Exhibit 4.7

                                DELTATHREE, INC.

                            2004 STOCK INCENTIVE PLAN

This plan, as amended from time to time, shall be known as the deltathree,  Inc.
2004 Stock  Incentive  Plan (the  "Plan").  This Plan replaces the previous 1999
Stock Incentive Plan (the "1999 Plan").

1.     Purpose

       The purpose of the Plan is to foster and promote the long-term  financial
       success of the  Company  and its  Subsidiaries  and  materially  increase
       shareholder value by:

       (a)    motivating  superior  performance by means of  performance-related
              incentives;

       (b)    encouraging  and  providing  for the  acquisition  of an ownership
              interest in the Company by Eligible Employees; and

       (c)    enabling  the  Company to  attract  and  retain  the  services  of
              outstanding  management  team and other  qualified  and  dedicated
              employees  upon whose  judgment,  interest and special  effort the
              successful conduct of its operations is largely dependent.

2.     Definitions

       For purposes of interpreting  the Plan and related  documents  (including
       the Option Agreement and its appendices), the following definitions shall
       apply:

       (a)    "Administrator" - means the Board or the Compensation Committee as
              shall be  administering  the Plan,  in  accordance  with Section 3
              hereof.

       (b)    "Affiliate" - means a corporation  which is a Parent or Subsidiary
              of the Company, direct or indirect.

       (c)    "Applicable  Laws"  -  means  the  requirements  relating  to  the
              administration of employee stocl option plans under the law of the
              United States of America,  any stock exchange or quotation  system
              on which the shares  shall be listed or quoted and the  applicable
              laws of any  country or  jurisdiction  where  Options  are granted
              under the Plan.

       (d)    "Award"  - shall  mean any  grant  or award  under  the  Plan,  as
              evidenced  in a written  document  delivered to a  Participant  as
              provided in Section 13(b).

       (e)    "Board" - means the Board of Directors of the Company.

       (f)    "Cause"- shall mean (i) the willful  failure by the Participant to
              perform  substantially the Participant's duties (other than due to
              physical  or  mental  illness)  after  reasonable  notice  to  the
              Participant of such failure,  (ii) the  Participant's  engaging in
              serious  misconduct  that  is  injurious  to  the  Company  or any
              Subsidiary,  (iii) the Participant's  having been convicted of, or
              entered a plea of nolo  contendere to, a crime that  constitutes a
              felony,  or (iv) the  breach  by the  Participant  of any  written
              covenant or agreement not to compete, in each case with respect to
              the  Company  or  any  Subsidiary,  regarding  confidentiality  of
              information of the Company or any Subsidiary or nonsolicitation or
              hiring of employees of the Company or any Subsidiary.


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       (g)    "Code" - means the United States Internal Revenue Code of 1986, as
              amended from time to time, and the regulations thereunder.

       (h)    "Committee" - shall mean the Compensation  Committee of the Board,
              or such other Board committee as may be designated by the Board to
              administer the Plan.

       (i)    "Company" - shall mean Deltathree,  Inc., a Delaware  corporation,
              and any successor thereto.

       (j)    "Common Stock" - shall mean the Class A common  shares,  par value
              $0.001 per share, of the Company,  as may be adjusted  persuant to
              section 4(c) of the Plan.

       (k)    "Deferred Annual Amount" shall mean, with respect to any year, the
              amount  of  compensation  that a  Participant  elects  to defer in
              exchange for an award of Elective Units as determined  pursuant to
              Section 9 hereof.

       (l)    "Consultant"  - means any person who is engaged by the  Company to
              render  consulting  or  advisory  services  to any of the  Company
              entities.

       (m)    "Disability" - " shall mean long-term  disability as defined under
              the terms of the Company's  applicable  long-term disability plans
              or policies.

       (n)    "Date of Grant"-  shall have the  meaning  set forth in Section 14
              below.

       (o)    "Director" - means a member of the Board.

       (p)    "Disinterested  Director"  - shall mean a director  of the Company
              who is both a "Non-Employee  Director"  within the meaning of Rule
              16b-3 under the Exchange Act and an "outside  director" within the
              meaning of Section 162(m) of the Code.

       (q)    "Dividend  Equivalent" shall mean a right granted to a Participant
              to receive cash or Common  Stock equal in value to dividends  paid
              with respect to Common Stock.

       (r)    "Early  Retirement"  -  shall  mean  retirement  at or  after  the
              earliest  age at which the  Participant  may retire and receive an
              immediate,  but actuarially reduced,  retirement benefit under any
              defined  benefit  pension plan maintained by the Company or any of
              its  Subsidiaries in which such Participant  participates,  or, in
              the absence of any such  applicable  plan,  as  determined  by the
              Committee.

       (s)    "Effective Date" shall mean the date on which the Plan is approved
              by the shareholders of the Company.

       (t)    "Elective  Units" - shall  mean a  contractual  right to receive a
              share of Common  Stock at the time and  subject to the  conditions
              set forth in  Section  9 hereof,  in  respect  of a  Participant's
              Deferred Annual Amount.

       (u)    "Eligible  Employee" - shall mean each Executive  Officer and each
              other  employee or consultant of the Company or its  Subsidiaries,
              but shall not include  Directors who are not employees of any such
              entity.


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<PAGE>

       (v)    "Employment"  shall mean, for purposes of Sections 5(g),  7(b) and
              8(b),  continuous and regular salaried employment with the Company
              or a Subsidiary,  which shall include  (unless the Committee shall
              otherwise determine) any period of vacation, any approved leave of
              absence or any salary continuation or severance pay period and, at
              the  discretion  of the  Committee,  may include  service with any
              former Subsidiary of the Company

       (w)    "Exchange Act" - means the Securities Exchange Act of 1934, as now
              in effect or as hereafter amended.

       (x)    "Exercise Price" - means the price for each Share of stock subject
              to an Option.

       (y)    "Executive Officer" - shall mean those persons who are officers of
              the Company  within the meaning of  Rule16a-1(f)  of the  Exchange
              Act.

       (z)    "Fair Market Value" of a Share of Common Stock means:

                  (1) If the  Common  Stock is listed on a  national  securities
                  exchange  or traded in the  over-the-counter  market and sales
                  prices  are  regularly  reported  for the  Common  Stock,  the
                  closing  or last price of the  Common  Stock on the  Composite
                  Tape or other comparable  reporting system for the trading day
                  immediately preceding the applicable date;

                  (2) If the Common Stock is not traded on a national securities
                  exchange  but is traded  on the  over-the-counter  market,  if
                  sales prices are not  regularly  reported for the Common Stock
                  for the trading day  referred to in clause (1), and if bid and
                  asked prices for the Common Stock are regularly reported,  the
                  mean  between the bid and the asked price for the Common Stock
                  at the close of trading in the over-the-counter market for the
                  trading  day on which  Common  Stock  was  traded  immediately
                  preceding the applicable date; and

                  (3) If the  Common  Stock  is  neither  listed  on a  national
                  securities exchange nor traded in the over-the-counter market,
                  such  value  as  the  Administrator,   in  good  faith,  shall
                  determine.


       (aa)   "Incentive  Stock" - shall mean any Award of Common Stock  granted
              under Section 8 which becomes vested and  nonforfeitable  upon the
              attainment,  in  whole  or  in  part,  of  performance  objectives
              determined by the Committee.

       (bb)   "Incentive  Stock  Option" - or "ISO" - shall mean an Option which
              is intended to meet the requirements of Section 422 of the Code.

       (cc)   "Incentive  Unit" - shall  mean any Award of a  contractual  right
              granted  under  Section 8 to  receive  Common  Stock  (or,  at the
              discretion of the  Committee,  cash based on the Fair Market Value
              of the Common Stock) which becomes vested and nonforfeitable  upon
              the  attainment,  in whole or in part, of  performance  objectives
              determined by the Committee

       (dd)   "Nonstatutory  Stock  Option"  - or "NSO" - shall  mean an  Option
              which is not intended to be an Incentive Stock Option.

