Registration Rights Agreement [Series A] - Net2Phone Inc.
SERIES A PREFERRED SHAREHOLDER
REGISTRATION RIGHTS AGREEMENT
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REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of May 13,
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1999, by and between NET2PHONE, INC., a Delaware corporation (the "Company"),
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and each of the investors listed on Schedule A hereto (the "Series A
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Investors").
WHEREAS, the Company will issue and sell to the Series A Investors
shares of Series A Convertible Preferred Stock of the Company, par value $.01
per share (the "Series A Preferred"), and Warrants (the `Warrants") to purchase
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shares of Common Stock of the Company, par value $.01 per share (the "Common
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Stock"), pursuant to various Series A Preferred Subscription Agreements, each
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dated as of May 13, 1999, between the Company and one of the Series A Investors
(together, the "Series A Subscription Agreements"); and
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WHEREAS, it is a condition to the Series A Investors' execution of the
Series A Subscription Agreements that the Company grant the registration rights
set forth herein.
NOW, THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby agree as follows:
1. Definitions. For the purposes of this Agreement:
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(a) The term "Affiliate" means, with respect to any person or entity, any other
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person or entity directly or indirectly controlling, controlled by or under
common control with the first such person or entity.
(b) The term "Closing Date" means the date of the Closing, as such term is
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defined in the Series A Subscription Agreement.
(c) The term "current market value" means the average closing sale price per
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share of Common Stock on the Nasdaq National Market (or such other market upon
which the Common Stock is listed) over the 10 trading days prior to the date of
determination.
(d) The term "Holder" means a holder of Registrable Securities or, unless the
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context otherwise requires, securities convertible into or exercisable for
Registrable Securities.
(e) The term "Qualifying Public Offering" shall have the meaning assigned to it
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in the Company's Amended and Restated Certificate of Incorporation.
(f) The terms "register," "registered" and "registration" refer to a
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registration effected by preparing and filing a registration statement in
compliance with the Securities Act of 1933, as amended (the "Act"), and the
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declaration or ordering of effectiveness of such registration statement.
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(g) The term "Lock-Up Termination Date" means that date that is 180 days
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following the date upon which the registration statement relating to the
Company's initial public offering is declared effective.
(h) The term "Registrable Securities" means the shares of Common Stock issuable
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or issued conversion of the Series A Preferred and upon exercise of the
Warrants by an Holder (collectively, the "Securities") as the same may exist,
from time to time; provided, however, that such Securities shall cease to be
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Registrable Securities when and to the extent that (i) such Securities have been
sold pursuant to an effective registration statement under the Act, (ii) such
Securities have become eligible for resale pursuant to Rule 144(k) of the Act
(or any similar provision then in force) or another provision of Rule 144 of the
Act pursuant to which all of such Series A Investor's Securities are immediately
eligible for resale or (iii) such Securities have ceased to be outstanding.
(i) The term "Stockholders Agreement" means that Stockholders Agreement entered
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into as of May 13, 1999, by and among IDT Corporation, a Delaware corporation
("IDT"), Clifford M. Sobel and the Series A Investors.
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2. Registration Rights.
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2.1. (a) Registration Upon Demand. (i) At any time on or after the earlier
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to occur of (x) the second anniversary of the Closing Date or (y) the Lock-up
Termination Date, one or more Holders that in the aggregate beneficially own at
least 50% of the Registrable Securities issued or issuable upon the conversion
of Series A Preferred or exercise of Warrants may make a demand that the Company
effect the registration of all or part of such Holders' Registrable Securities
(a "Demand Registration"). Upon receipt of a valid request for a Demand
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Registration, the Company shall promptly, and in any event no later than 15 days
after such receipt, notify all other Holders of the making of such demand and
shall use its best efforts to register under the Act as expeditiously as may be
practicable the Registrable Securities that Holders have requested the Company
to register in accordance with this Section 2.1. Notwithstanding the foregoing,
the Company shall not be required to effect any registration if the Registrable
Securities that the Company shall have been requested to register shall, in the
aggregate, have a current market value of less than $5,000,000. The Holders
shall have the right to one Demand Registration pursuant to this Section
2.1(a)(i). Notwithstanding Section 2.1(a)(ii), if any registration demand is
made by Holders beneficially owning 50% or more of the Registrable Securities,
and no Demand Registration has been made prior to such time, then such
registration demand shall be treated for purposes of this Agreement as a Demand
Registration, regardless of the registration form used (including Form S-3).
