Cable Telephony Service Agreement - Net2Phone Inc., Net2Phone Cable Telephony LLC, IDT Corp. and Winstar Communications LLC
Net2Phone, Inc.
520 Broad Street
Newark, New Jersey 07102
October 29, 2003
IDT Corporation
520 Broad Street
Newark, NJ 07102
Attn: James A. Courter, CEO
Winstar Communications, LLC
520 Broad Street
Newark, NJ 07102
Attn: E. Brian Finkelstein, CEO
Re: Cable Telephony
Dear Jim and Brian:
I am writing to you with the intent of formalizing the terms of our
ongoing cooperation which began on or about March 15, 2003 and which has
included (i) the joint marketing of our local and long distance telephony
services, facilities and technologies to foreign and domestic cable operators,
(ii) the development of alternative business models and financing vehicles
related to such marketing activities and the sharing of information related
thereto, and (iii) the coordination of our business activities in an effort to
pursue business opportunities in the cable telephony market to our mutual
advantage. This letter agreement sets forth the terms of a formal arrangement
pursuant to which Winstar Communications, LLC, a Delaware limited liability
company ("Winstar"), which is a subsidiary of IDT Corporation, a Delaware
corporation ("IDT"), will provide services to Net2Phone Cable Telephony, LLC, a
Delaware limited liability company ("NCT"), which is a subsidiary of Net2Phone,
Inc., to facilitate NCT's provision of cable telephony service to consumers and
cable operators worldwide.
1. Overall Structure and Terms. The basic terms of the arrangement are
set forth in the Term Sheet attached hereto as Exhibit A, which is incorporated
herein by reference.
2. Term Sheet Binding. IDT, WINSTAR and NCT each agree that this letter
agreement is intended to establish a binding agreement between them and agree to
negotiate in good faith towards execution of definitive documentation on the
basis of the terms set forth in the Term Sheet, including an agreement between
Winstar and NCT, an appropriate guaranty agreement between IDT and NCT, an
appropriate guaranty agreement between Net2Phone and IDT and Winstar and an
appropriate security and escrow agreement and other appropriate documents
relating to the Shares as provided for in the Term Sheet, upon the execution of
which this letter agreement shall be terminated. Each party acknowledges that
the other party may incur expenses and take other actions in reliance on the
mutual agreement of the parties to negotiate in good faith as provided in the
immediately preceding sentence.
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3. Governing Law. This letter agreement shall be governed by and
construed in accordance with the internal laws of the State of New Jersey
applicable to such agreements made and to be performed entirely within such
State.
4. Agreement and Amendments. This letter agreement constitutes the
understanding and agreement between the parties hereto and their affiliates with
respect to the subject matter herein and supersede all prior or contemporaneous
agreements, representations, warranties and understandings of such parties. No
promise, inducement, representation or agreement, other than as expressly set
forth herein or therein, has been made to or by the parties hereto. This letter
and its exhibits may be amended only by a written agreement signed by the
parties.
5. Construction. This letter shall be construed according to its fair
meaning and not strictly for or against either party notwithstanding that it may
have been drafted by one party. The captions herein are for convenience only and
shall not be considered a part of this letter agreement for any purpose,
including, without limitation, the construction or interpretation of any
provision hereof.
7. Beneficiaries. Nothing expressed or implied in this letter is
intended, or shall be construed, to confer upon or give any person or entity
other than the parties hereto and their respective affiliates, successors and
permitted assigns, any rights or remedies under or by reason of this letter.
8. Counterparts. This letter agreement may be signed in multiple
counterparts, all of which shall together be considered one and the same
agreement.
9. Enforceability. If any portion or provision of this letter agreement
shall to any extent be declared invalid, illegal or unenforceable by a court,
then the remainder of this letter agreement shall not be affected thereby, and
each portion or provision of this letter agreement shall be valid and
enforceable to the fullest extent permitted by law. Upon such determination that
any portion or provision of this letter agreement is invalid, illegal or
unenforceable, the parties shall negotiate in good faith to modify this letter
agreement so as to effect the original intent of the parties as closely as
possible in an acceptable manner to that end that the transaction contemplated
hereby is fulfilled to the fullest extent possible.
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If you agree with the terms and conditions set forth above, please so
indicate by signing a copy of this letter in the space indicated below and
returning it to us.
Sincerely,
NET2PHONE INC.
By: /s/ Stephen M. Greenberg
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Name: Stephen M. Greenberg
Title: Chief Executive Officer
Date: October 29, 2003
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Accepted and Agreed:
IDT CORPORATION
By: /s/ James A. Courter
--------------------------------
Name: James A. Courter
Title: Chief Executive Officer
Date: October 29, 2003
------------------------------
WINSTAR COMMUNICATIONS, LLC
By: /s/ E. Brian Finkelstein
----------------------------------
Name: E. Brian Finkelstein
Title: Chief Executive Officer
Date: October 28, 2003
--------------------------------
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Exhibit A
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TERM SHEET
This Term Sheet is attached to a letter agreement between Net2Phone INC.
