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                              SYNERON MEDICAL LTD.

                        THE 2004 ISRAEL STOCK OPTION PLAN






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                                TABLE OF CONTENTS

                                                                         PAGE

1.       PURPOSE............................................................1

2.       DEFINITIONS........................................................1

3.       ADMINISTRATION OF THE PLAN.........................................4

4.       DESIGNATION OF PARTICIPANTS & AWARD OF OPTIONS.....................6

5.       DESIGNATION OF OPTIONS PURSUANT TO SECTION 102.....................6

6.       TRUSTEE............................................................7

7.       SHARES RESERVED FOR THE PLAN; RESTRICTION THEREON..................8

8.       EXERCISE PRICE.....................................................8

9.       ADJUSTMENTS........................................................8

10.      TERM AND EXERCISE OF OPTIONS.......................................9

11.      VESTING OF OPTIONS................................................11

12.      PURCHASE FOR INVESTMENT...........................................11

13.      DIVIDENDS.........................................................11

14.      RESTRICTIONS ON ASSIGNABILITY AND SALE OF OPTIONS.................11

15.      EFFECTIVE DATE AND DURATION OF THE PLANS..........................12

16.      AMENDMENTS OR TERMINATION.........................................12

17.      GOVERNMENT REGULATIONS............................................12

18.      CONTINUANCE OF EMPLOYMENT OR HIRED SERVICES.......................12

19.      GOVERNING LAW & JURISDICTION......................................13

20.      TAX CONSEQUENCES..................................................13

21.      NON-EXCLUSIVITY OF THE PLAN.......................................13

22.      MULTIPLE AGREEMENTS...............................................13

23.      TERM OF PLAN......................................................13



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This plan, as amended from time to time,  shall be known as the Syneron  Medical
Ltd. 2004 Israel Stock Option Plan (the "PLAN").

1.       PURPOSE

         The Plan is intended to provide an incentive  to retain,  in the employ
of the  Company and its  Affiliates  (as defined  below),  persons of  training,
experience,  and  ability,  to attract new  employees,  directors,  consultants,
service  providers and any other entity which the Board (as defined below) shall
decide their services are considered  valuable to the Company,  to encourage the
sense of proprietorship of such persons, and to stimulate the active interest of
such  persons  in the  development  and  financial  success  of the  Company  by
providing them with opportunities to purchase shares in the Company, pursuant to
the Plan.

         This Plan shall apply only to Grantees  who are  residents of the state
of Israel or those who are deemed to be residents of the state of Israel for the
payment of tax.

2.       DEFINITIONS

         For purposes of the Plan and related  documents,  including  the Option
Agreement, the following definitions shall apply:

         2.1  "AFFILIATE"  means any "employing  company"  within the meaning of
Section 102(a) of the Ordinance.

         2.2 "APPROVED 102 OPTION" means an Option  granted  pursuant to Section
102(b) of the  Ordinance  and held in trust by a Trustee  for the benefit of the
Grantee.

         2.3  "ASSUMED"  means that  pursuant  to a  Transaction  either (i) the
Option is expressly affirmed by the Company or (ii) the contractual  obligations
represented by the Option are expressly  assumed (and not simply by operation of
law) by the successor  entity or its parent in connection  with the  Transaction
with  appropriate  adjustments  to the  number  and  type of  securities  of the
successor  entity or its  parent  subject  to the  Option  and the  exercise  or
purchase price thereof which at least preserves the compensation  element of the
Option  existing at the time of the Transaction as determined in accordance with
the instruments evidencing the agreement to assume the Option.

         2.4 "BOARD" means the Board of Directors of the Company.

         2.5 "CAPITAL  GAIN OPTION" OR "CGO" shall have the meaning set forth in
Section 5.3 below.

