Document:

Exhibit 10.10

 

WhiteSmoke, Inc

 

WhiteSmoke Israel Ltd.

 

THE WHITESMOKE 2006 SHARE OPTION PLAN

 

	
1.

	
NAME

 

This Plan, as amended from time to time, shall be known as the WhiteSmoke 2006 Share Option Plan ("Plan").

 

	
2.

	
PURPOSE OF THE PLAN

 

The purpose of the Plan is to afford an incentive to employees of WhiteSmoke Israel Ltd., an Israeli company ("Subsidiary"), persons of training, experience and ability, to attract new employees directors, consultants and service providers, whose services are considered valuable, to encourage the sense of proprietorship of such persons, and to stimulate the active interest of such persons in the development and financial success of the Company by providing them with opportunities to purchase Shares (as defined below) in the Company, pursuant to the Plan approved by the Subsidiary's board of directors and by the board of directors of WhiteSmoke, Inc., a Delaware corporation which is the Subsidiary's parent company ("Company", "Board", respectively).

 

	
3.

	
DEFINITIONS

 

As used herein, the following definitions shall apply:

 

	
3.1

	
"Subsidiary" means WhiteSmoke Israel Ltd., which is an "employing company" within the meaning of Section 102(a) of the Ordinance.

 

	
3.2

	
"Approved 102 Option" means an Option granted pursuant to Section 102(b) of the Ordinance and held in trust by a Trustee for the benefit of the Optionee.

 

	
3.3

	
"Capital Gain Option (CGO)" as defined in Section 6.4 below.

 

	
3.4

	
"Cause" means, (i) conviction of any felony involving moral turpitude or affecting the Company or the Subsidiary; (ii) any refusal to carry out a reasonable directive of the chief executive officer, the Board or the Optionee's direct supervisor, which involves the business of the Company or the Subsidiary and was capable of being lawfully performed; (iii) embezzlement of funds of the Company or the Subsidiary; (iv) any breach of the Optionee's fiduciary duties or duties of care of the Company or of the Subsidiary; including without limitation disclosure of confidential information of the Company or the Subsidiary; and (v) any conduct (other man conduct in good faith) reasonably determined by the Board to be materially detrimental to the Company or the Subsidiary.

 

  

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3.5

	
"Committee" means a share option compensation committee appointed by the Board, which shall consist of no fewer than two members of the Board.

 

	
3.6

	
"Controlling Shareholder" shall have the meaning ascribed to it in Section 32(9) of the Ordinance.

 

	
3.7

	
"Date of Grant" means, the date of grant of an Option, as determined by the Board and set forth in the Optionee's Option Agreement.

 

	
3.8

	
"Employee" means a person who is employed by the Subsidiary, including an individual who is serving as a director an office holder, but excluding Controlling Shareholder.

 

	
3.9

	
"Expiration Date" means the date upon which an Option shall expire, as set forth in Section 12.2 of the Plan.

 

	
3.10

	
"Fair Market Value" means as of any date, the value of a Share determined as follows:

 

	
  

	
(i)

	
If the Shares are listed on any established stock exchange or a national market system, the Fair Market Value shall be the closing sales price for such Shares (or the closing bid, if no sales were reported), as quoted on such exchange or system for the last market trading day prior to time of determination, as reported in the Wall Street Journal, or such other source as the Board deems reliable.  Without derogating from the above, solely for the purpose of determining the tax liability pursuant to Section 102(b)(3) of the Ordinance, if at the Date of Grant the Company's shares are listed on any established stock exchange or a national market system or if the Company's shares will be registered for trading within ninety (90) days following the Date of Grant, the Fair Market Value of a Share at the Date of Grant shall be determined in accordance with the average value of the Company's shares on the thirty (30) trading days preceding the Date of Grant or on the thirty (30) trading days following the date of registration for trading, as the case may be;

 

	
  

	
(ii)

	
If the Shares are regularly quoted by a recognized securities dealer but selling prices are not reported, the Fair Market Value shall be the mean between the high bid and low asked prices for the Shares on the last market trading day prior to the day of determination; or

 

	
  

	
(iii)

	
In the absence of an established market for the Shares, the Fair Market Value thereof shall be determined in good faith by the Board.

 

	
3.11

	
"ITA" means the Israeli Tax Authorities.

 

	
3.12

	
"Non-Employee" means a consultant, adviser, service provider, Controlling Shareholder (including Controlling Shareholders that are employed by the Subsidiary) or any other person who is not an Employee.

 

	
3.13

	
"Ordinary Income Option (OIO)" as defined in Section 6.5 below.

 

  

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3.14

	
"Option" means an option to purchase one or more Shares of the Company pursuant to the Plan including, 102 Option and 3(i) Option.

 

	
3.15

	
"102 Option" means any Option granted to Employees pursuant to Section 102 of the Ordinance.

 

	
3.16

	
"3(i) Option" means an Option granted pursuant to Section 3(i) of the Ordinance to any person who is Non- Employee.

 

	
3.17

	
"Optionee" means a person who receives or holds an Option under the Plan.

 

	
3.18

	
"Option Agreement" means the share option agreement between the Company and an Optionee that sets out the terms and conditions of an Option.

 

	
3.19

	
"Ordinance" means the Israeli Income Tax Ordinance [New Version] 1961 as now in effect or as hereafter amended.

 

	
3.20

	
"Purchase Price" means the price for each Share subject to an Option.

 

	
3.21

	
"Section 102" means section 102 of the Ordinance as now in effect or as hereafter amended.

 

	
3.22

	
"Share" means the Company's share of common stock, of US$ 0.01 par value per share.

 

	
3.23

	
"Successor Company" means any entity the Company is merged to or is acquired by, in which the Company is not the surviving entity.

 

	
3.24

	
"Transaction" means (i) merger, acquisition or reorganization of the Company with one or more other entities in which the Company is not the surviving entity, (ii) a sale of all or substantially all of the assets of the Company.

 

	
3.25

	
"Trustee" means any individual appointed by the Company and the Subsidiary to serve as a trustee and approved by the ITA, all in accordance with the provisions of Section 102(a) of the Ordinance.

 

	
3.26

	
"Unapproved 102 Option" means an Option granted pursuant to Section 102(c) of the Ordinance and not held in trust by a Trustee.

 

	
3.27

	
"Vested Option" means any Option, which has already been vested according to the Vesting Dates.

 

	
3.28

	
"Vesting Dates" means, as determined by the Board, the date as of which the Optionee shall be entitled to exercise the Options or part of the Options, as set forth in section 14 of the Plan.

 

	
4.

	
ADMINISTRATION OF THE PLAN

 

	
4.1

	
The Board shall have the power to administer the Plan, either directly or upon the recommendation of the Committee, all as provided by applicable law and in the Company's Certificate of Incorporation and Bylaws.  Notwithstanding the above, the Board shall automatically have a residual authority if no Committee shall be constituted or if such Committee shall cease to operate for any reason whatsoever.

 

  

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4.2

	
The Committee shall select one of its members as its chairman ("Chairman") and shall hold its meetings at such times and places as the Chairman shall reasonably determine.  The Committee shall keep records of its meetings and shall make such rules and regulations for the conduct of its business as it shall deem advisable.  Any member of such Committee shall be eligible to receive Options under the Plan while serving on the Committee, unless otherwise specified herein.

 

	
4.3

	
The Committee shall recommend the Board and the Board shall have full power and authority regarding:

 

	
  

	
a.

	
The participants;

 

	
  

	
b.

	
The terms and provisions of respective Option Agreements (which need not be identical) including, but not limited to, the number of Shares to be covered by each Option, provisions concerning the time, or times when and the extent to which the Options may be exercised and the nature and duration of restrictions as to transferability or restrictions constituting substantial risk of forfeiture;

 

	
  

	
c.

	
Acceleration of the right of an Optionee to exercise, in whole or in part, any previously granted Option;

 

	
  

	
d.

	
Make an election as to the type of Option to be granted.

 

	
4.4

	
The Committee shall have full power and authority to:

 

	 	
a. 

	
Interpret the provisions and supervise the administration of the Plan;

 

	 	
b. 

	
Determine the Fair Market Value of the Shares;

 

	
  

	
c.

	
Determine any other matter which is necessary or desirable for, or incidental to administration of the Plan.

 

	
4.5

	
Notwithstanding the above, the Board shall have sole discretion in determining the identity of each of the Optionees, the number of Option to be granted to such Optionee and the number of Shares covered by each Option.

 

	
4.6

	
The Board' shall have the authority to grant, in its discretion, to the holder of an outstanding Option, in exchange for the surrender and cancellation of such Option, a new Option having a Purchase Price equal to, lower than or higher than the Purchase Price provided in the Option so surrendered and canceled, and containing such other terms and conditions as the Committee may prescribe in accordance with the provisions of the Plan.

 

  

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4.7

	
All decisions and selections made by the Board or the Committee pursuant to the provisions of the Plan shall be made by a majority of its members except that no member of the Board or the Committee shall vote on, or be counted for quorum purposes, with respect to any proposed action of the Board or the Committee relating to any Option to be granted to that member.  Any decision reduced to writing and signed by all of the members who are authorized to make such decision shall be fully effective as if it had been made at a meeting duly held.

 

	
4.8

	
The interpretation and construction by the Committee of any provision of the Plan or of any Option thereunder shall be final and conclusive unless otherwise determined by the Board.

 

	
4.9

	
Subject to the Company's decision and to all approvals legally required, including, but not limited to the provisions of any applicable law and of the Company's Certificate of Incorporation, each member of the Board or the Committee shall be indemnified and held harmless by the Company against any cost or expense (including counsel fees) reasonably incurred by such member, or any liability (including any sum paid in settlement of a claim with the approval of the Company) arising out of any act or omission to act in connection with the Plan unless arising out of such member's own fraud or bad faith, to the extent permitted by applicable law. Such indemnification shall be in addition to any rights of indemnification the member may have as a director otherwise under me Company's Certificate of Incorporation, any agreement, any vote of shareholders or disinterested directors, insurance policy or otherwise.

 

	
5.

	
DESIGNATION OF PARTICIPANTS

 

	
5.1

	
The persons eligible for participation in the Plan as Optionees shall include any Employees and/or Non-Employees of the Company or of the Subsidiary; provided, however, that (i) Employees may only be granted 102 Options; (ii) Non-Employees may only be granted 3(i) Options; and (iii) Controlling Shareholders may only be granted 3(i) Options.

 

	
5.2

	
The grant of an Option hereunder shall neither entitle the Optionee to participate nor disqualify the Optionee from participating in, any other grant of Options pursuant to the Plan or any other option or share plan of the Company or the Subsidiary.

 

	
5.3

	
Anything in the Plan to the contrary notwithstanding, all grants of Options to directors and office holders shall be authorized and implemented in accordance with the provisions of any applicable law.

 

	
6.

	
DESIGNATION OF OPTIONS PURSUANT TO SECTION 102

 

	
6.1

	
The Company may designate Options granted to Employees pursuant to Section 102 as Unapproved 102 Options or Approved 102 Options.

 

	
6.2

	
The grant of Approved 102 Options shall be made under this Plan adopted by the Board and shall be conditioned upon the approval of this Plan by the ITA.

 

	
6.3

	
Approved 102 Option may either be classified as Capital Gain Option ("CGO") or Ordinary Income Option ("OIO").

 

  

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6.4

	
Approved 102 Option elected and designated by the Company to qualify under the capital gain tax treatment in accordance with the provisions of Section 102(b)(2) shall be referred to herein as CGO.

 

	
6.5

	
Approved 102 Option elected and designated by the Company to qualify under the ordinary income tax treatment in accordance with the provisions of Section 102(b)(1) shall be referred to herein as OIO.

 

	
6.6

	
The Company's election of the type of Approved 102 Options as CGO or OIO granted to Employees ("Election"), shall be appropriately filed with the ITA before the Date of Grant of an Approved 102 Option.  Such Election shall become effective beginning the first Date of Grant of an Approved 102 Option under tins Plan and shall remain in effect until the end of the year following the year during which the Company first granted Approved 102 Options.  The Election shall obligate the Company to grant only the type of Approved 102 Option it has elected, and shall apply to all Optionees who were granted Approved 102 Options during the period indicated herein, all in accordance with the provisions of Section 102(g) of the Ordinance.  For the avoidance of doubt, such Election shall not prevent the Company from granting Unapproved 102 Options simultaneously.