       (ee)   "Normal  Retirement"  - shall  mean  retirement  at or  after  the
              earliest  age at which the  Participant  may retire and  receive a
              retirement  benefit  without  an  actuarial  reduction  for  early
              commencement  of benefits under any defined  benefit  pension plan
              maintained by the Company or any of its Subsidiaries in which such
              Participant   participates,   or,  in  the  absence  of  any  such
              applicable plan, as determined by the Committee


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<PAGE>

       (ff)   "102  Award" - means an Award that the Board  intends to be a "102
              Award" which shall only be granted to employees of the Company who
              are not Ten  Percent  Shareholders,  and shall be  subject  to and
              shall be construed  consistently  with the requirements of Section
              102 of the Tax  Ordinance.  The Company shall have no liability to
              an Eligible  Person,  or to any other party,  if an Option (or any
              part  thereof)  which is  intended to be a 102 Option is not a 102
              Option.

              Approved  102  Awards  may either be  classified  as Capital  Gain
              Awards ("CGA") or Ordinary Income Awards ("OIA").

              Approved  102 Awards  elected  and  designated  by the  Company to
              qualify under the capital gain tax  treatment in  accordance  with
              the provisions of Section  102(b)(2) of the Tax Ordinance shall be
              referred to herein as CGA.

              Approved  102 Awards  elected  and  designated  by the  Company to
              qualify under the ordinary income tax treatment in accordance with
              the provisions of Section  102(b)(1) of the Tax Ordinance shall be
              referred to herein as OIA.

              The  Company's  election of the type of Approved 102 Awards as CGA
              or  OIA  granted  to   Employees   (the   "Election"),   shall  be
              appropriately  filed with the Israeli Tax  Authorities  before the
              Date of Grant of any Approved 102 Option.

              Such Election shall become  effective  beginning the first Date of
              Grant of an Approved  102 Award under the Plan and shall remain in
              effect  until at  least  the end of the  year  following  the year
              during which the Company  first granted  Approved 102 Awards.  The
              Election  shall  obligate  the  Company  to grant only the type of
              Approved 102 Award it has elected, and shall apply to all Approved
              102 Awards  granted  during the period  indicated  herein,  all in
              accordance  with  the  provisions  of  Section  102(g)  of the Tax
              Ordinance.  For the avoidance of doubt,  such  Election  shall not
              prevent  the  Company   from   granting   Unapproved   102  Awards
              simultaneously.

              All  Approved  102 Awards  must be held in trust by a Trustee,  as
              described in Section 11.

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

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

       (gg)   "3(i)  Options" - means  Options that do not contain such terms as
              will qualify under Section 102 of the Tax Ordinance.

       (hh)   "Option" - " shall mean the right to purchase the number of shares
              of Common Stock specified by the Committee, at a price and for the
              term  fixed  by the  Committee  in  accordance  with  the Plan and
              subject to any other limitations and restrictions as this Plan and
              the Committee shall impose.

       (ii)   "Option  Agreement"  - means a  written  or  electronic  agreement
              between the Company and an  Participant  evidencing  the terms and
              conditions of an individual  Option  grant.  The Option  Agreement


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<PAGE>

              shall state, inter alia, the number of Shares covered thereby, the
              dates  when  it may be  exercised  (subject  to  Section  5),  the
              Exercise  Price per Share  subject  to the  Option  and such other
              terms as the  Administrator  in its discretion may prescribe.  The
              Option  Agreement  is subject to the terms and  conditions  of the
              Plan.

       (jj)   "Participant" - shall mean an Eligible Employee who is selected by
              the Committee to receive an Award under the Plan.

       (kk)   "Parent" - means any  corporation  (other than the  Company) in an
              unbroken chain of corporations  ending with the Company if, at the
              time of granting an Option,  each of the corporations  (other than
              the Company), owns stock possessing fifty percent (50%) or more of
              total combined  voting power of all classes of stock in one of the
              other corporations in such chain.

       (ll)   "Reload  Option" - shall  have the  meaning  ascribed  thereto  in
              Section 5(h).

       (mm)   "Retirement"  - shall mean  Participant's  retirement  pursuant to
              applicable   law  or  in   accordance   with  the   terms  of  any
              tax-qualified  retirement plan maintained by the Company or any of
              its Parents or Subsidiaries in which the Participant  participates
              within the meaning of Section 22(e)(3) of the Code.

       (nn)   "Restricted  Period" - shall mean the period  during which a grant
              of  Incentive  Stock,   Restricted   Stock,   Incentive  Units  or
              Restricted Units is subject to forfeiture.

       (oo)   "Restricted  Stock" - shall mean any Award of Common Stock granted
              under Section 7 which becomes vested and nonforfeitable,  in whole
              or in part, upon the completion of such period of service as shall
              be determined by the Committee.

       (pp)   "Restricted  Unit" - shall mean any Award of a  contractual  right
              granted  under  Section 7 to  receive  Common  Stock  (or,  at the
              discretion of the  Committee,  cash based on the Fair Market Value
              of the Common Stock) which becomes vested and  nonforfeitable,  in
              whole or in part, upon the completion of such period of service as
              shall be determined by the Committe

       (qq)   "Service  Provider" - means an Employee,  advisor or Consultant of
              the Company, provided,  however, that a consultant or advisor must
              be an individual  who is providing or will be providing  bona fide
              services  to the  Company,  with  such  services  (1) not being in
              connection   with   the   offer  or  sale  of   securities   in  a
              capital-raising  transaction,  and (2) not directly or  indirectly
              promoting or maintaining a market for securities of the Company.

       (rr)   "Share" - shall mean a share of Common Stock.

       (ss)   "Stock  Appreciation  Right"  -  shall  mean a  contractual  right
              granted  under  Section  6 to  receive  cash,  Common  Stock  or a
              combination thereof.

       (tt)   "Subsidiary"  - shall mean any  corporation  of which the  Company
              possesses  directly or  indirectly  fifty percent (50%) or more of
              the total  combined  voting  power of all classes of stock of such
              corporation  and any other  business  organization,  regardless of
              form, in which the Company possesses  directly or indirectly fifty
              percent (50%) or more of the total  combined  equity  interests in
              such organization.

       (uu)   "Supplemental  Units"  - shall  mean an  award  made  pursuant  to
              Section 9 with  respect  to a number of shares of Common  Stock in
              excess of the number of shares of Common  Stock  corresponding  to
              the Participant's Elective Units.

       (vv)   "Tax  Ordinance"  - means the Israeli  Income Tax  Ordinance  [New
              Version]-1961 and the rules and regulations promulgated thereunder
              as now in effect or as hereafter amended.


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<PAGE>

       (ww)   "Ten  Percent  Shareholder"  -  means a  person  who  owns  shares
              possessing  more  than ten  percent  (10%) of the  total  combined
              voting  power of all classes of shares of the Company or of any of
              its Affiliates immediately before such Option is granted.

       (xx)   "Trustee" - means any individual appointed by the Company to serve
              as a trustee and approved by the aplicable law.

3.     Administration of the Plan

       The Plan shall be administered by the Committee which shall consist of at
       least two Directors of the Company  chosen by the Board each of whom is a
       Disinterested  Director.  The Committee shall have the  responsibility of
       construing and  interpreting  the Plan and of  establishing  and amending
       such rules and  regulations  as it deems  necessary or desirable  for the
       proper  administration of the Plan. Any decision or action taken or to be
       taken  by  the  Committee,  arising  out  of or in  connection  with  the
       construction,  administration,  interpretation and effect of the Plan and
       of its rules and  regulations,  shall, to the maximum extent permitted by
       applicable  law, be within its absolute  discretion  (except as otherwise
       specifically  provided  herein) and shall be conclusive  and binding upon
       all   Participants   and  any  person   claiming  under  or  through  any
       Participant.  No member of the Board or the Committee shall be liable for
       any action taken or determination  made in good faith with respect to the
       Plan or any Award granted hereunder.

