including any holder of a beneficial interest in any Warrant). Section 23. COUNTERPARTS. This Agreement may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument. [SIGNATURE PAGE FOLLOWS] - 40 - IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed, as of the day and year first above written. iBASIS, INC. By /s/ Ofer Gneezy ------------------------------------------ Name: Ofer Gneezy Title: President and Chief Executive Officer U.S. BANK NATIONAL ASSOCIATION, as Warrant Agent By /s/ John A. Brennan ------------------------------------------ Name: John A. Brennan Title: Trust Officer [Warrant Agreement] EXHIBIT A FORM OF WARRANT CERTIFICATE [Warrant Agreement] EXHIBIT B FORM OF COMMON STOCK CERTIFICATE [Attached] - 2 - [Warrant Agreement] EXHIBIT C FORM OF QIB CERTIFICATION EX-10.45 9 a2104304zex-10_45.txt EXHIBIT 10.45 EXHIBIT 10.45 COLLATERAL AGENCY AND INTERCREDITOR AGREEMENT This COLLATERAL AGENCY AND INTERCREDITOR AGREEMENT (this "AGREEMENT") is made as of February 21, 2002, among (i) U.S. Bank National Association, as collateral agent (in such capacity, the "COLLATERAL AGENT") for the Secured Parties (as hereinafter defined), (ii) the Exchanging Holders (as defined in the Second Exchange Agreement, defined below), (iii) iBasis, Inc., a Delaware corporation (the "COMPANY"), and iBasis Global, Inc., a Delaware corporation ("iBASIS GLOBAL", and together with the Company, the "BORROWERS"), and (iv) iBasis Securities corporation, a Massachusetts corporation (the "GUARANTOR" and, together with the Borrowers, the "COMPANIES"). WHEREAS, pursuant to a Securities Exchange Agreement dated as of January 30, 2003 (the "SYMPHONY EXCHANGE AGREEMENT"), among the Borrowers, the Guarantor, the Symphony Funds identified on the signature pages thereto (collectively, the "SYMPHONY FUNDS"), and the Collateral Agent, the Symphony Funds exchanged an aggregate principal amount of $30,200,000 of the Company's 5 3/4% Convertible Subordinated Notes due 2005 for (a) an aggregate principal amount of $15,100,000 of the Borrower's 11.5% Senior Secured Notes due 2005 and (b) warrants exercisable for an aggregate of 3,071,184 shares of Common Stock, $0.001 par value, of the Company; WHEREAS, pursuant to a Securities Exchange Agreement dated as of February 21, 2003 (the "SECOND EXCHANGE AGREEMENT" and, together with the Symphony Exchange Agreement, the "EXISTING EXCHANGE AGREEMENTS"), among the Borrowers, the Guarantor, JMG Triton Offshore Fund Limited CITCO and such other Exchanging Holders identified on the signature pages thereto, and the Collateral Agent, the Exchanging Holders propose to exchange an aggregate principal amount of $7,950,000 of Convertible Notes due for (a) an aggregate principal amount of $3,975,000 of the Borrower's 11.5% Senior Secured Notes due 2005 and (b) warrants exercisable for an aggregate of 727,627 shares of Common Stock, $0.001 par value, of the Company; WHEREAS, the Borrowers may exchange additional Convertible Notes pursuant to the Second Exchange Agreement (including exchanges pursuant to any Joinder Agreement, as defined therein) or may enter into additional Permitted Exchange Agreements (as defined below), pursuant to which the Borrowers may issue additional Notes and other securities in exchange for Convertible Notes pursuant to the terms thereof after the date hereof with other holders of Convertible Notes, to the extent such transactions are not prohibited pursuant to the terms of the Existing Exchange Agreements; WHEREAS, the Guarantor has guaranteed the obligations of the Borrowers under (i) the Symphony Exchange Agreement and the Notes issued thereunder pursuant to a Guarantee dated as of January 30, 2003 (the "SYMPHONY GUARANTEE"), and (ii) the Second Exchange Agreement pursuant to a Guarantee dated as of February 21, 2003 (such Guarantee, together with the Symphony Fund Guaranty, the "EXISTING GUARANTEES"); WHEREAS, the Guarantor may also guarantee the obligations of the Borrowers under any Permitted Exchange Agreements and any new Notes issued pursuant thereto ("PERMITTED GUARANTEES"); -2- WHEREAS, in connection with the Existing Exchange Agreements, the Companies and the Collateral Agent have entered into certain security agreements and related documents pursuant to which each Company has granted or agreed to grant to the Collateral Agent, for its benefit and the equal and ratable benefit of the Exchanging Holders under the Existing Exchange Agreements, a security interest in and lien upon the Collateral; WHEREAS, pursuant to any Permitted Exchange Agreements, the Companies and the Collateral Agent may enter into new security agreements and related documents pursuant to which each Company may grant or agree to grant to the Collateral Agent, for the equal and ratable benefit of any Exchanging Holders who are party to such Permitted Exchange Agreements, a security interest in and lien upon the Collateral; and WHEREAS, the parties hereto wish to set forth their relative rights and priorities with respect to the Collateral as set forth herein. NOW, THEREFORE, in consideration of the foregoing premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. DEFINITIONS. 1.1. DEFINITIONS. Any capitalized terms appearing but not otherwise defined shall have the meanings assigned to such terms in the Second Exchange Agreement. The following terms shall have the meanings set forth in this Section 1 or elsewhere in the provisions of this Agreement referred to below: ACT. See Section 2.2. ACTIONABLE DEFAULT. Any Event of Default under and as defined in any Exchange Agreement. COLLATERAL. Any of the properties and assets of whatever nature, tangible or intangible, now owned or existing or hereafter acquired or arising, of the Companies in which the Companies have at the time of reference granted a Lien to the Collateral Agent to secure any of the Exchanging Holder Debt and which has not been released pursuant to the terms hereof. COLLATERAL AGENT. As defined in the preamble hereto unless and until a successor Collateral Agent shall have been appointed pursuant to Section 5.3 hereof, and thereafter "Collateral Agent" shall mean such successor Collateral Agent. CONVERTIBLE NOTES. The Company's 5 3/4% Convertible Subordinated Notes due 2005, issued pursuant to the Indenture dated as of March 15, 2000, between the Company and The Bank of New York, as trustee (as amended, modified or supplemented from time to time). CREDIT DOCUMENTS. Collectively, this Agreement, the Fiscal Agency Agreement, the Notes, the Existing Exchange Agreements and the Security Documents (as defined herein). CREDIT FACILITY. The credit facility created under the Senior Loan Agreement in an aggregate maximum principal amount not to exceed $40,000,000, as reduced from time to time by permanent reductions thereto, and any refinancing or renewal of such Indebtedness, which in no event shall exceed $40,000,000. -3- EXCHANGE AGREEMENTS. Collectively, the Existing Exchange Agreements and any Permitted Exchange Agreements. EXCHANGING HOLDER DEBT. Collectively, the Obligations, as such term is defined in the Existing Exchange Agreements, and any "Obligations" as defined in any Permitted Exchange Agreement. EXCHANGING HOLDERS. Collectively, the Symphony Funds, JMG Triton Offshore Fund Limited CITCO and such other Exchanging Holders that from time to time become party to the Second Exchange Agreement, and any other Person that exchanges its Convertible Notes for Notes pursuant to a Permitted Exchange Agreement. EXPOSURE. With respect to any Exchanging Holder, the outstanding principal amount of the Notes held by such Exchanging Holder, as the case may be. GUARANTEES. Collectively, the Existing Guarantees and any Permitted Guarantees. INDEBTEDNESS. With respect to any Person, all obligations, contingent or otherwise, which in accordance with generally accepted accounting principles are required to be classified upon the balance sheet of such specified Person as liabilities. LIEN. Any consensual mortgage, security deed, deed of trust, pledge, lien, security interest or other voluntary encumbrance, whether now existing or hereafter created, acquired or arising. NOTES. The Borrower's 11.5% Senior Secured Notes due 2005 in an aggregate principal amount of up to $28,750,000, issued pursuant to the Existing Exchange Agreements and any Permitted Exchange Agreement. NOTICE OF ACTIONABLE DEFAULT. A notice by Exchanging Holders delivered to the Collateral Agent, stating that an Actionable Default has occurred. A Notice of Actionable Default shall be deemed to have been given when the notice referred to in the preceding sentence has actually been received by the Collateral Agent and to have been rescinded when the Collateral Agent has actually received from the notifying party a notice withdrawing such notice. A Notice of Actionable Default shall be deemed to be outstanding at all times after such notice has been given until such time, if any, as such notice has been rescinded. PERMITTED EXCHANGE AGREEMENT. Any securities exchange agreement or agreements that may be entered into from time to time after the date hereof, (i) pursuant to which the Borrowers may issue additional Notes and other securities in exchange for Convertible Notes, (ii) that has or have been executed and delivered by the Borrowers, the holders of such Convertible Notes and the Collateral Agent and (iii) that otherwise complies with Section 1.3 hereof; as any such agreement may subsequently be amended, renewed, extended, restated, supplemented or otherwise modified from time to time in accordance with its terms. PERSON. Any individual, partnership, joint venture, limited liability company, corporation, association, trust or other enterprise or any government or political subdivision or any agency, department or instrumentality thereof. RATABLE SHARE. With respect to each Exchanging Holder, the percentage obtained by dividing such Exchanging Holder's Exposure by the Total Exposure. -4- REQUIRED HOLDERS. The Holders holding Notes in an outstanding principal amount greater than 50% of the total outstanding principal amount of all Notes. SECURED OBLIGATIONS. Collectively, the Exchanging Holder Debt, any Obligations owing to the Collateral Agent, the Fiscal Agent or the Warrant Agent pursuant to any of the Credit Documents and the obligations of the Companies owing to the Collateral Agent hereunder. SECURED PARTIES. The Collateral Agent for its benefit (as Collateral Agent and as Fiscal Agent or Warrant Agent, as applicable) and for the benefit of each of the Exchanging Holders. SECURITY AGREEMENTS. Collectively, (i) the Security Agreement dated as of January 30, 2003, between the Borrowers, the Guarantor and the Collateral Agent, which security agreement was executed and delivered in connection with the Symphony Exchange Agreement, (ii) the Security Agreement dated as of February 21, 2003, between the Borrowers, the Guarantor and the Collateral Agent, which security agreement was executed and delivered in connection with the Second Exchange Agreement, and (iii) any security agreement executed and delivered by the Borrowers, the Guarantor and the Collateral Agent in connection with any Permitted Exchange Agreement. SECURITY DOCUMENTS. Collectively, the Security Agreements and the Guarantees. SENIOR LENDER. Silicon Valley Bank, a California chartered bank. SENIOR LOAN AGREEMENT. The Loan and Security Agreement dated as of December 30, 2002, by and among the Borrowers and the Senior Lender. SUBORDINATION AGREEMENT. The Subordination Agreement dated as of January 30, 2003, among the Senior Lender, the Holders and the Collateral Agent, as amended, restated or supplemented from time to time in accordance with the terms thereof. TOTAL EXPOSURE. The sum of all Exchanging Holders' Exposure. 1.2. TERMS GENERALLY. The definitions in Section 1.2 shall apply equally to both the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words "include", "includes" and "including" shall be deemed to be followed by the phrase "without limitation". All references herein to Sections shall be deemed references to Sections of this Agreement unless the context shall otherwise require. 1.3. PERMITTED EXCHANGE AGREEMENTS AND RELATED SECURITY DOCUMENTS. The Collateral Agent shall be and hereby is authorized to accept, execute and deliver (i) the Security Agreement executed and delivered by the Borrowers and the Guarantor in connection with the Second Exchange Agreement, and (ii) any agreement hereinafter designated by the Company as a "Permitted Exchange Agreement", and any accompanying Security Agreement and Guarantee; PROVIDED, HOWEVER, that in the case of any such Permitted Exchange Agreement (a) the terms thereof shall expressly provide that the holder(s) of Convertible Notes that are a party thereto accept and agree to be bound by, the terms of this Agreement and the Subordination Agreement, and (b) the Company shall provide a certificate to the Collateral Agent certifying to the effect that such agreement is a "Permitted Exchange Agreement" as that term is defined herein and is not prohibited pursuant to the terms of the Existing Exchange Agreements. The Collateral Agent shall be entitled to rely exclusively on any such certificate and shall not be under any duty or obligation to examine, review or evaluate the terms of any such Permitted Exchange Agreement, -5- Security Agreement or Guarantee, whether for compliance with the terms hererof or for compliance with any of the Existing Exchange Agreements or otherwise, and the Collateral Agent shall have no responsibility for the acceptability or sufficiency of the terms thereof for any purpose. The Collateral Agent shall not be under any obligation, to accept, execute or deliver any such Permitted Exchange Agreement, Security Agreement or Guarantee if any of the terms thereof applicable to the Collateral Agent, or its duties, obligations, rights, immunities or indemnities thereunder are not acceptable to it. 2. RECOURSE OF SECURED PARTIES; ACTS OF SECURED PARTIES. 2.1. RECOURSE OF SECURED PARTIES. Each of the Secured Parties acknowledges and agrees that (i) it shall only have recourse to the Collateral through the Collateral Agent and that it shall have no independent recourse to the Collateral and (ii) the Collateral Agent shall have no obligation to take any action, or refrain from taking any action, except upon instructions from the Required Holders in accordance with Section 2.2 hereof. Nothing contained herein shall restrict the Exchanging Holders' rights to pursue remedies, by proceedings in law and equity, to collect principal or interest due under any Exchange Agreement, any Notes or any Guarantees, or to enforce payments under and the performance of and provisions of any Exchange Agreement, any Note or any Guarantee, to the extent that such remedies do not relate to the Collateral or interfere with the Collateral Agent's right to take action hereunder or under the Security Documents. 2.2. ACTS OF SECURED PARTIES. Except as provided in Section 3 hereof, any request, demand, authorization, direction, notice, consent, waiver or other action permitted or required by this Agreement to be given or taken by any Exchanging Holders, may be and, at the request of the Collateral Agent, shall be embodied in and evidenced by one or more instruments satisfactory in form to the Collateral Agent and signed by or on behalf of the Exchanging Holders and, except as otherwise expressly provided in any such instrument, any such action shall become effective when such instrument or instruments shall have been delivered to the Collateral Agent. The instrument or instruments evidencing any action (and the action embodied therein and evidenced thereby) are sometimes referred to herein as an "Act" of the Persons signing such instrument or instruments. The Collateral Agent shall be entitled to rely absolutely upon an Act of any Exchanging Holders if such Act purports to be taken by or on behalf of such Exchanging Holders, and nothing in this Section 2.2 or elsewhere in this Agreement shall be construed to require the Collateral Agent to demonstrate that it has been authorized by the Required Holders or the Demand Holders, as appropriate, to take any action which it purports to be taking, the Collateral Agent being entitled to rely conclusively, and being fully protected in so relying, on any Act of the Exchanging Holders. 2.3. DELIVERABLES, FILINGS AND OTHER COMPLIANCE ACTION UNDER SECURITY DOCUMENTS. Without limiting the generality of Section 2.1 above, and notwithstanding any term to the contrary contained herein or in any Security Document, the Collateral Agent shall not be under any obligation or duty to take any action to determine, compel, monitor or enforce the Borrower's compliance with the terms of any Security Document, including without limitation with respect to any instrument, agreements, documents or other items (including any item of Collateral) required by the terms thereof to be delivered, executed or filed by the Borrowers, or to preserve, protect or maintain the perfection of any security interest, or to take any action to realize upon or liquidate any Collateral, unless and except to the extent, in each case, the Collateral Agent is expressly and specifically instructed pursuant to Section 2.2 by Act of the Required Holders or, if after the occurrence of an Actionable Default, the Demand Holders (and in such case subject to the terms of this Agreement). Without limiting the generality of the foregoing (and unless and except to the extent expressly and specifically instructed by Act of the Required Holders or, if after the occurrence of an Actionable Default, the Demand Holders, in -6- each instance), the Collateral Agent shall not be under any duty or obligation to take, or be responsible for, any of the following actions or performance of any of the following requirements under or in respect of any Security Agreement (the sectional references that follow refer to Sections of the Security Agreement entered into in connection with the Second Exchange Agreement, and the comparable provisions of any other Security Agreement): (i) any determination that all certificates representing pledged stock, stock transfer powers, control statements, UCC financing statements or evidence of registration of uncertificated equity interests have been delivered as required by Section 3.3.1, (ii) any determination that all instruments required by Section 3.3.2 have been delivered, (iii) any determination that any evidence of insurance coverage required by Section 3.3.7 has been delivered, (iv) any determination that any memoranda of Intellectual Property required by Section 3.3.8 have been delivered, (v) to make, or to determine whether there have been made, any filings with the Patent and Trademark Office, U. S. Copyright Office or other applicable office as required by Section 3.3.8, (vi) to determine whether bank and deposit accounts are held in compliance with Section 3.3.9, or (vii) to make any UCC filngs that may be required by, or to determine whether the Borrowers have delivered all instruments and taken such actions for perfection as required by Section 3.3.12 of the Security Agreement, from time to time. Upon reasonable written request by any Holder from time to time, the Collateral Agent shall (at the requesting Holder's expense) provide a listing of any items of Collateral that have been delivered to it and that are then held in its possession, and any filings that have been made of which it is aware, pursuant to any related Security Agreement. 