 

	
6.7

	
All Approved 102 Options must be held in trust by a Trustee, as described in Section 7 below.

 

	
6.8

	
For the avoidance of doubt, the designation of Unapproved 102 Options and Approved 102 Options shall be subject to the terms and conditions set forth in Section 102 of the Ordinance and the regulations promulgated hereunder.

 

	
6.9

	
With regards to Approved 102 Options, the provisions of the Plan and/or the Option Agreement shall be subject to the provisions of Section 102 and any regulations and permit promulgated thereunder, and the said provisions and permit shall be deemed an integral part of the Plan and of the Option Agreement.  Any provision of Section 102 and/or the said permit which is necessary in order to receive and/or to keep any tax benefit pursuant to Section 102, which is not expressly specified in the Plan or the Option Agreement, shall be considered binding upon the Company and the Optionees.

 

	
7.

	
TRUSTEE

 

	
7.1

	
Approved 102 Options which shall be granted under the Plan and/or any Shares allocated or issued upon exercise of such Approved 102 Options and/or other shares received subsequently following any realization of rights, including without limitation bonus shares, shall be allocated or issued to the Trustee and held for the benefit of the Optionees for such period of time as required by Section 102 or any regulations, rules or orders or procedures promulgated thereunder ("Holding Period").  If the requirements for Approved 102 Options are not met, then the Approved 102 Options may be treated as Unapproved 102 Options, all in accordance with the provisions of Section 102 and regulations promulgated thereunder.  •

 

	
7.2

	
Notwithstanding anything to the contrary, the Trustee shall not release any Shares allocated or issued upon exercise of Approved 102 Options prior to the full payment of the Optionee's tax liabilities arising from Approved 102 Options which were granted to him and/or any Shares allocated or issued upon exercise of such Options.

 

  

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7.3

	
With respect to any Approved 102 Option, subject to the provisions of Section 102 and any rules or regulation or orders or procedures promulgated thereunder, an Optionee shall not sell or release from trust any Share received upon the exercise of an Approved 102 Option and/or any share received subsequently following any realization of rights, including without limitation, bonus shares, until the lapse of the Holding Period required under Section 102.  Notwithstanding the above, if any such sale or release occurs during the Holding Period, the sanctions under Section 102 and under any rules or regulation or orders or procedures promulgated thereunder shall apply to and shall be borne by such Optionee.

 

	
7.4

	
Upon receipt of Approved 102 Option, the Optionee will sign an undertaking to release the Trustee from any liability in respect of any action or decision duly taken and bona fide executed in relation with the Plan, or any Approved 102 Option or Share granted to him thereunder.

 

	
8.

	
SHARES RESERVED FOR THE PLAN; RESTRICTION THEREON

 

	
8.1

	
The Company has reserved 231,289 authorized but unissued Shares in the share capital of the Company, for the purposes of the Plan, subject to adjustment as set forth in paragraph 10 below.  Any of such Shares covered by the Plan, which remain unissued and are not subject to outstanding Options at the termination of the Plan, shall cease to be reserved for the purpose of the Plan.  Should any Option for any reason expire or be canceled prior to its exercise in full, the Shares therefore subject to such Option may again be subjected to an Option under the Plan.

 

	
8.2

	
Until the consummation of a public offering of the Company's Shares ("IPO") the Shares issued upon the exercise of the Options shall be voted by an irrevocable proxy ("Proxy") pursuant to the directions of the Board, such Proxy to be assigned to the person or persons designated by the Board.  Such person or persons designated by the Board shall be indemnified and held harmless by the Company against any cost or expense (including counsel fees) reasonably incurred by that person, or any liability (including any sum paid in settlement of a claim with the approval of the Company) arising out of any act or omission to act in connection with the voting of such Proxy unless arising out of such member's own fraud or bad faith, to the extent permitted by applicable law.  Such indemnification shall be in addition to any rights of indemnification the person(s) may have as a director otherwise under the Company's Certificate of Incorporation and Bylaws, any agreement, any vote of shareholders or disinterested directors, insurance policy or otherwise.  Without derogating from the above, with respect to Approved 102 Options, such shares shall be voted in accordance with the provisions of Section 102 and any rules, regulations or orders promulgated thereunder.

 

	
8.3

	
Each Option granted pursuant to the Plan, shall be evidenced by a written Option Agreement in such form as the Board or the Committee shall from time to time approve.  Each Option Agreement shall state a number of the Shares to which the Option relates and the type of Option granted thereunder whether a CGO, OIO, Unapproved 102 Option or a 3(i) Option).

 

  

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8.4

	
Subject to the provisions of Section 14 below, the holders of Options shall not have any of the rights or privileges of shareholders of the Company in respect of any Shares purchasable upon the exercise of any part of an Option, nor shall they be deemed to be a class of shareholders or creditors of the Company, until registration of the Optionee as holder of such Shares in the Company's register of members upon exercise of the Option in accordance with the provisions of the Plan, but in case of Options and Shares held by the Trustee, subject to the provisions of Section 7 of the Plan.

 

	
9.

	
PURCHASE PRICE

 

	
9.1

	
The Purchase Price of each Share subject to an Option granted or any portion thereof shall be determined by the Committee in its sole and absolute discretion in accordance with applicable law, subject to any guidelines as may be determined by the Board from time to time.  Each Option Agreement will contain the Purchase Price determined for each Optionee, and in any event not less than the nominal value of the shares subject to the Option.

 

	
9.2

	
The Purchase Price shall be payable upon the exercise of the Option in a form satisfactory to the Committee, including without limitation, by cash or check.  The Committee shall have the authority to postpone the date of payment on such terms as it may determine.

 

	
10.

	
ADJUSTMENTS

 

Upon the occurrence of any of the following described events, Optionee's rights to purchase Shares under the Plan shall be adjusted as hereafter provided:

 

	
10.1

	
In the event of a Transaction while unexercised Options remain outstanding under the Plan, men, subject to the terms and conditions of the Transaction, each unexercised Option shall be assumed, or substituted for, by an appropriate number of Options, of the same class of shares or other securities of the Successor Company (or a parent or subsidiary of the Successor Company) which were distributed to the shareholders of the Company in respect of such Shares.  In the case of such assumption and/or substitution of shares, appropriate adjustments shall be made in the Purchase Price to reflect such action, and all other terms and conditions of the Option Agreements, such as the Vesting Dates, shall remain in force, all as will be determined by the Committee whose determination shall be final.  The Company shall notify the Optionee of the Transaction in such form and method as it deems applicable at least ten (10) days prior to the effective date of such Transaction.

 

	
10.2

	
Notwithstanding the above and subject to any applicable law, unless the Board or the Committee determines otherwise with respect to certain Option Agreements, if in any such Transaction as described in section 10.1 above, the Successor Company (or parent or subsidiary of the Successor Company) does not agree to assume or substitute for the Options, all unexercised Options shall be expired as of the date of the Transaction.

 

  

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10.3

	
For the purposes of section 10.1 above, the Option shall be considered assumed or substituted if, following the Transaction, each Option confers the right to purchase or receive one Share immediately prior to the Transaction, shall be replaced by either: (i) the same consideration (whether shares, options, cash, or other securities or property) received in the Transaction by holder of one a Share held on the effective date of the Transaction (and if such holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding Shares), or (ii) an option to receive the same consideration in shares or other securities or property received in the Transaction by holder of one Share held on the effective date of the Transaction; provided, however, that if such consideration received in the Transaction is not solely shares (or their equivalent) of the Successor Company or its parent or subsidiary, the Committee may, with the consent of the Successor Company, provide for the consideration to be received upon the exercise of the Option to be solely ordinary shares (or their equivalent) of the Successor Company or its parent or subsidiary equal in Fair Market Value to the per Share consideration received by holders of a majority of the outstanding Shares in the Transaction; and provided further that the Committee may determine, in its discretion and subject to the Board's approval, that in lieu of such assumption or substitution of Options for options of the Successor Company or its parent or subsidiary, such Options will be substituted for any other type of asset or property including cash which is fair under the circumstances.

 

	
10.4

	
If the Company is liquidated or dissolved while unexercised Options remain outstanding under the Plan, then the Board in its own discretion may determine that all such outstanding Options may be exercised in full by the Optionees as of the effective date of any such liquidation or dissolution of the Company without regard to the Vesting Dates (as defined below) thereof.  If the Board determines that the outstanding Options may be exercised, all such outstanding Options may be exercised in full by the Optionees giving notice in writing to the Company of their intention to so exercise.

 

	
10.5

	
If the outstanding shares of the Company shall at any time be changed or exchanged by declaration of a share dividend (bonus shares), share split, combination or exchange of shares, recapitalization, or any other like event by or of the Company, and as often as the same shall occur, then the number, class and kind of Shares subject to the Plan or subject to any Options therefore granted, and the Purchase Price, shall be appropriately and equitably adjusted so as to maintain the proportionate number of Shares without changing the aggregate Purchase Price; provided, however, that no adjustment shall be made by reason of the distribution of subscription rights (rights offering) on outstanding shares. Upon happening of any of the foregoing, the class and aggregate number of Shares issuable pursuant to the Option Agreement in respect of which Options have not yet been exercised, shall be appropriately adjusted, all as will be determined by the Board whose determination shall be final.

 

	
10.6

	
Anything herein to the contrary notwithstanding, if prior to the completion of an IPO all or substantially all of the shares of the Company are to be sold, or upon a Transaction, reorganization or the like, all or substantially all of the shares of the Company are to be exchanged for securities of another Company, then each Optionee shall be obliged to sell or exchange, as the case may be, any Shares such Optionee purchased under the Plan, in accordance with the instructions issued by the Board in connection with the Transaction, whose determination shall be final.

 

  

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11.

	
PURCHASE FOR INVESTMENT

 

The Company's obligation to issue Shares upon exercise of an Option granted under the Plan is expressly conditioned upon (a) the Company's completion of any registration or other qualifications of such Shares under any state and/or federal law, rulings or regulations, or (b) representations and undertakings by the Optionee (or his legal representative, heir or legatee, in the event of the Optionee's death) to assure that the sale of the Shares complies with any registration exemption requirements which the Company in its sole discretion shall deem necessary or advisable. Such required representations and undertakings may include representations and agreements that such Optionee (or his legal representative, heir, or legatee): (a) is purchasing such Shares for investment and not with any present intention of selling or otherwise disposing thereof; and (b) agrees to have placed upon the face and reverse of any certificates evidencing such Shares a legend setting forth (i) any representations and undertakings which such Optionee has given to the Company or a reference thereto, and (ii) that, prior to effecting any sale or other disposition of any such Shares, the Optionee must furnish to the Company an opinion of counsel, satisfactory to the Company, that such sale or disposition will not violate the applicable laws, rules and regulations, whether of the State of Israel or of the United States, or any other State having jurisdiction over the Company and the Optionee, requirements of State and federal laws and regulatory agencies.

 

	
12.

	
TERM AND EXERCISE OF OPTIONS

 

	
12.1

	
Options shall be exercised by the Optionee by giving written notice to the Company, in such form and method as may be determined by the Company and the Trustee and when applicable, in-accordance with the requirements of Section 102, which exercise shall be effective upon receipt of such notice by the Company and the payment of the Purchase Price at its principal office.  The notice shall specify the number of Shares with respect to which the Option is being exercised.

 

	
12.2

	
Options, to the extent not previously exercised, shall terminate on the earlier of: (i) the date set forth in the Option Agreement; (ii) the expiration of any extended period in any of the events set forth in section 12.5 below; or (iii) the tenth anniversary of the Date of Grant.

 

	
12.3

	
The Options may be exercised by the Optionee in whole at any time or in part from time to time, to the extent that the Options become vested and excercisable, prior to the Expiration Date, and provided that, subject to the provisions of Section 12.5 below and unless the Board or Committee resolves otherwise, the Optionee is an employee of the Company or the Subsidiary or continuing to provide services to such entities, at all times during the period beginning with the Date of Grant of the Option and ending upon the date of exercise.