4.     Maximum Amount of Shares Available for Awards

       (a)    Maximum Number of Shares.  The aggregate number of Shares that may
              be issued  under this Plan shall not  exceed  (a)  759,732  Shares
              (which  represents  4,000,000  Shares reserved under the 1999 Plan
              less the amount of Shares represented by Awards previously granted
              under the 1999 Plan and previously exercised and/or outstanding as
              of September 28,  2004),  plus (b) such  additional  Shares as are
              represented by Awards previously granted under the 1999 Plan which
              are cancelled or expire after the date of stockholder  approval of
              this Plan  without  delivery  of  shares of stock by the  Company,
              except as provided in this  Section.  Shares  subject to any Award
              granted  hereunder,  or under the 1999 Plan,  which  expire or are
              terminated  or canceled  prior to exercise  will be available  for
              future grants under the Plan.  Without  limiting the generality of
              the  foregoing,  whenever  shares are  received  by the Company in
              connection  with the exercise of or payment for any Award  granted
              under the Plan only the net number of shares actually issued shall
              be counted against the foregoing limit.

       (b)    Shares Available for Issuance.  Shares of Common Stock may be made
              available from the  authorized but unissued  shares of the Company
              or from Shares held in the Company's treasury and not reserved for
              some other purpose.  In addition,  if any Award (including  awards
              made  under the 1999 Plan) in  respect  of Shares is  canceled  or
              forfeited  for any  reason  without  delivery  of shares of Common
              Stock,  the shares subject to such Award shall thereafter again be
              available for award pursuant to the Plan.

       (c)    Adjustments  Upon  Certain  Events.  In the  event  of  any  Share
              dividend or Share  split,  re-capitalization  (including,  without
              limitation,  the payment of an  extraordinary  dividend),  merger,
              consolidation,  combination,  spin-off,  distribution of assets to
              shareholders,  exchange  of  shares,  or other  similar  corporate
              change, the aggregate number of Shares available for Options under
              Section 4(a) or subject to outstanding  Options and the respective
              prices  applicable to outstanding  Options shall be  appropriately
              adjusted.

       (d)    No Adjustment If Value Received.  Except as hereinbefore expressly
              provided,  the  issuance  by the Company of shares of stock of any
              class or securities convertible into shares of stock of any class,
              for cash, property,  labor or services, upon direct sale, upon the


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              exercise  of rights or  warrants to  subscribe  therefor,  or upon
              conversion of shares or other securities,  and in any case whether
              or not for fair value,  shall not  affect,  and no  adjustment  by
              reason  thereof shall be made with respect to the number of Shares
              subject to Options to be awarded to an Eligible  Employee pursuant
              to Section 5.

       (e)    Neither  this  Plan nor any  Agreement  nor any offer of Shares or
              Options  to an  Participant  shall  impose any  obligation  on the
              Company  to  continue  to  employ or engage  the  services  of any
              Participant,  and  nothing  in the Plan or in any  Option  granted
              pursuant  thereto shall give any Participant any right to continue
              in the  employment or service of the Company or restrict the right
              of the Company to  terminate  such  employment  or services at any
              time.

       (f)    The grant of an Option to a Participant  hereunder,  shall neither
              entitle such  Participant to participate,  nor disqualify him from
              participating, in any other grant of Options pursuant to this Plan
              or any other share  incentive  or share option plan of the Company
              or any of its Affiliates.

5.            Stock Options

       (a)    Grant.  Subject to the provisions of the Plan, the Committee shall
              have the authority to grant  Options to Eligible  Employees and to
              determine  (i) the number of shares to be covered by each  Option,
              (ii) the  exercise  price  therefor and (iii) the  conditions  and
              limitations   applicable   to  the   exercise   of   the   Option.
              Notwithstanding  the  foregoing,  in no event shall the  Committee
              grant any  Participant  Options in any single  calendar  year with
              respect to more than 500,000 shares of Common Stock authorized for
              issuance  under the Plan, as such number may be adjusted  pursuant
              to Section 4(c).  The Committee  shall have the authority to grant
              102 Options, 3(i) Options, Incentive Stock Options or Nonstatutory
              Stock Options.  In the case of Incentive Stock Options,  the terms
              and  conditions of such grants shall be subject to and comply with
              Section 422 of the Code and the regulations thereunder.

       (b)    All Service  Providers of the Company shall be eligible to receive
              Options under the Plan; provided, however, that Options qualifying
              as ISOs shall be granted  only to  employees  of the  Company  and
              options  qualified  under  section 102 of the  ordinance - capital
              gain track - shall be granted only to employees of the Company who
              are not Ten Percent shareholders of the Company.

       (c)    Each Option granted pursuant to the Plan, shall be evidenced by an
              Option Agreement, in such form as the Committee shall from time to
              time  approve.  Each Option  Agreement  shall  state,  among other
              matters,  the number of Shares underlying the Option, the Exercise
              Price and the type of Option  granted  there under  (whether a 102
              Option,  a 3(i)  Option,  an ISO or a NSO or any other  applicable
              agreement).

       (d)    Option Price.  The Committee shall establish the exercise price at
              the time each Option is granted.  Notwithstanding  the  foregoing,
              (i) the exercise  price at the time an Option is granted shall not
              be less than the Fair Market Value of the Common Stock at the date
              of grant and (ii) in the case of an Incentive  Stock Option issued
              to a  Participant  who owns stock in the Company  possessing  more
              than 10% of the total  combined  voting  power of all  classes  of
              stock  of  the  Company,  the  exercise  price  at the  time  such
              Incentive Stock Option is granted to such  individual  shall equal
              at least 110% of the Fair Market  Value of the Common Stock at the
              date of grant.


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<PAGE>

       (e)    Option Term. If not previously  exercised each Option shall expire
              upon the tenth (10th) anniversary of the date of the grant thereof
              or, upon the earlier  termination of the Participant's  Employment
              (or, if  applicable,  on the day  following  the last day on which
              such Option is  exercisable  under  Section 5(g) below),  provided
              that (i) the  Committee may establish a shorter term for an Option
              at the time of the grant of such Option and (ii) in the case of an
              Incentive  Stock Option issued to a Participant  who owns stock in
              the Company  possessing more than 10% of the total combined voting
              power of all classes of stock of the Company, such Incentive Stock
              Option shall expire on the fifth (5th)  anniversary of the date of
              grant.

       (f)    Exercise. Each Option shall be exercised at such times and subject
              to such terms and  conditions  as the Committee may specify in the
              applicable  Award or thereafter;  provided,  however,  that if the
              Committee does not establish a different  exercise  schedule at or
              after the date of grant of an Option,  such  Option  shall  become
              exercisable   on  a   cumulative   basis  in  three  equal  annual
              installments  commencing on the first  anniversary of the date the
              Option is granted.  The Committee may impose such  conditions with
              respect to the  exercise of Options as it shall deem  appropriate,
              including  without  limitation,  any  conditions  relating  to the
              application of federal or state  securities  laws. No Shares shall
              be  delivered  pursuant  to  any  exercise  of  an  Option  unless
              arrangements  satisfactory  to the  Committee  have  been  made to
              assure full payment of the option price therefor and of applicable
              taxes as provided in Section  13(a)  below.  Without  limiting the
              generality  of the  foregoing,  payment of the option price may be
              made in cash or its equivalent or, if and to the extent  permitted
              by the  Committee,  by exchanging  shares of Common Stock owned by
              the Participant for at least six (6) months (or such longer period
              as is  required  by  applicable  accounting  standards  to avoid a
              charge to earnings)  and that are not the subject of any pledge or
              other  security  interest,  or by a combination  of the foregoing,
              provided that the combined value of all cash and cash  equivalents
              and the Fair Market  Value of any such Common Stock so tendered to
              the  Company,  valued as of the date of such  tender,  is at least
              equal to such option price

       (g)    Termination of Employment.  Unless the Committee  shall  otherwise
              determine  at or  after  grant,  in the  event of  termination  of
              Participant's  employment  with the Company  other than for Cause,
              Disability or Death, or if applicable, the termination of services
              given by the  Participant  to the  Group  other  than  for  Cause,
              Disability  or Death,  all  Options  granted to that  Participant,
              which are vested and exercisable at the time of such  termination,
              may,  unless earlier  terminated in accordance with the provisions
              of the Plan or the Option Agreement, be exercised within three (3)
              months  after  the date of such  termination.  If,  on the date of
              termination,  the Shares  subject to the Option have not vested in
              their entirety,  any Shares covered by the unvested portion of the
              Option  shall  expire  and be of no  further  force and effect and
              revert to the Plan. If the vested  portion of the Option is not so
              exercised within the time specified herein, such vested portion of
              the Option shall expire and be of no further force and effect, and
              the Shares covered by such Option shall revert to the Plan.

