Document:

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                                                                   Exhibit 10.10

                                                                  EXECUTION COPY

                            STOCK PURCHASE AGREEMENT

                  This Stock Purchase Agreement (this "Agreement") is entered
into as of November 6, 2000, by and between Town Sports International, Inc., a
New York corporation (the "Company"), and CapitalSource Holdings LLC, a Delaware
limited liability company ("Purchaser").

                  WHEREAS, an Affiliate of Purchaser has agreed to provide a
subordinated credit facility to the Company upon the terms and subject to the
conditions specified in the certain Subordinated Credit Agreement by and between
the Company and such Affiliate dated as of November 6, 2000 (the "Credit
Agreement"); and

                  WHEREAS, as an inducement to such Affiliate to enter into and
provide the Subordinated Credit Facility (as such term is defined in the Credit
Agreement), the Company has agreed to issue and sell to Purchaser, and Purchaser
has agreed to purchase, a number of shares of the Company's Class A Common
Stock, par value $0.001 per share (the "Common Stock"), all upon the terms and
subject to the conditions set forth herein; and

                  WHEREAS, as a further inducement to such Affiliate, the
Company has agreed to (i) permit Purchaser to join and become a party to its
Shareholders Agreement and (ii) amend the Company's Registration Rights
Agreement to provide Purchaser with the rights described in Section 7 hereof.

                  NOW, THEREFORE, in consideration of the premises and the
mutual agreements herein set forth, the parties hereto agree as follows:

         1.       AGREEMENT TO SELL AND PURCHASE

                  1.1 AUTHORIZATION OF SHARES. On or prior to the Closing Date
(as defined in Section 2 below), the Company shall have authorized the sale and
issuance to Purchaser of (i) 16,000 shares of its Common Stock (the "Series A-1
Shares"), and (ii) 7,000 shares of Common Stock (the "Series A-2 Shares" and,
together with the Series A-1 Shares, the "Shares"), all subject to the
restrictions set forth in Section 5 below.

                  1.2 SALE AND PURCHASE. Subject to the terms and conditions
hereof, upon the earliest to occur of (a) the Initial Advance (as defined in the
Credit Agreement), (b) the termination of the Credit Agreement in accordance
with its terms or (c) the occurrence and continuation of any Event of Default
(as defined in the Credit Agreement) past any period for cure thereof specified
in the Credit
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Agreement, which Event of Default has not been waived by Purchaser (such
earliest day, the "Issue Date"), the Company shall issue and sell to Purchaser
and Purchaser shall purchase from the Company the Shares, at a purchase price of
One Cent ($0.01) per Share; provided, that if the Issue Date is determined
pursuant to (b) above and such Issue Date is on or before November 30, 2002, the
Company shall issue and sell to Purchaser and Purchaser shall purchase from the
Company only the Series A-1 Shares at the purchase price therefor.

         2.       CLOSING, DELIVERY AND PAYMENT

                  The closing of the sale and purchase of the Shares under this
Agreement (the "Closing") shall take place at 10:00 a.m. Eastern time on the
Issue Date at the offices of Hogan & Hartson L.L.P., 555 Thirteenth Street,
N.W., Washington, D.C. 20004, or at such other time, date, place or manner as
the Company and Purchaser may mutually agree (the "Closing Date"). At the
Closing, subject to the terms and conditions hereof, the Company will deliver to
Purchaser certificates representing the respective numbers of Series A-1 Shares
and Series A-2 Shares to be purchased at the Closing by Purchaser, against
payment of the purchase price therefor by certified check or wire transfer of
immediately available funds.

         3.       REPRESENTATIONS AND WARRANTIES OF THE COMPANY

                  As an inducement to Purchaser to enter into this Agreement,
the joinder to the Shareholders Agreement and the amendment to the Registration
Rights Agreement (collectively, the "Transaction Documents"), the Company
represents and warrants to Purchaser as of the date hereof as follows:

                  3.1      ORGANIZATION AND AUTHORITY.

                           (a) The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of New York.

                           (b) The Company (i) has all requisite power and
authority to own its properties and assets and to carry on its business as now
being conducted and as contemplated in the Transaction Documents, and (ii) is
duly qualified to do business in every jurisdiction in which failure so to
qualify would be reasonably likely to have a material adverse effect on the
business, operations or financial condition of the Company.

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                           (c) The Company has all requisite power and authority
to execute, deliver and perform this Agreement and the other Transaction
Documents.

                           (d) When executed and delivered, each of the
Transaction Documents will constitute the legal, valid and binding obligation of
the Company, enforceable against the Company in accordance with its terms,
subject to the effect of any applicable bankruptcy, moratorium, insolvency,
reorganization or other similar law affecting the enforceability of creditors'
rights generally and to the effect of general principles of equity which may
limit the availability of equitable remedies (whether in a proceeding at law or
in equity).

                  3.2      TRANSACTION DOCUMENTS.

                  The execution, delivery and performance by the Company of each
of the Transaction Documents:

                           (a) have been duly authorized by all requisite
corporate action (including any required shareholder approval) of the Company
for the lawful execution, delivery and performance thereof;

                           (b) do not violate any provisions of (i) applicable
law, rule, regulation or tariff, (ii) any order of any court or other
Governmental Authority binding on the Company or any of its properties or (iii)
the restated certificate of incorporation, the Shareholders Agreement or bylaws
of the Company or any equivalent governing agreement of any Subsidiary;

                           (c) will not be in conflict with, result in a breach
of or constitute an event of default, or an event which, with notice or lapse of
time, or both, would constitute an event of default, under any indenture,
agreement, or other instrument to which the Company is a party, or by which the
properties or assets of the Company are bound, the effect of which would be
reasonably likely to have a material adverse effect on the ability of the
Company to observe the covenants and agreements contained herein or in any other
Transaction Document or to pay the Obligations; and

                           (d) will not result in the creation or imposition of
any Lien of any nature whatsoever upon any of the properties or assets of the
Company.

                  3.3      CAPITALIZATION.

                  The capitalization of the Company, including the Shares issued
hereunder, as set forth on Schedule 3.3 attached hereto is, as of the date
hereof, true and correct as to all outstanding equity securities of the Company
outstanding on a fully-diluted basis.

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                  3.4      VALIDITY OF SECURITIES.

                  The Shares, when issued and delivered in accordance with the
terms of this Agreement, shall be duly and validly issued and outstanding, fully
paid and nonassessable, not subject to the preemptive rights of any stockholder
except as provided in Section 6 of the Shareholders Agreement and free from all
taxes and Liens with respect to the issuance thereof, other than taxes in
respect of any transfer occurring contemporaneously with such issuance, other
than the transfer and other restrictions contemplated by this Agreement and the
Shareholders Agreement. All issued and outstanding shares of the Company's
capital stock have been duly authorized and validly issued and are fully paid
and nonassessable, are not subject to the preemptive rights of any stockholder
except as provided in Section 6 of the Shareholders Agreement, have been issued
in compliance with all applicable federal and state securities laws and are free
from all taxes and Liens with respect to the issuance thereof, other than taxes
in respect of any transfer occurring contemporaneously with such issuance.

                  3.5      OTHER AGREEMENTS.

                  The Company is not:

                           (a) a party to any judgment, order, decree or any
agreement or instrument or subject to restrictions materially adversely
affecting the ability of the Company to observe the covenants and agreements
contained herein or in any other Transaction Document; or

                           (b) in default in the performance, observance or
fulfillment of any of the obligations, covenants or conditions contained in any
agreement or instrument to which the Company is a party, which default has, or
if not remedied within any applicable grace period would reasonably be likely to
have, a material adverse effect on the ability of the Company to observe the
covenants and agreements contained herein or in any other Transaction Document.

                  3.6      NO CONSENTS.

                  Except as set forth on Schedule 3.6, neither the business or
properties of the Company, nor any relationship between the Company and any
other Person, nor any circumstance in connection with the execution, delivery
and performance of this Agreement and the other Transaction Documents and the
transactions contemplated hereby and thereby, is such as to require a consent,
approval or authorization of, or filing, registration or qualification with, any
Governmental Authority or any other Person on the part of the Company as a
condition to the execution, delivery and performance of, or consummation of the
transactions contemplated by, this Agreement or the other Transaction Documents
by the Company.

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                  3.7      FINANCIAL STATEMENTS AND COMPANY REPORTS.

                           (a) The Company has delivered to Purchaser an audited
consolidated balance sheet of the Company and its Subsidiaries as of December
31, 1999, and the notes thereto, and the related consolidated statements of
income, cash flows, and stockholders' equity for the fiscal year ended on such
date, all accompanied by reports thereon containing opinions without
qualification by PricewaterhouseCoopers LLP and an unaudited consolidated
balance sheet of the Company and its Subsidiaries as at September 30, 2000 and
the related consolidated statements of income, cash flows and stockholders'
equity for the fiscal quarter ended on such date, as certified by the Company's
chief financial officer. All such financial statements have been prepared in
accordance with GAAP consistently applied (except to the extent provided in the
notes to said financial statements and except for changes in application in
which such accountants concur), and present fairly the financial position of the
Company and its Subsidiaries at such dates and the results of their operations
and the changes in their stockholders' equity for such periods, subject however,
in the case of interim statements, to normal year end adjustments and the
absence of footnotes. Except as set forth on Schedule 3.7, since September 30,
2000, (assuming for this purpose that the transactions contemplated by the
Credit Agreement and related loan documents have occurred), there has been no
change in the financial condition of the Company as shown on the consolidated
balance sheet as of such date, except changes in the ordinary course of
business, none of which individually or in the aggregate has been materially
adverse. The Company has no material liabilities or obligations of any nature
(absolute, accrued, contingent or otherwise) that are not either reflected or
reserved against on the unaudited consolidated balance sheet of the Company and
its Subsidiaries as at September 30, 2000 or incurred in the ordinary course of
the business of the Company subsequent to the date thereof.

                           (b) The cash flow projections of the Company and the
pro forma balance sheet of the Company and its Subsidiaries as of the date
hereof, copies of which have been delivered to Purchaser, were prepared by the
chief financial officer of the Company, are based on underlying assumptions
which the Company believes provide as of the date hereof a reasonable basis for
the projections contained therein and reflect the Company's judgment as of the
date hereof, based on circumstances as of the date hereof, of the most likely
set of conditions and course of action for the period, it being recognized by
Purchaser that such projections and pro forma financial information are not to
be viewed as facts and that actual results during the period or periods covered
by any such projections may differ from the projected results or pro forma
financial information and that such differences may be material.

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                           (c) The Company has filed all forms, reports,
registration statements and documents with the SEC required to be filed by it
pursuant to the federal securities laws and the SEC rules and regulations
thereunder, and all such forms, reports, registration statements and documents
filed with the SEC (the "SEC Filings") have complied in all material respects
with all applicable requirements of the federal securities laws and the SEC
rules and regulations promulgated thereunder. As of their respective dates, the
SEC Filings did not contain any untrue statement of material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances in which they were made, not
misleading.

                  3.8      COMPLIANCE WITH LAW; ACCURACY OF FILINGS.

                  The Company is in compliance in all material respects with all
laws, statutes, rules, regulations, ordinances and tariffs applicable to its
business, assets and operations, other than any noncompliance which would not be
reasonably likely to have a material adverse effect on the business, operations
or financial condition of the Company (a "Material Adverse Effect"), and the
Company is not in violation in any material respect of any order of any court,
or other Governmental Authority or arbitration board or tribunal, except for
such violations which would not, individually or in the aggregate, be reasonably
likely to result in a Material Adverse Effect.

                  3.9      INVESTMENT COMPANY ACT.

                  The Company is not an "investment company" registered or
required to be registered under the Investment Company Act of 1940, as amended,
nor is it controlled by such an "investment company."

                  3.10     REGISTRATION RIGHTS.

                  Except for parties to the Registration Rights Agreement and as
disclosed in Schedule 3.10, no Person has any right to cause the Company to
effect the registration under the Securities Act of any securities of the
Company.

                  3.11     EXISTING INDEBTEDNESS.

                  Except as set forth on Schedule 3.11 or as reflected on its
latest unaudited balance sheet as of September 30, 2000, the Company has no
outstanding Indebtedness nor is it subject to any mortgage, note, indenture or
guarantee evidencing Indebtedness of the Company. Except as set forth on
Schedule 3.11, the Company has performed all material obligations required to be
performed by it

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prior to and including the date hereof in connection with such Indebtedness and
no event of default has occurred under any document evidencing such
Indebtedness.

         4.       REPRESENTATIONS AND WARRANTIES OF PURCHASER

                  Purchaser hereby represents and warrants to the Company as
follows:

                  4.1 REQUISITE POWER AND AUTHORITY. Purchaser has all necessary
power and authority under all applicable provisions of law to execute and
deliver this Agreement and to carry out its provisions. All actions on
Purchaser's part required for the lawful execution and delivery of this
Agreement have been or will be effectively taken prior to the Closing. When
executed and delivered, each of the Transaction Documents will constitute the
legal, valid and binding obligation of Purchaser, enforceable against Purchaser
in accordance with its terms, subject to the effect of any applicable
bankruptcy, moratorium, insolvency, reorganization or other similar law
affecting the enforceability of creditors' rights generally and to the effect of
general principles of equity which may limit the availability of equitable
remedies (whether in a proceeding at law or in equity)

                  4.2 INVESTMENT REPRESENTATIONS. Purchaser understands that the
Shares have not been registered under the Securities Act. Purchaser also
understands that the Shares are being offered and sold pursuant to an exemption
from registration contained in the Securities Act based in part upon the
Purchaser's representations contained in this Agreement.

                           (a) PURCHASER BEARS ECONOMIC RISK. Purchaser has
substantial experience in evaluating and investing in private placement
transactions of securities in companies similar to the Company so that it is
capable of evaluating the merits and risks of its investment in the Company and
has the capacity to protect its own interests. Purchaser understands that an
investment in the Shares acquired pursuant to this Agreement is highly
speculative and involves substantial economic risk. Purchaser understands that
it must bear the economic risk of this investment indefinitely unless the Shares
are registered pursuant to the Securities Act, or an exemption from registration
is available, and that Purchaser may sustain, and is financially able to
sustain, a complete loss of its investment pursuant to this Agreement. Purchaser
understands that the Company has no present intention of registering the Shares
or any shares of its Common Stock. Purchaser also understands that there is no
assurance that any exemption from registration under the Securities Act will be
available and that, even if available, such exemption may not allow Purchaser to
transfer all or any portion of the Shares under the circumstances, in the
amounts or at the times Purchaser might propose.

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                           (b) ACQUISITION FOR OWN ACCOUNT. Purchaser is
acquiring the Shares for its own account for investment only, and not with a
view towards their distribution in violation of applicable securities laws.

                           (c) PURCHASER CAN PROTECT ITS INTEREST. Purchaser
represents that, by reason of its or of its management's business or financial
experience, Purchaser has the capacity to protect its own interests in
connection with the transactions contemplated in this Agreement. Further,
Purchaser is aware of no publication of any advertisement in connection with the
transactions contemplated by this Agreement.

                           (d) ACCREDITED INVESTOR. Purchaser represents that it
is an accredited investor within the meaning of Rule 501 (a) of Regulation D
under the Securities Act.

                           (e) COMPANY INFORMATION. Purchaser has had an
opportunity to discuss the Company's business, management and financial affairs
with directors, officers and management of the Company. Purchaser has also had
the opportunity to ask questions of, and receive answers from, the Company and
its management regarding the terms and conditions of this investment.

                           (f) RULE 144. Purchaser acknowledges and agrees that
the Shares must be held indefinitely unless they are subsequently registered
under the Securities Act or an exemption from such registration is available.
Purchaser has been advised or is aware of the provisions of Rule 144 promulgated
under the Securities Act, which permits limited resale of shares purchased in a
private placement subject to the satisfaction of certain conditions, including,
among other things: the availability of certain current public information about
the Company, the resale occurring not less than one year after a party has
purchased and paid for the security to be sold, the sale being through an
unsolicited "broker's transaction" or in transactions directly with a market
maker (as said term is defined under the Securities Exchange Act of 1934, as
amended) and the number of shares being sold during any three-month period not
exceeding specified limitations.

                           (g) INDEPENDENT INVESTMENT DECISION. Purchaser
acknowledges that it has made its own independent investment decision with
respect to its pushes of Shares.

         5.       FORFEITURE OF THE SERIES A-2 SHARES; TRANSFER RESTRICTIONS.

                  5.1 FORFEITURE OF THE SERIES A-2 SHARES. Notwithstanding any
other provision of this Agreement to the contrary, if upon the earlier to occur
of (a) the consummation of an Approved Sale (as defined in the Shareholders

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Agreement) and (b) November 30, 2002 (such earlier date, the "Determination
Date"), there are no Obligations (as such term is defined in the Credit
Agreement) (excluding any Obligations in respect of any indemnification and
expense reimbursement obligations thereunder and under any other Loan Document
(as defined in the Credit Agreement) to the extent such obligations are not then
due and payable) outstanding, all outstanding Series A-2 Shares shall be deemed
to be forfeited by Purchaser, the rights of Purchaser with respect to such
Series A-2 Shares shall cease, and such Series A-2 Shares shall no longer be
deemed to be outstanding (whether or not certificates representing such Series
A-2 Shares shall have been surrendered to the Company for cancellation) (1) in
the case of (a) above, immediately prior to the consummation of such Approved
Sale, and (2) in the case of (b) above, at the close of business on such date,
and the Company shall have the right to cancel, or cause any transfer agent with
respect to the Series A-2 Shares to cancel, such Series A-2 Shares on the
Company's books and records, without notice to Purchaser or any payment by the
Company or such transfer agent (including, in the case of (a) above, without any
payment in respect of the consideration or other remuneration, whether cash or
non-cash, received by shareholders of the Company pursuant to the terms of such
Approved Sale). As soon as practicable on or after the Determination Date (but
in any event, within ten Business Days following the Determination Date),
Purchaser shall, if the Series A-2 Shares are forfeited on the Determination
Date pursuant to the terms of this Section 5.1, surrender to the Company at its
principal executive offices all certificates representing such Series A-2
Shares. Notwithstanding anything to the contrary contained in this Agreement or
the Shareholders Agreement, prior to and including the Determination Date, no
outstanding Series A-2 Shares may be sold, transferred, assigned, pledged or
otherwise encumbered or disposed of by Purchaser.

                  5.2 VOTING AND DIVIDEND RIGHTS. Subject to Section 5.1 above,
Purchaser shall have the voting and dividend rights and obligations provided to
and required of holders of Common Stock in the Company's Certificate of
Incorporation and Bylaws and the Shareholders Agreement with respect to all
outstanding Shares held by Purchaser on and after the Issue Date.

                  5.3 SHAREHOLDERS AGREEMENT. Subject to Section 5.1 above,
Purchaser hereby understands and acknowledges that the transfer of any
outstanding Shares following the Issue Date shall be subject to the terms of a
certain Amended and Restated Shareholders Agreement, dated as of November 13,
1998, by and among the Company and its stockholders signatory thereto, as the
same may be amended, restated or modified from time to time, substantially in
the form attached hereto as Exhibit 1 (the "Shareholders Agreement"). Any Common
Stock acquired by Purchaser in respect of the Shares upon payment of any stock
dividend, stock split, recapitalization or similar event shall be restricted as
described in this Section 5, and any certificates issued to evidence any shares
so acquired shall bear legends identical to those to be stamped or otherwise
imprinted

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on the Shares pursuant to Section 5.4 below. Upon execution and delivery to the
Company of a joinder to the Shareholders Agreement in substantially the form
attached hereto as Exhibit 2 on the Issue Date, Purchaser shall be considered a
"Shareholder" under the Shareholders Agreement and the Shares shall be
considered "Shareholder Shares" under the Shareholders Agreement, as such terms
are defined in the Shareholders Agreement.

                  5.4 LEGENDS. Except as otherwise permitted by this Section 5,
each certificate evidencing Series A-1 Shares shall be stamped or otherwise
imprinted with a legend in substantially the form attached hereto as Exhibit 3,
together with any legend that may be required by the Shareholders Agreement. In
addition to such legends as are required by the preceding sentence, each
certificate evidencing Series A-2 Shares shall be stamped or otherwise imprinted
with a legend in substantially the form attached hereto as Exhibit 4.
Notwithstanding the foregoing, a holder of a certificate evidencing any Shares
may require the Company to issue a stock certificate, without a legend, if and
to the extent permitted by, and in accordance with, this Agreement, the
Shareholders Agreement and applicable law.

