THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT AND THE
RULES AND REGULATIONS THEREUNDER. BY ITS ACCEPTANCE HEREOF, THE HOLDER OF THIS
WARRANT REPRESENTS THAT IT IS ACQUIRING THE WARRANT FOR INVESTMENT AND AGREES TO
COMPLY IN ALL RESPECTS WITH SECTION 4 OF THIS WARRANT.
WARRANT TO PURCHASE COMMON STOCK
OF
NETWORD, INC.
September 29, 1999
1. General. THIS CERTIFIES that, for value received, Net2Phone, Inc. or
its registered assigns ("Net2Phone") is entitled to subscribe for and purchase
from Netword, Inc., a Delaware corporation (the "Corporation"), once at any time
during the period commencing with the date hereof and ending on the fourth (4th)
anniversary of the date hereof (the "Exercise Period"), on the terms and subject
to the provisions hereinafter set forth, up to a maximum of that number of
shares (the "Warrant Shares") of fully paid and non-assessable shares of Common
Stock, $.0l par value, of the Corporation (the "Common Stock") that shall
constitute fifteen percent (15%) of the total number of shares of voting capital
stock of the Corporation outstanding on the date of exercise of this Warrant
after giving effect to the exercise, exchange or conversion of all outstanding
securities, rights, options, warrants (including this Warrant), calls,
commitments or agreements of any nature or character (whether debt or equity)
that are, directly or indirectly, exercisable or exchangeable for, or
convertible into or otherwise represent the right to purchase or otherwise
receive, directly or indirectly, any capital stock or other arrangement to
acquire at any time or under any circumstance, voting capital stock of the
Corporation or any such other securities and assuming that all stock options
and/or shares of capital stock reserved for grant or issuance to officers,
directors, employees and consultants under all agreements, plans or arrangements
theretofore approved by the Board of Directors of the Corporation have been so
granted or issued (as the case may be) (collectively, the "Fully Diluted
Shares"), at a price per share to be determined on the Designated Date (as
hereinafter defined) calculated by dividing $20,000,000 by the number of Fully
Diluted Shares on the Designated Date (the "Warrant Price"). As used herein, the
ten-n "Designated Date" shall mean the earlier of either (i) the date on which
the holder of this Warrant shall deliver a Notice of Exercise in the form
annexed hereto or (ii) the day before the date of the closing of a private or
public offering of the Corporation's equity securities in which the valuation of
the Fully Diluted Shares, calculated on a per share offering price, is equal to
or greater than $100 million and the net cash proceeds to the Corporation from
such public or private offering of equity securities is equal to or greater than
$20 million (a "Qualified Offering"). Notwithstanding the foregoing, if the
Designated Date is set as provided in section (ii) of the prior sentence, the
number of Fully Diluted Shares on the Designated Date shall include all Fully
Diluted Shares issued up to but not including the closing of the Qualified
Offering, with the only shares excluded from the calculation being those issued
in the Qualified Offering.
2. Exercise of Warrant. The rights represented by this Warrant may be
exercised by the holder hereof by the surrender of this Warrant (properly
endorsed) at the office of the Corporation at 000 Xxxxxxx Xxxxxx, 0xx Xxxxx,
Xxxxxxxxxxxx, Xxxxxxxx 00000-0000, or at such other agency or office of the
Corporation in the United States of America as it may designate by notice in
writing to the holder hereof at the address of such holder appearing on the
books of the Corporation, and by payment (either in cash, by check and/or by
cancellation of indebtedness) to the Corporation of the Warrant Price for each
Warrant Share being purchased. In the event of the exercise of the rights
represented by this Warrant, a certificate or certificates for the Warrant
Shares so purchased, registered in the name of the holder, shall be delivered to
the holder hereof within a reasonable time after the rights represented by this
Warrant shall have been so exercised. The person in whose name a certificate for
Warrant Shares is issued upon exercise of this Warrant shall for all purposes be
deemed to have become the holder of record of such shares on the date on which
the Warrant was surrendered and payment of the Warrant Price and any applicable
taxes was made, irrespective of the date of delivery of such certificate, except
that, if the date of such surrender and payment is a date when the stock
transfer books of the Corporation are closed, such person shall be deemed to
have become the holder of such shares at the opening of business on the next
succeeding date on which the stock transfer books are open. If requested, the
holder shall provide evidence that it is an accredited investor.
