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

FORM 6-K
Report of Foreign Private Issuer

Pursuant to Rule 13a-16 or 15d-16
under the Securities Exchange Act of 1934

For the month of October 2013 (Report No. 2)

Commission File Number: 000-51694

Perion Network Ltd.
(Translation of registrant's name into English)

4 HaNechoshet Street, Tel-Aviv, Israel 69710
(Address of principal executive offices)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

Form 20-F ☒    Form 40-F ☐

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): N/A

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): N/A
 
 
 
 
 
THE INFORMATION SET FORTH IN THIS REPORT ON FORM 6-K OF THE REGISTRANT IS HEREBY INCORPORATED BY REFERENCE INTO THE REGISTRANT'S REGISTRATION STATEMENTS ON FORM S-8 (REGISTRATION NOS. 333-188714, 333-171781, 333-152010 AND 333-133968), AND SHALL BE A PART THEREOF FROM THE DATE ON WHICH THIS REPORT IS FILED, TO THE EXTENT NOT SUPERSEDED BY DOCUMENTS OR REPORTS SUBSEQUENTLY FILED OR FURNISHED.
 
Contents

This report on Form 6-K of Perion Network Ltd. ("Perion") consists of the following documents, which are hereby attached hereto and incorporated by reference herein:

(1)
Proxy Statement in connection with the Extraordinary General Meeting of Shareholders of Perion to be held on November 18, 2013, attached as Exhibit 99.1 hereto, together with the following appendices thereto:

Appendix A – Share Purchase Agreement by and among Perion, Conduit Ltd. and ClientConnect Ltd., dated as of September 16, 2013, attached as Exhibit 99.2 hereto;

Appendix B – Opinion of RBC Capital Markets, LLC, attached as Exhibit 99.3 hereto;

Appendix C – Form of Registration Rights Undertaking, attached as Exhibit 99.4 hereto;

Appendix D – Form of Voting Agreement of Significant Conduit Shareholders, attached as Exhibit 99.5 hereto;

Appendix E – Form of Standstill Agreement, attached as Exhibit 99.6 hereto;

Appendix G – Form of D&O Indemnification Agreement, attached as Exhibit 99.7 hereto;

Appendix H – Compensation Policy of Directors and Officers, attached as Exhibit 99.8 hereto; and

Appendix I – Perion Equity Incentive Plan, attached as Exhibit 99.9 hereto.
 
(2)
Form of Proxy Card for holders of Ordinary Shares of Perion in connection with the Extraordinary General Meeting of Shareholders of Perion, to be held on November 18, 2013, attached as Exhibit 99.10 hereto.
 
 
 
 
 
Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
PERION NETWORK LTD.
 
       
 
By:
/s/ Limor Gershoni Levy  
    Name: Limor Gershoni Levy  
    Title:   Corporate Secretary & General Counsel  
 
Date: October 15, 2013
 
 
 
 
 
Exhibit Index
Exhibit
Description
Number
of Exhibit
   
99.1
Proxy Statement in connection with the Extraordinary General Meeting of Shareholders of Perion to be held on November 18, 2013.
   
99.2
Appendix A – Share Purchase Agreement by and among Perion, Conduit Ltd. and ClientConnect Ltd., dated as of September 16, 2013.
   
99.3
Appendix B – Opinion of RBC Capital Markets, LLC.
   
99.4
Appendix C - Form of Registration Rights Undertaking.
   
99.5
Appendix D - Form of Voting Agreement of Significant Conduit Shareholders.
   
99.6
Appendix E - Form of Standstill Agreement.
   
99.7
Appendix G - Form of D&O Indemnification Agreement.
   
99.8
Appendix H - Compensation Policy of Directors and Officers.
   
99.9
Appendix I - Perion Equity Incentive Plan.
   
99.10
Form of Proxy Card for holders of Ordinary Shares of Perion in connection with the Extraordinary General Meeting of Shareholders of Perion to be held on November 18, 2013.

Exhibit 99.1
 
PROXY STATEMENT
 
PERION NETWORK LTD.
4 HaNechoshet Street
Tel Aviv 69710
Israel
 
EXTRAORDINARY GENERAL MEETING OF SHAREHOLDERS
 
TO BE HELD ON NOVEMBER 18, 2013
 
INTRODUCTION
 
This Proxy Statement is being furnished to the holders of ordinary shares, par value NIS 0.01 per share (the "Perion Shares"), of Perion Network Ltd. ("Perion" or the "Company") in connection with the solicitation by our Board of Directors (the "Board of Directors") for use at an Extraordinary General Meeting of Shareholders (the "Meeting"), or at any adjournment thereof, pursuant to the accompanying Notice of Extraordinary General Meeting of Shareholders. The Meeting will be held at the offices of the Company located at 4 HaNechoshet Street, Tel Aviv 69710, Israel on Monday, November 18, 2013, at 4:00 p.m. (Israel time) (the "Meeting"), or at any adjournment thereof. Throughout this Proxy Statement, we use terms such as "we", "us", "our" and "our company" to refer to Perion and terms such as "you" and "your" to refer to our shareholders.
 
Purpose of the Meeting
 
On September 16, 2013, we entered into a Share Purchase Agreement (the "Share Purchase Agreement"), by and among Perion, Conduit Ltd., an Israeli company ("Conduit"), and ClientConnect Ltd., a newly formed Israeli company to be owned by the shareholders of Conduit in proportion to their ownership of Conduit ("ClientConnect"). The full text of the Share Purchase Agreement is included as Appendix A to this Proxy Statement and is incorporated herein by reference and we urge you to read it carefully in its entirety.
 
Prior to our entering into discussions with Conduit about a possible transaction, Conduit decided to spin off its entire activities and operations, and related assets and liabilities, of its "ClientConnect" business to ClientConnect, and on September 16, 2013, Conduit and ClientConnect entered into a Split Agreement (the "Split Agreement") pursuant to which the entire activities and operations, and related assets and liabilities, of the ClientConnect business will be transferred to ClientConnect on a cash-free and debt-free basis and the Conduit shareholders will be issued shares of ClientConnect and become the shareholders of ClientConnect (the "ClientConnect Shareholders") in proportion to their ownership of Conduit, expected to be consummated on December 31, 2013 (the "Split").
 
The Share Purchase Agreement provides for, among other things, our purchase of all the issued and outstanding shares of ClientConnect (the "ClientConnect Shares") from the ClientConnect Shareholders in exchange for newly issued Perion Shares (the "New Shares", and such purchase the "Share Purchase"), as a result of which ClientConnect will become a wholly owned subsidiary of ours. Each ClientConnect Share will be exchanged for that number of Perion Shares equal to the exchange ratio (the "Exchange Ratio") calculated as of two business days prior to the consummation of the Share Purchase (the "Closing") in accordance with the formula attached to the Share Purchase Agreement, which is based upon the respective shares and options of ClientConnect and Perion outstanding at the time of the Closing. The Exchange Ratio, as computed in the days preceding the execution of the Share Purchase Agreement based on information available at that time, was equal to approximately 0.2402 Perion Shares for each one ClientConnect Share.
 
 
 
 
The New Shares to be issued to the ClientConnect Shareholders at the Closing, together with options to purchase Perion Shares ("Perion Options") to be granted to ClientConnect employees (the "Exchanged Options") in exchange for their options to purchase ClientConnect Shares that will be issued upon the consummation of the Split as a roll-over of their existing options to purchase shares of Conduit (the "ClientConnect Options"), will constitute 81% of the issued and outstanding Perion Shares and our current shareholders and option holders will own 19% of the issued and outstanding Perion Shares, on a Fully Diluted basis (as defined below under "Share Purchase Agreement--Issuance of New Shares and Exchanged Options").  The New Shares will have the same rights and privileges as the Perion Shares currently issued and outstanding and will be listed for trading on the NASDAQ Stock Market and the Tel Aviv Stock Exchange.
 
Each of the Split and the Share Purchase transactions will be effected (i) as a tax-deferred restructuring pursuant to a tax ruling to be issued (the "Tax Ruling") under Sections 105 and 103T, respectively, of the Israel Income Tax Ordinance [New Version], 1961 (the "Tax Ordinance") and (ii) pursuant to the Arrangement (as defined below under "Court Approval") to be approved by the District Court of Tel Aviv−Jaffa (the "Court") among Conduit and the Conduit shareholders under Sections 350 and 351 of the Israeli Companies Law, 5759-1999, and the regulations promulgated thereunder (the "Companies Law"). By virtue of the Court Approval (as defined below under "Share Purchase Agreement - Court Approval" ), the issuance of the New Shares to the ClientConnect Shareholders will be exempt from the prospectus delivery requirements of the Israel Securities Law, 5728-1968 (the "Israel Securities Law") and will also be exempt from the registration requirements under the U.S. Securities Act of 1933, as amended (the "Securities Act"), pursuant to Section 3(a)(10) thereunder.
 
The agenda of the Meeting is as follows:
 
 
1.
To approve the Share Purchase Agreement, the Share Purchase and all other transactions contemplated by the Share Purchase Agreement, including the following related matters, each of which is contingent upon the other:
 
 
a.
the amendment of each of our Articles of Association and Memorandum of Association to increase our authorized share capital to NIS 1,200,000 divided into 120,000,000 Perion Shares; and
 
 
b.
the election of each of Dror Erez and Roy Gen to our Board of Directors.
 
We refer to this proposal throughout the accompanying Proxy Statement as "the Share Purchase Proposal". For more information about the Share Purchase Agreement, see the section of this Proxy Statement entitled "Share Purchase Agreement".
 
In addition, the agenda of the Meeting will include the following:

 
2.
To approve a new form of D&O indemnification agreement, which is a condition to closing under the Share Purchase Agreement;
 
 
3.
To approve the purchase of D&O liability insurance, which is a condition to closing under the Share Purchase Agreement;
 
 
4.
To approve compensation for our chief executive officer;
 
 
2
 
 
5.
To approve a compensation policy for our directors and officers; and
 
 
6.
To approve our amended Equity Incentive Plan for U.S. tax purposes.

Recommendation of the Audit Committee and Board of Directors
 
Our Audit Committee and Board of Directors have approved the Share Purchase Proposal. OUR AUDIT COMMITTEE AND BOARD OF DIRECTORS BELIEVE THAT THE SHARE PURCHASE PROPOSAL IS FAIR TO AND IN THE BEST INTERESTS OF, AND IS ADVISABLE TO, PERION AND ITS SHAREHOLDERS, AND OUR BOARD OF DIRECTORS RECOMMENDS THAT YOU AND THE OTHER PERION SHAREHOLDERS VOTE "FOR" THE SHARE PURCHASE PROPOSAL. See "Recommendation of our Audit Committee and Board of Directors".
 
IN ADDITION, THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE APPROVAL OF ALL THE OTHER PROPOSALS ON THE AGENDA FOR THE MEETING.
 
Record Date and Method of Voting
 
The record date for determining the shareholders entitled to vote at the Meeting is October 9, 2013 (the "Record Date").  Accordingly, you are entitled to vote at the Meeting only if you were a record holder of Perion Shares at the close of business on the Record Date. As of the Record Date, there were 12,472,717 Perion Shares issued and outstanding.  Your Perion Shares may be voted at the Meeting only if you are present at the Meeting or your Perion Shares are represented by a valid proxy or written ballot at the Meeting.
 
You are being asked to vote the Perion Shares held directly in your name as a shareholder of record and any Perion Shares you hold in "street name" as beneficial owner. Shares held in "street name" are shares held on your behalf by a bank, a broker, trustee or nominee.
 
The method of voting differs for Perion Shares held as a record holder and Perion Shares held in "street name." Record holders will receive proxy cards. Holders of Perion Shares in "street name" will need to follow the voting instructions obtained from their banks, brokers, trustees or nominees on how to vote. If your Perion Shares are held in "street name", you may receive a voting instruction card from your bank, broker, trustee or nominee together with this Proxy Statement.
 
Proxy cards are being solicited on behalf of our Board of Directors from our shareholders in favor of ALL the proposals.
 
You may receive more than one set of voting materials, including multiple copies of this document and multiple proxy cards or voting instruction cards. For example, shareholders who hold shares in more than one brokerage account may receive a separate voting instruction card for each brokerage account in which shares are held.
 
Shareholders of record whose Perion Shares are registered in more than one name will receive more than one proxy card. You should complete, sign, date and return each proxy card and voting instruction card you receive.
 
If your shares are held through a member of the Tel Aviv Stock Exchange Clearinghouse, and you intend to vote your shares at the Meeting in person or by proxy, you must deliver to us, via messenger or registered mail, a confirmation of ownership ( ishur baalut ) issued by the applicable bank or broker, confirming your ownership of Perion Shares as of the Record Date, as required by the Israeli Companies Regulations (Proof of Ownership of Shares for Voting at General Meeting), 5760-2000.
 
Joint holders of shares should note that, pursuant to our Articles of Association, the vote of the senior of joint holders of any share who votes such share, whether in person or by proxy, will be accepted to the exclusion of the vote(s) of the other registered holder(s) of such share, with seniority determined by the order in which the names of the joint holders appear in our Register of Shareholders. For the appointment of a proxy to vote shares held by joint holders to be valid, the signature of the senior of the joint holders must appear on the proxy card.
 
 
3
 
Voting in Person. If your Perion Shares are registered directly in your name with our U.S. transfer agent (i.e., you are a "registered shareholder"), you may attend and vote in person at the Meeting. If you are a beneficial owner of Perion Shares registered in the name of your bank, broker, trustee or nominee (i.e., your shares are held in "street name"), you are also invited to attend the Meeting. However, to vote in person at the Meeting as a beneficial owner, you must first obtain a "legal proxy" from your bank, broker, trustee or nominee authorizing you to do so.
 
Voting by Mail .  You may submit your proxy by mail by completing, signing and mailing the enclosed proxy card in the enclosed, postage-paid envelope, or, for Perion Shares held in street name, by following the voting instructions provided by your bank, broker, trustee or nominee. The proxy must be received at our registered office in Israel not later than the close of business on November 17, 2013 or delivered to our U.S. transfer agent no later than the close of business on November 15, 2013 to be validly included in the tally of Perion Shares voted at the Meeting.
 
Change or Revocation of Proxy
 
If you are a registered shareholder, you may change or revoke your proxy by delivering a written notice of revocation to us, to the attention of Ms. Limor Gershoni Levy, the Company's Corporate Secretary and General Counsel, at our executive offices, or to our U.S. transfer agent, by granting a new proxy bearing a later date by the applicable voting deadline or by attending the Meeting and voting in person.  Attendance at the Meeting will not cause your previously granted proxy to be revoked unless you specifically so request.
 
If your Perion Shares are held in street name, you may change your vote by submitting new voting instructions to your bank, broker, trustee or nominee or, if you have obtained a legal proxy from your bank, broker, trustee or nominee giving you the right to vote your Perion Shares, by attending the Meeting and voting in person.
 
Solicitation of Proxies
 
We will bear the cost of soliciting proxies from our shareholders.  Proxies will be solicited by mail and may also be solicited in person, by telephone or electronic communication, by our directors, officers and employees.  We will reimburse brokerage houses and other custodians, nominees and fiduciaries for their expenses in connection with the sending of proxies and proxy material to the beneficial owners of our shares. We have engaged D.F. King & Co., Inc. ("D.F. King"), a proxy solicitation firm, to assist us in soliciting proxies for the Meeting. D.F. King can be contacted at   48 Wall Street, 22nd Floor, New York, New York, 10005, by telephone at 1-800-488-8075 (banks and brokerage firms should call 1-212-269-5550) or by email at perion@dfking.com . 
 
SHAREHOLDERS ARE URGED TO COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY IN THE POSTAGE-PAID ENVELOPE PROVIDED. IN ORDER TO AVOID UNNECESSARY EXPENSE, WE ASK YOUR COOPERATION IN RETURNING YOUR PROXY CARD PROMPTLY, NO MATTER HOW LARGE OR SMALL YOUR HOLDINGS MAY BE.
 
Unsigned or unreturned proxies, including those not returned by banks, brokers, or other record holders, will not be counted for quorum or voting purposes.
 
Voting Rights and Vote Required
 
Record holders of our issued and outstanding Perion Shares as of the Record Date are entitled to vote at the Meeting. Each Perion Share, other than Perion Shares held by us or any of our subsidiaries, entitles the holder to one vote. An affirmative vote of the holders of a majority of the Perion Shares represented at the Meeting, in person or by proxy, and voting on the matter (not including abstentions), is required to approve the Share Purchase Proposal.
 
 
4
 
The approval of each of Proposal 1 and Proposal 6 requires the affirmative vote of the holders of a majority of the Perion Shares present (in person or by proxy) at the Meeting where a quorum is present and voting on such matter (not including abstentions).   
 
The approval of each of Proposals 2 to 5 on the agenda requires the affirmative vote of the holders of a majority of the Perion Shares present (in person or by proxy) and voting on such matter (not including abstentions), provided however that either (i) at least a majority of the shares of non-controlling shareholders and shareholders who do not have a personal interest in the resolution are voted in favor of the resolution, or (ii) the total number of shares of non-controlling shareholders and of shareholders who do not have a personal interest in the resolution that voted against the resolution does not exceed two percent of the outstanding voting power in the Company.  For information regarding personal interests under the Companies Law and related voting procedures, please see Proposal 2 below, under the caption "Required Vote".
 
All shares represented at the Meeting by valid proxies that we receive in time for the Meeting as a result of this solicitation (other than proxies that are revoked or superseded before they are voted) will be voted in the manner specified on such proxy. A proxy card of a record shareholder that is signed and returned that does not indicate a vote "FOR" or "AGAINST" a proposal will be counted as a vote "FOR" that proposal.
 
In tabulating the voting results for any particular proposal, Perion Shares that constitute broker non-votes and abstentions are not considered votes cast on that proposal. Unsigned or unreturned proxies, including those not returned by banks, brokers, or other record holders, will not be counted for quorum or voting purposes.
 
A bank, broker, trustee or nominee who holds shares for customers who are the beneficial owners of those shares has the authority to vote on "routine" proposals when it has not received instructions from the beneficial owners.  However, such bank, broker, trustee or nominee is prohibited from giving a proxy to vote those customers’ shares with respect to approving non-routine matters, such as the Share Purchase Proposal, without instructions from the customer. Perion Shares held by a bank, broker, trustee or nominee that are not voted at the Meeting because the customer has not provided instructions to the bank, broker, trustee or nominee will not be considered to be votes "FOR" or "AGAINST" the Share Purchase Proposal and some or all of the other proposals and will have no effect on the result of the vote.
 
Quorum Requirements
 
The presence of at least two shareholders, holding at least one-third of our issued share capital, represented in person or by proxy at the Meeting, will constitute a quorum. If within one half of an hour from the time appointed for the Meeting a quorum is not present, the Meeting shall stand adjourned for one week at the same hour and place, or to such day and such time and place as the chairperson may determine with the consent of a majority of the voting power represented at the Meeting in person or by proxy and voting on the question of adjournment. If a quorum is not present at the adjourned date of the Meeting within one half of an hour of the time fixed for the commencement thereof, then the Meeting shall take place regardless of the number of shareholders present and in such event the required quorum shall consist of any number of shareholders present in person or by proxy.
 
Abstentions and broker non-votes will be counted towards the quorum. Unsigned or unreturned proxies, including those not returned by banks, brokers, or other record holders, will not be counted for quorum or voting purposes.
 
 
5
 
Adjournment and Postponement
 
Although we do not expect this to occur, our shareholders may also be asked to vote to adjourn or postpone the Meeting for the purpose of soliciting additional proxies in favor of any proposals on the agenda of the Meeting.
 
Questions and Additional Information
 
If you have questions about the Share Purchase, the other proposals or how to submit your proxy, or if you need any additional copies of this Proxy Statement or the enclosed proxy card or voting instructions, please contact D.F. King at 48 Wall Street, 22nd Floor, New York, New York, 10005, by telephone at 1-800-488-8075 (banks and brokerage firms should call 1-212-269-5550) or by email at perion@dfking.com . Shareholders in Israel may also contact Ms. Limor Gershoni Levy, the Company's Corporate Secretary and General Counsel, at +972-3-769-6100.
 
 
6
 
TABLE OF CONTENTS
 
 
Page
      1
        10
         11
        19
        19
Risks Related to the Share Purchase
19
Risks Related to Our Company Following the Share Purchase
21
Risks Related to Our Company
22
Risks Related to ClientConnect
23
34
36
40
Issuance of New Shares and Exchanged Options
40
New RSUs
40
SEC Registration
40
Lock-up Arrangements
41
Representations and Warranties
42
Material Adverse Effect
45
Conduct of Business Prior to Closing
46
Restrictions on Solicitations of Other Offers
49
Non-Competition
52
Tax Matters
52
Court Approval
55
Agreement to Take Other Actions and to Use Reasonable Best Efforts
55
Closing Conditions
56
Termination
60
Fees and Expenses
61
Additional Matters
62
64
65
66
67
Registration Rights Undertakings
67
Voting Agreements of Significant Conduit Shareholders
68
Standstill Agreements
68
 
 
7
 
 
Voting of Perion Shares Held in Trust
69
Executive Lock-Up Agreement
 69
 70
Split Agreement
 70
Transition Services Agreement
 71
Office and Administrative Services Agreement
72
Working Capital Financing Agreement
72
74
Overview
        74
Industry Background
        74
ClientConnect Solutions
        75
Applications
        77
Strategy
        78
Marketing, Sales and Distribution
        78
Websites
        78
Material Agreements with Search Providers
        79
Competition
         80
Research and Development
         80
Intellectual Property
         80
Customers
         81
Property
         81
Employees
         81
Legal Proceedings
         82
83
 86
       Management Overview
 86
       Key Measures of ClientConnect’s Performance
 87
       Liquidity and Capital Resources
 93
       Quantitative and Qualitative Disclosures About Market Risk
 96
 97
  108
  112
  120
  120
  121
  123
 
 
8
 
 
 125 
Proposal 5: Approval of Compensation Policy for our Directors and Officers         127
 129
 134
 135
 136
 137
 138
 F-1
    PF-1
Appendix A       Share Purchase Agreement
   A-1
Appendix B       Opinion of RBC Capital Markets, LLC
  B-1
Appendix C       Form of Registration Rights Undertaking
  C-1
Appendix D       Form of Voting Agreement of Significant Conduit Shareholders
  D-1
Appendix E        Form of Standstill Agreement
  E-1
Appendix F        [Intentionally Omitted]
 
Appendix G       Form of D&O Indemnification Agreement
  G-1
Appendix H       Compensation Policy of Directors and Officers
  H-1
Appendix I         Perion Equity Incentive Plan
 I-1

 
9
 
 
CAUTIONARY STATEMENT CONCERNING
FORWARD-LOOKING STATEMENTS
 
This Proxy Statement and the documents to which we refer you in this Proxy Statement contain forward-looking statements based on estimates and assumptions. There are forward-looking statements throughout this Proxy Statement" and in statements containing words such as "believes," "estimates," "anticipates," "intends," "continues," "contemplates," "expects," "may," "will," "could," "should," or "would" or other similar words or phrases. These statements, which are based on information currently available to us, are not guarantees of future performance and may involve risks and uncertainties that could cause our actual growth, results of operations, performance and business prospects, and opportunities to materially differ from those expressed in, or implied by, these statements. These forward-looking statements speak only as of the date on which the statements were made and we expressly disclaim any obligation to release publicly any updates or revisions to any forward-looking statement included in this Proxy Statement or elsewhere. In addition to other factors and matters contained or incorporated in this Proxy Statement, these statements are subject to risks, uncertainties, and other factors, including, among others:
 
 
·
the occurrence of any event, change or other circumstances that could give rise to the termination of the Share Purchase Agreement;
 
 
·
the costs and outcome of any legal proceedings that may be instituted against us and others relating to the Share Purchase Agreement;
 
 
·
the inability to complete the Share Purchase due to the failure to obtain shareholder approval or the failure to satisfy other conditions to consummation of the Share Purchase;
 
 
·
the failure of the Share Purchase to close for any other reason;
 
 
·
risks that the proposed transaction disrupts current plans and operations and the potential difficulties in employee retention as a result of the Share Purchase;
 
 
·
the ability to recognize the benefits of the Share Purchase;
 
 
·
the distraction of our management resulting from the proposed transaction; and
 
 
·
other risks detailed in our current filings with the Securities and Exchange Commission (the "SEC"), including those set forth under the heading "Risk Factors" in our most recent annual report on Form 20-F. See the section of this Proxy Statement entitled "Where You Can Find More Information".
 
Many of the factors that will determine our future results are beyond our ability to control or predict. In light of the significant uncertainties inherent in the forward-looking statements contained herein, shareholders and prospective investors should not place undue reliance on forward-looking statements. We cannot guarantee any future results, levels of activity, performance or achievements. The statements made in this Proxy Statement represent our views as of the date of this Proxy Statement, and it should not be assumed that the statements made herein remain accurate as of any future date. Moreover, we assume no obligation to update forward-looking statements or update the reasons that actual results could differ materially from those anticipated in forward-looking statements, except as required by law.
 
 
10
 

QUESTIONS AND ANSWERS ABOUT THE SHARE PURCHASE
AND THE MEETING
 
The following questions and answers are intended to briefly address certain commonly asked questions regarding the Share Purchase, the Share Purchase Agreement and the Meeting.  These questions and answers may not address all the questions that may be important to you as a shareholder of Perion.  Please refer to the more detailed information contained elsewhere in this Proxy Statement, the appendices to this Proxy Statement and the documents referred to or incorporated by reference in this Proxy Statement, which you should read carefully.  See the section of this Proxy Statement entitled "Where You Can Find More Information", beginning on page 137.
 
 
Q:
What is the proposed Share Purchase?
 
 
A:
On September 16, 2013, we entered into the Share Purchase Agreement with Conduit and ClientConnect. Prior to our entering into discussions with Conduit regarding a possible transaction, Conduit decided to spin-off its ClientConnect business to ClientConnect, a newly formed company to be owned by the shareholders of Conduit in proportion to their ownership of Conduit, and on September 16, 2013, Conduit and ClientConnect entered into the Split Agreement, pursuant to which the entire activities and operations, and related assets and liabilities, of the ClientConnect business will be transferred to ClientConnect on a cash-free and debt-free basis under the terms and conditions set forth in the Split Agreement, and the Conduit shareholders will be issued ClientConnect Shares in proportion to their ownership of Conduit and will become the ClientConnect Shareholders.
 
The Share Purchase Agreement provides for, among other things, our purchase of all the issued and outstanding ClientConnect Shares from the ClientConnect Shareholders in exchange for New Shares, as a result of which ClientConnect will become a wholly owned subsidiary of ours. Each ClientConnect Share will be exchanged for that number of New Shares equal to the Exchange Ratio, which shall be determined prior to the Closing of the Share Purchase. The Exchange Ratio, as computed in the days preceding the execution of the Share Purchase Agreement based on information available at that time, was equal to approximately 0.2402 Perion Shares for each one ClientConnect Share. The New Shares will have the same rights and privileges as the Perion Shares currently issued and outstanding and will be listed for trading on the NASDAQ Stock Market and the Tel Aviv Stock Exchange.
 
The New Shares to be issued to the ClientConnect Shareholders at the Closing, together with the Exchanged Options, will constitute 81% of the issued and outstanding Perion Shares and our current shareholders and option holders will own 19% of our issued and outstanding Perion Shares, on a Fully Diluted basis.  Each of the Split and the Share Purchase transactions will be effected (i) as a tax-deferred restructuring pursuant to the Tax Ruling and (ii) pursuant to the Arrangement.
 
 
11
 
 
 
Q:
Will I receive any consideration as a result of the Share Purchase, and what will happen to my Perion Shares?
 
 
A:
No, you will not receive any consideration as a result of the Share Purchase and nothing will happen to your Perion Shares. It should be noted that, given the acquisition of ClientConnect by the Company, the number of issued and outstanding Perion Shares is expected to increase substantially as a result of the issuance of between 57 million and 62 million New Shares (including the Perion Shares underlying the Exchanged Options), as described above under " What is the proposed Share Purchase ?".
 
 
Q:
What will we be acquiring in the Share Purchase and what will be our relationship with Conduit following the Share Purchase?
 
 
A:
Pursuant to the Share Purchase Agreement, we will acquire all of the outstanding shares of ClientConnect, which will have received from Conduit the entire activities and operations, and related assets and liabilities, of Conduit's ClientConnect business pursuant to the Split Agreement.
 
During a transition period, ClientConnect will provide Conduit and its subsidiaries with certain support services and systems, including data services, information technology, information security and management information system pursuant to a transition services agreement (the "Transition Services Agreement"). In addition, during a transition period Conduit will provide ClientConnect with certain services, including office and administrative support services, pursuant to an office and administrative services agreement (the "Office and Administrative Services Agreement").
 
Following the consummation of the Split, Conduit will provide ClientConnect with a three-month credit line of up to $20 million (the "Credit Line") in accordance with a working capital financing agreement (the "Working Capital Financing Agreement"). The Credit Line will be used solely to finance the then-current working capital needs of the ClientConnect business and will bear interest from the date of withdrawal of any loans at the minimum statutory rate.
 
For more information regarding the Split Agreement and the agreements related thereto, see "Agreements Related to the Split of Conduit", beginning on page 70.
 
For a period of 30 months following the Closing, Conduit will not be permitted to compete with the ClientConnect business in the manner described under "Share Purchase Agreement – Non-Competition", beginning on page 52 below.
 
 
Q:
Where can I find additional information about ClientConnect?
 
 
A:
This Proxy Statement contains the following information about ClientConnect:
 
 
·
A description of the business of ClientConnect, beginning on page 74;
 
 
·
Risk factors about ClientConnect, beginning on page 23;
 
 
·
Selected pro forma financial data of ClientConnect, beginning on page 83;
 
 
·
An operating and financial review of ClientConnect, beginning on page 86; and
 
 
·
Unaudited pro forma financial information of ClientConnect, beginning on page PF-1.
 
 
12
 
 
 
Q:
What will happen to our management as a result of the Share Purchase?
 
 
A:
Mr. Josef Mandelbaum will continue to serve as our Chief Executive Officer following the Closing, and substantially all of our other officers will continue to serve in their current positions as well.  Mr. Joshua Wine, the Chief Revenue Officer of Conduit, will become the President of Perion and will continue to manage the ClientConnect business.
 
Pursuant to the terms of the Share Purchase Agreement, Dror Erez (one of the co-founders of Conduit and its Chief Technology Officer) and Roy Gen (Conduit's Chief Financial Officer) (the "Conduit Director Designees") will be elected to our Board of Directors to the classes of directors of Josef Mandelbaum and Adi Soffer Teeni, respectively, two of our current directors who have each delivered us a resignation letter from our Board of Directors effective as of the Closing. In addition, pursuant to the Standstill Agreements (as discussed below in "Agreements Relating to the Share Purchase – Standstill Agreements"), several large shareholders of Conduit have undertaken that until the earlier of (i) the last business day preceding the 2015 annual shareholder meeting of Perion or (ii) December 30, 2015, they will not vote their Perion Shares in favor of any proposal to change the size or structure of our Board of Directors or to shorten or terminate the term of service of any member of our Board of Directors, unless such proposal is recommended by the Board of Directors. The full text of the form of Standstill Agreement is included as Appendix E to this Proxy Statement and is incorporated herein by reference.
 
 
Q:
Will we grant new rights to purchase Perion Shares in connection with the Share Purchase?
 
 
A:
In connection with the Split, Conduit employees that are engaged in the ClientConnect business will be offered to become ClientConnect employees. All related employment liabilities of the employees who agree to transfer to ClientConnect will be assumed by ClientConnect, and all severance funds for such employees will be fully funded at the consummation of the Split. Effective as of the Split, all then-outstanding options to purchase Conduit shares owned by such transferring Conduit employees, whether or not exercisable, will be rolled-over into ClientConnect Options. The ClientConnect Options will be subject to the same vesting schedule and the same terms and conditions as the options to purchase Conduit shares. The exercise price per share of a ClientConnect Option will be adjusted as described below in "Agreements Related to the Split of Conduit—Split Agreement".
 
Effective as of the Closing, all then-outstanding ClientConnect Options, whether or not exercisable, will be exchanged and converted into Perion Options under our Equity Incentive Plan (the "Exchanged Options"). The Exchanged Options will be subject to the same vesting schedule and the same terms and conditions, will be execisable for that number of Perion Shares equal to the number of ClientConnect Shares set forth in the underlying ClientConnect Option multiplied by the Exchange Ratio, and the exercise price will be equal to the quotient determined by dividing the per share exercise price of the underlying ClientConnect Option by the Exchange Ratio. The remaining term of any ClientConnect Option that exceeds five years will be reduced to five years from the date of the Closing (the "Closing Date"). Following the Closing, we will grant restricted share units ("RSUs") with respect to an aggregate of 983,500 Perion Shares to certain key employees of ClientConnect and Perion to encourage their continued employment with us (the "New RSUs"). We also propose to grant to our Chief Executive Officer 200,000 RSUs on the date of the Meeting and 232,400 RSUs following the Closing, subject to shareholder approval, as described in Proposal 4 below.
 
 
13
 
 
Q:
Will the New Shares be subject to any lock-up arrangements following the Closing?
 
 
A :
Yes.
 
Pursuant to the Share Purchase Agreement, all of the New Shares will be subject to contractual lock-up arrangements prohibiting the sale thereof for a period of at least six months from the Closing Date.  During the subsequent 18 months, each holder of New Shares may sell up to 10% of his or her New Shares.  Each such holder will be permitted to sell a higher percentage of such holder's New Shares during such 18-month period if the Perion Shares trade at certain pre-defined price levels at any time following the Closing, namely, 33% if the prevailing market price is $15.00 per share, 67% if the prevailing market price is $18.50 per share and 100% if the prevailing market price is $22.00 per share.  We refer to the lock-up arrangements under the Share Purchase Agreement as the "Contractual Lock-up").  The Contractual Lock-up will not apply to the Perion Shares issued upon exercise of the Exchanged Options. For more information about the Contractual Lock-up, including events that could lead to the early relaxation of the Contractual Lock-up, see "Share Purchase Agreement—Lock-up Arrangements", beginning on page 41.
 
In addition, in order to satisfy certain conditions of the Tax Ruling, until December 31, 2015, the shareholders of Conduit will only be permitted to sell up to 10% of the New Shares issued to them (the "Tax Lock-up"), except that we currently expect that the Israeli Tax Authority may exempt certain categories of shareholders of Conduit from the Tax Lock-up. Assuming that these categories of shareholders of Conduit are indeed exempted by the Israeli Tax Authority from the Tax Lock-Up, then the Tax Lock-up will continue to apply to shareholders of Conduit holding approximately 48.5% of the New Shares issued in the transaction. For more information about the Tax Lock-up, see "Share Purchase Agreement—Tax Matters", beginning on page 52.
 
Finally, Mr. Josef Mandelbaum, our Chief Executive Officer, has executed a lock-up agreement with respect to Perion Shares beneficially owned by him.   For more information, see "Agreements Related to the Share Purchase—Executive Lock-up Agreement", beginning on page 69.
 
 
Q:
Has the Company agreed to register the resale of the New Shares with the SEC?
 
 
A:
Yes.  By virtue of the Court Approval, the issuance of the New Shares to the ClientConnect Shareholders will be exempt from the prospectus delivery requirements of the Israel Securities Law and will also be exempt from the registration requirements under the Securities Act pursuant to Section 3(a)(10) thereunder.  However, holders of New Shares that are deemed "affiliates" under the SEC regulations will be subject to volume limitations under Rule 144 under Securities Act ("Rule 144").  Also, holders of a significant number of New Shares may be unable to sell their shares on NASDAQ in large quantities.  Therefore, pursuant to the terms of a registration rights undertaking to be entered into by us and each ClientConnect Shareholder who executes a joinder thereto (the "Registration Rights Undertaking"), as soon as practicable following the filing of our Annual Report on Form 20-F for the 2013 fiscal year (and in any event within the earlier of (i) 30 days following the filing of such annual report and (ii) 150 days following the Closing), we will file with the SEC a registration statement on Form F-3 (the "Form F-3") covering the resale of the New Shares held by any person whose resale of such shares would otherwise be subject to volume limitations under Rule 144 under Securities Act ("Rule 144").  Such registration will not release the Tax Lock-up or the Contractual Lock-up.
 
In addition, if we effect a registered offering of securities (except on Form S-8 or a registration relating solely to a Rule 145 transaction on Form F-4), any holder of New Shares that holds at such time at least 3% of the outstanding Perion Shares or resale of registrable securities would otherwise be subject to volume limitations set forth in Rule 144 will have the right to include its registrable securities in the registration effected pursuant to such offering, subject to certain conditions. Each such holder will be afforded this right regardless of the Contractual Lock-up, and following such offering, the Contractual Lock-up applicable to the other holders of New Shares will terminate. The Tax Lock-up will not be affected by any such registration.
 
 
14
 
See "Agreements Related to the Share Purchase – Registration Rights Undertakings" for more information.  The full text of the form of the Registration Rights Undertaking is included as Appendix C to this Proxy Statement and is incorporated herein by reference.
 
 
Q:
When and where is the Meeting?
 
 
A:
The Meeting will be held on Monday, November 18, 2013, at 4:00 p.m. (Israel time) and at any time to which the Meeting is adjourned.  The Meeting will be held at our offices located at 4 HaNechoshet Street, Tel Aviv 69710, Israel.
 
 
Q:
What am I being asked to vote on?
 
 
A:
You are being asked to vote on six proposals. First, you are being asked to approve the Share Purchase Proposal, which is a proposal to approve the Share Purchase Agreement, the Share Purchase and the other transactions contemplated by the Share Purchase Agreement, including the increase of our share capital and the election of two new directors, each of which is contingent upon the other (Proposal 1 on the agenda). Second, you are being asked to approve a form of D&O indemnification agreement (the "Indemnification Agreement") (Proposal 2 on the agenda). Third, you are being asked to approve the purchase of D&O liability insurance, including run-off insurance (Proposal 3 on the agenda).  The approval of Proposal 2 and Proposal 3 at the Meeting are conditions to the consummation of the Share Purchase.  Fourth, you are being asked to approve compensation for our Chief Executive Officer (Proposal 4 on the agenda). Fifth, you are being asked to approve a compensation policy for our directors and officers (Proposal 5 on the agenda). Finally, you are being asked to approve our amended Equity Incentive Plan for U.S. tax purposes (Proposal 6 on the agenda). No other matters are on the agenda at the Meeting.
 
 
Q:
What vote is required for our shareholders to approve each of the different proposals?
 
 
A:
The approval of each of Proposal 1 and Proposal 6 requires the affirmative vote of the holders of a majority of the Perion Shares present (in person or by proxy) at the Meeting and voting on such matter (not including abstentions).
 
The approval of each of Proposals 2 to 5 on the agenda requires the affirmative vote of the holders of a majority of the Perion Shares present (in person or by proxy) at the Meeting and voting on such matter (not including abstentions), provided however that either (i) at least a majority of the shares of non-controlling shareholders and shareholders who do not have a personal interest in the resolution are voted in favor of the resolution, or (ii) the total number of shares of non-controlling shareholders and of shareholders who do not have a personal interest in the resolution that voted against the resolution does not exceed two percent of the outstanding voting power in the Company. For information regarding personal interests under the Companies Law and related voting procedures, please see Proposal 2 below, under the caption "Required Vote".
 
 
15
 
 
Q:
Are any Perion Shares committed to be voted for approval of the Share Purchase Proposal?
 
 
A:
Yes. We have provided an instruction letter to SGS irrevocably instructing it to vote all of the Perion Shares it is holding in trust pursuant to the Paying Agent Agreement in favor of the Share Purchase Proposal and against any alternative transaction. As of the Record Date, SGS held 1,428,806 Perion Shares in trust (constituting 11.46% of the Perion Shares as of the Record Date). See "Agreements Related to the Share Purchase – Voting of Perion Shares Held in Trust", beginning on page 69.
 
 
Q:
How does our Board of Directors recommend that I vote?
 
 
A:
Our Board of Directors, following the approval of our Audit Committee, has approved the Share Purchase Agreement, the Share Purchase and the other transactions contemplated by the Share Purchase Agreement, and recommends that you vote "FOR" the approval of the Share Purchase Proposal.  Our Board of Directors also recommends that you vote "FOR" each of the other proposals to be voted on at the Meeting.
 
 
Q:
Why is our Board of Directors recommending that I vote for approval of the Share Purchase Proposal?
 
 
A:
Our Audit Committee and Board of Directors have determined that the terms and provisions of the Share Purchase Agreement, the Share Purchase and the other transactions contemplated by the Share Purchase Agreement are fair to, and in the best interests of, our company and our shareholders. For additional information see the sections of this Proxy Statement entitled "Recommendation of our Audit Committee and Board of Directors", beginning on page 108.
 
 
Q.
Did our Board of Directors receive a fairness opinion from an independent financial expert in connection with the Share Purchase?
 
 
A.
Yes, on September 15, 2013, RBC Capital Markets, LLC ("RBC") delivered its oral opinion (which was subsequently confirmed in writing) to our Board of Directors to the effect that, as of such date, based upon and subject to the factors and assumptions made, procedures followed, matters considered and limits of the review undertaken by RBC set forth therein, the Exchange Ratio was fair from a financial point of view to our shareholders.
 
The full text of RBC’s written opinion, dated September 16, 2013, which, among other things, sets forth the assumptions made, procedures followed, matters considered, and limits of the review undertaken by RBC in connection with the opinion, is attached as Appendix B . RBC provided its opinion for the information and assistance of our Board of Directors in connection with its consideration of the Share Purchase. All advice and opinions (written and oral) rendered by RBC were intended for the use and benefit of our Board of Directors, acting solely in its capacity as such. The RBC opinion is not a recommendation to any shareholder as to how such shareholder should vote with respect to the Share Purchase or any other proposal to be voted upon by them in connection with the transactions contemplated by the Share Purchase Agreement. You are urged to read the RBC opinion in its entirety. See "Opinion of RBC Markets, LLC" below, beginning on page 112.
 
 
16
 
 
Q.
Does the Share Purchase also require the approval of the shareholders of Conduit?
 
 
A.
Yes, as a condition to the Court Approval, the Share Purchase is required to be approved by the affirmative vote of a majority of the shareholders of Conduit holding at least 75% of the Conduit shares voting on the matter. As discussed below in "Agreements Related to the Share Purchase – Voting Agreements of Significant Conduit Shareholders", several shareholders of Conduit have each entered into a Voting Agreement with us under which such shareholder has agreed to vote, and has provided us an irrevocable proxy to vote, in favor of the approval of the Share Purchase Agreement and the transactions contemplated thereby and against any alternative transaction. These agreements and proxies account for approximately 77% of Conduit’s outstanding shares.  The full text of the form of the Voting Agreement is included as Appendix D to this Proxy Statement and is incorporated herein by reference.
 
 
Q:
When will the Share Purchase be completed?
 
 
A:
We are working to complete the Share Purchase as soon as possible. Several conditions must be satisfied or waived before the Share Purchase is completed.  See the section of this Proxy Statement titled "Share Purchase Agreement—Closing Conditions" for a summary description of these conditions. We expect to complete the Share Purchase in January 2014, but because the Share Purchase is subject to certain closing conditions, some of which are beyond ClientConnect's and our control, the exact timing cannot be predicted. The Share Purchase Agreement may be terminated by either party if the Share Purchase is not completed by January 31, 2014, or February 28, 2014 if all closing conditions have been satisfied other than the receipt of U.S. antitrust approval.
 
 
Q: 
What happens if the Share Purchase is not completed?
 
 
A:
If the Share Purchase Agreement is not approved by our shareholders or if the Share Purchase is not completed for any other reason, we will not acquire the ClientConnect Shares and will not consummate the Share Purchase.  Under circumstances specified in the Share Purchase Agreement, we may be required to pay Conduit a termination fee as described in the section of this Proxy Statement entitled "Share Purchase Agreement—Fees and Expenses", beginning on page 61.
 
 
Q: 
Are there any risks related to the proposed Share Purchase?
 
 
A:
Yes. You should carefully read the section of this Proxy Statement entitled "Risk Factors – Risks Related to the Share Purchase", beginning on page 19 and in our SEC filings incorporated by reference herein.
 
 
Q:
What is the required quorum for the Meeting?
 
 
A:
The presence of at least two shareholders, holding at least one-third of our issued share capital, represented in person or by proxy at the Meeting, will constitute a quorum.  If within one half of an hour from the time appointed for the Meeting a quorum is not present, the Meeting shall stand adjourned for one week at the same hour and place, or to such day and such time and place as the chairperson may determine with the consent of a majority of the voting power represented at the Meeting in person or by proxy and voting on the question of adjournment. If a quorum is not present at the adjourned date of the Meeting within one half of an hour of the time fixed for the commencement thereof, then the Meeting shall take place regardless of the number of shareholders present and in such event the required quorum shall consist of any number of shareholders present in person or by proxy.
 
 
17
 
 
 
Q: 
What do I need to do now?
 
 
A:
This Proxy Statement contains important information regarding the Share Purchase as well as information about us. It also contains important information regarding the factors considered by our Board of Directors in evaluating the Share Purchase. We urge you to read this Proxy Statement carefully in its entirety. You should also complete, sign and date the enclosed proxy card and return it in the enclosed envelope. You may also want to review the documents referenced under the section of this Proxy Statement entitled "Where You Can Find More Information", beginning on page 137.
 
 
Q:
How do I vote?
 
 
A:
If you are a registered shareholder, you should indicate on the enclosed proxy card how you want to vote by completing, signing and mailing the proxy card in the enclosed, postage-paid envelope. If your shares are held in "street name", you should follow the voting instructions provided by your bank, broker, trustee or nominee. If you are a registered shareholder, whether or not you submit a proxy, you may attend the Meeting and vote your shares in person. If your shares are held in "street name" you will need to obtain a proxy from your bank, broker, trustee or nominee in order to vote your shares in person at the Meeting.
 
 
Q:
If my shares are held in "street name" by my bank, broker, trustee or nominee, will my bank, broker, trustee or nominee vote my shares for me?
 
 
A:
Your bank, broker, trustee or nominee will vote your shares only if you provide instructions to your bank, broker, trustee or nominee on how to vote and provided you do so within ample time before the Meeting. You should follow the procedures provided by your bank, broker, trustee or nominee regarding the voting of your shares (including the timing to do so) and be sure to provide your bank, broker, trustee or nominee with instructions on how to vote your shares. If your shares are held in "street name" you must contact your bank, broker, trustee or nominee to change or revoke your voting instructions. If your shares are held through a member of the Tel Aviv Stock Exchange Clearinghouse, and you intend to vote your shares at the Meeting in person or by proxy, you must deliver to us, via messenger or registered mail, a confirmation of ownership ( ishur baalut ) issued by the applicable bank or broker, confirming your ownership of Perion Shares as of the record date for the Meeting, as required by the Israeli Companies Regulations (Proof of Ownership of Shares for Voting at General Meeting), 5760-2000.
 
 
Q:
Who can vote at the Meeting?
 
 
A:
Only those holders of record of outstanding Perion Shares at the close of business on October 9, 2013, the record date for the Meeting, are entitled to vote at the Meeting. As of the Record Date, there were 12,472,717 Perion Shares issued and outstanding.
 
 
Q:
Who can help answer my questions?
 
 
A:
If you have additional questions about the Share Purchase Agreement, the Share Purchase or the proposals, or would like additional copies of this Proxy Statement or the enclosed proxy card, you should contact "D.F. King", the proxy solicitation firm, to assist us in soliciting proxies for the Meeting, at 48 Wall Street, 22nd Floor, New York, New York, 10005, by telephone at 1-800-488-8075 (banks and brokerage firms should call 1-212-269-5550) or by email at perion@dfking.com . Shareholders in Israel may also contact Ms. Limor Gershoni Levy, the Company's Corporate Secretary and General Counsel, at our executive offices located at 4 HaNechoshet Street, Tel Aviv 69710, Israel; telephone number: +972-3-769-6100.
 
 
18
 

PROPOSAL ONE
APPROVAL OF THE SHARE PURCHASE PROPOSAL
 
Risk Factors
 
In addition to the other information included in this Proxy Statement, including the matters addressed under the section titled "Cautionary Statement Concerning Forward-Looking Statements", you should carefully consider the following risk factors in determining how to vote at the Meeting.  
 
Risks Related to the Share Purchase
 
Our current shareholders will experience substantial dilution as a result of the Share Purchase, since following the consummation of the Share Purchase the ClientConnect Shareholders and ClientConnect employees who hold ClientConnect Options will own 81% of the outstanding Perion Shares on a Fully Diluted basis.
 
You will experience substantial dilution as a result of the Share Purchase, since the New Shares to be issued to the ClientConnect Shareholders, together with the Exchanged Options, will constitute 81% of the outstanding Perion Shares and our current shareholders and option holders will own 19% of the outstanding Perion Shares, on a Fully Diluted basis, prior to giving effect to the issuance of RSUs to certain key employees of ClientConnect and the Company. Following the Closing, it is expected that there will be five shareholders in the Company who will each own more than 5% of the outstanding Perion Shares. See below under "Beneficial Ownership of Securities by Certain Beneficial Owners". Given that a simple majority vote of shares present in person or by proxy is required for the approval of most actions at our shareholder meetings, the vote by any such significant shareholders at such meetings, in person or by proxy, may affect the outcome of the vote. These shareholders may have interests that are different than your interests.
 
Failure to complete the Share Purchase could negatively impact the market price of the Perion Shares and our business, financial condition, results of operations and prospects.
 
The Share Purchase is subject to the satisfaction or waiver of certain closing conditions as described below in "Share Purchase Agreement – Closing Conditions".  No assurance can be given that each of the conditions will be satisfied.  In addition, the Share Purchase Agreement may be terminated under the circumstances described below in "Share Purchase Agreement - Termination" .
 
If the Share Purchase is not completed (including in the case the Share Purchase Agreement is terminated), our ongoing business may be adversely affected and, without realizing any of the benefits of having completed the Share Purchase, we will be subject to a number of risks, including the following:
 
 
·
we may be required to pay a termination fee of $6,000,000, in certain circumstances as described below in "Share Purchase Agreement – Fees and Expenses" ;
 
 
·
we will be required to pay certain expenses relating to the Share Purchase, including substantial legal, financial advisor and accounting fees, whether or not the Share Purchase is completed;
 
 
·
the price of the Perion Shares may decline to the extent that the current market price reflects a market assumption that the Share Purchase will be completed;
 
 
·
under the Share Purchase Agreement, we are subject to certain restrictions on the conduct of our business prior to completing the Share Purchase that may affect our ability to execute certain of our business strategies; and
 
 
19
 
 
·
during the period before completion of the Share Purchase, our management’s attention, which could otherwise have been devoted to other opportunities (including other business or acquisition opportunities) that may have been beneficial to us, will be diverted from our day−to−day business, and there may also be unavoidable disruptions to our relationships with our employees, customers and suppliers.
 
We also could be subject to litigation related to any failure to complete the Share Purchase or related to any enforcement proceeding commenced against us to perform our obligations under the Share Purchase Agreement.  If the Share Purchase is not completed, these risks may materialize and may adversely affect the market price of the Perion Shares and our business, financial condition, results of operations and prospects.
 
The fact that the Share Purchase is pending could harm our business, revenue and results of operations.
 
While the Share Purchase is pending, we will be subject to a number of risks that may harm our business, revenue and results of operations, including:
 
 
·
the diversion of management and employee attention and the unavoidable disruption to our relationships with customers and suppliers may detract from our ability to grow revenues and minimize costs;
 
 
·
we have and will continue to incur significant expenses related to the Share Purchase prior to its closing; and
 
 
·
we may be unable to respond effectively to competitive pressures, industry developments and future opportunities.
 
ClientConnect's and our current and prospective employees may be uncertain about their future roles and relationships with our company following completion of the Share Purchase.  This uncertainty may adversely affect our ability to attract and retain key personnel.
 
Also, speculation regarding the likelihood of the completion of the Share Purchase could increase the volatility of our share price prior the closing of the Share Purchase.
 
Our obligation to pay a termination fee under certain circumstances and the restrictions on our ability to solicit or engage in negotiations with respect to other acquisition proposals may discourage other transactions that may be favorable to our shareholders.
 
Until the Share Purchase is completed or the Share Purchase Agreement is terminated, with limited exceptions, we will be prohibited from entering into, soliciting or engaging in negotiations with respect to acquisition proposals or other business combinations.  Under specified circumstances, we may be obligated to pay Conduit a termination fee of $6,000,000, as described below in "Share Purchase Agreement – Fees and Expenses".  This could discourage other companies from proposing alternative transactions during this period that may be more favorable to our shareholders than the Share Purchase.
 
Some of our directors and officers have interests that may differ from the interests of our shareholders, and these persons may have conflicts of interest in recommending to our shareholders to approve the Share Purchase Proposal.
 
Some of the members of management and our Board of Directors may have interests that differ from, or are in addition to, their interests as shareholders, which are described below in "Interests of our Directors and Officers in the Share Purchase".  These interests could cause management or members of our Audit Committee and Board of Directors to have a conflict of interest in recommending approval of the Share Purchase Proposal.
 
 
20
 
If the Share Purchase is not consummated by January 31, 2014, either we or Conduit may, under certain circumstances that may be beyond our control, choose not to proceed with the Share Purchase.
 
The Share Purchase is subject to the satisfaction or waiver of certain closing conditions as described below in "Share Purchase Agreement – Closing Conditions".  Certain of these conditions are beyond our control.  If the Share Purchase has not been completed by January 31, 2014 (or February 28, 2014, if all closing conditions have been satisfied other than the receipt of U.S. antitrust approval), either we or Conduit may terminate the Share Purchase Agreement, provided that such right to terminate will not be available to a party whose action or failure to act has been the principal cause of or directly resulted in the failure of the Share Purchase to occur on or before such date.
 
Risks Related to Our Company Following the Share Purchase
 
Following the Share Purchase we will be increasingly dependent on Internet search based revenues, since both our business and the ClientConnect business are highly dependent upon such revenues.
 
Our revenues from Google constituted 63% and 74% of our revenues for the year ended December 31, 2012 and the six months ended June 30, 2013, respectively. ClientConnect is also heavily dependent on search based revenues, as its agreements with Microsoft and Google accounted for 96% and 86% of ClientConnect's revenues in 2012 and the six months ended June 30, 2013, respectively. The limited number of search engines could materially adversely affect our financial condition and results of operations if these third parties terminate or do not renew agreements with us or if they change their guidelines applicable to our business and the ClientConnect business.
 
The benefits expected to result from the Share Purchase may not occur because of integration and other challenges.
 
If the Share Purchase is completed, achieving the expected benefits of the Share Purchase will depend on the timely and efficient integration of ClientConnect's and our operations, technology, business culture and personnel. The integration may not be completed as quickly as expected, and if we fail to effectively integrate the operations or the integration takes longer than expected, we may not achieve the expected benefits of the Share Purchase. The challenges involved in this integration include, among others:
 
 
·
managing the ClientConnect business independently of Conduit;
 
 
·
transitioning to our brand by the termination of the transition period during which we can continue to utilize the name "Conduit";
 
 
·
integrating the operations of the ClientConnect business with our operations;
 
 
·
retaining the customers and sales distribution channels of both companies;
 
 
·
incorporating ClientConnect's technology and products into our current and future technology and product lines;
 
 
·
demonstrating to the customers of the ClientConnect business that the Share Purchase will not result in adverse changes in customer service standards or product support;
 
 
·
coordinating research and development activities to enhance introduction of new products and technologies;
 
 
·
persuading the employees of both companies that the companies' business cultures are compatible; and
 
 
·
maintaining employee morale and retaining key employees.
 
 
21
 
This integration effort will be complex, time consuming and expensive and may disrupt the respective businesses or result in the loss of customers or key employees or the diversion of the attention of management. In addition, the integration process may strain our financial and managerial controls and reporting systems and procedures. This may result in the diversion of management and financial resources from our core business objectives. There can be no assurance that we will successfully integrate the respective businesses or that we will realize the anticipated benefits of the Share Purchase.
 
 Third parties may terminate or alter existing contracts or relationships with ClientConnect or us.
 
Third parties, including suppliers, distributors, customers, licensors, licensees and other business partners, have contracts with us or with Conduit in regards to the ClientConnect business. Some of these contracts require consent from these parties in connection with the Split and/or the Share Purchase. If these consents cannot be obtained, we may suffer a loss of potential future revenue and may lose rights that are material to ClientConnect or us. In addition, third parties with which Conduit or we currently have relationships may terminate or otherwise adversely modify their relationship with Conduit or us in anticipation of the Split and the Share Purchase transactions or following such transactions, whether or not they have the legal right to do so. Among other things, this may result in ClientConnect or us suffering a loss of potential future revenue and possibly losing rights that are material to ClientConnect or us. In order to achieve the expected benefits of the Share Purchase, we may seek to renegotiate contracts with some of ClientConnect's and our suppliers, distributors, customers, licensors, licensees, other business partners and other third parties, and there is no assurance that such negotiations will be successful.
 
Our market price may decline following the Share Purchase.
 
Our market price may decline following the Share Purchase for a number of reasons, including if:
 
 
·
we do not achieve the perceived benefits of the Share Purchase as rapidly or to the extent anticipated by financial or industry analysts;
 
 
·
the effect of the Share Purchase on us and ClientConnect and the prospects of the combined company is not consistent with the expectations of financial or industry analysts;
 
 
·
investors react negatively to the significant dilution to their holdings in us as a result of the Share Purchase or the effect of the Share Purchase on us and ClientConnect and the prospects of the combined company; or
 
 
·
there are sales of a significant number of New Shares or Perion Shares issued upon exercise of Exchanged Options, or the public believes that these sales may occur in the future.
 
In the event that the Share Purchase is completed, we will incur significant additional expenses in connection with our ongoing operations.
 
            In the event that the Share Purchase is completed, we expected to incur significant additional expenses, including those relating to coordinating personnel, travel, information technology systems, accounting systems, vendors and strategic partners of each company, as well as expenses relating to the implementation of consistent standards, policies, and procedures.
 
Risks Related to Our Company
 
For a description of other risks associated with Perion, please see the section entitled "Risk Factors" and elsewhere in our Annual Report on Form 20-F for the year ended December 31, 2012, which is incorporated by reference into this Proxy Statement. See "Where You Can Find More Information".
 
 
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Risks Related to ClientConnect
 
The ClientConnect business (sometimes referred to in this section as "ClientConnect") depends heavily upon revenues generated from arrangements with search providers Microsoft and Google and any adverse change in those relationships could adversely affect that business or its financial condition and results of operations.
 
The vast majority of the revenues generated by ClientConnect, which will become part of our company assuming consummation of the Split and the Share Purchase transactions, are attributable to services agreements with Microsoft Online Inc. ("Microsoft"), and Google Ireland Limited ("Google"), which expire on December 31, 2014 and on August 31, 2015, respectively. The agreement with Microsoft accounted for 81% and 56%, and the agreement with Google accounted for 15% and 30%, respectively, of ClientConnect's revenues in 2012 and the first six months of 2013, respectively.
 
Pursuant to the agreement with Microsoft (the "Microsoft agreement"), Microsoft provides search services and search monetization services to ClientConnect.  ClientConnect also displays and syndicates paid listings provided by Microsoft in response to search queries of users of ClientConnect's toolbars (the "toolbars"), that are generated from ClientConnect's toolbar platform (the "platform").  For the initial two years of the agreement term, Microsoft had exclusivity in providing those services through platform-generated toolbars in the United States, and consequently the fees payable by it to ClientConnect were significantly higher, and pursuant to the terms of the Microsoft agreement are significantly lower for 2013 and 2014.
 
Under the agreement with Google (the "Google agreement"), ClientConnect participates in Google’s AdSense program, which enables publishers of web content to make ad spaces available on their websites and to receive money from the advertisers, which is collected and paid by Google. ClientConnect also participates in Google's AdSense for search according to which ClientConnect displays and syndicates paid listings provided by Google in response to search queries of users of the toolbars that are generated from the platform. Google's AdSense for search also allows ClientConnect to customize the look and feel of the Google generated ads.
 
 In exchange for making its search traffic available to Microsoft (which also receives such traffic via its search syndication services), ClientConnect receives a fixed fee per-search conducted by end users who utilize the search engine through the platform-generated toolbars and/or a share of the revenue generated as a result of searches conducted by end users through its search engines. In exchange for making its search traffic available to Google, ClientConnect receives a share of the revenue generated as a result of searches conducted by end users through its search engines.
 
In order to receive advertisement-generated revenues from the Microsoft and Google agreements, ClientConnect depends, in part, on factors outside of its control.
 
The amount of revenue received by ClientConnect from each of Microsoft and Google depends upon a number of factors outside of its control, including the amount these search providers charge for advertisements, the efficiency of the search provider’s system in attracting advertisers and syndicating paid listings in response to search queries and parameters established by it regarding the number and placement of paid listings displayed in response to search queries. In addition, each of Microsoft and Google makes judgments about the relative attractiveness (to the advertiser) of clicks on paid listings from searches performed on a toolbar and these judgments factor into the amount of revenue ClientConnect receives. Changes to Microsoft’s or Google's paid listings network efficiency, its judgment about the relative attractiveness of clicks on paid listings from a platform-generated toolbar or the parameters applicable to the display of paid listings could have an adverse effect on ClientConnect, its financial condition and its results of operations. Such changes could come about for a number of reasons, including general market conditions, competition or policy and operating decisions made by Microsoft or Google.
 
 
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Pursuant to the Microsoft and Google agreements, ClientConnect is obligated to comply with certain guidelines, and any noncompliance therewith could result in the suspension of providing services to Microsoft or Google or even the termination of the Microsoft and Google agreements.
 
The services agreement with each of Microsoft and Google requires that ClientConnect comply with certain guidelines promulgated by Microsoft or Google (as applicable) for the use of its brands and services, including the manner in which Microsoft’s or Google's paid listings are displayed within search results, and that ClientConnect establish guidelines to govern certain activities of third parties to whom it syndicates paid listings, including the manner in which those parties drive search traffic to their websites and display paid listings. Subject to certain limitations, Microsoft or Google may unilaterally update its policies and guidelines, which could in turn require modifications to, or prohibit and/or render obsolete certain of, ClientConnect's products, services and/or practices, which could be costly to address or otherwise have an adverse effect on ClientConnect, its financial condition and results of operations. Noncompliance with Microsoft’s or Google's guidelines by ClientConnect or the third parties to which it syndicates paid listings or by the online publishers through whom it secures distribution arrangements for its toolbars could, if not cured, result in Microsoft’s or Google's suspension of some or all of its services to the websites of ClientConnect's third party publishers, the imposition of additional restrictions on ClientConnect's ability to syndicate paid listings or the termination of the services agreement by Microsoft or Google (as applicable).
 
The termination of either of these services agreements by Microsoft or Google (as applicable), the curtailment of ClientConnect's rights under the applicable agreement (whether pursuant to the terms thereof or otherwise) or the failure of Microsoft or Google to perform its obligations under the agreement would have an adverse effect on ClientConnect, its financial condition and results of operations. In addition, ClientConnect's inability to  renew its agreement with either Microsoft or Google with substantially comparable economic and other terms upon the expiration of the current agreements could have an adverse effect on ClientConnect, its financial condition and results of operations. If any of these events were to occur, ClientConnect may not be able to find another suitable alternative search services provider or paid listings provider (or if an alternative provider were found, the economic and other terms of the agreement and the quality of paid listings may be inferior relative to the arrangements with, and the paid listings supplied by, Microsoft and Google) or otherwise replace the lost revenues.
 
Assuming the consummation of the Split and the Share Purchase transactions the loss of these arrangements and paid listings would furthermore have an adverse effect on the combined company’s business, financial condition and results of operations.
 
ClientConnect's revenues may be adversely impacted if its Internet search providers change their policies or guidelines regarding users’ installation of its Internet search services.
 
ClientConnect is required under its agreements with Internet search providers (Microsoft and Google) to format its installation selection features, user interface and advertisement placements, and branding, among other features, in accordance with their policies and guidelines. ClientConnect follows these policies and guidelines regarding disclosure requirements to consumers installing its products, and regarding obtaining consumer consent to change browser defaults, such as the homepage and search provider. While abiding by its search providers’ policies and guidelines, ClientConnect seeks to optimize its installation process in order to increase users’ selection of its search services. In particular, ClientConnect has adopted an "opt-out" approach to its installation process in the United States and Canada where Microsoft serves as ClientConnect's search provider, pursuant to which, when users install a toolbar containing a search engine, the option to have the search engine serve as their primary search provider is presented as the default option. Users are required to unselect each feature of the toolbar’s search services if they do not wish to install the search functions of the toolbar on their computers. Any changes to existing policies and guidelines, and in particular a restriction on the "opt-out" feature by Microsoft in the United States or Canada, would likely lead to a reduction in the number of users that install the search service provided by ClientConnect at the time that they download a toolbar, which could adversely affect ClientConnect's results of operations. In addition, noncompliance with search providers’ guidelines could, if not cured, result in search providers’ suspension or termination of some or all of their services to ClientConnect.
 
 
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ClientConnect is highly reliant upon a small number of publishers, who account for the substantial majority of its pay-outs to publishers and, in parallel, its revenues. If ClientConnect were to lose all or a significant portion of those publishers as its customers, its revenues and results of operations would be materially adversely affected.
 
The top 10 publishers who distribute toolbars and otherwise utilize the opportunities for monetization provided by ClientConnect accounted for approximately 80% of ClientConnect's pay-outs to publishers and, in parallel, its   revenues in 2012 and the first six months of 2013, while the top 15 publishers accounted for approximately 85% and 87% of ClientConnect's pay-outs to publishers in those respective periods of time. ClientConnect has entered into strategic distribution partnerships with these publishers. There can be no assurance that these existing publishers will continue to distribute toolbars generated via the platform or continue utilizing ClientConnect's monetization services that generate revenues for ClientConnect. The loss of all or a substantial portion of our relationships with these publishers would cause a material decline in ClientConnect's revenues and profitability.
 
ClientConnect is highly dependent on one aspect of its business - the search-related business - as a monetization tool for publishers, which generates the vast majority of its revenues. Any change that renders that monetization tool undesirable or otherwise unprofitable for publishers would result in ClientConnect's loss of almost all of its revenues.
 
ClientConnect is reliant on one major business model – the search monetization model - for more than 90% of its revenues, which is generated by publishers. If the monetization model for the internet changes due to any one or more factors, ClientConnect's results of operations could be materially adversely affected.
 
Under ClientConnect’s pay-per-install, or PPI, model for payments to publishers, a timing delay between when ClientConnect records expenses and related revenues could have a material adverse effect on its operating results.
 
Commencing in the third quarter of 2012, ClientConnect shifted the primary model for its traffic acquisition costs to a pay-per-install, or PPI, model, under which publishers are paid up-front each time they distribute a platform-generated toolbar to an end user and the user installs the toolbar.  This shift in payment models has an adverse impact on ClientConnect's results of operations in the short-term, as the traffic acquisition costs related to a given user are recorded as an expense as incurred, when a user downloads a toolbar, whereas the related revenues are generated from that user only when (if at all) the user performs searches, for which ClientConnect receives payments from its search providers). To the extent that ClientConnect records a significant amount of such expenses   paid to publishers in one fiscal period and does not realize related revenues from end users at all, or only realizes those revenues in a later fiscal period, ClientConnect’s operating results will be materially adversely affected.
 
 
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In order to maintain its revenue and continue to grow, ClientConnect needs to continually acquire new users and maintain user engagement with its search services through technological advantages.
 
The market for search services is highly competitive, and ClientConnect experiences significant competition for user engagement with its search services from other participants in the industry who use a similar search advertising business model. ClientConnect generates the substantial majority of revenues associated with its online publishers that distribute toolbars on its behalf during the first year after a publisher designs a toolbar on the basis of the platform, when users to whom the toolbar is distributed begin using search services with the toolbar. In order to maintain its current revenues and grow its business, ClientConnect needs to continually maintain the technological advantage of its platform, products and other services, such as its search protect  software, which help it to maintain user engagement with its search services and assist it in acquiring new users. If it fails to maintain its technological advantage, user engagement may decline materially, which would have a material adverse effect on ClientConnect's operating results.
 
ClientConnect would be harmed if new versions or upgrades of operating systems and Internet browsers adversely impact the process by which users install ClientConnect's solutions.
 
The installation process for toolbars and related solutions that are marketed by ClientConnect is currently relatively simple and straightforward, which Conduit believes has helped it to expand its user base even among users with little technical expertise. However, in the future, Microsoft, the dominant operating system provider that serves as the internet search provider for ClientConnect in the United States and Canada (via the Bing search engine), or any other provider of Internet browsers, could introduce new features that would make it more difficult to install ClientConnect's search services, to the extent that the toolbar is kept as a browser extension or add on. Any changes to operating systems or Internet browsers that make it more difficult to install ClientConnect's toolbars and related solutions may slow the growth of its user base and adversely impact ClientConnect, both currently and prospectively.
 
The introduction of new operating systems, browsers and other popular software products may materially adversely affect user engagement with ClientConnect's search services.
 
Users typically install new software and update their existing software as new or updated software is introduced online by third-party developers. In particular, Microsoft’s introduction of Windows 8 and its prospective introduction of Windows 8.1 later in 2013 may prompt many of ClientConnect's users to upgrade their operating systems or computers. In addition, when a user purchases a new computing device or installs a new Internet browser, it generally uses the Internet search services that are typically pre-installed on the new device or Internet browser. ClientConnect's toolbars are distributed online, and are not pre-installed on computing devices. In addition, as many software vendors that distribute their solutions online also offer search services alongside their primary software product, users often replace ClientConnect's search services with those provided by these vendors in the course of installing new software or updating existing software. Any event that results in a significant number of users changing or upgrading their computing device operating systems or Internet browsers after installing the search solutions offered by ClientConnect could result in its failure to generate the revenues that it anticipates from its users and could result in a decline in its user base. Finally, although ClientConnect constantly monitors the compatibility of its Internet search services and related solutions with such new versions and upgrades, it may not be able to make the required adjustments to ensure constant availability and compatibility of such solutions.
 
The growth and profitability of ClientConnect would be adversely affected if it is required to pay higher distribution fees to acquire new users who do not generate a corresponding increase in revenues, or if third-party publishers are unwilling to partner with ClientConnect on acceptable terms.
 
ClientConnect relies on third-party publishers to distribute its toolbars as a value-added component of their own software product offerings. ClientConnect believes that its publishers select software products for distribution based primarily upon the distribution fee and the business intelligence capabilities and insights into users that other software companies provide to them. The distribution fee that ClientConnect pays to its publishers is based on a number of factors, including ClientConnect's projection of the resulting revenues from the users to be acquired through the third-party publisher. Other software companies may be willing to pay higher distribution fees than ClientConnect to acquire new users either on a short-term basis to acquire market share or on a long-term basis as they benefit from better user monetization, and they may have different profitability targets or different cost structures. If other software companies are willing to pay higher distribution fees than it is willing to pay, ClientConnect may be forced to forgo opportunities to acquire new users who will generate more revenues, or it may have to pay higher distribution fees. Either of these outcomes would adversely impact its revenues and profitability.
 
 
26
 
ClientConnect may not succeed in developing alternative and updated monetization tools necessary to retain existing publishers and attract new publishers.
 
Understanding user profiles and trends is critical to predicting the return on investment a user will generate. ClientConnect may, in the future, face increased competition from software or other companies that may develop alternative monetization tools that may provide better potential for publishers to realize a return on their investment in users. If ClientConnect competitors are able to offer better monetization tools to publishers or provide more accurate analysis of a publisher’s user base that improves its overall user acquisition strategies, ClientConnect may find it harder to retain its existing relationships with publishers or enter into new relationships with publishers, even if it is willing to pay higher distribution fees.
 
ClientConnect generates a portion of its revenue from online advertising. A reduction in spending on online advertising by advertisers could adversely impact the business and its results of operations.
 
In addition to revenue generated under the Microsoft and Google agreements, ClientConnect generates a portion (approximately 9% in the second quarter of 2013) of its revenue from its users’ clicks on text-based links to advertisers’ websites, or sponsored links. When users click on a sponsored link, the search provider receives a payment from the sponsor of that link and pays a portion of that amount to ClientConnect. Spending by advertisers tends to be cyclical, reflecting overall economic conditions and budgeting and buying patterns, as well as levels of consumer confidence and discretionary spending. Adverse economic conditions can have a material negative impact on the demand for advertising and cause advertisers to reduce the amounts they spend on advertising, particularly online advertising, which could negatively impact the revenues of ClientConnect.
 
Small and local businesses with which ClientConnect interacts are particularly sensitive to these events and trends, given that they are not as well-situated to weather adverse economic conditions as their larger competitors, which are generally better capitalized and have greater access to credit. In the recent past, adverse economic conditions have caused, and if such conditions were to recur in the future they could cause, decreases and/or delays in advertising expenditures, which would reduce the revenues of ClientConnect and adversely affect the business, its financial condition and its results of operations.
 
Advertisers typically do not have long-term advertising commitments with search providers or advertisement networks. A decrease in overall advertising may adversely affect the results of operations of ClientConnect.
 
In addition, the rates advertisers pay for each click on a sponsored link on a cost-per-click (CPC) basis or for each time an advertisement is displayed on a cost-per-thousand impressions (CPM) basis are negotiated between the search providers or advertisement networks and advertisers and depend on a number of factors over which ClientConnect has no control. If search providers or advertisement networks decrease the rates charged to advertisers, this would decrease the advertising revenues they share with ClientConnect. In such an event, there could be no assurance that ClientConnect would be able to adjust the fees that it pays to publishers in order to acquire users in order to maintain its current levels of profitability.
 
 
27
 
ClientConnect is significantly reliant on the U.S. market, and any material adverse change in that market could have a material adverse effect on its results of operations.
 
ClientConnect's revenues have historically been concentrated within the U.S. market.  In the years ended December 31, 2011 and 2012 and in the first six months of 2013, that market accounted for 70%, 69% and 50%, respectively, of ClientConnect's search-monetization based revenues. A significant reduction in the revenues generated by the U.S. market, whether as a result of a recession that causes a reduction in advertising expenditures generally, or otherwise, which causes a decrease in ClientConnect's Microsoft Bing or Google-based U.S. revenues could have a material adverse effect on its results of operations.
 
ClientConnect's success depends upon the continued growth and acceptance of online advertising, particularly paid listings, as an effective alternative to traditional, offline advertising and the continued commercial use of the Internet.
 
Many advertisers still have limited experience with online advertising and may continue to devote significant portions of their advertising budgets to traditional offline advertising media. Accordingly, ClientConnect continues to compete with traditional advertising media, including television, radio and print, in addition to a multitude of websites with high levels of traffic and online advertising networks, for a share of available advertising expenditures and expects to face continued competition as more emerging media and traditional offline media companies enter the online advertising market. The continued growth and continued acceptance of online advertising generally is likely to depend, to a large extent, on its perceived effectiveness and the acceptance of related advertising models (particularly in the case of models that incorporate user targeting and/or utilize mobile devices), the continued growth in commercial use of the Internet (particularly outside of the United States), the extent to which web browsers, software programs and/or other applications that limit or prevent advertising from being displayed become commonplace and the extent to which the industry is able to effectively manage click fraud. Any lack of growth in the market for online advertising, particularly for paid listings, or any decrease in the effectiveness and value of online advertising (whether due to the passage of laws requiring additional disclosure and/or opt-in policies for advertising that incorporates user targeting or other developments) would have an adverse effect on ClientConnect, its financial condition and its results of operations.
 
ClientConnect depends, in part, upon sufficient traffic being driven to its website, which facilitates the creation and distribution of toolbars from its platform. If such traffic does not materialize, ClientConnect's results of operations will be adversely affected.
 
ClientConnect engages in a variety of activities designed to attract traffic to its website, which result in publishers customizing toolbars that can in turn be distributed to third party users. How successful ClientConnect is in these efforts depends, in part, on the continued introduction of new and enhanced monetization tools that resonate with publishers of web content.
 
Even if ClientConnect succeeds at driving traffic to its website, it may not be able to convert this traffic or otherwise retain publishers and generate use of toolbars by end users unless it continues to provide new and innovative monetization tools. ClientConnect may not be able to adapt quickly and/or in a cost-effective manner to frequent changes in publisher and user preferences, which can be difficult to predict, or appropriately time the introduction of enhancements and/or new monetization tools. ClientConnect's inability to provide useful and innovative monetization tools would adversely affect publisher and end-user experiences, which would result in decreases in publishers, end-user installations of toolbars and revenues, which would adversely affect ClientConnect, its financial condition and its results of operations.
 
 
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ClientConnect's reputation may be adversely impacted by the negative reputation of toolbar businesses generally and other factors.
 
ClientConnect's reputation could be negatively impacted by a number of factors, including the negative reputation associated with toolbars (which are often downloaded, except  under Google’s new guidelines, on an opt-out basis, without the knowledge of the end user), product and service quality concerns, complaints by publishers or end users or actions brought by them or by governmental or regulatory authorities and related media coverage and data protection and security breaches. Moreover, the inability to develop and introduce monetization products and services that resonate with consumers and/or the inability to adapt quickly enough (and/or in a cost effective manner) to evolving changes to the Internet and related technologies, applications and devices, could adversely impact ClientConnect's reputation, and, in turn, ClientConnect, its financial condition and its results of operations.
 
The Internet and related technologies and applications continue to evolve and ClientConnect may not be able to adapt to these changes.
 
The development of new products and services in response to the evolving trends and technologies of the Internet, as well as the identification of new business opportunities in this dynamic environment, requires significant time and resources. ClientConnect may not be able to adapt quickly enough (and/or in a cost-effective manner) to these changes, appropriately time the introduction to the market of new applications and features for its platform and toolbars or for other products and services or identify new business opportunities in a timely manner. Also, these changes could require ClientConnect to modify related infrastructures, and its failure to do so could render its existing website(s), applications, services and proprietary technologies obsolete. The failure to respond to any of these changes appropriately (and/or in a cost effective manner) could adversely affect ClientConnect, its financial condition and its results of operations.
 
In the case of certain of the applications available via ClientConnect's platform and toolbars, third parties have introduced (and continue to introduce) new or updated technologies, applications and policies that may interfere with the ability of ClientConnect's publishers or end users to access or utilize these applications generally or otherwise make publishers or users less likely to use the ClientConnect services (such as through the introduction of features and/or processes that disproportionately and adversely impact the ability of publishers or end users to access and use these applications relative to those of competitors). For example, third parties continue to introduce technologies and applications (including new and enhanced web browsers and operating systems) that may limit or prevent certain types of applications from being installed and/or have features and policies that significantly lower the likelihood that end users will install the applications generated from the Platform, or that previously-installed applications will remain in active use. In addition, there are technologies and applications that interfere with the functionality of (or settings changes made by) toolbar and/or platform applications. For example, there are technologies and applications that interfere with search boxes embedded within ClientConnect's toolbars and the maintenance of home page and web browser search settings previously selected by end users of the toolbar. These technologies, applications and policies adversely impact the ability of users to generate search queries through ClientConnect's applications, which in turn adversely impacts ClientConnect's revenues. Technologies have also been introduced that can block the display of advertisements on web pages and that provide users with the ability to opt out of ClientConnect's advertising products. Failure by ClientConnect to successfully modify its toolbars and related applications in a cost-effective manner in response to the introduction and adoption of these new technologies and applications could adversely affect ClientConnect, its financial condition and its results of operations.
 
Publishers and end users who serve as ClientConnect's customers may migrate more rapidly than expected from personal computers to mobile or tablet devices, which would cause a substantial reduction in the revenues generated by ClientConnect.
 
Being that ClientConnect focuses upon the market related to personal computers ("PCs"), and that such market has accounted for the vast majority of Conduit's revenues prior to the Split, to the extent that there is a faster-than-expected shift by the market from PCs to mobile or tablet devices, ClientConnect would experience a substantial reduction in revenues generated by it.  There is no guarantee that ClientConnect will be able to expand and/or adapt to any such migration to mobile and tablet devices in a rapid fashion or at all.
 
 
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The processing, storage, use and disclosure of personal data could give rise to liabilities as a result of governmental regulation, conflicting legal requirements or differing views of personal privacy rights.
 
ClientConnect receives, transmits and stores a large volume of personal information and other user data in connection with the processing of search queries, the provision of online products and services, transactions with publishers and users, and advertising on its website(s). The sharing, use, disclosure and protection of this information are determined by the privacy and data security policies of ClientConnect. These policies are, in turn, subject to federal, state and foreign laws regarding privacy and the storing, sharing, use, disclosure and protection of personal information and user data. For example, if an online service provider fails to comply with its privacy policy, it could become subject to an investigation and proceeding brought by the U.S. Federal Trade Commission under the Federal Trade Commission Act, the Israeli Law, Information and Technology Authority ("ILITA") under the Israeli Protection of Privacy Law 5741-1981, as well as a private lawsuit under various U.S. federal and state laws or Israeli laws. In general, personal information is increasingly subject to legislation and regulation in numerous jurisdictions around the world, the intent of which is to protect the privacy of personal information that is collected, processed and transmitted in or from the governing jurisdiction.
 
U.S. legislators and regulators may enact new laws and regulations regarding privacy and data security. In February 2012, the White House released a proposed Consumer Privacy Bill of Rights, which is intended to serve as a framework for new privacy legislation. In March 2012, the U.S. Federal Trade Commission released a staff report making recommendations for businesses and policy makers in the area of consumer privacy. Such initiatives are still pending as of the date of this proxy statement. Similarly, new privacy laws and directives abroad, particularly in Europe, are being proposed and implemented. In addition, existing privacy laws that were intended for brick-and-mortar businesses could be interpreted in a manner that would extend their reach to ClientConnect. New laws and regulations (or new interpretations of existing laws) in this area may make it more costly to operate ClientConnect and/or limit its ability to engage in certain types of activities, such as targeted advertising, which could adversely affect ClientConnect, its financial condition and its results of operations.
 
Requirements under Israeli law are rapidly changing since the formation of ILITA, including without limitation, with respect of the degree of consent required, database registration, onward transfer, outsourcing, protection of personally identifiable information and employee-related privacy restrictions in workplace. It is possible that these requirements may be interpreted and applied in a manner that is inconsistent with ClientConnect's data collection, processing, sharing and retention practices.
 
As privacy and data protection have become more sensitive issues, ClientConnect may also become exposed to potential liabilities as a result of differing views on the privacy of consumer and other user data collected by it. Also, it cannot be guaranteed that the security measures implemented by ClientConnect will prevent security breaches. The failure of ClientConnect, or third party vendors and service providers, to comply with applicable privacy policies, federal, state or foreign privacy laws and regulations or PCI standards and/or the unauthorized release of personal information or other user data for any reason could adversely affect ClientConnect, its financial condition and its results of operations. 
 
ClientConnect depends on its key personnel.
 
The future success of our company following the Share Purchase will depend, in part, upon our continued ability to identify, hire, develop, motivate and retain highly skilled individuals for the business, with the continued contributions of ClientConnect's senior management being especially critical to our success. Competition for well-qualified employees in our industry is intense and our continued ability to compete effectively depends, in part, upon our ability retain ClientConnect's existing key employees and to attract new skilled employees for ClientConnect. While Conduit established programs to attract new employees and provide incentives to retain existing employees for ClientConnect, particularly senior management, we cannot assure you that following the consummation of the Split and the Share Purchase transactions we will be able to retain the services of senior management or any other key employees or attract new employees in the future who are capable of contributing significantly towards ClientConnect.
 
 
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ClientConnect operates in various international markets, in some of which it has limited experience. As a result, ClientConnect faces additional risks in connection with its international operations. Also, ClientConnect may not be able to successfully expand into new, or expand further into its existing, international markets.
 
ClientConnect operates in various jurisdictions and may continue to expand its international presence. In order for the platform, the toolbars and ClientConnect's related services to achieve widespread acceptance in these jurisdictions, commercial use and acceptance of the Internet must continue to grow, which growth may occur at slower rates than those experienced in the United States. Moreover, ClientConnect must continue to successfully tailor the platform, toolbar and ClientConnect's related services to the unique customs and cultures of foreign jurisdictions, which can be difficult and costly.  The failure to do so could slow ClientConnect's international growth and adversely impact ClientConnect, its financial condition and its results of operations.
 
A variety of new laws, or new interpretations of existing laws, could subject ClientConnect to claims or otherwise harm it.
 
ClientConnect is subject to a variety of laws in the United States and abroad that are costly to comply with, can result in negative publicity and diversion of management time and effort and can subject it to claims or other remedies. Some of these laws, such as income, sales, use, value-added and other tax laws and consumer protection laws, are applicable to businesses generally and others are unique to the type of business in which the business is engaged. Many of these laws were adopted prior to the advent of the Internet and related technologies and, as a result, do not contemplate or address the unique issues of the Internet and related technologies. Laws that do reference the Internet are being interpreted by the courts, but their applicability and scope remain uncertain.
 
For example, ClientConnect posts and links to third party content, including third party advertisements, links and websites, as well as content submitted by users, such as comments, photographs and videos. ClientConnect could be subject to liability for posting or linking to third party content, and while it generally requires third parties to indemnify it for related claims, it may not be able to enforce its indemnification rights. Claims could be threatened and filed under both U.S. and foreign laws based upon use of third party content asserting, among other things, defamation, invasion of privacy or right or publicity, copyright infringement or trademark infringement.
 
In addition, ClientConnect is subject to different legislations, including online privacy and protection of personal information, since in most cases the law applicable to ClientConnect will be the laws of the end users' respective country. It is not feasible for ClientConnect to become familiar and compliant with legislation of all of these end users' countries.
 
Any failure on the part of ClientConnect to comply with applicable laws may subject it to legal claims and additional liabilities, which could adversely affect ClientConnect, its financial condition and its results of operations. In addition, if the laws to which ClientConnect is currently subject are amended or interpreted adversely to its interests, or if new adverse laws are adopted, ClientConnect's products and services might need to be modified to comply with such laws, which would increase its costs and could result in decreased demand for the platform and toolbar or other products and services to the extent that ClientConnect passes on such costs to its customers. Specifically, in the case of tax laws, positions that ClientConnect has taken or will take are subject to interpretation by the relevant taxing authorities. While Conduit believes that the positions it has taken with respect to ClientConnect to date comply with applicable law, there can be no assurances that the relevant taxing authorities will not take a contrary position, and if so, that such positions will not adversely affect ClientConnect. Any failure to comply with applicable law could adversely affect ClientConnect, its financial condition and its results of operations.
 
 
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ClientConnect may fail to adequately protect its intellectual property rights or may be accused of infringing the intellectual property rights of third parties.
 
ClientConnect regards its intellectual property rights, specifically as related to its technology, customer lists and business models, as important for its platform and related applications. ClientConnect generally seeks to apply for patents or for other similar statutory protections as and if it deems appropriate, based on then current facts and circumstances, and will continue to do so in the future. As of June 30, 2013, ClientConnect had four granted patents and one pending patent applications in the United States, along with international applications pursuant to the Patent Cooperation Treaty. The principal patents that have been issued have expiration dates ranging from 2025 to 2029.
 
No assurances can be given that the patent applications that ClientConnect has filed will result in a patent being issued, or that any existing or future patents will afford adequate protection against competitors and similar technologies. In addition, no assurances can be given that third parties will not create new products or methods that achieve similar results without infringing upon patents owned by ClientConnect.
 
ClientConnect also relies on a combination of laws and contractual restrictions, including trade secrets and confidentiality agreements, with employees, customers, suppliers, affiliates and others to establish and protect its various intellectual property rights. Nevertheless, ClientConnect's intellectual property rights may still not be protected in a meaningful manner, challenges to contractual rights could arise or third parties could copy or otherwise obtain and use ClientConnect's intellectual property without authorization. The occurrence of any of these events could result in the erosion of ClientConnect's brands and limitations on its ability to control marketing on or through the Internet using its various domain names, as well as impede ClientConnect's ability to effectively compete against competitors with similar technologies, any of which could adversely affect ClientConnect, its financial conditions and its results of operations.
 
From time to time, ClientConnect has been subject to legal proceedings and claims in the ordinary course of business, including claims of alleged infringement of trademarks, copyrights and other intellectual property rights held by third parties. In addition, ClientConnect may need to institute litigation in the future to enforce its intellectual property rights, protect its trade secrets or to determine the validity and scope of proprietary rights claimed by others. Any litigation of this nature, regardless of outcome or merit, could result in substantial costs and diversion of management and technical resources, any of which could adversely affect ClientConnect, its financial condition and its results of operations. Patent litigation tends to be particularly protracted and expensive.
 
ClientConnect's success depends, in part, on the integrity of its systems and infrastructures and those of third parties. System interruptions and the lack of integration and redundancy in ClientConnect's and third party information systems may affect ClientConnect business.
 
For the ClientConnect business to succeed, its systems and infrastructures must perform well on a consistent basis. From time to time, ClientConnect may experience occasional system interruptions that make some or all of its systems or data unavailable or that prevent it from providing products and services, which could adversely affect the ClientConnect business. Moreover, as traffic to its website(s) and applications increases and the number of new (and presumably more complex) products and services that ClientConnect introduces continues to grow, ClientConnect will need to upgrade its systems, infrastructures and technologies generally to facilitate this growth. If it does not do so, publishers, end-users and other third parties with whom it does business may not be able to access its platform, toolbars or other products and services on an intermittent or prolonged basis, which could adversely affect the quality of their experiences. In addition, ClientConnect could experience inefficiencies and/or operational failures in connection with these efforts, which could have the same effect. Moreover, even if ClientConnect does not encounter any inefficiencies and/or operational failures in connection with these efforts, third parties with whom it does business may not make the changes to their systems, infrastructures and technologies needed to utilize the applications and other features associated with the platform, the toolbars or ClientConnect's other products and services on a timely basis, if at all. The occurrence of any of these events could adversely affect ClientConnect, its financial condition and its results of operations.
 
 
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ClientConnect also relies on third party computer systems, data centers, broadband and other communications systems and service providers in connection with the provision of the platform, toolbars, and its other products and services generally. Any interruptions, outages or delays in ClientConnect's systems or those of its third party providers, or deterioration in the performance of these systems, could impair its ability to provide the platform, toolbars, and its other products and services. Furthermore, data security breaches, including cyber attacks (as a result of actions taken by hackers or otherwise), fire, power loss, telecommunications failure, natural disasters, acts of war or terrorism, acts of God and other similar events or disruptions may damage or interrupt computer, data, broadband or other communications systems at any time. Any event of this nature could cause system interruptions, delays and loss of critical data, and could prevent ClientConnect from providing services to publishers and end-users. While ClientConnect has backup systems for certain aspects of its operations, its systems are not fully redundant and disaster recovery planning is not sufficient for all eventualities. In addition, ClientConnect may not have adequate insurance coverage to compensate for losses from a major interruption.
 
ClientConnect may be adversely affected by third-party applications that may impair end users’ experience with its products and services.
 
Search websites to which end-users may be directed may be adversely affected by fraudulent, surreptitious or other unwanted computer programs, applications and activity that make changes to users' computers and interfere with the overall experience of our products and services, such as by hijacking queries to these websites or altering or replacing search results generated. This type of interference often occurs without disclosure to (or consent from) users, resulting in a negative experience that users may associate with ClientConnect. These disruptive programs and applications may be difficult or impossible to uninstall or disable, may reinstall themselves and may circumvent efforts to block or remove them.
 
In addition, downloadable applications of ClientConnect's publishers through which a toolbar may be installed by an end-user are also subject to attack by viruses, worms and other malicious software programs, which could jeopardize the security of information stored in users' computers or in ClientConnect's systems and networks. No assurances can be given that ClientConnect's efforts to combat these malicious applications will be successful and/or that its products and services will not have (or will not be perceived to have) vulnerabilities in this regard.
 
If any of these events were to occur, it could damage ClientConnect's reputation and result in the loss of current and potential publishers and end-users, which could have an adverse effect on ClientConnect, its financial condition and its results of operations and could otherwise be costly to remedy.
 
 
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The Parties to the Share Purchase Agreement
 
Perion Network Ltd.
 
We were incorporated in the State of Israel in November 1999 under the name Verticon Ltd. and changed our name to Incredimail Ltd. in November 2000.  In November 2011, we changed our name to Perion Network Ltd. to better reflect the diverse nature of our business. We operate under the laws of the State of Israel. Our headquarters are located at 4 HaNechoshet Street,   Tel-Aviv 69710, Israel. Our phone number is (972-3) 769-6100.
 
We completed the initial public offering of the Perion Shares in the United States on February 3, 2006 and listed the Perion Shares on the NASDAQ Stock Market, whereby we became a "limited liability public company" under the Companies Law. Since November 20, 2007, the Perion Shares are also traded on the Tel Aviv Stock Exchange.
 
We are a global consumer internet company that develops applications to make the online experience of our users simple, safe and enjoyable. Our three main consumer brands are IncrediMail, Smilebox and SweetIM. IncrediMail is a unified messaging application enabling consumers to manage multiple email accounts and Facebook messages in one place with an easy-to-use interface and extensive personalization features, and is available in over 100 countries in 8 languages; Smilebox is a leading photo sharing and social expression product and service that quickly turn life's moments into digital keepsakes for sharing and connecting with friends and family, in a fun and personal way; and SweetIM is an instant messaging application that enables consumers to personalize their everyday communications with free, fun and easy to use content.
 
For more information about our company, please visit our website at http://perion.com. The information provided on our website is not part of this Proxy Statement, and therefore is not incorporated by reference . See also the section of this Proxy Statement entitled "Where You Can Find More Information".
 
Conduit Ltd.
 
Conduit Ltd., which we refer to as "Conduit", was incorporated in the State of Israel in March 2005 under the name Platforma Online Ltd. and changed its name to Conduit in February 2006.  Conduit operates under the laws of the State of Israel. Conduit's headquarters are located at 5 Golda Meir Street, Industrial Science Park, Ness-Ziona, 74140, Israel.
 
Conduit is a global internet company that develops applications for publishers which provide new, smarter ways to engage their users. In addition to the ClientConnect business referred to below, Conduit is engaged in the following  non-toolbar related operations: the U Browser that combines the digital worlds into one continuous experience, allowing the consumer to naturally cross over between devices, the QuickLaunch Lock Screen by Conduit that offers the consumer a way to stand out, the Mobile Apps that enables publishers to engage their users on the go, create a strong mobile presence and build a mobile community, and the Wibiya Bar , which recognizes visitor behavior and helps the consumer deliver the optimal call-to-action to the right audience at the right time.
 
For more information about Conduit, please visit its website at http://Conduit.com . The information provided on Conduit's website is not part of this Proxy Statement, and therefore is not incorporated by reference.
 
 
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ClientConnect Ltd.
 
ClientConnect Ltd. is a newly formed Israeli company formed by Conduit solely for the purpose of receiving the ClientConnect business from Conduit in the Split.  ClientConnect Ltd. has not engaged in any business except activities incidental to its formation and in connection with the transactions contemplated by the Split Agreement, as described below in "Agreements Related to the Split of Conduit – Split Agreement" and the Share Purchase Agreement.
 
Conduit's ClientConnect business offers, among other things, a proprietary toolbar generating platform, which allows online publishers to create, implement and distribute web browser toolbars and other software product and services to targeted audiences, and to subsequently administer such toolbars. The toolbar platform includes software applications and tools that provide comprehensive solutions for the full customization of toolbar graphical user interface, or GUI, features and services, through a user-friendly online drag and drop system and additional features and services (such as a search box, home page takeover, web applications, search protect and value apps).
 
In addition to enabling searches via downloadable customized toolbars, the ClientConnect business also allows online publishers to set up syndicated searches on their individual websites, and to monetize their users’ other search assets, such as browser default search, new tab, and error pages. The ClientConnect business also sells advertising space on its home search page to various advertising networks, which pay the business, through a series of intermediaries, for those advertisements.  These ads are not tied to ClientConnect's relationship with its search providers.
 
For more information about the ClientConnect business, see "ClientConnect Business" below.
 
 
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Background to the Share Purchase
 
On May 16, 2013, Mr. Josef Mandelbaum, our Chief Executive Officer, met with Mr. Michael Eisenberg of Benchmark Capital Partners ("Benchmark") at Benchmark's offices in Tel Aviv, at the invitation of Mr. Eisenberg. Benchmark is a significant investor in Conduit, and Mr. Eisenberg is a member of Conduit's Board of Directors.  Mr. Eisenberg informed Mr. Mandelbaum that, for various reasons, Conduit had decided to spin off the ClientConnect business into a new company to be owned by Conduit's shareholders. Mr. Eisenberg proceeded to explain that he has been following Perion over the last few years, has been impressed by its accomplishments and wished to know whether Perion would be interested in combining with the ClientConnect business. He proposed that Mr. Mandelbaum would serve as the Chief Executive Officer of the combined company and that the senior corporate management of Perion would continue in its role with Mr. Joshua Wine, Conduit's Chief Revenue Officer, joining the senior team and continuing to manage the ClientConnect business.
 
Mr. Mandelbaum responded that Perion might be interested in pursuing such a potential transaction, provided that the transaction would be accretive to Perion's earnings, that the consideration for the transaction would be in the form of Perion Shares and that Perion's Board of Directors would continue to be primarily composed of independent members. Mr. Eisenberg indicated that it was his initial belief that these conditions could be acceptable to Conduit, and asked Mr. Mandelbaum to check and confirm whether Perion would be interested in pursuing the transaction before he discusses the matter with Conduit.
 
Over the course of May 16-17, 2013, Mr. Mandelbaum discussed the proposed transaction with several members of our Board of Directors and executive management team. All expressed support for exploring the potential transaction.
 
On May 17, 2013, Mr. Mandelbaum informed Mr. Eisenberg that Perion was interested in exploring the potential transaction. Mr. Eisenberg then consulted with representatives of Conduit and informed Mr. Mandelbaum that they were also interested in exploring the potential transaction and suggested that the parties hold a face-to-face meeting.
 
On May 19, 2013, a meeting was held at Conduit's offices in Ness-Ziona at which Ronen Shilo, a co-founder and Chief Executive Officer of Conduit, Mr. Dror Erez, a co-founder and Chief Technical Officer of Conduit, Mr. Gaby Bilczyk, a co-founder and Chief Operating Officer of Conduit, and Mr. Eisenberg, all of whom are members of Conduit's Board of Directors, explained to Mr. Mandelbaum Conduit's plans to spin off its ClientConnect business into a new company. The parties discussed their respective outlooks on the industry and why Perion might be a good fit for the ClientConnect business. The participants agreed in principle to continue the discussions based on the following principles: the two businesses would be valued based on the same multiple of EBITDA, the exchange ratio must result in the transaction being accretive to Perion's earnings per share, the consideration would be entirely in the form of Perion Shares, Conduit would designate two directors to our Board of Directors, and our current management would remain in place. The parties agreed to have a kickoff meeting with representatives of the parties' respective financial advisors and legal counsel.
 
During the week of May 19, 2013, we initiated talks with various investment banks.
 
On May 26, 2013, a kickoff meeting was held in Tel Aviv at the offices of Goldfarb Seligman & Co. ("Goldfarb"), our legal counsel, with the Conduit team, including Mr. Shilo, Mr. Erez, Mr. Bilczyk, Mr. Eisenberg, Mr. Wine, Mr. Roy Gen, Conduit's Chief Financial Officer, attorneys from Meitar Liquornik Geva Leshem Tal ("Meitar"), Conduit's legal counsel, a representative from Allen & Co., Conduit's financial advisor, and representatives from Ernst & Young, Conduit's tax advisors and independent auditors. Representing us were Mr. Mandelbaum, Mr. Yacov Kaufman, our Chief Financial Officer, and Ms. Limor Gershoni Levy, our General Counsel, as well as attorneys from Goldfarb and representatives of an investment bank that we were considering to retain as our financial advisor.
 
 
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Mr. Wine presented an overview of the ClientConnect business, and Mr. Mandelbaum presented an overview of Perion. The participants discussed the structure of the proposed transaction, its tax implications, the process to obtain the Tax Ruling and the financial statements of the ClientConnect business, among other things.  The group devised a tentative timeline consisting of multiple tracks that would enable the Share Purchase to be consummated shortly after the planned consummation of the Split on December 31, 2013.
 
Over the course of May 27-30, 2013, Mr. Mandelbaum updated the members of our Board of Directors regarding the discussions, responded to their questions and received their input.
 
On May 29, 2013, Mr. Mandelbaum held a dinner meeting with Mr. Erez and Mr. Bilczyk to get to know each other better and discuss their respective businesses, as well as organizational and process-related issues.
 
During the week of June 2, 2013, during the course of an investor conference in New York City, Messrs. Mandelbaum and Kaufman interviewed five investment banks, ultimately deciding to retain UBS Securities LLC ("UBS").
 
For several weeks commencing on June 9, 2013, each party conducted business and financial due diligence on the other party.  We proposed that the exchange ratio for the Share Purchase be set at 75:25, meaning that following the Closing, the ClientConnect shareholders and option holders would hold 75% of the Perion Shares and our pre-Closing shareholders and option holders would hold 25% of the Perion Shares, on a diluted basis. Conduit argued for an exchange ratio of 85:15.
 
On June 21, 2013, Meitar delivered a draft term sheet for the proposed transaction.
 
On July 4, 2013, the financial advisors and legal advisors of both parties held a telephonic meeting to discuss matters relating to the transaction structure and the draft term sheet.
 
On July 8, 2013, the representatives of Perion and Conduit and their respective legal counsels held a meeting at the offices of Meitar in Ramat Gan to discuss unresolved matters relating to the draft term sheet.
 
Also on July 8, 2013, we decided to retain Somekh Chaikin, an Israeli accounting firm affiliated with KPMG International Cooperative ("KPMG"), to conduct tax and accounting due diligence with respect to the proposed transaction.
 
On July 9, 2013, there was a media report in Israel regarding a potential transaction involving us and Conduit. Based on our corporate policy not to respond to rumors and the advice of our financial and legal advisors, we determined not to issue a press release regarding the status of negotiations regarding the potential acquisition.
 
On July 11, 2013, our Board of Directors held a telephonic meeting.  Mr. Mandelbaum presented an overview of the ClientConnect business, the background of the discussions with Conduit, the financial terms of the proposed transaction and advantages that it offers Perion.  Representatives of Goldfarb explained various legal issues relating to the proposed transaction, including the fiduciary duties of the directors, potential conflicts of interest and the structure of the proposed transaction. The Board of Directors authorized the continuation of negotiations and the execution of the term sheet and designated certain directors who undertook to make themselves available to advise management on the negotiations.
 
On July 17, 2013, the final open issues were resolved between the parties, including an exchange ratio of 81:19, and we executed the non-binding term sheet with Conduit. The non-binding term sheet provided that the proposed transaction was subject to mutual legal, financial and business due diligence (including our review of the agreements relating to the Split) and the completion of definitive agreements to the satisfaction of both parties.
 
 
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On July 22, 2013, Mr. Shilo, Mr. Gen, Mr. Erez and Mr. Bilczyk met with Mr. Mandelbaum and Mr. Kaufman to discuss and agree on the transaction process and timing up until signing and through closing, as well as a general alignment on messaging given the media reports about the proposed transaction.  In addition, certain personnel matters and business issues were discussed.
 
On July 28, 2013, our Board of Directors held a telephonic meeting, together with certain members of management and representatives of Goldfarb, and received an update on the transaction process. Though not mandatory under applicable law, the Board of Directors formalized the creation of a transaction committee to meet between meetings of the full Board of Directors to advise on the negotiations (the "Transaction Committee").  Mr. Gelman was appointed Chairman of the Transaction Committee and Ms. Tamar Gottlieb and Mr. David Jutkowitz were appointed as the other members. The Board of Directors retained the final authority to approve any transaction.
 
On August 2, 2013, Goldfarb delivered a draft Share Purchase Agreement for the proposed transaction. Multiple meetings were subsequently held between the respective legal counsels to the parties and drafts of the Share Purchase Agreement and the other transaction agreements were exchanged.
 
On August 11, 2013, Mr. Shilo, Mr. Erez, Mr. Bilczyk, Mr. Gen and Mr. Wine met with Mr. Mandelbaum, Mr. Kaufman, Mr. Mark Ziering, our VP of Corporate Development, and Mr. Shai Gottesdiener, our Chief Technology Officer, to discuss certain business issues and due diligence matters.
 
On August 12, 2013, we entered into a search distribution partnership with Conduit.
 
On August 16 and 29, 2013, our Transaction Committee held telephonic meetings together with certain members of management and representatives of UBS and Goldfarb to formulate our position on principal negotiating points and to discuss other aspects of the proposed transaction.
 
On August 27, 2013, we decided to retain RBC Capital Markets, LLC ("RBC") to render a fairness opinion to our Board of Directors in connection with the proposed transaction.
 
On September 1 and 10, 2013, representatives of Perion and Conduit and their respective legal counsels met to discuss unresolved issues in the transaction agreements. A follow-up conference call was held on September 11, 2013.
 
On September 14, 2013, representatives of Perion and Conduit met and resolved the final issues in the transaction agreements.
 
 On September 15, 2013, our Board of Directors held a meeting to consider the final terms of the proposed transaction.  Also present were certain members of management and representatives of UBS, RBC, KPMG and Goldfarb.  Representatives of UBS presented an overview of the transaction, its rationale, key considerations, market perspectives and the lock-up arrangements that would apply to the New Shares. Representatives of Goldfarb presented a summary of the various documents relating the proposed transaction, discussed various legal issues and reviewed the various proposed resolutions of the Board of Directors. Ms. Gershoni Levy summarized the legal due diligence findings.  Representatives of KPMG summarized the tax and accounting due diligence findings.  Representatives of RBC presented a financial analysis of the proposed transaction and rendered to the Board of Directors an oral opinion (which was subsequently confirmed in writing on September 16, 2013) to the effect that, as of such date, based upon and subject to the factors and assumptions made, procedures followed, matters considered and limits of the review undertaken by RBC set forth therein, the exchange ratio was fair from a financial point of view to our shareholders. After an explanation of the matters relating to director and officer compensation related to the proposed transaction and the requirement of Israeli law for approval thereof by our Compensation Committee, as well as the resulting requirement of Israeli law for approval of the proposed transaction by our Audit Committee, the meeting of the Board of Directors was temporarily adjourned.
 
 
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At this time, our Compensation Committee held a meeting, together with representatives of Goldfarb. Following a discussion of the proposed matters relating to D&O insurance, D&O indemnification agreements and equity grants to certain executive officers, taking into account various factors set forth in the Companies Law, the Compensation Committee unanimously approved such matters and unanimously recommended that the Board of Directors approve them, as well.
 
Our Audit Committee then held a meeting, together with representatives of Goldfarb.  Following a discussion of various aspects of the transaction, including the conflicts of interests of certain officers and directors, the Audit Committee unanimously determined that it is in the best interests of Perion and its shareholders to enter into the Share Purchase Agreement, unanimously voted to adopt resolutions approving, among other things, the Share Purchase Agreement, the Share Purchase and the other transactions contemplated thereby, and unanimously recommended that the Board of Directors approve the execution, delivery and performance of the Share Purchase Agreement and the consummation of the Share Purchase and the other transactions contemplated thereby.
 
Following the meeting of the Audit Committee, our Board of Directors reconvened for a final discussion and vote on the proposed transaction.  Mr. Mandelbaum recused himself from this meeting because his equity grant and salary are proposed to be increased as a result of the proposed transaction.  Mr. Jutkowitz, the Chairman of both our Compensation Committee and Audit Committee, reported on the votes and recommendations of each of the Compensation Committee and the Audit Committee.  All the members of the Board of Directors present at the meeting then voted to adopt resolutions:
 
 
·
approving the Share Purchase Agreement, the Share Purchase and the other transactions contemplated thereby;
 
 
·
directing management to call a meeting of our shareholders, to seek to obtain the requisite approvals and consents and to take such other actions as may be necessary to complete the Share Purchase; and
 
 
·
recommending that our shareholders approve the Share Purchase Agreement, the Share Purchase and the other transactions contemplated thereby.
 
On September 16, 2013, following the approval of the transaction by Conduit's Board of Directors, the parties executed the Share Purchase Agreement and other related agreements and issued a joint press release announcing the execution of the Share Purchase Agreement.
 
 
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Share Purchase Agreement
 
The description in this Proxy Statement of the Share Purchase Agreement is subject to, and is qualified in its entirety by reference to, the Share Purchase Agreement. We have attached a copy of the Share Purchase Agreement to this Proxy Statement as Appendix A and we recommend that you read it carefully in its entirety .
 
Issuance of New Shares and Exchanged Options
 
At the Closing, each ClientConnect Share will be exchanged for that number of New Shares equal to the Exchange Ratio. The Exchange Ratio, as computed in the days preceding the execution of the Share Purchase Agreement based on information available at that time, was equal to approximately 0.2402 Perion Shares for each one ClientConnect Share.  The New Shares will be listed for trading on the NASDAQ Global Market and the Tel Aviv Stock Exchange. Effective as of the Closing, all then-outstanding ClientConnect Options, whether or not exercisable, will be exchanged for the Exchanged Options in the Options Exchange. The Exchanged Options will be subject to the same vesting schedule and the same terms and conditions, will be exercisable for that number of Perion Shares equal to the number of ClientConnect Shares set forth in the underlying ClientConnect Option multiplied by the Exchange Ratio, and the exercise price will be equal to the quotient determined by dividing the per share exercise price of the underlying ClientConnect Option by the Exchange Ratio. In addition, the remaining term of any ClientConnect Option that exceeds five years will be reduced to five years from the Closing Date.
 
The Exchange Ratio will be determined two business days prior to the Closing such that the former ClientConnect Shareholders together with the holders of the ClientConnect Options will constitute 81% of the Perion Shares outstanding immediately following the Closing on a Fully Diluted basis. All references to "Fully Diluted" in this Proxy Statement refer to the calculation of shares outstanding as determined by the treasury stock method, together with an adjustment for an assumed issuance of Perion Shares, at a reference price, based on the Black Scholes values of out-of-the-money Perion Options and ClientConnect Options. The reference price of the Perion Shares for such calculations will be the 30-day trailing volume weighted average price per share of the Perion Shares on NASDAQ prior to the second business day immediately prior to the Closing. The full text of the Exchange Ratio formula is included as part of Appendix A to this Proxy Statement and is incorporated herein by reference.
 
New RSUs
 
Following the Closing, we will grant an aggregate of 983,500 New RSUs to certain key employees of ClientConnect and Perion to encourage their continued employment with us.  We also propose to grant to our Chief Executive Officer 200,000 RSUs on the date of the Meeting and 232,400 RSUs following the Closing, subject to shareholder approval, as described in Proposal 4 below.
 
SEC Registration
 
Prior to Closing or within 30 days after Closing, we undertook to register the New Shares issuable upon exercise of the Exchanged Options and upon conversion of the New RSUs by filing with the SEC a registration statement on Form S-8 and to use commercially reasonable efforts to maintain the effectiveness of the registration statement for so long as such Exchanged Options or New RSUs remain outstanding.
 
Pursuant to the terms of the Registration Rights Undertaking, as soon as practicable following the filing of our Annual Report on Form 20-F for the 2013 fiscal year (and in any event within the earlier of (i) thirty days following the filing of such annual report and (ii) one hundred and fifty days following the Closing), we are required to file a registration statement on Form F-3 covering the resale of New Shares issued at Closing held by any person whose resale of such shares would otherwise be subject to volume limitations under Rule 144, without derogating from the Tax Lock-up and the Contractual Lock-up.  For more information about the Registration Rights Undertakings, see "Agreements Related to the Share Purchase – Registration Rights Undertakings".
 
 
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Lock-up Arrangements
 
Pursuant to Schedule 5.1(b) to the Share Purchase Agreement, which will be binding upon all the ClientConnect Shareholders by virtue the Court Approval, the ClientConnect Shareholders will be subject to lock-up arrangements (the “Contractual Lock-up”) pursuant to which each of them will not be permitted to sell, offer to sell, grant any option to purchase or otherwise transfer or dispose of (each, a "transfer") any of the New Shares issued to such ClientConnect Shareholder at the Closing during an initial period of one hundred eighty one (181) days following the Closing and will be subject to conditional transfer restrictions set forth below. The Contractual Lock-up will not apply to the Perion Shares issued upon exercise of the Exchanged Options. The full text of these lock-up arrangements is included as part of Appendix A to this Proxy Statement and is incorporated herein by reference.
 
Commencing at the end of such initial period through the subsequent period ending on the day which is seven hundred thirty (730) days following the Closing Date, each ClientConnect Shareholder will be permitted to transfer up to ten percent (10%) of such shareholder's New Shares.
 
The Contractual Lock-up contains certain relaxations of the restrictions on transfers of the New Shares during such subsequent period, such that each ClientConnect Shareholder may be able to transfer a greater number of New Shares based upon the market price of the Perion Shares, as follows:
 
 
·
If the prevailing market price of the Perion Shares (defined as the closing price on NASDAQ for any consecutive ten trading day period following the Closing Date) is equal to or greater than $15.00 per share (as appropriately adjusted for any stock splits, cash dividends, stock dividends, combinations, recapitalizations or the like) for any ten consecutive trading days beginning at any time after the Closing Date, then each ClientConnect Shareholder may transfer up to an aggregate of thirty-three percent (33%) of the New Shares issued to such shareholder (including any New Shares previously transferred by such shareholder);
 
 
·
If the prevailing market price of the Perion Shares is equal to or greater than $18.50 per share (as appropriately adjusted as aforesaid) for any ten consecutive trading days beginning at any time after the Closing Date, then each ClientConnect Shareholder may transfer up to an aggregate of sixty seven percent (67%) of the New Shares issued to such shareholder (including any New Shares previously transferred by such shareholder); and
 
 
·
If the prevailing market price of the Perion Shares is equal to or greater than $22.00 per share (as appropriately adjusted as aforesaid) for any ten consecutive trading days beginning at any time after the Closing Date, then each ClientConnect Shareholder may transfer up to an aggregate of one hundred percent (100%) of the New Shares issued to such shareholder (including any New Shares previously transferred by such shareholder).
 
In order to monitor the transfer restrictions under the Tax Lock-up and the Contractual Lock-up, the New Shares will be deposited with one or two U.S. brokerage firms (with an office in Israel) selected by ClientConnect Shareholders holding a majority of the New Shares then held (the "Majority Holders"), provided that a ClientConnect Shareholder that is an investment fund may deposit its New Shares with a different brokerage firm that undertakes to ensure compliance with the Contractual Lock-up. We and the Majority Shareholders will jointly select, and may replace from time to time upon mutual consent, a reputable U.S. investment bank that is familiar with us and the trading of our shares (the "Banker") as an advisor with respect to the Contractual Lock-up, provided that such election may be terminated by either us or the Majority Holders. The initial investment banker as of the Closing Date will be UBS Securities LLC.
 
Notwithstanding the foregoing: (i) no ClientConnect Shareholder will be permitted to transfer more than an aggregate of thirty-three percent (33%) of such shareholder’s "unlocked" Perion Shares in any consecutive four-week period during the period of the Contractual Lock-up; and (ii) the Contractual Lock-up will not apply in a tender offer for Perion Shares or in a private transfer of Perion Shares where the transferee agrees in writing to be bound to the Contractual Lock-up. In addition, the Banker, from time to time, may determine to relax transfer restrictions under the Contractual Lock-up, for the benefit of all of the ClientConnect Shareholders on an equal basis.
 
 
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At any time following the closing of a public offering by us in which New Shares of ClientConnect Shareholders who are entitled to "piggyback registration rights" pursuant to Section 3 of the Registration Rights Undertaking with respect to such offering are in fact included in such offering, the New Shares sold in such offering and the New Shares held by any ClientConnect Shareholder that is not entitled to such piggyback registration rights will be released from the Contractual Lock-up.
 
Upon the occurrence of any person (excluding any ClientConnect Shareholder or any person who is subject to transfer restrictions identical to those of the Contractual Lock-up) becoming the beneficial owner of 24.9% or more of the outstanding Perion Shares or at such time as the total number of New Shares held by all ClientConnect Shareholders constitutes less than 20% of the outstanding Perion Shares, the Contractual Lock-up will be released.
 