         6.       MUTILATED OR MISSING CERTIFICATE.

                  If a stock certificate is mutilated, lost, stolen or
destroyed, the Company shall issue and deliver (a) in exchange and substitution
for and upon cancellation of any mutilated stock certificate or (b) in lieu of
and in substitution for any stock certificate lost, stolen or destroyed, a new
stock certificate of like tenor representing an equivalent right or interest;
but only upon receipt of evidence reasonably satisfactory to the Company of such
loss, theft or destruction of such stock certificate including, without
limitation, an affidavit of loss executed by the holder.

         7.       SECURITIES ACT REGISTRATION.

                  On the Issue Date, the parties hereto shall execute and
deliver an amendment to the Registration Rights Agreement in substantially the
form attached hereto as Exhibit 5 pursuant to which the Series A-1 Shares and,
following the Determination Date, any outstanding Series A-2 Shares shall be
considered "Registrable Securities" under the Registration Rights Agreement, and
Purchaser shall be entitled to request one "Short-Form Registration" thereunder.
The parties further agree that pursuant to the amendment, Purchaser shall be
afforded with all rights with respect to any "Piggyback Registration" under
Section 3 of the Registration Rights Agreement. Capitalized terms used in this
Section 7 but not defined herein shall have the respective meanings ascribed to
them in the Registration Rights Agreement.

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         8.       INFORMATION COVENANTS.

                  8.1      COOPERATION.

                  Following the Issue Date, the Company shall cooperate with
Purchaser and each holder of Shares in supplying such information as may be
reasonably necessary for such holders to complete and file any information
reporting forms presently or hereafter required by the SEC and any state
securities agency as a condition to the availability of an exemption under the
Securities Act and any applicable state securities law for the sale of any
Shares.

                  8.2      INFORMATION.

                  At any time following the Issue Date while Purchaser and any
of its Affiliates, taken together, hold any of the Shares to be issued and sold
hereby, the Company shall provide Purchaser or such holder with all information
(financial or otherwise) provided by the Company to any other shareholder.

                  8.3      PROPER BOOKS AND RECORDS.

                  The Company covenants that it will keep proper books and
records in which full, true and correct entries in conformity with generally
accepted accounting principles shall be made of all dealings and transactions in
relation to its business and activities.

         9.       CONDITIONS PRECEDENT TO PURCHASER'S OBLIGATIONS

                   The obligation of Purchaser to purchase and pay for the
Shares to be delivered to it at the Closing shall be subject to the satisfaction
of the following conditions as of the Closing Date:

                           (a) the representations and warranties of the Company
contained in this Agreement shall be true and correct on and as of the Closing
Date;

                           (b) concurrent with the Closing, the Company and
Purchaser shall have entered into a joinder agreement providing that Purchaser
shall become a party to the Shareholders Agreement;

                           (c) concurrent with the Closing, the Company and
Purchaser shall have entered into the amendment providing that Purchaser shall
become a party to the Registration Rights Agreement possessing such rights as
provided in Section 7 hereof;

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                           (d) on the Closing Date, the sale and issuance of the
Shares to be issued at the Closing shall not be legally prohibited by any laws
or regulations to which the Purchaser and the Company are subject. No law,
regulation, order, judgment or injunction of any court or Governmental Authority
of competent jurisdiction shall be in effect which prohibits the consummation of
the transactions contemplated hereby and the Company shall have obtained any and
all consents, permits and waivers necessary or appropriate for consummation of
the transactions contemplated by the Agreements (except for such as may be
properly obtained subsequent to the Closing Date);

                           (e) the Company shall have performed and complied
with, in all material respects, all agreements, obligations and conditions
contained in this Agreement that are required to be performed or complied with
by it on or before the Closing;

                           (f) the President of the Company or other authorized
officer acceptable to Purchaser shall deliver at the Closing a certificate
stating that the conditions specified in Section 9 have been fulfilled and
stating that there shall have been no material adverse change in the business,
assets or financial condition of the Company taken as a whole since September
30, 2000;

                           (g) the Company's Secretary shall execute and deliver
at the Closing a certificate attaching the resolutions authorizing the
transactions contemplated by the Transaction Documents;

                           (h) the Company shall have complied with the terms
and conditions of Section 6 of the Shareholders Agreement and Sections 2(g) and
11 of the Registration Rights Agreement; and

                           (i) Purchaser shall have received the favorable
opinion of Kirkland & Ellis, outside counsel to the Company, in form and
substance reasonably satisfactory to Purchaser, covering the matters set forth
on Exhibit 7 attached hereto. The opinion of Kirkland & Ellis shall be rendered
to Purchaser at the request of the Company and shall so state therein.

         10.      CONDITIONS PRECEDENT TO COMPANY'S OBLIGATIONS

                   The obligation of the Company to issue and sell the Shares to
be delivered to Purchaser at the Closing shall be subject to the satisfaction of
the following conditions as of the Closing Date:

                           (a) the representations and warranties of Purchaser
contained in this Agreement shall be true and correct in all material respects
on and as of the Closing Date;

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                           (b) concurrent with the Closing, Purchaser shall have
executed and delivered to the Company the joinder to the Shareholders Agreement
and the amendment to the Registration Rights Agreement;

                           (c) the sale and issuance of the Shares to be issued
at the Closing shall not be legally prohibited by any laws or regulations to
which Purchaser and the Company are subject. No law, regulation, order, judgment
or injunction of any court or Governmental Authority of competent jurisdiction
shall be in effect which prohibits the consummation of the transactions
contemplated hereby.

                           (d) Purchaser shall have performed and complied with
in all material respects all agreements, obligations and conditions contained in
this Agreement that are required to be performed or complied with by it on or
before the Closing.

                           (e) the Company shall have complied with the terms
and conditions of Section 6 of the Shareholders Agreement and Sections 2(g) and
11 of the Registration Rights Agreement.

         11.      MISCELLANEOUS

                  11.1 GOVERNING LAW. This Agreement shall be governed in all
respects by the laws of the State of New York as such laws are applied to
agreements between New York residents entered into and performed entirely in New
York.

                  11.2 SURVIVAL. The representations, warranties, covenants and
agreements made herein shall survive any investigation made by Purchaser or the
Company, as applicable, and the Closing for a period of one year from the
Closing Date.

                  11.3 SUCCESSORS AND ASSIGNS. Except as otherwise expressly
provided herein, the provisions hereof shall inure to the benefit of, and be
binding upon, the successors, assigns, heirs, executors and administrators of
the parties hereto and shall inure to the benefit of and be enforceable by each
person who shall be a holder of the Shares from time to time.

                  11.4 ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the Company and Purchaser with respect to the Shares.

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                  11.5 SEVERABILITY. In case any provision of this Agreement
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.

                  11.6 AMENDMENT AND WAIVER. This Agreement may be amended or
modified only upon the mutual written consent of the Company and Purchaser.

                  11.7 NOTICES. All notices, demands and other communications
provided for or permitted hereunder shall be made in writing and shall be by
registered or certified first-class mail, return receipt requested, telecopier,
courier service, overnight mail or personal delivery:

                           (a)      if to Purchaser:
                                    CapitalSource Holdings LLC
                                    1133 Connecticut Avenue, NW
                                    Suite 310
                                    Washington, D.C. 20036
                                    Fax: (202) 862-4990
                                    Attention:  Steven A. Museles, Esq.

                                    with a copy to:

                                    Hogan & Hartson L.L.P.
                                    555 13th Street, NW
                                    Washington, D.C.  20004
                                    Fax:  (202) 637-5910
                                    Attention:  James E. Showen, Esq.

                           (b)      if to the Company:

                                    Town Sports International, Inc.
                                    888 Seventh Avenue, 25th Floor
                                    New York, NY 10106
                                    Fax: (212) 246-8422
                                    Attention:  Alex Alimanestianu

                                    with a copy to:

                                    Kirkland & Ellis
                                    153 East 53rd Street
                                    New York, NY 10022-4675
                                    Fax: (212) 446-4900
                                    Attention: Kirk A. Radke, Esq.

                                      -14-
<PAGE>   15
                  All such notices and communications shall be deemed to have
been duly given when delivered by hand, if personally delivered; when delivered
by courier or overnight mail, if delivered by commercial courier service or
overnight mail; five (5) Business Days after being deposited in the mail,
postage prepaid, if mailed; and when receipt is mechanically acknowledged, if
telecopied. Any party may by notice given in accordance with this Section 11.7
designate another address or Person for receipt of notices hereunder.

                  11.8 BROKER'S FEES. Each party hereto represents and warrants
that no agent, broker, investment banker, person or firm acting on behalf of or
under the authority of such party hereto is or will be entitled to any broker's
or finder's fee or any other commission directly or indirectly in connection
with the transactions contemplated herein. Each party hereto further agrees to
indemnify each other party for any claims, losses or expenses incurred by such
other party as a result of its representation in this Section 11.8 being untrue.

                  11.9 COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall be an original, but all of which
together shall constitute one instrument.

                  11.10 BENEFITS. Nothing in this Agreement, expressed or
implied, is intended to or shall confer on any person other than the Company and
Purchaser, or their respective permitted successors or assigns, any rights,
remedies, obligations or liabilities under or by reason of this Agreement.

                  11.11 SECTION AND OTHER HEADINGS. The section and other
headings contained in this Agreement are for reference purposes only and shall
not be deemed to be a part of this Agreement or to affect the meaning or
interpretation of this Agreement.

         12.      CERTAIN DEFINITIONS.

                  "Affiliate" shall mean, as to any Person, any other Person
(other than a Subsidiary) (a) which, directly or indirectly through one or more
intermediaries, controls, is controlled by, or is under common control with such
Person, (b) who is a director or officer (i) of such Person, (ii) of any
Subsidiary of such Person or (iii) of any Person described in clause (a) above
or (c) which is the beneficial owner (as defined in Rule 13d-3 of the Securities
Exchange Act of 1934, as amended) of five percent (5%) or more of any class of
the outstanding voting stock or other equity interest of such Person. For
purposes of this definition, the term "control" shall mean the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of such Person, whether through ownership of voting
stock, by contract or otherwise.

                                      -15-
<PAGE>   16
                  "Board of Directors" means the Board of Directors of the
Company.

                  "BTCo Credit Agreement" shall have the meaning ascribed to it
in the Credit Agreement.

                  "Business Day" shall mean any day which is not a Saturday,
Sunday or a day on which commercial banks in New York are authorized or required
by law to be closed.

                  "Closing" has the meaning given that term in Section 2 hereof.

                  "Closing Date" has the meaning given that term in Section 2
hereof.

                  "Common Stock" has the meaning given that term in the recitals
hereto.

                  "Credit Agreement" has the meaning given that term in the
recitals hereto.

                  "Determination Date" has the meaning given that term in
Section 5.1 hereof.

                  "Event of Default" shall mean the occurrence of any of the
events set forth in Article VIII of the Credit Agreement.

                  "GAAP" shall mean generally accepted accounting principles in
the United States of America in effect from time to time as applied by
nationally recognized accounting firms.

                  "Governmental Authority" shall mean any Federal, state,
municipal, national or other governmental department, commission, board, bureau,
agency or instrumentality or political subdivision thereof or any entity or
officer exercising executive, legislative or judicial, regulatory or
administrative functions of or pertaining to any government or any court, in
each case whether of a state, territory or possession of the United States, the
United States, a foreign governmental entity or the District of Columbia.

                  "Indebtedness" of any Person shall mean, without duplication,
(i) all indebtedness of such Person for borrowed money, (ii) the deferred
purchase price of assets or services which in accordance with GAAP would be
shown on the liability side of the balance sheet of such Person, (iii) the face
amount of all letters of credit issued for the account of such Person and,
without duplication, all drafts drawn thereunder, (iv) all Indebtedness of a
second Person secured by any Lien on any property owned by such first Person,
whether or not such indebtedness has been assumed, (v) all Capitalized Lease
Obligations (as defined in the Credit Agreement) of such Person, (vi) all
obligations of such Person to pay a specified purchase price

                                      -16-
<PAGE>   17
for goods or services whether or not delivered or accepted, i.e., take-or-pay
and similar obligations, (vii) all net obligations of such Person under Interest
Rate Agreements (as defined in the Credit Agreement) and (viii) all Contingent
Obligations (as defined in the Credit Agreement) of such Person, (other than
Contingent Obligations arising from the guaranty by such Person of the
obligations of the Company and/or its Subsidiaries to the extent such guaranteed
obligations do not constitute Indebtedness), provided that Indebtedness shall
not include trade payables, deferred revenue, taxes and accrued expenses, in
each case arising in the ordinary course of business.

                  "IPO" means a firmly underwritten initial public offering
pursuant to an effective registration under the Securities Act, covering the
offer and sale of Common Stock for the account of the Company. "Issue Date" has
the meaning given that term in Section 1.2 hereof.

                  "Lien" has the meaning given that term in Section 3.2(d)
hereof.

                  "Material Adverse Effect" has the meaning given that term in
Section 3.8 hereof.

                  "Person" shall mean an individual, a partnership, a
corporation, a limited liability company, a business trust, a joint stock
company, a trust, an unincorporated association, a joint venture, a Governmental
Authority or any other entity of whatever nature.

                  "Registration Rights Agreement" means the certain Registration
Rights Agreement, dated as of December 10, 1996, by and among the Company and
the parties signatory thereto, as amended, restated or modified from time to
time, substantially in the form of attached hereto as Exhibit 6.

                  "SEC Filings" has the meaning given that term in Section
3.7(c) hereof.

                  "Securities Act" means the Securities Act of 1933, as amended,
or any successor Federal statute, and the rules and regulations of the United
States Securities and Exchange Commission thereunder, all as the same shall be
in effect at the time. Reference to a particular section of the Securities Act
shall be deemed to include a reference to the comparable section, if any, of any
such successor Federal statute.

                  "Series A-1 Shares" has the meaning given that term in Section
1.1 hereof.

                  "Series A-2 Shares" has the meaning given that term in Section
1.1 hereof.

                                      -17-
<PAGE>   18
                  "Shares" has the meaning given that term in Section 1.1
hereof.

                  "Shareholders Agreement" has the meaning given that term in
Section 5.3 hereof.

                  "Subsidiary" shall mean, as to any Person, any corporation or
other entity in which more than fifty percent (50%) of all equity interests is
owned directly or indirectly by such Person and/or by one or more of such
Person's Subsidiaries.

                  "Transaction Documents" has the meaning given that term in the
introduction to Section 3 hereof.

                  [Remainder of Page Intentionally Left Blank]

                                      -18-
<PAGE>   19
                  IN WITNESS WHEREOF, the parties hereto have executed and
delivered this Agreement as of the date set forth in the first paragraph hereof.

                                  COMPANY:

                                  TOWN SPORTS INTERNATIONAL, INC.

                                  By:        /s/ R.G. Pyle
                                     ------------------------------------------
                                  Title:     CFO
                                        ---------------------------------------

                                  PURCHASER:

                                  CAPITALSOURCE HOLDINGS LLC

                                  By:        Steven A Museles
                                     ------------------------------------------
                                  Title:     Senior V.P. and General Counsel
                                        ---------------------------------------<PAGE>   1
                                                                    Exhibit 10.1
                                                                  EXECUTION COPY

                            STOCK PURCHASE AGREEMENT

                                 with respect to

                                   ALONET S.A.

                                      among

                    NET2PHONE INC. and LATIN INVESTMENTS, LLC

                                   as Buyers;

                            DANIEL EDUARDO GOLDSHMIDT
                                 ALEXANDRE FLIT
                        TITAN INVESTMENT ENTERPRISES LTD.
                               VOIP INVESTMENT CO.
           BS CONSULTORIA, INTERME DIACAO E PARTICIPACOES S/C/ LTDA.,

                                   as Sellers

                                       and

                                   ALONET S.A.
                           FAUSTO PENNA MOREIRA FILHO
                                  HELIO SEIBEL

                             as Intervening Parties

                           Dated as of August 29, 2000

<PAGE>   2
                                TABLE OF CONTENTS

<TABLE>
<S>          <C>
SECTION 1.        PURCHASE AND SALE OF CAPITAL STOCK..................................2

    1.1      Definitions; Construction................................................2
    1.2      Subscription of Shares; Purchase and Sale................................2
    1.3      Purchase Price and Payment...............................................3
    1.4      Time and Place of Closing................................................4
    1.5      Transfer of Shares and Delivery of Agreements............................4
    1.6      Further Assurances.......................................................4

SECTION 2.        CERTAIN REPRESENTATIONS, WARRANTIES
                  AND COVENANTS OF THE COMPANY AND THE
                  SELLERS.............................................................4

    2.1      Making of Representations and Warranties.................................4
    2.2      Organization, Qualification and Authority of the Company;
             Noncontravention by the Company..........................................5
    2.3      Subsidiaries and Affiliates..............................................6
    2.4      Capitalization...........................................................6
    2.5      Organization, Qualification and Authority of Sellers;
             Noncontravention by Sellers..............................................8
    2.6      Consents.................................................................9
    2.7      Financial Statements; No Undisclosed Liabilities.........................9
    2.8      Taxes...................................................................10
    2.9      Accounts Receivable.....................................................11
    2.10     [Intentionally Omitted].................................................11
    2.11     Absence of Certain Changes..............................................11
    2.12     Ordinary Course.........................................................14
    2.13     [Intentionally Omitted].................................................14
    2.14     Tangible Personal Property..............................................14
    2.15     Intellectual Property...................................................14
    2.16     Trade Secrets and Customer Lists........................................15
    2.17     Contracts...............................................................15
    2.18     Litigation..............................................................17
    2.19     Compliance..............................................................17
    2.20     Insurance...............................................................17
    2.21     Warranty Related Matters................................................18
    2.22     [Intentionally Omitted].................................................18
    2.23     Finder's Fees...........................................................18
    2.24     Permits; Burdensome Agreements..........................................18
    2.25     Corporate Records.......................................................19
    2.26     No Severance or Other Arrangements......................................19
    2.27     Employee Benefit Plans..................................................19
    2.28     Employees; Labor Matters................................................19
    2.29     Customers and Distributors..............................................20
    2.30     Environmental Matters...................................................20

</TABLE>

                                       i
<PAGE>   3

<TABLE>
<S>          <C>
    2.31     Bank and Brokerage Accounts; Securities.................................21
    2.32     No Powers of Attorney...................................................21
    2.33     Disputed Accounts Payable...............................................21
    2.34     Accuracy of Statements..................................................21
    2.35     No Illegal or Improper Transactions.....................................22
    2.36     Availability and Transfer of Foreign Currency...........................22

SECTION 3.        COVENANTS OF THE SELLERS AND THE
                  COMPANY............................................................22

    3.1      Making of Covenants and Agreements......................................22
    3.2      Conduct of Business.....................................................22
    3.3      Consents and Approvals..................................................25
    3.4      Breach of Representations and Warranties................................26
    3.5      No Sales of Capital Stock...............................................26
    3.6      Consummation of Agreement; Cooperation..................................26
    3.7      Notice and Cure.........................................................26
    3.8      Payment of Taxes........................................................27
    3.9      Notification to CADE....................................................27
    3.10     Agent for Service of Process.  Each of the Sellers and the
             Company shall, within five (5) days after the date hereof
             irrevocably appoint National Registered Agents, Inc., with
             offices located at 440 9th Avenue, 5th floor, New York, NY
             10001 as its agent for service of process in the State of New
             York with respect to any dispute arising out of this
             Agreement and all other Transaction Documents governed by
             New York law which appointment shall be evidenced in a
             form reasonably satisfactory to the Buyers..............................27

SECTION 4.        REPRESENTATIONS AND WARRANTIES OF THE
                  BUYERs.............................................................27

    4.1      Making of Representations and Warranties................................27
    4.2      Organization of the Buyers..............................................27
    4.3      Authority...............................................................28
    4.4      Finder's Fees...........................................................29
    4.5      Accuracy of Statements..................................................29

SECTION 5.        COVENANTS OF THE BUYERS............................................29

    5.1      Making of Covenants and Agreements......................................29
    5.2      Consents and Approvals..................................................29
    5.3      Breach of Representations and Warranties................................29
    5.4      Consummation of Agreement; Cooperation..................................29

SECTION 6.        [INTENTIONALLY OMITTED]............................................30

SECTION 7.        CONDITIONS PRECEDENT...............................................30

</TABLE>

                                       ii
<PAGE>   4

<TABLE>
<S>          <C>
    7.1      Conditions to the Obligations of the Buyers.............................30
    7.2      Conditions to the Obligations of the Company and the Sellers............35

SECTION 8.        TERMINATION OF AGREEMENT...........................................35

    8.1      Termination.............................................................35
    8.2      Effect of Termination...................................................36
    8.3      Right to Proceed........................................................36

SECTION 9.        CERTAIN RIGHTS AND OBLIGATIONS
                  SUBSEQUENT TO CLOSING..............................................36