3. Covenants as to Common Stock. The Corporation covenants and agrees
that all shares of Common Stock that may be issued upon the exercise of the
rights represented by this Warrant will, upon issuance, be validly issued, fully
paid and non-assessable and free from all taxes, liens and charges with respect
to the issuance thereof. The Corporation further covenants and agrees that the
Corporation will from time to time take all such action as may be required to
assure that, subject to applicable to law, the stated or par value per share of
Common Stock is at all times equal to or less than the then effective Warrant
Price per share of Common Stock issuable upon exercise of this Warrant. The
Corporation further covenants and agrees that, subject to applicable law, the
Corporation will at all times have authorized and reserved, free from preemptive
rights, a sufficient number of shares of Common Stock to provide for the
exercise of the rights represented by this Warrant. If and so long as the Common
Stock issuable upon the exercise of the rights represented by this Warrant is
listed or quoted on any national securities exchange or inter-dealer quotation
system, the Corporation will, if permitted by the rules of such exchange or
inter-dealer quotation system, list and keep listed on such exchange or
inter-dealer quotation system, upon official notice of issuance, all shares of
such capital stock.
4. Restrictions on Transfer. Net2Phone acknowledges that neither this
Warrant nor the Warrant Shares have been registered under the Securities Act of
1933, as amended (the "Securities Act"), and agrees that no sale, transfer,
assignment, hypothecation or other disposition of this Warrant or the Warrant
Shares shall be made in the absence of a current registration statement under
the Securities Act as to this Warrant or the Warrant Shares or an opinion of
counsel reasonably satisfactory to the Corporation to the effect that such
registration or qualification is not required. Each certificate or other
instrument for Warrant Shares issued upon exercise of this Warrant shall, if
required under the Securities Act or the rules and regulations promulgated
thereunder, be imprinted with a legend substantially to the foregoing effect.
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5. Attached Rights. The Corporation hereby grants to the holder of this
Warrant those rights set forth on Exhibit A attached hereto, the provisions of
which are incorporated herein by reference and made a part hereof as if set
forth herein in their entirety.
6. Reorganizations, Etc. In case, at any time during the Exercise
Period, of any (i) capital reorganization, (ii) distribution to holders of the
Common Stock of capital stock other than Common Stock, (iii) reclassification of
the stock of the Corporation (other than a change in par value or from par value
to no par value or from no par value to par value or as a result of a stock
dividend or subdivision, split-up or combination of shares), (iv) consolidation
or merger of the Corporation with or into another corporation (other than a
consolidation or merger in which the Corporation is the continuing operation and
which does not result in any change in the Common Stock) or (v) sale of all or
substantially all the properties and assets of the Corporation in its entirety
to any other corporation, this Warrant shall, after such reorganization,
distribution, reclassification, consolidation, merger or sale, be exercisable on
the same ten-ns for the kind and number of shares of stock or other securities
or property of the Corporation or of the corporation resulting from such
consolidation or surviving such merger or to which such properties and assets
shall have been sold to which such holder would have been entitled if he had
held the Common Stock issuable upon the exercise hereof immediately prior to
such reorganization, distribution, reclassification, consolidation, merger or
sale. In any such reorganization or other action or transaction described above,
appropriate provision shall be made with respect to the rights and interests of
the holder of this Warrant to the end that the provisions hereof shall
thereafter be applicable, as nearly as may be, in relation to any shares of
stock, securities or assets thereafter deliverable upon the exercise hereof.
7. Lost, Stolen, Mutilated or Destroyed Warrant. If this Warrant is
lost, stolen, mutilated or destroyed, the Corporation may, on such terms as to
indemnity or otherwise as it may in its discretion impose (which shall, in the
case of a mutilated Warrant, include the surrender thereof), issue a new Warrant
of like denomination and tenor as the Warrant so lost, stolen, mutilated or
destroyed. Any such new Warrant shall constitute an original contractual
obligation of the Corporation, whether or not the allegedly lost, stolen,
mutilated or destroyed Warrant shall be at any time enforceable by anyone.
8. Modification and Waiver. This Warrant and any provision hereof may
be changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of the same is sought.
