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8-K - DELTATHREE INC | v176066_8k.htm |
EX-4.1 - DELTATHREE INC | v176066_ex4-1.htm |
EXECUTION
VERSION
LOAN AND SECURITY
AGREEMENT
THIS LOAN AND SECURITY
AGREEMENT (this “Agreement”), dated as of March
1, 2010 (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
requested that Lender make advances to Borrower from time to time in an
aggregate principal amount thereof not to exceed one million two hundred
thousand dollars ($1,200,000) (the “Maximum Principal Amount”);
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, during the period beginning on the date
hereof and ending on the Maturity Date (the “Draw Period”), in an amount up
to, but not to exceed, the Maximum Principal Amount in the aggregate, for the
purposes stated herein only. During the Draw Period, subject to the
terms and condition of this Agreement, Borrower may borrow, in increments of no
less than $100,000, amounts up to the Maximum Principal Amount at any time and
from time to time.
(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 equal 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. The initial payment of interest shall be due on May 1, 2010,
and payment of accrued interest shall be due on the first calendar day of each
month thereafter.
(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. Upon payment in
full 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.
(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.
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3. Conditions of
Loans.
(a) Conditions Precedent to Loan
Advances. Lender’s obligation to make each Loan Advance is
subject to satisfaction of the following conditions:
(i) Receipt
of an executed Notice of Borrowing (as defined below);
(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.
(b) Procedure for
Borrowing. Subject to the prior satisfaction of the conditions
set forth in Section 3(a), 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 ten (10th)
Business Day prior to the date of the proposed Loan Advance (a “Loan Date”). Each
Notice of Borrowing shall be in writing and shall specify (a) the Loan Date, (b)
the account of Borrower to be funded and the wire instructions applicable
thereto, (c) the purpose for which such Loan Advance shall be used; and (d) the
amount of such proposed Loan Advance. Each Loan Advance shall be in
an amount of at least $100,000. Following Lender’s receipt of a
Notice of Borrowing and satisfaction of the conditions set forth in Section
3(a), 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.
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(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.
(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 Permitted Liens. 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. No obligations remain
outstanding under the letter of credit secured by the Lien described in Section
9(m)(iii) hereof.
(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.
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(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 (in Borrower’s reasonable determination) 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.
(e) Good Faith
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. After having reviewed its
financial position and forecast, the Borrower reasonably believes that it will
be in position to repay all Loan Advances according to 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.
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(g) Arm’s Length
Transaction. 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.
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;
(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;
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(iv) Use of
Proceeds. Borrower shall use the proceeds of the Loan Advances
solely as working capital and to fund its general business requirements and not
for personal, family, household or agricultural purposes;
(v) Insurance. Borrower
shall, at all times, maintain with (in its reasonable determination) 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;
(vi) Existing
Liens. Borrower shall use its reasonable best efforts to
terminate the letter of credit and the Lien securing such instrument described
in Section 9(m)(iii) promptly following the execution of this
Agreement;
(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:
(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; (c) of non-exclusive licenses for the use of the
property of Borrower or its subsidiaries in the ordinary course of
business;
(ii) Mergers or
Acquisitions. Merge or consolidate, or permit any of its
subsidiaries to merge or consolidate, with any other Person, or acquire, or
permit any of its subsidiaries to acquire, all or substantially all of the
capital stock or property of another Person. 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;
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(iii) Indebtedness. Borrow
money or engage in any debt or other financing transaction for borrowed money
except under this Agreement 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, (A) take any
action to accelerate or increase the obligations secured by any Permitted Lien,
or (B) draw on or otherwise utilize (or authorize any other person to take any
such action) the letter of credit underlying Lien described in Section 9(m)(iii)
hereof;
(v) Loans. Make
any loan to any Person except receivable, prepaid items or deposits incurred in
the ordinary course of business; or
(vi) Capital
Expenditures. Make nor agree to make any material capital
expenditures.
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.
(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.
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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 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);
(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;
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(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;
or
(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.
(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) 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; and
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(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).
(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.
(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.
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(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.
(b) Waivers; 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.
12
(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.
(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, or (ii) 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
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
13
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.
14
(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.
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.
15
(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.
(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; or (iii) a
material impairment in the prospect of repayment of any portion of the
Obligations.
(k) “Maturity Date” means March 1,
2011.
(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 $175,000 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 Bank Leumi Ltd., (ii) the Lien provided to Bank Leumi
Ltd. equal to approximately $35,000 as of the date hereof on the deposit in the
bank account of the Israeli Subsidiary maintained at Bank Leumi Ltd., and (iii)
the Lien provided to MCI/WorldCom equal to approximately $157,500 as of the date
hereof on the deposit in the bank account of deltathree, Inc. maintained at
Wachovia Bank.
16
(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]
17
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:
|
/s/ Effi Baruch
|
|||
Name:
Effi Baruch
|
By:
|
/s/ Robert Stevanovski
|
||
Title:
Interim CEO and President
|
Name:
Robert Stevanovski
|
|||
Title:
Manager
|
||||
DELTA
THREE ISRAEL, LTD.
|
||||
By:
|
/s/ Effi Baruch
|
|||
Name:
Effi Baruch
|
||||
Title:
Interim CEO and President
|
||||
DME
SOLUTIONS, INC.
|
||||
By:
|
/s/ Effi Baruch
|
|||
Name:
Effi Baruch
|
||||
Title:
CEO and President
|
Exhibit
A
Form
of Promissory Note
PROMISSORY
NOTE
Up
to $1,200,000
|
March
1, 2010
|
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 ONE MILLION TWO HUNDRED THOUSAND
DOLLARS ($1,200,000), 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 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 one
million two hundred thousand dollars ($1,200,000). 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 by a first priority perfected security
interest in the Collateral, 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.
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.
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.
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]
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:
Interim CEO and President
|
||
DELTA
THREE ISRAEL, LTD.
|
||
By:
|
|
|
Name:
Effi Baruch
|
||
Title:
Interim CEO and President
|
||
DME
SOLUTIONS, INC.
|
||
By:
|
|
|
Name:
Effi Baruch
|
||
Title:
CEO and President
|
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:
|
Loan
and Security Agreement
|
Dear
Robert:
Reference is made to that certain Loan
and Security Agreement (as from time to time amended, restated, varied,
supplemented or otherwise modified, the “Loan Agreement”), dated as of
March 1, 2010, 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$[___________],1
to be disbursed as follows:
|
[INSERT
APPLICABLE BORROWER]
Account
Information
[INSERT
APPLICABLE INFORMATION]
|
c.
|
Purpose
for which Loan Advance will be
used: ______________________.
|
2.
|
CERTIFICATION
|
The Borrower 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) no Event of Default (i) has
occurred that is continuing as of the date hereof and (ii) will result from the
Loan Advance requested hereunder and (c) no Material Adverse Change has
occurred.
Sincerely,
[INSERT
APPLICABLE BORROWER]
1 At
least $100,000.
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.
|