Document:

fs10901_x105-nair.htm

EXHIBIT 10.5 FIRST MICRODEL AGREEMENT OF APRIL 2009

 

CONTRACT

Made and executed in Tel Aviv on the 1st day of April 2007

 

Between:                                Microdel Co. Ltd.

Private Co. 51-357787

Of 1 Bezalel Street, Ramat Gan

(Hereinafter: “the Investor”)

The first party

And:

Baby’s Breath Ltd.

Private Co. 51-307694-3

Of Hahadass Street, Building 5

North Industrial Park Or Akiva

POB 42, Or Akiva 30600

(Hereinafter: “the Company”)

The second party

 

	
WHEREAS
	
The Company is a limited company duly registered in Israel, which is developing an inhalation product for infants;

	
WHEREAS
	
The Company has developed a product of inhalation for infants called “Baby Air” (hereinafter: “the Product”);

	
WHEREAS
	
The Company declares that the initial stage of the product’s development has been concluded and steps may be taken forthwith to market the product;

	
WHEREAS
	
The Company has contacted the Investor so that the Investor shall invest in the Company the amount of the investment in cash, as defined herein below. The Investor shall take steps to market the product for the Company or to conclude a single sale to a third party of all rights in the product, inclusive of intellectual property rights in the product and the rights to manufacture and market the product. And so that
the Investor may grant a variety of services thereto, as specified herein below in this contract;

	
WHEREAS
	
The Investor is well-suited to invest in the Company the sum of the investment in cash as well as to take measures to market the product on behalf of the Company or to make a single sale to a third-party of all rights in the product as aforesaid as well as to provide the Company with a variety of services on the conditions and for the proceeds as specified herein in this Memorandum of Principles below;

	
WHEREAS
	
The parties have formulated principles for the execution of the transaction between them and would like to put these in writing as part of this contract, while agreeing that these shall serve as the basis for the connection thereof in a detailed contract;

 

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Accordingly, the parties have agreed, stipulated and declared as follows:

 

1.           Preamble and Appendices

1.1           The preamble to this contract constitutes an integral part thereof.

	
  
	
1.2
	
The section titles of this contract are solely for convenience and are not to be utilized for the interpretation thereof.

	
  
	
1.3
	
The following appendices are to be attached hereto to this contract and constitute an integral part thereof:

	
  
	
1.3.1
	
Appendix 2.4 – Printout of the Registrar of Companies pertaining to the Company

	
  
	
1.3.2
	
Appendix 2.11 – A list of undertakings of the Company

	
  
	
1.3.3
	
Appendix 2.21 – A table of share allocations for the exercise of options

	
  
	
1.3.4
	
Appendix 2.14 – Summary of activities of the Investor and the share allocation made in accordance thereto

	
  
	
1.3.5
	
Appendix 3.2 – Articles of Association of the Company

	
  
	
1.3.6
	
Appendix 3.2.1 – Correct state of holdings in the Company (which has not yet appeared at the Registrar of Companies)

	
  
	
1.3.7
	
Appendix 4.4 – Undertaking to maintain confidentiality

	
  
	
1.3.8
	
Appendix D6 – Budgetary Plan (The budgetary plan shall be attached to this contract within 60 days of the date of signature thereof or up to the date of payment of half the sum of the investment in cash, as defined herein below in section 2.15 - $250,000, according to whichever date is the earlier of the two.)

	
  
	
1.3.9
	
Appendices 1.8 and 1.8A – The proceeds in respect of the services of the business leader, as defined in section 2.17 herein below, including conditions of the “Bonus for Success.”

	
  
	
1.3.10
	
Appendix 8.5 – A marketing and sales target plan for the determining period

	
  
	
1.3.11
	
Appendix 10.1 – A service agreement specifying, inter alia, the nature and extent of services to be provided by the Investor, as stated in Section 10.1 herein below.

	
  
	
1.3.12
	
Appendix 11.1 – The engineering specification of the blower/inflator

 

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2.           Definitions and Interpretation

The following terms shall have the meaning specified alongside thereof herein in this contract:

2.1           “The Company” – Baby’s Breath Co. Ltd.

	
  
	
2.2
	
“The Determining Price” – For the purposes of this contract the amount of U.S. $4,000,000.00 (USD four million)

	
  
	
2.3
	
“Price Per Percent” – The amount of $40,000 U.S. (USD forty thousand)

	
  
	
2.4
	
“Company Shareholders” – As specified in the printout of the Registrar of Companies, attached hereto to this contract as Appendix 2.4 and constituting an inseparable part thereof.

	
  
	
2.5
	
“Company Activities” – Product development and/or marketing of the product and/or manufacturing the product

	
  
	
2.6
	
“Final Marketing Target” – The sum of orders and/or sales (hereinafter: “Sales”) of 170,000 (one hundred and seventy thousand) units of the product to be sold by the Company within the determining period, whether as a result of activities performed by the Investor and/or anyone
on behalf thereof or in any other manner. For the purposes of the aforesaid, product units that are sold and/or transferred at the cost price or prices lower than the price it costs the Company shall not be taken into account.

	
  
	
2.7
	
“Final Profit Target” – Pretax profits in a cumulative amount of U.S. $1,500,000 (USD one million five hundred thousand), which accrue to the Company in the course of thirty (30) months, commencing on the date of signature of this contract, whether as a result of activities performed by the Investor and/or anyone on behalf thereof or in any
other manner.

	
  
	
2.8
	
“Blower” – Electric blower (compressor) connected to the product.

	
  
	
2.9
	
“Determining Period” – A period of thirty (30) months commencing on the date of signature of this contract.

	
  
	
2.10
	
“Inspection Period” – A period commencing on the date of signature of this contract and terminating on the conclusion of six (6) months from the date of signature of this contract or on the date of provision of the Notice of Existence, as this term is defined in section 5.4 herein below, whichever is the earlier of the two.

	
  
	
2.11
	
“Company Undertakings” – As specified in Appendix 2.11 attached hereto to this contract and constituting an inseparable part thereof.

	
  
	
2.12
	
“Current Product Units” – Thirty product units to be produced by the Company prior to the signature of this contract.

 

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2.13
	
“Set of Molds” – The number of molds required to constitute the platform for manufacture of an entire product (including the blower) in accordance with the specification to be determined and authorized in advance and in writing by the Company.

	
  
	
2.14
	
“System for Investor Activities and Allocation of Allocated Shares” – The system used for Investor activities and share allocations in accordance thereto, attached hereto to this contract as Appendix 2.14 and constituting an inseparable part thereof.

	
  
	
2.15
	
“Amount of Cash Investment” – The sum of U.S. $500,000 (USD five hundred thousand), which the Investor undertakes to invest in the Company in the event that it decides up to termination of the Inspection Period that it would like to invest in the Company and provide services thereto, as stated herein below in this contract.

	
  
	
2.16
	
“The Allocated Shares” – The shares designated for allocation to the Investor (including those as a result of the exercise of the call options) if the full sum of the inclusive investment is invested in the Company, as defined herein below, which shall purchase 50% of the entire ordinary A and B share capital of the Company, if allocated in
full at the time of signature of this contract.

	
  
	
2.17
	
“Call Options” – As defined herein below in section 7.1.

	
  
	
2.18
	
“Security” – Shares and/or any options to be given pursuant to this contract.

	
  
	
2.19
	
“Business Leader” – A business leader to be made available to the Company by the Investor, the selection whereof requires the agreement of the Company, all as subject to the provisions of this contract.

	
  
	
2.20
	
“Date of Signature of This Contract” – The date whereon all the following conditions have been fulfilled cumulatively:

	
  
	
2.20.1
	
Actual signature of this contract, inclusive of the appendices thereto.

	
  
	
2.20.2
	
Authorization of the Company Board of Directors for the signature of this contract (hereinafter: “Authorization of the Connection”). The Company undertakes that the Board of Directors of the Company shall convene to discuss the authorization of the connection within thirty (30) days of the date
of signature of this contract (hereinafter: “the Authorization Period”). The parties may extend the authorization period from time to time by way of written contract to be signed by both parties. The parties hereby agree that in the event that authorization of the connection fails to be obtained within the authorization period, this contract shall be deemed as revoked and the parties shall have no contention and/or demand each vis-à-vis
the other.

	
  
	
2.21
	
“Share Allocation Table for Exercise of Options” – A table attached hereto to this contract as Appendix 2.21 and constituting an inseparable part thereof with details of the numbers of shares allocated in all possible alternatives of the full exercise of the
call options, pursuant to this contract, in accordance with the chronological order of the exercise.

 

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3.           Shareholders and Company Declarations

The Company declares and undertakes the following:

	
  
	
3.1
	
The Company is a private company duly registered in Israel and under the ownership and full control of the shareholders. Further, there is no decision or order for liquidation or receivership against the Company or shareholders thereof and no caution has been received of any intent to request such an order.

	
  
	
3.2
	
The Company’s registered share capital is in the amount of NIS 1,000,000 (one million New Israeli shekels) nominal value divided into 450,000 (four hundred and fifty thousand) ordinary A shares of NIS 1.00 nominal value, 450,000 (four hundred and fifty thousand) ordinary B shares of NIS 1.00 nominal value and 100,000 (one hundred thousand) ordinary C shares of NIS 1.00 nominal value. Of the Company’s
registered capital, 11,765 (eleven thousand seven hundred and sixty-five) ordinary A shares and 11,765 (eleven thousand seven hundred and sixty-five) ordinary B shares have been issued. A printout of the Registrar of Companies is attached hereto to this contract as Appendix 2.4 (the Company Articles of Association and all updates that applied thereto are attached to the agreement as Appendix
3.2. In accordance with the understandings between the Company and the shareholders of Life Sport Ltd., it has been agreed that part of the allocated shares to Y.S.R. Trust Properties Ltd. and held in trust for Life Sport (1,547 ordinary B shares) shall become deferred shares with no rights, save for the right to receive the nominal value thereof at liquidation. Following the application of the aforesaid agreement, the state of shareholder holdings in the Company shall be as specified in Appendix
3.2.1 while the allocated and paid capital of the Company shall include 11,765 ordinary A shares and 10,218 ordinary B shares (and an undertaking to allocate 500 ordinary C shares to Amado, as stated in section 3.3 herein below).

	
  
	
3.3
	
As of the date of signature of this contract, there is no other undertaking and/or understanding, whether written or verbal, to allocate Company shares and no option and/or options and/or any other securities convertible to Company shares have been granted, which are valid at the time of this contract, save for an undertaking vis-à-vis A.T. Maagal Shivuk U’Pituach Iski Ltd. (hereinafter: “Amado”)
to allocate to him 2.5% of Company shares at the time that Life Sport Ltd. enters (500 shares), while these shares shall be solely property shares, that is Type C shares, as defined in the Company’s Articles of Association, which fail to grant any right to vote whatsoever and/or right to appoint a director and the sole right they do grant the holder thereof is the right to receive a share in Company profits, all as specified in the Company’s Articles of Association.

	
  
	
3.4
	
The directors of the Company are Avraham Afori, Adi Fleschkat, Tzvika Sharf, Golan Gilad and Assaf Halamish.

	
  
	
3.5
	
The Company is the sole proprietor of the Company’s activities.

 

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3.6
	
Apart from the Company’s undertakings, the Company has no additional undertakings and has not given any valid undertaking to conclude any transaction with any third party whatsoever in connection with Company activities.

	
  
	
3.7
	
Subject to the contents stated herein below concerning the right of Company shareholders to join in any share allocation in the Company as aforesaid in Regulation 10 of the Company Articles of Association, the Company for its part has no preclusion to enter into this contract subject to the contents of section 18.1 herein below.

	
  
	
3.8
	
The Company is not a party to any pending legal claim of action, civil or criminal, and is not a party to any other legal proceeding conducted in a court and/or tribunal and/or before an arbitrator and it has no knowledge of any intent of any third party whatsoever to initiate proceedings against it.

	
  
	
3.9
	
Subject to the provisions of this contract herein below, there is no preclusion on the part of the Company to enter into this contract.

	
  
	
3.10
	
Commencing on the date of signature of this contract and as long as this contract remains in force, the Company shall notify the Investor of any unusual activity not in the ordinary course of business of the Company.

 

4.           Declarations of the Investor

The Investor declares and undertakes the following:

	
  
	
4.1
	
That it has the knowledge and experience required to market the product and/or to acquire a final marketing target and/or a final profit target and/or to find a purchaser to purchase all rights in the product and it has the financial capacity to fulfill the undertakings thereof subject of this contract.

	
  
	
4.2
	
That it has the knowledge and experience necessary to set up a manufacturing system for the product (both for molds and the blower) whether of its own accord or by means of anyone on behalf thereof.

	
  
	
4.3
	
That it shall duly make all decisions and/or acquire all authorizations necessary thereto, pursuant to any law and pursuant to the documents of incorporation thereof, to enter into this contract and perform all undertakings thereof pursuant thereto. And that it does not require the consent and/or authorization of any other third party to enter into this contract and perform all undertakings thereof specified herein,
save for the authorizations required pursuant to this contract.

	
  
	
4.4
	
That it shall sign at the same time as the signature of this contract an undertaking to maintain confidentiality with the text of Appendix 4.4 to this contract. And it shall have anyone on behalf thereof who shall engage on behalf thereof in Company affairs sign a letter of undertaking with a similar text and shall deliver a copy
of the aforesaid to the Company forthwith, proximate to the signature thereof.

 

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5.           Inspection Period

	
  
	
5.1
	
Forthwith upon signature of this contract and throughout the inspection period, the Investor undertakes to perform the following actions:

	
  
	
5.1.1
	
To strictly examine the presentations of the Company and the advisability of its investment in the Company. Subject to this, the Company shall enable the Investor to perform all inspections it requests in connection with the state of the Company, and the assets and business thereof to the satisfaction of the Investor. In the event the Investor arrives at a decision to invest in the Company the sum of the cash investment,
the matter shall be carried out according to the As-Is state of the Company. And the Investor shall have no contentions or claims whatsoever vis-à-vis the Company and/or directors thereof and/or shareholders thereof in connection with the state of the Company, save for inaccurate declarations and/or presentations made with malicious intent and with respect thereto the Investor may sue the Company solely for direct damage.

	
  
	
5.1.2
	
To act and perform all that is required in coordination with the Company and the agreement thereof in advance to further sales of the product and the marketing thereof abroad. Without derogating from the aforesaid, the Investor undertakes to make available to the Company the business leader who shall act in coordination with the Company to plan setting up a marketing system for the product abroad during the inspection
period. To the activities of the business leader the following provisions shall apply:

	
  
	
5.1.2.1
	
The Investor and business leader may not undertake in the name of the Company and/or sign in the name thereof any agreements and/or introduce themselves as authorized therefore, both during the course of the inspection period and during the course of the determining period, if there is such.

	
  
	
5.1.2.2
	
Upon conclusion of the inspection period and during the course of the determining period, the business leader shall be an employee of the Investor or a provider of services to the Investor. And any monetary undertakings in the employment thereof and/or in the provision of services thereof shall apply to the Investor and it shall pay them, unless one of the events specified herein in Appendix
8.1 occurs, entitling the Investor to receive proceeds in respect of the business leader’s services in addition prior to the conclusion of the inspection period, all as specified in Appendix 8.1 herein below. There shall be no employer-employee relations between the Company and the business leader and no relations of a provider of services to client either.