 

  

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12.4

	
Subject to the provisions of Section 12.5 below, in the event of termination of Optionee's employment with the Company or the Subsidiary or, if applicable, the termination of services given by the Optionee to the Company or the Subsidiary, all Options granted to the Optionee will immediately expire.  The date of the notice of termination of employment or services shall be deemed to constitute the date of termination of employment or services.  For the avoidance of doubt, in case of such termination of employment or service, the unvested portion of the Optionee's Option shall not vest and shall not become exercisable.

 

	
12.5

	
Notwithstanding anything to the contrary herein above, an Option may be exercised after the date of termination of Optionee's service or employment with the Company or the Subsidiary only with respect to the number of Options already vested and unexpired at the time of such termination according to the Vesting Dates and Expiration Date of the Options set forth in such Optionee's Option Agreement, if:

 

	
  

	
12.5.1

	
termination is without Cause, in which event any Vested Option still in force and unexpired may be exercised within a period of ninety (90) days after the date of such termination; or

 

	
  

	
12.5.2

	
prior to the date of such termination, the Board or Committee shall authorize an extension of the terms of all or part of the Options beyond the date of such termination for a period not to exceed the period during which the Options by their terms would otherwise have been exercisable; or

 

	
  

	
12.5.3

	
Termination is the result of death or disability of the Optionee, in which event the Vested Options may be exercised within a period of twelve (12) months from such date of termination.

 

For avoidance of any doubt, if termination of employment or service is for Cause, any outstanding unexercised Option (whether vested or non-vested), will immediately expire and terminate, and the Optionee shall not have any right in connection with such outstanding Options.

 

	
12.6

	
Any form of Option Agreement authorized by the Plan may contain such other provisions as the Committee may, from time to time, deem advisable.

 

	
12.7

	
With respect to Unapproved 102 Option, if the Optionee ceases to be employed by the Company or the Subsidiary, the Optionee shall extend to the Company and/or the Subsidiary a security or guarantee as determine by the Committee for the payment of tax due at the time of sale of Shares, all in accordance with the provisions of Section 102 and the rules, regulation or orders promulgated thereunder.

 

	
13.

	
SHARES SUBJECT TO RIGHT OF FIRST REFUSAL

 

	
13.1

	
Notwithstanding anything to the contrary in the Certificate of Incorporation and Bylaws of the Company, none of the Optionees shall have a right of first refusal in relation with any sale of shares in the Company.

 

  

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13.2

	
Sale of Shares by the Optionee shall be subject to the right of first refusal of other shareholders as set forth in the Certificate of Incorporation and Bylaws of the Company.  In the event that the Certificate of Incorporation and Bylaws of the Company shall not contain any provision regarding rights of first refusal, then, unless otherwise provided by the Board, until such time as the Company shall effectuate an IPO, the sale of Shares issuable upon exercise of an Option, shall be subject to a right of first refusal on the part of the Repurchaser(s) in accordance with the following conditions.  "Repurchaser(s)" means (i) the Company, if permitted by applicable laws; (ii) if the Company is not permitted by applicable laws to repurchase and, to the extent permitted by applicable laws, then the Subsidiary designated by a unanimous decision is reached by the Board; or (iii) if no unanimous decision is reached by the Board, then the Company's existing shareholders (save, for avoidance of doubt, for other Optionees who already exercised their Options), pro rata in accordance-with their shareholding. The Optionee shall give a notice of sale ("Notice") to the Company in order to offer the Shares to the Repurchaser(s), and the Company will forward the Notice to the Repurchaser(s).

 

	
13.3

	
The Notice shall specify the number of Shares offered for sale ("Offered Shares"), the price per Share, the payment terms the name of each proposed purchaser or other Transferee ("Proposed Transferee").

 

	
13.4

	
Any of the Repurchasers who wishes to purchase the Offered Shares shall notify the Selling Party of such Repurchasers' agreement to purchase the Offered Shares within 14 days of receipt of the Notice.

 

	
13.5

	
If any of the Repurchasers declines to purchase the Offered Shares upon the terms specified in the Notice or does not respond to the Notice within 14 days of receipt, the Optionee shall so notify all of the Repurchasers who have accepted the Notice and each of them shall be entitled to notify of their agreement to purchase any remaining shares within 7 days in. accordance with the Notice, pro rata to their respective acceptances of the Notice or otherwise as may be agreed among them.  If the Notice specifies that it is contingent upon the purchase of all of the Offered Shares, the Optionee shall be entitled to refuse to transfer the Offered Shares pursuant to the Notice if there is only a partial response to the Notice.

 

	
13.6

	
If there remain any shares that have not been acquired by the Repurchasers as specified above, and the Optionee has not exercised its right to refuse to transfer any of the Offered Shares pursuant to the Offer (as set forth above), the Optionee may sell such shares or, when applicable, all Offered Shares to a third party, provided that such sale is consummated (i) in a bona fide transaction, (ii) at a price that is not lower than that specified in the Offer, (iii) subject to payment terms that are no more favorable to the purchaser than those specified in the Offer, and (iv) within 90 days of the Notice.

 

	
14.

	
VESTING OF OPTIONS

 

	
14.1

	
Subject to the provisions of the Plan, each Option shall vest following the Vesting Dates and for the number of Shares as shall be provided in the Option Agreement.  However, no Option shall be exercisable after the Expiration Date.

 

  

- 12 -

  

	
14.2

	
An Option may be subject to such other terms and conditions on the-time or times when it may be exercised (which may be based on performance or other criteria) as the Board may deem appropriate.  The vesting provisions of individual Optionees may vary.

 

	
15.

	
DIVIDENDS

 

With respect to all Shares (but excluding, for avoidance of any doubt, any unexercised Options) allocated or issued upon tire exercise of Options purchased by the Optionee and held by the Optionee or by the Trustee, as the case may be, the Optionee shall be entitled to receive dividends in accordance with the quantity of such Shares, subject to the provisions of the Company's Certificate of Incorporation and Bylaws (and all amendments thereto) and subject to any applicable taxation on distribution of dividends, and when applicable subject to the provisions of Section 102 and the rules, regulations or orders promulgated thereunder.

 

	
16.

	
ASSIGNABILITY AND SALE OF OPTIONS

 

	
16.1

	
No Option, purchasable hereunder, whether fully paid or not, shall be assignable, transferable or given as collateral or any right with respect to them given to any third party whatsoever, and during the lifetime of the Optionee each and all of such Optionee's rights to purchase Shares hereunder shall be exercisable only by the Optionee.  Any such action made directly or indirectly, for an immediate validation or for a future one, shall be void.

 

	
16.2

	
As long as the Shares are held by the Trustee in favor of the Optionee, then all rights the latter possesses over the Shares are personal, can not be transferred, assigned, pledged or mortgaged, other than by will or laws of descent and distribution.

 

	
17.

	
TERM OF THE PLAN

 

	
17.1

	
The Plan shall be effective as of the date that it is adopted by the Board and shall terminate at the end of 10 years from such day of adoption.

 

	
17.2

	
The Company shall obtain the approval of the Company's shareholders for the adoption of this Plan or for any amendment to this Plan, if shareholders' approval is necessary or desirable to comply with any applicable law including without limitation any securities laws applicable to Options granted to Optionees under this Plan, or if shareholders' approval is required by any authority or by any governmental agencies or national securities exchanges, including (without limitation) the US Securities and Exchange Commission.

 

	
18.

	
AMENDMENTS OR TERMINATION

 

The Board may, at any time and from time to time, but after consultation with the Trustee, amend, alter or discontinue the Plan, except that no amendment or alteration shall be made which would impair the rights of the holder of any Option therefore granted, without his written consent.  Termination of the Plan shall not affect the Committee's or the Board's ability to exercise the powers granted to it hereunder with respect to the Options granted under the Plan prior to the date of such termination.

 

  

- 13 -

  

	
19.

	
GOVERNMENT REGULATIONS

 

The Plan, the granting and exercise of Options hereunder, and the obligation of the Company to sell and deliver Shares under such Options, shall be subject to all applicable laws, rules, and regulations, whether of the State of Israel or of the United States or any other State having jurisdiction over the Company and the Optionee, and to such approvals by any governmental agencies or national securities exchanges as may be required.

 

	
20.

	
CONTINUANCE OF EMPLOYMENT OR HIRED SERVICES

 

Neither the Plan nor the Option Agreement with the Optionee shall impose any obligation on the Company or the Subsidiary, to continue any Optionee in its employ, or the hiring by the Company of the Optionee's services, and nothing in the Plan or in any Option granted pursuant thereto shall confer upon any Optionee any right to continue in the employ or service of the Company or the Subsidiary or restrict the right of the Company or the Subsidiary to terminate such employment or service at any time.

 

	
21.

	
GOVERNING LAW & JURISDICTION

 

The Plan shall be governed by and construed and enforced in accordance with the laws of the State of Israel applicable to contracts made and to be performed therein, without giving effect to the principles of conflict of laws.  The competent courts of Tel-Aviv, Israel shall have sole jurisdiction in any matters pertaining to the Plan.

 

	
22.

	
TAX CONSEQUENCES

 

Any tax consequences arising from the grant or exercise of any Option, from the payment for Shares covered thereby or from any other event or act (of the Company, the Trustee or the Optionee), hereunder, shall be borne solely by the Optionee.  The Company, the Subsidiary or the Trustee, if applicable, shall withhold taxes according to the requirements under the applicable laws, rules, and regulations, including withholding taxes at source.  Furthermore, the Optionee shall agree to indemnify the Company, the Subsidiary and the Trustee and hold them harmless against and from any and all liability for any such tax or interest or penalty thereon, including without limitation, liabilities relating to the necessity to withhold, or to have withheld, any such tax from any payment made to the Optionee.  The Committee and the Trustee shall not be required to release any Share certificate to an Optionee until all required payments have been fully made.

 

	
23.

	
NON-EXCLUSIVITY OF THE PLAN

 

The adoption of the Plan by the Board shall not be construed as amending, modifying or rescinding any previously approved incentive arrangements or as creating any limitations on the power of the Board to adopt such other incentive arrangements as it may deem desirable, including, without limitation, the granting of stock Options otherwise then under the Plan, and such arrangements may be either applicable generally or only in specific cases.

 

  

- 14 -

  

For the avoidance of doubt, prior grant of options to Optionees of the Company under their employment agreements, and not in the framework of any previous option plan, shall not be deemed an approved incentive arrangement for the purpose of this Section.

 

	
24.

	
MULTIPLE AGREEMENTS

 

The terms of each Option may differ from other Options granted under the Plan at the same time, or at any other time.  The Committee may also grant more than one Option to a given Optionee during the term of the Option Plan, either in addition to, or in substitution for, one or more Options previously granted to that Optionee.

 

  

- 15 -Unassociated Document

 

Exhibit 10.12

 

AGREEMENT FOR THE PROVISION OF A LOAN FACILITY

OF UP TO US$ 1,500,000

 

Dated April __, 2008

 

between

 

Kreos Capital III Limited, a company with limited liability incorporated in Jersey under registered number 05981165 whose registered office is at 47 Esplanade, St Helier, Jersey (the “Lender”, which expression shall include its successors and assigns)

 

and

 

WhiteSmoke Israel Ltd., a company incorporated in Israel under registered number 513410910 whose registered office is at Kehilat Saloniki 11 Tel-Aviv 69513, Israel (“WhiteSmoke Ltd.”) and WhiteSmoke Inc., a Delaware corporation and the parent of WhiteSmoke Ltd., whose registered office is at 501 Silverside Road, Suite 105 Wilmington DE 19809, U.S.A (“WhiteSmoke Inc.”).

 

WHEREAS:

 

	
1.

	
The Borrower (as defined below) is or will be the legal owner of the Charged Assets (as defined below).

 

	
2.

