Separation Agreement - Net2Phone Inc. and Howard Balter
SEPARATION AGREEMENT
The following sets forth the terms of a Separation Agreement between
Howard Balter ("HB") and Net2Phone, Inc. ("N2P") and is intended to be binding
on the parties hereto ("Separation Agreement").
1. Resignation: HB resigned as the Chief Executive Officer and as
a member of the Board of Directors of N2P, effective October
23, 2001 ("Resignation Date"). HB agrees to resign as a member
of the Board of Directors of Adir Technologies, Inc. ("Adir")
and from the Board of Directors of any other subsidiary or
affiliate of N2P, immediately upon the execution of this
Separation Agreement.
2. Consulting Services: HB will provide the equivalent of one (1)
eight (8) hour day per week of consulting services to N2P,
and/or as directed by N2P, to Adir, for a 15-month period
commencing on the Resignation Date. N2P will reimburse HB for
direct, out-of-pocket expenses incurred by HB relating to any
overnight travel requested by N2P or Adir.
3. Waiver: Other than with respect to his rights under this
Separation Agreement, HB waives all claims, and releases and
forever discharges and covenants not to sue or proceed on the
basis of any claims, against N2P, and its subsidiaries and
affiliates, including Adir, arising from his employment,
including his right to a $750,000 severance payment and any
other rights arising under his employment agreement with N2P.
Other than with respect to its rights under this Separation
Agreement, N2P and its subsidiaries and affiliates, including
Adir, waive all claims and release and forever discharge and
covenant not to sue or proceed on the basis of any claims,
against HB arising from his employment, including any of its
rights arising under his employment agreement with N2P.
4. Non-Compete: HB acknowledges that (i) N2P, its subsidiaries
and affiliates, including Adir (for purposes of paragraphs 4,
5 and 6, "N2P") are currently engaged in the Internet
telephony business, (ii) his work for N2P has provided him
with access to trade secrets of and confidential information
concerning N2P, and (iii) the agreements and covenants
contained in this Separation Agreement are essential to
protect the business and goodwill of N2P. Accordingly, HB
covenants and agrees that during the Restricted Period
(defined below), HB shall not (1) be employed in any capacity
by, or consult with or engage or participate in any fashion in
the Internet telephony business (a "Competitive Business") on
his own behalf or on behalf of any person or entity, and HB
shall not acquire a financial interest in any Competitive
Business (except for publicly traded equity interests that do
not exceed five percent (5%) in the aggregate of all classes
of equity of any such Competitive Business) or (2) directly or
indirectly solicit or encourage any employee of N2P or any of
its subsidiaries or affiliates to leave the employment of N2P.
For purposes hereof, the "Restricted Period" shall be the
21/2year period commencing on the Resignation Date.
5. Confidential Information. During the term of this Separation
Agreement and at all times thereafter, HB agrees that he will
not divulge to anyone (other than N2P or any persons employed
or designated by N2P) any knowledge or information of a
confidential or proprietary nature relating to the business of
N2P or any of its subsidiaries or affiliates, including,
without limitation, all trade secrets (unless readily
ascertainable from public or published information or trade
sources) and confidential commercial information, and HB
further agrees not to disclose, publish or make use of any
such knowledge or information without the consent of N2P.
6. Enforcement. HB acknowledges and agrees that N2P will have no
adequate remedy at law, and could be irreparably harmed, if HB
breaches or threatens to breach any of the provisions of
paragraphs 4 and 5 of this Separation Agreement. HB agrees
that N2P shall be entitled to equitable and/or injunctive
relief to prevent any breach or threatened breach of
paragraphs 4 and 5, and to specific performance of each of the
terms of this paragraph in addition to any other legal or
equitable remedies that N2P may have. HB further agrees that
he shall not, in any equity proceeding relating to the
enforcement of the terms of paragraphs 4 and 5, raise the
defense that N2P has an adequate remedy at law.
<PAGE>
7. Stock and Stock Options:
Rescission of Exercise. HB's 1/01 Option exercise with respect
to 142,980 shares is hereby rescinded and N2P agrees to honor
such rescission for all purposes, including income tax
reporting. HB shall return to N2P the shares acquired upon
such exercise. N2P shall return the aggregate exercise price
of $476,123 and HB will continue to hold the Option with
respect to such shares. Upon the completion of the first 3
months of the consulting period described in paragraph 2
hereof, N2P will reprice such Option at $0.01 per share. HB
acknowledges that N2P's obligations to repay $476,123 has been
satisfied by the N2P payment of $500,000 to HB as of the
Resignation Date and, immediately upon fully execution of this
Separation Agreement, HB shall repay $23,877 to N2P.