         2.6  "CAUSE"  as such term is  expressly  defined  in a  then-effective
written agreement between the Grantee and the Company, or such Affiliate,  or in
the absence of such  then-effective  written agreement and definition means, (i)
conviction  of any felony  involving  moral  turpitude or affecting the Company;
(ii) any  refusal to carry out a  reasonable  directive  of the chief  executive
officer,  the Board or the  Grantee's  direct  supervisor,  which  involves  the
business of the  Company or its  Affiliates  and was  capable of being  lawfully
performed;  (iii)  embezzlement of funds of the Company or its Affiliates;  (iv)
any breach of the Grantee's  fiduciary  duties or duties



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of care of the Company;  including without limitation disclosure of confidential
information  of the  Company;  and (v) any conduct  (other than  conduct in good
faith)  reasonably  determined by the Board to be materially  detrimental to the
Company.

         2.7 "CHAIRMAN" means the chairman of the Committee.

         2.8  "COMMITTEE"  means  any  committee   appointed  by  the  Board  to
administer the Plan.

         2.9  "COMPANIES  LAW" means the  Israeli  Companies  Law, as amended or
replaced from time to time.

         2.10  "COMPANY"  means Syneron  Medical  Ltd., a corporation  organized
under the laws of the state of Israel.

         2.11 "CONTROLLING SHAREHOLDER" shall have the meaning ascribed to it in
Section 32(9) of the Ordinance.

         2.12  "DATE  OF  GRANT"  means,  the date of  grant  of an  Option,  as
determined  by the  Board or  Committee  and set forth in the  Grantee's  Option
Agreement.

         2.13  "EMPLOYEE"  means a person  subject  to Israeli  taxation  who is
employed  by the  Company or its  Affiliates,  including  an  individual  who is
serving  as a  director  or an office  holder,  but  excluding  any  Controlling
Shareholder.

         2.14  "EXPIRATION  DATE"  means  the date upon  which an  Option  shall
expire, as set forth in Section 10.2 of the Plan.

         2.15 "FAIR MARKET VALUE" means as of any date,  the value of the Shares
determined as follows:

                  If the Shares are listed on any established  stock exchange or
a national  market system,  including  without  limitation  the NASDAQ  National
Market system,  or the NASDAQ  SmallCap  Market of the NASDAQ Stock Market,  the
Fair  Market  Value  shall be the  closing  sales  price for such Shares (or the
closing bid, if no sales were reported), as quoted on such exchange or system on
the  date of  determination,  as  reported  in any  source  as the  Board  deems
reliable;

                  Without  derogating from the above,  solely for the purpose of
determining the tax liability pursuant to Section 102(b)(3) of the Ordinance, if
at the Date of Grant the Company's  shares are listed on any  established  stock
exchange  or a  national  market  system  or if the  Company's  shares  will  be
registered for trading within ninety (90) days following the Date of Grant,  the
Fair  Market  Value  of a Share at the Date of  Grant  shall  be  determined  in
accordance  with the average  value of the  Company's  shares on the thirty (30)
trading  days  preceding  the Date of Grant or on the thirty (30)  trading  days
following the date of registration for trading, as the case may be;

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                  If the Shares are regularly quoted by a recognized  securities
dealer but selling  prices are not reported,  the Fair Market Value shall be the
mean  between  the high bid and low asked  prices  for the Shares on the date of
determination, or;

                  In the absence of an  established  market for the Shares,  the
Fair Market Value thereof shall be determined in good faith by the Board.

         2.16 "ITA" means the Israeli Tax Authorities.

         2.17  "NON-EMPLOYEE"  means a consultant,  adviser,  service  provider,
Controlling Shareholder or any other person who is not an Employee.

         2.18 "ORDINARY INCOME OPTION" OR "OIO" shall have the meaning set forth
in Section 5.4 below.

         2.19  "OPTION"  means an option to  purchase  one or more Shares of the
Company pursuant to the Plan.

         2.20 "102 OPTION"  means any Option  granted to  Employees  pursuant to
Section 102 of the Ordinance.

         2.21 "3(I) OPTION" means an Option granted  pursuant to Section 3(i) of
the Ordinance to any person who is a Non- Employee.

         2.22 "GRANTEE" means a person who receives or holds an Option under the
Plan.

         2.23 "OPTION  AGREEMENT" means the share option  agreement  between the
Company and an Grantee that sets out the terms and conditions of an Option.

