Document:

20-F

Exhibit 4.8  

TRANSLATION OF
ORIGINAL HEBREW AGREEMENT  

Personal Employment
Agreement  

Made
and Executed in Nes Tziona on December 31, 2004. 

	Between:  	Arel
Communications and Software Ltd. 

	 	
22
Einstein St., POB 4042 

	 	
Science
Park, Kiryat Weizmann, 

	 	
Nes
Tziona, Israel 74140 

	 	The First Party;  	(Hereinafter:
the "Company") 

	And Between:  	Eran
Kariti 

	 	
I.D.
2-2897972-0 

	 	
From
18 Stefan Zwieg St., Tel Aviv 

	 	
Telephone:
6486919-03 

	 	The Second Party;  	(Hereinafter:
the "Employee") 

	Whereas:  	The
 Employee  has been  employed  by the  Company  since June 5, 2000
                       pursuant to a previous  employment  agreement  dated July 6, 2000,
 as                        amended, which shall terminate on December 31, 2004;

	 And Whereas:  	The
 parties  desire to extend the term of  Employee's  employment  by
                       two  additional  years,  beginning from January 1, 2005 until
December                        31, 2006;

	And Whereas:  	The
Company is  interested  in employing  the Employee in the position
                       of Vice President for Research and  Development,  subject to the
terms                        of this Agreement;

	And Whereas:  	The
 Employee has  expressed  his desire to be employed by the Company
                       in the  aforesaid  position,  subject to the terms of this
 Agreement,                        and has  represented  himself as possessing  the
necessary  knowledge,                        experience, and qualifications to serve in
such position;

Therefore
it is conditioned, declared and agreed by the parties as follows: 

	1.  	Preamble
and Interpretation  

	 	
The
Preamble to this Agreement and its appendices constitute an integral part hereof.  

	2.  	Special
Agreement  

	 	
This
Agreement is personal, special, and regulates the relations between the Company and the
Employee and exclusively determines the employment terms of the Employee by the Company.
Therefore, neither collective agreements including the appendices thereof, nor national
or industry agreements and including any other agreement or collective arrangement, made
from time to time between employers and the Histadrut Workers Union and/or between the
Company and any of its employees, shall apply to the Employee. In addition, this
Agreement shall void any previous agreement between the parties.  

	3.  	Positions
and Authorities  

	 	
The
Company shall employ the Employee as Vice President of Research and Development, subject
to the terms of this Agreement, for a period of two years beginning January 1, 2005,
until December 31, 2006, unless the employment of the Employee is terminated earlier
according to the terms of this Agreement.  

	 	
The
Employee shall report to the CEO of the Company exclusively, and shall act according to
his directives.  

	4.  	Scope
of Position  

	4.1  	The
Employee shall work within the territory of the State of Israel and from time to time
shall have to work outside such territory. 

	4.2  	The
 Employee  undertakes  to work such hours as shall be required to carry out the duties of
       his position.

	4.3  	The
Employee declares that his state of health enables him to carry out the requirements
obligated by the extent of his position as aforesaid. 

	5.  	Personal
Trust  

	5.1  	The
Employee undertakes to act diligently, devotedly, faithfully, and with fidelity in
carrying out this Agreement, and to act to the best of his ability for the good of the
Company. 

	5.2  	Without
derogating from the generality of Section 5.1 above, with the exception of the passive
management of his personal investments, the Employee shall not engage in any other
occupation or other business activity, nor receive a benefit or a promise of benefit from
any person or other body regarding his employment in the Company, without the prior
approval of the Company. 

	5.3  	Without
derogating from the generality of Section 5.1 above, the Employee shall not make use of
information and/or documents that have come to his attention in the framework of his
employment, and shall refrain from any matter that involves a conflict of interest or is
liable to constitute a conflict of interest between the interests of the Company and his
interests or those of another person or entity connected with him. 

	5.4  	Without
derogating from the generality of Section 5.1 above, the Employee undertakes to inform
the Company, immediately and without delay, of any matter or subject in which he has a
personal interest and/or which is liable to cause a conflict of interest between his
interests and the interests of the Company. 

	5.5  	The
Employee’s position is counted amongst those positions requiring a special degree of
personal trust according to the meaning of this term in the Hours of Work and Rest Law,
1951 (Hereinafter: the “Hours of Work Law”), and therefore the
provisions of this Law shall not apply to the Employee. 

	5.6  	These
provisions are supplementary to any fiduciary duty imposed upon the Employee pursuant to
any law and/or practice and/or agreement and shall not derogate therefrom. 

	6.  	Company
Procedures  

	 	
The
Employee undertakes to strictly and precisely abide by the general work procedures of the
Company as they shall be provided to him in writing, and they shall constitute an
integral part of the provisions of this Agreement.  

	7.  	Hours
Of Work and Remuneration  

In compensation for his employment
by the Company, the Company shall pay the Employee a gross monthly remuneration as set
forth in Section 16 hereof (Hereinafter: the “Salary”).  

	7.1  	The
Salary shall be paid the Employee once a month, no later than the 9th day of
each Gregorian month, for the previous month. 

	7.2  	Unless
otherwise set forth in Section 16, the Salary amount stated in Section 16 is a gross sum.
Should it become evident that the Employee is entitled to payment, whether for overtime
pay or for work during days of rest, the Salary set forth in Section 16 shall be
considered to include an additional global sum for payment in lieu of overtime and/or
work on days of rest. The Employee shall not be entitled to any compensation or payment
of any sort whatsoever, other than the Salary and/or the benefits set out in Section 17,
unless expressly stated in this Agreement. 

	8.  	Annual
Vacation  

	8.1  	The
Employee shall be entitled to paid annual vacation, to recuperation pay, and to sick pay,
as set forth in Section 17. 

	8.2  	Vacation
 days may be accrued for up to two years (i.e.,  until 46 days).  At the  conclusion
       of two  years,  the  remainder  of  vacation  days  exceeding  the  determined
 limit  shall be        redeemed.

	8.3  	The
Employee shall inform the Company 10 days in advance of the date he is to take vacation,
and that date shall be approved provided that it will not harm Company’s affairs. 

	8.4  	The
Employee  and/or the Company may redeem for money vacation days lawfully  accrued but not
       utilized.

	9.  	Manager’s
Insurance  

	9.1  	Subject
to the directives determined from time to time by the Income Tax Commission, the Company
shall allocate to the insurance company, as part of manager’s insurance, an amount
equal to 13.33% (comprised of 8.33% for severance pay and 5% for benefits) of the Base
Salary only, as such is defined in Section 16.2. 

	 	
The
Company shall deduct and allocate from the Employee’s Salary, at his expense, 5% of
the Base Salary, which shall constitute the Employee’s benefits payment, and the
Employee hereby agrees that the Company may deduct this 5%.  

	9.2  	At
the request of the Employee and subject to the consent of the Company, the Company shall
insure the Employee with a pension fund of his choice, in lieu of insurance by way of
manager’s insurance set forth in Section 9.1 above. The scale of the allocations to
the pension fund, both on account of the Company and on account of the Employee, shall be
according to the regulations of the pension fund, but in any event shall not exceed the
sums as set forth in Section 9.1 above. 

	9.3  	The
sums to be transferred by the Company as part of allocations for severance pay shall
remain the property of the Company. The sums shall be transferred to the ownership of the
Employee upon his departure from the Company, unless the employment of the Employee is
terminated in circumstances which justify dismissal without payment of severance pay
and/or the Employee should fail to hand over his position to his replacement as required
pursuant to Section 13 and/or the Employee should commit a fundamental breach of his
obligations pursuant to this Agreement. 

	10.  	Army
Reserve Duty  

	 	
During
his periods of army reserve duty, the Employee shall be entitled to receive his full
salary from the Company. The Employee undertakes to provide the appropriate documentation
of active reserve duty to the Company for submission to the National Insurance Institute,
in order to enable the Company to claim its due from the National Insurance Institute.  

	11.  	Taxes  

	 	
The
Company shall not bear any taxes or other mandatory payments imposed on the Employee (for
the avoidance of doubt, this shall include the bonuses mentioned in Section 18),
including income tax, national insurance, national health insurance, and membership fees,
and shall duly deduct such from his wages.  

	12.  	Termination
Of Employment  

	12.1  	The
Company shall be entitled to terminate the employment of the Employee at any time,
immediately, without advance notice, for any reason whatsoever. 

	12.1.1  	In
such a case, the Employee shall be entitled to receive his Salary until the end of the
term of employment pursuant to this Agreement, namely until December 31, 2006, and the
Company shall continue to allocate payments on its account and on account of the
Employee, to manager’s insurance/pension fund/further education fund/disability
fund, until December 31, 2006. For the avoidance of doubt, in this case, the Employee
shall be entitled to the bonuses mentioned in Sections 18.1, 18.2. In addition, the
Employee shall be entitled to the bonus mentioned in Section 18.3 which shall be
calculated as the higher of $500,000 gross or the pre-tax profit which constituted the
source of the money deposited in trust with the Contract Trustee as set forth in Section
19 hereof. In the event that the pre-tax profit constituting the source of the money
deposited in trust with the Contract Trustee shall be lower than $500,000 gross, the
Contract Trustee shall transfer the sum held in trust to the possession of the Employee,
and the Company shall pay the remainder of the bonus, being the difference between the
pre-tax profit constituting the source of the money deposited in trust with the Contract
Trustee, and $500,000 gross. In addition, upon the termination of the employee-employer
relationship period, all the stock options not yet exercised – shall vest, these
options shall be given to the Employee to be exercised pursuant to the terms of the
options. 

	12.1.2  	The
Company shall be entitled to make payments pursuant to Section 12.1.1 earlier than
scheduled, at its discretion. 

	12.1.3  	If
demanded by the Company, the Employee agrees to continue to fulfill his position for a
period that shall not exceed 90 days from the time notice is served pursuant to Section
12.1. 

	12.2  	Without
derogating from the foregoing, the Company may dismiss the Employee immediately, without
prior notice, subject to law, and without being obligated to pay the Employee the
payments in Sections 12.1.1, 12.1.2, and 12.1.3 above, in any event in which the
dismissal shall be carried out in circumstances set forth in this section below: 

	 	(a) 	Intentional
or gross negligence causing damage to the Company or to the property                of
the Company, based on the reasonable judgment of the board of directors of
               the Company.  

	 	(b) 	Breach
of the duty of confidentiality or non-competition of the Employee                vis-à-vis
the Company.  

	 	(c) 	Embezzlement
or misuse of Company funds.  

	 	(d) 	Falsification
of Company reports or records.  

	 	(e) 	Breach
of the duties of loyalty and care applicable to a manager of a company.  

	 	(f) 	Actions
or omissions in contradiction to directives of the Company’s CEO
               submitted in writing to the Employee, and that were not corrected by the
               Employee within 7 days of the written warning regarding them.  

	 	(g) 	In
circumstances in which severance pay may be fully or partially denied to an
               employee according to the law applicable in Israel.  

	12.3  	The
Employee shall be entitled to terminate this Agreement at any time, for any reason
whatsoever and with no obligation for providing reasons, upon the serving of prior
written notice of 90 days. Resignation due to the material deterioration of the
employment conditions shall not be considered resignation for the purposes of this
Agreement, and specifically not for the purposes of Section 18 and Section 19 hereof. 

