March 30, 2000
AT&T Corp.
295 North Maple Avenue
Basking Ridge, NJ 07920
IDT Corporation
520 Broad Street
Newark, New Jersey 07102
Re: Purchase of Class A common stock
and related transactions
Gentlemen:
This letter agreement (this "Agreement") will confirm the actions taken by the
Board of Directors (the "Board") of Net2Phone, Inc. (the "Company"), and by a
committee of independent directors of the Company to whom authority was duly
delegated by the Board, in connection with and in consideration for the proposed
purchase (the "Purchase") by AT&T Corp. ("AT&T") and its designees, through a
newly formed business entity ("Holdco"), from IDT Corporation ("IDT") of
14,900,000 shares of Class A common stock, par value $.01 per share (the "Class
A Stock"), of the Company and certain related transactions, as set forth in the
Letter Agreement, dated March 28, 2000, between AT&T and IDT (the "Letter
Agreement").
1. Board Approval of the Amendment. The Board has duly adopted a resolution
setting forth amendments (the
"Amendments") to the Company's certificate of incorporation (i) increasing
the number of authorized shares of Class A Stock by four million and (ii)
notwithstanding Section 4 of the Letter Agreement, expanding the Board by
two seats, and resolving to nominate designees named by AT&T to such
additional two seats. Promptly after the closing of the Purchase, IDT shall
cause one of its designated Board members to resign, and AT&T shall
nominate the replacement designee. AT&T and IDT agree to use their
reasonable best efforts to assure that at least five members of the Board
will be members not employed by, providing material services for
compensation to or otherwise affiliated with AT&T, IDT or any member of
Holdco or any of their affiliates (the "disinterested directors"); provided
that the requirement for such reasonable efforts by AT&T and IDT shall
cease to apply at such time as Holdco or IDT, as the case may be, becomes
the beneficial owner of more than 85% or less than 15% of the voting power
of the Company.
2. Solicitation of Shareholder Approval. The Board has declared the
advisability of the Amendments and called a special meeting of the
Company's stockholders for the consideration of the Amendments. The Board,
subject to its fiduciary obligations, shall promptly take such actions as
are necessary and appropriate to cause the adoption of the Amendments,
including causing an information or proxy statement containing the
recommendation of the Board of Directors in favor of the Amendments to be
distributed to stockholders as promptly as practicable. The only additional
corporate action required for the Primary Issuance is the approval of the
Amendments by the affirmative vote of the holders of at least 66-2/3% of
the outstanding Common Shares (as defined in Article Fourth of the
Company's certificate of incorporation) and the filing of the Amendments
with the Secretary of State of Delaware.
3. Section 203 of the Delaware General Corporation Law. By resolution, the
Board has confirmed that the restrictions contained in Section 203 of the
Delaware General Corporation Law shall not apply to any business
combination between the Company and AT&T or Holdco.
4. Primary Issuance. Upon adoption of the Amendments, subject to the
satisfaction or waiver of the terms and conditions set forth in clauses (2)
through (10) of Section 3 of the
Letter Agreement, and subject to the parties to the Letter Agreement being
ready, willing and able to consummate the Purchase, the Company shall
promptly issue and sell to Holdco, and Holdco will purchase, four million
shares of Class A Stock (the "Primary Issuance") for a price of $75 per
share. A result of the Primary Issuance will be to cause Holdco to become a
Holder within the meaning of Article Fourth, Section 3(e)(2) of the
Company's certificate of incorporation, with the effect that the shares of
Class A Stock to be sold to Holdco by IDT under the Letter Agreement will
not be converted by their terms into shares of Common Stock, par value $.01
per share, of the Company upon the consummation of the Purchase.
5. "Piggyback" Registration Rights. The Board has granted to Holdco demand and
"piggyback" registration rights with respect to the shares of capital stock
of the Company hereafter acquired by it from IDT under the Letter
Agreement, substantially as provided in the form of the Registration Rights
Agreement attached hereto as Exhibit A.
6. Stock Option and Incentive Plan. The Board has adopted a resolution
amending Section 6(g) of the Company's Amended and Restated 1999 Stock
Option and Incentive Plan (the "Plan"), and any other sections of the Plan
necessary to ensure that no rights of IDT employees under the Plan will be
terminated or affected in any way as a result of the transactions
contemplated in the Letter Agreement.
