EX-4.20 Subscription Agreement, Dated Sep. 16, 03



 



Exhibit 4.20



[TRANSLATION]

[NOT FOR EXECUTION]



SUBSCRIPTION AGREEMENT



     This Subscription Agreement (hereinafter referred to as the “Agreement”)
made and entered into by and between Nippon Telegraph and Telephone Corporation
(hereinafter referred to as “NTT”) and Internet Initiative Japan Inc.
(hereinafter referred to as “IIJ”) for the purchase by NTT (or its nominee) of
shares in IIJ subject to and under the terms and conditions hereinafter set
forth.


WITNESSETH:


Chapter 1. Definitions



     Article 1. (Definitions)


     The following terms as used herein shall have the following meanings
ascribed to them:



	(1)	 	“IIJ Business” shall mean and include all lines of business which are
being operated by IIJ as of the date hereof;
	 
	(2)	 	“New Shares” shall mean the 10,883 additional shares of common stock of
IIJ which shall be issued to and purchased by NTT (or its nominee)
pursuant to the “New Issuance” (as hereinafter defined);
	 
	(3)	 	“New Issuance” shall mean issuance of New Shares by IIJ pursuant to the
terms and conditions set forth in Article 2; and
	 
	(4)	 	“Closing Date” shall mean the date specified as such in Article 2.




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Chapter 2. New Issuance



Article 2. (New Issuance)



     IIJ hereby agrees to offer, sell and issue to NTT (or its nominee) by
third party allotment, and NTT hereby agrees to subscribe, purchase and pay for
the New Shares, subject to and under the terms and conditions of this
Agreement.



	 	 	 	 	 
	•	 	
Method of placement:
	 	10,883 new shares shall be allotted
to NTT (or its nominee) by third
party allotment;
	 	 	
 	 	 
	•	 	
Issue price:
	 	JPY951,300 per share;
	 	 	
 	 	 
	•	 	
Portion of the issue price not
credited to IIJ’s capital account:
	 	JPY475,650 per share;
	 	 	
 	 	 
	•	 	
Date by which the New Shares must be subscribed for:
	 	September 16, 2003;
	 	 	
 	 	 
	•	 	
Closing Date:
	 	September 16, 2003;
	 	 	
 	 	 
	•	 	
Escrow Bank:
	 	The Mizuho Corporate Bank, Ltd.,
Otemachi Sales Division; and UFJ
Bank Limited, Nihonbashi Branch; and
	 	 	
 	 	 
	•	 	
The New Shares shall entitle the
holder thereof to receive all
dividends declared on or after:	 	April 1, 2003



Chapter 3. Representations and Warranties



Article 3. (Representations and Warranties of IIJ)



     IIJ hereby represents and warrants to NTT that the following statements
are true and correct as of the date hereof and as of the Closing Date or as of
any other date or dates specified:



	 	3.1	 	Group Companies




		
	 	     IIJ and its subsidiaries (the “IIJ Group Companies” which shall mean
collectively or individually the companies thereof as the context
requires, provided, that such term does not include Crosswave
Communications, Inc., Crosswave Facilities, Inc., Crosswave Services Inc.
and Crosswave Communications America Inc.) are as set forth in the “List
of IIJ Group Companies” attached hereto as Exhibit 3-1.




	 	3.2	 	Lawful Formation and Existence of IIJ Group Companies




		
	 	     The IIJ Group Companies are duly organized and validly existing
under the laws of Japan or their jurisdiction of formation and have full
and complete legal right, power and authority to own and use their assets
and to carry on their present businesses.




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	 	3.3	 	Share Capital of IIJ




		
	 	     IIJ is authorized to issue 75,520 shares of common stock, out of
which 25,745 shares have been duly and validly issued and are now
outstanding. Except for those outstanding shares, the New Shares and
those shares disclosed in Exhibit 3-3 attached hereto, there exist no
outstanding shares issued by IIJ,
nor there exist any outstanding subscription rights, stock
acquisition rights, bonds with stock acquisition rights or other rights
or options granted or issued by IIJ which are convertible or exchangeable
into shares of IIJ or other rights which entitle the holders thereof to
purchase or acquire shares of IIJ. IIJ’s shareholders registry to be
delivered to NTT pursuant to the third paragraph of the Article 6 hereof
is true and correct as of March 31, 2003 and, to IIJ’s knowledge, IIJ’s
beneficial shareholders’ list to be delivered to NTT pursuant to the
third paragraph of the Article 6 hereof shows the beneficiary
shareholders who hold American Depository Receipts (“ADRs”) in an amount
equal to 5% or more of IIJ’s shares outstanding as of December 31, 2002.




	 	3.4	 	Issuance of New Shares




		
	 	     Upon the payment of the purchase price on the Closing Date
prescribed in Article 7, as of the day following the date thereof, NTT
will have full and complete ownership of the New Shares, free of any and
all encumbrances, and all of the New Shares will be validly and legally
issued by IIJ.




	 	3.5	 	Lawful Execution of this Agreement




		
	 	     The execution and performance of this Agreement (including, but not
limited to, the New Issuance) by IIJ are within the its business purposes
and have been duly authorized under all applicable laws and regulations
of Japan or elsewhere (including but not limited to the Japanese
Telecommunications Business Law, anti-monopoly laws, U.S. Securities Act
of 1933, Communications Act, anti-trust laws and Exon-Florio Act), other
governmental rules (including but not limited to the Federal
Communications Commission rules and regulations), notifications,
guidelines, orders and directives having the force of law and stock
exchange rules including, but not limited to, the regulations of the
NASDAQ National Market which are applicable to IIJ (hereinafter
collectively referred to as the “Applicable Laws and Regulations”) and
the articles of association, by-laws, or other internal rules of IIJ.