              In the event of termination of  Participant's  employment with the
              Company,  or if applicable,  the  termination of services given by
              the  Participant  to the  Company  by reason of death or total and
              permanent  Disability  (within the meaning of Section  22(e)(3) of
              the Code),  or Retirement,  the  outstanding  Options,  which were
              vested  on  the  date  of  termination,  may be  exercised  by the
              Participant,  the Participant's legal guardian,  the Participant's
              estate or a person who  acquires  the right to exercise the Option
              by bequest or inheritance,  as the case may be, within twelve (12)
              months  after   termination  (but  in  no  event  later  than  the
              expiration  of the term of such  Option as set forth in the Option


                                       8
<PAGE>

              Agreement).  If, on the date of  termination,  there  are  Options
              which are not entirely vested,  the Shares covered by the unvested
              portion of the Options  shall revert to the Plan. If the Option is
              not so  exercised  within the time  specified  herein,  the Option
              shall  terminate,  and the  Shares  covered by such  Option  shall
              revert to the Plan.

              If a  Participant's  Employment  is  terminated  for Cause (or, if
              after the Participant's  termination of Employment,  the Committee
              determines  that the  Participant's  Employment  could  have  been
              terminated  for Cause had the  Participant  still been employed or
              has  otherwise  engaged  in  conduct  that is  detrimental  to the
              interests of the Company,  as  determined  by the Committee in its
              sole  discretion),  all  Options  held  by the  Participant  shall
              immediately terminate, regardless of whether then exercisable.

              In the event of a Participant's  termination of Employment for any
              reason not described in the preceding  sentences,  the Participant
              (or, in the event of the Participant's  death or Disability during
              the  period  during  which an Option  is  exercisable  under  this
              sentence,  the Participant's  beneficiary or legal representative)
              may exercise any Option which was  exercisable at the time of such
              termination  for 90 days (or such greater or lesser  period as the
              Committee  shall  specify  at or after the  grant of such  Option)
              following the date of such termination,  but in no event after the
              date the Option otherwise expires.

       (h)    Reload Options.  The Committee may provide that a Participant (or,
              if applicable,  his permitted  transferee)  who delivers shares of
              Common  Stock  that  have  been  owned  by  such  Participant  (or
              permitted  transferee) for any minimum period of time specified by
              the Committee to exercise an Option (when the fair market value of
              Common  Stock  exceeds the  exercise  price of such  Option)  will
              automatically  be granted new  Options  ("Reload  Options")  for a
              number of shares of Common  Stock equal to the number of shares so
              delivered.  Unless the Committee determines otherwise, such Reload
              Options  will  be  subject  to  the  same  terms  and   conditions
              (including the same expiration  date) as the related Option except
              (i) that the exercise  price shall  initially be equal to the Fair
              Market  Value of a share of Common  Stock on the date such  Reload
              Option  is  granted  and (ii)  such  Reload  Option  shall  not be
              exercisable  prior  to the six  month  anniversary  of the date of
              grant and, thereafter, shall be exercisable in full.


                                       9
<PAGE>

6.       Stock Appreciation Rights

       (a)    Grant of SARs.  The  Committee  shall have the  authority to grant
              Stock Appreciation Rights in tandem with an Option, in addition to
              an  Option,   or   freestanding   and   unrelated  to  an  Option.
              Notwithstanding  the  foregoing,  in no event shall the  Committee
              grant any  Participant  SARs  with  respect  to more than  600,000
              shares of Common Stock  authorized for issuance under the Plan, as
              such number may be adjusted pursuant to Section 4(c).

       (b)    Exercise of SARs.  A Stock  Appreciation  Right shall  entitle the
              Participant  to receive  from the  Company an amount  equal to the
              excess of the Fair Market  Value of a share of Common Stock on the
              date of  exercise  of the Stock  Appreciation  Right over the base
              price thereof.  The Committee shall determine the time or times at
              which or the event or events  (including,  without  limitation,  a
              change of control)  upon which a Stock  Appreciation  Right may be
              exercised in whole or in part,  the method of exercise and whether
              such Stock  Appreciation Right shall be settled in cash, shares of
              Common Stock or a combination  of cash and shares of Common Stock;
              provided,   however,   that  unless  otherwise  specified  by  the
              Committee at or after grant, a Stock Appreciation Right granted in
              tandem with an Option shall be  exercisable  only at the same time
              or times as the related Option is exercisable.

7.            Restricted Stock and Restricted Units

       (a)    Grant of Restricted  Stock or Restricted  Units. The Committee may
              grant  Awards  of  Restricted   Stock  or   Restricted   Units  to
              Participants  at such times and in such  amounts,  and  subject to
              such other terms and conditions not inconsistent with the Plan, as
              it shall  determine.  Each grant of Restricted Stock or Restricted
              Units  shall  be  evidenced  by an  Award  Agreement.  Unless  the
              Committee  provides otherwise at or after the date of grant, stock
              certificates  evidencing any shares of Restricted Stock so granted
              shall be held in the custody of the Secretary of the Company until
              the Restricted Period lapses,  and, as a condition to the grant of
              any Award of shares of Restricted  Stock,  the  Participant  shall
              have  delivered  to the  Secretary  of the Company a  certificate,
              endorsed in blank,  relating to the shares of Common Stock covered
              by such Award.

       (b)    Termination   of  Employment.   Unless  the  Committee   otherwise
              determines  at or after grant,  the rights of a  Participant  with
              respect  to an  award of  Restricted  Stock  or  Restricted  Units
              outstanding  at the  time  of  the  Participant's  termination  of
              Employment  shall be  determined  under this Section  7(b). In the
              event  that  a  Participant's  Employment  terminates  due  to the
              Participant's (i) death,  (ii) Disability,  (iii) Early Retirement
              with the consent of the Committee or (iv) Normal  Retirement,  any
              award of Restricted  Stock or Restricted Units shall become vested
              and  nonforfeitable  as to that number of shares which is equal to
              the number of shares of Common Stock subject to such Award times a
              fraction,  the  numerator of which is the number of days  actually
              worked during the  Restricted  Period (or, in the case of an Award
              which has previously vested in part (an "Installment  Award"), the
              number  of days  worked  since  the  last  vesting  date)  and the
              denominator  of which  is the  total  number  of days  during  the
              Restricted  Period (or, in the case of an Installment  Award,  the
              number of days  between the last  vesting  date and the end of the
              Restricted Period). Unless the Committee otherwise determines, any
              portion of any Restricted  Stock or Restricted Unit Award that has
              not  become   nonforfeitable   at  the  date  of  a  Participant's
              termination of Employment shall be forfeited as of such date.


                                       10
<PAGE>

       (c)    Delivery of Shares.  Upon the  expiration  or  termination  of the
              Restricted  Period  and the  satisfaction  (as  determined  by the
              Committee) of any other  conditions  determined by the  Committee,
              the restrictions  applicable to the Restricted Stock or Restricted
              Units shall lapse and a stock certificate for the number of shares
              of Common Stock with respect to which the restrictions have lapsed
              shall be delivered, free of all such restrictions, except any that
              may be imposed by law,  to the  Participant  or the  Participant's
              beneficiary  or  estate,  as the case may be. No  payment  will be
              required to be made by the  Participant  upon the delivery of such
              shares of Common Stock and/or cash,  except as otherwise  provided
              in Section 13(a) of the Plan.  At or after the date of grant,  the
              Committee  may  accelerate  the vesting of any award of Restricted
              Stock or Restricted  Units or waive any  conditions to the vesting
              of any such award.