	12.4  	Severance
Pay shall be paid according to the Severance Pay Law, 1963.

	13.  	Transfer
of Position  

	 	
The
Employee undertakes that immediately upon termination of his employment in the Company,
for any reason whatsoever, he will act as follows:  

	13.1  	The
Employee will deliver and/or will return to the Company all documents, diskettes, or any
other magnetic media, letters, listings, reports and any other documents in his
possession and connected to the business of the Company and so too all equipment and/or
other property of the Company provided for him. Additionally, he undertakes to erase such
information as may be present on a personal computer at his residence or owned by him. 

	13.2  	The
Employee shall transfer the documents and the matters in his care to whom the Company
shall determine, in an orderly fashion and according to the procedures determined by the
Company, in such a manner to enable a reasonable and suitable person, taking into account
the position, to continue to carry out his position in an orderly fashion and without
harm to the Company. 

	14.  	Confidentiality  

	14.1  	During
the term of his employment with the Company and thereafter, the Employee undertakes not
to disclose and/or to transfer to any person and/or entity outside of the company,
information pertaining to the Company or information received by him through his
employment at the Company, and/or in connection with the Company that is not part of the
public domain, and/or is not lawfully demanded by an authority of the State of Israel.
The Employee undertakes to keep confidential all matters pertaining to the business and
the affairs of the Company, and not to harm the reputation of the Company or its customer
base in any way. 

	 	
Without
derogating from the generality of the foregoing, information, for the purposes of this
section, shall include:  

	14.1.1  	Information
pertaining to the production or development processes of the Company.

	14.1.2  	Business
information pertaining to the business of the Company.

	14.1.3  	Inventions,
research, and technical or scientific knowledge.

	14.1.4  	Data
regarding sales, products and services with which the Company deals. 

	14.1.5  	Pricing
methods and profitability calculations.

	14.1.6  	Customer
lists of the Company, information about customers of the Company, their businesses and
activities, made known to the Employee or received by him through his employment with the
Company. 

	14.2  	Results
of his work and any invention and/or idea discovered by the Employee during the term of
his employment with the Company, or related to his employment at the Company, shall be
considered the property of the Company and shall belong to it, and the Company shall be
entitled to act as it desires and to register such invention and /or idea in its name. 

	14.3  	The
Employee undertakes to do all that is required of him by the Company to protect the
findings and/or the ideas in favor of the Company, wherever required, and sign any
document necessary for such purpose, provided that the costs involved therewith shall be
borne by the Company. 

	15.  	Non-Competition  

	15.1  	During
the term of his employment at the Company and during a period no shorter than 12 months
after termination of his employment at the Company, for any reason, (Hereinafter: “Non-Competition
Period), the Employee shall not engage in, participate in, nor accept a position in
any form or manner whatsoever that competes directly or indirectly with the activities of
the Company, and/or shall not place himself in a situation that constitutes activity
competitive with the Company, in or outside of Israel. 

	15.2  	In
addition to the foregoing in Section 15.1 above, the Employee undertakes that during the
Non-Competition Period he will not approach the Company’s customers and will not
receive from Company customers or from any person or other body, any position, proposal,
offer, employment or business in a field in which the Company had already engaged at that
time or had begun to engage. 

	15.3  	The
Employee declares that fulfilling his undertakings pursuant to this Agreement, his
employment by the Company and use of the information and qualifications possessed by him
does not breach and will not breach any other agreement or obligation to secrecy or
non-competition to which he is a party, or was a party prior to his employment by the
Company, and that he did not enter into and will not enter into any oral or written
agreement that contradicts the foregoing or in this document. 

	16.  	Salary  

	16.1  	The
Employee shall be paid an aggregate monthly salary of $12,500, converted into New
Israeli Shekels at the times of payment (Hereinafter: the "Total Salary"). 

	16.2  	80%
of the Total Salary (Hereinafter: the "Base Salary") shall constitute the exclusive
basis for the following payments: manager's insurance (including benefits funds),
allocations to pension funds, disability payments, and further education fund. 

	16.3  	The
cost of living and salary increases applicable to all employees in the country, as
applicable from time to time, shall apply to the Total Salary. 

	17.  	Ancillary
Benefits  

	17.1  	Manager’s
insurance/pension fund: 13.33% shall be allocated on account of the Company and 5% shall
be allocated on account of the Employee, and in total 18.33% shall be allocated from the
Base Salary. Additionally, the Company shall pay up to the rate of 2.5% from the Base
Salary for disability. 

	17.2  	Further
 education  fund:  7.5% on account of the Company and 2.5% on account of the Employee
       and in total, 10% shall be allocated from the Base Salary.

	17.3  	Annual
 leave:  The Employee  shall be entitled to 23 days of vacation per year not including
Fridays and Saturdays.

	17.4  	Payment
of recuperation pay shall be according to law.

	17.5  	Payment
of sick pay shall be according to law. For the avoidance of doubt, subject to law, sick
days may not be accrued nor may they be redeemed, and shall not be redeemed upon
termination of the Agreement or at any other time. 

	17.6  	The
Employee shall be entitled to reimbursement of gasoline expenses from the Company, up to
the sum of $300 per month, and which may not be accrued. The Employee shall bear any
expense exceeding said amount. The Company shall bear the tax expenses resulting from
this section. 

	18.  	Bonuses  

	18.1  	Regarding
the years 2005 and 2006, the Employee shall be entitled to receive an annual bonus of a
maximum amount of $25,000 per year at the end of each year (Hereinafter: the “Annual
Bonus”), provided that Company performance justifies payment of the bonus and
according to the decision of the Company CEO. The Annual Bonus shall be paid no later
than 30 days after approval of the bonus by the CEO, provided that the Employee is not
dismissed pursuant to Section 12.2, or did not resign pursuant to Section 12.3 of this
Agreement, until the time of payment of the annual bonus. For the avoidance of doubt,
should the Employee be dismissed pursuant to Section 12.2, or resign pursuant to Section
12.3 of this Agreement, except for resignation due to material deterioration of his
employment conditions, after the dates specified above, the Employee shall not be obliged
to return monies paid according to this section up until the cessation of the
employee-employer relationship as aforesaid. 

	18.2  	The
Employee shall be entitled to receive an additional bonus totaling $150,000 (Hereinafter:
the “Two-Year Bonus”). The Two-Year Bonus shall be paid in installments
as follows, provided the Employee is not dismissed pursuant to Section 12.2, or did not
resign pursuant to Section 12.3 of this agreement, until the dates stated as follows: a
sum of $37,500 by June 30, 2005; a sum of $37,500 by December 31, 2005; a sum of $37,500
by June 30, 2006; and a sum of $37,500 by December 31, 2006. For the avoidance of doubt,
should the Employee be dismissed pursuant to Section 12.2, or resign pursuant to Section
12.3 of this agreement, following the aforementioned dates, the Employee shall not be
obliged to return monies that were paid according to this section up until the cessation
of the employee-employer relationship, as aforesaid. 

	18.3  	Provided
that the Employee was not dismissed pursuant to Section 12.2, or alternatively, did not
resign pursuant to Section 12.3 of this agreement, the Employee shall be entitled to
receive an additional bonus totaling $500,000 (five hundred thousand) dollars, which
shall be calculated as a minimum profit of $2.5 on each option and which shall be
multiplied by the number of options stated in Section 19.1 (Hereinafter: the “Third
Bonus”) up until 30 days from the end of “The Third Bonus Period” as
defined herein. 

	18.3.1  	In
Section 18.3 and in Section 19 the following terms shall have the meanings below: 

	 	
“Options”– According
to the meaning of the term in Section 19 below.  

	 	
“Actual
Sale Price” – The price at which the Options were actually sold, provided
it was no lower than 10% of the Average Price.  

	 	
“Minimal
Sale Price”  – $2.65 per Option Share.  

	 	
“Average
Price” – The average closing price of the ordinary shares of the Company
traded on the NASDAQ (or another stock exchange) during the last seven trading days of
each calendar month during the Third Bonus Period, but no lower than the Minimal Sale
Price.  

	 	
“Merger”-The
merger of the Company with or into a different entity whereby the Company is wound up, or
the transfer or the sale of a majority or of all the shares of the Company by its
shareholders.  

	 	
“Option
Shares” – Shares that were issued to the Employee by the Company pursuant
to exercise of the Options.  

	 	
“The
Third Bonus Period” -The period beginning on the day the Employee is first
entitled to exercise the Options or a part thereof, and concluding upon the earlier of
the following dates: (1) 4 (four) years after the foresaid beginning date; (2) the date
of the cessation of the employee-employer relationship between the Employee and the
Company (for the avoidance of doubt, for this purpose the end of the term of this
Agreement shall be not be considered a cessation of the employee-employer relationship
between the Employee and the Company if the employment of the Employee by the Company
continues pursuant to this Agreement or pursuant to another agreement, after the end of
the term of this Agreement); (3) the date that the Employee sells or requests to offer
for sale all of the Option Shares following the term of this Agreement but is unable to
carry out his will due to lack of economic viability. See Exhibit A to this Agreement
that includes an illustrative example of this sub-section.  

	18.3.2  	At
the time of payment of the Third Bonus, all amounts that the Employee received from the
actual sale of the Option Shares or that he would have received if he had sold the Option
Shares, shall be deducted, subject to the conditions below, and all by reducing the
exercise price of the Options which shall be transferred to the Company at the time of
exercise of the Options. It is hereby clarified that (1) the following conditions shall
apply to each and every tranche of the vested Options independently, (2) sale of Option
Shares will first take place on account of Options bearing an earlier vesting date, and
(3) An offer to sell Option Shares by the Employee on a stock exchange shall be
considered a sale of the Option Shares even if the Option Shares were not actually sold.
The Options that were offered for sale and were not sold shall be transferred onward and
will be offered for sale in the future pursuant to the terms of this Agreement.
Nonetheless, should the Employee later sell the same Option Shares that were offered for
sale and not sold within the term of the agreement, and at a higher price than the price
they were initially offered for sale, the sale offer of that portion of the Option Shares
that were initially offered for sale shall not be considered to be an actual sale, and
the Actual Sale Price, shall be deducted from the payment of the Third Bonus. Exhibit A
of this Agreement includes an illustrative example of the implementation of the
provisions of Section 18.3. 

	18.3.2.1  	Should
the Employee sell the Option Shares, at a price lower than the higher of the Minimum Sale
Price and the Average Price applicable to that tranche of Options, then he will be
regarded as having sold the Option Shares at the higher of: (1) the Minimum Sale Price or
(2) the Actual Sale Price. 

	18.3.2.2  	Should
the Employee not exercise a portion of the Options (or part of a portion) which he could
have exercised, or exercised but did not sell the Option Shares, then he will be
considered to have sold the relevant Option Shares at the higher of the following prices:
(1) the Average Price applicable to the relevant tranche of the Options Shares; or (2)
the closing price of the Company shares on the NASDAQ on the last day of the Third Bonus
Period, provided that the market price per share exceeds $1.41; or (3) the price paid for
an ordinary share of the Company on the day the Merger transaction was consummated,
provided that this price is no lower than $1.41. 

