Exhibit 2
SERIES A STOCK TRANSFER AGREEMENT
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STOCK TRANSFER Agreement (this "Agreement"), dated as of June 18,
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1999, among Net2Phone, Inc., a Delaware corporation (the "Company"), GE Capital
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Equity Investments, Inc., a Delaware corporation ("GE Capital"), and Snap! LLC,
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a Delaware limited liability company ("Snap").
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WHEREAS, the Company has raised up to $31.4 million through the
issuance and sale of Series A Preferred and Warrants (each as defined below)
(the "Private Placement");
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WHEREAS, GE Capital purchased 750,000 shares of Series A Preferred and
Warrants for 15,000 shares of Common Stock (as defined below) for aggregate
consideration of $7,500,000 in the Private Placement pursuant to a Subscription
Agreement dated as of May 13, 1999 (the "Series A Subscription Agreement");
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WHEREAS, upon the terms and subject to the conditions of this
Agreement, Snap desires to purchase shares of Series A Convertible Preferred
Stock of the Company, par value $.01 per share (the "Series A Preferred"), and
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Warrants (the "Warrants") to purchase shares of Common Stock of the Company, par
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value $.01 per share (the "Common Stock"), and GE Capital desires to sell shares
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of Series A Preferred and Warrants to Snap; and
WHEREAS, Snap is an affiliate of GE Capital;
NOW, THEREFORE, the Company, GE Capital and Snap hereby agree as
follows:
1.1. Sale and Purchase of the Series A Preferred and the Warrants. Upon
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the terms and subject to the conditions of this Agreement, GE Capital hereby
agrees to sell, and Snap hereby agrees to purchase, (i) 100,000 shares of Series
A Preferred (the "Snap Shares") and (ii) Warrants to purchase 2,000 shares of
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Common Stock (the "Snap Warrant"). The Company acknowledges, consents and
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agrees to such sale and purchase of the Snap Shares and the Snap Warrant.
1.2. Closing of the Sale and Purchase. At the Closing (as hereinafter
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defined):
(a) Snap will pay or tender to GE Capital cash in immediately
available funds in the amount of $1,000,000 (one million), representing the
aggregate purchase price for the Snap Shares and the Snap Warrants (the
"Purchase Price").
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(b) GE Capital will deliver to the Company for cancellation the share
certificate representing the Series A Preferred acquired by GE Capital pursuant
to the Series A Subscription Agreement.
(c) The Company shall issue and deliver to GE Capital a new share
certificate for 650,000 shares of Series A Preferred Stock, in a form
substantially similar to the original share certificate and which shall be
registered in GE Capital's name.
(d) The Company shall issue and deliver to Snap a share certificate
for 100,000 shares of Series A Preferred Stock, in a form substantially similar
to GE Capital's original share certificate and which shall be registered in
Snap's name.
(e) The Company and Snap shall execute and deliver a counterpart to
Registration Rights Agreement relating to the shares of Common Stock underlying
the Snap Shares and the Snap Warrant substantially in the form attached as
Exhibit A hereto (the "Registration Rights Agreement").
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(f) The Company and Snap shall execute and deliver a counterpart to
the Co-Sale Agreement relating to the potential sales of Common Stock, the Snap
Shares and the Snap Warrant substantially in the form attached as Exhibit B
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hereto (the "Co-Sale Agreement").
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(g) The Company shall issue and deliver to each of GE Capital and
Snap a warrant certificate representing the Warrants issuable to each of GE
Capital and Snap, which certificates shall be registered in each of GE Capital's
and Snap's name and shall be substantially in the form attached as Exhibit C
hereto (each, a "Warrant Certificate" and collectively, the "Warrant
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Certificates").
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(h) The Company and Snap shall execute and deliver a counterpart to
the Stockholders Agreement (the "Stockholders Agreement" and, together with the
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Registration Rights Agreement and the Co-Sale Agreement, the "Additional
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Agreements") substantially in the form attached as Exhibit D hereto.