       (d)    Restricted   Period;   Restrictions  on   Transferability   during
              Restricted Period. Unless otherwise determined by the Committee at
              or after the date of grant,  the Restricted  Period  applicable to
              any award of Restricted Stock or Restricted Units shall lapse, and
              the shares related to such award shall become freely transferable,
              on the third anniversary of the date of grant. Restricted Stock or
              Restricted Units may not be sold,  assigned,  pledged or otherwise
              encumbered,  except  as herein  provided,  during  the  Restricted
              Period.  Any  certificates  issued in respect of Restricted  Stock
              shall be registered in the name of the  Participant  and deposited
              by such  Participant,  together  with a stock  power  endorsed  in
              blank,  with the  Company.  At the  expiration  of the  Restricted
              Period  with  respect  to any award of  Restricted  Stock,  unless
              otherwise  forfeited,  the Company shall deliver such certificates
              to the Participant or to the Participant's  legal  representative.
              Payment for Restricted Stock Units shall be made by the Company in
              shares of Common Stock,  cash or in any  combination  thereof,  as
              determined by the Committee.

       (e)    Rights as a Stockholder;  Dividend  Equivalents.  Unless otherwise
              determined  by the  Committee  at or  after  the  date  of  grant,
              Participants  granted shares of Restricted Stock shall be entitled
              to receive,  either currently or at a future date, as specified by
              the  Committee,  all dividends and other  distributions  paid with
              respect to those shares,  provided  that if any such  dividends or
              distributions are paid in shares of Common Stock or other property
              (other than cash), such shares and other property shall be subject
              to  the  same   forfeiture   restrictions   and   restrictions  on
              transferability  as apply to the shares of  Restricted  Stock with
              respect to which  they were paid.  The  Committee  will  determine
              whether and to what extent to credit  Dividend  Equivalents to the
              account of, or to pay dividends  currently  to, each  recipient of
              Restricted  Units.  To the extent  provided by the Committee at or
              after the date of grant,  any Dividend  Equivalents  credited to a
              Participant's  account  shall be deemed to have been  invested  in
              shares of Common  Stock on the  record  date  established  for the
              related  dividend  and,   accordingly,   a  number  of  additional
              Restricted Units shall be credited to such  Participant's  account
              equal to the  greatest  whole  number  which  may be  obtained  by
              dividing (x) the value of such  Dividend  Equivalent on the record
              date by (y) the Fair  Market  Value of a share of Common  Stock on
              such date.


                                       11
<PAGE>

8.     Incentive Awards

       (a)    Incentive Stock and Incentive Units.  Subject to the provisions of
              the  Plan,  the  Committee  shall  have  the  authority  to  grant
              Incentive Stock or Incentive Units to any Eligible Employee and to
              determine  (i) the  number of shares  of  Incentive  Stock and the
              number of Incentive  Units to be granted to each  Participant  and
              (ii) the other terms and conditions of such Awards; provided that,
              to the extent  necessary to comply with applicable law,  Incentive
              Stock shall only be awarded to an Eligible  Employee  who has been
              employed for such minimum period of time as shall be determined by
              the Committee. The Restricted Period related to Incentive Stock or
              Incentive  Units  shall  lapse  upon  the   determination  by  the
              Committee  that  the  performance  objectives  established  by the
              Committee  have  been  attained,   in  whole  or  in  part.   Such
              performance  objectives  may be related to the  performance of (i)
              the Company,  (ii) a  Subsidiary,  (iii) a division or unit of the
              Company  or any  Subsidiary,  (v)  the  Participant  or  (vi)  any
              combination of the foregoing, over a measurement period or periods
              established  by the  Committee.  Unless  the  Committee  otherwise
              determines  at the time of grant of  Incentive  Stock or Incentive
              Units,  the perfor  mance  objectives  with  respect to such Award
              shall be related to at least one of the following criteria,  which
              may be determined  solely by reference to the  performance  of the
              Company or a Subsidiary  or a division or unit of the Company or a
              Subsidiary or based on comparative  performance  relative to other
              companies:   (i)   consolidated   earnings  before  income  taxes,
              depreciation and amortization;  (ii) revenues;  (iii) earnings per
              share;  (iv) net income;  (v) gross  profit  margin;  (vi) maximum
              capital expenditures; (vii) return on equity; and/or (viii) return
              on  total  capital.  Except  to  the  extent  otherwise  expressly
              provided  herein,  the Committee may, at any time and from time to
              time, change the performance objectives applicable with respect to
              any  Incentive  Stock or Incentive  Units to reflect such factors,
              including,  without limitation,  changes in a Participant's duties
              or  responsibilities or changes in business objectives (e.g., from
              corporate  to  Subsidiary  or business  unit  performance  or vice
              versa),  as the Committee shall deem necessary or appropriate.  In
              making any such adjustment,  the Committee shall adjust the number
              of Incentive  Stock or Incentive  Units or take other  appropriate
              actions  to  prevent  any   enlargement   or   diminution  of  the
              Participant's  rights related to service  rendered and performance
              attained prior to the effective date of such adjustment.

       (b)    Termination   of  Employment.   Unless  the  Committee   otherwise
              determines  at or after grant,  the rights of a  Participant  with
              respect  to  an  award  of  Incentive  Stock  or  Incentive  Units
              outstanding  at the  time  of  the  Participant's  termination  of
              Employment  shall be  determined  under this Section  8(b). In the
              event  that  a  Participant's  Employment  terminates  due  to the
              Participant's (i) death,  (ii) Disability,  (iii) Early Retirement
              with the consent of the Committee or (iv) Normal  Retirement,  any
              award of Incentive  Stock or Incentive  Units shall become  vested
              and nonforfeitable at the end of the measurement period as to that
              number of shares  which is equal to that  percentage,  if any,  of
              such award that would have been earned based on the  attainment or
              partial   attainment  of  such  performance   objectives  times  a
              fraction,  the  numerator of which is the number of days  employed
              during the  Restricted  Period  (or, in the case of an Award which
              has previously vested in part (an "Installment Award"), the number
              of days employed since the last vesting date) and the  denominator
              of which is the total number of days during the Restricted  Period
              (or,  in the case of an  Installment  Award,  the  number  of days
              between  the  last  vesting  date  and the  end of the  Restricted
              Period);  provided  that,  any portion of any  Incentive  Stock or
              Incentive  Unit award that does not become  vested as of the times
              set forth in this  sentence  shall be forfeited at such times.  In
              all other cases,  any portion of any award of  Incentive  Stock or
              Incentive Units that has not become  nonforfeitable at the date of
              a Participant's termination of Employment shall be forfeited as of
              such date.


                                       12
<PAGE>

       (c)    Awards Nontransferable. Incentive Stock or Incentive Units may not
              be sold,  assigned,  pledged or  otherwise  encumbered,  except as
              herein provided,  during the Restricted  Period.  Any certificates
              issued in respect of Incentive  Stock shall be  registered  in the
              name  of  the  Participant  and  deposited  by  such  Participant,
              together with a stock power  endorsed in blank,  with the Company.
              At the  expiration  of the  Restricted  Period with respect to any
              award of Incentive Stock, unless otherwise forfeited,  the Company
              shall  deliver  such  certificates  to the  Participant  or to the
              Participant's  legal  representative.  Payment for Incentive Stock
              Units shall be made by the Company in shares of Common Stock, cash
              or in any combination thereof, as determined by the Committee.

       (d)    Rights as a Stockholder;  Dividend  Equivalents.  Unless otherwise
              determined  by the  Committee  at or  after  the  date  of  grant,
              Participants  granted shares of Incentive  Stock shall be entitled
              to receive,  either currently or at a future date, as specified by
              the  Committee,  all dividends and other  distributions  paid with
              respect to those shares,  provided  that if any such  dividends or
              distributions are paid in shares of Common Stock or other property
              (other than cash), such shares and other property shall be subject
              to  the  same   forfeiture   restrictions   and   restrictions  on
              transferability  as apply to the  shares of  Incentive  Stock with
              respect to which  they were paid.  The  Committee  will  determine
              whether and to what extent to credit  Dividend  Equivalents to the
              account of, or to pay dividends  currently  to, each  recipient of
              Incentive  Units  during  the  period of  deferral.  To the extent
              provided  by the  Committee  at or after  the date of  grant,  any
              Dividend Equivalents credited to a Participant's  account shall be
              deemed to have  been  invested  in  shares of Common  Stock on the
              record date established for the related dividend and, accordingly,
              a number of additional  Incentive  Units shall be credited to such
              Participant's account equal to the greatest whole number which may
              be obtained by dividing (x) the value of such Dividend  Equivalent
              on the  record  date by (y) the  Fair  Market  Value of a share of
              Common Stock on such date.