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

         2.25 "PLAN" as defined in the recitals.

         2.26  "EXERCISE  PRICE"  means the price for each  Share  subject to an
Option.

         2.27  "REPLACED"  means that  pursuant to a  Transaction  the Option is
replaced  with a  comparable  stock  award or a cash  incentive  program  of the
Company,  the successor entity (if applicable) or parent of either of them which
at least preserves the compensation  element of such Option existing at the time
of the  Transaction  and provides for subsequent  payout in accordance  with the
same (or a more  favorable)  vesting  schedule  applicable  to such Option.  The
determination of Option comparability shall be made by the Administrator and its
determination shall be final, binding and conclusive

         2.28  "SECTION 102" means section 102 of the Ordinance as now in effect
or as hereafter amended.

         2.29 "SHARE" means the ordinary  shares NIS 0.01 par value each, of the
Company.

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         2.30 "TRANSACTION" means:

                  (i) a merger or  consolidation in which the Company is not the
surviving entity,  except for a transaction the principal purpose of which is to
change the jurisdiction in which the Company is incorporated;

                  (ii)  the  sale,  transfer  or  other  disposition  of  all or
substantially  all of the assets of the Company  (including the capital stock of
the Company's subsidiary corporations);

                  (iii) the complete liquidation or dissolution of the Company;

                  (iv) any reverse  merger in which the Company is the surviving
entity but in which  securities  possessing more than fifty percent (50%) of the
total  combined  voting  power  of  the  Company's  outstanding  securities  are
transferred to a person or persons different from those who held such securities
immediately prior to such merger; or

                  (v)  acquisition  by any  person or  related  group of persons
(other  than the Company or by a  Company-sponsored  employee  benefit  plan) of
beneficial  ownership  (within  the  meaning  of Rule  13d-3  of the  Securities
Exchange  Act of 1934,  as amended)  of  securities  possessing  more than fifty
percent (50%) of the total  combined  voting power of the Company's  outstanding
securities.

         2.31 "TRUSTEE"  means any individual  appointed by the Company to serve
as a trustee for the Plan and  approved by the ITA, all in  accordance  with the
provisions of Section 102(a) of the Ordinance.

         2.32  "UNAPPROVED  102  OPTION"  means an Option  granted  pursuant  to
Section 102(c) of the Ordinance and not held in trust by a Trustee.

         2.33 "VESTED  OPTION"  means any Option,  which has already been vested
according to the Vesting Dates.

         2.34  "VESTING  DATES"  means,  as  determined  by the  Board or by the
Committee,  the date as of which the Grantee  shall be entitled to exercise  the
Options or part of the Options, as set forth in Section 11 of the Plan.

3.       ADMINISTRATION OF THE PLAN

         3.1 The Board or the Committee  shall have the power to administer  the
Plan,  all as provided by  applicable  law and in the  Company's  organizational
documents.  Notwithstanding  the  above,  the  Board  shall  automatically  have
residual  authority if the  Committee is not  constituted  or if such  Committee
shall cease to operate for any reason.  In this Plan any  reference  to the term
"Committee"  shall also mean the Board if no Committee is operating at that time
in the Company.  The Board shall appoint the members of the  Committee,  and may
from time to time remove members from, or add members to, the Committee.

         3.2 The  Committee  shall select one of its members as its Chairman and
shall  hold  its  meetings  at such  times  and  places  as the  Chairman  shall
determine.  The Committee shall keep


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records  of its  meetings  and shall  make such  rules and  regulations  for the
conduct of its business, as it shall deem advisable.