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1.3. Closing. The issuance and delivery of the share certificates and the
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Warrant Certificates by the Company to GE Capital and Snap and the delivery of
the Purchase Price to GE Capital (the "Closing"), will take place at the
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offices of ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP, 1290 Avenue of the Americas, New York, New
York, at 10:00 A.M. on June 18, 1999, or at such other time and place as the
Company, GE Capital and Snap may agree orally or in writing.
2. Representations, Warranties and Acknowledgments of Snap.
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Snap hereby represents, warrants and acknowledges to GE Capital and
the Company as follows:
2.1. Receipt of Agreements; Access to Information. Snap has received and
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reviewed this Agreement, the Additional Agreements and the Confidential
Executive Summary, dated February 2, 1999 (as updated, the "Memorandum")
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prepared and distributed by ▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇, LLC (the "Placement Agent") as
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well as the Series A subscription Agreement and the schedules and exhibits
attached thereto. The Company has provided Snap with the opportunity to ask
questions of and to receive answers from representatives of the Company
concerning the Company and an investment in the Snap Shares and the Snap
Warrants.
2.2. No Registration of Shares. Snap is aware that the Snap Shares, the
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Snap Warrants and, when and if issued, the Common Shares underlying the Snap
Shares and the Snap Warrants (the Snap Shares, the Snap Warrants and underlying
Common Shares are collectively referred to herein as the "Securities"), have not
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been registered under the Securities Act of 1933, as amended (the "Act"), that
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such offer and sale are intended to be exempt from registration under the Act
and the rules promulgated thereunder by the Securities and Exchange Commission
(the "SEC"), and that the Securities cannot be sold, assigned, transferred, or
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otherwise disposed of unless they are subsequently registered under the Act or
an exemption from such registration is available. Snap is also aware that sales
or transfers of the Securities are further restricted by state securities laws
and the provisions of this Agreement and that the certificates for the
Securities will bear appropriate legends restricting their transfer pursuant to
applicable laws, this Agreement and the Additional Agreements.
2.3. Suitability of Investment.
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(a) Snap understands that there is no established market for the
Securities;
(b) Snap is acquiring the Securities for its own account for
investment purposes only and not with a view to the resale or distribution
thereof;
(c) Snap has not and will not, directly or indirectly, offer, sell,
transfer, assign, exchange or otherwise dispose of all or any part of the
Securities, except in accordance with applicable federal and state securities
laws and the provisions of this Agreement or the Additional Agreements as long
as such documents remain in effect;
(d) Snap has such knowledge and experience in financial, business
and tax matters that Snap is capable of evaluating the merits and risks relating
to Snap's investment in the Securities and making an investment decision with
respect to the Company;
(e) To the full satisfaction of Snap, Snap has been given the
opportunity to obtain information and documents relating to the Company and to
ask questions of and receive answers from representatives of the Company
concerning the Company and the investment in the Securities;
(f) Snap has not engaged in any activity that would be deemed a
"general solicitation" under the provisions of Regulation D.
(g) Snap has such knowledge and experience in financial or business
matters that it can, and it has, adequately analyzed the risks of an investment
in the Securities and it has determined the Securities are a suitable investment
for Snap and that Snap is able at this time, and in the foreseeable future, to
bear the economic risk of a total loss of its investment in the Company;
(h) Snap is aware that there are substantial risks incident to an
investment in the Securities, including, without limitation, those summarized
under "Risk Factors" in the Memorandum; and
(i) Snap is an "accredited investor" within the meaning of Rule 501
of Regulation D of the Act as presently in effect and is either purchasing for
its own account or for the account of another "accredited investor", and any
accounts for which the Investor is acting are each able to bear the economic
risks of this investment.