(ii) Notwithstanding Section 2.1(a)(i) hereof, and in addition to the rights
granted under Section 2.1(a)(i) hereof, at any time after the Company becomes
eligible to register its securities on Form S-3 (or any successor form), one or
more holders that in the aggregate beneficially own at least 20% of the
Registrable Securities may make a demand that the Company effect the
registration of all or part of such Holders' Registrable Securities (an "S-3
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Demand Registration"). Upon receipt of a valid request for an S-3 Demand
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Registration, the Company
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shall promptly, in and any event no later than 15 days after such receipt,
notify all other Holders of the making of such demand and shall use its best
efforts to register under the Act as expeditiously as may be practicable the
Registrable Securities which Holders have requested the Company to register in
accordance with this Section 2.1. Notwithstanding the foregoing, the Company
shall not be required to effect any registration if the Registrable Securities
that the Company shall have been requested to register shall, in the aggregate,
have a current market value of less than $1,000,000. The Holders shall have the
right to two S-3 Demand Registrations pursuant to this Section 2.1(a)(ii).
(b) Effective Registration Statement. A registration requested pursuant to
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Section 2.1(a) hereof shall not be deemed to have been effected (i) if a
registration statement with respect thereto has not been declared effective by
the Securities and Exchange Commission ("SEC"), (ii) if after it has become
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effective, such registration is materially interfered with by any stop order,
injunction or similar order or requirement of the SEC or other governmental
agency or court for any reason not attributable to any of the Holders and has
not thereafter become effective, or (iii) the conditions to closing specified in
the underwriting agreement, if any, entered into in connection with such
registration are not satisfied or waived, other than by reason of a failure on
the part of a Holder.
2.2. "Piggy-Back" Registration. (a) If the Company proposes to register any
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securities under the Act in connection with any offering of its securities
(other than a registration statement on Form S-8 or Form S-4, or their
successors, or any other form for a similar limited purpose, or any registration
statement covering only securities proposed to be issued in exchange for
securities or assets of another corporation), whether or not for its own
account, the Company shall furnish promptly, and in any event not less than 15
days in advance, written notice to the Holders of its intention to effect such
registration and the intended method of distribution in connection therewith.
Upon the written request of a Holder made to the Company within 15 days after
the receipt of such notice by the Company, the Company shall include in such
registration the requested number of the Holder's Registrable Securities (a
"Piggy-Back Registration"). If a Holder decides not to include all of its
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Registrable Securities in any registration statement thereafter filed by the
Company, the Holder shall nevertheless continue to have the right to include any
Registrable Securities in any subsequent registration statement or registration
statements as may be filed by the Company with respect to offerings of its
Common Stock and any other securities, all upon the terms and conditions set
forth herein.
(b) Nothing in this Section 2.2 shall create any liability on the part of the
Company or any other person to the Holders if the Company, for any reason,
decides not to file a registration statement proposed to be filed pursuant to
Section 2.2(a) or to withdraw such registration statement subsequent to its
filing (except for the Company's obligation to pay the expenses in connection
therewith as provided in Section 2.6), regardless of any action whatsoever that
a Holder may have taken, whether as a result of the issuance by the Company of
any notice under Section 2.2(a) or otherwise.
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(c) Notwithstanding anything to the contrary contained herein, the registration
rights set forth in this Section 2.2 shall not apply to the registration
statement on Form S-1 filed by the Company in connection with the Qualifying
Public Offering.
2.3. Blackout Periods for Holders. If the board of directors of the Company
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determines in good faith that the registration and distribution of Registrable
Securities (or the use of a registration statement or related prospectus) would
be materially detrimental to the Company or its shareholders and therefore the
board of directors determines that it is in the Company's best interest to defer
the filing, and promptly gives the Holders written notice of such determination
in the form of a certificate signed by an executive officer of the Company
following their request to register any Registrable Securities pursuant to
Section 2.1, the Company shall be entitled to postpone the filing of the
registration statement otherwise required to be prepared and filed by the
Company pursuant to Section 2.1 hereof for a reasonable period of time, but not
to exceed 90 days (a "Demand Blackout Period") after the date of such request.
