Exhibit 10.2

 
 
 
 

 
INVESTOR RIGHTS AGREEMENT
 
by and among
 
DELTATHREE, INC.,
 
and
 
D4 HOLDINGS, LLC
 
February 12, 2009
 

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Table of Contents
 
TABLE OF CONTENTS

1.
DEFINITIONS
1
2.
REGISTRATION
2
3.
“PIGGYBACK REGISTRATION”
3
4.
OBLIGATIONS OF THE COMPANY
3
5.
REGISTRATION EXPENSES
5
6.
DELAY OF REGISTRATION AND PAYMENTS
5
7.
INDEMNIFICATION
6
8.
REPORTS UNDER THE EXCHANGE ACT
7
9.
TRANSFER OF REGISTRATION RIGHTS
7
10.
ENTIRE AGREEMENT
7
11.
MISCELLANEOUS
 

 

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  DELTATHREE, INC.
 
INVESTOR RIGHTS AGREEMENT
 
This INVESTOR RIGHTS AGREEMENT (this “Agreement”) is made as of February 12,
2009 by and among (i) deltathree, Inc., a Delaware corporation (the “Company”)
and (ii) D4 Holdings, LLC, a Delaware limited liability company (the “Holder”).
 
WHEREAS, the Company has agreed to issue and sell to the Holder, and the Holder
has agreed to purchase from the Company, (i) an aggregate of 39,000,000 shares
(the “Shares”) of the authorized but unissued shares of Class A common stock,
$0.001 par value per share, of the Company (including any securities into which
or for which such shares may be exchanged for, or converted into, pursuant to
any stock dividend, stock split, stock combination, recapitalization,
reclassification, reorganization or other similar event, the “Common Stock”) and
(ii) the Warrant (as defined below), in each case all upon the terms and subject
to the conditions set forth in that certain Securities Purchase Agreement, dated
as of February 10, 2009, between the Company and the Holder (the “Purchase
Agreement”); and
 
WHEREAS, the terms of the Purchase Agreement provide that it shall be a
condition precedent to the closing of the transactions thereunder, for the
Company and the Holder to enter into, execute and deliver this Agreement.
 
NOW, THEREFORE, in consideration of the premises and mutual covenants contained
herein, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto hereby agree as follows:
 
1. DEFINITIONS.  The following terms shall have the meanings provided therefor
below or elsewhere in this Agreement as described below:
 
“Affiliate” means any Person that, directly or indirectly, through one or more
intermediaries, controls, is controlled by, or is under common control with, a
Person, as such terms are used and construed under Rule 144 (as defined below).
 
“Board” means the board of directors of the Company.
 
“Business Day” means any day except Saturday, Sunday and any day which shall be
a federal legal holiday or a day on which banking institutions in the State of
Delaware are authorized or required by law or other governmental action to
close.
 
“Closing Date” means the date of the closing of the transactions contemplated by
the Purchase Agreement.
 
“Exchange Act” means the Securities Exchange Act of 1934, as amended, and all of
the rules and regulations promulgated thereunder.
 
 “Person” (whether or not capitalized) means an individual, entity, partnership,
limited liability company, corporation, association, trust, joint venture,
unincorporated organization or any other form of entity not specifically listed
herein, and any government, governmental department or agency or political
subdivision thereof.
 
“Prospectus” means the prospectus included in any Registration Statement
(including, without limitation, a prospectus that includes any information
previously omitted from a prospectus filed as part of an effective Registration
Statement in reliance upon Rule 430A promulgated under the Securities Act), as
amended or supplemented by any prospectus supplement, with respect to the terms
of the offering of any portion of the Registrable Securities covered by such
Registration Statement, and all other amendments and supplements to the
Prospectus, including post-effective amendments, and all material incorporated
by reference in such Prospectus.
 
“Registrable Securities” means, at the relevant time of reference thereto, any
shares of Common Stock or any shares of Common Stock underlying any warrant,
right or other security held by the Holder now or at any time in the future
(including in each case any shares of capital stock that may be issued in
respect thereof pursuant to a stock split, stock dividend, recombination,
reclassification, exchange, conversion or the like), provided, however, that the
term “Registrable Securities” shall not include any securities referred to above
that are actually sold pursuant to a registration statement that has been
declared effective under the Securities Act by the SEC.
 
“Registration Statement” means Demand Registration Statement and any additional
registration statements contemplated by this Agreement, including (in each case)
the Prospectus, amendments and supplements to such registration statement or
Prospectus, including pre- and post-effective amendments, all exhibits thereto,
and all material incorporated by reference in such registration statement or
Prospectus.
 
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“Rule 144” means Rule 144 promulgated under the Securities Act and any successor
or substitute rule, law or provision.
 
“SEC” means the Securities and Exchange Commission.
 
“Securities Act” means the Securities Act of 1933, as amended, and all of the
rules and regulations promulgated thereunder.
 
“Warrant” means that certain Warrant to purchase an aggregate of 30,000,000
shares of Common Stock issued by the Company to the Holder in connection with
the Purchase Agreement.
 