2.4. Authorization. All action on the part of Snap necessary for the
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authorization, execution and delivery of this Agreement and the Shareholders
Agreement and the Registration Rights Agreement and for the performance of all
obligations of Snap hereunder and thereunder has been taken. This Agreement has
been, and the Shareholders Agreement and the Registration Rights Agreement will
be, duly executed and delivered by Snap and will constitute valid and legally
binding obligations of Snap, enforceable in accordance with their respective
terms, subject to (i) the laws of bankruptcy and the laws affecting creditors'
rights generally, and (ii) the availability of equitable remedies, and (iii) the
fact that Snap's indemnification obligations under this Agreement and the
Registration Rights Agreement may be unenforceable on the grounds of public
policy.
3. Representations, Warranties and Acknowledgments of GE Capital.
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3.1 Authorization. All action on the part of GE Capital necessary for
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the authorization, execution and delivery of this Agreement and for the
performance of all obligations of GE Capital hereunder and thereunder has been
taken. This Agreement has been duly executed and delivered by GE Capital and
will constitute valid and legally binding obligations of GE Capital, enforceable
in accordance with their respective terms, subject to (i) the laws of bankruptcy
and the laws affecting creditors' rights generally, and (ii) the availability of
equitable remedies.
4. Covenants of the Company. The Company hereby covenants and agrees as
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follows:
(a) Basic Financial Information. So long as Snap holds shares of
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Series A Preferred, the Company will furnish Snap with (i) an annual budget at
least 45 days prior to the beginning of each fiscal year (which budget may be
revised at the discretion of the Board of Directors), (ii) quarterly financial
statements (including balance sheet, statement of operations, statement of
stockholders' deficit and statement of cash flows) within 45 days of the end of
each quarter, all in a form which shall be reasonably acceptable to the
Investors, and (iii) within 90 days following each fiscal year end, financial
statements audited by an accounting firm of national recognition selected by the
Board of Directors. In addition, beginning with the first calendar month
following the six month anniversary of the Closing, the Company will provide
Snap with monthly budget forecasts. Snap hereby agrees to keep such information
confidential, will not disclose it to any third parties except to its
affiliates, beneficial owners and its and their respective advisors and will
disclose it to its employees only on a need-to-know basis, except as necessary
for Snap to enforce its rights under this Agreement or any of the Additional
Agreements, or pursuant to a subpoena or otherwise pursuant to any legal process
or as otherwise required by law.
(b) Termination of Information Rights. Snap's rights pursuant to
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paragraphs (a) and (b) of this Section shall terminate upon the consummation of
a Qualifying Public Offering, as defined in the Amended and Restated Certificate
of Incorporation.
(c) Rights of First Refusal. GE Capital hereby partially assigns
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Snap its right of first refusal to purchase additional equity securities of the
Company, as set forth in Section 5 of the Series A Subscription Agreement, in
proportion to the number of Series A Shares purchased by Snap hereunder divided
by the number of Series A Shares purchased by GE Capital under the Series A
Subscription Agreement.
5. Transfer Limitations: 1933 Act Legend.
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(a) Unless sold pursuant to an effective registration statement,
each certificate representing Securities shall bear a legend substantially in
the following form:
"The shares represented by this certificate have
not been registered under the United States
Securities Act of 1933, as amended (the "Act"),
and may not be offered, sold or otherwise
transferred, pledged or hypothecated unless and
until such shares are registered under the Act or,
except as otherwise permitted pursuant to Rule 144
under the Act or another exemption from registration
under the Act or an opinion of counsel reasonably
satisfactory to the Company is obtained to the
effect that such registration is not required and
are subject to transfer restrictions as set forth
in a Subscription Agreement, dated May 13, 1999,
and the operative agreements entered into in
connection therewith, copies of which may be obtained
from the Company."
The foregoing legend, if necessary, shall be removed from the
certificates representing any Series A Preferred, Warrant, Warrant Shares and
Conversion Shares, at the request of the holder thereof, at such time as (i)
they are sold pursuant to an effective registration
statement, (ii) they become eligible for resale pursuant to Rule 144(k) under
the Act or another provision of Rule 144 of the Act pursuant to which all or a
portion of such underlying Common Shares could be sold in a single transaction,
or (iii) an opinion of counsel reasonably satisfactory to the Company is
obtained to the effect that the proposed transfer is exempt from the Act. The
transfer agent for the Securities will issue new Securities without the legend
upon receipt of a certificate from the Investor stating that the Securities have
been registered or transferred pursuant to an effective registration statement
under the Act or can be sold in reliance upon Rule 144 or the Company has
received an opinion of counsel reasonably satisfactory to the Company to the
effect that the proposed transfer is exempt from the Act.