Finally, upon the occurrence of any issuance of Perion Shares or securities convertible into Perion Shares in connection with (x) an acquisition by us of any business, company or assets, or (y) a private placement of Perion Shares, that are not subject to more strict or identical transfer restrictions as provided under the Contractual Lock-up, in which the aggregate number of Perion Shares issued (after giving effect to the conversion of all convertible securities issued or issuable thereunder and assuming that all milestones and conditions for issuance thereunder are fulfilled) constitutes 10% or more of the outstanding Perion Shares as of immediately prior to such issuance, the transfer restrictions under the Contractual Lock-up will be further relaxed to be no more restrictive (both in volume and period) than the transfer restrictions imposed on the Perion Shares issued in such issuance.
 
The Contractual Lock-up is in addition to the Tax Lock-up (as described under "Share Purchase Agreement—Tax Matters") and the Lock-up Agreement of our Chief Executive Officer (as described under "Agreements Related to the Share Purchase—Executive Lock-up Agreement").
 
Representations and Warranties
 
The Share Purchase Agreement has been described in and attached to this Proxy Statement to provide shareholders with information regarding its terms, and it is not intended to provide any other factual information about our company. The Share Purchase Agreement contains representations and warranties made by Conduit and ClientConnect to us and representations and warranties made by us to Conduit and ClientConnect.  The representations, warranties and covenants contained in the Share Purchase Agreement were made only for purposes of such agreement and as of the specific dates therein, were solely for the benefit of the parties, and may be subject to limitations agreed upon by the parties, including being qualified by confidential disclosures exchanged between the parties in connection with the execution of the Share Purchase Agreement. The assertions contained in certain of those representations and warranties were made solely for the purpose of allocating risk between the parties, rather than establishing matters of fact.  Certain of our representations and warranties are required to be true as of specific dates, including as of the Closing Date, and we are required to take certain action necessary to ensure such representations and warranties are accurate at the Closing Date.  Moreover, to the extent that any representation or warranty may not be entirely accurate as of the Closing Date, it may be subject to qualifications and limitations agreed by the parties and to a contractual standard of materiality or material adverse effect.  Shareholders are not third party beneficiaries under the Share Purchase Agreement and should not rely on the representations, warranties and covenants or any descriptions thereof as characterizations of the actual state of facts or condition of Conduit, ClientConnect or us or any of our respective subsidiaries or affiliates. Moreover, information concerning the subject matter of the representations and warranties may change after the date of the Share Purchase Agreement, which subsequent information may or may not be fully reflected in our public disclosures.
 
 
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Conduit and ClientConnect made a number of representations and warranties to us relating to, among other things:
 
 
·
Conduit's and ClientConnect's corporate organization, valid existence and similar corporate matters;
 
 
·
ClientConnect's charter documents and the accuracy and completeness of all books and records;
 
 
·
ownership of the ClientConnect Shares and the ClientConnect Options;
 
 
·
Conduit's and ClientConnect's corporate power and authority to execute and deliver the Share Purchase Agreement and to perform and consummate the Share Purchase and the other transactions contemplated thereby;
 
 
·
Conduit's and ClientConnect's Boards of Directors have approved the Split, the Split Agreement, the Share Purchase Agreement, the Share Purchase and the other transactions contemplated thereby, and Conduit's Board of Directors directed that the adoption of such items be submitted to the shareholders of Conduit for their consideration and recommended that their shareholders approve such items;
 
 
·
the accuracy, completeness and preparation of each of the ClientConnect Financial Statements and the Conduit Historical Financial Statements and the absence of undisclosed liabilities;
 
 
·
the absence of conflict with, termination, breach or violation of Conduit's or ClientConnect's organizational documents or any material legal requirements applicable to the ClientConnect business or any of the properties or assets primarily used in the ClientConnect business, in either case as a result of the execution and delivery of the Share Purchase Agreement and the consummation of the transactions contemplated thereby;
 
 
·
the absence of the creation of any lien on any of the properties or assets of ClientConnect or the ClientConnect business or the ClientConnect Shares as a result of the execution and delivery of the Share Purchase Agreement and the consummation of the transactions contemplated thereby;
 
 
·
governmental authorizations and regulatory filings required in order to consummate the transactions contemplated by the Share Purchase Agreement;
 
 
·
the conduct of the ClientConnect business in the ordinary course since June 30, 2013 and the absence of events or circumstances that constitute or would reasonably be expected to result in a Material Adverse Effect;
 
 
·
material contracts primarily relating to the ClientConnect business, the absence of known breaches or defaults under such contracts, that each such contract is valid, binding and enforceable, and the assignment of each such agreement relating to the ClientConnect business by Conduit to ClientConnect pursuant to the Split;
 
 
·
the absence of any pending or threatened litigation, claim, proceeding, suit,  judgment, decree, rule, injunction or order against or governmental investigation or claims against Conduit (solely with respect to the ClientConnect business) or ClientConnect or any of the assets or properties of ClientConnect or the ClientConnect business or any of the directors, officers, or employees of ClientConnect;
 
 
·
compliance with applicable law and receipt of governmental permits and licenses;
 
 
·
tax matters, liabilities for current and deferred taxes in the ClientConnect Financial Statements, withholding, granting of stock options in accordance with Section 102 of the Tax Ordinance, and material tax or other grants or incentives granted to or enjoyed by them under Israeli law;
 
 
43
 
 
·
no material restrictions or prohibitions on the ClientConnect business or ClientConnect;
 
 
·
employee and employee benefit matters, employment or consultancy agreements, and labor relations and labor-related litigation with respect to the employees of the ClientConnect business;
 
 
·
title to and sufficiency of properties, assets and the rights transferred by Conduit to ClientConnect pursuant to the Split or made available under the Office and Administrative Service Agreement;
 
 
·
insurance matters;
 
 
·
intellectual property matters, including licenses of intellectual property, validity and non-infringement of patents, receipt of invention assignment agreements, title and ownership of the intellectual property primarily used in the ClientConnect business and necessary to provide the services under the Transition Services Agreement, source code, open source software, privacy and personal data;
 
 
·
interested party transactions involving Conduit or ClientConnect and any of their respective officers, directors, employees, consultants, shareholders or related parties;
 
 
·
no brokers and finders’ fees payable in connection with the Share Purchase;
 
 
·
environmental matters; and
 
 
·
propriety of past payments.
 
We made a number of representations and warranties to Conduit and ClientConnect relating to, among other things:
 
 
·
our corporate organization, valid existence and similar corporate matters;
 
 
·
our charter documents and the accuracy and completeness of our books and records;
 
 
·
our capitalization and our options and option plans;
 
 
·
our corporate power and authority to execute and deliver the Share Purchase Agreement and to perform and consummate the Share Purchase and the other transactions contemplated thereby;
 
 
·
the approval of our Board of Directors of the Share Purchase Agreement, the Share Purchase and the other transactions contemplated thereby, directed that the adoption of such items be submitted to our shareholders for their consideration and recommended that the shareholders approve such items;
 
 
·
the documents filed by us with the SEC, the accuracy, completeness and preparation of the financial statements we have filed with the SEC, the absence of undisclosed liabilities, our internal controls and maintenance of appropriate disclosure controls, and our compliance with the listing and governance rules and regulations of NASDAQ;
 
 
·
the absence of conflict with, termination, breach or violation of (i) our organizational documents, (ii) any of our material contracts or (iii) provisions of applicable law, in each case, as a result of the execution and delivery of the Share Purchase Agreement and the consummation of the transactions contemplated thereby;
 
 
·
the absence of the creation of any lien on any of our properties, assets or Perion Shares as a result of the execution and delivery of the Share Purchase Agreement and the consummation of the transactions contemplated thereby;
 
 
·
governmental authorizations and regulatory filings required in order to consummate the transactions contemplated by the Share Purchase Agreement;
 
 
44
 
 
·
the conduct of our business in the ordinary course since June 30, 2013 and the absence of events or circumstances that constitute or would reasonably be expected to result in a Material Adverse Effect;
 
 
·
material contracts, the absence of known breaches or defaults under such contracts, and that each such contract is valid, binding and enforceable;
 
 
·
the absence of any pending or threatened litigation, claim, proceeding, suit,  judgment, decree, rule, injunction or order against or governmental investigation or claims against us, any of our assets or properties or any of our directors, officers, or employees;
 
 
·
compliance with applicable law and receipt of governmental permits and licenses;
 
 
·
tax matters, withholding, granting of stock options in accordance with Section 102 of the Tax Ordinance, and material tax or other grants or incentives granted to or enjoyed by us under Israeli law;
 
 
·
no material restrictions or prohibitions on us or our business;
 
 
·
employee and employee benefit matters, employment or consultancy agreements, and labor relations and labor-related litigation;
 
 
·
title to and sufficiency of assets and properties;
 
 
·
insurance matters;
 
 
·
intellectual property matters, including licenses of intellectual property, validity and non-infringement of patents, receipt of invention assignment agreements, title and ownership of our intellectual property, source code, open source software, privacy and personal data;
 
 
·
interested party transactions involving us and any of our officers, directors, employees, consultants, shareholders or related parties;
 
 
·
no brokers and finders’ fees payable in connection with the Share Purchase, and a good faith estimate of all of our fees, costs, expenses, payments, and expenditures incurred and expected to be incurred by Closing  in connection with the Share Purchase, the Share Purchase Agreement and the transactions contemplated thereby;
 
 
·
environmental matters;
 
 
·
propriety of past payments; and
 
 
·
our receipt of letters from each of Adi Soffer Teeni and Josef Mandelbaum resigning from our Board of Directors effective no later than immediately prior to the Closing.
 
Material Adverse Effect
 
Several of the representations, warranties and conditions in the Share Purchase Agreement are qualified by reference to, or are subject to, a material adverse effect standard. As used in this Proxy Statement, "Material Adverse Effect" means, with respect to any entity, any change, event, circumstance or effect (each, an "Effect") that, individually or taken together with all other Effects, and regardless of whether or not such Effect constitutes a breach of the representations or warranties made by such entity in the Share Purchase Agreement, is, or would reasonably be expected to, have a material adverse effect on the financial condition, properties, assets (including intangible assets), business or results of operations of such entity and its subsidiaries, taken as a whole, except to the extent that any such Effect is relating to or arising from:
 
 
1.
changes in general economic or political conditions whether worldwide or in any country or region in which such entity or its subsidiaries conduct business (provided that such changes do not affect such entity disproportionately as compared to other companies or businesses operating in any such country or region);
 
 
45
 
 
2.
changes affecting the industry generally in which such entity and its subsidiaries operate (provided that such changes do not affect such entity disproportionately as compared to other participants in such industries);
 
 
3.
changes in laws applicable such entity or any of its subsidiaries or generally accepted accounting principles ("GAAP");
 
 
4.
acts of war, armed hostilities or terrorism (other than such acts of war, armed hostilities or terrorism, or escalation or worsening thereof that cause any damage or destruction to, or render physically unusable, any facility or property of such entity or otherwise disrupt in any material manner the business or operations of such entity or its subsidiaries);
 
 
5.
with respect to us, any decline in the market price or decrease or increase in the trading volume of the Perion Shares;
 
 
6.
any failure to meet internal or published projections, forecasts, or revenue or earning predictions for any period;
 
 
7.
any litigation arising from allegations of a breach of fiduciary duty or other violation of applicable legal requirements relating to the Share Purchase Agreement or the Split or the transactions contemplated thereby, or the approval thereof;
 
 
8.
the announcement or performance of the Split Agreement, the Share Purchase Agreement and the transactions contemplated therein (including without limitation the Split, the Share Purchase and the impact thereof on relationships, contractual or otherwise, with customers, suppliers, search providers, publishers, vendors, employees or venture partners); and
 
 
9.
any action taken by Conduit or ClientConnect at the written request of or with the written consent of us, or any action taken by us at the written request of or with the written consent of Conduit or ClientConnect.
 
For the avoidance of doubt, the exceptions in clauses 5 and 6 above will not prevent or otherwise affect a determination that the underlying cause of such failure is a Material Adverse Effect.
 
Conduct of Business Prior to Closing
 
We have agreed that, subject to certain exceptions, from the date of the Share Purchase Agreement until the earlier to occur of the termination of the Share Purchase Agreement or the Closing (except to the extent expressly provided by the Share Purchase Agreement, the Split Agreement, applicable legal requirements or as consent to by the other parties, which will not be unreasonably withheld or delayed), each of us and our subsidiaries, Conduit (solely with respect to the ClientConnect business) and ClientConnect and each of its subsidiaries, will:
 
 
·
conduct its business in the usual, regular and ordinary course, consistent with past practice; and
 
 
·
use all commercially reasonable efforts consistent with past practice to:
 
 
o
pay and perform all debts and other obligations (including taxes) when due;
 
 
o
collect accounts receivable when due and not extend credit outside of the ordinary course of business;
 
 
o
sell its products in all material respects consistent with past practices as to license, service and maintenance terms, incentive programs, and revenue recognition;
 
 
o
keep available the services of its present current officers and key employees, and preserve its relationships with customers, suppliers, licensors, licensees, distributors and others having business dealings with it; and
 
 
46
 
 
o
promptly notify the other parties of any change, occurrence or event not in the ordinary course of business, or of any change, occurrence or event which, in each case, individually or in the aggregate with any other changes, occurrences and events, would reasonably be expected to be materially adverse to such party or cause any of the Closing conditions not to be satisfied.
 
In addition, the Share Purchase Agreement provides that, subject to certain exceptions, from the date of the Share Purchase Agreement until the earlier to occur of the termination of the Share Purchase Agreement or the Closing, each of us and our subsidiaries, Conduit (solely with respect to the ClientConnect business) and ClientConnect and each of its subsidiaries will not do, cause or permit any of the following (except to the extent expressly provided by the Share Purchase Agreement, the Split Agreement, applicable legal requirements or as consent to by us or Conduit (as applicable), which will not be unreasonably withheld or delayed):
 
 
·
(i) in our case, declare or pay any dividends on or make any other distributions in respect of any of our share capital, or split, combine or reclassify any of our share capital or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for shares of our share capital except for exercise of outstanding options, or repurchase or otherwise acquire, directly or indirectly, any shares of our share capital except from former employees, non-employee directors and consultants in accordance with agreements providing for the repurchase of shares in connection with any termination of service, and (ii) in the case of Conduit and ClientConnect, make any stock distributions in respect of any of its share capital, or split, combine or reclassify any of its share capital or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for shares of its share capital, except for exercise of outstanding options, including as set forth in the Split Agreement and except that the Split may be effected in accordance with the Split Agreement;
 
 
·
issue, deliver, sell or authorize any shares of its share capital or securities convertible into, or other rights obligating it to issue any such shares or other convertible securities, and (i) in the case of Conduit and ClientConnect, issue Conduit Options to any ClientConnect employee other than in the ordinary course of business, in each case other than the issuance of ClientConnect Shares to the ClientConnect Shareholders in accordance with their shares of Conduit and the issuance of the ClientConnect Options in exchange for Conduit Options, all pursuant to the Split and the Split Agreement, and (ii) in our case, other than the grant of awards under our Equity Incentive Plan in the ordinary course of business and the issuance of Perion Shares pursuant to the exercise of awards under our Equity Incentive Plan;
 
 
·
enter into any contract that would constitute a material contract under the Share Purchase Agreement, or violate, terminate, amend or otherwise modify any of the material terms of any of such material contracts (other than in the ordinary course of business) provided, however, that neither party may violate, terminate, amend, or otherwise modify (including by entering into a new contract with such party or otherwise) or waive any of the material terms of any contract with a search engine provider;
 
 
·
amend the organizational documents or the organizational documents of ClientConnect, Perion or any of their respective subsidiaries;
 
 
·
hire any officers (in the case of Conduit and ClientConnect, of the ClientConnect business) on the level of vice president or above or enter into any contract with a labor union or collective bargaining agreement;
 
 
·
make any loans or advances (in case of Conduit and ClientConnect, solely with respect to ClientConnect and its subsidiaries) (other than routine expense advances to employees consistent with past practice) to, or any investments in or capital contributions to, any person, or forgive or discharge in whole or in part any outstanding loans or advances, or prepay any Indebtedness for borrowed money;
 
 
47
 
 
·
transfer or license from any person any rights to any intellectual property of such party, other than in the ordinary course of business consistent with past practice, or transfer or grant an exclusive license to any person any rights to any intellectual property of such party, or transfer or provide a copy of any source code of such party to any person;
 
 
·
take any action regarding a patent (or, in our case, any patent application or other intellectual property right), other than filing continuations for existing patent applications or completing or renewing registrations of existing patents (and, in our case, domain names, trademarks or service marks) in the ordinary course of business;
 
 
·
sell, lease, license or otherwise dispose of any of its properties or assets, or enter into any contract with respect to the foregoing, other than sales, leases, nonexclusive licenses or other dispositions of products and services in the ordinary course of business consistent with past practice;
 
 
·
incur any indebtedness for borrowed money or guarantee any such indebtedness;
 
 
·
(i) in the case of ClientConnect, incur or make any capital expenditures, capital additions or capital improvements, other than in the ordinary course of business and exceeding $2,000,000 and (ii) in our case, incur or make any capital expenditures, capital additions or capital improvements, other than in the ordinary course of business and exceeding $500,000;
 
 
·
materially change the amount of any insurance coverage other than, with respect to Conduit and us, directors and officers liability insurance;
 
 
·
except in each case as required pursuant to the Share Purchase Agreement, the Split Agreement or under applicable legal requirements, (i) pay or accrue any special bonus or special remuneration outside the ordinary course of business to any key employee or (ii), in our case, adopt or amend any employee incentive plan;
 
 
·
(i) commence a lawsuit other than (A) for the routine collection of bills, (B) in such cases where such party in good faith determines that failure to commence suit would result in the material impairment of a valuable aspect of its business (provided that it consults with the other party prior to the filing of such a suit), or (C) for a breach of the Share Purchase Agreement or (ii) settle or agree to settle any pending or threatened lawsuit or other dispute in an amount greater than $2,000,000 in the case of Conduit and $250,000 in our case;
 
 
·
acquire or agree to acquire by merging or consolidating with, or by purchasing a substantial portion of the assets of, or by any other manner, any business or any corporation, partnership, association or other business organization or division thereof, or otherwise acquire or agree to acquire any assets which, in the case of the ClientConnect business, that are material, individually or in the aggregate to the ClientConnect business, or enter into any contract with respect to a joint venture, strategic alliance or partnership which, in the case of the ClientConnect business, are not in the ordinary course of business consistent with past practice;
 
 
·
enter into any agreement for the purchase, sale or lease of any real property;
 
 
·
other than in the ordinary course of business consistent with past practice, place or allow the creation of any encumbrance (other than a permitted encumbrance) on any of its properties (in the case of Conduit and ClientConnect, primarily used in the ClientConnect business);
 
 
·
change the manner in which it provides warranties, discounts or credits to customers of its business;
 
 
48
 
 
·
enter into any contract in which any officer or director (or, in the case of ClientConnect, a ClientConnect Shareholder) or any member of their immediate families has a personal interest;
 
 
·
in the case of Conduit and ClientConnect, amend the Split Agreement or waive any rights thereunder on behalf of ClientConnect; and
 
 
·
agree, resolve or commit to take any of the actions described above.   
 
Restrictions on Solicitations of Other Offers
 
The Share Purchase Agreement provides for a mutual non-solicitation provision under which we, on the one hand, and Conduit and ClientConnect, on the other hand, agreed that upon execution of the Share Purchase Agreement each party and its respective subsidiaries and officers, directors, employees, and representatives will immediately cease and terminate all existing activities, discussions or negotiations with other third parties regarding any proposal that constitutes, or could reasonably be expected to lead to, any Takeover Proposal (as defined below) with respect to such company or business. We, on the one hand, and Conduit and ClientConnect, on the other hand, also agreed to use best efforts to obtain the prompt return or destruction of any confidential information previously furnished to such third parties with respect thereto within twelve months prior to the date of the Share Purchase Agreement. In addition, the Share Purchase Agreement provides that no party nor any of its respective subsidiaries, officers, directors, investment bankers, attorneys or other agents, advisors or representatives will directly or indirectly:
 
 
·
solicit, initiate, seek or knowingly encourage the making, submission, or announcement of any Takeover Proposal with respect to such company or business;
 
 
·
furnish any information in connection with or in response to a Takeover Proposal with respect to such company or business;
 
 
·
continue or otherwise engage or participate in any discussions or negotiations with respect to a Takeover Proposal with respect to such company or business;
 
 
·
approve, endorse or recommend any Takeover Proposal with respect to such company or business (except in our case, in connection with a Change of Recommendation (as defined below)); or
 
 
·
enter into any letter of intent, arrangement, agreement or understanding, written or oral, relating to any Acquisition Transaction with respect to such company or business;
 
provided, however, that this will not prohibit our Board of Directors, prior to obtaining our shareholder approval, from furnishing information regarding us or any of our subsidiaries to, or entering into or participating in discussions or negotiations with, any person making a Takeover Proposal with respect to Perion in response to an unsolicited, bona fide Takeover Proposal that, in the view of the our Board of Directors, constitutes or would reasonably be expected to result in a Superior Offer if (1) such Takeover Proposal did not result from a breach of our non-solicitation obligations under the Share Purchase Agreement, (2) prior thereto we have given Conduit the required notice discussed below, (3) we furnish any nonpublic information provided to the maker of the Takeover Proposal only pursuant to a confidentiality agreement between us and such person containing customary terms and conditions that in the aggregate are not materially less restrictive than those contained in our confidentiality agreement with Conduit, and (4) with respect to any nonpublic information provided to such person which was not previously provided to Conduit, such information is simultaneously provided to Conduit.
 
We, on the one hand, and Conduit and ClientConnect, on the other hand, are obligated to provide immediate written notice, and in no event later than forty-eight hours after the receipt of any Takeover Proposal with respect to such company or business, to the other party regarding such Takeover Proposal, including the material terms and a copy thereof, including all documents and other material available to us in connection with such Takeover Proposal. We, on the one hand, and Conduit and ClientConnect, on the other hand, are obligated to keep the other party informed on a prompt basis with respect to any change to the terms of any such Takeover Proposal and any material developments and any additional documents provided by the third party making the Takeover Proposal (and in no event later than forty-eight following any such change, development or receipt of such additional documents).
 
 
49
 
In addition, the Share Purchase Agreement provides that neither our Board of Directors, except as set forth below, nor the Board of Directors of either Conduit or ClientConnect will (i) withhold, withdraw, qualify, or modify, or publicly propose to withhold, withdraw, qualify, or modify, the approval or recommendation by the respective board of directors of the Share Purchase Agreement in a manner adverse to the other party or make any statement, filing or release, in connection with, in our case, obtaining the requisite shareholder approval or, in the case of Conduit and ClientConnect, the Court Approval, or otherwise, inconsistent with the recommendation by such party's respective board of directors, (ii) approve, endorse, or recommend, any Takeover Proposal with respect to such company or business (any of the foregoing set forth in clauses (i) and (ii), a "Change of Recommendation" of the board of directors of such company or business, as applicable) or (iii) enter into a written definitive agreement providing for an Acquisition Transaction (as defined below), with respect to such company or business.  At our request, in the event of any publicly known Takeover Proposal with respect to ClientConnect or the ClientConnect business, the Board of Directors of Conduit shall issue an announcement or statement reaffirming and confirming the Conduit recommendation and stating that this announcement or statement is provided after taking into account such Takeover Proposal.  Subject to the below paragraph, at the request of Conduit, in the event of any publicly known Takeover Proposal with respect to Perion, our Board of Directors is required to issue an announcement or statement reaffirming and confirming its recommendation and stating that this announcement or statement is provided after taking into account the Takeover Proposal with respect to Perion.
 
Notwithstanding the foregoing, at any time prior to the receipt of our shareholder approval, our Board of Directors may (i) effect a Change of Recommendation in respect of a Takeover Proposal with respect to Perion and/or (ii) if it elects to do so in connection with or following a Change of Recommendation by us, terminate the Share Purchase Agreement in order to simultaneously enter into a written definitive agreement providing for an Acquisition Transaction with respect to Perion, if all of the following conditions have been met:
 
 
·
a bona fide unsolicited written Takeover Proposal with respect to Perion is made in writing to us by a third party and such offer is not withdrawn;
 
 
·
our Board of Directors determines that such offer constitutes a Superior Offer;
 
 
·
we are not and have not been in breach of our non-solicitation obligations under the Share Purchase Agreement;
 
 
·
we provide Conduit five business days prior written notice of our intention to take such action, which notice will include the information with respect to such Superior Offer;
 
 
·
we will have negotiated during the five business day notice period with Conduit and ClientConnect in good faith regarding the making of any adjustments to the terms and conditions of the Share Purchase Agreement; and
 
 
·
at the end of the period described above, our Board of Directors again makes the determination in good faith after consultation with outside legal counsel and a reputable international financial advisor (after taking into account any adjustments of modifications to the terms of the Share Purchase Agreement proposed by Conduit and ClientConnect) that such Takeover Proposal continues to be a Superior Offer and that failure to approve a Change of Recommendation would constitute a breach of its fiduciary duties under applicable law.
 
Regardless of whether a party's board of directors effectuates a Change of Recommendation, such party will, and will cause its subsidiaries and representatives to, continue to be committed to cause the consummation of the transactions contemplated by the Share Purchase Agreement and will not be released from any obligations under the Share Purchase Agreement unless and until the Share Purchase Agreement is terminated in accordance with its terms.
 
 
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Nothing contained in the Share Purchase Agreement will prohibit us from (i) disclosing to our shareholders a position contemplated by Rules 14d-9 and 14e-2(a) promulgated under the Securities Exchange Act of 1934, (ii) making any disclosure to our shareholders if our Board of Directors has reasonably determined in good faith, after consultation with outside legal counsel, that the failure to do so would be inconsistent with any applicable legal requirements, or (iii) complying with our disclosure obligations under any legal requirements, provided that the foregoing shall not, in itself, constitute a Change of Recommendation by us, or (iv) making a Change of Recommendation to the extent that our Board of Directors determines in good faith, for reasons not related to the receipt of an Acquisition Proposal with respect to Perion, after consultation with our outside legal counsel, that the failure of our Board of Directors to effect a Change of Recommendation would be inconsistent with the directors' fiduciary duties under applicable legal requirements.
 
As used in this Proxy Statement, the term "Acquisition Transaction" means, with respect to Perion or ClientConnect or the ClientConnect business, as applicable, any offer or proposal by any person concerning any (i) merger, consolidation, other business combination, restructuring, recapitalization, exchange, reclassification or any other transaction, pursuant to which or as a result of which such person (or the shareholders of such person) would own 20% or more of the consolidated assets, revenues or net income of such company or business, (ii) sale, lease, assignment, license or other disposition directly or indirectly by merger, consolidation, business combination, share exchange, joint venture or otherwise, of assets representing 20% or more of the consolidated assets, revenues or net income of such company or business, (iii) issuance or sale or other disposition (including by way of merger, consolidation, business combination, share exchange, joint venture or similar transaction) of equity interests representing 20% or more of the voting power of such company or business, (iv) transaction or series of transactions in which any person (or the shareholders of such person) would acquire beneficial ownership or the right to acquire beneficial ownership of equity interests representing 20% or more of the voting power of such company or business or (v) any combination of the foregoing.
 
As used in this Proxy Statement, the term "Takeover Proposal" means, with respect to Perion or ClientConnect or the ClientConnect business, as applicable, any written or oral offer, proposal or indication of interest received from any party (other than a party to the Share Purchase Agreement) providing for any Acquisition Transaction with respect to such company or business, including any renewal or revision to such a previously made offer, proposal or indication of interest.
 
As used in this Proxy Statement, the term "Superior Offer" means a bona fide written Takeover Proposal with respect to Perion (for purposes of this definition, replacing all references in such definition to twenty percent (20%) with fifty percent (50%)) that our Board of Directors or any committee thereof determines, in good faith, after consultation with outside legal counsel and a financial advisor (i) is on terms that are more favorable from a financial point of view to our shareholders than the Share Purchase and the transactions contemplated by the Share Purchase Agreement after taking into account all of the terms and conditions of such proposal and (ii) is likely to be completed, in each of the cases of clause (i) and (ii), taking into account all financial, regulatory, legal and other aspects of such Takeover Proposal (including the timing and likelihood of consummation thereof).
 
 
51
 
Non-Competition
 
Subject to certain exceptions, from the Closing Date and for a thirty-month period thereafter, without our prior written consent Conduit will not, and will cause its subsidiaries not to:
 
 
·
enter into, participate or engage, directly or indirectly, in the development, marketing or sale of Toolbar Platforms, standalone Search Protects, Value Apps or Download Managers, as such products are defined below (the " Field of Business ");
 
 
·
engage in selling or proxying internet search feeds or search pages to third-party products, unless we serve as the search partner for such activities and such services will be provided on commercial terms and conditions which are the most favorable terms and conditions for similar services of ours, at any time and from time to time after the Closing Date; or
 
 
·
promote or assist, financially or otherwise, any person engaged in the Field of Business;
 
provided that this will not prevent Conduit from holding passive investments in any investment fund that holds securities or makes any other financial or other investment in any company engaged in the Field of Business:
 
 
·
Toolbar Platform: A cloud-based toolbar and app generation platform, which allows for the creation, implementation and administration of web browser toolbars for distribution by publishers to targeted audiences. The Toolbar Platform includes, without limitation, software applications and tools that provide comprehensive solutions for the full customization of toolbar GUI, features and services, through a user friendly online drag and drop system and additional features or services (such as a search box, home page takeover, value apps) that may be provided therein or in connection thereto.
 
 
·
Search Protect: Standalone software, which protects the end user’s browser’s settings. Search Protect is designed to the end user to maintain its selected browser settings and to prevent third-party software downloads from changing them.
 
 
·
Value Apps: Conduit’s and third party’s applications, services and offers aggregation and optimization tool, which is offered as a toolbar feature or as a standalone software to end users.
 
 
·
Download Manager: An installer that provides an end user with the ability to download and install a toolbar and, if available, Additional Offers via a single process. "Additional Offers" refers to any third party content features or services that are presented to end users as part of the Download Manager or in connection thereto.
 
Tax Matters
 
The Share Purchase will not be a tax event for our shareholders because it will not result in the disposition of their Perion Shares.
 
With respect to Conduit and its shareholders, each of the Split and the Share Purchase transactions is expected to be effected as a restructuring pursuant to the Tax Ruling under Sections 105 and 103T, respectively, of the Tax Ordinance. Pursuant to Sections 105 and 103T, and the Tax Ruling, the tax events related to the Split and the Share Purchase transactions, with respect to Conduit and its shareholders, will be deferred until the sale of the New Shares by any holder thereof, the sale of ClientConnect Shares by us, or the sale of assets of ClientConnect.
 
 
52
 
Conduit, ClientConnect and we have undertaken to use our commercially reasonable efforts to obtain the Tax Ruling (and additional approvals or rulings, to the extent required) confirming, among others, that:
 
 
(i)
the Split will be treated as a tax-deferred restructuring pursuant to Section 105 of the Tax Ordinance;
 
 
(ii)
the Share Purchase will be treated as a tax-deferred merger pursuant to Section 103T of the Tax Ordinance;
 
 
(iii)
the exchange of the ClientConnect Options for the Perion Options at the Closing (the "Options Exchange") will not result in a requirement for an immediate Israeli tax payment (or any tax withholding by us), until such time as (x) any such Perion Option is exercised or (y) in the case of Perion Options which are part of a plan under Section 102 of the Tax Ordinance, until the actual sale of the underlying Perion Shares by the holder thereof or their release from the trustee of such plan (the "Section102 Trustee"), in accordance with the terms of such ruling;
 
 
(iv)
with respect to such ClientConnect Options subject to Section 102 of the Tax Ordinance, that the requisite two-year holding period will not be restarted as a result of the Options Exchange; and
 
 
(v)
the transfer of severance funds of ClientConnect employees from Conduit to ClientConnect will not constitute a tax event.
 
The Tax Ruling may be subject to customary conditions regularly associated with such a ruling and may contain such provisions, terms and conditions as the Israeli tax authorities may prescribe, which may be different from those detailed above.
 
Under Sections 105 and 103T, and the expected Tax Ruling, each of Conduit, ClientConnect, Conduit, the ClientConnect Shareholders and us, will be required to comply with various restrictions for the period ending on December 31, 2015, including the following:
 
 
·
each of Conduit and ClientConnect may not sell a majority of its assets (as defined in the Tax Ordinance) and such assets must be put to reasonable use under the circumstances in the course of its business;
 
 
·
each of Conduit and ClientConnect must continue the principal business activities that Conduit was engaged in during the two years preceding the Split;
 
 
·
there may be no transfers of cash or other consideration, granting of guaranties or any other activities between Conduit and ClientConnect outside the ordinary course of business;
 
 
·
subject to certain exceptions detailed below, shareholders of Conduit (and ClientConnect) are required to retain their same respective interests in Conduit as they had in Conduit prior to the Split, and are also required to maintain their same respective interests in us as they will be immediately following the Closing. According to the requested Tax Ruling, this restriction would apply only to certain controlling shareholders of Conduit. For this purpose, a controlling shareholder means any person who, directly or indirectly, holds 5% or more of the outstanding shares of a company, 5% or more of the voting rights in a company, the right to receive 5% or more of the assets of a company upon liquidation or the right to appoint at least one director;
 
 
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·
subject to certain exceptions detailed below, we are required to maintain our interests in ClientConnect as they will be immediately following the Closing; and
 
 
·
subject to certain exceptions detailed below, our controlling shareholders at the time of the Closing are required to retain their same respective interests in us as they will be immediately following the Closing. According to the requested Tax Ruling, this restriction would apply only to our controlling shareholders who will remain controlling shareholders immediately after the Closing.  Based on our current shareholder base, these restrictions would not apply to any of our current shareholders.
 
Nevertheless, the following transactions will not be deemed prohibited changes in ownership, provided that each of the controlling shareholders of Conduit, with respect to their respective interests in Conduit, each of the controlling shareholders of the Company, if any, with respect to their respective interests in the Company, and the Company, with respect to our interest in ClientConnect, retain ownership of at least 51% of the applicable interests:
 
 
·
the sale of up to 10% of the restricted interests in Conduit, ClientConnect or the Company to a person who was not a security holder of the relevant company prior to the Split and the Share Purchase transactions;
 
 
·
the issuance of shares of Conduit, ClientConnect or the Company in a private placement to any single person (or a group of related persons) of up to 25% of the relevant company’s outstanding shares, measured prior to the issuance, provided such person (or persons) was not a security holder of the relevant company prior to the Split and the Share Purchase transactions;
 
 
·
a public offering of Conduit, ClientConnect or the Company pursuant to which the offered shares will be listed on a stock market; or
 
 
·
an involuntary sale, such as by inheritance or in liquidation.
 
In the event of a violation of the restrictions of Sections 105 and 103T and the expected Tax Ruling by any person that is subject to the above restrictions, including by Conduit, by ClientConnect or by the Company, Conduit, its shareholders and ClientConnect could be subject to tax on any gains derived from the Split and the Share Purchase transactions, which would otherwise be deferred under Sections 105 and 103T and the expected Tax Ruling.
 
Accordingly, in order to satisfy the condition of the Tax Ruling set forth above regarding the holdings of certain controlling shareholders of Conduit, until December 31, 2015, certain controlling shareholders of Conduit, who following the Split will hold, in the aggregate, approximately 48.5% of the ClientConnect Shares, and following the Share Purchase will hold, in the aggregate, approximately 39.4% of the outstanding Perion Shares, will only be permitted to sell up to 10% of their Perion Shares (the "Tax Lock-up").
 
In order to ensure compliance with the Tax Lock-up and the Contractual Lock-up, the New Shares to be issued at the Closing will be held by a broker for the duration of the period of the Tax Lock-up and the Contractual Lock-up, as applicable.  If the Tax Lock-up is breached by any Conduit shareholders, they will be required to indemnify the injured parties for the damages caused by such breach.  Each of Conduit, ClientConnect and the Company has undertaken to indemnify the other parties and their respective affiliates for any damages caused to them by its actions that breach the foregoing restrictions.
 
 
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Court Approval
 
As promptly as practicable after the execution and delivery of the Share Purchase Agreement, Conduit is required prepare and submit to the Court a first motion to convene, in the manner and content set forth in the Companies Law and the regulations promulgated pursuant to Sections 350 and 351 of the Companies Law (the "Arrangement Regulations") and as ordered by the Court, shareholders meetings for the approval of the terms and conditions of an arrangement among Conduit and its shareholders, including the Split, the Share Purchase and the other transactions contemplated by the Split Agreement and by the Share Purchase Agreement (collectively, the "Arrangement"), by a majority of the shareholders of Conduit representing at least seventy-five percent (75%) of the shares voting on the matter or as otherwise ordered by the Court (the "Section 350 Voting Approval"). Conduit, through the Conduit Board of Directors, is required to recommend to its shareholders the approval of the Share Purchase Agreement and the Arrangement (the "Conduit Recommendation").  Conduit is required to comply with all applicable requirements of the Companies Law, the Arrangement Regulations and the Court.  Conduit undertook to use commercially reasonable best efforts to solicit from Conduit shareholders proxies in favor of the approval of the Arrangement. The parties plan to rely upon the Court Approval for the purpose of qualifying the issuance of New Shares for the Section 3(a)(10) exemption from the registration requirements of the Securities Act. Accordingly, following the approval of the Arrangement by the Conduit shareholders, the Court will hold a hearing on the fairness of the Arrangement regardless of whether or not any objections to the Arrangement shall have been raised. The Court Approval is also expected to include an exemption from the requirement for Perion to publish a prospectus under Israeli law in connection with the issuance of the New Shares.
 
We agreed to assist with all activities with respect to the preparation and filing of the motions with respect to the Court Approval and all other documents prepared with respect to the Arrangement as may be requested by Conduit. We agreed to promptly provide to Conduit all such information concerning our business and financial statements and affairs as reasonably may be required or appropriate for inclusion in any motions to be filed in connection with the Arrangement.
 
On September 17, 2013, Conduit filed the first motion with the Court seeking approval of the Arrangement.
 
On September 18, 2013, the Court ordered a hearing with the Official Receiver and the Israel Securities Authority, which was held on October 6, 2013.
 
On October 6, 2013, the Court held the afore-mentioned hearing.  With no objections having been raised by the Official Receiver or the Israel Securities Authority, the Court granted Conduit's motion (i) to convene a meeting of Conduit's shareholders to vote upon the Arrangement and (ii) to hold another hearing, which was scheduled for November 3, 2013.

              On October 7, 2013, Conduit published notices of the Conduit shareholder meeting to be held on October 29, 2013 and the Court hearing to be held on November 3, 2013.

Agreement to Take Other Actions and to Use Reasonable Best Efforts
 
Subject to the terms and conditions set forth in the Share Purchase Agreement, each of the parties has agreed to use its commercially reasonable efforts, and to cooperate with the other party, to take, or cause to be taken, all actions, and to do or cause to be done all things necessary, appropriate or desirable to consummate and make effective the Split, the Share Purchase and the other transactions contemplated by the Share Purchase Agreement or in the Split Agreement, including the satisfaction of the respective closing conditions set forth below under " —Closing Conditions ", and including to execute and deliver such other instruments and do and perform such other acts and things as may be necessary or reasonably required for effecting completely the consummation of the Split, the Share Purchase and the other transactions contemplated by the Share Purchase Agreement or in the Split Agreement:
 
 
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Both parties undertook to take the following actions:
 
 
·
use commercially reasonable efforts to obtain prior to the Closing, and deliver to other party at or prior to the Closing, all consents, waivers and approvals necessary to be obtained from third parties;
 
 
·
(i) notify the other parties in writing promptly after learning of any legal proceeding initiated by or against it, or known by such party to be threatened against it, or any of their respective directors, officers, employees or shareholders, in their capacity as such (a "New Litigation Claim"), (ii) notify the other parties of ongoing material developments in any New Litigation Claim and (iii) consult in good faith with the other party regarding the conduct of the defense of any New Litigation Claim; and
 
 
·
afford the other parties and their representatives, reasonable access upon reasonable notice and during business hours to (i) all of such party’s properties, books, contracts and records (in the case of Conduit, only in connection with the ClientConnect business) and (ii) all other information concerning the business, properties and personnel (subject to restrictions imposed by applicable legal requirement) of such party as the other parties may reasonably request (in the case of Conduit, only in connection with the ClientConnect business).
 
Closing Conditions
 
Conditions to Each Party’s Obligations . Each party’s obligation to complete the transactions contemplated by the Share Purchase Agreement is subject to the satisfaction at or prior to the Closing of each of the following conditions:
 
 
(i)
no temporary restraining order, preliminary or permanent injunction or other order issued by any court of competent jurisdiction or other legal or regulatory restraint or prohibition preventing the consummation of the Share Purchase shall be in effect, nor shall any action have been taken by any governmental entity seeking any of the foregoing, and no statute, rule, regulation or order shall have been enacted, entered, enforced or deemed applicable to the Share Purchase which makes the consummation of the Share Purchase illegal;
 
 
(ii)
Conduit, ClientConnect and we will have timely obtained from each governmental entity all approvals, waivers and consents (or the applicable waiting periods under applicable antitrust laws shall have expired) necessary for consummation of the Share Purchase and the other transactions contemplated hereby, without imposing any material limitation, restriction or obligation on any such party, respectively;
 
 
(iii)
the Court Approval will have been obtained;
 
 
(iv)
the approval of our shareholders of the Share Purchase Proposal will have been obtained;
 
 
(v)
we will have obtained the approval of the NASDAQ Stock Market for the listing of the New Shares following the Closing;
 
 
(vi)
we will have obtained the approval of the Tel Aviv Stock Exchange for the listing of the New Shares to be issued at the Closing;
 
 
(vii)
the Split will have been consummated in accordance with the Split Agreement (including the exhibits and schedules thereto), with no amendments thereto or waivers of any rights of ClientConnect, except as approved by us; and other than de minimis deviations; and
 
 
(viii)
ClientConnect and Conduit will have entered into each of the Transition Services Agreement and the Office and Administrative Services Agreement.
 
 
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Additional Conditions to Conduit’s and ClientConnect's Obligations . The obligations of Conduit and ClientConnect to consummate the transactions contemplated by the Share Purchase Agreement is subject to the satisfaction (or waiver by Conduit and ClientConnect) at or prior to the Closing of each of the following conditions:
 
 
(i)
the representations and warranties made by us in the Share Purchase Agreement relating to (a) our organization, good standing and power, (b) our capital structure and (c) our authority to execute and perform the Share Purchase Agreement and the due authorization thereof will be true and correct in all material respects as of the date of the Share Purchase Agreement and as of the Closing Date as though made on the Closing Date (except for such representations and warranties which address matters only as to a specified date, which representations and warranties will be true and correct in all material respects with respect to such specified date and except for such representations and warranties that are qualified by their terms by a reference to materiality or Material Adverse Effect, which representations and warranties as so qualified will be true and correct in all respects), except that the representations and warranties made by us relating to the issuance of the New Shares and the Perion Shares to be issued pursuant to the exercise of Exchanged Options will be true and correct as of the date of the Share Purchase Agreement and as of the Closing Date as though made on the Closing Date;
 
 
(ii)
the other representations and warranties made by us in the Share Purchase Agreement will be true and correct as of the date of the Share Purchase Agreement and as of the Closing Date as though made on and as of such date (except for representations and warranties which address matters only as to a specified date, which representations and warranties will be true and correct with respect to such specified date), except for any failure to be true and correct which, individually or together with other failures, does not constitute a Material Adverse Effect on us;
 
 
(iii)
we will have performed and complied in all material respects with all covenants, obligations and conditions of the Share Purchase Agreement required to be performed and complete with by us at or prior to the Closing;
 
 
(iv)
Conduit will have received each of the following closing deliverables:
 
 
·
irrevocable instruction letter from us to American Stock Transfer & Trust Company LLC, our U.S. transfer agent, directing it to issue the New Shares to the respective ClientConnect Shareholders as set forth in the Closing Spreadsheet;
 
 
·
a certificate, dated as of the Closing Date, executed on our behalf by our Chief Executive Officer and the Chief Financial Officer of Perion, to the effect that certain closing conditions have been satisfied;
 
 
·
a certificate, dated as of the Closing Date and executed on our behalf by our Corporate Secretary, certifying (A) our Memorandum and Articles of Association, as in effect on the Closing Date, (B) the resolutions of our Board of Directors approving the Share Purchase, the Share Purchase Agreement, and all the transactions contemplated by the Share Purchase Agreement and (C) the resolutions of our shareholders approving the Share Purchase Agreement and all the transactions contemplated by the Share Purchase Agreement;
 
 
·
the Registration Rights Undertaking duly executed by us;
 
 
·
a legal opinion of Kramer Levin Naftalis and Frankel LLP, our U.S. legal counsel, relating to the exemption from registration under the Securities Act by reason of Section 3(a)(10) thereof; and
 
 
·
evidence satisfactory to Conduit of the resignation of both of Josef Mandelbaum and Adi Soffer Teeni as directors of Perion prior to the Closing;
 
 
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(v)
there will not have been any Material Adverse Effect on us;
 
 
(vi)
we will have entered into the amended Indemnification Agreement described below in Proposal 2 with each of the two Conduit Director Designees, and purchased the D&O insurance described below in Proposal 3;
 
 
(vii)
at least 65% of our key employees will be employees of ours and none of such employees will have given any notice or other indication that he or she is not willing to remain employed by us following the Closing;
 
 
(viii)
at least 65% of our employees as of September 16, 2013, will be our employees, and none of such employees will have given any notice or other indication that he or she is not willing to remain employed by us following the Closing;
 
 
(ix)
all consents required to be obtained in connection with the transactions contemplated by the Share Purchase Agreement will have been obtained in a form satisfactory to Conduit and ClientConnect, been delivered to Conduit and ClientConnect, and will be in full force and effect;
 
 
(x)
our indebtedness as of the Closing Date will not exceed $14,741,000;
 
 
(xi)
the Tax Ruling will have been obtained on terms reasonably satisfactory to Conduit and ClientConnect based on agreed upon principles; and
 
 
(xii)
both of Conduit's director designees will have been duly elected and serve as directors and are members of the respective classes of directors vacated by both of our resigning directors, with one designee appointed as a member of the Nominating Committee of our Board of Directors and the other designee appointed as a member of the Investment Committee of our Board of Directors, as described under "Election of Two New Directors".
 
Conditions to Our Obligations . Our obligation to complete to consummate the transactions contemplated by the Share Purchase Agreement is subject to the satisfaction (or waiver by us) at or prior to the Closing of each of the following conditions:
 
 
(i)
the representations and warranties made by each of Conduit and ClientConnect in the Share Purchase Agreement relating to (a) its organization, good standing and power, (b) its capital structure and (c) its authority to execute and perform the Share Purchase Agreement and the due authorization thereof will be true and correct in all material respects, as of the date of the Share Purchase Agreement and as of the Closing Date as though made on the Closing Date (except for such representations and warranties which address matters only as to a specified date, which representations and warranties shall be true and correct in all material respects with respect to such specified date and except for such representations and warranties that are qualified by their terms by a reference to materiality or Material Adverse Effect, which representations and warranties as so qualified shall be true and correct in all respects);
 
 
(ii)
the other representations and warranties made by each of Conduit and ClientConnect in the Share Purchase Agreement will be true and correct as of the date of the Share Purchase Agreement and as of the Closing Date as though made on and as of such date (except for representations and warranties which address matters only as to a specified date, which representations and warranties will be true and correct with respect to such specified date), except for any failure to be true and correct which does not constitute, individually or together with other failures, a Material Adverse Effect on ClientConnect;
 
 
(iii)
each of Conduit and ClientConnect will have performed and complied in all material respects with all covenants, obligations and conditions of the Share Purchase Agreement required to be performed and complied with by it at or prior to the Closing;
 
 
58
 
 
(iv)
we will have received each of the following closing deliverables:
 
 
·
certificates, dated as of the Closing Date and executed on behalf of Conduit and ClientConnect by each of Conduit's and ClientConnect's Chief Executive Officer and Chief Financial Officer, respectively, to the effect that certain conditions have been satisfied;
 
 
·
a certificate, dated as of the Closing Date and executed on behalf of Conduit by the Secretary of Conduit, certifying (A) the resolutions of the Conduit Board of Directors approving the Share Purchase Agreement and all the transactions contemplated by the Share Purchase Agreement and (B) the resolutions of the Conduit shareholders approving the Share Purchase Agreement and all the transactions contemplated by the Share Purchase Agreement;
 
 
·
a certificate, dated as of the Closing Date and executed on behalf of ClientConnect by the Secretary of ClientConnect, certifying (A) the Articles of Association, including all amendments thereto, of ClientConnect, as amended as of the Closing Date and (B) the resolutions of the ClientConnect Board of Directors approving the Share Purchase Agreement and all the transactions contemplated by the Share Purchase Agreement;
 
 
·
evidence satisfactory to us of the resignation of each of the directors of ClientConnect and its subsidiaries prior to the Closing;
 
 
·
the Closing Spreadsheet completed to include all of the information specified in the Share Purchase Agreement, and a certificate executed by the Chief Financial Officer of Conduit on behalf of Conduit, dated as of the Closing Date, certifying that such Closing Spreadsheet is true, correct and complete; and
 
 
·
the shareholders registry of ClientConnect certified as true and complete by the Secretary of ClientConnect, evidencing the ownership of all of the outstanding ClientConnect Shares by Perion.
 
 
(v)
there will not have been any Material Adverse Effect on the ClientConnect business or ClientConnect;
 
 
(vi)
at least 65% percent of the ClientConnect key employees will have signed and delivered to us the employment confirmation between such employee and ClientConnect, each of which will continue to be in full force and effect and no notice of termination action will have been received from any such ClientConnect key employee;
 
 
(vii)
at least 65% of the ClientConnect employees , will be employees of ClientConnect, and none of such employees will have given any notice or other indication that he or she is not willing to remain employed by ClientConnect following the Closing;
 
 
(viii)
certain of the ClientConnect key employees will have signed and delivered to us an undertaking to comply with the Tax Lock-up;
 
 
(ix)
all consents required to be obtained in connection with the transactions contemplated by the Share Purchase Agreement will have been obtained in a form satisfactory to us, been delivered to us, and will be in full force and effect;
 
 
(x)
ClientConnect will have no indebtedness as of the Closing Date;
 
 
(xi)
each of the Standstill Agreements will continue to be in full force and effect and no action will have been taken by any person to any of such agreements to rescind any of such agreements;
 
 
(xii)
the Tax Ruling will have been obtained on terms reasonably satisfactory to us based on agreed upon principles;
 
 
(xiii)
Conduit will have made the amendments to its D&O insurance policy and will have purchased the run-off insurance policy described below in " – Additional Matters – Additional Covenants"; and
 
 
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(xiv)
the Preliminary ClientConnect Net Working Capital Certificate described in " – Additional Matters – ClientConnect Net Working Capital Adjustment" below will have been delivered by Conduit to us.
 
Termination
 
Prior to the Closing, whether before or after receipt of the Court Approval or the approval of our shareholders of the Share Purchase Proposal, Conduit, ClientConnect or we can terminate the Share Purchase Agreement under certain circumstances, including:
 
 
(a)
By mutual written consent of Conduit, ClientConnect and us;
 
 
(b)
By either Conduit, ClientConnect or us if:
 
(i) the Share Purchase is not consummated on or before January 31, 2014 (the "Outside Date"), provided that (i) the right to terminate the Share Purchase Agreement will not be available to any party whose action or failure to act has been the principal cause of or directly resulted in the failure of the Share Purchase to occur on or before such date, and (ii) if, on the initial Outside Date, the expiration or termination of any applicable waiting period or any required clearances under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 will not have been obtained but all other conditions to the consummation of the transactions contemplated by the Share Purchase Agreement's conditions have been satisfied (or if to be satisfied at the Closing, are capable of being satisfied), then the initial Outside Date will be automatically extended, without further action by the parties, to be February 28, 2014;
 
(ii) a governmental entity will have enacted, issued, promulgated, enforced or entered any legal requirement (including an injunction or other order) or taken any other action, in any case having the effect of permanently restraining, enjoining or otherwise prohibiting the Share Purchase, which legal requirement (including any such injunction or other order) or other action will have become final and nonappealable;
 
(iii) our shareholders do not approve the Share Purchase Proposal; provided, however, that any purported termination of the Share Purchase Agreement by us pursuant to this provision will be deemed a termination of the Share Purchase Agreement by Conduit pursuant to its termination right in subclause (c)(1) below if, at the time of any such intended termination by us, Conduit is entitled to terminate the Share Purchase Agreement pursuant to such provisions;
 
(iv) the Section 350 Voting Approval will not have been obtained at the Conduit shareholders meeting (or any adjournment thereof); provided, however, that any purported termination of the Share Purchase Agreement by Conduit pursuant to this provision will be deemed a termination of the Share Purchase Agreement by us pursuant to our termination right in subclause (d)(1) below if, at the time of any such intended termination by us, we are entitled to terminate the Share Purchase Agreement pursuant to such provisions;
 
 
(c)
By either Conduit or ClientConnect if:
 
(i) we will have (x) effected a Change of Recommendation, (y) failed to include in this Proxy Statement a recommendation to our shareholders that they approve the Share Purchase Proposal, in a form reasonably acceptable to Conduit, or (z) breached, in any material respect, our non-solicitation obligations;
 
(ii) there will have been a breach by us of any of our representations, warranties, covenants or obligations contained in the Share Purchase Agreement, which breach would result in the failure to satisfy by the Outside Date one or more of the closing conditions to the Share Purchase, and in any such case such breach will be incapable of being cured or, if capable of being cured, will not have been cured within thirty days after written notice thereof will have been received by us of such breach; provided, however, the right to terminate the Share Purchase Agreement pursuant to this provision will not be available to Conduit or ClientConnect if at such time we would be entitled to terminate the Share Purchase Agreement pursuant to clause (d)(ii) below mentioned below or if either Conduit or ClientConnect is otherwise in material breach of its obligations hereunder; or
 
 
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(d)
By us if:
 
(i) Conduit will have (x) effected a Change of Recommendation, (y) failed to include the Conduit Recommendation in is application to the Court for the Arrangement, or (z) breached, in any material respect, its non-solicitation obligations;
 
 
(ii) there will have been a breach by Conduit or ClientConnect of any of its representations, warranties, covenants or obligations contained in the Share Purchase Agreement, which breach would result in the failure to satisfy by the Outside Date one or more of the conditions set forth in the conditions of each of the parties or of us, and in any such case such breach will be incapable of being cured or, if capable of being cured, will not have been cured within thirty days after written notice thereof will have been received by Conduit or ClientConnect, as applicable, of such breach; provided, however, the right to terminate the Share Purchase Agreement pursuant to this provision will not be available to us if at such time Conduit or ClientConnect would be entitled to terminate the Share Purchase Agreement pursuant to our breach of clause (c)(ii) above or if we are otherwise in material breach of our obligations; or
 
(iii) we effect a Change of Recommendation to accept a Takeover Proposal that is a Superior Offer as described above under "Share Purchase Agreement - Restrictions on Solicitations of Other Offers ", provided that the right to terminate the Share Purchase Agreement pursuant to this provision will not be available to us unless we pay or have paid to Conduit the Termination Fee, it being understood that we may enter into any agreement providing for a Perion Acquisition Transaction simultaneously with the termination of the Share Purchase Agreement pursuant to this (d)(iii).
 
Fees and Expenses
 
Termination Fee . The Share Purchase Agreement requires that we pay Conduit a termination fee of $6,000,000 (the "Termination Fee") if the share Purchase Agreement is terminated under any of the following circumstances:
 
(i) if the Share Purchase Agreement is terminated by Conduit or ClientConnect under the circumstances described in clause (c)(i) above under " Share Purchase Agreement — Termination ", we will pay to Conduit the Termination Fee by the second business day following such termination;
 
(ii) (A) if the Share Purchase Agreement is terminated by us, Conduit or ClientConnect (1) under the circumstances described in clause (b)(iii) above under " Share Purchase Agreement — Termination " or (2) under the circumstances described in clause (b)(i) above under " Share Purchase Agreement — Termination ", and in any such case of (1) or (2) above, a Takeover Proposal in respect of Perion (including such a previously communicated Takeover Proposal) shall have been publicly announced or otherwise communicated to a member of our Board of Directors, Chief Executive Officer or Chief Financial Officer (or any person has publicly announced or communicated a bona fide intention, whether or not conditional, to make such a Takeover Proposal) at any time after September 16, 2013 and prior to date of the Meeting (or any adjournment thereof), in the case of clause (1), or any time prior to the date of termination, in the case of clause (2), and (B) if within three months after the date of such termination, we enter into a definitive agreement to consummate, or consummate, any Acquisition Transaction, then we will pay to Conduit the Termination Fee, by the second business day following the date on which we enter into such definitive agreement or consummates such transaction; provided, however, that, solely for purposes of this clause, references in the definition of "Acquisition Transaction" to twenty percent (20%) shall be deemed to mean fifty percent (50%); or
 
 
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(iii) if the Share Purchase Agreement is terminated by us under the circumstances described in clause (d)(iii) above under " Share Purchase Agreement — Termination ", we will pay to Conduit the Termination Fee in accordance with such clause.
 
In no event will we be required to pay the Termination Fee on more than one occasion, whether or not the Termination Fee may be payable under more than one provision of the Share Purchase Agreement at the same or at different times and upon the occurrence of different events.
 
Interest and Costs. If we fail to pay in a timely manner the Termination Fee, and, in order to obtain such payment, Conduit commences a suit that results in a judgment against us for such amounts, then we will be required to pay interest on such amounts from the date payment of such amounts was due to the date of actual payment at the prime rate of the Bank of Israel in effect on the date such payment was due, together with the reasonable, documented out-of-pocket costs and expenses of Conduit (including reasonable legal fees and expenses) in connection with such suit.
 
Other Fees and Expenses. All costs and expenses incurred by either Conduit or ClientConnect in connection with the Split, the Share Purchase Agreement and the transactions contemplated thereby (including transaction expenses) will be paid by Conduit and all costs and expenses incurred by us in connection with the Share Purchase Agreement and the transactions contemplated thereby will be paid by us.
 
Additional Matters
 
ClientConnect Net Working Capital. On or about January 6, 2014, Conduit will deliver to us a certificate executed on behalf of Conduit by its Chief Financial Officer detailing its good faith best preliminary estimate of ClientConnect's net working capital as of December 31, 2013. ClientConnect's "net working capital" means ClientConnect's total current assets less its total current liabilities, in each case as of the close of business on December 31, 2013, excluding (i) employment liabilities (other than severance), (ii) deferred revenues and (iii) the payments due to us for the months of November and December 2013 pursuant to the Publisher Agreement, dated as of August 12, 2013, between Conduit and us (the "Publisher Agreement").  ClientConnect's net working capital is required to be zero.  See "Agreements Related to the Split of Conduit—Working Capital Financing Agreement".
 
Additional Covenants . The Share Purchase Agreement provides for a number of additional covenants and agreements of the parties relating to, among other things:
 
 
·
confidentiality and public disclosure;
 
 
·
filings with government entities, including all necessary applications with each of NASDAQ and the Tel Aviv Stock Exchange for the listing of the New Shares, the U.S. Federal Trade Commission and Department of Justice and any other applicable antitrust authorities;
 
 
·
Conduit and ClientConnect continuing to pay (and set aside, as applicable) through the Closing all salaries, benefits and other entitlements to the ClientConnect employees;
 
 
·
our issuance of the New RSUs immediately following the Closing pursuant to Section 102(b) or 102(c) of the Tax Ordinance;
 
 
·
Conduit providing us the audited and reviewed historical consolidated financial statements of Conduit and the unaudited ClientConnect pro forma financial information (as discussed below in "Selected Pro Forma Financial Data of ClientConnect");
 
 
·
our preparation of the Proxy Statement, calling the Meeting, recommending to our shareholders that they approve the Share Purchase Proposal and using commercially reasonable efforts to solicit from our shareholders proxies in favor of the Share Purchase Proposal;
 
 
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·
ClientConnect taking all steps necessary to consummate the Split in accordance with the Split Agreement, subject to the Court Approval;
 
 
·
public announcements with respect to the Share Purchase;
 
 
·
access to information and updating of the disclosure letters to the Share Purchase Agreement until the earlier of the termination of the Share Purchase Agreement or the Closing;
 
 
·
Conduit and ClientConnect providing us a spreadsheet at or prior to the Closing (the "Closing Spreadsheet"), certified as complete and correct by the Chief Financial Officer of Conduit, which will set forth certain information, including (i) the names of all the ClientConnect Shareholders and holders of ClientConnect Options, (ii) the number of ClientConnect Shares held by such persons, (iii) the number of ClientConnect Shares subject to, and the exercise price for, each ClientConnect Option held by each holder of ClientConnect Options and other relevant information, and (iv) the number of New Shares to be issued to such ClientConnect Shareholder and the number of Perion Options to be granted to such ClientConnect employee;
 
 
·
post-closing covenants, such as:
 
 
o
each party will afford the other party and its representatives, during normal business hours, reasonable access to the books, records and other information in such party's possession relating, directly or indirectly to the assets, liabilities and operations of the ClientConnect business with respect to periods prior to the Closing;
 
 
o
(i) by no later than February 15, 2014, Conduit will provide us with the unaudited balance sheet, income statements and cash flow statements of the ClientConnect business as of and for the three-month and 12-month periods ended December 31, 2013, for inclusion in our press release containing our fourth quarter and 2013 financial information; and (ii) by no later than March 10, 2014, Conduit will provide us with (A) the final consolidated balance sheet of the ClientConnect business as of December 31, 2013 and 2012, and the related consolidated statements of income, changes in shareholders equity, and cash flows for the three years ended December 31, 2013, 2012 and 2011 (the "Delivered Financial Statements"), (B) a full management discussion and analysis and business disclosure relating to the Delivered Financial Statements and the ClientConnect business for inclusion in our SEC filings, (C) a certificate executed by the Chief Financial Officer of Conduit, dated as of the delivery date, as to certain matters regarding the Delivered Financial Statements and (D) a letter from Conduit's auditor that upon receipt of the executed management letter referenced therein, the auditor would sign the audit letter relating to the Delivered Financial Statement in the form attached thereto;
 
 
o
until the full amounts due under the Credit Line are repaid and the Credit Line is terminated, neither ClientConnect nor we will declare or distribute any dividend, in cash or in kind, to our respective shareholders, repurchase or redeem any of our shares or other equity securities, prepay any indebtedness prior to its stated maturity date or undertake any new indebtedness not in effect on the date hereof, other than new indebtedness used to concurrently repay the Credit Line; and
 
 
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not later than the earlier of (i) our 2014 annual meeting of shareholders and (ii) September 30, 2014, we will convene a general meeting of shareholders for (or add to the agenda of the annual shareholder meeting, as applicable) the approval of an amendment to our Articles of Association authorizing the indemnification for matters relating to administrative enforcement actions of the Israel Securities Authority (as specified in Section 1.1.4 of the form of indemnification agreement attached to this Proxy Statement as Appendix G ) and use commercially reasonable best efforts to solicit from our shareholders proxies in favor of the approval of this resolution; and
 
 
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from the closing of the Split until the Closing Date, Conduit will add ClientConnect and its directors and officers, at no expense to ClientConnect, as additional insureds to Conduit's D&O liability insurance policy and its errors and omissions insurance policy, as applicable, and effective as of the Closing Date (i) Conduit will purchase run-off insurance for a period of seven years from the Closing Date with respect to Conduit's current D&O liability insurance policy and errors and omissions insurance policy and (ii) we will cause ClientConnect and its directors and officers to be covered by our D&O liability insurance policy in the amount of at least $50 million and errors and omissions insurance policy in the amount of at least $5 million, as applicable, for acts following the Closing Date and (iii) we will purchase run-off insurance for a period of seven years from the Closing Date with respect to our current D&O liability insurance policy and errors and omissions insurance policy.
 
 
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Increase of Authorized Share Capital
 
Our Articles of Association and our Memorandum of Association, as currently in effect, each provide for an authorized share capital of NIS 400,000, divided into 40,000,000 Perion Shares.  As of October 9, 2013, there were 12,472,717 Perion Shares outstanding. In addition, as of such date 3,134,400 Perion Shares were reserved for issuance pursuant to our Equity Incentive Plan, of which options to acquire 1,780,845 Perion Shares were outstanding as of that date.  We will require between approximately 57,000,000 and 62,000,000 Perion Shares to be available for issuance in order to consummate the Share Purchase and the Options Exchange, assuming the approval at the Meeting of the grant of 200,000 RSUs to our Chief Executive Officer, as described in Proposal 4 below. We do not have a sufficient number of unissued authorized Perion Shares in order to be able to issue all such Perion Shares.
 
Accordingly, the Board of Directors recommends an increase in our share capital so that our authorized share capital will be NIS 1,200,000, divided into 120,000,000 Perion Shares. The new Perion Shares will have the same rights and obligations as the existing Perion Shares as specified in our Articles of Association. If the proposed amendment is approved by our shareholders, a sufficient number of Perion Shares will be available as required pursuant to the Share Purchase and the Options Exchange.
 
In addition, following the Closing we plan to grant 232,400 RSUs to our Chief Executive Officer (subject to the approval at the Meeting of Proposal 4) and 983,500 New RSUs to certain key employees of ClientConnect and Perion. Accordingly, following the Closing and such grants, between approximately 41,000,000 and 46,000,000 Perion Shares would be available for general corporate purposes, which our Board of Directors believes is necessary to provide our company with the flexibility to pursue opportunities without added delay and expense. The additional Perion Shares authorized could be issued, if approved by the Board of Directors, from time to time for any proper corporate purpose, including without limitation, the acquisition of other businesses, the raising of additional capital for use in our business, a split or dividend on then outstanding Perion Shares or in connection with any employee equity incentive plan. Any future issuances of authorized Perion Shares may be authorized by the Board of Directors without any further action by shareholders, except as required by applicable law. At present, except for the Share Purchase, we are not engaged in any specific transaction pursuant to which the Perion Shares being authorized hereunder would be required to be issued.  The issuance of a significant number of additional authorized shares, however, could result in dilution of the beneficial ownership interests and/or voting power of our shareholders.
 
Accordingly, we propose to amend Article 4 of each of our Articles of Association and our Memorandum of Association to increase our authorized share capital to read as set forth below and to amend and restate our Articles of Association and our Memorandum of Association accordingly:
 
"The share capital of the Company shall be NIS 1,200,000, consisting of 120,000,000 ordinary shares, each having a nominal value of NIS 0.01 (the "Ordinary Shares")."
 
 
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Election of Two New Directors
 
Pursuant to our Articles of Association, our Board of Directors consists of seven directors, two of whom were elected as "external directors" under the Companies Law. Other than our external directors, who are subject to special election requirements under Israeli law, our directors are elected in three staggered classes by the vote of a majority of the Perion Shares present and voting at meetings of our shareholders at which directors are elected. The members of only one staggered class are elected at each annual meeting for a three-year term, so that the regular term of only one class of directors expires annually. Our Board of Directors currently consists of Tamar Gottlieb (Chairperson of the Board), Iris Beck, Alan Gelman, Adi Soffer Teeni, Josef Mandelbaum  (our Chief Executive Officer), David Jutkowitz (external director) and Avichay Nissenbaum (external director).
 
As contemplated by the Share Purchase Agreement, each of Adi Soffer Teeni and Josef Mandelbaum has delivered to Conduit an irrevocable letter of resignation from the Board of Directors and all committees thereof effective as of the Closing, and each of Dror Erez (one of the co-founders of Conduit and its Chief Technology Officer) and Roy Gen (Conduit's Chief Financial Officer) has been nominated to serve as directors of the Company commencing immediately after the Closing.  If the Share Purchase Approval is approved, Mr. Erez would replace Mr. Mandelbaum in the class of directors that expires at our 2016 annual meeting of shareholders, and Mr. Gen would replace Ms. Soffer Teeni in the class of directors that expires at our 2015 annual meeting of shareholders. Mr. Mandelbaum will continue to serve as our Chief Executive Officer. Mr. Erez would serve on the Nominating Committee of our Board of Directors, and Mr. Gen would serve on the Investment Committee of our Board of Directors. Messrs. Erez and Gen may not be considered "independent directors" under the NASDAQ rules as a result of their positions with Conduit and Conduit's relationship with us.  Nevertheless, our Board of Directors believes that Mr. Erez's appointment to the Nominating Committee is in the best interests of the Company and its shareholders because it is a condition to the closing of the Share Purchase.  As approved by our shareholders at our 2013 annual meeting of shareholders, each of these nominees would be paid the same compensation paid to our other non-executive directors, which consists of $40,000 in cash per year and an annual grant of options to purchase up to 10,000 Perion Shares. The date of the initial grant will be the Closing Date, while the date of subsequent annual grants will be the date of our annual meeting of shareholders in each year that Mr. Erez or Mr. Gen continue to be directors of the Company, as applicable.  Each option is exercisable for a term of five years and vests in three equal installments on each anniversary of the applicable grant.  The exercise price per share will be equal to the closing price of the Perion Shares on NASDAQ on the applicable grant date.
 
A brief biography of each of Mr. Erez and Mr. Gen is set forth below:
 
Dror Erez (44) is a co-founder of Conduit and has served as its Chief Technology Officer since its inception in 2005. Mr. Erez is a member of the Conduit board of directors. Prior to founding Conduit, he served in various executive roles in private technology companies. He holds a B.A. in physics and computer science from Bar Ilan University.
 
Roy Gen (42) has served as the Chief Financial Officer of Conduit since 2008. Prior to joining Conduit, Mr. Gen served in various executive roles in private technology companies. He is an Israeli Certified Public Accountant and holds a B.A. in economics and accounting from Tel Aviv University, as well as an M.B.A. from the Recanati School of Business Administration at Tel Aviv University.
 
 
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Interests of our Directors and Officers in the Share Purchase
 
In considering our Audit Committee’s and Board of Directors’ approvals, you should be aware that certain of our directors and officers have personal interests in the transaction as employees or directors that are different from, or in addition to, your interests as shareholders. Our Audit Committee and Board of Directors were aware of these different or additional interests and considered them, among the other factors described in this Proxy Statement, in reaching their decision to approve the Share Purchase Agreement and the transactions contemplated thereby.
 
Although they are currently party to an indemnification agreement with us and are covered our D&O insurance policy that is currently in effect, all of our directors and officers may be deemed to have a personal interest in the approval of the amended form of D&O indemnification agreement discussed in Proposal 2 below and the purchase of the D&O insurance discussed in Proposal 3 below, both of which are generally more favorable to our directors and officers than the terms and conditions of our form of indemnification agreement and insurance coverage currently in effect.  The approvals of Proposal 2 and Proposal 3 at the Meeting are conditions to Conduit's obligations under the Share Purchase Agreement.  According to the Companies Law, when a majority of the directors has a personal interest in a proposed transaction, all the directors are permitted to participate in the deliberation and vote thereon and the transaction requires shareholder approval.   We have not made a determination as to whether these interests are sufficiently material to require shareholder approval because shareholder approval of the Share Purchase is required in any event.
 
In addition, Mr. Josef Mandelbaum, our Chief Executive Officer, may be deemed to have an additional personal interest in the Share Purchase because his compensation is proposed to be increased if the Share Purchase is consummated, as described below in Proposal 4.  For the sake of good order, Mr. Mandelbaum recused himself from the deliberation and vote of the Board of Directors regarding the approval of the Share Purchase.  In addition, other executive officers of ours were granted New RSUs, subject to the consummation of the Share Purchase. Such officers were also not present during the deliberation and vote of the Board of Directors regarding the approval of the Share Purchase.
 
 
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Agreements Related to the Share Purchase
 
In connection with our entering into the Share Purchase Agreement, we have entered into or have agreed to enter into the following additional agreements:
 
Registration Rights Undertakings
 
Pursuant to the Registration Rights Undertaking, we may be required by the ClientConnect Shareholders to register with the SEC for resale all the New Shares held by them as of the Closing, including any Perion Shares issued upon any stock split, stock dividend or similar event (collectively, "Registrable Securities"). The Registration Rights Undertaking includes the following provisions:
 
 
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Form F-3 . We will be required to file a "shelf" registration statement on Form F-3 as soon as practicable following the filing of our Annual Report on Form 20-F for the 2013 fiscal year (and in any event within the earlier of (i) 30 days following the filing of such annual report and (ii) 150 days following the Closing. Each holder of Registrable Securities whose resale of such shares would otherwise be subject to limitations under Rule 144 desiring to include in the Form F-3 all or any part of the Registrable Securities held by it will, within thirty days following the Closing Date, deliver to us a signed joinder to the Registration Rights Undertaking in the form attached thereto specifying the number of Registrable Shares requested to be included and the other information required to set forth therein. We will use our commercially reasonable efforts to cause the Form F-3 to become effective as soon as possible and will maintain the effectiveness of the Shelf Registration until the earliest of (i) five years following effectiveness, (ii) the resale of all the Registrable Securities covered thereby and (iii) with respect to any shareholder, the ability of such shareholder to sell all of its Registrable Securities under Rule 144 without any volume limitations.  Such registration will not derogate from the Tax Lock-up or the Contractual Lock-up that applies to the Registrable Securities.
 
 
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Piggyback Registration Rights .  If we effect a registered offering of securities (except on Form S-8 or a registration relating solely to a Rule 145 transaction on Form F-4), the holders of Registrable Securities consisting of at least 3% of our outstanding share capital at the relevant time or a holder whose resale of Registrable Securities would otherwise be subject to volume limitations set forth in Rule 144 will have the right to include its Registrable Securities in the registration effected pursuant to such offering. Each such holder will be afforded this right regardless of the Contractual Lock-up that may apply to such holder’s Registrable Securities. If the applicable registration statement is for an underwritten offering, the right of any holder of Registrable Securities to be included in a registration will be conditioned upon such holder’s participation in such underwriting, subject to the right of the managing underwriter to reduce the number of Registrable Securities in the offering due to marketing factors. The number of piggyback registrations is unlimited.
 
 
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Shelf Registration Rights . For a period of three years following the expiration of the Form F-3 described above, we may be required to file a "shelf" registration statement covering the resale of Registrable Securities if we receive a request from holders thereof whose resale of such shares would otherwise be subject to volume limitations under Rule 144 holding, in the aggregate, not less than 10% of the total Registrable Securities then outstanding and requesting the registration of Registrable Securities with an aggregate anticipated offering price of at least $2,000,000 (the "Shelf Registration Statement"). We will use our commercially reasonable best efforts to cause the Shelf Registration Statement to be declared effective under the Securities Act within two months after the holders' initial request and to keep such Shelf Registration Statement continuously effective under the Securities Act until the disposition of all Registrable Securities included in such Shelf Registration Statement. Such shelf registration rights are limited to four requests during the Shelf Registration Period.
 
 
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All reasonable expenses incurred in connection with any such registrations, other than underwriting discounts and commissions, will be borne by us. We are subject to customary indemnification undertakings, and to customary indemnification undertakings by any holder of Registrable Securities who executes a joinder, with respect to any registration effected on behalf of the ClientConnect Shareholders.  The agreement includes an undertaking by the holders of Registrable Securities who executes a joinder not to sell any Perion Shares, if so requested by the lead or managing underwriter, during the 90-day period after the effective date of an underwritten registration by us. It also includes customary provisions regarding our right to delay or suspend a registration in the event of material developments.
 
The full text of the form of the Registration Rights Undertaking is included as Appendix C to this Proxy Statement and is incorporated herein by reference.
 
Voting Agreements of Significant Conduit Shareholders
 
Pursuant to the Voting Agreements, several shareholders of Conduit have each undertaken, and provided us with an irrevocable proxy, to vote all of the ordinary shares of Conduit owned by such shareholder (or with respect to which he has the right to vote pursuant to proxies granted by other shareholders of Conduit) in favor of the Arrangement and against any competing transactions. A majority of Conduit's shareholders holding approximately 77% of Conduit's outstanding ordinary shares are represented by such proxies.  The full text of the form of the Voting Agreement is included as Appendix D to this Proxy Statement and is incorporated herein by reference.
 
Standstill Agreements
 
Pursuant to the Standstill Agreements, several shareholders of Conduit have each undertaken that for a period commencing on the Closing Date and ending on the earlier of (i) the last business day preceding our 2015 annual shareholder meeting or (ii) December 30, 2015, they will not vote in favor of (x) any change in the size of our Board of Directors, (y) any amendment to our Articles of Association to change the staggered structure of our Board of Directors or to shorten or terminate the term of service of any member of our Board of Directors, or (z) any proposal to shorten or terminate the term of service of any member of our Board of Directors (each, a "Fundamental Board Event"), in each case unless our Board of Directors recommends an affirmative vote in favor of the Fundamental Board Event. The obligations pursuant to the Standstill Agreements shall expire if any person (excluding any shareholder of Conduit as of September 16, 2013 and any person who is subject to standstill obligations similar to those set forth in the Standstill Agreements) becomes the beneficial owner of 24.9% or more of the outstanding Perion Shares, or (y) a Fundamental Board Event occurs despite such shareholder's compliance with its obligations thereunder and the compliance of all other shareholders of our company that are subject to standstill obligations similar to those set forth in the Standstill Agreement with such obligations  The full text of the form of the Standstill Agreement is included as Appendix E to this Proxy Statement and is incorporated herein by reference.
 
 
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Voting of Perion Shares Held in Trust
 
In connection with our acquisition of SweetIM Ltd. in November 2012, the Perion Shares that we issued to the shareholders thereof were placed in trust with S.G.S. Trusts Ltd. ("SGS") pending the finalization of tax matters relating such shareholders, pursuant to the Paying Agent Agreement, dated as of November 30, 2012, among us, SGS and the other parties thereto (the "Paying Agent Agreement").  Pursuant to the terms of the Paying Agent Agreement, SGS is required to vote the Perion Shares it holds in trust in accordance with our instructions.  Accordingly, as contemplated by the Share Purchase Agreement, we have provided an irrevocable instruction letter to SGS instructing it to vote all of the Perion Shares it will be holding in trust on the applicable record date in favor of the Share Purchase and against any competing transactions.  As of October 9, 2013, the record date of the Meeting, SGS held 1,428,806 Perion Shares (constituting approximately 11.46% of the outstanding Perion Shares as of October 9, 2013) in trust pursuant to the Paying Agent Agreement.
 
Executive Lock-Up Agreement
 
Mr. Josef Mandelbaum, our Chief Executive Officer, has executed a lock-up agreement with respect to the Perion Shares beneficially owned by him (including Perion Shares issuable upon exercise of options or vesting of RSUs granted to him under our Equity Incentive Plan prior to the Closing) undertaking to be subject to the Tax Lock-up and the Contractual Lock-up, except for Perion Shares subject to a previously executed Rule 10b5-1 trading plan or issuable upon the exercise of options that are scheduled to expire around the time of the expiration of the lock-up period.
 
 
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Agreements Related to the Split of Conduit
 
In order to effectuate the Split, Conduit and ClientConnect entered into the Split Agreement on September 16, 2013 and agreed to enter into the ancillary agreements summarized below.  Perion is not a party to any of these agreements, but they are summarized in this Proxy Statement because ClientConnect would become our wholly-owned subsidiary as a result of the Share Purchase.
 
Split Agreement
 
Pursuant to the Split Agreement, the parties agreed that Conduit would transfer and assign to ClientConnect, for no consideration, the assets, properties and rights primarily used in or relating to the ClientConnect business (the "Transferred Assets"), including (but not limited to): (i) the intellectual property owned by Conduit and used primarily in the ClientConnect business and the Transferred Assets and the related intellectual property licenses; (ii) the equipment used for the conduct of the ClientConnect business; (iii) the contracts relating to the Transferred Assets and the ClientConnect business; (iv) all the outstanding shares of Conduit's U.S. and Dutch subsidiaries; and (v) all rights and title to the Severance Funds (as described below). The Transferred Assets do not include a number of items, including (but not limited to): all (i) contracts that relate generally to the operations on Conduit and not specifically to the ClientConnect business; (ii) (x) internet protocol addresses or networks related to the ClientConnect business, and (y) trademarks, service marks and trade names that include the word "conduit", provided that from the date of the closing of the Split (the "Split Closing"), which is expected to take place on December 31, 2013, for a period of six months ClientConnect will have the right use any such item for transition purposes, subject to extension under certain circumstances; (iii) accounts receivable resulting from the conduct of the ClientConnect business prior to the Split Closing; (iv) cash, deposits, investment and securities; and (v) all other rights, assets and properties business, wherever located, real, personal or mixed, tangible or intangible, owned or used by Conduit and its subsidiaries and that are not primarily used in or relating to the ClientConnect business. The Split Agreement provides that the Transferred Assets will be transferred on an "as is" basis.
 
In addition, pursuant to the Split Agreement the parties agreed that Conduit would transfer and assign to ClientConnect all liabilities that relate to the Transferred Assets, certain products, applications, technologies or solutions described in the Split Agreement (the "Products") and/or the ClientConnect business (the "Assumed Liabilities"), including (but not limited to): all (i) liabilities in respect of any products or software sold, purchased and/or distributed, and/or services performed and/or received in connection with the ClientConnect business; (ii) liabilities arising out of or in respect of the ClientConnect business and its operation prior to the Split Closing; (iii) amounts owed by Conduit to us under the Publisher Agreement with respect to November and December 2013; (iv) liabilities related to or arising from the Transferred Assets, the Products and/or the ClientConnect business, and certain contracts being transferred; (v) liabilities arising in respect of users of the ClientConnect business;  and (vi) liabilities to any employees or consultants, whether arising from facts or circumstances occurring prior to or after the Split Closing. The Transferred Liabilities do not include a number of items, including (but not limited to): (i) all accounts payable and accrued expenses owed to third parties, arising out or in respect of the ClientConnect business prior to the Split Closing; (ii) any indebtedness arising out of or in respect of the ClientConnect business for the period prior to the Split Closing; (iii) any shortfall in the amount placed in the Severance Funds; (iv) any liabilities for taxes that relate to the ClientConnect business for periods prior to the Split Closing; (v) the payment of salaries and all related benefits and taxes in the ordinary course of business for the period prior to the Split Closing; and (vi) any liabilities with respect to currently pending litigation relating to the ClientConnect business.
 
The transfer of the Transferred Assets and Assumed Liabilities will be effected pursuant to Section 350 and 351 of the Companies Law and Section 105 of the Tax Ordinance and is subject to receipt of the Court Approval and the Tax Ruling, respectively.
 
From the Split Closing and for a period of the 24 months thereafter, Conduit and its subsidiaries will be entitled to (i) continue to make or have made any use or exploitation of the transferred intellectual property and third party intellectual property licenses (subject to their terms), (ii) copy, modify, customize, reproduce or decompile such intellectual property and create derivative works in respect thereof, and (iii) integrate, embed, distribute, market, sell, distribute, export, import, license such intellectual property either in or with Conduit’s other products, services, applications, technologies or solutions or for Conduit’s and its subsidiaries’ internal use and purposes, provided that such items will not be permitted in order to engage in activities that are exclusively within the products included in the ClientConnect business. This right of Conduit is subject to the restrictions described above under "Share Purchase Agreement—Non-Competition".
 
 
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At the Split Closing, each shareholder of Conduit will be issued, for no consideration, the same number of ClientConnect Shares as the number of Conduit Shares held by it (or by the Section 102 Trustee on its behalf). In addition, at the Split Closing, each employee and consultant of ClientConnect holding options to purchase Conduit Shares under Conduit’s option plan (a "Conduit Option") will be granted, for no consideration, ClientConnect Options to purchase the same number of ClientConnect Shares as the number of Conduit Shares subject to such Conduit Option, on the terms and conditions as were applicable under such Conduit Option, including vesting schedule, which will be deemed to continue under the same original schedule as was applicable to the Conduit Option.  The exercise price per share of a ClientConnect Option will be equal to the per share exercise price pursuant to such Conduit Option divided by the Value Exchange Ratio (as defined below), rounded to the nearest whole cent.  "Value Exchange Ratio" means such ratio to be agreed upon between Conduit and ClientConnect by no later than the date of Split Closing. ClientConnect Options in respect of Conduit Options held by and deposited with the Section 102 Trustee will continue to be so deposited with the Section 102 Trustee in accordance with the provisions of Section 102 of the Tax Ordinance and the provisions of the Tax Ruling.
 
The employment or engagement, as applicable, of all employees and consultants employed or providing services in connection with the ClientConnect business in accordance with their respective employment or consulting agreement will be assumed by ClientConnect as of the Split Closing. All obligations and covenants that such employees have undertaken in their employment agreement (including, confidentiality, non-compete, non-solicitation and invention assignment) will inure to the benefit of ClientConnect, as the employer from and as of the Split Closing, and all benefits that such employees may be eligible to receive pursuant to their respective employment agreements, applicable law or benefit plans until the Split Closing will be assumed by ClientConnect. Prior to the Split Closing, Conduit or the applicable employing subsidiary will make all such payments, transfers and fully fund all such amounts required to be placed with any severance fund or insurance policy ("Severance Fund") that would have been required to be transferred and paid to Israeli employees had the employment of such Employees been terminated by Conduit or the applicable employing subsidiary at the Split Closing.
 
The Split Closing is subject to certain conditions, including receipt of the Tax Ruling. The Split Agreement also contains certain indemnification obligations between the parties.
 
Transition Services Agreement
 
At the Split Closing, Conduit and ClientConnect will enter into the Transition Services Agreement. Pursuant to the Transition Services Agreement, ClientConnect will provide Conduit and its subsidiaries with certain business support services and systems, including data services, information technology, information security and management information systems, for consideration at market terms. The parties agreed to cooperate with each other and use commercially reasonable efforts to ensure an orderly transition of each such service. The term of the agreement is for a period of eight months, except with respect to the data services to be provided thereunder, for which the term is 16 months, subject to extension by Conduit for an additional eight months (in which case the consideration to be paid for such service would be increased by 20%). Conduit may terminate the agreement or the providing of any specific service upon 30 days' prior notice, and either party may terminate the agreement if the other party fails to perform any of its material obligations under the agreement or upon the occurrence of certain events relating to the bankruptcy or insolvency of the other party.
 
 
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The agreement contains certain indemnification provisions pursuant to which the parties agreed to indemnify and hold harmless the other party and its representatives upon the occurrence of certain events. The agreement also contains standard provisions regarding confidentiality and non-solicitation of the other party's officers, employees and consultants during the term of the respective agreement and for a period of 24 months thereafter.
 
Office and Administrative Services Agreement
 
At the Split Closing, Conduit and ClientConnect will enter into the Administrative Services Agreement. Pursuant to the Office and Administrative Services Agreement, Conduit will provide ClientConnect with certain services, including office and administrative support services, for consideration on market terms based on the number of employees of ClientConnect as of the last day of each month. The parties also agreed that prior to the termination of the agreement, ClientConnect would offer continued employment to 50% of the employees providing the services from each applicable administrative department or capacity or to 50% of all such employees in the aggregate. The agreement will terminate on August 30, 2014, and either party may terminate the agreement if the other party fails to perform any of its material obligations under the agreement or upon the occurrence of certain events relating to the bankruptcy or insolvency of the other party.
 
The agreement contains certain indemnification provisions pursuant to which the parties agreed to indemnify and hold harmless the other party and its representatives upon the occurrence of certain events. The agreement also contains standard provisions regarding confidentiality and non-solicitation of the other party's officers, employees and consultants during the term of the respective agreement and for a period of 24 months thereafter.
 
Working Capital Financing Agreement
 
At the Split Closing, Conduit and ClientConnect will enter into the Working Capital Financing Agreement, pursuant to which Conduit will make available to ClientConnect the Credit Line of up to $20 million. ClientConnect may, from time to time, withdraw amounts under the Credit Line in amounts of no less than $1 million. Any amounts withdrawn under the Credit Line will be used solely to finance payment related to the then-current working capital needs of the ClientConnect business. The outstanding principal amount under the Credit Line will bear interest at the annual rate prescribed by Section 3(j) of the Tax Ordinance (currently, 4.1% per annum) and the regulations promulgated thereunder from the date the respective withdrawal was received by ClientConnect until it is repaid.
 
All amounts outstanding under the Credit Line will be due and payable on April 9, 2014 (the "Maturity Date"), provided that ClientConnect will have the right to prepay the Credit Line, in whole or in part, without penalty, and provided that if on the Maturity Date a Working Capital Objection (as defined below) is outstanding and for which a final determination has not been made, then the amount subject to such objection that if accepted in full would have been due to be paid by Conduit to ClientConnect (the "Reserve Loan Amount") will not be repaid until and subject to the final determination of the objection. The Maturity Date would be accelerated in certain events relating to the bankruptcy or insolvency of ClientConnect.
 
 
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If Conduit receives, at any time after the Split Closing, any current asset of ClientConnect that is required to be transferred by Conduit to ClientConnect pursuant to the Split Agreement or that arose after the Split Closing and relates to the ClientConnect business (a "ClientConnect Receivable"), Conduit will promptly transfer such payment to ClientConnect. If ClientConnect receives, at any time after the Split Closing, any payments arising prior to the Split Closing and related to the ClientConnect business (a "Conduit Receivable"), ClientConnect will promptly transfer such payment to Conduit. If ClientConnect receives, at any time after the Split Closing, an invoice or demand to make payment in respect of a current liability of ClientConnect that under the Split Agreement is an excluded liability (a "Conduit Payable"), ClientConnect will promptly deliver such invoice or demand to Conduit for payment. Finally, if Conduit receives an invoice or demand to make payment in respect of a liability of ClientConnect that under the Split Agreement is an assumed liability (a "ClientConnect Payable"), Conduit will promptly deliver such invoice or demand to ClientConnect for payment.
 
No later than January 28, 2014, each party will deliver to the other party a certificate detailing the ClientConnect Receivables, Conduit Receivables, Company Payables and Conduit Payables, as the case may be, that in its good faith it believes were received or owed or of which it has knowledge. If pursuant to such certificate (as finally determined pursuant to a dispute resolution process) an amount is due to be paid by Conduit to ClientConnect (the "Working Capital Shortfall"), then an amount equal to the Working Capital Shortfall will be set-off and be deemed to have been repaid from the then-outstanding amounts due under the Credit Line (or the Reserve Loan Amount, as applicable). If pursuant to such certificate, an amount is due to be paid by ClientConnect to Conduit ("Working Capital Excess"), then ClientConnect will pay Conduit an amount equal to the Working Capital Excess together with any Reserve Loan Amount, as applicable.
 
 
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ClientConnect Business
 
Overview
 
Conduit’s ClientConnect business (sometimes referred to in this section as "ClientConnect") offers, inter alia, a proprietary cloud-based toolbar generating platform (the "platform"), which allows online publishers to create, implement and distribute web browser toolbars and other software products and services to targeted audiences, and to subsequently administer such toolbars. The platform includes software applications and tools that provide comprehensive solutions for the full customization of the toolbar graphical user interface ("GUI"), as well as additional features, tools and services (such as a search box, home page takeover, web applications, search protect and value apps), through a user-friendly online drag and drop system.
 
Publishers distribute their customized toolbars together with features, tools and services made available via the platform, including additional third party content features or services that publishers decide to offer to end users, who can then choose to download and install the toolbars and the related features or services (as applicable).  End users may also utilize the toolbars for Internet searches that are powered by search providers with which ClientConnect contracts.  As part of the toolbar installation process, end users are able to (i) replace their home page with the ClientConnect home page, where users may conduct searches or follow links to advertisements that advertisers may display; (ii) install ClientConnect search protect software, which is designed to maintain the end user's selected browser settings and to prevent third party software downloads from changing such settings; and (iii) use the value apps tool (a tool developed by ClientConnect for the aggregation and optimization of ClientConnect and third party applications, services and offers), which is offered as a toolbar feature or as a standalone software product to end users.
 
In addition to enabling searches via downloadable customized toolbars, ClientConnect also allows online publishers to set up syndicated searches on their individual websites, and to monetize their users’ other search assets, such as browser default search, new tab search, and error page redirection.
 
ClientConnect's toolbar platform has been used by over 260,000 publishers in over 120 countries, and customized toolbars have been distributed to over 250 million users around the world.
 
As stated above, ClientConnect also sells advertising space on its home search page to various advertising networks, which pay ClientConnect through a series of intermediaries, for such advertisement services.  These ads are completely independent of ClientConnect's relationship with its search providers.
 
Industry Background
 
Over the past decade, Internet usage around the world has increased considerably.   According to a 2011 report by the International Telecommunication Union, the number of Internet users grew from 1.2 billion in 2006 to 2.3 billion in 2011. As Internet proliferation continues and consumers increasingly leverage the Internet to engage and communicate with each other, consumers are increasingly utilizing the Internet to search for, compare and research goods and services, the vast majority of which are still purchased from local retailers rather than online. This has created a valuable and growing platform for advertisers to reach consumers.  ClientConnect believes that the  Internet is driving several trends, including:
 
 
·
Software business models are continuing to evolve. Software vendors traditionally have sought to build powerful, full-featured applications and distribute them directly to consumers and businesses. Over the past decade, the growing ubiquity of low-cost, high-speed Internet access, an increased focus on attracting users on a global basis and a drive to reduce adoption barriers have driven software vendors to adopt new business models, such as:
 
 
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o
Distribution of software online, either directly or through third party online distribution channels, replacing the traditional need to rely on physical retail distribution;
 
 
o
Simple, task-specific applications, such as music and video players, video chat services and utility applications that are easy to distribute online have grown in popularity;
 
 
o
Software-as-a-Service ("SaaS"), distribution methods have become widespread with users now accustomed to subscription-based and pay-as-you-go pricing; and
 
 
o
Adoption of new revenue models, including free-to-download software (with feature and function upgrades for a fee) and advertisement-supported software.
 
 
·
Challenge of monetization. Consumers present software publishers with a monetization challenge given consumers’ reluctance to pay for software. To overcome that challenge, software publishers are increasingly adopting a free model centered on monetization through advertising, which enables software publishers to generate revenues from end users who otherwise might have been unwilling to purchase their products or services. This model, centered around monetization of content through advertising, has been successfully utilized by television, radio and online content channels for many years.
 
 
·
User loyalty challenge. Given the preponderance of online publishers and their competing software and applications that are usually freely available, new and even experienced publishers find it difficult to ensure that their users remain with them on an ongoing basis in a manner that enables publishers to reap the economic benefits from their products.
 
ClientConnect Solutions
 
Benefits of ClientConnect Solutions
 
The ClientConnect solutions - consisting, inter alia, of the platform and additional search assets that may be set up on an online publisher’s website or by their users - enable an online publisher to overcome the challenges associated with monetization of the software or other products offered by publishers, as well as the problem of lack of user loyalty. By utilizing the platform to create a customized toolbar that can be distributed to, and installed by, an end user at no cost, publishers can design toolbars unique to their respective businesses, which, when installed by users, enable publishers to connect and engage with their users, extend their reach to additional users, boost traffic to their websites, and build overall brand awareness.
 
Online publishers can also monetize their products and/or websites via additional search assets (which include browser default search, home page takeover, new tab search, error page redirection or other search links), and can customize the toolbars provided by ClientConnect to include additional advertising content and generate additional advertising revenues.
 
The solutions offered by ClientConnect to publishers provide the following benefits:
 
 
·
Constant contact with users   builds loyalty .   By enabling downloads of a customized toolbar that is compatible with all major browsers and remains with users, publishers are given an opportunity to remain visible to users on an ongoing basis.  A downloaded toolbar can be updated on a real-time basis by publishers allowing users to remain aware of the latest features and upgrades to the publishers' products.  Such constant engagement helps build and maintain user loyalty.
 
 
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·
Monetization features.
 
 
o
Toolbars . Most publishers are initially paid by ClientConnect for each installation of their customized toolbars by an end user, while some are also paid based on the number of average daily active users of the customized toolbar.  Publishers also earn fees from ClientConnect on a pay-per-search or revenue sharing basis for search activity emanating from the toolbars' incorporated search engine and related searches from other search assets.
 
 
o
Syndication and Search Assets.   Publishers can also monetize their products and websites via search syndication, whereby publishers incorporate a search engine on their products and websites, and via users' other search assets such as browser default search, new tab search, home page takeover and error page redirection.  As with toolbars, publishers who generate search activity earn fees from ClientConnect on a pay-per-search or revenue sharing basis for syndicating search and from their users' searches on other search assets.
 
 
·
Innovative, powerful technology . The cloud-based platform is backed by a powerful infrastructure, advanced application programming interfaces ( APIs ) and is able to easily scale up or down based upon the system it is running on.  Publishers are therefore not likely to experience technical difficulties in using it to develop a toolbar or for any of its other features.
 
 
·
Broad distribution .   The platform enables publishers to reach users in over 80 languages and more than 120 countries, thereby maximizing the exposure that publishers receive for their products and applications.
 
Description of Various ClientConnect Solutions
 
Online publishers who choose to utilize the ClientConnect solutions for one of any number of reasons, including to improve the visibility of or better monetize their products, services or websites, may freely work with the platform or other search assets, as well as with other solutions offered by ClientConnect.  The primary solutions consist of the following:
 
Web-Based Toolbar Platform
 
The primary solution offered by the business is a cloud-based toolbar and apps generation platform that publishers may customize and distribute to targeted audiences who download and install the toolbar on their web browser. Publishers customize toolbars through a user friendly, online drag and drop system. For each toolbar installation by an end user, the business generally pays a set fee to the publisher in consideration for toolbar installation, the amount of daily active users, any additional software downloaded and/or in accordance with any other economic model as adopted by ClientConnect from time to time.
 
A toolbar may be equipped by publishers with features or services that include, among others:
 
 
·
Search box .   The search box is the most central feature of the toolbar, enabling users to conduct Internet searches. The searches are powered by search providers that contract with ClientConnect.  For United States and Canadian users, Microsoft Bing is most likely to serve as the search provider, whereas for users throughout the rest of the world Google and Yahoo are more likely to serve as the search providers.  ClientConnect's agreements with these search providers are described below under "Material Agreements with Search Providers".
 
 
·
Home page takeover .   This feature results in taking over the homepage of a user’s browser during the installation process of the toolbar.
 
 
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·
Value Apps . This serves as a tool for aggregating and optimizing applications, services and offers.  It enriches a user's web experience by offering deals, coupons and related content. It is compatible with all major web browsers, including Google Chrome, Internet Explorer and Mozilla Firefox. Value Apps is a general name which includes the add-ons described below (under "Applications"). Besides being offered as a tool for the toolbar, it may also (or instead) be incorporated during the installation process of publisher’s software as standalone software for use by end users (as described below under "Value Apps"). This serves as an effective monetization mechanism, as ClientConnect compensates a publisher either based on a fixed fee per installation or via a revenue sharing arrangement for revenue generated when users follow the links related to the applications, services and offers included in Value Apps.
 
Additional Search Assets
 
ClientConnect's solutions also enable online publishers to set up other search assets on their individual websites, such as a search box. Other syndicated search assets are set on the end user’s computer (e.g., browser, search box, home page, new tab and error page), including the following:
 
 
·
Search Syndications : Publishers may incorporate a search box on their own websites that is powered by ClientConnect's search providers and which pay ClientConnect fees for searches emanating from such search box.  These search syndications can only be incorporated to the extent that Microsoft Bing or Yahoo serves as the search provider, and they may not be incorporated if Google serves as the search provider.
 
 
·
Browser Default Searches; New Tab; Error Page : During the installation process of publisher software or a toolbar, ClientConnect may take over other search assets such as the default search set in one or more browsers installed on an end user's computer and browsers' new tabs. Additionally, in the event that end users generate either an error URL or an error search query, ClientConnect can provide a search field to redirect the requested search. These assets generate additional searches per user and further increase monetization.
 
Search Protect
 
Search Protect is an additional, stand-alone software solution offered by ClientConnect.  This software, which can be offered to end users during the toolbar installation or as a standalone feature, protects end users' choices of browser search settings. Search Protect is designed to enable an end user to maintain its selected browser settings and to prevent third party software downloads from changing those search settings.  Changes made to browser search settings may, however, be saved by an end user through Search Protect itself. Search Protect protects the search settings for all major browsers, including Mozilla Firefox, Google Chrome and Internet Explorer.
 
Applications
 
Besides search-related tools, ClientConnect makes available to its publishers, whether for inclusion in customized toolbars or directly on publishers’ websites, a variety of downloadable applications that offer users the ability to engage in a number of activities online, such as play games, send e-cards and decorate e-mails and web pages. Many of the applications that ClientConnect has developed enable users to personalize their online activities and make them more expressive and fun. Other applications target users with a special or passionate interest in select vertical categories (such as television, sports, shopping and gossip, and others) or that provide users with particular reference information (such as maps or weather forecasts). These applications include various applications which are available at http://apps.conduit.com/?lang=he .  All applications are distributed to users free of charge.
 
 
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Strategy
 
ClientConnect's intends to pursue its business model by, among other things:
 
 
·
broadening its publisher base and deepening its connection with existing publishers by increasing  marketing efforts and adding methods of advertising to reach out to more publishers of Internet content;
 
 
·
expanding its existing platform and/or developing new platforms that will offer (i) an even wider array of applications and features to publishers for customization and protection of search assets that they distribute, thereby broadening the usefulness of the search assets to end users whose use of the search assets would increase as a result, and (ii) other monetization tools; and
 
 
·
advancing its technological capabilities by continuing to invest in research and development efforts, which serve as the basis for its efforts to further enhance its existing platform and develop new platforms for publishers.
 
Marketing, Sales and Distribution
 
Marketing
 
ClientConnect's marketing strategy is focused on increasing awareness of its platform and monetization tools in order to expand its publisher base and increase publisher and end user loyalty. ClientConnect also focuses heavily upon the identification of publisher and end user needs. ClientConnect initiates marketing programs and campaigns to drive lead generation throughout the regions in which the business and its publishers operate. This allows ClientConnect to measure and analyze the success of various marketing tactics. Based on its analysis, ClientConnect creates and updates the roadmaps and individual marketing plans for the platform and other search assets and monetization tools to help optimize distribution while ensuring a smooth process of release and ramp-up.
 
ClientConnect uses a variety of inbound and outbound marketing methods to reach potential publishers. Inbound methods include a variety of online marketing strategies such as search marketing (for example, search engine optimization and pay-per-click advertising), social media, blogs, syndication, webinars and white papers. Outbound channels include more traditional marketing methods such as press releases, print advertisements, trade magazine articles, direct mail and e-mail, websites, brochures, tradeshows, newsletters, industry associations and referrals. In addition, ClientConnect has developed domestic and international on-site demonstration capabilities in certain of its regional offices.
 
Geographical structure of marketing organization
 
The marketing efforts for the platform, search assets and other monetization tools focus on generating positive exposure and offsetting potential negative publicity from online or offline publications.  The geographical reach of these efforts is worldwide with a focus on the United States.  There is no marketing organization in place that concentrates solely on one particular solution.
 
The sales organization for the platform, search assets and other monetization tools is divided into groups based on North America and rest of world. This structure allows ClientConnect to align its sales and marketing resources with its diverse publisher base.   ClientConnect's sales organization in each region provides sales support throughout the particular region.
 
Websites
 
ClientConnect provides search, content and other services through several destination websites belonging to Conduit. Following the Split and the short transition period thereafter, ClientConnect will cease using these URLs and the brand "Conduit".
 
 
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Material Agreements with Search Providers
 
The vast majority of ClientConnect revenues are derived from services agreements with Microsoft Inc. ("Microsoft"), and Google Ireland Limited ("Google"), which together accounted for approximately 98%, 96% and 86% of ClientConnect's revenues in 2011, 2012 and the first six months of 2013, respectively.
 
Agreement with Microsoft
 
The agreement with Microsoft (the "Microsoft agreement"), which Conduit entered into in November 2010 and which was subsequently amended in May 2011 (the agreement’s term runs through December 31, 2014) accounted for 89%, 81% and 56% of ClientConnect's revenues in 2011, 2012 and the first six months of 2013, respectively. The fees payable by Microsoft to ClientConnect under the Microsoft agreement are payable based on either a fixed price, pay-per-search basis that is tied to the number of searches conducted by end users and in certain instances, a share of the revenue generated as a result of searches conducted by end users who utilize the search engine that appears on toolbars created by publishers through ClientConnect's platform.  The fees payable to ClientConnect vary annually over the term of the agreement, decreasing significantly during the last two years (2013 and 2014) of the term of the agreement compared to the first two years (2011 and 2012). To a lesser extent, the business also syndicates Microsoft-provided searches through publishers' websites with which the business enters into syndication agreements.  Under the agreement, Microsoft had exclusivity in 2011 and 2012 in providing search services and search monetization services through platform-generated toolbars in the United States.  Despite the termination of the exclusivity period under the Microsoft agreement, Microsoft Bing currently remains the effective main search provider for searches conducted through platform-generated toolbars in the United States and Canada.
 
The absolute reduction in ClientConnect’s Microsoft-based revenues in the first six months of 2013 (by $162.1 million) relative to the corresponding period of 2012 resulted in a reduction in the percentage of ClientConnect's overall revenues generated from Microsoft over the first six months of 2013 relative to all of 2012.
 
Agreement with Google
 
ClientConnect's agreement with Google, which Conduit entered into in 2011, and which was subsequently replaced by a substantially similar agreement entered into on September 1, 2013 for a term of two years, has historically been the second largest source of revenue for ClientConnect, accounting for 9%, 15% and 30% of ClientConnect's revenues in 2011, 2012 and the first six months of 2013, respectively. Google serves as the main provider of search services to end users of platform-generated toolbars in all locations outside of the United States and Canada. Revenues are paid on the basis of a revenue-sharing arrangement with Google, entitling ClientConnect to a percentage of the revenues generated by Google as a result of searches conducted by end users through search engines integrated by ClientConnect solutions.
 
Effective as of February 1, 2013, Google released new guidelines concerning the use of downloadable software with its search engine, which restricted the ability to "take over" search assets.  The impact of this reduction in search assets takeover encouraged the ClientConnect business to switch more traffic to Microsoft Bing, and was already noticeable in the second quarter of 2013, as ClientConnect's revenues from the Google agreement fell in that quarter by 31%.
 
For more financial information related to ClientConnect's agreements with Microsoft and Google, please see "Operating and Financial Review of ClientConnect" included elsewhere in this proxy statement.  For a discussion of the risks accompanying ClientConnect's substantial dependence on its agreements with Microsoft and Google, please see "Risk Factors – Risks Related to ClientConnect" included elsewhere in this proxy statement.
 
 
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Competition
 
ClientConnect competes with a wide variety of parties in its efforts to: (i) attract users to download and utilize its platform-based toolbars (including the search box contained therein); (ii) attract publishers to develop, market and distribute the platform-based toolbars to end users; and (iii) attract advertisers to display advertisements on ClientConnect's home search page. In the case of branded search services, ClientConnect competes with Google, Yahoo, Bing, Ask.com and other destination search websites and search-centric portals (some of which provide a broad range of content, services and/or links to various desktop applications), third party toolbars, convenience search and application providers, other search technology and convenience service providers (including internet access providers, social media platforms, online advertising networks, traditional media companies and companies that provide online content). When the business markets its search and content services, its competitors include destination websites that primarily acquire traffic through paid and algorithmic search results.
 
Some of ClientConnect's current and potential competitors have longer operating histories, greater brand recognition, larger customer bases and/or significantly greater financial, technical and marketing resources than it does. As a result, these competitors have the ability to devote comparatively greater resources to the development and promotion of their products and services, which could result in greater market exposure for their products and services relative to those offered by ClientConnect.
 
ClientConnect's ability to attract publishers is dependent in large part on its ability to pay higher rates to such publishers, its success in creating strong commercial relationship with publishers that have successful software, websites or distribution channels, and its ability to differentiate its monetization tools and software (including toolbars and other applications) from those of its competitors, primarily through providing customized toolbars and access to search and other services through its toolbars.
 
Research and Development
 
ClientConnect maintains an ongoing program of research and development ("R&D"), to expand the existing platform and develop new platforms that will offer (i) an even wider array of applications and features to publishers for customization and protection of search assets that they distribute, thereby broadening the usefulness of the search assets to end users, whose use of such would increase as a result and (ii) other monetization tools,   and to enhance its back-end systems supporting its analytical capabilities and growth. ClientConnect's R&D department is divided into groups based on scientific disciplines and types of applications and products.
 
ClientConnect invests a significant amount of its resources in R&D as it believes that superior technology is key to maintaining a leading market position. ClientConnect's R&D expenses were $18.3 million, $16.9 million, $10.2 million in 2011, 2012 and the first six months of 2013.
 
Intellectual Property
 
ClientConnect considers its proprietary technology to be important to the development of its platform and related applications and seeks to protect such technology through a combination of patents, trade secrets, confidentiality agreements and other contractual arrangements with its employees, consultants, publishers, end users and others. As of June 30, 2013, ClientConnect had four granted patents and one pending patent application in the United States, along with international applications pursuant to the Patent Cooperation Treaty. The principal patents that have been issued have expiration dates ranging from 2025 to 2029.
 
ClientConnect management believes that, while ClientConnect's patents provide it with a competitive advantage, its success depends primarily on its marketing, business development, applications, know-how and ongoing research and development efforts. Accordingly, management believes that the expiration of any of its patents or patent licenses, or the failure of any of its patent applications to result in issued patents, would not be material to its business or financial position. In any event, there can be no assurance that ClientConnect's patents or other intellectual property rights will afford it a meaningful competitive advantage.
 
 
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Customers
 
As of June 30, 2013, ClientConnect's toolbar platform has been used by over 260,000 publishers in over 120 countries, and customized toolbars have been distributed to over 250 million users around the world.  ClientConnect is dependent heavily upon its relationships with Microsoft and Google, which together accounted for approximately 98%, 96% and 86% of ClientConnect's revenues in 2011, 2012 and the first six months of 2013, respectively.
 
Property
 
ClientConnect leases facilities in Foster City, California, which it utilizes for the business unit of the west coast (ClientConnect Inc.) under a lease agreement with a term of three years that expires on July 26, 2014, and for which the annual rent amount is approximately $300,000. Our ClientConnect employees in Israel will be situated in the offices leased by Conduit in Ness-Ziona, Israel, during the transition period pursuant to the Office and Administrative Service Agreement.
 
As of June 30, 2013, ClientConnect leased office space as specified in the table below. The aggregate annual lease payments for ClientConnect's facilities during 2012 were approximately $277,500.
 
Location
 
Approximate
square feet
 
Foster City, California
   
6,903
 

Employees
 
The total number of ClientConnect full-time employees, and the distribution of its employees (i) geographically and (ii) within the divisions of the business, in each case as of December 31, 2012 and June 30, 2013 are set forth in the following two tables, respectively:
 
   
Number of full-time
equivalent employees
by region as of
 
Region
 
June 30, 2013
   
December 31, 2012
 
Israel
 
225 (8 part time)
   
204 (8 part time)
 
United States
    11       13  
Total
    236       217  
 
   
Number of full-time
equivalent employees
by function as of
 
Division
 
June 30, 2013
   
December 31, 2012
 
BSS
    40       37  
 Product units
(TB, DM, Value Apps, Search, Tech Innov.)
    136       129  
Customer service
    0       4  
Sales and marketing
    42       35  
General and administrative (HR, legal, compliance, finance)
    18       12  
Total
    236       217  
 
 
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While none of ClientConnect's employees is party to any collective bargaining agreements, certain provisions of the collective bargaining agreements between the Histadrut (General Federation of Labor in Israel) and the Coordination Bureau of Economic Organizations (including the Industrialists' Associations) are applicable to ClientConnect's employees in Israel by order of the Israel Ministry of Labor. These provisions primarily concern the length of the workday, minimum daily wages for professional workers, pension fund benefits for all employees, insurance for work-related accidents, procedures for dismissing employees, determination of severance pay and other conditions of employment. ClientConnect generally provides its employees with benefits and working conditions beyond the required minimums.
 
ClientConnect has never experienced any employment-related work stoppages and believes that its relationships with its employees are good.
 
Legal Proceedings
 
For a description of the material legal proceedings to which the ClientConnect business is subject, please see Note 8(c)-(e) of Conduit’s consolidated financial statements as of June 30, 2013, included elsewhere in this proxy statement. Under the Split Agreement, the liabilities with respect to such legal proceedings will not be transferred from Conduit to ClientConnect.
 
 
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Selected Pro Forma Financial Data of ClientConnect
 
The tables below set forth certain selected pro forma financial data for the ClientConnect business of Conduit (sometimes referred to in this section as "ClientConnect").  The data below has been derived from the historical consolidated financial statements of Conduit, included elsewhere in this Proxy Statement, on a pro forma basis. The selected pro forma financial data for all periods presented has been derived from the data that is contained in the unaudited pro forma financial information of Conduit that is included elsewhere in this proxy statement.
 
Conduit’s historical financial statements include results related to several product lines, including a proprietary toolbar generating platform utilized by the ClientConnect business, and four other product lines: Mobile app platform, Quick launch, U browser and Wibiya floating bar (such other product lines referred to herein as the "Conduit Initiatives"). Conduit has historically managed its business as one reportable segment. Upon the consummation of the Split, which is expected to occur on December 31, 2013, ClientConnect Ltd. will report the results of operations of the legal spun-off entity (ClientConnect Ltd.) and its ClientConnect business as continuing operations, whereas the Conduit Initiatives activities will be treated as discontinued operations in accordance with relevant accounting requirements. Therefore, from an accounting perspective, the Conduit Initiatives activities will be treated as having been spun-off from the ClientConnect business.
 
Upon the closing of the Share Purchase, expected to occur in January 2014, ClientConnect Ltd. will account for the transaction in accordance with relevant accounting requirements as a reverse acquisition, whereby Perion will be deemed the accounting acquiree and ClientConnect Ltd. will be deemed the accounting acquirer.
 
The pro forma financial data below reflects the historical financial information of the ClientConnect business as if the Split had occurred as of June 30, 2013.  Pro forma information for all reported periods presents the balance sheet and statements of operations of Conduit as if: (a) ClientConnect was legally incorporated and (b) the Split was legally consummated as of June 30, 2013, although ClientConnect was legally incorporated on July 23, 2013 and the Split is expected to be consummated on December 31, 2013. The balance sheet also reflects the effect of the receipt of the Credit Line.
 
In preparing the pro forma financial data for the ClientConnect business (continuing operations) for the periods presented below, balance sheet, income and expense items that have been identified as specifically related to the ClientConnect operations have been allocated to the ClientConnect business in their entirety, while balance sheet, income and expense items that have been shared by the ClientConnect business with the other divisions of Conduit have been allocated on a proportional basis. Expenses related to corporate functions such as shared research and development, occupancy, accounting, treasury, legal, human resources, corporate marketing and management have been allocated based on the relative headcount of the ClientConnect business and Conduit Initiatives operations.  These costs also include employee compensation and related benefits, including share based compensation.
 
Conduit’s management believes the assumptions made and methodology used in preparing the pro forma financial data for ClientConnect are reasonable and that all of the ClientConnect costs of doing business, comprised of those costs that are clearly applicable to ClientConnect as well as those that are reasonably allocable due to corporate shared service expenses incurred by Conduit on ClientConnect’s behalf, have been reflected in the financial data presented below.
 
The information set forth below is not necessarily indicative of the results that would have been achieved if ClientConnect had operated as a stand-alone entity for the periods presented, nor is it indicative of the future operations of ClientConnect assuming the consummation of the Split and the Share Purchase. You should read the selected pro forma financial and other data together with the audited consolidated financial statements of Conduit and the related notes thereto, the unaudited pro forma financial information of ClientConnect, and the section entitled "Operating and Financial Review of ClientConnect", each of which appears elsewhere in this Proxy Statement.
 
 
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Selected ClientConnect Pro Forma Statement of Income Data (1)
(U.S. dollars, in thousands)
 
   
Six months ended
June 30,
   
Year ended
December 31,
 
   
2013
   
2012
   
2012
   
2011
 
Revenues
  $ 160,450     $ 259,723     $ 537,008     $ 481,724  
Costs and expenses:
                               
Cost of revenues
    2,954       2,643       5,513       4,168  
Traffic acquisition costs
    81,975       49,253       119,555       113,358  
Research and
development
    10,243       7,493       16,858       18,346  
Sales and marketing
    4,948       3,944       7,920       17,917  
General and administrative
    6,053       2,296       4,705       4,126  
Operating income
    54,277       194,094       382,457       323,809  
Financial income (expense), net
    1,305       1,640       7,696       (636 )
Income before taxes on income
    55,582       195,734       390,153       323,173  
Taxes on income
    8,572       29,607       75,435       22,564  
Net income
  $ 47,010     $ 166,127     $ 314,718     $ 300,609  
_________________

(1) This selected pro forma statement of income data reflects only the continuing operations of the ClientConnect business (continuing operations) and excludes results of operations relating to the Conduit Initiatives activities (discontinued operations), as those activities will not be transferred to ClientConnect Ltd. pursuant to the Split and will not be acquired by our company pursuant to the Share Purchase.
 
