20-F

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 20-F

¨ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

 OR

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2011

OR

£ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to _______________

OR

£ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report. . . . . . . . . . .

Commission file number 000-20181

SAPIENS INTERNATIONAL CORPORATION N.V.

(Exact name of Registrant as specified in its charter)

Curaçao

(Jurisdiction of incorporation or organization)

Landhuis Joonchi

Kaya Richard J. Beaujon z/n

P.O. Box 837

Curaçao

 (Address of principal executive offices)

Roni Giladi, Chief Financial Officer

Tel: +972-8-938-2721

Fax+972-8-938-2730

Rabin Science Park

PO Box 4011

Nes Ziona 74140 Israel

(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

Title of Class:	Name of each exchange on which registered:
Common Shares, par value € 0.01 per share	NASDAQ Capital Market

Securities registered or to be registered pursuant to Section 12(g) of the Act: None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report

As of December 31, 2011, the issuer had 39,680,630 Common Shares, par value € 0.01 per share, outstanding.

Indicate by check mark if the registrant is well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes ¨      No x

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

Yes ¨      No x

Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x      No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes x      No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act.

£ Large Accelerated Filer      £ Accelerated Filer      x Non-Accelerated Filer

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

£ U.S. GAAP         £ International Financial Reporting Standards as issued £ Other

by the International Accounting Standards Board

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow:

Item 17 ¨      Item 18 ¨

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨       No £

TABLE OF CONTENTS

		Page
Introduction		1
PART I		1
Item 1.	Identity of Directors, Senior Management and Advisers	1
Item 2.	Offer Statistics and Expected Timetable	1
Item 3.	Key Information	2
Item 4.	Information on the Company	12
Item 4A.	Unresolved Staff Comments	28
Item 5.	Operating and Financial Review and Prospects	28
Item 6.	Directors, Senior Management and Employees	41
Item 7.	Major Shareholders and Related Party Transactions	53
Item 8.	Financial Information	56
Item 9.	The Offer and Listing	57
Item 10.	Additional Information	60
Item 11.	Quantitative and Qualitative Disclosures About Market Risk	82
Item 12.	Description of Securities Other Than Equity Securities	83
PART II		83
Item 13.	Defaults, Dividend Arrearages and Delinquencies	83
Item 14.	Material Modifications to the Rights of Security Holders and Use of Proceeds	83
Item 15.	Controls and Procedures	83
Item 16.	[Reserved]	84
Item 16A.	Audit Committee Financial Expert	84
Item 16B.	Code of Ethics	84
Item 16C.	Principal Accountant Fees and Services	85
Item 16D.	Exemptions from the Listing Standards for Audit Committees	85
Item 16E.	Purchases of Equity Securities by the Issuer and Affiliated Purchasers	85
Item 16F.	Change in Registrant's Certifying Accountant	85
Item 16G.	Corporate Governance	79
PART III		87
Item 17.	Financial Statements	87
Item 18.	Financial Statements	87
Item 19.	Exhibits	88
Signature		90

INTRODUCTION

Definitions

In this annual report, unless the context otherwise requires:

References to “Sapiens,” the “Company,” the "Registrant," “us,” “we” and “our” refer to Sapiens International Corporation N.V., a Curaçao company, and its consolidated subsidiaries.

References to “our shares,” “Common Shares” and similar expressions refer to the Registrant’s Common Shares, par value € 0.01 per share.

References to “dollars”, “US dollars” or “$” are to United States Dollars.

References to “NIS” are to New Israeli Shekels, the Israeli currency.

Cautionary Statement Regarding Forward-Looking Statements

Certain matters discussed in this annual report are forward-looking statements that are based on our beliefs and assumptions as well as information currently available to us. Such forward-looking statements may be identified by the use of the words “anticipate,” “believe,” “estimate,” “expect,” “may,” “will,” “plan” and similar expressions. Such statements reflect our current views with respect to future events and are subject to certain risks and uncertainties. While we believe such forward-looking statements are based on reasonable assumptions, should one or more of the underlying assumptions prove incorrect, or these risks or uncertainties materialize, our actual results may differ materially from those described herein. Please read the risks discussed in Item 3 – “Key Information” under the caption “Risk Factors” and cautionary statements appearing elsewhere in this annual report in order to review conditions that we believe could cause actual results to differ materially from those contemplated by the forward-looking statements.

We undertake no obligation publicly to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In light of these risks, uncertainties, and assumptions, the forward-looking events discussed in this annual report might not occur.

PART I

Item 1.    Identity of Directors, Senior Management and Advisers

Not applicable.

Item 2.    Offer Statistics and Expected Timetable

Not applicable.

Item 3.    Key Information

A. Selected Financial Data.

The following tables summarize certain selected consolidated financial data for the periods and as of the dates indicated. We derived the statement of operations financial data for the years ended December 31, 2009, 2010 and 2011 and the balance sheet data as of December 31, 2010 and 2011 from our audited consolidated financial statements included elsewhere in this annual report. The selected consolidated statement of operations financial data for the years ended December 31, 2007 and 2008 and the balance sheet data as of December 31, 2007, 2008 and 2009 are derived from our audited financial statements not included in this annual report. Certain financial data for previous years set forth below was reclassified to conform to later years' presentation. You should read the selected consolidated financial data together with our audited consolidated financial statements included elsewhere in this annual report and with Item 5, “Operating and Financial Review and Prospects.” Our consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”).

	Year Ended December 31,
Selected Financial Data:	2007			2008			2009			2010			2011
	(In thousands, except share and per share data)
Revenues		42,395			43,534			45,695			52,235			69,927
Cost of revenues		25,583			26,457			26,571			29,921			40,067
Gross profit		16,812			17,077			19,124			22,314			29,860
Operating Expenses:
Research and development, net		3,502			3,884			2,735			3,293			5,008
Selling, marketing, general and administrative		12,513			10,708			11,048			12,310			18,113
Acquisition-related  and restructuring costs		-			-			-			-			1,115
Total operating expenses		16,015			14,592			13,783			15,603			24,236
Operating income		797			2,485			5,341			6,711			5,624
Financial income (expenses), net		(2,798	)		(2,236	)		(880	)		(364	)		104
Other expenses (income), net		109			(32	)		-						-
Income (loss) before taxes on income		(2,110	)		281			4,461			6,347			5,728
Taxes on income (benefit)		338			584			260			177			(230	)
Net income (loss)		(2,448	)		(303	)		4,201			6,170			5,958
Attributable to non-controlling interest		96			41			-			18			61
Net income (loss) attributable to Sapiens		(2,544	)		(344	)		4,201			6,152			5,897
Basic net earnings (loss) per share attributable to Sapiens' shareholders	$	(0.14	)	$	(0.02	)	$	0.19		$	0.28		$	0.21
Diluted net earnings (loss) per share attributable to Sapiens' shareholders	$	(0.14	)	$	(0.02	)	$	0.19		$	0.28		$	0.19
Weighted average number of shares used in computing basic net earnings (loss) per share		18,218			21,532			21,573			21,583			28,460
Weighted average number of shares used in computing diluted net earnings (loss) per share		18,218			21,532			21,574			22,181			30,764

2

	At December 31,
Balance Sheet Data:	2007			2008			2009		2010		2011
	(In thousands)
Cash and cash equivalents	$	13,125		$	7,938		$	11,172	$	16,182	$	21,460
Working capital (deficit)		(567	)		(4,506	)		925		4,868		7,736
Total assets		55,307			47,867			48,731		58,719		153,468
Accrued severance pay (1)		3,544			3,826			3,895		4,446		10,711
Other long-term liabilities		6,698			296			34		299		617
Capital stock		132,310			132,562			132,821		133,418		208,464
Total  equity		21,943			21,876			26,415		34,118		110,247

(1) Accrued severance pay relates to accrued severance obligations mainly to our Israeli employees as required under Israeli labor law.  We are legally required to pay severance upon certain circumstances, primarily upon termination of employment by our company, retirement or death of the respective employee.  Our liability for all of our Israeli employees is fully provided for by monthly deposits with insurance policies and by an accrual.

B.     Capitalization and Indebtedness.

Not applicable.

C.    Reasons for the Offer and Use of Proceeds.

Not applicable.

D.     Risk Factors.

We operate globally in a dynamic and rapidly changing environment that involves numerous risks and uncertainties. The following section lists some, but not all, of those risks and uncertainties that may have a material adverse effect on our business, financial position, results of operations or cash flows.

3

Risks Relating to Our Business, Our Industry and our Financing Activities

The software solutions market that we address is expected to continue to evolve, and if we are not able to accurately predict and rapidly respond to market developments or customer needs, our competitive position will be impaired.

The market for our solutions is characterized by changing business conditions and customer requirements, including requirements based on regulations to which our customers are subject. Nevertheless, estimates of the market's expected growth resulting from the changing conditions and requirements are inherently uncertain and are subject to many risks and assumptions. We may need to develop and introduce additional software and enhancements to our existing solutions to satisfy our current customers and maintain our competitive position in the marketplace. We may also need to modify our software so that it can operate with new or enhanced software that may be introduced by other software vendors, it can be used in different environments or it can comply with regulatory requirements to which our customers are subject. The failure to anticipate changes in technology, partner and customer requirements and successfully develop, enhance or modify our software solutions, or the failure to do so on a timely basis, could limit our revenue growth and competitive position.

Our development cycles are lengthy, we may not have the resources available to complete development of new solutions and enhancements and modifications of our current solutions and we may incur significant expenses before we generate revenues, if any, from new solutions or such enhancements or modifications.

Because our solutions are complex and require rigorous testing, development cycles can be lengthy, taking us up to two years to develop and introduce new, enhanced or modified products. Moreover, development projects can be technically challenging and expensive. The nature of these development cycles may cause us to experience delays between the time we incur expenses associated with research and development and the time we generate revenues, if any, from such expenses. There can be no assurance that we will have sufficient resources to make such investments or that these investments will bring the full advantages or any advantage as planned.

If existing customers do not make subsequent purchases from us and continue using our solutions and services or if our relationships with our largest customers are impaired, our revenue could be negatively affected

Our existing customers are a key asset, and we depend on repeat product and service revenues from our base of customers. Five of our customers represent 33% of our revenues (which include customers of our newly-acquired businesses from August 21, 2011 when we acquired these businesses, as described below). There can be no assurance that our existing customers will enter into new project contracts with us or that they will continue using our technologies. A significant decline in our revenue stream from existing customers would have an adverse effect on our operating results.

Our sales cycle is variable, depends upon many factors outside our control, and could cause us to expend significant time and resources prior to earning associated revenues.

The typical sales cycle for our solutions and services is lengthy and unpredictable, requires pre-purchase evaluation by a significant number of employees in our customers’ organizations, and often involves a significant operational decision by our customers. Our sales efforts involve educating our customers and industry analysts and consultants about the use and benefits of our products, including the technical capabilities of our products and the potential cost savings achievable by organizations deploying our solutions. Customers typically undertake a significant evaluation process, which frequently involves not only our products, but also those of our competitors and can result in a lengthy sales cycle. Our sales cycle for new customers is typically six to eighteen months and can extend even longer in some cases. We spend substantial time, effort and money in our sales efforts without any assurance that our efforts will produce any sales.

4

As part of our business strategy, we have made and may continue to make acquisitions, which, if not successfully integrated into our business, could harm our results of operations and financial condition and, if we issue securities or need to obtain debt financing to complete such acquisitions, could negatively impact our capital structure.

In August 2011, we acquired IDIT I.D.I. Technologies Ltd. (“IDIT”) and FIS Software Ltd. (“FIS”). In April 2010 we acquired Harcase Software Limited ("Harcase"). We have commenced the integration of IDIT and FIS into our current business, including adding their solutions to our product line and integrating their employees, including developers, technical support providers and sales and marketing personnel into our business. We expect that this process will continue through 2012, but there is no assurance that we will be able to successfully integrate the businesses of IDIT and FIS into our business and achieve anticipated synergies.

As part of our growth strategy, we may consider acquiring other products and businesses to grow our revenues and increase our customer base. We face the risk that businesses we may acquire in the future may ultimately fail to further our strategies. In addition, we may not be able to successfully integrate acquired technologies and achieve expected synergies or take advantage of the increase in our customer base. Further, we may not be able to retain the key employees that may be necessary to operate the businesses we acquired and may acquire and we may not be able to timely attract new skilled employees and management to replace them.

We may also compete with others to acquire businesses or other technologies, and such competition may result in decreased availability of, or increased prices for, suitable acquisition candidates. In addition, for various commercial and economic considerations, we may not be able to consummate acquisitions that we have identified as crucial to the implementation of our strategy. Furthermore, attempted acquisitions may divert management, operational and financial resources from the conduct of our core business, and we may not complete any attempted acquisition.

In addition, for some of our recent acquisitions, we have used capital stock, thereby diluting our shareholders and if we use capital stock in connection with such acquisitions, our existing shareholders may experience further dilution. If we use cash or debt financing, our financial liquidity will be reduced, the holders of our debt would have claims on our assets ahead of holders of our Common Shares and our business operations may be restricted by the terms of any debt. An acquisition may involve accounting charges and/or amortization of significant amounts of intangible assets, which would adversely affect our ability to achieve and maintain profitability.

5

The market for software solutions and related services is highly competitive.

The market for software solutions and related services and for business solutions for the insurance and financial services industry in particular, is highly competitive. Many of our smaller competitors have been acquired by larger competitors, which provides such smaller competitors with greater resources and potentially a larger client base for which they can develop solutions. Our customers or potential customers could prefer suppliers that are larger than us, are better known in the market or that have a greater global reach. In addition, we and some of our competitors have developed systems to allow customers to outsource their core systems to external providers (known as BPO). We are seeking to partner with BPO providers, but there can be no assurance that such BPO providers will adopt our solutions rather than those of our competitors. Determinations by current and potential customers to use BPO providers that do not use our solutions may result in the loss of such customers and limit our ability to gain new customers.

Our business involves long-term, large projects, some of which are fixed-price projects that involve uncertainties, such as estimated project costs and profit margins.

Our business is characterized by relatively large projects or engagements that can have a significant impact on our total revenue and cost of revenue from quarter to quarter. A high percentage of our expenses, particularly employee compensation, are relatively fixed. Therefore, a variation in the timing of the initiation, progress or completion of projects or engagements can cause significant variations in operating results from quarter to quarter. Some of our solutions are sold as fixed-price projects with delivery requirements spanning more than one year. As our projects can be highly complex, we may not be able to accurately estimate our actual costs of completing a fixed-project. If our actual cost-to-completion of these projects differs significantly from the estimated costs, we could experience a loss on the related contracts, which would have a material adverse effect on our results of operations, financial position and cash flow. Similarly, delays in executing client contracts may affect our revenue and cause our operating results to vary widely. Our solutions are delivered over periods of time ranging from several months to a few years. Payment terms are generally based on periodic payments or on the achievement of milestones. Any delays in payment or in the achievement of milestones may have a material adverse effect on our results of operations, financial position or cash flows.

Failure to meet customer expectations with respect to the implementation and use of our solutions could result in negative publicity, reduced sales and diversion of resources, all of which would harm our business, results of operations, financial condition and growth prospects.

We provide our customers with upfront estimates regarding the duration, budget and costs associated with the implementation of our products. Implementation of our solutions is complex and meeting the anticipated duration, budget and costs often depend on factors beyond our control. We may not meet the upfront estimates and expectations of our customers for the implementation of products as a result of our product capabilities or service engagements by us, our system integrator partners or our customers' IT employees.

6

The quality of our solutions, enhancements and new versions is critical to our success. Since our software solutions are complex, they may contain errors that can be detected at any point in their life cycle. While we continually test our software for errors or defects and work with customers to identify and correct them, errors in our technology may be found in the future. Testing for errors or defects is complicated because it is difficult to simulate the breadth of operating systems, user applications and computing environments that our customers use and our software itself is increasingly complex.

If we fail to meet upfront estimates and the expectations of our customers for the implementation of our products we could lose customers and be subject to negative publicity regarding us and our solutions, which could adversely affect our ability to attract new customers and sell additional products and services to existing customers.

In addition, errors or defects in our technology could result in delayed or lost revenue, claims against us, diversion of development resources and increased service, warranty and insurance costs. In addition, time-consuming implementations may also increase the number of services personnel we must allocate to each customer, thereby increasing our costs and adversely affecting our business, results of operations and financial condition.

Our business involves business-critical solutions which expose us to potential liability claims.

Since our customers rely on our solutions to operate, monitor and improve the performance of their business processes, they are sensitive to potential disruptions that may be caused by the use of, or any defects in, our software. As a result, we may be subject to claims for damages related to software errors in the future. Liability claims could require us to spend significant time and money in litigation or to pay significant damages. Regardless of whether we prevail, diversion of key employees’ time and attention from our business, incurrence of substantial expenses and potential damage to our reputation might result. While the terms of our sales contracts typically limit our exposure to potential liability claims and we carry errors and omissions insurance against such claims, there can be no assurance that such insurance will continue to be available on acceptable terms, if at all, or that such insurance will provide us with adequate protection against any such claims. A significant liability claim against us could have a material adverse effect on our results of operations and financial position.

Although we apply measures to protect our intellectual property rights and our source code, there can be no assurance that the measures that we employ to do so will be successful.

In accordance with industry practice, since we have no registered patents, we rely on a combination of contractual provisions and intellectual property law to protect our proprietary technology. We believe that due to the dynamic nature of the computer and software industries, copyright protection is less significant than factors such as the knowledge and experience of our management and personnel, the frequency of product enhancements and the timeliness and quality of our support services. We seek to protect the source code of our products as trade secret information and as unpublished copyright works. We also rely on security and copy protection features in our proprietary software. We distribute our products under software license agreements that grant customers a personal, non-transferable license to use our products and contain terms and conditions prohibiting the unauthorized reproduction or transfer of our products. In addition, we attempt to protect trade secrets and other proprietary information through non-disclosure agreements with employees, consultants and distributors. Although we intend to protect our rights vigorously, there can be no assurance that these measures will be successful. Our failure to protect our rights, or the improper use of our products by others without licensing them from us, could have a material adverse effect on our results of operations and financial condition.

7

If our products experience data security breaches, and there is unauthorized access to our customers' data, we may lose current or future customers and our reputation and business may be harmed.

Our products are used by our customers to manage and store proprietary information and sensitive or confidential data relating to their businesses. Although we maintain security features in our products, our security measures may not detect or prevent hacker interceptions, break-ins, security breaches, the introduction of viruses or malicious code, and other disruptions that may jeopardize the security of information stored in and transmitted by our products. A party that is able to circumvent our security measures in our products could misappropriate our or our customers' proprietary or confidential information, cause interruption in their operations, damage or misuse their computer systems, and misuse any information that they misappropriate. If any compromise of the security of our products were to occur, we may lose customers and our reputation, business, financial condition and results of operations could be harmed.

Our future results could be adversely affected by an impairment of the value of certain intangible assets and goodwill.

As a result of our acquisitions of IDIT and FIS, our intangible assets and goodwill increased significantly. Our assets as of December 31, 2011 include, among other things, goodwill amounting to approximately $67 million, capitalized software development costs, net, amounting to approximately $17 million, customer relationship amounting to approximately $8 million, developed technology and in process R&D amounting to approximately $5 million. The applicable accounting standards require that (a) goodwill be tested for impairment at least annually, and written down when impaired and (b) capitalized software, customer relationship and developed technology costs be assessed for recoverability on a regular basis, to determine whether the amortization of the asset over its remaining life can be recovered through undiscounted future operating cash flows from the specific software product sold, in accordance with ASC 985 "Software." If our goodwill, capitalized software development costs, customer relationship or developed technology were deemed to be impaired in whole or in part due to adverse changes in the income we receive from our products, we could be required to reduce or write off such assets, thus having to recognize additional expense in our statements of operations and to reduce our shareholders’ equity.

8

Weakened global economic conditions may adversely affect the financial services industry generally and the insurance industry in specific, including the rate of information technology spending, which could cause our customers to defer or forego purchases of our products or services.

Our business depends on the overall demand for information technology from, and on the economic health of, our current and prospective customers. In addition, the purchase of our products is discretionary and involves a significant commitment of capital and other resources. Economies throughout the world currently face a number of economic challenges, including threatened sovereign defaults, credit downgrades, restricted credit for businesses and consumers and potentially falling demand for a variety of products and services. Notwithstanding the recent recovery in some of the financial markets, many companies are still cutting back expenditures or delaying plans to add additional personnel or systems. Our customers have and may suffer from reduced operating budgets, which could cause them to defer or forego purchases of our products or services. Continued challenging economic conditions in many of our markets, or a reduction in information technology spending even if economic conditions improve, could adversely impact our business, results of operations and financial condition in a number of ways, including longer sales cycles, lower prices for our products and services, material default rates among our customers, reduced sales of our products and services and lower or no growth.

Risks Relating to Our International Operations

Our international operations involve inherent risks, such as foreign currency fluctuations and compliance with various regulatory and tax regimes.

Most of our revenues are derived from international operations that are conducted in local currencies as well as dollars. Changes in the value of such local currencies or the dollar relative to such local currencies may affect our financial position and results of operations. Gains and losses on translations to dollars of assets and liabilities may contribute to fluctuations in our financial position and results of operations. In certain locations, we engage in currency-hedging transactions intended to reduce the effect of fluctuations in foreign currency exchange rates on our financial position and results of operations. However, there can be no assurance that any such hedging transaction will materially reduce the effect of fluctuation in foreign currency exchange rates on such results. In addition, if for any reason exchange or price controls or other restrictions on the conversion of foreign currencies were imposed, our financial position and results of operations could be adversely affected.

Other potential risks that may impact our international business activities include the burdens of complying with a wide variety of foreign laws and changes in regulatory requirements, although such factors have not had a material adverse effect on our financial position or results of operations to date.

We face currency exchange risks, as changes in exchange rates between the US dollar and other currencies, especially the NIS, may negatively impact our earnings.

Exchange rate fluctuations between the US dollar and other currencies which we and our subsidiaries use, especially the NIS, may negatively affect our earnings. A significant portion of our expenses, including research and development, personnel and facilities-related expenses, are incurred in Israel, in NIS. Consequently, we are particularly exposed to the risk of appreciation of the NIS in relation to the US dollar. This appreciation would cause an increase in our expenses as recorded in our US dollar denominated financial statements even if the expenses denominated in local currencies remains unchanged. In addition, our level of revenues and profits may be adversely affected by exchange rate fluctuations.

9

The depreciation of the NIS in relation to the U.S. Dollar in 2011 and the exchange rate fluctuations between the U.S. Dollar and other currencies which we and our subsidiaries use, did not cause any significant change in our foreign currency translation differences.

We cannot predict any future trends in the US dollar/ NIS exchange rate or the US dollar/GBP exchange rate. We cannot assure you that we will not be materially affected in the future by currency exchange rate fluctuations. See Item 11- "Quantitative and Qualitative Disclosures about Market Risk - Foreign Currency Risk."

Conducting business in Israel entails certain inherent risks that could harm our business.

Our corporate headquarters and research and development facilities are located in the State of Israel. Political, economic and military conditions in Israel directly affect our operations. We could be adversely affected by any major hostilities involving Israel, the interruption or curtailment of trade between Israel and its trading partners or a significant downturn in the economic or financial condition of Israel. In addition, several countries still restrict business with Israel and with companies doing business in Israel. These political, economic and military conditions in Israel could have a material adverse effect on our business, financial condition, results of operations and future growth.

Despite the progress towards peace between Israel and its Arab neighbors, the future of these peace efforts is uncertain and although Israel has entered into various agreements with Egypt, Jordan and the Palestinian Authority, there has been an increase in unrest and terrorist activity, which began in September 2000 and has continued with varying levels of severity into 2012. There was an escalation in violence among Israel, Hamas, the Palestinian Authority and other groups, as well as extensive hostilities in December 2008 and January 2009 along Israel’s border with the Gaza Strip, which resulted from missiles being fired from the Gaza Strip into Southern Israel. There were also extensive hostilities along Israel’s northern border with Lebanon in the summer of 2006. Ongoing and revived hostilities or other Israeli political or economic factors could harm our operations and cause our revenues to decrease. Any future armed conflict, political instability or violence in the region, including acts of terrorism, may have a negative effect on our business condition, harm our results of operations and adversely affect our share price.

Some of our employees in Israel are obligated to perform military reserve duty, currently consisting of approximately 30 days of service annually (or more for reserves officers or citizens with certain occupations). Additionally, they are subject to being called to active duty at any time upon the outbreak of hostilities. While we have operated effectively under these requirements since the establishment of Sapiens, no assessment can be made as to the full impact of such requirements on our business or work force and no prediction can be made as to the effect on us of any expansion of such obligations.

10

Risks Related to an Investment in our Common Shares

Our Common Shares are traded on more than one market and this may result in price variations.

Our Common Shares are traded on the NASDAQ Capital Market and the TASE. Trading in our Common Shares on these markets is in different currencies (US dollars on the NASDAQ Capital Market and NIS on the TASE), and at different times (resulting from different time zones, different trading days and different public holidays in the U.S. and Israel). The trading prices of our Common Shares on these two markets may differ due to these and other factors. Any decrease in the trading price of our Common Shares on one of these markets could cause a decrease in the trading price of our Common Shares on the other market.

There is limited trading volume for our Common Shares, which causes the stock price to be volatile and which may lead to losses by investors.

There is limited trading volume for our Common Shares, both on the NASDAQ Capital Market and the TASE. As a result, our Common Shares have experienced significant market price volatility in the past and may experience significant market price and volume fluctuations in the future, in response to factors such as announcements of developments related to our business, announcements by competitors, quarterly fluctuations in our financial results and general conditions in the industry in which we compete.

Formula Systems (1985) Ltd. and its parent company, Asseco, may exercise control and influence corporate actions in a manner that potentially conflicts with our other public shareholders and our election of “controlled company” status as a basis for exempting ourselves from certain NASDAQ corporate governance requirements may remove certain potential checks on such shareholders’ control of our company.

Formula Systems (1985) Ltd. (“Formula”), whose ADRs trade on the NASDAQ Global Market (under the trading symbol: FORTY) and whose shares trade on the TASE (under the trading symbol: FORT), directly owned as of March 1, 2012 approximately 52% of our outstanding Common Shares. Asseco Poland SA, whose shares trade on the Warsaw Stock Exchange ("Asseco"), directly owns 51.7% of Formula's outstanding share capital.

Asseco, through Formula, is and may continue to be in a position to exercise control over most matters requiring shareholder approval. While Formula currently has only one representative on our Board of Directors, Formula may nevertheless in the future use its share ownership or representation on our Board of Directors to substantially influence corporate actions that conflict with the interests of our other public shareholders including, without limitation, changing the size and composition of our Board of Directors and committees of our Board of Directors, causing the issuance of further securities, amending our governing documents or otherwise controlling the outcome of shareholder votes. Furthermore, our exemption from certain NASDAQ corporate governance requirements as a “controlled company” of which greater than 50% of the voting power is held by a group (i.e., Asseco and Formula) and the determination to opt out of these NASDAQ corporate governance requirements as permitted for a foreign private issuer, may have the effect of removing potential checks on Asseco’s and Formula’s control over our company. As a result of such election, we are not required to comply with the following NASDAQ Listing Rule requirements: maintenance of a majority of independent directors on our board of directors; selection of director nominees by a wholly independent nominating committee of the board or a majority of our independent directors; adoption of a written charter or board resolution addressing the director nominations process; determination of our executive officers’ compensation by an independent compensation committee or a majority of our independent directors; and shareholder approval for certain matters. Our exemption from these requirements could strengthen Asseco’s and Formula’s control over our board of directors and management. See Item 6.C below “Board Practices— NASDAQ Exemptions for a Controlled Company” and “Board Practices— NASDAQ Opt-Out for a Foreign Private Issuer”.

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Furthermore, actions by Formula with respect to the disposition of the Common Shares it beneficially owns, or the perception that such actions may occur, may adversely affect the trading price of our Common Shares.

If we are classified as a passive foreign investment company, our U.S. shareholders may suffer adverse tax consequences.

Generally, if for any taxable year, after applying certain look-through rules, 75% or more of our gross income is passive income, or at least 50% of the value of our assets are held for the production of, or produce, passive income, we may be characterized as a passive foreign investment company (“PFIC”) for U.S. federal income tax purposes. Passive income for this purpose generally includes, among other things, certain dividends, interest, royalties, rental and gains from commodities and securities transactions and from the sale or exchange of property that gives rise to passive income. This characterization could result in adverse U.S. tax consequences to our shareholders who are U.S. taxpayers, including having gain realized on the sale of our Common Shares being treated as ordinary income rather than capital gain income, and could result in punitive interest charges being applied to such sales proceeds. Rules similar to those applicable to dispositions apply to amounts treated as “excess distributions.”

We believe we were not a PFIC in 2011 just as we believe we were not a PFIC for at least the past 5 years. We currently expect that we will not be a PFIC in 2011. However, PFIC status is determined as of the end of the taxable year and is dependent on a number of factors. Therefore, there can be no assurance that we will not become a PFIC for the year ending December 31, 2011 or in a future taxable year. U.S. shareholders should consult with their own U.S. tax advisors with respect to the U.S. tax consequences of investing in our Common Shares. For a discussion of how we might be characterized as a PFIC and related tax consequences, please see Item 10.E, “Additional Information – Taxation - U.S. Federal Income Tax Considerations - Tax Consequences if We Are a Passive Foreign Investment Company."

Item 4.    Information on the Company

A.    History and Development of the Company.

Corporate Details

Our legal and commercial name is Sapiens International Corporation N.V., and we were incorporated and registered in Curaçao on April 6, 1990. We are a public limited liability company and operate under the provisions of the Curaçao Commercial Code. Our registered office is located at Landhuis Joonchi, Kaya Richard J. Beaujon z/n, Curaçao, and our telephone number in Curaçao is + 5999-736-6277. United International Trust N.V. is the Company’s agent in Curaçao and serves as a member of our Board of Directors. Our World Wide Web address is www.sapiens.com. The information contained on the web site is not a part of this annual report. We have not had any important events in the development of our business since January 1, 2012.

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Capital Expenditures and Divestitures since January 1, 2009

On April 27, 2010, we completed the acquisition of all of the issued and outstanding shares of Harcase, a company engaged in the development, implementation and marketing of software solutions and provision of related professional services for property and casualty insurance carriers. Under the terms of the share purchase agreement (the "SPA") we paid approximately $4 million to the selling shareholders of Harcase (the "Selling Shareholders") consisting of approximately $3 million in cash ($750,000 of which was placed into an escrow account to be released to the selling shareholders in accordance with the terms of the SPA) and 454,546 Common Shares (which were placed into an escrow account to be released to the Selling Shareholders in accordance with the terms of the SPA). Each Selling Shareholder was granted a put option to sell to us the Common Shares held by such Selling Shareholder for a price of $1.54 per share during a period of six months following the release of such Common Shares from escrow, if such Common Shares are so released.

On August 21, 2011, we completed the acquisition of all of the share capital of each of FIS and IDIT, for a consideration that consisted of $6.75 million in cash, 10,016,875 of our Common Shares and warrants to purchase 1,000,000 of our Common Shares for FIS and 7,483,125 of our Common Shares for IDIT. The aggregate shares issued upon completion of the foregoing transactions constituted, immediately upon such completion, 44.2% of our issued and outstanding share capital. In addition, options to purchase shares of IDIT and FIS were replaced at the closing with options to purchase an aggregate of 1,938,844 of our Common Shares. An aggregate of 1,750,000 of our Common Shares that were issued as consideration in these transactions were deposited in escrow for 12 months, in connection with certain indemnification arrangements.

Our principal capital expenditures during the last three years related mainly to the purchase of computer equipment and software for use by our subsidiaries. These capital expenditures totaled $324 in 2009, $662 in 2010 and $482 in 2011.

B.     Business Overview.

We are a global provider of innovative software solutions for the financial services industry, with a focus on insurance.

We offer our customers the following:

· Solutions for Property & Casualty/General Insurance (“P&C”) and Life, Pensions and Annuities (“L&P”) core software solutions

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· Field-tested project delivery and implementation methodologies for the implementation of our mission critical, complex solutions deployed at over 100 customers, including by 70 customers using our insurance software solutions

· Insurance best practices from across the globe, backed by more than 700 employees including many insurance and technology experts

Our portfolio of products includes the following solutions:

· Solutions for P&C/General Insurance

o Rapidsure – A component-based software solution designed for the P&C market with the focus on the North American market

o IDIT - A component-based software solution, designed for the P&C market, with a focus on Europe and Asia Pacific markets

o Insight for Reinsurance - a software solution designed to enable P&C insurance carriers to manage their reinsurance programs

· Solutions for L&P

o ALIS - a software solution for individual, group and worksite life and pension insurance products

o Insight for Reinsurance - a software solution designed to enable L&P insurance carriers to manage their reinsurance programs

· Decision - a business decision management solution for the financial services market

· eMerge – an application development platform, for fast deployment of tailor-made complex solutions.

We also continue to provide support for our other legacy solutions, such as Insight for P&C and Insight for L&P.

Our Strategy

Our primary goal is to become a market leader in the global insurance software solutions marketplace. Our strategy is to continue our growth while retaining profitability. We plan to achieve this by focusing on the following principles:

- Expanding our market share via organic growth and acquisitions of insurance software vendors with sound customer bases

- Continuing to enhance our insurance software solutions to ensure their leading functional and technical edge for the benefit of our customers

- Sharing our knowledge and field-tested best practices to ensure successful roll-out and implementation of our software solutions

- Developing long-term relations with our customers by providing support services, maintenance and assistance and develop additional functionality to fully exploit our insurance software solutions in the future and strengthen our recurring revenue model

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We market our solutions globally through our direct sales force, and partner with technology and service providers to optimize our offerings and extend market reach, where applicable.

We have been working closely with IBM for over 20 years at what IBM refers to as a “Premier Business Partner” level. This cooperation is executed through close technology, project delivery, sales and marketing cooperation. We are qualified as a Microsoft Gold certified partner. These alliances enable us to reach a broader target market, enhance our delivery capabilities and leverage best technologies.

We work together with additional technology and standards providers, such as ISO and ACORD to further complement our portfolio, and offer our customers a comprehensive and innovative solution that addresses the entire breadth of their business needs.

Industry Background

Insurance Industry

Life Insurance, Pensions and Annuities. L&P providers offer their customers a wide range of products for long-term savings and insurance to assist policyholders in financial planning, including life insurance, retirement, pensions and investment products. Life insurance products can take on many forms, including term life, universal life, variable universal life, income protection, payment protection, critical illness, whole life, and endowment products. Many individuals purchase these products and they are often provided by employers as well. In addition, pension providers offer various types of retirement plans including individual and group personal pensions, stakeholder pensions, transfer plans, group additional voluntary contribution plans, defined contribution plans, annuities and group self-invested pension plans. L&P providers are highly regulated, particularly in the United States.

Among the key functions needed by providers to administer their products are Quotation & Illustration, New Business, Policy Servicing, Underwriting, Billing & Collection, Claims Processing, Agency & Commission, Reinsurance and Document Management.

Property & Casualty/General Insurance. P&C insurance (known in the UK as General Insurance, or “GI”) protects policyholders against a range of losses on items of value including homes, vehicles, jewelry and commercial property, as well as from unforeseen events including burglary, bodily injury, natural disaster and litigation. P&C insurance is pervasive and is purchased by nearly all businesses and individuals. While some forms of P&C insurance are optional, others, such as automobile insurance, workers’ compensation insurance and medical malpractice insurance, are obligatory.

The key functional areas in P&C insurance are underwriting and policy administration, claims management and billing. Reinsurance ensures appropriate risk management and processes to recover reinsurers’ portions of claim payments. Each of these functions involves multiple touch points and information exchanges between individuals and systems.

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Reinsurance. Reinsurance is insurance that is purchased by an insurance company from another insurance company as a means of risk management. The reinsurer and the insurer enter into a reinsurance agreement which details the conditions upon which the reinsurer would pay the insurer's losses. The reinsurer is paid a reinsurance premium by the insurer, and the insurer issues insurance policies to its own policyholders. The main reason for insurers to buy reinsurance is to transfer risk from the insurer to the reinsurer. Insurers’ key functions to analyze and manage their reinsurance coverage are premium and claims calculation and allocations, claims processing, financial accounting and reporting.

Insurance Software Solutions

The existing systems used by many insurance carriers are outdated and their technical and functional limitations have held back insurance carriers from growth and innovation through creation of new products, reaching new distribution channels and competing in the changing insurance market. These systems also subject these insurance carriers to financial and operational risk because of their age and inadequacy. In addition, these systems do not have the capabilities to support the many different types of products and product lines offered by large insurance carriers.

In order for carriers to manage their insurance products, their systems must be able to integrate with other internal systems, be highly configurable and have the ability to control the entire workflow process. In addition, regulatory requirements throughout the world and in various states in the United States require specialized data and business rules, which makes development of software solutions for insurers with a national or global presence particularly challenging. In addition, many IT providers have found it difficult to comply with the regulatory analysis and recordkeeping requirements imposed on insurers. These factors pose particular challenges to insurers seeking to update their solutions in order to meet these regulatory requirements and customer needs.

The needs of insurance carriers can change rapidly as business and marketing models and insurance products evolve. The insurance carriers must adapt rapidly to the shifting needs and behaviors of the consumer and to keep up with the needs of customers of various types, including individual, corporate and government. For example, today’s private purchasers and agents compare insurance products and prices via Internet research, as well as through traditional phone and in-person channels. Therefore, insurance carriers require systems that allow customers and agents to access price quotes based on particular circumstances and requests and updated information regarding their policies and claims.

Insurers have begun to expect system solutions like Sapiens’ to incorporate and participate in their business more broadly. At the same time, to support their current and past customers and claims, the insurance carriers must maintain their legacy systems and integrate them into the new systems to allow the insurance carriers to innovate while maintaining records of customer history. This challenge is faced by the majority of insurance carriers using legacy software yet seeking to keep pace with the changing insurance industry.

Furthermore, insurers are increasing their global reach through acquisitions and business initiatives. These insurers in turn are seeking sole providers who can deliver solutions that the insurers can use across markets which by meeting local regulatory requirements and customer needs across the globe.

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Our Business Solutions for the Insurance Industry

We have focused our resources on delivering solutions to help the insurance industry become more agile in the face of the new and changing business environment, while simultaneously reducing IT costs.

For each of our target markets for our insurance solutions, we have sought to adapt our solutions to the specific market needs, focusing on market standards and regulations. These solutions can be further customized to match specific legacy systems and business requirements, while providing pre-configured functionality. These solutions can also be expanded and modified, using our knowledge of insurance best practices.

Our solutions are based on a model-driven architecture (incorporate “Service Oriented Architecture - SOA”) and are engineered to provide streamlined secure processing, while maintaining total platform independence and system reliability. Our solutions are component-based and scalable in order to help our customers implement our software into their environments to better serve their clients and quickly respond to insurance regulatory changes that result in a rapid time to market. Our component-based solutions allow our customers to use our solutions and expand them across different markets and regulatory regimes as they expand their businesses using our components customized for local requirements and integrated through the common base platform.

Key Benefits of our Solutions to our Customers

Sapiens offers a broad range of insurance software solutions intended to address all of the core systems IT needs of insurance companies.

Our expanded insurance solutions offer a broad range of advantages to the operational environment of our customers' organizations. We believe that these advantages, some of which are listed below, coupled with our ability to support the customer’s legacy systems based on our 30 years of experience in deploying core solutions for the large enterprises, create real added-value for our customers.

· Rapid deployment of new insurance products to create a clear competitive advantage in the P&C and L&P market

· Expansion of business globally while leveraging a single solution to support all operations

· Complying with regulatory requirements by introducing best practices in decision management systems

· Supporting multiple innovative channels to the customers, including social media and internet

· Prevention of claims leakage with comprehensive, auditable approach to management of reinsurance programs

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· Meeting business goals of time to market and market reach while improving total cost of ownership

Our Solutions

Property & Casualty/General Insurance

RapidSure

RapidSure is a component-based software solution, designed specifically to meet the business requirements of P&C insurance providers, mainly in North America. Utilizing leading edge technologies, RapidSure provides insurance carriers with a flexible, comprehensive and advanced software solution. RapidSure supports a broad range of general, personal and commercial lines of business, including homeowners, fleet insurance, and specialty lines insurance products, and is designed to handle complex policies and high volume transactions.

RapidSure is built on SOA, which facilitates ease of integration with existing corporate and external systems such as ACORD and ISO.

RapidSure also offers a unique, modern user experience which allows insurance carriers to improve efficiency through ease of operation.

Rapidsure provides a broad set of applications to support the P&C insurance core operations lifecycle. This includes:

· Policy Administration

· Product Configurator

· Point-of-Sale Portal

We expect to add a billing application to RapidSure during 2012.

Rapidsure’s rules-based Policy Administration, along with its robust Product Configuration engine are intended to enable market agility and rapid deployment of insurance products. Rapidsure’s Point of Sale Portal was developed to assist insurers in offering their products through multiple distribution channels, including directly through the internet and through insurance agents, to allow insurers to keep up with market trends.

Other components of RapidSure include:

· Customer Relationship Management (CRM)

· Enterprise Agency System (EAS)

· Insurance Enterprise Architecture

· Business Integration Platform

· Conversion

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IDIT

IDIT is a component based software solution, addressing the specific needs of general insurance carriers for traditional insurance, direct insurance, banc assurance and brokers markets, primarily in Europe and in the Asia-Pacific markets. IDIT integrates multiple front office and back office processes, including insurance product design, policy administration, underwriting, call center, remote users and partners, backed by fully secured internet-based capabilities.

IDIT supports a broad range of general, personal and commercial lines of business, including homeowners, fleet insurance, health insurance, medical insurance and term-life insurance products.

IDIT provides a full set of applications to support insurance core operations lifecycle. This includes:

· Policy Administration

· Claims Management

· Billing and Collection

Modular software components can be customized to match specific insurance business requirements, while providing pre-configured functionality, including:

· Customer Relationship Management (CRM)

· Product Factory

· Workflow Management

· Insurance Accounting

· Document Management

· Business Intelligence

Insight for Reinsurance

Insight for Reinsurance enables P&C/General Insurance carriers and brokers to handle all of their P&C/General reinsurance activities on a single platform, with full financial control and auditing support. By incorporating in-depth, fully automated functions readily adaptable to each company's business procedures, Insight for Reinsurance provides full financial control of the reinsurance practice, including support for all auditing requirements and regulatory reporting – Schedule F, P.

Insight for Reinsurance provides end-to-end processing, including:

· Setup of and definition of the reinsurance program

· Import of premium and claims transactions

· Automatic allocation of premiums and claims to reinsurance contracts

· Performing required calculations

· Production of statements & accounts to reinsurance participants

Insight for P&C

Insight for P&C is a software solution used by P&C carriers, in certain states in the United States. Insight for P&C can be customized to meet the particular business demands at the insurer level and the regulatory needs at the state level.

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Life, Pension and Annuity

ALIS

ALIS is a comprehensive L&P software solution for individual, group and worksite insurance products. ALIS incorporates all activities along the life, pensions and annuities lifecycle - from marketing through underwriting, insurance billing and servicing, to claims workbench and exit processing.

ALIS supports the following product lines:

· Individual Annuity Products

· Group/Worksite Life & Protection Products

· Individual Life & Protection Insurance Products

· Worksite Group & Voluntary Benefit Products

· Hybrid Products

· Retirement Plans

ALIS is a modular system and its functional components include all of those necessary for L&P insurers to manage their business:

· Quotation & Illustration

· New Business

· Policy Servicing

· Underwriting

· Billing & Collection

· Claims Processing

· Agency & Commission

· Document Management

ALIS has been developed specifically to meet the needs of L&P insurance carriers, who are highly regulated.

Insight for Reinsurance

Insight for Reinsurance, enables L&P carriers and brokers to handle all L&P reinsurance activities on a single platform, with the capabilities described above.

Insight for L&P

Insight for L&P enables L&P carriers in Israel to handle a wide range of L&P activities, particularly in Israel, which has specific regulatory requirements.

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eMerge

Our eMerge is a rules-based model-driven architecture that enables the creation of mission critical core enterprise applications with little or no coding using agile methodologies. Our technology is intended to allow customers to achieve legacy modernization and enterprise application integration.

DECISION

DECISION is a business decision management solution developed for the financial services market, including mortgage banks, investment banks and insurers. DECISION automatically structures business logic and then maps it directly to the organization’s rules engine data. By separating the business logic from the business process, the organization benefits from more efficient, fully audited and standardized policies.

DECISION can elicit, organize and manage business logic including all related business decisions & business rules. Decision seamlessly integrates with any business process management system (BPM) or business rules engine (BRE) and features a comprehensive graphical modeling component and robust enterprise grade software architecture.

In addition, DECISION enables business users to take full control of the entire process of decision management, including data quality management, allowing them to easily develop and deploy new policies and methodologies for optimal decision making.

DECISION is powered by The Decision Model which is a business logic framework developed by Knowledge Partners International ("KPI"), that connects business and technology and is rapidly becoming the standard for business decision management. We have a long term agreement with KPI that allows us to embed The Decision Model in our DECISION solution in exchange for royalty payments to KPI.

Our Services

We provide implementation and integration services to help our customers realize benefits from our software solutions. Our implementation teams assist customers in building implementation plans, integrating our software solutions with their existing systems and defining business rules and specific requirements unique to each customer and installation. We also partner with several leading system integration consulting firms to achieve scalable, cost-effective implementations for our customers. We have developed an efficient, repeatable methodology that is closely aligned with the unique capabilities of our solutions.

Our service teams are experienced in both technology and insurance and the level of service and business understanding they provide contributes to the long term success of our customers. This approach increasingly helps us develop strategic relationships with our customers, enhances information exchange and deepens our understanding of the needs of companies within the industry.

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Additional IT services that we provide include custom-made solutions that help leading organizations meet the complex business challenges they are facing quickly and cost-effectively while extending and leveraging existing assets. Leveraging the knowledge we have obtained designing and implementing products such as RapidSure Policy Administration for P&C and IDIT Software Suite for General Insurance, INSIGHT for Reinsurance and ALIS for Life & Pension, we offer innovative legacy modernization solutions, mobile application solutions, as well as a full range of application delivery services.

Geographical Distribution of Revenues

The following is a breakdown of our revenues by geographical areas based on our geographic markets, both in thousands of dollars and as a percentage of total revenues for the years indicated:

	2009				2010				2011
Israel		14,922	33	%		19,554	38	%		21,470	31	%
North America		7,759	17	%		8,991	17	%		20,889	30	%
UK and rest of Europe		13,064	28	%		12,610	24	%		19,542	28	%
Asia		9,950	22	%		11,080	21	%		8,026	11	%
Total		45,695	100	%		52,235	100	%		69,927	100	%

Following our acquisition of IDIT and FIS, we anticipate that the percentage of our revenues from customers in North America and the UK and the rest of Europe will continue to increase relative to our revenues from customers in Israel.

Competition

The market for enterprise software solutions for the insurance industry is highly competitive and characterized by rapidly changing technologies, evolving industry standards and customer requirements, and frequent innovations. The following is a breakdown of the competition that we face in each of our primary markets:

Insurance. Our competitors in the market for insurance software solutions differ based on the size, geography and line of business in which we operate. Some of our competitors offer a full suite, others only one module; some operate in specific (domestic) geographies, while others operate on a global basis; and their delivery model will vary with some competitors keeping delivery in house or using IT Outsourcing (ITO) or BPO.

The entrance barriers to this market of insurance software solutions are very high, and maintaining a leading-edge position is challenging, due to several aspects:

· Development of new core insurance solutions requires heavy R&D investments

· Innovation in technology is mandatory to win new business

· Global presence and ability to support global insurance operations

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· Regulatory requirements, which can be burdensome and require specified IT solutions

· Continued support and development of the solutions requires a critical mass of customers that will support the on-going R&D investment

· Know-how of insurance system requirements, and ability to bridge between new systems and old existing technologies that in many cases must be maintained

These requirements have led to a marked increase in acquisitions in the insurance software solutions vendor space, as small, local vendors cannot sustain growth without the ability to continue and fund their R&D developments and support the globalization trend.

We are well positioned to leverage our modern solutions, customer base and global presence to compete in this market. In addition, the years of accumulated experience and expert teams allow us to provide a comprehensive response to the IT challenges of this market.

Examples of our competitors are:

· Global software providers, with their own IP, such as Accenture-Duck Creek, Oracle Admin Server or Guidewire

· Local/domestic software vendors, such as CCS in the Netherlands, BSB in West Europe, OneShield in the US or TIA in the Nordics and certain Central European Countries

In addition, we face competition from internal IT departments, who often prefer to develop solutions in-house.

We differentiate ourselves from our competitors through the following key factors:

· Our products are award-winning innovative and modern software solutions, with rich functionality and advanced intuitive user interface, using model driven architecture that allows rapid deployment of the system while reducing the total cost of ownership. Our architecture allows customers to implement the full solution or parts of it, and readily integrate it into existing “legacy” systems.

· Our L&P solutions are updated for compliance with relevant regulations, particularly in the U.S., where L&P carriers are highly regulated

· Our P&C solutions are fully compliant with many country-specific regulations and legislations, from the U.S., across Western and Eastern Europe, through Southeast Asia and Australia

· We have a clear recognition of the technology trends and invest in adjusting our solutions to meet this rapid pace

· Thanks to the large and growing customer base, we are able to secure and justify future funding of R&D investments

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· Our delivery methodology is based on years of insurance industry experience and cooperation with large insurance companies globally

· We leverage our proven track record of successful delivery to help our customers deploy the modern solutions while integrating with their legacy environment that must remain supported

eMerge. Our eMerge technology offers our clients flexibility to develop tailor-made solutions to meet their business challenges. Our competitors in the business rules engines and management marketplace include, among others, Fair Isaac (Blaze), Pegasystems, iLOG, Computer Associates, Haley, Corticon, Versata, RuleBurst and ESI. These competitors may seek to replace our eMerge technology that has been implemented by our customers. We believe eMerg is differentied since whereas most competing business rules engines are characterized by delivery of specialized, decision support capabilities that must be later framed into an enterprise’s overall architecture at additional investment costs we have been able to deliver a comprehensive IT solution to our customers, including an automatically generated Web presentation layer and interfaces with various databases, legacy systems and third party software,

DECISION. Our DECISION is an early-stage product, which to a large extent drives an innovative approach in the market of business decision management systems. We believe that, since we believe we have developed an innovative approach which is not being used by other companies, we have not been able to identify a direct competitor in this market.

Some internal IT companies develop business decision management systems. We differentiate ourselves through the following key factors:

· Our DECISION is the first proven (already in production) true separation of the business logic in a decision management system

· Our track record of delivering complex, mission-critical solutions plays a key role in our success

· Our license from KPI together with our innovative technology creates a unique proposition in the market, which is otherwise handled with complex spreadsheets that do not provide the adequate regulatory control

Sales and Marketing

To reach the broadest potential customer base, we use multiple distribution channels, mainly through direct sales force as well as relationships with system integrators and, in certain geographic areas, local and regional distributors. Our sales team is located at our offices in North America, the United Kingdom, Belgium, Israel, Australia and Japan. The direct sales force is geared to large organizations within the financial services with a focus on the insurance industry.

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In 2011 and the beginning of 2012, we expanded our investment in sales and marketing, through integration of the IDIT and FIS sales forces and recruitment of additional resources. We intend to further expand our sales and marketing efforts in North America and Europe, taking advantage of our current customer base and the investment in development of solutions that meet the requirements of insurance carriers in those markets. We intend to have our sales and marketing teams focused on more specific markets within those regions to better serve our customers in those markets and enhance our understanding of the needs of those customers in order to grow our business.

We are seeking to focus our marketing efforts on several areas, enhancing our relationships with our existing customers to create a strong reference base and engage in more recurring projects; generating new business opportunities; and creating brand awareness.

We invest in major industry trade shows to improve our visibility and our market recognition. We are improving traffic to our website and using the internet and social media to generate new leads and enhance our presence. We invest resources to improve our relationship within the global analyst community.

We are also investing in strengthening our existing partnerships with IBM, Microsoft, HP and others. These partnerships are key for both market recognition and market reach, leveraging their global presence to create additional business opportunities for us. Simultaneously, we invest in exploring new partnerships with leading system integrators in the financial services and the insurance market in particular.

We believe that a high level of post-contract customer support is important to the successful marketing and sale of our solutions. We have account managers who are focused on building ongoing relationships with existing customers to maintain a high level of customer satisfaction and identify up-selling opportunities within these organizations. In addition, we employ a team of technical specialists who provide a full range of maintenance and support services to our customers.

The typical direct sale to a client includes license, implementation, customization integration services and training services. In addition, substantially all of our clients for which we have deployed our solutions elect to enter into an ongoing maintenance and support contract with us. The term of such a contract is usually twelve months. A maintenance contract entitles the customer to technology upgrades, when made generally available, and technical support. In addition, we offer introductory and advanced classes and training programs available at our offices and at customer sites.

Seasonality

Traditionally, the first and third quarters of the fiscal year have tended to be slower quarters for us and the industries that we target. The first quarter is usually slow, following an active fourth quarter (when companies tend to complete deals and utilize budgets before the end of the fiscal year). The slowdown in the third quarter reflects the summer months, during which activities in many of the regions where our customers are located slow down.

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Intellectual Property

We rely on a combination of contractual provisions and intellectual property law to protect our proprietary technology. We believe that due to the dynamic nature of the computer and software industries, copyright protection is less significant than factors such as the knowledge and experience of our management and personnel, the frequency of product enhancements and the timeliness and quality of our support services. We seek to protect the source code of our products as trade secret information and as an unpublished copyright work, although in some cases, we agree to place our source code into escrow. We also rely on security and copy protection features in our proprietary software. We distribute our products under software license agreements which grant customers a personal, non-transferable license to use our products and contain terms and conditions prohibiting the unauthorized reproduction or transfer of our products. In addition, we attempt to protect trade secrets and other proprietary information through agreements with employees, consultants and distributors. We do not believe that patent laws are a significant source of protection for our products and we do not hold any patents.

Our trademark rights include rights associated with our use of our trademarks, and rights obtained by registration of our trademarks. Our use and registration of our trademarks do not ensure that we have superior rights to others that may have registered or used identical or related marks on related goods or services. We have registrations for the mark “Sapiens” in Benelux, Germany, Italy and Switzerland, the name “RapidSure” in the USA and Canada and the name ALIS, E-ALIS, CORE-ALIS and certain other related marks and the ALIS design. The initial terms of protection for our registered trademarks range from 10 to 20 years and are renewable thereafter.

Regulatory Impact

The global insurance industry is heavily subject to government regulation, and is constantly changing as a result of regulatory changes. Insurance companies must comply with regulations such as the Sarbanes-Oxley Act, Solvency II, Retail Distribution Review (known as RDR) in the United Kingdom and other directives regarding transparency. In addition, many individual countries have increased supervision over local insurance companies.

In Europe, regulators and insurers have been very active, motivated by past financial crises and the need for pension restructuring. Distribution of policies is being optimized with the increasing use of Bank Assurance (selling of insurance through a bank’s established distribution channels), supermarkets and kiosks (insurance stands). Such increased activity would generally tend to have a positive impact on the demand for our software solutions and services; nevertheless, insurers are cautiously approaching spending increases, and while many companies have not taken proactive steps to replace their software solutions in the past two years, many of them are now looking for innovative, modern replacements to meet the regulatory changes and the demanding market trends.

For further information, please see Item 5.D below, "Trend Information."

C.        Organizational Structure.

Sapiens International Corporation N.V. ("Sapiens N.V.") is the parent company of the Sapiens group of companies. Our significant subsidiaries are as follows:

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Sapiens International Corporation B.V. (“Sapiens B.V.”): incorporated in the Netherlands and 100% owned by Sapiens N.V.

Unless otherwise indicated, the other significant subsidiaries of Sapiens listed below are 100% owned by Sapiens B.V.:

Sapiens Israel Software Systems Ltd.: incorporated in Israel
Sapiens Technologies (1982) Ltd.: incorporated in Israel
Sapiens Americas Corporation: incorporated in New York, US
Sapiens North America Inc.: incorporated in Ontario, Canada.

Sapiens (UK) Limited: incorporated in England
Sapiens France S.A.S.: incorporated in France
Sapiens Deutschland GmbH: incorporated in Germany
Sapiens Japan Co.: incorporated in Japan and 90% owned by Sapiens B.V.

IDIT I.D.I. Technologies Ltd.: incorporated in Israel (owned 100% by Sapiens Technologies (1982) Ltd.)

IDIT Europe N.V.: incorporated in Belgium (owned 100% by IDIT)

IDIT APAC PTY. Limited: incorporated in NSW, Australia (owned 100% by IDIT)

IDIT Singapore PTE. Ltd.: incorporated in Singapore (owned 100% by IDIT)

FIS Software Ltd.: incorporated in Israel (owned 100% by Sapiens Technologies (1982) Ltd.)

FIS –EU Limited: incorporated in the UK (owned 100% by FIS)

FIS Software Inc.: incorporated in Delaware, US (owned 100% by FIS)

FIS France: incorporated in France (owned 100% by FIS-EU Limited)

FIS- AU Pty Ltd.: incorporated in Australia (owned 100% by FIS-EU Limited.)

Neuralmatic Ltd.: incorporated in Israel (owned 66% by FIS)

We are a member of the Formula Systems (1985) Ltd. Group (NASDAQ: FORTY and TASE: FORT).

Formula is a holding and managing company of publicly traded companies and their subsidiaries which provide IT solutions worldwide, developing and implementing innovative, proprietary software, services and solutions, turnkey projects and outsourcing services as well as software distribution and support. As of March 1, 2012, Formula beneficially owned approximately 52.1% of our outstanding Common Shares.

As of March 1, 2012, Asseco beneficially owned 50.2% of the outstanding share capital of Formula.

Based on Formula’s beneficial holding of over 50% of the outstanding Common Shares of the Company, and based on Asseco's beneficial holding of over 50% of the outstanding share capital of Formula, both Formula and Asseco are considered to control us.

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D.        Property, Plants and Equipment.

We lease office space in Israel, the United States, Canada, the United Kingdom, Belgium and Japan. The lease terms are generally five to ten years. In Israel, we lease approximately 80,000 square feet of office space; in the United States, approximately 9,200 square feet; in Canada, approximately 8,900 square feet; in the United Kingdom, approximately 12,000 square feet, in Belgium, approximately 3,400 square feet and in Japan, approximately 4,400 square feet. In 2011, our rent costs totaled $2.4 million in the aggregate for all of our leased offices. Our corporate headquarters are located in Israel and our core research and development activities are performed at our offices across Israel. Our lease of our corporate headquarters in Israel continues until July 2015 with an option to terminate earlier on 180 days prior notice on each of July 31, 2012, 2013 and 2014. The leases of our other locations in Israel continue until February 2013 and January 2018. Our sales, marketing and general and administrative activities are performed in each of our offices. We believe that our existing facilities are adequate for our current needs.

Item 4A.   UNRESOLVED STAFF COMMENTS

Not Applicable.

ITEM 5.      OPERATING AND FINANCIAL REVIEW AND PROSPECTS

The following discussion and analysis by our management of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the notes thereto included elsewhere herein.

Overview

We are a global provider of a software solutions for the financial services market, with a focus on insurance. Within the insurance industry we offer our customers L&P and P&C core software solutions, using our field-tested project delivery and implementation methodologies for the delivery of mission critical, complex solutions and incorporating insurance best practices from across the globe, backed by over 700 employees, including many insurance and technology experts. Our solutions are supplemented by our consulting services, which address the complex issues related to the lifecycle of enterprise business applications. Our commitment to innovation is at the core of our business, and drives us to offer additional innovative solutions to large enterprises.

We derive our revenues principally from the sale, implementation, maintenance and support of our solutions and from the provision of consulting and other services in the Property & Casualty (P&C) and Life & Pension (L&P) insurance markets, as well as our eMerge customers. Revenues are comprised primarily of revenues from services, including systems integration and implementation and product maintenance and support and from licenses of our products. In each of 2011, 2010 and 2009, our revenues from licenses to our products represented less than 10% of our total revenues for such years. See “Critical Accounting Policies and Estimates” below for a discussion of how we account for our revenues and their associated costs.

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Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and result of operations is based upon our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of our financial statements required us to make estimations and judgments that affect the reporting amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities within the reporting period. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis of making judgments about the values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. More detailed descriptions of these policies are provided in Note 2 to our consolidated financial statements.

We believe that the following critical accounting policies affect the estimates and judgments that we made in preparing our consolidated financial statements:

· Revenue Recognition

· Business Combination

· Goodwill, long lived assets and other identifiable intangible assets

· Taxes on Income

Revenue Recognition

We generate revenues from sales of software licenses which normally include significant implementation services that are considered essential to the functionality of the software license. In addition, we generate revenues from post implementation consulting services and maintenance services.

Sales of software licenses are recognized when persuasive evidence of an agreement exists, delivery of the product has occurred, the fee is fixed or determinable, and collectability is probable. We consider all arrangements with payment terms extending beyond six months from the delivery of the elements, not to be fixed or determinable. If the fee is not fixed or determinable, revenue is recognized as payments become due from the customer, provided that all other revenue recognition criteria have been met.

We usually sell our software licenses as part of an overall solution offered to a customer that combines the sale of software licenses which normally include significant implementation and that is considered essential to the functionality of the license. We account for the services (either fixed price or T&M -Time and Materials) together with the software under contract accounting using the percentage-of-completion method in accordance with ASC 605-35, "Construction-Type and Production-Type Contracts". The percentage of completion method is used when the required services are quantifiable, based on the estimated number of labor hours necessary to complete the project, and under that method revenues are recognized using labor hours incurred as the measure of progress towards completion. In the years ending December 31, 2011, 2010 and 2009 our revenues from licenses represented less than 10% of our revenues.  

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The use of the percentage-of-completion method for revenue recognition requires the use of various estimates, including among others, the extent of progress towards completion, contract completion costs and contract revenue. Profit to be recognized is dependent upon the accuracy of estimated progress, achievement of milestones and other incentives and other cost estimates. Such estimates are dependent upon various judgments we make with respect to those factors, and some are difficult to accurately determine until the project is significantly underway. Progress is evaluated each reporting period. We recognize adjustments to profitability on contracts utilizing the percentage-of-completion method on a cumulative basis, when such adjustments are identified. We have a history of making reasonably dependable estimates of the extent of progress towards completion, contract revenue and contract completion costs on our long-term contracts. However, due to uncertainties inherent in the estimation process, it is possible that actual completion costs may vary from estimates.

If we do not accurately estimate the resources required or the scope of work to be performed, or do not manage the project properly within the projected periods of time or satisfy our obligations under the contract, project margins may be significantly and negatively affected, which may result in losses on existing contracts. Any such resulting reductions in margins or contract losses in a large, fixed-price contract may have a material adverse impact on our results of operations. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are first determined, in the amount of the estimated loss on the entire contact.

In accordance with ASC 985-605, we established Vendor Specific Objective Evidence ("VSOE") of fair value of maintenance services (PCS) based on the Bell-Shaped approach and determined VSOE for PCS, based on the price charged when the element is sold separately (that is, the renewal rate). Our process for establishing VSOE of fair value of PCS is through performance of VSOE compliance test which is an analysis of the entire population of PCS renewal activity for its installed base of customers.

Provisions for estimated losses on contracts in progress are made in the period in which they are first determined, in the amount of the estimated loss on the entire contact. Provisions for estimated losses are presented in accrued expenses and other liabilities.  

In addition, we derives significant portion of our revenues from post implementation consulting services provided on a time and materials ("T&M") basis which are recognized as services are performed.

Maintenance revenue is recognized ratably over the term of the maintenance agreement. Deferred revenues include unearned amounts received under maintenance and support agreements and amounts received from customers, for which revenues have not yet been recognized.

We perform ongoing credit evaluations on our customers and to date we did not experienced any material losses. In certain circumstances, we may require prepayment. An allowance for doubtful accounts is determined with respect to those amounts that we determined to be doubtful of collection. Provisions for doubtful accounts were recorded in general and administrative expenses.

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Business Combination

According to ASC 805 “Business Combination” we are required to allocate the purchase price of acquired companies to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values. In connection with our acquisition of FIS and IDIT, we recorded $19.6 million of intangible assets, relating principally to customer related intangible assets and acquired technology. In addition, we recorded a liability in the amount of $2.2 million relating to FIS' long term contracts. In allocating the purchase price of the acquired companies to the tangible and intangible assets acquired and liabilities assumed, we developed the required assumptions underlying the valuation work. Critical estimates in developing such assumptions underlying the valuing of certain of the intangible assets include but are not limited to: future expected cash flows from customer contracts, acquired developed technologies and discount rates. Management’s estimates of fair value are based upon assumptions believed to be reasonable, utilizing a market participant approach, but which are inherently uncertain and unpredictable. Assumptions may be incomplete or inaccurate, and unanticipated events and circumstances may occur. We were assisted by third party valuators in applying the required economic models (such as income approach), in order to estimate the fair value of assets acquired and liabilities assumed in the business combination.

Goodwill, long lived assets and other identifiable intangible assets

Goodwill represents the excess of the purchase price in a business combination over the fair value of the net tangible and intangible assets acquired. Under ASC 350," Intangibles—Goodwill and Other" goodwill is subject to an annual impairment test or more frequently if impairment indicators are present. Goodwill impairment is deemed to exist if the net book value of a reporting unit exceeds its estimated fair value. Following the acquisition of FIS and IDIT, we started to operate in two reporting units: Sapiens and IDIT. In connection with our acquisition of FIS and IDIT, we recorded an additional $60.9 million as goodwill.

In September 2011, the FASB issued ASU 2011-08 which amends the rules for testing goodwill for impairment. Under the new rules, an entity has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary.

We effected an early adoption of the provisions of ASU 2011-08 for our annual impairment test in the fourth quarter of 2011. This analysis determined that no indicators of impairment existed primarily because (1) our market capitalization has consistently exceeded our book value by a sufficient margin, (2) the acquisition of IDIT, which, as of December 31, 2011, was considered a separate reporting unit for accounting purposes, was consummated on August 21, 2011 and no significant changes in its business operations occurred since the acquisition, (3) our overall financial performance has been stable since the acquisition, and (4) forecasts of operating income and cash flows appear sufficient to support the book values of the net assets of each reporting unit.

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However, it is possible that our determination that goodwill for a reporting unit is not impaired could change in the future if current economic conditions deteriorate or remain difficult for an extended period of time. We will continue to monitor the relationship between our market capitalization and book value, as well as the ability of our reporting units to deliver current and income and cash flows sufficient to support the book values of the net assets of their respective businesses.

As of December 31, 2011, our intangible assets were $31.6 million, primarily comprised of capitalized software as well as core technology and customer relationship mainly from the acquisitions of IDIT and FIS in August 2011.

In accordance with ASC 360, "Property, Plant and Equipment" our long-lived assets are reviewed for impairment annually and 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 the assets 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. In measuring the recoverability of assets, we are required to make estimates and judgments in assessing our forecast and cash flows and compare that with the carrying amount of the assets. Additional significant estimates used by management in the methodologies used to assess the recoverability of our long-lived assets include estimates of future cash-flows, future short-term and long-term growth rates, market acceptance of products and services, and other judgmental assumptions, which are also affected by factors detailed in our Risk Factors section in this annual report (see Item 3, “Key Information – Risk Factors”). If these estimates or the related assumptions change in the future, we may be required to record impairment charges for our long-lived assets.

We evaluate our intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable, in accordance with ASC 360 (see above). In evaluating potential impairment of these assets, we specifically consider whether any indicators of impairment are present, including, but not limited to whether there:

· has been a significant adverse change in the business climate that affects the value of an asset;

· has been a significant change in the extent or manner in which an asset is used; and/or

· is an expectation that the asset will be sold or disposed of before the end of its originally estimated useful life.

If indicators of impairment are present, we compare the estimated undiscounted cash flows that the specific asset is expected to generate to its carrying value. These estimates involve significant subjectivity. 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 asset exceeds its fair value.

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Our policy for capitalized software costs determines the timing of our recognition of certain development costs. Software development costs incurred from the point of reaching technological feasibility until the time of general product release are capitalized. We define technological feasibility as the completion of a detailed program design. The determination of technological feasibility requires the exercise of judgment by our management. Since we sell our products in a market that is subject to rapid technological changes, new product development and changing customer needs, changes in circumstances and estimations may significantly affect the timing and the amounts of software development costs capitalized and thus our financial condition and results of operations.

Capitalized software development costs are amortized commencing with general product release by the straight-line method over the estimated useful life of the software product (between 3-7 years). We assess the recoverability of this intangible asset on a regular basis by determining whether the amortization of the asset over its remaining life can be recovered through undiscounted future operating cash flows from the specific software product sold.

Taxes on Income

We and our subsidiaries account for income taxes in accordance with ASC 740 “Income Taxes”. ASC 740 prescribes the use of the asset and liability method, whereby deferred tax assets and liability account balances are determined based on the differences between the financial reporting and tax bases of 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. Future realization of our deferred tax assets ultimately depends on the existence of sufficient taxable income within the available carryback or carryforward periods. Sources of taxable income include future reversals of existing taxable temporary differences, future taxable income, taxable income in prior carryback years and tax planning strategies. We record a valuation allowance to reduce our deferred tax assets to an amount we believe is more likely than not to be realized. Changes in our valuation allowance impact income tax expense in the period of adjustment. Our deferred tax valuation allowances require significant judgment and uncertainties, including assumptions about future taxable income that are based on historical and projected information.

ASC 740 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under ASC 740, a company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. We assess our income tax positions and record tax benefits based upon management’s evaluation of the facts, circumstances, and information available at the reporting date. For those tax positions where it is more-likely-than-not that a tax benefit will be sustained, we record the largest amount of tax benefit with a greater than 50 percent likelihood of being realized upon ultimate settlement with a taxing authority having full knowledge of all relevant information. For those income tax positions where it is not more-likely-than-not that a tax benefit will be sustained, no tax benefit is recognized in the financial statements. We classify liabilities for uncertain tax positions as non-current liabilities unless the uncertainty is expected to be resolved within one year. The Company classifies interest as financial expenses and penalties as selling, marketing, general and administration expenses.

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As a global company, we use significant judgment to calculate and provide for income taxes in each of the tax jurisdictions in which we operate. In the ordinary course of our business, there are transactions and calculations undertaken whose ultimate tax outcome cannot be certain. Some of these uncertainties arise as a consequence of transfer pricing for transactions with our subsidiaries and tax credit estimates. In addition, the calculation of acquired tax attributes and the associated limitations are complex and although our income tax reserves are based on our best knowledge, we may be subject to unexpected audits by tax authorities in the various countries where we have subsidiaries, which may result in material adjustments to the reserves established in our consolidated financial statements and have a material adverse effect on our results of operations. We estimate our exposure to unfavorable outcomes related to these uncertainties and estimate the probability for such outcomes.

Although we believe our estimates are reasonable, no assurance can be given that the final tax outcome will not be different from what is reflected in our historical income tax provisions, returns, and accruals. Such differences, or changes in estimates relating to potential differences, could have a material impact on our income tax provision and operating results in the period in which such a determination is made.

Recent Accounting Pronouncements

In June 2011, the FASB issued ASU 2011-05 Presentation of Comprehensive Income, codified in ASC 220 "Comprehensive Income". The guidance requires an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The guidance also eliminates the option to present the components of other comprehensive income as part of the statement of equity. In December 2011, the FASB issued ASU 2011-12, deferring the effective date for amendments outlined in ASU 2011-05. We are still evaluating whether to present other comprehensive income in a single continuous statement of comprehensive income or in two separate but consecutive statements.

In May 2011, the FASB issued ASU 2011-04 Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS, codified in ASC 820 "Fair Value Measurement". The guidance requires an entity to provide a consistent definition of fair value to ensure that the fair value measurement and disclosure requirements are similar between U.S. GAAP and International Financial Reporting Standards. The guidance changes certain fair value measurement principles and enhances the disclosure requirements particularly for Level 3 fair value measurements, and will become effective for us beginning January 1, 2012. We do not expect the adoption of this new guidance to have a material impact on its financial statements.

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A.           Operating Results

Years ended December 31, 2011 and 2010

Revenues

Total revenues in 2011 increased to $69.9 million in 2011 from $52.2 million in 2010. This increase of $17.7 million, or 34%, was due primarily to revenues of approximately $16.3 million from the FIS and IDIT businesses that were acquired in August 2011. Our revenues in North America increased by a total of $11.9 million to $20.9 million in 2011 from $9.0 million in 2010, including $8.1 million from new and existing customers and $3.8 million from FIS and IDIT. Our revenues in Asia decreased by a net aggregate of $3.1 million to $8.0 million in 2011 from $11.1 million in 2010 including a decrease of $5.1 million, due primarily to the impact of the economic crisis in Japan in 2011, offset by $1.7 million from FIS and IDIT. Our revenues in Europe, including the United Kingdom, increased by a total of $7.7 million to $19.5 million in 2011 from $12.6 million in 2010 primarily from revenues from the FIS and IDIT businesses.

Cost of Revenues and Gross Profit

Cost of revenues increased to $40.1 million in 2011 from $29.9 million in 2010. This increase of $11.2 million or 34% was due primarily to an increase in costs of revenues from the FIS and IDIT businesses of $11.6 million. Cost of revenues was comprised of salaries and other personnel-related expenses of software consultants and engineers of $31.6 million, or 79% of our total costs of revenues in 2011 compared to $23.0 million, or 77% of our total cost of revenues in 2010. Amortization of capitalized software development costs was $4.5 million, or 11% of our total costs of revenues, in 2011 compared to $5.9 million, or 20% of our total costs of revenues, in 2010.

Our gross profit in 2011 increased 34% to $29.9 million from $22.3 million in 2010. The gross profit margin in 2011 stayed flat at 42.7% compared to 2010.

Research and Development, net.

Research and development (“R&D”) costs are mainly comprised of labor costs, reduced by capitalization of software development costs.

Research and development, net, increased 52% to $5.0 million in 2011 compared to $3.3 million in 2010. Gross R&D expenses were $9.7 million in 2011 compared to $8.7 million in 2010. This increase of $1.0 million or 11% was primarily due to increased R&D expenses resulting from the acquisition of FIS and IDIT in August 2011 and investment in development of our existing products. Labor costs comprised 94% of the gross R&D expenses. Capitalization of software development costs were $4.7 million in 2011 compared to $5.4 million in 2010.

Selling, Marketing, General and Administrative expenses.

Selling, Marketing, General and Administrative expenses (“SG&A expenses”) include costs of salaries of sales, marketing, management and administrative employees, office expenses, communications, external consultants and other expenses.

SG&A expenses increased to $18.1 million in 2011 from $12.3 million in 2010. This increase of $5.8 million, or 47%, was primarily due to increased headcount in our global sales team, marketing and management and administration, including $3.9 million resulting from the acquisition of FIS and IDIT. Salaries and other personnel-related expenses were $9.9 million, or 54% of SG&A expenses, in 2011 compared to $6.9 million, or 56% of SG&A expenses, in 2010. The increase in salary and other personnel related expenses primarily resulted from an increase of $2.5 million from the acquisition of FIS and IDIT as well as other costs associated with our sales and marketing efforts.

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Acquisition-related and restructuring costs

Acquisition-related and restructuring costs were $1.1 million in 2011 and consisted of $0.5 million of restructuring charges relating primarily to our operational restructuring plan and $0.6 million of other transaction-related costs including legal, due diligence, accounting and other costs, all in connection with our acquisition of IDIT and FIS. There were no similar costs in 2010.

Financial income (expenses), net.

Financial income, net, was $0.1 million in 2011 compared to expenses, net of $0.4 million in 2010. This change was primarily due to interest income from bank deposits which increased in 2011 and the effect of changes in currency rates and additional available cash.

Taxes on Income.

Net tax benefit in 2011 was $0.2 million compared to expenses of $0.2 million in 2010. This change resulted from an increase in net deferred tax income of $0.4 million due to operating loss carryforwards and temporary differences which more likely than not be utilized in the foreseeable future.

Our provision for taxes on income relates to operations in jurisdictions other than Curaçao. The effective income tax rate varies from period to period as a result of the various jurisdictions in which we operate and where each one has its own system of taxation (not only with respect to the nominal rate, but also with respect to the allowance of deductions, credits and other benefits). We record a valuation allowance if we believe that it is more likely than not that the deferred income taxes regarding the loss carry forwards and other temporary differences, on which a valuation allowance has been provided, will not be realized in the foreseeable future. We did not recognize a majority of the deferred tax assets relating to the net operating losses of our subsidiaries worldwide due to the uncertainty of the realization of such tax benefits in the foreseeable future.

Net Income attributable to Sapiens shareholders.

Net income attributable to Sapiens shareholders decreased to $6.0 million in 2011 from $6.2 million for 2010. The decrease of $0.2 million, or 3%, was due to a $1.1 million decrease in operational profit in 2011, from $6.7 million in 2010 to $5.6 million in 2011, which was driven by restructuring and other transaction costs associated with the acquisition of FIS and IDIT of $1.1 million offset by an increase of $0.5 million in financial income, net and an increase in tax income of $0.4 million. Our operational profit in 2011 also decreased as a result of the increase in gross profit of $7.5 million which was offset by an increase in R&D expenses of $1.7 million and an increase in SG&A expenses of $5.8 million.

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Years ended December 31, 2009 and 2010

Revenues

Total revenues increased to $52.2 million in 2010 from $45.7 million in 2009. This increase of $6.5 million, or 14%, was due primarily to an increase in sales to our existing and new customers of $3.4 million and $3.1 million resulting from the acquisition of Harcase.

Cost of Revenues and Gross Profit

Cost of revenues increased to $29.9 million in 2010 from $26.6 million in 2009. This increase of $3.3 million, or 12.6%, resulted from an increase in salaries and other personnel-related expenses primarily due to increased headcount and an increase in amortization of capitalized software development costs. Salaries and other personnel-related expenses of software consultants and engineers were $23.0 million, or 77% of our total costs of revenues in 2010 compared to $20.9 million, or 79% of our total costs of revenues, in 2009. Amortization of capitalized software development costs was $5.9 million, or 20% of our total costs of revenues, in 2010 compared to $4.6 million, or 17% of our total costs of revenues, in 2009. The increase in amortization was mainly due to commencement of the amortization of new capitalized software development costs that were ready for general release of a product in 2010.

Our gross profit in 2010 increased 16.8% to $22.3 million from $19.1 million in 2009 as the overall increase in our revenues outpaced the slight increase in our cost of revenues. The gross profit margin increased by 2.1% in 2010 to 42.7 % from 41.9% in 2009.

Research and Development, net.

Research and Development, net, increased 22.2% to $3.3 million in 2010 from $2.7 million in 2009. Gross R&D expenses increased 44% in 2010 to $8.7 million from $6.4 million in 2009, mainly due to the Harcase acquisition which increased our R&D resource team and additional expenses related to compensation of Harcase selling shareholders, as well as the increase in the resource team developing our existing products. Labor costs comprised 94% of the gross R&D expenses. Capitalized software development costs increased 45.9% to $5.4 million in 2010 compared with $3.7 million in 2009.

Selling, Marketing, General and Administrative expenses.

SG&A expenses increased to $12.3 million in 2010 from $11.0 million in 2009. This increase of $1.3 million, or 11.8%, was due primarily to increased headcount resulting from the Harcase acquisition, as well as an increase in our global sales and marketing team. Salaries and other personnel-related expenses were $6.9 million, or 56% of total SG&A expenses, in 2010 and $6.5 million or 59.1% of total SG&A expenses, in 2009. SG&A expenses also included other costs associated with our sales and marketing efforts and our general and administrative activities such accounting, legal and other public company expenses which amounted to $1.0 million in 2010 and $0.8 million in 2009.

Financial income (expenses), net.

Financial expenses, net, decreased 55.6% to $0.4 million in 2010 from $0.9 million in 2009. The decrease was mainly due to the repayment in full of our outstanding debentures in 2009. During 2009, we paid $0.3 million as interest to our debenture holders and $5.8 million for the repayment and repurchase of our convertible debentures consisting of a payment of $5.4 million for the fourth installment repayment of the principal amount due under the debentures and $0.4 million for the repurchase of our convertible debentures in the market.

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Taxes on Income.