2.4. SUBORDINATION AGREEMENT. Each of the Secured Parties acknowledges and agrees to be bound by, and agrees that its rights and remedies hereunder and under any of the Security Documents shall be subject to, the Subordination Agreement. 3. DUTIES OF COLLATERAL AGENT. 3.1. ACTIONS UNDER SECURITY DOCUMENTS. The Collateral Agent shall not have any duties or obligation under, and shall not be obligated to take any action under, this Agreement or any of the Security Documents except for the performance of such duties as are specifically set forth herein or therein. No implied duties shall be read into this Agreement or any of the Security Documents on the part of the Collateral Agent. Subject to the provisions of this Section 3 and Section 5 hereof, the Collateral Agent shall take any action under or with respect to the Security Documents which is requested by the Required Holders or, if after the occurrence of an Actionable Default, the Demand Holders, and which is not inconsistent with or contrary to the provisions of this Agreement or the Credit Documents; PROVIDED that the Collateral Agent shall not amend or waive any provision of the Security Documents except in accordance with Section 9 hereof. The Collateral Agent shall give notice to each of the Exchanging Holders: (a) upon receipt of a Notice of Actionable Default or cancellation of any Notice of Actionable Default, (b) upon receipt of a written notice of a default under any security document pursuant to which the Companies have granted a lien to a lender other than to the Senior Lender under the Senior Loan Agreement or the Exchanging Holders and (c) in the event the Collateral Agent elects to waive a material delivery requirement under the Security Documents. At any time when a Notice of Actionable Default shall have been given and shall be outstanding, the Collateral Agent shall, subject in all cases to the provisions of this Section 3 and Section 5 hereof, exercise or refrain from exercising all such rights, powers and remedies as shall be available to it under the Security Documents or any of them in accordance with any specific written instructions received from the Demand Holders. The Demand Holders may direct the time, method and place of conducting any proceeding for any right or remedy available to the Collateral Agent, or of exercising any trust or power conferred on the Collateral Agent, or for the appointment of a receiver, or to direct the taking or refraining from taking of any action authorized by this Agreement or any Security Document; provided that -7- such direction shall not conflict with any provision of law or this Agreement. The Collateral Agent shall have the right to decline to follow any such direction if the Collateral Agent, being advised by counsel, determines that the directed action is not permitted by the terms of this Agreement, the Security Documents or the other Credit Documents, may not lawfully be taken or would involve it in personal liability. Notwithstanding any term hereof or in any Security Agreement to the contrary, the Collateral Agent shall not in any instance be required to take any such action pursuant to this Agreement or any of the Security Documents (whether at the direction of Demand Holders or otherwise) that it reasonably determines may cause it to incur or risk any cost, expense or liability for which it is not adequately indemnified, unless satisfactory indemnity is provided to it. Subject to Section 5 hereof, the Collateral Agent may rely on any such direction given to it by the Demand Holders and shall be fully protected, and shall under no circumstances (absent the gross negligence and willful misconduct of the Collateral Agent) be liable to the Companies, any holder of any Secured Obligations or any other Person for taking or refraining from taking action in accordance therewith. Absent written instructions from the Demand Holders at a time when a Notice of Actionable Default shall be outstanding or from the Required Holders in the case of an emergency in order to protect any of the Collateral, the Collateral Agent may take, but shall have no obligation to take, any and all such actions under the Security Documents or any of them or otherwise as it shall deem to be in the best interests of the Exchanging Holders and shall give notice to each of the Exchanging Holders of any such actions taken. 3.2 ACTIONS WITH RESPECT TO THE COLLATERAL. Each of the Companies and each of the Exchanging Holders hereby irrevocably constitutes and appoints the Collateral Agent and any officer or agent thereof, with full power of substitution, as its true and lawful attorney-in-fact with full power and authority in its or his own name, from time to time in the Collateral Agent's discretion, subject to Sections 2.1 and 3.1 hereof, so long as any Notice of Actionable Default is in effect, to take any and all appropriate action and to execute any and all documents and instruments which may be necessary or desirable to carry out the terms of this Agreement and the Security Documents and accomplish the purposes hereof and thereof and, without limiting the generality of the foregoing, each Company hereby acknowledges that the Collateral Agent shall have all powers and remedies set forth in the Security Documents, subject to Sections 2.2 and 3.1 hereof. 4. PRIORITY OF RIGHTS AGAINST COLLATERAL AND PROCEEDS THEREOF. It is the intent of the parties hereto that each of the Exchanging Holders shall be paid from the proceeds of the Collateral their Ratable Share, subject, however, to the following: (a) If and to the extent the Collateral Agent receives any identifiable net cash proceeds of any of the Collateral following an Actionable Default, such amounts shall be applied (i) FIRST, to reimburse the Collateral Agent for any and all reasonable fees, costs, expenses, disbursements and losses which shall have been incurred by the Collateral Agent in connection with the collection of such proceeds by the Collateral Agent, for the exercise, protection or enforcement by the Collateral Agent of all or any of the rights, remedies, powers and privileges of the Collateral Agent under any of the Security Documents or in respect of the Collateral or in support of any provision of adequate indemnity to the Collateral Agent against any taxes or liens which by law shall have, or may have, priority over the rights of the Collateral Agent to such proceeds and (ii) SECOND, to the payment of any other Secured Obligations owing to the Collateral Agent (whether in its capacity as such, or as Fiscal Agent or Warrant Agent), and (iii) THIRD, -8- each Exchanging Holder shall receive its Ratable Share of such amounts until indefeasible payment in full of the Secured Obligations up to the Total Exposure. (b) If the Collateral Agent receives any non-cash distributions or proceeds in respect of the Collateral, then, unless the Security Documents expressly provide to the contrary, the Collateral Agent shall hold such non-cash distributions and proceeds thereof as Collateral upon the terms of this Agreement and the Security Documents until converted to cash and thereupon distributed in accordance with paragraph (a) of this Section 4. 5. CONCERNING THE COLLATERAL AGENT. 5.1. LIMITATIONS ON RESPONSIBILITY OF COLLATERAL AGENT. The Collateral Agent shall not be responsible in any manner whatsoever for the correctness of any recitals, statements, representations or warranties contained herein or in any Security Document, except for those expressly made by it herein or therein. The Collateral Agent makes no representation as to the value or condition of the Collateral or any part thereof, as to the title of the Companies to the Collateral, as to the security afforded by this Agreement or any Security Document or, except as set forth in Section 6, as to the validity, execution, enforceability, legality or sufficiency of this Agreement or any Security Document, and the Collateral Agent shall incur no liability or responsibility in respect of any such matters. The Collateral Agent shall not be responsible for insuring the Collateral, for the payment of taxes, charges, assessments or liens upon the Collateral or otherwise as to the maintenance of the Collateral, except as provided in the immediately following sentence when the Collateral Agent has possession of the Collateral. The Collateral Agent shall have no duty to the Companies or to the holders of any of the Secured Obligations as to any Collateral in its possession or control or in the possession or control of any agent or nominee of the Collateral Agent or any income thereon or as to the preservation of rights against prior parties or any other rights pertaining thereto, except the duty to accord such of the Collateral as may be in its possession substantially the same care as it accords its own assets and the duty to account for monies received by it. The Collateral Agent shall not be required to ascertain or inquire as to the performance by the Companies of any of the covenants or agreements contained herein or any of the Credit Documents. Neither the Collateral Agent nor any officer, agent or representative thereof shall be personally liable for any action taken or omitted to be taken by any such Person in connection with this Agreement or any Security Document except for such Person's own gross negligence or willful misconduct. Neither the Collateral Agent nor any officer, agent or representative thereof shall be personally liable for any action taken by any such Person in accordance with any notice given by the Required Holders or, if after the occurrence of an Actionable Default, the Demand Holders, pursuant to the terms of this Agreement. The Collateral Agent may execute any of the powers granted under this Agreement or any of the Security Documents and perform any duty hereunder or thereunder either directly or by or through agents or attorneys-in-fact, and shall not be responsible for the negligence or misconduct of any agents or attorneys-in-fact selected by it absent gross negligence or willful misconduct. 5.2. RELIANCE BY COLLATERAL AGENT; ETC. The Collateral Agent shall not be deemed to have actual, constructive, direct or indirect notice or knowledge of the occurrence of any Actionable Default unless and until the Collateral Agent shall have received a Notice of Actionable Default or with respect to any other matter pertinent to this Agreement or any Security Document unless and except to the extent it has received written notice thereof or has actual knowledge thereof. The Collateral Agent shall have no obligation whatsoever either prior to or after receiving such a Notice of Actionable Default to inquire whether an Actionable Default has in fact occurred and shall be entitled to rely conclusively, and shall be fully protected in so relying, on any certificate furnished to it by the Demand Holders and shall have no obligation, absent written instructions from the Demand Holders, to take or omit to take any action with -9- respect to such Notice of Actionable Default. The Collateral Agent may rely upon and shall be protected in acting or refraining from acting upon any notice, instruction, certificate, report, correspondence, direction, instrument, statement, request or other document furnished to it hereunder or pursuant to any Security Document and reasonably believed by it to be genuine and, if applicable, to have been signed or presented by the proper person, and shall have no responsibility or duty to make inquiry as to or to determine the genuineness, accuracy or validity thereof (or any signature appearing thereon), or of the authority of the Person signing or presenting the same. With respect to any matter arising hereunder or under any of the Security Documents, the Collateral Agent may consult counsel satisfactory to it, including in-house counsel, and the opinion or advice of such counsel in any instance shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it in good faith and in accordance with such opinion or advice. Any permissive right or power granted to the Collateral Agent hereunder or under any Security Document shall not be construed to be a duty. In no event shall the Collateral Agent be liable for indirect, punitive, special or consequential damage or loss (including but not limited to lost profits) whatsoever, even if the Collateral Agent has been informed of the likelihood of such loss or damage and regardless of the form of action. The terms of this Agreement are in addition to (and shall not be construed to be exclusive of or to limit) all rights, protections, immunites and indemnities in favor of the Collateral Agent or to which it is entitled under the terms of the Exchange Agreements. 5.2.1. NO OBLIGATION TO ACT. If the Collateral Agent has been requested by the Required Holders or, if after the occurrence of an Actionable Default, the Demand Holders, to take any specific action pursuant to any provision of this Agreement, the Collateral Agent shall not be under any obligation to exercise any of the rights or powers vested in it by this Agreement in the manner so requested unless, if so requested by the Collateral Agent, it shall have been provided indemnity satisfactory to it against the costs, expenses and liabilities which may be incurred by it in compliance with such request or direction. 5.2.2. DISPUTES. If any dispute or disagreement shall arise as to the allocation of any sum of money received by the Collateral Agent hereunder or under any Security Document, the Collateral Agent shall have the right to deliver such sum to a court of competent jurisdiction and therein commence an action for interpleader. 5.3. RESIGNATION AND REMOVAL OF THE COLLATERAL AGENT. 5.3.1 RESIGNATION. The Collateral Agent may at any time resign by giving written notice thereof to each Secured Party and the Companies, PROVIDED that no resignation shall be effective until a successor for the Collateral Agent is appointed. Upon notice of such resignation, the Required Holders shall have the right to appoint a successor Collateral Agent. If no successor Collateral Agent shall have been so appointed by the Required Holders and shall have accepted such appointment within 30 days after the retiring Collateral Agent's giving of notice of resignation, then the retiring Collateral Agent may, on behalf of the Secured Parties, appoint a successor Collateral Agent, which shall be a financial institution having a capital and surplus of at least One Hundred Million Dollars ($100,000,000). Upon the acceptance of any appointment as Collateral Agent hereunder by a successor Collateral Agent, such successor Collateral Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Collateral Agent, and the retiring Collateral Agent shall be discharged from its duties and obligations hereunder. After any retiring Collateral Agent's resignation, the provisions of -10- this Agreement and the Security Documents shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as Collateral Agent (including with respect to the payment of Secured Obligations that may be owing to it). Any corporation or entity into which the Collateral Agent may be merged, or with which it may be consolidated, or any corporation or entity resulting from any merger or consolidation to which the Collateral Agent shall be a party, shall be a Collateral Agent under this Agreement and the Security Documents without the execution or filing of any paper or any further act on the part of the parties hereto. 5.3.2 REMOVAL. Upon not less than thirty (30) days notice to U.S. Bank National Association, the Required Holders may remove U.S. Bank National Association as Collateral Agent hereunder for cause and appoint a successor Collateral Agent. Upon the acceptance of any appointment as Collateral Agent hereunder by a successor Collateral Agent, such successor Collateral Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Collateral Agent, and the retiring Collateral Agent shall be discharged from its duties and obligations hereunder. After any retiring Collateral Agent's removal, the provisions of this Agreement and the Security Documents shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as Collateral Agent (including with respect to the payment of Secured Obligations that may be owing to it). 