Selected ClientConnect Pro Forma Historical Continuing Operations Balance Sheet Data
(Pre-spin-off) (1) (U.S. dollars, in thousands)
 
 
   
As of
 
   
June 30, 2013
   
December 31, 2012
   
December 31, 2011
 
Cash and cash equivalents
  $ 228,085     $ 78,395     $ 41,239  
Total assets
    322,872       293,039       312,230  
Total liabilities
    52,759       63,285       46,122  
Discontinued operation net assets
    11,076       14,267       19,736  
Shareholders’ equity
  $ 281,189     $ 244,021     $ 285,844  
_________________
 
(1) Selected pro forma balance sheet data reflects the assets and liabilities attributable to the ClientConnect business only, and excludes assets and liabilities attributable to the Conduit Initiatives activities (discontinued operations).  Not all of these assets and liabilities attributable to ClientConnect will be transferred to ClientConnect Ltd. pursuant to the Share Purchase, as the ClientConnect business will be spun off on a cash-free, debt-free basis.
 
 
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The following balance sheet data for the ClientConnect business reflects the spin-off of the ClientConnect business pursuant to the Split on a cash-free, debt-free basis, as well as the receipt by the ClientConnect business of the Credit Line to finance its working capital:
 
Selected ClientConnect Pro Forma Continuing Operations Balance Sheet Data (Post-spin-off) (1)
(U.S. dollars, in thousands)
As of June 30, 2013
 
   
Cash and cash equivalents
  $ 5,000  
Total assets
  $ 37,835  
Total liabilities
  $ 15,133  
Shareholders’ equity
  $ 22,702  
______________
 
(1) Pursuant to the Split, Conduit (the Conduit Initiatives business) will provide to the ClientConnect business the Credit Line of up to $20 million to finance working capital requirements of the ClientConnect business.  For purposes of this balance sheet data, it has been assumed that the ClientConnect business will only draw upon the Credit Line in an amount of $5 million. This balance sheet data also excludes any effect of additional share-based compensation expense that might be triggered as a result of the Split.

 
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Operating and Financial Review of ClientConnect
 
Management Overview
 
Conduit’s ClientConnect business (sometimes referred to in this section as "ClientConnect") offers, inter alia, a proprietary cloud-based toolbar generating platform (the "platform"), which allows online publishers to create, implement and distribute web browser toolbars and other software products and services to targeted audiences, and to subsequently administer such toolbars. The platform includes software applications and tools that provide comprehensive solutions for the full customization of the toolbar graphical user interface, as well as additional features, tools and services (such as a search box, home page takeover, web applications, as well as ClientConnect's Search Protect and Value Apps products), through a user-friendly online drag and drop system.
 
Publishers distribute their customized toolbars together with features, tools and services made available via the platform, including additional third party content features or services that publishers decide to offer to end users, who can then choose to download and install the toolbars and the related features or services (as applicable).  End users may also utilize the toolbars for Internet searches that are powered by search providers with which ClientConnect contracts. As part of the toolbar installation process, the end users are able to: (i) replace their home page with the ClientConnect home page, where users may conduct searches or follow links to advertisements that advertisers may display; (ii) install ClientConnect search protect software, which is designed to maintain the end user's selected browser settings and to prevent third-party software downloads from changing them; and (iii) use the value apps tool (a tool developed by ClientConnect for the aggregation and optimization of ClientConnect's and third party applications, services and offers), which is offered as a toolbar feature or as a standalone software to end users.
 
In addition to enabling searches via downloadable customized toolbars, ClientConnect also allows online publishers to set up syndicated searches on their individual websites, and to monetize their users’ other search assets, such as browser default search, new tab, and error pages.
 
ClientConnect generates a substantial majority of its revenues from payments received from Internet search providers that power the searches conducted by end users through the customized toolbars created by publishers. The goal of ClientConnect's business model is to increase the installed base of users who have downloaded the toolbars and continuously engage them and grow ClientConnect's market share for Internet searches, which will generate increased revenues from search providers with which ClientConnect partners.  ClientConnect also seeks to increase ongoing revenues from advertising networks on ClientConnect's home search page, which will become more feasible as ClientConnect's toolbars become more widespread and the ClientConnect search page becomes more popular. ClientConnect intends to pursue its business model by, among other things:
 
 
·
broadening ClientConnect's publisher base and deepening its connection with existing publishers by increasing marketing efforts and adding methods of advertising to reach out to more publishers of Internet content;
 
 
·
expanding ClientConnect's existing platform and/or developing new platforms that will offer (i) a wider array of applications and features to publishers for customization and protection of search assets that they distribute, thereby broadening the usefulness of the search assets to end users, whose use of the search assets would increase as a result, and (ii) other monetization tools; and
 
 
·
extending ClientConnect's technological capabilities by continuing to invest in its research and development efforts, which underlies ClientConnect's effort to further enhance its existing platform and develop new platforms for publishers.
 
 
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Conduit introduced its cloud-based platform in 2005, at which time it began distributing its toolbars.  ClientConnect's revenues have grown on a year-to-year basis from approximately $87 thousand in 2006 to approximately $537 million in 2012. ClientConnect has been profitable since the year ended December 31, 2008, and recorded net income of $314.7 million and $47.0 million in the year ended December 31, 2012 and the six months ended June 30, 2013, respectively, on a pro forma, stand-alone basis (after excluding all components of Conduit’s business that will not be transferred to ClientConnect as part of the Split). In 2012 and the first six months of 2013, ClientConnect derived almost all of its Internet search-related revenues from the activities of users in two regions, with North America accounting for 83% and 61% of its revenues and Europe accounting for 12% and 29% of its revenues, respectively, during those periods. As described below, ClientConnect's search providers accounted for the vast majority of ClientConnect's revenues during those periods.
 
Key Measures of ClientConnect’s Performance:
 
Revenues
 
Sources of Revenues
 
Agreements with Search Providers
 
The vast majority of ClientConnect's revenues are derived from service agreements with Microsoft Online Inc. ("Microsoft") and Google Ireland Limited. ("Google"), which together accounted for approximately 98%, 96% and 86% of ClientConnect’s revenues in 2011, 2012 and the first six months of 2013, respectively.  Under these agreements, Microsoft and Google provide search services and search monetization services for searches that are conducted by end users through toolbars that are generated by publishers from ClientConnect's proprietary platform.
 
Agreement with Microsoft
 
The agreement with Microsoft (the "Microsoft agreement"), was entered into in November 2010 and which was subsequently amended in May 2011 and runs through December 31, 2014, accounted for 89%, 81% and 56% of ClientConnect's revenues in 2011, 2012 and the six months ended June 30, 2013, respectively. The agreement with Microsoft provides for fees to be paid to ClientConnect primarily on a fixed price, pay-per-search basis that is tied to the number of searches conducted by end users, and in certain instances a share of the revenue generated as a result of searches conducted by end users who utilize the search engine that appears on toolbars created by publishers through ClientConnect's platform or who conduct searches via other search resources, such as syndicated searches on a publisher’s website or browser default searches. The fees payable to ClientConnect vary annually over the term of the agreement, decreasing significantly during the last two years (2013 and 2014) of the term of the agreement compared to the first two years (2011 and 2012). Under the agreement, Microsoft received exclusivity in providing search services and search monetization services through platform-generated toolbars to ClientConnect in the United States in 2011 and 2012.
 
Recent Trends under Microsoft Agreement
 
As described above, the fees to be paid per search by Microsoft to ClientConnect are substantially lower pursuant to the terms of the agreement beginning in 2013 relative to the fees paid per search in 2011 and 2012.  The absolute reduction in ClientConnect’s Microsoft-based revenues in the first six months of 2013 (by $162.1 million) relative to the corresponding period of 2012, resulted in a reduction in the percentage of ClientConnect's overall revenues generated from Microsoft over the first six months of 2013 relative to all of 2012. We expect this to continue in the second half of 2013, and as a result, absolute revenues and the relative percentage of revenues from Microsoft to be lower than those in 2012.  Despite the decreases in absolute revenues, the total number of searches conducted by ClientConnect's end-users under the Microsoft agreement has risen significantly, from 1.4 billion in the first six months of 2012 to 2.4 billion in the first six months of 2013, evidencing growth in this key indicator of present and future revenue generation.  Notwithstanding the termination of the exclusivity period under the Microsoft agreement, Microsoft remains the main search provider for searches conducted through platform-generated toolbars in the United States and Canada.
 
 
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Agreement with Google
 
Conduit’s agreement with Google, which Conduit entered into in 2011 and which was subsequently replaced by a substantially similar agreement entered into on September 1, 2013 for an additional term of two years, has been the second largest source of revenue for ClientConnect, accounting for 9%, 15% and 30% of ClientConnect's revenues in 2011, 2012 and the six months ended June 30, 2013, respectively. Google serves as the main provider of search services to end users of platform-generated toolbars in all locations outside of the United States and Canada. Revenues are paid on the basis of a revenue-sharing arrangement with Google, with ClientConnect entitled to a percentage of the revenues generated by Google as a result of searches conducted by end users through its search engines.
 
Recent Trends under Google Agreement
 
Effective as of February 1, 2013, Google released new guidelines concerning the use of downloadable software with its search engine, restricting the takeover of search assets and limiting the ability to bundle additional software and products. Conduit felt the impact of this reduction in search assets takeover and limitation in bundling in the second quarter of 2013, as ClientConnect's revenues from the Google agreement fell from $28.2 million, constituting 36% of ClientConnect's revenues in the first quarter of 2013 to $19.5 million, or 24% of ClientConnect's revenues for such period. Conduit anticipates that there may be further reductions in revenue for ClientConnect in future periods under the Google agreement as a result of the new guidelines. However, because the percentage of ClientConnect's total revenues attributable to the Google agreement began decreasing in the second quarter of 2013, the impact of those potential further decreases will not likely be as material as the reductions in revenue under the agreement we experienced in prior comparable periods.
 
Additional Source of Revenues - Advertising
 
In addition to fees paid by search providers, ClientConnect also generates a smaller percentage of its revenues (approximately 9% in the second quarter of 2013) from advertising.  Various advertising networks pay ClientConnect, through a series of third parties, for advertisements that they place on ClientConnect's home search page.  The fees that are payable under these agreements are dependent upon the number of clicks on the linked advertisements that are placed by the advertising networks.  Because the placement of these advertisements, and the related revenues generated, are not necessarily tied to, or dependent upon, ClientConnect's primary revenue sources (the agreements with Microsoft and Google) they come from a variety of sources and may not be subject to the same trends and risks described above in connection with the Microsoft and Google agreements. The demand among advertising networks that place these advertisements is also flexible, which enables ClientConnect to seek additional advertisement arrangements as it deems necessary or favorable for the ClientConnect business.
 
Overall Trends and Factors Related to Revenues
 
Due largely to the significant reduction in the price per search fees paid by Microsoft to ClientConnect under the Microsoft agreement beginning in 2013, ClientConnect's revenues for the first six months of 2013 have reflected a significant decrease relative to the corresponding period in 2012. ClientConnect's management views the decrease in revenues due to this pricing reduction as a non-recurring event, and expects that once all periods that are impacted by this decrease in comparison to prior year periods are complete (that is, through the end of 2013), revenues will resume the trend of steady increases relative to prior year periods.
 
ClientConnect's generation of revenues from agreements with search providers is driven primarily by its relationship with publishers, which utilize ClientConnect's platform for designing and distributing search toolbars.  In recent years, ClientConnect’s traffic acquisition costs mainly consisted of payments that publishers were entitled to receive primarily on a pay-per-user basis, which was determined in an ongoing manner based on the daily number of active users utilizing a toolbar derived from ClientConnect's platform who had received the toolbar from that publisher.  Commencing in the third quarter of 2012, ClientConnect changed the primary model for its traffic acquisition costs to a pay-per-install ("PPI") model, under which publishers are paid up-front each time they distribute a platform-generated toolbar to an end user and the end-user installs the toolbar. This shift in payment models has an adverse impact on ClientConnect's results of operations in the short term, as the traffic acquisition costs related to a given user are recorded as an expense as incurred, when a user downloads a toolbar, whereas the related revenues are generated from that user only if and when the user performs searches (for which ClientConnect receives payments from its search providers).
 
 
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ClientConnect has generally experienced elastic demand for its platform-generated toolbars, which is tied to prices that it pays to publishers under the PPI payment model whereby ClientConnect compensates publishers for downloads of such toolbars. If ClientConnect decides to pay more to its publishers per end-user-download this increases the traffic acquisition costs for ClientConnect but also generally increases traffic by end users, as publishers tend to recruit a greater number of users for downloads and higher quality downloads when motivated by the higher fee. Increased traffic and higher quality end users, in turn, result in greater revenues for ClientConnect from payments from search providers for searches performed by such end users. The amount that ClientConnect is willing to pay to a particular publisher is generally a function of (i) the quality of the publisher’s published materials and (ii) the deemed potential for revenue generation from such publisher from searches by end users who are recruited by the publisher to download a platform-generated toolbar.
 
Search Revenues Based on Geographical Region of End Users
 
The dollar amount, and percentage share, of ClientConnect's search monetization based revenues (which constituted over 85% of ClientConnect's revenues in each of the periods identified below) that were attributable to end users were geographically distributed as follows:
 
   
Six months ended
   
Year ended
 
   
June 30, 2013
   
June 30, 2012
   
December 31, 2012
   
December 31, 2011
 
(U.S. dollars in thousands)
 
Revenues*
   
Percentage
   
Revenues*
   
Percentage
   
Revenues*
   
Percentage
   
Revenues*
   
Percentage
 
Geographical region
                                               
North America
    82,037       61 %     209,218       84 %     425,646       83 %     374,769       81 %
Europe
    38,812       29 %     28,703       12 %     62,655       13 %     67,693       15 %
Other
    13,278       10 %     10,768       4 %     22,456       4 %     21,968       4 %
Total
    134,127       100 %     248,689       100 %     510,757       100 %     464,430       100 %
____________
 
*The revenue amounts reflected in the table exclude other categories of revenues of the ClientConnect business that are not attributable to search monetization activities by end users.
 
Changes in search monetization revenues in the geographic regions shown in the table above were, on the whole, driven by the changes in ClientConnect's revenues discussed above.   The increase and decrease in the percentages of ClientConnect’s search monetization revenues constituted by the European and North American regions, respectively, from the first six months of 2012 compared to the first six months of 2013 were primarily attributable to the significant decrease in revenues for ClientConnect due to the reduced fee structure for fees paid by Microsoft under the Microsoft agreement beginning in 2013.  That decrease in revenues had the greatest impact in North America, where Microsoft serves as the main provider of search services for ClientConnect, and not in Europe where Google serves as the main provider of search services for ClientConnect.
 
 
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Costs and expenses
 
ClientConnect's costs and expenses consist of five components: cost of revenues; traffic acquisition costs; research and development expenses; sales and marketing expenses; and general and administrative expenses.  The increase in the aggregate amounts of these expenses during recent periods has been generally tied to the increase in traffic acquisition costs due to ClientConnect's transition to a PPI model, as described under "Traffic acquisition costs" below, and the increase in the number of employees of ClientConnect, which has risen from approximately 120 at the start of 2011 to approximately 240 as of the end of the second quarter of 2013.
 
The percentage of ClientConnect's revenues constituted by ClientConnect's costs and expenses in the first six months of 2013 rose significantly for all categories of such expenses relative to the corresponding period in 2012 as a result of the reduction in fees paid to ClientConnect under the Microsoft agreement beginning in 2013, which caused a decrease in ClientConnect's aggregate revenues and therefore caused costs and expenses to rise in comparison. Management of ClientConnect views these significant percentage changes as a non-recurring event.
 
Cost of Revenues
 
ClientConnect's cost of revenues includes primarily expenses related to ClientConnect's servers.
 
Traffic acquisition costs
 
Traffic acquisition costs consist of payments to publishers for their distribution of platform-generated toolbars and for the download of those toolbars by end users.  As described above in, commencing in the third quarter of 2012, ClientConnect shifted towards a PPI model, whereby publishers are paid a fixed price for each toolbar that is installed by end users.  Publishers may also be paid on the basis of the number of active end users brought by them.  As discussed above, due to the elasticity of the demand for ClientConnect's toolbars, by increasing the amount payable to a given publisher per installation, ClientConnect has generally experienced increased volume of installations and increased revenues. Traffic acquisition costs rose significantly in the first six months of 2013 relative to the corresponding period of 2012, due to ClientConnect's shift towards the PPI model. Conduit's management expects that future increases in traffic acquisition costs will generally be proportional to corresponding increase in revenues.
 
Research and Development Expenses
 
ClientConnect's research and development expenses consist primarily of compensation expenses; costs of research aimed at developing new applications and features for ClientConnect's cloud-based platform and new platforms, and enhancing existing aspects of the platform; and costs for facilities and equipment. ClientConnect charges all research and development expenses to operations as they are incurred.  The increase of 37% in research and development expenses during the first six months of 2013 relative to the corresponding period in 2012 was a result of the above-stated goal of advancement of technological capabilities, while also reflecting the growth of ClientConnect activity over those periods (as evidenced, for example, by the increase in total number of searches conducted by ClientConnect’s end-users under the Microsoft agreement from 1.4 billion in the first six months of 2012 to 2.4 billion in the first six months of 2013). The modest decrease in research and development expense for ClientConnect from 2011 to 2012 (a decrease of 8%) reflected Conduit's focus on certain development activities relating to product lines such as mobile platform and U browser in 2012 (included in discontinued operations), which are not included among ClientConnect's expenses in its pro forma financial information. Research and development expenses remained relatively stable as a percentage of ClientConnect’s revenues in 2011 and 2012 while increasing in the first six months of 2013 as a result of the reduction in the Microsoft agreement-based revenues described above. These trends were reflected by the decrease in research and development expenses as a percentage of revenues from 3.8% to 3.1% from 2011 to 2012 and the increase of such expenses as a percentage of revenues from 2.9% in the first six months of 2012 to 6.4% in the first six months of 2013, respectively. Please see the table under "Results of Operations" below. ClientConnect expects its research and development expenses to continue to increase on an absolute basis, in light of the recent significant rise in the number of research and development employees of ClientConnect, which increased from approximately 70 employees as of December 31, 2011, to 129 employees on December 31, 2012 to 136 employees as of June 30, 2013, reflecting recent hiring activity.
 
 
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Sales and Marketing Expenses
 
ClientConnect's selling and marketing expenses consist primarily of compensation expenses for ClientConnect's marketing, sales and other sales-support employees; advertising and promotions expenses; and costs for facilities. ClientConnect’s advertising and promotion expenses consist primarily of trade and consumer marketing expenses, brand marketing and public relations expenses. The trend with respect to selling and marketing expenses reflects a significant decrease from 2011 to 2012 due to a non-recurring consulting fee expense incurred in connection with the ongoing ClientConnect business in 2011, while from the first six months of 2012 to the corresponding period of 2013 there was an increase primarily due to additional marketing events and an increase in marketing, sales and other sales-support employees. Please see the table under "Pro Forma Results of Operations" below.
 
ClientConnect intends to invest in broadening its worldwide publisher base, and therefore expects selling and marketing expenses in general, and advertising and promotion expenses in particular, to continue to increase in absolute terms.
 
General and Administrative Expenses
 
ClientConnect's general and administrative, or G&A, expenses consist primarily of compensation expenses for Conduit’s managerial and administrative personnel engaged in activities related to the ClientConnect business. Other significant general and administrative costs include facilities costs, and professional service fees. G&A expenses rose significantly during the first six months of 2013 relative to the corresponding period of 2012, due to an increase in stock-based compensation and litigation expenses during such period of time. However, in connection with the Split, Conduit will be retaining responsibility for pending litigation matters, and as a result ClientConnect will not be responsible for any litigation expenses related to such matters.
 
As ClientConnect’s revenues continue to grow, ClientConnect expects its administrative expenses to increase in absolute terms. Administrative expenses can also be expected to increase following the consummation of the Share Purchase as a result of the additional costs of becoming the subsidiary of a public company in the United States.
 
Operating Income
 
Operating income is influenced by each of the foregoing financial categories, and during the first six months of 2013 was influenced most significantly by ClientConnect's revenues.  The reduced pricing structure under the Microsoft agreement caused a significant decrease in revenues and, consequently, operating income for the first six months of 2013 relative to the corresponding period of 2012.  As described under " Operating and Financial Review of ClientConnect - Key Measures of ClientConnect’s Performance " above, given the continuous period-over-period growth in the publisher base and the number of installed toolbars of ClientConnect's platform, ClientConnect expects the decline to be a non-recurring event that will only be reflected for purposes of comparisons of periods of 2013 relative to corresponding periods of 2012.
 
 Financial Income
 
Financial income consists primarily of foreign currency exchange related income (and expense) and interest earned on ClientConnect’s cash, cash equivalents and short-term bank deposits.
 
 
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Currency Exchange Rates
 
For the six months ended June 30, 2013, approximately 39% of ClientConnect's revenues originated in jurisdictions outside the United States. Such amounts may be paid by the underlying publishers to Microsoft or Google in U.S. dollars or the applicable local currency, and are paid by Microsoft or Google to ClientConnect in U.S. dollars. In the event that Microsoft or Google receives payment in local currency, such amounts are converted to U.S. dollars at the then-applicable exchange rate and such amount is then paid to ClientConnect.
 
ClientConnect does not hedge against the risks related to changes in exchange rates, whether via foreign exchange contracts, option contracts or other foreign hedging arrangements, for such revenues paid to Microsoft or Google in local currencies and paid to ClientConnect in U.S. dollars.
 
Corporate Taxes
 
The standard corporate tax rate in Israel for the 2013 tax year is 25%, and it will rise to 26.5% for all subsequent years. The Israeli corporate tax rate for the 2012 and 2011 tax years was 25% and 24%, respectively. ClientConnect has received various tax benefits under the Israeli Law for the Encouragement of Capital Investments, 5719-1959, which is referred to herein as the Investment Law. Based on an evaluation of the relevant factors under the Investment Law, ClientConnect has determined that its effective tax rate paid with respect to all Israeli operations under these benefits programs was approximately 7% in 2011, which effective rate rose to 15.0% in 2012. The effective tax rate for the ClientConnect business (assuming consummation of the Split) is expected to decrease to 12.5% in 2013, followed by a rise to 16% in 2014, assuming, in each case, that ClientConnect continues to qualify for its favorable "privileged enterprise" status under Israeli tax law.
 
Conduit manages its tax position for the benefit of its entire portfolio of business. Conduit’s tax strategies are not necessarily reflective of the tax strategies that ClientConnect would have followed or will follow as a stand-alone company, nor were they necessarily strategies that optimized ClientConnect’s stand-alone position. As a result, ClientConnect’s deferred tax balances and effective tax rate as a stand-alone entity will likely differ significantly from those prevailing in historical periods.
 
Pro Forma Results of Operations
 
The following table sets forth certain selected pro forma results of operations data for ClientConnect as a percentage of pro forma revenues for the periods indicated. All items are included in or derived from the unaudited pro forma statement of income with respect to ClientConnect that is included elsewhere in this Proxy Statement, which statement of income treats the contemplated Split as if it had occurred as of June 30, 2013. This selected pro forma results of operations data reflects only the ClientConnect business (continuing operations) and excludes results of operations of the Conduit Initiatives activities (discontinued operations), as the assets related to those activities will not be distributed to Conduit shareholders pursuant to the Split and will not be acquired by our company pursuant to the Share Purchase.
 
 
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The period-to-period comparison of financial results is not necessarily indicative of future results, particularly if the Split and the Share Purchase transactions are consummated.
 
   
Year ended
   
Six months ended
 
   
December 31,
   
June 30,
 
   
2011
   
2012
   
2012
   
2013
 
Revenues
    100.0 %     100.0 %     100.0 %     100.0 %
Costs of revenues
    0.9 %     1 %     1 %     1.8 %
Traffic acquisition costs
    23.5 %     22.3 %     19 %     51.1 %
Research and development expenses
    3.8 %     3.1 %     2.9 %     6.4 %
Sales and marketing expenses
    3.7 %     1.5 %     1.5 %     3.1 %
General and administrative expenses
    0.9 %     0.9 %     0.9 %     3.8 %
Operating income
    67.2 %     71.2 %     74.7 %     33.8 %
Financial income (expense)
    (0.1 )%     1.4 %     0.7 %     0.8 %
Income before taxes on income
    67.1 %     72.6 %     75.4 %     34.6 %
Taxes on income
    4.7 %     14 %     11.4 %     5.3 %
Net income
    62.4 %     58.6 %     64 %     29.3 %
 
Liquidity and Capital Resources
 
ClientConnect’s principal sources of liquidity are its ongoing cash flows generated from operations. Except for the Credit Line to be provided by Conduit to ClientConnect in connection with the Split, ClientConnect has no short-term or long-term debt facilities outstanding.
 
At December 31, 2012 and June 30, 2013, ClientConnect had $78.4 million and $228.1 million of cash and cash equivalents and $125.6 million and $29.4 million of short-term deposits, respectively, and no long-term debt. ClientConnect’s cash equivalents are short-term, highly liquid investments that are readily convertible into cash with original maturities of three months or less. ClientConnect’s cash equivalents are deposited in major banks in Israel and United States, and ClientConnect’s management believes that the financial institutions that hold these investments are financially sound and, accordingly, minimal risk exists with respect to them.
 
All cash, cash equivalents, and deposits will be retained by Conduit as part of the Split. Pursuant to the Split, Conduit will provide to ClientConnect the Credit Line of up to $20 million to finance working capital requirements of ClientConnect.
 
 
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Cash Flows Analysis
 
In summary, ClientConnect’s cash flows attributable to its continuing operations (and excluding the discontinued operations of the Conduit Initiatives activities) were as follows during the periods indicated below:
 
   
Six Months ended June 30,
   
Year ended December 31,
 
   
2013
   
2012
   
2012
   
2011
 
   
(U.S. dollars, in thousands)
 
Net cash provided by operating activities
  $ 64,797     $ 174,934     $ 328,649     $ 300,175  
Net cash provided by (used in) investing activities
    94,668       (175,525 )     61,212       (156,584 )
Net cash used in financing activities
    10       149       (335,603 )     (77,602 )
 
Year ended December 31, 2012
 
Net cash provided by operating activities in 2012 was $328.6 million and consisted of $314.7 of net income from operations, as adjusted downward for non-cash items that included, most significantly, $1.3 million of accrued interest on ClientConnect’s cash deposits, $7.7 million of increased trade receivables and $6.3 million for a decrease in deferred revenues, while requiring upwards adjustment for the following non-cash items: $2.0 million for a decrease in other accounts receivable and prepaid expenses, $1.9 million for depreciation and amortization, $1.6 million for share-based compensation, $10.4 million due to an increase in trade payables and $13.0 million for an increase in other accounts payable and accrued expenses.
 
Net cash provided by ClientConnect in investing activities generally consists primarily of changes in the amount of ClientConnect’s net short-term cash deposits due to deposits or withdrawals. The net cash provided by investing activities in 2012 of $61.2 million was primarily attributable to $62.9 million of net cash that was redeemed from ClientConnect’s deposits partially offset by $1.7 million of cash used for the purchase of property and equipment.
 
Net cash used in financing activities by ClientConnect generally consists of cash used for payment of dividends to Conduit’s shareholders. Net cash of $335 million used in financing activities during 2012 consisted in large part of $338.7 million of cash used to pay a dividend to Conduit’s shareholders, as offset in part by $3.1 million of proceeds received from employee stock option exercises.
 
Year ended December 31, 2011
 
Net cash provided by operating activities in 2011 was $300.2 million and consisted of $300.6 of net income from operations, as adjusted downward for non-cash items that included, most significantly, $17.9 million of increased trade receivables, $2.3 million due to a decrease in trade payables, $1.9 million due to a decrease in deferred taxes and $1.5 million due to an increase in prepaid expenses and other current assets, while requiring upwards adjustment for the following non-cash items: $18.8 million for an increase in deferred revenues, $1.6 million for an increase in other accounts payable and accrued expenses, $1.4 million for depreciation and $1.0 million for share-based compensation.
 
Net cash provided by investing activities in 2011 was $156.6 million, consisting primarily of $153.8 million of net cash deposited by ClientConnect in short-term investments and $2.8 million of cash invested in the purchase of property and equipment.
 
 
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Net cash used by ClientConnect in financing activities in 2011 was $77.6 million, consisting primarily of $79.7 million of cash used to pay a dividend to Conduit’s shareholders, partially offset by $2.1 million of proceeds received from employee stock option exercises.
 
Six months ended June 30, 2013
 
Net cash provided by operating activities during the six months ended June 30, 2013 was $64.8 million and consisted primarily of $47.0 million of net income from operations, as adjusted downward for non-cash items consisting of $5.4 million for a decrease in trade payables, $2.0 million for a decrease in other accounts payable and accrued expenses, and $3.1 million for a decrease in deferred revenues, as adjusted upwards for non-cash items that included, primarily of $3.1 million for share-based compensation expense, $22.1 million for a decrease in trade receivables and $1.0 million for depreciation and amortization.
 
Net cash provided by investing activities during the six months ended June 30, 2013 was $94.7 million, consisting primarily of $95.1 million of net cash that was withdrawn from ClientConnect’s deposits, as offset minimally by $0.4 million of cash used for the purchase of property and equipment.
 
Six months ended June 30, 2012
 
Net cash provided by operating activities during the six months ended June 30, 2012 was $174.9 million and consisted largely of $166.1 million of net income from operations, as adjusted downward for non-cash items consisting of $1.5 million for accrued interest on ClientConnect’s cash deposits and $3.2 million for a decrease in deferred revenues, and adjusted upwards for non-cash items that included, most significantly, $1.7 million due to an increase in trade payables, and $9.0 million due to an increase in other accounts payable and accrued expenses.
 
Net cash used in investing activities during the six months ended June 30, 2012 was $175.5 million, consisting primarily of $174.5 million of net cash deposited by ClientConnect in short-term investments and $1.0 million of cash invested in the purchase of property and equipment.
 
Net cash provided by financing activities during the six months ended June 30, 2012 was $0.15 million, consisting of proceeds from exercise of employee options
 
Additional Factors Impacting Liquidity
 
ClientConnect's management anticipates that ClientConnect's capital expenditures in connection with the development and expansion of its operations will be minimal in 2013, consistent with the levels of 2012 and 2011, when ClientConnect used $1.7 million and $2.8 million, respectively, for capital expenditures. While Conduit declared significant dividends in the approximate amounts of $80 million and $339 million in the fourth quarters of 2011 and 2012, respectively, assuming the consummation of the Split and Share Purchase, the dividend policy regarding ClientConnect will be consistent with that of Perion and its other subsidiaries and any decisions concerning future declarations of dividends would be subject to the determination of our Board of Directors. Perion's policy in recent years has historically been not to distribute dividends to its shareholders, and Perion has no foreseeable plans to distribute any such dividend.
 
Conduit’s cash and cash equivalents will not be transferred to ClientConnect upon consummation of the contemplated Split, and instead ClientConnect will need to fund its initial working capital needs upon the Credit Line.  ClientConnect's management believes that the cash available under the Credit Line, together with positive cash flows ClientConnect expects to generate from the combined company’s operations in 2013 and 2014, will be sufficient to fund its normal operating requirements (as part of the combined company’s working capital requirements) for the foreseeable future. ClientConnect's liquidity could be negatively affected by a decrease in demand for its products and services, most importantly its platform.
 
 
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Off-Balance Sheet Arrangements
 
ClientConnect does not have any off-balance sheet arrangements as of June 30, 2013.
 
Inflation
 
ClientConnect's management believes that inflation has not had a material effect on ClientConnect's operations or on its financial condition during the two most recent fiscal years or during the first six months of 2013.
 
Quantitative and Qualitative Disclosures About Market Risk
 
Interest Rate Risk
 
ClientConnect's exposure to market risk for changes in interest rates relates primarily to its cash and cash equivalents and short-term deposits.  However, as part of the Split these capital resources of ClientConnect will not be transferred to the combined company upon consummation of the Split and Share Purchase.
 
Foreign Currency Exchange Risk
 
For the six months ended June 30, 2013, approximately 39% of ClientConnect's revenues originated in jurisdictions outside the United States. Such amounts may be paid by the underlying publishers to Microsoft or Google in U.S. dollars or the applicable local currency, and are paid by Microsoft or Google to ClientConnect in U.S. dollars. In the event that Microsoft or Google receives payment in local currency, such amounts are converted to U.S. dollars at the then-applicable exchange rate and such amount is then paid to ClientConnect.
 
ClientConnect does not hedge against the risks related to changes in exchange rates, whether via foreign exchange contracts, option contracts or other foreign hedging arrangements, for such revenues paid to Microsoft or Google in local currencies and paid to ClientConnect in U.S. dollars.
 
 
96
 

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

On September 16, 2013, Perion entered into the Share Purchase Agreement with Conduit and ClientConnect, a newly formed Israeli company to be owned by the shareholders of Conduit in proportion to their ownership of Conduit. Prior to entering into discussions with Conduit about a possible transaction, Conduit decided to spin-off its "ClientConnect" business to ClientConnect, and on September 16, 2013, Conduit and ClientConnect entered into the Split Agreement pursuant to which the entire activities and operations, and related assets and liabilities, of the ClientConnect business will be transferred to ClientConnect  on a cash-free and debt-free basis and the Conduit shareholders will be issued shares of ClientConnect. The Share Purchase Agreement provides for, among other things, the purchase by Perion of all the issued and outstanding ClientConnect Shares from the ClientConnect Shareholders in exchange for New Shares, as a result of which ClientConnect will become a wholly owned subsidiary of Perion. Each ClientConnect Share will be exchanged for that number of New Shares equal to the Exchange Ratio, which shall be determined prior to the Closing of the Share Purchase. The Exchange Ratio, as computed in the days preceding the execution of the Share Purchase Agreement based on information available at that time, was equal to approximately 0.2402 Perion Shares for each one ClientConnect Share. The New Shares to be issued to the ClientConnect Shareholders at the Closing, together with the Exchanged Options, will constitute 81% of the issued and outstanding Perion Shares and Perion's current shareholders and option holders will own 19% of the issued and outstanding Perion Shares, on a Fully Diluted basis .
 
As ClientConnect will be the "accounting acquirer" under the applicable accounting standard (see note 2), the unaudited pro forma condensed combined financial information reflects ClientConnect acquiring Perion even though Perion will acquire all of the outstanding shares of ClientConnect. Accordingly, the Share Purchase will be accounted for as a reverse acquisition, and ClientConnect will allocate the purchase price consideration to the tangible and intangible assets deemed acquired and liabilities deemed assumed from Perion, with the excess purchase price recorded as goodwill. In accordance with reverse acquisition accounting, ClientConnect will be presented as the predecessor in our financial statements, which will reflect the combination between ClientConnect and Perion beginning on the date of the consummation of the Share Purchase.
 
The following Unaudited Pro Forma Condensed Combined Statements of Income for the year ended December 31, 2012 and the six months ended June 30, 2013 combine the historical consolidated statements of income of Conduit's ClientConnect business and Perion giving effect to the Share Purchase as if it had been consummated on January 1, 2012 or January 1, 2013, respectively. In addition, it gives effect to an acquisition made by Perion in 2012 (see note 4(k)). The following Unaudited Pro Forma Condensed Combined Balance Sheet combines the historical consolidated balance sheets of the ClientConnect business and Perion giving effect to the Share Purchase as if it had been consummated on June 30, 2013. Subject to the closing conditions described under "Share Purchase Agreement—Closing Conditions", the Share Purchase is expected to be consummated in January 2014.
 
The following Unaudited Pro Forma Condensed Combined Financial Information has been prepared in accordance with SEC Regulation S-X Article 11. It is presented for illustrative purposes only and is not necessarily indicative of the combined operating results or financial position that would have occurred if the Share Purchase had been consummated on these dates and in accordance with the assumptions described herein, nor is it necessarily indicative of future results of operations or the financial position of the combined company.
 
 
97
 
As of the date of this Proxy Statement, management has not completed the detailed valuation studies necessary to determine the fair values of the Perion assets and liabilities, nor has it identified all adjustments necessary to conform Perion's accounting policies to ClientConnect's accounting policies. The purchase price consideration deemed to be given by ClientConnect to complete the Share Purchase will be determined based on the trading price of the Perion Shares at the time the Share Purchase is consummated. A preliminary purchase price has been determined as of September 11, 2013, solely for the purpose of preparing the Unaudited Pro Forma Condensed Combined Financial Statements presented below. Any change in such information as of the date of the Closing, will impact the purchase price accordingly. Management has allocated the purchase price based on the preliminary estimated fair value of Perion's assets deemed acquired and liabilities deemed assumed based on preliminary valuation studies, due diligence and information presented in public filings. Accordingly, the unaudited pro forma purchase price allocation and related adjustments are preliminary and are subject to further adjustments as additional information becomes available and as additional valuations and analyses are completed. Subsequent to the Closing, final valuations of the assets deemed acquired and liabilities deemed assumed from Perion will be completed. Accordingly, there may be increases or decreases in the fair value of Perion's assets and liabilities reflected in the Unaudited Pro Forma Condensed Combined Balance Sheet that may also impact the Unaudited Pro Forma Condensed Combined Statements of Income. There can be no assurance that such final fair values of the assets deemed acquired and liabilities deemed assumed from the reverse acquisition of Perion will not result in material changes.
 
The following Unaudited Pro Forma Condensed Combined Financial Information has been developed from and should be read in conjunction with (i) the unaudited interim consolidated financial statement of Conduit for the six-month period ended June 30, 2013, (ii) the unaudited pro forma financial information of ClientConnect for the six-month period ended June 30, 2013, (iii) the audited consolidated financial statements of Conduit for the year ended December 31, 2012,  (iv) the unaudited pro forma financial information of ClientConnect for the year ended December 31, 2012, all included in this Proxy Statement, (v) the unaudited interim consolidated financial information of Perion for the six-month period ended June 30, 2013, incorporated by reference in this Proxy Statement, and (vi) the audited consolidated financial statements of Perion contained in its annual report on Form 20-F/A for the fiscal year ended December 31, 2012, incorporated by reference in this Proxy Statement.
 
The following Unaudited Pro Forma Condensed Combined Statements of Income do not give effect to planned synergies and/or cost savings related to the Share Purchase.
 
 
98
 
 
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
As of June 30, 2013
(U.S. dollars in thousands)

   
Client Connect
   
Perion
   
Pro Forma Adjustments
   
Note
   
Combined pro forma
 
CURRENT ASSETS:
                             
Cash and cash equivalents
  $ 5,000     $ 30,385     $ -           $ 35,385  
Trade receivables
    -       8,893       -             8,893  
Restricted cash
    -       10,260       -             10,260  
Prepaid expenses and other current assets
    19       4,334       -             4,353  
                                       
Total current assets
    5,019       53,872       -             58,891  
                                       
NON-CURRENT ASSETS:
                                     
Other assets
    42       1,424       -             1,466  
Property and equipment, net
    3,446       1,492       -             4,938  
Goodwill
    29,328       37,435       74,527       4(a)       141,290  
Other intangible assets
    -       31,731       31,669       4(b)       63,400  
                                         
Total long-term assets
    32,816       72,082       106,196               211,094  
                                         
Total assets
  $ 37,835     $ 125,954     $ 106,196             $ 269,985  
                                         
LIABILITIES AND SHAREHOLDERS' EQUITY
                                       
CURRENT LIABILITIES:
                                       
Short-term loan and current maturities of long-term debt
  $ 5,000     $ 2,300     $ -             $ 7,300  
Deferred revenues
    6,297       5,360       (4,700 )     4(c)       6,957  
Trade payables
    -       8,224       -               8,224  
Other accounts payable and accrued expenses
    711       17,771       1,841       4(d)          
                      6,275       4(e)       26,598  
Payment obligation related to acquisitions
    -       17,694       -               17,694  
                                         
Total current liabilities
    12,008       51,349       3,416               66,773  
                                         
Deferred revenues
    3,125       -       -               3,125  
Long-term debt
    -       5,400       -               5,400  
Contingent purchase consideration
    -       6,541       -               6,541  
Other long-term liabilities
    -       3,472       3,845       4(d)       7,317  
                                         
Total long-term liabilities
    3,125       15,413       3,845               22,383  
                                         
SHAREHOLDERS' EQUITY
    22,702       59,192       (59,192 )     4(f)          
                      164,402       4(f)          
                      (6,275 )     4(e)       180,829  
                                         
Total liabilities and shareholders' equity
  $ 37,835     $ 125,954     $ 106,196             $ 269,985  
 
The accompanying notes are an integral part of these Unaudited Pro Forma Condensed Combined Financial Statements.
 
 
99
 
 
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
Six months ended June 30, 2013
(U.S. dollars in thousands, except per share data)

   
Client
Connect
   
Perion
   
Pro Forma
Adjustments
   
Pro Forma
Adjustments
   
Note
   
Combined Pro Forma
 
                  4 (h)                  
Revenues
  $ 160,450     $ 52,005     $ -     $ -           $ 212,455  
Cost of revenues
    -       6,069       (6,069 )     -             -  
                                               
Gross Profit
    160,450       45,936       6,069       -             212,455  
                                               
Costs and expenses:
                                             
Cost of revenues
    2,954       -       6,069       4,135       4(g)       13,158  
Research and development
    10,243       6,293       -       -               16,536  
Traffic acquisition costs
    81,975       23,881       -                       105,856  
Selling and marketing
    4,948       5,342       -       2,875       4(g)       13,165  
General and administrative
    6,053       4,284       -                       10,337  
                                                 
Operating income
    54,277       6,136       -       ((7,010               53,403  
Financial income (expense), net
    1,305       (801 )     -       -               504  
                                                 
Income before taxes on income
    55,582       5,335       -       (7,010 )             53,907  
Taxes on income
    8,572       1,604       -       (912 )     4(i)       9,264  
Net income from continued operations
    47,010       3,731       -       (6,098 )             44,643  
Discontinued operations, net of taxes
    (14,973 )     -       -       -               (14,973 )
                                                 
Net income
  $ 32,037     $ 3,731     $ -     $ (6,098 )           $ 29,670  
                                                 
Weighted average common shares:
                                               
Basic
                                            66,415  
Diluted
                                            68,080  
                                                 
Net income from continued operations per common share:
                                               
Basic
                                            0.67  
Diluted
                                            0.66  
Net income from discontinued operations per common share:
                                               
Basic
                                            (0.23 )
Diluted
                                            (0.22 )
 
The accompanying notes are an integral part of these Unaudited Pro Forma Condensed Combined Financial Statements.
 
 
100
 
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
Year ended December 31, 2012
(U.S. dollars in thousands, except per share data)

   
Client
Connect
   
Perion
   
Pro Forma Adjustments
   
Pro Forma Adjustments
   
Pro Forma Adjustments
   
Note
   
Combined Pro Forma
 
                  4 (h)     4 (k)                  
Revenues
  $ 537,008     $ 60,223     $ -     $ 31,196     $ -           $ 628,427  
Cost of revenues
    -       5,230       (5,230 )     -       -             -  
                                                       
Gross Profit
    537,008       54,993       5,230       31,196       -             628,427  
                                                       
Costs and expenses:
                                                     
Cost of revenues
    5,513       -       5,230       68       14,711       4(g)       25,522  
Research and development
    16,858       10,735       -       2,932       -               30,525  
Traffic acquisition costs
    119,555       -       22,061       15,028       -               156,644  
Selling and marketing
    7,920       29,517       (22,061 )     2,832       6,722       4(g)       24,930  
General and administrative
    4,705       8,560       -       3,325       -               16,590  
                                                         
Operating income
    382,457       6,181       -       7,011       (21,433 )             374,216  
Financial income (expense), net
    7,696       (174 )     -       766       -               8,288  
Income before taxes on income
    390,153       6,007       -       7,777       (21,433 )             382,504  
Taxes on income
    75,435       2,473       -       2,514       (2,712 )     4(i)       77,710  
Net income from continued operations
    314,718       3,534       -       5,263       (18,721 )             304,794  
Discontinued operations, net of taxes
    (23,798 )     -       -       -       -               (23,798 )
                                                         
Net income
  $ 290,920     $ 3,534     $ -     $ 5,263     $ (18,721 )           $ 280,996  
Weighted average common shares:
                                                       
Basic
                                                    64,618  
Diluted
                                                    65,777  
Net income from continued operations per common share:
                                                       
Basic
                                                    4.72  
Diluted
                                                    4.63  
Net income from discontinued operations per common share:
                                                       
Basic
                                                    (0.37 )
Diluted
                                                    (0.36 )

The accompanying notes are an integral part of these Unaudited Pro Forma Condensed Combined Financial Statements.

 
101
 
 
NOTES TO UNAUDITED PRO FORMA CONDENSED  COMBINED FINANCIAL STATEMENTS
(U.S. dollars in thousands)
 
Note 1. Description of the Transaction
 
On September 16, 2013, Perion, Conduit and ClientConnect entered into the Share Purchase Agreement. Prior to entering into discussions with Perion regarding a possible transaction, Conduit decided to spin-off its ClientConnect business to ClientConnect Ltd., a newly formed company to be owned by the shareholders of Conduit in proportion to their ownership of Conduit. On September 16, 2013, Conduit and ClientConnect entered into the Split Agreement, pursuant to which the activities and operations, and related assets and liabilities, of the ClientConnect business will be transferred to ClientConnect on a cash-free and debt-free basis under the terms and conditions set forth in the Split Agreement, and the Conduit shareholders will be issued ClientConnect Shares in proportion to their ownership of Conduit.
 
The Share Purchase Agreement provides for, among other things, the purchase by Perion of all the issued and outstanding ClientConnect Shares from the ClientConnect Shareholders in exchange for New Shares, as a result of which ClientConnect will become a wholly owned subsidiary of Perion. Each ClientConnect Share will be exchanged for that number of New Shares equal to the Exchange Ratio, which shall be determined prior to the Closing of the Share Purchase. The Exchange Ratio as of September 11, 2013, as computed based on information as of such date, is equal to approximately 0.2402 Perion Shares for each one ClientConnect Share. The New Shares to be issued to the ClientConnect Shareholders at the Closing, together with the Exchanged Options, will constitute 81% of the issued and outstanding Perion Shares, and Perion's current shareholders and option holders will own 19% of the issued and outstanding Perion Shares, on a Fully Diluted basis.
 
Note 2. Basis of Presentation
 
The Unaudited Pro Forma Condensed Combined Statements of Income for the year ended December 31, 2012 and the six months ended June 30, 2013 give effect to the Share Purchase as if it had been consummated on January 1, 2012 and January 1, 2013, respectively. In addition, the Unaudited Pro Forma Condensed Combined Statement of Income for the year ended December 31, 2012 gives effect to an acquisition made by Perion in November 2012 (see note 4(k)). The Unaudited Pro Forma Condensed Combined Balance Sheet as of June 30, 2013 gives effect to the Share Purchase as if it had been consummated on June 30, 2013.
 
The Unaudited Pro Forma Condensed Combined Financial Statements have been derived from the unaudited pro-forma financial information of ClientConnect and the historical financial statements of Conduit and of Perion that are either included in or incorporated by reference into this Proxy Statement. Upon the Closing, further review of accounting policies may result in additional revisions to Perion's policies and classifications to conform to those of ClientConnect. Based on management's preliminary review of the respective summaries of significant accounting policies of Perion and Conduit (with respect to ClientConnect) and preliminary discussions among the respective management teams, the nature and amount of any adjustments to the historical financial statements of Perion, to conform its accounting policies to those of ClientConnect, are not expected to be material. As described in Note 4(h), Perion will present a one-step statement of income to be consistent with ClientConnect's presentation.
 
Assumptions and estimates underlying the unaudited pro forma adjustments are described in these notes and should be read in conjunction with the Unaudited Pro Forma Condensed Combined Financial Statements. Since the Unaudited Pro Forma Condensed Combined Financial Statements have been prepared based upon preliminary estimates, the final amounts recorded as of the Closing may differ materially from the information presented.
 
 
102
 
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except per share data)

Note 2. Basis of Presentation (c’ntd)
 
The Share Purchase is reflected in the Unaudited Pro Forma Condensed Combined Financial Statements as an acquisition of all the outstanding shares and options of Perion by ClientConnect in accordance with Accounting Standards Codification Topic 805, "Business Combinations," using the acquisition method of accounting with ClientConnect as the accounting acquirer. Since Perion is the "legal acquirer", the Share Purchase will be accounted for as a reverse acquisition. Under these accounting standards, ClientConnect's total estimated purchase price is calculated as described in Note 3, and the assets deemed acquired and the liabilities deemed assumed from Perion are measured and recorded at their estimated fair values. For the purpose of measuring the estimated fair value of the assets deemed acquired and liabilities deemed assumed, ClientConnect estimated the fair values as the price that would be received to sell an asset or pay to transfer a liability in an orderly transaction between market participants as of the measurement date. The fair value measurements utilize estimates based on key assumptions of the Share Purchase, including historical and current market data. The unaudited pro forma adjustments included herein are preliminary and will be adjusted as additional information becomes available and as additional analyses are performed. The final purchase price allocation will be determined subsequent to the Closing, and the final amounts of the assets deemed acquired and liabilities deemed assumed in the reverse acquisition of Perion may differ materially from the values recorded in these pro forma financial statements.
 
Estimated transaction costs have been excluded from the Unaudited Pro Forma Condensed Combined Statements of Income as they reflect charges directly related to the Share Purchase, that does not have an ongoing impact. However, the anticipated transaction costs are reflected in the Unaudited Pro Forma Condensed Combined Balance Sheet as an increase to accounts payable and other current liabilities and a decrease to shareholders equity. In addition, the Unaudited Pro Forma Condensed Combined Financial Statements do not include one-time costs directly attributable to the transaction, such as professional fees incurred or to be incurred by ClientConnect or Perion or employee retention costs pursuant to provisions contained in the Share Purchase Agreement, as those costs are not considered part of the purchase price.
 
ClientConnect and Perion expect to incur significant costs associated with the integration of ClientConnect and Perion after the transaction is completed. The Unaudited Pro Forma Condensed Combined Financial Statements do not reflect these costs or any benefits that may result from realization of future cost savings from operating efficiencies or revenue synergies expected to result from the Share Purchase.
 
There were transactions between Conduit and Perion during the periods presented in the pro forma statements that have not been eliminated as their impact is immaterial.
 
Note 3. Estimated Purchase Consideration and Allocation
 
Based on the closing price of the Perion Shares on NASDAQ of $12.80 per share as of September 11, 2013 and the options of Perion outstanding on that date, the consideration under reverse acquisition accounting would be $164,402, consisting of $159,602 for the deemed (for accounting purposes only) issuance of ClientConnect Shares, and $4,800 for the fair value of Perion options deemed (for accounting purposes only) to be converted into ClientConnect options. The converted options represent the fair value of such options attributable to service prior to the Closing using the current market price of the Perion Shares as an input to the Black Scholes valuation model to determine the fair value of the options.
 
The estimated value of the consideration reflected in these Unaudited Pro Forma Condensed Combined Financial Statements does not purport to represent the actual value of the consideration that will be deemed to be received by Perion's shareholders when the reverse acquisition is consummated. The fair value of equity securities deemed issued, for accounting purposes only, as part of the consideration will be measured on the date of the Closing at the then-current market price of the Perion Shares. This may result in material differences from the information set forth in this Unaudited Pro Forma Condensed Combined Financial.
 
 
103
 

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(U.S. dollars in thousands)
 
Note 3. Estimated Purchase Consideration and Allocation (c’ntd)
 
The allocation of the preliminary purchase price to the fair values of assets deemed acquired and liabilities deemed assumed includes unaudited pro forma adjustments to reflect the fair values of Perion's assets and liabilities. The allocation of the preliminary purchase price is as follows:
 
Current assets
  $ 53,872  
Property and equipment
    1,492  
Goodwill
    111,962  
Other intangible assets
    63,400  
Other assets
    1,424  
         
Total assets
    232,150  
         
Current liabilities
    (48,490 )
Non-current liabilities
    (19,258 )
Total liabilities
    (67,748 )
         
Estimated purchase price
  $ 164,402  

The purchase price allocation shown in the table above is based on preliminary estimates of fair value of Perion’s assets and liabilities. These estimated fair values are considered preliminary and are subject to change upon completion of the final valuation. Changes in fair value of the intangible assets deemed acquired may be material.
 
Note 4. Adjustments to Unaudited Pro Forma Condensed Combined Financial Statements
 
The unaudited adjustments to historical amounts included in the Unaudited Pro Forma Condensed Combined Financial are as follows:
 
  (a)             Goodwill
 
Goodwill reflects the preliminary estimate of the excess of the purchase price paid over the fair value of the assets deemed acquired and liabilities deemed assumed from Perion and is not amortized. The estimated purchase price of the transaction was based on the closing price per share on NASDAQ of the Perion Shares on September 11, 2013, and the excess purchase price over the fair value of the identifiable net assets deemed acquired.
 
  (b)             Other intangible assets
 
Other intangible assets reflect the preliminary estimated fair value of Perion's intangibles assets of $63,400. The provisional measurements of fair value reflected are subject to change, which change could be significant and could impact the related amortization, as well. See Note (g) for further information on intangible assets.
 
 
104
 
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
 (U.S. dollars in thousands)
 
Note 4. Adjustments to Unaudited Pro Forma Condensed Combined Financial Statements (c’ntd)
 
  (c)           Deferred revenues
 
The adjustment to deferred revenues represents the unaudited pro-forma adjustment reflecting the decrease in the fair value of Perion's deferred revenue balance at June 30, 2013, based on the cost of fulfillment plus a normal profit margin, to $660, representing a reduction of $4,700 from the carrying value. After the Closing, the adjustment will be amortized as a reduction in revenue over the twelve-month period services are provided. The impact is not included in the accompanying unaudited pro forma condensed combined statements of income as it is considered a nonrecurring charge that will be included in Perion's statement of income within twelve months following the Closing. The provisional measurements of fair value reflected are subject to change. Such changes could be significant to the fair value and to the related amortization.
 
  (d)             Deferred tax liability
 
The adjustment to other current and long-term liabilities include an adjustment of the deferred tax liability arising from the estimated fair value adjustments for intangibles deemed acquired (other than goodwill) and deferred revenue, and are based on Perion's expected tax rates in the years in which the deferred taxes are expected to be applied.
 
 Current deferred tax liability - Net adjustment were due to $2,900 preliminary estimate of the deferred tax liability associated with the intangible assets deemed acquired, offset by the elimination of Perion’s historical deferred taxes liability of $1,059.
 
Non-current deferred tax liability - Net adjustment were due to $6,000 preliminary estimate of the deferred tax liability associated with the intangible assets deemed acquired, offset by the elimination of Perion’s historical deferred taxes liability of $2,155.
 
  (e)             Accounts payable and other current liabilities.  
 
Accounts payable and other current liabilities were increased to give effect to $6,275 due to estimated transaction fees.
 
(f)                Shareholders' equity
 
Under reverse acquisition accounting, the amount of common stock on the balance sheet will reflect the equity structure of the legal acquirer (the par value and the number of Perion Shares issued and outstanding). The Unaudited Pro Forma Condensed Combined Balance Sheet reflects the additional fair value of Perion related to the number of ClientConnect Shares deemed (for accounting purposes) issued, less the par value of the Perion Shares outstanding immediately after the Closing and includes $4,800 to reflect the portion of the purchase price related to the total estimated fair value of Perion's stock options outstanding as of September 11, 2013, excluding the value associated with employee services yet to be rendered.
 
Shareholders equity was reduced by $6,275 for estimated transaction costs. These estimated transaction costs have been excluded from the Unaudited Pro Forma Condensed Combined Statement of Income as they reflect charges directly related to the Share Purchase that do not have an ongoing impact.
 
 
105
 
 
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
 (U.S. dollars in thousands)
 
Note 4. Adjustments to Unaudited Pro Forma Condensed Combined Financial Statements (c’ntd)
 
 (g)           Other intangible assets
 
Total adjustments related to amortization expense of intangible assets are as follows:
 
   
Six months
ended
June 30, 2013
   
Year ended
December 31, 2012
 
Cost of revenues
           
Elimination of Perion’s historical intangible asset amortization
  $ (3,715 )   $ (1,489 )
Estimated amortization of fair value of acquired intangible assets
    7,850       16,200  
                 
Adjustments to cost of revenues
  $ 4,135     $ 14,711  
                 
Selling and marketing
               
Elimination of Perion’s historical intangible asset amortization
  $ (942 )   $ (935 )
Estimated amortization of fair value of acquired intangible assets
    3,817       7,657  
                 
Adjustments to selling and marketing
  $ 2,875     $ 6,722  

As of the date of this Proxy Statement, the detailed purchase price allocation related to Perion’s acquisition has not been completed. The fair value of the intangible assets has been determined based on discussions with management, preliminary valuation studies that are based inter alia on similar transactions and industry specific, due diligence and information presented in public filings. Accordingly, the value assigned to intangible assets and related amortization adjustments are preliminary and are subject to further adjustments as additional information becomes available and as additional valuations and analyses are completed. Subsequent to the transaction, final valuations of the assets deemed acquired and liabilities deemed assumed from Perion will be completed. There can be no assurance that such final fair values will not result in material changes.
 
Intangible assets will comprise of technology, customer relationship and in process R&D. The following estimated weighted-average useful lives were used in the calculation:
 
Technology – 3 to 5 years
 
Customer-related intangible assets – 6.5 years
 
In process R&D – amortization will be recorded, and the rate determined, upon completion of the development
 
Amortization of technology is included within cost of sales, and amortization of customer-related intangible assets is included in selling and marketing.
 
 
106
 
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
 (U.S. dollars in thousands)
 
Note 4. Adjustments to Unaudited Pro Forma Condensed Combined Financial Statements (c’ntd)
 
(h)
Perion will present a one-step statement of income to be consistent with ClientConnect's presentation. In addition, traffic acquisition cost will be presented in a separate line item, so it will be reclassified from selling and marking expense to be consistent with ClientConnect's presentation.
 
  (i)             Taxes on income
 
Estimated income tax benefit adjustments included in the pro forma statements of income are as follows:
 
   
Six months
Ended
June 30,
2013
   
Year ended
December 31, 2012
 
Elimination of Perion’s historical change in deferred taxes associated with the amortization of the purchase accounting adjustments
  $ (488 )   $ (88 )
Estimated change in deferred taxes associated with the amortization of the purchase accounting adjustments
    1,400       2,800  
Adjustments to income tax
  $ 912     $ 2,712  

 (j)               Stock-based compensation expense.    
 
Under reverse acquisition accounting, Perion options are deemed (for accounting purposes only) to be replaced by ClientConnect options. The fair value of these replacement options is determined by using the current price on NASDAQ of the Perion Shares as an input to the Black Scholes valuation model. The total estimated fair value of these options is allocated to services rendered prior to the Closing based upon the vesting schedules thereof and included as part of the purchase price and to services to be rendered after the Closing, and will be included in future stock-based compensation expense.
 
 ( k )
On November 30, 2012, Perion completed the acquisition of 100% of the shares of SweetIM Ltd. ("SweetIM"). This pro forma adjustment gives effect to the operations of SweetIM as if the acquisition of SweetIM had occurred on January 1, 2012. Refer to Note 3 in the audited consolidated financial statements of Perion contained in its annual report on Form 20-F/A for the fiscal year ended December 31, 2012, incorporated by reference in this Proxy Statement for further details on the SweetIM acquisition
 
 
107
 

 
Our Audit Committee evaluated the terms of the Share Purchase, including the terms and conditions of the Share Purchase Agreement. Our Audit Committee approved the Share Purchase Agreement, the Share Purchase and the other transactions contemplated by the Share Purchase Agreement, determined that the Share Purchase is fair to and in the best interests of our company and our shareholders, approved the execution, delivery and performance of the Share Purchase Agreement and the completion of the Share Purchase and the other transactions contemplated by the Share Purchase Agreement.
 
Our Board of Directors, following the approval of our Audit Committee, (i) determined that the terms and conditions of the transactions contemplated by the Share Purchase Agreement are fair to and in the best interests of our company and our shareholders, (ii) approved the execution, delivery and performance of the Share Purchase Agreement and the completion of the Share Purchase and the other transactions contemplated by the Share Purchase Agreement, (iii) directed management to call an extraordinary meeting of shareholders and to take such other actions as are necessary to complete the Share Purchase and (iv) resolved to recommend that our shareholders approve the Share Purchase Agreement, the Share Purchase and the other transactions contemplated by the Share Purchase Agreement and directed that such matter be submitted for consideration of our shareholders at the Meeting.
 
In reaching these determinations, our Audit Committee and Board of Directors considered a number of factors, including the following: (i) the advice of our senior management, financial advisors and outside legal counsels, (ii) the opinion of RBC to the effect that, as of the date given and based upon and subject to the factors and assumptions made, procedures followed, matters considered and limits of the review undertaken by RBC set forth therein, the Exchange Ratio was fair from a financial point of view to our shareholders (see "Opinion of RBC Capital Markets, LLC") and (iii) in the case of our Board of Directors, the unanimous approval of our Audit Committee.
 
In the course of reaching their determinations, our Audit Committee and Board of Directors also considered the following factors and potential benefits of the Share Purchase, each of which the members of the Audit Committee and Board of Directors believed supported their respective decisions:
 
 
·
the expectation that the Share Purchase would be immediately accretive to our earnings per share;
 
 
·
that the consideration for the Share Purchase is entirely in the form of Perion Shares, without the need for us to pay cash or raise debt;
 
 
·
that the Exchange Ratio reflects a premium to Perion's shareholders;
 
 
·
the complementary strengths of Perion and ClientConnect across their respective product suites, including their aligned search products, monetization platforms and global search distribution capabilities;
 
 
·
the expectation that the combined company would have an attractive growth profile and increased financial flexibility;
 
 
·
recent developments in the industry in which we operate and the impact of such developments on the business and prospects of our company;
 
 
·
that the Share Purchase would enhance our search footprint, which on a pro forma basis for the 12 months ended June 30, 2013 would have handled over 17 billion search queries, served 570 million combined installs and generated approximately $367 million in revenue;
 
 
108
 
 
·
the anticipated ability to fund future growth through the financial strength of the combined company in general and the cash flow generation from its operations in particular;
 
 
·
the companies’ combined expertise in search services and the complementary strengths of the two management teams offer additional growth opportunities;
 
 
·
that the combined company will be a leading search and monetization platform;
 
 
·
that Josef Mandelbaum and Yacov Kaufman will remain Chief Executive Officer and Chief Financial Officer, respectively, of the combined company, and substantially all of Perion’s management would remain in their respective positions;
 
 
·
that our staggered board structure and size would remain unchanged, maintaining a professional Board of Directors that consists primarily of independent directors;
 
 
·
that Dror Erez, a co-founder and Chief Technology Officer of Conduit, and Roy Gen, the Chief Financial Officer of Conduit, would join our Board of Directors following the Closing, contributing their expertise and knowledge of the ClientConnect business and the industry;
 
 
·
that the ClientConnect Shareholders would be subject to lock-up arrangements that would limit their ability to sell their Perion Shares for six to 24 months following the Closing, as described above under "Share Purchase Agreement—Lock-up Arrangements" and "Share Purchase Agreement—Tax Matters", respectively;
 
 
·
that no single shareholder will beneficially own more than 15% of the outstanding Perion Shares following the Closing;
 
 
·
that our shareholders immediately prior to the Closing will be able to participate in any future earnings or growth of the combined company, synergies and cost savings, and any potential future appreciation in the value of the Perion Shares;
 
 
·
the expectation of our management that, following our complete integration with ClientConnect, we would generate yearly operating synergies, driven by scale advantages across core functional areas;
 
 
·
the financial and other terms of the Share Purchase Agreement and the transactions contemplated thereby and, in particular, the limited number and nature of the conditions to the parties’ obligations to complete the Share Purchase;
 
 
·
the terms and conditions of the Split Agreement and the transactions contemplated thereby;
 
 
·
the view of Conduit's and Perion's legal counsels that the transaction would not trigger change of control provisions in ClientConnect's contracts that are considered material from a financial perspective;
 
 
·
that neither we nor our shareholders would recognize any gain or loss for tax purposes as a result of the Share Purchase;
 
 
·
that our Board of Directors has the right under the Share Purchase Agreement to change  its recommendation to our shareholders, if prior to the Meeting, our Board of Directors determines, in its good faith judgment and after consultation with its outside legal counsel, that the failure to change its recommendation would be inconsistent with the Perion board of directors’ fiduciary duties under applicable law, as described above under "Share Purchase Agreement— Restrictions on Solicitations of Other Offers"; and
 
 
·
that the Share Purchase will be submitted to our shareholders for approval, which allows for an informed vote by our shareholders on the merits of the Share Purchase and the transactions contemplated thereby.
 
 
109
 
Our Audit Committee and our Board of Directors also considered a variety of risks and other potentially negative factors concerning the Share Purchase Agreement and the Share Purchase, including the following:
 
 
·
the complexity of the transaction and the potential negative impact on the market price of the Perion Shares upon announcement of the transaction;
 
 
·
the possible negative perception among investors that could arise from a review of ClientConnect's declining revenues and earnings in recent years, especially since our historical financial statements will be based on Conduit's historical financial statements as a result of the Share Purchase;
 
 
·
the potential diversion of management resources from operational matters and the opportunity costs associated with the Share Purchase;
 
 
·
that our or ClientConnect's customers could potentially move to cancel or amend their respective contracts if they view the Share Purchase as a change of control event;
 
 
·
the risks arising from the challenges of integrating the businesses, management teams, strategies, cultures and organizations of the two companies, including the possibility that the Share Purchase and the resulting integration process could result in the loss of key employees, the disruption of on-going business and the loss of customers;
 
 
·
the restrictions to which we will be subject under Israeli tax law as a result of the Share Purchase, as described above under "Share Purchase Agreement—Tax Matters";
 
 
·
the non-solicitation provisions in the Share Purchase Agreement, which might have the effect of discouraging parties potentially interested in acquiring our company from pursuing an acquisition of our company;
 
 
·
that we could become obligated to pay Conduit a termination fee of $6 million in certain circumstances related to an alternative transaction;
 
 
·
that the potential synergies and other potential benefits of the Share Purchase may not be realized or that we may not be successful in implementing our business plan for the combined company;
 
 
·
that Conduit's representations and warranties in the Share Purchase Agreement terminate upon the Closing, which increase our exposure to liabilities arising from the ClientConnect business;
 
 
·
that the ClientConnect shareholders and option holders would hold 81% of the outstanding Perion Shares upon completion of the Closing, while our shareholders and option holders will be diluted to 19% of the outstanding Perion Shares, on a Fully Diluted basis, immediately upon the Closing;
 
 
·
the customary restrictions on the conduct of our business prior to the Closing, requiring us to conduct our business solely in the ordinary course, subject to specific limitations, which may delay or prevent us from undertaking business opportunities that may arise during this period;
 
 
·
that the Share Purchase might not be consummated on a timely basis or at all despite the  parties’ efforts;
 
 
·
the impact of costs and expenses related to the Share Purchase, including transaction expenses and integration expenses, on our financial condition;
 
 
·
that directors and executive officers of Perion may have interests in the Share Purchase that are different from, or in addition to, the interests of our shareholders, as described above under "Interests of our Directors and Officers in the Share Purchase"; and
 
 
·
other applicable risks described above under "Risk Factors".
 
 
110
 
We do not intend for the foregoing discussion of the information and factors considered by our Audit Committee and Board of Directors to be exhaustive.  We do believe, however, that the foregoing discussion summarizes the material factors considered by our Audit Committee and Board of Directors in its consideration of the Share Purchase. After considering these factors, our Audit Committee and Board of Directors, respectively, concluded that the positive factors relating to the Share Purchase Agreement outweighed any potential negative factors. In view of the number of factors considered by our Audit Committee and Board of Directors, and the complexity of these matters, our Audit Committee and Board of Directors did not find it practicable to quantify or otherwise assign relative weights to the foregoing factors. In addition, individual members of our Audit Committee and Board of Directors may have assigned different weights to various factors. Our Audit Committee and Board of Directors approved the Share Purchase Agreement and the Share Purchase based upon the totality of the information presented to and considered by it.
 
 
111
 

 
On September 15, 2013, RBC delivered its oral opinion, subsequently confirmed in writing, to our Board of Directors to the effect that, as of such date, based upon and subject to the factors and assumptions made, procedures followed, matters considered and limits of the review undertaken by RBC set forth therein, the Exchange Ratio was fair from a financial point of view to our shareholders.
 
The full text of RBC’s written opinion, dated September 16, 2013, which, among other things, sets forth the assumptions made, procedures followed, matters considered, and limits of the review undertaken by RBC in connection with the opinion, is attached as Appendix B. RBC provided its opinion for the information and assistance of our Board of Directors in connection with its consideration of the Share Purchase. All advice and opinions (written and oral) rendered by RBC were intended for the use and benefit of our Board of Directors, acting solely in its capacity as such. The RBC opinion is not a recommendation to any shareholder as to how such shareholder should vote with respect to the Share Purchase or any other proposal to be voted upon by them in connection with the transactions contemplated by the Share Purchase Agreement.
 
For the purposes of rendering its opinion, RBC undertook such review and inquiries as it deemed necessary or appropriate under the circumstances, including the following:
 
 
•
reviewed the financial terms of the Share Purchase Agreement;
 
 
•
reviewed the financial terms of a draft of the Split Agreement;
 
 
•
reviewed and analyzed certain publicly available financial and other data with respect to Perion and certain other relevant historical operating data relating to ClientConnect and Perion made available to RBC from published sources (in the case of Perion) and from the internal records of Conduit and Perion, respectively;
 
 
•
reviewed financial projections and forecasts of Perion and the combined post-Closing company prepared by Perion’s management, and of ClientConnect, prepared by Conduit’s management, as adjusted downward by Perion’s management ("Forecasts");
 
 
•
conducted discussions with members of the senior managements of Conduit and Perion with respect to the business prospects and financial outlook of ClientConnect and Perion as standalone entities as well as the strategic rationale and potential benefits of the transactions contemplated by the Share Purchase Agreement;
 
 
•
reviewed Wall Street research estimates regarding the potential future performance of Perion as a standalone entity;
 
 
•
reviewed the reported prices and trading activity for the Perion Shares; and
 
 
•
performed other studies and analyses as RBC deemed appropriate.
 
In arriving at its opinion, RBC performed the following analyses in addition to the review, inquiries and analyses referred to in the preceding paragraph:
 
 
•
performed a valuation analysis of each of ClientConnect and Perion as a standalone entity, using comparable company and discounted cash flow analyses with respect to each of ClientConnect and Perion, as well as precedent transaction analysis with respect to Perion;
 
 
•
performed an analysis of the contribution of selected historical and projected metrics of ClientConnect and Perion as standalone entities; and
 
 
•
performed a pro forma combination analysis, determining the potential impact of the Share Purchase on the projected 2014 and 2015 earnings per share of Perion, pro forma for the Share Purchase.
 
 
112
 
RBC employed several analytical methodologies in rendering its opinion, and no one method of analysis should be regarded as critical to the overall conclusion reached. Each analytical technique has inherent strengths and weaknesses, and the nature of the available information may further affect the value of particular techniques. RBC’s overall conclusions were based on the analyses and factors presented, taken as a whole, and also on application of RBC’s experience and judgment. Such conclusions may have involved significant elements of subjective judgment and qualitative analysis. RBC therefore gave no opinion as to the value or merit standing alone of any one or more parts of the analyses.
 
In rendering its opinion, RBC assumed and relied upon the accuracy and completeness of all of the information that was publicly available to it and all of the financial, legal, tax, operating and other information provided to or discussed with it by Conduit or Perion (including, without limitation, the financial statements and related notes thereto of each of ClientConnect and Perion, respectively), and did not assume any responsibility for independently verifying, and did not independently verify, such information. RBC assumed, with the consent of the our Board of Directors, that all Forecasts provided to RBC by Conduit or Perion (including Forecasts provided to RBC by Perion with respect to certain cost and revenue synergies expected to be realized from the transactions contemplated by the Share Purchase Agreement), were reasonably prepared on bases reflecting the best currently available estimates and good faith judgments of the managements of Conduit and Perion as to the future financial performance of ClientConnect and Perion, respectively, as standalone entities (or, in the case of any projected synergies, as a combined company). RBC expressed no opinion as to the Forecasts or the assumptions upon which they were based. In addition, RBC assumed, with the consent of our Board of Directors, that all assets necessary to operate ClientConnect, together with the contractual rights associated with the Split Agreement and the ancillary agreements related thereto, are sufficient to operate ClientConnect as contemplated by the Forecasts.
 
In rendering its opinion, RBC did not assume any responsibility to perform, and did not perform, an independent evaluation or appraisal of any of the assets or liabilities of Conduit, including ClientConnect or Perion, and RBC was not furnished with any such valuations or appraisals. RBC did not assume any obligation to conduct, and did not conduct, a physical inspection of the property or facilities of Conduit or Perion. RBC did not investigate, and made no assumption regarding, any litigation or other claims affecting Conduit or Perion.
 
RBC assumed, in all respects material to its analyses, that:
 
 
•
all conditions to the consummation of the Share Purchase would be satisfied without waiver thereof; and
 
 
•
the executed version of the Split Agreement would not differ, in any respect material to RBC’s opinion, from the latest draft reviewed by RBC.
 
The RBC opinion speaks only as of the date thereof, is based on the conditions as they existed, and information that RBC was supplied, as of the date thereof, and is without regard to any market, economic, financial, legal, or other circumstances or event of any kind or nature which may exist or occur after such date. RBC did not undertake to reaffirm or revise its opinion or otherwise comment upon events occurring after the date thereof and does not have an obligation to update, revise or reaffirm its opinion. RBC did not express an opinion as to the prices at which the Perion Shares have traded or would trade following the announcement of the Share Purchase or the prices at which the Perion Shares would trade following the consummation of the Share Purchase.
 
The RBC opinion was provided for the information and assistance of our Board of Directors in connection with the Share Purchase. The RBC opinion does not express any opinion, and makes no recommendation, to any shareholder of Perion as to how such shareholder should vote with respect to the Share Purchase or any other proposal to be voted upon by them in connection with the transactions contemplated by the Share Purchase Agreement. All advice and opinions (written and oral) rendered by RBC were intended for the use and benefit of our Board of Directors, acting solely in its capacity as such, and such advice or opinions may not be reproduced, summarized, excerpted from or referred to in any public document or given to any other person without the prior written consent of RBC; provided, however, that RBC has agreed to the inclusion of the opinion in certain circumstances, including in this Proxy Statement. The RBC opinion does not address the merits of the underlying decision by Perion to engage in the Share Purchase or the relative merits of the Share Purchase compared to any alternative business strategy or transaction in which Perion might engage. The RBC opinion addresses solely the fairness of the Exchange Ratio from a financial point of view to our shareholders. The RBC opinion does not in any way address other terms or arrangements of the Share Purchase Agreement, the Share Purchase or the Split Agreement, including without limitation, the financial or other terms of any other agreements contemplated by, or entered into in connection therewith. Further, in rendering its opinion, RBC expressed no opinion about the fairness of the amount or nature of the compensation (if any) to any of our officers, directors or employees, or class of such persons, relative to the consideration to be issued by us at the Closing.
 
 
113
 
Set forth below is a summary of the material financial analyses performed by RBC in connection with its opinion and reviewed with our Board of Directors at its meeting on September 15, 2013. The following summary, however, does not purport to be a complete description of the financial analyses performed by RBC. The order of analyses described does not represent relative importance or weight given to those analyses by RBC. Some of the summaries of the financial analyses include information presented in tabular format. The tables must be read together with the full text of each summary and are alone not a complete description of RBC’s financial analyses.
 
For purposes of its analyses, RBC reviewed a number of financial and operating metrics, including:
 
 
·
enterprise value, calculated as the value of the relevant company’s outstanding equity securities (taking into account its outstanding options and other convertible securities, as applicable) based on the relevant company’s closing stock price ("equity value") plus (i) par value of debt less cash and equivalents ("net debt") and (ii) noncontrolling interest, net of investment in unconsolidated affiliates (if any);
 
 
·
earnings before interest, taxes, depreciation, and amortization ("EBITDA");
 
 
·
earnings before interest and taxes ("EBIT"); and
 
 
·
net income.
 
Unless the context indicates otherwise, enterprise values and stock prices derived from the comparable companies analyses described below were calculated using the closing price of the Perion Shares and the common stock of the selected ad-supported software companies listed below as of September 13, 2013, and transaction values for the target companies derived from the comparable transactions analysis described below were calculated as of the announcement date of the relevant transactions based on the estimated enterprise value as of such date, using the purchase prices to be paid for the target companies’ stock in the selected transactions, instead of closing stock prices. Accordingly, this information may not reflect current or future market conditions.
 
LTM (latest twelve months for which financial information is publicly available) EBITDA, EBIT and net income for each of Perion and ClientConnect were based on historical financial information provided by the managements of Perion and Conduit, respectively, for the twelve months ended June 30, 2013, both adjusted for certain non-GAAP items provided by the management of Perion. First half 2013 annualized EBITDA, EBIT and net income for each of Perion and ClientConnect were based on historical financial information provided by the managements of Perion and Conduit, respectively, for the six months ended June 30, 2013, subject to certain non-GAAP adjustments provided by the management of Perion. Estimates of 2013 and 2014 EBITDA, EBIT and net income for Perion were based on estimates provided by the management of Perion. Estimates of 2013 and 2014 EBITDA, EBIT and net income for ClientConnect were based on estimates provided by management of Conduit, as adjusted downward by management of Perion. Estimates of 2013 and 2014 EBITDA and net income for the selected ad-supported software companies listed below were based on consensus estimates across selected Wall Street research reports ("Wall Street consensus") as of September 13, 2013.
 
 
114
 
Enterprise values for each of Perion and ClientConnect were calculated using the treasury stock method, and $23 million of net debt in the case of Perion, and no debt, in the case of ClientConnect. With respect to ClientConnect, the treasury stock method assumed an implied Exchange Ratio value of $3.16 per share, based on the Exchange Ratio of 0.2402 shares of Perion Shares, valued at $13.17 per share of Perion Shares, using the closing price of the Perion Shares as of September 13, 2013.
 
None of the companies used in the comparable companies or comparable transactions analyses are identical to Perion or ClientConnect. Accordingly, RBC believes the analyses are not simply mathematical. Rather, they involve complex considerations and qualitative judgments, reflected in RBC’s opinion, concerning differences in financial and operating characteristics of such companies and other factors that could affect the public trading value of the comparable companies or the acquisition prices of the subject companies in the comparable transactions analysis.
 
Contribution Analysis
 
RBC reviewed the respective estimated contributions of each of Perion and ClientConnect to the combined companies’ (1) EBITDA, (2) EBIT and (3) net income on each of an LTM, and first half 2013 annualized basis, as well as for each of the estimated calendar years ("CY") 2013 ("2013E") and 2014 ("2014E"). Such contributions were on a stand-alone basis; they excluded the effects of synergies.
 
The analysis indicated (i) the following ranges of relative contributions of Perion to each of the combined companies’ (a) LTM, (b) first half 2013 annualized, (c) CY 2013E and (d) CY 2014E EBITDA, EBIT and net income and (ii) corresponding implied exchange ratio ranges, as compared to the proposed Exchange Ratio of 0.2402:
 
 
Relative Contribution
 
Low
High
 
Implied Percentage Ownership of Perion Shareholders
Implied Exchange Ratio
Implied Percentage Ownership of Perion Shareholders
Implied Exchange Ratio
EBITDA
14.0%
0.302x
17.8%
0.228x
EBIT
13.4%
0.320x
17.1%
0.239x
Net Income
12.8%
0.386x
16.3%
0.291x

 
115
 
Comparable Companies Analysis
 
Perion . RBC reviewed certain financial and stock market information of Perion and compared such information to corresponding information for a group of publicly traded companies (a "peer group"). The peer group to which Perion was compared consisted of the following publicly traded ad-supported software companies:
 
 
•
IAC/InteractiveCorp
 
 
•
AVG Technologies N.V.
 
 
•
Babylon Ltd.
 
RBC calculated the following multiples based on the reviewed financial and stock market information of Perion’s peer group:
 
 
•
Enterprise value as a multiple of CY 2013E EBITDA.
 
 
•
Enterprise value as a multiple of CY 2014E EBITDA.
 
The following table sets forth the high, low, mean and median multiples of Perion’s peer group derived by RBC, based on Wall Street consensus, using the treasury stock method, together with the corresponding multiple for Perion:
 
 
Peer Group High
Peer Group Mean
Peer Group Median
Peer Group Low
Perion
Enterprise value as a multiple of CY 2013E EBITDA (1)
8.9x
7.4x
6.9x
6.2x
5.9x
Enterprise value as a multiple of CY 2014E EBITDA (2)
8.1x
7.0x
7.0x
5.8x
4.6x
________________
 
(1)           Babylon 2013E EBITDA figure represented 2013 annualized EBITDA, based on six month historical financial information for the period ended June 30, 2013.
 
(2)           2014 EBITDA estimates for Babylon were not available.
 
RBC applied the following multiple ranges to Perion’s 2013E and 2014E EBITDA, after reviewing the comparable companies analysis, which yielded the following implied per share equity value reference ranges for the Perion Shares:
 
 
Selected Multiple Range
Implied Per Share Equity Value Reference Range
Enterprise value as a multiple of CY 2013E EBITDA
5.9x – 8.9x
$13.17 – $18.62
Enterprise value as a multiple of CY 2014E EBITDA
4.6x – 8.1x
$13.17 – $21.28

ClientConnect . RBC reviewed certain financial information of ClientConnect and compared such information to corresponding financial information, together with stock market information, for the same peer group described in the Comparable Companies Analysis of Perion above.
 
RBC applied the following multiple ranges to ClientConnect’s 2013E and 2014E EBITDA, after reviewing the comparable companies analysis, which yielded the following implied per share equity value reference ranges for the ClientConnect Shares:
 
 
Selected Multiple Range
Implied Per Share Equity Value Reference Range
Enterprise value as a multiple of CY 2013E EBITDA
5.9x – 8.9x
$3.08 – $4.65
Enterprise value as a multiple of CY 2014E EBITDA
4.6x – 8.1x
$3.98 – $6.97

 
116
 
 
Implied Exchange Ratio .   RBC then compared the low end of the comparable company reference ranges for Perion to the high end of the comparable company reference ranges for ClientConnect and the high end of the comparable company reference ranges for Perion to the low end of the comparable company reference ranges for ClientConnect. These comparisons resulted in the following implied exchange ratios, as compared to the proposed Exchange Ratio of 0.2402:
 
Implied Exchange Ratio
Low/High
High/Low
Enterprise value as a multiple of CY 2013E EBITDA
0.166x
0.353x
Enterprise value as a multiple of CY 2014E EBITDA
0.187x
0.530x

Discounted Cash Flow Analysis
 
Perion . RBC performed a discounted cash flow analysis of Perion to calculate the estimated present value of the standalone unlevered, after-tax free cash flows that Perion was forecasted to generate through the year ending December 31, 2017, based on estimates provided by Perion’s management.
 
RBC performed its discounted cash flow analysis of Perion based on estimated terminal values derived by applying average of multiples of 5.0x to 6.0x to Perion’s estimated 2018 EBITDA, and applying discount rates reflecting an estimated weighted-average cost of capital ("WACC") for Perion ranging from 13% to 15% (discounted to June 30, 2013). These calculations indicated the implied per share equity value reference ranges for the Perion Shares of $22.28 to $26.87.
 
ClientConnect. RBC performed a discounted cash flow analysis of ClientConnect to calculate the estimated present value of the standalone unlevered, after-tax free cash flows that ClientConnect was forecasted to generate through the fiscal year ending December 31, 2017, based on estimates provided by Conduit’s management, as adjusted downward by Perion’s management.
 
RBC performed its discounted cash flow analysis of ClientConnect based on estimated terminal values derived by applying a range of multiples of 6.0x to 7.0x to ClientConnect’s estimated 2018 EBITDA, and applying discount rates reflecting an estimated WACC for ClientConnect ranging from 11% to 13% (discounted to June 30, 2013). These calculations indicated an implied per share equity value reference range for the ClientConnect Shares of $10.29 to $12.36.
 
Implied Exchange Ratio . RBC then compared the low end of the discounted cash flow reference range for Perion to the high end of the discounted cash flow reference range for ClientConnect and the high end of the discounted cash flow reference range for Perion to the low end of the discounted cash flow reference range for ClientConnect. These comparisons resulted in an implied exchange ratio range of 0.383x to 0.555x as compared to the proposed Exchange Ratio of 0.2402.
 
 
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Precedent Transactions Analysis
 
RBC reviewed LTM EBITDA for the latest twelve month period for which such information was publicly available prior to announcement for the following selected, publicly announced ad-supported software industry and subscription-based services transactions:
 
Announced
Acquiror
Target
November 8, 2012
Perion
SweetIM
October 22, 2012
Permira
Ancestry.com (1)
August 26, 2012
IAC
About.com (2)
June 1, 2012
MoneySupermarket
MoneySavingExpert (3)
January 9, 2012
InfoSpace
TaxACT
October 17, 2007
Spectrum Equity
Ancestry.com
________________
 
(1)
Cash balance includes restricted cash of $16.2 million.
 
(2)
LTM EBITDA adds back a $3.1 million write-down of assets and a goodwill impairment charge of $194.7 million.
 
(3)
British Pounds converted to US Dollars at the prevailing exchange rate on the announcement date.
 
The following table sets forth the high, low and median multiples of the comparable transactions derived by RBC, based on available historical financial information:
 
 
Comparable Transactions High
Comparable Transactions Median
Comparable Transactions Low
Enterprise value as a multiple of LTM EBITDA
9.2x
7.0x
4.6x

 
RBC applied the following multiple range to Perion’s LTM EBITDA after reviewing the comparable transactions, which yielded the following implied per share equity value reference ranges for the Perion Shares:
 
 
Selected Multiple Range
Implied Per Share Equity Value Reference Range
Enterprise value as a multiple of LTM EBITDA
4.6x – 9.2x
$9.03 – $15.88

RBC then compared the low end of the precedent transactions reference range for Perion to the high end of the 2013E EBITDA comparable companies reference range for ClientConnect and the high end of the precedent transactions reference range for Perion to the low end of the 2013E EBITDA comparable companies reference range for ClientConnect. These comparisons resulted in an implied exchange ratio range of 0.194x to 0.515x as compared to the proposed Exchange Ratio of 0.2402.
 
 
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Pro Forma Analysis
 
RBC reviewed the potential pro forma impact of Share Purchase on Perion’s CY 2014E and CY 2015E non-GAAP earnings per share. Estimated financial data for Perion were based on financial forecasts and estimates prepared by Perion’s management. Estimated financial data for ClientConnect were based on financial forecasts and estimates prepared by Conduit’s management, as adjusted downward by Perion’s management. Based on an assumed Exchange Ratio of 0.2402, this analysis indicated that the Share Purchase could be between approximately 50% to 56% accretive to holders of Perion Shares.
 
Other Information

RBC also noted certain additional factors that were not considered part of RBC’s financial analysis with respect to its opinion but were referenced for informational purposes, including:
 
 
·
the closing trading prices for the Perion Shares during the one-year period ended September 13, 2013, which reflected low and high stock prices of $6.70 and $14.70 per share, respectively;
 
 
·
the historical volume weighted prices for the Perion Shares during certain periods ended September 13, 2013, which reflected the following volume weighted average prices ("VWAP") for the Perion Shares: (i) $12.36 for the 10-trading-day VWAP; (ii) $11.25 for the 30-trading-day VWAP; and (iii) $12.47 for the 90-trading-day VWAP; and
 
 
·
one-year forward stock price targets for the Perion Shares in recently published, publicly available Wall Street research analysts’ reports, which indicated low and high share price targets ranging from $16.00 to $18.00 per share, discounted to present value (using a 13.8% discount rate based on the estimated cost of equity for Perion) resulting in values ranging from approximately $14.06 to $15.82 per share.
 
General
 
The foregoing summary describes all the analyses and factors that RBC deemed material in its presentation to our Board of Directors, but is not a comprehensive description of all analyses performed or factors considered by RBC in connection with preparing its opinion. The preparation of a fairness opinion is a complex process involving the application of subjective business judgment in determining the most appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances and, therefore, is not readily susceptible to summary description. RBC believes that its analyses must be considered as a whole and that considering any portion of such analyses and of the factors considered without considering all of such analyses and factors could create a misleading view of the process underlying the opinion. In arriving at its fairness determination, RBC did not assign specific weights to any particular analyses.
 
In conducting its analyses and arriving at its opinion, RBC used a variety of generally accepted valuation methods. The analyses were prepared for the purpose of enabling RBC to provide its opinion to the our Board of Directors as to the fairness from a financial point of view of the Exchange Ratio to our shareholders and did not purport to be appraisals or necessarily reflect the prices at which businesses or securities actually may be sold, which are inherently subject to uncertainty. In connection with its analyses, RBC made, and was provided by Perion’s management with, numerous assumptions with respect to industry performance, general business and economic conditions and other matters, many of which are beyond the control of RBC or Perion. Analyses based on estimates or forecasts of future results are not necessarily indicative of actual past or future values or results, which may be significantly more or less favorable than suggested by such analyses. Because such analyses are inherently subject to uncertainty, being based upon numerous factors or events beyond the control of Perion or its advisors, neither Perion nor RBC nor any other person assumes responsibility if future results or actual values are materially different from these forecasts or assumptions.
 
 
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The terms of the Share Purchase Agreement were determined through arm’s length negotiations between Conduit and Perion and were approved by our Board of Directors. The decision to enter into the Share Purchase Agreement was solely that of our Board of Directors. As described above, the opinion and presentation of RBC to our Board of Directors were only two of a number of factors taken into consideration by our Board of Directors in making its determination to approve the Share Purchase.
 
Perion selected RBC to provide the opinion based on RBC’s qualifications, expertise, reputation and experience in mergers and acquisitions. Perion retained RBC pursuant to a letter agreement, which is referred to below as the "engagement letter." RBC has earned a fee for rendering its opinion, payable upon delivery of the opinion, regardless of whether such opinion is accepted or the Share Purchase is consummated. Regardless of whether the Share Purchase is consummated, Perion has agreed to reimburse RBC for certain out-of-pocket expenses incurred in performing the services described in the engagement letter, including reasonable fees and disbursements of RBC’s legal counsel. Perion also agreed to indemnify RBC and certain related persons against certain liabilities related to or arising out of any matter contemplated by RBC’s engagement, RBC’s opinion or otherwise in connection with services provided with respect to a proposed acquisition by Perion of ClientConnect.
 
In the ordinary course of business, RBC may act as a market maker and broker in the publicly traded securities of Perion and receive customary compensation, and may also actively trade securities of Perion for its own account and the accounts of its customers. Accordingly, RBC and its affiliates may hold a long or short position in such securities.
 
 
Approval of each of the resolutions set forth below requires the affirmative vote of the holders of a majority of the Perion Shares present, in person or by proxy, and voting on such matter (not including abstentions).
 
 
At the Meeting the shareholders will be asked to approve the following resolutions, each continent upon the other:
 
" RESOLVED , that the Share Purchase Agreement, the Share Purchase and the other transactions contemplated by the Share Purchase Agreement be, and they hereby are, approved and adopted in all respects.
 
RESOLVED , that Article 4 of each of the Articles of Association and the Memorandum of Association be amended to read as follows: "The share capital of the Company shall be NIS 1,200,000, consisting of 120,000,000 ordinary shares, each having a nominal value of NIS 0.01 (the "Ordinary Shares").
 
RESOLVED , to elect to the Board of Directors, effective as of the Closing, Dror Erez until the 2016 annual meeting of shareholders, and Roy Gen until the 2015 annual meeting of shareholders."
 
The Board of Directors recommends a vote "FOR" the approval of each of the foregoing resolutions.
 
 
120
 

 
APPROVAL OF AMENDED FORM OF D&O INDEMNIFICATION AGREEMENT
 
The Share Purchase Agreement provides that, as a condition to Conduit's obligations thereunder, we will enter into an indemnification agreement, in the form attached as Appendix G to this Proxy Statement, with each of the two nominees for director designated by Conduit.  Accordingly, we propose to replace our form of D&O indemnification agreement with this form, for the benefit of all of our directors and executive officers who may serve from time to time. As required by the Companies Law, the proposed form of amended indemnification agreement sets forth the events that are indemnifiable and the maximum amounts of indemnification payable in certain circumstances, each as determined by our Board of Directors. The full text of the proposed form of amended indemnification agreement is included as Appendix G to this Proxy Statement and is incorporated herein by reference.
 
Pursuant to the Companies Law, the compensation of directors and the chief executive officer, including insurance and indemnification, for services to the company in any capacity requires the approval of the compensation committee, board of directors and shareholders, in that order. Our Compensation Committee and Board of Directors have approved the amended form of Indemnification Agreement to be entered into between us and each of our directors and officers, and at the Meeting we will request the approval of our shareholders for such amendment.
 
The approval of this proposal will take effect only if the Share Purchase is consummated.
 
Required Vote :
 
Approval of the resolution set forth below requires the affirmative vote of the holders of a majority of the Perion Shares present, in person or by proxy, and voting on such matter (not including abstentions), provided, however, that either (i) at least a majority of the shares of non-controlling shareholders and shareholders who do not have a personal interest in the resolution are voted in favor of the resolution, or (ii) the total number of shares of non-controlling shareholders and of shareholders who do not have a personal interest in the resolution voted against the resolution does not exceed two percent of the outstanding voting power in the Company. The Companies Law requires that each shareholder voting on this proposal indicate whether or not the shareholder has a personal interest. Otherwise, the shareholder is not eligible to vote on this proposal.  All of our directors and officers are deemed to have a "personal interest" in this matter. Under the Companies Law, a "personal interest" of a shareholder (i) includes a personal interest of any members of the shareholder’s family (or spous es thereof) or a personal interest of an entity with respect to which the shareholder (or such family member) serves as a director or chief executive officer, owns at least 5% of its outstanding share capital or voting power or has the right to appoint a director or chief executive officer, and (ii) excludes an interest arising solely from the ownership of Perion Shares.
 
Since it is highly unlikely that any of our public shareholders has a personal interest in this matter and to avoid confusion in the voting and tabulation processes, the enclosed form of proxy includes a certification that you do not have a personal interest in this proposal. If you have a personal interest, please contact the Company's Corporate Secretary and General Counsel, at +972-3-769-6100 for instructions on how to vote your Perion Shares and indicate that you have a personal interest or, if you hold your Perion Shares in "street name", you may also contact the representative managing your account, who would then contact us on your behalf. Shareholders who hold their shares through banks, brokers or other nominees that are members of the TASE should indicate whether or not they have a personal interest on the form of voting card that we will file on MAGNA, the website of the ISA .
 
 
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Proposed Resolutions:
 
At the Meeting the shareholders will be asked to approve the following resolution:
 
" RESOLVED , subject to the Closing, to approve the amended form of indemnification agreement between the Company and each of its directors and officers who may serve from time to time, attached as Appendix G to the Proxy Statement."
 
The Board of Directors recommends a vote "FOR" the approval of the foregoing resolution.
 
 
122
 

 
APPROVAL OF PURCHASE OF D&O LIABILITY INSURANCE
 
The Share Purchase Agreement provides that, as a condition to Conduit's obligations thereunder, we will purchase a liability insurance policy covering our directors and officers in the amount of at least $60 million, of which $10 million will consist of "Side A" coverage payable directly to the directors and officers, and purchase a run-off insurance policy that covers our directors and officers serving prior to the Closing for a period of seven years from the Closing Date with respect to our current D&O liability insurance policy.
 
Pursuant to the Companies Law, the compensation of directors and the chief executive officer, including insurance and indemnification, for services to the company in any capacity requires the approval of the compensation committee, board of directors and shareholders, in that order. Our Compensation Committee and Board of Directors have approved the purchase of a D&O liability insurance policy in the amount of $60 million, of which $10 million will consist of "Side A" coverage payable directly to the directors and officers, and any renewal and/or extension of such policy.  The aggregate annual premium with respect to the foregoing policy will not exceed $450,000.
 
Our Compensation Committee and Board of Directors have also approved the purchase of run-off insurance in connection with our current D&O liability insurance policy, which includes coverage in the amount of $25 million, for a period of seven years.  This insurance will cover our current directors and officers with respect to acts or omissions occurring prior to the Closing. The aggregate fee with respect to the run-off insurance will not exceed $400,000. At the Meeting, our shareholders will be asked to approve the purchase of such D&O liability insurance.
 
At the Meeting, the shareholders will also be asked to approve any renewal and/or extension of the new insurance policy described above, and the purchase of any other D&O insurance policy upon the expiration of such policy, provided that the coverage will not exceed $60 million and that the annual premium will not exceed an amount representing an increase of 20% per year. The approval of the shareholders of this proposed resolution at the Meeting will extend to any renewal or substitution of such policy, from time to time, within the foregoing limitations. However, if a compensation policy is approved pursuant to the Companies Law (see Proposal 5), the parameters with respect to D&O insurance set forth in such policy will apply from the date of approval thereof.
 
The abovementioned approval shall apply to past directors, current directors, and any future directors who may serve from time to time, all in accordance with the terms and conditions of the applicable policies.
 
The approval these proposals will take effect only if the Share Purchase is consummated.
 
Required Vote :
 
Approval of each of the resolutions set forth below requires the affirmative vote of the holders of a majority of the Perion Shares present, in person or by proxy, and voting on such matter (not including abstentions), provided however that either (i) at least a majority of the shares of non-controlling shareholders and shareholders who do not have a personal interest in the resolution are voted in favor of the resolution, or (ii) the total number of shares of non-controlling shareholders and of shareholders who do not have a personal interest in the resolution voted against the resolution does not exceed two percent of the outstanding voting power in the Company. The Companies Law requires that each shareholder voting on this proposal indicate whether or not the shareholder has a personal interest. Otherwise, the shareholder is not eligible to vote on this proposal.  All of our directors and officers are deemed to have a "personal interest" in this matter.   For information regarding personal interests under the Companies Law and related voting procedures, please see Proposal 2 above, under the caption "Required Vote".
 
 
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Proposed Resolutions:
 
At the Meeting the shareholders will be asked to approve each of the following resolutions:
 
" RESOLVED , subject to the Closing, to approve the purchase of the liability insurance described in the Proxy Statement, for the benefit of all directors and officers of the Company who may serve from time to time, and any renewals, extensions or substitutions, subject to the limitations set forth in the Proxy Statement.
 
RESOLVED , subject to the Closing, to approve the purchase of the run-off insurance described in the Proxy Statement."
 
The Board of Directors recommends a vote "FOR" the approval of each of the foregoing resolutions.
 
 
124
 

 
APPROVAL OF COMPENSATION FOR OUR CHIEF EXECUTIVE OFFICER
 
Pursuant to a recent amendment to the Companies Law, any public Israeli company that seeks to approve new compensation terms of its chief executive officer is required to obtain the approval of its compensation committee, board of directors and shareholders, in that order. Certain proposed new compensation terms of our Chief Executive Officer, Mr. Josef Mandelbaum, including a grant of RSUs to him, will be presented for shareholder approval at the Meeting. Our Compensation Committee and Board of Directors have already approved these new terms.
 
In addition to the new compensation terms that are subject to shareholder approval, our Chief Executive Officer also receives certain additional benefits, such as a company car, health insurance, life insurance and a mobile phone.  In addition, Mr. Mandelbaum is entitled to an annual bonus equal to up to 50% of his base salary, subject to the Company's meeting its annual targets for revenue and EBIT as set forth in the annual budget approved by our Board of Directors. Half of the bonus depends on meeting the revenue target and half on meeting the EBIT target.  Mr. Mandelbaum is also entitled to an annual salary raise at a rate equal to the average rate of the increase in annual salaries of our senior management (i.e., vice presidents and managers reporting directly to the Chief Executive Officer) in the applicable year.
 
Proposed New Compensation Terms:
 
Base Salary:  The monthly salary to be paid to Mr. Mandelbaum would be increased from NIS 99,500 (which, for convenience purposes only, is equal to $27,895 based on the exchange rate between the NIS and the U.S. dollar, as published by the Bank of Israel on October 9, 2013 (the "NIS/Dollar Exchange Rate")) to NIS 140,000 (which, for convenience purposes only, is equal to $39,249 based on the NIS/Dollar Exchange Rate).  The increase in Base Salary could result in a higher annual bonus, subject to the satisfaction of the applicable financial targets.
 
Employment Term:  Currently, either the Company or Mr. Mandelbaum may terminate the employment agreement upon six months’ prior written notice, during which time Mr. Mandelbaum's employment would continue in accordance with the terms of his employment agreement.  The proposal is to increase the notice period from six months to 12 months' prior written notice in the case of termination of Mr. Mandelbaum's employment by the Company.  If Mr. Mandelbaum resigns from office, he must still provide six months’ prior written notice, during which time his employment would continue in accordance with the terms of his employment agreement, provided, however, that the Company may determine to reduce such period to three months, during which time Mr. Mandelbaum would not be obligated to continue his employment. During the notice period, Mr. Mandelbaum would be entitled to all payments and benefits pursuant to his then-current compensation terms, including continued vesting of any equity-based awards.
 
Proposed Equity Grant:
 
It is proposed to grant to Mr. Mandelbaum 432,400 RSUs under our Equity Incentive Plan, on the following key terms:
 
 
·
200,000 RSUs would be granted on the date of the Meeting, and 232,400 RSUs would be granted immediately following the consummation of the Share Purchase described above in Proposal 1, which is expected to take place in January 2014;
 
 
·
the purchase price of each RSU would be NIS 0.01, the par value of the Perion Shares;
 
 
·
the RSUs would automatically vest into Perion Shares over a period of three years, subject to Mr. Mandelbaum's continued employment with the Company, with 20% of each grant vesting on the first anniversary of the applicable date of grant, 30% of each grant vesting on the second anniversary of the applicable date of grant and 50% of each grant vesting on the third anniversary of the applicable date of grant; and
 
 
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·
all other terms and conditions in connection with the above RSUs would be in accordance with our Equity Incentive Plan, a copy of which is attached hereto as Appendix I .
 
The value of such grant is the number of RSUs multiplied by the closing price of the Perion Shares on NASDAQ on the applicable grant date.  Based on the closing price of $13.29 per share on October 10, 2013, the value of the proposed grant would be $5,741,280.
 
Reasons for the Proposal:
 
Mr. Josef Mandelbaum has been our Chief Executive Officer (the "CEO") since July 2010.  During such time, Perion has experienced tremendous growth, in terms of revenues, EBITDA and earnings per share.  For example, in the 12 months ended June 30, 2013, Perion's revenues increased by more than 116% and its EBITDA increased by more than 256%, both as compared to the 12 month period ended June 30, 2012.  In addition, as described above under Proposal 1, following the consummation of the Share Purchase, Perion's revenues, EBITDA and earnings per share are expected to increase further and Mr. Mandelbaum will be faced with significant challenges leading our company in the integration of the ClientConnect business and the continuation of the implementation of our growth strategy, which includes indentifying and consummating additional acquisitions. Prior to approving Mr. Mandelbaum's new compensation terms, our Compensation Committee and Board of Directors considered the above factors in addition to several factors, including comparable industry data, data of peer companies in our industry, the responsibilities to be performed after the consummation of the Share Purchase by Mr. Mandelbaum, the equity and compensation for comparably situated chief executive officers, the central role of Mr. Mandelbaum in the implementation of Perion's business plan, as well as certain other factors prescribed by the Companies Law and our executive compensation policy, as described in Proposal 5 below.
 
Required Vote:
 
The compensation of our CEO requires the affirmative vote of a majority of the Perion Shares present, in person or by proxy, and voting on the matter, provided that either (i) at least a majority of the shares of non-controlling shareholders and shareholders who do not have a personal interest in the resolution are voted in favor of the CEO compensation, or (ii) the total number of shares of non-controlling shareholders and of shareholders who do not have a personal interest in the resolution voted against the CEO compensation does not exceed two percent of the outstanding voting power in the Company.  The Companies Law requires that each shareholder voting on this proposal indicate whether or not the shareholder has a personal interest. Otherwise, the shareholder is not eligible to vote on this proposal.  For information regarding personal interests under the Companies Law and related voting procedures, please see Proposal 2 above, under the caption "Required Vote".  According to the Companies Law, even if the shareholders do not approve the proposed terms of the CEO compensation, our Compensation Committee and the Board of Directors may thereafter approve the proposal, provided that they have approved it, based on detailed reasoning, following a re-evaluation of the proposed compensation and taking into account the opposition of the shareholders, among other things.
 
Proposed Resolution:
 
It is proposed that the following resolution be adopted at the Meeting:
 
" RESOLVED , the terms of compensation of Mr. Josef Mandelbaum, our Chief Executive Officer, including a grant of RSUs to him, as described in the Proxy Statement, be, and the same hereby are, approved."
 
The Board of Directors recommends a vote FOR approval of the proposed resolution.
 
 
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APPROVAL OF COMPENSATION POLICY FOR OUR DIRECTORS AND OFFICERS
 
Background
 
Under a recent amendment to the Companies Law, all public companies are required to adopt a policy governing the compensation of "office holders". The Companies Law defines the term "office holder" of a company to include a director, the chief executive officer, the chief financial officer and any manager who is directly subordinate to the chief executive officer.  In general, all office holders’ terms of compensation – including fixed remuneration, bonuses, equity compensation, retirement or termination payments, indemnification, liability insurance and the grant of an exemption from liability – must comply with the company's compensation policy, once adopted.
 
Pursuant to the Companies Law, as amended, the compensation policy must comply with specified criteria and guidelines and, in general, be based following consideration of, among others, the following factors: (i) promoting the company’s objectives, business plan and long term policy; (ii) creating appropriate incentives for the company’s office holders, considering, among others, the company's risk management policy; (iii) the company's size and nature of operations; and (iv) with respect to variable elements of compensation (such as bonuses and equity-based awards), the office holder’s contribution to achieving corporate objectives and increasing profits, with a long-term view and in accordance with his or her role.
 
Pursuant to the Companies Law, a compensation policy is required to be approved by the board of directors, following the recommendation of the compensation committee, and the shareholders (by a special majority), in that order, at least once every three years.
 
Our Compensation Committee and Board of Directors have approved a Compensation Policy for Executive Officers and Directors in the form attached hereto as Appendix H (the "Compensation Policy" or the "Policy").
 
Summary of the Compensation Policy
 
The following is a summary of the Compensation Policy and is qualified by reference to the full text thereof .
 
·
Objectives: To support the achievement of our long-term work plan goals and to ensure that (i) the interests of our office holders are aligned as closely as possible with the interests of our shareholders, (ii) the correlation between performance and payment will be enhanced, (iii) we will be able to recruit and retain top-level executives capable of leading us to further business success, facing the challenges ahead, (iv) office holders will be motivated to achieve a high level of business performance without taking unreasonable risks and (v) an appropriate balance will be established between different compensation elements – fixed vs. variable, short-term vs. long-term and cash payments vs. equity-based compensation.
 
·
Compensation instruments: Include base salary, benefits and perquisites; cash bonuses; equity-based compensation; and/or retirement arrangements .
 
·
Base salary, benefits and perquisites : The Policy provides guidelines and criteria for determining base salary, benefits and perquisites for office holders.
 
·
Cash bonuses : Our policy is to allow annual cash bonuses, which may be awarded to office holders pursuant to the guidelines and criteria, including caps, set forth in the Policy.
 
·
"Clawback" :  In the event of an accounting restatement, we will be entitled to recover from office holders bonus compensation in the amount of the excess over what would have been paid under the accounting restatement, as specified in the Policy.
 
·
Equity-based compensation: We may provide equity-based compensation in the form of stock options and/or other forms of equity, which may be awarded to office holders pursuant to the guidelines set forth in the Policy.
 
 
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·
Severance arrangements: The Policy provides guidelines and criteria for determining severance arrangements of office holders, including caps thereon.
 
·
Indemnification, exculpation and insurance: The Policy permits providing office holders with indemnification, exculpation and insurance, as permitted by the Companies Law. In particular, the Policy contains specific guidelines for liability insurance covering office holders.
 
·
Directors: The Policy permits providing compensation to our directors in accordance with applicable regulations promulgated under the Companies Law.
 
·
Applicability: The Policy will apply to   compensation agreements and arrangements approved after the date on which the Policy is approved and will not be construed as altering or amending any compensation duly approved prior to the approval of the Policy.
 
·
Review : The Compensation Committee and the Board of Directors will review, from time to time, the ratio between the total cost of employment of each of the office holders and the average and median total costs of employment of the rest of the employees, and discuss its possible impact on labor relations within the Company.
 
Required Vote:
 
Pursuant to the Companies Law, the approval of the Compensation Policy requires the affirmative vote of a majority of the shares present, in person or by proxy, and voting on the matter, provided that either (i) at least a majority of the shares of non-controlling shareholders and shareholders who do not have a personal interest in the resolution are voted in favor of the election of the Compensation Policy or (ii) the total number of shares of non-controlling shareholders and of shareholders who do not have a personal interest in the resolution voted against the Compensation Policy does not exceed two percent of the outstanding voting power in the Company.  The Companies Law requires that each shareholder voting on this proposal indicate whether or not the shareholder has such a personal interest.  Otherwise, the shareholder is not eligible to vote on this proposal.  All of our directors and officers are deemed to have a "personal interest" in this matter. For information regarding personal interests under the Companies Law and related voting procedures, please see Proposal 2 above, under the caption "Required Vote". According to the Companies Law, even if the shareholders do not approve the Compensation Policy, the Compensation Committee and the Board of Directors may thereafter approve the proposal, provided that they have determined based on detailed reasoning and a re-evaluation of the Compensation Policy, that the Compensation Policy is in the best interests of the Company despite the opposition of the shareholders.
 
Proposed Resolution:
 
It is proposed that at the Meeting the following resolution be adopted:
 
" RESOLVED , that the Compensation Policy, in the form attached as Appendix H to the Proxy Statement, be, and it hereby is, approved."
 
The Board of Directors recommends a vote FOR approval of the proposed resolution.
 
 
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PROPOSAL SIX
 
APPROVAL OF AMENDED EQUITY INCENTIVE PLAN FOR U.S. TAX PURPOSES
 
Background
 
Our Equity Incentive Plan (including the U.S. Addendum) (the "Plan") was initially adopted in 2003. The Plan had an initial term of ten years from adoption.  On December 9, 2012, our Board of Directors extended the term of the Plan for an additional ten years.  In addition, on August 7, 2013, our Board of Directors approved amendments to the Plan, which include the ability to grant RSUs and restricted stock. A copy of the Plan, as amended, is attached hereto as Appendix I and is incorporated herein by reference.
 
Although the NASDAQ Listing Rules generally require shareholder approval of equity compensation plans and material amendments thereto, pursuant to certain exemptions for foreign private issuers, we follow Israeli practice, which is to have such plans and amendments approved only by the board of directors and to have the grants of awards under such plans approved by shareholders to the extent they are made to the chief executive officer or directors.  Pursuant to the Companies Law, approvals of the compensation committee and board of directors are also required for any grants of awards to officers and directors.
 
Our Board of Directors has determined that it is in our best interests to allow our employees in the United States to participate in our stock option plans for employees. According to the U.S. Internal Revenue Code of 1986, as amended (the "Code"), in order for a grant of options to qualify as an "incentive stock option" ("ISO") it must, amongst other requirements, be granted pursuant to a plan which is approved by the shareholders of the granting company within 12 months before or after the date such plan is adopted. Therefore, in 2011, our Board of Directors and shareholders adopted a U.S. Addendum, for the granting of options to purchase Perion Shares under our then current option plan, all of which may be issued under the U.S. Addendum as "incentive stock options" within the meaning of the Code.
 
As a result of the recent amendments to the Plan (including the U.S. Addendum), in order for the Company to continue to grant ISOs, it is necessary for our shareholders to approve the recent amendments to the Plan (including the U.S. Addendum).  At the Meeting, you will be requested to approve the Plan (including the U.S. Addendum), including the: (i) extension of the term of the Plan to December 9, 2022, (ii) increase in the pool of Perion Shares available for issuance under the Plan to 12,000,000 Perion Shares, and (iii) amendments to the Plan, including to allow us to grant RSUs and restricted stock.
 
Summary of the Plan
 
The following summary of the material features of the Plan, as amended, is qualified in its entirety by reference to the complete text of the Plan, a copy of which is attached to this Proxy Statement as Appendix I.  The Plan permits the issuance of options, restricted stock units ("RSUs"), which are rights to be issued a stated number of shares upon completion of a specified vesting term and payment of the par value of such shares, and restricted stock ("RS"), which are share issued under the Plan to a Stock Award Holder for such consideration, if any, and subject to such restrictions established by the Company.  In this summary of the Plan, a grant of options, RSUs or RS under the Plan is referred to as a "Stock Award", and a recipient of a Stock Award is referred to as a "Stock Award Holder".
 
Purpose, Eligible Individuals and Term.   The purpose of the Plan is to provide incentives to employees, directors, consultants, service providers of the Company or any subsidiary or affiliate thereof (where applicable in this Summary of the Plan, the term "Company" includes any subsidiary or affiliate of the Company) and any other entity which our Board of Directors determines that their services are valuable to the Company, by providing them with opportunities to purchase Perion Shares.   The term of the Plan expires on December 9, 2022. All Stock Awards that are outstanding at the time of expiration of the Plan will continue to have full force and effect in accordance with the provisions of the Plan and the documents evidencing such Stock Awards.
 
 
129
 
 
Perion Shares Reserved.    The Company initially reserved 4,368,000 Perion Shares for the purposes of the Plan (subject to any adjustments for share splits, combination or exchange of shares, recapitalization, share dividends and the like).  As of October 9, 2013, 3,134,400 Perion Shares were reserved for issuance pursuant to our Equity Incentive Plan, of which options to acquire 1,780,843 Perion Shares were outstanding.  To the extent that a Stock Award is cancelled or expires, the underlying Perion Shares subject to the cancelled or expired Stock Award will again become available for grant under the Plan.
 
Administration.   The Board of Directors, and in some cases the Compensation Committee as well, has the power to administer the Plan, subject to applicable law.
 
Vesting and Expiration.    The Stock Awards will vest as determined by the Board of Directors or by the Compensation Committee and for the number of Perion Shares as will be provided in the applicable agreement of the Stock Award Holder. In most cases, the Company has approved Stock Awards which vest in three equal portions on each anniversary of the date of grant.   Stock Awards expire upon the earlier of: (i) the date set forth in the Stock Award agreement; and (ii) the expiration of any extended period in any of the events set forth in the Plan.  The unvested portion of each Stock Award terminates upon the termination of employment or service of the Stock Award Holder. Upon such termination, all vested portions of Perion Options also terminate, except that: (i) in the event of termination without cause, such vested portion that is still in force and unexpired may be exercised within 90 days of termination; (ii) in the event of termination upon death or as a result of disability, such vested portion that is still in force and unexpired may be exercised within 12 months of termination; or (iii) the Compensation Committee may authorize an extension of the terms of all or part of such vested portion that is still in force and unexpired beyond the date of termination, for a period not to exceed the initial term of such Perion Option.  In the event the employment of the Stock Award Holder is terminated for cause, all outstanding Perion Options granted to such Stock Award Holder will expire upon such termination.  Stock Awards also terminate within 10 days of receipt by the Stock Award Holder of notice of a voluntary liquidation or dissolution of the Company.  In most cases, the Company has approved Stock Awards which automatically expire 5 years from the date of grant.
 
Transfer of Awards; Payment of Exercise Price.   Stock Awards granted under the Plan are generally not transferable by the Stock Award Holder, and each Stock Award is exercisable during the lifetime of the Stock Award Holder only by such Stock Award Holder.   The exercise price of each Perion Share subject to a Stock Award shall be determined by the Board of Directors or by the Compensation Committee in accordance with applicable law, subject to guidelines determined by the Board of Directors from time to time. Payment for Perion Shares upon the exercise of a Stock Award may be paid in cash or check or such other method of payment acceptable to the Compensation Committee. The Company may, on a case by case basis, make an allowance for a cash-less exercise or net-exercise, if the Stock Award Holder instructs the Company to exercise his Perion Options for an immediate sale. The Board of Directors or the Compensation Committee may postpone the date of payment on such terms as it may determine.
 