       (e)    Interpretation.  Notwithstanding  anything else  contained in this
              Section  8 to the  contrary,  if any award of  Incentive  Stock or
              Incentive  Units is  intended,  at the time of grant,  to be other
              performance-based  compensation  within  the  meaning  of  Section
              162(m)(4)(C) of the Code, to the extent required to so qualify any
              Award  hereunder,  the Committee shall not be entitled to exercise
              any  discretion  otherwise  authorized  under this  Section 8 with
              respect to such award if the ability to exercise  such  discretion
              (as opposed to the exercise of such  discretion)  would cause such
              award to fail to qualify as other performance-based compensation.

9.     Elective and Supplemental Units

       (a)    Elective Units; Supplemental Units. On such date or dates as shall
              be  established  by the  Committee  and  subject to such terms and
              conditions as the Committee shall determine,  a Participant may be
              permitted  to elect to defer  receipt  of all or a portion  of his
              annual  compensation  and/or  annual  incentive  bonus  ("Deferred
              Annual Amount") payable by the Company or a Subsidiary and receive
              in lieu  thereof a number of Elective  Units equal to the greatest
              whole  number  which may be obtained by dividing (x) the amount of
              the Deferred Annual Amount by (y) the Fair Market Value of a share
              of Common  Stock on the date of grant.  No shares of Common  Stock
              will be issued upon the  issuance of Elective  Units;  the Company
              will  establish a separate  account for the  Participant  and will
              record in such account the number of Elective  Units issued to the
              Participant.   To  the  extent  the  Committee  so  determines,  a
              Participant  who  elects to  receive  Elective  Units  shall  also
              receive  that number of  Supplemental  Units equal to the greatest
              whole number which may be obtained by dividing (x) such percentage
              of the Deferred Annual Amount as is determined by the Committee at
              the  date of  grant  by (y) the  Fair  Market  Value of a share of
              Common Stock on the date of grant.


                                       13
<PAGE>

       (b)    Rights as a Stockholder; Dividend Equivalents. A Participant shall
              not have any right in respect of Elective Units issued pursuant to
              the  Plan  to  vote  on any  matter  submitted  to  the  Company's
              stockholders  until  such  time  as the  shares  of  Common  Stock
              attributable  to such  Elective  Units  have  been  issued to such
              Participant  or his  beneficiary.  The  Committee  will  determine
              whether and to what extent to credit  Dividend  Equivalents to the
              account of, or to pay dividends  currently  to, each  recipient of
              Elective Units.  Dividend  Equivalents credited to a Participant's
              account  shall be deemed to have been invested in shares of Common
              Stock on the record date established for the related dividend and,
              accordingly,  a number of Elective Units shall be credited to such
              Participant's account equal to the greatest whole number which may
              be obtained by dividing (x) the value of such Dividend  Equivalent
              on the  record  date by (y) the  Fair  Market  Value of a share of
              Common Stock on such date.

       (c)    Vesting of Elective  Units and  Supplemental  Units.  The Elective
              Units  credited  to a  Participant,  together  with  any  Dividend
              Equivalents  credited in respect of such Elective Units,  shall be
              fully vested at all times. Unless the Committee provides otherwise
              at or after the date of grant, the Supplemental  Units credited to
              a Participant,  together with any Dividend Equivalents credited in
              respect of Supplemental  Units, shall become vested in full on the
              third  anniversary of the date the  corresponding  Deferred Annual
              Amount would have been paid absent the  Participant's  election to
              defer provided the Participant remains in the continuous employ of
              the Company or a Subsidiary through such date. Notwithstanding the
              foregoing,  the  Committee  may  accelerate  the  vesting  of  any
              Supplemental Units at or after the date of grant.

       (d)    Settlement of Elective Units and  Supplemental  Units.  Unless the
              Committee  determines  otherwise at or after the date of grant,  a
              Participant  shall  receive  one  share of  Common  Stock for each
              Elective Unit (and related Dividend Equivalents) as of the date of
              such  Participant's  termination of employment (or such later date
              as may be elected by the  Participant in accordance with the rules
              and procedures of the Committee).  Unless the Committee determines
              otherwise  at or after  the date of  grant,  a  Participant  shall
              receive one share of Common Stock for each  Supplemental Unit (and
              related Dividend  Equivalents) that shall have become vested on or
              prior to the date of such Participant's  termination of employment
              with  the  Company  and the  Subsidiaries,  other  than  any  such
              termination  for  Cause,  on  the  date  of  such  termination  of
              employment (or on such earlier date as the Committee  shall permit
              or  such  later  date  as may be  elected  by the  Participant  in
              accordance with the rules and procedures of the Committee). In the
              event of the  termination of a  Participant's  employment with the
              Company and the  Subsidiaries  for Cause,  the  Participant  shall
              immediately  forfeit all rights with  respect to any  Supplemental
              Units (and related Dividend  Equivalents) credited to his account.
              The  Committee  may provide in the Award  Agreement  applicable to
              Elective  Units that, in lieu of issuing shares of Common Stock in
              settlement of the vested  Supplemental Units (and related Dividend
              Equivalents),  the  Committee may direct the Company to pay to the
              Participant the cash value thereof.


                                       14
<PAGE>

10.    Designation of Awards Pursuant to Section 102 of the Tax Ordinance

       (a)    The Committee may designate  Awards granted to Employees  pursuant
              to Section 102 of the Tax Ordinance as Unapproved 102 Awards or as
              Approved 102 Awards.

       (b)    The  grant of an  Approved  102  Award  under  the  Plan  shall be
              conditioned  upon  the  approval  of the Plan by the  Israeli  Tax
              Authorities.

       (c)    Approved  102  Awards  may either be  classified  as Capital  Gain
              Awards or Ordinary Income Awards.

       (d)    Each Award  Agreement  shall state,  inter alia, the type of Award
              granted thereunder  (whether a CGA, OIA, Unapproved 102 Award or a
              3(i) Award), the vesting provisions and the Exercise Price.

       (e)    No  Approved  102  Awards  may be  granted  under this Plan to any
              eligible Employee, unless and until, the Company's election of the
              type of  Approved  102 Awards as CGA or OIA  granted to  Employees
              (the  "Election"),  shall be appropriately  filed with the Israeli
              Tax Authorities at least thirty (30) days before the first Date of
              Grant of an Approved  102 Option  under this Plan.  Such  Election
              shall  become  effective  beginning  the first Date of Grant of an
              Approved  102  Option  under the Plan and  shall  remain in effect
              until at least the end of the year following the year during which
              the Company first granted Approved 102 Awards.  The Election shall
              obligate the Company to grant only the type of Approved 102 Option
              it has elected, and shall apply to all Approved 102 Awards granted
              during the period  indicated  herein,  all in accordance  with the
              provisions  of  Section  102(g)  of the Tax  Ordinance,  as now in
              effect or as hereafter ammended.  For the avoidance of doubt, such
              Election   shall  not   prevent,   subject  to  the  Board's  sole
              discretion,   the  Company   from   simultaneously   (i)  granting
              Unapproved 102 Awards; or (ii) 3(i) Options.

       (f)    All  Approved  102 Awards  must be held in trust by a Trustee,  as
              described in Section 11 below.

       (g)    For the avoidance of doubt,  the  designation  of  Unapproved  102
              Awards and  Approved  102 Awards shall be subject to the terms and
              conditions  set  forth in  Section  102 of the Tax  Ordinance  and
              regulations, rules, orders or procedures promulgated thereunder as
              now in effect or as hereafter amended.

       (h)    With regards to Approved 102 Awards,  the  provisions  of the Plan
              and the Option  Agreement  shall be subject to the  provisions  of
              Section 102 and the Tax Assessing  Officer's permit,  and the said
              provisions and permit shall be deemed an integral part of the Plan
              and of the Option  Agreement.  Any provision of Section 102 and/or
              the said permit which is  necessary in order to receive  and/or to
              keep  any tax  benefit  pursuant  to  Section  102,  which  is not
              expressly specified in the Plan or the Option Agreement,  shall be
              considered binding upon the Company and the Participants.