	18.3.3  	In
addition to the reduction mentioned in Section 18.3.2 above, the Third Bonus will be
reduced by an amount equal to the inclusive total of all of dividends (gross) that were
paid to the Employee during the Third Bonus Period on account of Option Shares. 

	18.3.4  	In
the event that the Company completes a Merger transaction during the Third Bonus Period,
if the Merger transaction share price exceeds $1.41, the Company will accelerate the
vesting of all of the unvested Options that have not yet been vested, and the Employee
shall sell these Options within the framework of the Merger transaction, in accordance
with the price set for the Merger. The sum realized from the sale of the Options shall be
transferred to the Contract Trustee, in accordance with Section 19 below. In the event
that the pre-tax profit which constituted the source of the sum deposited in trust with
the Contract Trustee as discussed in Section 19 below is less than $500,000 gross at the
time of consummation of the Merger transaction, the Company shall pay the Employee the
balance of the bonus between the pre-tax profits that constituted the source of the sum
deposited in trust with the Contract Trustee, and $500,000 gross. This payment will be
credited to the Employee as salary in kind and the net balance after tax payments
required by law shall be transferred to the Contract Trustee. In the event that the
Merger share price is lower than $1.41, the remaining unexercised Options will be
cancelled, and the Company shall pay the Employee the bonus balance between the pre-tax
profits that constitute the source of the sum deposited in trust with the Contract
Trustee, and $500,000. This supplementary sum shall be credited to the Employee as salary
in kind and the net balance after the tax payments required by law will be transferred to
the Contract Trustee. In each of the above scenarios, the end of the employer-employee
relationship period shall be set at the earlier of 180 days following the Merger closing
date and 31.12.06 and at the end of this period the Contract Trustee shall transfer to
the Employee the Third Bonus, which will be composed of funds that have accumulated in
the trust account from exercise of the Options and from sums transferred by the Company
according to this section. 

	18.3.5  	In
the event that the Company become a private company via the acquisition of its shares on
a stock exchange in a tender offer by one of the Company’s current shareholders (“Tender
Offer”), and in the event that the share price at the time of the Tender Offer
exceeds $1.41, the Company shall accelerate the vesting of all unexercised Options, and
the Employee shall sell these Options at the time of the Tender Offer, in accordance with
the Tender Offer price. The funds realized from the sale of the Options shall be
transferred to the Contract Trustee as described in Section 19 below. In the event that
the pre-tax profit that constituted the source of the sum deposited in trust with the
Contract Trustee as stated in Section 19 below, is lower than $500,000 gross at the time
of completion of the Tender Offer, the Company will pay the Employee the bonus
discrepancy between the pre-tax profit that constituted the source of the sum deposited
in trust with the Contract Trustee, and $500,000 gross. This supplementary sum shall be
credited to the Employee as salary in kind, and the net sum remaining after the tax
payments required by law shall be transferred to the Contract Trustee. Should the Tender
Offer share price be lower than $1.41, the remaining unexercised Options shall be
cancelled, and the Company shall pay the Employee the bonus discrepancy between the
pre-tax profit that constituted the source of the sum deposited in trust with the
Contract Trustee, and $500,000 gross. This supplementary sum shall be credited to the
Employee as salary in kind, and the net remaining sum after the tax payments required by
law shall be transferred to the Contract Trustee. In any case, in each of the above
scenarios there shall be no change in the termination date of the employer-employee
relationship as defined in this Agreement, and at the end of this period the Contract
Trustee shall transfer to the Employee the Third Bonus, which shall be composed of Option
exercise funds and the sums transferred by the Company to the trust account as described
in this section. 

	18.3.6  	In
the event that the Company receives a receivership order which is not removed or
cancelled after 30 days, or in the event that the Company enters into a stay of
proceedings or in the event that liquidation proceedings are initiated against the
Company and not ceased within 30 days, the end of the Third Bonus Period shall be the
date on which each of the scenarios mentioned above is realized. 

	18.3.7  	For
the avoidance of doubt, the Company has the right to accelerate the vesting of any or all
of the Options that have not yet been vested, according to its own discretion. 

	18.3.8  	For
the avoidance of doubt, it is hereby declared that the Employee and the Company consent
that the Employee shall instruct the Options trustee to sell the Option Shares
simultaneously with the exercise of the Options (same day sale). 

	18.3.9  	At
the conclusion of the Third Bonus Period, in the event that the Employee did not exercise
the remaining Options due to lack of economic viability, these unexercised Options shall
be cancelled, and the Company shall pay the Employee the bonus as described in this
section. See Example 4 in Section 18.3. 

	18.4  	With
regard to payment of all of the bonuses mentioned in Section 18 above, and with regard to
Section 19, the date of notice of termination of by the Company pursuant to Section 12.2,
or, alternatively, by the Employee pursuant to Section 12.3, shall be considered to be
the day on which the employment ceased and the employer-employee relationship ended,
subject to the provisions of the last part of Section 12.3. 

	18.5  	The
parties hereby agree that the Company’s books and records regarding their rights and
obligations with regard to the bonuses shall constitute proof of the accuracy of what is
stated therein. Should one of the parties to this Agreement disagree with a detail stated
above and/or with a calculation, the calculation shall be performed by the Company’s
accountants and his determination shall bind the parties. 

	19.  	Options  

	19.1  	The
Employee shall be entitled to 200,000 (two hundred thousand) Options in accordance with
the Option Agreement attached hereto as Exhibit B (hereinafter: the “Options”).
Subject to the provisions of the Option Agreement, the Options shall vest on a monthly
basis throughout the term of the Agreement (from January 1, 2005 to December 21, 2006),
and in tranches as follows: at the end of each Gregorian month, 8,333 Options per month
for the first 23 months, and 8,341 Options shall vest on December 31, 2006. The Company
shall ensure that the Options are allocated on the capital gains track, pursuant to
Section 102 of the Income Tax Ordinance. The Employee hereby acknowledges that tax
liability for the exercise and sale of the Options, including the case of exercise prior
to the end of the period as defined in Section 102 of the Income Tax Ordinance, shall
fall on the Employee only and shall not be taken into account for calculating the Third
Bonus calculations or for any other purpose. 

	19.2  	Subject
to the Option Agreement, any compensation for the sale of Option Shares shall be
transferred to the trustee pursuant to Section 102 of the Ordinance, and in accordance
with what is set forth in Exhibit B of this Agreement (the “Options Trustee”).
In accordance with income tax regulations and as set forth in Exhibit B, the Options
Trustee must transfer consideration received for the Options to the Employee and the
Company. In the event that the Employee exercises the Options before January 2, 2007, the
consideration for the Options that was to have been received by the Employee shall be
transferred directly to a trust account of another trustee to be appointed by both
parties (the “Contract Trustee”). The Company shall credit the Employee salary
in kind (which shall be calculated as the sale consideration less the exercise price),
and shall transfer the tax payments to the tax authorities (in accordance with the
marginal tax rate applicable to the Employee), as well as other applicable required
payments, and shall transfer them to the authorities. The balance of profit, should there
be one, shall be transferred by the Company to the Contract Trustee. 

	 	
In
the event that the Employee sells the Options on a date subsequent to January 1, 2007,
the Company, in accordance with the provisions of Exhibit B and the aforementioned, shall
transfer the required tax payments to the tax authorities and shall transfer to the
Employee the balance of profit. In addition, the Employee shall not be required to
transfer the exercise funds received from the Options Trustee to the Contract Trustee.  

	19.3  	In
the event that the Employee is dismissed pursuant to Section 12.2 or the Employee resigns
pursuant to Section 12.3 of this Agreement, on a date prior to December 31, 2005, the
Contract Trustee shall transfer the complete sum that has accumulated in his trust
account to the Company (this sum is liquidated damages for the departure of the Employee
prior to the end of the term of the Agreement). In addition, Options that have vested but
have not been exercised shall expire, subject to Section 19.4. 

	19.4  	In
the event that the employer-employee relationship is terminated on a date following
December 31, 2005 but prior to December 31, 2006, whether by the Company pursuant to
Section 12.2 or, alternatively, by the Employee pursuant to Section 12.3, the Company
shall transfer to the Employee approximately 100,000 Options, whether already vested, or
have not yet vested, and the Company shall be accelerate their vesting in accordance with
Section 18.3.5 of this Agreement. However alternatively, the Company, in its sole
discretion, in the event that the remaining non-vested Options are fewer than 100,000, or
by decision of the Company CEO, transfer to the Employee compensation comprised of
unvested Options and/or un-exercised Options and of financial compensation to be
calculated as follow: the number of Options required to make up the difference (meaning
the difference between 100,000 Options and the number of Options that the Company shall
actually transfer to the Employee, hereinafter: the “Supplementary Options”)
multiplied by the Mean Compensation Per Option (as defined below). For the purposes of
this section the Mean Compensation Per Option shall be calculated as follows: profits
held by the Contract Trustee from the exercise of Options that vested during 2005 and
divided by the number of Options actually sold during 2005. For the avoidance of doubt it
is hereby clarified that for purposes of calculating the Mean Compensation Per Option in
this section, only Options that vested during the Employee’s term of employment in
accordance with Section 19.1 shall be taken into account, and not from funds resulting
from the acceleration of unvested Options in 2006, in accordance with Section 18.3.5. In
addition, notwithstanding the above, the Company’s CEO, at his own discretion, shall
be entitled to transfer to the Employee as financial consideration the profits held by
the Contract Trustee and resulting from the exercise and sale of the 100,000 Options that
vested during 2005. 

	 	
All
vested Options held by the Employee after implementation of the provisions of this
section shall expire after 90 days from the date of conclusion of the employer-employee
relationship. Additionally, remaining Options from 2006 that have been transferred to the
Employee, whether vested or not, shall expire upon the conclusion of the
employer-employee relationship as stated above. The total profit held and accumulated in
the trust account in possession of the Contract Trustee, and which have remained in his
possession after implementation of the provisions of this section, shall be transferred
by the Contract Trustee to the Company (this sum constitutes liquidated damages for the
departure of the Employee prior to the end of the term of the Agreement).  

	20.  	Miscellaneous  

	20.1  	Should
it is determined by an authorized court that any of the provisions in this Agreement
cannot be enforced and/or lacks validity for any reason (a “defective provision”),
this shall not impair and/or cancel the validity of the Agreement’s remaining
provisions. Any change in the defective provision shall be made via written agreement,
with the concurrence of both parties and in accordance with the spirit and the letter of
the provision as it appears in this Agreement. 

	20.2  	The
Employee undertakes, during the term of his employment by the Company and after cessation
of his employment, not to assist any civil action taken against the Company and/or bodies
connected with it, unless such assistance is required by law; the Employee also
undertakes to render any reasonable assistance requested of him by the Company in any
legal action in which the Company may become involved. The foregoing does not apply to
actions taken by the Employee against the Company or to actions taken against the Company
in which the Employee is one of the claimants. 

	20.3  	The
parties declare their addresses for purposes of this Agreement as stated in the
introduction above, and any notice sent by one party to the other via registered mail
shall be considered to have reached its destination within 4 business days from the time
of being submitted for delivery by registered mail, and if delivered in person – at
the time of delivery. 