Net tax expense in 2010 decreased 33% to $0.2 million compared with $0.3 million in 2009. The decrease is due to an increase in current income taxes in certain jurisdictions, offset by an increase in net deferred tax assets of $0.3 million due to operating loss carryforwards and temporary differences which will more likely than not be utilized in the foreseeable future.

Net Income attributable to Sapiens shareholders.

Net income attributable to Sapiens shareholders increased to $6.2 million in 2010 from $4.2 million for 2009. The increase of 47.6% was due to the $1.4 million increase in operational profit in 2010, from $5.3 million in 2009 to $6.7 million in 2010, which was triggered by higher gross profit on our products and services ($22.3 million in 2010 compared to $19.1 million in 2009) offset by higher overall operating expenses ($15.6 million in 2010 compared to $13.8 million in 2009) and the $0.5 million decrease in financial expenses, net in 2010, from $0.9 million in 2009 to $0.4 million in 2010.

Impact of Foreign Currency Fluctuations and Inflation.

For a discussion of the impact of inflation and foreign currency fluctuations upon our results, please see the risk factors entitled “Our international operations involve inherent risks, such as foreign currency fluctuations and compliance with various regulatory and tax regimes.” and "We face currency exchange risks, as changes in exchange rates between the US dollar and other currencies, especially the NIS, may negatively impact our costs." in Item 3.D, “Risk Factors,” above.

Effects of Government Regulations and Location on our Business.

For a discussion of the effects of Israeli governmental regulation and our location in Israel on our business, see the “Risks Relating to Our International Operations” in Item 3.D above, and “Israeli Tax Considerations and Government Programs” in Item 10.E below.

B.           Liquidity and Capital Resources.

Our cash and cash equivalents at the end of 2011 were $21.5 million, compared with $16.2 million at the end of 2010. The increase in cash and cash equivalents was due to our profitability in 2011, cash balances of IDIT and FIS at the date of the acquisition thereof on August 21, 2011, net of cash payments made as part of the FIS acquisition.

Net cash provided by operating activities was $8.4 million in 2011, compared with net cash provided by operating activities of $12.0 million in 2010. The decrease was attributable mainly to the increase in trade receivables of $3.3 million in 2011 compared to a decrease of $0.3 million in 2010 and the decrease in trade payables of $1.3 million in 2011 compared to an increase of $0.2 million in 2010. Net cash used in investing activities was $2.5 million in 2011, compared with net cash used in investing activities of $7.5 million in 2010. The increase was mainly due to net cash provided by the acquisition of IDIT and FIS of $3.7 million in 2011 compared to net payment of $1.4 million for the acquisition of Harcase in 2010, an earn-out payment of $1 million with respect to the acquisition of Harcase in 2011 and the decrease in capitalized software development cost of $0.7 million to $4.7 million in 2011 from $5.4 million in 2010.

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Net cash provided by financing activities was immaterial in both 2010 and 2011.

Outlook

In 2011, we generated positive operating cash flow on an annual basis in the amount of $5.3 million overall. Management believes that positive cash flow generated during 2009, 2010 and 2011 and our existing cash balances will be sufficient for our present requirements, and at least until December 31, 2012, to support our operating and financing requirements. However, in the event that we make one or more acquisitions for consideration consisting of all or a substantial part of our available cash, we might be required to seek external debt or equity financing for such acquisition or acquisitions or to fund subsequent operations.

C.           Research and Development, Patents and Licenses, etc.

See the captions titled "Research and Development, net" in section A. “Operating Results” of this Item 5 above for a description of our R&D policies and amounts expended thereon during the last two fiscal years.

D.           Trend Information

General

Despite the global economic stagnation, low interest rates and persistently high unemployment, according to a recent report from Celent, a research and consulting firm focused on information technology in the global financial services industry, the annual IT spending of insurance companies, including internal IT, hardware, external software and external services, is expected to reach $140.6 billion globally in 2012 and US$157.5 billion by 2014, a 5.8% CAGR from 2012 to 2014. Celent also projects that IT spending in North America will climb to US$58.6 billion in 2014, a CAGR of 7.6% from 2012 to 2014, IT spending in Europe will climb to US$56.4 billion in 2014, a CAGR of 2.2% from 2012 to 2014 and that IT spending in the Asia Pacific region is expected to grow to US$29.6 billion in 2014 a CAGR of 6.1% from 2012. According to Celent, in 2010, insurance IT spending was $130.9 billion, with $48 billion from North America and $52.8 billion from Europe.

IT spending in external software and services, which is the market we address, reached $51 billion in 2011 and Celent projects that it will grow to $63 billion by 2014, representing a CAGR of 7.3%. Celent reports that growth in external software and services is driven both by pure growth in IT spending, but also from shift of IT spending from internal to external providers, like Sapiens. This is due to the move from in-house, home-grown solutions to packaged solutions, as IT departments recognize the value of buying software solutions from specialized vendors, rather than develop internal solutions that are hard to maintain and do not have the advantage the R&D investments at the rate that is invested by outside vendors.

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In the insurance industry, premium growth rates increased slowly in 2010 and 2011 due to the ongoing economic and political challenges facing the global economy. According to Celent, projections are indicating a positive trend for 2012 and beyond, which could result in an increase in insurers looking to modernize their IT systems.

The global insurance industry is evolving in a number of areas, and insurance carriers require support from their software and their IT service providers to keep up. The primary areas of evolution include:

· Tighter competition

· Tougher regulations

· Customer Sophistication

· Globalization & M&A

With the growing need for insurance, as people accumulate more property and live longer, the insurance industry has become more competitive. The competition for the customer’s business requires the insurers to improve customer experience, be faster to market with new products and offer innovative channels such as social media and mobile. Innovative technology infrastructure is necessary to support these business initiatives.

In addition, insurers are faced with the increasing significance of regulatory changes to protect the policyholder in many markets, particularly with respect to large insurers which are considered important to the stability of the world economic system. Many insurers are integrating enterprise risk management as a standard operating procedure, while spreading ownership of risk throughout the strategic decision-making process.

As the customers become more sophisticated, the support of innovative products and distribution channels is mandatory. Insurers are identifying growth opportunities by attracting new customers and retaining current customers by seeking to reinvent the customer experience and provide quote and policy information to their customers as they request.

Mergers and acquisitions volume among insurance companies increased in 2011. Transactions tended to be strategic, with focus on adding new product lines and distribution channels, and expanding geographic reach into emerging markets. With more strategic transaction activity expected in 2012, there will likely be additional opportunities for IT providers with the need to integrate multiple systems.

E.           Off-Balance Sheet Arrangements

We have not engaged in nor been a party to any off-balance sheet transactions.

F.           Contractual Obligations

The following table sets forth information on our short-term and long-term contractual obligations as at December 31, 2011 (in thousands of dollars).

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	Payments due by period
	Total		Less than 1 year		1 to 3 years		3 to 5 years	Over 5 years
Accrued severance pay, net (1)	$	539						$	539
Put option liability	$	303		227		76
Operating leases	$	6,643	$	2,487	$	4,156
Liability to the OCS(2)	$	1,591	$	1,591
Total	$	9,076	$	4,305	$	4,232		$	539

(1) Accrued severance pay relates to accrued severance obligations mainly to our Israeli employees as required under Israeli labor law.  We are legally required to pay severance upon certain circumstances, primarily upon termination of employment by our company, retirement or death of the respective employee.  Our liability for all of our Israeli employees is fully provided for by monthly deposits with insurance policies and by an accrual.

(2) Does not include contingent liabilities to the OCS of approximately $6.3 million as described in Note 9(a) of our consolidated financial statements contained elsewhere in this report.

As discussed in Note 10(i) of our consolidated financial statements contained elsewhere in this annual report, as of December 31, 2011 we had a total liability of $1.6 million for unrecognized tax benefits. Due to the uncertainties related to those tax matters, we are currently unable to make a reasonably reliable estimate of when cash settlement with a relevant tax authority will occur.

Item 6.     Directors, Senior Management and Employees

A.           Directors and Senior Management

The following table sets forth certain information regarding the current executive officers and directors of the Company as of March 15, 2012.

Name	Age	Position
Guy Bernstein (1)	44	Chairman of the Board of Directors
Ron Al Dor	51	President, Chief Executive Officer and Director
Naamit Salomon (1)	48	Director
Yacov Elinav (2)	67	Director
Uzi Netanel (2)	76	Director
Eyal Ben Chlouche (2)	50	Director
United International Trust N.V. (3)		Director
Amit Ben-Yehuda	47	Director
Roni Giladi	41	Chief Financial Officer

(1)	Member of Compensation Committee
(2)	Member of Audit Committee
(3)	United International Trust N.V. or UIT, is a corporate body organized under the laws of Curaçao. Mr. Gregory Elias exercises decision making authority for UIT.  The Articles of Incorporation of the Company provide that a corporate body may be a member of the Board of Directors.

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Guy Bernstein has served as a director of the Company since January 1, 2007 and was appointed Chairman of the Board of Directors on November 12, 2009. Mr. Bernstein has served as the chief executive officer of Formula Systems, our parent company, since January 2008.  From December 2006 to November 2010, Mr. Bernstein served as a director and the chief executive officer of Emblaze Ltd. or Emblaze, our former controlling shareholder. From April 2004 to December 2006, Mr. Bernstein served as the chief financial officer of Emblaze. He also served as a director of Emblaze from April 2004 until November 2010. Prior to joining Emblaze, Mr. Bernstein served as Chief Financial and Operations Officer of Magic Software Enterprises Ltd. ("Magic") (NASDAQ: MGIC), a position he held since 1999. He also acted as the Interim CEO for Magic's subsidiaries: MSE Israel Ltd. and Coretech Consulting Group. Mr. Bernstein joined Magic from Kost Forer Gabbay & Kasierer, a member of Ernst & Young Global, where he acted as senior manager from 1994 to 1997. Mr. Bernstein also serves as Chief Executive Officer of Magic and Chairman of the Board of Matrix IT Ltd. Mr. Bernstein is a Certified Licensed Public Accountant and holds a BA in Accounting and Economics from Tel Aviv University.

Roni Al Dor joined the Company as President and Chief Executive Officer in November 2005 and has served as a director of the Company since November 2005. Prior to joining the Company, Mr. Al Dor was one of the two founders of TTI Team Telecom International Ltd. ("TTI"), a global supplier of operations support systems to communications service providers and from August 1996 until 2004, Mr. Al Dor served as President of TTI. Prior to that, Mr. Al Dor served as TTI's Co-President from November 1995 until August 1996 and its Vice President from September 1992 to November 1995. During his service in the Israeli Air Force, Mr. Al Dor worked on projects relating to computerization in aircrafts. Mr. Al Dor is a graduate of the military computer college of the Israeli Air Force, studied computer science and management at Bar Ilan University and attended the Israel Management Center for Business Administration.

Eyal Ben-Chlouche has served as a director of the Company since August 15, 2008, Mr. Ben-Chlouche served as the Commissioner of Capital Market Insurance and Savings at the Israeli Ministry of Finance from 2002 through 2005, where he was responsible for implementation of fundamental reforms in pension savings. Prior to that, he served as a Deputy Commissioner of Capital Market Insurance and Savings and as a Senior Foreign Exchange and Investment Manager in the Foreign Exchange Department of the Bank of Israel. He also served as an Investment Officer in the Foreign Exchange Department of the Bank of England, in London. Mr. Ben-Chlouche served as Chairman of the Board of Directors of the Shahar Group, Chairman of the Advisory Board of Directors of the Shekel Group until the end of 2007 and serves as a director of Matrix IT Ltd. and Migdal Holding Ltd. Mr. Ben-Chlouche also serves on the Board of Directors of several other private companies. Mr. Ben-Chlouche also serves as Chairman of the Advisory Board of the Caesarea Center for Capital Markets and Risk Management. In 2005, Mr. Ben-Chlouche served as a member of the Bachar Committee on Capital Market Reform in Israel. Mr. Ben-Chlouche is an independent director.

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Naamit Salomon has served as a director of the Company since September 2003. She held the position of Chief Financial Officer of Formula from August 1997 until December 2009. Since January 2010 Ms. Salomon has served as a partner in an investment company. Ms. Salomon also serves as a director of Magic Software Enterprises ("Magic") (NASDAQ: MGIC). From 1990 through August 1997, Ms. Salomon was a controller of two large, privately held companies in the Formula Group. Ms. Salomon holds a BA in economics and business administration from Ben Gurion University and an LL.M. from the Bar-Ilan University.

Yacov Elinav has served as a director of the Company since March 2005. For over 30 years, Mr. Elinav served in various positions at Bank Hapoalim B.M., which is listed on the London and Tel Aviv Stock Exchanges, including over 10 years as a member of the Board of Management, responsible for subsidiary and related companies. From 1992 through 2006, Mr. Elinav served as Chairman of the Board of Directors of Diur B.P. Ltd., the real estate subsidiary of Bank Hapoalim. From August 2004 until 2009, Mr. Elinav has served as Chairman of the Board of Directors of DS Securities and Investments, Ltd. From August 2004 through 2008, Mr. Elinav served as Chairman of the Board of Directors of DS Provident Funds Ltd. and Golden Pages Ltd. Mr. Elinav also serves on the Board of Directors of several other public and private companies. Mr. Elinav is an independent director.

Uzi Netanel has served as a director of the Company since March 2005. He has served as Chairman of the Board of Directors of Maccabi Group Holdings Ltd. since 2005. From 2004 through 2007, Mr. Netanel served as Chairman of the Board of Directors of MLL Software & Computers Industries Ltd. and as Chairman of the Executive Committee of Carmel Olephines. From 2001 through 2003, Mr. Netanel served as a partner in the FIMI Opportunity Fund. From 1993 through 2001, he served as Active Chairman of Israel Discount Capital Markets and Investments Ltd. From 1997 to 1999, Mr. Netanel served as Chairman of Poliziv Plastics Company (1998) Ltd. Mr. Netanel also serves on the Board of Directors of Israel Oil Refineries (alternate director), Carmel Olephines, Gaon Real Estate, The Maman Group, Acme Trading, Harel-PIA funds, Scope Metals Ltd. (external director). Mr. Netanel is an independent director.

United International Trust N.V. ("UIT") is a corporate body organized and existing under the laws of the Netherlands Antilles. It, or one of its predecessor entities, has provided the Company with corporate-related services since April 1990, including serving as the Company's transfer agent and registrar, maintaining the corporate-related records of the Company, and filing various corporate documents and the annual corporate tax return with the governmental authorities in the Netherlands Antilles. In January 1, 2007, UIT was established by former shareholders of Intertrust (Curacao) N.V., including Mr. Elias which subsequently operated under the names of MeesPierson Intertrust (Curacao) N.V. and Fortis Intertrust (Curacao) N.V. Between 2005 and June 2009, Mr. Elias acted as a Supervisory Board Member of Banco di Caribe and currently acts as Of Counsel thereto. Mr. Elias also serves as special counsel to the Government of Curaçao, in international finance / tax matters. He holds board positions in several organizations of a social, economic, (e)-commercial and charitable nature. Mr Elias holds two Masters degrees in Law from the University of Amsterdam, the Netherlands.

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Amit Ben Yehuda is the Chief Executive Officer and a director of Kardan Communications Ltd. (“Kardan Communications”), a holding company that focuses on communication and media companies, and the Chief Executive Officer and a director of Kardan Technologies Ltd. (“Kardan”), an Israeli company whose ordinary shares are listed on the Tel-Aviv Stock Exchange.  Prior to becoming the Chief Executive Officer of Kardan Communications in January 2006, Mr. Ben-Yehuda served in other capacities for Kardan Communications since October 1999, including as Vice President of Business Development until January 2005 and then as Deputy CEO until January 2006.  Before joining Kardan Communications, Mr. Ben-Yehuda served as the Director of Business Development of Cellcom Israel Ltd., a leading wireless telecommunications operator in Israel, from late 1996 until late 1999.  From 1992 until 1996, Mr. Ben-Yehuda served as a senior advisor to the Israeli Ministry of Tourism and the Israeli Ministry of Interior Affairs. Mr. Ben-Yehuda also serves as a director of RRsat Global Communications Network Ltd., a public Israeli company whose ordinary shares are listed on NASDAQ, and of several privately held companies.  Mr. Ben-Yehuda holds a B.A. in Economics and Political Science and an M.B.A. from Tel-Aviv University. Mr. Ben-Yehuda’s appointment was effected in connection with the acquisition of FIS and IDIT.

Roni Giladi joined the Company as Chief Financial Officer in July 2007. Prior to joining the Company, Mr. Giladi served as the Director of Finance at Emblaze from January 2007. Prior to joining Emblaze, Mr. Giladi served as Chief Financial Officer of RichFX, from August 2003 until November 2006, after serving as Corporate Controller from June 2002. Prior to RichFX, Mr. Giladi worked at Ernst & Young Israel, from 1997-2002, as a manager in the high-tech practice group. From July 2007 until July 2010, Mr. Giladi served as a director of MediRisk Solutions Ltd., as the nominee of the Company. Mr. Giladi is Certified Licensed Public Accountant and holds a BA in Business Management and Accounting from the College of Management in Israel.

The Board of Directors must have a minimum of three, and may have a maximum of 24, directors. Directors of the Company are appointed by our General Meeting of Shareholders and hold office until the expiration of the term of their appointment by our General Meeting of Shareholders, or until they resign or are suspended or dismissed by the General Meeting of Shareholders. The Board of Directors may appoint up to four directors in addition to the directors elected by the General Meeting of Shareholders, subject to the maximum number of directors permitted, and any such appointment shall be effective until the next General Meeting of Shareholders. The Board of Directors may fill any vacancies on the Board of Directors, whether as a result of the resignation or dismissal of a director, or as a result of a decision of the Board of Directors to expand the Board of Directors.

Our executive officers are appointed by, and serve at the discretion of, our Board of Directors.

Our Chairman, Guy Bernstein, serves as the Chief Executive Officer of Formula. In addition, Ms. Salomon, another Board member of ours, who served as an executive officer of Formula until December 2009, is a member of the Board of Directors of our affiliate Magic Software Enterprises Ltd. Formula directly owns (as of March 1, 2012) approximately 52.1% of our currently outstanding Common Shares, and, since November 2010, Asseco holds a controlling interest in Formula (51.7% of the outstanding share capital of Formula as of March 1, 2012). Based on public disclosure made by Formula, Formula has entered into an agreement with Kardan, which agreement, as amended, provides that as long as Kardan holds, directly or indirectly, at least 9% of our issued and outstanding share capital, Formula will vote in favor of Kardan's nominee to our board of directors, provided that, at Formula's request, such appointee will resign from our board of directors, which resignation is conditioned upon such Kardan appointee being appointed as an observer to our board. Other than as described immediately above, there are no arrangements or understandings with major shareholders, customers, suppliers or others pursuant to which any of our directors or members of senior management were selected as such. In addition, there are no family relationships among our executive officers or directors.

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B. Compensation of Directors and Officers

The aggregate amount of compensation paid by us, or accrued by us, during the fiscal year ended December 31, 2011 with respect to such year, to all directors and executive officers as a group for services in all capacities was $1.1 million. This amount does not include amounts expended by us for automobiles made available to our officers or expenses (including business travel and professional and business association dues) reimbursed to such officers. The aggregate amount set aside or accrued by us during our fiscal year ended December 31, 2011 to provide pension, retirement severance, vacation accrual and similar benefits for directors and executive officers of the Company was $75,000. The foregoing amounts also exclude stock option grants to our directors and officers pursuant to our 1992 Stock Option and Incentive Plan, our 2003 Share Option Plan, our 2005 Special Incentive Share Option Plan and our 2011 Share Incentive Plan, which are described below.

We have employment agreements with our officers. We, in the ordinary course of our business, enter into confidentiality agreements with our personnel and have entered into non-competition and confidentiality agreements with our officers and high-level technical personnel. We do not maintain key person life insurance on any of our executive officers.

Board Fees and Expenses

We reimburse all members of our Board of Directors for reasonable out-of-pocket expenses incurred in connection with their attendance at Board of Directors or committee meetings.

We grant to each of our independent directors a fee for attending or participating in Board of Directors meetings and committee meetings, and participating in unanimous written consents.

We pay the fees to our independent directors according to the rates paid to outside directors under the Israeli Companies Law 5759-1999, even though we are not an Israeli company and are not subject to the Israeli Companies Law (as we deem the standards of such body of law relevant to a company such as ours that has a substantial percentage of Israeli operations and Israeli employees).

In 2005, we granted to two of our independent directors options to purchase 4,000 Common Shares annually. The options were granted at an exercise price equal to the fair market value of the Company’s Common Shares on the date of grant. The term of the options was set at 10 years and the options become exercisable in four equal, annual installments, beginning with the first anniversary of the grant date.

In 2010, we granted to three of our independent directors and another director options to purchase 15,000 Common Shares each. The options were granted at an exercise price equal to the fair market value of the Company’s Common Shares on the date of grant. The term of the options was 6 years and the options become exercisable in four equal, annual installments, beginning with the first anniversary of the grant date.

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Stock Option and Incentive Plans

1992 Stock Option and Incentive Plan and 2003 Share Option Plan

In 1992, our Board of Directors and shareholders approved the 1992 Stock Option and Incentive Plan (the “1992 Stock Plan”) pursuant to which our officers, directors and employees are eligible to receive awards of stock options and restricted stock. In February 2003, the Board of Directors authorized the extension of the 1992 Stock Plan until April 2012 and our shareholders approved that extension. In 2003, our Board of Directors and shareholders approved the 2003 Share Option Plan (the “2003 Option Plan”), pursuant to which our officers, directors, employees, consultants and contractors are eligible to receive awards of stock options. In the following description, the 1992 Stock Plan and 2003 Option Plan will be referred to together as the “Prior Incentive Plans” and each may be referred to individually as a “Prior Incentive Plan.”

Options granted under the 1992 Stock Plan may be “incentive stock options” (“ISOs”), within the meaning of section 422 of the Internal Revenue Code of 1986, as amended (the “Code”), or non-qualified stock options (“non-Qualified Stock Options”). Restricted stock may be granted in addition to or in lieu of any other award granted under the 1992 Stock Plan. Option grants under the 2003 Option Plan are intended to comply with, and benefit from, applicable tax laws and regulations in Israel.

Each of the Prior Incentive Plans is administered by the Compensation Committee of our Board of Directors (the “Committee”). Subject to the provisions of each Incentive Plan, the Committee determines the type of award, when and to whom awards will be granted and the number of shares covered by each award. The Committee also determines the terms, provisions, and kind of consideration payable (if any), with respect to awards. The Committee has discretionary authority to interpret the Incentive Plans and to adopt rules and regulations related thereto. In determining the persons to whom awards shall be granted and the number of shares covered by each award, the Committee takes into account the contribution to the management, growth and/or profitability of the business of the Company by the respective persons and such factors as the Committee shall deem relevant, including the length of employment of the respective persons, the nature of their responsibilities to the Company, and their flexibility with regard to location of their employment and other employment-related factors.

An option may be granted on such terms and conditions as the Committee may approve, and generally may be exercised for a period of up to 10 years from the date of grant. In 2008, certain grants were limited to an exercise period of 6 years. Options granted under the Prior Incentive Plans become exercisable in four equal, annual installments, beginning with the first anniversary of the date of the grant, or pursuant to such other schedule as the Committee may provide in the option agreement. The exercise price of such options generally will be not less than 100% of the fair market value per share of the Common Shares at the date of the grant. In the case of ISOs, certain limitations will apply with respect to the aggregate value of option shares which can become exercisable for the first time during any one calendar year, and certain additional limitations will apply to “Ten Percent Stockholders” (as defined in the 1992 Stock Plan). The Committee may provide for the payment of the option price in cash, by delivery of other Common Shares having a fair market value equal to such option exercise price, by a combination thereof or by any method in accordance with the terms of the option agreements. The Incentive Plans contain special rules governing the time of exercise of options in the case of death, disability, or other termination of employment. Options are not transferable except by will or pursuant to applicable laws of descent and distribution upon death of the employee.

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The 1992 Stock Plan also provides for the granting of restricted stock awards, which are awards of Common Shares that may not be disposed of, except by will or the laws of descent and distribution, for such period as the Committee determines (the “restricted period”). The Committee may also impose such other conditions and restrictions on the shares as it deems appropriate, including the satisfaction of performance criteria. The Committee may provide that such restrictions will lapse with respect to specified percentages of the awarded shares on successive anniversaries of the date of the award. During the restricted period, the grantee is entitled to receive dividends with respect to, and to vote the shares awarded to him or her. If, during the restricted period, the grantee’s continuous employment with the Company terminates for any reason, any shares remaining subject to restrictions will be forfeited. The Committee has the authority to cancel any or all outstanding restrictions prior to the end of the restricted period, including cancellation of restrictions in connection with certain types of termination of employment.

As of December 31, 2011, options to purchase 1,600,159 Common Shares, 447,569 of which were held by officers and directors, were outstanding under the Prior Incentive Plans. As of that date, there were 6,800 shares of restricted stock that the Company had granted to employees and other eligible grantees (none of which were held by current or former officers and directors), and all of which had vested (prior to 1998) under the restricted stock awards.

During 2009, under the Prior Incentive Plans, we granted to our directors and executive officers a total of 57,892 options to purchase Common Shares at an exercise price of $1.50 per Common Share, which options have a term of six years.

During 2010, under the Prior Incentive Plans, we granted to our directors and executive officers a total of 110,000 options to purchase Common Shares at an exercise price of $1.60 per Common Share, as applicable, which options have a term of six years.

New Incentive Stock Option Plan

In 2005, our Board of Directors authorized a new Incentive Stock Option Plan (the “Special Plan”) and our shareholders approved the Special Plan in 2006. The number of Common Shares available for grants pursuant to the Special Plan was set at 2,000,000 shares. The Special Plan is intended to be used solely to attract or retain senior management and/or members of the Board of Directors. Unless otherwise determined by the Committee, options granted pursuant to the Special Plan have an exercise price of $3.00 per share. In addition, shares issued upon exercise are locked up for up to five years following the grant date, and the right to obtain shares is contingent upon the optionee providing services to the Company throughout the entire five year period. In the event of a change of control of the Company, any unvested options will be accelerated.

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The Special Plan is administered by the Committee. Subject to the provisions of the Special Plan, the Committee determines the type of award, when and to whom awards will be granted and the number of shares covered by each award. The Committee also determines the terms and provisions with respect to awards. The Committee has discretionary authority to interpret the Special Plan and to adopt rules and regulations related thereto.

Pursuant to the Special Plan, in November 2005, the Company’s President and Chief Executive Officer was granted options to purchase 1,000,000 Common Shares at an exercise price of $3.00 per share.  During 2009, all the outstanding options under the Special Plan were re-priced, See "Re-pricing of Options" below.

During 2010 we granted to our directors and executive officers a total of 100,000 options to purchase Common Shares at an exercise price of $1.60 per Common Share, as applicable, which options have a term of six years. As of December 31, 2011, options to purchase 1,245,298 Common Shares, 1,035,277 of which were held by our directors and executive officers, were outstanding under the Special Plan.

Upon the approval of our 2011 Share Incentive Plan, which is described below, our board of directors determined that no further awards would be issued under the Prior Incentive Plans and the Special Plan.

2011 Share Incentive Plan

In 2011, in connection with the acquisition of IDIT and FIS, our board of directors approved our 2011 Share Incentive Plan (the “2011 Plan”) pursuant to which our employees, directors, officers, consultants, advisors, suppliers, business partner, customer and any other person or entity whose services are considered valuable are eligible to receive awards of share options, restricted shares, restricted share units and other share-based awards The number of Common Shares available under the 2011 Plan was set at 4,000,000.

Options granted under the 2011 Plan may be “incentive stock options” (“ISOs”), within the meaning of section 422 of the Internal Revenue Code of 1986, as amended (the “Code”), or non-qualified stock options (“non-Qualified Stock Options”). Restricted shares may be granted in addition to or in lieu of any other award granted under the 2011 Plan. In addition, the Company may grant restricted share units and other share-based compensation. Option grants under the 2011 Plan are intended to comply with, and benefit from, applicable tax laws and regulations in Israel to the extent applicable the recipient of the grant.

The 2011 Plan is administered by the Committee. Subject to the provisions of the 2011 Plan, the Committee determines the type of award, when and to whom awards will be granted and the number of shares covered by each award. The Committee also determines the terms, provisions, and kind of consideration payable (if any), with respect to awards. The Committee has discretionary authority to interpret the 2011 Plan and to adopt rules and regulations related thereto. In determining the persons to whom awards shall be granted and the number of shares covered by each award, the Committee takes into account their present and potential contributions to the success of the Company and such other factors as the Committee shall deem relevant in connection with accomplishing the purpose of the 2011 Plan.

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An option may be granted on such terms and conditions as the Committee may approve, and generally may be exercised for a period of up to 6 years from the date of grant. Options granted under the 2011 Plan become exercisable in four equal, annual installments, beginning with the first anniversary of the date of the grant, or pursuant to such other schedule as the Committee may provide in the option agreement. The exercise price of such options generally will be not less than 100% of the fair market value per share of the Common Shares at the date of the grant. In the case of ISOs, certain limitations will apply with respect to the aggregate value of option shares which can become exercisable for the first time during any one calendar year, and certain additional limitations will apply to “Ten Percent Shareholders” (as defined in the 2011 Plan). The Committee may provide for the payment of the option price in cash, by delivery of other Common Shares having a fair market value equal to such option exercise price, by a combination thereof or by any method in accordance with the terms of the option agreements. The Incentive Plans contain special rules governing the time of exercise of options in the case of death, disability, or other termination of employment. Options are not transferable except by will or pursuant to applicable laws of descent and distribution upon death of the employee, unless otherwise approved by the Company’s Board of Directors.

The 2011 Plan also provides for the granting of restricted share awards, which are awards of Common Shares that may not be disposed of, except by will or the laws of descent and distribution, for such period as the Committee determines (the “restricted period”). The Committee may also impose such other conditions and restrictions on the shares as it deems appropriate, including the satisfaction of performance criteria. The Committee may provide that such restrictions will lapse with respect to specified percentages of the awarded shares on successive anniversaries of the date of the award. During the restricted period, the grantee is entitled to receive dividends with respect to, and to vote the shares awarded to him or her. If, during the restricted period, the grantee’s continuous employment with the Company terminates for any reason, any shares remaining subject to restrictions will be forfeited. The Committee has the authority to cancel any or all outstanding restrictions prior to the end of the restricted period, including cancellation of restrictions in connection with certain types of termination of employment.

The 2011 Plan also provides for the granting of restricted share units, which are awards that are settled by the issuance of a number of Common Shares. The grantee has no rights with respect to such Common Shares until they are actually issued to the grantee. The Committee may also grant other share-based awards, such as share appreciation rights.

Upon the consummation of the acquisition of IDIT and FIS, 1,938,844 share options with a weighted average exercise price of $2.09 were issued under the 2011 Plan to former employees of IDIT and FIS in exchange for the share options which had been granted to them by IDIT and FIS, which were cancelled upon the closing of the acquisition.

During 2011 we granted to the Company’s directors and officers options to purchase 300,000 Common Shares, at an exercise price of $3.00 per Common Share, which options have a term of six years.

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As of December 31, 2011, options to purchase 2,369,689 Common Shares, 300,000 of which were held by our directors and officers, were outstanding under the 2011 Plan. As of December 31, 2011, 1,581,927 shares were available for future grant under the 2011 Plan.

Re-pricing of Options

During 2009, our Board of Directors approved the re-pricing of options outstanding under the Incentive Plans and Special Plan. As a result of the re-pricing 1,985,650 stock options at an exercise price range of $1.74 to $5.30 were re-priced to 1,554,627 stock options at an exercise price of $1.50 per share (925,870 stock options of the 1,554,627 stock options are at market conditions (a kick-in feature of a $2.10 market price). In addition, the expiration of the exercise period for all remaining outstanding options was reduced to no later than September 2015.

C. Board Practices

Members of the Company’s Board of Directors are elected by a vote at the annual general meeting of shareholders and serve for a term of one year from the date of the prior year's annual meeting. Directors may serve multiple terms and are elected by a majority of the votes cast at the meeting. The Chief Executive Officer serves until his removal by the Board of Directors or resignation from office. Our non-employee directors do not have agreements with the Company for benefits upon termination of their service as directors.

Audit Committee

The Audit Committee of our Board of Directors is comprised of three independent directors (such independence determination having been made by our Board of Directors, in accordance with the NASDAQ Listing Rules), who were nominated by the Board of Directors: Yacov Elinav, Uzi Netanel and Eyal Ben Chlouche. The Board of Directors has determined that Mr. Elinav meets the definition of an audit committee financial expert (as defined in Item 16A (b) of Form 20-F promulgated by the SEC). The primary function of the Audit Committee is to assist the Board of Directors in fulfilling its oversight responsibilities by reviewing financial information, internal controls and the audit process. In addition, the Committee is responsible for oversight of the work of our independent auditors. The Committee meets at regularly scheduled quarterly meetings.

Compensation Committee

The Compensation Committee of our Board of Directors is comprised of two directors, nominated by the Board of Directors: Naamit Salomon and Guy Bernstein. The primary function of the Compensation Committee is to make recommendations to the board of directors with respect to the grant of options to our employees and other compensation matter as requested by the Board from time to time.

NASDAQ Exemptions for a Controlled Company

We are a controlled company within the meaning of NASDAQ Listing Rule 5615(c)(1) since Formula holds more than 50% of our voting power.

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Under Rule 5615(c)(2), a controlled company is exempt from the requirements of NASDAQ Listing Rules 5605(b), (d) and (e) listed below:

· The majority of the company’s board of directors must qualify as independent directors, as defined under NASDAQ Listing Rule 5605(a)(2).

· The compensation of the chief executive officer and all other executive officers must be determined, or recommended to the board of directors for determination, either by (i) a majority of the independent directors or (ii) a compensation committee comprised solely of independent directors (subject to limited exceptions).

· Director nominees must either be selected or recommended for the board of directors’ selection, either by (a) a majority of independent directors or (b) a nominations committee comprised solely of independent directors (subject to limited exceptions).

· The company must certify that it has adopted a formal written charter or board resolution, as applicable, addressing the nominations process and such related matters as may be required under US federal securities laws.

NASDAQ Opt Out for a Foreign Private Issuer

We are a foreign private issuer within the meaning of NASDAQ Listing Rule 5005(a)(18), since we are governed by the laws of Curaçao and we meet the other criteria set forth for a "foreign private issuer" under Rule 3b-4(c) under the Exchange Act.

Pursuant to NASDAQ Listing Rule 5615(a)(3), a foreign private issuer may follow home country practice in lieu of certain provisions of the NASDAQ Listing Rule 5600 series and certain other NASDAQ Listing Rules. Please see Item 16G below ("Corporate Governance") for a description of the manner in which we rely upon home country practice in lieu of NASDAQ Listing Rules. We rely on home country practice with respect to a number of matters for which we would otherwise be exempt under the controlled company exemption described above under "NASDAQ Exemptions for a Controlled Company"

D. Employees

As of December 31, 2011, we had a total of 688 employees, a 91% increase from the end of 2010.

The following table sets forth the number of employees in (1) research and development, (2) consulting, delivery and technical support and (3) SG&A at the end of each of the past three years, as well as their geographic area of employment:

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	Total Employees		Research & Development		Consulting, Delivery & Technical Support		SG&A
2011		688		162		435		91
2010		361		80		230		51
2009		295		66		193		36

Geographic Area	Total Number of Employees, in All Categories of Activities
	2009		2010		2011
Israel		214		254		464
UK and Europe		40		39		116
North America		18		45		71
Asia Pacific		23		23		37
Europe		3		2		10
Total Employees		295		361		688

E. Share Ownership

The number of our Common Shares beneficially owned by each of our directors and executive officers individually, and by our directors and executive officers as a group, as of March 1, 2012, is as follows:

	Shares Beneficially Owned
	Number			Percent (1)
Roni Al Dor		1,174,781	(2)		2.9	%
All directors and executive officers as a group (7 persons, including Roni Al Dor)(3)		1,367,123			3.3	%

(1) Unless otherwise indicated below, the persons in the above table have sole voting and investment power with respect to all shares shown as beneficially owned by them. The percentages shown are based on 39,701,784 Common Shares outstanding as of March 1, 2012 plus such number of Common Shares as the indicated person or group had the right to receive upon exercise of options which are exercisable within 60 days of March 1, 2012.

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(2) Includes options to purchase 189,504 Common Shares under the Prior Incentive Plans at an exercise price of $1.50 per share expiring no later than September 2015, and options to purchase 935,277 Common Shares under the Special Plan at an exercise price of $1.50 per share expiring no later than September 2015 and options to purchase 50,000 Common Shares under the Incentive Plans at an exercise price of $1.60 per share expiring no later than March 2016, which are vested or will become vested within 60 days of March 1, 2012. In additional Mr. Al Dor has options to purchase 350,000 Common Shares with exercise prices between $1.50 and $3.00 per share which are not vested or becoming vested within 60 days of March 1, 2012). See Item 6, “Directors, Senior Management and Employees - Compensation of Directors and Officers.

(3) Each of our directors and executive officers who is not separately identified in the above table beneficially owns less than 1% of our outstanding Common Shares (including options held by each such party and which are vested or will become vested within 60 days of March 1, 2012) and has therefore not been separately identified.

(4) Includes options to purchase 1,367,123 Common Shares at exercise prices ranging from $1.50 to $2.24 per share, which are vested or will become vested within 60 days of March 1, 2012, and none of such options expires before 2015.

Item 7.  Major Shareholders and Related Party Transactions

A. Major Shareholders.

The following table sets forth, as of March 1, 2012, certain information with respect to the beneficial ownership of the Company’s Common Shares by each person known by the Company to own beneficially more than 5% of the outstanding Common Shares, based on information provided to us by the holders or disclosed in public filings with the Securities and Exchange Commission.

We determine beneficial ownership of shares under the rules of Form 20-F promulgated by the SEC and include any Common Shares over which a person possesses sole or shared voting or investment power, or the right to receive the economic benefit of ownership, or for which a person has the right to acquire any such beneficial ownership at any time within 60 days.

	Shares Beneficially Owned
Name and Address	Number		Percent (1)
Formula Systems (1985) Ltd. (2) 5 HaPlada Street Or Yehuda 60218, Israel		20,650,035		52.1	%
Kardan Technologies Ltd. (3) 154 Menachem Begin Street Tel Aviv 64921, Israel		5,409,793		13.7	%

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Unless otherwise indicated below, the persons in the above table have sole voting and investment power with respect to all shares shown as beneficially owned by them.

(1) The percentages shown are based on 39,701,784 Common Shares outstanding as of March 1, 2012.

(2) As of March 1, 2012, Asseco beneficially owns 50.2% of the outstanding share capital of Formula. As such, Asseco is deemed to be the beneficial owner of the aggregate 20,650,035 Common Shares held directly by Formula. The address of Asseco is Olchowa 14 35-322 Rzeszow, Poland.

(3) Based on Amendment No. 4. to Schedule 13D filed by Kardan and certain other parties on February 2, 2012, Kardan directly beneficially owns 4,656,168 Common Shares. Kardan Technologies is the limited partner of Formula Vision LP (“FVLP”) and owns 49% of the shares of Formula Vision GP (“FVGP”). By reason of its ability to influence the control of FVLP and FVGP, Kardan may be deemed to indirectly beneficially own, and share the power to vote and dispose of, 753,625 Common Shares directly beneficially owned by FVLP. Kardan Israel Ltd. (“Kardan Israel”) owns 84.94% of the shares of Kardan and Kardan Yazamut (2011) Ltd. (“Kardan Yazamut”) owns 73.67% of Kardan Israel. By reason of Kardan Israel’s ability to influence the control of Kardan and by Kardan Yazamut’s ability to influence the control of Kardan Israel, each of Kardan Israel and Kardan Yazamut may be deemed to indirectly beneficially own, and share the power to vote and dispose of, (i) the 4,656,168 Common Shares directly beneficially owned by Kardan and (ii) the 753,625 Common Shares directly beneficially owned by FVLP. Each of Kardan, Kardan Israel and Kardan Yazamut disclaims beneficial ownership of the Common Shares other than the 4,656,168 Common Shares directly beneficially owned by Kardan. The address of Kardan is 154 Menachem Begin Street, Tel Aviv 64921, Israel.

Significant changes in holdings of major shareholders

From time to time, Formula has increased its beneficial shareholding in our Company through market purchases of additional Common Shares. From JJanuary 2010 through July 10, 2011, Formula increased its holding of our Common Shares by approximately 1,198,431 additional Common Shares through purchases on the public market and in private transactions. See the Schedule 13D/As filed by Formula with the SEC on July 26, 2010, June 14, 2011and July 13, 2011 with respect to such purchases. On August 21, 2011, KCPS Technology Investments (2006) Ltd. acquired 3,759,806 Common Shares in connection with our acquisition of IDIT and FIS. See the Schedule 13G filed by KCPS Technology Investments (2006) Ltd. with the SEC on July 25, 2011 with respect to such acquisition. On August 21, 2011, Kardan acquired shared beneficial ownership of 7,536,243 Common Shares and Formula Vision Technologies (F.V.T.) Ltd. (“FVT”) and Dan Goldstein acquired shared beneficial ownership of 9,638,337 Common Shares. See the Schedule 13D filed by Kardan and other parties with the SEC on July 29, 2011 with respect to such acquisition. Between July 11, 2011 through August 25, 2011, Formula purchased 356,555 Common Shares in private transactions. See the Schedule 13D/As filed by Formula with the SEC on August 18, 2011 and August 25, 2011 with respect to such purchases. Between September 28, 2011 and November 14, 2011, Formula purchased 1,891,885 Common Shares from FVT. See the Schedule 13D/As filed by Formula with the SEC on October 4, 2011 and November 22, 2011 with respect to such purchases. From December 28, 2011 through January 29, 2012, Formula purchased an aggregate of 2,005,738 Common Shares in private transactions. Of such Common Shares, 1,600,000 were purchased from FVT and Kardan. See the Schedule 13D/A filed by Formula with the SEC on January 31, 2012 with respect to such purchases.

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Voting rights of major shareholders

The major shareholders disclosed above do not have different voting rights than other shareholders with respect to the Common Shares that they hold.

Holders of Record

As March 1, 2012 there were 100 holders of record of the Company’s Common Shares, including 50 holders of record with addresses in the United States who hold a total of 46,057 Common Shares, representing approximately 49% of our issued and outstanding Common Shares.  The number of record holders in the United States is not representative of the number of beneficial holders, nor is it representative of where such beneficial holders are resident, because many of these Common Shares were held of record by nominees (including CEDE & Co., as nominee for a large number of banks, brokers, institutions and underlying beneficial holders of our Common Shares). 

Control of the Company

Based on Formula’s beneficial holding of over 50% of the outstanding Common Shares of the Company, and based on Asseco's beneficial holding of 51.7% of the outstanding share capital of Formula, both Formula and Asseco may be considered to control the Company. We are unaware of any arrangements the operation of which may at a subsequent date result in a change of control of the Company.

B. Related Party Transactions.

On August 21, 2011, in connection with the consummation of the acquisition of IDIT and FIS, we entered into a Registration Rights Agreement (the “Registration Rights Agreement”) with Formula and Kardan and other former shareholders of IDIT and FIS (collectively, the “Holders”). Pursuant to the Registration Rights Agreement, the Holders are entitled to piggyback registration rights in connection with any registration statement we file (subject to customary exceptions). In addition, if the registration statement is for an underwritten offering and the number of Common Shares to be included in the offering is insufficient to permit the inclusion of all Common Shares which are considered registrable securities under the Registration Rights Agreement, Formula (and any of its affiliates) will be entitled to include Common Shares of up to 25% of such registrable securities participating in the offering. The Holders also agreed to execute a lock-up agreement if requested by the representative of the underwriters in any underwritten offering.

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C. Interests of Experts and Counsel.

Not applicable.

Item 8.   Financial Information

A. Consolidated Statements and Other Financial Information.

Financial Statements

See the Consolidated Financial Statements and related notes in Item 18.

Export Sales

In 2011, 69% of our revenues originated from customers located outside of Israel. For information on our revenues breakdown by geographic market for the past three years, see Item 4, “Information on the Company – Business Overview - Geographical Distribution of Revenues.”

Legal Proceedings

In July 2010, one of our subsidiaries, Sapiens Americas, was served with a claim submitted to the Court of Arbitration at the Polish Chamber of Commerce in Warsaw by Powszechny Zaklad Ubezpieczen SA ("PZU"), a former customer in Poland, claiming an amount of approximately €3.4 million. The claim relates to a dispute regarding Sapiens Americas' performance of its contractual duties in a project for PZU in 2008.

In November 2011, we entered into a settlement agreement with PZU, pursuant to which Sapiens paid PZU Euro 1.1 million and PLN 102,719.73 for full and final settlement of the claim. On December 12, 2011, the Court of Arbitration approved the settlement agreement and withdrawal of the claim. We received an amount of $1.2 million from our insurance company in connection with this case.

In addition, we are a party to various other legal proceedings and claims that arise in the ordinary course of business.

Dividend Policy

We have never declared or paid any cash dividends on our Common Shares and we do not anticipate paying cash dividends in the foreseeable future. It is the present intention of our Board of Directors to retain all earnings in the Company in order to support the future growth of our business. Any determination in the future to pay dividends will be dependent upon our consolidated results of operations, financial condition, cash requirements, future prospects and other factors. For more information about distribution of dividends and various tax implications, see Item 10, “Additional Information - Memorandum and Articles of Association;” Item 10, “Additional Information – Exchange Controls,” and Item 10, “Additional Information – Taxation.”

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B. Significant Changes

None

ITEM 9.  THE OFFER AND LISTING

A. Offer and Listing Details.

The Company’s Common Shares are quoted on the NASDAQ Capital Market and on the TASE under the symbol “SPNS”.

NASDAQ:

The table below sets forth the high and low market prices (in US dollars) for our Common Shares on the NASDAQ Capital Market on an annual basis for the years 2007 through 2011, and on the NASDAQ Capital Market on a quarterly basis for 2009, 2010, 2011, and the first three months of 2012.

	HIGH		LOW
2007 (Annual)		3.66		1.20
2008 (Annual)		2.40		0.82
2009 (Annual)		2.00		0.76
2010 (Annual )		3.20		1.33
2011 (Annual)		4.74		2.31
2012 (Annual through March 31, 2012)		4.33		3.03
2009
First Quarter	$	2.00	$	0.76
Second Quarter		1.44		0.76
Third Quarter		1.27		0.85
Fourth Quarter		1.95		1.01
2010
First Quarter	$	2.20	$	1.33
Second Quarter		3.20		1.91
Third Quarter		3.14		1.68
Fourth Quarter		2.90		2.21
2011
First Quarter		4.74		2.31
Second Quarter		4.07		2.96
Third Quarter		4.37		2.67
Fourth Quarter		4.20		2.72

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The table below sets forth the high and low market prices for our Common Shares on the NASDAQ Capital Market on a monthly basis during the most recent six-month period.

	HIGH		LOW
October  2011		3.68		2.75
November  2011		4.20		3.18
December  2011		3.85		2.72
January  2012		4.33		3.62
February  2012		4.25		3.81
March 2012		4.08		3.03

The closing price of our Common Shares on the NASDAQ Capital Market on March 31, 2012, being the last practicable date prior to publication of this annual report, was $3.52.

TASE:

Our Common Shares began trading on the TASE effective March 6, 2003. Under current Israeli law, the Company will satisfy its reporting obligations in Israel by furnishing to the applicable Israeli regulators those reports which the Company is required to file or submit in the United States. The table below sets forth the high and low market prices, in US dollars, for our Common Shares on the TASE on an annual basis for the years 2007 through 2011 and on a quarterly basis for the years 2010 and 2011, and the first two months of 2012. The conversion from NIS into US dollars for the following two tables is based on the average monthly representative rate of exchange published by the Bank of Israel then in effect for the month in which such high or low price per share was recorded.

	HIGH		LOW
2007 (Annual)		3.89		0.97
2008 (Annual)		2.31		0.88
2009 (Annual)		2.06		0.92
2010 (Annual)		3.30		1.30
2011 (Annual)		4.45		2.34
2012 (Annual) (through March 31, 2012)		4.24		3.05

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2010
First Quarter	$	2.21	$	1.30
Second Quarter		3.26		2.01
Third Quarter		3.02		2.06
Fourth Quarter		3.08		2.24
2011
First Quarter		4.42		2.44
Second Quarter		4.18		2.44
Third Quarter		4.26		3.08
Fourth Quarter		4.17		2.69

The table below sets forth the high and low market prices for our Common Shares on TASE during the most recent six-month period:

	HIGH		LOW
October 2011		3.73		2.73
November 2011		4.17		3.34
December  2011		3.97		2.76
January  2012		4.18		3.59
February  2012		4.24		3.92
March 2012		4.09		3.05

The closing price of our Common Shares on the TASE on March 31, 2012, being the last practicable date prior to publication of this annual report, was $3.36.

B. Plan of Distribution.

Not applicable.

C. Markets.

The Company’s Common Shares are listed on the NASDAQ Capital Market and on the TASE under the symbol “SPNS”.

D. Selling Shareholders.

Not applicable.

E. Dilution.

Not applicable.

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F. Expenses of the Issue.

Not applicable.

Item 10.  Additional Information

A. Share Capital.

Not applicable.

B. Memorandum and Articles of Association (the “Articles”).

1. Registration and Purposes. The Company is organized and existing under the laws of Curaçao. Its registered number is 53368.

The objects and purposes of the Company, which are itemized in Article II of the Articles, may be summarized as follows:

· to establish, participate in or have any other interest in business enterprises concerned with the development and commercial operation of software;

· to finance directly or indirectly the activities of the Company, its subsidiaries and affiliates;

· to borrow and to lend moneys;

· to engage in the purchase and sale of securities, futures, real estate, business debts, commodities and intellectual property;

· to undertake, conduct and promote research and development;

· to guarantee, pledge, mortgage or otherwise encumber assets as security for the obligations of the Company or third parties; and

· to do all that may be useful or necessary for the attainment of the above purposes.

2. Board of Directors. A member of the Board of Directors may vote on a proposal or transaction in which he/she has a material interest if the material facts as to the director’s self-interest are disclosed to the Board of Directors. Neither the Articles nor Curaçao law requires a majority of the disinterested directors to authorize the proposal or transaction. Members of the Board of Directors have the power to vote compensation to themselves, even if they lack an independent quorum.

The Articles do not grant borrowing powers to directors; nor do they require directors to resign at a certain age or to purchase a certain number of Common Shares.

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3. Rights and Preferences. The Company has only one class of shares of common stock, the Common Shares, currently outstanding. All previous issuances of preferred shares have been converted into Common Shares. The rights and preferences of the holders of Common Shares are summarized below. The Articles authorize a class of undefined preferred shares (the “Blank Preferred Shares”). There are no rights associated with the Blank Preferred Shares and none have been issued.

(a) Common Shares

Holders of the Common Shares are entitled to one vote for each whole share on all matters to be voted upon by shareholders, including the election of directors. Holders of the Common Shares do not have cumulative voting rights in the election of directors. All Common Shares are equal to each other with respect to liquidation and dividend rights. Holders of the Common Shares are entitled to receive dividends, subject to shareholder approval, out of funds legally available under Curaçao law. See “Dividend Policy” below. In the event of the liquidation of the Company, all assets available for distribution to the holders of the Common Shares are distributable among them according to their respective holdings, subject to the preferences of any shares having a preference upon liquidation that may be then outstanding. Holders of the Common Shares have no preemptive rights to purchase any additional, unissued Common Shares. The foregoing summary of the Common Shares does not purport to be complete and is subject to, and qualified in its entirety by, the provisions of the Articles.

(b) Dividend Policy

The Company has never declared or paid any cash dividends on its Common Shares and does not anticipate paying cash dividends in the foreseeable future. It is the present intention of the Company’s Board of Directors to retain all earnings in the Company in order to support the future growth of its business. Any determination in the future to pay dividends will be dependent upon the Company’s consolidated results of operations, financial condition, cash requirements, future prospects and other factors. In addition, the ability of the Company to pay dividends is subject to the limitations of the Corporate Law of Curaçao, which provides, among other things, that dividends, while permitted to be paid periodically during a fiscal year, are subject to being proposed by the Board of Directors of the Company and approved thereafter at the General Meeting of Shareholders. The Corporate Law of Curaçao also provides that a distribution of dividends can only occur if, at the moment of distribution, the equity of the Company equals at least the nominal capital of the Company and, as a result of the distribution, will not fall below the nominal capital. Nominal capital is the sum of the par values of all of the issued shares of the Company’s capital stock at any moment in time.

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(c) The Blank Preferred Shares

There are no preferences or any rights whatsoever associated with the Blank Preferred Shares. These shares are unissued and are not owned by any of the current shareholders of the Company. Any issuance of these preferred shares is solely within the discretion of the Company’s Board of Directors. The Company has undertaken toward the TASE that so long as its Common Shares are listed for trading on the TASE, the Company shall not issue or grant any shares of a different class of shares than those that are listed for trading on the TASE. This undertaking does not apply to Preferred Shares as defined in Section 46B(b) of the Israel Securities Law, on the condition that such Preferred Shares are issued in accordance with the conditions set forth in Section 46A(1) therein.

4. Changing the Rights of the Shareholders. The general meeting of shareholders decides upon any change in the Articles. A resolution to amend the Articles requires the approval of the absolute majority of all shares outstanding and entitled to vote.

5. General Meetings. At least one general meeting of shareholders must be held each year. General meetings must be held in Curaçao. Special general meetings of shareholders may be called at any time by the Chairman of the Board or by the Board of Directors upon no less than 10 nor more than 60 days’ written notice to the Company’s shareholders. Every shareholder has the right to attend any meeting of shareholders in person or by proxy and to address the meeting. No action may be taken at any meeting of shareholders unless a quorum consisting of holders of at least one-half of the shares outstanding and entitled to vote are present at the meeting in person or by proxy.

6. Limitations to Own Securities. The Articles contain no limits on the right to own securities.

7. Change of Control. The Articles contain no provisions that would prevent or delay a change of control of the Company.

8. Disclosure of Ownership. By-laws do not exist under Curaçao law. The Articles contain no provisions requiring a shareholder to disclose his or her interest at a certain time; however, holders of our shares are subject to the reporting provisions of the Securities and Exchange Commission.

C. Material Contracts

Share Purchase Agreement

On July 21, 2011, we, Sapiens Technologies (1982) Ltd., our Israeli wholly-owned subsidiary ("Purchaser"), IDIT, the shareholders of IDIT (the "IDIT Selling Shareholders"), Amit Ben-Yehuda, as the IDIT Shareholder Representative, FIS, the shareholders of FIS (the "FIS Selling Shareholders") and Dan Goldstein as the Shareholders Representative, entered into a Share Purchase Agreement (the "Share Purchase Agreement"). Under the terms of the Share Purchase Agreement, the Purchaser agreed to purchase all of the share capital (on a fully diluted basis) of each of IDIT and FIS (each, an "Acquisition" and together, the "Acquisitions").

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The consideration paid under the Share Purchase Agreement to the FIS Selling Shareholders was composed of $6.75 million in cash (payable to two of the FIS Selling Shareholders), 10,016,875 newly issued Common Shares and warrants to purchase an aggregate of 1,000,000 newly issued Common Shares (issuable to two of the FIS Selling Shareholders). The consideration to be paid under the Share Purchase Agreement to the IDIT Selling Shareholders is composed of 7,483,125 newly issued Common Shares.

In addition to the purchase of IDIT's and FIS' share capital, we agreed to replace all options to purchase ordinary shares of IDIT and FIS that were outstanding as of the closing of the respective Acquisition with options to purchase Common Shares under our new 2011 option plan, according to conversation ratios set forth in the Share Purchase Agreement. See Item 6(B) “2011 Share Incentive Plan” above.

The Share Purchase Agreement includes customary representations, warranties and covenants of the parties, as well as certain indemnification and escrow arrangements. The parties have agreed on the terms pursuant to which a representative of Kardan is to be appointed to our board of directors.

The Acquisitions were consummated on August 21, 2011.

Pursuant to the Share Purchase Agreement, upon consummation of the IDIT Transaction, 10% of the Common Shares issued to the IDIT Selling Shareholders were placed in escrow with an escrow agent for a period of 12 months after the closing to secure the indemnification and other obligation of the IDIT Selling Shareholders to the Purchaser pursuant to the Share Purchase Agreement. During the escrow period, the IDIT Selling Shareholders will have the right to vote their respective Common Shares that were placed in escrow. Upon consummation of the FIS Transaction, 10% of the Common Shares issued to the FIS Selling Shareholders were placed in escrow with an escrow agent for a period of 12 months after the closing to secure the indemnification and other obligations of the FIS Selling Shareholders to the Purchaser pursuant to the Share Purchase Agreement. During the escrow period, the FIS Selling Shareholders shall have the right to vote its Common Shares that were placed in escrow.

Agreement with Menora

In 2011, we entered into a new agreement with Menora Insurance, an Israeli insurance and financial services provider (the "Menora Agreement"). The term of the Menora Agreement is 4 years. Under the Menora Agreement, the services provided are based upon an annual budget provided to us by Menora pursuant to which Menora purchases from us mainly consulting services, which are to be provided over the course of the relevant year. The agreement includes fixed time and material billing rates for consulting services, maintenance services for the licensed software, an escrow arrangement and also a royalty payment arrangement in favor of Menora in case we outlicense a similar solution (that includes all the specific features developed in the course of the Menora Agreement) to other third parties in the future. Under the Menora Agreement, Menora will have to compensate us if it did not meet the targeted budget during the course of the 4 year term.

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D. Exchange Controls

Although there are Curaçao laws which may impose foreign exchange controls on the Company and may affect the payment of dividends, interest or other payments to non-resident holders of the Company’s securities, including the Common Shares, the Company has been granted an exemption from such foreign exchange control regulations by the Central Bank of Curaçao. Other jurisdictions in which the Company conducts operations may have various currency or exchange controls. In addition, the Company is subject to the risk of changes in political conditions or economic policies which could result in new or additional currency or exchange controls or other restrictions being imposed on the operations of the Company. As to the Company’s securities, Curaçao law and the Articles impose no limitations on the right of non-resident or foreign owners to hold or vote such securities.

E. Taxation

Israeli Tax Considerations and Government Programs

The following is a general discussion only and is not exhaustive of all possible tax considerations. It is not intended, and should not be construed, as legal or professional tax advice and should not be relied upon for tax planning purposes. In addition, this discussion does not address all of the tax consequences that may be relevant to purchasers of our Common Shares in light of their particular circumstances, or certain types of purchasers of our Common Shares subject to special tax treatment. Examples of this kind of investor include residents of Israel and traders in securities who are subject to special tax regimes not covered in this discussion. Each individual/entity should consult its own tax or legal advisor as to the Israeli tax consequences of the purchase, ownership and disposition of our Common Shares.

To the extent that part of the discussion is based on new tax legislation, which has not been subject to judicial or administrative interpretation, we cannot assure you that the tax authorities or the courts will accept the views expressed in this section.

The following summary describes the current tax structure applicable to companies in Israel, with special reference to its effect on us. The following also contains a discussion of the material Israeli tax consequences to holders of our Common Shares.

General Corporate Tax Structure

Generally, in 2011, Israeli companies were subject to a corporate tax at the rate of 24% of their taxable income for such year. The corporate tax rate was scheduled to decline to 23% in 2012, 22% in 2013, 21% in 2014, 20% in 2015 and 18% in 2016 and onwards. Recently, the Law for Change in the Tax Burden (Legislative Amendments) (Taxes). 2011 (the “Tax Burden Law”), was published by the Government of Israel. The Tax Burden Law canceled the scheduled progressive reduction of the corporate tax rate and instead fixed the corporate tax rate at 25% from 2012 and onwards. However, the effective tax rate payable by a company that derives income from an Approved Enterprise, a Benefited Enterprise or Preferred Enterprise, as further discussed below, may be considerably less. See “Law for the Encouragement of Capital Investments” in this Item 10.E below.

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Beginning as of 2010, Israeli companies are subject to regular corporate tax rate for their capital gains. In 2009, Israeli companies were generally subject to capital gains tax at a rate of 25% for such gains (other than capital gains from the sale of listed securities derived by companies with respect to which the provisions of Section 6 of the Israeli Income Tax Law (Inflationary Adjustments) 5745-1985 (the “Inflationary Adjustments Law”), or the provisions of Section 130A of the Income Tax Ordinance, 1961 (the “Ordinance”), applied immediately before the 2006 tax reform came into force, which were instead subject to the regular corporate tax rate).

Besides being subject to the general corporate tax rules in Israel, certain of our Israeli subsidiaries have also, from time to time, applied for and received certain grants and tax benefits from, and participate in, programs sponsored by the Government of Israel, as described below.

Law for the Encouragement of Industry (Taxes), 1969

The Law for the Encouragement of Industry (Taxes), 5729-1969 (the “Industry Encouragement Law”) provides several tax benefits for an “Industrial Company”. Pursuant to the Industry Encouragement Law, a company qualifies as an Industrial Company if it is an Israeli resident and at least 90% of its income in any tax year (other than income from certain government loans) is generated from an “Industrial Enterprise” that it owns. An “Industrial Enterprise” is defined as an enterprise whose major activity, in a given tax year, is industrial production.

An Industrial Company is entitled to certain tax benefits, including:

§ Deduction of the cost of the purchases of patents, or the right to use a patent or know-how used for the development or promotion of the Industrial Enterprise, over an eight year period commencing on the year in which such rights were first exercised;

§ Straight-line deduction of expenses related to a public offering in equal amounts over a three-year period commencing on the year of offering; and

§ The right to elect, under certain conditions, to file a consolidated tax return with additional Israeli Industrial Companies controlled by it.

§ Accelerated depreciation rates on equipment and buildings.

Eligibility for benefits under the Industry Encouragement Law is not subject to receipt of prior approval from any governmental authority.

We believe that certain of our Israeli subsidiaries currently qualify as Industrial Companies within the definition under the Industry Encouragement Law. We cannot assure you that we will continue to qualify as Industrial Companies or that the benefits described above will be available in the future.

Law for the Encouragement of Capital Investments, 1959

The Law for the Encouragement of Capital Investments, 5719-1959 (the “Investment Law”), provides certain incentives for capital investments in a production facility (or other eligible assets). Generally, an investment program that is implemented in accordance with the provisions of the Investment Law, referred to as an “Approved Enterprise”, is entitled to benefits. These benefits may include cash grants from the Israeli government and tax benefits, based upon, among other things, the location of the facility in which the investment is made or the election of the grantee. In order to qualify for these incentives, an Approved Enterprise is required to comply with the requirements of the Investment Law.

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The Investment Law has been amended several times over the last years, with the two most significant changes effective as of April 1, 2005 (the “2005 Amendment”), and as of January 1, 2011 (the “2011 Amendment”). Pursuant to the 2005 Amendment, tax benefits granted in accordance with the provisions of the Investment Law prior to its revision by the 2005 Amendment remain in force but any benefits granted subsequently are subject to the provisions of the amended Investment Law. Similarly, the 2011 Amendment introduced new benefits instead of the benefits granted in accordance with the provisions of the Investment Law prior to the 2011 Amendment, yet companies entitled to benefits under the Investment Law as in effect up to January 1, 2011 may choose to continue to enjoy such benefits, provided that certain conditions are met, or elect instead to forego such benefits and elect the benefits of the 2011 Amendment.

The following discussion is a summary of the Investment Law prior to its amendments as well as the relevant changes contained in the new legislation.

Tax benefits for Approved Enterprises approved before April 1, 2005. Under the Investment Law prior to its amendment, a company that wished to receive benefits had to receive an approval from the Investment Center of the Israeli Ministry of Industry, Trade and Labor, which we refer to as the Investment Center. Each certificate of approval for an Approved Enterprise relates to a specific investment program in the Approved Enterprise, delineated both by the financial scope of the investment and by the physical characteristics of the facility or the asset.

An Approved Enterprise may elect to forego any entitlement to the grants otherwise available under the Investment Law and, instead, participate in an alternative benefits program. Certain of our Israeli subsidiaries have chosen to receive the benefits through the alternative benefits track with respect to their respective programs. Under the alternative benefits track, a company’s undistributed income derived from an Approved Enterprise will be exempt from corporate tax for a period of between two and ten years from the first year of taxable income, depending upon the geographic location within Israel of the Approved Enterprise. The benefits commence on the date in which that taxable income is first earned. Upon expiration of the exemption period, the Approved Enterprise is eligible for the reduced tax rates otherwise applicable under the Investment Law for any remainder of the otherwise applicable benefits period. The benefits period under Approved Enterprise status is limited to 12 years from commencement of production, or 14 years from the date of the approval, whichever ends earlier. If a company has more than one Approved Enterprise program or if only a portion of its capital investments are approved, its effective tax rate is the result of a weighted combination of the applicable rates. The tax benefits from any certificate of approval relate only to taxable profits attributable to the specific Approved Enterprise. Income derived from activity that is not integral to the activity of the Approved Enterprise will not enjoy tax benefits. In our case, subject to compliance with applicable requirements stipulated in the Investment Law and its regulations and in the specific certificate of approval, as described above, the portion of certain of our Israeli subsidiaries’ undistributed income derived from their Approved Enterprise programs will be exempt from corporate tax for a period of two to four years, followed by five to eight years with reduced tax rate of 25% on income derived from Approved Enterprise investment programs. Because such subsidiaries have not yet generated any taxable income under any of their Approved Enterprise programs, however, the benefit periods for those programs have not yet commenced, and, accordingly, we have not yet reaped any tax benefits from those programs.

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A company that has an Approved Enterprise program is eligible for further tax benefits if it qualifies as a Foreign Investors’ Company, or FIC. An FIC eligible for benefits is essentially a company with a level of foreign investment, as defined in the Investment Law, of more than 25%. The level of foreign investment is measured as the percentage of rights in the company (in terms of shares, rights to profits, voting and appointment of directors), and of combined share and loan capital, that are owned, directly or indirectly, by persons who are not residents of Israel. The determination as to whether or not a company qualifies as an FIC is made on an annual basis. An FIC that has an Approved Enterprise program will be eligible for an extension of the period during which it is entitled to tax benefits under its Approved Enterprise status (so that the benefit periods may be up to ten years) and for further tax benefits if the level of foreign investment exceeds 49%. If a company that has an Approved Enterprise program is a wholly owned subsidiary of another company, then the percentage of foreign investment is determined based on the percentage of foreign investment in the parent company.

The tax rates and related levels of foreign investments with respect to an FIC that has an Approved Enterprise program are set forth in the following table:

Percentage of non-Israeli ownership	Tax Rate
Over 25% but less than 49%		25	%
49% or more but less than 74%		20	%
74% or more but less than 90%		15	%
90% or more		10	%

A company that has elected to participate in the alternative benefits program and that subsequently pays a dividend out of the income derived from the portion of its facilities that have been granted Approved Enterprise status during the tax exemption period will be required to recapture the deferred corporate tax applicable to the amount distributed (grossed up to reflect such tax) at the rate that would have been applicable had such income not been tax-exempted under the alternative route. This rate generally ranges from 10% to 25%, depending on the extent to which non-Israeli shareholders hold such company’s shares. Such company may also be required to record a deferred tax liability with respect to such tax-exempt income prior to its distribution.

In addition, dividends paid out of income generated by an Approved Enterprise (or out of dividends received from a company whose income is generated by an Approved Enterprise) are generally subject to withholding tax at the rate of 15%, or at the lower rate provided under an applicable tax treaty. The 15% tax rate is limited to dividends and distributions out of income derived during the benefits period and actually paid at any time up to 12 years thereafter. After this period, the withholding tax is applied at a rate of up to 30%, or at the lower rate under an applicable tax treaty. In the case of an FIC, the 12-year limitation on reduced withholding tax on dividends does not apply.

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The Investment Law also provides that an Approved Enterprise is entitled to accelerated depreciation on its property and equipment that are included in an approved investment program. This benefit is an incentive granted by the Israeli government regardless of whether the alternative benefits program is elected.

The benefits available to an Approved Enterprise are subject to the fulfillment of conditions stipulated in the Investment Law and its regulations and the criteria in the specific certificate of approval with respect thereto, as described above. If a company does not meet these conditions, it may be required to refund the amount of tax benefits, together with consumer price index linkage adjustment and interest.

Tax benefits under the 2005 Amendment that became effective on April 1, 2005. On April 1, 2005, the Israeli Parliament passed an amendment to the Investment Law, in which it revised the criteria for investments qualified to receive tax benefits. An eligible investment program under the 2005 Amendment will qualify for benefits as a Benefited Enterprise (rather than the previous terminology of Approved Enterprise). Among other things, the 2005 Amendment provides tax benefits to both local and foreign investors and simplifies the approval process.

The 2005 Amendment applies to new investment programs and investment programs commencing after 2004, and does not apply to investment programs approved prior to December 31, 2004. The 2005 Amendment provides that terms and benefits included in any certificate of approval that was granted before the 2005 Amendment came into effect will remain subject to the provisions of the Investment Law as in effect on the date of such approval. Pursuant to the 2005 Amendment, the Investment Center will continue to grant Approved Enterprise status to qualifying investments. However, the 2005 Amendment limits the scope of enterprises that may be approved by the Investment Center by setting criteria for the approval of a facility as an Approved Enterprise, such as provisions generally requiring that at least 25% of the Approved Enterprise’s income be derived from export.

The 2005 Amendment provides that the approval of the Investment Center is required only for Approved Enterprises that receive cash grants. As a result, a company is no longer required to obtain the advance approval of the Investment Center in order to receive tax benefits. Rather, a company may claim the tax benefits offered by the Investment Law directly in its tax returns, provided that its facilities meet the criteria for tax benefits set forth in the 2005 Amendment. A company that has a Benefited Enterprise may, at its discretion, approach the Israeli Tax Authority for a pre-ruling confirming that it is in compliance with the provisions of the Investment Law.

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Tax benefits are available under the 2005 Amendment to production facilities (or other eligible facilities) that derive more than 25% of their business income from export to specific markets with a population of at least 12 million. In order to receive the tax benefits, the 2005 Amendment states that a company must make an investment which meets all the conditions that are set out in the amendment for tax benefits and which exceeds a minimum amount specified in the Investment Law. Such investment entitles a company to a Benefited Enterprise status with respect to the investment, and may be made over a period of no more than three years ending at the end of the year in which the company requested to have the tax benefits apply to the Benefited Enterprise. Where a company requests to have the tax benefits apply to an expansion of existing facilities, only the expansion will be considered to be a Benefited Enterprise, and the company’s effective tax rate will be the weighted average of the applicable rates. In such case, the minimum investment required in order to qualify as a Benefited Enterprise must exceed a certain percentage of the value of the company’s production assets before the expansion.

The extent of the tax benefits available under the 2005 Amendment to qualifying income of a Benefited Enterprise are determined, among other things, by the geographic location of the Benefited Enterprise. Such tax benefits include an exemption from corporate tax on undistributed income for a period of between two to ten years, depending on the geographic location of the Benefited Enterprise within Israel, and a reduced corporate tax rate of between 10% to 25% for the remainder of the benefit period, depending on the level of foreign investment in the company in each year, as explained above.

Dividends paid out of income derived by a Benefited Enterprise (or out of dividends received from a company whose income is derived from a Benefited Enterprise) are generally subject to withholding tax at the rate of 15% or such lower rate as may be provided in an applicable tax treaty. The reduced rate of 15% is limited to dividends and distributions out of income derived from a Benefited Enterprise during the benefits period and actually paid at any time up to 12 years thereafter, except with respect to a qualified FIC, in which case the 12-year limit does not apply. A company qualifying for tax benefits under the 2005 Amendment which pays a dividend out of income derived by its Benefited Enterprise during the tax exemption period will be subject to corporate tax at a rate otherwise applicable to the company in the year the income was earned (i.e., 25%, or lower in the case of an FIC which is at least 49% owned by non-Israeli residents) on an amount consisting of such divided amount, grossed up by the otherwise applicable corporate tax rate. Such company may also be required to record a deferred tax liability with respect to such tax-exempt income prior to its distribution.

The benefits available to a Benefited Enterprise are subject to the fulfillment of conditions stipulated in the Investment Law and its regulations. If a company does not meet these conditions, it may be required to refund the amount of tax benefits, together with consumer price index linkage adjustment and interest, or other monetary penalty.

To date, one of our Israeli subsidiaries has a Benefited Enterprise but it did not utilized any tax benefits, since it has carryforward losses for tax purposes.

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Tax benefits under the 2011 Amendment that became effective on January 1, 2011. The 2011 Amendment canceled the availability of the benefits granted in accordance with the provisions of the Investment Law prior to 2011 and, instead, introduced new benefits for income generated by a “Preferred Company” through its Preferred Enterprise (as such term is defined in the Investment Law) effective as of January 1, 2011 and onward. A Preferred Company is defined as either (i) a company incorporated in Israel and not fully owned by a governmental entity or (ii) a limited partnership (a) that was registered under the Israeli Partnerships Ordinance and (b) all limited partners of which are companies incorporated in Israel, but not all of them are governmental entities, which, in the case of the company and companies referenced in clauses (i) and (ii)(b), have, among other things, Preferred Enterprise status and are controlled and managed from Israel. Pursuant to the 2011 Amendment, a Preferred Company is entitled to a reduced corporate tax rate of 15% with respect to its preferred income derived by its Preferred Enterprise in 2011-2012, unless the Preferred Enterprise is located in a certain development zone, in which case the rate will be 10%. Such corporate tax rate will be reduced to 12.5% and 7%, respectively, in 2013-2014 and to 12% and 6% in 2015 and thereafter, respectively. Income derived by a Preferred Company from a ‘Special Preferred Enterprise’ (as such term is defined in the Investment Law) would be entitled, during a benefits period of 10 years, to further reduced tax rates of 8%, or to 5% if the Special Preferred Enterprise is located in a certain development zone.

Dividends paid out of income attributed to a Preferred Enterprise are generally subject to withholding tax at source at the rate of 15% or such lower rate as may be provided in an applicable tax treaty. However, if such dividends are paid to an Israeli company, no tax will be withheld.

The 2011 Amendment also provided transitional provisions to address companies already enjoying current benefits. These transitional provisions provide, among other things, that: (i) terms and benefits included in any certificate of approval that was granted to an Approved Enterprise, which chose to receive grants, before the 2011 Amendment came into effect, will remain subject to the provisions of the Investment Law as in effect on the date of such approval, while the 25% tax rate applied to income derived by an Approved Enterprise during the benefit period will be replaced with the regular corporate income tax rate (24% in 2011 and 25% in 2012), unless a request is made to apply the provisions of the Investment Law as amended in 2011 with respect to income to be derived as of January 1, 2011 (such request should have been made by way of an application to the Israeli Tax Authority by June 30, 2011 and may not be withdrawn); and (ii) terms and benefits included in any certificate of approval that was granted to an Approved Enterprise, which had participated in an alternative benefits program, before the 2011 Amendment came into effect will remain subject to the provisions of the Investment Law as in effect on the date of such approval, provided that certain conditions are met. However, a company that has such Approved Enterprise can file a request with the Israeli Tax Authority, according to which its income derived as of January 1, 2011 will be subject to the provisions of the Investment Law, as amended in 2011; and (iii) a Benefited Enterprise can elect to continue to benefit from the benefits provided to it before the 2011 Amendment came into effect, provided that certain conditions are met, or file a request with the Israeli Tax Authority according to which its income derived as of January 1, 2011 will be subject to the provisions of the Investment Law as amended in 2011. Our Israeli subsidiaries did not file a request to apply the new benefits under the 2011 Amendment.

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Special Provisions Relating to Taxation under Inflationary Conditions

The Inflationary Adjustments Law represents an attempt to overcome the problems presented to a traditional tax system by an economy with high inflation rates. Under the Inflationary Adjustments Law, taxable results of Israeli companies through, and including, the year 2007 were measured on a real basis, taking into account the rate of change in the Israeli consumer price index, or CPI. Subject to certain transitional provisions, the Inflationary Adjustments Law was repealed as of January 1, 2008.

As of tax-year 2005, our Israeli subsidiaries elected to measure their taxable income and file their tax returns under the Israeli Income Tax Regulations (Principles Regarding the Management of Books of Account of Foreign Invested Companies and Certain Partnerships and the Determination of Their Taxable Income), 1986. Therefore, as of tax-year 2005, taxable income of each Israeli subsidiary is measured in terms of dollar. Each year we submit a request to the Israeli tax authority to extend the effect of the above tax regulations on our company for an additional year.

Tax Benefits for Research and Development

Israeli tax law allows, under specified conditions, a tax deduction for research and development expenditures, including capital expenditures, for the year in which they are incurred.  Such expenditures must relate to scientific research and development projects, and must be approved by the relevant Israeli government ministry, determined by the field of research.  Furthermore, the research and development must be for the promotion of the company’s business and carried out by or on behalf of the company seeking such tax deduction.  However, the amount of such deductible expenses is reduced by the sum of any funds received through government grants for the finance of such scientific research and development projects.  Expenditures not so approved by the relevant Israeli government ministry, but otherwise qualifying for deduction, are deductible over a three-year period.

Transfer Pricing

As part of the Israeli 2003 tax reform, the Israeli Tax Ordinance was amended to include section 85A, dealing with international transactions transfer pricing. Section 85A provides that regardless of the actual conditions of an international transaction between related parties, the transaction shall be reported and taxed, based on the arm’s length standard, i.e., based on market conditions in similar transactions between unrelated parties. On October 30, 2006, the Income Tax Regulations (Determination of Market Conditions) (the “Regulations”), which provide instructions for the implementation of section 85A, came into effect.

In accordance with the Regulations, a transaction shall be considered an international transaction if one of the parties is a “foreign resident” as defined thereunder or if the income generated from such transaction, in all or in part, is taxed both in and outside of Israel. The Regulations establish acceptable methods for comparison between transactions, and methods for calculating the price range against which the transaction is measured.

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Taxpayers are required to include in their yearly income tax returns a report regarding their international transactions at arm’s length prices. The transfer pricing regulations have not had a material effect on the Company.

Israeli Taxation Considerations for Our Shareholders

The following is a short summary of the material provisions of the tax environment to which shareholders may be subject. This summary is based on the current provisions of tax law. To the extent that the discussion is based on new tax legislation that has not been subject to judicial or administrative interpretation, we cannot assure you that the views expressed in the discussion will be accepted by the appropriate tax authorities or the courts.

The summary does not address all of the tax consequences that may be relevant to all purchasers of our common shares in light of each purchaser’s particular circumstances and specific tax treatment. For example, the summary below does not address the tax treatment of residents of Israel and traders in securities who are subject to specific tax regimes. As individual circumstances may differ, holders of our common shares should consult their own tax adviser as to the United States, Israeli or other tax consequences of the purchase, ownership and disposition of common shares. The following is not intended, and should not be construed, as legal or professional tax advice and is not exhaustive of all possible tax considerations. Each individual should consult his or her own tax or legal adviser.

Tax Consequences Regarding Disposition of Our Common Shares

Overview

Israeli law generally imposes a capital gains tax on the sale of capital assets by residents of Israel, as defined for Israeli tax purposes, and on the sale of assets located in Israel, including shares in Israeli companies, by both residents and non-residents of Israel, unless a specific exemption is available or unless a tax treaty between Israel and the shareholder’s country of residence provides otherwise. The Ordinance distinguishes between the “Real Capital Gain” and the “Inflationary Surplus”. The Inflationary Surplus is a portion of the total capital gain which is equivalent to the increase of the relevant asset’s purchase price which is attributable to the increase in the Israeli consumer price index (CPI) or, in certain circumstances, a foreign currency exchange rate, between the date of purchase and the date of sale. The Real Capital Gain is the excess of the total capital gain over the Inflationary Surplus.

Israeli Resident Shareholders

Israeli Resident Individuals. Beginning as of January 1, 2006, the tax rate applicable to Real Capital Gain derived by Israeli individuals from the sale of shares which had been purchased on or after January 1, 2003, whether or not listed on a stock exchange, is 20%. However, if such a shareholder is considered a Substantial Shareholder (i.e., a person who holds, directly or indirectly, alone or together with another, 10% or more of any of the company’s “means of control” (including, among other things, the right to receive profits of the company, voting rights, the right to receive the company’s liquidation proceeds and the right to appoint a director)) at the time of sale or at any time during the preceding 12-month period, such gain will be taxed at the rate of 25%. Individual shareholders dealing with securities in Israel are taxed at their marginal tax rates applicable to business income (up to 45% in 2011, and up to 48% in 2012).