	 	3.6	 	Validity and Enforceability of this Agreement




		
	 	     This Agreement has been duly executed by a duly authorized officer
of IIJ and upon its execution by or on behalf of IIJ, this Agreement
constitutes legal, valid and binding obligations of IIJ enforceable
against it in accordance with its terms.




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	 	3.7	 	Legality of this Agreement and No Contractual or Other Violations




		
	 	     Except those disclosed in the “List of Licenses, Approvals,
Authorizations, Declarations, Filings and Registrations Required for the
Execution and Performance of this Agreement” attached hereto as Exhibit
3-7, no consents, licenses, approvals or filings are required by any
governmental agency of Japan or elsewhere (“Applicable Government
Agencies”) under
Applicable Laws and Regulations with respect to IIJ for the due
execution and performance by NTT and IIJ, of this Agreement, nor will any
governmental agency of Japan or elsewhere likely to prevent this
Agreement from being executed or performed. The execution and
performance by IIJ of this Agreement will neither conflict with any
Applicable Laws and Regulations or its articles of association, by-laws
or other internal rules or any law, regulation or agreement by which it
or any of its assets is bound nor constitute a cause for cancellation or
termination of such agreement or acceleration of any of its obligations
thereunder nor in any way infringe any of the rights or interests of any
other persons or entities who have any relationship with IIJ.




	 	3.8	 	Approvals and Permits of the IIJ Group Companies




		
	 	     None of the IIJ Group Companies is in breach of any Applicable Laws
and Regulations or its articles of association, by-laws or other internal
rules in carrying on its business. Each of the IIJ Group Companies has
all approvals, permits and licenses from the Applicable Government
Agencies which is required to carry on its business, and there exists no
event or circumstance which will cause invalidation, cancellation,
termination, revocation or non-renewal of any such approval, permit or
license. Consummation of the New Issuance as contemplated hereby will
not cause nor is likely to cause invalidation, cancellation, termination,
revocation or non-renewal of any such approval, permit or license, nor is
it likely that any fine, penalties or conditions will be imposed by any
Applicable Government Agency.




	 	3.9	 	No Event of Default




		
	 	     All contracts, agreements and promises, whether written or oral, to
which any of the IIJ Group Companies is a party, are valid contracts,
agreements or undertakings enforceable against their respective parties
in accordance with their respective terms and conditions. No event of
default by either party thereto, whether an IIJ Group Company or
otherwise, has occurred or is existing under any such contract, agreement
or promise.




	 	3.10	 	Financial Statements of IIJ




		
	 	     The financial statements delivered by IIJ to NTT pursuant to the
fourth paragraph of Article 6 are true and correct copies of IIJ’s
unconsolidated balance sheet, profit and loss statement and other
financial statements (including the accounts of business and the
supplementary statements thereto) and IIJ’s consolidated balance sheet,
profit and loss statement and other financial statements as of March 31,
2003 (hereinafter, collectively, referred to as the “Financial
Statements”). The consolidated Financial Statements have been prepared
in accordance with generally accepted accounting principles, accounting
standards and auditing standards in the U.S., the unconsolidated
Financial Statements have been prepared and audited in accordance with
those in Japan, such Financial Statements accurately and fairly present
the financial
conditions and the results of operations of IIJ as of the date
stated therein. Since March 31, 2003 to the date hereof there have been
no developments which may have a material adverse effect on the financial
condition or results of operations of IIJ except for any adverse effects
caused by the petitioning for Corporate Reorganization Procedure by
Crosswave Communications, Inc. (“Crosswave”) and its subsidiaries or any
other adverse effects related thereto.




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	 	3.11	 	No Other Debts




		
	 	     (1)     The IIJ Group Companies have lawfully and properly prepared and
filed all tax and other returns with respect to any and all taxes and
other assessments including, but not limited to, corporate income tax and
social security taxes that have accrued before the Closing Date and have
paid all such accrued taxes and assessments when due.




		
	 	     (2)     Except those liabilities which accrue during the course of its
normal business operations, there are no liabilities of IIJ that are not
reflected in the Financial Statements.




	 	3.12	 	Intellectual Property




		
	 	     The IIJ Group Companies own or otherwise control all patent rights,
utility model rights, trademark rights, copyrights, design patent rights,
trade secrets, domain names, know-how and other intellectual property
rights, whether granted or pending (hereinafter collectively referred to
as “Intellectual Property Rights”) that are necessary to properly and
efficiently carry out its business. None of the Intellectual Property
Rights is presently subject to or is likely to become subject to any lien
or other encumbrance, whether statutory, contractual or otherwise. To
IIJ’s knowledge and belief, none of such rights is presently infringed
upon by any third party. The IIJ Group Companies have not infringed upon
any Intellectual Property Right owned or controlled by any third party
nor have received or are likely to receive from any third party notice
that they are infringing upon any Intellectual Property Rights owned or
controlled by such third party.




	 	3.13	 	No Labor Disputes




		
	 	     The IIJ Group Companies are not in breach of any of the terms and
conditions of any employment agreement with any of its employees and are
in full compliance with the Labor Standards Act, as amended, and all
applicable labor laws. The IIJ Group Companies do not and are not likely
to have any labor dispute with any of its present or past employees. The
IIJ Group Companies have not experienced during the past five (5) years
and are not likely to experience in the foreseeable future any labor
disputes including, but not limited to, strikes, pickets, walkouts and
slow-downs.




