Deltathree (DDDC) DEF 14A Definitive proxy

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No.  )

 

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deltathree, Inc.

(Name of the Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

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deltathree, Inc.
224 West 35^th Street  –  Suite 1004
New York, New York 10001

July 2, 2010

Dear Stockholder:

You are cordially invited to attend the Annual Meeting of Stockholders (the “Meeting”) of deltathree, Inc. (the “Company”) to be held at the offices of Bingham McCutchen LLP, 399 Park Avenue, 21^st Floor, New York, New York 10022, on August 16, 2010, commencing at 12:00 p.m. local time. I urge you to be present in person or represented by proxy at the Meeting.

The enclosed Notice of Annual Meeting and Proxy Statement fully describes the business to be transacted at the Meeting, which includes (i) the election of seven directors of the Company, (ii) the ratification of the appointment by the Board of Directors of Brightman Almagor Zohar & Co., a member firm of Deloitte Touche Tohmatsu, as the Company’s independent registered public accounting firm for the year ending December 31, 2010, and (iii) the transaction of any other business that may properly be brought before the Meeting or any adjournment or postponement thereof.

Our Board of Directors believes that a favorable vote on each of the matters to be considered at the Meeting is in the best interests of us and our stockholders and unanimously recommends a vote “FOR” each of the matters.Accordingly, we urge you to review the accompanying material carefully and to promptly submit the accompanying proxy by Internet or mail.

We are taking advantage of the rules and regulations adopted by the Securities and Exchange Commission allowing companies to furnish proxy materials over the Internet. The Internet availability notice contains instructions on how to access those documents over the Internet. Please read the Internet availability notice for more information on this alternative, which we believe allows us to provide our stockholders with the information they need while minimizing our costs of delivery. The Internet availability notice also contains instructions on how to request a paper copy of our proxy materials, including the Proxy Statement, our 2009 Annual Report to Stockholders and a form of proxy card or voting instruction card, as applicable.

If you are planning to attend the Meeting in person, due to security procedures you will be required to present government-issued photo identification (e.g. driver’s license or passport) to enter the Meeting. In addition, packages and bags will be inspected, among other measures that may be employed to enhance the security of those attending the Meeting. These procedures may require additional time, so please plan accordingly.

Some or all of our directors and officers will be present to help host the Meeting and to respond to any questions that you may have. I hope you will be able to attend.Whether or not you are able to attend the Meeting in person, it is important that your shares be represented. We have provided instructions on each of the alternative voting methods in the accompanying Proxy Statement. Stockholders that have accessed these proxy materials on the Internet, as well as those who have received paper copies, may vote by following the instructions included in the Proxy Statement or by following the instructions detailed in the Internet availability notice, as applicable. Please vote as soon as possible. If you attend the Meeting you may vote in person even if you have previously mailed or submitted a proxy, provided that you are a record holder or have received a legal proxy from the record holder of your shares.

	Sincerely,
	Effi Baruch, Interim Chief Executive Officer and President, Senior Vice President of Operations and Technology

deltathree, Inc.
224 West 35^th Street  –  Suite 1004
New York, New York 10001

NOTICE OF 2010 ANNUAL MEETING OF STOCKHOLDERS
To Be Held on August 16, 2010

NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the “Meeting”) of deltathree, Inc. (the “Company”) will be held at the offices of Bingham McCutchen LLP, 399 Park Avenue, 21^st Floor, New York, New York 10022, on August 16, 2010, commencing at 12:00 p.m., local time. A proxy or voter instruction form (each referred to herein as a “proxy card”) and a Proxy Statement for the Meeting are enclosed.

The Meeting is for the purpose of considering and acting upon:

1. The election of seven directors for a one-year term expiring at our Annual Meeting of Stockholders in 2011 and until their successors are duly elected and qualified;

2. The ratification of the appointment by the Board of Directors of Brightman Almagor Zohar & Co., a member firm of Deloitte Touche Tohmatsu, as the Company’s independent registered public accounting firm for the year ending December 31, 2010; and

3. Such other matters as may properly come before the Meeting or any adjournment or postponement thereof.

The close of business on June 17, 2010, has been fixed as the record date for determining stockholders entitled to notice of and to vote at the Meeting or any adjournment or postponement thereof. Accordingly, only stockholders of record at the close of business on that date will be entitled to vote at the Meeting.

Information concerning the matters to be acted upon at the Meeting is set forth in the accompanying Proxy Statement. A copy of our Annual Report for 2009, which includes our audited financial statements, is being provided together with this proxy material.

You are cordially invited to attend the Meeting in person. Whether or not you expect to attend the meeting, please vote on the Internet as instructed in these materials or, if this Proxy Statement was mailed to you, complete, date, sign and return the enclosed proxy card or vote on the Internet as instructed in these materials, as promptly as possible in order to ensure your representation at the Meeting. A return envelope (which is postage prepaid if mailed in the United States) has been provided with the proxy card. Even if you have voted by proxy, you may still vote in person if you attend the Meeting. Please note, however, that if your shares are held of record by a broker, bank or other nominee and you wish to vote at the Meeting, you must obtain a proxy card issued in your name from that record holder.

Proxy Materials Available on the Internet:  This notice of annual meeting, the accompanying proxy statement and the Company’s 2009 Annual Report to Stockholders are available athttp://www.proxyvote.com.

	By Order of the Board of Directors,
	Peter Friedman
	General Counsel and Secretary

Jerusalem, Israel
July 2, 2010

TABLE OF CONTENTS

	Page
INFORMATION ABOUT THE ANNUAL MEETING		1
General		1
Notice Regarding the Availability of Proxy Materials over the Internet		1
Solicitation and Voting of Proxies		1
Record Date and Voting Securities		2
Quorum and Voting		2
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT		4
CHANGE IN CONTROL		5
BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD		6
General		6
Board Committees		7
Board Leadership Structure		8
Risk Management		8
Legal Proceedings		8
Director Independence		8
STOCKHOLDER COMMUNICATIONS TO THE BOARD		9
AUDIT COMMITTEE REPORT		10
PROPOSAL #1 ELECTION OF DIRECTORS		11
General		11
Vote Required and Recommendation of the Board of Directors		11
Nominees for Director		11
PROPOSAL #2 RATIFICATION OF THE APPOINTMENT OF THE COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE YEAR ENDING DECEMBER 31, 2010		14
General		14
Vote Required and Recommendation of the Board of Directors		14
Principal Accounting Fees and Services		14
Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Registered Public Accounting Firm		15
EXECUTIVE OFFICERS AND KEY EMPLOYEES		16
EXECUTIVE COMPENSATION AND OTHER INFORMATION		17
Summary Compensation Table		17
Outstanding Equity Awards at Fiscal Year-End		18
Director Compensation		19
Equity Compensation Plan Information		21
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS		21
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE		22
CODE OF CONDUCT AND ETHICS		22
STOCKHOLDER PROPOSALS FOR 2011 ANNUAL MEETING		22
OTHER MATTERS		23
MISCELLANEOUS		23

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deltathree, Inc.
224 West 35^th Street – Suite 1004
New York, New York 10001

PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
  
To Be Held August 16, 2010

 

INFORMATION ABOUT THE ANNUAL MEETING

General

This Proxy Statement and accompanying proxy materials are being made available on or about July 2, 2010, to stockholders of deltathree, Inc. (the “Company”) at the direction of our Board of Directors (the “Board”) to solicit proxies in connection with the 2010 Annual Meeting of Stockholders (the “Meeting”). The Meeting will be held at the offices of Bingham McCutchen LLP, 399 Park Avenue, 21^st Floor, New York, New York 10022, on August 16, 2010, commencing at 12:00 p.m. local time, or at such other time and place to which the Meeting may be adjourned or postponed.

If you have received a printed copy of these materials by mail, you may simply complete, date, sign and return your proxy or voting instruction form (each referred to herein as a “proxy card”), as applicable, or follow the instructions below to submit your proxy on the Internet. If you did not receive a printed copy of these materials by mail and are accessing them on the Internet, you may simply follow the instructions below to submit your proxy on the Internet.

We intend to mail a printed copy of this Proxy Statement and proxy card to certain of our stockholders of record on or about July 7, 2010. All other stockholders will receive a Notice Regarding Internet Availability of Proxy Matters (sometimes referred to herein as the “Internet Availability Notice”), which will also be mailed on or about July 7, 2010.

Notice Regarding the Availability of Proxy Materials over the Internet

In accordance with rules and regulations adopted by the Securities and Exchange Commission, instead of mailing a printed copy of our proxy materials to each stockholder of record we furnish proxy materials to our stockholders over the Internet. You will not receive a printed copy of the proxy materials unless you specifically request it or have previously requested that we mail all such materials to you.

