Continuing Letter of Credit Agreement - Wachovia Bank NA and Net2Phone Inc.
CONTINUING LETTER OF CREDIT AGREEMENT
In consideration of the Bank (as defined below) in its discretion issuing from
time to time letters of credit whether documentary or standby and all amendments
thereto (hereinafter each individually, and all collectively called the
"Credit") substantially in accordance with an Application (as defined below) for
a Credit tendered to the Bank, Net2Phone, Inc. (hereinafter, individually and
collectively, the "Applicant") agrees:
1. Definitions. As used herein: (A) "Agreement" means each Application by the
Applicant for a Credit and this Continuing Letter of Credit Agreement, as each
may be modified; (B) "Application" means, if Applicant uses electronic
communication facilities to apply for or instruct the Bank as to the contents of
a Credit, information sufficient to enable the Bank to prepare and issue or
amend a Credit for Applicant's account transmitted by electronic message (which
may, but need not, be computer generated), including facsimile, directed to the
Bank by Applicant using such identification codes, passwords, and other security
procedures as the Bank and Applicant may agree are commercially reasonable from
time to time; or a written and signed application with sufficient information
delivered to the Bank to enable it to prepare and issue or amend a Credit for
Applicant's account; (C) "Bank" means Wachovia Bank, National Association and
all of its branches, whether in the United States or foreign and any of Bank's
affiliates that issue letters of credit; Applicant authorizes and directs the
Bank to select the branch or affiliate which will issue or process any Credit;
and for the purposes of Sections 4, 7 and 9, "Bank" includes correspondents of
Bank; (D) "Business Day" means any day that is not a Saturday, Sunday or other
day on which commercial banks are authorized or required to close at the place
where Bank is obligated to honor a presentation or otherwise act under the
Credit or this Agreement; (E) "Collateral" means (i) all Applicant's Property
(as hereinafter defined) now or hereafter in possession or control of Bank or
its agents, affiliates or representatives (for any purpose); and (ii) all
proceeds and products of the foregoing, now or later existing; (F) "Draft" means
any draft (sight or time), receipt, acceptance, cable, SWIFT or other written
demand for payment; (G) "Event of Default" means (i) failure to pay or perform
any of the Obligations when due or Applicant shall fail to abide by any of the
terms and provisions of this Agreement or any agreement executed by Applicant in
favor of Bank in connection herewith or there occurs a default or event of
default (or similarly denominated term) under any agreement executed by
Applicant in connection with this Agreement; (ii) termination of Applicant's
existence, provided, however, that if Applicant enters into a merger or
consolidation with IDT Corporation ("IDT") and IDT is the surviving entity and
IDT assumes all of Applicant's obligations hereunder and confirms Bank's
security interest in all Collateral (such merger or consolidation and assumption
and confirmation by IDT, an "IDT Transaction), such event shall not be an Event
of Default; (iii) institution of any proceeding under any law relating to
bankruptcy, insolvency or reorganization by or against Applicant, or the
appointment of a receiver or similar official for Applicant or any of
Applicant's property which proceeding or appointment if instituted against
Applicant is not dismissed within 60 days; (iv) seizure or forfeiture of
Applicant or any material amount of its property; (v) a change in control of
Applicant (except if same occurs as a result of an IDT Transaction"); (vi)
attachment or restraint of or other legal process against property in which
Applicant has an interest in the control of Bank or any third party on behalf of
Bank; (vii) any statement to Bank made by Applicant or on its behalf is
incorrect or misleading in any material respect; (viii) Applicant's failure to
provide Bank on request any books and records; (ix) Applicant's failure to
withhold, collect or pay any tax when assessed or due unless such failure is as
a result of a good faith dispute by Applicant and during such dispute Applicant
maintains reserves as may be required by generally accepted accounting
principles; (x) occurrence of any of the above with respect to any guarantor of
any Obligations and if there is more than one party as Applicant, the occurrence
of any of the foregoing regarding any one, some, or all of such parties; (xi)
any representation or warranty made by Applicant herein or otherwise to Bank
shall be incorrect or inaccurate when made or deemed made; or (xii) Applicant
shall default in the payment or performance of any of its obligations under any
other loans, contracts or agreements with Bank or Bank's affiliates or Applicant
shall be in default of any material contract with or obligations when due to a
third party which contract or obligation has become the subject matter of a
litigation involving Applicant and involves a claim(s) against Applicant in
excess of $1,000,000 in the aggregate or default in the payment or performance
of any obligation to a third party for money borrowed in an amount in excess of
$1,000,000.00 in the aggregate; (H) "Good Faith" means honesty in fact in the
conduct or transaction concerned; (I) "ISP 98" means the International Standby
Practices, International Chamber of Commerce ("ICC") Publication No. 590, or any
subsequent revisions or restatement thereof which may be adopted by the ICC and
in use by the Bank; (J) "Jurisdiction" means the state in the United States
where the Bank's branch which maintains Applicant's major deposits is located,
or if Applicant does not have deposits with the Bank, the Bank's office in a
state of the United States where Applicant's major banking relationship with it
is conducted; if neither of the foregoing apply, then jurisdiction shall mean
New York City, New York; (K) "Obligations" means all obligations of any, some or
all of parties comprising the Applicant to Bank now or hereafter existing under
this Agreement or under any other document entered into by Applicant in
connection with this Agreement; (L) "Prime Rate" means that changing rate of
interest announced publicly from time to time by Bank as its Prime Rate; (M)
"Property" means all present and future "Collateral" as that term is defined in
the Security Agreement of even date from Applicant to Bank (including, but not
limited to, deposit accounts and certificates of deposit), together with all
cash and non cash proceeds and products thereof, and all Applicant's rights
thereto and all documents relative thereto; and (N) "UCP" means the Uniform
Customs and Practice for Documentary Credits, ICC Publication Number 500, or any
subsequent revision or restatement thereof adopted by the ICC and in use by the
Bank. Terms not defined herein will, if defined therein, have the same meaning
as given in the Uniform Commercial Code as amended from time to time.
