Document:

EXECUTION COPY

FOURTH LOAN AND SECURITY AGREEMENT

 

THIS FOURTH LOAN AND SECURITY AGREEMENT (this “Agreement”), dated as of September 12, 2011 (the “Effective Date”) is entered into by and between (i) deltathree, Inc., a Delaware corporation, Delta Three Israel, Ltd., an Israeli company (the “Israeli Subsidiary”), (ii) DME Solutions, Inc., a New York corporation (jointly and severally, the “Borrower”), and (iii) D4 Holdings, LLC, a Delaware limited liability company (“Lender”).

 

RECITALS

 

WHEREAS, Lender is a shareholder of deltathree, Inc.;

 

WHEREAS, Borrower has entered into (i) that certain Loan and Security Agreement dated as of March 1, 2010, among Borrower and Lender (the “First Loan Agreement”) for advances from the Lender in an aggregate principal amount not to exceed $1,200,000; (ii) that certain Second Loan and Security Agreement dated as of August 10, 2010 (the “Second Loan Agreement”) for advances from the Lender in an aggregate principal amount not to exceed $1,000,000; and (iii) that certain Third Loan and Security Agreement dated as of March 2, 2011 (the “Third Loan Agreement”) for advances from the Lender in an aggregate principal amount not to exceed $1,600,000  (the First Loan Agreement, Second Loan Agreement and Third Loan Agreement are referred to collectively as the “Existing Loan Agreements”);

 

WHEREAS, Borrower has requested that Lender make advances to Borrower under this Agreement in an aggregate principal amount thereof not to exceed three hundred thousand dollars ($300,000) (the “Maximum Principal Amount”), which advances and obligations will be subordinated to the Borrower’s obligations under the Existing Loan Agreements; and

 

WHEREAS, Lender is willing to make such advances to Borrower on the terms and subject to the conditions set forth herein.

 

AGREEMENT

 

NOW, THEREFORE, in consideration of the premises and covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Borrower and Lender, intending to be legally bound, hereby agree as follows:

 

1.    Loans and Promissory Note.

 

(a)    Commitment to Lend.  Subject to the terms and conditions set forth in this Agreement, Lender hereby agrees to make advances to Borrower (each a “Loan Advance” and collectively, the “Loan Advances”) from time to time, in an amount up to, but not to exceed, the Maximum Principal Amount in the aggregate outstanding at any time, solely for the purposes expressly stated herein.  Subject to the terms and conditions of this Agreement, during any thirty day period (i) Borrower may make no more than one request for a Loan Advance and (ii) Borrower may borrow no more than the Maximum Advance Amount (as defined below).  Borrower acknowledges and agrees that the Lender’s commitment to make Loan Advances hereunder is expressly subject to the satisfaction of the terms and conditions set forth in this Agreement.

  

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(b)    Promissory Note.  The Loan Advances made by Lender hereunder shall be evidenced by the duly executed Promissory Note of Borrower to Lender, dated as of the date hereof in an original principal amount up to the Maximum Principal Amount and in the form attached hereto as Exhibit A (as amended, modified, extended, renewed or replaced from time to time, the “Note”).

(c)    Repayments.  Borrower shall pay in full any outstanding principal amount, all accrued but unpaid interest, and all other Obligations on the Maturity Date.

 

(d)    Payment of Interest.

 

(i)   Subject to Section 7(b)(ii), the principal amount outstanding under each Loan Advance shall accrue interest from the date of issuance of such Loan Advance until the Maturity Date at the rate of twelve percent (12%) per annum, compounding daily. All interest shall be due on the Maturity Date.

 

(ii)   Interest will be computed on the basis of a year deemed to consist of 360 days and shall be paid for the actual number of days elapsed.

2.    Creation of a Security Interest.

 

(a)    Grant of Security Interest.

 

(i)   Borrower hereby grants to Lender, to secure the payment and performance in full of all of the Obligations, a continuing security interest in, and pledges to Lender, all of Borrower’s right, title and interest in, to and under all the Collateral, wherever located, whether now owned or hereafter acquired or arising, and all proceeds and products thereof.  Borrower represents, warrants, and covenants that the security interest granted herein is and shall at all times be a first priority perfected security interest in the Collateral other than with respect to Permitted Liens.  If Borrower shall acquire a commercial tort claim, Borrower shall promptly notify Lender in writing of the general details thereof and grant to Lender a security interest therein and in the proceeds thereof, all upon the terms of this Agreement, with such writing to be in form and substance reasonably satisfactory to Lender.

 

(ii)   If this Agreement is terminated, Lender’s security interest in the Collateral shall continue until the Obligations are repaid in full in cash.  Upon payment in full in cash of the Obligations and at such time as Lender’s obligation to make Loan Advances has terminated, Lender shall, at Borrower’s sole cost and expense, release its security interest in the Collateral and all rights therein shall revert to Borrower.

 

  

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(b)    Authorization to File Financing Statements.  Borrower hereby authorizes Lender to file financing statements, or any document similar thereto (including, without limitation, collateral agreements and filings with the United States Patent and Trademark Office), without notice to Borrower, with all appropriate jurisdictions to perfect or protect Lender’s interest or rights hereunder.  Such financing statements may indicate the Collateral as “all assets of the Debtor” or words of similar effect, or as being of an equal or lesser scope, or with greater detail, all in Lender’s discretion, and may include a notice that any disposition of the Collateral, either by Borrower or any other person, shall be deemed to violate the rights of Lender under the Code.  

(c)     Subordination.  Notwithstanding anything contained herein to the contrary, and notwithstanding the date, manner or order of grant, attachment or perfection of any lien or security interest created hereunder or any other Loan Document, the Liens created hereby and by the other Loan Documents, and payment of the Obligations hereunder and under the Note, are each subordinated to the security interests and liens granted under the Existing Loan Agreements.

3.    Conditions of Loan Advances; Repayment of Excess Cash.

 

(a)    Operating Budget.  Borrower has prepared an operating budget dated the date hereof in form and substance acceptable to Lender covering the period from the date hereof through December 31, 2011, setting forth in reasonable detail all anticipated receipts and disbursements proposed to be made by Borrower on a weekly basis during such period (the “Operating Budget”).  Any modification or change to the Operating Budget shall be subject to the written approval and agreement by the Lender in its sole and absolute discretion.  Borrower acknowledges and agrees that (i) no Loan Advances will be made except in accordance with the Operating Budget for the applicable period, (ii) the approval of any modification or change to the Operating Budget is subject to the sole and absolute discretion of the Lender, and (iii) Lender’s approval of any modification or change to the Operating Budget for any period shall in no way require or commit Lender to approve or accept any other modification or change to the Operating Budget for any subsequent period.

(b)    Conditions Precedent to All Loan Advances.  Lender’s obligation to make each Loan Advance is subject to satisfaction of the following additional conditions:

 

(i)      Receipt of an executed Notice of Borrowing (as defined below), executed by an officer of the Borrower;

 

(ii)     The representations and warranties in Section 4 shall be true in all material respects on the date of each Notice of Borrowing and each Loan Date (as defined below);

 

(iii)    No Event of Default shall have occurred and be continuing or result from such Loan Advance;

(iv)   There shall not have occurred, in Lender’s sole discretion, any Material Adverse Change; and

  

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(v)    Without limiting the generality of any of the foregoing, Borrower shall have demonstrated, to the satisfaction of Lender in its sole discretion, that Borrower has complied in all respects with Sections 5(a)(iv) and 5(b)(vii) of this Agreement.

(c)     Limits on Monthly Loan Advances.  The maximum amount of any Loan Advance shall be  $100,000 (the “Maximum Advance Amount”).

(d)    Procedure for Borrowing.  Loan Advances may be requested by Borrower only during the period beginning on the date hereof and ending on December 31, 2011 (the “Draw Period”). Subject to the prior or simultaneous satisfaction of the conditions set forth in Section 3(b), to obtain a Loan Advance, Borrower shall give written notice to Lender in the form attached as Exhibit B (a “Notice of Borrowing”) not later than the tenth (10th) Business Day prior to the date of the proposed Loan Advance (a “Loan Date”); provided that the first Notice of Borrowing may be made on the date of this Agreement in connection with the execution of this Agreement.  Each Notice of Borrowing shall be in writing and shall specify (a) the proposed Loan Date; (b) the account of Borrower to be funded and the wire instructions applicable thereto; and (c) the amount of such proposed Loan Advance (in accordance and consistent with the Operating Budget).  Following Lender’s receipt of a Notice of Borrowing and satisfaction of the terms and conditions of this Agreement (including the conditions set forth in Section 3), Lender shall deliver the applicable Loan Advance to Borrower on the Loan Date by wire transfer of immediately available funds to the account specified by Borrower.

4.    Representations and Warranties of Borrower.  Each Borrower hereby represents and warrants to Lender as of the date hereof as follows:

 

(a)    Binding Agreement.  The Loan Documents constitute or will constitute, when issued and delivered, valid and binding obligations of Borrower, enforceable in accordance with their respective terms, subject to bankruptcy, insolvency and other similar laws affecting the enforcement of creditors’ rights in general, and general principles of equity.

 

(b)    Organization; Power; Authorization.  Each Borrower is a Registered Organization duly organized, validly existing and in good standing under the laws of the jurisdiction in which it is organized.  Each Borrower has all requisite power and authority (corporate and otherwise) to execute, deliver and perform the Loan Documents and to consummate the transactions contemplated thereby.  The execution, delivery and performance by Borrower of the Loan Documents and the consummation of the transactions contemplated thereby have been duly authorized by all necessary action on the part of Borrower.

 

 (c)   Non-Contravention.  Neither the execution and the delivery of the Loan Documents, nor the consummation of the transactions contemplated hereby, will (a) violate any injunction, judgment, order, decree, ruling, charge or any provision of Borrower’s charter documents, or, to Borrower’s knowledge, any restriction of any government, governmental agency, or court to which Borrower is subject, or (b) conflict with, result in a material breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, any material agreement, contract, lease, license, instrument, or other arrangement to which Borrower is a party or by which it is bound or to which any of its assets are subject.

  

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(d)    Collateral.

 

(i)     Borrower has good title to, has rights in, and the power to transfer each item of the Collateral upon which it purports to grant a Lien hereunder, free and clear of any and all Liens except (A) Permitted Liens and (B) the Lien created under the Existing Loan Agreements. The security interests and Liens granted to Lender under this Agreement and the other Loan Documents to which Borrower is a party constitute valid and perfected first priority liens and security interests in and upon the Collateral to which Borrower now has or hereafter acquires rights other than with respect to Permitted Liens.  Borrower has no deposit accounts other than the deposit accounts described in Exhibit C, or of which Borrower has given Lender notice and taken such actions as are necessary to give Lender a perfected security interest therein. The Accounts are bona fide, existing obligations of the Account Debtors.

 

(ii)     The Collateral is not in the possession of any third party bailee (such as a warehouse). None of the components of the Collateral shall be maintained at locations other than (A) the primary business address of Borrower, (B) collocation sites at which Borrower leases space and (C) storage facilities utilized by Borrower, in the case of (B) and (C) at such locations as have been previously disclosed to Lender.  In the event that Borrower, after the date hereof, intends to store or otherwise deliver any portion of the Collateral to a bailee, then Borrower will first receive the written consent of Lender and such bailee must execute and deliver a bailee agreement in form and substance satisfactory to Lender in its sole discretion.

(iii)    All Inventory is in all material respects of good and marketable quality, free from material defects.

 

(iv)   Borrower is the sole owner of its intellectual property, except for non-exclusive licenses granted to its customers in the ordinary course of business. Borrower’s intellectual property does not include any patents, nor does Borrower have any patents pending or any applications for patents on file. No part of the intellectual property has been judged invalid or unenforceable, in whole or in part, and to the best of Borrower’s knowledge and except as previously disclosed to Lender, no claim has been made that any part of the intellectual property violates the rights of any third party.