U.S. Addendum for U.S. Stock Award Holders.    The Plan contains an addendum that sets forth certain terms of Stock Awards that may be granted to employees, directors and other individuals who are United States citizens or who are resident aliens of the United States for United States federal tax purposes (collectively, "U.S. Persons"), and who render services to the management, operation or development of the Company or a Subsidiary and who have contributed or may be expected to contribute materially to the success of the Company or a Subsidiary (the "U.S. Addendum").  The term "Subsidiary" as used in such U.S. Addendum means a corporation or other business entity of which the Company owns, directly or indirectly through an unbroken chain of ownership, fifty percent or more of the total combined voting power of all classes of stock.  The Company may grant to U.S. Persons ISOs or nonqualified stock options ("NSOs") under the Plan. Every Perion Option granted to a U.S. Person will be evidenced by a written Stock Award Agreement in such form as the Board of Directors or the Compensation Committee approve, specifying the number of Perion Shares that may be purchased pursuant to the Stock Award, the exercise price, the time or times at which the Stock Award are exercisable in whole or in part, whether the Stock Award is intended to be an ISO or a NSO and such other terms and conditions as the Board of Directors or the Compensation Committee approve.  The exercise price must be at least equal to the fair market value of the Perion Shares as of the date the Stock Award is granted. Further, an ISO generally must be exercised no later than ten (10) years from its date of grant.
 
 
130
 
 
Effect of Certain Transactions.    In the event of the occurrence of (i) a sale or other disposition of all or substantially all, as determined by the Board of Directors, of the consolidated assets of the Company and its subsidiaries; (ii) a sale or other disposition of all or substantially all, as determined by the Board of Directors, of the outstanding securities of the Company resulting in a Change of Control; (iii) a merger, consolidation or similar transaction resulting in a Change of Control; or (iv) a merger, consolidation or reorganization following which the Company is the surviving corporation but the Perion Shares outstanding immediately preceding the merger, consolidation or reorganization are converted or exchanged by virtue of the merger, consolidation or reorganization into other property, whether in the form of securities, cash or otherwise (each of (i) to (iv), a "Transaction"), immediately prior to the effective date of such Transaction, each Stock Award may, among other things, at the sole and absolute discretion of the Board of Directors, either:  (i) be substituted for awards of another entity that the Company is merged to or is acquired by, in which the Company is not the surviving entity (each, a "Successor Company"), for such number and class of securities of the Successor Company which would have been issuable to the Stock Award Holder in consummation of such Transaction, had the Stock Award been exercised, immediately prior to the effective date of such Transaction; (ii) be assumed by any Successor Company such that the Stock Award Holder may exercise the Stock Award, for such number and class of securities of the Successor Company which would have been issuable to the Stock Award Holder in consummation of such Transaction, had the Stock Award been exercised immediately prior to the effective date of such Transaction; or (iii) determine that the Stock Awards shall be cashed out for a consideration equal to the difference between the price received by the shareholders of the Company in the Transaction and the exercise price of such Stock Award.  Whether a transaction is a "Transaction" as defined above, shall be finally and conclusively determined by the Board of Directors in its absolute discretion.  The term "Change of Control" as used in the Plan means an event following which the persons and/or entities that control the Company, directly or indirectly, at the time of adoption of the Plan, shall cease to have the right to appoint, directly or indirectly, independently, or together with another person or entity (as a result of an agreement with such person or entity, or otherwise), 50% or more of the members of the Board of Directors.
 
Subject to any provision in the Company's Articles of Association and to the discretion of the Board of Directors, in the event of a sale of all or substantially all of the issued and outstanding share capital of the Company (the "Sale"), each Stock Award Holder will be obligated to participate in the Sale and sell his Perion Shares and/or Stock Awards, provided, however, that each such Perion Share or Stock Award will be sold at a price equal to that of any other Perion Share sold under the Sale (and, unless determined otherwise by the Board of Directors, less the applicable Purchase Price), while accounting for changes in such price due to the respective terms of any such Stock Award, and subject to the absolute discretion of the Board of Directors.
 
Notwithstanding anything to the contrary in the Articles of Association of the Company, none of the Stock Award Holders will have a right of first refusal in connection with any sale of Perion Shares.
 
Amendments to the Plan.   The Board of Directors may amend, alter, suspend or terminate the Plan, provided, however, that no amendment, alteration, suspension or termination will impair the rights of any Stock Award Holder, unless mutually agreed upon in writing by the applicable Stock Award Holder and the Company.
 
 
131
 
 
Israeli Tax Treatment
 
The following summary of the Israeli income tax consequences of Stock Awards to Israeli Stock Award Holders is general and does not purport to be comprehensive.  The Plan provides for the granting of Stock Awards to employees, directors and consultants under either Section 102 or Section 3(i) of the Tax Ordinance.  The Stock Awards granted under the Plan are all subject to the "capital gains tax route" under Section 102 of the Tax Ordinance (the "Capital Gains Tax Route").
 
Stock Awards.    The Capital Gains Tax Route generally provides, in connection with Stock Awards, for a reduced tax rate of 25% on gains realized upon the sale of its underlying shares, subject to the fulfillment of certain procedures and conditions including the deposit of such Stock Awards (or shares issued upon their exercise or shares in case that a RS was granted) for a requisite period of time with a trustee approved by the Israeli Tax Authority (currently, 24 months from the date of grant). Notwithstanding the above, in any event where the exercise price of the Perion Shares subject to the Stock Awards is less than the fair market value of the Perion Shares at the time of grant of the Stock Awards (calculated as the average value of the Company's shares on the 30 trading days preceding the date of grant), such amount will be deemed ordinary income of the Stock Award Holder, taxed at the applicable marginal tax rate (up to 50% in 2013) together with health insurance and social security insurance payments, on the date of sale of the underlying shares and/or the date of the release of such underlying shares from trust. In the event the requirements of Section 102 for the allocation of Stock Awards according to the Capital Gains Tax Route are not met, the benefit attributed to the Stock Award Holder as a result of the grant of such Stock Awards will be taxed as ordinary work income at applicable marginal income tax rates (together with health insurance and social security insurance payments). For as long as the RS or Perion Shares issued upon exercise of Stock Awards are registered in the name of the trustee, the voting rights with respect to such Perion Shares will remain with the trustee. Under the Capital Gains Tax Route, the Company is generally not entitled to recognize a deduction for Israeli tax purposes on the gain recognized by the Stock Award Holder upon sale of the shares underlying the Stock Awards (except for such amount that will be deemed ordinary income of the Stock Award Holder as explained above). The Company will be required to withhold applicable tax (and social security and national health insurance charges, if applicable) at source on behalf of the Stock Award Holder and may be required to pay social security and national health insurance charges.
 
U.S. Tax Treatment   
 
The following summary of the U.S. federal income tax consequences of Stock Awards to U.S. Stock Award Holders is general and does not purport to be complete.
 
Perion Options . A Stock Award Holder realizes no U.S. taxable income when an NSO is granted. Instead, the taxable income is measured by the excess of the fair market value of the Perion Shares acquired pursuant to an exercise of a Perion Option over the exercise price paid, and is taxed as ordinary compensation income when the Perion Option is exercised. This excess amount generally is measured and taxed as of the date of exercise. However, if the Perion Shares that are acquired upon the exercise of the Perion Option are both subject to a "substantial risk of forfeiture" (as defined in applicable Treasury Regulations) and not transferrable, this excess amount is measured as of the date or dates on which either the substantial risk of forfeiture or the Perion Shares become transferrable, whichever occurs first.  A Stock Award Holder may elect to be taxed on the excess of the fair market value over the exercise price of the Perion Shares on the date of exercise, even though some or all of the Perion Shares acquired are subject to a substantial risk of forfeiture. Gain on the subsequent sale of the Perion Shares acquired by exercise of the Option is taxed as short-term or long-term capital gain, depending on the holding period after exercise.  The Company receives no tax deduction on the grant of an NSO, but it is entitled to a tax deduction when the Stock Award Holder recognizes ordinary compensation income on or after exercise of the Perion Option, in the same amount as the income recognized by the Stock Award Holder.
 
Generally, a Stock Award Holder incurs no federal income tax liability on either the grant or the exercise of an ISO, although a Stock Award Holder will generally have taxable income for alternative minimum tax purposes at the time of exercise equal to the excess of the fair market value of the Perion Shares subject to the Perion Option over the exercise price. Provided that the Perion Shares are held for at least one year after the date of exercise of the Perion Option and at least two years after its date of grant, any gain realized on a subsequent sale of the Perion Shares will be taxed as long-term capital gain. If the Perion Shares are disposed of within a shorter period of time, the Stock Award Holder will recognize ordinary compensation income in an amount equal to the difference between the sales price and the purchase price or (if less) the difference between the fair market value at the time of exercise and the exercise price.  The Company receives no tax deduction on the grant or exercise of an ISO, but it is entitled to a tax deduction if the Stock Award Holder recognizes ordinary compensation income on account of a premature disposition of Perion Shares acquired on exercise of an ISO, in the same amount and at the same time as the Stock Award Holder recognizes income.
 
 
132
 
 
RSUs .   A person who receives an RSU grant realizes no U.S. taxable income at the time of grant, but will recognize ordinary income for U.S. tax purposes equal to the value of the Perion Shares, less the nominal value paid, if any, at the time such shares are issued. The Company does not receive a tax deduction at the time an RSU grant is made, but does receive deduction when the Perion Shares are issued.
 
RS. A person who receives a RS grant will not realize any U.S. taxable income at the time of the grant. When the restricted shares vest, meaning that they no longer are subject to a substantial risk of forfeiture and are transferrable, the holder of the RS grant will realize income equal to the value of the Perion Shares on the date of vesting and the Company will be entitled to a corresponding deduction. Gain on the subsequent sale of the Perion Shares acquired by exercise of the Perion Option is taxed as capital gain (or loss), with the basis in such shares equal to the fair market value of the shares at the time of vesting.
 
A person who receives a RS grant may elect pursuant to Section 83(b) of the Code to have income realized at the date of grant of RS award and to have the applicable capital gain holding period commence as of that date, and, in that case, the Company will be entitled to a corresponding deduction as of that date.
 
Required Vote:
 
U.S. federal tax law requires shareholder approval as a condition to the issuance of options qualifying as ISOs for U.S. federal tax purposes.  Approval of this matter will require the affirmative vote of a majority of Perion Shares present at the Meeting, in person or by proxy, and voting on the matter.  If this proposal is not approved, then the Plan, as amended, will continue to be in effect, but the Company will be unable to grant options to its U.S. employees that qualify as ISOs for U.S. federal tax purposes.
 
Proposed Resolution:
 
It is proposed that at the Meeting the following resolution be adopted:
 
" RESOLVED , that the amended Plan (including the U.S. Addendum) for U.S Tax Purposes, in the form attached as Appendix I to the Proxy Statement, be, and it hereby is, approved."
 
The Board of Directors recommends that the shareholders vote FOR approval of the proposed resolution.
 
 
133
 

 
The following table sets forth certain information as of (i) October 9, 2013) and (ii) January 7, 2014, assuming the Closing takes place on or prior to such date, concerning (a) the only persons or entities known to the Company (or, in the case of following the Closing, expected by the Company) to beneficially own 5% or more of the Perion Shares, and (b) the number of Perion Shares beneficially owned by all directors and officers as a group.
 
   
Shares Beneficially Owned: 1
 
   
Prior to the Closing 2
   
Following the Closing 3
 
5% Shareholders
 
Number
   
Percent
   
Number
   
Percent
 
Holine Finance Ltd. 4
    1,109,732       8.9 %     1,109,732       1.7 %
Ronen Shilo
    -       -       9,902,168       14.8 %
Dror Erez
    -       -       9,902,168       14.8 %
Benchmark Israel II, L.P. 5
    -       -       9,707,503       14.6 %
Zack Rinat 6
    -       -       6,523,219       9.8 %
Project Condor LLC 7
    -       -       4,228,263       6.3 %
Directors and officers as a group 8
    683,328      
5.2
%     11,415,854       16.9 %
 
1 Beneficial ownership is determined in accordance with the rules of the SEC based on voting and investment power with respect to such Perion Shares. Perion Shares subject to options that are currently exercisable or exercisable within 60 days of October 9, 2013 or January 7, 2014, as applicable, are deemed to be outstanding and to be beneficially owned by the person holding such options for the purpose of computing the percentage ownership of such person, but are not deemed to be outstanding and to be beneficially owned for the purpose of computing the percentage ownership of any other person. All information with respect to the beneficial ownership of any principal shareholder has been furnished by such shareholder or is based on the most recent Schedule 13D or 13G filed with the SEC and, unless otherwise indicated below, we believe that persons named in the table have (or will have upon the Closing, as applicable) sole voting and sole investment power with respect to all the Perion Shares shown as beneficially owned, subject to community property laws, where applicable. The Perion Shares beneficially owned by our directors and officers may include Perion Shares owned by their respective family members, as to which such directors and officers disclaim beneficial ownership.
 
2 The percentages of ownership are based on 12,472,717 Perion Shares outstanding as of October 9, 2013.
 
3 The estimated number of Perion Shares and percentages of ownership are based on 66,720,352 Perion Shares  outstanding following the Closing based on the Exchange Ratio, as computed in the days preceding the execution of the Share Purchase Agreement based on information available at that time, which is equal to approximately 0.2402 Perion Shares for each one ClientConnect Share.  The actual number of Perion Shares and percentages of ownership following the Closing will be determined based on the final Exchange Ratio to be determined prior to the Closing.
 
4 Based solely upon, and qualified in its entirety with reference to, a Schedule 13G/A filed with the SEC on December 10, 2012, by Holine Finance Ltd.
 
5 BCPI Partners II, L.P. ("BCPI-P"), the general partner of Benchmark Israel II, L.P. ("BI II"), may be deemed to have sole power to vote and dispose of the shares directly held by BI II.  BCPI Corporation II ("BCPI-C"), the general partner of BCPI-P, may be deemed to have sole power to vote and dispose of the shares directly held by BI II.  Michael A. Eisenberg ("Eisenberg") and Arad Naveh, the directors of BCPI-C, may be deemed to have shared power to vote and dispose of the shares directly held by BI II.
 
6 Shares held by Zack Rinat and Orli Rinat as community property.
 
7 Project Condor LLC is a member-managed limited liability company.   J.P. Morgan Digital Growth Fund L.P. ("DGF") and 522 Fifth Avenue Fund, L.P. ("522 Fund") are the only members of Project Condor LLC.  J.P. Morgan Investment Management Inc., a registered investment adviser under the Investment Advisers Act of 1940, is the investment advisor to DGF and 522 Fund.  Voting and dispositive power with respect to the shares of Conduit Ltd. indirectly held by DGF and 522 Fund through Project Condor LLC reside with J.P. Morgan Investment Management Inc.
 
8 The number of shares and percentage owned by our directors and officers as a group (15 persons) prior to the Closing includes options to purchase 568,628 Perion Shares exercisable within 60 days of October 9, 2013, and the estimated number of shares and percentage owned by our directors and officers as a group (17 persons) following the Closing includes options to purchase approximately 1,003,125 Perion Shares exercisable within 60 days of January 7, 2014, the expected date of the Closing, and assumes that any options that expire prior to such date are exercised into shares immediately prior to the applicable expiration date.

 
134
 

MARKET PRICE INFORMATION
 
The Perion Shares have been listed on the NASDAQ Capital Market from January 31, 2006 to June 26, 2007, and on the NASDAQ Global Market since June 27, 2007, under the symbol "MAIL", and since November 10, 2011, under the symbol "PERI". The Perion Shares commenced trading on the Tel Aviv Stock Exchange on December 4, 2007 under the symbol "EMAIL", and since November 16, 2011, under the symbol "PERION".
 
The following table shows, for the periods indicated, the high and low market prices of the Perion Shares as reported on the NASDAQ and the TASE.
 
   
NASDAQ Global Market
   
Tel Aviv Stock Exchange
 
   
High ($)
   
Low ($)
   
High ($)
   
Low ($)
 
Five most recent full financial years
                       
2012
    10.50       3.68       10.45       3.85  
2011
    8.25       3.45       8.20       3.41  
2010
    10.75       3.85       10.96       4.04  
2009
    10.89       2.30       10.46       2.48  
2008
    5.58       1.86       5.28       2.00  
Financial quarters during the past two recent full financial years and any subsequent period
                               
Third Quarter 2013
    13.80       10.03       14.14       10.10  
Second Quarter 2013
    14.94       9.53       14.90       9.57  
First Quarter 2013
    13.10       8.19       12.79       8.21  
Fourth Quarter 2012
    10.50       6.66       10.45       6.65  
Third Quarter 2012
    7.68       4.04       7.38       4.16  
Second Quarter 2012
    5.20       3.68       5.13       3.81  
First Quarter 2012
    5.59       3.90       5.59       3.85  
Fourth Quarter 2011
    5.87       3.45       5.65       3.41  
Third Quarter 2011
    7.96       4.50       7.77       4.67  
Second Quarter 2011
    8.25       6.57       7.92       6.44  
First Quarter 2011
    8.10       6.85       8.20       6.59  
Most recent six months
                               
September 2013
    13.80       10.38       14.14       10.66  
August 2013
    13.30       10.03       13.26       10.10  
July 2013
    13.45       10.75       13.38       10.71  
June 2013
    14.12       10.96       14.20       11.15  
May 2013
    14.94       11.67       14.90       11.61  
April 2013
    12.38       9.53       12.22       9.57  
                                 
The closing prices of the Perion Shares, as reported on the NASDAQ and on the TASE on October 9, 2013, were $13.03 and NIS 45.75 (equal to $12.83 based on the exchange rate between the NIS and the dollar, as quoted by the Bank of Israel on October 9, 2013), respectively.
 
SHAREHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR THE PERION SHARES.
 
 
135
 
 
The consolidated financial statements of Conduit and its subsidiaries as of December 31, 2011 and 2012, and for each of the two years in the period ended December 31, 2012, appearing in this proxy statement, have been so included in reliance on the report of Kost Forer Gabbay & Kasierer, a member of Ernst & Young Global, an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting. The offices of Kost Forer Gabbay & Kasierer are located at 3 Aminadav Street, Tel Aviv, Israel.
 
The consolidated financial statements of Perion and its subsidiaries appearing in our Annual Report on Form 20-F/A for the year ended December 31, 2012, and the effectiveness of our internal control over financial reporting as of December 31, 2012, have been audited by Kost Forer Gabbay & Kasierer, a member of Ernst & Young Global, as set forth in its report therein. Such consolidated financial statements are incorporated herein in reliance upon such report given on the authority of such firm as experts in accounting and auditing.
 
 
136
 
 
 
We file reports and other information with the SEC under the Exchange Act. You may read and copy this information at the SEC’s public reference room located at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. For further information concerning the SEC’s public reference room, you may call the SEC at 1-800-SEC-0330. Additionally, copies of the materials may be obtained from the SEC's website at http://www.sec.gov.
 
We incorporate by reference in this proxy statement our Annual Report on Form 20-F/A for the fiscal year ended December 31, 2012 filed with the SEC on April 29, 2013, and each of our Reports on Form 6-K filed with the SEC subsequent thereto.
 
If there are any other important updates about the Share Purchase or the related matters or material modifications thereto prior to the Meeting, we will inform you by issuing a press release and filing a Report on Form 6-K with the SEC.
 
For more information about our company, you may also visit our website at http://www.perion.com. The information provided on our website is not part of this Proxy Statement, and therefore is not incorporated by reference .
 
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROXY STATEMENT. WE HAVE NOT AUTHORIZED ANYONE TO GIVE ANY INFORMATION DIFFERENT FROM THE INFORMATION CONTAINED IN THIS PROXY STATEMENT. THIS PROXY STATEMENT IS DATED OCTOBER 15, 2013. YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN THIS PROXY STATEMENT IS ACCURATE AS OF ANY LATER DATE, AND THE MAILING OF THIS PROXY STATEMENT TO SHAREHOLDERS WILL NOT CREATE ANY IMPLICATION TO THE CONTRARY.
 
 
137
 

 
The Board of Directors is not aware of any other business to be transacted at the Meeting. However, if any other matters are properly presented to the Meeting, the persons named as proxies in the enclosed form of proxy will vote upon such matters in accordance with their best judgment, including any matters or motions dealing with the conduct or adjournment of the Meeting.
 
The prompt return of your proxy will be appreciated and helpful in obtaining the necessary quorum and vote.  Therefore, whether or not you expect to attend the Meeting, please complete and sign the form of proxy provided herewith and return it promptly in the enclosed envelope.
 
 
 
 
Date: October 15, 2013 
By Order of the Board of Directors,
 
Tamar Gottlieb
Chairperson of the Board of Directors
 

 
138
 
                                                             

CONSOLIDATED FINANCIAL STATEMENTS

AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2011 and 2012 (AUDITED)
AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 2013 (UNAUDITED)

U.S. DOLLARS IN THOUSANDS

INDEX
 
 
 
F - 1
 
 
 
Kost Forer Gabbay & Kasierer
3 Aminadav St.
Tel-Aviv 6706703, Israel
 
 
 
 
Tel: +972-3-6232525
Fax: +972-3-5622555
ey.com
 

To the shareholders of

CONDUIT LTD.

Report on the Financial Statements
 
We have audited the accompanying (consolidated) financial statements of Conduit Ltd. and subsidiaries (the "Company"), which comprise the consolidated balance sheets as of December 31, 2012 and 2011, and the related consolidated statements of income, changes in shareholders' equity, and cash flows for the years then ended, and the related notes to the consolidated financial statements.

Management's Responsibility for the Financial Statements
 
Management is responsible for the preparation and fair presentation of these financial statements in conformity with U.S. generally accepted accounting principles; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free of material misstatement, whether due to fraud or error.

Auditor's Responsibility
 
Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control.  Accordingly, we express no such opinion.  An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
 
Opinion
 
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company and subsidiaries at December 31, 2012 and 2011, and the consolidated results of their operations and their cash flows for the years then ended in conformity with U.S. generally accepted accounting principles.

 
/s/   KOST FORER GABBAY & KASIERER
Tel-Aviv, Israel
KOST FORER GABBAY & KASIERER
 September  30, 2013
A Member of Ernst & Young Global
 
 
F - 2
 
 
CONDUIT LTD. AND ITS SUBSIDIARIES
U.S. dollars in thousands
 
   
June 30,
   
December 31,
 
   
2013
   
2012
   
2011
 
   
Unaudited
             
ASSETS
                 
                   
CURRENT ASSETS:
                 
Cash and cash equivalents
  $ 228,680     $ 80,731     $ 48,008  
Short-term bank deposits
    30,533       127,194       182,657  
Trade receivables
    30,571       52,592       44,873  
Prepaid expenses and other current assets
    3,049       6,562       10,260  
                         
Total current assets
    292,833       267,079       285,798  
                         
NON-CURRENT ASSETS:
                       
                         
Long-term bank deposits
    -       -       4,512  
Long-term receivables and other assets
    323       291       2,388  
Property and equipment, net
    4,125       4,713       4,501  
Goodwill
    33,461       33,461       33,461  
Intangible assets, net
    1,858       2,177       2,903  
Severance pay fund
    152       136       105  
Long-term deferred tax asset
    1,431       1,063       1,066  
                         
Total non-current assets
    41,350       41,841       48,936  
                         
Total assets
  $ 334,183     $ 308,920     $ 334,734  

The accompanying notes are an integral part of the consolidated financial statements.
 
 
F - 3
 
 
CONDUIT LTD. AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
U.S. dollars in thousands, except share and per share data
 
   
June 30,
   
December 31,
 
   
2013
   
2012
   
2011
 
   
Unaudited
             
                   
LIABILITIES AND SHAREHOLDERS' EQUITY
                 
                   
CURRENT LIABILITIES:
                 
Trade payables
  $ 19,180     $ 24,429     $ 13,840  
Other accounts payable and accrued expenses
    23,975       27,526       15,893  
Deferred revenues
    6,324       6,331       6,347  
                         
Total current liabilities
    49,479       58,286       36,080  
                         
LONG-TERM LIABILITIES:
                       
                         
Long-term deferred revenues
    3,125       6,250       12,500  
Accrued severance pay
    390       363       310  
                         
Total long-term liabilities
    3,515       6,613       12,810  
                         
Total liabilities
    52,994       64,899       48,890  
                         
COMMITMENTS AND CONTINGENCIES
                       
                         
SHAREHOLDERS' EQUITY
                       
Ordinary shares of NIS 0.01 par value - Authorized:
    1,000,000,000 shares at June 30, 2013 (unaudited),
    December 31, 2012 and 2011; Issued and outstanding:
    156,259,964, 156,245,308 and 148,770,238  shares at
    June 30, 2013 (unaudited), December 31, 2012 and
    2011, respectively
    419       419       400  
Series A, A-1, B, B-1, B-2 Convertible Preferred shares
    of NIS 0.01 par value - Authorized: 93,240,000 shares
    at June 30, 2013 (unaudited), December 31, 2012 and
    2011; Issued and outstanding: 69,538,900 shares at
    June 30, 2013 (unaudited), December 31, 2012 and
    2011; Aggregate liquidation preferences of $0 at June
    30, 2013 (unaudited) and December 31, 2012.
    186       186       186  
Additional paid-in capital
    26,498       21,367       15,453  
Retained earnings
    254,086       222,049       269,805  
                         
Total shareholders' equity
    281,189       244,021       285,844  
                         
Total liabilities and shareholders' equity
  $ 334,183     $ 308,920     $ 334,734  

The accompanying notes are an integral part of the consolidated financial statements.
 
 
F - 4
 
 
CONDUIT LTD. AND ITS SUBSIDIARIES
U.S. dollars in thousands, except share and per share data
 
   
Six months ended
June 30,
   
Year ended
December 31,
 
   
2013
   
2012
   
2012
   
2011
 
   
Unaudited
             
                         
                         
Revenues
  $ 161,359     $ 260,089     $ 537,801     $ 482,051  
                                 
Costs and expenses:
                               
Cost of revenues
    3,383       3,037       6,304       4,521  
Traffic acquisition costs
    81,975       49,375       119,705       113,436  
Research and development
    20,439       17,136       36,903       28,720  
Sales and marketing
    8,789       5,380       11,406       20,354  
General and administrative
    8,831       3,427       6,893       5,801  
                                 
Operating income
    37,942       181,734       356,590       309,219  
Financial income (expenses), net
    1,495       1,600       7,898       (453 )
                                 
Income before taxes on income
    39,437       183,334       364,488       308,766  
Taxes on income
    7,400       28,551       73,419       21,918  
Equity losses
    -       149       149       441  
                                 
Net income
  $ 32,037     $ 154,634     $ 290,920     $ 286,407  

The accompanying notes are an integral part of the consolidated financial statements.
 
 
F - 5
 
 
CONDUIT LTD. AND ITS SUBSIDIARIES
U.S. dollars in thousands, except share data
 
   
Ordinary shares
   
Preferred shares
   
Additional paid-in
   
Retained
   
Total shareholders'
 
   
Number
   
Amount
   
Number
   
Amount
   
capital
   
earnings
   
equity
 
                                           
Balance as of January 1, 2011
    123,696,414     $ 335       69,538,900     $ 186     $ 11,863     $ 63,081     $ 75,465  
                                                         
Share-based compensation
    -       -       -       -       1,574       -       1,574  
Dividend declared and paid
    -       -       -       -       -       (79,683 )     (79,683 )
Exercise of employee options
    25,073,824       65       -       -       2,016       -       2,081  
Net income
    -       -       -       -       -       286,407       286,407  
                                                         
Balance as of December 31, 2011
    148,770,238       400       69,538,900       186       15,453       269,805       285,844  
                                                         
Share-based compensation
    -       -       -       -       2,860       -       2,860  
Dividend declared and paid
    -       -       -       -       -       (338,676 )     (338,676 )
Exercise of employee options
    7,475,070       19       -       -       3,054       -       3,073  
Net income
    -       -       -       -       -       290,920       290,920  
                                                         
Balance as of December 31, 2012
    156,245,308       419       69,538,900       186       21,367       222,049       244,021  
                                                         
Share-based compensation
    -       -       -       -       5,121       -       5,121  
Exercise of employee options
    14,656       * )     -       -       10       -       10  
Net income
    -       -       -       -       -       32,037       32,037  
                                                         
Balance as of June 30, 2013 (unaudited)
    156,259,964     $ 419       69,538,900     $ 186     $ 26,498     $ 254,086     $ 281,189  
 
*)           Represents an amount less than $1.
 
The accompanying notes are an integral part of the consolidated financial statements.
 
 
F - 6
 
 
CONDUIT LTD. AND ITS SUBSIDIARIES
U.S. dollars in thousands

   
Six months
 ended June 30,
   
Year ended
December 31,
 
   
2013
   
2012
   
2012
   
2011
 
   
Unaudited
             
Cash flows from operating activities :
                       
                         
Net income
  $ 32,037     $ 154,634     $ 290,920     $ 286,407  
Adjustments to reconcile net income to net cash provided by operating activities:
                               
Depreciation and amortization
    1,510       1,602       2,976       2,637  
Share-based compensation
    5,121       1,126       2,860       1,574  
Accrued interest, net
    1,102       (1,446 )     (1,407 )     443  
Equity losses
    -       149       149       441  
Decrease (increase) in trade receivables
    22,021       402       (7,719 )     (17,952 )
Decrease (increase) in prepaid expenses and other current assets
    3,425       2,760       5,819       (8,312 )
Increase (decrease) in trade payables
    (5,249 )     1,653       10,589       (1,494 )
Increase (decrease) in other accounts payable and accrued expenses
    (3,522 )     8,506       12,017       2,385  
Increase (decrease) in deferred revenues
    (3,132 )     (3,218 )     (6,266 )     18,887  
Accrued severance pay, net
    11       7       22       10  
Deferred taxes, net
    (309 )     (93 )     (524 )     (2,519 )
                                 
Net cash provided by operating activities
    53,015       166,082       309,436       282,507  
                                 
Cash flows from investing activities:
                               
                                 
Deposits, net
    95,567       (178,527 )     61,405       (153,821 )
Purchase of property and equipment
    (603 )     (1,450 )     (2,462 )     (4,091 )
Purchase of Wibiya, net of cash acquired (a)
    -       -       -       (36,214 )
Receipt on account of investment in affiliate
    -       -       147       -  
Investment in affiliate
    (40 )     -       (200 )     -  
                                 
Net cash provided by (used in) investing activities
    94,924       (179,977 )     58,890       (194,126 )
                                 
Cash flows from financing activities:
                               
                                 
Dividend paid
    -       -       (338,676 )     (79,683 )
Proceeds from exercise of employee options
    10       150       3,073       2,081  
                                 
Net cash provided by (used in) financing activities
    10       150       (335,603 )     (77,602 )
                                 
Increase (decrease) in cash and cash equivalents
    147,949       (13,745 )     32,723       10,779  
Cash and cash equivalents at beginning of the period
    80,731       48,008       48,008       37,229  
                                 
Cash and cash equivalents at end of the period
  $ 228,680     $ 34,263     $ 80,731     $ 48,008  
Cash paid during the year:
                               
                                 
Supplemental disclosure of cash flow information:
                               
                                 
Income taxes paid
  $ 20,850     $ 15,590     $ 55,696     $ 25,019  

The accompanying notes are an integral part of the consolidated financial statements.
 
 
F - 7
 
 
CONDUIT LTD. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
U.S. dollars in thousands

   
Year ended December 31,
2011
 
Supplemental disclosure of cash flow information:
     
       
a.          Purchase of Wibiya:
     
       
Working capital deficit ,net
  $ 425  
Long-term assets
    (86 )
Long-term liabilities
    21  
Deferred taxes, net
    375  
Intangible assets
    (3,488 )
Goodwill
    (33,461 )
         
    $ (36,214 )

The accompanying notes are an integral part of the consolidated financial statements.
 
 
F - 8
 
 
CONDUIT LTD. AND ITS SUBSIDIARIES
U.S. dollars in thousands, except share and per share data
 
NOTE 1:-        GENERAL

 
a.
Conduit Ltd. (the "Company" or "Conduit") was incorporated and commenced operations in March 2005. Conduit empowers web and mobile publishers to engage their users across multiple platforms. The Company's products, such as community toolbars, mobile apps, notifications and web bars, enable publishers such as website owners, (the "Partners") to constantly connect with their users wherever they are. Conduit also allows publishers to maintain and analyze their performance through its environment.

 
The Company has a few product lines that include the community toolbar (collectively "Client Connect" or "CC") and four other product lines: Mobile app platform, Quick launch, U browser and Wibiya floating bar (collectively "Conduit Initiatives" or "CI").
 
In January 2008, the Company established a wholly-owned subsidiary, Conduit USA, Inc. ("Conduit Inc.") in Delaware, United States. Conduit Inc. supports the Company's business activities in the United States. In January 2011, the Company established a wholly-owned subsidiary, Conduit Connect B.V. Operation ("Conduit B.V.") in Holland. Conduit B.V. supports the Company's business operations in Europe, through maintenance and operations of the Company's servers. In July, 2011, the Company acquired Modular Patterns Ltd. ("Wibiya"), an Israeli based company which offers customized web-based toolbars, to online publishers, bloggers, and other online properties. For further details please see Note 3.
 
 
b.
During the years ended December 31, 2011 and 2012 and for the six months ended June 30, 2013 (unaudited), the Company's revenues were mostly derived from two customers, Microsoft Online Inc. ("Microsoft") (89%, 81% and 56% in 2011, 2012 and for the six months ended June 30 (unaudited),  2013, respectively) and Google Ireland Limited ("Google") (9%, 15% and 30% in 2011, 2012 and for the six months ended June 30,  2013 (unaudited), respectively).
 
The agreement with Microsoft (the "Microsoft Agreement") was signed in November 2010 and amended in May 2011 for a total period of four years (ending December 31, 2014). Pursuant to the Microsoft Agreement, Microsoft received exclusivity in providing search services and search monetization services to the Company in the United States for the period of the first two years. The fees received by the Company vary over the term of the agreement. The fees from the Microsoft Agreement include an upfront payment of $25,000 and fees payable based on queries from end users and/or revenue share from searches per geographical location, that vary annually over the term of the Microsoft Agreement and are payable to Conduit per queries or searches performed. The pricing mechanism with respect to the fees significantly decreases during the last two years (2013 and 2014) compared to the first two years of the term of the agreement (2011 and 2012).
 
 
The agreement with Google was signed on May 2011, for a term of two years ending April 30, 2013 and was extended until August 31, 2013, pursuant to which the Company is eligible to participate in the Google AdSense program. On September 1, 2013, an additional agreement was signed with Google, for a term of two years, with similar terms to the previous agreement.
 
 
F - 9
 
 
CONDUIT LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  
U.S. dollars in thousands, except share and per share data
 
NOTE 1:-        GENERAL (Cont.)
 
 
c.
In July, 2013, Company's management has signed a Letter of Intent ("LOI") agreement with a public company, Perion Ltd. ("Perion"), pursuant to which CC will be spun off into a newly formed Israeli company, while the CI activity will be retained in the Company (the "Spin-off").
 
 
Pursuant to the LOI, the Company will transfer the ClientConnect operations and certain related assets and liabilities, to the ClientConnect entity excluding cash, debt, accounts receivable, accounts payable and accrued expenses. In addition, the Company will provide a short term loan to CC to finance its working capital needs. There will be a transition service agreement between the Company and ClientConnect relating to the shared services which is intended to govern the ongoing relationship between the Company and ClientConnect going forward. ClientConnect will be owned by the shareholders of the Company in the same proportions as their ownership in the Company immediately prior to the Spin-off. The Spin-off is subject to certain conditions including receipt of a favorable tax ruling from the Israeli Income Tax authority effective as of December 31, 2013, and other regulatory approvals.

 
On September 16, 2013, the Company signed a Split agreement pursuant to which the entire activities and operations of the CC business, and certain related assets and liabilities, will be transferred to a new company, ClientConnect Ltd., as described above, pursuant to the LOI. Following the Split agreement, ClientConnect Ltd. and Conduit entered into a Share Purchase Agreement with Perion. See also Note 13.
 
NOTE 2:-         SIGNIFICANT ACCOUNTING POLICIES
 
 
The consolidated financial statements are prepared according to United States generally accepted accounting principles ("U.S. GAAP").

 
a.
Use of estimates:

 
The preparation of the consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates, judgments and assumptions. The Company's management believes that the estimates, judgments and assumptions used are reasonable based upon information available at the time they are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. On an ongoing basis, the Company's management evaluates estimates, including those related to fair values of share-based compensation, deferred taxes and income tax uncertainties, and contingent liabilities. Such estimates are based on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities.
 
 
F - 10
 
 
CONDUIT LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  
U.S. dollars in thousands, except share and per share data
 
NOTE 2:-         SIGNIFICANT ACCOUNTING POLICIES (Cont.)

 
b.
Financial statements in U.S. dollars:
 
 
The accompanying financial statements have been prepared in U.S. dollars.

 
The Company finances its operations in U.S. dollars and all of its revenues and a substantial portion of its costs is incurred in U.S. dollars. As such, the Company's management believes that the dollar is the currency of the primary economic environment in which the Company operates. Thus, the functional and reporting currency of the Company is the U.S. dollar.

 
Transactions and balances denominated in U.S. dollars are presented at their original amounts. Monetary accounts maintained in currencies other than the dollar are remeasured into dollars in accordance with Accounting Standards Codification No. 830, "Foreign Currency Matters". All transaction gains and losses of the remeasurement of monetary balance sheet items are reflected in the consolidated statements of operations as financial income or expenses, as appropriate.

 
c.
Principles of consolidation:

 
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated upon consolidation.

 
d.
Cash equivalents:

 
Cash equivalents are short-term highly liquid investments that are readily convertible to cash with original maturities of three months or less at the date acquired.

 
e.
Short-term and long-term bank deposits:

 
A short-term bank deposit is a deposit with a maturity of more than three months but less than one year. Deposits in U.S. dollars bear interest at rates ranging from 0.2%-1.62% per annum as of December 31, 2012 and 2011. Deposits in NIS bear interest at rates ranging from 1.19%-1.45% per annum as of December 31, 2012 and 2011. Long-term deposits include deposits with a maturity of more than one year bear interest at rates ranging from 1.5%-2.5% per annum as of December 31, 2011. Short-term and long-term deposits are presented at their cost including accrued interest.

 
f.
Investment in affiliates:

 
The Company accounts for investments in its affiliated companies in which it has the ability to exercise significant influence over the operating and financial policies using the equity method of accounting in accordance with the requirements of ASC 323 ("ASC 323"), "Investments-Equity Method and Joint Ventures". If the Company does not have the ability to exercise significant influence over operating and financial policies of a company, the investment is stated at cost.
 
F - 11
 
 
CONDUIT LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  
U.S. dollars in thousands, except share and per share data
 
NOTE 2:-        SIGNIFICANT ACCOUNTING POLICIES (Cont.)

 
The Company's investments are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the investment may not be recoverable. During the years ended December 31, 2011, 2012 and for the six months ended June 30, 2013 (unaudited), the Company recorded $441, $149 and $0 equity losses, including impairment losses, respectively.

 
g.
Property and equipment:

 
Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets at the following annual rates:

 
%
   
Computer equipment
33
Office furniture and equipment
6 - 20
Leasehold improvements
Over the shorter of the lease
term or estimated useful life

 
h.
Impairment of long-lived assets:

 
The Company's long-lived assets are reviewed for impairment in accordance with ASC 360, "Property, Plant and Equipment" whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated by the assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. During the years ended December 31, 2011, 2012 and for the six months ended June 30, 2013 (unaudited), no impairment losses have been recorded.

 
i.
Goodwill:

 
Goodwill represents the excess of the purchase price in a business combination over the fair value of net tangible and intangible assets acquired under ASC 350, "Intangibles, Goodwill and Other". Goodwill is not amortized, but rather is subject to an annual impairment test.
 
 
F - 12
 
 
CONDUIT LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  
U.S. dollars in thousands, except share and per share data
 
NOTE 2:-        SIGNIFICANT ACCOUNTING POLICIES (Cont.)

 
The Company performs an annual impairment test at December 31 of each fiscal year, or more frequently if impairment indicators are present. The Company operates in one operating segment and this segment comprises its only reporting unit. ASC 350 prescribes a two-phase process for impairment testing of goodwill. The first phase screens for impairment, while the second phase (if necessary) measures impairment. Goodwill impairment is deemed to exist if the net book value of a reporting unit exceeds its estimated fair value determined using market capitalization. In such case, the second phase is then performed, and the Company measures impairment by comparing the carrying amount of the reporting unit's goodwill to the implied fair value of that goodwill. An impairment loss is recognized in an amount equal to the excess. During the years ended December 31, 2011, 2012 and for the six months ended June 30, 2013 (unaudited), no impairment losses have been recorded.

 
j.
Intangible assets:

 
Intangible assets that are not considered to have an indefinite useful life are amortized over their estimated useful lives, which range from 1.5 to five years. Acquired customer relationships are amortized over their estimated useful lives in proportion to the economic benefits realized. This accounting policy results in accelerated amortization of such customer relationships as compared to the straight-line method. Technology is amortized over its estimated useful life on a straight-line basis.

 
The carrying amount of these assets to be held and used is reviewed whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Recoverability of these assets is measured by comparison of the carrying amount of each asset (or asset group) to the future undiscounted cash flows the asset (or asset group) is expected to generate. If the asset is considered to be impaired, the amount of any impairment is measured as the difference between the carrying value and the fair value of the impaired asset.

 
During the years ended December 31, 2011, 2012 and for the six months ended June 30, 2013 (unaudited), no impairment losses have been recorded.

 
k.
Revenue recognition:

 
The Company obtains the substantial majority of its revenues from third-party search services providers, Google and Microsoft (see also Note 1b). The revenues are generated primarily from monthly transaction volume-based fees earned by the Company for making its applications available to the Company's Partners, through which search revenues are produced (either based on a revenue share or fixed price models).

 
F - 13
 
 
CONDUIT LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  
U.S. dollars in thousands, except share and per share data

NOTE 2:-        SIGNIFICANT ACCOUNTING POLICIES (Cont.)

 
Accordingly, such revenue is recognized in accordance with ASC 605-20 "Revenue Recognition" ( formerly: Staff Accounting Bulletin No. 104, "Revenue Recognition in Financial Statements") provided that persuasive evidence of an arrangement exists, no significant Company's obligations remain, collection of the resulting receivable is reasonably assured, and the fees are fixed or determinable. The Company's customers do not have the right to take possession of the Company's software at any time during or after the term of the relevant customer agreement. Accordingly, as prescribed by ASC 605-30 "Rights to Use" (formerly: EITF Issue No. 00-3, "Application of AICPA Statement of Position 97-2 to Arrangements that Include the Right to Use Software Stored on Another Entity's Hardware"), the Company's revenue recognition is outside the scope of ASC 985-605 (formerly: SOP No. 97-2, "Software Revenue Recognition").

 
The upfront fees of $25,000, received as part of the Microsoft Agreement are recognized ratably over the term of the agreement.

 
Deferred revenues represent revenues paid in advance and recognized over the term of the service.

 
l.
Cost of revenues:

 
The cost of revenues includes mainly expenses related to the Company's servers.

 
m.
Traffic acquisition costs:

 
The traffic acquisition costs are direct and incremental costs that consist of payments made to Partners who distribute the Company's toolbars ("access points") through their websites. These payments include amounts based mainly on a fixed price per access point installed or per active user and are charged to expense as incurred.

 
n.
Research and development expenses:

 
Research and development expenses are charged to income as incurred.

 
o.
Accounting for share-based compensation:

 
The Company accounts for share-based compensation in accordance with ASC No. 718, "Compensation-Share Compensation". ASC No. 718 requires companies to estimate the fair value of equity-based payment awards on the date of grant using an Option-Pricing Model. The value of the portion of the award that is ultimately expected to vest is recognized as an expense over the requisite service periods in the Company's consolidated statements of income.
 
 
The Company recognizes compensation expense for the fair value of its awards granted based on the straight-line method over the requisite service period of each of the awards, net of estimated forfeitures. ASC No. 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Estimated forfeitures are based on actual historical pre-vesting forfeitures.

 
F - 14
 
 
CONDUIT LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  
U.S. dollars in thousands, except share and per share data
 
NOTE 2:-        SIGNIFICANT ACCOUNTING POLICIES (Cont.)

 
The Company selected the Black-Scholes-Merton option pricing model as the most appropriate fair value method for its share-option awards. The option-pricing model requires a number of assumptions, of which the most significant are the fair value of the underlying ordinary share, expected share price volatility and the expected option term. Expected volatility was calculated based upon certain peer companies that the Company considered to be comparable. The expected option term represents the period of time that options granted are expected to be outstanding.  For share-option awards which were at the money when granted (plain vanilla share-options), the expected option term is determined based on the simplified method in accordance with SAB No. 110, as adequate historical experience is not available to provide a reasonable estimate. The simplified method will continue to apply until enough historical experience is available to provide a reasonable estimate of the expected term. For share-option awards which were in the money when granted, the Company used an expected term which it believes is appropriate under these circumstances, which is not materially different than determining the expected term based on a lattice model and then use it as an input to the Black-Scholes-Merton option pricing model. The risk-free interest rate is based on the yield from U.S. treasury bonds with an equivalent term. Dividend yield was determined according to management's intention to distribute a dividend.

 
The fair value of the ordinary share underlying the share options has historically been determined by the Company's management with the assistance of a third party valuator. Because there has been no public market for the ordinary shares, management has determined fair value of the ordinary shares at the time of grant of the option by considering a number of objective and subjective factors including valuation of comparable companies, sales of ordinary shares to unrelated third parties, operating and financial performance and general and industry specific economic outlook, amongst other factors.

 
The valuations of the Company were performed using the market approach. The fair value for options granted in 2011, 2012 and for the six months ended June 30, 2013 (unaudited) were estimated at the date of grant using a Black-Scholes-Merton option pricing model with the following weighted average assumptions: expected volatility of 50%, risk free interest rates of 1.16%-2.12 %, 0.9%-1.33% and 0.9%-1.38%, respectively, dividend yields of 0%, 0% and 0% , respectively and a weighted-average expected term of 6.25 years.

 
The compensation expense related to employees for the years ended December 31, 2011, 2012 and for the six months period ended June 30, 2013 (unaudited) amounted to approximately $1,574, $2,860 and $5,121, respectively.
 
 
F - 15
 

CONDUIT LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  
U.S. dollars in thousands, except share and per share data
 
NOTE 2:-        SIGNIFICANT ACCOUNTING POLICIES (Cont.)

 
p.
Income taxes:

 
The Company accounts for income taxes in accordance with Accounting Standards Codification No. 740 (formerly, Statement of Financial Accounting Standards No. 109), "Accounting for Income Taxes" ("ASC 740"), using the liability method whereby deferred tax assets and liability account balances are determined based on the differences between financial reporting and the tax basis for assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company provides a valuation allowance, if necessary, to reduce deferred tax assets to the amounts that are more likely-than-not to be realized.

 
ASC 740 contains a two-step approach to recognizing and measuring a liability for uncertain tax positions. The first step is to evaluate the tax position taken or expected to be taken in a tax return by determining if the weight of available evidence indicates that it is more likely than not that, on an evaluation of the technical merits, the tax position will be sustained on audit, including resolution of any related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. The Company accrues interest and penalties related to unrecognized tax benefits in its taxes on income.

 
As of December 31, 2011, 2012 and June 30, 2013 (unaudited) the Company recorded an accrual for uncertain tax positions of $0, $0 and $1,300, respectively.

 
q.
Concentrations of credit risks:

 
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash, cash equivalents, short-term and long-term deposits and trade receivables.

 
The Company's cash, cash equivalents and deposits are invested in major banks in Israel and the United States.

 
Management believes that the financial institutions that hold the Company's investments are institutions with high credit standing and, accordingly, minimal risk exists with respect to these investments. The Company has no off-balance-sheet concentrations of credit risk such as, foreign exchange contracts, option contracts or other foreign hedging arrangements.

 
r.
Severance pay:

 
Israeli employees are entitled to severance pay equal to one month's salary for each year of employment, or a portion thereof. The Company's employee arrangements (except for the Company's founders, which are also employees) are under section 14 to Israel's Severance Pay Law, pursuant to which the severance pay liability is fully covered by the deposits with the severance pay fund. Since under section 14 mentioned above, the Company has no right to use the money or transfer it between employees, the severance pay is presented in its net amount.

 
F - 16
 
 
CONDUIT LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  
U.S. dollars in thousands, except share and per share data
 
NOTE 2:-        SIGNIFICANT ACCOUNTING POLICIES (Cont.)

 
The Company recorded a severance pay accrual for three of its founders, in respect of the Company's liability for severance pay which is calculated pursuant to Israel's Severance Pay Law, based on the most recent salary of the employees, multiplied by the number of years of employment as of the balance sheet date. Certain amounts of the liability are provided by monthly deposits into severance pay funds, insurance policies and by an accrual. The value of these funds and policies is recorded as an asset in the Company's balance sheet.

 
The deposited funds include profits accumulated up to the balance sheet date. The deposited funds may be withdrawn only upon the fulfillment of the obligation, pursuant to the Severance Pay Law or Labor agreements. The value of the deposited funds is based on the cash surrendered value of these policies, and includes immaterial profits.

 
Severance expense for the years ended December 31, 2012 and 2011 amounted to $16 and $27, respectively.

 
s.
Fair value of financial instruments:

 
 
Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability. A three-tier fair value hierarchy is established as a basis for considering such assumptions and for inputs used in the valuation methodologies in measuring fair value:

 
-
Level 1: Observable inputs obtained from independent sources, such as quoted prices for identical assets and liabilities in active markets.
 
-
Level 2: Other inputs that are directly or indirectly observable in the market place.
 
-
Level 3: Unobservable inputs which are supported by little or no market activity.

 
The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

 
The carrying amounts of cash and cash equivalents, trade receivables, short-term deposits, trade payables approximate their fair value due to the short-term maturity of such instruments.

 
t.
Comprehensive income:

 
The Company accounts for comprehensive income in accordance with ASC Topic 220, "Comprehensive Income". This statement establishes standards for the reporting and display of comprehensive income and its components in a full set of general purpose financial statements. Comprehensive income generally represents all changes in stockholders' equity during the period except those resulting from investments by, or distributions to, stockholders. The adoption of the standard, does not have an effect on the Company's financial statements.

 
F - 17
 
 
CONDUIT LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  
U.S. dollars in thousands, except share and per share data
 
NOTE 2:-        SIGNIFICANT ACCOUNTING POLICIES (Cont.)

 
u.
Impact of recently issued Accounting Standards:
 
 
In July 2012, the FASB issued Accounting Standards 2012-02 "Intangibles-Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment", which introduced an optional qualitative assessment for testing intangible asset for impairment. ASU 2011-02 allows companies to qualitatively assess whether it is more likely than not (i.e., a likelihood of greater than 50%) that an indefinite-lived intangible asset is impaired. If that is the case, the company would have to perform the annual quantitative impairment test. The ASU is effective for fiscal years beginning after September 15, 2012. Early adoption is permitted. The adoption will not have a material effect on the Company's  consolidated financial statements.
 
NOTE 3:-        ACQUISITION OF WIBIYA
 
 
On July 13, 2011, the Company acquired Modular Patterns Ltd. ("Wibiya"), an Israeli based company which offers customized web-based toolbars, (the "Wibiya toolbars"), to online publishers, bloggers, and other online properties (the "Publishers"). These toolbars, which enable the Publishers to integrate services and applications of their choice into their website, can be tailored by the Publishers to their individual needs.
 
The total consideration is comprised as follows:
 
Cash paid
  $ 45,000  
Cash and cash equivalents acquired
    (740 )
Additional consideration (see (1) below)
    (8,046 )
         
Total consideration, net of cash acquired
  $ 36,214  

 
(1)
$8,046 of the total consideration will be payable to the Founders and certain employees of Wibiya subject to their continuing employment with Wibiya or with the Company over a two year period and will be held in escrow on behalf of the Founders and such employees (the "Additional Consideration"). The Company recognizes the Additional Consideration as compensation expense in its consolidated statements of income over the two year employment term of the respective employees. For the years ended December 31, 2011 and 2012 and for the period ended June 30, 2013 (unaudited), the Company recorded $2,112, $3,956 and $1,978, respectively of compensation expense in respect of the above Additional Consideration.
 
Purchase price allocation:
 
The total purchase price was allocated to the assets acquired and liabilities assumed based on their estimated fair values as set forth below as of the acquisition date. The excess of the purchase price over the net tangible and identifiable intangible assets was assigned to goodwill.
 
 
F - 18
 
 
CONDUIT LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  
U.S. dollars in thousands, except share and per share data
 
NOTE 3:-        ACQUISITION OF WIBIYA (Cont.)
 
 
 
The fair value of assets acquired and liabilities assumed at the date of acquisition (July 13, 2011) are as follows:
 
Current assets
  $ 795  
Non-current assets
    117  
Liabilities assumed
    (532 )
Deferred taxes, net
    (375 )
Intangible assets
    3,488  
Goodwill
    33,461  
         
Total purchase price consideration
  $ 36,954  
 
 
 
Pro forma information in accordance with ASC 805 "Business Combinations", has not been provided, since the revenues were not material in relation to total consolidated revenues and net income.
 
NOTE 4:-        PREPAID EXPENSES AND OTHER CURRENT ASSETS

   
December 31,
 
   
2012
   
2011
 
             
Government authorities
  $ 1,860     $ 1,297  
Prepaid expenses
    630       2,760  
Additional consideration related to acquisition of Wibiya (see note 3)
    1,978       3,956  
Deferred tax assets
    2,094       1,951  
Loans to employees
    -       296  
                 
    $ 6,562     $ 10,260  
 
 
F - 19
 
 
CONDUIT LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  
U.S. dollars in thousands, except share and per share data

NOTE 5:-        PROPERTY AND EQUIPMENT, NET

   
December 31,
 
   
2012
   
2011
 
Cost:
           
             
Computers
  $ 8,994     $ 7,033  
Office and electronic equipment
    919       724  
Leasehold improvements
    1,358       1,052  
                 
      11,271       8,809  
Accumulated depreciation:
               
                 
Computers
    5,866       3,930  
Office and electronic equipment
    190       116  
Leasehold improvements
    502       262  
                 
      6,558       4,308  
                 
Depreciated cost
  $ 4,713     $ 4,501  
 
 
Depreciation expense for the years ended December 31, 2012 and 2011 amounted to $2,250 and $2,052, for the years ended December 31, 2012 and 2011, respectively.
 
NOTE 6:-        INTANGIBLE ASSETS, NET

 
Intangible assets, net, are comprised of the following:

   
December 31,
 
   
2012
   
2011
 
             
Original amounts:
           
Customer relationships
  $ 519     $ 519  
Technology
    2,909       2,909  
Covenants not-to-compete
    60       60  
                 
      3,488       3,488  
Accumulated amortization:
               
Customer relationships
    509       380  
Technology
    779       197  
Covenants not-to-compete
    23       8  
                 
      1,311       585  
                 
Other intangible assets, net
  $ 2,177     $ 2,903  
 
 
Amortization of intangible assets charged to expense was $726 and $585 for the years ended December 31, 2012 and 2011, respectively.
 
 
F - 20
 
 
CONDUIT LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  
U.S. dollars in thousands, except share and per share data
 
NOTE 6:-        INTANGIBLE ASSETS, NET (Cont.)
 
 
The estimated future amortization expense of the intangible assets as of December 31, 2012 is as follows:
 
December 31,
     
       
2013
  $ 633  
2014
  $ 624  
2015
  $ 616  
2016
  $ 304  
 
NOTE 7:-        OTHER ACCOUNTS PAYABLE AND ACCRUED EXPENSES

   
December 31,
 
   
2012
   
2011
 
             
Employees and payroll accruals
  $ 3,285     $ 2,338  
Government authorities
    1,196       896  
Accrued consulting fees
    -       5,000  
Accrued taxes
    16,197       -  
Accrued expenses to Partners
    6,262       6,517  
Deferred taxes
    289       673  
Other accrued expenses
    297       469  
                 
    $ 27,526     $ 15,893  
 
 
F - 21
 
 
CONDUIT LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  
U.S. dollars in thousands, except share and per share data
 
NOTE 8:-        COMMITMENTS AND CONTINGENT LIABILITIES
 
 
a.
The Company and its subsidiaries lease their facilities and motor vehicles in Israel and the United States under various operating lease agreements that expire on various dates.
 
 
Expenses for lease of facilities for the years ended December 31, 2011 and 2012 were approximately $737 and $1,132, respectively.

 
Expenses for the lease of motor vehicles for the years ended December 31, 2011 and 2012 were approximately $703 and $768, respectively.

 
Lease commitments:

 
Aggregate minimum rental commitments under non-cancelable leases at December 31, 2012, are as follows:
 
Year ended December 31,
 
Facilities
   
Motor vehicles
   
Total
 
                   
2013
    1,100       614       1,714  
2014
    949       334       1,283  
2015
    384       31       415  
2016
    389       -       389  
2017
    147       -       147  
2018 and thereafter
    105       -       105  

 
b.
The Company provided a bank guarantee in the amount of $163 in favor of its offices leased in Israel as of December 31, 2012.

 
c.
On February 21, 2010, the Company received a demand letter from one of the Company's publishers (the "Publisher") for additional compensation related to fees that the Publisher claims is due to him based on the Private Label Distribution Agreement signed with the Company and various alleged oral representations made by the Company. On November 11, 2010, the Publisher filed a claim in Tel-Aviv court in the amount of NIS 2.14 million ($574 at December 31, 2012). On January 21, 2011, the Company submitted a statement of defense asserting that the agreement was properly terminated and the Publisher is not entitled to any additional fees. On October 17, 2011, the Company submitted an amended statement of defense as a consequence of prior request to do so, which was approved by the court. On June 27, 2012, the court ruled that the law applicable to the dispute is the law of the State of New York. The parties are currently awaiting ruling on a motion submitted by the Company to require one of the plaintiffs to deposit a guarantee bond. A preliminary hearing is scheduled for September 30, 2013.

 
According to Company's management and legal advisors, the outcome of the above claim cannot be predicted at this stage. Accordingly, the Company did not record a provision for this claim.

 
d.
In March, 2010, a certain third party filed suit against the Company in the United States District Court for breach of contract, unjust enrichment and unfair competition in the amount of $1,100 (the "claim").

 
F - 22
 
 
CONDUIT LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  
U.S. dollars in thousands, except share and per share data
 
NOTE 8:-        COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)
 
 
The Company filed a motion for partial summary judgment asking the court to enforce the parties contractual limitation of liability that would cap total liability for all claims against the Company in this case at $5. On July 29, 2011, the trial ruled that the limitation of liability provision in the publisher agreement unambiguously limits the Company's liability for all types of damages to $5.

 
A bifurcated jury trial was held in April, 2013 and the jury awarded no third party compensatory nominal damages and $500 in "unjust-enrichment" damages.

 
On May 10, 2013, the third party filed a motion seeking an award of $948 in attorney fees and $12 in the expense reimbursement claim. On May 22, 2013, the Company filed a renewed motion for judgment as a matter of law or, in the alternative, for a new trial. The Company argued that the jury award should be reduced to $296, if not to zero.

 
On August 12, 2013, the trial court denied the Company’s motion for judgment as a matter of law or, in the alternative, for a new trial, and also denied the third party’s motion for reimbursement of attorney fees and expenses. On August 29, 2013, the Company filed an amended notice of cross-appeal. The Court of Appeals has scheduled a pre-argument settlement conference under the court’s Civil Appeal Management Program, to be held on September 16, 2013.

 
According to the Company's legal advisors, the outcome of the appeal cannot be predicted at this stage and the Company intends to vigorously defend itself; therefore, no provision was recorded.
 
 
e.
On February 14, 2012, a certain third party filed a complaint against the Company in the United States District Court for infringing U.S. Patent No. 7,853,881. According to the Company's legal advisors, an ultimately unfavorable outcome of this matter cannot be determined at this time, due to the preliminary stage of the litigation.
 
NOTE 9:-         SHAREHOLDERS' EQUITY

 
a.
Ordinary shares:

 
The Ordinary shares confer upon their holders the right to receive notices of shareholders meeting, to vote in such meetings, to receive dividends and to participate in the distribution of the surplus assets and funds on the liquidation of the Company.

 
b.
Preferred shares

 
The Series A, A-1, B, B-1 and B-2 Convertible Preferred shares confer upon their holders the same rights as the Ordinary shares. In addition, the Convertible Preferred shares are convertible into Ordinary Shares based on their Original Issue price and the applicable conversion price at the time of conversion on a 1:1 basis (as defined in the Company's Amended and Restated Article of Association).

 
F - 23
 
 
CONDUIT LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  
U.S. dollars in thousands, except share and per share data

NOTE 9:-         SHAREHOLDERS' EQUITY (Cont.)

 
c.
Dividend:

 
In September 2011, the Company distributed a dividend in an aggregate amount of $79,700 in cash, derived from the Company's income earned in 2011.
 
 
On November 30, 2012, the Company distributed a dividend of $338,676 in cash  derived from the Company ' s income earned in 2012 of $243,134  and an additional amount out of prior years' income of $95,542 (see also Note 10c(3)).

 
d.
Ordinary share option plan:

 
Under the Company's 2005 Share Option Plan ("the Plan"), options may be granted to officers, directors, employees and consultants of the Company or any subsidiary thereof. The Plan is executed under Section 102 of the Israeli Tax Ordinance. Immediately upon allotment, the ordinary shares purchased by exercising of the options will have the same rights as the Company's ordinary shares.

 
Pursuant to the Plan, the Company has reserved 11,815,792 ordinary shares for issuance. As of June 30, 2013 (unaudited), an aggregate of 19,807,698 ordinary shares of the Company are still available for future grants.

 
Each option granted under the Plan is exercisable until the earlier of ten years from the date of the grant of the option or the expiration dates of the respective option. The options vest primarily over four years. Options which are forfeited or not exercised before expiration become available for future grants.
 
During the years ended December 31, 2012 and 2011 and six months periods ended June 30, 2013 (unaudited), the Company recognized share-based compensation expense in the consolidated financial statements of $2,860, $1,574, and $5,121 respectively.
 
 
A summary of the Company's share options activities in the periods ending June 30, 2013 and 2012 (unaudited), December 31, 2012 and December 31, 2011 are as follows:

   
Six months ended
June 30, 2013 (Unaudited)
 
               
Average
 
         
Average
   
remaining
 
         
exercise
   
contractual
 
   
Number
   
price
   
life (years)
 
                   
Options outstanding at the beginning of the year
    10,801,270     $ 2.47       6.98  
                         
Granted
    9,729,200     $ 0.64          
Exercised
    (14,656 )   $ 0.68          
Forfeited
    (1,139,371 )   $ 2.71          
Expired
    (159,828 )   $ 1.94          
                         
Options outstanding at the end of the period
    19,216,615     $ 1.55       7.03  
                         
Options exercisable at the end of the period
    1,996,090     $ 0.08       6.85  

 
F - 24
 
 
CONDUIT LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  
U.S. dollars in thousands, except share and per share data

NOTE 9:-        SHAREHOLDERS' EQUITY (Cont.)
   
Six months ended June 30, 2012
(Unaudited)
 
               
Average
 
         
Average
   
remaining
 
         
exercise
   
contractual
 
   
Number
   
price
   
life (years)
 
                   
Options outstanding at the beginning of the year
    15,664,122     $ 0.88       7.33  
                         
Granted
    3,478,125     $ 2.61          
Exercised
    (307,514 )   $ 0.45          
Forfeited
    (1,391,320 )   $ 1.13          
Expired
    (115,310 )   $ 0.51          
                         
Options outstanding at the end of the period
    17,328,103     $ 1.22       7.38  
                         
Options exercisable at the end of the period
    1,680,601     $ 0.10       6.33  

 A summary of employees' share options activities during the years ended December 31, 2012 and 2011 is as follows:

   
Year ended December 31, 2012
 
               
Average
 
         
Average
   
remaining
 
         
exercise
   
contractual
 
   
Number
   
price
   
life (years)
 
                   
Options outstanding at the beginning of the year
    15,664,122     $ 0.88       7.33  
                         
Granted
    6,172,125     $ 3.21          
Exercised
    (7,475,070 )   $ 0.41          
Forfeited
    (3,270,321 )   $ 2.03          
Expired
    (289,586 )   $ 0.75          
                         
Options outstanding at the end of the year
    10,801,270     $ 2.20       6.98  
                         
Options exercisable at the end of the year
    785,570     $ 0.04       5.70  

   
Year ended December 31, 2011
 
               
Weighted
 
         
Weighted
   
average
 
         
average
   
remaining
 
         
exercise
   
contractual
 
   
Number
   
price
   
life (years)
 
                   
Options outstanding at the beginning of the year
    39,689,520     $ 0.18       7.43  
                         
Granted
    4,921,975     $ 1.97          
Exercised
    (25,073,824 )   $ 0.08          
Forfeited
    (3,680,010 )   $ 0.59          
Expired
    (193,539 )   $ 0.25          
                         
Options outstanding at the end of the year
    15,664,122     $ 0.79       7.33  
                         
Options exercisable at the end of the year
    862,501     $ 0.13       6.79  
 
 
F - 25
 

CONDUIT LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  
U.S. dollars in thousands, except share and per share data
 
NOTE 9:-        SHAREHOLDERS' EQUITY (Cont.)

 
The weighted average grant date fair values of options granted during the years ended December 31, 2011 and December 31, 2012 and for the six month periods ended June 30, 2012 and 2013 (unaudited) were $2.19, $4.04, $4.04 and $3.00, respectively.

 
As of December 31, 2012 and June 30, 2013 (unaudited), there was $12,156 and $31,608 of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the Plan. This cost is expected to be recognized over a period of approximately 3.2 and 3.6 years, respectively.

 
The options outstanding as of December 31, 2012, have been classified by ranges of exercise prices as follows:

Options outstanding
   
Options exercisable
 
Exercise price
   
Options
outstanding
as of
December 31,
2012
   
Weighted
average
remaining
contractual
life
   
Exercisable
as of
December 31,
2012
   
Weighted
average
remaining
contractual
life
 
     
Number
   
Years
   
Number
   
Years
 
                           
0.00       700,000       3.02       700,000       3.02  
0.06       66,297       5.91       52,237       5.85  
0.13       1,162,059       6.70       -       -  
0.76       1,724,826       7.63       33,333       8.22  
2.19       4,459,088       8.88       -       -  
4.04       2,689,000       9.74       -       -  
                                   
        10,801,270               785,570          

 
The options outstanding as of June 30, 2013 (unaudited) have been separated into ranges of exercise price as follows:

Options outstanding
   
Options exercisable
 
Exercise price
   
Options
outstanding
as of
June 30, 2013
(unaudited)
   
Weighted
average
remaining
contractual
life
   
Exercisable
as of
June 30, 2013
(unaudited)
   
Weighted
average
remaining
contractual
ife
 
     
Number
   
Years
   
Number
   
Years
 
                           
0.00       700,000       2.53       700,000       2.53  
0.01       7,930,200       9.94       1,037,400       9.94  
0.06       66,297       5.41       66,297       5.41  
0.13       1,149,559       6.20       114,060       6.07  
0.76       1,889,234       7.19       33,333       8  
2.19       3,784,325       8.39       45,000       9  
4.04       3,697,000       9.53       -       -  
                                   
        19,216,615               1,996,090          
 
 
F - 26
 
 
CONDUIT LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  
U.S. dollars in thousands, except share and per share data
 
NOTE 9:-        SHAREHOLDERS' EQUITY (Cont.)

 
e.
Share-based compensation expense for employees:

 
The Company recognized non-cash share-based compensation expense in the consolidated statements of operations as follows (in thousands):

   
Six months ended
June 30,
 
Year ended
December 31,
   
2013
   
2012
   
2012
   
2011
 
   
(Unaudited)
       
                         
Research and development expenses
  $ 973     $ 699     $ 1,762     $ 785  
Sales and marketing
    552       330       877       665  
General and administrative expenses
    3,597       97       221       124  
                                 
    $ 5,122     $ 1,126     $ 2,860     $ 1,574  
 
NOTE 10:-      INCOME TAXES

 
a.
Tax rates:
 
 
The corporate tax rate in Israel is as follows: 2012 – 25%, 2011 - 24%. Tax at a reduced rate of 25% applies on capital gains arising after January 1, 2003, instead of the regular tax rate. In December 2011, the Israeli Parliament (the "Knesset") passed the Law for Socioeconomic Change (Legislative Amendments) (Taxes), 2011, which prescribes, among others, to cancel, effective from 2012, the scheduled progressive reduction in the corporate tax rate and to raise the statutory corporate tax rate to 25% in 2012. In view of the increase in the corporate tax rate to 25% in 2012, the real capital gains tax rate and the real betterment tax rate will also be increased. The Amendment was enacted effective as of December 6, 2011.

 
On July 30, 2013, the Knesset approved the second and third readings of the Economic Plan for 2013-2014 ("Amended Budget Law") which consists, among others, of fiscal changes whose main aim is to enhance long-term collection of taxes. These changes include, among others, raising the Israeli corporate tax rate from 25% to 26.5%, canceling the lowering of the tax rates applicable to preferred enterprises (9% in development area A and 16% in other areas), taxing revaluation gains and increasing the tax rates on dividends within the scope of the Law for the Encouragement of Capital Investments to 20% effective from January 1, 2014.

 
The deferred tax balances included in the financial statements as of June 30, 2013 are calculated according to the tax rates that were in effect as of the balance sheet date and do not take into consideration the possible effects of the Amended Budget Law. These effects will be included in the financial statements starting from the actual enactment date, namely in the third quarter of 2013.
 
 
b.
The Company received final tax assessments through the year 2011. The subsidiaries, Conduit Inc., Conduit B.V. and Wibiya have not received final tax assessments since their incorporation.
 
 
F - 27
 
 
CONDUIT LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  
U.S. dollars in thousands, except share and per share data

NOTE 10:-      INCOME TAXES (Cont.)

 
c.
Tax benefits under the Law for the Encouragement of Capital Investments, 1959:

 
1.
On April 1, 2005, an amendment to the Investment Law came into effect ("the Amendment") and has significantly changed the provisions of the Investment Law. The Amendment limits the scope of enterprises which may be approved by the Investment Center by setting criteria for the approval of a facility as a Beneficiary Enterprise, such as provisions generally requiring that at least 25% of the Beneficiary Enterprise's income will be derived from export. Additionally, the Amendment enacted major changes in the manner in which tax benefits are awarded under the Investment Law so that companies no longer require Investment Center approval in order to qualify for tax benefits. However, the Investment Law provides that terms and benefits included in any certificate of approval already granted will remain subject to the provisions of the law as they were on the date of such approval.

 
 
In 2009, the Company submitted a pre-ruling request to Israel's Tax Authorities to be granted status as a new "Beneficiary Enterprise" under the Law for the Encouragement of Capital Investments, 1959 ("the Law"). The Company also elected the year 2007 to be the year of election. In March 2010, the Company received final approval from the Israeli Income Tax Authority ("ITA").

 
 
Pursuant to the provisions of the Law, the Company's undistributed income will be tax-exempt for a period of two years, and subject to a reduced tax rate of 10%-25% for an additional period of five to eight years, depending on the percentage of foreign ownership of the Company.
 
The entitlement to the above benefits is conditional upon the Company fulfilling the conditions stipulated by the above law, regulations published there under and the letters of approval for the specific investments in "Beneficiary Enterprises". In the event of failure to comply with these conditions, the benefits may be canceled and the Company income from sources other than the Beneficiary Enterprises during the benefit period will be subject to tax at Israel's regular corporate tax rate. As of December 31, 2012, the Company is of the opinion that it fully complies with all requirements.
 
If cash dividends are distributed out of tax-exempt profits in a manner other than upon complete liquidation, Conduit will then become liable for tax at the rate of 10%-25% (depending on the level of foreign investments in Conduit) in respect of the amount distributed.
 
As of December 31, 2012, Conduit had $178,862 (using NIS/dollar exchange rate as of December 31, 2012) of tax-exempt income attributable to its Beneficiary Enterprise programs and potential income tax liability of up to $44,716 (using NIS/dollar exchange rate as of December 31, 2012) as of December 31, 2012 in the event that such tax exempt income is distributed.
 
 
F - 28
 
 
CONDUIT LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  
U.S. dollars in thousands, except share and per share data
 
NOTE 10:-      INCOME TAXES (Cont.)

 
2.
On December 2010, the Knesset passed the Law for Economic Policy for 2011 and 2012 (Amended Legislation), 2011, which prescribes, among others, amendments in the Law for the Encouragement of Capital Investments, 1959 ("the Law"). The amendment became effective as of January 1, 2011. According to the amendment, the benefit tracks in the Law were modified and a flat tax rate applies to the Company's entire preferred income. The Company will be able to opt to apply (the waiver is non-recourse) the amendment and from then on it will be subject to the amended tax rates that are: 2011 and 2012 - 15% (in development area A - 10%), 2013 and 2014 - 12.5% (in development area A - 7%) and in 2015 and thereafter - 12% (in development area A - 6%).
 
Pursuant to the Company's examination of the Amendment, the Company applied to adopt the Amendment commencing in the year 2012.
 
 
3.
Temporary, partial tax relief for repatriation of exempt income:
 
On November 5, 2012, the Knesset approved a final bill regarding repatriations of trapped earnings out of Approved/Privileged Enterprises. The temporary provisions have come into effect as of its official publication (December 2012). The Israeli government agreed to grant relief of 30%-60% on the amount of tax which should have been paid on distributable earnings in order to encourage companies to pay the reduced taxes during the next 12 months (the "temporary order"). The temporary order provides partial relief from Israeli corporate income tax for companies which opt to enjoy the privilege, on a linear basis: greater release of "trapped" retained earnings will result in a higher relief from corporate income tax. According to the new linear statutory formula, the corporate income tax to be paid, would vary from 6% to 17.5% effective tax rate (depends on the Company's corporate tax rate in the year in which the income was derived and the amount of "trapped" retained earnings elected to be relieved), without taking into account the 15% dividend withholding tax (which should be levied only upon actual distribution, if any). The reduced corporate tax is payable within 30 days of making the election. The new temporary order does not require the actual distribution of the retained earnings, nor does it provide any relief from the 15% dividend withholding tax.
 
The partial corporate income tax relief is available to companies that elect to implement the temporary reduced tax relief by November 12, 2013 in respect of exempt retained earnings accrued up until December 31, 2011, provided that up to 30% (the exact rate is calculated by a new statutory formula) of the "released" earnings are re-invested in Israel in at least one of the following: Industrial activities, Research and development activities, Assets used by the company, Salaries of newly recruited employees.
 
 
F - 29
 
 
CONDUIT LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  
U.S. dollars in thousands, except share and per share data
 
NOTE 10:-      INCOME TAXES (Cont.)
 
 
 
Pursuant to the Temporary Order in December, 2012, the Company "released" an approximate amount of $110,000 out of its "trapped" earnings out of Beneficiary Enterprise and distributed $95,542 as part of the dividend paid in 2012 (see note 9c). The additional corporate tax incurred by the Company in 2012 as a result of such release amounted to $15,719.
 
The Company's intention is not to distribute any amounts of its undistributed tax-exempt income as dividends in the near-term. The Company currently intends to reinvest its tax-exempt income and not to distribute such income as a dividend. Accordingly, no deferred income taxes have been provided on income attributable to the Company's Beneficiary Enterprise program as the undistributed tax-exempt income is essentially permanent by reinvestment.
 
 
d.
Income before taxes on income is comprised as follows:

   
Year ended
December 31,
 
   
2012
   
2011
 
             
Domestic
  $ 364,069     $ 308,325  
Foreign
    419       441  
                 
    $ 364,488     $ 308,766  

 
e.
Taxes on income comprised as follows:

   
Year ended
December 31,
 
   
2012
   
2011
 
             
Current taxes (1)
  $ 73,130     $ 24,394  
Adjustments in respect of prior years
    813       43  
Deferred taxes
    (524 )     (2,519 )
                 
    $ 73,419     $ 21,918  

 
(1)
Includes an additional tax expense of $15,719 in respect of release of the Company's trapped earnings (see c3 above).

 
f.
Deferred taxes:

 
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. In assessing the realization of deferred tax assets, the Company considers whether it is more likely than not that all or some portion of the deferred tax assets will not be realized.

 
F - 30
 
 
CONDUIT LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  
U.S. dollars in thousands, except share and per share data

NOTE 10:-      INCOME TAXES (Cont.)

 
1.
Provided in respect of the following:

   
December 31,
 
   
2012
   
2011
 
             
Accrued vacation and severance  pay
  $ 158     $ 143  
Research and development costs
    2,999       2,873  
Net operating loss carry forwards
    880       393  
                 
Net deferred tax assets before valuation allowance
    4,037       3,409  
Valuation allowance
    (496 )     -  
Deferred tax asset
    3,541       3,409  
                 
Property and equipment
    (289 )     (298 )
Intangible assets
    (384 )     (767 )
                 
Deferred tax liability
    (673 )     (1,065 )
                 
Deferred tax asset, net
  $ 2,868     $ 2,344  

 
2.
Deferred income taxes are presented in the balance sheet as follows:

   
December 31,
 
   
2012
   
2011
 
             
Current assets
  $ 2,094     $ 1,951  
Non-current assets
    1,063       1,066  
Current liabilities
    (289 )     (673 )
                 
    $ 2,868     $ 2,344  

 
g.
Reconciliation of the theoretical tax expense:

 
A reconciliation between the theoretical tax expense, assuming all income is taxed at the statutory tax rate applicable to income of the Company, and the actual tax expense as reported in the consolidated statements of income is as follows:

 
F - 31
 
 
CONDUIT LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  
U.S. dollars in thousands, except share and per share data

NOTE 10:-      INCOME TAXES (Cont.)

   
Year ended
December 31,
 
   
2012
   
2011
 
             
Income before taxes on income, as reported in the consolidated statements of income
  $ 364,488     $ 308,766  
                 
Statutory tax rate
    25 %     24 %
                 
Theoretical tax expense
    91,122       74,104  
Income tax at rate other than the statutory tax rate
    (37,018 )     (52,568 )
Non-deductible expenses (including share-based compensation)
    1,996       1,073  
Operating losses of Wibiya for which valuation allowance was provided
    496       -  
Taxes in respect with prior years
    813       43  
Taxes in respect to release of "trapped earnings"
    15,719       -  
Others
    291       (734 )
                 
Actual tax expense
  $ 73,419     $ 21,918  
 
NOTE 11:-      FINANCIAL INCOME (EXPENSES), NET

   
Year ended
December 31,
 
   
2012
   
2011
 
Financial income:
           
Interest on bank deposits
  $ 5,641     $ 2,137  
Foreign currency translation gains, net
    2,266       -  
                 
      7,907       2,137  
Financial expenses:
               
Bank charges
    9       58  
Foreign currency translation loss, net
    -       2,532  
                 
      9       2,590  
                 
    $ 7,898     $ (453 )
 
 
F - 32
 
 
CONDUIT LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  
U.S. dollars in thousands, except share and per share data

NOTE 12:-      GEOGRAPHIC INFORMATION AND MAJOR CUSTOMERS

 
a.
Summary information about geographic areas:

 
ASC 280, "Segment Reporting," establishes standards for reporting information about operating segments.  Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance.  The Company manages its business on a basis of one reportable segment, and derives revenues from monthly transaction volume based fees for making its application available to the Company's Partners (see Note 1 for a brief description of the Company's business).  The following is a summary of revenues within geographic areas:

   
Six months ended
June 30,
   
Year ended
December 31,
 
   
2013
   
2012
   
2012
   
2011
 
   
Unaudited
             
Revenues based on customer's location:
                       
                         
United States
  $ 101,709     $ 220,164     $ 449,539     $ 432,009  
Europe
    59,568       39,925       88,262       50,042  
Israel
    82       -       -       -  
                                 
Total revenues
  $ 161,359     $ 260,089     $ 537,801     $ 482,051  

 
b.
For major customers, see Note 1b.

   
June 30,
   
December 31,
 
   
2013
   
2012
   
2011
 
   
Unaudited
             
Long-lived assets by geographic region:
                 
                   
United States
  $ 1,201     $ 1,575     $ 1,558  
Europe
    367       618       934  
Israel
    4,415       4,697       4,912  
                         
    $ 5,983     $ 6,890     $ 7,404  
 
 
F - 33
 

CONDUIT LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  
U.S. dollars in thousands, except share and per share data
 
NOTE 13:-        SUBSEQUENT EVENTS
 
On September 16, 2013, the Company entered into a Split Agreement, pursuant to which the entire activities and operations of the CC business, and certain related assets and liabilities, will be transferred to a new company ("ClientConnect Ltd.") which will be held by the identical holdings according to their respective holdings of the shareholders in the Company (the "Split"). Following the consummation of the Split, Perion and ClientConnect Ltd. will be combined by a way of share purchase transaction, pursuant to a Share Purchase agreement signed on September 16, 2013, whereby Perion will purchase all of the ClientConnect Ltd. shares from ClientConnect Ltd.'s shareholders in exchange for Perion shares, which shall constitute approximately 81% of its issued and outstanding share capital and ClientConnect Ltd. will become a wholly owned subsidiary of Perion (the "Acquisition"), subject to a court approved arrangement under Sections 350 and 351 of the Companies Law and receipt of a tax ruling for tax-exempt shareholders' transaction from the ITA.

Upon the Split, expected to occur at December 31, 2013, the Company will account for the transaction in accordance with ASC 505-60 "Reverse Spin-off" and report the CI activities as discontinued operations in accordance with "Discontinued Operations" subtopic of ASC 205, whereby the financial statements of the legal spinnee, (i.e., ClientConnect Ltd.), will be presenting the CC business as a continuing operations, while the operations of the legal spinnor (the Conduit Initiatives), will be presented as discontinued operations.
 
Upon the closing of the Acquisition, expected to occur in January, 2014, the Company will account for the transaction in accordance with ASC 805, "Business Combinations", as a reverse acquisition transaction, whereby Perion is considered the accounting acquiree and ClientConnect Ltd. is the accounting acquirer.
 
 
F - 34
 
 
UNAUDITED PRO FORMA INFORMATION

AS OF AND FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2013

AND

AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011
 
This pro forma information of ClientConnect Ltd. ("ClientConnect") for all reported periods gives effect to the balance sheets and statements of operations of Conduit Ltd. ("Conduit") (in the first column of adjustments therein) as if: 1) Client Connect  Ltd. ("ClientConnect") was legally incorporated on June 30, 2013; and 2) the Split of ClientConnect from Conduit occurred on June 30, 2013, reflecting the presentation of the business to be retained by Conduit (the "Conduit Initiatives") as discontinued operations, prior to the effect of any distributions deemed to be made as part of the Split.(*)

The June 30, 2013 balance sheet contains additional columns to reflect the effect of the Split, namely the deemed distribution of the Conduit Initiatives and certain ClientConnect related assets and liabilities to Conduit's shareholders and the receipt of a short-term credit line to finance the working capital of ClientConnect.
 
_______________
 
(*)  In actuality, ClientConnect was legally incorporated on July 23, 2013, and the Split of ClientConnect from Conduit is expected to be consummated on December 31, 2013. In accordance with ASC 205-2 "Discontinued operations", the results of operations of a component of an entity to be disposed of other than by sale (i.e., distribution to the shareholders), would not be recorded as a discontinued operation until the period in which the disposed entity is distributed (which in this case is expected to be December 31, 2013).
 
 
PF - 1
 

CONDUIT LTD.'S - CLIENT CONNECT OPERATIONS
PRO FORMA  BALANCE SHEETS
U.S. dollars in thousands
 
   
June 30, 2013
Conduit Ltd.
   
Adjustments
(Note 1)
   
June 30, 2013 post discontinued operations
   
Adjustments  
(Note 2)
   
Adjustments
(Note 3)
   
June 30, 2013, Conduit Ltd.-As Adjusted (Note 4)
 
                                     
ASSETS
                                   
                                     
CURRENT ASSETS:
                                   
Cash and cash equivalents
  $ 228,680     $ 595     $ 228,085     $ -     $ 223,085     $ 5,000  
Short-term bank deposits
    30,533       1,115       29,418       -       29,418       -  
Trade receivables
    30,571       204       30,367       -       30,367       -  
    Prepaid expenses and other current assets
    3,049       1,401       1,648       -       1,629       19  
Current assets- discontinued operations
    -       (3,315 )     3,315       3,315       -       -  
                                                 
Total current assets
    292,833       -       292,833       3,315       284,499       5,019  
                                                 
NON-CURRENT ASSETS:
                                               
Long-term receivables and other assets
    323       277       46       -       4       42  
Property and equipment, net
    4,125       1,085       3,040       -       (406 )     3,446  
Intangible assets, net
    1,858       1,858       -       -       -       -  
Goodwill
    33,461       4,133       29,328       -       -       29,328  
Long-term deferred tax asset
    1,431       563       868       -       868       -  
Severance pay fund
    152       80       72       -       72       -  
Non-current assets- discontinued operations
    -       (7,996 )     7,996       7,996       -       -  
                                                 
Total non-current assets
    41,350       -       41,350       7,996       538       32,816  
                                                 
Total assets
  $ 334,183     $ -     $ 334,183     $ 11,311       285,037     $ 37,835  
 
 
PF - 2
 
 
CONDUIT LTD.'S - CLIENT CONNECT OPERATIONS
PRO FORMA  BALANCE SHEETS
U.S. dollars in thousands, except share and per share data
 
   
June 30, 2013
Conduit Ltd.
   
Adjustments
(Note 1)
   
June 30, 2013 post discontinued
operations
   
Adjustments  
(Note 2)
   
Adjustments
(Note 3)
   
June 30, 2013, Conduit Ltd.-As Adjusted
(Note 4)
 
                                     
LIABILITIES AND SHAREHOLDERS' EQUITY
                                   
                                     
CURRENT LIABILITIES:
                                   
Trade payables
  $ 19,180     $ 1,183     $ 17,997     $ -     $ 17,997     $ -  
Other accounts payable and accrued expenses
    23,975       (1,162 )     25,137       -       24,426       711  
Deferred revenues
    6,324       27       6,297       -       -       6,297  
Short-term loan to Conduit Ltd.
    -       -       -       -       (5,000 )     5,000  
Current liabilities- discontinued operations
    -       (48 )     48       48       -       -  
                                                 
Total current liabilities
    49,479       -       49,479       48       37,423       12,008  
                                                 
LONG-TERM DEFERRED REVENUES
    3,125       -       3,125       -       -       3,125  
                                                 
ACCRUED SEVERANCE PAY
    390       187       203       -       203       -  
                                                 
Long-term liabilities- discontinued operations
    -       (187 )     187       187       -       -  
                                                 
Total liabilities
    52,994       -       52,994       235       37,626       15,133  
                                                 
SHAREHOLDERS' EQUITY :
                                               
Ordinary shares
    419       -       419       -       -       419  
Series A, A-1, B, B-1, B-2 Convertible Preferred shares
    186       -       186       -       -       186  
Additional paid-in capital
    26,498       -       26,498       -       4,401       22,097  
Retained earnings
    254,086       -       254,086       11,076       243,010       -  
                                                 
Total shareholders' equity
    281,189       -       281,189       11,076       247,411       22,702  
                                                 
Total liabilities and shareholders' equity
  $ 334,183     $ -     $ 334,183     $ 11,311       285,037     $ 37,835  
 
Notes
 
(1) Effect of presentation of the Conduit Initiatives as discontinued operations.
(2) Effect of the Split - distribution of assets and liabilities of the Conduit Initiatives (that are presented as assets and liabilities of discontinued operations as of June 30, 2013), to be distributed upon the actual Split.
(3) Effect of the Split on both of the following: (a) effect of distribution of cash and working capital balances of the ClientConnect business that will be distributed to Conduit (to be presented as dividend/dividend in kind); and (b) cash to be contributed by Conduit under a short-term credit line to ClientConnect of up to $20 million to finance current working capital requirements is presented as part of the ClientConnect operations, assuming a loan of $5 million for presentation purposes. Excludes any effect of additional share-based compensation expense that might be triggered as a result of the Split.
(4) The purpose of the Conduit Ltd.-As Adjusted column is to reflect the elimination of specific assets and liabilities not to be acquired or assumed by Perion in the Share Purchase.
 
 
PF - 3
 
 
CONDUIT LTD.'S - CLIENT CONNECT OPERATIONS
PRO FORMA STATEMENT OF INCOME
U.S. dollars in thousands
 
   
Six months
ended,
June 30,
2013, Conduit Ltd.
   
Adjustments
(Note 1)
   
Six months ended,
June 30,
2013, post discontinued operations
 
                   
Revenues
  $ 161,359     $ 909     $ 160,450  
                         
Cost and expenses:
                       
Cost of revenues
    3,383       429       2,954  
Traffic acquisition costs
    81,975       -       81,975  
                         
Research and development
    20,439       10,196       10,243  
Sales and marketing
    8,789       3,841       4,948  
General and administrative
    8,831       2,778       6,053  
                         
Operating income (loss)
    37,942       (16,335 )     54,277  
Financial income, net
    1,495       190       1,305  
                         
Income before taxes on income
    39,437       (16,145 )     55,582  
Taxes on income
    7,400       (1,172 )     8,572  
Discontinued operations, net of taxes
    -       -       (14,973 )
                         
Net income
  $ 32,037     $ (14,973 )   $ 32,037  

Note

(1) Effect of presentation of the Conduit Initiatives as discontinued operations
 
 
PF - 4
 
 
CONDUIT LTD.'S - CLIENT CONNECT OPERATIONS
PRO FORMA BALANCE SHEETS
U.S. dollars in thousands
 
   
December 31,
2012 Conduit Ltd.
   
Adjustments
(Note 1)
   
December 31,
2012, post
discontinued
operations
 
                   
ASSETS
                 
                   
CURRENT ASSETS:
                 
Cash and cash equivalents
  $ 80,731     $ 2,336     $ 78,395  
Short-term bank deposits
    127,194       1,629       125,565  
Trade receivables
    52,592       127       52,465  
Prepaid expenses and other current assets
    6,562       3,707       2,855  
Current assets- discontinued operations
    -       (7,799 )     7,799  
                         
Total current assets
    267,079       -       267,079  
                         
NON-CURRENT ASSETS:
                       
Long term receivables and other assets
    291       238       53  
Property and equipment, net
    4,713       1,103       3,610  
Intangible assets, net
    2,177       2,177       -  
Goodwill
    33,461       4,133       29,328  
Long-term deferred tax asset
    1,063       356       707  
Severance pay fund
    136       75       61  
Non-current assets- discontinued operations
    -       (8,082 )     8,082  
                         
Total non-current assets
    41,841       -       41,841  
                         
Total assets
  $ 308,920     $ -     $ 308,920  

Note

(1) Effect of presentation of the Conduit Initiatives as discontinued operations
 
 
PF - 5
 
 
CONDUIT LTD.'S - CLIENT CONNECT OPERATIONS
PRO FORMA BALANCE SHEETS
U.S. dollars in thousands, except share and per share data

   
December 31,
2012 Conduit Ltd.
   
Adjustments
(Note 1)
   
December 31,
2012, post
discontinued
operations
 
                   
LIABILITIES AND SHAREHOLDERS' EQUITY
                 
                   
CURRENT LIABILITIES:
                 
Trade payables
  $ 24,429     $ 1,054     $ 23,375  
Other accounts payable and accrued expenses
    27,526       342       27,184  
Deferred revenues
    6,331       34       6,297  
Current liabilities- discontinued operations
    -       (1,430 )     1,430  
                         
Total current liabilities
    58,286       -       58,286  
                         
LONG-TERM DEFERRED REVENUES
    6,250       -       6,250  
                         
ACCRUED SEVERANCE PAY
    363       184       179  
                         
Non-current liabilities- discontinued operations
    -       (184 )     184  
                         
Total liabilities
    64,899       -       64,899  
                         
SHAREHOLDERS' EQUITY :
                       
Ordinary shares
    419       -       419  
Series A, A-1, B, B-1, B-2 Convertible Preferred shares
    186       -       186  
Additional paid-in capital
    21,367       -       21,367  
Retained earnings
    222,049       -       222,049  
                         
Total shareholders' equity
    244,021       -       244,021  
                         
Total liabilities and shareholders' equity
  $ 308,920     $ -     $ 308,920  

Note

(1) Effect of presentation of the Conduit Initiatives as discontinued operations
 
 
PF - 6
 
 
CONDUIT LTD.'S - CLIENT CONNECT OPERATIONS
PRO FORMA STATEMENT OF INCOME
U.S. dollars in thousands

   
Year ended,
December 31,
2012, Conduit Ltd.
   
Adjustments
(Note 1)
   
Year ended,
December 31,
2012, post
discontinued
operations
 
                   
Revenues
  $ 537,801     $ 793     $ 537,008  
                         
Cost and expenses:
                       
Cost of revenues
    6,304       791       5,513  
Traffic acquisition costs
    119,705       150       119,555  
                         
Research and development
    36,903       20,045       16,858  
Sales and marketing
    11,406       3,486       7,920  
General and administrative
    6,893       2,188       4,705  
                         
Operating income (loss)
    356,590       (25,867 )     382,457  
Financial income, net
    7,898       202       7,696  
                         
Income before taxes on income
    364,488       (25,665 )     390,153  
Taxes on income
    73,419       (2,016 )     75,435  
Equity losses
    149       (149 )     -  
Discontinued operations, net of taxes
    -       -       (23,798 )
                         
Net income
  $ 290,920     $ (23,798 )   $ 290,920  

Note

(1) Effect of presentation of the Conduit Initiatives as discontinued operations
 
 
PF - 7
 
 
CONDUIT LTD.'S - CLIENT CONNECT OPERATIONS
PRO FORMA BALANCE SHEETS
U.S. dollars in thousands
 
   
December 31,
2011 Conduit Ltd.
   
Adjustments
(Note 1)
   
December 31,
2011, post
discontinued
operations
 
                   
ASSETS
                 
                   
CURRENT ASSETS:
                 
Cash and cash equivalents
  $ 48,008     $ 6,769     $ 41,239  
Short-term bank deposits
    182,657       -       182,657  
Trade receivables
    44,873       122       44,751  
Prepaid expenses and other current assets
    10,260       5,249       5,011  
Current assets- discontinued operations
    -       (12,140 )     12,140  
                         
Total current assets
    285,798       -       285,798  
                         
NON-CURRENT ASSETS:
                       
Long term receivables and other assets
    2,388       2,314       74  
Long term bank deposits
    4,512       -       4,512  
Property and equipment, net
    4,501       742       3,759  
Intangible assets, net
    2,903       2,903       -  
Goodwill
    33,461       4,133       29,328  
Long-term deferred tax asset
    1,066       217       849  
Severance pay fund
    105       55       50  
Non-current assets- discontinued operations
    -       (10,364 )     10,364  
                         
Total non-current assets
    48,936       -       48,936  
                         
Total assets
  $ 334,734     $ -     $ 334,734  

Note

(1) Effect of presentation of the Conduit Initiatives as discontinued operations
 
 
PF - 8
 
 
CONDUIT LTD.'S - CLIENT CONNECT OPERATIONS
PRO FORMA BALANCE SHEETS
U.S. dollars in thousands, except share and per share data

   
December 31,
2011 Conduit Ltd.
   
Adjustments
(Note 1)
   
December 31,
2011, post
discontinued
operations
 
                   
LIABILITIES AND SHAREHOLDERS' EQUITY
                 
                   
CURRENT LIABILITIES:
                 
Trade payables
  $ 13,840     $ 873     $ 12,967  
Other accounts payable and accrued expenses
    15,893       1,704       14,189  
Deferred revenues
    6,347       50       6,297  
Current liabilities- discontinued operations
    -       (2,627 )     2,627  
                         
Total current liabilities
    36,080       -       36,080  
                         
LONG-TERM DEFERRED REVENUES
    12,500       -       12,500  
                         
ACCRUED SEVERANCE PAY
    310       141       169  
                         
Non-current liabilities- discontinued operations
    -       (141 )     141  
                         
Total liabilities
    48,890       -       48,890  
                         
SHAREHOLDERS' EQUITY :
                       
Ordinary shares
    400       -       400  
Series A, A-1, B, B-1, B-2 Convertible Preferred shares
    186       -       186  
Additional paid-in capital
    15,453       -       15,453  
Retained earnings
    269,805       -       269,805  
                         
Total shareholders' equity
    285,844       -       285,844  
                         
Total liabilities and shareholders' equity
  $ 334,734     $ -     $ 334,734  
 
 
PF - 9
 
 
CONDUIT LTD.'S - CLIENT CONNECT OPERATIONS
PRO FORMA STATEMENT OF INCOME
U.S. dollars in thousands

   
Year ended,
December 31,
2011, Conduit Ltd.
   
Adjustments
(Note 1)
   
Year ended,
December 31,
2011, post discontinued operations
 
                   
Revenues
  $ 482,051     $ 327     $ 481,724  
                         
Cost and expenses:
                       
Cost of revenues
    4,521       353       4,168  
Traffic acquisition costs
    113,436       78       113,358  
                         
Research and development
    28,720       10,374       18,346  
Sales and marketing
    20,354       2,437       17,917  
General and administrative
    5,801       1,675       4,126  
                         
Operating income (loss)
    309,219       (14,590 )     323,809  
Financial income (expense), net
    (453 )     183       (636 )
                         
Income before taxes on income
    308,766       (14,407 )     323,173  
Taxes on income
    21,918       (646 )     22,564  
Equity losses
    441       (441 )     -  
Discontinued operations, net of taxes
    -       -       (14,202 )
                         
Net income
  $ 286,407     $ (14,202 )   $ 286,407  

Notes

(1) Effect of presentation of the Conduit Initiatives as discontinued operations
 
PF - 10





 
Exhibit 99.2
 
APPENDIX A
 
SHARE PURCHASE AGREEMENT
 
The Share Purchase Agreement has been included in this Proxy Statement to provide shareholders with information regarding its terms. It is not intended to provide any other factual information about our company. The Share Purchase Agreement contains representations and warranties made by us to Conduit and ClientConnect and representations and warranties made by Conduit and ClientConnect to us.  The representations, warranties and covenants contained in the Share Purchase Agreement were made only for purposes of such agreement and as of the specific dates therein, were solely for the benefit of the parties to such agreement, and may be subject to limitations agreed upon by the contracting parties, including being qualified by confidential disclosures exchanged between the parties in connection with the execution of the Share Purchase Agreement. The assertions contained in certain of those representations and warranties were made solely for purpose of allocating risk between the parties to the Share Purchase Agreement, rather than establishing matters of fact.  Certain of our representations and warranties are required to be true as of specific dates, including as of the Closing Date. Indeed, we are required to take certain action necessary to ensure such representations and warranties are accurate at the time of closing.  Moreover, to the extent that any representation or warranty may not be entirely accurate as of the Closing Date, it may be subject to qualifications and limitations agreed to by the parties and to a contractual standard of materiality or material adverse effect.  Shareholders are not third party beneficiaries under the Share Purchase Agreement and should not rely on the representations, warranties and covenants or any descriptions thereof as characterizations of the actual state of facts or condition of us, Conduit or ClientConnect or any of their respective subsidiaries or affiliates. Moreover, information concerning the subject matter of the representations and warranties may change after the date of the Share Purchase Agreement, which subsequent information may or may not be fully reflected in our public disclosures.  See the section of this Proxy Statement entitled “Share Purchase Agreement”.
 
 
 
 
 
 
SHARE PURCHASE AGREEMENT

by and among

Perion Network Ltd.
a company formed under the laws of Israel,
 
Conduit ltd.
a company formed under the laws of Israel,
 
ClientConnect ltd.
a company formed under the laws of Israel,

___________________________
 
Dated as of September 16, 2013
___________________________
 
 
 
 
 
 
Exhibits

Exhibit A
Definitions
Exhibit B
Split Agreement
Exhibit C
Form of Conduit Undertaking Agreement
Exhibit D
Form of Conduit Standstill Agreement
Exhibit E
Form of Perion Undertaking Agreement
Exhibit F
Form of Perion Instruction Letter
Exhibit G
Form of CEO Lock-up Agreement
Exhibit H
Signing Spreadsheet
Exhibit I
Exchange Ratio Formula
Exhibit J
Form of Registration Rights Undertaking
Exhibit K
Form of Legal Opinion of Perion U.S. Legal Counsel
Exhibit L
Form of Perion Director Indemnification Letter
Exhibit M
Form of Transition Services Agreement
Exhibit N
Form of Office and Administrative Services Agreement
Exhibit O
Form of ClientConnect Employment Confirmation
 
Schedules

Schedule A
Conduit Shareholders Entering Conduit Undertaking Agreements
Schedule B
Conduit Shareholders Entering Conduit Standstill Agreements
Schedule C
Perion Shareholders Entering Undertaking Agreements
Schedule 4.2
Conduit and ClientConnect Conduct of Business between Signing and Closing
Schedule 4.2(m)
ClientConnect Key Employees
Schedule 4.3
Perion Conduct of Business between Signing and Closing
Schedule 4.3(m)
Perion Key Employees
Schedule 5.1(b)
Lock-up Arrangements
Schedule 5.11(b)(i)
New Securities
Schedule 6.1(b)
Governmental Approvals
Schedule 6.2(f)
Required Perion Consents
Schedule 6.2(h)
Conduit and ClientConnect Tax Ruling Principles
Schedule 6.3(d)(iii)
ClientConnect Key Employees Executing Lock-up Arrangements
Schedule 6.3(e)
Required ClientConnect Consents
Schedule 6.3(h)
Perion Tax Ruling Principles
 
ClientConnect Disclosure Letter
Perion Disclosure Letter

 
 
 
 
Share Purchase Agreement
 
This Share Purchase Agreement (this " Agreement ") is made and entered into as of September 16, 2013   (the " Agreement Date "), by and among Perion Network Ltd., a company formed under the laws of Israel (" Perion "), Conduit Ltd. , a company formed under the laws of Israel (" Conduit "), and ClientConnect Ltd., a company formed under the laws of Israel (" ClientConnect ").  Certain other capitalized terms used in this Agreement are defined in Exhibit A .  Each of Perion, Conduit and ClientConnect may be referred to herein as a " Party ", or collectively as the " Parties ".
 
Recitals
 
A.
Conduit has decided to spin-off the ClientConnect Business to ClientConnect, a newly formed company to be owned by the Conduit Shareholders.
 
B.
Conduit and ClientConnect have entered into a Split Agreement, dated as of September 16, 2013, a copy of which (including all exhibits and schedules thereto) is attached hereto as Exhibit B (the " Split Agreement "), pursuant to which the entire activities and operations, and related assets and liabilities, of the ClientConnect Business will be transferred to ClientConnect under the terms and conditions set forth in the Split Agreement, and the Conduit Shareholders will be issued shares in ClientConnect identical to their respective holdings in Conduit, thereby becoming the ClientConnect Shareholders (the " Split "), all pursuant to a court approved arrangement among Conduit and the Conduit Shareholders under Sections 350 and 351 of the Companies Law.
 
C.
As soon as practicable following the consummation of the Split, the Parties desire to combine Perion and ClientConnect by way of a share purchase transaction pursuant to which Perion will purchase all of the ClientConnect Shares from the ClientConnect Shareholders in exchange for Perion Shares, and ClientConnect will become a wholly owned subsidiary of Perion, pursuant to a court approved arrangement among Conduit and the Conduit Shareholders under Sections 350 and 351 of the Companies Law and the terms and conditions set forth in this Agreement (the " Share Purchase ").
 
D.
It is contemplated that each of the Split and the Share Purchase will be effected as a restructuring pursuant to a tax ruling under Sections 105 and 103T, respectively, of the Israeli Income Tax Ordinance (the " Tax Ruling ").
 
E.
The board of directors of Conduit (the " Conduit Board of Directors ") and the board of directors of ClientConnect (the " ClientConnect Board of Directors ") have carefully considered the respective terms of this Agreement and have determined that the terms and conditions of the transactions contemplated thereby are fair to and in the best interests of, and are advisable to, Conduit and the Conduit Shareholders and ClientConnect and the ClientConnect Shareholders, respectively, have approved this Agreement and the transactions contemplated hereby and have recommended that the Conduit Shareholders approve this Agreement and the transactions contemplated thereby.
 
F.
Concurrently with the execution of this Agreement, and as a condition and inducement to Perion’s willingness to enter into this Agreement, (i) the Conduit Shareholders identified on Schedule A hereto are entering into undertaking agreements containing certain voting provisions in the form attached hereto as Exhibit  C and (ii) the Conduit Shareholders identified on Schedule B hereto are entering into standstill agreements in respect of their Perion Shares (the " Standstill Agreements ") in the form attached hereto as Exhibit  D .
 
 
A - 1
 
 
G.
The board of directors of Perion (the " Perion Board of Directors ") has carefully considered the terms of this Agreement and has determined that the terms and conditions of the transactions contemplated thereby, are fair to and in the best interests of, and are advisable to, Perion and its shareholders, has approved this Agreement and the transactions contemplated thereby and has recommended that its shareholders approve this Agreement and the transactions contemplated thereby.
 
H.
Concurrently with the execution of this Agreement , and as a condition and inducement to Conduit's and ClientConnect's willingness to enter into this Agreement, (i) the shareholders of Perion identified on Schedule C hereto are entering into undertaking agreements containing certain voting and lock-up provisions in the form attached hereto as Exhibit E , (ii) Perion is entering into an instruction letter with respect to the voting of certain Perion Shares held in trust in the form attached hereto as Exhibit F and (iii) the CEO of Perion is entering into a lock up agreement in respect of his Perion Shares in the form attached hereto as Exhibit G .
 
Now, Therefore , in consideration of the representations, warranties and agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
 
ARTICLE 1
Purchase and Sale
 
1.1            The Share Purchase .  At the Closing, the following shall occur:
 
(a)            Exchange of Shares .  Each ClientConnect Share issued and outstanding immediately prior to the Closing (other than ClientConnect Shares referred to in Section 1.1(b)), as set forth on the signing spreadsheet attached hereto as Exhibit H (the " Signing Spreadsheet ") as shall be updated and replaced by the Closing Spreadsheet to be prepared and delivered by ClientConnect prior to Closing, shall automatically be transferred to Perion by virtue of the Arrangement, free and clear of any Encumbrances, in exchange for such number of newly issued Perion Shares that is equal to the exchange ratio calculated as of Closing on the basis of the Closing Spreadsheet in accordance with the formula attached hereto as Exhibit I (the " Exchange Ratio "). The Exchange Ratio as of September 11, 2013 as computed based on the Signing Spreadsheet is equal to approximately 0.2402 Perion Shares for each one ClientConnect Share. The Perion Shares to be issued at Closing in exchange for the ClientConnect Shares are referred to herein as the " Share Purchase Consideration ".
 
(b)            Shares Held in Treasury .   At the Closing, all shares of ClientConnect Share Capital that are owned by ClientConnect immediately prior to the Closing, if any, shall not be exchanged hereunder.
 
(c)            Adjustments to Share Purchase Consideration .  The Exchange Ratio shall be adjusted to reflect appropriately the effect of any forward or reverse stock split, stock dividend (including any dividend or distribution of securities exercisable or exchangeable for or convertible into Perion Shares or ClientConnect Shares), reorganization, recapitalization, reclassification, combination or other like change with respect to the Perion Shares or ClientConnect Shares occurring on or after the Agreement Date and prior to the Closing.
 
(d)            Fractional Shares . The total number of Perion Shares to be issued to each ClientConnect Shareholder under Section 1.1(a) shall be equal to the total number of ClientConnect Shares held by such holder as of Closing multiplied by the Exchange Ratio.  After giving effect to the previous sentence, no fractional shares of Perion Shares will be issued in connection with the Share Purchase, and any fractional share that would otherwise be due to any ClientConnect Shareholder pursuant to this Agreement (after aggregating all fractional shares to be received by such Person) shall be rounded to the nearest whole share (with a half share being round up), and each of the Signing Spreadsheet and the Closing Spreadsheet shall be prepared accordingly.
 
 
A - 2
 
 
1.2            Stock Options; Registration Statements .
 
(a)            ClientConnect Options .  Effective as of the Closing, each outstanding option or right to acquire ClientConnect Shares then outstanding (each, a " ClientConnect Option "), whether or not then exercisable, shall be exchanged and converted into an option to purchase Perion Shares pursuant to the Perion Equity Incentive Plan in accordance with this Section 1.2(a).  Each ClientConnect Option so converted shall continue to have, and be subject to, the same vesting schedule (including the same terms and conditions regarding acceleration, if any), all as set forth in the applicable agreement governing the terms and conditions of such ClientConnect Option immediately prior to the Closing.  As of the Closing, (i) each ClientConnect Option shall be exercisable for that number of whole shares of Perion Shares equal to the product of the number of ClientConnect Shares that were issuable upon exercise of such ClientConnect Option immediately prior to the Closing multiplied by the Exchange Ratio, rounded to the nearest whole number of shares of Perion Shares (with a half share being rounded up), and (ii) the per share exercise price for each share of Perion Shares issuable upon exercise of each ClientConnect Option so converted shall be equal to the quotient determined by dividing the exercise price per ClientConnect Share at which such ClientConnect Option was exercisable immediately prior to the Closing by the Exchange Ratio, rounded to the nearest whole cent (with a half cent being rounded up), and (iii) the remaining term of any ClientConnect Option that exceeds five years shall be reduced to five years from the Closing Date.
 
(b)            Registration Statement (Stock Options) .  Prior to Closing or within thirty (30) calendar days thereafter, Perion shall register the Perion Shares issuable upon exercise of ClientConnect Options exchanged pursuant to Section 1.2(a) and upon exercise of the New Securities issued pursuant to Section 5.11(b) by filing an effective registration statement on Form S-8 (or any successor form) or another appropriate form with the SEC (as defined herein), and Perion shall use commercially reasonable efforts to maintain the effectiveness of such registration statement and maintain the current status of the prospectus with respect thereto for so long as such options remain outstanding.
 
(c)            Registration Statement (Perion Shares) . Perion shall take all actions required pursuant to the Registration Rights Undertaking, including in connection with filing with the SEC, as soon as practicable following the filing of the Perion Annual Report on Form 20-F for the 2013 fiscal year (and in any event within the earlier of (i) thirty (30) calendar days following the filing of such Perion Annual Report and (ii) one hundred and fifty (150) calendar days following the Closing Date), a registration statement covering the resale of Perion Shares issued at Closing on Form F-3  in accordance with the terms and conditions set forth in the Registration Rights Undertaking.
 
1.3            Closing .  The consummation of the Share Purchase (the " Closing ") shall take place at the offices of Meitar Liquornik Geva Leshem Tal, 16 Abba Hillel Silver Road, Ramat Gan, Israel, or at such other location as the parties hereto agree, at 10:00 a.m. local time on a date to be mutually agreed upon by Perion and Conduit, which date shall be no later than the second Business Day after all of the conditions set forth in ‎ ARTICLE 6 of this Agreement have been satisfied or waived (other than those conditions which, by their terms, are intended to be satisfied at the Closing), or at such other time and place as Perion and Conduit shall mutually agree.  The date on which the Closing occurs is sometimes referred to in this Agreement as the " Closing Date ." The Parties agree to use reasonable commercial efforts to enable the Closing to be held on or about January 7, 2014.
 
1.4            Closing Spreadsheet .  The information set forth in the Signing Spreadsheet is an estimate only, and the actual number of Perion Shares and Perion Options to be issued to the ClientConnect Shareholders and ClientConnect Optionholders, respectively, shall be as set forth in the Closing Spreadsheet.
 
 
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1.5            Closing   Deliveries .
 
(a)            Perion Deliveries .  Perion shall deliver to Conduit (or such other Person as specified below), at or prior to the Closing, each of the following:
 
(i)              irrevocable instruction letter to American Stock Transfer & Trust Company LLC, Perion's U.S. transfer agent, directing it to issue the Share Purchase Consideration to the respective ClientConnect Shareholders as set forth in the Closing Spreadsheet;
 
(ii)            a certificate, dated as of the Closing Date, executed on behalf of Perion by the Chief Executive Officer and the Chief Financial Officer of Perion, to the effect that each of the conditions set forth in clause (a), (c), (d), (e), (f), (g) and (i) of Section ‎ 6.2 have been satisfied;
 
(iii)           a certificate, dated as of the Closing Date and executed on behalf of Perion by the Secretary of Perion, certifying (A) the Memorandum and Articles of Association of Perion, as amended to date (together, the " Perion Charter Documents "), (B) the resolutions of the Perion Board of Directors approving the Share Purchase, this Agreement, and all the transactions contemplated by this Agreement and (C) the resolutions of the Perion Shareholders approving this Agreement and all the transactions contemplated by this Agreement; and
 
(iv)           Registration Rights Undertaking duly executed by Perion, in the form attached here as Exhibit J (the " Registration Rights Undertaking "); and
 
(v)            a legal opinion of Kramer Levin Naftalis and Frankel LLP., U.S. legal counsel to Perion, substantially in the form attached hereto as Exhibit K ; and
 
(vi)           evidence satisfactory to Conduit of the resignation of both of the Resigning Perion Directors prior to the Closing as directors of Perion effective no later than immediately prior to the Closing.
 
(b)            Conduit Deliveries .  Conduit and ClientConnect shall deliver to Perion, at or prior to the Closing:
 
(i)             certificates, dated as of the Closing Date and executed on behalf of Conduit and ClientConnect by each of Conduit's and ClientConnect's Chief Executive Officer and Chief Financial Officer, respectively, to the effect that each of the conditions set forth in clauses (a), (c), (d), (e), (f), (g) and
(i) of Section 6.3 have been satisfied;
 
(ii)            a certificate, dated as of the Closing Date and executed on behalf of Conduit by the Secretary of Conduit, certifying (A)  the resolutions of the Conduit Board of Directors approving the Share Purchase, this Agreement, and all the transactions contemplated by this Agreement and (B) the resolutions of the Conduit Shareholders approving this Agreement and all the transactions contemplated by this Agreement, including the Share Purchase (which resolutions shall constitute the Section 350 Voting Approval (as defined below);
 
(iii)           a certificate, dated as of the Closing Date and executed on behalf of ClientConnect by the Secretary of ClientConnect, certifying (A) the Articles of Association, including all amendments thereto, of ClientConnect, as amended to date (together, the " ClientConnect Charter Documents ") and (B) the resolutions of the ClientConnect Board of Directors approving the Share Purchase, this Agreement, and all the transactions contemplated by this Agreement;
 
 
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(iv)           evidence satisfactory to Perion of the resignation of each of the directors of ClientConnect in office immediately prior to the Closing as directors of ClientConnect effective no later than immediately prior to the Closing;
 
(v)            the Closing Spreadsheet (as such term is defined in Section  ‎ 5.10 ) completed to include all of the information specified in Section  ‎ 5.10 , and a certificate executed by the Chief Financial Officer of Conduit on behalf of Conduit, dated as of the Closing Date, certifying that such Closing Spreadsheet is true, correct and complete; and
 
(vi)           the shareholders registry of ClientConnect certified as true and complete by the Secretary of ClientConnect, evidencing the ownership of all of the outstanding ClientConnect Shares by Perion.
 
1.6            Shares and Rights Not Transferable .  For as long as this Agreement is in force, no ClientConnect Securityholder shall be permitted to sell, transfer, assign or exercise any of its ClientConnect Shares and/or ClientConnect Options, or subject such securities to any Encumbrances, except for ClientConnect Options that would otherwise expire pursuant to their terms prior to the Closing Date.  The rights of the ClientConnect Securityholders under this Agreement as of immediately prior to the Closing are personal to each such securityholder and shall not be transferable for any reason otherwise than by operation of law, will or the laws of descent and distribution.  Any attempted transfer of such right by any holder thereof (otherwise than as permitted by the immediately preceding sentence) shall be null and void. Perion acknowledges that as of the date hereof, the issued shares of ClientConnect consist only of one share held in trust, on behalf of Conduit, by MLG&LB Trust Ltd., and that under no circumstances shall MLG&LB Trust Ltd. have any liability or obligation whatsoever to Perion in connection with the transactions contemplated by this Agreement.
 