    9.1      Survival of Representations, Warranties and Covenants...................36
    9.2      Fees and Expenses.......................................................36

SECTION 10.       INDEMNIFICATION....................................................36

    10.1     Indemnification by the Sellers..........................................36
    10.2     Indemnification by the Buyers...........................................38

SECTION 11.       MISCELLANEOUS......................................................38

    11.1     Law Governing...........................................................38
    11.2     Notices.................................................................38
    11.3     Entire Agreement........................................................39
    11.4     Assignment..............................................................40
    11.5     Publicity and Disclosures...............................................40
    11.6     Captions and Gender.....................................................40
    11.7     Confidentiality.........................................................40
    11.8     Cooperation and Books and Records.......................................41
    11.9     Binding Nature of Agreement.............................................41
    11.10    Third Party Beneficiaries...............................................41
    11.11    Certain Definitions.....................................................41
    11.12    Execution in Counterparts...............................................47
    11.13    Amendments; Waivers.....................................................47
    11.14    Consent to Jurisdiction.................................................47
    11.15    Severability............................................................48
    11.16    Currency................................................................48
    11.17    Specific Performance....................................................49
    11.18    Business Day............................................................49

</TABLE>

   EXHIBITS AND SCHEDULES:

   Exhibit 7.1(a)(i)         Form of Shareholders Agreement
   Exhibit 7.1(a)(ii)        Form of Registration Rights Agreement
   Exhibit 7.1(a)(iv)        Form of Articles
   Exhibit 7.1(a)(v)         Form of Call Option
   Exhibit 7.1(a)(vi)        Form of Employment Agreements
   Exhibit 7.1(b)(xi)        Form of Subscription Bulletin

                                       iii
<PAGE>   5

   Schedule 2.2 (c)          Jurisdictions of Qualification
   Schedule 2.7              Financial Statements
   Schedule 2.9              Loans to Affiliates
   Schedule 2.15(a)          Intellectual Property
   Schedule 2.17-1           Certain Contracts
   Schedule 2.18             Litigation
   Schedule 2.20             Insurance
   Schedule 2.24             Permits; Burdensome Agreements
   Schedule 2.27             Employee Benefit Plans
   Schedule 2.28             Employees; Labor Matters
   Schedule 2.31             Bank and Brokerage Accounts
   Schedule 2.32             Powers of Attorney
   Schedule 2.33             Disputed Accounts Payable
   Schedule 7.1(b)(xv)       Acquisition of Equipment

                                       iv

<PAGE>   6
                            STOCK PURCHASE AGREEMENT

             THIS AGREEMENT, entered into as of August 29, 2000 (the
"Agreement"), is among NET2PHONE INC., a Delaware corporation, having its
corporate headquarters at 520 Broad Street, New Jersey 07102 ("Net2Phone"),
Latin Investments, L.L.C., a Delaware limited liability company having its
corporate headquarters at 9 East Loockerman Street, Dover, DE 19901 ("Latin
Investments" and, collectively with Net2Phone, the "Buyers" and individually,
each of them a "Buyer"), DANIEL EDUARDO GOLDSHMIDT, of Brazilian nationality,
single, computer technician, with Brazilian ID n(o)  22.557.579/SSP-SP and
enrolled at the Federal Taxpayer Registry - CPF/MF- under #213.177.968-05,
domiciled at Rua Manacas, 120, Sao Paulo, Sao Paulo, Brazil; ALEXANDRE FLIT, of
Brazilian nationality, single, computer technician, with Brazilian ID n(o)
24.949.095/SSP-SP and enrolled at the Federal Taxpayer Registry - CPF/MF- under
#272.862.688-05, domiciled at Rua Vanderlei, 301, Sao Paulo, Sao Paulo, Brazil;
TITAN INVESTMENT ENTERPRISES LTD., a company organized under the laws of the
British Virgin Islands having its corporate headquarters at P.O. Box 662, Road
Town, Tortola, British Virgin Islands ("Titan Investment"), VOIP INVESTMENT CO.,
a company organized under the laws of the United Kingdom, having its corporate
headquarters at 193-195 Brompton Road, London, England ("VOIP Investment"), and
BS CONSULTORIA, INTERMEDIACAO E PARTICIPACOES S/C LTDA., a sociedade civil
organized under the laws of Brazil, having its corporate headquarters at Rua
Inacio Pereira de Rocha, 147, Sao Paulo, Sao Paulo, Brazil, enrolled with the
CNPJ under n(o) degrees 02.140.387/0001-07 ("BS Consultoria" and together with
Daniel Eduardo Goldshmidt, Alexandre Flit, Titan Investment and VOIP Investment,
the "Sellers" and individually, each of them a "Seller") and ALONET S.A., a
sociedade anonima incorporated under the laws of Brazil, having its corporate
headquarters at Calcada Antares, 264 2nd floor, Alphaville, 06500-000, Santana
do Parnaiba, Sao Paulo, Brazil, enrolled with the Corporate Taxpayer Registry of
the Ministry of Finance ("CNPJ") under n(o) 03.541.442/0001-33 (the
"Company"), FAUSTO PENNA MOREIRA FILHO, of Brazilian nationality, married,
engineer, with Brazilian ID n(o) 2.933.459/SSP-SP and enrolled at the
Federal Taxpayer Registry - CPF/MF- under #330.369.778-72, domiciled at Rua
Banibas, 663, Alto de Pinheiros, Sao Paulo, Sao Paulo, Brazil and HELIO SEIBEL,
of Brazilian nationality, married, businessman, with Brazilian ID n(o)
5.296.474/SSP-SP and enrolled at the Federal Taxpayer Registry-CPF/MF - under
#533.792.8484-15, domiciled at Rua Bartolomeu Paes, 136, Villa Anastacia, Sao
Paulo, Sao Paulo, Brazil (together with the Company, and VOIP Investment, the
"Intervening Parties").

                              Preliminary Statement

             Subject to the terms and conditions hereof, the Sellers desire to
sell, and the Buyers desire to purchase, a portion of the issued and outstanding
common stock of the Company.

             NOW, THEREFORE, in order to consummate said purchase and sale and
in consideration of the mutual agreements set forth herein, the parties hereto
agree as follows:

                                       1
<PAGE>   7

SECTION 1.     PURCHASE AND SALE OF CAPITAL STOCK.

                     1.1 Definitions; Construction. Certain terms used in this
Agreement shall have the meanings ascribed to them in Section 11.11 hereof. In
this Agreement, all definitions ascribed to terms in their singular forms shall
be equally applicable to the plural forms of such terms, and vice versa.

                     1.2 Subscription of Shares; Purchase and Sale.

             (a)     Subject to the provisions of this Agreement:

             (i)     the Sellers shall cause the Company to issue and Net2phone
agrees to subscribe 2,859,569 common shares of the Company,

             (ii)    each Seller agrees to sell and Latin Investments agrees to
purchase a total amount 1,715,870 common shares of the Company, as follows:

                     (A) 1,382,303 common shares from VOIP Investment;

                     (B) 162,150 common shares from BS Consultoria;

                     (C) 57,139 common shares from Titan Investment;

                     (D) 57,139 common shares from Alexandre Flit;

                     (E) 57,139 common shares from Daniel Goldshmidt.

             (iii)   and each Seller agrees to sell and Net2phone agrees to
purchase a total amount of 1,573,096 common shares of the Company as follows:

                     (A) 1,267,328 common shares from VOIP Investment;

                     (B) 148,637 common shares from BS Consultoria;

                     (C) 52,377 common shares from Titan Investment;

                     (D) 52,377 common shares from Alexandre Flit;

                     (E) 52,377 common shares from Daniel Goldshmidt.

(all of such shares referred to in clauses (i), (ii) and (iii) above, the
"Shares") free and clear of any and all Liens, pledges, security interests,
claims, charges, options or other purchase rights, voting agreements or other
restrictions or encumbrances of any kind or nature whatsoever.

             (b)     The Sellers and the Intervening Parties hereby agree to (i)
waive their respective preemptive rights under the Brazilian Corporations Law in
connection with the issuance of Shares referred to in Section 1.2(a)(i) above,
(ii) waive their respective rights of first refusal as contemplated in the
Articles of the Company, in

                                       2
<PAGE>   8

connection with the sale and purchase of Shares referred to in Section
1.2(a)(ii) and (iii) above, and (iii) authorize and/or take all necessary
action in connection with the recordation of the transfer of Shares
contemplated herein in the Company's corporate books.

                     1.3 Purchase Price and Payment.

             (a)     Subject to the conditions of this Agreement and in
consideration of the issuance and sale of the Shares by the Company and the
Sellers to the Buyers, the Buyers agree that at the Closing they will pay to the
Sellers and the Company, as applicable, an aggregate consideration of U.S.
$7,999,904.00 (the "Purchase Price"). The Purchase Price shall be comprised of
(i) U.S. $4,000,000.00 corresponding to the subscription price to be paid by
Net2phone to the Company for the subscription of 2,859,569 common shares of the
Company, at U.S.$1.3988 per share, (ii) U.S. $1,000,010.00 corresponding to the
purchase price to be paid by Latin Investments to the Sellers for the purchase
of 1,715,870 common shares of the Company, at U.S.$.582799979 per share, and
(iii) U.S. $2,999,894.00 corresponding to the purchase price to be paid by
Net2phone to the Sellers for the purchase of 1,573,096 common shares of the
Company at U.S. $1.907 per share.

             (b)     The Purchase Price shall be paid as follows:
US$4,000,000.00 will be paid directly to the Company and US$3,999,904.00 will be
paid directly to the Sellers, in each case by wire transfer in immediately
available funds at the accounts specified by each of the Sellers or the Company,
as applicable, to the Buyers in writing at least two Business Days prior to the
Closing as follows:

<TABLE>
<CAPTION>
 PAYMENTS BY NET2PHONE TO:                              US$
--------------------------                              ---
<S>                                               <C>
VOIP Investment                                       2,416,795.00
BS Consultoria                                          283,450.00
Titan Investments                                        99,883.00
Alexandre Flit                                           99,883.00
Daniel Eduardo Goldshmidt                                99,883.00
                                                  -------------------
                                                     $2,999,894.00
</TABLE>

<TABLE>
<CAPTION>
PAYMENTS BY LATIN INVESTMENTS TO:                       US$
---------------------------------                       ---
<S>                                               <C>
VOIP Investment                                         805,605.00
BS Consultoria                                           94,502.00
Titan Investments                                        33,301.00
Alexandre Flit                                           33,301.00
Daniel Eduardo Goldshmidt                                33,301.00
                                                  -------------------
                                                     $1,000,010.00
</TABLE>

             Notwithstanding the foregoing, the Sellers hereby acknowledge that
Net2phone shall have fully satisfied its obligation to pay the subscription
price to be paid

                                       3
<PAGE>   9

to the Company on the Closing Date in the event that the principal amount of all
the Notes are capitalized. and, that Net2phone shall be entitled to receive
2,859,569 common shares of the Company in respect of such capitalization. The
Sellers further agree to take all the necessary steps to obtain the prior
authorization from the Brazilian Central Bank for the capitalization of such
obligations and to register such capitalization with the Brazilian Central Bank
as well as to take and approve all necessary corporate action in order to
implement the aforementioned capitalization.

                     1.4 Time and Place of Closing. The closing of the
subscription, purchase and sale provided for in this Agreement (the "Closing")
shall be held at the offices of Tozzini, Freire, Teixeira e Silva on the date
which shall occur on the date (the "Closing Date") on which all the conditions
precedent set forth in Section 7.1(b) are first satisfied or waived; provided,
however, that if on December 31, 2000 the conditions precedent set forth in
Section 7.1(b) are not satisfied, which failure is attributable on any act or
omission of any Buyer, then the Buyers shall be obligated to consummate the
transactions contemplated hereunder on December 31, 2000 notwithstanding the
failure of any such condition to be satisfied.

                     1.5 Transfer of Shares and Delivery of Agreements. At the
Closing: (i) the Sellers shall deliver or cause to be delivered to the Buyers
(A) certified copies of the pages of the Book of Registered Shares of the
Company showing registration of the Buyers as shareholders of the Company and
certified copies of the pages of the Book of Transfer of Shares of the Company
containing statements of transfers of the Shares as provided for in this
Agreement and duly signed by the Sellers, the Buyers and an authorized officer
of the Company, (B) such other instruments and other documents as are required
to be delivered to the Buyers pursuant to Section 7.1 and (C) such additional
documents as the Buyers may reasonably request to complete the subscription,
sale and purchase of the Shares as contemplated by this Agreement; and (ii) the
Buyers shall deliver or cause to be delivered to the Company or the Sellers, as
applicable, (A) the Purchase Price and (B) such other instruments and other
documents as are required to be delivered to the Sellers pursuant to Section
7.2.

                     1.6 Further Assurances. Subject to the provisions of this
Agreement and without limitation of the other rights provided to, and
obligations assumed by, the respective parties hereunder, the Sellers and the
Buyers each shall, from time to time after the Closing at the request of the
other party and without further consideration, execute such documents and take
such other action as such other party may reasonably request to more effectively
transfer and assign to, and vest in, the Buyers the Shares free and clear of all
Liens and encumbrances or to otherwise carry out this Agreement and the
transactions contemplated hereby.

SECTION 2.     CERTAIN REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY
               AND THE SELLERS.

                     2.1 Making of Representations and Warranties. In order to
induce the Buyers to enter into this Agreement and consummate the transactions
contemplated hereby, the Company and each of the Sellers jointly and severally
hereby

                                       4
<PAGE>   10

make to each of the Buyers the representations, warranties and covenants
contained in this Section 2, as of the date hereof and as of the Closing Date.

                     2.2 Organization, Qualification and Authority of the
Company; Noncontravention by the Company.

             (a)     The Company is a corporation duly organized, validly
existing and in good standing under the laws of Brazil. The Company has full
corporate power and authority to conduct its business in the manner such
business is currently conducted or proposed to be conducted.

             (b)     The Company's Articles, as amended in the form of Exhibit
7.1(a)(iv) hereof, are fully effective, complete and correct, and no amendments
thereto are pending.

             (c)     The Company is duly licensed and qualified to do business
and in good standing in each jurisdiction in which the operation of its business
makes such licensing or qualification to do business necessary and the failure
so to qualify to do business would have a material adverse effect on the
business or prospects (financial or otherwise) of the Company. The list of
jurisdictions in which the Company is licensed and/or qualified to do business
is set forth in Schedule 2.2(c).

             (d)     The Company has full right, power and authority to enter
into this Agreement and the other agreements, documents and instruments to be
executed and delivered by it pursuant to or as contemplated by this Agreement
and to carry out the transactions contemplated hereby and/or thereby. The
execution and delivery of this Agreement and each agreement, document and
instrument to be executed and delivered by the Company pursuant to this
Agreement and the performance of the Company's obligations hereunder and
thereunder (and all other actions contemplated by the preceding sentence) have
been duly authorized by all necessary action of the Company's shareholders and
no other action is required and no consent or notice is required by any other
Person. This Agreement and each agreement, document and instrument to be
executed and delivered by the Company pursuant to this Agreement constitute, or
will when executed and delivered and with respect to the Shareholders Agreement,
when registered in accordance with article 118 of the Brazilian Corporations
Law, constitute, valid and binding obligations of the Company, enforceable in
accordance with their respective terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium and similar laws affecting creditors'
rights generally, and subject, as to enforceability, to general principles of
equity (regardless of whether enforcement is sought in a proceeding at law or in
equity).

             (e)     The execution, delivery and performance by the Company of
this Agreement, and each other agreement, document and instrument contemplated
by this Agreement and the consummation of the transactions contemplated hereby
and/or thereby, do not and will not result in a breach of, constitute a default
under (or event which, with notice or lapse of time or both, would constitute a
default under), conflict with, violate, accelerate any obligation under or give
rise to a right of termination or

                                       5
<PAGE>   11

cancellation of, or to a loss of benefit to which the Company is entitled under,
or result in the creation of any lien, security interest, charge or encumbrance
upon any of the Company's property or assets under, or require the giving of any
notice under, or the receipt of any consent or approval relating to, the
Articles of the Company, any indenture or loan or credit agreement or any other
agreement, contract, instrument, mortgage, deed of trust, lien, lease, permit,
authorization, order, writ, judgment, injunction, decree, determination or
arbitration award, whether written or oral, to which the Company is a party or
by which any of the properties or assets of the Company is bound or affected, or
result in the creation or imposition of any mortgage, pledge, lien, security
interest or other charge or encumbrance on the Company's assets or properties or
on the Shares.

                     2.3 Subsidiaries and Affiliates. The Company does not
presently own or control, directly or indirectly, any equity interest in any
corporation, association or business entity. The Company is not, directly or
indirectly, a participant in any joint venture or partnership.

                     2.4 Capitalization.

             (a)     As of the date hereof, prior to giving effect to the
transactions contemplated herein, the total authorized capital stock of the
Company consists of 8,579,565 shares of common stock, without par value, all of
which are outstanding and are owned by the Sellers. All such shares of common
stock have been duly and validly issued and outstanding, fully paid and
non-assessable and have not been issued in violation of any preemptive rights or
transferred in violation of any rights of first refusal.

             (b)     As of the Closing, upon consummation of the transactions
contemplated herein, the total authorized capital stock of the Company will
consist of 11,439,134 shares of common stock, without par value, all of which
will be duly and validly issued and outstanding, fully paid and non-assessable,
will have not been issued, offered and sold in violation of any preemptive
rights, rights of first refusal or any Applicable Law concerning the issuance of
securities, and will be owned on a fully diluted basis as follows:

<TABLE>
<CAPTION>
Shareholder                      Number of Shares      Percentage
-------------------------------  --------------------  ----------------
<S>                              <C>                   <C>
Net2phone                              4,432,665       38.75%
Latin Investments                      1,715,870       15%
VOIP Investment                        4,261,739       37.25578%
BS Consultoria                           499,484       4.36645%
Daniel Goldshmidt                        176,458       1.54258%
Alexandre Flit                           176,458       1.54258%
Titan Investment                         176,458       1.54258%
Fausto Penna Moreira Filho                     1       0.00001%
Helio Seibel                                   1       0.00001%
                                 --------------------  ----------------
Total                                 11,439,134       100%
</TABLE>

                                       6
<PAGE>   12

             (c)     The Sellers are not a party to any option, warrant,
purchase right, or other contract or commitment that could require them to sell,
transfer, or otherwise dispose of any capital stock of the Company (other than
the Transaction Documents).

             (d)     Except as set forth in the Transaction Documents, there
are no outstanding options, warrants, calls, purchase rights, subscription
rights, preemptive rights or other contracts or commitments that could require,
or commitments by the Company to issue, sell, or otherwise cause to become
outstanding any of its capital stock, or to pay any dividends on such shares, or
to purchase, redeem, or retire any outstanding shares of its capital stock, nor
are there outstanding any securities or obligations which are convertible into
or exchangeable for any shares of capital stock of the Company.

             (e)     Except as set forth in the Transaction Documents, there
are no voting trusts, proxies, or other agreements or understandings with
respect to the voting of the capital stock of the Company or the management of
the business and affairs of the Company.

             (f)     Other than pursuant to the Company's Articles and the
Transaction Documents, there are no agreements among the Company and any of the
Company's stockholders or among any of the Company's stockholders, which in any
way affect any stockholder's ability or right freely to alienate the Shares.

             (g)     Except for the Transaction Documents, the Sellers hold of
record and own beneficially all of the Shares, free and clear of any and all
security interests, Liens, claims, pledges, hypothecations, assessments,
equities, charges, Taxes, agreements, restrictions and encumbrances whatsoever
and free of all options, warrants, calls, purchase rights or other contracts or
commitments that could require such Shareholder to sell such Shares and with no
proxies or restrictions on the voting or other rights pertaining thereto. The
Sellers have complete and unrestricted power and authority and the unqualified
right to sell, assign, transfer and deliver the Shares to the Buyers, and upon
such sale, assignment and registration in the Book of Registered Shares and in
the Book of Transfer of Shares, the Buyers will acquire good, valid and
marketable title to the Shares, free and clear of any and all security
interests, liens, claims, pledges, hypothecations, assessments, options,
equities, charges, Taxes, agreements, restrictions and encumbrances whatsoever
and with no proxies or restrictions on the voting or other rights pertaining
thereto other than as set forth in the Transaction Documents.

             (h)     Other than pursuant to the Transaction Documents, the
Company is not, as of the date of this Agreement, and will not, as of the
Closing Date, be under any obligation to register under Applicable Law any of
its now and then outstanding securities or any of its securities that may
subsequently be issued pursuant to any then existing convertible or exercisable
securities with any Governmental Authority.