 “Warrant Shares” means shares of Common Stock issued or issuable upon the
exercise of the Warrant.
 
2. REGISTRATION.
 
(a) Demand Registration.  Notwithstanding anything to the contrary in this
Agreement, upon the written request of the Holder (the date of such request, the
“Demand Date”) the Company shall file with the SEC, as promptly as possible
after the Demand Date, and in any event no later than forty-five (45) days after
the Demand Date (in the event of a filing on Form S-1) or twenty (20) days after
the Demand Date (in the event of a filing on Form S-3) (such date, the
“Filing Date”), a registration statement on Form S-3 (or other available form,
including Form S-1) to register all or part of the Registrable Securities under
and in accordance with the Securities Act (the “Demand Registration Statement”),
so long as such Registrable Securities are not then subject to an effective
Registration Statement and eligible for resale without limitation
thereunder.  The Demand Registration Statement shall permit the Holder to offer
and sell, on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act or any similar rule that may be adopted by the SEC, any or all of
the Registrable Securities held by the Holder (subject to Section 2(b)
below).  Such Demand Registration Statement shall also cover, to the extent
allowable under the Securities Act and the rules promulgated thereunder
(including Rule 416), such indeterminate number of additional shares of Common
Stock resulting from stock splits, stock dividends or similar transactions with
respect to the Registrable Securities.  Such Registration Statement shall not
include any shares of Common Stock or other securities for the account of any
other holder without the prior written consent of the Holder, which consent
shall not be unreasonably withheld.  The Company agrees to use its reasonable
best efforts to cause the Demand Registration Statement to be declared effective
as soon as possible but in no event later than (the “Demand Effective Date”)
forty-five (45) calendar days after the Filing Date (if there is no SEC review
of the Demand Registration Statement) or ninety (90) calendar days after the
Filing Date (if there is an SEC review of the Demand Registration Statement),
and to file with the SEC, within three (3) Business Days of the date that the
Company is notified (orally or in writing, whichever is earlier) by the SEC that
the Demand Registration Statement will not be “reviewed” or will not be subject
to further review, a request for acceleration of effectiveness in accordance
with Rule 461 promulgated under the Securities Act (an “Acceleration Request”),
which request shall request an effective date that is within three (3) Business
Days of the date of such request.  The Company shall notify the Holder in
writing promptly (and in any event within one (1) Business Day) after the
Company’s submission of an Acceleration Request to the SEC.  The Company shall
promptly prepare and file with the SEC (i) such amendments (including
post-effective amendments) and supplements to such Demand Registration Statement
or (ii) an additional Registration Statement in the event that the original
Demand Registration Statement does not cover all of the Registrable Securities
requested to be so registered.  The Company shall be required to keep the Demand
Registration Statement continuously effective (including through the filing of
any required post-effective amendments) until all of the Registrable Securities
covered by such Demand Registration Statement (y) cease to be Registrable
Securities or (z) are eligible for resale by the Holder under Rule 144 without
limitation.
 
(b) Excluded Registrable Securities.
 
(i) Notwithstanding anything to the contrary contained in this Agreement, if the
staff of the SEC (the “Staff”) or the SEC seeks to characterize any offering
pursuant to a Registration Statement filed pursuant to this Agreement as
constituting a primary offering of securities by or on behalf of the Company, or
in any other matter, such that the Staff or the SEC does not permit such
Registration Statement to become effective and used for resales in a continuous
at the market offering pursuant to Rule 415 under the Securities Act by the
Holder (or otherwise as may be acceptable to the Holder) without being named
therein as “underwriters” (a “Resale Registration Statement”), and the Company
has used its reasonable best efforts to contest such determination, then the
Company shall have the right to reduce the number of Registrable Securities to
be included in such Registration Statement by the Holder, to the extent that the
Staff or the SEC shall permit such Registration Statement to become effective as
a Resale Registration Statement.  In making such reduction, the Company shall
reduce the number of Registrable Securities to be included by selling
stockholders included in such Resale Registration Statement on a pro rata basis
(based upon the number of Registrable Securities otherwise required to be
included for the Holder), unless the inclusion of Registrable Securities by a
particular selling stockholder or a particular type of selling stockholder is
the cause of the refusal by the Staff or the SEC to allow such registration to
become effective as a Resale Registration Statement, in which event the
Registrable Securities held by such selling stockholder or type of selling
stockholder shall be the only Registrable Securities subject to reduction (and
if by a set of selling stockholders on a pro rata basis with respect to such
selling stockholders or on such other basis as would result in the exclusion of
the least number of shares by all such selling stockholders).  In addition, if
the Staff or the SEC requires the Holder to be identified as an “underwriter” in
order to permit such Registration Statement to become effective, and the Holder
does not consent to being so named as an underwriter in such Registration
Statement, then, in each such case, the Company shall be entitled to reduce the
total number of Registrable Securities to be registered on behalf of such
Holder, to such extent and until such time as the Staff or the SEC does not
require such identification.
 