9. Notices. All notices and communications to be given or otherwise
made to any party to this Warrant shall be deemed to be sufficient if contained
in a written instrument delivered in person or by telecopier or duly sent by
first class registered or certified mail, return receipt requested, postage
prepaid, or by overnight courier, or by electronic mail, with a copy thereof to
be sent by mail (as aforesaid) within 24 hours of such electronic mail,
addressed to such party at the address set forth below or at such other address
as may hereafter be designated in writing by the addressee to the addressee
listing all parties:
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If to the Corporation, to:
Netword, Inc.
000 Xxxxxxx Xxxxxx, 0xx Xxxxx
Xxxxxxxxxxxx, Xxxxxxxx 00000-0000
Attention: Xxxxxxx X. Xxxx
Telecopier: (000) 000-0000
e-mail address: xxxx@xxxxxxx.xxx
with a copy to:
Xxxxxxx X. Xxxxxx, Esq.
Kronish Xxxx Xxxxxx & Xxxxxxx LLP
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000-0000
Telecopier: (000) 000-0000
e-mail address: xxxxxxx@xxxxxxx.xxx
and
If to Net2Phone, to:
Net2Phone, Inc.
000 Xxxx Xxxxxx
Xxxxxxxxxx, Xxx Xxxxxx 00000
Attention: Xxxxxxxx Xxxxx and Xxxxxx Xxxxxx
Telecopier: (000) 000-0000
e-mail addresses: xxxxx@xxx0xxxxx.xxx; xxxxxxx@xxx0xxxxx.xxx
with a copy to:
Xxx Xxxxxxxxxx, Esq.
Xxxxxxxx & Xxxxxxxx
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Telecopier: (000) 000-0000
e-mail address: xxxxxxxxxxx@xxxx.xxx
or to such other address as the party to whom notice is to be given may have
furnished to the other parties hereto in writing in accordance herewith. Any
such notice or communication shall be deemed to have been delivered and received
(i) in the case of personal delivery or delivery by telecopier, on the date of
such deliver, (ii) in the case of nationally-recognized overnight courier, on
the next business day after the date when sent and (iii) in the case of mailing,
on the second business day following that on which the piece of mail containing
such communication is posted. As used in this Section, "business day" shall mean
any day other than a day on which banking institutions in the State of New
Jersey are legally closed for business.
10. Binding Effect on Successors; Survival. This Warrant shall be
binding upon any corporation succeeding the Corporation by merger, consolidation
or acquisition of all or substantially all
4
of the Corporation's assets. All of the obligations of the Corporation relating
to the Common Stock issuable upon the exercise of this Warrant shall survive the
exercise and termination of this Warrant. All of the covenants and agreements of
the Corporation shall inure to the benefit of the successors and assigns of
Net2Phone, but this Warrant may be assigned only in whole and not in part.
11. Descriptive Headings. The description headings of the several
sections and paragraphs of this Warrant are inserted for convenience only and do
not constitute a part of this Warrant.
12. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York applicable to contracts made
and to be performed entirely within such State. Each of the parties hereto
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 the City of New York, Borough of Manhattan, for purposes of all legal
proceedings arising out of or relating to this Agreement and the transactions
contemplated hereby. Each of the parties hereto 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.
13. 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
Warrant. 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.
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 Warrant. In the event
of litigation, this provision of the Warrant may be filed as a written consent
to a trial (without a jury) by the court.
14. Fractional Shares. No fractional shares shall be issued upon
exercise of this Warrant. The Corporation shall, in lieu of issuing any
fractional share, round up to the nearest whole number of shares of Common
Stock.
15. Severability. If one or more provisions of this Warrant are held to
be unenforceable under applicable law, such provisions shall be excluded from
this Warrant and the balance of this Warrant shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.
16. Payment of Taxes. The Company shall pay all taxes and other
governmental charges that may be imposed in respect of the issuance and delivery
of the Warrant Shares.
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IN WITNESS WHEREOF, the undersigned have caused this Warrant to be
executed by a duly authorized officer on the date first above written.
NETWORD, INC.
By:_______________________________
Name:
Title:
ATTEST:____________________
Secretary
NET2PHONE, INC.
By:_______________________________
Name:
Title:
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Notice of Exercise
[To be signed upon exercise of Warrant]
The undersigned, the holder of the Warrant, hereby irrevocably
elects to exercise the purchase rights represented by such Warrant for, and to
purchase thereunder, either (i)_____________ shares of Common Stock or
(ii)_______ percent (__%) of the Fully Diluted Shares (as defined in the
Warrant) of Netword, Inc. and herewith makes payment of $_____________ therefor,
and requests that the certificates for such shares be issued in the name of and
delivered to, ________________ whose address is _______________________________.