	
The Borrower hereby confirms that it shall grant (A) a first priority fixed charge over the Equipment and the Intellectual Property of the Borrower (the “Fixed Charge”) and (B) a first priority floating charge over all the assets of the Borrower as of the date hereof or hereafter acquired (the “Floating Charge”) to the Lender as security for monies borrowed by the Borrower hereunder.

 

LOAN FACILITY TERMS:

 

	
Total Loan Facility

	 	
Up to US$1,500,000

	 	 	 
	
Date of Expiry of Loan Facility

	 	
April __, 2009 (subject to Clause 2.4 below)

	 	 	 
	
Advance Payment

	 	
Last month deposit for each Instalment

	 	 	 
	
Minimum Funding Amount per Drawdown Notice

	 	
US$250,000

	 	 	 
	
Loan Term

	 	
33 monthly payments commencing after a 3 months grace period, with respect to each Instalment drawn until October 1, 2008; and 36 monthly payments with respect to each Instalment drawn after October 1, 2008, all as further detailed in Clause 4.2.  For the avoidance of doubt, the 36 months of payment or 3 months grace period will not include the month in which the money is drawn down.

	 	 	 
	
Transaction Fee and Legal Fees

	 	
(i) Transaction Fee of US$15,000; and

(ii) Legal Fees up to US$ 10,000, both amounts upon execution of this Loan Agreement.

 

  

  

  

 

	
1.

	
DEFINITIONS

 

In this Loan Agreement, including the recitals set out above, unless otherwise defined:

 

	
1.1

	
“Advance Payment” has the meaning given in Clause 4.1 and is in the amount set forth above in the Loan Facility Terms.

 

	
1.2

	
“Applicable Interest Rate” has the meaning given in Clause 5.1.

 

	
1.3

	
“Assignee” has the meaning given in Clause 13.5.

 

	
1.4

	
“Borrower” means each of WhiteSmoke Ltd. and WhiteSmoke Inc., jointly and severally, for all matters under this Loan Agreement and the Security Documents, without reference as to which of the said entities issued any particular Drawdown Notice; Without derogating from the joint and several liability of WhiteSmoke Ltd. and WhiteSmoke Inc. hereunder, and for purposes of clarification, all references to the “Borrower” in the context of any representations, warranties, covenants or obligations of the Borrower hereunder shall be deemed to refer to each of WhiteSmoke Ltd. and WhiteSmoke Inc.

 

	
1.5

	
“Business Day” means any day on which banks are generally open for business in London and Tel Aviv.

 

	
1.6

	
“Charged Assets” means the assets, whether tangible or intangible, of the Borrower that are subject to either of the Charges.

 

	
1.7

	
“Charges” means, collectively, the Fixed Charge and the Floating Charge.

 

	
1.8

	
“Companies Registrar” means the Israeli Registrar of Companies.

 

	
1.9

	
“Contractual Currency” has the meaning given to it in Clause 4.3.

 

	
1.10

	
“Date of Expiry of the Loan Facility” means the date set forth above in the Loan Facility Terms.

 

	
1.11

	
“Drawdown Date” means, unless otherwise provided herein, in relation to each Instalment to be advanced, the date on which such Instalment is actually advanced to the Borrower by the Lender.

 

	
1.12

	
“Drawdown Notice” means a drawdown notice served in accordance with Clause 2.2 in the form attached hereto as Schedule D.

 

  

- 2 -

  

 

	
1.13

	
“Equipment” as described in Clause 2.7 (including New Equipment, as defined therein) chosen by the Borrower and approved by the Lender as listed in Schedule B and as to be amended or supplemented from time to time with the consent of the Lender.  The Equipment is and will be located within the State of Israel.

 

	
1.14

	
“Event of Default” means any of the events or circumstances described in Clause 8.

 

	
1.15

	
“Fixed Charge” has the meaning set forth in the preamble above.

 

	
1.16

	
“Floating Charge” has the meaning set forth in the preamble above.

 

	
1.17

	
“Instalment” has the meaning set forth in Clause 2.1.1.

 

	
1.18

	
“Intellectual Property” means all intellectual property owned by the Borrower, as such term is defined in the Security Documents, whether registered or unregistered.

 

	
1.19

	
“Interest Period” means in relation to the Loan and any part thereof, a period determined in Clause 5.

 

	
1.20

	
“Loan” means the loan to be made in accordance with the terms of this Loan Agreement.

 

	
1.21

	
“Loan Facility” means the loan facility granted by this Loan Agreement.

 

	
1.22

	
“Loan Term” means, with respect to each Instalment drawn until October 1, 2008, 33 monthly payments due on the first Business Day of each calendar month or, if such day is not a Business Day, the first Business Day thereafter, commencing on the first calendar month following the Grace Period (as defined below) of such Instalment, and with respect to each Instalment drawn after October 1, 2008, 36 monthly payments due on the first Business Day of each calendar month or, if such day is not a Business Day, the first Business Day thereafter, commencing on the first calendar month following the Drawdown Date of such Instalment; all as set forth in Clause 4.2.

 

	
1.23

	
“Minimum Funding Amount” means the amount set forth above in the Loan Facility Terms.

 

	
1.24

	
“Ordinary Course of Business” to the extent it relates to Intellectual Property, includes any license agreement, any distribution agreement, any OEM or similar agreement, any manufacturing agreement, any joint development agreement, or any joint venture agreement in the context of any of the above, provided, however, that an agreement that constitutes an effective transfer, or includes a potentially effective transfer, of a significant part of the technology of the Borrower will not be regarded as in the Ordinary Course of Business.  By way of example, an exclusive, perpetual, worldwide license for a core technology of the Borrower or an OEM agreement according to which a company was given an exclusive right to use a core technology for all potential applications of that technology would not be regarded as in the Ordinary Course of Business.  Any escrow agreement entered into as part of a transaction which is in the Ordinary Course of Business will be regarded as part of the Ordinary Course of Business provided that, upon the release of the escrow, the beneficiary of the escrow is entitled to use the technology of the Borrower only as may be necessary to fulfil the Borrower’s undertakings under the main transaction.  To the extent that it does not relate to Intellectual Property, any action consistent with past practices of the Borrower.

 

  

- 3 -

  

 

	
1.25

	
“Residual Assets” means the assets, whether tangible or intangible, of the Borrower that are not subject to the Fixed Charge.

 

	
1.26

	
“Security” means, collectively, the Charges granted by the Borrower in favour of the Lender as security for advancement of each and all Instalments by the Lender by way of the Security Documents.

 

	
1.27

	
“Security Documents” means the debentures and the US security agreement evidencing the Charges, the forms of which are attached as Schedule A.

 

	
1.28

	
“Security Interest” means any mortgage, pledge, lien, hypothecation, assignment by way of security, or other charge or encumbrance over, of or in the relevant property.

 

	
1.29

	
“Security Period” means the period commencing on the first Drawdown Date and ending on the date on which all amounts due and payable by the Borrower under this Loan Agreement and the Security Documents have been repaid.

 

	
1.30

	
“Taxes” means all present and future income, value added and other taxes, levies, imposts, deductions, charges and withholdings in the nature of taxes (other than taxes on the profits of the Lender) whatsoever together with interest thereon and penalties with respect thereto made on or in respect thereof other than taxes owing by the Lender).

 

	
1.31

	
“Total Loan Facility” means the amount set forth above in the Loan Facility Terms.

 

	
1.32

	
“Transaction Fee” has the meaning given in Clause 9.1 and is the amount set forth above in the Loan Facility Terms.

 

	
2.

	
LOAN FACILITY

 

	
2.1.1

	
Lender’s Commitment

 

	
  

	
Subject to Clause 2.5 below, the Lender shall and agrees hereby to make available to the Borrower a loan facility of up to US$1,500,000 under the terms of this Loan Agreement, which shall be advanced and made available by the Lender to the Borrower (subject to satisfaction of the conditions set forth in Clause 2.5.1) in one or more advances (each an “Instalment”), before the Date of Expiry of the Loan Facility.  Each Drawdown Notice shall constitute a separate and independent obligation of the Borrower incorporating the terms of this Loan Agreement.

 

	
2.1.2

	
The Lender shall not be under any commitment to advance any Instalment unless the Drawdown Notice in respect of such Instalment complies with Section 2.2 below.

 

  

- 4 -

  

 

	
2.1.3

	
In addition, The Lender shall not be under any commitment to advance any Instalment after the Date of Expiry of the Loan Facility or upon the earlier termination of the Loan Facility in accordance with Clause 2.4.

 

	
2.2

	
Date of Advance of each Instalment

 

	
2.2.1

	
The Borrower shall formally request the advance of each Instalment by delivering a completed Drawdown Notice to the Lender.  All Drawdown Notices shall be delivered to the Lender not later than 11:00am (Israel time) fifteen (15) Business Days before the relevant Drawdown Date, provided however that the Drawdown Date in connection with such Drawdown Notices shall be the fifteenth (15th) of any calendar month or, if such day is not a Business Day, the first Business Day thereafter.

 

	
  

	
For the avoidance of any doubt, it is hereby clarified that in the event that Drawdown Notice was delivered to the Lender less than fifteen (15) Business Days before the relevant Drawdown Date, then the Drawdown Date shall be postponed to the fifteenth (15th) of the following calendar month or, if such day is not a Business Day, the first Business Day thereafter.

 

	
2.2.2

	
The Borrower may not provide more than one Drawdown Notice per month.  In addition, each Drawdown Notice shall be in an amount of not less than $ 250,000.

 

	
2.2.3

	
The Loan and each Instalment thereof shall be made in US$.

 

	
2.3

	
Method of Disbursement

 

	
  

	
The payment by the Lender to the account specified in each Drawdown Notice shall constitute the making of the relevant Instalment and the Borrower shall thereupon become indebted, as principal and direct obligor, to the Lender in an amount equal to such Instalment.

 

	
2.4

	
Termination or Modification of funding commitment

 

	
  

	
The Lender’s commitment to advance any Instalment until and including the Date of Expiry of Loan Facility is limited in aggregate to the amount of the Total Loan Facility; provided, however, that the Lender, acting in its sole discretion, may terminate or modify its funding commitment at any time if:

 

	
2.4.1

	
there is any material adverse chance in the general affairs, business, management, results of operations, condition (financial or otherwise) or prospects of the Borrower, whether or not arising from transactions in the Ordinary Course of Business;

 

	
2.4.2

	
there is, in the Lender’s reasonable opinion, any accelerated depreciation (beyond GAAP depreciation) in the value of the Equipment or the Charged Assets;

 

	
2.4.3

	
Reserved.

 

	
2.4.4

	
on either the date of the relevant Drawdown Notice or at the relevant Drawdown Date:

 

  

- 5 -

  

 

	
  

	
(i)

	
an Event of Default has occurred, excluding the event set forth in Clause 8.1.15, and is continuing or would result from the borrowing to be made; or

 

	
  

	
(ii)

	
the Borrower’s representations and warranties in Clause 6 or those which are set out in any Security Document would not be true if repeated on each of those dates with reference to the circumstances then existing.

 

	
2.5

	
Conditions Precedent requirements relative to the advance of each Instalment

 

	
2.5.1

	
The Lender’s obligation to provide each Instalment is subject to the prior satisfaction by the Borrower of the following conditions, and only once prior to or concurrent with the execution of this Agreement in the cases of (i) (ii), (viii), (x) and (xii) below, provided that the approvals and consents required under (i) and (ii) below contemplate future Instalments, charges and all approvals required in connection with the transaction contemplated herein:

 

	
  

	
(i)

	
the provision of a copy of the resolutions of the Borrower’s boards of directors and, to the extent required, shareholders, authorizing the transactions contemplated by this Loan Agreement and the execution of this Loan Agreement and associated documents, including but not limited to, the Security Documents;

 

	
  

	
(ii)

	
all necessary consents of shareholders and other third parties with respect to the entering into of this Loan Agreement and the execution of associated documents have been obtained;

 

	
  

	
(iii)

	
the parties having executed the Security Documents;

 

	
  

	
(iv)

	
submission of the debentures evidencing the Charges to the Companies Registrar, and registration of the Securities therein, subject to compliance with all applicable laws in respect of such registration within the time frame provided for under Israeli law.  The Borrower undertakes to submit and register the Security Documents with regard to the Borrower’s United States and Israeli patents, trademarks, copyrights and applications for patent, trademark and copyrights and all other Charged Assets in a form to be agreed between the parties that maintains the principles of the Security Documents, to the Israeli Patent Office and United States Patent and Trademark Office and the United States Copyright Office and for registration of the Security therein.  It is hereby agreed that the Borrower shall bear all expenses related to such registration.

