Employment Agreement - Net2Phone Inc. and Bruce Shoulson
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT is made as of January 8, 2001 (this
"Agreement"), between Net2Phone, Inc., a Delaware corporation (the "Company")
and Bruce Shoulson (the "Executive").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Company wishes to assure itself of the services
of the Executive and the Executive and the Company are willing to enter into an
agreement to that end, upon the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of good and valuable
consideration the receipt and sufficiency of which are hereby acknowledged, the
parties hereby covenant and agree as follows:
1. Employment
The Company hereby agrees to employ the Executive, and the
Executive hereby agrees to accept employment with the Company, on and subject to
the terms and conditions of this Agreement.
2. Term
Unless earlier terminated pursuant to Section 5 hereof, the
period of this Agreement and the Executive's employment hereunder (the
"Agreement Term") shall commence as of the date hereof, (the "Effective Date"),
and shall expire on the third anniversary of the Effective Date; provided,
however that the Agreement Term shall be automatically extended for an
additional year on the third anniversary of the Effective Date and on each
anniversary of the Effective Date thereafter (each an "Extension Date"), unless
written notice of non-extension is provided by either party to the other party
at least 90 days prior to such anniversary.
3. Position, Authority and Responsibilities
(a) The Executive shall serve as, and with the title, office and
authority of, General Counsel of the Company, and shall report directly to the
Office of the President.
(b) The Executive shall have all of the powers, authority, duties and
responsibilities usually incident to the position and office of General Counsel
and such duties consistent with such position as may be assigned from time to
time by the Office of the President.
(c) The Executive agrees to devote substantially all of his business
time, efforts and skills to the performance of his duties and responsibilities
under this Agreement; provided, however, that nothing in this Agreement shall
preclude the Executive from (i) serving on corporate, civic or charitable boards
or committees, (ii) delivering lectures, fulfilling charitible engagements or
teaching at educational institutions and/or (iii) managing his personal
investments, provided that in any such case that such activities do not
materially interfere with the Executive's performance of his duties and
responsibilities hereunder and do not violate the provisions of Section 10
hereof;
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(d) Salary. The Executive shall perform his duties at the principal
offices of the Company located in Newark, New Jersey, but from time to time the
Executive may be required to travel to other locations in the proper conduct of
his responsibilities under this Agreement
4. Compensation
In consideration of the services rendered by the Executive
during the Agreement Term, the Company shall pay or provide the Executive the
amounts and benefits set forth below.
(a) Salary. The Company shall pay the Executive an initial
annual base salary (the "Base Salary") of at least $250,000. The Executive's
Base Salary shall be paid in arrears in substantially equal installments at
monthly or more frequent intervals, in accordance with the normal payroll
practices of the Company. The Executive's Base Salary shall be reviewed at least
annually by the Office of the President for consideration of appropriate merit
increases and, once established, the Base Salary shall not be decreased during
the Agreement Term.
(b) Annual Bonus. The Company shall provide the Executive with
an opportunity to earn an annual bonus (the "Annual Bonus") equal to at least
25% of the Base Salary for each fiscal year during the Agreement Term beginning
with the 2001 fiscal year pursuant to a bonus plan to be established by the
Company. The Annual Bonus, if any, shall be paid to the Executive in the first
regular pay period of the Company that occurs after the first fiscal quarter of
the year that immediately follows the year in which the Annual Bonus was earned,
notwithstanding any expiration of this Agreement as of the last day of such
year.
(c) Equity Incentives.
(i) Except as provided in this Agreement, the treatment of
options to purchase shares of the Common Stock of the Company ("Common
Stock") granted to the Executive prior to the Effective Date under the
Company's stock incentive plans shall be governed by the applicable
stock option agreements. On the Effective Date, the Executive shall be
granted an option (the "Option") to purchase 150,000 shares of the
Company's common stock, par value $.01 per share, pursuant to the Stock
Option Agreement attached hereto as Exhibit A. The Option shall be
granted with an exercise price equal to the current fair market value
on the Effective Date. The Executive shall be eligible, from time to
time, to receive awards of stock options or other equity incentives, as
determined by the Board. Except as otherwise provided herein, the
Executive's right to exercise the Option shall become vested as
follows, if as of each such date set forth below the Executive is
employed by the Company or any of its subsidiaries:
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(A) 33-1/3% on the first anniversary of the Effective
Date, and
(B) the remaining portion shall vest on a pro rata
basis on the last day of each month for the twenty-four months
following the first anniversary of the Effective Date.