	
  
	
5.1.2.3
	
Any expenses of marketing and sales promotion during the inspection period shall apply to the Investor and it shall pay them, without the Investor being permitted to charge the Company in respect thereof, unless one of the events listed in Appendix 8.1 occurs during the inspection period, entitling the Investor to receive proceeds
in respect of the business leader’s services also prior to the conclusion of the inspection period, all as specified in Appendix 8.1 herein below.

 

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5.1.2.4
	
Any marketing and sales promotion activity of the Investor during the inspection period (as well as during the determining period) shall require the Company’s agreement in advance. The Investor and business leader shall deliver to the Company in advance a list of companies and/or bodies they intend to contact with the aim to market the product to them and/or by means thereof and the Investor and business leader
shall deliver to the Company copies of all correspondence with third parties concerning the product. Nothing in the aforesaid may derogate from the provisions of section 8.4 herein below.

	
  
	
5.1.2.5
	
The Investor is liable so that the business leader shall convey to the Company every month a report on the monthly activities thereof wherein it shall specify all marketing and sales activities conducted during the past month as well as a plan of its activities for the next month. Nothing in the aforesaid may derogate from the aforesaid with respect to the business leader’s duty to act, at all times, in coordination
with the Company and the agreement thereof. The aforesaid in this section shall apply also during the determining period, if there is such.

	
  
	
5.1.2.6
	
The Company may refuse, solely on reasonable grounds, any order for products and/or any other transaction the business leader initiates.

	
  
	
5.1.2.7
	
The Company shall do everything necessary to enable the complete fulfillment of every transaction it has authorized in writing (hereinafter: “An Authorized Transaction”). The Company shall indemnify the party with which it entered into an authorized transaction in the event that it breaches the transaction therewith, inclusive of the Investor, if
with respect to the same transaction the Investor was a party to the authorized transaction.

	
  
	
5.1.3
	
To undertake planning the full set of molds (inclusive of with respect to the blower) in accordance with the engineering specification whereto the parties agree and to take all necessary steps, in coordination with the Company in advance, inclusive of assisting the Company in the process of acquiring authorization (regulation) for a blower from the American Food and Drug Administration (FDA) and other relevant authorities,
insofar as there are such, so that, at the earliest possible date following signature of this contract, the manufacture of an entire set of molds enabling serial production of the product by means of the set of molds shall be fulfilled as follows:

	
  
	
5.1.3.1
	
Within thirty (30) days of the date of signature of this contract, the parties shall complete a technical specification for plans, excluding the blower. Forthwith following the completion of the technical specification, the Investor, by way of an external contractor, shall make a model and persist consistently in order to have the model authorized as soon as possible.

 

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5.1.3.2
	
Within 75 days of authorization of the model, the molds shall be produced and transferred to the ownership of the Company. With respect to the molds for the production of the blower, the provisions of section 0 herein below shall apply as well.

For the avoidance of doubt, it is hereby clarified that the Company shall bear all payments required for procedures of authorization as aforesaid, inclusive of fees for the external contractor required to obtain FDA authorization and any payment the Company is required to pay directly to FDA authorities to have the full set of molds authorized.
It is further clarified that the Investor shall bear any expenses of planning and production of the full set of molds, as aforesaid.

	
  
	
5.2
	
During the inspection period, the Company may conduct its business without any restrictions as it deems fit, provided that if it finds an alternate investor to the Investor (hereinafter: “the Alternate Investor”) prior to the conclusion of the inspection period, the Company shall grant the Investor the right of first refusal to connect with the Company
on the conditions offered by the Alternate Investor. If the Company finds an Alternate Investor, as aforesaid, the Investor shall be given the right of first refusal to make available to the Company the sum of the investment subject of the Alternate Investor’s investment in place of the Alternate Investor. The Investor shall utilize the right of first refusal within fifteen (15) days of the day the Company gave notice with respect to finding an alternate investor. If the Investor chooses to place at the
Company’s disposal the sum of the investment subject of the Alternate Investor’s offer, as aforesaid, the sum of the aforesaid investment shall be credited on account of the sum of the additional investment, as defined in section 6.1 herein below.

	
  
	
Upon termination of the inspection period and/or the expiration thereof and/or the revocation of this contract, the right of first refusal granted to the Investor pursuant to the provisions of this section shall also expire.

	
  
	
5.3
	
If, during the course of the inspection period and until the conclusion of the inspection period, the Investor decides that it no longer wishes to invest in the Company the sum of the cash investment and provide it with the services subject of this contract, whatever the reasons for its decision (hereinafter: “Cancellation at the Investor’s Initiative”),
it shall give notice thereof in writing to the Company up to and no later than the termination of the inspection period and the following provisions shall apply thereto:

	
  
	
5.3.1
	
The Investor shall deliver to the Company all information, correspondence, survey results, potential customers’ responses as well as any other documents relating to the product and the efforts to market the product abroad.

	
  
	
5.3.2
	
The Investor shall deliver to the Company all products of its activities in connection with the planning, design and production of the full set of molds (inclusive of that of the compressor) until the date of giving notice of cancellation at the Investor’s initiative (hereinafter: “the Products of Activities to Prepare a Full Set of Molds”).

 

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5.3.3
	
The Investor shall be entitled to receive from the Company sums of money reflecting the direct costs to the Investor of the preparation of a full set of molds, which it actually expended up to the date of cancellation at the Investor’s initiative and as authorized by the Company prior to the disbursement thereof (hereinafter: “the Cost of the Products”).
The cost of the products shall be determined based on the invoices the Investor presents to the Company indicating payments of funds to third parties. Nonetheless, in any event, the cost of planning, design and production of a full set of molds for the product (without the blower) up to the stage wherein it is possible to produce therewith a serialized product shall not exceed U.S. $100,000 (USD one hundred thousand). With respect to the blower, the upper limit of the amount until after production of a full set
of molds for the production thereof shall not exceed U.S. $80,000 (USD eighty thousand).

	
  
	
5.3.4
	
In the event of a dispute with respect to the cost of the products, as aforesaid in sub-section 5.3.3, an arbitrator, as defined in section 0 herein below, shall decide the dispute.

	
  
	
5.3.5
	
The cost of the products, as aforesaid in section 5.3.3, shall be paid to the Investor from future Company profits and/or from the funds of the Alternate Investor.

	
  
	
5.3.6
	
Notwithstanding the aforesaid in section 5.3.3 above, in return for payment of the cost of the products, the Company may allocate to the Investor shares in the Company, which following the allocation shall be part of the allocated A and B share capital in the proportion of the cost of the products to the determining price.

	
  
	
5.3.7
	
This contract shall be brought to an end with the performance of the contents of this section 5.3 and the parties shall have no contentions and/or claims each toward the other.

	
  
	
5.4
	
If, during the course of the inspection period, the Company decides that it does not want the Investor to invest in the Company the sum of the cash investment and it is not interested in the performance of this contract, not as a result of any breach of this contract by the Investor, the Company shall notify the Investor thereof in writing (hereinafter: “Notice
of Intent to Revoke”). If a notice of intent to revoke is given, notwithstanding the notice of intent to revoke, the Investor may inform the Company within no more than fifteen (15) days of receiving the notice of intent to revoke that it is interested in the fulfillment of this contract (hereinafter: “Notice of Fulfillment”) and attach to the notice of fulfillment a bank check in favor of the Company in an amount equivalent in shekels
to U.S. $250,000 (USD two hundred and fifty thousand). Provision of such notice, as aforesaid, to which a bank check has not been attached shall not be deemed as giving notice of fulfillment.

	
  
	
In the event of the provision of a notice of fulfillment together with a bank check, as aforesaid, the Inspection Period shall be deemed to conclude at that same time and the Investor shall be deemed as having invested half the sum of the Cash Investment.

 

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5.5
	
If the Company gives notice of intent to revoke and the Investor failed to deliver within fifteen (15) days notice of fulfillment with a bank check attached thereto, as aforesaid, this contract shall be deemed as having been terminated at the Company’s initiative (hereinafter: “Revocation at the Company’s Initiative”), and in such event
the following provisions shall apply:

	
  
	
5.5.1
	
The provisions of sections 5.3.1 to 5.3.4 above shall apply as well as the provisions of sections 5.3.6 to 5.3.7 above, mutatis mutandi. However, the cost of the products shall be paid to the Investor within a period that fails to exceed one hundred and twenty (120) days.

	
  
	
5.5.2
	
The Investor shall be entitled to compensation in respect of its activities on behalf of the Company during the period from the date of signature of this contract until the date of revocation at the Company’s initiative (hereinafter: “The Halted Period of Activity”), in accordance with one of the following alternatives as the Company shall
choose:

	
  
	
5.5.2.1
	
The Company shall pay the Investor the sum of

	
  
	
NIS 30,000 a month in respect of the period of activity that was halted. Payment shall be made within no more than one hundred and twenty (120) days of the date of provision of the notice of revocation at the Company’s initiative.

	
  
	
5.5.2.2
	
The Company shall allocate to the Investor shares in the Company granting it holdings in the Company, as of the date of the allocation at a rate of half a percent (0.5%) a month throughout the halted period of activity. The aforesaid comes in addition to payment of the cost of the products by the Company.

	
  
	
5.5.3
	
The parties hereby agree that the compensation aforesaid in sub-section 5.5.2 above shall be paid solely if the Investor transmits to the Company a detailed report with respect to activities it undertook during the halted period of activity and subject to the fact that during the halted period of activity, the Investor fulfilled its undertakings, pursuant to this contract in a reasonable manner. In the event that
the Investor failed to fulfill its undertakings in a reasonable manner during the halted period of activity or the revocation at the Company’s initiative is the result of an act and/or omission on the part of the Investor or if an essential detail is disclosed, which the Investor failed to disclose to the Company prior to its entering into this contract and/or in a detailed agreement, then the Investor shall not be entitled to compensation, as aforesaid in section 5.5.2 above.

	
  
	
5.6
	
It is hereby clarified that the Investor may curtail the period of inspection by the payment of the sum of U.S. $250,000 (USD two hundred and fifty thousand) to the Company. In the event of payment, as aforesaid, the inspection period shall be terminated on the date of actual payment of the aforesaid amount.

 

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6.           Transaction

	
  
	
6.1
	
In the event this contract is not terminated early up to the conclusion of the inspection period by any one of the parties, as aforesaid in section 0 above, the Investor undertakes to invest in the Company the sum of the investment in cash in accordance with the contents of section 6.3 herein below. The Investor may also invest in the Company an additional sum apart from the sum of the cash investment that is not
to exceed U.S. $1.5 million dollars (USD one million five hundred thousand) (hereinafter: “the Sum of the Additional Investment”) and, in total, an amount not to exceed U.S. $2,000,000 (USD two million dollars) (hereinafter: “the Comprehensive Sum of the Investment”), in accordance with the provisions of this contract following
herein below.

In return for an investment equivalent to the price of a percent, the Company shall allocate to the Investor shares in the Company reflecting a rate of holdings of one percent of the issued shares of the Company, in full dilution, accurate to the date of signature of this contract. For the avoidance of doubt, the provisions of this section
shall apply relatively also to investments that are less than the price per percent.

	
  
	
6.2
	
The parties hereby agree that the investment of the sum of the cash investment and the investment of the sum of the additional investment, as aforesaid in sub-section 6.1 above, shall constitute, in any event, share capital, which the Company shall not be obligated to refund to the Investor.

	
  
	
6.3
	
The Investor undertakes that the sum of the cash investment ($500,00) shall be invested in the Company by way of an investment in the Company’s capital, according to the following dates:

	
  
	
6.3.1
	
At the conclusion of the inspection period – U.S. $250,000 (USD two hundred and fifty thousand). The parties hereby agree that if the Investor refrains from investing this sum by the conclusion of the inspection period, this shall signify, for the purposes of this contract, a notice of revocation at the Investor’s initiative, whereto the provisions of sub-section 5.3 above shall apply.

	
  
	
6.3.2
	
Within twelve (12) months of the date of payment aforesaid in sub-section 6.3.1 above – an additional U.S. $250,000 (USD two hundred and fifty thousand).

	
  
	
6.4
	
In addition to the sum of the cash investment, which the Investor undertakes to invest in the Company on the dates as specified above (and provided that this contract is not brought to early termination prior to the conclusion of the inspection period, as aforesaid in section 0 above), the Investor may (but is not obligated to) invest in the Company in the course of a period of twenty-four (24) months from the conclusion
of the inspection period, an additional sum not to exceed the sum of the additional investment (i.e., up to an additional U.S. $1.5 million, apart from the sum of the cash investment). In such event, a share allocation to the Investor shall be performed in accordance with the sum of the actual investment as opposed to the price of one percent.

 

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6.5
	
If the Investor fails to fulfill its undertaking to invest the full balance of the sum of the cash investment on time, as aforesaid in sub-section 6.3.2 above (for the avoidance of doubt, with respect to the failure to pay the first sum of $250,000, the contents of sub-section 6.3.1 above shall apply) and provided that the Investor notifies the Company in writing up to no later than the conclusion of nine (9) months
following the date of the first payment on account of the sum of the cash investment, that it has no intention of investing the balance of the sum of the cash investment, the Company may (but is not obligated to) take the following measures:

	
  
	
6.5.1
	
To revoke this contract; as well as or solely in accordance with Company discretion.

	
  
	
6.5.2
	
To inform the Investor that in place of receiving up to the same date shares in the Company and/or options for the purchase of shares in the Company, which reflect the actual comprehensive investment in the Company up to the same date, in accordance with the price for a percent and the principles specified herein in this contract (hereinafter: “the Securities
Owing to the Investor Had It Fulfilled Its Undertakings Up To the Date of Calculation”), the Investor shall be entitled to receive in respect of its investment in the Company up to the same date solely 78% (seventy-eight percent) of the extent of securities owing to the Investor had it fulfilled its undertakings prior to the date of calculation.

	
  
	
6.6
	
In the event that the Investor fails to fulfill its undertakings to invest the full balance of the sum of the cash investment and fails to give notice of such intent by the conclusion of the 9-month period, as aforesaid, the matter shall be deemed a fundamental breach of the provisions of this contract, granting the Company the right both to rescind this contract and to forfeit all shares allocated and/or to turn
them into deferred shares absent of rights. And the Investor shall not be entitled to any shares whatsoever in the Company and/or to a refund of any monies whatsoever in respect of its investments and activities on behalf of the Company.

	
  
	
6.7
	
The sum of the cash investment shall serve the Company for the ongoing requirements thereof in accordance with the work plan attached hereto to this contract within sixty (60) days of the date of signature thereof or up to the date of performance of the first payment on account of the cash investment ($250,000), whichever date is the earlier (hereinafter: “the
Budgetary Plan”). The Company shall utilize the sum of the cash investment in accordance with the budgetary plan, while a divergence of up to 15% may be permitted among the elements thereof. Any substantial divergence from the budgetary plan apart from the aforesaid departure shall require a decision of the Company Board of Directors.

 

7.           Call options

	
  
	
7.1
	
In any event where this contract fails to be brought to early termination up to the conclusion of the inspection period by either of the parties, as aforesaid in section 0 above, and subject to the actual investment of the first payment on account of the cash investment according to the provisions of section 6.3.1 above, and in accordance with the remaining provisions of this contract, rights to purchase additional
shares in the Company are hereby given to the Investor as follows:

 

13

 

	
  
	
7.1.1
	
The right to purchase shares in the Company constituting twenty-seven (27) percent of the issued and paid share capital of the Company, fully diluted, accurate to the date of signature of this contract (i.e., if the option had been exercised in full on the date of signature of this contract), while of each type of A and B shares shall be allocated twenty-seven (27) percent of the number of the aforesaid shares, allocated
at the time of signature of this contract, as aforesaid (hereinafter “the First Option”), that is, in accordance with the number of shares stated in the share allocation option exercise table and subject to the provisions of section 7.1.5 herein below.