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2. Applicant's Reimbursement of Bank: (A) Applicant shall pay Bank on demand in
immediately available funds (in United States currency) (i) the amount of each
Draft drawn or purporting to be drawn under the Credit (whether drawn before, on
or after the expiry date stated in the Credit); provided that if the Credit
provides for acceptance of a time draft or incurrence of a deferred payment
obligation, reimbursement shall be due sufficiently in advance of its maturity
to enable the Bank to arrange for its cover in same day funds to reach the place
where it is payable no later than the date of its maturity; (ii) any amount by
which Bank's cost of payment under the Credit exceeds the amount paid by
Applicant; (iii) interest on all amounts not paid when due at a fluctuating rate
per annum equal to the Prime Rate plus 2%, but in no event at an interest rate
exceeding the highest rate permitted by applicable law. Applicant authorizes
Bank to immediately reimburse itself for all Drafts paid by Bank under any
Credit by debiting the amount so paid from the Collateral. Notwithstanding the
foregoing, Applicant's obligation to reimburse Bank for any amounts paid by Bank
under any Credit or any other Obligation shall be absolute and unconditional
whether or not sufficient amounts are available from the Collateral. (B) Foreign
Currency. If the Draft is payable in other than U.S. currency, Applicant will
pay Bank the amount in U.S. currency from Bank at Bank's current selling rate of
exchange for delivery to the place of payment in the currency and amount in
which such Draft was drawn. If there is no current selling rate of exchange
generally offered by Bank for effecting such payment, Applicant will pay Bank on
demand an amount which Bank deems necessary to pay or provide for the payment of
the Obligations, and Applicant shall remain liable for any deficiency which may
result if such amount in U.S. currency proves to be insufficient to effect full
payment or reimbursement to Bank at the time when such rate of exchange shall
again be current. (C) Fees, Costs and Expenses. Applicant will pay Bank (i) fees
in respect of the Credit equal to forty (40) basis points per annum on the face
amount of the Credit for the period of time the Credit is outstanding, such fee
to be payable upon issuance of the Credit and on the yearly anniversary of the
issuance of the Credit; (ii) Bank's standard fees then in effect (including, if
applicable, application fees, issuance fees, maintenance fees, amendment fees,
drawing fees, discrepancy fees, acceptance or deferred payment obligation fees,
transfer fees and assignment of letter of credit proceeds fees); and (iii) on
demand, all costs and expenses that Bank incurs in connection with the Credit or
this Agreement, including (a) reasonable attorneys' fees and disbursements and
other dispute resolution expenses to protect or enforce Bank's rights or
remedies under or in connection with the Credit, this Agreement or any separate
security agreement, guaranty or other agreement or undertaking supporting this
Agreement or to respond to any notice of forgery, fraud, abuse or illegality in
connection with this Agreement, the Credit, any presentation under the Credit or
any transaction underlying the Credit (including an active defense by Bank in
any action in which an injunction is sought or obtained against presentation or
honor), (b) costs and expenses in connection with any requested amendment to or
waiver under the Credit or this Agreement, (c) costs and expenses in complying
with any governmental exchange, currency control or other laws, rules or
regulations of any country now or hereafter applicable to the purchase or sale
of, or dealings in, foreign currency, (d) any stamp taxes, recording taxes, or
similar taxes or fees payable in connection with the Credit or this Agreement,
and (e) any adviser, confirmer, or other nominated person fees and expenses that
are chargeable to Applicant or Bank. References in this Agreement to attorneys'
fees and disbursements shall include any reasonably allocated costs of internal
counsel. (D) Increased Costs and Taxes. Applicant shall pay Bank on demand
increased costs or Bank's reduction in yield from any new or changed reserve,
capital, special deposit, tax, insurance or other requirement or guideline
affecting the Bank's or its parent's contingent or absolute rights or
obligations under or in connection with this Agreement or any Credit provided
the Bank acts reasonably to avoid or minimize the increased costs or reduction
in the yield and computes the same on a reasonable basis. Applicant agrees that
all payments hereunder shall be made without withholding, deduction or set-off
and shall be made free and clear of taxes other than federal and state income
and franchise taxes imposed on the Bank. (E) Automatic Debit for Payment.
Applicant authorizes Bank to debit any of Applicant's accounts at Bank for any
payments due under this Agreement, Applicant further certifies that it holds
legitimate ownership of each of these accounts and preauthorizes this debit as
part of its ownership rights.
3. Independence; Applicant Responsibility. Applicant is responsible for
preparing or approving the text of the Credit as issued by Bank and as received
by any Beneficiary, including responsibility for any terms and conditions
thereof that are ineffective, ambiguous, inconsistent, unduly complicated, or
reasonably impossible to satisfy. Applicant's ultimate responsibility for the
final text shall not be affected by any assistance Bank may provide such as
drafting or recommending text or by Bank's use or refusal to use text submitted
by Applicant. Bank does not represent or warrant that the Credit will satisfy
Applicant's requirements or intentions. Applicant is responsible for the
suitability of the Credit for Applicant's purposes. Applicant will examine the
copy of the Credit, and any other documents sent by Bank in connection with the
Credit, and shall notify Bank of any non-compliance with Applicant's
instructions, and of any discrepancy in any document under any presentment or
other irregularity, within 3 Business Days after Applicant receives or should
have received any of such documents (the "Required Time"); provided, however, if
the end of the Required Time falls on a weekend or Bank holiday, the deadline
shall be extended to the end of the next Business Day. Applicant's failure to
give timely and specific notice during the Required Time of objection shall
automatically waive Applicant's objection, authorize or ratify Bank's action or
inaction, and preclude Applicant from raising the objection as a defense or
claim against Bank
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4. Claims Against Bank; Waivers; Exculpations; Limitations of Liability,
Ratification; Accounting. (A) Applicant's Obligations shall be irrevocable and
unconditional and performed strictly in accordance with the terms of this
Agreement, irrespective of: (i) any change or waiver in the time, manner or
place of payment of or any other term of the Obligations (including any release)
of any other party who, if applicable, has guaranteed or is jointly and
severally liable for any of the Obligations or granted any security therefore;
(ii) any exchange, change or release of any Collateral or other collateral
(including any failure of Bank to perfect any security interest therein), for
any of the Obligations, (iii) any presentation under the Credit being forged,
fraudulent or any statement therein being untrue or inaccurate, (iv) any
agreement by Bank and any Beneficiary extending or shortening Bank's time after
presentation to examine documents or to honor or give notice of discrepancies.