Dated: ________________
_________________________________
(Signature)
_________________________________
(Address)
7
ASSIGNMENT FORM
FOR VALUE RECEIVED, ________________hereby sells, assigns and
transfers unto
Name ________________________
(Please typewrite or print in block letters)
Address_______________________
this Warrant, together with all right, title and interest therein, and does so
hereby irrevocably constitute and appoint _____________ as attorney, to transfer
the within Warrant on the books of the within-named Corporation, with full power
of substitution in the premises.
Dated:_________________, 19___
Name:_____________________________________
Signature:__________________________________
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EXHIBIT A
Additional Rights
1. Information Rights.
(a) Until such time as the Corporation becomes subject to the
periodic reporting provisions of Securities Exchange Act of 1934, as amended
(the "Exchange Act") or during such time as the Corporation ceases to be subject
to the periodic reporting provisions of the Exchange Act, the Corporation shall
afford to Net2Phone and its authorized employees, counsel, accountants and other
representatives, upon reasonable notice and during ordinary business hours, (i)
reasonable access to all books, records, and properties of the Corporation and
(ii) the opportunity to interview any officer of the Corporation regarding its
affairs; provided, however, that any individual seeking to exercise the rights
granted hereunder will only be permitted to review confidential and/or sensitive
information if such person executes a confidentiality agreement in form and
substance acceptable to the Corporation.
(b) Until such time as the Corporation becomes subject to the
periodic reporting provisions of the Exchange Act or during such time as the
Corporation ceases to be subject to the periodic reporting provisions of the
Exchange Act, the Corporation shall furnish to the holder hereof:
(i) within 30 days after the end of each month in each fiscal year
(other than the last month in each fiscal year), a balance sheet of the
Corporation and the related consolidated statement of income, unaudited
but certified by the principal financial officer of the Corporation,
such balance sheets to be as of the end of such month and such
statements of income to be for such month and for the period from the
beginning of the fiscal year to the end of such month, in each case
subject to normal year-end adjustments and without supporting notes;
(ii) within 45 days after the end of each quarter in each fiscal
year, a balance sheet of the Corporation and the related consolidated
statement of income, unaudited but certified by the principal financial
officer of the Corporation, such balance sheets to be as of the end of
each quarter and such statements of income to be for such quarter and
for the period from the beginning of the fiscal year to the end of such
quarter, in each case subject to normal year-end adjustments and
without supporting notes;
(iii) within 90 days after the end of each fiscal year of the
Corporation, a balance sheet of the Corporation as of the end of such
fiscal year and the related statements of income, changes in
stockholders' equity and cash flows of the Corporation for the fiscal
year then ended, together with supporting notes thereto, certified in
accordance with generally accepted accounting principles, without
qualification as to scope of audit, by a firm of independent public
accountants of recognized national standing selected by the
Corporation;
(iv) within 45 days prior to the beginning of each fiscal year of
the Corporation (and with respect to any revision thereof, promptly
after such revision has been prepared), a proposed operating budget for
the Corporation, including projected monthly income statements, cash
flow statements during such fiscal year and a projected consolidated
balance sheet as of the end of such fiscal year, and each monthly
financial statement furnished pursuant to clause (ii) above shall
reflect variances from such operating budget, as the same may from time
to time be revised; and
(v) prompt notice of (A) any event of default under any agreement
with respect to material indebtedness for borrowed money or a material
purchase money obligation which would permit the holder of such
indebtedness or obligation to accelerate the maturity thereof, and any
event which, upon notice or lapse of time or both, would constitute
such an event of default, and (B) any action, suit or proceeding at law
or in equity or by or before any governmental instrumentality or agency
which, if adversely determined, would materially impair the right of
the Corporation to carry on its business substantially as now or then
conducted, or materially adversely affect the business, operations,
properties, assets or financial condition of the Corporation.
(c) At such time as the Corporation becomes subject to the periodic
reporting provisions of the Exchange Act, the Corporation shall provide the
holder hereof promptly upon filing, copies of all registration statements,
prospectuses, periodic reports and other documents filed by the Corporation with
the Securities and Exchange Commission (the "Commission"), or provide notice of
such filings.
(d) At any time during the Exercise Period, Net2Phone shall be
entitled to receive from the Corporation within two days of the receipt of
written notice as provided in Section 9 of the Warrant, a certificate from an
officer of the Corporation certifying the number of Fully Diluted Shares.