	20.4  	The
parties declare that they have read this Agreement and its attached appendices carefully,
have understood its contents and have signed it of their own free will. It is agreed that
this Agreement constitutes, inter alia, a notice pursuant to the Notice to Employees
(Employment Conditions) Law – 2002. It is clarified that nothing herein shall
derogate from any right of the Employee pursuant to any law, expansion order, and
collective agreement, to the extent they are applicable. 

	20.5  	The
Employee undertakes to keep confidential the contents of this Agreement and any item
related to the conditions of his employment, and not to reveal them to a third party,
except for his own legal counsel or accountants, without the Company’s written
agreement. 

	20.6  	The
Employee acknowledges that the validity of the Agreement and its conditions are subject
to authorizations by the Company’s Audit Committee and Board of Directors, to be
obtained by January13, 2005. The Company must inform the Employee in writing by
January16, 2005 in the event that this Agreement is not approved by the Company’s
Audit Committee and Board of Directors. 

	20.7  	Any
 change  in this  Agreement  shall be made in  writing  and with  the  agreement  of both
       parties.

	20.8  	The
parties agree that the authorized courts of Tel Aviv shall have the sole authority to
deliberate over any instance of dispute concerning this Agreement. 

And in witness thereof the parties have signed  

		
		
		
		
		
	
	

	The Company	The Employee

Appendix A 

Numerical example of the
Options’ effect on the Third Bonus 

For illustration purposes it should
be assumed that the situation is being tested when the middle of March, 2005 is the date
of completion of the Third Bonus Period. 

	End of month	No. of vested

Options	No. of Option

Shares sold	Average price per

Option Tranche	Average price at

10% reduction
	January 2005	8,333	6,000	$2.50	--
	February 2005	8,333	5,000	$3.00	$2.70
	Total 	16,666	11,000	 	 

	1.  	With
regard to January, 2005 (when the situation is actually being tested
               at the beginning of February), if the Employee sold 6,000 Option Shares at
a                price lower than the minimum price, he shall be considered as having
sold these                Option Shares at a price of $2.65 (the minimum price). 

	2.  	With
regard to February, 2005 (when the situation is actually being
               tested at the beginning of March), if the Employee sold 5,000 Option
Shares (in                addition to the 6,000 Option Shares that he already sold as
stated in Item 1                above), one of the following shall be applicable: 

	 	A. 	If
the Employee sold the Option Shares at a price of $2.50, he will be
               considered as having sold the 2,333 Option Shares remaining from January
at a                price of $2.65, and the 2,667 Option Shares from February at a price
of $2.70. 

	 	B. 	If
the Employee sold the Option Shares at a price of $2.65, he will be
               considered as having sold the 2,333 Option Shares remaining from January
at a                price of $2.65 and the 2,667 Option Shares from February at a price
of $2.70. 

	 	C. 	If
the Employee sold the Option Shares at a price of $2.70, he will be
               considered as having sold all 5,000 Option Shares at a price of $2.70
(although                the 2,667 Option Shares from February were sold at a price lower
than the                average minimum price of $3.00, this is still within the
permissible framework                of the 10% reduction). 

	 	D. 	If
the Employee sold the Option Shares at a price of $3.10, he will be
               considered as having sold all 5,000 Option Shares at a price of $3.10. 

Summary table for
February 2005 

	Alternative	Minimum price	Average price

per tranche

vested in

February	Avg. price

with 10%

reduction	Actual sale

price
	Considered as

having sold at -

	A
	$2.65
	$3.00
	$2.70
	$2.50
	2,333 from

January at

$2.65

2,667 from

February at

$2.70

	B
	$2.65
	$3.00
	$2.70
	$2.65
	2,333 from

January at

$2.65;

2,667 from

February at

 $2.70

	C
	$2.65
	$3.00
	$2.70
	$2.70
	All 5,000

shares at

$2.70

	D
	$2.65
	$3.00
	$2.70
	$3.10
	All 5,000

shares at $3.10

	3. 	For
purposes of calculating the Third Bonus reduction, let us assume that
          Alternative B of Item 2 above is the applicable one. 

	 	
	 	
	 	
	 	
	 	
	January 2005: 	($2.65-$1.41)*8,333 = $10,333
	February 2005: 	($2.70-$1.41)*2,667 = $3,440

Total accumulated profits for January
and February – $13,773. 

Section 18.3.2 of the Agreement
states that for purposes of Third Bonus reduction Option Shares that the Employee has not
exercised or sold will also be taken into account. In this example, the Employee did not
exercise 5,666 Option Shares belonging to the tranche that vested in February 2005. For
purposes of this example let us assume that the relevant alternative is alternative 1 in
Section 18.3.2.2. The average price applicable to the relevant Options is $3.00, as stated
above. The sum to be deducted for these shares: 

5,666*($3.00-$1.41) =
$9,009 

Total sum for reduction from the Third Bonus: $10,333 + $3,440 + $9,009 = $22,782  

	4.  	Example
in accordance with Section 18.3.7: 

In the event that the share price on
December 31, 2006 is $1.35 (or any price lower than $1.41), and should the Employee seek
to sell the options, the action will not be profitable since the sum that would be
received from exercise of the options will be lower than the price that he will be
required to pay the Company. In this case the remaining unexercised options will be
cancelled and the Employee will receive a bonus of $2.5 per each cancelled option.Exhibit 4.9

LOAN AGREEMENT

               THIS
LOAN AGREEMENT (this “Agreement”) is made as of the 8th day of March, 2005, by and between Arel
Communications and Software Ltd., a company organized under the laws of the
State of Israel (the “Company”) and Cetus Corp., an Ohio corporation (the “Lender”).

W I T N E S S E T H:

               WHEREAS,
the Company wishes to obtain a revolving credit facility from the Lender; and

               WHEREAS,
the Lender is willing to make available a revolving credit facility to the
Company on the terms and conditions set forth in this Agreement.

               NOW
THEREFORE, in consideration of the mutual covenants and agreements contained
herein and for other good and valuable consideration, the receipt and adequacy
of which are hereby acknowledged, the parties agree as follows:

1.            Definitions.

     1.1.    When used in
this Agreement, the following terms shall have the respective meanings set
forth below:

               1.1.1.     “Adjusted
Gross Revenues
Amount” shall mean the Audited Gross Revenues Amount, as adjusted
pursuant to Section 2.1.4. 

               1.1.2.     “Affiliate” shall
mean, with respect to any
Person, any other Person directly or indirectly controlling or controlled by,
or under direct or indirect common control with, such Person.  A Person shall be deemed to control another
Person if such Person possesses, directly or indirectly, the power to direct or
cause the direction of the management and policies of such other Person,
whether through the ownership of voting securities or other ownership
interests, by contract or otherwise.

               1.1.3.     “Audited
Gross Revenues Amount” shall mean the Gross Revenues as reported in the
Company’s audited financial statements for the year ending December 31, 2005.

               1.1.4.     “Availability
Period” shall mean the period
commencing on the Closing Date and ending on the third anniversary of the
Closing Date, unless earlier terminated pursuant to the terms of this
Agreement. 

               1.1.5.     “Authority” shall
mean any government, any
governmental, regulatory or administrative body, agency or authority, any court
of judicial authority, any arbitrator or any public, private or industry
regulatory authority, whether international, national, state, municipal or
local.

               1.1.6.     “Board” shall mean the Board of Directors of the
Company.

               1.1.7.     “Business
Day” shall mean any day that is a business day in both the
State of Israel and the State of New York.

               1.1.8.     “Change
of Control” shall mean: (i) the
dilution of Mathile’s direct and indirect holdings in the Company to below
twenty-five percent (25%) of the outstanding voting rights in the Company, but
not as a result of an Event (as defined in Section 1.1.8.1 below; (ii) the
acquisition by any Person and its Affiliates, other than Persons and their
Affiliates who as of the date of this Agreement or as of the Closing Date are
beneficial shareholders of the Company, of more than twenty percent (20%) of
the outstanding voting rights in the Company, but not as a result of any of the
Events set forth in (2), (3) and (4) in Section 1.1.8.1 below; and (iii) the
sale by the Company of all or substantially all of its assets to any Person
other than to its subsidiaries and other than to Persons and their Affiliates
who as of the date of this Agreement or as of the Closing Date are beneficial
shareholders of the Company.

                             1.1.8.1.     For
the purposes of the definition of a
Change of Control, an “Event” shall
be: (1) the issuance of shares of the Company (including upon the exercise of
options or warrants) to bona fide employees, directors, officers, consultants,
service providers, suppliers of the Company or any subsidiary thereof; (2) the
sale of shares of the Company by Mathile or such entities or persons through
which Mathile holds shares in the Company; (3) the issuance of shares of the
Company to a Person in connection with a financing which is not primarily an
equity financing (an equity credit line shall be deemed to be a financing which
is not primarily an equity financing); or (4) the issuance of shares of the
Company to a third party with whom the Company is or could benefit from a
strategic relationship as determined by the Board in good faith.

               1.1.9.     “Charge” shall
mean the fixed charge and
the floating charge and the other security interests to be created by the
Company for the benefit of the Lender and the fixed charge on Intellectual
Property Assets owned by the Subsidiaries (if any), the floating charge and the
other security interests to be created by the Subsidiaries for the benefit of
the Lender as contemplated by the Charge Agreements. 

               1.1.10.   “Charge
Agreements” shall mean the Charge
Agreements and the other security agreements to be entered into by and between
the Company and its subsidiaries and the Lender on the Closing Date, in a form
acceptable to the Lender and the Company. 

               1.1.11.   “Closing” shall
mean the consummation of the transactions contemplated in this Agreement as
set forth in Section 2.2. 

               1.1.12.   “Closing
Date” shall mean the date upon
which the Closing occurs.

               1.1.13.   “Company” shall
mean Arel Communications
and Software Ltd.

               1.1.14.   “Company
Disclosure Schedule” shall mean the
schedule to be delivered to the Lender by the Company at the Closing which is
arranged in sections corresponding to the subsections of Section 7.1 of this
Agreement which shall be modified and supplemented by such schedule.  

               1.1.15.   “Disbursement
Date” shall mean the date upon which the Company
receives an Installment from the Lender. 

               1.1.16.   “Disbursement
Request” shall mean a written request by the Company to the Lender
for the receipt of an Installment. 

               1.1.17.   “Dollars” shall
denote the lawful currency of the
United States of America. “US $”, “USD”, “ $”, “dollars”, “US Dollars”, “U.S.
Dollars” shall likewise be construed.

               1.1.18.   “Effective
Time” shall
mean 12:01 a.m. Tel-Aviv,
Israel time on the Closing Date.

               1.1.19.   “Event
of Acceleration” shall mean each of
the events described in Section 10.3.  

               1.1.20.   “Exchange
Act” or “Securities Exchange Act” shall mean the
United States Securities Exchange Act of 1934, as amended.

               1.1.21.   “Gross
Revenues” shall mean the
consolidated revenues of the Company as reported in the Company’s audited
financial statements or reviewed financial statements, as applicable.

               1.1.22.   “Installment” shall
mean the principal amount on account of the
Maximum Available Principal Amount received by the Company from the Lender
pursuant to a Disbursement Request. 

               1.1.23.   “Intellectual
Property Assets” shall mean
such intellectual property assets owned by the Company and its Subsidiaries as
more fully described on the Company Disclosure Schedule or in the Charge
Agreements. 