	
  
	
7.1.2
	
The right to purchase shares in the Company constituting two and a half (2.5) percent of the issued and paid capital of the Company, fully diluted, accurate to the date of signature of this contract (i.e., if the option had been exercised in full on the date of signature of this contract), while of each type of A and B shares two and a half (2.5) percent shall be allocated of the number of the aforesaid shares allocated
to shareholders in the Company at the time of signature of this contract, as aforesaid (hereinafter: “the Second Option”), that is in accordance with the number of shares stated in the share allocation option exercise table and subject to the provisions of section 7.1.5 herein below.

	
  
	
7.1.3
	
The right to purchase shares in the Company constituting six (6) percent of the issued and paid capital of the Company, fully diluted, accurate to the date of signature of this contract (i.e., if the option had been exercised in full on the date of signature of this contract), while of each type of A and B shares six (6) percent of the number of aforesaid shares allocated to shareholders in the Company at the time
of signature of this contract shall be allocated, as aforesaid (hereinafter: “The Third Option”), that is in accordance with the number of shares stated in the share allocation option exercise table and subject to the provisions of section 7.1.5 herein below.

	
  
	
7.1.4
	
The right to purchase shares in the Company constituting two (2) percent of the issued and paid capital of the Company, fully diluted, accurate to the date of signature of this contract (i.e., if the option had been exercised in full on the date of signature of this contract), while of each type of A and B shares two (2) percent of the number of aforesaid shares allocated to shareholders in the Company at the time
of signature of this contract shall be allocated, as aforesaid (hereinafter: “The Fourth Option”), that is in accordance with the number of shares stated in the share allocation option exercise table and subject to the provisions of section 7.1.5 herein below.

	
  
	
7.1.5
	
It is hereby clarified that, notwithstanding the contents stated in any other place herein in this contract, inclusive of Appendix 2.21 to this contract, in no event shall the Investor be entitled to a share allocation in the Company at a rate that exceeds one percent of the holdings indicated in each call option had all the options been exercised in full at the time of signature of this contract. This provision
shall apply also relatively and respectively, in any event where one of the options was exercised partially and/or in any event where one or more options failed to be exercised at all.

 

14

 

The First Option, the Second Option, the Third Option and the Fourth Option together shall be known hereinafter as: “the Call Options.”

	
  
	
7.2
	
The following provisions shall apply to the First Option:

	
  
	
7.2.1
	
The extent of the right to exercise the First Option:

	
  
	
7.2.1.1
	
If, within the determining period, the Company meets the final marketing target and/or the final profit target and/or a marketing target and/or a profit target, which exceed the final marketing target and/or the final profit target, the Investor may exercise the First Option in full (hereinafter: “the Entire First Option”).

	
  
	
7.2.1.2
	
If, during the determining period, the Company solely meets the final marketing target partially and/or the Company solely meets part of the final profit target, then, in such event, the Investor may solely exercise the First Option partially, to be determined relative to the rate at which the Company met the final marketing target and/or the final profit target (hereinafter: “the
Reduced First Option”). Notwithstanding the aforesaid, in the event the Company revokes this contract in accordance with the provisions of sub-section 8.5 herein below, the Reduced First Option shall be determined at the time of revocation of the agreement and not within the determining period. The provisions of this sub-section shall apply with respect to any call option, subject of this contract, in the event of revocation of the agreement, pursuant to the provisions of sub-section 8.5 herein below.
Nothing in the aforesaid may derogate from the provisions of sub-section 6.5 above, according to the provisions whereof the Reduced First Option shall be determined (and the reduction of any additional call option) at the time required by sub-section 6.5 above and at the rate required by sub-section 6.5.2 above. Nothing in the aforesaid may derogate from or impair the provisions of sub-section 6.6 above, which prevail over any other provision herein in this contract.

	
  
	
7.2.1.3
	
Notwithstanding the aforesaid in sub-section 7.2.1.1 and sub-section 7.2.1.2 above, the parties hereby agree that if consideration of the Company’s meeting the final marketing target and/or the final profit target is based, all or in part, on orders the Company and client actually authorized in writing and the date of payment for them occurs following the conclusion of twenty-four (24) months of termination
of the inspection period (hereinafter: “the Deferred Orders”), and if, when neutralizing the deferred orders, the Company fails to meet the final marketing target and/or the final profit target within the inspection period, then on termination of the inspection period, the Investor may exercise the Reduced First Option and on the conclusion of thirty (30) months since termination of the determining period, the Investor may exercise an additional
part of the First Option beyond the Reduced First Option at the same rate ensuing solely from the Deferred Orders (hereinafter: “the Addition to the Reduced First Option”).

 

15

 

7.2.2           The First Option Period:

	
  
	
7.2.2.1
	
The First Option and the Reduced First Option, as the case may be, may be exercised in full or in part and/or in installments, at the sole discretion of the Investor, commencing on the day the Company meets the final marketing target and/or the final profit target and/or the marketing target and/or profit target that exceed the final marketing target and/or the final profit target (hereinafter: “the
Date of Commencement of the First Option Period”) until thirty (30) months from the conclusion of the determining period (hereinafter: “the Expiration Date of the First Option”). The period commencing on the Date of the Commencement of the First Option Period and concluding on the Date of the Expiration of the First Option Period shall be called hereinafter: “the First Option
Period.”

	
  
	
7.2.2.2
	
The Addition to the Reduced First Option may be exercised in full and/or in part and/or in installments, at the sole discretion of the Investor, commencing on the conclusion of six months from the end of the determining period (hereinafter: “the Date of Commencement of the Addition to the Reduced First Option Period”) until termination of thirty
(30) months from the conclusion of the determining period (hereinafter: “the Date of Expiration of the Addition to the Reduced First Option Period”). The period commencing six months following the determining period and concluding on the date of expiration of the Addition to the Reduced First Option shall be called hereinafter: “the Addition to the Reduced First Option Period.”

	
  
	
7.2.3
	
Purchase of shares in accordance with the First Option and/or in accordance with the Reduced First Option and/or in accordance with the Addition to the Reduced First Option, as the case may be, shall be made in return for the nominal value of the allocated shares on the exercise thereof.

	
  
	
7.2.4
	
The procedure for exercise of the First Option and/or the Reduced First Option and/or the Addition to the Reduced First Option as the case may shall be as follows:

	
  
	
7.2.4.1
	
If the Investor seeks to exercise the First Option and/or the Reduced First Option and/or the Addition to the Reduced First Option, as the case may be, in full and/or in part, the Investor shall notify the Company of its wish as aforesaid in a registered letter to be sent to the Company up until and no later than thirty days prior to the date of expiration of the First Option or prior to the expiration of the Addition
to the Reduced First Option, as the case may be (hereinafter: “the Letter of Exercise”), wherein the Investor shall indicate the date it requests to exercise the pertinent option (hereinafter: “the Exercise Date”), provided that the exercise date remains within the First Option Period or within the Addition to the First
Option Period, as the case may be.

 

16

 

	
  
	
7.2.4.2
	
The Investor shall attach a check, in the amount of the nominal value of the purchased shares according to the pertinent option, to the Letter of Exercise.

	
  
	
7.2.5
	
If the Investor exercises the First Option and/or the Reduced First Option and/or the Addition to the Reduced First Option, as the case may be, solely partially, the Investor may again exercise the same pertinent option, partially or fully, from time to time, and the provisions of sub-section 7.2.4 above shall apply to the exercise or additional exercises thereof.

	
  
	
7.2.6
	
If the Investor fails to exercise the First Option and/or the Reduced First Option or exercises them partially up to termination of the relevant option period, then the pertinent option shall expire with respect to the same shares not exercised, as aforesaid.

	
  
	
7.2.7
	
In the event of the issuance of Company shares to the public, the Investor undertakes to exercise the First Option and any additional option given to him, pursuant to this contract, within 30 days of the Company’s notice of its intent to issue Company shares to the public and the preparation of a first draft of the Company’s prospectus on this matter. Call options not exercised within the aforesaid period
shall expire and shall not grant the Investor any right whatsoever.

	
  
	
7.3
	
The following provisions shall apply to the Second Option:

	
  
	
7.3.1
	
Upon completion of the planning, design and production of a full set of molds for the product (save with respect to the blower) and the delivery thereof to the Company, in accordance with the provisions of section 0 herein below and in accordance with the engineering specification the parties have agreed on, and on the dates stated herein in this contract, the Investor may then exercise the Second Option in full.

	
  
	
7.3.2
	
The Second Option may be exercised in full and/or in part and/or in installments, at the sole discretion of the Investor, commencing on the date the planning, design and production of a full set of molds for the product has been completed, as aforesaid in sub-section 7.3.1, (hereinafter: “the Commencement Date of the Second Option Period”) and up
to thirty (30) months of the conclusion of the determining period (hereinafter: “the Expiration Date of the Second Option Period”), the period commencing on the Commencement Date of the Second Option Period and terminating on the Expiration Date of the Second Option Period shall be called hereinafter: “the Second Option Period.”

	
  
	
7.3.3
	
Purchase of shares in accordance with the Second Option shall be made according to the nominal value of the allocated shares when exercising the Second Option.

 

17

 

	
  
	
7.3.4
	
If the Investor seeks to exercise the Second Option, in full or in part, the Investor shall notify the Company of his wish as aforesaid in a registered letter to be sent to the Company up until and no later than thirty days prior to the date of expiration of the Second Option (hereinafter: “the Letter of Exercise”). In the letter, the Investor shall
indicate the date whereon it requests to exercise the Second Option (hereinafter: “the Date of Exercise”), provided that the date of the exercise shall be within the Second Option period. The Investor shall attach a check in the amount of the nominal value of the shares being purchased according to the Second Option to the Letter of Exercise.

	
  
	
7.3.5
	
If the Investor exercises the Second Option solely partially, the Investor may again exercise the Second Option, either in part or in full, from time to time, and the provisions of sub-section 7.3.4 above shall apply to the exercise or additional exercises thereof.

	
  
	
7.3.6
	
If the Investor fails to exercise the Second Option or exercises it only in part, up to the termination of the Second Option period, then the relevant option with respect to the same shares that failed to be exercised, as aforesaid, shall expire.

	
  
	
7.4
	
The following provisions shall apply to the Third Option:

	
  
	
7.4.1
	
Each year wherein the Investor provided management services to the Company, in accordance with the provisions of section 0 herein below, the Investor shall be entitled to exercise one-quarter of the rights, pursuant to the Third Option (the fractions of the Option as aforesaid herein in this section shall be known hereinafter as: “Fractions of the Third Option”),
so that following four years wherein the Investor provided management services to the Company, the Investor shall be entitled to exercise the Third Option in full.

	
  
	
7.4.2
	
Each one of the fractions of the Third Option may be exercised in full and/or in part and/or in installments at the sole discretion of the Investor commencing on the date whereon the right to exercise the relevant part of the Option arises (hereinafter: “the Date of Commencement of the Third Option Period”). The period beginning on the date of commencement
of the Third Option and concluding on the date of expiry of the Second Option shall be called hereinafter: “the Third Option Period.”

	
  
	
7.4.3
	
Purchase of shares in accordance with each of the fractions of the Third Option shall be made in return for the nominal value of the allocated shares in the exercise of each of the fractions of the Third Option.

	
  
	
7.4.4
	
If the Investor seeks to exercise all of the fractions of the Third Option, in full and/or in part, the Investor shall notify the company of its wish, as aforesaid, in a registered letter to be sent to the Company up until and no later than thirty days prior to the date of expiration of the Third Option (hereinafter: “the Letter of Exercise”). Therein
the Investor shall indicate the date whereon he seeks to exercise the same fraction of the Third Option (hereinafter: “the Date of Exercise”), provided the date of exercise shall fall within the Third Option Period. The Investor shall attach a check in the amount of the nominal value of the shares being purchased, according to the Third Option, to the Letter of Exercise.

 

18

 

	
  
	
7.4.5
	
If the Investor exercises one or more fractions of the Third Option solely in part, the Investor may again exercise the Third Option, in part or in full, from time to time, and the provisions of section 7.4.4 above shall apply to the exercise and/or the additional exercises thereof.

	
  
	
7.4.6
	
If the Investor fails to exercise the Third Option or exercises it solely in part, up to the conclusion of the Third Option Period, then the pertinent option shall expire with respect to the same shares that failed to be exercised, as aforesaid.

	
  
	
7.4.7
	
The parties hereby agree that a condition precedent to the exercise of each of the Third Option fractions, in full and/or in part, is that the Investor indicates in the pertinent letter of exercise the identity of the third party, who is not an investor but who can be a business leader and/or other senior employee/s, who have assisted in furthering Company affairs and/or providers of services on behalf of the Investor
who assisted in furthering Company affairs. And the allocated shares in accordance with the pertinent letter of exercise, all or in part, shall be registered in the name/s thereof. The provisions of sub-section 7.4.7 herein shall not apply in the event the allocated shares according to the call options, all or in part, shall be allocated to a holding company, in accordance with the provisions of section 16.4 herein below. The identity of the third party, as aforesaid (apart from the business leader) shall require
the agreement of an ordinary majority of Company shareholders at that same time (apart from the Investor), who shall refuse to give the authorization thereof solely on reasonable grounds.

	
  
	
7.5
	
The following provisions shall apply to the Fourth Option:

	
  
	
7.5.1
	
If the Investor provides services with respect to the blower, in accordance with the provisions of section 0 herein below, the Investor may exercise the Fourth Option in full.

	
  
	
7.5.2
	
The Fourth Option may be exercised in full and/or in part and/or in installments, at the sole discretion of the Investor commencing on termination of the year wherein service with respect to the blower was provided, as aforesaid in section 7.5.1 herein above (hereinafter: “the Date of Commencement of the Fourth Option Period”) until thirty (30) months
after termination of the determining period (hereinafter: “the Date of Expiration of the Fourth Option”). The period beginning on the date of commencement of the Fourth Option Period and terminating on the date of expiration of the Fourth Option Period shall be called hereinafter: “the Fourth Option Period.”

	
  
	
7.5.3
	
Purchase of shares in accordance with the Fourth Option shall be made according to the nominal value of the allocated shares on the exercise of the Fourth Option.

 

19

 

	
  
	
7.5.4
	
If the Investor seeks to exercise the Fourth Option, in full and/or in part, the Investor shall notify the Company of its wish, as aforesaid, in a registered letter to be sent to the Company until and no later than thirty days prior to the date of expiration of the Fourth Option (hereinafter: “the Letter of Exercise”) wherein the Investor shall indicate
the date whereon he seeks to exercise the Fourth Option (hereinafter: “the Date of Exercise”), provided that the date shall fall within the Fourth Option Period. The Investor shall attach to the Letter of Exercise a check in the amount of the nominal value of the shares being purchased according to the Fourth Option.

	
  
	
7.5.5
	
If the Investor exercised the Fourth Option solely in part, the Investor may again exercise the Fourth Option, in part and/or in full, from time to time and the provisions of sub-section 7.5.4 above shall apply to the additional exercise/s thereof.