(B) Without limiting the foregoing, it is expressly agreed that the Obligations
of Applicant to reimburse or to pay Bank pursuant to this Agreement will not be
excused by ordinary negligence, gross negligence, wrongful conduct or willful
misconduct of Bank. However, the foregoing shall not excuse Bank from liability
to Applicant in any independent action or proceeding brought by Applicant
against Bank following such reimbursement or payment by Applicant to the extent
of any unavoidable direct damages suffered by Applicant that are caused directly
by Bank's gross negligence or willful misconduct; provided that (i) Bank shall
be deemed to have acted with due diligence and reasonable care if it acts in
accordance with standard letter of credit practice of commercial banks located
in the place that the Credit is issued; and (ii) Applicant's aggregate remedies
against Bank for wrongfully honoring a presentation or wrongfully retaining
honored documents shall in no event exceed the aggregate amount paid by
Applicant to Bank with respect to the honored presentation, plus interest. (C)
Without limiting any other provision of the Agreement, Bank and, as applicable,
its correspondents: (i) may rely upon any oral, telephonic, telegraphic,
facsimile, electronic, written or other communication believed in good faith to
have been authorized by Applicant, whether or not given or signed by an
authorized person; (ii) shall not be responsible for any acts or omissions by,
or the solvency of, any Beneficiary, any nominated person or any other person;
(iii) May honor any presentation or drawing under the Credit that appears on its
face substantially to comply with the terms and conditions of the Credit; (iv)
(a) may permit partial shipment under the Credit, except as otherwise expressly
stated in the Credit, and may honor the relative Drafts without inquiry
regardless of any apparent disproportion between the quantity shipped and the
amount of the relative Draft and the total amount of the Credit and the total
quantity to be shipped under the Credit, and (b) if the Credit specifies
shipments in installments within stated periods and the shipper fails to ship in
any designated period, shipments of subsequent installments may nevertheless be
made in their respective designated periods, and the relative Drafts may be
honored; (v)may disregard any requirement of the Credit that presentation be
made to it at a particular place or by a particular time of day (but not any
requirement for presentation by a particular day) or that notice of dishonor be
given in a particular manner, and Bank may amend or specify any such requirement
in the Credits; (vi) may accept as a draft any written or electronic demand or
request for payment under the Credit, even if nonnegotiable or not in the form
of a draft, and may disregard any requirement that such draft, demand or request
bear any or adequate reference to the Credit; (vii) may discount or authorize
the discount of any accepted draft or deferred payment obligation incurred under
any Credit; (viii) may honor, before or after its expiration, a previously
dishonored presentation under the Credit, whether pursuant to court order, to
settle or compromises any claim that is wrongfully dishonored or otherwise, and
shall be entitled to reimbursement to the same extent (if any) as if it had
initially honored plus reimbursement of any interest paid by it; (ix) may honor,
upon receipt, any drawing that is payable upon presentation of a statement
advising negotiation or payment (even if such statement indicates that a draft
or other document is being separately delivered) and shall not be liable for any
failure of any Draft or document to arrive or to conform with the Draft or
document referred to in the statement or any underlying transaction; (x) may
retain proceeds of the Credit based on a valid exercise of Bank's set off rights
or an apparently applicable attachment order or blocking regulation; (xi) may
select any branch or affiliate of Bank or any other bank to act as advising,
transferring, confirming and/or nominated bank under the law and practice of the
place where it is located; (xii) shall not be responsible for any other action
or inaction taken or suffered by Bank or its correspondents under or in
connection with the Credit, with any presentation thereunder or with any
Collateral, if required or permitted under any applicable domestic or foreign
law or letter of credit practice. Examples of laws or practice that may be
applicable, depending upon the terms of the Credit and where and when it is
issued, include the UCC, the Uniform Rules for Demand Guarantees ("URG") the
UCP, the ISP, published rules of practice, applicable standard practice of banks
that regularly issue letters of credit, and published statements or
interpretations on matters of standard bank practice. (D) Applicant's taking
control, possession or retention of any documents presented under or in
connection with the Credit (whether or not the documents are genuine) or of any
Property for which payment is supported by the Credit, shall ratify Bank's honor
of the documents and preclude Applicant from raising a defense, set-off or claim
with respect to Bank's honor of the documents. (E) Neither Bank nor any of its
correspondents shall be liable in contract, tort, or otherwise, for any
punitive, exemplary, consequential, indirect or special damages. Any claim by
Applicant under or in connection with this Agreement or the Credit shall be
reduced by an amount equal to the sum of (i) the amount (if any) saved by
Applicant as a result of the breach or other wrongful conduct complained of; and
(ii) the amount (if any) of the loss that would have been avoided had Applicant
taken all reasonable steps to mitigate any loss, including by enforcing its
rights in the transaction(s) underlying the Credit, and in case of a claim of
wrongful dishonor, by specifically and timely authorizing Bank to effect a cure.
5. Security Agreement. The provisions of this Section shall only supplement, not
supersede, provisions of any other security agreement in favor of Bank which are
inconsistent herewith. (A) Security Interest. As security for the payment and
performance of the Obligations, Applicant assigns, pledges and grants to Bank a
security interest in the Collateral. The security interest of Bank in Collateral
shall continue until all Obligations are repaid, and shall not be invalidated by
reason of the delivery or possession of the Property to Applicant or anyone
else. (B) Subrogation. As additional security for the Obligations, Bank shall be
subrogated to the Applicant's rights in respect of any transaction in any way
related to the Credit or any Drafts, including rights against Beneficiary or any
collateral. (C) Additional Collateral. If Applicant has executed or, at any
time, executes another security agreement with Bank in connection with the
Credit, the collateral described therein, unless specifically excluded, shall
constitute additional collateral for the Obligations. At all times, the market
value of the Collateral shall be not less than 102.5% of the amount available
(as such amount has been reduced under the Credit in accordance with its terms)
to be drawn under the Credit (the "Minimum Collateral Value"). If at any time
the market value of the Collateral shall be less than the Minimum Collateral
Value, Applicant shall immediately upon request of Bank provide additional cash
Collateral in an amount sufficient to cure any such shortfall. (D) Actions
Regarding Collateral. Applicant will execute and deliver to Bank any documents,
and take any action, which Bank deems necessary or desirable to evidence or
perfect any security interest in favor of Bank, to acquire possession of any
Property, or to protect Bank's interests with respect to any Collateral,
including, without limitation, transferring or registering Property in the name
of Bank; in order to accomplish any of the foregoing, Bank may, at its option,
at any time and without notice to Applicant, transfer to, or register in the
name of, Bank or its nominees any Collateral; and further, Bank is irrevocably
appointed as attorney-in-fact for Applicant and authorized, without notice to
Applicant, to execute and deliver all such documents and to take all such
actions on behalf of Applicant, including, without limitation, the execution,
delivery and/or filing of collateral control agreements, financing statements
and trust receipt statements. This appointment is coupled with an interest. (E)
Care of Property; Modification. Bank will exercise care in the preservation of
Collateral if such Property is in the custody of Bank; provided, however, its
standard of care for Property in its custody is the lesser of that required by
applicable law or that requested by Applicant in writing. Applicant shall remain
obligated under the terms of the Agreement notwithstanding the release or
substitution of any Collateral at any time(s), or any delay, extension of time,
renewal, compromise or other indulgence granted by Bank related to any
Obligations, or to any promissory note, Draft, bill of exchange or other
instrument related to any Obligations. Applicant waives notice of any such
delay, extension, release, substitution, renewal, compromise or other
indulgence, and consents to be bound thereby as fully as if Applicant had
expressly agreed thereto in advance. The proceeds of any Collateral may be
applied, in whole or in part, by Bank to pay any matured, or to anticipate the
payment of any unmatured, Obligations.