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(ii) In the event of any reduction in Registrable Securities pursuant to this
Section 2(b), the Holder shall have the right, upon delivery of a written
request to the Company, to require the Company to file a Resale Registration
Statement under Rule 415 within thirty (30) days after its receipt of such
request (subject to (x) any restrictions imposed by Rule 415 or (y) comments by
the Staff or the SEC) for resale by the Holder in a manner reasonably acceptable
to the Holder, and the Company shall, following such request, use its reasonable
best efforts to cause such registration statement to be declared and kept
effective in the same manner as otherwise contemplated in this Agreement for
Registration Statements hereunder and under the same timing and procedural
guidelines set forth in Section 2(a) for a Demand Registration Statement.
 
(c) Holder Information.  It shall be a condition precedent to the obligations of
the Company to register Registrable Securities for the account of the Holder
pursuant to this Section 2 and Section 3 that such Holder furnish to the Company
such information regarding itself, the Registrable Securities held by it, and
the method of disposition of such securities as shall be required to effect the
registration of such Holder’s Registrable Securities.
 
(d) Registration Rights of Other Persons.  Except as disclosed in Section 3.3 of
the Purchase Agreement, the Company hereby represents and warrants to the Holder
that no Person other than the Holder has any registration rights in respect of
the securities of the Company.  The Company hereby agrees that it shall not,
without the prior written consent of the Holder, grant any registration rights
to any Person (other than the Holder) with terms that are in any way superior
to, or that would in any way limit, the rights granted to Holder in this
Agreement.
 
3. “PIGGYBACK REGISTRATION”.  
 
(a) If at any time any Registrable Securities are not able to be resold pursuant
to an effective Registration Statement, and the Company proposes to register any
of its securities under the Securities Act, whether as a result of an offering
for its own account or the account of others (but excluding any registrations to
be effected on Forms S-4 or S-8 or other applicable successor Forms), the
Company shall, each such time, give to the Holder twenty (20) days prior written
notice of its intent to do so, and such notice shall describe the proposed
registration and shall offer such Holder the opportunity to register such number
of Registrable Securities as such Holder may request.  Upon the written request
of the Holder given to the Company within fifteen (15) days after the receipt of
any such notice by the Company, the Company shall include in such Registration
Statement all or part of the Registrable Securities of such Holder, to the
extent requested to be registered.
 
(b) If a registration pursuant to this Section 3 involves an underwritten
offering and the managing underwriter shall advise the Company in writing that,
in its opinion, the amount of Registrable Securities requested by the Holder to
be included in such registration is likely to affect materially and adversely
the success of the offering or the price that would be received for any
Registrable Securities offered in such offering, then, notwithstanding anything
in this Section 3 to the contrary, the Company shall only be required to include
in such registration, to the extent of the amount of Registrable Securities
which the Company is so advised can be sold in such offering, (i) first, the
amount of securities requested to be included in such registration for the
account of any stockholders of the Company (including the Holder), pro rata
among such stockholders on the basis of the amount of securities that each of
them has requested to be included in such registration, and (ii) second, any
securities proposed to be included in such registration for the account of the
Company.
 
(c) In connection with any offering involving an underwriting of shares, the
Company shall not be required under this Section 3 or otherwise to include the
Registrable Securities of the Holder therein unless such Holder accepts and
agrees to the terms of the underwriting, which shall be reasonable and
customary, as agreed upon between the Company and the underwriters selected by
the Company.
 
4. OBLIGATIONS OF THE COMPANY.  In connection with the Company’s registration
obligations hereunder, the Company shall, as expeditiously as practicable:
 
(a) No less than five (5) Business Days prior to filing, as required hereunder,
the Registration Statement or Prospectus or any amendments or supplements
thereto (including any document that would be incorporated or deemed to have
been incorporated therein by reference (other than documents containing material
non-public information)) or any other registration statement contemplated by
this Agreement, the Company shall (i) furnish to the Holder and the Holder’s
counsel copies of all such documents to be filed with the SEC, which documents
shall be subject to the review of the Holder and the Holder’s counsel, (ii)
cause its officers and directors, counsel and certified public accountants to
respond to such inquiries as shall be necessary, in the reasonable opinion of
the Holder’s counsel, to conduct a reasonable investigation within the meaning
of the Securities Act, and (iii) notify the Holder and the Holder’s counsel of
any stop order issued or threatened by the SEC and use reasonable best efforts
to prevent the entry of such stop order or to remove it if entered.  The Company
shall not file any Registration Statement, Prospectus or any amendments or
supplements (other than periodic reports required under the Exchange Act)
thereto to which the Holder shall reasonably object to in writing prior to
filing; provided, however that the deadline set forth in Section 2 hereof by
which date any Demand Registration Statement are to be filed shall be tolled
during any period in which the Company and the Holder address matters raised by
the Holder in such written objection only if, and for so long as, the Holder
consents in writing to such tolling.
 