 

(v)    Borrower is not a party to, nor is bound by, any material license or other agreement with respect to which Borrower is the licensee (A) that prohibits or otherwise restricts Borrower from granting a security interest in Borrower’s interest in such license or agreement or any other property, or (B) for which a default under or termination of could interfere with Lender’s right to sell any Collateral.  Borrower shall provide written notice to Lender within ten (10) days of entering or becoming bound by any such license or agreement which is reasonably likely to have a material impact on Borrower’s business or financial condition (other than over-the-counter software that is commercially available to the public). Borrower shall take such steps as Lender requests to obtain the consent of, or waiver by, any Person whose consent or waiver is necessary for (Y) all such licenses or agreements to be deemed “Collateral” and for Lender to have a security interest in it that might otherwise be restricted or prohibited by law or by the terms of any such license or agreement, whether now existing or entered into in the future, and (Z) Lender to have the ability in the event of a liquidation of any Collateral to dispose of such Collateral in accordance with Lender’s rights and remedies under this Agreement and the other Loan Documents.

  

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(e)    Good Faith and Arm’s Length Transaction.  The loan contemplated by this Agreement is being made on a good faith, arms length basis on what the Borrower reasonably believes to be the best available market terms, Borrower reasonably believes in good faith that the terms and conditions of the Loan Documents are substantially equivalent to and at least as favorable in the aggregate as those Borrower would be able to receive from an unaffiliated lender.  After having reviewed its financial position and forecast, the Borrower reasonably believes that it will be in position to fulfill its obligations under the terms of this Agreement.

    

(f)     Tax Returns and Payments.  Except as previously disclosed to Lender, and in no event in excess of $50,000 in the aggregate unpaid, Borrower has filed, or caused to be filed, in a timely manner all material tax returns, reports and declarations which are required to be filed by it (without requests for extension except as previously disclosed in writing to Lender).  All information in tax returns, reports and declarations filed by Borrower is complete and accurate in all material respects.  Except as previously disclosed to Lender, and in no event in excess of $50,000 in the aggregate unpaid, Borrower has paid or caused to be paid prior to delinquency all taxes due and payable or claimed due and payable in any assessment received by it, except taxes the validity of which are being contested in good faith by appropriate proceedings diligently pursued and available to Borrower and with respect to which adequate reserves have been set aside on its books.  Adequate provision has been made by Borrower for the payment of all accrued and unpaid federal, state, county, local, foreign and other taxes whether or not yet due and payable and whether or not disputed.

(g)    Operating Budget.  Borrower represents and warrants to the Lender that the expenditures set forth in each Operating Budget are and will be Borrower’s bona fide estimated expenditures for the periods covered thereby.

(h)    Prior Loan Outstanding Balance.   Borrower represents and warrants to Lender that the amounts outstanding for principal and interest disclosed to Lender are the true, correct and actual amounts of principal and interest outstanding under the Existing Loan Agreements.

 

5.    Covenants.

 

(a)    Affirmative Covenants.

 

(i)     Maintenance of Properties.  Borrower shall maintain all tangible property included in the Collateral in good order and repair, subject to normal wear and tear, and make all needed and proper repairs to its properties so that Borrower’s business may be properly conducted at all times in accordance with prudent business management and in compliance with all governmental requirements and regulations.

  

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(ii)    Government Compliance.  Borrower shall maintain its legal existence and good standing in its jurisdiction of formation and maintain qualification in each jurisdiction in which the failure to so qualify would reasonably be expected to have a material adverse effect on Borrower’s business or operations. Borrower shall comply with all laws, ordinances and regulations to which it is subject, the noncompliance with which could reasonably be expected to cause, or causes, a Material Adverse Change.

 

(iii)    Intellectual Property Rights.  Borrower shall: (a) take reasonable steps to protect, defend and maintain the validity and enforceability of its intellectual property, (b) promptly advise Lender in writing of material infringements of its intellectual property; and (c) not allow any intellectual property material to Borrower’s business to be abandoned, forfeited or dedicated to the public without Lender’s written consent.  If after the date hereof Borrower (i) obtains any patent, registered trademark or service mark, registered copyright, registered mask work, or any pending application for any of the foregoing, whether as owner, licensee or otherwise, or (ii) applies for any patent or the registration of any trademark or service mark, then Borrower shall provide written notice thereof to Lender on a quarterly basis and shall execute such intellectual property security agreements and other documents and take such other actions as Lender shall request in its good faith business judgment to perfect and maintain a first priority perfected security interest in favor of Lender in such property.  If Borrower registers any copyrights or mask works in the United States Copyright Office, Borrower shall: (x) provide Lender with at least fifteen (15) days prior written notice of Borrower’s registration of such copyrights; (y) execute an intellectual property security agreement and such other documents and take such other actions as Lender may reasonably request in its good faith business judgment to perfect and maintain a first priority perfected security interest in favor of Lender in the copyrights or mask works intended to be registered with the United States Copyright Office; and (z) record such intellectual property security agreement with the United States Copyright Office contemporaneously with filing the copyright or mask work application(s) with the United States Copyright Office. Borrower shall promptly provide to Lender copies of all applications that it files for patents or for the registration of trademarks, service marks, copyrights or mask works, together with evidence of the recording of the intellectual property security agreement necessary for Lender to perfect and maintain a first priority perfected security interest in such property.

(iv)   Use of Funds in Accordance with Operating Budget.  Borrower shall use its Cash Reserves (including the proceeds of any Loan Advance) solely for the purposes set forth in the Operating Budget.  Borrower shall not use any portion of any Loan Advance for personal, family, household or agricultural purposes.  Borrower shall not make any payments, or make payments in an amount, that are/is not set forth in the Operating Budget.

(v)    Insurance.  Borrower shall, at all times, maintain with financially sound and reputable insurers insurance with respect to the Collateral against loss or damage and all other insurance of the kinds and in the amounts customarily insured against or carried by corporations of established reputation engaged in the same or similar businesses and similarly situated.

  

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(vi)   Operational and Assets Preservation Upon Cash Shortage.  In the event that  Borrower has fully borrowed the Maximum Principal Amount under this Agreement, and Borrower’s actual cash and cash equivalents on hand equals or is less than $75,000, regardless of Borrower’s status under this Agreement, Borrower shall immediately:

	
  

	
(a)

	
Advise its board of directors and Lender of such fact, as far in advance as is reasonably practicable and when reasonably apparent to Borrower’s management;

	
  

	
(b)

	
As directed by the mutual agreement of Borrower’s board of directors and Lender, reduce its personnel to the minimum number necessary to allow Borrower’s voice over internet protocol communications network (the “Network”) to continue to operate at a minimal level to serve all of Borrower’s customers according to their various service agreements with Borrower;

	
  

	
(c)

	
Take immediate steps to create, to the extent not already existing at that time, complete industry-standard server redundancy for the Network, such that were Borrower no longer able to operate the network, any one or more of Borrower’s customers could have access to and maintain minimal operations of, the Network, for the benefit of all of Borrower’s customers;

	
  

	
(d)

	
Take immediate steps to escrow all servers, hardware, and software, including source code, such that the Network, and Borrower’s ‘JOIP’ application continue to operate and be available for sale by Borrower’s customers;

	
  

	
(e)

	
Take immediate steps to secure its relationships with all of its vendors necessary for the items in sections 5(vi)(c and d) to occur, including, if necessary and if Borrower has the ability, making prepayments or special payment arrangements for the services of such vendors; and

	
  

	
(f)

	
Takes immediate steps to assist its white label wholesale platform customers and joip Mobile resellers in creating a cooperative transition plan to allow those customers to migrate their end user customers to an alternative platform, with Borrower providing appropriate and commercially reasonable support for them to do so.

(vii) Further Assurances.  Borrower shall execute any further instruments and take further action as Lender reasonably requests to perfect or continue Lender’s security interest in the Collateral or to otherwise effect the purposes of this Agreement.

 

(b)    Negative Covenants.  Borrower shall not, without Lender’s prior written consent:

 

  

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(i)      Dispositions.  Convey, sell, lease, transfer, assign or otherwise dispose of (collectively, “Transfer”), or permit any of its subsidiaries to Transfer, all or any part of its business or property, except for Transfers (a) of Inventory in the ordinary course of business; (b) of worn-out or obsolete Equipment; and (c) of non-exclusive licenses for the use of the property of Borrower or its subsidiaries in the ordinary course of business;

 

 (ii)    Mergers; Acquisitions; Liquidations.  Merge or consolidate, or permit any of its subsidiaries to merge or consolidate, with any other Person; acquire, or permit any of its subsidiaries to acquire, all or substantially all of the capital stock or property of another Person; or liquidate, wind-up or dissolve (or suffer any liquidation, winding up or dissolution), terminate or discontinue its business.  A subsidiary may merge or consolidate into another subsidiary or into Borrower; provided that, in the case of a merger of a subsidiary into Borrower, Borrower shall remain the surviving entity;

 

(iii)    Indebtedness.  Borrow money or engage in any debt or other financing transaction for borrowed money, except under this Agreement or the Existing Loan Agreements and except for trade payables incurred in the ordinary course of Borrower’s business individually in an amount of up to $25,000 individually or up to $100,000 in the aggregate;

 

(iv)   Encumbrances.  Create, incur, allow, or suffer any Lien on any Collateral, or assign or convey any right to receive income or permit any of Borrower’s subsidiaries to do so, or permit any Collateral not to be subject to the first priority security interest granted herein, in each case, other than with respect to Permitted Liens; provided however, that Borrower shall not, directly or indirectly, take any action to accelerate or increase the obligations secured by any Permitted Lien;

 

(v)    Loans.  Make any loan to any Person except receivable, prepaid items or deposits incurred in the ordinary course of business;

 

(vi)   Capital Expenditures.  Make nor agree to make any material capital expenditures;

(vii)  Other Payments.  Pay or prepay any indebtedness to creditors or make any expenditures (or enter into any agreement or understanding with any person to make any such payment, prepayment or expenditure) other than payments expressly identified in the Operating Budget.

  

6.    Representations and Warranties of Lender.

 

(a)   Binding Agreement.  This Agreement constitutes or will constitute, when issued and delivered, a valid and binding obligation of Lender, enforceable in accordance with its terms, subject to bankruptcy, insolvency and other similar laws affecting the enforcement of creditors’ rights in general, and general principles of equity.

  

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(b)    Organization; Power; Authorization.  Lender is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Delaware.  Lender has full limited liability company power and authority to execute, deliver and perform this Agreement and to consummate the transactions contemplated hereby.  The execution, delivery and performance by Lender of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary limited liability company action.

 

(c)    Non-Contravention.  Neither the execution and the delivery of the Loan Documents, nor the consummation of the transactions contemplated hereby, will (a) violate any injunction, judgment, order, decree, ruling, charge or any provision of Lender’s charter documents, or, to Lender’s knowledge, any restriction of any government, governmental agency, or court to which Lender is subject, or (b) conflict with, result in a material breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, any material agreement, contract, lease, license, instrument, or other arrangement to which Lender is a party or by which it is bound or to which any of its assets are subject.

