Unassociated Document

Chapter 4

A. Rights Attaching to the Company’s Shares

The following is a brief description of provisions in the documents of incorporation of the Company regarding the matters set out in sections ‎4.1 - ‎4.6.15 below. This description is not a substitute for reading the full wording of the documents of incorporation of the Company, which may be found on the Magna website of the Israel Securities Authority (www.magna.isa.gov.il).

Note further that the documents of incorporation of the Company are in accordance with the laws of the State of California, the place of incorporation of the Company, and therefore, are subject to such law. The Bylaws themselves contain several references to the Corporations Code of California (hereinafter the "Code" or the "California Law").1

The following description of the Code or the California Law and to the U.S. Federal Securities Law (hereinafter the "U.S. Federal Securities Law") is based on the opinion of the law firm of Cooley LLP, which is licensed in the State of California (and which agreed to have such opinion included in this shelf prospectus), which is attached as Chapter K to this Prospectus, in the original and a translation into Hebrew for convenience. The following description refers to the documents of incorporation which the Company intends to adopt prior to the listing of securities for trading; such adoption shall be a condition for completing the issue.

4.1	Share Capital

Following the issue and prior to the listing of the securities for trading, the authorized share and the issued and paid-up share capital of the Company will be converted in accordance with Section 46B of the Securities Law, 5728-1968 (hereinafter the "Securities Law").2 Presuming conversion of the share capital as aforesaid, the authorized share capital the issued and paid-up share capital of the Company as at the date of listing for trading is comprised of Ordinary Shares of USD 0.001 par value each.

4.2	Rights Attaching to Company’s Shares3

The ordinary shares shall afford the holders of them the right to participate in meetings of the shareholders of the Company and to vote at such, including for the election of Directors of the Company, to participate in the distribution of dividends and to take part in the distribution of property upon the winding up of the Company.

1	The Corporations Code of California includes provisions applying to corporations in California and their securities.

2	Section 46B of the Securities Law states that a company whose shares are registered for trade the first time shall have shares of one class only.

3	As long as the Company's shares are traded on TASE, all the issued shares will be fully paid up.

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4.3	Dividends and Other Distributions

For purposes of determining the shareholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the shareholders entitled to exercise any rights in respect of any other lawful action (other than action by shareholders by written consent without a meeting4), the board of directors may fix, in advance, a record date, that shall follow the date of such resolution of the board and shall not be more than sixty (60) days before any such action. In that case, only shareholders of record at the close of business on the record date so fixed are entitled to receive the dividend, distribution or allotment of rights, or to exercise such rights, as the case may be, notwithstanding whether the shares were held on the date that the Record Date was fixed, and notwithstanding any transfer of any shares on the books of the Company after the record date so fixed, except as otherwise provided in the Code.

If the board of directors does not so fix a record date, then the record date for determining shareholders for any such purpose shall be at the close of business on the day on which the board adopts the applicable resolution or the sixtieth (60th) day before the date of that action, whichever is later.

4.4

Directors

The provisions regarding the board of directors of the Company are set out in the chapter on “Management of the Company” in section 7 below. The provisions regarding the election of directors are set out in section ‎4.6.8 below.

4.5	Transfer of Shares

4.5.1

The shares of the Company shall be represented by certificates, or shall be uncertificated. Certificates for the shares of stock, if any, shall be in such form as is consistent with the articles of incorporation and applicable law. Shares of the Company shall be issued to a shareholder when any of such shares are fully paid. The board of directors may authorize the issuance of certificates for shares partly paid provided that any certificates representing such shares shall state the total amount of the consideration to be paid for them and the amount actually paid. All certificates, if any, shall be signed in the name of the Company by the chairman of the board or the vice chairman of the board or the president or a vice president and by the chief financial officer or an assistant treasurer or the secretary or an assistant secretary, certifying the number of shares and the class or series of shares owned by the shareholder. Any or all of the signatures on the certificate may be facsimile.

4	An action by shareholders by written consent without a meeting may not be taken. See section ‎4.6.10 below.

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In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed on a certificate ceases to be that officer, transfer agent or registrar before that certificate is issued, it may be issued by the Company with the same effect as if that person were an officer, transfer agent or registrar at the date of issue.

4.5.2

Except as provided in this section, no new certificates for shares shall be issued to replace a previously issued certificate unless the latter is surrendered to the Company and cancelled at the same time. The board of directors may, in case any share certificate or certificate for any other security is lost, stolen or destroyed, authorize the issuance of replacement certificates on such terms and conditions as the board may require; the board may require indemnification of the Company secured by a bond or other adequate security sufficient to protect the Company against any claim that may be made against it, including any expense or liability, on account of the alleged loss, theft or destruction of the certificate or the issuance of the replacement certificate.

4.6	General Meetings

4.6.1

Place of Meetings

Meetings of shareholders shall be held at the offices of Q.B.I. Enterprises Ltd. in 3 Pinhas Sapir street, Nes Ziona or at any other place in Israel designated by the board of directors.

4.6.2

Annual Meeting

The annual meeting of shareholders shall be held each year on a date and at a time designated by the board of directors. At the meeting, directors shall be elected, and any other proper business may be transacted.

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4.6.3

Special Meeting

A special meeting of the shareholders may be called at any time by the board of directors, or by the chairman of the board, or by the president, or by any two directors, or by more than a quarter of the directors, or by one or more shareholders with at least five percent of the issued share capital and at least one percent of the voting rights in the corporation, or one or more shareholders with at least five percent of the voting rights in the corporation. If a special meeting is called by any person or persons other than the board of directors or the president or the chairman of the board, then the request shall be in writing, specifying the time of such meeting and the general nature of the business proposed to be transacted, and shall be delivered personally or sent by registered mail or by telegraphic or other facsimile transmission to the chairman of the board, the president, any vice president or the secretary of the Company. Where a board of directors is requested to convene a special meeting of the shareholders, it shall send a notice on such meeting within twenty-one days of the date on which the request was made, provided that the date of convening the meeting shall be no later than thirty-five days after the date of the notice on such meeting. Where the board of directors has not convened a special meeting demanded under this Section (a) the party demanding the convening of the meeting, and, in the case of shareholders, that portion of them that has more than half of their voting rights, may convene the meeting themselves, provided that the meeting shall not take place more than three months after the said demand is submitted, and that it is convened, if possible, in the same manner as meetings are convened by the board of directors; or (b) the court may order the convening of such a meeting, at the request of a person making a demand for such. Where a special meeting is convened by a party demanding the convening of such or at the order of the court, as aforesaid, the corporation shall bear reasonable costs incurred by that the demanding party or applicant in court proceedings (as set by the court), as applicable, and the directors responsible for the non-convening of the meeting shall be responsible for repaying such costs to the corporation.

The agenda at a meetings of shareholders shall be fixed by the board of directors and may also include matters in respect of which the convening of a special meeting is required under this Section as well as any matter requested by one or more shareholders with at least one percent of the voting rights at the general meeting, provided that it is appropriate to discuss such a matter in the meeting of the shareholders. Only resolutions regarding matters set out in the agenda may be passed by the meetings of shareholders.

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4.6.4

Notice of Shareholders’ Meetings5

All notices of meetings of shareholders shall be sent or otherwise given in accordance with section ‎4.6.5 below not less than ten (10) (or, if sent by third-class mail pursuant to section ‎4.6.5below, thirty (30)) nor more than sixty (60) days before the date of the meeting. The notice shall specify the place, date, and hour of the meeting, the means of electronic transmission by and to the Company (as defined in Sections 20 and 21 of the Code6) or electronic video screen communication, if any, by which shareholders may participate in that meeting, and (i) in the case of a special meeting, the general nature of the business to be transacted (no business other than that specified in the notice may be transacted) or (ii) in the case of the annual meeting, those matters which the board of directors, at the time of giving the notice, intends to present for action by the shareholders (but subject to the provisions of the next paragraph of this section ‎4.6.4 any proper matter may be presented at the meeting for such action). The notice of any meeting at which directors are to be elected shall include the name of any nominee or nominees who, at the time of the notice, the board intends to present for election.

If action is proposed to be taken at any meeting for approval of (i) a contract or transaction in which a director has a direct or indirect financial interest, pursuant to Section 310 of the Code7, (ii) an amendment of the articles of incorporation, pursuant to Chapter 9 of the Code8, (iii) a plan of conversion pursuant to Section 1152 of the Code9, (iv) a reorganization of the Company, pursuant to Section 1201 of the Code10, (v) a voluntary dissolution of the Company, pursuant to Section 1900 of the Code11, or (vi) a distribution in dissolution other than in accordance with the rights of outstanding preferred shares, pursuant to Section 2007 of the Code12, then the notice shall also state the general nature of that proposal.

5	As long as the Company is a Reporting Corporation as defined in section 1 of the Securities Law, the Company shall file an immediate statement noticing the shareholder's meeting in accordance with section 36B of the Securities Law Regulations (Periodic and immediate Statements) – 1970.

Sections 20 and 21 of the Code deal with delivery by and to the Company via electronic means, including fax, email, electronic bulletin board, and notice of publication therein, to a recipient who has given his consent to such use and in such a way as such may be saved or retrieved, and if sent to a shareholder or director, who have given their consent and the details of their consent in writing.

7	Section 310 of the Code deals with the approval of transactions between the Company and one or more of its directors or companies in which one or more of its directors have a material financial interest.

8	Chapter 9 of the Code deals with amendments to the articles of incorporation and the required corporate approvals.

9	Section 1152 of the Code deals with the conversion of a corporation to another business entity and the required corporate approvals.

10	Section 1201 of the Code deals with the requirement of shareholder approval for a reorganization of the Company.

11	Section 1900 of the Code deals with the ability of the shareholders or the board of directors to wind up and dissolve the Company under certain conditions.

12	Section 2007 of the Code deals with the approvals required for a distribution upon liquidation not in accordance with the liquidation rights of the preferred shares, and shareholders’ rights to dissent.

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4.6.5

Manner of Giving Notice; Affidavit of Notice13

Written notice of any meeting of shareholders shall be given either (i) personally or (ii) by first-class mail or (iii) by third-class mail but only if the Company has outstanding shares held of record by five hundred (500) or more persons (determined as provided in Section 605 of the Code14) on the record date for the shareholders’ meeting, or (iv) by telegraphic or other written communication. Notices not personally delivered shall be sent charges prepaid and shall be addressed to the shareholder at the address of that shareholder appearing on the books of the Company or given by the shareholder to the Company for the purpose of notice. If no such address appears on the Company’s books or is given, notice shall be deemed to have been given if sent to that shareholder by mail or telegraphic or other written communication to the Company’s principal executive office, or if published at least once in a newspaper of general circulation in the county where that office is located. Notice shall be deemed to have been given at the time when delivered personally or deposited in the mail or sent by telegram or other means of written communication.

If any notice addressed to a shareholder at the address of that shareholder appearing on the books of the Company is returned to the Company by the United States Postal Service marked to indicate that the United States Postal Service is unable to deliver the notice to the shareholder at that address, then all future notices or reports shall be deemed to have been duly given without further mailing if the same shall be available to the shareholder on written demand of the shareholder at the principal executive office of the Company for a period of one (1) year from the date of the giving of the notice.

An affidavit of the mailing or other means of giving any notice of any shareholders’ meeting, executed by the secretary, assistant secretary or any transfer agent of the Company giving the notice, shall be prima facie evidence of the giving of such notice.

4.6.6

Quorum

The presence in person or by proxy of the holders of a majority of the shares entitled to vote thereat constitutes a quorum for the transaction of business at all meetings of shareholders. The shareholders present at a duly called or held meeting at which a quorum is present may continue to do business (subject to the requirements of notice of the business to be transacted or to be presented to the shareholders as provided in section ‎4.6.4 above) until adjournment, notwithstanding the withdrawal of enough shareholders to leave less than a quorum, if any action taken (other than adjournment) is approved by at least a majority of the shares required to constitute a quorum.

4.6.7

Adjourned Meeting; Notice15

Any shareholders’ meeting, annual or special, whether or not a quorum is present, may be adjourned from time to time by the vote of the majority of the shares represented at that meeting, either in person or by proxy. In the absence of a quorum, no other business may be transacted at that meeting except as provided in section ‎4.6.6 above.

13	As long as the Company is a Reporting Corporation as defined in section 1 of the Securities Law, the Company shall file an immediate statement noticing the shareholders meeting in accordance with foot note 5 above.

14	Section 605 of the Code deals with the method of determining the number of holders of issued shares according to the Company’s records.

15	As long as the Company is a Reporting Corporation as defined in section 1 of the Securities Law, the Company shall file an immediate statement noticing the adjourned shareholder's meeting in accordance with section 36B of the Securities Law Regulations (Periodic and immediate Statements) – 1970.

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When any meeting of shareholders, either annual or special, is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place are announced at the meeting at which the adjournment is taken. However, if a new record date for the adjourned meeting is fixed or if the adjournment is for more than forty-five (45) days from the date set for the original meeting, then notice of the adjourned meeting shall be given. Notice of any such adjourned meeting shall be given to each shareholder of record entitled to vote at the adjourned meeting in accordance with the provisions of sections ‎4.6.4 and ‎4.6.5 above. At any adjourned meeting the Company may transact any business which might have been transacted at the original meeting.

4.6.8

Voting

The shareholders entitled to vote at any meeting of shareholders shall be determined in accordance with the provisions of section ‎4.6.11 below, subject to the provisions of Sections 702 through 704 of the Code16.

The shareholders’ vote need not be by ballot; provided, however, that any election for directors must be by ballot if demanded by any shareholder at the meeting and before the voting has begun or if the Company’s bylaws so require. If such vote for the election of directos was taken by ballots, a shareholder present at the meeting may fill in the ballot during the meeting.

Except as provided in the last paragraph of this Section, each outstanding share, regardless of class, shall be entitled to one vote on each matter submitted to a vote of the shareholders. Any shareholder entitled to vote on any matter may vote part of the shares in favor of the proposal, refrain from voting the remaining shares, or may vote them against the proposal, except in a vote for electing directors, in which it is not possible to vote against a candidate; but, if the shareholder fails to specify the number of shares which the shareholder is voting affirmatively, it will be conclusively presumed that the shareholder’s approving vote is with respect to all shares which the shareholder is entitled to vote.

16	Section 702 of the Code deals with voting on behalf of shareholders by fiduciaries. Section 703 deals with voting in respect of shares held by another corporation. Section 704 deals with voting in respect of shares held in the name of two or more persons.

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If a quorum is present, the affirmative vote of the majority of the shares represented and voting at a duly held meeting (which shares voting affirmatively also constitute at least a majority of the required quorum) shall be the act of the shareholders, unless a vote by classes is required by the Code.17

Shareholders shall not be entitled to cumulate their votes at any election of directors of the Company after the Company becomes a listed corporation within the meaning of Section 301.5 of the Code.18 At a shareholders’ meeting prior to the time the Company becomes a listed corporation within the meaning of Section 301.5 of the Code, if before the beginning of voting for the election of directors at the shareholders' meeting the candidates' names have been placed in nomination before the beginning of the voting and a shareholder has given notice of his intention to cumulate votes, a shareholder shall be entitled to cumulate votes (i.e., cast for any candidate a number of votes greater than the number of votes which such shareholder normally is entitled to cast). If any shareholder has given such a notice, then every shareholder entitled to vote may cumulate votes for candidates in nomination either (i) by giving one candidate a number of votes equal to the number of directors to be elected multiplied by the number of votes to which that shareholder’s shares are normally entitled or (ii) by distributing the shareholder’s votes on the same principle stated in sub-paragraph (i) among any or all of the candidates, as the shareholder thinks fit. The candidates receiving the highest number of affirmative votes, up to the number of directors to be elected, shall be elected; votes against any candidate and votes withheld shall have no legal effect.

4.6.9

Validation of Meetings not Called or Noticed as Aforesaid; Waiver of Notice19

The transactions of any meeting of shareholders, either annual or special, however called and noticed, and wherever held, shall be as valid as though they had been taken at a meeting duly held after regular call and notice, if a quorum be present either in person or by proxy, and if, either before or after the meeting, each person entitled to vote, who was not present in person or by proxy, signs a written waiver of notice or a consent to the holding of the meeting or an approval of the minutes thereof. The waiver of notice or consent or approval need not specify either the business to be transacted or the purpose of any annual or special meeting of shareholders, except that if action is taken or proposed to be taken for approval of any of those matters specified in the second paragraph of Section ‎4.6.4 above, the waiver of notice or consent or approval shall state the general nature of the proposal. All such waivers, consents, and approvals shall be filed with the Company’s corporate records or made a part of the minutes of the meeting.

17	The authorized share capital of the Company shall include only one class of shares.

18	A listed corporation is defined as a corporation whose shares are listed for trading on the NYSE, the NYSE Amex, the Nasdaq Global Market, or the Nasdaq Capital Market.

19	This section deals with the validation of meetings not called or noticed in accordance with the provision of the bylaws and permits the approval of actions taken in such meeting under certain conditions.

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Attendance by a person at a meeting shall also constitute a waiver of notice of and presence at that meeting, except when the person objects at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened. Attendance at a meeting is not a waiver of any right to object to the consideration of matters required by the Code to be included in the notice of the meeting but not so included, if that objection is expressly made at the meeting.

4.6.10

Shareholder Action by Written Consent without a Meeting

Any action taken by the shareholders of the Company shall be taken at an annual or special meeting of shareholders called in accordance with the Company’s Bylaws, and no action shall be taken by the shareholders by written consent or electronic transmission.20

4.6.11

Record Date for Shareholder Notice; Voting

For purposes of determining the shareholders entitled to notice of any meeting or to vote thereat, the board of directors may fix, in advance, a record date, which shall not be more than sixty (60) days nor less than ten (10) days before the date of any such meeting nor more than sixty (60) days before any such action without a meeting, and in such event only shareholders of record on the date so fixed are entitled to notice and to vote, notwithstanding any transfer of any shares on the books of the Company after the record date, except as otherwise provided in the Code.

If the board of directors does not so fix a record date, the record date for determining shareholders entitled to notice of or to vote at a meeting of shareholders shall be at the close of business on the business day next preceding the day on which notice is given or, if notice is waived, at the close of business on the business day next preceding the day on which the meeting is held.

The record date for any other purpose shall be as provided in section ‎4.3 above.

20	In light of this, following the listing the shareholders may not act by written consent without a meeting.

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4.6.12

Proof of Title in Shares

A shareholder whose shares are registered in the name of a nominee company wishing to vote at a shareholders' meeting shall provide the Company, at its official residence or at the offices of Q.B.I. Enterprises Ltd. at 3 Pinhas Sapir Street, the Science Park – Nes Ziona, and by no later than 72 hours before such shareholders' meeting, a proxy from the Nominee Company proving his title in the shares. The proxy shall be issued by the Nominee Company in accordance with the third alternative specified in section 12A(d) of part I of the bylaws of TASE Clearing House Ltd. Such shareholder wishing to vote at the shareholders' meeting shall apply for a proxy to the TASE member through which his shares are being held, stating the quantity in respect of which the proxy is requested. The member shall apply to the TASE Clearing House that shall examine the relevant balance of the shares on the record date and shall request the nominee company to provide the Proxy. The nominee company shall provide the Company with the proxy and the shareholder with a copy of which. The Company has received the opinion of the law firm of Cooley LLP, which is licensed in the State of California, that this provision of the TASE bylaws does not contradict Federal law or California law.

4.6.13

Proxies

Every person entitled to vote for directors, or on any other matter, shall have the right to do so either in person or by one or more agents authorized by a written proxy signed by the person and filed with the secretary of the Company. A proxy shall be deemed signed if the shareholder’s name is placed on the proxy (whether by manual signature, typewriting, telegraphic transmission or otherwise) by the shareholder or the shareholder’s attorney-in-fact. A validly executed proxy which does not state that it is irrevocable shall continue in full force and effect unless (i) the person who executed the proxy revokes it prior to the time of voting by delivering a writing to the Company stating that the proxy is revoked or by executing a subsequent proxy and presenting it to the meeting or by voting in person at the meeting, or (ii) written notice of the death or incapacity of the maker of that proxy is received by the Company before the vote pursuant to that proxy is counted; provided, however, that no proxy shall be valid after the expiration of eleven (11) months from the date of the proxy, unless otherwise provided in the proxy. The dates contained on the forms of proxy presumptively determine the order of execution, regardless of the postmark dates on the envelopes in which they are mailed. The revocability of a proxy that states on its face that it is irrevocable shall be governed by the provisions of Sections 705(e) and 705(f) of the Code21.

21	Sections 705(e) and 705(f) of the Code deal with the irrevocability of a proxy and the possibility to revoke it despite a provision making it irrevocable.

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4.6.14

Inspectors of Election

Before any meeting of shareholders, the board of directors may appoint an inspector or inspectors of election to act at the meeting or its adjournment. If no inspector of election is so appointed, then the chairman of the meeting may, and on the request of any shareholder or a shareholder’s proxy shall, appoint an inspector or inspectors of election to act at the meeting. The number of inspectors shall be either one (1) or three (3). If inspectors are appointed at a meeting pursuant to the request of one (1) or more shareholders or proxies, then the holders of a majority of shares or their proxies present at the meeting shall determine whether one (1) or three (3) inspectors are to be appointed. If any person appointed as inspector fails to appear or fails or refuses to act, then the chairman of the meeting may, and upon the request of any shareholder or a shareholder’s proxy shall, appoint a person to fill that vacancy.

Such inspectors shall:

determine the number of shares outstanding and the voting power of each, the number of shares represented at the meeting, the existence of a quorum, and the authenticity, validity, and effect of proxies;

receive votes or ballots;

hear and determine all challenges and questions in any way arising in connection with the right to vote;

count and tabulate all votes;

determine when the polls shall close;

determine the result; and

do any other acts that may be proper to conduct the election or vote with fairness to all shareholders.

4.6.15

Amendment of Provisions of Bylaws and Articles of Incorporation

(a)

Bylaw Amendments - the Board of Directors is expressly empowered to adopt, amend or repeal the Bylaws of the Company provided, however, that a bylaw specifying or changing a fixed number of directors or the maximum or minimum number or changing from a fixed to a variable board or vice-versa, may only be adopted by the affirmative vote of a majority of the outstanding shares of the Company entitled to vote.

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(b)

The shareholders shall also have power to adopt, amend or repeal the Bylaws of the Company; provided, however, that, in addition to any vote of the holders of any class or series of stock of the Company required by law or by the Articles of Incorporation of the Company, and subject to section ‎(a) above regarding the amendment of a bylaw specifying or changing a fixed number of directors or the maximum or the minimum number or changing from a fixed to a variable board or vice versa, the affirmative vote of the holders of at least sixty-six and two thirds percent (66 2/3%) of the voting power of all of the then outstanding shares of the capital stock of the Company entitled to vote generally in the election of directors, voting together as a single class, shall be required to adopt, amend or repeal any provision of the Bylaws of the Company. 22

(c)

The Articles of Incorporation of the Company may be approved by both the board of directors of the Company and a majority of the shareholders, except that a proposed amendment must be approved by the outstanding shares of a class,23 whether or not such class is entitled to vote thereon by the provisions of the articles, if the amendment would: (1) increase or decrease (with certain limitations) the aggregate number of authorized shares of such class; (2) effect an exchange, reclassification, or cancellation of all or part of the shares of such class, including a reverse stock split but excluding a stock split; (3) effect an exchange, or create a right of exchange, of all or part of the shares of another class into the shares of such class; (4) change the rights, preferences, privileges or restrictions of the shares of such class; (5) create a new class of shares having rights, preferences or privileges prior to the shares of such class, or increase the rights, preferences or privileges or the number of authorized share of any class having rights, preferences or privileges prior to the shares of such class; (6) in the case of preferred shares, divide the shares of any class into series having different rights, preferences, privileges or restrictions or authorized the board to do so; or (7) cancel or otherwise affect dividends on the shares of such class which have accrued but have not been paid.

4.7	Companies Law Provisions

The following provisions shall apply to the Company and they are included in the Company's incorporation documents (explicitly or by way of reference to the Companies Law).24 Note that pursuant to section 39A of the Securities Law, the aforesaid provisions shall not apply to the Company if its securities will be listed for trading on an overseas stock exchange, i.e., on a stock exchange listed in the Second or Third Schedule to the Securities Law. The provisions of the Companies Law that apply to the Company are as follows:25

This provision taken from the articles of incorporation of the Company takes precedence over the provision of the bylaws setting out that new bylaws may be adopted, or the bylaws amended or repealed, by the vote of the holders of a majority of the outstanding shares entitled to vote, other than an amendment to change the authorized number of directors.

23	The authorized share capital of the Company shall include only one class of shares.

24	The provisions of the Securities Law Regulations (Transaction between a Company and Controlling Shareholder therein), 2001, are not included in the incorporation documents since they are disclosure provisions.

According to section 39A(b) of the Israel Securities Law, the Israeli Securities Authority has granted the Company with an exemption from including the provisions of sections 184 – 185 that deal with the rights of the shareholders to inspect the Companies' documents and receive information, provided that a shareholder wishing to exercise his right to inspect documents and receive information may do so at the subsidiary offices in Israel and the Company undertakes to allow such shareholder to inspect documents relating to an action or transaction of the Company requiring approval in accordance with Sections 255, 268-275 of the Companies Law applying to the Company according to Section 39A of the Securities Law..

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Convening of Shareholders meeting and Proxies (sections 63 – 66, 87 and 89 of the Companies Law);

Chairman of the board of directors and chief executive officer (sections 95 and 121(c) of the Companies Law);

Audit committee (sections 114 to 117 of the Companies Law);

Internal auditor (sections 146 to 153 of the Companies Law);

Derivative and class actions (sections 194 to 218 of the Companies Law);

Office of officers (sections 225 – 226A, 231 – 232A, 234 and 251A of the Companies Law);

External directors (sections 239 to 249A of the Companies Law);

Duties of officers (sections 252 to 256 of the Companies Law);

Transactions with controlling shareholders (sections 270(4) and 275 to 282 of the Companies Law and the Securities Law Regulations (Transaction between a Company and Controlling Shareholder therein) 2001); and

Tender offers (sections 328 to 340 and 342A of the Companies Law, the Securities Law Regulations (Purchase Offer), 2000).