(b) (i) Prepare and file with the SEC such amendments and supplements, including
post-effective amendments, to each Registration Statement and the Prospectus
used in connection therewith as may be necessary to keep the Registration
Statement continuously effective as required herein, and prepare and file with
the SEC such additional Registration Statements as necessary to register for
resale under the Securities Act all of the Registrable Securities (including
naming any permitted transferees of Registrable Securities as selling
stockholders in such Registration Statement); (ii) cause any related Prospectus
to be amended or supplemented by any required Prospectus supplement, and as so
supplemented or amended to be filed pursuant to Rule 424; (iii) respond as
promptly as possible to any comments received from the SEC with respect to each
Registration Statement or any amendment thereto and as promptly as possible
provide the Holder true and complete copies of all correspondence from and to
the SEC relating to the Registration Statement (which the Holder shall treat as
confidential to the extent not publicly available); and (iv) comply with the
provisions of the Securities Act and the Exchange Act with respect to the
disposition of all Registrable Securities covered by such Registration Statement
as so amended or in such Prospectus as so supplemented.
 
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(c) Notify the Holder in accordance with Section 11(c) as promptly as possible
(i) when the SEC notifies the Company whether there will be a “review” of a
Registration Statement and whenever the SEC comments in writing on such
Registration Statement; and (ii) when a Registration Statement, or any
post-effective amendment or supplement thereto, has become effective, and after
the effectiveness thereof: (A) of any request by the SEC or any other federal or
state governmental authority for amendments or supplements to the Registration
Statement or Prospectus or for additional information; (B) of the issuance by
the SEC or any state securities commission of any stop order suspending the
effectiveness of the Registration Statement covering any or all of the
Registrable Securities or the initiation of any proceedings for that purpose;
and (C) of the receipt by the Company of any notification with respect to the
suspension of the qualification or exemption from qualification of any of the
Registrable Securities for sale in any jurisdiction, or the initiation or
threatening of any proceeding for such purpose.  Without limitation of any
remedies to which the Holder may be entitled under this Agreement, if any of the
events described in Section 4(c)(ii)(A), 4(c)(ii)(B), and 4(c)(ii)(C) occur, the
Company shall use reasonable best efforts to respond to and correct the event.
 
(d) Notify the Holder in accordance with Section 11(c) as promptly as possible
of the happening of any event as a result of which the Prospectus included in or
relating to a Registration Statement contains an untrue statement of a material
fact or omits any fact necessary to make the statements therein not misleading;
and, thereafter, as promptly as possible prepare (and, when completed, give
notice to the Holder) a supplement or amendment to such Prospectus so that, as
thereafter delivered to the purchasers of such Registrable Securities, such
Prospectus will not contain an untrue statement of a material fact or omit to
state any fact necessary to make the statements therein not misleading; provided
that upon such notification by the Company, the Holder will not offer or sell
Registrable Securities until the Company has notified the Holder that it has
prepared a supplement or amendment to such Prospectus and delivered copies of
such supplement or amendment to the Holder (it being understood and agreed by
the Company that the foregoing proviso shall in no way diminish or otherwise
impair the Company’s obligation to as promptly as possible prepare a Prospectus
amendment or supplement as above provided in this Section 4(d) and deliver
copies of same as provided herein).
 
(e) Upon the occurrence of any event described in Section 4(d) hereof, as
promptly as possible, prepare a supplement or amendment, including a
post-effective amendment, to the Registration Statement or a supplement to the
related Prospectus or any document incorporated or deemed to be incorporated
therein by reference, and file any other required document so that, as
thereafter delivered, neither the Registration Statement nor such Prospectus
will contain 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,
in light of the circumstances under which they are made, not misleading.
 
(f) In the event that the Company reasonably believes, considering the advice of
counsel, that the Company may, in the absence of a suspension or postponement
described hereunder, be required under state or federal securities laws to
disclose any corporate development (and which the Company is not otherwise
required to disclose), the disclosure of which could reasonably be expected to
have a material adverse effect upon the Company, its stockholders, a potentially
material transaction or event involving the Company, or any negotiations,
discussions or proposals directly relating thereto; then the Company shall
deliver a certificate in writing to the Holder (a “Suspension Notice”) to the
effect of the foregoing (but in no event, without the prior written consent of
the Holder, shall the Company disclose to such Holder any of the facts or
circumstances regarding any material nonpublic information) then (i) if the
Suspension Notice is delivered prior to the filing of a Registration Statement
pursuant to Section 2, the Company will be entitled to postpone the filing of
the Registration Statement required pursuant to Section 2 for a reasonable
period of time not in excess of the time period set forth below, and (ii) if a
Registration Statement is effective at the time of such Suspension Notice, upon
receipt of such Suspension Notice, the Holder will refrain from selling any
Registrable Securities pursuant to such Registration Statement (each such
postponement or suspension is referred to as a “Suspension”) until the Holder’s
receipt of copies of a supplemented or amended prospectus prepared and filed by
the Company or until the Holder is advised in writing by the Company that the
current prospectus may be used (it being understood and agreed by the Company
that the foregoing proviso shall in no way diminish or otherwise impair the
Company’s obligation to as promptly as possible prepare a Prospectus amendment
or supplement as above provided in this Section 4(f) and deliver copies of same
as provided herein).  The Company will use commercially reasonable efforts to
terminate a Suspension as promptly as practicable after delivery of a Suspension
Notice to the Holder.  Notwithstanding the foregoing, the Company shall not
suspend the filing or use of any Registration Statement or related prospectus
for more than sixty (60) consecutive days or for a total of more than one
hundred twenty (120) days in any twelve (12) month period (each a “Permitted
Suspension”).
 