               1.1.24.   “Interest” shall
have the meaning ascribed
to such term in Section 6.1. 

               1.1.25.   “Law” shall
mean any applicable law,
statute, regulation, treaty, ordinance, rule, requirement, official directive,
announcement or other binding action or requirement of an Authority.

               1.1.26.   “Lender” shall
mean Cetus Corp.

               1.1.27.   “Loan
Documents” shall have the meaning
ascribed to such term in Section 7.1.2.

               1.1.28.   “Material
Adverse Effect” shall mean a material adverse effect on the business, operations, properties or
condition (financial or other) of the Company and its subsidiaries, taken as a
whole.

               1.1.29.   “Maximum
Available Principal
Amount” shall mean the
maximum aggregate principal amount of credit available to the Company under
this Agreement as set forth in Section 2.1.

               1.1.30.   “Mathile” shall
mean Mr. Clayton L.
Mathile, Mrs. Mary A. Mathile, any Affiliate of Mr. Clayton L. Mathile and/or
Mary A. Mathile, any relative (by blood, marriage or adoption) of Mr. Clayton
L. Mathile and/or Mrs. Mary A. Mathile, and/or any trust established for the
benefit of any of the foregoing.

               1.1.31.   “Nominees” shall
have the meaning ascribed to such
term in Section 11.1.

               1.1.32.   “Order” shall
mean any decree, decision,
order, judgment, writ, award, injunction, rule or consent of or by an
Authority.

               1.1.33.   “Outstanding
Principal
Amount” means the principal
amount on account of the Maximum Available Principal Amount outstanding and
unpaid from time to time.

               1.1.34.   “Person” shall
mean any entity,
corporation, company, association, limited liability company, joint venture,
joint stock company, partnership, trust, organization, individual (including
personal representatives, executors and heirs of a deceased individual),
nation, state, government (including agencies, departments, bureaus, boards,
divisions and instrumentalities thereof), trustee, receiver or liquidator.

               1.1.35.   “Prepayment
Notice” shall
have the meaning ascribed to such term in Section 6.4.

               1.1.36.   “Repayment
Date” shall have the meaning ascribed to such term
in Section 6.3.

               1.1.37.   “SEC” shall
mean the United States
Securities and Exchange Commission.

               1.1.38.   “Securities
Act” shall mean the United
States Securities Act of 1933, as amended.

               1.1.39.   “Specified
Rate” shall mean, with respect to each Installment, a
rate of interest per annum equal to 9.00% plus the one month London Interbank
Offered Rate (LIBOR) as published in The Wall Street Journal on the Business Day immediately prior to the date
of the relevant Disbursement Request (or, if The Wall Street Journal is
not published on such Business Day, on the next succeeding Business Day on
which The
Wall Street Journal is published). With respect to each Installment, the Specified Rate, shall be
adjusted, upwards or downwards, effective as of the first Business Day of each
subsequent calendar month to a rate of interest per annum equal to 9.00% plus
the one month London Interbank Offered Rate (LIBOR) as published in The Wall
Street Journal on such Business Day (or, if The Wall Street Journal is
not published on such Business Day, on the next succeeding Business Day on
which The
Wall Street Journal is published), but only in the event that such
monthly adjustment shall cause the rate of interest per annum comprising the
then Specified Rate to increase or decrease, as the case may be, by a minimum
of 1% per annum as illustrated by the following table:

	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  March 5

  (Disbursement

  Request date)

  	
  First

  Business

  Day of

  April

  	
  First

  Business

  Day of

  May

  	
  First

  Business

  Day of

  June

  	
  First

  Business

  Day of July

  	
  First

  Business

  Day of

  August

  
	
  1 Month Libor

  	
  2%

  	
  2.5%

  	
  3.5%

  	
  1.5%

  	
  1%

  	
  2%

  
	
  Fixed rate

  	
  9%

  	
  9%

  	
  9%

  	
  9%

  	
  9%

  	
  9%

  
	
  Specified Rate

  	
  11%

  	
  11%

  	
  12.5%

  	
  10.5%

  	
  10.5%

  	
  10.5%

  

               1.1.40.   “Termination
Letter” shall have the meaning ascribed to such term
in Section 12.

2.            Loan.

     2.1.    Subject to
there having been a Closing, during the Availability Period, the Lender will
make available to the Company a revolving credit facility of an aggregate
principal amount of up to ten million US dollars (US $ 10,000,000) (the “Maximum Available Principal Amount”)  in
accordance with the terms and conditions set forth in this Section 2 and this Agreement. 

               2.1.1.     Subject
to Sections 2.1.2, 2.1.3 and 2.1.4, the Lender shall transfer Installments to
the Company by wire transfer, in immediately available US dollars and in
accordance with wire instructions to be provided in writing to the Lender by
the Company from time to time, upon the later of: (i) seven (7) Business Days
following the date on which the Company shall have delivered a Disbursement
Request to the Lender; or (ii) such other date specified in the Disbursement
Request, provided that such specified date is not later than fourteen (14) days
of the date of delivery of the Disbursement Request. Each Disbursement Request
shall state the amount of the Installment to be transferred by the Lender to
the Company, provided that such amount shall be no less than one hundred
thousand US dollars (US $ 100,000) or shall be in an amount which is a multiple
of one hundred thousand US dollars (US $ 100,000).

               2.1.2.     Until
January 1, 2006, the Outstanding Principal Amount may not exceed five million
US dollars (US $ 5,000,000) at any one time. 

               2.1.3.     Commencing
January 1, 2006, the Outstanding Principal Amount may equal up to the amount in
Column B of Schedule 2.1.3 hereto set forth opposite the Audited Gross Revenues
Amount in Column A of Schedule 2.1.3 hereto. 

               2.1.4.     In
addition, in the event that the Company achieves Gross Revenues equal to or
exceeding three million US dollars (US $ 3,000,000) in each of any two (2)
consecutive calendar quarters commencing with the quarter ending March 31,
2006,  then the Company shall be deemed
to have achieved the next level of Gross Revenues for the year ending December
31, 2005, as set forth in Column A of Schedule 2.1.3 hereto immediately below
the actual Audited Gross Revenues Amount (the “Adjusted Gross Revenue Amount”) and accordingly the Outstanding Principal Amount (as set forth in Column B) may
then equal up to the corresponding amount set forth opposite the next level of
the Adjusted Gross Revenue Amount. The mechanism set forth in this Section
2.1.4 shall apply each time the Company achieves Gross Revenues equal to or
exceeding three million US dollars (US $ 3,000,000) in each of any two (2)
consecutive calendar quarters as aforesaid. By way of example, if the Audited
Gross Revenues Amount for the year-ending December 31, 2005 is $ 7,000,000 and
in each of the first three calendar quarters of 2006 the Company achieves Gross
Revenues of $ 3,000,000, then following the second quarter of 2006, the
Outstanding Principal Amount may then equal up to $ 6,700,000 and following the
third quarter of 2006, the Outstanding Principal Amount may then equal up to
$ 8,400,000. 

     2.2.    Closing and Closing Date.

               2.2.1.     Time
and Place. The Closing shall take place at the offices of Yigal Arnon &
Co., One Azrieli Center, Tel-Aviv, Israel, at 10:30 a.m. local time on the
Business Day that all the conditions set forth in Section 3 have been satisfied
or waived or at such other time and place as the Company and the Lender
mutually agree in writing, such transactions to be effective as of the
Effective Time, provided, however, that without the prior written consent of
the Company and the Lender, the Closing shall not occur after June 30,
2005.  

               2.2.2.     Transactions
at the Closing. At the Closing, the following transactions shall occur,
which transactions shall be deemed to take place simultaneously and no
transaction shall be deemed to have been completed or any document delivered
until all such transactions have been completed and all required documents
delivered, unless waived in accordance with Sections 3.1 and 3.2: 

                             2.2.2.1.     The
obligations of the Company to be performed on or before the Closing Date
pursuant to the terms of this Agreement, including but not limited to, those
obligations set forth in Section 3.1.

                             2.2.2.2.     The
obligations of the Lender to be performed by it on or before the Closing Date
pursuant to the terms of this Agreement, including but not limited to, those
obligations set forth in Section 3.2.

3.            Conditions to
Closing

     3.1.    The
obligation of the Lender to consummate the transactions contemplated herein
shall be subject to the fulfillment, at or before the Closing Date, of all of
the conditions set forth below in this Section 3.1 to the satisfaction of the Lender. The Lender
may waive in its sole discretion any or all of such conditions in whole or in
part without prior notice.

               3.1.1.     The
Company and each of its direct and indirect subsidiaries (hereafter referred to
as “Subsidiaries”) and the Lender
shall have executed the Charge Agreements and the Company shall have caused its
Subsidiaries to register a Charge on all of their respective assets in favor of
the Lender;

               3.1.2.     The
representations and warranties of the Company and its Subsidiaries contained in
the Loan Documents shall be true in all material respects on and as of the
Closing Date. 

               3.1.3.     The
Lender shall have received from the Company:

                             3.1.3.1.     true
and correct copies of forms for registering the Charge with the Israeli
Registrar of Companies, stamped to indicate filing thereof, and a certificate
of registration of the Charge with the Israeli Registrar of Companies and
similar evidence of the registration of a Charge on all of the Company’s
Subsidiaries’ respective assets in favor of the Lender; 

                             3.1.3.2.     true
and correct copies of resolutions of the Company’s audit committee, Board and
shareholders authorizing the Company to enter into the Loan Documents; 

                             3.1.3.3.     the
Company Disclosure Schedule, in such form and substance reasonably acceptable
to the Lender; and 

                             3.1.3.4.     an
opinion of Yigal Arnon & Co., counsel to the Company, dated as of the
Closing Date, addressed to the Lender in a form acceptable to the Lender and
the Company.  

               3.1.4.     The
Company and each of its Subsidiaries shall have obtained all regulatory
approvals and third party consents required to enter into, execute and deliver
this Agreement and the Charge Agreements, including, but not limited to, the
consent of the Israeli Office of the Chief Scientist.  

     3.2.    The
obligation of the Company to consummate the transactions contemplated herein
shall be subject to the fulfillment, at or before the Closing Date, of all of
the conditions set forth below in this Section 3.2 to the satisfaction of the Company. The Company
may waive in its sole discretion any or all of such conditions in whole or in
part without prior notice.

               3.2.1.     The
Company and its Subsidiaries and the Lender shall have executed the Charge
Agreements;

               3.2.2.     The
Lender shall have confirmed in writing that all corporate action on the part of
the Lender necessary for the execution, delivery and performance of this
Agreement and the other Loan Documents shall have been taken; 

               3.2.3.     The
Company’s audit committee, Board and shareholders shall have approved the
transactions contemplated by the Loan Documents as required by Law and the
Company’s Articles of Association; and

               3.2.4.     The
Company shall have obtained all regulatory approvals and third party consents
required to enter into, execute and deliver this Agreement and the Charge
Agreements, including, but not limited to, the consent of the Israeli Office of
the Chief Scientist and the Company’s Subsidiaries shall have obtained all
regulatory approvals and third party consents required to register a floating
Charge on all of their respective assets in favor of the Lender.