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6. Representations. Applicant represents that from the date of this Agreement
and until final payment in full of the Obligations: Accurate Information. All
information now and hereafter furnished to Bank is and will be true, correct and
complete in all material respects, it being acknowledged by Bank that certain
projections furnished to Bank on March 31, 2003 are specifically not subject to
this representation. Any such information relating to Applicant's financial
condition will accurately reflect Applicant's financial condition as of the
date(s) thereof, (including all contingent liabilities of every type), and
Applicant further represents that its financial condition has not changed
materially or adversely since the date(s) of such documents. Authorization;
Non-Contravention. The execution, delivery and performance by Applicant and any
guarantor, as applicable, of this Agreement and other documents to which it is a
party are within its power, have been duly authorized as may be required and, if
necessary, by making appropriate filings with any governmental agency or unit
and are the legal, binding, valid and enforceable obligations of Applicant and
any guarantors; and do not (i) contravene, or constitute (with or without the
giving of notice or lapse of time or both) a violation of any provision of
applicable law, a violation of the organizational documents of Applicant or any
guarantor, or a default under any agreement, judgment, injunction, order, decree
or other instrument binding upon or affecting Applicant or any guarantor, (ii)
result in the creation or imposition of any lien (other than the lien(s) created
by the documents executed by Applicant in connection herewith) on any of
Applicant's or any guarantor's assets, or (iii) give cause for the acceleration
of any obligations of Applicant or any guarantor to any other creditor. Asset
Ownership. Applicant has good and marketable title to all of the properties and
assets reflected on the balance sheets and financial statements supplied Bank by
Applicant, and all such properties and assets are free and clear of mortgages,
security deeds, pledges, liens, charges, and all other encumbrances, except as
otherwise disclosed to Bank by Applicant in writing and approved by Bank
("Permitted Liens"). To Applicant's knowledge, no default has occurred under any
Permitted Liens and no claims or interests adverse to Applicant's present rights
in its properties and assets have arisen. Discharge of Liens and Taxes.
Applicant has duly filed, paid and/or discharged all taxes or other claims which
may become a lien on any of its property or assets, except to the extent that
such items are being appropriately contested in good faith and an adequate
reserve for the payment thereof is being maintained. Sufficiency of Capital.
Applicant is not, and after consummation of this Agreement and after giving
effect to all indebtedness incurred and liens created by Applicant in connection
with this Agreement, will not be, insolvent within the meaning of 11 U.S.C. ss.
101(32). Compliance with Laws. Applicant is in compliance in all material
respects with all material federal, state and local laws, rules and regulations
applicable to its properties, operations, business, and finances, including,
without limitation, any federal or state laws relating to liquor (including 18
U.S.C. ss. 3617, et seq.) or narcotics (including 21 U.S.C. ss. 801, et seq.)
and/or any commercial crimes; all applicable federal, state and local laws and
regulations intended to protect the environment; and the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), if applicable. Organization
and Authority. Applicant is duly created, validly existing and in good standing
under the laws of the state of its organization, and has all powers,
governmental licenses, authorizations, consents and approvals required to
operate its business as now conducted. Applicant is duly qualified, licensed and
in good standing in each jurisdiction where qualification or licensing is
required by the nature of its business or the character and location of its
property, business or customers, and in which the failure to so qualify or be
licensed, as the case may be, in the aggregate, could have a material adverse
effect on the business, financial position, results of operations, properties or
prospects of Applicant. No Litigation. There are no material pending or
threatened suits, claims or demands against Applicant or any guarantor that have
not been disclosed to Bank by Applicant in writing, and approved by Bank.
Regulation U. None of the proceeds of the Credit extended pursuant to this
Agreement shall be used directly or indirectly for the purpose of purchasing or
carrying any margin stock in violation of any of the provisions of Regulation U
of the Board of Governors of the Federal Reserve System ("Regulation U"), or for
the purpose of reducing or retiring any indebtedness which was originally
incurred to purchase or carry margin stock or for any other purchase which might
render the Credit a "Purpose Credit" within the meaning of Regulation U. ERISA.
Each employee pension benefit plan, as defined in ERISA, maintained by Applicant
meets, as of the date hereof, the minimum funding standards of ERISA and all
applicable regulations thereto and requirements thereof, and of the Internal
Revenue Code of 1986, as amended. No "Prohibited Transaction" or "Reportable
Event" (as both terms are defined by ERISA) has occurred with respect to any
such plan.
7. Affirmative Covenants. Applicant agrees that from the date hereof and until
final payment in full of the Obligations, unless Bank shall otherwise consent in
writing, Applicant will: Access to Books and Records. Allow Bank, or its agents,
during normal business hours, access to the books, records and such other
documents of Applicant as Bank shall reasonably require, and allow Bank, at
Applicant's expense, to inspect, audit and examine the same and to make extracts
therefrom and to make copies thereof. Business Continuity. Continue to conduct
its business as primarily a provider of VoIP based telephoney services and
seller of related products and services. Certificate of Full Compliance. Deliver
to Bank with the financial statements required herein, a certificate by
Applicant's Chief Financial Officer that Applicant is in full compliance with
this Agreement and the other documents entered into in connection herewith.