(g) Use reasonable best efforts to avoid the issuance of or, if issued, obtain
the withdrawal of, (i) any order suspending the effectiveness of any
Registration Statement or (ii) any suspension of the qualification (or exemption
from qualification) of any of the Registrable Securities for sale in any
jurisdiction, as promptly as possible.
 
(h) Furnish to the Holder in accordance with Section 11(c), without charge, at
least one conformed copy of each Registration Statement and each amendment
thereto, and all exhibits to the extent requested by the Holder and the Holder’s
counsel (including those previously furnished or incorporated by reference) as
promptly as possible after the filing of such documents with the SEC.
 
(i) As promptly as possible furnish to the Holder, without charge, such number
of copies of a Prospectus, including a preliminary Prospectus, in conformity
with the requirements of the Securities Act, and such other documents
(including, without limitation, Prospectus amendments and supplements) as the
Holder may reasonably request in order to facilitate the disposition of the
Registrable Securities covered by such Prospectus and any amendment or
supplement thereto.  The Company hereby consents to the use of such Prospectus
and each amendment or supplement thereto by the Holder in connection with the
offering and sale of the Registrable Securities covered by such Prospectus and
any amendment or supplement thereto to the extent permitted by federal and state
securities laws and regulations.
 
(j) Use reasonable best efforts to register and qualify (or obtain an exemption
from such registration and qualification) the Registrable Securities under such
other securities or blue sky laws of such jurisdictions as the Holder shall
reasonably request, to keep such registration or qualification (or exemption
therefrom) effective during the periods each Registration Statement is
effective, and do any and all other acts or things which may be reasonably
necessary or advisable to enable the Holder to consummate the public sale or
other disposition of Registrable Securities in such jurisdiction, provided that
the Company shall not be required in connection therewith or as a condition
thereto to qualify to do business or to file a general consent to service of
process in any such states or jurisdictions where it is not then qualified or
subject to process.
 
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(k) Cooperate with the Holder to facilitate the timely preparation and delivery
of certificates representing the Registrable Securities to be delivered to a
transferee pursuant to a Registration Statement, which certificates shall be
free, to the extent permitted by the Purchase Agreement and applicable law, of
all restrictive legends, and to enable such Registrable Securities to be in such
denominations and registered in such names as the Holder may request.
 
(l) Cooperate with any reasonable due diligence investigation undertaken by the
Holder, any managing underwriter participating in any disposition pursuant to a
Registration Statement and any attorney, accountant or other agent retained by
the Holder or any managing underwriter, in connection with the sale of the
Registrable Securities, including, without limitation, making available any
documents and information; provided, however, that the Company will not deliver
or make available to the Holder material, non-public information unless the
Holder specifically requests and consents in advance in writing to receive such
material, non-public information and, if requested by the Company, the Holder
agrees in writing to treat such information as confidential.
 
(m) At the request of an Affiliate, amend any Registration Statement to include
such Affiliate as a selling stockholder in such Registration Statement.
 
(n) Comply with all applicable rules and regulations of the SEC in all material
respects.
 
5. REGISTRATION EXPENSES.  The Company shall pay for all expenses incurred in
connection with a registration pursuant to this Agreement and compliance with
Section 4 of this Agreement, including without limitation (i) all registration,
filing and qualification fees and expenses (including without limitation those
related to filings with the SEC and in connection with applicable state
securities or blue sky laws), (ii) all expenses relating to the preparation,
printing, distribution and reproduction of the Registration Statement, the
related Prospectus, each amendment or supplement to the foregoing, the
certificates representing the Registrable Securities and all other documents
related thereto, (iii) all messenger, telephone and delivery expenses incurred
by the Company, (iv) all fees and disbursements of counsel for the Company, (v)
the reasonable fees and disbursements of counsel to the Holder for such
counsel’s reasonable involvement in connection with such registrations, and
(vi) all fees and expenses of all other Persons retained by the Company in
connection with the consummation of the transactions contemplated by this
Agreement.  
 