6. Indemnification. GE Capital hereby partially assigns Snap its right of
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indemnification from the Company, as set forth in Section 9.1 of the Series A
Subscription Agreement, including, without limitation, with respect to any
breach by the Company of any representation, warranty, covenant or agreement
contained in the Series A Subscription Agreement, and Snap hereby partially
assumes from GE Capital its indemnification obligations to the Company, as set
forth in Section 9.2 of the Series A Subscription Agreement, each in proportion
to the number of Series A Shares purchased by Snap hereunder divided by the
number of Series A Shares purchased by GE Capital under the Series A
Subscription Agreement.
7. Miscellaneous.
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7.1. Survival of Warranties. The representations and warranties set forth
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in Sections 2 and 3 hereof and the covenants contained in Section 4 hereof shall
survive indefinitely.
7.2. Successors and Assigns. This Agreement may not be assigned by Snap,
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GE Capital or the Company without the prior written consent of the other party
hereto; provided, however, that this Agreement may be transferred by Snap to one
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or more of its affiliates or beneficial owners, or to any investor under the
Series A Subscription Agreement. Nothing in this Agreement, express or implied,
is intended to confer upon any party, other than the parties hereto or their
respective successors and permitted assigns, any rights, remedies, obligations,
or liabilities under or by reason of this Agreement, except as expressly
provided in this Agreement.
7.3. Governing Law; Submission to Jurisdiction. This Agreement shall be
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governed by and construed in accordance with the laws of the State of New York,
without regard to the conflict of law provisions. Each of the Company, Snap and
GE Capital hereby submits to the nonexclusive jurisdiction of the United States
District Court for the Southern District of New York and of any New York State
court sitting in New York City for purposes of all legal proceedings arising out
of or relating to this Agreement and the transactions contemplated hereby. Each
of the Company, Snap and GE Capital 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.
7.4. Counterparts. This Agreement may be executed in counterparts, each
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of which shall be deemed an original, and all of which together shall be deemed
to constitute one and the same instrument.
7.5. Captions and Headings. The captions and headings used in this
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Agreement are for convenience only and are not to be considered in construing or
interpreting this Agreement.
7.6. Notices. Unless otherwise provided, any notice or other
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communication required or permitted to be given or effected under this Agreement
shall be in writing and shall be deemed effective upon personal or facsimile
delivery to the party to be notified or three business days after deposit with
an internationally recognized courier service, delivery fees prepaid, and
addressed to the party to be notified at the following respective addresses, or
at such other addresses as may be designated by written notice; provided that
any notice of change of address shall be deemed effective only upon receipt:
If to the Company: Net2Phone, Inc.
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▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇ ▇▇▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
with a copy to: IDT Corporation
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▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇ ▇▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
and a copy to: ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP
▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇ ▇▇▇▇▇▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
If to Snap: Snap! LLC
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▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇ ▇▇▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
and a copy to: NBC Multimedia, Inc.
c/o National Broadcasting Company
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▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attn: Vice President, Law, Corporate
Transactions Group
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
If to GE Capital: GE Capital Equity Investments, Inc.
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▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇▇▇ ▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
and a copy to: Paul, Hastings, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ LLP
▇▇▇ ▇. ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
7.7. Finder's Fee. Each of the Company, on the one hand, and GE Capital
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and Snap, on the other hand, severally represents and warrants to the other
party hereto that neither it nor any of its officers, directors, general
partners, agents, employees or affiliates, has engaged or authorized any broker
or finder, other than the Placement Agent (the costs and expenses of which shall
be paid by the Company), to act, directly or indirectly, on its behalf, in
connection with the transactions contemplated by this Agreement, or has
consented to or acquiesced in anyone so acting, and it knows of no claim by any
person for compensation from it for so acting or of any basis for such a claim.