	
  
	
7.5.6
	
If the Investor fails to exercise the Fourth Option or exercises it only in part up to termination of the Third Option Period, then the pertinent option with respect to the same shares that failed to be exercised shall expire.

	
  
	
7.6
	
Notwithstanding the aforesaid in any other place in section 0 herein, the parties agree that in the event the Investor decides to invest in the Company a sum of money in cash apart from the sum of the cash investment (hereinafter: “the Additional Cash Investment”) and as a result of the additional cash investment Company shares are allocated to the
Investor, the following provisions shall apply thereto:

	
  
	
7.6.1
	
The Investor may exercise the call options in full and/or in part and/or in installments at its discretion until Company shares are allocated to the Investor and/or anyone on behalf thereof which constitute fifty (50) percent of the allocated and paid share capital of the Company, in full dilution, while fifty (50) percent of each type of A and B shares shall be allocated, as aforesaid (hereinafter: “the
Maximum Percentage of Holdings Resulting from the Exercise of Call Options”).

	
  
	
7.6.2
	
The Investor cannot, in any instance, exercise the call options, in full or in part, so that the Investor and/or anyone on behalf thereof is granted a percentage of holdings of Company shares exceeding the maximum percentage of holdings resulting from the exercise of call options.

	
  
	
7.6.3
	
The moment the Investor holds Company shares at the maximum percentage of holdings, all call options that the Investor has not yet exercised shall expire.

	
  
	
7.7
	
To ensure the Company’s undertaking to allocate the call options, the following provisions shall apply:

	
  
	
7.7.1
	
Forthwith following the performance of the first payment on account of the sum of the cash investment, the Company shall deposit in the trusted hands of Adv. Savir Rabin (hereinafter: “the Trustee”) the following documents:

 

20

 

	
  
	
7.7.1.1
	
Four different decisions of the Board of Directors, duly authorized and verified, with each of the decisions comprising authorization for the full allocation of shares, in accordance with each one of the call options, to the Investor and/or to the order thereof, in one allocation or a series of allocations, pursuant to the instructions of the Investor (hereinafter: “the
Allocation Decisions”).

	
  
	
7.7.1.2
	
Twenty (20) form reports of share allocations in the Company, in accordance with the provisions of section 140 (5) of the Companies Law, 5759-1999, duly signed and verified, wherein the number of shares allocated and the identities of the parties whereto the shares are allocated shall remain on the part (hereinafter: “the Allocation Forms”).

	
  
	
7.7.2
	
If the Company is precluded from allocating shares to the Investor and/or to the order thereof and/or to the assignee, in accordance with the Letter of Exercise sent thereto, then within thirty days of the date of receiving the Letter of Exercise the Company and/or the assignee shall give notice thereof to the Trustee. And the Trustee shall himself allocate the same shares, in accordance with the pertinent Letter
of Exercise, unless the Company informed the Trustee that it disputes its duty to allocate shares, in accordance with the pertinent Letter of Exercise.

	
  
	
7.7.3
	
Allocation of shares by the Trustee in accordance with the provisions of sub-section 7.7.2 above shall be made when the Trustee has filled out one of the allocation forms, has reported on the allocation to the Registrar of Companies and has transmitted a copy of the allocation form that has been filled out to the Company.

	
  
	
7.8
	
If the Company disputes its obligation, all or in part, to allocate shares in accordance with this or that Letter of Exercise, the Company shall inform the Trustee thereof forthwith and shall send a copy of the notice thereof also to Mr. Abraham Afori (hereinafter: “the Notice of Objection”).
In the notice of objection, the Company shall specify the reasons for the objection thereof to the share allocation in accordance with the pertinent Letter of Exercise and shall indicate as well whether it objects to the allocation in full or solely in part. In the event the Company disputes solely part of its duty to allocate shares in accordance with the pertinent Letter of Exercise, the Company shall immediately allocate the shares it fails to dispute the duty thereof to allocate (hereinafter: “the
Undisputed Shares”). In the event the Company is precluded from the allocation of the undisputed shares, the Company shall allocate such to the Trustee, in accordance with the provisions of sub-section 7.7.3 above.

	
  
	
7.9
	
If the Company sends a notice of objection, as aforesaid in sub-section 7.8 above, it shall be deemed a demand for the appointment of an arbitrator in accordance with the provisions of section 0 herein below and the following provisions shall apply:

	
  
	
7.9.1
	
The parties shall conduct arbitration to decide the dispute in accordance with the provisions of section 0 herein below.

	
  
	
7.9.2
	
During the period that arbitration is being conducted, the parties shall act in good faith within the Company to maintain the success and development thereof, save for the performance of investments that fail to enter into the normal course of business.

 

21

 

	
  
	
7.9.3
	
During the period that arbitration is being conducted, the parties shall carry on with the regular course of business and the number of shares needed to vote at the Board of Directors and the general meeting shall be according to whatever is the Company position.

	
  
	
7.9.4
	
On conclusion of the arbitration, the Company shall send a copy of the arbitrament to the Trustee.

	
  
	
7.9.5
	
If the Arbitrator decides that the Company is to allocate shares in accordance with the pertinent Letter of Exercise, and the Company fails to fulfill the decision thereof within thirty days, the Trustee shall perform the allocation in accordance with the provisions of sub-section 7.7.3 above.

	
  
	
7.11
	
The decision whether to send notice of objection or not shall be determined in the name of the Company by a majority of directors on the Board of Directors and the directors appointed by the Investor shall not participate in that meeting and the votes thereof shall not be counted.

	
  
	
7.12
	
The parties hereby agree that during the period of inspection, the Company shall not pass any resolution with respect to the deduction of the Company’s equity capital and/or any act not in the Company’s ordinary course of business, which may reduce the Company’s equity capital, including the distribution of dividends and/or repayment of a loan from a shareholder and/or the distribution of bonus
shares and/or capital payments of any kind to Company shareholders and/or an undertaking to perform any one of these (hereinafter: “Capital Reduction”).

	
  
	
Likewise, as long as the call options remain in effect, all and/or in part, without having been exercised and/or having expired, a capital reduction shall not be implemented in the Company unless thirty (30) days following notice to the Investor and/or anyone who holds and/or shall hold the securities specified herein in this contract, with respect to the intent to perform a capital reduction.

 

8.           Marketing and Sales

	
  
	
8.1
	
The Investor shall do all that is necessary to promote sales of the product and market it in Israel and abroad, although subject to Company agreements currently in effect. Any marketing and sales promotion of the Investor, as aforesaid, shall be made with the agreement of and in full and prior coordination with the Company. Nonetheless, the Company shall refuse to authorize any marketing step and/or sales promotion
of the Investor solely on reasonable grounds.

 

22

 

Without derogating from the aforesaid, the Investor undertakes that forthwith upon signature of this contract, it shall make available to the Company a business leader to market the product and manage the product’s marketing. The business leader shall work in full coordination with a representative to be appointed for this purpose
by the Company. The Company shall know the identity of the business leader. The Company may demand, at any time, that the Investor replace the business leader on any reasonable grounds, provided it gives notice thereof to the Investor thirty (30) days in advance. During the inspection period, the business leader shall grant services to the Company on a full-time basis.

	
  
	
8.2
	
Notwithstanding the aforesaid in sub-section 8.1 above and subject to the provisions of Appendix 8.1 herein below, all sales promotion and marketing activities to be performed by the business leader during the inspection period as well as any employment expenses of the business leader during the inspection period shall be at the expense
of the Investor, who shall be solely liable to pay the proceeds owing to the business leader and refund the expenses thereof.

	
  
	
The Investor may not accept any monetary refund and/or indemnity from the Company in respect of the services and/or employment of the business leader during the inspection period nor with respect to marketing and sales promotion of the product abroad, unless during the inspection period one of the following incidents specified in Appendix 8.1 has occurred, entitling the Investor to receive proceeds in respect of
the services of the business leader also prior to the conclusion of the inspection period, all as specified in Appendix 8.1 herein below. For the avoidance of doubt, nothing in this undertaking may derogate from the Company’s right to take any step, at any time it deems proper, whether during the inspection period or thereafter, which the Company views as effective for product marketing, all while updating the business leader,
to be appointed, as aforesaid, on behalf of the Investor and with the Company’s agreement.

	
  
	
Payment in respect of the business leader’s services during the period following the inspection period, inclusive of conditions for a bonus for success are specified in Appendices 8.1 and 8.1A.

	
  
	
8.3
	
To promote sales by the Investor, the Company shall place at the Investor’s disposal, free of any charge, the existing product units.

	
  
	
8.4
	
To promote product sales and marketing abroad, the Investor may enter into agreement/s, in its name and at the sole liability thereof, with a broker and/or marketing broker and/or marketing promoter/s and/or marketing leader/s (hereinafter: “Additional Marketing Promoters”), who shall act on behalf of the Investor alone to market the product and/or
promote sales, in return for proceeds the Investor shall deem fit (hereinafter: “Additional Marketing Agreements”). The following provisions shall apply to the additional marketing agreements:

	
  
	
8.4.1
	
The Company shall not be liable in any event vis-à-vis the additional marketing promoters with whom the Investor deemed it fit to enter into additional marketing agreements. And the performance of additional marketing agreements, insofar as there are such, shall be the sole liability of the Investor and at the sole expense thereof, who shall be liable to indemnify the Company in respect of any claim to be filed
by the additional marketing promoters and/or anyone of them against the Company, if filed.

 

23

 

	
  
	
8.4.2
	
The Investor undertakes to include in any agreement for additional marketing special provisions to the effect that the Company is not liable for the performance and/or fulfillment of the agreement and any third party with whom the Investor enters into agreement shall have no cause of action against the Company. The parties hereby agree that the Investor may stipulate that the proceeds paid to the additional marketing
promoters, as aforesaid, by virtue of the agreements between it and them, on receiving shares in the Company and/or other securities in the Company of the other shares and/or securities to be allocated to the Investor, pursuant to this contract, if and insofar as the Investor is entitled to receive such in accordance with the provisions of this contract, provided that the share allocation, as aforesaid, in the Company (as distinguished from the holding company) requires the consent of the Company in writing and
in advance. The directors on behalf of the Investor and the Investor may not vote on this matter at meetings of the Company Board of Directors and at the general meeting.

	
  
	
8.4.3
	
For the avoidance of doubt, it is clarified that the Investor and business leader on behalf thereof may not undertake in the name of the Company and/or sign in the name of the Company any agreements and/or present themselves as authorized to do so. And the Company shall be liable solely with respect to agreements that approved signatories on behalf thereof have signed.

	
  
	 

	
  
	
8.4.4
	
For the avoidance of doubt, it is hereby clarified that nothing in the contents of sub-section 8.4 herein may derogate from the Company’s right to enter into agreement/s with marketing broker/s and/or marketing promoter/s and/or marketing leader/s who shall act on behalf of the Company to market the product and/or promote sales in return for a commission as low as possible, pursuant to conditions the Company
shall deem fit.

	
  
	
8.4.5
	
Nothing in the contents of sub-section 8.4 herein may derogate from the liability of the Company in respect of any agreement whereto the Company is party.

	
  
	
8.5
	
A plan of marketing and sales targets (Appendix 8.5) is attached hereto to this contract whereto the Investor must adhere during the inspection period, comprising sales targets for dates in accordance with a schedule (milestones) so that it may be possible to examine the results of planned marketing activities in terms of the actual performance thereof and,
accordingly, to update the Investor’s rights to appoint directors to the Company Board of Directors, as stated in sub-section 10.6 herein below.

	
  
	
8.6
	
Without derogating from the contents of sub-section 8.5 herein above, the parties agree that if the Investor fails to meet the sales targets as they appear in Appendix 8.5 and this is conveyed in arrears exceeding twenty percent (20%) of the pertinent target (“Rate of Arrears”), then the Company may bring this contract to a close. In such event,
the Investor shall be entitled to receive from the Company part of the allocated shares and to exercise part of the share options up to a relative portion to be calculated according to the amount of the comprehensive investment the Investor actually made up to the date of the partial cancellation divided by the determining price. Nothing in the aforesaid may derogate from or impair the particular provisions of sub-sections 6.5 and 6.6 above.

 

24

 

 

9.           Setting Up a Production System for the Product

	
  
	
9.1
	
The Investor undertakes, whether of its own accord or by way of anyone on behalf thereof, forthwith upon signature of this contract, to do all that is necessary to set up a system to produce the product, in such manner that will enable meeting the final marketing target within the determining period. Within the context of this undertaking, the Investor shall commence forthwith following signature of this contract
to plan, design and produce a full set of molds by way of the Investor and/or anyone on behalf thereof, all in accordance with the specification the Company shall deliver thereto and the parties shall authorize prior to the production of the molds, in accordance with the provisions of sub-section 5.1.3 above.

	
  
	
9.2
	
The Investor shall commence the planning and design of the molds forthwith upon signature of this contract and shall complete the aforesaid in accordance with the dates required by sub-section 5.1.3 above. However, the molds shall actually be produced forthwith upon the Company receiving an order requiring the production of the molds and use thereof to successively produce the product.

	
  
	
9.3
	
Prior to the production of the full set of molds and/or any part thereof by the Investor and/or anyone on behalf thereof, the parties shall authorize the engineering specification, and the plan and design of the product in accordance with the provisions of sub-section 5.1.3 above.

 

10.           Company Management

	
  
	
10.1
	
Commencing on the date of signature of this contract, the Investor shall provide the Company with management services in accordance with the service agreement attached hereto to this contract as Appendix 10.1, and specifying both the nature and extent of the services as aforesaid (hereinafter: “Management
Services”). The service, subject of Appendix 10.1, includes the management services of the business leader.

	
  
	
For the avoidance of doubt, the Company shall not bear any salary expenses of employees of the Investor who assist in furthering company affairs, as stated herein in this section, save for the services of the business leader, as specified herein in this contract. Nonetheless, the Company shall bear the costs and/or expenses that such employees expend in connection with furthering company affairs, such as the cost
of travel and stays abroad and/or any other expense that the Company authorizes in advance.

	
  
	
It is further clarified that if the Investor fails to invest the full initial payment on account of the sum of the cash investment up to the conclusion of the inspection period, the fact that the Investor provided management services to the Company shall not grant it the right to receive any shares in the Company whatsoever and the Third Call Option shall not grant the Investor any right whatsoever to acquire any
shares whatsoever in the Company.

 

25

 

	
  
	
10.2
	
As long as the call options and/or part thereof are in effect and as long as the Investor fulfills its undertakings, pursuant to this contract and, provided that it fulfills its undertakings and, additionally, provided that the Company has failed to enter into any other agreement whatsoever during the aforesaid period to the effect that additional shares are to be allocated to an additional investor, the parties
shall act with respect to anything pertaining to management services as follows:

	
  
	
10.2.1
	
At the same time as the performance of the first payment on account of the sum of the cash investment (i.e., $250,000) and as long as the Investor fulfilled its undertakings pursuant to this contract above, the Investor shall be deemed as having fifty percent (50%) of the voting power at the general meetings of the Company as well as the right to appoint half of the members of the Company Board of Directors. The
aforesaid shall not apply to the rights to receive dividends, with respect whereto, the following stated herein below shall apply.

	
  
	
10.2.2
	
The parties hereby agree that in the absence of any other agreement between the parties, the directors appointed by the Investor shall be shareholders in the Investor and/or officers at the Investor.