Repricing and Forfeiture. HB was previously granted an Option
to purchase 223,500 shares of N2P on 7/28/99 at $15 per share
and an Option to purchase 500,000 shares of N2P on 8/2/00 at
$25 per share. Upon the completion of the first 3 months of
the consulting period described in paragraph 2 hereof, N2P
will reprice the Options to purchase 580,520 shares at $0.01
per share and will amend such Options with respect to such
shares so that they are fully vested and exercisable as of
such date and the parties hereto mutually agree that such
Options with respect to such 580,520 shares shall be
automatically exercised as of such date for shares of N2P. Any
remaining shares subject to such Options will lapse as of the
date of the repricing.
8. Adir Stock: Upon the completion of the first 3 months of the
consulting period set forth in paragraph 2 hereof, N2P or Adir
will purchase the 937 Shares of Adir Stock owned by HB and HB
will transfer such shares to N2P or Adir, as the case may be,
free and clear of any and all liens and encumbrances (other
than liens and encumbrances of N2P or Adir), for $2.365
million, with the proceeds to be applied toward repayment of
HB's Debt as set forth in paragraph 10 hereto. N2P shall
indemnify and defend HB from any liability arising from such
purchase and sale.
9. Charitable Contribution: IDT, or a foundation established by
it, will make a $1.250 million charitable contribution to a
foundation or charities designated by HB. Such contribution
will be made in $416,667 installments, with the first
installment to be made within fifteen (15) days of the date of
this Separation Agreement, and the second and third
installments to be made on the first and second anniversaries
of the date of this Separation Agreement.
10. Loan Forgiveness: HB has the following loans outstanding to
N2P and Adir: (1) a loan from N2P with an initial principal
amount of $1,447,260, (2) a loan from N2P with an initial
principal amount of $2 million, (3) a loan from Adir with an
initial principal amount of $163,975 and (4) miscellaneous
loans and advances in the aggregate amount of $750,000. In
addition, N2P has guaranteed the repayment of $5 million
borrowed by HB from Safra Bank. N2P shall repay such $5
million Safra loan on behalf of HB, (the repaid Safra loan and
HB's guarantee thereof, together with the other loans set
forth in the preceding sentence, and all accrued interest on
such loans, the "Debt"). Upon the completion of the first 3
months of the consulting period described in paragraph 2
hereof, N2P and Adir will forgive and waive $2 million worth
of the Debt. Upon the completion of 15 months of the
consulting period described in paragraph 2 hereof, N2P and
Adir will forgive and waive any of the remaining Debt. Such
Debt forgiveness and waiver shall be accelerated upon change
in control of N2P (as defined in N2P's 1999 Stock Option and
Incentive Plan) occurring after the date of this Separation
Agreement.
11. Insurance: For a 2-year period commencing on the Resignation
Date, N2P will continue to provide HB and his dependents, at
its sole cost, with the medical and dental insurance coverage,
or equivalent coverage, as was provided immediately prior to
the Resignation Date.
12. Car Allowance: For a 2-year period commencing on the
Resignation Date, N2P will continue to provide HB with an auto
allowance for one (1) auto consistent with the allowance
provided to him immediately prior to the Resignation Date. HB
shall immediately return both automobiles provided to him by
N2P, or affect a full assignment and assumption of the leases
associated with such automobiles within fifteen (15) days from
the date this Separation Agreement is fully executed. HB shall
indemnify and defend N2P with respect to any such assignment
and assumption of the auto leases.
13. Company Property: At the completion of the term of consulting
period described in paragraph 2 hereof, HB shall return all
property of N2P and Adir, including computer equipment, cell
phone, PDA, etc.
14. Disclosure: The parties mutually agree not to disclose the
terms and conditions of this Separation Agreement, except that
N2P shall have the right to make such disclosures as
reasonably required by law in the opinion of its legal
counsel. Notwithstanding the foregoing, HB and N2P may
disclose such terms to their respective legal and financial
advisors and HB may disclose such terms to his immediate
family members.
15. Miscellaneous: Effective upon the Resignation Date, N2P will
release HB from his status as an SEC reporting person.
Notwithstanding the foregoing, HB remains fully and solely
responsible for compliance with all requirements of all
Federal and State securities laws in connection with the
disposition of his shares of N2P and will indemnify N2P from
any liabilities arising out of his disposition of any of such
shares in violation of any of such laws. N2P agrees to provide
HB all rights of indemnification and all director's and
officer's insurance coverage in affect, relating to the period
of time HB served as a director and officer of N2P, to the
fullest extent permitted by law and by its Certificate of
Incorporation and By-laws, as in effect on the Resignation
Date.