                                       7
<PAGE>   13

                     2.5 Organization, Qualification and Authority of Sellers;
Noncontravention by Sellers.

             (a)     VOIP Investment is a limited liability partnership duly
organized, validly existing and in good standing under the laws of the United
Kingdom with full corporate power and authority to conduct its business in the
manner and in the places where such business is conducted.

             (b)     BS Consultoria is a sociedade civil por quotas de
responsabilidade limitade duly organized, validly existing and in good standing
under the laws of Brazil with full corporate power and authority to conduct its
business in the manner and in the places where such business is conducted.

             (c)     Titan Investment is duly organized, validly existing and in
good standing as a corporation under the laws of the British Virgin Islands with
full corporate power and authority to conduct its business in the manner and in
the places where such business is conducted.

             (d)     Each of VOIP Investment, BS Consultoria and Titan
Investments' respective organizational documents, as applicable, each as amended
to date and true and correct copies of which, certified by an officer of each of
them, have been heretofore delivered to the Buyers' counsel, are fully
effective, complete and correct.

             (e)     Each of VOIP Investment, BS Consultoria and Titan
Investments is duly licensed and qualified to do business and in good standing
in each jurisdiction in which the operation of its business makes such licensing
or qualification to do business necessary and the failure to qualify to do
business would have a material adverse effect on it.

             (f)     The Sellers have full right, power and authority to enter
into this Agreement and the other agreements, documents and instruments to be
executed and delivered by them pursuant to or as contemplated by this Agreement
and to carry out the transactions contemplated hereby and/or thereby. The
execution and delivery of this Agreement and the performance of the Sellers'
obligations hereunder (and all other actions contemplated by the preceding
sentence) have been duly authorized by all necessary action of the Sellers'
board of directors or shareholders (where applicable) and no other action is
required and no consent or notice is required by any other Person. This
Agreement and each agreement, document and instrument to be executed and
delivered by the Sellers pursuant to this Agreement constitute, or will when
executed and delivered constitute, valid and binding obligations of the Sellers,
enforceable in accordance with their respective terms, subject to applicable
bankruptcy, insolvency, reorganization, moratorium and similar laws affecting
creditors' rights generally, and subject, as to enforceability, to general
principles of equity (regardless of whether enforcement is sought in a
proceeding at law or in equity).

             (g)     The execution, delivery and performance by the Sellers of
this Agreement and the other agreements, documents and instruments contemplated
by this

                                       8
<PAGE>   14

Agreement to which they are parties, and the consummation by the Sellers
of the transactions contemplated hereby and/or thereby: (i) do not and will not
violate the organizational documents of the Sellers (where applicable), (ii) do
not and will not violate any provision of documents to which the Sellers are a
part; (iii) do not and will not violate any laws or regulations of Brazil, the
United States or laws of the jurisdiction of incorporation of any of the Sellers
or except for the notification to be made to CADE in accordance with Brazilian
Applicable Law, require the Sellers to obtain any approval, consent,
authorization or waiver of, or give any notice to, or make any declaration,
registration or filing with, any Person (governmental or otherwise) that has not
been obtained or made; and (iv) do not and will not result in a breach of,
constitute a default under (or event which, with notice or lapse of time or
both, would constitute a default under), conflict with, violate, accelerate any
obligation under or give rise to a right of termination or cancellation of, or
to a loss of benefit to which the Sellers are entitled under, or result in the
creation of any lien, security interest, charge or encumbrance upon any of any
Sellers' property or assets under, or require the giving of any notice to, or
the receipt of any consent or approval relating to, any indenture or loan or
credit agreement or any other agreement, contract, instrument, mortgage, deed of
trust, lien, lease, permit, authorization, order, writ, judgment, injunction,
decree, determination or arbitration award, whether written or oral, to which
the Sellers are a party or by which any of the properties or assets of the
Sellers is bound or affected, or result in the creation or imposition of any
mortgage, pledge, lien, security interest or other charge or encumbrance on the
Sellers' assets or properties or on the Shares.

                     2.6 Consents. Except for the notification to be made to
CADE in accordance with Brazilian Applicable Law and for the rights of first
refusal contemplated in the Articles of the Company, no consent, approval, order
or authorization of, or registration, qualification, designation, declaration or
filing with, any Person is required in connection with the offer, sale or
issuance of the Shares, or the consummation of any other transaction
contemplated hereby.

                     2.7 Financial Statements; No Undisclosed Liabilities.

             (a)     The Company and the Sellers have delivered to the Buyers an
unaudited balance sheet of the Company dated June 30, 2000 and statements of
operations, retained earnings and cash flows for the six (6) month period then
ended, with all footnotes thereto, certified by the Company's chief financial
officer (the "Financial Statements"), a copy of which are incorporated herein as
Schedule 2.7.

             (b)     The Financial Statements (A) have been prepared in
accordance with Brazilian GAAP applied consistently during the periods covered
thereby; (B) are complete and correct in all material respects and present
fairly the financial condition of the Company at the dates of said Financial
Statements and the results of its operations and cash flows for the periods
covered thereby; (C) were prepared in accordance with the books and records of
the Company; (D) present fairly the revenues, cost of goods sold, direct
operating expenses actually incurred during the periods covered thereby and the
cash position (including investments in short-term cash equivalents),
borrowings, customer advances, inventories, accounts receivable and accounts
payable actually held

                                       9
<PAGE>   15

or incurred as of the relevant dates thereof; and (E) do not contain any items
of special or nonrecurring income except as otherwise stated therein.

             (c)     Since the date of the Financial Statements, the Company
has  had no material liabilities or obligations of any nature, whether accrued,
absolute, direct, contingent or otherwise, except liabilities or obligations
(other than any liabilities or obligations under any Plans and disclosed in
Schedule 2.27) stated or adequately reserved against on the Financial
Statements or reflected in Schedule 2.7(c) and except for any liabilities
incurred in the ordinary course of business consistent with prudent business
practices or not required under Brazilian generally accepted accounting
principles, applied consistently with prudent business practices, to be
disclosed as a liability on a balance sheet of the Company or in the footnotes
thereto (none of which liabilities results from, arises out of, relates to, is
in the nature of, or was caused by any breach of contract, breach of warranty,
tort, infringement or violation of law). For purposes of this Section 2.7(c),
an amount shall conclusively be deemed "material" if it is greater than or
equal to $10,000.00. The Company has no additional liabilities of any nature
(whether fixed or contingent) not required to be disclosed under Brazilian
accounting principles in an aggregate amount greater than $10,000.00. The
reserves and provisions reflected in the Financial Statements are, as of the
date thereof and hereof, adequate, appropriate and reasonable and have been
calculated in a consistent manner. No reserves or provisions in addition to
those reflected in the Financial Statements are currently required or
appropriate.

             (d)     Since the date of the Financial Statements, the Company
has  not directly or indirectly, declared, paid or set aside for payment any
dividend or any other distribution on any of its securities of any class, or,
directly or indirectly, redeemed, purchased or otherwise acquired any of its
shares or securities or agreed to do any of the foregoing.

                     2.8 Taxes.

             (a)     All Tax Returns required to be filed with respect to the
Company for all Taxable Periods ending on or before the date hereof have been
timely filed with the appropriate Tax Authority in the manner prescribed by
Applicable Law. All such Tax Returns (i) were prepared in the manner required by
Applicable Law, (ii) are true, correct and complete in all respects, and (iii)
reflect the liability for Taxes of the Company. All Taxes shown to be payable on
such Tax Returns, and all assessments of Tax made against the Company with
respect to such Tax Returns, have been paid when due. No adjustment relating to
any such Tax Return has been proposed or threatened formally or informally by
any Taxing authority and to the best knowledge of Sellers, no basis exists for
any such adjustment.

             (b)     All monies required to be withheld by the Company for
income taxes, social security and other payroll taxes have been collected or
withheld and either paid to the respective Tax Authorities, set aside in
accounts for such purpose, or accrued, reserved against and entered upon the
books of the Company.

                                       10
<PAGE>   16

             (c)     No material claim has ever been made by an authority with
respect to the Company in a jurisdiction where the Company does not file reports
and returns that the Company is or may be subject to taxation by that
jurisdiction. There are no security interests on any of the assets of the
Company that arose in connection with any failure (or alleged failure) to pay
any Taxes and, except for Liens for real and personal property Taxes that are
not yet due and payable, there are no Liens for any Tax upon any asset of the
Company. The Company is not a party to any agreement relating to the sharing of
liability for, or payment of, Taxes and the Company is not otherwise obligated
to indemnify any party for any Taxes.

             (d)     No extension of time with respect to any date on which a
Tax Return was or is to be filed by the Company is in force, and no waiver or
agreement by the Company is in force for the extension of time for the
assessment or payment of any Taxes.

             (e)     No audit or other administrative proceeding or court
proceeding has formally commenced or is presently pending with regard to any
Taxes or Tax Returns of the Company and no notification has been received by the
Company that such an audit or other proceeding is pending or threatened with
respect to any Taxes due from or with respect to the Company or any Tax Return
filed (or required to have been filed) by or with respect to the Company.

             (f)     There are no outstanding options, warrants, securities
convertible into capital stock, or other contractual obligations, in each case
whether written or oral, that might be treated for income Tax purposes as stock
or another equity interest in the Company other than the Shares.

             (g)     All material amounts required to be collected or withheld
by the Company have been collected and withheld by the Company and any such
amounts that are required to be remitted to any Taxing authority have been duly
remitted.

                     2.9 Accounts Receivable. The Company does not have any
accounts or loans receivable from any Person which is an Affiliate of the
Company, including, without limitation, any director or officer of the Company,
except for such accounts and loans as are disclosed (with a description of all
of their material terms) in Schedule 2.9. All of the accounts receivable of the
Company are valid and enforceable claims, fully collectible in the ordinary
course and subject to no set-off or counterclaim other than set-offs and
counterclaims arising in the ordinary course of business consistent with prudent
business practice. The Company has not, since the date of the Financial
Statements, changed its normal credit and collection practices.

                     2.10 [Intentionally Omitted]

                     2.11 Absence of Certain Changes.

             (a)     Since June 30, 2000 there has not been:

                                       11

<PAGE>   17

             (i)     Any change in the properties, assets, liabilities,
business, operations, condition (financial or other) or prospects of the
Company, which change by itself or in conjunction with all other such changes,
whether or not arising in the ordinary course of business, has been materially
adverse with respect to the assets, business, operations, conditions (financial
or other) or prospects of the Company;

             (ii)    Except for the endorsement of checks in the ordinary course
of business, any contingent liability incurred by the Company as guarantor or
otherwise with respect to the obligations of others or any cancellation of any
material debt or claim owing to, or waiver of any material right of, the
Company, involving $10,000.00 or more individually or $10,000.00 or more in the
aggregate;

             (iii)   Except for the Pledge Agreements dated as of July 19, 2000
and August 11, 2000, respectively among the Company, Net2phone and Sergio Isaak
Skarbnik, any mortgage, encumbrance or lien placed on any of the properties of
the Company which remains in existence on the date hereof or will remain on the
Closing Date;

             (iv)    Any obligation or liability of any nature incurred by the
Company, whether accrued, absolute, contingent or otherwise, known or unknown,
in excess of $10,000.00 in the aggregate, other than obligations and liabilities
incurred in the ordinary course of business consistent with the terms of this
Agreement;

             (v)     Any purchase, sale or other disposition, or any agreement
or other arrangement for the purchase, sale or other disposition, of (x) any
capital asset of the Company having a purchase price or other replacement cost
of more than $10,000.00 or (y) except in the ordinary course of business in an
aggregate amount not material to the Company, any other asset of the Company
having a purchase price or other replacement cost of more than $10,000.00;

             (vi)    Any damage, destruction or loss in excess of $10,000.00, in
the aggregate, to any assets or property of the Company, whether or not covered
by insurance;

             (vii)   Any issuance or sale of any securities convertible into or
exchangeable for debt or equity securities of the Company or any grant or
issuance of options, warrants, subscriptions, preemptive rights, agreements,
arrangements or commitments of any kind for or relating to the issuance, sale,
registration or voting of any shares of capital stock, of any class, or other
equity interests of the Company other than pursuant to the Transaction
Documents;

             (viii)  (A) any change in the compensation (whether in the form of
salaries, wages, incentive arrangements, employee benefits or otherwise) payable
or to become payable by the Company to any of its officers, employees, agents or
independent contractors other than normal merit increases in accordance with its
usual practices and except, exclusively with respect to certain employees who
are compensated on a piece-rate basis, such changes which are not, in the
aggregate, material to the Company and are

                                       12

<PAGE>   18

made in the ordinary course consistent with prior practices, or (B) any bonus
payment or arrangement made to or with any of such officers, employees, agents
or independent contractors, or (C) the entering into of any employment, deferred
compensation or other similar agreement (or any amendment to any such existing
agreement) with any officer, director, employee or independent contractor of the
Company;

             (ix)    Any change with respect to the officers or senior
management of the Company, any grant of any severance or termination pay to any
individual officer or employee of the Company or any increase in benefits
payable under any existing severance or termination pay policies or employment
agreements;

             (x)     Any payment, discharge of a Lien or liability of the
Company which was not shown on the Financial Statements involving an amount of
$10,000.00 or more in any individual matter or series of related matters or
which was not incurred in the ordinary course of business thereafter, or any
payment or discharge by the Company, directly or indirectly, of any liability of
the Company before the same became due in accordance with its terms or otherwise
than in the ordinary course of business;

             (xi)    Any obligation or liability incurred by the Company to any
of its officers, directors or stockholders, or any loans or advances made by the
Company to any of its officers, directors or stockholders, except normal
compensation and expense allowances payable to officers or employees;

             (xii)   Any material change in accounting methods or practices,
credit practices (except as indicated in Section 2.9), policies or practices
with respect to the payment of accounts payable or collection policies or
practices used by the Company;

             (xiii)  Any other transaction or series of related transactions
involving the payment of $10,000.00 or more in the aggregate or otherwise
material to the Company, entered into by the Company other than transactions in
the ordinary course of business consistent with past practice;

             (xiv)   Any event, occurrence, development, state of facts or
change in the business which has had, either alone or together with all such
events, occurrences, developments, states of facts or changes, a material
adverse effect on the assets, business, results of operations, affairs,
prospects or financial condition of the Company;

             (xv)    Except in the ordinary course in an aggregate amount not
exceeding $10,000.00, any transaction or commitment made, or any contract
entered into by, the Company or the Sellers relating to the Company or any
waiver, amendment, termination or cancellation of any contract or any
relinquishment of rights by the Company or the Sellers relating to the Company;
or

             (xvi)   Any agreement or understanding, whether in writing or
otherwise, that would result in any of the transactions or events, or require
the Company to take any of the actions, specified in paragraphs (i) through (xv)
above.

             (b)     Since June 30, 2000 there has not been:

                                       13
<PAGE>   19

             (i)     Any change in any outstanding shares of capital stock of
the Company other than pursuant to the Transaction Documents; or

             (ii)    Any declaration, setting aside or payment of any dividend
or other distribution on any shares of capital stock of the Company (including
the Shares) or any repurchase, redemption or other acquisition by the Company of
any outstanding shares of its capital stock.

                     2.12 Ordinary Course. Since June 30, 2000, the Company has
conducted its business only in the ordinary course and consistently with its
prior practices. From and after the date of this Agreement through and including
the Closing Date, the Company shall have conducted its business only in the
ordinary course and consistently with prior business practices.

                     2.13 [Intentionally Omitted]

                     2.14 Tangible Personal Property. The Company has good,
marketable and valid title to all of the items of tangible personal property
used in its operations; all such tangible personal property that is material to
the business, operation, condition or prospects (financial or otherwise) of the
Company is reflected on the Company's Financial Statements, except as sold or
disposed of subsequent to the date thereof in the ordinary course of business
consistent with prudent business practices; and all such material tangible
personal property is owned free and clear of all Liens, except for (i)Liens
which, individually or in the aggregate, do not materially detract from the
value, or interfere with the present or intended use, of the Company's aggregate
tangible personal property and (ii) Liens for taxes not yet due and payable. The
tangible personal property of the Company is in good repair and working order,
reasonable wear and tear excepted.

                     2.15 Intellectual Property.

             (a)     Except as set forth in Schedule 2.15(a), the Company has
exclusive ownership of, or exclusive and unrestricted license to use, free and
clear of all Liens, all Brazilian and foreign patents, copyrights, trade
secrets, trademarks, service marks, trade names, trade secrets (including,
without limitation, customer lists, designs, manufacturing or other processes),
computer software, systems, data compilations, research results and other
information required for or incident to its products or its business or other
proprietary rights (collectively, "Intellectual Property") used or to be used in
the business of the Company as presently conducted or contemplated to be
conducted or which are necessary or desirable for such business as so conducted.
There are no actual or, to the best knowledge of the Sellers, threatened claims
or demands of any other Person pertaining to any Proprietary Rights (as defined
below) and no proceedings have been instituted, or are pending or, to the best
knowledge of the Sellers or the Company, threatened, which challenge the rights
of the Company in respect thereof, and there is no basis for any such challenge.

                                       14
<PAGE>   20

             (b)     There are no Brazilian or foreign patents, patent
applications, trademark applications or registrations, copyright applications or
registrations, or, to the extent not included in the foregoing, material
Brazilian and foreign trade names, trademarks, copyrights, trade secrets or
other Intellectual Property, in each such case owned by or licensed to, or
required to be owned by or licensed to, the Company or used or required to be
used by the Company in its business as presently conducted or contemplated to be
conducted (collectively, the "Proprietary Rights").

             (c)     The Company is not obligated or under any liability
whatsoever to make payments by way of royalties, fees or otherwise to any owner,
licensor of, or other claimant to, any Intellectual Property or other intangible
asset with respect to the use in connection with the conduct of its business, or
otherwise.

             (d)     The present business, activities and products of the
Company do not infringe any Intellectual Property of any other Person. No
proceeding charging the Company with infringement of any adversely held
Intellectual Property has been filed or is threatened to be filed, and there is
no basis for any such charge. The Company is not making unauthorized use of any
confidential information or trade secrets of any Person, including, without
limitation, any former employer of any past or present employee of the Company.
Neither the Company, nor any of the Company's employees, have any agreements or
arrangements with any Person other than the Company related to confidential
information or trade secrets of such Person, ownership of Intellectual Property
or restricting any such employee's engagement in business activities of any
nature. The activities of the Company's employees on behalf of the Company do
not violate any such agreements or arrangements which any such employees have
with other Persons.

                     2.16 Trade Secrets and Customer Lists. The Company has the
right to use in the ordinary course of its business as presently conducted or
contemplated all trade secrets, inventions, customer lists and manufacturing and
processes required for or incident to the manufacture or marketing of all
products presently sold, manufactured, licensed, under development or produced
by the Company, including products licensed from others. No payment is required
to be made by the Company for the use of any such trade secret, invention,
customer list or manufacturing process.

                     2.17 Contracts. Except for contracts, commitments, plans,
agreements and licenses listed on Schedule 2.17-1 (true and complete copies of
which documents have been made available to the Buyers), the Company is not a
party to or subject to, whether written or oral:

             (a)     any plan or contract providing for bonuses, pensions,
options, stock purchases, deferred compensation, retirement payments, profit
sharing, collective bargaining or the like, or any contract or agreement with
any labor union;

             (b)     any employment contract, or any contract for services which
is not terminable upon thirty (30) days' prior notice by the Company without
liability for any penalty or severance or other payment or other consideration
or penalty;

                                       15
<PAGE>   21

             (c)     any contract or agreement for the purchase of any
commodity, material or equipment except purchase orders in the ordinary course
of business;

             (d)     any other contracts or agreements creating any obligation
of the Company with respect to any such contract, except purchase orders in the
ordinary course of business;

             (e)     any contract or agreement providing for the purchase of all
or substantially all of its requirements of a particular product from a
supplier, except for such contracts or agreements where such product is readily
available from other suppliers in comparable quantities and at comparable prices
and the loss of such supplier would not have a material adverse effect on the
business, operations, condition or prospects (financial or otherwise) of the
Company;

             (f)     any contract or agreement which by its terms does not
terminate or is not terminable by the Company or any successor or assign within
twelve (12) months after the date hereof without payment of a penalty;

             (g)     any contract or agreement for the sale or lease of its
products not made in the ordinary course of business;

             (h)     any contract containing covenants limiting the freedom of
the Company to compete in any line of business or with any Person or entity,
except for exclusive arrangements with certain dealers covering limited
geographic areas, the terms and conditions of which are consistent with standard
industry practice;

             (i)     any contract or agreement for the purchase of any fixed
asset, whether or not such purchase is in the ordinary course of business;

             (j)     any license agreement (as licensor or licensee) other than
such as pertains to over-the-counter computer software;

             (k)     any indenture, mortgage, promissory note, loan agreement,
guaranty or other agreement or commitment for the borrowing of money or any
related security agreement;

             (l)     any contract or agreement with any officer, director,
partner or stockholder of the Sellers or the Company or with any of their
respective Affiliates which will survive the Closing; or

             (m)     any contract or agreement which (i) is out of the ordinary
course of business, (ii) has a term which will expire more than one year from
the date of this Agreement or (iii) relates to interests in real property.