5.4. EXPENSES AND INDEMNIFICATION BY THE COMPANIES. By countersigning this Agreement, the Companies jointly and severally agree (i) to pay reasonable compensation to the Collateral Agent, (ii) to reimburse the Collateral Agent, on demand, for any reasonable costs, expenses and disbursements incurred by the Collateral Agent, including reasonable counsel fees and disbursements and compensation of agents, arising out of, in any way connected with, or as a result of, the execution or delivery of this Agreement or any Security Document or any agreement or instrument contemplated hereby or thereby or the performance by the parties hereto or thereto of their respective obligations hereunder or thereunder or in connection with the enforcement or protection of the rights of the Collateral Agent and the Secured Parties hereunder or under the Security Documents, and (ii) to indemnify and hold harmless the Collateral Agent and its directors, officers, employees and agents, on demand, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses (including reasonable attorneys fees and costs) or disbursements of any kind or nature whatsoever which may be imposed on, incurred by or asserted against the Collateral Agent in its capacity as the Collateral Agent or any of them in any way relating to or arising out of this Agreement or any Security Document or any action taken or omitted by them under this Agreement or any Security Document; PROVIDED that the Companies shall not be liable to the Collateral Agent for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the gross negligence or willful misconduct of the Collateral Agent or any of its directors, officers, employees or agents. The foregoing indemnification and agreement to hold harmless shall survive the termination of this Agreement. A statement by the Collateral Agent that is submitted to the Companies with respect to the amount of such expenses and containing a basic description thereof and/or the amount of its indemnification obligation shall be PRIMA FACIE evidence of the amount thereof owing to the Collateral Agent. -11- 6. REPRESENTATIONS AND WARRANTIES. Each of the Collateral Agent, the Exchanging Holders and, by countersigning this Agreement, the Companies, represents and warrants to the other parties hereto that (i) the execution, delivery and performance of this Agreement (A) have been duly authorized by all requisite corporate action on its part and (B) do not conflict with or result in any breach or contravention of any provision of law, statute, rule or regulation to which it is subject or any judgment, order, writ, injunction, license or permit applicable to it and will not conflict with any provision of its corporate charter or bylaws or any agreement or other instrument binding upon it; and (ii) this Agreement has been duly executed and delivered by it and constitutes its legal, valid and binding obligation, enforceable in accordance with its terms. 7. CERTAIN INTERCREDITOR ARRANGEMENTS. 7.1. TURNOVER OF COLLATERAL. If any Secured Party acquires custody, control or possession of any Collateral or proceeds therefrom (other than deposit accounts of the Borrowers and amounts on deposit therein), other than pursuant to the terms of this Agreement, such Secured Party shall promptly cause such Collateral or proceeds to be delivered to or put in the custody, possession or control of the Collateral Agent or, if the Collateral Agent shall so designate, an agent of the Collateral Agent (which agent may be a branch or affiliate of the Collateral Agent or any Symphony Fund) in the same form of payment received, with appropriate endorsements for distribution in accordance with the provisions of Section 4. Until such time as the provisions of the immediately preceding sentence have been complied with, such Secured Party shall be deemed to hold such Collateral and proceeds in trust for the Collateral Agent. Notwithstanding the foregoing, none of the Exchanging Holders shall be required to deliver to the Collateral Agent or such agent of the Collateral Agent, any amounts received by such Exchanging Holders prior to receipt by the Collateral Agent of Notice of Actionable Default to the extent that such amounts constitute payments of principal on the Notes required to be made pursuant to the Exchange Agreements and due and paid prior to such date or regular payments of interest on such Notes due and paid prior to such date. 7.2. PRO RATA SHARING. If the Collateral Agent's security interest hereunder and under the Security Documents is enforced with respect to some, but not all, of the Secured Obligations then outstanding, the Collateral Agent shall nonetheless apply the proceeds of a Company's Collateral for the benefit of the holders of all Secured Obligations of such Company in the proportions (and in the priority) specified herein. To the extent that the Collateral Agent distributes proceeds collected with respect to Secured Obligations held by one holder to or on behalf of Secured Obligations held by a second holder, the first holder shall be deemed to have purchased a participation in the Secured Obligations held by the second holder, or shall be subrogated to the rights of the second holder to receive any subsequent payments and distributions made with respect to the portion thereof paid or to be paid by the application of such proceeds. 7.3. PARI PASSU. Each of the Collateral Agent and each of the Exchanging Holders acknowledges that the Collateral is being provided hereunder for the benefit of the Exchanging Holders on a pari passu basis as set forth herein without any priority to one Exchanging Holder over the other with respect to such Collateral (subject to the priority of payments to the Collateral Agent pursuant to Section 4 hereof). -12- 8. RELEASE OR SUBORDINATION OF COLLATERAL; FREEDOM TO DEAL. 8.1. RELEASE OF COLLATERAL. The Collateral Agent is hereby authorized to release Collateral and to provide such releases and termination statements with respect to any Collateral (a) upon receipt of instructions from the Required Holders, (b) upon a sale of assets by the Companies permitted by the Exchange Agreements, or (c) as required pursuant to the Subordination Agreement. 8.2. SUBORDINATION OF LIEN. The Collateral Agent may, in its discretion, subordinate by written instrument the Lien on all or any portion of the Collateral to the Senior Lender in connection with the Credit Facility. 8.3. LEGALLY REQUIRED RELEASES. Whether or not so instructed by all of the Exchanging Holders, the Collateral Agent may release any Collateral and may provide any release, termination statement or instrument of subordination required by order of a court of competent jurisdiction or otherwise required by applicable law. 9. AMENDMENT OF THIS AGREEMENT. 9.1. GENERAL. No waiver, modification or amendment of this Agreement or the Security Documents shall be effective unless the same shall be in writing and signed by the Required Holders (and, in the case of any Security Documents, subject to any applicable requirements set forth therein); PROVIDED, HOWEVER, (i) no amendment or waiver shall adversely affect any present or former Collateral Agent's rights, immunities or rights to indemnification hereunder or under any of the Security Documents or expand its duties or reduce any amount payable to such Collateral Agent hereunder or under any Security Documents without the written consent of such Collateral Agent,; and (ii) no amendment to Section 5.4 of this Agreement shall be effective without the written consent of each of the Companies. 9.2. WAIVER. No waiver of any provision of this Agreement and no consent to any departure by any party hereto from the provisions hereof shall be effective unless such waiver or consent shall be set forth in a written instrument executed by the party against which it is sought to be enforced, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. No notice to or demand on any party hereto in any case shall entitle such party to any other or further notice or demand in the same, similar or other circumstances. 10. MISCELLANEOUS. 10.1. FURTHER ASSURANCES, ETC. The Collateral Agent, the Exchanging Holders, and, by countersigning this Agreement, the Companies agree to execute and deliver such other documents and instruments, (in form and substance reasonably satisfactory to the Collateral Agent, in the case of any request made to or by the Collateral Agent) and shall take such other action, in each case as the Collateral Agent or any Secured Party may reasonably request (and reasonably acceptable to the Collateral Agent in the case of any request made to or by the Collateral Agent, and subject to any reimbursement requirements set forth herein or in any of the applicable Credit Documents, the cost and expense of which the Companies, by countersigning this Agreement, agree to pay), to effectuate and carry out the provisions of this Agreement including, without limitation, by recording or filing in such places as the requesting party may deem desirable, this Agreement or such other appropriate documents or instruments. -13- 10.2. SUCCESSORS AND ASSIGNS. This Agreement shall be binding on and inure to the benefit of the Collateral Agent, each of the Exchanging Holders and their respective successors and permitted assigns and shall be binding on the Companies and their successors and permitted assigns. 10.3. NOTICES. All notices and other communications made or required to be given pursuant to this Agreement shall be in writing and shall be delivered to the addresses set forth in Section 13.2 of the Security Agreements. Any such notice and other communications shall be deemed to have been duly given or made and to have become effective (i) if delivered by hand, overnight courier or facsimile to a responsible officer of the party to which it is directed, at the time of the receipt thereof by such officer or the sending of such facsimile and (ii) if mailed, sent by registered or certified first class mail postage prepaid, on the third Business Day following the mailing thereof; PROVIDED, HOWEVER, that a Notice of Actionable Default or any other notice to be delivered to the Collateral Agent pursuant to the terms of this Agreement shall not be deemed to have been received by the Collateral Agent until the Collateral Agent actually receives such notice. 10.4. TERMINATION. Upon (i) receipt by the Collateral Agent from each Exchanging Holder of notice that either (A) the Exchanging Holder Debt has been indefeasibly paid in full in cash or defeased in accordance with the Permitted Exchange Agreement or (B) the Exchanging Holder Debt no longer constitutes Secured Obligations under the Security Documents and (ii) payment in full in cash of all Secured Obligations payable to the Collateral Agent pursuant to this Agreement or any applicable Credit Document, any remaining Liens created by the Security Documents shall terminate forthwith and all right, title and interest in the Collateral shall revert to the Companies and their successors and assigns. 10.5. APPLICABLE LAW. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS (WITHOUT REFERENCE TO CONFLICT OF LAWS) AND SHALL BE A SEALED INSTRUMENT UNDER SUCH LAWS. THE PARTIES AGREE THAT ANY SUIT FOR THE ENFORCEMENT OF THIS AGREEMENT MAY BE BROUGHT IN THE COURTS OF THE COMMONWEALTH OF MASSACUSETTS OR ANY FEDERAL COURT SITTING THEREIN AND CONSENT TO THE NONEXCLUSIVE JURISDICTION OF SUCH COURT AND SERVICE OF PROCESS IN ANY SUCH SUIT BEING MADE UPON THE PARTIES BY MAIL AT THE ADDRESSES SPECIFIED IN SECTION 10.3. THE PARTIES HEREBY WAIVE ANY OBJECTION THAT THEY MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH SUIT OR ANY SUCH COURT OR THAT SUCH SUIT IS BROUGHT IN AN INCONVENIENT COURT. 10.6. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY WAIVES ITS RIGHT TO A JURY TRIAL WITH RESPECT TO ANY ACTION OR CLAIM ARISING OUT OF ANY DISPUTE IN CONNECTION WITH THIS AGREEMENT, ANY RIGHTS OR OBLIGATIONS HEREUNDER, OR THE PERFORMANCE OF ANY SUCH RIGHTS AND OBLIGATIONS. Except as prohibited by law, each of the parties hereto hereby waive any right which it may have to claim or recover in any litigation referred to in the preceding sentence any special, exemplary, punitive or consequential damages or any damages other than, or in addition to, actual damages. Each of the parties hereto (i) certifies that neither the Collateral Agent or the Exchanging Holders nor any representative, agent or attorney of the Collateral Agent or the Exchanging Holders has represented, expressly or otherwise, that the Collateral Agent would not, in the event of litigation, -14- seek to enforce the foregoing waivers, and (ii) acknowledges that, in entering into this Agreement, the Collateral Agent and the Exchanging Holders are relying upon, among other things, the waivers and certifications contained in this Section 10.6. 10.7. WAIVER OF RIGHTS. Neither any failure nor any delay on the part of any party hereto in exercising any right, power or privilege hereunder shall operate as a waiver thereof, and a single or partial exercise thereof shall not preclude any other or further exercise or the exercise of any other right, power or privilege. 10.8. SEVERABILITY. In case any one or more of the provisions contained in this Agreement should be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby. The parties shall endeavor in good faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provision. 10.9. COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall constitute an original, but all of which, when taken together, shall constitute but one instrument. 10.10. SECTION HEADINGS. The section headings used herein are for convenience of reference only and are not to affect the construction of or be taken into consideration in interpreting this Agreement. 10.11. COMPLETE AGREEMENT. This Agreement constitutes the entire agreement among the parties hereto with respect to the subject matter hereof and supersedes all prior representations, negotiations, writings, memoranda and agreements. To the extent any provision of this Agreement conflicts with any Permitted Exchange Agreement or any other Security Document, as among the Secured Parties the provisions of this Agreement shall be controlling. Nothing in this Agreement, expressed or implied, is intended to confer upon any Person other than the parties hereto and the Secured Parties any rights or remedies under or by reason of this Agreement. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] IN WITNESS WHEREOF, the Collateral Agent, the Symphony Funds, the Exchanging Holders and the Companies have caused this Agreement to be duly executed by their duly authorized officers, all as of the day and year first above written. U.S. BANK NATIONAL ASSOCIATION, in its capacity as Collateral Agent By: /s/ John A. Brennan ------------------------------------ Name: John A. Brennan Title: Trust Officer THE SYMPHONY FUNDS: RHAPSODY FUND, LP BY SYMPHONY ASSET MANAGEMENT LLC, as General Partner By: /s/ Neil Rudolph ------------------------------------ Name: Neil Rudolph Title: Chief Operating Officer ARPEGGIO FUND BY SYMPHONY ASSET MANAGEMENT LLC, as Investment Advisor By: /s/ Neil Rudolph ------------------------------------ Name: Neil Rudolph Title: Chief Operating Officer INTERNATIONAL MONETARY FUND -CONVERTIBLE ARBITRAGE ACCOUNT BY SYMPHONY ASSET MANAGEMENT LLC, as Investment Advisor By: /s/ Neil Rudolph ------------------------------------ Name: Neil Rudolph Title: Chief Operating Officer CSV LIMITED BY SYMPHONY ASSET MANAGEMENT LLC, as Investment Advisor By: /s/ Neil Rudolph ------------------------------------ Name: Neil Rudolph Title: Chief Operating Officer CITISAM, LTD. BY SYMPHONY ASSET MANAGEMENT LLC, as Investment Advisor By: /s/ Neil Rudolph ------------------------------------ Name: Neil Rudolph Title: Chief Operating Officer ANDANTE FUND, LP BY SYMPHONY ASSET MANAGEMENT LLC, as General Partner By: /s/ Neil Rudolph ------------------------------------ Name: Neil Rudolph Title: Chief Operating Officer VIVACE FUND, LP BY SYMPHONY ASSET MANAGEMENT LLC, as General Partner By /s/ Neil Rudolph ------------------------------------ Name: Neil Rudolph Title: Chief Operating Officer ADAGIO FUND BY SYMPHONY ASSET MANAGEMENT LLC, as Investment Advisor By: /s/ Neil Rudolph ------------------------------------ Name: Neil Rudolph Title: Chief Operating Officer THE EXCHANGING HOLDERS: JMG TRITON OFFSHORE FUND LIMITED CITCO By: /s/ David Rubinstein ------------------------------------ Name: David Rubinstein Title: Portfolio Manager ACCEPTED AND AGREED TO: THE BORROWER: iBASIS, INC. By: ------------------------------------ Name: Title: iBASIS GLOBAL, INC. By: ------------------------------------ Name: Title: THE GUARANTOR: iBASIS SECURITIES CORPORATION By: ------------------------------------ Name: Title: EX-10.46 10 a2104304zex-10_46.txt EXHIBIT 10.46 EXHIBIT 10.46 ================================================================================ iBASIS SECURITIES CORPORATION GUARANTEE Dated as of February 21, 2003 U.S. Bank National Association, as Collateral Agent ================================================================================ TABLE OF CONTENTS 1. Reference to Exchange Agreement; Definitions; Certain Rules of Construction...........1 1.1. "Agreement"...................................................................1 1.2. "Obligors"....................................................................1 2. Guarantee.............................................................................2 2.1. Guarantee of Obligations......................................................2 2.2. Continuing Obligation.........................................................2 2.3. Waivers with Respect to Obligations...........................................3 2.4. Investors' Power to Waive, etc................................................4 2.5. Information Regarding the Borrower, etc.......................................5 2.6. Certain Guarantor Representations.............................................5 2.7. Subrogation...................................................................6 2.8. Subordination.................................................................6 2.9. Future Subsidiaries; Further Assurances.......................................6 3. Representations and Warranties........................................................7 3.1. Organization and Business.....................................................7 3.2. Authorization and Enforceability..............................................7 3.3. No Legal Obstacle to Agreements...............................................7 3.4. Litigation....................................................................7 4. Successors and Assigns................................................................8 5. Notices...............................................................................8 6. Reimbursement of Expenses.............................................................8 7. Venue; Service of Process.............................................................8 8. WAIVER OF JURY TRIAL..................................................................9 9. General...............................................................................9