If you received an Internet Availability Notice by mail, you will not receive a printed copy of the proxy materials. Instead, the Internet Availability Notice will instruct you as to how you may access and review over the Internet all of the important information contained in the proxy materials. The Internet Availability Notice also will instruct you as to how you may submit your proxy over the Internet. If you received an Internet Availability Notice by mail and would like to receive a printed copy of our proxy materials, including a proxy card, you should follow the instructions for requesting such materials included in the Internet Availability Notice.

Solicitation and Voting of Proxies

All shares represented by valid proxies at the Meeting, unless the stockholder otherwise specifies, will be voted (i) FOR the election of the seven persons named under “Proposal 1 — Election of Directors” as nominees for election as our directors for a one-year term expiring at our 2011 Annual Meeting of stockholders and until their successors are duly elected and qualified, (ii) FOR the ratification of the appointment by the Board of the independent registered public accounting firm named under “Proposal 2 — Ratification of the appointment of the Company’s independent registered public accounting firm for the year ending December 31, 2010” and (iii) at the discretion of the proxy holders with regard to any matter not known to the Board on the date of the mailing of this Proxy Statement that may properly come before the Meeting or any adjournment or postponement thereof. In any case where a stockholder has

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appropriately specified how a proxy is to be voted, it will be voted accordingly. The Board has designated Effi Baruch and Peter Friedman as proxies for the solicitation on behalf of the Board of proxies of our stockholders, to vote on all matters as may properly come before the Meeting and any adjournment of the Meeting.

You may revoke your proxy at any time before it is voted at the Meeting by: (i) properly submitting a subsequent proxy in one of the manners authorized and described in this Proxy Statement (such as via the Internet pursuant to the voting procedures described below), (ii) giving written notice of revocation to us prior to the Meeting, or (iii) attending and voting at the Meeting. A stockholder wishing to revoke a proxy by written notice must submit such revocation to us at deltathree, Inc., 224 West 35^th Street, Suite 1004, New York, New York 10001.

Record Date and Voting Securities

The close of business on June 17, 2010, has been fixed as the record date (the “Record Date”) for determining the stockholders entitled to vote at the Meeting. At the close of business on June 17, 2010, we had issued and outstanding 72,214,873 shares of our common stock, par value $0.001 per share, held by 140 holders of record. The common stock constitutes the only outstanding class of securities.

Quorum and Voting

The presence at the Meeting, in person or by proxy relating to any matter, of the holders of a majority of the outstanding shares of common stock is necessary to constitute a quorum. For purposes of the quorum and the discussion below regarding the vote necessary to take stockholder action, stockholders of record who are present at the Meeting in person or by proxy and who abstain, including brokers holding customers’ shares of record who cause abstentions to be recorded at the Meeting, are considered stockholders who are present and entitled to vote at the Meeting, and the shares of common stock held by such stockholders will count toward the attainment of a quorum. Broker “non-votes” will also be counted as shares present for purposes of determining the presence of a quorum. If a quorum will not be present, the Meeting will be adjourned from time to time until a quorum is obtained.

Each share of common stock entitles the holder thereof to one vote with respect to each proposal to be voted on at the Meeting.

The accompanying proxy card is designed to permit each holder of common stock as of the close of business on the Record Date to vote on each of the matters to be considered at the Meeting. A stockholder is permitted to vote in favor of, or to withhold authority to vote for, any or all of the nominees for election to the Board and to vote in favor of or against or to abstain from voting with respect to all of the other proposals included in this Proxy Statement.

Brokers holding shares of record for customers generally are not entitled to vote on certain matters unless they receive voting instructions from their customers. As used herein, “uninstructed shares” means shares held by a broker who has not received instructions from its customers on such matters, if the broker has so notified us on a proxy form in accordance with industry practice or has otherwise advised us that it lacks voting authority. As used herein, “broker non-votes” means the votes that could have been cast on the matter in question by brokers with respect to uninstructed shares if the brokers had received their customers’ instructions. We intend to treat broker non-votes in the manner described in each of the Proposals set forth herein.

If at the close of business on June 17, 2010, your shares were held in an account at a brokerage firm, bank, dealer, or other similar organization, then you are the beneficial owner of shares held in “street name” and the Internet Availability Notice or proxy materials (as applicable) are being forwarded to you by that organization. The organization holding your account is considered the stockholder of record for purposes of voting at the Meeting. As a beneficial owner, you have the right to direct that organization on how to vote the shares in your account.

If you are a stockholder of record, you may vote in person at the Meeting. We will give you a ballot when you arrive.

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If you do not wish to vote in person or you will not be attending the Meeting, you may vote by proxy. If you received a printed copy of these proxy materials by mail, you may vote by proxy using the enclosed proxy card or vote by proxy on the Internet. If you received an Internet Availability Notice by mail, you may vote by proxy over the Internet. The procedures for voting by proxy are as follows:

• to vote by proxy on the Internet, go towww.proxyvote.com to complete an electronic proxy card; or

• to vote by proxy using the enclosed proxy card (if you received a printed copy of these proxy materials by mail), complete, date, sign and return your proxy card promptly in the envelope provided.

If you vote by proxy, your vote must be received by 11:59 p.m. Eastern Time on August 15, 2010, to be counted.

If you are a beneficial owner of shares held in street name and you received a printed copy of these proxy materials by mail, you should have received a proxy card and voting instructions with these proxy materials from the organization that is the record owner of your shares rather than from us. Likewise, if you are a beneficial owner of shares held in street name and you received an Internet Availability Notice by mail, you should have received the Internet Availability Notice from the organization that is the record owner of your shares rather than from us. Beneficial owners that received a printed copy of these proxy materials by mail from the record owner may complete and mail that proxy card or may vote over the Internet as instructed by that organization in the proxy card. Beneficial owners that received an Internet Availability Notice by mail from the record owner should follow the instructions included in the Internet Availability Notice to view the proxy statement and transmit their voting instructions. For a beneficial owner to vote in person at the Meeting, you must obtain a valid proxy from the record owner. To request the requisite proxy form, follow the instructions provided by your broker or contact your broker.

As permitted under the federal securities laws, we or brokers holding shares on behalf of our stockholders will send a single set of our proxy materials to multiple stockholders sharing an address who have requested that we mail them such materials. Each such stockholder will continue to receive a separate proxy card or voting instruction card. Once stockholders receive notice from their brokers or from us that communications to their addresses will be “householded,” we will continue to do so until we have received contrary instructions from one or more of the security holders. Stockholders whose households received a single set of our proxy statement this year but who would like to receive additional copies may contact our transfer agent, American Stock Transfer & Trust Company, at the address set forth below, and we will promptly deliver additional copies. Stockholders who do not wish to participate in “householding” and would like to receive their own sets of our proxy statement in future years should follow the instructions described below. Stockholders who share an address with another stockholder of the Company and who would like to receive only a single set of our proxy statements should follow these instructions:

• stockholders whose shares are registered in their own name should contact American Stock Transfer & Trust Company by telephone at 1-800-937-5449 or by mail at 6201 15^th Avenue, Brooklyn, N.Y. 11219, and inform it of their request; and

• stockholders whose shares are held by a broker or other nominee should contact the broker or other nominee directly and inform them of their request.

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

As of June 17, 2010, there were 72,214,873 shares of our common stock issued and outstanding. Each share of common stock entitles the holder thereof to one vote with respect to each item to be voted on by holders of the shares of common stock. We have no other securities, voting or nonvoting, outstanding.

The following table sets forth information with respect to the beneficial ownership of shares of our common stock as of June 17, 2010,by:

• each person whom we know beneficially owns more than 5% of the common stock;

• each of our directors and director nominees individually;

• each of our named executive officers (as defined below) individually; and

• all of our current directors and executive officers as a group.

Unless otherwise indicated, to our knowledge, all persons listed below have sole voting and investment power with respect to their shares of common stock. Each person listed below disclaims beneficial ownership of their shares, except to the extent of their pecuniary interests therein. Shares of common stock that an individual or group has the right to acquire within 60 days of June 17, 2010, pursuant to the exercise of options or restricted stock are deemed to be outstanding for the purpose of computing the percentage ownership of such person or group, but are not deemed outstanding for the purpose of calculating the percentage owned by any other person listed.

	Number		Percentage(1)
	Shares of Common Stock Beneficially Owned
Principal Stockholders:
D4 Holdings, LLC(2) 349-L Copperfield Blvd., #407 Concord, NC 28025		69,000,000		67.5 %
Abraham Ziv-Tal(3) 4 Hanurit Street Rishpon, Israel 49615		10,246,643		14.2 %
Executive Officers and Directors:
Effi Baruch(4)		365,833		*
Richard Grant(5)		—		—
Dan Antebi(6)		—		—
Peter Friedman(7)		125,817		*
Robert Stevanovski(2)		69,000,000		67.5 %
Anthony Cassara(8)(9)		69,025,000		67.5 %
Lior Samuelson(10)		527,000		*
David Stevanovski(8)		69,000,000		67.5 %
Gregory Provenzano(8)		69,000,000		67.5 %
J. Lyle Patrick(9)		25,000		*
Brian Fitzpatrick(9)		25,000		*
All directors and executive officers as a group (10 persons)(11)		70,126,983		68.6 %

* Less than 1%.