The provisions of the bylaws and articles of incorporation of the Company are not contradictory to the above Companies Law provisions. However, The Company does not express any opinion as to the legal applicability of the extension of laws that applies to a company incorporated in the State of California under Israeli legislation and/or the legal ability to apply Israeli law to the Company in those or other matters. In accordance with the incorporation documents of the Company, the above provisions of the Companies Law and the provision regarding the place of the shareholder's meeting that is mentioned in section ‎4.6.1 above, shall cease to apply to the Company in the event that the securities of the Company will be listed for trading in a stock exchange outside of Israel or that the provisions of chapter E(3) of the Securities Law shall apply to the Company.

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B. Comparison of Various Issues in California Law and Israeli Law

The following is a general and non-exhaustive description of issues in Israeli law and the laws of the State of California which apply to the Company, which does not purport to be an exhaustive description nor an authorized interpretation of the law, and which is not a substitute for professional advice. This description is a description of the relevant laws as at the date of the Prospectus and naturally, changes may occur to such laws from time to time.

4.8	Application of Certain Provisions of Israeli Corporate Law to the Company by virtue of the Provisions of the Securities Law

The Company was incorporated and registered outside of Israel under the law of the State of California, and was not incorporated under the provisions of the Companies Ordinance [New Version], 5743-1983 (hereinafter the “Companies Ordinance”) nor under the provisions of the Companies Law, 5759-1999 (hereinafter the “Companies Law”).

Under the provisions of section 39A of the Securities Law, the provisions of the Companies Law and the regulations under the Securities Law set out in the Fourth Schedule (to the Securities Law) shall apply, with the amendments set out therein, to a company incorporated outside of Israel which offers its shares to the public in Israel, however ISA may exempt it from any or all provisions and regulations if it is of the opinion that the law outside of Israel that applies to the Company satisfactorily ensures the interests of the public investors in Israel. The issues set out in the Fourth Schedule that will apply to the Company (an exemption was not given with regards to them) are as follows:

Convening of shareholders' meeting and Proxies (sections 63 – 66, 87 and 89 of the Companies Law), chairman of the board of directors and chief executive officer (sections 95 and 121(c) of the Companies Law), audit committee (sections 114 to 117 of the Companies Law), internal auditor (sections 146 to 153 of the Companies Law), derivative and class actions (sections 194 to 218 of the Companies Law), office of officers (sections 225 – 226A, 231 – 232A, 234 and 251A), external directors (sections 239 to 249A of the Companies Law), Duties of officers (sections 252 to 256 of the Companies Law), transactions with controlling shareholders (sections 270(4) and 275 to 282 of the Companies Law and the Securities Law Regulations (Transaction between a Company and Controlling Shareholder therein), 2001) and tender offers (sections 328 to 340 and 342A of the Companies Law, the Securities Law Regulations (Purchase Offer), 2000).

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In light of the aforesaid, the above provisions apply to the Company and they are included in the Company's bylaws (explicitly or by way of reference to the Companies Law).26 Note that pursuant to section 39A of the Securities Law, the aforesaid provisions shall not apply to the Company if its securities will be listed for trading on an overseas stock exchange, i.e., on a stock exchange listed in the Second or Third Schedule to the Securities Law.

The Company does not express any opinion as to the legal applicability of the extension of laws that applies to a company incorporated in the State of California under Israeli legislation and/or the legal ability to apply Israeli law to the Company in those or other matters.

4.9	Comparison of a number of issues in corporate law under California Law and Israeli Law

For the reader’s convenience, the following is a table comparing various issues in California Law and Israeli Law. For additional details see sections ‎4.9.1through ‎4.9.20 of this Prospectus. For details of the enforcement of foreign judgments in California, see section ‎4.10of the Prospectus.

Section of Prospectus	Issue	Israeli law (as it relates to a public company)	California Law and U.S. Federal Securities Law (as it relates to a public company)	Comments
4.9.1	Incorporation	A company exists as of the date of incorporation set out in the certificate of incorporation.	A company comes into being from the moment of due submission of its articles of incorporation, or from such later date (up to 90 days) as may be set out in the articles of incorporation.	The Company came into existence on the date its original Articles of Incorporation were filed, December 14, 1993.

4.9.2	Share buy-back	Buy-back of shares permitted subject to conditions regarding permissible distribution, and the shares held by the Company not affording any rights so long as they remain held by the Company.	Buy-back is permitted subject to conditions regarding retention of earnings and assets. The shares bought back or redeemed shall be returned to the status of authorized but unissued shares, unless the articles of incorporation prohibit the reissuance thereof.	No mention in the documents of incorporation of the Company.

26	The provisions of the Securities Law Regulations (Transaction between a Company and Controlling Shareholder therein), 2001, are not included in the incorporation documents since they are disclosure provisions.

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Section of Prospectus	Issue	Israeli law (as it relates to a public company)	California Law and U.S. Federal Securities Law (as it relates to a public company)	Comments
4.9.3	Management of the Company	A management structure in which the board of directors delineates the Company’s policy and oversees performance by the chief executive officer of his functions and acts. The board of directors may set up committees and delegate powers to them under the conditions and limitations set out in the Companies Law.	The Company’s business and affairs shall be managed and all corporate powers exercised by the board of directors. The board of directors may appoint one or more committees and may delegate authority to them with the limitations set out in the California Law. The company shall also have a chairman of the board or a president or both, a secretary, a chief financial officer and such other officers with such titles and duties as shall be stated in the bylaws or determined by the board and as may be necessary to enable it to sign instruments and share certificates.

4.9.4	External Directors	There is an obligation to appoint at least two external directors in a public company. Inter alia, at least one of the external directors must have accounting and finance experience and the rest of the directors must have professional qualifications.	There is no obligation to appoint external directors under the California Law.	Under section 39A of the Securities Law, the Company is subject to the provisions of the Companies Law regarding External Directors.

4.9.5	Internal Auditor	The board of directors of a public company must appoint an internal auditor, at the proposal of the audit committee.	Under California Law, there is no obligation to appoint an internal auditor, unless the board of directors resolves to do so at its discretion.	Under section 39A of the Securities Law, the Company is subject to the provisions of the Companies Law regarding Internal Auditor.

4.9.6	Audit Committee	The board of directors of a public company must appoint an audit committee from amongst its members.	There is no obligation under California Law to appoint an audit committee.	Under section 39A of the Securities Law, the Company is subject to the provisions of the Companies Law regarding Audit Committee.

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Section of Prospectus	Issue	Israeli law (as it relates to a public company)	California Law and U.S. Federal Securities Law (as it relates to a public company)	Comments
4.9.7	Financial Statements	A public company drafts its financial statements under the provisions of the Securities Law. Pursuant to the Securities Law Regulations (Annual Financial Statements), 2010 (hereinafter the "Financial Statements Regulations"), the rule is that financial statements are to be drafted in accordance with international reporting standards. So long as the Company is in compliance with the conditions of being a “foreign issuer” as defined in section 1 of the Financial Statements Regulations, it may draft financial statements in Israel pursuant to accepted accounting rules in the USA, subject to the requirements of such Regulations.	Under U.S. securities laws, a domestic public reporting company must submit financial statements prepared under accounting principles generally-accepted in the U.S.

4.9.8	Payment of dividends	The laws applying to permitted distributions, as set out in the Companies Law, apply to the distribution of dividends under which a company may pay dividends out of its profits (hereinafter the “profit test”), provided that there is no reasonable suspicion that such distribution might prevent the company from being able to pay its existing and anticipated debts when the time comes for so paying (hereinafter: the “solvency test”). For the purposes of the profit test, “profits” are defined as the balance of surplus or the surplus accumulated over the past two years, whichever is the greater, in accordance with the last adjusted financial reports drafted by the company less previous distributions if not already subtracted from such surpluses, provided that the date in respect of which the reports were prepared is no earlier than six months prior to the date of distribution. A court may allow a distribution which does not meet the profit test, provided that it is convinced that the solvency test has been upheld.	The laws applying to permitted distributions, as set out in the California General Corporations Law, apply to the distribution of dividends. The directors of any company may, subject to the restrictions set out in the articles of incorporation, declare and pay dividends on shares of the company if either: (a) the amount of retained earnings of the company immediately prior thereto equals or exceeds the amount of the proposed redemption, or (b) immediately after giving effect thereto both (i) the sum of the assets of the company (exclusive of goodwill, capitalized research and development expenses and deferred charges) would be at least equal to 1.25 times its liabilities (not including deferred taxes, deferred income and another deferred credits) and (ii) the current assets of the company would be at least equal to its current liabilities or, if the average of the earnings of the company before taxes on income and before interest expense for the two preceding fiscal years was less than the average of the interest expenses of the corporation for those fiscal years, at least equal to 1.25 times its current liabilities, subject to certain provisos.

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Section of Prospectus		Issue		Israeli law (as it relates to a public company)		California Law and U.S. Federal Securities Law (as it relates to a public company)		Comments
4.9.9		Transactions with related parties and conflicts of interest.		Certain transactions with officers and interested parties require special approval procedures, inter alia in accordance with classification of the transaction (extraordinary transaction / non-extraordinary transaction or conditions of office and employment), the identity of the party with the personal interest (officer / director / controlling shareholder). The transactions might require the approval of the audit committee, the board of directors, and the general meeting (by an ordinary majority or by a majority that contains one third of the minority shareholders). Likewise, there are restrictions on the actions of officers who have conflicts of interest due to the fiduciary duty that they owe to the Company, and special approval procedures for certain actions taken by officers with conflicts of interest have been prescribed.		As a rule, most companies specify that approval of deals with interested parties shall be carried out by the Audit Committee and the Board of Directors, but the law does not call for special approval procedures, except those listed below.		Under section 39A of the Securities Law, the Company is subject to the provisions of the Companies Law regarding Transactions with related parties and conflicts of interest.

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Section of Prospectus	Issue	Israeli law (as it relates to a public company)	California Law and U.S. Federal Securities Law (as it relates to a public company)	Comments
4.9.10	Chairman of the Board of Directors and CEO	Except during the first three months after the Company's initial public issue, the CEO of the Company may not act as the chairman of its board of directors and the chairman of the board of directors shall not be given the powers of the CEO except subject to the approval of the general meeting by a majority that includes at least two thirds of the shareholders who are not controlling shareholders of the Company or persons representing such shareholders and present at the vote, and for a period of not more than three years after the date of passing the resolution.	The CEO of a company is not prohibited from serving as the chairman of its board of directors.	Under section 39A of the Securities Law, the Company is subject to the provisions of the Companies Law regarding Transactions with related parties and conflicts of interest.

4.9.11	Grant of exemption, indemnity and insurance for directors and officers.	A company may not exempt an officer from liability for breach of his fiduciary duty towards it. A company may grant an exemption from breach of a duty of care towards it, in accordance with the provisions of the Companies Law. A company may insure the liability of an officer, or may indemnify him in accordance with the provisions of the Companies Law. With respect to indemnification in advance, this must be restricted to those events which in the opinion of the board of directors are foreseeable in light of the company’s actual operations at the time of giving the undertaking.	The law permits release of a director or officer from breach of a fiduciary duty by a director or officer toward the Company or toward its shareholders, under certain conditions and restrictions. The law permits indemnification of a director or officer of the Company under certain conditions and restrictions. Likewise, the law permits a director and an officer to be insured, even if it is not possible to indemnify them for a particular case.

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Section of Prospectus	Issue	Israeli law (as it relates to a public company)	California Law and U.S. Federal Securities Law (as it relates to a public company)	Comments
4.9.12	Duty of trust and care	An officer owes a duty of care and a duty of trust to the company, as set out in the Companies Law.	Case law in California provides that directors and officers owe a fiduciary duty (including duties of care and loyalty) towards the Company and its shareholders.	Under section 39A of the Securities Law, the Company is subject to the provisions of the Companies Law regarding the duty of trust and care of officers.

4.9.13	Rights and obligations of shareholders	The rights and obligations of a shareholder shall be as set out in the Companies Law, in the articles of association of the company and under any law, including the right to vote, the right to receive information, perusal of the company’s documents, information regarding remuneration of directors, and the right to receive the articles of association and the financial statements. A shareholder shall be under an obligation to act towards the Company and the other shareholders in good faith and in an acceptable manner, and shall avoid abusing his power in the Company.	The rights and obligations of a shareholder shall be as set out in the California Law, in the articles of incorporation of the company and under any law, including the right to vote, the right to receive certain notices and information, and the right to receive the articles of incorporation and bylaws of the Company. A shareholder usually does not owe a duty to the corporation or its shareholders. Every shareholder shall be entitled, under certain circumstances, to check, copy or prepare summaries of certain of the Company's documents.

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Section of Prospectus		Issue		Israeli law (as it relates to a public company)		California Law and U.S. Federal Securities Law (as it relates to a public company)		Comments
4.9.14		Amendment of bylaws and documents of incorporation		The Companies Law provides that a company may amend its bylaws by way of a resolution passed by an ordinary majority at the general meeting of the company, unless the bylaws prescribe that a different majority is required. An amendment of the bylaws that requires a shareholder to acquire further shares or to increase the scope of his liability shall not bind the shareholder without his consent. Amendment of the bylaws, with the exception of certain amendments that require registration with the Companies Registrar, shall take effect from the date of passing of the resolution of such by the general meeting.		Under California Law, a company’s articles of incorporation may be amended by both the approval of a majority of the members of the board of directors and a majority of the outstanding shares entitled to vote, in addition to any other required approval set forth in the Articles of Incorporation. In addition, proposed amendments to a California company’s articles of incorporation must be approved by the outstanding shares of a class, whether or not the articles entitle the class to vote on the matter, if the amendment would, among other things: (i) increase or decrease the aggregate number of authorized shares of the class; (ii) change the rights, preferences, privileges or restrictions of the shares of the class; (iii) create a new class of shares having rights, preferences or privileges prior to the shares of the class; or (iv) increase the rights, preferences, privileges or the number of authorized shares of any class having rights, preferences or privileges prior to the shares of the class. Under California Law, a company’s bylaws may be adopted, amended or repealed either by approval of a majority of the outstanding shares or by approval of a majority of the board of directors, in addition to any other required approval set forth in the articles of incorporation; except that a bylaw specifying or changing a fixed number, maximum number or minimum number of directors, or changing from a fixed to a variable board or vise versa, must be approved by a majority of the outstanding shares.

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Section of Prospectus	Issue	Israeli law (as it relates to a public company)	California Law and U.S. Federal Securities Law (as it relates to a public company)	Comments
4.9.15	Voting at general meeting by proxy	The Companies Law permits shareholders of a company to vote at the general meeting and at class meetings by proxy, on resolutions regarding the matters set out in the law.	California Law permits every person entitled to vote shares of a company to vote at the general meeting and at class meetings by proxy, on any subject on the agenda, with respect to such shares.

4.9.16	Special Tender Offer	The Companies Law prescribes that no acquisition shall take place which results in a person becoming the holder of a cluster of control (shares affording 25% or more of the voting rights in the company) if there is no other holder of a cluster of control in the Company, and that no acquisition shall take place which results in the purchaser’s holdings increasing above 45% of the voting rights in the company, if there is no other person who holds more than half of the voting rights in the company, other than by way of a special tender offer, as set out in the Companies Law.	There is no similar restriction.	Under section 39A of the Securities Law, the Company is subject to the provisions of the Companies Law regarding Special Tender Offer.

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Section of Prospectus	Issue	Israeli law (as it relates to a public company)	California Law and U.S. Federal Securities Law (as it relates to a public company)	Comments
‎4.9.17	Forced Sale of Shares	The Companies Law provides that a person shall not acquire shares of a public company that are listed for trading on a stock exchange such that after such acquisition he will hold more than 90% of the shares of the public company, other than by way of an offer to acquire all of the shares. Forced sales are possible under a full tender offer, if the rate of the holdings of the offerees who do not accept the offer constitutes less than 5% of the share capital of the company.	§ 1203, § 1101(e) of the Code may make a cash “freezeout” merger by a majority shareholder more difficult to accomplish. Except (i) in a short-form merger, (ii) in the merger of a company into its subsidiary in which it owns at least 90% of the outstanding shares of each class, , or (iii) if all of the shareholders of the class consent, the nonredeemable common shares or nonredeemable equity securities of a constituent company may be converted only into nonredeemable common shares of the surviving party or a parent party if a constituent company or its parent owns, directly or indirectly, prior to the merger shares of another constituent company representing more than 50% of the voting power of the other constituent company prior to the merger,.	Under section 39A of the Securities Law, the Company is subject to the provisions of the Companies Law regarding Forced Sale of Shares.

‎4.9.18	Class actions and derivative actions	The Class Actions Law, 5766-2006 provides the option of filing a class action on behalf of a group where each of the members of the group has a cause of action deriving from the same connection (as defined in section 5 of the Second Schedule to the Class Actions Law above) to a security. Likewise, Israeli law, under the Companies Law, 5759-1999, provides an option of filing a derivative claim on behalf of the Company.	The law grants a shareholder the right to submit a derivative claim, upon the existence of certain conditions. Likewise, a shareholder may submit a claim against the Company as part of a class action upon the existence of certain conditions.

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Section of Prospectus	Issue	Israeli law (as it relates to a public company)	California Law and U.S. Federal Securities Law (as it relates to a public company)	Comments
4.9.19	Grounds for winding up the company	Grounds for winding up are as set out in the Companies Ordinance	A company may resolve to wind itself up by way of a resolution of the board of directors, in certain circumstances, or by a resolution of the shareholders holding a majority of the company’s shares. Winding up of the company shall come into force upon submission of articles of liquidation to the Secretary of the State of California. Winding up is not under the supervision of the court, but a shareholder or creditor may apply to the court to appoint a receiver over the company, who shall be granted such powers as the court may see fit.

4.9.20	Settlement and arrangement	The Companies Law provides that where a settlement or arrangement are proposed between a company and its creditors or shareholders, or between a company and any particular class of creditors or shareholders, the court may, at the application of the company, of a creditor or of a shareholder, or of a liquidator if the company is in liquidation, order the convening of a meeting of such creditors or shareholders, as the case may be, in such manner as the court shall order.	There is no comparable statute in California

4.9.1

Incorporation

Israeli law – a company exists from the date of its incorporation, as set out in the certificate of incorporation, i.e., a certificate signed by the Registrar of Companies attesting to registration of the Company and constituting conclusive evidence of the fact that the requirements of the Companies Law regarding registration, and any matter that is a condition thereof, have been fulfilled.

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California, USA Law and USA Federal Securities Law, as applicable - any person may set up or incorporate a company under the California Law by submitting articles of incorporation to the Office of the Secretary of State of the State of California, signed, approved and submitted in accordance with the provisions of the California Law. A company comes into being from the moment of due submission of its articles of incorporation, or from such later date (up to 90 days) as may be set out in the articles of incorporation.

4.9.2

Share buy-back

Israeli law – buy back of shares of a listed company in Israel is subject to the provisions of Part VII, Chapter 2 of the Companies Law (“Retention of Capital and Distribution”), which prescribes conditions for the distribution of profits. Where a company buys back one of its shares, it may cancel the share, and if it does not cancel the share, such share will not afford any rights so long as it is owned by the company.

California, USA Law and USA Federal Securities Law, as applicable - a company may purchase, redeem, receive, take or otherwise acquire its own shares if either: (a) the amount of retained earnings of the company immediately prior thereto equals or exceeds the amount of the proposed redemption, or (b) immediately after giving effect thereto both (i) the sum of the assets of the company (exclusive of goodwill, capitalized research and development expenses and deferred charges) would be at least equal to 1.25 times its liabilities (not including deferred taxes, deferred income another deferred credits) and (ii) the current assets of the company would be at least equal to its current liabilities or, if the average of the earnings of the company before taxes on income and before interest expense for the two preceding fiscal years was less than the average of the interest expenses of the corporation for those fiscal years, at least equal to 1.25 times its current liabilities, subject to certain provisos.

Shares bought back or redeemed by the company shall be returned to the status of authorized but unissued shares, unless the articles of incorporation prohibit the reissuance thereof.

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4.9.3

Management of the Company

Israeli law – the Companies Law provides that the board of directors shall delineate the company’s policy and supervise performance of the functions and actions of the CEO. The Companies Law also sets out a list of powers granted to the board of directors. The board of directors may set up committees and delegate powers to them under the conditions and limitations set out in the Companies Law. The Companies Law prescribes provisions regarding the number of directors of the company, and conditions regarding limitations on appointments and termination of the office of directors. The Companies Law also provides that a person convicted in a conclusive judgment of the offenses set out in the Companies Law which relate, inter alia, to use of inside information, breach of various provisions regarding publication of prospectuses, and fraud relating to securities, may not be appointed to act as a director of a public company.

California, USA Law and USA Federal Securities Law, as applicable - the business and affairs of a company incorporated under the California Law shall be managed by or under the instruction of the board of directors, unless otherwise prescribed in the California Law or in the articles of incorporation of the company. The California Law also sets out a list of powers granted to the board of directors.

The board of directors may appoint one or more committees. Each committee shall be comprised of one or more directors of the company. Every such committee shall have the powers and authority afforded to it by resolution of the board of directors or by the articles of incorporation of the company, and it shall exercise all of the powers and authorities of the board of directors in running the business and affairs of the company. However, no such committee shall have powers or authorities with respect to the following: (1) approval of any action which the California Law expressly requires be submitted to the shareholders for approval, (2) filling of vacancies on the board or any committee, (3) the fixing of compensation of the directors, (4) the amendment or repeal of bylaws or the adoption of new bylaws (5) the amendment or repeal of any resolution of the board which, by its express terms, is not so amendable or repealable, (6) a distribution, subject to certain limitations, and (7) the appointment of other committees.

The California Law also provides that the company shall have a chairman of the board or a president or both, a secretary, a chief financial officer and such other officers with such titles and duties as shall be stated in the bylaws or determined by the board and as may be necessary to enable it to sign instruments and share certificates. Except as may be otherwise provided by the articles or bylaws, officers shall be chosen by the board and serve at the pleasure of the board.

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4.9.4

External Directors27

Israeli law – the Companies Law provides an obligation to appoint two external directors in a public company. The appointment shall be by the general meeting, by a majority that includes at least one third of all of the votes of the shareholders who are not controlling shareholders of the Company or persons acting on their behalf, and participating in the vote. Likewise, the Companies Law provides various qualification conditions for the appointment and tenure of external directors, including no connection (as defined in the Companies Law) of an external director to the company, to the controlling shareholder or to another corporation under the control of the company or its controlling shareholder. Inter alia, at least one of these directors must have accounting and finance experience and the rest of the directors must have professional qualifications. A resident of Israel and who is fit for appointment as a director may be appointed as an external director. First external directors shall be appointed by general meeting to be convened no later than three months from the date on which the company became a public company. The term of office of an external director shall be three years, and a company may appoint such external director (in the manner set out above) for another term of three years.

California, USA Law and USA Federal Securities Law, as applicable - the California Law does not contain any obligation to appoint external directors or independent directors.

4.9.5

Internal Auditor28

Israeli law – the Companies Law provides that the board of directors of a public company is to appoint an internal auditor, upon the proposal of the company’s audit committee. The internal auditor shall examine, inter alia, the propriety of acts of the company from the point of view of observation of the law and proper business administration and shall submit a report of his findings to the chairman of the board of directors, the CEO and the chairman of the audit committee.

California, USA Law and USA Federal Securities Law, as applicable - the California Law does not contain any obligation to appoint an internal auditor.

27	The Company intends to appoint two external directors.

28	The Company intends to appoint an internal auditor.

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4.9.6

Audit Committee

Israeli law – the Companies Law provides that the board of directors of a public company is to appoint an audit committee from among its number, whose purpose shall be to examine deficiencies in the management of the company’s business, and to decide whether to approve actions and transactions that require the approval of the audit committee, regarding failure to comply with a fiduciary duty on the part of the officer, and regarding the company's entry into an agreement with officers, directors and controlling shareholders, as set out in the Companies Law. There shall be no fewer than three members of the audit committee, and all of the external directors shall be members of it. The chairman of the board of directors, a director employed by the company or providing it with services on a regular basis, a controlling shareholder or a relative of such person shall not serve as members of the audit committee.

California, USA Law and USA Federal Securities Law, as applicable – Except in a number of cases, the board of directors may delegate its powers to committees comprised of one or more directors, as set out in section ‎4.9.3 above, but the California Law contains no obligation to appoint an audit committee. However, under the Securities Exchange Act of 1934, a U.S. public company listed on a U.S. national securities exchange is required to establish an audit committee. Members of the audit committee may not be employees of the company, and are generally subject to enhanced independence requirements, with the specifics depending on the U.S. national securities exchange on which the company’s securities are listed. The Exchange Act requires public companies, whether listed or not, to make certain disclosures regarding the constitution and governance of their audit committees.

4.9.7

Financial Statements

Israeli Law - a public company drafts its financial statements in accordance with the provisions of the Securities Law. Pursuant to the Financial Statements Regulations, the rule is that financial statements are to be drafted in accordance with international reporting standards. However, so long as the Company is in compliance with the conditions of being a "foreign issuer" as defined in section 1 of the Financial Statements Regulations29, it may draft financial statements in Israel pursuant to accepted accounting rules in the USA, subject to the requirements of such Regulations.

The Company is to submit its financial statements in Israel in accordance with the Financial Statements Regulations on the dates set forth in the Securities Law Regulations (Periodic and immediate Statements) – 1970, and its financial statements in the USA in accordance with US securities laws.

A “foreign issuer” is defined in section 1 of the Financial Statements Regulations as an issuer incorporated outside of Israel in which the following conditions apply, on the date of its first offer to the public: (1) more than 50% of its revenues have not been received in Israel; (2) control of it is held by persons who are not permanent residents of Israel; for this purpose, the holding or acquisition of securities jointly with others shall be with the exception of holding jointly with a permanent resident of Israel.

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California, USA Law and USA Federal Securities Law, as applicable - under US securities laws, a domestic public reporting company must submit financial statements prepared under accounting principles generally-accepted in the U.S.