6. DELAY OF REGISTRATION AND PAYMENTS.  Subject to Section 11(d) hereof, the
Holder and the Company (other than with respect to Section 4(d) hereof) shall
not take any action to restrain, enjoin or otherwise delay any registration as
the result of any controversy which might arise with respect to the
interpretation or implementation of this Agreement.  The Company shall make the
following payments to the Holder in the event of any of the following delays
pertaining to any Registration Statement covering the Registrable Securities:
(a) if the Company shall not have prepared and filed a Registration Statement
with the SEC covering the resale of the Registrable Securities on or prior to
the Filing Date, then the Company shall pay the Holder an amount in cash or
stock, at the election of the Holder, equal to 1.0% of the purchase price of the
Shares and Warrants paid by the Holder for every 30 calendar day period (or pro
rata portion if fewer than 30 calendar days) during which the Company has not
filed such registration statement and until such registration statement has been
filed; (b) if the SEC shall not have declared effective such registration
statement on or prior to the Demand Effective Date, as applicable, then the
Company shall pay to the Holder an amount in cash or stock, at the election of
the Holder, equal to 1.0% of the purchase price of the Shares and Warrants paid
by the Holder for every 30 day calendar period during (or pro rata portion if
fewer than 30 calendar days) during which such Registration Statement has not
been declared effective and until the date on which such Registration Statement
has been declared effective by the SEC; and (c) if any Suspension exceeds the
time periods set forth in the last sentence of Section 4(f), then the Company
shall pay the Holder an amount in cash or stock, at the election of the Holder,
equal to 1.0% of the purchase price of the Shares and Warrants paid by the
Holder for every 30 calendar day period (or pro rata portion if fewer than 30
calendar days) exceeding such Permitted Suspension and until such Suspension has
been terminated.  Notwithstanding the foregoing, the maximum aggregate amount of
fees paid by the Company to the Holder under this Section 6 shall not exceed 10%
of the total purchase price paid by the Holder for the Shares and the Warrants;
and provided further, that no fees shall be payable by the Company under this
Section 6 if such delay or failure to file was caused, directly or indirectly,
by the Holder.  The time periods set forth in paragraphs (a) and (b) of this
Section 6 shall be tolled during the pendency of any Permitted Suspension. The
amounts payable as provided hereinabove shall be paid by the Company monthly in
cash (unless the Holder elects for payment in stock) and without demand by the
Holder within fifteen (15) Business Days of the last day of each month following
the commencement of any obligation to make payment.  Such payments shall not
affect the right of the Holder to seek injunctive or other available relief.
 
7. INDEMNIFICATION.  
 
(a) The Company agrees to indemnify and hold harmless the Holder and each
officer, director, fiduciary, agent, investment advisor, employee, member (or
other equity holder), general partner and limited partner (and affiliates
thereof) of the Holder, each broker or other person acting on behalf of the
Holder and each person, if any, who controls the Holder within the meaning of
either the Securities Act or the Exchange Act, against any and all losses,
claims, damages or liabilities, joint or several, (the “Losses”) to which they
or any of them may become subject under the Securities Act, the Exchange Act or
other federal or state statutory law or regulation, at common law or otherwise,
insofar as such Losses (or actions in respect thereof) arise out of or relate to
any untrue or alleged untrue statement of a material fact contained in the
Registration Statement or any Prospectus forming part thereof or in any
amendment or supplement thereto, or arise out of or relate to 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 any violation by
the Company of the Securities Act or state securities or blue sky laws
applicable to the Company and leading to action or inaction required of the
Company in connection with such registration or qualification under such
Securities Act or state securities or blue sky laws; and, subject to the
provisions of Section 7(c) hereof, the Company will reimburse on demand the
Holder, such broker or other person acting on behalf of the Holder or such
officer, director, fiduciary, employee, member (or other equity holder), general
partner, limited partner, affiliate or controlling person for any legal or other
expenses reasonably incurred by any of them in connection with investigating or
defending any such Loss; provided, however, that the indemnity agreement
contained in this Section 7(a) shall not apply to amounts paid in settlement of
any such Losses 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 to the extent that it
arises out of or is based upon an untrue statement of any material fact
contained in the Registration Statement or an omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, in each case to the extent that such untrue statement or
alleged untrue statement or omission or alleged omission was made in the
Registration Statement in reliance upon and in conformity with written
information furnished by such Holder expressly for use in connection with such
Registration Statement.
 
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(b) The Holder agrees to indemnify and hold harmless the Company, each of its
directors, each of its officers who have signed the Registration Statement, each
person, if any, who controls the Company within the meaning of the Securities
Act, against any Losses to which the Company or any such director, officer or
controlling person may become subject to, under the Securities Act, the Exchange
Act or other federal or state statutory law or regulation, at common law or
otherwise, insofar as such Losses (or actions in respect thereto) arise out of
or are based upon any untrue statement of any material fact contained in the
Registration Statement or any Prospectus forming part thereof or in any
amendment or supplement thereto, or arise out of or relate to the omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, in each case to the extent that such
untrue statement or alleged untrue statement or omission or alleged omission was
made in reliance upon and in conformity with written information furnished by
such Holder expressly for use in connection therewith; and, subject to the
provisions of Section 7(d) hereof, such Holder will reimburse on demand any
legal or other expenses reasonably incurred by the Company or any such director,
officer or controlling person in connection with investigating or defending any
such Loss, provided, however, that the maximum amount of liability of such
Holder hereunder shall be limited to the proceeds (net of underwriting discounts
and commissions, if any) actually received by such Holder from the sale of
Registrable Securities covered by such Registration Statement; and provided,
further, however, that the indemnity agreement contained in this Section 7(b)
shall not apply to amounts paid in settlement of any such Losses if such
settlement is effected without the consent of such Holder against which the
request for indemnity is being made (which consent shall not be unreasonably
withheld).
 