1.7            No Further Rights .  The aggregate Share Purchase Consideration paid or payable in accordance with the terms hereof shall be in full satisfaction of all rights pertaining to the ClientConnect Share Capital. The Perion Options issued in exchange for the ClientConnect Options in accordance with the terms hereof shall be in full satisfaction of all rights pertaining to the ClientConnect Options. After the Closing, there shall be no further registration of transfers on the records of ClientConnect of shares of ClientConnect Share Capital which were issued and outstanding immediately prior to the Closing and there shall be no issuances of ClientConnect Share Capital upon the purported exercise or conversion of any securities issued by ClientConnect prior to the Closing.   After the Closing, by virtue of the Arrangement, no ClientConnect Securityholder shall have the right (i) to receive any securities of ClientConnect or Perion other than the Perion Shares or Perion Options set forth opposite such Person's name on the Closing Spreadsheet or (ii) to make any claim with respect to the authority of any Party to enter into this Agreement or enforceability of the Share Purchase or any of the transactions contemplated hereby.
 
1.8            ClientConnect Net Working Capital .
 
(a)           On or about January 6, 2014, Conduit shall deliver to Perion a certificate executed on behalf of Conduit by the Chief Financial Officer of Conduit detailing Conduit’s good faith best preliminary estimate of the ClientConnect Net Working Capital as of December 31, 2013 (the " Preliminary   ClientConnect Net Working Capital Certificate ").  The Preliminary ClientConnect Net Working Capital Certificate shall be prepared by Conduit in U.S. Dollars and in accordance with GAAP and shall present Conduit’s good faith best estimate of the estimated ClientConnect Net Working Capital as of the close of business on December 31, 2013.
 
 
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(b)            " ClientConnect Net Working Capital " means (A) ClientConnect's total current assets as of the close of business on December 31, 2013 (in U.S. dollars and as determined in accordance with GAAP) less (B) ClientConnect's total current liabilities as of the close of business on December 31, 2013 (in U.S. dollars and as determined in accordance with GAAP), excluding (i) employment liabilities (other than severance), (ii) deferred revenues and (iii) the payments due to Perion for the months of November and December 2013 pursuant to the Publisher Agreement.  The calculation of ClientConnect Net Working Capital shall be based on the books and records of ClientConnect.  
 
(c)           The Closing shall not be delayed or withheld following delivery of the Preliminary ClientConnect Net Working Capital Certificate as a result of any matter or circumstance relating to the ClientConnect Net Working Capital, the calculations thereof or any dispute with respect thereto. Conduit and its Representatives shall have no liability in connection with the content of the Preliminary ClientConnect Net Working Capital Certificate or the delivery thereof. Nothing in this Section ‎ 1.8 or in the Preliminary ClientConnect Net Working Capital Certificate shall amend or derogate from any provisions of the Split Agreement and/or the Working Capital Financing Agreement that is a schedule thereto.
 
1.9            Certain Taxes .  All transfer, documentary, sales, use, stamp, registration and other such Taxes and fees (including any penalties and interest) imposed on a Party in connection with this Agreement shall be paid by such Party when due, and each such Party, at its own expense, file all necessary Tax Returns and other documentation with respect to all such transfer, documentary, sales, use, stamp, registration and other Taxes and fees.
 
ARTICLE 2
Representations and Warranties of Conduit and ClientConnect
 
Subject to the disclosures set forth in the disclosure letter of Conduit and ClientConnect delivered to Perion concurrently with the execution of this Agreement (the “ ClientConnect Disclosure Letter ”) (each of which disclosures, in order to be effective, shall indicate the Section and, if applicable, the Subsection of this ‎ ARTICLE 2 to which it relates (unless and to the extent the relevance to other representations and warranties is reasonably apparent from the text of the disclosures) and each of which disclosures shall also be deemed to be representations and warranties made by Conduit and ClientConnect to Perion under this ‎ ARTICLE 2 ), Conduit and ClientConnect, jointly and severally, represent and warrant to Perion, as of the Agreement Date, as set forth below. The representations and warranties relating to ClientConnect, including the references to the ClientConnect Disclosure Letter and the content thereof, are made as if, solely with respect to the representations and warranties of ClientConnect set forth in this Section 2, the Split occurred pursuant to the Split Agreement at the Agreement Date. References herein to ClientConnect include the US Subsidiary and the Dutch Subsidiary (unless the context otherwise requires).
 
2.1            Organization, Standing and Power .
 
(a)           Conduit, incorporated in Israel, is a company duly organized and validly existing under the laws of the State of Israel.  Conduit has the requisite corporate power to own, lease, license, and use those of its properties and assets that shall be transferred to ClientConnect in the Split and to carry on the ClientConnect Business as now being conducted and is duly qualified to do the ClientConnect Business and, in jurisdictions where such concept is recognized, is in good standing in each jurisdiction in which ClientConnect is qualified to do business as a foreign corporation and in each jurisdiction in which the ownership, leasing, licensing or use of those of its properties and assets that shall be transferred to ClientConnect in the Split, or the conduct or nature of the ClientConnect Business, makes such qualification, licensing or admission necessary.
 
 
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(b)           ClientConnect, incorporated in Israel, is a company duly organized and validly existing under the laws of the State of Israel.  ClientConnect has the requisite corporate power to own, lease, license, and use its properties assets and to carry on the ClientConnect Business as now being conducted and is duly qualified to do business and, in jurisdictions where such concept is recognized, is in good standing in each jurisdiction in which ClientConnect is qualified to do business as a foreign corporation and in each jurisdiction in which the ownership, leasing, licensing or use of its assets and properties, or the conduct or nature of its business, makes such qualification, licensing or admission necessary. Conduit and ClientConnect have delivered a true, correct and complete copy of the Articles of Association of each of Conduit and ClientConnect, as in effect as of the Agreement Date, to Perion.  Neither ClientConnect nor the ClientConnect Business is in violation of any of the provisions of the Articles of Association of Conduit as in effect as of the Agreement Date (together, the " Conduit Charter Documents ") or the ClientConnect Charter Documents.  Except as disclosed in Schedule ‎ 2.1(a)(i) of the ClientConnect Disclosure Letter, ClientConnect does not directly or indirectly own, and has not since ClientConnect's inception directly or indirectly owned, any equity or similar interest in, or any interest convertible or exchangeable or exercisable for, any equity or similar interest in, any corporation, partnership, joint venture or other business association or entity.  All the outstanding share capital of each Subsidiary of ClientConnect and any interest disclosed in Schedule ‎ 2.1(a)(i) of the ClientConnect Disclosure Letter is owned by ClientConnect free and clear of all Encumbrances and all claims or charges of any kind, and is validly issued, fully paid up and nonassessable.   Schedule ‎ 2.1(a) (ii) of the ClientConnect Disclosure Letter sets forth each jurisdiction where ClientConnect is so qualified, licensed or admitted to do the ClientConnect Business. Other than the US Subsidiary and the Dutch Subsidiary, ClientConnect does not own, directly or indirectly, any Subsidiary.
 
(c)            Schedule ‎ 2.1 ‎ (c) of the ClientConnect Disclosure Letter sets forth a true, correct and complete list of: (i) the names of the members of the ClientConnect Board of Directors and any committee thereof; and (ii) the names and titles of the officers of ClientConnect.
 
2.2            Capital Structure .
 
(a)           The authorized share capital of ClientConnect consists solely of 1,000,000,000 shares, all of which are designated as ClientConnect Shares. A total of 225,821,256 ClientConnect Shares are issued and outstanding as of the Agreement Date (based on the Conduit Share Capital as of the Agreement Date), and after giving effect to the Split, a total of 225,821,256 ClientConnect Shares, will be issued and outstanding as of the Closing Date (based on Conduit’s knowledge as of the Agreement Date, and such number of ClientConnect Shares may be updated by the Closing Spreadsheet).  ClientConnect holds no treasury shares.  Except as set forth on Schedule ‎ 2.2(a)(i) of the ClientConnect Disclosure Letter, there are no other issued and/or outstanding shares of share capital or other securities of ClientConnect and no outstanding commitments or Contracts that obligate ClientConnect to issue any shares of share capital or other securities of ClientConnect or options or rights to acquire any ClientConnect Share Capital under any circumstances other than pursuant to the exercise of outstanding Conduit Options under the Conduit Option Plan, as set forth on the Signing Spreadsheet and as updated in the Closing Spreadsheet.   Schedule ‎ 2.2 ‎ (a)(ii) of the ClientConnect Disclosure Letter accurately sets forth, based on the Conduit Share Capital as of the Agreement Date, the name of each Person that is contemplated to be registered as the owner of any ClientConnect Shares and the number of such shares so contemplated to be owned by such Person following the Split.  To Conduit’s knowledge, the number of such shares set forth as being so contemplated to be owned by such Person constitutes the entire record interest of such person in the issued and outstanding share capital or voting securities of ClientConnect.  All issued and outstanding shares of ClientConnect Share Capital and any interests in share capital of ClientConnect are duly authorized, validly issued in compliance with all applicable Legal Requirements, and all requirements set forth in the ClientConnect Charter Documents, all of which were provided to Perion, and Contracts fully paid and non-assessable and, to Conduit's knowledge, are free of any Encumbrances and all claims or charges of any kind, preemptive rights, rights of first refusal or similar right or limitation or “put” or “call” rights, other than as set forth in the ClientConnect Charter Documents and in accordance with any Legal Requirement. ClientConnect has never declared or paid any dividends on any shares of ClientConnect Share Capital.  There is no liability for dividends accrued and unpaid by ClientConnect. Neither Conduit nor ClientConnect is under any obligation to register under applicable Israeli securities law any shares of ClientConnect Share Capital or any other securities of ClientConnect, whether currently outstanding or that may subsequently be issued.  Schedule ‎ 2.2 ‎ (a)(iii) of the ClientConnect Disclosure Letter sets forth for each Subsidiary of ClientConnect the amount of its authorized share capital, the amount of its outstanding share capital and the record of its outstanding share capital, and there are no other shares or other equity securities of any Subsidiary ClientConnect issued, reserved for issuance or outstanding.  All of the outstanding equity securities and other securities of each Subsidiary of ClientConnect are owned of record and beneficially by ClientConnect, free and clear of all Encumbrances other than as set forth in the governing documents of the applicable Subsidiary.
 
 
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(b)            Conduit Options and ClientConnect Options .
 
(i)             Each grant of Conduit Options was duly authorized and validly issued in compliance with all applicable Legal Requirements.  All Conduit Ordinary Shares issued or issuable upon exercise of Conduit Options will be duly authorized, validly issued, fully paid and non-assessable and free of any Encumbrances, preemptive rights, rights of first refusal or "put" or "call" rights created by any Legal Requirements, other than as set forth in the Conduit Charter Documents and the Conduit Option Plan.
 
(ii)            ClientConnect has reserved 20,000,000 Ordinary Shares for issuance to employees, directors and consultants of ClientConnect pursuant to the ClientConnect Option Plan, of which 12,493,208 Ordinary Shares are subject to outstanding and unexercised Options, and 7,506,792 Ordinary Shares remain available for issuance thereunder. All of such ClientConnect Options derive directly, pursuant to the Split, from corresponding Conduit Options, and are based on the assumption that all ClientConnect Employees and ClientConnect Consultants will become employees and consultants of ClientConnect at the closing of the Split. Based on the assumptions set forth above and as may be updated by the Closing Spreadsheet, Schedule ‎ 2.2 ‎ (b)(ii) of the ClientConnect Disclosure Letter sets forth, a true, correct and complete list of all holders of outstanding ClientConnect Options, including the number of ClientConnect Shares subject to each ClientConnect Option, the original date of grant, the vesting schedule (and the terms of any acceleration thereof) and the exercise price per share (the adjusted exercise price per share following the Closing Date shall be included in the Closing Spreadsheet), whether each such ClientConnect Option was granted pursuant to Section 3(i) of the Israeli Income Tax Ordinance or Section 102(b) or Section 102(c) (or the corresponding status under applicable non-Israeli Tax law) and specifying the Section and subsection of the Israeli Income Tax Ordinance pursuant to which such ClientConnect Option was granted and the expiration date of such ClientConnect Option. Correct and complete copies of all option agreements (the “ Option Agreements ”) relating to each ClientConnect Option have been provided to Perion’s counsel, and such Option Agreements have not, been amended, modified or supplemented since being provided to Perion’s counsel, and there are no agreements, understandings or commitments to amend, modify or supplement such, other than as set forth in the Split Agreement and in connection with the transactions contemplated by this Agreement. All tax rulings, opinions, correspondence and filings with the Israeli Tax Authority relating to any ClientConnect Options have been provided to Perion’s counsel.  Each grant of ClientConnect Options was duly authorized and validly issued in compliance with all applicable Legal Requirements. All ClientConnect Shares issued or issuable upon exercise of ClientConnect Options will be duly authorized, validly issued, fully paid and non-assessable and free of any Encumbrances, preemptive rights, rights of first refusal or "put" or "call" rights created by any Legal Requirements, other than as set forth in the ClientConnect Charter Documents and the Option Agreements.
 
(c)           Other than as set forth on Schedules  ‎ 2.2 ‎ (a)(ii) and ‎ 2.2 ‎ (b)(ii) of the ClientConnect Disclosure Letter, no Person has any right to acquire any shares of ClientConnect Share Capital or any ClientConnect Options or other rights to purchase shares of ClientConnect Share Capital or other securities of ClientConnect from ClientConnect or to the actual knowledge (without any inquiry) of Conduit, from any ClientConnect Securityholder.
 
 
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(d)           No bonds, debentures, notes or other Indebtedness of ClientConnect (i) granting its holder the right to vote on any matters on which any ClientConnect Securityholder may vote (or which is convertible into, or exchangeable for, securities having such right) or (ii) the value of which is any way based upon or derived from capital or voting stock of ClientConnect, is issued or outstanding (collectively, “ ClientConnect Voting Debt ”).
 
(e)           Except for the ClientConnect Options described in Schedule ‎ 2.2 ‎ (b) (ii) of the ClientConnect Disclosure Letter or as otherwise contemplated by this Agreement, there are no options, warrants, calls, rights or Contracts of any character to which Conduit or ClientConnect is a party or by which Conduit or ClientConnect is bound obligating Conduit or ClientConnect to issue, deliver, sell, repurchase or redeem, or cause to be issued, delivered, sold, repurchased or redeemed, any shares of any ClientConnect Share Capital, ClientConnect Options or other rights to purchase shares of ClientConnect Share Capital or other securities of ClientConnect, or any ClientConnect Voting Debt, or obligating ClientConnect to grant, extend, accelerate the vesting and/or repurchase rights of, change the price of, or otherwise amend or enter into any such ClientConnect Option, call, right or Contract.   There are no Contracts relating to voting, purchase, sale or transfer of any ClientConnect Share Capital (i) between or among ClientConnect and any ClientConnect Securityholder, other than written contracts granting ClientConnect the right to purchase unvested shares upon termination of employment or service, and (ii) to the actual knowledge (without any inquiry) of Conduit, between or among any of ClientConnect Securityholders.  Except as set forth in Schedule ‎ 2.2 ‎ (e) of the ClientConnect Disclosure Letter, no Contract of any character to which Conduit or ClientConnect is a party to or by which Conduit or ClientConnect is bound relating to any ClientConnect Options requires or otherwise provides for any accelerated vesting of any ClientConnect Options in connection with the Share Purchase or the Split or any other transaction contemplated by this Agreement or upon termination of employment or service with Conduit or with Perion or ClientConnect, or any other event, whether before, upon or following the Share Purchase, the Split or otherwise.
 
(f)            100% of the issued and outstanding ClientConnect Share Capital, on an actual basis and on an as-converted (or as-exercised) basis, taking into consideration any and all convertible or exchangeable securities and other interests in ClientConnect, is owned of record by ClientConnect Securityholders as set forth in the Signing Spreadsheet as updated by the Closing Spreadsheet, which includes the address of each such holder, and will be owned immediately following the Closing by Perion free and clear of all Encumbrances.
 
(g)           The Signing Spreadsheet accurately sets forth as of the date hereof, and the Closing Spreadsheet will accurately set forth, as of immediately prior to Closing, the name of each Person that is the registered owner of any shares of ClientConnect Share Capital and/or ClientConnect Options  and the number and kind of such shares so owned, or subject to ClientConnect Options so owned, by such Person.  The number of such shares set forth as being so owned, or subject to ClientConnect Options so owned, by such Person will constitute the entire interest of such person in the issued and outstanding share capital, voting securities or other securities of ClientConnect. No Person not disclosed in the Signing Spreadsheet, and as of the Closing, no Person not disclosed in the Closing Spreadsheet will have a right to acquire any shares of ClientConnect Share Capital and/or ClientConnect Options from ClientConnect.  In addition, to Conduit’s knowledge, the shares of ClientConnect Share Capital and/or ClientConnect Options disclosed in the Signing Spreadsheet is, as of the date hereof, and in the Closing Spreadsheet will be, as of the Closing, free and clear of any Encumbrances other than as set forth in the ClientConnect Charter Documents and the Option Agreements.
 
 
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2.3            Authority; Noncontravention .
 
(a)           Conduit and ClientConnect have all requisite corporate power and authority to enter into this Agreement and to consummate the transactions contemplated hereby.  The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of Conduit and ClientConnect, subject to the Court Approval and Section 350 Voting Approval.  This Agreement has been duly executed and delivered by Conduit and ClientConnect and constitutes the valid and binding obligation of Conduit and ClientConnect enforceable against each of Conduit and ClientConnect in accordance with its terms, subject only to the effect, if any, of (i) applicable bankruptcy and other similar laws affecting the rights of creditors generally and (ii) rules of law governing specific performance, injunctive relief and other equitable remedies.  The Conduit Board of Directors, by resolutions duly adopted (and not thereafter modified or rescinded) by the unanimous vote of the Conduit Board of Directors, has approved the Split, the Split Agreement, this Agreement, the Share Purchase and the other transactions contemplated by the Split Agreement and by this Agreement and determined that the Split, the Split Agreement, this Agreement, the Share Purchase and the other transactions contemplated by the Split Agreement and by this Agreement are advisable, fair to and in the best interests of Conduit and the Conduit Shareholders, and directed that the adoption of the Split, the Split Agreement, this Agreement and the terms and conditions thereof, the Share Purchase and the other transactions contemplated by the Split Agreement and by this Agreement be submitted to the Conduit Shareholders for consideration and unanimously recommended that all of the Conduit Shareholders adopt such agreements and transactions.  The ClientConnect Board of Directors, by resolutions duly adopted (and not thereafter modified or rescinded) by the unanimous vote of the ClientConnect Board of Directors, has approved the Split, the Split Agreement, this Agreement, the Share Purchase and the other transactions contemplated by the Split Agreement and by this Agreement and determined that the Split, the Split Agreement, this Agreement and the terms and conditions thereof, the Share Purchase and the other transactions contemplated by the Split Agreement and by this Agreement are advisable, fair to and in the best interests of ClientConnect and the ClientConnect Shareholders and directed that the adoption of the Split Agreement, this Agreement, the Share Purchase and the other transactions contemplated by the Split Agreement and by this Agreement be submitted to the ClientConnect Shareholders for consideration and unanimously recommended that all of the ClientConnect Shareholders adopt such agreements and transactions.
 
(b)           The execution and delivery of this Agreement by Conduit and ClientConnect, and the consummation of the transactions contemplated hereby will not, (i) result in the creation of any Encumbrance (other than a Permitted Encumbrance) on any of the properties or assets primarily used in  of the ClientConnect Business or ClientConnect or any of the shares of ClientConnect Share Capital or (ii) conflict with, or result in any violation of or default under (with or without notice or lapse of time, or both), or give rise to a right of termination, cancellation or acceleration of any obligation or loss of any benefit under, or require any consent, approval or waiver from any Person pursuant to: (A) any provision of the Conduit Charter Documents or ClientConnect Charter Documents or any resolution adopted by the Conduit Shareholders or ClientConnect Shareholders or (B) any material Legal Requirements applicable to Conduit or ClientConnect or any of the properties or assets primarily used in the ClientConnect Business.
 
(c)           No consent, approval, order or authorization of, or registration, declaration or filing with, any Governmental Entity or any other Person is required by or with respect to Conduit or ClientConnect in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby, except for such consents, authorizations, filings, approvals, notices and registrations which, if not obtained or made, would not impair Conduit’s or ClientConnect’s ability to consummate the Share Purchase or to perform its obligations under this Agreement and would not prevent, alter or delay any of the transactions contemplated by this Agreement.
 
 
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2.4            Carve-Out Special Purpose Financial Statements .
 
(a)           Conduit has delivered to Perion, the carve-out special purpose financial statements of ClientConnect for each of the two years ended December 31, 2012 and 2011 and for the six months ended June 30, 2013 and 2012 and as of December 31, 2012 and 2011 and as of June 30, 2013 (the “ Reporting Periods ”) relating to the assets, liabilities and activities of the historical operations of the ClientConnect Business as if it had operated as a standalone entity, together with the expected GAAP reconciliation data of such financial statements (collectively, the “ Carve-Out Special Purpose Financial Statements ”), which are included as Schedule ‎ 2.4 ‎ (a) of the ClientConnect Disclosure Letter.  The Carve-Out Special Purpose Financial Statements (i) are based on assumptions made by Conduit at the time of the Agreement Date prior to the Split, (ii) are derived from and in accordance with the audited financial statements and books and records of Conduit, based on good faith assumptions in allocating shared costs between the ClientConnect Business and other business of Conduit as further detailed in Note 1 of the Carve-Out Special Purpose Financial Statements in accordance with carve-out accounting principles and are applied on a consistent basis throughout the periods indicated (provided that the interim period financial statements are subject to normal recurring year-end audit adjustments) and consistent with each other, (iii) subject to the assumptions set forth above and given that ClientConnect Business was not a standalone business prior to the Split, fairly and accurately present the financial condition of the ClientConnect Business at the dates therein indicated and the results of operations and cash flows of the ClientConnect Business for the periods therein specified, and (iv) subject to the assumptions set forth above and given that ClientConnect Business was not a standalone business prior to the Split, are, true, complete and correct in all material respects. The ClientConnect Business has no “off-balance sheet arrangements” (as defined in Item 303(a)(4)(ii) of Regulation S-K under the Exchange Act).
 
(b)           Conduit has delivered to Perion unaudited and un-reviewed consolidated financial statements of Conduit for the Reporting Periods (the " Conduit Historical Financial Statements ") The Conduit Historical Financial Statements (i) comply as to form with applicable accounting requirements with respect thereto as of their respective dates, (ii) be prepared in U.S. Dollars in accordance with GAAP on a consistent basis throughout the periods indicated (provided that the interim period financial statements may be subject to normal recurring year-end audit adjustments) and consistent with each other, (iii) fairly and accurately present the financial position of Conduit as of the respective dates thereof and the results of operations and cash flows of Conduit for the periods covered thereby, and (iv) are true, complete and correct in all material respects.
 
(c)           Except as set forth in Schedule ‎ 2.4(c) of the ClientConnect Disclosure Letter, ClientConnect has no Liabilities which are required to be reflected in financial statements in accordance with carve-out accounting principles as described in Note 1 to Carve Out Special Purpose Financial Statements other than (i) those set forth or adequately provided for in the balance sheet included in the Carve-Out Special Purpose Financial Statements as of December 31, 2012 (the “ ClientConnect Balance Sheet ”); (ii) those incurred in the conduct of ClientConnect Business since December 31, 2012 (the “ ClientConnect Balance Sheet Date ”) in the ordinary course, consistent with past practice; (iii) obligations set forth on the face of the ClientConnect Contracts.
 
(d)            Schedule ‎ 2.4 ‎ (d) of the ClientConnect Disclosure Letter accurately lists all Indebtedness of ClientConnect (" ClientConnect Debt ") as of the Agreement Date and as of the Closing Date (after giving effect to the Split), including, for each item of ClientConnect Debt, the agreement governing the ClientConnect Debt and the interest rate, maturity date and any assets or properties securing such ClientConnect Debt. No ClientConnect Debt will be outstanding as of the Closing.
 
(e)           Neither Conduit, ClientConnect, nor, to the knowledge of Conduit, any Representative of Conduit or ClientConnect, has received or otherwise had or obtained knowledge of any complaint, allegation, assertion or claim, whether made in writing or made orally to any director, executive officer, or inside legal counsel or, regarding any deficiency in the accounting or auditing practices, procedures, methodologies or methods of Conduit or ClientConnect or their respective internal accounting controls, including any complaint, allegation, assertion or claim that Conduit or ClientConnect has engaged in questionable accounting or auditing practices.
 
 
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2.5            Litigation .  Other than as set forth in Schedule 2.5  of the ClientConnect Disclosure Letter, there is no action, claim, proceeding, suit, hearing, litigation, arbitration or audit (whether civil, criminal, administrative, judicial or investigative) or any appeal therefrom or, to the knowledge of the relevant Party, any investigation, brought, conducted or heard by or before, or otherwise involving any court or other Governmental Entity or any arbitrator or arbitration panel (a “ Legal Proceeding ”), or, to the knowledge of Conduit, threatened Legal Proceeding, against Conduit (solely with respect to the ClientConnect Business) or ClientConnect or any of the assets or properties of ClientConnect or the ClientConnect Business, including without limitation, any Conduit or ClientConnect Employee Plans, or, to the knowledge of Conduit, any of its directors, officers, independent contractors or employees (in their capacities as such or relating to their employment, services or relationship with ClientConnect).  There is no judgment, decree, rule, injunction or order against the ClientConnect Business or ClientConnect, any of the assets or properties of ClientConnect or the ClientConnect Business, or, to the knowledge of Conduit, any of its directors, officers, independent contractors or employees (in their capacities as such or relating to their employment, services or relationship with ClientConnect or the ClientConnect Business).  Other than as set forth in Schedule 2.5 of the ClientConnect Disclosure Letter, there is no Legal Proceeding that Conduit has pending or is currently planning to commence against any other Person with respect to the ClientConnect Business, or that ClientConnect has pending or is currently planning to commence against any other Person.  Conduit and ClientConnect have provided Perion with all documentation relating to any Legal Proceeding and material cease-and-desist letters involving the ClientConnect Business or ClientConnect since January 1, 2010.   Schedule 2.5 of the ClientConnect Disclosure Letter sets forth a list of all Legal Proceedings and material cease-and-desist letters involving the ClientConnect Business or ClientConnect since January 1, 2010.
 
2.6            Restrictions on ClientConnect Business Activities .  Except as set forth in Schedule ‎ 2.6 of the ClientConnect Disclosure Letter, there is no ClientConnect Material Contract, judgment, injunction, order or decree of or issued against Conduit (solely relating to the ClientConnect Business) or ClientConnect that restricts  or prohibits in any material respect, purports to restrict  or prohibit in any material respect, has or would reasonably be expected to have, whether before or after consummation of the Share Purchase, the effect of prohibiting, restricting or impairing in a material respect any current business practice of Conduit solely relating to the ClientConnect Business or ClientConnect, any acquisition of property by Conduit solely relating to the ClientConnect Business or ClientConnect or the conduct or operation of the ClientConnect Business or limiting the freedom of Conduit or ClientConnect in any material respect to engage in the ClientConnect Business or any line of business, to sell, license or otherwise distribute services or products in any market or geographic area, or to compete with any Person, including any grants by Conduit, solely with respect to the ClientConnect Business, or by ClientConnect, of exclusive rights or exclusive licenses.
 
2.7            Compliance with Laws; Governmental Permits .
 
(a)           To Conduit's knowledge, Conduit (solely with respect to the ClientConnect Business) and ClientConnect have complied in all material respects with, are not in any material violation of, any Legal Requirement (which for purposes of this Section ‎ 2.7(a) shall not include matters covered in Section ‎ 2.9(p)), including the ClientConnect Charter Documents. Conduit (solely with respect to the ClientConnect Business) and ClientConnect have not received any notices of violation with respect to any Legal Requirement, all except for failure or violations that would not have a Material Adverse Effect on ClientConnect.
 
(b)           To Conduit's knowledge, Conduit and ClientConnect have obtained each material Israeli or foreign governmental consent, license, permit, grant, or other authorization of a Governmental Entity  (i) pursuant to which the ClientConnect Business and ClientConnect operate or hold any interest in any of its assets or properties (which for purposes of this section ‎ 2.7(a) shall not include matters covered in Section 2.9) or (ii) that is required for the operation of the ClientConnect Business or the holding of any such interest (all of the foregoing consents, licenses, permits, grants, and other authorizations, collectively, the “ ClientConnect Authorizations ”), except for failure to obtain such consent, license, permit, grant, or other authorization that  would not have a Material Adverse Effect on ClientConnect, and all of the ClientConnect Authorizations are in full force and effect, before and after giving effect to the Split.   Schedule ‎ 2.7 ‎ (b) of the ClientConnect Disclosure Letter identifies each ClientConnect Authorization.  Neither Conduit nor ClientConnect has received any notice or other communication from any Governmental Entity regarding (i) any actual or possible violation of any ClientConnect Authorization or (ii) any actual or possible revocation, withdrawal, suspension, cancellation, termination or modification of any ClientConnect Authorization.  Conduit and ClientConnect have complied with all of the terms of the ClientConnect Authorizations in all material respects and none of the ClientConnect Authorizations will be terminated or impaired, or will become terminable, in whole or in part, as a result of the consummation of the Split, the Share Purchase or the other transactions contemplated by the Split Agreement or this Agreement.
 
 
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(c)           Except as set forth in Schedule ‎ 2.7 ‎ (c) of the ClientConnect Disclosure Letter, to Conduit’s knowledge, Conduit has obtained all approvals necessary for (i) exporting and re-exporting the ClientConnect Products in accordance with all applicable export control regulations, and (ii) importing the ClientConnect Products into any country in which the ClientConnect Products are now sold or licensed for use, except for failure to obtain approval would not have a Material Adverse Effect on ClientConnect.  All such export and import licenses and approvals throughout the world are valid, current, outstanding and in full force and effect, and Conduit and ClientConnect are in compliance in all material respects with the terms of all such export and import licenses or approvals.  Except as set forth in Schedule ‎ 2.7 ‎ (c) of the ClientConnect Disclosure Letter there are no pending Legal Proceedings, or threatened claims against Conduit or ClientConnect with respect to such export and import licenses and approvals.  Neither the ClientConnect Business nor ClientConnect use or develop, or engage in, encryption technology, technology with military applications, or other technology whose development, commercialization or export is restricted under applicable Legal Requirements, and the ClientConnect Business does not require Conduit or ClientConnect to obtain a license from the Israeli Ministry of Defense or an authorized body thereof pursuant to Section 2(a) of the Control of Products and Services Declaration (Engagement in Encryption), 1974, as amended or Control of Products and Services Order (Export of Warfare Equipment and Defense Information), 1991, as amended.
 
2.8            Title to, Condition and Sufficiency of Assets .
 
(a)           ClientConnect owns no real property. Except as set forth in Schedule 2.8 of the ClientConnect Disclosure Letter and as specifically excluded in the Split Agreement or any of its exhibits, ClientConnect has good title to, or valid leasehold interest in all of its properties, and interests in properties and assets, real and personal, reflected on the ClientConnect Balance Sheet or acquired after the ClientConnect Balance Sheet Date (except properties and assets, or interests in properties and assets, sold or otherwise disposed of since the ClientConnect Balance Sheet Date in the ordinary course of business consistent with past practice), or, with respect to leased properties and assets, valid leasehold interests in such properties and assets which afford ClientConnect valid leasehold possession of the properties and assets that are the subject of such leases, in each case, free and clear of all Encumbrances, except Permitted Encumbrances.   Schedule 2.8 of the ClientConnect Disclosure Letter identifies each parcel of real property leased by the US Subsidiary and the Dutch Subsidiary.  Conduit has heretofore provided to Perion’s counsel true, correct and complete copies of all leases, subleases and other agreements under which ClientConnect uses or occupies or has the right to use or occupy, now or in the future, any real property or facility, including all modifications, amendments and supplements thereto.
 
(b)           The assets, properties and rights transferred by Conduit to ClientConnect pursuant to the Split Agreement or made available under the Office and Administrative Service Agreement constitute, in all material respects, all the assets, properties and rights that are necessary to conduct the ClientConnect Business as currently conducted and to sell and otherwise enjoy full rights to exploitation of its assets, properties and all products and services that are provided in connection with its assets and properties and to provide the “Services” under the Transition Service Agreement, all without (A) the need for Perion to acquire or license any other asset, or property (except as set forth in the Split Agreement and the Conduit Services Agreement), or (B) the breach or violation of any ClientConnect Material Contract.
 
 
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(c)           The representations and warranties set forth in this Section ‎ 2.8 do not apply to Intellectual Property, Intellectual Property Rights or other intellectual property assets or rights.
 
2.9            Intellectual Property .
 
(a)           As used in this Agreement, the following terms have the meanings indicated below:
 
(i)             “ Governmental Grant ” means any grant, loan, incentive, subsidy, award, participation, exemption, status, cost sharing arrangement, reimbursement arrangement or other benefit, relief or privilege provided or made available by or on behalf of or under the authority of the OCS, the State of Israel, and other bi- or multi-national grant programs for the financing of research and development, the European Union, the Fund for Encouragement of Marketing Activities of the Israeli Government or any other Governmental Entity.
 
(ii)            “ Intellectual Property ” means (A) Intellectual Property Rights; and (B) Proprietary Information and Technology.
 
(iii)           “ Intellectual Property Rights ” means any and all of the following and all rights in, arising out of, or associated therewith, throughout the world: patents, utility models, and applications therefor and all reissues, divisions, re-examinations, renewals, extensions, provisionals, continuations and continuations-in-part thereof, and equivalent or similar rights in inventions and discoveries anywhere in the world, including invention disclosures, common law and statutory rights associated with Trade Secrets, confidential and proprietary information, know how, industrial designs and any registrations and applications therefor, trade names, logos, trade dress, trademarks and service marks, trademark and service mark registrations, trademark and service mark applications, and any and all goodwill associated with and symbolized by the foregoing items, Internet domain name applications and registrations, Internet and World Wide Web URLs or addresses, copyrights, copyright registrations and applications therefor, and all other rights corresponding thereto and any similar or equivalent rights to any of the foregoing, and all tangible embodiments of the foregoing.
 
(iv)           “ ClientConnect Intellectual Property ” means any and all ClientConnect Owned Intellectual Property and any and all material Third Party Intellectual Property that is licensed to and/or used by ClientConnect.
 
(v)           “ ClientConnect Intellectual Property Agreements ” means any Contract governing any ClientConnect Intellectual Property to which ClientConnect is a party or bound by or a beneficiary of, except for non-disclosure agreements entered in the ordinary course of business, forms of which have been provided to Perion, and Contracts for Third Party Intellectual Property that is generally, commercially available software and (i) is not material to the ClientConnect Business or ClientConnect; (ii) has not been materially modified or customized for the ClientConnect Business or ClientConnect; and (iii) is licensed for a onetime fee or an annual fee under $1,000 for a single user or work station, or $100,000 in the aggregate for all users and work stations.
 
(vi)           “ ClientConnect Owned Intellectual Property ” means any and all Intellectual Property that is owned by ClientConnect.
 
(vii)          “ ClientConnect Products ” means all products or services of the ClientConnect Business that are produced, marketed, licensed, sold, distributed, offered or made available by or on behalf of ClientConnect and all products or services of the ClientConnect Business that are currently under development by ClientConnect.
 
 
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(viii)         “ ClientConnect Registered Intellectual Property ” means, with respect to the ClientConnect Business, Israeli, international and foreign: (A) patents and patent applications (including provisional applications); (B) registered trademarks, applications to register trademarks, intent-to-use applications, or other registrations or applications related to trademarks; (C) registered Internet domain names; and (D) registered copyrights and applications for copyright registration; registered in the name of ClientConnect.
 
(ix)           “ ClientConnect Source Code ” means, collectively, any software source code or database specifications or designs, or any material proprietary information or algorithm contained in or relating to any software source code or database specifications or designs, if any, of any ClientConnect Owned Intellectual Property or ClientConnect Products.
 
(x)            “ ClientConnect Trade Secrets ” means all Trade Secrets owned by Conduit (with respect to the ClientConnect Business) or ClientConnect.
 
(xi)            “ Open Source Materials ” means software or other material that is distributed as “free software” or “open source software” as such terms are defined by the Free Software Foundation, or under licensing or distribution terms substantially similar thereto, including but not limited to the GNU General Public License (GPL), GNU Lesser General Public License (LGPL), Mozilla Public License (MPL), BSD licenses, the Artistic License, the Netscape Public License, the Sun Community Source License (SCSL) the Sun Industry Standards License (SISL) and the Apache License.
 
(xii)           “ Personal Data ” means (a) personally identifiable information (e.g. name, street address, telephone number, e-mail address, photograph, social security number, driver’s license number, or passport number, and (b) “sensitive information” as defined by the Israeli Privacy Protection Law, 1981.
 
(xiii)          “ Proprietary Inf ormation and Technology ” means any and all of the following: works of authorship, computer programs, source code and executable code, whether embodied in software, firmware or otherwise, assemblers, applets, compilers, user interfaces, application programming interfaces, protocols, architectures, documentation, annotations, comments, designs, files, records, schematics, test methodologies, test vectors, emulation and simulation tools and reports, hardware development tools, models, tooling, prototypes, breadboards and other devices, data, data structures, databases, data compilations and collections, inventions (whether or not patentable), invention disclosures, discoveries, improvements, technology, proprietary and confidential ideas and information, know-how and information maintained as Trade Secrets, tools, concepts, techniques, methods, processes, formulae, patterns, algorithms and specifications, customer lists and supplier lists and any and all instantiations or embodiments of the foregoing or any Intellectual Property Rights in any form and embodied in any media.
 
(xiv)         “ Third Party Intellectual Property ” means any and all Intellectual Property owned by a third party.
 
(xv)           “ Trade Secrets ” means all non disclosed and non-public inventions (whether or not patentable) and improvements thereto, know-how, research and development information, business plans, specifications, designs, processes, process libraries, technical data, customer data, financial information, pricing and cost information, bills of material, or other confidential information exclusively owned by a Person, including any formula, pattern, compilation, program, device, method, technique, or process, that (i) provides an actual or potential independent economic value from not being generally known to and not being readily ascertainable by, other Persons, and (ii) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.
 
 
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(b)            Status .  ClientConnect owns and has full title and ownership of, or is duly licensed under or otherwise authorized to use, all Intellectual Property primarily used by Conduit in the ClientConnect Business as currently conducted (except as set forth in the Split Agreement and except for those that would have an immaterial effect on ClientConnect) and the Network Identifiers and Marks (as defined in the Split Agreement) that include the word "Conduit", free and clear of any Encumbrances other than Permitted Encumbrances.  Except as set forth in Schedule 2.9 ‎ (b)(ii) of the ClientConnect Disclosure Letter,  ClientConnect is not currently obligated or under any liability whatsoever to make any payments by way of royalties, fees or otherwise under any ClientConnect Intellectual Property Agreements with respect to Third Party Intellectual Property.  The ClientConnect Intellectual Property collectively constitutes all of the intangible assets, intangible properties, rights and Intellectual Property primarily used by Conduit in, the ClientConnect Business and necessary to provide the “Services” under the Transition Service Agreement, all without:  (i) the need for ClientConnect to acquire or license any other intangible asset, intangible property or Intellectual Property Right (other than as disclosed in Schedule 2.9 ‎ (b)(iii) of the ClientConnect Disclosure Letter), and (ii) to Conduit’s knowledge, the breach or violation of any ClientConnect Material Contract.  Neither Conduit nor ClientConnect has transferred ownership of, or agreed to transfer ownership of, or granted any exclusive licenses to, or agreed to grant any exclusive licenses to any third party in respect of any ClientConnect Owned Intellectual Property.  No third party has any ownership or lien on any of the ClientConnect Owned Intellectual Property.  
 
(c)            ClientConnect Registered Intellectual Property .   Schedule 2.9(c)   of the ClientConnect Disclosure Letter lists all ClientConnect Registered Intellectual Property, and the jurisdictions in which all such Intellectual Property has been issued or registered or in which any application for such issuance and registration has been filed, or in which any other filing or recordation has been made; and all actions that are required to be taken by Conduit and ClientConnect within 120 days of the Agreement Date with respect to such Registered Intellectual Property in order to avoid prejudice to, impairment or abandonment of such Registered Intellectual Property.  Each item of such Registered Intellectual Property is valid and subsisting (or in the case of applications, applied for), all registration, maintenance and renewal fees currently due in connection with such Registered Intellectual Property have been paid and all documents, recordations and certificates in connection with such Registered Intellectual Property currently required to be filed have been filed with the relevant patent, copyright, trademark or other authorities in Israel and/or foreign jurisdictions, as the case may be, for the purposes of prosecuting, maintaining and perfecting such Registered Intellectual Property and recording Conduit's and ClientConnect's ownership interests therein.
 
(d)            Governmental Grants and Consents . Except as set forth in Schedule 2.9(d) of the ClientConnect Disclosure Letter, Conduit and ClientConnect, respectively, is not now and never was, directly or indirectly, an applicant, recipient or beneficiary of any Governmental Grant whatsoever. None of the ClientConnect Owned Intellectual Property was developed or derived from, in whole or in part, funding or resources provided by, or are subject to restriction, constraint, control, supervision or limitation imposed by, the OCS or any other Governmental Entity or regulatory authority. No Governmental Entity has awarded any participation or provided any support to Conduit or ClientConnect or is or may become entitled to receive any royalties or other payments from Conduit or ClientConnect.
 
(e)            Private Grants .  At no time during the conception of or reduction to practice of any of the ClientConnect Owned Intellectual Property was any developer, inventor or other contributor to such Intellectual Property operating under any grants from any private source, performing research sponsored by any private source or, to Conduit's knowledge, subject to any employment agreement or invention assignment or nondisclosure agreement or other obligation with any third party that could adversely affect, restrict or in any manner encumber Conduit's or ClientConnect's rights in such Intellectual Property.
 
(f)             Conduit Founders .  All rights in, to and under all Intellectual Property created by any of Ronen Shilo, Dror Erez and Gaby Bilczyk for or on behalf of the ClientConnect Business and/or ClientConnect (i) prior to the inception of Conduit and/or ClientConnect or (ii) prior to their commencement of employment with Conduit have been duly and validly assigned to Conduit, and Conduit has no reason to believe that any such Person is unwilling to provide Conduit or ClientConnect with such cooperation as may reasonably be required to complete and prosecute all appropriate U.S. and foreign patent and copyright filings related thereto.
 
 
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(g)            Invention Assignment and Confidentiality Agreement .  Conduit and ClientConnect have secured from all consultants, advisors, employees and independent contractors who independently or jointly contributed to or participated in the conception, reduction to practice, creation or development of any ClientConnect Owned Intellectual Property for the ClientConnect Business or ClientConnect (each a “ ClientConnect Author ”), unencumbered and unrestricted exclusive ownership of, all of the ClientConnect Authors’ Intellectual Property in such contribution and has obtained the waiver of all non-assignable rights.  No ClientConnect Author has retained any rights, licenses, claims or interest whatsoever with respect to any ClientConnect Owned Intellectual Property.  Without limiting the foregoing, Conduit and ClientConnect have obtained written and enforceable proprietary information and invention disclosure and Intellectual Property assignments from all current and former ClientConnect Authors.  Conduit and ClientConnect have provided to Perion copies of substantially all such forms currently and historically used by Conduit and ClientConnect, as applicable, and each proprietary information and invention disclosure and Intellectual Property assignment executed by each ClientConnect Author conforms to the forms Conduit has made available to Perion.
 
(h)            No Violation.    To Conduit's knowledge, no ClientConnect Employee or ClientConnect Consultant: (i) is in violation of any term or covenant of any Contract relating to invention disclosure, invention assignment, non-disclosure or non-competition; or (ii) has developed any technology, software or other copyrightable, patentable or otherwise proprietary work for Conduit (with respect to the ClientConnect Business) or ClientConnect that is subject to any agreement under which such ClientConnect Employee or ClientConnect Consultant has assigned or otherwise granted to any third party any rights (including Intellectual Property Rights) in or to such technology, software or other copyrightable, patentable or otherwise proprietary work.
 
(i)             Confidential Information .   Conduit and ClientConnect have taken all commercially reasonable steps required to protect and preserve the confidentiality of all material ClientConnect Owned Intellectual Property as well as confidential or non-public information provided by any third party (including, without limitation, Trade Secrets) to Conduit (with respect to Third Party Intellectual Property that is licensed to and/or used by ClientConnect or the ClientConnect Business) or ClientConnect under a written obligation of confidentiality (“ ClientConnect Confidential Information ”).  All current and former employees and contractors of Conduit and ClientConnect and any third party having access to ClientConnect Confidential Information are bound by a duty of confidentiality pursuant to Legal Requirement or have executed and delivered to Conduit a written legally binding agreement regarding the protection of such ClientConnect Confidential Information.  Conduit (solely with respect to the ClientConnect Business) and ClientConnect have implemented and maintains a reasonable security plan consistent with industry practices of companies offering similar services.
 
(j)            Non-Infringement .  To the knowledge of Conduit, there is no unauthorized use, unauthorized disclosure, infringement or misappropriation of any ClientConnect Owned Intellectual Property by any third party.  Neither Conduit nor ClientConnect has brought any action, suit or proceeding for infringement or misappropriation of any Intellectual Property.  To the knowledge of Conduit, the ClientConnect Owned Intellectual Property is not infringing, misappropriating or violating and has not infringed, misappropriated or violated the Intellectual Property of any third party.  Neither Conduit nor ClientConnect has been sued in any action, suit or proceeding or received any written communications (including any third party reports by users) alleging that ClientConnect Owned Intellectual Property has infringed, misappropriated, or violated or, by conducting the ClientConnect Business, would infringe, misappropriate, or violate any Intellectual Property of any other Person or entity.  No ClientConnect Owned Intellectual Property or ClientConnect Product is subject to any proceeding, order, judgment, settlement agreement or stipulation that restricts in any material respect in any manner the use, transfer, or licensing thereof by Conduit or ClientConnect, or which may affect the validity, use or enforceability of any such ClientConnect Owned Intellectual Property.
 
 
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(k)            Digital Millennium Copyright Act .  Conduit and ClientConnect operate and have operated the ClientConnect Business in such a manner as to take reasonable advantage, if and when applicable, of the safe harbors provided by Section 512 of the Digital Millennium Copyright Act (“ DMCA ”), including by informing users of its products and services of such policy, designating an agent for notice of infringement claims, registering such agent with the United States Copyright Office, and taking appropriate action expeditiously upon receiving notice of possible infringement in accordance with the “notice and take-down” procedures of the DMCA.
 
(l)            Licenses; Agreements .  Except as set forth in Schedule 2.9(l) of the ClientConnect Disclosure Letter, neither the ClientConnect Business nor ClientConnect has granted, nor is the ClientConnect Business or ClientConnect bound by, or a party to, any options, licenses or agreements of any kind relating to any ClientConnect Owned Intellectual Property outside of normal nonexclusive licenses to use the ClientConnect Products in the ordinary course of the ClientConnect Business (copies of which have been provided to Perion’s counsel).  Neither the ClientConnect Business nor ClientConnect is obligated to pay any royalties or other payments to third parties with respect to the marketing, sale, distribution, manufacture, license or use of any ClientConnect Products or ClientConnect Owned Intellectual Property or any other property or rights.
 
(m)           Other Intellectual Property Agreements .
 
(i)             Conduit and ClientConnect are not (and will not be as a result of the execution and delivery or effectiveness of this Agreement or the performance of Conduit’s or ClientConnect's obligations under this Agreement), in material breach of any ClientConnect Intellectual Property Agreement and the consummation of the transactions contemplated by this Agreement will not result in the modification, cancellation, termination, suspension of, or acceleration of any payments, rights, obligations, or remedies with respect to any ClientConnect Intellectual Property Agreements, or give any non-Conduit or non-ClientConnect party to any ClientConnect Intellectual Property Agreement the right to do any of the foregoing;
 
(ii)            Other than as set forth on Schedule 2.12(m)(ii) of the ClientConnect Disclosure Letter, there are no unresolved disputes regarding the scope of any ClientConnect Intellectual Property Agreements, or performance under any ClientConnect Intellectual Property Agreements including with respect to any payments to be made or received by Conduit or ClientConnect thereunder;
 
(iii)           No ClientConnect Intellectual Property Agreement requires ClientConnect to include any Third Party Intellectual Property in any ClientConnect Product or obtain any Person’s approval of any ClientConnect Product at any stage of development, licensing, distribution or sale of that ClientConnect Product;
 
(iv)           None of the ClientConnect Intellectual Property Agreements grants any third party exclusive rights to or under any ClientConnect Owned Intellectual Property;
 
(v)            None of the ClientConnect Owned Intellectual Property Agreements grants any third party the right to sublicense any ClientConnect Intellectual Property;
 
(vi)           Conduit and ClientConnect have obtained valid, written, perpetual non-terminable (other than for cause) licenses (sufficient for the conduct of the ClientConnect Business) to all Third Party Intellectual Property, that is incorporated into or integrated by Conduit or ClientConnect with any of the ClientConnect Products to the extent that such Third Party Intellectual Property cannot be easily replaced with any of ClientConnect's or any Third Party's Intellectual Property, and such licenses are listed in Schedule 2.9(m)(vi) of the ClientConnect Disclosure Letter; and
 
 
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(vii)          ClientConnect has ownership or license rights to improvements or derivative works made by the ClientConnect Business or ClientConnect in the Third Party Intellectual Property that has been licensed to the ClientConnect Business or ClientConnect.
 
(n)            Source Code.   Neither Conduit nor ClientConnect has disclosed, delivered or licensed to any Person or agreed or obligated itself to disclose, deliver or license to any Person, or permitted the disclosure or delivery to any escrow agent or other Person of, any ClientConnect Source Code, other than disclosures to employees and ClientConnect Consultants involved in the development of ClientConnect Products.  No event has occurred, and no circumstance or condition exists, that (with or without notice or lapse of time, or both) will, or would reasonably be expected to, result in the disclosure, delivery or license by Conduit or the Subsidiary of any ClientConnect Source Code, other than disclosures to employees and ClientConnect Consultants involved in the development of ClientConnect Products.  Without limiting the foregoing, neither the execution of this Agreement nor any of the transactions contemplated by this Agreement will result in a release from escrow or other delivery to a third party of any ClientConnect Source Code.
 
(o)            Open Source Software.    Schedule ‎ 2.9(o) of the ClientConnect Disclosure Letter identifies, to Conduit’s knowledge, all Open Source Materials used in any ClientConnect Products or in the conduct of the ClientConnect Business.  To Conduit’s knowledge, Conduit and ClientConnect are materially in compliance with the terms and conditions of all licenses for the Open Source Materials except for such failure to comply that would not have a Material Adverse Effect on ClientConnect.  To Conduit’s knowledge, other than as described in Schedule 2.9(o) of the ClientConnect Disclosure Letter, neither Conduit nor ClientConnect has (i) incorporated Open Source Materials into, or combined Open Source Materials with, the ClientConnect Owned Intellectual Property or ClientConnect Products; (ii) distributed Open Source Materials which is incorporated within any ClientConnect Owned Intellectual Property or ClientConnect Products; or (iii) used Open Source Materials, in such a way that, with respect to (i), (ii), or (iii), creates, obligations for ClientConnect that any ClientConnect Owned Intellectual Property would be (A) disclosed or distributed to a third party in Source Code form, (B)  licensed to third parties for the purpose of making derivative works, or (C)  redistributable at no charge), except for such incorporation, distribution or use that would not have a Material Adverse Effect on ClientConnect.
 
(p)            Privacy .  Conduit (solely with respect to the ClientConnect Business) has established privacy policies with respect to the Personal Data which are in material conformance with all applicable laws and regulations and the guidelines issued by the Israeli Law Information and Technology Authority (" ILITA "). Conduit (solely with respect to the ClientConnect Business) and ClientConnect and the conduct of the ClientConnect Business are in compliance in all material respects with such privacy policies and such applicable laws and regulations and the guidelines issued by ILITA relating to privacy, data protection, confidential information, credit cards and the collection, use, storage, disclosure, processing and transfer (including without limitation, import and export) of Personal Data including without limitation, all Personal Data collected by Conduit (solely with respect to the ClientConnect Business) or by third parties having authorized access to the records and/or systems and/or facilities of Conduit (collectively, " Data Protection Obligations ").  The execution, delivery and performance of this Agreement, will comply with all Data Protection Obligations .  Neither Conduit nor ClientConnect have received any written complaint and/or notice and/or are aware of any material breach and/or violation of any Data Protection Obligations and/or, except as set forth in Schedule 2.9(p) of the ClientConnect Disclosure Letter of any investigations by any Governmental Entity regarding Conduit’s or ClientConnect's conduct of the ClientConnect Business, respectively, including without limitation, in respect of the collection, use, storage, processing, transfer and/or disclosure of Personal Data.
 
 
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(q)            Personal Data.   No material breach or material violation of any security policy adopted by Conduit or ClientConnect has occurred or, to Conduit’s knowledge, is threatened, and to Conduit’s knowledge, there has been no material unauthorized or illegal use of or access to any of the data and/or information in and/or premises and/or systems of any of the distinct electronic or other database containing (in whole or in part) Personal Data maintained, hosted and/or primarily used for the ClientConnect Business. Neither Conduit (solely with respect to the ClientConnect Business) nor ClientConnect has experienced any material breach of security or otherwise unauthorized material access by third parties to the Confidential Information, including Personal Data (with respect to the ClientConnect Business) in ClientConnect's possession, custody or control.
 
 
2.10
Taxes .
 
(a)            Tax Returns and Payments .  All Tax Returns required to be filed by or on behalf of Conduit (the " Conduit Returns ") have been timely and properly filed with the appropriate Tax Authorities and are true, accurate and complete in all material respects.  All material Taxes of Conduit that are due and payable have been timely and properly paid.  All material Taxes required to be withheld by Conduit have been properly and timely withheld and remitted.  Conduit has delivered to Perion accurate and complete copies of all income and other material Tax Returns filed by Conduit since January 1, 2010.   Schedule 2.10(a) of the ClientConnect Disclosure Letter lists each jurisdiction in which Conduit is required to file a Tax Return.  Conduit has not requested or been granted any extension of time to file a Tax Return, which Tax Return has not been filed.  To the knowledge of Conduit, no claim has ever been made by a Governmental Entity in a jurisdiction where Conduit does not file Tax Returns that it is or may be subject to taxation by that jurisdiction.  The Carve-Out Special Purpose Financial Statements properly and adequately accrue or reserve for Tax liabilities in accordance with Note 2j of the Carve-Out Special Purpose Financial Statements as if ClientConnect Business filed tax returns on a stand-alone basis (or separate return basis).
 
(b)            Audits; Claims .  No Conduit Return has ever been examined or audited by any Governmental Entity.  Conduit has not received from any Governmental Entity any written: (i) notice indicating an intent to open an audit or other review; (ii) request for information related to Tax matters; or (iii) notice of deficiency or proposed Tax adjustment.  No claim or Legal Proceeding is pending or, to Conduit’s knowledge, threatened against Conduit in respect of any Tax.  There are no liens for Taxes upon any of the assets for the primarily use of the ClientConnect Business except liens for current Taxes not yet due and payable (and for which there are adequate accruals).
 
(c)           Sufficiency .  To Conduit's knowledge, the total amounts set up as liabilities for current and deferred Taxes in the Carve-Out Special Purpose Financial Statements are sufficient in accordance with Note 2j of the Carve-Out Special Purpose Financial Statements as to cover the payment of all Taxes, whether or not assessed or disputed, which are, or are hereafter found to be, or to have been, due by or with respect to Conduit up to and through the periods covered by the Carve-Out Special Purpose Financial Statements.
 
(d)           Closing Agreements; Etc .  ClientConnect will not be required to include any item of income in, or exclude any item of deduction from, taxable income for any taxable period (or portion thereof) ending after the Closing Date as a result of any change in method of accounting, closing agreement, installment sale or prepaid amount received for a taxable period ending on or prior to the Closing Date.  ClientConnect is not a party to or bound by any Tax allocation or sharing agreement.  ClientConnect is not a member of an affiliated, consolidated, combined, unitary or aggregate group for purposes of any Tax Return.
 
(e)            Transferee or Successor Tax Liability .  ClientConnect has no Liability for the Taxes of any Person as a transferee or successor or otherwise by operation of law, by Contract or otherwise, other than as set forth in the Split Agreement.
 
 
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(f)            Withholding .  Conduit and ClientConnect have complied   with all applicable Legal Requirements relating to the payment, reporting and withholding of Taxes and timely paid over to the proper governmental authorities (or is properly holding for such timely payment) all amounts required to be so withheld and paid over under all applicable Legal Requirements, including income Taxes and employment Tax withholding laws, and has timely filed all withholding Tax Returns, for all periods.
 
(g)           Controlled Foreign Corporation .  ClientConnect does not own any interest in any controlled foreign corporation pursuant to Section 75B of the Israel Income Tax Ordinance, or other entity the income of which is required to be included in the income of Conduit or ClientConnect, other than the ClientConnect Subsidiaries.
 
(h)           VAT .  Each of Conduit and ClientConnect is duly registered for the purposes of Value Added Tax (" VAT "), as defined in the relevant laws concerning VAT in its country of organization, if applicable.  Conduit and ClientConnect have complied in all material respects with all laws concerning VAT, including with respect to the making on time of accurate returns and payments and the maintenance of records. Conduit and ClientConnect have not made any exempt supplies in the current or preceding VAT year applicable to it and there are no circumstances by reason of which there might not be a full entitlement to credit for all VAT chargeable on supplies and acquisitions received and imports made (or agreed or deemed to be received or made) by it.
 
(i)            Section 102 Options.   Except as set forth in Schedule 2.10 ‎ (i) of the ClientConnect Disclosure Letter, all Conduit Options and ClientConnect Options which Conduit and ClientConnect, respectively, have purported to grant pursuant to the "capital gain route" of Section 102(b) of the Israeli Income Tax Ordinance (" Section 102(b) ") have been granted in compliance in all respects with the applicable requirements of Section 102(b), and the requirements of any rules or ITA policies relating to Section 102(b), including, without limitation, (i) the filing of applicable documents, applications and notices with the ITA, (ii) the appointment of an authorized trustee to hold the Conduit Options and ClientConnect Options pursuant to Section 102(b), and (iii) the timely deposit of such Conduit Options and ClientConnect Options with such trustee pursuant to the terms of Section 102(b) and guidelines published by the ITA.
 
(j)            Country of Organization .  Neither Conduit nor ClientConnect is treated for any Tax purpose as a resident in a country other than the country of its organization and neither Conduit nor ClientConnect has ever had a branch, agency or permanent establishment in a country other than the country of its organization.
 
(k)           Restructure Limitations .  Except in connection with the Tax Ruling, ClientConnect and, to Conduit’s actual knowledge (without any inquiry), the ClientConnect Shareholders (solely with respect to their holdings in ClientConnect), are not subject to any restrictions or limitations pursuant to Part E2 of the Israeli Income Tax Ordinance.
 
(l)            Tax Agreements and Rulings . Except as set forth in Schedule ‎ 2.10(l) of the ClientConnect Disclosure Letter and as contemplated under this Agreement, no closing agreements, rulings or similar agreements or rulings relating to Taxes have been entered into or issued by any Governmental Entity with or in respect of Conduit or ClientConnect.  Except as set forth in Schedule ‎ 2.10(l) of the ClientConnect Disclosure Letter, neither Conduit nor ClientConnect has requested or received a ruling from any Tax authority (except for the election of tax route under Section 102(b) and the Tax Ruling).  Conduit and ClientConnect have made available to Perion accurate and complete copies of any Tax ruling relating to Conduit or ClientConnect obtained from the Israeli Tax Authority and applications therefor, including with respect to Conduit Options and ClientConnect Options, in each case since inception.
 
 
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(m)           Transfer Pricing .  Conduit (solely with respect to the ClientConnect Business) and ClientConnect have made available to Perion all information and documentation with respect to any related party transactions subject to Section 85A of the Israeli Income Tax Ordinance conducted by Conduit or ClientConnect.
 
(n)           Tax Incentives . Schedule 2.10(n) of the ClientConnect Disclosure Letter lists each Tax exemption, Tax holiday or other Tax reduction agreement or arrangement (" ClientConnect Tax Incentive ") to which Conduit or ClientConnect is entitled under the laws of the State of Israel, the period for which such ClientConnect Tax Incentive applies, and the nature of such ClientConnect Tax Incentive.  ClientConnect and Conduit have complied in all material respects with the Legal Requirements and the relevant approvals to be entitled to claim all such ClientConnect Tax Incentives, and to the knowledge of Conduit, there is no event or other set of circumstances that might lead to the revocation or material modification of any of such ClientConnect Tax Incentives.  Unless otherwise disclosed in Schedule 2.10(n) of the ClientConnect Disclosure Letter, no claim or challenge has been made, in writing, by any Governmental Entity with respect to Conduit's or ClientConnect's entitlement to any ClientConnect Tax Incentive, and consummation of the transactions contemplated by this Agreement will not adversely affect the continued qualification for the ClientConnect Tax Incentives or the terms or duration thereof or require any recapture of any previously claimed ClientConnect Tax Incentive.  Conduit and ClientConnect have provided to Perion all documentation relating to any ClientConnect Tax Incentive.  Conduit and ClientConnect are in compliance with the requirements for any applicable ClientConnect Tax Incentive in all material respects.
 
 
2.11 
Employee Benefit Plans and Employee Matters .
 
(a)            Employee List .  Conduit and ClientConnect provided Perion with a list of all current employees of ClientConnect and all employees as of the Agreement Date who are contemplated to be employees of ClientConnect immediately after the Split (as may be updated at Closing) (" ClientConnect Employees "), and correctly reflects: (i) their name, title and dates of hire by Conduit; (ii) scope of their position (full-time, part-time or temporary status), each ClientConnect Employee’s classification as either exempt or non exempt from the overtime requirements under any applicable law; (iii) their current monthly salary (divided into base salary and global overtime payment, if relevant) or hourly wage rate, as applicable;  and (iv) any other compensation payable to them including housing allowances, compensation payable pursuant to bonus, deferred compensation or commission arrangements, vacation entitlement and accrued vacation or paid time-off balance, travel pay or car maintenance or car entitlement, sick leave entitlement and accrual, recuperation pay entitlement and accrual, entitlement to pension arrangement and/or any other provident fund  (including manager’s insurance and education fund), their respective contribution rates and the salary basis for such contributions, whether such employee's entire salary and any additional payments that are part of the determining salary for social contributions are subject to Section 14 Arrangement under the Israeli Severance Pay Law -1963  (" Section 14 Arrangement ") and the date from which the Section 14 Arrangement applies to them.
 
(b)           Conduit and ClientConnect are not and never were a party to any collective bargaining agreement, or other Contract or arrangement with a labor union, trade union or other organization or body representing any of the ClientConnect Employees, or is otherwise required (under any legal requirement, under any Contract or otherwise) to provide benefits or working conditions under any of the foregoing. Conduit and ClientConnect are not and never were members of any employers’ association or organization, and no employers’ association or organization has made any demand for payment of any kind from Conduit or ClientConnect. Except as set forth in Schedule 2.11(b) , Conduit and ClientConnect are not and never were, and no ClientConnect Employee has benefited from any extension order ( tzavei harchava ) except for extension orders which generally apply to all employees in Israel.  To Conduit's knowledge, there are no labor organizations representing or purporting to represent or seeking to represent any ClientConnect Employees. Conduit has no knowledge of any activities or proceedings of any labor union to organize any ClientConnect Employees.  Neither Conduit nor ClientConnect engaged, and neither has ever been engaged, in any unfair labor practice of any nature. Neither Conduit nor ClientConnect has had any strike, slowdown, work stoppage, lockout, job action, labor dispute, union organizing activity or any similar activity or dispute or threat thereof, or question concerning representation, by or with respect to any of the ClientConnect Employees.  To Conduit's knowledge, no event has occurred and no condition or circumstances exists, that might directly or indirectly give rise to or provide a basis for the commencement of any such strike, slowdown, work stoppage, lockout, job action, labor dispute or union organizing activity or any similar activity or dispute now or in the future with respect to any ClientConnect Employees.
 
 
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(c)            Leave of Absence .  There is no ClientConnect Employee who is not fully available to perform work because of disability or other leave (other than maternity leave) of more than 30 consecutive days (including unpaid leave).
 
(d)            At Will Employment .  Except as set forth in Schedule 2.11 ‎ (d) of the ClientConnect Disclosure Letter, ClientConnect has no obligation to provide any particular form or period of notice prior to terminating the employment of any ClientConnect Employees, except as prescribed by applicable Legal Requirements or by any relevant applicable Contract according to which the employment of each of the ClientConnect Employees is terminable by ClientConnect, as applicable, with no more than 30 days prior notice.  Except as set forth in Schedule ‎ 2.11 ‎ (d) all ClientConnect Employees and service providers (other than employees) that provides ClientConnect or Conduit with services primarily in relation to the ClientConnect Business and are contemplated to be engaged by ClientConnect immediately after the Split (as may be updated at Closing) (" ClientConnect Consultants ") are lawfully entitled to work for ClientConnect without restriction or any visa, Permit or consent (from any academic institution, Governmental Entity, or any other Person) being required.
 
(e)            Employee Departures/Restrictions .  To Conduit's knowledge, no ClientConnect Employee is a party to or is bound by any confidentiality agreement, noncompetition agreement or other Contract (with any Person other than Conduit or the ClientConnect) that conflicts with or may have an adverse effect on: (A) the performance by such employee of any of his duties or responsibilities as an employee of Conduit or ClientConnect; or (B) the ClientConnect Business.
 
(f)             Employee Plans and Agreements .  All the ClientConnect Employees and ClientConnect Consultants have executed employment or consultancy agreements with Conduit, accurate and complete copies of which were provided to Perion. Schedule 2.11 ‎ (f) of the ClientConnect Disclosure Letter contains an accurate and complete list of each material ClientConnect Employee Plan and each ClientConnect Employee Agreement and each material Contract with any ClientConnect Consultant.  Neither Conduit nor ClientConnect intend nor has either committed to establish or enter into any new ClientConnect Employee Plan or ClientConnect Employee Agreement or any material agreement with a ClientConnect Consultant, or to modify any material ClientConnect Employee Plan or ClientConnect Employee Agreement or any material agreement with a ClientConnect Consultant (except to conform any such ClientConnect Employee Plan or ClientConnect Employee Agreement or any material agreement with a ClientConnect Consultant to the requirements of any applicable Legal Requirements) other than as contemplated by this Agreement.  With respect to the ClientConnect Employee Plan and except as set forth in Schedule ‎ 2.11 (f) of the ClientConnect Disclosure Letter: (i) there are no funded benefit obligations for which contributions have not been made and there are no unfunded benefit obligations which have not been accounted for by reserves, or otherwise properly reflected in accordance with GAAP, on the ClientConnect Financial Statements, other than routine contribution obligations to be timely made in the normal course of business and consistent with past practice, and (ii) all reports and disclosures relating to the material ClientConnect Employee Plan required to be filed with or furnished to any Governmental Entity have been filed or furnished in accordance with applicable law in a timely manner.
 
 
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(g)            Delivery of Documents .  As applicable with respect to each material ClientConnect Employee Plan (excluding any ClientConnect Employee Plan of a type of pension arrangement and any other provident fund) and other material documents relating to the employment or engagement of the ClientConnect Employees and ClientConnect Consultants, including employment agreements and consulting agreements, Conduit has delivered to Perion: (i) correct and complete copies of all material documents, including a summary of each unwritten ClientConnect Employee Plan, of each ClientConnect Employee Agreement, ClientConnect Consultant agreement including all amendments thereto; (ii) all material written Contracts relating to each ClientConnect Employees and ClientConnect Consultants, including Conduit Employee Plan, administrative service agreements, manpower contractors including their licenses and group insurance contracts; (iii) all written materials provided to any ClientConnect Employee and ClientConnect Consultant relating to any each ClientConnect Employee Agreement, ClientConnect Consultant agreement, ClientConnect Employee Plan and any proposed ClientConnect Employee Plans, in each case, relating to any amendments, terminations, establishments, increases or decreases in benefits , acceleration of payments or vesting schedules or other events that would result in any liability to ClientConnect; and (iv) all material correspondence to or from any Governmental Entity relating to any ClientConnect Employee Plan.
 
(h)            No Foreign Plans .  Except as set forth in Schedule ‎ 2.11 ‎ (h) of the ClientConnect Disclosure Letter, neither Conduit (solely with respect to the ClientConnect Business) nor ClientConnect has established or maintained: (i) any plan, program, policy, practice, Contract or other arrangement mandated by a Governmental Entity other than Israel relating to any ClientConnect Employees; (ii) any ClientConnect Employee Plan that is subject to any of the Legal Requirements of any jurisdiction outside of Israel; or (iii) any ClientConnect Employee Plan that covers or has covered ClientConnect Employees whose services are or have been performed primarily outside of Israel.
 
(i)             Absence of Certain Retiree Liabilities .  No ClientConnect Employee Plan provides (except at no cost to ClientConnect), or reflects or represents any liability of ClientConnect to provide, retiree life insurance, retiree health benefits or other retiree employee welfare benefits to any Person for any reason, except as may be required by applicable Legal Requirements, a ClientConnect Employee Agreement or ClientConnect Employee Plan.
 
(j)             No Defaults .  Conduit and ClientConnect have performed all material obligations required to be performed by it under each ClientConnect Employee Plan and ClientConnect Employee Agreement and they are not in a material default or violation of, and to the knowledge of Conduit, no other party is in default or violation of, the terms of any ClientConnect Employee Plan and ClientConnect Employee Agreement.  Other than as set forth in Schedule 2.11(j) , each of the ClientConnect Employee Plans has been operated and administered in all material respects in accordance with all applicable Legal Requirements.  All contributions to, and material payments from, any ClientConnect Employee Plan which may have been required to be made in accordance with the terms of such ClientConnect Employee Plan or applicable Legal Requirements have been fully and timely made (other than routine payments, deductions or withholdings to be timely made in the normal course of business and consistent with past practice), and all contributions for any period ending on or before the Closing Date which are not yet due, but will be paid on or prior to the Closing Date, are reflected as an accrued liability on the ClientConnect Balance Sheet.  Each ClientConnect Employee Plan can be amended, terminated or otherwise discontinued after the date of this Agreement, without liability to any of ClientConnect (other than ordinary administration expenses).To Conduit’s knowledge, there are no audits, inquiries or Legal Proceedings pending or threatened by any Governmental Entity with respect to any ClientConnect Employee Plan.
 
(k)            No Conflict .  Except as set forth in Schedule 2.11 ‎ (k) of the ClientConnect Disclosure Letter or as provided for in this Agreement, neither the execution, delivery or performance of this Agreement, nor the consummation of the transactions contemplated hereunder, will or may (either alone or upon the occurrence of any additional or subsequent events): (i) constitute an event under any ClientConnect Employee Plan, ClientConnect Employee Agreement, ClientConnect Consultant agreement, that will or may result (either alone or in connection with any other circumstance or event) in any payment (whether of severance pay or otherwise), acceleration, forgiveness of Indebtedness, vesting, distribution, increase in benefits or obligation to fund benefits with respect to any ClientConnect Employee or ClientConnect Consultant; (ii) create or otherwise result in any Liability with respect to any ClientConnect Employee Plan; or (iii) result in any obligation by ClientConnect to pay any directors, officers, ClientConnect Employees, ClientConnect Consultants of Conduit or ClientConnect severance pay or termination, retention or any other benefits or payments.
 
 
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(l)             Compliance .  Except as set forth in Schedule ‎ 2.11 ‎ (l) of the ClientConnect Disclosure Letter, Conduit (solely with respect to the ClientConnect Business) and ClientConnect: (i) have been and are currently in compliance in all material respects with all applicable Legal Requirements, Employee Contacts, Consultants Contracts and orders, rulings, decrees, judgments or arbitration awards of any arbitrator or any court or other Governmental Entity respecting employment, terms and conditions of employment and termination thereof, or other labor-related matters with respect to the ClientConnect Employee, including Legal Requirements, orders, rulings, decrees, judgments and awards relating to discrimination, wages, maximum hours of work, overtime, sick leave, annual leave, prior notice, severance payment, notice to employees, labor relations and termination of them, engagement with independent contractors, service providers, classification of ClientConnect Employees and ClientConnect Consultants, enforcement of labor laws, leave of absence requirements, privacy, harassment, occupational safety and health, employee whistle-blowing, retaliation, immigration, contribution to managers’ insurance policy or pension plan, social benefits, wrongful discharge of ClientConnect Employees or prospective ClientConnect Employees; and  (ii) has timely withheld and reported all amounts required by any Legal Requirement or Contract or ClientConnect Employee Plan to be withheld and reported with respect to wages, salaries bonus benefits, commission, and other payments to any ClientConnect Employee, including as required by the Israeli Income Tax Ordinance, as amended, and the rules and regulations promulgated thereunder, and the National Insurance Law of Israel or otherwise.
 
(m)           Labor Relations .  Conduit and ClientConnect have good labor relations, and, except as set forth in Schedule 2.11 ‎ (m) of the ClientConnect Disclosure Letter, to Conduit’s knowledge (i) there are no facts indicating that the consummation of the Transactions will have a Material Adverse Effect on the labor relations of ClientConnect, and (ii) no ClientConnect Employees or ClientConnect Consultants have notified Conduit or ClientConnect of his or her intention to terminate his or her employment or engagement with Conduit or the ClientConnect.
 
(n)            ClientConnect Consultants .   Schedule ‎ 2.11 (n) of the ClientConnect Disclosure Letter accurately sets forth, with respect to each current ClientConnect Consultant providing services of the nature of "personal services" directly or via an entity the name of such ClientConnect Consultant, title, and the date as of which such ClientConnect Consultant was originally engaged by Conduit. Except as set forth on Schedule ‎ 2.11 (n) of the ClientConnect Disclosure Letter all ClientConnect Consultants and former ClientConnect Consultants are and were rightly classified as independent contractors and would not reasonably be expected to be misclassified by the courts or any other authority as employees of Conduit or ClientConnect. No ClientConnect Consultant is entitled to any rights under the applicable labor laws, including rights to severance pay, vacation, recuperation pay ( dmei havraa ) and other employee-related statutory and contractual benefits.  All ClientConnect Consultants have received all their rights to which they are entitled to according to any applicable law or agreement with Conduit or ClientConnect. Except as set forth in Schedule 2.11 (n) of the ClientConnect Disclosure Letter, each current ClientConnect Consultant’s agreement or engagement with Conduit or ClientConnect can be terminated immediately and with no more than 30 days prior notice. Except as set forth in Schedule 2.11(n) of the ClientConnect Disclosure Letter, ClientConnect does not engage manpower employees.
 
(o)            Labor-Related Claims. Except as set forth in Schedule ‎ 2.11 ‎ (n) of the ClientConnect Disclosure Letter, there is no Legal Proceeding, claim, labor dispute or grievance pending or, to Conduit’s knowledge, threatened, in writing relating to (i) any terms of employment, employment Contract with ClientConnect Employees, service agreement with current ClientConnect Consultants or similar Contract, compensation, wages and hours, working during overtime hours, leave of absence, plant closing notification, employment statute, rightly classified as independent contractors or regulation, privacy right, labor dispute, workers’ compensation policy, long-term disability policy, social benefits, termination of employment, termination of engagement, safety, retaliation, immigration or discrimination matter involving any ClientConnect Employee or ClientConnect Consultant, including charges of unfair labor practices or harassment complaints or any other labor related issue, or (ii) any of the ClientConnect Employee Plans.
 
 
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(p)           Except as set forth in Schedule 2.11(p) of the ClientConnect Disclosure Letter, there are no unwritten policies, practices or customs of Conduit or ClientConnect that are material or that entitle any ClientConnect Employee or ClientConnect Consultant to benefits which are reasonably expected to result in annual cash payments of more than $10,000 or any payment of ClientConnect Share Capital, in addition to what such ClientConnect Employee or ClientConnect Consultant is entitled to by applicable law or under the terms of such ClientConnect Employee’s employment agreement, or ClientConnect Consultant's engagement agreement or any other binding source (including unwritten customs or practices, including concerning bonuses, the payment of statutory severance pay when it is not required under applicable law).
 
(q)           All severance funds for ClientConnect Employees are fully funded, such that the termination of any ClientConnect Employee on the Closing Date would not require the payment of any amount pursuant to applicable Legal Requirements above the amount set forth in the severance fund set aside for such ClientConnect Employee.
 
 
2.12 
Interested Party Transactions .
 
(a)           Except as set forth on Schedule 2.12(a) of the ClientConnect Disclosure Letter, ClientConnect is not indebted to any current or former director, officer, employee, consultant, shareholder or related party of Conduit or ClientConnect (except for current amounts due as normal salaries and bonuses and in reimbursement of ordinary business expenses of ClientConnect Employees), and no such Person is indebted to ClientConnect.
 
(b)           To Conduit's knowledge, no officer, director or shareholder of Conduit or ClientConnect owns or holds, directly or indirectly, any interest in (excepting holdings solely for passive investment purposes of securities of publicly held and traded entities constituting less than five percent (5%) of the equity of any such entity), or is an officer, director, employee or consultant of, any Person that is a competitor, lessor, lessee, customer or supplier of the ClientConnect Business or ClientConnect or which conducts a business similar to any business conducted by the ClientConnect Business or ClientConnect.
 
(c)           All transactions between Conduit in respect to the ClientConnect Business or ClientConnect and interested parties that require approval pursuant to Sections 268 to 284 of the Companies Law or pursuant to the Conduit Charter Documents or ClientConnect Charter Documents have been approved or ratified in accordance with such requirements.
 
2.13         Insurance .  ClientConnect maintains the policies of insurance and bonds set forth in Schedule ‎ 2.13 of the ClientConnect Disclosure Letter, including all legally required insurance to carry out the ClientConnect Business, including workers’ compensation insurance and errors and omissions, casualty, fire and general liability insurance.   Schedule ‎ 2.13 of the ClientConnect Disclosure Letter sets forth the name of the insurer under each such policy and bond and the type of policy or bond, as well as all claims made in respect to the ClientConnect Business under any insurance policies and bonds since January 1, 2010, including all pending claims.  Conduit has provided to Perion’s counsel correct and complete copies of all such policies of insurance and bonds issued at the request or for the benefit of Conduit in respect to the ClientConnect Business or ClientConnect.  There is no claim pending under any of such policies or bonds as to which coverage has been questioned, denied or disputed by the underwriters of such policies or bonds.  All premiums due and payable under all such policies and bonds have been timely paid and Conduit and ClientConnect are otherwise in compliance with the terms of such policies and bonds.  All such policies and bonds remain in full force and effect, and Conduit has no knowledge of any threatened termination of, or material premium increase with respect to, any of such policies.
 
 
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2.14          Books and Records . The minute books of ClientConnect provided to Perion contain a complete and accurate summary, in all material respects, of all meetings of directors and ClientConnect Shareholder or actions by written consent since the time of incorporation of ClientConnect through the date of this Agreement.  The books, records and accounts of ClientConnect (i) are true, correct and complete in all material respects, (ii) have been maintained in accordance with reasonable business practices on a basis consistent with prior years, and (iii) are stated in reasonable detail and accurately and fairly reflect, in all material respects, all of the transactions and dispositions of the assets and properties of ClientConnect.
 
 
2.15 
ClientConnect Material Contracts .
 
(a)            Schedules  ‎ 2.15 ‎ (a) (i) through ‎ (xviii) of the ClientConnect Disclosure Letter set forth a list of each of the following Contracts primarily relating to the ClientConnect Business to which Conduit and/or ClientConnect is a party (“ ClientConnect Material Contracts ”):
 
(i)             any Contract providing for payments to Conduit (solely with respect to the ClientConnect Business) or ClientConnect in an aggregate amount of $10,000,000 or more per year;
 
(ii)            any Contract providing for payments by Conduit (solely with respect to the ClientConnect Business) or ClientConnect in an aggregate amount of $5,000,000 or more per year;
 
(iii)           any dealer, distributor or similar agreement, or any Contract providing for the grant of rights to reproduce, license, market or sell its products or services to any other Person or relating to the advertising or promotion of the ClientConnect Business or ClientConnect or pursuant to which any third parties advertise on any websites operated by the ClientConnect Business or ClientConnect providing for payments to or by Conduit or ClientConnect annually in an aggregate amount of $10,000,000 or more (in case of payments to Conduit or ClientConnect) or $5,000,000 (in case of payments by Conduit or ClientConnect);
 
(iv)           (1) any joint venture Contract primarily relating to the ClientConnect Business, (2) any Contract that involves a sharing of revenues, profits, cash flows, expenses or losses with other Persons in an aggregate amount of $10,000,000 or more per year, (3) any Contract that involves the payment of royalties to any other Person in an aggregate amount of $5,000,000 or more per year; or (4) any Contract between Conduit (solely with respect to the ClientConnect Business) and ClientConnect;
 
(v)            any Contract for or relating to the employment of any ClientConnect Key Employee;
 
(vi)           any agreement pursuant to which any other party is granted exclusive rights or “most favored party” rights of any type or scope with respect to any of the ClientConnect Products or ClientConnect Owned Intellectual Property, or containing any non-competition covenants or other material restrictions relating to the ClientConnect Products or ClientConnect Owned Intellectual Property; or materially limits the freedom of the ClientConnect Business or ClientConnect to engage or participate, or compete with any other Person, in any line of business, market or geographic area with respect to the ClientConnect Products or ClientConnect Owned Intellectual Property, or to make use of any ClientConnect Owned Intellectual Property Rights or any other Contract pursuant to which Conduit or ClientConnect has agreed to transfer or sell rights in or with respect to any ClientConnect Owned Intellectual Property Rights;
 
 
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(vii)          other than “shrink wrap” and similar generally available commercial end-user licenses to software that have an individual acquisition cost of $1,000,000 per year or less, all licenses, sublicenses and other Contracts to which Conduit or ClientConnect is a party and pursuant to which Conduit (solely with respect to the ClientConnect Business) or ClientConnect acquired, or is authorized to use, any Third Party Intellectual Property rights used in the development, marketing or licensing of the ClientConnect Products;
 
(viii)         any license, sublicense or other Contract to which Conduit (solely with respect to the ClientConnect Business) or ClientConnect is a party and pursuant to which any Person is authorized to use any ClientConnect Owned Intellectual Property Rights providing for payments by or to Conduit (solely with respect to the ClientConnect Business) or ClientConnect in an aggregate amount of $10,000,000 (in case of payments to Conduit or ClientConnect) or $5,000,000 (in case of payments by Conduit or ClientConnect) or more per year;
 
(ix)           any Contracts relating to the membership of, or participation by, Conduit (solely with respect to the ClientConnect Business) or ClientConnect in, or the affiliation of Conduit (solely with respect to the ClientConnect Business) or ClientConnect with, any industry standards group or association;
 
(x)            any material Contract providing for the development of any of the software, technology or Intellectual Property Rights, independently or jointly, either by or for Conduit (solely with respect to the ClientConnect Business) or ClientConnect (other than employee invention assignment agreements and consulting agreements with Authors on Conduit’s or ClientConnect's standard form of agreement, copies of which have been provided to Perion’s counsel);
 
(xi)           any Contract to license or authorize any third party to manufacture or reproduce any of the ClientConnect Products or ClientConnect Owned Intellectual Property providing for payments by or to Conduit (primarily with respect to the ClientConnect Business) or ClientConnect in an aggregate amount of $1,000,000 or more per year;
 
(xii)          any agreement containing any support, maintenance or service obligation or cost on the part of Conduit (solely with respect to the ClientConnect Business) or ClientConnect providing for payments by Conduit (solely with respect to the ClientConnect Business) or ClientConnect annually in an aggregate amount of $1,000,000 or more;
 
(xiii)         any settlement agreement providing for payments to or by Conduit (solely with respect to the ClientConnect Business) or ClientConnect in an aggregate amount of $500,000 or more;
 
(xiv)         any Contract pursuant to which rights of any third party are triggered or become exercisable, or under which any other consequence, result or effect arises, in connection with or as a result of the execution of the Split Agreement, this Agreement or the consummation of the Split, the Share Purchase or other transactions contemplated hereunder or thereunder, either alone or in combination with any other event;
 
(xv)          any ClientConnect Product warranty providing for payments to or by ClientConnect, annually in an aggregate amount of $1,000,000 or more;
 
(xvi)         any Contract or plan (including any stock option, merger and/or stock bonus plan) relating to the sale, issuance, grant, exercise, award, purchase, repurchase or redemption of any shares of ClientConnect Share Capital or any other securities of ClientConnect or any options, warrants, convertible notes or other rights to purchase or otherwise acquire any such shares of stock, other securities or options, warrants or other rights therefor, except for the repurchase rights disclosed on Schedule 2.15(a)(xvi) of the ClientConnect Disclosure Letter;
 
 
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(xvii)        any Contract with any labor union or any collective bargaining agreement or similar contract with any ClientConnect Employees; and
 
(xviii)       any Contract with any Governmental Entity, any ClientConnect Authorization, or any Contract with a government prime contractor, or higher-tier government subcontractor, including any indefinite delivery/indefinite quantity contract, firm-fixed-price contract, schedule contract, blanket purchase agreement, or task or delivery order (each a “ Government Contract ”), in each case, with respect to the ClientConnect Business;
 
(b)           Each of Conduit and ClientConnect has performed all of the obligations required to be performed by it in all material respects and is entitled to all benefits under, and to Conduit’s knowledge, is not alleged to be in default in respect of, any ClientConnect Material Contract.  Each of the ClientConnect Material Contracts is in full force and effect, subject only to the effect, if any, of applicable bankruptcy and other similar laws affecting the rights of creditors generally and rules of law governing specific performance, injunctive relief and other equitable remedies.  To Conduit’s knowledge, there exists no default or event of default or event, occurrence, act or condition, with respect to Conduit or ClientConnect or with respect to any other contracting party, which, with the giving of notice, the lapse of time or the happening of any other event or condition, would reasonably be expected to (i) become a default or event of material default under any ClientConnect Material Contract or (ii) give any third party (A) the right to declare a default or exercise any remedy under any ClientConnect Material Contract, (B) the right to a rebate, chargeback, refund, credit, penalty or change in delivery schedule under any ClientConnect Material Contract, (C) the right to accelerate the maturity or performance of any obligation of Conduit or ClientConnect under any ClientConnect Material Contract, or (D) the right to cancel, terminate or modify any ClientConnect Material Contract.  Neither Conduit nor ClientConnect has received any notice or other communication regarding any actual or possible violation or breach of, default under, or intention to cancel or modify any ClientConnect Material Contract.  Neither Conduit nor ClientConnect has any Liability for renegotiation of Government Contracts.  Correct and complete copies of all ClientConnect Material Contracts have been provided to Perion prior to the Agreement Date.
 
(c)           Each Contract relating to the ClientConnect Business, including each ClientConnect Material Contract, has been duly assigned by Conduit to ClientConnect pursuant to the Split in accordance with the Split Agreement.
 
2.16          Absence of Certain Changes .  During the period between June 30, 2013 and the Agreement Date, each of Conduit (solely with respect to the ClientConnect Business) and ClientConnect has conducted its business only in the ordinary course (other in connection with the Split) consistent with past practice and except as set forth in Schedule 2.16 of the Disclosure Letter:
 
(a)           there has not occurred a Material Adverse Effect with respect to ClientConnect or the ClientConnect Business;
 
(b)           neither Conduit nor ClientConnect has made or entered into any Contract or letter of intent with respect to any acquisition, sale or transfer of any asset primarily used by the ClientConnect Business or ClientConnect (other than the sale or nonexclusive license of ClientConnect Products to its customers in the ordinary course of its business consistent with its past practice);
 
(c)           except as required by GAAP, there has not occurred any change in accounting methods or practices (including any change in depreciation or amortization policies or rates or revenue recognition policies) by Conduit or ClientConnect or any revaluation by Conduit or ClientConnect of any of its assets;
 
 
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(d)           there has not occurred any amendment or change to the ClientConnect Charter Documents or other equivalent organizational or governing documents of ClientConnect;
 
(e)           there has not occurred any increase by more than 20% which results in an increase of at least $3,000 per month in or modification of the compensation or benefits payable or to become payable by Conduit or ClientConnect to any ClientConnect Employees or ClientConnect Consultants by more than 20% which results in an increase of at least $3,000 per month, any material modification of any nonqualified deferred compensation plan, or any new loans or extension of existing loans to any such Persons (other than routine expense advances to employees of Conduit or ClientConnect consistent with past practice), and Conduit and ClientConnect have not entered into any Contract to grant or provide (nor has granted any) severance, acceleration of vesting or other similar benefits to any such Persons;
 
(f)            there has not occurred any change in title, office or position, or reduction in the responsibilities of, or change in identity with respect to the management, supervisory or other key personnel of Conduit (solely with respect to the ClientConnect Business) or ClientConnect other than in the ordinary course of business, any termination of employment of any such employees, or any labor dispute or claim of unfair labor practices involving Conduit (solely with respect to the ClientConnect Business) or ClientConnect;
 
(g)           neither Conduit nor ClientConnect has incurred, created or assumed any Encumbrance (other than a Permitted Encumbrance) on any of the assets or properties of the ClientConnect Business, any Liability for borrowed money or any Liability as guaranty or surety with respect to the obligations of any other Person in the amount exceeding $1,000,000, in each case relating to the ClientConnect Business;
 
(h)           neither Conduit (solely with respect to the ClientConnect Business) nor ClientConnect has paid or discharged any Encumbrance or Liability in an amount exceeding $1,000,000, which was not shown on the ClientConnect Balance Sheet or incurred in the ordinary course of business consistent with past practice;
 
(i)            ClientConnect has not incurred any Liability to its directors, officers or shareholders (other than Liabilities to pay compensation or benefits in connection with services rendered in the ordinary course of business, consistent with past practice);
 
(j)            neither Conduit (solely with respect to the ClientConnect Business) nor ClientConnect has made any deferral of the payment of any accounts payable in the amount exceeding $1,000,000, other than in the ordinary course of business, consistent with past practice, or given any discount, accommodation or other concession other than in the ordinary course of business, consistent with past practice, in order to accelerate or induce the collection of any receivable;
 
(k)           neither Conduit (solely with respect to the ClientConnect Business) nor ClientConnect has made any material change in the manner in which it extends discounts, credits or warranties to customers or otherwise deals with its customers;
 
(l)            there has been no material damage, destruction or loss, whether or not covered by insurance, affecting the assets, properties or business of Conduit (solely with respect to the ClientConnect Business) or ClientConnect;
 
(m)          neither Conduit nor ClientConnect has sold, disposed of, transferred or licensed to any Person any rights to any ClientConnect Owned Intellectual Property (other than in the ordinary course of business consistent with past practice), or has transferred or provided a copy of any ClientConnect Source Code to any Person; and
 
 
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(n)           there has not occurred any announcement of, any negotiation by or any entry into any Contract by Conduit or ClientConnect to do any of the things described in the preceding clauses (a) through (p) (other than negotiations and agreements with Perion and their Representatives regarding the transactions contemplated by this Agreement).
 
2.17          Transaction Fees .  No broker, finder or investment banker is entitled to any brokerage, finder’s or other fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of ClientConnect.
 
2.18          Environmental Matters .
 
(a)           Except in compliance with Environmental Laws and in a manner that could not reasonably be expected to subject Conduit (solely with respect to the ClientConnect Business) or ClientConnect to any material Liability, to Conduit’s knowledge, no Hazardous Materials are present on any real property currently owned, operated, occupied, controlled or leased by Conduit (solely with respect to the ClientConnect Business) or ClientConnect and related to the ClientConnect Business.  There are no aboveground or underground storage tanks or asbestos present on or under any leased real property primarily related to the ClientConnect Business.
 
(b)           To Conduit’s knowledge, Conduit and ClientConnect have conducted all Hazardous Material Activities primarily relating to the ClientConnect Business in compliance in all material respects with all applicable Environmental Laws.  Neither Conduit nor ClientConnect has exposed its ClientConnect Employees to Hazardous Materials in violation of any applicable law or in a manner that would result in any material Liability.
 
(c)           Neither Conduit nor ClientConnect has, and they are not required to have, any permits pursuant to Environmental Laws primarily in connection with the ClientConnect Business.
 
2.19          Propriety of Past Payments .  To Conduit’s knowledge, no unrecorded fund or asset of ClientConnect has been established for any purpose, (a) no accumulation or use of corporate funds of ClientConnect has been made without being properly accounted for in the books and records of ClientConnect, (b) no payment has been made by or on behalf of ClientConnect with the understanding that any part of such payment is to be used for any purpose other than that described in the documents supporting such payment and (c) none of Conduit, ClientConnect, and to Conduit’s knowledge, any director, officer, employee or agent of Conduit or ClientConnect or any other Person for whom Conduit or ClientConnect may be responsible under applicable Legal Requirements or acting for or on behalf of Conduit or ClientConnect has, directly or indirectly, made any illegal contribution, gift, bribe, rebate, payoff, influence payment, kickback or other payment to any Person, private or public, regardless of form, whether in money, property or services, (i) to obtain favorable treatment for any ClientConnect Shareholder, Conduit, ClientConnect in securing business, (ii) to pay for favorable treatment for business secured for any ClientConnect Shareholder, Conduit or ClientConnect, (iii) to obtain special concessions, or for special concessions already obtained, for or in respect of any ClientConnect Shareholder, Conduit or ClientConnect or (iv) otherwise for the benefit of any ClientConnect Shareholder, Conduit or ClientConnect in violation of any U.S. federal, state, local, municipal, non-U.S., international, multinational or other Legal Requirement.  None of Conduit, ClientConnect or to Conduit's knowledge, any current director, officer, agent, employee or other Person acting on behalf of Conduit or ClientConnect, has used funds for unlawful contributions, gifts, entertainment or other unlawful expenses related to political activity or accepted or received any unlawful contribution, payment, gift, kickback, expenditure or other item of value.  Conduit and ClientConnect are in compliance in all material respects with all material statutory and regulatory provisions under the Foreign Corrupt Practices Act (15 U.S.C. §§78dd-1 et seq.) and international anti-bribery conventions and local anti-corruption and anti-bribery Legal Requirements in each jurisdiction in which ClientConnect does business (including, but not limited to, laws based on the Anti-Bribery Convention of the Organization for Economic Co-operation and Development, the UK Bribery Act of 2010, Title 5 of the Israeli Penalty Law (Bribery Transactions) and the Israeli Prohibition on Money Laundering Law – 2000.
 
 
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2.20          Representations Complete .  None of the representations or warranties made by Conduit or ClientConnect herein or in any exhibit or schedule hereto, including the ClientConnect Disclosure Letter, or in any certificate furnished by Conduit or ClientConnect pursuant to this Agreement, when all such documents are read together in their entirety, contains any untrue statement of fact, or omits to state any fact necessary in order to make the statements contained herein or therein, in the light of the circumstances under which made, not misleading.
 
2.21          No Other Representations . Except for the representations and warranties expressly and specifically made by Conduit and/or ClientConnect in this Agreement or certificates delivered by Conduit and/or ClientConnect pursuant to this Agreement, neither Conduit nor ClientConnect make any express or implied representation or warranty, and Conduit and ClientConnect hereby disclaim all other representations and warranties of any kind or nature, express or implied.
 
ARTICLE 3
Representations and Warranties of Perion
 
Except for factual information set forth in the Perion SEC Documents publicly available prior to the date hereof, and subject to the disclosures set forth in the disclosure letter of Perion delivered to Conduit and ClientConnect concurrently with the execution of this Agreement (the " Perion Disclosure Letter ") (each of which disclosures, in order to be effective, shall indicate the Section and, if applicable, the Subsection of this ARTICLE 3 to which it relates (unless and to the extent the relevance to other representations and warranties is reasonably apparent from the text of the disclosures), and each of which disclosures shall also be deemed to be representations and warranties made by Perion to Conduit and ClientConnect under this   ARTICLE 3 ), Perion represents and warrants to Conduit and ClientConnect, as of the Agreement Date, as set forth below.  References herein to Perion include the Subsidiaries thereof (unless the context otherwise requires).
 
3.1            Organization, Standing and Power .
 
(a)           Perion, incorporated in Israel, is a company duly organized and validly existing under the laws of the State of Israel.  Perion has the requisite corporate power to own, lease, license, and use its properties assets and to carry on the Perion Business as now being conducted and is duly qualified to do the Perion Business and, in jurisdictions where such concept is recognized, is in good standing in each jurisdiction in which Perion is qualified to do business as a foreign corporation and in each jurisdiction in which the conduct or nature of the Perion Business, makes such qualification, licensing or admission necessary.
 
(b)           ClientConnect, incorporated in Israel, is a company duly organized and validly existing under the laws of the State of Israel.  ClientConnect has the requisite corporate power to own, lease, license, and use its properties assets and to carry on the ClientConnect Business as now being conducted and is duly qualified to do business and, in jurisdictions where such concept is recognized, is in good standing in each jurisdiction in which Perion is qualified to do business as a foreign corporation and in each jurisdiction in which the ownership, leasing, licensing or use of its assets and properties, or the conduct or nature of its business, makes such qualification, licensing or admission necessary.  Perion has delivered a true, correct and complete copy of the Perion Charter Documents, as in effect as of the Agreement Date, to Conduit and ClientConnect.  Perion is not in violation of any of the provisions of the Perion Charter Documents.  Except as disclosed in Schedule 3.1(b)(i) of the Perion Disclosure Letter, Perion does not directly or indirectly own, and has not since Perion's inception directly or indirectly owned, any equity or similar interest in, or any interest convertible or exchangeable or exercisable for, any equity or similar interest in, any corporation, partnership, joint venture or other business association or entity.  All the outstanding share capital of each Subsidiary of Perion and any interest disclosed in Schedule 3.1(b)(i) of the Perion Disclosure Letter is owned by Perion free and clear of all Encumbrances and all claims or charges of any kind, and is validly issued, fully paid up and nonassessable.   Schedule 3.1(b)(ii) of the Perion Disclosure Letter sets forth each jurisdiction where Perion is so qualified, licensed or admitted to do business.
 
 
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(c)            Schedule 3.1(c) of the Perion Disclosure Letter sets forth a true, correct and complete list of: (i) the names of the members of the Perion Board of Directors and any committee thereof; and (ii) the names and titles of the officers of Perion.
 
3.2            Capital Structure .
 
(a)           The authorized share capital of Perion consists solely of 40,000,000 Perion Shares, of which 12,469,378   Perion Shares are issued and outstanding as of September 11, 2013 and 346,019 treasury shares.  Except as set forth on Schedule 3.2(a) of the Perion Disclosure Letter, there are no other issued and/or outstanding shares of share capital or other securities of Perion and no outstanding commitments or Contracts that obligate Perion to issue any shares of share capital or other securities of Perion or options or rights to acquire any Perion Share Capital under any circumstances other than pursuant to the exercise of outstanding Perion Options under the Perion Option Plan, as set forth on Schedule 3.2(a) of the Perion Disclosure Letter. All issued and outstanding shares of Perion Share Capital, all Perion Options and any interests in share capital of Perion are duly authorized, validly issued in compliance with all applicable Legal Requirements, and all requirements set forth in the Perion Charter Documents, all of which were provided to Conduit and ClientConnect, and Contracts fully paid and non-assessable and, to Perion's knowledge, are free of any Encumbrances and all claims or charges of any kind, preemptive rights, rights of first refusal or similar right or limitation or “put” or “call” rights, other than as set forth in the Perion Charter Documents and in accordance with any Legal Requirement.  There is no liability for dividends accrued and unpaid by Perion.  All of the outstanding equity securities and other securities of each Subsidiary of Perion are owned of record and beneficially by ClientConnect, free and clear of all Encumbrances other than as set forth in the governing documents of the applicable Subsidiary.
 
(b)            Perion Options .  As of the Agreement Date, Perion has reserved 4,368,000 Perion Shares for issuance to employees, directors and consultants of Perion pursuant to the Perion Option Plan, of which, as of September 11, 2013, there were outstanding options to purchase an aggregate of 1,780,428 Perion Shares (of which options to purchase an aggregate of 609,773 Perion Shares were exercisable).   Schedule 3.2(b)(i) of the Perion Disclosure Letter sets forth, as of September 11, 2013, a true, correct and complete list of all holders of outstanding Perion Options, whether or not granted under the Perion Option Plan, including the number of Perion Shares subject to each Perion Option, the original date of grant, the vesting schedule (and the terms of any acceleration thereof), the exercise price per share, whether each such Perion Option was granted pursuant to Section 3(i) of the Israeli Income Tax Ordinance or Section 102(b) or Section 102(c) (or the corresponding status under applicable non-Israeli Tax law) and specifying the Section and subsection of the Israeli Income Tax Ordinance pursuant to which such Perion Option was granted, the date on which such Perion Option expires and the Perion Option Plan from which such Perion Option was granted.  Correct and complete copies of each Perion Option Plan and option agreements or forms of each option agreement for each Perion Option (" Perion Option Agreements ") have been provided to Conduit’s counsel, and other than as set forth in Schedule 3.2(b)(ii) of the Perion Disclosure Letter, such plans have not been amended, modified or supplemented since being provided to Conduit’s counsel, and there are no agreements, understandings or commitments to amend, modify or supplement such plans, other than in connection with the transactions contemplated by this Agreement. All tax rulings, opinions, correspondence and filings with the Israeli Tax Authority relating to the Perion Option Plan and any award thereunder have been provided to Conduit’s counsel.  Each grant of Perion Options was duly authorized and validly issued in compliance with all applicable Legal Requirements.  All Perion Shares issued or issuable upon exercise of Perion Options will be duly authorized, validly issued, fully paid and non-assessable and free of any Encumbrances, preemptive rights, rights of first refusal or "put" or "call" rights created by any Legal Requirements , other than as set forth in the Perion Charter Documents and the Perion Option Plan.
 
 
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(c)           Other than as set forth on Schedules 3.2(a) and 3.2(b)(i) of the Perion Disclosure Letter, no Person has any right to acquire any shares of Perion Share Capital or any Perion Options or other rights to purchase shares of Perion Share Capital or other securities of Perion, from Perion.
 
(d)           No bonds, debentures, notes or other Indebtedness of Perion (i) granting its holder the right to vote on any matters on which any Perion Securityholder may vote (or which is convertible into, or exchangeable for, securities having such right) or (ii) the value of which is any way based upon or derived from capital or voting stock of Perion, is issued or outstanding (collectively, " Perion Voting Debt ").
 
(e)           Except for the Perion Options described in Schedule 3.2(b) of the Perion Disclosure Letter or as otherwise contemplated by this Agreement, there are no options, warrants, calls, rights or Contracts of any character to which Perion is a party or by which it is bound obligating Perion to issue, deliver, sell, repurchase or redeem, or cause to be issued, delivered, sold, repurchased or redeemed, any shares of any Perion Share Capital, Perion Options or other rights to purchase shares of Perion Share Capital or other securities of Perion, or any Perion Voting Debt, or obligating Perion to grant, extend, accelerate the vesting and/or repurchase rights of, change the price of, or otherwise amend or enter into any such Perion Option, call, right or Contract.  There are no Contracts relating to voting, purchase, sale or transfer of any Perion Share Capital (i) between or among Perion and any Perion Securityholder, other than written contracts granting Perion the right to purchase unvested shares upon termination of employment or service, and (ii) to the actual knowledge (without any inquiry) of Perion, between or among any of Perion Securityholders.  Except as set forth in Schedule 3.2(e) of the Perion Disclosure Letter, neither the Perion Option Plan nor any Contract of any character to which Perion is a party to or by which Perion is bound relating to any Perion Options requires or otherwise provides for any accelerated vesting of any Perion Options in connection with the Share Purchase or any other transaction contemplated by this Agreement or upon termination of employment or service with Perion, or any other event, whether before, upon or following the Share Purchase or otherwise.
 
(f)            The Perion Shares comprising the aggregate Share Purchase Consideration and all Perion Shares to be issued pursuant to the Perion Options granted in exchange for ClientConnect Option, all when issued by Perion in accordance with the terms of this Agreement, will be free and clear of any Encumbrances, pre-emptive rights and rights of first refusal, duly and validly issued, in compliance with the Perion Charter Documents and all contracts that apply to Perion, fully paid and nonassessable and, assuming the receipt of the Court Approval, issued in compliance with applicable law (including Israeli and United States federal and state securities laws). Without derogating from the above, the issuance of the Perion Shares comprising the aggregate Purchase Consideration will be exempt from registration under the Securities Act by reason of Section 3(a)(10) thereof in reliance on the Court Approval. 
 
 
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3.3            Authority; Noncontravention .
 
(a)           Perion, has all requisite corporate power and authority to enter into this Agreement and to consummate the transactions contemplated hereby.  The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of Perion, subject to the Perion Shareholder Approval.  This Agreement has been duly executed and delivered by Perion, and constitutes the valid and binding obligation of Perion, enforceable against Perion in accordance with its terms, subject only to the effect, if any, of (i) applicable bankruptcy and other similar laws affecting the rights of creditors generally and (ii) rules of law governing specific performance, injunctive relief and other equitable remedies.  The Perion Board of Directors, by resolutions duly adopted (and not thereafter modified or rescinded) by the unanimous vote of the Perion Board of Directors, has approved this Agreement, the Share Purchase and the other transactions contemplated hereby and determined that this Agreement and the terms and conditions of the Share Purchase and the other transactions contemplated by this Agreement are advisable, fair to and in the best interests of Perion and the Perion Shareholders, has directed that the adoption of this Agreement, the Share Purchase and the other transactions contemplated by this Agreement be submitted to the Perion Shareholders for consideration and unanimously recommended that all of the Perion Shareholders adopt such agreements and transactions and has received the opinion of its financial advisor, RBC Capital Markets, LLC, to the effect that, as of the date of such opinion and subject to certain assumptions, qualifications and other matters set forth in such opinion, the Exchange Ratio is fair, from a financial point of view, to the Perion Shareholders, a copy of which opinion has been delivered to Conduit and ClientConnect for informational purposes only.  It is agreed and understood that such opinion is solely for the benefit of Perion Board of Directors and may not be relied upon, referred to, quoted or disclosed by Conduit or ClientConnect in any way or manner, except for such references or disclosures, or quotations in connection with the Arrangement and the Section 350 Voting Approval.
 
(b)           The execution and delivery of this Agreement by Perion does not, and the consummation of the transactions contemplated hereby will not, (i) result in the creation of any Encumbrance (other than a Permitted Encumbrance) on any of the properties or assets of Perion or any of the shares of Perion Share Capital or (ii) conflict with, or result in any violation of or default under (with or without notice or lapse of time, or both), or give rise to a right of termination, cancellation or acceleration of any obligation or loss of any benefit under, or require any consent, approval or waiver from any Person pursuant to (A) any provision of the Perion Charter Documents or any resolution adopted by the Perion Shareholders or (B) any material Legal Requirements applicable to Perion or any of its properties or assets.
 
(c)           No consent, approval, order or authorization of, or registration, declaration or filing with, any Governmental Entity or any other Person is required by or with respect to Perion in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby, except for such consents, authorizations, filings, approvals, notices and registrations which, if not obtained or made, would not impair Perion’s ability to consummate the Share Purchase or to perform its obligations under this Agreement and would not prevent, alter or delay any of the transactions contemplated by this Agreement.
 
3.4            Perion SEC Documents; Perion Financial Statements .
 
(a)           Perion has timely filed with or furnished to the SEC all forms, reports, schedules, statements and documents required under the Exchange Act to be filed with the SEC since January 1, 2011 (the " Perion SEC Documents "). Each of the Perion SEC Documents complied in all material respects with all applicable requirements of the Exchange Act, the Securities Act and the Sarbanes-Oxley Act of 2002 (the " Sarbanes-Oxley Act "), as the case may be, and the applicable rules and regulations promulgated thereunder, each as in effect on the dates such forms, reports, and documents were filed (or if a Perion SEC Document was subsequently amended, as of the date such amendment was filed), and no such statement or report (as so amended) contained an untrue statement of a material fact or omitted to state any material fact necessary to make the statements made therein, in light of the circumstances under which they were made, not misleading.
 
 
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(b)           As of their respective dates (or if amended prior to the date of this Agreement, as of the date of such amendment), the financial statements of Perion included in the Perion SEC Documents, including any related notes thereto (the " Perion Financial Statements " ) (i) comply in all material respects with applicable accounting requirements and with the published rules and regulations of the SEC with respect thereto, (ii) were prepared in accordance with U.S. GAAP applied on a consistent basis throughout the periods covered, except as may be indicated in the notes to such financial statements, and except that unaudited financial statements may not contain footnotes and are subject to year-end audit adjustments, (iii) fairly present the consolidated financial position of Perion and its subsidiaries as of the respective dates thereof and the consolidated results of operations of Perion and its subsidiaries for the periods covered thereby, and (iv) are true, complete and correct in all material respects. Neither Perion nor any of its subsidiaries has "off-balance sheet arrangements" (as defined in Item 303(a)(4)(ii) of Regulation S-K under the Exchange Act). Perion does not intend to correct or restate, nor, to the knowledge of Perion, is there any basis, facts or circumstances that would reasonably be expected to result in any correction or restatement of, any aspect of the Perion Financial Statements. Perion has not had any dispute with any of its auditors regarding accounting matters or policies during any of its past five full fiscal years or during the current fiscal year-to-date.  With respect to the Perion Financial Statements, the books and records of Perion and its Subsidiaries (from the time the applicable Subsidiary became a Subsidiary of Perion) have been, and are being, maintained in all material respects in accordance with applicable legal and accounting requirements, and the Perion Financial Statements are consistent with such books and records.
 
(c)           Except as set forth in Schedule Error! Reference source not found. of the Perion Disclosure Letter, Perion has no Liabilities which are required to be reflected in financial statements in accordance with GAAP other than (i) those set forth or adequately provided for in the balance sheet included in the Perion Financial Statements as of June 30, 2013 (the " Perion Balance Sheet "); (ii) those incurred in the conduct of Perion's business since June 30, 2013 (the " Perion Balance Sheet Date ") in the ordinary course, consistent with past practice; (iii) obligations set forth on the face of the Perion Contracts.
 
(d)            Schedule 3.4(d) of the Perion Disclosure Letter accurately lists all Indebtedness of Perion (" Perion Debt ") as of the Agreement Date, including, for each item of Perion Debt, the agreement governing the Perion Debt and the interest rate, maturity date and any assets or properties securing such Perion Debt.
 
(e)           Neither Perion, nor, to the knowledge of Perion, any Representative of Perion, has received or otherwise had or obtained knowledge of any complaint, allegation, assertion or claim, whether made in writing or made orally to any director, executive officer, or inside legal counsel or, regarding any deficiency in the accounting or auditing practices, procedures, methodologies or methods of Perion or its internal accounting controls, including any complaint, allegation, assertion or claim that Perion has engaged in questionable accounting or auditing practices.
 
(f)           Perion and its subsidiaries maintain disclosure controls and procedures required by Rule 13a-15 or 15d-15 under the Exchange Act; such controls and procedures are effective to ensure that all material information concerning Perion and its subsidiaries is made known on a timely basis to the individuals responsible for the preparation of Perion’s filings with the SEC. Perion maintains a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management’s general or specific authorization, and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences.
 
(g)           Perion is in compliance in all respects with the applicable listing and corporate governance rules and regulations of NASDAQ.
 
 
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(h)           Perion's internal control over financial reporting was effective as of December 31, 2012.  Perion has not identified any material weakness in its internal control over financial reporting in the six-month period ended June 30, 2013.
 
3.5            Litigation .  Other than as set forth in Schedule 3.5 of the Perion Disclosure Letter, there is no Legal Proceeding, and, to the knowledge of Perion, threatened Legal Proceeding, against Perion or any of the assets or properties of Perion, including without limitation, any Perion Employee Plans, or, to the knowledge of Perion, any of its directors, officers, independent contractors or employees (in their capacities as such or relating to their employment, services or relationship with Perion).  There is no judgment, decree, rule, injunction or order against Perion, any of the assets or properties of Perion, or, to the knowledge of Perion, any of its directors, officers, independent contractors or employees (in their capacities as such or relating to their employment, services or relationship with Perion).  Other than as set forth on Schedule 3.5 of the Perion Disclosure Letter, there is no Legal Proceeding that Perion has pending or is currently planning to commence against any other Person with respect to the Perion Business, or that Perion has pending or is currently planning to commence against any other Person.  Perion has provided Conduit with all documentation relating to any Legal Proceeding and material cease-and-desist letters involving the Perion Business since January 1, 2010.   Schedule 3.5 of the Perion Disclosure Letter sets forth a list of all Legal Proceedings and material cease-and-desist letters involving Perion since January 1, 2010.
 
3.6            Restrictions on Perion Business Activities .  Except as set forth in Schedule 3.6 of the Perion Disclosure Letter, there is no Perion Material Contract, judgment, injunction, order or decree of or issued against Perion that restricts or prohibits in any material respect, purports to restrict or prohibit in any material respect, has or would reasonably be expected to have, whether before or after consummation of the Share Purchase, the effect of prohibiting, restricting or impairing in a material respect any current business practice of Perion, any acquisition of property by Perion or the conduct or operation of the Perion Business or limiting the freedom of Perion in any material respect to engage in the Perion Business or any line of business, to sell, license or otherwise distribute services or products in any market or geographic area, or to compete with any Person, including any grants by Perion of exclusive rights or exclusive licenses.
 
3.7            Compliance with Laws; Governmental Permits .
 
(a)           To Perion's knowledge, Perion has complied in all material respects with, and is not in any material violation of, any Legal Requirement (which for purposes of this Section 3.7(a) shall not include matters covered in Section 3.9(p)), including the Perion Charter Documents. Perion has not received any notices of violation with respect to any Legal Requirement, all except for failure or violations that would not have a Material Adverse Effect on Perion.
 
(b)           To Perion's knowledge, Perion has obtained each material Israeli or foreign governmental consent, license, permit, grant, or other authorization of a Governmental Entity (i) pursuant to which Perion operates or holds any interest in any of its assets or properties (which for purposes of this Section 3.7(b) shall not include matters covered in Section 3.9) or (ii) that is required for the operation of the Perion Business or the holding of any such interest (all of the foregoing consents, licenses, permits, grants, and other authorizations, collectively, the " Perion Authorizations "), except for failure to obtain such consent, license, permit, grant, or other authorization that  would not have a Material Adverse Effect on Perion, and all of the Perion Authorizations are in full force and effect.   Schedule 3.7(b) of the Perion Disclosure Letter identifies each Perion Authorization.  Perion has not received any notice or other communication from any Governmental Entity regarding (i) any actual or possible violation of any Perion Authorization or (ii) any actual or possible revocation, withdrawal, suspension, cancellation, termination or modification of any Perion Authorization.  Perion has complied with all of the terms of the Perion Authorizations in all material respects and none of the Perion Authorizations will be terminated or impaired, or will become terminable, in whole or in part, as a result of the consummation of the Share Purchase or the other transactions contemplated by this Agreement.
 
 
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(c)           To Perion's knowledge, Perion has obtained all approvals necessary for (i) exporting and re-exporting the Perion Products in accordance with all applicable export control regulations, and (ii) importing the Perion Products into any country in which the Perion Products are now sold or licensed for use, except for failure to obtain approval would not have a Material Adverse Effect on Perion.  All such export and import licenses and approvals throughout the world are valid, current, outstanding and in full force and effect, and Perion is in compliance in all material respects with the terms of all such export and import licenses or approvals.  There are no pending Legal Proceedings, or threatened claims against Perion with respect to such export and import licenses and approvals.  Perion does not use or develop, or engage in, encryption technology, technology with military applications, or other technology whose development, commercialization or export is restricted under applicable Legal Requirements, and the Perion Business does not require Perion to obtain a license from the Israeli Ministry of Defense or an authorized body thereof pursuant to Section 2(a) of the Control of Products and Services Declaration (Engagement in Encryption), 1974, as amended or Control of Products and Services Order (Export of Warfare Equipment and Defense Information), 1991, as amended.
 
