EXHIBIT 10.35
SUBSCRIPTION AGREEMENT
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SUBSCRIPTION AGREEMENT (this "Agreement"), dated as of August 11,
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2000, among Net2Phone, Inc., a Delaware corporation (the "Company") and AT&T
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Corp., a New York corporation ("AT&T").
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WHEREAS, AT&T has agreed to purchase (the "Purchase") 14,900,000
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shares of Class A common stock, par value $.01, of the Company ("Class A Stock")
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pursuant to a Stock Purchase Agreement (the "Stock Purchase Agreement") by and
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between AT&T, IDT Corporation ("IDT") and IDT Investments Inc. ("IDT
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Investments");
WHEREAS, upon the terms and subject to the conditions of this
Agreement, Buyer desires to purchase 4,000,000 shares of Class A Stock and the
Company desires to sell 4,000,000 shares of Class A Stock to Buyer;
NOW, THEREFORE, the Company and AT&T hereby agree as follows:
1. Subscription.
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1.1. Subscription for Class A Stock. Upon the terms and subject to
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the conditions of this Agreement, the Company shall issue and sell and AT&T
shall purchase from the Company 4,000,000 shares of Class A Stock (the "Buyer
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Shares") at a price of $75.00 per share.
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1.2. Buyer. Pursuant to the terms of Section 9.2 hereof, AT&T may
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assign to a directly or indirectly majority-owned subsidiary its rights under
this Agreement. Until such an assignment is effected, AT&T is the "Buyer" for
all purposes of this Agreement. At the time of such assignment, such subsidiary
shall become the "Buyer" for all purposes of this Agreement, it being understood
that AT&T shall cause Buyer to perform all of Buyer's obligations under this
Agreement and that AT&T is intended to be directly and fully liable for any
breach of Buyer's obligations hereunder.
1.3. Issuance of Class A Stock; Execution of Additional Agreements. At
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the Closing:
(a) Buyer will pay or tender to the Company cash in immediately
available funds in the amount of $300,000,000 (the "Purchase Price").
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(b) The Company shall issue and deliver to Buyer a share certificate
or certificates representing the Buyer Shares acquired hereunder by Buyer,
which certificate or certificates shall be registered in Buyer's name in
the form of other certificates representing Class A Stock.
(c) The Company and Buyer shall execute and deliver the Registration
Rights Agreement relating to the Buyer Shares and any Class A Stock
purchased from IDT Investments, substantially in the form attached as
Exhibit A hereto (the "Registration Rights Agreement").
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1.4. Closing. The issuance and delivery of the Buyer Shares by the
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Company to Buyer and the delivery of the Purchase Price to the Company (the
"Closing") is taking place simultaneously herewith at the offices of Wachtell,
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Lipton, Xxxxx & Xxxx, 00 Xxxx 00/xx/ Xxxxxx, Xxx Xxxx, XX 00000.
2. Representations, Warranties and Acknowledgments of AT&T.
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AT&T hereby represents, warrants and acknowledges to the Company as
follows:
2.1. No Registration of Shares. AT&T is aware that the Buyer Shares
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have not been registered under the Securities Act of 1933, as amended (the
"Act"), that such offer and sale are intended to be exempt from registration
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under the Act and the rules promulgated thereunder by the Securities and
Exchange Commission (the "SEC"), and that the Buyer Shares cannot be sold,
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assigned, transferred, or otherwise disposed of unless they are subsequently
registered under the Act or an exemption from such registration is available.
AT&T is also aware that sales or transfers of the Buyer Shares are further
restricted by state securities laws and the provisions of this Agreement and
that the certificates for the Buyer Shares will bear appropriate legends
restricting their transfer pursuant to applicable laws, and this Agreement.
2.2. Suitability of Investment.
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(a) Buyer is acquiring the Buyer Shares for its own account, for
investment purposes only and not with a view to the resale or distribution
thereof;
(b) Buyer has not and will not, directly or indirectly, offer, sell,
transfer, assign, exchange or otherwise dispose of all or any part of the
Buyer Shares, except in accordance with applicable federal and state
securities laws;
(c) AT&T has such knowledge and experience in financial, business and
tax matters that AT&T is capable, on Buyer's behalf, of evaluating the
merits and risks relating to Buyer's investment in the Buyer Shares and
making an investment decision with respect to the Company;
(d) To the full satisfaction of AT&T, AT&T, on Buyer's behalf, has
been given the opportunity to obtain information and documents relating to
the Company and to ask questions of and receive answers from
representatives of the Company concerning the Company and the investment in
the Buyer Shares;
(e) Neither AT&T nor any of its affiliates has engaged in any
activity that would be deemed a "general solicitation" under the provisions
of Regulation D as promulgated under the Act;
(f) AT&T has such knowledge and experience in financial or business
matters that it can, and it has, on Buyer's behalf, adequately analyzed the
risks of an investment in the Buyer Shares and it has determined the Buyer
Shares are a suitable investment for Buyer and that Buyer is able at this
time, and in the foreseeable future, to bear the economic risk of a total
loss of its investment in the Company;
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(g) AT&T is aware that there are substantial risks incident to an
investment in the Buyer Shares; and
(h) Buyer will be an "accredited investor" within the meaning of Rule
501 of Regulation D promulgated under the Act as presently in effect and is
either purchasing for its own account or for the account of another
"accredited investor," and any accounts for which Buyer is acting are each
able to bear the economic risks of this investment. If Buyer is subject to
ERISA, and is acquiring the Buyer Shares as a fiduciary or agent for
another investor's account, Buyer will have sole investment and voting
discretion with respect to such account and will have full power to make
the acknowledgments, representations and agreements contained herein on
behalf of such account.
2.3. Organization, Good Standing and Qualification. AT&T is a
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corporation duly organized, validly existing and in good standing under the laws
of the State of New York. AT&T has the corporate power and authority to (i)
enter into and perform this Agreement and (ii) cause Buyer to perform this
Agreement. At or before the Closing, Buyer shall (i) be duly organized and
validly existing and in good standing under the laws of its state of formation
and (ii) have the power and authority to enter into and perform this Agreement.