Compliance with Other Agreements. Comply with all terms and conditions contained
in this Agreement, and any other documents, and swap agreements, if applicable,
as defined in the 11 U.S.C. ss. 101 Estoppel Certificate. Furnish, within 15
days after request by Bank, a written statement duly acknowledged identifying
each outstanding Credit and whether offsets or defenses exist against the
Obligations. Insurance. Maintain adequate insurance coverage with respect to its
properties and business against loss or damage of the kinds and in the amounts
customarily insured against by companies of established reputation engaged in
the same or similar businesses including, without limitation, commercial general
liability insurance, workers compensation insurance, and business interruption
insurance; all acquired in such amounts and from such companies (or companies of
comparable credit standing) and in such amounts as currently maintained.
Management Letter. Applicant shall deliver to Bank within 5 days after same has
been completed, its Management Letter, in form and substance acceptable to Bank,
prepared by Applicant's independent certified public accountant. Maintain
Properties. Maintain, preserve and keep its property in good repair, working
order and condition, making all needed replacements, additions and improvements
thereto, to the extent allowed by this Agreement. Notice of Default and Other
Notices. (a) Notice of Default. Furnish to Bank immediately upon becoming aware
of the existence of any condition or event which constitutes an Event of Default
(or similarly denominated term) or any event which, upon the giving of notice or
lapse of time or both, may become an Event of Default, written notice specifying
the nature and period of existence thereof and the action which Applicant is
taking or proposes to take with respect thereto. (b) Other Notices. Promptly
notify Bank in writing of (i) any material adverse change in its financial
condition or its business; (ii) any default under any material agreement,
contract or other instrument to which it is a party or by which any of its
properties are bound and which becomes the subject matter of litigation
involving the Applicant or materially adversely effects Applicants business, or
any acceleration of the maturity of any indebtedness owing by Applicant in
excess of $1,000,000.00; (iii) any material adverse claim against or affecting
Applicant or any part of its properties; (iv) the commencement of, and any
material determination in, any material litigation with any third party or any
proceeding before any governmental agency or unit affecting Applicant; and (v)
at least 30 days prior thereto, any change in Applicant's name or address as
shown above, and/or any change in Applicant's structure. Other Financial
Information. Deliver promptly such other information regarding the operation,
business affairs, and financial condition of Applicant which Bank may reasonably
request. Payment of Debts. Pay and discharge when due, and before subject to
penalty or further charge, and otherwise satisfy before maturity or delinquency,
all obligations, debts, taxes, and liabilities of whatever nature or amount,
except those which Applicant in good faith disputes. Reports and Proxies.
Deliver to Bank, promptly, a copy of all financial statements, reports, notices,
and proxy statements, sent by Applicant to stockholders, and all regular or
periodic reports required to be filed by Applicant with the Securities and
Exchange Commission ("SEC"). Notification to Bank as to the availability of all
such filings in electronic form on a publicly available database shall be deemed
compliance with the delivery requirement as well as similar delivery
requirements hereinafter stated. Maintenance of Accounts. Maintain a monthly
average compensating balance of not less than $2,000,000 in Applicant's deposit
accounts with Bank other than the account in which the Collateral is maintained.
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8. Negative Covenants. Applicant agrees that from the date of this Agreement and
until final payment in full of the Obligations, unless Bank shall otherwise
consent in writing, Applicant will not: Change in Fiscal Year. Change its fiscal
year. Change of Control. Make or suffer a change of ownership that effectively
changes control of Applicant from current ownership, except as may result from
an IDT Transaction. Encumbrances. Create, assume, or permit to exist any
mortgage, security deed, deed of trust, pledge, lien, charge or other
encumbrance on any of its assets, whether now owned or hereafter acquired, other
than: (i) security interests required or contemplated by this Agreement; (ii)
liens for taxes contested in good faith; (iii) liens accruing by law for
employee benefits;. or (iv) purchase money liens and security interests on
property purchased and so financed securing aggregate obligations at any time
Applicant's Debt/Equity Ratio greater than or equal to .50. For purposes of this
Agreement, "Debt/Equity Ratio" shall mean the ratio of Applicant's total
liabilities divided by net worth, all calculated on a consolidated basis in
accordance with generally accepted accounting principles, consistently applied.
Guarantees. Guarantee or otherwise become responsible for obligations of any
other person or persons, other than obligations of those entities whose results
are consolidated with those of Applicant for financial reporting requirements,
obligations of employees or agents in the ordinary course of business consistent
with prior practices and the endorsement of checks and drafts for collection in
the ordinary course of business. Default on Other Contracts or Obligations.
Default on any material contract with or obligation when due to a third party
which materially adversely effects Applicants' business or default in the
performance of any obligation to a third party incurred for money borrowed in an
amount in excess of $500,000.00 in the aggregate. Government Intervention.
Permit the assertion or making of any seizure, vesting or intervention by or
under authority of any government by which the management of Applicant or any
guarantor is displaced of its authority in the conduct of its respective
business or its such business is curtailed or materially impaired. Judgment
Entered. Permit the entry of any monetary judgment or the assessment against,
the filing of any tax lien against, or the issuance of any writ of garnishment
or attachment against any property of or debts due Applicant in an amount in
excess of $500,000.00 which is not discharged or execution is not stayed within
60 days of entry. Prepayment of Other Debt. Retire any long term debt entered
into prior to the date of this Agreement at a date in advance of its legal
obligation to do so other than certain capital lease and real estate lease
obligations disclosed to Bank, not exceeding $10,000,000.00 in the aggregate.
Restricted Payments. (i) declare or make any dividend payment or other
distribution of assets, properties, cash, rights, obligations or securities on
account of any shares of any class of its capital stock or other equity
securities or (ii) purchase, redeem or otherwise acquire for value any shares of
its capital stock or other equity securities or any warrants, rights or options
to acquire such shares, interests or securities now or hereafter outstanding in
an amount in excess of $2,000,000.00 in any fiscal year except as contemplated
by the Amended and Restated Settlement Agreement dated on or about the date
hereof with beneficiary of the Credit. Other Debt. Create, assume or permit any
funded debt including guaranties, if at the time of such borrowing the
Applicant's Debt/Equity Ratio (after taking into account such borrowing) is
equal to or exceeds .50. Minimum Unrestricted Cash Position. Permit at any time
the amount of unrestricted cash to be less than $30,000,000.00 (such amount to
be in addition to any amounts of cash pledged to Bank as Collateral). All such
unrestricted cash shall at all times be maintained by Applicant (and not held by
any subsidiary or affiliate of Applicant unless such subsidiary or affiliate
unconditionally guaranties the Obligations of Applicant pursuant to such
guaranty documentation satisfactory to Bank).