2. Registration Rights.
(a) Required Registration. If the Corporation shall be requested by
Net2Phone to effect the registration under the Securities Act of the Warrant
Shares in accordance with this Section, and if the Corporation has effected an
initial public offering, the Corporation shall promptly use its reasonable best
efforts to effect such registration under the Securities Act which the
Corporation has been so requested to register; provided, however, that the
Corporation shall not be obligated to effect any registration under the
Securities Act except in accordance with the following provisions:
(i) the Corporation shall not be obligated to file more than one (1)
registration statement initiated pursuant to this Section which become
effective;
(ii) if Net2Phone fails to complete and/or execute all
questionnaires, powers of attorney, indemnities, agreements and other
documents as may be required by the Corporation and/or the
underwriters, such holder will not be permitted to participate in such
registration;
(iii) with respect to any registration pursuant to this Section, the
Corporation may include in such registration any other shares;
provided, however, that if the managing underwriter advises the
Corporation that the inclusion of all of the shares proposed to be
included in such registration would interfere with the successful
marketing (including pricing) of all such securities, then the number
of shares to be included in such registration shall be included in the
following order:
first, the Warrant Shares;
second, authorized but unissued shares of Common Stock held by the
Corporation (the "Primary Shares"); and
2
third, the other shares.
A requested registration under this Section may be rescinded or withdrawn by
written notice to the Corporation by Net2Phone; provided, however, that such
rescinded registration shall not count as a registration statement initiated
pursuant to this Section (a) if such recession or withdrawal is based upon
material adverse information relating to the Corporation or its condition,
business or prospectus that is different from that generally known to Net2Phone
at the time of its request. In connection with a registration under this Section
(a), the underwriters shall be a nationally recognized independent investment
banking firm selected by the Corporation and consented to by the holder of this
Warrant, which consent shall not be unreasonably withheld; provided, further,
that if the board of directors of the Corporation determines in good faith that
the registration and distribution of Warrant Shares pursuant to this section
would be materially detrimental to the Corporation or its shareholders and
therefore the board of directors determines that it is in the Corporation's best
interest to defer the filing, and promptly gives Net2Phone written notice of
such determination in the form of a certificate signed by an executive officer
of the Corporation, the Corporation shall be entitled to postpone the filing of
the registration statement otherwise required to be prepared and filed by the
Corporation pursuant to this section once for a reasonable period of time, but
not to exceed 30 days from the date of Net2Phone's request for such registration
(or any greater period necessary to complete an offering of securities of the
Corporation pursuant to any registration statement then pending).
(b) Piggyback Registration. If the Corporation at any time proposes
for any reason to register any of its shares under the Securities Act (other
than on Form S-4 or Form S-8 promulgated under the Securities Act or any
successor forms thereto or other than in connection with an exchange offer or
offering solely to, the Corporation's stockholders), it shall promptly give
written notice to Net2Phone of its intention so to register such shares and,
upon the written request, given within IO days after delivery of any such notice
by the Corporation, of Net2Phone to include in such registration Warrant Shares
(which request shall specify the number of Warrant Shares proposed to be
included in such registration), the Corporation shall use its best efforts to
cause all such Warrant Shares to be included in such registration on the same
terms and conditions as the securities otherwise being sold in such
registration; provided, however, that if the managing underwriter advises the
Corporation that the inclusion of all Warrant Shares proposed to be included in
such registration would interfere with the successful marketing (including
pricing) of the shares of stock proposed to be registered by the Corporation,
then the number of shares to be included in such registration shall be included
in the following order:
first, the Primary Shares;
second, the Warrant Shares, shares subject to other piggyback
registration rights outstanding on the date of issuance of this
Warrant and shares issued in a Qualified Offering; and
third, other shares.