(C) At the end of the initial Agreement Term or upon
the sooner of the termination of this agreement by reason of
(i) death or disability of Executive, (ii) the termination of
this Agreement by the Company "other than for Cause" or (iii)
the termination of this Agreement by reason of the Executive's
"Resignation for Good Reason", the Company shall promptly pay
to the Executive the excess of $1,600,000 ("Guaranteed Value")
over the sum of (x) fair market value of the Common Stock
subject to unexercised Options (less the aggregate exercise
price of such unexercised Options) plus (y) the fair market
value of the Common Stock previously acquired by the Executive
upon the exercise of his Options measured as of the date of
exercise (less the aggregate exercise price of such exercised
Options).
The Guaranteed Value shall be reduced by the total Opportunity
Value of the Common Stock represented by the unexercised
vested Options on the respective Valuation Dates. Opportunity
Value shall mean the average closing sales price of the Common
Stock as quoted on NASDAQ (or on the New York of American
Stock Exchange if the Common Stock shall be listed on one of
such Exchanges) for the 20 trading days immediately preceding
a Valuation Date, less the exercise price for the Executive's
Options to purchase such Common Stock. For purposes of the
Agreement, the Valuation dates under this Agreement shall be
January 7, 2002, January 7, 2003 and January 7, 2004, and the
number of shares of Common Stock to be valued on a Valuation
Date shall be equal only to the number of shares of Common
Stock subject to the unexercised Options which became vested
during the 12 month period immediately prior to a Valuation
Date. There shall be no reduction in Guaranteed Value to the
extent Executive would have been legally prevented from
selling, during the 20 trading days immediately preceding a
Valuation Date, shares of Common Stock acquired upon the
exercise of Options which became vested during the immediately
preceding 12 months.
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(d) Employee Benefits. The Executive shall be entitled to
participate in all employee benefit plans, programs, practices or other
arrangements of the Company in which other senior executives of the Company are
generally eligible to participate from time to time, including, without
limitation, any qualified or non-qualified pension, profit sharing and savings
plans, any death benefit and disability benefit plans, and any medical, dental,
health and welfare plans, except to the extent that a separate arrangement is
implemented for the Executive on terms no less favorable than as provided to the
other senior executives agreed to by the Executive that is intended to replace
any such general arrangement. Without limiting the generality of the foregoing,
(i) the Company shall continue to provide the Executive with life insurance
coverage with a death benefit that is not less than the amount as is in effect
as of the Effective Date and (ii) the Company shall provide the executive with
disability insurance coverage consistent with the disability insurance coverage
provided to senior executives of other companies in the same industry as the
Company.
(e) Fringe Benefits and Perquisites. The Executive shall be
entitled to all fringe benefits and perquisites that are generally made
available to senior executives of the Company from time to time on the same
basis as is made available to such other executives. Without limiting the
generality of the foregoing, the Company shall provide the Executive with the
following:
(ii) executive offices and support staff appropriate to the
Executive's position;
(iii) prompt reimbursement of all reasonable travel and other
business expenses and disbursements incurred by the Executive in the performance
of his duties under this Agreement in accordance with the Company's normal
practices and procedures, including professional association dues upon proper
accounting therefor;
(iv) paid vacation during each calendar year, to be taken in
an amount equal to and in accordance with the Company's vacation policy for
senior executives;
(v) an automobile allowance consistent with the automobile
allowance policy for the Company's senior executive officers; and
(vi) such other fringe benefits as the Executive and the Board
may mutually agree from time to time.