3.8            Title to, Condition and Sufficiency of Assets .
 
(a)           Perion owns no real property. Except as set forth in Schedule 3.8 of the Perion Disclosure Letter, Perion has good title to, or valid leasehold interest in all of its properties, and interests in properties and assets, real and personal, reflected in the Perion Financial Statements or acquired after the Perion Balance Sheet Date (except properties and assets, or interests in properties and assets, sold or otherwise disposed of since the Perion Balance Sheet Date in the ordinary course of business consistent with past practice), or, with respect to leased properties and assets, valid leasehold interests in such properties and assets which afford Perion valid leasehold possession of the properties and assets that are the subject of such leases, in each case, free and clear of all Encumbrances, except Permitted Encumbrances.   Schedule 3.8 of the Perion Disclosure Letter identifies each parcel of real property leased by Perion.  Perion has heretofore provided to Conduit's counsel true, correct and complete copies of all leases, subleases and other agreements under which Perion uses or occupies or has the right to use or occupy, now or in the future, any real property or facility, including all modifications, amendments and supplements thereto.
 
(b)           The assets and properties owned or leased by Perion (i) constitute all of the assets and properties that are necessary for Perion, to conduct, operate and continue the Perion Business as currently conducted, and to sell and otherwise enjoy full rights to exploitation of its assets, properties and all products and services that are provided in connection with its assets and properties, and (ii) constitute all of the assets and properties that are used in the Perion Business, without (A) the need for Perion to acquire or license any other asset or property or (B) the breach or violation of any Perion Material Contract.
 
(c)           The representations and warranties set forth in this Section 3.8 do not apply to Intellectual Property, Intellectual Property Rights or other intellectual property assets or rights.
 
3.9            Intellectual Property .
 
(a)           As used in this Agreement, the following terms have the meanings indicated below:
 
(i)             " Perion Intellectual Property " means any and all Perion Owned Intellectual Property and any and all material Third Party Intellectual Property that is licensed to and/or used by Perion.
 
 
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(ii)            " Perion Intellectual Property Agreements " means any Contract governing any Perion Intellectual Property to which Perion is a party or bound by or a beneficiary of, except for non-disclosure agreements entered in the ordinary course of business, forms of which have been provided to Perion, and Contracts for Third Party Intellectual Property that is generally, commercially available software and (i) is not material to Perion; (ii) has not been materially modified or customized for Perion; and (iii) is licensed for a onetime fee or an annual fee under $1,000 for a single user or work station, or $100,000 in the aggregate for all users and work stations.
 
(iii)           " Perion Owned Intellectual Property " means any and all Intellectual Property that is owned by Perion.
 
(iv)           " Perion Products " means all products or services of the Perion Business that are produced, marketed, licensed, sold, distributed, offered or made available by or on behalf of Perion and all products or services of the Perion Business that are currently under development by Perion.
 
(v)            " Perion Registered Intellectual Property " means, with respect to the Perion Business, Israeli, international and foreign: (A) patents and patent applications (including provisional applications); (B) registered trademarks, applications to register trademarks, intent-to-use applications, or other registrations or applications related to trademarks; (C) registered Internet domain names; and (D) registered copyrights and applications for copyright registration; registered in the name of Perion.
 
(vi)           " Perion Source Code " means, collectively, any software source code or database specifications or designs, or any material proprietary information or algorithm contained in or relating to any software source code or database specifications or designs, if any, of any Perion Owned Intellectual Property or Perion Products.
 
(vii)           " Perion Trade Secrets " means all Trade Secrets owned by Perion.
 
(b)            Status .  Perion owns and has full title and ownership of, or is duly licensed under or otherwise authorized to use, all Intellectual Property used by Perion in the Perion Business as currently conducted (except for those that would have an immaterial effect on Perion), free and clear of any Encumbrances other than Permitted Encumbrances and as set forth in Schedule 3.9(b)(i) of the Perion Disclosure Letter.  Except as set forth in Schedule 3.9(b)(ii) of the Perion Disclosure Letter, Perion is not currently obligated or under any liability whatsoever to make any payments by way of royalties, fees or otherwise under any Perion Intellectual Property Agreements with respect to Third Party Intellectual Property. The Perion Intellectual Property collectively constitutes all of the intangible assets, intangible properties, rights and Intellectual Property used by Perion in the Perion Business, without:  (i) the need for Perion to acquire or license any other intangible asset, intangible property or Intellectual Property Right, and (ii) to Perion's knowledge, the breach or violation of any Perion Material Contract.  Perion has not transferred ownership of, or agreed to transfer ownership of, or granted any exclusive licenses to, or agreed to grant any exclusive licenses to any third party in respect of any Perion Owned Intellectual Property.  No third party has any ownership or lien on any of the Perion Owned Intellectual Property.
 
(c)            Perion Registered Intellectual Property .   Schedule 3.9(c) of the Perion Disclosure Letter lists all Perion Registered Intellectual Property, and the jurisdictions in which all such Intellectual Property has been issued or registered or in which any application for such issuance and registration has been filed, or in which any other filing or recordation has been made; and all actions that are required to be taken by Perion within 120 days of the Agreement Date with respect to such Registered Intellectual Property in order to avoid prejudice to, impairment or abandonment of such Registered Intellectual Property.  Each item of such Registered Intellectual Property is valid and subsisting (or in the case of applications, applied for), all registration, maintenance and renewal fees currently due in connection with such Registered Intellectual Property have been paid and all documents, recordations and certificates in connection with such Registered Intellectual Property currently required to be filed have been filed with the relevant patent, copyright, trademark or other authorities in Israel and/or foreign jurisdictions, as the case may be, for the purposes of prosecuting, maintaining and perfecting such Registered Intellectual Property and recording Perion’s ownership interests therein.
 
 
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(d)            Governmental Grants and Consents . Except as set forth in Schedule 3.9(d) of the Perion Disclosure Letter, Perion is not now and never was, directly or indirectly, an applicant, recipient or beneficiary of any Governmental Grant whatsoever. None of the Perion Owned Intellectual Property was developed or derived from, in whole or in part, funding or resources provided by, or are subject to restriction, constraint, control, supervision or limitation imposed by, the OCS or any other Governmental Entity or regulatory authority. No Governmental Entity has awarded any participation or provided any support to Perion or is or may become entitled to receive any royalties or other payments from Perion.
 
(e)            Private Grants .  At no time during the conception of or reduction to practice of any of the Perion Owned Intellectual Property was any developer, inventor or other contributor to such Intellectual Property operating under any grants from any private source, performing research sponsored by any private source or, to Perion's knowledge, subject to any employment agreement or invention assignment or nondisclosure agreement or other obligation with any third party that could adversely affect, restrict or in any manner encumber Perion’s rights in such Intellectual Property.
 
(f)             Invention Assignment and Confidentiality Agreement .  Perion has secured from all consultants, advisors, employees and independent contractors who independently or jointly contributed to or participated in the conception, reduction to practice, creation or development of any Perion Owned Intellectual Property for Perion (each a " Perion Author "), unencumbered and unrestricted exclusive ownership of, all of the Perion Authors’ Intellectual Property in such contribution and has obtained the waiver of all non-assignable rights.  No Perion Author has retained any rights, licenses, claims or interest whatsoever with respect to any Perion Owned Intellectual Property.  Without limiting the foregoing, Perion has obtained written and enforceable proprietary information and invention disclosure and Intellectual Property assignments from all current and former Perion Authors.  Perion has provided to Conduit and ClientConnect copies of substantially all such forms currently and historically used by Perion, and each proprietary information and invention disclosure and Intellectual Property assignment executed by each Perion Author conforms to the forms Perion has made available to Conduit and ClientConnect.
 
(g)            No Violation.   To Perion's knowledge, no Perion Employee or Perion Consultant: (i) is in violation of any term or covenant of any Contract relating to, invention disclosure, invention assignment, non-disclosure or non-competition; or (ii) has developed any technology, software or other copyrightable, patentable or otherwise proprietary work for Perion that is subject to any agreement under which such Perion Employee or Perion Consultant has assigned or otherwise granted to any third party any rights (including Intellectual Property Rights) in or to such technology, software or other copyrightable, patentable or otherwise proprietary work.
 
(h)            Confidential Information . Perion has taken all commercially reasonable steps required to protect and preserve the confidentiality of all material ClientConnect Owned Intellectual Property as well as confidential or non-public information provided by any third party (including, without limitation, Trade Secrets) to Perion under a written obligation of confidentiality (" Perion Confidential Information ").  All current and former employees and contractors of Perion and any third party having access to Perion Confidential Information are bound by a duty of confidentiality pursuant to Legal Requirement or have executed and delivered to Perion, a written legally binding agreement regarding the protection of such Perion Confidential Information.  Perion has implemented and maintains a reasonable security plan consistent with industry practices of companies offering similar services.
 
(i)             Non-Infringement .  To the knowledge of Perion, there is no unauthorized use, unauthorized disclosure, infringement or misappropriation of any Perion Owned Intellectual Property by any third party.  Perion has not brought any action, suit or proceeding for infringement or misappropriation of any Intellectual Property.  To the knowledge of Perion, Perion Owned Intellectual Property is not infringing, misappropriating or violating and has not infringed, misappropriated or violated the Intellectual Property of any third party.  Perion has not been sued in any action, suit or proceeding or received any written communications (including any third party reports by users) alleging that Perion Owned Intellectual Property has infringed, misappropriated, or violated or, by conducting the Perion Business, would infringe, misappropriate, or violate any Intellectual Property of any other Person or entity.  No Perion Owned Intellectual Property or Perion Product is subject to any proceeding, order, judgment, settlement agreement or stipulation that restricts in any material respect in any manner the use, transfer, or licensing thereof by Perion, or which may affect the validity, use or enforceability of any such Perion Owned Intellectual Property.
 
 
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(j)             Digital Millennium Copyright Act .  Perion operates and has operated the Perion Business in such a manner as to take reasonable advantage, if and when applicable, of the safe harbors provided by Section 512 of the DMCA, including by informing users of its products and services of such policy, designating an agent for notice of infringement claims, registering such agent with the United States. Copyright Office, and taking appropriate action expeditiously upon receiving notice of possible infringement in accordance with the "notice and take-down" procedures of the DMCA.
 
(k)            Licenses; Agreements .  Except as set forth in Schedule 3.9(k) of the Perion Disclosure Letter, Perion has not granted, nor is Perion bound by, or a party to, any options, licenses or agreements of any kind relating to any Perion Owned Intellectual Property outside of normal nonexclusive licenses to use the Perion Products in the ordinary course of the Perion Business (copies of which have been provided to Conduit’s counsel).  Perion is not obligated to pay any royalties or other payments to third parties with respect to the marketing, sale, distribution, manufacture, license or use of any Perion Products or Perion Owned Intellectual Property or any other property or rights.
 
(l)             Other Intellectual Property Agreements .
 
(i)             Perion is not (and will not be as a result of the execution and delivery or effectiveness of this Agreement or the performance of Perion’s obligations under this Agreement), in material breach of any Perion Intellectual Property Agreement and the consummation of the transactions contemplated by this Agreement will not result in the modification, cancellation, termination, suspension of, or acceleration of any payments, rights, obligations, or remedies with respect to any Perion Intellectual Property Agreements, or give any non-Perion party to any Perion Intellectual Property Agreement the right to do any of the foregoing;
 
(ii)            Other than as set forth on Schedule 3.9(l)(ii) of the Perion Disclosure Letter, there are no unresolved disputes regarding the scope of any Perion Intellectual Property Agreements, or performance under any Perion Intellectual Property Agreements including with respect to any payments to be made or received by Perion thereunder;
 
(iii)           No Perion Intellectual Property Agreement requires Perion to include any Third Party Intellectual Property in any Perion Product or obtain any Person’s approval of any Perion Product at any stage of development, licensing, distribution or sale of that Perion Product;
 
(iv)           None of the Perion Intellectual Property Agreements grants any third party exclusive rights to or under any Perion Owned Intellectual Property;
 
(v)            None of the Perion Owned Intellectual Property Agreements grants any third party the right to sublicense any Perion Intellectual Property;
 
 
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(vi)           Perion has obtained valid, written, perpetual non-terminable (other than for cause) licenses (sufficient for the conduct of the Perion Business) to all Third Party Intellectual Property that is incorporated into or integrated by Perion with any of the Perion Products to the extent that such Third Party Intellectual Property cannot be easily replaced with any of Perion's or any Third Party's Intellectual Property, and such licenses are listed in Schedule 3.9(l)(vi) of the Perion Disclosure Letter; and
 
(vii)          Perion has ownership or license rights to improvements or derivative works made by Perion in the Third Party Intellectual Property that has been licensed to Perion.
 
(m)           Source Code.   Perion has not disclosed, delivered or licensed to any Person or agreed or obligated itself to disclose, deliver or license to any Person, or permitted the disclosure or delivery to any escrow agent or other Person of, any Perion Source Code, other than disclosures to employees and Perion Consultants involved in the development of Perion Products.  No event has occurred, and no circumstance or condition exists, that (with or without notice or lapse of time, or both) will, or would reasonably be expected to, result in the disclosure, delivery or license by Perion of any Perion Source Code, other than disclosures to employees and Perion Consultants involved in the development of Perion Products.  Without limiting the foregoing, neither the execution of this Agreement nor any of the transactions contemplated by this Agreement will result in a release from escrow or other delivery to a third party of any Perion Source Code.
 
(n)            Open Source Software.    Schedule 3.9(n) of the Perion Disclosure Letter identifies, to Perion's knowledge, all Open Source Materials used in any Perion Products or in the conduct of the Perion Business.  To Perion's knowledge, Perion is materially in compliance with the terms and conditions of all licenses for the Open Source Materials, except for such failure to comply that would not have a Material Adverse Effect on Perion.  To Perion's knowledge, other than as described in Schedule 3.9(n) of the Perion Disclosure Letter Perion has not (i) incorporated Open Source Materials into, or combined Open Source Materials with, the Perion Owned Intellectual Property or Perion Products; (ii) distributed Open Source Materials which is incorporated within any Perion Owned Intellectual Property or Perion Products; or (iii) used Open Source Materials, in such a way that, with respect to (i), (ii), or (iii), creates, obligations for Perion that any Perion Owned Intellectual Property would be (A) disclosed or distributed to a third party in Source Code form, (B) licensed to third parties for the purpose of making derivative works, or (C) redistributable at no charge), except for such incorporation, distribution or use that would not have a Material Adverse Effect on Perion.
 
(o)            Privacy .  Perion has established privacy policies with respect to the Personal Data which are in material conformance with all applicable laws and regulations and the guidelines issued by ILITA. Perion is in compliance in all material respects with such privacy policies and such applicable laws and regulations and the guidelines issued by ILITA relating to privacy, data protection, confidential information, credit cards and the collection, use, storage, disclosure, processing and transfer (including without limitation, import and export) of Personal Data including without limitation, all Personal Data collected by Perion or by third parties having authorized access to the records and/or systems and/or facilities of Perion (collectively, " Data Protection Obligations ").  The execution, delivery and performance of this Agreement, will comply with all Data Protection Obligations. Perion has not received any written complaint and/or notice and/or is not aware of any material breach and/or violation of any Data Protection Obligations and/or, except as set forth in Schedule 3.9(o) of the Perion Disclosure Letter, of any investigations by any Governmental Entity regarding Perion’s conduct of the Perion Business, respectively, including without limitation, in respect of the collection, use, storage, processing, transfer and/or disclosure of Personal Data.
 
(p)            Personal Data.   No material breach or material violation of any security policy adopted by Perion has occurred or, to Perion's knowledge, is threatened, and to Perion’s knowledge, there has been no material unauthorized or illegal use of or access to any of the data and/or information in and/or premises and/or systems of any of the distinct electronic or other database containing (in whole or in part) Personal Data maintained, hosted and/or used for the Perion Business. Perion has not experienced any material breach of security or otherwise unauthorized material access by third parties to the Confidential Information, including Personal Data in Perion's possession, custody or control.
 
 
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3.10          Taxes .
 
(a)            Tax Returns and Payments .  All Tax Returns required to be filed by or on behalf of Perion (the " Perion Returns ") have been timely and properly filed with the appropriate Tax Authorities and are true, accurate and complete in all material respects.  All material Taxes of Perion that are due and payable have been timely and properly paid.  All material Taxes required to be withheld by Perion have been properly and timely withheld and remitted.  Perion has delivered to Conduit accurate and complete copies of all income and other material Tax Returns filed by Perion since January 1, 2010.   Schedule 3.10(a) of the Perion Disclosure Letter lists each jurisdiction in which Perion is required to file a Tax Return.  Perion has not requested or been granted any extension of time to file a Tax Return, which Tax Return has not been filed.  To the knowledge of Perion, no claim has ever been made by a Governmental Entity in a jurisdiction where Perion does not file Tax Returns that it is or may be subject to taxation by that jurisdiction.  The Perion Financial Statements properly and adequately accrue or reserve for Tax liabilities in accordance with GAAP.
 
(b)            Audits; Claims .  No Perion Return has ever been examined or audited by any Governmental Entity.  Perion has not received from any Governmental Entity any written: (i) notice indicating an intent to open an audit or other review; (ii) request for information related to Tax matters; or (iii) notice of deficiency or proposed Tax adjustment. No claim or Legal Proceeding is pending or, to Perion's knowledge, threatened against Perion in respect of any Tax.  There are no liens for Taxes upon any of the assets of Perion except liens for current Taxes not yet due and payable (and for which there are adequate accruals, in accordance with GAAP).
 
(c)            Sufficiency .  To Perion's knowledge, the total amounts set up as liabilities for current and deferred Taxes in the Perion Financial Statements are sufficient to cover the payment of all Taxes, whether or not assessed or disputed, which are, or are hereafter found to be, or to have been, due by or with respect to Perion up to and through the periods covered by the Perion Financial Statements.
 
(d)            Closing Agreements; Etc .  Perion will not be required to include any item of income in, or exclude any item of deduction from, taxable income for any taxable period (or portion thereof) ending after the Closing Date as a result of any change in method of accounting, closing agreement, installment sale or prepaid amount received for a taxable period ending on or prior to the Closing Date.  Perion is not a party to or bound by any Tax allocation or sharing agreement.  Perion is not a member of an affiliated, consolidated, combined, unitary or aggregate group for purposes of any Tax Return.
 
(e)            Transferee or Successor Tax Liability .  Perion has no Liability for the Taxes of any Person as a transferee or successor or otherwise by operation of law, by Contract or otherwise.
 
(f)            Withholding .  Perion has complied with all applicable Legal Requirements relating to the payment, reporting and withholding of Taxes and timely paid over to the proper governmental authorities (or is properly holding for such timely payment) all amounts required to be so withheld and paid over under all applicable Legal Requirements, including income Taxes and employment Tax withholding laws, and has timely filed all withholding Tax Returns, for all periods.
 
(g)            Controlled Foreign Corporation .  Perion does not own any interest in any controlled foreign corporation pursuant to Section 75B of the Israel Income Tax Ordinance, or other entity the income of which is required to be included in the income of Perion.
 
 
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(h)            VAT .  Perion is duly registered for the purposes of VAT, as defined in the relevant laws concerning VAT in its country of organization, if applicable.  Perion has complied in all material respects with all laws concerning VAT, including with respect to the making on time of accurate returns and payments and the maintenance of records.  Perion has not made any exempt supplies in the current or preceding VAT year applicable to it and there are no circumstances by reason of which there might not be a full entitlement to credit for all VAT chargeable on supplies and acquisitions received and imports made (or agreed or deemed to be received or made) by it.
 
(i)            Section 102 Options .  Except as set forth in Schedule 3.10(i) of the Perion Disclosure Letter, all Perion Options which Perion has purported to grant pursuant to the "capital gain route" of Section 102(b) have been granted in compliance in all respects with the applicable requirements of Section 102(b), and the requirements of any rules or ITA policies relating to Section 102(b), including, without limitation, (i) the filing of applicable documents, applications and notices with the ITA, (ii) the appointment of an authorized trustee to hold the Perion Options pursuant to Section 102(b), and (iii) the timely deposit of such Perion Options with such trustee pursuant to the terms of Section 102(b) and guidelines published by the ITA.
 
(j)            Country of Organization .  Perion is not treated for any Tax purpose as a resident in a country other than the country of its organization and Perion has never had a branch, agency or permanent establishment in a country other than the country of its organization.
 
(k)            Restructure Limitations .  Except in connection with the Tax Ruling, Perion and, to Perion’s actual knowledge (without any inquiry), the Perion Shareholders (solely with respect to their holdings in Perion) are not subject to any restrictions or limitations pursuant to Part E2 of the Israeli Income Tax Ordinance.
 
(l)            Tax Agreements and Rulings . Except as set forth in Schedule 3.10(l) of the Perion Disclosure Letter and as contemplated under this Agreement, no closing agreements, rulings or similar agreements or rulings relating to Taxes have been entered into or issued by any Governmental Entity with or in respect of Perion. Except as set forth in Schedule 3.10(l) of the Perion Disclosure Letter, Perion has not requested or received a ruling from any Tax authority (except for the election of tax route under Section 102(b) and the Tax Ruling).  Perion has made available to Conduit and ClientConnect accurate and complete copies of any Tax ruling relating to Perion obtained from the Israeli Tax Authority and applications therefor, including with respect to Perion Options, in each case since inception.
 
(m)           Transfer Pricing .  Perion has made available to Conduit all information and documentation with respect to any related party transactions subject to Section 85A of the Israeli Income Tax Ordinance conducted by Perion.
 
(n)            Perion Tax Incentives . Schedule 3.10(n) of the Perion Disclosure Letter lists each Tax exemption, Tax holiday or other Tax reduction agreement or arrangement (" Perion Tax Incentive ") to which Perion is entitled under the laws of the State of Israel, the period for which such Perion Tax Incentive applies, and the nature of such Perion Tax Incentive.  Perion has complied in all material respects with the Legal Requirements and the relevant approvals to be entitled to claim all such Perion Tax Incentives, and to the knowledge of Perion, there is no event or other set of circumstances that might lead to the revocation or material modification of any of such Perion Tax Incentives.  Unless otherwise disclosed in Schedule 3.10(n) of the Perion Disclosure Letter, no claim or challenge has been made, in writing, by any Governmental Entity with respect to Perion's entitlement to any Perion Tax Incentive, and consummation of the transactions contemplated by this Agreement will not adversely affect the continued qualification for the Perion Tax Incentives or the terms or duration thereof or require any recapture of any previously claimed Perion Tax Incentive. Perion has provided to Conduit all documentation relating to any Perion Tax Incentive.  Perion is in compliance with the requirements for any applicable Perion Tax Incentive in all material respects.
 
 
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3.11          Employee Benefit Plans and Employee Matters .
 
(a)            Employee List .  Perion provided Conduit with a list of all current employees of Perion (" Perion Employees "), and correctly reflects: (i) their name, title and dates of hire by Perion; (ii) scope of their position (full-time, part-time or temporary status), each Perion Employee’s classification as either exempt or non exempt from the overtime requirements under any applicable law; (iii) their current monthly salary (divided into base salary and global overtime payment, if relevant) or hourly wage rate, as applicable; and (iv) any other compensation payable to them including housing allowances, compensation payable pursuant to bonus, deferred compensation or commission arrangements,  vacation entitlement and accrued vacation or paid time-off balance, travel pay or car maintenance or car entitlement, sick leave entitlement and accrual, recuperation pay entitlement and accrual, entitlement to pension arrangement and/or any other provident fund  (including manager’s insurance and education fund), their respective contribution rates and the salary basis for such contributions, whether such employee's entire salary and any additional payments that are part of the determining salary for social contributions are subject to the Section 14 Arrangement and the date from which the Section 14 Arrangement applies to them.
 
(b)           Perion is not and never was a party to any collective bargaining agreement, or other Contract or arrangement with a labor union, trade union or other organization or body representing any of the Perion Employees, or is otherwise required (under any legal requirement, under any Contract or otherwise) to provide benefits or working conditions under any of the foregoing. Perion is not and never was a member of any employers’ association or organization, and no employers’ association or organization has made any demand for payment of any kind from Perion. Except as set forth in Schedule 3.11(b) , Perion is not and never was, and no Perion Employee has benefited from any extension order ( tzavei harchava ) except for extension orders which generally apply to all employees in Israel.  To Perion's knowledge, there are no labor organizations representing or purporting to represent or seeking to represent any Perion Employees. Perion has no knowledge of any activities or proceedings of any labor union to organize any Perion Employees.  Perion is not engaged, and has never been engaged, in any unfair labor practice of any nature. Perion has not had any strike, slowdown, work stoppage, lockout, job action, labor dispute, union organizing activity or any similar activity or dispute or threat thereof, or question concerning representation, by or with respect to any of the Perion Employees.  To Perion's knowledge, no event has occurred and no condition or circumstances exists, that might directly or indirectly give rise to or provide a basis for the commencement of any such strike, slowdown, work stoppage, lockout, job action, labor dispute or union organizing activity or any similar activity or dispute now or in the future with respect to any Perion Employees.
 
(c)            Leave of Absence .  There is no Perion Employee who is not fully available to perform work because of disability or other leave (other than maternity leave) of more than 30 consecutive days   (including unpaid leave) except as detailed in Schedule 3.11(c) of the Perion Disclosure Letter.
 
(d)            At Will Employment .  Except as set forth in Schedule 3.11 ‎ 2.11(d ) of the Perion Disclosure Letter, Perion has no obligation to provide any particular form or period of notice prior to terminating the employment of any Perion Employees, except as prescribed by applicable Legal Requirements or by any relevant applicable Contract according to which the employment of each of the Perion Employees is terminable by Perion, as applicable, with no more than 30 days prior notice.  Except as set forth in Schedule 3.11(d) of the Perion Disclosure Letter, all Perion Employees and service providers (other than employees) that provide Perion with services (" Perion Consultants ") are lawfully entitled to work for Perion without restriction or any visa, Permit or consent (from any academic institution, Governmental Entity, or any other Person) being required.
 
(e)            Employee Departures/Restrictions .  To Perion's knowledge, no Perion Employee is a party to or is bound by any confidentiality agreement, noncompetition agreement or other Contract (with any Person other than Perion) that conflicts with or may have an adverse effect on: (A) the performance by such employee of any of his duties or responsibilities as an employee of Perion; or (B) the Perion Business.
 
 
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(f)             Employee Plans and Agreements .  All the Perion Employees and Perion Consultants have executed employment or consultancy agreements with Perion, accurate and complete copies of which were provided to Perion. Schedule 3.11(f) of the Perion Disclosure Letter contains an accurate and complete list of each material Perion Employee Plan and each Perion Employee Agreement and each material Contract with any Perion Consultant.  Perion does not intend nor has it committed to establish or enter into any new Perion Employee Plan or Perion Employee Agreement or any material agreement with a Perion Consultant, or to modify any material Perion Employee Plan or Perion Employee Agreement or any material agreement with a Perion Consultant (except to conform any such Perion Employee Plan or Perion Employee Agreement or any material agreement with a Perion Consultant to the requirements of any applicable Legal Requirements) other than as contemplated by this Agreement.  With respect to the Perion Employee Plan and except as set forth in Schedule 3.11(f) of the Perion Disclosure Letter: (i) there are no funded benefit obligations for which contributions have not been made and there are no unfunded benefit obligations which have not been accounted for by reserves, or otherwise properly reflected in accordance with GAAP, on the Perion Financial Statements, other than routine contribution obligations to be timely made in the normal course of business and consistent with past practice, and (ii) all reports and disclosures relating to the material Perion Employee Plan required to be filed with or furnished to any Governmental Entity have been filed or furnished in accordance with applicable law in a timely manner.
 
(g)            Delivery of Documents .  As applicable with respect to each material Perion Employee Plan (excluding any Perion Employee Plan of a type of pension arrangement and any other provident fund) and other material documents relating to the employment or engagement of the Perion Employees and Perion Consultants, including employment agreements and consulting agreements, Perion has delivered to Conduit: (i) correct and complete copies of all material documents, including a summary of each unwritten Perion Employee Plan, of each Perion Employee Agreement, Perion Consultant agreement including all amendments thereto; (ii) all material written Contracts relating to each Perion Employee and Perion Consultant, including the Perion Employee Plan, administrative service agreements, manpower contractors including their licenses and group insurance contracts; (iii) all written materials provided to any Perion Employee and Perion Consultant relating to any each Perion Employee Agreement, Perion Consultant agreement, Perion Employee Plan and any proposed Perion Employee Plans, in each case, relating to any amendments, terminations, establishments, increases or decreases in benefits, acceleration of payments or vesting schedules or other events that would result in any liability to Perion; and (iv) all material correspondence to or from any Governmental Entity relating to any Perion Employee Plan.
 
(h)            No Foreign Plans .  Except as set forth in Schedule 3.11(h) of the Perion Disclosure Letter, Perion has not established or maintained: (i) any plan, program, policy, practice, Contract or other arrangement mandated by a Governmental Entity other than Israel relating to any Perion Employees; (ii) any Perion Employee Plan that is subject to any of the Legal Requirements of any jurisdiction outside of Israel; or (iii) any Perion Employee Plan that covers or has covered Perion Employees whose services are or have been performed primarily outside of Israel.
 
(i)             Absence of Certain Retiree Liabilities .  No Perion Employee Plan provides (except at no cost to Perion), or reflects or represents any liability of Perion to provide, retiree life insurance, retiree health benefits or other retiree employee welfare benefits to any Person for any reason, except as may be required by applicable Legal Requirements, a Perion Employee Agreement or Perion Employee Plan.
 
(j)             No Defaults .  Perion has performed all material obligations required to be performed by it under each Perion Employee Plan and Perion Employee Agreement and it is not in a material default or violation of, and to the knowledge of Perion, no other party is in default or violation of, the terms of any Perion Employee Plan and Perion Employee Agreement.  Other than as set forth in Schedule 3.11(j) , each of the Perion Employee Plans has been operated and administered in all material respects in accordance with all applicable Legal Requirements.  All contributions to, and material payments from, any Perion Employee Plan which may have been required to be made in accordance with the terms of such Perion Employee Plan or applicable Legal Requirements have been fully and timely made (other than routine payments, deductions or withholdings to be timely made in the normal course of business and consistent with past practice), and all contributions for any period ending on or before the Closing Date which are not yet due, but will be paid on or prior to the Closing Date, are reflected as an accrued liability on the Perion Balance Sheet. To Perion’s knowledge, there are no audits, inquiries or Legal Proceedings pending or threatened by any Governmental Entity with respect to any Perion Employee Plan.
 
 
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(k)            No Conflict .  Except as set forth in Schedule 3.11(k) of the Perion Disclosure Letter or as provided for in this Agreement, neither the execution, delivery or performance of this Agreement, nor the consummation of the transactions contemplated hereunder, will or may (either alone or upon the occurrence of any additional or subsequent events): (i) constitute an event under any Perion Employee Plan, Perion Employee Agreement, Perion Consultant agreement, that will or may result (either alone or in connection with any other circumstance or event) in any payment (whether of severance pay or otherwise), acceleration, forgiveness of Indebtedness, vesting, distribution, increase in benefits or obligation to fund benefits with respect to any Perion Employee or Perion Consultant; (ii) create or otherwise result in any Liability with respect to any Perion Employee Plan; or (iii) result in any obligation by Perion to pay any directors, officers, Perion Employees, Perion Consultants of Perion or Perion severance pay or termination, retention or any other benefits or payments.
 
(l)             Compliance .  Except as set forth in Schedule 3.11(l) of the Perion Disclosure Letter, Perion: (i) has been and is currently in compliance in all material respects with all applicable Legal Requirements, Employee Contacts, Consultants Contracts and orders, rulings, decrees, judgments or arbitration awards of any arbitrator or any court or other Governmental Entity respecting employment, terms and conditions of employment and termination thereof, or other labor-related matters with respect to the Perion Employees, Perion Consultants, including Legal Requirements, orders, rulings, decrees, judgments and awards relating to discrimination, wages, maximum hours of work, overtime, sick leave, annual leave, prior notice, severance payment, notice to employees, labor relations and termination of them, engagement with independent contractors, service providers, classification of Perion Employees and Perion Consultants, enforcement of labor laws, leave of absence requirements, privacy, harassment, occupational safety and health, employee whistle-blowing, retaliation, immigration, contribution to managers’ insurance policy or pension plan, social benefits, wrongful discharge of Perion Employees or prospective Perion Employees; and (ii) has timely withheld and reported all amounts required by any Legal Requirement or Contract or Perion Employee Plan to be withheld and reported with respect to wages, salaries bonus benefits, commission, and other payments to any Perion Employee, including as required by the Israeli Income Tax Ordinance, as amended, and the rules and regulations promulgated thereunder, and the National Insurance Law of Israel or otherwise.
 
(m)            Labor Relations .  Perion has good labor relations, and, except as set forth in Schedule 3.11(m) of the Perion Disclosure Letter, to Perion’s knowledge (i) there are no facts indicating that the consummation of the Transactions will have a Material Adverse Effect adverse effect on the labor relations of Perion, and (ii) no Perion Employees or Perion Consultants have notified Perion of his or her intention to terminate his or her employment or engagement with Perion.
 
(n)            Perion Consultants .   Schedule 3.11(n) of the Perion Disclosure Letter accurately sets forth, with respect to each current Perion Consultant providing services of the nature of "personal services" directly or via an entity the name of such Perion Consultant, title, and the date as of which such Perion Consultant was originally engaged by Perion. Except as set forth on Schedule 3.11(n) of the Perion Disclosure Letter all Perion Consultants and former Perion Consultants are and were rightly classified as independent contractors and would not reasonably be expected to be misclassified by the courts or any other authority as employees of Perion. No Perion Consultant is entitled to any rights under the applicable labor laws, including rights to severance pay, vacation, recuperation pay ( dmei havraa ) and other employee-related statutory and contractual benefits.  All Perion Consultants have received all their rights to which they are entitled to according to any applicable law or agreement with Perion. Except as set forth in Schedule 3.11(n) of the Perion Disclosure Letter, each current Perion Consultant’s agreement or engagement with Perion can be terminated immediately and with no more than 30 days prior notice. Except as set forth in Schedule 3.11(n) of the Perion Disclosure Letter, Perion does not engage manpower employees.
 
 
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(o)            Labor-Related Claims . Except as set forth in Schedule 3.11(o) of the Perion Disclosure Letter, there is no Legal Proceeding, claim, labor dispute or grievance pending or, to Perion knowledge,  threatened, in writing, relating to (i) any terms of employment, employment Contract with Perion Employees, service agreement with current Perion Consultants or similar Contract, compensation, wages and hours, working during overtime hours, leave of absence, plant closing notification, employment statute, rightly classified as independent contractors or regulation, privacy right, labor dispute, workers’ compensation policy, long-term disability policy, social benefits, termination of employment, termination of engagement, safety, retaliation, immigration or discrimination matter involving any Perion Employee or Perion Consultant, including charges of unfair labor practices or harassment complaints or any other labor related issue, or (ii) any of the Perion Employee Plans.
 
(p)           Except as set forth in Schedule 3.11(p) of Perion Disclosure Letter, there are no unwritten policies, practices or customs of Perion that are material or that entitle any Perion Employee or Perion Consultant to benefits which are reasonably expected to result in annual cash payments of more than $10,000 or any payment of Perion Share Capital, in addition to what such Perion Employee or Perion Consultant is entitled to by applicable law or under the terms of such Perion Employee's employment agreement, or Perion Consultant's engagement agreement or any other binding source (including unwritten customs or practices, including concerning bonuses, the payment of statutory severance pay when it is not required under applicable law).
 
3.12          Interested Party Transactions .
 
(a)           Except as set forth on Schedule 3.12(a) of the Perion Disclosure Letter, Perion is not indebted to any current or former director, officer, employee, consultant, shareholder or related party of Perion (except for current amounts due as normal salaries and bonuses and in reimbursement of ordinary business expenses of Perion Employees), and no such Person is indebted to Perion.
 
(b)           To Perion's knowledge, no officer, director or shareholder of Perion owns or holds, directly or indirectly, any interest in (excepting holdings solely for passive investment purposes of securities of publicly held and traded entities constituting less than five percent (5%) of the equity of any such entity), or is an officer, director, employee or consultant of, any Person that is a competitor, lessor, lessee, customer or supplier of Perion or which conducts a business similar to any business conducted by Perion.
 
(c)           All transactions between Perion and interested parties that require approval pursuant to Sections 268 to 284 of the Companies Law or pursuant to the Perion Charter Documents have been approved or ratified in accordance with such requirements.
 
3.13          Insurance .  Perion maintains the policies of insurance and bonds set forth in Schedule 3.13 of the Perion Disclosure Letter, including all legally required insurance to carry out the Perion Business, including workers’ compensation insurance and errors and omissions, casualty, fire and general liability insurance.   Schedule 3.13 of the Perion Disclosure Letter sets forth the name of the insurer under each such policy and bond and the type of policy or bond, as well as all claims made in respect to the Perion Business under any insurance policies and bonds since January 1, 2010, including all pending claims.  Perion has provided to Conduit’s counsel correct and complete copies of all such policies of insurance and bonds issued at the request or for the benefit of Perion in respect to Perion.  There is no claim pending under any of such policies or bonds as to which coverage has been questioned, denied or disputed by the underwriters of such policies or bonds.  All premiums due and payable under all such policies and bonds have been timely paid and Perion is otherwise in compliance with the terms of such policies and bonds.  All such policies and bonds remain in full force and effect, and Perion has no knowledge of any threatened termination of, or material premium increase with respect to, any of such policies.
 
 
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3.14          Books and Records . The minute books of Perion provided to Conduit contain a complete and accurate summary, in all material respects, of all meetings of directors and Perion Shareholders or actions by written consent since January 1, 2011 through the date of this Agreement.  The books, records and accounts of Perion (i) are true, correct and complete in all material respects, (ii) have been maintained in accordance with reasonable business practices on a basis consistent with prior years, and (iii) are stated in reasonable detail and accurately and fairly reflect, in all material respects, all of the transactions and dispositions of the assets and properties of Perion.
 
3.15          Perion Material Contracts .
 
(a)            Schedules 3.15(a)(i) through (a)(xviii) of the Perion Disclosure Letter set forth a list of each of the following Contracts to which Perion is a party (" Perion Material Contracts "):
 
(i)             any Contract providing for payments to Perion in an aggregate amount of $2,000,000 or more per year;
 
any Contract providing for payments by Perion in an aggregate amount of $1,000,000 or more per year;
 
(ii)            any dealer, distributor or similar agreement, or any Contract providing for the grant of rights to reproduce, license, market or sell its products or services to any other Person or relating to the advertising or promotion of Perion or pursuant to which any third parties advertise on any websites operated by Perion providing for payments to or by Perion annually in an aggregate amount of $2,000,000 or more (in case of payments to Perion) or $1,000,000 (in case of payments by Perion);
 
(iii)           (1) any joint venture Contract, (2) any Contract that involves a sharing of revenues, profits, cash flows, expenses or losses with other Persons in an aggregate amount of $2,000,000 or more per year, (3) any Contract that involves the payment of royalties to any other Person in an aggregate amount of $2,000,000 or more per year or (4) any Contract between Perion and a Subsidiary of Perion;
 
(iv)           any Contract for or relating to the employment of any Perion Key Employee;
 
(v)            any agreement pursuant to which any other party is granted exclusive rights or "most favored party" rights of any type or scope with respect to any of the Perion Products or Perion Owned Intellectual Property, or containing any non-competition covenants or other material restrictions relating to the Perion Products or Perion Owned Intellectual Property; or materially limits the freedom of Perion to engage or participate, or compete with any other Person, in any line of business, market or geographic area with respect to the Perion Products or Perion Owned Intellectual Property, or to make use of any Perion Owned Intellectual Property Rights or any other Contract pursuant to which Perion has agreed to transfer or sell rights in or with respect to any Perion Owned Intellectual Property Rights;
 
(vi)           other than "shrink wrap" and similar generally available commercial end-user licenses to software that have an individual acquisition cost of $200,000 per year or less, all licenses, sublicenses and other Contracts to which Perion is a party and pursuant to which Perion acquired, or is authorized to use, any Third Party Intellectual Property rights used in the development, marketing or licensing of the Perion Products;
 
 
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(vii)          any license, sublicense or other Contract to which Perion is a party and pursuant to which any Person is authorized to use any Perion Owned Intellectual Property Rights providing for payments by or to Perion in an aggregate amount of $2,000,000 (in case of payments to Perion) or $1,000,000 (in case of payments by Perion) or more per year;
 
(viii)         any Contracts relating to the membership of, or participation by, Perion in, or the affiliation of Perion with, any industry standards group or association;
 
(ix)           any material Contract providing for the development of any of the software, technology or Intellectual Property Rights, independently or jointly, either by or for Perion (other than employee invention assignment agreements and consulting agreements with Authors on Perion’s standard form of agreement, copies of which have been provided to Conduit’s counsel);
 
(x)            any Contract to license or authorize any third party to manufacture or reproduce any of the Perion Products or Perion Owned Intellectual Property providing for payments by or to Perion in an aggregate amount of $200,000 or more per year;
 
(xi)           any agreement containing any support, maintenance or service obligation or cost on the part of Perion providing for payments by Perion annually in an aggregate amount of $200,000 or more;
 
(xii)          any settlement agreement providing for payments to or by Perion in an aggregate amount of $100,000 or more;
 
(xiii)         any Contract pursuant to which rights of any third party are triggered or become exercisable, or under which any other consequence, result or effect arises, in connection with or as a result of the execution of this Agreement or the consummation of the Share Purchase or other transactions contemplated hereunder, either alone or in combination with any other event;
 
(xiv)         any Perion Product warranty providing for payments to or by Perion, annually in an aggregate amount of $200,000 or more;
 
(xv)          any Contract or plan (including any stock option, merger and/or stock bonus plan) relating to the sale, issuance, grant, exercise, award, purchase, repurchase or redemption of any shares of Perion Share Capital or any other securities of Perion or any options, warrants, convertible notes or other rights to purchase or otherwise acquire any such shares of stock, other securities or options, warrants or other rights therefor;
 
(xvi)         any Contract with any labor union or any collective bargaining agreement or similar contract with any Perion Employees; and
 
(xvii)        any Contract with any Governmental Entity, any Perion Authorization, or any Government Contract with respect to Perion;
 
(b)           Perion has performed all of the obligations required to be performed by it in all material respects and is entitled to all benefits under, and to Perion's knowledge, is not alleged to be in default in respect of, any Perion Material Contract.  Each of the Perion Material Contracts is in full force and effect, subject only to the effect, if any, of applicable bankruptcy and other similar laws affecting the rights of creditors generally and rules of law governing specific performance, injunctive relief and other equitable remedies.  To Perion's knowledge, there exists no default or event of default or event, occurrence, act or condition, with respect to Perion or with respect to any other contracting party, which, with the giving of notice, the lapse of time or the happening of any other event or condition, would reasonably be expected to (i) become a default or event of material default under any Perion Material Contract or (ii) give any third party (A) the right to declare a default or exercise any remedy under any Perion Material Contract, (B) the right to a rebate, chargeback, refund, credit, penalty or change in delivery schedule under any Perion Material Contract, (C) the right to accelerate the maturity or performance of any obligation of Perion under any Perion Material Contract, or (D) the right to cancel, terminate or modify any Perion Material Contract.  Perion has not received any notice or other communication regarding any actual or possible violation or breach of, default under, or intention to cancel or modify any Perion Material Contract. Perion does not have any Liability for renegotiation of Government Contracts.  Correct and complete copies of all Perion Material Contracts have been provided to Perion prior to the Agreement Date.
 
 
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3.16          Absence of Certain Changes .  During the period between June 30, 2013 and the Agreement Date, Perion has conducted its business only in the ordinary course  consistent with past practice and except as set forth in Schedule 3.16 of the Disclosure Letter:
 
(a)           there has not occurred a Material Adverse Effect with respect to Perion;
 
(b)           Perion has not made or entered into any Contract or letter of intent with respect to any acquisition, sale or transfer of any asset of Perion (other than the sale or nonexclusive license of Perion Products to its customers in the ordinary course of its business consistent with its past practice);
 
(c)           except as required by GAAP, there has not occurred any change in accounting methods or practices (including any change in depreciation or amortization policies or rates or revenue recognition policies) by Perion or any revaluation by Perion of any of its assets;
 
(d)           there has not occurred any declaration, setting aside, or payment of a dividend or other distribution with respect to any securities of Perion, or any direct or indirect redemption, purchase or other acquisition by Perion of any of its securities, or any change in any rights, preferences, privileges or restrictions of any of its outstanding securities;
 
(e)           there has not occurred any amendment or change to the Perion Charter Documents or other equivalent organizational or governing documents of Perion;
 
(f)            there has not occurred any increase by more than 20% which results in an increase of at least $3,000 per month in or modification of the compensation or benefits payable or to become payable by Perion to any Perion Employees or Perion Consultants by more than 20% which results in an increase of at least $3,000 per month, any material modification of any nonqualified deferred compensation plan, or any new loans or extension of existing loans to any such Persons (other than routine expense advances to employees of Perion consistent with past practice), and Perion has not entered into any Contract to grant or provide (nor has granted any) severance, acceleration of vesting or other similar benefits to any such Persons;
 
(g)           there has not occurred any change in title, office or position, or reduction in the responsibilities of, or change in identity with respect to the management, supervisory or other key personnel of Perion other than in the ordinary course of business, any termination of employment of any such employees, or any labor dispute or claim of unfair labor practices involving Perion;
 
(h)           Perion has not incurred, created or assumed any Encumbrance (other than a Permitted Encumbrance) on any of the assets or properties of the Perion Business, any Liability for borrowed money or any Liability as guaranty or surety with respect to the obligations of any other Person in the amount exceeding $200,000, in each case relating to the Perion Business;
 
(i)            Perion has not paid or discharged any Encumbrance or Liability in an amount exceeding $200,000, which was not shown on the Perion Balance Sheet or incurred in the ordinary course of business consistent with past practice;
 
 
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(j)            Perion has not incurred any Liability to its directors, officers or shareholders (other than Liabilities to pay compensation or benefits in connection with services rendered in the ordinary course of business, consistent with past practice);
 
(k)           Perion has not made any deferral of the payment of any accounts payable in the amount exceeding $200,000, other than in the ordinary course of business, consistent with past practice, or given any discount, accommodation or other concession other than in the ordinary course of business, consistent with past practice, in order to accelerate or induce the collection of any receivable;
 
(l)            Perion has not made any material change in the manner in which it extends discounts, credits or warranties to customers or otherwise deals with its customers;
 
(m)          there has been no material damage, destruction or loss, whether or not covered by insurance, affecting the assets, properties or business of Perion;
 
(n)           Perion has not sold, disposed of, transferred or licensed to any Person any rights to any Perion Owned Intellectual Property (other than in the ordinary course of business consistent with past practice), or has transferred or provided a copy of any Perion Source Code to any Person; and
 
(o)           there has not occurred any announcement of, any negotiation by or any entry into any Contract by Perion to do any of the things described in the preceding clauses (a) through (p) (other than negotiations and agreements with Conduit and their Representatives regarding the transactions contemplated by this Agreement).
 
3.17          Transaction Fees .  No broker, finder or investment banker is entitled to any brokerage, finder’s or other fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of Perion or its Affiliates. Schedule 3.17 of the Perion Disclosure Letter lists in reasonable detail a good faith estimate of all of the Transaction Expenses of Perion, including without limitation all legal, accounting, tax and banking fees and expenses incurred and expected to be incurred by Closing.
 
3.18          Environmental Matters .
 
(a)           Except in compliance with Environmental Laws and in a manner that could not reasonably be expected to subject Perion to any material Liability, to Perion’s knowledge, no Hazardous Materials are present on any real property currently owned, operated, occupied, controlled or leased by Perion.  There are no aboveground or underground storage tanks or asbestos present on or under any leased real property.
 
(b)           To Perion's knowledge, Perion has conducted all Hazardous Material Activities relating to the Perion Business in compliance in all material respects with all applicable Environmental Laws.  Perion has not exposed the Perion Employees to Hazardous Materials in violation of any applicable law or in a manner that would result in any material Liability.
 
(c)           Perion has not, and it is not required to have, any permits pursuant to Environmental Laws in connection with the Perion Business.
 
 
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3.19          Propriety of Past Payments .  To Perion's knowledge, no unrecorded fund or asset of Perion has been established for any purpose, (a) no accumulation or use of corporate funds of Perion has been made without being properly accounted for in the books and records of Perion, (b) no payment has been made by or on behalf of Perion with the understanding that any part of such payment is to be used for any purpose other than that described in the documents supporting such payment and (c) none of Perion, and to Perion's knowledge, any director, officer, employee or agent of Perion or any other Person for whom Perion may be responsible under applicable Legal Requirements or acting for or on behalf of Perion has, directly or indirectly, made any illegal contribution, gift, bribe, rebate, payoff, influence payment, kickback or other payment to any Person, private or public, regardless of form, whether in money, property or services, (i) to obtain favorable treatment for Perion or any shareholder or affiliate of Perion in securing business, (ii) to pay for favorable treatment for business secured for Perion or any shareholder or affiliate of Perion, (iii) to obtain special concessions, or for special concessions already obtained, for or in respect of Perion or any shareholder or affiliate of Perion or (iv) otherwise for the benefit of Perion or any shareholder or affiliate of Perion in violation of any U.S. federal, state, local, municipal, non-U.S., international, multinational or other Legal Requirement.  None of Perion or to Perion’s knowledge, any current director, officer, agent, employee or other Person acting on behalf of Perion, has used funds for unlawful contributions, gifts, entertainment or other unlawful expenses related to political activity or accepted or received any unlawful contribution, payment, gift, kickback, expenditure or other item of value.  Perion is in compliance in all material respects with all material statutory and regulatory provisions under the Foreign Corrupt Practices Act (15 U.S.C. §§78dd-1 et seq.) and international anti-bribery conventions and local anti-corruption and anti-bribery Legal Requirements in each jurisdiction in which Perion does business (including, but not limited to, laws based on the Anti-Bribery Convention of the Organization for Economic Co-operation and Development, the UK Bribery Act of 2010, Title 5 of the Israeli Penalty Law (Bribery Transactions) and the Israeli Prohibition on Money Laundering Law – 2000.
 
3.20          Resignation Letters . Perion has obtained from each of the Resigning Perion Directors irrevocable letters of resignation, in a form acceptable to Conduit, stating that resignation of each such Resigning Perion Directors as a member of the Perion Board shall become effective no later than immediately prior to the Closing without any additional act or notice on their behalf.
 
3.21          Representations Complete .  None of the representations or warranties made by Perion herein or in any exhibit or schedule hereto, including the Perion Disclosure Letter, or in any certificate furnished by Perion pursuant to this Agreement, when all such documents are read together in their entirety, contains any untrue statement of fact, or omits to state any fact necessary in order to make the statements contained herein or therein, in the light of the circumstances under which made, not misleading.
 
3.22          No Other Representations . Except for the representations and warranties expressly and specifically made by Perion in this Agreement or certificates delivered by Perion pursuant to this Agreement, Perion does not make any express or implied representation or warranty, and Perion hereby disclaims all other representations and warranties of any kind or nature, express or implied.
 
ARTICLE 4
Conduct Prior to the Closing
 
4.1            Conduct of Business .  During the period from the Agreement Date and continuing until the earlier of the termination of this Agreement and the Closing (except to the extent expressly provided otherwise in this Agreement, in the Split Agreement , as required by applicable Legal Requirements or as consented to in writing by the other Parties, which consent shall not be unreasonably withheld or delayed):
 
(a)           each of Perion and each of its Subsidiaries, Conduit (solely with respect to the ClientConnect Business) and ClientConnect and each of ClientConnect's Subsidiaries shall conduct its respective business, in all material respects   in the usual, regular and ordinary course consistent with past practice; and
 
 
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(b)           to the extent consistent with the Section ‎ 4.1 ‎ (a), each of Perion and each of its Subsidiaries, Conduit (solely with respect to the ClientConnect Business) and ClientConnect and each of ClientConnect's Subsidiaries shall use commercially reasonable efforts consistent with past practice to (A) pay and perform all of its debts and other obligations (including Taxes) when due, (B) collect accounts receivable when due and not extend credit outside of the ordinary course of business, (C) sell its products in all material respects consistent with past practices as to license, service and maintenance terms, incentive programs, and revenue recognition; and (D) keep available the services of its present officers and key employees and preserve its relationships with customers, suppliers, distributors, licensors, licensees, and others having business dealings with it provided, however, that no action by Perion, ClientConnect or Conduit with respect to matters specifically permitted in specific provisions of Section ‎ 4.2 or 4.3 shall be deemed a breach of this Section ‎ 4.1 unless such action would constitute a breach of such specific provision of Section ‎ 4.2 or 4.3; and
 
(c)           each of Perion, Conduit (solely with respect to the ClientConnect Business) and ClientConnect shall promptly notify the other Parties of any change, occurrence or event not in the ordinary course of business, or of any change, occurrence or event which, in each case, individually or in the aggregate with any other changes, occurrences and events, would reasonably be expected to be materially adverse to such Party or cause any of the conditions to closing set forth in ‎ ARTICLE 6 not to be satisfied.
 
4.2            Restrictions on Conduct of Business of Conduit and ClientConnect . Without limiting the generality or effect of the provisions of Section ‎ 4.1 , except as set forth on Schedule ‎ 4.2 of the ClientConnect Disclosure Letter, during the period from the Agreement Date and continuing until the earlier of the termination of this Agreement and the Closing, each of Conduit (solely with respect to the ClientConnect Business) and ClientConnect and each of ClientConnect's Subsidiaries shall not do, cause or permit any of the following (except to the extent expressly provided otherwise in this Agreement, in the Split Agreement, as required by applicable Legal Requirements or as consented to in writing by Perion, which consent shall not be unreasonably withheld):
 
(a)            Charter Documents . Cause or permit any amendments to the ClientConnect Charter Documents or equivalent organizational or governing documents of any Subsidiary of ClientConnect, except as set forth in this Agreement or the Split Agreement ;
 
(b)            Changes in Share Capital .  Make any stock distributions in respect of any of its share capital, or split, combine or reclassify any of its share capital or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for shares of its share capital, except for exercise of outstanding options, including as set forth in the Split Agreement and except that the Split may be effected in accordance with the Split Agreement;
 
(c)            ClientConnect Material Contracts . Enter into any Contract that would constitute a ClientConnect Material Contract, or violate, terminate, amend, or otherwise modify (including by entering into a new Contract with such party or otherwise) or waive any of the material terms of any of its ClientConnect Material Contracts, in each case, other than in the ordinary course of business; provided, however, that neither Conduit nor ClientConnect shall violate, terminate, amend, or otherwise modify (including by entering into a new Contract with such party or otherwise) or waive any of the material terms of any Contract with a search engine provider;
 
(d)            Issuance of Securities .  Issue, deliver or sell or authorize or propose the issuance, delivery or sale of, or purchase or propose the purchase of, any shares of ClientConnect Share Capital or securities convertible into, or subscriptions, rights, warrants or options to acquire, or other Contracts of any character obligating it to issue any such shares or other convertible securities, and issue Conduit Options to any ClientConnect Employee other than in the ordinary course of business, in each case other than the issuance of ClientConnect Shares to the ClientConnect Shareholders in accordance with their Conduit Ordinary Shares and the issuance of the ClientConnect Options in exchange for Conduit Options, all pursuant to the Split and the Split Agreement;
 
 
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(e)            Employee Matters . (i) Hire any officers of the ClientConnect Business on the level of vice president or above or (ii) enter into any Contract with a labor union or collective bargaining agreement;
 
(f)             Loans and Investments .  Solely with respect to ClientConnect and its Subsidiaries, make any loans or advances (other than routine expense advances to employees consistent with past practice) to, or any investments in or capital contributions to, any Person, or forgive or discharge in whole or in part any outstanding loans or advances, or prepay any Indebtedness for borrowed money;
 
(g)            Intellectual Property .  Transfer or license from any Person any rights to any ClientConnect Owned Intellectual Property, other than in the ordinary course of business consistent with past practice, or transfer or grant an exclusive license to any Person any rights to any ClientConnect Owned Intellectual Property, or transfer or provide a copy of any ClientConnect Source Code to any Person (other than providing access to ClientConnect Source Code to current ClientConnect Employees and ClientConnect Consultants on a need to know basis, consistent with past practices);
 
(h)            Patents .  Take any action regarding a patent included in the ClientConnect Owned Intellectual Property, other than filing continuations for existing patent applications or completing or renewing registrations of existing patents in the ordinary course of business;
 
(i)             Dispositions .  Sell, lease, license or otherwise dispose of any of its properties or assets, or enter into any Contract with respect to the foregoing, other than sales, leases, nonexclusive licenses or other dispositions of products and services in the ordinary course of business consistent with past practice;
 
(j)             Indebtedness .  Solely with respect to ClientConnect and its Subsidiaries, incur any Indebtedness for borrowed money or guarantee any such Indebtedness;
 
(k)            Capital Expenditures .  Solely with respect to ClientConnect and its Subsidiaries, incur or make any capital expenditures, capital additions or capital improvements, other than in the ordinary course of business and not exceeding $2,000,000;
 
(l)             Insurance .  Materially change the amount of any insurance coverage (other than, with respect to Conduit, directors and officers liability insurance);
 
(m)            Bonuses . Except in each case as required pursuant to this Agreement, the Split Agreement and under applicable Legal Requirements, pay or accrue any special bonus or special remuneration outside the ordinary course of business to any of the employees listed in Schedule 4.2(m) hereto (the “ ClientConnect Key Employees ”);
 
(n)            Lawsuits; Settlements .  (i) Commence a lawsuit primarily in connection with the ClientConnect Business other than (A) for the routine collection of bills, (B) in such cases where Conduit or ClientConnect in good faith determines that failure to commence suit would result in the material impairment of a valuable aspect of its business or the ClientConnect Business (provided that it consults with Perion prior to the filing of such a suit), or (C) for a breach of this Agreement or (ii) settle or agree to settle any lawsuit set forth in Schedule 2.5 of ClientConnect Disclosure Letter in an amount greater than $2,000,000;
 
(o)            Acquisitions .  Acquire or agree to acquire by merging or consolidating with, or by purchasing a substantial portion of the assets of, or by any other manner, any business or any corporation, partnership, association or other business organization or division thereof, or otherwise acquire or agree to acquire any assets which are material, individually or in the aggregate, to the ClientConnect Business, or enter into any Contract primarily in connection with the ClientConnect Business, with respect to a joint venture, strategic alliance or partnership, other than in the ordinary course of business consistent with past practice;
 
 
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(p)            Real Property .  Enter into any agreement for the purchase, sale or, solely with respect to ClientConnect or the ClientConnect Business, lease of any real property;
 
(q)            Encumbrances .  Other than in the ordinary course of business consistent with past practice, place or allow the creation of any Encumbrance (other than a Permitted Encumbrance) on any of its properties primarily used for the ClientConnect Business;
 
(r)             Warranties, Discounts .  Change the manner in which it provides warranties, discounts or credits to customers of the ClientConnect Business;
 
(s)            Interested Party Transactions .  Solely with respect to ClientConnect and the ClientConnect Business, enter into any Contract in which any officer or director of Conduit or ClientConnect or ClientConnect Shareholder (or any member of their immediate families) has a personal interest;
 
(t)             Split Agreement . Amend the Split Agreement or waive any rights thereunder on behalf of ClientConnect; and
 
(u)            Other .  Agree, resolve or commit to do any of the actions described in clauses (a) through (t) in this Section ‎ 4.2 .
 
4.3            Restrictions on Conduct of Business of Perion . Without limiting the generality or effect of the provisions of Section ‎ 4.1 , except as set forth on Schedule 4.3 of the Perion Disclosure Letter, during the period from the Agreement Date and continuing until the earlier of the termination of this Agreement and the Closing, Perion shall not, and shall cause its Subsidiaries to not, do, cause or permit any of the following (except to the extent expressly provided otherwise in this Agreement, as required by any Legal Requirement or as consented to in writing by Conduit, which consent shall not be unreasonably withheld):
 
(a)            Charter Documents . Cause or permit any amendments to the Perion Charter Documents or equivalent organizational or governing documents, except as set forth in this Agreement;
 
(b)            Dividends; Changes in Share Capital .  Declare or pay any dividends on or make any other distributions (whether in cash, stock or property) in respect of any of its share capital, or split, combine or reclassify any of its share capital or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for shares of its share capital except for exercise of outstanding options, or repurchase or otherwise acquire, directly or indirectly, any shares of its share capital except from former employees, non-employee directors and consultants in accordance with agreements providing for the repurchase of shares in connection with any termination of service;
 
(c)            Perion Material Contracts . Enter into any Contract that would constitute a Perion Material Contract, or violate, terminate, amend, or otherwise modify (including by entering into a new Contract with such party or otherwise) or waive any of the material terms of any of its Perion Material Contracts, other than in the ordinary course of business; provided, however, that Perion shall not violate, terminate, amend, or otherwise modify (including by entering into a new Contract with such party or otherwise) or waive any of the material terms of any Contract with a search engine provider;
 
(d)            Issuance of Securities .  Issue, deliver or sell or authorize or propose the issuance, delivery or sale of, or purchase or propose the purchase of, any shares of Perion Share Capital or securities convertible into, or subscriptions, rights, warrants or options to acquire, or other Contracts of any character obligating it to issue any such shares or other convertible securities, other than (i) the grant of awards under the Perion Employee Plan in the ordinary course of business and (ii) the issuance of Perion Shares pursuant to the exercise of awards under the Perion Employee Plan;
 
 
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(e)            Employee Matters . (i) Hire any officers on the level of vice president or above or (ii) enter into any Contract with a labor union or collective bargaining agreement;
 
(f)             Loans and Investments .  Make any loans or advances (other than routine expense advances to employees consistent with past practice) to, or any investments in or capital contributions to, any Person, or forgive or discharge in whole or in part any outstanding loans or advances, or prepay any Indebtedness for borrowed money;
 
(g)            Intellectual Property .  Transfer or license from any Person any rights to any Intellectual Property, other than in the ordinary course of business consistent with past practice, or transfer or license to any Person any rights to any Perion Intellectual Property, or transfer or provide a copy of any Perion Source Code to any Person (including any current or former employee or consultant of Perion or any contractor or commercial partner of Perion) (other than providing access to Perion Source Code to current Perion Employees and Perion Consultants involved in the development of the Perion Products on a need to know basis, consistent with past practices);
 
(h)            Patents .  Take any action regarding a patent, patent application or other Intellectual Property right, other than filing continuations for existing patent applications or completing or renewing registrations of existing patents, domain names, trademarks or service marks in the ordinary course of business consistent with past practice;
 
(i)             Dispositions .  Sell, lease, license or otherwise dispose of any of its properties or assets, or enter into any Contract with respect to the foregoing, other than sales and nonexclusive licenses of products in the ordinary course of business consistent with its past practice;
 
(j)             Indebtedness .  Incur any Indebtedness for borrowed money or guarantee any such Indebtedness;
 
(k)            Capital Expenditures .  Incur or make any capital expenditures, capital additions or capital improvements, other than in the ordinary course of business and not exceeding $500,000;
 
(l)             Insurance .  Materially change the amount of any insurance coverage other than as set forth in Section ‎ 5.18;
 
(m)           Perion Employee Plans; Bonuses . Except as required pursuant to this Agreement or  under applicable Legal Requirements, adopt or amend any Perion Employee Plan or pay or accrue any special bonus or special remuneration outside the ordinary course of business to any of the employees listed on Schedule 4.3(m) hereto (the “ Perion Key Employees ”);
 
(n)            Lawsuits; Settlements .  (i) Commence a lawsuit other than (A) for the routine collection of bills, (B) in such cases where Perion in good faith determines that failure to commence suit would result in the material impairment of a valuable aspect of its business (provided that it consults with Conduit prior to the filing of such a suit), or (C) for a breach of this Agreement or (ii) settle or agree to settle any pending or threatened lawsuit or other dispute in an amount greater than $250,000;
 
(o)            Acquisitions .  Acquire or agree to acquire by merging or consolidating with, or by purchasing a substantial portion of the assets of, or by any other manner, any business or any corporation, partnership, association or other business organization or division thereof, or otherwise acquire or agree to acquire any assets, or enter into any Contract with respect to a joint venture, strategic alliance or partnership;
 
 
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(p)            Real Property .  Enter into any agreement for the purchase, sale or lease of any real property;
 
(q)            Encumbrances .  Other than in the ordinary course of business consistent with past practice, place or allow the creation of any Encumbrance (other than a Permitted Encumbrance) on any of its properties;
 
(r)            Warranties, Discounts .  Change the manner in which it provides warranties, discounts or credits to customers;
 
(s)            Interested Party Transactions .  Enter into any Contract in which any officer or director (or any member of their immediate families) has a personal interest; and
 
(t)            Other .  Agree, resolve or commit to do any of the actions described in clauses (a) through (s) in this Section ‎ 4.2.
 
4.4            Notices of Certain Events . During the period from the Agreement Date and continuing until the earlier of the termination of this Agreement and the Closing, Conduit and ClientConnect shall promptly notify Perion, and Perion shall promptly notify Conduit and ClientConnect of:
 
(a)           any notice or other communication from any Person alleging that the consent of such Person is or may be required in connection with the Split, the Share Purchase or this Agreement;
 
(b)           any notice or other communication from any Governmental Entity (i) delivered in connection with the Split, the Split Agreement, the Share Purchase or this Agreement or (ii) indicating that a license or authorization is revoked or about to be revoked or that a license or authorization is required in any jurisdiction in which one has not been obtained, which revocation or failure to obtain has had or would reasonably be expected to be material to the ClientConnect Business (with respect to Conduit), ClientConnect or Perion, as the case may be;
 
(c)           any actions, suits, claims, investigations or proceedings commenced or, to their respective knowledge, threatened against, relating to or involving or otherwise affecting the ClientConnect Business (with respect to Conduit), ClientConnect or Perion, as the case may be, that, if pending on the date of this Agreement, would have been required to have been disclosed pursuant to the Agreement, as the case may be, or that relate to the consummation of the Split or the Share Purchase;
 
(d)           any inaccuracy in or breach of any of their respective representations, warranties or covenants contained in this Agreement;
 
(e)           any breach of any material covenant or obligation of the relevant Party;
 
(f)            any event, condition, fact or circumstance that occurs, arises or exists after the Agreement Date and that causes or constitutes, or could reasonably be seen as likely to cause or constitute, an inaccuracy in or breach of any representation or warranty made by the relevant Party in this Agreement; and
 
(g)           any event, condition, fact or circumstance that would make the timely satisfaction of any of the conditions set forth in ‎ ARTICLE 6 impossible or unlikely.
 
 
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4.5            No Control of Other Party's Business .  Nothing contained in this Agreement is intended to give Perion, directly or indirectly, the right to control or direct the operation of either Conduit or ClientConnect or the ClientConnect Business prior to the Closing, and to give Conduit, directly or indirectly, the right to control or direct Perion's operations. Prior to the Closing, each of Conduit, ClientConnect and Perion shall exercise, consistent with the terms and conditions of this Agreement, complete control and supervision over its and its Subsidiaries’ respective operations.
 
ARTICLE 5
Additional Agreements
 
5.1            Matters Pertaining to the Share Purchase Consideration .
 
(a)            Securities Act Exemption .  Perion and Conduit intend that the issuance of the Perion Shares in connection with the Share Purchase will be exempt from registration under the Securities Act by reason of Section 3(a)(10) thereof in reliance on the Court Approval.  The parties acknowledge that the effect of such exemption is that (i) the Perion Shares issued pursuant to this Agreement to and held by Persons who are not "affiliates" of Perion or Conduit for purposes of Rule 144 under the Securities Act are not subject to restrictions on resale arising under U.S. securities laws and (ii) the Perion Shares issued pursuant to this Agreement to and held by Persons who are "affiliates" of Perion for purposes of Rule 144 under the Securities Act may be resold in reliance upon Rule 144 under the Securities Act, in each case, subject to Section 5.1(b).
 
(b)            Lock-up Arrangements .  Any transfer of Perion Shares comprising the Share Purchase Consideration must comply with the applicable lock-up arrangements set forth in Schedule 5.1(b) hereto (the " Lock-up Arrangements ").  At the Closing, Perion will provide irrevocable instructions to its U.S. transfer agent to issue the applicable number of Perion Shares comprising the Share Purchase Consideration in the names of the respective ClientConnect Shareholders, as set forth in the Closing Spreadsheet, in book-entry form, with applicable notations reflecting the Lock-up Arrangements.
 
(c)            Legends .  Any certificates representing the Perion Shares issued pursuant to this Agreement will bear the legend set forth below, in addition to any legend required by applicable U.S. state securities laws:
 
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN TRANSFER RESTRICTIONS, A COPY OF WHICH IS ON FILE WITH THE GENERAL COUNSEL OF THE COMPANY.  SUCH RESTRICTION IS BINDING ON TRANSFEREES OF THESE SHARES. IF THE SHARES REPRESENTED BY THIS CERTIFICATE ARE HELD BY AN AFFILIATE OF THE ISSUER, AS DEFINED IN RULE 144 PROMULGATED UNDER THE SECURITIES ACT OF 1933, THEN THEY MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED IN COMPLIANCE WITH THE REQUIREMENTS OF RULE 144 OR PURSUANT TO A REGISTRATION STATEMENT UNDER SAID ACT OR AN EXEMPTION FROM SUCH REGISTRATION."
 
(i)              Removal of Legend . At such time that the foregoing restrictions are no longer in effect, and upon a ClientConnect Shareholder's request, such restrictive notations or legends, as applicable, will be removed or, at such ClientConnect Shareholder's request, such shares will be deposited in the brokerage account of such ClientConnect Shareholder. Perion shall provide to American Stock Transfer & Trust Company LLC, its U.S. transfer agent, a legal opinion as necessary to remove the legend.
 
 
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5.2            Filings and Consents .
 
(a)            Filings .  Each Party shall use commercially reasonable efforts to file, as soon as practicable after the date of this Agreement, all notices, reports and other documents required to be filed by such Party with any Governmental Entity with respect to the Share Purchase and the other transactions contemplated hereunder (which transactions, for the avoidance of doubt, shall not include the Split) (the " Transactions "), and to submit promptly any additional information requested by any such Governmental Entity.  In particular, Perion shall file, as soon as practicable after the date of this Agreement, all necessary applications with each of NASDAQ Stock Market and the Tel Aviv Stock Exchange for the listing thereon of the Perion Shares following the Closing and shall submit promptly any additional information requested by any such exchanges. Subject to the confidentiality provisions of the Confidentiality Agreement (as defined in Section 5.5(a) ), Conduit, ClientConnect and Perion each shall promptly supply the other with any information which may be required in order to effectuate any filings (including applications) pursuant to (and to otherwise comply with its obligations set forth in) this Section  ‎ 5.2(a) . Except where prohibited by applicable Legal Requirements or any Governmental Entity, and subject to the confidentiality provisions of the Confidentiality Agreement, each Party shall: (i) cooperate with the other Parties with respect to any filings with any Governmental Entity made by such Party in connection with the Transactions; (ii) permit the other Parties to review (and consider in good faith the views of the other Parties in connection with) any documents before submitting such documents to any Governmental Entity in connection with the Transactions; (iii) inform the other Parties of any payments required by any Governmental Entity in connection with any such filings and (iv) promptly provide the other Parties with copies of all filings or other material information submitted by such Party with or to any Governmental Entity in connection with the Transactions.  
 
(b)            Antitrust . Without derogating from the generality of the foregoing, each of the parties hereto shall, as promptly as practicable and before the expiration of any relevant legal deadline, but in no event later than fifteen (15) days following the execution and delivery of this Agreement, (i) file with the FTC and the DOJ, the notification and report form required for the Transactions and any supplemental information requested in connection therewith pursuant to the HSR Act, which forms shall specifically request early termination of the waiting period prescribed by the HSR Act, and (ii) file with any other Governmental Entity, any other filings, reports, information and documentation required for the Transactions pursuant to any other Antitrust Laws. Each of the parties hereto shall furnish to each other’s counsel such necessary information and reasonable assistance as the other may request in connection with its preparation of any filing or submission that is necessary under the HSR Act and any other Antitrust Laws.  Each of the parties hereto shall promptly and timely respond to a request for additional information from the DOJ or the FTC, and shall certify compliance with a request for additional information no later than 30 days after its receipt.  Each of the parties hereto shall use its commercially reasonable efforts to obtain promptly any clearance required under the HSR Act and any other Antitrust Laws for the consummation of the Transactions and shall keep each other apprised of the status of any communications with, and any inquiries or requests for additional information from, the FTC and the DOJ and other Governmental Entities in connection with Antitrust Laws and shall comply promptly with any such inquiry or request.  Each of the parties hereto shall use its best efforts to avoid or eliminate any impediment under any Antitrust Law, or regulation or rule, that may be asserted by any Governmental Entity, or any other Person, with respect to the Transactions so as to enable the Closing to occur expeditiously.  Each of the Parties hereto shall use its best efforts to defend through litigation on the merits any claim asserted in any court, administrative tribunal or hearing that the Transactions would violate any Legal Requirements, in order to avoid entry of, or to have vacated or terminated, any decree, order or judgment (whether temporary, preliminary, or permanent) that would restrain or prevent consummation of the Transactions. Each of the Parties hereto commits to instruct its counsel to cooperate with each other party hereto and its counsel and use commercially reasonable efforts to facilitate and expedite the expiration of the applicable HSR Act waiting period and the waiting periods under any other Antitrust Laws at the earliest practicable dates.  Such commercially reasonable efforts and cooperation shall include counsel’s undertaking (i) to keep each other appropriately informed of communications from and to personnel of the reviewing antitrust authority, and (ii) to confer with each other regarding appropriate contacts with and response to personnel of such antitrust authority.  All payments and fees in connection with any filings under any Antitrust Laws shall be shared in equal parts by Conduit and Perion.
 
 
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(c)            Limitations .  Notwithstanding anything to the contrary contained in Section  ‎ 5.2 ‎ (b) or elsewhere in this Agreement, no Party shall have any obligation under this Agreement to divest or agree to divest (or cause any of its Subsidiaries or Affiliates to divest or agree to divest) any of its businesses, product lines or assets, or to take or agree to take (or cause any of its Subsidiaries to take or agree to take) any other action or to agree (or cause any of its Subsidiaries to agree) to any limitation or restriction on any of its businesses, product lines or assets (except as contemplated by the Split).
 
5.3            Non-Solicitation by Perion .
 
(a)           Perion agrees that neither it nor any of its Subsidiaries, nor any of their respective officers, directors or employees, shall, and that it shall use its best efforts to cause its and their respective Representatives not to (and shall not authorize or give permission to its and their respective Representatives to), directly or indirectly: (i) solicit, initiate, seek or knowingly encourage the making, submission or announcement of any Perion Takeover Proposal, (ii) furnish any information regarding Perion or any of its Subsidiaries to any Person in connection with or in response to a Perion Takeover Proposal, (iii) continue or otherwise engage or participate in any discussions or negotiations with any Person with respect to any Perion Takeover Proposal, (iv) except in connection with a Perion Change of Recommendation pursuant to Section 5.3(e), approve, endorse or recommend any Perion Takeover Proposal, or (v) except as set forth in Section 5.3(e), enter into any letter of intent, arrangement, agreement or understanding relating to any Perion Acquisition Transaction ; provided, however, that this Section 5.3 shall not prohibit the Perion Board of Directors, directly or indirectly through any Representative, prior to obtaining the Perion Shareholder Approval, from furnishing information regarding Perion or any of its Subsidiaries to, or entering into or participating in discussions or negotiations with, any Person making a Perion Takeover Proposal in response to an unsolicited, bona fide Perion Takeover Proposal that, in the view of the Perion Board of Directors, constitutes or would reasonably be expected to result in a Superior Offer if (1) such Perion Takeover Proposal did not result from a breach of this Section 5.3, (2) prior thereto Perion has given Conduit the notice required by Section 5.3(b),  (3) Perion furnishes any nonpublic information provided to the maker of the Perion Takeover Proposal only pursuant to a confidentiality agreement between Perion and such Person containing customary terms and conditions that in the aggregate are not materially less restrictive than those contained in the Confidentiality Agreement, and (4) with respect to any nonpublic information provided to such Person which was not previously provided to Conduit, such information is simultaneously provided to Conduit.
 
(b)           Perion shall promptly, and in no event later than forty eight (48) hours after its receipt of any Perion Takeover Proposal, advise Conduit in writing of such Perion Takeover Proposal, including the material terms and a copy thereof. Perion shall keep Conduit informed on a prompt basis with respect to any change to the terms of any such Perion Takeover Proposal, any material developments with respect thereto and any additional documents provided by the third party making the Perion Takeover Proposal (and in no event later than forty-eight (48) hours following any such change, development or receipt of such additional documents).
 
(c)           Upon the execution of this Agreement, to the extent applicable, Perion shall, and shall cause its Subsidiaries and its and their respective officers, directors and employees, and shall instruct its and their respective Representatives to, immediately cease and terminate any existing activities, discussions or negotiations with any Person that relate to or that may lead to any Perion Takeover Proposal and shall use commercially reasonable efforts to obtain the prompt return or destruction of any confidential information previously furnished to such Persons with respect thereto within twelve (12) months prior to the date hereof.
 
 
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(d)           Except as otherwise provided in Section 5.3(e), the Perion Board of Directors or any committee thereof may not, for any reason whatsoever (i) withhold, withdraw, qualify or modify, or publicly propose to withhold, withdraw, qualify or modify, the Perion Recommendation in a manner adverse to Conduit or ClientConnect or make any statement, filing or release, in connection with obtaining the Perion Shareholder Approval or otherwise, inconsistent with the Perion Recommendation, (ii) approve, endorse or recommend any Perion Takeover Proposal (any of the foregoing set forth in clauses (i) and (ii), a " Perion Change of Recommendation ") or (iii) enter into a written definitive agreement providing for an Acquisition Transaction. Subject to Section 5.3(e), at the request of Conduit, in the event of any publicly known Perion Takeover Proposal, the Board of Directors of Perion shall issue an announcement or statement reaffirming and confirming the Perion Recommendation and stating that this announcement or statement is provided after taking into account the Perion Takeover Proposal.
 
(e)           The Perion Board of Directors may, at any time prior to receipt of the Perion Shareholder Approval, (i) effect a Perion Change of Recommendation in respect of a Perion Takeover Proposal, and/or (ii) if it elects to do so in connection with or following a Perion Change of Recommendation, terminate this Agreement pursuant to Section 7.1(d)(iii) in order to simultaneously enter into a written definitive agreement providing for a Perion Acquisition Transaction, if all of the following are fulfilled: (A) a bona fide unsolicited Perion Takeover Proposal is made in writing to Perion by a third party and such offer is not withdrawn; (B) the Perion Board of Directors determines that such offer constitutes a Superior Offer; (C) Perion is not and has not been in breach of Section 5.3; (D) Perion provides Conduit five Business Days’ prior written notice of its intention to take such action, which notice shall include the information with respect to such Superior Offer that is specified in Section 5.3(b) (it being understood that any material change to the terms of such Superior Offer shall require a new notice and, in such case, all references to five Business Days in this Section 5.3(e) shall be deemed to be two Business Days); (E) Perion shall have negotiated during the period referred to in clause (D) above, with Conduit and ClientConnect in good faith regarding the making of any adjustments to the terms and conditions of this Agreement,  (F) at the end of the period described in clause (D), the Perion Board of Directors again makes the determination in good faith after consultation with outside legal counsel and a reputable international financial advisor (after taking into account any adjustments or modifications to the terms of this Agreement proposed by Conduit and ClientConnect) that the Perion Takeover Proposal continues to be a Superior Offer and that failure to approve a Perion Change of Recommendation would likely constitute a breach of its fiduciary duties under applicable Legal Requirements.
 
(f)            Regardless of whether the Board of Directors of Perion effectuates a Perion Change of Recommendation, Perion shall, and shall cause its Subsidiaries and Representatives to, continue to be committed to cause the consummation of the transactions contemplated by this Agreement in accordance with the terms of this Agreement and shall not be released from its obligations under this Agreement unless and until this Agreement is terminated in accordance with its terms.
 
(g)           Nothing contained in this Section 5.3 shall prohibit Perion from (i) disclosing to its shareholders a position contemplated by Rules 14d-9 and 14e-2(a) promulgated under the Exchange Act, (ii) making any disclosure to its shareholders if the Perion Board of Directors has reasonably determined in good faith, after consultation with outside legal counsel, that the failure to do so would be inconsistent with any applicable Legal Requirements, or (iii) complying with its disclosure obligations under any Legal Requirements, provided that the foregoing shall not, in itself, constitute a Perion Change of Recommendation, or (iv) making a Perion Change of Recommendation to the extent that the Perion Board of Directors determines in good faith, for reasons not related to the receipt of an Acquisition Proposal, after consultation with the Company's outside legal counsel, that the failure of the Board of Directors to effect a Perion Change of Recommendation would be inconsistent with the directors' fiduciary duties under applicable Legal Requirements.
 
 
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5.4            Non-Solicitation by Conduit and ClientConnect .
 
(a)           Each of Conduit and ClientConnect agrees that neither it nor any of its Subsidiaries, nor any of their respective officers, directors or employees, shall, and that it shall use its best efforts to cause its and their respective Representatives not to (and shall not authorize or give permission to its and their respective Representatives to), directly or indirectly: (i) solicit, initiate, seek or knowingly encourage the making, submission or announcement of any Conduit Takeover Proposal, (ii) furnish any information regarding Conduit or ClientConnect or any of their Subsidiaries to any Person in connection with or in response to a Conduit Takeover Proposal, (iii) continue or otherwise engage or participate in any discussions or negotiations with any Person with respect to any Conduit Takeover Proposal, (iv) approve, endorse or recommend any Conduit Takeover Proposal, or (v) enter into any letter of intent, arrangement, agreement or understanding, written or oral, relating to any Conduit Acquisition Transaction.
 
(b)           Each of Conduit and ClientConnect shall promptly, and in no event later than forty eight (48) hours after its receipt of any Conduit Takeover Proposal, advise Perion in writing of such Conduit Takeover Proposal, including the material terms and a copy thereof. Conduit and ClientConnect shall keep Perion informed on a prompt basis with respect to any change to the terms of any such Conduit Takeover Proposal, any material developments with respect thereto and any additional documents provided by the third party making the Conduit Takeover Proposal (and in no event later than forty-eight (48) hours following any such change, development or receipt of such additional documents.
 
(c)           Upon the execution of this Agreement, to the extent applicable, each of Conduit and ClientConnect shall, and shall cause its Subsidiaries and its and their respective officers, directors and employees, and shall instruct its and their respective Representatives to, immediately cease and terminate any existing activities, discussions or negotiations with any Person that relate to or that may lead to any Conduit Takeover Proposal and shall use commercially reasonable efforts to obtain the prompt return or destruction of any confidential information previously furnished to such Persons with respect thereto within twelve (12) months prior to the date hereof.
 
(d)           Neither the Board of Directors of Conduit or the Board of Directors of ClientConnect or any committee thereof may, for any reason whatsoever (i) withhold, withdraw, qualify or modify, or publicly propose to withhold, withdraw, qualify or modify, the Conduit recommendation of the Transactions in a manner adverse to Perion or make any statement, filing or release, in connection with obtaining the Section 350 Voting Approval or otherwise, inconsistent with such Conduit recommendation, or (ii) approve, endorse or recommend any Conduit Takeover Proposal (any of the foregoing set forth in clauses (i) and (ii), a " Conduit Change of Recommendation ") or (iii) enter into a written definitive agreement providing for a Conduit Acquisition Transaction. At the request of Perion, in the event of any publicly known Conduit Takeover Proposal, the Board of Directors of Conduit shall issue an announcement or statement reaffirming and confirming the Conduit recommendation and stating that this announcement or statement is provided after taking into account the Conduit Takeover Proposal.
 
(e)           Regardless of whether the Board of Directors of Conduit or the Board of Directors of ClientConnect effectuates a Conduit Change of Recommendation, each of Conduit and ClientConnect shall, and shall cause its respective Subsidiaries and Representatives to, continue to be committed to cause the consummation of the transactions contemplated by this Agreement in accordance with the terms of this Agreement and shall not be released from its obligations under this Agreement unless and until this Agreement is terminated in accordance with its terms.
 
5.5            Confidentiality; Public Disclosure .
 
(a)           The Parties acknowledge that Perion and Conduit have previously executed a non-disclosure Agreement, dated May 1, 2013 (the " Confidentiality Agreement "), which shall continue in full force and effect in accordance with its terms.  ClientConnect hereby agree to be bound by the terms and conditions of the Confidentiality Agreement to the same extent as though ClientConnect were a party thereto.
 
 
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(b)           None of Perion, Conduit and ClientConnect shall, and each of them shall use commercially reasonable efforts to ensure that their respective Representatives shall not, issue any press release or other public statement relating to the terms of this Agreement or the Transactions, whether or not in response to an inquiry, without approval of a Representative of the other Party (such approval not to be unreasonably withheld), unless required by applicable Legal Requirements.  The Parties shall coordinate the timing and content of the announcement of this Agreement and the consummation of the Transactions to their respective employees, customers, vendors and strategic partners and any investor presentations. 
 
5.6            Reasonable Efforts .  Each of the Parties agrees to use its commercially reasonable efforts, and to cooperate with each other Party, to take, or cause to be taken, all actions, and to do, or cause to be done, all things necessary, appropriate or desirable to consummate and make effective, in the most expeditious manner practicable, the Split, the Share Purchase and the other transactions contemplated hereby or in the Split Agreement, including the satisfaction of the respective conditions set forth in ‎ ARTICLE 6 , and including to execute and deliver such other instruments and do and perform such other acts and things as may be necessary or reasonably required for effecting completely the consummation of the Split, the Share Purchase and the other transactions contemplated hereby or in the Split Agreement.
 
5.7            Third Party Consents; Notices .
 
(a)           Conduit shall use commercially reasonable efforts to obtain prior to the Closing, and deliver to Perion at or prior to the Closing, all consents, waivers and approvals under each Contract listed or described on Schedule ‎ 2.3(b)(xiv) of the ClientConnect Disclosure Letter (and any Contract entered into after the Agreement Date that would have been required to be listed or described on Schedule ‎ 2.3(b)(xiv) of the ClientConnect Disclosure Letter if entered into prior to the Agreement Date).
 
(b)           Perion shall use commercially reasonable efforts to obtain prior to the Closing, and deliver a copy to Conduit at or prior to the Closing, all consents, waivers and approvals under each Contract listed or described on Schedule 3.15(a)(xii) of the Perion Disclosure Letter (and any Contract entered into after the Agreement Date that would have been required to be listed or described on Schedule 3.15(a)(xiii) of the Perion Disclosure Letter if entered into prior to the Agreement Date).
 
5.8            Litigation; Shareholder Litigation .
 
(a)           Until the Closing, each Party (in the case of Conduit, only in connection with the ClientConnect Business) will (i) notify the other Parties in writing promptly after learning of any Legal Proceeding initiated by or against it, or known by such Party to be threatened against it, or any of their respective directors, officers, employees or shareholders, in their capacity as such (a " New Litigation Claim "), (ii) notify the other Parties of ongoing material developments in any New Litigation Claim and (iii) consult in good faith with the other Party regarding the conduct of the defense of any New Litigation Claim.
 
(b)           Each Party shall promptly advise the other Parties orally and in writing of any litigation commenced or threatened in writing to be commenced by any shareholder of such Party against such Party and/or any of its directors relating to this Agreement and/or the Transactions, including the Share Purchase, and shall keep the other Parties fully informed regarding any such litigation.  Each Party shall give the others the opportunity to participate in, subject to a customary joint defense agreement, the defense or settlement of any such litigation, shall give due consideration to the others' advice with respect to such litigation and shall not settle any such litigation without the prior written consent of the other Parties (not to be unreasonably withheld, conditioned or delayed).
 
 
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5.9            Access to Information; Update of Disclosure Letters .
 
(a)           During the period commencing on the Agreement Date and continuing until the earlier of the termination of this Agreement and the Closing, each Party shall afford the other Parties and their Representatives, reasonable access upon reasonable notice and during business hours to (i) all of such Party’s properties, books, Contracts and records (in the case of Conduit, only in connection with the ClientConnect Business) and (ii) all other information concerning the business, properties and personnel (subject to restrictions imposed by applicable Legal Requirement) of such Party as the other Parties may reasonably request (in the case of Conduit, only in connection with the ClientConnect Business).
 
(b)           Subject to compliance with applicable Legal Requirements, from the Agreement Date until the earlier of the termination of this Agreement and the Closing, each Party shall confer from time to time as requested by the other Parties with one or more Representatives of the other Parties to discuss any material changes or developments in the operational matters of such Party and the general status of the ongoing operations of such Party (in the case of Conduit, only in connection with the ClientConnect Business).
 
(c)           During the period commencing on the Agreement Date and continuing until the earlier of the termination of this Agreement and the Closing, (i) Conduit and ClientConnect shall update the ClientConnect Disclosure Letter by providing Perion with a written amendment to the ClientConnect Disclosure Letter, and (ii) Perion shall update the Perion Disclosure Letter by providing Conduit and ClientConnect with a written amendment to the Perion Disclosure Letter, subject in each case to Section ‎ (d).
 
(d)           No information or knowledge obtained by a Party during the pendency of the transactions contemplated by this Agreement in any investigation pursuant to this Section ‎ 5.9, including any updates made to the ClientConnect Disclosure Letter or the Perion Disclosure Letter, shall affect or be deemed to modify any representation, warranty, covenant, condition or obligation under this Agreement.
 
5.10          Closing Spreadsheet .
 
(a)           Conduit and ClientConnect shall prepare and deliver to Perion, at or prior to the Closing, a spreadsheet, certified as complete and correct by the Chief Financial Officer of Conduit (the " Closing Spreadsheet "), in the form of the Signing Spreadsheet, which Closing Spreadsheet shall be dated as of the Closing Date and shall set forth all of the following information (in addition to the other required data and information specified therein), as of the Closing Date immediately prior to the Closing: (i) the names of all the ClientConnect Shareholders and ClientConnect Optionholders and their respective street addresses, email addresses (if available), telephone number (if available), Israeli identification number (if available) and taxpayer identification numbers (if available); (ii) the number of ClientConnect Shares held by such Persons; (iii) the number of ClientConnect Shares subject to, and the exercise price per share in effect for, each ClientConnect Option held by each ClientConnect Optionholder, the expiration date of each ClientConnect Option, the date of commencement of the two year holding period with the Conduit 102 Trustee, if granted under Section 102(b), and whether the Optionholder is an employee of ClientConnect and specifying the section and subsection of the Israeli Income Tax Ordinance pursuant to which such ClientConnect Option was granted; (iv) the portion of the aggregate Share Purchase Consideration (i.e., the number of Perion Shares) payable to each ClientConnect Shareholder pursuant to this Agreement; (v) the adjusted number of Perion Shares subject to, and the adjusted exercise price per share, the Perion Options issuable to such ClientConnect Optionholder pursuant to this Agreement and the expiration date thereof; and (vi) calculations of the aggregate Share Purchase Consideration, the total number of Perion Shares subject to Perion Options issuable in exchange for ClientConnect Options.
 
(b)           Perion shall deliver to Conduit, on the fourth Business Day prior to the Closing Date, a certificate executed on behalf of Perion by the Chief Executive Officer or Corporate Secretary of Perion certifying, as of such date (i) the number of issued and outstanding Perion Shares and (ii) the number of outstanding Perion Options (the “ Perion Closing Spreadsheet Officer’s Certificate ”). On the Business Day prior to the Closing Date, Perion shall deliver to Conduit an updated Perion Closing Spreadsheet Officer’s Certificate, as of such date. Conduit shall use and rely on the number of Perion Shares and Perion Options detailed in the Perion Closing Spreadsheet Officer’s Certificate in its calculations and preparation of the Closing Spreadsheet.
 
 
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(c)           Conduit shall prepare and deliver to Perion, a draft of the Closing Spreadsheet not later than two (2) Business Days prior to the Closing Date.
 
5.11          Employees .
 
(a)           Conduit and ClientConnect shall continue to pay until the Closing Date all salaries, benefits and other entitlements to the ClientConnect Employees and ClientConnect Consultants in a timely manner.  Conduit and ClientConnect shall continue to set aside until the Closing Date all benefits under the ClientConnect Employee Plans to which any ClientConnect Employee is or may be entitled including, inter alia , severance pay and termination notice.
 
(b)           Immediately following the Closing Perion shall issue new options to purchase Perion Ordinary Shares or restricted share units of Perion Ordinary Shares (RSUs) to certain of the ClientConnect employees, as part of such employees’ retention packages for continued employment at ClientConnect (the " New Securities "). The New Securities shall be granted pursuant to Section 102(b) or Section 102(c) of the Israeli Income Tax Ordinance. The ClientConnect employees entitled to the New Securities and the general amount, terms and allocation of such New Securities are described in Schedule 5.11(b)(i) hereto, and the specific amounts, terms and allocations of such New Securities will be agreed upon between Conduit and Perion prior to Closing and will be communicated to the relevant ClientConnect Employees prior to Closing.
 
5.12          Tax Matters .
 
(a)           Following the Closing, Perion, Conduit and ClientConnect shall cooperate fully, as and to the extent reasonably requested by the other party, in connection with the filing of Tax Returns relating to the ClientConnect Business and any audit, litigation or other proceeding with respect to Taxes relating to the ClientConnect Business.  Such cooperation shall include the retention and (upon the other party’s request) the provision of records and information reasonably relevant to any such audit, litigation, or other proceeding and making employees available on a mutually convenient basis to provide additional information and explanation of any material provided hereunder.  Conduit agrees to retain all books and records with respect to Tax matters relating to the ClientConnect Business and to any taxable period beginning before the Closing Date until expiration of the statute of limitations of the respective taxable periods, and to abide by all record retention agreements it entered into with any Tax Authority.
 
(b)           The Parties shall use their commercially reasonable efforts to obtain the Tax Ruling (and additional approvals or rulings, to the extent required) confirming, among others, that (i) the Split will be treated as a restructuring pursuant to Section 105 of the Israeli Income Tax Ordinance, (ii) the Share Purchase will be treated as a merger pursuant to Section 103T of the Israeli Income Tax Ordinance, (iii) that the Options Exchange will not result in a requirement for an immediate Israeli tax payment (or any tax withholding by Perion) with respect to the ClientConnect Options,  until such time as (x) any such ClientConnect Option is exercised or (y) in the case of ClientConnect Options which are part of a "Section 102 Plan," until the actual sale of the underlying shares by the holders of such ClientConnect Options or their release from the Conduit 102 Trustee, in accordance with the terms of such ruling, (iv) with respect to such ClientConnect Options subject to Section 102 of the Israeli Income Tax Ordinance, that the requisite holding period will not be restarted as a result of the Options Exchange, and (v) the transfer of severance funds of ClientConnect Employees from Conduit to ClientConnect will not constitute tax event (which ruling may be subject to customary conditions regularly associated with such a ruling and may contain such provisions, terms and conditions as the ITA may prescribe, which may be different from those detailed in this Section ‎ (b)).
 
 
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(c)           Conduit shall cause its Israeli counsel, advisors and/or accountants to perform all activities with respect to the preparation of any written or oral submissions that may be necessary, proper or advisable to obtain the Tax Ruling, and to coordinate and cooperate with Perion and its Representatives and promptly apprise them of any material developments in connection with the Tax Ruling.  Subject to the terms and conditions hereof, Conduit shall use commercially reasonable efforts to promptly take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable under any applicable Law to obtain the Tax Ruling as promptly as practicable after the Agreement Date. In any event, Conduit shall permit Perion to review (and consider in good faith the views of Perion in connection with) the application and material drafts of the Tax Ruling and any aspect of the Tax Ruling that affect Perion or ClientConnect shall be subject to the prior approval of Perion, not to be unreasonably withheld or delayed.
 
5.13          Conduit Financial Statements; Proxy Statement; Perion Shareholders Meeting .
 
(a)           As soon as practicable following the Agreement Date and in any event no later than 14 days following the Agreement Date, Conduit shall deliver to Perion the (i) Conduit Historical Financial Statements, as audited (with respect to the annual statements) and reviewed (with respect to the interim statements) by the Auditor, including the audit and review letters of the Auditor and (ii) the pro forma information of Conduit for the Reporting Periods as though the Split were consummated on June 30, 2013, thereby reflecting the business of Conduit other than the ClientConnect Business (the " Retained Conduit Business ") as 'discontinued operations', including an 'as adjusted' column in the balance sheet as of June 30, 2013 reflecting the distribution to the Conduit Shareholders of the Retained Conduit Business and the cash and working capital of the ClientConnect Business, as well as the Credit Line, to reflect the actual ClientConnect assets and liabilities that would exist at the consummation of the Split had it occurred on June 30, 2013 (the " ClientConnect Pro Forma Information ").  The ClientConnect Pro Forma Information shall be derived from the Conduit Historical Financial Statements and books and records of Conduit, based on good faith assumptions in allocating shared costs between the ClientConnect Business and the Conduit Retained Business in accordance with the applicable SEC guidance, accounting rules and other Legal Requirements.  Conduit shall, and shall instruct its accountants to, fully cooperate with Perion and its accountants in preparing a pro forma income statement of the combined business of Perion and the ClientConnect Business for the year ended December 31, 2012 and for the six months ended June 30, 2013 and a balance sheet as of June 30, 2013, in each case as though the Closing occurred on January 1, 2012.
 
(b)           As soon as practicable following the Agreement Date and in any event no later than 14 days following the Agreement Date, Conduit shall deliver to Perion a description of the ClientConnect Business and material risk factors, and a summary management discussion and analysis with respect to the Audited Financial Statements, each in reasonable form and content similar to disclosure of public companies in the industry (the " ClientConnect SEC Disclosure "). Conduit shall supply Perion with any other necessary information which may be reasonably required by Perion to be included in the Proxy Statement (as defined below).
 
 
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(c)           As soon as practicable following the Agreement Date and no later than 14 days following the Agreement Date, Perion shall prepare a draft proxy statement (the " Proxy Statement ") with respect to approving the Share Purchase and the Transactions, including (i) an increase of Perion's registered share capital to 100,000,000 Perion Shares, (ii) the election to the Board of Directors of Perion of Dror Erez and Roy Gen or such other two individuals designated by Conduit  (the " Conduit Designees ") instead and to the classes of directors of Adi Soffer Teeni and Josef Mandelbaum (the “ Resigning Perion Directors ”), (iii) the approval of a D&O indemnification agreement in a form attached as Exhibit L herein and (iv) the issuance of a new D&O insurance policy for Perion’s directors and officers, in an amount, in an amount reflecting the Transactions and acceptable to Conduit and a run-off insurance policy covering the Perion directors serving prior to the Closing (collectively, the " Perion Shareholder Approval ").  Prior to the publication and filing of the Proxy Statement, Perion shall provide Conduit with a reasonable opportunity to review and comment on drafts of the Proxy Statement (and will consider in good faith the comments of Conduit), and any and all disclosure regarding Conduit, ClientConnect, the ClientConnect Business or the Split included in the Proxy Statement shall be approved in advance by Conduit, such approval not to be unreasonably withheld or delayed.   As soon as practicable following the receipt by Perion of the Conduit Historical Financial Statements, the ClientConnect Pro Forma Information and the ClientConnect SEC Disclosure, with a target date of October 3, 2013, Perion shall publish the notice of the Perion Extraordinary General Meeting of Shareholders (the " Perion Shareholders Meeting "), file the Proxy Statement with the SEC and ISA and cause the Proxy Statement to be mailed to the shareholders of Perion as promptly as practicable following its filing date.  The Proxy Statement shall be in compliance with all applicable Legal Requirements. The Perion Shareholders Meeting shall be called for 35 days following the publication of the notice of the Perion Shareholders Meeting.  Perion may adjourn or postpone the Perion Shareholders Meeting, with the prior agreement of Conduit, only in the following circumstances: (A) if and to the extent required under any Legal Requirement to provide any necessary supplement or amendment to the Proxy Statement, in a form acceptable to Conduit; or (B) if, as of the time for which the Perion Shareholders Meeting is originally scheduled, there are insufficient Perion Shares represented (either in person or by proxy) to constitute a quorum necessary to conduct the business of the Perion Shareholders Meeting, in which case the adjournment shall not exceed 7 days.  All procedures for the Perion Shareholders Meeting (including calling the meeting, convening, adjourning or postponing the meeting and voting at the meeting) shall be in accordance with all applicable Legal Requirements and the Perion Charter Documents. If at any time prior to the Closing any event shall occur, or fact or information shall be discovered, that should be set forth in an amendment of or a supplement to the Proxy Statement as shall be determined by Perion and Conduit, Perion shall, in accordance with the procedures set forth in this ‎ Section 5.13, prepare, in a form acceptable to Conduit, such amendment or supplement as soon thereafter as is reasonably practicable and to the extent required by applicable Legal Requirements, cause such amendment or supplement to be promptly filed and/or distributed to the shareholders of Perion. To the extent any securities authority makes any written or oral communication to any Party in connection with the Proxy Statement, such Party shall promptly notify the other Parties of such communications and shall cooperate and coordinate with such other Parties and promptly apprise them of any material developments in connection therewith.
 
(d)           Perion, through the Perion Board of Directors , shall, subject to Sections 5.3(e), recommend to its shareholders to approve this Agreement and any and all transactions contemplated hereby or related thereto including without limitation all matters included in the Perion Shareholder Approval (the " Perion Recommendation ") and use commercially reasonable best efforts to solicit from Perion shareholders proxies in favor of the approval of this Agreement and any and the Transactions, including without limitation, all matters included in the Perion Shareholder Approval.  Perion shall call, notice, convene, hold, conduct and solicit all proxies in connection with the Perion Shareholders Meeting in compliance with all applicable Legal Requirements, including the Companies Law, the NASDAQ Listing Rules and the Perion Charter Documents.  The Proxy Statement shall include a copy of the unanimous Perion Recommendation and a copy of any fairness opinion obtained by the Perion Board of Directors in connection with its approval of the Share Purchase.  Without limiting the generality of the foregoing, Perion’s obligation to convene the Perion Shareholders Meeting and all other obligations under this Section 5.13 (other than soliciting proxies in favor of the approval of this Agreement) shall not be affected or limited by (i) the commencement, public proposal, public disclosure or communication to Perion of any Perion Takeover Proposal or (ii) any Perion Change of Recommendation, except in the event that Perion decides to terminate this Agreement pursuant to Section 7.1(d)(iii).
 
 
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5.14          Court Approval
 
(a)           As promptly as practicable after the execution and delivery of this Agreement and in any event no later than seven days following the Agreement Date (or, if the Applicable Court is in recess, the day following the end of such recess, if later), Conduit shall prepare and submit to the District Court of Tel Aviv−Jaffa (the " Applicable Court ") a first motion to convene, in the manner and content set forth in the Companies Law and the regulations promulgated pursuant to Sections 350 and 351 of the Companies Law (the " Arrangement Regulations ") and as shall be ordered by the Applicable Court, shareholders meetings (the " Conduit Meetings "), for the approval of the terms and conditions of an arrangement among Conduit and its shareholders, including the Split, the Share Purchase and the other transactions contemplated by the Split Agreement and by this Agreement (collectively, the " Arrangement "), by a majority in number representing at least seventy-five percent (75%) of the votes cast in each of the Conduit Meetings or as otherwise ordered by the Applicable Court (the " Section 350 Voting Approval ").  Such motion shall state that the court approval would be relied upon by the Parties as an approval of the Share Purchase for the purpose of qualifying the issuance of Perion Shares hereunder for the Section 3(a)(10) exemption from the registration requirements of the Securities Act. Conduit, through the Conduit Board of Directors, shall recommend to its shareholders the approval of this Agreement and the Arrangement (the " Conduit Recommendation ").  Conduit shall comply with all applicable requirements of the Companies Law, the Arrangement Regulations and as required by the Applicable Court.  Conduit shall use commercially reasonable best efforts to solicit from Conduit Shareholders proxies in favor of the approval of the Arrangement.  Following the approval of the Arrangement by the Conduit Shareholders, Conduit will submit to the Applicable Court a second motion requesting (i) to hold a hearing on the fairness of the Arrangement regardless of whether or not any objections to the Arrangement shall have been raised and (ii) the approval of the Arrangement and the order of all actions to be taken in accordance therewith (these approvals when obtained shall be collectively referred to as the " Court Approval ").
 
(b)           Conduit shall cause its Israeli counsel, advisors and accountants to perform all activities with respect to the preparation and filing of the motions with respect to the Court Approval and all other documents prepared with respect to the Arrangement.  Perion shall, and shall cause its Representatives to, assist with all activities with respect to the preparation and filing of the motions with respect to the Court Approval and all other documents prepared with respect to the Arrangement as may be requested by Conduit. Perion shall promptly provide to Conduit all such information concerning its business and financial statements and affairs as reasonably may be required or appropriate for inclusion in any motions to be filed in connection with the Arrangement. Prior to the filing of each such motion with the Applicable Court, Conduit shall provide Perion with a reasonable opportunity to review and comment on drafts of the motion (and will consider in good faith the comments of Perion), and any and all disclosure regarding Perion included therein shall be approved in advance by Perion, such approval not to be unreasonably withheld or delayed.  In addition, Conduit shall comply with all the procedures detailed in the Companies Law and the Arrangement Regulations and shall use its commercially reasonable best efforts to take all necessary actions in order to minimize the term of such procedures and Perion shall use its commercially reasonable best efforts to assist with all such procedures and actions as may be reasonably requested by Conduit.
 
(c)           Conduit shall call, notice, convene, hold, conduct and solicit all proxies in connection with the Conduit Meetings in compliance with all applicable Legal Requirements, including the Companies Law, the Arrangement Regulations and the Conduit Charter Documents.  Conduit may adjourn or postpone the Conduit Meetings: (i) if and to the extent necessary to provide any necessary information or disclosure documents to Conduit’s shareholders, in advance of a vote on the Arrangement; or (ii) if, as of the time for which the Conduit Meetings are originally scheduled, there are insufficient Conduit Ordinary Shares represented (either in person or by proxy) to constitute a quorum necessary to conduct the business of the Conduit Meetings; or (iii) pursuant to the order or stipulation of the Applicable Court.
 
 
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5.15          Non-competition .
 
(a)           From the Closing Date and until the 30-month anniversary of the Closing Date, without the prior written consent of Perion, Conduit shall not, and shall cause its Subsidiaries not to:
 
(i)             Enter into, participate or engage, directly or indirectly, in the development, marketing or sale of Toolbar Platforms, standalone Search Protects, Value Apps or Download Managers, as such “Products” are defined in the Split Agreement and Schedule 1.1.3 thereto (the " Field of Business "), provided that from the Agreement Date until the Closing Date, Conduit may undertake all actions necessary to comply with Sections 4.1(a) and 4.1(b) above;
 
(ii)            Engage in selling or proxying internet search feeds or search pages to third-party products, unless Perion serves as the search partner for such activities and such services will be provided on commercial terms and conditions which are the most favorable terms and conditions for similar services of Perion, at any time and from time to time after the Closing Date; or
 
(iii)           Promote or assist, financially or otherwise, any Person engaged in the Field of Business.
 
(b)           Conduit acknowledges, represents and warrants to Perion that the covenants of Conduit in this Section 5.15 are reasonably necessary for the protection of Perion’s interests under this Agreement and are not unduly restrictive upon Conduit or any Affiliates thereof.
 
(c)           Nothing contained in this Section 5.15 shall prevent Conduit from holding passive investments in any investment fund that hold securities or makes any other financial or other investment in any company engaged in the Field of Business.
 
5.16          Split between Conduit and ClientConnect . ClientConnect shall take all steps reasonably necessary to consummate the Split in accordance with the Split Agreement (including all schedules and exhibits attached thereto), subject to the Court Approval.
 
5.17          Post-Closing Cooperation and Information; Post-Closing Covenants.
 
(a)           Following the Closing, each Party shall afford the other Party and its respective Representatives, during normal business hours, reasonable access to the books, records and other information in such Party’s possession relating directly or indirectly to the assets, liabilities or operations of the ClientConnect Business with respect to periods prior to the Closing, and the right to make copies and extracts therefrom, and shall otherwise cooperate with such other Party to the extent such access and cooperation (a) is reasonably required by the requesting Party for any proper business purpose and (b) is not reasonably likely to adversely affect the ability of the disclosing Party to assert attorney-client or attorney work-product privilege.
 
(b)           Without derogating from the generality of the foregoing: (i) by no later than February 15, 2014, Conduit shall provide Perion with the unaudited balance sheet, income statements and cash flow statements of the ClientConnect Business as of and for the three-month and 12-month periods ended December 31, 2013, for inclusion in Perion's press release containing its fourth quarter and 2013 financial information; and (ii) by no later than March 10, 2014, Conduit shall provide Perion with (A) final consolidated balance sheet of the ClientConnect Business as of December 31, 2013 and 2012, and the related consolidated statements of income, changes in shareholders equity, and cash flows for the three years ended December 31, 2013, 2012 and 2011 (the “ Delivered Financial Statements ”), (B) a full management discussion and analysis and business disclosure relating to the Delivered Financial Statements and the ClientConnect Business for inclusion in Perion's SEC filings, (C) a certificate executed by the Chief Financial Officer of Conduit, dated as of the delivery date, stating that the Delivered Financial Statements (I) were derived from and in accordance with the books and records of Conduit, based on good faith assumptions in allocating shared costs between the ClientConnect Business and other businesses of Conduit in accordance with GAAP and other applicable Legal Requirements, (II) comply as to form with applicable accounting requirements with respect thereto as of their respective dates, (III) fairly and accurately present the financial position of the ClientConnect Business as of the respective dates thereof and the results of operations and cash flows of the ClientConnect Business for the periods covered thereby, (IV) are true, complete and correct in all material respects; and stating that had ClientConnect been owned by Conduit, Conduit would be willing to sign the management letter attached thereto and (D) a letter from the Auditor that upon receipt of the executed management letter referenced above, the Auditor would sign the audit letter relating to the Delivered Financial Statement in the form attached thereto. Perion will bear the fees of the Auditor incurred in connection with such the preparation of such financial statements. Without limitation of Section 5.17(a) above, Conduit shall have no Liability of any kind or nature with respect to the financial information and reports referred to in this Section 5.17(b).
 
 
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(c)           For a period of seven years after the Closing Date, neither Party shall, or permit its Affiliates to, destroy or otherwise dispose of any of the books, records or other information described in this Section 5.17 without first offering in writing to surrender such books, records and other information to the other Party, which other Party shall have ten days after such offer to agree in writing to take possession thereof.
 
(d)           Until the full amounts due to Conduit under the Credit Line are repaid to Conduit in full and the Credit Line is terminated, neither Perion nor ClientConnect shall declare or distribute any dividend, in cash or in kind, to their respective shareholders, repurchase or redeem any of their shares or other equity securities, prepay any Indebtedness prior to its stated maturity date or undertake any new Indebtedness not in effect on the date hereof, other than new Indebtedness used to concurrently repay the Credit Line.
 
(e)           Following the Closing, Perion agrees and acknowledges that it is an “Indemnifying Party” as defined in Section 7.1 of the Split Agreement solely with respect to the breach, default or violation of any covenant, obligation or condition imposed on, or agreement by, or on behalf of, Perion in the Tax Ruling and/or the relevant provisions of the Tax Ordinance referenced in the Tax Ruling, and the provisions of Section 7 of the Split Agreement shall apply as applicable.
 
(f)            Following the Closing, and not later than the earlier of (i) the 2014 annual shareholder meeting of Perion and (ii) September 30, 2014, Perion shall convene a general meeting of shareholders for (or add to the agenda of the annual shareholder meeting, as applicable) the approval of an amendment to the Articles of Association of Perion authorizing the indemnification specified in Section 1.1.4 of the form of indemnification agreement attached hereto as Exhibit L . Perion shall use commercially reasonable best efforts to solicit from Perion shareholders proxies in favor of the approval of this resolution.
 
5.18          D&O Insurance . From the closing of the Split until the Closing Date, Conduit shall add ClientConnect and its directors and officers, at no expense to ClientConnect, as additional insureds to Conduit’s D&O liability insurance policy and its errors and omissions insurance policy, as applicable. Effective as of the Closing Date, (i) Conduit shall purchase run-off insurance for a period of seven years from the Closing Date with respect to Conduit’s current D&O liability insurance policy and errors and omissions insurance policy and (ii) Perion shall cause ClientConnect and its directors and officers to be covered by Perion’s D&O liability insurance policy in the amount of at least $50 million and errors and omissions insurance policy in the amount of at least $5 million, as applicable, for acts following the Closing Date and (iii) Perion shall purchase run-off insurance for a period of seven years from the Closing Date with respect to Perion’s current D&O liability insurance policy and errors and omissions insurance policy.
 
 
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ARTICLE 6
Conditions to the Share Purchase
 
6.1            Conditions to Obligations of Each Party to Effect the Share Purchase .  The respective obligations of each party hereto to consummate the transactions contemplated hereby shall be subject to the satisfaction at or prior to the Closing of each of the following conditions:
 
(a)            Illegality .  No temporary restraining order, preliminary or permanent injunction or other order issued by any court of competent jurisdiction or other legal or regulatory restraint or prohibition preventing the consummation of the Share Purchase shall be in effect, nor shall any action have been taken by any Governmental Entity seeking any of the foregoing, and no statute, rule, regulation or order shall have been enacted, entered, enforced or deemed applicable to the Share Purchase which makes the consummation of the Share Purchase illegal.
 
(b)            Governmental Approvals .  Perion, Conduit and ClientConnect shall have timely obtained from each Governmental Entity all approvals, waivers and consents (or the applicable waiting periods under applicable Antitrust Laws shall have expired) necessary for consummation of the Share Purchase and the other transactions contemplated hereby, as set forth on Schedule 6.1(b) to this Agreement without imposing any material limitation, restriction or obligation on any such party, respectively.
 
(c)            Court Approval .  The Court Approval shall have been obtained.
 
(d)            Perion Shareholder Approval .  The Perion Shareholder Approval shall have been obtained.
 
(e)            NASDAQ Listing Approval .  Perion shall have obtained the approval of the NASDAQ Stock Market for the listing thereon of the Perion Shares following the Closing.
 
(f)            TASE Listing Approval .  Perion shall have obtained the approval of the Tel Aviv Stock Exchange of the listing thereon of the Perion Shares to be issued at the Closing.
 
(g)            Split Closing .  The Split shall have been consummated in accordance with the Split Agreement (including the exhibits and schedules thereto), with no amendments thereto or waivers of any rights of ClientConnect, except as approved by Perion and other than de-minimis deviations.
 
(h)            Transition Services Agreements .  ClientConnect and Conduit shall have entered into the Transition Services Agreement and the Office and Administrative Services Agreement, substantially in the forms attached hereto as Exhibit M and Exhibit N , respectively.
 
(i)             ClientConnect Working Capital Certificate .  The preliminary ClientConnect Net Working Capital Certificate shall have been delivered by Conduit pursuant to Section 1.8(b).
 
6.2            Additional Conditions to Obligations of Conduit and ClientConnect .  The obligations of Conduit and ClientConnect to consummate the transactions contemplated hereby shall be subject to the satisfaction at or prior to the Closing of each of the following conditions (it being understood that each such condition is solely for the benefit of Conduit and ClientConnect and may be waived by both Conduit and ClientConnect in writing in their sole discretion without notice or Liability to any Person):
 
(a)            Representations, Warranties and Covenants .  Each representation and warranty of Perion in ‎ Section 3.1 ( Organization, Standing and Power ), ‎ Section 3.2(a)-(e) ( Capital Structure ) and ‎ Section 3.3 ( Authority; Noncontravention ) shall be true and correct in all material respects, as of the date of this Agreement and as of the Closing Date as though made on the Closing Date (except for such representations and warranties which address matters only as to a specified date, which representations and warranties shall be true and correct in all material respects with respect to such specified date and except for such representations and warranties that are qualified by their terms by a reference to materiality or Material Adverse Effect, which representations and warranties as so qualified shall be true and correct in all respects), except that each representation and warranty of Perion in ‎ Section 3.2(f) shall be true and correct as of the date of this Agreement and as of the Closing Date as though made on the Closing Date. The other representations and warranties of Perion in this Agreement shall be true and correct on and as of the Agreement Date and on and as of the Closing Date as though such representations and warranties were made on and as of such date (except for representations and warranties which address matters only as to a specified date, which representations and warranties shall be true and correct with respect to such specified date), except for any failure to be true and correct which, individually or together with other failures, does not constitute a Material Adverse Effect on Perion.   Perion shall have performed and complied in all material respects with all covenants, obligations and conditions of this Agreement required to be performed and complied with by it at or prior to the Closing.
 