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The Company shall promptly notify each holder of the expiration or earlier
termination of any Demand Blackout Period.
2.4. Obligations of the Company. Whenever the Company is required to effect
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the registration of any Registrable Securities under this Section 2, the Company
shall, at its expense and as expeditiously as may be practicable:
(a) Prepare and file with the SEC a registration statement with respect to such
Registrable Securities and use its best efforts to cause such registration
statement to become effective and, upon the request of the Holders of a majority
of the Registrable Securities registered thereunder, use reasonable efforts to
keep such registration statement effective for ninety (90) days.
(b) Prepare and file with the SEC such amendments and supplements to such
registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of
applicable law with respect to the disposition of all of the Registrable
Securities covered by such registration statement.
(c) Furnish to the Holders of Registrable Securities registering such
securities such numbers of copies of a prospectus, including a preliminary
prospectus (in the event of an underwritten offering), in conformity with the
requirements of applicable law, and such other documents as each such Holder may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by it.
(d) Use best efforts to register and qualify the securities covered by such
registration statement under state blue sky laws in any U.S. jurisdictions in
which such registration and qualification is reasonably requested by any Holder;
provided, that the Company shall not be required in connection therewith or as a
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condition thereto to qualify to do business or to file a general consent to
service of process in any such jurisdictions.
(e) In the event of any underwritten public offering, enter into and perform
its obligations under an underwriting agreement, in usual and customary form and
substance as agreed to by the Company and the managing underwriter of such
offering.
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(f) Promptly notify the Holders in writing: (i) when the registration
statement, the prospectus or any prospectus supplement related thereto or post-
effective amendment to the registration statement has been filed, and, with
respect to the registration statement or any post-effective amendment thereto,
when the same has become effective; (ii) of any request by the SEC for
amendments or supplements to the registration statement or related prospectus or
any written request by the SEC for additional information; (iii) of the issuance
by the SEC of any stop order suspending the effectiveness of the registration
statement or prospectus or any amendment or supplement thereto or the initiation
of any proceedings by any person for that purpose, and promptly use its best
efforts to prevent the issuance of any stop order or to obtain its withdrawal if
such stop order should be issued; and (iv) of the receipt by the Company of any
written notification with respect to the suspension of the qualification of any
Registrable Securities for sale in any jurisdiction or the initiation or overt
threat of any proceeding for such purpose.
(g) Notify the Holders in writing on a timely basis, at any time when a
prospectus relating to such Registrable Securities is required to be delivered
under applicable law, of the happening of any event as a result of which the
prospectus included in such registration statement, as then in effect, includes
an untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing and at the request of
any such Holder promptly prepare and furnish to such Holder a reasonable number
of copies of a supplement to or an amendment of such prospectus as may be
necessary so that, as thereafter delivered to the offerees of such securities,
such prospectus shall not include an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing.
(h) Furnish, at the request of any Holder participating in the registration, on
the date that such Registrable Securities are delivered to the underwriters for
sale, if such securities are being sold through underwriters, or, if such
securities are not being sold through underwriters, on the date that the
registration statement with respect to such securities becomes effective, (i) an
opinion, dated as of such date, of the counsel representing the Company for the
purposes of such registration, in form and substance as if customarily given to
underwriters in an underwritten public offering and reasonably satisfactory to a
majority in interest of the Holders participating in the registration, addressed
to the underwriters, if any, and to the Holders participating in the
registration of Registrable Securities and (ii) a "Cold Comfort" letter dated as
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of such date, from the independent certified public accountants to the
underwriters in an underwritten public offering and reasonably satisfactory to a
majority in interest of the Holders participating in the registration, addressed
to the underwriters, if any, and if permitted by applicable accounting
standards, to the Holders participating in the registration of Registrable
Securities.
(i) Use best efforts to cause the transfer agent to remove restrictive legends
on certificates representing the securities covered by such registration
statement, as the Company determines to be appropriate, upon advice of counsel.
(j) Use best efforts to list such Registrable Securities on any national
securities exchange on which any shares of the Common Stock are listed or, if
the Common Stock is not listed on a
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national securities exchange, use its best efforts to qualify such Registrable
Securities for inclusion on the automated quotation system of the National
Association of Securities Dealers, Inc. ("NASD").