4.9.8

Dividends

Israeli law – the resolution of a company to pay a dividend shall be approved by the board of directors of the company, however, the company may prescribe in its bylaws that the resolution be passed in one of the manners set out in the Companies Law which include a recommendation or instruction by the board of directors that the distribution in question is not a prohibited distribution. The laws applying to permitted distributions, as set out in the Companies Law, apply to the distribution of dividends under which a company may pay dividends out of its profits (the “profit test”), provided that there is no reasonable suspicion that such distribution might prevent the company from being able to pay its existing and anticipated debts when the time comes for so paying (the “solvency test”). For the purposes of the profit test, “profits” are defined as the balance of surplus or the surplus accumulated over the past two years, whichever is the greater, in accordance with the last adjusted financial reports drafted by the company less previous distributions if not already subtracted from such surpluses, provided that the date in respect of which the reports were prepared is no earlier than six months prior to the date of distribution. A court may allow a distribution which does not meet the profit test, provided that it is convinced that the solvency test has been upheld. Where a company effects a prohibited distribution, the shareholder shall return what was received to the company, unless the shareholder did not know and ought not to have known that the distribution effected was prohibited.

California, USA Law and USA Federal Securities Law, as applicable – the directors of any company may, subject to the restrictions set out in the articles of incorporation, declare and pay dividends on shares of the company if either: (a) the amount of retained earnings of the company immediately prior thereto equals or exceeds the amount of the proposed redemption, or (b) immediately after giving effect thereto both (i) the sum of the assets of the company (exclusive of goodwill, capitalized research and development expenses and deferred charges) would be at least equal to 1.25 times its liabilities (not including deferred taxes, deferred income another deferred credits) and (ii) the current assets of the company would be at least equal to its current liabilities or, if the average of the earnings of the company before taxes on income and before interest expense for the two preceding fiscal years was less than the average of the interest expenses of the corporation for those fiscal years, at least equal to 1.25 times its current liabilities, subject to certain provisos.

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Dividends may be paid in cash, in kind or in shares of the company.

4.9.9

Transactions with related parties and conflicts of interest

Israel Law - Certain transactions with officers and interested parties require special approval procedures, inter alia in accordance with classification of the transaction (extraordinary transaction / non-extraordinary transaction or conditions of office and employment), and the identity of the party with the personal interest (officer / director / controlling shareholder). The transactions might require the approval of the audit committee, the board of directors, and the general meeting (by an ordinary majority or by a majority that contains one third of the minority shareholders).

The main approval requirements are as follows:

(a)

A transaction by a company which is not an extraordinary transaction with an officer of it or with another in whom the officer has a personal interest, shall require the approval of the board of directors, unless some other manner of approval is prescribed in the bylaws of the company.

(b)

An extraordinary transaction by the company with an officer of it or with another person in which the officer has a personal interest, or a transaction relating to the grant of an exemption, insurance or indemnity to an officer who is not a director shall require the approval of the audit committee and thereafter, the approval of the board of directors.

(c)

A contract between the Company and a director with respect to the conditions of his office and employment shall require the consent of the audit committee, the board of directors and the general meeting (in that order).

(d)

A substantial private offer shall require the approval of the board of directors followed by the approval of the general meeting.

(e)

An extraordinary transaction by the company with a controlling shareholder of it or an extraordinary transaction by the company with another person in which the controlling shareholder has a personal interest, including a private offer in which the controlling shareholder has a personal interest or a contract by the company with the controlling shareholder of it or his relative, if he is also an officer of it, with respect to the conditions of his office and employment, and if he is an employee of the company but not an officer of it, with respect to his employment by the company, shall require the consent of the audit committee, the board of directors and the general meeting (in that order), provided that one of the following conditions is in existence: (i) The majority votes at the general meeting shall include the votes of at least one third of the votes of those shareholders who do not have a personal interest in approval of the transaction and participating in the ballot (abstentions shall not be taken into account in this regard); (ii) the total number of votes against, by the shareholders set out in sub-paragraph (i) above, is to be no more than 1% of the sum total of voting rights in the Company.

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Likewise, there are restrictions on the actions of officers who have conflicts of interest due to the fiduciary duty that they owe to the Company, and special consent procedures for certain actions taken by officers with conflicts of interest have been prescribed.

California, USA Law and USA Federal Securities Law, as applicable - The compensation of officers of the Company is approved by the board of directors or any committee thereof to which the board has delegated this responsibility. A transaction in which one of the Company’s directors has an interest will not be void or voidable because of such interest provided that certain conditions are met. Either (a) the shareholders or the Board or a committee of the Board to which the board has delegated this responsibility must approve any such transaction in good faith after full disclosure of the material facts, and, in the case of Board or committee approval, the transaction must also be “just and reasonable” to the corporation or (b) the transaction must have been just and reasonable as to the Company at the time it was approved. In the latter case, California Law places the burden of proof on the interested director. If shareholder approval is sought, the transaction must be approved by the holders of a majority of the shares entitled to vote, and the interested director is not entitled to vote his or her shares with respect to any action regarding such transaction. If Board approval is sought, the transaction must be approved by a majority vote of a quorum of the directors, without counting the vote of any interested directors (except that interested directors may be counted for purposes of establishing a quorum).

A company may not lend money, guarantee undertakings or otherwise assist an officer or other employee of the company or of its parent, including an officer or employee who is a director of the company or of its parent, unless the transaction, or an employee benefit plan authorizing the loans or guarantees after disclosure of the right under such a plan to include officers or directors, is approved by a majority of the shareholders entitled to act thereon. Notwithstanding the foregoing, if the company has outstanding shares held of record by 100 or more persons on the date of approval by the board, and has a bylaw approved by the outstanding shares authorizing the board alone to approve such a loan or guaranty to an officer, whether or not a director, or an employee benefit plan authorizing such a loan or guaranty to an officer, such a loan or guaranty or employee benefit plan may be approved by the board alone by a vote sufficient without counting the vote of any interested director or directors if the board determines that the loan, guarantee or assistance may be reasonably expected to be beneficial to the company.

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4.9.10

Chairman of the Board of Directors and CEO of the Company

Israeli law - the Companies Law provides that except during the first three months after a company floats, the CEO of the company shall not act as chairman of its board of directors and the chairman of the board of directors shall not be given the powers of the CEO. However, the general meeting of a public company may resolve that for periods, each of which is not greater than three years after the date of passing of a resolution, the chairman of the board of directors may be authorized to perform the functions of the CEO or to exercise the powers of the CEO, provided that one of the following conditions is in existence: (i) The majority votes at the general meeting shall include the votes of at least two thirds of the votes of those shareholders who are not controlling shareholders of the company or persons acting on their behalf, present at the ballot (abstentions shall not be taken into account in this regard); (ii) the total number of votes against by the aforesaid shareholders is to be no more than 1% of the sum total of voting rights in the Company.

California, USA Law and USA Federal Securities Law, as applicable - The CEO of a company is not prohibited from serving as the chairman of its board of directors under either the California General Corporations Law or federal securities laws applicable to the Company.30

4.9.11

Grant of Exemption, Indemnity and Insurance for Directors and Officers

Israeli law – the Companies Law sets down provisions regarding exemption, indemnity and insurance of officers under which a company is not permitted to exempt an officer from liability for breach of a fiduciary duty towards the company. A company may exempt an officer from liability for breach of a duty of care towards it, subject to the limitations set out in the Companies Law, and to insure the officer’s liability or to indemnify the officer, subject to the limitations set out in the Companies Law. One of the limitations is that the bylaws of the company contain a provision permitting grant of an exemption, indemnity or insurance. An indemnity undertaking may be given in advance, but it must be restricted to those events which, in the opinion of the board of directors, are foreseeable in light of the company’s actual operations at the time of giving the undertaking, and to such sum or criteria which the board of directors has held to be reasonable in the circumstances of the case, and on condition that the events and the sum or criteria are set out in the indemnification undertaking.

The Company shall act in accordance with Section 95 of the Companies Law according to which, except for the three month after the company has become a public company, the general manager of a company shall not serve as the chairman of the board of directors of that company, unless in accordance with the provisions of section 121(c) of the Companies Law.

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California, USA Law and USA Federal Securities Law, as applicable - a company may include a provision in its articles of incorporation canceling or limiting the personal liability of a director or officer toward the company or its shareholders for monetary damages as a result of breach of fiduciary duty as a director or officer, on condition that such provisions shall not cancel or limit the liability of a director or officer: (1) for breach of the fiduciary duty of the director or officer toward the company or its shareholders; (2) for an act or omission done in bad faith or involving intentional improper conduct or conscious and culpable breach of a statute; (3) for payment of a distribution or making a loan or guaranty in contravention of the law, or in matters related to such; (4) interested transactions between the corporation and a director or officer in which the director or officer has a material financial interest; (5) for a transaction from which the director or officer derived an improper personal profit; (6) for an act or omission that shows a reckless disregard for the director’s or officer’s duty to the corporation or its shareholders in circumstances in which the director or officer was aware or should have been aware of a risk of serious injury to the corporation or its shareholders; or (7) for acts or omissions that constitute an unexcused pattern of inattention that amounts to an abdication of the director’s or officer’s duty to the corporation or its shareholders.

A company has the ability to indemnify any director, officer, employee or agent of the company who was in the past or is in the present or is being threatened to be made a party to a claim, suit or legal proceedings, whether civil, criminal, administrative or interrogatory (except for a claim by the company or a derivative claim) due to his office in the company, for his reasonable actual expenses (including attorneys' fees) for judgments, fines and sums paid in an arrangement with respect to a claim, suit or legal proceedings if such a person acts in good faith and in such a way that he reasonably believed not to be in contravention of the good of the company, and in the event of a criminal suit or proceedings, on condition that he had no reasonable grounds to believe that his conduct was not legal.

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Termination of a claim, suit or legal proceedings in a judgment, order, settlement, conviction, or claim that the charges should not be responded to, or any equivalent claim shall not in and of themselves give rise to a presumption that a person has not acted in good faith in any matter which such person reasonably believes was in accordance with the good of the company or is not in contravention of the good of the company, and with respect to criminal suits, did not have reasonable grounds to believe that his conduct was not legal.

The company has the power to indemnify any person who was a party in the past or who is a party at present or who is being threatened to be made a party to a claim or suit by the company or a derivative claim currently pending or having ended, for the costs in fact reasonably incurred (including attorneys' fees), application to defend or a settlement or arrangement with respect to the claim if such person acted in good faith and in a way that he reasonably believed did not contravene the good of the company, subject also to the restriction that the company will not indemnify a person with respect to a claim, subject or matter in respect of which it has been held that the person is liable to the company, unless the court hearing the claim has held, in accordance with the motion, that despite the ruling of liability and in light of all of the circumstances of the case, such person is fairly and reasonably entitled, despite the liability ruling, to indemnification for appropriate expenses as held by the Court.

The company may pay costs (including advocates' fees) incurred by an officer or director in defending a claim, suit or legal proceedings, whether civil, criminal, administrative or interrogatory, prior to a final ruling on the claim, in return for receipt of an undertaking by or on behalf of the officer or director to return the money paid to him in the event of a final ruling that such person was not entitled to indemnification from the company in accordance with its authority to indemnify under this section.

The company has the power to purchase and hold insurance for any person who was in the past or who is at present a director, officer, employee or agent of the company, or who served in the past or who serves in the present, at the company's request, as a director, officer or employee of another company, partnership, joint venture, trust or other venture, against any liability claimed against him and paid by him in such position, whether the company is entitled to indemnify such person under such section or not.

The competent court in California has sole jurisdiction to hear and rule on any claim for payment of expenses or indemnification in advance.

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4.9.12

Duty of Care and Fiduciary Duty

Israeli law – an officer of a company owes the company a duty of care and fiduciary duties. The duty of care is pursuant to the Tort Ordinance (new version) - 1968, and an officer shall be under a duty to act with the level of skill that a reasonable officer of the same position would have to exercise under the same circumstances, including taking, noting the circumstances of the case, reasonable measures to obtain information relating to the commercial feasibility of the action submitted for his approval or of an action taken by him by virtue of his position, and to receipt of such other information that may be important with respect to such actions. In addition, an officer shall owe a fiduciary duty to the company to act in good faith and to act to its benefit, including not to do any act that amounts to a conflict of interest between performance of his functions in the company and performance of any other of his functions or his personal interests; and to avoid any action that amounts to competition with the company's business; etc.

California, USA Law and USA Federal Securities Law, as applicable - in California, directors and, under case law, officers owe a fiduciary duty (including duties of care and loyalty) towards the company and its shareholders. As a rule, the directors and officers are required to act in good faith in the performance of their role, and in a manner such director or officer believes to be in the best interests of the company and its shareholders. The directors and officers are entitled to protection under the “business judgment rule” which sets out a presumption that they acted on the basis of sufficient information, if presented by (i) one or more officers or employees of the company whom the director or officer believes to be reliable and competent in the matters presented, (ii) counsel, independent accountants or other persons as to matters which the director or officer believes to be within such person’s professional or expert competence, or (iii) a committee of the board upon which the director or officer does not serve, as to matters within its designated authority, which committee the director or officer believes to merit confidence, so long as the director or officer acts in good faith, after reasonable inquiry when the need therefor is indicated by the circumstances and without knowledge that would cause such reliance to be unwarranted. The law of California provides other rules regarding the acts of the board of directors or officers in which a director or officer has a personal interest.

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4.9.13

Rights and obligations of shareholders

Israeli law – the rights and obligations of a shareholder shall be as set out in the Companies Law, in the bylaws of the company and under any law, including the right to vote, the right to receive information, perusal of the company’s documents, information regarding remuneration of directors, and the right to receive the bylaws and the financial statements. A shareholder shall have an obligation to act in good faith and in an acceptable manner in exercising his rights and performance of his obligations to the company and to the other shareholders and to avoid abusing his power in the company, inter alia in voting at the general meeting. The controlling shareholder of the company and a shareholder whose vote will be a casting vote at a general meeting or who has the power to appoint or to prevent appointment of an officer, or any other power towards the company, shall be under an obligation to act with fairness towards the company. The law that applies to breach of the duty of fairness as aforesaid is tantamount to the law that applies to breach of contract, mutatis mutandis, and in accordance with such persons' position in the company.

In the framework of the right of perusal of the Company's documents, shareholders have the right to examine the following Company documents: the protocols of the general meeting, the shareholder registry, registry of principal shareholders, documents in the Company’s possession relating to actions or transactions that require the approval of the general meeting according to sections 255 and 268-275 of the Companies Law (subject to certain limitations), the bylaws, financial reports and all other documents the Company is obligated to disclose according to law to the companies registrar or to the Israel Securities Authority, and that are available for the public’s inspection at the companies registrar and at the Israeli Securities Authority.

California, USA Law and USA Federal Securities Law, as applicable - The rights and obligations of a shareholder shall be as set out in the California Law, in the articles of incorporation of the company and under any law, including the right to vote, the right to receive certain notices and information, and the right to receive the articles of incorporation and bylaws of the Company. Any shareholder holding at least 5% in the aggregate of the outstanding voting shares of a company (or shareholders holding 1% or more of such shares who have filed a Schedule 14A with the Securities and Exchange Commission (the "SEC")), alone or via agent or attorney, has an absolute right to (1) inspect and copy the record of shareholders’ names and addresses and shareholdings during normal business hours upon 5 days’ prior written demand obtain and/or (2) obtain from the company’s transfer agent, upon written demand and tender of its usual charges for such a list, a list of the shareholders’ names and addresses who are entitled to vote for the election of directors, and their shareholdings. Any shareholder, alone or via agent or attorney, may, following a demand in writing in which he declares a purpose for his request which is reasonably related to such shareholder’s interests as a shareholder, inspect the accounting books and records and minutes of proceedings of the shareholders and the board and committees of the board of the company (and subject to certain conditions, of its subsidiaries), during the company's ordinary hours of work.

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4.9.14

Amendment of the Certificate of Incorporation and Documents of Incorporation

Israeli Law - The Companies Law provides that a company may amend its bylaws by way of a resolution passed by an ordinary majority at the general meeting of the company, unless the articles of association prescribe that a different majority is required. A company may limit its authority to amend the articles of association, or provisions of them, in the bylaws or in some other contract, if a resolution to do so is made by the general meeting, by the majority required for the amendment of the bylaws. No amendment may be made in the bylaws which may harm the rights of a class of shares without the consent of a meeting of such class unless otherwise prescribed in the bylaws. An amendment of the bylaws that requires a shareholder to acquire further shares or to increase the scope of his liability shall not bind the shareholder without his consent. Amendment of the bylaws, with the exception of the amendments set out in section 40 of the Companies Law, shall take effect from the date of passing of the resolution of such by the general meeting.

California, USA Law and USA Federal Securities Law, as applicable - Under California Law, a company’s articles of incorporation may be amended by the approval of both a majority of the members of the board of directors and a majority of the outstanding shares entitled to vote, in addition to any other required approval set forth in the articles. In addition, proposed amendments to a California company’s articles of incorporation must be approved by the outstanding shares of a class, whether or not the articles entitle the class to vote on the matter, if the amendment would, among other things: (i) increase or decrease the aggregate number of authorized shares of the class; (ii) change the rights, preferences, privileges or restrictions of the shares of the class; (iii) create a new class of shares having rights, preferences or privileges prior to the shares of the class; or (iv) increase the rights, preferences, privileges or the number of authorized shares of any class having rights, preferences or privileges prior to the shares of the class. Under California Law, a company’s bylaws may be adopted, amended or repealed either by approval of a majority of the outstanding shares or by approval of a majority of the board of directors, in addition to any other required approval set forth in the articles; except that a bylaw specifying or changing a fixed number, maximum number or minimum number of directors, or changing from a fixed to a variable board or vise versa, must be approved by a majority of the outstanding shares.

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4.9.15

Voting at General Meeting by Proxy

Israeli Law - the Companies Law provides that shareholders may vote at a general meeting by means of a proxy in which the shareholder notes how he votes on resolutions relating to the following matters: appointment and dismissal of directors, approval of actions or transactions requiring the approval of the general meeting under the provisions of sections 255 and 268-275 of the Companies Law, approval of merger, any other subject in respect of which the articles of association prescribe that resolutions of the general meeting may also be passed by proxy and such other subjects as the Minister may prescribe under section 89 of the Law. A proxy shall be sent by the company to shareholders who shall note their vote on the proxy and shall send it back to the company. A proxy on which a shareholder sets out his vote and which reaches the company prior to the final day set out for such shall be deemed to be presence of the shareholder at the meeting for the purpose of a quorum. Should a proxy that reaches the company contain a method of voting on an issue in respect of which there was no vote at the general meeting, the proxy shall be deemed to have abstained from such meeting with respect to the resolution to hold an adjourned meeting, but shall be counted at the adjourned meeting when such meeting is held.

California, USA Law and USA Federal Securities Law, as applicable - California Law permits shareholders of a company to vote at the general meeting and at class meetings, on any subject on the agenda, by proxy. Every person entitled to vote shares may authorize another person or persons to act by proxy with respect to such shares. No proxy shall be valid after the expiration of 11 months from the date thereof unless otherwise provided in the proxy. Every proxy continues in full force and effect until revoked by the person executing it prior to the vote thereto. A proxy is not revoked by the death or incapacity of the maker unless, before the vote is counted, written notice of such death or incapacity is received by the company.

4.9.16

Special Tender Offer

Israeli Law – the Companies Law provides that in a public company, there shall be no purchase resulting in an increase in the holdings of a person above 25% (a cluster of control), if there is no holder of a cluster of control at the company, and there shall be no purchase resulting in increase of the holdings of the purchaser above forty-five percent of the voting rights in the company, if there is no other person who holds more than forty-five percent of the voting rights at the company, other than by way of a special offer for purchase under the Companies Law. Note that according to the interpretation of the Securities Authority, voting agreements between shareholders that cause the rate of their joint holdings to increase above the aforesaid rates shall be deemed to be acquisitions.

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These provisions shall not apply in the following cases: (a) acquisition of shares in a private offer approved by the general meeting as a private offer the purpose of which is to afford the offeree a cluster of control if there is no cluster of control in the company, or to afford the offeree forty-five percent of the voting rights in the company, if there is no other person in the company who holds forty-five percent of the voting rights in the company; (b) acquisition from the holder of a cluster of control as a result of which a person will become the holder of a cluster of control; (c) acquisition from a person who holds more than forty-five percent of the voting rights in the company, as a result of which the rate of the purchaser's holdings will increase above forty-five percent of the voting rights in the company.

The rules regarding special tender offers prescribe, inter alia, as follows: the board of directors of the target company must provide an opinion to the offerees regarding the feasibility of the special tender offer or it must avoid providing its opinion, but must report on the reasons for not providing an opinion; the special tender offer is to be addressed to all offerees, and the offerees may give notice of their consent to the special tender offer or of their objection to it; the special tender offer shall only be accepted if the majority of the offerees who give notice of their position with respect to the tender offer agree to it. In counting the votes of offerees, the votes of holders of control in the offeror or of a cluster of control in the company, or any person acting on behalf of such or on behalf of the offeror, including their relatives or corporations under their control, shall not be taken into account. Where a special tender offer has been accepted, offerees who have not given notice of their position in respect of the purchase offer, or who have objected to it, may consent to the offer, no more than four days after the last day for accepting the tender offer, or on such other date as the Minister may prescribe in this respect, and they shall be considered to have consented to the offer from the outset; a special tender offer shall only be accepted if shares affording at least five percent of the voting rights in the company are purchased under it.

Note that in addition, various provisions of the Securities Law Regulations (Purchase Offer), 2000 regarding issues such as the minimum acceptance period, equality of offerees, prohibition of actions during the acceptance period, etc., also apply to special tender offers.

California, USA Law and USA Federal Securities Law – There is no similar restriction.

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4.9.17

Acquisition of control of company, and forced sale

Israeli Law – the main way of purchasing minority shares in a public company in order to turn it into a private company is to make a full tender offer. The Companies Law provides that a person shall not acquire shares of a public company that are listed for trading on a stock exchange such that after such acquisition he will hold more than 90% of the shares of the public company, other than by way of an offer to acquire all of the shares. Where a full tender offer is accepted by the offerees such that the rate of the holdings of those offerees who did not accept the offer is less than five percent of the share capital, the provisions of the Companies Law regarding forced sale will apply such that all of the shares shall be transferred into the offeror's title in accordance with the conditions of the offer that was accepted. The court may, at the application of an offeree in a full acquisition offer that has been accepted, determine that the consideration for the shares was less than their fair value, and that the fair value should be paid as determined by the court.

California, USA Law and USA Federal Securities Law, as applicable - Under California Law, a transaction in which a controlling shareholder acquires substantially all of the assets of the company must be approved by at least 90 percent of the voting power of the company unless the disposition is to a domestic or foreign business entity in consideration of the nonredeemable common shares or nonredeemable equity securities of the acquiring party or its parent.

California Law § 1203, § 1101(e) may make a cash “freezeout” merger by a majority shareholder more difficult to accomplish. If a tender offer (including a share exchange tender offer) or a written proposal for approval of a reorganization or sale of assets is made to some or all of a company’s shareholders by an interested party, an affirmative opinion in writing as to the fairness of the consideration to the shareholders of the company is required.31 Such opinion shall be provided by a person who is not affiliated with the offeror and who, for compensation, engages in the business of advising others as to the value of properties, businesses, or securities. Except (i) in a short-form merger, (ii) in the merger of a company into its subsidiary in which it owns at least 90% of the outstanding shares of each class, or (iii) if all of the shareholders of the class consent, the nonredeemable common shares or nonredeemable equity securities of a constituent company may be converted only into nonredeemable common shares of the surviving party or a parent party if a constituent company or its parent owns, directly or indirectly, prior to the merger shares of another constituent company representing more than 50% of the voting power of the other constituent company prior to the merger.

31	If such opinion will be given it will be sent to all shareholders of the Company.

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4.9.18

Class actions and derivative actions

Israeli Law - under the Class Actions Law, 5766-2006, a person who has a direct cause of action under any law deriving from a connection (as defined in section 5 of the Second Schedule to the Class Actions Law above) to a security may sue with the certification of the Court on behalf of a group, if each of its members has a cause of action deriving from the same connection to the security, and under the conditions set out in the above law. Likewise, under the Companies Law, 5759-1999, any shareholder or director of a company may submit a derivative claim, if the conditions set out in the law exist, including approval of the court.

California, USA Law and USA Federal Securities Law, as applicable - in any derivative claim submitted by a shareholder of the company the plaintiff shareholder must declare in the statement of claim (i) that he was a shareholder of the company on the date of the action that is the subject of the claim or that such shares were transferred to him by law thereafter from a shareholder who was a shareholder at the time of the action that is the subject of the claim and (ii) his efforts to secure from the board such action as plaintiff desires, or the reasons for not making such effort, and that the plaintiff shareholder has either informed the corporation or the board in writing of the ultimate facts of each cause of action against each defendant or delivered to the corporation or the board a true copy of the complaint which the plaintiff proposes to file.

A shareholder may submit a claim in the court of California against the company and its directors in a class action if the group contains a large number of members, there are common questions of fact and law, the shareholder and the group share similar claims and the shareholder will sufficiently defend the interests of the group. In addition, the court must rule one of the following: That the class action is the preferred option for resolving the dispute, that the running of separate claims will be difficult or that the defendants have acted in general against the group as a whole.

4.9.19

Grounds for winding up the company

Israeli law – under the Companies Ordinance, the grounds for winding up by the court are as follows:

The company has passed a special resolution to be wound up by the court;

The company has not commenced operations within one year of incorporation, or has ceased operations for a period of one year;

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The company has become insolvent;

The court is of the opinion that justice and equity require that the company be wound up.

California, USA Law and USA Federal Securities Law, as applicable - a company may resolve to wind itself up: (1) by its board of directors (if (i) an order for relief has been entered against the company under USA federal bankruptcy law, (ii) the company has disposed of all of its assets and has not conducted any business for a period of five years immediately preceding the adoption of the resolution electing to dissolve the corporation or (iii) the company has no issued shares); or (2) without any action by the directors if the shareholders holding a majority of the shares entitled to vote on such a resolution resolve, in writing, to wind up the company.

The company shall continue to exist as a legal entity in order to wind up its affairs, in order to defend civil, criminal, or administrative claims of or against the company and in order to enable it to pay out its obligations and dispose of and convey its property and collect and distribute its remaining assets to its shareholders.