	
  
	
10.2.3
	
In the event the Investor fails to invest the sum of the cash investment on the date required herein in this contract or in the event that any of the call options and/or any part thereof shall expire without the Investor having exercised it in full and/or in circumstances wherein the Investor was not entitled to exercise it in full, then in such event the voting power of the Investor at the general meeting and its
right to appoint directors to the Board of Directors shall correspond to the number of shares the Investor actually holds and/or is entitled to hold by virtue of the call options that have not yet expired (hereinafter: “the Actual Holdings”). Likewise, the number of directors who are representatives of the Investor shall correspond to the proportion of the actual holdings to the percentage of holdings, pursuant to the issued shares, as defined
in sub-section 2.16 herein above and bearing in mind the provisions of the Articles of Association of the Company. Nothing in the aforesaid may derogate from the Company’s right to revoke this contract in the event of a breach of this contract by the Investor, inclusive of the case wherein the Investor fails to invest the full sum of the cash investment.

	
  
	
10.2.4
	
Notwithstanding the aforesaid in sub-section 10.2.3 above, in the event that within a year of the conclusion of the inspection period, the Investor fails to meet the targets, pursuant to Appendix 8.5, the Investor shall be entitled to appoint directors to the Company Board of Directors in a manner proportionate to the rate of meeting
the targets.

	
  
	
10.2.5
	
Notwithstanding the aforesaid in sub-section 10.2.4 above, in the event that the targets are met later during the determining period, the aforesaid in sub-section 10.2.4 above shall be cancelled and the provisions of sub-sections 10.2.1 to 10.2.3 above shall apply.

 

26

 

	
  
	
10.3
	
The parties hereby agree that the Company Board of Directors shall not take part in the ongoing management of the Company and, for the purpose of the ongoing management of the Company, Company officers shall be appointed, whom the parties agree on. The Company’s undertaking to coordinate the appointment of officers with the Investor is conditional on the Investor having made the first payment on account of
the sum of the cash investment and continuing to perform its undertakings, pursuant to this contract. This undertaking shall expire, in any event, on termination of the determining period, even if the Investor has fulfilled all undertakings thereof pursuant to this contract.

	
  
	
10.4
	
During the determining period, provided that the call options, in full, are in effect, a director general of the Company shall be appointed by a majority decision of Company directors. The directors on behalf of the Investor shall not be partners to the decision with respect to the appointment of the director general and the conditions of the salary thereof. Subsequent to the Investor being entitled to all the allocated
shares, if he shall be so entitled, or subsequent to clarifying the percentage of the maximum potential holdings of the Investor, the director general shall be appointed by a decision in accordance with the Company’s Articles of Association. Notwithstanding the aforesaid, the parties shall do their utmost so that the ongoing management of the Company during the inspection period and the determining period shall be performed jointly, in coordination with the parties and with the agreement thereof, as aforesaid
in sub-section 10.3 above. The parties further agree that at the time of signature of this contract, there is a management agreement between the Company and Life Support Co. Ltd., one of the shareholders in the Company (hereinafter: “Life Support”). Insofar as the Investor believes it necessary to appoint a director general for the Company (in place or in addition to the services of Life Support and in addition to the services of the business
leader), both during the inspection period and the determining period, then the Investor may appoint a director general to the Company, whose identity shall be agreed on by the Company Board of Directors, provided that the cost of the services thereof and/or the hiring thereof shall apply to the Investor. The director general, as aforesaid, may not obligate the Company and the powers thereof shall be determined by the Company Board of Directors.

	
  
	
10.5
	
Notwithstanding the aforesaid in sub-section 10.4, as long as the call options and/or part thereof are in effect and in the event that during the determining period a dispute arises between the parties on the matter of the ongoing management of the Company, then in such event the parties shall act as follows:

	
  
	
10.5.1
	
With respect to every essential decision and/or unusual decision and/or a decision not in the ordinary course of business, the opinion of Mr. Avraham Afori shall be the deciding opinion.

	
  
	
10.5.2
	
With respect to any decision not as aforesaid in sub-section 10.5.1, the opinion of the director general appointed by the Company shall be the deciding opinion.

	
  
	
10.6
	
In order to facilitate the performance of this contractת the parties appoint Mr. Yossi Da Levi as the representative of the Investor and Mr. Golan Gilad as the representative of the Company. Each party may replace the representative on behalf thereof by written notice to the other party.

 

27

 

11.           Services Regarding the Blower

	
  
	
11.1
	
The Investor undertakes to plan, develop, design and assist with the passage of the molds through regulation proceedings and authorization of the competent authorities and to produce of its own accord and/or by way of anyone on behalf thereof the molds to enable the serial production of the blower, so that as soon as possible, the Company shall have molds for the serial production of the blower, subsequent to the
blower having acquired FDA authorization and all required authorizations of any other pertinent authority, the authorization whereof is required to market the product, which includes the blower (hereinafter: “the Services Regarding the Blower”). Save for the contents of sub-section 15.2, all services with respect to the blower shall be provided at the expense of the Investor.

	
  
	
11.2
	
For the avoidance of doubt, it is hereby clarified that the Company shall bear solely payments required for the authorization procedures, as aforesaid, including the fees for an external contractor necessary to obtain FDA authorization and any payment the Company is required to pay directly to the FDA for approval of the full set of molds.

	
  
	
11.3
	
The services with respect to the blower shall be provided in coordination with the Company and shall be deemed completed solely if the Company has in hand a blower planned and designed so that it is marketable together with the product, and a full set of molds with respect to the blower to enable serial production of the blower in its entirety. The engineering specification of the blower is attached hereto to this
contract as Appendix 11.1. Nonetheless, the Company may amend it, in accordance with the requirements of the authorities providing approval, as aforesaid.

12.           Sale of All Rights in the Product

	
  
	
12.1
	
Notwithstanding any statement in any other place herein in this contract, as long as this contract remains in effect (but no later than the conclusion of the determining period), the Investor may take steps to sell all rights in the product to a third party, inclusive of the intellectual property rights of the product, the rights to produce the product and the rights to market the product (hereinafter: “Exit”)
provided that the Company is given sole discretion whether or not to enter into a sales transaction for the rights in the product that it is offered.

	
  
	
12.2
	
The Company may refuse to enter into an exit transaction, at its sole discretion, without having to provide grounds for the refusal thereof. In the event of a refusal on the part of the Company, as aforesaid, the Investor shall have no contentions or claims whatsoever vis-à-vis the Company. Formulating the decision on the matter of entering into an exit transaction shall be made by the requisite majority on
the Board of Directors of the Company as specified in the Articles of the Company, and the directors appointed by the Investor shall not participate in the vote.

 

28

 

	
  
	
12.3
	
Should the Company decide to enter into an exit transaction while this contract remains in effect until termination of the determining period and as long as the call options or part thereof are in effect, the Investor and/or any third party holding securities allocated pursuant to this contract (hereinafter: “the Third
Party On Behalf of the Investor”) shall be entitled to acquire part of each amount and/or benefit and/or any other proceeds (hereinafter: “Rate of Participation in Exit”), which the Investor and/or any third party on behalf of the Investor shall be entitled thereto as a result of the exit, in accordance with one of the following two, according to whichever is the higher.

	
  
	
12.3.1
	
The sum of the shares held by the Investor together with any third party on behalf of the Investor plus the total of all shares yet to be allocated, pursuant to the call options the Investor and any third party on behalf of the Investor shall be entitled to exercise on the date of the exit.

­- Or -

	
  
	
12.3.2
	
In accordance with the table specified herein below:

 

 

	
Time of Exit

 
	
Rate of Participation

in Exit

	
Until termination of the inspection period
	
15%

	
From termination of the exit period until 12 months from the date of termination of the inspection period
	
25%

 

	
From the conclusion of 12 months following the termination of the inspection period until the termination of the determining period
	
35%

 

	
Following the conclusion of the determining period
	
In accordance with the relative share in the Company’s share capital

	
  
	 

	
  
	
12.4
	
For the avoidance of doubt, it is hereby clarified that in no case shall the Investor be entitled to receive both its share in the sum of the exit as its relative share in the allocated shares of the Company and the rates stated in the above table, but solely whichever is the higher of the two possibilities. (For example: If the date of signature of the exit agreement is 14 months following the termination of the
inspection period and the Investor fulfilled its undertaking, pursuant to this contract, and invested in the company, according to the provisions of this contract, the sum of U.S. $1,200,000, which grant it ostensibly 30% of the allocated share capital of the Company, the Investor shall be entitled to receive on the spot and not in addition to the 30% as aforesaid owing to him by virtue of the investment thereof, 35% as aforesaid in the above table.)

	
  
	
12.5
	
Upon completion of the performance of the exit transaction, and the distribution of the exit proceeds between the parties, all call options that have yet to be exercised by the Investor shall expire.

 

13.           Non-competition

The Investor and the Company undertake not to compete, directly or indirectly, with the product and/or by way of any other attendant activity to market the product. The Investor’s undertaking not to compete remains in effect as long as the Investor holds shares in the Company, whether of its own accord and/or by way of anyone on
behalf thereof, and/or it appoints a director to the Company Board of Directors, and for a period of eighteen (18) months following thereafter.

 

29

 

14.           Due Diligence Inspection

	
  
	
14.1
	
The Investor may make a due diligence inspection of the Company and the business thereof during the inspection period and the Company shall cooperate with the Investor and/or anyone on behalf thereof with respect to this matter. Among other subjects with respect to the due diligence inspection, the Investor may examine the following issues: the Company’s capital structure, its financial state, Company assets,
Company undertakings, financial statements, agreements and connections, employees, legal proceedings, insurance, dividends, clients, suppliers, licenses and permits, guarantees, debts to the tax authorities, encumbrances, etc.

	
  
	
14.2
	
On conclusion of the inspection period and at any time prior to the conclusion of the inspection period, the Investor may notify the Company of the revocation of this contract. In such instance, the Investor shall have no contentions or claims vis-à-vis the Company and/or directors thereof and/or shareholders thereof and the Company shall have no contentions or claims vis-à-vis the Investor.

 

15.           Settling Disputes – Arbitration

	
  
	
15.1
	
Should a dispute arise between the parties in connection with the provisions of this contract, the application thereof, the performance thereof, the construal thereof, and any other matter relating to this contract, without exception, and the dispute fails to be resolved, each of the parties may demand that the dispute be brought to arbitration before Mr. Avraham Afori, who shall serve as the agreed arbitrator on
behalf of the parties. If Mr. Avraham Afori is precluded from serving as the agreed arbitrator on behalf of the parties, as aforesaid herein in this section, another entity shall be appointed as arbitrator, agreed on by the parties and, in the absence of agreement by the parties on this matter, an arbitrator shall be appointed by the chairman of the Tel Aviv District Committee of the Israel Bar Association.

	
  
	
15.2
	
The arbitrator shall be authorized to give any instruction related to the performance of this contract, the construal thereof, the application thereof, the contents thereof and any other matter relating to this contract, inclusive of interim orders and directives to enable the continued activities of the parties, pursuant to this contract until a decision is reached in the arbitration.

 

30

 

	
  
	
15.3
	
The arbitrator shall be free of procedural law and laws of evidence customary in the courts.

	
  
	
15.4
	
The arbitrator shall not be subject to substantive law, but is required to provide grounds for the decisions thereof, unless both parties waive in writing the duty to provide grounds.

	
  
	
15.5
	
This contract constitutes an arbitration agreement according to the Arbitration Law, 5725-1965.

 

	
16.
	
Parties’ Cooperation and Good Faith – Setting up a Holding Company by the Investor

	
  
	
16.1
	
The parties undertake to act for the mutual benefit thereof and in good faith for the proper, just and effective performance of this contract. To this end, the parties undertake to sign any document required and to appear before any authority, insofar as such is required.

	
  
	
16.2
	
In order for the Company and the Investor to work in coordination, the parties shall hold discussions from time to time to update the parties and coordinate between them.

	
  
	
16.3
	
Up until termination of the determining period, the Investor undertakes to refrain from negotiating with any shareholder whatsoever in the Company to purchase shares in the Company and/or any part thereof as well to refrain from the purchase and undertaking to purchase shares in the Company, as aforesaid.

	
  
	
16.4
	
Without derogating from or infringing on any undertakings of the Investor pursuant to this contract and the liability thereof to perform the aforesaid, since the Investor is likely to involve third parties in the in the investment of the total sum of the investment and/or part thereof and/or the performance of any of the undertakings of the Investor pursuant to this contract (hereinafter in this section: “The
Attendant Investors to the Investor”), who shall be entitled to acquire part of the securities allocated pursuant to this contract, in accordance with arrangements determined by the Investor and the Attendant Investors, the parties hereby agree on the following:

 

31

 

	
  
	
16.4.1
	
The Investor may instruct the Company to transfer any security allocated in accordance with this contract to the name of a holding company it shall set up for this purpose (hereinafter: “the Holding Company”), the shareholders whereof shall be the Investor and the Attendant Investors provided that all the following conditions are fulfilled:

	
  
	
16.4.1.1
	
The Company Articles of Association shall determine the sole objective of the holding company to be holding Company shares. The shareholders in the holding company undertake to grant the right of first refusal to the shareholders in the Company in the event of a sale of shares in the holding company to anyone who is not a shareholder in the holding company. The aforesaid shall not be construed as restricting the
holding company from allocating shares to third parties, provided that the third party is not a competitor of the Company and/or has not been found to have a conflict of interest therewith and/or fails to have a criminal record.

	
  
	
16.4.1.2
	
The attendant investors to the Investor shall not be the owners of businesses in competition with the Company and/or having a conflict of interest with the Company and/or having a criminal record.

	
  
	
16.4.1.3
	
The attendant investors undertake vis-à-vis the Company and the shareholders thereof to refrain from the transfer of their shares, whether for proceeds or not for proceeds, to any third party competing with the Company and/or having a conflict of interest with the Company and/or having a criminal record.

	
  
	
16.4.2
	
The Investor undertakes that on the conclusion of the determining period, Mr. Yossi Da Levi or the business leader shall be the sole representative of the Investor and/or the holding company vis-à-vis the Company.

 

17.           Taxes and Payments

	
  
	
17.1
	
Each of the parties to this contract shall bear the taxes applying thereto in accordance with the provisions of law, unless otherwise explicitly indicated. It is hereby clarified that any amount the Investor and/or anyone on behalf thereof invest in the Company shall be deemed as the sum of an investment in the premium (with the deduction of the nominal value of the allocated shares).

	
  
	
17.2
	
Value Added Tax at the statutory rate thereof shall be added to the value of the services the Investor provides to the Company, pursuant to this contract. The sum of the VAT, as aforesaid, shall be paid to the Investor by the Company, not by way of a share allocation but rather as a monetary payment by means of a deferred check to the date that payment of VAT to the authorities is required, against a duly made tax
invoice, which the Investor shall issue to the Company, including both the value of the services and the sum of the VAT.

	
  
	
17.3
	
The parties shall bear in equal parts the stamp tax imposed on this contract, including stamp tax in respect of share allocations and any act prepared in accordance with this contract, original and copy, insofar as such apply.