2.4. Authorization. All action on the part of AT&T necessary for the
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authorization, execution and delivery of this Agreement and for the performance
of all obligations of AT&T hereunder (other than formation of Buyer) has been
taken. This Agreement has been duly executed and delivered by AT&T and
constitutes a valid and legally binding obligation of AT&T, enforceable in
accordance with its respective terms, subject to (i) the laws of bankruptcy and
the laws affecting creditors' rights generally and (ii) the availability of
equitable remedies. At or before the Closing, all actions on the part of Buyer
necessary for the authorization and delivery of this Agreement and for the
performance of all obligations of Buyer hereunder shall have been taken.
2.5. Compliance with Other Instruments. AT&T is not in violation of
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any provision of its Certificate of Incorporation or Bylaws, each as amended to
date, or, to AT&T's knowledge, in violation or default of any provision of any
instrument, judgment, order, writ, decree or contract to which it is a party or
by which it is bound or any provision of federal or state statute, rule or
regulation applicable to AT&T, which violation or default would have a material
adverse effect on AT&T's ability to consummate the transactions contemplated
hereby. As of the Closing, Buyer shall not be in violation of any provision of
the limited liability company agreement of Buyer, or, to Buyer's knowledge, in
violation or default of any provision of any instrument, judgment, order, writ,
decree or contract to which it is a party or by which it is bound or any
provision of federal or state statute, rule or regulation applicable to Buyer,
which violation or default would have a material adverse effect on Buyer. The
execution, delivery, and performance of and compliance with this Agreement and
the purchase of the Class A Stock pursuant hereto will not, with or without the
passage of time or giving of notice, result in any such material violation, or
be in conflict with or constitute a default under any such term, or result in
the creation of any mortgage, pledge, lien, encumbrance or charge upon any of
the properties or assets of AT&T or Buyer or the suspension, revocation,
impairment, forfeiture or nonrenewal of any permit, license, authorization or
approval applicable to AT&T or Buyer, its business or operations or any of its
assets or properties.
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2.6. No Other Agreements. Except for this Agreement, the Stock
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Purchase Agreement, the Voting Agreement, the letter agreement, dated March 28,
2000, between AT&T and IDT, the letter agreement dated March 30, 2000, by and
among AT&T, IDT and the Company (the "Three Party Letter Agreement"), the Option
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Agreement, dated as of April 30, 2000, between IDT and AT&T, and any agreement
or understanding specifically contemplated by those agreements and this
Agreement, there is no other agreement or understanding by and between IDT and
AT&T or their respective affiliates. Without limiting the generality of the
foregoing, as of the date hereof AT&T has not entered into any agreement with
any other direct shareholder (other than IDT and Buyer) of the Company.
2.7. HSR Act. AT&T has completed and filed, or caused to be completed
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and filed, at its own cost and expense, any notification and report required to
be filed under the HSR Act with respect to the transactions contemplated by this
Agreement, has requested early termination of the waiting period imposed by the
Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976, as amended (the "HSR Act")
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and the waiting period has been terminated.
2.8. Capitalization. If AT&T assigns its rights hereunder to a new
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entity, the authorized and issued capital of Buyer shall be as set forth in the
Limited Liability Company Agreement of Buyer.
2.9. Consents. Except as disclosed on Schedule 2.9 or as would not
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have a material adverse effect on AT&T or prevent or materially delay the
consummation of the transactions described herein, to AT&T's knowledge, no
consent, approval, order or authorization of, or registration, qualification,
designation, declaration or filing with, any federal, regional, state or local
governmental authority or any third party on the part of AT&T is required in
connection with the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby.
3. Representations, Warranties and Acknowledgments of the Company. Except as
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set forth on the Schedule of Exceptions attached hereto as Exhibit A, the
Company hereby represents, warrants and acknowledges to AT&T as follows:
3.1. Organization, Good Standing and Qualification. The Company is a
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corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all requisite corporate power and authority to
own and operate its assets and properties, to carry on its Internet telephony
business and such other businesses as conducted by the Company (the "Business"),
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to execute and deliver this Agreement and to issue and sell the Buyer Shares
pursuant to this Agreement. To the Company's knowledge, as of the date hereof
the Company possesses all governmental and other permits, licenses and other
authorizations to own its properties as now owned and to conduct its Business,
except where the failure to possess such governmental and other permits,
licenses and other authorizations would not have a material adverse effect on
the business, assets, financial condition, results of operations or properties
of the Company (a "Material Adverse Effect"). To the Company's knowledge, the
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Company is duly qualified to transact business and is in good standing in each
jurisdiction wherein the properties owned or leased or the business transacted
by the Company makes such qualification to do business as a foreign corporation
necessary, except for such jurisdictions in which the failure to so qualify
would not have a Material Adverse Effect. The Company has
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duly caused to be elected Xxxx X. Xxxxxxxx and Xxxxxxx X. Xxxxxxx as members of
the Board of Directors of the Company, effective as of the Closing. Xxxxxx X.
Xxxxx has submitted his resignation from the Board of Directors of the Company,
effective as of the Closing.
3.2. Capitalization. The authorized capital of the Company consists
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of:
(a) Stock. As of August 9, 2000, (i) 6,850,000 shares of preferred
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stock, par value $.01 per share, none of which are validly issued and
outstanding, (b) 200,000,000 shares of common stock, par value $.01 per
share ("Common Stock"), of which 22,396,889 shares are validly issued and
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outstanding and (c) 33,916,750 shares of Class A Stock shares of which are
authorized and validly issued and outstanding.