         3.3 The Committee  shall have the full power and authority,  subject to
(i) the terms and conditions of the Plan,  (ii) provisions of the Companies Law,
and (iii) the approval of the Board to the extent required under  applicable law
to: (a) designate  participants to whom Options shall be granted;  (b) determine
the terms and provisions of the respective Option Agreements, including, but not
limited to, the number of Options to be granted to each  Grantee,  the number of
Shares to be  covered by each  Option,  provisions  concerning  the time and the
extent to which the  Options  may be  exercised  and the nature and  duration of
restrictions as to the transferability or restrictions  constituting substantial
risk of forfeiture and to cancel or suspend awards, as necessary;  (c) determine
the Fair Market Value of the Shares covered by each Option; (d) make an election
as to the type of 102 Approved  Option;  (e) designate the type of Options;  (f)
alter any  restrictions  and  conditions of any Options or Shares subject to any
Options;  (g) interpret the provisions and supervise the  administration  of the
Plan;  (h)  accelerate  the right of an Grantee to exercise in whole or in part,
any previously  granted Option;  (i) determine the Exercise Price of the Option;
(j) prescribe, amend and rescind rules and regulations relating to the Plan; and
(k)  make  all  other  determinations  deemed  necessary  or  advisable  for the
administration of the Plan.

         3.4  Notwithstanding  Section  3.3,  (i) the  reduction of the Exercise
Price of any Option  awarded  under the Plan  shall be  subject  to  stockholder
approval and (ii)  canceling an Option at a time when its Exercise Price exceeds
the Fair Market Value of the underlying  Shares,  in exchange for another Option
shall be subject to stockholder  approval,  unless the cancellation and exchange
occurs in connection with a Transaction.

         3.5 Subject to the Company's  organizational  documents,  all decisions
and selections made by the Board or the Committee  pursuant to the provisions of
the Plan shall be made by a majority of its members except that no member of the
Board or the Committee  shall vote on, or be counted for quorum  purposes,  with
respect to any  proposed  action of the Board or the  Committee  relating to any
Option to be granted to that member.  Any decision  reduced to writing  shall be
executed in  accordance  with the  provisions  of the  Company's  organizational
documents, as the same may be in effect from time to time.

         3.6  The  interpretation  and  construction  by  the  Committee  of any
provision of the Plan or of any Option  Agreement  thereunder shall be final and
conclusive unless otherwise determined by the Board.

         3.7 Subject to the Company's organizational documents and the Company's
decision and to all approvals legally required,  each member of the Board or the
Committee shall be indemnified and held harmless by the Company against any cost
or expense (including fees of legal counsel)  reasonably incurred by him, or any
liability  (including any sum paid in settlement of a claim with the approval of
the Company)  arising out of any act or omission to act in  connection  with the
Plan unless  arising out of such member's own fraud or bad faith,  to the extent
permitted by applicable  law. Such  indemnification  shall be in addition to any
rights of  indemnification  the member may have as a director or otherwise under
the Company's organizational  documents, any agreement, any vote of shareholders
or disinterested directors, insurance policy or otherwise.


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4.       DESIGNATION OF PARTICIPANTS & AWARD OF OPTIONS

         4.1 The  persons  eligible  for  participation  in the Plan as Grantees
shall  include  any  Employees  and/or  Non-Employees  of the  Company or of any
Affiliate;  provided,  however,  that  (i)  Employees  may only be  granted  102
Options;  (ii)  Non-Employees  may  only be  granted  3(i)  Options;  and  (iii)
Controlling Shareholders may only be granted 3(i) Options.

         4.2 The grant of an Option  hereunder shall neither entitle the Grantee
to participate nor disqualify the Grantee from participating in, any other grant
of Options pursuant to the Plan or any other option or share plan of the Company
or any of its Affiliates.

         4.3 Anything in the Plan to the contrary notwithstanding, all grants of
Options to directors and office holders shall be authorized  and  implemented in
accordance  with the provisions of any applicable law, as in effect from time to
time.

         4.4 The Committee in its  discretion  may award to Grantees  Options to
purchase Shares in the Company available under the Plan.  Options may be granted
at any time after this Plan has been  approved by the Board and until the end of
the term of the Plan as  provided  in Section 23 below.  Provided  however  that
Options shall not be granted until the lapse of 30 days following the receipt by
the ITA of a request by the Company to approve the Plan.

5.       DESIGNATION OF OPTIONS PURSUANT TO SECTION 102

         The Company may  designate  Options  granted to  Employees  pursuant to
Section 102 as Unapproved 102 Options or Approved 102 Options.