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	 	3.14	 	No Adverse Changes in Business Operations




		
	 	     Since March 31, 2003 to the Closing Date, no material changes have
occurred in the business operations of the IIJ Group Companies, except
for any adverse effects caused by the petitioning for Corporate
Reorganization Procedure by Crosswave and its subsidiaries or any other
adverse effects related thereto.




		
	 	3.15     All contracts and agreements, whether written or oral, now existing
between IIJ and any of the IIJ Group Companies including those between
IIJ and Crosswave, are on arm’s length terms and conditions.




	 	3.16	 	No Lawsuits




		
	 	     The IIJ Group Companies are not, with respect to their business
operations, except as disclosed in Exhibit 3-16 hereto, (i) parties to
any pending lawsuit or other legal proceedings (including but not limited
to petitions for provisional attachment or disposition), reconciliation
or arbitration proceedings or any other governmental investigation or
proceedings (hereinafter collectively referred to as “Legal
Proceedings”); (ii) likely to become parties to any Legal Proceedings,
except for the Legal Proceedings that may arise out of or in connection
with the petitioning for Corporate Reorganization Procedure by Crosswave
and its subsidiaries; and (iii) no Legal Proceedings that have been
instituted and are pending or are threatened against the IIJ Group
Companies, except for the Legal Proceedings that may arise out of or in
connection with the petitioning for Corporate Reorganization Procedure by
Crosswave and its subsidiaries;




	 	3.17	 	True and Correct Disclosure




		
	 	     No data or information heretofore disclosed by IIJ to NTT hereunder
for the purpose of entering into this Agreement to NTT hereunder, whether
disclosed in writing or orally, with respect to the IIJ Group Companies
includes any material data or information which is incorrect or untrue.
All material data and information with respect to the IIJ Group Companies
that NTT or its agents considered material in respect of the New Issuance
contemplated hereby and have requested have been fully disclosed to NTT
or its agents. The IIJ Group Companies have properly made all
disclosures and other filings and reports that are required under
Applicable Laws and Regulations. No material data or information
included in such disclosures, filings or reports include any incorrect
data or information. For the purpose of this Section 3.17, material data
or information shall mean such information as to which NTT, in its
reasonable judgment, would have decided not to execute this Agreement or
would have determined that the terms and conditions of this Agreement,
including, but not limited to, the purchase price of the New Shares,
would be materially affected thereby, if it had been made aware of the
incorrectness or existence thereof.




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	 	3.18	 	No Material Adverse Changes




		
	 	     There exist no events or circumstances which are likely to have any
adverse effect on the business, operations, financial conditions,
profitability or business prospect of the IIJ Group Companies or
otherwise may likely cause damage to NTT, except for any adverse effects
caused by the petitioning for Corporate Reorganization Procedure by
Crosswave and its subsidiaries or any other adverse effects related
thereto.




Chapter 4. Obligations and
Covenants of IIJ Applicable up to the Closing Date



     Article 4. (Covenants of IIJ
Applicable during the Period of the Date Hereof to and Including the Closing Date)



     IIJ hereby covenants to NTT that during the period between the date hereof
up to and including the Closing Date:



	 	4.1	 	Business Operations




		
	 	     The IIJ Group Companies shall continue to operate their businesses,
with the duty of care of a good manager, substantially in the same manner
as they were operated during the period up to the date hereof, and they
shall not do or permit to be done any act, deed or thing that is likely
to result in having a material adverse effect on the operations, assets,
financial condition, profitability or prospects of their businesses.




	 	4.2	 	Consent of NTT




		
	 	     It shall not cause or permit the IIJ Group Companies to do any act,
deed or thing which is out of the ordinary course of business without
NTT’s prior consent. It shall not cause or permit the IIJ Group
Companies to do or promise to do any act, deed or thing which, under
Applicable Laws and Regulations and/or their articles of association or
by-laws, require approval or authorization of or reporting to their
shareholders or board of directors, including but not limited to:




	 	(i)	 	amending or modifying the articles of association or by-laws;
	 
	 	(ii)	 	transferring, leasing, mortgaging or otherwise disposing of
any of their assets other than in the ordinary course of their
business;
	 
	 	(iii)	 	acquiring any additional asset other than in the ordinary
course of their business;
	 
	 	(iv)	 	borrowing funds or incurring guaranty or other obligations or
liabilities other than for the purpose of raising funds for working
capital in the normal course of their business;
	 
	 	(v)	 	merging, assigning shares, transferring assets, exchanging
shares, transferring shares, spinning off, consolidating with
another company or entering into any equity tie-up with any other
entity; and
	 
	 	(vi)	 	issuing or promising to issue additional shares, stock
options, warrants or any other instrument convertible into or
exchangeable with their shares, retiring their shares, reducing
their share capital or otherwise changing their share capital.




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	 	4.3	 	Obligation to Fulfill the Conditions Precedent




		
	 	     IIJ shall exercise its best efforts to fulfill all the conditions
precedent to NTT’s obligation to pay the purchase price of the New Shares
set forth in Article 5.




	 	4.4	 	Access to Information




		
	 	     IIJ shall cause the IIJ Group Companies to give to NTT and its
authorized agents reasonable access to their accounting books, other
records, offices, other facilities and assets so that they can inspect
the same and/or make copies thereof as necessary at any time during IIJ’s
normal business hours.