             All contracts, agreements, leases, licenses and instruments as well
as mortgages, indentures, notes or other instruments or obligations for the
payment of money to which the Company is a party or by which the Company is
obligated are valid and are in full force and effect and constitute legal, valid
and binding obligations of the

                                       16
<PAGE>   22

Company and the other parties thereto, enforceable in accordance with their
respective terms, except where the invalidity or unenforceability thereof would
not have a material adverse effect on the Company's business, operations
conditions or prospects (financial or otherwise). The Company is not in default
in complying with any material provisions thereof, and no condition or event or
fact exists which, with notice, lapse of time or both would constitute a default
thereunder on the part of the Company. No other party to any of the same is in
default in complying with any material provision thereof, and no condition or
event or fact exists which, with notice, lapse of time or both would constitute
a default thereunder on the part of such other party. No claim of default
thereunder has been asserted or, to the best of Sellers' or the Company's
knowledge, threatened, and neither the Company nor any other party thereto is
seeking the renegotiation of any material term thereof.

                     2.18 Litigation. Schedule 2.18 lists all currently
outstanding or pending litigation and governmental or administrative proceedings
or investigations to which the Company is a party, including the forum, names of
parties and type and amount of relief sought. Except for matters described on
Schedule 2.18, there are no actions, suits, judgments, investigations or
proceedings outstanding or pending or, to the best knowledge of the Sellers or
the Company, threatened, against or affecting the Company or its assets or
properties, at law or at equity or before any federal, state, municipal or other
governmental department, commission, court, board, bureau or agency, foreign or
domestic, or seeking to enjoin, or seeking changes in connection with, the
consummation of the transactions contemplated hereby.

                     2.19 Compliance.

             (a)     The Company is in compliance with all applicable statutes,
ordinances, orders, rules and regulations promulgated by any federal, state,
municipal or other domestic or foreign governmental authority, and all orders,
writs, injunctions or decrees of any domestic or foreign court, administrative
agency or arbitration tribunal which apply to the conduct of its business, and
neither the Company nor the Sellers has received notice of any violation or
alleged violation of any such statute, ordinance, order, rule, regulation, writ,
injunction or decree which could individually or in the aggregate with others
have a material adverse effect on the Company's business, operation, conditions
or prospects (financial or otherwise).

             (b)     The Company is not in violation of any term or provision of
(a) its Articles or any resolution of the board of directors or shareholders or
(b) any agreement or instrument to which any of them is a party or by which it
is a party or by which its assets are bound, including any existing licenses to
conduct business, note, bond, mortgage, indenture, contract, lease, permit,
franchise or other instrument.

                     2.20 Insurance. Schedule 2.20 is a complete and correct
list (including the name of the carrier, summary description of coverage,
premium, deductible and expiration date) of all policies of insurance maintained
by the Company. True and correct copies of all such policies have previously
been provided to the Buyers by or on behalf of the Company. There is no claim by
the Company pending under any

                                       17
<PAGE>   23

such policies. Such policies are in full force and effect, all premiums with
respect thereto are currently paid and the Company and the Company's officers,
directors, employees and independent contractors are in compliance in all
material respects with the terms thereof. Such insurance policies are sufficient
for compliance by the Company with all requirements of Applicable Law and all
agreements and leases to which it is a party and otherwise are of the types and
in amounts customarily carried by Persons conducting business similar to that
conducted by the Company. There are no pending nor, to the best of Sellers' or
the Company's knowledge, threatened terminations with respect to or increase in
the cost of any of such policies and the Company is in compliance in all
respects with all terms and conditions contained therein.

                     2.21 Warranty Related Matters. Each service sold or
delivered by the Company has been in conformity with all applicable contractual
commitments and all express and implied warranties, and the Company has no
liability (and there is no basis for any present or future action, suit,
proceeding, hearing, investigation, charge, complaint, claim or demand against
it giving rise to any liability) for damages in connection therewith. No service
sold or delivered by the Company is subject to any guaranty, warranty or other
indemnity beyond the applicable standard terms and conditions of sale.

                     2.22 [Intentionally Omitted]

                     2.23 Finder's Fees. No broker or finder has acted for the
Sellers or the Company in connection with this Agreement and the transactions
contemplated hereby, and no broker or finder is entitled to any brokerage or
finder's fee or other commission, whether in cash or as equity or other manner
of consideration, in respect thereof based in any way on any agreement,
arrangement or understanding made by the Sellers or the Company, all of the fees
and expenses of which shall be the responsibility of the Sellers.

                     2.24 Permits; Burdensome Agreements. Schedule 2.24 lists
all of the permits, registrations, licenses, franchises, certifications and
other approvals (including, without limitation, Environmental Permits)
(collectively, the "Approvals") from federal, state, local or other domestic or
foreign authorities with respect to the conduct of the Company's business. The
Company has obtained all Approvals necessary for the conduct of its business as
presently conducted, all such Approvals are valid and in full force and effect,
none of such Approvals is subject to termination by its terms as a result of the
execution of this Agreement by the Sellers or the Company or the consummation of
the transactions contemplated hereby, no such Approval has been withdrawn or to
the knowledge of the Sellers is likely to be suspended, cancelled or modifies
subsequent to the Closing, and no further Approvals will be required in order to
continue to conduct the business currently conducted by the Company subsequent
to the Closing. The Company is not subject to or bound by any agreement,
judgment, decree or order which may materially and adversely affect its
properties, assets, prospects, financial condition or business.

                                       18
<PAGE>   24

                     2.25 Corporate Records. The corporate record books of the
Company made available to the Buyers completely and accurately record all
material corporate action taken by the stockholders and board of directors and
officers thereof. The copies of the corporate records of the Company, as
delivered or furnished by the Company to the Buyers, are true and complete
copies of the originals of such documents. The Book of Registered Shares, the
Book of Transfer of Shares and other similar records of the Company, accurately
reflect all record transfers and any rights or contracts related to or involving
any shares of common stock of the Company, prior to the Closing. None of the
books and records of the Company are recorded, stored, maintained, operated or
otherwise wholly or partially dependent upon or held by any means (including any
electronic, mechanical or photographic process, whether computerized or not),
which (including all means of access thereto and therefrom) are not under the
exclusive ownership of or authorized use by, and direct control of, the Company
or its agents.

                     2.26 No Severance or Other Arrangements. The Company is not
a party to, and has no liabilities in respect of, any deferred payment or
severance arrangements with any current or former officers, directors or
trustees of the Company or of the Sellers (where applicable) or any employee, or
beneficiary of any such Person or any of their respective Affiliates.

                     2.27 Employee Benefit Plans. All pension, welfare, fringe
and other employee benefit or compensation plans, arrangements, policies,
contracts and commitments for the benefit of any current or former employee,
director, stockholder, independent contractor or agent of the Company, whether
formal or informal, written or oral, including, without limitation, all
"employee benefit plans" (collectively, the "Plans"), maintained by the Company,
or to which the Company is obligated to contribute or may otherwise have any
liability, are listed in Schedule 2.27 and are payable on the terms described in
such Plans. All such Plans (a) have been maintained, funded and administered in
compliance in all material respects with their terms, Applicable Law; and (b) no
suit, action, or other litigation has been brought against or with respect to
any Plan listed on Schedule 2.27. All contributions to and payments under the
Plans that are required to be made in respect of periods ending on or prior to
the Closing Date have either been made in accordance with the terms of such
Plans or are accrued on the Financial Statements. With respect to each Plan, the
Company has delivered to the Buyers true and complete copies of all plan
documents, amendments and other instruments, all funding instruments, material
employee communications, governmental determinations and rulings and audited
financial statements.

                     2.28 Employees; Labor Matters. Schedule 2.28 sets forth all
the labor agreements to which the Company is a party. The Company is not
delinquent in payments to any of its employees for any wages, salaries,
commissions, bonuses, severance, termination pay or other direct compensation
for any services performed for it to the date hereof or amounts required to be
reimbursed to such employees. The Company has no policy, practice, plan or
program of paying severance pay or any form of severance compensation in
connection with the termination of employment, and the consummation of the
transactions contemplated by this Agreement will not (either alone or together
with any other acts or events) result in any payment, benefit or other right

                                       19
<PAGE>   25

becoming due from the Company to any current or former employee, director,
stockholder, independent contractor or agent of the Company, nor accelerate the
timing or vesting of any such payment, benefit or right, nor otherwise increase
the amount of compensation due to any such Person. As a direct or indirect
result of the consummation of the transactions contemplated hereby, neither the
Company nor the Buyers will be obligated to make a payment to any such Person.
The Company is in compliance with all Applicable Law and regulations respecting
labor, employment, labor and union relations, fair employment practices, safety
and health, terms and conditions of employment, and wages and hours. No charges
of employment discrimination or unfair labor practices have been brought against
the Company, nor are there any strikes, slowdowns, stoppages of work, union
organization activities or any other concerted interference with normal
operations existing, pending, or, to Sellers' best knowledge, threatened against
or involving, the Company. There are no grievances, complaints or charges that
have been filed against the Company by its current or former employees. No
collective bargaining or other union agreements are in effect for employees of
the Company or are currently being or are about to be negotiated by the Company.
Neither the Sellers nor the Company has any knowledge of any pending or
threatened changes with respect to (including, without limitation, any
resignation of) the senior management or key supervisory personnel of the
Company.

                     2.29 Customers and Distributors. No customer,
representative or distributor (whether pursuant to a commission, royalty or
other arrangement) accounted for more than five percent (5%) of the sales or
services of the Company since the date of incorporation of the Company
(collectively, the "Customers and Distributors"). Since the date of the
Financial Statements, no Customer or Distributor, as the case may be, has ceased
or reduced by more than ten percent (10%) its purchases from the Company or
given notice of an intention to cease or so reduce such purchases, other than
such reductions as are normal due to the seasonal nature of the Company's
business. To the knowledge of the Sellers, the consummation of the transactions
contemplated by this Agreement will not adversely affect any of such
relationships of the Company with the Customers and Distributors.

                     2.30 Environmental Matters.

             (a)     There are no Environmental Permits necessary. The Company
has obtained all, if any, Environmental Permits with respect to its business and
complies and at all times has complied with all, if any, Environmental Laws
applicable to its business and to any facilities, improvements or any activities
thereon, including the treatment, remediation, removal, transport, storage
and/or disposal of any Hazardous Material. The Company has not received any
notice from any Governmental Authority revoking, canceling, materially modifying
or refusing to renew any Environmental Permit or providing written notice of
violations under any applicable Environmental Laws.

             (b)     There has been no Release in reportable quantities of any
Hazardous Material on, in, at or under any of the buildings and property owned,
leased or used by the Company.

                                       20
<PAGE>   26

             (c)     The Company: (i) is not subject to any investigation, or
any judicial or administrative proceeding, notice, order, judgment, decree or
settlement with respect to any Environmental Law in connection with its
business; (ii) has not received notice or is otherwise aware of any notice of an
Environmental Claim in connection with its business, or any business or
properties owned by the Company or any of its predecessors or former
subsidiaries or Affiliates; and (iii) is not subject to any writ, injunction,
decree, order or judgment outstanding, or any lawsuit, claim, proceeding,
citation, directive, summons or investigation relating to the compliance of the
Company with Environmental Law or the condition, ownership, use, maintenance or
operation of its business or the suspected presence of Hazardous Materials
thereon or therefrom, nor does there exist any basis for such lawsuit, claim,
proceeding, citation, directive, summons or investigation being instituted or
filed.

             (d)     Hazardous Materials have not been transported, generated,
treated, used, stored or disposed of from, at, on or under any properties owned
or operated by the Company or any of its predecessors or former subsidiaries or
Affiliates, in violation of, or in any manner or to any location that could give
rise to liability to the Company under, any Environmental Law.

                     2.31 Bank and Brokerage Accounts; Securities. Schedule 2.31
sets forth (a) a true and complete list of the names and locations of all banks,
trust companies, securities, brokers and other financial institutions at which
the Company has an account or safe deposit box or maintains a banking,
custodial, trading or other similar relationship, (b) a true and complete list
and description of each such account, box and relationship, indicating in each
case the account number and the names of the respective officers, employees,
agents or other similar representatives of the Company having signatory power
with respect thereto, and (c) a list of all securities, time certificates and
other investments in securities owned by the Company, the name of the registered
holder thereof, the location of the certificates therefor, the maturity date, if
any, and any stock powers or other authority for transfer granted with respect
thereto.

                     2.32 No Powers of Attorney. Except as set forth in
Schedule 2.32, neither the Company nor any of the Sellers has any power of
attorney or comparable delegations of authority outstanding.

                     2.33 Disputed Accounts Payable. Except as reflected on
Schedule 2.33, there are no unpaid invoices or bills representing amounts
alleged to be owed by the Company, or alleged obligations of the Company, which
the Company has disputed or determined to dispute or refused to pay.

                     2.34 Accuracy of Statements. No representation or warranty
made by the Sellers or the Company in this Agreement or in any Schedule, written
statement or certificate furnished to the Buyers, its Affiliates or its agents
in connection with the transactions contemplated by this Agreement contains or
will contain any untrue statement of a material fact or omits or will omit to
state a material fact necessary to make the statements contained herein or
therein not false or misleading. Any representation or warranty stated to be "to
the best of the Sellers' knowledge" (or

                                       21
<PAGE>   27

otherwise making reference to the Sellers' or the Company's knowledge) shall
represent Sellers' or the Company's good faith belief after reasonable inquiry
as to the facts stated therein.

                     2.35 No Illegal or Improper Transactions. The Company has
not, nor has any director, officer or shareholder of the Company, (a) taken any
action in violation of any anti-bribery, or anti-corruption or criminal laws of
Brazil or of any other jurisdiction to which the Company is subject, (b) paid,
offered or promised to pay, or authorized the payment, directly or indirectly
through any other Person or firm, of any monies or anything of value to (i) any
Person or firm employed by or acting for or on behalf of any Person, whether
private or governmental, or (ii) any government official or employee or any
political party or candidate for political office, for the purpose of illegally
or improperly inducing or rewarding any action by any official favorable to the
Company or any other Person in connection with the business of the Company, or
(c) taken any other act that, if taken by a Person subject to United States
Applicable Law, would be reasonably likely to violate the Foreign Corrupt
Practices Act.

                     2.36 Availability and Transfer of Foreign Currency. Upon
issuance by the Brazilian Central Bank of the certificates of registration
regarding the investment of the Buyers contemplated in this Agreement, all
requisite foreign exchange control approvals and other authorizations, if any,
by any Governmental Authority shall have been validly obtained and are in full
force and effect to assure the ability of the Company to make any and all
payments necessary to (a) the Buyers (as shareholders of the Company), including
without limitation, the payment of dividends, or (b) any other party in order to
conduct its business.

SECTION 3. COVENANTS OF THE SELLERS AND THE COMPANY

                     3.1 Making of Covenants and Agreements. The Company and the
Sellers warrant, covenant and agree as set forth in this Section 3.

                     3.2 Conduct of Business. Between the date of this Agreement
and the Closing Date, the Sellers will cause the Company to do and the Company
will do the following, unless the Buyers shall otherwise consent in writing,
which consent may be withheld by the Buyers in its sole and absolute discretion:

             (a)     conduct its business only in the ordinary course consistent
with prior business practices and refrain from changing or introducing any
method of management or operations except in the ordinary course of business and
on a basis consistent with prudent business practices, including, without
limitation, maintaining its assets in good working order and condition, ordinary
wear and tear excepted;

             (b)     refrain from making any purchase, sale or disposition of
any asset or property used or held for use in the conduct of the Company's
business, other than inventory in the ordinary course of business consistent
with prudent business practices, and from selling any capital asset costing more
than $10,000.00 or making any capital expenditures in an aggregate amount in
excess of $10,000.00, provided that all such

                                       22
<PAGE>   28

expenditures be directly related to the operations of the Company, or create or
incur any Lien on any of the Company's assets used or held for use in the
conduct of its business or enter into any contract that if entered into prior to
the date hereof would be required to be listed on Schedule 2.17-1;

             (c)     refrain from entering into, amending or modifying in any
material respect, terminate (partially or completely), granting any waiver under
or giving any consent with respect to any contract set forth on Schedule 2.17-1
or any material license used in connection with the Company's business;

             (d)     refrain from engaging in any transaction with respect to
its business with any officer, director or Affiliate of the Company, either
outside the ordinary course of business or other than on arm's length basis;

             (e)     refrain from incurring or modifying any Indebtedness,
except in the ordinary course of business on a basis consistent with prudent
business practices;

             (f)     refrain from (i) making any change or obligating itself to
make any change in its Articles, or in its authorized or issued capital stock,
or (ii) acquiring any securities issued by any other business organization other
than short-term investments in the ordinary course of business; provided that
the Company may amend its Articles in the form attached hereto as Exhibit
7.1(a)(iv);

             (g)     refrain from issuing, granting, awarding, selling,
pledging, disposing of or encumbering or authorizing the issuance, grant, award,
sale, pledge, disposition or encumbrance of any shares of, or securities
convertible or exchangeable for, or options, warrants, calls, commitments or
rights of any kind to acquire, any shares of capital stock of any class of the
Company or entering into any agreement or commitment with respect to any of the
foregoing;

             (h)     refrain from declaring, setting aside or paying any
dividend or other distribution on the Shares or redeeming, repurchasing or
otherwise acquiring any of the Shares or otherwise disburse or remit any amount
to or for the benefit of the Sellers or any of its Affiliates;

             (i)     refrain from making any change in the compensation payable
or to become payable to any of its officers, employees, independent contractors
or agents, or granting any severance or termination pay to, or entering into,
amending or terminating any employment, severance or other agreement or
arrangement with, any director, officer, employee or independent contractor of
the Company other than in the ordinary course of business;

             (j)     refrain from establishing, adopting or entering into or
amending any collective bargaining, bonus, incentive, deferred compensation,
profit sharing, stock option or purchase, insurance, pension, retirement or
other employee benefit plan;

             (k)     refrain from (1) making any loan to, or (2) reimbursing any
expense (other than Ordinary Expenses) of, or (3) engaging in any other
transaction

                                       23
<PAGE>   29

outside of the ordinary course with, any employee of the Company, or any of its
Affiliates;

             (l)     use its best efforts to prevent any change with respect to
its management and supervisory personnel or banking arrangements;

             (m)     keep intact its business organization and preserve the
goodwill of and business relationships with all material suppliers, customers
and others having business relations with it;

             (n)     pay all accounts payable, regardless of when incurred, in
the ordinary course of business;

             (o)     refrain from paying, discharging or satisfying any material
claims, liabilities or obligations other than the payment, discharge or
satisfaction in the ordinary course of business and consistent with past
practice of liabilities or obligations reflected in the Financial Statements or
incurred in the ordinary course of business since the date of the Financial
Statements;

             (p)     refrain from writing down the value of any inventory or
writing off as uncollectible any material note, lease or account receivable
other than in the ordinary course of business or as required by generally
accepted accounting principles under any Applicable Law;

             (q)     refrain from licensing, disposing of or permitting to
lapse  any rights to the use of any patent, patent applications, trademarks,
trade  names or commercial names, or disclosing to any Person any material
Proprietary Right not theretofore a matter of public knowledge;

             (r)     have in effect and maintain at all times all insurance of
the kind, in the amount and with the insurers set forth on Schedule 2.20 or
equivalent insurance;

             (s)     refrain from changing accounting policies or procedures
(including, without limitation, procedures with respect to the payment or
forgiveness of accounts payable and collection of accounts receivable) or from
making any Tax election;

             (t)     except to the extent required by Applicable Law, (A) cause
its business books and records to be maintained in the usual, regular and
ordinary manner consistent with past practice, and (B) not permit any material
change in any pricing, investment, accounting, financial reporting, inventory,
credit, allowance or tax practice or policy of the Company that would adversely
affect their respective businesses;

             (u)     comply, in all material respects, with all Applicable Law
applicable to its business and promptly following receipt thereof to give the
Buyers copies of any notice received from any Governmental Authority or other
Person alleging any violation of any such Applicable Law;

                                       24
<PAGE>   30

             (v)     refrain from purchasing any capital stock, partnership
interest or other equity security, or warrants or option therefor, of any other
business enterprise, or entering into any joint venture or similar business
arrangement, or make any capital investment in any other Person;

             (w)     refrain from entering into any executory agreement,
commitment or undertaking to do any of the activities prohibited by the
foregoing provisions;

             (x)     permit the Buyers and their authorized representatives
(including, without limitation, Buyers' attorneys, accountants, lenders,
investment bankers, and pension and environmental consultants) to have full
access during normal business hours and under reasonable circumstances to all of
its properties, assets, books, records, business files, executive personnel, Tax
Returns (including those filed and those in preparation and any tax related
agreements), contracts and documents, to permit Buyers and their authorized
representatives to make copies of any of the foregoing and furnish to Buyers and
their authorized representatives such financial and other information with
respect to its business or properties as Buyers may from time to time reasonably
request; provided, however, that such access shall be conducted in a fashion
that is reasonably intended to minimize disruption of the operations of the
Company and mutually agreeable to the Sellers and the Buyers;

             (y)     refrain from granting any powers of attorney or comparable
delegations of authority;

             (z)     refrain from taking any action that would constitute
(whether with notice and/or the passage of time), or fail to take any action
that would prevent, a breach of or a default under any agreement, contract or
understanding to which the Company is a party;

             (aa)    notify the Buyers in writing of any action, event,
condition or circumstance, or group of actions, events, conditions or
circumstances, relating to the Company that is out of the ordinary course of its
business or that results in, or threatens to result in, a material adverse
effect on the Company, or of the commencement of any proceedings seeking to
enjoin or rescind the transactions contemplated hereby or to which the Company
is a party or involving the Company's assets, such notification to be made
promptly upon the Sellers' or the Company's gaining knowledge of such
proceeding, threat, event, action, condition or circumstance, or group thereof;
and

             (bb)    notify Buyers in writing of any transaction, liability or
obligations involving the Company, the Sellers or any of their respective
Affiliates, on one hand, and the Company, the Sellers or any of their respective
Affiliates, on the other hand.