 

32

 

18.           Miscellaneous

	
  
	
18.1
	
On signature of this contract, the Company shall send written notices to all shareholders in the Company concerning a summary of this contract and shall grant them the right, as aforesaid in Regulation 10 of the Articles of Association of the Company, to participate in allocating the allocated shares to the Investor under the conditions of this contract. If any one of the shareholders would like to exercise the right
thereof to participate in a share allocation under the conditions subject of this contract (hereinafter: “a Participating Shareholder”) with respect to its relative share in the share capital, the Company shall inform the Investor thereon in writing and the Investor may revoke this contract within 7 days of the date of receiving notice of the Company. And the revocation shall be deemed “as a revocation at the Company’s initiative,”
as defined in sub-section 5.4 above. If the Investor fails to exercise the right to revoke, as aforesaid, the Investor shall be obligated to involve the participating shareholder in the performance of this contract, according to the relative share of the participating shareholder in all the allocated share capital of the Company. The dates available to shareholders in the Company to exercise their right to participate in the share allocation are specified in Regulation ___ of the Company Articles of Association.

	
  
	
18.2
	
This contract comprises the full agreements the parties have reached, up to the date of signature thereof. Any alteration and/or amendment and/or addition to the agreement shall obligate the parties solely if it is made in writing and bears the signature of both parties.

	
  
	
18.3
	
Notwithstanding all the otherwise aforesaid – any decision in the Company within the context of this contract and/or that which ensues therefrom, particularly, but without derogating from the generality of the aforesaid, decisions of the Company in the context of the revocation of the agreement and/or the forfeiture of the allocated shares or any part thereof, as a result of the breach of the provisions of
this contract by the Investor, which justifies the revocation of the agreement and/or the forfeiture of the allocated shares or any part thereof and/or any arrangement with the Investor and handling of a demand or claim therefrom or against it shall obligate the Company, if received by the current shareholders, who are not the Investor or by a majority of members of the Board of Directors from among members, who are not representatives of the Investor. Legal quorums at general meetings and sessions of the Board
of Directors, as aforesaid, shall constitute a majority of current shareholders who are not the Investor as well as a majority of members of the Board of Directors who are not listed among the representatives of the Investor, all as the case may be.

In Witness Whereof the Parties Have Signed:

 

	 Stamp	  Microdel Ltd.	 	 Baby’s Breath Ltd.
	 	 Private Co. 513377974	 	 Private Co. 51307694-3
	 	 	 	 
	 	 	 	 
	 	Investor   	 	 Company

 
:    

  

33fs10901_x106-nair.htm

EXHIBIT 10.6 SECOND MICRODEL AGREEMENT OF JUNE 2009

 

Pre-offering Agreement – Baby’s Breath – Microdel

This agreement is not binding until signed by all parties

Document of Principles

Made and executed in Tel Aviv on June 24, 2009

Between:                         Baby’s Breath, Ltd.

Company No. 51307694 (hereinafter, “The Company”)

Of 4 Hahadas Street, P.O. Box 42, Orr Akiva

(Hereinafter, “The Company”)

The first party;

And between:                         Microdel, Ltd.

Company No. 513577874 (hereinafter, “Microdel”)

Of 2 Ben-Gurion Street, Ramat Gan

(Hereinafter, “Microdel”)

The second party;

Whereas

 

	
(A)
	
An agreement for investing in the Company was signed between the parties on April 1, 2007 (hereinafter “the Primary Agreement”);

 

	
(B)
	
And Microdel is in the midst of actions the purpose of which is to raise funds for the Company, primarily by establishing a new company in the USA (hereinafter, “the Offered Company”), which will own all of the Company’s share capital (the shareholders of the Offered Company were, on the eve of the stock issue, identical to the shareholders
in the Company on the eve of the stock issue) and whose shares will be registered for trading “over the counter” on the NASDAQ exchange in the United States where the source of the vast majority of the issue funds shall be from institutional entities in the USA which will invest sums of money in the Offered Company of at least USD 3 million according to a company value, prior to the money, of USD 12 million (hereinafter, “the Offering”),
and which will be used to enable the Company to continue with its ongoing activities;

 

 

1

 

	
(C)
	
And the parties are interested in setting forth in writing their agreement in principle regarding the Offering process, its financing, and the significance derived therefrom following its success or in the event, God forbid, of its failure.

	
  
	
Therefore the parties have agreed and stipulated as follows:

 

	
1.  
	
The preamble to this agreement shall constitute an integral part thereof.

 

	
2.  
	
Total Investment by Microdel in the Company

 

	
  
	
The Parties hereby agree that the total monies (in money and monetary equivalent) that Microdel shall invest in the Company, as of the date upon which this Agreement is signed, shall be the sum of USD 314,000 (hereinafter, “Microdel’s Investment Sum”).  Microdel’s Investment Sum includes USD 100,000 for moulds whose production
was funded by Microdel and which are located overseas.  Microdel undertakes to see to it that the Company is provided with undamaged and usable moulds within 90 days of the signing of this contract, pursuant to which the investment sum of USD 100,000 shall be credited to Microdel.  In the event the moulds referred to in the Primary Agreement shall arrive from overseas damaged, or fail to arrive by the date noted above, then the sum of USD 100,000 shall be deducted from Microdel’s Investment
Sum and the number of unconditional shares, as described below, to which Microdel would be entitled to receive in the Company and in the Offered Company (in the event the Offering is successful) shall be reduced accordingly.  In any event the number of unconditional shares according to this paragraph shall be updated prior to the actual Offering.

 

	
3.  
	
Microdel’s Shares in the Company

 

	
3.1.  
	
In exchange for Microdel’s Investment Sum in the Company, Microdel shall be entitled to a number of shares of stock such that, according to the Primary Agreement, it shall be entitled to 1,878 ordinary shares in the Company, following the formulation of the Company’s Articles of Incorporation and once all the Company’s shares have become
ordinary shares with equal rights according to the resolution to equalize the share rights, as described below in section 6.1.1.  Since Microdel has undertaken to assume all of the Offering expenses (except for the Company’s conditional participation sum, as understood below), 1,503 ordinary shares shall be deducted in advance from this number of shares, which reflects an investment in the Company of USD 150,000 based on a company value of USD 4.5 million, shares that are to be allocated to the
private investors as this is understood below; such that Microdel shall receive an allocation from the Company, subject to the provisions of section 2 above, of 75 ordinary shares (hereinafter, “the Unconditional Shares”).

 

 

2

 

	
3.2.  
	
If the Offering is successful the Company hereby agrees to allocate to Microdel 9,166 additional shares in the Company (hereinafter, “the Conditional Shares”), the quantity of which shall be calculated according to the principles of the Primary Agreement.  The Conditional Shares
shall be allocated in fact following a process to equalize the rights of the Company’s shares, as described below, and shall be held in trust by Adv. Yaniv Shekel (hereinafter, “the Trustee”).  The number of Conditional Shares shall also include an investment in the amount of USD 10,000 per month (for the period between April 2009 and the end of November 2009, that is, the
sum of USD 80,000), which Microdel has undertaken to invest in the Company for its current activity as stated below in section 8.  The Parties hereby give irrevocable instructions to the Trustee to act as follows with regard to the Conditional Shares:

 

	
3.2.1.  
	
Should the Offering succeed – The Trustee shall transfer the Conditional Shares to Microdel.

 

	
3.2.2.  
	
Should the Offering fail – The Trustee shall transfer the Conditional Shares to the Company’s current shareholders (at the time this contract is signed, except for Microdel) in exchange for NIS 0.01 per share, in accordance with the relative share of the current shareholders in the Company’s shares, such that this share shall be calculated
among the present shareholders (except for Microdel), among themselves.

 

	
3.2.3.  
	
For the purpose of above the “Success of the Offering” means – Fulfillment of all conditions below as of the final date, as understood below – establishment of the Offered Company, raising of funds for the Offered Company of at least USD 3 million (but not to exceed USD 5 million
with a company value, prior to the funding, of USD 12 million) and registration of the shares of the Offered Company for trading over the counter on the NASDAQ exchange in the USA, where the source of the vast majority of the issue funds shall be from institutional entities in the USA which will invest sums of money in the Offered Company

 

 

3

 

	
  
	
“Failure of the Offering” means – Non-fulfillment of all of the components of the “Success of the Offering” by the final date.  It is hereby clarified that fulfillment of some of the conditions for the Success of the Offering shall be considered as Failure of the Offering.

 

	
  
	
“Current Shareholders” means – Assaf Halamish, Dr. Israel Amirav, Dr. Michael Neuhaus, Prof. David Grusher, GPI Granot Project Development, Ltd., Life Support, Ltd., Ramport, Ltd.

 

	
3.2.4.  
	
Microdel shall not be entitled to request any relief against the Trustee, including neither an order to act nor an order to desist from acting, and Microdel undertakes not to petition the courts with a motion and/or an appeal seeking to prevent the transfer of the Conditional Shares from the Trustee to the Current Shareholders in the event of the Failure
of the Offering.  Furthermore, and without derogating from the generality of the above, Microdel shall not be entitled to prevent the transfer of the Conditional Shares from the Trustee to the Current Shareholders for any reason whatsoever, including a claim against the Current Shareholders and/or against the Company and/or its officers, and in any event of a Failure of the Offering, whatever the reason and whoever may be at fault, the Conditional Shares shall be transferred to the Current Shareholders
as stated above without Microdel having any dispute and/or claim in this regard towards the Company, its shareholders, its managers and officers.

 

	
3.2.5.  
	
Voting rights of holders of the Conditional Shares – Notwithstanding the provisions contained in the Company’s Articles of Incorporation, it is hereby agreed that during the interim period (that is, the period until the final date, as understood below), in any case where a vote is needed
by virtue of the Conditional Shares at a general meeting of shareholders, the Trustee shall vote by virtue thereof provided the Conditional Shares are held by him, in accordance with a document signed by holders of most of the shares held by the Current Shareholders (except for Microdel), (hereinafter, “Voting Order”), and the parties hereby irrevocably instruct the Trustee to vote by virtue of the Conditional Shares in accordance with the Voting
Order that shall be given as stated.  During the interim period, and provided the Conditional Shares as held by the Trustee shall not endow him the right to appoint a director to the Company’s board of directors.  Only after the Conditional Shares have been transferred to Microdel (following the Success of the Offering) or to the Current Shareholders (following the Failure of the Offering) as relevant, shall the holders of the Conditional Shares enjoy all of the rights endowed to those
shareholders according to the Company’s Articles of Incorporation.

 

 

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3.2.6.  
	
Should the Offered Company be established, the Trustee shall hold in trust that quantity of Conditional Shares in the Offered Company, and all of the provisions above and below shall also apply, mutatis mutandis, to the Conditional Shares in the Offered Company.

 

	
3.2.7.  
	
In any event, should the Trustee fail to act in accordance with the above the Company shall be entitled, without derogating from any other relief that may be available to the Current Shareholders, to forfeit the Conditional Shares and turn them into deferred shares without rights; and Microdel hereby gives its irrevocable consent to this procedure should
the Company’s board of directors and Current Shareholders decide, by a majority, to take such measures.  It is hereby agreed that Microdel and its board of directors, as relevant, shall be prohibited from voting at the general meeting and at the Company’s board of directors regarding any decision that relates to the forfeiture of the Conditional Shares or their being turned into deferred shares.

 

	
3.2.8.  
	
A table of Company shares that includes the Unconditional Shares and the Conditional Shares is attached to this Agreement as “Appendix 3.2.8” and is an integral part thereof.

 

	
3.3.  
	
It is hereby agreed by the Parties that in the event of the Success of the Offering such that the Company’s issued shares are released to Microdel, and in the event that Microdel’s actions according to this Agreement shall be subject to VAT (paying attention to the nature of Microdel’s activities and the residence of the Offered Company),
the Company shall indemnify Microdel pursuant to the said VAT from the Offering monies, provided that the Company shall be entitled to a reimbursement for Input Tax from the VAT Authorities in a manner that does not cause a monetary loss and in such a manner that the Company shall not have to pay this amount using any interim funding whatsoever.

 

 

5

 

	
4.  
	
Time Table

 

	
  
	
The Company, through Microdel, shall act to the best of its ability to ensure that the Offering comes about by no later than November 31, 2009 (hereinafter, “the Final Date”).  If the Offering is not completed by the Final Date and the Company’s shares are not registered for trade by the Final Date, but the American attorney whose
services are being used for the purpose of the Offering shall affirm in writing, prior to the Final Date, that there is significant progress being made to promote the Offering and that he needs a bit more time, not to exceed two months, in order to complete the process while noting in his letter that it is almost certain that the Offering shall be completed within that period of time, then the Company shall agree to extend the Final Date for additional period of up to two months, provided that Microdel shall
continue to fund the Company’s current activity as stated in section 7 below.  In the event of an extension as stated, the Final Date shall occur at the end of the extended period which shall be, in any event, not later than January 30, 2010.  The board of directors shall be permitted, but not required, to extend the Final Date beyond January 30, 2010, provided that the decision pursuant to extending the Final Date beyond January 30, 2010 is passed with a majority of 85% of the votes
cast by the Company’s board of directors, wherein the directors appointed by Microdel shall be excluded from voting on this matter.  Failure to extend the Final Date shall not be considered, in any case, as an unreasonable decision and/or for unreasonable cause, and the failure to pass this decision shall not entitle Microdel and/or any other entity (including the private investors, the consultant, the employees and service providers who were hired ahead of the Offering) to any compensation whatsoever.  Should
the Company not decide to extend the Final Date beyond November 30, 2009, then the Company undertakes not to use the services of the present offering consultant for a period of 9 months from the Final Date, unless it has received authorization for this from Microdel.

 

	
5.  
	
Offering Expenses

 

	
5.1.  
	
Microdel undertakes to assume all of the Offering expenses, without exceptions.  Notwithstanding the above, following the Success of the Offering the Company shall assume the expenses that are conditioned upon the Success of the Offering, as understood below.

 

 

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5.2.  
	
Since, when calculating the number of Unconditional Shares, all of the Offering expenses were taken into account, including expenses for consultants, attorneys, accountants, underwriters and other entities involved in the Offering process (and including expenses not in cash but through the offering of additional shares to entities involved in the Offering
process and including costs for personnel the Company shall hire or did hire for its current activity until the date of Offering in the amount of USD 150,000), then these expenses shall be paid by the Company provided that Microdel made sure that these monies were deposited, before assuming any undertaking towards these service providers, in a special account to be opened by the Company for this purpose and which shall be entirely dedicated to making these payments and for the purpose of continuing to finance
the Company’s activities as specified in section 8 below (hereinafter, “the Special Account”).  It is hereby clarified that the Company shall not assume the Offering expenses in amounts that exceed those deposited for this purpose in the Special Account; and in any case where the Company shall assume any undertaking towards a third party at Microdel’s request, then Microdel shall indemnify the Company pursuant to any sum
the Company shall be required to pay by virtue of this undertaking beyond the sums held in the Special Account.

 

	
5.3.  
	
It is hereby agreed by the Parties that payment of the Offering expenses as described in section 5.1 above shall be executed only from different monies received from private investors and/or from Microdel prior to the Offering (provided that the sums received from private investors [as defined below] and from Microdel prior to the Offering shall be deposited
into the Special Account).  If the monies from the private investors are insufficient to pay the said expenses, Microdel shall assume the expenses without the Company being required to reimburse these amounts, whether the Offering takes place or not for any reason whatsoever, and without these expenses being considered as Microdel’s investment in the Company and without Microdel being entitled to receive pursuant thereto holdings in the Company and/or rights and/or benefits of any kind.  Regardless
of the above – if, following payment of the Offering expenses and any other payment that Microdel has undertaken to pay according to this contact, there remain any monies in the Special Account after the Offering and following payment of all the payments involved in the Offering procedure and provided that the Offering was successful – these monies shall revert to Microdel.