(1) Percentage of beneficial ownership is based on 72,214,873 shares of common stock outstanding as of June 17, 2010.

(2) Ownership is based on a Schedule 13D filed February 23, 2009 by D4 Holdings, Manna Holdings, LLC (“Manna Holdings”), Praescient, LLC (“Praescient”) and Robert Stevanovski and includes 30,000,000 shares of common stock issuable under a warrant held by D4 Holdings. Robert Stevanovski is the manager of Praescient, which serves as the sole manager of D4 Holdings and as the managing member of Manna Holdings. Manna Holdings is the sole member of D4 Holdings. As such, Mr. Stevanovski, Praescient and Manna Holdings may be deemed to beneficially own the securities

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reported in the table. Each of Mr. Stevanovski, Praescient and Manna Holdings disclaims beneficial ownership of such securities, and the information reported herein shall not be deemed an admission that such reporting person is the beneficial owner of the securities for any purpose, except to the extent of such person’s pecuniary interest therein.

(3) Ownership is based on a Form 4 filed June 16, 2010.

(4) Includes (a) 42,500 shares of common stock and (b) options to purchase 323,333 shares of common stock.

(5) Mr. Grant resigned from the Company effective August 15, 2009. Accordingly, the number of shares of common stock that he beneficially owned as June 17, 2010, is not included in the calculation of the number of shares of common stock beneficially owned by all of our current directors and executive officers as a group.

(6) Mr. Antebi resigned from the Company effective February 28, 2010. Accordingly, the number of shares of common stock that he beneficially owned as of June 17, 2010, is not included in the calculation of the number of shares of common stock beneficially owned by .all of our current directors and executive officers as a group.

(7) Includes (a) 9,150 shares of common stock and (b) options to purchase 116,667 shares of common stock.

(8) The securities reported in the table are held directly by D4 Holdings and include the warrant to purchase 30,000,000 shares of common stock held by D4 Holdings. Each of Anthony Cassara, David Stevanovski and Gregory Provenzano beneficially owns a membership interest in Manna Holdings, which is the sole member of D4 Holdings. As such, each of Messrs. Cassara, Stevanovski and Provenzano may be deemed to beneficially own the securities reported herein and owned directly by D4 Holdings. Each of Messrs. Cassara, Stevanovski and Provenzano disclaims beneficial ownership of such securities, and the information reported herein shall not be deemed an admission that such reporting person is the beneficial owner of the securities for any purpose, except to the extent of his pecuniary interest therein.

(9) Includes options to purchase 25,000 shares of common stock.

(10) Includes (a) 152,000 shares of common stock and (b) options to purchase 375,000 shares of common stock.

(11) Includes (a) 39,203,650 shares of common stock, (b) options to purchase 923,333 shares of common stock and (c) a warrant to purchase 30,000,000 shares of common stock held directly (or deemed to be beneficially owned) by the executive officers and directors as a group.

CHANGE IN CONTROL

On February 10, 2009, we entered into a Securities Purchase Agreement (the “Purchase Agreement”) with D4 Holdings, LLC (“D4 Holdings”) pursuant to which we issued to D4 Holdings (i) 39,000,000 shares of our common stock, representing approximately 54.2% of the total number of issued and outstanding shares of our common stock following the transaction, for an aggregate purchase price of $1,170,000, and (ii) a warrant, exercisable for ten years, to purchase up to an additional 30,000,000 shares of our common stock at an exercise price of $0.04 per share (the “Warrant”). We refer to the transactions under the Purchase Agreement as the “Private Placement.” The Private Placement closed on February 12, 2009.

In connection with the Private Placement, we also entered into an Investor Rights Agreement with D4 Holdings, pursuant to which we have agreed to file, upon the request of D4 Holdings, a registration statement covering the resale of any shares of our common stock held by D4 Holdings (including the shares of common stock underlying the Warrant). Subject to our ability to suspend the effectiveness of the registration statement for a limited period of time under certain circumstances, we are required to maintain the effectiveness of any such registration statement until the earlier of (i) the date on which all shares of common stock covered by the registration statement have been sold thereunder or (ii) the date on which all such shares of common stock can be sold without registration pursuant to Rule 144 or another similar exemption under the Securities Act of 1933. Subject to certain limitations, D4 Holdings will also be entitled to “piggy-back” registration rights on all future registrations by us and any registrations initiated by our other stockholders.

As a result of the Private Placement, D4 Holdings currently owns approximately 54% of our outstanding common stock. Therefore, if D4 Holdings elects to vote all of the shares of common stock it owns on any proposal submitted to a vote of our stockholders at the Meeting, it will control the outcome of any such vote.

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BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD

General

Our Amended and Restated Certificate of Incorporation provides that the number of members of our Board of Directors shall be not less than three and not more than thirteen. There are currently seven directors on the Board. At each annual meeting of stockholders, directors are elected to hold office for a term of one year and until their respective successors are elected and qualified.

The Board had five regular meetings and four special meetings during the fiscal year ended December 31, 2009. During the fiscal year ended December 31, 2009, except for David Stevanovski, Gregory Provenzano and Brian Fitzpatrick each member of the Board participated in at least 75% of the aggregate of all Board and committee (for such committees on which the director served) meetings held during the period for which he was a director or member of such committee. None of our directors attended our 2009 Annual Stockholder Meeting, and the Company does not have a formal policy regarding director attendance at our annual stockholder’ meetings. The Board has established an Audit Committee and a Compensation Committee. The functions of the committees and their current members are set forth below.

Due to a decrease in the number of members of the Board after our 2006 Annual Stockholders Meeting, our Board members determined that it is efficient and important for each member to actively participate in all matters that were previously the responsibility of the Nominating and Governance Committee and dissolved the Nominating and Governance Committee as of September 11, 2006. In addition to the independent members of our Board identified below, four of our current directors were appointed pursuant to the terms of the Purchase Agreement by D4 Holdings, which is actively involved in the management of the Company and owns approximately 54% of the outstanding shares of our common stock. Accordingly, we believe that it is important that the members of our Board who were appointed by D4 participate in the selection of nominees to the Board and our corporate governance matters. As such, each of our Board members participates in, among other matters, the following nominating and governance-related matters:

• identifying and recommending qualified candidates for director, and recommending the director nominees for our annual meetings of stockholders;

• conducting an annual review of the Board’s performance;

• recommending the director nominees for each of the Board committees; and

• developing and recommending our company’s corporate governance guidelines.

Furthermore, our Board adopted a nominating and governance policy that was based on the former Nominating and Governance Committee Charter. This policy outlines our Board’s goals, responsibilities, and procedures related to nominating and governance matters. As part of the Board’s responsibility relating to the nominating function, our Board may consider candidates recommended by stockholders as well as from other sources such as other directors or officers, third party search firms or other appropriate sources.

For all potential candidates, the Board considers a number of factors, such as the extent to which the candidate’s knowledge and experience would fill a need in the Board and help complement the other directors, a candidate’s personal integrity and sound judgment, business and professional skills and experience, independence, knowledge of the industry in which we operate, possible conflicts of interest, and concern for the long-term interests of our stockholders. In addition, although the Company does not have a formal policy regarding the consideration of diversity in identifying and evaluating potential director candidates, the Board will consider diversity in the context of the Board as a whole and takes into account the personal characteristics (gender, ethnicity and age), skills and experience, qualifications and background of current and prospective directors as one factor in identifying and evaluating potential director candidates. In general, persons recommended by stockholders will be considered on the same basis as candidates from other sources. If a stockholder wishes to nominate a candidate to be considered for election as a director at our 2011 Annual Meeting of Stockholders using the procedures set forth in the Company’s Amended and Restated By-laws, it must follow the procedures described under “Stockholder Proposals for 2011 Annual Meeting” and as set forth in our Amended and Restated By-laws. If a stockholder wishes simply to propose a candidate for

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consideration as a nominee by our Board, it should submit any pertinent information regarding the candidate to the Chairman of the Board by mail care of our Secretary at 224 West 35^th Street, New York, New York 10001.

Board Committees

The Compensation Committee is responsible for:

• evaluating our compensation policies;

• determining executive compensation, and establishing executive compensation policies and guidelines; and

• administering our stock option and compensation plans.

As part of these responsibilities, the Compensation Committee determines the compensation of our Chief Executive Officer, and conducts its decision making process with respect to this issue without the presence of the Chief Executive Officer. The Compensation Committee had one formal meeting and additional informal meetings and discussions during 2009. The Compensation Committee has a charter, a copy of which is available to our stockholders at the Corporate Governance section of our website located atwww.deltathree.com. The Compensation Committee is composed of Brian Fitzpatrick (Chairman), Lior Samuelson and J. Lyle Patrick.