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Notwithstanding the foregoing, pursuant to the Tax Burden Law, the capital gain tax rate applicable to individuals was raised from 20% to 25% from 2012 and onwards (or from 25% to 30% if the selling individual shareholder is a Substantial Shareholder at any time during the 12-month period preceding the sale). With respect to assets (not shares that are listed on a stock exchange) purchased on or after January 1, 2003, the portion of the gain generated from the date of acquisition until December 31, 2011 will be subject to the previous capital gains tax rates (20% or 25%) and the portion of the gain generated from January 1, 2012 until the date of sale will be subject to the new tax rates (25% or 30%).

Israeli Resident Corporations. Under present Israeli tax legislation, the tax rate applicable to Real Capital Gain derived by Israeli resident corporations from the sale of shares of an Israeli company is the general corporate tax rate. As described above, recent changes in the law abolished the scheduled progressive reduction of the corporate tax rate and set the corporate tax rate at 25% from 2012 and onwards..

Non-Israeli Residents Shareholders

Israeli capital gain tax is imposed on the disposal of capital assets by a non-Israeli resident if such assets are either (i) located in Israel; (ii) shares or rights to shares in an Israeli resident company; or (iii) represent, directly or indirectly, rights to assets located in Israel, unless a tax treaty between Israel and the seller’s country of residence provides otherwise. As mentioned above, Real Capital Gain derived by a company is generally subject to tax at the corporate tax rate (24% in 2011 and 25% as of 2012) or, if derived by an individual, at the rate of 20% (25% as of 2012), or 25% (30% as of 2012), if generated from an asset purchased on or after January 1, 2003. Individual and corporate shareholders dealing in securities in Israel are taxed at the tax rates applicable to business income (a corporate tax rate for a corporation and a marginal tax rateof up to 45% for an individual in 2011).

Notwithstanding the foregoing, shareholders who are non-Israeli residents (individuals and corporations) are generally exempt from Israeli capital gain tax on any gains derived from the sale, exchange or disposition of shares publicly traded on the Tel Aviv Stock Exchange or on a recognized stock exchange outside of Israel, provided, among other things, that (i) such gains are not generated through a permanent establishment that the non-Israeli resident maintains in Israel, (ii) the shares were purchased after being listed on a recognized stock exchange, and (iii) with respect to shares listed on a recognized stock exchange outside of Israel, such shareholders are not subject to the Inflationary Adjustments Law. However, non-Israeli corporations will not be entitled to the foregoing exemptions if an Israeli resident (a) has a controlling interest of 25% or more in such non-Israeli corporation, or (b) is the beneficiary of or is entitled to 25% or more of the revenues or profits of such non-Israeli corporation, whether directly or indirectly. Such exemption is not applicable to a person whose gains from selling or otherwise disposing of the shares are deemed to be business income.

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In addition, a sale of securities may be exempt from Israeli capital gain tax under the provisions of an applicable tax treaty. For example, under the U.S.-Israel Tax Treaty, which we refer to as the U.S-Israel Treaty, the sale, exchange or disposition of shares of an Israeli company by a shareholder who is a U.S. resident (for purposes of the U.S.-Israel Treaty) holding the shares as a capital asset is exempt from Israeli capital gains tax unless either (i) the shareholder holds, directly or indirectly, shares representing 10% or more of the voting capital during any part of the 12-month period preceding such sale, exchange or disposition; (ii) the shareholder, being an individual, has been present in Israel for a period or periods of 183 days or more in the aggregate during the applicable taxable year; or (iii) the capital gains arising from such sale are attributable to a permanent establishment of the shareholder which is maintained in Israel. In either case, the sale, exchange or disposition of such shares would be subject to Israeli tax, to the extent applicable; however, under the U.S.-Israel Treaty, a U.S. resident would be permitted to claim a credit for the Israeli tax against the U.S. federal income tax imposed with respect to the sale, exchange or disposition, subject to the limitations in U.S. laws applicable to foreign tax credits. The U.S-Israel Treaty does not provide such credit against any U.S. state or local taxes.

Payors of consideration for traded securities, like our common shares, including the purchaser, the Israeli stockbroker effectuating the transaction, or the financial institution through which the sold securities are held, are required, subject to any of the foregoing exemptions and the demonstration of a shareholder regarding his, her or its foreign residency, to withhold tax upon the sale of publicly traded securities from the consideration or from the Real Capital Gain derived from such sale, as applicable, at the rate of 25%.

Taxes Applicable to Dividends

Israeli Resident Shareholders

Israeli Resident Individuals. Israeli residents who are individuals are generally subject to Israeli income tax for dividends paid on our common shares (other than bonus shares or share dividends) at 20%, or 25% if the recipient of such dividend is a Substantial Shareholder at the time of distribution or at any time during the preceding 12-month period. Pursuant to the Tax Burden Law, as of 2012 such tax rate is 25%, or 30% if the dividend recipient is a Substantial Shareholder at the time of distribution or at any time during the preceding 12-month period. However, dividends distributed from taxable income accrued during the period of benefit of an Approved Enterprise, Benefited Enterprise or Preferred Enterprise are subject to withholding tax at the rate of 15%, if the dividend is distributed during the tax benefit period under the Investment Law or within 12 years after that period. An average rate will be set in case the dividend is distributed from mixed types of income (regular and Approved/ Benefited/ Preferred income).

Israeli Resident Corporations. Israeli resident corporations are generally exempt from Israeli corporate tax for dividends paid on our common shares.

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Non-Israeli Resident Shareholders

Non-Israeli residents (whether individuals or corporations) are generally subject to Israeli withholding tax on the receipt of dividends paid for publicly traded shares, like our common shares, at the rate of 20% (25% as of 2012, so long as the shares are registered with a Nominee Company) or 15% if the dividend is distributed from income attributed to our Approved Enterprises, unless a reduced rate is provided under an applicable tax treaty. For example, under the U.S-Israel Treaty, the maximum rate of tax withheld in Israel on dividends paid to a holder of our common shares who is a U.S. resident (for purposes of the U.S.-Israel Treaty) is 25%. However, generally, the maximum rate of withholding tax on dividends that are paid to a U.S. corporation holding at least 10% or more of our outstanding voting capital from the start of the tax year preceding the distribution of the dividend through (and including) the distribution of the dividend, is 12.5%, provided that no more than 25% of our gross income for such preceding year consists of certain types of dividends and interest. Notwithstanding the foregoing, dividends distributed from income attributed to an Approved Enterprise, a Benefited Enterprise or a Preferred Enterprise are subject to a withholding tax rate of 15% for such a U.S. corporation shareholder, provided that the condition related to our gross income for the previous year (as set forth in the previous sentence) is met. If the dividend is attributable partly to income derived from an Approved Enterprise, a Benefitted Enterprise or a Preferred Enterprise, and partly to other sources of income, the withholding rate will be a blended rate reflecting the relative portions of the two types of income. U.S residents who are subject to Israeli withholding tax on a dividend may be entitled to a credit or deduction for U.S. federal income tax purposes in the amount of the taxes withheld, subject to detailed rules contained in United States tax legislation.

A non-Israeli resident who receives dividends from which tax was withheld is generally exempt from the obligation to file tax returns in Israel with respect to such income, provided that (i) such income was not generated from business conducted in Israel by the taxpayer, and (ii) the taxpayer has no other taxable sources of income in Israel with respect to which a tax return is required to be filed.

Payors of dividend on our common shares, including the Israeli stockbroker effectuating the transaction, or the financial institution through which the securities are held, are required, subject to any of the foregoing exemptions and the demonstration of a shareholder regarding his, her or its foreign residency, to withhold tax upon the distribution of dividend at the rate of 25%, so long as the shares are registered with a Nominee Company (for corporations and individuals).

Taxation of Investments

The following discussion is a summary of certain anticipated tax consequences of an investment in the Common Shares under Curaçao tax laws, US federal income tax laws and Israeli laws. The discussion does not deal with all possible tax consequences relating to an investment in the Common Shares. In particular, the discussion does not address the tax consequences under state, local and other (e.g., non-US, non-Netherlands Antilles, non-Israel) tax laws. Accordingly, each prospective investor should consult its tax advisor regarding the tax consequences of an investment in the Common Shares. The discussion is based upon laws and relevant interpretations thereof in effect as of the date of this annual report on Form 20-F, all of which are subject to change.

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Curaçao Taxation

Under the laws of Curaçao as currently in effect, a holder of Common Shares who is not a resident of, and during the taxable year has not engaged in trade or business through a permanent establishment in, Curaçao, will not be subject to Curaçao income tax on dividends paid with respect to the Common Shares or on gains realized during that year on sale or disposal of such shares; Curaçao does not impose a withholding tax on dividends paid by the Company. Under Curaçao law, no gift or inheritance taxes are levied if, at the time of such gift or at the time of death, the relevant holder of Common Shares was not domiciled in Curaçao.

U.S. Federal Income Tax Considerations

Subject to the limitations described herein, this discussion summarizes certain U.S. federal income tax consequences of the purchase, ownership and disposition of our Common Shares to a U.S. holder. A U.S. holder is a holder of our Common Shares who is:

· an individual who is a citizen or resident of the U.S. for U.S. federal income tax purposes;

· a corporation (or another entity taxable as a corporation for U.S. federal income tax purposes) created or organized under the laws of the United States, any political subdivision thereof, or the District of Columbia;

· an estate, the income of which may be included in gross income for U.S. federal income tax purposes regardless of its source; or

· a trust (i) if, in general, a U.S. court is able to exercise primary supervision over its administration and one or more U.S. persons have the authority to control all of its substantial decisions or (ii) an electing trust that was in existence on August 19, 1996 and was treated as a domestic trust on that date.

Unless otherwise specifically indicated, this discussion does not consider the U.S. tax consequences to a person that is not a U.S. holder (a “non-U.S. holder”) and considers only U.S. holders that will own our Common Shares as capital assets (generally, for investment).

This discussion is based on current provisions of the Internal Revenue Code of 1986, as amended (the “Code”), current and proposed Treasury Regulations promulgated under the Code and administrative and judicial interpretations of the Code, all as currently in effect and all of which are subject to change, possibly with a retroactive effect. This discussion does not address all aspects of U.S. federal income taxation that may be relevant to any particular U.S. holder based on the U.S. holder’s particular circumstances. In particular, this discussion does not address the U.S. federal income tax consequences to U.S. holders who are broker-dealers, insurance companies, real estate investment trusts, regulated investment companies, grantor trusts, individual retirement and tax-deferred accounts, certain former citizens or long-term residents of the U.S., tax-exempt organizations, financial institutions , “financial service entities”or who own, directly, indirectly or constructively, 10% or more of our outstanding voting shares, U.S. holders holding our Common Shares as part of a hedging, straddle or conversion transaction, U.S. holders whose functional currency is not the U.S. dollar, U.S. holders that acquired our Common Shares upon the exercise of employee stock options or otherwise as compensation, and U.S holders who are persons subject to the alternative minimum tax, who may be subject to special rules not discussed below.

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Additionally, the tax treatment of persons who are, or hold our Common Shares through a partnership or other pass-through entity is not considered, nor is the possible application of U.S. federal estate or gift taxes or any aspect of state, local or non-U.S. tax laws.

You are advised to consult your tax advisor with respect to the specific U.S. federal, state, local and foreign tax consequences of purchasing, holding or disposing of our Common Shares.

Taxation of Distributions on Common Shares

Subject to the discussion below under “Tax Consequences if We Are a Passive Foreign Investment Company,” a distribution paid by us with respect to our Common Shares to a U.S. holder will be treated as dividend income to the extent that the distribution does not exceed our current and accumulated earnings and profits, as determined for U.S. federal income tax purposes.

For the taxable years of 2011 and 2012, dividends that are received by U.S. holders that are individuals, estates or trusts will generally qualify for a 15% reduced maximum tax rate, provided that such dividends meet the requirements of “qualified dividend income.” Unless the reduced rate provision is extended or made permanent or other changes are made by subsequent legislation, for tax years beginning on or after January 1, 2013, dividends will be taxed at regular ordinary income rates.” For this purpose, qualified dividend income generally includes dividends paid by a foreign corporation if certain holding period and other requirements are met and either (a) the stock of the foreign corporation with respect to which the dividends are paid is “readily tradable” on an established securities market in the U.S. (e.g., the NASDAQ Capital Market) or (b) the foreign corporation is eligible for benefits of a comprehensive income tax treaty with the U.S. which includes an information exchange program and is determined to be satisfactory by the U.S. Secretary of the Treasury. The United States Internal Revenue Service (“IRS”) has determined that the U.S.-Netherlands Antilles income tax treaty is not a comprehensive income tax treaty for this purpose. Dividends that fail to meet such requirements and dividends received by corporate U.S. holders are taxed at ordinary income rates. No dividend received by a U.S. holder will be a qualified dividend (i) if the U.S. holder held the Common Share with respect to which the dividend was paid for less than 61 days during the 121-day period beginning on the date that is 60 days before the ex-dividend date with respect to such dividend, excluding for this purpose, under the rules of Code Section 246(c), any period during which the U.S. holder has an option to sell, is under a contractual obligation to sell, has made (and not closed) a short sale of, is the grantor of a deep-in-the-money or otherwise nonqualified option to buy, or has otherwise diminished its risk of loss by holding other positions with respect to, such Common Share (or substantially identical securities); or (ii) to the extent that the U.S. holder is under an obligation (pursuant to a short sale or otherwise) to make related payments with respect to positions in property substantially similar or related to the Common Share with respect to which the dividend is paid. If we were to be a “passive foreign investment company” (as such term is defined in the Code), or “PFIC”, for any taxable year, dividends paid on our Common Shares in such year or in the following taxable year would not be qualified dividends. See the discussion below regarding our PFIC status under “Tax Consequences if We Are a Passive Foreign Investment Company.” In addition, a non-corporate U.S. holder will be able to take qualified dividend income into account in determining its deductible investment interest (which is generally limited to its net investment income) only if it elects to do so; in such case the dividend income will be taxed at ordinary income rates.

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The amount of any distribution which exceeds the amount treated as a dividend will be treated first as a non-taxable return of capital, reducing the U.S. holder’s tax basis in our Common Shares to the extent thereof, and then as capital gain from the deemed disposition of the Common Shares. Corporate holders will not be allowed a deduction for dividends received in respect of the Common Shares.

Distributions of current or accumulated earnings and profits paid in foreign currency to a U.S. holder will be includible in the income of a U.S. holder in a U.S. dollar amount calculated by reference to the exchange rate on the day the distribution is received. A U.S. holder that receives a foreign currency distribution and converts the foreign currency into U.S. dollars subsequent to receipt may have foreign exchange gain or loss based on any appreciation or depreciation in the value of the foreign currency against the U.S. dollar, which will generally be U.S. source ordinary income or loss.

Taxation of the Disposition of Common Shares

Subject to the discussion below under “Tax Consequences if We Are a Passive Foreign Investment Company,” upon the sale, exchange or other disposition of our Common Shares, a U.S. holder will recognize capital gain or loss in an amount equal to the difference between the amount realized on the disposition and the U.S. holder’s tax basis in our Common Shares. The gain or loss recognized on the disposition of the Common Shares will be long-term capital gain or loss if the U.S. holder held the Common Shares for more than one year at the time of the disposition and would be eligible for a reduced rate of taxation for certain non-corporate U.S. holders (currently a maximum rate of 15% for taxable years for a holding period ending in taxable years beginning before January 1, 2013 and a maximum rate of 20% thereafter. Capital gain from the sale, exchange or other disposition of Common Shares held for one year or less is short-term capital gain and taxed as ordinary income. Gain or loss recognized by a U.S. holder on a sale, exchange or other disposition of our Common Shares generally will be treated as U.S. source income or loss. The deductibility of capital losses is subject to certain limitations.

A U.S. holder that uses the cash method of accounting calculates the dollar value of the proceeds received on the sale as of the date that the sale settles. However, a U.S. holder that uses the accrual method of accounting is required to calculate the value of the proceeds of the sale as of the trade date and may therefore realize foreign currency gain or loss. A U.S. holder that uses the accrual method may avoid realizing foreign currency gain or loss by electing to use the settlement date to determine the proceeds of sale for purposes of calculating the foreign currency gain or loss. In addition, a U.S. holder that receives foreign currency upon disposition of its Common Shares and converts the foreign currency into dollars after the settlement date or trade date (whichever date the U.S. holder is required to use to calculate the value of the proceeds of sale) may have foreign exchange gain or loss based on any appreciation or depreciation in the value of the foreign currency against the dollar, which will generally be U.S. source ordinary income or loss.

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Tax Consequences if We Are a Passive Foreign Investment Company

We would be a passive foreign investment company, or PFIC, for a taxable year if either (1) 75% or more of our gross income in the taxable year is passive income; or (2) the average percentage (by value determined on a quarterly basis) in a taxable year of our assets that produce, or are held for the production of, passive income is at least 50%. Passive income for this purpose generally includes, among other things, certain dividends, interest, royalties, rents and gains from commodities and securities transactions and from the sale or exchange of property that gives rise to passive income. If we own (directly or indirectly) at least 25% by value of the stock of another corporation, we would be treated for purposes of the foregoing tests as owning our proportionate share of the other corporation’s assets and as directly earning our proportionate share of the other corporation’s income. As discussed below, we believe that we were not a PFIC for 2010.

If we were a PFIC, each U.S. holder would (unless it made one of the elections discussed below on a timely basis) be taxable on gain recognized from the disposition of our Common Shares (including gain deemed recognized if our Common Shares are used as security for a loan) and upon receipt of certain excess distributions (generally, distributions that exceed 125% of the average amount of distributions in respect to such shares received during the preceding three taxable years or, if shorter, during the U.S. holder’s holding period prior to the distribution year) with respect to our Common Shares as if such income had been recognized ratably over the U.S. holder’s holding period for the shares. The U.S. holder’s income for the current taxable year would include (as ordinary income) amounts allocated to the current taxable year and to any taxable year prior to the first day of the first taxable year for which we were a PFIC. Tax would also be computed at the highest ordinary income tax rate in effect for each other taxable year to which income is allocated, and an interest charge on the tax as so computed would also apply. The tax liability with respect to the amount allocated to the taxable year prior to the taxable year of the distribution or disposition cannot be offset by any net operating losses. Additionally, if we were a PFIC, U.S. holders who acquire our Common Shares from decedents (other than nonresident aliens) would be denied the normally-available step-up in basis for such shares to fair market value at the date of death and, instead, would have a tax basis in such shares equal to the lesser of the decedent’s basis or the fair market value of such shares on the decedent's date of death. .

As an alternative to the tax treatment described above, a U.S. holder could elect to treat us as a “qualified electing fund” (a “QEF”), in which case the U.S. holder would be taxed, for each taxable year that we are a PFIC, on its pro rata share of our ordinary earnings and net capital gain (subject to a separate election to defer payment of taxes, which deferral is subject to an interest charge). Special rules apply if a U.S. holder makes a QEF election after the first taxable year in its holding period in which we are a PFIC. We have agreed to supply U.S. holders with the information needed to report income and gain under a QEF election if we were a PFIC. Amounts includable in income as a result of a QEF election will be determined without regard to our prior year losses or the amount of cash distributions, if any, received from us. A U.S. holder’s basis in its Common Shares will increase by any amount included in income and decrease by any amounts not included in income when distributed because such amounts were previously taxed under the QEF rules. So long as a U.S. holder’s QEF election is in effect with respect to the entire holding period for its Common Shares, any gain or loss realized by such holder on the disposition of its Common Shares held as a capital asset generally will be capital gain or loss. Such capital gain or loss ordinarily would be long-term if such U.S. holder had held such Common Shares for more than one year at the time of the disposition and would be eligible for a reduced rate of taxation for certain non-corporate U.S. holders (currently a maximum rate of 15% for a holding period ending in taxable years beginning before January 1, 2013 and a maximum rate of 20% thereafter). The QEF election is made on a shareholder-by-shareholder basis, applies to all Common Shares held or subsequently acquired by an electing U.S. holder and can be revoked only with the consent of the IRS.

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As an alternative to making a QEF election, a U.S. holder of PFIC stock that is “marketable stock” (e.g., “regularly traded” on the NASDAQ Capital Market) may, in certain circumstances, avoid certain of the tax consequences generally applicable to holders of stock in a PFIC by electing to mark the stock to market as of the beginning of such U.S. holder’s holding period for our Common Shares. Special rules apply if a U.S. holder makes a mark-to-market election after the first year in its holding period in which we are a PFIC. As a result of such an election, in any taxable year that we are a PFIC, a U.S. holder would generally be required to report gain or loss to the extent of the difference between the fair market value of the Common Shares at the end of the taxable year and such U.S. holder’s tax basis in such shares at that time. Any gain under this computation, and any gain on an actual disposition of our Common Shares in a taxable year in which we are PFIC, would be treated as ordinary income. Any loss under this computation, and any loss on an actual disposition of our Common Shares in a taxable year in which we are PFIC, would be treated as ordinary loss to the extent of the cumulative net-mark-to-market gain previously included. Any remaining loss from marking our Common Shares to market will not be allowed, and any remaining loss from an actual disposition of our Common Shares generally would be capital loss. A U.S. holder’s tax basis in its Common Shares is adjusted annually for any gain or loss recognized under the mark-to-market election. There can be no assurances that there will be sufficient trading volume with respect to our Common Shares for the Common Shares to be considered “regularly traded” or that our Common Shares will continue to trade on the NASDAQ Capital Market. Accordingly, there are no assurances that our Common Shares will be marketable stock for these purposes. As with a QEF election, a mark-to-market election is made on a shareholder-by-shareholder basis, applies to all Common Shares held or subsequently acquired by an electing U.S. holder and can only be revoked with consent of the IRS (except to the extent our Common Shares no longer constitute “marketable stock”).

Based on an analysis of our assets and income, we believe that we were not a PFIC for 2010. We currently expect that we will not be a PFIC in 2011. The tests for determining PFIC status are applied annually and it is difficult to make accurate predictions of future income and assets, which are relevant to this determination. Accordingly, there can be no assurance that we will not become a PFIC in any future taxable years. U.S. holders who hold our Common Shares during a period when we are a PFIC will be subject to the foregoing rules, even if we cease to be a PFIC, subject to certain exceptions for U.S. holders who made QEF, mark-to-market or certain other special elections. U.S. holders are urged to consult their tax advisors about the PFIC rules, including the consequences to them of making a mark-to-market or QEF election with respect to our Common Shares in the event that we qualify as a PFIC.

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Non-U.S. holders of Common Shares

Except as provided below, a non-U.S. holder of our Common Shares will not be subject to U.S. federal income or withholding tax on the receipt of dividends on, or the proceeds from the disposition of, our Common Shares, unless, in the case of U.S. federal income taxes, that item is effectively connected with the conduct by the non-U.S. holder of a trade or business in the United States and, in the case of a resident of a country which has an income tax treaty with the United States, such item is attributable to a permanent establishment in the United States or, in the case of an individual, a fixed place of business in the United States. In addition, gain recognized on the disposition of our Common Shares by an individual non-U.S. holder will be subject to tax in the United States if the non-U.S. holder is present in the United States for 183 days or more in the taxable year of the sale and certain other conditions are met.

Information Reporting and Backup Withholding

A U.S. holder generally is subject to information reporting and may be subject to backup withholding at a rate of up to 28% (through 2010) with respect to dividend payments on, or receipt of the proceeds from the disposition of, our Common Shares. Backup withholding will not apply with respect to payments made to exempt recipients, including corporations and tax-exempt organizations, or if a U.S. holder provides a correct taxpayer identification number, certifies that such holder is not subject to backup withholding or otherwise establishes an exemption. Non-U.S. holders are not subject to information reporting or backup withholding with respect to dividend payments on, or receipt of the proceeds from the disposition of, our Common Shares in the U.S., or by a U.S. payor or U.S. middleman, provided that such non-U.S. holder provides a taxpayer identification number, certifies to its foreign status, or otherwise establishes an exemption. Backup withholding is not an additional tax and may be claimed as a credit against the U.S. federal income tax liability of a holder, or alternatively, the holder may be eligible for a refund of any excess amounts withheld under the backup withholding rules, in either case, provided that the required information is furnished to the IRS.

F. Dividends and Paying Agents.

Not applicable.

G. Statement by Experts.

Not applicable.

H. Documents on Display.

We are currently subject to the information and periodic reporting requirements of the Exchange Act that are applicable to foreign private issuers. Although as a foreign private issuer we are not required to file periodic information as frequently or as promptly as United States companies, we generally do publicly announce our quarterly and year-end results promptly and file periodic information with the United States Securities and Exchange Commission under cover of Form 6-K. As a foreign private issuer, we are also exempt from the rules under the Exchange Act prescribing the furnishing and content of proxy statements and our officers, directors and principal shareholders are exempt from the reporting and other provisions in Section 16 of the Exchange Act. Our SEC filings are filed electronically on the EDGAR reporting system and may be obtained through that medium. You may inspect without charge and copy at prescribed rates such filings, including any exhibits and schedules, at the public reference facilities maintained by the SEC, 100 F Street, N.E., Washington, D.C. 20549. You may also obtain copies of such materials from the SEC at prescribed rates. The SEC also maintains a web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC. The address of this web site is http://www.sec.gov. You may call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. The Exchange Act file number for our Securities and Exchange Commission filings is 000-20181.

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Information about Sapiens is also available on our website at http://www.sapiens.com. Such information on our website is not part of this annual report.

I. Subsidiary Information.

Not applicable.

Item 11. Quantitative and Qualitative Disclosure about Market Risk.

Market risks relating to our operations result primarily from changes in exchange rates, interest rates or weak economic conditions in the markets in which we sell our products and services. We have been and we are actively monitoring these potential exposures. To manage the volatility relating to these exposures, we may enter into various forward contracts or other hedging instruments. Our objective is to reduce, where it is deemed appropriate to do so, fluctuations in earnings and cash flows associated with changes in foreign currency rates and interest rates.

Foreign Currency Risk. We conduct our business in various foreign currencies, primarily those of Israel and the United Kingdom, and to a lesser extent of Japan, Europe and Canada. A devaluation of the NIS, GBP, Euro and the Japanese Yen in relation to the US Dollar has the effect of reducing the US Dollar amount of any of our expenses or liabilities which are payable in those currencies (unless such expenses or payables are linked to the US dollar) while reducing the US Dollar amount of any of our revenues which are payable to us in those currencies.

Because exchange rates between the NIS, GBP, Euro and the Japanese Yen against the US dollar fluctuate continuously, exchange rate fluctuations and especially larger periodic devaluations will have an impact on our profitability and period-to-period comparisons of our results. The effects of foreign currency re-measurements are reflected as financial expenses in our consolidated financial statements. A hypothetical 10% movement in foreign currency rates (primarily the NIS, GBP, Euro and Japanese Yen) against the US dollar, with all other variables held constant on the expected sales, would result in a decrease or increase in expected 2011 sales revenues of approximately $5.0 million.

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We monitor our foreign currency exposure and, from time to time, may enter into currency forward contracts or put/call currency options to hedge balance sheet exposure. We may use such contracts to hedge exposure to changes in foreign currency exchange rates associated with balance sheet balances denominated in a foreign currency and anticipated costs to be incurred in a foreign currency. See Item 5E for details of foreign exchange contracts, options contracts or other foreign hedging arrangements entered into during 2011.

Market Risk. We currently do not invest in, or otherwise hold, for trading or other purposes, any financial instruments subject to market risk.

Interest Rate Risk. We pay interest on our credit facilities based on the prime interest rate in Israel for some of our NIS-denominated loans. As a result, changes in the general level of interest rates directly affect the amount of interest payable by us under these facilities. However, we expect our exposure to risk from changes in interest rates to be minimal and not material. Therefore, no quantitative tabular disclosures are required.

Item 12. Description of Securities Other than Equity Securities.

Not applicable.

PART II

Item 13. Defaults, Dividend Arrearages and Delinquencies.

Not applicable.

Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds.

None.

Item 15. Controls and Procedures

A.          Disclosure Controls and Procedures. Our management, including our President and Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of the end of the period covered by this annual report (the “Evaluation Date”). Based on such evaluation, the President and Chief Executive Officer and the Chief Financial Officer have concluded that, as of the Evaluation Date, the Company’s disclosure controls and procedures are effective.

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B.          Management's Annual Report on Internal Control Over Financial Reporting. Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Our management, including our President and Chief Executive Officer and our Chief Financial Officer, conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework and criteria established in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) as of the end of the period covered by this report. Based on that evaluation, our management has concluded that our internal control over financial reporting was effective as of December 31, 2011. Our management’s assessment of, and conclusion on, the effectiveness of internal control over financial reporting did not include the internal control over financial reporting of IDIT and FIS, which were acquired on August 21, 2011, and are included in the 2011 consolidated financial statements of Sapiens and its subsidiaries. Notwithstanding the foregoing, there can be no assurance that our internal control over financial reporting will detect or uncover all failures of persons within the Company to comply with our internal procedures, as all internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective may not prevent or detect misstatements.

C.          Attestation Report of the Registered Public Accounting Firm.

Not applicable.

D.          Changes in Internal Control Over Financial Reporting. Based on the evaluation conducted by our President and Chief Executive Officer and our Chief Financial Officer pursuant to Rules 13a-15(d) and 15d-15(d) under the Exchange Act, our management has concluded that there was no change in our internal control over financial reporting that occurred during the year ended December 31, 2011 that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

ITEM 16.  RESERVED

Item 16A. Audit Committee Financial Expert.

Our Board of Directors has determined that Mr. Yacov Elinav, a member of our Audit Committee, meets the definition of an “audit committee financial expert,” as defined under the applicable rules promulgated by the SEC. All members of our Audit Committee, including Mr. Elinav, are "independent", as defined under the NASDAQ Listing Rules.

Item 16B. Code of Ethics.

We have adopted a Code of Ethics that applies to our principal executive officer, principal financial officer and corporate controller, as well as to our directors and other employees. The Code of Ethics is publicly available on our website at www.sapiens.com. Written copies are available upon request. If we make any substantive amendments to the Code of Ethics or grant any waivers, including any implicit waiver, from a provision of such Code to our principal executive officer, principal financial officer or corporate controller, we will disclose the nature of such amendment or waiver on our website.

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ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

Policies and Procedures

Our Audit Committee has adopted policies and procedures for the pre-approval of audit and non-audit services rendered by our independent auditors, Kost Forer Gabbay & Kasierer, a member of Ernst & Young Global. The policies generally require the Audit Committee’s pre-approval of the scope of the engagement of our independent auditors or additional work performed on an individual basis. The policy prohibits retention of the independent auditors to perform the prohibited non-audit functions defined in Section 201 of the Sarbanes-Oxley Act of 2002 or the rules of the SEC and also provides that the Audit Committee consider whether proposed services are compatible with the independence of the public auditors. During 2010 and 2011, 100% of the fees for services rendered by the Company’s independent auditors were pre-approved by the Audit Committee, in accordance with these procedures.

Fees Paid to Independent Auditors

The following table sets forth, for each of the years indicated, the aggregate fees billed by our independent auditors for types of services indicated:

	Year ended December 31,
	2011		2010
	(in thousands)
Audit Fees (1)	$	195	$	212
Tax Fees (2)	$	83	$	64
All Other Fees (3)	$	72	$	17
Total	$	350	$	293

(1) Audit Fees consist of fees billed for the annual audit and the quarterly reviews of the Company’s consolidated financial statements and consist of services that would normally be provided in connection with statutory and regulatory filings or engagements, including services that generally only the independent auditors can reasonably provide.

(2) Tax Fees relate to tax compliance, planning and advice.

(3) All Other Fees consist of services related to stock options and value added tax (VAT) related matters.

Item 16D. Exemptions from the Listing Standards for Audit Committees

Not applicable.

Item 16E. Purchase of Equity Securities by the Issuer and Affiliated Purchasers

None.

ITEM 16F. CHANGE IN REGISTRANT'S CERTIFYING ACCOUNTANT.

Not applicable.

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ITEM 16G. CORPORATE GOVERNANCE.

We are exempt from a number of the requirements under the Nasdaq Listing Rules based on our status as a "controlled company." See Item 6.C below “Board Practices— NASDAQ Exemptions for a Controlled Company.”

We have elected to follow our home country practice in lieu of the requirements set forth in NASDAQ Listing Rule 5250(d)(1) which require a domestic United States company to make available to its shareholders a copy of its annual report containing its audited financial statements in one of three specific ways. Instead of distributing copies of our annual report by mail, furnishing an annual report in accordance with Rule 14a-16 under the Exchange Act or posting our annual report on our website and undertaking to provide a hard copy thereof free of charge upon request, we simply make our annual report available to shareholders via our website (http://www.sapiens.com/Annual-Reports/).

We have also elected to follow our home country practice in lieu of the requirements of NASDAQ Listing Rules 5605(b), (d) and (e) which require:

•          The majority of the company’s board of directors must qualify as independent directors, as defined under NASDAQ Listing Rule 5605(a)(2) and that the independent directors have regularly scheduled meetings at which only independent directors are present.

•          The compensation of the chief executive officer and all other executive officers must be determined, or recommended to the board of directors for determination, either by (i) a majority of the independent directors or (ii) a compensation committee comprised solely of independent directors (subject to limited exceptions).

•          Director nominees must either be selected or recommended for the board of directors’ selection, either by (a) a majority of independent directors or (b) a nominations committee comprised solely of independent directors (subject to limited exceptions).

•          The company must certify that it has adopted a formal written charter or board resolution, as applicable, addressing the nominations process and such related matters as may be required under US federal securities laws.

We have also elected to follow our home country practice in lieu of the requirements set forth in of NASDAQ Listing Rule 5635 which require a domestic United States Company to obtain shareholder approval for certain dilutive events, such as for the establishment or amendment of certain equity based compensation plans and arrangements, an issuance that will result in a change of control of the company, certain transactions other than a public offering involving issuances of a 20% or more interest in the company and certain acquisitions of the stock or assets of another company.

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We have submitted to NASDAQ a written statement from our independent Curaçao counsel which certified that our practice of not making the annual report available in accordance with NASDAQ rules, but rather making it available on our website, our not complying with the requirements of NASDAQ Listing Rules 5605(b), (d) and (e) and not obtaining the shareholder approvals required under NASDAQ Listing Rule 5635 are not prohibited by Curaçao law.

PART III

Item 17. Financial Statements.

We have elected to provide financial statements and related information pursuant to Item 18.

Item 18. Financial Statements.

The Consolidated Financial Statements and related notes required by this Item are contained on pages F-1 through F-40 hereof.

INDEX TO 2011 CONSOLIDATED FINANCIAL STATEMENTS

	Page
Report of Independent Registered Public Accounting Firm	F-2
Consolidated Balance Sheets	F-3 – F-4
Consolidated Statements of Operations	F-5
Consolidated Statements of Changes in Shareholders’ Equity	F-6 – F-8
Consolidated Statements of Cash Flow	F-9 – F-10
Notes to the Consolidated Financial Statements	F-11 – F-41

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ITEM 19. EXHIBITS

The exhibits filed with or incorporated into this annual report are listed immediately below.

1.1 Articles of Association of Sapiens International Corporation N.V., as amended on March 17, 2005 – incorporated by reference to Exhibit 1.1 to the Company’s Annual Report on Form 20-F, filed with the SEC on June 29, 2005.

4(a)1 Sapiens International Corporation N.V. 1992 Stock Option and Incentive Plan, as amended and restated – incorporated by reference to Exhibit 28.1 to the Company’s Registration Statement on Form S-8 (No. 33-64208), filed with the SEC on June 9, 1993, and to the Company's Registration Statement on Form S-8 (No. 333-10622), filed with the SEC on July 22, 1999.

4(a)2 Sapiens International Corporation N.V. 2003 Share Option Plan - incorporated by reference to Exhibit 4(c)2 to the Company’s Annual Report on Form 20-F, filed with the SEC on June 28, 2007.

4(a)3 Sapiens International Corporation N.V. 2005 Special Incentive Share Option Plan - incorporated by reference to Exhibit 4(c)3 to the Company’s Annual Report on Form 20-F, filed with the SEC on June 28, 2007.

4(a)4 Sapiens International Corporation N.V. 2011 Share Incentive Plan - incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-8 (No. 333-177834), filed with the SEC on November 9, 2011.

4(b) Share Purchase Agreement, dated as of July 21, 2011, by and among Sapiens, Sapiens Technologies (1982) Ltd., IDIT I.D.I. Technologies Ltd., the shareholders of IDIT I.D.I. Technologies Ltd., Amit Ben-Yehuda, as the IDIT Shareholder Representative, FIS Software Ltd., the shareholders of FIS Software Ltd. and Dan Goldstein, as the FIS Shareholder Representative.

8.1 List of Subsidiaries

10.1 Consent of Kost Forer Gabbay & Kasierer, Independent Registered Public Accounting Firm.

12.1 Certification by Chief Executive Officer pursuant to Rule 13a-14(a)/Rule 15d-14(a) under the Exchange Act.

12.2 Certification by Chief Financial Officer pursuant to Rule 13a-14(a)/Rule 15d-14(a) under the Exchange Act.

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13.1 Certification of Chief Executive Officer pursuant to Rule 13a-14(b)/Rule 15d-14(b) under the Exchange Act and 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

13.2 Certification of Chief Financial Officer pursuant to Rule 13a-14(b)/Rule 15d-14(b) under the Exchange Act and 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

89

SIGNATURE

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.

SAPIENS INTERNATIONAL CORPORATION N.V.
	By:
		Roni Al Dor
		President & Chief Executive Officer

Date: April 3, 2012

90

SAPIENS INTERNATIONAL CORPORATION N.V.

AND ITS SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2011

IN U.S. DOLLARS

INDEX

	Page
Report of Independent Registered Public Accounting Firm	F - 2
Consolidated Balance Sheets	F - 3 - F - 4
Consolidated Statements of Income	F – 5
Consolidated Statements of Changes in Equity and Comprehensive Income	F – 6
Consolidated Statements of Cash Flows	F - 7 - F – 8
Notes to the Consolidated Financial Statements	F - 9 - F – 41

- - - - - - - -

  Kost Forer Gabbay & Kasierer 3 Aminadav St.
Tel-Aviv 67067, Israel   Tel: 972 (3)6232525 Fax: 972 (3)5622555 www.ey.com

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of

SAPIENS INTERNATIONAL CORPORATION N.V.

We have audited the accompanying consolidated balance sheets of Sapiens International Corporation N.V. ("the Company") and its subsidiaries as of December 31, 2010 and 2011, and the related consolidated statements of income, changes in equity and comprehensive income, and cash flows for each of the three years in the period ended December 31, 2011. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (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. We were not engaged to perform an audit of the Company's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company and its subsidiaries as of December 31, 2010 and 2011, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2011, in conformity with U.S. generally accepted accounting principles.

	/s/ KOST FORER GABBAY & KASIERER
Tel-Aviv, Israel	KOST FORER GABBAY & KASIERER
April 4, 2012	A Member of Ernst & Young Global

F-2

SAPIENS INTERNATIONAL CORPORATION N.V.

AND ITS SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

U.S. dollars in thousands

	December 31,
	2010		2011
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	16,182	$	21,460
Restricted cash		-		456
Trade receivables (net of allowance for doubtful accounts of $ 145 and $ 226 at December 31, 2010 and 2011, respectively)		5,511		14,484
Other receivables and prepaid expenses		1,350		1,823
Deferred tax assets		1,681		1,406
Total current assets		24,724		39,629
LONG-TERM ASSETS:
Other long-term assets		2,955		3,546
Severance pay fund		4,908		10,172
Capitalized software development costs, net		13,822		17,399
Other intangible assets, net		1,545		14,193
Goodwill		9,604		66,715
Property and equipment, net		1,161		1,814
Total long-term assets		33,995		113,839
Total assets	$	58,719	$	153,468

The accompanying notes are an integral part of the consolidated financial statements.

F-3

SAPIENS INTERNATIONAL CORPORATION N.V.

AND ITS SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

U.S. dollars in thousands (except share data)

	December 31,
	2010			2011
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Trade payables	$	1,693		$	2,559
Employees and payroll accruals		3,321			8,957
Accrued expenses and other liabilities		8,325			10,774
Deferred revenues		6,517			9,603
Total current liabilities		19,856			31,893
LONG-TERM LIABILITIES:
Other long-term liabilities		299			617
Accrued severance pay		4,446			10,711
Total long-term liabilities		4,745			11,328
COMMITMENTS AND CONTINGENT LIABILITIES
EQUITY:
Sapiens International Corporation N.V. Shareholders' equity:
Share capital:
Preferred shares of € 0.01 par value: Authorized - 1,000,000 shares at December 31, 2011; Issued and outstanding: None at December 31, 2011
Common shares of € 0.01 par value: Authorized: 54,000,000 shares at December 31, 2011; Issued: 22,373,130 and 40,008,926 shares at December 31, 2010 and 2011, respectively; Outstanding: 22,044,834 and 39,680,630 shares at December 31, 2010 and 2011, respectively		282			534
Additional paid-in capital		133,136			207,930
Treasury shares, at cost - 328,296 common shares at December 31, 2011 and 2010		(2,423	)		(2,423	)
Foreign currency translation adjustments		(657	)		(6,277	)
Accumulated deficit		(96,374	)		(90,477	)
Total Sapiens International Corporation N.V. shareholders' equity		33,964			109,287
Non-controlling interests		154			960
Total equity		34,118			110,247
Total liabilities and equity	$	58,719		$	153,468

The accompanying notes are an integral part of the consolidated financial statements.

F-4

SAPIENS INTERNATIONAL CORPORATION N.V.

AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

U.S. dollars in thousands (except per share data)

	Year ended December 31,
	2009			2010			2011
Revenues	$	45,695		$	52,235		$	69,927
Cost of revenues		26,571			29,921			40,067
Gross profit		19,124			22,314			29,860
Operating expenses:
Research and development, net		2,735			3,293			5,008
Selling, marketing, general and administrative		11,048			12,310			18,113
Acquisitions-related and restructuring costs		-			-			1,115
Total operating expenses		13,783			15,603			24,236
Operating income		5,341			6,711			5,624
Financial income (expenses), net		(880	)		(364	)		104
Income before taxes on income		4,461			6,347			5,728
Taxes on income (tax benefit)		260			177			(230	)
Net income		4,201			6,170			5,958
Attributable to non-controlling interests		-			18			61
Net income attributable to Sapiens' shareholders	$	4,201		$	6,152		$	5,897
Net earnings per share attributable to Sapiens' shareholders
Basic	$	0.19		$	0.28		$	0.21
Diluted	$	0.19		$	0.28		$	0.19

The accompanying notes are an integral part of the consolidated financial statements.

F-5

SAPIENS INTERNATIONAL CORPORATION N.V.

AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY AND COMPREHNSIVE INCOME

U.S. dollars in thousands

	Common stock				Additional paid-in			Treasury			Foreign currency translation			Accumulated			Total comprehensive			Non-controlling			Total shareholders'
	Shares		Amount		capital			shares			adjustments			deficit			income			interests			equity
Balance as of January 1, 2009		21,573,006	$	276	$	132,286		$	(2,423	)	$	(1,669	)	$	(106,727	)				$	133		$	21,876
Stock-based compensation		-		-		259			-			-			-						-			259
Foreign currency translation adjustments		-		-		-			-			79			-		$	79			-			79
Net income		-		-		-			-			-			4,201			4,201			-			4,201
Total comprehensive income																	$	4,280
Balance as of December 31, 2009		21,573,006		276		132,545			(2,423	)		(1,590	)		(102,526	)					133			26,415
Stock-based compensation		-		-		412			-			-			-						-			412
Stock-based compensation with respect to Harcase acquisition		454,546		6		155			-			-			-						-			161
Employee stock options exercised		17,282		-		24			-			-			-						-			24
Foreign currency translation adjustments		-		-		-			-			933			-		$	933			3			936
Net income		-		-		-			-			-			6,152			6,152			18			6,170
Total comprehensive income																	$	7,085
Balance as of December 31, 2010		22,044,834		282		133,136			(2,423	)		(657	)		(96,374	)					154			34,118
Stock-based compensation		-		-		336			-			-			-						-			336
Stock-based compensation with respect to Harcase acquisition		-		-		240			-			-			-						-			240
Issuance of shares and options  upon the acquisition of IDIT		7,483,125		108		31,336			-			-			-						-			31,444
Issuance of shares, options and assumption of non controlling interest upon the acquisition of FIS		10,016,875		143		42,778			-			-			-						882			43,803
Issuance expenses relating to FIS and IDIT acquisition						(102	)																	(102	)
Employee stock options exercised		135,796		1		206			-			-			-						-			207
Dividend to non-controlling interests		-		-		-			-			-			-						(134	)		(134	)
Foreign currency translation adjustments		-		-		-			-			(5,620	)		-		$	(5,620	)		(3	)		(5,623	)
Net income		-		-		-			-			-			5,897			5,897			(61	)		5,958
Total comprehensive income																	$	277
Balance as of December 31, 2011		39,680,630	$	534	$	207,930		$	(2,423	)	$	(6,277	)	$	(90,477	)				$	960		$	110,247

The accompanying notes are an integral part of the consolidated financial statements.

F-6

SAPIENS INTERNATIONAL CORPORATION N.V.

AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

U.S. dollars in thousands

	Year ended December 31,
	2009			2010			2011
Cash flows from operating activities:
Net income	$	4,201		$	6,170		$	5,958
Reconciliation of net income to net cash provided by operating activities:
Depreciation and amortization		5,098			6,649			7,776
Amortization and loss from convertible debt		686			-			-
Re-measurement of earn-out payment		-			106			-
Stock-based compensation		259			724			803
Net changes in operating assets and liabilities, net of amount acquired:
Trade receivables, net		1,932			267			(3,333	)
Other operating assets		228			(285	)		(480	)
Deferred tax assets, net		(34	)		(304	)		222
Trade payables		(295	)		195			(1,279	)
Other operating liabilities		164			(635	)		(1,544	)
Deferred revenues		1,778			(690	)		(408	)
Accrued severance pay, net		(479	)		(172	)		698
Net cash provided by operating activities		13,538			12,025			8,413
Cash flows from investing activities:
Purchase of property and equipment		(324	)		(662	)		(482	)
Capitalized software development costs		(3,692	)		(5,387	)		(4,735	)
Issuance expenses relating to FIS and IDIT acquisition		-			-			(102	)
Earn-out payment with respect to Harcase acquisition		-			-			(952	)
Payments for business acquisitions, net of cash acquired		-			(1,416	)		3,741
Net cash used in investing activities		(4,016	)		(7,465	)		(2,530	)

The accompanying notes are an integral part of the consolidated financial statements.

F-7

SAPIENS INTERNATIONAL CORPORATION N.V.

AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

U.S. dollars in thousands

	Year ended December 31,
	2009			2010			2011
Cash flows from financing activities:
Proceeds from employee stock options exercised		-			24			207
Dividend to non-controlling interests		-			-			(134	)
Principal payments and repurchase of convertible debt		(5,824	)		-			-
Payments of long-term loans		(627	)		(15	)		-
Net cash provided by (used in) financing activities		(6,451	)		9			73
Effect of exchange rate changes on cash		163			441			(678	)
Increase in cash and cash equivalents		3,234			5,010			5,278
Cash and cash equivalents at beginning of year		7,938			11,172			16,182
Cash and cash equivalents at end of year	$	11,172		$	16,182		$	21,460
(a)Supplemental cash flow activities:
Cash paid during the year for:
Interest	$	454		$	115		$	16
Income taxes	$	227		$	494		$	162

The accompanying notes are an integral part of the consolidated financial statements.

F-8

SAPIENS INTERNATIONAL CORPORATION N.V.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 1: GENERAL

a. General:

Sapiens International Corporation N.V. ("Sapiens") and subsidiaries (collectively - "the Company"), a member of the Formula Systems (1985) Ltd. Group, is a global provider of innovative software solutions for the financial services industry with a focus on insurance. The Company offers end-to-end solutions for the Life, Pension and Annuities ("L&P") and Property & Casualty/General Insurance ("P&C") markets. The Company's offerings include a portfolio of software solutions and delivery, implementation and support and maintenance services. These products and services enable its customers to modernize business processes, rapidly launch new products, build multiple distribution channels, adhere with new regulations and respond quickly to changes in the industry.

On August 21, 2011 Sapiens completed the acquisition of FIS Software Ltd. ("FIS") and IDIT I.D.I. Technologies Ltd. ("IDIT") (See note 1(b) and 1(c) for further information).

The Company's target markets are primarily North America, Israel, Europe, and Asia Pacific.

Revenues from a major customer accounted for 23%, 26% and 20% of total revenues for the years ended December 31, 2009, 2010 and 2011, respectively. A loss of a major customer, or any event negatively affecting such customer's financial condition, could have a material adverse effect on the Company's results of operations and financial position.

b. Acquisition of FIS:

On August 21, 2011, the Company completed the acquisition of all of the outstanding shares of FIS, a provider of insurance software solutions for L&P, in consideration for $ 49,671, composed of the following:

Sapiens' common shares	$	38,987
Cash paid		6,750
Warrants (i)		2,031
Options (ii)		1,903
Total purchase price	$	49,671

(i) Sapiens issued 1,000,000 warrants. (See Note 11(e))

F-9

SAPIENS INTERNATIONAL CORPORATION N.V.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 1: GENERAL (Cont.)

(ii) Represents the fair value of the vested portion of 934,970 options of Sapiens granted upon consummation of the acquisition to the holders of partially vested options of FIS originally granted under the FIS Employee Share Option Plan. The fair value of these options was determined using a Binomial valuation model with the following assumptions: stock price of $ 4.1, early exercise of 1.5-11, risk-free interest rate of 0.10%-2.07%, expected volatility of 70% and no dividend yield.

The acquisition of FIS allows Sapiens to offer an enhanced solution for the L&P market. In addition, the acquisition of FIS has grown Sapiens' customer base in the insurance market world-wide. The value of goodwill is attributed to synergies between Sapiens solutions and services and FIS’s solutions and services which strengthen the Company's position in the market as a leading provider of L&P core software solutions. The entire goodwill was assigned to Sapiens' reporting unit.

The acquisition was accounted for by the acquisition method and accordingly, the purchase price has been allocated according to the estimated fair value of the assets acquired and liabilities assumed of FIS. The results of FIS operations have been included in the consolidated financial statements since August 21, 2011.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed based on a third party valuation:

Cash and cash equivalents	$	8,349
Restricted cash		239
Trade receivables		5,152
Other receivables and prepaid expenses		632
Property and equipment		451
Severance pay fund		4,182
Other intangible assets		11,724
Goodwill		35,523
Total assets acquired		66,252
Trade payables		(1,486	)
Employees and payroll accruals		(3,461	)
Deferred revenues		(1,706	)
Accrued expenses and other liabilities		(1,914	)
Deferred tax liabilities		(406	)
Accrued severance pay		(4,487	)
Long-term contracts		(2,239	)
Non-controlling interest		(882	)
Total liabilities assumed		(16,581	)
Total assets acquired, net	$	49,671

F-10

SAPIENS INTERNATIONAL CORPORATION N.V.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 1: GENERAL (Cont.)

In performing the purchase price allocation, management considered, among other factors, analyses of historical financial performance, highest and best use of the acquired assets and estimates of future performance of FIS's business. In performing the purchase price allocation the fair value of intangible assets such as customer relationship was based on the income approach, core technology was valuated using the relief from royalty method and long-term contracts were valuated based on an exit price that would be paid or received in a transfer of all the rights and obligations of the contractor to a market participant.

The following table sets forth the components of intangible assets and liabilities associated with the acquisition and their annual amortization rates:

	Fair value			Weighted average rate
Core technology	$	4,206		13%
Customer relationships		7,518		14%
Long-term contracts		(2,239	)	67%
Total	$	9,485		22%

Revenues of FIS for the period since the acquisition date through December 31, 2011, which are included in the consolidated financial statements, amounted to $ 11,207.

c. Acquisition of IDIT:

On August 21, 2011, the Company completed the acquisition of all of the outstanding shares of IDIT, a provider of insurance software solutions which focuses on the P&C market in consideration for $ 31,444, composed as follows:

Sapiens' common shares	$	29,052
Options (i)		2,392
Total purchase price	$	31,444

(i) Represents the fair value of the vested portion of 1,003,874 options of Sapiens granted upon consummation of the acquisition to the holders of partially vested options of IDIT originally granted under the IDIT Employee Share Option Scheme. The fair value of these options was determined using a Binomial valuation model with the following assumptions: stock price of $ 4.1, early exercise factor of 1.5-11, risk-free interest rate of 0.10%-2.07%, expected volatility of 70% and no dividend yield.

F-11

SAPIENS INTERNATIONAL CORPORATION N.V.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 1: GENERAL (Cont.)

The acquisition of IDIT allows the Company to offer its customers and partners a more extensive product portfolio in the industry. Acquiring IDIT is expected to strengthen Sapiens' presence in the P&C insurance market by increasing its customer base. IDIT is considered as a separate reporting unit.

The acquisition was accounted for by the acquisition method and accordingly, the purchase price has been allocated according to the estimated fair value of the assets acquired and liabilities assumed of IDIT. The results of IDIT's operations have been included in the consolidated financial statements since August 21, 2011.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed based on a third party valuation:

Cash and cash equivalents	$	2,143
Restricted cash		216
Trade receivables		1,194
Other receivables and prepaid expenses		302
Other long term assets		90
Property and equipment		482
Severance pay fund		1,800
Other intangible assets		7,918
Goodwill		25,355
Total assets acquired		39,500
Trade payables		(807	)
Employees and payroll accruals		(2,328	)
Accrued expenses and other liabilities		(1,012	)
Deferred revenues		(1,769	)
Accrued severance pay		(2,140	)
Total liabilities assumed		(8,056	)
Total purchase price		31,444

In performing the purchase price allocation, management considered, among other factors, analyses of historical financial performance, highest and best use of the acquired assets and estimates of future performance of IDIT's business. In performing the purchase price allocation the fair value of intangible assets such as customer relationship was determined based on the income approach, core technology was valued using the relief from royalty method and long-term contracts were valued based on an exit price that would be paid or received in a transfer of all the rights and obligations of the contractor to a market participant.

F-12

SAPIENS INTERNATIONAL CORPORATION N.V.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 1: GENERAL (Cont.)

The following table sets forth the components of intangible assets associated with the acquisition and their annual amortization rates:

	Fair value		Weighted average rate
Core technology	$	5,548		14%
Customer relationships		1,389		16%
Long-term contracts		981		74%
Total intangible assets	$	7,918		22%

Revenues of IDIT for the period since the acquisition date through December 31, 2011, which are included in the consolidated financial statements, amounted to $ 5,105.

d. Acquisition of Harcase Software Ltd.

On April 27, 2010, the Company completed the acquisition of Harcase Software Ltd. ("Harcase"). The total fair value of the purchase consideration for the acquisition was $3,092, which includes cash paid for common stock and estimated fair value of earn-out payment. In connection with this acquisition, the Company recorded intangibles and goodwill in the amounts of $ 1,732 and $ 981, respectively. In 2011, the Company paid an amount of $ 953 with respect to earn out.

As part of the acquisition, the Company is obligated to pay additional consideration to the selling shareholders in consideration for their continued employment of two to three years, as defined in the agreement pursuant to which the Company acquired Harcase ("the Additional Consideration"). The Additional Consideration includes the following: (1) $ 750 in cash to be held in escrow until released upon certain conditions, as described in the agreement, (2) issuance of 454,546 Common shares of the Company to be held in escrow, as described in the agreement, (3) put options on the Company's shares described in (2) above for a price of $ 1.54 per share, exercisable during a period of six months from the date the shares are released from escrow. The cash portion of the Additional Consideration is recognized over the employment period of the respective shareholders. The shares and the respective put options are accounted for in accordance with ASC 718 as an award with a liability and equity component. The compensation is measured based on the combined value of the shares and the respective put options in accordance with ASC 718. The total compensation costs related to the shares and the put options at the grant date was $ 1,302, recognized over the employment period of the respective former shareholders of Harcase.

F-13

SAPIENS INTERNATIONAL CORPORATION N.V.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 1: GENERAL (Cont.)

For the period from April 27, 2010 (the acquisition date) until December 31, 2010 and for the year ended December 31, 2011, the Company recorded an amount of $502 and $754, respectively of compensation expense in respect of the above Additional Consideration. Included within the above amounts are $311 and $467 respectively, which are considered as stock based compensation.

In addition, the Company is obligated to pay commissions to the former shareholders for new customers obtained during the five-year period following the closing date, based on rates and conditions described in the agreement. As of December 31, 2011, no provision was recorded in respect of the above-mentioned commissions.

e. Pro Forma information:

The following represents the unaudited pro forma condensed results of operations for the years ended December 31, 2010 and 2011, assuming that the acquisitions of FIS and IDIT occurred on January 1, 2010. The pro forma information is not necessarily indicative of the results of operations, which actually would have occurred had the acquisitions been consummated on those dates, nor does it purport to represent the results of operations for future periods.

	December 31,
	2010		2011
	Unaudited		Unaudited
Revenues	$	95,289	$	97,679
Net income (loss)	$	1,775	$	(414	)
Basic net earnings (losses) per share	$	0.05	$	(0.01	)
Diluted net earnings (losses) per share	$	0.04	$	(0.01	)

F-14

SAPIENS INTERNATIONAL CORPORATION N.V.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 2: SIGNIFICANT ACCOUNTING POLICIES

The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in United States ("U.S. GAAP").

a. Use of estimates:

The preparation of the consolidated financial statements in conformity with U.S. GAAP 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 revenue and expenses during the reporting period. Actual results could differ from those estimates.

b. Financial statements in United States dollars:

The currency of the primary economic environment in which the operations of Sapiens and certain subsidiaries are conducted is the U.S. dollar ("dollar"); thus, the dollar is the functional currency of Sapiens and certain subsidiaries.

Sapiens and certain subsidiaries' transactions and balances denominated in dollars are presented at their original amounts. Non-dollar transactions and balances have been remeasured to dollars in accordance with ASC 830, "Foreign Currency Matters". All transaction gains and losses from remeasurement of monetary balance sheet items denominated in non-dollar currencies are reflected in the statements of income as financial income or expenses, as appropriate.

For those subsidiaries whose functional currency has been determined to be their local currency, assets and liabilities are translated at year-end exchange rates and statement of income items are translated at average exchange rates prevailing during the year. Such translation adjustments are recorded as a separate component of accumulated other comprehensive income in shareholders' equity.

c. Principles of consolidation:

The consolidated financial statements include the accounts of the Company and its majority-owned subsidiaries. All intercompany balances and transactions 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 acquisition.

F-15

SAPIENS INTERNATIONAL CORPORATION N.V.

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.)

e. Restricted cash:

The Company maintains certain cash amounts restricted as to withdrawal or use. On December 31, 2011, the Company maintained a balance of $ 456 that represents security deposits with respect to leases, restricted due to the lease agreement and security deposits for credit lines from banks.

f. Property and equipment, net:

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

	%
Computers and peripheral equipment	33
Office furniture and equipment	6 - 15
Motor vehicles	14

Leasehold improvements are amortized by the straight-line method over the term of the lease (including option terms) or the estimated useful life of the improvements, whichever is shorter.

g. Research and development costs:

Research and development costs incurred in the process of software production before establishment of technological feasibility are charged to expenses as incurred. Costs incurred to develop software to be sold are capitalized after technological feasibility is established in accordance with ASC 985-20, "Software - Costs of Software to be Sold, Leased, or Marketed". Based on the Company's product development process, technological feasibility is established upon completion of a detailed program design.

Costs incurred by the Company between completion of the detailed program design and the point at which the product is ready for general release, have been capitalized.

Capitalized software development costs are amortized commencing with general product release by the straight-line method over the estimated useful life of the software product (between 3-7 years).

F-16

SAPIENS INTERNATIONAL CORPORATION N.V.

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.)

h. Other intangible assets, net:

Technology is amortized over its estimated useful life on a straight-line basis. The acquired customer relationships are amortized over their estimated useful lives in proportion to the economic benefits realized or the straight-linemethod. The weighted average annual rates for other intangible assets are as follows:

	%
Technology		15%
Customer relationships		14%

i. Impairment of long-lived assets:

The Company's long-lived assets and identifiable intangibles that are subject to amortization 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 2009, 2010 and 2011, no impairment losses have been identified.

j. Goodwill:

Goodwill represents the excess of the purchase price in a business combination over the fair value of the net tangible and intangible assets acquired. Under ASC 350," Intangibles—Goodwill and Other" goodwill is subject to an annual impairment test or more frequently if impairment indicators are present. Goodwill impairment is deemed to exist if the net book value of a reporting unit exceeds its estimated fair value. Following the acquisition of FIS and IDIT, the Company operates in two reporting units: Sapiens and IDIT.

In September 2011, the FASB issued ASU 2011-08 which amends the rules for testing goodwill for impairment. Under the new rules, an entity has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary.

F-17

SAPIENS INTERNATIONAL CORPORATION N.V.

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 early adopted the provisions of ASU 2011-08 for the Company's annual impairment test on the fourth quarter of 2011. This analysis determined that no indicators of impairment existed primarily because (1) the Company's market capitalization has consistently exceeded the Company's book value by a sufficient margin, (2) the acquisition of one of the Company's reporting units was on August 21, 2011 and no significant changes in the reporting unit's operational business occurred since the acquisition (3) the Company's overall financial performance has been stable since the acquisition, and (4) forecasts of operating income and cash flows generated by the Company's reporting units appear sufficient to support the book values of the net assets of each reporting unit.

However, it is possible that the Company's determination that goodwill for a reporting unit is not impaired could change in the future if current economic conditions deteriorate or remain difficult for an extended period of time. The Company will continue to monitor the relationship between the Company’s market capitalization and book value, as well as the ability of our reporting units to deliver current income and cash flows sufficient to support the book values of the net assets of their respective businesses.

The Company performed annual impairment tests during the fourth quarter of each of 2009, 2010 and 2011 and did not identify any impairment losses.

k. Revenue recognition:

The Company generates revenues from sales of software licenses which normally include significant implementation services that are considered essential to the functionality of the software license. In addition, the Company generates revenues from post implementation consulting services and maintenance services.

Sales of software licenses are recognized when persuasive evidence of an agreement exists, delivery of the product has occurred, the fee is fixed or determinable, and collectability is probable. The Company considers all arrangements with payment terms extending beyond six months from the delivery of the elements not to be fixed or determinable. If the fee is not fixed or determinable, revenue is recognized as payments become due from the customer, provided that all other revenue recognition criteria have been met.

F-18

SAPIENS INTERNATIONAL CORPORATION N.V.

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 usually sells its software licenses as part of an overall solution offered to a customer that combines the sale of software licenses which normally include significant implementation that is considered essential to the functionality of the license. The Company accounts for revenues from the services (either fixed price or Time and Materials (T&M)) together with the software under contract accounting using the percentage-of-completion method in accordance with ASC 605-35, "Construction-Type and Production-Type Contracts". The percentage of completion method is used when the required services are quantifiable, based on the estimated number of labor hours necessary to complete the project, and under that method revenues are recognized using labor hours incurred as the measure of progress towards completion. 

In accordance with ASC 985-605, the Company establishes Vendor Specific Objective Evidence ("VSOE") of fair value of maintenance services (PCS) based on the Bell-Shaped approach and determined VSOE for PCS, based on the price charged when the element is sold separately (that is, the renewal rate). The Company's process for establishing VSOE of fair value of PCS is through performance of VSOE compliance test which is an analysis of the entire population of PCS renewal activity for its installed base of customers.

Provisions for estimated losses on contracts in progress are made in the period in which they are first determined, in the amount of the estimated loss on the entire contact. Provisions for estimated losses are presented in accrued expenses and other liabilities.  

Maintenance revenue is recognized ratably over the term of the maintenance agreement. Deferred revenues include unearned amounts received under maintenance and support agreements and amounts received from customers, for which revenues have not yet been recognized.

In addition, the Company derives significant portion of its revenues from post implementation consulting services provided on a "Time and Materials" ("T&M") basis which are recognized as services are performed.

l. Income taxes:

The Company accounts for income taxes in accordance with ASC 740, "Income Taxes". This topic prescribes the use of the asset and liability method, whereby deferred tax asset and liability account balances are determined based on the differences between the financial reporting and tax bases of 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 their estimated realizable value.

F-19

SAPIENS INTERNATIONAL CORPORATION N.V.

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 implements a two-step approach to recognize and measure 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% (cumulative basis) likely to be realized upon ultimate settlement.

The Company classifies interest as financial expenses and penalties as selling, marketing, general and administration expenses.

m. Concentrations of credit risk:

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents, restricted cash, trade receivables and foreign currency derivative contracts.

The Company's cash and cash equivalents and restricted cash are invested in bank deposits mainly in NIS and dollars. Deposits in the U.S. may be in excess of insured limits and are not insured in other jurisdictions. Generally, these banks deposits may be redeemed upon demand and therefore bear minimal risk.

The Company's trade receivables are generally derived from sales to large and solid organizations located mainly in Israel, Europe, North America and Asia Pacific. The Company performs ongoing credit evaluations of its customers and to date has not experienced any material losses. In certain circumstances, the Company may require prepayment. An allowance for doubtful accounts is determined with respect to those amounts that the Company has determined to be doubtful of collection. Provisions for doubtful accounts were recorded in general and administrative expenses.

The Company entered into forward contracts, and option contracts intended to protect against the increase in value of forecasted non-dollar currency cash flows. The derivative instruments hedge a portion of the Company's non-dollar currency exposure.

No off-balance sheet concentrations of credit risk exist.

F-20

SAPIENS INTERNATIONAL CORPORATION N.V.

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.)

n. Accrued severance pay:

The Company's liability for severance pay for its Israeli employees is calculated pursuant to Israel's Severance Pay Law based on the most recent monthly salary of the employees multiplied by the number of years of employment as of the balance sheet date. Employees are entitled to one month's salary for each year of employment, or a portion thereof. The Company's liability is fully provided by monthly deposits with insurance policies and severance pay funds and by an accrual.

The deposited funds include profits (losses) accumulated up to the balance sheet date. The deposited funds may be withdrawn only upon the fulfillment of the obligation pursuant to Israel's Severance Pay Law or employment agreements. The value of the deposited funds is based on the cash surrendered value of these policies and recorded as an asset in the Company's consolidated balance sheet

In addition, the Company signed on a collective agreement with some of its employees, according to which the Company's contributions for severance pay shall be instead of severance compensation and that upon release of the policy to the employee, no additional payments shall be made by the Company to the employee. Generally, the Company, under its sole discretion, pays to these employees the entire liability, irrespective of the collective agreement described per above. Therefore, the net obligation related to those employees is stated on the balance sheet as accrued severance pay.

The Company's agreements with certain employees in Israel are in accordance with Section 14 of the Severance Pay Law, 1963, whereas, the Company's contributions for severance pay shall be instead of its severance liability. Upon contribution of the full amount of the employee's monthly salary, and release of the policy to the employee, no additional calculations shall be conducted between the parties regarding the matter of severance pay and no additional payments shall be made by the Company to the employee. Further, the related obligation and amounts deposited on behalf of such obligation are not stated on the balance sheet, as they are legally released from obligation to employees once the deposit amounts have been paid.

Severance expense for the years 2009, 2010 and 2011 amounted to $ 307, $ 790 and $ 1,514, respectively.

o. Basic and diluted net earnings per share:

Basic net earnings per share are computed based on the weighted average number of common shares outstanding during each year. Diluted net earnings per share are computed based on the weighted average number of common shares outstanding during each year plus dilutive potential equivalent common shares considered outstanding during the year, in accordance with ASC 260, "Earnings Per Share".

F-21

SAPIENS INTERNATIONAL CORPORATION N.V.

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. Stock-based compensation:

The Company accounts for stock-based compensation in accordance with ASC 718, "Compensation - Stock Compensation", which requires the measurement and recognition of compensation expense based on estimated fair values for all share-based payment awards made. ASC 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 income statements.

The Company recognizes compensation expenses for the value of its awards, which have graded vesting, based on the straight-line basis over the requisite service period of the award, net of estimated forfeitures. Estimated forfeitures are based on actual historical pre-vesting forfeitures.

The Company used the Black-Scholes option-pricing model to estimate the fair value for any options granted until December 31, 2009. In 2010, the Company changed the option-pricing model to the Binomial Lattice ("Binomial model") option-pricing model. The Binomial model considers characteristics of fair value option pricing that are not available under the Black-Scholes model. Similar to the Black-Scholes model, the Binomial model takes into account variables such as volatility, dividend yield rate, and risk free interest rate. However, the Binomial model allows for the use of dynamic assumptions and also considers the contractual term of the option, the probability that the option will be exercised prior to the end of its contractual life, and the probability of termination or retirement of the option holder in computing the value of the option. For these reasons, the Company believes that the Binomial model provides a better estimate of an employee stock options fair value than that calculated using the Black-Scholes model.

The fair value of each option granted in 2010 and 2011 using the Binomial model, is estimated on the date of grant with the following weighted average assumptions:

	Year ended December 31,
	2010	2011
Contractual life	6 years	6 years
Expected exercise factor	2.5	2.5
Dividend yield	0%	0%
Expected volatility	66%	70%
Risk-free interest rate	2.3%-2.8%	0.1%-1.2%

F-22

SAPIENS INTERNATIONAL CORPORATION N.V.

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 risk-free interest rate assumption is based on the yield from U.S. Treasury zero-coupon bonds with an equivalent term as of the Company's employee stock options. The dividend yield assumption is based on the Company's historical and expectation of future dividend payouts. The expected life of options granted is derived from the output of the option valuation model and represents the period of time the options are expected to be outstanding. The expected exercise factor is based on industry acceptable rates since no actual historical behavior by option holders exists. Expected volatility is based on the historical volatility of the Company.

For options granted prior to January 1, 2010, the fair value of each option granted was estimated at the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions:

	Year ended December 31,
	2009
Expected term	4.25 years
Dividend yield	0%
Expected volatility	90%
Risk-free interest rate	1.8% - 2.5%

Stock-based compensation cost is measured at the grant date, based on the fair value of the award, and is recognized as an expense on a straight-line basis over the requisite service period for each of the awards.

q. Fair value of financial instruments:

ASC 820, "Fair Value Measurements and Disclosures", defines fair value as the price that would be received to sell an asset or paid to transfer a liability (i.e., the "exit price") in an orderly transaction between market participants at the measurement date.

In determining fair value, the Company uses various valuation approaches. ASC 820 establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company's assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.

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.

F-23

SAPIENS INTERNATIONAL CORPORATION N.V.

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.)

As a basis for considering such assumptions, ASC 820 establishes a three-tier value hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:

Level 1 -	Valuations based on quoted prices in active markets for identical assets that the Company has the ability to access. Valuation adjustments and block discounts are not applied to Level 1 instruments. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these products does not entail a significant degree of judgment.
Level 2 -	Valuations based on one or more quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.
Level 3 -	Valuations based on inputs that are unobservable and significant to the overall fair value measurement.

Foreign currency derivative contracts are classified within Level 2 as the valuation inputs are based on quoted prices and market observable data of similar instruments.

The carrying amounts of cash and cash equivalents, restricted cash, accounts receivable, and accounts payable approximate fair value due to the short-term maturities of such instruments.

r. Derivatives and hedging:

The Company enters into option contracts and forward contracts to hedge certain transactions denominated in foreign currencies. The purpose of the Company's foreign currency hedging activities is to protect the Company from risk that the eventual dollar cash flows from international activities will be adversely affected by changes in the exchange rates. The Company's option and forward contracts do not qualify as hedging instruments under ASC 815. Changes in the fair value of option strategies are reflected in the consolidated statements of income as financial income or expense.

In 2009, 2010 and 2011, the Company entered into option strategies contracts in the notional amounts of $ 5,800, $ 1,409 and $ 1,450, respectively that converted a portion of its floating currency liabilities to a fixed rate basis for a twelve-month period, thus reducing the impact of the currency changes on the Company's cash flow. In addition, in 2010 and 2011 the Company entered into forward contracts in the notional amounts of $ 2,020 and $ 5,750, respectively, that converted a portion of its floating currency liabilities to a fixed rate basis for a twelve-month period, thus reducing the impact of the currency changes on the Company's cash flow.

In 2009, 2010 and 2011, the Company recorded a loss of $ 28, $ 67 and income of $ 27, respectively, with respect to the above transactions, presented in the statements of income as financial income or expense, net.

F-24

SAPIENS INTERNATIONAL CORPORATION N.V.

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.)

s. Treasury shares:

In prior years, the Company repurchased certain of its common shares and holds such shares as treasury shares. The Company presents the cost to repurchase treasury stock as a reduction of shareholders’ equity.

t. Impact of recently issued accounting standards:

In September 2011, the Financial Accounting Standards Board, (the "FASB") issued ASU 2011-08, Testing Goodwill for Impairment, codified in ASC 350 "Intangibles – Goodwill and Other". The revised accounting standard update is intended to simplify how an entity tests goodwill for impairment. The amendment allows an entity to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. An entity is no longer required to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. This accounting standard update is effective for the Company beginning January 1, 2012. The Company early adopted the provisions of ASU 2011-08 in 2011 in the performance of the Company's annual impairment test of goodwill and determined that no indicators of impairment exist.

u. Recently issued accounting standards:

In June 2011, the FASB issued ASU 2011-05 Presentation of Comprehensive Income, codified in ASC 220 "Comprehensive Income". The guidance requires an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The guidance also eliminates the option to present the components of other comprehensive income as part of the statement of equity. In December 2011, the FASB issued ASU 2011-12, deferring the effective date for amendments outlined in ASU 2011-05. The Company is still evaluating whether to present other comprehensive income in a single continuous statement of comprehensive income or in two separate but consecutive statements.

In May 2011, the FASB issued ASU 2011-04 Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS, codified in ASC 820 "Fair Value Measurement". The guidance requires an entity to provide a consistent definition of fair value to ensure that the fair value measurement and disclosure requirements are similar between U.S. GAAP and International Financial Reporting Standards. The guidance changes certain fair value measurement principles and enhances the disclosure requirements particularly for Level 3 fair value measurements, and will become effective for the Company beginning January 1, 2012. The Company does not expect the adoption of this new guidance to have a material impact on its financial statements.

F-25

SAPIENS INTERNATIONAL CORPORATION N.V.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 3: OTHER LONG TERM ASSETS

	December 31,
	2010		2011
Deferred tax assets	$	1,824	$	1,782
Government authorities		-		883
Other		1,131		881
	$	2,955	$	3,546

NOTE 4: PROPERTY AND EQUIPMENT, NET

	December 31,
	2010		2011
Cost:
Computers and peripheral equipment	$	14,857	$	17,330
Office furniture and equipment		2,362		3,842
Motor vehicles		160		176
Leasehold improvements		1,735		1,275
		19,114		22,623
Accumulated depreciation:
Computers and peripheral equipment		14,195		16,466
Office furniture and equipment		1,969		3,038
Motor vehicles		111		140
Leasehold improvements		1,678		1,165
		17,953		20,809
Depreciated cost	$	1,161	$	1,814

Depreciation expense totaled $ 475, $ 593 and $ 755 for the years 2009, 2010 and 2011, respectively. As for pledges, see Note 9.

F-26

SAPIENS INTERNATIONAL CORPORATION N.V.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 5: CAPITALIZED SOFTWARE DEVELOPMENT COSTS

The changes in capitalized software development costs during the year ended December 31, 2010 and 2011 were as follows:

	Year ended December 31,
	2010			2011
Balance at the beginning of the year	$	13,540		$	13,822
Acquisition of core technology which considered as software development		-			4,659
Capitalization		5,387			4,735
Amortization		(5,869	)		(4,544	)
Functional currency translation adjustments		764			(1,273	)
Balance at the year end	$	13,822		$	17,399

Amortization of capitalized software development costs for 2009, 2010 and 2011, was $ 4,623, $ 5,869 and $ 4,544, respectively. Amortization expense is included in cost of revenues.

NOTE 6: OTHER INTANGIBLE ASSETS, NET

a. Other intangible assets, net, are comprised of the following:

	December 31,
	2010		2011
Original amounts:
Customer relationship	$	789	$	9,130
Technology		943		5,705
Long-term contracts		-		921
		1,732		15,756
Accumulated amortization:
Customer relationship		78		763
Technology		109		513
Long-term contracts		-		287
		187		1,563
Other intangible assets, net	$	1,545	$	14,193

F-27

SAPIENS INTERNATIONAL CORPORATION N.V.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 6: OTHER INTANGIBLE ASSETS, NET (cont.)

c. Amortization of other intangible assets was $ 493, $ 506 and $ 1,449 for 2009, 2010 and 2011, respectively.

d. Estimated amortization expense for future periods:

For the year ended December 31,
2012	$	2,628
2013		2,047
2014		2,111
2015		1,986
2016		1,606
2017 and thereafter		3,815
	$	14,193

NOTE 7:- GOODWILL

The changes in the carrying amount of goodwill for the year ended December 31, 2010 and 2011 are as follows:

	Year ended December 31,
	2010		2011
Balance at the beginning of the year	$	8,621	$	9,604
Acquisitions		981		60,878
Functional currency translation adjustments		2		(3,767	)
Balance at the year end	$	9,604	$	66,715

NOTE 8: ACCRUED EXPENSES AND OTHER LIABILITIES

	December 31,
	2010		2011
Government authorities	$	1,216	$	2,543
Accrued royalties to the OCS (Note 9a)		2,669		1,591
Accrued contract costs		-		1,541
Earn-out payment (Note 1d)		952		-
Accrued expenses		3,488		5,099
	$	8,325	$	10,774

F-28

SAPIENS INTERNATIONAL CORPORATION N.V.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 9: COMMITMENTS AND CONTINGENT LIABILITIES

a. Sapiens Technologies (1982) Ltd. ("Sapiens Technologies"), a subsidiary incorporated in Israel, was partially financed under programs sponsored by the Office of Chief Scientist ("OCS") for the support of certain research and development activities conducted in Israel.

In exchange for participation in the programs by the OCS, the Company agreed to pay 3%-3.5% of total net consolidated license and maintenance revenue and 0.35% of the net consolidated consulting services revenue related to the software developed within the framework of these programs based on an understanding with the OCS reached in January 2012. The understanding reached with the OCS resulted in a reversal of an accrual in the amount of $ 922 which was recorded as a reduction of cost of revenues in 2011.

The royalties will be paid up to a maximum amount equaling 100%-150% of the grants provided by the OCS, linked to the dollar, and for grants received after January 1, 1999, bear annual interest at a rate based on LIBOR.

Royalties expenses amounted to $ 577, $ 614 and $ 510 in 2009, 2010 and 2011, respectively, and are included in cost of revenues. During 2011, the Company paid to the OCS, royalties in the amount of $ 1,184.

As of December 31, 2011, the Company had a contingent liability to pay royalties of approximately $ 6,300.

b. Lease commitments:

The Company leases office space, office equipment and various motor vehicles under operating leases.

1. The Company's office space and office equipment are rented under several operating leases. Future minimum lease commitments under non-cancelable operating leases for the years ended December 31, were as follows:

2012	$	2,487
2013		1,863
2014		1,636
2015		657
	$	6,643

Rent expense for the years ended December 31, 2009, 2010 and 2011 was $ 1,556, $ 1,811 and $ 2,399, respectively.

F-29

SAPIENS INTERNATIONAL CORPORATION N.V.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 9: COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)

2. The Company leases its motor vehicles under cancelable operating lease agreements.

The minimum payment under these operating leases, upon cancellation of these lease agreements was $ 203 as of December 31, 2011.

c. Legal settlement:

In 2010, a former customer of the Company filed a claim in the arbitration court in Warsaw, Poland against the Company for damages allegedly caused by the Company with respect to a license and services contract with such former customer signed a number of years ago. A settlement was reached in October 2011 under which the Company paid 1,100 Euro ($1,509) and recovered an amount of $ 1,200 from the insurance company and reversed a provision provided for this claim in the amount of $ 501. The Company recorded income in the amount of $ 192 which was deducted from selling, marketing, general and administrative.

d. The Company's leased assets are pledged to the finance companies that provided the lease financing. The pledges are for various terms depending on the asset leased.

The Company has provided bank guarantees in the amount of $ 704 as security for the rent to be paid for its leased offices. The lease is valid for approximately four years ending in July 2015.