 

7.    Events of Default; Remedies Upon Default.

 

(a)    Events of Default.  The occurrence of any of the following events shall constitute an event of default (each, an “Event of Default”) hereunder:

 

(i)      Borrower fails to pay timely any of the principal and/or any accrued interest or other amounts due under the Loan Documents, or under any other loan agreement or promissory note among Borrower and Lender (including the Existing Loan Agreements), when the same becomes due and payable;

 

(ii)    Borrower (A) files any petition or action for relief under any bankruptcy, reorganization, insolvency or moratorium law, or any other law for the relief of, or relating to, debtors, now or hereafter in effect; (B) applies for or consents to the appointment of a custodian, receiver, trustee, sequestrator, conservator or similar official for Borrower or for a substantial part of Borrower’s assets; (C) makes a general assignment for the benefit of creditors; (D) becomes unable to, or admits in writing its inability to, pay its debts generally as they come due; or (E)  takes any corporate action in furtherance of any of the foregoing;

 

(iii)    An involuntary petition is filed against Borrower (unless such petition is dismissed or discharged within sixty (60) days) under any bankruptcy statute now or hereafter in effect, or a custodian, receiver, trustee, sequestrator, conservator, assignee for the benefit of creditors (or other similar official) is appointed to take possession, custody or control of any property of Borrower;

 

(iv)    One or more judgments for the payment of money in an amount, individually or in the aggregate,  that could reasonably be expected to have a material adverse effect on Borrower’s business or operations (not covered by independent third-party insurance as to which liability has been accepted by such insurance carrier) are entered by a court of competent jurisdiction against Borrower which judgment remains undischarged, unsatisfied, unvacated or unstayed for a period of ten (10) days after such judgment becomes final and non-appealable (and Lender shall not be required to make any Loan Advances prior to the satisfaction, vacation or stay of such judgment, order or decree);

  

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(v)     A default or breach occurs under any agreement between Borrower and any creditor of Borrower that signed a subordination, intercreditor, or other similar agreement with Lender, or any creditor that has signed such an agreement with Lender breaches any terms of such agreement;

 

(vi)    Any representation, warranty or other statement made by Borrower in the Loan Documents, or any other agreement or other document delivered in connection with any of the Loan Documents, shall prove to have been false or misleading in any material respect when made;

 

 (vii)  Borrower violates any covenant set forth in Section 5 hereof;

(viii)  After the date hereof, Borrower grants any Person, other than Lender, any Lien or other encumbrance on all or any substantial part of its assets, other than (A) with respect to Permitted Liens or (B) with respect to any Lien or other encumbrance that is junior in priority to the Lien created by Section 2 hereof;

(ix)     There is a default in any agreement to which any Borrower is a party with a third party or parties resulting in a right by such third party or parties, whether or not exercised, to accelerate the maturity of any indebtedness in an amount that could, in Lender’s sole discretion, reasonably be expected to result in a Material Adverse Change; provided, however, that the Event of Default under this Section 7(a)(ix) caused by the occurrence of a default under such other agreement shall be cured or waived for purposes of this Agreement upon Lender receiving written notice from the party asserting such default of such cure or waiver of the default under such other agreement, if at the time of such cure or waiver under such other agreement (a) Lender has not declared an Event of Default under this Agreement and/or exercised any rights with respect thereto; (b) any such cure or waiver does not result in an Event of Default under any other provision of this Agreement or any Loan Document; and (c) in connection with any such cure or waiver under such other agreement, the terms of any agreement with such third party are not modified or amended in any manner which could in the good faith judgment of Lender be materially less advantageous to Borrower;

(x)      Any Loan Document, at any time after its execution and delivery and for any reason or the indefeasible satisfaction in full, in cash, of all the Obligations, ceases to be in full force and effect; or any Borrower contests in any manner the validity or enforceability of any Loan Document; or any Borrower denies that it has any or further liability or obligation under any Loan Document, or purports to revoke, terminate or rescind any Loan Document; or

(xi)     There shall have occurred, as determined by Lender its sole discretion, any Material Adverse Change.

 

  

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 (b)  Remedies Upon Default.

 

 

(i)     Upon the occurrence of an Event of Default hereunder:

 

(A)  all unpaid principal, accrued interest and other amounts owing hereunder shall, at the option of Lender, be immediately due and payable by Borrower (but if an Event of Default described in Section 7(a)(ii) or (iii) occurs, all Obligations are immediately due and payable without any action by Lender);

 

(B)   Lender may terminate its commitment to make additional Loan Advances;

(C)   Lender shall have the right to exercise all the remedies of a secured party under the Code, including without limitation the right to require Borrower to assemble the Collateral and to make it available to Lender at a place designated by Lender. Borrower will pay any reasonable expenses (including reasonable attorneys’ fees) incurred by Lender in connection with the exercise of any of Lender’s rights hereunder, including without limitation any expense incurred in disposing of the Collateral.

 (D)  Lender may proceed to protect and enforce its right by suit in the specific performance of any covenant or agreement contained in the Loan Documents or in aid of the exercise of any power granted in the Loan Documents or may proceed to enforce the payment of the Loan Documents or to enforce any other legal or equitable rights as Lender may have, including exercising any right or remedies available to Lender under the Loan Documents and under the Code (including disposal of the Collateral pursuant to the terms thereof); and

(ii)    Any and all amounts (including principal, unpaid interest and all reasonable costs and expenses of collection, including reasonable attorneys’ fees) outstanding hereunder after an Event of Default shall bear interest from the date due until paid at the rate of eighteen percent (18%) per annum.

(iii)   Upon the occurrence of an Event of Default, and upon the filing of a suit or other commencement of judicial proceedings to enforce the rights of Lender under this Agreement, Lender shall be entitled, as a matter of right, to the appointment of a receiver or receivers of the Borrower and of the revenues, issues, payments and profits thereof, pending such proceedings, with such powers as the court making such appointment shall confer.

(iv)   If an Event of Default occurs, in addition to any other right under this Agreement, Lender shall have the right to require, in writing, the Borrower to hire either an independent management consultant with sufficient expertise in and knowledge of the business of the Borrower, or new management, and shall have the right to consent, in writing, to the independent management consultant, management personnel and/or company that the Borrower recommends as consultant or replacement management, as applicable.

 

  

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(c)       Power of Attorney.  Borrower hereby irrevocably appoints Lender as its lawful attorney-in-fact, exercisable upon the occurrence and during the continuance of an Event of Default, to: (a) endorse Borrower’s name on any checks or other forms of payment or security; (b) sign Borrower’s name on any invoice or bill of lading for any Account or drafts against Account Debtors; (c) settle and adjust disputes and claims about the Accounts directly with Account Debtors, for amounts and on terms Lender determines reasonable; (d) make, settle, and adjust all claims under Borrower’s insurance policies; (e) pay, contest or settle any Lien (except for Permitted Liens), charge, encumbrance, security interest, and adverse claim in or to the Collateral, or any judgment based thereon, or otherwise take any action to terminate or discharge the same; and (f) transfer the Collateral into the name of Lender or a third party as the Code permits. Borrower hereby appoints Lender as its lawful attorney-in-fact to sign Borrower’s name on any documents necessary to perfect or continue the perfection of Lender’s security interest in the Collateral regardless of whether an Event of Default has occurred until all Obligations have been satisfied in full and Lender is under no further obligation to make Loan Advances hereunder.  Lender’s foregoing appointment as Borrower’s attorney-in-fact, and all of Lender’s rights and powers, coupled with an interest, are irrevocable until all Obligations have been fully repaid and performed and Lender’s obligation to provide Loan Advances terminates.

 

 (d)      Application of Payments and Proceeds.  If an Event of Default has occurred and is continuing, Borrower shall have no right to specify the order or the accounts to which Lender shall allocate or apply any payments required to be made by Borrower to Lender or otherwise received by Lender under this Agreement when any such allocation or application is not specified elsewhere in this Agreement.  If an Event of Default has occurred and is continuing, Lender may apply any funds in its possession, whether from Borrower account balances, payments, proceeds realized as the result of any collection of Accounts or other disposition of the Collateral, or otherwise, to the Obligations in such order as Lender shall determine in its sole discretion.  If Lender, in its good faith business judgment, directly or indirectly enters into a deferred payment or other credit transaction with any purchaser at any sale of Collateral, Lender shall have the option, exercisable at any time, of either reducing the Obligations by the principal amount of the purchase price or deferring the reduction of the Obligations until the actual receipt by Lender of cash therefor.

 

(e)       Lender’s Liability for the Collateral.  So long as Lender complies with reasonable practices regarding the safekeeping of the Collateral in the possession or under the control of Lender customary for Persons in possession or having control of items similar to the Collateral, Lender shall not be liable or responsible for: (i) any loss or damage to the Collateral; (ii) any diminution in the value of the Collateral; or (iii) any act or default of any carrier, warehouseman, bailee, or other Person. Borrower bears all risk of loss, damage or destruction of the Collateral.

 

8.    Other Provisions.

 

(a)       Demand Waiver; Representations and Expenses.  Borrower waives presentment, notice of dishonor, protest and notice of protest of this Agreement and the Note and all other notices or demands in connection with the delivery, acceptance, performance, default or endorsement of the Loan Documents, and shall pay reasonable out-of-pocket costs and expenses of collection when incurred by Lender, including, without limitation, reasonable attorneys’ fees and expenses.

 

  

13

  

(b)      Waivers by Lender; Remedies Cumulative.  Either party’s failure, at any time or times, to require strict performance by the other party of any provision of this Agreement or any other Loan Document shall not waive, affect, or diminish any right of such party thereafter to demand strict performance and compliance herewith or therewith. Any waiver is only effective for the specific instance and purpose for which it is given. Lender’s rights and remedies under this Agreement and the other Loan Documents are cumulative.  Lender has all rights and remedies provided under the Code, by law, or in equity.  Lender’s exercise of one right or remedy is not an election, and Lender’s waiver of any Event of Default is not a continuing waiver. Any delay in exercising any remedy by a party is not a waiver, election, or acquiescence.

 

 (c)     Binding Agreement; Governing Law.  This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns.  This Agreement shall be governed by and construed in accordance with the internal and substantive laws of the State of Delaware and without regard to any conflicts of laws concepts which would apply the substantive law of some other jurisdiction.

 

(d)      Further Assurances.  The parties hereto agree to execute and deliver all such other papers and documents and to take such other further actions that may be reasonably necessary or appropriate to carry out the terms of this Agreement.

 

(e)       Entire Agreement; Amendment.  The Loan Documents contain the entire agreement among the parties with respect to the subject matter hereof and there are no agreements, understandings, representations, or warranties regarding the subject matter hereof that are not set forth herein.  This Agreement may not be amended or revised except by a writing signed by Borrower and Lender. This Agreement does not replace the Existing Loan Agreements.

 

(f)      Notices.  Any notices required or permitted to be sent to Borrower or Lender shall be delivered to the address of Borrower or Lender, as applicable, as set forth below.  All notices required or permitted hereunder, to be effective, shall be in writing and shall be deemed effectively given: (i) when sent by confirmed facsimile if sent during normal business hours of the recipient, and if not, then on the next Business Day, (ii) three (3) days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (iii) one (1) Business Day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt.

 

If to Borrower, to:

deltathree, Inc.

Jerusalem Technology Park – Bldg. #9

P.O. Box 48265, Jerusalem 91481, Israel

Attention: Chief Executive Officer

Facsimile: 011.972.2.649.1200

  

14

  

with a copy (which shall not constitute notice) to:

deltathree, Inc.

Jerusalem Technology Park – Bldg. #9

P.O. Box 48265, Jerusalem 91481, Israel

Attention: General Counsel

Facsimile: 011.972.2.649.1200

 

If to Lender, to:

D4 Holdings, LLC

349-L Copperfield Blvd, #407

Concord, NC 28025

Attention:  Robert Stevanovski, Manager

Facsimile:  704.260.3304

with a copy (which shall not constitute notice) to:

D4 Holdings, LLC

349-L Copperfield Blvd, #407

Concord, NC 28025

Attention:  General Counsel

Facsimile:  704.260.3304

(g)     Counterparts.  This Agreement may be executed in one or more counterparts, all of which when taken together shall constitute but one instrument, and in the event any signature is delivered by facsimile or “.pdf” transmission, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile or “.pdf” were an original thereof.

 

(h)      Severability.  The provisions of this Agreement are severable, and the invalidity of any provision shall not affect the validity or enforceability of any other provision hereof.

 

(i)       Captions.  The captions herein have been inserted solely for convenience of reference and in no way define, limit, or describe the scope or substance of any provision of this Agreement.

 

(j)      Interpretation.  All pronouns used herein shall include the masculine, feminine, and neuter gender as the context requires.  All defined terms shall include both the plural and singular case as the context requires.

 

(k)      Restriction on Assignment.  Notwithstanding anything herein to the contrary, Borrower shall not assign this Agreement without obtaining the prior written approval of Lender.  Lender may assign or transfer any of its rights or obligations under the Loan Documents without the consent of Borrower, and the provisions of the Loan Documents shall be binding upon and inure to the benefit of such assignee or transferee.  Any attempted assignment in violation of this Section 8(k) shall be void and the other party hereto shall not recognize any such purported assignment.