	 	4.5	 	Acquisition of Licenses and Permits




		
	 	     IIJ shall obtain or make all approvals, permits, licenses,
confirmations, filings and registrations that may be required under
Applicable Laws and Regulations, and to abide by the rules and
regulations of Applicable Laws and Regulations, for the consummation of
the New Issuance contemplated hereby, including, but not limited to,
those required under the laws of the U.S. and those which NTT believes
would be appropriate and beneficial to obtain or make and so reasonably
requests, so that all the conditions precedent to the lawful consummation
of the New Issuance contemplated hereby can be fulfilled on or before the
Closing Date.




	 	4.6	 	Other Procedures pursuant to Applicable Laws and Regulations




		
	 	     IIJ shall use its best efforts to cooperate with NTT with respect to
all other procedures as may be reasonably requested by NTT pursuant to
Applicable Laws and Regulations; provided, however, that this Section 4.6
shall survive after the Closing Date while IIJ remains to be a
consolidated affiliate of NTT under the equity method.




	 	4.7	 	Other Acts and Assistance




		
	 	     In addition to the above matters, during the period from the date
hereof up to and including the Closing Date, the IIJ Group Companies
shall do such acts as NTT may reasonably request and cooperate with NTT.




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Chapter 5. Conditions Precedent



Article 5. (Conditions Precedent to NTT’s Obligation to Pay the Purchase Price)



     NTT’s obligation hereunder to pay for the New Shares on the Closing Date
is specifically conditioned upon fulfillment of the following conditions
precedent, which NTT may, in its sole discretion, waive in whole or in part:



	 	 	5.1     The representations and warranties made or given by IIJ in Article 3
are true and correct on the Closing Date;
	 
	 	 	5.2     IIJ shall have fully performed or complied with on or before the
Closing Date all the agreements and covenants under this Agreement;
	 
	 	 	5.3     No event or circumstance shall have occurred at any time during the
period between the date hereof and the Closing Date which is likely to
have any material adverse effect on the business, operations, financial
conditions, management results, creditworthiness or profitability of IIJ
or prospect of IIJ Business, except for any adverse effects caused by the
petitioning for Corporate Reorganization Procedure by Crosswave and its
subsidiaries or any other adverse effects related thereto;
	 
	 	 	5.4     No cease and desist order, request, instruction or directive shall
have been issued by any Applicable Government Agency to prevent NTT from
subscribing for or acquiring the New Shares; and
	 
		 	5.5     As of the Closing Date, there exists no shareholder of IIJ who owns
shares of capital stock of IIJ at a shareholding ratio in excess of the
shareholding ratio that will be owned by NTT after the consummation of
the New Issuance contemplated hereby.



Chapter 6. Payment for the New Shares and Share Certificate



Article 6. (Documents to Be Delivered by IIJ to NTT on the Closing Date)



     By the Closing Date, IIJ shall deliver to NTT the following documents:



	 	 	(1)     A copy of the minutes of the meeting of IIJ’s board of directors at
which the consummation and implementation of the New Issuance was duly
authorized;
	 
	 	 	(2)     A copy of each of the approvals, permits, licenses, filings and
registrations obtained or made prior to the Closing Date by IIJ to
lawfully consummate and implement the New Issuance;
	 
	 	 	(3)     IIJ’s shareholders registry as of March 31, 2003 and IIJ’s beneficial
shareholders list as of December 31, 2002;
	 
	 	 	(4)     A copy of IIJ’s Financial Statements;
	 
	 	 	(5)     A certificate signed by a representative director of IIJ in a form
and substance satisfactory to NTT certifying that all the representations
and warranties made or given by IIJ in this Agreement are true and
correct and that no breach or event of default has occurred or is
existing; and
	 
	 	 	(6)     Any other documents that NTT may reasonably request.




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Article 7. (Payment of the Purchase Price of the New Shares)


     Subject to fulfillment of all the conditions precedent set forth in the
prior Article and in exchange for the delivery by IIJ to NTT of the documents
and certificates listed in the prior Article, NTT shall, on the Closing Date,
pay to the Escrow Bank specified in Article 2 the full purchase price of the
New Shares.


Article 8. (Non-Issuance of Share Certificate)



     Upon payment under Article 7 above, NTT shall convey to IIJ its desires
not to hold share certificates pursuant to Article 226-2 of the Commercial Code
of Japan. IIJ shall, on the date immediately following the Closing Date,
register NTT’s name as a shareholder and provide for the non-issuance of share
certificates to NTT in its shareholder registry.


Article 9. (Use of Funds Raised by the Issuance of the New Shares)



     Out of the funds raised by it as a result of issuance of new shares
pursuant to the third party allotment announced on September 1, 2003, IIJ shall
put in place an effective fund management, and endeavor for smooth redemption
of the Yen-denominated, unsecured convertible bonds due March 31, 2005
(hereinafter referred to as the “Convertible Bonds”) issued by IIJ.