If Net2Phone decides not to include all of its Warrant Shares in any
registration statement thereafter filed by the Corporation, Net2Phone shall
nevertheless continue to have the right to include any Warrant Shares in any
subsequent registration statement or registration statements as may be filed by
the Corporation with respect to offerings of its Common Stock and any other
securities, all upon the terms and conditions set forth herein; provided,
however, that the piggy
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back registration rights provided for in the section shall not apply (i) with
respect to an initial public offering by the Corporation, or (ii) with respect
to any Warrant Shares that 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 Net2Phone's Warrant Shares are
immediately eligible for resale. If a piggyback registration effects the
registration of greater than fifty percent (50 %) of the Warrant Shares, such
registration shall be counted as a required registration for purposes of the
limits on required registrations in subsection (a). If the registration
statement is filed in connection with an underwritten offering, at the request
of the managing underwriters and provided that all officers and directors of the
Corporation enter into similar agreements, Net2Phone shall agree not to sell or
otherwise transfer or dispose of any of the Warrant Shares for a period of time
that Net2Phone shall agree to with the lead managing underwriter of the
transaction.
(c) Registrations on Form S-3. Anything contained in Section 3 to
the contrary notwithstanding, at such time as the Corporation shall have
qualified for the use of Form S-3 promulgated under the Securities Act or any
successor form thereto, Net2Phone shall have the right to request in writing two
registrations on Form S-3 or such successor form of Warrant Shares, which
request or requests shall (i) specify the number of Warrant Shares intended to
be sold or disposed of and (ii) state the intended method of disposition of such
Warrant Shares; provided, however, Net2Phone may only make one such request in
any 6-month period. A requested registration on Form S-3 or any such successor
form in compliance with this Section shall not count as a registration statement
demanded pursuant to Section 2(a), but shall otherwise be treated as a
registration initiated pursuant to and shall, except as otherwise expressly
provided in this Section, be subject to Section 2(a).
(d) Preparation and Filing. If and whenever the Corporation is under
an obligation pursuant to the provisions of this Warrant to use its reasonable
best efforts to effect the registration of any Warrant Shares, the Corporation
shall, as expeditiously as practicable:
(i) use its reasonable best efforts to cause a registration
statement that registers such Warrant Shares to become and remain
effective for a period of 180 days or until all of such Warrant Shares
have been disposed of (if earlier);
(ii) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective for at least a period of 180 days or until all of
such Warrant Shares, have been disposed of (if earlier) and to comply
with the provisions of the Securities Act with respect to the sale or
other disposition of such Warrant Shares;
(iii) notify in writing Net2Phone's counsel promptly (i) of the
receipt by the Corporation of any notification with respect to any
comments by the Commission with respect to such registration statement
or prospectus or any amendment or supplement thereto or any request by
the Commission for the amending or supplementing thereof or for
additional information with respect thereto, (ii) of the receipt by the
4
Corporation of any notification with respect to the issuance by the
Commission of any stop order suspending the effectiveness of such
registration statement or prospectus or any amendment or supplement
thereto or the initiation or threatening of any proceeding for that
purpose and (iii) of the receipt by the Corporation of any notification
with respect to the suspension of the qualification of such Warrant
Shares, for sale in any jurisdiction or the initiation or threatening
of any proceeding for such purposes;
(iv) use its reasonable best efforts to register or qualify the
Warrant Shares, under such other securities or blue sky laws of such
jurisdictions as Net2Phone reasonably requests and do any and all other
acts and things which may be reasonably necessary or advisable to
enable Net2Phone to consummate the disposition in such jurisdictions of
its Warrant Shares; provided, however, that the Corporation will not be
required to qualify generally to do business, subject itself to general
taxation or consent to general service of process in any jurisdiction
where it would not otherwise be required so to do but for this
paragraph (iv);
(v) furnish to Net2Phone such number of copies of a summary
prospectus or other prospectus, including a preliminary prospectus, in
conformity with the requirements of the Securities Act, and such other
documents as Net2Phone may reasonably request in order to facilitate
the public sale or other disposition of its Warrant Shares;
(vi) use its reasonable best efforts to cause the Warrant Shares to
be registered with or approved by such other governmental agencies or
authorities as may be necessary by virtue of the business and
operations of the Corporation to enable Net2Phone to consummate the
disposition of its Warrant Shares;
(vii) notify Net2Phone on a timely basis any time a prospectus
relating to the Warrant Shares is required to be delivered under the
Securities Act within the appropriate period mentioned in paragraph (a)
of this Section, 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 light of the circumstances then
existing and, at the request of Net2Phone, prepare and furnish 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 shares, 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 light of the circumstances then existing;
(viii) make available for inspection by Net2Phone, any underwriter
participating in any disposition pursuant to such registration
statement and any attorney, accountant or other agent retained by
Net2Phone or underwriter (collectively, the "Inspectors"), all
pertinent financial and other records, pertinent corporate documents