                     3.3 Consents and Approvals. Sellers shall use, and cause
the Company to perform and fulfill all conditions and obligations on their
parts to be performed and fulfilled hereunder and to obtain or cause to be
obtained prior to the Closing Date all necessary consents and approvals to the
performance of Sellers' obligations under this Agreement and to effect all
preconditions to the Closing provided

                                       25
<PAGE>   31

hereunder, including, without limitation, the consummation of the Restructuring
Transactions and to obtain or cause to be obtained such other authorizations,
waivers, consents and permits (including, without limitation, Environmental
Permits) as may be necessary to transfer to Buyers, and/or to retain in full
force and effect subsequent to the Closing Date for the benefit of the Company,
all permits (including, without limitation, Environmental Permits), licenses,
contracts, agreements, insurance policies and franchises applicable to the
business of the Company.

                     3.4 Breach of Representations and Warranties. Promptly
upon  the occurrence of, or promptly upon the Company's or the Sellers'
becoming aware of the impending or threatened occurrence of, any event which
would constitute a breach, or would have caused or constituted a breach had
such event occurred or been known prior to the date hereof, of any of the
representations and warranties or covenants of the Company or the Sellers
contained in or referred to in this Agreement or in any Schedule, the Company
or the Sellers, as applicable, shall give detailed written notice thereof to
the Buyers.

                     3.5 No Sales of Capital Stock. Between the date of this
Agreement and the Closing, neither the Company nor the Sellers shall sell,
exchange, deliver, assign, pledge, encumber, bequeath, gift or otherwise
transfer or dispose of or encumber any shares of capital stock of the Company
owned beneficially or of record by the Company or the Sellers, except for any
transfer or other disposition by operation of law and except in connection with
the Transaction Documents, nor grant any right of any kind to acquire, dispose
of, vote or otherwise control in any manner such shares of capital stock of the
Company (other than in connection with the Transaction Documents); provided,
however, that anything herein to the contrary notwithstanding, any transferee,
executor, administrator, heir, legal representative, successor or assign of the
Sellers (or other Person to which capital stock of the Company is issued or
transferred) shall be bound by this Agreement.

                     3.6 Consummation of Agreement; Cooperation. The Sellers
shall cause the Company, in addition to the performance and fulfillment of all
covenants, agreements, conditions and obligations to be performed and fulfilled
under this Agreement, to the end that the transactions contemplated by this
Agreement shall be fully carried out as soon as practicable after the date
hereof, subject to and in accordance with the terms and conditions hereof.

                     3.7 Notice and Cure. Until the Closing Date the Sellers
will notify the Buyers in writing of, and as promptly as practical will provide
the Buyers with true and complete copies of any and all material information or
documents relating to, and will use reasonable best efforts to cure before the
Closing, any action, event, transaction or circumstance, as soon as practicable
after it becomes known to the Company or the Sellers, occurring after the date
of this Agreement that constitutes a breach of any covenant or agreement, or
causes to be breached any covenant or agreement of the Company or the Sellers
under this Agreement or that renders untrue any representation of the Sellers or
the Company contained in this Agreement as if the same were made on or as of the
date of such action, event, transaction or circumstance, whether

                                       26
<PAGE>   32

occurring or arising before, on or after the date of this Agreement. No notice
given pursuant to this Section 3.7 shall have any effect on the representations,
covenants or agreements contained in this Agreement for purposes of determining
the satisfaction of any condition contained herein or shall in any way limit the
rights of the Buyers' Indemnitees to seek indemnity under this Agreement.

                    3.8 Payment of Taxes. All transfer, gains, documentary,
stamp, sales, use, registration and other such Taxes (including, but not limited
to, all applicable stock transfer Taxes), any penalties, interest and additions
to Tax and fees incurred in connection with this Agreement and the transactions
contemplated hereby, including the Restructuring Transactions, shall be paid by
the Sellers. Each party to this Agreement shall cooperate in the timely making
of all filings, returns, reports and forms as may be required in connection
therewith.

                     3.9 Notification to CADE. The Sellers shall execute such
documents and take such other action as necessary or reasonably requested by the
Buyers in order to timely submit the notification to CADE in accordance with
Brazilian Applicable Law.

                     3.10 Agent for Service of Process. Each of the Sellers
and the Company shall, within five (5) days after the date hereof irrevocably
appoint National Registered Agents, Inc., with offices located at 440 9th
Avenue, 5th floor, New York, NY 10001 as its agent for service of process in the
State of New York with respect to any dispute arising out of this Agreement and
all other Transaction Documents governed by New York law which appointment shall
be evidenced in a form reasonably satisfactory to the Buyers.

SECTION 4.     REPRESENTATIONS AND WARRANTIES OF THE BUYERs.

                     4.1 Making of Representations and Warranties. In order to
induce the Sellers to enter into this Agreement and consummate the transactions
contemplated hereby, the Buyers jointly and severally hereby make to each of
the Sellers the representations and warranties contained in this Section 4, as
of the date hereof and as of the Closing Date.

                     4.2 Organization of the Buyers.

             (a)     Net2phone is a corporation duly organized, validly
existing  and in good standing under the laws of the State of Delaware with
full corporate power and authority to conduct its business in the manner and in
the places where such business is conducted.

             (b)     Latin Investments is a limited liability company duly
organized, validly existing and in good standing under the laws of the State of
Delaware with full corporate power and authority to conduct its business in the
manner and in the places where such business is conducted.

                                       27
<PAGE>   33

             (c)     Each of the Buyers' respective articles of organization and
by-laws or limited liability company agreement, as applicable, each as amended
to date and true and correct copies of which, certified by an officer of each of
the Buyers, have been heretofore delivered to the Sellers' counsel, are fully
effective, complete and correct.

             (d)     The Buyers are duly licensed and qualified to do business
and in good standing in each jurisdiction in which the operation of their
business makes such licensing or qualification to do business necessary and the
failure to qualify to do business would have a material adverse effect on
Buyers.

             (e)     The execution, delivery and performance by the Buyers of
this Agreement, and each other agreement, document and instrument contemplated
by this Agreement and the consummation of the transactions contemplated hereby,
do not and will not result in a breach of, constitute a default under (or event
which, with notice or lapse of time or both, would constitute a default under),
conflict with, violate, accelerate any obligation under or give rise to a right
of termination or cancellation of any agreement to which any of the Buyers is a
party.

                     4.3 Authority. All necessary corporate and limited
liability company action, as applicable, has been taken by the Buyers to
authorize the execution, delivery and performance of this Agreement and each
agreement, document and instrument to be executed and delivered by the Buyers
pursuant to this Agreement. This Agreement and each other agreement, document
and instrument to be executed and delivered by the Buyers pursuant to this
Agreement (to the extent it contains obligations to be performed by the Buyers)
constitutes, or when executed and delivered will constitute, valid and binding
obligations of the Buyers enforceable in accordance with their respective terms.
The execution, delivery and performance by the Buyers of this Agreement and each
such agreement, document and instrument:

             (a)     do not and will not violate any provisions of the articles
of organization, the by-laws or the limited liability company agreement, as
applicable, or other constitutive document of the Buyers;

             (b)     do not and will not violate any United States laws or laws
of the jurisdiction of incorporation of the Buyers or of any jurisdiction in
which any of the Buyers engages in business, or require any of the Buyers to
obtain any approval, consent or waiver of, or to make any filing with, any
Person or entity that has not been obtained or made, except as contemplated by
Section 5.2; and

             (c)     do not and will not result in a breach of, constitute a
default under, accelerate any obligation under or give rise to a right of
termination of any indenture or loan or credit agreement or any other agreement,
contract, instrument, mortgage, lien, order, writ, judgment, injunction, decree,
determination or arbitration award to which any of the Buyers are party or by
which the property of any of the Buyers is bound or affected except where such
breach, default, acceleration or right of termination would not have a material
adverse effect on the properties, assets, business, condition (financial or
other) or prospects of any of the Buyers, or result in the creation or
imposition of any mortgage,

                                       28
<PAGE>   34

pledge, lien, security interest or other charge or encumbrance on any property
or asset owned by any of the Buyers.

                     4.4 Finder's Fees. Except as previously disclosed to the
Sellers, the Buyers have not incurred or become liable for any broker's
commission or finder's fee relating to or in connection with this Agreement or
the transactions contemplated hereby.

                     4.5 Accuracy of Statements. No representation or warranty
made by the Buyers in this Agreement or any written statement or certificate
furnished to the Sellers, its Affiliates or its agents in connection with the
transaction contemplated by this Agreement contains or will contain any untrue
statement of a material fact necessary to make the statements contained herein
or therein not false or misleading.

SECTION 5.     COVENANTS OF THE BUYERS.

                     5.1 Making of Covenants and Agreements. The Buyers make the
covenants and agreements set forth in this Section 5.

                     5.2 Consents and Approvals. The Buyers will use their
commercially reasonable efforts to cause all conditions to the obligations of
the parties hereunder to be satisfied and will use its commercially reasonable
efforts to obtain all necessary consents and approvals to the performance of its
obligations under this Agreement and the transactions contemplated hereby. The
Buyers shall promptly inform the Sellers of any inquiries or communications from
any governmental agencies and provide copies of any written communication
relating thereto.

                     5.3 Breach of Representations and Warranties. Promptly
upon  the occurrence of, or promptly upon the Buyers' becoming aware of the
impending or threatened occurrence of, any event which would constitute a
breach, or would have caused or constituted a breach had such event occurred or
been known prior to the date hereof, of any of the representations and
warranties or covenants of the Buyers contained in or referred to in this
Agreement, the Buyers shall give detailed written notice thereof to the
Sellers.

                     5.4 Consummation of Agreement; Cooperation. Each Buyer
shall use its  best efforts, in addition to the performance and fulfillment of
all covenants, agreements, conditions and obligations to be performed and
fulfilled by each Buyer under this Agreement, to the end that the transactions
contemplated by this Agreement shall be fully carried out as soon as
practicable after the date hereof, subject to and in accordance with, and
without limitation of, the terms and conditions of this Agreement; provided,
however, that nothing in this Section 5.4 shall constitute a waiver of (or
otherwise be construed to require the Buyers to waive) any condition to the
obligations of the Buyers or other rights of the Buyers provided in this
Agreement or the other instruments or agreements executed in connection with
the transactions contemplated hereby.

                                       29
<PAGE>   35

SECTION 6.     [INTENTIONALLY OMITTED]

SECTION 7.     CONDITIONS PRECEDENT.

                     7.1 Conditions to the Obligations of the Buyers.

             (a)     Conditions to the Execution and Delivery of this
Agreement.  The obligation of the Buyers to execute and deliver this Agreement
are subject to the fulfillment, prior to or at the date hereof, of the
following conditions (any one or more of which may be waived in whole or in
part in writing by the Buyers):

             (i)     Shareholders Agreement. The Company and the Sellers shall
have executed and delivered the Shareholders Agreement, in the form attached
hereto as Exhibit 7.1(a)(i), and such Shareholders Agreement is a legal, valid,
binding and enforceable obligation of the parties thereto in accordance with its
terms.

             (ii)    Registration Rights Agreement. The Company and the Sellers
shall have executed and delivered the Registration Rights Agreement, in the form
attached hereto as Exhibit 7.1(a)(ii), and such Registration Rights Agreement is
a legal, valid, binding and enforceable obligation of the parties thereto in
accordance with its terms.

             (iii)   [Intentionally Omitted]

             (iv)    Articles of the Company. The shareholders shall have
executed an amendment to the Articles of the Company in the form attached hereto
as Exhibit 7.1(a)(iv).

             (v)     Call Option. The Sellers shall have granted to Net2phone
the Call Option, in the form attached hereto as Exhibit 7.1(a)(v) and such Call
Option is a legal, valid and binding obligation of the parties thereto in
accordance with its terms. Such Call Option shall be registered in the corporate
books of the Company.

             (vi)    Employment Agreements ("Termo de Compromiso"). The Company
shall have executed and delivered an employment agreement ("Termo de
Compromiso") with each of Sergio Skarbnik, Alexandre Flit, Daniel Eduardo
Goldshmidt, each agreement substantially in the form attached hereto as Exhibit
7.1(a)(vi), and each employment agreement is a legal, valid, binding and
enforceable obligation of the parties thereto.

             (vii)   Opinions of Counsel. The Buyers shall have received
opinions from Brazilian and New York counsel to the Company and the Sellers and
Brazilian counsel to the Buyers, as well as, legal opinions covering such
matters incident to such transactions as the Buyers may reasonably request,
each addressed to the Buyers, dated the date hereof, and otherwise satisfactory
in form and substance to the Buyers.

             (viii)  [Intentionally Omitted]

                                       30
<PAGE>   36

             (ix)    Corporate Proceedings. The Buyers shall have received
resolutions, satisfactory to the Buyers and their counsel, if applicable, of the
shareholders of the Company authorizing them to enter into this Agreement and
the agreements contemplated hereby, including, without limitation, the increase
in the capital stock of the Company contemplated herein and shall otherwise have
received evidence in form and substance satisfactory to them that all the
requirements of Brazilian Corporations Law in connection with the issuance of
capital stock of the Company or the other transactions contemplated hereunder
have been satisfied. The Buyers shall have received a true, complete and correct
copy, or resolutions reasonably satisfactory in form and substance to the
Buyers, duly and validly adopted by the shareholders of the Company, approving:
the transactions contemplated under this Agreement and the agreements
contemplated hereby, including, without limitation, the fixing of the size of
the Board of Directors of the Company to five directors. No legal impediment to
the consummation of the transactions contemplated by this Agreement shall have
arisen in the reasonable judgment of the Buyers.

             (x)     No Litigation. No litigation or proceeding shall have been
instituted or, to the Company's or any parties' best knowledge, threatened,
after the date of this Agreement by any governmental agency or other Person or
entity seeking to restrain or prohibit the performance of, or to obtain damages
or other relief in conjunction with, this Agreement or any of the transactions
contemplated hereby, or that otherwise pertains to or is likely to affect the
Company or its business and that (i) has a reasonable possibility of success on
the merits or (ii) if decided in favor of the Person who instituted the same,
could reasonably be expected to have a material adverse effect on the Company or
the Buyers, or (iii) the defense of which could reasonably be expected to have a
material adverse effect on the Company or the Buyers and the Buyers shall have
received a certificate of the Company to the effect thereof.

             (xi)    No Material Adverse Change. There shall have been no
material adverse change in the condition, assets, operations, Taxes or prospects
(financial or otherwise) of the Company or its business or assets since June 30,
2000 or any change in the laws of Brazil which the Buyers in their reasonable
discretion determine would likely be adverse to the business, operations or
prospects of the Company, including, without limitation, any currency
devaluation or foreign exchange restriction or other governmental actions
limiting repatriation of capital or any material change in the governmental or
political climate of Brazil and the Buyers shall have received a certificate of
the Company to the effect thereof.

             (xii)   [Intentionally Omitted]

             (xiii)  [Intentionally Omitted]

             (xiv)   Expenses. Payment of expenses shall have been made pursuant
to Section 9.2.

             (xv)    Incumbency Certificate. The Sellers (where applicable) and
the Company shall each have delivered to the Buyers an officer's certificate in
form and

                                       31
<PAGE>   37

substance acceptable to the Buyers, dated the Closing Date, certifying to the
incumbency of the signature hereof on behalf of the Sellers and the Company.

             (xvi)   [Intentionally Omitted]

             (xvii)  Company's Shareholders Meeting. Each of the Sellers shall
be present at a duly called, if applicable, shareholders' meeting of the Company
in which they shall approve, subject to no conditions, the issuance of new
Shares contemplated in Section 1.2 and the capitalization of the Notes
contemplated in Section 1.3 hereof, among other matters.

             (xviii) Termination of Memorandum of Understanding. The Memorandum
of Understanding dated October 16, 1999 among Helio Seibel, Jacob Magid, Roberto
Graziano, Fausto Penna Moreira Filho, Alexandre Flit, Daniel Eduardo Goldshmidt,
Daniel Tibor Fuchs, Fernando Blay and Sergio Isaak Skarbnik shall have been
terminated.

             (xix)   Ratification of Minutes of the Company. Pursuant to a
shareholders meeting, the shareholders of Alonet shall have expressly ratified
the minutes of the shareholders' meeting of the Company held on May 23, 2000 and
shall expressly clarify that, pursuant to such minutes, the shareholders had
approved the issuance of one share of common stock of the Company, the
subscription of such share by VOIP Investment and the capitalization of residual
amounts resulting from remittances made by VOIP Investment as payment for such
share.

             (xx)    Representations; Warranties; Covenants. Each of the
representations and warranties of the Company and the Sellers contained in this
Agreement shall be true and correct as of the date hereof. The Company and the
Sellers shall also have delivered to the Buyers a certificate dated the date
hereof certifying that all of the Company's and the Sellers' representations and
warranties are true and correct on and as of the date hereof, and that all
agreements, covenants and conditions hereunder which by the terms hereof are to
be performed by the Company or the Sellers on the date hereof have been
performed and satisfied.

             (b)     Conditions to Closing. The obligation of the Buyers to
consummate this Agreement and the transactions contemplated hereby are subject
to the fulfillment, prior to or at the Closing, of the following conditions (any
one or more of which may be waived in whole or in part in writing by the
Buyers):

             (i)     Representations; Warranties; Covenants. Each of the
representations and warranties of the Company and the Sellers contained in this
Agreement shall be true and correct on and as of the date hereof and the Closing
Date, with the same effect as though made on and as of the Closing Date; the
Company and the Sellers shall, on or before the Closing Date, have performed and
satisfied all agreements, covenants and conditions hereunder which by the terms
hereof are to be performed and satisfied by the Company or the Sellers on or
before the Closing Date. The Company and the Sellers shall also have delivered
to the Buyers a certificate dated the Closing Date

                                       32
<PAGE>   38

certifying that all of the Company's and the Sellers' representations and
warranties are true and correct on and as of the Closing Date, with the same
effect as if made on and as of the Closing Date, and that all agreements,
covenants and conditions hereunder which by the terms hereof are to be performed
by the Company or the Sellers on or before the Closing Date have been performed
and satisfied.

             (ii)    No Injunction. None of Sellers, the Company or the Buyers
shall be subject to any rule, regulation, order, decree or injunction of a court
or agency of competent jurisdiction which enjoins or prohibits the consummation
of the transactions contemplated by this Agreement and the Buyers shall have
received a certificate of the Company to the effect thereof.

             (iii)   Capitalization of the Notes. The capitalization of the
Notes contemplated in Section 1.3 hereof shall have been effected and all
approvals necessary in connection therewith shall have been obtained and shall
be in full force and effect and non appealable and all Taxes arising from such
capitalization shall have been paid by the Sellers.