As of December 31, 2011, the Company has provided bank guarantees in the amount of $ 109 as security for the performance of various contracts with customers and suppliers.

e. According to the agreement with the Company's major customer, the Company is obligated to pay sales commission to this customer of the higher between 15% on future license sales or 5% of future total project sales of one of the Company's products to third parties. As of December 31, 2011, the Company recorded an accrual in amount of $ 234 with respect to the licenses sold.

F-30

SAPIENS INTERNATIONAL CORPORATION N.V.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 10: TAXES ON INCOME

a. Parent taxation:

Organized and existing under the laws of the Curaçao.

b. Israeli taxation:

1. Corporate tax rates in Israel:

Taxable income of Israeli companies is subject to tax at the rate of 26% in 2009, 25% in 2010, 24% in 2011 and 25% in 2012 and onwards.

2. Tax benefits under the Israel Law for the Encouragement of Capital Investments, 1959 ("the Law"):

Certain of the Company's Israeli subsidiaries have been granted "Approved Enterprise" and "Privileged Enterprise" status, which provides certain benefits, including tax exemptions and reduced tax rates. Income not eligible for Approved Enterprise and Privileged Enterprise benefits is taxed at regular rates.

In the event of distribution of dividends from the said tax-exempt income, the amount distributed will be subject to corporate tax at the rate ordinarily applicable to the Approved Enterprise's income. The tax-exempt income attributable to the Approved Enterprise programs mentioned above can be distributed to shareholders without subjecting the Company to taxes, only upon the complete liquidation of the applicable Israeli subsidiary. Tax-exempt income generated under the Privileged Enterprise program will be subject to taxes upon dividend distribution (which includes the repurchase of the Company's shares) or liquidation.

The entitlement to the above benefits is conditional upon the fulfilling of the conditions stipulated by the Laws and regulations (see below). Should they fail to meet such requirements in the future, income attributable to its Approved Enterprise and Privileged Enterprise programs could be subject to the statutory Israeli corporate tax rate and they could be required to refund a portion of the tax benefits already received, with respect to such programs. As of December 31, 2011, management believes that the Company's Israeli subsidiaries are in compliance with all the conditions required by the Law.

The Company does not intend to distribute any of its undistributed tax-exempt income as dividends, as it intends to reinvest this within the Company. Accordingly, no deferred income taxes have been provided on income attributable to the Company's Approved or Privileged Enterprise programs as the undistributed tax-exempt income is essentially permanent in duration.

F-31

SAPIENS INTERNATIONAL CORPORATION N.V.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 10: TAXES ON INCOME (Cont.)

Effective January 1, 2011, the Knesset enacted the Law for Economic Policy for 2011 and 2012 (Amended Legislation), and among other things, amended the Law, ("the Amendment"). According to the Amendment, the benefit tracks in the Investment 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 as follows: 2011 and 2012 - 15%, 2013 and 2014 - 12.5% and in 2015 and thereafter - 12%.

3. Tax benefits under the Law for the Encouragement of Industry (Taxation), 1969:

Management believes that Sapiens Technologies currently qualifies as an "industrial company" under the above law and as such, is entitled to certain tax benefits including accelerated depreciation, deduction of public offering expenses in three equal annual installments and amortization of other intangible property rights for tax purposes.

4. Commencing 2005, some of the Company's Israeli subsidiaries have elected to file their tax returns under the Israeli Income Tax Regulations 1986 (Principles Regarding the Management of Books of Account of Foreign Invested Companies and Certain Partnerships and the Determination of Their Taxable Income). Accordingly, commencing 2005, results for tax purposes are measured in U.S. dollars.

c. Income taxes on non-Israeli subsidiaries:

Non-Israeli subsidiaries are taxed according to the tax laws in their respective country of residence. Neither Israeli income taxes, foreign withholding taxes nor deferred income taxes were provided in relation to undistributed earnings of the non-Israelis subsidiaries. This is because the Company intends to permanently reinvest undistributed earnings in the foreign subsidiaries in which those earnings arose. If these earnings were distributed in the form of dividends or otherwise, the Company would be subject to additional Israeli income taxes (subject to an adjustment for foreign tax credits) and non-Israeli withholding taxes.

d. Net operating losses carryforward:

As of December 31, 2011, certain subsidiaries had tax loss carry-forwards totaling approximately $ 61,100 which can be carried forward and offset against taxable income with expiration dates ranging from 2012 and onwards. Most of these carry-forward tax losses have no expiration date.

Utilization of U.S. net operating losses may be subject to substantial annual limitation due to the "change in ownership" provisions of the Internal Revenue Code of 1986 and similar state provisions. The annual limitations may result in the expiration of net operating losses before utilization.

F-32

SAPIENS INTERNATIONAL CORPORATION N.V.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 10: TAXES ON INCOME (Cont.)

e. Deferred tax assets and liabilities:

Deferred 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 tax purposes. Significant components of the Company deferred tax assets are as follows:

	December 31,
	2010			2011
Deferred tax assets:
Net operating losses carryforward	$	10,851		$	15,620
Research and Development assets for Israeli Tax Authorities		1,534			2,809
Other		179			816
Deferred tax assets before valuation allowance		12,564			19,245
Valuation allowance		(5,975	)		(8,881	)
Deferred tax assets		6,589			10,364
Deferred tax liabilities:
Research and Development capitalization		(3,084	)		(3,234	)
Acquired intangibles		(410	)		(4,624	)
Deferred tax assets, net	$	3,095		$	2,506

	December 31,
	2010			2011
Current deferred tax assets	$	1,681		$	1,406
Long-term deferred tax assets		1,824			1,782
Current deferred tax liabilities		(410	)		(145	)
Long-term deferred tax liabilities		-			(537	)
Deferred tax assets, net	$	3,095		$	2,506

Current and long-term deferred tax liabilities are included within other liabilities and other long-term liabilities, respectively, in the balance sheets. Long-term deferred tax assets are included within other long term assets.

The Company has provided valuation allowances in respect of certain deferred tax assets resulting from tax loss carry forwards and other reserves and allowances due to uncertainty concerning realization of these deferred tax assets.

F-33

SAPIENS INTERNATIONAL CORPORATION N.V.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 10: TAXES ON INCOME (Cont.)

f. Income before taxes on income is comprised as follows:

	Year ended December 31,
	2009			2010			2011
Domestic (Curaçao)	$	(930	)	$	(13	)	$	(236	)
Foreign		5,391			6,360			5,964
	$	4,461		$	6,347		$	5,728

g. A reconciliation between the theoretical tax expense, assuming all income is taxed at the statutory tax rate applicable to income for an Israeli company, and the actual tax expense as reported in the statements of income is as follows:

	Year ended December 31,
	2009			2010			2011
Income before taxes on income, as reported in the statements of income	$	4,461		$	6,347		$	5,728
Statutory tax rate in Israel		26	%		25	%		24	%
Theoretical taxes on income	$	1,160		$	1,587		$	1,375
Increase (decrease) in taxes resulting from:
Effect of different tax rates		77			106			75
Utilization of carryforward tax losses for which valuation allowance was provided		(32	)		(186	)		(66	)
Non-deductible expenses and tax exempt income		(97	)		(302	)		68
Taxes in respect of previous years		53			236			21
Recognition of deferred taxes during the year for which valuation allowance was provided		(1,618	)		(1,471	)		(2,040	)
Losses and temporary differences for which valuation allowance was provided		691			172			244
Others		26			35			93
Taxes on income, as reported in the statements of operations	$	260		$	177		$	(230	)

F-34

SAPIENS INTERNATIONAL CORPORATION N.V.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 10: TAXES ON INCOME (Cont.)

h. Taxes on income (benefit) are comprised as follows:

	Year ended December 31,
	2009			2010			2011
Current (foreign)	$	294		$	427		$	470
Deferred (foreign)		(34	)		(250	)		(700	)
	$	260		$	177		$	(230	)

The Company's entire provision for taxes on income relates to operations in jurisdictions other than Curaçao.

i. Uncertain tax positions:

A reconciliation of the beginning and ending balances of the total amounts of unrecognized tax benefits is as follows:

	December 31,
	2010		2011
Balance at the beginning of the year	$	300	$	400
Uncertain tax position acquired during the year		100		-
Increase in tax position due to the acquisition of FIS				925
Increase in tax position		-		241
Interest for unrecognized tax liabilities from prior years		-		66
Balance at the end of the year	$	400	$	1,632

Unrecognized tax benefits included $ 808 of tax benefits, which if recognized, would affect the company's income tax provision and the effective tax rate.

As of December 31, 2011, most of the Company's Israeli subsidiaries are subject to Israeli income tax audits for the tax years 2007 through 2011, to U.S. federal income tax audits for the tax years of 2008 through 2011 and to other income tax audits for the tax years of 2006 through 2011.

F-35

SAPIENS INTERNATIONAL CORPORATION N.V.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 11: EQUITY

a. The common shares of the Company are traded on the Tel-Aviv Stock Exchange and on the NASDAQ.

Common shares confer upon their holders voting rights, the right to receive cash dividends and the right to share in excess assets upon liquidation of the Company.

b. Stock option plans:

In April 2009, the Company's Board of Directors approved a re-pricing of some of the Company's stock options held by Company's management. As a result of the re-pricing, 1,985,650 stock options at an exercise price range of $ 1.74 to $ 5.30 were re-priced to 1,554,627 stock options at an exercise price of $ 1.50 per share (925,870 stock options out of the 1,554,627 are at market conditions (a kick-in feature of $ 2.10 market price)). The Company accounted for the re-pricing of the options above in accordance with ASC 718, as a modification. The Company used the Black-Scholes valuation model to calculate the incremental fair value for the re-priced options, except for the options with market conditions, for which a Binominal model was used. In addition, the expected term of the options before the re-pricing was calculated using the Binomial model. Since there was no incremental value as a result of the modification, no additional expense was recorded in respect of the re-pricing of the respective options.

In 2011, in connection with the acquisition of IDIT and FIS, the Company's board of directors approved its 2011 Share Incentive Plan (the “2011 Plan”) pursuant to which the Company's employees, directors, officers, consultants, advisors, suppliers, business partner, customer and any other person or entity whose services are considered valuable are eligible to receive awards of share options, restricted shares, restricted share units and other share-based awards. The number of Common Shares available under the 2011 Plan was set at 4,000,000. Upon the approval of the 2011 Plan, the board of directors determined that no further awards would be issued under the Company's previously existing share incentive plans.

Pursuant to the terms of the acquisitions of IDIT and FIS, the Company replaced unvested options with Sapiens options, based on the agreed exchange ratio applicable to the purchase of the outstanding shares of IDIT and FIS, respectively. Each replaced option is subject to the same terms and conditions, including vesting and timing of exercisability, as applied to any such option immediately prior to the acquisition.

As of December 31, 2011 1,581,927 common shares of the Company were available for future grant under the 2011 Plan. Any option granted under the 2011 Plan which are forfeited or cancelled before expiration, will become available for future grant under the 2011 Plan.

F-36

SAPIENS INTERNATIONAL CORPORATION N.V.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 11: EQUITY (Cont.)

A summary of the stock option activities in 2011 is as follows:

	Year ended December 31, 2011
	Amount of options			Weighted average exercise price		Weighted average remaining contractual life (in years)		Aggregate intrinsic value
Outstanding at January 1, 2011		2,945,772		$	1.65		4.70	$	2,026
Granted with respect to IDIT and FIS acquisition (Note 1)		1,938,844			2.09
Granted		491,000			3.29
Exercised		(135,796	)		1.69
Expired and forfeited		(52,674	)		1.54
Outstanding at December 31, 2011		5,187,146			1.97		4.56		19,609
Exercisable at December 31, 2011		3,688,079			1.81		4.22		7,307

In 2009, 2010 and 2011, the Company granted 292,012, 789,000 and 2,429,844 stock options to employees and directors, respectively.

The weighted average grant date fair values of the options granted during the years ended December 31, 2009, 2010 and 2011 were $ 0.59, $ 1.08 and $ 2.25, respectively.

The total intrinsic value of options exercised during the years ended December 31, 2010 and 2011 was $ 16 and $ 253, respectively. No options were exercise during 2009.

The options outstanding under the Company's stock option plans as of December 31, 2011 have been separated into ranges of exercise price as follows:

										Weighted
		Options		Weighted				Options		Average
		outstanding		average		Weighted		Exercisable		Exercise
		as of		remaining		average		as of		price of
Ranges of		December 31,		contractual		exercise		December 31,		Options
exercise price		2011		Term		price		2011		Exercisable
				(Years)		$				$
$	0.38		25,922		0.25		0.38		25,922		0.38
$	0.83		220,710		4.38		0.83		220,710		0.83
$	1-1.5		1,957,357		3.56		1.46		1,798,671		1.48
$	1.55-1.68		451,830		3.45		1.61		208,080		1.63
$	1.74-1.91		782,287		5.03		1.80		664,579		1.81
$	2.00-2.25		471,750		4.19		2.20		134,250		2.20
$	2.31-2.63		517,387		8.69		2.53		366,964		2.52
$	3.00-3.75		676,487		5.11		3.38		185,487		3.63
$	4.06-4.84		67,016		4.39		4.22		67,016		4.22
$	5.00-5.30		16,400		0.17		5.28		16,400		5.28
			5,187,146		4.56		1.97		3,688,079		1.81

F-37

SAPIENS INTERNATIONAL CORPORATION N.V.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 11: EQUITY (Cont.)

c. The total stock-based compensation expenses related to all of the Company's equity-based awards recognized for the years ended December 31, 2009, 2010 and 2011 was, $ 259, $ 412 and $ 336, respectively. The total stock-based compensation expenses were recorded as Selling, marketing, general and administration expenses.

d. See Note 1d regarding shares and related put options issued to Harcase's former shareholders.

As of December 31, 2011, there was $ 2,000 of total unrecognized compensation cost related to non-vested options granted under the Plan and the Special Plan, which is expected to be recognized over a period of up to four years.

e. Warrants:

The following table summarizes information regarding outstanding warrants to purchase Common shares of the Company as of December 31, 2011:

Warrants to Common shares	Weighted average exercise price per share		Warrants exercisable		Exercisable through
1,000,000	$	3.82		1,000,000	August 2014
11,000	$	2.00		11,000	May 2015
17,000	$	2.24		17,000	February 2015
1,028,000	$	3.77		1,028,000

F-38

SAPIENS INTERNATIONAL CORPORATION N.V.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 12:- BASIC AND DILUTED NET EARNINGS PER SHARE

	Year ended December 31,
	2009		2010		2011
Numerator:
Net income attributed to Sapiens shareholders	$	4,201	$	6,152	$	5,897
Denominator:
Denominator for basic earnings per share - weighted average number of common shares, net of treasury stock		21,573		21,583		28,460
Shares and related put options issued in Harcase acquisition (See Note 1d)		-		10		298
Stock options and warrants		1		588		2,006
Denominator for diluted net earnings per share - adjusted weighted average number of shares	$	21,574	$	22,181	$	30,764

The weighted average number of shares related to outstanding anti-dilutive options and warrants excluded from the calculations of diluted net earnings per share was 2,763,298 and 834,844 and 1,308,212 for the years 2009, 2010 and 2011, respectively.

F-39

SAPIENS INTERNATIONAL CORPORATION N.V.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 13: GEOGRAPHIC INFORMATION

a. The Company operates in a single reportable segment as a provider of software solutions. See Note 1 for a brief description of the Company's business. The data below is presented in accordance with ASC 280, "Segment Reporting".

b. Geographic information:

The following is a summary of operations within geographic markets.

		Year ended December 31,
		2009		2010		2011
1.	Revenues:
	Israel	$	14,922	$	19,554	$	21,470
	North America		7,759		8,991		20,889
	United Kingdom		12,323		11,995		14,672
	Asia		9,950		11,080		8,026
	Europe		741		615		4,870
		$	45,695	$	52,235	$	69,927

		December 31,
		2010		2011
2.	Long-lived assets:
	Israel	$	14,584	$	32,676
	North America		1,672		1,293
	Rest of the world		272		578
		$	16,528	$	34,547

F-40

SAPIENS INTERNATIONAL CORPORATION N.V.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 14: SELECTED STATEMENTS OF OPERATIONS DATA

a. Financial expenses, net:  

	Year ended December 31,
	2009			2010			2011
Total costs	$	6,427		$	8,680		$	9,743
Less - capitalized software development costs		(3,692	)		(5,387	)		(4,735	)
Research and development expenses, net	$	2,735		$	3,293		$	5,008

b. Financial income (expenses), net:

Financial income:
Interest	$	109		$	87		$	160
Foreign currency translation		241			39			530
		350			126			690
Financial expenses:
Interest		416			105			189
Foreign currency translation		313			249			341
Bank charges and others		43			30			56
Re-measurement of earn-out payment		-			106			-
Amortization of issuance expenses and discount on convertible notes		458			-			-
		(1,230	)		(490	)		(586	)
Financial income (expenses), net	$	(880	)	$	(364	)	$	104

- - - - - - - -

F-41

EX-4.(B)

Execution Copy

SHARE pURCHASE AGREEMENT

BY AND AMONG

SAPIENS INTERNATIONAL CORPORATION N.V.,

sapieNs Technologies (1982) Ltd.,

IDIT I.D.I. TECHNOLOGIES Ltd.,

THE shareholders of IDIT I.D.I. TECHNOLOGIES LTD.,

MR. Amit Ben Yehuda, as THE IDIT I.D.I. TECHNOLOGIES Ltd. SHAREHOLDERS REPRESENTATIVE,

FIS SOFTWARE LTD.,

THE shareholders of FIS SOFTWARE LTD.

and

MR. Dani goldSTEIN as THE FIS SOFTWARE LTD. SHAREHOLDERS REPRESENTATIVE

July 21, 2011

Execution Copy 

Table of Contents
Article I Definitions		10
Section 1.01	Certain Definitions.	10
Section 1.02	Additional Definitions	18
Section 1.03	Definitional and Interpretative Provisions.	21
Article II Purchase of Companies shares		21
Section 2.01	Purchase and Sale of Companies Shares.	21
Section 2.02	Consideration.	22
Section 2.03	Payment Schedule	23
Section 2.04	Companies Options.	24
Section 2.05	Escrow Fund.	28
Section 2.06	Other Shareholders.	28
Section 2.07	Section 341 Action.	28
Section 2.08	Withholding Tax.	30
Section 2.09	Legend Requirement.	30
Section 2.10	IDIT Closing.	31
Section 2.11	FIS Closing.	32
Section 2.12	Closing of One Transaction.	33
Article III Representations and Warranties of the COMPANY		33
Section 3.01	Corporate Existence and Power.	34
Section 3.02	Corporate Authorization.	34
Section 3.03	Compliance with Applicable Law.	35
Section 3.04	Governmental Authorizations; Governmental Grants.	35
Section 3.05	Non-Contravention.	36
Section 3.06	Capitalization.	37
Section 3.07	Products.	38
Section 3.08	Financial Statements.	38
Section 3.09	Notes and Accounts Receivable.	39
Section 3.10	Deleted	39
Section 3.11	Absence of Certain Changes.	39
Section 3.12	No Undisclosed Liabilities.	41

Execution Copy

Section 3.13	Material Contracts.	42
Section 3.14	Restrictions on Business Activities.	44
Section 3.15	Litigation.	44
Section 3.16	Properties.	45
Section 3.17	Customers and Suppliers.	45
Section 3.18	Intellectual Property.	46
Section 3.19	Insurance Coverage.	49
Section 3.20	Tax Matters.	50
Section 3.21	Employees; Contractors and Benefit Plans	51
Section 3.22	Affiliate Transactions.	53
Section 3.23	Finder's Fees.	53
Section 3.24	Bank Accounts.	53
Article IV Representations and Warranties of the Selling Shareholders		53
Section 4.01	Title to Company Shares.	54
Section 4.02	Authority; Binding Effect.	54
Section 4.03	Non-Contravention; Consents.	55
Section 4.04	Capacity of Selling Shareholder.	55
Section 4.05	Tax Withholding Information.	56
Section 4.06	Finder’s Fees.	56
Section 4.07	Company Group Assets.	56
Section 4.08	Securities Laws.	56
Section 4.09	Selling Shareholders Status.	58
Article V Representations and Warranties of Purchaser and parent		58
Section 5.01	Corporate Existence and Power.	58
Section 5.02	Corporate Authorization.	59
Section 5.03	Compliance with Applicable Law.	59
Section 5.04	Governmental Authorizations; Governmental Grants.	60
Section 5.05	Non Contravention.	60
Section 5.06	Capitalization of Parent Group.	61
Section 5.07	Products.	61
Section 5.08	Valid Issuance of Consideration Shares and Warrants Shares.	62
Section 5.09	Financial Statements.	62
Section 5.10	Notes and Accounts Receivable.	63

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Execution Copy

Section 5.11	Absence of Certain Changes.	63
Section 5.12	No Undisclosed Liabilities.	65
Section 5.13	Material Contracts.	65
Section 5.14	Restrictions on Business Activities.	68
Section 5.15	Litigation.	68
Section 5.16	Properties.	68
Section 5.17	Customers and Suppliers.	69
Section 5.18	Parent Intellectual Property	69
Section 5.19	Insurance Coverage.	72
Section 5.20	Tax Matters.	72
Section 5.21	Employees; Contractors and Benefit Plans	73
Section 5.22	Affiliate Transactions.	75
Section 5.23	Finder’s Fees.	75
Section 5.24	Investment Company.	75
Section 5.25	Private Placement; Securities Law.	75
Article VI PRE CLOSING Covenants		76
Section 6.01	Conduct of Business.	76
Section 6.02	No Solicitation; Other Offers.	78
Section 6.03	Access to Information.	79
Section 6.04	Notices of Certain Events.	79
Section 6.05	Restriction on Transfer.	80
Section 6.06	Filings.	80
Section 6.07	Adoption of New Parent Option Plan.	81
Section 6.08	Israeli Tax Ruling.	81
Section 6.09	FIS Shareholders Meeting.	82
Section 6.10	Transactions in Parent's Shares.	83
Article VII Additional agreements		83
Section 7.01	Public Announcements.	83
Section 7.02	Commercially Reasonable Efforts.	83
Section 7.03	Litigation Support	84
Section 7.04	Tax Matters.	84
Section 7.05	Confidentiality.	84
Section 7.06	Appointment of Board Member.	84

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Execution Copy

Section 7.07	Waiver of Claims.	84
Section 7.08	Further Actions	85
Section 7.09	D&O Insurance	85
Section 7.10	Registration Statement on Form S-8	85
Section 7.11	Form D	86
Article VIII Conditions to the transactions		86
Section 8.01	Conditions to the Obligations of the Parties to the FIS Transaction.	86
Section 8.02	Conditions to the Obligations of the Parties to the IDIT Transaction	86
Section 8.03	Conditions to the Obligations of Purchaser and Parent to Consummate the FIS Transaction	87
Section 8.04	Conditions to the Obligations of Purchaser and Parent to Consummate the IDIT Transaction	89
Section 8.05	Conditions to the Obligations of the FIS Selling Shareholders.	92
Section 8.06	Conditions to the Obligations of the IDIT Selling Shareholders.	93
Article IX Termination		95
Section 9.01	Termination of FIS Transactions.	95
Section 9.02	Effect of Termination of FIS Transaction.	96
Section 9.03	Termination of IDIT Transactions.	96
Section 9.04	Effect of Termination of IDIT Transaction.	97
Article X Indemnification		97
Section 10.01	Survival of Representations.	97
Section 10.02	Indemnification by Selling Shareholders.	98
Section 10.03	Indemnification by Purchaser.	100
Section 10.04	Claims and Procedures.	102
Section 10.05	Defense of Third-Party Claims.	105
Section 10.06	No Contribution.	106
Section 10.07	Tax Impact.	106
Section 10.08	Additional Provisions.	106
Article XI Shareholders Representative		106
Section 11.01	Appointment of Shareholders Representatives; Power and Authority.	106
Section 11.02	Reimbursement.	107
Section 11.03	Release from Liability; Indemnification.	107
Article XII Miscellaneous		108
Section 12.01	Entire Agreement.	108

5

Execution Copy

Section 12.02	Amendments and Waivers.	108
Section 12.03	Binding Effect; Benefit; Assignment.	109
Section 12.04	Construction.	109
Section 12.05	Headings.	109
Section 12.06	Governing Law.	109
Section 12.07	Jurisdiction.	109
Section 12.08	Notices.	110
Section 12.09	Severability.	112
Section 12.10	Specific Performance.	113
Section 12.11	Expenses.	113
Section 12.12	Disclosure Schedule References.	113
Section 12.13	Counterparts; Effectiveness.	113

6

Execution Copy

Exhibits
Exhibit A	Form of FIS Escrow Agreement
Exhibit B	Form of IDIT Escrow Agreement
Exhibit C	IDIT Purchase Price Allocation
Exhibit D	FIS Purchase Price Allocation
Exhibit E1	Form of IDIT Spousal Consent
Exhibit E2	Form of FIS Spousal Consent
Exhibit F1	Form of FIS TEA Agreement
Exhibit F2	Form of IDIT TEA Agreement
Exhibit G	Form of Consideration Warrant
Exhibit H	Irrevocable Instructions to Transfer Agent Re Transfer of IDIT Purchase Price to Escrow Agent
Exhibit I	Irrevocable Instructions to Transfer Agent Re Transfer of IDIT Purchase Price to IDIT Selling Shareholders
Exhibit J	Irrevocable Instructions to Transfer Agent Re Transfer of FIS Purchase Price to Escrow Agent
Exhibit K	Irrevocable Instructions to Transfer Agent Re Transfer of FIS Purchase Price to FIS Selling Shareholders
Exhibit L	List of Non-Executing Shareholders
Exhibit M1	Form of New Option Plan
Exhibit M2	Form of Option Agreement
Exhibit N	Form of FIS Closing Certificate
Exhibit O	Form of FIS Selling Shareholder Closing Certificate
Exhibit P	Form of Resignation Letters of FIS' Directors
Exhibit Q	Form of Formula and Kardan Side Letter
Exhibit R	Form of Registration Rights Agreement
Exhibit S	Form of Affidavit of Lost FIS Certificates
Exhibit T	Form of FIS Share Transfer Deed
Exhibit U	Form of IDIT Closing Certificate
Exhibit V	Form of IDIT Selling Shareholder Closing Certificate
Exhibit W	Form of Resignation Letters of IDIT's Directors
Exhibit X	Form of Affidavit of Lost IDIT Certificates
Exhibit Y	Form of IDIT Share Transfer Deed
Exhibit Z1	Form of Purchaser FIS Closing Certificate
Exhibit Z2	Form of Purchaser IDIT Closing Certificate
Exhibit Z3	Form of Parent FIS Closing Certificate
Exhibit Z4	Form of Parent IDIT Closing Certificate
Exhibit 6.09	Form of EGM Notice
Schedules
Schedule A	FIS Options
Schedule B	IDIT Options
Schedule C	Antitrust Approvals
Schedule D	Transaction Expenses

FIS Disclosure Schedule

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IDIT Disclosure Schedule

FIS Selling Shareholders Disclosure Schedule

IDIT Selling Shareholders Disclosure Schedule

Purchaser Disclosure Schedule

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SHARE PURCHASE AGREEMENT

THIS SHARE PURCHASE AGREEMENT (this "Agreement"), dated as of July 21, 2011, is entered into by and among (i) IDIT I.D.I. Technologies Ltd. ("IDIT"), (ii) FIS Software Ltd. ("FIS", and together with IDIT, the "Companies" and each, a "Company"), (iii) Sapiens International Corporation N.V. (the "Parent"), (iv) Sapiens Technologies (1982) Ltd. (the "Purchaser"), (v) the shareholders of IDIT whose names appear on the signature page of this Agreement or that otherwise become parties to this Agreement under Section 2.06 and Section 2.07 hereof (each an "IDIT Selling Shareholder" and together, the "IDIT Selling Shareholders"), (vi) Mr. Amit Ben Yehuda in his capacity as representative of the IDIT Selling Shareholders ("IDIT Shareholders Representative"), (vii) the shareholders of FIS whose names appear on the signature page of this Agreement or that otherwise become parties to this Agreement under Section 2.06and Section 2.07 hereof (each an "FIS Selling Shareholder" and together, the "FIS Selling Shareholders" and together with IDIT Selling Shareholders, the "Selling Shareholders") and (viii) Mr. Dani Goldstein in his capacity as representative of the FIS Selling Shareholders ("FIS Shareholders Representative" and together with IDIT Shareholders Representative, the "Shareholders Representatives").

RECITALS

WHEREAS, the Companies engage in the business of developing and marketing software products for insurance companies and services and maintenance therefor; and

WHEREAS, the IDIT Selling Shareholders executing this Agreement on the date hereof own of record and beneficially more than 95% of the issued and outstanding share capital of IDIT as of the date hereof; and

WHEREAS, the FIS Selling Shareholders executing this Agreement on the date hereof own of record and beneficially more than 95% of the issued and outstanding share capital of FIS as of the date hereof; and

WHEREAS, the parties intend that, subject to the terms and conditions herein, the Purchaser shall acquire from the FIS Selling Shareholders (including the Non Executing Shareholders of FIS), and the FIS Selling Shareholders (including the Non Executing Shareholders of FIS) shall sell to the Purchaser all of the FIS Shares, on the terms and conditions set forth herein; and

WHEREAS, the parties intend that, subject to the terms and conditions herein, the Purchaser shall acquire from the IDIT Selling Shareholders (including the Non Executing Shareholders of IDIT), and the IDIT Selling Shareholders (including the Non Executing Shareholders of IDIT) shall sell to the Purchaser all of the IDIT Shares, on the terms and conditions set forth herein.

NOW, THEREFORE, in consideration of the mutual representations, warranties, promises, covenants and agreements contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, hereby agree as follows:

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Article I
Definitions

Section 1.01 Certain Definitions.

As used in this Agreement, the following terms have the following meanings:

"Acquisition Proposal" means, any offer, proposal or inquiry relating to, or any Person’s indication of interest in, an Acquisition Transaction.

"Acquisition Transaction" means, with respect to each of the Companies or the Parent, any transaction or series of transactions, which is not in the ordinary course of business, involving the sale, license or disposition of all or a material portion of their or their Subsidiaries' business or assets and the issuance, disposition or acquisition of: (i) any of their or their Subsidiaries' share capital or other equity security (other than issuance of shares upon exercise of Options outstanding on the date hereof); (ii) any Option, call, warrant or right (whether or not immediately exercisable) to acquire any of their share capital, unit or other equity security; or (iii) any security, instrument or obligation that is or may become convertible into or exchangeable for any of their share capital.

"Affiliate" means, with respect to any Person, any other Person directly or indirectly controlling, controlled by, or under common control with such Person. For purposes of this definition, "control," when used with respect to any specified Person, means the power to direct or cause the direction of the management and policies of such Person, directly or indirectly, whether through ownership of voting securities or by contract or otherwise, and the terms "controlling" and "controlled by" have correlative meanings to the foregoing.

"Applicable Law" means, with respect to any Person, any federal, state, local, municipal, or other law (including common law), statutes, regulations, directives, constitution, treaty, convention, ordinance, code, rule, order, injunction, judgment, decree, request or other similar requirement enacted, adopted, promulgated or applied by a Governmental Authority that is binding upon or applicable to such Person.

"Assets and Properties" of any Person shall mean all assets and properties of any kind (whether real, personal or mixed, whether tangible or intangible, and wherever situated), including the goodwill related thereto, operated, owned or leased by such Person.

"Business Day" means a day, other than Friday, Saturday or other day on which commercial banks in Tel Aviv, Israel are authorized or required by Applicable Law to close.

"Companies Law" means the Israeli Companies Law-1999.

"Companies Option Plans" means IDIT Option Plans and FIS Option Plans.

"Companies Options" means the IDIT Options and the FIS Options.

"Company Products" means, with respect to each Company or any of its Subsidiaries, all products or services produced, marketed, licensed, sold, distributed or performed by or on behalf of such Company or any of its Subsidiaries and all products or services currently under development by such Company or any of its Subsidiaries.

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"Companies Shares" means the IDIT Shares and the FIS Shares.

"Company Debt" means with respect to each of the Companies and each of its respective Subsidiaries, at any specified time, any Indebtedness of any of such Company or any of its Subsidiaries (including, without limitation, any and all principal, accrued and unpaid interest, expenses or fees).

"Company Disclosure Schedule" means, with respect to each Company, the disclosure schedule dated as of the date of this Agreement relating to the representations and warranties of such Company made in this Agreement.

"Company Group" means collectively and individually, the respective Company and its Subsidiaries.

"Consent" means any approval, consent, license, authorization, franchise, ratification or permission.

"Contract" means any oral or written contract, agreement, understanding, arrangement, undertaking, indenture, note, or bond.

"Consideration Shares" mean the IDIT Consideration Shares and FIS Consideration Shares.

"Escrow Agent" means ESOP Management & Trust Company Ltd., as Escrow Agent under the FIS Escrow Agreement and the IDIT Escrow Agreement.

"Escrow Agreement" means the FIS Escrow Agreement or the IDIT Escrow Agreement, as applicable.

"Escrowed Funds" means the FIS Escrowed Funds or the IDIT Escrowed Funds, as applicable.

"FIS 102 Trustee" means Schwartz, Lerner, Duvshani, Trustees (2003) Ltd.

"FIS Aggregate Transaction Value" means (i) the Cash Consideration, plus (ii) the number of FIS Consideration Shares multiplied by the Parent Share Value.

"FIS Escrow Agreement" means an Escrow Agreement in the form of Exhibit A hereto to be entered into on the FIS Closing Date by the Purchaser, the Parent, the FIS Shareholders Representative (on behalf of the FIS Selling Shareholders) and the Escrow Agent.

"FIS Escrow Deposit" an amount of common shares of the Parent equal to 10% of the FIS Consideration Shares plus an amount of common shares of the Parent equal to 10% of the Cash Consideration divided by US$4.00, to be held in escrow by the Escrow Agent pursuant to the FIS Escrow Agreement, which deposited shares may at any time following the FIS Closing be replaced pursuant to the terms of the FIS Escrow Agreement by the FIS Selling Shareholder on whose benefit such shares were deposited in escrow with such amount in cash equal to the number of such common shares of the Parent so replaced multiplied by the Parent Share Value.

"FIS Escrowed Funds" shall mean the Parent shares and (if applicable) cash held from time to time in escrow by the Escrow Agent in the FIS Escrow Deposit pursuant to the terms of the FIS Escrow Agreement.

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"FIS Extra Consideration Shares" means such number of additional common shares of Parent equal to the product of the number of new FIS Shares issued by FIS between the date of this Agreement and the FIS Closing, due to exercise of FIS Options, multiplied by the FIS Conversion Ratio.

"FIS Option Plans" means FIS Management and Employees Option Plan dated March 31, 2001 and FIS 2003 Share Option Plan.

"FIS Options" means any outstanding Options to purchase FIS Ordinary Shares that have been granted (both vested and unvested) under or subject to the terms of the FIS Option Plans, details of which are set forth in Schedule A attached hereto.

"FIS Ordinary Shares" mean the ordinary shares, par value NIS 1.00 each, of FIS.

"FIS Preferred Shares" means Series A Preferred Shares and Series A-1 Preferred Shares of FIS, par value NIS 1.00 each, issued and outstanding as of the date hereof and/or as of the date of the FIS Closing.

"FIS Shares" mean FIS Ordinary Shares issued and outstanding as of the date hereof and/or as of the date of the FIS Closing and the FIS Preferred Shares.

"FIS TEA Agreement" means the escrow agreement in the form of Exhibit F1.

"FIS Transaction" means the purchase of the FIS Shares by Purchaser and all other transactions contemplated by this Agreement and the other Transaction Documents in connection with such purchase.

"FIS Unvested Option" means each FIS Option that is outstanding and unvested on the FIS Closing Date.

"FIS Vested Option" means each FIS Option that is outstanding and vested on the FIS Closing Date.

"Governmental Authority" means any: (a) province, region, state, county, city, town, village, district or other jurisdiction; (b) federal, provincial, regional, state, local, municipal, foreign or other government; (c) governmental or quasi governmental authority of any nature (including any governmental agency, branch, bureau, department or other entity and any court or other tribunal); (d) multinational organization; (e) body exercising, or entitled to exercise any administrative, executive, judicial, legislative, police, regulatory or taxing authority or power of any nature; (f) Taxing Authority; or (g) official of any of the foregoing.

"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 Authority or pursuant to any Applicable Law.

"Governmental Grant" means any grant, 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 Investment Center, the BIRD Foundation or any other bi/multi-national grant programs for research and development, the European Union, the Fund for Encouragement of Marketing Activities of the Israeli Government or any other Governmental Authority.

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"IDIT 102 Trustee" means Fahn Kanne Trust Ltd.

"IDIT Aggregate Transaction Value" means the number of IDIT Consideration Shares multiplied by the Parent Share Value.

"IDIT Escrow Agreement" means an Escrow Agreement in the form of Exhibit B hereto to be entered into on the IDIT Closing Date by the Purchaser, the Parent, the IDIT Shareholders Representative (on behalf of the IDIT Selling Shareholders) and the Escrow Agent.

"IDIT Escrow Deposit" means an amount of common shares of the Parent equal to 10% of the aggregate IDIT Consideration Shares, to be held in escrow by the Escrow Agent pursuant to the IDIT Escrow Agreement, which deposited shares may at any time following the IDIT Closing be replaced pursuant to the terms of the IDIT Escrow Agreement by the IDIT Selling Shareholder on whose benefit such shares were deposited in escrow with such amount in cash equal to the number of such common shares of the Parent so replaced multiplied by the Parent Share Value.

"IDIT Escrowed Funds" mean the Parent shares and (if applicable) cash held from time to time in escrow by the Escrow Agent in the IDIT Escrow Deposit pursuant to the terms of the IDIT Escrow Agreement.

"IDIT Extra Consideration Shares" means such number of additional common shares of Parent equal to the product of the number of new IDIT Shares issued by IDIT between the date of this Agreement and the Closing, due to exercise of IDIT Options, multiplied by the IDIT Conversion Ratio.

"IDIT Option Plans" mean 2001 Plan of Allocation of Options for IDIT's Employees and 2004 Israeli Option Plan for Allocation of Options.

"IDIT Options" mean any outstanding Options to purchase IDIT Ordinary Shares that have been granted (both vested and unvested) under or subject to the terms of the IDIT Option Plans, details of which are set forth in Schedule B attached hereto.

"IDIT Ordinary Shares" mean the ordinary shares, par value NIS 1.00 each, of IDIT.

"IDIT Shares" mean IDIT Ordinary Shares, Series A-1 Preferred Shares and Series A-2 Preferred Shares par value NIS 1.00 each of IDIT issued and outstanding as of the date hereof and/or as of the date of IDIT Closing.

"IDIT TEA Agreement" means the escrow agreement in the form of Exhibit F2.

"IDIT Transaction" means the purchase of the IDIT Shares by Purchaser and all other transactions contemplated by this Agreement and the other Transaction Documents in connection with such purchase.

"IDIT Unvested Options" means each IDIT Option that is outstanding and unvested immediately prior to the IDIT Closing Date.

"IDIT Vested Options" means each IDIT Option that is outstanding and vested on the IDIT Closing Date.

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"IFRS" International Financial Reporting Standard, consistently applied throughout the respective periods covered.

"Indebtedness" shall mean, with respect to any Person, (i) indebtedness for borrowed money or in respect of overdrafts, loans or advances or indebtedness issued or incurred in substitution or exchange for indebtedness for borrowed money, overdrafts, loans or advances, (ii) any obligations as lessee under any lease or similar arrangement required to be recorded as a capital lease in accordance with IFRS or US GAAP (with respect to Parent), (iii) all liabilities under or in connection with bankers’ acceptances, performance bonds, sureties or similar obligations that have been drawn down, in each case, to the extent of such draw, (iv) all liabilities under conditional sale or other title retention agreements, (v) amounts owing as deferred purchase price for property goods or services, (vi) indebtedness evidenced by any note, bond, debenture, mortgage, debt factoring, invoice or trade bills, discounting, letters or credits, guarantees, undertakings and indemnities in respect of third party borrowings and the mark to market value of any derivate instruments, any contingent liabilities under acceptance credits or other debt instrument or debt security, (vii) commitments or obligations by which such Person assures a creditor against Loss (including contingent reimbursement obligations with respect to letters of credit), (viii) indebtedness secured by a Lien on any Assets and Properties of such Person, (ix) obligations or commitments to repay deposits or other amounts advanced by and owing to third parties, (x) all obligations under any interest rate, currency swap arrangement or other hedging agreement or other arrangements designed to provide protection against fluctuation in interest or currency rates, (xi) any deficit on the reserve for the severance fund for employees or (viii) guarantees or other contingent liabilities with respect to any indebtedness, obligation, claim or liability of any other Person of a type described in clauses (i) through (vii) above.

"ITA" means the Israel Tax Authority.

"Investment Center" means the Investment Center of the Israeli Ministry of Industry, Trade and Labor established under the Israel Law for the Encouragement of Capital Investments-1959.

"Israeli Securities Law" means the Israeli Securities Law, 1968.

“Knowledge” or "best of Knowledge" shall be defined as follows: Each Person shall be deemed to have “Knowledge” of a particular fact or matter if such Person (and, if such Person is a corporation, partnership or other corporate entity, then the reference shall be to the chief executive officer, chief financial officer and internal general counsel, and (with respect to the Companies and Parent) in relation to the technical and intellectual property issues, also its chief technology officer, or any other persons carrying responsibilities similar to those of the forgoing office holders) is actually aware of such fact.

"Liability" means any liability, debt, obligation, deficiency, interest, Tax, penalty, fine, judgment or any other loss, including reasonable costs and expenses incurred in connection with such liabilities.

"Lien" means, with respect to any security, property or asset, as the case may be, any mortgage, lien, pledge, charge, security interest, encumbrance, hypothecation, Options, proxies, right of first refusal, preemptive right or restriction or rights of third parties of any nature (including any spousal community property rights, any restriction on the voting, transfer, receipt of any income derived from, the possession of any security, or the exercise or transfer of any other attribute of ownership of a security) or other adverse claim of any kind in respect of such property or asset. For purposes of this Agreement, a Person shall be deemed to own subject to a Lien any property or asset that it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement relating to such property or asset.

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"Losses" mean any and all losses, liabilities, actions, causes of action, costs, damages (excluding consequential damages, special damages and incidental damages) or expenses, whether or not arising from or in connection with any third-party claims (including, without limitation, interest, penalties, reasonable attorneys’, consultants’ and experts’ fees and expenses and all amounts paid in investigation, defense or settlement of any of the foregoing) or any other claim, default or assessment (including any claim asserting or disputing any right under this Agreement or any Transaction Document against any party hereto or otherwise), plus any interest that may accrue on any of the foregoing from the date of incurrence.

"Material Adverse Effect" when used in connection with a Person means any event, change, development, occurrence, circumstance or effect (other than changes in general economic conditions to the extent such changes do not have a disproportionate effect on such Person and its subsidiaries, taken as a whole ("Disproportionally Exception")) that, when taken individually or together with any or all other events, changes, developments, occurrences, circumstances or effects, is or is reasonably likely to be materially adverse, to the business, Assets and Properties, liabilities, affairs, results of operations, or condition (financial or otherwise) of such Person and its Subsidiaries, taken as a whole, but shall not include adverse effect resulting primarily from, arising in connection with or relating to (i) events, changes, developments, occurrences, circumstances or effects generally affecting the industry, markets or general political or economic environment in which such Person operates (subject to the Disproportionally Exception), or (ii) the announcement of the Transactions; or (iii) any change in Applicable Laws or accounting principles (subject to the Disproportionally Exception), or (iv) compliance with the terms of, or taking any action required by, this Agreement.

"Nasdaq" means Nasdaq Capital Market.

"OCS" means the Office of the Chief Scientist of the Israeli Ministry of Industry, Trade and Labor.

"Option" means, with respect to any Person, any security, right, subscription, warrant, option, "phantom" stock right or other Contract that gives the right to (i) purchase or otherwise receive or be issued any shares of such Person or any security of any kind convertible into or exchangeable or exercisable for any shares of such Person or (ii) receive or exercise any benefits or rights similar to any rights enjoyed by or accruing to the holder of shares of such Person, including any rights to participate in the equity or income of such Person or to participate in or direct the election of any directors or officers of such Person or the manner in which any shares of such Person are voted.

"Parent Debt" means with respect to the Parent and each of its respective Subsidiaries, at any specified time, any Indebtedness of the Parent or any of its Subsidiaries (including, without limitation, any and all principal, accrued and unpaid interest, expenses or fees).

"Parent Group" means collectively and individually, the Parent and its Subsidiaries.

"Parent Products" means, with respect to the Parent or any of its Subsidiaries, all products or services produced, marketed, licensed, sold, distributed or performed by or on behalf of the Parent or any of its Subsidiaries and all products or services currently under development by the Parent or any of its Subsidiaries.

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"Parent Share Value" means the average of the closing prices of a common share of Parent as reported on the Nasdaq over the 60-day period ending on, and including, the third Business Day prior to the respective Closing Date.

"Participation Portion" means, with respect to each Selling Shareholder, the percentage of IDIT Purchase Price or FIS Purchase Price, as the case may be, appearing opposite the name of such Selling Shareholder, in Exhibit C and Exhibit D in the columns entitled Participation Portion which shall include, with respect to FIS, different columns for the Cash Consideration and the FIS Consideration Shares.

"Person" means an individual, corporation, partnership, limited liability company, association, trust or other entity or organization, including a Governmental Authority.

"Post-Closing Tax Period" means any Tax period beginning after the respective Closing Date.

"Pre-Closing Tax Period" means any Tax period ending on (and including) or prior to the respective Closing Date.

"Proceeding" means any action, suit, litigation, arbitration, proceeding (including any civil, criminal, administrative, investigative or appellate proceeding), hearing, inquiry, audit, examination or investigation commenced, brought, conducted or heard by or before, or otherwise involving, any court or other Governmental Authority or any arbitrator or arbitration panel.

"Purchaser Disclosure Schedule" means the disclosure schedule dated as of the date of this Agreement relating to the representations and warranties of the Purchaser and the Parent made in this Agreement.

"Representative" means a Person’s officers, directors, employees, agents, attorneys, accountants, advisors, investment bankers and other representatives (and in case of a partnership, also its general partner).

"Rule 144" means Rule 144 promulgated by the SEC pursuant to the Securities Act, as such Rule may be amended or interpreted from time to time, or any similar rule or regulation hereafter adopted by the SEC having substantially the same purpose and effect as such Rule.

"SEC" means the United States Securities and Exchange Commission.

"Securities Act" means the United States Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

"Selling Shareholder Disclosure Schedule" means, with respect to each Selling Shareholder, the disclosure schedule dated as of the date of this Agreement relating to the representations and warranties of such Selling Shareholder made in this Agreement.

"Spousal Consent" means the consent of the spouse of any Selling Shareholder that is married in the forms attached hereto as Exhibit E1 and E2.

"Straddle Period" means any Tax period beginning on or before and ending after the respective Closing Date.

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"Subsidiary" means, with respect to any Person, any entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are at any time directly or indirectly owned by such Person.

"Super Majority" means, with respect to FIS, approval of the holders of 70% of the voting rights and with respect to, IDIT approval of the holders of 90% of the voting rights.

"TASE" means the Tel Aviv Stock Exchange.

“Tax” (and, with correlative meaning, “Taxes”) means (i) any tax on net income, alternative or add-on minimum, gross income, gross receipts, sales, use, value-added, ad valorem, transfer, franchise, profits, license, withholding, payroll, employment, excise, severance, stamp, occupation, premium, property, environmental or windfall profit tax, custom duty and import and export taxes, provincial health insurance plan premiums, employer health tax, United States or other government pension plan contributions, employment insurance premiums, workman’s compensation, national insurance, national health insurance and other payroll taxes, deductions at source, non-resident withholding, social service provincial sales and goods and services taxes, including estimated taxes, countervail and anti-dumping fees and taxes, all licenses and registration fees, escheat, any related penalties, or other tax, governmental fee or other like assessment, reassessment or charge, duties, impositions and liabilities of any kind whatsoever, together with any interest, linkages differences or any penalty, addition to tax or additional amount imposed by any Governmental Authority responsible for the imposition of any such tax, (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 indemnify any other Person.

"Tax Escrow Agent" means ESOP Management & Trust Company Ltd. as escrow agent under the FIS TEA Agreement and the IDIT TEA Agreement.

"Tax Ordinance" means the Israeli Income Tax Ordinance [New Version], 1961.

"Tax Return" means any return, report, declaration, claim for refund, information return (including schedules thereto, other attachments thereto, amendments thereof) filed or required to be filed with any Taxing Authority in connection with the determination, assessment or collection of any Tax, or the administration of any laws, regulations or administrative requirements relating to any Tax.

"Taxing Authority" means any governmental agency, board, bureau, body, department or authority of any Israeli jurisdiction or any foreign jurisdiction, having or purporting to exercise jurisdiction with respect to any Tax.

"TEA Agreement" means the FIS TEA Agreement or the IDIT TEA Agreement, as applicable.

"Transaction Documents" means this Agreement and any and all other Contracts, certificates and documents contemplated to be delivered or executed in connection with this Agreement and the transactions contemplated hereby, and each reference to the term "Transaction Documents" shall be deemed a reference to the foregoing documents as applicable to the FIS Transaction or the IDIT Transaction, as applicable.

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"Transactions" means the purchase of the Companies Shares by Purchaser and all other transactions contemplated by this Agreement and the other Transaction Documents, and each reference to the term "Transactions" shall be deemed a reference to the FIS Transaction or the IDIT Transaction, as applicable.

"Transfer Agent" means American Stock Transfer & Trust Company.

"US GAAP" means generally accepted accounting principles in the United States of America, consistently applied throughout the respective periods covered.

Additional Definitions.

Term	Section
ACT	Section 2.09(a)
Addressee	Section 10.04(a)
Agreed Amount	Section 10.04(b)
Antitrust Approvals	Section 6.06(d)
Antitrust Laws	Section 6.06(d)
Arbitration Law	Section 10.04(e)
Arbitrator	Section 10.04(e)
Assets	Section 3.16(b)
Assumption Date	Section 2.04(c)
Assumed Options	Section 2.04(b)(i)
Balance Sheet Date	Section 3.08(a)
Sellers Basket Amount	Section 10.02(d)
Benefit Plans	Section 3.21(b)
Bring-Along Notice	Section 2.07(c)
Charter Documents	Section 3.01(c)
Claimed Amount	Section 10.04(a)(ii)
Closing	Section 2.11(a)
Closing Date	Section 2.11(a)
Company IP Rights	Section 3.18(a)(2)
Company IP Rights Agreements	Section 3.18(h)
Company Leased Real Property	Section 3.16(a)
Company Material Contract	Section 3.13(a)
Company-Owned IP Rights	Section 3.18(a)(3)
Company's Financial Statements	Section 3.08(a)
Company Significant Customer	Section 3.17
Company Significant Supplier	Section 3.17
Company Source Code	Section 3.18(a)(5)
Compensation Package	Section 3.21(a)
Delivering Party	Section 10.04(a)
Confidential Information	Section 3.18(p)
Consideration Warrants	Section 2.02(c)(iii)
Consideration Securities	Section 4.08(a)
Contested Amount	Section 10.04(b)
Dispute Period	Section 10.04(b)

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EGM Notice	Section 6.09
Electing Holder	Section 6.08(a)(ii)
Exchange Act	Section 5.25(g)
Executing Shareholders	Section 2.07(a)
Expected Revenues	Section 5.09(f)
Financial Statements Date	Section 5.09(b)
FIS Articles	Section 2.07(a)
FIS Assumed Options	Section 2.04(b)(i)
FIS Closing	Section 2.11(a)
FIS Closing Certificate	Section 8.03(d)(i)
FIS Closing Date	Section 2.11(a)
FIS Consideration Shares	Section 2.02(c)(ii)
FIS Conversion Ratio	Section 2.04(a)(i)
FIS End Date	Section 9.01(b)
FIS Executing Shareholders	Section 2.07(a)
FIS Selling Shareholder Closing Certificate	Section 8.03(d)(ii)
Formula and Kardan Side Letter	Section 8.03(d)(v)
Formula Systems	Section 8.03(d)(vi)
Formula Vision	Section 8.03(d)(v)
IDIT Articles	Section 2.07(a)
IDIT Assumed Options	Section 2.04(a)(i)
IDIT Closing	Section 2.10(a)
IDIT Closing Certificate	Section 8.04(d)(i)
IDIT Closing Date	Section 2.10(a)
IDIT Consideration Shares	Section 2.02(b)
IDIT Conversion Ratio	Section 2.04(a)(i)
IDIT Executing Shareholders	Section 2.07(a)
IDIT Purchase Price	Section 2.02(b)
IDIT Selling Shareholder Closing Certificate	Section 8.04(d)(ii)
Indemnified Party	Section 10.03(a)
Indemnifying Party	Section 10.04(a)
Insider Receivables	Section 3.08(e)
Intellectual Property	Section 3.18(a)(1)
IRA	Section 8.03(d)(vi)
ISA	Section 5.01(a)
Israeli 104(h) Tax Ruling	Section 6.08(a)(ii)
Israeli Options Tax Ruling	Section 6.08(a)(i)
Israeli Securities Exemption	Section 6.06(b)
Kardan	Section 7.06
Leased Assets	Section 3.16(c)
Leased Contracts	Section 3.16(c)
Malicious Code	Section 3.18(s)
Material Contract	Section 5.13(a)
Menora Revenues	Section 5.09(f)
Non Executing Shareholders	Section 2.06
Nondisclosure Agreement	Section 7.05
Offering	Section 5.25(a)
Officer’s Claim Certificate	Section 10.04(a)
Open Source Materials	Section 3.18(q)

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Other Interested Party	Section 6.02
Parent Assets	Section 5.16(b)
Parent Benefit Plans	Section 5.21(b)
Parent Confidential Information	Section 5.18(n)
Parent's Financial Statements	Section 5.09(a)
Parent FIS Closing Certificate	Section 8.05(d)(i)
Parent Foreign Filings	Section 5.01(a)
Purchaser Basket Amount	Section 10.03(c)
Purchaser Indemnified Parties	Section 10.02(a)
Purchaser Fundamental Representations	Section 10.01(c)
Purchaser IDIT Closing Certificate	Section 8.06(d)(i)
Purchaser Survival Date	Section 10.01(c)
Parent IP Rights	Section 5.18(a)(1)
Parent IP Rights Agreements	Section 5.18(f)
Parent Leased Assets	Section 5.16(c)
Parent Leased Contracts	Section 5.16(c)
Parent Leased Real Property	Section 5.16(a)
Parent-Owned IP Rights	Section 5.18(a)(1)
Parent Material Contract	Section 5.13(a)
Parent Real Property Lease	Section 5.16(a)
Parent Related Person	Section 5.22
Parent SEC Documents	Section 5.01(a)
Parent Significant Customer	Section 5.17
Parent Significant Supplier	Section 5.17
Parent Source Code	Section 5.18(a)(3)
Payment Day	Section 2.08(b)
Purchaser FIS Closing Certificate	Section 8.05(d)(i)
Purchaser IDIT Closing Certificate	Section 8.06(d)(i)
Purchaser Indemnified Parties	Section 10.02(a)
Real Property Lease	Section 3.16(a)
Rep Letters	Section 8.03(m)
Registrar	Section 8.03(l)
Regulation D Investor	Section 4.08(b)
Regulation S Investor	Section 4.08(b)
Related Person	Section 3.22
Releasee and Releasees	Section 7.07
Response Notice	Section 10.04(b)
Restricted Parties	Section 6.10
Section 102	Section 3.21(b)
Section 401(a)	Section 3.21(b)
Sellers Fundamental Representations	Section 10.01(a)
Selling Shareholders Indemnified Parties	Section 10.03(a)
Stipulated Amount	Section 10.04(d)
Sellers Survival Date	Section 10.01(a)
TASE Approval	Section 6.06(c)
TASE Certificate	Section 8.05(j)
Tax Certificate	Section 2.08(b)
Third Party Intellectual Property Rights	Section 3.18(a)(4)
Transfer Taxes	Section 7.04(b)

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Section 1.03 Definitional and Interpretative Provisions.

(a) The words "hereof," "herein" and "hereunder" and words of like import used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement.

(b) The captions herein are included for convenience of reference only and shall be ignored in the construction or interpretation hereof. References to Articles, Sections, Exhibits and Schedules are to Articles, Sections, Exhibits and Schedules of this Agreement, unless otherwise specified.

(c) All Exhibits and Schedules annexed hereto or referred to herein are hereby incorporated in and made a part of this Agreement as if set forth in full herein. Any capitalized terms used in any Exhibit or Schedule but not otherwise defined therein, shall have the meaning as defined in this Agreement.

(d) Any singular term in this Agreement shall be deemed to include the plural, and any plural term the singular.

(e) Whenever the words "include," "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation," whether or not they are in fact followed by those words or words of like import.

(f) All references to time shall refer to Israel time. The word "extent" in the phrase "to the extent" means the degree to which a subject or other thing extends, and such phrase shall not mean simply "if".

(g) The use of the word "or" shall not, necessarily, be exclusive.

(h) Any rule of construction to the effect that ambiguities are to be resolved against the drafting party shall not be applied in the construction or interpretation of this Agreement.

(i) Any agreement or instrument defined or referred to herein, or in any agreement or instrument that is referred to herein, means such agreement or instrument as from time to time amended, modified or supplemented. Other terms may be defined elsewhere in the text of this Agreement and shall have the meaning indicated throughout this Agreement.

(j) The term "foreign" when used with respect to Applicable Law or a Governmental Authority shall refer to all jurisdictions other than Israel.

(k) The term "Dollar", "$", or US$ shall refer to the currency of the United States of America.

Article II
purchase of Companies shares

Section 2.01 Purchase and Sale of Companies Shares.

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(a) Subject to the terms and conditions set forth in this Agreement, and in reliance on the representations, warranties and covenants of IDIT and the IDIT Selling Shareholders contained herein, at the IDIT Closing (i) the IDIT Selling Shareholders (including the Non Executing Shareholders of IDIT) shall sell, assign, transfer and deliver, to the Purchaser, all of the IDIT Shares; (ii) the Purchaser shall purchase, acquire and accept from each IDIT Selling Shareholder (including the Non Executing Shareholders of IDIT) all of the IDIT Shares transferred by such IDIT Selling Shareholder (including the Non Executing Shareholders of IDIT), in each of (i) and (ii), free and clear of any and all Liens; and (iii) the Parent shall, subject to Section 2.04(a)(ii), replace the IDIT Vested Options and the IDIT Unvested Options pursuant to Section 2.04 below. At the IDIT Closing, the Purchaser shall purchase all (and not less than all) of the IDIT Shares which constitut

e the entire issued and outstanding share capital of IDIT, assuming replacement of the IDIT Options pursuant to Section 2.04below and cancellation, conversion and/or exercise of any and all other securities and other rights that are exercisable or convertible into IDIT Shares, subject to Section 2.04(a)(ii)

.

(b) Subject to the terms and conditions set forth in this Agreement, and in reliance on the representations, warranties and covenants of FIS and the FIS Selling Shareholders contained herein, at the FIS Closing (i) the FIS Selling Shareholders (including the Non Executing Shareholders of FIS) shall sell, assign, transfer and deliver, to the Purchaser, all of the FIS Shares; (ii) the Purchaser shall purchase, acquire and accept from each FIS Selling Shareholder (including the Non Executing Shareholders of FIS) all of the FIS Shares transferred by such FIS Selling Shareholder (including the Non Executing Shareholders of FIS), in each of (i) and (ii), free and clear of any and all Liens; and (iii) the Parent shall, subject to Section 2.04(b)(ii)

, replace the FIS Vested Options and the FIS Unvested Options pursuant to Section 2.04

below. At the FIS Closing, the Purchaser shall purchase all (and not less than all) of the FIS Shares which constitute the entire issued and outstanding share capital of FIS, assuming assumption of the FIS Options pursuant to Section 2.04

below and cancellation, conversion and/or exercise of any and all other securities and other rights that are exercisable or convertible into FIS Shares, subject to Section 2.04(b)(ii)

.

Section 2.02 Consideration.

(a) General.

(i) As consideration for the sale, assignment, transfer and delivery of all of the IDIT Shares to the Purchaser, the Purchaser will pay the IDIT Selling Shareholders, under the terms and conditions of this Agreement, the IDIT Purchase Price, at the times and according to the allocation and other terms set forth in Section 2.03(a)

and in accordance with this Section 2.02

. The allocation of the IDIT Purchase Price among the IDIT Selling Shareholders shall be as set forth in Exhibit C (as may be amended no later than two (2) Business Days prior to the IDIT Closing Date to reflect any changes in IDIT's share capital). The Purchaser is permitted to rely on the allocation set forth in Exhibit C with respect to the payment of the IDIT Purchase Price and shall have no responsibility or liability with respect to such allocation.

(ii) As consideration for the sale, assignment, transfer and delivery of all of the FIS Shares to the Purchaser, the Purchaser will pay the FIS Selling Shareholders, under the terms and conditions of this Agreement, the FIS Purchase Price, at the times and according to the allocation and other terms set forth in Section 2.03(b)

and in accordance with this Section 2.02. The allocation of the FIS Purchase Price among the FIS Selling Shareholders shall be as set forth in Exhibit D (as may be amended no later than two (2) Business Days prior to the FIS Closing Date to reflect any changes in FIS' share capital). The Purchaser is permitted to rely on the allocation set forth in Exhibit D with respect to the payment of the FIS Purchase Price and shall have no responsibility or liability with respect to such allocation.

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(iii) Any cash payment of any portion of the FIS Purchase Price shall be made in US Dollars. In the event that any date on which payment is due hereunder is not a Business Day, then payment shall be due on the first Business Day thereafter.

(b) IDIT Purchase Price. Subject to the fulfillment of all respective conditions included herein, the total aggregate consideration for all of the IDIT Shares (the "IDIT Purchase Price") shall be 7,483,125 newly issued common shares of Parent plus the IDIT Extra Consideration Shares, if any (the "IDIT Consideration Shares").

(c) FIS Purchase Price. Subject to the fulfillment of all respective conditions included herein, the total aggregate consideration for all of the FIS Shares shall consist of the following payments by the Purchaser (the "FIS Purchase Price"):

(i) Cash Consideration. An amount in United States Dollars equal to US$6,750,000 (the "Cash Consideration"), which will be allocated as set forth in Exhibit D;

(ii) Share Consideration. 10,016,875 common shares of Parent plus the FIS Extra Consideration Shares, if any (the "FIS Consideration Shares") which shall be allocated as set forth in Exhibit D; and

(iii) Warrant Consideration. Warrants in the form attached hereto as Exhibit G (the "Consideration Warrants") to purchase an aggregate of 1,000,000 common shares of Parent (the "Warrants Shares") which shall be allocated as set forth in Exhibit D.

Section 2.03 Payment Schedule

(a) The IDIT Purchase Price shall be allocated as follows:

(i) At the IDIT Closing, the Parent shall deliver to the Transfer Agent, with a copy to the IDIT Shareholders Representative, irrevocable written instructions in the form of Exhibit H, to issue in the name of the Escrow Agent, certificate representing the Parent's shares to be deposited in the IDIT Escrow Deposit and to deliver all such certificate to the Escrow Agent; and

(ii) At the IDIT Closing, the Parent shall deliver to the Transfer Agent, with a copy to the IDIT Shareholders Representative, irrevocable written instructions in the form of Exhibit I to issue to the IDIT Selling Shareholders, based on their Participation Portions of the IDIT Purchase Price set forth in Exhibit C (as may be amended no later than two (2) Business Days prior to the IDIT Closing Date to reflect any changes in IDIT's issued and outstanding share capital), certificates representing the balance of the IDIT Consideration Shares and to deliver such certificates to the IDIT Selling Shareholders or the IDIT 102 Trustee, as set forth in Section 2.03(c) hereunder.

(b) The FIS Purchase Price shall be allocated as follows:

(i) At the FIS Closing, the Parent shall deliver to the Transfer Agent, with a copy to the FIS Shareholders Representative, irrevocable written instructions in the form of Exhibit J to issue in the name of the Escrow Agent, certificate representing the Parent's shares to be deposited in the FIS Escrow Deposit and to deliver all such certificate to the Escrow Agent;

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(ii) At the FIS Closing, the Parent shall deliver to the Transfer Agent, with a copy to the FIS Shareholders Representative, irrevocable written instructions in the form of Exhibit K to issue to FIS Selling Shareholders, based on their Participation Portions of the FIS Purchase Price set forth in Exhibit D (as may be amended no later than two (2) Business Days prior to the FIS Closing Date to reflect any changes in FIS' issued and outstanding share capital), certificates representing the balance of the FIS Consideration Shares and to deliver such certificates to the FIS Selling Shareholders or to the FIS 102 Trustee, as set forth in Section 2.03(c)

hereunder;

(iii) At the FIS Closing, the Parent shall issue the Consideration Warrants to the FIS Selling Shareholders as set forth in Exhibit D; and

(iv) At the FIS Closing, the Purchaser shall deliver, by wire transfer of immediately available funds, an amount in United States dollars equal to the Cash Consideration to the FIS Selling Shareholders as set forth in Exhibit D.

(c) Notwithstanding anything to the contrary in this Agreement, to the extent that any Companies Shares are held in trust pursuant to Section 102 of the Tax Ordinance, the Parent or Purchaser, as applicable, will make or instruct the Transfer Agent to make, as the case may be, payment of the consideration that such holder of Companies Shares is entitled to receive under this Agreement directly to the FIS 102 Trustee or the IDIT 102 Trustee, as applicable, in accordance with the provisions of the Israeli Option Tax Ruling (as defined below), if obtained.

Section 2.04 Companies Options.

(a) IDIT Options Conversion.

(i) At the IDIT Closing, each IDIT Option that is outstanding and unexercised immediately prior to the IDIT Closing, whether or not vested, shall be replaced with an option to purchase common shares of Parent, subject to the remainder of this Section 2.04(a)(i), having the same terms set forth in the Parent's 2011 Option Plan and the Parent's Notice of Share Option Grant issued thereunder, copies of which are attached hereto as Exhibits M1 and Exhibit M2, respectively, except that the Type of Option Award, the Vesting Commencement Date, the Vesting Schedule and the Expiration Date (as such terms are defined in the Notice of Share Option Grant attached hereto), shall be the same as such terms were determined with respect to the replaced IDIT Option, subject to the terms of the Israeli Option Tax Ruling (all IDIT Options that are replaced pursuant to this Section 2.04(a) are hereafter referred to as "IDIT Assumed Options"). All rights to purchase IDIT Ordinary Shares, as applicable, under IDIT Assumed Options shall thereupon be converted into rights to purchase common shares of Parent and thereafter there shall be no options outstanding to purchase IDIT Shares. Accordingly, from and after the IDIT Closing: (A) each IDIT Assumed Option may be exercised solely for common shares of Parent; (B) the number of common shares of Parent subject to each IDIT Assumed Option shall be determined by multiplying the number of IDIT Ordinary Shares that were subject to such IDIT Assumed Option immediately prior to the IDIT Closing, by the IDIT Conversion Ratio (as defined below), and rounding the resulting number up or down to the nearest whole number of common shares of Parent (with a fraction equal to or greater than 0.50 being rounded up and all other fractions being rounded down) ; (C) the per share exercise price for the common shares of Parent issuable upon exercise of each IDIT Assumed Option shall be determined by dividing the per share exercise price of IDIT Ordinary Shares subject to such IDIT Assumed Option, as in effect immediately prior to the IDIT Closing, by the IDIT Conversion Ratio, and rounding the resulting exercise price up or down to the nearest whole cent (with a fraction equal to or greater than 0.50 being rounded up and all other fractions being rounded down); and (D) any restriction on the exercise of any IDIT Assumed Option shall continue in full force and effect; provided, however, that: (1) each IDIT Assumed Option shall, in accordance with its terms, be subject to further adjustment as appropriate to reflect any stock split, division or subdivision of shares, stock dividend, issuance of bonus shares, reverse stock split, consolidation of shares, reclassification, recapitalization or other similar transaction with respect to common shares of Parent subsequent to the IDIT Closing; and (2) Parent’s board of directors or a committee thereof shall succeed to the authority and responsibility of IDIT's boards of directors or any committees thereof with respect to each IDIT Assumed Option. For the avoidance of any doubt, any IDIT Option that is expired or terminated by its terms as a result of the consummation of the IDIT Transaction shall expire or terminate, as applicable, at the IDIT Closing and shall not be replaced with option to purchase common shares of Parent as set forth in this Section 2.04(a).

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For the purpose of this Section 2.04, the "IDIT Conversion Ratio" shall mean a fraction, (i) the numerator of which is the number of IDIT Consideration Shares (including such IDIT Consideration Shares to be held in the IDIT Escrow Deposit and the IDIT Extra Consideration Shares, if any) payable pursuant to this Agreement to the holders of IDIT Ordinary Shares, as set forth in Exhibit C, and (ii) the denominator of which is the number of IDIT Ordinary Shares held by such holders immediately prior to the IDIT Closing (after giving effect to the issuance of IDIT Shares pursuant to the exercise of IDIT Options at or prior to Closing), which fraction is 210.2.

(ii) Notwithstanding Section 2.04(a)(i), in the event that the Israeli Options Tax Ruling will not be obtained prior to the IDIT Closing, the IDIT Options shall not be replaced by the Parent at the IDIT Closing and shall continue to be exercisable to IDIT Ordinary Shares until the Israeli Options Tax Ruling is obtained, at which time the IDIT Options shall be replaced pursuant to the terms of Section 2.04(a)(i), mutatis mutandis. Notwithstanding anything to the contrary, in the event that any IDIT Option is exercised after the IDIT Closing but prior to the replacement of such IDIT Option under Section 2.04(a)(i), then any and all IDIT Shares issued upon such exercise shall automatically upon such exercise and issuance, and with no further action by the holder of such IDIT Options, be deemed to be IDIT Shares that shall have been transferred to Purchaser upon issuance under Section 2.01(a) above, and upon such exercise and issuance, such holder of IDIT Options shall have no rights as a holder of IDIT Shares, rather it shall only be entitled to receive, as consideration, a number of Parent common shares equal to the number of IDIT Shares issued upon such exercise multiplied by the IDIT Conversion Ratio, except that such Parent common shares shall be treated as IDIT Consideration Shares (including allocation to escrow).

(iii) Any certificate representing Parent common shares acquired upon the exercise of IDIT Assumed Options prior to the filing of the registration statement on Form S-8 referred to in Section 7.10 shall bear the restrictive legend set forth in Section 2.09 hereof. The IDIT Assumed Options may only be exercised (i) outside the United States in an offshore transaction in accordance with Rule 903 of Regulation S, or (ii) within the United States pursuant to exemption from the registration requirements of the Securities Act. Until Parent files the foregoing registration statement on Form S-8, in order to establish the availability of Rule 903, a holder of IDIT Assumed Options will not be entitled to exercise the IDIT Assumed Options unless at the time of such exercise the holder of such IDIT Assumed Options makes to the Parent the representations and warranties of a Selling Shareholder set forth in Section 4.08 with respect to its purchase of the relevant Parent common shares.

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(b) FIS Options Conversion.

(i) At the FIS Closing, each FIS Option that is outstanding and unexercised immediately prior to the FIS Closing, whether or not vested, shall be replaced with an option to purchase common shares of Parent, subject to the remainder of this Section 2.04(b)(i), having the same terms set forth in the Parent's 2011 Option Plan and the Parent's Notice of Share Option Grant issued thereunder, copies of which are attached hereto as Exhibits M1 and Exhibit M2, respectively, except that the Type of Option Award, the Vesting Commencement Date, the Vesting Schedule and the Expiration Date, shall be the same as such terms were determined with respect to the replaced FIS Option , subject to the terms of the Israeli Option Tax Ruling (all FIS Options that are replaced pursuant to this Section 2.04(b) are hereafter referred to as "FIS Assumed Options", and together with the IDIT Assumed Options, the "Assumed Options"). All rights to purchase FIS Ordinary Shares, as applicable, under FIS Assumed Options shall thereupon be converted into rights to purchase common shares of Parent and thereafter there shall be no options outstanding to purchase FIS Shares. Accordingly, from and after the FIS Closing: (A) each FIS Assumed Option may be exercised solely for common shares of Parent; (B) the number of common shares of Parent subject to each FIS Assumed Option shall be determined by multiplying the number of FIS Ordinary Shares that were subject to such FIS Assumed Option immediately prior to the FIS Closing, by the FIS Conversion Ratio (as defined below), and rounding the resulting number up or down to the nearest whole number of common shares of Parent (with a fraction equal to or greater than 0.50 being rounded up and all other fractions being rounded down); (C) the per share exercise price for the common shares of Parent issuable upon exercise of each FIS Assumed Option shall be determined by dividing the per share exercise price of FIS Ordinary Shares subject to such FIS Assumed Option, as in effect immediately prior to the FIS Closing, by the FIS Conversion Ratio, and rounding the resulting exercise price up or down to the nearest whole cent (with a fraction equal to or greater than 0.50 being rounded up and all other fractions being rounded down); and (D) any restriction on the exercise of any FIS Assumed Option shall continue in full force and effect; provided, however, that: (1) each FIS Assumed Option shall, in accordance with its terms, be subject to further adjustment as appropriate to reflect any stock split, division or subdivision of shares, stock dividend, issuance of bonus shares, reverse stock split, consolidation of shares, reclassification, recapitalization or other similar transaction with respect to common shares of Parent subsequent to the FIS Closing; and (2) Parent’s board of directors or a committee thereof shall succeed to the authority and responsibility of FIS' boards of directors or any committees thereof with respect to each FIS Assumed Option. For the avoidance of any doubt, any FIS Option that is expired or terminated by its terms as a result of the consummation of the FIS Transaction shall expire or terminate, as applicable, at the FIS Closing and shall not be replaced with option to purchase common shares of Parent as set forth in this Section 2.04(b)

For the purpose of this Section 2.04, the "FIS Conversion Ratio" shall mean a fraction (i) the numerator of which is the number of FIS Consideration Shares (including the FIS Consideration Shares to be held in the FIS Deposit and the FIS Extra Consideration Shares, if any) plus a number of common shares of Parent equal to the quotient resulting from the Cash Consideration divided by four (4), and (ii) the denominator of which is the number of FIS Shares issued and outstanding immediately prior to the FIS Closing (after giving effect to the issuance of FIS Options at or prior to Closing) , which fraction is 392.75.

(ii) Notwithstanding Section 2.04(b)(i), in the event that the Israeli Options Tax Ruling will not be obtained prior to the FIS Closing, the FIS Options shall not be replaced by the Parent at the FIS Closing and shall continue to be exercisable to FIS Ordinary Shares until the Israeli Options Tax Ruling is obtained, at which time the FIS Options shall be replaced pursuant to the terms of Section 2.04(b)(i), mutatis mutandis. Notwithstanding anything to the contrary, in the event that any FIS Option is exercised after the FIS Closing but prior to the replacement of such FIS Option under Section 2.04(b)(i), then any and all FIS Shares issued upon such exercise shall automatically upon such exercise and issuance, and with no further action by the holder of such FIS Options, be deemed to be FIS Shares that shall have been transferred to Purchaser upon issuance under Section 2.01(b)

above, and upon such exercise and issuance, such holder of FIS Options shall have no rights as a holder of FIS Shares, rather it shall only be entitled to receive, as consideration, a number of Parent common shares equal to the number of FIS Shares issued upon such exercise multiplied by the FIS Conversion Ratio, except that such Parent common shares shall be treated as FIS Consideration Shares (including allocation to escrow).

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(iii) Any certificate representing Parent common shares acquired upon the exercise of FIS Assumed Options prior to the filing of the registration statement on Form S-8 referred to in Section 7.10

shall bear the restrictive legend set forth in Section 2.09

hereof. The FIS Assumed Options may only be exercised (i) outside the United States in an offshore transaction in accordance with Rule 903 of Regulation S, or (ii) within the United States pursuant to exemption from the registration requirements of the Securities Act. Until Parent files the foregoing registration statement on Form S-8, in order to establish the availability of Rule 903, a holder of FIS Assumed Options will not be entitled to exercise the FIS Assumed Options unless at the time of such exercise the holder of such FIS Assumed Options makes to the Parent the representations and warranties of a Selling Shareholder set forth in Section 4.08

with respect to its purchase of the relevant Parent common shares.

(c) Discretionary Assumption of Companies Option Plan. At the date of actual replacement of the Assumed Options pursuant to this Section 2.04 (the "Assumption Date"), Parent may (but shall not be obligated to) assume any or all of the Companies Option Plans or merge any of such Companies Option Plans into any stock option plan of Parent. If Parent elects to so assume or merge any Companies Option Plan, then, under such Companies Option Plan, Parent shall be entitled to grant stock awards, to the extent permissible under Applicable Law, using the share reserves of such Companies Option Plan as of the respective Assumption Date (including any shares subsequently returned to such share reserves as a result of the termination of Assumed Options), except that: (i) stock covered by such awards shall be common shares of Parent; (ii) all references in such Companies Option Plan to a number of IDIT Ordinary Shares or FIS Ordinary Shares shall be deemed amended to refer instead to a number of common shares of Parent determined by multiplying the number of referenced IDIT Ordinary Shares or FIS Ordinary Shares, as the case may be, by the IDIT Conversion Ratio or the FIS Conversion Ratio, as applicable, and rounding the resulting number up or down to the nearest whole number of common shares of Parent (with a fraction equal to or greater than 0.50 being rounded up and all other fractions being rounded down); and (iii) the Parent’s board of directors or a committee thereof shall succeed to the authority and responsibility of the relevant Company's board of directors or any committee thereof with respect to the administration of such Companies Option Plan.

(d) Prior to the respective Assumption Date, each Company shall take all action that may be necessary (under the Companies Option Plans and otherwise) to effectuate the provisions of this Section 2.04 and to ensure that, from and after the respective Assumption Date, holders of Companies Options have no rights with respect thereto other than those specifically provided in this Section 2.04. 

(e) As soon as practicable following the respective Assumption Date, the Parent shall send each Person holding Assumed Options a notice with respect to the matters described in this Section 2.04.

(f) Each Assumed Option that has been held for the benefit of Israeli-resident employees or office holders of the Companies by the IDIT 102 Trustee or the FIS 102 Trustee shall continue to be held by such trustees for such period of time and in accordance with the terms of (i) Section 102 of the Tax Ordinance or any regulations, rules, orders or procedures promulgated thereunder; and (ii) to the extent obtained by the Companies, the Israeli Option Tax Ruling.

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Section 2.05 Escrow Fund.

(a) Escrow Deposit. At the respective Closing, Parent shall deliver to the Transfer Agent, with a copy to the respective Shareholders Representative, irrevocable written instructions pursuant to Section 2.03(a)(i) and Section 2.03(b)(i) to deliver to the Escrow Agent, as the escrow agent under the respective Escrow Agreement, the IDIT Escrow Deposit and the FIS Escrow Deposit to be held by the Escrow Agent in accordance with the terms of the respective Escrow Agreement.

(b) Payment of Claimed Amounts. Any amount paid to Purchaser from the IDIT Escrowed Funds or the FIS Escrowed Funds in common shares of Parent in accordance with Article X, shall be paid assuming a value for each such share equal to the Parent Share Value.

(c) Release of Escrowed Funds. Within two (2) Business Days after the date that is twelve (12) months after the respective Closing Date, the Escrow Agent will be instructed, pursuant to the respective Escrow Agreement, to deliver to the respective Selling Shareholders, the respective Escrowed Funds (including, pursuant to the terms of the respective Escrow Agreement, any interest accrued on any cash held in escrow on behalf of such respective Selling Shareholders, if applicable) less an amount in cash or in Parent's common shares based on the Parent Share Value (at the respective Selling Shareholder's discretion) for any unresolved (or resolved in favor of Purchaser but not distributed) Claimed Amounts which will remain on deposit with the Escrow Agent and will be released by the Escrow Agent and transferred out of the respective Escrowed Funds by the Escrow Agent only in accordance with the terms of Article X, and less any Claimed Amounts previously distributed to the Purchaser.

Section 2.06 Other Shareholders. 