Under the Corporation Law of California, the grounds for involuntary winding up of the company by the court are as follows:

The company has abandoned its business for more than one year;

The company has an even number of directors who are equally divided and cannot agree as to the management of its affairs, so that its business can no longer be conducted to advantage or so that there is danger that its property and business will be impaired or lost, and the holders of the voting shares of the corporation are so divided into factions that they cannot elect a board consisting of an uneven number;

There is internal dissention and two or more factions of shareholders in the corporation are so deadlocked that its business can no longer be conducted with advantage to its shareholders or the shareholders have failed at two consecutive annual meetings at which all voting power was exercised, to elect successors to directors whose terms have expired or would have expired upon election of their successors;

Those in control of the company have been guilty of or have knowingly countenanced persistent and pervasive fraud, mismanagement or abuse of authority or persistent unfairness toward any shareholders or its property is being misapplied or wasted by its directors or officers;

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In the case of any company with 35 or fewer shareholders, liquidation is reasonably necessary for the protection of the rights or interests of a complaining shareholder or shareholders;

The period for which the corporation was formed has terminated without extension of such period.

4.9.20

Powers of settlement and arrangement

Israeli law – the Companies Law provides that where a settlement or arrangement are proposed between a company and its creditors or shareholders, or between a company and any particular class of creditors or shareholders, the court may, at the application of the company, of a creditor or of a shareholder, or of a liquidator if the company is in liquidation, order the convening of a meeting of such creditors or shareholders, as the case may be, in such manner as the court shall order.

Where an application has been filed in the court to approve a settlement or arrangement as aforesaid, and it has been proven to the court that the settlement or arrangement were proposed for the purpose of a plan regarding the restructuring of a company or the merger of companies, and that under the plan a plant or assets of one of the companies (the transferor company) are to be transferred to another company (the transferee company), the court may, by order approving the application or by an order given thereafter, order (1) transfer of the plant, assets or liabilities in whole or in part of the transferor company to the transferee company; (2) allocation of shares, debentures, policies or other similar beneficial interests in the transferee company which it is required to allocate to a person under the settlement or arrangement; (3) continuation of legal proceedings pending by or against the transferor company for or against the transferee company; (4) liquidation of the transferor company without winding up; (5) such remedy to the persons objecting to the settlement or arrangement within such time and in such manner as the court may order; (6) any routine matter required in order to ensure that the restructure or merger are performed completely and efficiently.

The majority required for a settlement or arrangement is the majority of the participants in the vote except for persons abstaining who hold three quarters of the value represented by the vote, and approval by the court.

California, USA Law and USA Federal Securities Law, as applicable - There is no comparable statute in California.

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4.10	Enforcement of foreign judgments in California, USA

An Israeli judgment (except in the case of payment of taxes, fines or other similar payments) shall be in force in California unless the court in Israel did not have jurisdiction over the parties and the matter, and at least one of the following is met: (a) the legal system in Israel does not provide impartial tribunals or procedures compatible with the requirements of due process of law in California and the United States; (b) the company being sued did not receive notice of the proceedings in sufficient time to enable it to prepare a defense; (c) the judgment was obtained through fraud that deprived the company being sued of an adequate opportunity to present its case; (d) the cause of action is repugnant to the public policy of California or of the United States; (e) the judgment contradicts any other final and conclusive judgment; (f) the proceedings in the Israeli court contradict an agreement between the parties providing that disputes between the parties are to be determined otherwise than by proceedings in the court in Israel; (g) in the event that jurisdiction is based only on personal service, the court in Israel was a forum non conveniens for hearing the proceedings; (h) the judgment was rendered in circumstances that raise substantial doubt about the integrity of the court in Israel with respect to the judgment; (i) the specific proceeding in the foreign court leading to the judgment was not compatible with the requirements of due process of law in California and the United States; or (j) the judgment includes a claim for defamation (unless the California court determines that the defamation law applied by the Israeli court provided at least as much protection for freedom of speech and the press as provided by both the United States and California Constitutions). The Company's address for serving court documents is 3 Pinhas Sapir Street, the Science Park – Nes Ziona 70400 (at the offices of Q.B.I. Enterprises Ltd).

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Linkage basis report and sensitivity tables of the Company

December 31, 2010

Dollars thousand

	Linked to foreign currency of attached thereto								Linked to the Index			TOTAL
Assets	NIS			Dollar		Other

Cash and cash equivalent		397			13,405		85			-			13,887
Restricted cash		-			84		-			-			84
Accounts receivable		-			312		-			-			312
Other receivables and prepaid expenses		407			41		-			-			448
Long term investment		319			-		-			-			319
Severance pay fund		691			-		-			-			691

Total assets		1,814			13,842		85			-			15,741

Liabilities

Supplies		380			2,719		103			-			3,202
Accrued Research & Development fees		-			419		165			-			584
Other payable and accrued expenses		977			708		-			451			2,136
Deferred revenues		-			9,920		-			-			9,920
Accrued Severance pay		612			-		-			-			612

Total liabilities		1,969			13,766		268			451			16,454
Total		(155	)		76		(183	)		(451	)		(713	)

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December 31, 2009

Dollars thousand

	Linked to foreign currency of attached thereto							Linked to the Index			TOTAL
Assets	NIS		Dollar		Other

Cash and cash equivalent		1,530		11,312		-			-			12,842
Restricted cash		-		83		-			-			83
Accounts receivable		-		397		-			-			397
Other receivables and prepaid expenses		403		681		-			-			1,084
Long term investment		899		230		-			-			1,129
Loan to related party		-		156		-			-			156
Severance pay fund		631		-		-			-			631

Total assets		2,832		12,306		-			-			15,138

Liabilities

Supplies		263		1,186		98			-			1,547
Accrued Research & Development fees		-		775		140			-			915
Other payable and accrued expenses		839		565		-			1,305			2,709
Redeemable preferred shares		-		-		-			-			-
Deferred revenues		-		81		-			-			81
Accrued Severance Pay		570										570

Total liabilities		1,672		2,607		238			1,305			5,822
Total		1,160		9,699		(238	)		(1,305	)		9,316

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December 31, 2008

Dollars thousand

	Linked to foreign currency of attached thereto								Linked to the Index		TOTAL
Assets	NIS			Dollar		Other

Cash and cash equivalent		2,229			30,505		-			-		32,734
Restricted cash		257			81		-			-		338
Accounts receivable		-			392		-			-		392
Other receivables and prepaid expenses		1,000			751		-			-		1,751
Long term investment		645			197		-			-		842
Loan to related party		-			155		-			-		155
Severance pay fund		645			-		-			-		645

Total assets		4,131			31,534		-			-		35,665

Liabilities

Supplies		361			658		144			-		1,163
Accrued Research & Development fees		-			1,276		507			-		1,783
Other payable and accrued expenses		3,412			801		-			-		4,213
Redeemable preferred shares		-			-		-			-		-
Deferred revenues		-			16		-			-		16
Accrued Severance Pay		623										623

Total liabilities		4,396			2,751		651			-		7,798
Total		(265	)		28,783		(651	)		-		27,867

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Table of sensitivity tests for sensitive instruments, in accordance with changes to market factors:

In accordance with the requirements of the Galai Committee 2, attached is a report regarding the exposure to financial risks. The report includes sensitivity analyses to the fair value of assets, liabilities and financial instruments. As part of the sensitivity analyses, the influence of market risks on fair value was examined, whereas the sensitivity tests were implemented in values of 10% upwards and downwards.

	December 31, 2010			2009			2008
Sensitivity to NIS exchange rate		(155	)		1,160			(265	)
Exchange rate increase 10%		(15	)		116			(26	)
Exchange rate decrease 10%		15			(116	)		26
Exchange rate increase 5%		(8	)		58			(13	)
Exchange rate decrease 5%		8			(58	)		13
Sensitivity to the Index		(262	)		10,621			27,867
Exchange rate increase 10%		(26	)		1,062			2,787
Exchange rate decrease 10%		26		(1,062		)	-(2,787		)
Exchange rate increase 5%		(13	)		531			1,393
Exchange rate decrease 5%		13			(531	)		(1,393	)

The fair value of firm commitment is not included due to immaterial amounts.

Exchange rate NIS-Dollar:

December 31, 2008 – 3.8020

December 31, 2009 - 3.7750

December 31, 2010 – 3.5490

Supervision and policy exercise means:

The Company monitors on an ongoing basis the realization of the Company’s work plans compared to the implementation budgets, in order to ensure appropriate correspondence to the currency linkage base.

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Subsequent Events

To the Company's best knowledge no material changes occurred in relation to the exposure to market risks and management of market risks by the Company, subsequent to the date of the financial statement.

C. Corporate governance aspects

Donations

The Company has no policy on the subject of donations.

In the years 2008, 2009, and 2010, the Company did not make donations and did not undertake to make donations in the future.

Details regarding directors with accounting and financial expertise

The Company Board Of Directors resolved on____, 2011 that the minimum number of directors with accounting and financial expertise is ________ directors. This resolution of the Board Of Directors was made taking into account, inter alia, the size of the Company, the number members of its Board Of Directors, the scope of its activity, fields of business and the complexity of its financial reporting.

It is the opinion of the Company’s Board Of Directors that the appropriate minimum number determined will allow the Company’s Board Of Directors to meet the obligations imposed thereon by the law and in accordance with the Company documents of incorporation, as well as in accordance with its obligation to examine the Company's financial state and prepare and authorize its financial statements.

On the date of the Prospectus, the Company’s Board Of Directors has 3 directors with accounting and financial expertise: Phillip B Simon, Yoshitaka Kitao, and Toshihiro Toishima.

After completing the offering, the Company will be required to appoint two external directors, least one of whom will have to have accounting and financial expertise. For information regarding the applicability of the provisions of the Companies Law to the Company see Chapter 4 to the Prospectus.

Details regarding external directors

The Company’s Articles of Association do not contain provisions regarding the number of external directors.

Disclosure regarding independent proxies

The Company has no independent proxies as defined in the Securities Law, 5728–1968.

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Details regarding the Company internal auditor

As of the date of the Prospectus the Company has no internal auditor. After completing the offering and the appointment of the external directors and auditing committee by the Company, the Company will be required to appoint an internal auditor in accordance with the provisions of the Companies Law. For details regarding the applicability of the provisions of the Companies Law to the Company see Chapter 4 to the Prospectus.

Details regarding the external auditor

The auditing accounting firm of the Company is Kost Forer Gabbay & Kasierer (Ernst & Young Israel). The auditor fees are determined based on the estimated working hours for audit services. Furthermore, fees are determined for each of the following services: tax services and submission of application to the CSO.

	2010		2009
Audit hours		2,663		2,255
Fees for audit services ($,000)		220		145
Fees for other services ($,000)		10		86

At the Company’s Board Of Directors meeting held on August 17, 2009 it was resolved to extend the appointment of Ernst & Young Accounting Firm Israel Ltd. as the auditing accountant of the Company, and the Company's management was authorized to determine the fee.

Details regarding the authorization process of the financial statements

As of the date of this Prospectus, the Company’s Board Of Directors is the organ that discusses the financial statements and approves them. Members of the Board Of Directors receive the draft financial statements a few days before the Board Of Directors meeting where the statements are to be approved. Before bringing the statements for deliberation to the Board Of Directors, a review is conducted with the auditor and Company management before the auditing committee regarding the various issues related to the financial statements.

After the offering, the Company intends to adopt a policy whereby a review of the draft of the financial reports is conducted prior to their presentation to the Board Of Directors. To this end, the Company will name, from among the members of the Board Of Directors, a balance committee that will include an external director with accounting and financial expertise. The Company auditor will be asked to attend every meeting of the balance committee. The balance committee will review the estimates and appraisals carried out in drafting the financial statements, and a review will be conducted between the auditor and Company management regarding the various issues related to the financial statements. The results of the discussion held in the balance committee will be taken into account in the final formulation of the financial statements that will be brought before the Board Of Directors.

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Company preparations regarding the effectiveness of internal auditing of financial reporting and disclosure

On December 24, 2009 the 2009 amendment of the Securities Regulations (period and immediate reports) was made public. In accordance with the amendment, it is required to attach to the periodic reports, starting with the periodic report for December 31, 2010, a Board Of Directors report and a report from the Company management regarding the effectiveness of the internal auditing of the financial reporting and disclosure, as well as a report by the auditing accountant regarding the effectiveness of the internal auditing of the financial reporting.

In accordance with the transition provisions of the amendment, during the year 2011 a disclosure will be submitted regarding the corporation's stages of preparation and progress in applying the provisions of the regulations and the steps taken until the date of the report as aforesaid.

The Company intends to prepare the implementation of the project for assessing the effectiveness of the internal auditing of the financial reporting and disclosure (hereinafter "The Project") during the year 2011. As part of this preparation, the Company will determine, among others, the following items:

The Company will establish a preparation plan, map out the business processes, and identify the processes it believes to be material to the financial reporting and disclosure.

The Company will implement a risks assessment of the internal auditing and document the existing business processes and internal auditing regarding the financial reporting and disclosure.

The Company will analyze existing gaps in the planning of the internal auditing of financial reporting and disclosure.

The Company will incorporate to the annual report for 2012 and to the period reports prepared by the Company thereafter a report regarding the effectiveness of the internal auditing of the financial reporting and disclosure. In addition, executive declarations will be attached in accordance with the wording as required by the amendment and regulations, as they will be from time to time. In addition, to the annual report regarding the internal auditing will be attached a report by the Company auditor, which will include his opinion regarding the effectiveness of the internal auditing of the Company's financial reporting and about material weaknesses that he identified.

Senior executive compensation

The factors the Board Of Directors consider in determining the compensation to each of the senior executive are mainly based on information about their experience, contribution, status, education, complexity and salary paid for comparable senior executive in a similar function in different companies. The Company’s senior executives that also serve as director, do not receive director’s compensation, but only compensation due to their position.

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In accordance with the above, and taking into account the Company’s results of operation and the Company’s finance, the Board Of Directors assumes that the compensation paid to the executive officer and to the shareholders are appropriate and reasonable.

For further details see section 8 of this prospectus.

Board Committees

Audit, Nominating and Corporate Governance committee

Immediately prior to the prospectus date, the Company’s Board of Directors nominated the following committee:

As of the prospectus date, the audit, nominating and corporate governance committee (“audit committee”) consists of Messrs. Philip Hahn and Toshihiro Toyoshima. The functions of this committee include, among other things:

(1) reviewing the annual and quarterly financial statements and reports and discussing the statements and reports with the independent auditors and management; reviewing and pre-approving the engagement of the independent auditors to perform audit services and any permissible non-audit services; evaluating the internal control over the financial controls and reporting; evaluating of the performance of the independent auditors and deciding whether to retain their services;

(2) recommendation of internal auditor for the Company;

(3) identify failure in the management of the Company;

(4) monitoring on the corporate governance issues and recommending to the Board of Directors for remediation of any failure.

(5) reviewing and approving transactions according to section 270(4) and 275 of the Security Act;

(6) evaluating director performance on the Board Of Directors; interviewing and evaluating nominations of candidates for election to the Board Of Directors; reviewing and recommending to the Board Of Directors the compensation arrangements for the directors;

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Each member of the compensation committee of the Company is a non-employee director as defined in Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended, and is an outside director, as defined pursuant to Section 162(m) of the Internal Revenue Code of 1986, as amended.

After the offering the Company will be subject to Section 39a of the Security Act. According to this section the Audit Committee will include the two external directors appointed by the Company’s Board of Directors, and the other committees will include at least one of the above-mentioned external directors.

D. Disclosure provisions in connection with the Company's financial reporting

Disclosure regarding critical accounting estimates

Preparation of the Company's financial statements in accordance with accounting standards acceptable in the United States requires that Company management make estimates and assumptions affecting the sums presented in the financial statements. The compensation component by way of share-based payment to employees and the value of the option warrants to convertible preferred shares was determined by use of value assessment methods. The Company uses its discretion for choosing certain parameters used to calculate the value. The Company utilized external valuator in order to evaluate the fair value of the Company’s common stocks and the compensation component included in share-based payment and the value of the warrants to convertible preferred shares. For more information see note 2(l2) to the financial statements.

Significant factors, assumptions and methodologies used in determining fair value of the Company’s common stock:

The fair value of the common stock underlying stock options granted during the periods presented were estimated by the Board of Directors with input from management based upon several factors, including progress and milestones attained in the Company’s business. In the absence of a public trading market for the common stock of the Company, the Board of Directors was required to estimate the fair value of the Company’s common stock. The Board of Directors considered numerous objective and subjective factors in determining the fair value of the common stock at each option grant date, including the factors described below:

•

Prices of the Series H preferred stock issued by the Company primarily to outside investors in arm’s-length transactions, during 2008 and 2010 and the rights, preferences and privileges of the preferred stock relative to the common stock

•

Performance and the status of research and product development efforts;

•

Developments concerning the collaborations of the Company;

•

Stage of development and business strategy, including the regulatory status; and

F - 186

•

The likelihood of achieving a liquidity event for the shares of common stock underlying these stock options, such as an initial public offering, merger and acquisitions, given prevailing market conditions.

In connection with the preparation of the financial statements necessary for the filing of the initial public offering, the Company has reassessed the fair value of the common stock at option grant dates. The Company did not use a contemporaneous valuation from an unrelated valuation specialist at the time of the option grants during 2009. In reassessing the fair value of the common stock, as well as during the valuation in 2010, the Company considered numerous objective and subjective factors, including:

•

a third-party independent valuation report prepared by Variance Economic Consulting, Ltd;

•

the pricing of the Company’s preferred shares;

•

the comparative rights and preferences of the ordinary shares and the preferred shares;

•

significant changes, events and milestones in the Company business development, including the entry into significant license agreements and collaboration arrangements;

•

the probability of an initial public offering; and

•

the market prices and multiples of comparable publicly held biotech companies.

The retrospective analysis utilized the following methods outlined in the AICPA Practice Aid:

Discounted Future Cash Flow Method (DCF) To reach enterprise value as of September30, 2009, and September 1, 2010 we performed a valuation using DCF methodology at each valuation date. Under the DCF method, the fair value of the business is estimated based on the stream of benefits investors expect to receive, the timing of such benefits and the risk borne by investors.

Option Pricing Model Once the enterprise value was estimated pursuant to the foregoing analyses, the value was allocated among the company’s debt and its various classes of equity based on the characteristics of each such class and its claim on the company’s assets. Stock characteristics that were factored into the analyses included liquidation preferences, participation features, convertibility features and value sharing between classes of stock. Because the proceeds of any liquidation event are to be divided among the holders of our preferred stock prior to any distribution to the holders of our common stock, we determined that the shares of common stock have the nature of a stock option, which has a positive value only when our liquidation value exceeds the liquidation preference of our preferred stock. Accordingly, an option pricing model was used to estimate the value of our common stock. The common stock value was derived from the value for the company based upon the DCF method at the valuation date. This approach also took into account the relative seniority, rights, liquidation preferences and conversion ratios of the convertible preferred securities, common stock and warrants as of the valuation date under scenarios of both liquidation and initial public offering.

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Based on the foregoing, the Company determined that the fair value of its common stock in September 2009 was $1.10 per share. The fair market value of the common stock was estimated using the option pricing method utilizing the binomial model described above, with the following assumptions for September 30, 2009: a risk-free interest rate of 0.40% – 0.95%, dividend yield of 0%, volatility of the expected market value of the total invested capital of the Company of approximately 75% and an expected term of 2.3 years. In this valuation the probability of an IPO taken into account was zero, therefore only the DCF methodology was used.

Between September 30, 2009 and August 31, 2010, the Company did not grant any stock options. The valuation analysis of the Company common stock as of September 1, 2010 utilized the DCF methodology and was also based on estimates provided by underwriters utilizing the market prices. The factors considered in the valuation of the Company common stock included a third party independent valuation report prepared by Variance Economic Consulting, Ltd. The fair market value of the common stock was estimated using the option pricing model describing above, with the following assumptions for September 1, 2010: a risk-free interest rate of 0.25% – 0.5%, dividend yield of 0%, volatility of the expected market value of our total invested capital of approximately 75% and an expected term of 1.3 years.

In the valuation, the Company considered both the possibility of a successful initial public offering and the possibility that a public offering would not be accomplished. Based on the expected probability of the occurrence of the initial public offering and the non- initial public offering scenarios, the fair value of the common stock was determined. As of September 1, 2010 the Company estimated a 40% likelihood of a successful initial public offering, and as a result, the fair value of the common stock value was determined to be $4.55 per share.

The most significant factors contributing to the increased value of the Company common stock between September 2009 and September 2010 were entry into an option license agreement in August 2010 with Novartis and the progress in the development of the product candidates. During this period the Company filed and received FDA approval for an IND of QPI-1007 and started the Phase I trial for this product. The Company completed the enrollment of the Phase II clinical trials of its product candidate for PF 655, for both AMD and DME indications. The Company completed enrollment of the two phase I studies with QPI-1002, for AKI and DGF. Finally, it started the Phase II clinical trials of our product candidate for QPI-1002 of DGF.

Since September 2010, the Company continued to make progress in its Phase II and Phase I clinical trials. The Company received the results of the Phase II DEGAS trial of the Company’s PF-655 for diabetic macular edema, licensed to Pfizer. The results demonstrated that the drug was well tolerated, with no observed drug related serious adverse events, and showed a dose dependent improvement in visual acuity over the standard of care. Based on the results it was decided to conduct a Phase IIb study to determine the optimal dosing for Phase III. The agreement with Pfizer was amended to provide that the Company conduct the Phase IIb clinical trial in diabetic macular edema at higher doses at its own expense in consideration for increased milestone payments and increased royalties. Furthermore, patient dosing continued in the Phase II clinical trial of the Company’s QPI-1002 for delayed graft function and the Company made progress the initiation of the Phase II clinical trial of QPI-1002 in acute kidney injury. It completed Stratum 1, the safety part of the Phase I trial of QPI-1007 without dose-limiting toxicities observed up to the highest dose level tested and currently the Company is conducting Stratum 2 part of the study of Phase I, which may give early indication of the biological activity of QPI-1007 in non arteritic anterior ischemic optic neuropathy patients.

F - 188

Moreover, the outlook regarding the fair market value of the Company’s common stock under the initial public offering scenario improved considerably. In July 2010 the ‘‘organizational meeting’’ for an initial public offering was held; in September 2010 the Company filed the first draft of its registration statement of which this prospectus is a part; since then it progressed considerably and the Company believes it has come close to concluding the review process with U.S. and Israeli regulatory authorities. This suggested that an initial public offering was becoming more likely, which would result in liquidity for the common stock and elimination of the superior rights and preferences of the preferred stock. This positively affected assumptions of the expected type, timing and likelihood of possible liquidity scenarios. The estimated initial public offering price range necessarily assumes that the initial public offering has occurred, a public market for the Company’s common stock has been created and that its preferred stock has converted into common stock in connection with the initial public offering, and therefore excludes any marketability or illiquidity discount for the common stock and excludes the superior rights and preferences of the preferred stock, which were appropriately taken into account in the Board’s fair market value determination in September 2010.

The Company believes that in light of these factors increasing the value of its stock, the composition of the Board Of Directors and discussions with underwriters that took into account perceptions of the market for initial public offerings resulted in a fair and reasonable view of the stock value. Nevertheless, as stated above, determining the fair value of the Company’s common stock requires making complex and subjective judgments. The approach to valuation uses estimations, which are consistent with the plans, and estimates that to the Company uses in conducting its business. There is understandable uncertainty in performing these evaluations and assessments. Although it is reasonable to expect that the completed initial public offering will increase the value of the common stock through more liquidity and marketability, the increase of value itself cannot be measured exactly or with absolute confidence.

The Company has not granted any stock options following September 2, 2010.