iBASIS SECURITIES CORPORATION GUARANTEE This Agreement, dated as of February 21, 2003, is among iBasis Securities Corporation, a Massachusetts corporation (the "GUARANTOR"), and U.S. Bank National Association, as Collateral Agent (the "COLLATERAL AGENT") for itself and the Holders under the Exchange Agreement (as defined below). The parties agree as follows: 1. REFERENCE TO EXCHANGE AGREEMENT; DEFINITIONS; CERTAIN RULES OF CONSTRUCTION. Reference is made to the Securities Exchange Agreement dated as of the date hereof, as from time to time in effect (the "EXCHANGE AGREEMENT"), among iBasis, Inc., a Delaware corporation (the "COMPANY"), iBasis Global, Inc., a Delaware corporation ("iBASIS GLOBAL", and collectively with the Company, the "BORROWER"), the Guarantor, the Exchanging Holders named therein and the Collateral Agent. Capitalized terms defined in the Exchange Agreement and not otherwise defined herein are used herein with the meanings so defined. Certain other capitalized terms are used in this Agreement as specifically defined below in this Section 1. Except as the context otherwise explicitly requires, (a) the capitalized term "Section" refers to sections of this Agreement, (b) the capitalized term "Exhibit" refers to exhibits to this Agreement, (c) references to a particular Section shall include all subsections thereof, (d) the word "including" shall be construed as "including without limitation", (e) references to a particular statute or regulation include all rules and regulations thereunder and any successor statute, regulation or rules, in each case as from time to time in effect and (f) references to a particular Person include such Person's successors and assigns to the extent not prohibited by this Agreement and the other Credit Documents. References to "the date hereof" mean the date first set forth above. 1.1. "AGREEMENT" means this Guarantee as from time to time in effect. 1.2. "EXCHANGING HOLDERS" means the Exchanging Holders from time to time signatories to the Exchange Agreement and any other holders of Convertible Notes who (i) become parties to the Exchange Agreement pursuant to the execution and delivery of a Joinder Agreement in accordance with the terms of the Exchange Agreement or (ii) exchange their Convertible Notes for Notes pursuant to a Permitted Exchange. 1.3. "OBLIGATIONS" means any and all present and future liabilities, obligations and Indebtedness of the Borrower and any of its Subsidiaries or any other Obligor owing to the Collateral Agent or any Holder (or any Affiliate of a Holder or Collateral Agent) under or in connection with the Exchange Agreement, any other Credit Document or any other agreement executed in connection with a Permitted Exchange, including, without limitation, obligations in respect of principal, interest, prepayment premium and all other reimbursement obligations under the Notes, all fees, charges, indemnities and expenses from time to time owing hereunder, under any other Credit Document and under any other agreement executed in connection with a Permitted Exchange (all whether accruing before or after a Bankruptcy Default and regardless of whether allowed as a claim in bankruptcy or similar proceedings). 1.4. "OBLIGORS" means the Borrower, the Guarantor and the Subsidiaries of the Borrower party hereto as guarantors from time to time. 2. GUARANTEE. 2.1. GUARANTEE OF OBLIGATIONS. The Guarantor unconditionally guarantees that the Obligations will be performed and paid in full in cash when due and payable, whether at the stated or accelerated maturity thereof or otherwise, this guarantee being a guarantee of payment and not of collectability and being absolute and in no way conditional or contingent. In the event any part of the Obligations shall not have been so paid in full when due and payable, the Guarantor will, immediately upon notice by the Collateral Agent or, without notice, immediately upon the occurrence of a Bankruptcy Default, pay or cause to be paid to the Collateral Agent for the account of each Holder in accordance with the Holder's respective Percentage Interests therein the amount of such Obligations which are then due and payable and unpaid. The obligations of the Guarantor hereunder shall not be affected by the invalidity, unenforceability or irrecoverability of any of the Obligations as against the Borrower, any other Obligor, any other guarantor thereof or any other Person. For purposes hereof, the Obligations shall be due and payable when and as the same shall be due and payable under the terms of the Exchange Agreement or any other Credit Document notwithstanding the fact that the collection or enforcement thereof may be stayed or enjoined under the Bankruptcy Code or other applicable law. 2.2. CONTINUING OBLIGATION. The Guarantor acknowledges that the Exchanging Holders have entered into the Exchange Agreement (and, to the extent that the Exchanging Holders, any Holder or holder of any interest in the Obligations or the Collateral Agent may enter into any future Credit Document, will have entered into such agreement) in reliance on this Section 2 being a continuing irrevocable agreement, and the Guarantor agrees that its guarantee may not be revoked in whole or in part. The obligations of the Guarantor hereunder shall terminate when all of the Obligations have been indefeasibly paid in full in cash and discharged; PROVIDED, HOWEVER, that if a claim is made upon the Holders at any time for repayment or recovery of any amounts or any property received by the Holders from any source on account of any of the Obligations and the Holders repay or return any amounts or property so received (including interest thereon to the extent required to be paid by the Holders), then the Guarantor shall remain liable under this Agreement for the amounts so repaid or property so returned or the amounts for which the Holders become liable (such amounts being deemed part of the Obligations) to the same extent as if such amounts or property had never been received by the Holders, notwithstanding any termination hereof or the cancellation of any instrument or agreement evidencing any of the Obligations. Not later than five days after receipt of notice from the Collateral Agent, the Guarantor shall pay to the Collateral Agent an amount equal to the amount of such repayment or return for which the Holders have so become liable. Payments 2 hereunder by the Guarantor may be required by the Collateral Agent on any number of occasions. 2.3. WAIVERS WITH RESPECT TO OBLIGATIONS. Except to the extent expressly required by the Exchange Agreement or any other Credit Document, the Guarantor waives, to the fullest extent permitted by the provisions of applicable law, all of the following (including all defenses, counterclaims and other rights of any nature based upon any of the following): (a) presentment, demand for payment and protest of nonpayment of any of the Obligations, and notice of protest, dishonor or nonperformance; (b) notice of acceptance of this guarantee and notice that credit has been extended in reliance on the Guarantor's guarantee of the Obligations; (c) notice of any Event of Default or of any inability to enforce performance of the obligations of the Borrower or any other Person with respect to any Credit Document or notice of any acceleration of maturity of any Obligations; (d) demand for performance or observance of, and any enforcement of any provision of the Exchange Agreement, the Obligations or any other Credit Document or any pursuit or exhaustion of rights or remedies with respect to any Credit Security or against the Borrower or any other Person in respect of the Obligations or any requirement of diligence or promptness on the part of the Collateral Agent or the Holders in connection with any of the foregoing; (e) any act or omission on the part of the Collateral Agent or the Holders which may impair or prejudice the rights of the Guarantor, including rights to obtain subrogation, exoneration, contribution, indemnification or any other reimbursement from the Borrower or any other Person, or otherwise operate as a deemed release or discharge; (f) failure or delay to perfect or continue the perfection of any security interest in any Credit Security or any other action which harms or impairs the value of, or any failure to preserve or protect the value of, any Credit Security; (g) any statute of limitations or any statute or rule of law which provides that the obligation of a surety must be neither larger in amount nor in other respects more burdensome than the obligation of the principal; (h) any "single action" or "anti-deficiency" law which would otherwise prevent the Holders from bringing any action, including any claim for a deficiency, against the Guarantor before or after the Collateral Agent's or the Holders' commencement or completion of any foreclosure action, whether judicially, by exercise of power of sale or otherwise, or any other law which would otherwise require any election of remedies by the Collateral Agent or the Holders; 3 (i) all demands and notices of every kind with respect to the foregoing; and (j) to the extent not referred to above, all defenses (other than payment) which the Borrower may now or hereafter have to the payment of the Obligations, together with all suretyship defenses, which could otherwise be asserted by the Guarantor. Each Guarantor represents that it has obtained the advice of counsel as to the extent to which suretyship and other defenses may be available to it with respect to its obligations hereunder in the absence of the waivers contained in this Section 2.3. No delay or omission on the part of the Collateral Agent or the Holders in exercising any right under any other Credit Document or under any other guarantee of the Obligations or with respect to the Credit Security shall operate as a waiver or relinquishment of such right. Absent gross negligence or willful misconduct on the Collateral Agent's or Holders' part, no action which the Collateral Agent or the Holders or the Borrower or any other Obligor may take or refrain from taking with respect to the Obligations shall affect the provisions of this Agreement or the obligations of the Guarantor hereunder. None of the Holders' or the Collateral Agent's rights shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Borrower or any other Obligor, or by any noncompliance by the Borrower or any other Obligor with any Credit Document, regardless of any knowledge thereof which the Collateral Agent or the Holders may have or otherwise be charged with. 2.4. HOLDERS' POWER TO WAIVE, ETC. The Guarantor grants to the Collateral Agent and the Holders full power in their discretion, without notice to or consent of the Guarantor, such notice and consent being expressly waived to the fullest extent permitted by applicable law, and without in any way affecting the liability of the Guarantor under its guarantee hereunder: (a) To waive compliance with, and any Default under, and to consent to any amendment to or modification or termination of any provision of, or to give any waiver in respect of, the Exchange Agreement, any other Credit Document, the Credit Security, the Obligations or any guarantee thereof (each as from time to time in effect); (b) To grant any extensions of the Obligations (for any duration), and any other indulgence with respect thereto, and to effect any total or partial release (by operation of law or otherwise), discharge, compromise or settlement with respect to the obligations of the Obligors or any other Person in respect of the Obligations, whether or not rights against the Guarantor under this Agreement are reserved in connection therewith; (c) To take security in any form for the Obligations, and to consent to the addition to or the substitution, exchange, release or other disposition of, or to deal in any other manner with, any part of any property contained in the Credit Security whether or not the property, if any, received upon the exercise of such power shall be of a character or value the same as or different from the character or value of any property disposed of, 4 and to obtain or release any present or future guarantees of the Obligations and to proceed against any of the Credit Security or such guarantees in any order; (d) To collect or liquidate or realize upon any of the Obligations or the Credit Security in a commercially reasonable manner or to refrain from collecting or liquidating or realizing upon any of the Obligations or the Credit Security; and (e) To extend credit under the Exchange Agreement, any other Credit Document or otherwise in such amount as the Holders may determine, including increasing the amount of credit and the interest rate and fees with respect thereto, even though the condition of the Obligors (financial or otherwise, on an individual or Consolidated basis) may have deteriorated since the date hereof. 2.5. INFORMATION REGARDING THE BORROWER, ETC. The Guarantor has made such investigation as it deems desirable of the risks undertaken by them in entering into this Agreement and are fully satisfied that it understands all such risks. The Guarantor waives any obligation which may now or hereafter exist on the part of the Collateral Agent or the Holders to inform it of the risks being undertaken by entering into this Agreement or of any changes in such risks and, from and after the date hereof, the Guarantor undertakes to keep themselves informed of such risks and any changes therein. The Guarantor expressly waives any duty which may now or hereafter exist on the part of the Collateral Agent or the Holders to disclose to such Guarantor any matter related to the business, operations, character, collateral, credit, condition (financial or otherwise), income or prospects of the Borrower and its Affiliates or their properties or management, whether now or hereafter known by the Collateral Agent or the Holders. The Guarantor represents, warrants and agrees that it assumes sole responsibility for obtaining from the Borrower all information concerning the Exchange Agreement and all other Credit Documents and all other information as to the Borrower and its Affiliates or their properties or management as the Guarantor deems necessary or desirable. 2.6. CERTAIN GUARANTOR REPRESENTATIONS. Each Guarantor represents that: (a) it is in its best interest and in pursuit of the purposes for which it was organized as an integral part of the business conducted and proposed to be conducted by the Borrower and its Subsidiaries, and reasonably necessary and convenient in connection with the conduct of the business conducted and proposed to be conducted by them, to induce the Exchanging Holders to enter into the Exchange Agreement and to extend credit to the Guarantor by making the Guarantee contemplated by this Section 2; (b) the credit available under the Exchange Agreement will directly or indirectly inure to its benefit; (c) by virtue of the foregoing it is receiving at least reasonably equivalent value from the Exchanging Holders for its Guarantee; 5 (d) it will not be rendered insolvent as a result of entering into his Agreement; (e) after giving effect to the transactions contemplated by this Agreement, it will have assets having a fair saleable value in excess of the amount required to pay its probable liability on its existing debts as such debts become absolute and matured; (f) it has, and will have, access to adequate capital for the conduct of its business; (g) it has the ability to pay its debts from time to time incurred in connection therewith as such debts mature; and (h) it has been advised by the Collateral Agent that the Exchanging Holders are unwilling to enter into the Exchange Agreement unless the Guarantee contemplated by this Section 2 is given by it. 2.7. SUBROGATION. The Guarantor agrees that, until the Obligations are indefeasibly paid in full, it will not exercise any right of reimbursement, subrogation, contribution, offset or other claims against the Borrower or any other Obligor arising by contract or operation of law in connection with any payment made or required to be made by the Guarantor under this Agreement. After the payment in full of the Obligations, the Guarantor shall be entitled to exercise against the Borrower and the other Obligors all such rights of reimbursement, subrogation, contribution and offset, and all such other claims, to the fullest extent permitted by law. 2.8. SUBORDINATION. The Guarantor covenants and agrees that all Indebtedness, claims and liabilities now or hereafter owing by the Borrower or any other Obligor to the Guarantor whether arising hereunder or otherwise are subordinated to the prior payment in full of the Obligations and are so subordinated as a claim against such Obligor or any of its assets, whether such claim be in the ordinary course of business or in the event of voluntary or involuntary liquidation, dissolution, insolvency or bankruptcy, so that no payment with respect to any such Indebtedness, claim or liability will be made or received while any Event of Default exists. 