9. Annual Financial Statements. Applicant shall deliver to Bank, simultaneous
with its filing with SEC (but not later than 120 days after the close of each
fiscal year), audited financial statements reflecting its operations during such
fiscal year, including, without limitation, a balance sheet, profit and loss
statement and statement of cash flows, with supporting schedules; all on a
consolidated and consolidating basis with respect to Applicant and its
subsidiaries, affiliates and parent or holding company, as applicable, and in
reasonable detail, prepared in conformity with generally accepted accounting
principles, applied on a basis consistent with that of the preceding year. All
such statements shall be examined by Ernst & Young LLP or other independent
certified public accountant acceptable to Bank. The opinion of such independent
certified public accountant shall not be acceptable to Bank if qualified due to
any limitations in scope imposed by Applicant or any other person or entity. Any
other qualification of the opinion by the accountant shall render the
acceptability of the financial statements subject to Bank's approval.
Applicant's accountant shall provide Bank with a written acknowledgment of the
Bank's reliance upon the statements in accordance with N.J.S. 2A: 53A-25.
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10. Periodic Financial Statements. Applicant shall deliver to Bank unaudited
management-prepared quarterly financial statements including, without
limitation, a balance sheet, profit and loss statement and statement of cash
flows, with supporting schedules, as soon as available and in any event or
simultaneous with its filing with the SEC (but not later than 75 days after the
close of each of its first three fiscal quarters of each fiscal year); all on a
consolidated and consolidating basis with respect to Applicant and its
subsidiaries, affiliates and parent or holding company, as applicable, all in
reasonable detail and prepared in conformity with generally accepted accounting
principles, applied on a basis consistent with that of the preceding year. Such
statements shall be certified as to their correctness by a principal financial
officer of Applicant and in each case subject to audit and year-end adjustments.
At the times the annual and periodic financial statement described in Sections 9
and 10 hereof are provided by Applicant to Bank, such financial statements shall
be accompanied by a compliance certificate (in form acceptable to Bank) by
Applicant's chief financial officer.
11. Conditions to Issuance of Credit. The obligation of Bank to issue any Credit
is subject to the following conditions precedent:
(a) On the date of issuance the following statements shall be true and
Bank shall have received a certificate signed by an authorized officer of
Applicant, dated the date of issuance, stating that:
(i) The representations and warranties contained in this
Agreement and in any document or agreement entered
into in connection herewith are true and correct in
all material respects on and as of the date of
issuance of the Credit as though made on and as of
such date; and
(ii) No event has occurred and is then continuing or would
result from the issuance of the Credit, which
constitutes an Event of Default or would constitute
an Event of Default but for the requirement that
notice be given or time elapse or both.
(b) There shall have been no introduction of or change in, or in the
interpretation of, any law or regulation that would make it unlawful or unduly
burdensome for the Bank to issue or maintain the Credit, no outbreak or
escalation of hostilities or other calamity or crisis affecting Bank, no
suspension of or material limitation on trading on the New York Stock Exchange
or any other national securities exchange, no declaration of a general banking
moratorium by United States or New Jersey banking authorities, and no
establishment of any new restrictions on transactions in securities or on banks
materially affecting the free market for securities or the extension of credit
by banks.
(c) Simultaneous with the issuance of each Credit, the amount of funds
on deposit in the account of Applicant at Bank (account number 2000010228922) is
not less than $21,754,890.99.
12. Communications. (A) Internet. Applicant may electronically initiate the
issuance and amendment of any Credit and retrieve or send information about any
outstanding Credit by accessing an internet site maintained by the Bank (the
"Web Site") through Applicant's computer equipment and web browser software.
Applicant is responsible to provide its own computer equipment and web browser
software and shall be responsible for all acquisition, installation, repair and
maintenance costs associated therewith. Applicant shall select its own internet
service provider. Applicant shall comply promptly with all instructions on the
Web Site governing its use and the security measures to be maintained in
connection with its use. Applicant authorizes the Bank to receive data and act
upon Applicant's requests which Bank receives over the Web Site. Applicant
agrees that Bank may rely on the authenticity and accuracy of messages and
information received by Bank on the Web Site purporting to be from the
Applicant. Applicant agrees: (i) to protect all assigned operator identification
passwords and accepts full responsibility for any compromise of security;(ii) to
limit access to the Web Site to those persons authorized by Applicant through
the use of security procedures implemented and enforced by the Applicant; (iii)
accurately to input any data fields necessary to initiate, release or cancel any
transaction; (iv) to access the Web Site as often as necessary consistent with
Applicant's business activities it conducts on the Web Site, which may be daily,
and retrieve and review outstanding Credit detail reports; and (v) to notify the
Bank promptly of any error or defect in the report. Applicant acknowledges and
understands that the instructions sent by it through the internet to the Bank
and the information retrieved by the Applicant from the Web Site through the
internet will be encrypted, but that such encryption is not completely secure
and is not free from errors, poor transmissions, interception, forgery, viruses,
tampering, destruction, deciphering or other delay or casualty. The Bank shall
not be liable for any loss, claim or liability, cost or expense arising from:
(a) any of the foregoing; (b) failure of any internet service provider to
provide its services; (c) failure of communications media, legal restrictions;
(d) act of God, fire or other catastrophe, computer failure or any other cause
or circumstance beyond the Bank's control; (e) any unauthorized person's use of
or access to the Web Site; or (f) failure of Applicant to report errors or
defects promptly. (B) Electronic Systems. Applicant may desire to transmit and
receive by means of facsimile, open internet communication, or other unguarded
electronic communications (hereinafter collectively the "electronic systems")
Applications and other paper-writings to or from the Bank. To induce the Bank to
accept communication via electronic systems, Applicant shall: i) ensure that its
officers, agents and employees, will at all times follow and maintain the
integrity of any security established by the Applicant and the Bank; ii)
immediately notify the Bank in the event that Applicant should have reason to
believe that the security established for electronic systems transmission has
been breached or compromised in any manner; iii) ensure that only authorized
personnel selected and controlled by the Applicant request action(s) by
transmittal of document(s) by electronic systems; iv) ensure that any documents
transmitted to the Bank by means of electronic systems shall be a complete and
accurate copy and if signed be executed by personnel authorized by the
Applicant; and v) maintain its software and equipment and any privacy control
device within such software or equipment without any reliance on or
responsibility by the Bank. The Applicant acknowledges and agrees that the Bank
shall: i) not be responsible to the Applicant for any loss or damage arising
from the use of unguarded electronic systems, including access or misuse of
Applicant's confidential information, transmission of a virus, or failed,
incomplete or inaccurate transmission; ii) not be responsible to assure that,
its software and equipment for receiving messages or documents from electronic
systems will be compatible with that of Applicant or available at all times for
Applicant's use; iii) have absolute discretion but without liability, for any
reason whatsoever, not to act upon documentation received by electronic systems;
provided, however, that the Bank shall notify the undersigned promptly should it
elect to defer action until the original documentation is physically presented
to the Bank; iv) without any liability on its part to do so, have the right at
its discretion to make further inquiries and demand further verification to
determine the validity of any document prior to taking any action; and v) have
the right to assume that any reproduction of documentation received by
electronic systems constitutes a full, complete and accurate reproduction of the
original documentation and that all signatures are authorized and genuine. (C)
Indemnity. Separate and independent from any other indemnity set forth in this
Agreement, the Applicant hereby indemnifies and holds the Bank harmless against
any and all loss, liability, damage or expenses of whatever kind and nature
arising from Bank's acceptance and/or delivery of information and Applications
over its Web Site or by electronic systems.