     3.3.    Conditions Precedent to Each Installment. 
The obligation of the Lender to disburse each Installment is subject, at
the time of the disbursement of such Installment, to the satisfaction of the
following conditions, with the disbursement by the Lender and the receipt of
such Installment by the Company constituting a representation and warranty by
the Company that the conditions specified in Section 3.3.1 and 3.3.2 are then
satisfied:

               3.3.1.     No
Event of Acceleration.  At the time
of the disbursement of each Installment, and as a result of the making thereof,
there shall exist no Event of Acceleration or no event, act or condition which
with the giving of notice or the lapse of time or both would constitute an
Event of Acceleration.   

               3.3.2.     At
the time of the disbursement of each Installment, and after giving effect
thereto, the Borrower shall inform the Lender to the extent that any of the representations
and warranties of the Company or any of its Subsidiaries contained in the Loan
Documents or otherwise made (or deemed made) in connection therewith are no
longer correct in a material manner at such time. 

4.
           Security.

     4.1.    In accordance
with the terms and the conditions of the Charge Agreements, the Company agrees
to secure the repayment of the Outstanding Principal Amount, and any accrued
and unpaid Interest thereon, by creating a first priority fixed charge on the
Intellectual Property Assets of the Company and its Subsidiaries and a floating
charge on all of the assets of the Company and its Subsidiaries, including
cash, inventory, accounts receivable, tangible and intangible assets, and
intellectual property other than the Intellectual Property Assets, if any, for
the benefit of the Lender. 

5.            Seniority.

               Subject
to there having been a Closing, the Company undertakes that its obligations
under the Loan Documents and with respect to the Charge will at all times rank
senior in right of payment and priority to all its other present and future
unsecured and unsubordinated obligations, other than obligations which are
mandatorily preferred by law applying to companies generally and subject to
obligations imposed by Law, including the Israeli Office of the Chief
Scientist.

     5.1.    Without
derogating from the foregoing, neither the Company nor any of its Subsidiaries
may grant any security interest, whether fixed or floating, to a third party in
any of its assets without the prior written consent of the Lender, unless
permitted under Section 9 hereof.   

6.            Interest; Repayment.

     6.1.    Each
Installment shall bear interest from the Disbursement Date thereof to the date
of repayment in full at a rate per annum equal to the Specified Rate in effect
from time to time (the “Interest”).  

     6.2.    All accrued
Interest shall be due and payable on the last Business Day of each calendar
month and the Company shall pay such Interest on such date in accordance with
Section 6.7 below. The Interest shall accrue from day to day and shall be
calculated on the basis of the actual number of days elapsed and a 360 (three
hundred and sixty) day year. 

     6.3.    The
Outstanding Principal Amount and any accrued and unpaid Interest thereon, if
any, shall be due and payable, in US dollars, six (6) months from the
expiration of the Availability Period (the “Repayment
Date”).

     6.4.    Notwithstanding anything to the contrary
herein, the Company may, in its sole discretion and without penalty, prepay all
or any portion of the Outstanding Principal Amount, at any time, provided that:

               6.4.1.     the
Company shall have provided the Lender
with three (3) days prior written notice of such intention to prepay (the
“Prepayment Notice”);

               6.4.2.     prepayments
shall be in amounts of no less
than one hundred thousand US dollars (US $ 100,000); and 

               6.4.3.     the
Company shall pay all accrued and unpaid Interest on the Outstanding Principal Amount prepaid
hereunder on the date of prepayment.  

     6.5.    In the Prepayment Notice, the Company shall
designate on account of which Installment(s) it is prepaying, at its sole
discretion. In the absence of such designation, the prepayment shall be first
used on account of Installment(s) whose Disbursement Date is earlier in time. 

     6.6.    Any Outstanding Principal Amount prepaid by
the Company shall again be available for disbursement during the Availability
Period.

     6.7.    All payments
to be made by the Company to the Lender under this Agreement, shall be made by
means of wire transfer in immediately available US dollars in accordance with
wire instructions to be provided in writing to the Company by the Lender from
time to time. 

     6.8.    All payments
by the Company to or for the account of the Lender hereunder shall be made free
and clear of and without deduction for any and all Taxes.  Notwithstanding anything to the contrary
above or in this Agreement, the Company may withhold the “Permitted Withholding Tax” which is the
withholding tax, not in excess of 17.5% of a payment, permitted under The
Convention Between the Government of the United States of America and the
Government of the State of Israel with respect to Taxes on Income (the “Tax Treaty”).  If the Company shall be
required by law to deduct any Taxes
(other than the Permitted Withholding Tax) from or in respect of any sum
payable hereunder to the Lender, (a) the sum payable shall be increased as necessary
so that making all required deductions (including deductions applicable to
additional sums payable under this Section 6.8) the Lender receives an amount
equal to the sum it would have received had no such deductions been made, (b)
the Company shall make such deductions, (c) the Company shall pay the full
amount deducted to the relevant authority in accordance with applicable law and
(d) the Company shall furnish to the Lender the original copy of a receipt
evidencing payment thereof within 30 days after such payment is made. “Taxes” means any and all present or future
taxes, duties, levies, imposts, deductions, charges or withholdings levied or
imposed by any Authority, and any and all liabilities with respect to the
foregoing.

               6.8.1.     In
addition, if a
competent Israeli tax Authority shall require this Agreement to be stamped for
Israeli stamp tax purposes, the
Company shall pay such Israeli stamp tax.
The Company hereby agrees to pay any other present or future stamp or documentary
taxes and any other excise or property taxes, charges or similar levies which
arise from any payment made hereunder or from the execution or delivery of, or
otherwise with respect to, this Agreement (“Other Taxes”).

               6.8.2.     The
Company hereby agrees to indemnify the Lender for the full amount of Taxes or
Other Taxes (other than any Permitted Withholding Tax), including, without
limitation, any Taxes or Other Taxes imposed on amounts payable under this
Section 6.8,
paid by the Lender and any liability (including penalties, interest and
expenses) arising therefrom or with respect thereto, other than penalties,
interest and expenses imposed due to the fault of the Lender.  Payments due under this Indemnification
shall be made within 30 days of the date Lender makes demand therefore.

7.            Representations and
Warranties

     7.1.    Representations
and Warranties of the Company. The Company represents and warrants to the
Lender as of the Closing Date as follows:

               7.1.1.     Due
Incorporation. The Company and each of
its Subsidiaries is duly organized and validly existing company under the Laws
of the jurisdiction under which it was incorporated or organized and has all
requisite power and authority to own, lease and operate its assets, properties
and business and to carry on its business as now conducted or proposed to be
conducted and to execute, deliver and perform its obligations under the Loan
Documents to which it is a party and is duly licensed or qualified to do business
under the laws of each jurisdiction in which the nature of the business
conducted or the ownership of its assets makes such qualification or licensing
necessary. Except as set forth in Company’s Disclosure Schedule, the Company
has no businesses, entities, enterprises or organizations in which the Company
has any ownership, voting or profit and loss sharing percentage interest.  The Company’s Disclosure Schedule shall set
forth a list of jurisdictions in which each Subsidiary of the Company is incorporated
or qualified as a foreign entity.  

               7.1.2.     Prior
to the Closing, all corporate action on the part of the Company and each of its
Subsidiaries necessary for the execution, delivery and performance of this
Agreement, the Charge Agreements and the other agreements, documents and
instruments to be executed and delivered by the Company and its Subsidiaries in
connection therewith (collectively, the “Loan
Documents”) shall have been taken. Except as set forth in the
Company’s Disclosure Schedule, no consent, approval or authorization of,
exemption by, or filing with, any governmental or regulatory authority or any
third party is required in connection with the execution, delivery and
performance by the Company or any of its Subsidiaries of the Loan Documents to
which it is a party and the consummation of the transactions contemplated
thereby. The Loan Documents when executed and delivered by or on behalf of the
Company and each of its Subsidiaries a party thereto, shall constitute the valid
and legally binding obligations of the Company and its Subsidiaries a party
thereto, legally enforceable against the Company and/or its Subsidiaries in
accordance with their respective terms, subject to applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and other laws
relating to creditor’s rights generally and general principles of equity.

               7.1.3.     No
Violation. Except as set forth in Company’s Disclosure
Schedule, neither the execution
and delivery of the Loan Documents by the Company or any of its Subsidiaries
nor the consummation of the transactions contemplated therein that are
to be performed by the Company or any
of its Subsidiaries will: (i) violate any provision of the Articles of
Association of the Company or other governing or constituent document of the
Company or any of its Subsidiaries; (ii) violate, conflict with, or constitute
a default under any agreement to which the Company or any of its Subsidiaries
is a party or by which it or its property is bound or affected; (iii) require
the consent of any party to any agreement to which the Company or any of its
Subsidiaries is a party by which it or its property is bound or affects; or
(iv) violate any Laws or Orders to which the Company or any of its Subsidiaries
or any of its property is subject, the effect of which, in the case of this
clause (iv) only, would have a Material Adverse Effect. 

               7.1.4.     SEC
Filings. The Company has filed all forms, reports, registration statements
and documents required to be filed by it with the SEC since December 31, 2002.
The Company has made available to the Lender all such forms, reports, and
documents in the form filed with the SEC since such date, but not the exhibits
and schedules thereto or the documents incorporated therein, by virtue of
having filed them on the SEC’s Electronic Data Gathering, Analysis, and
Retrieval (EDGAR) system. All such required forms, reports and documents
(including those that Company may file subsequent to the date hereof and the
financial statements filed therewith) are referred to herein as the “Company SEC Reports” provided that any
Company SEC Report shall be deemed to include all amendments to such
report.  As of their respective filing
dates (or if amended or superseded by a filing then on the date of such
filing), the Company SEC Reports: (i) complied in all material respects with
the requirements of the Securities Act or the Exchange Act, as the case may be,
and the rules and regulations of the SEC thereunder applicable to such Company
SEC Reports; and (ii) did not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading, except to the extent corrected by
subsequently filed documents with the SEC. 
Except as set forth in, or reflected by, the Company SEC Reports
including the audited financial statements for the period ending December 31,
2004 provided to the Lender, since December 31, 2003, no material adverse
change has occurred in the business, operations, properties or conditions
(financial or other) of the Company and its Subsidiaries, taken as a whole.

               7.1.5.     No
Broker.  No broker, finder, agent or
similar intermediary has acted for or on behalf of the Company in connection
with this Agreement or the transactions contemplated hereby, and no broker,
finder, agent or similar intermediary is entitled to any broker’s, finder’s
similar fee or other commission in connection therewith based on any agreement,
arrangement or understanding with the Company.

               7.1.6.     Ownership. 
Except as set forth in the Company’s
Disclosure Schedule, the
Company and each of its Subsidiaries has good, valid and marketable title to
all of its assets, free and clear of all mortgages, liens, pledges, charges,
security interests or other encumbrances. 
The Company’s Disclosure Schedule sets forth a list of all material assets
owned by Company and each of its subsidiaries. 

               7.1.7.     Compliance
with Laws.  The Company and each of
its Subsidiaries is in compliance in all respects with all laws, regulations
and requirements applicable to it or to the operation of its business or the
ownership of its assets, except as would not have a Material Adverse
Effect.  The Company and each of its
Subsidiaries has obtained all governmental permits, licenses and the like
necessary to the conduct of its business and all such permits, licenses and the
like are in full force and effect and no default exists thereunder which would
have a Material Adverse Effect.