(b) Options. Except as set forth on Schedule 3.2(b), as of July 31,
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2000 there are not outstanding any options, warrants, subscriptions, rights
(including conversion or preemptive rights or first refusal rights) or
agreements for the purchase or acquisition from the Company of any shares
of the Company's capital stock or securities convertible into its capital
stock. Except as set forth on Schedule 3.2(b) hereof, no stock plan, stock
purchase, stock option or other agreement or understanding between the
Company and any holder of any equity securities or rights to purchase
equity securities provides for acceleration or other changes in the vesting
provisions or other terms of such agreement or understanding as the result
of any merger, consolidated sale of stock or assets, change in control or
any other transaction(s) by the Company. The Company is not a party or
subject to any agreement or understanding, and, to the Company's knowledge,
there is no agreement or understanding between any persons and/or entities,
which affects or relates to the voting or giving of written consents with
respect to any security or by a director of the Company.
(c) Treasury Stock. The Company does not hold any shares of its
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capital stock in its treasury.
3.3. Subsidiaries. Except as set forth on Schedule 3.3, the Company
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does not own or control, directly or indirectly, any equity security or other
interest of any other corporation, limited partnership or other business entity.
3.4. Authorization. All corporate action on the part of the Company
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and its officers, directors and stockholders necessary for the authorization,
execution and delivery of this Agreement and transactions contemplated hereby
the performance of all obligations of the Company hereunder and the
authorization, issuance and delivery of the Class A Stock being sold hereunder,
have been taken or will be taken prior to the Closing, and this Agreement will
be duly executed by the Company, and will constitute a valid and legally binding
obligation of the Company, enforceable in accordance with its terms, subject to
(i) the laws of bankruptcy and the laws affecting creditors' rights generally,
and (ii) the availability of equitable remedies.
3.5. Valid Issuance of Class A Stock.
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(a) The Class A Stock, when issued, sold and delivered in accordance
with the terms hereof for the consideration herein, will be duly and
validly issued, fully paid and nonassessable and free of any liens or
encumbrances, except such as may be created or
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suffered by Buyer, will be in compliance with all applicable state and
federal securities laws and will have the rights, preferences, privileges
and limitations described in the Amended and Restated Certificate of
Incorporation of the Company, attached as Exhibit B. As a result of the
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issuance contemplated herein, Buyer will become a "Holder" within the
meaning of Article Fourth, Section (3)(e)(2) of the Company's Amended and
Restated Certificate of Incorporation, with the effect that the shares of
Class A Stock sold by IDT Investments under the Stock Purchase Agreement
will not be converted by their terms into Common Stock, par value $.01 per
share, of the Company.
(b) Subject to the accuracy of and in reliance upon the
representations in Section 2 hereof and the compliance with all applicable
restrictions on transferability, the offer, sale and issuance of the Class
A Stock by the Company in conformity with the terms of this Agreement
constitute a transaction exempt from the registration requirements of
Section 5 of the Act. Neither the Company nor any authorized agent acting
on its behalf will take any action hereafter that would cause the loss of
such exemptions.
(c) The sole stock option and incentive plan of the Company is the
Net2Phone, Inc. 1999 Amended and Restated Stock Option and Incentive Plan.
3.6. Consents.
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(a) Except as disclosed on Schedule 3.6(a) or as would not have a
Material Adverse Effect or prevent or materially delay the consummation of
the transactions described herein, to the Company's knowledge, no consent,
approval, order or authorization of, or registration, qualification,
designation, declaration or filing with, any federal, regional, state or
local governmental authority or any third party on the part of the Company
is required in connection with the execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby.
(b) To the Company's knowledge, the Company is not in violation of
any applicable statute, rule, regulation, order or restriction of any
domestic or foreign government or any instrumentality or agency thereof in
respect of the conduct of its Business or the ownership of its properties
which violation would have a Material Adverse Effect.
3.7. Litigation. Except as set forth on Schedule 3.7 or as would not
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have a Material Adverse Effect or prevent or materially delay the consummation
of the transactions described herein, to the Company's knowledge, there is no
action, suit, claim, arbitration, proceeding or investigation pending or
currently threatened against the Company or the Business, or against any
officer, director or employee of the Company in connection with such officer's,
director's or employee's relationship with, or actions taken on behalf of, the
Company, nor is the Company aware of any event or circumstances that it expects
to form the basis for such an action, suit, claim, proceeding or investigation.
The Company is not a party or subject to the provisions of any order, writ,
injunction, judgment or decree of any court or government agency or
instrumentality that would have a Material Adverse Effect or prevent or
materially delay the consummation of the transactions described herein.
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3.8. Intellectual Property.
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(a) The Company hereby refers AT&T to Schedule 3.8(a) and the risk
factors referenced in Schedule 3.8(a), which Schedule modifies all
representations made in this Section 3.8. Except as set forth on Schedule
3.8(a), as of the date hereof the Company has no knowledge of any
infringement by it of any third-party patents, trademarks, service marks,
trade names, copyrights, trade secrets, information and other proprietary
rights and processes necessary for the Business (collectively, the
"Intellectual Property Rights"). Except as set forth on Schedule 3.8(a), as
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of the date hereof the Company has no knowledge of any obligation to make
any payments by way of royalties, fees or otherwise to any owner or
licensor of, or other claimant to, any patent, trademark, service xxxx,
trade name, copyright, trade secret, information or other proprietary
right, with respect to the use thereof, or in connection with the conduct
of the Business or otherwise other than royalties, fees or other payments
(i) that would not have a Material Adverse Effect, (ii) arising from the
purchase of "off the shelf" or standard products, or (iii) that are paid or
payable in connection with strategic relationships, partnering agreements,
bundling agreements, web linking agreements, agency agreements, affiliation
agreements or other similar business arrangements in the ordinary course of
the Business (excluding any such arrangements or agreements entered into as
part of the settlement of any potential or actual dispute or claim against
the Company). Except as set forth on Schedule 3.8(a), the Company has no
knowledge of any third party that is infringing upon or violating any of
the Company's Intellectual Property Rights. The Company has no knowledge
that it is necessary to utilize any inventions or trade secrets of any of
its employees made prior to their employment by the Company, except for
patented inventions or trade secrets that have been assigned to the
Company. Since the Company's organization, reasonable security measures
have been taken to protect the secrecy, confidentiality and value of the
Company's trade secrets (except where the failure to do so would not have a
Material Adverse Effect). The Company has a valuable body of trade secrets,
including know-how, concepts, computer programs and other technical data
(the "Proprietary Information") for the development, manufacture and sale
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of its products. To its knowledge, the Company has the right to use the
Proprietary Information free and clear of any rights, liens, encumbrances
or claims of others, except that the possibility exists that other persons
may have independently developed trade secrets or technical information
similar or identical to those of the Company. The Company has no knowledge
of any misappropriation of its Proprietary Information. The Company has no
knowledge that any of its employees is obligated under any contract
(including licenses, covenants or commitments of any nature) or other
agreement, or subject to any judgment, decree or order of any court or
administrative agency, that would interfere with the use of his or her best
efforts to promote the interests of the Company or that would conflict with
the Company's business.