Chapter 7. Management of IIJ



Article 10. (Board of Directors and Statutory Auditors)



10.1     After the consummation of the New Issuance, IIJ will be a consolidated
affiliate under the equity method and, therefore, IIJ agrees as follows with
respect its directors:



	 	 	(1)     of the members of IIJ’s board of directors and statutory auditors to
be first elected after the execution of this Agreement, three (3) shall
be nominees of NTT, subject to their successful election at a meeting of
shareholders of IIJ pursuant to the relevant provisions of the Commercial
Code of Japan, as amended; provided that, the identities of the three (3)
nominees and their positions shall be further discussed and agreed by IIJ
and NTT; and
	 
	 	 	(2)     at the first meeting of its shareholders, whether annual or special,
to be held after the consummation of the New Issuance, IIJ shall amend
the provisions related to the number of directors and statutory auditors
in its articles of association and take or cause to be taken all other
actions necessary for the election of a total of three (3) directors and
statutory auditors as set forth in the above subparagraph.



10.2     Notwithstanding anything to the contrary in this Agreement, IIJ and NTT
hereby acknowledge that NTT shall not have any right to nominate any nominees
to the board of directors of IIJ America Inc.



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Article 11. (Attendance of Observers)



	 	 	11.1     During the period from the Closing Date to and including the date
when the NTT director(s) and statutory auditor(s) are elected as provided
in preceding Article 10.1, NTT shall have the right to appoint two (2)
observers (hereinafter referred to as the “Observers”) to attend all
meetings of the board of directors of IIJ.
	 
		 	11.2     In order to make sure that the Observer attends IIJ’s meeting of the
board of directors, IIJ shall, whenever it sends out a notice of meeting
of its board of directors pursuant to the rules of its board of
directors, at any time during the period from the Closing Date to and
including the date the NTT director(s) and statutory auditor(s) are
elected as provided in Article 10.1, concurrently send a copy of such
notice to NTT.



Article 12. (Submission of Financial Statements)




	 	 	12.1     IIJ shall furnish NTT with copies of the following documents
specified in the following paragraphs within the respective periods
therein specified:




	 	(1)	 	within two (2) months after the end of each fiscal year:

the audited consolidated and unconsolidated balance sheet as of
the end of the fiscal year, its audited consolidated and
unconsolidated profit and loss statement, the accounts of business
(audited insofar as it relates to financial matters), its audited
statement of appropriation and such additional financial
information as requested by NTT with respect to such fiscal year;
provided, however, that the foregoing shall have been prepared in
accordance with generally accepted accounting principles,
accounting standards and auditing standards in Japan and the
United States; and provided, further, that, with respect to the
audited consolidated balance sheet as of the end of the fiscal
year, the audited consolidated profit and loss statement, the
accounts of business (audited insofar as it relates to financial
matters) and the audited statement of appropriation with respect
to such fiscal year prepared in accordance with generally accepted
accounting principles, accounting standards and
auditing standards in Japan, this paragraph shall not apply until
such time as IIJ is required to prepare such statements pursuant
to the Applicable Law and Regulations, and with respect to the
audited consolidated balance sheet as of the end of the fiscal
year, the audited consolidated profit and loss statement, the
accounts of business (audited insofar as it relates to financial
matters) and the audited statement of appropriation with respect
to such fiscal year prepared in accordance with generally accepted
accounting principles, accounting standards and auditing standards
in the United States, this paragraph shall not be breached so long
as such statements are furnished as promptly as possible after the
preparation thereof;




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	 	(2)	 	within forty five (45) days after the end of the second
fiscal quarter of each fiscal year:

the unaudited semi-annual balance sheet (both consolidated and
unconsolidated) as of the end of such second fiscal quarter of the
fiscal year, its unaudited semi-annual profit and loss statement
(both consolidated and unconsolidated) for the semi-annual fiscal
period then ended and such additional financial data and reports
as NTT may request; provided, that it is sufficient to provide
reports which comply with the accounting regulations, auditing
principles and generally accepted accounting principles in the
U.S.; and
	 
	 	(3)	 	within forty five (45) days after the end of each fiscal
quarter:

its unaudited quarterly balance sheet (both consolidated and
unconsolidated) as of the end of such fiscal quarter, its
unaudited quarterly profit and loss statement (both consolidated
and unconsolidated) for the fiscal quarter and such additional
financial data and reports as NTT may request; provided, that it
is sufficient to provide reports which comply with the accounting
regulations, auditing principles and generally accepted accounting
principles in the U.S.




	 	 	12.2     Notwithstanding anything to the contrary set forth in Section 12.1,
IIJ shall promptly furnish NTT with such additional documents and
information as NTT may from time to time request which are necessary for
NTT to prepare its consolidated financial statements regarding IIJ.
	 
	 	 	12.3     In addition to the materials required under Sections 12.1 and 12.2,
IIJ shall promptly furnish NTT with such additional documents and
information which are necessary for complying with required procedures
under applicable laws as NTT may from time to time reasonably request.
	 
	 	 	12.4     Whenever it furnishes NTT with any financial statement, report or
data in the performance of its obligations set forth in Sections 12.1
through 12.3, IIJ shall discuss with NTT any changes in fiscal year,
outside auditors and/or other necessary measures of the IIJ Group
Companies.
	 
	 	 	12.5     Whenever NTT has any questions with respect to any financial
statement, data or information furnished to it by IIJ hereunder, it may
raise such questions with IIJ, and IIJ shall promptly respond to such
questions.
	 
	 	 	12.6     In the event (i) any substantial change occurs in IIJ’s shareholder
base, (ii) any event or circumstance occurs that is likely to result in
material adverse effect on IIJ’s business operations, or (iii) any other
event or circumstance of which NTT reasonably requests prompt notice from
IIJ occurs, IIJ shall promptly notify NTT thereof.