  

15

  

 

(l)        Borrower Matters.  Any Borrower may, acting singly, request a Loan Advance hereunder. Each Borrower hereby appoints each other Borrower as such Borrower’s agent for all purposes hereunder, including with respect to requesting Loan Advances hereunder. Each Borrower hereunder shall be jointly and severally obligated to repay all Loan Advances made hereunder, regardless of which Borrower actually receives said Loan Advances, as if each Borrower hereunder directly received all Loan Advances. Each Borrower waives any suretyship defenses available to it under the Code or any other applicable law.  Each Borrower waives any right to require Lender to: (i) proceed against any Borrower or any other Person; (ii) proceed against or exhaust any security; or (iii) pursue any other remedy. Lender may exercise or not exercise any right or remedy it has against any Borrower or any security it holds (including the right to foreclose by judicial or non-judicial sale) without affecting any Borrower’s liability hereunder. Notwithstanding any other provision of this Agreement or any other Loan Document, each Borrower irrevocably waives all rights that it may have at law or in equity (including, without limitation, any law subrogating Borrower to the rights of Lender under this Agreement) to seek contribution, indemnification or any other form of reimbursement from any other Borrower, or any other Person now or hereafter primarily or secondarily liable for any of the Obligations, for any payment made by Borrower with respect to the Obligations in connection with this Agreement, any other Loan Document or otherwise and all rights that it might have to benefit from, or to participate in, any security for the Obligations as a result of any payment made by Borrower with respect to the Obligations in connection with this Agreement or otherwise. Any agreement providing for indemnification, reimbursement or any other arrangement prohibited under this Section 8(l) shall be null and void. If any payment is made to a Borrower in contravention of this Section 8(l), such Borrower shall hold such payment in trust for Lender and such payment shall be promptly delivered to Lender for application to the Obligations, whether matured or unmatured.

(m)      Maximum Legal Rate.  Anything herein to the contrary notwithstanding, if during any period for which interest is computed hereunder, the amount of interest computed on the basis provided for in this Agreement, together with all fees, charges, and other payments or rights which are treated as interest under applicable law, as provided for herein or in any other document executed in connection herewith, would exceed the amount of such interest computed on the basis of the Highest Lawful Rate (as defined below), the Borrower shall not be obligated to pay, and the Lender shall not be entitled to charge, collect, receive, reserve, or take, interest in excess of the Highest Lawful Rate, and during any such period the interest payable hereunder shall be computed on the basis of the Highest Lawful Rate.  “Highest Lawful Rate” means the maximum non-usurious rate of interest, as in effect from time to time, which may be charged, contracted for, reserved, received, or collected by the Lender in connection with this Agreement under applicable law.  In accordance with this paragraph, any amounts received in excess of the Highest Lawful Rate shall be applied towards the prepayment of principal then outstanding.

 

  

16

  

9.    Definitions.  As used in this Agreement:

 

(a)    “Account” means all present and future rights of Borrower to payment for goods sold or leased or for services rendered, which are not evidenced by instruments or chattel paper, and whether or not earned by performance.

 

(b)    “Account Debtor” is any “account debtor” as defined in the Code with such additions to such term as may hereafter be made.

 

(c)    “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 governmental action to close.

 

(d)   “Code” means the Uniform Commercial Code, as the same may, from time to time, be enacted and in effect in the State of Delaware; provided, that, to the extent that the Code is used to define any term herein or in any Loan Document and such term is defined differently in different Articles or Divisions of the Code, the definition of such term contained in Article or Division 9 shall govern; provided further, that in the event that, by reason of mandatory provisions of law, any or all of the attachment, perfection, or priority of, or remedies with respect to, Lender’s security interest in any Collateral is governed by the Uniform Commercial Code in effect in a jurisdiction other than the State of Delaware, the term “Code” shall mean the Uniform Commercial Code as enacted and in effect in such other jurisdiction solely for purposes on the provisions thereof relating to such attachment, perfection, priority, or remedies and for purposes of definitions relating to such provisions.

 

(e)    “Collateral” is any and all properties, rights and assets of Borrower described on Exhibit C.

 

(f)     “Equipment” is all “equipment” as defined in the Code with such additions to such term as may hereafter be made, and includes without limitation all machinery, fixtures, goods, vehicles (including motor vehicles and trailers), and any interest in any of the foregoing.

 

(g)    “Inventory” means all “inventory” as defined in the Code in effect on the date hereof with such additions to such term as may hereafter be made, and includes without limitation all merchandise, raw materials, parts, supplies, packing and shipping materials, work in process and finished products, including without limitation such inventory as is temporarily out of Borrower’s custody or possession or in transit and including any returned goods and any documents of title representing any of the above.

 

(h)    “Lien” means any claim, mortgage, deed of trust, levy, charge, pledge, security interest or other encumbrance of any kind, whether voluntarily incurred or arising by operation of law or otherwise against any property.

 

(i)     “Loan Documents” means this Agreement and the Note, each as may be amended, restated, supplemented, varied or otherwise modified.

 

  

17

  

(j)     “Material Adverse Change” means (i) any impairment in the perfection or priority of Lender’s security interest in the Collateral, other than with respect to any Permitted Lien, or in the value of such Collateral; (ii) a material adverse change in the business, operations or condition (financial or otherwise) of Borrower;  (iii) a material impairment in the prospect of repayment of any portion of the Obligations; or (iv) any deviation, whether material or not, from the Operating Budget that has not been approved in writing by Lender.

 

(k)    “Maturity Date” means January 2, ,2012.

 

(l)     “Obligations” means Borrower’s obligation to pay when due any debts, principal, interest, and other amounts Borrower owes Lender now or later under the Loan Documents.

 

(m)   “Permitted Liens” means the following, which under no circumstances will exceed the amounts set forth below: (i) the Lien provided to Jerusalem Technology Park Ltd., the landlord for the offices leased by the Israeli Subsidiary as of the date hereof, equal to approximately $140,0001 as of the date hereof (and as adjusted pursuant to the Consumer Price Index) on the deposit in the bank account of the Israeli Subsidiary maintained at First International Bank of Israel Ltd., (ii) the Lien provided to First International Bank of Israel Ltd. equal to approximately $30,000 as of the date hereof on the deposit in the bank account of the Israeli Subsidiary maintained at First International Bank of Israel Ltd., and (iii) Liens pursuant to the Existing Loan Agreements, as amended, restated, modified, or supplemented from time to time, or pursuant to agreements entered into pursuant thereto.

 

(n)    “Person” means an individual, corporation association, partnership, limited liability company, joint venture, trust, government, agency department or any other entity.

 

(o)    “Previously disclosed to Lender” means those matters described in writing in the disclosure letter provided by Borrower to Lender on the date of this Agreement.

(p)   “Records” means all of Borrower’s present and future books of account of every kind or nature, purchase and sale agreements, invoices, ledger cards, bills of lading and other shipping evidence, statements, correspondence, memoranda, credit files and other data relating to the Collateral or any account debtor, together with the tapes, disks, diskettes and other data and software storage media and devices, file cabinets or containers in or on which the foregoing are stored (including any rights of Borrower with respect to the foregoing maintained with or by any other person).

 

(q)   “Registered Organization” means any “registered organization” as defined in the Code with such additions to such term as may hereafter be made.

[SIGNATURE PAGE FOLLOWS]

  

  

  

18

  

IN WITNESS WHEREOF, the parties hereto have executed this Loan and Security Agreement as of the date first above written.

	
BORROWER:

	 	
LENDER:

	  	 	  
	
DELTATHREE, INC.

	 	
D4 HOLDINGS, LLC

	  	 	  
	  	 	
By:

	
Praescient, LLC, its Manager

	
By:

	
/s/ Effi Baruch

	 	  	  
	
Name: Effi Baruch

	 	  	  
	
Title: CEO and President

	 	
By:

	
/s/ Robert Stevanovski

	  	 	
Name: Robert Stevanovski

	  	 	
Title: Manager

	
DELTA THREE ISRAEL, LTD.

	 	  	  
	  	  	 	  	  
	
By:

	
/s/ Effi Baruch

	 	  	  
	
Name: Effi Baruch

	 	  	  
	
Title: CEO and President

	 	  	  
	  	 	  	  
	
DME SOLUTIONS, INC.

	 	  	  
	  	 	  	  
	
By:

	
/s/ Effi Baruch

	 	  	  
	
Name: Effi Baruch

	 	  	  
	
Title: CEO and President

	 	  	  

 

  

19

  

Exhibit A

Form of Promissory Note

PROMISSORY NOTE

	
Up to $300,000

	
[_________], 2011

FOR VALUE RECEIVED, DELTATHREE, INC., a Delaware corporation, DELTA THREE ISRAEL, LTD., an Israeli company, and DME SOLUTIONS, INC., a New York corporation (jointly and severally, the “Borrower”), hereby absolutely, irrevocably, unconditionally and jointly and severally promises to pay to the order of D4 HOLDINGS, LLC, a Delaware limited liability company (“Lender”), in United States dollars and in immediately available funds, the principal sum of THREE HUNDRED THOUSAND DOLLARS ($300,000), or such lesser amount as may be advanced by Lender to the Borrower from time to time in accordance with the terms and conditions of that certain Fourth Loan and Security Agreement dated of even date herewith, between the Borrower and Lender (as it may be amended, modified, extended or restated from time to time, the “Loan Agreement”), together with interest thereon, as provided in the Loan Agreement.  Notwithstanding the foregoing, the aggregate principal amount outstanding under this Promissory Note (this “Note”) shall not exceed three hundred thousand dollars ($300,000).  This Note is subject to all of the terms and conditions set forth in, and such terms and conditions are hereby incorporated herein by reference to, the Loan Agreement.  All capitalized terms not otherwise defined herein shall have the meanings set forth in the Loan Agreement.  In the event of any conflict between the provisions of this Note and the Loan Agreement, the provisions of the Loan Agreement shall prevail.

The obligations of the Borrower evidenced by this Note are secured as set forth in the Loan Agreement.  Payment of such obligations, and the liens securing such obligations, are subordinated as set forth in the Loan Agreement.

Except as otherwise provided in the Loan Documents, all outstanding principal and interest with respect to Loan Advances shall be due and payable in full on the Maturity Date.  The daily unpaid principal balance outstanding under this Note shall bear interest at the rate(s) set forth in the Loan Agreement.

All payments in respect of amounts outstanding under this Note shall be paid in immediately available funds to the account(s) specified by Lender from time to time.  Any payment due in respect of this Note which falls due on a day other than a Business Day shall be made on the next Business Day.

Upon the occurrence of an Event of Default, Lender shall have, and shall be entitled to exercise, all of the rights and remedies set forth in the Loan Agreement and the other Loan Documents.

  

20

  

The Borrower hereby waives presentment and demand for payment, notice of dishonor, protest and notice of protest of this Note.  No release of any security for the payment of this Note or extension of time for payment of this Note, and no alteration, amendment or waiver of any provision of this Note made by agreement between Lender and any other Person shall release, discharge, modify, change or affect the liability of the Borrower under this Note.

Each right, power and remedy of Lender under this Note, the Loan Agreement, any other Loan Document, or under applicable laws shall be cumulative and concurrent, and the exercise of any one or more of them shall not preclude the simultaneous or later exercise by Lender of any or all such other rights, powers or remedies.  No failure or delay by Lender to insist upon the strict performance of any one or more provisions of this Note, the Loan Agreement, any other Loan Document, or to exercise any right, power or remedy consequent upon an Event of Default shall constitute a waiver thereof, or preclude Lender from exercising any such right, power or remedy.  No modification, change, waiver or amendment of this Note shall be deemed to be made unless in writing signed by the Borrower and Lender. This Note shall inure to the benefit of and be binding upon the Borrower and Lender and their respective successors and assigns; provided that except as set forth in the Loan Agreement, the Borrower shall have no right to assign any of its rights or delegate any of its obligations under this Note; and provided further that there shall be no restrictions of any nature on Lender’s right to assign this Note or its rights hereunder.  The invalidity, illegality or unenforceability of any provision of this Note shall not affect or impair the validity, legality or enforceability of any other provision.  This Note shall be deemed to be made in, and shall be governed by the laws of, the State of Delaware (without regard to its conflicts of laws principles).

[signature page follows]

  

21

  

IN WITNESS WHEREOF, this Promissory Note has been duly executed by the undersigned as of the day and year first above written.

	  	
BORROWER:

	  	  
	  	
DELTATHREE, INC.

	  	  
	  	
By:

	    
	  	
Name: Effi Baruch

	  	
Title: CEO and President

	  	  
	  	
DELTA THREE ISRAEL, LTD.

	  	  
	  	
By:

	    
	  	
Name: Effi Baruch

	  	
Title: CEO and President

	  	  
	  	
DME SOLUTIONS, INC.