5. Termination of Employment
The Agreement Term and the Executive's employment hereunder
shall be terminated upon the happening of any of the following events:
(a) Termination for Cause. The Company may terminate the
Agreement Term and the Executive's employment hereunder for Cause. For purposes
of this Agreement, "Cause" shall mean:
(i) conviction of the Executive, by a court of competent
jurisdiction, of, or Executive's plea of guilty or nolo contendere to, a felony
under the laws of the United States or any state thereof;
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(ii) misappropriation by the Executive of the Company's finds;
or
(iii) the commission by the Executive of an act of proven
fraud with respect to the Company.
Notwithstanding the foregoing, in no event shall the Company be
considered to have terminated the Executive's employment for "Cause" unless and
until (i) the Executive receives written notice from the Office of the
President, the CEO or the Board identifying in reasonable detail the acts or
omissions constituting such "Cause" and the provision of this Agreement relied
upon by the Company for such termination and (ii) such acts or omissions are
not cured by the Executive within 30 days of the Executive's receipt of such
notice.
(b) Termination other than for Cause. The Office of the
President, the Board or the CEO shall have the right to terminate the Agreement
Term and the Executive's employment hereunder for any reason at any time,
including for any reason that does not constitute Cause, subject to the
consequences of such termination as set forth in this Agreement.
(c) Resignation for Good Reason. The Executive may voluntarily
terminate the Agreement Term and his employment hereunder for Good Reason. For
purposes of this Agreement, "Good Reason" shall mean:
(i) any action by the Company that results in a diminution of
the Executive's authority or responsibilities;
(ii) any adverse modification of the Executive's positions,
titles or reporting reLationships;
(iii) any failure by the Company to comply with the
compensation and benefits provisions of Section 4 hereof or any other material
breach of this Agreement by the Company;
(iv) the relocation, without the Executive's written consent,
of the Executive's principal office from Newark, New Jersey; or
(v) any failure by the Company to obtain an assumption of this
Agreement by a successor corporation as required under Section 11(a) hereof.
In no event shall the Executive be considered to have terminated his
employment for "Good Reason" unless and until (i) the Company receives written
notice from the Executive identifying in reasonable detail the acts or omissions
constituting such "Good Reason" and the provision of this Agreement relied upon
by the Executive for such termination, and (ii) such acts or omissions are not
cured by the Company within 30 days of the Company's receipt of such notice.
(d) Resignation other than for Good Reason. The Executive may
voluntarily terminate the Agreement Term and his employment hereunder at any
time for any reason, including for any reason that does not constitute Good
Reason by giving the Company 30-days advance written notice of such termination.
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(e) Disability. The Company may terminate the Agreement Term
and the Executive's employment hereunder upon the Executive's Disability. For
purposes of this Agreement, "Disability" shall mean the inability of the
Executive to perform his duties to the Company on account of physical or mental
illness for a period of six consecutive full months, or for a period of nine
full months during any 18-month period. The Executive's employment shall
terminate in such case on the last day of the applicable period following
written notice by the Company of the election to terminate the Executive's
employment due to the Executive's Disability. Notwithstanding the foregoing, in
no event shall the Executive be terminated by reason of Disability unless the
Executive is eligible to begin receiving long-term disability benefits from a
Company-sponsored long-term disability plan.
(f) Death. The Agreement Term and the Executive's employment
hereunder shall terminate upon his death.
6. Compensation Upon Termination of Employment
Notwithstanding any provision of this Agreement to the
contrary, in the event the Agreement Term and the Executive's employment by the
Company is terminated, the Executive shall be entitled to the compensation and
severance benefits set forth below:
(a) Resignation for Good Reason; Termination without Cause. In
the event the Agreement Term and the Executive's employment hereunder is
terminated by the Executive for Good Reason or by the Company for any reason
other than for Cause, Disability or death, the Company shall pay to the
Executive and provide him with the following:
(i) Severance Payment. The Company shall continue to pay the
Executive, his then current Base Salary, in accordance with the Company's
general payroll practice, for the greater of (a) the two years following such
termination or (b) the remainder of the then current term of this Agreement. In
addition, during such period the Executive shall be entitled to receive annual
payments, at the time and in a manner consistent with the Company's payment of
annual bonuses, of an amount equal to the Executive's then-current Annual Bonus
percentage under Section 4(b) hereof, multiplied by his then-current Base Salary
if and only if such bonus would have been earned under the plan in place
immediately prior to the Executive's termination.