2.9. FUTURE SUBSIDIARIES; FURTHER ASSURANCES. The Guarantor will from time to time cause (a) any present Wholly Owned Subsidiary that is not a Guarantor within 30 days after notice from the Collateral Agent or (b) any future Wholly Owned Subsidiary within 30 days after any such Person becomes a Wholly Owned Subsidiary, to join this Agreement as a Guarantor pursuant to a joinder agreement in form and substance satisfactory to the Collateral Agent; PROVIDED, HOWEVER, that in the event such a Wholly Owned Subsidiary is prohibited by any valid law, statute, rule or regulation from guaranteeing the Obligations, or if such a guarantee by any foreign Subsidiary would result in a repatriation of a material amount of foreign earnings under the Code (including the "deemed dividend" provisions of section 956 of the Code), (i) such guarantee will be limited to the extent necessary to comply with such prohibition or to prevent such repatriation of foreign earnings or (ii) if such limitation on the guaranteed amount is not 6 sufficient to avoid such prohibition or repatriation, the Borrower and its other Subsidiaries will pledge the stock of such Wholly Owned Subsidiary (or as much of such stock as may be pledged without resulting in such a repatriation) to the Collateral Agent to secure the Obligations pursuant to a pledge agreement in form and substance satisfactory to the Collateral Agent. The Guarantor will, promptly upon the request of the Collateral Agent from time to time, execute, acknowledge and deliver, and file and record, all such instruments, and take all such action, as the Collateral Agent deems necessary or advisable to carry out the intent and purpose of this Section 2. 3. REPRESENTATIONS AND WARRANTIES. In order to induce the Exchanging Holders to extend credit under the Exchange Agreement, the Guarantor represents and warrants that: 3.1. ORGANIZATION AND BUSINESS. The Guarantor is a duly organized and validly existing corporation, in good standing under the laws of The Commonwealth of Massachusetts, as applicable, with all power and authority, corporate or otherwise, necessary (a) to enter into and perform this Agreement and each other Credit Document to which it is a party and (b) to own its properties and carry on the business now conducted or proposed to be conducted by it. Certified copies of the Charter and By-laws of the Guarantor have been previously delivered to the Collateral Agent and are correct and complete. 3.2. AUTHORIZATION AND ENFORCEABILITY. The Guarantor has taken all corporate action required to execute, deliver and perform this Agreement and each other Credit Document to which it is a party. Each of this Agreement and each other Credit Document to which the Guarantor is party constitutes the legal, valid and binding obligation of the Guarantor, enforceable against the Guarantor in accordance with its terms. 3.3. NO LEGAL OBSTACLE TO AGREEMENTS. Neither the execution, delivery and performance of this Agreement or any other Credit Document to which it is party, nor the consummation of any transaction referred to in or contemplated by this Agreement or any other Credit Document, has constituted or resulted, or will constitute or result, in: (a) Any breach or termination of the provisions of any agreement, instrument, deed or lease to which the Guarantor is a party or by which it is bound, or of the Charter or By-laws of the Guarantor; or (b) The violation of any law, statute, judgment, decree or governmental order, rule or regulation applicable to the Guarantor. No approval, authorization or other action by, or declaration to or filing with, any governmental or administrative authority or any other Person is required to be obtained or made by the Guarantor in connection with the execution, delivery and performance of this Agreement or any other Credit Document to which it is party or the transactions contemplated hereby or thereby. 3.4. LITIGATION. Except as disclosed in the SEC Reports, no litigation, at law or in equity, or any proceeding before any court, board or other governmental or administrative 7 agency or any arbitrator is pending or, to the knowledge of the Guarantor, threatened which may involve any material risk of any final judgment, order or liability which, after giving effect to any applicable insurance, has resulted, or creates a material risk of resulting, in any material adverse change in the Guarantor's business, assets, financial condition, income or prospects or which seeks to enjoin the consummation, or which questions the validity, of any of the transactions contemplated by this Agreement or any other Credit Document. No judgment, decree or order of any court, board or other governmental or administrative agency or any arbitrator has been issued against or binds the Guarantor which has resulted, or creates a material risk of resulting, in any material adverse change in the Guarantor's business, assets, financial condition, income or prospects. 4. SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall inure to the benefit of the Holders and their successors and assigns and shall be binding upon the Guarantor and its respective successors and assigns. The Guarantor may not assign its rights or obligations under this Agreement without the written consent of the Collateral Agent. 5. NOTICES. Any notice or other communication in connection with this Agreement shall be deemed to be given if given in writing (including telex, telecopy or similar teletransmission) addressed as provided below (or to the addressee at such other address as the addressee shall have specified by notice actually received by the addressor), and if either (a) actually delivered in fully legible form to such address (evidenced in the case of a telex by receipt of the correct answerback) or (b) in the case of a letter, five business days shall have elapsed after the same shall have been deposited in the United States mails, with first-class postage prepaid and registered or certified. If to the Guarantor, to it in care of iBasis, Inc., 20 Second Avenue, Burlington, MA 01803, to the attention of its chief financial officer. If to the Collateral Agent, to it at its address specified in or pursuant to section 13 of the Exchange Agreement. 6. REIMBURSEMENT OF EXPENSES. Subject to the terms of the Fee Letter (as such term is defined in the Exchange Agreement) and the Exchange Agreement, the Guarantor shall promptly pay on demand all reasonable expenses of the Collateral Agent and the Exchanging Holders (including reasonable attorney fees and expenses) in connection with the preparation of this Agreement, operations hereunder and enforcement and collection hereof, whether before or after bankruptcy or similar proceedings (and whether or not allowed as a claim therein). 7. VENUE; SERVICE OF PROCESS. Each Guarantor: (a) Irrevocably submits to the nonexclusive jurisdiction of the state courts of the Commonwealth of Massachusetts and to the nonexclusive jurisdiction of the United States District Court for the District of Massachusetts for the purpose of any suit, action or other proceeding arising out of or based upon this Agreement or any other Credit Document or the subject matter hereof or thereof; 8 (b) Waives to the extent not prohibited by applicable law, and agrees not to assert, by way of motion, as a defense or otherwise, in any such proceeding brought in any of the above-named courts, any claim that it is not subject personally to the jurisdiction of such court, that its property is exempt or immune from attachment or execution, that such proceeding is brought in an inconvenient forum, that the venue of any such proceeding is improper, or that this Agreement or any other Credit Document, or the subject matter hereof or thereof, may not be enforced in or by such court; (c) Consents to service of process in any such proceeding in any manner permitted by law and agrees that service of process by registered or certified mail, return receipt requested, at its address specified in or pursuant to Section 5 is reasonably calculated to give actual notice; and (d) Waives to the extent not prohibited by applicable law that cannot be waived any right it may have to claim or recover in any such proceeding any special, exemplary, punitive or consequential damages. 8. WAIVER OF JURY TRIAL. TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW WHICH CANNOT BE WAIVED, EACH OF THE COLLATERAL AGENT AND EACH GUARANTOR WAIVES, AND COVENANTS THAT IT WILL NOT ASSERT (WHETHER AS PLAINTIFF, DEFENDANT OR OTHERWISE), ANY RIGHT TO TRIAL BY JURY IN ANY FORUM IN RESPECT OF ANY ISSUE, CLAIM, DEMAND OR ACTION ARISING OUT OF OR BASED UPON THIS AGREEMENT, THE SECURITIES EXCHANGE AGREEMENT OR ANY OTHER CREDIT DOCUMENT OR THE SUBJECT MATTER HEREOF OR THEREOF OR ANY OBLIGATION OR IN ANY WAY CONNECTED WITH THE DEALINGS OF THE COLLATERAL AGENT OR THE GUARANTOR IN CONNECTION WITH ANY OF THE ABOVE, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING AND WHETHER IN CONTRACT OR TORT OR OTHERWISE. Each Guarantor and the Collateral Agent acknowledges that the provisions of this Section constitute a material inducement upon which each party has relied, is relying and will rely in entering into the Exchange Agreement and any other Credit Document, and that it has reviewed the provisions of this Section with its counsel. The Collateral Agent or the Guarantor may file an original counterpart or a copy of this Section with any court as written evidence of the consent of the Collateral Agent and the Guarantor to the waiver of the right to trial by jury. 9. GENERAL. All covenants, agreements, representations and warranties made in this Agreement or any other Credit Document or in certificates delivered pursuant hereto or thereto shall be deemed to have been relied on by each Exchanging Holder, notwithstanding any investigation made by the Collateral Agent on its behalf, and shall survive the execution and delivery to the Exchanging Holders and the Holders hereof and thereof. The invalidity or unenforceability of any provision hereof shall not affect the validity or enforceability of any other provision hereof, and any invalid or unenforceable provision shall be modified so as to be enforced to the maximum extent of its validity or enforceability. The headings in this Agreement 9 are for convenience of reference only and shall not limit, alter or otherwise affect the meaning hereof. This Agreement and the other Credit Documents constitute the entire understanding of the parties with respect to the subject matter hereof and thereof and supersede all prior and current understandings and agreements, whether written or oral. This Agreement is a Credit Document and may be executed in any number of counterparts, which together shall constitute one instrument. This Agreement shall be governed by, and shall be construed and enforced in accordance with, the laws of The Commonwealth of Massachusetts, without regard to the principles of conflicts of laws. Each beneficial holder of the Obligations shall be entitled to the benefits of a Holder under this Agreement. 10 Each of the undersigned has caused this Agreement to be executed and delivered by its duly authorized officer as an agreement under seal as of the date first written above. iBASIS SECURITIES CORPORATION By: /s/ Gordon VanderBrug -------------------------------------- Title: Executive Vice President U.S. BANK NATIONAL ASSOCIATION, as Collateral Agent By: /s/ John A. Brennan --------------------------------- Title: Trust Officer EX-10.47 11 a2104304zex-10_47.txt EXHIBIT 10.47 EXHIBIT 10.47 ================================================================================ iBASIS, INC. iBASIS GLOBAL, INC. iBASIS SECURITIES CORPORATION, INC. SECURITY AGREEMENT Dated as of February 21, 2003 U.S. BANK NATIONAL ASSOCIATION, AS COLLATERAL AGENT ================================================================================ TABLE OF CONTENTS 1. Reference to Exchange Agreement; Definitions; Certain Rules of Construction.............1 2. Certain Exhibits........................................................................2 2.1. Agreements Relating to Financing Debt, Real Property, etc......................2 2.2. Organization and Business......................................................3 2.3. Quarterly Updates..............................................................3 3. Security................................................................................4 3.1. Credit Security................................................................4 3.2. Additional Credit Security.....................................................7 3.3. Certain Covenants with Respect to Credit Security..............................7 3.4. Administration of Credit Security.............................................11 3.5. Right to Realize upon Credit Security.........................................12 3.6. Custody of Credit Security....................................................16 4. Defeasance.............................................................................16 5. Successors and Assigns.................................................................16 6. Notices................................................................................16 7. Reimbursement of Expenses..............................................................17 8. Venue; Service of Process. Each of the Borrower, the Guarantor and the Agent:..........17 9. WAIVER OF JURY TRIAL...................................................................18 10. General................................................................................18

-i- iBASIS, INC. iBASIS GLOBAL, INC. SECURITY AGREEMENT This Agreement, dated as of February 21, 2003, is among iBasis, Inc., a Delaware corporation (the "COMPANY"), iBasis Global, Inc., a Delaware corporation, ("iBASIS GLOBAL", and collectively with the Company, the "BORROWER"), iBasis Securities Corporation, a Massachusetts Corporation (the "GUARANTOR") and U.S. Bank National Association, as Collateral Agent (the "AGENT") for the Holders under the Exchange Agreement (as defined below). The parties agree as follows: 1. REFERENCE TO EXCHANGE AGREEMENT; DEFINITIONS; CERTAIN RULES OF CONSTRUCTION. Reference is made to the Securities Exchange Agreement dated as of the date hereof, as from time to time in effect (the "EXCHANGE AGREEMENT"), among the Borrower, the Guarantor, JMG Triton Offshore Fund Limited CITCO and each of the other Exchanging Holders (as defined therein) and the Collateral Agent. Capitalized terms defined in the Exchange Agreement and not otherwise defined herein are used herein with the meanings so defined. Certain other capitalized terms are used in this Agreement as specifically defined below in this Section 1. Except as the context otherwise explicitly requires, (a) the capitalized term "Section" refers to sections of this Agreement, (b) the capitalized term "Exhibit" refers to exhibits to this Agreement, (c) references to a particular Section shall include all subsections thereof, (d) the word "including" shall be construed as "including without limitation", (e) terms defined in the UCC and not otherwise defined herein have the meaning provided under the UCC, (f) references to a particular statute or regulation include all rules and regulations thereunder and any successor statute, regulation or rules, in each case as from time to time in effect and (g) references to a particular Person include such Persons successors and assigns to the extent not prohibited by this Agreement and the other Credit Documents. References to "the date hereof" mean the date first set forth above. "ACCOUNTS" is defined in Section 3.1.2. "AGREEMENT" means this Security Agreement as from time to time in effect. "FINANCING DEBT" means indebtedness (a) for borrowed money, (b) evidenced by notes, debentures or similar instruments, (c) associated with capitalized lease obligations and synthetic lease obligations, (d) associated with the deferred purchase price of assets, services or securities, including related noncompetition, consulting and stock repurchase obligations (other than ordinary trade accounts payable on customary terms in the ordinary course of business), and any long-term contractual obligations for the payment of money, (e) associated with mandatory redemption, repurchase or dividend rights on capital stock (or other equity), including provisions that require the exchange of such capital stock (or other equity) for Indebtedness from the issuer, (f) associated with reimbursement obligations, whether contingent or matured, with respect to letters of credit, bankers acceptances, surety bonds, other financial guarantees, foreign currency hedge agreements and interest rate protection agreements (without duplication of other indebtedness supported or guaranteed thereby), and (g) any guarantees of any of the foregoing items. "INTELLECTUAL PROPERTY" is defined in Section 3.3.8. "OBLIGATIONS" means any and all present and future liabilities, obligations and Indebtedness of the Borrower and any of its Subsidiaries or any other Obligor owing to the Collateral Agent or any Holder (or any Affiliate of a Holder or Collateral Agent) under or in connection with the Exchange Agreement, any other Credit Document or any other agreement executed in connection with a Permitted Exchange, including, without limitation, obligations in respect of principal, interest, prepayment premium and all other reimbursement obligations under the Notes, all fees, charges, indemnities and expenses from time to time owing hereunder, under any other Credit Document and under any other agreement executed in connection with a Permitted Exchange (all whether accruing before or after a Bankruptcy Default and regardless of whether allowed as a claim in bankruptcy or similar proceedings). "OBLIGORS" means the Borrower and the Guarantor. "PLEDGED INDEBTEDNESS" is defined in Section 3.1.6. "PLEDGED RIGHTS" is defined in Section 3.1.5. "PLEDGED SECURITIES" means the Pledged Stock, the Pledged Rights and the Pledged Indebtedness, collectively. "PLEDGED STOCK" is defined in Section 3.1.4. "UCC" means the Uniform Commercial Code as in effect in Massachusetts on the date hereof; PROVIDED, HOWEVER, that with respect to the perfection of the Agents Lien on the Credit Security and the effect of nonperfection thereof, the term "UCC" means the Uniform Commercial Code as in effect in any jurisdiction the laws of which are made applicable by section 9-301 of the Uniform Commercial Code as in effect in Massachusetts. 