(b) The Company has registered the URL addresses of the
"xxx0xxxxx.xxx" and "XXXxxx.xxx" web sites (the "Web Sites") with the
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appropriate organizations, in accordance with customary industry practice.
3.9. Compliance with Other Instruments. The Company is not in
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violation of any provision of its Amended and Restated Certificate of
Incorporation or Bylaws, each as
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amended to date, or, to the Company's knowledge, in violation or default of any
provision of any instrument, judgment, order, writ, decree or contract to which
it is a party or by which it is bound, which violation or default would have a
Material Adverse Effect. To the Company's knowledge and except as would not have
a Material Adverse Effect or prevent or materially delay the consummation of the
transactions described herein, the execution, delivery, and performance of and
compliance with this Agreement and the issuance and sale of the Class A Stock
pursuant hereto will not, with or without the passage of time or giving of
notice, result in any such violation, or be in conflict with or constitute a
default under any such term, or result in the creation of any material mortgage,
pledge, lien, encumbrance or charge upon any of the properties or assets of the
Company or the suspension, revocation, impairment, forfeiture or nonrenewal of
any material permit, license, authorization or approval applicable to the
Company, its business or operations or any of its assets or properties.
3.10. SEC Filings. All reports and materials filed by the Company
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with the SEC were accurate and true in all material respects as of the date such
reports and materials were filed.
3.11. Financial Statements. The Company has delivered to AT&T its
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audited consolidated financial statements (balance sheet, statement of
operations, statement of stockholders' deficit and statement of cash flows) for
the fiscal years ended July 31, 1998 and July 31, 1999 (the "Balance Sheet
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Date"), its unaudited balance sheet as at April 30, 2000 and unaudited
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statements of income, cash flow and stockholders' equity for the six-month
period ending on April 30, 2000 (the "Statement Date") (together, the "Financial
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Statements"). The Financial Statements are complete and correct in all material
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respects and have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the periods indicated. The
balance sheets included in the Financial Statements accurately set forth and
fairly present the financial condition and operating results of the Company as
of the dates thereof and reflect all material liabilities, contingent or
otherwise, of the Company as of such dates, and the statements of operations
included in the Financial Statements accurately present the operating results of
the Company during the periods indicated therein. Except as set forth in the
Financial Statements, the Company has no material liabilities, contingent or
otherwise, other than (i) liabilities incurred in the ordinary course of
business subsequent to the Statement Date and (ii) obligations under contracts
and commitments incurred in the ordinary course of business and not required
under generally accepted accounting principles to be reflected in the Financial
Statements, which, in both cases, individually or in the aggregate, are not
material to the financial condition or operating results of the Company. Except
as disclosed in the Financial Statements, the Company is not a guarantor or
indemnitor of any indebtedness of any other person, firm or corporation. The
Company maintains and will continue to maintain a standard system of accounting
established and administered in accordance with generally accepted accounting
principles.
3.12. Labor Agreements and Actions; Employees. The Company is not
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bound by or subject to any agreement with any labor union, and no labor union
has requested or, to the Company's knowledge, has sought to represent any of the
employees of the Company. There is no strike or other labor dispute involving
the Company or the Business pending or, to the Company's knowledge, threatened,
that would have a Material Adverse Effect. The Company is not aware of any labor
organization activity involving the employees of the Company or
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otherwise affecting the Business. To the Company's knowledge, no employee,
officer or consultant of the Company is in violation of any material term of
employment contract, patent disclosure agreement or any other contract or
agreement, or any material judgment, decree or order of any court or
administrative agency, relating to the relationship of any such employee,
officer or consultant with the Company or any other party because of the nature
of the Business; nor, to the Company's knowledge, has any such employee,
officer, or consultant received written notice or communication of such a
violation. Except as set forth on Schedule 3.12, the Company has no knowledge
that any officer or Key Employee, or that any group of Key Employees, intends to
terminate their employment with the Company or its Subsidiaries, nor does the
Company have a present intention to terminate the employment of any of the
foregoing. Subject to general principles related to wrongful termination of
employees or other applicable laws, the employment of each officer and employee
of the Company is terminable at the will of the Company. The carrying on of the
Business by the employees of the Company will not, to the best of the Company's
knowledge, conflict with or result in a breach of the terms, conditions or
provisions of, or constitute a default under, any material contract, covenant or
instrument under which any such employees are now obligated. No employee of the
Company has been granted the right to continued employment by the Company or to
any material compensation following termination of employment with the Company.
For purposes of this Agreement, "Key Employee" shall mean each of Xxxxxxxx X.
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Xxxxx, Xxxxxx X. Xxxxxx, Xxxx Xxxxxx and Xxxxx X. Xxxxxxxx.
3.13. Interested Party Transactions; Obligations to Related Parties.
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Except as disclosed on Schedule 3.13 hereto, to the Company's knowledge, there
are no transactions required to be disclosed in the Company's Form 10-K for the
year ended July 31, 2000 pursuant to Item 404 of the Regulation S-K promulgated
under the Act. To the Company's knowledge, there are no obligations of the
Company to officers, directors, stockholders, or employees of the Company other
than for indemnification, payment of salary for services rendered, reimbursement
for reasonable expenses incurred on behalf of the Company and for other standard
employee benefits made generally available to all employees.