(ii) Accrued Rights. The Company shall pay the Executive a
lump-sum cash amount, within 10 days of the date of termination, equal to the
sum of(A) his earned but unpaid Base Salary through the date of termination, (B)
any earned but unpaid Annual Bonus for any completed calendar year, and (C) any
unreimbursed business expenses or other amounts due to the Executive from the
Company as of the date of termination. In addition, the Company shall provide to
the Executive all payments, rights and benefits due as of the date of
termination under the terms of the Company's compensation or benefit plans,
programs or awards (together with the lump-sum payment, the "Accrued Rights").
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(iii) Bonus Rights. The Company shall pay the Executive,
within 10 days of the date of termination, a lump-sum cash amount equal to a pro
rata portion of the Annual Bonus for any partial calendar year of service
through the date of termination (the "Bonus Rights").
(iv) Continued Benefits. Subject to Section 8 hereof, for a
two-year period following the date of termination, the Company shall continue to
provide the Executive and his eligible dependents, at its sole cost, with the
medical, dental, disability and life insurance coverages ("Welfare Benefits")
that were provided to the Executive immediately prior to termination of
employment.
(v) Stock Options. Notwithstanding the provisions of any stock
incentive plan or award agreement between the Company and the Executive to the
contrary, (i) 100% of the options to purchase Common Stock which are not fully
vested and exercisable as of the date of termination shall become fully vested
and exercisable and (ii) the period during which options shall remain
exercisable shall be extended until the second anniversary of the date of
termination. All such award agreements shall be amended by the Company and the
Executive to reflect the foregoing provision.
(vi) Life and Disability Insurance. The Company shall fully
fund the life insurance and disability policies described in Section 4(d)
hereof.
(vii) Car Allowance. Until the second anniversary of the date
of termination, the Company shall continue to provide the Executive with the
automobile allowance described in Section 4(e)(v) hereof.
(b) Resignation without Good Reason; Termination for Cause. In
the event the Executive voluntarily terminates the Agreement Term and his
employment hereunder other than for Good Reason, or in the event the Agreement
Term and the Executive's employment hereunder is terminated by the Company for
Cause, the Company shall pay and provide to the Executive all Accrued Rights and
Bonus Rights and the Executive shall retain any rights that he has pursuant to
any stock option agreement with the Company in accordance with the terms
thereof.
(c) Disability; Death. In the event the Agreement Term and the
Executive's employment hereunder is terminated by reason of the Executive's
Disability or death, the Company shall pay the Executive (or his legal
representative) and provide him with the following:
(i) Severance Payment. The Company shall continue to pay the
Executive, his then current Base Salary, in accordance with the Company's
general payroll practices, for the one year period following the date of such
termination. In addition, during such one year period the Executive shall be
entitled to receive one payment, at the time and in a manner consistent with the
Company's payment of annual bonuses, of an amount equal to the Executive's
then-current Annual Bonus percentage under Section 4(b) hereof, multiplied by
his then current Base Salary if and only if such bonus would have been earned
under the plan in place immediately prior to the Executive's termination.
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(ii) Accrued Rights. The Company shall pay the Executive a
lump-sum cash amount, within 10 days of the date of termination, equal to the
Accrued Rights.
(iii) Bonus Rights. The Company shall pay the Executive,
within 10 days of the date of termination, a lump-sum cash amount equal to the
Bonus Rights.
(iv) Continued Benefits. Subject to Section 9 hereof, for a
one-year period following the date of termination, the Company shall continue to
provide the Executive and his eligible dependents, at its sole cost, with the
Welfare Benefits that were provided to the Executive immediately prior to
termination of employment.
(v) Stock Options. Notwithstanding the provisions of any stock
incentive plan or award agreement between the Company and the Executive to the
contrary, (A) all options to purchase Common Stock which are not fully vested
and exercisable as of the date of termination shall become fully vested and
exercisable and (B) the period during which such options shall be exercisable
shall be extended until the first anniversary of the date of termination. All
such award agreements shall be amended by the Company and the Executive to
reflect the foregoing provision.
