INVESTOR RIGHTS AGREEMENT

INVESTOR RIGHTS AGREEMENT

by and among

DELTATHREE, INC.,

and

D4 HOLDINGS, LLC

February 12, 2009

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.

“ 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.

(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.

(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 supp