("Net2Phone"), Winstar Communications, LLC and IDT Corporation, dated October ,
2003, and is subject to all of the terms and conditions thereof.
Scope of Agreement: Net2Phone Cable Telephony, LLC, a Delaware limited
liability company and a wholly-owned subsidiary of
Net2Phone (" NCT") and Winstar Communications, LLC, a
Delaware limited liability company ("Winstar") which
is a subsidiary of IDT Corporation, a Delaware
corporation ("IDT"), desire to enter into an
agreement to facilitate NCT's provision of cable
telephony service to consumers and cable operators
worldwide ("Agreement"). Under the Agreement, Winstar
will provide NCT, subject to and consistent with the
capacity of Winstar's infrastructure, with, among
other things, network access, termination,
origination and other related services. IDT will
guaranty the performance by Winstar of its
obligations under the Agreement and will enter into a
guaranty agreement with NCT to such effect. To the
extent that the Winstar infrastructure is presently
unable to support and provide the required services,
Winstar shall immediately delegate all or part of its
obligations under the Agreement (and assign all or
part of its related rights) to IDT or IDT Telecom,
Inc., a Delaware corporation, or one or more other
direct or indirect IDT subsidiaries (collectively
referred to as "IDT Telecom") but only to the extent
that IDT or IDT Telecom have the present capacity to
carry out such obligations and IDT shall cause such
entity or entities to accept such delegation and to
render the required services under the terms and
conditions provided for herein. No such delegations
shall in any way relieve Winstar or IDT of their
obligations under the Agreement, and nothing herein
shall require Winstar, IDT or IDT Telecom to provide
or procure any services that they do not otherwise
have the present capacity or capability to provide.
Scope and Mission of
NCT: NCT will acquire, develop, design, offer, promote and
sell cable telephony systems and services which
incorporate the planning and deployment of telephony
service, the integration of the network elements and
back office systems and processes, the deployment of
proprietary real-time service assurance capabilities
and the ongoing operational support required to
maintain a telephony operation, and will obtain all
necessary approvals, certificates and licenses
required by applicable law for it to do so. Customers
may include cable multiple systems operators
("MSOs"), residential and commercial end-users and
others to be determined. It is presently contemplated
that NCT will make its cable telephony services
available via (i) a "Franchise Model" whereby NCT
will obtain indefeasible rights of use or similar
rights from MSOs (and, if applicable, relevant
franchising authorities or other parties) for the
provision of telephony services to consumers over
such MSOs' cable systems, (ii) a "Hosted Model"
whereby NCT will provide MSOs with outsourced
end-to-end cable telephony service capabilities, or
(iii) any other model(s) as deemed appropriate by NCT
from time to time. The cable telephony services
offered by NCT are referred to herein as the "Cable
Telephony Solutions."
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Access Provisions: Under the Agreement, Winstar will provide access to
local termination, interconnection, switching,
domestic long distance, international long distance,
advanced features services and such other services as
are set forth on Schedule A annexed hereto or as
shall be agreed to by the parties from time to time.
Winstar and/or IDT have and will maintain in effect
all approvals, certificates and licenses that they
are at present legally required to maintain ( as well
as comply with those requirements that may be
subsequently imposed and are not unduly burdensome)
to deliver the services required of them under the
Agreement. Winstar and IDT shall continue, for the
term of the Agreement to maintain their existing
capacity to deliver the services provided for in the
Agreement. All services shall be provided to NCT in
accordance with the standards of the Service Level
Agreement which is to be incorporated into the
Agreement. The parties shall coordinate the
management of their respective system facilities.
Winstar and its assignee(s), if any, will price the
services provided at their direct incremental costs
of providing the same (which shall not include
corporate allocations), plus 5%. Where appropriate,
the cost of providing a service or access to a given
system shall be determined on a pro rata basis by
reference to the capacity of the applicable system
and not by the actual use of that system. NCT shall
have the right to audit Winstar's costs
semi-annually, and all documentation supporting
invoiced amounts shall be preserved for at least 12
months from the date of the applicable invoice. To
the extent required by law, written materials
relating to the Cable Telephony Solutions offered by
NCT shall contain an appropriate reference to such
services being provided by Winstar.
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Consideration: As additional consideration for the services being
provided under the Agreement, Winstar will receive
6,900,000 shares of the Class A common stock of
Net2Phone ("Shares) upon execution and delivery of
the Agreement, the guaranty and the security and
escrow agreement and other related documents by the
respective parties. The Shares will not be registered
and will be appropriately restricted by legend
against transfer without registration or other
compliance with federal and state securities laws.