Promptly after the date hereof and as long as this Agreement is not duly terminated, each Company shall take all commercially reasonable action to obtain from all the shareholders of such Company who did not execute this Agreement on the date hereof and who are listed in Exhibit L (the "Non Executing Shareholders"), a counter signature on this Agreement under which each such other shareholder of such Company becomes bound by and subject to the provisions of this Agreement as a "Selling Shareholder" and makes all the representations and warranties of a "Selling Shareholder" under this Agreement. Any holders of Companies Shares as of the respective Closing that do not countersign this Agreement shall become Selling Shareholder parties hereto by virtue of Section 2.07

below.

Section 2.07 Section 341 Action.

(a) By executing this Agreement, the IDIT Selling Shareholders executing this Agreement on the date hereof ("IDIT Executing Shareholders"), who collectively hold more than 95% of the issued and outstanding share capital of IDIT, and the FIS Selling Shareholders executing this Agreement on the date hereof ("FIS Executing Shareholders", and together with IDIT Executing Shareholders, the "Executing Shareholders"), who collectively hold more than 95% of the issued and outstanding share capital of FIS, have, and are deemed to have, accepted an offer by Purchaser to purchase their Companies Shares in accordance with the terms set forth in this Agreement, in accordance with Section 341 of the Companies Law and Article 40 of IDIT’s Articles of Association (the "IDIT Articles") or Article 105 of FIS' Articles of Association (the "FIS Articles"), as applicable.

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(b) This Agreement shall be deemed, for the purpose of Section 341(a) of the Companies Law, Article 40 of the IDIT Articles and Article 105 of FIS Articles, to constitute with respect to each Company (i) an offer by Purchaser for the purchase of all issued and outstanding share capital of such Company which is conditioned upon the sale of all of the outstanding share capital of such Company and (ii) an acceptance of such offer by all IDIT Executing Shareholders and FIS Executing Shareholders, as the case may be.

(c) Within three (3) Business Days after the date hereof, each Company shall, in accordance with Section 341 of the Companies Law and its Articles of Association, provide a written notice on behalf of the Purchaser (the "Bring-Along Notice") to each of its shareholders who is a Non Executing Shareholder, setting forth the information required by Section 341(a) of the Companies Law and its Articles of Association and offering such Non Executing Shareholder to sell all of its Companies Shares to the Purchaser under the terms and conditions of this Agreement and become a Selling Shareholder party to this Agreement. The Purchaser and each Company shall fully coordinate any correspondence to which each may be a party which concerns the Bring-Along Notice. Purchaser and each Company shall take such other actions as may be commercially reasonably appropriate in order to complete the transfer of all Company Shares under Section 341 of the Companies Law and its Articles of Association under the terms and conditions of this Agreement including in making all reasonable filings and taking such other reasonable action which is necessary or desirable to effect the Transactions with respect to all the securities of such Company outstanding as of the respective Closing in compliance with Section 341 of the Companies Law and such Company’s Articles of Association. After satisfactory completion of the necessary procedures under Section 341 of the Companies Law and such Company's Articles of Associations and provided that no injunction against the Transactions is issued by a competent court and is not removed, at the respective Closing each Company shall register the transfer of all the respective Companies Shares held by all of its Non Executing Shareholders as of the respective Closing to the Purchaser and all consideration payable under this Agreement with respect to such Companies Shares transferred by such Non Executing Shareholders shall be deposited at respective Closing with such Company in accordance with Section 341 of the Companies Law, for distribution to the Non Executing Shareholders, provided, however that the pro rata share out of such consideration which is payable to the Escrow Agent in respect of the Companies Shares held by the Non Executing Shareholders, shall be included in the amounts delivered to the Escrow Agent at the respective Closing and upon distribution of any amounts from the Escrow Agent, shall be transferred by the Escrow Agent to the Purchaser or its designee for further distribution to the Non Executing Shareholders in accordance with Section 341 of the Companies Law. The Non Executing Shareholders shall only be entitled to receive the consideration payable thereto hereunder after they comply with all conditions to receive such consideration set forth in this Agreement (including delivering all documents under Article VIII).

(d) Subject to the terms of this Agreement, following the execution of this Agreement and prior to the respective Closing Date, if any of the Companies shall issue any shares pursuant to the exercise of any IDIT Options or FIS Options, as applicable, then such Company shall promptly: (i) inform Purchaser of such an issuance, and (ii) amend Exhibit L so that the Person exercising such Options will be deemed, for purposes of this Agreement, a Non-Executing Shareholder with respect to the shares issued upon such exercise of Options.

(e) For purposes of this Agreement, the terms "IDIT Selling Shareholders", "FIS Selling Shareholder" and "Selling Shareholder" shall include all respective Non-Executing Shareholders and each such Non-Executing Shareholder shall be deemed to be subject to the terms and conditions of this Agreement, except to the extent that doing so would be inconsistent with the provisions of Section 341 of the Companies Law.

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Section 2.08 Withholding Tax.

(a) Right to Withhold. The Escrow Agent, the Parent and the Purchaser shall be entitled to deduct and withhold from any consideration payable or otherwise deliverable to any Person pursuant to this Agreement such amounts as the Escrow Agent, the Parent and/or the Purchaser determines to be required to be deducted or withheld therefrom under any Applicable Law, including, without limitation, to withhold from the Cash Consideration payable to any FIS Selling Shareholders any amount required to be deducted or withheld therefrom under any Applicable Law with respect to the FIS Consideration Shares payable to such FIS Selling Shareholder. Any withholding made in NIS with respect to payments made hereunder in US dollars shall be calculated in such manner as the Escrow Agent, the Parent and/or the Purchaser determines to be in compliance with Applicable Law. To the extent that such amounts are so withheld by the Escrow Agent, the Parent and/or the Purchaser, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the Person to whom such amounts would otherwise have been paid in respect of whom such deduction and withholding was made. All withheld amounts shall be promptly remitted to the appropriate Governmental Authority by the Escrow Agent, the Parent or the Purchaser, as applicable.

(b) Withholding Certificates. Without derogating from the foregoing, Purchaser and Parent agree that no withholding or reduced withholding under Applicable Law will be made from any payment payable hereunder to a Person to the extent that such Person has provided Purchaser and Parent with an appropriate and applicable valid exemption or confirmation of exemption from withholding or a reduced withholding rate (as applicable) or other written instructions issued by the applicable Taxing Authority with respect to such Person in form and substance satisfactory to Purchaser and Parent (each a "Tax Certificate"), at least two (2) Business Days prior to the day any amounts withheld with respect to such consideration must be transferred to the ITA (the "Payment Day").

(c) Notwithstanding the above, with respect to any consideration payable or otherwise deliverable pursuant to this Agreement to any Selling Shareholder by the Parent or the Escrow Agent, other than in cash, in the event that such Selling Shareholder does not provide to the Parent or the Escrow Agent, as applicable, a Tax Certificate applicable to such Selling Shareholder which exempts the Parent or the Escrow Agent, as applicable, from any obligation to withhold Israeli Tax at source from such consideration, not later than two (2) Business Days prior to the Payment Day, then subject to the signature of such Selling Shareholder on the respective TEA Agreement, such consideration shall be paid and/or delivered to the Tax Escrow Agent to be handled by it in accordance with the respective TEA Agreement.

(d) Notwithstanding anything to the contrary in this Section 2.08, any tax withholding made by the Escrow Agent or the Tax Escrow Agent shall be subject to the tax withholding provisions set forth in the respective Escrow Agreement or the respective TEA Agreement, as applicable.

Section 2.09 Legend Requirement.

(a) Securities Act. Each Consideration Warrant and each certificate representing Consideration Shares or Warrants Shares shall (unless otherwise permitted by the provisions of this Agreement) be imprinted with a legend substantially similar to the following (in addition to any legend required under applicable securities laws or as provided elsewhere in this Agreement):

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"THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED PURSUANT TO [REGULATION D] [REGULATION S] OF THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE SOLD, MORTGAGED, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED EXCEPT IN ACCORDANCE THEREWITH, PURSUANT TO A REGISTRATION UNDER THE ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM REGISTRATION. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS. IN ADDITION, NO HEDGING TRANSACTION MAY BE CONDUCTED WITH RESPECT TO THESE SECURITIES UNLESS SUCH TRANSACTIONS ARE IN COMPLIANCE WITH THE ACT."

(b) The Consideration Warrants, the Warrant Shares and certificates evidencing the Consideration Shares and the Warrants Shares shall not contain any legend (including the legend set forth in Section 2.09(a) hereof), (i) commencing 40 days after the FIS Closing or IDIT Closing, as applicable, with respect to Consideration Shares, Consideration Warrants and Warrants Shares held by any Regulation S Investor (as defined in Section 4.08(b)) which is not an "affiliate" of Parent (within the meaning of Rule 144), (ii) while a registration statement covering the resale of such security is effective under the Securities Act, (iii) following any sale of such Consideration Shares, Consideration Warrants or Warrants Shares pursuant to Rule 144, (iv) if such Consideration Shares, Consideration Warrants or Warrants Shares are eligible for sale under Rule 144, without the requirement for the Parent to be in compliance with the current public information required under Rule 144 as to such Consideration Shares, Consideration Warrants or Warrants Shares and without volume or manner-of-sale restrictions, or (v) if such legend is not required under applicable requirements of the Securities Act (including judicial interpretations and pronouncements issued by the staff of the SEC). The Parent shall cause its counsel, at its own expense, to issue a legal opinion addressed to the Transfer Agent and the Parent (if required) promptly to effect the removal of the legend hereunder.  In addition, the Parent shall, for a period of sixty (60) months as of the first Closing Date: (i) make and keep available adequate current public information with respect to the Parent within the meaning of Rule 144; and (ii) comply with all other necessary filings and other requirements, in a timely manner, so as to enable the holders of Consideration Shares and Warrant Shares to sell such securities under Rule 144.

(c) Other Securities Laws. In addition, each Consideration Warrant and each certificate representing Consideration Shares or Warrants Shares may contain any legend required by the securities laws of any jurisdiction to the extent such laws are applicable to the sale and issuance of such Consideration Warrants, Warrants Shares or Consideration Shares.

Section 2.10 IDIT Closing.

(a) Time and Place. The consummation of the respective Transactions between Purchaser, IDIT and the IDIT Selling Shareholders (the "IDIT Closing") shall take place at the offices of Meitar, Liquornik, Geva & Leshem, Brandwein, Law Offices, 16 Abba Hillel Road, Ramat Gan 52506, Israel at a time and on a date to be specified by the parties, which shall be no later than the second Business Day after the satisfaction or waiver of all the respective conditions set forth in Article VIII to be satisfied or waived (other than those respective conditions that by their nature are to be satisfied at the IDIT Closing), or at such other time, date and location as the Purchaser, IDIT and the IDIT Shareholders Representative agree in writing. The date on which the IDIT Closing actually takes place is referred to in this Agreement as the "IDIT Closing Date".

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(b) Transactions at IDIT Closing. At the IDIT Closing, the following transactions shall occur, which transactions shall be deemed to take place simultaneously, and no transaction shall be deemed to have been completed or any document delivered until all such transactions have been completed and all required documents delivered:

(i) Subject to compliance with the conditions set forth in Section 8.04(e), IDIT shall register the transfer of all IDIT Shares to Purchaser in the register of shareholders of IDIT, and shall provide Purchaser with a true and correct copy of such updated register of shareholders reflecting such entry, certified by two directors of IDIT and the Purchaser shall acquire good and valid title, free and clear of any Liens, to all IDIT Shares owned by the IDIT Selling Shareholders, including such IDIT Shares held by Non Executing Shareholders in accordance with Section 341 of the Companies Law or any other procedures available under the IDIT Articles and Applicable Law, and as of the IDIT Closing Date, Purchaser will own 100% of the issued and outstanding share capital of IDIT (on a fully diluted basis).

(ii) IDIT shall issue and deliver to Purchaser validly executed share certificate(s) covering all IDIT Shares, issued in the name of Purchaser.

(iii) Unless otherwise provided for in this Agreement, the Purchaser shall pay the IDIT Purchase Price in accordance with the terms set forth in Section 2.03(a)

. 

(c) Adjustments. 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 any IDIT Shares occurring after the date hereof and prior to the IDIT Closing, all references in this Agreement to numbers of shares and all calculations provided for that are based upon numbers affected thereby, shall be equitably adjusted to the extent necessary to provide to the parties the same economic effect as contemplated by this Agreement prior to such event.

Section 2.11 FIS Closing.

(a) Time and Place. The consummation of the respective Transactions between Purchaser, FIS and the FIS Selling Shareholders (the "FIS Closing", and each of FIS Closing and IDIT Closing may be referred to as the "Closing") shall take place at the offices of Meitar, Liquornik, Geva & Leshem, Brandwein, Law Offices, 16 Abba Hillel Road, Ramat Gan 52506, Israel at a time and on a date to be specified by the parties, which shall be no later than the second Business Day after the satisfaction or waiver of all the respective conditions set forth in Article VIII to be satisfied or waived (other than those respective conditions that by their nature are to be satisfied at the FIS Closing), or at such other time, date and location as the Purchaser, FIS and the FIS Shareholders Representative agree in writing. The date on which the FIS Closing actually takes place is referred to in this Agreement as the "FIS Closing Date" and each of FIS Closing Date and IDIT Closing Date may be referred to as the "Closing Date".

(b) Transactions at FIS Closing. At the FIS Closing, the following transactions shall occur, which transactions shall be deemed to take place simultaneously, and no transaction shall be deemed to have been completed or any document delivered until all such transactions have been completed and all required documents delivered:

(i) Subject to compliance with the conditions set forth in Section 8.04(e), FIS shall register the transfer of all FIS Shares to Purchaser in the register of shareholders of FIS, and shall provide Purchaser with a true and correct copy of such updated register of shareholders reflecting such entry, certified by two directors of FIS and the Purchaser shall acquire good and valid title, free and clear of any Liens, to all FIS Shares owned by the FIS Selling Shareholders, including such FIS Shares held by Non Executing Shareholders in accordance with Section 341 of the Companies Law or any other procedures available under the FIS Articles and Applicable Law, and as of the FIS Closing Date, Purchaser will own 100% of the issued and outstanding share capital of FIS (on a fully diluted basis).

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(ii) FIS shall issue and deliver to Purchaser validly executed share certificate(s) covering all FIS Shares, issued in the name of Purchaser.

(iii) Unless otherwise provided for in this Agreement, the Purchaser shall pay the FIS Purchase Price in accordance with the terms set forth in Section 2.03(b)

.

(c) Adjustments. 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 any FIS Shares occurring after the date hereof and prior to the FIS Closing, all references in this Agreement to numbers of shares and all calculations provided for that are based upon numbers affected thereby, shall be equitably adjusted to the extent necessary to provide to the parties the same economic effect as contemplated by this Agreement prior to such event.

Section 2.12 Closing of One Transaction.

Notwithstanding anything to the contrary in this Agreement, the FIS Closing and the IDIT Closing shall be deemed to be separate closings and each such closing shall be effected only subject to the fulfillment or waiver of all respective closing conditions applicable to such respective Closing under Article VIII. Each of the FIS Closing and the IDIT Closing shall not be conditioned upon each other, and may take place regardless of the other Closing, and even if the other Closing does not or has not occurred, in the event either the FIS Closing or the IDIT Closing shall not take place, the Closing of the other transaction shall be subject to the approval of each of the relevant Super Majority and the Purchaser.

Article III
Representations and Warranties of the COMPANY

Except as set forth in each Company Disclosure Schedule, which relates to such Section and to any other Section of such Disclosure Schedule to the extent that it is reasonably apparent on the face of such disclosure that such disclosure is applicable to such Section, each Company represents and warrants, with respect to itself and its Company Group (as defined below) only, severally but not jointly with the other Company, to the Purchaser, that the statements contained in this Article III are true and correct as of the date of this Agreement and as of the respective Closing Date:

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Section 3.01 Corporate Existence and Power.

(a) Such Company: (i) is a private company limited by shares, duly incorporated and validly existing under the laws of Israel; (ii) is duly licensed or qualified to do business and, where applicable, is in good standing as a foreign corporation in all jurisdictions in which the conduct of its business or the activities it is engaged in make such licensing or qualification necessary; and (iii) has all necessary power and authority: (A) to conduct its business in the manner in which its business is currently being conducted; (B) to own, use and distribute its assets in the manner in which its assets are currently owned, used and distributed; and (C) to perform its obligations under all Contracts to which it is a party.

(b) Such Company's Subsidiaries are listed in Section 3.01(b) of its respective Company Disclosure Schedule. Other than those Subsidiaries listed in Section 3.01(b) of its Company Disclosure Schedule, there are no corporations, limited liability companies, partnerships, joint ventures, associations or other entities or Persons in which such Company owns, of record or beneficially, any direct or indirect equity or other interest or any right (contingent or otherwise) to acquire the same.

(c) Such Company has made available to Purchaser materially accurate and complete copies of (i) the articles of association, or other applicable organizational documents of any member of its Company Group in effect, including all amendments thereto (the "Charter Documents") and (ii) save as set forth in Section 3.01(c) of its respective Company Disclosure Schedule, the minutes of the meetings and other proceedings (including any actions taken by written consent or otherwise without a meeting) of the shareholders and board of directors and all committees thereof of any member of its Company Group since January 1, 2008; provided, however, that any such minutes that were not made available to the Purchaser did not include any material resolutions of such Company Group that were not otherwise disclosed in such Company's Disclosure Schedules. There has not been any violation of any of the provisions of the Charter Documents of its Company Group since January 1, 2008. No Company Group has taken any action that is materially inconsistent with any resolution adopted by its shareholders or board of directors (or any committee thereof). The books of accounts, share register, minute books and other records that are required to be maintained under Applicable Law, of its Company Group are true, up-to-date and complete in all material respects, and have been maintained in accordance with prudent business practices and all Applicable Laws.

(d) Section 3.01(d) of its Company Disclosure Schedule accurately sets forth with respect to the each Company Group: (i) the names of the members of the board of directors; (ii) the names of the members of each committee of the board of directors (or similar body, to the extent applicable); and (iii) the names and titles of its executive officers.

(e) No Company Group member has conducted any business under or has otherwise used, for any purpose or in any jurisdiction, any fictitious name, assumed name, business name or other name, other than its corporate name as set forth in this Agreement and in Section 3.01(e)

of its Company Disclosure Schedule.

Section 3.02 Corporate Authorization.

Such Company has all necessary corporate power and authority to enter into and to perform its obligations under this Agreement and the other Transaction Documents to which it is a party in accordance with the respective terms thereof; and the execution, delivery and performance by such Company of this Agreement and the other Transaction Documents to which it is a party in accordance with the respective terms thereof have been duly authorized by all necessary corporate action on the part of such Company. This Agreement constitutes and any other Transaction Document to which such Company will be a party will constitute upon the execution thereof, the legal, valid and binding obligation of such Company, and, assuming the due authorization, execution and delivery by the other party thereto, is enforceable against such Company in accordance with its terms, subject to (i) laws of general application relating to bankruptcy, insolvency, reorganization, moratorium and the relief of debtors, and (ii) rules of law governing specific performance, injunctive relief and other equitable remedies. Upon the execution of each of the other Transaction Documents at the respective Closing, each of such other agreements to which such Company and any of such Company Group members is a party will constitute the legal, valid and binding obligation of the Company or such member, and will be, assuming the due authorization, execution and delivery by the other party thereto, enforceable against such Company in accordance with its respective terms, subject to (i) laws of general application relating to bankruptcy, insolvency, reorganization, moratorium and the relief of debtors, and (ii) rules of law governing specific performance, injunctive relief and other equitable remedies. Such Company has taken all necessary actions required for the purpose of enforcing this Agreement and effecting the sale of all Companies Shares hereunder on its respective Non-Executing Shareholders in accordance with Section 341 of the Companies Law, Article 40 of IDIT Articles of Association or Article 105 of FIS Articles, as applicable and any other applicable requirements (other than such actions required to be taken following the execution of this Agreement, with respect to which such Company shall take all such necessary actions by the respective Closing) and the Executing Shareholders of such Company constitute a sufficient majority in accordance with Section 341 of the Companies Law and Article 40 of IDIT Articles of Association or Article 105 of FIS Articles, as applicable, in order to effect a sale of all the Companies Shares such that as of the respective Closing Purchaser will acquire good and valid title, free and clear of any Liens, in and to all outstanding Companies Shares.

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Section 3.03 Compliance with Applicable Law.

(a) Each member of its Company Group is, and has at all times been, in compliance in all material respects with, and has operated its respective business and maintained its assets and properties in material compliance with, all Applicable Laws. Neither Company Group has been informed in writing that its operation are under investigation with respect to, given written notice of any violation or possible violation of, or, to such Company’s Knowledge, is currently threatened to be charged with any violation of, Applicable Law. To the Knowledge of such Company, no event has occurred, and no condition or circumstance exists, that will or is reasonably expected to constitute or result in a violation by any member of its Company Group of, or a failure on the part of any member of such Company Group to comply with or failure of its business and operations to be otherwise in compliance with, any Applicable Law.

(b) The information provided by such Company and its Representatives in connection with the preparation of any filing or submission that is necessary under the Antitrust Laws, as set forth in Section 6.06(b)

, is true and correct as of the date of this Agreement.

Section 3.04 Governmental Authorizations; Governmental Grants.

(a) Section 3.04(a)

of its Company Disclosure Schedule identifies each Governmental Authorization held by its Company Group or used in the business of such Company Group, and such Company has made available to Purchaser accurate and complete copies of all such Governmental Authorizations and any and all correspondence and amendments related thereto. The Governmental Authorizations identified in Section 3.04(a) of its Company Disclosure Schedule are valid and in full force and effect, and collectively constitute all Governmental Authorizations necessary to enable the respective Company Group to conduct its business in the manner in which such business is currently being conducted. Each Company Group member is, and has at all times been, in material compliance with the terms and requirements of the respective Governmental Authorizations identified in Section 3.04(a) of its Company Disclosure Schedule. No written notice or other written communication from any Governmental Authority was received by such Company regarding: (i) any actual or possible violation of or failure to comply with any term or requirement of any Governmental Authorization; or (ii) any actual or possible revocation, withdrawal, suspension, cancellation, termination or modification of any Governmental Authorization.

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(b) Section 3.04

(b)

of its Company Disclosure Schedule identifies all Governmental Grants that have been provided to each Company Group member. To the Knowledge of such Company, no event has occurred, and no circumstance or condition exists (other than the intended consummation of the Transactions), that would reasonably be expected to give rise to : (A) the annulment, revocation, withdrawal, suspension, cancellation, recapture or material adverse modification of any such Governmental Grant; (B) the imposition of any material limitation on any Governmental Grant or any benefit available in connection with any Governmental Grant; (C) a requirement that a member of such Company Group return or refund any benefits provided therefor under any Governmental Grant or (D) the applicability of any Governmental Grant (and any limitation or requirement arising therefrom) to its Company Group, its business or assets.

Section 3.05 Non-Contravention.

Except as set forth in Section 3.05 of its Company Disclosure Schedule, neither: (1) the execution, delivery or performance by such Company of this Agreement or any of the Transaction Documents to which it is a party; nor (2) the consummation by such Company of the Transactions, will (with or without notice or lapse of time or both):

(a) contravene, conflict with or result in a violation of: (i) any of the provisions of any Charter Document of its Company Group or (ii) any Applicable Law;

(b) give any Governmental Authority or other Person the right to challenge any of the Transactions or to exercise any remedy or obtain any relief, under any Applicable Law;

(c) contravene, conflict with or result in a violation of any of the terms or requirements of, or give any Governmental Authority the right to revoke, withdraw, suspend, cancel, terminate or materially and aversely modify, any Governmental Authorization that is held by its Company Group or that, to such Company’s Knowledge, otherwise relates to such Company Group's business or to any of the assets owned or used by such Company Group;

(d) contravene, conflict with or result in a violation or breach of, or result in a default under, any provision of any Company Material Contract by which its Company Group is bound, or give any Person the right to: (i) declare a default or exercise any remedy under any such Company Material Contract; (ii) accelerate the maturity or performance of any such Company Material Contract; or (iii) cancel, terminate or modify any such Company Material Contract; or

(e) require the Company to make any filing with or give any notice to, or to obtain any Consent from, any Person with respect to any Material Contract or any Governmental Authority in connection with: (x) the execution, delivery or performance of this Agreement or any of the other Transaction Documents; or (y) the consummation of the Transactions contemplated by this Agreement; or

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(f) result in the imposition or creation of any Lien upon or with respect to any asset owned or used by its Company Group.

Section 3.06 Capitalization.

(a) The authorized share capital of FIS is NIS 59,101, and is divided into 50,401 FIS Ordinary Shares, 6,500 Series A Preferred Shares, par value NIS 1.00 each and 2,200 A-1 Preferred Shares, par value NIS 1.00 each, out of which 21,378 Ordinary Shares, 6,317 Series A Preferred Shares and 2,106 Series A-1 Preferred Shares are issued and outstanding. All of the issued and outstanding FIS Shares are and have been, when issued in accordance with the respective terms thereof, duly authorized and validly issued, fully paid and nonassessable.

(b) The authorized share capital of IDIT is NIS 53,000, and is divided into 45,000 ordinary shares, nominal value NIS 1.00 per share, 5,000 series A-1 preferred shares, nominal value NIS 1.00 per share and 3,000 series A-2 preferred shares, nominal value NIS 1.00 per share, out of which 30,691 ordinary shares, nominal value NIS 1.00 per share and 4,911 series A-1 preferred shares are issued and outstanding. All of the issued and outstanding IDIT Shares are and have been when issued in accordance with the respective terms thereof, duly authorized and validly issued, fully paid and nonassessable.

(c) Section 3.06(c)of its Company Disclosure Schedule sets forth a true and complete list of all outstanding options of such Company and with respect to each outstanding option, (A) the particular option plan pursuant to which such outstanding option was granted, (B) the name of the holder thereof, (C) the number and class of shares of the Company issuable thereunder and the number of such shares with respect to which such outstanding option has vested, (D) the vesting schedule with respect to the unvested outstanding options, (E) the date on which the outstanding option was granted, and (F) the exercise price thereof. Except as set forth in Section 3.06(c) of its Company Disclosure Schedule, there are no outstanding (i) shares of each Company Group or (ii) securities, instruments or obligations of such Company Group that are or may become convertible into or exchangeable for shares or other securities of such Company Group or conditions or circumstances that may give rise to the assertion of a claim by any Person to the effect that such Person is entitled to acquire or receive any shares or other securities of any Company Group.

(d) Section 3.06(d) of its Company Disclosure Schedule sets forth a complete and accurate list, by name, of such Company’s shareholders, and the number of Companies Shares owned by such shareholder, identified by class and series. All outstanding Companies Shares have been issued and granted in compliance with (i) all Applicable Laws; (ii) all requirements set forth in the Charter Documents of such Company; and (iii) all requirements set forth in applicable Contracts. None of the outstanding Companies Shares were issued in violation of any preemptive rights or other rights to subscribe for or purchase securities of the Companies. Section 3.06(d) of its Company Disclosure Schedule accurately identifies each Contract signed by the Company, relating to any securities of each Company that contains any registration rights, first refusal, tag along or pre-emptive or first offer rights.

(e) Other than as set forth in Section 3.06(e) of its Company Disclosure Schedule, such Company has never repurchased, redeemed or otherwise reacquired any of its shares or other securities and there are no outstanding rights or obligations of any Company to repurchase or redeem any of its securities. All shares repurchased or redeemed by such Company, were repurchased or redeemed in compliance with: (i) all Applicable Laws; and (ii) all requirements set forth in such Company's Charter Documents and relevant Contracts.

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(f) (i) the allocation of the IDIT Purchase Price or the FIS Purchase Price, as applicable, as set forth in Exhibit C and Exhibit D (as may be amended no later than two (2) Business Days prior to the respective Closing Date to reflect any changes in such Company's share capital), shall be complete and accurate as of the respective Closing and shall accurately represent the consideration that each Selling Shareholder (including Non Executing Shareholders) of such Company is entitled to receive for its/his Companies Shares out of the IDIT Purchase Price or FIS Purchase Price, as applicable, pursuant to the respective Charter Documents, as may be amended prior to the respective Closing, and the terms hereof; and (ii) to the Company’s Knowledge, no third party, other than the Selling Shareholders (including the Non-Executing Shareholders) is entitled to receive any payment from the Purchaser or Parent in consideration for security of any of the Companies or has merit to challenge or dispute such allocation.

Section 3.07 Products.

(a) Each Company Product fits, in all material respects, for the purposes for which it is intended to be used as set out in Contracts under which such Company sells such Product.

(b) Except as set fort in Section 3.07(b) of its Company Disclosure Schedule, there are no claims pending and submitted to the Company Group or to the Company's Knowledge threatened against such Company Group member with respect to the quality of or absence of defects in any Company Products.

(c) Other then as set out in Section 3.07(c) of its Company's Disclosure Schedule, since January 1, 2008, there have been no recalls with respect to any of the Company Products or any written request to either terminate services provided by any Company Group member or purchase any of its products, and to the Knowledge of such Company, there are no facts, events or circumstances reasonably expected to cause the withdrawal or recall of any product sold by any Company Group member.

Section 3.08 Financial Statements.

(a) Such Company has made available to Purchaser such Company’s audited consolidated balance sheet as of, and the related audited statements of income, changes in shareholders’ equity and cash flows for the fiscal year ended, December 31, 2010 (the "Balance Sheet Date") (collectively, the "Company's Financial Statements").

(b) The Company's Financial Statements (i) have been prepared based on the books and records of each Company Group, (ii) comply as to form with applicable accounting requirements with respect thereto, (iii) have been prepared in accordance with IFRS applied on a consistent basis throughout the periods indicated (except as may be indicated therein or in the notes thereto) and consistent with each other, (iv) fairly present the financial condition of the respective Company Group as of the Balance Sheet Date and the consolidated results of operations and cash flows of such Company Group for the periods therein specified; and (v) accurately reflect all of such Company Group's guarantees for Liabilities of other Persons.

(c) The books of account of each Company Group have been kept accurate in the ordinary course of business consistent in all material respects with Applicable Law, the transactions entered therein represent bona fide transactions, and the revenues, expenses, assets and liabilities of each Company Group have been properly recorded therein. The other financial records of each Company Group have been kept accurate in the ordinary course of business consistent with Applicable Law, the transactions entered therein represent bona fide transactions, and the revenues, expenses, assets and liabilities of each Company Group have been properly recorded therein.

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(d) Neither Company Group member nor any director or officer or, to the Knowledge of the Company, any employee, auditor, accountant or representative of such Company Group member, has received any written complaint, allegation, assertion or claim, regarding any material deficiency in the accounting or auditing practices, procedures, methodologies or methods of the Company Group or its internal accounting controls, including any complaint, allegation, assertion or claim that such Company Group member has engaged in questionable accounting or auditing practices.

(e) Section 3.08(e) of its Company Disclosure Schedule provides an accurate and complete breakdown of all amounts (including loans, advances or other Indebtedness) owed to each Company Group by a director, officer, employee or shareholder of such Company Group (other than travel advances made in the ordinary course of business) (the "Insider Receivables"). All Insider Receivables (including those receivables reflected in the Company's Financial Statements that have not yet been collected and those receivables that have arisen since the Balance Sheet Date and have not yet been collected, and which are in material amount): (i) represent valid obligations arising from bona fide transactions entered into between such Company Group member and a director, officer, employee or shareholder of such Company Group member in the ordinary course of business and not in violation of any Applicable Law; and (ii) to the Company's Knowledge, will be collected in full when due, without any counterclaim.

Section 3.09 Notes and Accounts Receivable.

Section 3.09 of its Company Disclosure Schedule provides an accurate reconciliation of all accounts receivable, notes receivable and other receivables (other than Insider Receivables) of each member of its Company Group as of March 31, 2011. Except as set forth in Section 3.09 of its Company Disclosure Schedule ,all notes and accounts receivable of each Company Group(including those accounts receivable reflected on the Company's Financial Statements that have not yet been collected and those accounts receivable that have arisen since the Balance Sheet Date and have not yet been collected) are reflected properly on its books and records, are valid and existing receivables arising from bona fide transactions not consummated in violation of any Applicable Law and are subject to no refunds or other adjustments or rights enforceable by third parties. To the Knowledge of such Company, all notes and accounts receivable of each Company Group will be collected in accordance with their terms at their recorded amounts, subject to the reserve for bad debts set forth in the Company's Financial Statements as may be adjusted for the passage of time through the respective Closing Date in accordance with the past custom and practice of such Company Group.

Section 3.10 Deleted

Section 3.11 Absence of Certain Changes.

Since the Balance Sheet Date, the business of each Company Group has been conducted in the ordinary course of business and consistent with past practices (except for actions taken in connection with the negotiation of this Agreement and the performance of the Transactions) and, except as set forth in Section 3.11 of its Company Disclosure Schedule, there has not been:

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(a) any event, occurrence, development or state of circumstances or facts that has had is reasonably expected to have, individually or in the aggregate, a Material Adverse Effect with respect to the Company Group (collectively);

(b) any amendment of the Charter Documents of each Company Group member;

(c) any payment, discharge or satisfaction of any Liabilities in excess of US$100,000, other than the payment, discharge or satisfaction of accounts payable or accrued expenses incurred in the ordinary course of business;

(d) any capital expenditure or commitment for additions to property, plant or equipment, or lease agreement, which individually exceeds US$100,000 or exceeds US$150,000 in the aggregate, and which, if purchased, would be reflected in the property, plant or equipment accounts;

(e) any damage, destruction or loss of any of such Company Group's Assets and Properties, whether or not covered by insurance, which individually exceeds US$50,000or exceeds US$100,000 in the aggregate;

(f) except for Liabilities incurred in the ordinary course of business, any incurrence of a Liability, including any Liability for nonperformance or termination of any Company Material Contract;

(g) (i) any splitting, combination or reclassification of any Companies Shares; (ii) any declaration, setting aside or payment of any dividend or other distribution (whether in cash, shares or property or any combination thereof) in respect of any Companies Shares; (iii) any redemption, repurchase or other acquisition or offer to redeem, repurchase, or otherwise acquire any Companies Shares; (i) any issuance, delivery or sale, or authorization of the issuance, delivery or sale of, any Companies Shares, or (ii) any amendment or waiver of (in each case, whether by merger, consolidation or otherwise) any term of any Companies Shares;

(h) any cancellation or waiver of any claims or rights of value or incurrence of any Lien on, any assets, securities, properties, interests or businesses of each Company Group in each case which individually exceeds US$100,000 or US$200,000 in the aggregate;

(i) the making by any Company Group of any loans, guarantee or capital contributions to, or investments in, any other Person, which individually exceeds US$50,000 or US$100,000 in the aggregate;

(j) the creation of any Company Debt which individually exceeds US$50,000 or US$100,000 in the aggregate;

(k) the sale, disposition of, transfer or license to any Person of any substantial rights or any rights to any Company IP Rights or other material assets by any Company Group, or the acquisition, lease or license from any Person of any rights including any Intellectual Property or other assets, in each case other than in the ordinary course of business;

(l) (i) the grant or increase of any severance or termination pay to (or amendment of any existing arrangement with) any director, officer, advisor, consultant or key employee, of any Company Group, (ii) any increase in benefits payable to any such director, officer, advisor, consultant or key employee under any existing severance or termination pay policies or employment agreements, (iii) the entering into of any employment, deferred compensation or other similar agreement (or amendment of any such existing agreement) with any director, officer, advisor, consultant or key employee of any Company Group, (iv) the establishment or adoption or amendment (except as required by Applicable Law) of any collective bargaining, bonus, commission, profit-sharing, thrift, pension, retirement, deferred compensation, compensation, share option, restricted share or other benefit plan or arrangement covering any director, officer, advisor, consultant or key employee of any Company Group or (v) any increase in compensation, bonus, commission or other benefits payable to any director, officer, advisor, consultant or key employee of any Company Group;

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(m) any change in the methods of accounting or accounting practices of such Company, except as required by concurrent changes in IFRS, as agreed to by its independent public accountants;

(n) any elimination of any reserves established on each Company Group’s books or any changing of the method of accrual unless there is any change of significant facts or circumstances pertaining to any reserves which would justify their elimination;

(o) any settlement of, or offer or proposal by any Company Group to settle, any Proceeding involving such Company Group or that relates to the Transactions;

(p) any Tax election made or materially changed; any claim, notice, audit report or assessment in respect of Taxes settled or compromised (or agreement with respect thereto); any Tax Return filed (except as required under Applicable Law); any Tax allocation agreement, Tax sharing agreement, advance pricing agreement, cost sharing agreement, pre-filing agreement, Tax indemnity agreement or closing agreement relating to any Tax entered into; any annual Tax accounting period or method of Tax accounting changed or adopted; any Tax petition, Tax complaint or administrative Tax appeal filed; any right to claim a Tax refund surrendered or foregone (which is reasonably expected to be material to any Company Group); or any extension or waiver of the statute of limitations period applicable to any Tax claim or assessment consented to, nor has any application or negotiation for or receipt of a Tax ruling or arrangement been made by or on behalf of any Company Group member, whether or not in connection with the Transactions, except as explicitly contemplated in this Agreement;

(q) any write off as uncollectible of, or any establishment of extraordinary reserve with respect to, any account receivable or other Indebtedness, which individually exceeds US$50,000 or US$100,000 in the aggregate;

(r) any acquisition of a business or Person, by merger or consolidation, purchase of substantial assets or equity interests, or by any other manner, in a single transaction or a series of related transactions, or entering into any Contract, letter of intent or similar arrangement (whether or not enforceable), other than with the Purchaser, with respect to any of the foregoing;

(s) any distribution by such Company to its shareholders of any asset or a declaration thereof;

(t) the commencement of any Proceeding; or

(u) any agreement or commitment to take any of the actions referred to in clauses (a) through (t).

Section 3.12 No Undisclosed Liabilities.

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(a) No Company Group member has any Liabilities of any kind, whether or not required to be reflected or reserved in financial statements in accordance with IFRS, other than:

(i) Liabilities reflected in the "liabilities" column of the balance sheet that is part of the Company's Financial Statements or in the notes thereto;

(ii) accounts payable and accrued salaries that have been incurred by each Company Group since the Balance Sheet Date in the ordinary course of business and consistent with past practice; and

(iii) Liabilities identified in Section 3.12

of its Company Disclosure Schedule.

Section 3.13 Material Contracts.

(a) Except as set forth in Section 3.13(a) of its Company Disclosure Schedule, no Company Group member is bound by any of the following Contracts and to the Company's Knowledge, nor is any shareholder of such Company or any Affiliate thereof bound by any such Contract that is necessary for the business, operations or assets of its Company Group (a Contract meeting any of the following categories is hereinafter referred to as a "Company Material Contract"):

(i) all leases or other Contracts under which a Company Group member is a lessee of, or holds or operates, any machinery, equipment, vehicle or other tangible personal property owned by a third party and used in the business of such Company Group and which entails annual payments, in the case of any such lease or agreement, in excess of US$100,000, or US$200,000 in the aggregate;

(ii) any Contract relating to the acquisition, transfer, use, development, sharing or license, other than in the ordinary course of business, of any technology, or Intellectual Property rights (including any joint development agreement, technical collaboration agreement or similar agreement), to or from each Company Group member other than any end user license agreements for non-exclusive "off the shelf" software used by any Company Group member;

(iii) any Contract imposing any restriction on the right or ability of each Company Group, (A) to compete with any other Person with respect to the products or services offered by such Company Group (including granting exclusive rights or rights of first refusal to license, market, sell or deliver any of the products or services offered by such Company Group), (B) to acquire any product or other asset or any services of the types offered by such Company Group from any other Person or to sell any product or other asset of the types sold by such Company Group to, or perform any services of the types offered by such Company Group for, any other Person, or (C) to develop, distribute, license, sell or transfer any Intellectual Property rights;

(iv) all outstanding Contracts with customers or vendors expected to result in payment to or by any Company Group in excess of US$300,000 during a period of 12 months following the Closing Date;

(v) all outstanding Contracts with Company Significant Customers and Company Significant Suppliers (as such terms are defined below);

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(vi) any partnership, joint venture or any sharing of revenues, profits, losses, costs or liabilities Contract expected to result in payment to or by any Company Group in excess of US$150,000 during a period of 12 months following the Closing Date;

(vii) any Contract involving a loan in excess of US$100,000 (other than accounts receivable from trade debtors in the ordinary course of business) or advance to (other than travel, accommodation or entertainment allowances to the employees, directors, officers and advisors of each Company Group extended in the ordinary course of business), or investment in, any Person or any Contract relating to the making of any such loan, advance or investment;

(viii) any Contract relating to the acquisition, issuance or transfer of any securities, other than options to purchase shares under such company's option plans, and the voting and any other rights or obligations of a shareholder of any Company Group entered into following January 1, 2008 or that contains any outstanding obligations of any member of the Company Group;

(ix) any Contract under which (A) any third party has directly or indirectly guaranteed any liabilities or obligations of any Company Group in excess of US$100,000, or (B) any Company Group has directly or indirectly guaranteed liabilities or obligations in excess of US$100,000 of any third party;

(x) any Contract relating to the creation of any Lien with respect to any material asset of any Company Group and all mortgages, indentures, security agreements, pledges, notes, loan agreements or guarantees creating any such Lien;

(xi) any Contract which contains any provisions requiring any Company Group to indemnify any other party, other than in the ordinary course of business;

(xii) any Contract of any Company Group with any Related Person;

(xiii) all management service, consulting, financial advisory or any other similar Contract, and any Contracts with any investment bank for investment banking services;

(xiv) all Contracts (including letters of intent that have not yet expired by their terms) involving the future disposition or acquisition of assets or properties, other than in the ordinary course of business, or any merger, consolidation or similar business combination transaction;

(xv) all Contracts entered into since January 1, 2008, involving any resolution or settlement of any actual or threatened litigation, arbitration, claim or other dispute; and

(xvi) all Contracts that contain restrictions with respect to the payment of dividends or any other distribution in respect of the capital stock or other equity interests of each Company member;

(xvii) all other Contracts that are material to the business of each Company Group.

(b) Such Company has made available to Purchaser materially accurate and complete copies of all written Company Material Contracts required to be identified in Section 3.13(a) of its Company Disclosure Schedule, including all amendments thereto. Section 3.13(b) of its Company Disclosure Schedule provides an accurate description of the material terms of each Company Material Contract identified in Section 3.13(a) of its Company Disclosure Schedule that is not in written form.

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(c) Each Company Material Contract is a valid and binding agreement of the applicable Company Group member, and is in full force and effect, and is enforceable by such Company Group member in accordance with its terms, subject to: (i) laws of general application relating to bankruptcy, insolvency and the relief of debtors; and (ii) rules of law governing specific performance, injunctive relief and other equitable remedies. No Company Group is in default or breach under the terms of any Company Material Contract and, to the Knowledge of such Company, no other party thereto is in default or breach under the terms of any Company Material Contract. To the Knowledge of such Company, 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, (i) result in a violation or breach of any provision of any Company Material Contract by any party thereto, (ii) give any Person the right to declare a default or exercise any remedy under any Company Material Contract, (iii) give any Person the right to accelerate the maturity or performance of any Company Material Contract, or (iv) give any Person the right to cancel, terminate or modify any Company Material Contract. Since January 1, 2008, no Company Group member has waived any of its rights under any Company Material Contract.

(d) Except as set fort in Section 3.13(d)

of its Company Disclosure Schedule, since January 1, 2008, no Company Group has received any written notice regarding any violation or breach of, or default under, any Company Material Contract.

Section 3.14 Restrictions on Business Activities.

There is no written Contract or any order of Governmental Authority binding upon any Company Group member that has or could reasonably be expected to have the effect of prohibiting or impairing any business practice of such Company Group member, acquisition of property by such Company Group member, or the conduct of business by such Company Group member as currently conducted.

Section 3.15 Litigation.

(a) Except as set forth in Section 3.15(a) of its Company Disclosure Schedule there is no pending Proceeding that has been submitted to such Company Group nor has any Person threatened in writing to commence any Proceeding: (i) that involves any Company Group or its business, any of the assets or properties owned or used by such Company Group, any Company Product or any Person whose liability to the Company Group has or may have been retained or assumed, either contractually or by operation of law; (ii) that challenges, or that may be reasonably expected to have the effect of preventing, delaying, or making illegal the consummation of the Transactions; or (iii) that relates to the ownership of any share capital of any Company Group member, or any Option or other right to acquire share capital of any Company Group member, or any right to receive consideration as a result of this Agreement. The Company has not been informed in writing of, and to its Knowledge no event has occurred, and no claim, dispute or other condition or circumstance exists, that is reasonably expected to give rise to or serve as a basis for the commencement of any such Proceeding.

(b) There is no order, writ, injunction, directive, restriction, judgment or decree issued by any Governmental Authority by which any Company Group, or any of the assets owned or used by such Company Group member, is subject or which restricts in any respect the ability of such Company Group to conduct its business as now being conducted. To the Knowledge of such Company, no officer, director, shareholder or employee of any Company Group (in each case, in his or her capacity as such) is subject to any order, writ, injunction, judgment or decree that prohibits such person from engaging in or continuing any conduct, activity or practice relating to the business of such Company Group.

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Section 3.16 Properties.

(a) No Company Group member owns any real property. Each Company Group has a good and valid leasehold interest in each parcel of real property leased by such Company Group or used or required for the conduct of its business (the "Company Leased Real Property"). Section 3.16(a) of each Company Disclosure Schedule lists each lease, subleases, license or other occupancy agreement or arrangement relating to the Company Leased Real Property (each, a "Real Property Lease"). Each Company Group has the right to use and occupy each respective Company Leased Real Property for the full term of the Real Property Lease relating thereto, subject to its respective terms.

(b) Each Company Group owns and has good and marketable title to, or a valid license or leasehold interest in, all tangible personal property and assets used by such Company Group or required for the conduct of its business (the "Assets"). Except as set fort in Section 3.16(b) of its Company Disclosure Schedule, none of the Assets is subject to any Lien, except Liens for taxes not yet due and payable or mechanic’s, carrier’s, worker’s, material man’s, warehouse man’s, supplier’s, vendor’s or similar Liens arising or incurred in the ordinary course of business.

(c) Section 3.16 (c) of its Company Disclosure Schedule identifies all Assets, including those Assets that are being licensed or leased to each Company Group or used or required for the conduct of its business as of March 31, 2011 (the "Leased Assets"). All Leased Assets are leased pursuant to valid, binding and enforceable Contracts in accordance with their respective terms (the "Lease Contracts").

(d) The Assets and Leased Assets have no material defects, are in good operating condition and repair, ordinary wear and tear excepted, and have been reasonably maintained consistent with standards generally followed in the industry (giving due account to the age and length of use of same, ordinary wear and tear excepted), and are adequate and suitable for their present uses.

(e) The Assets and the Leased Assets constitute all of the tangible personal property and assets used or held for use in connection with the business of each Company Group.

Section 3.17 Customers and Suppliers.

Section 3.17 of its Company Disclosure Schedule sets forth a list of the 10 (ten) largest customers of the Company Group (collectively) for the year ended December 31, 2010 (each, a "Company Significant Customer") and the 10 (ten) largest suppliers of products and/or services to the Company Group (collectively) for the year ended December 31, 2010 (each, a "Company Significant Supplier"), in each case based on amounts paid or payable with respect to such year, along with such amounts.

No Company Group member has any outstanding material dispute with any Company Significant Customer or Company Significant Supplier. As of the date hereof, the Company Group has not received any written notice from any Company Significant Customer or Company Significant Supplier that such Company Significant Customer or Company Significant Supplier intends to discontinue its relationship with the respective Company Group or that such Company Significant Customer or Company Significant Supplier intends to materially and adversely (to the Company Group) modify its existing contractual relationship with such Company Group.

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Section 3.18 Intellectual Property.

(a) As used in this Agreement, the following terms shall have the meanings indicated below:

(1) "Intellectual Property" means any and all intellectual property rights and all rights associated therewith, including all patents and applications therefor and all reissues, divisions, renewals, extensions, provisionals, continuations and continuations-in-part thereof, all inventions (whether patentable or not), invention disclosures, improvements, trade secrets, proprietary information, know how, technology, technical data, proprietary processes and formulae, algorithms, specifications, all industrial designs and any registrations and applications therefor, all trade names, logos, common law trademarks and service marks, trademark and service mark registrations and applications therefor, Internet domain names, Internet and World Wide Web URLs or addresses, all copyrights, copyright registrations and applications therefor, and all other rights corresponding thereto, all computer software, including all source code, object code, firmware, development tools and related files, records and data, all test methodologies and all rights in prototypes, and other devices, all databases and data collections and all rights therein, all moral and economic rights of authors and inventors, however denominated, and any similar or equivalent rights to any of the foregoing, and all tangible embodiments of the foregoing.

(2) "Company IP Rights" means, with respect to each Company Group, (A) any and all Intellectual Property used in or required for the conduct of the business of such Company Group as currently conducted by such Company Group; and (B) any and all other Intellectual Property owned by or licensed to such Company Group.

(3) "Company-Owned IP Rights" means, with respect to each Company Group, (A) Company IP Rights that are owned by or exclusively licensed to such Company Group; and (B) Company IP Rights that were developed for such Company Group by full or part time employees, consultants or service providers of such Company Group.

(4) "Third Party Intellectual Property Rights" means any Intellectual Property owned by a third party.

(5) "Company Source Code" means, collectively, any software source code or confidential manufacturing specifications or designs, any material portion or aspect of software source code or confidential manufacturing specifications or designs, or any material proprietary information or algorithm contained in or relating to any software source code or confidential manufacturing specifications or designs, of any Company-Owned IP Rights or Company Products.

(b) Each Company Group (i) owns and has independently developed or acquired, or (ii) has the valid right or license to all its Company IP Rights. Such Company IP Rights are sufficient for the conduct of the business of such Company Group as currently conducted.

(c) No Company Group has transferred ownership of any Intellectual Property that is or was Company-Owned IP Rights to any third party, or knowingly permitted such Company Group’s rights in any Intellectual Property that is or was Company-Owned IP Rights to enter the public domain or, with respect to any Intellectual Property for which such Company Group has submitted an application or obtained a registration, lapse (other than through the expiration of registered Intellectual Property at the end of its maximum statutory term).

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(d) Each Company Group owns and has good and exclusive title to each item of Company-Owned IP Rights, free and clear of any Liens. The right, license and interest of such Company Group in and to all Third Party Intellectual Property Rights licensed by such Company Group from a third party are free and clear of all Liens (excluding conditions and restrictions contained in the applicable license agreements with such third parties).

(e) After the respective Closing, all Company-Owned IP Rights will be fully transferable, alienable or licensable by Purchaser without restriction and without payment of any kind to any third party.

(f) Section 3.18(f) of its Company Disclosure Schedule lists for each Company Group all of its Company-Owned IP Rights including the jurisdictions in which each such item of Company-Owned IP Rights, to the extent issued or registered, 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. Each item of Company-Owned IP Rights is valid and subsisting (or in the case of applications, applied for), all registration, maintenance and renewal fees currently due in connection with such Company-Owned IP Rights have been paid and all documents, recordations and certificates in connection with such item of Company-Owned IP Rights currently required to be filed have been filed.

(g) [Deleted]

(h) Except as set forth in Section 3.18(h) of its Company Disclosure Schedule, no Company Group is or shall it be as a result of the execution and delivery or effectiveness of this Agreement and the other Transaction Documents or the performance of such Company’s obligations hereunder and thereunder, in breach of any Contract governing any Company IP Rights (the "Company IP Rights Agreements") and the consummation of the Transactions will not result in the modification, cancellation, termination, suspension of, or acceleration of any payments with respect to the Company IP Rights Agreements, or give any third party to any Company IP Rights Agreement the right to do any of the foregoing. Following the respective Closing, such Company (as wholly-owned by Purchaser) will be permitted to exercise all of such Company’s rights under the Company IP Rights Agreements to the same extent such Company would have been able to had the Transactions not occurred and without the payment of any additional amounts or consideration.

(i) Except as set forth in Section 3.18(i) of its Company Disclosure Schedule, none of the Company IP Rights Agreements grants any third party exclusive rights to or under any Company IP Rights or grants any third party the right to sublicense any Company IP Rights.

(j) Except as set forth in Section 3.18(j) of its Company Disclosure Schedule, there are no royalties, honoraria, fees or other payments payable by any Company Group to any Person (other than salaries payable to employees, consultants and independent contractors not contingent on or related to use of their work product) as a result of the ownership, use, possession, license-in, license-out, sale, marketing, advertising or disposition of any Company-Owned IP Rights by any Company Group.

(k) To the Knowledge of such Company, there is no unauthorized use, unauthorized disclosure, infringement or misappropriation of any of its Company-Owned IP Rights, by any Person. No Company Group has brought any action, suit or proceeding for infringement or misappropriation of any its Intellectual Property or breach of any of its Company IP Rights Agreement.

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(l) Except as set forth in Section 3.18(l) of its Company Disclosure Schedule, no Company Group has been sued in any Proceeding (or received any written notice or threat with respect to any Proceeding) which involves a claim of infringement or misappropriation of any Intellectual Property right of any third party or which contests the validity, ownership or right of such Company Group to exercise any Intellectual Property right.

(m) The operation of the business of each Company Group as such business is currently conducted, and the use or exploitation of any Company IP Rights by such Company Group does not and will not infringe or misappropriate the Intellectual Property of any third party and does not constitute unfair competition or unfair trade practices under any Applicable Laws.

(n) Except as set forth in Section 3.18(n) of its Company Disclosure Schedule, each Company Group has secured from all of its current and former consultants, employees and independent contractors and the respective Affiliates thereof who independently or jointly contributed to the conception, reduction to practice, creation or development of any of its Company IP Rights, Company-Owned IP Rights or Company Products, unencumbered and unrestricted exclusive ownership of all such third party’s Intellectual Property in such contribution that such Company Group does not already own by operation of law and such third party has not retained any rights or licenses with respect thereto. Without limiting the foregoing, each Company Group member has obtained valid and enforceable proprietary information and invention disclosure and assignment agreements from all current and former employees, consultants, service providers and independent contractors of such Company Group.

(o) No current or former shareholder, employee, consultant or independent contractor of any Company Group is or has been, to such Company’s Knowledge, in violation of any term or covenant of any Contract relating to employment, invention disclosure, invention assignment, non-disclosure or non-competition by virtue of such shareholder's employee, consultant or independent contractor being employed by, or performing services for such Company Group with respect to any technology, software or other copyrightable, patentable or otherwise proprietary work developed for such Company Group that is subject to any agreement under which such employee, consultant or independent contractor or Affiliate thereof 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. To such Company’s Knowledge, the employment of any employee of each Company Group or the use by the Company of the services of any consultant or independent contractor (including the services of any employees and consultants of such independent contractors) does not subject such Company Group to any liability to any third party for improperly soliciting such employee, consultant or independent contractor to work for such Company Group.

(p) Each Company Group has taken all commercially reasonable steps to protect and preserve the confidentiality of all material confidential or non-public information included in the Company Owned IP Rights ("Confidential Information").

(q) Section 3.18(q) of its Company Disclosure Schedule lists all software or other material that is distributed as "free software", "open source software" or under a similar licensing or distribution terms (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) ("Open Source Materials") used by each Company Group in (i) its Company Products or (ii) the business of such Company Group. Each Company Group is in compliance with the terms and conditions of all licenses for Open Source Materials.

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(r) The Company IP Rights or Company Products (i) do not incorporate Open Source Materials, and are not combined with Open Source Materials; (ii) are not distributed in conjunction with any Open Source Materials; and (iii) do not use Open Source Materials, in each of (i), (ii) and (iii), in such a way that, with respect to each of (i), (ii) and (iii), creates, or purports to create obligations for any Company Group with respect to its Company IP Rights or Company Products or grant, or purports to grant, to any third party, any rights or immunities under any Company IP Rights or Company Products (including using any Open Source Materials that require, as a condition for such use, modification and/or distribution of such Open Source Materials that other software incorporated into, derived from or distributed with such Open Source Materials be (A) disclosed or distributed in source code form, (B) be licensed for the purpose of making derivative works, or (C) be redistributable at no charge).

(s) No Company Product contains any "back door," "drop dead device," "time bomb," "Trojan horse," "virus," or "worm" (as such terms are commonly understood in the software industry) or any other code designed or intended to have, or capable of performing or facilitating, any of the following functions: (i) disrupting, disabling, harming, or otherwise impeding in any manner the operation of, or providing unauthorized access to, a computer system or network or other device on which such code is stored or installed or with which it interoperates, or (ii) compromising the privacy or data security of a user or damaging or destroying any data or file without the user’s consent (collectively, "Malicious Code"). Each Company Group implements sufficient current industry standard measures designed to prevent the introduction of Malicious Code into its Company Products.

(t) For all software used by each Company Group in providing services, or in developing or making available any of its Company Products, each Company Group has implemented sufficient security patches or upgrades that are generally available for that software.

(u) Except as set forth in Section 3.18(u) of its Company Disclosure Schedule, no government funding or Governmental Grants or funding from any Person was used in the development of the Company Owned IP Rights.

(v) Except as set forth in Section 3.18(v) of its Company Disclosure Schedule, no Company Group nor any other Person acting on its behalf has disclosed, delivered or licensed to any Person, agreed to disclose, deliver or license to any Person, or permitted the disclosure or delivery to any escrow agent or other Person of, any Company Source Code. To such Company’s Knowledge, 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 any Company Group or any Person acting on its behalf to any Person of any Company Source Code. Section 3.18(v)

of its Company Disclosure Schedule identifies each Contract pursuant to which any Company Group has deposited, or is or may be required to deposit, with an escrow holder or any other Person, any of its Company Source Code. The Company Source Code contains annotations and programmer’s comments, and otherwise has been documented in a manner that is both: (i) consistent with customary code annotation conventions and common practices in the software industry; and (ii) sufficient to independently enable a programmer of reasonable skill and competence to understand, analyze, and interpret program logic, correct errors and improve, enhance, modify and support the Company Products.

Section 3.19 Insurance Coverage.

Section 3.19 of its Company Disclosure Schedule identifies each insurance policy maintained by, at the expense of or for the benefit of each Company Group or its business or Assets and Properties, each of which is in full force and effect. All premiums payable under all such policies have been timely paid and each Company Group has otherwise complied with all material terms and conditions of all such policies. Neither: (A) the execution or delivery of this Agreement or any other Transaction Documents; nor (B) the consummation of the Transactions, will (with or without notice or lapse of time or both): (1) result in the cancellation, invalidation or termination, or give any Person the right to cancel, invalidate or terminate, any of the insurance policies of any Company Group; (2) result in the reduction of coverage, or give any Person the right to reduce the coverage, under any such insurance policies; or (3) have any impact on the right or ability of any Company Group to make a claim under any such insurance policies in respect of or relating to events or circumstances that have occurred prior to the respective Closing.

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Section 3.20 Tax Matters.

Except as set forth in Section 3.20 of its Company Disclosure Schedule:

(a) Each Company Group member has timely filed in a proper manner with the appropriate Taxing Authorities all Tax Returns required to be filed by, or with respect to, such Company Group and has timely paid in full all Taxes shown as due on any Tax Return. All such Tax Returns are true, complete and accurate. All Taxes due and payable by any member of each Company Group or with respect to the income, assets or operations thereof, whether or not required to be shown on a Tax Return, have been timely paid in full. No written claim has been served to the Company Group since January 1, 2008 by a Taxing Authority or any other Governmental Authority in a jurisdiction where any Company Group does not file Tax Returns that any member of such Company Group is or may be subject to taxation in that jurisdiction.

(b) A proper and adequate accrual or reserve for Tax Liabilities of the respective Company Group in accordance with IFRS is included in the respective Company’s Financial Statements. The unpaid Taxes of each Company Group (i) did not, as of the Balance Sheet Date, exceed the reserve for Tax Liabilities set forth on the balance sheet (and not merely in the notes) included in the respective Company’s Financial Statements, and (ii) do not, as of the date hereof, exceed such reserve except as set forth in Section Section 3.20(b)

of the respective Company Disclosure Schedule.

(c) Except as set forth in Section 3.20(c) of its Company Disclosure Schedule, since the Balance Sheet Date, no Company Group (i) has incurred any Liability for Taxes (A) from extraordinary gains or losses within the meaning of IFRS or (B) outside the ordinary course of business, or (C) otherwise inconsistent with past custom and practice and (ii) has, in accordance with IFRS, as applicable, made due and sufficient accruals for such Liabilities for Taxes (excluding any "deferred taxes" or similar items that reflect timing differences between tax and financial accounting principles) in the books and records of such Company Group.

(d) No Company Group has been since January 1^st, 2008 or, to the Knowledge of the respective Company, is currently the subject of any audit or other examination of Taxes by any Taxing Authority. Except as set forth in Section 3.20(d) of its Company Disclosure Schedule no written deficiencies for Taxes with respect to any Company Group have been claimed, or assessed by any Taxing Authority or other Governmental Authority. There are currently no matters under discussion between the Company Group and any Taxing Authority. Each Company has made available to Purchaser (i) complete and accurate copies of all Tax Returns of each Company Group for the past three taxable years, and (ii) complete and accurate copies of all audit or examination reports and statements of deficiencies assessed against or agreed to by each Company Group for the past five taxable years. During the past (5) five taxable years no Company Group has waived or extended any statute of limitations in respect of Taxes or agreed to any extension of time with respect to a Tax assessment or deficiency, nor has any Company Group submitted any request for any such extension or waiver.

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(e) No closing agreements, private letter rulings, technical advice memoranda or similar agreements or rulings relating to Taxes have been entered into or issued by any Governmental Authority with or in respect of any Company Group during the past (5) five taxable years. Except as set forth in Section 3.20(e) of its Company Disclosure Schedule, no Company Group has requested or received a ruling from any Taxing Authority during the past three taxable years (other than such rulings required by this Agreement).

Section 3.21 Employees; Contractors and Benefit Plans

(a) Section 3.21(a) of its Company Disclosure Schedule sets forth, with respect to each Company Group member, the name of each executive officer and each independent contractor and consultant providing services customarily provided by executive officers and the ten other employees with the highest total Compensation Package in the Company Group, together with his or her position or function, date of hire or engagement, annual base salary or wages or the compensation, vacation entitlement and any applicable incentive, severance or bonus arrangements such items are referred to collectively as the "Compensation Package".

(b) Section 3.21(b) of its Company Disclosure Schedule sets forth an accurate and complete list identifying each employment, consulting, severance, termination, retirement, profit sharing, bonus, incentive or deferred compensation, retention or transaction bonus or change in control agreement, pension, stock Option, restricted stock or other equity-based benefit, profit sharing, savings, retirement, life, health, disability, accident, medical, dental, insurance, vacation, paid time off, long term care, perquisite, fringe benefit, death benefit or other material compensation or benefit plan, program, arrangement, agreement, fund or commitment (i) for the benefit or welfare of any current or former director, officer, shareholder, service provider or employee of any Company Group or any shareholder or Affiliate thereof employing such person for the benefit of such Company Group, or (ii) with respect to which such Company Group has any Liability. Such plans are referred to collectively herein as the "Benefit Plans." Such Company has made available to Purchaser (i) accurate and complete copies of each Benefit Plan to the extent currently effective, including all amendments thereto and copies of applicable resolutions adopting each such amendment, (ii) all material written Contracts relating to each Benefit Plan to the extent currently effective, and (iii) material correspondence to or from any Governmental Authority relating to any Benefit Plan. Each Company Group member has performed all obligations required to be performed by such Company Group member under (including with respect to any grant, bonus or other benefit effected under any Benefit Plan), and is not in default or violation of, and has no Knowledge of any default or violation by any other party to, any Benefit Plan, of any material term thereunder. Each Benefit Plan has been established and maintained in accordance with its terms and in compliance with Applicable Law. Each Benefit Plan of such Company that is intended to qualify under Section 401(a) of the Code ("Section 401(a)") has received a favorable determination or approval letter from the Internal Revenue Service and each Benefit Plan of such Company that is intended to qualify under Section 102 of the Tax Ordinance ("Section 102") has received a favorable determination or approval letter or is otherwise approved by the ITA. All Companies Options and Companies Shares of such Company issued under Section 401(a) or any "Section 102 Plan" have been issued in compliance with the applicable requirements of Section 401(a) or Section 102, as the case may be, including, without limitation, the adoption of the applicable board and shareholders resolutions, the filing of the necessary documents with the ITA and the Internal Revenue Service, the issuance of Companies Options following the applicable 30 days restriction period following the submission of the application to the ITA to approve a "Section 102 Plan", the appointment of trustees to hold the Companies Options and, if applicable Companies Shares pursuant to the terms of Section 102 and the compliance by such trustees with the Section 102 requirements.

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(c) Except as set forth in Section 3.21(c) of its Company Disclosure Schedule,  the consummation of the Transactions will not (either alone or together with any other event, including a subsequent termination of employment or service or other engagement) entitle any employee, service provider or independent contractor of any Company Group member or any employee of such independent contractor or service provider to severance pay or accelerate the time of payment or vesting or trigger any payment of funding (through a grantor trust or otherwise) of compensation or benefits under, increase the amount payable under any Benefit Plan or trigger any other Liability to such Company Group member or any other right or benefit to such person.

(d) Except as set forth in Section 3.21(d) of its Company Disclosure Schedule, no Company Group member has engaged any consultants, sub-contractors, sales agents or freelancers who, according to Applicable Law, would be entitled to the rights of an employee vis-à-vis the Company Group, including rights to severance pay, vacation, recuperation pay (dmei havraa) and other employee-related statutory or contractual benefits. Each Person providing services to any Company Group member that has been characterized as a consultant, sub-contractor, sales agent or freelancer and not an employee has been properly characterized as such including, where applicable, through the inclusion of appropriate and required provisions in the relevant agreement with such Person.

(e) No Company Group member is a party to any collective bargaining Contract, collective labor agreement or other Contract or arrangement with a labor union, workers committee, trade union or other organization or body involving any of its employees, or is otherwise required (under any legal requirement, under any Contract or otherwise) to provide benefits or working conditions beyond the minimum benefits and working conditions required by Applicable Law or pursuant to applicable extension orders (tzavei harchava).

(f) No Company Group member is subject to any Proceeding asserting that such Company Group has committed an unfair labor practice or seeking to compel it to bargain with any labor union or labor organization nor is there pending or, to such Company’s Knowledge, threatened, nor has there been, since January 1, 2008, any labor strike, dispute, walk-out, work stoppage, slow-down or lockout involving any member of such Company Group

(g) No Company Group member has or is subject to, and no employee of any Company Group member benefits from, any extension order except for extension orders applicable to all employees in Israel.

(h) Except as set fort in Section 3.07(b) of its Company Disclosure Schedule, the obligations of each Company Group member to provide statutory social benefits pursuant to Applicable Law and any other benefits provided under any Contract to which such Company Group member is party, are each fully funded or reflected on the Company's Financial Statements.

(i) Except as set fort in Section 3.21(i) of its Company Disclosure Schedule, each Company Group member has complied in all material respects with all Applicable Laws and/or Contracts and/or customs recognized as such by such Company Group member relating to employment, employment practices, wages, bonuses and other compensation matters and terms and conditions of employment related to its employees; and all amounts that the Company Group is legally or contractually required either (i) to deduct from its employees’ salaries or to transfer to such employees’ pension or provident, life insurance, incapacity insurance, continuing education fund or other similar funds, or (ii) to withhold from its employees’ salaries and benefits and to pay to any Governmental Authority as required by under Applicable Law, have, in each case, been fully deducted, transferred, withheld and paid.

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Section 3.22 Affiliate Transactions.

Except as set forth in Section 3.22 of its Company Disclosure Schedule, no shareholder, director, officer or employee of any Company Group or member of any of their immediate family or any Affiliate thereof (each of the foregoing, a "Related Person"), other than in its capacity as a shareholder, director, officer or employee of such Company Group, (i) has been since January 1, 2008 involved, directly or indirectly, in any business arrangement, other than employment agreements (and if applicable, engagements with directors in their capacity as such) or other material relationship with any Company Group (whether written or oral), (ii) directly or indirectly owns, or otherwise has any right, title, interest in, to or under, any property or right, tangible or intangible, that is used by such Company Group or (iii) is engaged, directly or indirectly, in the conduct of the business of such Company Group. In addition, to the Knowledge of such Company, no such Related Person has an interest in any Person that (A) competes with the business of its Company Group in any market presently served by such Company Group, or (B) is a supplier, vendor, lessor, lessee, licensor or licensee of such Company Group, in each case, except as explicitly set forth in Section 3.22 of its Company Disclosure Schedule. For purpose of this Agreement, "immediate family" of any Person shall mean spouse, parents, children and brothers and sisters of such Person.

Section 3.23 Finder's Fees.

There is no investment banker, broker, finder or other intermediary that has been retained by or is authorized to act on behalf of such Company or who is entitled to any fee or commission from such Company in connection with the Transactions.

Section 3.24 Bank Accounts.

Section 3.24 of its Company Disclosure Schedule provides the following information with respect to each account maintained by or for the benefit of any Company Group at any bank, trust company, securities broker or other financial institution: (i) the name of the bank or other financial institution at which such account is maintained; (ii) the account number; (iii) the type of account; and (iv) the names of all Persons who are authorized to sign checks or other documents or has any other amounts or rights with respect to such account. Except as set fort in Section 3.24

of its Company Disclosure Schedule, no Company Group has any outstanding credit facility, overdraft, loan, loan stock, debenture, letter of credit, acceptance credit or other financial facility.

Article IV
Representations and Warranties of the Selling Shareholders

Except as set forth in each Selling Shareholder's Disclosure Schedule, each of the Selling Shareholders represents and warrants, severally but not jointly with the other Selling Shareholders, and in respect to himself/itself and his/its own shares, to and for the benefit of Purchaser, that the statements contained in this Article IV are true and correct as of the date of this Agreement, and will be true and correct as of the respective Closing Date:

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Section 4.01 Title to Company Shares.

Such Selling Shareholder has good and valid title to, and is the sole lawful owner, beneficially and of record, of all of the Companies Shares set forth opposite the name of such Selling Shareholder in Exhibit C or Exhibit D, as applicable, which constitute the entire issued and outstanding Companies Shares held by such Selling Shareholder, free and clear of any and all Liens. The Selling Shareholder has sole voting power and sole power to issue instructions with respect to the matters set forth in this Agreement, sole power of disposition and sole power to agree to all of the matters set forth in this Agreement, in each case with respect to the foregoing Companies Shares. At the respective Closing, such Selling Shareholder shall convey to Purchaser, and Purchaser shall acquire, good and marketable title to the respective Companies Shares referred to above, free and clear of any Liens and from any agreement, obligation or commitments to create, grant, give or permit to subsist any Liens, except for such Liens created by the Purchaser or under the respective Charter Documents or Applicable Law. The Selling Shareholder has not sold, pledged or otherwise transferred (whether by operation of law or otherwise, including, without limitation, transfers pursuant to any decree of divorce or separate maintenance, any property settlement, any separation agreement or any other agreement with a spouse) any interests in the respective Companies Shares to any Person. The respective Companies Shares constitute all of the shares or other securities of the respective Company over which any voting or dispositive power is held by the Selling Shareholder and the Selling Shareholder does not own, beneficially or otherwise, directly or indirectly, any other share capital of, or other securities, equity or ownership interest in the Company (including, without limitation, (i) any outstanding Options, warrants, purchase rights, subscription rights, conversion rights, exchange rights or other securities of such Company, or (ii) outstanding stock appreciation rights, phantom stock or similar rights). The respective Companies Shares referred to above are not subject to any shareholders agreement, voting agreements, proxies, trusts or other agreement or understandings relating to the voting or disposition thereof, which would continue to be binding upon the Purchaser after the respective Closing. Any proxies heretofore given in respect of the respective Companies Shares are not irrevocable, and any such proxies are or shall be revoked by the Selling Shareholders by the respective Closing.

Section 4.02 Authority; Binding Effect.

Such Selling Shareholder has full right, power and authority to enter into and to perform such Selling Shareholder’s obligations under each of the Transaction Documents to which such Selling Shareholder is or may become a party. Such Selling Shareholder has all requisite power and authority to execute, deliver and perform its obligations under this Agreement and the other Transaction Documents to which such Selling Shareholder is a party and to consummate the transactions contemplated hereunder and thereunder. The execution, delivery and performance of this Agreement and the other Transaction Documents to which such Selling Shareholder is a party have been duly authorized by such Selling Shareholder. All organizational actions and proceedings required to be taken by or on the part of such Selling Shareholder to authorize and permit the execution, delivery and performance by such Selling Shareholder of this Agreement and the other Transaction Documents to which such Selling Shareholder is a party, have been duly and properly taken. This Agreement has been, and each other Transaction Document to which such Selling Shareholder is a party has been or will be, duly executed and delivered by such Selling Shareholder. This Agreement constitutes the legal, valid and binding obligation of such Selling Shareholder, and, assuming the due authorization, execution and delivery by the other parties thereto, is enforceable against such Selling Shareholder in accordance with its terms, and upon the execution of each of the other Transaction Documents to which such Selling Shareholder is a party, each of such other Transaction Documents will constitute the legal, valid and binding obligation of such Selling Shareholder who is a party thereto, and will be, assuming the due authorization, execution and delivery by the other parties thereto, enforceable against such Selling Shareholder in accordance with its terms, in each case, subject to (a) laws of general application relating to bankruptcy, insolvency and the relief of debtors, and (b) rules of law governing specific performance, injunctive relief and other equitable remedies. The spouse, if any, of such Selling Shareholder has the right, power and capacity to execute and deliver and to perform her or his obligations under the Spousal Consent executed by her or him and delivered to the Purchaser simultaneously herewith. Such Spousal Consent is accurate and constitutes such spouse’s legal, valid and binding obligations, enforceable against him or her in accordance with its terms.

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Section 4.03 Non-Contravention; Consents.

Except as set forth in Section 4.03 of the Selling Shareholder's Disclosure Schedule, neither (1) the execution, delivery or performance of this Agreement or any other Transaction Document by such Selling Shareholder, nor (2) the consummation of the Transactions by such Selling Shareholder, will (with or without notice or lapse of time or both), in each case, only to the extent reasonably expected to prevent the parties from consummating the Transactions:

(a) contravene, conflict with or result in a violation or breach of: (i) any of the provisions of any Charter Document of such Selling Shareholder or (ii) any Applicable Law;

(b) contravene, conflict with or result in a violation of any of the terms or requirements of, or give any Governmental Authority the right to revoke, withdraw, suspend, cancel, terminate or modify, any Governmental Authorization that is held by such Selling Shareholder;

(c) contravene, conflict with or result in a violation or breach of or a default under any provision of any Contract to which such Selling Shareholder is bound or give any Person the right to: (i) declare a default or exercise any remedy under any such Contract; (ii) accelerate the maturity or performance of any such Contract; or (iii) cancel, terminate or modify any such Contract; or

(d) Other then Selling Shareholders that are required to file with the TASE, or with any other stock exchange or with any securities authority, a report with respect to the Transactions, such Selling Shareholder neither was, is or will be required to make any filing with or give any notice to, or to obtain any Consent from, any Person in connection with (x) the execution, delivery or performance of the Transaction Documents to which such Selling Shareholder is a party or (y) the consummation of the Transactions.

Section 4.04 Capacity of Selling Shareholder.

(a) Such Selling Shareholder:

(i) has not, at any time, (A) made a general assignment for the benefit of creditors, (B) filed, or had filed against such Selling Shareholder, any bankruptcy petition or similar filing, (C) suffered the attachment or other judicial seizure of all or substantially all of such Selling Shareholder’s assets, (D) admitted in writing such Selling Shareholder’s inability to pay such Selling Shareholder’s debts as they become due, or (E) taken or been the subject of any action that will have an adverse effect on such Selling Shareholder’s ability to comply with or perform any of such Selling Shareholder’s covenants or obligations under any of the Transaction Documents; and

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(ii) is not subject to any Applicable Law that is reasonably likely to have an adverse effect on such Selling Shareholder’s ability to comply with or perform any of such Selling Shareholder’s covenants or obligations under any of the Transaction Documents.

(b) There is no Proceeding pending, and, to such Selling Shareholder’s Knowledge, no Person has threatened to commence any Proceeding, that may have an adverse effect on the ability of such Selling Shareholder to comply with or perform any of such Selling Shareholder’s covenants or obligations under any of the Transaction Documents. To the Knowledge of such Selling Shareholder, no event has occurred, and no claim, dispute or other condition or circumstance exists, that is reasonably expected to give rise to any such Proceeding.

Section 4.05 Tax Withholding Information.

Any and all information provided to Purchaser by or on behalf of such Selling Shareholder for purposes of enabling Purchaser to determine the amount to be deducted and withheld from the consideration payable to such Selling Shareholder pursuant to this Agreement under Applicable Law is true and accurate.

Section 4.06 Finder’s Fees.

Except as set forth in Section 4.06 of each Selling Shareholder's Disclosure Schedule, no broker, investment banker, financial advisor or other Person is entitled to any broker’s, finder’s, financial advisor’s or similar fee or commission in connection with the Transactions contemplated by this Agreement or any other Transaction Document to which such Selling Shareholder is a party based on any Contract to which such Selling Shareholder is a party or that is otherwise binding upon such Selling Shareholder.

Section 4.07 Company Group Assets.

Neither such Selling Shareholder nor any of its Affiliates has any remaining rights or interest in any assets or properties of the respective Company Group.

Section 4.08 Securities Laws.

(a) Subject to and without derogating from Parent's and Purchaser's representations and warranties contained in Article V (including, without limitation, Parent's and Purchaser's representations and warranties relating to the Parent SEC Documents and Parent Foreign Filings (as set forth and defined in Section 5.01)), such Selling Shareholder has acquired sufficient information about Parent (through the review by such Seller of the Parent’s reports filed with the SEC) to reach an informed and knowledgeable decision to acquire the Consideration Shares, and if applicable, the Consideration Warrants and the Warrant Shares (the "Consideration Securities"). Such Selling Shareholder is acquiring the respective Consideration Securities for such Selling Shareholder’s own account for investment purposes only and not with a view to, or for the resale in connection with, any "distribution" thereof for purposes of the Securities Act.

(b) Such Selling Shareholder is (i) an accredited investor within the meaning of Regulation D prescribed by the SEC pursuant to the Securities Act (a "Regulation D Investor") or (ii) not a U.S. Person as defined in Regulation S promulgated under the Act (a "Regulation S Investor").If such Selling Shareholder is a Regulation D Investor and is U.S. Person, such Selling Shareholder also represents that: (x) Such Selling Shareholder can afford to bear the economic risk of holding the Consideration Securities for an indefinite period and can afford to suffer the complete loss of such Selling Shareholder’s investment in the Consideration Securities; (y) its knowledge and experience in financial and business matters is such that such Selling Shareholder is capable of evaluating the risks of the investment in the Consideration Securities; and (z) only to the extent that such Selling Shareholder is not an individual, it has not been organized for the purpose of acquiring the Consideration Securities and all the equity owners of such Selling Shareholder are Regulation D Investors. If such Selling Shareholder is a Regulation S Investor, such Selling Shareholder also represents that: (1) it is not a U.S. Person, (2) on the date hereof, the Regulation S Investor is outside the United States, (3) the Selling Shareholder is not acquiring the Consideration Securities for the account or benefit of any U.S. Person, (4) it will not, during the 40 day period starting on the date of such Selling Shareholder’s purchase and receipt of the Consideration Securities, offer or sell any of the Consideration Securities (or create or maintain any derivative position equivalent thereto) in the United States, to or for the account or benefit of a U.S. Person other than in accordance with Regulation S or pursuant to an effective registration statement under the Securities Act or any available exemption therefrom and, in any case, in accordance with applicable state securities laws and (5) it will, after the expiration of such 40 day period, offer, sell, pledge or otherwise transfer the Consideration Securities (or create or maintain any derivative position equivalent thereto) only pursuant to an effective registration statement under the Securities Act or any available exemption therefrom and, in any case, in accordance with applicable state securities laws. Each Executing Shareholder has confirmed on the signature page hereto whether such Executing Shareholder is a Regulation D Investor and/or a Regulation S Investor, and such Executing Shareholder represents and warrants that the information set forth in its respective signature page is true and correct. Selling Shareholder should refer to the definition of terms set forth in Appendix A for additional information.