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(k) Prepare and file with the SEC, promptly upon the request of any such
Holders, any amendments or supplements to such registration statement or
prospectus which, in the opinion of counsel for such Holders, is required under
the Act or the rules and regulations thereunder in connection with the
distribution of the Registrable Securities by such Holders.
(l) Make available for inspection by any Holder of such Registrable Securities,
any underwriter participating in any disposition pursuant to such registration
statement and any attorney, accountant or other agent retained by any such
seller or underwriter (collectively, the "Inspectors"), all pertinent financial
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and other records, pertinent corporate documents and properties of the Company
(collectively, the "Records"), as shall be reasonably necessary to enable them
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to exercise their due diligence responsibility, and cause the Company's
officers, directors and employees to supply all information (together with the
Records, the "Information") reasonably requested by any such Inspector in
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connection with such registration statement. Any of the Information that the
Company determines in good faith to be confidential, and of which determination
the Inspectors are so notified, shall not be disclosed by the Inspectors unless
(i) the release of such Information is ordered pursuant to a subpoena or other
order from a court of competent jurisdiction or (ii) such Information has been
made generally available to the public or (iii) as necessary to enforce a
Holder's rights under this Agreement. The Holder of Registrable Securities,
agrees that it will, upon learning that disclosure of such Information is sought
in a court of competent jurisdiction, give notice to the Company and allow the
Company, at the Company's expense, to undertake appropriate action to prevent
disclosure of the Information deemed confidential and the Inspectors shall not
disclose such Information until such action is determined.
(m) Provide a transfer agent and registrar (which may be the same entity and
which may be the Company) for such Registrable Securities.
(n) Use its best efforts to take all other steps necessary to effect the
registration of such Registrable Securities pursuant to the terms contemplated
hereby.
2.5. Furnish Information.
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(a) It shall be a condition precedent to the obligation of the Company to
include any Registrable Securities of any Holder in a registration statement
pursuant to this Section 2 that the Holder shall furnish to the Company such
information regarding itself, the Registrable Securities held by it, any other
securities of the Company held by it, and the intended method of disposition of
such Registrable Securities as shall be required to effect the registration of
the Registrable Securities held by such Holder. Any such information shall be
provided to the Company within any reasonable time period requested by the
Company.
(b) Each Holder shall notify the Company, at any time when a prospectus is
required to be delivered under applicable law, of the happening of any event as
a result of which the prospectus
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included in the applicable registration statement, as then in effect, in each
case only with respect to information provided by such Holder, includes an
untrue statement of a material fact or omits to state a material fact required
to be stated therein or necessary to make the statements therein not misleading
in light of the circumstances then existing. Such Holder shall immediately upon
the happening of any such event cease using such prospectus. Any other Holders
shall cease using such prospectus immediately upon receipt of notice from the
Company to that effect. If so requested by the Company, each Holder shall
promptly return to the Company any copies of any prospectus in its possession
(other than one permanent file copy) that contains an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances then existing.
2.6. Expenses of Registration. The Company shall bear and pay all reasonable
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expenses incurred in connection with any registration, filing or qualification
of Registrable Securities pursuant to Section 2.1 or Section 2.2 including
(without limitation) all registration, filing and qualification fees, printers'
and accounting fees, but excluding underwriting discounts and commissions
relating to the Registrable Securities. The Company also shall be required to
pay and bear the legal fees of one counsel for the Holders in an amount not to
exceed $25,000 in connection with any registration.