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13. Two Parties Signing Agreement. (A) Co-Applicants. If the Agreement is signed
by two or more Applicants, it shall be the joint and several obligation of each.
Bank shall designate in the Credit as account party and as Applicant, who
without joinder of the account party shall have the exclusive right to issue all
instructions on any matters relating to the Credit. If the foregoing information
is left blank or incomplete, the Bank at its discretion may accept an
Application, or seek instruction, from any Applicant regarding a Credit,
including, without limitation, any amendment thereto or waiver of any
discrepancy thereunder, and until Bank at the office at which the relevant
Credit is issued actually receives written notice of revocation, each Applicant
shall be bound by and hereby affirms the instructions of the other. (B)
Financial Institution as Customer. If the Agreement is signed as Applicant or
co-Applicant by a bank, trust company or other financial institution for its
customer, such Applicant appoints Bank as its agent to issue the Credit. Such
Applicant and its customer agree to act in accordance with and be subject to the
Agreement. If such Applicant is required (i) to reimburse Bank; (ii) to pay Bank
in the Event of Default; (iii) to indemnify Bank; or (iv) to provide collateral,
then its customer agrees to reimburse, pay or indemnify Applicant for the full
amount of those payments and to provide the requisite collateral. In addition,
the customer agrees to obtain such Applicant's consent before agreeing to waive
any discrepancy in the documents related to the Credit or to waive or amend any
terms of the Agreement or the Credit.
14. Event of Default. On and after any Event of Default: (A) the amount of the
Credit, as well as any other Obligations, shall, at Bank's option, become due
and payable immediately without demand or notice to Applicant or if contingent,
may be treated by Bank as due and payable for its maximum face amount; (B) Bank
may set off and apply any deposits or any other indebtedness at any time owing
by Bank to or for Applicant's credit or account against any matured or unmatured
Obligations, irrespective of whether or not Bank shall have made any demand
under the Agreement and although such deposits, indebtedness or Obligations may
be unmatured or contingent; (C) Bank may exercise all rights and remedies
available to it in law or equity; and (D) in respect of any Collateral, Bank may
exercise all the rights and remedies of a secured party under the Uniform
Commercial Code or any other applicable law and also may, without notice except
as required by law, sell such Collateral or any part thereof in one or more
parcels at public or private sale, for cash, on credit or for future delivery,
and on such other terms as Bank may deem commercially reasonable. Written notice
mailed or delivered to Applicant at the address specified in the Agreement at
least five business days prior to the date of public sale or prior to the date
after which private sale is to be made shall be reasonable, adequate notice.
Applicant will pay on demand all costs and expenses (including reasonable
attorneys fees and legal expenses, incurred prior to or after a bankruptcy
filing) related to the custody, preservation or sale of, or collection from, or
realization upon, any of such Collateral and related to the collections of the
Obligations and the enforcement of Bank's rights against the Collateral. In the
event of sale of or collection from the Collateral, Bank may in its discretion
hold the proceeds as Collateral or apply the proceeds as Bank deems appropriate
to the payment of costs and expenses or to one or more of the Obligations,
whether or not then due.
15. Indemnification. Applicant will indemnify and hold harmless Bank and its
officers, directors, affiliates, employees, attorneys and agents (each, an
"Indemnified Party") from and against any and all claims, liabilities, losses,
damages, costs and expenses (including reasonable attorneys' fees and
disbursements and other dispute resolution expenses (including fees and expenses
in preparation for a defense of any investigation, litigation or proceeding) and
costs of collection) that arise out of or in connection with: (A) the Credit or
any pre-advice of its issuance; (B) any payment or action taken or omitted to be
taken in connection with the Credit or this Agreement (including any action or
proceeding to (i) restrain any presentation, (ii) compel or restrain any payment
or the taking of any other action under the Credit, (iii) obtain damages for
wrongful dishonor or honor of the Credit or for breach of any other duty arising
out of or related to the Credit, (iv) compel or restrain the taking of any
action under this Agreement or (v) obtain similar relief (including by way of
interpleader, declaratory judgment, attachment or otherwise), regardless of who
the prevailing party is in any such action or proceeding); (C) an adviser or a
confirmer or other nominated person seeking to be reimbursed, indemnified or
compensated, (D) any beneficiary requested to issue its own undertaking seeking
to be reimbursed, indemnified or compensated or (E) any third party seeking to
enforce the rights of an applicant, beneficiary, nominated person, transferee,
assignee of letter of credit proceeds, or holder of an instrument or document;
(F) the enforcement of this Agreement or any rights or remedies under or in
connection with this Agreement, the Collateral or the Credit; (G) the release by
Applicant of any Credit to any third party prior to its issuance by the Bank; or
(H) any act or omission, whether rightful or wrongful, of any present or future
de jure or de facto government or governmental authority (including with respect
to any document or property received under this Agreement or the Credit ) or any
other cause beyond the Bank's control, except to the extent such liability,
loss, damage, cost or expense is found in a final, non-appealable judgment by a
court of competent jurisdiction to have resulted directly from such Indemnified
party's gross negligence or willful misconduct. Applicant will pay on demand
from time to time all amounts owing under this section. If and to the extent
that the obligations of Applicant under this section are unenforceable for any
reason, Applicant agrees to make the maximum contribution to the payment of such
obligation that is permissible under applicable law.