3.14. Tax Returns and Payments. The Company has timely filed all tax
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returns (federal, state and local) required to be filed by it the failure to
file which would not have a Material Adverse Effect. All taxes shown to be due
and payable on such returns, any assessments imposed, and to the Company's
knowledge all other taxes due and payable by the Company on or before the
Closing have been paid or will be paid prior to the time they become delinquent.
The Company has not been advised (i) that any of its returns, federal, state or
other, have been or are being audited as of the date hereof, or (ii) of any
material deficiency in assessment or proposed judgment to its federal, state or
other taxes. The Company has no knowledge of any material liability of any tax
to be imposed upon its properties or assets that is not adequately provided for.
The Company has not executed any waiver of any statute of limitations on the
assessment or calculation of any tax or governmental charge. Except as would not
have a Material Adverse Effect, the Company has withheld or collected from each
payment made to each of its employees the amount of all taxes required to be
withheld or collected therefrom.
3.15. Registration Rights. Except as set forth in Schedule 3.15, the
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Company is presently not under any obligation, and has not granted any rights,
to register under the Act any
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of the Company's presently outstanding securities or any of its securities that
may hereafter be issued.
3.16. Changes. Except as (i) set forth in Schedule 3.16 or as
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disclosed in the reports and materials filed by the Company with the SEC or (ii)
otherwise expressly contemplated by this Agreement, since the Balance Sheet
Date, there has not been:
(a) Any material adverse change in the Business or operations of the
Company resulting from the actions or inactions of the management of the
Company, excluding actions or decisions not to act taken in good faith and
with the appropriate degree of care, and excluding changes in general
economic conditions, general changes in the industry in which the Company
is engaged and general changes in technology;
(b) Any material change, except in the ordinary course of business,
in the contingent obligations of the Company by way of guaranty,
endorsement, indemnity, warranty or otherwise;
(c) Any cancellation, compromise or waiver by the Company of a
financial right or of a material debt owed to it;
(d) Any satisfaction or discharge of any lien, claim or encumbrance
or payment of any obligation by the Company, other than in the ordinary
course of business and that individually or in the aggregate has had or is
reasonably expected to have a Material Adverse Effect;
(e) Any material change or amendment to a material contract or
arrangement by which the Company or any of its assets or properties is
bound or subject;
(f) Any direct or indirect loans made by the Company to any
stockholder, employee, officer or director of the Company, other than
advances made in the ordinary course of business;
(g) Any material change in any compensation arrangement or agreement
with any employee, officer, director or stockholder;
(h) Any declaration or payment of any dividend or other distribution
of the assets of the Company or any purchase or redemption of any of its
outstanding capital stock;
(i) Any material sale, transfer or lease of the assets of the
Company, except in the ordinary course of business;
(j) Any physical damage, destruction or loss (whether or not covered
by insurance) which individually or in the aggregate has had or is
reasonably expected to have a Material Adverse Effect;
(k) Any issuance or sale of any shares of the capital stock or other
securities of the Company or grant of any options with respect thereto, or
any modification of any
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of the capital stock of the Company other than pursuant to the transactions
contemplated hereby, the engagement letter with the Placement Agreement and
the Xxxxx Agreement;
(l) Any mortgage, pledge or lien incurred with respect to any of the
assets of the Company having a value in excess of $50,000;
(m) Any material agreement or commitment by the Company to do any of
the things described in this Section 3.16.
3.17. D&O Insurance. The Company has obtained directors' and
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officers' liability insurance and such other policies of insurance approved from
time to time by the Board of Directors, issued by insurers of recognized
standing and responsibility, with such coverage and in such amounts as are
customary in the case of companies of established reputation engaged in the same
or similar business and similarly situated.
3.18. Material Agreements.
-------------------
(a) Set forth on Schedule 3.19(a) and in the reports and materials
filed by the Company with SEC is a complete list of all agreements,
contracts, leases, licenses, instruments and commitments (oral or written)
to which the Company is a party or is bound that would be required to be
filed with or incorporated by reference into the Company's Annual Report on
Form 10-K for the year ended July 31, 2000 pursuant to Item 601 of
Regulation S-K promulgated under the Act ("Material Agreements").
-------------------
(b) To the Company's knowledge, the Company has not materially
breached, nor does the Company have any knowledge of any claim that the
Company, has breached, any term or condition of (i) any Material Agreement,
or (ii) any other agreement, contract, lease, license, instrument or
commitment that, individually or in the aggregate, would have a Material
Adverse Effect. Each Material Agreement is in full force and effect, and,
to the Company's knowledge, no other party to such Material Agreement is in
default thereunder. Except as set forth on Schedule 3.19(b), the Company is
not a party to any agreement that materially restricts its ability to
market or sell any of its products (whether by territorial restriction or
otherwise).
3.19. Actions by the Board of Directors of the Company. The Board of
------------------------------------------------
Directors of the Company has adopted an amendment to the Company's Amended and
Restated Certificate of Incorporation (i) increasing the number of authorized
shares of Class A Stock by 4,000,000 and (ii) increasing the maximum number of
directors that may serve on the Board of Directors of the Company from 11 to 13
(the "Amendment"). The Board of Directors of the Company has also (i) resolved
---------
to nominate AT&T's designees to the additional two seats on the Board of
Directors and (ii) 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 Buyer.
4. Covenants. The Company and AT&T hereby covenant and agree as follows:
---------
4.1. Legal Fees and Expenses. Each of the Company and AT&T shall
-----------------------
bear the fees and expenses of its counsel incurred in connection with the review
and negotiation of this
-11-
Agreement, and all other documentation necessary to consummate the transactions
contemplated hereby, and all fees and expenses of such counsel incurred in
connection with its legal due diligence investigation of the Company and its
business prospects, whether or not the transactions contemplated hereby are
consummated.