2.7. Underwriting Requirements. In connection with any underwritten offering
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of a Holder's Registrable Securities, the Company shall not be required under
Section 2.4 to register any of such Registrable Securities in connection with
such underwritten offering unless the Holder accepts the underwriters selected
by the Company and then only in such quantity as the lead managing underwriter
determines, in its good faith discretion, will not jeopardize the success of the
offering by the Company. To the extent that the lead managing underwriter will
not permit the registration of all of the Registrable Securities sought to be
registered, in the case of a registration pursuant to Section 2.1 or 2.2, the
Registrable Securities to be included shall be apportioned among the Holders on
a pro rata basis (based on the number of shares of Common Stock proposed to be
registered by each), first among the Holders of Registrable Securities to be
registered pursuant to Section 2.1, and thereafter among the Holders of
Registrable Securities to be registered pursuant to Section 2.2; provided,
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however, that the right of the underwriters to exclude Registrable Securities
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from the registration and underwriting as described above shall be restricted
such that all shares that are not Registrable Securities and all shares that are
held by persons who are employees or directors of the Company (or any subsidiary
of the Company) shall first be excluded from such registration and underwriting
before any Registrable Securities are so excluded. Notwithstanding the
foregoing, the Holders' Registrable Securities shall in no event be reduced to
less than one-third of the total number of shares of Common Stock to be
registered in connection with a Piggyback Registration. Those Registrable
Securities and other securities that are excluded from the underwriting by
reason of the managing underwriter's marketing limitation and all other
Registrable Securities not originally requested to be so included shall not be
included in such registration and shall be withheld from the market by the
Holders thereof for a period, not to exceed 90 days, which the managing
underwriter reasonably determines necessary to effect the underwritten public
offering. No Holder of Registrable Securities shall be entitled to participate
in an underwritten offering unless such Holder enters
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into, and performs its obligations under, one or more underwriting agreements
and any related agreements and documents (including an escrow agreement and/or a
power of attorney with respect to the disposition of the Registrable
Securities), in the form that such Holder shall agree to with the lead managing
underwriter of the transaction. If any Holder disapproves of the terms of any
underwriting, it may elect, prior to the execution of any underwriting
agreement, to withdraw therefrom by written notice to the Company and the lead
managing underwriter. Any Registrable Securities so withdrawn from an
underwriting by such Holder shall be withdrawn from such registration and shall
not be transferred in a public distribution prior to 180 days following the
effective date of the registration statement relating thereto.
2.8. Delay of Registration. No Holder shall have any right to obtain or seek
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an injunction restraining or otherwise delaying any registration as the result
of any controversy that might arise with respect to the interpretation or
implementation of this Section 2.
2.9. Indemnification. In the event any Registrable Securities are included in
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a registration statement under this Section 2:
(a) To the extent permitted by law, the Company will indemnify and hold
harmless each Holder and each person, if any, who controls such Holder within
the meaning of the Act and the Securities Exchange Act of 1934, as amended (the
"1934 Act"), and their respective directors, officers, partners, employees,
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legal counsel and affiliates (each, an "Indemnified Person"), against any
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losses, claims, damages, or liabilities joint or several) to which they may
become subject insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon (collectively, a
"Violation") (i) any untrue statement or alleged untrue statement of a material
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fact contained in such registration statement, including any final prospectus
contained therein or any amendments or supplements thereto or (ii) the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading; or (iii) any
violation by the Company of the Act, the 1934 Act, any state securities law or
any rule or regulation promulgated under the Act, the 1934 Act or any state
securities law in connection with the offering covered by any registration
statement; and the Company will pay to each Indemnified Person any reasonable
legal or other expenses incurred by it in connection with investigating or
defending any such loss, claim, damage, liability or action; provided that the
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indemnity agreement contained in this Section 2.9(a) shall not apply to amounts
paid in settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Company (which consent shall
not be unreasonably withheld), nor shall the Company be liable in any such case
for any such loss, claim, damage, liability or action to the extent that it
arises out of or is based upon a Violation which occurs in reliance upon and in
strict conformity with written information furnished by a Holder expressly for
use in connection with such registration or is caused by any failure by the
Holder to deliver a prospectus or preliminary prospectus (or amendment or
supplement thereto) as and when required under the Act after such prospectus has
been timely furnished by the Company.