               7.1.8.     Litigation. 
Except as disclosed in the Company SEC Reports and as set forth in the Company’s
Disclosure Schedule, there are
no actions, suits or proceedings pending or threatened against the Company, its
Subsidiaries, or any of their assets before or by any court, government agency
or body or arbitrator which would have a Material Adverse Effect.  

               7.1.9.     Taxes. 
Except as set forth in the Company’s
Disclosure Schedule, the
Company and each of its Subsidiaries has filed all tax returns required to be
filed by it and has paid all taxes, assessments, levies and other governmental
charges which are pursuant to such returns and all other taxes, assessments,
levies and other governmental charges which have become due, including all
interest and penalties, the failure to file any such return or to pay
any such tax would, individually or in the aggregate, have a Material Adverse Effect.

               7.1.10.  Intellectual
Property.  The Company and its Subsidiaries own all
Intellectual Property Assets, including, but not limited to, patents,
trademarks, trade names, trade dress, services marks, services names,
copyrights, software, licenses, know how, trade secrets, methodologies,
franchises, formulas, good will, internet domain names and other intangible or
intellectual property rights (or rights with respect to the foregoing) necessary
for the conduct of their business and as more fully described in the Company
Disclosure Schedule, without any conflict with, or violation of, the rights of
others which would have a Material Adverse Effect.

8.            Affirmative
Covenants.

     8.1.    General
Covenants.  Until such time that (i)
all amounts payable by the Company under this Agreement shall have been paid in
full and (ii) the Lender shall not be under any obligation under this Agreement
to provide Installments to the Company, the Company shall and shall cause each of its Subsidiaries to:

               8.1.1.     Existence. 
Do all things necessary and proper to
preserve and keep in full force and effect its existence and its material
rights to all material Intellectual Property Assets.

               8.1.2.     Books
and Records.  Keep proper books of
record and account in which full, true and correct entries in conformity with
generally accepted accounting principles and all requirements of law shall be
made of all dealings and transactions in relation to its business and affairs.

               8.1.3.     Property. 
Keep all property useful and necessary in
its business in good working order and condition and, from time to time, make
all necessary and proper repairs, renewals, replacements, additions and
improvements thereto.

               8.1.4.     Compliance
with Laws.  Comply in all
material respects with all applicable laws, statutes, rules, regulations and
orders of, and all applicable restrictions imposed by, any governmental
authority in respect of the conduct of its business and the ownership or
operation of its property or assets.

               8.1.5.     Insurance. 
Maintain at all times adequate insurance
against such risks as are customarily insured against, and in amounts
customarily carried by, persons operating similar businesses and effect all
such insurance under valid and enforceable policies issued by insurers of
recognized responsibility.

               8.1.6.     Payment
of Taxes and Other Claims.  Duly pay
and discharge when due all taxes, assessments, levies and other governmental
charges imposed upon it or its assets or upon its income, as well as all claims
for labor, materials or supplies, which if unpaid might by law become a lien
upon any of its assets, unless any such payment or discharge is being contested
in good faith by appropriate proceedings and as to which adequate reserves are
being maintained in accordance with generally accepted accounting principles.

               8.1.7.     Notice. 
Promptly give notice to the Lender of: (i)
any condition, event or act which constitutes an Event of Acceleration or
which, with the giving of notice or lapse of time, or both, would constitute an
Event of Acceleration and (ii) any other event or fact that may likely have a
Material Adverse Effect.  

               8.1.8.     Inspection. 
Permit any person designated by the Lender
to visit and inspect any of its properties, to examine its books and records
and to discuss its affairs, finances and accounts with its officers and key
employees at such reasonable times and as often as may be reasonably requested
by Lender, provided that such person shall have entered into a confidentiality agreement with the Company in
customary form reasonably acceptable to the Company and the Lender. 

               8.1.9.     Information. 
Furnish to the Lender from time to time: (a)
as promptly as practical, such monthly, quarterly and annual financial
statements as Lender may request, all of which financial statements (i) shall be
prepared in accordance with generally accepted accounting principles
consistently applied and (ii) in the case of any annual financial statements,
shall be audited by the Company’s independent certified public accountants, (b)
such annual or quarterly budgets and forecasts as Lender may reasonably request
from time to time, (c) as promptly as practical upon filing, all forms,
reports, registration statements, proxy statements and other documents filed by
it with the SEC, and (d) such other information concerning its business,
operations, properties, conditions (financial or other) or prospects as the
Lender may reasonably request.

     8.2.    Use
of Installments.  The Installments
received by the Company hereunder shall only be used by the Company to fund the
working capital needs of the Company and/or its Subsidiaries as reasonably
determined by the Company.  

9.            Negative Covenants.

     9.1.    Covenants.  Until such time that (i) all
amounts payable by the Company under this Agreement shall have been paid in
full and (ii) the Lender shall not be under any obligation under this Agreement
to provide Installments to the Company, the Company shall not, and shall not permit any of the Subsidiaries
to:

               9.1.1.     Liens. 
Create, incur, assume or permit to exist any
mortgage, deed of trust, pledge, security interest, lien or other encumbrance
upon or with respect to any of its property (real or personal, tangible or
intangible) whether now owned or hereafter acquired other than the security
interest granted under the Loan Documents, which are set forth in the Company
Disclosure Schedule, and such other security interests which may arise pursuant
to the terms of lease or license agreements entered into in the ordinary course
of business.

               9.1.2.     Indebtedness. 
Other than pursuant to the Loan Documents
and other than as set forth in the Company Disclosure Schedule, create, incur
or become liable in respect of any indebtedness (other than trade accounts
payable and accrued expenses incurred in the ordinary course of business or
indebtedness among the Company and its Subsidiaries) or assume, guarantee or
become contingently liable upon any obligation or indebtedness of any person or
entity.

               9.1.3.     Merger. 
(i) Wind up, liquidate or dissolve its
business or affairs, (ii) enter into any merger, consolidation or other
business combination transaction or (iii) other than in the ordinary course of
business, purchase or acquire any part of the property or assets of any other
person or entity, (iv) other than in the ordinary course of business, sell,
lease, transfer or otherwise dispose of any part of its property or assets or
(v) other than the Subsidiaries of the Company in existence on the date hereof,
organize or own any Subsidiaries (unless each such new Subsidiary grants the
Lender a security interest on all its assets and executes such agreements,
documents, and instruments and takes such other action as Lender may reasonably
request) or make any investment in any other Person. Nothing in this Agreement
shall prevent the liquidation, winding up or dissolution of any of the
Company’s Subsidiaries or the merger, consolidation or other business
combination transaction among the Company and its Subsidiaries. 

               9.1.4.     Business. 
Engage (directly or indirectly) in any
business other than the business in which it is engaged on the date hereof or
businesses ancillary thereto.

10.          Acceleration.

     10.1.  Upon the occurrence of
an Event of Acceleration and at any time thereafter, if any Event of
Acceleration shall then be continuing, the Lender, by written notice to the
Company, may (i) declare the Outstanding Principal Amount, and accrued Interest
thereon, to be, whereupon the same, together with any other amounts owing by
the Company under the Loan Documents shall become, forthwith due and payable
without further presentment, demand, protest or other notice of any kind, all
of which are expressly waived by the Company, whereupon the Lender may proceed
to exercise all of its rights and remedies against the Company under the Loan
Documents and under applicable law and/or (ii) declare its obligation to make
further Installments terminated, whereupon such obligations shall be
terminated; provided, however, that if an Event of Acceleration described in
Section 10.3.4. should occur, the result which would otherwise occur only upon
the giving of written notice to the Company, as specified above, shall occur
automatically without the giving of such notice.

     10.2.  The Company shall
promptly notify the Lender of the occurrence of any Event of Acceleration.

     10.3.  Each of
the events set out below in this Section 10.3 shall be an “Event
of Acceleration”:

               10.3.1.   The
Company or any of its Subsidiaries does not pay any amount payable by it under
the Loan Documents when due and such default shall continue unremedied for more
than five (5) Business Days after written notice by the Lender to the Company;

               10.3.2.   Default
shall be made by the Company or any of its Subsidiaries in the due observance
or performance of any other covenant or condition contained in any of the Loan
Documents required to be observed or performed by it which default is not
remedied within 30 days after written notice from Lender.

               10.3.3.   Any
representation or warranty made by the Company or any of its Subsidiaries in
the Loan Documents is incorrect or misleading in any material respect when made
(or deemed made); 

               10.3.4.   The
Company or any of its Subsidiaries commences, or there is commenced against
either of the Company or any of its Subsidiaries (or any of its assets), any
proceedings under any bankruptcy, insolvency, reorganization, receivership,
relief of debtors, dissolution, liquidation or similar law of any jurisdiction
and, if such proceedings are commenced against the Company or any of its
Subsidiaries, such proceedings are not dismissed within 60 days after the
institution thereof; the Company or any of its Subsidiaries admits in writing
its inability to pay its debts generally as such debts become due; a court of
competent jurisdiction enters an order, judgment or decree appointing a
custodian, receiver, trustee, liquidator or conservator of the Company or any
of its Subsidiaries or of the whole or any substantial part of its properties
which order, judgment or decree is not dismissed within 60 days after the
giving thereof; or the Company or any of its Subsidiaries makes a general
assignment for the benefit of creditors;

               10.3.5.   One
or more judgments for payment of money in excess of $ 250,000 in the aggregate
shall be rendered against the Company or any of its Subsidiaries and such
judgments, decrees or orders shall continue unsatisfied and in effect for a
period of 30 consecutive days without being vacated, discharged, satisfied or
stayed or bonded pending appeal;

               10.3.6.   The
Company or any of its subsidiaries shall:  (i) fail to
pay any installment of principal of, or interest on, any other indebtedness for
borrowed money in a principal amount which exceeds $ 200,000 (“Other Debt”), whether now or at any time
hereafter outstanding, whether at maturity, by call for redemption,
acceleration, declaration or otherwise or (ii) fail to perform or observe any
term, covenant or condition on its part to be performed or observed under any
agreement or instrument relating to any such Other Debt, when required to be
performed or observed, if the effect of such failure to perform or observe is
to accelerate, or to permit the acceleration of, the maturity of such Other
Debt or any such Other Debt shall be declared to be due and payable or required
to be prepaid (other than by a regularly scheduled required prepayment) prior
to the stated maturity thereof;

               10.3.7.   A
breach by the Company of Section 11 herein which is not cured within 30 days after written notice from Lender;

               10.3.8.   A
Change of Control shall have been consummated; or 

               10.3.9.   Any
event or series of events occur(s), which, in the reasonable opinion of the
Lender, after discussion with the Company, is likely to have a material adverse effect
on the ability of the Company to pay any amount payable by it under this
Agreement when due. This Section
10.3.9 shall only apply at such times that the Outstanding Principal Amount
exceeds five million US dollars (US $ 5,000,000).