4.2. Governmental Inquiries. AT&T and the Company shall use their
----------------------
respective commercially reasonable efforts to respond, as promptly as reasonably
practicable, to any inquiries received from the Federal Trade Commission (the
"FTC") and the Antitrust Division of the Department of Justice (the "Antitrust
--- ---------
Division") for additional information or documentation, and to respond, as
--------
promptly as reasonably practicable, to all inquiries and requests received from
any supranational, national, state, municipal or local government, any
instrumentality, subdivision, court, administrative agency or commission or
authority thereof, or any quasi-governmental or private body exercising any
regulatory, taxing, importing or other governmental or quasi-governmental
authority (a "Governmental Authority") in connection with antitrust matters.
----------------------
AT&T and the Company shall use their respective commercially reasonable efforts
to overcome any objections which may be raised by the FTC, the Antitrust
Division or any other Governmental Authority having jurisdiction over antitrust
matters. AT&T and the Company shall (i) promptly notify the other party of any
communication to that party from the FTC, the Antitrust Division, any state
attorney general or any other Governmental Authority and, subject to applicable
law, permit the other party to review in advance any proposed written
communication to any of the foregoing; (ii) not agree to participate in any
substantive meeting or discussion with any Governmental Authority in respect of
any filings, investigation or inquiry concerning this Agreement or the
transactions contemplated hereby unless it consults with the other party in
advance and, to the extent permitted by such Governmental Authority, gives the
other party the opportunity to attend and participate thereat; and (iii) furnish
the other party with copies of all correspondence, filings, and communications
(and memoranda setting forth the substance thereof) between them and their
affiliates and their respective representatives on the one hand, and any
Government Authority or members or their respective staffs on the other hand,
with respect to this Agreement and the transactions contemplated hereby.
Notwithstanding the foregoing, no party shall be required to make any
significant change in the operations or activities of the business (or any
material assets employed therein) of such party or any of its affiliates if a
party determines in good faith that such change would be materially adverse to
the operations or activities of the business (or any material assets employed
therein) of such party or any of its affiliates having significant assets, net
worth or revenue.
4.3. Transactions Between AT&T and the Company. Any contract or
-----------------------------------------
transaction, including a license, between AT&T 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 or Buyer or any of its affiliates, on the other hand, shall be subject
to the approval of a majority of the directors of the Company who are not
employed by, providing material services for compensation to or otherwise
affiliated with AT&T, IDT, Buyer or any member of Buyer or their affiliates (the
"Independent Directors"); provided that the requirement for such approval shall
--------------------- --------
cease to apply at such time as Buyer becomes the beneficial owner of more than
85% or less than 15% of the voting power of the Company; and provided further
-------- -------
that the majority approval requirement of the Independent Directors shall not be
required with respect to the granting of a license by the Company to AT&T which
does not contain terms, conditions and pricing that are more favorable
-12-
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 the Independent
Directors.
4.4. Taking of Necessary Action. Each of the parties hereto agrees to
--------------------------
use its best efforts promptly to take or cause to be taken all action and
promptly to do or cause to be done all things necessary, proper or advisable
under applicable laws consummate and make effective the transactions
contemplated hereby. Without limit the foregoing, AT&T and the Company will, and
AT&T will cause Buyer to, use their respective best efforts to make or cause to
be made all filings and obtain all approvals and consents of governmental
authorities necessary or, in the opinion of AT&T and the Company, advisable in
order to permit the consummation of the transactions contemplated hereunder.
4.5. Third Director. After the Closing, the Company shall duly cause
--------------
to be elected to the Board of Directors of the Company a designee, as named by
AT&T, as soon as reasonably practicable after such designee is named by AT&T.
5. Conditions of Buyer's Obligations at Closing. The obligations of Buyer to
--------------------------------------------
purchase and pay for the Buyer Shares at Closing are subject to satisfaction or
waiver of each of the following conditions precedent:
5.1. Representations and Warranties; Covenants. Each of the
-----------------------------------------
representations and warranties of the Company set forth in this Agreement that
is qualified as to materiality or Material Adverse Effect shall have been true
and correct when made and shall be true and correct on and as of the Closing as
if made on and as of such date (other than representations and warranties which
address matters only as of a certain date which shall be true and correct as of
such certain date), and each of the representations and warranties of the
Company that is not so qualified shall have been true and correct in all
material respects when made and shall be true and correct in all material
respects on and as of the Closing as if made on and as of the such date (other
than representations and warranties which address matters only as of a certain
date which shall be true and correct in all material respects as of such certain
date). The Company shall have performed in all material respects all obligations
and complied with all agreements, undertakings, covenants and conditions
required hereunder to be performed by the Company at or prior to the Closing.
5.2. Resolutions. The Company shall have delivered to AT&T a
-----------
certified copy of the resolutions of the Board of Directors of the Company
authorizing the transactions contemplated hereby.
5.3. Certificate. AT&T shall have received a certificate, dated as of
-----------
the Closing, executed by an executive of the Company and stating that the
conditions set forth in Section 5.1 above have been satisfied.
5.4. Force Majeure. Subsequent to the execution and delivery of this
-------------
Agreement, there shall not have occurred any of the following: (i) a suspension
of trading in securities generally on the Nasdaq National Market by the SEC, by
such exchange or by any other regulatory body or governmental authority having
jurisdiction, (ii) a declaration of a banking moratorium by federal or state
authorities of the United States or (iii) an escalation of a
-13-
national emergency or war by the United States which, in any such case, would
have a Material Adverse Effect.
5.5. Consents, Permits and Waivers. The Company shall have obtained
-----------------------------
any and all consents, permits and waivers necessary or appropriate for
consummation of the transactions contemplated by the Agreement except for any
such consents, permits or waivers that would not have a Material Adverse Effect
or would prevent or materially delay the consummation of the transactions
described herein.