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(c) Such Selling Shareholder understands that the Consideration Securities have not been registered under the Securities Act and the Consideration Securities are being issued in reliance upon a specific exemption therefrom, which exemption depends upon, among other things, the accuracy of its representations set forth herein. Moreover, such Selling Shareholder understands that Parent is under no obligation to register the Consideration Securities with the SEC in the United States, except as set forth in the IRA (as defined in Section 8.03(d)(vi)

).

(d) Such Selling Shareholder understands and agrees that the Consideration Securities cannot be offered, resold or otherwise transferred except pursuant to (i) an effective registration statement under the Securities Act covering such offer, sale or transfer and such offer, sale or transfer is made in accordance with such registration statement, or (ii) an available exemption from registration, in which case such Selling Shareholder shall furnish Parent with, if reasonably requested by Parent, a customary representation letter, in form and substance reasonably satisfactory to Parent. Such Selling Shareholder hereby covenants and agrees that he, she or it will not offer, sell or otherwise transfer such Consideration Securities except in compliance with this Section 4.08  and with Applicable Law. In order to prevent any transfer from taking place in violation of this Agreement or Applicable Law, each Selling Shareholder hereby agrees that Parent may cause a stop transfer order to be placed with the Transfer Agent with respect to the Consideration Securities; provided, however, that such stop order shall be immediately removed on the date that such Consideration Securities no longer bear a restrictive legend in accordance with Section 2.09(a) and/or any of the circumstances requiring the removal of such restrictive legend as set forth in Section 2.09(b) have occurred (regardless of whether Parent caused the removal of such legend in accordance with its obligation pursuant to Section 2.09(b)). Parent will not be required to transfer on its books any Consideration Securities that have been sold or transferred in violation of any provision of this Agreement or Applicable Law.

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Section 4.09 Selling Shareholders Status.

The indication by the Selling Shareholder on the signature page hereto whether it qualifies as an "investor" under Section 15(A)(b)(1) of the Israeli Securities Law, is true and correct.

Article V
Representations and Warranties of Purchaser and parent

Except as set forth either (i) in the Purchaser Disclosure Schedule, which relates to such Section and to any other Section of such Disclosure Schedule to the extent that it is reasonably apparent on the face of such disclosure that such disclosure is applicable to such Section, or (ii) in the Parent SEC Documents, Purchaser and Parent represent and warrant, with respect to the Parent Group, to the Companies and the Selling Shareholders that the statements contained in this Article V are true and correct as of the date of this Agreement and as of the respective Closing Date:

Section 5.01 Corporate Existence and Power.

(a) The Purchaser is a private company limited by shares, duly incorporated and validly existing under the laws of Israel. Parent was duly organized under the laws of the Dutch Antilles and is currently validly existing under the laws of Curaçao. Each of the Parent and its Subsidiaries (i) is duly licensed or qualified to do business and, where applicable, is in good standing as a foreign corporation in all jurisdictions in which the conduct of its business or the activities it is engaged in make such licensing or qualification necessary; and (iii) has all necessary power and authority: (A) to conduct its business in the manner in which its business is currently being conducted; (B) to own, use and distribute its assets in the manner in which its assets are currently owned, used and distributed; and (C) to perform its obligations under all Contracts to which it is a party.

Parent has timely filed or furnished all material forms, documents and reports required to be filed or furnished prior to the date of this Agreement by it with the SEC since December 31, 2008 (the "Parent SEC Documents")(all of which Parent SEC Documents were, as of the date of their respective filing date, true and correct in all material respects), the Israeli Securities Authority ("ISA") and TASE since December 31, 2008  (collectively, the "Parent Foreign Filings").  Parent has made available to the Selling Shareholders (including through the electronic data gathering, analysis and retrieval database of the SEC and MAGNA) all such Parent SEC Documents and Parent Foreign Filings that it has so filed or furnished prior to the date hereof.  None of the Parent's Subsidiaries is required to file or furnish any forms, reports or other documents with the SEC, ISA or with any other similar foreign securities authority.

(b) The Parent's Subsidiaries are listed in Section 5.01(b) of the Purchaser Disclosure Schedule. Other than those Subsidiaries listed in Section 5.01(b) of the Purchaser Disclosure Schedule, there are no corporations, limited liability companies, partnerships, joint ventures, associations or other entities or Persons in which Parent owns, of record or beneficially, any direct or indirect equity or other interest or any right (contingent or otherwise) to acquire the same.

(c) The Purchaser has made available to Companies and Selling Shareholders materially accurate and complete copies of the Charter Documents of the Parent in effect. There has not been any violation of any of the provisions of the Charter Documents of the Parent since January 1, 2008. No Parent Group has taken any action that is materially inconsistent with any resolution adopted by its shareholders or board of directors (or any committee thereof). The books of accounts, share register, minute books and other records that are required to be maintained under Applicable Law of the Parent Group are true, up-to-date and complete in all material respects, and have been maintained in accordance with prudent business practices and all Applicable Laws.

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(d) Section 5.01(d) of its Purchaser Disclosure Schedule accurately sets forth with respect to the Parent: (i) the names of the members of the board of directors; (ii) the names of the members of each committee of the board of directors (or similar body, to the extent applicable); and (iii) the names and titles of its executive officers.

(e) No Parent Group member has conducted any business under or has otherwise used, for any purpose or in any jurisdiction, any fictitious name, assumed name, business name or other name, other than its corporate name as set forth in this Agreement and in Section 5.01(e)

of the Purchaser Disclosure Schedule.

Section 5.02 Corporate Authorization.

Each of Purchaser and Parent has all necessary corporate power and authority to enter into and to perform its obligations under this Agreement and the other Transaction Documents to which it is a party in accordance with the respective terms thereof, and the execution, delivery and performance by each of Purchaser and Parent of this Agreement and the other Transaction Documents to which it is a party in accordance with the respective terms thereof have been duly authorized by all necessary corporate action on its part. This Agreement constitutes and any other Transaction Document to which any of Purchaser and Parent will be a party will constitute upon execution thereof the legal, valid and binding obligation of Purchaser and/or Parent, and assuming the due authorization execution thereof and delivery thereof by the other parties thereto, is enforceable against Purchaser and Parent in accordance with its terms, subject to (a) laws of general application relating to bankruptcy, insolvency, reorganization, moratorium and the relief of debtors, and (b) rules of law governing specific performance, injunctive relief and other equitable remedies. Upon the execution of each of the other Transaction Documents at the respective Closing, each of such other agreements to which the Purchaser, Parent or any other member of the Parent Group is a party will constitute the legal, valid and binding obligation of such member, and will be, assuming the due authorization, execution and delivery by the other party thereto, enforceable against the Purchaser or such member in accordance with its respective terms, subject to (i) laws of general application relating to bankruptcy, insolvency, reorganization, moratorium and the relief of debtors, and (ii) rules of law governing specific performance, injunctive relief and other equitable remedies.

Section 5.03 Compliance with Applicable Law.

(a) Each member of the Parent Group is, and has at all times been, in compliance in all material respects with, and has operated its respective business and maintained its assets and properties in material compliance with, all Applicable Laws. Neither Parent Group has been informed in writing that its operations are under investigation with respect to, given written notice of any violation or possible violation of, or, to Parent's Knowledge, is currently threatened to be charged with any violation of, Applicable Law. To the Knowledge of the Parent, no event has occurred, and no condition or circumstance exists, that will or is reasonably expected to constitute or result in a violation by any member of the Parent Group of, or a failure on the part of any member of the Parent Group to comply with or failure of its business and operations to be otherwise in compliance with, any Applicable Law.

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(b) The information provided by the Parent and its Representatives in connection with the preparation of any filing or submission that is necessary under the Antitrust Laws, as set forth in Section 6.06(b), is true and correct as of the date of this Agreement.

Section 5.04 Governmental Authorizations; Governmental Grants.

(a) Section 5.04(a) of the Purchaser Disclosure Schedule identifies each Governmental Authorization held by the Parent Group or used in the business of the Parent Group, and Parent has made available to Companies and Selling Shareholders accurate and complete copies of all such Governmental Authorizations and any and all correspondence and amendments related thereto. The Governmental Authorizations identified in Section 5.04(a) of its Purchaser Disclosure Schedule are valid and in full force and effect, and collectively constitute all Governmental Authorizations necessary to enable the Parent Group to conduct its business in the manner in which such business is currently being conducted. Each Parent Group member is, and has at all times been, in material compliance with the terms and requirements of the respective Governmental Authorizations identified in Section 5.04(a) of the Purchaser Disclosure Schedule. No written notice or other written communication from any Governmental Authority was received by Parent regarding: (i) any actual or possible violation of or failure to comply with any term or requirement of any Governmental Authorization; or (ii) any actual or possible revocation, withdrawal, suspension, cancellation, termination or modification of any Governmental Authorization.

(b) Section 5.04(b) of the Purchaser Disclosure Schedule identifies all Governmental Grants that have been provided to each Parent Group member. To the Knowledge of Parent, no event has occurred, and no circumstance or condition exists (other than the intended consummation of the Transactions), that would reasonably be expected to give rise to: (A) the annulment, revocation, withdrawal, suspension, cancellation, recapture or material adverse modification of any such Governmental Grant; (B) the imposition of any material limitation on any Governmental Grant or any benefit available in connection with any Governmental Grant; (C) a requirement that a member of such Parent Group return or refund any benefits provided therefor under any Governmental Grant or (D) the applicability of any Governmental Grant (and any limitation or requirement arising therefrom) to its Parent Group, its business or assets.

Section 5.05 Non Contravention.

Except as set forth in Section 5.05 of the Purchaser Disclosure Schedule, neither the execution, delivery or performance by the Purchaser or Parent of this Agreement or any of the Transaction Documents to which the Purchaser or Parent is a party nor the consummation of the Transactions by the Purchaser or Parent, will (with or without notice or lapse of time or both):

(a) contravene, conflict with or result in a violation of (i) any of the provisions of the Charter Documents of the Parent or the Purchaser or (ii) any Applicable Law;

(b) give any Governmental Authority or other Person the right to challenge any of the Transactions or to exercise any remedy or obtain any relief under any Applicable Law;

(c) contravene, conflict with or result in a violation of any of the terms or requirements of, or give any Governmental Authority the right to revoke, withdraw, suspend, cancel, terminate or materially and aversely modify, any Governmental Authorization that is held by the Parent Group or that, to the Parent's Knowledge, otherwise relates to the Parent Group's business or to any of the assets owned or used by the Parent Group;

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(d) contravene, conflict with, or result in a violation or breach of, or result in a default under, any provision of any Parent Material Contract by which the Parent Group is bound, or give any Person the right to: (i) declare a default or exercise any remedy under any such Parent Material Contract; (ii) accelerate the maturity or performance of any such Parent Material Contract; or (iii) cancel, terminate or modify any such Parent Material Contract; or

(e) result in the imposition or creation of any Lien upon or with respect to any asset owned or used by the Parent Group.

Section 5.06 Capitalization of Parent Group.

(a) The authorized capital stock of Parent consists of (i) 1,000,000 Preferred Shares, €0.01 par value per share, none of which are issued and outstanding, and (ii) 54,000,000 Common Shares, €0.01 par value per share, of which 22,400,490 are issued (out of which 22,072,194 are outstanding, and 328,296 are dormant).

(b) Except as set forth in Section 5.06(b)

of the Purchaser Disclosure Schedule, there are no outstanding (i) shares of Parent Group or (ii) securities, instruments or obligations of Parent Group that are or may become convertible into or exchangeable for shares or other securities of Parent Group or conditions or circumstances that may give rise to the assertion of a claim by any Person to the effect that such Person is entitled to acquire or receive any shares or other securities of Parent Group.

(c) All outstanding shares of Parent have been issued and granted in compliance with (i) all Applicable Laws; (ii) all requirements set forth in Parent's Charter Documents, and (iii) all requirements set forth in applicable Contracts. None of the outstanding shares of Parent were issued in violation of any preemptive rights or other rights to subscribe for or purchase securities of Parent.

(d) Unless otherwise provided in this Agreement, at the respective Closing, the Selling Shareholders will receive good and valid title, free and clear of any Liens other than Liens provided under Applicable Law or the Parent's Charter Documents, in and to all Consideration Shares and Consideration Warrants (as applicable).

Section 5.07 Products.

(a) Each Parent Product fits, in all material respects, for the purposes for which it is intended to be used as set out in Contracts under which such Parent Group sells such Parent Product.

(b) There are no claims pending and submitted, to the Knowledge of Parent, threatened against any Parent Group member with respect to the quality of or absence of defects in any Parent Products.

(c) Since January 1, 2008, there have been no recalls with respect to any of the Parent Products or any written request to either terminate services provided by any Parent Group member or purchase any of its products, and to the Knowledge of Parent, there are no facts, events or circumstances reasonably expected to cause the withdrawal or recall of any product sold by any Parent Group member.

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Section 5.08 Valid Issuance of Consideration Shares and Warrants Shares.

The Consideration Shares and the Consideration Warrants, when issued and delivered in accordance with the terms of this Agreement for the consideration expressed herein or the Warrants Shares, when issued for the consideration set forth in the Consideration Warrants, will be duly and validly issued, fully paid, non-assessable and issued in compliance with Applicable Law, and will be free of any Liens other than restrictions on transfer under Applicable Law or the Parent's Charter Documents.

Section 5.09 Financial Statements.

(a) Parent has made available to the Companies Parent’s audited consolidated balance sheet as of, and the related audited statements of income, changes in shareholders’ equity and cash flows for, the Balance Sheet Date (collectively, the "Parent's Financial Statements").

(b) The Parent's Financial Statements (i) have been prepared based on the books and records of each Parent Group, (ii) comply as to form with applicable accounting requirements with respect thereto, (iii) have been prepared in accordance with US GAAP applied on a consistent basis throughout the periods indicated (except as may be indicated therein or in the notes thereto) and consistent with each other, (iv) fairly present the financial condition of the respective Parent Group as of December 31^st, 2010, (the “Financial Statements Date") and the consolidated results of operations and cash flows of the Parent Group for the periods therein specified, and (v) accurately reflect all of the Parent Group's guarantees for Liabilities of other Persons.

(c) The books of account of the Parent have been kept accurate in the ordinary course of business consistent in all material respects with Applicable Law, the transactions entered therein represent bona fide transactions, and the revenues, expenses, assets and liabilities of the Parent Group have been properly recorded therein. The other financial records of Parent Group have been kept accurate in the ordinary course of business consistent with Applicable Law, the transactions entered therein represent bona fide transactions, and the revenues, expenses, assets and liabilities of Parent have been properly recorded therein.

(d) Neither Parent Group member nor any director or officer, or, to the Knowledge of the Parent Group, any employee, auditor, accountant or representative of such Parent Group member, has received any written complaint, allegation, assertion or claim, regarding any material deficiency in the accounting or auditing practices, procedures, methodologies or methods of the Parent Group or its internal accounting controls, including any complaint, allegation, assertion or claim that such Parent Group member has engaged in questionable accounting or auditing practices.

(e) Section 5.09(e) of the Purchaser Disclosure Schedule provides an accurate and complete breakdown of all Parent Group's Insider Receivables. All Insider Receivables (including those receivables reflected in the Parent's Financial Statements that have not yet been collected and those receivables that have arisen since the Financial Statement Date and have not yet been collected, and which are in material amount): (i) represent valid obligations arising from bona fide transactions entered into between such Parent Group member and a director, officer, employee or shareholder of such Parent Group member in the ordinary course of business and not in violation of any Applicable Law; and (ii) to the Company's Knowledge will be collected in full when due, without any counterclaim.

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(f) The total revenues of the Parent Group from Menora Mivtachim Pensions Ltd. and its subsidiaries (collectively, the "Menora Revenues") during the period commencing on July 1^st, 2011 and ending on June 30, 2012, as recognized under US GAAP, shall not be lower than NIS39,000,000 (the "Expected Revenues"). Notwithstanding anything to the contrary in Section 10.03(a)(i), in determining the Loss incurred by the Sellers as a result of any inaccuracy in the representation set forth in this clause (f), such Loss shall be equal to (i) the excess of the Expected Revenues over the actual Menora Revenues of the Parent Group during the period commencing on July 1^st, 2011 and ending on June 30, 2012, as recognized under US GAAP, multiplied by (ii) 1.35.

Section 5.10 Notes and Accounts Receivable.

Section 5.10 of the Purchaser Disclosure Schedule provides an accurate reconciliation of all accounts receivable, notes receivable and other receivables (other than Insider Receivables) of each member of the Parent Group as of March 31, 2011. Except as set forth in Section 5.10 of the Purchaser Disclosure Schedule ,all notes and accounts receivable of Parent Group (including those accounts receivable reflected on the Parent's Financial Statements that have not yet been collected and those accounts receivable that have arisen since the Financial Statements Date and have not yet been collected) are reflected properly on its books and records, are valid and existing receivables arising from bona fide transactions not consummated in violation of any Applicable Law and, are subject to no refunds or other adjustments or rights enforceable by third parties. To the Knowledge of Parent, all notes and accounts receivable of each Parent Group will be collected in accordance with their terms at their recorded amounts, subject to the reserve for bad debts set forth in the Parent's Financial Statements as may be adjusted for the passage of time through the respective Closing Date in accordance with the past custom and practice of Parent Group.

Section 5.11 Absence of Certain Changes.

Since the Financial Statements Date, the business of Parent Group has been conducted in the ordinary course of business and consistent with past practices (except for actions taken in connection with the negotiation of this Agreement and the performance of the Transactions) and, except as set forth in Section 5.11

of the Purchaser Disclosure Schedule, there has not been:

(a) any event, occurrence, development or state of circumstances or facts that has had or is reasonably expected to have, individually or in the aggregate, a Material Adverse Effect with respect to the Parent Group (collectively);

(b) any amendment of the Charter Documents of any Parent Group other than the amendment of the authorized share capital of Parent effected on May 12, 2011;

(c) any payment, discharge or satisfaction of any Liabilities in excess of US$200,000, other than the payment, discharge or satisfaction of accounts payable or accrued expenses incurred in the ordinary course of business;

(d) any capital expenditure or commitment for additions to property, plant or equipment, or lease agreement, which individually exceeds US$200,000 or exceeds US$300,000 in the aggregate, and which, if purchased, would be reflected in the property, plant or equipment accounts;

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(e) any damage, destruction or loss of any of Parent Group's Assets and Properties, whether or not covered by insurance, which individually exceeds US$200,000 or exceeds US$300,000 in the aggregate;

(f) except for Liabilities incurred in the ordinary course of business, any incurrence of a Liability, including any Liability for nonperformance or termination of any Parent Material Contract;

(g) (i) any splitting, combination or reclassification of any shares of Parent; (ii) any declaration, setting aside or payment of any dividend or other distribution (whether in cash, shares or property or any combination thereof) in respect of any shares of Parent; (iii) any redemption, repurchase or other acquisition or offer to redeem, repurchase, or otherwise acquire any shares of Parent; (i) any issuance, delivery or sale, or authorization of the issuance, delivery or sale of, shares of Parent, or (ii) any amendment or waiver of (in each case, whether by merger, consolidation or otherwise) any term of any shares of Parent;

(h) any cancellation or waiver of any claims or rights of value or incurrence of any Lien on, any assets, securities, properties, interests or businesses of Parent Group in each case which individually exceeds US$200,000 or US$400,000 in the aggregate;

(i) the making by Parent Group of any loans, guarantee or capital contributions to, or investments in, any other Person which individually exceeds US$200,000 or US$400,000 in the aggregate;

(j) the creation of any Parent Debt which individually exceeds US$100,000 or US$200,000 in the aggregate;

(k) the sale, disposition of, transfer or license to any Person of any substantial rights, or any rights to any Parent IP Rights or other material assets by any Parent Group, or the acquisition, lease or license from any Person of any rights including any Intellectual Property or other assets, in each case other than in the ordinary course of business;

(l) (i) the grant or increase of any severance or termination pay to (or amendment of any existing arrangement with) any director, officer, advisor, consultant or key employee of Parent Group, (ii) any increase in benefits payable to any such director, officer, advisor, consultant or key employee under any existing severance or termination pay policies or employment agreements, (iii) the entering into of any employment, deferred compensation or other similar agreement (or amendment of any such existing agreement) with any director, officer, advisor, consultant or key employee of any Parent Group, (iv) the establishment or adoption or amendment (except as required by Applicable Law) of any collective bargaining, bonus, commission, profit-sharing, thrift, pension, retirement, deferred compensation, compensation, share option, restricted share or other benefit plan or arrangement covering any director, officer, advisor, consultant or key employee of Parent Group or (v) any increase in compensation, bonus, commission or other benefits payable to any director, officer advisor, consultant or key employee of Parent Group;

(m) any change in the methods of accounting or accounting practices of Parent, except as required by concurrent changes in US GAAP, as agreed to by its independent public accountants;

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(n) any elimination of any reserves established on Parent Group’s books or any changing of the method of accrual unless there is any change of significant facts or circumstances pertaining to any reserves which would justify their elimination;

(o) any settlement of, or offer or proposal by Parent Group to settle, any Proceeding involving Parent Group or that relates to the Transactions;

(p) any Tax election made or materially changed; any claim, notice, audit report or assessment in respect of Taxes settled or compromised (or agreement with respect thereto); any Tax Return filed (except as required under Applicable Law); any Tax allocation agreement, Tax sharing agreement, advance pricing agreement, cost sharing agreement, pre-filing agreement, Tax indemnity agreement or closing agreement relating to any Tax entered into; any annual Tax accounting period or method of Tax accounting changed or adopted; any Tax petition, Tax complaint or administrative Tax appeal filed; any right to claim a Tax refund surrendered or foregone (which is reasonably expected to be material to any Parent Group); or any extension or waiver of the statute of limitations period applicable to any Tax claim or assessment consented to, nor has any application or negotiation for or receipt of a Tax ruling or arrangement been made by or on behalf of any each Parent Group member, whether or not in connection with the Transactions, except as explicitly contemplated in this Agreement;

(q) any write off as uncollectible of, or any establishment of extraordinary reserve with respect to, any account receivable or other Indebtedness, which individually exceeds US$100,000 or US$200,000 in the aggregate;

(r) any acquisition of a business or Person, by merger or consolidation, purchase of substantial assets or equity interests, or by any other manner, in a single transaction or a series of related transactions, or entering into any Contract, letter of intent or similar arrangement (whether or not enforceable), other than with the Companies, with respect to any of the foregoing;

(s) any distribution by Parent to its shareholders of any asset or a declaration thereof;

(t) the commencement of any Proceeding; or

(u) any agreement or commitment to take any of the actions referred to in clauses (a) through (t).

Section 5.12 No Undisclosed Liabilities.

No Parent Group member has any Liabilities of any kind, whether or not required to be reflected or reserved in financial statements in accordance with US GAAP, other than:

(a) Liabilities reflected in the "liabilities" column of the balance sheet that is part of the Parent's Financial Statements or in the notes thereto;

(b) accounts payable and accrued salaries that have been incurred by Parent Group since the Financial Statement Date in the ordinary course of business and consistent with past practice; and

(c) Liabilities identified in Section 5.12(c) of Purchaser Disclosure Schedule.

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Section 5.13 Material Contracts.

(a) Except as set forth in Section 5.13(a) of Purchaser Disclosure Schedule, no Parent Group member is bound by any of the following Contracts (a Contract meeting any of the following categories is hereinafter referred to as a "Parent Material Contract", and each Company Material Contract or Parent Material Contract shall be referred to as "Material Contract"):

(i) all leases or other Contracts under which a Parent Group member is a lessee of, or holds or operates, any machinery, equipment, vehicle or other tangible personal property owned by a third party and used in the business of Parent Group member and which entails annual payments, in the case of any such lease or agreement, in excess of US$200,000, or US$400,000 in the aggregate;

(ii) any Contract relating to the acquisition, transfer, use, development, sharing or license, other than in the ordinary course of business, of any technology, or Intellectual Property rights (including any joint development agreement, technical collaboration agreement or similar agreement), to or from each Parent Group member other than any end user license agreements for non-exclusive "off the shelf" software used by any Parent Group member;

(iii) any Contract imposing any restriction on the right or ability of Parent Group, (A) to compete with any other Person with respect to the products or services offered by Parent Group (including granting exclusive rights or rights of first refusal to license, market, sell or deliver any of the products or services offered by Parent Group), (B) to acquire any product or other asset or any services of the types offered by Parent Group from any other Person, or to sell any product or other asset of the types sold by any Parent Group or perform any services of the types offered by Parent Group to, for, any other Person, or (C) to develop, distribute, license, sell or transfer any Intellectual Property rights;

(iv) all outstanding Contracts with customers or vendors expected to result in payment to or by Parent Group in excess of US$600,000 during a period of 12 months following the respective Closing Date;

(v) all outstanding Contracts with Parent Significant Customers and Parent Significant Suppliers (as such terms are defined below).

(vi) any partnership, joint venture or any sharing of revenues, profits, losses, costs or liabilities Contract expected to result in payment to or by Parent Group in excess of US$300,000 during a period of 12 months following the respective Closing Date;

(vii) any Contract involving a loan in excess of US$200,000 (other than accounts receivable from trade debtors in the ordinary course of business) or advance to (other than travel, accommodation or entertainment allowances to the employees, directors, officers and advisors of Parent Group extended in the ordinary course of business), or investment in, any Person or any Contract relating to the making of any such loan, advance or investment;

(viii) any Contract relating to the acquisition, issuance or transfer of any securities, other than options to purchase common shares of Parent, and the voting and any other rights or obligations of a shareholder of Parent entered into following January 1, 2008 or that contains any outstanding obligations of any member of the Parent Group;

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(ix) any Contract under which (A) any third party has directly or indirectly guaranteed any liabilities or obligations of any Parent Group in excess of US$200,000, or (B) any Parent Group has directly or indirectly guaranteed liabilities or obligations in excess of US$200,000 of any third party;

(x) any Contract relating to the creation of any Lien with respect to any material asset of any Parent Group and all mortgages, indentures, security agreements, pledges, notes, loan agreements or guarantees creating any such Lien;

(xi) any Contract which contains any provisions requiring any Parent Group to indemnify any other party, other than in the ordinary course of business;

(xii) any Contract of any Parent Group with any Related Person;

(xiii) all management service, consulting, financial advisory or any other similar Contract, and any Contracts with any investment bank for investment banking services;

(xiv) all Contracts (including letters of intent that have not yet expired by their terms) involving the future disposition or acquisition of assets or properties, other than in the ordinary course of business, or any merger, consolidation or similar business combination transaction;

(xv) all Contracts entered into since January 1, 2008 involving any resolution or settlement of any actual or threatened litigation, arbitration, claim or other dispute;

(xvi) all Contracts that contain restrictions with respect to the payment of dividends or any other distribution in respect of the capital stock or other equity interests of Parent Group; and

(xvii) all other Contracts that are material to the business of Parent Group.

(b) Purchaser has made available to Companies and Selling Shareholders accurate and complete copies of all written Parent Material Contracts required to be identified in Section 5.13(a) of the Purchaser Disclosure Schedule, including all amendments thereto. Section 5.13(a) of Purchaser Disclosure Schedule provides an accurate description of the material terms of each Parent Material Contract identified in Section 5.13(a) of Purchaser Disclosure Schedule that is not in written form.

(c) Each Parent Material Contract is a valid and binding agreement of the applicable Parent Group member, and is in full force and effect, and is enforceable by Parent Group member in accordance with its terms, subject to: (i) laws of general application relating to bankruptcy, insolvency and the relief of debtors; and (ii) rules of law governing specific performance, injunctive relief and other equitable remedies. No Parent Group member is in default or breach under the terms of any Parent Material Contract and, to the Knowledge of Parent, no other party thereto is in default or breach under the terms of any Parent Material Contract. To the Knowledge of Parent, 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, (i) result in a violation or breach of any of the provisions of any Parent Material Contract by any party thereto, (ii) give any Person the right to declare a default or exercise any remedy under any Parent Material Contract, (iii) give any Person the right to accelerate the maturity or performance of any Parent Material Contract, or (iv) give any Person the right to cancel, terminate or modify any Parent Material Contract. Since January 1, 2008 no Parent Group member has waived any of its rights under any Parent Material Contract.

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(d) Since January 1, 2008, no Parent Group has received any written notice regarding any violation or breach of, or default under, any Parent Material Contract.

Section 5.14 Restrictions on Business Activities.

There is no written Contract or any order of Governmental Authority binding upon any Parent Group member that has or could reasonably be expected to have the effect of prohibiting or impairing any business practice of such Parent Group member, acquisition of property by Parent Group member, or the conduct of business by such Parent Group member as currently conducted.

Section 5.15 Litigation.

(a) There is no pending Proceeding that has been submitted to such Company Group nor to and to no Person has threatened in writing to commence any Proceeding: (i) that involves any Parent Group or its business, any of the assets or properties owned or used by Parent Group, any Parent Product or any Person whose liability to the Parent Group has or may have been retained or assumed, either contractually or by operation of law; (ii) that challenges, or that may be reasonably expected to have the effect of preventing, delaying, or making illegal the consummation of the Transactions; or (iii) that relates to the ownership of any share capital of any Parent Group member, or any Option or other right to acquire share capital of any Parent Group, or any right to receive consideration as a result of this Agreement. The Parent has not been informed in writing of, and to its Knowledge no event has occurred, and no claim, dispute or other condition or circumstance exists, that is reasonably expected to give rise to or serve as a basis for the commencement of any such Proceeding.

(b) There is no order, writ, injunction, directive, restriction, judgment or decree issued by any Governmental Authority by which any Parent Group member, or any of the assets owned or used by such Parent Group member, is subject or which restricts in any respect the ability of Parent Group to conduct its business as now being conducted. To the Knowledge of Parent, no officer, director, shareholder, or employee of any Parent Group (in each case, in his or her capacity as such) is subject to any order, writ, injunction, judgment or decree that prohibits such person from engaging in or continuing any conduct, activity or practice relating to the business of such Parent Group.

Section 5.16 Properties.

(a) No Parent Group member owns any real property. Parent Group has a good and valid leasehold interest in each parcel of real property leased by such Parent Group or used or required for the conduct of its business (the "Parent Leased Real Property"). Section 5.16(a) of Purchaser Disclosure Schedule lists each lease, subleases, license or other occupancy agreement or arrangement relating to the Parent Leased Real Property (each, a "Parent Real Property Lease"). Parent Group has the right to use and occupy each Parent Leased Real Property for the full term of the Parent Real Property Lease relating thereto, subject to its respective terms.

(b) Parent Group owns and has good and marketable title to, or a valid license or leasehold interest in, all tangible personal property and assets used by Parent Group or required for the conduct of its business (the "Parent Assets"). None of the Parent Assets is subject to any Lien, except Liens for taxes not yet due and payable or mechanic’s, carrier’s, worker’s, material man’s, warehouse man’s, supplier’s, vendor’s or similar Liens arising or incurred in the ordinary course of business.

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(c) Section 5.16(c) of the Purchaser Disclosure Schedule identifies all Parent Assets, including those Parent Assets that are being licensed or leased to Parent Group or used or required for the conduct of its business as of March 31, 2011 (the "Parent Leased Assets"). All Parent Leased Assets are leased pursuant to valid, binding and enforceable Contracts in accordance with their respective terms (the "Parent Lease Contracts").

(d) The Parent Assets and Parent Leased Assets have no material defects, are in good operating condition and repair, ordinary wear and tear excepted, and have been reasonably maintained consistent with standards generally followed in the industry (giving due account to the age and length of use of same, ordinary wear and tear excepted), and are adequate and suitable for their present uses.

(e) The Parent Assets and the Parent Leased Assets constitute all of the tangible personal property and assets used or held for use in connection with the business of the Parent Group.

Section 5.17 Customers and Suppliers.

Section 5.17 of Purchaser Disclosure Schedule sets forth a list of the 10 (ten) largest customers of Parent Group (collectively) for the year ended December 31, 2010 (each, a "Parent Significant Customer") and the 10 (ten) largest suppliers of products and/or services to the Parent Group (collectively) for the year ended December 31, 2010 (each, a "Parent Significant Supplier"), in each case based on amounts paid or payable with respect to such year, along with such amounts.

No Parent Group member has any outstanding material dispute with any Parent Significant Customer or Parent Significant Supplier. As of the date hereof, the Parent Group has not received any written notice from any Parent Significant Customer or Parent Significant Supplier that such Parent Significant Customer or Parent Significant Supplier intends to discontinue its relationship with the Parent Group or that such Parent Significant Customer or Parent Significant Supplier intends to materially and adversely (to the Parent Group) modify its existing contractual relationship with Parent Group.

Section 5.18 Parent Intellectual Property

(a) As used in this Agreement, the following terms shall have the meanings indicated below:

(1) "Parent IP Rights" means, (A) any and all Intellectual Property used in or required for the conduct of the business of the Parent Group as currently conducted by the Parent Group; and (B) any and all other Intellectual Property owned by or licensed to the Parent Group.

(2) "Parent-Owned IP Rights" means, (A) Parent IP Rights that are owned by or exclusively licensed to the Parent Group; and (B) Parent IP Rights that were developed for the Parent Group by full or part time employees, consultants or service providers of the Parent Group.

(3) "Parent Source Code" means, collectively, any software source code or confidential manufacturing specifications or designs, any material portion or aspect of software source code or confidential manufacturing specifications or designs, or any material proprietary information or algorithm contained in or relating to any software source code or confidential manufacturing specifications or designs, of Parent-Owned IP Rights or Parent Products.

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(b) Parent Group (i) owns and has independently developed or acquired, or (ii) has the valid right or license to all its Parent IP Rights. Such Parent IP Rights are sufficient for the conduct of the business of the Parent Group as currently conducted.

(c) No member of the Parent Group has transferred ownership of any Intellectual Property that is or was Parent-Owned IP Rights to any third party, or knowingly permitted the Parent Group’s rights in any Intellectual Property that is or was Parent-Owned IP Rights to enter the public domain or, with respect to any Intellectual Property for which the Parent Group has submitted an application or obtained a registration, lapse (other than through the expiration of registered Intellectual Property at the end of its maximum statutory term).

(d) The Parent Group owns and has good and exclusive title to each item of Parent-Owned IP Rights, free and clear of any Liens. The right, license and interest of the Parent Group in and to all Third Party Intellectual Property Rights licensed by the Parent Group from a third party are free and clear of all Liens (excluding condition and restrictions contained in the applicable license agreements with such third parties).

(e) Section 5.18(e) of the Purchaser Company Disclosure Schedule lists all of Parent-Owned IP Rights including the jurisdictions in which each such item of Parent-Owned IP Rights, to the extent issued or registered, 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. Each item of Parent-Owned IP Rights is valid and subsisting (or in the case of applications, applied for), all registration, maintenance and renewal fees currently due in connection with such Parent-Owned IP Rights have been paid and all documents, recordations and certificates in connection with such item of Parent-Owned IP Rights currently required to be filed have been filed.

(f) The Parent Group is not nor shall it be as a result of the execution and delivery or effectiveness of this Agreement and the other Transaction Documents or the performance of the Parent’s obligations hereunder and thereunder, in breach of any Contract governing any Parent IP Rights (the "Parent IP Rights Agreements") and the consummation of the Transactions will not result in the modification, cancellation, termination, suspension of, or acceleration of any payments with respect to the Parent IP Rights Agreements, or give any third party to any Parent IP Rights Agreement the right to do any of the foregoing.

(g) None of the Parent IP Rights Agreements grants any third party exclusive rights to or under any Parent IP Rights or grants any third party the right to sublicense any Parent IP Rights.

(h) There are no royalties, honoraria, fees or other payments payable by the Parent Group to any Person (other than salaries payable to employees, consultants and independent contractors not contingent on or related to use of their work product) as a result of the ownership, use, possession, license-in, license-out, sale, marketing, advertising or disposition of any Parent-Owned IP Rights by the Parent Group.

(i) To the Knowledge of the Parent, there is no unauthorized use, unauthorized disclosure, infringement or misappropriation of any of its Parent-Owned IP Rights, by any Person. Parent Group has not brought any action, suit or proceeding for infringement or misappropriation of any its Intellectual Property or breach of any of the Parent IP Rights Agreement.

(j) Parent Group has not been sued in any Proceeding (or received any written notice or threat with respect to any Proceeding) which involves a claim of infringement or misappropriation of any Intellectual Property right of any third party or which contests the validity, ownership or right of the Parent Group to exercise any Intellectual Property right.

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(k) The operation of the business of the Parent Group as such business is currently conducted, and the use or exploitation of any Parent IP Rights by the Parent Group does not and will not infringe or misappropriate the Intellectual Property of any third party and does not constitute unfair competition or unfair trade practices under any Applicable Laws.

(l) The Parent Group has secured from all of its current and former consultants, employees and independent contractors and the respective Affiliates thereof who independently or jointly contributed to the conception, reduction to practice, creation or development of any of the Parent IP Rights, Parent-Owned IP Rights or the Parent Products, unencumbered and unrestricted exclusive ownership of all such third party’s Intellectual Property in such contribution that the Parent Group does not already own by operation of law and such third party has not retained any rights or licenses with respect thereto. Without limiting the foregoing, each Parent Group member has obtained valid and enforceable proprietary information and invention disclosure and assignment agreements from all current and former employees, consultants, service providers and independent contractors of the Parent Group.

(m) No current or former, employee, consultant or independent contractor of the Parent Group is or has been, to the Parent’s Knowledge, in violation of any term or covenant of any Contract relating to employment, invention disclosure, invention assignment, non-disclosure or non-competition by virtue of such employee, consultant or independent contractor being employed by, or performing services for, the Parent Group with respect to any technology, software or other copyrightable, patentable or otherwise proprietary work development for the Parent Group that is subject to any agreement under which such employee, consultant or independent contractor or Affiliate thereof 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. To the Parent’s Knowledge, the employment of any employee of the Parent Group or the use by the Parent Group of the services of any consultant or independent contractor (including the services of any employees and consultants of such independent contractors) does not subject the Parent Group to any liability to any third party for improperly soliciting such employee, consultant or independent contractor to work for the Parent Group.

(n) Each Parent Group has taken all commercially reasonable steps to protect and preserve the confidentiality of all material confidential or non-public information included in the Parent IP Rights ("Parent Confidential Information").

(o) Section 5.18(o) of the Purchaser Disclosure Schedule lists Open Source Materials used by the Parent Group in (i) the Parent Products or (ii) the business of the Parent Group. Each Parent Group is in compliance with the terms and conditions of all licenses for Open Source Materials.

(p) The Parent IP Rights or the Parent Products (i) do not incorporate Open Source Materials, and are not combined with Open Source Materials; (ii) are not distributed in conjunction with any Open Source Materials; or (iii) do not use Open Source Materials, in each of (i), (ii) and (iii), in such a way that, with respect to each of (i), (ii) and (iii), creates or purports to create obligations for the Parent Group with respect to the Parent IP Rights or Parent Products or grant, or purports to grant, to any third party, any rights or immunities under any Parent IP Rights or Parent Products (including using any Open Source Materials that require, as a condition for such use, modification and/or distribution of such Open Source Materials that other software incorporated into, derived from or distributed with such Open Source Materials be (A) disclosed or distributed in source code form, (B) be licensed for the purpose of making derivative works, or (C) be redistributable at no charge).

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(q) No Parent Product contains any Malicious Code. The Parent implements sufficient current industry standard measures designed to prevent the introduction of Malicious Code into the Parent Products.

(r) For all software used by the Parent in providing services, or in developing or making available any of its products, the Parent has implemented sufficient security patches or upgrades that are generally available for that software.

(s) Except as set forth in Section 5.18(s) of the Purchaser Disclosure Schedule, no government funding or Governmental Grants or funding from any Person was used in the development of the Parent Owned IP Rights.

(t) Except as set forth in Section 5.18(t) of the Purchaser Disclosure Schedule, neither the Parent Group nor any other Person acting on its behalf has disclosed, delivered or licensed to any Person, agreed to disclose, deliver or license to any Person, or permitted the disclosure or delivery to any escrow agent or other Person of, any Parent Source Code. To Parent’s Knowledge, 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 the Parent Group or any Person acting on its behalf to any Person of any Parent Source Code. Section 5.18(t) of the Purchaser Disclosure Schedule identifies each Contract pursuant to which the Parent Group has deposited, or is or may be required to deposit, with an escrow holder or any other Person, any of its Parent Source Code. The Parent Source Code contains annotations and programmer’s comments, and otherwise has been documented in a manner that is both: (i) consistent with customary code annotation conventions and common practices in the software industry; and (ii) sufficient to independently enable a programmer of reasonable skill and competence to understand, analyze, and interpret program logic, correct errors and improve, enhance, modify and support the Parent Products.

Section 5.19 Insurance Coverage.

Section 5.19 of Purchaser Disclosure Schedule identifies each insurance policy maintained by, at the expense of or for the benefit of Parent Group or its business or Assets and Properties, each of which is in full force and effect. All premiums payable under all such policies have been timely paid and Parent Group has otherwise complied with all material terms and conditions of all such policies. Neither: (A) the execution or delivery by Parent or Purchaser of this Agreement or any other Transaction Document to which any of them is party; nor (B) the consummation by them of the Transactions, will (with or without notice or lapse of time or both): (1) result in the cancellation, invalidation or termination, or give any Person the right to cancel, invalidate or terminate, any of the insurance policies of the Parent Group; (2) result in the reduction of coverage, or give any Person the right to reduce the coverage, under any such insurance policies; or (3) have any impact on the right or ability of Parent Group to make a claim under any such insurance policies in respect of or relating to events or circumstances that have occurred prior to the respective Closing.

Section 5.20 Tax Matters.

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(a) Each Parent Group member has timely filed in a proper manner with the appropriate Taxing Authorities all Tax Returns required to be filed by or with respect to, such Parent Group and has timely paid in full all Taxes shown as due on any such Tax Return. All such Tax Returns are true, complete and accurate. All Taxes due and payable by any member of the Parent Group or with respect to the income, assets or operations thereof, whether or not required to be shown on a Tax Return, have been timely paid in full. No written claim has been served to the Parent Group since January 1, 2008 by a Taxing Authority or any other Governmental Authority in a jurisdiction where the Parent Group does not file Tax Returns that any member of the Parent Group is or may be subject to taxation in that jurisdiction.

(b) A proper and adequate accrual or reserve for Tax Liabilities of the Parent Group in accordance with US GAAP is included in the Parent's Financial Statements. The unpaid Taxes of the Parent Group (i) did not, as of the Financial Statements Date, exceed the reserve for Tax Liabilities set forth on the balance sheet (and not merely in the notes) included in the Parent Financial Statements, and (ii) do not, as of the date hereof, exceed such reserve except as set forth in Section 5.20(b)

of the Purchaser Disclosure Schedule.

(c) Since the Financial Statements Date, the Parent Group (i) has not incurred any Liability for Taxes (A) from extraordinary gains or losses within the meaning of US GAAP, (B) outside the ordinary course of business, or (C) otherwise inconsistent with past custom and practice and (ii) has, in accordance with US GAAP, made due and sufficient accruals for such Liabilities for Taxes (excluding any "deferred taxes" or similar items that reflect timing differences between tax and financial accounting principles) in the books and records of the Parent Group.

(d) The Parent Group has not been since January 1, 2008 nor, to the Knowledge of the Parent, is currently the subject of any audit or other examination of Taxes by any Taxing Authority. No written deficiencies for Taxes with respect to the Parent Group have been claimed, or assessed by any Taxing Authority or other Governmental Authority. There are currently no matters under discussion between the Parent Group and any Taxing Authority. The Parent has made available to the Companies (i) complete and accurate copies of all Tax Returns of the Parent Group for the past three taxable years, and (ii) complete and accurate copies of all audit or examination reports and statements of deficiencies assessed against or agreed to by the Parent for the past five taxable years. During the past five taxable years the Parent Group has not waived or extended any statute of limitations in respect of Taxes or agreed to any extension of time with respect to a Tax assessment or deficiency, nor has the Parent submitted any request for any such extension or waiver.

(e) No closing agreements, private letter rulings, technical advice memoranda or similar agreements or rulings relating to Taxes have been entered into or issued by any Governmental Authority with or in respect of the Parent Group during the past five taxable years. The Parent Group has not requested or received a ruling from any Taxing Authority during the past three taxable years (other than such rulings required by this Agreement).

Section 5.21 Employees; Contractors and Benefit Plans

(a) Section 5.21(a) of Purchaser Disclosure Schedule sets forth with respect to each Parent Group member, the name of each executive officer, and each independent contractor and consultant providing services customarily provided by executive officers and the ten other employees with the highest total Compensation Package in the Parent Group, together with his or her position or function, date of hire or engagement, annual base salary or wages or the compensation, vacation entitlement and any applicable incentive, severance or bonus arrangements.

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(b) Parent has made available to Companies and Selling Shareholders (i) accurate and complete copies of each employment, consulting, severance, termination, retirement, profit sharing, bonus, incentive or deferred compensation, retention or transaction bonus or change in control agreement, pension, stock Option, restricted stock or other equity-based benefit, profit sharing, savings, retirement, life, health, disability, accident, medical, dental, insurance, vacation, paid time off, long term care, perquisite, fringe benefit, death benefit or other material compensation or benefit plan, program, arrangement, agreement, fund or commitment (i) for the benefit or welfare of any current or former director, officer, shareholder, service provider or employee of any Parent Group or any shareholder or Affiliate thereof employing such person for the benefit of Parent Group, or (ii) with respect to which such Parent Group has any Liability (such plans are referred to collectively herein as the "Parent Benefit Plans”), to the extent currently effective, including all amendments thereto, and Section 5.21(b)

of Purchaser Disclosure Schedule sets forth an accurate and complete list of all Parent Benefit Plans. Each Parent Group member has performed all material obligations required to be performed by such Parent Group member thereunder, and is not in default or violation of, and has no Knowledge of any default or violation by any other party to any Parent Benefit Plan, of any material term thereunder. Each Parent Benefit Plan has been established and maintained in accordance with its terms and in compliance with Applicable Law.

(c) Except as set forth in Section 5.21(c) of Purchaser Disclosure Schedule,  the consummation of the Transactions will not (either alone or together with any other event, including a subsequent termination of employment or service or other engagement) entitle any employee, service provider or independent contractor of any Parent Group member or any employee of such independent contractor or service provider to severance pay or accelerate the time of payment or vesting or trigger any payment of funding (through a grantor trust or otherwise) of compensation or benefits under, increase the amount payable under any Parent Benefit Plan or trigger any other Liability to such Parent Group member or any other right or benefit to such person.

(d) Except as set forth in Section 5.21(d) of the Purchaser Disclosure Schedule, no Parent Group member has engaged any consultants, sub-contractors, sales agents or freelancers who, according to Applicable Law, would be entitled to the rights of an employee vis-à-vis the Parent Group, including rights to severance pay, vacation, recuperation pay (dmei havraa) and other employee-related statutory or contractual benefits. Each Person providing services to any Parent Group member that has been characterized as a consultant, sub-contractor, sales agent or freelancer and not an employee has been properly characterized as such including, where applicable, through the inclusion of appropriate and required provisions in the relevant agreement with such Person.

(e) No Parent Group member is a party to any collective bargaining Contract, collective labor agreement or other Contract or arrangement with a labor union, workers committee, trade union or other organization or body involving any of its employees, or is otherwise required (under any legal requirement, under any Contract or otherwise) to provide benefits or working conditions beyond the minimum benefits and working conditions required by any Applicable Law or pursuant to applicable extension orders (tzavei harchava).

(f) No Parent Group member is subject to any Proceeding asserting that Parent Group has committed an unfair labor practice or seeking to compel it to bargain with any labor union or labor organization nor is there pending or, to Parent's Knowledge, threatened, nor has there been since January 1, 2008, any labor strike, dispute, walk-out, work stoppage, slow-down or lockout involving any member of the Parent Group.

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(g) No Parent Group member has or is subject to, and no employee of any Parent Group member benefits from, any extension order except for extension orders applicable to all employees in Israel.

(h) The obligations of each Parent Group member to provide statutory social benefits pursuant to Applicable Law and any other benefits provided under any Contract to which such Parent Group member is party, are each fully funded or reflected on the Parent's Financial Statements.

(i) Each Parent Group member has complied in all material respects with all Applicable Laws and/or Contracts and/or customs recognized as such by such Parent Group member relating to employment, employment practices, wages, bonuses and other compensation matters and terms and conditions of employment related to its employees; and all amounts that the Parent Group is legally or contractually required either (i) to deduct from its employees’ salaries or to transfer to such employees’ pension or provident, life insurance, incapacity insurance, continuing education fund or other similar funds, or (ii) to withhold from its employees’ salaries and benefits and to pay to any Governmental Authority as required by under Applicable Law, have, in each case, been fully deducted, transferred, withheld and paid.

Section 5.22 Affiliate Transactions.

No shareholder, director, officer or employee of Parent Group or member of any of their immediate family or any Affiliate thereof (each of the foregoing, a "Parent Related Person"), other than in its capacity as a shareholder, director, officer or employee of such Parent Group, (i) has been since January 1, 2008 involved, directly or indirectly, in any business arrangement, other than employment agreements (and if applicable, engagements with directors in their capacity as such) or other material relationship with Parent Group (whether written or oral), (ii) directly or indirectly owns, or otherwise has any right, title, interest in, to or under, any property or right, tangible or intangible, that is used by such Parent Group or (iii) is engaged, directly or indirectly, in the conduct of the business of such Parent Group. In addition, to the Knowledge of Parent, no such Parent Related Person has an interest in any Person that (A) competes with the business of Parent Group in any market presently served by Parent Group, or (B) is a supplier, vendor, lessor, lessee, licensor or licensee of Parent Group, in each case, except as explicitly set forth in Section 5.22 of Purchaser Disclosure Schedule. For purpose of this Agreement, "immediate family" of any Person shall mean spouse, parents, children and brothers and sisters of such Person.

Section 5.23 Finder’s Fees.

There is no investment banker, broker, finder or other intermediary that has been retained by or is authorized to act on behalf of Purchaser or Parent who is entitled to any fee or commission from the Purchaser or Parent in connection with the Transactions.

Section 5.24 Investment Company.

Neither the Purchaser nor the Parent is an "investment company" within the meaning of the United States Investment Company Act of 1940, as amended.

Section 5.25 Private Placement; Securities Law.

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(a) Assuming the accuracy of the Selling Shareholders’ representations and warranties set forth in Section 4.08, no registration under the Securities Act is required for the offer and sale of the Consideration Securities by the Parent to the Selling Shareholders as contemplated hereby (the "Offering"), and based on the accuracy of the Selling Shareholders’ representations and warranties set forth in Section 4.08(b) the Offering by Parent to the Regulation S Investors will qualify as a "Category 2" offering under Rule 903(b)(2) of Regulation S.

(b) Parent is a "foreign issuer" as that term is defined in Regulation S, promulgated under the Securities Act.

(c) The Offering by Parent to the Regulation S Investors was made in an "offshore transaction" (as that term is defined under Regulation S).

(d) None of the Parent, its affiliates or any person acting on their behalf has engaged in any "directed selling efforts" (as that term is defined under Regulation S) with respect to the Offering.

(e) Parent has implemented "offering restrictions" (as that term is defined under Regulation S) with respect to the Offering by Parent to the Regulation S Investors.

(f) None of the Parent, its affiliates or any person acting on their behalf has effected over the last 12 months a general solicitation in the United States or to non U.S. Persons with respect to the offering of any of its securities.

(g) The Parent has a class of securities registered pursuant to Section 12(b) of the United States Securities Exchange Act of 1934, as amended (the “Exchange Act”).

(h) The Parent has filed all the material required to be filed pursuant to Section 13(a) of the Exchange Act for a period of at least twelve months preceding the date of this Agreement.

Article VI
PRE CLOSING Covenants

Section 6.01 Conduct of Business.

From the date of this Agreement until the respective Closing Date, or the earlier termination of this Agreement in accordance with its terms, each of the Companies, the Purchaser and Parent shall, and shall cause their Subsidiaries to, conduct their businesses in the ordinary course consistent with their past practice and use commercially reasonable efforts to (i) preserve intact its respective present business organizations, (ii) maintain in effect Governmental Authorizations necessary for the conduct of their business, and (iii) maintain satisfactory relationships with their customers, lenders and suppliers and others having a business relationship with them. Without limiting the generality of the foregoing, except as expressly contemplated by this Agreement or required under Applicable Law, or pursuant to the prior written consent of the respective Shareholder Representative or Purchaser, as applicable, each of the Companies, the Purchaser and Parent, shall not and shall cause their Subsidiaries not to do any of the following actions (except if such action is required for consummation of the Transactions):

(a) Charter Documents. Amend their Charter Documents (whether by merger, consolidation or otherwise);

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(b) Issuance of Shares. (i) issue, deliver or sell, or authorize the issuance, delivery or sale of any of their shares or Options exercisable into their shares; or (ii) amend any term of any of their shares or Options (whether by merger, consolidation or otherwise), other than the issuance of shares pursuant to the exercise of Options and provided that such limitation will not apply with respect to the Purchaser or Parent other than where the issuance and sale of securities is made pursuant to a transaction that is reasonably expected to be an alternative transaction to the Transactions;

(c) Acquisitions. Acquire (by merger, consolidation, acquisition of shares or assets or otherwise), directly or indirectly, any securities or all or substantially all of the assets, properties or businesses of any third party or otherwise acquire or agree to acquire any securities or assets which are material, individually or in the aggregate to its business, or enter into any Contract with respect to a joint venture, strategic alliance or partnership; provided that such limitation will not apply with respect to the Parent other than where the underlying transaction is reasonably expected to be an alternative transaction to the Transactions;

(d) Dispositions. Sell, lease, license or otherwise transfer, or create or incur any Lien, on any of their tangible or intangible assets or rights or any of their properties or assets, except in the ordinary course of business;

(e) Loans and Investments. Make any loans, advances or capital contributions to, or investments in, any other Person or forgive or discharge in whole or in part any outstanding loans or advances, or prepay any Indebtedness for borrowed money, except in the ordinary course of business;

(f) Contracts. (i) with respect to the Companies only and unless approved by the respective Company's board of directors - enter into, amend or modify in any respect any Material Contract or (ii) terminate any Material Contract or otherwise waive, release or assign any of their rights, claims or benefits under any Material Contract;

(g) Employees; Consultants; Independent Contractors; Severance Arrangements. Other than as required under Applicable Law or made in the ordinary course of business: (i) grant or increase any severance or termination pay to (or amend any existing arrangement with) any of their directors, officers, advisors, consultants, independent contractors, or employees, (ii) other than in accordance with agreements entered into prior to the date hereof and disclosed in each Company Disclosure Schedule, or Parent Disclosure Schedule, as applicable, increase benefits payable under any existing severance or termination pay policies or employment agreements or any other benefits payable to any of their directors, officers, advisors, consultants, independent contractors or employees, (iii) enter into any employment, deferred compensation or other agreement or offer (or amend any such existing agreement or offer) with any of their directors, officers, advisors, consultants, independent contractors or employees, (iv) establish, adopt or amend (except as required by Applicable Law) any collective bargaining, Benefit Plan covering any of their directors, officers, advisors, consultants, independent contractors or employee, or (v) promote any of their employees;

(h) Accounting. Change their methods of accounting or accounting practices, except as required by concurrent changes in IFRS or US GAAP, as applicable, and as agreed to by their respective independent public accountants;

(i) Proceedings; Settlements. Commence, settle, or offer or propose to settle (i) any material Proceeding involving or against any of them, (ii) any material litigation or dispute against any of their officers or directors or (iii) any Proceeding that relates to the Transactions;

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(j) Taxes. With respect to each of the following, other than in the ordinary course of business, make or change any Tax election other than as is required under Applicable Law; settle or compromise any claim, notice, audit report or assessment in respect of Taxes; enter into any closing agreement with a Taxing Authority; file any Tax Return; enter into any Tax allocation agreement, Tax sharing agreement, Tax indemnity agreement, pre-filing agreement, advance pricing agreement, cost sharing agreement or closing agreement relating to any Tax; change or adopt any annual Tax accounting period or method of Tax accounting; surrender or forfeit any right to claim a Tax refund; file any Tax petition, Tax complaint or administrative Tax appeal; or consent to any extension or waiver of the statute of limitations period applicable to any Tax claim or assessment or request, negotiate, apply for or receive a Tax ruling on their own behalf or, with respect to the Companies, on behalf of any of the Selling Shareholders;

(k) Intellectual Property. Purchase or license from any Person any rights to any Intellectual Property, or transfer or license to any Person any rights to any Company IP Rights, or Parent IP Rights, as applicable, except in the ordinary course of business;

(l) New Line of Business. Enter into agreements that contemplate their engaging in a new line of business;

(m) Subsidiaries. With respect to the Companies only, form or acquire any Subsidiaries;

(n) Distributions. Distribute to its shareholders any asset of such Company Group, or Parent Group, as applicable or make a declaration thereof;

(o) Grants. Apply for or accept any Governmental Grant other than acceptance of such Governmental Grants pursuant to applications submitted before the date hereof and disclosed herein; or

(p) Other. Take, agree, resolve or commit to do, any of the foregoing actions, or prevent it from performing one or more covenants required hereunder to be performed by them or otherwise consummate the Transactions.

From the date of this Agreement until the respective Closing Date, or the earlier termination of this Agreement in accordance with its terms, each Selling Shareholder and/or the Purchaser and or Parent shall not take, agree, resolve or commit to do, any action which would reasonably be expected to make any of such Selling Shareholder's and/or the Purchaser's and/or Parent's representations or warranties contained in this Agreement untrue or incorrect or prevent such Selling Shareholder, Purchaser of Parent from performing one or more covenants required hereunder to be performed by it or otherwise consummate the Transactions.

Section 6.02 No Solicitation; Other Offers.

From the date of this Agreement until the earlier of the respective Closing Date or the termination of this Agreement in accordance with its terms, each Selling Shareholder, each Company, the Purchaser and Parent (provided that such limitation will not apply with respect to the Parent or Purchaser other than where the underlying transaction is considered by Parent to be an alternative transaction to the Transactions) shall not, and shall cause each of its respective Representatives not to, directly or indirectly: (i) solicit, initiate, facilitate, support, seek, induce, entertain or encourage, or take any action to solicit, initiate, facilitate, support, seek, induce, or encourage any inquiries, announcements or communications relating to, or the making of any submission, proposal or offer that constitutes, or that would reasonably be expected to lead to, an Acquisition Proposal; (ii) enter into, participate in, maintain or continue any discussions or negotiations relating to, any Acquisition Proposal with any Person other than each other; (iii) furnish to any Person other than to each other any information that is reasonably expected to be used for the purposes of formulating any inquiry, expression of interest, proposal or offer relating to an Acquisition Proposal or take any other action regarding any inquiry, expression of interest, proposal or offer that constitutes, or would reasonably be expected to lead to, an Acquisition Proposal; (iv) accept any Acquisition Proposal or enter into any agreement, arrangement or understanding (whether written or oral) providing for the consummation of any transaction contemplated by any Acquisition Proposal or otherwise relating to any Acquisition Proposal; or (v) submit any Acquisition Proposal or any matter related thereto to the vote of their shareholders. Each Selling Shareholder, each Company, the Purchaser and the Parent (provided that such limitation will not apply with respect to the Parent or Purchaser other than where the underlying transaction is reasonably expected to be an alternative transaction to the Transactions), shall, and shall cause each of its respective Representatives to, immediately cease and cause to be terminated any and all existing activities, discussions or negotiations with any Persons conducted prior to or on the date of this Agreement with respect to any Acquisition Proposal, and shall promptly (and in any event within 24 hours) provide Purchaser or the Shareholders Representatives, as applicable, with: (i) a written description of any expression of interest, inquiry, proposal or offer relating to a possible Acquisition Transaction that is received by them from any Person, including in such description the identity of the Person from which such expression of interest, inquiry, proposal or offer was received (the "Other Interested Party"); and (ii) a copy of each written communication and a complete summary of each other communication transmitted on behalf of the Other Interested Party or any of the Other Interested Party’s Representatives to any of them or transmitted on behalf of any of them to the Other Interested Party or any of the Other Interested Party’s Representatives.

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Section 6.03 Access to Information.

From the date of this Agreement until the respective Closing Date, or the earlier termination of this Agreement in accordance with its terms, each Company, the Purchaser and the Parent shall (a) give each other and its Representatives reasonable access to key employees, the offices, properties, books and records of each other, and (b) furnish to Purchaser or the respective Company, as applicable, and its Representatives such information that is reasonably required by the requesting party in connection with the consummation of the Transactions and the operations of the Parent Group and the respective Company Group post Closing, including with respect to the respective Company Products and the Parent Products, as applicable, methodologies and related matters.

Section 6.04 Notices of Certain Events.

(a) From the date of this Agreement until the respective Closing Date, or the earlier termination of this Agreement in accordance with its terms, the Companies and each of their Selling Shareholders, each with respect to its relevant notices shall promptly notify Purchaser, and the Purchaser, on the other hand, shall promptly notify each Shareholders Representative of:

(i) any notice or other communication from any Person alleging that the Consent of such Person is or may be required in connection with the consummation of the Transactions;

(ii) any notice or other communication from any Governmental Authority (A) delivered in connection with the Transactions, or (B) indicating that a Governmental Authorization is revoked or about to be revoked or that a Governmental Authorization is required in any jurisdiction in which such Governmental Authorization has not been obtained, which revocation or failure to obtain has had or would reasonably be expected to have a Material Adverse Effect on such Company or on the Parent;

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(iii) any actions, suits, claims, investigations or Proceedings commenced or, to their respective Knowledge, threatened against, relating to or involving or otherwise affecting the respective Company or the Purchaser or Parent, as applicable, that relate to the consummation of the Transactions and which has had or would reasonably be expected to have a Material Adverse Effect; and

(iv) any event, condition, fact or circumstance that would make the timely satisfaction of any of the respective conditions set forth in Article VIII impossible or unlikely.

(b) If any event, condition, fact or circumstance that is required to be disclosed pursuant to Section 6.04(a) requires any change in the respective Purchaser Disclosure Schedule, Company Disclosure Schedule or the Selling Shareholder Disclosure Schedule, as applicable, or if any such event, condition, fact or circumstance would require such a change assuming such Purchaser Disclosure Schedule, Company Disclosure Schedule or the Selling Shareholder Disclosure Schedules, as applicable, were dated as of the date of the occurrence, existence or discovery of such event, condition, fact or circumstance, then the Purchaser or such Company or such Selling Shareholder, as applicable, shall promptly deliver to each other an update to its Purchaser Disclosure Schedule, Company Disclosure Schedule or the respective Selling Shareholder Disclosure Schedule, as applicable, specifying such change. No such notice or update shall be deemed to supplement or amend the Purchaser Disclosure Schedule, Company Disclosure Schedule or Selling Shareholder Disclosure Schedule, as applicable, for the purpose of (i) determining the accuracy of any of the representations and warranties made by any of the Companies, any Selling Shareholder, the Purchaser or the Parent, as applicable, in this Agreement and any indemnification obligation hereunder, or (ii) determining whether any of the respective conditions set forth in Article VIII

has been satisfied.

Section 6.05 Restriction on Transfer.

(a) Each Selling Shareholder agrees that, prior to the respective Closing or the earlier termination of this Agreement, such Selling Shareholder shall not directly or indirectly sell or otherwise transfer or dispose of, or pledge or otherwise permit to be subject to any Lien (other than any Lien existing as of the date hereof, which shall be removed prior to the respective Closing), any Companies Shares or any other security of the Companies owned by such Selling Shareholder, or any direct or indirect beneficial interest therein, and the Companies shall not register any transfer of Companies Shares in the registers of shareholders of the Companies until the earlier of the respective Closing Date or the earlier termination of this Agreement.

(b) Each Selling Shareholder, severally and not jointly with the other Selling Shareholders, agrees that such Selling Shareholder will not sell any of the Consideration Securities on the TASE except in compliance with the Israeli Securities Law and the rules and regulations promulgated thereunder.

Section 6.06 Filings.

(a) As promptly as practicable after the execution of this Agreement, each Company, the Purchaser and the Parent (a) shall make all filings and give all notices reasonably required to be made and given by such party in connection with the Transactions, to the extent such filings or notices were not submitted prior to the execution of this Agreement, except that any such filing or notice shall be subject to the prior review and approval of Purchaser or the Companies, as applicable, (b) with respect to the Companies, shall take such actions as are reasonably required to comply with Section 341 of the Companies Law as provided in Section 2.10 of this Agreement, and (c) shall use all commercially reasonable efforts to obtain all Consents required to be obtained (pursuant to any Applicable Law or Contract, or otherwise) in connection with the consummation of the Transactions. Each Company shall, upon request of the Purchaser, and Purchaser shall, upon request of the Companies, promptly deliver to each other a copy of each such filing made, each such notice given and each such Consent obtained by them. Notwithstanding the generality of the foregoing, the Companies or the Purchaser or Parent, as applicable, shall not amend or modify or otherwise waive, release or assign any of their material rights, claims or benefits or pay any fee or other compensation to any Person in order to obtain any Consent required to be obtained (pursuant to any Applicable Law or Contract, or otherwise) by such party in connection with the Transactions.

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(b) As promptly as practicable after the execution of this Agreement, Parent shall cause its Israeli counsel to prepare and file with the Israeli Securities Authority an application for an exemption from the requirements of the Israeli Securities Law concerning the publication of a prospectus in respect of the replacement of the Assumed Options pursuant to Section 15D of the Israeli Securities Law (the "Israeli Securities Exemption"). Each Company and each Selling Shareholder shall cooperate and cause its Representatives to cooperate with Parent in connection with the preparation and filing of such application and in the preparation of any written or oral submissions that may be necessary, proper or advisable to obtain the Israeli Securities Exemption.

(c) As promptly as practicable after the execution of this Agreement, Parent shall cause its Israeli counsel to prepare and file with the TASE an application to approve the issuance of the Consideration Shares, the Warrant Shares and the Parent's shares issuable upon exercise of the Assumed Options (the "TASE Approval"). Each Company and each Selling Shareholder shall cooperate and cause its Representatives to cooperate with Parent in connection with the preparation and filing of such application and in the preparation of any written or oral submissions that may be necessary, proper or advisable to obtain the TASE Approval.

(d) As promptly as practicable after the execution of this Agreement, each of the parties hereto shall file any filings, reports, information and documentation required for the transactions contemplated hereby pursuant to any antitrust or competition law (collectively, "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 Antitrust Laws. Each of the parties hereto shall use its reasonable best efforts to obtain promptly such clearances listed in Schedule C attached hereto, required under the Antitrust Laws for the consummation of the Transaction ("Antitrust Approvals") and shall keep each other apprised of the status of any communications with, and any inquiries or requests for additional information from, any Governmental Authority and shall comply promptly with any such inquiry or request. Each of the parties hereto shall promptly and timely respond to a request for additional information from any Governmental Entity.

Section 6.07 Adoption of New Parent Option Plan.

Immediately prior to the date hereof, the Parent has adopted a new option plan in the form attached hereto as Exhibit M1, in order to enable the replacement of the Assumed Options pursuant to Section 2.04

.

Section 6.08 Israeli Tax Ruling.

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(a) Immediately following execution of this Agreement, each Company will file with the ITA applications for the following rulings:

(i) A ruling confirming that (A) the replacement of the Companies Options with Options to purchase commons shares of Parent in accordance with Section 2.04 above will not result in a requirement for an immediate Israeli Tax payment and that the Israeli taxation will be deferred until the exercise of the Options to purchase common shares of Parent, or in the case of Assumed Options that are part of a "Section 102 Plan," until the actual sale of the underlying shares of Parent issued to the holders of such Assumed Options; (B) the "lock-up period" under any "Section 102 Plan" will continue to run and will not be restarted as a result of the replacement of the Assumed Options; and (C) the issuance of any shares of Parent pursuant to this Agreement in exchange for Companies Shares held in trust at the respective Closing under a "Section 102 Plan" will not result in an immediate taxable event for the Person entitled to such shares of Parent if such issuance is made directly to the "Section 102 Plan" trustee and until such time as such shares of Parent are subsequently transferred by such trustee to the Person entitled thereto, whether at the end of the statutory holding period or otherwise, in accordance with the terms of such ruling (the "Israeli Options Tax Ruling").

(ii) A ruling permitting any Selling Shareholder who elects to become a party to such tax pre-ruling (the "Electing Holder"), (i) to defer the payment of any applicable Israeli tax with respect to any respective Consideration Securities that such Electing Holder will receive pursuant to this Agreement until the "Day of Sale" (as defined in Section 104(h) of the Tax Ordinance), of such Consideration Securities by such Electing Holder and (ii) to defer the determination of the applicable Israeli tax with respect to such Electing Holder's Consideration Securities held in the respective Escrowed Funds until their release from the IDIT Escrow Deposit or FIS Escrow Deposit to such Electing Holder, which determination shall be based on the value of such Consideration Securities at such time of their release (the "Israeli 104(h) Tax Ruling"). The Israeli 104(h) Tax Ruling shall not impose any restrictions or obligations on the Purchaser, the Parent or any of the Companies.

(b) Each Company shall, and shall instruct its Representatives to, cooperate with Purchaser and its Israeli counsel, Representatives with respect to the application by such Company for the Israeli Options Tax Ruling and in the preparation of any written or oral submissions that may be necessary, proper or advisable to obtain such ruling. Subject to the terms and conditions hereof, the parties shall use commercially reasonable efforts to promptly take, or cause to be taken, all action and to do, or cause to be done, all things necessary, proper or advisable under Applicable Law to obtain the Israeli Options Tax Ruling, as promptly as practicable. Each Company and its Representatives shall not make any application to, or conduct any negotiation with, the ITA with respect to any matter relating to the Israeli Options Tax Ruling without prior coordination with the Purchaser or its Representatives, and will enable Purchaser’s Representatives to participate in all discussions and meetings relating thereto. To the extent that the Purchaser’s Representative elects not to participate in any such meeting or discussion, the Companies’ Representatives shall provide to the Purchaser's Representatives a prompt and full report of any such discussions held. In any event, the final text of the application for the Israeli Tax Rulings in all circumstances be subject to the prior approval of Purchaser. The Companies and their Representatives will provide to the Purchaser and its Representatives a draft of the Israeli 104(h) Tax Ruling prior to the submission thereof to the ITA and shall incorporate into such ruling the Purchaser’s and its Representatives’ comments thereto.

Section 6.09 FIS Shareholders Meeting.

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Immediately following the execution of this Agreement, FIS shall call and give notice of a general meeting of the holders of FIS Shares for the approval of the FIS Transaction in the form attached hereto as Exhibit 6.09 (the "EGM Notice"), and take all other necessary measures in order to convene such meeting within seven (7) days after the date of the EGM Notice. Each FIS Executing Shareholder undertakes to vote or cause to be voted, all of the FIS Shares now or hereafter owned, controlled or beneficially held, by such FIS Executing Shareholder, in favor of the resolutions set forth in the EGM Notice.

Section 6.10 Transactions in Parent's Shares.

During the period beginning on the date hereof and until the applicable Closing, none of the Companies, the Selling Shareholders, their Affiliates or anyone on their behalf (collectively, the "Restricted Parties") shall sell, contract to sell, solicit offers to sell, make any short sale or otherwise dispose of, directly or indirectly, any of Parent's shares or any securities convertible into, exchangeable for or that represent the right to receive Parent's shares, whether now owned or hereinafter acquired, owned directly by the Restricted Party (including holding as a custodian) or with respect to which the Restricted Party has beneficial ownership or dispositive power within the rules and regulations of the SEC, or otherwise actively adversely influence the prices of Parent's shares as reported on the Nasdaq (except by virtue of entering into this Agreement). The foregoing restriction is expressly agreed to preclude the Restricted Parties from, directly or indirectly, engaging in any hedging or other transaction which is designed to or which reasonably could be expected to lead to or result in a sale or disposition of Parent’s shares. Such prohibited hedging or other transactions include without limitation any short sale or any purchase, sale or grant of any right (including without limitation any put or call option) with respect to any of the Parent’s shares or with respect to any security that includes, relates to, or derives any significant part of its value from such Parent's shares.

Article VII
Additional agreements

Section 7.01 Public Announcements.

Prior to and after the respective Closing, the parties hereto hereby agree not to (and to use reasonable efforts to cause their Representatives and Affiliates not to) make any public announcement, notice, or any other communication or disclosure to any other third party regarding the existence or any subject matter, terms or conditions of this Agreement, the other Transaction Documents or the Transactions without the prior written approval of the Purchaser or the Companies, as applicable, except as such release, disclosure or announcement may be required by Applicable Law or under this Agreement, in which case the Person required to make the release or announcement will allow the Person whose consent would otherwise be required reasonable time (subject to the timing required under the Applicable Law for such release, disclosure or announcement to be made) to comment on such release, disclosure or announcement in advance of such issuance.

Section 7.02 Commercially Reasonable Efforts.

Subject to the terms and conditions contained herein, the Companies, the Selling Shareholders, the Purchaser and the Parent shall cooperate and use their respective commercially reasonable efforts (a) to take, or cause to be taken, all appropriate action, and to make, or cause to be made, all filings necessary, proper or advisable under Applicable Law, to consummate and make effective the Transactions, (b) to obtain, prior to the respective Closing Date, all Consents of Governmental Authorities and other Persons as are necessary for consummation of the Transactions, and (c) to fulfill the respective conditions to consummation of the Transactions contemplated hereby set forth in Article VIII

of this Agreement.

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Section 7.03 Litigation Support

After the respective Closing, in the event that, and for so long as, the Purchaser, the Parent or any of the Companies is actively contesting or defending against any Proceeding in connection with (a) any transaction contemplated by the Transaction Documents or (b) any fact, situation, circumstance, status, condition, activity, practice, plan, occurrence, event, incident, action, failure to act, or transaction on or prior to the respective Closing Date involving the Companies, the Purchaser or the Parent, the parties hereto will reasonably cooperate with such contesting or defending party and its counsel in the contest or defense, make their personnel reasonably available, and provide such testimony as shall be reasonably necessary in connection with the contest or defense.

Section 7.04 Tax Matters.

(a) Cooperation. The Selling Shareholders, the Shareholders Representatives and the Purchaser shall reasonably cooperate, and shall cause their respective Representatives and Affiliates reasonably to cooperate, in preparing and filing all Tax Returns of the Companies for years ended in the year hereof, including maintaining and making available to each other all records reasonably necessary in connection therewith and in resolving all disputes and audits with respect to Taxes.

(b) Transfer Taxes. All transfer, documentary, sales, use, stamp, registration and other substantially similar Taxes and fees (including any penalties and interest) incurred in connection with this Agreement (collectively, "Transfer Taxes") shall be paid by the Purchaser and/or the Companies when due, and the Purchaser and/or the Companies will, at their own expense, file all necessary Tax Returns and other documentation with respect to all such Transfer Taxes. It is hereby clarified that any income tax and/or capital gain tax imposed on the Selling Shareholders in connection with the consummation of the Transactions shall be the responsibility of the Selling Shareholders.

Section 7.05 Confidentiality.

The parties acknowledge that the Parent and the Companies have previously executed a Confidentiality and Non-disclosure Agreement, dated as of March 2, 2011 (the "Nondisclosure Agreement"), the provisions of which shall apply to all information furnished to the parties hereto, for the time periods set forth therein (subject to Section 7.01

above).

Section 7.06 Appointment of Board Member.

At the respective Closing following which Kardan Technologies Ltd. ("Kardan") shall hold, directly or indirectly, at least 9% of the Parent's issued and outstanding share capital, the Parent shall cause the appointment of one person designated by Kardan as a member of the board of directors of Parent, to hold office until the next general meeting of the Parent's shareholders.

Section 7.07 Waiver of Claims.

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As a material inducement to the Purchaser’s willingness to enter into and perform this Agreement and to purchase the Companies Shares for the consideration to be paid to the Selling Shareholders in connection with such purchase, each Selling Shareholder, on behalf of such Selling Shareholder and each of the Affiliates thereof hereby releases and forever discharges, effective as of the respective Closing, the respective Company including its office holders in which it owns shares and each of its past, present and future Representatives (excluding agents, attorneys, accountants, advisors and investment bankers) and office holders (individually, a "Releasee" and collectively, "Releasees") from any and all Proceedings, Contracts and Liabilities whatsoever, whether known or unknown, suspected or unsuspected, both at law and in equity, which each Selling Shareholder or any of its Representatives (excluding agents, attorneys, accountants, advisors and investment bankers) now has, has ever had or may hereafter have against the respective Releasees arising contemporaneously with or prior to the respective Closing Date, including, but not limited to, any rights to indemnification or reimbursement from the respective Company, whether pursuant to their respective Charter Documents, Contract or otherwise and whether or not relating to claims pending on, or asserted after, the respective Closing Date, except to the extent such claim is accrued prior to the respective Closing Date; provided, however, that nothing contained herein shall operate to release any obligation of the Purchaser or Parent arising under this Agreement and provided further that such releases will not apply with respect to: (i) claims by any Selling Shareholder solely in his capacity as a director or as an office holder of the respective Company for indemnification with respect to third party claims against such Selling Shareholder solely in his capacity as a director or as an office holder of such Company, pursuant to the terms of such Selling Shareholder's indemnification agreement; and (ii) any claim of an office holder under any of his or her employment terms with the Company. Each Selling Shareholder hereby irrevocably covenants to refrain from, directly or indirectly, asserting any claim or demand, or commencing, instituting or causing to be commenced, any Proceeding of any kind against any Releasee, based upon any matter purported to be released hereby. Without limitation of the foregoing, each Selling Shareholder agrees, effective as of respective Closing, to terminate any and all Contracts by and between the respective Company in which it holds shares and any such Selling Shareholder (other than (i) to the extent any such Contract assigns rights to Intellectual Property to such Company, (ii) officers and directors indemnification agreements to the extent such Selling Shareholder is a director or an office holder in the respective Company, (iii) officers employment agreements without any remaining Liability of such Company and to repay and discharge any Liability of the Selling Shareholder to such Company and each Company hereby agrees, effective as of respective Closing, to terminate any and all Contracts by and between such Company and any such Selling Shareholder, except to the extent any such Contract assigns rights to Intellectual Property to such Company, without any obligation on the part of such Company to make any royalty or other payments after the respective Closing, which assignment shall survive such termination. For the purpose of this Section 7.07 all Releasees that are not parties to this Agreement shall be deemed as third party beneficiaries of the Selling Shareholders' undertakings hereunder.

Section 7.08 Further Actions

In case at any time after the respective Closing any further actions are necessary to achieve the purposes of this Agreement, each party hereto will take such further actions (including the execution and delivery of all necessary instruments and documents) as any other party may reasonably request.

Section 7.09 D&O Insurance

The Parent and the Purchaser shall provide to the Companies' current directors and "Office Holders" (as such term is defined under the Companies Law) an insurance having the same terms as the terms of the insurance currently provided by the Parent to its directors and executive officers, for a period of not less than seven (7) years after the respective Closings.

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Section 7.10 Registration Statement on Form S-8

Within 90 days after the first Closing Date, Parent shall prepare and file with the SEC a Registration Statement on Form S-8 to register the Assumed Options and the Parent's common shares issuable upon exercise of the Assumed Options, and pay all expenses incident thereto.

Section 7.11 Form D

Parent shall promptly prepare and file with the SEC, in a timely manner in accordance with Applicable Law, a Form D with respect to the Consideration Securities offered by Parent to the Regulation D Investors.

Article VIII
Conditions to the transactions

Section 8.01 Conditions to the Obligations of the Parties to the FIS Transaction.

The obligations of FIS, Purchaser and the FIS Selling Shareholders to consummate the FIS Transaction are subject to the satisfaction of the following conditions, as applicable:

(a) No Injunction. No temporary restraining order, preliminary or permanent injunction or other order or decree issued by any Governmental Authority of competent jurisdiction shall be in effect which prevents the consummation of the FIS Transaction on the terms contemplated herein, and no Applicable Law shall have been enacted that makes the consummation of the FIS Transaction illegal.

(b) Governmental Authorizations. The Governmental Authorizations listed on Section 3.05 of FIS' Disclosure Schedule and the Israeli Securities Exemption shall have been obtained or shall become inapplicable or not required.

(c) TASE Approval. The TASE Approval shall have been obtained.

(d) Antitrust Approval. The Antitrust Approvals shall have been obtained.

(e) Section 341 Action. In the event that any Non Executing Shareholder of FIS is forced to sell its FIS Companies Shares in accordance with Section 341 of the Companies Law and such FIS Charter Documents, the 30-day period to file an action under Section 341 of the Companies Law by any such FIS Non Executing Shareholder shall have expired.