2
<PAGE>
16. Entire Agreement/Amendment: This Separation Agreement contains
the entire understanding of the parties with respect to the
subject matter hereof and, except as specifically provided
herein (including, without limitation HB's rights to Options
pursuant to paragraph 7 hereof), cancels and supersedes any
and all other agreements between the parties with respect to
the subject matter hereof. Any amendment or modification of
this Separation Agreement shall not be binding unless in
writing and signed by the parties hereto.
17. Successors and Assigns: This Separation Agreement shall be
binding upon and shall inure to the benefit of N2P, its
successors, affiliates and any person or other entity that
succeeds to all or substantially all of the business, assets
or property of N2P. To the extent not otherwise provided by
application of law, N2P will require any successor (whether
direct or indirect, by purchase, merger, consolidation,
transfer or otherwise) to all or substantially all of the
business, assets or property of N2P, to expressly assume and
agree to perform the obligations of N2P under this Separation
Agreement in the same manner and to the same extent that N2P
is required to perform hereunder. As used in this Agreement,
"N2P" shall mean N2P as hereinbefore defined and any successor
to its business, assets or property as aforesaid which
executes and delivers an agreement provided for in this
paragraph 17 or which otherwise becomes bound by all the terms
and provisions of this Separation Agreement by operation of
law. Except as provided by the foregoing provisions of this
paragraph 17, any assignment of this Separation Agreement, or
any part hereof, by N2P shall not relieve N2P of its
obligations under paragraphs 7 through 10.
This Separation Agreement and all rights of HB hereunder shall
inure to the benefit of and be enforceable by the HB's
personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If HB
should die while any amounts are due and payable to HB
hereunder, all such amounts, unless otherwise provided herein,
shall be paid to HB's designated beneficiary or, if there is
no such designated beneficiary, to the legal representatives
of HB's estate. This Separation Agreement is personal in
nature and the obligations of HB hereunder are not be
assignable to any person.
18. Severability/No Waiver: In the event that any provision of
this Separation Agreement is determined to be invalid or
unenforceable, the remaining terms and conditions of this
Separation Agreement shall be unaffected and shall remain in
full force and effect, and any such determination of
invalidity or unenforceability shall not affect the validity
or enforceability of any other provision of this Separation
Agreement. The failure of a party to insist upon strict
adherence to any term of this Separation Agreement or any
occasion shall not be considered a waiver of such party's
rights or deprive such party of the right thereafter to insist
upon strict adherence to that term or any other term of this
Separation Agreement.
19. Notices: All notices which may be necessary or proper for
either N2P or HB to give to the other shall be in writing and
shall be delivered by hand or sent by registered or certified
mail, return receipt requested, or by overnight courier, to HB
at:
Howard Balter
1024 Reads Lane
Far Rockaway, New York 11691
with a copy to:
Joel I. Krasnow, Esq.
Dewey Ballantine LLP
1301 Avenue of the Americas
New York, New York 10019
; and, shall be sent in the manner described above to the
Secretary of N2P at its principal executives offices at:
520 Broad Street
Newark New Jersey 07102
with a copy to: General Counsel
Any party may by like notice to the other party change the
address at which he or they are to receive notices hereunder.
3
<PAGE>
20. Governing Law: This Separation Agreement shall be governed by
and enforceable in accordance with the laws of the State of
New Jersey, without giving effect to the principles of
conflict of laws thereof and the resolution of any dispute
relating to this Separation Agreement shall be venued within
the State of New Jersey.
21. Counterparts: This Separation Agreement may be signed in
counterparts, each of which shall be an original, with the
same effect as if the signatures thereto and hereto were upon
the same instrument.
4
<PAGE>
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals
to the Separation Agreement between Howard Balter and Net2Phone, Inc. on this
26th day of November 2001.
WITNESS OR ATTEST: Howard Balter:
/S/ Glenn Williams /s/ Howard Balter
---------------------------- ---------------------------------
WITNESS OR ATTEST: Net2Phone, Inc.
/S/ Glenn Williams By: /S/ James Courter
---------------------------- -------------------------------
WITNESS OR ATTEST: Solely with respect to Section 9
hereof, IDT, Inc.
/S/ Glenn Williams By: /S/ James Courter
---------------------------- -------------------------------
WITNESS OR ATTEST: Solely with respect to paragraphs
3, 8 and 10 hereof, Adir
Technologies, Inc.
/S/ Debbie Greenblatt By: /S/ David Greenblatt
---------------------------- -------------------------------
5