                                       15
<PAGE>

11.    Trustee

       (a)    The Committee may choose to deposit the Awards granted pursuant to
              the Plan  with a  trustee  (the  "Trustee").  In such  event,  the
              Trustee  shall hold such  Awards,  and any Shares  issued upon the
              exercise of any of such Awards, in trust pursuant to the Company's
              instructions  from time to time.  The Trustee shall be entitled to
              make such  provisions and take such steps as it may deem necessary
              or appropriate for the withholding of all taxes required by law to
              be withheld  with  respect to the  exercise of the Awards or their
              sale to a third party.  The Company  shall deliver the Trustee all
              the  necessary  information  required by him. The Trustee shall be
              exempt from any  liability  with respect to any action or decision
              duly taken in its/his capacity as Trustee.

       (b)    Anything  herein to the  contrary  notwithstanding,  Approved  102
              Awards  granted  under the Plan  and/or  all Shares  allocated  or
              issued upon  exercise of such Approved 102 Awards and/or all other
              shares received  subsequently  following any realization of rights
              in  connection  with such  Approved  102  Awards or Shares and all
              rights attached to shares  described above or Approved 102 Awards,
              shall be  allocated  or  issued  to the  Trustee  and held for the
              benefit of the  Participant for such period of time as required by
              Section  102 or  any  regulations,  rules,  orders  or  procedures
              promulgated  there under as now in effect or as hereafter  amended
              (the  "Restricted  Period  Per  Section  102").  All of the rights
              attached to Shares  issued upon  exercise of Approved  102 Awards,
              including without limitation dividend in shares,  shall be subject
              to the same tax  treatment  as the  treatment to which such Awards
              are subject to. In case the  requirements  pursuant to Section 102
              for an  Approved  102 Awards are not met,  then the  Approved  102
              Awards may be regarded as Unapproved 102 Awards, all in accordance
              with the provisions of Section 102 and regulations,  rules, orders
              or  procedures  promulgated  there  under as now in  effect  or as
              hereafter amended.

       (c)    Notwithstanding  anything to the  contrary,  the Trustee shall not
              make any  transaction  or take any action with respect to Approved
              102  Awards or  Shares  issued  upon  exercise  thereof,  will not
              transfer, assign, release, pledge, mortgage voluntarily,  or grant
              in  connection  therewith any proxy or  assignment  deed,  whether
              immediately effective or effective at a future date, other than by
              will or by operation  of law,  until after the full payment of the
              Participant's  tax  liabilities  arising  from  the  grant of such
              Awards or their  exercise or release or transfer by the Trustee or
              after  guarantying  the payment of said taxes.  If such Options or
              Shares have been  transferred  by will or by operation of law, the
              provisions  of Section 102 will apply with respect to the heirs or
              the transferees of the Participant or Stockholder, as the case may
              be.

       (d)    Upon receipt of an Approved 102 Award,  the Participant  will sign
              an  undertaking  to release  the  Trustee  from any  liability  in
              respect  of any  action  or  decision  duly  taken  and bona  fide
              executed in relation  with the Plan,  or any Approved 102 Award or
              Share held,  released or transferred by the Trustee, in accordance
              with the terms of Section 102.

       (e)    Subject  to the  provisions  of Section  102 and any  regulations,
              rules,  orders or  procedures  promulgated  there  under as now in
              effect or as hereafter  amended,  during the Restricted Period Per
              Section 102 a Participant  may not release the Approved 102 Awards
              or Shares  issued upon  exercise  thereof  from trust or sell such
              Awards or Shares while they are held by the  Trustee.  At any time
              thereafter  each   Participant  may  require  (but  shall  not  be
              Participant,  any Approved 102 Awards or Shares issued pursuant to
              the exercise of such  Approved 102 Awards,  provided that (1) such
              transfer is in compliance with all applicable securities laws, and
              (2) all applicable tax due pursuant to such a sale or transfer has
              been paid in  accordance  with  Section  102 and the  Trustee  has
              received an  acknowledgment  from the Israeli Tax Authorities that
              the  Participant  has paid any  applicable tax due pursuant to the
              Tax  Ordinance.  Notwithstanding  the  above,  if any such sale or
              release occurs during the  Restricted  Period Per Section 102, the
              sanctions  under  Section 102 of the Tax  Ordinance  and under any
              rules or  regulation  or orders or  procedures  promulgated  there
              under as now in effect or as hereafter amended, shall apply to and
              shall be borne by such Participant.


                                       16
<PAGE>

12.    Stock in Lieu of Cash

       The  Committee  may grant Awards or shares of Common Stock in lieu of all
       or a  portion  of an  award  otherwise  payable  in cash to an  Executive
       Officer  pursuant  to any  bonus or  incentive  compensation  plan of the
       Company (subject to any applicable limitations in such bonus or incentive
       compensation  plan).  If shares are issued in lieu of cash, the number of
       shares of Common Stock to be issued shall be the greatest number of whole
       shares  which has an  aggregate  Fair  Market  Value on the date the cash
       would  otherwise  have been  payable  pursuant to the terms of such other
       plan equal to or less than the amount of such cash.

13.    General Provisions

       (a)    Withholding.  The Company  shall have the right to deduct from all
              amounts paid to a Participant  in cash (whether under this Plan or
              otherwise)  any taxes required by law to be withheld in respect of
              Awards under this Plan. In the case of any Award  satisfied in the
              form of Common  Stock,  no shares shall be issued unless and until
              arrangements satisfactory to the Committee shall have been made to
              satisfy any withholding tax obligations applicable with respect to
              such Award.  Without  limiting the generality of the foregoing and
              subject to such terms and  conditions as the Committee may impose,
              the Company shall have the right to retain,  or the Committee may,
              subject to such terms and conditions as it may establish from time
              to time,  permit  Participants  to elect to tender,  Common  Stock
              (including  Common  Stock  issuable  in  respect  of an  Award) to
              satisfy, in whole or in part, the amount required to be withheld.

       (b)    Awards.  Each Award  hereunder  shall be evidenced by a written or
              electronic  agreement.  The  agreement  shall be  delivered to the
              Participant  and  shall  incorporate  the  terms  of the  Plan  by
              reference  and  specify the terms and  conditions  thereof and any
              rules applicable thereto (each, an "Award Agreement").

       (c)    Non-transferability.   No  Award  shall  be   transferable   by  a
              Participant otherwise than by will or under the applicable laws of
              descent  and  distribution,  unless  such  transfer  shall  be (i)
              permitted by the Committee  (on such terms as it shall  establish)
              or (ii) if the Option agreement pursuant to which an Award is made
              so provides, to (A) the spouse,  children or grandchildren of such
              Participant  (collectively,  "Family  Members"),  (B) a  trust  or
              trusts for the exclusive benefit of such Family Members,  or (C) a
              partnership  or limited  liability  company  in which such  Family
              Members  and  trusts  for the  exclusive  benefit  of such  Family
              Members are the only  partners or members,  as the case may be. In
              addition,  no Award  shall be  assigned,  negotiated,  pledged  or
              hypothecated in any way (whether by operation of law or otherwise)
              and no Award shall be subject to execution,  attachment or similar
              process. Upon any attempt to transfer,  assign, negotiate,  pledge
              or  hypothecate  any  Award,  or in the event of any levy upon any
              Award by reason of any  attachment or similar  process,  in either
              case  contrary  to  the  provisions   hereof,   such  Award  shall
              immediately become null and void.


                                       17
<PAGE>

       (d)    Legend.  To the  extent  any  stock  certificate  is  issued  to a
              Participant in respect of shares of Restricted  Stock or Incentive
              Stock  awarded  under  the  Plan  prior to the  expiration  of the
              applicable Restricted Period, such certificate shall be registered
              in the name of the  Participant  and shall bear the  following (or
              similar) legend:

              "The shares of stock  represented by this  certificate are subject
              to the terms and conditions contained in the deltathree, Inc. 2004
              Stock Incentive Plan and the Award  Agreement,  dated as of _____,
              between  the  Company  and the  Participant,  and may not be sold,
              pledged,   transferred,   assigned,   hypothecated   or  otherwise
              encumbered  in any manner  (except as provided in Section 13(c) of
              the Plan or in such Award Agreement) until ____________________ ."