	  	  
	  	
By:

	    
	  	
Name: Effi Baruch

	  	
Title: CEO and President

  

22

  

Exhibit B

Form of Notice of Borrowing/Loan Advance Request

 

NOTICE OF BORROWING/LOAN ADVANCE REQUEST

 

Date:                      [________], 20__

D4 HOLDINGS, LLC

349-L Copperfield Blvd, #407

Concord, NC 28025

Attention:      Robert Stevanovski, Manager

 

Advance Request

Dear Robert:

Reference is made to that certain Fourth Loan and Security Agreement (as from time to time amended, restated, varied, supplemented or otherwise modified, the “Loan Agreement”), dated as of March 2, 2011, by and between (i) deltathree, Inc., a Delaware corporation, Delta Three Israel, Ltd., an Israeli company, and DME Solutions, Inc., a New York corporation (jointly and severally, the “Borrower”), and (ii) D4 Holdings, LLC, a Delaware limited liability company (“Lender”).

This is a Notice of Borrowing.  All capitalized terms used herein and not otherwise defined shall have the meanings given to them in the Loan Agreement.

1.           LOAN ADVANCE REQUEST

In accordance with the Loan Agreement, the undersigned hereby requests that Lender make a Loan Advance as follows:

 

	
  

	
a.

	
Loan Date:  [________], 20__

	
  

	
 

	
  

	
b.

	
Amount of Loan Advance:  US [$___________], to be disbursed as follows:

 

[INSERT APPLICABLE BORROWER]

Account Information

[INSERT APPLICABLE INFORMATION]

  

23

  

 

2.           CERTIFICATION OF CASH RESERVES.  The undersigned hereby certifies that:

(a)           as of the date hereof, the aggregate Cash Reserves of the Borrower are $_____________; and

(b)           based on the Borrower’s bona fide projections for receipts and disbursements, the aggregate Cash Reserves of the Borrower as of the Loan Date are expected to be $_____________, without giving effect to the Loan Advance requested hereby.

3.         CERTIFICATION.  The undersigned hereby certifies that (a) the representations and warranties in Section 4 of the Loan Agreement are true in all material respects as of the date hereof; (b) the Operating Budget currently in effect for the period to be covered by the proposed Loan Advance represents the Borrower’s bona fide estimated expenditures for the period covered by such Operating Budget; (c) the proceeds of each prior Loan Advance were used and applied as set forth in the Operating Budget relating to such prior Loan Advance; (d) no Event of Default (i) has occurred that is continuing as of the date hereof or (ii) will result from the Loan Advance requested hereunder; (e) no Material Adverse Change has occurred; and (f) the conditions and agreements set forth in Section 3 have been met and complied with by Borrower.

IN WITNESS WHEREOF, the undersigned hereby certifies the accuracy of the foregoing information on behalf of the Borrower.

	  	
By:

	    
	  	
Name:

	  	
Title:

  

24

  

Exhibit C

Description of Collateral

The Collateral consists of all of Borrower’s right, title and interest in and to the following personal property:

	
1.

	
All Accounts and other indebtedness owed to Borrower;

	
2.

	
All present and future contract rights, general intangibles (including, but not limited to, tax and duty refunds, intellectual property, registered and unregistered patents, trademarks, service marks, copyrights, trade names, applications for the foregoing, technology, software, know-how, designs, trade secrets, goodwill, processes, drawings, blueprints, customer lists, mailing lists, licenses, whether as licensor or licensee, choses in action and other claims and existing and future leasehold interests in equipment, real estate and fixtures), chattel paper, documents, instruments, securities, investment property, letters of credit, proceeds of letters of credit, bankers’ acceptances and guaranties;

	
3.

	
All present and future monies, securities, credit balances, deposits, deposit accounts and other property of Borrower, including without limitation any such items now or hereafter held or received by or in transit to Lender or any of its affiliates or at any other depository or other institution from or for the account of Borrower, whether for safekeeping, pledge, custody, transmission, collection or otherwise; and all present and future Liens, security interests, rights, remedies, title and interest in, to and in respect of Accounts and other Collateral, including, without limitation, (a) rights and remedies under or relating to guaranties, contracts of suretyship, letters of credit and credit and other insurance related to the Collateral, (b) rights of stoppage in transit, replevin, repossession, reclamation and other rights and remedies of an unpaid vendor, lienor or secured party, (c) goods described in invoices, documents, contracts or instruments with respect to, or otherwise representing or evidencing, Accounts or other Collateral, including, without limitation, returned, repossessed and reclaimed goods, and (d) deposits by and property of Account Debtors or other Persons securing the obligations of Account Debtors;

	
4.

	
All Inventory;

	
5.

	
All Equipment;

	
6.

	
All Records; and

	
7.

	
All products and proceeds of the foregoing, in any form, including, without limitation, insurance proceeds and any claims against third parties for loss or damage to or destruction of any or all of the foregoing.

  

25SUBSCRIPTION AGREEMENT

 

THIS SUBSCRIPTION AGREEMENT (this “Agreement”), is dated as of August 25, 2011, by and between YesDTC, Inc., a Nevada corporation (the “Company”), and Barry Honig (the “Subscriber”).

WHEREAS, the Company and the Subscriber are executing and delivering this Agreement in reliance upon an exemption from securities registration afforded by the provisions of Section 4(2), Section 4(6) and/or Regulation D (“Regulation D”) as promulgated by the United States Securities and Exchange Commission (the “Commission”) under the Securities Act of 1933, as amended (the “1933 Act”);

 

WHEREAS, the parties desire that, upon the terms and subject to the conditions contained herein, the Company shall issue and sell to the Subscriber, as provided herein, and the Subscriber shall purchase (the “Offering”) for an aggregate of $100,000 (the “Purchase Price”): (i) 50,000 shares of the Company’s Series B Convertible Preferred Stock (the “Preferred Shares”), which is convertible into 50,000,000 shares of the Company’s Common Stock, $0.0001 par value (the “Common Stock”) pursuant to the terms of a Certificate of Designations attached hereto as Exhibit A (the “Certificate”) at a per share conversion rate set forth in the Certificate (“Conversion Price”); and (ii) warrants in the form attached hereto as Exhibit B (the “Warrants”) to purchase an additional 70,000,000 shares of Common Stock (the “Warrant Shares”).  The Preferred Shares, the shares of Common Stock issuable upon conversion of the Preferred Shares (the “Conversion Shares”), the Warrants and the Warrant Shares are collectively referred to herein as the “Securities”; and

 

NOW, THEREFORE, in consideration of the mutual covenants and other agreements contained in this Agreement the Company and the Subscriber hereby agree as follows:

 

1.           Closing Date.   The “Closing Date” shall be the date that the Purchase Price is transmitted by wire transfer or otherwise credited to or for the benefit of the Company. The consummation of the transactions contemplated herein shall take place at the offices of The Crone Law Group, 101 Montgomery St., Suite 2650, San Francisco, CA 94104, upon the satisfaction or waiver of all conditions to closing set forth in this Agreement.   Subject to the satisfaction or waiver of the terms and conditions of this Agreement, on the Closing Date, Subscriber shall purchase and the Company shall sell to Subscriber the Preferred Shares and Warrants as described in Section 2 of this Agreement.

2.           Preferred Shares and Warrants.

(a)           Preferred Shares.   Subject to the satisfaction or waiver of the terms and conditions of this Agreement, on the Closing Date, the Subscriber shall purchase from the Company and the Company shall sell to the Subscriber the Preferred Shares for the Purchase Price.

(b)          Warrants.  On the Closing Date, the Company will issue and deliver the Warrants to the Subscriber. The exercise price to acquire a Warrant Share upon exercise of a Warrant shall be equal to $0.01, subject to reduction as described in the Warrants.  The Warrants shall be exercisable until five (5) years after the issue date of the Warrants.

(c)           Allocation of Purchase Price.   The Purchase Price will be allocated among the components of the Securities so that each component of the Securities will be fully paid and non-assessable.

  

1

  

3.           Subscriber Representations and Warranties. The Subscriber hereby represents and warrants to and agrees with the Company that:

 

(a)           Enforceability. This Agreement has been duly executed and constitutes a valid and binding obligation of Subscriber, enforceable against Subscriber in accordance with the terms thereof, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights generally and to general principles of equity.

 

(b)           Information on Subscriber. Subscriber is, and will be at the time of the conversion of the Preferred Shares and exercise of the Warrants, an "accredited investor" as such term is defined in Regulation D promulgated by the Commission under the 1933 Act, is experienced in investments and business matters, has made investments of a speculative nature and has purchased securities of United States publicly-owned companies in private placements in the past and, with its representatives, has such knowledge and experience in financial, tax and other business matters as to enable Subscriber to utilize the information made available by the Company to evaluate the merits and risks of and to make an informed investment decision with respect to the proposed purchase, which represents a speculative investment. Subscriber has the authority and is duly and legally qualified to purchase and own the Securities. Subscriber is able to bear the risk of such investment for an indefinite period and to afford a complete loss thereof.

 

(c)           Purchase of Preferred Shares and Warrants.  On the Closing Date, Subscriber will purchase the Preferred Shares and Warrants for its own account for investment only and not with a view toward, or for resale in connection with, the public sale or any distribution thereof.

(d)           Compliance with Securities Act.   Subscriber understands and agrees that the Securities have not been registered under the 1933 Act or any applicable state securities laws, by reason of their issuance in a transaction that does not require registration under the 1933 Act (based in part on the accuracy of the representations and warranties of the Subscriber contained herein), and that such Securities must be held indefinitely unless a subsequent disposition is registered under the 1933 Act or any applicable state securities laws or is exempt from such registration.  In any event, and subject to compliance with applicable securities laws, the Subscriber may enter into lawful hedging transactions in the course of hedging the position they assume and the Subscriber may also enter into lawful short positions or other derivative transactions relating to the Securities, or interests in the Securities, and deliver the Securities, or interests in the Securities, to close out their short or other positions or otherwise settle other transactions, or loan or pledge the Securities, or interests in the Securities, to third parties who in turn may dispose of these Securities.

(e)           Conversion Shares and Warrant Shares Legend.  The Conversion Shares and Warrant Shares shall bear the following or similar legend:

"THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, NOR APPLICABLE STATE SECURITIES LAWS.  THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT.  NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES."

  

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(f)           Preferred Shares and Warrants Legend.  The Preferred Shares and Warrants shall bear the following legend:

 

"NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS.  THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT.  NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES."

 

(g)           Communication of Offer.  The offer to sell the Securities was directly communicated to Subscriber by the Company.  At no time was Subscriber presented with or solicited by any leaflet, newspaper or magazine article, radio or television advertisement, or any other form of general advertising or solicited or invited to attend a promotional meeting otherwise than in connection and concurrently with such communicated offer.

(h)           Restricted Securities.   Subscriber understands that the Securities have not been registered under the 1933 Act and Subscriber will not sell, offer to sell, assign, pledge, hypothecate or otherwise transfer any of the Securities unless pursuant to an effective registration statement under the 1933 Act, or unless an exemption from registration is available.  Notwithstanding anything to the contrary contained in this Agreement, Subscriber may transfer (without restriction and without the need for an opinion of counsel) the Securities to its Affiliates (as defined below) provided that each such Affiliate is an “accredited investor” under Regulation D and such Affiliate agrees to be bound by the terms and conditions of this Agreement. For the purposes of this Agreement, an “Affiliate” of any person or entity means any other person or entity directly or indirectly controlling, controlled by or under direct or indirect common control with such person or entity.  For purposes of this definition, “control” means the power to direct the management and policies of such person or firm, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise.

(i)           No Governmental Review.  Subscriber understands that no United States federal or state agency or any other governmental or state agency has passed on or made recommendations or endorsement of the Securities or the suitability of the investment in the Securities nor have such authorities passed upon or endorsed the merits of the offering of the Securities.

(j)           Correctness of Representations.  Subscriber represents that the foregoing representations and warranties are true and correct as of the date hereof and, unless Subscriber otherwise notifies the Company prior to the Closing Date, shall be true and correct as of the Closing Date.

  

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(k)           Survival.  The foregoing representations and warranties shall survive the Closing Date.