 

	
  

	
(v)

	
If the Lender so requires, submission and registration of the Security Documents in any other country that the Borrower has filed a patent or a trademark application except for Israel and the United States of America.  It is hereby agreed that the Borrower shall bear all expenses related to such registration which shall not exceed in the aggregate US$ 2,500.

 

	
  

	
(vi)

	
in the Lender’s sole opinion, there has been no accelerated depreciation (beyond GAAP depreciation) in value of the Equipment or the value of the Charged Assets.;

 

  

- 6 -

  

 

	
  

	
(vii)

	
delivery by the Borrower to the Lender of such documentation in a form and substance satisfactory to the Lender as the Lender may request with respect to invoices, purchase orders and the like relating to future Equipment purchases to be subject to this Loan Agreement.

 

	
  

	
(viii)

	
the Lender has received the legal opinion of Fischer Behar Chen Well Orion & Co, the Borrower’s Counsel with respect to WhiteSmoke Ltd. only, in form and substance reasonably satisfactory to the Lender;

 

	
  

	
(ix)

	
Reserved.

 

	
  

	
(x)

	
an investment and/or loan by the existing shareholders of WhiteSmoke Inc. and external investors in such entity of up to $1,000,000 for the issuance of the Series C Preferred Shares of Whitesmoke Inc. shall have been closed prior to the date hereof and WhiteSmoke Inc. shall have received such sum pursuant thereto prior to the date hereof;

 

	
  

	
(xi)

	
The removal of any existing lien of the Borrower, except as detailed in Annex 2.5;

 

	
  

	
(xii)

	
The Lender has received the written approval of IBM Israel Ltd., in a form satisfactory to the Lender, to create and submit the Floating Charge for registration.

 

	
2.6

	
Waiver Possibility

 

If the Lender advances all or any part of any Instalment to the Borrower prior to the satisfaction of all or any of the conditions referred to in Clause 2.5 (which the Lender has no obligation to do) the Borrower shall satisfy or procure the satisfaction of such condition or conditions which have not been satisfied within fourteen (14) Business Days of the relevant Drawdown Date (or within such longer period as the Lender may agree or specify), provided, that the Lender at its discretion may waive the satisfaction of any condition.

  

- 7 -

  

 

	
2.7

	
Equipment

 

The existing Equipment of the Borrower as listed in Schedule B (as may be amended from time to time with the consent of the Lender) shall form part of the Security and be included in the Fixed Charge, (a) Future purchases of Equipment purchased until (and including) the last day of the Security Period to be located within the State of Israel and (b) any equipment subject to the lien of IBM Israel Ltd. (the “IBM Lien”) as listed in Schedule B1, if and when released from the IBM Lien (collectively, “New Equipment”) shall in addition be made subject to the provisions of this Loan Agreement (subject to the Lender’s approval), form part of the Security and shall be charged by way of either listing such New Equipment to the relevant schedule in the Fixed Charge, to be amended accordingly, or, at the Lender’s election, as a separate supplemental Fixed Charge (which, in each case, shall be part of the Security Documents hereunder), and submitted to and registered with the Companies Registrar, in each case, on one or more occasions at such time(s) as the Lender may request, at the Lender’s discretion.  Without derogating from the above, upon the Lender’s request, on one or more occasions at the Lender’s discretion, Schedule B hereto shall be replaced or supplemented from time to time to reflect any addition of such New Equipment as aforesaid, it being agreed that, at any time until the end of the Security Period, the Borrower shall be obliged to register any additional Fixed Charge in favor of the Lender: (a) in connection with New Equipment under sub-clause (a) above, only at such time as the aggregate value of the New Equipment exceeds US$ 50,000, provided that in any event the Borrower shall register a Fixed Charge on any New Equipment in favor of the Lender within seven (7) days following the last Business Day of each calendar year during the Security Period, regardless of the value of such New Equipment; and (b) in connection with New Equipment under sub-clause (b) above, promptly upon the release of such equipment from the IBM Lien.  For the avoidance of doubt, in addition, the Equipment is subject to the Floating Charge and any New Equipment shall become subject to the Floating Charge as soon as an interest therein is acquired by Borrower (without any further action being required to effect the same).

 

	
2.8

	
Intellectual Property

 

The Intellectual Property of the Borrower as of the date hereof is listed in Schedule C (as may be amended from time to time with the consent of the Lender) and is covered by the Fixed Charge.

 

Future Intellectual Property of the Borrower shall, in addition, be made subject to the provisions of this Loan Agreement and form part of the Security and be charged by way of either listing such new Intellectual Property on the relevant schedule in the Fixed Charge, to be amended accordingly, or, at the Lender’s election, as a separate supplemental Fixed Charge (for the avoidance of doubt-with respect to Intellectual Property of WhiteSmoke Ltd. under the terms of the debenture fixed charge attached hereto as Schedule A and with respect to Intellectual Property of WhiteSmoke Inc. substantially in the form of the IP Security Agreement attached hereto as Schedule A) (and, at the Lender’s request, Schedule C hereto shall be replaced or supplemented from time to time to reflect any addition of such new Intellectual Property as aforesaid) and, in either case, submitted to and registered to the Companies Registrar, and with respect to applications for registration of Intellectual Property submitted by the Borrower to the Israeli Patent Office or to the United States Patent and Trademark Office until (and including) the last day of the Security Period (“New Registered Intellectual Property”) shall, in addition, be submitted to and registered with the Israeli Patent Office or the United States Patent and Trademark Office, as applicable); it being agreed that, at any time until the end of the Security Period, the Borrower shall be obliged to create and register any such additional Fixed Charge in favor of the Lender, as follows-

 

(i)        with respect to New Registered Intellectual Property, within twenty-one (21) days from registration of such New Registered Intellectual Property and if such registration is not possible under the rules governing such New Registered Intellectual Property, then, no later than twenty-one (21) days from the date on which the charge of such New Registered Intellectual Property becomes registrable;

 

  

- 8 -

  

 

(ii)       with respect to other new unregistered Intellectual Property, if any, at the request of the Lender and in any event within twenty one (21) days following the last Business Day of each calendar year and if such registration is not possible under the rules governing such new registered Intellectual Property, then, no later than twenty-one (21) days from the date on which the charge of such new registered Intellectual Property becomes registrable; and

 

(iii)      with respect to any future applications for registration of Intellectual Property submitted by the Borrower in countries other than Israel and the United States, the Borrower shall be obliged to notify the Lender within seven (7) Business Days of the day of filing of each such application, and the Borrower will be obliged to create and register an additional Fixed Charge (as aforesaid) in favor of the Lender within seven (7) Business Days from request of the Lender and if such registration is not possible under the rules governing such Intellectual Property, then, no later than seven (7) Business Days from the date on which the charge of such Intellectual Property becomes registrable.

 

For the avoidance of doubt, in addition, the Intellectual Property of the Borrower is subject to the Floating Charge and any New Intellectual Property of the Borrower shall become subject to the Floating Charge as soon as an interest therein is acquired by Borrower (without any further action being required to effect the same).

 

3.            TERM

 

	
3.1

	
This Loan Agreement is effective upon execution by the parties and shall continue until the later of (i) date of expiry of the Loan Term and (ii) the date upon which the Borrower shall have performed all its obligations hereunder.

 

	
3.2

	
If the conditions set out in Clause 2.5 have not been satisfied within forty-five (45) days of the execution of this Loan Agreement (except to the extent waived in writing by Lender), the Lender shall in its sole discretion have the option to either terminate the Loan Agreement or extend the period in which such conditions must be satisfied.

 

4.            REPAYMENT AND PREPAYMENT

 

	
4.1

	
Advance Payment

 

On delivery of the Drawdown Notice with respect to each Instalment, the Borrower shall pay to the Lender (by way of deduction by Lender from the amount of the respective Instalment actually advanced to the Borrower) the Advance Payment specified above in the Loan Facility Terms, which shall be held by the Lender and applied in or towards payment of the last repayment of such Instalment.

 

	
4.2

	
Repayments

 

The Borrower shall repay each Instalment (principal and interest accrued thereon) by way of standing order (“Hora’at Keva”), as follows:

 

  

- 9 -

  

 

	
  

	
(A)

	
with respect to each Instalment of the Loan drawn until October 1, 2008: (i) during the Grace Period (as defined below) the Borrower shall not make any repayment to the Lender on the account of the principal amount of any such Instalment, provided, however, that the principal amount advanced by the Lender in any such Instalment shall bear the Applicable Interest Rate (as defined below) during the Grace Period which interest shall be paid to the Lender every month commencing on first calendar month following the Drawdown Date of such Instalment (including during the Grace Period); (ii) during the period commencing upon the termination of the Grace Period, by way of thirty three (33) equal monthly payments, each such payment in an amount equal to 3.533% of the amount of such Instalment, to be paid to the Lender on the first Business Day of each calendar month or, if such day is not a Business Day, the first Business Day thereafter, commencing on the first calendar month following the Grace Period of such Instalment.  For the purposes of this Agreement the term “Grace Period” shall mean 3 months following the Drawdown Date of such Instalment;

 

	
  

	
(B)

	
with respect to each Instalment of the Loan drawn after October 1, 2008, by way of thirty six (36) equal monthly payments, each such payment in an amount equal to 3.29% of the amount of such Instalment, to be paid to the Lender on the first Business Day of each calendar month or, if such day is not a Business Day, the first Business Day thereafter, commencing on the first calendar month following the Drawdown Date of such Instalment.

 

	
  

	
(C)

	
Lender shall provide, no later than five Business Days following the receipt of the Drawdown Notice, a repayment schedule with respect to such Instalment based on the terms hereof.

 

	
  

	
(D)

	
For the avoidance of doubt, it is hereby clarified that each of WhiteSmoke Ltd. and WhiteSmoke Inc., jointly and severally, shall be liable for the repayment of the Loan as detailed above, notwithstanding which of said entities issued the Drawdown Notice or actually received the funds with respect to the Loan.  Without derogating from the above and notwithstanding anything to the contrary herein, it is hereby agreed that the entity which shall actually make any and all repayments of the Loan (principal and interest accrued thereon, and including in the case of prepayment) shall be WhiteSmoke Ltd. only, unless otherwise agreed in writing in advance by the Lender.

 

	
  

	
(E)

	
It is hereby clarified that in the event that any inconsistency exists between the repayment terms under Clause 4.2 and the repayment terms set forth in Clause 5.1, the repayment terms in Clause 4.2 shall supersede and Clause 5.1 shall be deemed amended as to be consistent with Clause 4.2.

 

	
4.3

	
Currency of Payments

 

Repayment of each Instalment and payment of all other amounts owed to the Lender with respect to such Instalment will be paid in US Dollars (the “Contractual Currency”).

 

  

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4.4

	
Prepayment

 

The Borrower shall be entitled to prepay the Loan, in whole but not in part, at any time, subject lo the following conditions:

 

	
4.4.1

	
The Borrower shall submit to the Lender an irrevocable written request to prepay the Loan, at least fifteen (15) Business Days in advance, indicating the amount lo be prepaid (the “Prepayment Sum”) and she date of prepayment, provided that such prepayment shall be made on the last day of a calendar month.

 

	
4.4.2

	
The Prepayment Sum shall include: (i) all outstanding principal of the Loan: plus (ii) all interest accrued and unpaid thereon until the actual date of prepayment, based on the Applicable Interest Rate (and shall not include any interest with respect to periods following the prepayment); plus (iii) a fee equal to: (a) 5% of the outstanding principal amount for each part of the Loan drawn down less than 12 months before such early repayment date; (b) 3% of the outstanding principal amount for each part of the Loan drawn down at least 12 months but less than 24 months before such early repayment date; and (c) 1% of the outstanding principal amount for each part of the Loan drawn down at least 24 months before such early repayment.