(f) Listing of FIS Consideration Shares and Warrants Shares. Parent shall have filed with the Nasdaq a Notification Form: Listing of Additional Shares covering the Warrants Shares issuable to and the Consideration Shares issued to the FIS Selling Shareholders and such listing shall have been approved by Nasdaq.

Section 8.02 Conditions to the Obligations of the Parties to the IDIT Transaction

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The obligations of IDIT, Purchaser and the IDIT Selling Shareholders to consummate the IDIT Transaction are subject to the satisfaction of the following conditions, as applicable:

(a) No Injunction. No temporary restraining order, preliminary or permanent injunction or other order or decree issued by any Governmental Authority of competent jurisdiction shall be in effect which prevents the consummation of the IDIT Transaction on the terms contemplated herein, and no Applicable Law shall have been enacted that makes the consummation of the IDIT Transaction illegal.

(b) Governmental Authorizations. The Governmental Authorizations listed on Section 3.05 of IDIT's Disclosure Schedule and the Israeli Securities Exemption shall have been obtained or shall become inapplicable or not required.

(c) TASE Approval. The TASE Approval shall have been obtained.

(d) Antitrust Approval. The Antitrust Approvals shall have been obtained.

(e) Section 341 Action. In the event that any Non Executing Shareholder of IDIT is forced to sell its IDIT Shares in accordance with Section 341 of the Companies Law and IDIT's Charter Documents, the 30-day period to file an action under Section 341 of the Companies Law by any such IDIT Non Executing Shareholder shall have expired.

(f) Listing of IDIT Consideration Shares. Parent shall have filed with the Nasdaq a Notification Form: Listing of Additional Shares covering the IDIT Consideration Shares issuable to the IDIT Selling Shareholders and such listing shall have been approved by Nasdaq.

Section 8.03 Conditions to the Obligations of Purchaser and Parent to Consummate the FIS Transaction

The obligations of Purchaser and Parent to consummate the FIS Transaction are subject to the satisfaction, or waiver by Purchaser, at or prior to the FIS Closing Date, of the following further conditions:

(a) Representations and Warranties. (i) each of the representations and warranties made by FIS in this Agreement (other than the representations referred to in clause (ii) below) shall have been (a) true and correct in all material respects as of the date of this Agreement, without giving effect to any materiality qualifications contained or incorporated directly or indirectly in such representations and warranties, and (b) true and correct as of the date of the FIS Closing, as if made as of the FIS Closing Date, except for any inaccuracies that do not constitute, individually or in the aggregate, a Material Adverse Effect on FIS; (ii) each of the representations and warranties made by FIS in Section 3.02 (Corporate Authorization), Section 3.05 (Non-Contravention) and Section 3.06 (Capitalization), shall be true and correct in all respects as of the date of this Agreement and as of the FIS Closing Date, except that changes to the issued share capital of FIS between the date hereof and the FIS Closing Date due to exercise of FIS Options shall not be deemed as an inaccuracy or a breach of the representations and warranties contained in Section 3.06 (Capitalization), (iii) each of the representations and warranties made by the FIS Selling Shareholders in this Agreement (other than the representations referred to in clause (iv) below) shall have been true and correct in all material respects as of the date of this Agreement and as of the FIS Closing Date as if made as of the FIS Closing Date, without giving effect to any materiality qualifications contained or incorporated directly or indirectly in such representations and warranties, and (iv) each of the representations and warranties of the FIS Selling Shareholders contained in Section 4.01 (Title to Company Shares), Section 4.02 (Authority; Binding Effect) and Section 4.03

(Non-Contravention; Consents), shall be true and correct in all respects as of the date of this Agreement and as of the FIS Closing Date.

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(b) Covenants. (i) Each of the covenants and obligations that FIS is required to comply with or to perform at or prior to the FIS Closing shall have been complied with and performed in all material respects; and (ii) each of the covenants and obligations that the FIS Selling Shareholders are required to comply with or to perform at or prior to the FIS Closing shall have been complied with and performed in all material respects.

(c) Consents and Approvals. Each of the Consents listed on Section 3.05 of the FIS Disclosure Schedule, shall have been obtained in form and substance reasonably satisfactory to the Purchaser and shall be in full force and effect.

(d) Executed Agreements and Certificates. Purchaser shall have received the following agreements and other documents and certificates, each of which shall be in full force and effect:

(i) a certificate, in the form attached hereto as Exhibit N, executed on behalf of FIS by its Chief Executive Officer (the "FIS Closing Certificate") certifying (i) that the conditions set forth in Section 8.01

and this Section 8.03

(to the extent applicable to FIS) have been duly satisfied; and (ii) the resolutions of the board of directors and the shareholders of FIS in forms satisfactory to Purchaser's counsel, approving this Agreement and the FIS Transactions.

(ii) a certificate, in the form attached hereto as Exhibit O, executed by each FIS Selling Shareholder (the "FIS Selling Shareholder Closing Certificate"), certifying that the conditions set forth in Section 8.03

(to the extent applicable to the FIS Selling Shareholder) have been duly satisfied;

(iii) executed written resignations of all directors of FIS, effective as of the FIS Closing Date, in the form attached hereto as Exhibit P;

(iv) a counterpart of the FIS Escrow Agreement executed by the FIS Shareholders Representative and the Escrow Agent;

(v) a counterpart of the side letter between Purchaser, on the one hand, and Formula Vision Technologies (F.V.T.) Ltd. ("Formula Vision") and Kardan Technologies Ltd. Kardan, on the other hand, in the form attached hereto as Exhibit Q (the "Formula and Kardan Side Letter") executed by Formula and Kardan.

(vi) a counterpart of the Registration Rights Agreement between the Parent, the Selling Shareholders and Formula System (1985) Ltd., ("Formula Systems") in the form attached hereto as Exhibit R, providing for certain registration rights to the Selling Shareholders and Formula Systems (the "IRA"), executed by the FIS Selling Shareholders.

(e) Share Certificates and Share Registry.

(i) FIS Executing Shareholders shall have delivered to Purchaser all certificates representing the FIS Shares set forth on Exhibit D with respect to such Executing Shareholder (or, in lieu thereof, affidavits and indemnity letters of lost shares with respect thereto in the form of Exhibit S), together with share transfer deeds in the form of Exhibit T.

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(ii) FIS shall have delivered to Purchaser the share registry of FIS Company evidencing the transfer of ownership of all of the relevant FIS Shares to Purchaser.

(f) Termination of Shareholders Agreements. The Investors' Rights Agreement dated as of July 2002 between FIS and certain of its shareholders shall have been terminated, and all obligations of the parties thereunder shall have been released, pursuant to an agreement in form and substance reasonably satisfactory to the Purchaser.

(g) Litigation. There shall not be: pending by or before any Governmental Authority any Proceeding that (A) seeks or is reasonably expected to frustrate, prevent or restrict the consummation of the FIS Transactions on the terms set forth herein, or (B) seeks the award of material Losses that would be payable by FIS if the FIS Transactions are consummated.

(h) Escrow Deliverables. The Escrow Agent shall have received (a) with respect to each FIS Selling Shareholder who is an individual, a copy of his Israeli ID or Passport; and (b) with respect to each FIS Selling Shareholder that is a corporation, a copy of an official document, as applicable in the country of its incorporation, approving that the corporation was duly incorporated therein.

(i) Material Adverse Effect. There shall have been no Material Adverse Effect with respect to FIS.

(j) Purchaser Approval. The Purchaser shall have approved the FIS Closing as required under Section 2.12

, if applicable.

(k) Price of the Parent’s Shares. The closing price of the common shares of the Parent as reported on Nasdaq at the close of business on the last trading day immediately prior to the FIS Closing Date shall not be less than US$3.50 per share.

(l) FIS Public Records. FIS shall have provided to the Purchaser all of the applicable documents required to be filed under the Companies Law with the Israeli Companies Registrar (the "Registrar") which are necessary in order to update the FIS registry held by the Registrar, together with evidence of the filing of such documents with the Registrar.

(m) Compliance with US Securities Laws. The Parent shall have received representation letters in form satisfactory to the Parent, executed by each Selling Shareholder and each holder of IDIT Option or FIS Option (collectively, the "Rep Letters"), which Rep Letters shall provide that among the Selling Shareholders and the holders of IDIT Options or FIS Options, as a group, there are no more than 35 persons who are U.S. Persons and not Regulation D Investors. Each Rep Letter executed by either an FIS Selling Shareholder or a holder of FIS Options shall include the signature page hereof, duly executed (including the checking of all required boxes included therein) by each such person (including each FIS Selling Shareholder executing this Agreement herewith).

Section 8.04 Conditions to the Obligations of Purchaser and Parent to Consummate the IDIT Transaction

The obligations of Purchaser and Parent to consummate the IDIT Transaction are subject to the satisfaction, or waiver by Purchaser, at or prior to the IDIT Closing Date, of the following further conditions:

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(a) Representations and Warranties. (i) each of the representations and warranties made by IDIT in this Agreement (other than the representations referred to in clause (ii) below) shall have been (a) true and correct in all material respects as of the date of this Agreement, without giving effect to any materiality qualifications contained or incorporated directly or indirectly in such representations and warranties, and (b) true and correct as of the date of the IDIT Closing, as if made as of the IDIT Closing Date, except for any inaccuracies that do not constitute, individually or in the aggregate, a Material Adverse Effect on IDIT; (ii) each of the IDIT's representations and warranties contained in Section 3.02 (Corporate Authorization), Section 3.05 (Non-Contravention) and Section 3.06 (Capitalization), shall be true and correct in all respects as of the date of this Agreement and as of the IDIT Closing Date, except that changes to the issued share capital of IDIT between the date hereof and the IDIT Closing Date due to exercise of IDIT Options shall not be deemed as an inaccuracy or a breach of the representations and warranties contained in Section 3.06 (Capitalization), (iii) each of the representations and warranties made by the IDIT Selling Shareholders in this Agreement (other than the representations referred to in clause (iv) below) shall have been true and correct in all material respects as of the date of this Agreement and as of the IDIT Closing Date as if made as of the IDIT Closing Date, without giving effect to any materiality qualifications contained or incorporated directly or indirectly in such representations and warranties, and (iv) each of the representations and warranties of the IDIT Selling Shareholders contained in Section 4.01 (Title to Company Shares), Section 4.02 (Authority; Binding Effect) and Section 4.03 (Non-Contravention; Consents), shall be true and correct in all respects as of the date of this Agreement and as of the IDIT Closing Date.

(b) Covenants. (i) Each of the covenants and obligations that IDIT is required to comply with or to perform at or prior to the IDIT Closing shall have been complied with and performed in all material respects; and (ii) each of the covenants and obligations that the IDIT Selling Shareholders are required to comply with or to perform at or prior to the IDIT Closing shall have been complied with and performed in all material respects.

(c) Consents and Approvals. Each of the Consents listed on Section 3.05

of the IDIT Disclosure Schedule, shall have been obtained in form and substance satisfactory to the Purchaser and shall be in full force and effect.

(d) Executed Agreements and Certificates. Purchaser shall have received the following agreements and other documents and certificates, each of which shall be in full force and effect:

(i) a certificate, in the form attached hereto as Exhibit U, executed on behalf of IDIT by its Chief Executive Officer (the "IDIT Closing Certificate") certifying (i) that the conditions set forth in Section 8.02 and this Section 8.04 (to the extent applicable to IDIT) have been duly satisfied; and (ii) the resolutions of the board of directors and the shareholders of IDIT in forms satisfactory to Purchaser's counsel, approving this Agreement and the IDIT Transactions.

(ii) a certificate, in the form attached hereto as Exhibit V, executed by each IDIT Selling Shareholder (the "IDIT Selling Shareholder Closing Certificate"), certifying that the conditions set forth in Section 8.04

  (to the extent applicable to the IDIT Selling Shareholder) have been duly satisfied;

(iii) executed written resignations of all directors of IDIT, effective as of the IDIT Closing Date, in the form attached hereto as Exhibit W;

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(iv) a counterpart of the IDIT Escrow Agreement executed by the IDIT Shareholders Representative and the Escrow Agent;

(v) a counterpart of the Formula and Kardan Side Letter executed by Formula and Kardan.

(vi) a counterpart of the IRA, executed by the IDIT Selling Shareholders.

(e) Share Certificates and Share Registry.

(i) IDIT Executing Shareholders shall have delivered to Purchaser all certificates representing the IDIT Shares set forth on Exhibit C with respect to such Executing Shareholder (or, in lieu thereof, affidavits and indemnity letters of lost shares with respect thereto in the form of Exhibit X), together with share transfer deeds in the form of Exhibit Y.

(ii) IDIT shall have delivered to Purchaser the share registry of IDIT Company evidencing the transfer of ownership of all of the relevant IDIT Shares to Purchaser.

(f) Termination of Shareholders Agreements. The Investors Rights and Share Purchase Agreement between IDIT and Formula Vision Technology (F.V.T.) Ltd., dated March 23, 2005 and the Investors Rights and Shareholders Agreement, dated as of May 2008, among IDIT and certain of its shareholders shall have been terminated, and all obligations of the parties thereunder shall have been released, pursuant to agreements in form and substance reasonably satisfactory to the Purchaser.

(g) Litigation. There shall not be: pending by or before any Governmental Authority any Proceeding that (A) seeks or is reasonably expected to frustrate, prevent or restrict the consummation of the IDIT Transactions on the terms set forth herein, or (B) seeks the award of material Losses that would be payable by IDIT if the IDIT Transactions are consummated.

(h) Escrow Deliverables. The Escrow Agent shall have received (a) with respect to each IDIT Selling Shareholder who is an individual, a copy of his Israeli ID or Passport; and (b) with respect to each IDIT Selling Shareholder that is a corporation, a copy of an official document, as applicable in the country of its incorporation, approving that the corporation was duly incorporated therein.

(i) Material Adverse Effect. There shall have been no Material Adverse Effect with respect to any of IDIT.

(j) Purchaser Approval. The Purchaser shall have approved the IDIT Closing as required under Section 2.12

, if applicable.

(k) Price of the Parent’s Shares. The closing price of the common shares of the Parent as reported on Nasdaq at the close of business on the last trading day immediately prior to the IDIT Closing Date shall not be less than US$3.50 per share.

(l) IDIT Public Records. IDIT shall lave provided to the Purchaser all of the applicable documents required to be filed under the Companies Law with the Registrar which are necessary in order to update the IDIT registry held by the Registrar, together with evidence of the filing of such documents with the Registrar.

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(m) Compliance with US Securities Laws. The Parent shall have received the Rep Letters. Each Rep Letter executed by either an IDIT Selling Shareholder or a holder of IDIT Options shall include the signature page hereof, duly executed (including the checking of all required boxes included therein) by each such person (including each IDIT Selling Shareholder executing this Agreement herewith).

Section 8.05 Conditions to the Obligations of the FIS Selling Shareholders.

The obligations of each of the FIS Selling Shareholders to consummate the FIS Transactions are subject to the satisfaction, or waiver by the FIS Shareholders Representative other than with respect to the Super Majority Approval set forth in 8.05(h) below, of the following further conditions:

(a) Representations and Warranties. (i) each of the representations and warranties made by the Parent or the Purchaser in this Agreement (other than the representations referred to in clause (ii) below) shall have been (a) true and correct in all material respects as of the date of this Agreement, without giving effect to any materiality qualifications contained or incorporated directly or indirectly in such representations and warranties, and (b) true and correct as of the date of the FIS Closing, as if made as of the FIS Closing Date, except for any inaccuracies that do not constitute, individually or in the aggregate, a Material Adverse Effect on Parent; (ii) each of the representations and warranties contained in Section 5.02 (Corporate Authorization), Section 5.05 (Non Contravention) and Section 5.06 (Capitalization), shall be true and correct in all respects as of the date of this Agreement and as of the FIS Closing Date, except that changes to the authorized and issued share capital of Purchaser between the date hereof and the FIS Closing Date shall not be deemed as an inaccuracy or a breach of the representations and warranties contained in Section 5.06(b)

(Capitalization).

(b) Covenants. Each of the covenants and obligations that the Purchaser or Parent is required to comply with or to perform at or prior to the FIS Closing shall have been complied with and performed in all material respects.

(c) Consents and Approvals. Each of the Consents listed on Section 5.05 of the Purchaser Disclosure Schedule, shall have been obtained in form and substance reasonably satisfactory to the FIS Shareholders Representative and shall be in full force and effect.

(d) Executed Agreements and Certificates. FIS Shareholders Representative shall have received the following agreements and other documents and certificates, each of which shall be in full force and effect:

(i) (a) a certificate, in the form attached hereto as Exhibit Z1, executed on behalf of Purchaser by its Chief Executive Officer (the "Purchaser FIS Closing Certificate") certifying (i) that the conditions set forth in Section 8.01 and this Section 8.05 (to the extent applicable to Purchaser) have been duly satisfied; and (ii) the resolutions of the board of directors of Purchaser in form satisfactory to FIS Shareholders Representative's counsel, approving this Agreement and the FIS Transactions; and (b) a certificate, in the form attached hereto as Exhibit Z3, executed on behalf of Parent by its Chief Executive Officer (the "Parent FIS Closing Certificate") certifying (i) that the conditions set forth in Section 8.01 and this Section 8.05 (to the extent applicable to Parent) have been duly satisfied; and (ii) the resolutions of the board of directors of Parent in form satisfactory to FIS Shareholders Representative's counsel, approving this Agreement and the FIS Transactions.

(ii) a counterpart of the FIS Escrow Agreement executed by the Purchaser and Parent;

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(iii) a counterpart of the IRA, executed by the Parent and Formula Systems.

(e) Litigation. There shall not be: pending by or before any Governmental Authority any Proceeding that (A) seeks or is reasonably expected to frustrate, prevent or restrict the consummation of the FIS Transactions on the terms set forth herein, or (B) seeks the award of material Losses that would be payable by Purchaser if the FIS Transactions are consummated.

(f) Material Adverse Effect. There shall have been no Material Adverse Effect with respect to Parent.

(g) Appointment of Board Member. The person designated by Kardan shall have been appointed as a member of the board of directors of Parent.

(h) Super Majority Approval. The applicable Super Majority shall have approved the FIS Closing as required under Section 2.12

, if applicable.

(i) Price of the Parent’s Shares. The closing price of the common shares of the Parent as reported on Nasdaq at the close of business on the last trading day immediately prior to the FIS Closing Date shall not be less than US$3.50 per share.

(j) Closing Certificate. Purchaser shall have delivered to the FIS Selling Shareholders a certificate, dated as of the FIS Closing, executed on behalf of Parent by its Chief Executive Officer, certifying that Parent has delivered to the Tel Aviv Stock Exchange prior to the FIS Closing an opinion of Parent's U.S. counsel, (i) referring to the Category 2 40-day holding period required under Rule 903(b)(2) of Regulation S and (ii) stating that no registration under the Securities Act is required for the offer and sale of the Consideration Securities by the Parent to the FIS Selling Shareholders as contemplated hereby (the “TASE Certificate”).

Section 8.06 Conditions to the Obligations of the IDIT Selling Shareholders.

The obligations of each of the IDIT Selling Shareholders to consummate the IDIT Transactions are subject to the satisfaction, or waiver by the IDIT Shareholders Representative other than with respect to the Super Majority Approval set forth in 8.06(g) below, of the following further conditions:

(a) Representations and Warranties. (i) each of the representations and warranties made by the Parent or the Purchaser in this Agreement (other than the representations referred to in clause (ii) below) shall have been (a) true and correct in all material respects as of the date of this Agreement, without giving effect to any materiality qualifications contained or incorporated directly or indirectly in such representations and warranties, and (b) true and correct as of the date of the IDIT Closing, as if made as of the IDIT Closing Date, except for any inaccuracies that do not constitute, individually or in the aggregate, a Material Adverse Effect on Parent; (ii) each of the representations and warranties contained in Section 5.02 (Corporate Authorization), Section 5.05 (Non Contravention) and Section 5.06 (Capitalization), shall be true and correct in all respects as of the date of this Agreement and as of the IDIT Closing Date, except that changes to the authorized and issued share capital of Purchaser between the date hereof and the IDIT Closing Date shall not be deemed as an inaccuracy or a breach of the representations and warranties contained in Section 5.06 (Capitalization).

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(b) Covenants. Each of the covenants and obligations that the Purchaser or Parent is required to comply with or to perform at or prior to the IDIT Closing shall have been complied with and performed in all material respects.

(c) Consents and Approvals. Each of the Consents listed on Section 5.05

of the Purchaser Disclosure Schedule, shall have been obtained in form and substance reasonably satisfactory to the IDIT Shareholders Representative and shall be in full force and effect.

(d) Executed Agreements and Certificates. IDIT Shareholders Representative shall have received the following agreements and other documents and certificates, each of which shall be in full force and effect:

(i) (a) a certificate, in the form attached hereto as Exhibit Z2, executed on behalf of Purchaser by its Chief Executive Officer (the "Purchaser IDIT Closing Certificate") certifying (i) that the conditions set forth in Section 8.02 and this Section 8.06 (to the extent applicable to Purchaser) have been duly satisfied; and (ii) the resolutions of the board of directors of Purchaser in form satisfactory to IDIT Shareholders Representative's counsel, approving this Agreement and the IDIT Transactions, and (b) a certificate, in the form attached hereto as Exhibit Z4, executed on behalf of Parent by its Chief Executive Officer (the "Parent IDIT Closing Certificate") certifying (i) that the conditions set forth in Section 8.02 and this Section 8.06 (to the extent applicable to Parent) have been duly satisfied; and (ii) the resolutions of the board of directors of Parent in form satisfactory to IDIT Shareholders Representative's counsel, approving this Agreement and the IDIT Transactions.

(ii) a counterpart of the IDIT Escrow Agreement executed by the Purchaser and Parent;

(iii) a counterpart of the IRA, executed by the Parent.

(e) Litigation. There shall not be: pending by or before any Governmental Authority any Proceeding that (A) seeks or is reasonably expected to frustrate, prevent or restrict the consummation of the IDIT Transactions on the terms set forth herein, or (B) seeks the award of material Losses that would be payable by Purchaser if the IDIT Transactions are consummated.

(f) Material Adverse Effect. There shall have been no Material Adverse Effect with respect to Parent.

(g) Super Majority Approval. The applicable Super Majority shall have approved the IDIT Closing as required under Section 2.12

, if applicable.

(h) Price of the Parent’s Shares. The closing price of the common shares of the Parent as reported on Nasdaq at the close of business on the last trading day immediately prior to the IDIT Closing Date shall not be less than US$3.50 per share.

(i) Closing Certificate. Purchaser shall have delivered to the IDIT Selling Shareholders the TASE Certificate with respect to the Consideration Securities to be delivered to the IDIT Selling Shareholders.

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Article IX
Termination

Section 9.01 Termination of FIS Transactions.

This Agreement may be terminated with respect to the FIS Transactions and such FIS Transactions may be abandoned at any time prior to the FIS Closing:

(a) by mutual written agreement of the FIS Shareholders Representative and Purchaser;

(b) by either FIS Shareholders Representative or Purchaser, by written notice to the other parties, if the FIS Closing has not been consummated on or before October 21, 2011 (the "FIS End Date"), except that the FIS End Date may be extended by a written notice provided by either Parent or the FIS Shareholders Representative to the other parties hereto for an additional thirty (30) days in the event that in the reasonable judgment of Parent or the FIS Shareholders Representative the FIS Closing may occur prior to the FIS End Date (as so extended); provided that the right to terminate this Agreement pursuant to this Section 9.01(b) or to extend the period as set forth in this Section 9.01(b) shall not be available to any party whose breach of or failure to comply with any provision of this Agreement with respect to the FIS Transactions, results in the failure of the FIS Transactions to be consummated by such time;

(c) by either FIS Shareholders Representative or Purchaser, by written notice to the other parties, if a Governmental Authority shall have issued any order, injunction or other decree or taken any other action, in each case, which has become final and non-appealable and which restrains, enjoins or otherwise prohibits the FIS Transactions or if there shall be any statute, rule, regulation or order enacted, promulgated or issued or deemed applicable to the FIS Transactions by any Governmental Entity that would make consummation of the FIS Transactions illegal;

(d) by Purchaser, by written notice to FIS, if (i) any representation or warranty of any of FIS or the FIS Selling Shareholder specified in Section 8.03(a) shall be inaccurate or untrue to the extent that any such inaccuracy or untruth would cause the failure of the condition set forth in Section 8.03(a) to be complied with, or any of the covenants or obligations of FIS or any FIS Selling Shareholders contained in this Agreement shall have been breached in any material respect, provided, that such breach(es) are not capable of cure, or, if capable of cure, are not cured within fifteen (15) days of delivery of written notice thereof from the Purchaser, or (ii) there shall have occurred a Material Adverse Effect with respect to FIS;

(e) by either FIS Shareholders Representative or Purchaser, by written notice to the other parties, if there shall be any action taken, or any Applicable Law enacted, promulgated or issued or deemed applicable to the FIS Transactions by any Governmental Authority, which would (x) prohibit or restrict in any material respect Purchaser’s ownership or operation of all or any portion of the business or assets of FIS, or (y) compel Purchaser to dispose of or hold separate all or any significant portion of FIS' assets or properties, or significantly limit its operation of FIS' business, as a result of the FIS Transactions;

(f) by FIS or the FIS Shareholders Representative, by written notice to the Purchaser, if (i) any representation or warranty of Purchaser or Parent specified in Section 8.05(a) shall be inaccurate or untrue to the extent that any such inaccuracy or untruth would cause the failure of the condition set forth in Section 8.05(a) to be complied with, or any of the covenants or obligations of the Purchaser or Parent contained in this Agreement shall have been breached in any material respect, provided such breach(es) are not capable of cure, or, if capable of cure, are not cured within fifteen (15) days of delivery of written notice thereof from FIS or the FIS Shareholders Representatives, or (ii) there shall have occurred a Material Adverse Effect with respect to Purchaser or Parent.

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(g) The party desiring to terminate this Agreement pursuant to this Section 9.01 (other than pursuant to Section 9.01(a)) shall give written notice of such termination to the other parties setting forth a brief description of the basis on which such party is terminating this Agreement.

Section 9.02 Effect of Termination of FIS Transaction.

If this Agreement is terminated pursuant to Section 9.01, this Agreement shall become void and of no effect with respect to the FIS Transactions and there shall be no liability or obligation on the part of any party or any of its or their Affiliates to any other Person by virtue of, arising out of or otherwise in connection with this Agreement with respect to the FIS Transactions or any other FIS Transaction Document; provided that: (a) none of the FIS Selling Shareholders, FIS or the Purchaser shall be relieved of any obligation or liability arising from any prior breach by such party of any provision of this Agreement; and (b) the parties shall, in all events, remain bound by and continue to be subject to the provisions set forth in Section 7.01, Section 7.05 and Article XII

.

Section 9.03 Termination of IDIT Transactions.

This Agreement may be terminated with respect to the IDIT Transactions and such IDIT Transactions may be abandoned at any time prior to the IDIT Closing:

(a) by mutual written agreement of the IDIT Shareholders Representatives and Purchaser;

(b) by either IDIT Shareholders Representative or Purchaser, by written notice to the other parties, if the IDIT Closing has not been consummated on or before October 21, 2011 (the "IDIT End Date"), except that the IDIT End Date may be extended by written notice provided by either Parent or the IDIT Shareholders Representative to the other parties hereto for an additional thirty (30) days in the event that in the reasonable judgment of Parent or the IDIT Shareholders Representative the IDIT Closing may occur prior to the IDIT End Date (as so extended); provided that the right to terminate this Agreement pursuant to this Section 9.03(b) shall not be available to any party whose breach of or failure to comply with any provision of this or to extend the period as set forth in this Section 9.03(b) Agreement, results in the failure of the IDIT Transactions to be consummated by such time;

(c) by either IDIT Shareholders Representative or Purchaser, by written notice to the other parties, if a Governmental Authority shall have issued any order, injunction or other decree or taken any other action, in each case, which has become final and non-appealable and which restrains, enjoins or otherwise prohibits the IDIT Transactions or if there shall be any statute, rule, regulation or order enacted, promulgated or issued or deemed applicable to the IDIT Transactions by any Governmental Entity that would make consummation of the IDIT Transactions illegal;

(d) by Purchaser, by written notice to IDIT, if (i) any representation or warranty of any of IDIT or the IDIT Selling Shareholder specified in Section 8.04(a) shall be inaccurate or untrue to the extent that any such inaccuracy or untruth would cause the failure of the condition set forth in Section 8.04(a) to be complied with, or any of the covenants or obligations of IDIT or any IDIT Selling Shareholders contained in this Agreement shall have been breached in any material respect, provided, that such breach(es) are not capable of cure, or, if capable of cure, are not cured within fifteen (15) days of delivery of written notice thereof from the Purchaser, or (ii) there shall have occurred a Material Adverse Effect with respect to IDIT;

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(e) by either IDIT Shareholders Representative or Purchaser, by written notice to the other parties if there shall be any action taken, or any Applicable Law enacted, promulgated or issued or deemed applicable to the IDIT Transactions by any Governmental Authority, which would (x) prohibit or restrict in any material respect Purchaser’s ownership or operation of all or any portion of the business or assets of IDIT, or (y) compel Purchaser to dispose of or hold separate all or any significant portion of IDIT's assets or properties, or significantly limit its operation of IDIT's business, as a result of the IDIT Transactions;

(f) by IDIT or the IDIT Shareholders Representative, by written notice to the Purchaser, if (i) any representation or warranty of Purchaser or Parent specified in Section 8.06(a) shall be inaccurate or untrue to the extent that any such inaccuracy or untruth would cause the failure of the condition set forth in Section 8.06(a) to be complied with, or any of the covenants or obligations of the Purchaser or Parent contained in this Agreement shall have been breached in any material respect, provided such breach(es) are not capable of cure, or, if capable of cure, are not cured within fifteen (15) days of delivery of written notice thereof from IDIT or the IDIT Shareholders Representatives, or (ii) there shall have occurred a Material Adverse Effect with respect to Purchaser.

(g) The party desiring to terminate this Agreement pursuant to this Section 9.03 (other than pursuant toSection 9.03(a)) shall give written notice of such termination to the other parties setting forth a brief description of the basis on which such party is terminating this Agreement.

Section 9.04 Effect of Termination of IDIT Transaction.

If this Agreement is terminated pursuant to Section 9.03, this Agreement shall become void and of no effect with respect to the IDIT Transactions and there shall be no liability or obligation on the part of any party or any of its or their Affiliates to any other Person by virtue of, arising out of or otherwise in connection with this Agreement or any other IDIT Transaction Document; provided that: (a) none of the IDIT Selling Shareholders, IDIT or the Purchaser shall be relieved of any obligation or liability arising from any prior breach by such party of any provision of this Agreement; and (b) the parties shall, in all events, remain bound by and continue to be subject to the provisions set forth in Section 7.01, Section 7.05 and Article XII

.

Article X
Indemnification

Section 10.01 Survival of Representations.

(a) Companies and Selling Shareholders Representations. Subject to Section 10.01(b), all representations, warranties, covenants and agreements of the Companies and the Selling Shareholders contained herein or in any Transaction Documents shall survive the execution and delivery of this Agreement or such Transaction Documents and the consummation of the transactions contemplated hereby and thereby, regardless of any investigation made by or on behalf of any party hereto or its Affiliates or the knowledge of any such party’s (or its Affiliates’) officers, directors, shareholders, managers, members, partners, employees or agents. Notwithstanding anything herein to the contrary, the Selling Shareholders will not be liable with respect to any claim for the breach or inaccuracy of any representation or warranty pursuant to Section 10.02(a)(i), unless written notice of a claim thereof is delivered to the respective Shareholders Representative prior to the applicable Sellers Survival Date and a claim was filed, with respect to such claim, within six months from the date such written notice was delivered to the Shareholders Representative. For the purposes of this Agreement, the term "Sellers Survival Date", with respect to either the FIS Transaction or the IDIT Transaction, shall mean the date that is twelve (12) months after the respective Closing Date of the FIS Transaction or the IDIT Transaction, as applicable, except for the representations and warranties contained in Section 3.02 (Corporate Authorization), Section 3.05(b) (Non-Contravention), Section 3.06 (Capitalization), Section 4.02 (Authority; Binding Effect) and Section 4.03 (Non-Contravention), with respect to which the Sellers Survival Date shall be 36 months after the respective Closing Date (such representations and warranties are hereinafter referred to, collectively, as the "Sellers Fundamental Representations"). The parties agree that so long as written notice in accordance with the terms herein is given on or prior to the applicable Sellers Survival Date with respect to such claim and a claim is filed with the applicable court within six months from the applicable Sellers Survival Date, the representations and warranties with respect to such breach shall continue to survive until such matter is finally resolved.

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(b) Sellers Willful Breach; Intentional Misrepresentation; Fraud. Notwithstanding anything to the contrary contained in Section 10.01(a) in case of claims based upon willful breach, intentional misrepresentation or fraud, by a Selling Shareholder or any respective Representative of such Selling Shareholder (the liability for which shall be several and not joint) the Sellers Survival Date with respect to such claims shall be 36 months after the respective Closing Date.

(c) Purchaser’s and Parent's Representations. All representations, warranties, covenants and agreements of the Purchaser and Parent contained herein or in any Transaction Documents shall survive the execution and delivery of this Agreement or such Transaction Documents and the consummation of the transactions contemplated hereby and thereby, regardless of any investigation made by or on behalf of any party hereto or its Affiliates or the knowledge of any such party’s (or its Affiliates’) officers, directors, shareholders, managers, members, partners, employees or agents. Notwithstanding anything herein to the contrary, the Purchaser and Parent will not be liable with respect to any claim for the breach or inaccuracy of any representation or warranty pursuant to Section 10.03(a)(i), unless written notice of a claim thereof is delivered to the Purchaser prior to the applicable Purchaser Survival Date and a claim was filed, with respect to such claim, within six months from the date such written notice was delivered to the Purchaser. For the purposes of this Agreement, the term "Purchaser Survival Date" shall mean, with respect to each of the FIS Transaction and the IDIT Transaction, as applicable, the date that is twelve (12) months after the respective Closing Date, except for the representations and warranties contained in Section 5.02 (Corporate Authorization), Section 5.05(b) (Non-Contravention), and Section 5.06 (Capitalization), with respect to which the Purchaser Survival Date shall be the date which is 36 months after the respective Closing Date (the foregoing representations and warranties hereinafter referred to, collectively, as the "Purchaser Fundamental Representations"). The parties agree that so long as written notice in accordance with the terms herein is given on or prior to the applicable Purchaser Survival Date with respect to such claim and a claim is filed with the applicable court within six months from the applicable Purchaser Survival Date, the representations and warranties with respect to such breach shall continue to survive until such matter is finally resolved.

Section 10.02 Indemnification by Selling Shareholders.

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(a) Selling Shareholders Indemnification. The Selling Shareholders of each Company shall, severally and not jointly, indemnify the Purchaser and its Affiliates (including the respective Company in which they hold shares prior to the respective Closing) and each of their respective Representatives, successors and assigns (collectively, the "Purchaser Indemnified Parties") and hold each of them harmless from and against, and pay on behalf of or reimburse any such Purchaser Indemnified Party, in respect of the entirety of any Loss which such Purchaser Indemnified Party may suffer, sustain or become subject to, as a result of, arising out of, relating to or in connection with:

(i) any inaccuracy in or breach of any representation or warranty of (i) the respective Company in which the Selling Shareholders hold shares or (ii) of the Selling Shareholders of such Company (it being clarified that, with respect to clause (ii), each Selling Shareholder shall be liable only with respect to the representations and warranties made thereby) contained in this Agreement or in any Transaction Document: (i) as of the date of this Agreement and (ii) as of the respective Closing(in each of (i) and (ii) except in the case of any representation or warranty which by its terms speaks only as of a specified date or dates, in which case the inaccuracy or breach shall be determined as of such date or dates), in each case without giving effect to: (A) any limitation or qualification as to "materiality," "material," "Material Adverse Effect" or similar qualifiers set forth in such representation or warranty for purposes of determining whether there is a breach and the Losses resulting from, arising out of or relating to such breach; or (B) any update of or modification to the respective Company Disclosure Schedule made or purported to have been made on or after the date of this Agreement, unless such update or modification results from changes of facts between the date of this Agreement and the respective Closing Date which do not constitute a Material Adverse Effect as to the respective Company; provided that any inaccuracy in the representations made by any specific Selling Shareholder in Section 4.01 (Title to Company Shares) which was Known to the respective Company on the date hereof or on the date of the respective Closing shall not constitute, for the purpose of this Section 10.02(a)(i), also a basis for indemnification by all Selling Shareholders of the respective Company due to inaccuracy of the representations made by such Company in Section 3.06 (Capitalization), unless the Purchaser is not indemnified by the relevant Selling Shareholder to the fullest extent provided herein, after taking all necessary steps hereunder with respect to such right of indemnification. It is hereby agreed and clarified that prior to the relevant Closing, the relevant Company shall be allowed to notify the Purchaser or Parent as to changes in such Company's representation as of the respective Closing Date resulting from changes of facts between the date of this Agreement and the date of such respective Closing Date, and, provided that such changes shall not constitute a Material Adverse Effect as to the respective Company, the Purchaser and the Parent shall not be entitled to any indemnification due to such changes;

(ii) any breach of any covenant or obligation of the respective Company in which the Selling Shareholders hold shares or of the Selling Shareholders of such Company (each of whom shall be liable only with respect to the covenants and obligations of such Selling Shareholder) in this Agreement or in any other Transaction Document.

Notwithstanding the above, in the event of termination of this Agreement pursuant to Section 9.01 or Section 9.03, as applicable, the indemnifying party with respect to any breach of covenant or obligation of a Company contained in this Agreement or in any Transaction Document shall be such respective Company.

(b) IDIT Selling Shareholders Indemnification Cap. The maximum aggregate liability of each of the IDIT Selling Shareholders for Losses arising under Section 10.02(a) hereof, shall be limited to such Selling Shareholder's Participation Portion in the IDIT Escrow Deposit, excluding in the event of an inaccuracy in any of IDIT's and IDIT Selling Shareholders' Sellers Fundamental Representations, a breach of an IDIT Selling Shareholders obligation under Section 7.07, or in the event of willful breach, intentional misrepresentation or fraud by the respective IDIT Selling Shareholder in which cases the maximum aggregate liability of each of the IDIT Selling Shareholders for Losses arising under Section 10.02(a)  hereof, shall be limited to such Selling Shareholder's Participation Portion in the IDIT Aggregate Transaction Value. For the avoidance of doubt, the maximum aggregate liability of each of the IDIT Selling Shareholders for any Losses arising under this Agreement shall be such Selling Shareholder's Participation Portion in the IDIT Aggregate Transaction Value.

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(c) FIS Selling Shareholders Indemnification Cap. The maximum aggregate liability of each of the FIS Selling Shareholders for Losses arising under Section 10.02(a) hereof, shall be limited to such Selling Shareholder's Participation Portion in the FIS Escrow Deposit, excluding in the event of an inaccuracy in any of FIS' and FIS' Selling Shareholders' Sellers Fundamental Representations, a breach of an FIS Selling Shareholder obligation under Section 7.07, or in the event of willful breach, intentional misrepresentation or fraud by the respective FIS Selling Shareholder in which cases the maximum aggregate liability of each of the FIS Selling Shareholders for Losses arising under Section 10.02(a)  hereof, shall be limited to such Selling Shareholder's Participation Portion in the FIS Aggregate Transaction Value. For the avoidance of doubt, the maximum aggregate liability of each of the FIS Selling Shareholders for any Losses arising under this Agreement shall be such Selling Shareholder's Participation Portion in the FIS Aggregate Transaction Value.

(d) Selling Shareholders Basket. Notwithstanding anything herein to the contrary, no Purchaser Indemnified Party shall be entitled to indemnification in respect of any breach of a representation or warranty of a Company or either of its Selling Shareholders set forth herein unless and until all such breaches result in total Losses incurred by all Purchaser Indemnified Parties in an amount of at least 3% of the IDIT Aggregate Transaction Value, or 3% of the FIS Aggregate Transaction Value, as applicable, (the "Sellers Basket Amount"), in which case the Purchaser Indemnified Parties shall be entitled to the entire amount of Losses, including the respective Sellers Basket Amount. The foregoing limitation shall not apply (i) in the case of willful breach, intentional misrepresentation or fraud by any ofthe Selling Shareholders or the Companies and (ii) to inaccuracies in or breaches of any of the Sellers Fundamental Representations.

(e) Sole Remedy. After the respective Closing Date, the indemnity provisions of this Agreement shall be the sole and exclusive remedy of Purchaser for any Losses arising out of or related to this Agreement and the Transactions.

(f) Injunctive Relief; Specific Performance. Notwithstanding Section 10.02(e) above, in addition to the remedies provided in this Article X, injunctive relief may be obtained to enjoin the breach, or threatened breach, of any provision of this Agreement and each party shall be entitled to specific performance by the other party of its obligations hereunder or thereunder.

Section 10.03 Indemnification by Purchaser.

(a) Purchaser Indemnification. The Purchaser shall indemnify the Selling Shareholders and their Affiliates and each of their respective Representatives, successors and assigns (collectively, the "Selling Shareholders Indemnified Parties") (each of the Selling Shareholders Indemnified Parties and the Purchaser Indemnified Parties shall be referred to as an "Indemnified Party") and hold each of them harmless from and against, and pay on behalf of or reimburse any such Selling Shareholders Indemnified Party, in respect of the entirety of any Loss which such Selling Shareholders Indemnified Party may suffer, sustain or become subject to, as a result of, arising out of, relating to or in connection with:

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(i) any inaccuracy in or breach of any representation or warranty of Purchaser or Parent contained in this Agreement or in any Transaction Document: (i) as of the date of this Agreement and (ii) as of the respective Closing(in each of (i) and (ii) except in the case of any representation or warranty which by its terms speaks only as of a specified date or dates, in which case the inaccuracy or breach shall be determined as of such date or dates), in each case without giving effect to: (A) any limitation or qualification as to "materiality," "material," "Material Adverse Effect" or similar qualifiers set forth in such representation or warranty for purposes of determining whether there is a breach and the Losses resulting from, arising out of or relating to such breach or (B) any update of or modification to the Purchaser Disclosure Schedule made or purported to have been made on or after the date of this Agreement, unless such update or modification results from changes of facts between the date of this Agreement and the respective Closing Date which do not constitute a Material Adverse Effect as to the Parent, and except that changes to the authorized and issued share capital of Parent between the date hereof and the respective Closing Date may not be deemed as an inaccuracy or a breach of the representations and warranties contained in Section 5.06 (Capitalization). It is hereby agreed and clarified that prior to the relevant Closing, Purchaser shall be allowed to notify the respective Company as to changes in such Parent's or Purchaser's representation as of the respective Closing Date resulting from changes of facts between the date of this Agreement and the date of such respective Closing Date, and, provided that such changes shall not constitute a Material Adverse Effect as to the Parent, the Selling Shareholders of the respective Company shall not be entitled to any indemnification due to such changes; and

(ii) any breach of any covenant or obligation of the Purchaser or Parent in this Agreement or in any other Transaction Document.

(b) Purchaser Indemnification Cap. The maximum aggregate liability of Purchaser for Losses arising under Section 10.03(a) hereof to IDIT's Selling Shareholders Indemnified Parties, shall be limited to such number of common shares of Parent equal to 10% of the number of IDIT Consideration Shares, and the maximum aggregate liability of Purchaser for Losses arising under Section 10.03(a) hereof to the FIS Selling Shareholders Indemnified Parties, shall be limited to such number of common shares of Parent equal to 10% of the number of FIS Consideration Shares plus the number of common shares of Parent equal to 10% of the product of the Cash Consideration divided by the Parent Share Value, provided however, that the above limitation shall not apply to i) in the case of willful breach, intentional misrepresentation or fraud by Purchaser or Parent or any respective Representative of Purchaser or Parent; (ii) inaccuracies in or breaches of any of the Purchaser Fundamental Representations, with respect to each of (i) and (ii) the maximum aggregate liability for Losses arising under Section 10.03(a) hereof shall be limited to: with respect to Losses of IDIT Selling Shareholders Indemnified Parties, the IDIT Aggregate Transaction Value and with respect to Losses of FIS Selling Shareholders Indemnified Parties, the FIS Aggregate Transaction Value. For the avoidance of doubt, the maximum aggregate liability of the Purchaser for any Losses arising under this Agreement shall be the IDIT Aggregate Transaction Value or the FIS Aggregate Transaction Value, as applicable.

(c) Purchaser Indemnification Basket. Notwithstanding anything herein to the contrary, no Selling Shareholders Indemnified Party shall be entitled to indemnification in respect of any breach of a representation or warranty of Purchaser or Parent unless and until all such breaches result in total Losses incurred by the Selling Shareholders Indemnified Parties, in an amount of at least 3% of the IDIT Aggregate Transaction Value with respect to IDIT's Selling Shareholders Indemnified Parties and in an amount of at least 3% of the FIS Aggregate Transaction Value with respect to FIS Selling Shareholders Indemnified Parties (the "Purchaser Basket Amount"), in which case the Selling Shareholders Indemnified Parties shall be entitled to the entire amount of Losses, including the respective Purchaser Basket Amount. The foregoing limitation shall not apply (i) in the case of willful breach, intentional misrepresentation or fraud by the Purchaser or Parent and (ii) to inaccuracies in or breaches of any of the Purchaser Fundamental Representations.

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(d) Sole Remedy. After the respective Closing Date, the indemnity provisions of this Agreement shall be the sole and exclusive remedy of Selling Shareholders for any Losses arising out of or related to this Agreement and the Transactions.

Section 10.04 Claims and Procedures.

(a) Officer’s Claim Certificate. If any Indemnified Party has or claims to have incurred or suffered Losses for which it is or may be entitled to indemnification, compensation or reimbursement pursuant to this Article X from the Purchaser or any of the Selling Shareholders, as the case me be (each of the forgoing, an "Indemnifying Party"), Purchaser or the applicable Shareholders Representative, as the case may be, may deliver to the other party (and if any Purchaser's claim relates to a specific Selling Shareholder, also to such Selling Shareholder) (each delivering party shall be referred to as a "Delivering Party" and each receiving party shall be referred to as an "Addressee"), a certificate signed by any officer of the Delivering Party; provided, however that failure of the Delivering Party to give any such certificate will relieve the relevant Indemnifying Party of its indemnification obligations hereunder to the extent that it is delivered or claimed after the applicable Sellers Survival Date or the Purchaser Survival Date, as applicable (any certificate delivered in accordance with the provisions of this Section 10.04(a) is referred to as a "Officer’s Claim Certificate"):

(i) stating that an Indemnified Party believes that there is or may have been a breach of a representation, warranty or covenant contained in this Agreement and that such Indemnified Party is entitled to indemnification under this Article X;

(ii) containing the amount which such Indemnified Party claims to be entitled to receive as indemnification pursuant to this Article X (the aggregate amount of shares or cash claimed by such Indemnified Party being referred to as the "Claimed Amount"); and

(iii) containing a brief description (based upon the information then possessed by such Indemnified Party) of the material facts known to the Indemnified Party giving rise to such claim.

(b) Dispute Procedure. During the twenty (20) day period commencing upon the date that notice of an Officer’s Claim Certificate is given or deemed duly given pursuant to Section 12.08 below to an Addressee (the "Dispute Period"), the Addressee may deliver to the Delivering Party a written response (the "Response Notice") in which the Addressee: (i) agrees that the full Claimed Amount is owed to the Indemnified Party; (ii) agrees that part, but not all, of the Claimed Amount (the "Agreed Amount") is owed to the Indemnified Party; or (iii) indicates that no part of the Claimed Amount is owed to the Indemnified Party. Any part of the Claimed Amount that is not an Agreed Amount shall be referred to as a "Contested Amount". If a Response Notice is not duly given to the Delivering Party prior to the expiration of the Dispute Period, then the Addressee shall be conclusively deemed to have agreed that the full Claimed Amount is owed to the Indemnified Party.

(c) Payment of Claimed Amount. If: (a) the Addressee delivers a Response Notice agreeing that the full Claimed Amount or an Agreed Amount is owed to the Indemnified Party; or (b) the Addressee does not deliver a Response Notice during the Dispute Period, then, subject to the limitation of liability provisions contained herein, the following shall occur, subject to Section 10.04(f)

:

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(i) if the Indemnified Party is a Purchaser Indemnified Party, the Escrow Agent shall disburse to such Purchaser Indemnified Party the Claimed Amount or the Agreed Amount (and in the event of cash amount, through the Purchaser’s Account, as defined in the Escrow Agreement), as applicable, calculated pursuant Section 2.05(b) above, within five (5) Business Days following the end of the Dispute Period, out of the relevant Selling Shareholder's part in the respective Escrowed Funds; provided that with respect to any cash component that is deposited in the Escrowed Funds on behalf of a Selling Shareholder who is an Indemnifying Party, the Purchaser may instruct the Escrow Agent to release to the Purchaser first the cash component and then, if the cash component is lower than the Claimed Amount or the Agreed Amount, as applicable, the shares component of such Indemnifying Party's respective Escrowed Funds.

(ii) In the event of a Claimed Amount which was required due to a breach of a Sellers Fundamental Representation or due to willful breach, intentional misrepresentation or fraud by a Selling Shareholder- if the respective Escrowed Funds disbursed to Purchaser pursuant to Section 10.04(c)(i) shall not be sufficient to satisfy the Claimed Amount or the Agreed Amount, the relevant Selling Shareholder shall pay the Purchaser its respective Participation Portion of the excess of the Agreed Amount or Claimed Amount, as applicable, over the disbursed Escrowed Funds within three (3) calendar days following the end of the Dispute Period.

(iii) if the Indemnified Party is a Selling Shareholder Indemnified Party, the Purchaser shall pay such Indemnified Party the Agreed Amount or Claimed Amount, as applicable, within three (3) calendar days following the end of the Dispute Period.

(d) Resolution between the Parties. If the Addressee delivers a Response Notice indicating that there is a Contested Amount, the respective Shareholder Representative, or, in case of a dispute between Purchaser and specific Selling Shareholders, such specific Selling Shareholders, and the Purchaser shall attempt in good faith to resolve the dispute related to the Contested Amount. If the Purchaser and the respective Shareholders Representative or such Selling Shareholder, as applicable, resolve such dispute, such resolution shall be binding on the respective Shareholders Representative, the respective Selling Shareholders and the Purchaser and a settlement agreement stipulating the amount owed to the Indemnified Parties (the "Stipulated Amount") shall be signed by Purchaser and the respective Shareholders Representative or Selling Shareholder, as applicable, and the Stipulated Amount shall be disbursed pursuant to the terms of Section 10.04(c)

as if such amount was an Agreed Amount.

(e) Dispute Resolution. If the respective Shareholders Representative, or, in case of a dispute between Purchaser and a specific Selling Shareholder, such specific Selling Shareholder, and the Purchaser are unable to resolve the dispute relating to any Contested Amount within thirty (30) calendar days after the date that the Response Notice is given or is deemed duly given pursuant to Section 12.08 to the Addressee, then either the Purchaser or the respective Shareholders Representative, or specific Selling Shareholder, as applicable, may submit the claim described in the Officer’s Claim Certificate to arbitration to be conducted by a sole arbitrator and in accordance with the rules of the Israeli Arbitration Law - 1968 (the "Arbitration Law"), except as otherwise provided herein. The arbitration shall be conducted in Tel-Aviv, Israel or such other place mutually acceptable to the Purchaser and the respective Shareholders Representative or specific Selling Shareholder, as applicable. The arbitrator shall have the necessary expertise required in order to review the materials provided by the parties and shall have the necessary expertise in arbitrating commercial matters underlying the Contested Amount (the "Arbitrator") to be appointed by the respective Shareholders Representative, or specific Selling Shareholder, as applicable, and the Purchaser, and if no agreement is reached on the identity of the Arbitrator within ten (10) days following the submission of such dispute to arbitration, the identity of the Arbitrator will be determined by the President of the Israeli Bar Association. The parties to such dispute agree to use all reasonable efforts to cause the arbitration hearing to be conducted within sixty (60) days after the appointment of the Arbitrator and to use all reasonable efforts to cause the decision of the Arbitrator to be furnished within fifteen (15) days after the conclusion of the arbitration hearing. The Arbitrator’s authority shall be confined to: (i) deciding whether the Indemnified Party is entitled to recover the Contested Amount (or a portion thereof), and the portion of the Contested Amount the Indemnified Party is entitled to recover; and (ii) awarding expenses of the arbitration proceedings pursuant to this Section. The Arbitrator shall not be bound by procedural law or rules of evidence and shall have no authority to issue any injunctions, orders or other interlocutory remedies, but will rule consistent with the substantive law of the State of Israel. Pending the Arbitrator’s award, the costs and expenses of the Arbitrator shall be borne equally by Purchaser and the respective Shareholders Representative or specific Selling Shareholder, as applicable. The award of the Arbitrator shall be in writing, state the reasons upon which it is based, and shall be final and binding upon the parties. Any arbitration proceeding hereunder and the content of any discussions or communications with the Arbitrator shall be conducted on a confidential basis, shall be subject to such disclosure restrictions imposed on the parties under any Applicable Law and the Arbitrator shall be required to execute, prior to the commencement of its service, Purchaser’s standard confidentiality agreement. Any amount payable to an Indemnified Party according to a written decision of the Arbitrator shall be disbursed pursuant to the terms of Section 10.04(c) as if such amount was an Agreed Amount. 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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(f) Form of Payment. Notwithstanding anything to the contrary herein, any amount payable under this Article X may be paid with common shares of Parent (i.e., either (i) as forfeiture of such shares from the respective Escrowed Funds, with respect to an indemnification of any Purchaser Indemnified Party, or (ii) through the issuance by Parent of additional shares, with respect to an indemnification of any Selling Shareholders Indemnified Party) or, at the election of the Indemnifying Party, in cash; provided that the value of each common share of Parent for the purpose of calculating the amount of shares payable as indemnification in lieu of a cash payment shall be equal to the Parent Share Value and provided further that in the event that a cash payment hereunder to Purchaser in lieu of release of common shares from the respective Escrowed Funds, an amount of common shares of Parent equal to such cash payment calculated based on the Parent Share Value shall be released to the respective Selling Shareholders by the Escrow Agent from the respective Escrowed Funds. In the event that any amount payable by the Selling Shareholders under this Article X is paid with common shares of Parent released from the respective Escrowed Funds, or in the event that any part of the Parent's common shares held in the respective Escrowed Funds is replaced with cash, pursuant to this Agreement, the Parent shall deliver to the Transfer Agent, with a copy to the respective Shareholders Representatives, irrevocable written instructions to (i) issue in the name of the respective Selling Shareholders new certificates representing the new number of common shares of Parent to be held in escrow following such release or replacement of shares and to deliver such certificates to the Escrow Agent upon surrender and cancellation of the certificates held then by the Escrow Agent, and (ii) issue in the name of the Parent, or its designee, new certificates representing such number of common shares of Parent so released or replaced.

(g) Each indemnification claim made by an Indemnified Party shall be made only in accordance with this Article X and the respective Escrow Agreement.

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Section 10.05 Defense of Third-Party Claims.

In the event of the assertion or commencement by any Person of any Proceeding (whether against any of the Companies, the Purchaser or any other Person) with respect to which any Selling Shareholder may become obligated to hold harmless, indemnify, compensate or reimburse any Purchaser Indemnified Party pursuant to this Article X, then Purchaser shall have the right, at its election, to proceed with the defense of such Proceeding on its own. If Purchaser so proceeds with the defense of any such Proceeding:

(a) each Selling Shareholder shall make available to Purchaser any documents, materials and other information in his possession or control that may be necessary to the defense of such claim or Proceeding; and

(b) Purchaser shall have the right to settle, adjust or compromise such Proceeding; provided, however, that if Purchaser settles, adjusts or compromises any such Proceeding without the consent of the respective Shareholders Representative or specific Selling Shareholder, as applicable, such settlement, adjustment or compromise shall not be conclusive evidence of the amount of Losses incurred by the Purchaser Indemnified Party in connection with such Proceeding (it being understood that if Purchaser requests that such Shareholders Representative or Selling Shareholder consent to a settlement, adjustment or compromise, such consent shall not be unreasonably withheld, delayed or conditioned; provided that withholding, delaying or conditioning such consent will not be deemed to be unreasonable if such settlement, adjustment or compromise does not provide full release of the claims raised against the respective Selling Shareholders in such Proceeding).

Purchaser shall give the respective Shareholders Representative or such specific Selling Shareholder, as applicable, prompt notice of the commencement of any such Proceeding against Purchaser or any of the Companies and provide information reasonably requested by such Shareholders Representative or Selling Shareholder, as applicable, and not subject to attorney-client privilege of Purchaser or the Purchaser Indemnified Parties relating to such claim; provided, however, that any failure on the part of Purchaser to so notify such Shareholders Representative or Selling Shareholder, as applicable, and provide such information shall not limit any of the obligations of the respective Selling Shareholder(s) under Article X (except to the extent such failure materially prejudices the defense of such Proceeding). If Purchaser does not elect to proceed with the defense of any such claim or Proceeding, the respective Shareholders Representative or Selling Shareholder, as applicable, may proceed with the defense of such claim or Proceeding with counsel reasonably satisfactory to Purchaser; provided, however, that such Shareholders Representative or Selling Shareholder, as applicable, may not settle, adjust or compromise any such claim or Proceeding without the prior written consent of Purchaser (which consent may not be unreasonably withheld, delayed or conditioned, provided that withholding, delaying or conditioning such consent will not be deemed to be unreasonable if such settlement, adjustment or compromise does not provide full release of the claims raised against the Purchaser or the respective Company in such Proceeding).

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Section 10.06 No Contribution.

No Selling Shareholder shall have, or be entitled to exercise or assert (or attempt to exercise or assert), any right of contribution, right of indemnity or other right or remedy against the Companies in connection with any indemnification obligation or any other liability to which he may become subject under or in connection with this Agreement.

Section 10.07 Tax Impact.

The parties hereto agree to treat any indemnity payment made pursuant to this Article X as an adjustment to the IDIT Purchase Price (with respect to indemnification of any of IDIT's Selling Shareholders Indemnified Parties) or the FIS Purchase Price (with respect to indemnification of any of FIS' Selling Shareholders Indemnified Parties), as the case may be, for Tax purposes. Furthermore, the amount of any Losses claimed by an Indemnified Party pursuant to this Article X shall be reduced by (i) the value of any net tax benefit resulting from such Loss to the extent such net tax benefit is actually realized by the Indemnified Party or its Affiliates in or before the taxable year during which such indemnity payment is to be made and (ii) the amount of any insurance proceeds (net of Taxes) actually received by Indemnified Party related to such Losses.

Section 10.08 Additional Provisions.

(a) Effect of Due Diligence. The representations, warranties, covenants and obligations of an Indemnifying Party, and the rights and remedies that may be exercised by Indemnified Parties, shall not be limited or otherwise affected by or as a result of any information furnished to, or any investigation made by or knowledge of, any of the Indemnified Parties or any of their Representatives.

(b) Effect of Disclosure Schedules. For purposes of this Agreement, each statement or other item of information set forth in a Company Disclosure Schedule or Selling Shareholder Disclosure Schedule or the Purchaser Disclosure Schedule shall be deemed to be a representation and warranty made by such Company or Selling Shareholder or Purchaser or Parent, as applicable, in this Agreement.

Article XI
Shareholders Representative

Section 11.01 Appointment of Shareholders Representatives; Power and Authority.

(a) By virtue of the execution of this Agreement, each IDIT Selling Shareholder hereby irrevocably agrees, constitutes and appoints the IDIT Shareholders Representative and each FIS Selling Shareholder hereby irrevocably agrees, constitutes and appoints the FIS Shareholders Representative (and by the execution of this Agreement as Shareholders Representatives, the Shareholders Representatives hereby accepts their appointment) as the true, exclusive and lawful agent and attorney-in-fact of each of the respective Selling Shareholders to act: (i) as a Shareholders Representative under this Agreement and to have the right, power and authority to perform all actions (or refrain from taking any actions) the Shareholders Representatives shall be entitled to perform in accordance with this Agreement and the Transactions.

(b) Without derogating from the generality of the foregoing, as of the date hereof each Shareholders Representative shall have the right, power and authority to (and such actions shall be binding and enforceable upon the Selling Shareholders):

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(i) act for the respective Selling Shareholders represented by him with regard to all matters set forth in this Agreement;

(ii) execute and deliver all amendments, waivers, ancillary agreements, share powers, certificates and documents such the Shareholders Representative deems necessary or appropriate in connection with the consummation of the Transactions;

(iii) receive funds for the payment of expenses of the respective Selling Shareholders represented thereby and apply such funds in payment for such expenses;

(iv) do or refrain from doing any further act or deed on behalf of the respective Selling Shareholders represented by him that such Shareholders Representative deems necessary or appropriate in its sole discretion relating to the subject matter of this Agreement as fully and completely as such Selling Shareholders could do if personally present;

(v) receive all notices or other documents given or to be given to such Shareholders Representative by Purchaser pursuant to this Agreement;

(vi) in the event of a claim against all the Company Selling Shareholders -negotiate, undertake, compromise, defend, resolve and settle any suit, Proceeding, claim or dispute under this Agreement on behalf of the respective Selling Shareholders represented by him;

(vii) engage special counsel, accountants and other advisors and incur such other expenses in connection with any of the transactions contemplated by this Agreement;

(c) The Shareholders Representatives may be removed or replaced only upon delivery of written notice to the Purchaser by the respective Selling Shareholders holding at least a majority of the outstanding IDIT Shares or FIS Shares, as applicable, as of the respective Closing. Upon the death, disability or incapacity of any Shareholders Representative, each of the respective Selling Shareholders represented by him acknowledges and agrees that the new Shareholders Representative shall be appointed by the Selling Shareholders who held a majority of the outstanding shares of the respective Company immediately prior to the respective Closing. Each Shareholders Representative may resign at any time only upon a thirty (30) days’ prior written notice of such decision to resign and the appointment of a successor Shareholders Representative as described above. The Shareholders Representatives shall not receive compensation for serving in such capacity. Purchaser, the Companies and any other Person may conclusively and absolutely rely, without inquiry, upon any action of the Shareholders Representatives in all matters referred to herein. The Purchaser and Parent are hereby relieved from any liability to any Person for any acts done by the Shareholders Representatives and any acts done by Purchaser or Parent in accordance with any decision, act, consent or instruction of the Shareholders Representatives.

Section 11.02 Reimbursement.

The Selling Shareholders shall be responsible for and shall, jointly and severally, reimburse the respective Shareholders Representatives upon demand for all reasonable expenses, disbursements and advances incurred or made by such Shareholders Representative in accordance with any of the provisions of this Agreement or any other documents executed in connection herewith or therewith, including the costs and expense of receiving advice of counsel in relation to this Agreement.

Section 11.03 Release from Liability; Indemnification.

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Each Selling Shareholder hereby releases the respective Shareholders Representative and each Selling Shareholder agrees, jointly and severally with the other respective Selling Shareholders holding the same Companies Shares, to indemnify, defend and hold harmless the respective Shareholders Representative (including any Losses incurred, as such Losses are incurred) for, arising out of or in connection with the acceptance or administration of the respective Shareholders Representative’s duties hereunder or any action taken or not taken by him, her or it in his, her or its capacity as such agent (including the legal costs and expenses of defending such Shareholders Representative against any claim or liability (and all actions, claims, proceedings and investigations in respect thereof) in connection with, caused by or arising out of, directly or indirectly, the performance of such Shareholders Representative’s duties hereunder), except for the liability of such Shareholders Representative, or any member thereof, to a Selling Shareholder for Loss which such holder will suffer from the willful misconduct of such Shareholders Representative in carrying out his, her or its duties hereunder. In all questions arising under this Agreement, the Shareholders Representatives may rely on the advice of counsel, and the Shareholders Representatives will not be liable to the Selling Shareholders for anything done, omitted or suffered by the Shareholders Representatives based on such advice.

Article XII
Miscellaneous

Section 12.01 Entire Agreement.

This Agreement (together with its Exhibits and Schedules hereto), the Transaction Documents and the Nondisclosure Agreement constitute the entire agreement between the parties with respect to the subject matter of this Agreement and supersede all prior agreements and understandings, both oral and written, between the parties with respect to the subject matter of this Agreement (including without limitation any prior proposal, term sheet or expression of interest).

Section 12.02 Amendments and Waivers.

(a) 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 Purchaser, Parent and each of the Companies that is affected thereby (or, if effected after the respective Closing, (i) the Shareholder Representative of the Selling Shareholders of such affected Company (post-Closing) and (ii) Selling Shareholders of such affected Company (pre-Closing) that held, as of the respective Closing, 70% of the voting rights in such affected Company; provided, however, that any amendment, modification, alteration or supplement which amends the rights of and Selling Shareholder adversely disproportionately compared tothe rights of the other Selling Shareholders of the same respective Company, shall require, in addition to the above, also the written consent of such Selling Shareholder. Any amendment executed in accordance with the foregoing shall be binding upon all parties (including the other, non-consenting Selling Shareholders) and their respective successors and assigns.

(b) No failure on the part of any Person to exercise any power, right, privilege or remedy under this Agreement, and no delay on the part of any Person in exercising any power, right, privilege or remedy under this Agreement, shall operate as a waiver of such power, right, privilege or remedy; and no single or partial exercise of any such power, right, privilege or remedy shall preclude any other or further exercise thereof or of any other power, right, privilege or remedy. No Person shall be deemed to have waived any claim arising out of this Agreement, or any power, right, privilege or remedy under this Agreement, unless the waiver of such claim, power, right, privilege or remedy is expressly set forth in a written instrument duly executed and delivered on behalf of such Person; and any such waiver shall not be applicable or have any effect except in the specific instance in which it is given.

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Section 12.03 Binding Effect; Benefit; Assignment.

(a) The provisions of this Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns. This Agreement is not intended to confer any rights, benefits, remedies, obligations or liabilities hereunder upon any Person, other than the parties hereto and their respective successors and assigns.

(b) No party may assign, delegate or otherwise transfer any of its rights or obligations under this Agreement without the consent of each other party hereto.

Section 12.04 Construction.

The parties have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement will be construed as if drafted jointly by the parties and no presumption or burden of proof will arise favoring or disfavoring any party by virtue of the authorship of any of the provisions of this Agreement. The parties intend that each representation, warranty and covenant contained herein will have independent significance. If any party has breached or violated, or if there is an inaccuracy in, any representation, warranty or covenant contained herein in any respect, the fact that there exists another representation, warranty or covenant relating to the same subject matter (regardless of the relative levels of specificity) which the party has not breached or violated, or in respect of which there is no inaccuracy, will not detract from or mitigate the fact that the party has breached or violated, or there is an inaccuracy in, the first representation, warranty or covenant.

Section 12.05 Headings.

The headings contained in this Agreement and in the schedules and exhibits hereto are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.

Section 12.06 Governing Law.

This Agreement shall be governed by and construed in accordance with the laws of the State of Israel, without giving effect to principles of conflicts of laws that would require the application of the laws of any other jurisdiction.

Section 12.07 Jurisdiction.

Except with respect to the proceedings referred in Section 10.04(e), the parties hereto agree that any Proceeding seeking to enforce any provision of, or based on any matter arising out of or in connection with, this Agreement or the Transactions shall be brought before the competent courts in Tel Aviv-Jaffa, Israel and each of the parties hereby irrevocably consents to the jurisdiction of such courts (and of the appropriate appellate courts therefrom) in any such Proceeding and irrevocably waives, to the fullest extent permitted by law, any objection that it may now or hereafter have to the laying of the venue of any such Proceeding in any such court or that any such Proceeding brought in any such court has been brought in an inconvenient forum. Process in any such Proceeding may be served on any party anywhere in the world, whether within or outside the jurisdiction of any such court. Without limiting the foregoing, each party agrees that service of process to such party’s address set forth in Section 12.08 below shall be deemed effective service of process on such party.

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Section 12.08 Notices.

All notices, requests and other communications required or permitted under, or otherwise made in connection with, this Agreement, shall be in writing and shall be deemed to have been duly given (a) when delivered in person, (b) upon electronic confirmation of full receipt when transmitted by facsimile transmission or by electronic mail (but, in the case of electronic mail, only if followed by transmittal by national overnight courier or by hand for delivery on the next Business Day) or (if transmitted and received on a non-Business Day) on the first Business Day following transmission and electronic confirmation of full receipt, (c) upon receipt after dispatch by registered or certified mail, postage prepaid or (d) on the next Business Day if transmitted by national overnight courier (with confirmation of delivery), in each case, addressed as follows:

if to Purchaser or Parent, to:

Sapiens International Corporation N.V./Sapiens Technologies (1982) Ltd.

Rabin Science Park

P.O. Box 4011

Nes Ziona 74140, Israel

Attention: CEO

Telephone No.: 972 – 8 - 9382721

Facsimile No.: 972 – 8 - 9382730

E-mail: roni.g@sapiens.com and roni.a@sapiens.com

with a copy (which shall not constitute notice) to:

Meitar, Liquornik, Geva & Leshem Brandwein

16 Abba Hillel Silver Rd., Ramat Gan 52506, Israel

Attention: Dan Shamgar, Advocate and Mike Rimon, Advocate

Telephone No.: +972-3-6103100

Facsimile No.: +972-3-6103111

E-mail: dshamgar@meitar.com; mrimon@meitar.com

if to IDIT prior to the IDIT Closing Date, to:

IDIT I.D.I. Technologies Ltd.

Menachem Begin 5, Tel-Aviv, 50200

Attention: Mr. Yoel Amir

Telephone No.: 972 – 3 -6250922

Facsimile No.: 972 – 3 - 5621959

E-mail: yoela@idit.co.il

with a copy (which shall not constitute notice) to:

Furth, Wilensky, Mizrachi, Knaani – Law Offices

1 Azrieli Tower (41^st Floor), Tel – Aviv, 67021

Attention: Udi Knaani, Advocate

Telephone No: +972 – 3 – 6070800

Fax No: +972 – 3 – 6097797

E-mail: udi@fwmk-law.co.il

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if to FIS prior to the FIS Closing Date, to:

FIS Software Ltd.

Ha'Yarden 1 Air Port City, Lod, 70151

Attention: Mr. Shay Alon

Telephone No.: 972 – 73 - 2608200

Facsimile No.: 972 – 73 - 2608205

E-mail: SAlon@fis-software.com

with a copy (which shall not constitute notice) to:

Prof. Yuval Levy & Co.

Attention: Tomer Maharshak, Advocate

Telephone No.: 972 – 3 - 5172303

Facsimile No.: 972 – 3 - 5164185

E-mail: tmaharshak@yuvalaw.co.il

And:

Furth, Wilensky, Mizrachi, Knaani – Law Offices

1 Azrieli Tower (41^st Floor), Tel – Aviv, 67021

Attention: Udi Knaani, Advocate

Telephone No: +972 – 3 – 6070800

Fax No: +972 – 3 – 6097797

E-mail: udi@fwmk-law.co.il

if to the IDIT Shareholders Representative and to any IDIT Selling Shareholder, to:

Kardan Communications Ltd.

154 Menachem Begin Rd.
Tel Aviv, 64921

Attention: Mr. Amit Ben Yehuda

Telephone No.: 972 – 3 – 6083444

Facsimile No.: 972 – 3 - 6083434

E-mail: amit@kardan.com

with a copy (which shall not constitute notice) to:

Furth, Wilensky, Mizrachi, Knaani – Law Offices

1 Azrieli Tower (41^st Floor), Tel – Aviv, 67021

Attention: Udi Knaani, Advocate

Telephone No: +972 – 3 – 6070800

Fax No: +972 – 3 – 6097797

E-mail: udi@fwmk-law.co.il

111

Execution Copy

if to the FIS Shareholders Representative and to any FIS Selling Shareholder, to:

Dani Goldstein

Telephone No.: 972 - 3 - 7343100

Facsimile No.: 972-3 – 7367770

E-mail: danig@formulavision.com

With a copy (which shall not constitute notice) to:

Prof. Yuval Levy & Co.

Attention: Tomer Maharshak, Advocate

Telephone No.: 972 – 3 - 5172303

Facsimile No.: 972 – 3 - 5164185

E-mail: tmaharshak@yuvalaw.co.il

And:

Furth, Wilensky, Mizrachi, Knaani – Law Offices

1 Azrieli Tower (41^st Floor), Tel – Aviv, 67021

Attention: Udi Knaani, Advocate

Telephone No: +972 – 3 – 6070800

Fax No: +972 – 3 – 6097797

E-mail: udi@fwmk-law.co.il

And:

Amit, Pollak, Matalon & Co.

Nitsba Tower, 19^th Floor

17 Yitzhak Sade St.,

Tel Aviv 67775

Attention: Ian Rostowsky, Adv.

Facsimile No.: 972-3-5689001

E-mail: ian_ro@apm-law.com

or to such other address, facsimile number or electronic mail as such party may hereafter specify for the purpose by notice to the other parties hereto in accordance with this Section 12.08

.

Section 12.09 Severability.

If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction or other Governmental Authority to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated so long as the economic or legal substance of the Transactions is not affected in any manner materially adverse to any party. Upon such determination, the parties shall negotiate in good faith to modify this Agreement so as to affect the original intent of the parties as closely as possible in an acceptable manner in order that the Transactions be consummated as originally contemplated to the fullest extent possible.

112

Execution Copy

Section 12.10 Specific Performance.

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 that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement or to enforce specifically the performance of the terms and provisions of this Agreement in addition to any other remedy to which they are entitled under this Agreement.

Section 12.11 Expenses.

(a) In the event that any of the Transactions is not consummated, each party to such respective Transaction shall bear its own respective costs and expenses incurred in connection with this Agreement, including all third-party legal, accounting, financial advisory, consulting or other fees and expenses incurred in connection with the respective Transaction.

(b) In the event that a respective Transaction is consummated, and except as otherwise set forth in this Agreement, all costs and expenses incurred by the parties to such Transaction in connection with this Agreement, including all third-party legal, accounting, financial advisory, consulting or other fees and expenses incurred in connection with such Transaction, as set forth on Schedule D shall be paid by the respective Companies and/or the Purchaser. The Purchaser shall also pay all costs and expenses associated with the services of the Escrow Agent. Notwithstanding the above, any and all amounts payable to Companies' employees, consultants, or other service providers in connection with the consummation of any of the Transactions will be paid solely by the respective Company.

Section 12.12 Disclosure Schedule References.

The parties hereto agree that any reference in a particular Section of any Company Disclosure Schedule or a Selling Shareholder Disclosure Schedule or Purchaser Disclosure Schedule shall only be deemed to be an exception to (or, as applicable, a disclosure for purposes of) the representations and warranties (or covenants, as applicable) of the relevant party that are contained in the corresponding Section of this Agreement and any other section of this Agreement where such reference to such other section is reasonably apparent from such reference.

Section 12.13 Counterparts; Effectiveness.

This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Agreement shall become effective when each party hereto shall have received a counterpart hereof signed by all of the other parties hereto. Until and unless each party has received a counterpart hereof signed by the other party hereto, this Agreement shall have no effect and no party shall have any right or obligation hereunder (whether by virtue of any other oral or written agreement or other communication). The exchange of a fully executed Agreement (in counterparts or otherwise) by electronic transmission in .PDF format or by facsimile shall be sufficient to bind the parties to the terms and conditions of this Agreement.

[Signature Page Follows]

113

Execution Copy

IN WITNESS WHEREOF, the parties hereto have executed this SHARE PURCHASE AGREEMENT as of the date first written above.

Sapiens International Corporation N.V.

By:                                                                                  

Name:

Title:

SAPIENS TECHNOLOGIES (1982) ltd.

By:                                                                                  

Name:

Title:

idit i.d.i. technologies ltd.

By:                                                                                  

Name:

Title:

FIS SOFTWARE LTD.

By:                                                                                  

Name:

Title:

IDIT SHAREHOLDERS REPRESENTATIVE:

Mr. Amit Ben Yehuda

[Signature Page to Share Purchase Agreement]

Execution Copy

IN WITNESS WHEREOF, the parties hereto have executed this SHARE PURCHASE AGREEMENT as of the date first written above.

Formula Vision Portfolio Holdings, Limited
Partnership (a partnership of Kardan and
Formula Vision).

By: ________________________________

Please check one of the following two boxes:

 o I am a Regulation D Investor (as referred to in Section 4.08 of the Agreement); or

o I am a Regulation S Investor (as referred to in Section 4.08 of the Agreement).

o I (i) am a U.S. Person (as referred to in Section 4.08 of the Agreement), (ii) am not a Regulation D Investor, (iii) meet the sophistication requirements for a private placement under Regulation D or alternatively have obtained a purchaser representative that meets such sophistication requirements and (iv) have been provided with offering materials that satisfy the informational requirements of Regulation D.

Please check the following box if relevant to you:

o I am "investor" under Section 15(A)(b)(1) of the Israeli Securities Law.

[Signature Page to Share Purchase Agreement]

Execution Copy

IN WITNESS WHEREOF, the parties hereto have executed this SHARE PURCHASE AGREEMENT as of the date first written above.

Formula Vision Technologies (F.V.T.) Ltd.

By: ________________________________

Please check one of the following two boxes:

 o I am a Regulation D Investor (as referred to in Section 4.08 of the Agreement); or

o I am a Regulation S Investor (as referred to in Section 4.08 of the Agreement).

o I (i) am a U.S. Person (as referred to in Section 4.08 of the Agreement), (ii) am not a Regulation D Investor, (iii) meet the sophistication requirements for a private placement under Regulation D or alternatively have obtained a purchaser representative that meets such sophistication requirements and (iv) have been provided with offering materials that satisfy the informational requirements of Regulation D.

Please check the following box if relevant to you:

o I am "investor" under Section 15(A)(b)(1) of the Israeli Securities Law.

[Signature Page to Share Purchase Agreement]

Execution Copy

IN WITNESS WHEREOF, the parties hereto have executed this SHARE PURCHASE AGREEMENT as of the date first written above.

Fahn Kanne Trust Ltd. (trustee for Sagi Schlisser).

By: ________________________________

Please check one of the following two boxes:

 o I am a Regulation D Investor (as referred to in Section 4.08 of the Agreement); or

o I am a Regulation S Investor (as referred to in Section 4.08 of the Agreement).

o I (i) am a U.S. Person (as referred to in Section 4.08 of the Agreement), (ii) am not a Regulation D Investor, (iii) meet the sophistication requirements for a private placement under Regulation D or alternatively have obtained a purchaser representative that meets such sophistication requirements and (iv) have been provided with offering materials that satisfy the informational requirements of Regulation D.

Please check the following box if relevant to you:

o I am "investor" under Section 15(A)(b)(1) of the Israeli Securities Law.

[Signature Page to Share Purchase Agreement]

Execution Copy

IN WITNESS WHEREOF, the parties hereto have executed this SHARE PURCHASE AGREEMENT as of the date first written above.

GoldRock Israel Growth, L.P.

By: ________________________________

Please check one of the following two boxes:

 o I am a Regulation D Investor (as referred to in Section 4.08 of the Agreement); or

o I am a Regulation S Investor (as referred to in Section 4.08 of the Agreement).

o I (i) am a U.S. Person (as referred to in Section 4.08 of the Agreement), (ii) am not a Regulation D Investor, (iii) meet the sophistication requirements for a private placement under Regulation D or alternatively have obtained a purchaser representative that meets such sophistication requirements and (iv) have been provided with offering materials that satisfy the informational requirements of Regulation D.

Please check the following box if relevant to you:

o I am "investor" under Section 15(A)(b)(1) of the Israeli Securities Law.

[Signature Page to Share Purchase Agreement]

Execution Copy

IN WITNESS WHEREOF, the parties hereto have executed this SHARE PURCHASE AGREEMENT as of the date first written above.

FIS SHAREHOLDERS REPRESENTATIVE:

Mr. Dani Goldstien

[Signature Page to Share Purchase Agreement]

Execution Copy

IN WITNESS WHEREOF, the parties hereto have executed this SHARE PURCHASE AGREEMENT as of the date first written above.

Eureka Ventures Partners I Ltd.