11.          Nominees to the Board.

     11.1.  Subject to Section 11.2
below, during the period commencing on the Closing Date and ending on such date
that (i) all amounts payable by the Company under this Agreement
shall have been paid in full and (ii) the Lender shall not be under any
obligation under this Agreement to provide Installments to the Company, the Lender shall have the right to
nominate up to two (2) persons to serve as directors on the Board (the “Nominees”). Subject to Section 11.2 below, a
Nominee shall be appointed by the
Board if permitted under the Company’s Articles of Association and Law, or
shall be recommended for election as directors to the Board in a proxy
statement to the Company’s shareholders. Mr. Leslie Banwart shall be considered
to be a Nominee for so long as he serves on the Board, it being recorded that
Mr. Leslie Banwart serves as a director on the Board on the date of this
Agreement. In the event that Mr. George Morris, who serves as a director on the
Board on the date of this Agreement, shall not serve as a director on the
Board, then, at such time or times, the Lender shall have the right to nominate
one (1) additional person (three (3) in total) as a Nominee, such that in such
case, the Lender shall have the right to nominate up to three (3) persons to
serve as directors on the Board pursuant to this Section 11.1.  In the event that the Board does not accept
a person named by Lender as a Nominee due to reasons set forth in Section 11.2,
Lender shall have the continuing right to nominate such additional persons
until such time as the Board shall appoint Lender’s Nominee. 

     11.2.  A Nominee shall be
appointed to the Board as contemplated by Section 11.1 subject to each of the
following: 

               11.2.1.   The
identity of the Nominee shall be approved by the Board, which approval shall
not be unreasonably withheld; 

               11.2.2.   The
appointment of the Nominee must not, in the reasonable opinion of the Board,
cause or likely cause the Company not to qualify as a “foreign private issuer”
as such term is defined under Rule 3b-4 of the Exchange Act; 

               11.2.3.   The
appointment of the Nominee must not, in the reasonable opinion of the Board,
cause or likely cause the Company to be in breach of the NASDAQ Marketplace
Rules, including NASDAQ Marketplace Rule 4350(c); and 

               11.2.4.   The
appointment of the Nominee must not, in the reasonable opinion of the Board,
cause or likely cause the Company to be in breach of any other Law or Order
applicable to the Company. 

     Provided, however, that the Company shall
take reasonable steps to otherwise comply with the requirements of such Law or
Order prior to determining that a Nominee shall not be appointed or named, as
the case may be.  

12.          Termination.

     12.1.  The Company may
terminate this Agreement at any time by providing the Lender with a written
notice to such effect (the “Termination Letter”), provided that upon the
termination by the Company as aforesaid, all amounts payable by
the Company under this Agreement shall have been paid in full. Following such
termination, the Lender shall not be under any obligation under this Agreement
to provide Installments to the Company and the Availability Period shall
terminate.

13.          Miscellaneous.

     13.1.  Each of
the parties hereto shall use commercially reasonable efforts to proceed
promptly with the transactions contemplated herein, to fulfill the conditions
precedent for such party’s benefit and shall perform such further acts and execute such further documents as
may reasonably be necessary to carry out and give full effect to the provisions
of the Loan Documents and the intentions of the parties as reflected
therein.  

     13.2.  Except as otherwise
expressly limited herein, the provisions hereof shall inure to the benefit of,
and be binding upon, the successors, assigns, heirs, executors, and
administrators of the parties hereto.  

     13.3.  None of the rights,
privileges, or obligations set forth in, arising under, or created by this
Agreement may be assigned or transferred by either party hereto without the
prior consent in writing of the other party, which consent shall not be
unreasonably withheld.  

     13.4.  This Agreement, its
exhibits and schedules and the agreements, documents and
instruments to be executed and delivered pursuant hereto or thereto constitute
the final, complete and exclusive agreement among the parties with respect to
the subject-matters hereof and thereof, and supersede all prior agreements,
understandings and representations, written or oral, with respect thereto. The preamble, exhibits and schedules
hereto constitute an integral part hereof. 
The section headings of this Agreement are for convenience of
reference only and shall not be deemed to alter or affect any provision hereof.
Unless the context otherwise requires, references to (or to any specified
provision of) this Agreement or any other document shall be construed as
references to that provision or that document as in force for the time being
and as amended, supplemented, modified or replaced in accordance with the terms
thereof. Words importing the plural shall include the singular and vice versa.
Any reference in this Agreement to a Law or to a specific section thereof shall
be construed as a reference to such Law or section as the same may have been,
or may from time to time be, amended, succeeded or re-enacted.

     13.5.  This
Agreement may not be amended, modified, altered or supplemented other than by
means of a written instrument duly executed and delivered on behalf of the
Company and the Lender.

     13.6.  This
Agreement may be executed simultaneously in any number of counterparts
(including by facsimile), each of which shall be deemed an original but all of
which together shall constitute one and the same instrument. 

     13.7.  No
failure on the part of any party to exercise any power, right, privilege or
remedy under this Agreement, and no delay on the part of any party in
exercising any power, right, privilege or remedy under this Agreement, shall
operate as a waiver of such power, right, privilege or remedy; and no single or
partial exercise of any such power, right, privilege or remedy shall preclude
any other or further exercise thereof or the exercise of any other power,
right, privilege or remedy.

     13.8.  All representations and
warranties made in this Agreement shall continue to remain in full force and
effect for as long as this Agreement is still in effect pursuant to its
terms.  

     13.9.  All notices and other
communications required or permitted hereunder to be given to a party to this
Agreement shall be in writing and shall be sent by facsimile or mailed by
registered or certified mail, postage prepaid, or by electronic mail, or
otherwise delivered by hand or by messenger, addressed to such party’s address
as set forth below or such other address a party shall furnish to other party
in accordance with this Section 13.9:

	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  if to the Company:

  	
   

  	
  Arel Communications and Software Ltd.

  
	
   

  	
   

  	
   

  	
  22 Einstein St., Park Hamadah, Building 22

  
	
   

  	
   

  	
   

  	
  Kiryat Weizman, Nes Ziona, 

  
	
   

  	
   

  	
   

  	
  Israel 

  
	
   

  	
   

  	
   

  	
  74140

  
	
   

  	
   

  	
   

  	
  Fax:+972-8-940-8118

  
	
   

  	
   

  	
   

  	
  E-mail: dyelin@arelcom.com

  
	
   

  	
   

  	
   

  	
  Attention: Chief Financial Officer 

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  with a copy to

  	
   

  	
  Yigal Arnon & Co.

  
	
   

  	
  (which shall not constitute notice):

  	
   

  	
  One Azrieli Center

  
	
   

  	
   

  	
   

  	
  46th Floor - Round Tower

  
	
   

  	
   

  	
   

  	
  Tel-Aviv, Israel

  
	
   

  	
   

  	
   

  	
  67021

  
	
   

  	
   

  	
   

  	
  Fax: +972-3-608-7714

  
	
   

  	
   

  	
   

  	
  Attention: 

  	
  David H. Schapiro, Adv.

  
	
   

  	
   

  	
   

  	
   

  	
  Ari Fried, Adv.

  
	
   

  	
   

  	
   

  	
  E-mail: davids@arnon.co.il

  
	
   

  	
   

  	
   

  	
               arif@arnon.co.il

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  if to the Lender:

  	
   

  	
  Cetus, Corp.

  
	
   

  	
   

  	
   

  	
  6450 Sand Lake Road, Suite 200

  
	
   

  	
   

  	
   

  	
  Dayton, Ohio 45414-2645

  
	
   

  	
   

  	
   

  	
  USA 

  
	
   

  	
   

  	
   

  	
  Fax: 937-264-4635

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  with a copy to

  	
   

  	
  Frederick J. Caspar, Esq.

  
	
   

  	
  (which shall not constitute notice):

  	
   

  	
  Chernesky,
  Heyman & Kress P.L.L.

  
	
   

  	
   

  	
   

  	
  10
  Courthouse Plaza SW, Suite 1100

  
	
   

  	
   

  	
   

  	
  Dayton, OH
  45402

  
	
   

  	
   

  	
   

  	
  Fax:
  937-449-2821

  
	
   

  	
   

  	
   

  	
  fjc@chklaw.com

  

Any notice sent in accordance with this Section 13.9 shall be effective
(i) if mailed, two (2) Business Days upon receipt, (ii) if sent by messenger,
upon delivery, and (iii) if sent via facsimile or electronic mail, upon
transmission and electronic confirmation of receipt or (if transmitted and
received on a non-Business Day on the first Business Day following transmission
and electronic confirmation of receipt).

     13.10. Each
party shall bear its own expenses and costs in relation to the transactions
contemplated hereby (including in connection with the preparation, negotiation
and execution of this Agreement and all documents ancillary thereto),
including, but not limited to, reasonable fees of attorneys and financial
advisors (the “Expenses”). Notwithstanding the previous sentence, within seven
(7) Business Days of the Closing Date or the date set forth in Section 2.2.1, if the Closing has not occurred by such date, the
Company shall
reimburse the Lender for the Lender’s Expenses in an amount that shall not
exceed fifty thousand US dollars ($ 50,000). 

     13.11. The
Company shall pay the Lender’s reasonable expenses incurred in connection with
the enforcement of any of the Loan Documents or the collection of any of the
obligations thereunder, including reasonable fees and expenses of counsel
retained by the Lender.  

     13.12. This agreement shall be governed in all
respects by and construed and enforced in accordance with the laws of the State
of Israel, without application of the conflict of laws principles thereof. The
competent courts of Tel Aviv-Jaffa or Jerusalem shall have exclusive
jurisdiction upon any dispute arising hereunder and the parties hereto consent
to the jurisdiction of such courts (and of the appropriate appellate courts
therefrom).

     13.13. If
any provision of this Agreement is held by a court of competent jurisdiction to
be unenforceable under applicable Law, then such provision shall be excluded
from this Agreement and the remainder of this Agreement shall be interpreted as
if such provision were so excluded and shall be enforceable in accordance with
its terms; provided, however, that in such event this Agreement shall be
interpreted so as to give effect, to the greatest extent consistent with and
permitted by applicable Law, to the meaning and intention of the excluded
provision as determined by such court of competent jurisdiction.

     13.14. The
parties hereto acknowledge that the Company is a publicly traded company and as
such is entitled to disclose the existence, execution or the terms and conditions
of this Agreement
without
any further consent of the Lender. Subject to the previous sentence, no
publicity release or announcement concerning this Agreement or the transactions
contemplated herein may be made by either party without the advance written
approval as to its form and substance by the other party hereto.  

IN
WITNESS WHEREOF the parties have signed this Loan Agreement in one or more
counterparts as of the date first appearing above.

	
   

  	
   

  	
   

  
	
  Arel Communications and

  Software Ltd.

  	
   

  
	
   

  	
   

  	
   

  
	
  By:
  

  	
   

  	
   

  
	
  

  	
   

  
	
   

  	
   

  
	
  Name:

  	
   

  
	
  

  	
   

  
	
   

  	
   

  	
   

  
	
  Title:
  

  	
   

  	
   

  
	
  

  	
   

  
	
   
  

  	
   

  	
   

  
	
  Cetus Corp.

  	
   

  
	
   

  	
   

  	
   

  
	
  By:
  

  	
   

  	
   

  
	
  

  	
   

  
	
   

  	
   

  
	
  Name: 

  	
   

  
	
  

  	
   

  
	
   

  	
   

  	
   

  
	
  Title:

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00086-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00086-of-00352.parquet"}]]