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Article 13. (Inspection of IIJ’s Books of Account and Other Records)


     NTT may, to the extent permitted by law, at any time and from time to time
during the normal business hours of the IIJ Group Companies, visit, either
directly or through its duly authorized agents including, but not limited to,
its outside auditors, the principal office and/or other offices or facilities
of the IIJ Group Companies and to inspect, make copies of and audit at its own
expense such offices, facilities, accounting books, documents and other records
of the IIJ Group Companies which NTT may reasonably request to be inspected,
copied or audited. IIJ shall cooperate, and cause the IIJ Group Companies to
cooperate, with above inspection, copying and audit.


Chapter 8. (NTT’s Privileges)



Article 14. (Anti-Dilution Clause)




	 	 	14.1     NTT shall have pre-emptive rights with respect to any and all
issuances of shares, stock acquisition rights, warrants and other
securities or instruments convertible into or exchangeable with shares of
IIJ that may be issued by IIJ at any time in the future (hereinafter
collectively referred to as “Additional Shares”) in proportion to its
then current “Shareholding Ratio”. The term “Shareholding Ratio” as used
herein with respect to NTT shall mean such ratio as may be obtained by
dividing the number of outstanding shares of IIJ then held by NTT by the
total number of issued and outstanding shares of IIJ. The terms “number
of outstanding shares of IIJ then held by NTT” and “total number of
shares of IIJ then issued and outstanding” as used herein shall include,
without limitation, the number of shares of common stock of IIJ that may
be issued upon conversion or exercise of convertible securities, stock
acquisition rights or warrants then owned by NTT or upon conversion or
exercise of the convertible securities, stock acquisition rights or
warrants then issued and outstanding, as the case may be; provided,
however, that the term “Additional Shares” as used herein does not
include both (i) incentive stock options and warrants that have
heretofore been granted, and incentive stock acquisition rights that may
hereafter be granted, by IIJ to its directors, officers or employees or
any third parties or shares that may be issued by IIJ upon exercise of
such stock options, warrants and stock acquisition rights; and (ii)
shares that may be issued by IIJ upon conversion of the Convertible
Bonds.
	 
	 	 	14.2     Whenever IIJ issues any Additional Shares as described above, it
shall first send to NTT written notice specifying the material terms and
conditions of such issuance including, but not limited to, the number of
Additional Shares to be issued and their issue price and shall inquire if
NTT is willing to exercise its pre-emptive right set forth in Section
14.1 with respect to such Additional Shares.
	 
	 	 	14.3     NTT shall, within 14 days from the date of its receipt of the
written notice described in Section 14.2, notify IIJ in writing whether
or not it is going to exercise such pre-emptive right. If it is, it
shall specify in such notice the number of Additional Shares for which it
is going to subscribe and purchase; provided, that such number shall not
exceed the product of the total number of Additional Shares to be issued
by IIJ and NTT’s then current Shareholding Ratio.




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Article 15. (Registration Rights)



	 	 	15.1     NTT may, from time to time, request IIJ to file a registration
statement and/or any other filings with respect to the New Shares with
Applicable Government Agencies if such registration or filing is
necessary for NTT to be able to sell the New Shares in the Japanese or
the U.S. market.
	 
	 	 	15.2     In the event IIJ files a registration statement and/or any other
filings with any Applicable Government Agency with respect to its own
shares, the New Shares shall, if necessary, also be registered at the
same time.



Article 16. (Understandings Regarding U.S. Securities Law)




	 	 	16.1     NTT, its nominee prescribed in the Article 2 hereof and IIJ hereby
acknowledge that the New Issuance pursuant to this Agreement is being
conducted in reliance upon the safe harbor prescribed in Rule 903 of
Regulation S under the United States Securities Act of 1933 (hereinafter
referred to as “Securities Act”) and that such shares are not being
registered with the United States Securities and Exchange Commission
(hereinafter referred to as “SEC”) except as prescribed in the Article 15
hereof. The aforesaid acknowledgment by NTT and IIJ shall be based upon
the respective representations and warranties as to facts set forth in
Sections 16.2 and 16.3.
	 
		 	16.2     NTT hereby represents and warrants that: (i) NTT and its nominee by
NTT as prescribed in Article 2 are Japanese corporations duly
incorporated under the laws of Japan and its principal office or any
other branch office located in Japan will subscribe for the New Shares;
and (ii) NTT is subscribing the New Shares on its own account for its own
benefit and is not subscribing for the account or benefit of a person
resident in the United States (as defined in Regulation S under the
Securities Act) or a U.S. Person (as defined in Regulation S under the
Securities Act). NTT hereby represents, warrants and
covenants that none of NTT, its nominee as prescribed in Article 2 or any
of their respective Affiliate (as defined in Rule 405 under the
Securities Act), or any person acting on behalf of the foregoing has not
and will not engage in any directed selling efforts (within the meaning
of Regulation S under the Securities Act) in the United States with
respect to the New Shares.




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		 	16.3     IIJ hereby represents, warrants and covenants that none of IIJ, any
of its Affiliate, or any person acting on behalf of the foregoing has not
and will not engage in any directed selling efforts in the United States
with respect to the New Shares. IIJ hereby represents and warrants that
it has satisfied all of the conditions set forth in the safe harbor rule
of Regulation S under the Securities Act; provided, however, that the
NTT’s representations and warranties provided in this Article 16 are true
and accurate and that NTT will comply with the covenants provided in this
Article 16. Further, IIJ hereby covenants that all other issuances of
its shares to other entities scheduled to be conducted simultaneous with
the New Issuance shall also be conducted in compliance with such safe
harbor rules under Regulation S.
	 