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Chapter 7 – Management of the Company

7.1

Board of Directors of the Company

The following are details of the members of the Board of Directors of the Company:

7.1.1

Phillip Bernard Simon

1.	Position in Company:	Chairman of the Board of Directors
2.	Identity No.	(Passport No.) 206199186
3.	Date of Birth:	15.10.1952.
4.	Address for the service of process:	‎101 Ygnacio Valley Rd., Suite 310, Walnut Creek, CA 94596, USA
5.	Nationality:	American
6.	Is he a member of any committee of the Board of Directors?	No
7.	Is he an employee of the issuer, of its subsidiary, a related company or an interested party therein?	President of Lawrence Investments, LLC, which is an interested party in the Company.
8.	Is he fit to be appointed as an independent director1?	No
9.	Date of commencement of office:	August 1997.
10.	Education:	Russian Studies (BA), Yale University. J.D., Stanford University Law School.
		Certified public accountant (CPA)
11.	Principal Occupation During the Past Five Years:	President, Lawrence Investments LLC.
		Partner, Howson & Simon LLP.
12.	Corporations on which he acts as a director:	‎LeapFrog Enterprises, Inc., Pillar Data Systems, Vistage International, Inc.
13.	Is he a relative of any other interested party in the corporation:	No
14.	Does the Company view him as having accounting and finance expertise for the purpose of compliance with the minimum number set out by the Board of Directors in accordance with section 92(a)(12):	Yes

1	As such term is defined in Section 219(e) of the Companies Law, 5759-1999.

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7.1.2

Phillip Michael Hahn

1.	Position in Company:	Director
2.	Identity No.	(Passport No.) 12745457
3.	Date of birth:	28.10.1942.
4.	Address for the service of process:	520 East 86th St, New York, NY 10028, U.S.A.
5.	Nationality:	American
6.	Is he a member of any committee of the Board of Directors?	A member of the Audit, Nominations and Corporate Governance Committee
7.	Is he an employee of the issuer, of its subsidiary, a related company or an interested party therein?	No
8.	Is he fit to be appointed as an independent director?	Yes
9.	Date of commencement of office:	August 2008.
10.	Education:	History (BA), Brown University J.D., Yale University Law School.
11.	Principal Occupation During the Past Five Years:	VP, Assistant Legal Advisor, Pfizer, Inc.
12.	Corporations on which he acts as a director:	None
13.	Is he a relative of any other interested party in the corporation:	No
14.	Does the Company view him as having accounting and finance expertise for the purpose of compliance with the minimum number set out by the Board of Directors in accordance with section 92(a)(12):	No

7.1.3

Robert Shigeru Takeuchi

1.	Position in Company:	Director
2.	Identity No.	(Passport no.) 207931614
3.	Date of birth	17.5.1956.
4.	Address for the service of process:	‎11 Cobble Stone Farm Court Montebello, NY 10901, USA
5.	Nationality:	American
6.	Is he a member of any committee of the Board of Directors?	No
7.	Is he an employee of the issuer, of its subsidiary, a related company or an interested party therein?	No
8.	Is he fit to be appointed as an independent director?	No

G - 2

9.	Date of commencement of office:	July 2010.
10.	Education:	Economics (BA), University of California
11.	Principal Occupation During the Past Five Years:	President, RT Consulting Inc.
12.	Corporations on which he acts as a director:	‎SBI Investments Co. ‎Ltd.
13.	Is he a relative of any other interested party in the corporation:	No
14.	Does the Company view him as having accounting and finance expertise for the purpose of compliance with the minimum number set out by the Board of Directors in accordance with section 92(a)(12):	No

7.1.4

Daniel Zurr

1.	Position in Company:	President, CEO & Director
2.	Identity No.	007386949
3.	Date of birth	29.6.1943.
4.	Address for the service of process:	58 Ben Nun Street, Herzliya Pituach
5.	Nationality:	Israeli
6.	Is he a member of any committee of the Board of Directors?	No
7.	Is he an employee of the issuer, of its subsidiary, a related company or an interested party therein?	Yes. The CEO of the issuer.
8.	Is he fit to be appointed as an independent director?	No
9.	Date of commencement of office:	October 1993
10.	Education:	Physics (B.Sc.), Hebrew University. Chemistry (M.Sc.), Hebrew University.
		PhD, Imperial College, London.
11.	Principal Occupation During the Past Five Years:	CEO and director of the Company for the past 15 years.
12.	Corporations on which he acts as a director:	None
13.	Is he a relative of any other interested party in the corporation:	No
14.	Does the Company view him as having accounting and finance expertise for the purpose of compliance with the minimum number set out by the Board of Directors in accordance with section 92(a)(12):	Yes

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7.1.5

Yoshitaka Kitao

1.	Position in Company:	Director
2.	Identity No.	(Passport no.) TG 3779718
3.	Date of birth	21.1.1951.
4.	Address for the service of process:	‎Izumi Garden Tower 19F, 1-6-1 Roppongi Minato-ku, Tokyo 106-6019, Japan
5.	Nationality:	Japanese
6.	Is he a member of any committee of the Board of Directors?	No
7.	Is he an employee of the issuer, of its subsidiary, a related company or an interested party therein?	Yes. Director, representative and CEO of SBI Holdings, Inc., an interested party in the Company.
8.	Is he fit to be appointed as an independent director?	No
9.	Date of commencement of office:	August 2010
10.	Education:	B.Ec., Keio University.
		M.Ec., Cambridge University
11.	Principal Occupation During the Past Five Years:	CEO and Director of SBI Holdings, Inc., ‎SBI Investment Co., Ltd. SBI Capital Co., Ltd., SBI Card Co., Ltd., Morningstar Japan K.K., , ‎SBI VeriTrans Co., Ltd.
12.	Corporations on which he acts as a director:	‎SBI Holdings, Inc., Co.; SBI Securities Co., Ltd., SBI Investment Co., Ltd., SBI Mortgage Co., Ltd., SBI Benefit Systems Co., Ltd., Morningstar Japan K.K., Gomez Consulting Co., Ltd., SBI VeriTrans Co., Ltd, Wall Street Journal Japan K.K.
13.	Is he a relative of any other interested party in the corporation:	No
14.	Does the Company view him as having accounting and finance expertise for the purpose of compliance with the minimum number set out by the Board of Directors in accordance with section 92(a)(12):	Yes

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7.1.6

Toshihiro Toyoshima

1.	Position in Company:	Director
2.	Identity No.	(Passport no.) TG 3779718
3.	Date of birth	20.09.1962.
4.	Address for the service of process:	‎Uchisaiwaicho Daibiru Bldg. ‎1-3-3 Uchisaiwaicho Chiyoda-ku Tokyo, Japan
5.	Nationality:	Japanese
6.	Is he a member of any committee of the Board of Directors?	A member of the Audit, Nominations and Corporate Governance Committee
7.	Is he an employee of the issuer, of its subsidiary, a related company or an interested party therein?	No
8.	Is he fit to be appointed as an independent director?	Yes
9.	Date of commencement of office:	August 2010.
10.	Education:	Real Estate and Urban Planning Studies (MA), MIT
		LL.B., Tokyo University.
11.	Principal Occupation During the Past Five Years:	CEO, Ashuka DBJ Partners Co., Ltd. Chairman of the Board of Directors, International Growth Investment Division, Japan Development Bank. Deputy Chairman of the Board of Directors, Planning Division for Investment Banking, Japan Development Bank.
12.	Corporations on which he acts as a director:	‎ARF Investment Management Limited, Ashuka DBJ Partners Co., Ltd, Beijing
13.	Is he a relative of any other interested party in the corporation:	No
14.	Does the Company view him as having accounting and finance expertise for the purpose of compliance with the minimum number set out by the Board of Directors in accordance with section 92(a)(12):	Yes.

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7.2

Other Senior Officers

7.2.1

Daniel Zurr

1.	Identity No.	007386949
2.	Date of Birth:	29.6.1943.
3.	The position that he fills at the company, a subsidiary, related company or interested party therein:	President, CEO & Director
4.	Date of commencement of office:	October 1995
5.	Is he an interested party in the Company?	Yes
6.	Is he a relative of any other senior officer or interested party in the Company:	No
7.	Education:	Physics (B.Sc.), Hebrew University.
		Chemistry (M.Sc.), Hebrew University.
		PhD, Imperial College, London.
8.	Business experience over the past five years:	CEO of the Company

7.2.2

Sagit Reich

1.	Identity No.:	027484807
2.	Date of Birth:	10.5.1974.
3.	The position that he fills at the company, a subsidiary, related company or interested party therein:	CFO
4.	Date of commencement of office:	August 2010.
5.	Is he an interested party in the Company?	No
6.	Is he a relative of any other senior officer or interested party in the Company:	No
7.	Education:	Accounting (B.A), Tel Aviv University. Psychology (B.A), Tel Aviv University.
		Certified Public Accountant, Institute of Certified Public Accountants in Israel (CPA).
8.	Business experience over the past five years:	Senior Manager, Ernst & Young, Israel.

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7.2.3

Rami Skaliter

1.	Identity No.	55074298
2.	Date of Birth:	2.3.1958.
3.	The position that he fills at the company, a subsidiary, related company or interested party therein:	COO
4.	Date of commencement of office:	January 2007
5.	Is he an interested party in the Company?	No
6.	Is he a relative of any other senior officer or interested party in the Company:	No
7.	Education:	Biochemistry (B.Sc), Ben Gurion University.
		(Biochemistry (PhD), Weizmann Institute.
		Post Doctorate at Stanford University.
8.	Business experience over the past five years:	Deputy CEO of the Company Director in the Subsidary Company

7.2.4

Shay Ehrlich

1.	Identity No.:	022298954
2.	Date of Birth:	7.2.1966.
3.	The position that he fills at the company, a subsidiary, related company or interested party therein:	Chief Medical Officer
4.	Date of commencement of office:	January 2008.
5.	Is he an interested party in the Company?	No
6.	Is he a relative of any other senior officer or interested party in the Company:	No
7.	Education:	Medical Sciences (B.A.), Ben Gurion University.
		Oncological Genetics (M.Sc.), Tel Aviv University.
		Doctor (PhD)of Human Genetics, School of Medicine, Mount Sinai.
8.	Business experience over the past five years:	Senior Director of Development in the Company
		Senior VP Drug Development in the Company

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7.2.5

Elena Feinstein

1.	Identity No.:	015784523
2.	Date of Birth:	3.12.1958.
3.	The position that he fills at the company, a subsidiary, related company or interested party therein:	Chief Scientific Officer
4.	Date of commencement of office:	May 2007.
5.	Is he an interested party in the Company?	No
6.	Is he a relative of any other senior officer or interested party in the Company:	No
7.	Education:	MD, Second Medical School, Moscow
		PhD (Molecular Biology/Cell Biology/Oncological Biology) (PhD), Weizmann Institute
8.	Business experience over the past five years:	VP Technological Development of the Company
		VP R&D, Cleveland Biolabs
		Senior VP Research in the Company

7.2.6

Juliana Friedman

1.	Identity No.:	13114871
2.	Date of Birth:	22.9.1951.
3.	The position that he fills at the company, a subsidiary, related company or interested party therein:	Senior Vice President, Planning and Strategy
4.	Date of commencement of office:	May 2007
5.	Is he an interested party in the Company?	No
6.	Is he a relative of any other senior officer or interested party in the Company:	No
7.	Education:	MA (Chemical Engineering), Ben Gurion University.
8.	Business experience over the past five years:	VP Business Development in the Company
		Senior VP Planning and Strategy in the Company

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7.2.7

Smadar Shaked

9.	Identity No.:	22498802
10.	Date of Birth:	19.5.1967.
11.	The position that he fills at the company, a subsidiary, related company or interested party therein:	Senior Vice President, Business Finance
12.	Date of commencement of office:	August 2010
13.	Is he an interested party in the Company?	No
14.	Is he a relative of any other senior officer or interested party in the Company:	No
15.	Education:	B.A., Economics and Accounting, CPA.
		Business Administration (Executive MBA), Tel-Aviv University
16.	Business experience over the past five years:	Senior Vice President, Business Finance in the Company and the Subsidiary

**	Likewise, there are two accountants working at the Company and the Subsidiary

7.3

External directors

Not later than three months after the date on which the Company becomes a public company, the Company shall act to appoint external directors in accordance with Article V of Part 6 of the Companies Law. For additional details regarding application of the provisions of the Companies Law to the Company, see Chapter 4 above. For deatails regarding the appointment mechanism of External Directors of the Company, see section ‎7.7.2 below.

7.4

Advocates for the Offering

Rosenberg Hacohen Goddard & Efrat Attorneys, of 24 Raoul Wallenberg St., Tel Aviv

7.5

The Company’s Accountants

Kost Forer Gabbay & Kasierer, 3 Aminadav St., Tel Aviv

7.6

Registered Office of the Company

‎6501 Dumbarton Circle, Fremont , CA 94555, USA

The registered office of the subsidiary, QBI Enterprises Ltd. is 3 Sapir Street, Science Park, Nes Ziona.

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7.7

Principal Provisions of the Bylaws and Articles of Incorporation of the Company that relate to Elections, Appointments, Office and Substitution of members of the Board of Directors of the Company

The following is a brief description of provisions in the documents of incorporation of the Company regarding the matters set forth in Sections 7.7.1-‎7.7.33 below. This description is not a substitute for reading the full wording of the Company's documents of incorporation, which may be found on the Magna website of the Securities Authority (www.magna.isa.gov.il).

The Company's documents of incorporation include the Articles of Incorporation and the Bylaws. Note that the documents of incorporation are in the English language, and the description below is based on a translation of them into Hebrew. Note further that the documents of incorporation of the Company are in accordance with the laws of the State of California, the place of incorporation of the Company, and are therefore subject to such law.2 The Bylaws contain several references to the Corporations Code of California (hereinafter the “Code”).

Note that as stated in Section 4.7 of the Prospectus, certain provisions of the Companies Law have been applied to the Company in accordance with Section 39A of the Securities Law and shall be adopted to the Company's incorporation documents prior to the registration of the securities for trading. However, The Company does not express any opinion as to the legal applicability of the extension of laws that applies to a company incorporated in the State of California under Israeli legislation and/or the legal ability to apply Israeli law to the Company in those or other matters.

Reference in this Chapter to the Corporations Code of California is based on the opinion of the law firm of Cooley LLP (which agreed to have such opinion included and translated in this Prospectus), which is attached to Chapter 10 of the Prospectus, in the English original and in a free translation into Hebrew.

Election and Term of Office of Directors

7.7.1

The number of directors of the Company shall be not less than five (5) nor more than nine (9). The exact number of directors shall be fixed, within the limits specified, by approval of the board or the shareholders. The indefinite number of directors may be changed, or a definite number may be fixed without provision for an indefinite number, by a duly adopted amendment of the articles of incorporation or by an amendment to the Bylaws of the Company adopted by the vote of the holders of the issued shares (as defined in Section 152 of the Code),3 provided, however, that an amendment reducing the fixed number or the minimum number of directors to a number less than five (5) cannot be adopted if the votes cast against its adoption at a meeting are equal to more than sixteen and two-thirds percent (16-2/3%) of the outstanding shares entitled to vote thereon. No reduction of the authorized number of directors shall have the effect of removing any director before that director’s term of office expires.

The following description does not include reference to sections in the documents of incorporation that shall no longer be effective after completion of the issue, owing to the the automatic conversion of shares of preferred stock of the Company into shares of common stock of the Company as set forth in the Company’s articles of incorporation, as amended and/or restated, that will take place in the Company prior to listing of the shares for trading.

Section 152 defines "Approved by (or approval of) the outstanding shares" to mean approved by the affirmative vote of a majority of the outstanding shares entitled to vote. Such approval shall include the affirmative vote of a majority of the outstanding shares of each class or series entitled, by any provision of the articles or the Code, to vote as a class or series on the subject matter being voted upon, and shall also include the affirmative vote of such greater proportion (including all) of the outstanding shares of any class or series if such greater proportion is required by the articles or the Code.

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7.7.2

Directors shall be elected at each annual meeting of shareholders to hold office for a duration of one year. Each director, including a director elected to fill a vacancy, shall hold office until the expiration of the term for which elected and until a successor has been elected and qualified, or until his death, termination, or resignation. A reduction in the number of directors shall not shorten the term of an acting director. Without prejadice to the above, only a person then serving in the office of an External Director may qualify for election to such office unless (A) such person refuses or is unable to serve again as an External Director or (B) such person has previously been elected as an External Director for three (and not more then three) consecutive one-year terms, in which case a person not serving in the office of an External Director may qualify for election to such office. Where there is no such person then serving in the office of an External Director who may qualify for election to such office, a new External Director shall be elected at a special meeting of shareholders.

7.7.3

A. Any Candidate for the office of director shall disclose the following information to entity that appoints him for the office: (1) whether he had been convicted in a verdict in one of the offences described in subsection (B) below and the term in which he is forbidden from being appointed as director has yet elapsed; (2) whether he had been convicted in a verdict in one of the offences described in subsection (B) below and the term set by the court as provided in subsection (B) below has yet elapsed; or (3) whether the Administrative Enforcement Committee, appointed according to section 52(32)(a) of Israel Companies Law, has imposed upon him such enforcement means precluding him from holding office as a director in a public company for a term that has yet elapsed. In this Section ‎7.7.3: "verdict" means a verdict of first instance; enforcement measures – as defined in Section 225(b) of Israel Securities Law; "director" – including an officer.

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A person that the Administrative Enforcement Committee, has imposed upon him such enforcement means prohibiting him to act as a director in the corporation or that was convicted in one of the following offences, and unless five years have elapsed from the date of conviction: (1) offences according to Sections 290-297, 392, 415, 418, 420 and 422-428 of Israel Penal Law 5737-1977 and to Sections 52C, 52D, 53(a) and 54 of Israel Securities Law; (2) conviction in a court outside of Israel in the offence of bribe, fraud, offences of managers in a corporation or offences of misuse of inside information; (3) a offence that due to its essence, severity or circumstances, the court ruled that such person is not suitable for serving as a director in a public company, for a term set by the court in his verdict, which shall not exceed five years from the date of the verdict.4

Where the corporation becomes aware that a director was appointed contrary to the provisions Section ‎7.7.3(b) or that a director committed a breach of the provisions of Section ‎7.7.3(a), the board of directors shall resolve, at its first meeting convened after becoming so aware, to terminate the office of such director, if it finds that the said conditions are fulfilled, and such office shall expire on the date of such resolution.5

A person or director shall inform the corporation should the Administrative Enforcement Committee has decided to impose upon him an enforcement measure prohibiting him to act as director of the corporation or when a he was convicted in final verdict in a offence listed in subsection (B) above, and the office of such director shall expire immediately upon such notice. The director will not be appointed again as director of the corporation, unless the prohibition term provided in subsection (B) above has yet elapsed.

A director who commits a breach of the duty of disclosure provided in this Section above shall be considered as having committed a breach of his fiduciary duty to the company.

7.7.4

A. Any director may resign effective on giving written notice to the chairman of the board, the president, the secretary, or the Board of Directors, unless the notice specifies a later time for that resignation to become effective. If the resignation of a director is effective at a future time, the Board of Directors may elect a successor to take office when the resignation becomes effective.

It should be noted that according to section 302 of the Code, the board may remove a director from his office in two cases: due to unsound mind or when the director has been convicted of a felony. The bylaws of the Company state that this section of the Israel Companies Law shall apply with the modifications necessary to comply with the provisions of the Code.

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Vacancies in the Board of Directors, including any vacancy created by the removal of a director by the vote of the shareholders, may be filled by a majority of the remaining directors, even if less than a quorum, except where the directors decide that the aformentioned vacancies shall be filled by shareholders, and except when otherwise determined by law. Each director so elected shall hold office for the remainder of the term to have been held by his predeccesor and until a successor has been elected and qualified.

A vacancy or vacancies in the Board of Directors shall be deemed to exist (i) in the event of the death, resignation, or removal of any director, (ii) if the Board of Directors by resolution declares vacant the office of a director who has been declared of unsound mind by an order of court or convicted of a felony, (iii) if the authorized number of directors is increased, or (iv) if the shareholders fail, at any meeting of shareholders at which any director or directors are elected, to elect the number of directors to be elected at that meeting.

The shareholders may elect a director or directors at any time to fill any vacancy or vacancies not filled by the directors.

Convening and Administration of Meetings of the Board of Directors

7.7.5

A. Regular meetings of the Board of Directors may be held at any place within or outside the State of California that has been designated from time to time by resolution of the board. In the absence of such a designation, regular meetings shall be held at the principal executive office of the Company. Special meetings of the board may be held at any place within or outside the State of California that has been designated in the notice of the meeting or, if not stated in the notice or if there is no notice, at the principal executive office of the Company.

Any meeting, regular or special, may be held by conference telephone or similar communication equipment, so long as all directors participating in the meeting can hear one another; and all such directors shall be deemed to be present in person at the meeting.

7.7.6

Regular meetings of the Board of Directors may be held without notice if the times of such meetings are fixed by the Board of Directors.

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7.7.7

Special meetings of the Board of Directors for any purpose or purposes may be called at any time by the chairman of the board, the president, any vice president, the secretary, or any two directors. Notice of the time and place of extraordinary meetings shall be delivered personally or by telephone to each director or sent by first-class mail or telegram, charges prepaid, addressed to each director at that director’s address as it is shown on the records of the Company. If the notice is mailed, it shall be deposited in the United States mail at least four (4) days before the time of the holding of the meeting. If the notice is delivered personally or by telephone or telegram, it shall be delivered personally or by telephone or to the telegraph company at least forty-eight (48) hours before the time of the holding of the meeting. Any oral notice given personally or by telephone may be communicated either to the director or to a person at the office of the director who the person giving the notice has reason to believe will promptly communicate it to the director. The notice need not specify the purpose or the place of the meeting, if the meeting is to be held at the principal executive office of the Company.

7.7.8

A majority of the authorized number of directors shall constitute a quorum for the transaction of business, except to adjourn, as mentioned in Section ‎‎7.7.10 below. Every act or decision done or made by a majority of the directors present at a duly held meeting at which a quorum of directors is present shall be regarded as the act of the Board of Directors, subject to the provisions of Section 310 of the Code6 (as to approval of contracts or transactions in which a director has a direct or indirect material financial interest), Section 311 of the Code7 (as to appointment of committees), Section 317(e) of the Code8 (as to indemnification of agents), the articles of incorporation, and other applicable law.

A meeting of directors at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action taken is approved by at least a majority of the required quorum for that meeting.

Section 310 deals with the approval of transactions between the Company and its directors or companies in which the directors have a substantial financial interest. The section provides that a transaction between a director or a company or an entity in which a director has a substantial financial interest shall not be void or voidable due merely to the fact that the director or company or entity in which he has a substantial financial interest are a party to the transaction or due to the fact that the director or the company or the entity in which he has a substantial financial interest were present at the meeting of the Board of Directors that approved the transaction, if (1) The material facts as to the transaction and as to such director's interest are fully disclosed or known to the shareholders and such contract or transaction is approved by the shareholders (Section 153) in good faith, with the shares owned by the interested director or directors not being entitled to vote thereon, or (2) The material facts as to the transaction and as to such director's interest are fully disclosed or known to the board or committee, and the board or committee authorizes, approves or ratifies the contract or transaction in good faith by a vote sufficient without counting the vote of the interested director or directors, and the contract or transaction is just and reasonable as to the corporation at the time it is authorized, approved or ratified, or (3) As to contracts or transactions not approved as provided in paragraph (1) or (2) of this subdivision, the person asserting the validity of the contract or transaction sustains the burden of proving that the contract or transaction was just and reasonable as to the corporation at the time it was authorized, approved, or ratified.

7	Section 311 deals with the appointment of directors as members of committees and with the appointment of directors as substitute members of committees, and the powers of such committee.

8	Section 317(e) deals with the approval of indemnification given by the Company to its agents.

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7.7.9

Notice of a meeting need not be given to any director (i) who signs a waiver of notice or a consent to holding the meeting or an approval of the minutes thereof, whether before or after the meeting, or (ii) who attends the meeting without protesting, prior thereto or at its commencement, the absence of notice to such directors. All such waivers, consents, and approvals shall be filed with the corporate records or made part of the minutes of the meeting. A waiver of notice need not specify the purpose of any regular or special meeting of the Board of Directors.

7.7.10

A majority of the directors present, whether or not constituting a quorum, may adjourn any meeting to another time and place.

7.7.11

Notice of the time and place of holding an adjourned meeting need not be given unless the meeting is adjourned for more than twenty-four (24) hours. If the meeting is adjourned for more than twenty-four (24) hours, then notice of the time and place of the adjourned meeting shall be given before the adjourned meeting takes place, in the manner specified in Section ‎7.7.7 above, to the directors who were not present at the time of the adjournment.

7.7.12

Any action required or permitted to be taken by the Board of Directors may be taken without a meeting, provided that all members of the board individually or collectively consent in writing to that action. Such action by written consent shall have the same force and effect as a unanimous vote of the Board of Directors. Such written consent and any counterparts thereof shall be filed with the minutes of the proceedings of the board.

Fees and Compensation of Directors

7.7.13

Directors and members of committees may receive such compensation, if any, for their services and such reimbursement of expenses as may be fixed or determined by resolution of the Board of Directors. This shall not be construed to preclude any director from serving the Company in any other capacity as an officer, agent, employee or otherwise and receiving compensation for those services.

Committees of the Board of Directors

7.7.14

The Board of Directors may, by resolution adopted by a majority of the authorized number of directors, designate one or more committees, each consisting of two or more directors, to serve at the pleasure of the board. The board may designate one or more directors as alternate members of any committee, who may replace any absent member at any meeting of the committee. The appointment of members or alternate members of a committee requires the vote of a majority of the authorized number of directors. Any committee, to the extent provided in the resolution of the board, shall have all the authority of the board, except with respect to: (a) the approval of any action which, under the Code, also requires shareholders’ approval or approval of the outstanding shares; (b) the filling of vacancies on the Board of Directors or in any committee; (c) the fixing of compensation of the directors for serving on the board or any committee; (d) the amendment or repeal of these bylaws or the adoption of new bylaws; (e) the amendment or repeal of any resolution of the Board of Directors which by its express terms is not so amendable or repealable; (f) a distribution to the shareholders of the Company, except at a rate or in a periodic amount or within a price range determined by the Board of Directors; or (g) the appointment of any other committees of the Board of Directors or the members of such committees.

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7.7.15

Meetings and actions of committees shall be governed by, and held and taken in accordance with, the provisions of Section 7.7.5 (place of meetings), Section ‎7.7.6 (regular meetings), Section 7.7.7 (special meetings and notice), Section ‎7.7.8(quorum), Section 7.7.9 (waiver of notice), Section 7.7.10 (adjournment), Section 7.7.11 (notice of adjournment), and Section ‎7.7.12 (action without meeting), with such changes in the context of those bylaws as are necessary to substitute the committee and its members for the Board of Directors and its members; provided, however, that the time of regular meetings of committees may be determined either by resolution of the Board of Directors or by resolution of the committee, that special meetings of committees may also be called by resolution of the Board of Directors, and that notice of special meetings of committees shall also be given to all alternate members, who shall have the right to attend all meetings of the committee. The Board of Directors may adopt rules for the government of any committee not inconsistent with the provisions of the bylaws.

Officers

7.7.16

The officers of the Company shall be a president, a secretary, and a chief financial officer. The Company may also have, at the discretion of the Board of Directors, a chairman of the board, one or more vice presidents, one or more assistant secretaries, one or more assistant treasurers, and such other officers as may be appointed in accordance with the provisions of section 7.7.18 below. Any number of offices may be held by the same person.

7.7.17

The officers of the Company, except such officers as may be appointed in accordance with the provisions of Section ‎7.7.18 or Section ‎7.7.21 below, shall be chosen by the board, subject to the rights, if any, of an officer under any contract of employment.

7.7.18

The Board of Directors may appoint, or may empower the president to appoint, such other officers as the business of the Company may require, each of whom shall hold office for such period, have such authority, and perform such duties as are provided in these bylaws or as the Board of Directors may from time to time determine.

7.7.19

Subject to the rights, if any, of an officer under any contract of employment, any officer may be removed, either with or without cause, by the Board of Directors at any regular or special meeting of the board or, except in case of an officer chosen by the Board of Directors, by any officer upon whom such power of removal may be conferred by the Board of Directors.

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7.7.20

Any officer may resign at any time by giving written notice to the Company. Any resignation shall take effect at the date of the receipt of that notice or at any later time specified in that notice; and, unless otherwise specified in that notice, the acceptance of the resignation shall not be necessary to make it effective. Any resignation is without prejudice to the rights, if any, of the Company under any contract to which the officer is a party.

7.7.21

A vacancy in any office because of death, resignation, removal, disqualification, or any other cause shall be filled in the manner prescribed in the bylaws for regular appointments to that office.

7.7.22

The chairman of the board, if elected, shall, if present, preside at meetings of the Board of Directors and exercise and perform such other powers and duties as may from time to time be assigned to him by the Board of Directors or as may be prescribed by the bylaws. If there is no president, then the chairman of the board shall also be the chief executive officer of the Company and shall have the powers and duties prescribed in Section ‎7.7.22 below.

7.7.23

Subject to such supervisory powers, if any, as may be given by the Board of Directors to the chairman of the board, if there be such an officer, the president shall be the chief executive officer of the Company and shall, subject to the control of the Board of Directors, have general supervision, direction, and control of the business and the officers of the Company. He shall preside at all meetings of the shareholders and, in the absence or nonexistence of a chairman of the board, at all meetings of the Board of Directors. He shall have the general powers and duties of management usually vested in the office of president of a Company, and shall have such other powers and duties as may be prescribed by the Board of Directors or the bylaws.