 

 

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5.4.  
	
Since certain expenses pursuant to the Offering must be paid from the Company’s account and against the Company’s undertaking to pay them (for example, the American attorney Microdel selected to lead the offering process, payment of fees related to the Offering, and so on), and therefore the number of Unconditional Shares was reduced accordingly
as if Microdel had assumed these expenses (up to the sum of USD 150,000) – it is hereby agreed that the Company shall undertake to make these payments only on condition that the undertaking monies are deposited beforehand by Microdel or by the private investors, as defined below, in the Special Account.  Up until the Final Date, Microdel’s representative shall have the right to sign on the Special Account together with the Company’s authorized signatories (as a second signature).  Following
the determining date this signatory right shall become void and in the event of the Failure of the Offering the Company shall be entitled to use the monies in the Special Account for its own purposes, as it shall see fit, unless the provisions as stated in section 13.1 and/or 13.2 shall apply.  Should the Offering be successful and all debts to third parties pursuant to the Offering process are paid, the balance of the monies in the Special Account shall revert to Microdel, as stated in section 5.3
above.

 

	
5.5.  
	
Since it might become necessary to open an account in the USA on behalf of the Offered Company for the purpose of the Offering and to receive the Offering monies, should the opening of such an account be required the account shall be opened such that the signature rights therein shall be the same as those of the Special Account, as specified in section
5.4 above.  Should the Offering be successful the signature rights to the said account shall be changed such that they shall be similar to the signature rights as determined by the Offered Company.

 

	
5.6.  
	
In the event the Company undertakes, at Microdel’s request, contractual obligations for payments connected with the Offering (and shall do so only provided the undertaking monies are deposited beforehand by Microdel in the Special Account), and should these undertakings exceed the sums that were planned between the parties and which served as a basis
for calculating the number of Unconditional Shares (or if the monies in the Special Account shall be insufficient to pay these undertakings), then Microdel undertakes to pay the Company any amount the Company will be required to pay as stated, immediately upon the Company’s request, unless the Offering is successful, and up to a sum that shall not exceed USD 80,000 to be paid, out of monies received as a result of the Offering, to various service providers the payment of which is contingent upon the Success
of the Offering and which shall be paid by the Company out of the Offering monies and not from the monies in the Special Account; in the event of the Success of the Offering (hereinafter, “Participation Sum Contingent Upon the Success of the Offering”).  For this purpose, the “Success of the Offering” shall have the meaning ascribed in section 3.2.3 above.  It is clarified that the Participation Sum Contingent
Upon the Success of the Offering shall be paid by the Company only if the Offering is successful, and not under any other circumstances.

 

 

8

 

	
6.  
	
Allocation of Company Shares and Changing the Articles of Incorporation

 

	
6.1.  
	
As a precondition for the Offering process, the minimum number of shareholders in the Company prior to the Offering must be 40 shareholders, and the Company’s shares must be uniform and with equal rights.  As part of the Offering process, in order to “vet” the Company ahead of the Offering and so as to enable the Company to
pay some of the payments pursuant to the Offering that must be paid from the Company account, Microdel “enlisted” and is expected to enlist, several private investors, each one providing several thousand dollars, who have agreed to invest sums of money in the Company (hereinafter, “the Private Investors”) for a total sum of about USD 150,000 (hereinafter, “the Investment Sum of
the Private Investors”).  For this purpose the Parties have agreed as follows:

 

	
6.1.1.  
	
Immediately upon the signing of this agreement the Company shall adopt a special resolution to change its Articles of Incorporation and to turn all of the Company’s shares into ordinary shares with equal rights (hereinafter, “the Resolution to Equalize the Share Rights”) and the
Special Resolution shall include a provision to change Article 32(a) of the Company’s Articles of Incorporation dealing with the shareholders’ right to refuse to purchase the shares of another member, such that this right shall obligate every shareholder to first offer his shares to those holding at least 5% of the Company’s allocated capital such that the “offerees” according to this provision shall only be those holding at least 5% of the Company’s allocated capital.  Microdel
knows that the said resolution is a special decision whose adoption requires a qualified majority at a general meeting of the Company’s shareholders.  Immediately upon signing this contract the Company’s board of directors shall convene a general meeting of shareholders, whose agenda shall include the adoption of the said Special Resolution.

 

 

9

 

	
6.1.2.  
	
Immediately following the adoption of the said Resolution to Equalize the Share Rights, if adopted, Microdel shall instruct the Company, in writing, to allocate to each one of the Private Investors a quantity of Company shares in exchange for the investment sum that shall be indicated in Microdel’s written instruction, provided that the sum of all
the shares allocated to the Private Investors against the investment of USD 150,000 shall not exceed the number of shares deducted from Microdel in order to calculate the number of Unconditional Shares.  It is hereby clarified and agreed that shares allocated to the Private Investors against the Investment Sum of the Private Investors shall be deducted in advance from the number of Unconditional Shares such that the number of Unconditional Shares shall be calculated according to the shares that were
expected to be allocated to the Private Investors.  It is agreed that since the monies from the Private Investors were designated, among other things, to help finance the various Offering costs, then:  (1) All of the investment monies from the Private Investors shall be placed into the Special Account;  (2) An investment agreement shall be signed with every Private Investor, the uniform wording of which shall be acceptable to the Company;  (3) At least 66% of the number
of Private Investors, as part of the investment agreement with them, shall sign an irrevocable power of attorney authorizing the other shareholders as their proxy to vote at the Company shareholders’ meeting (such that all of the Private Investors together shall be represented by no more than 10 representatives, including the investors themselves); and instructions to the Company to invite to the shareholders meetings the proxy, and that the proxy’s address shall be considered as the investor’s
address.  The power of attorney shall be valid until the Offering, and even afterwards in the event of the Failure of the Offering, so long as the Private Investors and/or their transferees are shareholders in the Company.  If the Offering is successful the private investors shall be entitled to rescind the power of attorney.

 

 

10

 

	
6.1.3.  
	
Before adopting the Resolution to Equalize the Share Rights, an agreement shall be signed between all of the Current Shareholders in the Company, including Microdel, arranging the manner in which future dividend payments shall be divided among the Current Shareholders and which will coordinate, insofar as this is possible, their rights in Company class
A and class B shares.  The agreement shall include, inter alia, instructions according to which the entire Company and/or its shareholders shall not be permitted to force upon a Current Shareholder (as defined in section 3.2.3 above) an order, according to which he would be subject to a contractual lock-up period on his shares beyond the lock-up period required by American law and by virtue of provisions of the Israeli income tax ordinance; and
that all of the shares of every Current Shareholder in the Offered Company shall enjoy the same “registration rights” as those enjoyed by the shares allocated to the institutional investors and the shareholders to whom Company shares were allocated as part of the Offering.

 

	
6.1.4.  
	
Furthermore, the agreement between the shareholders noted above shall include an order according to which the Current Shareholders, with the exception of Microdel, shall be obligated towards GPI Project Development, Ltd. (hereinafter, “the Incubator”) as follows:

 

	
  
	
(1)
	
Insofar as a restriction applies on registering the Incubator’s shares for trading and/or their sale (similar to the lock-up period under American law) following the Offering (should this occur), then the Incubator’s shares shall be registered for trade at the first opportunity in which the Company shares of the other shareholders are registered following the termination of the said restriction.

 

	
  
	
(2)
	
Notwithstanding the provisions of section (1) above, the Current Shareholders (except for Microdel) shall undertake towards the Incubator that so long as there is a restriction on the number of shares that can be registered for trade as part of the Offering so that not all of the Current Shareholders can be registered for trade, then the Current Shareholders (except for Microdel) shall waive their right to register
their relative portion of their shares for trading and will allow the Incubator to register all of its shares for trading before they register their own shares for trading.  The waiver by the Current Shareholders (except for Microdel) among themselves shall be relative to the percentage of the holdings of the Current Shareholders (except for Microdel and the Incubator).

 

 

11

 

	
  
	
(3)
	
Should a restriction apply in accordance with Israeli tax laws regarding the sale of the shares of the Current Shareholders (that is, a lock-up period that prevents them from selling their shares) and it isn’t possible to be released from this restriction in exchange for payment of the tax the Incubator shall be obligated to pay; or in the event the Israeli tax authority demands that each of the Current Shareholders
shall be subject to restrictions it may impose as part of the “early approval” process, without exception and without enabling the Incubator to be “released” from this demand (even at the “cost” of its paying the tax, a demand to which the Incubator agrees); then, despite the fact that the Incubator is part of the aforementioned arrangement with the income tax authority, the provisions of sub-paragraph (1) and (2) above shall also apply in the event a restriction is imposed
under Israeli tax laws.

 

	
  
	
(4)
	
The agreement outlined in this section above shall also apply in the event the Offering is carried out in a different format, using the services of the aforementioned Offering consultant as stated in section 10 below; however it shall not apply in the case of an offering or capital-raising that is not carried out through the said offering consultant and/or someone on his behalf, nor shall it apply to any other offering
that might take place should the Offering referred to in this agreement not come to fruition and the Company shall decide to undertake a different offering procedure.

 

	
  
	
(5)
	
To remove all doubt, the rights of the Incubator according to this section shall apply even in a case in which, prior to the Offering, the Incubator transfers, subject to the provisions of the Company’s Articles of Incorporation, its shares in the Company to a third party and in the said case the third party transferee shall be entitled to rights under this section following the Offering (should it occur).  However,
the said rights shall become void in the case where the shares are sold to a third party after the Offering.

 

	
6.1.5.  
	
The Company is aware of the shareholders’ agreement and undertakes to act to implement its provisions with regard to the relations between the Current Shareholders regarding the registration rights of the Company shares for trade and sale, as described above and in the agreement between the shareholders.

 

 

12

 

	
6.2.  
	
It is hereby clarified that as part of the tax arrangement regarding the transfer of the shares of the Company shareholders to the Offered Company prior to the Offering process, there may be provisions that restrict the shareholders, including a two-year restriction on the sale of shares in the Offered Company, and a provision regarding the ownership of
shares of shareholders in the Offered Company by the Trustee they appoint and who shall be responsible for the payment of tax in the event the shares are sold.  The Company shall act such that as part of the shareholders agreement described in section 6.1.3 above, the Current Shareholders shall agree to the provisions of the tax arrangement and these shall not be used as grounds for their disapproval of the Offering, and all subject to the provisions of section 6.1.4(3) regarding the Incubator.  This
agreement is contingent upon the signing of the agreement between the shareholders as described above in section 6.1.3 and subject to the provisions of section 13.7 below

 

	
7.  
	
Hiring Personnel and Service Providers During the Interim Period (until the Offering) 

 

	
  
	
Subject to an undertaking by Microdel as described in section 8 below, and subject to the signing of an employment agreement that meets with the Company’s satisfaction, the Company agrees to act in order to fill the following positions and under the following conditions:

 

	
7.1.  
	
The Company shall act to locate a director-general for the Company, whose identity and terms of employment (including the wording of the contract signed with him) shall be approved by the Company’s board of directors and who will work until the execution of the Offering, the scope of which shall be a part-time position.

 

	
7.2.  
	
The Company shall act to locate a Vice-president of Finances and a Vice-president of Technology, whose identity and terms of employment (including the wording of the contract signed with him) shall be approved by the Company’s board of directors and who will work until the execution of the Offering, the scope of which shall be part-time positions.

 

	
  
	
The aforementioned officers, as a condition of their employment, shall sign employment agreements that are worded and with conditions, including employment terms, that shall be approved by the Company’s board of directors after consulting with the Company’s legal advisor.

 

	
  
	
It is hereby clarified and agreed that the Company responded to Microdel’s request to engage these employees and to pay them their wages only on condition and provided that the provisions of section 8 below have been fulfilled, and in a manner such that the funding for the hiring of these employees until the Offering and/or until the Final Date (as extended, if extended) in the event the Offering fails to be
executed, shall be financed by Microdel, whether from the investment monies that the Private Investors deposited into the Special Account in amounts that exceeded the Offering expenses that were not contingent upon the success of the Offering, which the Company imposed upon itself at Microdel’s request, as stated above; or whether from monies received for this purpose by the Company from Microdel (and which do not endow Microdel with the right to receive additional shares in the Company, whether the Offering
shall be a success or a failure).

 

 

13

 

	
7.3.  
	
The Company shall appoint service providers, at Microdel’s expense, as stated and under the conditions set forth in section 8.11 below, who will supervise the Offering process; and the contractual agreements shall include a provision that if the Offering process shall fail or cease for whatever reason whatsoever, the contractual agreements shall
be terminated immediately.  The wording of the said contractual agreements with the services providers shall be authorized by Microdel and shall be approved by Microdel and by the Company.

 

	
8.  
	
Continued Financing of the Company’s Ongoing Activities

 

	
  
	
Microdel hereby undertakes, absolutely and unconditionally, to finance the Company’s ongoing activity for the period until the Final Date (and extensions as described above, if extended) at the fixed monthly rate of USD 10,000 per month (hereinafter, “the Fixed Monthly Amount”).  Microdel shall deposit, at the signing of this contract,
post-dated checks in the amount cited above, each check dated for the first of the month for the period between April 1, 2009 and until November 30, 2009.  (It is hereby clarified that should the Offering process be terminated for any reason prior to November 30, 2009, checks that have not been cashed that related to the ongoing financing pursuant to the period up until November 30, 2009 shall be returned, at Microdel’s request, to Microdel, and provided there are no financial obligations
relating to these sums).  Furthermore, Microdel shall finance the cost of employing the personnel hired to work for the Company, as stated in section 7 above (hereinafter, “Amount of Funding for the Interim Period”).  The Amount of the Funding for the Interim Period may be covered by using the monies deposited in the Special Account from the funds invested by the Private Investors, provided that at any given time the balance
in the Special Account shall be sufficient to cover all of the Company’s undertakings to third parties that are not contingent upon the outcome of the Offering.  It is clarified that sums that are paid by Microdel for the purpose of financing the employment of personnel hired in accordance with section 7 above pursuant to the period until the completion of the Offering shall not endow Microdel with the right to receive shares in the Company and the Company shall not be obligated to return it,
and this amount shall be in addition to the minimum monthly sum of USD 10,000 as described above and in additional to ongoing financing as described below.  The sum of the Amount of Funding for the Interim Period (but not including funding for personnel and service providers hired as described in section 7 above), provided it has been redeemed and paid, shall be considered as an investment by Microdel in the Company and shall entitle Microdel to Company shares in accordance with the principles of the
Primary Agreement.  The Amount of USD 80,000 for Interim Funding for the period of April-November 2009 shall be taken into account as part of the Conditional Shares and shall not entitle Microdel to any additional shares.

 

 

14

 

	
  
	
It is hereby clarified that financing for the Company’s ongoing activity during the period until the Offering date may exceed the monthly sum of USD 10,000.  Funding shall be carried out by Microdel and/or other shareholders.  In the event additional shareholders other than Microdel cannot be found to finance the Company’s activities, Microdel undertakes to finance the Company’s
activities to the extent necessary in order to continue its operations on the one hand, and to ensure the success of the Offering on the other hand, provided that any expense funded by Microdel shall be part of the work plan until the Offering date.  This work plan shall be prepared by Microdel, the Company’s director-general and Golan Gilead.

 

	
9.  
	
Appointing an Attorney and an Accountant to Execute the Offering and Changing the Composition of the Board of Directors, including the Chairman of the Board 

 

	
9.1.  
	