	 	 	16.4     NTT, its nominee prescribed in Article 2 hereof and any transferee
of the New Shares shall not sell the New Shares, except as set forth
below, in each case subject to state securities laws, if any:




	 	(1)	 	in the event the sale is conducted pursuant to
an effective registration statement filed with the SEC;
	 
	 	(2)	 	in the event the sale is conducted in
compliance with Regulation S under the Securities Act; or
	 
	 	(3)	 	in the event the sale is conducted in reliance
on an exemption from the registration requirements of the
Securities Act.




	 	 	16.5     NTT, its nominee prescribed in Article 2 hereof and any transferee
of the New Shares shall not be deposited into the ADR program in respect
of IIJ’s common stock; provided, however, that the restrictions set forth
herein shall not apply in the event that the New Shares are sold in
accordance with Rule 144(k) under the Securities Act, the New Shares are
no longer restricted securities pursuant to a transaction conducted in
reliance on an exemption from the resale restrictions under the
Securities Act, or the New Shares sold on a securities exchange or an
over-the- counter market in Japan.
	 
	 	 	16.6     Prior to NTT, its nominee prescribed in the Article 2 hereof or any
transferee of the New Shares selling the New Shares as prescribed under
Sections 16.4(2) or 16.4(3), it shall (i) notify IIJ as to such
intentions, (ii) upon a reasonable request by IIJ, notify IIJ as to a
legal opinion, certificates or any other information reasonably
satisfactory to IIJ and (iii) cause such transferee to deliver a document
to IIJ consenting to its compliance with the provisions of Sections 16.4
and 16.5; provided, however, that the restrictions set forth (iii)
above shall not apply in the event that the New Shares are sold in
accordance with Rule 144(k) under the Securities Act, the New Shares are
no longer restricted securities pursuant to a transaction conducted in
reliance on an exemption from the resale restrictions under the
Securities Act, or the New Shares sold on a securities exchange or an
over-the- counter market in Japan.





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Chapter 9. Business Collaboration



Article 17. (Agreement of Business Collaboration)


The parties hereto agree that, after the date hereof, they shall enter into
business collaboration arrangements based on the following framework, it being
agreed and understood that further details of such collaboration arrangements
shall be determined later by their mutual agreement:



	 	(1)	 	In the event the parties hereto find it necessary for the
execution of IIJ’s business plan, IIJ shall draft a business
improvement plan and shall faithfully implement such plan.
	 
	 	(2)	 	The parties hereto shall use good faith to jointly engage,
where possible, in the development of broadband and information
technology and other related businesses.
	 
	 	(3)	 	The parties hereto shall endeavor for IIJ to expand its
business relationship with NTT and its subsidiaries and affiliates in
connection with IIJ’s new business opportunities.
	 
	 	(4)	 	The parties hereto shall discuss arrangements for seconding
employees to each other to carry out the intention of subparagraphs
(1) through (3) above, provided that NTT shall not second any of its
employees to IIJ America, Inc., a U.S. subsidiary of IIJ, unless NTT
and IIJ agree otherwise.
	 
	 	(5)	 	The parties hereto shall discuss and decide on the details of
the secondment arrangement specified in the above subparagraph.



Chapter 10. Termination



Article 18. (Termination)




	 	 	18.1     In the event any of the following Events of Default occurs at any
time between the date hereof and the Closing Date, NTT may terminate this
Agreement effective immediately by written notice to IIJ:




	 	(1)	 	NTT is made aware that any of the representations and
warranties made or given by IIJ in Article 3 is incorrect or untrue;
	 
	 	(2)	 	IIJ breaches any other term or condition of this Agreement;
or
	 
	 	(3)	 	prior to the Closing Date, the occurrence of any event or
circumstance which has a material adverse effect on the value of the
IIJ Group Companies regarding the business, business operations,
assets, profitability of the IIJ Group Companies.




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	 	 	18.2     In addition to the above subparagraphs, in the event the New Shares
are not fully issued to NTT on or before October 31, 2003, NTT may
terminate this Agreement effective immediately by written notice to IIJ.
	 
		 	18.3     Termination by NTT of this Agreement pursuant to Sections 18.1 or
18.2 shall in no way limit NTT’s right to recover losses and damages
sustained by it.



Chapter 11. General



Article 19. (No Public Announcement)



     The parties hereto agree that neither party shall, without prior consent
of the other, make public by press release or otherwise the existence of this
Agreement or the transactions contemplated hereby and shall determine by mutual
agreement the content, timing and manner of any such publicity.


Article 20. (Indemnification)



     IIJ shall indemnify and hold NTT harmless from and against any and all
losses(including but not limited to losses that NTT may suffer as a result of a
drop of the market price of the New Shares if and to the extent such drop is
caused by the occurrence of any of the following events), damages, costs and
expenses (including but not limited to reasonable attorneys’ fees and expenses)
that NTT may suffer or incur as a result of or in connection with the
occurrence of any of the following events regardless of whether before or after
the Closing Date or the date of issuance of the New Shares:



	 	(1)	 	any of the representations or warranties made or given by IIJ
hereunder is proven to be untrue; and
	 
	 	(2)	 	IIJ breaches or fails to perform or comply with any of the
covenants or obligations on its part to be performed or complied
with under this Agreement.