7.7.24

In the absence or disability of the president, the vice presidents, if any, in order of their rank as fixed by the Board of Directors or, if not ranked, a vice president designated by the Board of Directors, shall perform all the duties of the president, and when so acting shall have all the powers of, and be subject to all the restrictions upon, the president. The vice presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the Board of Directors, the bylaws, the president, or the chairman of the board.

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Indemnification of Directors and Officers9

7.7.25

The Company shall, to the maximum extent and in the manner permitted by the Code10, indemnify each of its directors and officers against expenses (as defined in Section 317(a) of the Code,)11 judgments, fines, settlements, and other amounts actually and reasonably incurred in connection with any proceeding (as defined in Section 317(a) of the Code,)12) arising because such person is or was an agent of the Company. For purposes of this section, a “director” or “officer” of the Company includes any person (i) who is or was a director or officer of the Company, (ii) who is or was serving at the request of the Company as a director or officer of another Company, partnership, joint venture, trust, or other enterprise, or (iii) who was a director or officer of a Company which was a predecessor Company of the Company or of another enterprise at the request of such predecessor Company. In addition, the Company shall indemnify the directors and officers of the Company who serve at the request of the Company as trustees, investment managers, or other fiduciaries. The rights conferred on any person by this bylaw shall continue as to a person who has ceased to be a director or officer and shall inure to the benefit of the heirs, executors, and administrators of such person.

7.7.26

Expenses incurred in defending any civil or criminal action or proceeding for which indemnification is required pursuant to Section 7.7.25 above following authorization thereof by the Board of Directors shall be paid by the Company in advance of the final disposition of such action or proceeding upon receipt of an undertaking by or on behalf of the indemnified party to repay such amount if it shall ultimately be determined that the indemnified party is not entitled to be indemnified as authorized under Sections 7.7.25–‎7.7.31.

7.7.27

The indemnification described under Sections 7.7.25–‎7.7.31 shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled under any bylaw, agreement, vote of shareholders or disinterested directors or otherwise, both as to action in an official capacity and as to action in another capacity while holding such office, to the extent that such additional rights to indemnification are authorized in the Articles of Incorporation.

7.7.28

The Company shall have the power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Company against any liability asserted against or incurred by such person in such capacity or arising out of such person’s status as such, whether or not the Company would have the power to indemnify him against such liability under the provisions of Sections ‎7.7.25–‎7.7.31.

9	For details regarding directors' and officers' liability insurance, see Section 8.1.14 below.

10	The Code does not limit the amount of indemnifiaction.

11	Section 317(a) defines "expenses" as including, without limitation, attorneys' fees and other expenses relating to establishing the right of indemnification.

12	Section 317(a) defines "proceeding" as any civil, criminal, administrative or investigative proceedings, whether pending, threatened, or completed.

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7.7.29

No indemnification or advance shall be made under the provisions of Sections 7.7.25–‎7.7.31 above except where such indemnification or advance is mandated by law or the order, judgment, or decree of any court of competent jurisdiction, in any circumstance where it appears: (1) That it would be inconsistent with a provision of the Articles of Incorporation, the bylaws, a resolution of the shareholders, or an agreement in effect at the time of the accrual of the alleged cause of the action asserted in the proceeding in which the expenses were incurred or other amounts were paid, which prohibits or otherwise limits indemnification; or (2) That it would be inconsistent with any condition expressly imposed by a court in approving a settlement.

7.7.30

A repeal or modification of Sections 7.7.25–‎7.7.31 shall only be prospective and shall not affect the rights hereinabove in effect at the time of the alleged occurrence of any action or omission to act that is the cause of any proceeding against any agent of the Company.

7.7.31

Without the necessity of entering into an express contract, all rights to indemnification and advances to directors and officers under the bylaws shall be deemed to be contractual rights and be effective to the same extent and as if provided for in a contract between the Company and the director or executive officer. Any right to indemnification or advances granted by this bylaw to a director or executive officer shall be enforceable by or on behalf of the person holding such right in the forum in which the proceeding is or was pending or, if such forum is not available or a determination is made that such forum is not convenient, in any court of competent jurisdiction if (i) the claim for indemnification or advances is rejected, in whole or in part, or (ii) no disposition of such claim is made within ninety (90) days of request therefor. The claimant in such enforcement action, if successful in whole or in part, shall be entitled to be paid also the expense of prosecuting his claim. The Company shall be entitled to raise as a defense to any such action the claim that the claimant has not met the standards of conduct that make it permissible for the Company, under the Code, to indemnify the claimant for the amount claimed. Neither the failure of the Company (including its Board of Directors, independent legal counsel, or its shareholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he has met the applicable standard of conduct set forth in the Code, nor an actual determination by the Company (including its Board of Directors, independent legal counsel, or its shareholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the claimant has not met the applicable standard of conduct.

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Records and Reports

7.7.32

From time to time, the Board of Directors shall determine by resolution which person or persons may sign or endorse all checks, drafts, other orders for payment of money, notes, or other evidences of indebtedness that are issued in the name of or payable to the Company, and only the persons so authorized shall sign or endorse those instruments.

7.7.33

The Board of Directors, except as otherwise provided in the bylaws, may authorize any officer or officers, or agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the Company; such authority may be general or confined to specific instances. Unless so authorized or ratified by the Board of Directors or within the agency power of an officer, no officer, agent, or employee shall have any power or authority to bind the Company by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount.

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2010 (in USD):

Details of Recipient of Remuneration								Remunerations for Services										Other Remunerations
Name	Position	Scope of Position			Percentage Holding of Capital of the Corporation1			Salary2		Grant		Share- Based Payment3		Consultation Fees	Commission	Other4		Interest	Rental Fees	Other		Total
Daniel Zurr	President, Director & CEO		100	%		7.39	%		542,010		135,000		81,472				1,891				67,709		828,082
Shai Ehrlich	Chief Medical Officer		100	%		0.84	%		346,390				96,065				2,659						445,114
Rami Skaliter	Chief Operating Officer		100	%		0.95	%		290,013				75,012				22,070						387,095
Elena Feinstein	Chief Scientific Officer		100	%		0.77	%		263,114				71,070				11,553						345,737
Smadar Shakked	Senior Vice President Business Development-Finance		100	%		0.68	%		209,642				209,642				16,551						321,843
Sagit Reich5	Chief Financial officer		100	%		0.50	%		90,597				90,597				4,764						121,426

1	Calculated on a fully diluted basis presuming Preferred Shares are converted into Ordinary Shares.

2	Including expenses for 401(k) plan and expenses for social benefits.

3	Data is calculated according to US GAAP.

4	Including reimbursement of expenses for vehicle, communications, and tax expenses.

5	Ms. Reich has been employed with the Company as of August 1, 2010 and the amount presented reflects the compensations for this period.

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2009 (in USD):

Details of Recipient of Remuneration								Remunerations for Services											Other Remunerations
Name	Position	Scope of Position			Percentage Holding of Capital of the Corporation6			Salary7		Grant	Share- Based Payment		Management Fees	Consultation Fees		Commission	Other8		Interest	Rental	Other	Total
Daniel Zurr	President & CEO		100	%		9.27	%		352,913			93,091			2,494			53,743					502,241
Shai Ehrlich	Chief Medical Officer		100	%		1.04	%		289,719			91,482						1,805					383,006
Rami Skaliter	Chief Operating Officer		100	%		1.18	%		264,776			70,080						16,730					351,586
Elena Feinstein	Chief Scientific Officer		100	%		0.95	%		239,799			67,060						10,349					317,208
Smadar Shakked	Senior Vice President Business Development- Finance		100	%		0.67	%		182,606			47,772						14,397					244,775

6	Calculated presuming all the shares of the Company, including Preferred Shares, are Ordinary Shares.

7	Including expenses for 401(k) plan and expenses for social benefits.

8	Including reimbursement of expenses for vehicle, communications and tax expenses.

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8.1.2

Details of Agreements with Officers and Interested Parties in the Company

(a)

Conditions of Office and Employment of the CEO of the Company and of the Subsidiary, Dr. Daniel Zurr

Mr. Zurr has been an employee of the Company since October 1995, pursuant to several agreements, the latest of which is dated January 1, 2008. Mr. Zurr has been serving as CEO of the Company and of the Subsidiary since 1995 (the agreement and the amendments to it shall be referred to hereinafter in this section as the “Agreement”). The following is a summary of the main points of the Agreement:

Mr. Zurr shall serve as CEO of the Company or in any other role as he may be requested to perform by the board of directors of the Company. As part of his position, he shall perform all such functions and exercise all such authorities as are derived from such position, as he may be required by the board of directors of the Company. Mr. Zurr shall report to the board of directors of the Company. During the term of his employment at the Company, Mr. Zurr shall devote most of his time and efforts to the Company and shall not be employed by any other company or perform any other business activity.

In consideration for his work, Mr. Zurr is entitled to an annual base salary in the sum of USD 325,000.9 Mr. Zurr is also entitled to reimbursement of expenses incurred by him in the performance of his position, in accordance with the Company's policy (including phone and travel expenses). Mr. Zurr shall be fit to take part in the Company's employee benefits plan, as such may be in place from time to time. As of the Prospectus date, by virtue of the aforesaid plan, Mr. Zurr is entitled to health insurance, life insurance, disability insurance, pension, and participation in the Company's 401(k) retirement plan. Mr. Zurr is also entitled to executive insurance, insurance for loss of capability to work, study fund, recuperation pay, 22 vacation days each year (with a right to accrue up to 44 days), 18 sick days each year, reimbursement of reasonable travel expenses, and reimbursement of phone expenses. Mr. Zurr has also been provided with a grossed-up company car and cellular phone. Mr. Zurr was, in the past, granted options for the purchase of Ordinary Shares of the Company and under the Agreement, Mr. Zurr shall be entitled to additional options, as the board of directors may prescribe. As of the date of the Prospectus, 156,895 options, have been granted to Mr. Zurr as follows:

9	Note that in view of the funding difficulties, as described in Section 6.5.14 above, between September 2009 and February 2010 Mr. Zurr’s salary has been reduced by an aggregate amount of USD 40,625 over the said period.

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1,724 options at an exercise price of USD 1.16 granted on September 26, 1996 and expired on September 26, 2006; 86,206 options at an exercise price of USD 1.16, granted on August 18, 1997 and cancelled on December 27, 2005; 68,965 options at an exercise price of USD 7.975, granted on March 19, 2007 and were canceled afterwards. On March 30, 2009 the said options were re-granted at an exercise price of USD 1.1, of which 20,000 options were cancelled on the date of investment of the Preferred H Shares.

As of the Prospectus date Mr. Zurr holds 48,965 options convertible into 48,965 ordinary shares of the Company of USD 0.001, at an exercise price of USD 1.1 per share. The economic value of the options as of the date of their granting is approximately USD 383,395. For additional details about the employee option plan see Section 3.5.1 above.

The employment agreement is not limited in time, and each of the parties may terminate it at any time, with or without cause and without prior notice. In the event of termination of employment without cause, and irrespective of death or disability of Mr. Zurr, or in the event that Mr. Zurr chooses to terminate his employment for any justified reason, as set forth below, the Company shall pay Mr. Zurr a lump sum equivalent of the base salary, as it may be at that time, for 12 months of employment (hereinafter “Payment for the Adaptation Period”). In the event that Mr. Zurr continues to serve as a consultant to the Company or as a member of the board of directors, the sums to which he shall be entitled by virtue of such positions shall be set off against the Payment for the Adaptation Period. The Payment for the Adaptation Period shall be subject to delivery of a waiver to the Company within 30 days, according to which Mr. Zurr waives any present or future claim against the Company, its officers, directors, employees, shareholders, subsidiaries or parent companies, in a form acceptable to the Company.

In this regard, “cause” shall mean: (1) gross negligence or malicious failure on the part of Mr. Zurr to perform his function and obligations; (2) willful misconduct serving to substantially harm the Company financially or otherwise; (3) embarrassing or inappropriate conduct amounting to moral turpitude, such that Mr. Zurr's credibility and reputation do not meet the standards of the officers of the Company; (4) an act of fraud or breach of trust; (5) a material breach of the employment agreement or any other agreement between Mr. Zurr and the Company.

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“Justified reason” shall mean (1) a significant reduction in the consideration to which Mr. Zurr is entitled (unless an identical reduction in consideration was made to other senior officers of corresponding rank), or if the Company commits a material breach of the employment agreement with Mr. Zurr, provided that (2) Mr. Zurr gives the chairman of the board of directors notice within 60 days of the said reduction of consideration or breach and (3) within 30 days of receiving the aforesaid notice, the Company does not remedy the reduction in consideration or the breach; and (4) Mr. Zurr's resignation shall be in force not later than 120 days after the expiration of such 30 days period.

The governing law of the Agreement is the law of the State of California.

Mr. Zurr also signed a confidentiality, non-competition and protection of the intellectual property rights of the Company agreement, as is in the Company's practice. For details of the agreement, see Section 6.5.12 above.

In April 1997, the amount of USD 350,000 has been transferred to Mr. Zurr as a loan. In March 2007, the Company forgave the balance of the loan (principal and interest), which stood at the time at USD 564,000. For additional details see Note 5 of the Financial Statements.

On January 8, 2008, a loan agreement was signed between the Company and Mr. Zurr under which the Company granted Mr. Zurr a loan in the sum of USD 150,000 (hereinafter the “Loan”). The unpaid balance of the Loan bears annual interest at a rate of 3.18%, payable once a year, as of January 7, 2009, and until the date of full repayment of the Loan. The interest rate under the Loan and any other loan that may be granted to Mr. Zurr by the Company, if any, shall not be greater than the rate permitted by law.10 The Loan (principal and interest) shall be repaid on the earlier of: (1) 36 months after the date of the Loan agreement, i.e., January 7, 2011; (2) 30 days after the earlier of the date of Mr. Zurr's resignation, or an event of breach as defined in the Agreement. According to the provisions of the Agreement, the Company may require early repayment of the Loan at its sole discretion in order to meet the requirements of the law (and to avoid concerns of breach thereof), including under Sarbanes-Oxley Act of 2002; and, at any time, if Mr. Zurr serves as a senior officer and/or director, and the securities of the Company are listed in accordance with Section 12 of the Exchange Act of 1934; the securities shall be subject to the reporting rules under Section 15(d) of the Exchange Act of 1934 or will be registered under the Securities Act of 1933. Mr. Zurr shall have the right to make early repayment of all or part of the loan amount and the interest thereupon, at any time. In September 2010, the Company forgave the balance of the loan, including the interest accrued on it in the amount of USD 157 thousand.

10	For the purpose of complying with the aforesaid provisions of the law, the Agreement makes various arrangements such as: distribution of interest, reduction of principal, refund of monies to Dr. Zurr, etc.

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On October 25, 2010 the Board of Directors approved the grant of a bonus in the amount of USD 135 thousand to Dr. Zurr, in order to compensate him for the tax liability he incurred as a result of the waiver of the loan. Furthermore, it was determined that the Board of Directors will consider this bonus in any future performance-based bonus grants decisions for the years 2010-2011. The above bonus amount was allocated in the Company's financial statements dated December 31, 2010 and, as at the date of the Prospectus, were fully paid.

(b)

Conditions of Office and Employment of the CFO of the Company, Ms. Sagit Reich

Ms. Sagit Reich has been employed at the Company and the subsidiary as CFO since August 2010, in accordance with an employment agreement dated 1.8.2010 with the subsidiary, QBI Industries Ltd. (the agreement shall be referred to hereinafter in this section as the “Agreement”). The following is a summary of the main points of the Agreement:

Ms. Reich is to act as Chief Financial Officer (CFO) of the Company and the subsidiary. As part of her position, she shall perform all such functions and exercise all such authorities as stem from or are connected to her position as aforesaid, and as may be required of her by the CEO of the Company and of the subsidiary. Ms. Reich shall provide financial management services to the Company and to any corporation related to the Company, and shall report to the CEO of the Company. During the term of her employment at the Company, Ms. Reich shall devote most of her time and efforts to her work and shall not be employed by any other company or perform any other business activity.

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The place of Ms. Reich's employment shall be in Israel, subject to the fact that she might be required to travel outside of Israel in order to perform her duties and functions as aforesaid. In consideration for her work, Ms. Reich is entitled to a base salary of NIS 50,000 per month, linked to the cost of living index. The aforesaid sum does not include travel expenses as required by law. In addition, at the beginning of her employment, 120,000 options have been granted to Ms. Reich, at an exercise price of USD 4.55. The options will be vested over a period of four years as follows: 25% of the options will be vested after 12 months, and 1/48 of the options will be vested in each month thereafter. The vesting of approximately 40% of the options shall be accelerated if the Company is made public and the vesting of the full amount shall be accelerated if the company is merged or there is a change in the controlling interest, as specified in the agreement, all of it in accordance with the Company's employees option plan for Israeli employees as of 2007, as set forth in Section 3.5.1. As of the Prospectus date, the options granted to Ms. Reich have not been vested. As of the Prospectus date Ms. Reich holds 120,000 options convertible into 120,000 ordinary shares of the Company of USD 0.001 at an exercise price of USD 4.55 per share. The economic value of the options at the date of the grant is approximately USD 294,540. For additional details about the employee’s option plan see Section 3.5.1 above.

Subject to an initial public placement, Ms. Reich will be entitled to a bonus, at the discretion of the CEO of the Company, which shall be paid within 60 days of the date of such placement, and on condition that her employment remains in force. In addition, Ms. Reich shall be entitled to an annual bonus in accordance with Company policy and at the discretion of the Company CEO.

Ms. Reich is also entitled to executive insurance as of the beginning of her employment,11 insurance for loss of capability to work, study fund, recuperation pay, 22 vacation days each year, 18 sick days each year, refund of reasonable travel expenses, and reimbursement of phone expenses. Ms. Reich has also been provided with a grossed-up company car (class 2) and a cellular phone.

11	Pursuant to Section 14 of the Severance Pay Law, 5723-1963, the Company's allocations to executive insurance, on account of severance pay, will replace the entitlement to severance pay under the Severance Pay Law.

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Ms. Reich has also signed a confidentiality, non-competition, and protection of the intellectual property rights of the Company agreement, as is in the Company's practice. For details of the above agreement, see Section 6.15 above.

(c)

Conditions of Office and Employment of the COO of the Company, Dr. Rami Skaliter

Dr. Skaliter has been an employee of the Company since October 1995, pursuant to several agreements between Dr. Skaliter and the subsidiary, QBI Industries Ltd., the latest of which is dated May 10, 2007 (amended on September 27, 2007). Dr. Skaliter has been serving as Chief Operating Officer (COO) of the Company and of the subsidiary since January 2007 (the agreement and the amendments to it shall be referred to hereinafter in this section as: the “Agreement”). The following is a summary of the main points of the Agreement:

Dr. Skaliter is to serve as Chief Operating Officer (COO) of the Company and its subsidiary. As part of his position, he shall perform all such functions and exercise all such authorities as stem from or are connected to such function, as aforesaid, and as may be required of him by the CEO of the Company. Dr. Skaliter shall be in charge of the operations services of the Company and of any corporation related to the Company, and shall report to the CEO of the Company. During the term of his employment at the Company, Dr. Skaliter shall devote most of his time and efforts to working and shall not be employed by any other company or perform any other business activity.

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The place of Dr. Skaliter's employment shall be in Israel, subject to the fact that he might be required to travel outside of Israel in order to perform his duties and functions as aforesaid.

In consideration for his employment, Dr. Skaliter is entitled to a base annual salary of USD 220,000,12 to be paid in New Israeli Shekels in 12 equal monthly installments, in accordance with the exchange rate published on the last day of each month in respect of which it is to be paid.13 The aforesaid sum shall be inclusive of travel expenses, as required by law, and shall be linked to the cost of living index. In addition, as at the Prospectus date, 242,239 options have been granted to Dr. Skaliter, as follows:

6,896 options at an exercise price of USD 1.16, granted on January 17, 1997 and exercised to 6,896 shares on January 17, 2007; 27,586 options at an exercise price of USD 1.595 were granted on February 19, 1998 and exercised to 19,999 shares on February 22, 2008; 6,896 options at an exercise price of USD 5.8, granted on November 30, 1999; 27,586 options at an exercise price of USD 5.8, granted on December 4, 2003; 48,275 options at an exercise price of USD 1.1, granted on March 19, 2007; 60,000 options at an exercise price of USD 1.1, granted on December 29, 2008; and 65,000 options at an exercise price of USD 1.1, granted on September 16, 2009.

As of the Prospectus date Dr. Skaliter holds 200,861 options convertible into 200,861 ordinary shares of the Company of USD 0.001, the exercise price of which is USD 5.8 per share for 27,586 shares and USD 1.1 per share for 173,275 shares. The economic value of the options at the grant date is approximately USD 362,159. For additional details about the employee’s option plan see Section 3.5.1 above.

Dr. Skaliter is also entitled to executive insurance14, insurance for loss of capability to work, study fund, recuperation pay, 22 vacation days each year (with a right to accrue up to 44 vacation days), 30 sick days each year, reimbursement of reasonable travel expenses, and reimbursement of phone expenses. Dr. Skaliter has also been provided with a grossed-up company car and cellular phone.

12	Note that in view of the funding difficulties, as described in Section 6.5.14 above, between September 2009 and February 2010 Dr. Skaliter’s salary has been reduced by an aggregate amount of USD 23,826 over the said period.

13	From January 1, 2007 until August 25, 2007, Dr. Skaliter was entitled to a base monthly salary of NIS 40,159, linked to the cost of living index paid in the market from time to time. As of August 25, 2007, his salary was amended as set forth above.

14	Under the September 27, 2007 amendment, as of August 25, 2007, and pursuant to Section 14 of the Severance Pay Law, 5723-1963, the Company's allocations to executive insurance, on account of severance pay, will replace the entitlement to severance pay under the Severance Pay Law.

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Dr. Skaliter has also signed a confidentiality, non-competition, and protection of the intellectual property rights of the Company agreement, as is in the Company's practice. For details of the agreement, see Section 6.5.12C above.

(d)

Conditions of Office and Employment of the Chief Medical Officer of the Company, Mr. Shai Ehrlich

Mr. Ehrlich has been an employee of the Company since March 200315, pursuant to an employment agreement dated March 9, 2003, as updated from time to time. Mr. Ehrlich has been serving as Chief Medical Officer (CMO) of the Company since January 2008 Until that time, Mr. Ehrlich served as Chief Development Officer (the agreement and the amendments made to it shall be referred to hereinafter in this section as: the “Agreement”). The following is a summary of the main points of the Agreement:

Mr. Ehrlich shall act as Chief Medical Officer of the Company or in such other role as he may be requested to perform by the CEO of the Company. During the term of his employment at the Company, Mr. Ehrlich shall devote his business time and efforts to promote the Company’s business and shall not be employed by any other company or perform any other business activity, without the prior consent of the President of the Company or the CEO of the Company.

15	Mr. Ehrlich had been an employee of the subsidiary between February 1999 and April 2003.

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In consideration for his work, Mr. Ehrlich shall be entitled to an annual salary in the sum of USD 315,00016. Mr. Ehrlich is also entitled to 16 vacation days each year (which shall be adjusted in order to reduce harm to the Company's business), and to vacation days during holidays, in accordance with US practice. Mr. Ehrlich is also entitled to social benefits as are usual at the Company, including medical insurance, dental insurance, life insurance, disability insurance and participation in the Company's retirement scheme (401(k)); to a refund of reasonable travel expenses or other expenses with respect to his employment by the Company.

In addition, as at the date of the Prospectus, 204,653 options have been granted to Dr. Ehrlich, as follows:

1,724 options at an exercise price of USD 5.8, granted on November 30, 1999, and cancelled on March 31, 2003; 862 options at an exercise price of USD 5.8, which were cancelled on March 31, 2003. 862 options granted on September 30, 2001 and cancelled on March 31, 2003; 4,312 options at an exercise price of USD 17.4, granted on May 16, 2003; 2,584 options at an exercise price of USD 5.8, granted on May 16, 2003; 12,068 options at an exercise price of USD 5.8, granted on December 29, 2005; 67,241 options at an exercise price of USD 1.1, granted on March 19, 2007; 70,000 options at an exercise price of USD 1.1, granted on December 29, 2008; and 45,000 options at an exercise price of USD 1.1, granted on September 16, 2009. As of the Prospectus date Dr. Erlich holds 201,205 options convertible into 201,205 ordinary shares of the Company of USD 0.001, ,the exercise price of which is USD 5.8 per share for 14,654 shares, USD 17.4 per share for 4,310 shares and USD 1.1 per share for 182,241 shares The economic value of the options at the grant date is approximately USD 456,195. For additional details about the employee’s option plan see Section 3.5.1 above.

Between the date of commencement of his employment and January 2004, Mr. Ehrlich was entitled to an annual salary of USD 150,000. In February 2004, his salary was increased to USD 180,000 per year. As of August 2004, his salary was increased to USD 17,500 per month, amounting to USD 210,000 per year. In March 2006, Mr. Ehrlich's salary was increased to USD 230,000, in January 2008, his monthly salary was updated to 21,666, i.e., USD 260,000 per year, and in April 2010, his salary was updated to its present amount. Note that in view of the funding difficulties, as described in Section 6.5.14 above, between September 2009 and February 2010 Dr. Erlich’s salary has been reduced by an aggregate amount of USD 13,000 over the said period.

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Upon commencement of Mr. Ehrlich's employment with the Company in the U.S., the options that had been granted to him as part of the option plan for Israeli employees, as described above, were cancelled and he was granted 6,893 options for the purchase of Ordinary Shares in the Company under the option plan for American employees. 2,310 of these vested on the date of grant, and the balance will vest in monthly installments, as specified in the Agreement, over a period of 48 months, subject to Mr. Ehrlich's continued employment at the Company.

Mr. Ehrlich also signed confidentiality, assignment of invention rights, and arbitration agreement, as is in the Company's practice. For details of the agreement, see Section 6.5.10 above.

The employment agreement is not limited in time and Company may terminate the employment agreement at any time and without cause by prior written notice of 60 days. Until the end of three years of employment, Mr. Ehrlich was allowed to terminate his employment without cause and at any time, by prior written notice of 180 days, and after the passing of three years of employment, by prior notice of 60 days.

