This  Agreement  is made and  entered  into as of this 29th day of January

2003 by and between Commtouch Software Ltd. (the "Company"), a company organized

under the laws of the State of Israel,  with offices  located at 1A Hazoran St.,

Netanya, Israel and the lenders listed in the attached hereto Exhibit "A" (each,

a "Lender", and collectively, the "Lenders").



      Whereas,  the Lenders and Company are interested in having Lenders provide

to the Company a convertible  loan,  under the terms and conditions set forth in

this Convertible Loan Agreement (the "Agreement") and in the Promissory Note.



      Now,  therefore,  in consideration of the mutual promises contained herein

and other good and valuable consideration, the parties hereto expressly agree as

follows:



1.    Definitions



      "Agreement  Date" means the date of this Agreement,  as set forth above in

      the preamble to this Agreement.



      "Closing"  shall  have the  meaning  ascribed  to such  term in  Section 4

      hereof.



      "Collateral" means the property described in the Debenture,  and all other

      property now existing or  hereafter  acquired  which may at any time be or

      become  subject  to a  security  interest  in favor of the  Lenders or the

      Collateral Agent pursuant to the Debenture or otherwise.



      "Collateral Agent" shall means XDL Capital Corp.



      "Collateral  Agency  Agreement"  shall mean a Collateral  Agency Agreement

      among the Lenders,  the Company,  the U.S.  Subsidiary  and the Collateral

      Agent, in the form attached hereto as Exhibit "I".



      "Commission" shall mean the Securities and Exchange Commission.



      "Company Security  Agreement" shall mean a Security  Agreement between the

      Company and the  Collateral  Agent in the form attached  hereto as Exhibit

      "H".



      "Conversion"  shall  have  the  meaning  ascribed  to  such  term  in  the

      Promissory Note.



      "Debenture"  shall  mean  the  debenture  issued  to  Lenders  in the form

      attached hereto as Exhibit "C".



      "Effective  Date" shall mean the date the  Registration  Statement  of the

      Company covering the Shares acquired herein upon Conversion and the Shares

      issuable  upon  exercise  of the  Warrants is  declared  effective  by the

      Commission.



      "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended,

      and the rules and regulations of the Commission promulgated thereunder.



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                                       2





      "Guaranty"  shall mean a Guaranty made by the U.S.  Subsidiary in favor of

      the Lenders in the form attached hereto as Exhibit "F".



      "Lender  Majority" shall mean those Lenders who have lent  collectively to

      the Company over 50% of the Loan Amount.



      "Loan" shall have the meaning ascribed to such term in Section 3.1.



      "Loan Amount(s)"  shall mean the principal  amount(s) of the Loan advanced

      by Lenders to the Company under this Agreement.



      "Material  Adverse  Effect"  means a  material  adverse  effect on (i) the

      business  operations or condition  (financial or otherwise) of the Company

      and its subsidiaries  taken as a whole, (ii) the ability of the Company to

      repay the Loan, or otherwise  perform its obligations under this Agreement

      and  the  agreements  and  instruments  ancillary  hereto,  or  (iii)  the

      attachment,  perfection, or priority of the Lenders' security interests in

      the Collateral or the value of the Collateral.



      "Patent  and  Trademark  Security  Agreement"  shall  mean  a  Patent  and

      Trademark  Security   Agreement  between  the  U.S.   Subsidiary  and  the

      Collateral Agent in the form attached hereto as Exhibit "J".



      "Permitted  Transferee"  means,  with  respect to a Lender,  any  entities

      controlled by,  controlling or under common control with such Lender or if

      the Lender is a partnership,  any partners,  former partners or affiliated

      partnerships managed by the same manager or managing partner or management

      company,  or managed  by an entity  controlling,  controlled  by, or under

      common  control  with,  such  manager or  managing  partner or  management

      company.



      "Pro Rata Share" means, as to any Lender at any time, such Lender's funded

      portion of the Loan Amount divided by all Lenders'  funded portions of the

      Loan Amount.



      "Promissory  Note" shall mean  promissory  notes  issued to Lenders in the

      form attached hereto as Exhibit "B".



      "Registrable  Securities"  shall have the meaning ascribed to such term in

      Section 7.2.



      "Registration  Statement"  shall have the meaning ascribed to such term in

      Section 7.2.



      "Securities  Act" shall mean the Securities  Act of 1933, as amended,  and

      the rules and regulations of the Commission promulgated thereunder.



      "Shares" shall mean the Ordinary  Shares of the Company,  including  those

      that may be issued hereunder.



      "Trading  Day"  shall  mean (a) any day on which the  Ordinary  Shares are

      traded on the Nasdaq SmallCap or National  Market,  or (b) if the Ordinary

      Shares are not then listed or quoted for trading on the Nasdaq SmallCap or

      National Market,  then a day on which trading occurs on the New York Stock

      Exchange (or any successor thereto).



      "Transaction  Document"  shall have the  meaning  ascribed to such term in

      Section 12.



      "U.S. Subsidiary" means Commtouch, Inc., a California corporation.



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                                       3





      "U.S.  Subsidiary  Security  Agreement"  shall mean a  Security  Agreement

      between the U.S.  Subsidiary and the Collateral Agent in the form attached

      hereto as Exhibit "G".



      "Warrants" shall have the meaning ascribed to such term in Section 3.4.



2.    Exhibits



      The  following  exhibits are attached  hereto and  incorporated  herein by

reference:



      a. Exhibit "A" - Names of Lenders and Loan Amounts



      b. Exhibit "B" - Form of Promissory Note



      c. Exhibit "C" - Form of Debenture



      d. Exhibit "D" - Form of Warrant



      e. Exhibit "F" - Form of Guaranty



      f. Exhibit "G" - Form of U.S. Subsidiary Security Agreement



      g. Exhibit "H" - Form of Company Security Agreement



      h. Exhibit "I" - Form of Collateral Agency Agreement



      i. Exhibit "J" - Form of Patent and Trademark Security Agreement.



      j. Exhibit "K" - Opinion of Israeli Counsel to the Company



      k. Exhibit "L" - Opinion of US Counsel to the Company



      l. Exhibit "M" - Form of Second Tranche Notice



3. The Loan and Warrant Coverage



      3.1 Each Lender severally agrees, on the terms and conditions  hereinafter

set forth,  to provide the Company  with a Loan in the amounts set forth next to

the Lender's name in Exhibit "A" hereunder,  which shall total together with all

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