Article 21. (Notice)



     Any and all notices, consents, approvals, requests, demands and other
communications required or permitted to be made or given by one party to
the other hereunder shall be in writing or by facsimile and shall be addressed
to the party for which it is intended at its address shown below:



	 	 
	If to NTT:

	 	Nippon Telegraph and Telephone Corporation

	 	2-3-1 Otemachi

	 	Chiyoda-ku, Tokyo 100-8116 Japan

	 	Attention: Mr. Takashi Hiroi, Senior Manager, Department 1

	 	Facsimile No.: 03-5205-5129

	 
	If to IIJ:

	 	Internet Initiative Japan Inc.

	 	Jinbocho Mitsui Bldg

	 	1-105 Kanda, Jinbocho

	 	Chiyoda-ku, Tokyo 100-0051 Japan

	 	Attention: Mr. Akihisa Watai, Manager, President Office

	 	Facsimile No.: 03-5205-6441





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Article 22. (Costs and Expenses)



	 	 	22.1     IIJ shall be fully and solely liable for any and all stamp duties
and other taxes and public charges (except corporation income tax payable
on NTT’s net income) payable in connection with the execution of this
Agreement, issuance of the New Shares and payment of dividends declared
and payable on the New Shares.
	 
	 	 	22.2     Except as otherwise expressly provided for herein, each party hereto
shall be fully and solely liable for any and all out-of-pocket costs and
expenses (including, but not limited to, attorneys’ fees) which may be
incurred in connection with this Agreement (including its preparation),
the issuance of the New Shares and any other transactions contemplated
hereby.



Article 23. (Confidentiality)



     At no time during the period of five (5) years from the date of disclosure
shall either party hereto disclose or permit to be disclosed to any third
party without the other party’s prior consent, any confidential data or
information of the other party learned in conjunction with or in the course of
performance of this Agreement; provided, however, that the foregoing secrecy
obligation shall not apply to any data or information: (i) which is required to
be disclosed by Applicable Laws and Regulations; (ii) which is already a part
of the public domain when received from the other party or which subsequently
becomes publicly available without any fault on the recipient party; or (iii)
which the recipient party may at any time rightfully acquire from any third
party not owing any confidential obligations to such party.


Article 24. (Non-Assignability)



     Neither party hereto may assign, hypothecate or otherwise dispose of its
rights and/or obligations hereunder, whether in whole or in part, to or in
favor of any third party without the prior written consent of the other party.


Article 25. (Entire Agreement)



     This Agreement, together with the Exhibits attached hereto and made a part
hereof, constitutes the entire agreement between the parties hereto with
respect to the subject matter hereof and shall supersede any and all prior
agreements or understandings with respect thereto.




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Article 26. (Governing Law)


     This Agreement shall be governed by and construed in accordance with the
laws of Japan.


Article 27. (Court of Exclusive Jurisdiction)



     The Tokyo District Court shall be the court of first instance having
exclusive jurisdiction over any and all disputes that may arise between the
parties hereto out of or in connection with this Agreement.


Article 28. (Amendments)



     This Agreement may be amended or modified only by written agreement signed
by or on behalf of both parties hereto.


Article 29. (Matters Subject to Further Negotiation and Agreement)



     In the event any circumstance arises between the parties hereto which is
not provided for herein, the parties shall discuss and resolve the same in
accordance with the intent of this Agreement.


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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in duplicate, so that each can retain one executed copy hereof.


September 16, 2003



	 	 	 	 	 
	NTT:	 	
Nippon Telegraph and Telephone Corporation
	 	 	 	 	2-3-1 Otemachi

Chiyoda-ku, Tokyo 100-8116, Japan

Norio Wada, President
	 	 	 	 	 
	IIJ:	 	 	 	Internet Initiative Japan Inc.

Jinbocho Mitsui Bldg.

1-105 Kanda, Jinbocho

Chiyoda-ku, Tokyo 100-0051, Japan

Koichi Suzuki, President




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Exhibit 3-1


List of IIJ Group Companies



Internet Initiative Japan Inc.

IIJ Technology Inc.

IIJ Media Communications Inc.

Net Care, Inc.

IIJ America Inc.


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Exhibit 3-3


List of Issued and Outstanding Stock Options, Warrants and

Securities Convertible into or Exchangeable with Common Shares of IIJ




	•	 	Unsecured Convertible Bonds Due March 31, 2005
	 
	•	 	Stock options the grant of which was duly authorized by the
shareholders at the special and annual meetings held on April 7, 2000
and June 27, 2001, respectively



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Exhibit 3-7


List of Licenses, Approvals, Authorizations, Declarations, Filings

and Registrations Required for the Execution and Performance of this Agreement




	1.	 	Licenses, approvals, authorizations, declarations, filings and
registrations required for the execution and performance of this Agreement
by NTT




	 	Schedule 13D

Form 6-K in respect of NTT’s investment in IIJ

Current Report pursuant to the Current Report Regulations of the Tokyo Stock Exchange

Report under Article 10-2 of the Law Related to Private Monopoly

and the Fair Trade Commission of Japan




	2.	 	Licenses, approvals, authorizations, declarations, filings and
registrations required for the execution and performance of this Agreement
by IIJ Group Companies




	 	Japanese Securities Notice by IIJ




	 	Form 6-K disclosing the details of the New Issuance and the

details regarding the execution of this Agreement




	 	FCC Filing by IIJ America



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Exhibit 3-16


Class action lawsuit filed with the United States District Court, Southern
District of New York (Case No. 01-CV-10974) and lawsuits which may arise in the
future which are related thereto.



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