 

5.            INTEREST

 

	
5.1

	
Interest on the drawn down amount of each Instalment shall accrue from day to day at a rate of: 12% per annum (to be compounded on a monthly basis) (the “Applicable Interest Rate”), as reflected by (i) thirty-three (33) equal monthly payments for each Instalment drawn until October 1, 2008, each in an amount equal to 3.533% of the amount of such Instalment; or (ii) thirty-six (36) equal monthly payments, for each Instalment drawn after October 1, 2008 each in an amount equal to 3.29% of the amount of such Instalment, as further detailed in and subject to Clause 4.2, until the repayment in full of such Instalment, with payment of the interest being made to the Lender after any tax deduction at source, including without limitation any withholding tax if required under applicable law (but subject however to any special arrangement between the relevant Israeli tax authorities and the Lender).  Interest on each Instalment and each part thereof shall be calculated and paid in the Contractual Currency.

 

	
5.2

	
Time of payment of any sum due from the Borrower is of the essence under this Loan Agreement.  Any late payment by the Borrower of any sum due to the Lender under this agreement shall bear an interest of 5% per annum in excess of the Applicable Interest Rate from the original due date until actual payment.

 

	
5.3

	
Unless otherwise instructed in writing by the Lender, immediately upon each due date for effecting any interest payment under or pursuant to this Loan Agreement and the Security Documents to which the Borrower is or is to be party, or upon actually paying any interest in advance of the due date for any reason, the Borrower shall report such payment to the relevant Israeli tax authorities on behalf of the Lender, pay in full the value added tax liability arising in accordance with Section 6D of the Israeli Value Added Tax Regulations 5736-1976 and the Israeli Value Added Tax Law 5735-1975, and shall provide the Lender with documentation evidencing such payment, provided, however, that commencing upon Lender’s request and continuing afterward until otherwise notified by Lender in writing, Borrower shall pay in full any applicable value added tax directly to Lender (or such agent of the Lender as the Lender may direct) against delivery of an invoice.

 

  

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6.            REPRESENTATIONS AND WARRANTIES

 

	
6.1

	
The Borrower warrants and represents the following as at the date hereof:

 

	
6.1.1

	
WhiteSmoke Ltd. is a limited company duly organised and validly existing under the laws of Israel, and WhiteSmoke Inc. is a corporation duly organised and validly existing under the laws of Delaware;

 

	
6.1.2

	
the Borrower has the corporate capacity, and has taken all corporate action and obtained all consents, including third party consents, necessary for it:

 

	
  

	
(i)

	
to execute this Loan Agreement and the Security Documents to which the Borrower is or is to be party;

 

	
  

	
(ii)

	
to borrow under this Loan Agreement and to make all the payments contemplated by, and to comply with all its other obligations under this Loan Agreement and the Security Documents; and

 

	
  

	
(iii)

	
to grant the Lender first priority Fixed Charge and first priority Floating Charge under the Security Documents;

 

	
6.1.3

	
this Loan Agreement and the Security Documents to which the Borrower is or is to be party, do now or, as the case may be, will, upon execution and delivery (and, where applicable, registration as provided for in this Loan Agreement and the Security Document):

 

	
  

	
(i)

	
constitute the Borrower’s legal, valid and binding obligations enforceable against the Borrower in accordance with their respective terms; and

 

	
  

	
(ii)

	
create legal, valid and binding Security Interests enforceable in accordance with their respective terms;

 

	
6.13A

	
All the Intellectual Property owned by the Borrower is owned solely by WhiteSmoke Inc.

 

	
6.1.4

	
the execution and (where applicable) registration by the Borrower of this Loan Agreement and each Security Document to which it is or is to be party, and the borrowing by the Borrower of the Loan and its compliance with this Loan Agreement and each Security Document to which it is or is to be party will not contravene:

 

	
  

	
(i)

	
any applicable US or Israeli law or other US or Israeli legal requirement other than a contravention which would not have a material adverse affect on the Borrower’s business as currently being conducted; or

 

  

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(ii)

	
the constitutional documents of the Borrower; or

 

	
  

	
(iii)

	
any contractual or other obligation or restriction which is binding on the Borrower or any of the Charged Assets;

 

	
6.1.5

	
all consents, licences, approvals and authorisations required by the Borrower in connection with the entry into, performance, validity and enforceability of this Loan Agreement and the Security Documents to which it is or is to be party have been or (upon execution thereof) shall have been obtained by the Drawdown Date and are (or upon execution thereof shall be) in full force and effect during the life of this Loan Agreement;

 

	
6.1.6

	
all financial and other information furnished by or on behalf of the Borrower in connection with the negotiation of this Loan Agreement and the Security Documents delivered to the Lender pursuant to this Loan Agreement or the Security Documents was true and accurate in all material respects when given and there are no other facts or matters the omission of which would have made any statement or information contained therein misleading in any material respect;

 

	
6.1.7

	
all payments made or to be made by the Borrower under or pursuant to this Loan Agreement and the Security Documents to which the Borrower is or is to be party shall be made following deduction or withholding for, or on account of, any taxes for which withholding is required pursuant to applicable law and/or tax ruling of the applicable tax authorities.

 

	
6.1.8

	
there is no action, proceeding or claim pending or, so far as the Borrower is aware or to Borrower’s knowledge, threatened against the Borrower or any of its subsidiaries before any court or administrative agency which might have a material adverse affect on the business, condition of operations of the Borrower or any of its subsidiaries.

 

	
6.1.9

	
the Borrower owns with good and marketable title all the Charged Assets, free from all Security Interests and other interests and rights of every kind except for those created and/or permitted by the Security Documents, and all the Charged Assets are in good operating condition and repair, and are adequate for the uses to which they are being put, and none of such Charged Assets is in need of maintenance or repairs except for ordinary, routine maintenance and repairs that are not material in nature or cost; and

 

	
6.1.10

	
the Borrower’s representation and warranties set out in this Clause 6 shall survive the execution of this Loan Agreement and except with respect to Clause 6.1.3A, shall be deemed to be repeated at the commencement of the Interest Period and each Drawdown Date with respect to the facts and circumstances then existing, as if made at-each such time.

 

7.             LIST OF COMMITMENTS

 

	
7.1

	
The Borrower undertakes towards the Lender to comply with the following provisions of this Clause 7 at all times during the Security Period, except as the Lender may otherwise permit:

 

  

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7.1.1

	
the Borrower will obtain, effect and keep effective all permissions, licences and permits which may from time to time be required in connection with the Charged Assets;

 

	
7.1.2

	
the Borrower will own only for its own account the Equipment and the Borrower will keep all the Equipment free from any and all senior, pari passu, junior or subordinated Security Interests and other interests and rights of every kind, except for those created and/or permitted by the Security Documents.

 

	
7.1.2A

	
the Borrower will keep all Residual Assets and Intellectual Property free from any and all senior, pari passu, junior or subordinated Security Interests and other interests and rights of every kind, except for those created and/or permitted by the Security Documents;

 

	
7.1.3

	
the Borrower will not sell, assign, transfer or otherwise dispose of the Equipment or any share therein and shall give immediate notice to the Lender of any judicial process or encumbrance affecting the Equipment;

 

	
7.1.3A

	
the Borrower will not sell, assign, transfer or otherwise dispose of any of the Residual Assets and/or Intellectual Property, other than in the Ordinary Course of Business and shall give immediate notice to the Lender of any judicial process or encumbrance affecting the Residual Assets;

 

	
7.1.4

	
the Borrower will provide to the Lender such information as the Lender may reasonably request concerning the Borrower and its affairs (including concerning the Charged Assets), provided however that any confidential information of the Borrower will be subject to the confidentiality provisions set forth in Clause 7A hereof;

 

	
7.1.5

	
the Borrower will provide the Lender with its monthly management accounts, certified by the Borrower’s managing director or finance director as fairly presenting the data reflected, within thirty (30) days of the end of each month (to include notification of the commencement of litigation by or against the Borrower) and, following an initial public offering or listing on a recognised stock exchange, provide copies of any announcement which is proposed to be made public by the Borrower concerning dividends, annual or interim financial positions and affairs of the Borrower, and copies of any other documents required to be filed with applicable statutory or regulatory authorities or agencies in relation to the activities of the Borrower;

 

	
7.1.6

	
the Borrower will provide the Lender with its annual audited consolidated financial statements on the same date as delivered to any of the holders of Preferred Stock of the Borrower but in any event within ninety (90) days of the end of accounting period of the Borrower, in each case including statement of operations, balance sheet, statement of cash flows and shareholders’ equity, certified by a firm of chartered accountants of recognised national standing.

 

	
7.1.7

	
the Borrower will provide the Lender with copies of all notices, minutes, consents and other material that it provides to its board of directors at the same time they are delivered to the directors provided however that any confidential information of the Borrower will be subject to the provisions of Clause 7A.;

 

  

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7.1.8

	
the Borrower will grant the Lender the right to have a representative to meet with the Borrower’s managing director and finance director once each quarter throughout the Security Period to review and discuss the operating performance and financial condition of the Borrower.  In addition, upon the occurrence of an Event of Default, the Lender shall be entitled to have a representative to attend all meetings of both WhiteSmoke Ltd.’s and WhiteSmoke Inc.’s boards of directors in a non-voting observer capacity.  The Borrower will give notice of all board meetings to the Lender at the same time as to its directors;

 

	
7.1.9

	
the Borrower will maintain in force and promptly obtain or renew, and will promptly send true and correct copies to the Lender of, all consents required:

 

	
  

	
(i)

	
for the Borrower to perform its obligations under this Loan Agreement and each Security Document;

 

	
  

	
(ii)

	
for the validity or enforceability of this Loan Agreement and any Security Document; and

 

	
  

	
(iii)

	
for the Borrower to continue to own the Charged Assets,

 

and the Borrower will comply with the terms of all such consents;

 

	
7.1.10

	
the Borrower will notify the Lender as soon as it becomes aware of:

 

	
  

	
(i)

	
the occurrence of an Event of Default; or

 

	
  

	
(ii)

	
any matter which indicates that an Event of Default has occurred, may have occurred or is likely to occur in the foreseeable future,

 

and will thereafter keep the Lender fully up to date with all developments.

 

	
7.1.11

	
The Borrower shall affix, or allow the Lender to affix, to the Equipment (as listed in Schedule B attached hereto and as to be amended from time to time with the consent of the Lender) permanent indications of Lender’s interest in the Equipment, and shall not remove or hide them and shall comply with Lender’s request in assisting Lender with all perfection requirements under the laws of the State of Israel and pursuant to and in accordance with the provisions of the Security Documents.

 

	
7.1.12

	
The Borrower shall not enter into any other commercial loan arrangement, without the prior written approval of the Lender, except that the Borrower may enter into, without the prior written consent of the Lender, financings used for purchasing or leasing tangible assets, the aggregate amount of which will not exceed US$50,000.  Any financings used for purchasing or leasing tangible assets, the aggregate amount of which will exceed US$50,000, shall be subject to the Lender’s prior written consent which consent shall not to be unreasonably withheld.

 

  

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7A         CONFIDENTIALITY UNDERTAKINGS OF LENDER

 

Lender undertakes that it shall keep in confidence, and shall not use for any purpose other than for purposes of monitoring its credit facility to the Borrower and protecting its rights under this Loan Agreement and the Security Documents, and then only disclose to the parties detailed in Clause 13.6 herein and to those of its employees, in each such case who need to know such information and who are bound by appropriate written non-disclosure undertakings, any and all confidential information relating in any way to the Borrower or any of its business activities which has been or will be provided to Lender by Borrower or any of its employees, agents or representatives or was otherwise obtained by Lender.