 

4.           Company Representations and Warranties.  The Company represents and warrants to and agrees with the Subscriber that:

 

(a)           Due Incorporation.  The Company is a corporation duly incorporated, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has the requisite corporate power to own its properties and to carry on its business as presently conducted.  The Company is duly qualified as a foreign corporation to do business and is in good standing in each jurisdiction where the nature of the business conducted or property owned by it makes such qualification necessary, other than those jurisdictions in which the failure to so qualify would not have a Material Adverse Effect.  For purposes of this Agreement, a “Material Adverse Effect” shall mean a material adverse effect on the financial condition, results of operations, prospects, properties or business of the Company and its Subsidiaries taken as a whole.  For purposes of this Agreement, “Subsidiary” means, with respect to any entity at any date, any corporation, limited or general partnership, limited liability company, trust, estate, association, joint venture or other business entity of which more than 30% of (i) the outstanding capital stock having (in the absence of contingencies) ordinary voting power to elect a majority of the board of directors or other managing body of such entity, (ii) in the case of a partnership or limited liability company, the interest in the capital or profits of such partnership or limited liability company or (iii) in the case of a trust, estate, association, joint venture or other entity, the beneficial interest in such trust, estate, association or other entity business is, at the time of determination, owned or controlled directly or indirectly through one or more intermediaries, by such entity.  As of the Closing Date, all of the Company’s Subsidiaries and the Company’s ownership interest therein are as set forth in the Company’s filings with the Commission (the “SEC Filings”).

 

(b)           Outstanding Stock.  All issued and outstanding shares of capital stock and equity interests in the Company have been duly authorized and validly issued and are fully paid and non-assessable.

 

(c)           Authority; Enforceability.  This Agreement, the Certificate, the Preferred Shares, the Conversion Shares, the Warrants, and any other agreements delivered together with this Agreement or in connection herewith (collectively “Transaction Documents”) have been duly authorized, executed and delivered by the Company and are valid and binding agreements of the Company enforceable in accordance with their terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights generally and to general principles of equity.  The Company has full corporate power and authority necessary to enter into and deliver the Transaction Documents and to perform its obligations thereunder.

 

(d)           Capitalization and Additional Issuances.   The authorized and outstanding capital stock of the Company and Subsidiaries on a fully diluted basis as of the date of this Agreement and the Closing Date (not including the Securities) are as set forth in the SEC Filings.  Except as set forth in the SEC Filings, there are no options, warrants, or rights to subscribe to, securities, rights, understandings or obligations convertible into or exchangeable for or giving any right to subscribe for any shares of capital stock or other equity interest of the Company or any of the Subsidiaries.  The only officer, director, employee and consultant stock option or stock incentive plan or similar plan currently in effect or contemplated by the Company is described in the SEC Filings. There are no outstanding agreements or preemptive or similar rights affecting the Company's Common Stock.

  

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(e)           Consents.  No consent, approval, authorization or order of any court, governmental agency or body or arbitrator having jurisdiction over the Company, or any of its Affiliates, the OTC Bulletin Board (the “Bulletin Board”) or the Company's shareholders is required for the execution by the Company of the Transaction Documents and compliance and performance by the Company of its obligations under the Transaction Documents, including, without limitation, the issuance and sale of the Securities.  The Transaction Documents and the Company’s performance of its obligations thereunder have been unanimously approved by the Company’s Board of Directors.  No consent, approval, order or authorization of, or registration, qualification, designation, declaration or filing with, any governmental authority in the world, including without limitation, the United States, or elsewhere is required by the Company or any Affiliate of the Company in connection with the consummation of the transactions contemplated by this Agreement, except as would not otherwise have a Material Adverse Effect or the consummation of any of the other agreements, covenants or commitments of the Company or any Subsidiary contemplated by the other Transaction Documents. Any such qualifications and filings will, in the case of qualifications, be effective on the Closing and will, in the case of filings, be made within the time prescribed by law.

 

(f)           No Violation or Conflict.  Assuming the representations and warranties of the Subscriber in Section 3 are true and correct, neither the issuance and sale of the Securities nor the performance of the Company’s obligations under this Agreement and all other agreements entered into by the Company relating thereto by the Company will:

 

(i)           violate, conflict with, result in a breach of, or constitute a default (or an event which with the giving of notice or the lapse of time or both would be reasonably likely to constitute a default) under (A) the articles or certificate of incorporation, charter or bylaws of the Company, (B) to the Company's knowledge, any decree, judgment, order, law, treaty, rule, regulation or determination applicable to the Company of any court, governmental agency or body, or arbitrator having jurisdiction over the Company or over the properties or assets of the Company or any of its Affiliates, (C) the terms of any bond, debenture, note or any other evidence of indebtedness, or any agreement, stock option or other similar plan, indenture, lease, mortgage, deed of trust or other instrument to which the Company or any of its Affiliates is a party, by which the Company or any of its Affiliates is bound, or to which any of the properties of the Company or any of its Affiliates is subject, or (D) the terms of any "lock-up" or similar provision of any underwriting or similar agreement to which the Company, or any of its Affiliates is a party except the violation, conflict, breach, or default of which would not have a Material Adverse Effect; or

 

(ii)           result in the creation or imposition of any lien, charge or encumbrance upon the Securities or any of the assets of the Company or any of its Affiliates except in favor of Subscriber as described herein; or

 

(iii)           result in the activation of any anti-dilution rights or a reset or repricing of any debt, equity or security instrument of any creditor or equity holder of the Company, or the holder of the right to receive any debt, equity or security instrument of the Company nor result in the acceleration of the due date of any obligation of the Company; or

 

           (iv)           result in the triggering of any piggy-back or other registration rights of any person or entity holding securities of the Company or having the right to receive securities of the Company.

 

(g)          The Securities.  The Securities upon issuance:

 

(i)           are, or will be, free and clear of any security interests, liens, claims or other encumbrances, subject only to restrictions upon transfer under the 1933 Act and any applicable state securities laws;

  

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(ii)           have been, or will be, duly and validly authorized and on the dates of issuance of the Conversion Shares upon conversion of the Preferred Shares, and the Warrant Shares upon exercise of the Warrants, such Conversion Shares and Warrant Shares will be duly and validly issued, fully paid and non-assessable and if registered pursuant to the 1933 Act and resold pursuant to an effective registration statement or exempt from registration will be free trading, unrestricted and unlegended;

 

(iii)          will not have been issued or sold in violation of any preemptive or other similar rights of the holders of any securities of the Company or rights to acquire securities of the Company;

 

(iv)          will not subject the holders thereof to personal liability by reason of being such holders; and

 

           (v)            assuming the representations and warranties of the Subscriber as set forth in Section 3 hereof are true and correct, will not result in a violation of Section 5 under the 1933 Act.

 

(h)           Litigation.  There is no pending or, to the best knowledge of the Company, threatened action, suit, proceeding or investigation before any court, governmental agency or body, or arbitrator having jurisdiction over the Company, or any of its Affiliates that would affect the execution by the Company or the complete and timely performance by the Company of its obligations under the Transaction Documents.  Except as disclosed in the SEC Filings, there is no pending or, to the best knowledge of the Company, basis for or threatened action, suit, proceeding or investigation before any court, governmental agency or body, or arbitrator having jurisdiction over the Company, or any of its Affiliates which litigation if adversely determined would have a Material Adverse Effect.

 

(i)            No Market Manipulation.  The Company and its Affiliates have not taken, and will not take, directly or indirectly, any action designed to, or that might reasonably be expected to, cause or result in stabilization or manipulation of the price of the Common Stock to facilitate the sale or resale of the Securities or affect the price at which the Securities may be issued or resold.

 

(j)            Information Concerning Company.  The SEC Filings contain all material information relating to the Company and its operations and financial condition as of their respective dates which information is required to be disclosed therein.   Since December 31, 2010 and except as modified in the SEC Filings or in Schedules hereto, there has been no Material Adverse Event relating to the Company's business, financial condition or affairs. The SEC Filings, including the financial statements included therein, do not contain any 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, taken as a whole, not misleading in light of the circumstances and when made.

 

(k)           Defaults.  The Company is not in violation of its articles of incorporation or bylaws.   The Company is (i) not in default under or in violation of any other material agreement or instrument to which it is a party or by which it or any of its properties are bound or affected, which default or violation would have a Material Adverse Effect, (ii) not in default with respect to any order of any court, arbitrator or governmental body or subject to or party to any order of any court or governmental authority arising out of any action, suit or proceeding under any statute or other law respecting antitrust, monopoly, restraint of trade, unfair competition or similar matters, or (iii) not in violation of any statute, rule or regulation of any governmental authority which violation would have a Material Adverse Effect.

 

(l)            No Integrated Offering.   Neither the Company, nor any of its Affiliates, nor any person acting on its or their behalf, has directly or indirectly made any offers or sales of any security of the Company nor solicited any offers to buy any security of the Company under circumstances that would cause the offer of the Securities pursuant to this Agreement to be integrated with prior offerings by the Company for purposes of the 1933 Act or any applicable stockholder approval provisions, including, without limitation, under the rules and regulations of the Bulletin Board.  No prior offering will impair the exemptions relied upon in this Offering or the Company’s ability to timely comply with its obligations hereunder.  Neither the Company nor any of its Affiliates will take any action or steps that would cause the offer or issuance of the Securities to be integrated with other offerings which would impair the exemptions relied upon in this Offering or the Company’s ability to timely comply with its obligations hereunder. The Company will not conduct any offering other than the transactions contemplated hereby that may be integrated with the offer or issuance of the Securities that would impair the exemptions relied upon in this Offering or the Company’s ability to timely comply with its obligations hereunder.

  

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(m)          No General Solicitation.  Neither the Company, nor any of its Affiliates, nor to its knowledge, any person acting on its or their behalf, has engaged in any form of general solicitation or general advertising (within the meaning of Regulation D under the 1933 Act) in connection with the offer or sale of the Securities.

 

(n)           No Undisclosed Liabilities.  The Company has no liabilities or obligations which are material, individually or in the aggregate, other than those incurred in the ordinary course of the Company businesses since December 31, 2010 and which, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect, except as disclosed in the SEC Filings.

 

(o)           No Undisclosed Events or Circumstances.  Since December 31, 2010, except as disclosed in the SEC Filings, no event or circumstance has occurred or exists with respect to the Company or its businesses, properties, operations or financial condition, that, under applicable law, rule or regulation, requires public disclosure or announcement prior to the date hereof by the Company but which has not been so publicly announced or disclosed in the SEC Filings.

 

(p)           Dilution.   The Company's executive officers and directors understand the nature of the Securities being sold hereby and recognize that the issuance of the Securities will have a potential dilutive effect on the equity holdings of other holders of the Company’s equity or rights to receive equity of the Company. The board of directors of the Company has concluded, in its good faith business judgment, that the issuance of the Securities is in the best interests of the Company. The Company specifically acknowledges that its obligation to issue the Preferred Shares, Conversion Shares upon conversion of the Preferred Shares and the Warrant Shares upon exercise of the Warrants is binding upon the Company and enforceable regardless of the dilution such issuance may have on the ownership interests of other shareholders of the Company or parties entitled to receive equity of the Company.

 

(q)           No Disagreements with Accountants and Lawyers.  Except as set forth in the SEC Filings, there are no material disagreements of any kind presently existing, or reasonably anticipated by the Company to arise between the Company and the accountants and lawyers previously and presently employed by the Company, including but not limited to disputes or conflicts over payment owed to such accountants and lawyers, nor have there been any such disagreements during the two years prior to the Closing Date.

(r)           Investment Company.   Neither the Company nor any Affiliate of the Company is an “investment company” within the meaning of the Investment Company Act of 1940, as amended.

(s)           Foreign Corrupt Practices.  Neither the Company, nor to the knowledge of the Company, any agent or other person acting on behalf of the Company, has (i) directly or indirectly, used any funds for unlawful contributions, gifts, entertainment or other unlawful expenses related to foreign or domestic political activity, (ii) made any unlawful payment to foreign or domestic government officials or employees or to any foreign or domestic political parties or campaigns from corporate funds, (iii) failed to disclose fully any contribution made by the Company (or made by any person acting on its behalf of which the Company is aware) which is  in violation of law, or (iv) violated in any material respect any provision of the Foreign Corrupt Practices Act of 1977, as amended.