(c) As promptly as possible after receipt by an indemnified party under this
Section 7 of notice of the threat, assertion or commencement of any action, such
indemnified party will, if a claim in respect thereof is to be made against any
indemnifying party under this Section 7, notify the indemnifying party in
writing of the commencement thereof and the indemnifying party shall have the
right to participate in and, to the extent the indemnifying party desires,
jointly with any other indemnifying party similarly noticed, to assume at its
expense the defense thereof with counsel mutually satisfactory to the parties;
provided, however, that, the failure to notify an indemnifying party promptly of
the threat, assertion or commencement of any such action shall not relieve such
indemnifying party of any liability to the indemnified party under this Section
7 except (and only) to the extent that it shall be finally determined by a court
of competent jurisdiction (which determination is not subject to appeal or
further review) that such failure shall have proximately and materially
adversely prejudiced the indemnifying party.
 
(d) If any indemnified party shall have reasonably concluded that there may be
one or more legal defenses available to such indemnified party which are
different from or additional to those available to the indemnifying party, or
that such claim or litigation involves or could have an effect upon matters
beyond the scope of the indemnity agreement provided in this Section 7, the
indemnifying party shall not have the right to assume the defense of such action
on behalf of such indemnified party, and such indemnifying party shall reimburse
such indemnified party and any person controlling such indemnified party for the
fees and expenses of counsel retained by the indemnified party which are related
to the matters covered by the indemnity agreement provided in this Section
7.  Subject to the foregoing, an indemnified party shall have the right to
employ separate counsel in any such action and to participate in the defense
thereof but the fees and expenses of such counsel shall not be at the expense of
the Company.
 
(e) If the indemnification provided for in this Section 7 from the indemnifying
party is applicable by its terms but unavailable to an indemnified party
hereunder in respect of any Losses, then the indemnifying party, in lieu of
indemnifying such indemnified party, shall contribute to the amount paid or
payable by such indemnified party as a result of such Losses in such proportion
as is appropriate to reflect the relative fault of the indemnifying party and
indemnified party in connection with the actions which resulted in such Losses,
as well as any other relevant equitable considerations.  The relative faults of
such indemnifying party and indemnified party shall be determined by reference
to, among other things, whether any action in question, including any untrue or
alleged untrue statement of a material fact or omission or alleged omission to
state a material fact, has been made by, or relates to information supplied by,
such indemnifying party or indemnified party, and the parties’ relative intent,
knowledge, access to information and opportunity to correct or prevent such
action.  The amount paid or payable by a party as a result of the Losses
referred to above shall be deemed to include, subject to the limitations set
forth in Sections 7(a), 7(b), 7(c) and 7(d), any legal or other fees, charges or
expenses reasonably incurred by such party in connection with any investigation
or proceeding.  No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person.  The parties hereto agree that it would not be
just and equitable if contribution pursuant to this Section 7(e) were determined
by pro rata allocation or by any other method of allocation which does not take
account of the equitable considerations referred to in the immediately preceding
paragraph.  Any amount to be paid by the Company to the Holder under this
Section 7 shall be paid, at the election of the Holder, either in (i) cash or
(ii) shares of Common Stock of the Company, which number of shares to be paid
shall be determined by dividing (A) the aggregate amount of such payment by (B)
the volume-weighted average closing price per share of the Common Stock (as
reported on the primary exchange or over-the-counter quotation system on which
the Company’s Common Stock is then traded) for the twenty (20) trading days
prior to such payment.
 
(f) The indemnity and contribution agreements contained in this Section 7 are in
addition to any liability that any indemnifying party may have to any
indemnified party.
 
8. REPORTS UNDER THE EXCHANGE ACT.  
 
(a) With a view to making available to the Holder the benefits of Rule 144 and
any other rule or regulation of the SEC that may at any time permit the Holder
to sell the Registrable Securities to the public without registration, the
Company agrees to use reasonable best efforts to:  (i) make and keep public
information available, as those terms are understood and defined in Rule 144,
(ii) file with the SEC in a timely manner all reports and other documents
required to be filed by an issuer of securities registered under the Securities
Act or the Exchange Act, (iii) undertake any additional actions reasonably
necessary to maintain the availability of a Registration Statement, including
any successor or substitute forms, or the use of Rule 144, and (iv) as long as
the Holder owns any Shares or Warrant Shares and is subject to any restrictions
on resale, furnish in writing upon the Holder’s request a written statement by
the Company that it has complied with the reporting requirements of Rule 144 and
of the Securities Act and the Exchange Act, and to furnish to the Holder a copy
of the most recent annual and quarterly reports of the Company, and such other
reports and documents so filed by the Company as may be reasonably requested in
availing the Holder of any rule or regulation of the SEC permitting the selling
of any such Shares or Warrants Shares without registration.
 