 

8.            EVENTS OF DEFAULT

 

	
8.1

	
An Event of Default occurs if:

 

	
8.1.1

	
the preconditions set out in Clause 2.5 (except to the extent waived in writing by Lender) are not satisfactorily accomplished within forty five (45) days of signature of this Loan Agreement unless the period for satisfactory accomplishment is extended pursuant to and in accordance with Clause 3.2; or

 

	
8.1.2

	
the Borrower fails to pay when due and payable or (if so payable) on demand any sum payable under this Loan Agreement or the Security Documents or under any document relating to the Security Documents; provided however that such failure to pay shall not constitute an Event of Default if such failure has been rectified within five (5) Business Days after the Lender has advised the Borrower in writing of such non-payment; or

 

	
8.1.3

	
any other breach by the Borrower occurs of any provision of this Loan Agreement or the Security Documents (other than a breach covered by this Clause 8.1) provided however that such breach shall not constitute an Event of Default if:

 

	
  

	
(i)

	
the breach has not put any of the Security for the Loan immediately at risk and is capable of remedy; and

 

	
  

	
(ii)

	
within fourteen (14) Business Days after the Lender serves on the Borrower a written notice of default under this Loan Agreement, or such longer period as the Lender may specify in such notice, the Borrower remedies the breach to the satisfaction of the Lender;

 

	
8.1.4

	
any representation, warranty or statement made by, or by an officer of, the Borrower in this Loan Agreement or the Security Documents or in the Drawdown Notice or any other notice or document relating to this Loan Agreement or any other Security Document is untrue or misleading in any material respect when it is made or deemed repeated; provided however that such misrepresentation shall not constitute an Event of Default if such misrepresentation has not put any of the Security for the Loan immediately at risk and is cured by the Borrower within 14 Business Days; or

 

  

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8.1.5

	
financial indebtedness of the Borrower in an amount which may reasonably be considered to be material is not paid when due as a consequence of a default with respect thereto or any Security Interest over any assets of the Borrower is lawfully enforced;

 

	
8.1.6

	
any order shall be made by any competent court or any resolution shall be passed by the Borrower for the appointment of a liquidator, administrator or receiver of, or for the winding up of, the Borrower and, in any such case, such order or resolution is not set aside, cancelled or revoked within forty five (45) Business Days after being made or passed or is contested by the Borrower in good faith in circumstances where the sum of money owed is fully covered by reserves; or

 

	
8.1.7

	
an encumbrancer takes possession of or a receiver is appointed over the whole or, in the opinion of the Lender, any material part of, the assets of the Borrower or a distress, execution or other process is levied or enforced upon or sued out against the whole or, in the opinion of the Lender, a material part of the assets of the Borrower and, in any such case, either such procedure is not terminated within forty five (45) Business Days after commencement or is contested by the Borrower in good faith in circumstances where the sum of money owed is fully covered by reserves; or

 

	
8.1.8

	
the Borrower shall stop payment or shall be unable to, or shall admit inability to, pay its debts as they fall due, or shall be adjudicated or found bankrupt or insolvent, or shall enter into any composition or other arrangement with its creditors generally; or

 

	
8.1.9

	
any event shall occur which under the law of any jurisdiction to which the Borrower is subject has an effect equivalent or similar to any of the events referred to in Clause 8.1.6, 8.1.7 or 8.1.8; or

 

	
8.1.10

	
the Borrower ceases or suspends carrying on its business or a part of its business which, in the reasonable opinion of the Lender, is material in the context of this Loan Agreement and the Security Documents; or

 

	
8.1.11

	
Reserved.

 

	
8.1.12

	
it becomes unlawful or impossible (i) for the Borrower to discharge any liability under this Loan Agreement or to comply with any other obligation which the Lender considers material under this Loan Agreement or the Security Documents, or (ii) for the Lender to exercise or enforce any right under, or to enforce any Security Interest created by, this Loan Agreement or the Security Documents; or

 

	
8.1.13

	
any provision which the Lender reasonably considers material of this Loan Agreement or the Security Documents proves to have been or becomes invalid or unenforceable, or a Security Interest created by the Security Documents proves to have been or becomes invalid or unenforceable or such a Security Interest proves to have ranked after, or loses its priority to, another Security Interest or any other third party claim or interest, provided however that if the Borrower proposes replacement security which the Lender accepts, and such replacement security is constituted in a manner acceptable to the Lender within such period of time as the Lender may require, such event shall cease to constitute an Event of Default; or

 

  

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8.1.14

	
the security constituted by the Security Documents is in any way materially imperilled or in jeopardy (including by way of depreciation in value beyond a normal depreciation) provided however that if the Borrower proposes replacement security which the Lender accepts, and such replacement security is constituted in a manner acceptable to the Lender within such period of time as the Lender may require, such event shall cease to constitute an Event of Default; or

 

	
8.1.15

	
any other event (whether related or not) occurs (including, without limitation, a material (in the reasonable opinion of the Lender) adverse change, from the position applicable as at the date of this Loan Agreement) in the business affairs or condition (financial or otherwise) of the Borrower), the effect of which is, in the reasonable opinion of the Lender, to materially imperil, delay or prevent the due fulfilment by the Borrower of any of its obligations or undertakings in this Loan Agreement or the Security Documents; or

 

	
8.1.16

	
any event of default (howsoever described) specified in the Security Documents shall occur.

 

	
8.1.17

	
Notwithstanding anything to the contrary herein, for the purpose of the provisions of this Clause 8.1 any reference in such provisions to the “Borrower” shall mean that the occurrence of any of the events mentioned in this Clause 8.1 shall constitute an Event of Default if such even occurs with respect to either WhiteSmoke Ltd. WhiteSmoke Inc. or both.

 

	
8.2

	
Lender’s Bights

 

On or at any time following the occurrence of any Event of Default, unless such Event of Default has been cured in accordance with the terms hereof, the Lender may:

 

	
8.2.1

	
serve on the Borrower a notice in writing stating that all obligations of the Lender to the Borrower under this Loan Agreement including (without limitation) the obligation to advance any Instalment are terminated; and/or

 

	
8.2.2

	
serve on the Borrower a notice in writing stating that the Loan, all accrued interest and all other amounts accrued or owing under this Loan Agreement are immediately due and payable; and/or

 

	
8.2.3

	
take any other action which, as a result of the Event of Default or any notice served under Clauses 8.2.1 or 8.2.2 above, the Lender is entitled to take under the Security Documents or any applicable law.

 

	
8.3

	
End of Lender’s Obligations

 

On the service of a notice in writing under Clause 8.2.1 and, unless expressly waived by the Lender at its sole discretion, Clauses 8.2.2 or 8.2.3, all the obligations of the Lender to the Borrower under this Loan Agreement shall terminate

 

  

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8.4

	
Acceleration

 

On the service of a notice in writing under Clause 8.2.2, the Loan, all accrued interest and all other amounts accrued or owing from the Borrower under this Loan Agreement and the Security Documents shall become immediately due and payable.

 

	
8.5

	
Waiver of Event of Default

 

The Lender, at its sole and absolute discretion, may waive any Event of Default hereunder, prior to or after the event or events giving rise thereto, provided that such waiver may be effected only by written notice provided by the Lender to the Borrower to that effect (and subject further to Clause 13.3 below); it being understood and acknowledged, that if and so long as no notice of waiver of an Event of Default was so provided, such Event of Default shall be deemed as having occurred and in effect for all purposes hereunder.

 

	
8.6

	
Change of Control

 

All the obligations of the Lender to the Borrower under this Loan Agreement shall terminate if there is a Change of Control (as defined below) in the Borrower.  In such event, unless the Lender agrees otherwise by written notice to the Borrower, immediately and simultaneously with the closing of the transaction that constitutes a Change of Control (i) the Borrower shall prepay the outstanding Loan in accordance with Clause 4.4 above; and (ii) all other amounts accrued or owing under this Loan Agreement and the Security Documents shall become due and payable.

 

for purposes of this Clause 8.6, a “Change of Control” shall mean any of the following events (whether in one or in a series of related transactions): merger, consolidation, or reorganization of the Borrower with or into, or the sale of all or substantially all the assets of the Borrower, or the sale of securities of the Borrower (whether by the Borrower or by shareholders of the Borrower) representing a majority of the voting power in the Borrower, or the exclusive license of all or a material portion of the Borrower’s Intellectual Property, to, any other entity or person, other than a wholly-owned subsidiary of the Borrower.  For avoidance of doubt, the issuance of additional securities by the Borrower in the event of investment in the Borrower shall not be a “Change of Control”.

 

9.             FEES, EXPENSES AND TAXES

 

	
9.1

	
Transaction Fee and Legal Fees

 

The Parties hereby agree and acknowledge that the following transaction fee shall be paid by the Borrower to the Lender in the Contractual Currency upon the execution of this Loan Agreement: (i) a one time transaction fee in an amount of US$15,000; (ii) legal fees in the amount of up to US$ 10,000; and (iii) all expenses related to registration of the Security in the amount of up to US$ 1,000.

 

  

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9.2

	
Documentary Costs

 

The Borrower shall pay to the Lender on the Lender’s demand, the reasonable expenses incurred by the Lender in connection with:

 

	
9.2.1

	
any amendment or supplement to this Loan Agreement or the Security Documents, or any proposal for such an amendment to be made; and

 

	
9.2.2

	
any consent or waiver by the Lender concerned under or in connection with this Loan Agreement or the Security Documents or any request for such a consent or waiver, to the extent such consent or waiver is made at the request of the Borrower; and

 

	
9.2.3

	
any step taken by the Lender with a view to the protection, exercise or enforcement of any right or Security Interest created by this Loan Agreement or the Security Documents or for any similar purpose.

 

	
9.3

	
Certain Taxes and Duties

 

The Borrower shall promptly pay, to the extent applicable, any documentary, stamp or other equivalent tax or duty payable on or by reference to this Loan Agreement or the Security Documents, and shall, on the Lender’s demand, fully indemnify the Lender against any liabilities and expenses resulting from any failure or delay by the Borrower to pay such a tax.

 

	
9.4

	
Recovery of Overdue Fees

 

Without prejudice to any other provisions of this Loan Agreement, the Lender shall be entitled (and the Borrower hereby irrevocably authorises the Lender), at any time and from time to time, to apply any credit balance to which the Borrower is then entitled on any account with the Lender in satisfaction of the sum or sums from time to time owing by the Borrower to the Lender under and/or pursuant to this Clause 9.  The Lender shall give written notice to the Borrower of any such application promptly thereafter.

 

	
9.5

	
Liability for Taxes

 

	
9.5.1

	
All payments by the Borrower hereunder shall be made without any deduction and free and clear of and without any deduction for or on account of any Taxes, except to the extent that the Borrower is required by law to make payment subject to any deduction or withholding of any Taxes.

 

	
9.5.2

	
If, at any time, the Borrower becomes aware that any deduction or withholding is or will be required, it shall promptly notify the Lender and supply details of such requirements.

 

10.          INDEMNITIES

 

	
10.1

	
Indemnity for Non-Scheduled Payments

 

  

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Without derogating from Clause 9 above, the Borrower shall indemnify the Lender fully on its demand in respect of all expenses, liabilities and losses which are suffered or incurred by the Lender, as a result of or in connection with:

 

	
10.1.1

	
the Loan, or any portion thereof, not being borrowed on the date specified in the Drawdown Notice for any reason other than a default by the Lender;

 

	
10.1.2

	
any failure (for whatever reason) by the Borrower to make payment of any amount due under this Loan Agreement or the Security Documents on the due date or, if so payable, on demand; or

 

	
10.1.3

	
the occurrence and/or continuance of an Event of Default and/or the acceleration of repayment of the Loan under Clause 8.4 or 8.6, and in respect of any Taxes for which the Lender is liable or held liable in connection with any amount paid or payable to the Lender (whether for its own account or otherwise) under this Agreement or the Security Documents.

 

	
10.2

	
Third Party Claims Indemnity

 

The Borrower shall indemnify the Lender fully on its demand in respect of claims, demands, proceedings, liabilities, taxes, losses and expenses of every kind, including without limitation attorney's fees ("liability items") which may be made or brought against, or incurred by, the Lender, in any country, other than as a result of the gross negligence or wilful misconduct of the Lender, in relation to:

 

	
10.2.1

	
any action lawfully taken, or omitted or neglected to be taken, under or in connection with this Loan Agreement or the Security Documents by the Lender or by any receiver appointed under the Security Documents after the occurrence of any Event of Default; and

 

	
10.2.2

	
any breach of any of the representations and/or warranties contained in Clause 6 hereof or in the Security Documents or any breach of any covenant, commitment or agreement by the Borrower contained in Clause 7 hereof or elsewhere in this Loan Agreement or in the Security Documents.