         5.1 The grant of  Approved  102  Options  shall be made under this Plan
adopted by the Board as described in Section 16 below,  and shall be conditioned
upon the approval of this Plan by the ITA.

         5.2  Approved  102 Options  may either be  classified  as Capital  Gain
Option ("CGO") or Ordinary Income Option ("OIO").

         5.3  Approved  102  Options  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 Ordinance shall be referred to herein as CGO.

         5.4  Approved  102 Option  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 Ordinance shall be referred to herein as
OIO.

         5.5 The  Company's  election of the type of Approved 102 Options as CGO
or OIO granted to Employees (the "ELECTION"),  shall be appropriately filed with
the ITA before the Date of Grant of an Approved 102 Option.  Such Election shall
become  effective  beginning  the first Date of Grant of an Approved  102 Option
under  this Plan and shall  remain in effect at least  until the end of the year
following the year during which the Company first granted  Approved 102 Options.
The Election  shall  obligate the Company to grant ONLY the type of Approved 102
Option  it has  elected,  and  shall  apply to all  Employees  who were  granted
Approved 102 Options



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during the period  indicated  herein,  all in accordance  with the provisions of
Section 102(g) of the Ordinance. For the avoidance of doubt, such Election shall
not prevent the Company from granting Unapproved 102 Options simultaneously.

         5.6 All  Approved  102 Options  must be held in trust by a Trustee,  as
described in Section 6 below.

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

         5.7  Any  provision  of  Section  102  and/or  regulations  promulgated
thereunder  and/or any  applicable  law,  which is necessary in order to receive
and/or  to  keep  any tax  benefit  pursuant  thereto,  which  is not  expressly
specified in the Plan or in the Option  Agreement,  shall be considered  binding
upon the Company and the Grantees.

6.       TRUSTEE

         6.1 Approved 102 Options  which shall be granted  under the Plan and/or
any Shares allocated or issued upon exercise of such Approved 102 Options and/or
other  shares  received  subsequently   following  any  realization  of  rights,
including bonus shares, shall be allocated or issued to the Trustee and held for
the benefit of the  Grantees  for such period of time as required by Section 102
or any regulations,  rules or orders or procedures  promulgated  thereunder (the
"HOLDING  PERIOD").  In the event the  requirements for Approved 102 Options are
not met,  then the  Approved  102  Options  shall be treated as  Unapproved  102
Options,  all in accordance  with the provisions of Section 102 and  regulations
promulgated thereunder.

         6.2  Notwithstanding  anything to the  contrary,  the Trustee shall not
release any Shares  allocated  or issued upon  exercise of Approved  102 Options
prior to the full payment of the Grantee's tax liabilities arising from Approved
102 Options or until the Trustee has ensured the payment of the tax  liabilities
arising from  Approved  102 Options  which were granted to him and/or any Shares
allocated or issued upon exercise of such Options.

         6.3 Upon receipt of any  Approved 102 Option,  the Grantee will sign an
undertaking  to release the Trustee from any  liability in respect of any action
or decision  taken and executed in good faith in relation  with the Plan, or any
Approved 102 Option or Share granted to him thereunder.

         6.4 With respect to any Approved 102 Option,  unless  permitted  and to
the  extent  allowable  by the  provisions  of  Section  102  and any  rules  or
regulation or orders or procedures promulgated  thereunder,  a Grantee shall not
sell or release from trust any Share  received  upon the exercise of an Approved
102 Option and/or any share received  subsequently  following any realization of
rights,  including  without  limitation,  bonus  shares,  until the lapse of the
Holding Period  required under Section 102.  Notwithstanding  the above,  if any
such sale or release  occurs  during the Holding  Period,  the  sanctions  under
Section  102  and  under  any  rules  or  regulation  or  orders  or  procedures
promulgated thereunder shall apply to and shall be borne by such Grantee.

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<PAGE>

         6.5 During the  Restricted  Period,  all benefits  arising from the 102
Options/Shares, including share dividends (bonus shares) shall be deposited with
the Trustee for the duration of the  Restricted  Period,  and the  provisions of
Section 102 shall apply to such benefits.