2. CERTAIN EXHIBITS. In order to induce the Exchanging Holders to enter into the Credit Documents, including this Agreement, each of the Obligors jointly and severally represents and warrants as follows: 2.1. AGREEMENTS RELATING TO FINANCING DEBT, REAL PROPERTY, ETC. Exhibit 2.1, as from time to time hereafter supplemented in accordance with Section 2.3, sets forth, as of the later of the date hereof or the end of the most recent fiscal quarter: 2.1.1 The amounts (as of the dates indicated in Exhibit 2.1, as so supplemented) of all Financing Debt of the Company and its Subsidiaries and all agreements, Liens and guarantees which relate to such Financing Debt. 2.1.2 All real property owned by the Company or any of its Subsidiaries or leased from an Affiliate of the Company. -2- 2.1.3. Material license agreements with respect to the products of the Company and its Subsidiaries, including the parties thereto and the expiration dates thereof. 2.1.4. All trademarks, tradenames, service marks, service names and patents owned by the Company and its Subsidiaries that are registered with the federal Patent and Trademark Office (or with respect to which applications for such registration have been filed). 2.1.5. All copyrights owned by the Company and its Subsidiaries that are registered with the federal Copyright Office. 2.1.6. All internet domain names owned by the Company and its Subsidiaries and the related registry information. 2.1.7. All commercial tort claims owned by the Company and its Subsidiaries and related information with respect to the status of the proceedings. 2.1.8. All bank and deposit accounts owned by the Company and its Subsidiaries. The Company has furnished to the Exchanging Holders correct and complete copies of any agreements described above in this Section 2.1 requested by the Exchanging Holders. 2.2. ORGANIZATION AND BUSINESS. 2.2.1. Exhibit 2.2, as from time to time hereafter supplemented in accordance with Section 2.3, sets forth, as of the later of the date hereof or the end of the most recent fiscal quarter, (i) the jurisdiction of organization, the organizational identification number issued by such jurisdiction and the federal taxpayer identification number of the Borrower, (ii) the address of the Borrowers principal executive office and chief place of business, (iii) each name, including any trade name, under which the Borrower conducts its business and (iv) the jurisdictions in which the Borrower owns real or tangible personal property and, in the case of real property, whether such real property is owned or leased by the Borrower. 2.2.2. Exhibit 2.2, as from time to time hereafter supplemented in accordance with Section 2.3, sets forth, as of the later of the date hereof or the end of the most recent fiscal quarter, (i) the name, jurisdiction of organization, the organizational identification number issued by such jurisdiction and the federal taxpayer identification number of each Subsidiary of the Borrower, (ii) the address of the chief executive office and principal place of business of each such Subsidiary, (iii) each name under which each such Subsidiary conducts its business, (iv) each jurisdiction in which each such Subsidiary owns real or tangible personal property, and, in the case of real property, whether such real property is owned or leased by such Subsidiary and (v) the number of authorized and issued equity interests and ownership of each such Subsidiary. 2.3. QUARTERLY UPDATES. The Borrower shall furnish to the Holders as soon as available, but in any event, within 45 days after the end of the fiscal quarter of the Borrower in which any -3- material changes in the information set forth in such exhibits occurs, supplements to Exhibits 2.1 and 2.2 showing such changes in the information set forth in such exhibits not previously furnished to the Holders in writing, which supplements must be reasonably satisfactory to the Agent, as well as any changes in the Charter, Bylaws or incumbency of officers of the Obligors from those previously certified to the Agent. 3. SECURITY. 3.1. CREDIT SECURITY. As security for the payment and performance of the Obligations, each Obligor party hereto mortgages, pledges and collaterally grants and assigns to the Agent for the benefit of the Holders, and creates a security interest in favor of the Agent for the benefit of the Holders in, all of such Obligor's right, title and interest in and to (but none of its obligations or liabilities with respect to) the items and types of present and future property described in Sections 3.1.1 through 3.1.14 (subject, however, to Section 3.1.15), whether now owned or hereafter acquired, all of which shall be included in the term "CREDIT SECURITY": 3.1.1. TANGIBLE PERSONAL PROPERTY. All goods, machinery, equipment, inventory and all other tangible personal property of any nature whatsoever, wherever located, including raw materials, work in process, finished parts and products, supplies, spare parts, replacement parts, merchandise for resale, computers, tapes, disks and computer equipment. 3.1.2. RIGHTS TO PAYMENT OF MONEY. All rights to receive the payment of money, including accounts and receivables, health care insurance receivables, rights to receive the payment of money under contracts, franchises, licenses, permits, subscriptions or other agreements (whether or not earned by performance), and rights to receive payments from any other source (all such rights, other than Financing Debt, being referred to herein as "ACCOUNTS"). 3.1.3. INTANGIBLES. All of the following (to the extent not included in Section 3.1.2): (a) contracts, franchises, licenses, permits, subscriptions and other agreements and all rights thereunder; (b) rights granted by others which permit such Obligor to sell or market items of personal property; (c) United States and foreign common law and statutory copyrights and rights in literary property and rights and licenses thereunder; (d) trade names, United States and foreign trademarks, service marks, internet domain names, registrations of any of the foregoing and related good will; (e) United States and foreign patents and patent applications; (f) computer software, designs, models, know-how, trade secrets, rights in proprietary information, formulas, customer lists, backlog, orders, subscriptions, royalties, catalogues, sales material, documents, good will, inventions and processes; (g) judgments, causes in action, commercial tort claims set forth from time to time on Exhibit 2.1 or any supplements thereto provided pursuant to Section 2.3 or otherwise and other claims, whether or not inchoate, and (h) all other general intangibles, payment intangibles and intangible property and all rights thereunder, including such items set forth from time to time on Exhibit 2.1 or any supplements thereto provided pursuant to Section 2.3 or otherwise. -4- 3.1.4. PLEDGED STOCK. (a) All shares of capital stock or other evidence of beneficial interest in any corporation, business trust or limited liability company, (b) all limited partnership interests in any limited partnership, (c) all general partnership interests in any general or limited partnership, (d) all joint venture interests in any joint venture and (e) all options, warrants and similar rights to acquire such capital stock or such interests. All such capital stock, interests, options, warrants and other rights are collectively referred to as the "PLEDGED STOCK". 3.1.5. PLEDGED RIGHTS. All rights to receive profits or surplus of, or other distributions (including income, return of capital and liquidating distributions) from, any partnership, joint venture or limited liability company, including any distributions by any such Person to partners, joint venturers or members. All such rights are collectively referred to as the "PLEDGED RIGHTS". 3.1.6. PLEDGED INDEBTEDNESS. All Financing Debt from time to time owing to such Obligor from any Person (all such Financing Debt being referred to as the "PLEDGED INDEBTEDNESS"). 3.1.7. CHATTEL PAPER, INSTRUMENTS, ETC. All chattel paper (whether tangible or electronic), non-negotiable instruments, negotiable instruments, documents, securities and investment property. 3.1.8. LEASES. All leases of personal property, whether such Obligor is the lessor or the lessee thereunder. 3.1.9. DEPOSIT ACCOUNTS. All general or special deposit accounts, including any demand, time, savings, passbook or similar account maintained by such Obligor with any bank, trust company, savings and loan association, credit union or similar organization, and all money, cash and cash equivalents of such Obligor, whether or not deposited in any such deposit account. 3.1.10. CREDIT SUPPORT. All collateral granted by third parties to, or held by, such Obligor, and all letter of credit rights (whether or not the letter of credit is evidenced in writing) and other supporting obligations of such Obligor. 3.1.11. BOOKS AND RECORDS. All books and records, including books of account and ledgers of every kind and nature, all electronically recorded data (including all computer programs, disks, tapes, electronic data processing media and software used in connection with maintaining such Obligor's books and records), all files, correspondence and all containers for the foregoing. 3.1.12. INSURANCE. All insurance policies which insure against any loss or damage to any other Credit Security or which are otherwise owned by such Obligor. 3.1.13. ALL OTHER PROPERTY. All other property, assets and items of value of every kind and nature, tangible or intangible, absolute or contingent, legal or equitable. -5- 3.1.14. PROCEEDS AND PRODUCTS. All proceeds, including insurance proceeds, and products of the items of Credit Security described or referred to in Sections 3.1.1 through 3.1.13 and, to the extent not included in the foregoing, all distributions with respect to the Pledged Securities. 3.1.15. EXCLUDED PROPERTY. Notwithstanding Sections 3.1.1 through 3.1.14, the payment and performance of the Obligations shall not be secured by: (a) any contract, license, permit or franchise that validly prohibits the creation by such Obligor of a security interest in such contract, license, permit or franchise (or in any rights or property obtained by such Obligor under such contract, license, permit or franchise); PROVIDED, HOWEVER, that the provisions of this Section 3.1.15 shall not prohibit the security interests created by this Agreement from extending to the proceeds of such contract, license, permit or franchise (or such rights or property) or to the monetary value of the good will and other general intangibles of the Obligors relating thereto; (b) any rights or property to the extent that any valid and enforceable law or regulation applicable to such rights or property prohibits the creation of a security interest therein; PROVIDED, HOWEVER, that the provisions of this Section 3.1.15 shall not prohibit the security interests created by this Agreement from extending to the proceeds of such rights or property or to the monetary value of the good will and other general intangibles of the Obligors relating thereto; (c) any rights or property to the extent that such rights or property secure purchase money financing therefor permitted by the Exchange Agreement and the agreements providing such purchase money financing prohibit the creation of a further security interest therein; PROVIDED, HOWEVER, that the provisions of this Section 3.1.15 shall not prohibit the security interests created by this Agreement from extending to the proceeds of such rights or property or to the monetary value of the good will and other general intangibles of the Obligors relating thereto; (d) more than 66% of the outstanding voting stock or other voting equity in any Foreign Subsidiary to the extent that the pledge of voting stock or other voting equity above such amount would result in a repatriation of a material amount of foreign earnings under the Code (including the "deemed dividend" provisions of section 956 of the Code); (e) Margin Stock unless the applicable requirements of Regulations T, U and X of the Board of Governors of the Federal Reserve System have been satisfied; or (f) the items described in Section 3.2 (but only in the event and to the extent the Agent has not specified that such items be included in the Credit Security pursuant thereto). In addition, in the event any Obligor disposes of assets to third parties in a transaction permitted by section 4.3 of the Exchange Agreement, such assets, but not the proceeds or products thereof, shall be released from the Lien of the Credit Security. -6- 3.2. ADDITIONAL CREDIT SECURITY. As additional Credit Security, each Obligor covenants that it will mortgage, pledge and collaterally grant and assign to the Agent for the benefit of the Holders, and will create a security interest in favor of the Agent for the benefit of the Holders in all of its right, title and interest in and to (but none of its obligations with respect to) such of the following present or future items as the Agent may from time to time specify by notice to such Obligor, whether now owned or hereafter acquired, and the proceeds and products thereof, except to the extent consisting of rights or property of the types referred to in Section 3.1.15(a) through (f), subject only to Liens permitted by Section 3.3.3, all of which shall thereupon be included in the term "CREDIT SECURITY": 3.2.1. MOTOR VEHICLES AND AIRCRAFT. All motor vehicles and aircraft. 3.3. CERTAIN COVENANTS WITH RESPECT TO CREDIT SECURITY. Each Obligor covenants that: 3.3.1. PLEDGED STOCK. All shares of capital stock, limited partnership interests, membership interests and similar securities included in the Pledged Stock shall be at all times duly authorized, validly issued, fully paid and (in the case of capital stock and limited partnership interests) nonassessable. Subject to Section 3.3.13. each Obligor will deliver to the Agent (or an agent on its behalf) certificates representing any Pledged Stock held by such Obligor, accompanied by a stock transfer power executed in blank, all in form and manner reasonably satisfactory to the Agent. Pledged Stock that is not evidenced by a certificate held by such Obligor will be described in appropriate control statements and UCC financing statements provided to the Agent, all in form and substance reasonably satisfactory to the Agent. In the event the Pledged Stock includes uncertificated equity interests in a limited liability company, limited partnership, general partnership or other entity, except with the prior written consent of the Agent, which consent shall not be unreasonably withheld, the Obligors shall use reasonable efforts to take all action within their power to prevent such limited liability company, limited partnership, general partnership or other entity from (a) opting to have such uncertificated equity interests treated as "securities" for purposes of Article 8 of the UCC or (b) issuing certificates for such uncertificated equity interests. Upon the occurrence and during the continuance of an Event of Default, the Agent may transfer into its name or the name of its nominee any Pledged Stock. In the event the Pledged Stock includes any Margin Stock, the Obligors will furnish to the Holders Federal Reserve Form U-1 and take such other action as the Agent may reasonably request to ensure compliance with applicable laws. 3.3.2. ACCOUNTS AND PLEDGED INDEBTEDNESS. Subject to Section 3.3.13. each Obligor will, immediately upon the receipt thereof, deliver to the Agent (or an agent on its behalf) any promissory note or similar instrument representing any Account or Pledged Indebtedness, after having endorsed such promissory note or instrument in blank. 3.3.3. NO LIENS OR RESTRICTIONS ON TRANSFER OR CHANGE OF CONTROL. All Credit Security shall be free and clear of any Liens and restrictions on the transfer thereof, including contractual provisions which prohibit the assignment of rights under contracts, -7- except for Permitted Liens (as such term is defined in the Exchange Agreement) or by this Section 3.3.3. Without limiting the generality of the foregoing, each Obligor will in good faith attempt to exclude from agreements, instruments, deeds or leases to which it becomes a party after the date hereof provisions that would prevent such Obligor from creating a security interest in such agreement, instrument, deed or lease or any rights or property acquired thereunder as contemplated hereby. None of the Pledged Stock shall be subject to any option to purchase or similar rights of any Person. Except with the written consent of the Required Holders, which consent will not be unreasonably withheld, each Obligor will in good faith attempt to exclude from any agreement, instrument, deed or lease provisions that would restrict the change of control or ownership of the Borrower or any of its Subsidiaries, or the creation of a security interest in the ownership of the Borrower or any of its Subsidiaries. 3.3.4. JURISDICTION OF ORGANIZATION. Each Obligor shall at all times maintain its jurisdiction of organization as set forth in Exhibit 2.2 as in effect on the date hereof or, so long as such Obligor shall have taken all steps reasonably necessary to perfect the Holders' security interest in the Credit Security with respect to such new jurisdiction, in such other jurisdiction as such Obligor may specify by notice delivered to the Agent not less than 10 Business Days prior to such change of jurisdiction of organization. 3.3.5. LOCATION OF CREDIT SECURITY. Each Obligor shall at all times keep its records concerning the Accounts at its chief executive office and principal place of business, which office and place of business shall be as set forth in Exhibit 2.2 (as from time to time supplemented in accordance with Section 2.3) or, so long as such Obligor shall have taken all steps reasonably directed by the Agent to perfect the Holders' security interest in the Credit Security with respect to such new address, at such other address as such Obligor may specify by notice delivered to the Agent not less than 10 Business Days prior to such change of address. No Obligor shall at any time keep tangible personal property of the type referred to in Section 3.1.1 in any jurisdiction other than the jurisdictions specified in such Exhibit 2.2 (as so supplemented) or, so long as such Obligor shall have taken all steps reasonably directed by the Agent to perfect the Holders' security interest in the Credit Security with respect to such other jurisdiction, other jurisdictions as such Obligor may specify by notice delivered to the Agent not less than 10 Business Days prior to moving such tangible personal property into such other jurisdiction. 