 
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(b)            Receipt of Closing Deliveries .  Conduit shall have received each of the agreements, instruments and other documents set forth in Section ‎ 1.5(a) .
 
(c)            No Material Adverse Effect .  There shall not have been any Material Adverse Effect on Perion.
 
(d)            Director Indemnification; D&O Insurance . Perion shall have entered into an indemnification agreement with each of the Conduit Nominees in substantially the form attached hereto as Exhibit L , as approved by the Perion Shareholders. Perion shall have purchased the D&O insurance policy and run-off insurance policy described in Section ‎ 5.18.
 
(e)            Employees .
 
(i)           At least 65% of the Perion Key Employees shall be employees of Perion, and none of such Key Employees shall have given any notice or other indication that he or she is not willing to remain employed by Perion following the Closing;
 
(ii)           At least 65% of the Perion Employees as of the Agreement Date shall be employees of Perion, and none of such employees shall have given any notice or other indication that he or she is not willing to remain employed by Perion following the Closing.
 
(f)            Consents .  All Consents required to be obtained in connection with the transactions contemplated by this Agreement, as set forth on Schedule 6.2(f) hereof, shall have been obtained in a form satisfactory to Conduit and ClientConnect, been delivered to Conduit and ClientConnect, and shall be in full force and effect.
 
(g)            Perion Debt .  The Indebtedness of Perion as of the Closing Date shall not exceed $14,741,000 million, which is an amount equal to the sum of (1) $2,300,000, which is the amount set forth in line item "Current maturities of long-term debt" in the Perion Balance Sheet; (2) $5,400,000, which is the amount set forth in line item "Long term debt" in the Perion Balance Sheet; (3) $6,541,000, which is the amount set forth in line item "Contingent purchase consideration" in the Perion Balance Sheet; and (4) $500,000.
 
(h)            Tax Ruling .  The Tax Ruling shall have been obtained on terms reasonably satisfactory to Conduit and ClientConnect. This condition shall be deemed satisfied if the ITA grants a tax ruling containing the terms and provisions set forth in Schedule 6.2(h) and does not impose any material limitation, restriction or obligation on Conduit, ClientConnect or their shareholders which is not specified in Schedule 6.2(h) .
 
 
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(i)             New Perion Directors . Both Conduit Designees shall have been duly elected and serve as directors, and are members of the classes of directors vacated by both Resigning Perion Directors, respectively, with one Conduit Designee elected as a member of the Nominating Committee of the Perion Board of Directors and the other Conduit Designee elected as a member of the Investment Committee of the Perion Board of Directors.
 
6.3            Additional Conditions to the Obligations of Perion .  The obligations of Perion to consummate the transactions contemplated hereby shall be subject to the satisfaction at or prior to the Closing of each of the following conditions (it being understood that each such condition is solely for the benefit of Perion and may be waived by Perion in writing in their sole discretion without notice or Liability to any Person):
 
(a)            Representations, Warranties and Covenants .  Each representation and warranty of Conduit and ClientConnect in ‎ Section 2.1 ( Organization, Standing and Power ), ‎ Section 2.2 ( Capital Structure ) and ‎ Section 2.3 ( Authority; Noncontravention ) shall be true and correct in all material respects, as of the date of this Agreement and as of the Closing Date as though made on the Closing Date (except for such representations and warranties which address matters only as to a specified date, which representations and warranties shall be true and correct in all material respects with respect to such specified date and except for such representations and warranties that are qualified by their terms by a reference to materiality or Material Adverse Effect, which representations and warranties as so qualified shall be true and correct in all respects). The other representations and warranties of Conduit and ClientConnect in this Agreement shall be true and correct on and as of the Agreement Date and on and as of the Closing Date as though such representations and warranties were made on and as of such date (except for representations and warranties which address matters only as to a specified date, which representations and warranties shall be true and correct with respect to such specified date), except for any failure to be true and correct which, individually or together with other failures, does not constitute a Material Adverse Effect on ClientConnect.  Conduit and ClientConnect shall have performed and complied in all material respects with all covenants, obligations and conditions of this Agreement required to be performed and complied with by it at or prior to the Closing.
 
(b)            Receipt of Closing Deliveries .  Perion shall have received each of the agreements, instruments and other documents set forth in Section ‎ 1.5(b) .
 
(c)            No Material Adverse Effect .  There shall not have been any Material Adverse Effect on the ClientConnect Business or ClientConnect.
 
(d)            Employees .
 
(i)             At least 65% of the ClientConnect Key Employees, shall have signed and delivered to Perion the executed employment confirmation between such employee and ClientConnect, in substantially the form attached hereto as Exhibit O , each of which shall continue to be in full force and effect and no notice of termination shall have been received from such ClientConnect Key Employee;
 
(ii)            At least 65% of the ClientConnect Employees (as listed in Schedule 1.1.10 of the Split Agreement as of the Agreement Date) shall be employees of ClientConnect, and none of such employees shall have given any notice or other indication that he or she is not willing to remain employed by ClientConnect following the Closing;
 
(iii)           Each of the ClientConnect Key Employees listed in Schedule 6.3(d)(iii) hereto, who shall be employed by ClientConnect immediately prior to the Closing, as a condition to becoming employed by ClientConnect, shall have signed and delivered to Perion an undertaking to comply with the Lock-up Arrangements with respect to the Perion Shares in substantially the form attached hereto as Exhibit G such ClientConnect Key Employee received at Closing or received from exercising the Perion Options such employee received at Closing.
 
 
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(e)            Consents . All Consents required to be obtained in connection with the transactions contemplated by this Agreement, as set forth on Schedule 6.3(e) hereof, shall have been obtained in a form satisfactory to Perion, been delivered to Perion, and shall be in full force and effect. 
 
(f)             ClientConnect Debt .  ClientConnect shall have no Indebtedness as of the Closing Date.
 
(g)            Standstill Agreements . Each of the Standstill Agreements shall continue to be in full force and effect and no action shall have been taken by any Person party to any of such agreements to rescind any of such agreements.
 
(h)            Tax Ruling .  The Tax Ruling shall have been obtained on terms reasonably satisfactory to Perion. This condition shall be deemed satisfied if the ITA grants a tax ruling containing the terms and provisions set forth in Schedule 6.3(h) and does not impose any material limitation, restriction or obligation on Perion or its shareholders which is not specified in Schedule 6.3(h) .
 
(i)             D&O Insurance . Conduit shall have made the revisions to its D&O insurance policy and shall have purchased the run-off insurance policy, each as described in Section ‎ 5.18.
 
ARTICLE 7
Termination, Amendment and Waiver
 
7.1            Termination .  Notwithstanding anything in this Agreement to the contrary, this Agreement may be terminated and the transactions contemplated hereby abandoned at any time before the Closing, whether before or after receipt of an affirmative Section 350 Voting Approval, the Court Approval or the Perion Shareholder Approval:
 
(a)           by mutual written consent of Conduit, ClientConnect and Perion;
 
(b)           by either Conduit, ClientConnect or Perion if:
 
(i)             the Share Purchase shall not have been consummated prior to January 31, 2014 (the " Outside Date ");   provided, however, that (A) the right to terminate this Agreement under this Section 7.1(b)(i) shall not be available to any party whose action or failure to act has been the principal cause of or directly resulted in the failure of the Share Purchase to occur on or before such date, and (B) if, on the initial Outside Date set forth above, the expiration or termination of any applicable waiting period or any required clearances under the HSR Act shall not have been obtained but all other conditions to the consummation of the transactions contemplated by Article 6 have been satisfied (or if to be satisfied at the Closing, are capable of being satisfied), then the initial Outside Date shall be automatically extended, without further action by the parties hereto, to be February 28, 2014;
 
(ii)            a Governmental Entity shall have enacted, issued, promulgated, enforced or entered any Legal Requirement (including an injunction or other order) or taken any other action, in any case having the effect of permanently restraining, enjoining or otherwise prohibiting the Share Purchase, which Legal Requirement (including any such injunction or other order) or other action shall have become final and nonappealable;
 
(iii)           the Perion Shareholder Approval shall not have been obtained at the Perion Shareholders Meeting (or any adjournment thereof); provided, however, that any purported termination of this Agreement by Perion pursuant to this Section 7.1(b)(iii) shall be deemed a termination of this Agreement by Conduit pursuant to Section 7.1(c)(i) if, at the time of any such intended termination by Perion, Conduit is entitled to terminate this Agreement pursuant to Section 7.1(c)(i); or
 
 
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(iv)           the Section 350 Voting Approval shall not have been obtained at the Conduit Meetings (or any adjournment thereof); provided, however, that any purported termination of this Agreement by Conduit pursuant to this Section 7.1(b)(iv) shall be deemed a termination of this Agreement by Perion pursuant to Section 7.1(d)(i) if, at the time of any such intended termination by Conduit, Perion is entitled to terminate this Agreement pursuant to Section 7.1(d)(i);
 
(c)           by Conduit or ClientConnect, if:
 
(i)             (A) Perion shall have effected a Perion Change of Recommendation; or (B) Perion shall have failed to include in the Proxy Statement the Perion Recommendation in a form reasonably acceptable to Conduit; or (C) Perion shall have breached, in any material respect, the provisions of Section 5.3; or
 
(ii)            there shall have been a breach by Perion of any of its representations, warranties, covenants or obligations contained in this Agreement, which breach would result in the failure to satisfy by the Outside Date one or more of the conditions set forth in Section 6.1 or Section 6.2, and in any such case such breach shall be incapable of being cured or, if capable of being cured, shall not have been cured within thirty (30) days after written notice thereof shall have been received by Perion of such breach; provided, however, the right to terminate this Agreement under this Section 7.1(c)(ii) shall not be available to Conduit or ClientConnect if at such time Perion would be entitled to terminate this Agreement pursuant to Section 7.1(d)(ii) or if Conduit or ClientConnect is otherwise in material breach of its obligations hereunder; or
 
(d)           by Perion, if:
 
(i)             (A) Conduit shall have effected a Conduit Change of Recommendation; (B) Conduit shall have failed to include the Conduit Recommendation in its application to the Applicable Court for the Arrangement; or (C) Conduit shall have breached, in any material respect, the provisions of Section 5.4;
 
(ii)            there shall have been a breach by Conduit or ClientConnect of any of its representations, warranties, covenants or obligations contained in this Agreement, which breach would result in the failure to satisfy by the Outside Date one or more of the conditions set forth in Section 6.1 or Section 6.3, and in any such case such breach shall be incapable of being cured or, if capable of being cured, shall not have been cured within thirty (30) days after written notice thereof shall have been received by Conduit or ClientConnect, as applicable, of such breach; provided, however, the right to terminate this Agreement under this Section 7.1(d)(ii) shall not be available to Perion if at such time Conduit or ClientConnect would be entitled to terminate this Agreement pursuant to Section 7.1(c)(ii) or if Perion is otherwise in material breach of its obligations hereunder; or
 
(iii)           Perion effects a Perion Change of Recommendation to accept a Perion Takeover Proposal in accordance with Section 5.3(e), provided that the right to terminate this Agreement pursuant to this Section 7.1(d)(iii) shall not be available to Perion unless Perion pays or has paid to Conduit the Perion Termination Fee in accordance with Section 7.3 (provided that Conduit shall have provided wiring instructions for such payments or, if not, then such payments shall be paid promptly following delivery of such instructions); it being understood that Perion may enter into any agreement providing for a Perion Acquisition Transaction simultaneously with the termination of this Agreement pursuant to this Section 7.1(d)(iii).
 
 
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7.2            Notice of Termination ; Effect of Termination .  A Party desiring to terminate this Agreement shall give written notice of such termination to the other Parties, specifying the provision pursuant to which such termination is effective. In the event of the termination of this Agreement as provided in Section 7.1, this Agreement shall become void and be of no further force and effect with no liability to any Party hereto (or any of its Representatives or Affiliates), except (i) each of this Section 7.2, Section 7.3 and ARTICLE VIII, shall survive the termination of this Agreement and (ii) nothing herein shall relieve any party from liability for any willful or deliberate breach of any of its covenants or agreements or any representations or warranties set forth in this Agreement prior to such termination, but in each case contemplated by this clause (ii), such liability shall survive only if a written notice has been delivered to the breaching party within three months of the termination date of this Agreement specifying in reasonable detail the circumstances giving rise to such breach or a suit, action or other proceeding has been commenced against the party alleging such breach. No termination of this Agreement shall affect the obligations of the parties contained in the Confidentiality Agreement, all of which obligations shall survive termination of this Agreement in accordance with their respective terms.
 
7.3            Fees and Expenses .
 
(a)           Other than as specifically provided in this Section 7.3 or otherwise agreed to in writing by the Parties, (i) all costs and expenses incurred by either Conduit or ClientConnect in connection with the Split, this Agreement and the transactions contemplated hereby (including Transaction Expenses) shall be paid by Conduit and (ii) all costs and expenses incurred by Perion in connection with this Agreement and the transactions contemplated hereby (including Transaction Expenses) shall be paid by Perion.
 
(b)           Perion shall pay to Conduit the Perion Termination Fee if this Agreement is terminated as follows:
 
(i)             if this Agreement is terminated by Conduit or ClientConnect pursuant to Section 7.1(c)(i), then Perion shall pay the Perion Termination Fee by the second Business Day following such termination;
 
(ii)            (A) if this Agreement is terminated (1) by Perion, Conduit or ClientConnect pursuant to Section 7.1(b)(iii) or (2) by Perion, Conduit or ClientConnect pursuant to Section 7.1(b)(i), and in any such case of (1) or (2) above, a Perion Takeover Proposal (including a previously communicated Perion Takeover Proposal) shall have been publicly announced or otherwise communicated to a member of the Perion Board of Directors, the Chief Executive Officer or the Chief Financial Officer of Perion (or any Person shall have publicly announced or communicated a bona fide intention, whether or not conditional, to make a Perion Takeover Proposal) at any time after the Agreement Date and prior to date of the Perion Shareholders Meeting (or any adjournment thereof), in the case of clause (1), or the date of termination, in the case of clause (2), and (B) if within three months after the date of such termination, Perion enters into a definitive agreement to consummate, or consummates, any Perion Acquisition Transaction, then Perion shall pay to Conduit the Perion Termination Fee, by the second Business Day following the date on which Perion enters into such definitive agreement or consummates such transaction; provided, however, that, solely for purposes of this Section 7.3(c)(ii), references in the definition of "Perion Acquisition Transaction" to twenty percent (20%) shall be deemed to mean fifty percent (50%); or
 
(iii)           if this Agreement is terminated by Perion pursuant to Section 7.1(d)(iii), then Perion shall pay the Perion Termination Fee in accordance with the term of Section 7.1(d)(iii).
 
 
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(c)           All amounts paid pursuant to this Section 7.3 shall be by wire transfer of immediately available funds to an account directed by Conduit as long as such account has been identified by Conduit. Perion agrees that the agreements contained in this Section 7.3 are an integral part of the transactions contemplated by this Agreement, and that, without these agreements, Conduit and ClientConnect would not enter into this Agreement; accordingly, if Perion fails promptly to pay any amounts due under this Section 7.3 and, in order to obtain such payment, Conduit commences a suit that results in a judgment against Perion for such amounts, then Perion shall pay interest on such amounts from the date payment of such amounts was due to the date of actual payment at the prime rate of the Bank of Israel in effect on the date such payment was due, together with the reasonable, documented out-of-pocket costs and expenses of Conduit (including reasonable legal fees and expenses) in connection with such suit.
 
(d)           The parties hereto acknowledge and agree that in no event shall Perion be required to pay the Perion Termination Fee on more than one occasion, whether or not the Perion Termination Fee may be payable under more than one provision of this Agreement at the same or at different times and upon the occurrence of different events.
 
7.4            Amendment .  This Agreement may not be amended, modified, altered or supplemented other than by means of a written instrument duly executed and delivered on behalf of Perion, Conduit and ClientConnect.
 
7.5            Extension; Waiver .  Perion, on the one hand, and Conduit and ClientConnect, on the other hand, may, to the extent legally allowed, (i) extend the time for the performance of any of the obligations or other acts of the other, (ii) waive any inaccuracies in the representations and warranties made to such party contained herein or in any document delivered pursuant hereto, and (iii) waive compliance with any of the covenants, agreements or conditions for the benefit of such Person contained herein.  Any agreement on the part of a party hereto to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such party.  Without limiting the generality or effect of the preceding sentence, no delay in exercising any right under this Agreement shall constitute a waiver of such right, and no waiver of any breach or default shall be deemed a waiver of any other breach or default of the same or any other provision in this Agreement.
 
7.6            Procedure for Termination, Amendment, Extension or Waiver .  A termination of this Agreement pursuant to ‎ Section 7.1, an amendment of this Agreement pursuant to ‎ Section 7.4 or an extension or waiver pursuant to ‎ Section 7.5 shall, in order to be effective, require in the case of Conduit, ClientConnect or Perion, action by its Board of Directors or the duly authorized designee of its Board of Directors.  Termination of this Agreement before the Closing Date shall not require the approval of the Perion Shareholders or the ClientConnect Shareholders.
 
ARTICLE 8
General Provisions
 
8.1            Survival of Representations and Warranties and Covenants .  The representations and warranties of Conduit, ClientConnect and Perion contained in this Agreement, the ClientConnect Disclosure Letter (including any exhibit or schedule to the ClientConnect Disclosure Letter), the Perion Disclosure Letter (including any exhibit or schedule to the Perion Disclosure Letter) and the other certificates contemplated hereby shall not survive the Closing and there shall be no post closing liability of any kind or nature with respect to any such representations and warranties (other than fraud). If the Share Purchase is consummated, all covenants of the Parties shall expire and be of no further force or effect as of the Closing, except to the extent such covenants are to be performed after the Closing.
 
 
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8.2            Notices .  All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally or by commercial delivery service, or mailed by registered or certified mail (return receipt requested) or sent via facsimile (with confirmation of receipt) to the parties hereto at the following address or by email (with confirmation of receipt) (or at such other address for a party as shall be specified by like notice):
 
(i)             if to Perion, to:
 
Perion Network Ltd.
4 Ha’Nechoshet Street
Tel Aviv, Israel
Attention:  General Counsel
Facsimile No.:  +972-3-769-6121
Email:  LimorG@Perion.com
 
with a copy (which shall not constitute notice) to:
 
Goldfarb Seligman & Co.
Electra Tower
98 Yigal Alon Street
Tel-Aviv 67891, Israel
Attention: Adam M. Klein, Adv.
Facsimile No.: +972 (3) 521-2212
Email: adam.klein@goldfarb.com
 
(ii)            if to Conduit or ClientConnect, to:
 
Conduit Ltd.

5 Golda Meir Street
Nes Ziona, Israel
Attention:  VP Legal Affairs
Facsimile No.:  +972-73-208-7227
Email:  Omer.Shmueli@conduit.com
with a copy (which shall not constitute notice) to:

Meitar Liquornik Geva Leshem Tal
16 Abba Hillel Silver Rd.,
Ramat-Gan 52506, Israel
Attention: Dan Shamgar, Adv., Ariel Aminetzah, Adv.
Facsimile No.: 972-3-6103111
Email: dshamgar@meitar.com ; arielami@meitar.com

8.3            Interpretation .  When a reference is made in this Agreement to Articles, Sections, Exhibits or Schedules, such reference shall be to an Article or Section of, or an Exhibit or Schedule to this Agreement unless otherwise indicated.  The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.  The words "include," "includes" and "including" when used herein shall be deemed in each case to be followed by the words "without limitation."  The phrases "provided to," "furnished to," and phrases of similar import when used herein, unless the context otherwise requires, shall mean that a true, correct and complete copy of the information or material referred to has been provided to the party to whom such information or material is to be provided.  Unless the context of this Agreement otherwise requires: (i) words of any gender include each other gender; (ii) words using the singular or plural number also include the plural or singular number, respectively; and (iii) the terms "hereof," "herein," "hereunder" and derivative or similar words refer to this entire Agreement.  Any reference in this Agreement to Perion or ClientConnect shall be deemed to be a reference to such Party and each of its Subsidiaries, and the US Subsidiary and the Dutch Subsidiary shall be deemed to be Subsidiaries of ClientConnect, except to the extent otherwise specified herein or required by the context.  Any dollar amounts or thresholds indicated in this Agreement shall not be an admission or be reflective of what is or may be deemed to be material or a "Material Adverse Effect."
 
 
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8.4            Counterparts .  This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same instrument and shall become effective when one or more counterparts have been signed by each of the parties hereto and delivered to the other parties hereto; it being understood that all parties hereto need not sign the same counterpart.
 
8.5            Entire Agreement; Nonassignability; Parties in Interest .  This Agreement and the documents and instruments and other agreements specifically referred to herein or delivered pursuant hereto, including all the exhibits and schedules attached hereto, including the Perion Disclosure Letter and the ClientConnect Disclosure Letter, (a) constitute the entire agreement among the parties hereto with respect to the subject matter hereof and supersede all prior agreements and understandings, both written and oral, among the parties hereto with respect to the subject matter hereof, except for the Confidentiality Agreement, which shall continue in full force and effect, and shall survive any termination of this Agreement, in accordance with its terms, (b) are not intended to confer, and shall not be construed as conferring, upon any Person any rights or remedies hereunder other than the parties hereto and the ClientConnect Securityholders, provided that the ClientConnect Securityholders shall be a third party beneficiary but shall have only specific performance rights hereunder; and (c) shall not be assigned by operation of law or otherwise except as otherwise specifically provided herein.
 
8.6            Assignment .  Neither this Agreement nor any of the rights, interests or obligations under this Agreement may be assigned or delegated, in whole or in part, by operation of law or otherwise by any of the parties hereto without the prior written consent of the other parties hereto, and any such assignment without such prior written consent shall be null and void.  Subject to the preceding sentence, this Agreement shall be binding upon, inure to the benefit of, and be enforceable by, the parties hereto and their respective successors and assigns.
 
8.7            Severability .  In the event that any provision of this Agreement, or the application thereof, becomes or is declared by a court of competent jurisdiction to be illegal, void or unenforceable, the remainder of this Agreement shall continue in full force and effect and shall be interpreted so as reasonably necessary to effect the intent of the parties hereto.  The parties hereto shall use all reasonable efforts to replace such void or unenforceable provision of this Agreement with a valid and enforceable provision that shall achieve, to the extent possible, the economic, business and other purposes of such void or unenforceable provision.
 
8.8            Remedies .  Except as otherwise provided herein, any and all remedies herein expressly conferred upon a party hereto shall be deemed cumulative with and not exclusive of any other remedy conferred hereby, or by law or equity upon such party, and the exercise by a party hereto of any one remedy shall not preclude the exercise of any other remedy and nothing in this Agreement shall be deemed a waiver by any party of any right to specific performance or injunctive relief.  The parties hereto agree that irreparable damage would occur if any provision of this Agreement were not performed in accordance with the terms hereof and it is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof, this being in addition to any other remedy to which they are entitled at law or in equity.
 
8.9            Governing Law .  This Agreement shall be governed by and construed solely in accordance with the laws of the State of Israel, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof.
 
 
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8.10          Arbitration; Consent to Service of Process.
 
(a)           In the event that a resolution is not reached among the Parties within 30 days after written notice of a dispute, then the dispute shall be submitted to arbitration in accordance with this Section 8.10 ‎ (a). Any disputes arising between the Parties relating to this Agreement, or its interpretation, execution or breach thereof, shall be exclusively resolved by arbitration to be conducted and all decisions and awards shall be rendered in accordance with the rules of the Israeli Arbitration Law, 5728-1968 (as amended, the “ Arbitration Law ”), which rules and procedures are deemed to be incorporated by reference into this Agreement, except as otherwise provided herein. Any such arbitration (including its existence, any materials exchanged or disclosed therein, the proceedings and the arbitrator’s award) shall be conducted on a confidential basis, in the Hebrew language, in Tel Aviv, Israel (or as determined by the arbitrator), by one arbitrator who shall be an attorney admitted to practice in Israel or a retired judge, mutually agreeable to Perion and Conduit.  In the event that, within 15 calendar days after submission of any dispute to arbitration as set forth above, Perion and Conduit cannot mutually agree on one arbitrator, then, within 7 calendar days after the end of such 15-calendar day period, Perion and Conduit shall each select one nominee.  The two nominees so selected shall select the arbitrator to conduct the arbitration within 7 calendar days after the end of such 7-calendar day period, and if the two nominees are unable to agree within the 7 days period, then either Conduit or Perion may refer the determination of the identity of the arbitrator to the Chairman of the Tel Aviv District of the Israel Bar Association.  All aspects of the arbitration proceedings, including all preliminary and post-ruling matters, shall be conducted in accordance with Israeli substantive laws then in force. The arbitrator shall be authorized to determine the procedural and evidentiary rules applicable to the arbitration and shall not be bound by rules of civil procedure or the principles governing admissibility of evidence.  The arbitrator shall have the right to order discovery and to shall conduct such hearings or hear such presentations by the Parties (either together or ex parte) as he in his sole discretion deems necessary. The arbitrator may meet with each of the parties separately, and the parties hereby undertake to fully cooperate with the arbitrator and provide him with all materials requested by him without any delays. The arbitration proceedings shall not exceed 30 Business Days from the commencement of the proceedings. The arbitrator shall be requested to provide its written determination within 30 days after the completion of the arbitration proceedings.  Each of the parties to the arbitration shall pay its own expenses, and the parties shall share equally the fees and expenses of the arbitration proceeding (including the arbitration fees and expenses), unless otherwise determined by the arbitrator in its arbitration award.  Notwithstanding anything in this Section ‎ 8.10 ‎ (a), each Party may seek interim injunctive relief from a court of competent jurisdiction provided that such interim injunction relief shall be until the arbitrator is appointed.  The continuance of such interim relief may be determined by the arbitrator.  No arbitration pursuant to this Agreement shall be stayed or delayed pending the outcome of any judicial or other proceedings. The award of the arbitrator shall be in writing and shall include the basis and reasoning for its findings, and shall be final, binding and conclusive upon the Parties, except as provided in the Arbitration Law.  Judgment upon an arbitral award may be entered in any court of competent jurisdiction.  The discretion of the arbitrator to fashion remedies hereunder shall not be broader than the legal and equitable remedies available to a court in Israel.  The arbitrator shall have the right to order injunctive relief and the payment of attorneys' fees, costs and other damages.  The findings and determination of the arbitrator in the arbitration award shall be final and binding on the Parties, and may be challenged or subject to any appeal in accordance with the Arbitration Law only in an appeal arbitration conducted in accordance with the provisions of this Section ‎ 8.10 ‎ (a).  Any ruling or decision of the arbitrator may be enforced in any court of competent jurisdiction. This Section constitutes an Arbitration Agreement in accordance with the Arbitration Law.  In the event of any contradiction between the provisions hereof and the Arbitration Law, the provisions of this Agreement shall prevail.
 
 
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(b)           Subject to the foregoing, the Parties hereby irrevocably and unconditionally submit to the exclusive jurisdiction of the Tel-Aviv-Jaffa District Court in connection with any action or proceeding based upon or arising out of this Agreement or the matters contemplated herein or for recognition or enforcement of any judgment relating thereto, and the Parties hereby irrevocably and unconditionally (i) agrees not to commence any such action or proceeding except in such court; (ii) agrees that any claim in respect of any such action or proceeding may be heard and determined in such court; (iii) waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any such action or proceeding in such court; and (iv) waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in such court.  The Parties hereby agree that a judgment in any such action or proceeding may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law.  The Parties hereby irrevocably agree that process may be served upon them in any manner authorized by the laws of the State of Israel for such persons and waive and covenant not to assert or plead any objection which they might otherwise have to such jurisdiction, venue and such process, and each Party agrees not to commence any legal proceedings related hereto except in such court. A Party may apply either to a court of competent jurisdiction or to an arbitrator, if one has been appointed, for prejudgment remedies and emergency relief pending final determination of a claim pursuant to this Section 8.10 .  The appointment of an arbitrator does not preclude a Party from seeking prejudgment remedies and emergency relief from a court of competent jurisdiction.
 
8.11          Rules of Construction .  The parties hereto have been represented by counsel during the negotiation, preparation and execution of this Agreement and, therefore, hereby waive, with respect to this Agreement, each schedule and each exhibit attached hereto, the application of any law, regulation, holding or rule of construction providing that ambiguities in an agreement or other document shall be construed against the party drafting such agreement or document.
 
[ Signature Pages Follow ]
 
 
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IN WITNESS WHEREOF, Perion, Conduit and ClientConnect, have caused this Share Purchase Agreement to be executed and delivered by their respective officers thereunto duly authorized, all as of the date first written above.

 
Perion Ltd.
 
       
 
By:
/s/ Josef Mandelbaum      /s/ Yacov Kaufman
 
 
Name:
   
 
Title:
   
       
 
ClientConnect Ltd.
 
       
 
By:
/s/ Dror Erez
 
 
Name:
   
 
Title:
   
       
 
Conduit Ltd.
 
       
 
By:
/s/ Dror Erez
 
 
Name:
   
 
Title:
   
 
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EXHIBIT A
 
DEFINITIONS
 
As used in this Agreement, the following terms shall have the meanings indicated below.  Unless indicated otherwise, all mathematical calculations contemplated hereby shall be rounded to the tenths decimal place (except for Exhibit I).
 
" Affiliate " has the meaning set forth in Rule 144 promulgated under the Securities Act.
 
" Antitrust Laws " means the laws and regulations of any Governmental Entity with respect to competition, antitrust or merger control.
 
" Auditor " means Kost Forer Gabbay & Kasierer, a member of Ernst & Young Global.
 
" Business Day " means a day (A) other than Friday, Saturday or Sunday and (B) on which commercial banks are open for business in Israel.
 
" ClientConnect Business " means the “Business” as defined in the Split Agreement and Schedule 1.1.3 thereto.
 
" ClientConnect Employee Agreement " means each management, employment, severance, relocation, repatriation or expatriation agreement or other Contract between Conduit or ClientConnect, and any ClientConnect Employee.
 
" ClientConnect Employee Plan " means any plan, program, policy, practice, Contract or other arrangement providing for compensation, severance, pension arrangement and any other provident fund, termination pay, deferred compensation, performance awards, stock or stock-related awards, fringe benefits or other employee benefits or remuneration of any kind, whether written, unwritten or otherwise, funded or unfunded, that is or has been maintained, contributed to, or required to be contributed to, by Conduit or ClientConnect for the benefit of any ClientConnect Employee, or with respect to which ClientConnect has or may have any liability or obligation, excluding any ClientConnect Employee Agreement.
 
" ClientConnect Optionholders " means the holders of ClientConnect Options, vested and unvested.
 
" ClientConnect Options " means options to purchase ClientConnect Shares.
 
" ClientConnect Ordinary Shares " means the Ordinary Shares of ClientConnect, par value NIS 0.01 each.
 
" ClientConnect Securityholders " means the ClientConnect Shareholders and ClientConnect Optionholders, collectively.
 
" ClientConnect Share Capital " means the share capital of ClientConnect.
 
" ClientConnect Shareholders " means the holders of ClientConnect Shares.
 
" ClientConnect Shares " means the Ordinary Shares of ClientConnect, par value NIS 0.01 each.
 
" Code " shall mean the Internal Revenue Code of 1986, as amended.
 
 
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" Companies Law " means the Israeli Companies Law, 5759-1999.
 
" Conduit 102 Trustee " ESOP Trust Company, the trustee approved by the Israeli Tax Authority with respect to the Conduit Option Plan for the purpose of Section 102(b).
 
" Conduit Acquisition Transaction " means any offer or proposal by any Person concerning any (i) merger, consolidation, other business combination, restructuring, recapitalization, exchange, reclassification or any other transaction involving the ClientConnect Business or ClientConnect or any Subsidiary thereof, pursuant to which or as a result of which such Person (or the shareholders of such Person) would own 20% or more of the consolidated assets, revenues or net income of the ClientConnect Business or ClientConnect, (ii) sale, lease, assignment, license or other disposition directly or indirectly by merger, consolidation, business combination, share exchange, joint venture or otherwise, of assets of the ClientConnect Business or ClientConnect or any Subsidiary thereof (including Equity Interests of any Subsidiary of ClientConnect) representing 20% or more of the consolidated assets, revenues or net income of the ClientConnect Business or ClientConnect, (iii) issuance or sale or other disposition (including by way of merger, consolidation, business combination, share exchange, joint venture or similar transaction) of Equity Interests representing 20% or more of the voting power of the ClientConnect Business or ClientConnect, (iv) transaction or series of transactions in which any Person (or the shareholders of such Person) would acquire beneficial ownership or the right to acquire beneficial ownership of Equity Interests representing 20% or more of the voting power of the ClientConnect Business or ClientConnect or (v) any combination of the foregoing, in each case except as contemplated by the Split Agreement.
 
" Conduit Option Plan " means, the Conduit 2005 Stock Option Plan.
 
" Conduit Options " means options to purchase Conduit Ordinary Shares.
 
" Conduit Ordinary Shares " means the Ordinary Shares of Conduit.
 
" Conduit Shareholders "   means the holders of Conduit Share Capital.
 
" Conduit Share Capital " means the share capital of Conduit.
 
" Conduit Takeover Proposal " means any written or oral offer, proposal or indication of interest received from any party (other than a party to this Agreement) providing for any Conduit Acquisition Transaction, including any renewal or revision to such a previously made offer, proposal or indication of interest.
 
" Consent " means any permit, authorization, approval, consent, ratification, permission, waiver or authorization (including any Governmental Authorization).
 
" Consultant " any Person engaged on an independent contractor status basis, including services providers, consultants and manpower companies, and excluding companies providing placement services and their employees, freelancers and sub-contractors.
 
" Contract " means any written or oral legally binding contract, agreement, instrument, commitment or undertaking of any nature (including leases, licenses, mortgages, notes, guarantees, sublicenses, subcontracts, letters of intent and purchase orders).
 
"Dutch Subsidiary " means ClientConnect B.V.
 
 
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" Credit Line " means the credit line made available by Conduit to ClientConnect following the Closing under the Working Capital Financing Agreement, which is a schedule to the Split Agreement.
 
" DOJ " means the United States Department of Justice.
 
" Encumbrance " means, with respect to any asset, any mortgage, deed of trust, lien, pledge, charge, security interest, title retention device, conditional sale or other security arrangement, collateral assignment, claim, charge, adverse claim of title, ownership or right to use, restriction or other encumbrance of any kind in respect of such asset (including any restriction on (i) the voting of any security or the transfer of any security or other asset, (ii) the receipt of any income derived from any asset, (iii) the use of any asset, and (iv) the possession, exercise or transfer of any other attribute of ownership of any asset).
 
" Environmental Laws " means all laws (including common laws), directives, guidance, rules, regulations, orders, treaties, statutes, and Codes promulgated by any Governmental Entity which prohibit, regulate or control any Hazardous Material or any Hazardous Material Activity, including, without limitation, the Hazardous Substances Law, 1993, the Clean Air Law, 2008, the Maintenance of Cleanliness Law, 1984, the Prevention of Hazards from Asbestos and Harmful Dust Law, 2011, the Licensing of Business Law, 1968, the Abatement of Environmental Nuisances Law, 1961, the Electrical and Electronic Equipment and Batteries Law, 2012, the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, the Resource Recovery and Conservation Act of 1976, the Federal Water Pollution Control Act, the Hazardous Materials Transportation Act, all as amended at any time.
 
" Equity Interest " means any share, capital stock, partnership, limited liability company, membership, member or similar interest in any Person, and any option, warrant, right or security (including debt securities) convertible, exchangeable or exercisable thereto or therefor.
 
" Exchange Act " means the Securities Exchange Act of 1934, as amended.
 
" FTC " means the United States Federal Trade Commission.
 
" Fully-Diluted Basis " means all issued and outstanding shares of ordinary shares, preferred shares and other kinds of capital stock or voting securities, with all convertible and exercisable securities (or other rights to acquire capital stock) deemed converted or exercised, as the case may be, into shares of capital stock in accordance with their terms, whether or not then currently vested, exercisable, exchangeable or convertible.
 
" GAAP " shall mean generally accepted accounting principles in the United States, consistently applied, as in effect at the time covered by the applicable financial statements .
 
" Governmental Authorization " means any: permit, license, certificate, franchise, permission, clearance, registration, qualification or authorization issued, granted, given or otherwise made available by or under the authority of any Governmental Entity or pursuant to any Legal Requirement.
 
" Governmental Entity " means any supranational, national, state, municipal, local or foreign government, any court, tribunal, arbitrator, administrative agency, commission or other governmental official, authority or instrumentality, in each case whether domestic or foreign, any stock exchange or similar self-regulatory organization or any quasi-governmental or private body exercising any regulatory, Taxing or other governmental or quasi-governmental authority (including any governmental division, department, agency, commission, instrumentality, official, organization, unit, body or entity and any court or other tribunal).
 
 
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" Hazardous Materials " means any material, chemical, emission or substance that has been designated by any Governmental Entity to be radioactive, toxic, hazardous, a pollutant or otherwise a danger to health, reproduction or the environment.
 
" Hazardous Materials Activities " means the transportation, transfer, recycling, storage, use, treatment, manufacture, removal, disposal, remediation, release, exposure of others to, sale, labeling, or distribution of any Hazardous Material or any product or waste containing a Hazardous Material, or product manufactured with ozone depleting substances, including, without limitation, any required labeling, payment of waste fees or charges (including so-called e-waste fees) and compliance with any recycling, product take-back or product content requirements.
 
" HSR Act " means the Hart-Scott-Rodino Antitrust Improvements Act of 1976.
 
" Indebtedness " means (i) all Indebtedness for borrowed money or for the deferred purchase price of property or services (other than current trade liabilities incurred in the ordinary course of business and payable in accordance with customary practices), (ii) any other Indebtedness that is evidenced by a note, bond, debenture or similar instrument, (iii) all obligations under financing leases, (iv) all obligations in respect of acceptances issued or created, and (v) all guarantee obligations.
 
" Israeli Income Tax Ordinance " means the Israeli Income Tax Ordinance [New Version], 5721-1961.
 
" knowledge " means, with respect to any Party hereto, the actual knowledge, after reasonable inquiry, of the chief executive officer, the chief financial officer, the chief technology officer and the general counsel of such Party.
 
" Legal Requirements " means any federal, state, foreign, local, municipal or other law, statute, constitution, principle of common law, ordinance, Code, edict, decree, rule, regulation, ruling or requirement issued, enacted, adopted, promulgated, implemented or otherwise put into effect by or under the authority of any Governmental Entity and any orders, writs, injunctions, awards, judgments and decrees issued against or applicable to a Party or any Subsidiary or any of their respective assets, properties or businesses, as applicable.
 
" Liabilities "   means all debts, liabilities and obligations, whether accrued or fixed, absolute or contingent, matured or unmatured, determined or determinable, asserted or unasserted, including those arising under any law, action or governmental order and those arising under any Contract, regardless of whether such debt, liability or obligation would be required to be disclosed on a balance sheet prepared in accordance with GAAP.
 
“ Material Adverse Effect ” with respect to any entity means any change, event,   circumstance or effect (each, an “ Effect ”) that, individually or taken together with all other Effects, and regardless of whether or not such Effect constitutes a breach of the representations or warranties made by such entity in this Agreement, is, or would reasonably be expected to, have a material adverse effect on the financial condition, properties, assets (including intangible assets), business or results of operations of such entity and its subsidiaries, taken as a whole, except to the extent that any such Effect is relating to or arising from: (A) changes in general economic or political conditions whether worldwide or in any country or region in which such entity or its subsidiaries conduct business (provided that such changes do not affect such entity disproportionately as compared to other companies or businesses operating in any such country or region); (B) changes affecting the industry generally in which such entity and its subsidiaries operate (provided that such changes do not affect such entity disproportionately as compared to other participants in such industries); (C) changes in applicable Legal Requirements or GAAP; (D) acts of war, armed hostilities or terrorism or any escalation or worsening of any acts of war, armed hostilities or terrorism (other than such acts of war, armed hostilities or terrorism, or escalation or worsening thereof that cause any damage or destruction to, or render physically unusable, any facility or property of such entity or otherwise disrupt in any material manner the business or operations of such entity or its subsidiaries); (E) with respect to Perion, any decline in the market price or decrease or increase in the trading volume of the Perion Shares; (F) any failure to meet internal or published projections, forecasts, or revenue or earning predictions for any period; (G) any litigation arising from allegations of a breach of fiduciary duty or other violation of applicable Legal Requirements relating to this Agreement or the Split or the transactions contemplated hereby or thereby, or the approval thereof; (H) the announcement or performance of the Split Agreement, this Agreement and the transactions contemplated therein and herein (including without limitation the Split, the Share Purchase and the impact thereof on relationships, contractual or otherwise, with customers, suppliers, search providers, publishers, vendors, employees or venture partners) or; (I) any action taken by Conduit or ClientConnect at the written request of or with the written consent of Perion or any action taken by Perion at the written request of or with the written consent of Conduit or ClientConnect (for the avoidance of doubt, the exceptions in clauses (E) and (F) shall not prevent or otherwise affect a determination that the underlying cause of such failure is a Material Adverse Effect).
 
 
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" OCS " means the Israeli Office of the Chief Scientist of the Ministry of Industry, Trade & Labor.
 
" Perion Acquisition Transaction " means any offer or proposal by any Person concerning any (i) merger, consolidation, other business combination, restructuring, recapitalization, exchange, reclassification or any other transaction involving Perion or any Subsidiary thereof, pursuant to which or as a result of which such Person (or the shareholders of such Person) would own 20% or more of the consolidated assets, revenues or net income of Perion, (ii) sale, lease, assignment, license or other disposition directly or indirectly by merger, consolidation, business combination, share exchange, joint venture or otherwise, of assets of Perion or any Subsidiary thereof (including Equity Interests of any Subsidiary of Perion) representing 20% or more of the consolidated assets, revenues or net income of Perion, (iii) issuance or sale or other disposition (including by way of merger, consolidation, business combination, share exchange, joint venture or similar transaction) of Equity Interests representing 20% or more of the voting power of Perion, (iv) transaction or series of transactions in which any Person (or the shareholders of such Person) would acquire beneficial ownership or the right to acquire beneficial ownership of Equity Interests representing 20% or more of the voting power of Perion or (v) any combination of the foregoing.
 
" Perion 102 Trustee " the trustee approved by the Israeli Tax Authority with respect to the Perion Option Plan for the purpose of Section 102(b).
 
" Perion Business " shall mean the development of applications to make the online experience of users simple, safe and enjoyable through three main consumer brands: Incredimail, Smilebox and SweetIM.
 
" Perion Employee Agreement " means each management, employment, severance, relocation, repatriation or expatriation agreement or other Contract between Perion and any Perion Employee.
 
" Perion Employee Plan " means any plan, program, policy, practice, Contract or other arrangement providing for compensation, severance, pension arrangement and any other provident fund, termination pay, deferred compensation, performance awards, stock or stock-related awards, fringe benefits or other employee benefits or remuneration of any kind, whether written, unwritten or otherwise, funded or unfunded, that is or has been maintained, contributed to, or required to be contributed to, by Perion for the benefit of any Perion Employee, or with respect to which Perion has or may have any liability or obligation, excluding any Perion Employee Agreement.
 
 
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" Perion Option Plan " means, collectively, each stock option plan, program or arrangement of Perion.
 
" Perion Optionholders " means the holders of Perion Options, vested and unvested, immediately prior to the Closing (unless the context otherwise requires).
 
" Perion Options " means options to purchase Perion Shares that are issued under a Perion Option Plan.
 
"Perion Securityholders " means the Perion Shareholders and Perion Optionholders, collectively.
 
" Perion Share Capital " means the share capital of Perion.
 
" Perion Shareholders " means the holders of Perion Shares.
 
" Perion Shares "   means the Ordinary shares, par value NIS 0.01 per share, of Perion.
 
" Perion Takeover Proposal " means any written or oral offer, proposal or indication of interest received from any party (other than a party to this Agreement) providing for any Perion Acquisition Transaction, including any renewal or revision to such a previously made offer, proposal or indication of interest.
 
" Perion Termination Fee " means a fee payable by Perion in the amount of $6,000,000.
 
" Permitted Encumbrances " means:  (A) statutory liens for Taxes that are not yet due and payable or liens for Taxes being contested in good faith by any appropriate proceedings for which adequate reserves have been established; (B) liens to secure obligations to landlords, lessors or renters under real estate or automobile leases or rental agreements; (C) deposits or pledges made in connection with, or to secure payment of, workers’ compensation, unemployment insurance or similar programs mandated by applicable law; (D) statutory liens in favor of carriers, warehousemen, mechanics and materialmen, to secure claims for labor, materials or supplies and other like liens; (E) liens in favor of customs and revenue authorities arising as a matter of Legal Requirements to secure payments of customs duties in connection with the importation of goods, and (F) the terms and conditions of any non-exclusive license to which any Party or a Subsidiary thereof in the ordinary course of its business consistent with past practice is a party.
 
" Person " means any natural person, company, corporation, limited liability company, general partnership, limited partnership, limited liability partnership, joint stock company, association, unincorporated organization, group, trust, estate, proprietorship, joint venture, business organization, Governmental Entity or any other type of entity.
 
" Publisher Agreement ", dated as of August 12, 2013, between Conduit and Perion.
 
" Representatives " of any Person shall mean such Person’s directors, managers, officers, employees, agents, attorneys, accountants, consultants, advisors or other Persons acting on behalf of such Person.
 
" Securities Act " means the Securities Act of 1933, as amended.
 
" Subsidiary " means any corporation, association, business entity, partnership, limited liability company or other Person or entity of which a Party, either alone or together with one or more of such entities (i) directly or indirectly owns or purports to own, beneficially or of record securities or other interests representing more than 50% of the outstanding equity, voting power, or financial interests of such Person, or (ii) is entitled, by Contract or otherwise, to elect, appoint or designate directors constituting a majority of the members of such Person’s board of directors or other governing body.
 
 
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" Superior Offer "   means a bona fide written Perion Takeover Proposal (for purposes of this definition, replacing all references in such definition to twenty percent (20%) with fifty percent (50%)) that the Perion Board of Directors or any committee thereof determines, in good faith, after consultation with outside legal counsel and a financial advisor (i) is on terms that are more favorable from a financial point of view to the Perion Shareholders than the Share Purchase and the transactions contemplated by this Agreement after taking into account all of the terms and conditions of such proposal and (ii) is likely to be completed, in each of the cases of clause (i) and (ii), taking into account all financial, regulatory, legal and other aspects of such Takeover Proposal (including the timing and likelihood of consummation thereof).
 
" Tax " (and, with correlative meaning, " Taxes " and " Taxable ") means (i) any net income, alternative or add-on minimum tax, gross income, estimated, gross receipts, sales, use, ad valorem, value added, transfer, franchise, fringe benefit, share capital, profits, license, registration, withholding, payroll, social security (or equivalent), national health insurance, employment, unemployment, disability, excise, severance, stamp, occupation, premium, property (real, tangible or intangible), environmental or windfall profit tax, custom duty or other tax, governmental fee or other like assessment or charge of any kind whatsoever, together with any interest or any penalty, addition to tax or additional amount (whether disputed or not) imposed by any Governmental Entity responsible for the imposition of any such tax (domestic or foreign) (each, a " Tax Authority "), (ii) any Liability for the payment of any amounts of the type described in clause (i) of this sentence as a result of being a member of an affiliated, consolidated, combined, unitary or aggregate group for any Taxable period, and (iii) any Liability for the payment of any amounts of the type described in clause (i) or (ii) of this sentence as a result of being a transferee of or successor to any Person or as a result of any express or implied obligation to assume such Taxes or to indemnify any other Person.
 
" Tax Return " means any return, statement, report or form (including estimated Tax returns and reports, withholding Tax returns and reports, any schedule or attachment, and information returns and reports) filed or required to be filed with respect to Taxes.
 
" Transaction Expenses " means all third party fees, costs, expenses, payments, and expenditures incurred by a Party in connection with the Share Purchase, this Agreement and the transactions contemplated hereby whether or not billed or accrued (including any fees, costs expenses, payments, and expenditures of legal counsel and accountants, the fees, costs, expenses, payments, and expenditures payable to financial advisors, investment bankers and brokers of such Party notwithstanding any contingencies for withholdings, etc.).
 
"US Subsidiary" means ClientConnect, Ltd.
 
Other capitalized terms defined elsewhere in this Agreement and not defined in this Exhibit A shall have the meanings assigned to such terms in this Agreement.
 
 
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EXHIBIT I
 
Exchange Ratio Formula
 
A
-
All issued and outstanding Perion Shares
B
-
All Perion Shares underlying In-the-Money-Options based on the Treasury Stock Method (TSM)
C
-
Value of "out of money" Perion Options, as determined by the Black Scholes Methodology divided by the Perion Reference Price
D
-
Perion's Fully Diluted Shares (as defined below), the sum of A + B + C
E
-
the result of multiplying (i) 0.81 by (ii) the quotient received by dividing (x) D by (y) 0.19; minus H
 
F
-
All issued and outstanding ClientConnect Shares
G
-
All ClientConnect Shares underlying In-the-Money-Options based on TSM
H
-
Value of "out of money" ClientConnect Options, as determined by the Black Scholes Methodology divided by the Perion Reference Price
I
-
ClientConnect's Fully Diluted Shares  - the sum of F + G
 
J
-
the result of dividing (i) E by (ii) I,
which result represents the number of Perion Shares to be issued in exchange for each one (1) ClientConnect Share, i.e., the Exchange Ratio
 
Example of calculating the formula as of the Agreement Date 1
 
A
-
12,467,398
Total number of Perion Shares outstanding
B
-
710,988
Dilution from In-the-Money Options using TSM
C
-
48,031
Number of Out-of-the-Money Perion Options
D
-
13,226,417
Fully Diluted Shares outstanding of Perion
E
-
56,252,008
0.81 * (13,226,417)/0.19 – 134,295
F
-
225,821,256
Total number of ClientConnect Shares outstanding
G
-
8,386,946
Dilution from ClientConnect Options using TSM
H
-
134,295
Number of Out-of-the-Money ClientConnect Options
I
-
234,208202
Fully Diluted Shares outstanding of ClientConnect
J
-
0.2402
the Exchange Ratio
56,252,008/234,208,202
   
0.2402 Perion Shares shall be issued in exchange for each one (1) ClientConnect Share
 
 
1.
The example above is based on the 30 day trailing volume weighted average closing price per share of Perion on NASDAQ up to and including 13 September 2013 or $11.2461
 
In-the-Money-Options are options the exercise price of which is lower than the relevant reference price.

Treasury Stock Method (TSM) is defined as the number of shares issuable upon exercise of all outstanding options for which the exercise price is lower than a reference price, less the quotient derived by dividing (x) the proceeds from the theoretical exercise of such In-the-Money-Options by (y) the reference price.

Perion Fully Diluted Shares is defined as (i) all issued and outstanding Perion Shares plus (ii) all Perion Options that are In-the-Money-Options based on the Perion Reference Price and calculated by the TSM plus (iii) the quotient obtained by dividing the value of the Perion Options that are not In-the-Money Options, as determined by the Black Scholes Methodology, by the Perion Reference Price.
 
 
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Perion Reference Price is defined as the 30-day trailing volume weighted average price per share of the Perion Shares prior to the second Business Day immediately prior to the Closing Date as reported on NASDAQ.

ClientConnect Fully Diluted Shares is defined as (i) all issued and outstanding ClientConnect shares plus (ii) all ClientConnect Options that are In-the-Money-Options based on the ClientConnect Reference Price and calculated by the TSM.

ClientConnect Reference Price is defined as: the product of the Perion Reference Price and the Perion Fully Diluted Shares; divided by 0.19; and then multiplying the quotient by 0.81; less the value of the ClientConnect Options that are not In-the-Money Options, as determined by the Black Scholes Methodology; divided by ClientConnect Fully Diluted Shares.

Black Scholes Methodology is defined as the commonly accepted Black Scholes formula assuming a volatility of 50%, a risk free rate based on the US treasury maturity corresponding to the weighted average remaining life and the relevant Perion Reference Price or ClientConnect Reference Price, as applicable, and using the weighted average remaining life and weighted average exercise price of Perion Options or ClientConnect Options that are not In-the-Money Options, as applicable, divided by the relevant Perion Reference Price or ClientConnect Reference Price.

 
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SCHEDULE 5.1(B)
 
LOCK UP ARRANGEMENTS
 
1.
Certain Restrictions on Transfers of the Shares .
 
Each ClientConnect Shareholder (a “ Shareholder ”) shall not sell, offer to sell, grant any option to purchase or otherwise transfer or dispose of (in each case, a “ Transfer ”) any of the Perion Shares comprising the Share Purchase Consideration issued to such Shareholder at Closing (the “ Shares ”) except in accordance with the provisions hereof as follows:
 
(a)              During the one hundred eighty one (181) day period following the Closing Date, each Shareholder may not Transfer any of the Shares.
 
(b)              During the period beginning on the day which is one hundred eighty-two (182) days following the Closing Date and ending on the day which is seven hundred and thirty (730) days following the Closing Date, each Shareholder may Transfer (subject to all applicable securities laws) up to an aggregate of ten percent (10%) of the Shares (in this Section 1(b), the “ Released Shares ”); provided, however, that the Shareholder shall in no event Transfer more than an aggregate of thirty three percent (33%) of the Released Shares in any consecutive four (4) week period during such period.
 
(c)              During the period beginning on the day which is seven hundred and thirty-one (731) days following the Closing Date, any Shareholder may freely Transfer (subject to all applicable securities laws) any remaining Shares then held by such Shareholder
 
2.
First Relaxation of the Restrictions on Transfers of the Shares .
 
If the closing price per share of the Perion Shares on the Nasdaq Stock Market (or such other stock exchange or trading system as shall be from time to time the primary exchange or trading system on which the Perion Shares are then traded) (the “ Closing Price ”) is equal to or greater than fifteen U.S dollars ($15.00) (as appropriately adjusted for any stock splits, cash dividends, stock dividends, combinations, recapitalizations or the like) for any ten (10) consecutive trading days beginning at any time after the Closing Date, then the following provisions shall apply and the provisions of Section 1 shall no longer apply:
 
(a)              During the one hundred eighty one (181) day period following the Closing Date, each Shareholder may not Transfer any of the Shares.
 
(b)              During the period beginning on the day which is one hundred eighty-two (182) days following the Closing Date and ending on the day which is seven hundred and thirty (730) days following the Closing Date, each Shareholder may Transfer (subject to all applicable securities laws) up to an aggregate of thirty three percent (33%) of the Shares (in this Section 2(b), the “ Released Shares ”), which Released Shares shall include any Shares previously Transferred by such Shareholder pursuant to Section 1; provided, however, that the Shareholder shall in no event Transfer more than an aggregate of thirty three percent (33%) of the Released Shares in any consecutive four (4) week period during such period.
 
(c)              During the period beginning on the day which is seven hundred and thirty-one (731) days following the Closing Date, any Shareholder may freely Transfer (subject to all applicable securities laws) any remaining Shares then held by such Shareholder.
 
 
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3.
Second Relaxation of the Restrictions on Transfers of the Shares .
 
If the Closing Price is equal to or greater than eighteen U.S. dollars and fifty cents ($18.50) (as appropriately adjusted for any stock splits, cash dividends, stock dividends, combinations, recapitalizations or the like) for any ten (10) consecutive trading days beginning at any time after the Closing Date, then the following provisions shall apply and the provisions of Sections 1 and 2 shall no longer apply:
 
(a)              During the one hundred eighty one (181) day period following the Closing Date, each Shareholder may not Transfer any of the Shares.
 
(b)              During the period beginning on the day which is one hundred eighty-two (182) days following the Closing Date and ending on the day which is seven hundred and thirty (730) days following the Closing Date, each Shareholder may Transfer (subject to all applicable securities laws) up to an aggregate of sixty seven percent (67%) of the Shares (in this Section 3(b), the “ Released Shares ”), which Released Shares shall include any Shares previously Transferred by such Shareholder pursuant to Sections 1 and 2; provided, however, that the Shareholder shall in no event Transfer more than an aggregate of thirty three percent (33%) of the Released Shares in any consecutive four (4) week period.
 
(c)              During the period beginning on the day which is seven hundred and thirty-one (731) days following the Closing Date, any Shareholder may freely Transfer (subject to all applicable securities laws) any remaining Shares then held by such Shareholder.
 
4.
Third Relaxation of the Restrictions on Transfers of the Shares .
 
If the Closing Price is equal to or greater than twenty two U.S. dollars ($22.00) (as appropriately adjusted for any stock splits, cash dividends, stock dividends, combinations, recapitalizations or the like) for any ten (10) consecutive trading days beginning at any time after the Closing Date, then the following provisions shall apply and the provisions of Sections 1, 2 and 3 shall no longer apply:
 
(a)              During the one hundred eighty one (181) day period following the Closing Date, each Shareholder may not Transfer any of the Shares.
 
(b)              During the period beginning on the day which is one hundred eighty-two (182) days following the Closing Date and ending on the day which is seven hundred and thirty (730) days following the Closing Date, each Shareholder may Transfer (subject to all applicable securities laws) up to an aggregate of one hundred percent (100%) of the Shares (in this Section 4(b), the “ Released Shares ”), which Released Shares shall include any Shares previously Transferred by such Shareholder pursuant to Sections 1, 2 and 3; provided, however, that the Shareholder shall in no event Transfer more than an aggregate of thirty three percent (33%) of such Released Shares in any consecutive four (4) week period during such period.
 
(c)              During the period beginning on the day which is seven hundred and thirty-one (731) days following the Closing Date, any Shareholder may freely Transfer (subject to all applicable securities laws) any remaining Shares then held by such Shareholder.
 
5.
Additional Relaxation or Expiration of the Restrictions on Transfers
 
(a)              At any time following the deposit of the Shares with the Brokers (as defined in Section 6(a) below), the Banker (as defined below) may determine to relax certain transfer restrictions pursuant to Sections 1-4 above to all Shareholders on an equal basis. Such relaxation of restrictions may recur, provided that the provisions of this Section 5(a) are met with respect to each relaxation event. Perion and Shareholders holding a majority of the Shares then held in the Brokers’ and Additional Brokers’ accounts (the " Majority Holders ") will jointly select, and may replace from time to time upon mutual consent, a reputable U.S. investment bank, who has a familiarity with Perion and the trading of its shares, as an advisor for purposes of this Section 5(a) (the “ Banker ”), provided that such election may be terminated by either Perion or the Majority Holders. The initial Banker as of the Closing Date will be UBS.
 
 
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(b)              At any time following the closing of an offering of Perion in which certain Shareholders who are entitled to “piggyback registration rights” pursuant to Section 3 of the Registration Rights Undertaking with respect to such offering are in fact included in such offering, (i) any Shareholder who is not entitled to such piggyback registration rights, may freely Transfer (subject to all applicable securities laws and any applicable restriction in the Registration Rights Undertaking) any remaining Shares then held by such Shareholder, and (ii) any Shares sold in such offering shall be released from the Transfer restrictions under this Schedule 5.1(b).
 
(c)              Upon the occurrence of any of the following events: (i) any person (excluding any Shareholder or any person who is subject to Transfer restrictions identical to those set forth in this Schedule 5.1(b)) becomes the beneficial owner of 24.9% or more of Perion's outstanding share capital, or (ii) at such time that the total number of Shares held by all Shareholders constitutes less than 20% of the issued and outstanding share capital of Perion, then any Shareholder may freely Transfer (subject to all applicable securities laws) any remaining Shares then held by such Shareholder.
 
(d)              Upon the occurrence of any issuance of Perion Shares or securities convertible into Perion Shares in connection with (x) an acquisition by Perion of any business, company or assets, or (y) a private placement of Perion, that are not subject to more strict or identical Transfer restrictions as provided in Sections 1-4 above, in which the aggregate number of shares issued (after giving effect to the conversion of all convertible securities issued or issuable thereunder and assuming that all milestones and conditions for issuance thereunder are fulfilled), constitutes 10% or more of Perion's issued and outstanding share capital as of immediately prior to such issuance, the Transfer restrictions under this Schedule 5.1(b) shall be further relaxed to be no more restrictive (both in volume and period) than the Transfer restrictions imposed on the Perion Shares issued in such issuance. Such further relaxation shall occur automatically at the closing of such issuance without the need for any further action. Notice of such issuance shall be given to the Brokers, the Additional Brokers and the Banker no later than 15 days prior to the closing of such issuance.
 
(e)              The Transfer restrictions provided in Sections 1-4 above shall not apply (i) in the event of a tender offer for Perion Shares or (ii) in any Transfer other than a Transfer through a stock exchange where the transferee agrees in writing to be bound by this Schedule 5.1(b).  Any transferee who becomes a holder of Perion Shares pursuant to this Section 5(e)(ii) shall be deemed a Shareholder for all purposes and respects under this Schedule 5.1(b) and such shares shall be deemed Shares for all purposes and respects under this Schedule 5.1(b).
 
(f)              Notwithstanding anything to the contrary in this Schedule 5.1(b), with respect to any Shareholder that is subject to restrictions on Transfer under the Tax Ruling pursuant to which such Shareholder may not Transfer during the two year period following the Closing Date 10% or more of its Shares, such Shareholder shall be subject to and shall be required to comply in full with the Transfer Restrictions under this Schedule 5.1(b), except to the extent that any Transfer permitted hereunder is not permitted under the Tax Ruling, in which case the restrictions under the Tax Ruling shall prevail.
 
6.
Brokers
 
(a)              During the ninety (90) day period following the Closing Date, Perion shall instruct American Stock Transfer & Trust Company LLC, its U.S. transfer agent (“ AST ”), to transfer all the Shares to one or two renowned U.S. brokerage firms selected by the Majority Holders, with an office in Israel (the “ Brokers ”). The Brokers shall maintain and monitor the restrictions on Transfers of Shares pursuant to Sections 1-5 above.
 
 
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(b)              Notwithstanding the provisions of Section 6(a) above, each of the Shareholders that is an investment fund may request in writing that its Shares be transferred to a different renowned U.S. brokerage firm (the “ Additional Broker ”) and shall provide Perion with a written undertaking from such Additional Broker, in a form acceptable to Perion, affirming that the Additional Broker shall ensure compliance with the restrictions on Transfers of Shares pursuant to this Schedule 5.1(b) and the Tax Ruling. Following receipt of such written request and written undertaking, Perion shall instruct AST and/or the Brokers, as applicable, to transfer all of such Shareholder’s Shares to the accounts of such Additional Broker.
 
(c)              Perion shall assist, execute and deliver, or cause to be executed and delivered, any such documents and instruments and do and perform any actions as may be necessary or desirable for affecting the transfer of the Shares from AST to the Brokers and the Additional Brokers.
 
(d)              Subject to applicable Legal Requirements and the terms of this Schedule 5.1(b) , Perion shall remove, and shall instruct AST to remove, any legend or other restrictions on the Shares upon receipt of instructions to such effect from the Brokers and the Additional Brokers (other than Shares held by “affiliates” of Perion, as defined in Rule 144 promulgated under the Securities Act of 1933).
 
(e)              On or after the day which is seven hundred and thirty-one (731) days following the Closing Date, at the request of any Shareholder, such Shareholder’s Shares remaining with the Brokers will be deposited in a brokerage account of such Shareholder.
 
7.
Definitions
 
(a)               Shares.  All calculations hereunder with respect to the amount of the Shares permitted to be sold by each Shareholder shall be determined by reference to the aggregate number of Shares received by such Shareholder as part of the Share Purchase Consideration (as appropriately adjusted for stock splits, dividends, combinations, recapitalizations and the like).
 
(b)              Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to them in the Agreement.
 
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Exhibit 99.3
 
  APPENDIX B
 
OPINION OF RBC CAPITAL MARKETS, LLC
 
 
 
 
   
RBC Capital Markets, LLC
Three World Financial Center
200 Vesey Street, 9 th Floor
New York, NY 10281-8098
 
 
 
September 16, 2013
 
The Board of Directors
Perion Network Ltd.
4 HaNechoshet Street
Tel Aviv, Israel 69710
Attention: Josef Mandelbaum, Chief Executive Officer
 
Members of the Board:
 
You have requested our opinion as to the fairness, from a financial point of view, to holders of ordinary shares, par value NIS 0.01 per share (“Company Ordinary Shares”), of Perion Network Ltd., a company formed under the laws of Israel (the “Company”), of the Exchange Ratio pursuant to that certain Share Purchase Agreement, dated as of September 16, 2013 (the “Share Purchase Agreement”), by and among the Company, Conduit Ltd., a company formed under the laws of Israel (“Conduit”), and ClientConnect Ltd., a spin-off company to be formed under the laws of Israel (“Newco”). Capitalized terms used herein shall have the meanings used in the Share Purchase Agreement unless otherwise defined herein.
 
Conduit and Newco  propose entering into a Split Agreement, dated as of September 16, 2013 (the “Split Agreement” and, together with the Share Purchase Agreement, the “Agreements”), pursuant to which the entire activities and operations, and related assets and liabilities, currently conducted by Conduit and certain of its subsidiaries of research, development, marketing, sale, distribution, maintenance, provision of services for, the products, applications, technologies or solutions related to the Toolbar platform, Download Manager, Search Protect and Value Apps (as defined in Schedule 1.1.3 to the Split Agreement), including all works-in-progress and in development (collectively, the “Business”) will be transferred to Newco under the terms and conditions set forth in the Split Agreement, and the shareholders of Conduit will be issued shares in Newco identical to their respective holdings in Conduit, thereby becoming the shareholders of Newco (the “Split”). The Share Purchase Agreement provides, among other things, that as soon as practicable following the consummation of the Split, (i) each ordinary share, par value NIS 0.01 per share, of Newco (the “Newco Shares”) issued and outstanding immediately prior to the Effective Time, subject to certain exceptions, will be automatically transferred to the Company in exchange for approximately 0.2402 Company Ordinary Shares, such number of shares subject to adjustment, such that 81% of Company Ordinary Shares will be held by holders of Newco Shares, on a fully diluted basis, and 19% of Company Ordinary Shares will be held by holders of Company Ordinary Shares immediately prior to consummation of the transaction contemplated by the Share Purchase Agreement, on a fully diluted basis (the “Exchange Ratio”), and Newco will become a wholly owned subsidiary of the Company (the “Share Purchase” and, together with the Split, the “Transactions”). The terms and conditions of the Transactions are more fully set forth in the Agreements.
 
RBC Capital Markets, LLC (“RBCCM”), as part of its investment banking services, is regularly engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, corporate restructurings, underwritings, secondary distributions of listed and unlisted securities, private placements, and valuations for corporate and other purposes.
 
We are providing our opinion to the board of directors of the Company in connection with the Share Purchase and we will receive a fee for our services upon delivery of this opinion, which is not contingent upon the successful completion of the Transactions. The Company has also agreed to indemnify us for certain liabilities that may arise out of our engagement.
 
In the ordinary course of business, RBCCM may act as a market maker and broker in the publicly traded securities of the Company and receive customary compensation, and may also actively trade securities of the Company for our own account and the accounts of our customers, and, accordingly, RBCCM and its affiliates, may hold a long or short position in such securities.
 
 
 
 
 
For the purposes of rendering our opinion, we have undertaken such review and inquiries as we deemed necessary or appropriate under the circumstances, including the following: (i) we reviewed the financial terms of (x)  the Share Purchase Agreement; and (y) the draft dated September 9, 2013 of the Split Agreement (the “Latest Draft Split Agreement”); (ii) we reviewed and analyzed certain publicly available financial and other data with respect to the Company and certain other relevant historical operating data relating to the Business and the Company made available to us from published sources (in the case of the Company) and from the internal records of Conduit and the Company, respectively; (iii) we reviewed financial projections and forecasts of the Company and the combined post-Transactions company prepared by the Company’s management, and Newco, prepared by Conduit’s management, as adjusted by the Company’s management (“Forecasts”); (iv) we conducted discussions with members of the senior managements of Conduit and the Company with respect to the business prospects and financial outlook of Newco and the Company as standalone entities as well as the strategic rationale and potential benefits of the Transactions; (v)  we reviewed Wall Street research estimates regarding the potential future performance of the Company as a standalone entity; (vi)  we reviewed the reported prices and trading activity for Company Ordinary Shares; and (vii) we performed other studies and analyses as we deemed appropriate.
 
In arriving at our opinion, we performed the following analyses in addition to the review, inquiries, and analyses referred to in the preceding paragraph: (i) we performed a valuation analysis of each of Newco and the Company as a standalone entity, using comparable company and discounted cash flow analyses with respect to each of Newco and the Company, as well as precedent transaction analysis with respect to the Company; (ii) we performed an analysis of the contribution of selected historical and projected metrics of Newco and the Company as standalone entities; and (iii) we performed a pro forma combination analysis, determining the potential impact of the Transactions on the projected 2014 and 2015 earnings per share of the Company, pro forma for the Transactions.
 
Several analytical methodologies have been employed and no one method of analysis should be regarded as critical to the overall conclusion we have reached. Each analytical technique has inherent strengths and weaknesses, and the nature of the available information may further affect the value of particular techniques. The overall conclusions we have reached are based on all the analysis and factors presented, taken as a whole, and also on application of our own experience and judgment. Such conclusions may involve significant elements of subjective judgment and qualitative analysis. We therefore give no opinion as to the value or merit standing alone of any one or more parts of the analyses.
 
In rendering our opinion, we have assumed and relied upon the accuracy and completeness of all the information that was publicly available to us and all of the financial, legal, tax, operating and other information provided to or discussed with us by Conduit or the Company (including, without limitation, the financial statements and related notes thereto of each of the Business and the Company, respectively), and have not assumed responsibility for independently verifying and have not independently verified such information. We have assumed, with your consent, that all Forecasts provided to us by Conduit or the Company, as the case may be (including Forecasts provided to us by the Company with respect to certain cost and revenue synergies expected to be realized from the Transactions), were reasonably prepared on bases reflecting the best currently available estimates and good faith judgments of the managements of Conduit and the Company as to the future financial performance of Newco and the Company (as the case may be), respectively, as standalone entities (or, in the case of the projected synergies, as a combined company). We express no opinion as to such Forecasts or the assumptions upon which they were based. In addition, we have assumed, with your consent, that all assets necessary to operate the Business within Newco, together with the contractual rights associated with the Agreements and the ancillary agreements related thereto, are sufficient to operate Newco as contemplated by the Forecasts.
 
In rendering our opinion, we have not assumed any responsibility to perform, and have not performed, an independent evaluation or appraisal of any of the assets or liabilities of Conduit, including the Business, or the Company, and we have not been furnished with any such valuations or appraisals. We have not assumed any obligation to conduct, and have not conducted, any physical inspection of the property or facilities of the Business or the Company. We have not investigated, and make no assumption regarding, any litigation or other claims affecting Conduit or the Company.
 
We have assumed, in all respects material to our analysis that all conditions to the consummation of the Transactions will be satisfied without waiver thereof. We have further assumed that the executed version of the Split Agreement will not differ, in any respect material to our opinion, from the Latest Draft Split Agreement.
 
 
B - 2
 
 
Our opinion speaks only as of the date hereof, is based on the conditions as they exist and information which we have been supplied as of the date hereof, and is without regard to any market, economic, financial, legal, or other circumstances or event of any kind or nature which may exist or occur after such date. We have not undertaken to reaffirm or revise this opinion or otherwise comment upon events occurring after the date hereof and do not have an obligation to update, revise or reaffirm this opinion. We are not expressing any opinion herein as to the prices at which Company Ordinary Shares have traded or will trade following the announcement of the Transactions nor the prices at which Company Ordinary Shares will trade following the consummation of the Transactions.
 
The opinion expressed herein is provided for the information and assistance of the Board of Directors of the Company in connection with the Share Purchase. We express no opinion and make no recommendation to any stockholder of the Company as to how such stockholder should vote with respect to the Share Purchase or any other proposal to be voted upon by them in connection with the Transactions. All advice and opinions (written and oral) rendered by RBCCM are intended for the use and benefit of the Board of Directors (or special committee thereof) of the Company, acting solely in its capacity as such, and such advice or opinions may not be reproduced, summarized, excerpted from or referred to in any public document or given to any other person without the prior written consent of RBCCM; provided however, that RBCCM has agreed to the inclusion of the opinion in certain disclosure documents to be provided to holders of Company Ordinary Shares and/or filed in connection with certain court proceedings; provided further, however, that such opinion must be reproduced in full and that any description of or reference to RBCCM will be in a form reasonably acceptable to RBCCM and its counsel, such not to be unreasonably denied.
 
Our opinion does not address the merits of the underlying decision by the Company to engage in the Transactions or the relative merits of the Transactions compared to any alternative business strategy or transaction in which the Company might engage.
 
Our opinion addresses solely the fairness of the Exchange Ratio, from a financial point of view, to the holders of Company Ordinary Shares. Our opinion does not in any way address other terms or arrangements of the Transactions or the Agreements, including, without limitation, the financial or other terms of any other agreements contemplated by, or to be entered into in connection with, the Agreements. Further, in rendering our opinion we express no opinion about the fairness of the amount or nature of the compensation (if any) to any of the Company’s officers, directors or employees, or class of such persons, relative to the consideration to be issued by the Company.
 
Our opinion has been approved by RBCCM’s Fairness Opinion Committee.
 
Based on our experience as investment bankers and subject to the foregoing, including the various assumptions and limitations set forth herein, it is our opinion that, as of the date hereof, the Exchange Ratio is fair, from a financial point of view, to the holders of Company Ordinary Shares.
 
  Very truly yours,
 
/s/ RBC CAPITAL MARKETS, LLC
 
RBC CAPITAL MARKETS, LLC
 
B - 3
Exhibit 99.4
 
APPENDIX C
 
FORM OF REGISTRATION RIGHTS UNDERTAKING
 
 
 
 
 
 
 
January __, 2014
 
To:
 
All Holders (as defined in this Registration Rights Undertaking)
 
Registration Rights Undertaking
 
Reference is hereby made to that certain Share Purchase Agreement (the " Purchase Agreement ") dated as of September 16, 2013 by and among Perion Network Ltd., a company formed under the laws of Israel ( the " Company "), Conduit Ltd. , a company formed under the laws of Israel (" Conduit "), and ClientConnect Ltd., a company formed under the laws of Israel. Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to them in the Purchase Agreement.
 
In accordance with Section 1.5(iv) of the Purchase Agreement, and in consideration for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged and accepted, the Company hereby irrevocably undertakes and agrees as follows:
 
1.              Definitions .  As used in this Undertaking, the following capitalized terms shall have the following respective meanings:
 
1.1.           “ 1% Holder ” means a Holder that holds at the relevant time Registrable Securities consisting at least 1% of the issued and outstanding share capital of the Company at the relevant time.
 
1.2.           “ 3% Holder ” means a Holder that holds at the relevant time Registrable Securities consisting at least 3% of the issued and outstanding share capital of the Company at the relevant time or a Holder whose resales of Registrable Securities would otherwise be subject to volume limitations set forth in Rule 144 under the Securities Act.
 
1.3.           “ Board ” means the Board of Directors of the Company.
 
1.4.           “ Exchange Act ” means the Securities Exchange Act of 1934, and the rules and regulations promulgated thereunder; all as amended.
 
1.5.            “ Form F-3 ” means such form (or Form S-3, as the case may be) under the Securities Act as in effect on the date hereof or any successor or similar registration form under the Securities Act subsequently adopted by the SEC, which permits inclusion or incorporation of substantial information by reference to other documents filed by the Company with the SEC.
 
 
 
 
1.6.           “ Holder(s) ” means any shareholder of the Company that is listed in the Closing Spreadsheet delivered at Closing pursuant to Section 5.10 of the Purchase Agreement and delivers to the Company prior to the filing of the Purchase Agreement F-3 a signed joinder in the form attached hereto, and any of its respective permitted transferees and assigns, so long as it holds Registrable Securities.
 
1.7.           “ Holders Majority ” means 1% Holders holding at the relevant time a majority of all Registrable Securities held by all then 1% Holders.
 
1.8.           “ Ordinary Shares ” means Ordinary Shares, par value NIS 0.01 each, of the Company.
 
1.9.            “ Prospectus ” means the prospectus included in a Shelf Registration Statement, as amended or supplemented by any prospectus supplement and by all other amendments thereto and all material incorporated by reference in such prospectus.
 
1.10.            “ Register ,” “ registered ,” and “ registration ” refer to a registration effected by preparing and filing a registration statement in compliance with the Securities Act, and the declaration or ordering of effectiveness of such registration statement or document.
 
1.11.           “ 2012 Registration Rights Agreement ” means that certain Registration Rights Agreement, dated as of November 30, 2012, among the Company and the investors listed therein.
 
1.12.           “ Registrable Securities ” means (i) any Ordinary Shares issued at Closing to the Holders (including Ordinary Shares issued or issuable upon exercise of options), and (ii) any and all securities issued or issuable with respect to the securities described in clause (i) above, upon any stock split, stock dividend or the like, or into which such Ordinary Shares have been or may be converted to or exchanged into in connection with any merger, consolidation, reclassification, recapitalization or similar event; in each case, until their effective registration under the Securities Act and their resale in accordance with the registration statement in which such Registrable Securities are included or until their earlier sale in the open market pursuant to Rule 144 under the Securities Act.
 
1.13.           “ SEC ” means the United States Securities and Exchange Commission.
 
1.14.           “ Securities Act ” shall mean the Securities Act of 1933 and the rules and regulations promulgated thereunder; all as amended.
 
2.             Purchase Agreement F-3 .
 
2.1.            Purchase Agreement F-3 . As soon as practicable following the filing of the Company’s Annual Report on Form 20-F for the 2013 fiscal year, and in any event within the earlier of (i) thirty (30) calendar days following the filing of such Annual Report and (ii) one hundred and fifty (150) calendar days following the Closing Date, the Company shall file with the SEC a registration statement for an offering of Registrable Securities to be made on a delayed or continuous basis pursuant to Rule 415 of the Securities Act registering on Form F-3 the resale from time to time by the Holders thereof whose resales of Registrable Securities would otherwise be subject to volume limitations set forth in Rule 144 under the Securities Act (the “ Purchase Agreement F-3 ”), and the Company shall use its commercially reasonable best efforts to cause such Purchase Agreement F-3 to be declared effective under the Securities Act as soon as possible thereafter.
 
 
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2.2.            Election to Join Registration .  Each such Holder desiring to include in the Purchase Agreement F-3 all or any part of the Registrable Securities held by it shall, within thirty (30) days following the Closing Date, deliver to the Company a signed joinder to this Undertaking in form attached hereto specifying the number of Registrable Securities requested to be included and the other information required to set forth therein.  If a Holder decides not to include all of its Registrable Securities in any registration statement to be filed by the Company, such Holder shall nevertheless continue to have the right to include any Registrable Securities in any subsequent registration statement(s) as may be filed by the Company with respect to offerings of its securities, subject to the terms and conditions set forth in this Undertaking.
 
3.             Piggyback Registrations .
 
3.1.            Notice of Registration .   At any time and from time to time, the Company shall notify all 3% Holders in writing at least twenty-one (21) days prior to the filing of any registration statement for purposes of an offering of securities of the Company (but other than registration relating solely to employee benefit plans on Form S-8 or similar forms that may be promulgated in the future, or a registration relating solely to a SEC Rule 145 transaction on Form F-4 or similar forms that may be promulgated in the future) and will afford each such Holder requesting to be included in such registration, in accordance with this Section ‎ 3.1, an opportunity to include in such registration statement all or part of such Registrable Securities held by such Holder.   Each 3% Holder shall be afforded the opportunity pursuant to this Section ‎ 3.1 regardless of any contractual or other lock up arrangement that may apply to such Holder’s Registrable Securities and regardless of whether such Holder is entitled to sell its Registrable Securities in the open market pursuant to Rule 144 under the Securities Act.  Each 3% Holder desiring to include in any such registration statement all or any part of the Registrable Securities held by it shall, within fourteen ( 14 ) days after delivery of the above-described notice by the Company, so notify the Company in writing specifying the number of Registrable Securities requested to be included and, to the extent not previously done so, deliver to the Company a signed joinder to this Undertaking in form attached hereto.  If a Holder decides not to include all of its Registrable Securities in any registration statement to be filed by the Company, such Holder shall nevertheless continue to have the right to include any Registrable Securities in any subsequent registration statement(s) as may be filed by the Company with respect to offerings of its securities, subject to the terms and conditions set forth in this Undertaking.  The number of occurrences of the registration pursuant to this Section  ‎ 3 shall be unlimited.
 
 
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3.2.            Underwritten Offering .
 
 3.2.1.            If the registration statement under which the Company gives notice under this Section 3.2.1 is for an underwritten offering, the Company shall so advise the Holders of Registrable Securities as part of its notice made pursuant to Section ‎ 3.1.  In such event, the right of any such Holder to be included in a registration pursuant to this Section ‎ ‎ 3 shall be conditioned upon such Holder’s participation in such underwriting and the inclusion of such Holder’s Registrable Securities in the underwriting to the extent provided herein.  All Holders, and all other holders of Company securities, proposing to distribute their Registrable Securities through such underwriting shall enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting by the Company.  
 
 3.2.2.            Notwithstanding any other provision of this Agreement, if the underwriter determines in good faith that marketing factors require a limitation of the number of shares (including Registrable Securities) to be underwritten, the number of shares that may be included in the underwriting shall be allocated, first, to the Company; second, to the Investors (as defined in the 2012 Registration Rights Agreement) pro rata based on the total number of Ordinary Shares to be included in such registration by the Investors as required by the terms of the 2012 Registration Rights Agreement, if any; third, to the Holders pro rata based on the total number of respective Registrable Securities to be included in such registration by the Holders; and fourth, to any shareholder of the Company (other than a Holder and an Investor) pro-rata, based on the total number of shares requested to be included in such registration by such shareholder. Any Registrable Securities excluded or withdrawn from such underwriting shall be excluded and withdrawn from the registration.
 
3.3.            Right to Terminate Registration .  The Company shall have the right to terminate or withdraw any registration initiated by it under this Section ‎ ‎ 3 prior to the effectiveness of such registration, whether or not any Holder has elected to include securities in such registration without incurring any liability whatsoever towards any of the Holders.
 
4.              Shelf Registration Statement .
 
4.1.            Request for Registration . Subject to the conditions of this Section ‎ 4 , during the period from the expiration of the Purchase Agreement F-3 until the date which is the expiration of three (3) years from the latest date until which the Purchase Agreement F-3 is required to be effective (the “ Shelf Registration Period ”), if the Company shall receive a written request from any Holder(s) whose resales of Registrable Securities would otherwise be subject to volume limitations set forth in Rule 144 under the Securities Act, holding, in the aggregate, not less than 10% of the Registrable Securities then outstanding, that the Company file a registration statement for an offering to be made on a delayed or continuous basis pursuant to Rule 415 of the Securities Act registering the resale from time to time by such Holders of Registrable Securities with an aggregate anticipated offering price of at least $2,000,000 (the “ Shelf Registration Statement ”), and,  to the extent not previously done so, delivering to the Company a signed joinder to this Undertaking in form attached hereto, then the Company shall, within fifteen (15) days of the delivery thereof, deliver written notice of such request to all Holders.  Any Holder(s) whose resales of Registrable Securities would otherwise be subject to limitations set forth in Rule 144 under the Securities Act may elect to join in such request as specified in a written notice delivered to the Company within fifteen (15) days after delivery by the Company of its foregoing written notice and, to the extent not previously done so, delivering to the Company a signed joinder to this Undertaking in form attached hereto. The Shelf Registration Statement shall be on Form F-3 or another appropriate registration statement permitting registration of such Registrable Securities for resale by the Holders in accordance with the methods of distribution elected by them, which may include underwritten offerings, and set forth in such Shelf Registration Statement.  The Company shall use its commercially reasonable best efforts to cause the Shelf Registration Statement to be declared effective under the Securities Act within two ( 2) months after the Holders’ initial request in accordance with this Section ‎ 4.1 and to keep such Shelf Registration Statement continuously effective under the Securities Act until the disposition of all Registrable Securities included in such Shelf Registration Statement.  The number of occurrences of the registration pursuant to this Section ‎ 4 shall be limited to four during the Shelf Registration Period .
 
 
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4.2.            Exclusions . The Company shall not be required to effect a registration pursuant to this Section ‎ 4 (without limiting any other provisions of this Section ‎ ‎ 4 to that effect):
 
 4.2.1.            If Form F-3 or another appropriate registration statement is not available for such offering by the Holders;
 
 4.2.2.           If within ten (10) days of receipt of a written request from any Holder or Holders pursuant to this Section ‎ ‎ 4, the Company gives notice to such Holder or Holders of the Company’s good faith intention to file a registration statement for a public offering within forty five (45) days, provided that the Company actually files such registration statement within such forty five (45) days and makes reasonable good faith efforts to cause such registration statement to become effective and all applicable Holders are entitled to exercise their rights pursuant to Section ‎ 3 in connection with such registration statement;
 
 4.2.3.           During the period ending on a date one hundred eighty (180) days after the effective date of another registration statement (other than a registration statement on Form S-8);
 
 4.2.4.           If the Company shall furnish to the Holders requesting a registration statement pursuant to this Section ‎ ‎ 4, an officer’s certificate signed by order of the Board stating that in the good faith judgment of the Board (excluding any Board members who have a personal interest in the matter), it would be seriously detrimental to the Company and its shareholders for such Shelf Registration Statement to be effected at such time, in which event the Company shall have the right to defer the filing of the Shelf Registration Statement for a period of not more than forty five (45) days after receipt of the initial request of the Holder or Holders under this Section ‎ ‎ 4; provided, that such right to delay a request shall be exercised by the Company not more than twice in any twelve (12) month period; or
 
 
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 4.2.5.            In any particular jurisdiction in which the Company would be required to qualify to do business or to execute a general consent to service of process in effecting such registration, qualification or compliance.
 
4.3.            Suspension .
 
 4.3.1.            In addition to any suspension rights under subsection ‎ ‎ 4.3.2 below, upon the happening of any pending corporate development, public filing with the SEC or any other applicable federal, state governmental or similar event, that, in the good faith judgment of the Board (excluding any Board members who have a personal interest in the matter), renders it advisable to suspend the use of the Prospectus or upon the request by an underwriter in connection with an underwritten public offering of the Company’s securities, the Company may, not more than twice within a twelve-month period, for not more than forty five (45) days each (or, until December 31, 2015, for not more than sixty (60) days each), suspend use of the Prospectus on written notice to each Holder (which notice will not disclose the content of any material non-public information and will indicate the date of the beginning and end of the intended period of suspension, if known), in which case each Holder shall discontinue disposition of Registrable Securities covered by the registration statement or Prospectus until copies of a supplemented or amended Prospectus are distributed to the Holders or until the Holders are advised in writing by the Company that sales of Registrable Securities under the applicable Prospectus may be resumed and have received copies of any additional or supplemental filings that are incorporated or deemed incorporated by reference in any such Prospectus. The suspension and notice thereof described in this Section ‎ ‎ 4.3 shall be held by each Holder in strictest confidence and shall not be disclosed by such Holder, unless required by law.
 
 4.3.2.            In the event of: (i) any request by the SEC or any other applicable federal, state or foreign governmental authority for amendments or supplements to a registration statement or related prospectus or for additional information, (ii) the issuance by the SEC or any other applicable federal, state or foreign governmental authority of any stop order suspending the effectiveness of a registration statement or the initiation of any proceedings for that purpose, (iii) the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction or the initiation of any proceeding for such purpose, or (iv) any event or circumstance which necessitates the making of any changes in the registration statement or Prospectus, or any document incorporated or deemed to be incorporated therein by reference, so that, in the case of the registration statement, it will not contain any untrue statement of a material fact or any omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, or that in the case of the Prospectus, it will not contain any untrue statement of a material fact or any omission to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, then the Company shall deliver a certificate in writing to the Holders (the “ Suspension Notice ”) to the effect of the foregoing (which notice will not disclose the content of any material non-public information and will indicate the date of the beginning and end of the intended period of suspension, if known). Upon receipt of such Suspension Notice, the Holders will discontinue disposition of Registrable Securities covered by the registration statement or Prospectus (a “ Suspension ”) until the Holders’ receipt of copies of a supplemented or amended Prospectus prepared and filed by the Company, or until the Holders are advised in writing by the Company that the current Prospectus may be used, and have received copies of any additional or supplemental filings that are incorporated or deemed incorporated by reference in any such prospectus. In the event of any Suspension, the Company will use its commercially reasonable efforts to cause the use of the Prospectus so suspended to be resumed as soon as possible after delivery of a Suspension Notice to the Holders. The Suspension and Suspension Notice described in this Section ‎ 4.3.2 shall be held by each Holder in strictest confidence and shall not be disclosed by such Holder, unless required by law.  The required effectiveness period of any shelf registration statement filed pursuant to this Undertaking shall be extended by one day for each day that such registration statement is subject to a Suspension.
 
 
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 4.3.3.            The provisions of this Section ‎ 4.3 shall apply mutatis mutandis to the Purchase Agreement F-3.
 
5.            Obligations of the Company .   Whenever required to effect the registration of any Registrable Securities (including pursuant to the Purchase Agreement F-3), the Company shall, without limitation of any other provision herein, as expeditiously as reasonably possible:
 
5.1.           Prepare and file with the SEC a registration statement with respect to such Registrable Securities and use its commercially reasonable best efforts to cause such registration statement to become effective as soon as possible after the filing, and keep such registration statement effective until the earliest of (i) five years following effectiveness, (ii) the disposition of all Registrable Securities included in such registration statement and (iii) such time as all the Registrable Securities included in such registration statement shall be permitted to be sold by the respective Holders thereof without registration and without any volume limitations set forth in Rule 144 under the Securities Act . In case of the Purchase Agreement F-3, p rior to the filing of each draft Purchase Agreement F-3 and any correspondence with the SEC regarding such draft, provide Conduit with a reasonable opportunity to review and comment on the drafts and correspondence and consider in good faith the comments of Conduit . In case of a registration statement pursuant to Section ‎ 4 , such registration statement shall include a plan of distribution in customary form ;
 
5.2.           Prepare and file with the SEC (or any other applicable federal, state or foreign governmental authority) such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement;
 
 
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5.3.           Furnish to the Holders such number of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act, and such other documents as they may reasonably request in order to facilitate the public sale or other disposition of the Registrable Securities covered by such registration statement;
 
5.4.           Use its reasonable efforts to register and qualify the securities covered by such registration statement under such other securities or Blue Sky laws of such jurisdictions as shall be reasonably requested by the Holders; provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions;
 
5.5.           In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter(s) of such offering;
 
5.6.           Immediately notify each seller of Registrable Securities covered by such registration statement and each underwriter under such registration statement at any time when a prospectus relating thereto is required to be delivered under the Securities Act of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing. The Company shall prepare and furnish to each such seller a reasonable number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to the purchasers of such Registrable Securities, such prospectus shall not include any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing;
 
5.7.           Use commercially reasonable best efforts to cooperate with the sellers in the disposition of the Registrable Securities covered by such registration statement, including without limitation in the case of an underwritten offering using commercially reasonable best efforts to cause key executives of the Company and its subsidiaries to participate under the direction of the managing underwriter in a “road show” scheduled by such managing underwriter in such locations and of such duration as in the judgment of such managing underwriter are appropriate for such underwritten offering;
 
5.8.           In connection with the preparation and filing of each registration statement registering Registrable Securities under the Securities Act, and before filing any such registration statement or any other document in connection therewith, give the participating Holders of Registrable Securities and their respective counsel and accountants, the opportunity to (i) review any such registration statement, each prospectus included therein or filed with the SEC, each amendment thereof or supplement thereto and any other document to be filed, and (ii) provide comments to such documents if necessary to cause the description of such Holders of Registrable Securities to be accurate; and
 
 
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5.9.           Otherwise use commercially reasonable best efforts to comply with the Securities Act, the Exchange Act and any other applicable rules and regulations of the SEC, and make available to the Holders, as soon as reasonably practicable, an earnings statement covering the period of at least 12 months after the effective date of such registration statement, which earnings statement shall satisfy Section 11(a) of the Securities Act and any applicable regulations thereunder, including Rule 158.
 
6.              Registration Expenses .   All registration expenses incurred in connection with any registration, qualification or compliance pursuant to Sections ‎ ‎ 2 through ‎ ‎ 5 herein shall be borne by the Company.  Registration expenses shall include all expenses incurred by the Company or incident to the Company’s performance of or compliance with this Undertaking with respect to any registration in complying with Sections ‎ ‎ 2 through ‎ ‎ 4 hereof, including, without limitation, expenses incurred in connection with the preparation of a prospectus, printing, registration and filing fees, printing fees and expenses, fees and disbursements of counsel, accountants and other advisors for the Company, reasonable fees and disbursements of a single special counsel for the Holders (selected by Holders of the majority of the Registrable Securities requesting such registration), taxes, fees and expenses (including reasonable counsel fees) incurred in connection with complying with state securities or “blue sky” laws, fees of the NASDAQ Stock Market or any other securities exchange on which the Ordinary Shares of the Company are then listed, fees of transfer agents or registrars and the expense of any special audits incident to or required by any such registration. Notwithstanding the foregoing, however, all underwriters’ discounts and commissions in respect of the sale of Registrable Securities shall be paid by the Holders, pro rata in accordance with the number of Registrable Securities sold in the offering.
 
7.              Preconditions to Participation in Underwritten Registrations .   No Holder of Registrable Securities may participate in any underwritten registration hereunder unless such Holder (i) agrees to enter into a written underwriting agreement with the managing underwriter selected in the manner herein provided in such form and containing such provisions as are customary in the securities business for such an arrangement between such underwriter and companies of the Company's size and investment stature, and (ii) provides any relevant information and completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements, and other documents required under the terms of such underwriting arrangements, provided, however, that (i) the representations and warranties by, and the other agreements on the part of, the Company to and for the benefit of the underwriters shall also be made to and for the benefit of such Holders of Registrable Securities and (ii) no such Holder shall be required to make, and the Company shall use commercially reasonable best efforts to ensure that no underwriter requires any Holder to make, any representations and warranties to, or agreements with, any underwriter in a registration effected pursuant to Sections ‎ ‎ 2 through ‎ ‎ 4  hereof other than customary representations, warranties and agreements relating to such Holder's title to Registrable Securities and authority to enter into the underwriting agreement.
 
 
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8.             Indemnification .   In the event any Registrable Securities are included in a registration statement under Sections ‎ ‎ 2 through ‎ ‎ 4 hereof:
 
8.1.           To the extent permitted by law, the Company will indemnify and hold harmless each Holder, its affiliates, the partners, officers, directors and shareholders of each Holder, legal counsel and accountants for each Holder, any underwriter (as defined in the Securities Act) in an underwritten offering for such Holder and each person, if any, who controls such Holder or underwriter within the meaning of the Securities Act or the Exchange Act, against any losses, claims, damages, or liabilities (joint or several) to which they may become subject under the Securities Act, the Exchange Act or other federal or state law, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (collectively a “ Violation ”) by the Company: (i) any untrue statement or alleged untrue statement of a material fact contained in such registration statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto, (ii) the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading, or (iii) any violation or alleged violation by the Company of the Securities Act, the Exchange Act, any state securities law or any rule or regulation promulgated under the Securities Act, the Exchange Act or any state securities law in connection with the offering covered by such registration statement; and the Company will pay as incurred to each such Holder, its affiliates, partners, officers, or directors, any underwriter (as defined in the Securities Act) in an underwritten offering for such Holder and each person, if any, who controls such Holder or underwriter within the meaning of the Securities Act or the Exchange Act, for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action; provided however, that the indemnity agreement contained in this Section ‎ 8.1 shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Company, which consent shall not be unreasonably withheld, nor shall the Company be liable in any such case for any such loss, claim, damage, liability or action to the extent that it arises out of or is based upon a Violation which occurs in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by such Holder, partner, officer, director, underwriter or controlling person of such Holder.
 
8.2.           To the extent permitted by law, each Holder will, if Registrable Securities held by such Holder are included in the securities as to which such registration, qualifications or compliance is being effected, indemnify and hold harmless the Company, each of its directors, officers, legal counsel and accountants and each person, if any, who controls the Company within the meaning of the Securities Act or the Exchange Act, any underwriter and any other Holder selling securities under such registration statement or any of such other Holder’s affiliates, partners, directors, officers, legal counsel and accountants or any person who controls such underwriter or other Holder within the meaning of the Securities Act or the Exchange Act, against any losses, claims, damages or liabilities (joint or several) to which such indemnified parties may become subject under the Securities Act, the Exchange Act or other federal or state law, insofar as such losses, claims, damages or liabilities (or actions in respect thereto) arise out of or are based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished by such Holder specifically for use in connection with such registration; and each such Holder will pay as incurred any legal or other expenses reasonably incurred by such indemnified parties in connection with investigating or defending any such loss, claim, damage, liability or action if it is judicially determined that there was such a Violation; provided, however, that the indemnity agreement contained in this Section ‎ ‎ 8.2 shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Holder, which consent shall not be unreasonably withheld; provided further, that in no event shall any indemnity under this Section ‎ ‎ 8.2 exceed the net proceeds from the offering received by such Holder.
 
 
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8.3.           Promptly after receipt by an indemnified party under this Section ‎ 8 of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section ‎ 8, deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties; provided, however, that an indemnified party shall have the right to retain its own counsel, with the fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such proceeding, provided further that the indemnifying party shall not be required to pay the fees of more than one counsel for all of the indemnified parties. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action, shall, to the extent materially prejudicial to its ability to defend such action, relieve such indemnifying party of its liability to the indemnified party under this Section ‎ ‎ 8, but the omission so to deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section ‎ ‎ 8.
 
8.4.           If the indemnification provided for in this Section ‎ ‎ 8 is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any losses, claims, damages or liabilities referred to herein, the indemnifying party, in lieu of indemnifying such indemnified party thereunder, shall to the extent permitted by applicable law contribute to the amount paid or payable by such indemnified party as a result of such loss, claim, damage or liability in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and of the indemnified party on the other in connection with the Violation(s) that resulted in such loss, claim, damage or liability, as well as any other relevant equitable considerations. The relative fault of the indemnifying party and of the indemnified party shall be determined by a court of law by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission; provided, that in no event shall any contribution by a Holder hereunder exceed the net proceeds from the offering received by such Holder; and provided further that no party will be liable for contribution with respect to the settlement of any claim or action effected without its written consent.
 
 
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8.5.           The obligations of the Company and Holders under this Section ‎ 8 shall survive completion of any offering of Registrable Securities in a registration statement and the termination of this Undertaking.  No indemnifying party, in the defense of any such claim or litigation, shall, except with the consent of each indemnified party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect to such claim or litigation.
 
8.6.           The indemnification provisions of this Section ‎ 8 shall not be in limitation of any other indemnification provisions included in any other agreement. Notwithstanding the foregoing, to the extent that the provisions on indemnification and contribution contained in any underwriting agreement entered into in connection with an underwritten public offering are in conflict with the foregoing provisions, the provisions in such underwriting agreement shall prevail.
 
9.              Lock-Up Agreement .
 
9.1.           Each Holder and the Company hereby agrees that, if so requested by the representative of the lead or managing underwriters of a public offering effected by the Company pursuant to a registration statement (the “ Managing Underwriter ”), such Holder and Company shall not, without the prior consent of the Managing Underwriter (i) lend, offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, any Registrable Securities or any securities of the Company (whether such shares or any such securities are then owned by the Holder, or are thereafter acquired), or (ii) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the Registrable Securities, whether any such transaction described in clause (i) or (ii) above is to be settled by delivery of Registrable Securities or such other securities, in cash or otherwise, during the period specified by the Managing Underwriter, with such period not to exceed 90 days following the effective date of such registration statement (the “ Market Standoff Period ”), provided that (i) if the Company issues an earnings release or material news, or if a material event relating to the Company occurs, during the last seventeen (17) days of the Market Standoff Period, or (ii) if prior to the expiration of the Market Standoff Period, the Company announces that it will release earnings results during the sixteen (16)-day period beginning on the last day of the Market Standoff Period, the Market Standoff Period may be extended by the Managing Underwriter until the expiration of the eighteen (18)-day period beginning on the issuance of the earnings release or the occurrence of the material news or material event. Any discretionary waiver or termination of the restrictions contained in any such agreement by the Company or the underwriter shall first apply to the Holders of Registrable Securities, which shall have preference over all other holders of the Company’s securities to register and sell the shares to be registered within such waiver or termination of restrictions.
 
 
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9.2.           The Company may impose stop-transfer instructions with respect to securities subject to the foregoing restrictions until the end of such Market Standoff Period.
 
9.3.           The provisions of this Section  ‎ ‎ 9 shall not apply to the sale of any shares to an underwriter pursuant to an underwriting agreement , and shall only be applicable to the Holder if all, officers, directors and shareholders of the Company holding a percentage of the Company’s share capital as determined by the Managing Underwriter, enter into similar agreements.
 
9.4.           The underwriters in connection with a registration statement so filed are intended to be third party beneficiaries of this Section  ‎ ‎ 9 and shall have the right, power and authority to enforce the provisions hereof as though they were a party hereto.
 
9.5.             At the request of the Managing Underwriter, each Holder shall execute and deliver a lock-up letter in the form reasonably requested by such Managing Underwriter substantially on the terms set forth in this Section ‎ 9 .
 
10.            Assignment of Registration Rights; Transfer of Registrable Securities .   The rights to cause the Company to register Registrable Securities pursuant to this Agreement may be assigned by a 1% Holder to any transferee of all or part of the Registrable Securities held by such 1% Holder, provided that (i) the transferee is a 1% Holder or becomes a 1% Holder as a result of such transfer, (ii) the transferor furnishes to the Company written notice of the name and address of such transferee and the securities with respect to which such registration rights are being assigned and (iii) to the extent not previously done so, the transferee delivers to the Company a signed joinder to this Undertaking in form attached hereto.
 
11.            Rule 144 Reporting .   With a view to making available to all Holders the benefits of certain rules and regulations of the SEC which may permit the sale of the Registrable Securities to the public without registration, the Company agrees to:
 
11.1.         Make and keep available adequate current public information with respect to the Company, within the meaning Rule 144(c) under the Securities Act or any similar or analogous rule promulgated under the Securities Act, at all times after the effective date of the first registration statement filed by the Company for an offering of its securities to the general public.
 
11.2.         Furnish to such Holder forthwith upon request: (i) a written statement by the Company as to its compliance with the applicable informational requirements of Rule 144(c) under the Securities Act (or similar rule then in effect), and of the Exchange Act; (ii) a copy of the most recent annual or quarterly report of the Company; and (iii) such other reports and documents as a Holder may reasonably request in availing itself of any rule or regulation of the SEC allowing it to sell any such securities without registration; and
 
 
C - 13
 
11.3.         Comply with all other necessary filings and other requirements so as to enable the holders of Registrable Securities to sell Registrable Securities under Rule 144 under the Securities Act (or similar rule then in effect).
 
12.            Information by Holders . As a condition to the inclusion of any Registrable Securities in a registration pursuant to this Undertaking, the Holder of such Registrable Securities shall timely furnish to the Company such information regarding such Holder and the distribution proposed by such Holder as the Company may reasonably request in writing and as shall be reasonably required for any registration, qualification or legal compliance.
 
13.            Subsequent Registration Rights .  Other than the registration rights granted to the Investors under the 2012 Registration Rights Agreement, without the consent of the Holders Majority, the Company may not grant, or enter into any other agreement with any holder or prospective holder of any securities of the Company that would grant such holder, registration rights, except for rights inferior to, or on a pari passu basis with, those granted hereunder; provided, however that the Company shall not allow such holder of securities of the Company: (i) to include such securities in any registration filed under Section  ‎ 3 hereof, unless under the terms of such agreement, such holder may include such securities in any such registration only to the extent that the inclusion of such securities will not reduce the amount of the Registrable Securities of the Holders that are included; or (ii) to demand underwritten registration of their securities.
 
14.            Miscellaneous .
 
14.1.            Entire Agreement .  This Undertaking constitute the full and entire understanding and agreement between the Company and Holders with regard to the subject matters hereof and supersedes all prior negotiations, agreements and understandings (other than the Purchase Agreement) of the Company and the Holders of any nature, whether oral or written, relating thereto.
 
14.2.            Amendment of Registration Rights . Any provision of this Undertaking may be amended and the observance thereof may be waived (either generally or in a particular instance and either retroactively or prospectively), with the written consent of the Company and the Holders Majority.  Any amendment or waiver effected in accordance with this Section ‎ ‎ 14.2   shall be binding upon the Company and all the Holders.
 
14.3.            Governing Law; Venue .  This Undertaking shall be governed by and construed under the laws of the State of Israel, without regard to the conflicts of law principles of such State, except with respect to matters that are subject to foreign securities laws and regulations, which shall be governed by such applicable laws and regulations. The Company and the Holders irrevocably submit to the exclusive jurisdiction of the competent courts located in Tel Aviv-Jaffa, Israel in respect of any dispute or matter arising out of or connected with this Undertaking.
 
 
C - 14
 
14.4.            Successors and Assigns .  The provisions hereof shall inure to the benefit of, and be binding upon, the successors, permitted assigns, heirs, executors, and administrators of the Holders and the Company.
 
14.5.            Severability .  In the event one or more of the provisions of this Undertaking should, for any reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality, or unenforceability shall not affect any other provisions of this Undertaking, and this Undertaking shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein.
 
14.6.            Delays or Omissions; Remedies .  It is agreed that no delay or omission to exercise any right, power, or remedy accruing to any Holder, upon any breach, default or noncompliance of the Company under this Undertaking shall impair any such right, power, or remedy, nor shall it be construed to be a waiver of any such breach, default or noncompliance, or any acquiescence therein, or of any similar breach, default or noncompliance thereafter occurring.  It is further agreed that any waiver, permit, consent, or approval of any kind or character on any Holder’s part of any breach, default or noncompliance under the Undertaking or any waiver on such Holder’s part of any provisions or conditions of this Undertaking must be in writing and shall be effective only to the extent specifically set forth in such writing.  All remedies, either under this Undertaking, by law, or otherwise afforded to Holders, shall be cumulative and not alternative.
 
14.7.            Notices .  All notices required or permitted hereunder shall be in writing and shall be deemed effectively given: (i) upon personal delivery to the Company or the Holders, in each case that is to be notified, (ii) when sent by confirmed electronic mail or facsimile if sent during normal business hours of the recipient; if not, then on the next business day, (iii) three (3) days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (iv) two (2) days after deposit with an internationally recognized courier, specifying two day delivery, with written verification of receipt. All communications shall be sent to the Company or the Holders, in each case that is to be notified, at the address as set forth below or at such other address as such person may designate by advance written notice to the others.
 
 
14.7.1.
If to the Company:
 
Perion Network Ltd.
4 Ha'Nechoset Street
Tel Aviv 69710, Israel
Attention: General Counsel
Facsimile No.: +972-3-644-5502
Email: LimorG@Perion.com
With a mandatory copy to (which shall not constitute notice):
 
Goldfarb Seligman & Co.
Electra Tower
98 Yigal Alon Street
Tel-Aviv 67891, Israel
Attention: Adam M. Klein, Adv.
Facsimile No.: +972 (3) 521-2212
Email: adam.klein@goldfarb.com
 
 
C - 15
 
 
 
14.7.2.
If to a Holder: to the address set forth in the Closing Spreadsheet.
 
With a mandatory copy to (which shall not constitute notice):
 
Meitar Liquornik Geva Leshem Tal
16 Abba Hillel Silver Rd.,
Ramat-Gan 52506, Israel
Attention: Dan Shamgar, Adv. and Ariel Aminetzah, Adv.
Facsimile No.: +972-3-6103111
Email: dshamgar@meitar.com ; arielami@meitar.com

14.8.          Aggregation of Shares .  All Registrable Securities held by any Holder and any entity affiliated with any Holder, shall be aggregated together for the purpose of determining the availability of any rights under this Undertaking, the applicability of any limitation under this Undertaking, or calculating such Holder’s pro rata share. The term “affiliate” shall have the meaning assigned to it in Rule 405 under the Securities Act.
 
14.9.           Termination of Registration Rights . The right of any Holder to request registration or inclusion in any registration pursuant to this Undertaking shall terminate ten (10) years after the Closing Date.
 
- Signature page follows -
 
 
C - 16
 
In Witness Whereof , the undersigned has duly signed this Registration Rights Undertaking as of this ___ day of January, 2014.
 
   
Perion Network Ltd .
   
Name:
   
Title:
   
     

 
C - 17
 
JOINDER TO REGISTRATION RIGHTS UNDERTAKING
 
The undersigned hereby consents to and agrees to become a party to, be bound by and comply with all of the provisions of the Registration Rights Undertaking executed by Perion Network Ltd. on January __, 2014 (the “ Registration Rights Undertaking ”) and that all the Registrable Securities (as defined in the Registration Rights Undertaking) held by the undersigned are and shall be subject to all of the rights, obligations and restrictions described in the Registration Rights Undertaking in the same manner as if the undersigned were an original signatory thereto.
 
Accordingly, the undersigned has executed and delivered this Joinder to Registration Rights Undertaking as of ____ day of _____, ____ .
 
[NAME]
 
By:____________________________
Name: _________________________
Title:__________________________
 
Address for Notices:
________________
________________
Fax:____________
Email:__________

Number of Registrable Securities held: ­­­­­­­­­­­­­­­­­­­­­­­­­­­­________________
 
C - 18
Exhibit 99.5
 
APPENDIX D
 
FORM OF VOTING AGREEMENT OF SIGNIFICANT CONDUIT SHAREHOLDERS
 
 
 
 
 
 
VOTING AGREEMENT
 
This VOTING AGREEMENT (the “ Agreement ”), dated as of September 16, 2013, is entered into by and between Perion Network Ltd., an Israeli company (“ Perion ”), and the shareholder set forth on the signature page hereto (the “ Shareholder ”).
 
WHEREAS, concurrently with the execution and delivery of this Agreement, (i) Conduit Ltd., an Israeli company (“ Conduit ”), and ClientConnect Ltd., a newly incorporated Israeli company affiliated with Conduit (“ ClientConnect ”), are entering into a Split Agreement (the “ Split Agreement ”), dated as of even date herewith, pursuant to which the entire activities and operations, and related assets and liabilities, of the Business (as defined in the Split Agreement) will be transferred to ClientConnect under the terms and conditions set forth in the Split Agreement, and the shareholders of Conduit will be issued shares in ClientConnect identical to their respective holdings in Conduit, thereby becoming the shareholders of ClientConnect (the “ Split ”), all pursuant to an arrangement among Conduit and its shareholders under Sections 350 and 351 of the Companies Law-1999 (the “ Arrangement ”) that is subject to court approval ; and (ii) Conduit, ClientConnect and Perion are entering into a Share Purchase Agreement, dated as of even date herewith (the “ Transaction Agreement ”), pursuant to which, among other things, Perion will purchase from the shareholders of ClientConnect the outstanding share capital of ClientConnect and ClientConnect will become a wholly owned subsidiary of Perion, pursuant to the terms and conditions set forth in the Transaction Agreement and the Arrangement; and
 
WHEREAS, as of the date hereof, the Shareholder is the record and/or beneficial owner of, and has the sole right to vote and dispose of or cause to be voted or disposed of, [________] ordinary shares, par value NIS 0.01 per share, of Conduit (the “ Shares ”); and
 
WHEREAS, as a material inducement to the willingness of Perion to enter into the Transaction Agreement and to consummate the transactions set forth therein, the Shareholder has agreed to enter into this Agreement.
 
NOW, THEREFORE, in consideration of the foregoing and the agreements set forth below, the parties hereto agree as follows:
 
1.             Grant of Irrevocable Proxy . The Shareholder, on the date hereof, has validly executed and delivered to Perion an irrevocable proxy, in the form attached hereto as Exhibit A (the “ Proxy ”).
 
2.              Additional Restrictions . For so long as the Proxy is in effect (as set forth therein), the Shareholder agrees not to:
 
a.           sell, transfer (including gift), pledge, encumber, assign or otherwise dispose of any Shares or any interest contained therein;
 
b.           grant any proxies or power of attorney or enter into a voting agreement or other arrangement with respect to any Shares or deposit any Shares into a voting trust (unless such trust becomes subject to this Agreement); or
 
c.           take any action that would make any representation or warranty of the Shareholder contained herein untrue or incorrect in any material respect or have the effect of preventing or disabling the Shareholder from performing the Shareholder’s obligations under this Agreement.
 
 
 
 
3.              Representations and Warranties of the Shareholder. The Shareholder hereby represents and warrants as follows: This Agreement and the Proxy constitute the Shareholder’s valid and legally binding obligation enforceable against it in accordance with their respective terms , except as such enforceability may be limited by principles of public policy and subject to the laws of general application relating to bankruptcy, insolvency and the relief of debtors and rules of law governing specific performance, injunctive relief or other equitable remedies.
 
a.           The Shareholder has good and valid title to, and is the sole lawful owner, beneficially and of record, of all of the Shares, free and clear of any and all encumbrances relating to ownership and voting. The Shareholder has sole voting power and sole power to issue instructions with respect to the matters set forth in this Agreement and sole power to agree to all of the matters set forth in this Agreement. The Shareholder has not sold, pledged or otherwise transferred any interests in the Shares to any person.
 
b.            The Shares are not subject to any shareholders agreement, voting agreements, proxies, trusts or other agreement or understandings relating to the voting thereof which would prevent Shareholder from performing its obligations hereunder. Any proxies heretofore given in respect of the Shares are not irrevocable, and any such proxies have been revoked.
 
c.           The execution and delivery by the Shareholder of this Agreement and the Proxy do not, and the consummation of the transactions contemplated hereby will not, require Shareholder to obtain or deliver any notice, consent, waiver, approval, order or authorization or permit of, or registration, declaration or filing with, or notification to, any court, administrative agency, commission, governmental or regulatory authority or any other person.
 
d.           There is no suit, action, proceeding, claim or investigation, decree, order, judgment or legal proceeding of any nature, pending, or, to Shareholder’s knowledge, threatened against it or the Shares, that seeks to prevent Shareholder from executing, delivering or performing this Agreement, the Proxy and the transactions contemplated hereby, or that apply to the Shares or by which the Shares are bound.
 
4.              Termination .  This Agreement shall terminate on the earlier to occur of the date of termination of the Transaction Agreement pursuant to its respective terms or the closing of the transactions contemplated thereby.  Termination shall not relieve any party from liability for any breach of its obligations under this Agreement committed prior to such termination.
 
5.              Additional Shares. In the event of any acquisition by Shareholder of any shares of Conduit or of any stock split (bonus shares), consolidation, share dividend (including any dividend or distribution of securities convertible into share capital), reorganization, reclassification, combination, recapitalization or other like change with respect to the Shares occurring after the date hereof and prior to the closing of the Transaction Agreement, all references in this Agreement and the Proxy to the Shares shall be adjusted to include all such shares held by the Shareholder.
 
6.              Further Assurances. Subject to the terms of this Agreement and any applicable law, the Shareholder, at the reasonable request of Perion, shall execute and deliver, or cause to be executed and delivered, such other documents and instruments and do and perform such other actions as may be necessary or desirable for effecting the provisions of this Agreement and the transactions contemplated hereby .
 
 
D - 2
 
7.              Specific Enforcement . Shareholder hereby acknowledges that monetary damages may not be a sufficient or adequate remedy for any breach or violation of any of its obligations under this Agreement and that, in addition to any other remedy which may be available to Perion hereunder or in law or equity, and without any wavier or limitation with respect thereto, Perion shall be entitled to seek injunctive and other equitable relief, including specific performance, with respect to any such breach or violation and to enforce specifically the terms and provisions hereof, in any court of competent jurisdiction, and the Shareholder hereby waives the requirement of any posting of a bond in connection with the remedies described herein, to the extent applicable. Any and all remedies herein expressly conferred upon a party will be deemed cumulative with and not exclusive of any other remedy conferred hereby, or by law or equity upon such party, and the exercise by a party of any one remedy will not preclude the exercise of any other remedy.
 
8.              Miscellaneous .  Neither this Agreement, nor any rights, interests or obligations under this Agreement may be assigned or transferred, in whole or in part, by operation of law or otherwise by the Shareholder, without the prior consent in writing of Perion, and any such assignment without such prior written consent shall be null and void. This Agreement and the Proxy shall be solely governed by, and construed in accordance with, the laws of the State of Israel, without giving effect to any other choice of law or conflict of law provision or rule.  Any dispute arising under or in relation to this Agreement or the Proxy shall be resolved in, and the sole and exclusive jurisdiction shall be of, a competent court located in Tel Aviv-Jaffa, and each of the parties hereby submits irrevocably to the jurisdiction of such courts. This Agreement may be signed in two or more counterparts.
 
