Another dubious NTOP/IDTC deal.
street article part 1
Net2Phone CEO Retains Opt-Out Clause
By Kevin Petrie
Staff Reporter
8/5/99 11:00 AM ET
SAN FRANCISCO -- Net stock options doled out to company executives are worth
more than gold dust. It's somewhat disconcerting, then, when a top executive at a
newly public Net start-up retains the right to convert his stock into those of the
start-up's parent company.
Such is the case with Clifford Sobel, chairman of Net2Phone (NTOP:Nasdaq), who
can swap his 8% share in the company for an option to purchase 3.7% of the shares
of its parent IDT (IDTC:Nasdaq) at a discount, according to filings with the Securities
and Exchange Commission.
Sobel's stake in Net2Phone, which cost him just $100,000 a year and a half ago, is
worth approximately $76 million as of Tuesday's close. If he gives his shares back to
IDT, Sobel would be able to buy IDT stock worth about $14.7 million for just $5.7
million.
So far, Sobel doesn't need to convert. Net2Phone, offered at 15 last Thursday, is
trading at 20 Wednesday, down 38% from its high of 32 last Friday. IDT, now at
around 16 3/4, is down 52% since its April high amid concerns about some of its
business deals.
Sobel's provision is already raising eyebrows on Wall Street. One money manager
who snapped up Net2Phone shares at the offering price of 15 says he'll likely sell this
week to lock in his gains. The manager says he'd shy away from any Internet
company that gave a top executive a provision such as the one Net2Phone granted
Sobel because it indicates a "lack of commitment."
Although some executives have managed to retain options in the parent when
hopping to a new venture, Sobel's contract is "not an arrangement I've ever seen
before," says Richard Semler, principal with Sibson & Co., a Princeton, N.J.
compensation consulting firm.
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