In the event of termination of employment without cause, the Company shall pay Mr. Ehrlich compensation for 4 months.

The Company is entitled to terminate Mr. Ehrlich's employment at any time, in writing, in the event that there is cause. In this regard, “cause” shall mean (1) Mr. Ehrlich being convicted, or a petition to admit to guilt, or for nolo contendere in a court of final instance in the case of commission of a felony, which may substantially harm the Company; (2) an act of fraud or embezzlement of the funds and assets of the Company; (3) gross negligence in the performance of his duty, breach of fiduciary duty or any other inappropriate conduct, if the result thereof is material harm to the Company; (4) breach of the agreement regarding confidentiality and assignment of inventions. In cases (3) and (4) above, the Company shall give notice to Mr. Ehrlich of its intention to terminate his employment by prior notice of 5 days, and shall grant him 5 days to remedy the cause.

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The governing law applicable to the employment Agreement and to the agreement regarding confidentiality, assignment of invention rights and arbitration is the law of the State of California.

(e)

Conditions of Office and Employment of the Chief Scientific Officer of the Company, Dr. Helena Feinstein

Dr. Feinstein has been an employee of the subsidiary QBI Industries Ltd. since December 1997, pursuant to several agreements between Dr. Feinstein and the subsidiary, the latest of which is dated June 28, 200717 (amended on November 26, 2007). Dr. Feinstein has been acting as Chief Research Officer of the Company and the subsidiary since 2007 (the agreement and the amendments to it shall be referred to hereinafter in this section as: the “Agreement”). The following is a summary of the main points of the Agreement:

Dr. Feinstein is to serve as Chief Scientific Officer (CSO) of the Company and the subsidiary. As part of her position, she shall perform all such functions and exercise all such authorities as stem from or are connected to her position as aforesaid, and as may be required of her by the CEO of the Company. Dr. Feinstein shall provide services to the Company, the subsidiary and to any related corporation and is to report to the CEO of the Company and of the subsidiary. During the term of her employment at the Company, Dr. Feinstein shall devote her most of her time and efforts to working and shall not be employed by any other company or perform any other business activity, without the prior written consent of the Company. The Company has given its consent to Dr. Feinstein entering into a consultancy agreement with Cleveland BioLabs, Inc., dated May 1, 2007, for the projects described in the appendix to the aforesaid consultancy agreement, provided that the Company shall have full control over the appendix, and may, at its sole discretion, instruct Dr. Feinstein to terminate the consultancy services for projects described in the appendix, if these are in direct competition with the Company's business. Any amendment that may be made to the appendix, including adding projects or amending existing projects listed in the appendix, shall be subject to the prior written consent of the Company. As at the Prospectus date, Dr. Feinstein provides no more than 60 hours a month of such consultancy services.

Note that on June 28, 2007, the Company entered into an employment agreement with Dr. Feinstein that was identical in substance to the employment agreement with the subsidiary. Under these two agreements, the Company and the subsidiary bore the costs of Dr. Feinstein's employment in equal shares. The agreements contained sections permitting Dr. Feinstein's employment by both companies at the same time, and/or termination of her employment at one of the companies. The said agreement was rescinded on November 26, 2007 and as at the Prospectus date, Dr. Feinstein is employed by the subsidiary only, which bears the full cost of her employment.

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The place of Dr. Feinstein's employment shall be in Israel, subject to the fact that she might be required to travel outside of Israel in order to perform her duties and functions as aforesaid.

In consideration for her employment, Dr. Feinstein is entitled to a base annual salary of USD 200,000,18 to be paid in New Israeli Shekels in 12 equal monthly installments, in accordance with the exchange rate of the dollar, published on the last day of each month in respect of which it is to be paid. The aforesaid sum shall be inclusive of travel expenses, required by law, and shall be linked to the cost of living index.

In addition, as at the date of the Prospectus, 201,204 options have been granted to Dr. Feinstein as follows:

5,172 options at an exercise price of USD 1.595, granted on February 19, 1998 which expired on February 19, 2008; 12,068 options at an exercise price of USD 5.8, granted on November 30, 1999 which expired on November 30, 2009; 6,896 options at an exercise price of USD 5.8, granted on December 4, 2003; 17,241 options at an exercise price of USD 5.8, granted on June 15, 2006; 44,827 options at an exercise price of USD 1.1, granted on March 19, 2007; 60,000 options at an exercise price of USD 1.1, granted on December 29, 2008; 55,000 options at an exercise price of USD 1.1, granted on September 16, 2009. As of the Prospectus date Dr. Feinstein holds 183,964 options convertible into 183,964 ordinary shares of the Company of USD 0.001 , the exercise price of which is USD 5.8 per share for 21,981 shares, and USD 1.1 per share for 161,983 shares. The economic value of the options at the grant date is approximately USD 344,224. For additional details about the employee’s option plan see Section 3.5.1 above.

Dr. Feinstein is also entitled to executive insurance19, insurance for loss of capability to work, study fund, recuperation pay, 22 vacation days each year (with a right to accrue up to 81 days), 18 sick days each year20 as set out in the law, reimbursement of reasonable travel expenses, and reimbursement of phone expenses. Dr. Feinstein has also been provided with a grossed-up company car and cellular phone.

18	Note that in view of the funding difficulties, as described in Section 6.5.14 above, between September 2009 and February 2010 Dr. Feinstein’s salary has been reduced by an aggregate amount of USD 20,269 over the said period.

19	Under the September 27, 2007 amendment, as of August 25, 2007, and pursuant to Section 14 of the Severance Pay Law, 5723-1963, the Company's allocations to executive insurance, on account of severance pay, will replace the entitlement to severance pay under the Severance Pay Law.

20	In the amendment of the agreement, an agreement was reached with Dr. Feinstein regarding compensation for the sick days she had accrued over the years.

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The employment agreement is not limited in time and may be terminated in the following circumstances: (1) death; (2) the Company may terminate the employment agreement in the event of disability preventing the performance of most or all of the obligations under the Agreement, for a period of 90 (non-consecutive) days in any 12 month period; (3) the Company may terminate the employment agreement immediately and at any time, upon the existence of any cause. In this regard, “cause” shall mean (i) gross negligence or malicious failure on the part of Dr. Feinstein to perform her functions and obligations; (ii) willful misconduct serving to substantially harm the Company or related companies financially or otherwise; (iii) embarrassing or inappropriate conduct amounting to moral turpitude, such that Dr. Feinstein's credibility and reputation does not meet the standards of officers of the Company; (iv) an act of fraud or breach of trust; (v) a material breach of the employment agreement; (4) by Dr. Feinstein, at any time and without cause, by prior notice of 120 days; (5) at any time, by mutual written consent of the parties; (6) by the Company at any time and without cause by prior notice of 120 days. The Company shall be entitled to terminate Dr. Feinstein's employment at any time, immediately, and on condition that it pay the full salary under the agreement, for the prior notice period.

The Company shall compensate Dr. Feinstein in the sum of up to USD 10,000 for U.S. health insurance, should she exercise such right.

The governing law that applies to the agreement is the law of the State of Israel.

Dr. Feinstein has also signed a non-competition and protection of the intellectual property rights of the Company agreement, as is in the Company's practice. For details of this agreement, see section 6.5.12C. In this agreement, Dr. Feinstein declared prior inventions that she owns, which were not assigned to the Company. Dr. Feinstein also declared that if and to the extent that she includes or integrates a prior invention or other work in which she has an interest into a product, device or process of the Company during the course of her employment at the Company, the Company is granted an irrevocable, non-exclusive international license, for no consideration or royalty, to manufacture, make use, alter and sell such invention as part of or with respect to a product, process or device of the Company as aforesaid.

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(f)

Conditions of Office and Employment of Senior Vice President Business Development - Finance (Formerly Senior Vice President for Financial Affairs ) Smadar Shakked 21

Ms. Shakked has been an employee of the Company since September 1997, pursuant to several agreements between Ms. Shakked and the subsidiary, QBI Industries Ltd., the latest of which is dated July 14, 200822. Ms. Shakked acted as Senior Vice President for Financial Affairs of the subsidiary until August 2010 (the agreement and the amendments to it shall be referred to hereinafter in this section as: the “Agreement”). The following is a summary of the main points of the Agreement:

As part of her position, she shall perform all such functions and exercise all such authorities as stem from or are connected to her position as aforesaid, and as may be required of her by the board of directors and/or the President of the Company and the CEO of the Company. During the term of her employment at the Company, Ms. Shakked shall devote most of her time and efforts to her work and shall not be employed by any other company or perform any other business activity.

The place of Ms. Shaked's employment shall be in Israel, subject to the fact that she may be required to travel outside of Israel in order to perform her duties and functions as aforesaid.

In consideration for her work, Ms. Shakked is entitled to a monthly salary in the sum of NIS 47,700,23 which shall be updated from time to time in accordance with the cost of living index paid to employees in Israel. In addition, Ms. Shakked is entitled to executive insurance,24 study fund, sick days by law, 22 vacation days a year, grossed-up vehicle expenses as set forth in the Agreement, and recuperation pay.

21	On January 2011 Ms. Smadar Shaked and the Company mutually agreed that Ms. Shaked shall end its employment with the Company. The term of prior notice shall be terminated on May 31, 2011. Ms. In practice, Ms. Shaked has not been working in the Company since January, 2011.

22	Between January 1, 2007 and July 1, 2008, Ms. Shakked went on unpaid leave, during which no employer-employee relations existed between Ms. Shakked and the subsidiary. During the period of this leave, Ms. Shakked was employed at the Company as Senior Vice President for Financial Affairs.

Between September 14, 1997 and August 31, 1998, Ms. Shaked's monthly salary amounted to the sum of NIS 16,000; on September 1, 1998, her salary was updated to NIS 20,000, and on September 1, 2002, her salary was updated to NIS 38,000. As of July 15, 2008, her salary was set to the above sum. Note that in view of the funding difficulties, as described in Section 6.5.14 above, between September 2009 and February 2010 Ms. Shakked’s salary has been reduced by an aggregate amount of USD 15,408 over the said period.

24	Under the July 14, 2008 amendment, as of July 15, 2008, and pursuant to Section 14 of the Severance Pay Law, 5723-1963, the Company's allocations to executive insurance, on account of severance pay, will replace the entitlement to severance pay under the Severance Pay Law.

H - 17

In addition, as at the Prospectus date, 173,963 options have been granted to Mrs. Shakked, as follows:

6,896 options at an exercise price of USD 1.16, granted on October 1, 1997, which were exercised to 5,517 shares on September 26, 2007; 13,793 options at an exercise price of USD 1.16 which were exercised to 11,034 shares on September 26, 2007; 6,896 options at an exercise price of USD 5.8, granted on November 30, 1999; 6,896 options at an exercise price of USD 5.8, granted on December 4, 2003; 34,482 options at an exercise price of USD 1.1, granted on March 19, 2007; 30,000 options at an exercise price of USD 1.1, granted on December 29, 2008; 15,000 options at an exercise price of USD 1.1, granted on March 30, 2009; 25,000 options at an exercise price of USD 1.1, granted on September 16, 2009; and 35,000 options at an exercised price of USD 4.55, granted on September 2, 2010. As of the Prospectus date Ms. Shakked holds 146,378 options convertible into 146,378 ordinary shares of the Company of USD 0.001 , the exercise price of which is USD 5.8 per share for 6,896 shares and USD 1.1 per share for 139,482 shares. The economic value of the options at the grant date is approximately USD 325,725. For additional details about the employee’s option plan see Section 3.5.1 above.

The employment agreement is not limited in time and may be terminated in the following circumstances: (1) Termination of employment by the Company in the event of cause, without any prior notice. In this regard, “cause” shall mean - (i) conviction of an offense amounting to moral turpitude, or which may affect the Company; (ii) refusal to perform a reasonable instruction of the board of directors with respect to the Company's business, which could have been lawfully performed; (iii) embezzlement of the Company's monies; (iv) breach of undertakings under the agreement regarding confidentiality, intellectual property and non-competition; (2) termination of employment by the Company without cause, by way of prior written notice of 120 days. During such period, she shall be entitled to a salary; (3) termination of employment by Mr. Shakked by prior notice of 60 days.

H - 18

The Agreement also includes provisions regarding confidentiality, preservation of the Company's intellectual property, and provisions regarding non-competition.

As of August 2010, Ms. Shakked is employed as Senior Vice President Business Development –Finance.

(g)

Directors’ Salaries

On May 13, 2009, the board of directors of the Company approved the grant of directors' remuneration, as follows:

Messrs. Gunther, Hahn and Thompson

(a)

For Messrs. Gunther, Hahn and Thompson, who are independent directors: an annual salary of USD 20,000 per year plus the sum of USD 1,250 for every meeting actually attended and USD 500 for every meeting attended by phone conversation. The said payment to Messrs. Gunther and Thompson shall be made as of the date of their appointment, i.e., April 16, 2009. The said payment to Mr. Hahn shall be made as of August 8, 2009.

(b)

In addition, Messrs. Gunther and Thompson were granted options pursuant to the Company's option scheme for 2007, to purchase 20,000 shares which shall vest in the following installments: 25% after one year following the date of their appointment, and the balance in monthly installments over the subsequent 36 months. (For details about the option plan see Section 3.5.1 above.)

(c)

Likewise, Messrs. Gunther and Thompson are entitled to additional options to purchase 7,500 shares which shall be allotted at the first meeting of the board of directors to be held after April 16 of each year, so long as they act as directors of the Company. These options shall vest on a monthly basis starting on April 16 of each year in which they are granted, and subject to the board of directors acting in the future to allot options, at the market value of the shares at the time of their allotment.

(d)

In June 2010, Messrs. Gunther and Thompson ceased to hold office at the Company. As of the Prospectus date, Messrs. Gunther and Thompson do not hold options and the company is not obligated to grant them options

(e)

In addition, Mr. Hahn was given options to purchase 49,750 shares, which shall vest as follows: 25% in August 2009, and the balance on a monthly basis over the subsequent 36 months. These options were granted to Mr. Hahn in lieu of a cash payment, as aforesaid in Section (a), until August 8, 2009.

H - 19

(f)

Likewise, Mr. Hahn is entitled to additional options to purchase 7,500 shares, which shall be allotted at the first meeting of the board of directors to be held after August 8 of each year, so long as he is acting as a director of the Company. These options shall vest on a monthly basis starting on August 8 of each year in which they are granted, and subject to the board of directors acting in the future to allot options, at the market value of the shares at the time of their allotment. On September 1, 2010, the Board of Directors of the Company approved the granting of options to Mr. Hahn, as stated in Section (f). As of the Prospectus date, Mr. Hahn holds 57,250 options convertible into 57,250 ordinary shares of the Company of USD 0.001 per share, the exercise price of 7,500 of which is USD 4.55 per share and USD 1.1 per share for 49,750 shares. The economic value of the options as of the grant date is approximately USD 53,441 (For additional details about the option plans see Section 3.5.1 above).

Messrs. Matuzzi and Simon

(g)

Options have been granted to Mr. Matuzzi pursuant to the Company's 2007 option plan to purchase 20,000 shares which shall vest in the following installments: 25% on May 13, 2010, and the balance in monthly installments over the subsequent 36 months. On June 4, 2010, Mr. Matuzzi’s tenure on the board of directors of the Company has ended.

(h)

Options have been granted to Mr. Simon pursuant to the Company's 2007 option plan to purchase 130,000 shares which shall vest in the following installments: 50% on May 13, 2010, and the balance in monthly installments over the subsequent 12 months.

(i)

The exercise price of the options described in this section shall be USD 1.10, with the exception of the grant referred to in sub-section ‎0 in which the exercise price was set at USD 4.55. The options shall be non-statutory stock and shall vest immediately upon a change of control of the Company.

H - 20

On May 10, 2010, the board of directors of the Company approved the grant of 34,482 options to Mr. Simon at an exercise price of USD 5.8, which were expired in October 2010. As of the Prospectus date, Mr. Simon holds 130,000 options convertible into 130,000 ordinary shares of the Company of USD 0.001 per share in an exercise price of USD 1.1 per share. The economic value of the options at the grant date is approximately USD 83,494. As of the Prospectus date, Mr. Matuzzi does not hold any options.

8.1.3

Directors’ and Officers’ Liability Insurance

On March 25, 2011 the Company's board of directors has authorized the Company's executives to engage in a Directors’ and Officers’ Liability Insurance policy, adjusted to the company's operations as a public company. According to the board resolution, the Company shall procure coverage with a total liability limit of US $ 20 million, per occurrence and in the aggregate as follows: The policy shall include coverage for the liability of the directors & officers and coverage for the liability of the company in the event of securities claims (Entity Coverage), in the limit of liability of US $ 15 million per occurrence and in the aggregate. An additional layer of US $ 5 shall be purchased to provide coverage only for the liability of the directors & officers (A - Side – Only). The policy's premium shall not exceed US $ 218,000 per year the company's retention shall not exceed US $ 250,000 per occurrence.

The Company has procured the said policy.

8.1.4

Exemption and Indemnification of Officers

Pursuant to the provisions of the Bylaws of the Company, the Company is obligated to indemnify its directors and officers, and it may indemnify officers, employees, and agents of the Company and the subsidiary pursuant to the provisions of the Code (Corporation Code of California). Indemnity provisions under law are not exclusive, and the Company may enter into indemnification agreements with the directors, officers and others, and may prescribe specific indemnification provisions in such agreements. Therefore, the Company resolved, in a meeting of the board of directors held on March 28, 2007 to enter into the following indemnity agreements with senior officers and directors of the Company:

(a)

Under the indemnity agreements, the Company shall indemnify the indemnified officer/director of the Company (hereinafter the “Officer”) for any direct or indirect indebtedness or expense, including attorney’s fees and actual expenses paid or accrued with respect to an investigation, defense, or appeal in proceedings, proceedings to enforce or prove an entitlement to indemnity under the indemnity agreement or under any law, monies paid in the context of a settlement, and reasonable compensation for time that the officer devoted, as specified in the agreement.

H - 21

In this regard, the term “proceedings” shall be interpreted in a broad sense and shall include any proceedings including proceedings pending, claims that have ended, arbitration, settlement, investigation, administrative or other hearing, to the Company's benefit or otherwise, criminal, civil or administrative, formal or informal, in which the Officer may be involved as a party to the proceedings or for the reason that the Officer: (1) was or still is a director or officer of the Company; (2) performed an action as a director, officer, employee, or agent of the Company; (3) acted on behalf of the Company as a director, officer, employee, or agent for the Company in another company, partnership, joint venture, trust, etc.

(b)

In the event that the law or the agreement entitles the Officer to indemnification for part of the expenses, but the law prohibits full indemnification of the Officer, the Company shall indemnify the Officer for such portion to which he is entitled. Likewise, the Officer shall be entitled to receive advance payments from the Company on account of the indemnity at his request. The Officer shall be entitled to apply to the competent court in order to enforce his right to receive indemnification and/or an advance payment as aforesaid.

(c)

Should the Company be required to bear the costs of any proceedings, the Company may undertake defense of such proceedings and appoint an attorney, who is acceptable to the Officer, on its behalf. In such a case, the Company shall not be required to bear the costs of indemnification of the Officer other than in the case of a conflict of interests between the Company and the Officer.

(d)

In the event that the Company carries directors' and officers' insurance, the Officer shall be entitled to coverage under such policy.

H - 22

(e)

The Company shall not be required to indemnify the Officer for any expenses and fines incurred by him as a result of breaching a law. Likewise, the Company shall not be required to indemnify the Officer in proceedings related to any of the following: (1) salary or consideration paid to the Officer which the court has ruled were paid in breach of the law (and when the Company and the Officer were informed that the US SEC views indemnification for liability arising under Federal securities laws as contravening the public policy and that therefore, such enforcement and such indemnification claims must be submitted to the appropriate courts); (2) a final verdict against the Officer regarding accounting of profits, disgorgement or renewed payment of profits due to a purchase or sale of securities of the Company where the Company and the Officer agree that the Officer has earned a personal profit under Federal or state securities laws; (3) a final verdict or ruling that the Officer has acted in bad faith, fraudulently with intent, or maliciously, or has acted inappropriately; (4) the Officer has breached his fiduciary duty to the Company, or his conduct has caused him a personal profit to which he is not entitled by law; (5) a claim by the Officer against the Company, its directors, officers, employees, or agents except for the purpose of enforcement of his rights to indemnity under the indemnification agreement, the Bylaws of the Company, and the law, and except for any other action approved by the board of directors or in which the Officer is required to participate pursuant to the law; (6) payments made in a settlement without the written approval of the Company; (7) any other breach of US securities laws - the Securities Act of 1933, Section 512 of Regulation S-K, and various listing reports that are submitted to the US SEC pursuant to the Securities Act of 1933. (Undertakings under these laws prevail over the indemnification agreement).

(f)

The indemnification obligation shall bind the Company, its heirs, and anyone replacing it. The indemnification obligation shall apply up to five years after the end of the term of office of the Officer, or one year after the end of the proceedings in respect of which the Officer was given the indemnity. The Company will not be able to sue the Officer at the end of five years after the cause of action is formed or after a shorter time if the statute of limitation is less than five years.

(g)

There is no cap on the indemnification amount.

(h)

On June 1, 2007 stockholders of the Company approved the text of the indemnification agreements.

(i)

As at the Prospectus date, the Company has entered into indemnification agreements, as aforesaid, with its senior executives, the serving directors Simon and Hahn, and with directors Miu and Matuzzi, who ended their tenure. The Company intends to enter into such agreements with the remaining serving directors, i.e., Kitao, Takeuchi, and Toyoshima.

(j)

As of the Prospectus date, the company is not aware of an obligation for indemnification to any of the officers and directors.

8.1.5

The Company shall bear the costs of the trustee for the implementations of the lock-up of securities, in accordance with Israeli law, in a sum of US $ 200 per hour.

H - 23

8.2	Transaction with Controlling Shareholder

To the best of the Company's knowledge, the Company, a corporation under its control or an affiliated company have not, in the two years preceding the Prospectus date, entered into any transactions with the controlling shareholders of the Company, nor into any transactions in the approval of which the controlling shareholders have a personal interest, and neither the Company, a corporation under its control, nor an affiliated company have any such transactions in force as at the Prospectus date.

8.3	Holdings of securities by Interested Parties and Senior Officers

To the best of the knowledge of the Company and of its directors, interested parties in the Company, and senior officers of the Company hold shares in the Company in the rates set out below:

	As of the Date 12 Months Prior to the Prospectus Date25										As of the Prospectus Date
Name of Interested Party / Senior Officer	Number of Shares		Number of Options		Percentage Holding 26			Percentage Holding (fully diluted)27			Number of Shares		Number of Options		Percentage Holding28			Percentage of Holding (fully diluted)
‎SBI Investment Co., Ltd.		6,531,510				34.22	%		30.20	%		8,831,510				41.30	%		36.80	%
‎Lawrence Investments, LLC		5,492,332				28.78	%		25.39	%		5,492,332				25.68	%		22.89	%
Daniel Zurr		1,724,137		48,965		9.03	%		8.20	%		1,724,137		48,965		8.06	%		7.39	%
Sagit Reich						0	%		0	%				120,000		0	%		0.50	%
Rami Skaliter		26,895		200,861		0.14	%		1.05	%		26,895		200,861		0.13	%		0.95	%
Shay Ehrlich				201,205		0	%		0.93	%				201,205		0	%		0.84	%
Elena Feinstein				183,964		0	%		0.85	%				183,964		0	%		0.77	%
Juliana Friedman		15,000		146,379		0.08	%		0.75	%		15,000		146,379		0.07	%		0.67	%
Smadar Shakked29		16,551		111,378		0.09	%		0.75	%

25	As at March 31, 2010

26	Calculated presuming that the Preferred Shares are converted into Ordinary Shares

27	Calculated presuming that the Preferred Shares are converted into Ordinary Shares

28	Calculated presuming that the Preferred Shares are converted into Ordinary Shares

29	On January 2011 the Company and Ms. Smadar Shaked mutually agreed that Ms. Shaked shall end its employment with the Company. The prior notice period shall end on May 31, 2011.

H - 24

100 Ordinary Shares at a minimum price of NIS 34 per share	NIS 3,400
50 Warrants (Series 1)	for no consideration
Total Minimum Unit Price	NIS 3,400

Results of the Company's operation based on profit and loss reports for the years 2010, 2009 and 2008 (in thousands of USD) are as follows:
	Year Ending on December 31
	2010		2009		2008
Profit (loss) from operations	(21,021	)	(19,888	)	(8,187	)
Profit (loss) for period	(21,842	)	(19,641	)	(9,132	)
The cash flow from operating activity for the second quarter of the years 2010, 2009 and 2008 (in thousands of US Dollars), are as follows:
	Year Ending on December 31
	2010		2009		2008
Cash flow used for current operations	(10,332	)	(19,823	)	(6,713	)
For the Company's Management Discussion and Analysis, see section 6.6.