3.3.6. TRADE NAMES. No Obligor will adopt or do business under any name other than its name or names designated in Exhibit 2.2 (as from time to time supplemented in accordance with Section 2.3) or any other name specified by notice delivered to the Agent not less than 10 Business Days prior to the conduct of business under such additional name. Since its inception, no Obligor has changed its name or adopted or conducted business under any trade name other than a name specified in such Exhibit 2.2 (as so supplemented). 3.3.7. INSURANCE. Each insurance policy included in, or insuring against loss or damage to, the Credit Security, or insuring against liabilities of the Borrower and its -8- Subsidiaries, shall name the Agent as additional insured party or as loss payee, as the case may be. No such insurance policy shall be cancelable or subject to termination or reduction in amount or scope of coverage until after at least 30 days' prior written notice from the insurer to the Agent. At least 10 days prior to the expiration of any such insurance policy for any reason, each Obligor shall furnish the Agent with reasonably satisfactory evidence of a renewal or replacement policy and payment of the premiums therefor to the extent due. Each Obligor grants to the Agent full power and authority as its attorney-in-fact, effective upon notice to such Obligor after the occurrence and during the continuance of an Event of Default, to obtain, cancel, transfer, adjust and settle any such insurance policy and to endorse any drafts thereon. Any amounts that the Agent receives under any such policy (including return of unearned premiums) when no Event of Default has occurred and is continuing shall be delivered to the Obligors for the replacement, restoration and maintenance of the Credit Security in the case of property insurance or for reimbursing insured liabilities in the case of liability insurance. Any such amounts that the Agent receives after the occurrence and during the continuance of an Event of Default shall, at the Agent's option, be applied to payment of the Obligations or to the replacement, restoration and maintenance of the Credit Security in the case of property insurance or to the reimbursement of insured liabilities in the case of liability insurance. If any Obligor fails to provide insurance as required by this Agreement, the Agent may, at its option, purchase such insurance, and such Obligor will on demand pay to the Agent the amount of any payments made by the Agent or the Holders for such purpose, together with interest on the amounts so disbursed from five Business Days after the date demanded until payment in full thereof at the rate specified in section 3.2 of the Exchange Agreement. 3.3.8. INTELLECTUAL PROPERTY. Exhibit 2.1 (as supplemented from time to time in accordance with Section 2.3) shall set forth the following items (collectively, the "INTELLECTUAL PROPERTY"): (a) all copyrights owned by the Obligors that are registered with the United States Copyright Office (or any office maintaining registration of copyrights in any foreign jurisdiction) and all applications for such registration; (b) all trademarks, tradenames, service marks, service names and patents owned by the Obligors that are registered with the United States Patent and Trademark Office (or any office maintaining registration of such items in any state of the United States of America or any foreign jurisdiction) and all applications for such registration; and (c) all internet domain names owned by the Obligors and the registry office on which such domain names are registered. The Obligors shall duly authorize, execute and deliver to the Agent separate memoranda of security interests with respect to the foregoing Intellectual Property for filing in the offices described above. Upon the registration of any additional Intellectual Property (or the filing of applications therefor) in the offices described above, the Obligors shall (at least quarterly, as contemplated by Section 2.3) notify the Agent and duly authorize, -9- execute and deliver to the Agent separate memoranda of security interests covering such additional Intellectual Property for filing in such offices. The Obligors hereby appoint and constitute the Agent as their attorney with full power and authority, in their place and stead, after the occurrence and during the continuance of an Event of Default, to register with the Patent and Trademark Office, the U.S. Copyright Office or any other applicable governmental authority the assignment by the Obligors to the Agent of the Intellectual Property. 3.3.9. DEPOSIT ACCOUNTS. Each Obligor shall keep all its bank and deposit accounts only with the Agent, Holders or the financial institutions listed on Exhibit 2.1 (as from time to time supplemented in accordance with Section 2.3). Each Obligor shall use reasonable efforts to cause such financial institutions (other than the Holders and the Agent) to enter into account control agreements with the Agent in form and substance reasonably satisfactory to the Agent. 3.3.10. MODIFICATIONS TO CREDIT SECURITY. Except with the prior written consent of the Agent, which consent will not be unreasonably withheld, no Obligor shall amend or modify, or waive any of its material rights under or with respect to, any material Accounts, general intangibles, Pledged Securities or leases if the effect of such amendment, modification or waiver would be to reduce the amount of any such items or to extend the time of payment thereof, to waive any default by any other party thereto, or to waive or impair any remedies of the Obligors or the Holders under or with respect to any such Accounts, general intangibles, Pledged Securities or leases, in each case other than consistent with past practice in the ordinary course of business and on an arm's-length basis. Each Obligor will promptly give the Agent written notice of any request by any Person for any material credit or adjustment with respect to any Account, general intangible, Pledged Securities or leases. 3.3.11. DELIVERY OF DOCUMENTS. Upon the Agent's reasonable request, each Obligor shall deliver to the Agent, promptly upon such Obligor's receipt thereof, copies of any agreements, instruments, documents or invoices comprising or relating to the Credit Security. Pending such request, such Obligor shall keep such items at its chief executive office and principal place of business (as specified pursuant to Section 3.3.5). 3.3.12. PERFECTION OF CREDIT SECURITY. (a) This Agreement creates and shall create in favor of the Agent, for the benefit of the Holders, a legal, valid and enforceable second priority security interest in the Credit Security described herein, subject only to Permitted Liens. (b) The Agent may at any time and from time to time execute and file UCC financing statements, continuation statements and amendments thereto that the Agent reasonably deems necessary to perfect or maintain its security interest granted herein, which UCC financing statements, continuation statements and amendments describe the Credit Security and contain any information required by the UCC or the applicable filing -10- office with respect to any such UCC financing statement, continuation statement or amendment thereof. (c) The Obligors shall execute and deliver all such instruments, including UCC financing statements, collateral assignments of copyrights, trademarks and patents, mortgages or deeds of trust, notations on certificates of title and written confirmation of the grant of a security interest in commercial tort claims, and will take all such other action, all as may be necessary or desirable (including as the Agent may reasonably request from time to time as the Agent deems reasonably necessary or desirable) for perfecting or otherwise confirming to it the Credit Security or to carry out any other purpose of this Agreement or any other Credit Document. (d) In furtherance of the foregoing, the Obligors shall use reasonable efforts to obtain (i) a written acknowledgment, in form and substance reasonably satisfactory to the Agent, from any bailee having possession of any Credit Security that such bailee holds such Credit Security for the benefit of the Agent and (ii) control of any investment property, deposit accounts, letter of credit rights or electronic chattel paper, with any agreements establishing such control to be in form and substance reasonably satisfactory to the Agent. 3.3.13. POSSESSION OF CREDIT SECURITY. The Agent shall not take possession of any Credit Security required to be delivered by the Obligors hereunder that has been delivered to the lenders under the Senior Loan Agreement unless and until the Senior Loan Agreement (as such term is defined in the Exchange Agreement) has terminated. Upon termination of the Senior Loan Agreement (as such term is defined in the Exchange Agreement), the Obligors shall cause the senior lenders to deliver to the Agent such Credit Security as is required to be delivered by this Agreement. 3.4. ADMINISTRATION OF CREDIT SECURITY. The Credit Security shall be administered as follows, and if an Event of Default shall have occurred and be continuing, Section 3.5 shall also apply. 3.4.1. USE OF CREDIT SECURITY. Until the Agent provides written notice to the contrary, each Obligor may use, commingle and dispose of any part of the Credit Security in the ordinary course of its business, all subject to section 4.3 of the Exchange Agreement. 3.4.2. ACCOUNTS. To the extent specified by prior written notice from the Agent after the occurrence and during the continuance of an Event of Default, all sums collected or received and all property recovered or possessed by any Obligor in connection with any Credit Security shall be received and held by such Obligor in trust for and on the Holders' behalf, shall be segregated from the assets and funds of such Obligor, and shall be delivered to the Agent for the benefit of the Holders. Without limiting the foregoing, upon the Agent's request after the occurrence and during the continuance of an Event of Default, each Obligor shall institute depository collateral accounts, lock-box receipts and similar credit procedures providing for the direct receipt of payment on Accounts at a -11- separate address, the segregation of such proceeds for direct payment to the Agent and appropriate notices to Account debtors. Upon the Agent's request after the occurrence and during the continuance of an Event of Default, each Obligor will cause its accounting books and records to be marked with such legends and segregated in such manner as the Agent may specify. 3.4.3. DISTRIBUTIONS ON PLEDGED SECURITIES. (a) Until an Event of Default shall occur and be continuing, the respective Obligors shall be entitled, to the extent permitted by the Credit Documents, to receive all distributions on or with respect to the Pledged Securities (other than distributions constituting additional Pledged Securities or liquidating distributions). All distributions constituting additional Pledged Securities or liquidating distributions will be retained by the Agent (or if received by any Obligor shall be held by such Person in trust and shall be immediately delivered by such Person to the Agent in the original form received, endorsed in blank) and held by the Agent as part of the Credit Security. (b) If an Event of Default shall have occurred and be continuing, all distributions on or with respect to the Pledged Securities shall be retained by the Agent (or if received by any Obligor shall be held by such Person in trust and shall be promptly delivered by it to the Agent in the original form received, endorsed in blank) and held by the Agent as part of the Credit Security or applied by the Agent to the payment of the Obligations in accordance with Section 3.5.6. 3.4.4. VOTING PLEDGED SECURITIES. (a) Until an Event of Default shall occur and be continuing and the Agent shall have delivered a notice contemplated by clause (b) below, the respective Obligors shall be entitled to vote or consent with respect to the Pledged Securities in any manner not inconsistent with the terms of any Credit Document, and the Agent will, if so requested, execute appropriate revocable proxies therefor. (b) If an Event of Default shall have occurred and be continuing, if and to the extent that the Agent shall so notify in writing the Obligor pledging the Pledged Securities in question, only the Agent shall be entitled to vote or consent or take any other action with respect to the Pledged Securities (and any Obligor will, if so requested, execute appropriate proxies therefor). 3.5. RIGHT TO REALIZE UPON CREDIT SECURITY. Except to the extent prohibited by applicable law that cannot be waived, this Section 3.5 shall govern the Holders' and the Agent's rights to realize upon the Credit Security if any Event of Default shall have occurred and be continuing. The provisions of this Section 3.5 are in addition to any rights and remedies available at law or in equity and in addition to the provisions of any other Credit Document. In the case of a conflict between this Section 3.5 and any other Credit Document, this Section 3.5 shall govern. 3.5.1. ASSEMBLY OF CREDIT SECURITY; RECEIVER. Each Obligor shall, upon the Agent's request, assemble the Credit Security and otherwise make it available to the -12- Agent. The Agent may have a receiver appointed for all or any portion of the Obligors' assets or business which constitutes the Credit Security in order to manage, protect, preserve, sell and otherwise dispose of all or any portion of the Credit Security in accordance with the terms of the Credit Documents, to continue the operations of the Obligors and to collect all revenues and profits therefrom to be applied to the payment of the Obligations, including the compensation and expenses of such receiver. 3.5.2. GENERAL AUTHORITY. To the extent specified in written notice from the Agent to the Obligor in question, each Obligor grants the Agent full and exclusive power and authority, subject to the Agent's commercially reasonable judgment and the terms hereof and applicable law, to take any of the following actions (for the sole benefit of the Agent on behalf of the Holders, the reasonable expenses of which shall be at such Obligor's expense): (a) To ask for, demand, take, collect, sue for and receive all payments in respect of any Accounts, general intangibles, Pledged Securities or leases which such Obligor could otherwise ask for, demand, take, collect, sue for and receive for its own use. (b) To extend the time of payment of any Accounts, general intangibles, Pledged Securities or leases and to make any allowance or other adjustment with respect thereto. (c) To settle, compromise, prosecute or defend any action or proceeding with respect to any Accounts, general intangibles, Pledged Securities or leases and to enforce all rights and remedies thereunder which such Obligor could otherwise enforce. (d) To enforce the payment of any Accounts, general intangibles, Pledged Securities or leases, either in the name of such Obligor or in its own name, and to endorse the name of such Obligor on all checks, drafts, money orders and other instruments tendered to or received in payment of any Credit Security. (e) To notify the third party payor with respect to any Accounts, general intangibles, Pledged Securities or leases of the existence of the security interest created hereby and to cause all payments in respect thereof thereafter to be made directly to the Agent; PROVIDED, HOWEVER, that whether or not the Agent shall have so notified such payor, such Obligor will at its expense render all reasonable assistance to the Agent in collecting such items and in enforcing claims thereon. (f) To use, operate, sell, transfer, assign or otherwise deal in or with any Credit Security or the proceeds thereof, as fully as such Obligor otherwise could do. 3.5.3. MARSHALING, ETC. Neither the Agent nor the Holders shall be required to make any demand upon, or pursue or exhaust any of their rights or remedies against, any Obligor or any other guarantor, pledgor or any other Person with respect to the payment of the Obligations or to pursue or exhaust any of their rights or remedies with respect to any collateral therefor or any direct or indirect guarantee thereof. Neither the Agent nor the Holders shall be required to marshal the Credit Security or any guarantee of the Obligations or to resort to the Credit Security or any such guarantee in any particular -13- order, and all of its and their rights hereunder or under any other Credit Document shall be cumulative. To the extent it may lawfully do so, each Obligor absolutely and irrevocably waives and relinquishes the benefit and advantage of, and covenants not to assert against the Agent or the Holders, any valuation, stay, appraisement, extension, redemption or similar laws now or hereafter existing which, but for this provision, might be applicable to the sale of any Credit Security made under the judgment, order or decree of any court, or privately under the power of sale conferred by this Agreement, or otherwise. Without limiting the generality of the foregoing, each Obligor (a) agrees that it will not invoke or utilize any law which might prevent, cause a delay in or otherwise impede the enforcement of the rights of the Agent or any Holder in the Credit Security, (b) waives its rights under all such laws, and (c) agrees that it will not invoke or raise as a defense to any enforcement by the Agent or any Holder of any rights and remedies relating to the Credit Security or the Obligations any legal or contractual requirement with which the Agent or any Holder may have in good faith failed to comply. In addition, each Obligor waives any right to prior notice (except to the extent expressly required by this Agreement) or judicial hearing in connection with foreclosure on or disposition of any Credit Security, including any such right which such Obligor would otherwise have under the Constitution of the United States of America, any state or territory thereof or any other jurisdiction. 