 

10A        TERMINATION OF LOAN; LENDER’S DUTIES

 

Lender shall, within seven (7) Business Days from the repayment by the Borrower to the Lender of the payments owing hereunder and under the Security Documents in full and the full discharge of all the Borrower’s obligations towards the Lender hereunder and under the Security Documents, take all appropriate actions to release its Security Interests over the Charged Assets and shall provide proof of such release to Borrower’s satisfaction and shall perform all other reasonable activities, including making of all necessary filings and notifications to the appropriate authorities and third parties, reasonably requested by Borrower to evidence the release of the Security Interests of Lender over the Charged Assets.  The rights of Lender hereunder and under the Security Documents shall automatically terminate upon repayment in full of all payments owing hereunder and under the Security Documents and full discharge of all the Borrower’s obligations towards the Lender hereunder and under the Security Documents to the Lender’s full satisfaction, except for indemnification rights of the Lender which shall survive any expiration, cancellation or other termination of this Loan Agreement or other documents delivered pursuant hereto or in connection herewith, subject to the Statute of Limitations, 1958.

 

  

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11.          RISK AND INSURANCE

 

	
11.1

	
All risk of loss, theft and damage of and to the Charged Assets from any cause whatsoever shall be the risk of the Borrower, and no such event shall relieve the Borrower of any obligation under a Drawdown Notice.

 

	
11.2

	
The Borrower shall:

 

	
11.2.1

	
bear all risk of loss of or damage to the Charged Assets whether insured against or not;

 

	
11.2.2

	
maintain with an insurance company approved by the Lender, which approval shall not be unreasonably withheld, in accordance with good and prudent practices of owners of such Charged Assets, fully comprehensive insurance under a standard form of “new for old” all risks policy including terrorism, third party, and business interruption for a 6 month period covering (i) loss of or damage to, the Charged Assets and against such other risks as assets of the same type as the Charged Assets are normally (or when used in the manner or for the purposes for which the Charged Assets are to be used) insured, and the new replacement value of the Charged Assets; and (ii) all liability whatsoever (including liability of the Lender) to any third party whomsoever including any employee, agent or sub-contractor of the Lender or of the Borrower who may suffer damage to or loss of property or death or personal injury, whether arising directly or indirectly from the Charged Assets or their use;

 

	
11.2.3

	
procure that the Lender and, if the Lender so requests, any Affiliates of the Lender is an additional insured and that the interest of the Lender is noted under the policy and that the Lender is loss payee;

 

	
11.2.4

	
upon request produce to the Lender the policy and all premium receipts;

 

	
11.2.5

	
promptly notify the Lender of any event which may give rise to a claim under the policy and upon request irrevocably appoint the Lender to be its sole agent to negotiate agree or compromise such claim; and

 

	
11.2.6

	
upon request assign by way of security, or following the occurrence of an Event of Default, a complete assignment, to the Lender the Borrower’s rights under such policy and irrevocably appoint the Lender to institute any necessary proceedings.

 

  

- 22 -

  

 

12.          Reserved.

 

13.          GENERAL

 

	
13.1

	
All agreements, covenants, representations and warranties of the Borrower contained in this Loan Agreement or in the Drawdown Notices or other documents delivered pursuant hereto or in connection herewith shall survive the execution and delivery, and the expiration, cancellation or other termination of this Loan Agreement and/or the Drawdown Notice.

 

	
13.2

	
If the Borrower shall fail to perform any of its obligations under any Drawdown Notice duly and promptly, the Lender may, at its option and at any time, perform the same without waiving any default on the part of the Borrower, or any of the Lender’s rights.  The Borrower shall reimburse the Lender, within five (5) Business Days after notice thereof is given to the Borrower, for all expenses and liabilities incurred by the Lender in the performance of the Borrower’s obligations.

 

	
13.3

	
The Lender’s failure at any time to require strict performance by the Borrower shall not constitute waiver of, or diminish, the Lender’s right to demand strict compliance with any provision of the Loan.  Waiver by the Lender of any default shall not constitute waiver of any other default.  No rights or remedies referred to herein shall be exclusive, but shall be cumulative and in addition to any other right or remedy set forth herein or otherwise available to the Lender at law or in equity.

 

	
13.4

	
During the Security Period, the Borrower shall provide the Lender with a first offer for additional debt or loan financing for the future purchase of equipment thirty (30) days prior to the time that such requests are provided to other financing sources.  Should the Lender and the Borrower fail to agree on the terms and conditions of such financing within five (5) Business Days, then the Borrower may accept a funding source other than the Lender.

 

	
13.5

	
The Lender shall have the right, in its sole discretion, to assign, sell, pledge, grant a Security Interest in or otherwise encumber its rights and obligations under this Loan Agreement and/or the Drawdown Notice to any third party (an “Assignee”), or may be acting as an agent for any Assignee in entering into any Drawdown Notice provided that such assignment does not require the Borrower to incur any additional expenses with respect to such assignment (to the extent such additional expenses exceed the fees and expenses to be borne by the Borrower pursuant to this Agreement) and further provided that such assignment does not prejudice the rights of the Borrower hereunder.  The Borrower hereby irrevocably consents to any assignment, sale, pledge, grant of a Security Interest or any other disposal to an Assignee.  The Borrower agrees that if it receives written notice from the Lender that it is to make payments under this Loan Agreement and/or any Drawdown Notice to such Assignee rather than to the Lender, or that any of its other obligations under the relevant Drawdown Notice are to be owed to the named Assignee, the Borrower shall comply with such written notice.  Subject to the foregoing, this Loan Agreement and the relevant Drawdown Notice inures to the benefit of, and is binding upon, the successors and assigns of the Lender.

 

  

- 23 -

  

 

	
13.6

	
Subject to the confidentiality undertakings set forth in Clause 7A, the Borrower consents to the disclosure of information by the Lender to its affiliates, any potential Assignee and other parties to the Security Documents provided that such parties have previously entered into the written confidentiality undertakings set forth in Clause 7A.

 

	
13.7

	
All notices related hereto shall be delivered or posted:

 

	
  

	
(i)

	
to the Lender’s address, with a copy to the offices of Sharir, Shiv, Kadouch & Co., Law Offices, 3 Azrieli Center, Tel Aviv, Israel, 67023 for the attention of Emmanuel Kadouch, Adv.; and

 

	
  

	
(ii)

	
to the Borrower’s address with an additional copy to be delivered or forwarded or provided to the offices of Fischer, Behar, Chen, Well Orion & Co., 3 Daniel Frisch St. Tel Aviv, Israel 67023, to the attention of Atir Hardoff-Jaffe

 

or at such other address as either party may designate in writing to the other party.

 

	
13.8

	
Clause titles are solely for convenience and are not an aid in the interpretation of this Loan Agreement.

 

	
13.9

	
If any provision or remedy herein provided is determined invalid under applicable law, such provision shall be inapplicable and deemed omitted; but the remaining provisions, including remaining default remedies, shall be given effect in accordance with their terms.

 

	
13.10

	
This Loan Agreement, together with the Security Documents, constitutes the entire agreement between the parties with respect to the subject matter hereof.

 

This Loan Agreement may not be modified except in writing executed by the Lender and the Borrower.  No supplier or agent of the Lender is authorised to bind the Lender or to waive or modify any term of this Loan Agreement.

 

	
13.11

	
This Loan Agreement may be executed in counterparts, each of which shall be an original, but all such counterparts shall together constitute one and the same instrument.

 

	
13.12

	
Israeli law shall govern this Loan Agreement and the parties accept the exclusive jurisdiction of the courts of Tel-Aviv-Jaffa.

 

  

- 24 -

  

SCHEDULE A

 

FORM OF SECURITY DOCUMENTS

  

- 25 -

  

SCHEDULE B

 

THE EQUIPMENT

 

	
Delivery Address/

	  	 
	
Location of the Equipment

	
      

	 
	  	
       

	 
	 	 	 
	 	 	 
	 	 	 
	  	
       

	 
	  	
       

	 
	 	 	 
	
Contact name at Borrower

	
     

	 

	
Description

	 
	
Quantity

	 	
Equipment

Description

	 	
Make

	 	
Model

Number

	 	
S/N

	 	
Year of

Manufacture

	 	
Asset

Category

	 	
Item Cost

Excluding

VAT

	 	
Book

Value/Amount

Financed

	 	
Supplier

	 	
Invoice No.

	 	
Invoice

______

 

  

- 26 -

  

Schedule Bl

Equipment subject to the IBM Lien

 

  

- 27 -

  

SCHEDULE C

THE INTELLECTUAL PROPERTY

 

  

- 28 -

  

SCHEDULE D

FORM OF DRAWDOWN NOTICE

 

DRAWDOWN NOTICE

 

Drawdown

No.[ ]

 

dated                                200[ ]

 

between

 

KREOS CAPITAL III LIMITED                               [Borrower]

 

[

 

]

 

the (“Lender”)                     the (“Borrower”)

 

This Drawdown Notice forms a Schedule to the Loan Agreement between the parties dated

[                                                      ]

 

The Lender has granted the Borrower a loan facility pursuant to the terms and conditions set out in the Loan Agreement and attached Appendices.

 

Words and expressions in this Drawdown Notice shall have the same meanings as in the Loan Agreement.

 

  

- 29 -

  

PART 1

 

Loan Terms and Conditions

 

	
Total Loan Facility

	  	
US$ [           ]

	  	  	  
	
Amount of Loan Facility utilised under

	  	
US$ [           ]

	
previous Drawdown Notice(s)

	  	  
	  	  	  
	
Amount of Loan Facility utilised under

	  	
US$ [           ]

	
this Drawdown Notice

	  	  
	  	  	  
	
Balance Loan Facility available for

	  	
US$ [           ]

	
drawdown under future Drawdown

	  	  
	
Notices

	  	  
	  	  	  
	
Loan Term

	  	
[          Years]

	  	  	  
	
Bank Account Details for remittance of

	  	
[                    ]

	
funds

	  	  

The Equipment and location of the Equipment the subject of this Drawdown Notice is referred to in Appendix A to this Drawdown Notice.  The principal will be repaid and interest shall be paid monthly in accordance with Appendix B to this Drawdown Notice.

 

We confirm that:

 

	
(a)

	
the representations and warranties made by us in the Loan Agreement are true and accurate on the date of this Drawdown Notice as if made on such date; and

 

	
(b)

	
no Event of Default has occurred and is continuing or would result from the delivery of this Drawdown Notice.

 

  

- 30 -

  

 

for and on behalf of

[BORROWER]

 

Authorised Signatory______________

 

Name__________________________

 

  

- 31 -

  

APPENDIX A

 

Equipment

 

In this Appendix “Equipment” means the equipment plant and machinery listed below together with all spare parts, replacements, repairs, modifications, improvements and additions thereto from time to time.

 

	
Quantity

	
Equipment 

Description

	
Make

	
Model 

Number

	
S/N

	
Year of 

Manufacture

	
Asset 

Category

	
Item Cost 

Excluding 

VAT

	
Book 

Value 

Finance

 

  

- 32 -

  

APPENDIX B

 

Interest and Principal Payment Due Dates

 

  

- 33 -

  

Duly executed by the parties on the date first set out on the first page of this Loan Agreement.

 

BORROWER

 

Signed

 

For and on behalf of

WHITESMOKE ISRAEL LTD.

 

Authorised signatory

 

	
Name:

	
/s/ Hilla Ovil-Brenner

	 
	
Title:

	
CEO

	 

 

For and on behalf of

WHITESMOKE INC.

 

Authorised signatory

 

	
Name:

	
/s/ Hilla Ovil-Brenner

	 
	
Title:

	
CEO

	 

 

LENDER

 

Signed

 

For and on behalf of

KREOS CAPITAL III LIMITED

 

Authorised signatory

 

	
Name:

	
/s/ Kreos Capital III Limited

	 
	
Title:

	
     

	 

  

- 34 -

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