              Upon the lapse of the  Restricted  Period with respect to any such
              shares of Restricted  Stock or Incentive  Stock, the Company shall
              issue or have  issued new share  certificates  without  the legend
              described herein in exchange for those previously issued.

       (e)    No Right to Employment. No person shall have any claim or right to
              be  granted  an  Award,  and the  grant of an Award  shall  not be
              construed as giving a Participant  the right to be retained in the
              employ of the Company or any Subsidiary.  Further, the Company and
              each  Subsidiary  expressly  reserves  the  right  at any  time to
              dismiss a Participant free from any liability,  or any claim under
              the Plan,  except as provided  herein or in any agreement  entered
              into with respect to an Award.

       (f)    No Rights to Awards,  No  Shareholder  Rights.  No  Participant or
              Eligible  Employee  shall have any claim to be  granted  any Award
              under  the Plan,  and  there is no  obligation  of  uniformity  of
              treatment of Participants  and Eligible Employ ees. Subject to the
              provisions of the Plan and the applicable  Award,  no person shall
              have any  rights as a  shareholder  with  respect to any shares of
              Common  Stock to be issued  under the Plan  prior to the  issuance
              thereof.

       (g)    Effective Date and  Termination of the Plan. The Plan shall become
              effective on the  Effective  Date.  No Awards may be granted under
              the Plan after the expiration of ten years from the date this Plan
              is adopted.  The Plan will  terminate on September  23, 2014,  the
              date  which  is ten  years  from  the  earlier  of the date of its
              adoption by the Board of Directors and the date of its approval by
              the shareholders. The Plan may be terminated at an earlier date by
              vote of the shareholders or the Board of Directors of the Company;
              provided,  however,  that any such earlier  termination  shall not
              affect any Option Agreements or Award Agreements executed prior to
              the effective date of such termination.

       (h)    Amendment of Plan.  The Board or the Committee may amend,  suspend
              or terminate the Plan or any portion thereof at any time, provided
              that no amendment  shall be made without  shareholder  approval if
              such amendment would:

              (1)    increase  the number of shares of Common  Stock  subject to
                     the Plan, except pursuant to Section 4(c);

              (2)    determine the price at which Options may be granted; or

              (3)    remove the administration of the Plan from the Committee.

              Without  the  written  consent  of  an  affected  Participant,  no
              termination,   suspension  or   modification  of  the  Plan  shall
              adversely affect any right of such Participant  under the terms of
              an Award granted before the date of such  termination,  suspension
              or modification.

       (i)    Application of Proceeds. The proceeds received by the Company from
              the sale of its  shares  under the Plan  will be used for  general
              corporate purposes.


                                       18
<PAGE>

       (j)    Compliance  with Legal and Exchange  Requirements.  The Plan,  the
              granting  and  exercising  of  Awards  thereunder,  and the  other
              obligations of the Company under the Plan, shall be subject to all
              applicable federal and state laws, rules, and regulations,  and to
              such approvals by any regulatory or governmental  agency as may be
              required.  The  Company,  in  its  discretion,  may  postpone  the
              granting  and  exercising  of Awards,  the issuance or delivery of
              Common Stock under any Award or any other action  permitted  under
              the Plan to permit the  Company,  with  reasonable  diligence,  to
              complete such stock exchange or similar listing or registration or
              qualification  of such Common Stock or other required action under
              any federal or state law,  rule, or regulation and may require any
              Participant  to  make  such   representations   and  furnish  such
              information as it may consider  appropriate in connection with the
              issuance or delivery of Common Stock in compliance with applicable
              laws,  rules, and regulations.  The Company shall not be obligated
              by virtue of any  provision of the Plan to recognize  the exercise
              of any  Award  or to  otherwise  sell or  issue  Common  Stock  in
              violation  of any  such  laws,  rules,  or  regulations;  and  any
              postponement of the exercise or settlement of any Award under this
              provision  shall not extend the term of such  Awards,  and neither
              the  Company  nor  its  directors  or  officers   shall  have  any
              obligation  or  liability to the  Participant  with respect to any
              Award (or Stock issuable  thereunder)  that shall lapse because of
              such postponement.

       (k)    Gender and Number. Except when otherwise indicated by the context,
              words in the  masculine  gender used in the Plan shall include the
              feminine  gender,  the singular shall include the plural,  and the
              plural shall include the singular.

       (l)    Governing Law.

               (i) The  Plan  and  all  instruments  issued  there  under  or in
               connection therewith the Delaware Company,  shall be governed by,
               construed,  enforced and interpreted in accordance with, the laws
               of the State of New York.

               (ii)  The  Plan  and all  instruments  issued  there  under or in
               connection  therewith the Company affiliates and/or subsidiaries,
               shall be governed by, and  interpreted  in accordance  with,  the
               applicable  laws  with  in the  county  of  incorporation  of the
               Company's affiliate and/or subsidiary.

14.    Date of Grant

       Subject to Applicable  Laws, the Date of Grant of an Award shall, for all
       purposes,  be the date on which the  Committee  makes  the  determination
       granting such Award.

15.    Tax Consequences

       Any tax  consequences  arising from the grant or exercise of any Award or
       from the disposition of Shares or from any other event or act (whether of
       the Participant or of the Company or of its Trustee) hereunder,  shall be
       borne solely by the  Participant.  The Company  and/or the Trustee  shall
       withhold taxes according to the  requirements  under the Applicable Laws,
       rules,  and   regulations,   including   withholding   taxes  at  source.
       Furthermore,  such Participant  shall agree to indemnify the Company that
       employs  the  Participant  and/or  the  Trustee,   and/or  the  Company's
       shareholders  and/or  directors  and/or officers if applicable,  and hold
       them harmless  against and from any and all liability for any such tax or
       interest or penalty thereon,  including without  limitation,  liabilities
       relating to the necessity to withhold, or to have withheld,  any such tax
       from any payment made to the Participant. Except as otherwise required by
       law,  the Company  shall not be  obligated  to honor the  exercise of any
       Option by or on behalf of an Participant  until all tax  consequences (if
       any)  arising  from the exercise of such Options are resolved in a manner
       reasonably acceptable to the Company.


                                       19
<PAGE>

16.    Non-Exclusivity of the Plan

       The adoption of the Plan by the Board shall not be construed as amending,
       modifying or rescinding any previously approved incentive arrangements or
       as creating any limitations on the power of the Board to adopt such other
       incentive  arrangements  as it may  deem  desirable,  including,  without
       limitation,  the granting of Options  otherwise  then under the Plan, and
       such arrangements may be either applicable  generally or only in specific
       cases.

       For the avoidance of doubt, prior grant of options to Participants of the
       Company under their  employment  agreements,  and not in the framework of
       any  previous  option  plan,  shall not be deemed an  approved  incentive
       arrangement for the purpose of this Section.

17.    Inability to Obtain Authority

       The inability of the Company to obtain authority from any regulatory body
       having  jurisdiction,  which authority is deemed by the Company's counsel
       to be necessary  to the lawful  issuance of any Shares  hereunder,  shall
       relieve the Company of any  liability  in respect of the failure to issue
       or sell such Shares as to which such requisite  authority  shall not have
       been obtained.

18.    Multiple Agreements

       The terms of each  Option may differ from other  Options  granted to each
       Participant  under the Plan at the same time. The  Administrator may also
       grant more than one Option to a given Participant  during the term of the
       Plan,  either in addition to, or in substitution for, one or more Options
       previously granted to that Participant.

19.    Disputes

       Any  dispute or  disagreement  which may arise under or as a result of or
       pursuant to this Plan or the Options  Agreements  shall be  determined by
       the Board in its sole discretion and any interpretation made by the Board
       of the terms of the Plan or the Option Agreements shall be final, binding
       and conclusive.


                                     Adopted by the Board on September 23, 2004.


                                       20