(b) To the extent permitted by law, each Holder will indemnify and hold
harmless the Company, each of its directors, each of its officers who has
signed the registration statement, and
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each person, if any, who controls the Company within the meaning of the Act or
the 1934 Act (each, an "Indemnified Person"), against any losses, claims,
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damages or liabilities (joint or several) to which any of the foregoing persons
may become subject, insofar as such losses, claims, damages or liabilities (or
actions in respect thereto) arise out of or are based upon any Violation, in
each case to the extent (and only to the extent) that such Violation is caused
by (x) any untrue statement or alleged untrue statement contained in, or by any
omission or alleged omission from, information furnished in writing to the
Company by the Holder specifically and expressly for use in any such
registration statement or prospectus but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission was so
made in reliance upon and in strict conformity with written information
furnished by such Holder specifically for use in the preparation thereof or (y)
any failure by the Holder to deliver a prospectus or preliminary prospectus (or
amendment or supplement thereto) as and when required under the Securities Act
after such prospectus has been timely filed by the Company. Such Holder will pay
any reasonable legal or other expenses incurred by any Indemnified Person
pursuant to this Section 2.9(b) in connection with investigating or defending
any such loss, claim, damage, liability or action; provided that the indemnity
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agreement contained in this Section 2.9(b) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Holder, which consent shall
not be unreasonably withheld; provided, further, that in no event shall any
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indemnity under this Section 2.9(b) exceed the net proceeds from the offering
received by such Holder upon its sale of Registrable Securities included in the
registration statement.
(c) Promptly after receipt by an Indemnified Person under this Section 2.9 of
notice of the commencement of any action (including any governmental action),
such Indemnified Person will, if a claim in respect thereof is to be made
against any indemnifying party under this Section 2.9, deliver to the
indemnifying party a written notice of the commencement thereof, and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the indemnifying parties; provided that an Indemnified Person
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(together with all other indemnified parties that may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
with the reasonable fees and expenses to be paid by the indemnifying party, if
representation of such Indemnified Person by the counsel retained by the
indemnifying party would be inappropriate (in the opinion of the Indemnified
Person) due to actual or potential differing interests between such Indemnified
Person and any other party represented by such counsel in such proceeding. The
failure to deliver written notice to the indemnifying party within a reasonable
time of the commencement of any such action, if materially prejudicial to its
ability to defend such action, shall relieve such indemnifying party of any
liability to the Indemnified Person under this Section 2.9, but the omission so
to deliver written notice to the indemnifying party will not relieve it of any
liability that it may have to any Indemnified Person otherwise than under this
Section 2.9; provided, that in no event shall any indemnity under this Section
2.9(b) exceed the net proceeds from the offering received by such Holder upon
its sale of Registrable Securities included in the registration statement.
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(d) If the indemnification provided for in this Section 2.9 is held by a court
of competent jurisdiction to be unavailable to an indemnified party with respect
to any losses, claims, damages or liabilities referred to herein, the
indemnifying party, in lieu of indemnifying such Indemnified Person thereunder,
agrees to contribute to the amount paid or payable by such Indemnified Person as
a result of such loss, claim, damage or liability in such proportion as is
appropriate to reflect the relative fault of the indemnifying party on the one
hand and of the Indemnified Person on the other in connection with the
Violation(s) that resulted in such loss, claim, damage or liability, as well as
any other relevant equitable considerations. The relative fault of the
indemnifying party and of the Indemnified Person shall be determined by a court
of law by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission to state a material fact relates to
information supplied by the indemnifying party or by the Indemnified Person and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission.
No person found guilty of fraudulent misrepresentation (within the
meaning of the Section 11(f) of the Act) shall be entitled to contribution
hereunder from any person who was not guilty of such fraudulent
misrepresentation.
(e) The obligations of the Company and the Holders under this Section 2.9 shall
survive the completion of any offering of Registrable Securities under a
registration statement pursuant to this Section 2.
2.10. Assignment of Registration Rights. The rights to cause the Company to
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register Registrable Securities pursuant to this Section 2 may be assigned by a
Holder to a permitted transferee or assignee of Registrable Securities which (a)
is a subsidiary, parent, general partner, limited partner, retired partner,
affiliate, beneficial owner, member or retired member of a Holder, or (b) is a
Holder's family member or trust for the benefit of an individual Holder;
provided, however, (i) the transferor shall, within ten (10) days after such
transfer, furnish to the Company written notice of the name and address of such
transferee or assignee and the securities with respect to which such
registration rights are being assigned and (ii) such transferee shall agree to
be subject to all restrictions set forth in this Agreement.
2.11. Limitation on Subsequent Registration Rights. After the date of this
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Agreement, the Company shall not, without the prior written consent of Holders
owning in the aggregate sixty-six and two-thirds percent (66-2/3%) of the
Registrable Securities then outstanding, enter into any agreement with any
holder or prospective holder of any securities of the Company that would grant
such holder registration rights senior to those granted to the Holders
hereunder.