7.       SHARES RESERVED FOR THE PLAN; RESTRICTION THEREON

         7.1 Subject to adjustment as set forth in Section 9 below,  the maximum
aggregate  number of  authorized  but  unissued  Shares  which the  Company  has
reserved  for issuance  pursuant to the Plan is 1,000,000  Shares plus an annual
increase to be added on the first  business day of each calendar year  beginning
in 2005 equal to three percent (3 %) of the number of Shares  outstanding  as of
such date or a lesser number of Shares determined by the Board. Any Shares which
remain  unissued  and which are not  subject to the  outstanding  Options at the
termination  of the Plan shall cease to be reserved for the purpose of the Plan,
but until  termination  of the Plan the  Company  shall at all  times  reserve a
sufficient  number of Shares to meet the  requirements  of the Plan.  Should any
Option for any reason  expire or be canceled or forfeited  prior to its exercise
or  relinquishment  in full,  the  Shares  subject  to such  Option may again be
subjected to an Option under the Plan.

         7.2 Each Option granted  pursuant to the Plan,  shall be evidenced by a
written Option  Agreement  between the Company and the Grantee,  in such form as
the  Board  or the  Committee  shall  from  time to time  approve.  Each  Option
Agreement  shall state,  among other matters,  the number of Shares to which the
Option  relates,  the type of Option  granted  thereunder  (whether a CGO,  OIO,
Unapproved 102 Option or a 3(i) Option),  the Vesting Dates,  the Exercise Price
per share,  the  Expiration  Date and such  other  terms and  conditions  as the
Committee or the Board in its discretion  may prescribe,  provided that they are
consistent with this Plan.

8.       EXERCISE PRICE

         8.1 The  Exercise  Price of each Share  subject  to an Option  shall be
determined  by the  Committee in its sole and absolute  discretion in accordance
with applicable law, subject to any guidelines as may be determined by the Board
from time to time.  Each  Option  Agreement  will  contain  the  Exercise  Price
determined for each Grantee.

         8.2 The Exercise Price shall be payable upon the exercise of the Option
in a form satisfactory to the Committee,  including without limitation,  by cash
or check or another secure method of payment as may be customary in the Company.
The  Committee  shall have the authority to postpone the date of payment on such
terms as it may determine.

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

9.       ADJUSTMENTS

         Upon  the  occurrence  of any  of the  following  described  events,  a
Grantee's  rights  to  purchase  Shares  under  the Plan  shall be  adjusted  as
hereafter provided:

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         9.1 Effective upon the  consummation of a Transaction,  all outstanding
Options  under the Plan shall  terminate.  However,  all such Options  shall not
terminate to the extent they are Assumed in connection with the Transaction.

         9.2 Except as provided otherwise in an individual Option Agreement,  in
the event of a  Transaction,  for the  portion  of each  Option  that is neither
Assumed nor  Replaced,  such  portion of the Option shall  automatically  become
fully vested and  exercisable  and be released from any repurchase or forfeiture
rights (other than repurchase  rights  exercisable at Fair Market Value) for all
of the shares at the time represented by such portion of the Option, immediately
prior to the specified  effective  date of such  Transaction,  provided that the
Optionee's  employment  or service  with the  Company or any  Affiliate  has not
terminated  prior to such date.  The  portion of the Option  that is not Assumed
shall  terminate  under  Section  9.1 to the extent not  exercised  prior to the
consummation of such Transaction.

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

10.      TERM AND EXERCISE OF OPTIONS

         10.1 Options shall be exercised by the Grantee by giving written notice
to the  Company  and/or  to any  third  party  designated  by the  Company  (the
"REPRESENTATIVE"),  in such form and method as may be  determined by the Company
and when  applicable,  by the Trustee in  accordance  with the  requirements  of
Section 102,  which  exercise  shall be effective upon receipt of such notice by
the Company and/or the  Representative  and the payment of the Exercise Price at
the Company's or the Representative's principal office. The notice shall specify
the number of Shares with respect to which the Option is being exercised.