(b) Without limiting the generality of Section 8(a), the Company agrees to use
reasonable best efforts to take all such actions and maintain all such filings
as may be necessary or desirable in order to enable the Company to become and
remain eligible to use Form S-3 in respect of any securities to be registered
hereunder, until all of the Registrable Securities have been or can be sold by
the Holder without any volume or other restriction.
 
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9. TRANSFER OF REGISTRATION RIGHTS.  Holder may assign or transfer any or all of
its rights under this Agreement to any Person who acquires at least two million
(2,000,000) shares of Common Stock, provided such assignee or transferee agrees
in writing to be bound by the provisions hereof that apply to such assigning or
transferring Holder.  Upon any such, and each successive, assignment or transfer
to any permitted assignee or transferee in accordance with the terms of this
Section 9, such permitted assignee or transferee shall be deemed to be a
“Holder” for all purposes of this Agreement.
 
10. ENTIRE AGREEMENT.  This Agreement, together with the Purchase Agreement and
the Warrants, constitute and contain the entire agreement and understanding of
the parties with respect to the subject matter hereof, and supersede any and all
prior negotiations, correspondence, agreements or understandings with respect to
the subject matter hereof (including without limitation the Letter of Intent
dated February 1, 2009).
 
11. MISCELLANEOUS.  
 
(a) This Agreement, and any right, term or provision contained herein, may not
be amended, modified or terminated, and no right, term or provision may be
waived, except with the written consent of the Holder and the Company.
 
(b) This Agreement shall be governed by and construed and enforced in accordance
with the laws of the State of Delaware, and shall be binding upon the parties
hereto and their respective heirs, personal representatives, successors and
permitted assigns and transferees, provided that the terms and conditions of
Section 9 hereof are satisfied.
 
(c) Any notices to be given pursuant to this Agreement shall be in writing and
shall be given by certified or registered mail, return receipt request.  Notices
shall be deemed given when personally delivered or when mailed to the addresses
of the respective parties as set forth below, or to such changed address of
which any party may notify the others pursuant hereto, except that a notice of
change of address shall be deemed given when received.
 
(i) If to the Company, to:
 
deltathree, Inc.
419 Lafayette Street
New York, NY 10003
Attention:  General Counsel
Facsimile:   212.500.4888
 
With a copy to (which shall not constitute notice):
 
Mintz Levin Cohn Ferris Glovsky & Popeo, P.C.
Chrysler Center
666 Third Avenue
New York, NY 10017
Attention:  Kenneth Koch, Esq.
Facsimile:   212.983.3115
 

(ii) If to the Holder, to:
 
D4 Holdings, LLC
349-L Copperfield Blvd., #407
Concord, NC 28025
Attention:  Robert Stevanovski, Manager
Facsimile:   704.260.3304

With a copy to (which shall not constitute notice):
 
Bingham McCutchen LLP
2020 K Street, NW
Washington, DC 20006
Attention:  Andrew M. Ray, Esquire
Facsimile:   202.373.6452
 
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(d) The parties acknowledge and agree that in the event of any breach of this
Agreement, remedies at law will be inadequate, and each of the parties hereto
shall be entitled to specific performance of the obligations of the other
parties hereto and to such appropriate injunctive relief as may be granted by a
court of competent jurisdiction.  All remedies, either under this Agreement or
by law or otherwise afforded to any of the parties, shall be cumulative and not
alternative, and shall be in addition to the payment of fees as set forth in
this Agreement.
 
(e) This Agreement may be executed in a number of counterparts.  All such
counterparts together shall constitute one Agreement, and shall be binding on
all the parties hereto notwithstanding that all such parties have not signed the
same counterpart.  The parties hereto confirm that any facsimile copy or
electronic mail message in “pdf” or similar format of another party’s executed
counterpart of this Agreement (or its signature page thereof) will be deemed to
be an executed original thereof.
 
(f) Except as contemplated in Section 9 hereof, this Agreement is intended
solely for the benefit of the parties hereto and is not intended to confer any
benefits upon, or create any rights in favor of, any Person (including, without
limitation, any stockholder or debt holder of the Company) other than the
parties hereto.
 
(g) If any provision of this Agreement is invalid, illegal or unenforceable,
such provision shall be ineffective to the extent, but only to the extent, of
such invalidity, illegality or unenforceability, without invalidating the
remainder of such provision or the remaining provisions of this Agreement,
unless such a construction would be unreasonable.
 
[signature pages follow]
 
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IN WITNESS WHEREOF, the parties hereto have executed this Investor Rights
Agreement as of the date and year first above written.
 
COMPANY:
 

 
DELTATHREE, INC.
 
By:       /s/ Efraim Baruch                        
Name:  Efraim Baruch
Title:    Chief Executive Officer
 
HOLDER:
 

D4 HOLDINGS, LLC

By:      Praescient, LLC, its Manager
 
By:      /s/ Robert Stevanoski                 
Name: Robert Stevanovski
Title:   Manager

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