The Audit Committee is responsible for:

• recommending to the Board the appointment of the firm selected to serve as our independent registered public accounting firm and monitoring the performance of such firm;

• reviewing and approving the scope of the annual audit and evaluating with the independent registered public accounting firm our annual audit and annual financial statements;

• reviewing with management the status of internal accounting controls;

• evaluating issues having a potential financial impact on us which may be brought to the Audit Committee’s attention by management, the independent registered public accounting firm or the Board;

• evaluating our public financial reporting documents; and

• reviewing and approving the non-audit services to be performed by the independent registered public accounting firm, if any, and considering the effect of such performance on the auditor’s independence.

The Audit Committee had eight meetings during 2009. The Audit Committee has a charter, a copy of which is available to our stockholders at the Corporate Governance section of our website located atwww.deltathree.com. Following the resignation of Noam Bardin on February 12, 2009, there were no members of the Audit Committee. Mr. Patrick was appointed by the Board to serve as the Chairman of the Audit Committee effective March 28, 2009, the effective time of his appointment to the board. The Board of Directors has determined that Mr. Patrick meets the requirements of the applicable Securities and Exchange Commission rules for membership on the Audit Committee, including Rule 10A-3(b) under the Exchange Act, is “independent” as defined in Rule 5605(a)(2) of the Nasdaq Marketplace Rules and qualifies as an “audit committee financial expert” as defined in Item 407 of Regulation S-K. In June 2009, the Board appointed Anthony Cassara and Lior Samuelson to serve as additional members of the Audit Committee. Following his election to the board on August 6, 2009, the board appointed Brian Fitzpatrick to replace Mr. Cassara on the Audit Committee. Mr. Fitzpatrick qualifies as “independent” as defined in Rule 5605(a)(2) of the Nasdaq Marketplace Rules.

As discussed below under “Director Independence”, we are not currently subject to the Nasdaq continued listing requirements or the requirements of any other national securities exchange, including the independence requirements for audit committees. The Board of Directors has not reached an affirmative conclusion that Messrs. Cassara or Samuelson are “independent” as such term is described in the Nasdaq Marketplace Rules. However, the Board of Directors determined that their membership on the Audit

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Committee was in the best interest of the Company and its stockholders in light of their extensive experience in financial and related matters in our industry and the fact that at the time of their appointment the Audit Committee was composed of only one member. In connection with their appointment to the Audit Committee, the Board waived the independence requirements set forth in the Audit Committee Charter with respect to Messrs. Cassara and Samuelson. The Board also waived the independence requirements in the Compensation Committee Charter with respect to Mr. Samuelson in connection with his appointment to the Compensation Committee on August 6, 2009.

Board Leadership Structure

The Board has no policy regarding the need to separate or combine the offices of Chairman of the Board and Chief Executive Officer and remains free to make this determination from time to time in a manner that the Board deems most appropriate for our company. Currently, we have separated the positions of CEO and Chairman of the Board in recognition of the differences between the two roles. The CEO is responsible for the day to day leadership and performance of the Company, while the Chairman of the Board (in collaboration with other members of the Board) sets the strategic direction of the Company, provides guidance to the management, sets the agenda for the Board meetings (in collaboration with the other members of the Board) and presides over meetings of the Board. We believe that separating these positions allows the Chairman of the Board to lead the board in its fundamental role of providing direction and guidance to management, while allowing our Chief Executive Officer to focus on our day-to-day operations. In addition, we believe that the current separation provides a more effective monitoring and objective evaluation of the performance of the CEO.

Risk Management

The Board is actively involved in the oversight and management of risks that could affect our company. This oversight and management is conducted primarily through committees of the Board, as disclosed in the descriptions of each of the committees above and in the charters of each of the committees, but the full Board has retained responsibility for general oversight of risks. The Board regularly receives reports from members of senior management on areas of material risk to the company, including operational, financial, regulatory and legal. The Audit Committee oversees management of financial risks (including liquidity and credit) and approves all transactions with related persons. The Compensation Committee is responsible for overseeing the management of risks relating to the Company’s executive compensation plans and arrangements. The Board satisfies its oversight responsibility through full reports by each committee chair regarding the committee’s considerations and actions, as well as through regular reports directly from officers responsible for oversight of particular risks within the Company.

Legal Proceedings

Mr. Cassara served as the President of the Carrier Services division of Global Crossing Ltd. from October 1999 to December 2000. In 2002, Global Crossing and certain of its direct and indirect subsidiaries filed voluntary petitions for relief under Chapter 11 of title 11 of the U.S. Code in the U.S. Bankruptcy Court for the Southern District of New York.

Mr. Patrick served as Chief Financial and Accounting Officer of McLeodUSA Incorporated until his resignation in July 2001. In January 2002, McLeod filed a voluntary petition for relief under Chapter 11 of title 11 of the U.S. Code in the U.S. Bankruptcy Court for the District of Delaware.

Director Independence

Our common stock is currently quoted on the OTC Bulletin Board and is not listed on the Nasdaq Stock Market or any other national securities exchange. Accordingly, we are not currently subject to the Nasdaq continued listing requirements or the requirements of any other national securities exchange. Nevertheless, in determining whether a director or nominee for director should be considered “independent” the board utilizes the definition of independence set forth in Rule 5605(a)(2) of the Nasdaq Marketplace Rules. The board has determined that J. Lyle Patrick and Brian Fitzpatrick each qualify as “independent” under this rule.

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In addition, if our common stock were listed on the Nasdaq Stock Market or another national securities exchange, our company also would qualify as a “controlled company” under Rule 5615(c)(2) of the Nasdaq Marketplace Rules because D4 Holdings holds more than 50% of the voting power of our company. Accordingly, we would have the option to be exempt from the requirements under Rule 5605 to have:

• a majority of independent directors;

• a compensation committee composed solely of independent directors;

• compensation of our executive officers determined by a majority of independent directors or a compensation committee composed solely of independent directors;

• a nominating committee composed solely of independent directors; and

• director nominees selected, or recommended for the Board’s selection, either by a majority of the independent directors or a nominating committee composed solely of independent directors.

Because we are not currently subject to the Nasdaq continued listing requirements we have not determined to what extent we would rely on the “controlled company” exemption from any of the foregoing requirements if we were subject to these requirements.

STOCKHOLDER COMMUNICATIONS TO THE BOARD

The Board of Directors recommends that stockholders initiate any communications with the Board in writing and send them care of our Secretary at deltathree, Inc., 224 West 35^th Street, Suite 1004, New York, N.Y. 10001. This centralized process will assist the Board in reviewing and responding to stockholder communications in an appropriate manner. The name of any specific intended Board recipient should be noted in the communication. The Board has instructed our Secretary to forward such correspondence only to the intended recipients; however, the Board has also instructed our Secretary, prior to forwarding any correspondence, to review such correspondence and, in his or her discretion, not to forward certain items if they are deemed of a commercial or frivolous nature or otherwise inappropriate for the Board’s consideration. In such cases, some of that correspondence may be forwarded elsewhere in the Company for review and possible response.

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AUDIT COMMITTEE REPORT

The Audit Committee of the Board of Directors has furnished the following report:

The Audit Committee assists the Board in overseeing and monitoring the integrity of the Company’s financial reporting process, its compliance with legal and regulatory requirements and the quality of its internal and external audit processes. The roles and responsibilities of the Audit Committee are set forth in a written charter that was adopted by the Board. The Audit Committee is responsible for overseeing the Company’s overall financial reporting process and for the appointment, compensation, retention and oversight of the work of the Company’s independent registered public accounting firm. In fulfilling its responsibilities for the financial statements for the fiscal year ended December 31, 2009, the Audit Committee, among other activities, reviewed and discussed the Company’s audited financial statements for such fiscal year with management and with Brightman Almagor Zohar & Co., the Company’s independent registered public accounting firm. The Audit Committee has discussed with Brightman Almagor Zohar & Co. the matters required to be discussed by the statement on Auditing Standards No. 61, as amended (AICPA, Professional Standards, Vol. 1, AU section 380), as adopted by the Public Company Accounting Oversight Board in Rule 3200T. The Audit Committee has received the written disclosures and the letter from Brightman Almagor Zohar & Co. required by applicable requirements of the Public Company Accounting Oversight Board regarding Brightman Almagor & Co.’s communications with the audit committee concerning independence, and has discussed with Brightman Almagor Zohar & Co. its independence. The Audit Committee has considered the compatibility of the provision of non-audit services with maintaining the auditor’s independence.

Based on the Audit Committee’s review of the audited financial statements and the review and discussions described in the foregoing paragraph, the Audit Committee recommended to the Board of Directors that the audited financial statements for the fiscal year ended December 31, 2009, be included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2009, for filing with the Securities and Exchange Commission.

	The Audit Committee
	J. Lyle Patrick (Chairman) Lior Samuelson Brian Fitzpatrick

The Audit Committee Report in this Proxy Statement shall not be deemed filed or incorporated by reference into any other filings by us under the Securities Act of 1933 or the Securities Exchange Act of 1934 except to the extent that we specifically incorporate this information by reference.