5.6. Shareholder Approval of the Amendment. The Amendment shall have
-------------------------------------
been filed with the Secretary of State of Delaware.
5.7. The Purchase. AT&T, IDT and IDT Investments shall be ready,
------------
willing and able to consummate the Purchase, it being understood that this
condition will be deemed to have been satisfied if IDT did not consent in
writing to the failure to consummate the Purchase and the failure to consummate
the Purchase constituted a breach by AT&T of its obligations under the Stock
Purchase Agreement without reference to Section 7.1(b) of the Stock Purchase
Agreement.
6. Conditions of the Company's Obligations at Closing. The obligations of the
--------------------------------------------------
Company to issue and sell the Buyer Shares to Buyer at the Closing are subject
to satisfaction or waiver of each of the following conditions precedent:
6.1. Representations and Warranties; Covenants. Each of the
-----------------------------------------
representations and warranties of AT&T set forth in this Agreement that is
qualified as to materiality or material adverse effect shall have been true and
correct when made and shall be true and correct on and as of the Closing as if
made on and as of such date (other than representations and warranties which
address matters only as of a certain date which shall be true and correct as of
such certain date), and each of the representations and warranties of AT&T that
is not so qualified shall have been true and correct in all material respects
when made and shall be true and correct in all material respects on and as of
the Closing as if made on and as of the such date (other than representations
and warranties which address matters only as of a certain date which shall be
true and correct in all material respects as of such certain date). AT&T shall
have performed in all material respects all obligations and complied with all
agreements, undertakings, covenants and conditions required hereunder to be
performed by AT&T at or prior to the Closing.
6.2. Other Agreements. The Registration Rights Agreement has been
----------------
executed and delivered by the parties thereto.
6.3. Shareholder Approval of the Amendment. The Amendment shall have
-------------------------------------
been filed with the Secretary of State of Delaware.
7. Transfer Limitations: 1933 Act Legend. Unless sold pursuant to an
--------------------------------------
effective registration statement, each certificate representing Buyer Shares
shall bear a legend substantially in the following form:
"The shares represented by this certificate have not been registered under
the United States Securities Act of 1933, as amended (the "Act"), and may
---
not be offered, sold or
-14-
otherwise transferred, pledged or hypothecated unless and until such shares
are registered under the Act or, except as otherwise permitted pursuant to
Rule 144 under the Act or another exemption from registration under the Act
or an opinion of counsel reasonably satisfactory to the Company is obtained
to the effect that such registration is not required and are subject to
transfer restrictions as set forth in a Subscription Agreement, dated
August 11, 2000, copies of which may be obtained from the Company."
The foregoing legend, if necessary, shall be removed from the
certificates representing any Class A Stock, at the request of the holder
thereof, at such time as (i) they are sold pursuant to an effective registration
statement, (ii) they become eligible for resale pursuant to Rule 144(k) under
the Act or another provision of Rule 144 of the Act pursuant to which all or a
portion of such underlying Common Shares could be sold in a single transaction,
or (iii) an opinion of counsel reasonably satisfactory to the Company is
obtained to the effect that the proposed transfer is exempt from the Act. The
transfer agent for Common Shares will issue new Common Shares without the legend
upon receipt of a certificate from AT&T or its affiliate stating that the Common
Shares have been registered or transferred pursuant to an effective registration
statement under the Act or can be sold in reliance upon Rule 144 or the Company
has received an opinion of counsel reasonably satisfactory to the Company to the
effect that the proposed transfer is exempt from the Act.
8. Term.
----
8.1. Termination by AT&T or the Company. The Company or AT&T may
----------------------------------
terminate this Agreement if IDT, IDT Investments or AT&T terminates the Stock
Purchase Agreement.
8.2. Effect of Termination. In the event of the termination of this
---------------------
Agreement as provided in Section 8.1 above, this Agreement shall forthwith
become void and there shall be no liability or obligation on the part of the
parties hereto, except for the obligations set forth in Sections 9.3, 9.6, 9.7,
9.9, 9.12 and 9.13; provided, however, that, subject to Section 9.12, the
-------- -------
foregoing shall not relieve any party of any liability for damages incurred as
result of any breach of this Agreement; and provided further, that, in the
-------- -------
absence of actual fraud, neither party shall be liable to the other for the
inaccuracy of any representation made in this Agreement in the event of a
termination.
9. Miscellaneous.
-------------
9.1. Survival of Covenants. The representations and warranties
---------------------
contained in Sections 2 and 3 hereof and all claims with respect thereto shall
survive for one year from the date hereof and the covenants contained in Section
4 hereof shall survive indefinitely.
9.2. Successors and Assigns. This Agreement may not be assigned by
----------------------
AT&T or the Company without the prior written consent of the other party hereto;
provided, however, that AT&T may transfer its rights under this Agreement to one
-------- -------
majority-owned subsidiary without the consent of the Company. Nothing in this
Agreement, express or implied, is intended to confer upon any party, other than
the parties hereto or their respective successors and permitted assigns, any
rights, remedies, obligations, or liabilities under or by reason of this
Agreement, except as expressly provided in this Agreement.
-15-
9.3. Governing Law; Submission to Jurisdiction. This Agreement shall
-----------------------------------------
be governed by and construed in accordance with the laws of the State of New
York, without regard to the conflict of law provisions thereof. Each of the
Company and AT&T hereby submits to the nonexclusive jurisdiction of the United
States District Court for the Southern District of New York and of any New York
State court sitting in New York City for purposes of all legal proceedings
arising out of or relating to this Agreement and the transactions contemplated
hereby. Each of the Company and AT&T irrevocably waives, to the fullest extent
permitted by law, any objection which it may now or hereafter have to the laying
of 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.
9.4. Counterparts. This Agreement may be executed in counterparts,
------------
each of which shall be deemed an original, and all of which together shall be
deemed to constitute one and the same instrument.
9.5. Captions and Headings. The captions and headings used in this
---------------------
Agreement are for convenience only and are not to be considered in construing or
interpreting this Agreement.