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16. Governing Law; UCP, ISP 98. The UCP or ISP 98 as applicable to each Credit
governs this Agreement and is incorporated herein. Subject to the other
provisions of the Agreement, the Agreement shall be governed by and construed in
accordance with the substantive laws of the Jurisdiction, without regard to
conflicts of law principles, except to the extent that such law is inconsistent
with the UCP or ISP 98, as applicable. In the event any provision of the UCP or
ISP 98, as applicable, is or is construed to vary from or be in conflict with
any provision of any applicable law of the Jurisdiction or the federal law of
the United States, to the extent permitted by law, the UCP or the ISP 98, as
applicable, shall govern or be read to explain the applicable law. Unless
Applicant specifies otherwise in its application for the Credit, Applicant
agrees that Bank may issue the Credit subject to the UCP or ISP 98 or, at Bank's
option, such later revision of either thereof as is in effect at the time of
issuance of the Credit. Bank's privileges, rights and remedies under the UCP,
ISP 98 or such later revision shall be in addition to, and not in limitation of,
its privileges, rights, and remedies expressly provided for herein. The UCP and
ISP 98 shall serve, in the absence of proof to the contrary, as evidence of
standard practice with respect to the subject matter thereof.
17. Savings Clause. Whenever possible, each provision of the Agreement shall be
interpreted in a manner as to be effective and valid under applicable law, but
if any provision of the Agreement shall be prohibited by or invalid under
applicable law, such provision shall be ineffective only to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions of the Agreement.
18. Bankruptcy and Forfeiture Reinstatement. If any consideration transferred to
Bank in payment of, or as collateral for, or in satisfaction of the Obligations,
shall be voided in whole or in part as a result of (A) a subsequent bankruptcy
or insolvency proceeding; (B) any forfeiture or in rem seizure action or remedy;
(C) any fraudulent transfer or preference action or remedy; or (D) any other
criminal or equitable proceeding or remedy, then Bank may at its option recover
the Obligations or the consideration so voided from Applicant. In such event,
Bank's claim to recover the voided consideration shall be a new and independent
claim arising under the Agreement, and shall be jointly and severally due and
payable immediately by Applicant.
19. Miscellaneous. The rights and remedies granted to Bank in the Agreement are
in addition to all other rights or remedies afforded to Bank under applicable
law, equity or other agreements. The terms of the Agreement may not be waived or
amended, unless the parties consent in writing. The Agreement shall be binding
on Applicant's heirs, executors, administrators, successors and permitted
assigns, and shall inure to the benefit of Bank's successors and assigns. Bank
can assign this Agreement and its rights to reimbursement regarding any Credit
without Applicant's consent. Applicant shall not assign any rights or remedies
related to the Agreement or the Credit without written consent of the Bank. Any
notice to Applicant, if mailed, shall be deemed given when mailed, postage paid,
addressed to Applicant at the address on the Application or such other address
furnished by Applicant to Bank. This Section shall not be deemed to be an
exclusive list of each means of notice from one party to the other. The
Agreement will continue in full force and effect until the expiration or
cancellation of each Credit and all outstanding Obligations have been satisfied
in a manner satisfactory to Bank, and Applicant requests termination in writing.
Applicant will comply with all laws, regulations and customs now or hereafter
applicable to the Agreement or to the transaction related to the Credit, and
will furnish evidence of compliance as Bank may require. This Agreement and the
other documents entered into in connection herewith contain the final, complete
and exclusive understanding of, and supersede all prior or contemporaneous, oral
or written, agreements, understandings, representations and negotiations
between, the parties relating to the subject matter of this Agreement.
20. Consent to Jurisdiction and Venue. IN ANY PROCEEDING INVOLVING, DIRECTLY OR
INDIRECTLY, ANY MATTER ARISING OUT OF OR RELATED TO THE AGREEMENT OR THE
RELATIONSHIP ESTABLISHED HEREUNDER, APPLICANT IRREVOCABLY SUBMITS TO THE
NONEXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED IN ANY COUNTY IN
THE JURISDICTION AND AGREES NOT TO RAISE ANY OBJECTION TO THE JURISDICTION OR TO
THE LAYING OR MAINTAINING OF THE VENUE OF ANY SUCH PROCEEDING IN THE
JURISDICTION. APPLICANT AGREES THAT SERVICE OF PROCESS IN ANY SUCH PROCEEDING
MAY BE DULY EFFECTED UPON IT BY MAILING A COPY THEREOF, BY REGISTERED MAIL,
POSTAGE PREPAID, TO IT.
21. WAIVER OF JURY TRIAL. TO THE EXTENT PERMITTED BY APPLICABLE LAW, APPLICANT
AND WHEN IT ISSUES A CREDIT, BANK KNOWINGLY AND VOLUNTARILY WAIVE ALL RIGHTS TO
TRIAL BY JURY WITH RESPECT TO ANY LITIGATION BASED ON, ARISING OUT OF, OR
RELATING TO THE AGREEMENT OR THE CREDIT, OR ANY COURSE OF CONDUCT, COURSE OF
DEALING, STATEMENTS (ORAL OR WRITTEN) OR ACTIONS OF ANY PARTY WITH RESPECT
THERETO. THIS WAIVER IS A MATERIAL INDUCEMENT FOR BANK TO ISSUE THE CREDIT.
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22. Effectiveness of Agreement. Applicant agrees that the terms and conditions
of this Continuing Letter of Credit Agreement shall be continuing and shall
apply to any Credit currently, or in the future, issued by the Bank on
Applicant's behalf.
Very truly yours,
NET2PHONE, INC.
By: Date: May 5, 2003
-----------------------------
Name:
Title:
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