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PROPOSAL # 1
  
ELECTION OF DIRECTORS
  
(Notice Item 1)

General

At the Meeting, seven directors will be elected to the Board to serve until our next annual meeting of stockholders and until their respective successors have been elected and qualified.

Our Amended and Restated Certificate of Incorporation provides that a director shall hold office until the annual meeting for the year in which his or her term expires except in the case of elections to fill vacancies or newly created directorships. Each director is elected for a one-year term. Each of the nominees is currently serving as a director on our Board.

Vote Required and Recommendation of the Board of Directors

Under our Amended and Restated By-laws, directors are elected by a plurality of the votes of the shares of common stock present in person or represented by proxy at the Meeting and entitled to vote, and thus the seven nominees for election as directors who receive the most votes cast will be elected. Instructions withholding authority and broker non-votes will not be taken into account in determining the outcome of the election of directors.

Unless authority to vote for any of the nominees named above is withheld or if the stockholder has not provided instructions as to how to vote such stockholder’s shares, the shares represented by the enclosed proxy will be voted “FOR” the election as directors of such nominees. In the event that any nominee shall become unable or unwilling to serve, the shares represented by the enclosed proxy will be voted for the election of such other person as the Board of Directors may recommend in that nominee’s place. The Board has no reason to believe that any nominee will be unable or unwilling to serve.

The Board of Directors unanimously recommends that the stockholders vote FOR each of the seven nominees listed herein.

Nominees for Director

The Company seeks directors with established strong professional reputations and experience in areas relevant to the strategy and operations of our businesses. Each of the nominees for election as a director at the Annual Meeting holds or has held senior executive positions in large, complex organizations and has operating experience that meets this objective, as described below. In these positions, they have also gained experience in core management skills, such as strategic and financial planning, public company financial reporting, compliance and risk management. A majority of our directors also have experience serving on boards of directors and board committees of other public companies and have an understanding of corporate governance practices. In addition, the Board believes that each of the nominees has other key attributes that are important to the functioning of an effective board of directors, such as integrity, candor, the ability to work with management and other members of the Board in a constructive and collaborative fashion, diversity of experience, qualifications, skills and backgrounds, and the ability and commitment to devote significant time and energy to service on the Board and its committees. In addition to the above, the Board also considered the specific experience described in the biographical details that follow in determining to nominate the individuals set forth below for election as directors.

Our Amended and Restated Certificate of Incorporation provides that a director shall hold office until the annual meeting for the year in which his or her term expires except in the case of elections to fill vacancies or newly created directorships. Each director is elected for a one-year term. Set forth below are the name, age and the positions and offices held by each of our current directors, his principal occupation, business experience and public company board experience during at least the past five years, and the experience, qualifications, attributes or skills that qualify such person to serve on our Board of Directors.

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Robert Stevanovski, 46. Mr. Stevanovski has served as a director and Chairman of the Board since February 2009. He is one of the co-founders of ACN and has served as Chairman of ACN since its founding in 1993. Mr. Stevanovski has served as Chairman of the Board of WorldGate since April 2009, and he served as WorldGate’s Interim President and CEO from April 2009 to August 2009. He is the brother of David Stevanovski, also a member of the Board. Mr. Robert Stevanovski’s areas of relevant experience, qualifications, attributes or skills include sales and marketing expertise generally, extensive knowledge of the telecommunications and multi-level marketing industries, outside board experience with WorldGate and extensive business and management experience as co-founder and Chairman of ACN.

Anthony Cassara, 55. Mr. Cassara has served as a director since February 2009. Mr. Cassara founded and has served as President of Cassara Management Group, Inc., a privately held business counseling practice focused on the telecommunications industry, since October 2000. Prior to founding Cassara Management Group, Mr. Cassara was President of the Carrier Services division at Frontier Corporation and later at Global Crossing Ltd. from October 1999 to December 2000. Mr. Cassara served as a member of the board of directors of MPower Holding Corporation from May 2002 to August 2006; Teleglobe International Holdings Ltd. from February 2004 to February 2006; Eschelon Telecom Inc. from November 2002 to December 2004; and has served as a director of WorldGate since April 2009. Mr. Cassara’s areas of relevant experience, qualifications, attributes or skills include telecommunications and information services; senior leadership roles in global telecommunications companies; public company board experience, corporate finance, and financial reporting.

Lior Samuelson, 61. Mr. Samuelson served as Chairman of the Board from January 2008 until February 2009, and has served as a director of deltathree since August 2001. Since August 1999, Mr. Samuelson has served as a Co-Founder and Principal of Mercator Capital, and served as a director of Mercator Partners Acquisition Corp. from January 2005 to December 2007. His experience includes advising clients in the technology, communications and consumer sectors on mergers, acquisitions and private placements. From March 1997 to August 1999, Mr. Samuelson was the President and Chief Executive Officer of PricewaterhouseCoopers Securities. Prior to that, he was the President and Chief Executive Officer of The Barents Group, a merchant bank specializing in advising and investing in companies in emerging markets. Mr. Samuelson was also the Co-Chairman of Peloton Holdings, a private equity management company. Before that, he was a managing partner with KPMG and a senior consultant at Booz, Allen & Hamilton. Mr. Samuelson’s areas of relevant experience, qualifications, attributes or skills include extensive experience in finance and investment banking, public company board experience, financial reporting, and his long history of service to deltathree and knowledge of its operations.

David Stevanovski, 44. Mr. Stevanovski has served as a director since March 2009. He has served in a number of positions at ACN, and currently serves as Chief Operating Officer of ACN North America. Mr. Stevanovski has served as a director of WorldGate since May 2009. Mr. Stevanovski is the brother of Robert Stevanovski. Mr. David Stevanovski’s areas of relevant experience, qualifications, attributes or skills include sales and marketing expertise generally, extensive knowledge of the telecommunications and multi-level marketing industries, outside board experience with WorldGate, and extensive operational experience as Chief Operating Officer of ACN North America.

Gregory Provenzano, 50. Mr. Provenzano has served as a director since March 2009. Mr. Provenzano is one of the co-founders of ACN and has served as President of ACN since its founding in 1993. Mr. Provenzano has served as a director of WorldGate since May 2009. Mr. Provenzano’s areas of relevant experience, qualifications, attributes or skills include sales and marketing expertise generally, extensive knowledge of telecommunications and multi-level marketing, outside board experience with WorldGate, and extensive business and management experience as co-founder and President of ACN.

J. Lyle Patrick, 57. Mr. Patrick has served as a director since March 2009. Mr. Patrick is currently a financial consultant and has served as the Interim CFO for FirstCommunications, Inc. since March 2009. Mr. Patrick has served as chief financial officer of a number of telecommunications companies, including, most recently, US LEC, a competitive telecommunications company, from June 2005 to March 2007, and MetroPCS, a wireless communications provider, from May 2004 to March 2005. Mr. Patrick is a Certified

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Public Accountant. Mr. Patrick’s areas of relevant experience, qualifications, attributes or skills include extensive accounting for public companies, with particular experience in the telecommunications industry, and financial reporting.

Brian Fitzpatrick, 48. Mr. Fitzpatrick has served as a director since August 2009. Mr. Fitzpatrick serves as Managing Director of BT Wholesale Markets, which is the sales, marketing, implementation, project and in-life contract management operating division of BT Group Plc. Mr. Fitzpatrick’s areas of responsibility also include BT Group plc’s global media and satellite broadcast operations. Mr. Fitzpatrick serves as a member of the BT Wholesale Executive Board. Prior to joining BT Wholesale Markets in November 2005, Mr. Fitzpatrick was the President of Worldwide Commercial Operations for Teleglobe International, Ltd. Mr. Fitzpatrick’s areas of relevant experience, qualifications, attributes or skills include extensive experience, knowledge and relationships in the international telecommunications industry, sales and marketing expertise generally, and extensive business and management experience.

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PROPOSAL # 2
  
RATIFICATION OF THE APPOINTMENT OF THE COMPANY’S INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM FOR THE YEAR ENDING DECEMBER 31, 2010
  
(Notice Item 2)

General

Subject to ratification by our stockholders, on the recommendation of the Audit Committee, the Board has reappointed Brightman Almagor Zohar & Co., a member firm of Deloitte Touche Tohmatsu, as our independent registered public accounting firm for the year ending December 31, 2010.

Representatives of Brightman Almagor Zohar & Co. are not expected to be present at the Meeting.

Vote Required and Recommendation of the Board of Directors

The ratification of the selection of Brightman Almagor Zohar & Co. as our independent registered public accounting firm for the year ending December 31, 2010, will require the affirmative vote of the holders of a majority of the shares of common stock present at the Meeting, in person or represented by proxy, and entitled to vote. The shares represented by the enclosed proxy will be voted “FOR” the ratification of the selection of Brightman Almagor Zohar & Co. unless a stockholder has indicated otherwise on the proxy. In determining whether the proposal has received the requisite number of affirmative votes, abstentions and broker non-votes will be counted and will have the same effect as a vote against the proposal.