             (iv)    Real Estate Matters:

             (1)     BS Consultoria shall have assigned its rights and
obligations under the Lease Agreement dated November 1, 1999 (the "BS
Consultoria Lease") between Administradora e Imobiliaria Imperio S/C Ltda., as
lessor, and BS Consultoria, as Lessee (Sao Paulo) to the Company pursuant to
documentation in form and substance satisfactory to the Buyers.

             (2)     The Lease Agreement dated January 1, 2000 between
Companhia  de Emprendimentos e Participacoes and the Company shall have been
amended to provide that the Company shall be the only entity occupying the
leased premises.

             (3)     The Company shall have provided the Buyers with an executed
copy of the Lease Agreement dated June 1, 2000 between the Company and Brunela
Pires Dalla Bernardina (Vitoria), which agreement shall be in form and substance
satisfactory to the Buyers.

             (v)     Sale of Rights of Use of an Internet Provider. Datasoft
shall have assigned its rights and obligations under that certain Agreement
dated December 29, 1999 between Datasoft and Embratel to the Company, and
Embratel shall have consented in writing to such assignment or alternatively,
such agreement shall have been terminated.

             (vi)    Sales Representatives. Alonet shall have employed all of
its current sales representatives who were formerly employees as employees of
the Company.

             (vii)   Distribution Agreement. The Company and Net2phone shall
have executed and delivered a Distribution Agreement in form and substance
satisfactory to

                                       33
<PAGE>   39

the parties and such Distribution Agreement is a legal, valid, binding and
enforceable obligation of the Company.

             (viii)  Legal opinions. The Buyers shall have received opinions
from (a) Brazilian counsel to Buyers, (b) Brazilian counsel to the Sellers, (c)
British Virgin Islands counsel to Titan Investment, and (d) English counsel to
VOIP Investment, in each case in form and substance satisfactory to the Buyers.

             (ix)    Approvals and Consents. The notification to CADE of the
subscription and acquisition of Shares contemplated hereunder in accordance with
Brazilian Applicable Law shall have been filed.

             (x)     Board of Directors. Three directors appointed by the Buyers
pursuant to the Shareholders Agreement shall have been elected to the board of
directors of the Company.

             (xi)    Execution of Subscription Bulletin ("Boletim de
Subscricao"). The Subscription Bulletin in the form of Exhibit 7.1(b)(xi) shall
have been executed and delivered by the Company.

             (xii)   Ratification of Shareholders Agreement. The Shareholder
Agreements shall have been ratified by each Shareholder(as defined in the
Shareholders Agreement) of the Company at Closing.

             (xiii)  Appointment of Registered Agent. Each Person who becomes a
Seller to this Agreement pursuant to Section 11.4 hereof shall have irrevocably
appointed National Registered Agents, Inc., with offices located at 440 Fifth
Avenue, 5th floor, New York, NY 10010 as its agent for service of process in the
State of New York with respect to any dispute arising out of this Agreement
which appointment shall be evidenced in a form reasonably satisfactory to the
Buyers.

             (xiv)   Translations into Portuguese. The Shareholders Agreement
and the Pledge Agreement (as defined in the Loan Agreement) shall have been
translated into Portuguese in a form reasonably satisfactory to the Buyers by a
sworn translator.

             (xv)    Accounting Records of the CompanyWith Respect to Equipment.
The Company's balance sheet dated June 30, 2000 shall have been amended in a
manner acceptable to the Buyers to provide for (i) the accounting of the
equipment listed in Schedule 7.1(b)(xv) as a permanent asset, and (ii) the
accounting of the credit that the Company has against Acetal Investments Corp,
which will be offset against payment of the purchase price of said equipment.

             (xvi)   Financial Statements. The Buyers shall have received the
most recent unaudited monthly financial statements of the Company.

             (xvii)  Appointment of Auditors. The Company shall have appointed
as its auditors, with the consent of the Buyers, a firm of independent public
accountants of international standing.

                                       34
<PAGE>   40

                     7.2 Conditions to the Obligations of the Company and the
Sellers. The obligations of the Company and the Sellers to execute this
Agreement are subject to the fulfillment of the following conditions (any one or
more of which may be waived in whole or in part by the Sellers):

             (a)     Representations; Warranties; Covenants. Each of the
representations and warranties of the Buyers contained in this Agreement shall
be true and correct on and as of the date hereof. The Buyers shall also have
delivered to the Sellers a certificate dated as of the date hereof certifying
that all of the Buyers' representations and warranties are true and correct as
of the date hereof, and that all agreements and conditions hereunder which by
the terms hereof are to be performed by the Buyers on the date hereof have been
performed and satisfied.

             (b)     Shareholders Agreement. The Buyers shall have executed and
delivered the Shareholders Agreement, in the form attached hereto as Exhibit
7.1(a)(i), and such Shareholders Agreement is a legal, valid, binding and
enforceable obligation of the parties thereto in accordance with its terms.

             (c)     Corporate Proceedings. The Sellers shall have received
true, complete and correct copies of resolutions, reasonably satisfactory to the
Sellers and its counsel, of the board of directors or the members of each of the
Buyers, as applicable, authorizing them to enter into this Agreement and the
agreements contemplated hereby and to perform the obligations contemplated
hereunder and thereunder.

SECTION 8.     TERMINATION OF AGREEMENT.

                     8.1 Termination. This Agreement may be terminated and the
transactions contemplated hereby may be abandoned at any time, but not later
than the Closing Date:

             (a)     by mutual written consent of the Sellers and the Buyers;

             (b)     by the Sellers, upon written notice to the Buyers, upon a
material breach of any covenant of the Buyers contained in this Agreement,
provided that such breach is not capable of being cured or has not been cured
within ten (10) days after the giving of notice thereof by the Sellers to the
Buyers;

             (c)     by the Buyers, upon written notice to the Sellers upon a
material breach of any covenant of the Company or the Sellers contained in this
Agreement, provided that such breach is not capable of being cured or has not
been cured within ten (10) days after the giving of notice thereof by the Buyers
to the Sellers; or

             (d)     by the Sellers or the Buyers, if any court of competent
jurisdiction or governmental body shall have issued an order, decree or ruling
or taken any other action restraining, enjoining or otherwise prohibiting the
transactions contemplated hereby and such order, decree, ruling or other action
shall have become final and nonappealable; provided, however, that the party
terminating the Agreement is not then in breach of its obligations under this
Agreement.

                                       35
<PAGE>   41

               In the event that a condition precedent to any party's obligation
hereunder is not met, nothing contained herein shall be deemed to require such
party to terminate this Agreement, rather than to waive such condition precedent
and proceed with the Closing.

                     8.2 Effect of Termination. All obligations of the parties
hereunder shall cease upon any termination pursuant to Section 8.1; provided,
however, that (i) the provisions of this Section 8 and Sections 9.2, 11.5, 11.7
and 11.14 shall survive any termination of this Agreement in any event, and (ii)
any party may proceed as further set forth in Section 8.3.

                     8.3 Right to Proceed. Anything in this Agreement to the
contrary notwithstanding, if any of the conditions specified in Section 7.1 has
not been satisfied, the Buyers shall have the right to waive in writing the
satisfaction of any such condition as provided in Section 7.1 and to proceed
with the transactions contemplated hereby, and if any of the conditions
specified in Section 7.2 has not been satisfied, the Company and the Sellers
shall have the right to waive the satisfaction of any such condition as provided
in Section 7.2 and to proceed with the transactions contemplated hereby.

SECTION 9.     CERTAIN RIGHTS AND OBLIGATIONS SUBSEQUENT TO CLOSING.

                     9.1 Survival of Representations, Warranties and Covenants.
The representations, warranties, covenants, indemnities and agreements contained
in this Agreement, and in any certificate, instrument or document furnished in
connection therewith, are and will be deemed and construed to be continuing
representations, warranties, covenants, indemnities and agreements and shall
survive the Closing indefinitely. Any investigation by or on behalf of any party
hereto shall not constitute a waiver as to enforcement of any representation,
warranty, covenant or agreement contained herein.

                     9.2 Fees and Expenses. The Sellers shall pay, up to a
maximum amount of US$35,000, all expenses and costs incidental to the
preparation of this Agreement and the consummation of the transactions
contemplated hereby, including all legal, accounting and due diligence fees and
expenses incurred by the Buyers or on their behalf; provided, however, that
legal fees incurred in connection with the enforcement of this Agreement shall
not be included in the above-mentioned US$35,000.

SECTION 10.    INDEMNIFICATION.

                     10.1 Indemnification by the Sellers.

             (a)     The Sellers shall jointly and severally indemnify, defend
and hold harmless, the Buyers, their shareholders, members, directors, officers,
employees, Affiliates, controlling persons, agents and representatives and their
successors and assigns (the "Buyers Indemnitees") from and against any and all
losses, claims, damages, liabilities, obligations, Taxes, judgments, awards,
costs, expenses and disbursements

                                       36
<PAGE>   42

(including reasonable counsel fees and costs of any suit related thereto)
(collectively, "Losses") suffered or incurred by the Buyers as a result of or in
connection with (i) any misrepresentation by, or breach of any covenant or
warranty of the Sellers or the Company contained in this Agreement, or from any
misrepresentation in or omissions from any certificate or other instrument
furnished or to be furnished by the Sellers hereunder or (ii) from any claim by
any Person relating to the Company's use of the trademarks "ALONET" or "ALO
NET." There shall be no limitations period for claims brought by the Buyers
arising out of the breaches committed by the Sellers of the representations
contained in Sections 2.2, 2.3, 2.4 and 2.5 hereof. The period during which the
Buyers may make a claim against the Sellers for a breach of any other
representation herein shall end on July 31, 2005.

             (b)     The Sellers shall jointly and severally indemnify, defend
and hold harmless, the Buyers Indemnitees from and against any and all Losses,
suffered or incurred by the Buyers as a result of a claim by a third party
arising out or in connection with (i) any misrepresentation by, or breach of any
covenant or warranty of the Sellers of the Company contained in this Agreement,
or from any misrepresentation in or omissions from any certificate or other
instrument furnished or to be furnished by the Sellers hereunder or (ii) from
any claim by any Person relating to the Company's use of the trademarks "ALONET"
or "ALO NET"; provided that (a) the Buyers shall promptly give notice of such
matter to the Sellers, in writing; provided, however, that no delay on the part
of the Buyers in providing such notice shall relieve the Sellers from any
obligation hereunder unless (and then solely to the extent that) the Sellers
thereby are prejudiced; (b) the Sellers will have the right to assume the
defense of the third party claim with counsel of their choice reasonably
satisfactory to the Buyers at any time within 30 days after the Buyers have
given notice of the third party claim; provided, however, that the Sellers must
conduct the defense of the third party claim actively and diligently thereafter
in order to preserve their rights in this regard; and provided, further, that
the Buyers may retain separate co-counsel at their sole cost and expense and
participate in the defense of the third party claim; (c) so long as the Sellers
have assumed and are conducting the defense of the third party claim in
accordance with subsection (b) above, (i) the Sellers will not consent to the
entry of any judgment or enter into any settlement with respect to the third
party claim without the prior written consent of the Buyers unless the judgment
or proposed settlement involves only the payment of money damages by the Sellers
and does not impose an injunction or other equitable relief upon the Buyers and
(ii) the Buyers will not consent to the entry of any judgment or enter into any
settlement with respect to the third party claim without the prior written
consent of the Sellers (not to be held unreasonably). The parties shall make
appropriate adjustments for tax consequences and insurance coverage in
determining Losses for purposes of this Section 10.1(b).

             (c)     The Buyers may, at their election, seek indemnity hereunder
from the Sellers jointly or severally; provided, however, that with respect to a
breach of the representation made by Titan Investment in Section 2.5(a), Titan
Investment shall indemnify individually the Buyers from all Losses suffered or
incurred by the Buyers in connection therewith.

                                       37
<PAGE>   43

                     10.2 Indemnification by the Buyers.

             (a)     The Buyers shall jointly and severally indemnify, defend
and hold harmless, the Sellers, their shareholders, members, directors,
officers, employees, Affiliates, controlling persons, agents and representatives
and their successors and assigns (the "Sellers Indemnitees") from and against
any and all Losses suffered or incurred by the Sellers as a result of or in
connection with any misrepresentation by, or breach of any covenant or warranty
of the Buyers contained in this Agreement, or from any misrepresentation in or
omissions from any certificate or other instrument furnished or to be furnished
by the Buyers hereunder.

             (b)     The Buyers shall jointly and severally indemnify, defend
and hold harmless, the Sellers Indemnitees from and against any and all Losses,
suffered or incurred by the Sellers as a result of a claim by a third party
arising out or in connection with any misrepresentation by, or breach of any
covenant or warranty of the Sellers of the Company contained in this Agreement
to the same extent and in the manner the Sellers are required to indemnify the
Buyers as set forth in Section 10.1 above.

SECTION 11.    MISCELLANEOUS.

                     11.1 Law Governing. This Agreement shall be construed
under  and governed by the internal laws of the State of New York without
regard to its conflict of laws provisions.

                     11.2 Notices. Any notice, request, demand or other
communication required or permitted hereunder shall be in writing and shall be
deemed to have been given if delivered or sent by facsimile transmission, upon
receipt, or if sent by registered or certified mail or nationally recognized
overnight courier, upon receipt. All notices and payments to a party will be
sent to the addresses set forth below or on or to such other address or Person
as such party may designate by notice to each other party hereunder (or in the
case of payments, to the relevant payor):

To the Buyers:       Net2phone Inc.
                     520 Broad Street
                     Newark, New Jersey 07102
                     Phone: (973) 412-4316
                     Fax: (973) 412-2844
                     Attention:   Ilan Slasky

                     Latin Investments LLC
                     c/o Sentinel Advisors, LLC
                     546 Fifth Avenue
                     New York, NY 11559
                     Phone (212) 391 1818
                     Fax    (212) 391 4323
                     Attention:  Avie Pfeiffer or Ari Bergmann

                                       38
<PAGE>   44

with a copy to:      Dewey Ballantine LLP
                     1301 Avenue of the Americas
                     New York, New York  10019
                     Telephone:   (212) 259-8000
                     Facsimile:   (212) 259-6333
                     Attention:   Betty Cerini

To Sellers:          Daniel Eduardo Goldshmidt
                     Rua Manacas, n. 120
                     Sao Paulo, Sao Paulo, Brazil

                     Alexandre Flit
                     Rua Vanderlei, n. 301
                     Sao Paulo, Sao Paulo, Brazil

                     Titan Investment Enterprises, Ltd.
                     Attn:  Milton Zlotnick
                     Rua Baronesa de Itu, 336, 2o. andar, conj. 21
                     Sao Paulo, Sao Paulo, Brazil

with a copy to:      Alonet S.A.
                     Calcada Antares, 264 2 ander
                     Alphaville 06500-000
                     Soartana do Parnaiba, Sao Paulo, Brazil
                     Attention:  Fausto Penna
                                 Moreira Filho

To the Intervening Parties:

                     Fausto Penna Moreira Filho
                     Rua Banibas, 663, Alto de Pinheiros
                     Sao Paulo, Sao Paulo, Brazil

                     Helio Seibel
                     Rua Bartolomeu Paes, 136
                     Vila Anastacia
                     Sao Paulo, Sao Paulo, Brazil

             Any notice given hereunder may be given on behalf of any party by
its counsel or other authorized representative.

                     11.3 Entire Agreement. This Agreement, including the
Schedules and Exhibits referred to herein and the other writings specifically
identified herein or contemplated hereby or delivered in connection with the
transactions contemplated hereby, is complete, reflects the entire agreement of
the parties with respect to its subject matter, and supersedes all previous
written or oral negotiations, commitments and writings.

                                       39
<PAGE>   45

                     11.4 Assignment. No party to this Agreement may assign any
of its rights under this Agreement without the prior written consent of the
other parties hereto; provided, however, that the Buyers may assign any of their
rights or obligations under this Agreement to one or more Affiliates of any of
the Buyers without the prior consent of the other parties hereto, and provided,
further, that VOIP Investment may assign its rights and obligations hereunder to
Fausto Penna Moreira Filho, Samuel Seibel, Salo David Seibel and/or Helio Seibel
and BS Consultoria may assign its rights and obligations hereunder to Fernando
Blay and/or Sergio Isaak Skarbnik. The parties hereto hereby agree to take all
action, including the execution of any and all documents, necessary in
connection with the consummation and perfection of any assignment permitted
hereunder.

                     11.5 Publicity and Disclosures. Except as required by law
or by any stock exchange, none of the parties hereto shall disclose to any
Person, issue any press release or make any other public statement or
announcement relating to or connected with or arising out of this Agreement or
the matters contained herein without obtaining the prior written approval of the
other parties hereto to the contents and the manner of presentation and
publication thereof. If disclosure is required by law or by any stock exchange,
the disclosing party shall consult in advance with the other parties hereto and
shall provide such parties with a copy of the proposed statement or announcement
and attempt in good faith to reflect such other parties' concerns in the
required disclosure. The foregoing shall not be construed to prohibit disclosure
by any party (a) to any of its Affiliates; (b) in connection with any judicial
or administrative action or proceeding to which such party or any of its
Affiliates, officers or directors is a party; (c) to its legal counsel, auditors
and lenders; or (d) to any governmental agency or regulatory or self-regulatory
body having or claiming authority to regulate or oversee any aspect of the
business of such party or its Affiliates.

                     11.6 Captions and Gender. The captions in this Agreement
are for convenience only and shall not affect the construction or interpretation
of any term or provision hereof. The use in this Agreement of the masculine
pronoun in reference to a party hereto shall be deemed to include the feminine
or neuter pronoun, as the context may require.

                     11.7 Confidentiality.

             (a)     For a period of two (2) years following the date on which
the Sellers or any of their agents or representatives receives the last item of
proprietary information pertaining to the Buyers, the Sellers shall, and shall
cause the Company and the officers, directors, agents and representatives of
each of them to, hold in strict confidence and not use any confidential or
proprietary data or information obtained from the Buyers or their officers,
directors, agents or representatives with respect to its or their business or
financial condition except for the purpose of evaluating, negotiating and
completing the transaction contemplated hereby and except to the extent set
forth in clause (ii) of Section 11.7(b). Information generally known in the
industry or which has been disclosed to a party hereto by third parties which
have a right to do so shall not be deemed confidential or proprietary
information for purposes of this Agreement. If the

                                       40
<PAGE>   46

transaction contemplated by this Agreement is not consummated, the parties will
return to each other (or certify that they have destroyed) all copies of such
data and information, including, but not limited to, financial information,
investor lists, business and corporate records, worksheets, lists, memoranda and
other documents prepared by or made available to each other in connection with
the transaction.

             (b)     From the date of this Agreement until the Closing, or for a
period of two (2) years from the date of this Agreement if Closing does not take
place, all confidential business and related information furnished to the Buyers
and their representatives by or on behalf of the Sellers shall be kept
confidential by the Buyers and their representatives; provided, however, that
the foregoing shall be inapplicable (i) with respect to information which is or
becomes available to the public without breach of this confidentiality
obligation, and (ii) to the extent disclosure is required by any Applicable Law
or regulation, by any authorized administrative or governmental agency or in the
opinion of counsel to the Buyers; and provided, further, however, that the
Buyers will provide notice to the Sellers before disclosing any information
pursuant to this Section 11.7(b) and will cooperate with the Company and the
Sellers in endeavoring to preserve, to the extent reasonably practicable and not
inconsistent with its legal obligations, the confidential nature thereof.

                     11.8 Cooperation and Books and Records. After the Closing,
the Sellers and the Buyers shall (i) provide, and shall cause each of their
Affiliates to provide, to the other party and its Affiliates (at the expense of
the requesting party) such information relating to the Company as the Sellers or
the Buyers may reasonably request with respect to Tax matters and (ii) cooperate
(at the expense of the requesting party) with each other in the conduct of any
audit or other proceeding with respect to any Tax involving the Company and
shall retain or cause to be retained all books and records pertinent to the
Company for each Taxable Period or portion thereof ending on or prior to the
Closing Date until the expiration of the applicable statute of limitations
(giving effect to any and all extensions and waivers).

                     11.9 Binding Nature of Agreement. This Agreement shall be
binding upon and inure to the benefit of and be enforceable by the parties
hereto, their successors and permitted assigns.

                     11.10 Third Party Beneficiaries. Nothing in this Agreement
shall convey any rights upon any Person or entity which is not a party to this
Agreement.