9.6. Notices. Unless otherwise provided, any notice or other
-------
communication required or permitted to be given or effected under this Agreement
shall be in writing and shall be deemed effective upon personal or facsimile
delivery to the party to be notified or three business days after deposit with
an internationally recognized courier service, delivery fees prepaid, and
addressed to the party to be notified at the following respective addresses, or
at such other addresses as may be designated by written notice; provided that
--------
any notice of change of address shall be deemed effective only upon receipt:
If to the Company: Net2Phone, Inc.
000 Xxxx Xxxxxx
Xxxxxxxxxx, XX 00000
Attn: Xxxxx X. Xxxxxxxx, General Counsel
Fax: (000) 000-0000
with a copy to: Xxxxxxxx & Xxxxx
AON Center
000 Xxxx Xxxxxxxx Xxxxx
Xxxxxxx, Xxxxxxxx 00000
Attn: Xxxxxxx X. Xxxxxx
Fax: (000) 000-0000
If to AT&T: AT&T Corp.
000 Xxxxx Xxxxx Xxxxxx
Xxxxxxx Xxxxx, Xxx Xxxxxx 00000
Attn: Xxxxxxx X. Xxxxxx, Vice President-Law
and Secretary
Fax: (000) 000-0000
-16-
with a copy to: Wachtell, Lipton, Xxxxx & Xxxx
00 Xxxx 00/xx/ Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxxx X. Xxxxxx
Fax: (000) 000-0000
9.7. Finder's Fee. Each of the Company, on the one hand, and AT&T,
------------
on the other hand, severally represents and warrants to the other party hereto
that neither it nor any of its officers, directors, general partners, agents,
employees or affiliates, has engaged or authorized any broker or finder to act,
directly or indirectly, on its behalf, in connection with the transactions
contemplated by this Agreement, or has consented to or acquiesced in anyone so
acting, and it knows of no claim by any person for compensation from it for so
acting or of any basis for such a claim. The provisions of this Section 9.7
shall survive any termination of this Agreement. Each party hereto further
agrees to indemnify each other party for any claims, losses or expenses incurred
by such other party as a result of the representation in this Section 9.7 being
untrue.
9.8. Amendments and Waivers. Except as provided in Section 9.13, any
----------------------
term of this Agreement may be amended, and the observance of any term of this
Agreement may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of each of the
Company and AT&T. Any amendment or waiver effected in accordance with this
Section 9.8 shall be binding upon each holder of any Common Shares (as defined
in Article Fourth of the Company's Amended and Restated Certificate of
Incorporation) purchased under this Agreement at the time outstanding, each
future holder of all such Common Shares (as defined in Article Fourth of the
Company's Amended and Restated Certificate of Incorporation), and the other
parties to this Agreement.
9.9. Severability. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, such provisions shall be excluded
from this Agreement and the balance of this Agreement shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance with its
terms.
9.10. Entire Agreement. Except for Sections 7 and 8 of the Three-Party
----------------
Letter Agreement (and the agreements entered into pursuant thereto), this
Agreement (and the Exhibits hereto) constitute the entire agreement among the
parties with respect to the subject matter hereof and supersede all prior
agreements, understandings and discussions between them, and all documents
delivered by or on behalf of the Company to AT&T and its agents and
representatives, with respect to such subject matter.
9.11. Publicity. The parties hereto shall not issue, publish or
---------
disseminate or cause to be issued, published or disseminated any press release
or public communication relating to this Agreement or any of the transactions
contemplated herein or therein using the name or any trade xxxx, logo,
tradename, trade dress or other intellectual property or otherwise referring to
AT&T or the Company or any affiliate or beneficial owner of AT&T or the Company
as the case may be, without the prior written consent of such other party (which
consent shall not be unreasonably withheld); provided, however, that either
party may make, after reasonable
-17-
consultation with the other party, any disclosure or announcement of information
it is obligated to make pursuant to applicable law or regulation, including any
applicable law or regulation of the SEC, the New York Stock Exchange, the Nasdaq
National Market, or any other national securities exchange or self-regulatory
organization, as applicable.
9.12. Third-Party Beneficiaries. Nothing in this Agreement, express
-------------------------
or implied, is intended or shall be construed to create any third-party
beneficiaries. AT&T agrees that the Company has no liability with respect to or
which may arise out of the Stock Purchase Agreement.
9.13. Waiver of Jury Trial. EACH PARTY HERETO HEREBY WAIVES ITS
--------------------
RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT
OF THIS AGREEMENT. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL ENCOMPASSING
OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO THE
SUBJECT MATTER OF THIS TRANSACTION, INCLUDING, WITHOUT LIMITATION, CONTRACT
CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND
STATUTORY CLAIMS. THIS SECTION 9.13 HAS BEEN FULLY DISCUSSED BY EACH OF THE
PARTIES HERETO AND THESE PROVISIONS SHALL NOT BE SUBJECT TO ANY EXCEPTIONS. EACH
PARTY HERETO HEREBY FURTHER WARRANTS AND REPRESENTS THAT SUCH PARTY HAS REVIEWED
THIS WAIVER WITH ITS LEGAL COUNSEL, AND THAT SUCH PARTY KNOWINGLY AND
VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL
COUNSEL. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER
ORALLY OR IN WRITING, AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
SUPPLEMENTS OR MODIFICATIONS TO (OR ASSIGNMENTS OF) THIS AGREEMENT. IN THE EVENT
OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL
(WITHOUT A JURY) BY THE COURT.
9.14. Definition of "knowledge." For purposes of this Agreement,
--------------------------
"knowledge" with respect to the Company or "the Company's knowledge" means the
actual knowledge (after performing due inquiry) of the Key Employees as of the
date hereof.
-18-
IN WITNESS WHEREOF, AT&T and the Company have executed this Agreement
on the day and year first above written.
NET2PHONE, INC.
By: ________________________
Name:
Title:
AT&T CORP.
By: ________________________
Name:
Title:
-19-