The Board believes that a vote for the proposal to ratify the appointment by the Board of the independent registered public accounting firm for the year ending December 31, 2010, as described above is in the best interests of our stockholders and us and unanimously recommends a vote “FOR” such proposal.

Principal Accounting Fees and Services

The following table presents fees for professional audit services rendered by Brightman Almagor Zohar & Co. for the audit of the Company’s annual financial statements for the years ended December 31, 2008, and December 31, 2009, and fees billed for other services rendered by Brightman Almagor Zohar & Co. during those periods.

	2008		2009
Audit fees	$	72,000	$	65,000
Audit-related fees		—		—
Tax fees		—		2,000
All other fees		—		—
Total	$	72,000	$	67,000

In the above table, in accordance with the Securities and Exchange Commission’s definitions and rules, “audit fees” are fees we paid Brightman Almagor Zohar & Co. for professional services for the audit of our annual financial statements and review of financial statements included in our quarterly reports filed with the SEC, as well as for work generally only the independent registered public accounting firm can reasonably be expected to provide, such as statutory audits and consultation regarding financial accounting and/or reporting standards; “audit-related fees” are fees billed by Brightman Almagor Zohar & Co. for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements; “tax fees” are fees for tax compliance, tax advice and tax planning; and “all other fees” are fees billed by Brightman Almagor Zohar & Co. for any services not included in the first three categories.

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Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Registered Public Accounting Firm

Consistent with the Securities and Exchange Commission’s policies regarding auditor independence, the Audit Committee has responsibility for appointing, setting compensation and overseeing the work of the independent registered public accounting firm. In recognition of this responsibility, the Audit Committee has established a policy to pre-approve all audit and permissible non-audit services provided by the independent registered public accounting firm.

Prior to engagement of the independent registered public accounting firm for the next year’s audit, management will submit an aggregate of services expected to be rendered during that year for each of four categories of services to the Audit Committee for approval.

1.Audit services include audit work performed in the preparation of financial statements, as well as work that generally only the independent registered public accounting firm can reasonably be expected to provide, including comfort letters, statutory audits, and attest services and consultation regarding financial accounting and/or reporting standards.

2.Audit-related services are for assurance and related services that are traditionally performed by the independent registered public accounting firm, including due diligence related to mergers and acquisitions, employee benefit plan audits, and special procedures required to meet certain regulatory requirements.

3.Tax services include all services performed by the independent registered public accounting firm’s tax personnel except those services specifically related to the audit of the financial statements, and includes fees in the areas of tax compliance, tax planning, and tax advice.

4.Otherservices are those associated with services not captured in the other categories. The Company generally does not request such services from the independent registered public accounting firm.

Prior to engagement, the Audit Committee pre-approves these services by category of service. The fees are budgeted and the Audit Committee requires the independent registered public accounting firm and management to report actual fees versus the budget periodically throughout the year by category of service. During the year, circumstances may arise when it may become necessary to engage the independent registered public accounting firm for additional services not contemplated in the original pre-approval. In those instances, the Audit Committee requires specific pre-approval before engaging the independent registered public accounting firm.

The Audit Committee may delegate pre-approval authority to one or more of its members. The member to whom such authority is delegated must report, for informational purposes only, any pre-approval decisions to the Audit Committee at its next scheduled meeting.

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EXECUTIVE OFFICERS AND KEY EMPLOYEES

Set forth below is a brief description of the present and past business experience of each of the persons who currently serve as our executive officers or key employees.

Efraim Baruch, 35, interim Chief Executive Officer and President, Senior Vice President of Operations and Technology. In December 2008 Mr. Baruch became our interim Chief Executive Officer and President; in January 2007, Mr. Baruch became our Senior Vice President of Operations and Technology. Mr. Baruch has been with deltathree since 1998. Mr. Baruch began working with deltathree as an engineer in the Network Operations Center (NOC), and soon after specialized in the management of data networks and security in our Wide Area Network (WAN) department. During the past four years he has headed the deltathree VoIP data and security departments, along with managing the overall responsibility of the total uptime in the deltathree worldwide network.

Ziv Zviel, 40, Chief Financial Officer and Treasurer. Mr. Zviel joined deltathree in June 2009 as a member of our Finance Department and assumed the positions of Chief Financial Officer and Treasurer of the Company in August 2009. Mr. Zviel is a Certified Public Accountant (Israel). Prior to his employment with deltathree, since September 2007 Mr. Zviel was the Vice President-Finance of LivePerson, Inc., a provider of real-time chat platforms. From 2002 through 2007, Mr. Zviel served in various positions — including Corporate Controller, Vice President-Finance and Operations and Acting Chief Financial Officer — of Magic Software Enterprises Ltd., a provider of application platform as well as software integration solutions. Prior to joining Magic Software, Mr. Zviel was an Audit Manager at Kost, Forer, Gabbay & Kasierer, a member firm of Ernst & Young International, in its technology practice group.

Peter Friedman, 40, General Counsel and Secretary. In October 2007, Mr. Friedman became our General Counsel and Secretary. Mr. Friedman’s experience is in the areas of securities offerings and compliance, mergers and acquisitions, corporate governance, venture capital financing, technology licensing, joint ventures, and general corporate and commercial matters. Before joining deltathree, Mr. Friedman served as Senior Associate of Outside Counsel Solutions, a division of IDT Corporation that outsources U.S. legal services. Prior to that, Mr. Friedman was associated with the law firms of Weil, Gotshal & Manges, LLP, Lowenstein Sandler PC and Kronish Lieb Weiner & Hellman, LLP.

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EXECUTIVE COMPENSATION AND OTHER INFORMATION

Summary Compensation Table

The following table shows the total compensation accrued during the fiscal years ended December 31, 2008 and 2009 to (1) all individuals who served as our Chief Executive Officer during any part of 2009 and (2) our two next most highly compensated executive officers whose total compensation exceeded $100,000 during the fiscal year ended December 31, 2009, and (3) one additional individual who would have met such threshold but for the fact that such individual was not serving as an executive officer at the end of our last completed fiscal year. These executive officers are referred to in this Proxy Statement as our “named executive officers”.

Name and Principal Position	Year			Salary ($)			Bonus ($)		Stock Awards ($)(1)		Option Awards ($)(1)		All Other Compensation ($)		Total ($)
Effi Baruch, Interim Chief Executive Officer and President, Senior Vice President of Operations and Technology (principal executive officer)		2009			179,750			10,000		29,660		124,645		—		344,055
		2008			106,257	(2)		30,407		24,656		79,398		—		240,718
Richard Grant, Former Chief Financial Officer and Treasurer (principal financial officer and principal accounting officer)		2009	(3)		123,958			—		6,323		148,866		—		279,148
		2008			175,000			—		3,652		142,639		—		321,291
Dan Antebi, Chief Commercial Officer and Senior Vice President of Sales and Marketing(4)		2009			180,000			—				35,961		—		215,961
		2008			115,500			—		—		9,695		—		125,195
Peter Friedman, General Counsel and Secretary		2009			107,125			7,500		3,919		17,052		—		135,596
		2008			117,986			—		1,909		7,272		—		127,167

(1) Represents the aggregate grant date fair value calculated in accordance with ASC 718-10 in connection with the issuance of the applicable restricted stock or restricted unit award or option award. For a detailed discussion of the assumptions made in the valuation of stock awards, please see the Notes to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2009.

(2) Represents the aggregate salary paid to Mr. Baruch as the Senior Vice President of Operations and Technology from January 1, 2008 to December 9, 2008 and as the interim Chief Executive Officer and President, and Senior Vice President of Operations and Technology from December 9, 2008 to December 31, 2008.

(3) Mr. Grant resigned from the Company effective August 15, 2009.

(4) Mr. Antebi joined the Company on May 12, 2008, and resigned effective February 28, 2010.

Employment Agreement with Mr. Effi Baruch

We currently have an employment agreement with Mr. Baruch, our interim Chief Executive Officer and President, and Senior Vice President of Operations and Technology. The agreement became effective on December 9, 2008, and was amended as of March 17, 2009, and as of October 20, 2009, and will continue indefinitely thereafter. Mr. Baruch receives a base salary of $186,000 per year, which is adjusted as of January 15 each year (beginning 2010) by the percentage change in the Cost of Price Index during the preceding year. Mr. Baruch is entitled to receive an annual bonus under our then-applicable bonus plan equal to up to three (3) months’ salary based on performance criteria that will be agreed upon by him and the Board of Directors. In the event of termination of the agreement, the terminating party is required to provide the other party 90 days’ written notice unless the Company terminates the agreement for cause, in which case the Company is required to provide such written notice required by applicable law. In the event the Company terminates the agreement without cause, Mr. Baruch shall be entitled to receive a lump sum payment equal to his then-current monthly base salary multiplied by three.