                     11.11 Certain Definitions. For purposes of this Agreement,
the term:

             (a)     "Affiliate," shall mean, with respect to any Person at any
time, any other Person that, alone or together with any other Person, directly
or indirectly through one or more intermediaries controls, or is controlled by
or is under common control with, such Person. Without limiting the generality of
the foregoing, shareholders, members, partners, officers and directors of any
Person shall be deemed to be Affiliates of any such Person;

                                       41
<PAGE>   47

             (b)     "Agreement" shall have the meaning provided in the preamble
hereof;

             (c)     "Applicable Law" shall mean all applicable constitutions,
treaties, statutes, laws, ordinances, rules, regulations, directives,
administrative requirements, codes, orders, judgments, injunctions, decrees and
by-laws of any Governmental Authority;

             (d)     "Approvals" shall have the meaning provided in Section
2.24;

             (e)     "Articles" shall mean with respect to any entity the
memorandum of association, articles of association, certificate of
incorporation, bylaws, estatutos, contrato social and any charter or other
organizational documents of such entity and any amendments thereto;

             (f)     "Book of Registered Shares" means the "Livro de Registro de
Acoes Nominativas" of the Company;

             (g)     "Book of Transfer of Shares" means the "Livro de
 Transferencia de Acoes Nominativas" of the Company;

             (h)     "Brazilian Central Bank" means the "Banco Central do
Brasil" and any governmental entity that succeeds to its functions.

             (i)     "Brazilian Corporations Law" means Law n(o) 6,404/76
dated December 15, 1976 promulgated by the Republic of Brazil, as amended from
time to time.

             (j)     "Business Day" shall mean (i) any day excluding Saturday,
Sunday and any day which shall be a legal holiday in the City of New York,
United States or the City of Sao Paulo, Brazil or (ii) a day on which commercial
banks in the City of New York, United States or the City of Sao Paulo, Brazil
are authorized or required by law or other government actions to close.

             (k)     "Buyer" and "Buyers" shall have the meaning provided in the
preamble hereof;

             (l)     "Buyers Indemnitee" shall have the meaning provided in
Section 9.1(a);

             (m)     "CADE" means the Brazilian "Conselho Administrativo de
Defesa Economica, and any governmental entity that succeeds to its functions;

             (n)     "Call Option" shall mean the Call Option Agreement, to be
entered into by and among the Sellers and Net2phone in the form of Exhibit
7.1(a)(v);

             (o)     "Closing" shall have the meaning provided in Section 1.4;

                                       42
<PAGE>   48

             (p)     "Closing Date" shall have the meaning provided in Section
1.4;

             (q)     "Company" shall have the meaning provided in the
Preliminary Statement hereto;

             (r)     "Control" (including the terms "controlled by" and "under
common control with") means the possession, directly or indirectly or as trustee
or executor, of the power to direct or cause the direction of the management
policies of a Person, whether through the ownership of stock, as trustee or
executor, by contract or credit arrangement or otherwise;

             (s)     "Customers and Distributors" shall have the meaning
provided in Section 2.29;

             (t)     "CVM" means the Comissao de Valores Mobiliarios."

             (u)     "Datasoft" means Datasoft Assesoria em Computacao S/C
Ltda. and its successors and assigns.

             (v)     "Distribution Agreement" means the Distribution Agreement,
to be executed between the Company and Net2phone in form and substance
satisfactory to the parties.

             (w)     "Embratel" means Empresa Brasileira de Telecomunicacoes
S.A., and its successors and assigns.

             (x)     "Environment" means soil, surface waters, groundwaters,
drinking water, water vapor, land, stream sediments, surface or subsurface
strata, air, plant, aquatic and any animal life, and any other environmental
medium;

             (y)     "Environmental Claim" means any written accusation,
allegation, notice of violation, claim, demand, order, consent decree,
directive, cost recovery action or other cause of action by, or on behalf of,
any government authority or any Person for damages, injunctive or equitable
relief, personal injury, Remedial Action costs, tangible or intangible property
damage, natural resource damages, nuisance, pollution, any adverse effect on the
Environment caused by Hazardous Material, or for fines, penalties or
restrictions, resulting from or based upon (i) the occurrence, existence or
continuation of a Release, (ii) exposure to any Hazardous Material, (iii) the
presence, use, handling, transportation, storage, treatment or disposal of any
Hazardous Material, or (iv) the violation or alleged violation of any
Environmental Law;

             (z)     "Environmental Law" means any federal, state, local and
foreign laws, statutes, codes, ordinances, rules, regulations, directives,
binding policies, Environmental Permits or orders relating to or addressing the
use, handling or disposal of any Hazardous Material or the Environment, health
or safety, whether existing as of the date hereof, previously enforced, or
subsequently enacted;

                                       43
<PAGE>   49

             (aa)    "Environmental Permit" means any permit, license, approval,
consent or authorization required under Environmental Law;

             (bb)    "Financial Statements" shall have the meaning provided in
Section 2.7(a);

             (cc)    "GAAP" means generally accepted accounting principles in
Brazil or in the United States, as applicable.

             (dd)    "Governmental Authority" shall mean any national or local
government, governmental, regulatory or administrative authority, agency or
commission or any court, tribunal or judicial body of Brazil or the United
States;

             (ee)    "Hazardous Material" means any hazardous waste, hazardous
substance, pollutant, radioactive waste, radioactive substance, toxic waste,
toxic substance, medical waste, special waste, petroleum or petroleum-derived
waste or substance, asbestos, polychlorinated biphenyls ("PCBs"), or any
hazardous or toxic constituent thereof and includes, but is not limited to, any
substance defined in or regulated under Environmental Law;

             (ff)    "Indebtedness" shall mean, with respect to any Person, the
liabilities of such Person as required to be recorded as such on a balance
sheet; provided, however, that such Indebtedness shall in any event include,
without duplication, (i) all obligations of such Person for borrowed money, or
with respect to deposits or advances of any kind (but excluding customer
deposits and advances satisfied through the delivery of goods or the performance
of services), (ii) all obligations of such Person evidenced by bonds,
debentures, notes or similar instruments (including, without limitation, the
principal amount thereof, accrued interest thereon and any other obligations
evidenced by such instruments), (iii) all obligations of such Person under
conditional sale or other title retention agreements relating to property
purchased by such Person, (iv) all obligations of such Person issued or assumed
as the deferred purchase price of property or services (other than accounts
payable to suppliers and similar accrued liabilities incurred in the ordinary
course of business and paid in a manner consistent with industry practice), (v)
all Indebtedness of others secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured by)
any Lien or security interest on or in property owned or acquired by such Person
whether or not the obligations secured thereby have been assumed, (vi) all
capitalized lease obligations of such Person (construed in accordance with GAAP)
and (vii) all guarantees of payment or performance by such Person of
Indebtedness of any other Person;

             (gg)    "Intellectual Property" shall have the meaning provided in
Section 2.15(a);

             (hh)    "Interim Period" means, with respect to any Taxable Period
that begins on or before the Closing Date and ends after the Closing Date, the
portion of such period that ends on the Closing Date;

                                       44
<PAGE>   50

             (ii)    "Lien" as to any Person, shall mean any mortgage, lien,
pledge, charge, preferential payment arrangement, security interest, other
encumbrance, or preferential agreement having the effect of constituting a
security interest, including without limitation, any equivalent interest or
right created or arising under the laws of any country where such Person owns
property;

             (jj)    "Loan Documents" means, collectively, the Notes, the Pledge
Agreements, and the Net2phone Third Loan Documents.

             (kk)    "Losses" shall have the meaning provided in Section 9.1(a);

             (ll)    "Net2phone Third Loan Documents" means, collectively, the
Loan Agreement, dated as of the date hereof, between Net2phone and Alonet (the
"Loan Agreement") the Call Option (as defined in the Loan Agreement), the Note
(as defined in the Loan Agreement), and the Pledge Agreement (as defined in the
Loan Agreement).

             (mm)    "Notes" mean, collectively, each Promissory Note, dated as
of July 19, 2000 and August 11, 2000, and August 29, 2000, respectively, in the
principal amount of US$250,000, US$250,000 and US$3,500,000, respectively,
executed by the Company in favor of Net2phone;

             (nn)    "Ordinary Expenses" means out-of-pocket expenses directly
related to the business of the Company and preapproved for reimbursement by the
management of the Company in accordance with expense reimbursement policies
generally applicable to all managers of the Company;

             (oo)    "Person" means an individual, corporation, partnership,
limited liability company, limited liability partnership, government,
governmental agency or instrumentality, trust, estate or unincorporated
organization or amortization of any nature;

             (pp)    "Plans" shall have the meaning provided in Section 2.27;

             (qq)    ""Pledge Agreements" shall mean, collectively, each Pledge
Agreement, dated as of July 19, 2000 and August 11, 2000 between the Company,
Net2phone and Sergio Isaak Skarbnik.

             (rr)    "Proprietary Rights" shall have the meaning provided in
Section 2.15(b);

             (ss)    "Purchase Price" shall have the meaning provided in Section
1.3;

             (tt)    "Registration Rights Agreement" shall mean the registration
rights agreement to be executed by and among the Sellers, the Buyers and the
Company in the form attached hereto as Exhibit 7.1(a)(ii).

             (uu)    "Release" means any release, spilling, leaking, leaching,
migrating, pumping, pouring, emitting, emptying, discharging, injecting,
escaping, leaching, depositing, disposing, discharging, dispensing or dumping
into the Environment;

                                       45
<PAGE>   51

             (vv)    "Remedial Action" means actions required to (i) clean up,
remove, treat or in any other way address Hazardous Materials in the
Environment, (ii) prevent the Release or threat of Release or minimize the
further Release of Hazardous Materials, or (iii) investigate and determine if a
remedial response is needed, to design such a response and post-remedial
investigation, monitoring, operation, maintenance and care;

             (ww)    "Restructuring Transactions" shall mean, collectively, (A)
(1) the incorporation of two Brazilian "sociedades anonimas" one (the "Net2phone
Brazilian Subsidiary") of which shall be controlled either by Net2phone or an
Affiliate thereof and the other (the "Latin Investments Brazilian Subsidiary")
of which shall be controlled either by Latin Investments or an Affiliate
thereof; (2) the registration of the Net2phone Brazilian Subsidiary and the
Latin Investments Brazilian Subsidiary with the CVM; and (3) the prior approval
of the capital contributions made by the shareholders of the Net2phone Brazilian
Subsidiary and the Latin Investment Brazilian Subsidiary therein by the
Brazilian Central Bank, or (B) such other restructuring as Net2phone and/or
Latin Investmenrs may decide is advantageous from a tax perspective.

             (xx)    "Sellers" shall have the meaning provided in the preamble
hereof;

             (yy)    "Sellers Indemnitees" shall have the meaning provided in
Section 9.2;

             (zz)    "Shareholders Agreement" shall mean the shareholders
agreement, dated as of the date hereof and effective as of the Closing Date, by
and among the Sellers, the Buyers and the Company, in the form attached hereto
as Exhibit 7.1(a)(i);

             (aaa)   "Shares" shall have the meaning provided in Section 1.2;

             (bbb)   "Short Period" means any Taxable Period that ends on the
Closing Date;

             (ccc)   "Tax Authority" means any Brazil or U.S. federal, state or
local, and any other non-U.S. federal, state or local governmental authority or
agency responsible for the imposition, administration or collection of any
Taxes;

             (ddd)   "Tax Return" means any report, return, or other information
required to be supplied to a taxing authority in connection with Taxes;

             (eee)   "Taxable Period" means any taxable year or any other period
that is treated as a taxable year (including any Short Period or Interim Period)
with respect to which any Tax may be imposed under any applicable statute, rule,
or regulation;

             (fff)   "Taxes" means all taxes, charges, fees, levies, or other
assessments, including, without limitation, income, gross receipts, excise, real
and personal property, sales, use, stamp, transfer, license, payroll, franchise,
social security, unemployment and withholding taxes imposed or required to be
withheld by the Brazilian tax authorities or foreign government or subdivision
or agency thereof, and such term shall include any interest, penalties or
additions to tax, and any liability for taxes;

                                       46
<PAGE>   52

             (ggg)   "Transaction Documents" means this Agreement, the
Shareholders Agreement, the Registration Rights Agreements, the Call Option, the
Distribution Agreement and the Loan Documents;

             (hhh)   "U.S." or "United States" means the United States of
America;

             (iii)   "U.S. Dollars" and the sign "U.S.$s" shall each mean freely
transferable lawful currency of the United States of America;

                     11.12 Execution in Counterparts. This Agreement may be
executed in two (2) or more counterparts, each of which shall be deemed an
original, but all of which shall constitute one and the same document.

                     11.13 Amendments; Waivers. This Agreement may not be
amended or modified, nor may compliance with any condition or covenant set forth
herein be waived, except by a writing duly and validly executed by the parties
hereto, or, in the case of a waiver, the party waiving compliance. No delay on
the part of any party in exercising any right, power or privilege hereunder
shall operate as a waiver thereof, nor shall any waiver on the part of any party
of any such right, power or privilege, or any single or partial exercise of any
such right, power or privilege, preclude any further exercise thereof or the
exercise of any other such right, power or privilege.

                     11.14 Consent to Jurisdiction.

             (a)     Any action or proceeding against any party relating in any
way to this Agreement and the agreements contemplated hereby shall be brought
and enforced in the courts of the State of New York or federal courts of the
United States for the Southern District of New York, and each of the Company and
the Sellers hereby irrevocably submits to the jurisdiction of each such court in
respect of any such action or proceeding. Each of the Company and the Sellers
hereby irrevocably appoints National Registered Agents, Inc. which maintains an
office at 440 9th Avenue, 5th floor, New York, NY 10001, U.S.A., as its agent to
receive service of process or other legal summons for purposes of any such
action or proceeding. So long as any of the Company or the Sellers has any
obligations under this Agreement and the agreements contemplated hereby, each
will maintain a duly appointed agent in New York City for the service of such
process or summons, and if it fails to maintain such an agent, any such process
or summons may be served by mailing a copy thereof by registered mail, or a form
of mail substantially equivalent thereto, addressed to it at its address as
provided for notice hereunder.

             (b)     Each party irrevocably waives, to the fullest extent
permitted by Applicable Law, any objection that it may now or hereafter have to
the laying of venue of any such action or proceeding in the courts of the State
of New York or federal courts of the United States for the Southern District of
New York and any claim that any such action or proceeding brought in any such
court has been brought in an inconvenient forum.

             (c)     The Buyers further irrevocably waive, to the fullest extent
permitted by Applicable Law, any claim that any action or proceeding commenced
by the

                                       47
<PAGE>   53

Company or the Sellers in New York relating in any way to this Agreement
and the other agreements contemplated hereby should be dismissed or stayed by
reason, or pending the resolution of, any action or proceeding commenced by the
Buyers (other than in a court referred to in Section 11.14(a) relating in any
way to this Agreement or the other agreements contemplated hereby, whether or
not commenced earlier. To the fullest extent permitted by Applicable Law, the
Buyers shall take all measures necessary for any such action or proceeding
commenced by the Company or the Sellers in New York to proceed to judgment prior
to the entry of judgment in any such action or proceeding commenced by the
Buyers. The Buyers agree that a final judgment in any such action or proceeding
shall be conclusive and may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by law.

             (d)     Each of the Company and the Sellers further irrevocably
waives, to the fullest extent permitted by Applicable Law, any claim that any
action or proceeding commenced by the Buyers in New York relating in any way to
this Agreement and the other agreements contemplated hereby should be dismissed
or stayed by reason, or pending the resolution of, any action or proceeding
commenced by any of the Company or the Sellers (other than in a court referred
to in Section 11.14(a)) relating in any way to this Agreement or the other
agreements contemplated hereby, whether or not commenced earlier. To the fullest
extent permitted by Applicable Law, each of the Company or the Sellers shall
take all measures necessary for any such action or proceeding commenced by the
Buyers in New York to proceed to judgment prior to the entry of judgment in any
such action or proceeding commenced by any of the Company, or the Sellers. Each
of the Company and the Sellers agrees that a final judgment in any such action
or proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on the judgment or in any other manner provided by law.

             (e)     Each party hereto irrevocably waives any right it may now
or hereafter have to a trial by jury in respect of this Agreement.

                     11.15 Severability. In the event that any one or more of
the provisions contained herein, or the application thereof in any
circumstances, is held invalid, illegal or unenforceable in any respect for any
reason, the parties shall negotiate in good faith with a view to the
substitution therefor of a suitable and equitable solution in order to carry
out, so far as may be valid and enforceable, the intent and purpose of such
invalid provision; provided, however, that the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be in any way impaired thereby, it being
intended that all of the rights and privileges of the parties hereto shall be
enforceable to the fullest extent permitted by law.

                     11.16 Currency. All payments due to any party hereunder
shall be made and promptly payable in U.S. Dollars, with the exception of any
payments that pursuant to Brazilian law cannot be made in U.S. Dollars, in any
case free of any Taxes and shall be grossed-up to take account of any income or
other similar Taxes payable by the recipient with respect to such payment so
that the net after Tax amount received by the recipient equals the amount the
recipient would have received had such payment not

                                       48
<PAGE>   54

been taxable. If for the purposes of making a payment required to be made
hereunder it is necessary to convert all or any part of a sum due hereunder in
any currency (the "Original Currency") into U.S. Dollars, the parties hereto
agree, to the fullest extent that they may effectively do so, that the rate of
exchange used shall be that at which, in accordance with normal banking
procedures, the parties could purchase the Original Currency with U.S. Dollars,
on the Business Day immediately preceding the day on which any such payment, or
any relevant part thereof, is paid or otherwise satisfied.

                     11.17 Specific Performance. Without limiting the rights of
each party hereto to pursue all other legal and equitable rights available to
such party for any other parties' failure to perform their obligations under
this Agreement, the parties hereto acknowledge and agree that the remedy at law
for any failure to perform their obligations hereunder would be inadequate and
that each of them shall be entitled to specific performance, injunctive relief
or other equitable remedies in the event of any such failure. To the extent any
of the parties may be entitled to the benefit of any provision of law requiring
any party in any suit, action or proceeding arising out of or in connection with
this Agreement or any of the transactions contemplated hereby to post security
for litigation costs or otherwise post a performance bond or guaranty or to take
any similar action, each party hereby irrevocably waives such benefit, in each
case to the fullest extent now or hereafter permitted under the laws of any such
other jurisdiction.

                     11.18 Business Day. Whenever any payment or notice
hereunder shall be stated to be due or given on a day other than a Business Day,
such payment or notice shall be made or given on the next succeeding Business
Day and such extension of time shall, in each case, be included in the
computation of payment of interest or any fee, as the case may be.

                                       49
<PAGE>   55

               IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on the date first set forth above.

                                 NET2PHONE INC.

                                 By:  /s/ Ilan Slasky
                                      -------------------------------
                                      Name:  Ilan Slasky
                                      Title:  Chief Financial Officer

                                 LATIN INVESTMENTS, LLC

                                 By:  /s/ Ari Bergmann
                                      -----------------------
                                      Name:  Ari Bergmann
                                      Title:

                                 ALONET S.A.

                                 By:  Sergio Isaak Skarbnik
                                      -------------------------------
                                      Name:  Sergio Isaak Skarbnik
                                      Title: Commercial/Administratice
                                             and Financial Officer

                                 By:  Alexandre Flit
                                      -----------------------
                                      Name:  Alexandre Flit
                                      Title: Technology and Expansion Officer

                                 VOIP INVESTMENT CO.

                                 By:  Fausto Penna Moreira Filho
                                      -------------------------------
                                      Name: Fausto Penna Moreira Filho
                                      Title:  Attorney-in-Fact

                                 BS CONSULTORIA, INTERMEDIACAO
                                 E PARTICIPACOES S/C LTDA

                                 By:  Fernando Blay
                                      -----------------------
                                      Name:  Fernando Blay
                                      Title: Partner

                                       50
<PAGE>   56

                                 By:  Sergio Isaak Skafbnik
                                      -------------------------------
                                      Name: Sergio Isaak Skafbnik
                                      Title: Partner

                                 /s/ Daniel Eduardo Goldshmidt
                                 --------------------------------
                                 DANIEL EDUARDO GOLDSHMIDT

                                 /s/ Alexandre Flit
                                 ---------------------------------
                                 ALEXANDRE FLIT

                                 TITAN INVESTMENT ENTERPRISES
                                 LTD.

                                 By:    /s/ Milton Zlotnik
                                     ------------------------
                                        Name:  Milton Zlotnik
                                        Title:

                                 /s/ Fausto Penna Moreira Filho
                                 ---------------------------------
                                 FAUSTO PENNA MOREIRA FILHO

                                 /s/ Helio Seibel
                                 ----------------------------------
                                 HELIO SEIBEL

WITNESSES:

1.  /s/ Ligia Kate Nucci                    2.  /s/ Marisa Carelli Nunes

Name: Ligia Kate Nucci                      Name: Marisa Carelli Nunes

RG: 7.613.876 SSP/SO                        RG: 9.087.296  SSP/SP

CPF/MF: 046.595.178-37                      CPF/MF: 051.405.118.35

                                       51

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