7. License and Approval of Transactions by Disinterested Directors. (a) The
Company will grant (i) to AT&T, a license for all of the Company's present
and future technology for use in the present and future businesses of AT&T
and its affiliates and (ii) to IDT, a license for all of the Company's
present and future technology for use in the present and future businesses
of IDT and its affiliates. The Company also agrees that should the terms,
conditions and pricing of a license be given prior to, on or after the date
of the Letter Agreement by the Company to any other person (including, in
the case of AT&T, IDT, and in the case of IDT, AT&T) which are more
favorable to the licensee than those given to AT&T or IDT, as the case may
be, which license has been approved or ratified by a majority of the
disinterested directors, such terms, conditions and pricing shall be
applicable to AT&T's
license or IDT's license, as the case may be, at such party's option. The
Company agrees that licenses granted by it shall in all cases be subject to
approval or ratification by a majority of the disinterested directors.
(b) Any contract or transaction, including a license, between AT&T or any
other participant in Holdco or any of their affiliates and the Company, or
between IDT or any of its affiliates and the Company, involving the
potential payment to or from the Company of more than $500,000, or any
business combination between the Company, on the one hand, and IDT, AT&T,
any participant in Holdco or any of their affiliates, on the other hand,
shall be subject to the approval of a majority of the disinterested
directors of the Company; provided that the requirement for such approval
shall cease to apply at such time as Holdco or IDT, as the case may be,
becomes the beneficial owner of more than 85% or less than 15% of the
voting power of the Company; and provided further that the requirement of
disinterested director approval shall not be required with respect to the
granting of a license by the Company to AT&T or IDT which does not contain
terms, conditions and pricing that are more favorable to the licensee than
those contained in a license granted to any other person, which license has
been approved or ratified by a majority of disinterested directors.
(c) This Section 7 supersedes Section 11 of the Letter Agreement, other
than the first sentence of Section 11 of the Letter Agreement which remains
in full force and effect.
8. AT&T/Company Arrangements. AT&T and the Company will support good faith
negotiations to work together to enter into the following commercial
arrangements:
o AT&T will offer the Company's service on the WorldNet Internet service.
o Each of AT&T and the Company will be classified by the other party as a
"Preferred Supplier" where mutually beneficial and not inconsistent
with other commitments of the parties existing on the date of this
Agreement, with respect to all services offered by the parties. AT&T
will make available to the Company the
opportunity to make presentations to senior operational management of
AT&T with respect to products offered by the Company.
o AT&T and the Company will work together to develop and deploy new
products and applications that integrate Voice over Internet Protocol
(VoIP) technology into PBX's and other communication products for the
business market.
o AT&T and the Company will work together to develop a series of
commercial and VoIP technology developmental agreements. The goal of
the agreements will be to (i) establish a framework for working
together to further develop and enhance each of AT&T's and the
Company's VoIP technology, and (ii) jointly develop new VoIP products
and services.
o AT&T and the Company will work together to develop broadband
applications using VoIP technology, it being understood that it is not
the intent of the parties to create a preferred position for the
Company as a broadband services provider.
o AT&T and the Company will work together in developing and implementing
such technologies as are required for the interoperability of each
party's services with the other's.
o AT&T and the Company will work together in developing "on-net"
advantages in the delivery of each other's services.
o AT&T and the Company will work together to develop and evolve the
standards for Internet telephony.
9. Voting Agreement. In the event that Holdco and IDT are unable to agree on
acceptable nominees to the Board (as described in Section 9 of the Letter
Agreement), Holdco and IDT will be counted as present for purposes of
determining a quorum at the shareholders meeting but will abstain from
voting on such nominees as to which Holdco and IDT are unable to agree.
10. Binding Intent. It is the intent of the parties hereto that the agreements
contained herein be legally binding on and enforceable against them. This
Agreement will be governed by and construed in accordance with the laws of
the State of New York applicable to contracts executed in and to be fully
performed in such State, without giving effect to its conflicts of law
rules or principles. Each party hereto (a) consents to submit itself to the
personal jurisdiction of any federal court located in the State of New York
or any New York state court in the event any dispute arises out of this
Agreement or any of the transactions contemplated by this Agreement, (b)
agrees that it will not attempt to deny such personal jurisdiction by
motion or other request for leave from any such court and (c) agrees that
it will not bring any action relating to this Agreement or any of the
transactions contemplated by this Agreement in any court other than a
federal or state court sitting in the State of New York. The invalidity or
unenforceability of any provision of this Agreement shall not affect the
validity or enforceability of any other provision of this Agreement, which
shall remain in full force and effect.
11. Definitive Documentation. The parties agree to negotiate in good faith and
enter into mutually acceptable definitive documentation with respect to the
transactions contemplated herein and in the Letter Agreement and on the
terms and conditions set forth herein and in the Letter Agreement.
If the foregoing conforms to your understanding, please so signify by signing in
the space provided below. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
Very truly yours,
NET2PHONE, INC.
By: /s/ HOWARD S. BALTER
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Accepted and Agreed:
AT&T CORP.
By: /s/ JOHN C. PETRILLO
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IDT CORPORATION
By:/s/ JAMES A. COURTER
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