and properties of the Corporation (collectively, the "Records"), as
shall be reasonably
5
necessary to enable them to exercise their due diligence
responsibility, and cause the Corporation's officers, directors and
employees to supply all information (together with the Records, the
"Information") reasonably requested by any such Inspector in connection
with such registration statement. Any of the Information which the
Corporation 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 disclosure of such Information is
necessary to avoid or correct a misstatement or omission in the
registration statement, (ii) the release of such Information is
required by law or (iii) such Information has been made generally
available to the public;
(ix) in connection with underwritten offerings, use its reasonable
best efforts to obtain from its independent certified public
accountants "comfort" letters in customary form and at customary times
and covering matters of the type customarily covered by comfort
letters;
(x) use its reasonable best efforts to obtain from its counsel an
opinion or opinions in customary form;
(xi) provide a transfer agent and registrar (which may be the same
entity and which may be the Corporation) for the Warrant Shares;
(xii) issue to any underwriter to which Net2Phone may sell shares in
such offering certificates evidencing such Warrant Shares;
(xiii) list such Warrant Shares 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 national securities exchange, use its best
efforts to qualify such Warrant Shares for inclusion on the automated
quotation system of the National Association of Securities Dealers,
Inc. (the "NASD");
(xiv) otherwise use its reasonable best efforts to comply with all
applicable rules and regulations of the Commission and make available
to its security holders, as soon as reasonably practicable, earnings
statements (which need not be audited) covering a period of 12 months
beginning within three months after the effective date of the
registration statement, which earnings statements shall satisfy the
provisions of Section II(a) of the Securities Act; and
(xv) use its best efforts to take all other steps necessary to
effect the registration of such Warrant Shares contemplated hereby.
(e) Expenses. The Corporation shall bear all costs in complying with
Section 2, including, without limitation, all registration and filing fees
(including all expenses incident to filing with the NASD), fees and expenses of
complying with securities and blue sky laws, printing expenses, fees and
expenses of the Corporation's counsel and accountants and reasonable fees and
expenses of Net2Phone's counsel; provided, however, that all underwriting
6
discounts and selling commissions, and all transfer taxes, if any, applicable to
the Warrant Shares and all fees and expenses of any special or interim audit for
any registration initiated by Net2Phone pursuant to Section 2 that is not
otherwise required under the Securities Act in connection with such
registration, shall be borne by Net2Phone; provided, further, that with respect
to the piggy back registration rights of section (b), the Corporation shall be
required to bear the reasonable fees and expenses of Net2Phone's counsel in
connection with one piggy back registration if all of the Warrant Shares that
Net2Phone requested to be included in such registration are included in the
registration.
(f) Information. Net2Phone agrees, as a condition to the
registration obligations set forth herein, to furnish to the Corporation such
information regarding Net2Phone and the distribution of the Warrant Shares as
the Corporation may, from time to time, reasonably request in writing to comply
with the Securities Act and other applicable law. The Corporation may exclude
from such registration the Warrant Shares for so long as Net2Phone fails to
furnish such information after receiving such request.
(g) Indemnification.
(i) In connection with any registration of any
Warrant Shares under the Securities Act pursuant to this Warrant, the
Corporation shall indemnify and hold harmless Net2Phone, its officers,
directors, employees and affiliates and each other person, if any, who
controls any of the foregoing persons within the meaning of the
Securities Act and the underwriter in an underwritten offering, against
any losses, claims, damages or liabilities, joint or several, (or
actions in respect thereof) to which any of the foregoing persons may
become subject under the Securities Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon an untrue statement or alleged untrue
statement of a material fact contained in the registration statement
under which such Warrant Shares were registered under the Securities
Act, any preliminary prospectus or final prospectus contained therein
or otherwise filed with the Commission, any amendment or supplement it
thereto, or arise out of or are based upon 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, with
respect to any prospectus, necessary to make the statements therein in
light of the circumstances under which they were made not misleading,
or any violation by the Corporation of the Securities Act or state
securities or blue sky laws applicable to the Corporation and relating
to action or inaction required of the Corporation in connection with
such registration or qualification under such state securities or blue
sky laws; and shall reimburse Net2Phone, its officers, directors,
employees and affiliates and each other person, if any, who controls
any of the foregoing persons within the meaning of the Securities Act
for any legal or other expenses reasonably incurred by any of them in
connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that the Corporation
shall not be liable in any such case to the extent that any such loss,
claim, damage, liability or action arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged
omission made in said registration statement, preliminary prospectus,
final prospectus, amendment,
7
supplement or document in reliance upon and in conformity with written
information furnished to the Corporation by Net2Phone that states that
it is specifically for use in the preparation thereof. The Corporation
shall not be liable for any misstatement or omission in any preliminary
prospectus if such misstatement or omission is corrected in the final
prospectus.