  

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(t)           Reporting Company/Shell Company.  The Company is a publicly-held company subject to reporting obligations pursuant to Section 13 of the Securities Exchange Act of 1934, as amended (the "1934 Act"). Pursuant to the provisions of the 1934 Act, the Company has timely filed all reports and other materials required to be filed thereunder with the Commission during the preceding twelve months. As of the Closing Date, the Company is not a “shell company” but is a “former shell company” as those terms are employed in Rule 144 under the 1933 Act. As of April 16, 2010, the Company filed “Form 10” information as such term is employed in Rule 144 under the 1933 Act.

(u)           Listing.  The Company's Common Stock is quoted on the Bulletin Board under the symbol YESD.  The Company has not received any pending oral or written notice that its Common Stock is not eligible nor will become ineligible for quotation on the Bulletin Board nor that its Common Stock does not meet all requirements for the continuation of such quotation and the Company satisfies all the requirements for the continued quotation of its Common Stock on the Bulletin Board.

(v)           Correctness of Representations. The Company represents that the foregoing representations and warranties are true and correct as of the date hereof in all material respects, and, unless the Company otherwise notifies the Subscriber prior to the Closing Date, shall be true and correct in all material respects as of the Closing Date; provided, that, if such representation or warranty is made as of a different date, in which case such representation or warranty shall be true as of such date.

 

(w)          Survival.  The foregoing representations and warranties shall survive the Closing Date.

 

5.1          Conversion of Preferred Shares.

(a)           Upon the conversion of Preferred Shares, the Company shall, at its own cost and expense, take all necessary action, including obtaining and delivering an opinion of counsel, to assure that the Company's transfer agent shall issue stock certificates in the name of a Subscriber (or its permitted nominee) or such other persons as designated by Subscriber and in such denominations to be specified at conversion representing the number of shares of Common Stock issuable upon such conversion.  The Company warrants that no instructions other than these instructions have been or will be given to the transfer agent of the Company's Common Stock and that the certificates representing such shares shall contain no legend other than the legend set forth in Section 3(e).

(b)           The Subscriber will give notice of its decision to exercise its Preferred Shares or part thereof by telecopying or otherwise delivering a completed notice of conversion to the Company via confirmed telecopier transmission or otherwise pursuant to Section 11(a) of this Agreement.  The Company will itself or cause the Company’s transfer agent to transmit the Company's Common Stock certificates representing the Conversion Shares issuable upon conversion of the Preferred Shares to Subscriber via express courier for receipt by Subscriber within five (5) business days after the conversion date (such fifth day being the "Delivery Date").  In the event the Conversion Shares are electronically transferable, then delivery of the Shares must be made by electronic transfer provided request for such electronic transfer has been made by the Subscriber. A certificate representing the balance of the Preferred Shares not so converted will be provided by the Company to Subscriber, provided Subscriber delivers the original Preferred Shares certificate to the Company.

  

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(c)           The Company understands that a delay in the delivery of the Conversion Shares in the form required pursuant to Section 5.1 hereof later than the Delivery Date could result in economic loss to the Subscriber.  As compensation to Subscriber for such loss, the Company agrees to pay (as liquidated damages and not as a penalty) to the Subscriber the amount of $100 per business day after the Delivery Date for each 1,000 Preferred Shares (and proportionately for other amounts) being converted of the corresponding Conversion Shares which are not timely delivered.  The Company shall pay any payments incurred under this Section upon demand.  Furthermore, in addition to any other remedies which may be available to the Subscriber, in the event that the Company fails for any reason to effect delivery of the Conversion Shares within seven (7) business days after the Delivery Date, the Subscriber will be entitled to revoke all or part of the relevant notice of conversion by delivery of a notice to such effect to the Company whereupon the Company and Subscriber shall each be restored to their respective positions immediately prior to the delivery of such notice, except that the damages payable in connection with the Company’s default shall be payable through the date notice of revocation or rescission is given to the Company.

           5.2.         Maximum Conversion.  The Subscriber shall not be entitled to convert Preferred Shares if such conversion would put his beneficial ownership of Common Stock over 9.99%, as set forth in the Certificate.

5.3         Adjustments.   The Conversion Price, Warrant exercise price and amount of Conversion Shares and Warrant Shares shall be equitably adjusted and as otherwise described in this Agreement, the Certificate and the Warrants.

6.           Covenants of the Company.  The Company covenants and agrees with the Subscriber as follows:

(a)           Stop Orders.  Subject to the prior notice requirement described in Section 6(g), the Company will advise the Subscriber, within twenty-four hours after it receives notice of issuance by the Commission, any state securities commission or any other regulatory authority of any stop order or of any order preventing or suspending any offering of any securities of the Company, or of the suspension of the qualification of the Common Stock of the Company for offering or sale in any jurisdiction, or the initiation of any proceeding for any such purpose.  The Company will not issue any stop transfer order or other order impeding the sale, resale or delivery of any of the Securities, except as may be required by any applicable federal or state securities laws and unless contemporaneous notice of such instruction is given to the Subscriber.

 

(b)           Listing/Quotation.  The Company shall promptly secure the quotation or listing of the Conversion Shares and Warrant Shares upon each national securities exchange, or automated quotation system upon which the Company’s Common Stock is quoted or listed and upon which such Conversion Shares and Warrant Shares are or become eligible for quotation or listing (subject to official notice of issuance) and shall maintain same so long as any Preferred Shares and Warrants are outstanding.  The Company will maintain the quotation or listing of its Common Stock on the American Stock Exchange, Nasdaq Capital Market, Nasdaq Global Market, Nasdaq Global Select Market, Bulletin Board, or New York Stock Exchange (whichever of the foregoing is at the time the principal trading exchange or market for the Common Stock (the “Principal Market”), and will comply in all respects with the Company's reporting, filing and other obligations under the bylaws or rules of the Principal Market, as applicable. The Company will provide Subscriber with copies of all notices it receives notifying the Company of the threatened and actual delisting of the Common Stock from any Principal Market.  As of the date of this Agreement and the Closing Date, the Bulletin Board is and will be the Principal Market.

 

(c)           Market Regulations.  If required, the Company shall notify the Commission, the Principal Market and applicable state authorities, in accordance with their requirements, of the transactions contemplated by this Agreement, and shall take all other necessary action and proceedings as may be required and permitted by applicable law, rule and regulation, for the legal and valid issuance of the Securities to the Subscriber and promptly provide copies thereof to the Subscriber.

  

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(d)           Filing Requirements.  From the date of this Agreement and until the last to occur of (i) all the Conversion Shares have been resold or transferred by the Subscriber pursuant to a registration statement or pursuant to Rule 144(b)(1)(i), or (ii) the Preferred Shares and Warrants are no longer outstanding (the date of such latest occurrence being the “End Date”), the Company will (A) cause its Common Stock to continue to be registered under Section 12(b) or 12(g) of the 1934 Act, (B) comply in all respects with its reporting and filing obligations under the 1934 Act, (C) voluntarily comply with all reporting requirements that are applicable to an issuer with a class of shares registered pursuant to Section 12(g) of the 1934 Act, if the Company is not subject to such reporting requirements, and (D) comply with all requirements related to any registration statement filed pursuant to this Agreement.  The Company will use its best efforts not to take any action or file any document (whether or not permitted by the 1933 Act or the 1934 Act or the rules thereunder) to terminate or suspend such registration or to terminate or suspend its reporting and filing obligations under said acts until the End Date.  Until the End Date, the Company will continue the listing or quotation of the Common Stock on a Principal Market and will comply in all respects with the Company’s reporting, filing and other obligations under the bylaws or rules of the Principal Market.  The Company agrees to timely file a Form D with respect to the Securities if required under Regulation D and to provide a copy thereof to Subscriber promptly after such filing.

 

(e)           Books and Records.  From the date of this Agreement and until the End Date, the Company will keep true records and books of account in which full, true and correct entries will be made of all dealings or transactions in relation to its business and affairs in accordance with generally accepted accounting principles applied on a consistent basis.

 

(f)           Governmental Authorities.   From the date of this Agreement and until the End Date, the Company shall duly observe and conform in all material respects to all valid requirements of governmental authorities relating to the conduct of its business or to its properties or assets.

 

(g)           Confidentiality/Public Announcement.   From the date of this Agreement and until the End Date, the Company agrees that except in connection with a Form 8-K, Form 10-Q, Form 10-K and the registration statements regarding the Subscriber’s Securities or in correspondence with the Commission regarding same, it will not disclose publicly or privately the identity of the Subscriber unless expressly agreed to in writing by Subscriber or only to the extent required by law and then only upon not less than three days prior notice to Subscriber.  In any event and subject to the foregoing, the Company undertakes to file a Form 8-K describing the Offering not later than the fourth (4th) business day after the Closing Date.  Prior to the filing date of such Form 8-K, a draft in the final form will be provided to Subscriber for Subscriber’ review and approval.  Upon delivery by the Company to the Subscriber after the Closing Date of any notice or information, in writing, electronically or otherwise, and while Preferred Shares, Conversion Shares or Warrants are held by Subscriber, unless the  Company has in good faith determined that the matters relating to such notice do not constitute material, nonpublic information relating to the Company or Subsidiaries, the Company  shall within one business day after any such delivery publicly disclose such  material,  nonpublic  information on a Report on Form 8-K.  In the event that the Company believes that a notice or communication to Subscriber contains material, nonpublic information relating to the Company or Subsidiaries, the Company shall so indicate to Subscriber prior to delivery of such notice or information.  Subscriber will be granted sufficient time to notify the Company that Subscriber elects not to receive such information.   In such case, the Company will not deliver such information to Subscriber. In the absence of any such indication, Subscriber shall be allowed to presume that all matters relating to such notice and information do not constitute material, nonpublic information relating to the Company or Subsidiaries.

 

           (h)           Non-Public Information.  The Company covenants and agrees that except for the SEC Filings and schedules and exhibits to this Agreement and the Transaction Documents, which information the Company undertakes to publicly disclose on the Form 8-K described in Section 6(g) above, neither it nor any other person acting on its behalf will at any time provide Subscriber or its agents or counsel with any information that the Company believes constitutes material non-public information, unless prior thereto Subscriber shall have agreed in writing to accept such information.  The Company understands and confirms that Subscriber shall be relying on the foregoing representations in effecting transactions in securities of the Company.

  

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(i)           Negative Covenants.   So long as Preferred Shares are outstanding, without the consent of the Subscriber, the Company will not and will not permit any of its Subsidiaries to directly or indirectly:

(i)           create, incur, assume or suffer to exist any pledge, hypothecation, assignment, deposit arrangement, lien, charge, claim, security interest, security title, mortgage, security deed or deed of trust, easement or encumbrance, or preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including any lease or title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing, and the filing of, or agreement to give, any financing statement perfecting a security interest under the Uniform Commercial Code or comparable law of any jurisdiction) (each, a “Lien”) upon any of its property, whether now owned or hereafter acquired except for:  (a) Liens imposed by law for taxes that are not yet due or are being contested in good faith and for which adequate reserves have been established in accordance with generally accepted accounting principles; (b) carriers’, warehousemen’s, mechanics’, material men’s, repairmen’s and other like Liens imposed by law, arising in the ordinary course of business and securing obligations that are not overdue by more than 30 days or that are being contested in good faith and by appropriate proceedings; (c) pledges and deposits made in the ordinary course of business in compliance with workers’ compensation, unemployment insurance and other social security laws or regulations; (d) deposits to secure the performance of bids, trade contracts, leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature, in each case in the ordinary course of business; (e) Liens created with respect to the financing of the purchase of new property in the ordinary course of the Company’s business up to the amount of the purchase price of such property; and (f) easements, zoning restrictions, rights-of-way and similar encumbrances on real property imposed by law or arising in the ordinary course of business that do not secure any monetary obligations and do not materially detract from the value of the affected property (each of (a) through (f), a “Permitted Lien”);

                                         (ii)           amend its certificate of incorporation, bylaws or its charter documents (including the Certificate) so as to materially and adversely affect any rights of the Subscriber (an increase in the amount of authorized shares and an increase in the number of directors will not be deemed adverse to the rights of the Subscriber);

(iii)          repay, repurchase or offer to repay, repurchase or otherwise acquire or make any dividend or distribution in respect of any of its Common Stock, preferred stock, or other equity securities other than to the extent permitted or required under the Transaction Documents;

(iv)          engage in any transactions with any officer, director, employee or any Affiliate of the Company, including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Company, any entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner, in each case in excess of $10,000 other than (i) for payment of salary, or fees for services rendered, (ii) reimbursement for expenses incurred on behalf of the Company, and (iii) for other employee benefits, including stock option agreements under any stock option plan of the Company; or

(v)           prepay or redeem any financing related debt or past due obligations or securities outstanding as of the Closing Date, or past due obligations (except with respect to vendor obligations, or any such obligations which in management’s good faith, reasonable judgment must be repaid to avoid disruption of the Company’s businesses).