2.12. Rule 144 Reporting: With a view to making available to the Holders the
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benefits of certain rules and regulations of the SEC that permit the sale of the
Registrable Securities to the public without registration, the Company agrees to
use its best efforts to:
(a) Make and keep public information available, as those terms are understood
and defined in SEC Rule 144 or any similar or analogous rule promulgated under
the Act, at all times after the effective date of the first registration filed
by the Company for an offering of its securities to the general public;
10
<PAGE>
(b) File with the SEC, in a timely manner, all reports and other documents
required of the Company under the 1934 Act; and
(c) So long as a Holder owns any Registrable Securities, furnish such Holder
forthwith upon request: a written statement by the Company as to its compliance
with the reporting requirements of said Rule 144 of the Act, and of the 1934 Act
(at any time after it has become subject to such reporting requirements); a copy
of the most recent annual or quarterly report of the Company; and such other
reports and documents as a Holder may reasonably request in availing itself of
any rule or regulation of the SEC allowing it to sell any such securities
without registration.
3. Miscellaneous.
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3.1. Successors and Assigns. The provisions of this Agreement shall inure to
----------------------
the benefit of and be binding upon the respective successors and permitted
assigns of the parties hereto, except that the Company may not assign any of its
obligations hereunder without the consent of Holders owning in the aggregate 66-
2/3% of the outstanding Registrable Securities. Nothing in this Agreement,
express or implied, is intended to confer upon any party, other than the parties
hereto or their respective successors and permitted assigns, any rights,
remedies, obligations or liabilities under or by reason of this Agreement.
Nothing contained herein shall be construed as permitting any transfer of any
securities of the Company in violation of any applicable law or agreement.
3.2. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of New York without giving effect to the
conflict of laws provisions thereof. Each of the Series A Investors and the
Company hereby submits to the nonexclusive jurisdiction of the United States
District Court for the Southern District of New York and of any New York State
court sitting in New York City for purposes of all legal proceedings arising out
of or relating to this Agreement and the transactions contemplated hereby. Each
of the Series A Investors and the Company irrevocably waives, to the fullest
extent permitted by law, any objection which it may now or hereafter have to the
laying of the venue of any such proceeding brought in such a court and any claim
that any such proceeding brought in such a court has been brought in an
inconvenient forum.
3.3. Counterparts. This Agreement may be executed in counterparts, each of
------------
which shall be deemed an original, and all of which together shall constitute
one and the same instrument.
3.4. Captions and Headings. The captions and headings used in this Agreement
---------------------
are used for convenience only and are not to be considered in construing or
interpreting this Agreement.
3.5. Notices. Unless otherwise provided, any notice or other communication
-------
required or permitted to be given or effected under this Agreement shall be in
writing and shall be deemed effective upon (i) personal or facsimile delivery to
the party to be notified, (ii) one business day after deposit with an
internationally recognized courier service, delivery fees prepaid, or (iii)
three business days after deposit with the U.S. mail, return-receipt requested,
postage prepaid, and in each case, addressed to the party to be notified at the
following respective
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<PAGE>
addresses, or at such other addresses as may be designated by written notice;
provided that any notice of change of address shall be deemed effective only
--------
upon receipt.
If to the Company: Net2Phone, Inc.
171 Main Street
Hackensack, NJ 07601
Attn: Ilan Slasky
Fax: 201-907-5351
with a copy to: IDT Corporation
190 Main Street
Hackensack, NJ 07601
Attn: Chief Financial Officer
Fax: 201-928-2952
and a copy to: Morrison & Foerster LLP
1290 Avenue of the Americas
New York, NY 10104
Attn: Ira Greenstein
Fax: (212) 468-7900
If to the Series A Investors: Notice shall be sent to the person
and address indicated on signature
page hereof.
with a copy to: Cooley Godward LLP
Five Palo Alto Square
3000 El Camino Road
Palo Alto, CA 94306-2155
Attn: Eric Jensen
Fax: 650-857-0663
and a copy to: Paul, Hastings, Janofsky & Walker, LLP
555 South Flower Street, 23rd Floor
Los Angeles, CA 90071
Attn: Siobhan McBreen Burke
Fax: 213-627-0705
and a copy to: NBC Multimedia, Inc.