The provisions of this Section 7.7 shall survive any termination of this
Agreement. Each party hereto further agrees to indemnify each other party for
any claims, losses or expenses incurred by such other party as a result of the
representation in this Section 7.7 being untrue.
7.8. Amendments and Waivers. Any term of this Agreement may be amended,
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and the observance of any term of this Agreement may be waived (either generally
or in a particular instance and either retroactively or prospectively), only
with the written consent of each of the Company, Snap and GE Capital. Any
amendment or waiver effected in accordance with this Section 7.8 shall be
binding upon each holder of any Securities purchased under this Agreement at the
time outstanding, each future holder of all such Securities, and the other
parties to this Agreement.
7.9. Severability. If one or more provisions of this Agreement are held
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to be unenforceable under applicable law, such provisions shall be excluded from
this Agreement and the balance of this Agreement shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.
7.10. Entire Agreement. This Agreement and the Additional Agreements
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constitute the entire agreement among the parties with respect to the subject
matter hereof and supersede all prior agreements, understandings and discussions
between them, and all documents delivered by or on behalf of the Company to Snap
and its agents and representatives, with respect to such subject matter.
7.11. Counterparts. This Agreement may be executed in any number of
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counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
7.12. Publicity. None of the Company, GE Capital or Snap shall issue,
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publish or disseminate or cause to be issued, published or disseminated any
press release or public communication relating to this Agreement or any
Additional Agreement or any of the transactions contemplated herein or therein
using the name or any trade ▇▇▇▇, logo, tradename, trade dress or other
intellectual property or otherwise referring to the Company, GE Capital, Snap or
any
affiliate or beneficial owner of Snap, the Company or GE Capital as the case may
be, without the prior written consent of such other party.
7.13. Waiver of Jury Trial. EACH PARTY HERETO HEREBY WAIVES ITS RIGHTS
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TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF
THIS AGREEMENT, THE ADDITIONAL AGREEMENTS, THE SERIES A PREFERRED, THE WARRANTS,
THE CONVERSION SHARES OR THE WARRANT SHARES, OR THE SUBJECT MATTER HEREOF OR
THEREOF. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL-ENCOMPASSING OF ANY AND
ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT
MATTER OF THIS TRANSACTION, INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS, TORT
CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS.
THIS SECTION 7.13 HAS BEEN FULLY DISCUSSED BY EACH OF THE PARTIES HERETO AND
THESE PROVISIONS SHALL NOT BE SUBJECT TO ANY EXCEPTIONS. EACH PARTY HERETO
HEREBY FURTHER WARRANTS AND REPRESENTS THAT SUCH PARTY HAS REVIEWED THIS WAIVER
WITH ITS LEGAL COUNSEL, AND THAT SUCH PARTY KNOWINGLY AND VOLUNTARILY WAIVES ITS
JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. THIS WAIVER IS
IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING,
AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, SUPPLEMENTS OR
MODIFICATIONS TO (OR ASSIGNMENTS OF) THIS AGREEMENT. IN THE EVENT OF LITIGATION,
THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL (WITHOUT A JURY) BY
THE COURT.
IN WITNESS WHEREOF, the Company, GE Capital and Snap have each
executed this Agreement on the day and year first above written.
NET2PHONE, INC. SNAP! LLC:
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇ By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇
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Name: ▇▇▇▇▇▇ ▇▇▇▇▇▇ Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇
Title: CEO Title: Chief Financial Officer
Name: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇
GE CAPITAL EQUITY INVESTMENTS, INC. ----------------------------------
Address: ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇, ▇▇ ▇▇▇▇▇
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Title: CFO
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Telephone No. ▇▇▇-▇▇▇-▇▇▇▇
By: /s/ ▇▇▇▇ ▇▇▇▇▇ --------------------------
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Name: ▇▇▇▇ ▇▇▇▇▇ --------------------------------
Title: Managing Director Date:
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