3.5.4. SALES OF CREDIT SECURITY. All or any part of the Credit Security may be sold for cash or other value in any number of lots at public or private sale, without demand, advertisement or notice; PROVIDED, HOWEVER, that the Agent shall give the Obligor granting the security interest in such Credit Security 10 days' prior written notice of the time and place of any public sale, or the time after which a private sale may be made, which notice each of the Obligors and the Agent agrees to be reasonable; and PROVIDED, FURTHER, that any such sale shall otherwise be conducted in a commercially reasonable manner. At any sale or sales of Credit Security, any Holder or any of its respective officers acting on its behalf, or such Holder's assigns, may bid for and purchase all or any part of the property and rights so sold, may use all or any portion of the Obligations owed to such Holder as payment for the property or rights so purchased, and upon compliance with the terms of such sale may hold and dispose of such property and rights without further accountability to the respective Obligors, except for the proceeds of such sale or sales pursuant to Section 3.5.6. The Obligors acknowledge that any such sale will be made by the Agent on an "as is" basis with disclaimers of all warranties, whether express or implied (including warranties with respect to title, possession, quiet enjoyment and other similar warranties). The respective Obligors will execute and deliver or cause to be executed and delivered such instruments, documents, assignments, waivers, certificates and affidavits, will supply or cause to be supplied such further information and will take such further action, as the Agent shall reasonably request in connection with any such sale. 3.5.5. SALE WITHOUT REGISTRATION. If, at any time when the Agent shall determine to exercise its rights hereunder to sell all or part of the securities included in the Credit Security, the securities in question shall not be effectively registered under the Securities Act (or other applicable law), the Agent may sell such securities by private or other sale -14- not requiring such registration in such manner and in such circumstances as the Agent may reasonably deem necessary or advisable in order that such sale may be effected in accordance with applicable securities laws without such registration and the related delays, uncertainty and expense. Without limiting the generality of the foregoing, in any event the Agent may, in its reasonable discretion, (a) approach and negotiate with a single purchaser or one or more possible purchasers to effect such sale, (b) restrict such sale to one or more purchasers each of whom will represent and agree that such purchaser is purchasing for its own account, for investment and not with a view to the distribution or sale of such securities and (c) cause to be placed on certificates representing the securities in question a legend to the effect that such securities have not been registered under the Securities Act (or other applicable law) and may not be disposed of in violation of the provisions thereof. Each Obligor agrees that such manner of disposition is commercially reasonable, that it will upon the Agent's request give any such purchaser access to such information regarding the issuer of the securities in question as the Agent may reasonably request and that the Agent and the Holders shall not incur any responsibility for selling all or part of the securities included in the Credit Security at any private or other sale not requiring such registration, notwithstanding the possibility that a substantially higher price might be realized if the sale were deferred until after registration under the Securities Act (or other applicable law) or until made in compliance with certain other rules or exemptions from the registration provisions under the Securities Act (or other applicable law). Each Obligor acknowledges that no adequate remedy at law exists for breach by it of this Section 3.5.5 and that such breach would not be adequately compensable in damages and therefore agrees that this Section 3.5.5 may be specifically enforced. 3.5.6. APPLICATION OF PROCEEDS. The proceeds of all sales and collections in respect of any Credit Security or other assets of any Obligor, all funds collected from the Obligors and any cash contained in the Credit Security, the application of which is not otherwise specifically provided for in the Subordination Agreement (as defined in the Exchange Agreement) or herein, shall be applied as follows: (a) First, to the payment of the costs and expenses of such sales and collections, the reasonable fees and expenses of the Agent then outstanding and the reasonable fees and expenses of its special counsel; (b) Second, any surplus then remaining to the payment of the Obligations in such order and manner as the Agent may in its reasonable discretion determine; PROVIDED, HOWEVER, that any such payment shall be distributed to the Holders in accordance with the Exchange Agreement and the other Credit Documents; and (c) Third, any surplus then remaining shall be paid to the Obligors, subject, however, to any rights of the holder of any then existing Lien who has duly presented to the Agent an authenticated demand for proceeds before the Agent's distribution of the proceeds is completed. -15- 3.6. CUSTODY OF CREDIT SECURITY. Except as provided by applicable law that cannot be waived, the Agent will have no duty as to the custody and protection of the Credit Security, the collection of any part thereof or of any income thereon or the preservation or exercise of any rights pertaining thereto, including rights against prior parties, except for the use of due care in the custody and physical preservation of any Credit Security in its possession. Absent gross negligence or willful misconduct, the Holders will not be liable or responsible for any loss or damage to any Credit Security, or for any diminution in the value thereof, by reason of the act or omission of any agent selected by the Agent acting in good faith. 3.6.1. In entering into this Agreement, and in performing or observing any of the terms of this Agreement, and otherwise in respect of any matter arising under or in respect of this Agreement, the Agent shall enjoy and shall be protected by each of the rights, immunities, indemnities and other protections set forth in the Exchange Agreement; and any obligations, duties or liabilities to which the Agent may be or become subject under or in respect of this Agreement shall be subject to and limited by the terms of the Exchange Agreement (including, without limitation, the terms of Section 11 thereof). In no event shall the Agent have any liability hereunder that it would not have, nor shall the Agent be obligated to take any action hereunder that it would not be required to take, under the terms of the Exchange Agreement. 3.6.2. The Agent is entering into this Agreement pursuant to the terms of the Exchange Agreement and the Agent has no responsibility for the terms of this Agreement or its sufficiency for any purpose. 4. DEFEASANCE. When all Obligations have been paid, performed and reasonably determined by the Holders to have been indefeasibly discharged in full, and if at the time no Holder continues to be committed to extend any credit to the Borrower under the Exchange Agreement or any other Credit Document, this Agreement shall terminate and, at the Borrower's written request, the Credit Security shall immediately revert to the Borrower and the right, title and interest of the Holders therein shall terminate. Thereupon, on the Borrower's demand and at its cost and expense, the Agent shall execute proper instruments, acknowledging satisfaction of and discharging this Agreement, and shall immediately deliver to the Borrower any Credit Security then in its possession. 5. SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall inure to the benefit of the Holders and their successors and assigns and shall be binding upon the Borrower and its respective successors and assigns. The Borrower may not assign its rights or obligations under this Agreement without the written consent of the Agent. 6. NOTICES. Except as otherwise expressly provided herein, all notices, requests, consents, and other communications under this Agreement shall be in writing and shall be deemed delivered (a) two business days after being sent by registered or certified mail, return receipt requested, postage prepaid or (b) one business day after being sent via a reputable nationwide overnight courier service guaranteeing next business day delivery, in each case to the intended recipient as set forth below: -16- If to the Borrower or an other Obligor, at 20 Second Avenue, Burlington, MA 01803, Attention: Chief Financial Officer, or at such other address or addresses as may have been furnished in writing by the Borrower to the Holders, with a copy to Johan V. Brigham, Bingham McCutchen LLP, 1900 University Avenue, East Palo Alto, CA 94303-2223; and If to the Agent, to it at its address specified in or pursuant to section 13.2 of the Exchange Agreement. Any party may give any notice, request, consent or other communication under this Agreement using any other means (including personal delivery, messenger service, facsimile, first class mail or electronic mail), but no such notice, request, consent or other communication shall be deemed to have been duly given unless and until it is actually received by the party for whom it is intended. Any party may change the address to which notices, requests, consents or other communications hereunder are to be delivered by giving the other parties notice in the manner set forth in this Section 6. 7. REIMBURSEMENT OF EXPENSES. The Borrower shall promptly pay on demand all reasonable expenses of the Agent and the Holders (including reasonable attorney fees and expenses) in connection with the preparation of this Agreement, operations hereunder and enforcement and collection hereof, whether before or after bankruptcy or similar proceedings (and whether or not allowed as a claim therein). 8. VENUE; SERVICE OF PROCESS. Each of the Borrower, the Guarantor and the Agent: (a) Irrevocably submits to the nonexclusive jurisdiction of the state courts of the Commonwealth of Massachusetts and to the nonexclusive jurisdiction of the United States District Court for the District of Massachusetts for the purpose of any suit, action or other proceeding arising out of or based upon this Agreement or any other Credit Document or the subject matter hereof or thereof; (b) Waives to the extent not prohibited by applicable law, and agrees not to assert, by way of motion, as a defense or otherwise, in any such proceeding brought in any of the above-named courts, any claim that it is not subject personally to the jurisdiction of such court, that its property is exempt or immune from attachment or execution, that such proceeding is brought in an inconvenient forum, that the venue of any such proceeding is improper, or that this Agreement or any other Credit Document, or the subject matter hereof or thereof, may not be enforced in or by such court; (c) Irrevocably consents to the service of process out of any of the aforementioned courts in any such action or proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, to each Obligor at its address for notices pursuant to Section 6, such service to become effective 15 days after such mailing. Nothing herein shall affect the right of any Holder to serve process in any other manner permitted by law or to commence legal proceedings or otherwise proceed against any Obligor in any other jurisdiction; and (d) Waives to the extent not prohibited by applicable law that cannot be waived -17- any right it may have to claim or recover in any such proceeding any special, exemplary, punitive or consequential damages. 9. WAIVER OF JURY TRIAL. TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW THAT CANNOT BE WAIVED, EACH OF THE PARTIES HERETO WAIVES, AND COVENANTS THAT IT WILL NOT ASSERT (WHETHER AS PLAINTIFF, DEFENDANT OR OTHERWISE), ANY RIGHT TO TRIAL BY JURY IN ANY FORUM IN RESPECT OF ANY ISSUE, CLAIM OR PROCEEDING ARISING OUT OF THIS AGREEMENT OR ANY OTHER DOCUMENT OR THE SUBJECT MATTER HEREOF OR THEREOF OR ANY OBLIGATION OR IN ANY WAY CONNECTED WITH THE DEALINGS OF THE HOLDERS OR THE COLLATERAL AGENT, THE BORROWER OR ANY OTHER OBLIGOR IN CONNECTION WITH ANY OF THE ABOVE, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING AND WHETHER IN CONTRACT, TORT OR OTHERWISE. Each of the parties hereto acknowledges that the foregoing waiver constitutes a material inducement upon which each of the parties has relied and will rely in entering into this Agreement and any other Credit Document. Any party hereto may file an original counterpart or a copy of this Agreement with any court as written evidence of the consent of each of the parties hereto to the waiver of their rights to trial by jury. 10. GENERAL. All covenants, agreements, representations and warranties made in this Agreement or any other Credit Document or in certificates delivered pursuant hereto or thereto shall be deemed to have been relied on by each Exchanging Holder, notwithstanding any investigation made by the Agent on its behalf, and shall survive the execution and delivery to the Exchanging Holders and the Holders hereof and thereof. The invalidity or unenforceability of any provision hereof shall not affect the validity or enforceability of any other provision hereof, and any invalid or unenforceable provision shall be modified so as to be enforced to the maximum extent of its validity or enforceability. The headings in this Agreement are for convenience of reference only and shall not limit, alter or otherwise affect the meaning hereof. This Agreement and the other Credit Documents constitute the entire understanding of the parties with respect to the subject matter hereof and thereof and supersede all prior and current understandings and agreements, whether written or oral. This Agreement is a Credit Document and may be executed in any number of counterparts, which together shall constitute one instrument. This Agreement shall be governed by and construed in accordance with the laws (other than the conflict of laws rules) of the Commonwealth of Massachusetts, except as may be required by the UCC of other jurisdictions with respect to matters involving the perfection of the Agent's Lien on the Credit Security located in such other jurisdictions. Each beneficial holder of the Obligations shall be entitled to the benefits of a Holder under this Agreement. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] -18- Each of the undersigned has caused this Agreement to be executed and delivered by its duly authorized officer as an agreement under seal as of the date first written above. iBASIS, INC. By /s/ Ofer Gneezy ------------------------------------- Title: President & CEO iBASIS GLOBAL, INC. By /s/ Richard Tennant ------------------------------------- Title: Treasurer & CFO iBASIS SECURITES CORPORATION By /s/ Gordon VanderBrug ------------------------------------- Title: Executive Vice President U.S. BANK NATIONAL ASSOCIATION, as Collateral Agent By /s/ John A. Brennan ------------------------------------- Title: Trust Officer EX-21.1 12 a2104304zex-21_1.txt EXHIBIT 21.1 EXHIBIT 21.1 IBASIS, INC. LIST OF SIGNIFICANT SUBSIDIARIES iBasis Global, Inc., a Delaware corporation, is a wholly-owned subsidiary of iBasis. EX-23.1 13 a2104304zex-23_1.txt EXHIBIT 23.1 EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statement Nos. 333-30642, 333-56998, 333-67780, and 333-73492 on Form S-8 and Registration Statement No. 333-53756 on Form S-3 of iBasis, Inc. of our report dated March 7, 2003 related to the consolidated financial statements of iBasis, Inc. as of and for the two years ended December 31, 2002 (which report expresses an unqualified opinion and includes an explanatory paragraph relating to a change in the method of accounting for goodwill and other intangible assets), appearing in the Annual Report on Form 10-K of iBasis, Inc. for the year ended December 31, 2002. /s/ Deloitte & Touche LLP Boston, Massachusetts March 25, 2003 EX-99.1 14 a2104304zex-99_1.txt EXHIBIT 99.1 EXHIBIT 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES/OXLEY ACT OF 2002 In connection with the Annual Report of iBasis, Inc. (the "Company") on Form 10-K for the year ended December 31, 2002 as filed with the Securities and Exchange Commission (the "Report"), I, Ofer Gneezy, President and Chief Executive Officer of the Company, certify, pursuant to Section 1350 of Chapter 63 of Title 18, United States Code, that this Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in this Report fairly presents, in all material respects, the financial condition and results of operations of the Company. By: /s/ Ofer Gneezy ------------------------------------ Ofer Gneezy President and Chief Executive Officer (Principal Executive Officer) Date: March 26, 2003 EX-99.2 15 a2104304zex-99_2.txt EXHIBIT 99.2 EXHIBIT 99.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES/OXLEY ACT OF 2002 In connection with the Annual Report of iBasis, Inc. (the "Company") on Form 10-K for the year ended December 31, 2002 as filed with the Securities and Exchange Commission (the "Report"), I, Richard Tennant, Chief Financial Officer and Treasurer of the Company, certify, pursuant to Section 1350 of Chapter 63 of Title 18, United States Code, that this Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in this Report fairly presents, in all material respects, the financial condition and results of operations of the Company. By: /s/ Richard Tennant ------------------------------------ Richard Tennant Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) Date: March 26, 2003 ~~-----END PRIVACY-ENHANCED MESSAGE-----~~