The parties will enter into an appropriate security
and escrow agreement providing for the Shares to be
held in escrow by NCT as security for Winstar's and
IDT's performance hereunder and will be promptly
released from the escrow at the rate of 20% per year
on each of the first five anniversaries of the
execution of this agreement, subject to any claims
made against the Shares by NCT by reason of a
material default by Winstar or IDT under the
Agreement. NCT shall be entitled to direct, indirect,
incidental, consequential and exemplary damages,
including, without limitation, loss of revenue, loss
of profits, losses to customers, clients or goodwill
resulting from any material breach of the Agreement
by Winstar or IDT and shall have the right to recover
such damages by recourse to the Shares or by
proceeding directly against Winstar and IDT. In the
event that, notwithstanding the provisions of the
Agreement, Winstar shall reduce its capacity to
provide the services described herein by elimination
or modification of its infrastructure or otherwise
under circumstances that the reasonably anticipated
result of such actions would be to materially,
adversely affect NCT's ability to market its Cable
Telephony Solution and to obtain the services to be
provided by Winstar hereunder at substantially the
same ongoing costs, NCT shall have the right to
terminate the Agreement and all Shares not previously
released from escrow to Winstar shall revert to
Net2Phone. The security agreement shall provide for
arbitration of all disputes between the parties by a
mutually agreed upon arbitrator(s) and that, subject
to the arbitration provisions, NCT shall have all
rights of a secured party under the Uniform
Commercial Code as in effect in the State of New
Jersey from time to time.
Term and Termination: The Agreement shall continue in effect indefinitely
unless terminated (i) upon mutual agreement of the
parties, (ii) upon the occurrence of certain
defaults, or (iii) by either party, on 6 months
notice, beginning 180 days prior to the fifth
anniversary of the execution and delivery of this
agreement.
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Restriction on
Competition: Subject to the limitations of applicable law, each
party will agree that, during the term of the
Agreement, and subject to the terms of the Agreement,
neither it nor any of its affiliates will engage,
directly or indirectly, except through NCT, in (i)
providing cable telephony services in conjunction
with MSO's, (ii) the development, marketing or sale
of devices or software products that may be utilized
by consumers to obtain cable telephony services or
(iii) offering local telephony within the geographic
footprint of NCT's operations, provided that neither
IDT nor any of its affiliates will be restricted from
providing local telephony direct to consumers in any
area through fixed wireless or UNE-P telephony
offerings.
Representations,
Warranties
Covenants: Customary for a transaction of this type, including
representations and covenants relating to NCT's
obligations, if any, to obtain governmental
approvals, certifications or licenses and otherwise
comply with any and all applicable regulatory
obligations.
Indemnification: Customary provisions for indemnification for losses
resulting from a breach of a party's representations,
warranties or covenants including with respect to
such services provided by Winstar as to which NCT was
legally required to but failed to obtain governmental
certifications.
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Schedule A
Description of services to be provided under Agreement
Generally, and to the extent permissible by law, Winstar will provide all
services possible within its technical capacity in order to support the NCT
Business. This may include, but is not limited to, using NCT-provided ANI/CPN,
Winstar routing traffic for origination and termination by a third-party carrier
throughout the United States and International Territories as the Parties may
agree, 911 and E911, LNP, Pre-subscription, operator services, and
Interconnection with the PSTN. Winstar and NCT agree, within 90 days of the
Effective Date of this agreement, to more fully describe the processes by which
Winstar shall provide the Services to NCT.
1. Enhanced 911--This is an advanced form of 911 service in which the
telephone number of the caller is transmitted to the Public Safety
Answering Point ("PSAP") where it is cross-referenced with an
address data base to determine the caller's location. Winstar will
provide NCT with all the Services necessary for NCT to provision
E911 to its MSO customers or Subscribers.
2. CALEA - The Communications Assistance for Law Enforcement Act of
1994 ("CALEA") requires that telephone communications carriers have
the ability to trace telephone calls and record their content in
response to appropriate warrants and court orders. While Net2Phone
has the ability to trace calls, it has not developed the capacity to
record content. Cable Labs, the industry agency that establishes
standards for packet cable compliance.. NCT is PacketCable
compliant.
3. Operator Assisted Services. As a local exchange carrier, Winstar
will provide MSO users of Net2Phone's cable telephony solution with
such operator assisted services as operator assisted calling and
directory assistance.
4. Telephone Numbers. Winstar will provide NCT with telephone numbers
for assignment to its MSO customers or Subscribers, assuring that
assigned numbers are placed in local exchange routing guides and
providing the consumers with local number portability, that is the
ability to allow a customer to transfer his/her existing phone
number from one provider to another.
5. Leased Capacity. Winstar will provide NCT with the ability to lease
capacity from both IDT and Winstar on a wholesale basis for purposes
of carrying traffic on a dedicated basis on behalf of NCT's cable
customers.
6. International Cable Operators. IDT's established connectivity
arrangements throughout the world will enable NCT to offer its
international cable customers pre-negotiated rates, interconnection
agreements and facilities.
7. Domestic Cable Operators. Winstar's existing interconnect
agreements, switches and other facilities provide access to the
public switched telephone network as required.
8. Interconnect Arrangements. With the benefit of Winstar's established
interconnect arrangements, NCT will be able to generate significant
financial benefits for itself and its cable customers through
reciprocal compensation arrangements.
II. EXCLUDED SERVICES
None.
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