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Outstanding Equity Awards at Fiscal Year-End

The following table shows certain information with respect to stock options and unvested stock awards outstanding as of December 31, 2009, for each of the named executive officers.

	Option Awards											Stock Awards
Name	Grant Date(1)		Number of Securities Underlying Unexercised Options (#) Exercisable		Number of Securities Underlying Unexercised Options (#) Unexercisable			Option Exercise Price ($)		Option Expiration Date		Number of Shares or Units of Stock That Have Not Vested (#)			Market Value of Shares or Units of Stock That Have Not Vested ($)(2)
Effi Baruch		11/4/2003		15,000		—			1.75		11/4/2010
		12/22/2004		25,000		—			2.85		11/22/2011
		3/30/2008		250,000		—			0.15		3/30/2018
		5/6/2009		—		100,000	(3)		0.14		5/6/2019
		9/15/2009		—		500,000	(4)		0.41		9/15/2019
		1/1/2008											12,500	(5)		3,608
Richard Grant(6)		—		—		—			—		—		—			—
Dan Antebi(7)		5/12/2008		150,000		50,000	(8)		0.16		5/12/2018
		5/6/2009		—		100,000			0.14		5/6/2019
		9/15/2009		—		400,000			0.41		9/15/2019
Peter Friedman		3/3/2008		100,000		—			0.15		3/30/2018
		5/6/2009		—		50,000	(9)		0.15		5/6/2019
		9/15/2009		—		150,000	(9)		0.41		9/15/2019
		10/21/2007											5,850	(11)		2,165

(1) For a better understanding of this table, we have included an additional column showing the grant date of the stock options, the restricted shares and the restricted stock units. Subject to the terms and conditions contained in any award agreement between the Company and the holder of any such award, in the event of a change of control of the Company the outstanding stock options, restricted shares and restricted stock units granted under our 2009 Stock Incentive Plan or our Amended and Restated 2004 Stock Incentive Plan, as applicable, will not accelerate and become immediately vested and exercisable unless otherwise determined by the Compensation Committee.

(2) The market value of the stock awards is determined by multiplying the number of shares times $0.37, the closing price of our common stock on The OTC Bulletin Board on December 31, 2009.

(3) Options to purchase 33,333 shares vested and became exercisable on May 6, 2010, options to purchase 33,334 shares vest and become exercisable on May 6, 2011, and options to purchase 33,333 shares vest and become exercisable on May 6, 2012.

(4) Options to purchase 125,000 shares vest and become exercisable on each of September 15, 2010, 2011, 2012 and 2013.

(5) Restricted units to purchase 25,000 shares of our common stock were granted on January 1, 2008, and vest as follows: units to purchase 12,500 shares vested on July 1, 2009, and units to purchase 12,500 shares vest on January 1, 2011.

(6) Mr. Grant resigned from the Company effective August 15, 2009. All options to purchase shares of common stock previously granted to Mr. Grant that had not yet vested as of that date expired on that date.

(7) Mr. Antebi resigned from the Company effective February 28, 2010. All options to purchase shares of common stock previously granted to Mr. Antebi that had not yet vested as of that date expired on that date, and all options to purchase shares of common stock previously granted to Mr. Antebi that had vested as of that date expired on May 31, 2010.

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(8) Options to purchase 100,000 shares vested and became exercisable on May 12, 2009, options to purchase 25,000 shares vested and became exercisable on August 12, 2009, options to purchase 25,000 shares vested and became exercisable on November 12, 2009, and options to purchase 25,000 shares vested and became exercisable on February 12, 2010.

(9) Options to purchase 16,667 shares vested and became exercisable on May 6, 2010, options to purchase 16,666 shares vest and become exercisable on May 6, 2011, and options to purchase 16,667 shares vest and become exercisable on May 6, 2012.

(10) Options to purchase 37,500 shares vest and become exercisable on each of September 15, 2010, 2011, 2012 and 2013.

(11) A total of 15,000 restricted shares of our common stock were granted on October 21, 2007, and vest as follows: 4,200 shares vested and became exercisable on October 21, 2008, 4,950 shares vested and became exercisable on October 21, 2009, and 5,850 shares vest and become exercisable on October 21, 2010.

Director Compensation

The following table shows the total compensation earned for services performed for us by each member of our Board of Directors during the fiscal year ended December 31, 2009.

Name	Fees Earned or Paid in Cash ($)			Stock Awards ($)(1)			All Other Compensation ($)		Total ($)
Noam Bardin(2)		1,875	(3)		—	(2)		—		1,875
Benjamin Broder(4)		14,582	(5)		—	(4)		—		14,582
Lior Samuelson		38,124	(6)		115,039	(7)		—		153,163
Robert Stevanovski		—	(8)		—			—		—
Anthony Cassara		15,833	(9)		1,919			—		17,752
David Stevanovski		—	(8)		—			—		—
Gregory Provenzano		—	(8)		—			—		—
J. Lyle Patrick		32,083	(10)		1,919			—		34,002
Brian Fitzpatrick		16,666	(11)		1,919			—		18,585

(1) Represents the aggregate grant date fair value, calculated in accordance with ASC 718-10, of options to purchase 100,000 shares of the common stock granted to each of Lior Samuelson, Anthony Cassara, J. Lyle Patrick and Fitzpatrick in 2009. The grants were made pursuant to the 2009 Stock Incentive Plan. Each of Robert Stevanovski, David Stevanovski and Gregory Provenzano elected to waive their right to receive such grant. For a detailed discussion of the assumptions made in the valuation of stock awards, please see the Notes to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2009.

(2) Mr. Bardin resigned effective February 12, 2009.

(3) Represents $1,875 paid to Mr. Bardin for his service as a director until February 12, 2009.

(4) Mr. Broder’s term as a director ended August 6, 2009.

(5) Represents $11,666 paid to Mr. Broder for his services as a director and $2,916 as a member of the Compensation Committee, in each case until August 6, 2009.

(6) Represents $15,625 paid to Mr. Samuelson for his services as the Chairman of the Board until February 12, 2009, $17,500 as a director beginning February 12, 2009, $2,916 as a member of the Audit Committee beginning June 10, 2009, and $2,083 as a member of the Compensation Committee beginning August 6, 2010.

(7) In connection with the change of control that occurred upon the closing of the sale of the shares of common stock to D4 Holdings in February 2009, unvested options to purchase 206,250 shares of our common stock that had been previously granted to Mr. Samuelson under the terms of the Employment Agreement between the Company and Mr. Samuelson pursuant to which Mr. Samuelson served as the Chairman of our Board accelerated and became immediately vested and exercisable pursuant to the terms of the Employment Agreement.

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(8) At this time each of Robert Stevanovski, David Stevanovski and Gregory Provenzano has elected to waive their right to receive compensation for their services to the Company. This election is revocable by each of Messrs. R. Stevanovski, Provenzano and D. Stevanovski at any time.

(9) Represents $15,000 paid to Mr. Cassara for his services as a director beginning February 12, 2009, and $833 for his service as a member of the Audit Committee from June 10, 2009, to August 6, 2009.

(10) Represents $15,000 paid to Mr. Patrick for his services as a director beginning March 28, 2009, $15,000 for his services as the Chairman of the Audit Committee beginning March 28, 2009, and $2,083 for his services as a member of the Compensation Committee beginning August 6, 2009.

(11) Represents $8,333 paid to Mr. Fitzpatrick for his services as a director, $2,083 for his services as a member of the Audit Committee and $6,250 for his services as the Chairman of the Compensation Committee, in each case beginning August 6, 2009.

Director Compensation Policy

In May 2009, the Board of Directors approved the following annual cash compensation for our directors effective as of April 1, 2009:

• each director receives cash compensation of $20,000;

• the Chairman of the Audit Committee receives additional cash compensation of $20,000;

• the Chairman of the Compensation Committee receives additional cash compensation of $15,000; and

• each non-Chairman committee member receives additional cash compensation of $5,000.

At this time each of Robert Stevanovski, David Stevanovski and Gregory Provenzano has elected to waive their right to the director cash compensation described above. This election is revocable by each of Messrs. R. Stevanovski, Provenzano and D. Stevanovski at any time.

We reimburse each member of our Board of Directors for reasonable travel and other expenses in connection with attending meetings of the Board of Directors.

Each of our directors has the right to elect to convert the total cash compensation that such director is eligible to receive into shares of our common stock at the then-applicable market price. Directors have the right to make this election only during such times as the employees and directors of the Company are not in a black-out period in trading in securities of the Company and such director is not in possession of material, non-public information about the Company. Any such shares so acquired by a director are restricted and vest only after a period of one year from the date of grant, following which the director is able to sell such shares in accordance with Rule 144 under the Securities Act of 1933.

In May 2009, the Board of Directors approved a grant of options to purchase 100,000 shares of our common stock under the 2009 Plan to each of the members of the Board, which became effective upon the approval of the 2009 Plan by our stockholders at our Annual Meeting on August 6, 2009.