The Company shall resolve, through the Company’s board of directors, to appoint Adv. Jerry Gruenbaum from the United State to serve as the attorney who will lead the company, and will sign a contract with him as appearing in Appendix “9.1” of this agreement,
and provided that Microdel makes certain to deposit, in advance, the sum of USD 52,500 into the Special Account (including investment monies from the Private Investors), plus VAT as applicable under the law.

 

	
9.2.  
	
The Company shall resolve, through the Company’s board of directors, to appoint the firm of Gai, Goffer, Yahav, Guilman, Udem & Co. CPAs (hereinafter, “CPA Mario”) as the Company controller and the firm of HLB CPA Canada as the controller for the Offering; and if the Offering
is completed successfully the total fee for its work on the Offering process shall be USD 35,000.  CPA Eitan Mond shall continue to serve as the Company’s accountant during the interim period until the Final Date.  It is hereby clarified that the agreement for payment of the fees for CPA Mario or any foreign accountant working on his behalf or assisting him in with the Offering shall be signed between the Company and the aforementioned CPAs, provided that the fee pursuant to the Offering
process and which is not contingent upon the outcome of the Offering are first deposited into the Special Account by Microdel.  Microdel undertakes that until the sums of money needed to pay the CPA’s fees are deposited into the Special Account, it shall assume the payment of the fees (that are not contingent upon the outcome of the Offering) to the said CPAs, provided that the sum of the Company’s participation in the Offering expenses in the event of the success of the Offering shall not
exceed the sum of the expenses that are contingent upon the success of the Offering.

 

 

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9.3.  
	
To the extent that this is within the Company’s power, the Company shall act such that the composition of the board of directors ahead of the Offering shall be changed and shall be as outlined in Appendix 9.3; and the Company, with the assistance of Microdel, shall
act, as may be necessary, to change the composition of the board of directors and to appoint outside advisors to the board of directors.  The number of directors and outside advisors and their identity shall be agreed upon separately.

 

	
  
	
It is hereby agreed that in any event the appointment shall be made in exchange for a letter of agreement to serve as a director, which shall be signed by every said director and advisor.  Until the completion of the Offering the directors and the advisors shall not be entitled to receive any wages whatsoever.  The voting power of each director shall be as appears in the Company’s Articles
of Incorporation.

 

	
9.4.  
	
The Company shall act so that its shareholders, in accordance with the powers granted by the Articles of Incorporation, shall appoint Mr. Yossi De Levie as chairman of the board of directors.  The Company’s board of directors shall be permitted, by an ordinary majority, to replace the chairman of the board.  The directors appointed
by Microdel shall not participate in this vote.  Subject to the above provisions regarding the right of the board of directors to replace the chairman, it is hereby agreed that if the Offering does not go into effect the position of the chairman of the board shall become void and the board of directors shall appoint another chairman to replace Mr. De Levie.

 

	
9.5.  
	
Furthermore, so long as the Offering process remains unchanged, two directors shall be appointed to the Company’s board of directors as per Microdel’s request – Mr. Yossi De Levie and Mr. Alon Tzifroni, and this despite the fact that according to the Company’s Articles of Incorporation Microdel is not permitted to appoint two directors,
but rather only one director.  It is clarified that the weight attributed to the votes of the two directors together shall be the same as the relative weight of the number of Unconditional Shares relative to the total number of Company shares allocated.  Should the Offering process fail Microdel’s right in this regard shall become void immediately, its directors shall cease to serve as such and Microdel shall be entitled to appoint directors in accordance with the Company’s Articles
of Incorporation, and this shall be the case in the event the Offering is successful.  In the event the Offering is successful this section shall become void and the appointment of the directors shall be according to the Company’s Articles of Incorporation.

 

 

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10.  
	
Appointing the Offering Consultant

 

	 	
The Company’s board of directors shall resolve to appoint a company to represent Microdel (above and hereinafter, “the Consultant” or “the Offering Consultant”) and to consult and direct the Offering; and undertakes during the period of time until the Final Date not to contract
with any other entity for the purpose of executing the Offering unless the Offering Consultant informs us that he is no longer handling the Offering process or in fact ceases to handle and/or promote the Offering, in accordance with an agreement to be approved by the Company’s board of directors and which shall include the provision that the Company shall not make any undertakings vis-à-vis the Offering Consultant whatsoever and shall not pay him a salary or grant him any benefit pursuant to his services,
except for the issuing of shares of stock if the Offering is successful, and provided that these shares shall be less than the number of Conditional Shares as understood above.  Furthermore, the Company shall sign the agreement appointing the Offering Consultant for this period, whose formulation shall be approved by the Company’s board of directors and shall be subject to the provisions of this agreement.

 

	
11.  
	
Appointing the firm of Shekel and Associates as the Offering Attorney

 

	
  
	
The Company’s board of directors shall resolve to appoint the firm of Shekel and Associates as the attorney handling the Offering, provided that Adv. Shekel shall confirm in writing that his fee shall not be paid by the Company and the he shall not have any claim and/or dispute against the Company with regard to his fee.  The Company shall also appoint Adv. Lieor Schops from the firm of Ayal Shenhav
and Company (hereinafter, “the Consulting Attorney”) as the attorney to advise the Company’s board of directors on all matters pertaining to the preparation and contents of the prospectus, and as an expert in public offerings in the United States.  In any case it is hereby agreed that the fee for Adv. Shekel and the Consulting Attorney shall be paid by Microdel, which shall be permitted to pay him from the Special Account provided
that the Special Account shall actually have sufficient funds to cover all of the Company’s undertakings related to the Offering.  In the event that the Special Account does not have sufficient funds as stated, Microdel shall pay the fee for the Consulting Attorney, and any other expense related to the Offering process, from its own sources.

 

 

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12.  
	
Approving the Business Plan and Arranging for Liability Insurance for the Officers

 

	
12.1.  
	
The Company undertakes to examine the business plan prepared by Microdel, to make any comments it may have and to approve it following its correction, as such correction may be required; to submit it to American funds and institutions once it has been determined that the information contained therein faithfully reflects the facts and the Company’s
status and that its remarks and criticisms have been amended.  The Company shall be entitled to perform the said examination through the Consulting Attorney.  The parties have chosen the Consulting Attorney for this matter, and the scope of his employment shall be defined by the Company.  The Company’s representatives, including members of its board of directors, shall be permitted to contact the Consulting Attorney directly and to ask him for clarifications and answers to
their questions.  The cost of the Consulting Attorney’s fee shall be paid by Microdel as stated in section 11 above out of the monies in the Special Account, provided that the Special Account shall actually have sufficient funds to cover all of the Company’s undertakings related to the Offering.  In the event that the Special Account does not have sufficient funds as stated, Microdel shall pay the fee for the Consulting Attorney, and any other expense related to the Offering process,
from its own sources.   The Company shall make every effort to approve the business plan not later than June 18, 2009, provided this is possible in terms of the Company’s attorney and the Consulting Attorney.

 

	
12.2.  
	
The parties undertake to take out liability insurance for the officers, which will insure the liability of the Company’s officers including their involvement in the Offering process, in the amounts that are standard in these types of proceedings and in accordance with the opinion of the Consulting Attorney.  The policy will be issued upon
approval of the Offering by the American Securities and Exchange Commission, and shall be a prerequisite for executing the offering.  The officers’ liability insurance shall be issued by the Offering date in the amounts and with coverage as required by the Offering process as advised by the Consulting Attorney, and Microdel shall assume the costs of the said officers’ insurance until the Offering date from the monies deposited in the Special Account, provided that this account shall have
sufficient funds to pay the expenses that are not contingent on the outcome of the Offering which the Company has undertaken to pay.

 

 

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13.  
	
General

 

	
13.1.  
	
The parties shall cooperate with each other for the purpose of executing the Offering; however, it is hereby agreed that the Company’s consent to cooperate with Microdel to execute the Offering does not constitute its consent to any demand that may be raised in the future by professionals hired and chosen by Microdel to direct the Offering and/or
its consent to any demand that may be raised by the institutional investors.  Should the Company refuse to respond to a demand that may be raised in the future, even if such refusal should impede the execution of the Offering, Microdel shall not be entitled to any relief whatsoever against the Company, its officers and/or its shareholders; and these entities are aware that the risk regarding non-execution of the Offering is solely Microdel’s.  Nevertheless, it is hereby agreed that the
Company shall not refuse to respond to future demands on unreasonable grounds.  It is hereby clarified that even if the arbitrator shall determine that the board of directors refused Microdel’s demand on unreasonable grounds, the only relief that Microdel shall be entitled to receive, as final and exhaustive relief, shall be against the Company only, according to which the sums actually paid by Microdel to third parties (less a sum of USD 55,000 by which the Company shall indemnify Microdel pursuant
to its participation in the cost of the Offering Consultant as stated in section 13.3, to the extent the said amount is paid as indemnification in accordance with the terms of the said section), but not more than USD 80,000 for the purpose of executing the Offering, shall be calculated as the sum of its investment in the Company; and in exchange for this sum, Microdel shall be entitled to shares in the Company in accordance with the key set forth in the Primary Agreement.  It is clarified that the aforementioned
shall not constitute accepted compensation but rather a limitation on the Company’s liability in the event it is decided that the response by the Company’s board of directors to Microdel’s demands regarding the Offering process were not reasonable or logical.  Moreover, in addition to the said offering of shares, Microdel shall be entitled to withdraw in such a case the funds remaining in the Special Account beyond those unconditional amounts the Company undertook to pay to third parties
(monies in the Special Account earmarked to cover the Company’s undertakings to third parties shall not be returned to Microdel).  The abovementioned in this section is the final relief available to Microdel subject to the provisions of section 13.3 below.  In any case and in no case shall Microdel have any claims or disputes against members of the board of directors or the Company’s shareholders.

 

	
13.2.  
	
In the event the Offering process does not result in an offering by the Final Date, for any reason whatsoever, Microdel shall pay all of the Offering expenses, without exception, beyond the sums deposited in the Special Account; and shall indemnify the Company for any claim brought against it in connection with undertakings assumed by the Company, at Microdel’s
request, to pay sums related to the Offering process (beyond the sums found in the Special Account).  In such a case Microdel shall have no claims and/or demands against the Company and/or against any of its offers, except as stated above in this sub-section; and Microdel shall not have any right to invest monies in the Company in exchange for shares of Company stock.  The Primary Agreement will be terminated, the Conditional Shares will be transferred by the Trustee to the Current Shareholders
(except for Microdel) as stated above in section 3.2 and Microdel shall be entitled to continue to own only the Unconditional Shares.  And all of these stipulations are subject to the provisions of section 13.1 above and section 13.3 below – reliefs Microdel may receive from the Company only in the cases described in the said sections.  Beyond the reliefs described in these sections, Microdel shall have no right to any relief vis-à-vis the Company; with regard to its officers and
its shareholders, Microdel shall not have the right to any relief whatsoever, in any case.

 

 

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13.3.  
	
Notwithstanding the stipulations of section 13.2 above, in this section it is agreed that, subject to the fulfillment of Microdel’s undertakings in this agreement, including payment of the Funding for the Interim Period, in the event the Offering process is terminated because the Company’s board of directors initiates a decision to halt the
process prior to the Final Date due to the Company’s desire to convert the Offering process into an alternative process to raise capital funding (hereinafter, “Initiated Termination due to Alternative Capital Raising”); or in the case where the Company deliberately obstructs the Offering process with a clear intention to thwart the Offering (hereinafter, “Deliberate Termination”),
then the provisions of section 13.1 above shall apply (that is, additional shares will be issued to Microdel pursuant to the sums it actually paid to finance the Offering less the sum of USD 55,000, up to a ceiling as specified in this sub-section, and the balance of the monies in the Special Account will be returned to Microdel regarding sums the Company did not undertake to pay to third parties); additionally, the company shall indemnify Microdel in the amount of USD 55,000 in order to pay compensation to the
Consultant.; and this compensation amount shall be paid, in the event of an Initiated Termination due to Alternative Capital Raising, only from the monies received through the said alternative capital raising.  The burden of proof in the event of a Deliberate Termination shall be a greater burden of proof and shall apply to Microdel, while hereby clarifying that only the objection of the Company and/or its officers and/or any of its shareholders to the demands that have been expressly agreed to in this
contract, or new, inconsequential demands that are raised about the Offering that imply minor restrictions but which do not jeopardize at all, or jeopardize only slightly, the rights of the shareholders and/or the Company and which causes the termination of the Offering process – shall be considered a Deliberate Termination.  The amount of the compensation contained in this section shall be the final and exhaustive compensation, and except for this Microdel shall have no right to claim and/or
right to relief of any kind vis-à-vis the Company and its officers.  This relief is a relief that Microdel is entitled to receive from the Company only, and not from its officers.  The provisions of this section replace any decision and/or undertaking and/or document, if any, relating to an undertaking for compensation to Microdel in the event the Offering process is terminated.

 

	
13.4.  
	
Microdel states that the institutional bodies that are slated to invest funds in the Offered Company have not raised any demands regarding the lock-up period that will apply to the shares of all the Current Shareholders in the Company, such that the lock-up period shall not extend beyond the period required by American law and the provisions of the Israeli
Income Tax Ordinance, without any additional period of time.  Microdel further states that it has been made clear by the Consultant that the registration rights for the shares of the Current Shareholders in the Offered Company shall be identical to the registration rights of the institutional shareholders.

 

 

20

 

	
13.5.  
	
In the event of a dispute regarding the interpretation, implementation or fulfillment of this agreement and any other matter related thereto, the parties are authorized to appoint an acceptable arbitrator to serve as sole judge.  In the event the parties cannot agree between themselves regarding the identity of the arbitrator within 14 days after
either party requests to appoint an arbitrator, then the arbitrator shall be appointed by the chairperson of the Tel Aviv district of the Israel Bar Association after being contacted by either of the parties.  The arbitrator shall not be bound by the laws of evidence or the rules of procedure, and shall not be required to justify his ruling.  It is hereby clarified that the only relief to which Microdel is entitled vis-à-vis the Company shall be the reliefs cited in sections 13.1 and/or
13.2 above, and that aside from realizing these reliefs Microdel shall not be entitled to any relief.

 

	
13.6.  
	
Microdel shall be entitled to decide at any time to terminate the Offering process, without the Company and/or any of its shareholders having any grounds for suit against Microdel or anyone it its behalf; provided that Microdel assumes all of the expenses, without exception, that were caused and may be caused to the company as a result of the Offering
process.

 

	
13.7.  
	
Section 6 of the Primary Agreement shall be voided, and upon signing this agreement, Microdel shall not have the right to invest any monies in the Company according to the Primary Agreement.

 

	
13.8.  
	
Microdel knows that his agreement is contingent upon the signing of an agreement between the shareholders who agree, unanimously, to execute the Offering in the manner described in this agreement, and to the restrictions and impediments contained therein (hereinafter, “the Suspending Condition”).  Non-fulfillment
of the Suspending Condition shall not constitute a breach of this contract by the Company and shall not entitle Microdel to any relief whatsoever; however, if the Suspending Condition is not fulfilled by June 30, 2009, this Agreement shall be considered null and void and the parties shall have not claims or demands one against the other in connection with the Offering process.

 

And in witness thereof the parties have affixed their signatures

 

	  	  
	
Baby’s Breath, Ltd.
	
Microdel, Ltd.

  

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