[Signature Pages Follow]
 
 
D - 3
 
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the Shareholder and a duly authorized officer of Perion on the day and year first written above.
 
 
PERION NETWORK LTD.
 
       
 
By:
   
   
Name:
 
    Title:  
       
Signature Page to Voting Agreement
 
 
D - 4
 
 
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the Shareholder and a duly authorized officer of Perion on the day and year first written above.
 
 
[SHAREHOLDER].
 
       
 
By:
   
    Name:  
    Title:   
       
 
Number of Shares owned of record:  [_______]
 
 
Signature Page to Voting Agreement
 
 
D - 5
 
Exhibit A

IRREVOCABLE PROXY

The undersigned shareholder of Conduit Ltd., an Israeli company (“ Conduit ”), hereby irrevocably appoints and constitutes Josef Mandelbaum and/or Yacov Kaufman as the attorney and proxy of the undersigned with full power of substitution and resubstitution to the full extent of the undersigned’s rights with respect to the [_______] ordinary shares, par value NIS 0.01 per share, of Conduit owned of record by the undersigned as of the date of this irrevocable proxy (together with any shares hereafter owned, if any, including as a result of exercise of the options or other securities or rights convertible, exercisable or exchangeable into Conduit’s shares or otherwise, the “ Shares ”). Upon execution of this irrevocable proxy, all prior proxies given by the undersigned with respect to any of the Shares regarding the matters that are the subject hereof are hereby revoked and no subsequent proxies regarding such matters will be given with respect to any of the Shares.
 
Each of the attorneys and proxies named above is hereby instructed and authorized to exercise this irrevocable proxy to appear in the name and instead of the undersigned for the purpose of establishing a quorum and to vote (or cause to be voted) all of the Shares, at any meeting of the shareholders of Conduit, and at any adjournment(s) or postponement(s) thereof, however convened or ordered by the District Court of Tel Aviv−Jaffa in connection with the motion of Conduit for an arrangement among Conduit and its shareholders under Sections 350 and 351 of the Companies Law-1999 in accordance with Section 5.14 of that certain Share Purchase Agreement, dated as of the date herewith (including exhibits and schedules thereto, the “ Transaction Agreement ”), among Perion Network Ltd., Conduit and ClientConnect Ltd., as follows: (i) in favor of the Transaction Agreement  and the transactions contemplated thereby; (ii) against any action or agreement that would result in a breach in any respect of any covenant, representation or warranty or any other obligation or agreement of Conduit under the Transaction Agreement; and (iii) against any other action involving Conduit or any of its subsidiaries which is intended, or is reasonably expected, to impede, interfere with, delay, postpone, or adversely affect the consummation of the Transaction Agreement and the transactions contemplated thereby.
 
The undersigned acknowledges and agrees that this proxy is irrevocable and is a special power of attorney and coupled with an interest sufficient in law to support an irrevocable power and shall expire on the earlier to occur of the date of termination of the Transaction Agreement pursuant to its terms or the closing of the transactions contemplated thereby.
 
This irrevocable proxy does not relate to, and the undersigned remains entitled to vote in its discretion the Shares on, all other matters.  This irrevocable proxy shall be binding upon the successors and assigns of the undersigned and shall survive the death, adjudication of incompetence, bankruptcy or the like of the undersigned. This irrevocable proxy shall survive the transfer of the Shares, until duly replaced by a similar irrevocable power of attorney or proxy executed by the transferee.
 
 
D - 6
 

Date:   September 16, 2013
 
 
[SHAREHOLDER].
 
       
 
By:
   
    Name:  
    Title:   
       
 
Number of Shares owned of record:  [_______]
 
 
Signature Page to Irrevocable Proxy
 
D - 7
Exhibit 99.6
 
APPENDIX E
 
FORM OF STANDSTILL AGREEMENT
 
 
 
 
 
STANDSTILL AGREEMENT
 
This STANDSTILL AGREEMENT (the “ Agreement ”), dated as of September 16, 2013, is entered into by and between Perion Network Ltd., an Israeli company (“ Perion ”), and the party set forth on the signature page hereto (the “ Shareholder ”).
 
WHEREAS, concurrently with the execution and delivery of this Agreement, (i) Conduit Ltd., an Israeli company (“ Conduit ”), and ClientConnect Ltd., a newly incorporated Israeli company affiliated with Conduit (“ ClientConnect ”), are entering into a Split Agreement (the “ Split Agreement ”),  dated as of even date herewith, pursuant to which the entire activities and operations, and related assets and liabilities, of the Business (as defined in the Split Agreement) will be transferred to ClientConnect under the terms and conditions set forth in the Split Agreement, and the shareholders of Conduit will be issued shares in ClientConnect identical to their respective holdings in Conduit, thereby becoming the shareholders of ClientConnect (the “ Split ”), all pursuant to an arrangement among Conduit and its shareholders under Sections 350 and 351 of the Companies Law-1999 (the “ Arrangement ”) that is subject to court approval; and (ii) Conduit, ClientConnect and Perion are entering into a Share Purchase Agreement, dated as of even date herewith (the “ Transaction Agreement ”), pursuant to which, among other things, Perion will purchase from the shareholders of ClientConnect the outstanding share capital of ClientConnect and ClientConnect will become a wholly owned subsidiary of Perion, pursuant to the terms and conditions set forth in the Transaction Agreement and the Arrangement; and
 
WHEREAS, as of the closing under the Transaction Agreement, the Shareholder will be issued new ordinary shares, par value NIS 0.01 per share, of Perion (the “ Shares ”); and
 
WHEREAS, as a material inducement to the willingness of Perion to enter into the Transaction Agreement and to consummate the transactions set forth therein, the Shareholder has agreed to enter into this Agreement.
 
NOW, THEREFORE, in consideration of the foregoing and the agreements set forth below, the parties hereto agree as follows:
 
1.              Standstill .  For a period commencing at the closing under the Transaction Agreement and ending on the earlier of (i) the last business day preceding the 2015 annual shareholder meeting of Perion or (ii) December 30, 2015, the undersigned shall not vote any of the Shares at any annual, general, special or other meeting of the shareholders of Perion, and at any adjournment(s) or postponement(s) thereof, however called or convened, in favor of (a) any change in the size of the Board of Directors of Perion (the “ Perion Board ”), (b) an amendment of the Articles of Association of Perion effecting any change to the staggered board structure of Perion as set forth in the current Articles of Association of Perion or having the effect of shortening or terminating the term of service of any member of the Perion Board and/or (c) shortening or terminating the term of service of any member of the Perion Board (each, a “ Fundamental Board Event ”), in each case unless the Perion Board recommends an affirmative vote in favor of the Fundamental Board Event. For the avoidance of doubt, nothing in this Agreement shall prevent the Shareholders from voting for, against or abstaining from the election of any nominees to the Perion Board.  The Shareholder's obligations pursuant to this Section 1 shall expire if (x) any person (excluding any shareholder of Conduit as of the date hereof and any person who is subject to standstill obligations similar to those set forth in this Agreement) becomes the beneficial owner of 24.9% or more of the outstanding share capital of Perion, or (y) a Fundamental Board Event occurs despite the Shareholder's compliance with its obligations hereunder and the compliance of all other shareholders of Perion that are subject to standstill obligations similar to those set forth in this Agreement with such obligations  (each, a “ Standstill Expiration Event ”).
 
 
 
 
2.              Representations and Warranties of the Shareholder.   The Shareholder hereby represents and warrants as follows:
 
a.           This Agreement constitutes the Shareholder’s valid and legally binding obligation enforceable against it in accordance with their respective terms , except as such enforceability may be limited by principles of public policy and subject to the laws of general application relating to bankruptcy, insolvency and the relief of debtors and rules of law governing specific performance, injunctive relief or other equitable remedies.
 
b.           The Shares are not subject to any shareholders agreement, voting agreements, proxies, trusts or other agreement or understandings relating to the voting thereof which would prevent Shareholder from performing its obligations hereunder.
 
c.           The execution and delivery by the Shareholder of this Agreement do not, and the consummation of the transactions contemplated hereby will not, require Shareholder to obtain or deliver any notice, consent, waiver, approval, order or authorization or permit of, or registration, declaration or filing with, or notification to, any court, administrative agency, commission, governmental or regulatory authority or any other person.
 
d.           There is no suit, action, proceeding, claim or investigation, decree, order, judgment or legal proceeding of any nature, pending, or, to Shareholder’s knowledge, threatened against it or the Shares, that seeks to prevent Shareholder from executing, delivering or performing this Agreement and the transactions contemplated hereby, or that apply to the Shares or by which the Shares are bound.
 
3.              Termination .  This Agreement shall terminate on the earlier to occur of (i) the date of termination of the Transaction Agreement, (ii) the last business day preceding the 2015 annual shareholder meeting of Perion, (iii) December 30, 2015 and (iv) the date on which a Standstill Expiration Event occurs. Termination shall not relieve any party from liability for any breach of its obligations under this Agreement committed prior to such termination.
 
4.              Additional Shares. In the event of any stock split (bonus shares), consolidation, share dividend (including any dividend or distribution of securities convertible into share capital), reorganization, reclassification, combination, recapitalization or other like change with respect to the Shares occurring after the date hereof and prior to the termination of this Agreement, all references in this Agreement to the Shares shall be adjusted to include all such shares held by the Shareholder.
 
5.              Specific Enforcement . Shareholder hereby acknowledges that monetary damages may not be a sufficient or adequate remedy for any breach or violation of any of its obligations under this Agreement and that, in addition to any other remedy which may be available to Perion hereunder or in law or equity, and without any wavier or limitation with respect thereto, Perion shall be entitled to seek injunctive and other equitable relief, including specific performance, with respect to any such breach or violation and to enforce specifically the terms and provisions hereof, in any court of competent jurisdiction, and the Shareholder hereby waives the requirement of any posting of a bond in connection with the remedies described herein, to the extent applicable. Any and all remedies herein expressly conferred upon a party will be deemed cumulative with and not exclusive of any other remedy conferred hereby, or by law or equity upon such party, and the exercise by a party of any one remedy will not preclude the exercise of any other remedy.
 
 
E - 2
 
6.              Miscellaneous .  Neither this Agreement, nor any rights, interests or obligations under this Agreement may be assigned or transferred, in whole or in part, by operation of law or otherwise by the Shareholder, without the prior consent in writing of Perion, and any such assignment without such prior written consent shall be null and void. This Agreement shall be solely governed by, and construed in accordance with, the laws of the State of Israel, without giving effect to any other choice of law or conflict of law provision or rule.  Any dispute arising under or in relation to this Agreement shall be resolved in, and the sole and exclusive jurisdiction shall be of, a competent court located in Tel Aviv-Jaffa, and each of the parties hereby submits irrevocably to the jurisdiction of such courts. This Agreement may be signed in two or more counterparts.
 
[Signature Pages Follow]
 
 
E - 3
 
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the Shareholder and a duly authorized officer of Perion on the day and year first written above.
 
 
PERION NETWORK LTD.
 
       
 
By:
   
    Name:  
    Title:  
       
Signature Page to Standstill Agreement
 
 
E - 4
 
 
 
[SHAREHOLDER]
 
       
 
By:
   
    Name:  
    Title:  
   
 
Signature Page to Standstill Agreement
 

E - 5
Exhibit 99.7
 
APPENDIX G
 
FORM OF D&O INDEMNIFICATION AGREEMENT
 
 
 
 
 
 
INDEMNIFICATION AGREEMENT
 
THIS INDEMNIFICATION AGREEMENT (the “ Agreement ”), dated as of [__], 2013, is entered into by and between Perion Network   Ltd., an Israeli company (the “ Company ”), and [________], an Israeli resident (the “ Indemnitee ”).
 
WHEREAS,
Indemnitee is an Office Holder (“ Nosse Misra ”), as such term is defined in the Companies Law, 5759–1999 (the   “ Companies Law ” and “ Office Holder ” respectively), of the Company;
 
WHEREAS ,
the Articles of Association of the Company authorize the Company to indemnify and advance expenses to its Office Holders and provide for insurance and exculpation to its Office Holders, and this Agreement is provided to Indemnitee in accordance with applicable law, the Articles of the Association of the Company and all requisite corporate approvals;
 
WHEREAS,
the Company has determined that (i) the increased difficulty in attracting and retaining competent persons is detrimental to the best interests of the Company’s shareholders and that the Company should act to assure such persons that there will be increased certainty of such protection in the future, (ii) and it is reasonable, prudent and necessary for the Company contractually to obligate itself to indemnify, and to advance expenses on behalf of, such persons to the fullest extent permitted by applicable law.
 
WHEREAS,
the Company acknowledges that Indemnitee is relying on the obligations of the Company set forth in this Agreement in agreeing to serve the Company, which obligations are therefore irrevocable;
 
WHEREAS,
in recognition of Indemnitee’s need for substantial protection against loss arising from the Indemnitee's liability, including costs and expenses incurred by the Indemnitee due to his position as Office Holder,  in order to assure Indemnitee’s continued service to the Company in an effective manner and, in part, in order to provide Indemnitee with specific contractual assurance that the indemnification, insurance and exculpation afforded by the Articles of Association will be available to Indemnitee, the Company wishes to undertake in this Agreement for the indemnification of and the advancing of expenses to Indemnitee to the fullest extent permitted by applicable law and as set forth in this Agreement and provide for insurance and exculpation of Indemnitee as set forth in this Agreement.
 
 
 
 
NOW, THEREFORE , the parties hereto agree as follows:
 
1.
INDEMNIFICATION AND INSURANCE.
 
 
1.1.
The Company hereby undertakes to indemnify Indemnitee to the fullest extent permitted by applicable law and the Company's Articles of Association, as each may be amended from time to time, for any liability and expense specified in Sections ‎ 1.1.1 through ‎ 1.1.4 below, imposed on Indemnitee due to or in connection with an act performed by such Indemnitee, either prior to or after the date hereof, in Indemnitee’s capacity as an Office Holder, including, without limitation, as a director, officer, employee, agent or fiduciary of the Company, any subsidiary thereof or any other corporation, collaboration, partnership, joint venture, trust or other enterprise, in which Indemnitee serves at any time at the request of the Company (the “ Corporate Capacity ”) it being understood that as of the date hereof, the Company's Articles of Association do not authorize the indemnification specified in Section 1.1.4 below. The term “act performed in Indemnitee’s capacity as an Office Holder” shall include, without limitation, any act, omission and failure to act and any other circumstances relating to or arising from Indemnitee’s service in a Corporate Capacity. Notwithstanding the foregoing, in the event that the Office Holder is the beneficiary of an indemnification undertaking provided by a subsidiary of the Company or any other entity (other than a Secondary Indemnitor (as defined below), if applicable, with respect to his Corporate Capacity with such subsidiary or entity, then the indemnification obligations of the Company hereunder with respect to such Corporate Capacity shall only apply to the extent that the indemnification by such subsidiary or other entity does not actually fully cover the indemnifiable liabilities and expenses relating thereto. The following shall be hereinafter referred to as “ Indemnifiable Events ”:
 
 
1.1.1.
Financial liability imposed on Indemnitee in favor of any person pursuant to a judgment, including a judgment rendered in the context of a settlement or an arbitrator’s award approved by a court. For purposes of Section ‎ 1 of this Agreement, the term “person ” shall include, without limitation, a natural person, firm, partnership, joint venture, trust, company, corporation, limited liability entity, unincorporated organization, estate, government, municipality, or any political, governmental, regulatory or similar agency or body;
 
 
1.1.2.
Reasonable Expenses (as defined below) incurred by or charged to Indemnitee as a result of an investigation or any proceeding instituted against him by an authority that is authorized to conduct an investigation or proceeding to the full extent permitted by the applicable law.
 
 
1.1.3.
Reasonable Expenses incurred by or charged to Indemnitee by a court, in a proceeding instituted against him by the Company or on its behalf or by another person, or in a criminal charge from which he was acquitted or in which he was convicted of an offence that does not require proof of mens rea ;
 
 
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1.1.4.
A financial obligation imposed upon Indemnitee and reasonable Expenses expended Indemnitee as a result of an administrative proceeding instituted against Indemnitee. Without derogating from the generality of the foregoing, such obligation or Expense will include a payment which Indemnitee is obligated to make to an injured party as set forth in Section 52(54)(a)(1)(a) of the Israeli Securities Law, 1968 – 5728 (the "Securities Law") and Expenses that Indemnitee incurred in connection with a proceeding under Chapters H'3, H'4 or I'1 of the Securities Law; and
 
 
1.1.5.
Any other event, occurrence or circumstances in respect of which the Company may lawfully indemnify an Office Holder of the Company.
 
For the purpose of this Agreement, “ Expenses ” shall include, without limitation, attorneys’ fees and all other costs, expenses and obligations paid or incurred by Indemnitee in connection with investigating, defending, being a witness in or participating in (including on appeal), or preparing to defend, be a witness in or participate in any claim relating to any matter for which indemnification hereunder may be provided, and costs and expenses paid or incurred by Indemnitee in successfully enforcing this Agreement. Expenses shall be considered paid or incurred by Indemnitee at such time as Indemnitee is required to pay or incur such cost or expenses, including upon receipt of an invoice or payment demand. The Company shall pay the Expenses in accordance with the provisions of Section ‎ 1.3.
 
 
1.2.
Notwithstanding anything herein to the contrary, the Company shall indemnify the Indemnitee under Section ‎ 1.1.1 only with respect to events described in Exhibit A hereto. The Board of Directors of the Company (the “ Board ”) has determined that the events listed in Exhibit A foreseeable in light of the operations of the Company. The maximum amount of indemnification payable by the Company under Section ‎ 1.1.1 of this Agreement for each event described in Exhibit A shall be the higher of (i) the applicable amount set forth in Exhibit A   and (ii) 25% of the Company's shareholders' equity set forth on the Company's most recent consolidated balance sheet at the time that the obligation to indemnify hereunder is incurred (the “ Limit Amount ”). The Limit Amount payable by the Company for each event described in Exhibit A is deemed by the Company to be reasonable in light of the circumstances . The indemnification provided under Section ‎ 1.1.1 herein shall not be subject to the limitations imposed by this Section ‎ 1.2 and Exhibit A if and to the extent such limits are no longer required by the Companies Law .
 
 
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The Company hereby declares that according to its Articles of Association it is authorized to indemnify the Indemnitee for liability, costs and expenses arising from events which are not described in Exhibit A, and it undertakes to consider any request made by the Indemnitee for such indemnification in accordance with the intent and purpose of this Agreement.
 
 
1.3.
If so requested by Indemnitee, and subject to the Company’s repayment and reimbursements rights set forth in Sections ‎ 3 and ‎ 5 below, the Company shall pay amounts to cover Indemnitee’s Expenses with respect to which Indemnitee is entitled to be indemnified under Section ‎ 1.1 above, as and when incurred. The payments of such amounts shall be made by the Company directly to the Indemnitee’s legal and other advisors, as soon as practicable, but in any event no later than fifteen (15) days after written demand by such Indemnitee therefor to the Company, and any such payment shall be deemed to constitute indemnification hereunder. All amounts paid as indemnification hereunder shall be grossed-up to cover any tax payment that Indemnitee may be required to make if the indemnification payments are taxable, subject to the Limit Amount if required by applicable law. As part of the aforementioned undertaking, the Company will make available to Indemnitee any security or guarantee that Indemnitee may be required to post in accordance with an interim decision given by a court, governmental or administrative body, or an arbitrator, including for the purpose of substituting liens imposed on Indemnitee’s assets.
 
 
1.4.
The Company’s obligation to indemnify Indemnitee and advance Expenses in accordance with this Agreement shall apply to any actual, possible or threatened claim, action, suit, demand or proceeding or any inquiry or investigation, whether civil, criminal or investigative, arising out of the Indemnitee’s service in the Corporate Capacity as described in Section ‎ 1.1 above, whether or not Indemnitee is still serving in such position.
 
 
1.5.
The Company undertakes that, subject to the mandatory limitations under applicable law, as long as the Indemnitee is exposed to any actual or potential claim, action, suit, demand, proceeding or any inquiry or investigation, due to the Indemnitee's position as an Office Holder, the Company will purchase and maintain in effect directors and officers liability insurance, which will include coverage for the benefit of the Indemnitee, providing coverage in amounts as determined by the Board. The Company hereby undertakes to notify the Indemnitee 30 days prior to the expiration or termination of the directors and officers’ liability insurance.
 
 
1.6.
The Company undertakes to give prompt written notice of the commencement of any claim hereunder to the insurers in accordance with the procedures set forth in each of the policies. The Company shall thereafter diligently take all actions reasonably necessary under the circumstances to cause such insurers to pay, on behalf of Indemnitee, all amounts payable as a result of such action, suit, proceeding, inquiry or investigation in accordance with the terms of such policies. The above shall not derogate from Company’s authority to freely negotiate or reach any compromise with the insurer which is reasonable at the Company’s sole discretion provided that the Company shall act in good faith and in a diligent manner.
 
 
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Despite the above, the Company shall not reach a compromise which releases the insurer from its duty to reimburse the Indemnitee for Expenses which Indemnitee personally incurred, without the Indemnitee's prior written approval.
 
 
1.7.
In making a determination with respect to entitlement to indemnification hereunder, the person or persons or entity making such determination shall presume that Indemnitee is entitled to indemnification under this Agreement if Indemnitee has requested it, and the Company shall have the burden of proof to overcome that presumption in connection with the making of any determination contrary to that presumption. In the event that the Company denies Indemnitee's request for indemnification in whole or in part, upon Indemnitee's written request, a determination with respect to Indemnitee's entitlement thereto shall be made in the specific case by an Independent Counsel agreed upon by the Company and the Indemnitee, and in the absence of such agreement - appointed by the head of the Israeli Bar Association.
 
“Independent Counsel” means a law firm, or a member of a law firm, that is experienced in matters of Israeli corporate law and neither presently is, nor in the past five years has been, retained to represent:  (i) the Company, an "interested party" (as defined in the Companies Law) of the Company or Indemnitee in any matter material to either such party (other than in the capacity of Independent Counsel with this respect to this Agreement or similar indemnification agreements of the Company), or (ii) any other party to the proceeding giving rise to a claim for indemnification hereunder.  Notwithstanding the foregoing, the term “Independent Counsel” shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitee's rights under this Agreement.  The Company agrees to pay the reasonable fees of the Independent Counsel referred to above and to fully indemnify such counsel against any and all expenses, claims, liabilities and damages arising out of or relating to this Agreement or its engagement pursuant hereto, provided, however, that the Independent Counsel shall have the authority, in his sole discretion, to oblige Indemnitee to reimburse the Company for all or a portion of his fees if he believes that Indemnitee's claims against the Company were made arbitrarily, vexatiously or not in good faith.
 
 
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2.
SPECIFIC LIMITATIONS ON INDEMNIFICATION .
 
Notwithstanding anything to the contrary in this Agreement, the Company shall not indemnify or advance Expenses to Indemnitee with respect to (i) any act, event or circumstance with respect to which it is prohibited to do so under the Companies Law, or (ii) a counter claim made by the Company or in its name in connection with a claim against the Company filed by the Indemnitee.
 
3.
REPAYMENT OF EXPENSES .
 
 
3.1.
In the event that the Company provides or is required to provide indemnification with respect to Expenses hereunder and at any time thereafter the Company determines, based on advice from its legal counsel, that the Indemnitee was not entitled to such payments, the amounts so indemnified by the Company will be promptly repaid by Indemnitee, unless the Indemnitee disputes the Company’s determination, in which case the Indemnitee’s obligation to repay to the Company shall be postponed until such dispute is resolved by a court of competent jurisdiction in a final and non-appealable order.
 
 
3.2.
Indemnitee’s obligation to repay to the Company for any Expenses or other sums paid hereunder shall be deemed as a loan given to Indemnitee by the Company subject to the minimum interest rate prescribed by Section 3(9) of the Income Tax Ordinance [New Version], 1961, or any other legislation replacing it, which is not considered a taxable benefit.
 
4.
SUBROGATION .
 
 
4.1.
Except as set forth in Section ‎ 4.2 below (to the extent applicable), in the event of payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all documents required and shall do everything that may be necessary to secure such rights, including the execution of such documents necessary to enable the Company effectively to bring suit to enforce such rights.
 
 
4.2.
The Company hereby acknowledges that Indemnitee may have certain rights to indemnification, advancement of Expenses and/or insurance provided by shareholder(s) of the Company and certain of their affiliates (collectively, the “ Secondary Indemnitors ”). In such event, the Company hereby agrees (i) that it is the indemnitor of first resort (i.e., its obligations to Indemnitee are primary and any obligation of the Secondary Indemnitors to advance Expenses or to provide indemnification for the same Expenses or liabilities incurred by Indemnitee are secondary), (ii) that it shall be required to advance the full amount of Expenses incurred by Indemnitee and shall be liable for the full amount of all Expenses, judgments, penalties, fines and amounts paid in settlement to the extent legally permitted and as required by the terms of this Agreement and the Articles of Association of the Company (or any other agreement between the Company and Indemnitee), without regard to any rights Indemnitee may have against the Secondary Indemnitors, and, (iii)that it irrevocably waives, relinquishes and releases the Secondary Indemnitors from any and all claims against the Secondary Indemnitors for contribution, subrogation or any other recovery of any kind in respect thereof.  The Company further agrees that no advancement or payment by the Secondary Indemnitors on behalf of Indemnitee with respect to any claim for which Indemnitee has sought indemnification from the Company shall affect the foregoing and the Secondary Indemnitors shall have a right of contribution and/or be subrogated to the extent of such advancement or payment to all of the rights of recovery of Indemnitee against the Company. The Company and Indemnitee agree that the Secondary Indemnitors are express third party beneficiaries of the terms of this Section ‎ 4.2.
 
 
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5.
REIMBURSEMENT .
 
Except as set forth in Section ‎ 4.2 above (to the extent applicable), the Company shall not be liable under this Agreement to make any payment in connection with any Indemnifiable Event to the extent Indemnitee has otherwise actually received payment under any insurance policy or otherwise (without any obligation of Indemnitee to repay any such amount) of the amounts otherwise indemnifiable hereunder. Any amounts paid to Indemnitee under such insurance policy or otherwise after the Company has indemnified Indemnitee for such liability or Expense shall be repaid to the Company promptly upon receipt by Indemnitee, in accordance with the terms set forth in Section ‎ 3.2.
 
6.
EFFECTIVENESS .
 
The Company represents and warrants that this Agreement is valid, binding and enforceable in accordance with its terms and was duly adopted and approved by the Company, and shall be in full force and effect immediately upon its execution.
 
7.
NOTIFICATION AND DEFENSE OF CLAIM .
 
Indemnitee shall notify the Company of the commencement of any action, suit or proceeding, and of the receipt of any notice or threat that any such legal proceeding has been or shall or may be initiated against Indemnitee (including any proceedings by or against the Company and any subsidiary thereof), promptly upon Indemnitee first becoming so aware; but the omission so to notify the Company will not relieve the Company from any liability which it may have to Indemnitee under this Agreement unless and to the extent that such failure to provide notice materially and adversely prejudices the Company’s ability to defend such action . Notice to the Company shall be directed to the Chief Executive Officer or Chief Financial Officer of the Company at the address shown in the preamble to this Agreement (or such other address as the Company shall designate in writing to Indemnitee). With respect to any such action, suit or proceeding as to which Indemnitee notifies the Company of the commencement thereof and without derogating from Sections ‎ 1.1 and ‎ 2:
 
 
7.1.
The Indemnitee will have the right to select a defense counsel unless the Company has notified him, within 10 days after it receives the Indemnitee's notice as mentioned above, of its decision to assume the Indemnitee's defense, subject to Section 7.2.
 
 
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7.2.
Except as otherwise provided below, the Company, alone or jointly with any other indemnifying party similarly notified, will be entitled to assume the defense thereof, with counsel selected by the Company which counsel is reasonably reputable with experience in the relevant field. In such case, the fees and expenses of such counsel shall be paid by the Company. Indemnitee shall have the right to employ his or her own counsel in such action, suit or proceeding, but the fees and expenses of such counsel incurred after notice from the Company of its assumption of the defense thereof shall be at the expense of Indemnitee, unless: (i) the employment of counsel by Indemnitee has been authorized in writing by the Company; (ii) Indemnitee shall have, in good faith, reasonably concluded that there may be a conflict of interest under the law and rules of attorney professional conduct applicable to such claim between the Company and Indemnitee in the conduct of the defense of such action; or (iii) the Company has not in fact employed counsel to assume the defense of (or perform any other act that requires prompt action in connection with) such action, in which case the reasonable fees and expenses of counsel shall be at the expense of the Company. The Company shall not be entitled to assume the defense of any action, suit or proceeding brought by or on behalf of the Company or as to which Indemnitee shall have reached the conclusion specified in (ii) above.
 
 
7.3.
The Company shall not be liable to indemnify Indemnitee under this Agreement for any amounts or expenses paid in connection with a settlement of any action, claim or otherwise, effected without the Company’s prior written consent.
 
 
7.4.
Subject to the provisions of Section 7.2, the Company shall have the right to conduct the defense as it sees fit in its sole discretion (provided that the Company shall conduct the defense in good faith and in a diligent manner), including the right to settle or compromise any claim or to consent to the entry of any judgment against Indemnitee without the consent of the Indemnitee, provided that, the amount of such settlement, compromise or judgment does not exceed the Limit Amount (if applicable) and is fully indemnifiable pursuant to this Agreement (subject to Section ‎ 1.2 of this Agreement) and/or applicable law, and any such settlement, compromise or judgment does not impose any penalty or limitation on Indemnitee without the Indemnitee’s prior written consent. The Indemnitee’s consent shall not be required if the settlement includes a complete release of Indemnitee, does not contain any admission of wrong-doing by Indemnitee, and includes monetary sanctions only as provided above. In the case of criminal proceedings the Company and/or its legal counsel will not have the right to plead guilty or agree to a plea-bargain in the Indemnitee’s name without the Indemnitee’s prior written consent. Neither the Company nor Indemnitee will unreasonably withhold or delay their consent to any proposed settlement.
 
 
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7.5.
Indemnitee shall fully cooperate with the Company and shall give the Company all information and access to documents, files and to his advisors and representatives as shall be within Indemnitee’s power, in every reasonable way as may be required by the Company with respect to any claim which is the subject matter of this Agreement and in the defense of other claims asserted against the Company (other than claims asserted by Indemnitee), except to the extent Indemnitee has a conflict of interest with the Company in respect thereto, provided that the Company shall cover all expenses, costs and fees incidental thereto such that the Indemnitee will not be required to pay or bear such expenses, costs and fees.
 
8.
EXCULPATION .
 
Subject to the provisions of the Companies Law, the Company hereby releases, in advance, the Office Holder from liability to the Company for any damage that arises from the breach of the Office Holder’s duty of care to the Company (within the meaning of such terms under Sections 252 and 253 of the Companies Law), other than breach of the duty of care towards the Company in a distribution (as such term is defined in the Companies Law).
 
9.
NON-EXCLUSIVITY .
 
The rights of the Indemnitee hereunder shall not be deemed exclusive of any other rights Indemnitee may have under the Company’s Articles of Association, applicable law or otherwise, and to the extent the indemnification rights of the then serving directors and officers are more favorable to such directors or officers than the indemnification rights provided under this Agreement to Indemnitee, Indemnitee shall be entitled to the full benefits of such more favorable indemnification rights to the extent permitted by law.
 
10.
PARTIAL INDEMNIFICATION .
 
If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of the Expenses, judgments, fines or penalties actually or reasonably incurred by Indemnitee in connection with any proceedings, but not, however, for the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion of such Expenses, judgments, fines or penalties to which Indemnitee is entitled under any provision of this Agreement. Subject to the provisions of Section ‎ 5 above, any amount received by Indemnitee (under any insurance policy or otherwise) shall not reduce the Limit Amount hereunder and shall not derogate from the Company’s obligation to indemnify the Indemnitee in accordance with the provisions of this Agreement up to the Limit Amount, as set forth in Section ‎ 1.2.
 
11.
BINDING EFFECT .
 
This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors , permitted assigns (including any direct or indirect successor in the event of a Transaction) and a receiver, liquidator or the like of the Company, heirs, executors and personal and legal representatives. In the event of a reorganization, acquisition, change of control merger or consolidation of the Company or a transfer or disposition of all or substantially all of the business or assets of the Company (each a "Transaction"), the Company shall, or cause its successor (if applicable) to undertake toward the Indemnitee to, fulfill and honor in all respects the obligations of the Company pursuant to this Agreement, and  the Company's Articles of Association will contain provisions with respect to exculpation, insurance and indemnification that are at least as favorable to the Indemnitee as those contained in the Articles of Association of the Company as in effect on the date hereof, which provisions will not be amended, repealed or otherwise modified in any manner that would adversely affect the rights thereunder of Indemnitee, unless such modification is required by applicable law.
 
 
G - 9
 
 
In the event that the Company consolidates with or merges into any other entity and shall not be the continuing or surviving company or entity of such consolidation or merger or transfers or conveys all or a majority of its properties and assets, then, and in each such case, proper provisions shall be made so that the successors and assigns of the Company, as applicable, shall succeed to the obligations of the Company set forth in this Section 11.
 
In the event that in connection with a Transaction the Company purchases a directors and officers’ “tail” or “run-off” policy for the benefit of its then serving Office Holders, then such policy shall cover Indemnitee and such coverage shall be deemed to be in satisfaction of the insurance requirements under this Agreement. This Agreement shall continue in effect regardless of whether Indemnitee continues to serve in a Corporate Capacity.
 
12.
SEVERABILITY .
 
The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof.  If any provision of this Agreement, or the application thereof or any circumstance, is invalid or unenforceable, (a) a suitable and equitable provision shall be substituted therefor in order to carry out, so far as may be valid and enforceable, the intent and purpose of such invalid or unenforceable provision and (b) the remainder of this Agreement and the application of such provision or circumstances shall not be affected by such invalidity or unenforceability, nor shall such invalidity or unenforceability affect the validity or enforceability of such provision, or the application thereof, in any other jurisdiction.
 
13.
NOTICE .
 
All notices and other communications pursuant to this Agreement shall be in writing and shall be deemed provided if delivered personally, telecopied, sent by electronic facsimile, email, reputable overnight courier or mailed by registered or certified mail (return receipt requested), postage prepaid, to the parties at the addresses shown in the preamble to this Agreement, or to such other address as the party to whom notice is to be given may have furnished to the other party hereto in writing in accordance herewith. Any such notice or communication shall be deemed to have been delivered and received (i) in the case of personal delivery, on the date of such delivery, (ii) in the case of telecopier or an electronic facsimile or email, one business day after the date of transmission if confirmation of receipt is received, (iii) in the case of a reputable overnight courier, three business days after deposit with such reputable overnight courier service, and (iv) in the case of mailing, on the seventh business day following that on which the mail containing such communication is posted.
 
 
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14.
GOVERNING LAW; JURISDICTION .
 
This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Israel, without giving effect to the conflicts of law provisions of those laws. The Company and Indemnitee each hereby irrevocably consent to the exclusive jurisdiction and venue of the courts of Tel Aviv, Israel for all purposes in connection with any action or proceeding which arises out of or relates to this Agreement.
 
15.
ENTIRE AGREEMENT AND TERMINATION .
 
This Agreement represents the entire agreement between the parties and supersedes any other agreements, contracts or understandings between the parties, whether written or oral, with respect to the subject matter of this Agreement. [It is hereby expressly agreed and understood that this Agreement amends, restates and supersedes the previous indemnification agreement between Indemnitee and the Company in its entirety.  In the event of any contradiction between this Agreement and a previous indemnification agreement between Indemnitee and the Company, the provisions of this Agreement will prevail][ To be added to the extent applicable ]l.
 
16.
NO MODIFICATION AND NO WAIVER .
 
No supplement, modification or amendment, termination or cancellation of this Agreement shall be binding unless executed in writing by both of the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions hereof (whether or not similar) nor shall such waiver constitute a continuing waiver. Any waiver shall be in writing. The Company hereby undertakes not to amend its Articles of Association in a manner which will adversely affect the provisions of this Agreement.
 
17.
ASSIGNMENTS; NO THIRD PARTY RIGHTS
 
Neither party hereto may assign any of its rights or obligations hereunder except with the express prior written consent of the other party. Nothing herein shall be deemed to create or imply an obligation for the benefit of a third party. Without limitation of the foregoing, nothing herein shall be deemed to create any right of any insurer that provides directors' and officers’ liability insurance, to claim, on behalf of Indemnitee, any rights hereunder.
 
 
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18.
INTERPRETATION .
 
The obligations of the Company according to this Agreement shall be interpreted   broadly and in a manner that shall facilitate its execution, to the extent permitted by law, and for the purposes for which it was intended. For example, the obligations of the Company shall apply to any type of legal proceeding, including without limitation, a proceeding brought against Indemnitee alone or jointly with other defendants, and whether the plaintiff is a third party, the Company or Office Holders or shareholders thereof. In addition, the Company agrees that it shall not contend that an act was committed by the Indemnitee recklessly unless it can prove that such recklessness attained a level equivalent to that of an act committed with actual deliberate intent. In the event of a conflict between any provision of this Agreement and any provision of the law, said provision of the law shall supersede the specific provision in this Agreement, but shall not limit or diminish the validity of the remaining provisions of this Agreement.
 
19.
COUNTERPARTS
 
This Agreement may be executed in any number of counterparts, each of which shall be deemed an original and enforceable against the parties actually executing such counterpart, and all of which together shall constitute one and the same instrument; it being understood that parties need not sign the same counterpart. The exchange of an executed Agreement (in counterparts or otherwise) by facsimile or by electronic delivery in pdf format shall be sufficient to bind the parties to the terms and conditions of this Agreement, as an original.
 
[SIGNATURE PAGE TO FOLLOW]
 
 
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IN WITNESS WHEREOF , the parties, each acting under due and proper authority, have executed this Indemnification Agreement as of the date first mentioned above, in one or more counterparts.
 
PERION NETWORK LTD.
 
 
By:
   
Name and title:
   
By:
   
Name and title:
   
 
INDEMNITEE:
 
 
Name:
   
Signature:
   
 
 
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EXHIBIT A*
 
 
                         TYPE OF EVENT
     LIMIT AMOUNT
 
1.
Claims in connection with employment relationships with employees of the Company, and in connection with business relations between the Company and its employees, independent contractors, customers, suppliers and various service providers.
US$50,000,000
2.
Negotiations, execution, delivery and performance of agreements of any kind or nature, anti-competitive acts, acts of commercial wrongdoing, approval of corporate actions including the approval of the acts of the Company’s management, their guidance and their supervision, actions concerning the approval of transactions with Office Holders or shareholders, including controlling persons and claims of failure to exercise business judgment and a reasonable level of proficiency, expertise and care with respect to the Company’s business.
US$50,000,000
3.
Violation, infringement and other misuse of copyrights, patents, designs, trade secrets and any other intellectual property rights, breach of confidentiality obligations, acts in regard of invasion of privacy including with respect to databases or personal information, acts in connection with slander and defamation, and claims in connection with publishing or providing any information, including any filings with any governmental authorities, whether or not required under any applicable laws.
US$50,000,000
4.
Violations of securities laws of any jurisdiction, including without limitation, fraudulent disclosure claims, failure to comply with any securities authority or any stock exchange disclosure or other rules and any other claims relating to relationships with investors, debt holders, shareholders and the investment community and any claims related to the Sarbanes-Oxley Act of 2002, as amended from time to time; claims relating to or arising out of financing arrangements, any breach of financial covenants or other obligations towards lenders or debt holders of the Company, class actions, violations of laws requiring the Company to obtain regulatory and governmental licenses, permits and authorizations in any jurisdiction; actions taken in connection with the issuance of any type of securities of Company, including, without limitation, the grant of options to purchase any of the same.
US$50,000,000
 
 
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5.
Liabilities arising in connection with any products or services developed, distributed, sold, provided, licensed or marketed by the Company, and any actions in connection with the distribution, sale, license or use of such products.
US$50,000,000
6.
The offering of securities by the Company to the public and/or to private investors or the offer by the Company to purchase securities from the public and/or from private investors or other holders pursuant to a prospectus, agreements, notices, reports, tenders and/or other proceedings.
US$50,000,000
7.
Events in connection with change in ownership or in the structure of the Company, its reorganization, dissolution, or any decision concerning any of the foregoing, including but not limited to, merger, sale or acquisition of assets, division or change in capital. 
US$50,000,000
8.
Any claim or demand made in connection with any transaction not in the ordinary course of business of the Company, including the sale, lease or purchase of any assets or business.
US$50,000,000
9.
Any claim or demand made by any third party suffering any personal injury and/or bodily injury or damage to business or personal property or any other type of damage through any act or omission attributed to the Company, or its employees, agents or other persons acting or allegedly acting on its behalf.
US$50,000,000
10.
Any claim or demand made directly or indirectly in connection with complete or partial failure, by the Company or its directors, officers and employees, to pay, report, keep applicable records or otherwise, of any foreign, federal, state, county, local, municipal or city taxes or other compulsory payments of any nature whatsoever, including, without limitation, income, sales, use, transfer, excise, value added, registration, severance, stamp, occupation, customs, duties, real property, personal property, capital stock, social security, unemployment, disability, payroll or employee withholding or other withholding, including any interest, penalty or addition thereto, whether disputed or not.
US$50,000,000
11.
Any administrative, regulatory, judicial or civil actions, orders, decrees, suits, demands, demand letters, directives, claims, liens, investigations, proceedings or notices of noncompliance or violation by any governmental entity or other person alleging potential responsibility or liability (including potential responsibility or liability for costs of enforcement investigation, cleanup, governmental response, removal or remediation, for natural resources damages, property damage, personal injuries or penalties or for contribution, indemnification, cost recovery, compensation or injunctive relief) arising out of, based on or related to circumstances forming the basis of any violation of any environmental law or environmental permit, license, registration or other authorization required under applicable environmental law and/or public health law.
US$50,000,000
 
 
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12.
Any administrative, regulatory or judicial actions, orders, decrees, suits, demands, demand letters, directives, claims, liens, investigations, proceedings or notices of noncompliance or violation by any governmental entity or other person alleging the failure to comply with any statute, law, ordinance, rule, regulation, order or decree of any governmental entity applicable to the Company or any of its businesses, assets or operations, or the terms and conditions of any operating certificate or licensing agreement.
US$20,000,000
13.
Participation and/or non-participation at the Company’s Board meetings, bona fide expression of opinion and/or voting and/or abstention from voting at the Company’s Board meetings.
US$20,000,000
14.
Review and approval of the Company’s financial statements, including any action, consent or approval related to or arising from the foregoing, including, without limitations, execution of certificates for the benefit of third parties related to the financial statements.
US$20,000,000
15.
All actions, consents and approvals relating to a distribution of dividends, in cash or otherwise.
US$20,000,000
16.
Liabilities arising out of advertising, including misrepresentations regarding the Company's products and unlawful distribution of emails.
US$20,000,000
     
*
Any reference in this Exhibit A to the Company shall include the Company and any entity in which the Indemnitee serves in a Corporate Capacity.

G - 16
Exhibit 99.8
 
  APPENDIX H
 
COMPENSATION POLICY OF DIRECTORS AND OFFICERS
 

 
 
 
 
 
 
 
 
   
Privileged & Proprietary
 
Perion Network Ltd.
 
Executive Compensation Policy
 
1.
Objectives & Content
 
In this document we will define and detail Perion Network Ltd.’s (hereby referred to as the “ Company ” or “ Perion ”) 1 compensation policy regarding the Company’s Directors and Officers (“ Officer’s ” shall mean CEO and CEO's direct reports) (the “ Compensation Policy ”). Unless specifically stated otherwise, all the following terms shall apply to the compensation of Officers only, unless indicated otherwise.
 
The publication of the Compensation Policy is intended to increase the transparency and visibility of Perion's activities regarding all aspects of its Directors’ and Officers’ compensation and to enhance the shareholders' ability to influence the compensation of the Company's Directors and Officers.
 
This Compensation Policy shall apply only to compensation determined after its adoption in accordance with the provisions of the Companies Law, and will not be construed as altering or amending any compensation duly approved prior to its adoption.
 
The policy is worded in the masculine form only for purposes of convenience and is designated for equal and identical application to women and men, without any difference or change.
 
It is stressed that this Compensation Policy does not grant any rights to the Company’s Directors and Officers, and the adoption of this compensation policy per se will not grant any of the Company’s Directors and Officers a right to receive any elements of compensation set forth in this compensation policy. The elements of compensation to which a Director or Officer will be entitled will be exclusively those that are determined specifically in relation to him in accordance with the requirements of the Israeli Companies Law, 1999 and the regulations promulgated thereunder (together, the “ Companies Law ”) and as approved by the shareholders for Directors, and as specified in the employment agreement with the relevant Officer.
 
It is clarified that in the event a Director or Officer receives compensation that is less than the compensation in accordance with this compensation policy, it will not be regarded as a deviation from this compensation policy.
 
It is further clarified that with respect to a person who becomes an Officer of the Company as a result of an acquisition by the Company of a business or a company, and such Officer's compensation terms were determined prior to such acquisition, then such compensation terms will not be subject to this Compensation Policy unless required by the Companies Law.
 
2.
General
 
 
2.1.
Compensation Policy Purposes:
 
The Compensation Policy is designed to support the achievement of the Company's long term work plan goals and to ensure that:
 
 
·
Officers' interests are aligned as closely as possible with the interests of Perion's shareholders;
 
 
·
The correlation between performance and payment will be enhanced;
 
 
1
Where appropriate for any Officer that is employed by a subsidiary or affiliate of Perion, the terms Company or Perion shall include such subsidiary or affiliate.
 
 
 
 
   
Privileged & Proprietary
 
 
·
Perion will be able to recruit and retain top level executives capable of leading the Company to further business success, facing the challenges ahead;
 
 
·
Officers will be motivated to achieve a high level of business performance without taking unreasonable risks;
 
 
·
An appropriate balance will be established between different compensation elements – fixed vs. variable, short term vs. long term and cash payments vs. equity based compensation.
 
 
2.2.
Business environment and its impact on Company Officers' compensation:
 
Perion is a global consumer internet company that develops applications to make the online experience of its users simple, safe and enjoyable. The Compensation Policy is intended to ensure the Company’s ability to retain and recruit a dedicated and experienced professional management team that will be able to successfully promote the Company’s interests and manage its business, operations and assets.
 
3.
Compensation of Directors and Officers in view of the Company's Values and Strategy
 
 
3.1.
The connection between the Company's results and Officers' compensation:
 
We believe the total compensation of our Officers should be influenced by our business results as well as each Officer's individual contribution to the achievement of these results.
 
 
3.2
The ratio between the compensation of Officers and the other employees of the Company:   The Compensation Committee and the Board of Directors (“ BOD ”) will review, from time to time,   the ratio between the total cost of employment of each of Officers and the average and median total costs of employment of the rest of the employees (including contractors as defined in the Companies Law, if applicable), and discuss its possible impact on labor relations within the Company. S uch ratios were reviewed when composing the Compensation Policy and it was determined by the Compensation Committee and the BOD that they are reasonable and will not harm the working relationship in the Company. 2
 
4. 
Basic Concepts of the Company's Compensation Policy
 
Officers' compensation should include a number of elements so that each of these elements rewards a different aspect of their overall contribution to the Company’s success:
 
 
·
Fixed Base Salary, and Management Service Fee – Compensates Officers for the time they devote to performing their roles with the Company and for the daily performance of their tasks. The fixed base salary correlates to the Officer's skills (such as: experience, position, knowledge, expertise, education, professional qualifications, etc.), on the one hand, and to the requirements of the position as well as the authority and responsibilities the position caries, on the other hand.
 
 
·
Social and Fringe Benefits – Several of the social benefits are mandatory according to different local legislation (such as: pension and long term savings, severance pay, vacation, sick leave, etc.), others are provided according to market specific conventions and enable the Company to compete in the working environment (such as education funds and company cars in Israel) and the remainder are meant to complement the Fixed Base Salary and compensate the Officers for expenses incurred in connection with the requirements of their position (such as: travel expenses or allowances).
 
 
 
2   Prior to the adoption of this policy such ratio was calculated as follows (based on 2012 figures and value of equity taken into account, is the value of grants made in 2012):

CEO: ratio is 9.9 per average and 12.1  per median;
Other Officers: ratio is 2.4 per average and 2.9 per median.
 
H - 2
 
   
Privileged & Proprietary
 
 
·
Variable, Performance Based Cash Rewards (Annual Bonus and Commissions) – Reward Officers for their contributions to the Company’s success and achievement of business goals during a predefined timeframe.
 
 
·
Equity Based Compensation – Designed to strengthen the link between long term shareholders’ returns and the Officers’ and Directors' rewards. This type of reward creates a stronger link between Directors’ and Officers’ motivation and interests and the interests of the Company’s shareholders. Another significant effect of Equity Based compensation is its contribution to retention, due to its inherent long term characteristics.
 
To ensure an adequate fit of all reward elements and the appropriate structure of the total compensation package, all compensation elements of a Director or Officer will be presented for review and approval by the applicable corporate organs of the Company, if and as required pursuant to any law,  prior to approval of any specific payment or reward.
 
5. 
Compensation Elements
 
Market Comparisons (Benchmark ):
 
In order to determine the ranges for Fixed Base Salary (and other compensation elements) for recruitment of Officers to the Company, a comparative compensation study may be conducted in the relevant market, reviewing similar position holders in comparable companies in relevant geographies. The comparative study will cover companies meeting as many criteria as possible from the following list :
 
 
·
Business software and internet information companies;
 
 
·
Public companies traded on the Tel-Aviv Stock Exchange, NASDAQ or NYSE markets with market cap and/or revenues that are similar to that of Perion ;
 
 
·
Companies competing with Perion for managerial talent and for potential Officers in particular ;
 
Companies for which no reliable data can be collected will not be included in the comparison, even if they meet many or even all other criteria . The comparative study will cover all compensation elements and will present (if data availability allows) the following :
 
 
·
Customary Fixed Base Salary range for similar roles (including data distribution);
 
 
·
Customary range for annual bonus (as a nominal amount and in terms of percentage of annual salary);
 
 
·
Customary range for Equity Based Compensation as reported in the companies' Financial Reports / SEC filings (as a nominal amount and in terms of percentage of annual salary);
 
 
·
The value of customary fringe and other benefits .
 
Internal comparison –
 
Before determining a Company Officer's pay, the following considerations, including their impact on labor relations in the Company, in general, and within the management team in particular, will be taken into account :
 
 
·
The ratio between the Officer's compensation and the compensation of other Officers, particularly at the same level ;
 
 
·
The ratio between the Officer's cost of employment and the cost of employment of all other Company employees (including contractors as defined in the Companies Law, as applicable), as detailed in Section 3.2 above.
 
 
H - 3
 
   
Privileged & Proprietary
 
These amounts will be reviewed from time to time, compared to prevailing relevant market conditions and cost of living and updated if necessary.
 
5.1 
Fixed Base Salary:
 
 
5.1.1 
Determining the Fixed Base Salary of the Company’s Officers
 
The Fixed Base Salary for the Company’s Officers is first determined based on a pre-defined salary range. The range for each position will be based on:
 
·           Relevant peer group benchmark data, if available;
 
·           Job requirements, authority and responsibilities the position caries and prior agreements   with the Officer;
 
·           Officer's education, skills, expertise, professional experience and achievements;
 
·           Internal ratios between positions and between the Officer and the other employees   (including contractors as defined in the Companies Law, if applicable) in the Company;
 
·           The Company's financial situation, business challenges and goals .
 
The pay grade, approved, will reflect the Officer's skills and suitability for the intended position.
 
In any event, for Officers, the monthly base salary (linked to the Israeli Consumer Price Index) will not exceed:
 
·          CEO: NIS 180,000;
 
·          Other Officers: NIS 150,000.
 
In Israel, the Company’s Officers are naturally exempt from the provisions of the Israeli Working and Rest Hours Law, as they hold senior managerial positions as defined in such Law. Therefore, they are not entitled to any additional compensation for overtime. It is to be noted: (i) that the Company operates in Israel and in additional territories as well, accordingly, the base salary may differ in different territories in accordance with the customary range of base salaries for executive level employees in the particular territory.
 
5.1.2    Annual salary review principles:
 
In order to retain Company Officers for long periods, their Fixed Base Salary will be reviewed from time to time in comparison to similar positions in the relevant market, taking into consideration the Company's financial situation. If necessary, a pay increase request will be presented to the relevant organs for approval.
 
 
5.1.3
Upon recruitment of a new Officer the relevant organs of the Company may approve asigning bonus to such Officer upon recruitment, in their sole discretion taking intoconsideration the above principles.
 
5.2 
Variable compensation:
 
Variable compensation elements are intended to achieve the following goals:
 
 
·
Linking part of the Officers' compensation to the achievement of business goals and targets which will, in the long term, maximize shareholders’ return and create a joint interest between Officers and shareholders;
 
 
·
Increasing Officers' motivation to achieve long term Company goals; and
 
 
·
Correlating part of the Company's pay expenses with its business performance, thus, increasing financial and operational flexibility.
 
 
H - 4
 
 
   
Privileged & Proprietary
 
 
5.2.1
Ratio between elements of the compensation package
 
The targeted ratio between the fixed (base salary or fees in the case of directors) and variable (equity only in the case of directors and bonus and equity in the case of other Officers and CEO) elements of Directors' and Officers' compensation is as follows* (the percentages below reflect ratios compared to the annual base salary):
 
 
CEO
Other Officers
Directors
Annual base salary
100%
100%
100%
All other (fixed) social and fringe benefits
30-40%
30-40%
 
Annual bonus
Up to 200%
Up to 100%
 
Equity (Per vesting annum)
Up to 400%
Up to 260%
US$200,000
 
* The above ranges do not take into account special grants of equity incentives or onetime bonus grants upon recruitment of a new Officer.
 
 
5.2.2 
Annual Bonus Principles
 
 
5.2.2.1 
The Company's Officers will be entitled to participate in an annual bonus plan (the “ Annual   Bonus Plan ”). The Annual Bonus Plan will be approved in accordance with the approvals   required under the Companies Law and will include the following provisions:
 
The Target Bonus and Bonus Calculation:
 
 
·
The target bonus will be paid when Company’s performance and individual performance objectives are met.
 
 
·
The bonus will be calculated as a product of the Company performance, the individual performance and the target bonus.
 
 
5.2.2.2 
The measures based on which the annual bonus will be calculated:
 
 
·
Company Performance Measures: Such as - Revenues, EBITDA, Net Income, etc. measuredagainst the targets of the annual budget and work plan of the Company for the relevant year. The weight of Company performance will constitute at least 75%-80% of the total bonus;
 
 
·
Individual Performance Measures: The performance measures may also include individual performance measures. Evaluation of each Officer's performance and contribution to the Company’s short and long term success. Performance evaluation may be based on quantitative measures, qualitative measures and/or discretion. The weight of individual performance will constitute up to 20%-25% of the total bonus.
 
The objectives per each performance measure will be set in advance, as part of the Annual Bonus Plan. Nevertheless, the Compensation Committee and the BOD may adjust the objectives during the applicable bonus year in special circumstances resulting from exogenous factors.
 
 
5.2.2.3 
Bonus Payment and Threshold:
 
 
·
A threshold for the payment of the annual bonus will be set based on achievement of a certain percentage of one or more of the Company performance measures;
 
 
H - 5
 
 
   
Privileged & Proprietary
 
 
·
The maximum annual bonus payable for the Company's CEO will be equivalent to 200% of the annual base salary (24 monthly salaries); the maximum annual bonus payable for other Officers will be equivalent to 100% of the Officer's annual base salary (12 monthly salaries).
 
 
5.2.2.4
Reviewing and reducing bonuses
 
Following the approval of the Annual Bonus Plans and of the annual financial reports for the relevant fiscal year, the recommended bonuses will be presented to the Compensation Committee and the BOD for their review and approval.
 
The Compensation Committee and the BOD will have the authority to reduce the Annual Bonus based on their discretion.
 
 
5.2.2.5 
Claw Back Mechanism
 
Each Officer will be required to refund any part of the annual bonus paid based on financial results that are proven to be inaccurate and which are restated in the financial statements during the 2 years following the actual payment of the annual bonus, provided the Officer is employed by the Company upon publication of the restated financial statements. The Compensation Committee and the BOD shall decide upon the timing, form and terms of the repayment (for example, whether such repayment shall be net of taxes or not).
 
 
5.2.3 
Equity Based Compensation
 
As part of the overall Officers compensation package in publically traded companies in Perion’s industry, it is standard practice to offer equity based compensation, which aims to establish proximity of interest between the relevant Officers’ interest and the interest of the shareholders of the Company. Given the long term nature of the equity compensation plans, they support the ability of the Company to retain its senior managers in their positions for longer periods.
 
In light of the advantages that stem from equity compensation plans, Perion will offer its Officers the opportunity of participating in an equity compensation plan, based on the following guidelines:
 
 
5.2.3.1
Equity Based Compensation Grants :
 
Equity-based awards may be granted upon recruitment of an Officer or from time to time, and while taking into consideration, inter alia, the role, personal responsibilities, prior business experiences and qualifications of the Officer.
 
 
5.2.3.2
Equity Compensation Terms
 
The equity plan will be defined and implemented in a manner that complies with the requirements of the relevant law of the countries in which the Officers are residing or are employed. The equity compensation may be comprised of various instruments such as stock options, restricted stock units (RSU’s) or other equity based compensation instruments.
 
Any grant of equity based compensation shall meet the following terms:
 
 
·
The value of the equity based compensation (at the date of grant) per vesting annum (on a linear basis), for each Officer, shall not exceed for the CEO 4 annual salaries, and for the other Officers 2.6 annual salaries of the Officer in question. However, the Compensation Committee and the BOD (subject to any additional required approvals) may determine in their sole discretion to deviate from the above mentioned caps in the following circumstances: (i) for the purpose of a one-time grant of equity based compensation in connection with the recruitment of a new Officer, the value of the equity based compensation (at the date of grant) per vesting annum (on a linear basis), for such new Officer shall not exceed 3.6  annual salaries of the Officer in question; or
 
 
H - 6
 
   
Privileged & Proprietary
 
(ii) in cases where the BOD has determined that special circumstances exist (for example,  in connection with an M&A transaction or where market conditions have changed and there is a need to recruit a new Officer to the Company) which justify deviation from the above caps, the value of the equity based compensation (at the date of grant) per vesting annum (on a linear basis) shall not exceed in such circumstances 25% of the maximum values detailed above.
 
 
·
Equity based compensation granted to Officers shall vest over at least 3 years. The Compensation Committee and the BOD may determine acceleration provisions for specific circumstances.
 
 
·
In addition to time-based vesting, the exercise or settlement of part or all of the equity based compensation of certain Officers may also be subject to the achievement of predetermined performance goals. Terms of equity based compensation will also include terms in connection with the Officer's termination or cessation of service (due to dismissal, resignation, death or disability) and changes in Company ownership. This may include provisions for extending the period for exercise of equity based compensation upon such termination, enabling acceleration of vesting of unvested equity based compensation, etc.
 
The Compensation Committee and the BOD also considered setting a cap on value for equity based compensation at the time of exercise and concluded that this would not be advisable for Perion mainly in light of the dynamic nature of the Company’s structure and business, among other things, due to its M&A strategy, as well as technical difficulties in implementing such cap.
 
5.3 
Additional terms and fringe benefits
 
The Company will provide all Company Officers with benefits and perquisites according to Company procedures and any relevant local legislation, as detailed in Section 4 above.
 
The Company pays for a CEO life insurance policy, with an annual cost of up to 12,000 USD.
 
6. 
Retirement and Termination Arrangements
 
 
6.1
Advance Notice
 
Officers will be entitled to an Advance Notice period prior to termination of employer/ employee relations. The maximum duration of the Advance Notice Period will be as follows:
 
Position
Advance Notice Period
CEO, COO, CFO and other Senior Officers.
Up to 12 months
Other Officers
Up to 6 months
 
The actual Advance Notice period for each Officer will be determined as part of each Officer's employment agreement.
 
 
H - 7
 
   
Privileged & Proprietary
 
During the Advance Notice period, the Officer is entitled to receive all of his or her compensation without change, including participation in bonus plans and continued vesting of equity based compensation.
 
Unless the BOD decides to release the Officer from this obligation, the Officer will be required to continue performing all role responsibilities during the Advance Notice period.
 
 
6.2 
Termination Cash Payments
 
The Compensation Committee and the BOD may approve a termination payment for an Officer provided such payment does not exceed the equivalent of 6 monthly salaries. In this regard, the Compensation Committee and BOD shall take into consideration the Officer's term of employment, the Officer's compensation during employment with the Company, the Company's performance during such period, the contribution of the Officer to achieving the Company's goals and the circumstances of termination, and will only be paid if the Officer is employed by the Company for at least 3 years and the termination is not for cause.
 
For the removal of doubt, the above is in addition to any rights for severance any officer is entitled to under Israeli law or any advance notice.
 
 
6.3 
Treatment of Equity Awards upon Termination
 
The Compensation Committee and the BOD may approve, upon termination of an Officer’s employment to extend the period of time for which an equity based award is to remain exercisable or accelerate the vesting of any equity based award.
 
7. 
Indemnification, Exemption and Insurance of Directors and Officers
 
The Directors and Officers will be covered by a Directors and Officers liability insurance policy, to be periodically purchased by the Company, subject to the requisite approvals under the Companies Law. The maximum aggregate coverage for any such insurance policy will be USD 100 million, as may be increased from time to time by the Company’s shareholders, and the premiums payable by the Company per annum shall not exceed USD 700,000. If required, the company may purchase a Run Off Directors and Officers liability insurance policy for a period of up to 7 years at a premium which shall not exceed 350% of the annual premium of the Ongoing Directors and Officers liability insurance policy which will be valid at that time. Both Ongoing & Run off Directors and Officers liability insurance policies may include Side A Difference in Conditions coverage with a maximum aggregate limit of liability of USD $20M which will be part of the maximum aggregate limit of liability of USD $100M as specified above .
 
The Company may indemnify and exculpate its Directors and Officers for any liability that may be imposed on them to the fullest extent permitted by applicable law, subject to the requisite approvals under the Companies Law.
 
8. 
Directors’ Compensation
 
 
8.1 
Cash Compensation
 
The cash compensation of directors will be determined in accordance with the Companies Law, Compensation Regulations for External Directors and/or the Companies Regulations (Relief for Public Companies whose Shares are Traded in a Stock Exchange Outside Israel) (together, the “ Regulations ”), as the case may be, and shall not exceed the maximum compensation permitted by these Regulations.
 
 
H - 8
 
 
   
Privileged & Proprietary
 
8.2 
Equity based compensation
 
The Company may grant equity based awards to its Directors based on the terms of the applicable equity plan of the Company and in accordance with the Companies Law and Regulations, as detailed above in Section 5.2.3.
 
The value of the equity based compensation (at the time date of grant) per vesting annum (on a linear basis) year, for each Director, shall not exceed USD 200,000.

H - 9 
Exhibit 99.9
 
APPENDIX I
 
AMENDED EQUITY INCENTIVE PLAN
 
 
 
 
 
 
 
 
Equity Incentive Plan
 
 
Perion Network Ltd.
 
EQUITY INCENTIVE PLAN
 
(*In compliance with Amendment No. 132 of the Israeli Tax Ordinance, 2002)
 
 
 
 
 
TABLE OF CONTENTS
 
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This plan, as amended from time to time, shall be known as Perion Network Ltd. Equity Incentive Plan (the “Plan”).

 
I - 2
 
 
1. 
 
The Plan  is intended to provide an incentive to retain, in the employ of the   Company and its Affiliates (as defined below), persons of training, experience, and ability, to attract new employees, directors, consultants, service providers and any other entity which the Board shall decide their services are considered valuable to the Company, to encourage the sense of proprietorship of such persons, and to stimulate the active interest of such persons in the development and financial success of the Company by providing them with opportunities to purchase shares in the Company, pursuant to the Plan.
 
The attached “U.S. Addendum to the Plan”  (the “Addendum” ) is hereby incorporated as part of this Plan, effective as of the date that the Board adopts the Addendum (the “Addendum Date” ), and shall be coterminous with the Plan.  The purpose of the Addendum is to permit the Company to grant Stock Awards to employees and other service providers who are U.S. Persons (as defined in the Addendum). To the extent granted to U.S. Persons, Any Options ]shall be designated for United States tax and legal purposes as non-qualified stock options or, if the Plan  and Addendum are approved by the Company’s shareholders within 12 months of the Addendum Date, such Options may be designated as“Incentive Stock Options” in accordance with Section 422 of the U.S. Internal Revenue Code of 1986, as amended (the “Code” ).
 
2. 
 
For purposes of the Plan and related documents, including the Stock Award Agreement, the following definitions shall apply:

 
2.1
“ Affiliate ” means any “employing company” within the meaning of Section 102(a) of the Ordinance.

 
2.2
“ Approved 102 Stock Award ” means a Stock Award granted pursuant to Section 102(b) of the Ordinance and held in trust by a Trustee for the benefit of the Stock Award Holder.

 
2.3 
“Board” means the Board of Directors of the Company.

 
2.4
“ Capital Gain Stock Award ” as defined in Section 5.3 below.

 
2.5
“ Cause” means, (i) conviction of any felony involving moral turpitude or affecting the Company; (ii) any refusal to carry out a reasonable directive of the chief executive officer, the Board or the Stock Award Holder’s direct supervisor, which involves the business of the Company or its Affiliates and was capable of being lawfully performed; (iii) embezzlement of funds of the Company or its Affiliates; (iv) any breach of the Stock Award Holder’s fiduciary duties or duties of care of the Company; including without limitation disclosure of confidential information of the Company; and (v) any conduct (other than conduct in good faith) reasonably determined by the Board to be materially detrimental to the Company.
 
 
I - 3
 
 
2.6
“ Change of Control ” means an event following which the persons and/or entities that control the Company, directly or indirectly, at the time of adoption of this Plan, shall cease to have the right to appoint, directly or indirectly, independently, or together with another person or entity (as a result of an agreement with such person or entity, or otherwise), 50% or more of the members of the Board.
 
 
2.7
“Chairman” means the chairman of the Committee.

 
2.8
“Committee” means the compensation committee appointed by the Board, which shall consist of no fewer than two members of the Board.

 
2.9 
“Company” means Perion Network Ltd., an Israeli company.

 
2.10 
“Companies Law” means the Israeli Companies Law 5759-1999.

 
2.11
“ Controlling Shareholder ” shall have the meaning ascribed to it in Section 32(9) of the Ordinance.

 
2.12
“Date of Grant” means, the date of grant of a Stock Award, as determined by the Board and set forth in the Stock Award Agreement.

 
2.13
“Employee” means a person who is employed by the Company or its Affiliates, including an individual who is serving as a director or an office holder, but excluding Controlling Shareholder.

 
2.14
“Expiration date” means the date upon which the Stock Award shall expire, as set forth in Section 10.2 of the Plan.
 
 
2.15
“Fair Market Value” means as of any date, the value of a Share determined as follows:
 
(i) If the Shares are listed on any established stock exchange or a national market system, including without limitation the NASDAQ National Market system, or the NASDAQ SmallCap Market of the NASDAQ Stock Market, the Fair Market Value shall be the closing sales price for such Shares (or the closing bid, if no sales were reported), as quoted on such exchange or system for the last market trading day prior to time of determination, as reported in the Wall Street Journal, or such other source as the Board deems reliable. Without derogating from the above, solely for the purpose of determining the tax liability pursuant to Section 102(b)(3) of the Ordinance, if at the Date of Grant the Company’s shares are listed on any established stock exchange or a national market system or if the Company’s shares will be registered for trading within ninety (90) days following the Date of Grant, the Fair Market Value of a Share at the Date of Grant shall be determined in accordance with the average value of the Company’s shares on the thirty (30) trading days preceding the Date of Grant or on the thirty (30) trading days following the date of registration for trading, as the case may be ;
 
 
I - 4
 
(ii) If the Shares are regularly quoted by a recognized securities dealer but selling prices are not reported, the Fair Market Value shall be the mean between the high bid and low asked prices for the Shares on the last market trading day prior to the day of determination, or;
 
(iii) In the absence of an established market for the Shares, the Fair Market Value thereof shall be determined in good faith by the Board.
 
 
2.16
“IPO” means the initial public offering of the Company’s shares.

 
2.17
“Plan” means this Equity Incentive Plan.

 
2.18
“ ITA” means the Israeli Tax Authorities.

 
2.19
“Non-Employee” means a consultant, adviser, service provider, Controlling Shareholder or any other person who is not an Employee.

 
2.20
“ Ordinary Income Stock Award” ” as defined in Section 5.3 below.

 
2.21
“Option” means an option to purchase one or more Shares of the Company pursuant to the Plan.

 
2.22
“102 Stock Award” means any Stock Award granted to Employees pursuant to Section 102 of the Ordinance.

 
2.23
“3(i) Stock Award” means a Stock Award granted pursuant to Section 3(i) of the Ordinance to any person who is Non- Employee.

 
2.24
“ Ordinance” means the 1961 Israeli Income Tax Ordinance [New Version] 1961 as now in effect or as hereafter amended.

 
2.25
“Purchase Price” means the price for each Share subject to a Stock Award.

 
2.26
“ RSU ” means Restricted Stock Unit, as defined in Section 13 below.

 
2.27
“ Restricted Stock ” means a Share issued under the Plan to a Stock Award Holder for such consideration, if any, and subject to such restrictions as established by the Company, as detailed in Section 14 below.

 
2.28
“ Sale ” means the sale of all or substantially all of the issued and outstanding share capital of the Company. For purposes of a Sale, whether “all or substantially all of the issued and outstanding share capital of the Company is to be sold”, shall be finally and conclusively determined by the Board in its absolute discretion.

 
2.29
“Section 102” means section 102 of the Ordinance as now in effect or as hereafter amended.

 
I - 5
 
 
2.30 
“Share” means the ordinary shares, NIS 0.01 par value each, of the Company.

 
2.31
“ Stock Award(s) ” means all kinds of stock based awards, including, but not limited to, Options, Restricted Stock and Restricted Stock Unit.

 
2.32
“ Stock Award Agreement ” means the Stock Award agreement between the Company and a Stock Award Holder that sets out the terms and conditions of a Stock Award.

 
2.33
“ Stock Award Holder ” means a person who receives or holds a Stock Award under the Plan.

 
2.34
“Successor Company” means any entity the Company is merged to or is acquired by, in which the Company is not the surviving entity.

 
2.35
“ Transaction ” means the occurrence, in a single transaction or in a series of related transactions, of any one or more of the following events:
 
(i)           a sale or other disposition of all or substantially all, as determined by the Board in its discretion, of the consolidated assets of the Company and its subsidiaries;
(ii)           a sale or other disposition of all or substantially all, as determined by the Board in its discretion, of the outstanding securities of the Company resulting in a Change of Control;
(iii)           a merger, consolidation or similar transaction resulting in a Change of Control;
(iv)           a merger, consolidation or reorganization following which the Company is the surviving corporation but the Shares of the Company outstanding immediately preceding the merger, consolidation or reorganization are converted or exchanged by virtue of the merger, consolidation or reorganization into other property, whether in the form of securities, cash or otherwise (the " Reorganization ").
 
Whether a transaction is a “Transaction” as defined above, shall be finally and conclusively determined by the Board in its absolute discretion.

 
2.36
“Trustee” means any individual appointed by the Company to serve as a trustee and approved by the ITA, all in accordance with the provisions of Section 102(a) of the Ordinance.

 
2.37
“ Unapproved 102 Stock Award ” means a Stock Award granted pursuant to Section 102(c) of the Ordinance and not held in trust by a Trustee.

 
2.38
“Vested Stock Award” means any Stock Award, which has already been vested according to the Vesting Dates.

 
2.39
“Vesting Dates” means, as determined by the Board or by the Committee, the date as of which the Stock Award Holder  shall be entitled to exercise or sell the Stock Award, or receive Shares represented by a Stock Award, as applicable  or part thereof, , as set forth in section 11 of the Plan.

 
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3. 
 
 
3.1
The Board shall have the power to administer the Plan either directly or upon the recommendation of the Committee, all as provided by applicable law and in the Company’s Articles of Association. Notwithstanding the above, the Board shall automatically have residual authority if no Committee shall be constituted or if such Committee shall cease to operate for any reason.
 
 
3.2
The Committee shall select one of its members as its Chairman and shall hold its meetings at such times and places as the Chairman shall determine. The Committee shall keep records of its meetings and shall make such rules and regulations for the conduct of its business as it shall deem advisable.
 
 
3.3
The Committee shall have the power to recommend to the Board and the Board shall have the full power and authority to: (i) designate participants; (ii) determine the terms and provisions of the respective Stock Awards Agreements, including, but not limited to, the number of Stock Awards to be granted to each Stock Award Holder,  the number of Shares to be covered by each Stock Award, provisions concerning the time and the extent to which the Stock Awards may be exercised and the nature and duration of restrictions as to the transferability or restrictions constituting substantial risk of forfeiture and to cancel or suspend awards, as necessary; (iii) determine the Fair Market Value of the Shares covered by each Stock Award; (iv) make an election as to the type of 102 Approved Stock Award ; and (v) designate the type of  Stock Award.
 
The Committee shall have full power and authority to: (i) alter any restrictions and conditions of any Stock Awards or Shares subject to any Stock Awards (ii) interpret the provisions and supervise the administration of the Plan; (iii) accelerate the right of a Stock Holder to exercise in whole or in part, any previously granted Stock Award ; (iv) determine the Purchase Price of the Stock Award; (v) prescribe, amend and rescind rules and regulations relating to the Plan; and (vi) make all other determinations deemed necessary or advisable for the administration of the Plan, including, without limitation, to adjust the terms of the Plan or any Stock Awards  Agreement so as to reflect (a) changes in applicable laws and (b) the laws of other jurisdictions within which the Company wishes to grant Stock Award.
 
 
3.4
The Board shall have the authority to grant, at its discretion, to the holder of an outstanding Stock Award, in exchange for the surrender and cancellation of such Stock Award, a new Stock Award having a purchase price equal to, lower than or higher than the Purchase Price of the original Stock Award so surrendered and canceled and containing such other terms and conditions as the Committee may prescribe in accordance with the provisions of the Plan.
 
 
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3.5
Subject to the Company’s Articles of Association, all decisions and selections made by the Board or the Committee pursuant to the provisions of the Plan shall be made by a majority of its members except that no member of the Board or the Committee shall vote on, or be counted for quorum purposes, with respect to any proposed action of the Board or the Committee relating to any Stock Award to be granted to that member. Any decision reduced to writing shall be executed in accordance with the provisions of the Company’s Articles of Association, as the same may be in effect from time to time.
 
 
3.7
The interpretation and construction by the Committee of any provision of the Plan or of any Stock Award Agreement thereunder shall be final and conclusive unless otherwise determined by the Board.
 
 
3.8
Subject to the Company’s Articles of Association and the Company’s decision, and to all approvals legally required, including, but not limited to the provisions of the Companies Law, each member of the Board or the Committee shall be indemnified and held harmless by the Company against any cost or expense (including counsel fees) reasonably incurred by him, or any liability (including any sum paid in settlement of a claim with the approval of the Company) arising out of any act or omission to act in connection with the Plan unless arising out of such member's own fraud or bad faith, to the extent permitted by applicable law. Such indemnification shall be in addition to any rights of indemnification the member may have as a director or otherwise under the Company's Articles of Association, any agreement, any vote of shareholders or disinterested directors, insurance policy or otherwise.
 
4. 
 
 
4.1
The persons eligible for participation in the Plan  as Stock Holders  shall include any Employees and/or Non-Employees of the Company or of any Affiliate; provided, however, that (i) Employees who are Israeli residents for tax purposes may only be granted 102 Stock Awards; (ii) Non-Employees who are Israeli residents for tax purposes may only be granted 3(i) Stock Awards; (iii) Controlling Shareholders who are Israeli residents for tax purposes may only be granted 3(i) Stock Awards; and (iv) U.S. Persons may only be granted Stock Awards s in accordance with the Addendum.
 
 
4.2
The grant of a Stock Award hereunder shall neither entitle the Stock Award Holder  to participate nor disqualify the Stock Award Holder from participating in, any other grant of Stock Award pursuant to the Plan or any other option, stock award or share plan of the Company or any of its Affiliates.
 
 
4.3
Anything in the Plan to the contrary notwithstanding, all grants of Stock Awards to directors and office holders shall be authorized and implemented in accordance with the provisions of the Companies Law or any successor act or regulation, as in effect from time to time.

5. 
 
 
5.1
The Company may designate Stock Awards granted to Employees pursuant to Section 102 as Unapproved 102 Stock Awards or Approved 102 Stock Award.

 
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5.2
The grant of Approved 102 Stock Award shall be made under this Plan adopted by the Board as described in Section 17 below, and shall be conditioned upon the approval of this Plan by the ITA.

 
5.3
Approved 102 Stock Award may either be classified as Capital Gain Stock Award (“ CGSW ”) or Ordinary Income Stock Award (“ OISA ”).

 
5.4
Approved 102 Stock Award elected and designated by the Company to qualify under the capital gain tax treatment in accordance with the provisions of Section 102(b)(2) shall be referred to herein as CGSW .

 
5.5
Approved 102 Stock Award elected and designated by the Company to qualify under the ordinary income tax treatment in accordance with the provisions of Section 102(b)(1) shall be referred to herein as OISW .

 
5.6
The Company’s election of the type of Approved 102 Stock Awards as CGSW or OISA granted to Employees (the “ Election ”), shall be appropriately filed with the ITA in the framework of the request for the approval of this Plan, which shall be submitted to ITA at least 30 days prior to the Date of Grant of an Approved 102 Stock Award. Such Election shall become effective beginning the first Date of Grant of an Approved 102 Stock Awards under this Plan and shall remain in effect until the end of the year following the year during which the Company first granted Approved 102 Stock Awards. The Election shall obligate the Company to grant only the type of Approved 102 Stock Awards it has elected, and shall apply to all Stock Awards Holders who were granted Approved 102 Stock Awards during the period indicated herein, all in accordance with the provisions of Section 102(g) of the Ordinance. For the avoidance of doubt, such Election shall not prevent the Company from granting Unapproved 102 Stock Awards simultaneously.

 
5.7
All Approved 102 Stock Awards must be held in trust by a Trustee, as described in Section 6 below .

 
5.8
For the avoidance of doubt, the designation of Unapproved 102 Stock Awards and Approved 102 Stock Awards shall be subject to the terms and conditions set forth in Section 102 of the Ordinance and the regulations promulgated thereunder.

 
5.9
The provisions of the Plan and/or the Stock Awards Agreement shall be subject to the provisions of Section 102 and the Tax Assessing Officer’s permit, and the said provisions and permit shall be deemed an integral part of the Plan and of the Stock Awards Agreement. Any provision of Section 102 and/or the said permit which is necessary in order to receive and/or to keep any tax benefit pursuant to Section 102, which is not expressly specified in the Plan or the   Stock Awards Agreement, shall be considered binding upon the Company and the Stock Awards Holder

 
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6. 
 
 
6.1
Approved 102 Stock Awards which shall be granted under the Plan and/or any Shares allocated or issued upon exercise of such Approved 102   Stock Awards and/or other shares received subsequently following any realization of rights and/or any rights granted to the Stock Awards Holder by virtue of the Approved 102 Stock Awards (including bonus shares), shall be allocated or issued to the Trustee and held for the benefit of the Stock Awards Holder for such period of time as required by Section 102 or any regulations, rules or orders or procedures promulgated thereunder, and in accordance with the Election made by the Company according to section 5.5 above.
 
 
6.2
Notwithstanding anything to the contrary, the Trustee shall not release any Shares allocated or issued upon exercise of Approved 102 Stock Awards prior to the full payment of the   Stock Awards Holder’s tax liabilities arising from Approved 102 Stock Awards which were granted to him and/or any Shares allocated or issued upon exercise of Stock Awards.
 
 
6.3
Upon receipt of an Approved 102   Stock Awards, the Stock Awards Holder will sign an undertaking to release the Trustee from any liability in respect of any action or decision duly taken and bona fide executed in relation with the Plan, or any Approved 102 Stock Awards or Share granted to him thereunder.
 
7. 
 
 
7.1
The Company has reserved 4,368,000 (four million three hundred and sixty eight thousand) authorized but unissued Shares, for the purposes of the Plan, subject to adjustment as set forth in Section 9 below. Any Shares which remain unissued and which are not subject to the outstanding Stock Awards at the termination of the Plan shall cease to be reserved for the purpose of the Plan. Should any Stock Award for any reason expire or be canceled prior to its exercise or relinquishment in full, the Shares subject to the Stock Award may again be subjected to a Stock Award under the Plan or under the Company’s other stock awards plans.
 
 
7.2
Each Stock Award grant pursuant to the Plan shall be evidenced by a written Stock Award Agreement between the Company and the   Stock Award Holder, in such form as the Board or the Committee shall from time to time approve. Each Stock Award Agreement shall state, among other matters, the number of Shares to which the Stock Awards relates, the type of Stock Award granted thereunder (whether a CGSW, OISW, Unapproved 102 Stock Award or a 3(i) Stock Award), the Vesting Dates, the Purchase Price per share, the Expiration Date and such other terms and conditions as the Committee or the Board in its discretion may prescribe, provided that they are consistent with this Plan.
 
8. 
 
 
8.1
The Purchase Price of each Share subject to a Stock Award shall be determined by the Board or by the Committee in accordance with applicable law, subject to guidelines determined by the Board from time to time. Each Stock Award Agreement will contain the Purchase Price determined for each   Stock Award Holder.
 
 
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8.2
The Purchase Price shall be payable upon the exercise of the Stock Award in a form satisfactory to the Committee, including without limitation, by cash or check. Notwithstanding the forms of exercise of Stock Award specified herein, the Company may (at its full and exclusive discretion), effectuate the exercise of the Options in a cash-less exercise or net-exercise, if and when, the Stock Award Holder instructs to exercise his Options for an immediate sale. The Board or the Committee, as applicable, shall have the authority to postpone the date of payment on such terms as it may determine.

 
8.3
The Purchase Price shall be denominated in the currency of the primary economic environment of, either the Company or the Stock Award Holder (that is the functional currency of the Company or the currency in which the Stock Award Holder is paid) as determined by the Company.

 
8.4
Pursuant to Section ‎ 8.2 above, the Committee may decide in its own discretion that a Stock Award Holder may exercise his/her Stock Awards in such a manner that the number of exercised Shares, due to the exercise of such Stock Awards, will reflect the premium component generated to such Stock Award Holder due to the exercise (" Cashless Exercise "). The premium component shall be calculated according to the difference between the share price on the date of exercise to the Purchase Price of the Stock Award (the " premium component ").
 
The number of exercised Shares to which the Stock Award Holder will be entitled will equal the sum of the exercised Stock Awards multiplied by the premium component and divided by the price of the share on the date of exercise, according to the follow formula:
 
 
 
 = Number of exercised Shares;
 
 
 
A = Share Price on the date of exercise;
 
 
 
B = Purchase Price;
 
 
 
C = Number of exercised Stock Awards.
 
 
 
D= the par value of a Company's Share
 
The Stock Award Holder shall not be required to pay to the Company any sum with respect to the exercise of such Stock Awards, other than a sum equal to the aggregate par value of the Cashless Exercise (which shall be paid in a manner provided in Section 8.2 above) (the “ Nominal Value Sum ”). However, the Company shall have the full authority in its discretion to determine at any time that the Nominal Value Sum shall not be paid and that the Company shall capitalize applicable profits or take any other action to ensure that it meets any requirement of Applicable Laws regarding issuance of Shares for consideration that is lower than the nominal value of such Shares;
 
 
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9. 
 
Upon the occurrence of any of the following described events, Stock Award Holder’s rights to purchase Shares under the Plan shall be adjusted as hereafter provided:
 
 
9.1
In the event of a Transaction, immediately prior to the effective date of such Transaction, each Stock Award may, among other things, at the sole and absolute discretion of the Board, either:
 
(i)
Be substituted for a Successor Company's award such that the Stock Award Holder may exercise the Successor Company's award, for such number and class of securities of the Successor Company which would have been issuable to the Stock Award Holder in consummation of such Transaction, had the Stock Award been exercised, immediately prior to the effective date of such Transaction, given the exchange ratio or consideration paid in the Transaction, the Vesting Dates and performance conditions (if any) of the Stock Awards and such other terms and factors that the Board determines to be relevant for purposes of calculating the number of Successor Company's awards granted to each Participant; or
 
(ii)
Be assumed by any Successor Company such that the Stock Award Holder may exercise the Stock Award, for such number and class of securities of the Successor Company which would have been issuable to the Stock Award Holder in consummation of such Transaction, had the Stock Award been exercised immediately prior to the effective date of such Transaction, given the exchange ratio or consideration paid in the Transaction, the Vesting Dates and performance conditions (if any) of the Stock Awards and such other terms and factors that the Board determines to be relevant for this purpose.
 
(iii)
Determine that the Stock Awards shall be cashed out for a consideration equal to the difference between the price received by the shareholders of the Company in the Transaction and the Purchase Price of such Stock Award.
 
In the event of a clause (i) or clause (ii) action, appropriate adjustments shall be made to the Purchase Price per Share to reflect such action. In taking any of the actions permitted under this Section 9.1, the Board shall not be obligated to treat all Stock Awards, all Stock Awards held by a Stock Award Holder, or all Stock Awards of the same type, similarly.

 
9.2
Immediately following the consummation of the Transaction, all outstanding Stock Awards shall terminate and cease to be outstanding, except to the extent assumed by a Successor Company.

 
9.3
Notwithstanding the foregoing, and without derogating from the power of the Board pursuant to the provisions of the Plan, the Board shall have full authority and sole discretion to determine that any of the provisions of Sections 9.1 (i) or 9.1 (ii) above shall apply in the event of a Transaction in which the consideration received by the shareholders of the Company is not solely comprised of securities of a Successor Company, or in which such consideration is solely cash or assets other than securities of a Successor Company.

 
9.4
If the Company is voluntarily liquidated or dissolved while unexercised Stock Award  remain outstanding under the Plan, the Company shall immediately notify all unexercised Stock Award holders of such liquidation, and the Stock Award holders shall then have ten (10) days to exercise any unexercised Vested Stock Award held by them at that time, in accordance with the exercise procedure set forth herein. Upon the expiration of such ten-days period, all remaining outstanding Stock Awards will terminate immediately.

 
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9.5
If the outstanding shares of the Company shall at any time be changed or exchanged by declaration of a share dividend (bonus shares), share split, combination or exchange of shares, recapitalization, or any other like event by or of the Company, and as often as the same shall occur, then the number, class and kind of the Shares subject to the Plan or subject to any Stock Award  therefore granted, and the Purchase Prices, shall be appropriately and equitably adjusted so as to maintain the proportionate number of Shares without changing the aggregate Purchase Price, provided, however, that no adjustment shall be made by reason of the distribution of subscription rights (rights offering) on outstanding shares. Upon happening of any of the foregoing, the class and aggregate number of Shares issuable pursuant to the Plan (as set forth in Section 7 hereof), in respect of which Stock Award have not yet been exercised, shall be appropriately adjusted, all as will be determined by the Board whose determination shall be final .

 
9.6
Anything herein to the contrary notwithstanding, in case of a Transaction, all or substantially all of the shares of the Company are to be exchanged for securities of another Company, then each Stock Award Holder shall be obliged to sell or exchange, as the case may be, any Shares such   Stock Award Holder  purchased under the Plan, in accordance with the instructions issued by the Board in connection with the Transaction, whose determination shall be final.
 
 
9.7
The Stock Award Holder acknowledges that in the event that the Company’s shares shall be registered for trading in any public market, Stock Award Holder’s rights to sell the Shares may be subject to certain limitations (including a lock-up period), as will be requested by the Company or its underwriters, and the   Stock Award Holder unconditionally agrees and accepts any such limitations.
 
 
9.8
Without derogating from the provisions of section 22 below, it is hereby clarified that any tax consequences arising from the exercise of the provisions of this section 9, shall be borne solely by the   Stock Award Holder.
 
 
9.9
Sale . Subject to any provision in the Articles of Association of the Company and to the Board’s sole and absolute discretion, in the event of a Sale, each Stock Award Holder shall be obligated to participate in the Sale and sell his or her Shares and/or Stock Awards in the Company, provided, however, that each such Share or Stock Award shall be sold at a price equal to that of any other Share sold under the Sale (and, unless determined otherwise by the Board, less the applicable Purchase Price), while accounting for changes in such price due to the respective terms of any such Stock Award, and subject to the absolute discretion of the Board.
 
 
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10. 
 
 
10.1
Options shall be exercised by the   Stock Award Holder by giving written notice to the Company and/or to any third party designated by the Company (the “ Representative ”), in such form and method as may be determined by the Company and when applicable, by the Trustee in accordance with the requirements of Section 102, which exercise shall be effective upon receipt of such notice by the Company and/or the Representative and the payment of the Purchase Price at the Company’s or the Representative’s principal office. The notice shall specify the number of Shares with respect to which the Stock Award  is being exercised.
 
 
 
10.2
Stock Awards, to the extent not previously exercised, shall terminate forthwith upon the earlier of: (i) the date set forth in the Stock Award Agreement; and (ii) the expiration of any extended period in any of the events set forth in section 10.5 below.
 
 
 
10.3
(a) The Options may be exercised by the Stock Award Holder in whole at any time or in part from time to time, to the extent that the Options become vested and exercisable, prior to the Expiration Date, and provided that, subject to the provisions of section 10.5 below, the   Stock Award Holder is employed by or providing services to the Company or any of its Affiliates, at all times during the period beginning with the granting of the Option and ending upon the date of exercise.
 
   
(b) Notwithstanding anything to the contrary hereinabove, Stock Awards  shall not be exercised on the determining date with respect to the distribution of bonus shares, offer by way of rights issue, distribution of dividends, consolidation of share capital, consolidation of shares, reduction or split in share capital or company split (each hereinafter referred to as a " Corporate Event "). In addition, if the Ex Date with respect to a Corporate Event occurs before the determining date relating to such Corporate Event, then the exercise of Stock Award  shall not occur on such Ex Date.
 
The limitations pursuant to this subsection 10.3(b) shall be in effect only as long as the Company’s securities are traded on the Tel-Aviv Stock Exchange (the " TASE ").
 
 
10.4
In the event of termination of employment or service, the unvested portion of the Stock Award Holder’s shall not vest and shall not become exercisable. The effective date of termination of employer-employee relations or cessation of service shall constitute the termination date. In the event of termination of employment or service Vested Options granted to such Stock Award Holder shall expire unless extended pursuant to the provisions of section 10.5 below.
 
 
10.5
Notwithstanding anything to the contrary hereinabove and unless otherwise determined in the Stock Award  Agreement, an Option may be exercised after the date of termination of   Stock Award Holder’s   employment or service with the Company or any Affiliates during an additional period of time beyond the date of such termination, but only with respect to the number of Vested Options at the time of such termination according to the Vesting Dates, if :
  (i) termination is without Cause, in which event any Vested Option still in force and unexpired may be exercised within a period of ninety (90) days after the date of such termination; or-
 
 
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(ii) termination is the result of death or disability of the   Stock Award Holder, in which event any Vested Option still in force and unexpired may be exercised within a period of twelve (12) months after the date of such termination; or -
 
 
(iii) at any time, the Committee shall authorize an extension of the terms of all or part of the Vested Options beyond the date of such termination for a period not to exceed the period during which the Options by their terms would otherwise have been exercisable.
 
For avoidance of any doubt, if termination of employment or service is for Cause, any outstanding unexercised Option (whether vested or non-vested), will immediately expire and terminate, and the   Stock Award Holder  shall not have any right in connection to such outstanding Options.

 
10.6
Notwithstanding the foregoing provisions of Section 10.3 to 10.5, unless determined otherwise by the Committee, and for the avoidance of doubt, the transfer of a Stock Award Holder  from the employ or service of the Company to the employ or service of an Affiliate, or from the employ or service of an Affiliate to the employ or service of the Company or another Affiliate, shall not be deemed a termination of employment or service for purposes hereof.

 
10.7
In the event of termination of employment or service of a   Stock Award Holder  of Unapproved 102 Stock Award, then such   Stock Award Holder  shall be required, as a condition to his right to exercise the Stock Award  granted to him, to secure the due, timely and complete payment of any tax duty imposed upon him (including in accordance with section 22 below), by the submission to the Company of any security or guaranty approved, in advance, by the Board or the Committee.

 
10.8
The Stock Award Holders shall not have any of the rights or privileges of shareholders of the Company in respect of any Shares purchasable upon the exercise of any Stock Award, nor shall they be deemed to be a class of shareholders or creditors of the Company for purpose of the operation of sections 350 and 351 of the Companies Law or any successor to such section, until registration of the   Stock Award Holder  as holder of such Shares in the Company’s register of shareholders upon exercise of the Stock Award  in accordance with the provisions of the Plan, but in case of Stock Awards  and Shares held by the Trustee, subject to the provisions of Section 6 of the Plan.

 
10.9
Any form of Stock Award Agreement authorized by the Plan may contain such other provisions as the Committee may, from time to time, deem advisable.

11. 
 
 
11.1
Subject to the provisions of the Plan, each Stock Award shall vest following the Vesting Dates and for the number of Shares as shall be provided in the Stock Award Holder Agreement. However, no Stock Award shall be exercisable after the Expiration Date.

 
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11.2
A   Stock Award may be subject to such other terms and conditions on the time or times when it may be exercised, as the Committee may deem appropriate. The vesting provisions of individual Stock Awards may vary.

12. 
 
12.1
Notwithstanding anything to the contrary in the Articles of Association of the Company, none of the   Stock Award Holders shall have a right of first refusal in relation with any sale of shares in the Company.
 
 
12.2
Any sale of Shares issued under the Plan by the   Stock Award Holder that is not made in accordance with the Plan or the Stock Award Agreement shall be null and void.
 
13. 
 
 
13.1
Subject to the sole and absolute discretion and determination of the Board, the Board may decide to grant under the Plan, Restricted Stock Unit(s) (“ RSU(s) ”). A RSU is a right to receive a Share of the Company, under certain terms and conditions, for a consideration of no more than the underlying Share’s nominal value. Upon the lapse of the Vesting Dates of a RSU, such RSU shall automatically vest into an exercised Share of the Company (subject to adjustments under Section 9 herein) and the Stock Award Holder shall pay to the Company its nominal value. The Board, in its sole discretion, shall determine procedures from time to time for payment of such nominal value by the Stock Award Holder or for collection of such amount from the Stock Award Holder by the Company. However, the Company shall have the full authority in its discretion to determine at any time that said nominal value shall not be paid and that the Company shall capitalize applicable profits or take any other action to ensure that it meets any requirement of applicable laws regarding issuance of Shares for consideration that is lower than the nominal value of such Shares.
 
 
13.2
Unless determined otherwise by the Board, in the event of a termination of employment or service, all RSUs granted to such Stock Award Holder that are not vested on the date of termination of employment or service, shall terminate immediately and have no legal effect.
 
 
13.3
All other terms and conditions of the Plan applicable to Options, shall apply to RSUs, mutatis mutandis.  It is clarified, that without deviating from the foregoing in Sub-Section 13.2, the provisions of Sections 10.4 and 10.6 herein, shall, mutatis mutandis, apply to RSUs.
 
14. 
 
 
14.1
Restricted Stock may be granted upon such terms and conditions, as the Board shall determine.
 
 
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14.2
Purchase Price. No monetary payment (other than payments made for applicable Taxes) shall be required as a condition of receiving Shares pursuant to a grant of Restricted Stock. Notwithstanding the foregoing, the Stock Award Holder shall furnish consideration in the form of cash having a value not less than the nominal value of the Shares subject to an award of Restricted Stock. The Board, in its sole discretion, shall determine procedures from time to time for payment of such nominal value by the Stock Award Holder or for collection of such amount from the Stock Award Holder by the Company. However, the Company shall have the full authority in its discretion to determine at any time that said nominal value shall not be paid and that the Company shall capitalize applicable profits or take any other action to ensure that it meets any requirement of applicable laws regarding issuance of Shares for consideration that is lower than the nominal value of such Shares.
 
 
14.3
Vesting and Restrictions on Transfer.  Shares issued pursuant to any Restricted Stock may (but need not) be made subject to Vesting Dates as described herein, as shall be established by the Board and set forth in the applicable Stock Award Agreement evidencing such Stock Award. During any restriction period in which Shares acquired pursuant to an award of Restricted Stock remain subject to Vesting Dates, such Shares may not be sold, exchanged, transferred, pledged, assigned or otherwise disposed of unless otherwise provided in the Plan. Upon request by the Company, each Stock Award Holder shall execute any agreement evidencing such transfer restrictions prior to the receipt of Shares hereunder and the Company may place appropriate legends evidencing any such transfer restrictions on the relevant share certificates.
 
 
14.4
Voting Rights; Dividends and Distributions.  Except as provided in this section and in any Stock Award Agreement, during any restriction period applicable to Shares subject to an award of Restricted Stocks the Stock Award Holder shall have all of the rights of a shareholder of the Company holding Shares, including the right to receive all dividends and other distributions paid with respect to such Shares. However, in the event of a dividend or distribution paid in Shares or other property or any other adjustment made upon a change in the capital structure of the Company as described in Section 9, any and all new, substituted or additional securities or other property (other than normal cash dividends) to which the Stock Award Holder is entitled by reason of the Stock Award Holder’s award of Restricted Stocks shall be immediately subject to the same Vesting Dates as the Shares subject to the award of Restricted Stocks with respect to which such dividends or distributions were paid or adjustments were made.
 
 
14.5
Termination of Employment or Service.  Unless otherwise provided by the Board, in the event of termination of employment or service of a Stock Award Holder, for any reason, whether voluntary or involuntary (including the Stock Award Holder’s death or disability), then the Stock Award Holder shall forfeit to the Company any Shares acquired by the Stock Award Holder pursuant to an award of Restricted Stocks which remain subject to Vesting Dates as of the date of termination of employment or service.
 
 
14.6
All other terms and conditions of the Plan applicable to Options, shall apply to Restricted Stocks, mutatis mutandis. It is clarified, that without deviating from the foregoing in Sub-Section 14.5, the provisions of Section 10.4 and 10.6 herein, shall, mutatis mutandis, apply to Restricted Stocks.
 
 
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15. 
 
 
15.1
With respect to all Shares (but excluding, for avoidance of any doubt, any unexercised Stock Award) allocated or issued upon the exercise of Stock Awards  purchased by the   Stock Award Holder and held by the   Stock Award Holder  or by the Trustee, as the case may be, the   Stock Award Holder shall be entitled to receive dividends in accordance with the quantity of such Shares, subject to the provisions of the Company’s Articles of Association (and all amendments thereto) and subject to any applicable taxation on distribution of dividends.
 
 
15.2
During the period in which Shares are held by the Trustee on behalf of the   Stock Award Holder, the cash dividends paid with respect thereto shall be paid directly to the   Stock Award Holder, after deduction of any tax imposed on such cash dividends.
 
16. 
 
 
16.1
No Stock Award or any right with respect thereto, purchasable hereunder, whether fully paid or not, shall be assignable, transferable or given as collateral or any right with respect to it given to any third party whatsoever, except as specifically allowed under the Plan, and during the lifetime of the   Stock Award each and all of such   Stock Award Holder’s  rights to purchase Shares hereunder shall be exercisable only by the   Stock Award Holder.
 
 
 
Any such action made directly or indirectly, for an immediate validation or for a future one, shall be void.
 
 
16.2
As long as the Stock Awards and/or Shares are held by the Trustee on behalf of  the   Stock Award Holder, all rights of the   Stock Award Holder  over the Shares are personal, cannot be transferred, assigned, pledged or mortgaged, other than by will or pursuant to the laws of descent and distribution.
 
17. 
 
The Plan became effective as of the day it was adopted by the Board and shall terminate (except as to Stock Award outstanding on that date) December 9 th , 2022, being ten (10) years from the date upon which the Board adopted an amendment extending the term of the Plan from its original expiration date, for a period of time which ends 10 years from the date of the adoption of such amendment by the Board .

 
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18. 
 
The Board may at any time amend, alter, suspend or terminate the Plan. No amendment, alteration, suspension or termination of the Plan shall impair the rights of any Stock Award Holder, unless mutually agreed otherwise between the Stock Award Holder and the Company, which agreement must be in writing and signed by the Stock Award Holder and the Company. Termination of the Plan shall not affect the Committee’s ability to exercise the powers granted to it hereunder with respect to Stock Awards  granted under the Plan prior to the date of such termination.
 
19. 
 
(a) The Plan, and the granting and exercise of Stock Awards  hereunder, and the obligation of the Company to sell and deliver Shares under such Stock Awards , shall be subject to all applicable laws, rules, and regulations, whether of the State of Israel or of the United States or any other State having jurisdiction over the Company and the   Stock Awards , including the registration of the Shares under the United States Securities Act of 1933, and the Ordinance and to such approvals by any governmental agencies or national securities exchanges as may be required. Nothing herein shall be deemed to require the Company to register the Shares under the securities laws of any jurisdiction.
 
(b) For the avoidance of doubt, as long as the Company’s securities are traded on the TASE, the provisions of this Plan shall be subject to the directives, rules and regulations of the TASE, as those are established from time to time (" TASE Directives "). In the event that any of the provisions of this Plan do not comply with the TASE Directives, the Board shall be entitled to automatically amend the provisions of this Plan in order to comply with the TASE Directives.
 
20. 
 
Neither the Plan nor the Stock Award  Agreement with the   Stock Award Holder shall impose any obligation on the Company or an Affiliate thereof, to continue any Stock Award Holder in its employ or service, and nothing in the Plan or in any Stock Award granted pursuant thereto shall confer upon any   Stock Award Holder  any right to continue in the employ or service of the Company or an Affiliate thereof or restrict the right of the Company or an Affiliate thereof to terminate such employment or service at any time.
 
21. 
 
The Plan shall be governed by and construed and enforced in accordance with the laws of the State of Israel applicable to contracts made and to be performed therein, without giving effect to the principles of conflict of laws. The competent courts of Tel-Aviv, Israel shall have sole jurisdiction in any matters pertaining to the Plan.
 
22. 
 
 
22.1
Any tax consequences arising from the grant or exercise of any Stock Award, from the payment for Shares covered thereby or from any other event or act (of the Company and/or its Affiliates, the Trustee or the   Stock Award Holder), hereunder, shall be borne solely by the   Stock Award Holder. The Company and/or its Affiliates and/or the Trustee shall withhold taxes according to the requirements under the applicable laws, rules, and regulations, including withholding taxes at source. Furthermore, the   Stock Award Holder shall agree to indemnify the Company and/or its Affiliates and/or the Trustee and hold them harmless against and from any and all liability for any such tax or interest or penalty thereon, including without limitation, liabilities relating to the necessity to withhold, or to have withheld, any such tax from any payment made to the   Stock Award Holder.

 
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22.2
The Company and/or, when applicable, the Trustee shall not be required to release any Share certificate to a Stock Award Holder until all required payments have been fully made.

 
22.3
To the extent provided by the terms of a Stock Award  Agreement, the   Stock Award Holder  may satisfy any tax withholding obligation relating to the exercise or acquisition of Shares under a   Stock Award  by any of the following means (in addition to the Company’s right to withhold from any compensation paid to the   Stock Award Holder  by the Company) or by a combination of such means: (i) tendering a cash payment; (ii) subject to the Committee’s approval on the payment date, authorizing the Company to withhold Shares from the Shares otherwise issuable to the Stock Award Holder as a result of the exercise or acquisition of Shares under the Stock Award in an amount not to exceed the minimum amount of tax required to be withheld by law; or (iii) subject to Committee approval on the payment date, delivering to the Company owned and unencumbered Shares; provided that Shares acquired on exercise of Stock Awards have been held for at least 6 months from the date of exercise.
 
23.
 
The adoption of the Plan by the Board shall not be construed as amending, modifying or rescinding any previously approved incentive arrangements or as creating any limitations on the power of the Board to adopt such other incentive arrangements as it may deem desirable, including, without limitation, the granting of Stock Awards otherwise than under the Plan, and such arrangements may be either applicable generally or only in specific cases.
 
For the avoidance of doubt, prior grant of Stock Awards to   Stock Award Holders of the Company under their employment agreements, and not in the framework of any previous plan, shall not be deemed an approved incentive arrangement for the purpose of this Section.
 
24. 
 
The terms of each Stock Award may differ from other Stock Awards granted under the Plan at the same time, or at any other time. The Board may also grant more than one Stock Award to a given Stock Award Holder during the term of the Plan, either in addition to, or in substitution for, one or more Stock Awards  previously granted to that   Stock Award Holder.
 
 
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U.S. Addendum to Perion Network Ltd. Equity Incentive Plan
 
1.
Purpose of the Addendum
 
This Addendum is incorporated as part of the Perion Network Ltd. Equity Incetnive Plan (the “Plan” ). All terms not otherwise defined herein shall have the meaning ascribed to them in the Plan.  This Addendum governs grants of Stock Awards  to U.S. Persons (as defined below).
 
2.
Provisions of the Addendum
 
In connection with U.S. Persons, the provisions of this Addendum shall supersede and govern in the case of any inconsistency between the provisions of this Addendum and the provisions of the Plan, provided, however, that this Addendum shall not be construed to grant to any Stock Award Holder rights not consistent with the terms of the Plan, unless specifically provided herein.
 
3.
Eligibility
 
The individuals who shall be eligible to receive Stock Awards  under the Plan that are subject to the provisions of this Addendum shall be employees, directors and other individuals who are United States citizens or who are resident aliens of the United States for United States federal tax purposes (collectively, “ U.S. Persons ”), and who render services to the management, operation or development of the Company or a Subsidiary and who have contributed or may be expected to contribute materially to the success of the Company or a Subsidiary. ISOs (as defined in Paragraph 5 below) shall not be granted to any individual who is not an employee of a corporation for United States federal tax purposes.  The term “ Subsidiary ” as used in this Addendum means a corporation or other business entity of which the Company owns, directly or indirectly through an unbroken chain of ownership, fifty percent or more of the total combined voting power of all classes of stock.
 
 
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4. 
Aggregate Maximum Number of Shares Eligible for Stock Awards
 
As of August 7, 2012,  the aggregate maximum number of Shares that may be issued under the Plan is 4,368,000, as such number may be adjusted in accordance with the Plan, all of which may be issued as Incentive Stock Options.
 
5. 
Terms and Conditions of Options
 
Every Option granted to a U.S. Person shall be evidenced by a written Stock Award Agreement in such form as the Board or the Committee shall approve from time to time, specifying the number of Shares that may be purchased pursuant to the Stock Award , the Purchase Price, the time or times at which the Stock Award shall become exercisable in whole or in part, whether the Stock Award  is intended to be an incentive stock option under Section 422 of the Code (“ ISO ”) or a nonqualified stock option (“ NSO ”) and such other terms and conditions as the Board or the Committee shall approve, and containing or incorporating by reference the following terms and conditions.  The Plan and this Addendum shall be administered in such a manner as to permit those Stock Awards granted hereunder and specially designated as an ISO to qualify as incentive stock options as described in Section 422 of the Code.
 
(a)           Duration .  Each Option shall expire no later than ten (10) years from its date of grant. No ISO granted to a Stock Award Holderwho owns (directly or under the attribution rules of Section 424(d) of the Code) shares possessing more than ten percent of the total combined voting power of all classes of shares of the Company or any Subsidiary shall expire later than five (5) years from its date of grant.
 
(b)            Purchase Price .  The Purchase Price of each Option shall be as specified by the Board or the Committee in its discretion; provided, however, that the Purchase Price shall be at least 100 percent of the Fair Market Value of the Shares on the date on which the Board or the Committee grants the Option, which shall be considered the date of grant of the Option for purposes of fixing the Purchase Price; and provided, further, that the Purchase Price with respect to an ISO granted to an Optionee who at the time of grant owns (directly or under the attribution rules of Section 424(d) of the Code) shares representing more than ten percent (10%) of the voting power of all classes of shares of the Company or of any Subsidiary shall be at least 110 percent of the Fair Market Value of the Shares on the date of grant of the ISO. Notwithstanding any provision in the Plan to the contrary, with respect to Non-Qualified Stock Options, the “Fair Market Value” of the Shares shall be determined in a manner that satisfies the applicable requirements of Code Section 409A, and with respect to Incentive Stock Options, such Fair Market Value shall be determined in a manner that satisfies the applicable requirements of Code Section 422, and subject to Code Section 422(c)(7).  Notwithstanding the foregoing provisions of this Section 5(b), Options may be granted with a per Share Purchase Price of less than 100% of the Fair Market Value per Share on the date of grant (i) pursuant to a transaction described in, and in a manner consistent with, Code Sections 424(a) and or 409A, as applicable and (ii) in the case of a NSO that (A) does not provide for the deferral of compensation by reason of satisfying the short-term deferral rule set forth in the Treasury Regulations promulgated under Code Section 409A or (B) is compliant with Code Section 409A.
 
 
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(c)            Notice of ISO Stock Disposition .  The Optionee must notify the Company promptly in the event that the Optionee sells, transfers, exchanges or otherwise disposes of any Shares issued upon exercise of an ISO before the later of (i) the second anniversary of the date of grant of the ISO or (ii) the first anniversary of the date the shares were issued upon the Optionee’s exercise of the ISO.
 
(d)            $100,000 Limit for ISOs.   The aggregate Fair Market Value (determined at the date of grant) of the Shares with respect to which ISOs granted to an Optionee and any incentive stock options granted to such Optionee under any other stock option plan of the Company, any Subsidiary or any predecessor corporation are exercisable for the first time by such Optionee during any calendar year shall not exceed U.S. $100,000, or such other limit as may be prescribed by the Code.
 
6.
R equirements of Law
 
(a)           The Company shall not be required to transfer Shares or to sell or issue any Shares upon the exercise of any Stock Award if the issuance of such Shares will result in a violation by the Stock Award , the Company or any Subsidiary of any provisions of any law, statute or regulation of any governmental authority.  Specifically, in connection with the United States Securities Act of 1933, as amended from time to time (the “ Securities Act ”), upon the exercise of any Stock Award , the Company shall not be required to issue Shares unless the Board or the Committee has received evidence satisfactory to it to the effect that the Stock Award will not transfer such Shares except pursuant to a registration statement in effect under the Securities Act or unless an opinion of counsel satisfactory to the Company has been received by the Company to the effect that registration is not required.  Any determination in this connection by the Board or the Committee shall be conclusive.  The Company shall not be obligated to take any other affirmative action in order to cause the exercise of a Stock Award to comply with any law or regulations of any governmental authority, including, without limitation, the Securities Act or applicable state securities laws.
 
(b)           All other provisions of this Addendum and the Plan notwithstanding, this Addendum and the Plan shall be administered and construed so as to avoid any person who receives a Stock Award incurring any adverse tax consequences under Code Section 409A.  The Board or the Committee shall suspend the application of any provisions of the Plan which could, in its sole determination, result in an adverse tax consequence to any person under Code Section 409A. In furtherance of the foregoing, this Addendum, the Plan and any Stock Award Agreement are intended to comply with (or be exempt from) the requirements of Code Section 409A and any ambiguities or ambiguous terms herein will be construed and interpreted in accordance with such intent.  In no event whatsoever shall the Company or any Subsidiary be liable for any additional tax, interest or penalties that may be imposed on a Stock Award Holder by Code Section 409A or for any damages for failing to comply with Code Section 409A. Each Stock Award Holder agrees to indemnify and hold harmless the Company and any Subsidiary from and against any and all taxes, interest, penalties, and other costs and expenses as a result of any non-compliance with Code Section 409A.
 
 
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(c)           To the extent the Board or the Committee determines it to be desirable to qualify Stock Awards granted under this Addendum as “performance-based compensation” within the meaning of Section 162(m) of the Code, grants of such Stock Awards shall be administered by a committee of two or more “outside directors” within the meaning of Section 162(m) of the Code and shall be made in accordance with the requirements of the “performance-based compensation” exception of Section 162(m) and the regulations thereunder.
 
7.
Tax Withholding and Reporting
 
To the extent required by law, the Company shall withhold or cause to be withheld income and other taxes with respect to any income recognized by a Stock Award Holder  by reason of the exercise of a  Stock Award , and as a condition to the receipt of any Stock Award the Stock Award Holder shall agree that if the amount payable to the Stock Award Holder by the Company and any Subsidiary in the ordinary course is insufficient to pay such taxes, then the Stock Award Holder  shall upon the request of the Company pay to the Company or a designated Subsidiary an amount sufficient to satisfy its tax. As a condition to receiving the grant of any Stock Award , the Stock Award Holdershall further agree to comply with any applicable tax and legal reporting obligations with respect to the Stock Award.

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Exhibit 99.10
 
PERION NETWORK LTD.
 
(THE "COMPANY")
 
PROXY
 
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
 
The undersigned hereby appoints Yacov Kaufman, Chief Financial Officer of the Company, and Limor Gershoni Levy, General Counsel of the Company, and each of them, attorneys, agents and proxies of the undersigned, with full power of substitution to each of them, to represent and to vote on behalf of the undersigned all the Company's Ordinary Shares, par value NIS 0.01 per share (“ Ordinary Shares ”), which the undersigned is entitled to vote at the Extraordinary General Meeting of Shareholders (the “ Meeting ”) to be held at the offices of the Company, located at 4 HaNechoshet Street, Tel Aviv 69710, Israel, on Monday, November 18, 2013 at 4:00 p.m. (Israel time), and at any adjournments or postponements thereof, upon the following matters, which are more fully described in the Proxy Statement relating to the Meeting (the “ Proxy Statement ”). All capitalized terms used and not defined in this Proxy Card shall have the meanings ascribed to them in the Proxy Statement.
 
This Proxy, when properly executed, will be voted in the manner directed herein by the undersigned. If no direction is made with respect to any matter, this Proxy will be voted FOR such matter.  Any and all proxies heretofore given by the undersigned are hereby revoked.
 
(Continued and to be signed on the reverse side)
 
 
 
 
 
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS YOU VOTE “FOR” ALL THE PROPOSALS. PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE.  PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE ý .
 
Proposal 1 :  To approve the Share Purchase Agreement among the Company, Conduit Ltd. and ClientConnect Ltd. and the transactions contemplated thereby, including the amendment to the Company's Articles of Association and Memorandum of Association and the election of each of Mr. Dror Erez and Mr. Roy Gen to the Company's Board of Directors.

 
o    for
o    against
o    abstain
 
Proposal 2 : To approve a new form of D&O indemnification agreement, which is a condition to closing under the Share Purchase Agreement.
 
 
o    for
o    against
o    abstain

Proposal 3 :  To approve the purchase of D&O liability insurance, which is a condition to closing under the Share Purchase Agreement.
 
 
o    for
o    against
o    abstain

Proposal 4 :  To approve compensation for the Company's chief executive officer.
 
 
o    for
o    against
o    abstain
 
Proposal 5 :  To approve a compensation policy for the Company's directors and officers.
 
 
o    for
o    against
o    abstain

Proposal 6 :  To approve the Company's amended Equity Incentive Plan for U.S. tax purposes.
 
 
o    for
o    against
o    abstain

By signing this Proxy, the undersigned hereby certifies that the undersigned is not a controlling shareholder of the Company and has no “personal interest” under the Israeli Companies Law in Proposals 2 to 5. See the “Required Vote” section in Proposal 2 of the Proxy Statement for more information, including how to indicate the existence of a personal interest.

In their discretion, the proxies are authorized to vote upon such other matters as may properly come before the Meeting or any adjournment or postponement thereof.
 
The undersigned acknowledges receipt of the Proxy Statement of the Company relating to the Extraordinary General Meeting.
 
                                                        Date: __________, 2013
Signature of Shareholder
 
                                                        Date: __________, 2013
Signature of Shareholder
 
Please sign exactly as your name or names appear on this Proxy.  When shares are held jointly, the senior holder should sign. When signing as executor, administrator, attorney, trustee or guardian, please give full title as such. If the signer is a corporation, please sign full corporate name by duly authorized officer, giving full title as such. If signer is a partnership, please sign in partnership name by authorized person.