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Equity Compensation Plan Information

The following table provides certain aggregate information with respect to shares of our common stock that may be issued under our equity compensation plans in effect as of December 31, 2009.

Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants and rights(1)		Weighted-average exercise price of outstanding options, warrants and rights		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in first column)
Equity compensation plans approved by security holders(2)		5,893,000	$	0.34		6,260,000
Equity compensation plans not approved by security holders		N/A		N/A		N/A
Total		5,893,000	$	0.34		6,260,000

(1) Does not include 89,770 restricted shares of our common stock and restricted units to purchase 32,000 shares of our common stock that had been granted under our equity compensation plans as of December 31, 2009.

(2) These plans consist of our Amended and Restated 2004 Stock Incentive Plan, Amended and Restated 2006 Non-Employee Director Stock Plan and 2009 Stock Incentive Plan. The table also includes information for our 2004 Non-Employee Director Stock Option Plan, which was terminated except with respect to outstanding options previously granted thereunder.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Each of Robert Stevanovski, Anthony Cassara, David Stevanovski and Gregory Provenzano is a principal of D4 Holdings, and Robert Stevanovski serves as manager of Praescient, LLC, the sole manager of D4 Holdings. As a result of their relationship with D4 Holdings, each of these individuals may be deemed to have a direct or indirect interest in the transactions contemplated by the Purchase Agreement and the Investor Rights Agreement pursuant to which the Company granted D4 Holdings certain registration rights with respect to the shares of common stock held by D4 Holdings. As described above under “Security Ownership of Certain Beneficial Owners and Management”, D4 Holdings beneficially owns an aggregate of 67.5% of our common stock (which includes 39,000,000 shares of common stock and a warrant to purchase 30,000,000 shares of our common stock).

During the third quarter of 2009 we entered into an agreement with ACN Pacific, a wholly-owned subsidiary of ACN, pursuant to which we provide digital video and voice-over-IP telecommunications services in Australia and New Zealand to ACN Pacific. Each of Robert Stevanovski, Anthony Cassara, David Stevanovski and Gregory Provenzano is a principal of ACN, and each of them (other than Anthony Cassara) serves as an officer of ACN. As a result of their relationship with ACN, each of these individuals may be deemed to have a direct or indirect interest in the transactions contemplated by the agreement with ACN Pacific.

During the fourth quarter of 2009 we entered into an agreement with Ojo Service, a wholly-owned subsidiary of WorldGate Communications pursuant to which we will provide wholesale video and voice-over-IP services in the United States. WorldGate is majority-owned by WGI Investor LLC, which shares common majority ownership and a common manager with D4 Holdings. Each of Robert Stevanovski, Anthony Cassara, David Stevanovski and Gregory Provenzano serves as a director of WorldGate and has an indirect ownership interest in WGI Investor. As a result, each of these individuals and D4 Holdings may be deemed to have a direct or indirect interest in the transactions contemplated by the agreement with OJO Service.

On March 1, 2010, we and our subsidiaries entered into a Loan and Security Agreement with D4 Holdings, pursuant to which D4 Holdings will provide to us and our subsidiaries a line of credit in a principal amount of $1,200,000. In addition, on March 1, 2010, pursuant to the Loan Agreement, we and our subsidiaries issued a Promissory Note in a principal amount of $1,200,000 to D4 Holdings. On March 2, 2010, and May 3, 2010, we received $500,000 and $250,000, respectively, from D4 Holdings pursuant to

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notices of borrowing under the Loan Agreement. Interest on the loan accrues at the rate of 12% per annum, and the initial payment of accrued interest is payable on May 1, 2010, and monthly thereafter. We are required to repay all outstanding principal and interest on March 1, 2011. In addition, we granted D4 Holdings a security interest in all of our assets to secure our obligations under the loan.

All transactions between us and our officers, directors, principal stockholders and affiliates must be reviewed and approved in advance by the Audit Committee. To the extent that any member of the Audit Committee has an interest in any such transaction, the member will recues himself from considering and voting on the matter.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Exchange Act requires that the Company’s directors, executive officers and persons who own more than 10% of the outstanding common stock of the Company file initial reports of ownership and reports of changes in ownership in such common stock with the SEC. Officers, directors and stockholders who own more than 10% of the outstanding common stock are required by the SEC to furnish the Company with copies of all Section 16(a) reports they file.

To our knowledge, based solely upon our review of the copies of such reports furnished to us, we believe that all of our directors, officers and holders of more than 10% of any class of our equity securities have complied with the applicable Section 16(a) reporting requirements.

CODE OF CONDUCT AND ETHICS

On March 25, 2004, we adopted a Corporate Code of Conduct and Ethics applicable to all employees and directors of deltathree, including our principal executive officer, principal financial and accounting officer and controller. There were no changes made to the Corporate Code of Conduct and Ethics during 2009. The text of the Corporate Code of Conduct and Ethics is posted on the Corporate Governance section of our website atwww.deltathree.com and will be made available to stockholders without charge, upon request, in writing to the Secretary at 224 West 35^th Street, New York, New York 10001. We intend to post on our website any amendments to, or waivers from, our Code of Conduct and Ethics that apply to our principal executive officer, principal financial and accounting officer and controller. We have all of our new employees certify that they have read and understand our Corporate Code of Conduct and Ethics, and, periodically, we also ask our existing employees to certify that they have reviewed our Corporate Code of Conduct and Ethics.

STOCKHOLDER PROPOSALS FOR 2011 ANNUAL MEETING

Stockholders may submit proposals on matters appropriate for stockholder action at our subsequent annual meetings consistent with Rule 14a-8 promulgated under the Exchange Act, which in certain circumstances may require the inclusion of qualifying proposals in our Proxy Statement. For such proposals to be considered for inclusion in the Proxy Statement and proxy relating to our 2011 Annual Meeting of Stockholders, all applicable requirements of Rule 14a-8 must be satisfied and such proposals must be received by us no later than March 4, 2011. Such proposals should be directed to us at 224 West 35^th Street, New York, New York 10001.

Except in the case of proposals made in accordance with Rule 14a-8, our Amended and Restated By-laws require that stockholders desiring to bring any business before our 2011 Annual Meeting of Stockholders deliver written notice thereof to us not less than 90 days nor more than 120 days prior to August 16, 2011 (the anniversary date of the Meeting) and comply with all other applicable requirements of our Amended and Restated By-laws. However, in the event that our 2011 Annual Meeting is called for a date that is not within 30 days before or after the anniversary date of the Meeting, the notice must be received by the close of business on the tenth day following the earlier of the public disclosure of the date of the annual meeting or the mailing of notice of the annual meeting.

A stockholder’s notice to us must set forth for each matter proposed to be brought before the annual meeting (a) a brief description of the matter the stockholder proposes to bring before the meeting and the reasons for conducting such business at the meeting, (b) the name and record address of the stockholder proposing such business, (c) the class and number of shares of our stock which are beneficially owned by the

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stockholder, (d) any material interest of the stockholder in such business, and (e) a representation that such stockholder intends to appear in person or by proxy at the meeting to bring such business before the meeting. With respect to proposals by stockholders for director nominations, our Amended and Restated By-laws require, in addition to items (b), (c), (d) and (e) above, (i) the name, age, business address and residence address of the nominee, (ii) the principal occupation or employment of the nominee, (iii) the class and number of shares of the corporation which are beneficially owned by the nominee, (iv) any other information relating to the stockholder and the nominee that is required to be disclosed in solicitations for proxies for election of directors pursuant to Regulation 14A under the Exchange Act, and (v) a consent of the nominee to serve as a director if elected. We may require any proposed nominee to furnish such other information as may reasonably be required by us to determine the eligibility of such proposed nominee to serve as our director.

OTHER MATTERS

The Board knows of no matters other than those described herein that will be presented for consideration at the Meeting and does not intend to bring any other matters before the Meeting. However, should any other matters properly come before the Meeting or any adjournment or postponement thereof, it is the intention of the persons named in the accompanying proxy card to vote in accordance with their best judgment in the interests of the Company.

MISCELLANEOUS

We will bear all costs incurred in the solicitation of proxies. In addition to the solicitation by mail, our officers and employees may solicit proxies by mail, facsimile, telephone or in person, or by other means of communication, without additional compensation. We may also make arrangements with brokerage houses and other custodians, nominees and fiduciaries for the forwarding of solicitation materials to the beneficial owners of common stock held of record by such persons, and we may reimburse such brokerage houses and other custodians, nominees and fiduciaries for their out-of-pocket expenses incurred in connection therewith.

Additional copies of our Annual Report will be furnished at no charge upon receipt of a written or oral request addressed to deltathree, Inc., 224 West 35^th Street, New York, New York 10001, (212) 500-4850.

	By Order of the Board of Directors,
	Peter Friedman General Counsel and Secretary

Jerusalem, Israel
July 2, 2010

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