7. Indemnification
The Company agrees to provide to the Executive all rights of
indemnification and all director's and officer's insurance coverage to the
fullest extent permitted by law and by its Certificate of Incorporation and
By-laws.
8. No Mitigation or Offset
The Executive shall not be required to seek other employment
or to reduce any severance benefit payable to him under Section 6 hereof, and no
such severance benefit shall be reduced on account of any compensation received
by the Executive from other employment; provided, however, to the extent that
the Executive becomes eligible to receive welfare benefits pursuant to employee
benefit plans of a new employer that are comparable to the Welfare Benefits that
the Company is obligated to provide to the Executive pursuant to Section
6(a)(iv), the Company's obligation to provide such Welfare Benefits shall cease.
The Company's obligations to the Executive under this Agreement, including,
without limitation, any obligation to provide severance benefits, shall not be
subject to set-off or counterclaim in respect of any debts or liabilities of the
Executive to the Company.
9. Tax Withholding; Method of Payment
All compensation payable pursuant to this Agreement shall be
subject to reduction by all applicable withholding, social security and other
federal, state and local taxes and deductions for income, employment, excise and
other taxes. Any lump-sum payments provided for in Section 6 hereof shall be
made in a cash payment, net of any required tax withholding, no later than 10
business days following the Executive's date of termination. Any payment
required to be made to the Executive under this Agreement that is not made in a
timely manner shall bear interest at an interest rate equal to 120% of the
monthly compounded applicable federal rate as in effect under Section 1274(d) of
the Code.
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10. Restrictive Covenants
(a) Confidential Information. During the Agreement Term and at
all times thereafter, the Executive agrees that he will not divulge to anyone
(other than the Company or any persons employed or designated by the Company)
any knowledge or information of a confidential or proprietary nature relating to
the business of the Company 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 the Executive further agrees not to disclose, publish or make
use of any such knowledge or information without the consent of the Company.
(b) Noncompetition. The Executive acknowledges that (i) the
Company is currently engaged in the business of providing high quality, low-cost
telephone calls over the Internet ("Internet Telephony"), (ii) his work for the
company will give him access to trade secrets of and confidential information
concerning the Company, and (iii) the agreements and covenants contained in this
Agreement are essential to protect the business and goodwill of the Company.
Accordingly, the Executive covenants and agrees that during the Restricted
Period (defined below), the Executive shall not, without the prior written
consent of the Company, (1) engage or participate in the business of developing,
managing or operating any Internet Telephony business (a "Competitive Business")
on his own behalf or on behalf of any person or entity, and the Executive shall
not acquire a financial interest in any Competitive Business (except for
publicly traded equity interests that do not exceed five percent (5%) of such
class of equity) or (2) directly or indirectly solicit or encourage any employee
of the Company or any of its affiliates to leave the employment of the Company
or any of its affiliates. For purposes hereof, the "Restricted Period" shall be
the Agreement Term as may be terminated pursuant to Section 6 hereof) and,
except in the event of a termination described in Section 6(a) hereof, the
12-month period following any termination of the Executive's employment
hereunder.
(c) Enforcement. The Executive acknowledges and agrees that
the Company will have no adequate remedy at law, and could be irreparably
harmed, if the Executive breaches or threatens to breach any of the provisions
of Section 10 of this Agreement The Executive agrees that the Company shall be
entitled to equitable and/or injunctive relief to prevent any breach or
threatened breach of this Section 10, and to specific performance of each of the
terms of this Section in addition to any other legal or equitable remedies that
the Company may have. The Executive further agrees that he shall not, in any
equity proceeding relating to the enforcement of the terms of this Section 10,
raise the defense that the Company has an adequate remedy at law.