(ii) In connection with any registration of Warrant
Shares under the Securities Act pursuant to this Warrant, Net2Phone
shall indemnify and hold harmless (in the same manner and to the same
extent as set forth in the preceding paragraph of this Section) the
Corporation, each director of the Corporation, each officer of the
Corporation who shall sign such registration statement, employees and
affiliates, each person who controls any of the foregoing persons
within the meaning of the Securities Act and the underwriter in an
underwritten offering with respect to any statement or omission from
such registration statement, any preliminary prospectus or final
prospectus contained therein or otherwise filed with the Commission,
any amendment or supplement thereto or any document incident to
registration or qualification of any Warrant Shares, if such statement
or omission was made in reliance upon and in conformity with written
information furnished to the Corporation or such underwriter through an
instrument duly executed by Net2Phone that states that it is
specifically for use in connection with the preparation of such
registration statement, preliminary prospectus, final prospectus,
amendment, supplement or document; provided, however, that the maximum
amount of liability in respect of such indemnification shall be limited
to an amount equal to the proceeds received by Net2Phone from the sale
of Warrant Shares effected pursuant to such registration.
(iii) The indemnification required by this Section
(g) will be made by periodic payments during the course of the
investigation or defense, as and when bills are received or expenses
incurred, subject to prompt refund in the event any such payments are
determined not to have been due and owing hereunder.
(iv) Promptly after receipt by an indemnified party
of notice of the commencement of any action involving a claim referred
to in the preceding paragraphs of this Section, such indemnified party
will, if a claim in respect thereof is made against an indemnifying
party, give written notice to the latter of the commencement of such
action. In case any such action is brought against an indemnified
party, the indemnifying party will be entitled to participate in and to
assume the defense thereof, jointly with any other indemnifying party
similarly notified to the extent that it may wish, with counsel
reasonably satisfactory to such indemnified party, and after notice
from the indemnifying party to such indemnified party of its election
so to assume the defense thereof, the indemnifying party shall not be
responsible for any legal or other expenses subsequently incurred by
the latter in connection with the defense thereof, provided, however,
that if any indemnified party shall have reasonably concluded that
there may be one or more legal or equitable defenses available to such
indemnified party which are additional to or conflict with 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
8
agreement provided in this Section, 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
that portion of the reasonable fees and expenses of any counsel
retained by the indemnified party which is reasonably related to the
matters covered by the indemnity agreement provided in this Section;
provided, further, that the indemnifying party shall not be liable for
fees and expenses of more than one law firm for all indemnified parties
(together with appropriate local counsel). An indemnifying party shall
not be liable for any settlement or compromise of, or consent to entry
of any judgment with respect to, any action, suit, claim or proceeding
effected without its prior written consent (which consent in the case
of an action, suit, claim or proceeding exclusively seeking monetary
relief shall not be unreasonably withheld).
(h) Exchange Act Compliance. From and after the date upon which the
registration statement pursuant to which the Corporation shall have initially
registered shares of Common Stock under the Securities Act for sale to the
public shall have been declared effective or such earlier date as a registration
statement filed by the Corporation pursuant to the Exchange Act relating to any
class of the Corporation's securities shall have become effective, the
Corporation shall use its reasonable best efforts to comply with all of the
reporting requirements of the Exchange Act and with all other public information
reporting requirements of the Commission which are conditions to the
availability of Rule 144 for the sale of the Common Stock. Until such date, the
Corporation shall cooperate with Net2Phone in supplying such information as may
be necessary for Net2Phone to complete and file any information reporting forms
presently or hereafter required by the Commission as a condition to the
availability of Rule 144.
(i) No Conflict of Rights. The Corporation represents and warrants
to Net2Phone that the registration rights granted to Net2Phone hereby do not
conflict with any other registration rights granted by the Corporation. The
Corporation shall not, after the date hereof, grant any registration rights
which conflict with or impair the registration rights granted hereby.
9