Section	Chapter	Page

1	Introduction	A -1

2	Details of the Securities Offering	B - 1

3	Company’s Capital and Holders of Company’s Capital	C - 1

4	A. Rights Attached to Company’s Shares and Comparison of Laws	D – 1

	B. Comparison of Various Issues in California Law and Israeli Law	D - 14

5	Use of Proceeds	E - 1

6	Description of Company’s Business	F - 1

7	Company’s Management	G - 1

8	Interested Parties and Senior Officers	H - 1

9	Financial Statement	I - 1

10	Legal Opinions	J - 1

11	Additional Details	K - 1

12	Signatures	L - 1

Class of Shares		-Authorized capital (presuming consolidation of share capital)				Issued and paid-up capital (presuming consolidation of share capital but not including shares to be issued under this Prospectus)				Issued and paid-up capital after the offering (no dilution)				Issued and paid-up capital after the offering (full dilution)1
Ordinary Shares of USD 0.001 par value each			100,000,000				21, 384,630	1			25,884,630				30,744,904

	USD 000s
Share capital		3
Preferred stock		26
Premium		77,539
Loss balance		(114,951	)
Total –		(37,383	)

Security Type		Minimal No. of Holders			Minimal Holdings Value per Holder
Shares		35			NIS 16,000

No.	Year of issue			Total No. of options***			Exercise price (USD)			No. of options exercised		No. of in effect options remaining with employees (vested and not vested)		Year of options expiration
1		1994-2006			1,461,596			0.3625-5.8			358,261		127,766		1999-2016
2		2007			781,124	*		1.1-17.4	*		5,672		160,490		2008-2017	*
3		2008			765,922			1.1			6,844		625,622		2018
4		2009			595,100			1.1			1,200		437,500		2019
5		2010			69,500			1.1			-		69,500		2020
6		2011	**		-			-			-		-		-
Total					3,673,242						371,977		1,420,878

	Prior to publication of the Prospectus												Following publication of the Prospectus15
Name of Holder	No. of Shares		Number of Non- tradable Options16		Number of Shares Assuming Exercise of All the Options		% Holding of Capital and Voting Rights Before Issue			% Holding of Capital and Voting Rights (Fully Diluted) Before Issue			Number of Shares		Number of Warrants (Series 1)		Number of Non- tradable Options		% Holding of Capital and Voting Rights After Issue			% Holding of Capital and Voting Rights (Fully Diluted) After Issue
‎SBI Holdings, Inc.17		8,831,510		-		8,831,510		41.30	%		36.80	%		8,990,310		79,400		-		34.29	%		28.73	%
‎Lawrence Investments, LLC18		5,492,332		-		5,492,332		25.68	%		22.89	%		5,651,132		79,400		-		21.39	%		17.95	%

	Shares											Shares Deriving From Non-tradable options35
	Restriction by TASE regulation only		Restriction by Rule 144 only			Restriction by both TASE regulation and Rule 144		Not restricted36		Total		Restriction by TASE regulation only		Restriction by Rule 144 only			Restriction by both TASE regulation and Rule 144		Restriction by Rule 70137		Total
Interested parties
SBI Holdings, Inc.		-		-			8,831,510		-		8,831,510		-		-			-		-		-
Lawrence Investments, LLC		-		-			5,492,332		-		5,492,332		-		-			-		-		-
Dr. Daniel Zurr		-		-			1,724,137		-		1,724,137				-			48,965		-		48,965
Phillip Hahn		-		-			-		-		-				-			57,250		-		57,250
Phillip Simon		-		-			-		-		-				-			130,000		-		130,000
Others who are not interested parties
Consultants		-		-			-		-		-		100, 772		-			-		-		100,772

Employees and executives		-		58,446	38		-		-		58,446		-		998,787	39		-		1,274,500		2,273,287
Other share holders		-		-			-		5,278,205		5,278,205		-		-			-		-		-
Total		-		58,446			16,047,979		5,278,205		21,384,630		100,772		998,787			236,215		1,274,500		2,610,274

Name of Product and Section of Prospectus	Indications	Principal development milestones and development phase as at Prospectus date	Next milestone and anticipated timetables for reaching such milestone	Distribution rights	Investment forecast (estimated costs) (USD millions)10	Costs accrued in reaching POC in animals as of December 31, 2010 (USD millions)
‎PF-655 (Section 6.5.1 of the Prospectus.)	Wet AMD	10.2006 - submission of IND. 2.2007 - Start of Phase I clinical trials 11.2009 - Start of Phase II clinical trials (“Monet Study”) 11 At the Prospectus date - Phase II - continuation of treatment and follow-up in the Monet Study.12 Patient enrollment completed. Interim results received on 11.2010	By end of the second half 2011 Completion of the Monet study. The continuation of the development is dependent on Pfizer’s decision. The Company estimates that such a decision will take place during 2012 at it may be either continuation to a Phase IIb study or termination of the AMD development program.	International - Pfizer Israel: the Company	Development costs for completion of the Monet study are financed by Pfizer.	Since September 2006, funded by Pfizer. The Company has no information regarding the costs accrued by Pfizer, as aforesaid13.

		Year ending December 31
		2010	2009	2008

	Thousands of USD
Income from licensing agreements and from research and development services		5,201	2,655	17,276
Cost of research and development services		1,200	1,712	1,719
Research and development expenses (net)		18,682	15,744	18,726
Management and general expenses		6,340	5,087	5018

Financing income (expenses) – net		(538)	87	722
Taxes on incomeaa		(283)	(160)	1,667
Profit (loss) for the period		21,842	(19,641)	(9,132)
Loss per ordinary share – basic and diluted		(6.58)	(5.80)	(2.76)

Competing product	Disadvantages of the competing products compared with potential advantages of the Company's product
Photocoagulation by laser. Cauterization of leaking blood vessels by laser. It is the standard accepted treatment.	§ Laser treatment may cause damage and even partial loss of night vision and of peripheral vision.
Lucentis (Roche) (inhibitor of VEGF, which is involved in the abnormal growth of new blood vessels), approved by the FDA for wet AMD and macular edema following occlusion of the retinal vein. As far as the Company is aware, Lucentis was recently approved in Europe for DME. Administered by intravitreal injection. Completed a phase III in DME successfully	§ Not effective for all DME patients at the current dosage rate. Some patients with retinal edema have shown only partial response to anti-VEGF.35 § VEGF is an essential factor for the growth and preservation of blood vessels. Trials in animal models in which VEGF was suppressed over an extended period of time showed injury and loss of ganglion cells in the retina, which are essential for vision. § Lucentis has a limited anti-inflammatory effect. Inflammatory processes play an important role in the development of DME. Thus, PF-655, which demonstrated anti-inflammatory characteristics when tested on animals, is likely to have an advantage over Lucentis. § Lucentis is administered every 4-6 weeks. By contrast, PF-655 has a potential for less frequent dosage.

Competing product	Disadvantages of the competing products compared with potential advantages of the Company's product
	§ PF-655 has a different mechanism of action; thus it may be useful for treatment in combination with other agents such as VEGF inhibitors.
VEGF Trap-eye by Regeneron (Bayer Health) showed positive results in Phase III trials compared with Lucentis in the treatment of DME.36 Administered by intravitreal injection.	Works by suppressing VEGF and it may therefore have the same deficiencies as Lucentis.
Iluvien (pSivida by license to Alimera) is an intra-ocular implant that releases fluocinolone acetonide ( a corticosteroid intended for the retina) for a period of up to 3 years. In December 2010 the FDA turned down the approval and requested additional data37. In February 2011 positive data from the two-trial Phase III in DME were reported and will be submitted to the FDA in support of approval38. (Also in Phase II for AMD).	§ The corticosteroids are anti-inflammatory. By contrast, PF-655 has additional characteristics, being also anti-angiogenic (acts against the formation of new blood vessels) and anti apoptotic in addition to its anti-inflammatory properties. § Steroid treatment has negative side effects such as cataracts and glaucoma.
Ozurdex (or Posurdex outside the USA) intravitreal implant (completely biodegradable) releasing the steroid dexamethasone is in phase III trials by Allergan for the treatment of DME.39	Also a corticosteroid. Therefore it is believed to have the same disadvantages as for Illuvien above.
Macugen® by Pfizer. As of the date of the Prospectus it is in Phase III trials for DME (approved for ADM). Macugen, approved for the treatment of wet AMD and marketed and sold outside of the USA by Pfizer and in the USA by Eyetech Inc., has recently been shown to improve vision in patients with DME in a Phase III clinical trial	Trials in an animal model for AMD, comparing between Macugen® and PF-655 showed that PF-655 was more effective: it has better anti-angiogenic and better anti-inflammatory characteristics. In addition, PF-655 may be useful in combination treatment with Macugen®.

Competing product	Disadvantages of the competing product compared with potential advantages of the Company's product
Lucentis (Roche-Genentech) (a fragment of the full antibody Avastin), administered by intravitreal injection. Approved by the FDA for wet AMD and the standard of care treatment for wet AMD. Off-label use43 of Avastin, currently approved for treatment of various types of cancer. This drug is significantly cheaper than Lucentis. Head-to-head efficacy comparisons between Lucentis and Avastin will be available in 2011.	§ PF-655 has a different mechanism of action, and it is therefore likely to be effective in cases in which anti VEGF drugs are not sufficiently effective. § PF-655 has a potential for less frequent dosing than competing treatments. § PF-655 may be useful in combination treatment with anti-VEGF drugs.
Macugen® (marketed and sold outside USA by Pfizer and in the USA by Eyetech, Inc), an anti-VEGF drug administered by intravitreal injection.	§ Macugen® is an anti-VEGF drug, less effective than Lucentis. For details about the disadvantages of anti-VEGF drugs, see above.

Competing product	Disadvantages of the competing product compared with potential advantages of the Company's product
	§ In a comparative animal study, the Company's PF-655 was found to be more effective than Macugen®.
Visudyne (Verteporfin) of QLT /Novartis. Intravenous infusion used combined with laser treatment.	§ PF-655 does not require laser treatment.
VEGP Trap Eye (Regeneron (Bayer Health)), administered by intravitreal injection every two months. Recently published positive results from Phase III studies showing non-inferiority compared to Lucentis44. In February 2011 Regeneron submitted a Biologics License Application (BLA) to the FDA for approval of VEGF Trap-Eye for the treatment of wet AMD. Regeneron's submission includes a request for Priority Review	§ VEGF inhibiting drug. For details about the disadvantages of drugs based on VEGF suppression see above.
ATG3, CoMentis’s topical eye drop therapy for AMD. A proprietary ophthalmic formulation of mecamylamine a substance approved by the FDA for hypertension and as a treatment for the prevention of smoking. Also acting on VEGF-mediated neovascularization. As far as the Company is aware, as at the Prospectus date, the candidate drug is in Phase II for AMD in the form of eye drops.	§ The mechanism of action comprised among others, VEGF inhibition. For details about the disadvantages of VEGF inhibitors see above.
Pazopanib (GSK) blocks various tyrosine kinase receptors, including VEGFR1 and 2, administered through eye drops. As far as the Company is aware, as at the Prospectus date, it is in Phase II.45	§ VEGF inhibiting drug. For details about the deficiencies of drugs based on VEGF suppression see above.
Anecortave Acetate (Retaane) (Alcon Research). Administered via single injection of long acting formulation, active for 6 months	§ The candidate drug failed did not meet its Phase III endpoint. Additional studies to test the drug for AMD are being conducted in the U.S.46
Perceiva (Sirolimus, rapamycin of MacuSight/Santen) which targets mTOR1, is in Phase II for AMD and DME by subconjunctival injection and by intravitreal injection	Literature data indicates a significant role of mTOR in ocular neuroprotection. Being an anti-inflammatory/antiproliferative drug (also due to mTOR inhibition but in inflammatory and endothelial cells), by inhibiting mTOR in retinal parenchymal cells (e.g. neurons), Sirolimus may have long-term negative effects on vision.

Competing product	Disadvantages of the competing product compared with potential advantages of Company's product
As at the Prospectus date, there is no preventive treatment. Supportive treatment is by dialysis.	§ QPI-1002 designed to temporarily and reversibly inhibit p53, administered intravenously may prevent DGF in deceased donor kidney transplant patients.
‎Ruconest (Rhucin®) C1-INH Complement C1-Esterase Inhibitor of Pharming Group NV and Santarus Pharma. Administered by intravenous injection. The drug recently received approval for marketing in Europe for acute attacks of hereditary angioedema. (HAE). In the USA Pharming Group NV recently announced the receipt of a “refusal to file” letter from the FDA for the Rhucin® (recombinant human C1 inhibitor) Biologics License Application (BLA) submitted, indicating that the BLA was not sufficiently complete to enable a critical medical review for approval of the drug for HAE60. As far as the Company is aware as of the time of this Prospectus it is in Phase I for DGF.	As of the date of this Prospectus there are no data showing that C1 suppression can be beneficial for reducing DGF.

Competing product	Disadvantages of the competing product compared with potential advantages of the Company's product
As of the Prospectus date, there is no approved neuroprotective agent. There is no available medical treatment for NAION.
Lucentis by intravitreal injection. As far as the Company is aware a Phase I in NAION patients has been completed. The results are not available to the public at large, and as far as the Company is aware, development is continuing.	§ Lucentis is aimed at inhibition of VEGF, but as of the Prospectus date, there is no direct evidence of the role of VEGF in the development of NAION. § VEGF is an essential survival factor for retinal ganglion cells, therefore the Company believes that the anti-VEGF mechanism of action is not suitable for treating NAION.

Competing product	Disadvantages of the competing product compared with potential advantages of the Company's product
A 0.2% brimonidine tartrate ophthalmic solution aimed at reducing intraocular pressure in patients with open-angle glaucoma. Administered as eye drops. Tested for neuroprotective effect by various researchers.	§ Has been shown to have neuroprotective attributes in preclinical model but failed in clinical trials. § Its observed neuroprotective effect is likely to be secondary to reduction of intraocular pressure. QPI-1007, by contrast, is a direct neuroprotector and therefore believed to be more efficient.
PF-03187207 by Pfizer and NicOx SA. It was in development for glaucoma. NicOx bought back its rights to this product, and there is presently no report regarding the progress of its development.69	Its observed neuroprotective effect is likely to be secondary to reduction of intraocular pressure. QPI-1007, by contrast, is a direct neuroprotector and therefore believed to be more efficient.

Name of product and indication	Name of Trial	Development Stage of Clinical Trial	Purpose of Clinical Trial	Medical Institute at which Trial was/ is being Conducted	Number of Patients in/Planned in the Trial	Status of Trial	Anticipated Cost (Estimate) (USD millions)	Accrued Cost to December 31, 2010 (USD millions)
‎PF-655 For AMD	Open label70 dose escalation Phase I trial to test safety and pharmacokinetics of REDD14NP71 administered via a single intravitreal injection in patients with choroidal neovascularization (CNV) secondary to exudative age-related macular degradation (wet AMD)72 (B0451008,ORQ.003)	‎Phase I	Primary endpoints: Determining safety, tolerability, and dose-limiting toxicities and pharmacokinetics of REDD14NP73.	10 sites in the USA and Israel	Up to 87	Patient enrollment and treatment completed. Follow-up of patients continues.	Funded by Pfizer. The Company has no information regarding costs.	Since September, 2006, funded by Pfizer. The Company has no information regarding the costs accrued by Pfizer.
PF-655 For DME	Prospective, randomized, multi-center, comparator study evaluating efficacy and safety of PF-655 versus laser in subjects with DME (DEGAS)	Phase II	Primary endpoints: Assessment of the efficacy of three dose levels of PF-655 in improving visual acuity to determine biological activity (efficacy)	44 sites in the USA, Israel, England, Italy, Peru, India, Germany and Denmark	160	The study was terminated. Based on the results it was decided to conduct a Phase IIb study.	$12.8 million until the interim analysis and additional approximately $7million to complete the Phase IIb study	Since September, 2006, funded by Pfizer. The Company has no information regarding the costs accrued by Pfizer.

Name of Plan	Indications	Date of start of development	Development stage as at date of Prospectus	Anticipated date of completion	Nearest milestone	Costs Accrued from the beginning of the Research Program until December 31, 2010 (USD millions)
Neuroprotection and neural regeneration	Diseases that require neuroprotection and/or neural regeneration Including § diseases of the central nervous system and diseases such as spinal cord injury; § optic nerve regeneration in glaucoma; § hearing loss and vestibular diseases81 § neuropathic pain	Initial POC achieved in 2007, showing improved neurological function by use of siRNA targeting RhoA in a spinal injury model in rats	Pre-clinical studies Continued animal studies to achieve animal POC in the various indications. Optimization of lead drug candidate. Evaluation by the Company’s medical and commercial team of the best indication for clinical development	IND for one of the indications in 2012.	Identification of a candidate drug for development and achieving POC in animals with the drug candidate for the selected indication.	6.6

Drug	Target gene/Method of administration	Company	Disease Indication	Status	Partners
‎ALN-RSV01	‎n-capsid83 of the RSV virus (causes diseases of the lower respiratory tract)	‎Alnylam	‎RSV (Respiratory syncytial virus)	Phase II	‎Cubist and Kyowa-Hakko in Asia
Excellair	Enzyme known as Syk administered by inhalation	ZaBeCor	Asthma	Phase II
ALN-VSP	VEGF KSP by means of a mixture of two siRNA technologies with a SNALP (stable nucleic acid-lipid particles) technology	Alnylam	Liver cancer	Phase I

Project	2011 Budget (USD millions)	2012 Budget (USD millions)	Costs Accrued by the Company as at the Prospectus date (USD millions)
‎PF-655 For AMD	Fully funded by Pfizer	Fully funded by Pfizer	The Company has no information concerning the accrued costs.
PF-655 For DME	Degas study fully funded by Pfizer. Phase IIb approximately 4.6	For the Phase IIb approximately 6.8 until the interim analysis and additional approximately 3.5 to study completion.	The Company has no information concerning the accrued costs.
AKI	Approximately 4.8 until biomarker selected and additional 0.5 for continuation of the trial	Approximately 4.1 until biomarker selected and additional 4.86 for continuation of the trial with 248 subjects	Approximately 17.7 for reaching POC in animals
DGF	Approximately 8.6 assuming 196 subjects are enrolled. Additional 0.4 for continuation of the trial	Approximately 3.9, until 196 subjects. and additional 3.2 for continuation of the trial	Approximately 12.4 for achieving POC in animals
NAION	Approximately 1.6	Approximately 0.4	Approximately 8.3 since POC in animals was achieved
‎Glaucoma	0	0	0
‎Nitto Denko	Fully funded by Nitto Denko	Fully funded by Nitto Denko	Fully funded by Nitto Denko
Additional Research	Approximately 6.5	Approximately 6.5	14.5 from the beginning of the research program
Total	26.1- 27.0	21.7- 33.2	52.9

Name of Program / Therapeutic Field	Patents Granted	Patent Applications Pending	Description of Protection	Date of Earliest Expiration of Patent for Compound92
Clinical Programs
RTP801 including PF-655 / DME, AMD and other therapeutic indications (licensed to Pfizer)	25 patents: § In 4 patent families § For a gene, a protein, compounds, and uses granted in Eurasia , Africa several European countries , Japan, Israel USA and other countries.	60 patent applications: § In 5 patent families § For a gene, compounds and their use in treating various indications, filed and pending in South America, Africa, Far East, EPO, Israel, Japan, Canada, USA and other countries.	PF-655 inhibits expression of the gene RTP801, which was first identified by the Company. The Company's intellectual property protects isolated nucleic acid molecules encoding sequence of RTP801 polypeptide, the protein, antibody and nucleic acid inhibitors of RTP801 gene including the compound PF-655 and other oligonucleotide compounds and their use to treat wet AMD, DME and other therapeutic indications.	16.8.2025
p53 including QPI-1002 / AKI, DGF, hearing loss and other therapeutic indications (an option for license was granted to Novartis)	18 patents: § In 4 patent families § For the p53 sequence of the product, compounds, uses and methods of temporary inhibition of p53, granted in several European countries , Israel, USA and other countries.	23 patent applications: § In 5 patent families § For compounds, uses and methods for temporary inhibition of p53, filed and pending in EPO, Israel, Japan, Canada, USA and other countries.	QPI-1002 inhibits expression of the gene p53. The Company's intellectual property protects the method of temporary inhibition of p53 for therapy, the sequence used in the QPI-1002 compound, the QPI-1002 compound itself, and its use to treat AKI, DGF, hearing loss and other therapeutic indications.	27.9.2025

Entity Receiving Payments	Type of Payment	Consideration	Comments
Silence Therapeutics according to the agreement dated 12.2004 and its amendments (directed to the inhibition of RTP801 gene)	Percentage of revenues received from Pfizer upon achievement of milestones according to the license and collaboration agreement with Pfizer94	Royalties in the mid teens range. In case additional third party IP is required, such rate shall be significantly reduced.	Sublicense granted to Pfizer
	Percentage of sales based royalties according to the license and collaborative agreement with Pfizer95
Silence Therapeutics According to the option agreement dated 4.2005 (directed to the inhibition of the p53 gene)	Lump sum payment upon receiving the option	Insignificant amount which to date, has already been paid	Option for sublicense granted to Novartis . For details on the dispute with Silence in relation to the option agreement with Novartis please see section 6.5.21D4.
	Payment upon exercise of the option	Approximately half a million Euro. To date the aforementioned sum, has been paid.
	Payments upon achievement of milestones in accordance with the Novartis agreement96	According to the amendment to the agreement a low teen's range rate of sublicensing revenues received (milestone payments and royalties) in addition to a lump sum payment, which to the date of this prospectus has been paid.. .
	Royalties on sales of product under the license97

Department	No. of employees as at - 31.12.2010	No. of employees as at 31.12.2009	No. of employees as at 31.12.2008
Management & Administration	22	21	21
Intellectual Property	5	5	6
Research	39	38	47
Preclinical	5	4	6
Clinical trials - operations	10	9	8
Clinical trials - medical management	11	7	7
Regulation	4	4	4
Total	97	88	99

Indication	Current state	2011	2012	2013
Wet AMD (for additional details see Section 6.5.3C)	Phase II. Patient enrollment has been completed. Treatment and follow-up continue as part of the MONET STUDY.	Completion of the Monet Study	Decision regarding the continuation of the development plan.	As per decision taken
DME (for additional details see Section 6.5.3B)	Preparation for the Phase IIb study	Initiation of the Phase IIb	Completion of patient enrollment in the Phase IIb	Completion of the Phase IIb and decision by Pfizer about continuation of the development
AKI (for additional details see Section 6.5.3B)	Phase I clinical trial. Patient enrollment and treatment have been completed. Completion of planning and preparation for Phase II trials.	Enrollment of patients to Phase II	Determination of the efficiency of the Biomarker. Analysis of interim results from 60 patients and continuation of patient enrollment depending on the financial resources of the Company	Completion of the Phase II trial and results
DGF (for additional details see Section 6.5.3C)	Analysis of data from the first part of the clinical trials in Phase I/II (Part A) and patient enrollment for Phase II (Part B) trials.	Patient enrollment to Phase II	Interim results from 196 and from 326 patients if the trial continues, depending upon the financial resources of the Company	Completion of the Phase II and results
NAION (for additional details see Section 6.5.3A)	Phase I. Patient enrollment for Stratum I has been completed. Enrollment for the Stratum II continues.	Completion of enrollment to Stratum II and continuation of treatment. Data analysis and decision for continuation of development depending upon the financial recourses of the Company	Phase II/III, depending on trial results and the financial resources of the Company.	Phase II/III, depending on trial results and the financial resources of the Company.
Glaucoma (for additional details see Section 6.5.3B)	Expansion of existing IND for NAION to treatment of glaucoma.	IND acceptance and decision about Phase II depending upon the financial resources of the Company	Phase II depending upon the financial resources of the Company	Phase II and depending upon the financial resources of the Company.

Effect of Risk Factors on the Company’s Business
	Large effect	Medium effect	Small effect
Risks Macro		-Capital market recession	-Exchange rate fluctuations -Change in security, political, and economic situations
Industry Risks	-Clinical trials -External financing -Protection of intellectual property rights	-Changes in regulation, permits, and international standards -Competition -Market acceptance of Company products -Confidentiality -Legal proceedings -Technological changes	-Changes in government policy
Special risks faced by the company	-Dependence of the Company on the success of leading candidate products -Agreements with Pfizer, Novartis, and Nitto Denko -Inability to raise additional funds for the Company’s future operations	-Dependence upon third parties -Expected lack of revenues and profits in the coming years -Third party intellectual property (freedom to operate) -Dependence on professional staff -Dependence on key personnel at the Company -Application of securities and corporate law in Israel and the U.S.	-Exposure to legal claims -Insurance coverage -Uncertainty regarding demand for and pricing of the Company’s products -Environmental requirements -Natural disasters

Class of shares	Number of shares held by the Company	% of holding by the Company in the equity	% of holding by the Company in the voting rights	Cost of shares on the Company's books as of December 31, 2010 (USD 000s)	Balance of investment as of December 31, 2010 (USD 000s)
Ordinary shares of NIS 1.00 par value	3,531	100%	100%	2,232	223
Deferred shares of NIS 1.00 par value	1,090	0%	0%	-	-

		Page

Auditor's Special Report on the Separate Financial Information		2 - 3

Financial Statements:

Details of Financial Data from the Company's Consolidated Statements of Financial Position		4 - 5

Details of Financial Data from the Company's Consolidated Statements of Income		6

Details of Financial Data from the Company's Consolidated Statements of Cash Flows		7

Tel-Aviv, Israel	KOST FORER GABBAY & KASIERER
February 16, 2011	A Member of Ernst & Young Global

	December 31,
	2010		2009
ASSETS

CURRENT ASSETS:
Cash and cash equivalents	$	12,380	$	11,798
Restricted cash		84		83
Accounts receivable		312		397
Other receivables and prepaid expenses		1,369		312
Affiliated company		484		-

Total current assets		14,629		12,590

LONG-TERM LEASE DEPOSIT		-		38

LOAN TO RELATED PARTY		-		156

INVESTMENT IN AFFILIATED COMPANY		223		-

PROPERTY AND EQUIPMENT, NET		220		287

Total assets	$	15,072	$	13,071

February 16, 2011
Date of the financial	Daniel Zurr	Philip B. Simon	Sagit Reich
statements approval	Chief Executive Officer and Member of the Board	Chairman of the Board	Chief Financial Officer

	Year ended December 31,
	2010			2009			2008

Revenues	$	5,164		$	2,618		$	17,238
Cost of development services		1,200			1,712			1,719

Gross profit		3,964			906			15,519

Operating costs and expenses:

Research and development		21,607			18,434			21,315
General and administrative		4,142			3,083			3,196

Total operating costs and expenses		25,749			21,517			24,511

Operating loss		(21,785	)		(20,611	)		(8,992	)
Financial income (expenses), net		(531	)		309			823
Earning (loss) from affiliated company		474			661			(963	)

Net loss		(21,842	)		(19,641	)		(9,132	)

Changes in redemption value of series H Redeemable Convertible Preferred stock		(468	)		-			-

Net loss to Common stockholders	$	(22,310	)	$	(19,641	)	$	(9,132	)

Net loss per share of Common stock	$	(6.58	)	$	(5.80	)	$	(2.76	)

Weighted average number of shares used in computing basic net loss per share		3,388,530			3,388,119			3,307,871

March 30, 2011	Kost Forer Gabbay and Kasierer
Tel-Aviv, Israel Global	A member of Ernst & Young

	Page

Report of Independent Registered Public Accounting Firm	2

Consolidated Balance Sheets	3 - 4

Consolidated Statements of Operations	5

Statements of Changes in Stockholders' Equity (Deficiency)	6

Consolidated Statements of Cash Flows	7 - 8

Notes to Consolidated Financial Statements	9 - 55