c/o National Broadcasting Company
30 Rockefeller Plaza
New York, New York 10012
Attn: Vice President, Law, Corporate
Transactions Group
Fax: (212) 977-7165
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3.6. Amendments and Waivers. The provisions of this Agreement, including the
----------------------
provisions of this sentence, may not be amended, modified or supplemented, and
waivers or consents to departures from the provisions hereof may not be given,
unless the Company has obtained written consent of Holders owning in the
aggregate 66-2/3% of the outstanding Registrable Securities affected by such
amendment, modification, supplement, waiver or departure; provided, however,
-------- -------
that no amendment, modification, supplement, waiver or consent to the departure
with respect to the provisions of Section 2 hereof shall be effective as against
any person unless consented to in writing by such person.
3.7. Severability. If one or more provisions of this Agreement are held to be
------------
unenforceable under applicable law, such provisions shall be excluded from this
Agreement and the balance of this Agreement shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.
3.8. Entire Agreement. This Agreement (including the Schedule attached hereto)
----------------
contains the entire understanding of the parties hereto with respect to the
subject matter contained herein, and supersedes and cancels all prior
agreements, negotiations, correspondence, undertakings and communications of the
parties, oral or written, respecting such subject matter. There are no
restrictions, promises, representations, warranties, agreements or undertakings
of any party hereto with respect to the matters contemplated hereby, other than
those set forth herein or made hereunder.
3.9. Waiver of Jury Trial. EACH PARTY HERETO HEREBY WAIVES ITS RIGHTS TO A
--------------------
JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS
AGREEMENT, THE SERIES A PREFERRED, THE WARRANTS OR THE SUBJECT MATTER HEREOF.
THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL-ENCOMPASSING OF ANY AND ALL
DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATTER OF
THIS TRANSACTION, INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS,
BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS. THIS
SECTION 3.9 HAS BEEN FULLY DISCUSSED BY EACH OF THE PARTIES HERETO AND THESE
PROVISIONS SHALL NOT BE SUBJECT TO ANY EXCEPTIONS. EACH PARTY HERETO HEREBY
FURTHER WARRANTS AND REPRESENTS THAT SUCH PARTY HAS REVIEWED THIS WAIVER WITH
ITS LEGAL COUNSEL, AND THAT SUCH PARTY KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY
TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. THIS WAIVER IS
IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING,
AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, SUPPLEMENTS OR
MODIFICATIONS TO (OR ASSIGNMENTS OF) THIS AGREEMENT. IN THE EVENT OF
LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL (WITHOUT
A JURY) BY THE COURT.
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IN WITNESS WHEREOF, the Series A Investor has executed this Agreement
on the day and year first above written.
NET2PHONE, INC. SERIES A INVESTOR:
By: /s/ Howard Balter By:
___________________________ ___________________________________
Name: Howard Balter Name:
Title: Chief Executive Officer Title:
Name: _____________________________
Address:___________________________
Title:_____________________________
Telephone No.______________________
Fax No.____________________________
Date:______________________________
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
Subscription Shares of
Investor Amount Preferred A Warrants
-------- ------------- ----------- --------
<S> <C> <C> <C>
Softbank Technology Ventures IV, L.P. $14,718,000 1,471,800 29,436
Softbank Technology Advisors Fund L.P. $ 282,000 28,200 564
GE Capital Equity Investments, Inc. $ 7,500,000 750,000 15,000
American Online, Inc. $ 7,500,000 750,000 15,000
Hambrecht & Quist Individuals
Timothy Baughman $ 20,000 2,000 0
Daniel Rimer $ 20,000 2,000 0
David Golden $ 15,000 1,500 0
Mark Zanoli $ 15,000 1,500 0
Daniel H. Case III $ 10,000 1,000 0
Norman Colbert $ 5,000 500 0
Hambrecht & Quist Entities
Hambrecht & Quist California $ 78,750 7,875 0
Hambrecht & Quist Employee $ 37,500 3,750 0
Venture Fund, L.P. II
Access Technology Partners, L.P. $ 790,000 79,000 0
Access Technology Partners Brokers $ 8,750 875 0
Fund, L.P.
ABS Employee's Venture Fund Limited $ 400,000 40,000 0
Partnership
</TABLE>