  

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(j)            Transactions With Insiders.  So long as Preferred Shares are outstanding, the Company shall not, and shall cause each of its Subsidiaries not to, enter into, amend, modify or supplement, or permit any Subsidiary to enter into, amend, modify or supplement, any agreement, transaction, commitment, or arrangement relating to the sale, transfer or assignment of any of the Company’s tangible or intangible assets with any of its Insiders (as defined below)(or any persons who were Insiders at any time during the previous two (2) years), or any Affiliates (as defined below) thereof, or with any individual related by blood, marriage, or adoption to any such individual.  “Affiliate” for purposes of this Section 6(j) means, with respect to any person or entity, another person or entity that, directly or indirectly, (i) has a ten percent (10%) or more equity interest in that person or entity, (ii) has ten percent (10%) or more common ownership with that person or entity, (iii) controls that person or entity, or (iv) shares common control with that person or entity.  “Control” or “Controls” for purposes hereof means that a person or entity has the power, direct or indirect, to conduct or govern the policies of another person or entity.  For purposes hereof, “Insiders” shall mean any officer, director or manager of the Company, including but not limited to the Company’s president, chief executive officer, chief financial officer and chief operations officer, and any of their affiliates or family members.

 

(k)           Amendment to Series A Preferred Stock.  Subsequent to the Closing the Company will use its best reasonable efforts to effect an amendment to its Articles of Incorporation to amend the Certificate of Designation of the Series A Preferred stock in order to adjust the conversion price of the Series A Preferred stock to equal $0.002 per share.

 

6A.         Favored Nations Provision.  Other than in connection with (i) full or partial consideration in connection with a strategic merger, acquisition, consolidation or purchase of substantially all of the securities or assets of a corporation or other entity and the Common Stock issuable in connection therewith is issued at not less than $0.002 per share of Common Stock, (ii) the Company’s issuance of securities in connection with strategic license agreements and other partnering arrangements so long as such issuances are not for the purpose of raising capital and the Common Stock issuable in connection therewith is issued at not less than $0.002 per share of Common Stock, (iii) the Company’s issuance of Common Stock or the issuances or grants of options to purchase Common Stock to employees, directors, and consultants, pursuant to plans existing on the date of this Agreement, (iv) securities upon the exercise or exchange of or conversion of any securities exercisable or exchangeable for or convertible into shares of Common Stock issued and outstanding on the date of this Agreement on the terms in effect on the Closing Date, including but not limited to the shares of Series B Preferred being issued pursuant to this Agreement, (v) as a result of the exercise of Warrants or conversion of Preferred Shares which are granted or issued pursuant to this Agreement, and (vi) the Company’s issuance of Common Stock or the issuances or grants of options to purchase Common Stock to consultants and service providers (collectively, the foregoing (i) through (vi) are “Excepted Issuances”), if at any time the Preferred Shares or Warrants are outstanding, the Company shall agree to or issue (the “Lower Price Issuance”) any Common Stock or securities convertible into or exercisable for shares of Common Stock (or modify any of the foregoing which may be outstanding) to any person or entity at a price per share or conversion or exercise price per share which shall be less than $.002, without the consent of the Subscriber, then the Conversion Price and Warrant exercise price shall automatically be reduced to such lower price.  The average Purchase Price of the Conversion Shares and average exercise price in relation to the Warrant Shares shall be calculated separately for the Conversion Shares and Warrant Shares. Common Stock issued or issuable by the Company for no consideration or for consideration that cannot be determined at the time of issue will be deemed issuable or to have been issued for $0.001 per share of Common Stock.  For purposes of the issuance and adjustments described in this paragraph, the issuance of any security of the Company carrying the right to convert such security into shares of Common Stock or any warrant, right or option to purchase Common Stock shall result in the issuance of the additional shares of Common Stock upon the sooner of the agreement to or actual issuance of such convertible security, warrant, right or options and again at any time upon any subsequent issuances of shares of Common Stock upon exercise of such conversion or purchase rights if such issuance is at a price lower than the Conversion Price or warrant exercise price in effect upon such issuance.  The rights of Subscriber set forth in this Section are in addition to any other rights the Subscriber have pursuant to this Agreement, the Certificate, any Transaction Document, and any other agreement referred to or entered into in connection herewith or to which Subscriber and Company are parties.

  

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7.            Indemnification. The Company agrees to indemnify, hold harmless, reimburse and defend the Subscriber, the Subscriber’s agents, counsel and Affiliates, against any claim, cost, expense, liability, obligation, loss or damage (including reasonable legal fees) of any nature, incurred by or imposed upon the Subscriber or any such person which results, arises out of or is based upon (i) any material misrepresentation by Company or breach of any representation or warranty by Company in this Agreement or in any exhibits or schedules attached hereto or in any Transaction Document, or other agreement delivered pursuant hereto or in connection herewith, now or after the date hereof; or (ii) after any applicable notice and/or cure periods, any breach or default in performance by the Company of any covenant or undertaking to be performed by the Company hereunder, or any other agreement entered into by the Company and Subscriber relating hereto.

8.            Rule 144 Default.  In the event commencing six months after the Closing Date and ending twenty-four months thereafter, the Subscriber is not permitted to resell any of the Conversion Shares without any restrictive legend or if such sales are permitted but subject to volume limitations or further restrictions on resale as a result of the unavailability to Subscriber of Rule 144(b)(1)(i) under the 1933 Act or any successor rule (a “144 Default”), for any reason except for Subscriber’s status as an Affiliate or “control person” of the Company, or as a result of a change in current applicable securities laws, then the Company shall pay Subscriber as “liquidated damages” and not as a penalty an amount equal to one percent (1%) for each thirty days (or such lesser pro-rata amount for any period less than thirty days) thereafter of the Stated Value of the Conversion Shares subject to such 144 Default during the pendency of the 144 Default.

9.            Maximum Exercise of Rights.   In the event the exercise of the rights described in Section 9 would or could result in the issuance of an amount of Common Stock that would exceed the maximum amount that may be issued to Subscriber calculated in the manner described in Section 6(c) of the Certificate, then the issuance of such additional shares of Common Stock to Subscriber will be deferred in whole or in part until such time as Subscriber are able to beneficially own such Common Stock without exceeding the applicable maximum amount set forth calculated in the manner described in Section 6(c) of the Certificate and notifies the Company accordingly.

 

10.           Miscellaneous.

 

(a)           Notices.  All notices, demands, requests, consents, approvals, and other communications required or permitted hereunder shall be in writing and, unless otherwise specified herein, shall be (i) personally served, (ii) deposited in the mail, registered or certified, return receipt requested, postage prepaid, (iii) delivered by reputable air courier service with charges prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed as set forth below or to such other address as such party shall have specified most recently by written notice.  Any notice or other communication required or permitted to be given hereunder shall be deemed effective (a) upon hand delivery or delivery by facsimile, with accurate confirmation generated by the transmitting facsimile machine, at the address or number designated below (if delivered on a business day during normal business hours where such notice is to be received), or the first business day following such delivery (if delivered other than on a business day during normal business hours where such notice is to be received) or (b) on the second business day following the date of mailing by express courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur. The addresses for such communications shall be: (i) if to the Company, to: YesDTC, Inc., 300 Beale Street, Suite 613 San Francisco, CA 94105, Attn: Joseph A. Noel, CEO, facsimile: ___________, with a copy to:  Ryan Nail, Esq., The Crone Law Group, 101 Montgomery St., Suite 2650, San Francisco, CA 94104, facsimile: (415) 955-8910, and (ii) if to the Subscriber, to: Barry Honig, 4400 Biscayne Blvd, #850, Miami, FL 33137, facsimile: _________.

  

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 (b)         Entire Agreement; Assignment.  This Agreement and other documents delivered in connection herewith represent the entire agreement between the parties hereto with respect to the subject matter hereof and may be amended only by a writing executed by both parties.  Neither the Company nor the Subscriber has relied on any representations not contained or referred to in this Agreement and the documents delivered herewith.   No right or obligation of the Company shall be assigned without prior notice to and the written consent of the Subscriber.

 

(c)           Counterparts/Execution.  This Agreement may be executed in any number of counterparts and by the different signatories hereto on separate counterparts, each of which, when so executed, shall be deemed an original, but all such counterparts shall constitute but one and the same instrument.  This Agreement may be executed by facsimile signature and delivered by electronic transmission.

 

(d)           Law Governing this Agreement.  This Agreement shall be governed by and construed in accordance with the laws of the State of New York without regard to principles of conflicts of laws. Any action brought by either party against the other concerning the transactions contemplated by this Agreement shall be brought only in the state courts of New York or in the federal courts located in the state and county of New York.  The parties to this Agreement hereby irrevocably waive any objection to jurisdiction and venue of any action instituted hereunder and shall not assert any defense based on lack of jurisdiction or venue or based upon forum non conveniens.  The parties executing this Agreement and other agreements referred to herein or delivered in connection herewith on behalf of the Company agree to submit to the in personam jurisdiction of such courts and hereby irrevocably waive trial by jury.  The prevailing party shall be entitled to recover from the other party its reasonable attorney's fees and costs.  In the event that any provision of this Agreement or any other agreement delivered in connection herewith is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law.  Any such provision which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision of any agreement.  Each party hereby irrevocably waives personal service of process and consents to process being served in any suit, action or proceeding in connection with this Agreement or any other Transaction Document by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof.  Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law.

 

(e)           Specific Enforcement, Consent to Jurisdiction.  The Company and Subscriber acknowledge and agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached.  It is accordingly agreed that the parties shall be entitled to seek an injunction or injunctions to prevent or cure breaches of the provisions of this Agreement and to enforce specifically the terms and provisions hereof, this being in addition to any other remedy to which any of them may be entitled by law or equity. Subject to Section 11(d) hereof, the Company hereby irrevocably waives, and agrees not to assert in any such suit, action or proceeding, any claim that it is not personally subject to the jurisdiction in New York of such court, that the suit, action or proceeding is brought in an inconvenient forum or that the venue of the suit, action or proceeding is improper. Nothing in this Section shall affect or limit any right to serve process in any other manner permitted by law.

 

(f)           Damages.   In the event the Subscriber is entitled to receive any liquidated damages pursuant to the Transactions Documents, the Subscriber may elect to receive the greater of actual damages or such liquidated damages.

  

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(g)           Severability.  In the event that any term or provision of this Agreement shall be finally determined to be superseded, invalid, illegal or otherwise unenforceable pursuant to applicable law by an authority having jurisdiction and venue, that determination shall not impair or otherwise affect the validity, legality or enforceability: (i) by or before that authority of the remaining terms and provisions of this Agreement, which shall be enforced as if the unenforceable term or provision were deleted, or (ii) by or before any other authority of any of the terms and provisions of this Agreement.

 

(h)           Successor Laws.  References in the Transaction Documents to laws, rules, regulations and forms shall also include successors to and functionally equivalent replacements of such laws, rules, regulations and forms.  A successor rule to Rule 144(b)(1)(i) shall include any rule that would be available to a non-Affiliate of the Company for the sale of Common Stock not subject to volume restrictions and after a six month holding period.

 

[SIGNATURE PAGE FOLLOWS]

  

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Please acknowledge your acceptance of the foregoing Subscription Agreement by signing and returning a copy to the undersigned whereupon it shall become a binding agreement between us.

	
YESDTC, INC.

	  
	
By:

	
/s/ Joseph A. Noel

	  	
Name: Joseph A. Noel

	  	
Title: Chief Executive Officer

	  	  
	
/s/ Barry Honig

	
Barry Honig

 

  

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