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11. Successors and Assigns
(a) This Agreement shall be binding upon and shall inure to
the benefit of the Company, its successors and any person or other entity that
succeeds to all or substantially all of the business, assets or property of the
Company. To the extent not otherwise provided by application of law, the Company
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 the Company, to expressly assume and agree to
perform the obligations of the Company under this Agreement in the same manner
and to the same extent that the Company is required to perform hereunder. As
used in this Agreement, the "Company" shall mean the Company as hereinbefore
defined and any successor to its business, assets or property as aforesaid which
executes and delivers an agreement provided for in this Section 11(a) or which
otherwise becomes bound by all the terms and provisions of this Agreement by
operation of law. Except as provided by the foregoing provisions of this Section
11(a), this Agreement shall not be assignable by the Company without the prior
written consent of the Executive. In the event that this Agreement is assigned
to any person or entity as may be permitted hereunder, the Company shall be
secondarily liable in the event that any such person or entity shall fail to
satisfy its obligations under Section 4, 6 or 7 hereof.
(b) This Agreement and all rights of the Executive hereunder
shall inure to the benefit of and be enforceable by the Executive's personal or
legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. If the Executive should die while any
amounts are due and payable to the Executive hereunder, or prior to the payment
contemplated by Section 4(c)(i)(c) all such amounts, unless otherwise provided
herein, shall be paid to the Executive's designated beneficiary or, if there is
no such designated beneficiary, to the legal representatives of the Executive's
estate. This Agreement is personal in nature and the obligations of the
Executive hereunder are not be assignable to any person.
12. Entire Agreement/Amendment
This Agreement contains the entire understanding of the
parties with respect to the subject matter hereof and, except as specifically
provided herein, cancels and supersedes any and all other agreements between the
parties with respect to the subject matter hereof. Any amendment or modification
of this Agreement shall not be binding unless in writing and signed by the
parties hereto.
13. Severability/No Waiver
(a) In the event that any provision of this Agreement is
determined to be invalid or unenforceable, the remaining terms and conditions of
this Agreement shall be unaffected and shall remain in full force and effect,
and any such determination of invalidity or uneriforceability shall not affect
the validity or enforceability of any other provision of this Agreement.
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(b) The failure of a party to insist upon strict adherence to
any term of this Agreement on 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 Agreement.
14. Notices
All notices which may be necessary or proper for either the
Company or the Executive 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 air courier, to the Executive at:
Bruce Shoulson
[Address]
and shall be sent in the manner described above to the Office of the President
of the Company at the Company's principal executives offices at:
Net2Phone, Inc.
520 Broad Street
Newark, New Jersey 07102
and shall be deemed given when dispatched, provided that any notice required
under Section 5 hereof or notice given pursuant to Section 2 hereof shall be
deemed given only when received. Any party may by like notice to the other party
change the address at which he or they are to receive notices hereunder.
15. Governing Law
This 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.
16. Arbitration
Except for any action brought under Section 10 which may be
brought by the Company directly in any court of competent jurisdiction, any
controversy or claim arising out of, or related to, this Agreement, or the
breach thereof, shall be settled by binding arbitration in the City of Newark,
New Jersey in accordance with the rules then obtaining of the American
Arbitration Association, and the arbitrator's decision shall be binding and
final, and judgment upon the award rendered may be entered in any court having
jurisdiction thereof.
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17. Legal Fees and Expenses
The Company shall pay the legal fees and expenses incurred by
the Executive in connection with, the negotiation of this Agreement. To provide
the Executive with reasonable assurance that the purposes of this Agreement will
not be frustrated by the cost of its enforcement, the Company shall pay and be
solely responsible for any attorneys' fees and expenses and any court or
arbitration costs incurred by the Executive as a result of a claim that the
Company has breached or otherwise failed to perform this Agreement or any
provision hereof regardless of which party, if any, prevails in the contest.
18. Counterparts
This 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.
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IN WITNESS WHEREOF, the Company and the Executive have
executed this Agreement as of the date first written above.
EXECUTIVE
/s/ Bruce Shoulson
-------------------------------------
Bruce Shoulson
NET2PHONE, INC.
By: /s/ Stephen M. Greenberg
---------------------------------
Name: Stephen M. Greenberg
Title: Office of the President
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