By: ________________________________

Please check one of the following two boxes:

 o I am a Regulation D Investor (as referred to in Section 4.08 of the Agreement); or

o I am a Regulation S Investor (as referred to in Section 4.08 of the Agreement).

o I (i) am a U.S. Person (as referred to in Section 4.08 of the Agreement), (ii) am not a Regulation D Investor, (iii) meet the sophistication requirements for a private placement under Regulation D or alternatively have obtained a purchaser representative that meets such sophistication requirements and (iv) have been provided with offering materials that satisfy the informational requirements of Regulation D.

Please check the following box if relevant to you:

o I am "investor" under Section 15(A)(b)(1) of the Israeli Securities Law.

[Signature Page to Share Purchase Agreement]

Execution Copy 

IN WITNESS WHEREOF, the parties hereto have executed this SHARE PURCHASE AGREEMENT as of the date first written above.

Eyal Hakner

By: ________________________________

Please check one of the following two boxes:

 o I am a Regulation D Investor (as referred to in Section 4.08 of the Agreement); or

o I am a Regulation S Investor (as referred to in Section 4.08 of the Agreement).

o I (i) am a U.S. Person (as referred to in Section 4.08 of the Agreement), (ii) am not a Regulation D Investor, (iii) meet the sophistication requirements for a private placement under Regulation D or alternatively have obtained a purchaser representative that meets such sophistication requirements and (iv) have been provided with offering materials that satisfy the informational requirements of Regulation D.

Please check the following box if relevant to you:

o I am "investor" under Section 15(A)(b)(1) of the Israeli Securities Law.

[Signature Page to Share Purchase Agreement]

Execution Copy 

IN WITNESS WHEREOF, the parties hereto have executed this SHARE PURCHASE AGREEMENT as of the date first written above.

Formula Ventures Ltd.

By: ________________________________

Please check one of the following two boxes:

 o I am a Regulation D Investor (as referred to in Section 4.08 of the Agreement); or

o I am a Regulation S Investor (as referred to in Section 4.08 of the Agreement).

o I (i) am a U.S. Person (as referred to in Section 4.08 of the Agreement), (ii) am not a Regulation D Investor, (iii) meet the sophistication requirements for a private placement under Regulation D or alternatively have obtained a purchaser representative that meets such sophistication requirements and (iv) have been provided with offering materials that satisfy the informational requirements of Regulation D.

Please check the following box if relevant to you:

o I am "investor" under Section 15(A)(b)(1) of the Israeli Securities Law.

[Signature Page to Share Purchase Agreement]

Execution Copy 

IN WITNESS WHEREOF, the parties hereto have executed this SHARE PURCHASE AGREEMENT as of the date first written above.

Formula Vision Portfolio Holdings Limited Partnership

By: ________________________________

Please check one of the following two boxes:

o I am a Regulation D Investor (as referred to in Section 4.08 of the Agreement); or

o I am a Regulation S Investor (as referred to in Section 4.08 of the Agreement).

o I (i) am a U.S. Person (as referred to in Section 4.08 of the Agreement), (ii) am not a Regulation D Investor, (iii) meet the sophistication requirements for a private placement under Regulation D or alternatively have obtained a purchaser representative that meets such sophistication requirements and (iv) have been provided with offering materials that satisfy the informational requirements of Regulation D.

Please check the following box if relevant to you:

o I am "investor" under Section 15(A)(b)(1) of the Israeli Securities Law.

[Signature Page to Share Purchase Agreement]

Execution Copy 

IN WITNESS WHEREOF, the parties hereto have executed this SHARE PURCHASE AGREEMENT as of the date first written above.

Genesis Partners II (Israel) L.P.

By: ________________________________

Please check one of the following two boxes:

 o I am a Regulation D Investor (as referred to in Section 4.08 of the Agreement); or

o I am a Regulation S Investor (as referred to in Section 4.08 of the Agreement).

o I (i) am a U.S. Person (as referred to in Section 4.08 of the Agreement), (ii) am not a Regulation D Investor, (iii) meet the sophistication requirements for a private placement under Regulation D or alternatively have obtained a purchaser representative that meets such sophistication requirements and (iv) have been provided with offering materials that satisfy the informational requirements of Regulation D.

Please check the following box if relevant to you:

o I am "investor" under Section 15(A)(b)(1) of the Israeli Securities Law.

[Signature Page to Share Purchase Agreement]

Execution Copy 

IN WITNESS WHEREOF, the parties hereto have executed this SHARE PURCHASE AGREEMENT as of the date first written above.

Genesis Partners II, L.D.C.

By: ________________________________

Please check one of the following two boxes:

 o I am a Regulation D Investor (as referred to in Section 4.08 of the Agreement); or

o I am a Regulation S Investor (as referred to in Section 4.08 of the Agreement).

o I (i) am a U.S. Person (as referred to in Section 4.08 of the Agreement), (ii) am not a Regulation D Investor, (iii) meet the sophistication requirements for a private placement under Regulation D or alternatively have obtained a purchaser representative that meets such sophistication requirements and (iv) have been provided with offering materials that satisfy the informational requirements of Regulation D.

Please check the following box if relevant to you:

o I am "investor" under Section 15(A)(b)(1) of the Israeli Securities Law.

[Signature Page to Share Purchase Agreement]

Execution Copy 

IN WITNESS WHEREOF, the parties hereto have executed this SHARE PURCHASE AGREEMENT as of the date first written above.

Giza Alpinvest Venture Fund III, LLC.

By: ________________________________

Please check one of the following two boxes:

 o I am a Regulation D Investor (as referred to in Section 4.08 of the Agreement); or

o I am a Regulation S Investor (as referred to in Section 4.08 of the Agreement).

o I (i) am a U.S. Person (as referred to in Section 4.08 of the Agreement), (ii) am not a Regulation D Investor, (iii) meet the sophistication requirements for a private placement under Regulation D or alternatively have obtained a purchaser representative that meets such sophistication requirements and (iv) have been provided with offering materials that satisfy the informational requirements of Regulation D.

Please check the following box if relevant to you:

o I am "investor" under Section 15(A)(b)(1) of the Israeli Securities Law.

[Signature Page to Share Purchase Agreement]

Execution Copy

IN WITNESS WHEREOF, the parties hereto have executed this SHARE PURCHASE AGREEMENT as of the date first written above.

Giza Executive Venture Fund III, LLC.

By: ________________________________

Please check one of the following two boxes:

 o I am a Regulation D Investor (as referred to in Section 4.08 of the Agreement); or

o I am a Regulation S Investor (as referred to in Section 4.08 of the Agreement).

o I (i) am a U.S. Person (as referred to in Section 4.08 of the Agreement), (ii) am not a Regulation D Investor, (iii) meet the sophistication requirements for a private placement under Regulation D or alternatively have obtained a purchaser representative that meets such sophistication requirements and (iv) have been provided with offering materials that satisfy the informational requirements of Regulation D.

Please check the following box if relevant to you:

o I am "investor" under Section 15(A)(b)(1) of the Israeli Securities Law.

[Signature Page to Share Purchase Agreement]

Execution Copy

IN WITNESS WHEREOF, the parties hereto have executed this SHARE PURCHASE AGREEMENT as of the date first written above.

Giza GE Venture Fund III, LLC.

By: ________________________________

Please check one of the following two boxes:

 o I am a Regulation D Investor (as referred to in Section 4.08 of the Agreement); or

o I am a Regulation S Investor (as referred to in Section 4.08 of the Agreement).

o I (i) am a U.S. Person (as referred to in Section 4.08 of the Agreement), (ii) am not a Regulation D Investor, (iii) meet the sophistication requirements for a private placement under Regulation D or alternatively have obtained a purchaser representative that meets such sophistication requirements and (iv) have been provided with offering materials that satisfy the informational requirements of Regulation D.

Please check the following box if relevant to you:

o I am "investor" under Section 15(A)(b)(1) of the Israeli Securities Law.

 [Signature Page to Share Purchase Agreement]

Execution Copy 

IN WITNESS WHEREOF, the parties hereto have executed this SHARE PURCHASE AGREEMENT as of the date first written above.

Giza Gmulot Venture Fund III Limited Partnership.

By: ________________________________

Please check one of the following two boxes:

 o I am a Regulation D Investor (as referred to in Section 4.08 of the Agreement); or

o I am a Regulation S Investor (as referred to in Section 4.08 of the Agreement).

o I (i) am a U.S. Person (as referred to in Section 4.08 of the Agreement), (ii) am not a Regulation D Investor, (iii) meet the sophistication requirements for a private placement under Regulation D or alternatively have obtained a purchaser representative that meets such sophistication requirements and (iv) have been provided with offering materials that satisfy the informational requirements of Regulation D.

Please check the following box if relevant to you:

o I am "investor" under Section 15(A)(b)(1) of the Israeli Securities Law.

 [Signature Page to Share Purchase Agreement]

Execution Copy

IN WITNESS WHEREOF, the parties hereto have executed this SHARE PURCHASE AGREEMENT as of the date first written above.

Giza Venture Fund III Limited Partnership.

By: ________________________________

Please check one of the following two boxes:

 o I am a Regulation D Investor (as referred to in Section 4.08 of the Agreement); or

o I am a Regulation S Investor (as referred to in Section 4.08 of the Agreement).

o I (i) am a U.S. Person (as referred to in Section 4.08 of the Agreement), (ii) am not a Regulation D Investor, (iii) meet the sophistication requirements for a private placement under Regulation D or alternatively have obtained a purchaser representative that meets such sophistication requirements and (iv) have been provided with offering materials that satisfy the informational requirements of Regulation D.

Please check the following box if relevant to you:

o I am "investor" under Section 15(A)(b)(1) of the Israeli Securities Law.

 [Signature Page to Share Purchase Agreement]

Execution Copy 

IN WITNESS WHEREOF, the parties hereto have executed this SHARE PURCHASE AGREEMENT as of the date first written above.

Mizrahi Tefahot Trust Company Ltd (in trust).

By: ________________________________

Please check one of the following two boxes:

o I am a Regulation D Investor (as referred to in Section 4.08 of the Agreement); or

o I am a Regulation S Investor (as referred to in Section 4.08 of the Agreement).

o I (i) am a U.S. Person (as referred to in Section 4.08 of the Agreement), (ii) am not a Regulation D Investor, (iii) meet the sophistication requirements for a private placement under Regulation D or alternatively have obtained a purchaser representative that meets such sophistication requirements and (iv) have been provided with offering materials that satisfy the informational requirements of Regulation D.

Please check the following box if relevant to you:

o I am "investor" under Section 15(A)(b)(1) of the Israeli Securities Law.

 [Signature Page to Share Purchase Agreement]

Execution Copy 

IN WITNESS WHEREOF, the parties hereto have executed this SHARE PURCHASE AGREEMENT as of the date first written above.

Schwartz, Lerner, Duvshani Trustees (2003).

By: ________________________________

Please check one of the following two boxes:

 o I am a Regulation D Investor (as referred to in Section 4.08 of the Agreement); or

o I am a Regulation S Investor (as referred to in Section 4.08 of the Agreement).

o I (i) am a U.S. Person (as referred to in Section 4.08 of the Agreement), (ii) am not a Regulation D Investor, (iii) meet the sophistication requirements for a private placement under Regulation D or alternatively have obtained a purchaser representative that meets such sophistication requirements and (iv) have been provided with offering materials that satisfy the informational requirements of Regulation D.

Please check the following box if relevant to you:

o I am "investor" under Section 15(A)(b)(1) of the Israeli Securities Law.

 [Signature Page to Share Purchase Agreement]

Execution Copy 

IN WITNESS WHEREOF, the parties hereto have executed this SHARE PURCHASE AGREEMENT as of the date first written above.

Vintage Venture Partners (Israel) LP.

By: ________________________________

Please check one of the following two boxes:

o I am a Regulation D Investor (as referred to in Section 4.08 of the Agreement); or

o I am a Regulation S Investor (as referred to in Section 4.08 of the Agreement).

o I (i) am a U.S. Person (as referred to in Section 4.08 of the Agreement), (ii) am not a Regulation D Investor, (iii) meet the sophistication requirements for a private placement under Regulation D or alternatively have obtained a purchaser representative that meets such sophistication requirements and (iv) have been provided with offering materials that satisfy the informational requirements of Regulation D.

Please check the following box if relevant to you:

o I am "investor" under Section 15(A)(b)(1) of the Israeli Securities Law.

 [Signature Page to Share Purchase Agreement]

Execution Copy

IN WITNESS WHEREOF, the parties hereto have executed this SHARE PURCHASE AGREEMENT as of the date first written above.

Vintage Venture Partners (Parallel) LP.

By: ________________________________

Please check one of the following two boxes:

o I am a Regulation D Investor (as referred to in Section 4.08 of the Agreement); or

o I am a Regulation S Investor (as referred to in Section 4.08 of the Agreement).

o I (i) am a U.S. Person (as referred to in Section 4.08 of the Agreement), (ii) am not a Regulation D Investor, (iii) meet the sophistication requirements for a private placement under Regulation D or alternatively have obtained a purchaser representative that meets such sophistication requirements and (iv) have been provided with offering materials that satisfy the informational requirements of Regulation D.

Please check the following box if relevant to you:

o I am "investor" under Section 15(A)(b)(1) of the Israeli Securities Law.

 [Signature Page to Share Purchase Agreement]

Execution Copy 

IN WITNESS WHEREOF, the parties hereto have executed this SHARE PURCHASE AGREEMENT as of the date first written above.

Vintage Venture Partners III (Cayman) LP.

By: ________________________________

Please check one of the following two boxes:

o I am a Regulation D Investor (as referred to in Section 4.08 of the Agreement); or

o I am a Regulation S Investor (as referred to in Section 4.08 of the Agreement).

o I (i) am a U.S. Person (as referred to in Section 4.08 of the Agreement), (ii) am not a Regulation D Investor, (iii) meet the sophistication requirements for a private placement under Regulation D or alternatively have obtained a purchaser representative that meets such sophistication requirements and (iv) have been provided with offering materials that satisfy the informational requirements of Regulation D.

Please check the following box if relevant to you:

o I am "investor" under Section 15(A)(b)(1) of the Israeli Securities Law.

 [Signature Page to Share Purchase Agreement]

Execution Copy 

IN WITNESS WHEREOF, the parties hereto have executed this SHARE PURCHASE AGREEMENT as of the date first written above.

Vintage Venture Partners III (Israel) LP.

By: ________________________________

Please check one of the following two boxes:

o I am a Regulation D Investor (as referred to in Section 4.08 of the Agreement); or

o I am a Regulation S Investor (as referred to in Section 4.08 of the Agreement).

o I (i) am a U.S. Person (as referred to in Section 4.08 of the Agreement), (ii) am not a Regulation D Investor, (iii) meet the sophistication requirements for a private placement under Regulation D or alternatively have obtained a purchaser representative that meets such sophistication requirements and (iv) have been provided with offering materials that satisfy the informational requirements of Regulation D.

Please check the following box if relevant to you:

o I am "investor" under Section 15(A)(b)(1) of the Israeli Securities Law.

 [Signature Page to Share Purchase Agreement]

Execution Copy 

IN WITNESS WHEREOF, the parties hereto have executed this SHARE PURCHASE AGREEMENT as of the date first written above.

Vintage Venture Partners LP.

By: ________________________________

Please check one of the following two boxes:

o I am a Regulation D Investor (as referred to in Section 4.08 of the Agreement); or

o I am a Regulation S Investor (as referred to in Section 4.08 of the Agreement).

o I (i) am a U.S. Person (as referred to in Section 4.08 of the Agreement), (ii) am not a Regulation D Investor, (iii) meet the sophistication requirements for a private placement under Regulation D or alternatively have obtained a purchaser representative that meets such sophistication requirements and (iv) have been provided with offering materials that satisfy the informational requirements of Regulation D.

Please check the following box if relevant to you:

o I am "investor" under Section 15(A)(b)(1) of the Israeli Securities Law.

 [Signature Page to Share Purchase Agreement]

Execution Copy 

IN WITNESS WHEREOF, the parties hereto have executed this SHARE PURCHASE AGREEMENT as of the date first written above.

Yehoshua Alon.

By: ________________________________

Please check one of the following two boxes:

o I am a Regulation D Investor (as referred to in Section 4.08 of the Agreement); or

o I am a Regulation S Investor (as referred to in Section 4.08 of the Agreement).

o I (i) am a U.S. Person (as referred to in Section 4.08 of the Agreement), (ii) am not a Regulation D Investor, (iii) meet the sophistication requirements for a private placement under Regulation D or alternatively have obtained a purchaser representative that meets such sophistication requirements and (iv) have been provided with offering materials that satisfy the informational requirements of Regulation D.

Please check the following box if relevant to you:

o I am "investor" under Section 15(A)(b)(1) of the Israeli Securities Law.

 [Signature Page to Share Purchase Agreement]

Execution Copy 

IN WITNESS WHEREOF, the parties hereto have executed this SHARE PURCHASE AGREEMENT as of the date first written above.

Zeev Alon.

By: ________________________________

Please check one of the following two boxes:

o I am a Regulation D Investor (as referred to in Section 4.08 of the Agreement); or

o I am a Regulation S Investor (as referred to in Section 4.08 of the Agreement).

o I (i) am a U.S. Person (as referred to in Section 4.08 of the Agreement), (ii) am not a Regulation D Investor, (iii) meet the sophistication requirements for a private placement under Regulation D or alternatively have obtained a purchaser representative that meets such sophistication requirements and (iv) have been provided with offering materials that satisfy the informational requirements of Regulation D.

Please check the following box if relevant to you:

o I am "investor" under Section 15(A)(b)(1) of the Israeli Securities Law.

 [Signature Page to Share Purchase Agreement]

Execution Copy 

IN WITNESS WHEREOF, the parties hereto have executed this SHARE PURCHASE AGREEMENT as of the date first written above.

Goodsmith Partners LLC.

By: ________________________________

Please check one of the following two boxes:

o I am a Regulation D Investor (as referred to in Section 4.08 of the Agreement); or

o I am a Regulation S Investor (as referred to in Section 4.08 of the Agreement).

o I (i) am a U.S. Person (as referred to in Section 4.08 of the Agreement), (ii) am not a Regulation D Investor, (iii) meet the sophistication requirements for a private placement under Regulation D or alternatively have obtained a purchaser representative that meets such sophistication requirements and (iv) have been provided with offering materials that satisfy the informational requirements of Regulation D.

Please check the following box if relevant to you:

o I am "investor" under Section 15(A)(b)(1) of the Israeli Securities Law.

 [Signature Page to Share Purchase Agreement]

EX-8.1

Exhibit 8.1

List of Subsidiaries

1. Sapiens International Corporation B.V. (“Sapiens B.V.”): incorporated in the Netherlands and 100% owned by Sapiens N.V.

2. Unless otherwise indicated, the other significant subsidiaries of Sapiens listed below are 100% owned by Sapiens B.V.:

3. Sapiens Israel Software Systems Ltd.: incorporated in Israel

4. Sapiens Technologies (1982) Ltd.: incorporated in Israel

5. Sapiens Americas Corporation: incorporated in New York, US

6. Sapiens North America Inc.: incorporated in Ontario, Canada.

7. Sapiens (UK) Limited: incorporated in England

8. Sapiens France S.A.S.: incorporated in France

9. Sapiens Deutschland GmbH: incorporated in Germany

10. Sapiens Japan Co.: incorporated in Japan and 90% owned by Sapiens B.V.

11. IDIT I.D.I. Technologies Ltd.: incorporated in Israel (owned 100% by Sapiens Technologies (1982) Ltd.)

12. IDIT Europe N.V.: incorporated in Belgium (owned 100% by IDIT)

13. IDIT APAC PTY. Limited: incorporated in NSW, Australia (owned 100% by IDIT)

14. IDIT Singapore PTE. Ltd.: incorporated in Singapore (owned 100% by IDIT)

15. FIS Software Ltd.: incorporated in Israel (owned 100% by Sapiens Technologies (1982) Ltd.)

16. FIS –EU Limited: incorporated in the UK (owned 100% by FIS)

17. FIS Software Inc.: incorporated in Delaware, US (owned 100% by FIS)

18. FIS France: incorporated in France (owned 100% by FIS-EU Limited)

19. FIS- AU Pty Ltd.: incorporated in Australia (owned 100% by FIS-EU Limited.)

20. Neuralmatic Ltd.: incorporated in Israel (owned 66% by FIS)

EX-10.1

Exhibit 10.1 

Consent of Independent Registered Public Accounting Firm

We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 333-177834) pertaining to the 2011 Share Incentive Plan of Sapiens International Corporation N.V., of our report dated April 4, 2012, with respect to the consolidated financial statements of Sapiens International Corporation N.V. included in this Annual Report (Form 20-F) for the year ended December 31, 2011.

	Yours Truly,
	/s/ KOST FORER GABBAY & KASIERER
April 4, 2012	KOST FORER GABBAY & KASIERER
Tel-Aviv, Israel	A Member of Ernst & Young Global

EX-12.1

Exhibit 12.1

CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER
PURSUANT TO RULE 13a-14(a)/RULE 15d-14(a) UNDER
THE SECURITIES EXCHANGE ACT OF 1934

I, Roni Al Dor, certify that:

1. I have reviewed this annual report on Form 20-F for the year ended December 31, 2011 of Sapiens International Corporation N.V. (the "Registrant");

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

4. The Registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the Registrant's internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting; and

5. The Registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant's auditors and the audit committee of the Registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

Date: April 3, 2012	/s/ Roni Al Dor
	Roni Al Dor
	President & Chief Executive Officer
	(principal executive officer)

EX-12.2

Exhibit 12.2

CERTIFICATION OF THE CHIEF FINANCIAL OFFICER
PURSUANT TO RULE 13a-14(a)/RULE 15d-14(a) UNDER
THE SECURITIES EXCHANGE ACT OF 1934

I, Roni Giladi, certify that:

1. I have reviewed this annual report on Form 20-F for the year ended December 31, 2011 of Sapiens International Corporation N.V. (the “Registrant”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

4. The Registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the Registrant's internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting; and

5. The Registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant's auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

Date: April 3, 2012
	/s/ Roni Giladi
	Roni Giladi
	Vice President & Chief Financial Officer
	(principal financial officer)

EX-13.1

Exhibit 13.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report on Form 20-F of Sapiens International Corporation N.V (the "Company") for the fiscal year ended December 31, 2011, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned, Roni Al Dor -Chief Executive Officer, hereby certifies, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(i)  The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934; and

(ii) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: April 3, 2012	/s/ Roni Al Dor
	Roni Al Dor
	President & Chief Executive Officer
	(principal executive officer)

EX-13.2

Exhibit 13.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report on Form 20-F of Sapiens International Corporation N.V. (the "Company") for the fiscal year ended December 31, 2011, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned, Roni Giladi, Vice President and Chief Financial Officer, hereby certifies, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(i)  The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934; and

(ii) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: April 3, 2012	/s/ Roni Giladi
	Roni Giladi
	Vice President & Chief Financial Officer
	(principal financial officer)

XML

OTHER LONG TERM ASSETS

12 Months Ended

Dec. 31, 2011

OTHER LONG TERM ASSETS

NOTE 3: OTHER LONG TERM ASSETS

	December 31,
	2010		2011
Deferred tax assets	$	1,824	$	1,782
Government authorities		-		883
Other		1,131		881
	$	2,955	$	3,546

XML

SIGNIFICANT ACCOUNTING POLICIES

12 Months Ended

Dec. 31, 2011

SIGNIFICANT ACCOUNTING POLICIES

NOTE 2: SIGNIFICANT ACCOUNTING POLICIES

The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in United States ("U.S. GAAP").

a. Use of estimates:

The preparation of the consolidated financial statements in conformity with U.S. GAAP 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 revenue and expenses during the reporting period. Actual results could differ from those estimates.

b. Financial statements in United States dollars:

The currency of the primary economic environment in which the operations of Sapiens and certain subsidiaries are conducted is the U.S. dollar ("dollar"); thus, the dollar is the functional currency of Sapiens and certain subsidiaries.

Sapiens and certain subsidiaries' transactions and balances denominated in dollars are presented at their original amounts. Non-dollar transactions and balances have been remeasured to dollars in accordance with ASC 830, "Foreign Currency Matters". All transaction gains and losses from remeasurement of monetary balance sheet items denominated in non-dollar currencies are reflected in the statements of income as financial income or expenses, as appropriate.

For those subsidiaries whose functional currency has been determined to be their local currency, assets and liabilities are translated at year-end exchange rates and statement of income items are translated at average exchange rates prevailing during the year. Such translation adjustments are recorded as a separate component of accumulated other comprehensive income in shareholders' equity.

c. Principles of consolidation:

The consolidated financial statements include the accounts of the Company and its majority-owned subsidiaries. All intercompany balances and transactions 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 acquisition.

e. Restricted cash:

The Company maintains certain cash amounts restricted as to withdrawal or use. On December 31, 2011, the Company maintained a balance of $ 456 that represents security deposits with respect to leases, restricted due to the lease agreement and security deposits for credit lines from banks.

f. Property and equipment, net:

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

	%
Computers and peripheral equipment	33
Office furniture and equipment	6 - 15
Motor vehicles	14

Leasehold improvements are amortized by the straight-line method over the term of the lease (including option terms) or the estimated useful life of the improvements, whichever is shorter.

g. Research and development costs:

Research and development costs incurred in the process of software production before establishment of technological feasibility are charged to expenses as incurred. Costs incurred to develop software to be sold are capitalized after technological feasibility is established in accordance with ASC 985-20, "Software - Costs of Software to be Sold, Leased, or Marketed". Based on the Company's product development process, technological feasibility is established upon completion of a detailed program design.

Costs incurred by the Company between completion of the detailed program design and the point at which the product is ready for general release, have been capitalized.

Capitalized software development costs are amortized commencing with general product release by the straight-line method over the estimated useful life of the software product (between 3-7 years).

h. Other intangible assets, net:

Technology is amortized over its estimated useful life on a straight-line basis. The acquired customer relationships are amortized over their estimated useful lives in proportion to the economic benefits realized or the straight-line method. The weighted average annual rates for other intangible assets are as follows:

	%
Technology		15%
Customer relationships		14%

i. Impairment of long-lived assets:

The Company's long-lived assets and identifiable intangibles that are subject to amortization 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 2009, 2010 and 2011, no impairment losses have been identified.

j. Goodwill:

Goodwill represents the excess of the purchase price in a business combination over the fair value of the net tangible and intangible assets acquired. Under ASC 350," Intangibles—Goodwill and Other" goodwill is subject to an annual impairment test or more frequently if impairment indicators are present. Goodwill impairment is deemed to exist if the net book value of a reporting unit exceeds its estimated fair value. Following the acquisition of FIS and IDIT, the Company operates in two reporting units: Sapiens and IDIT.

In September 2011, the FASB issued ASU 2011-08 which amends the rules for testing goodwill for impairment. Under the new rules, an entity has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary.

The Company early adopted the provisions of ASU 2011-08 for the Company's annual impairment test on the fourth quarter of 2011. This analysis determined that no indicators of impairment existed primarily because (1) the Company's market capitalization has consistently exceeded the Company's book value by a sufficient margin, (2) the acquisition of one of the Company's reporting units was on August 21, 2011 and no significant changes in the reporting unit's operational business occurred since the acquisition (3) the Company's overall financial performance has been stable since the acquisition, and (4) forecasts of operating income and cash flows generated by the Company's reporting units appear sufficient to support the book values of the net assets of each reporting unit.

However, it is possible that the Company's determination that goodwill for a reporting unit is not impaired could change in the future if current economic conditions deteriorate or remain difficult for an extended period of time. The Company will continue to monitor the relationship between the Company’s market capitalization and book value, as well as the ability of our reporting units to deliver current income and cash flows sufficient to support the book values of the net assets of their respective businesses.

The Company performed annual impairment tests during the fourth quarter of each of 2009, 2010 and 2011 and did not identify any impairment losses.

k. Revenue recognition:

The Company generates revenues from sales of software licenses which normally include significant implementation services that are considered essential to the functionality of the software license. In addition, the Company generates revenues from post implementation consulting services and maintenance services.

Sales of software licenses are recognized when persuasive evidence of an agreement exists, delivery of the product has occurred, the fee is fixed or determinable, and collectability is probable. The Company considers all arrangements with payment terms extending beyond six months from the delivery of the elements not to be fixed or determinable. If the fee is not fixed or determinable, revenue is recognized as payments become due from the customer, provided that all other revenue recognition criteria have been met.

The Company usually sells its software licenses as part of an overall solution offered to a customer that combines the sale of software licenses which normally include significant implementation that is considered essential to the functionality of the license. The Company accounts for revenues from the services (either fixed price or Time and Materials (T&M)) together with the software under contract accounting using the percentage-of-completion method in accordance with ASC 605-35, "Construction-Type and Production-Type Contracts". The percentage of completion method is used when the required services are quantifiable, based on the estimated number of labor hours necessary to complete the project, and under that method revenues are recognized using labor hours incurred as the measure of progress towards completion. 

In accordance with ASC 985-605, the Company establishes Vendor Specific Objective Evidence ("VSOE") of fair value of maintenance services (PCS) based on the Bell-Shaped approach and determined VSOE for PCS, based on the price charged when the element is sold separately (that is, the renewal rate). The Company's process for establishing VSOE of fair value of PCS is through performance of VSOE compliance test which is an analysis of the entire population of PCS renewal activity for its installed base of customers.

Provisions for estimated losses on contracts in progress are made in the period in which they are first determined, in the amount of the estimated loss on the entire contact. Provisions for estimated losses are presented in accrued expenses and other liabilities.  

Maintenance revenue is recognized ratably over the term of the maintenance agreement. Deferred revenues include unearned amounts received under maintenance and support agreements and amounts received from customers, for which revenues have not yet been recognized.

In addition, the Company derives significant portion of its revenues from post implementation consulting services provided on a "Time and Materials" ("T&M") basis which are recognized as services are performed.

l. Income taxes:

The Company accounts for income taxes in accordance with ASC 740, "Income Taxes". This topic prescribes the use of the asset and liability method, whereby deferred tax asset and liability account balances are determined based on the differences between the financial reporting and tax bases of 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 their estimated realizable value.

The Company implements a two-step approach to recognize and measure 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% (cumulative basis) likely to be realized upon ultimate settlement.

The Company classifies interest as financial expenses and penalties as selling, marketing, general and administration expenses.

m. Concentrations of credit risk:

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents, restricted cash, trade receivables and foreign currency derivative contracts.

The Company's cash and cash equivalents and restricted cash are invested in bank deposits mainly in NIS and dollars. Deposits in the U.S. may be in excess of insured limits and are not insured in other jurisdictions. Generally, these banks deposits may be redeemed upon demand and therefore bear minimal risk.

The Company's trade receivables are generally derived from sales to large and solid organizations located mainly in Israel, Europe, North America and Asia Pacific. The Company performs ongoing credit evaluations of its customers and to date has not experienced any material losses. In certain circumstances, the Company may require prepayment. An allowance for doubtful accounts is determined with respect to those amounts that the Company has determined to be doubtful of collection. Provisions for doubtful accounts were recorded in general and administrative expenses.

The Company entered into forward contracts, and option contracts intended to protect against the increase in value of forecasted non-dollar currency cash flows. The derivative instruments hedge a portion of the Company's non-dollar currency exposure.

No off-balance sheet concentrations of credit risk exist.

n. Accrued severance pay:

The Company's liability for severance pay for its Israeli employees is calculated pursuant to Israel's Severance Pay Law based on the most recent monthly salary of the employees multiplied by the number of years of employment as of the balance sheet date. Employees are entitled to one month's salary for each year of employment, or a portion thereof. The Company's liability is fully provided by monthly deposits with insurance policies and severance pay funds and by an accrual.

The deposited funds include profits (losses) accumulated up to the balance sheet date. The deposited funds may be withdrawn only upon the fulfillment of the obligation pursuant to Israel's Severance Pay Law or employment agreements. The value of the deposited funds is based on the cash surrendered value of these policies and recorded as an asset in the Company's consolidated balance sheet

In addition, the Company signed on a collective agreement with some of its employees, according to which the Company's contributions for severance pay shall be instead of severance compensation and that upon release of the policy to the employee, no additional payments shall be made by the Company to the employee. Generally, the Company, under its sole discretion, pays to these employees the entire liability, irrespective of the collective agreement described per above. Therefore, the net obligation related to those employees is stated on the balance sheet as accrued severance pay.

The Company's agreements with certain employees in Israel are in accordance with Section 14 of the Severance Pay Law, 1963, whereas, the Company's contributions for severance pay shall be instead of its severance liability. Upon contribution of the full amount of the employee's monthly salary, and release of the policy to the employee, no additional calculations shall be conducted between the parties regarding the matter of severance pay and no additional payments shall be made by the Company to the employee. Further, the related obligation and amounts deposited on behalf of such obligation are not stated on the balance sheet, as they are legally released from obligation to employees once the deposit amounts have been paid.

Severance expense for the years 2009, 2010 and 2011 amounted to $ 307, $ 790 and $ 1,514, respectively.

o. Basic and diluted net earnings per share:

Basic net earnings per share are computed based on the weighted average number of common shares outstanding during each year. Diluted net earnings per share are computed based on the weighted average number of common shares outstanding during each year plus dilutive potential equivalent common shares considered outstanding during the year, in accordance with ASC 260, "Earnings Per Share".

p. Stock-based compensation:

The Company accounts for stock-based compensation in accordance with ASC 718, "Compensation - Stock Compensation", which requires the measurement and recognition of compensation expense based on estimated fair values for all share-based payment awards made. ASC 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 income statements.

The Company recognizes compensation expenses for the value of its awards, which have graded vesting, based on the straight-line basis over the requisite service period of the award, net of estimated forfeitures. Estimated forfeitures are based on actual historical pre-vesting forfeitures.

The Company used the Black-Scholes option-pricing model to estimate the fair value for any options granted until December 31, 2009. In 2010, the Company changed the option-pricing model to the Binomial Lattice ("Binomial model") option-pricing model. The Binomial model considers characteristics of fair value option pricing that are not available under the Black-Scholes model. Similar to the Black-Scholes model, the Binomial model takes into account variables such as volatility, dividend yield rate, and risk free interest rate. However, the Binomial model allows for the use of dynamic assumptions and also considers the contractual term of the option, the probability that the option will be exercised prior to the end of its contractual life, and the probability of termination or retirement of the option holder in computing the value of the option. For these reasons, the Company believes that the Binomial model provides a better estimate of an employee stock options fair value than that calculated using the Black-Scholes model.

The fair value of each option granted in 2010 and 2011 using the Binomial model, is estimated on the date of grant with the following weighted average assumptions:

	Year ended December 31,
	2010	2011
Contractual life	6 years	6 years
Expected exercise factor	2.5	2.5
Dividend yield	0%	0%
Expected volatility	66%	70%
Risk-free interest rate	2.3%-2.8%	0.1%-1.2%

The risk-free interest rate assumption is based on the yield from U.S. Treasury zero-coupon bonds with an equivalent term as of the Company's employee stock options. The dividend yield assumption is based on the Company's historical and expectation of future dividend payouts. The expected life of options granted is derived from the output of the option valuation model and represents the period of time the options are expected to be outstanding. The expected exercise factor is based on industry acceptable rates since no actual historical behavior by option holders exists. Expected volatility is based on the historical volatility of the Company.

For options granted prior to January 1, 2010, the fair value of each option granted was estimated at the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions:

	Year ended December 31,
	2009
Expected term	4.25 years
Dividend yield	0%
Expected volatility	90%
Risk-free interest rate	1.8% - 2.5%

Stock-based compensation cost is measured at the grant date, based on the fair value of the award, and is recognized as an expense on a straight-line basis over the requisite service period for each of the awards.

q. Fair value of financial instruments:

ASC 820, "Fair Value Measurements and Disclosures", defines fair value as the price that would be received to sell an asset or paid to transfer a liability (i.e., the "exit price") in an orderly transaction between market participants at the measurement date.

In determining fair value, the Company uses various valuation approaches. ASC 820 establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company's assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.

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.

As a basis for considering such assumptions, ASC 820 establishes a three-tier value hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:

Level 1 -	Valuations based on quoted prices in active markets for identical assets that the Company has the ability to access. Valuation adjustments and block discounts are not applied to Level 1 instruments. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these products does not entail a significant degree of judgment.
Level 2 -	Valuations based on one or more quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.
Level 3 -	Valuations based on inputs that are unobservable and significant to the overall fair value measurement.

Foreign currency derivative contracts are classified within Level 2 as the valuation inputs are based on quoted prices and market observable data of similar instruments.

The carrying amounts of cash and cash equivalents, restricted cash, accounts receivable, and accounts payable approximate fair value due to the short-term maturities of such instruments.

r. Derivatives and hedging:

The Company enters into option contracts and forward contracts to hedge certain transactions denominated in foreign currencies. The purpose of the Company's foreign currency hedging activities is to protect the Company from risk that the eventual dollar cash flows from international activities will be adversely affected by changes in the exchange rates. The Company's option and forward contracts do not qualify as hedging instruments under ASC 815. Changes in the fair value of option strategies are reflected in the consolidated statements of income as financial income or expense.

In 2009, 2010 and 2011, the Company entered into option strategies contracts in the notional amounts of $ 5,800, $ 1,409 and $ 1,450, respectively that converted a portion of its floating currency liabilities to a fixed rate basis for a twelve-month period, thus reducing the impact of the currency changes on the Company's cash flow. In addition, in 2010 and 2011 the Company entered into forward contracts in the notional amounts of $ 2,020 and $ 5,750, respectively, that converted a portion of its floating currency liabilities to a fixed rate basis for a twelve-month period, thus reducing the impact of the currency changes on the Company's cash flow.

In 2009, 2010 and 2011, the Company recorded a loss of $ 28, $ 67 and income of $ 27, respectively, with respect to the above transactions, presented in the statements of income as financial income or expense, net.

s. Treasury shares:

In prior years, the Company repurchased certain of its common shares and holds such shares as treasury shares. The Company presents the cost to repurchase treasury stock as a reduction of shareholders’ equity.

t. Impact of recently issued accounting standards:

In September 2011, the Financial Accounting Standards Board, (the "FASB") issued ASU 2011-08, Testing Goodwill for Impairment, codified in ASC 350 "Intangibles – Goodwill and Other". The revised accounting standard update is intended to simplify how an entity tests goodwill for impairment. The amendment allows an entity to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. An entity is no longer required to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. This accounting standard update is effective for the Company beginning January 1, 2012. The Company early adopted the provisions of ASU 2011-08 in 2011 in the performance of the Company's annual impairment test of goodwill and determined that no indicators of impairment exist.

u. Recently issued accounting standards:

In June 2011, the FASB issued ASU 2011-05 Presentation of Comprehensive Income, codified in ASC 220 "Comprehensive Income". The guidance requires an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The guidance also eliminates the option to present the components of other comprehensive income as part of the statement of equity. In December 2011, the FASB issued ASU 2011-12, deferring the effective date for amendments outlined in ASU 2011-05. The Company is still evaluating whether to present other comprehensive income in a single continuous statement of comprehensive income or in two separate but consecutive statements.

In May 2011, the FASB issued ASU 2011-04 Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS, codified in ASC 820 "Fair Value Measurement". The guidance requires an entity to provide a consistent definition of fair value to ensure that the fair value measurement and disclosure requirements are similar between U.S. GAAP and International Financial Reporting Standards. The guidance changes certain fair value measurement principles and enhances the disclosure requirements particularly for Level 3 fair value measurements, and will become effective for the Company beginning January 1, 2012. The Company does not expect the adoption of this new guidance to have a material impact on its financial statements.

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CONSOLIDATED BALANCE SHEETS (USD $) In Thousands, unless otherwise specified	Dec. 31, 2011	Dec. 31, 2010
CURRENT ASSETS:
Cash and cash equivalents	$ 21,460	$ 16,182
Restricted cash	456
Trade receivables (net of allowance for doubtful accounts of $ 145 and $ 226 at December 31, 2010 and 2011, respectively)	14,484	5,511
Other receivables and prepaid expenses	1,823	1,350
Deferred tax assets	1,406	1,681
Total current assets	39,629	24,724
LONG-TERM ASSETS:
Other long-term assets	3,546	2,955
Severance pay fund	10,172	4,908
Capitalized software development costs, net	17,399	13,822
Other intangible assets, net	14,193	1,545
Goodwill	66,715	9,604
Property and equipment, net	1,814	1,161
Total long-term assets	113,839	33,995
Total assets	153,468	58,719
CURRENT LIABILITIES:
Trade payables	2,559	1,693
Employees and payroll accruals	8,957	3,321
Accrued expenses and other liabilities	10,774	8,325
Deferred revenues	9,603	6,517
Total current liabilities	31,893	19,856
LONG-TERM LIABILITIES:
Other long-term liabilities	617	299
Accrued severance pay	10,711	4,446
Total long-term liabilities	11,328	4,745
COMMITMENTS AND CONTINGENT LIABILITIES
Share capital:
Preferred shares of € 0.01 par value: Authorized - 1,000,000 shares at December 31, 2011; Issued and outstanding: None at December 31, 2011
Common shares of € 0.01 par value: Authorized: 54,000,000 shares at December 31, 2011; Issued: 22,373,130 and 40,008,926 shares at December 31, 2010 and 2011, respectively; Outstanding: 22,044,834 and 39,680,630 shares at December 31, 2010 and 2011, respectively	534	282
Additional paid-in capital	207,930	133,136
Treasury shares, at cost - 328,296 common shares at December 31, 2011 and 2010	(2,423)	(2,423)
Foreign currency translation adjustments	(6,277)	(657)
Accumulated deficit	(90,477)	(96,374)
Total Sapiens International Corporation N.V. shareholders' equity	109,287	33,964
Non-controlling interests	960	154
Total equity	110,247	34,118
Total liabilities and equity	$ 153,468	$ 58,719

XML

CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2011	Dec. 31, 2010	Dec. 31, 2009
Cash flows from operating activities:
Net income	$ 5,958	$ 6,170	$ 4,201
Reconciliation of net income to net cash provided by operating activities:
Depreciation and amortization	7,776	6,649	5,098
Amortization and loss from convertible debt			686
Re-measurement of earn-out payment		106
Stock-based compensation	803	724	259
Net changes in operating assets and liabilities, net of amount acquired:
Trade receivables, net	(3,333)	267	1,932
Other operating assets	(480)	(285)	228
Deferred tax assets, net	222	(304)	(34)
Trade payables	(1,279)	195	(295)
Other operating liabilities	(1,544)	(635)	164
Deferred revenues	(408)	(690)	1,778
Accrued severance pay, net	698	(172)	(479)
Net cash provided by operating activities	8,413	12,025	13,538
Cash flows from investing activities:
Purchase of property and equipment	(482)	(662)	(324)
Capitalized software development costs	(4,735)	(5,387)	(3,692)
Issuance expenses relating to FIS and IDIT acquisition	(102)
Earn-out payment with respect to Harcase acquisition	(952)
Payments for business acquisitions, net of cash acquired	3,741	(1,416)
Net cash used in investing activities	(2,530)	(7,465)	(4,016)
Cash flows from financing activities:
Proceeds from employee stock options exercised	207	24
Dividend to non-controlling interests	(134)
Principal payments and repurchase of convertible debt			(5,824)
Payments of long-term loans		(15)	(627)
Net cash provided by (used in) financing activities	73	9	(6,451)
Effect of exchange rate changes on cash	(678)	441	163
Increase in cash and cash equivalents	5,278	5,010	3,234
Cash and cash equivalents at beginning of year	16,182	11,172	7,938
Cash and cash equivalents at end of year	21,460	16,182	11,172
Cash paid during the year for:
Interest	16	115	454
Income taxes	$ 162	$ 494	$ 227

XML

GENERAL

12 Months Ended

Dec. 31, 2011

GENERAL

NOTE 1: GENERAL

a. General:

Sapiens International Corporation N.V. ("Sapiens") and subsidiaries (collectively - "the Company"), a member of the Formula Systems (1985) Ltd. Group, is a global provider of innovative software solutions for the financial services industry with a focus on insurance. The Company offers end-to-end solutions for the Life, Pension and Annuities ("L&P") and Property & Casualty/General Insurance ("P&C") markets. The Company's offerings include a portfolio of software solutions and delivery, implementation and support and maintenance services. These products and services enable its customers to modernize business processes, rapidly launch new products, build multiple distribution channels, adhere with new regulations and respond quickly to changes in the industry.

On August 21, 2011 Sapiens completed the acquisition of FIS Software Ltd. ("FIS") and IDIT I.D.I. Technologies Ltd. ("IDIT") (See note 1(b) and 1(c) for further information).

The Company's target markets are primarily North America, Israel, Europe, and Asia Pacific.

Revenues from a major customer accounted for 23%, 26% and 20% of total revenues for the years ended December 31, 2009, 2010 and 2011, respectively. A loss of a major customer, or any event negatively affecting such customer's financial condition, could have a material adverse effect on the Company's results of operations and financial position.

b. Acquisition of FIS:

On August 21, 2011, the Company completed the acquisition of all of the outstanding shares of FIS, a provider of insurance software solutions for L&P, in consideration for $ 49,671, composed of the following:

Sapiens' common shares	$	38,987
Cash paid		6,750
Warrants (i)		2,031
Options (ii)		1,903
Total purchase price	$	49,671

(i) Sapiens issued 1,000,000 warrants. (See Note 11(e))

(ii) Represents the fair value of the vested portion of 934,970 options of Sapiens granted upon consummation of the acquisition to the holders of partially vested options of FIS originally granted under the FIS Employee Share Option Plan. The fair value of these options was determined using a Binomial valuation model with the following assumptions: stock price of $ 4.1, early exercise of 1.5-11, risk-free interest rate of 0.10%-2.07%, expected volatility of 70% and no dividend yield.

The acquisition of FIS allows Sapiens to offer an enhanced solution for the L&P market. In addition, the acquisition of FIS has grown Sapiens' customer base in the insurance market world-wide. The value of goodwill is attributed to synergies between Sapiens solutions and services and FIS’s solutions and services which strengthen the Company's position in the market as a leading provider of L&P core software solutions. The entire goodwill was assigned to Sapiens' reporting unit.

The acquisition was accounted for by the acquisition method and accordingly, the purchase price has been allocated according to the estimated fair value of the assets acquired and liabilities assumed of FIS. The results of FIS operations have been included in the consolidated financial statements since August 21, 2011.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed based on a third party valuation:

Cash and cash equivalents	$	8,349
Restricted cash		239
Trade receivables		5,152
Other receivables and prepaid expenses		632
Property and equipment		451
Severance pay fund		4,182
Other intangible assets		11,724
Goodwill		35,523
Total assets acquired		66,252
Trade payables		(1,486	)
Employees and payroll accruals		(3,461	)
Deferred revenues		(1,706	)
Accrued expenses and other liabilities		(1,914	)
Deferred tax liabilities		(406	)
Accrued severance pay		(4,487	)
Long-term contracts		(2,239	)
Non-controlling interest		(882	)
Total liabilities assumed		(16,581	)
Total assets acquired, net	$	49,671

In performing the purchase price allocation, management considered, among other factors, analyses of historical financial performance, highest and best use of the acquired assets and estimates of future performance of FIS's business. In performing the purchase price allocation the fair value of intangible assets such as customer relationship was based on the income approach, core technology was valuated using the relief from royalty method and long-term contracts were valuated based on an exit price that would be paid or received in a transfer of all the rights and obligations of the contractor to a market participant.

The following table sets forth the components of intangible assets and liabilities associated with the acquisition and their annual amortization rates:

	Fair value			Weighted average rate
Core technology	$	4,206		13%
Customer relationships		7,518		14%
Long-term contracts		(2,239	)	67%
Total	$	9,485		22%

Revenues of FIS for the period since the acquisition date through December 31, 2011, which are included in the consolidated financial statements, amounted to $ 11,207.

c. Acquisition of IDIT:

On August 21, 2011, the Company completed the acquisition of all of the outstanding shares of IDIT, a provider of insurance software solutions which focuses on the P&C market in consideration for $ 31,444, composed as follows:

Sapiens' common shares	$	29,052
Options (i)		2,392
Total purchase price	$	31,444

(i) Represents the fair value of the vested portion of 1,003,874 options of Sapiens granted upon consummation of the acquisition to the holders of partially vested options of IDIT originally granted under the IDIT Employee Share Option Scheme. The fair value of these options was determined using a Binomial valuation model with the following assumptions: stock price of $ 4.1, early exercise factor of 1.5-11, risk-free interest rate of 0.10%-2.07%, expected volatility of 70% and no dividend yield.

The acquisition of IDIT allows the Company to offer its customers and partners a more extensive product portfolio in the industry. Acquiring IDIT is expected to strengthen Sapiens' presence in the P&C insurance market by increasing its customer base. IDIT is considered as a separate reporting unit.

The acquisition was accounted for by the acquisition method and accordingly, the purchase price has been allocated according to the estimated fair value of the assets acquired and liabilities assumed of IDIT. The results of IDIT's operations have been included in the consolidated financial statements since August 21, 2011.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed based on a third party valuation:

Cash and cash equivalents	$	2,143
Restricted cash		216
Trade receivables		1,194
Other receivables and prepaid expenses		302
Other long term assets		90
Property and equipment		482
Severance pay fund		1,800
Other intangible assets		7,918
Goodwill		25,355
Total assets acquired		39,500
Trade payables		(807	)
Employees and payroll accruals		(2,328	)
Accrued expenses and other liabilities		(1,012	)
Deferred revenues		(1,769	)
Accrued severance pay		(2,140	)
Total liabilities assumed		(8,056	)
Total purchase price		31,444

In performing the purchase price allocation, management considered, among other factors, analyses of historical financial performance, highest and best use of the acquired assets and estimates of future performance of IDIT's business. In performing the purchase price allocation the fair value of intangible assets such as customer relationship was determined based on the income approach, core technology was valued using the relief from royalty method and long-term contracts were valued based on an exit price that would be paid or received in a transfer of all the rights and obligations of the contractor to a market participant.

The following table sets forth the components of intangible assets associated with the acquisition and their annual amortization rates:

	Fair value		Weighted average rate
Core technology	$	5,548		14%
Customer relationships		1,389		16%
Long-term contracts		981		74%
Total intangible assets	$	7,918		22%

Revenues of IDIT for the period since the acquisition date through December 31, 2011, which are included in the consolidated financial statements, amounted to $ 5,105.

d. Acquisition of Harcase Software Ltd.

On April 27, 2010, the Company completed the acquisition of Harcase Software Ltd. ("Harcase"). The total fair value of the purchase consideration for the acquisition was $3,092, which includes cash paid for common stock and estimated fair value of earn-out payment. In connection with this acquisition, the Company recorded intangibles and goodwill in the amounts of $ 1,732 and $ 981, respectively. In 2011, the Company paid an amount of $ 953 with respect to earn out.

As part of the acquisition, the Company is obligated to pay additional consideration to the selling shareholders in consideration for their continued employment of two to three years, as defined in the agreement pursuant to which the Company acquired Harcase ("the Additional Consideration"). The Additional Consideration includes the following: (1) $ 750 in cash to be held in escrow until released upon certain conditions, as described in the agreement, (2) issuance of 454,546 Common shares of the Company to be held in escrow, as described in the agreement, (3) put options on the Company's shares described in (2) above for a price of $ 1.54 per share, exercisable during a period of six months from the date the shares are released from escrow. The cash portion of the Additional Consideration is recognized over the employment period of the respective shareholders. The shares and the respective put options are accounted for in accordance with ASC 718 as an award with a liability and equity component. The compensation is measured based on the combined value of the shares and the respective put options in accordance with ASC 718. The total compensation costs related to the shares and the put options at the grant date was $ 1,302, recognized over the employment period of the respective former shareholders of Harcase.

For the period from April 27, 2010 (the acquisition date) until December 31, 2010 and for the year ended December 31, 2011, the Company recorded an amount of $502 and $754, respectively of compensation expense in respect of the above Additional Consideration. Included within the above amounts are $311 and $467 respectively, which are considered as stock based compensation.

In addition, the Company is obligated to pay commissions to the former shareholders for new customers obtained during the five-year period following the closing date, based on rates and conditions described in the agreement. As of December 31, 2011, no provision was recorded in respect of the above-mentioned commissions.

e. Pro Forma information:

The following represents the unaudited pro forma condensed results of operations for the years ended December 31, 2010 and 2011, assuming that the acquisitions of FIS and IDIT occurred on January 1, 2010. The pro forma information is not necessarily indicative of the results of operations, which actually would have occurred had the acquisitions been consummated on those dates, nor does it purport to represent the results of operations for future periods.

	December 31,
	2010		2011
	Unaudited		Unaudited
Revenues	$	95,289	$	97,679
Net income (loss)	$	1,775	$	(414	)
Basic net earnings (losses) per share	$	0.05	$	(0.01	)
Diluted net earnings (losses) per share	$	0.04	$	(0.01	)

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CONSOLIDATED BALANCE SHEETS (Parenthetical) In Thousands, except Share data, unless otherwise specified	Dec. 31, 2011 USD ($)	Dec. 31, 2011 EUR (€)	Dec. 31, 2010 USD ($)	Dec. 31, 2010 EUR (€)
Trade receivables, allowance for doubtful accounts	$ 226		$ 145
Preferred shares, par value		€ 0.01		€ 0.01
Preferred shares, Authorized	1,000,000	1,000,000	1,000,000	1,000,000
Preferred shares, Issued
Preferred shares, Outstanding
Common shares, par value		€ 0.01		€ 0.01
Common shares, Authorized	54,000,000	54,000,000	54,000,000	54,000,000
Common shares, Issued	40,008,926	40,008,926	22,373,130	22,373,130
Common shares, Outstanding	39,680,630	39,680,630	22,044,834	22,044,834
Treasury shares, shares	328,296	328,296	328,296	328,296

XML

EQUITY

12 Months Ended

Dec. 31, 2011

EQUITY

NOTE 11: EQUITY

a. The common shares of the Company are traded on the Tel-Aviv Stock Exchange and on the NASDAQ.

Common shares confer upon their holders voting rights, the right to receive cash dividends and the right to share in excess assets upon liquidation of the Company.

b. Stock option plans:

In April 2009, the Company's Board of Directors approved a re-pricing of some of the Company's stock options held by Company's management. As a result of the re-pricing, 1,985,650 stock options at an exercise price range of $ 1.74 to $ 5.30 were re-priced to 1,554,627 stock options at an exercise price of $ 1.50 per share (925,870 stock options out of the 1,554,627 are at market conditions (a kick-in feature of $ 2.10 market price)). The Company accounted for the re-pricing of the options above in accordance with ASC 718, as a modification. The Company used the Black-Scholes valuation model to calculate the incremental fair value for the re-priced options, except for the options with market conditions, for which a Binominal model was used. In addition, the expected term of the options before the re-pricing was calculated using the Binomial model. Since there was no incremental value as a result of the modification, no additional expense was recorded in respect of the re-pricing of the respective options.

In 2011, in connection with the acquisition of IDIT and FIS, the Company's board of directors approved its 2011 Share Incentive Plan (the “2011 Plan”) pursuant to which the Company's employees, directors, officers, consultants, advisors, suppliers, business partner, customer and any other person or entity whose services are considered valuable are eligible to receive awards of share options, restricted shares, restricted share units and other share-based awards. The number of Common Shares available under the 2011 Plan was set at 4,000,000. Upon the approval of the 2011 Plan, the board of directors determined that no further awards would be issued under the Company's previously existing share incentive plans.

Pursuant to the terms of the acquisitions of IDIT and FIS, the Company replaced unvested options with Sapiens options, based on the agreed exchange ratio applicable to the purchase of the outstanding shares of IDIT and FIS, respectively. Each replaced option is subject to the same terms and conditions, including vesting and timing of exercisability, as applied to any such option immediately prior to the acquisition.

As of December 31, 2011 1,581,927 common shares of the Company were available for future grant under the 2011 Plan. Any option granted under the 2011 Plan which are forfeited or cancelled before expiration, will become available for future grant under the 2011 Plan.

A summary of the stock option activities in 2011 is as follows:

	Year ended December 31, 2011
	Amount of options			Weighted average exercise price		Weighted average remaining contractual life (in years)		Aggregate intrinsic value
Outstanding at January 1, 2011		2,945,772		$	1.65		4.70	$	2,026
Granted with respect to IDIT and FIS acquisition (Note 1)		1,938,844			2.09
Granted		491,000			3.29
Exercised		(135,796	)		1.69
Expired and forfeited		(52,674	)		1.54
Outstanding at December 31, 2011		5,187,146			1.97		4.56		19,609
Exercisable at December 31, 2011		3,688,079			1.81		4.22		7,307

In 2009, 2010 and 2011, the Company granted 292,012, 789,000 and 2,429,844 stock options to employees and directors, respectively.

The weighted average grant date fair values of the options granted during the years ended December 31, 2009, 2010 and 2011 were $ 0.59, $ 1.08 and $ 2.25, respectively.

The total intrinsic value of options exercised during the years ended December 31, 2010 and 2011 was $ 16 and $ 253, respectively. No options were exercise during 2009.

The options outstanding under the Company's stock option plans as of December 31, 2011 have been separated into ranges of exercise price as follows:

										Weighted
		Options		Weighted				Options		Average
		outstanding		average		Weighted		Exercisable		Exercise
		as of		remaining		average		as of		price of
Ranges of		December 31,		contractual		exercise		December 31,		Options
exercise price		2011		Term		price		2011		Exercisable
				(Years)		$				$
$	0.38		25,922		0.25		0.38		25,922		0.38
$	0.83		220,710		4.38		0.83		220,710		0.83
$	1-1.5		1,957,357		3.56		1.46		1,798,671		1.48
$	1.55-1.68		451,830		3.45		1.61		208,080		1.63
$	1.74-1.91		782,287		5.03		1.80		664,579		1.81
$	2.00-2.25		471,750		4.19		2.20		134,250		2.20
$	2.31-2.63		517,387		8.69		2.53		366,964		2.52
$	3.00-3.75		676,487		5.11		3.38		185,487		3.63
$	4.06-4.84		67,016		4.39		4.22		67,016		4.22
$	5.00-5.30		16,400		0.17		5.28		16,400		5.28
			5,187,146		4.56		1.97		3,688,079		1.81

c. The total stock-based compensation expenses related to all of the Company's equity-based awards recognized for the years ended December 31, 2009, 2010 and 2011 was, $ 259, $ 412 and $ 336, respectively. The total stock-based compensation expenses were recorded as Selling, marketing, general and administration expenses.

d. See Note 1d regarding shares and related put options issued to Harcase's former shareholders.

As of December 31, 2011, there was $ 2,000 of total unrecognized compensation cost related to non-vested options granted under the Plan and the Special Plan, which is expected to be recognized over a period of up to four years.

e. Warrants:

The following table summarizes information regarding outstanding warrants to purchase Common shares of the Company as of December 31, 2011:

Warrants to Common shares	Weighted average exercise price per share		Warrants exercisable		Exercisable through
1,000,000	$	3.82		1,000,000	August 2014
11,000	$	2.00		11,000	May 2015
17,000	$	2.24		17,000	February 2015
1,028,000	$	3.77		1,028,000

XML

Document and Entity Information	12 Months Ended
	Dec. 31, 2011
Document Information [Line Items]
Document Type	20-F
Amendment Flag	false
Document Period End Date	Dec. 31, 2011
Document Fiscal Year Focus	2011
Document Fiscal Period Focus	FY
Trading Symbol	SPNS
Entity Registrant Name	SAPIENS INTERNATIONAL CORP N V
Entity Central Index Key	0000885740
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	No
Entity Current Reporting Status	Yes
Entity Filer Category	Non-accelerated Filer
Entity Common Stock, Shares Outstanding	39,680,630

XML

BASIC AND DILUTED NET EARNINGS PER SHARE

12 Months Ended

Dec. 31, 2011

BASIC AND DILUTED NET EARNINGS PER SHARE

NOTE 12:- BASIC AND DILUTED NET EARNINGS PER SHARE

	Year ended December 31,
	2009		2010		2011
Numerator:
Net income attributed to Sapiens shareholders	$	4,201	$	6,152	$	5,897
Denominator:
Denominator for basic earnings per share - weighted average number of common shares, net of treasury stock		21,573		21,583		28,460
Shares and related put options issued in Harcase acquisition (See Note 1d)		-		10		298
Stock options and warrants		1		588		2,006
Denominator for diluted net earnings per share - adjusted weighted average number of shares	$	21,574	$	22,181	$	30,764

The weighted average number of shares related to outstanding anti-dilutive options and warrants excluded from the calculations of diluted net earnings per share was 2,763,298 and 834,844 and 1,308,212 for the years 2009, 2010 and 2011, respectively.

XML

CONSOLIDATED STATEMENTS OF INCOME (USD $) In Thousands, except Per Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2011	Dec. 31, 2010	Dec. 31, 2009
Revenues	$ 69,927	$ 52,235	$ 45,695
Cost of revenues	40,067	29,921	26,571
Gross profit	29,860	22,314	19,124
Operating expenses:
Research and development, net	5,008	3,293	2,735
Selling, marketing, general and administrative	18,113	12,310	11,048
Acquisitions-related and restructuring costs	1,115
Total operating expenses	24,236	15,603	13,783
Operating income	5,624	6,711	5,341
Financial income (expenses), net	104	(364)	(880)
Income before taxes on income	5,728	6,347	4,461
Taxes on income (tax benefit)	(230)	177	260
Net income	5,958	6,170	4,201
Attributable to non-controlling interests	61	18
Net income attributable to Sapiens' shareholders	$ 5,897	$ 6,152	$ 4,201
Net earnings per share attributable to Sapiens' shareholders
Basic	$ 0.21	$ 0.28	$ 0.19
Diluted	$ 0.19	$ 0.28	$ 0.19

XML

OTHER INTANGIBLE ASSETS, NET

12 Months Ended

Dec. 31, 2011

OTHER INTANGIBLE ASSETS, NET

NOTE 6: OTHER INTANGIBLE ASSETS, NET

a. Other intangible assets, net, are comprised of the following:

	December 31,
	2010		2011
Original amounts:
Customer relationship	$	789	$	9,130
Technology		943		5,705
Long-term contracts		-		921
		1,732		15,756
Accumulated amortization:
Customer relationship		78		763
Technology		109		513
Long-term contracts		-		287
		187		1,563
Other intangible assets, net	$	1,545	$	14,193

c. Amortization of other intangible assets was $ 493, $ 506 and $ 1,449 for 2009, 2010 and 2011, respectively.

d. Estimated amortization expense for future periods:

For the year ended December 31,
2012	$	2,628
2013		2,047
2014		2,111
2015		1,986
2016		1,606
2017 and thereafter		3,815
	$	14,193

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CAPITALIZED SOFTWARE DEVELOPMENT COSTS

12 Months Ended

Dec. 31, 2011

CAPITALIZED SOFTWARE DEVELOPMENT COSTS

NOTE 5: CAPITALIZED SOFTWARE DEVELOPMENT COSTS

The changes in capitalized software development costs during the year ended December 31, 2010 and 2011 were as follows:

	Year ended December 31,
	2010			2011
Balance at the beginning of the year	$	13,540		$	13,822
Acquisition of core technology which considered as software development		-			4,659
Capitalization		5,387			4,735
Amortization		(5,869	)		(4,544	)
Functional currency translation adjustments		764			(1,273	)
Balance at the year end	$	13,822		$	17,399

Amortization of capitalized software development costs for 2009, 2010 and 2011, was $ 4,623, $ 5,869 and $ 4,544, respectively. Amortization expense is included in cost of revenues.

XML

GEOGRAPHIC INFORMATION

12 Months Ended

Dec. 31, 2011

GEOGRAPHIC INFORMATION

NOTE 13: GEOGRAPHIC INFORMATION

a. The Company operates in a single reportable segment as a provider of software solutions. See Note 1 for a brief description of the Company's business. The data below is presented in accordance with ASC 280, "Segment Reporting".

b. Geographic information:

The following is a summary of operations within geographic markets.

		Year ended December 31,
		2009		2010		2011
1.	Revenues:
	Israel	$	14,922	$	19,554	$	21,470
	North America		7,759		8,991		20,889
	United Kingdom		12,323		11,995		14,672
	Asia		9,950		11,080		8,026
	Europe		741		615		4,870
		$	45,695	$	52,235	$	69,927

		December 31,
		2010		2011
2.	Long-lived assets:
	Israel	$	14,584	$	32,676
	North America		1,672		1,293
	Rest of the world		272		578
		$	16,528	$	34,547

XML

COMMITMENTS AND CONTINGENT LIABILITIES

12 Months Ended

Dec. 31, 2011

COMMITMENTS AND CONTINGENT LIABILITIES

NOTE 9: COMMITMENTS AND CONTINGENT LIABILITIES

a. Sapiens Technologies (1982) Ltd. ("Sapiens Technologies"), a subsidiary incorporated in Israel, was partially financed under programs sponsored by the Office of Chief Scientist ("OCS") for the support of certain research and development activities conducted in Israel.

In exchange for participation in the programs by the OCS, the Company agreed to pay 3%-3.5% of total net consolidated license and maintenance revenue and 0.35% of the net consolidated consulting services revenue related to the software developed within the framework of these programs based on an understanding with the OCS reached in January 2012. The understanding reached with the OCS resulted in a reversal of an accrual in the amount of $ 922 which was recorded as a reduction of cost of revenues in 2011.

The royalties will be paid up to a maximum amount equaling 100%-150% of the grants provided by the OCS, linked to the dollar, and for grants received after January 1, 1999, bear annual interest at a rate based on LIBOR.

Royalties expenses amounted to $ 577, $ 614 and $ 510 in 2009, 2010 and 2011, respectively, and are included in cost of revenues. During 2011, the Company paid to the OCS, royalties in the amount of $ 1,184.

As of December 31, 2011, the Company had a contingent liability to pay royalties of approximately $ 6,300.

b. Lease commitments:

The Company leases office space, office equipment and various motor vehicles under operating leases.

1. The Company's office space and office equipment are rented under several operating leases. Future minimum lease commitments under non-cancelable operating leases for the years ended December 31, were as follows:

2012	$	2,487
2013		1,863
2014		1,636
2015		657
	$	6,643

Rent expense for the years ended December 31, 2009, 2010 and 2011 was $ 1,556, $ 1,811 and $ 2,399, respectively.

2. The Company leases its motor vehicles under cancelable operating lease agreements.

The minimum payment under these operating leases, upon cancellation of these lease agreements was $ 203 as of December 31, 2011.

c. Legal settlement:

In 2010, a former customer of the Company filed a claim in the arbitration court in Warsaw, Poland against the Company for damages allegedly caused by the Company with respect to a license and services contract with such former customer signed a number of years ago. A settlement was reached in October 2011 under which the Company paid 1,100 Euro ($1,509) and recovered an amount of $ 1,200 from the insurance company and reversed a provision provided for this claim in the amount of $ 501. The Company recorded income in the amount of $ 192 which was deducted from selling, marketing, general and administrative.

d. The Company's leased assets are pledged to the finance companies that provided the lease financing. The pledges are for various terms depending on the asset leased.

The Company has provided bank guarantees in the amount of $ 704 as security for the rent to be paid for its leased offices. The lease is valid for approximately four years ending in July 2015.

As of December 31, 2011, the Company has provided bank guarantees in the amount of $ 109 as security for the performance of various contracts with customers and suppliers.

e. According to the agreement with the Company's major customer, the Company is obligated to pay sales commission to this customer of the higher between 15% on future license sales or 5% of future total project sales of one of the Company's products to third parties. As of December 31, 2011, the Company recorded an accrual in amount of $ 234 with respect to the licenses sold.

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GOODWILL

12 Months Ended

Dec. 31, 2011

GOODWILL

NOTE 7:- GOODWILL

The changes in the carrying amount of goodwill for the year ended December 31, 2010 and 2011 are as follows:

	Year ended December 31,
	2010		2011
Balance at the beginning of the year	$	8,621	$	9,604
Acquisitions		981		60,878
Functional currency translation adjustments		2		(3,767	)
Balance at the year end	$	9,604	$	66,715

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ACCRUED EXPENSES AND OTHER LIABILITIES

12 Months Ended

Dec. 31, 2011

ACCRUED EXPENSES AND OTHER LIABILITIES

NOTE 8: ACCRUED EXPENSES AND OTHER LIABILITIES

	December 31,
	2010		2011
Government authorities	$	1,216	$	2,543
Accrued royalties to the OCS (Note 9a)		2,669		1,591
Accrued contract costs		-		1,541
Earn-out payment (Note 1d)		952		-
Accrued expenses		3,488		5,099
	$	8,325	$	10,774

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TAXES ON INCOME

12 Months Ended

Dec. 31, 2011

TAXES ON INCOME

NOTE 10: TAXES ON INCOME

a. Parent taxation:

Organized and existing under the laws of the Curaçao.

b. Israeli taxation:

1. Corporate tax rates in Israel:

Taxable income of Israeli companies is subject to tax at the rate of 26% in 2009, 25% in 2010, 24% in 2011 and 25% in 2012 and onwards.

2. Tax benefits under the Israel Law for the Encouragement of Capital Investments, 1959 ("the Law"):

Certain of the Company's Israeli subsidiaries have been granted "Approved Enterprise" and "Privileged Enterprise" status, which provides certain benefits, including tax exemptions and reduced tax rates. Income not eligible for Approved Enterprise and Privileged Enterprise benefits is taxed at regular rates.

In the event of distribution of dividends from the said tax-exempt income, the amount distributed will be subject to corporate tax at the rate ordinarily applicable to the Approved Enterprise's income. The tax-exempt income attributable to the Approved Enterprise programs mentioned above can be distributed to shareholders without subjecting the Company to taxes, only upon the complete liquidation of the applicable Israeli subsidiary. Tax-exempt income generated under the Privileged Enterprise program will be subject to taxes upon dividend distribution (which includes the repurchase of the Company's shares) or liquidation.

The entitlement to the above benefits is conditional upon the fulfilling of the conditions stipulated by the Laws and regulations (see below). Should they fail to meet such requirements in the future, income attributable to its Approved Enterprise and Privileged Enterprise programs could be subject to the statutory Israeli corporate tax rate and they could be required to refund a portion of the tax benefits already received, with respect to such programs. As of December 31, 2011, management believes that the Company's Israeli subsidiaries are in compliance with all the conditions required by the Law.

The Company does not intend to distribute any of its undistributed tax-exempt income as dividends, as it intends to reinvest this within the Company. Accordingly, no deferred income taxes have been provided on income attributable to the Company's Approved or Privileged Enterprise programs as the undistributed tax-exempt income is essentially permanent in duration.

Effective January 1, 2011, the Knesset enacted the Law for Economic Policy for 2011 and 2012 (Amended Legislation), and among other things, amended the Law, ("the Amendment"). According to the Amendment, the benefit tracks in the Investment 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 as follows: 2011 and 2012 - 15%, 2013 and 2014 - 12.5% and in 2015 and thereafter - 12%.

3. Tax benefits under the Law for the Encouragement of Industry (Taxation), 1969:

Management believes that Sapiens Technologies currently qualifies as an "industrial company" under the above law and as such, is entitled to certain tax benefits including accelerated depreciation, deduction of public offering expenses in three equal annual installments and amortization of other intangible property rights for tax purposes.

4. Commencing 2005, some of the Company's Israeli subsidiaries have elected to file their tax returns under the Israeli Income Tax Regulations 1986 (Principles Regarding the Management of Books of Account of Foreign Invested Companies and Certain Partnerships and the Determination of Their Taxable Income). Accordingly, commencing 2005, results for tax purposes are measured in U.S. dollars.

c. Income taxes on non-Israeli subsidiaries:

Non-Israeli subsidiaries are taxed according to the tax laws in their respective country of residence. Neither Israeli income taxes, foreign withholding taxes nor deferred income taxes were provided in relation to undistributed earnings of the non-Israelis subsidiaries. This is because the Company intends to permanently reinvest undistributed earnings in the foreign subsidiaries in which those earnings arose. If these earnings were distributed in the form of dividends or otherwise, the Company would be subject to additional Israeli income taxes (subject to an adjustment for foreign tax credits) and non-Israeli withholding taxes.

d. Net operating losses carryforward:

As of December 31, 2011, certain subsidiaries had tax loss carry-forwards totaling approximately $ 61,100 which can be carried forward and offset against taxable income with expiration dates ranging from 2012 and onwards. Most of these carry-forward tax losses have no expiration date.

Utilization of U.S. net operating losses may be subject to substantial annual limitation due to the "change in ownership" provisions of the Internal Revenue Code of 1986 and similar state provisions. The annual limitations may result in the expiration of net operating losses before utilization.

e. Deferred tax assets and liabilities:

Deferred 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 tax purposes. Significant components of the Company deferred tax assets are as follows:

	December 31,
	2010			2011
Deferred tax assets:
Net operating losses carryforward	$	10,851		$	15,620
Research and Development assets for Israeli Tax Authorities		1,534			2,809
Other		179			816
Deferred tax assets before valuation allowance		12,564			19,245
Valuation allowance		(5,975	)		(8,881	)
Deferred tax assets		6,589			10,364
Deferred tax liabilities:
Research and Development capitalization		(3,084	)		(3,234	)
Acquired intangibles		(410	)		(4,624	)
Deferred tax assets, net	$	3,095		$	2,506

	December 31,
	2010			2011
Current deferred tax assets	$	1,681		$	1,406
Long-term deferred tax assets		1,824			1,782
Current deferred tax liabilities		(410	)		(145	)
Long-term deferred tax liabilities		-			(537	)
Deferred tax assets, net	$	3,095		$	2,506

Current and long-term deferred tax liabilities are included within other liabilities and other long-term liabilities, respectively, in the balance sheets. Long-term deferred tax assets are included within other long term assets.

The Company has provided valuation allowances in respect of certain deferred tax assets resulting from tax loss carry forwards and other reserves and allowances due to uncertainty concerning realization of these deferred tax assets.

f. Income before taxes on income is comprised as follows:

	Year ended December 31,
	2009			2010			2011
Domestic (Curaçao)	$	(930	)	$	(13	)	$	(236	)
Foreign		5,391			6,360			5,964
	$	4,461		$	6,347		$	5,728

g. A reconciliation between the theoretical tax expense, assuming all income is taxed at the statutory tax rate applicable to income for an Israeli company, and the actual tax expense as reported in the statements of income is as follows:

	Year ended December 31,
	2009			2010			2011
Income before taxes on income, as reported in the statements of income	$	4,461		$	6,347		$	5,728
Statutory tax rate in Israel		26	%		25	%		24	%
Theoretical taxes on income	$	1,160		$	1,587		$	1,375
Increase (decrease) in taxes resulting from:
Effect of different tax rates		77			106			75
Utilization of carryforward tax losses for which valuation allowance was provided		(32	)		(186	)		(66	)
Non-deductible expenses and tax exempt income		(97	)		(302	)		68
Taxes in respect of previous years		53			236			21
Recognition of deferred taxes during the year for which valuation allowance was provided		(1,618	)		(1,471	)		(2,040	)
Losses and temporary differences for which valuation allowance was provided		691			172			244
Others		26			35			93
Taxes on income, as reported in the statements of operations	$	260		$	177		$	(230	)

h. Taxes on income (benefit) are comprised as follows:

	Year ended December 31,
	2009			2010			2011
Current (foreign)	$	294		$	427		$	470
Deferred (foreign)		(34	)		(250	)		(700	)
	$	260		$	177		$	(230	)

The Company's entire provision for taxes on income relates to operations in jurisdictions other than Curaçao.

i. Uncertain tax positions:

A reconciliation of the beginning and ending balances of the total amounts of unrecognized tax benefits is as follows:

	December 31,
	2010		2011
Balance at the beginning of the year	$	300	$	400
Uncertain tax position acquired during the year		100		-
Increase in tax position due to the acquisition of FIS				925
Increase in tax position		-		241
Interest for unrecognized tax liabilities from prior years		-		66
Balance at the end of the year	$	400	$	1,632

Unrecognized tax benefits included $ 808 of tax benefits, which if recognized, would affect the company's income tax provision and the effective tax rate.

As of December 31, 2011, most of the Company's Israeli subsidiaries are subject to Israeli income tax audits for the tax years 2007 through 2011, to U.S. federal income tax audits for the tax years of 2008 through 2011 and to other income tax audits for the tax years of 2006 through 2011.

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CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY AND COMPREHNSIVE INCOME (USD $) In Thousands, except Share data	Total	Common stock	Additional paid-in capital	Treasury shares	Foreign currency translation adjustments	Accumulated deficit	Total comprehensive income	Non-controlling interests
Beginning balance at Dec. 31, 2008	$ 21,876	$ 276	$ 132,286	$ (2,423)	$ (1,669)	$ (106,727)		$ 133
Beginning balance (in shares) at Dec. 31, 2008		21,573,006
Stock-based compensation	259		259
Foreign currency translation adjustments	79				79		79
Net income	4,201					4,201	4,201
Total comprehensive income							4,280
Ending balance at Dec. 31, 2009	26,415	276	132,545	(2,423)	(1,590)	(102,526)		133
Beginning balance (in shares) at Dec. 31, 2009		21,573,006
Stock-based compensation	412		412
Stock-based compensation with respect to Harcase acquisition (in shares)		454,546
Stock-based compensation with respect to Harcase acquisition	161	6	155
Employee stock options exercised (in shares)		17,282
Employee stock options exercised	24		24
Foreign currency translation adjustments	936				933		933	3
Net income	6,170					6,152	6,152	18
Total comprehensive income							7,085
Ending balance at Dec. 31, 2010	34,118	282	133,136	(2,423)	(657)	(96,374)		154
Ending balance (in shares) at Dec. 31, 2010		22,044,834
Stock-based compensation	336		336
Stock-based compensation with respect to Harcase acquisition	240		240
Issuance of shares and options upon the acquisition of IDIT (in shares)		7,483,125
Issuance of shares and options upon the acquisition of IDIT	31,444	108	31,336
Issuance of shares, options and assumption of non controlling interest upon the acquisition of FIS (in shares)		10,016,875
Issuance of shares, options and assumption of non controlling interest upon the acquisition of FIS	43,803	143	42,778					882
Issuance expenses relating to FIS and IDIT acquisition	(102)		(102)
Employee stock options exercised (in shares)		135,796
Employee stock options exercised	207	1	206
Dividend to non-controlling interests	(134)							(134)
Foreign currency translation adjustments	(5,623)				(5,620)		(5,620)	(3)
Net income	5,958					5,897	5,897	(61)
Total comprehensive income							277
Ending balance at Dec. 31, 2011	$ 110,247	$ 534	$ 207,930	$ (2,423)	$ (6,277)	$ (90,477)		$ 960
Ending balance (in shares) at Dec. 31, 2011		39,680,630

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PROPERTY AND EQUIPMENT, NET

12 Months Ended

Dec. 31, 2011

PROPERTY AND EQUIPMENT, NET

NOTE 4: PROPERTY AND EQUIPMENT, NET

	December 31,
	2010		2011
Cost:
Computers and peripheral equipment	$	14,857	$	17,330
Office furniture and equipment		2,362		3,842
Motor vehicles		160		176
Leasehold improvements		1,735		1,275
		19,114		22,623
Accumulated depreciation:
Computers and peripheral equipment		14,195		16,466
Office furniture and equipment		1,969		3,038
Motor vehicles		111		140
Leasehold improvements		1,678		1,165
		17,953		20,809
Depreciated cost	$	1,161	$	1,814

Depreciation expense totaled $ 475, $ 593 and $ 755 for the years 2009, 2010 and 2011, respectively. As for pledges, see Note 9.

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SELECTED STATEMENTS OF OPERATIONS DATA

12 Months Ended

Dec. 31, 2011

SELECTED STATEMENTS OF OPERATIONS DATA

NOTE 14: SELECTED STATEMENTS OF OPERATIONS DATA

a. Financial expenses, net:  

	Year ended December 31,
	2009			2010			2011
Total costs	$	6,427		$	8,680		$	9,743
Less - capitalized software development costs		(3,692	)		(5,387	)		(4,735	)
Research and development expenses, net	$	2,735		$	3,293		$	5,008

b. Financial income (expenses), net:

Financial income:
Interest	$	109		$	87		$	160
Foreign currency translation		241			39			530
		350			126			690
Financial expenses:
Interest		416			105			189
Foreign currency translation		313			249			341
Bank charges and others		43			30			56
Re-measurement of earn-out payment		-			106			-
Amortization of issuance expenses and discount on convertible notes		458			-			-
		(1,230	)		(490	)		(586	)
Financial income (expenses), net	$	(880	)	$	(364	)	$	104