         10.2 Options, to the extent not previously  exercised,  shall terminate
forthwith upon the earlier of: (i) 7 years from the Date of Grant or a different
period which may be shorter or longer as set forth in the Option Agreement;  and
(ii) the  expiration  of any  extended  period in any of the events set forth in
Section 10.5 below.

         10.3 The Options may be exercised by the Grantee in whole, at any time,
or in part,  from time to time, to the extent that the Options become vested and
exercisable,  prior to the Expiration  Date,  and provided that,  subject to the
provisions  of Section  10.5 below,  the  Grantee is  employed  by or  providing
services to the Company or any of its Affiliates, at all times during the period
beginning with the granting of the Option and ending upon the date of exercise.

                                       9
<PAGE>

         10.4 Subject to the  provisions of Section 10.5 below,  in the event of
termination  of the Grantee's  employment or services with the Company or any of
its Affiliates,  all un-vested  Options granted to such Grantee will immediately
expire.

         10.5  Notwithstanding  anything to the contrary  hereinabove and unless
otherwise  determined  in the  Grantee's  Option  Agreement,  an  Option  may be
exercised after the date of termination of Grantee's  employment or service with
the Company or any  Affiliates  during an  additional  period of time beyond the
date of such termination,  but only with respect to the number of Vested Options
at the time of such termination according to the Vesting Dates, if:

                  (i)  termination  is without  Cause,  in which case any Vested
Option still in force and unexpired  may be exercised  within a period of ninety
(90) days after the date of such termination; or

                  (ii)  termination  is the result of death or disability of the
Grantee,  in which case any Vested  Option still in force and  unexpired  may be
exercised  within  a  period  of  twelve  (12)  months  after  the  date of such
termination; or

                  (iii)  prior to the date of such  termination,  the  Committee
shall  authorize an extension of the terms of all or part of the Vested  Options
beyond the date of such termination for a period not to exceed the period during
which the Options by their terms would otherwise have been exercisable.

                           For  avoidance  of  any  doubt,   if  termination  of
employment or service is for Cause, any outstanding  unexercised Option (whether
vested or non-vested),  will immediately  expire and terminate,  and the Grantee
shall not have any right in connection to such outstanding Options.

         10.6  POST   TERMINATION   FORFEITURE.   The   reason  of   termination
notwithstanding, if during the period after the termination of engagement during
which  the  Grantee  may  still  exercise  Options,  the  Grantee  breaches  the
confidentiality,  non-competition  non-solicitation,  non-use or  assignment  of
intellectual  property undertakings binding upon him/her, the Company shall have
the right (only to the extent  specifically  set forth in the  Grantee's  Option
Agreement) to effect a forfeiture of all Options  (whether vested or non-vested)
then  outstanding,  and the Shares  covered by such Options  shall revert to the
Plan.

         10.7 To avoid doubt,  the holders of Options shall not be deemed owners
of the Shares  issuable  upon the  exercise of Options and shall not have any of
the rights or privileges of shareholders of the Company in respect of any Shares
purchasable  upon the exercise of any part of an Option,  until  registration of
the Grantee as holder of such Shares in the Company's  register of  shareholders
upon exercise of the Option in accordance with the provisions of the Plan.

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

                  With  respect to any  Unapproved  102  Option,  if the Grantee
ceases to be employed by the Company or any Affiliate,  the Grantee shall extend
to the Company  and/or its  Affiliate a security or guarantee for the payment of
tax due at the time of sale of Shares,  all in accordance with the provisions of
Section 102 and the rules, regulation or orders promulgated thereunder.

                                       10
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11.      VESTING OF OPTIONS

         11.1  Subject to the  provisions  of the Plan,  each Option  shall vest
following the Vesting Dates and for the number of Shares as shall be provided in
the Option  Agreement.  However,  no Option shall vest after the  termination of
engagement as set forth in Section 10.2 above and no option shall be exercisable
after the Expiration Date.

         11.2 An Option may be subject to such other terms and conditions at the
time or times when it may be exercised,  as the Committee may deem  appropriate.
The vesting provisions of individual Options may vary.

12.      PURCHASE FOR INVESTMENT

         The Company's  obligation to issue or allocate  Shares upon exercise of
an  Option  granted  under  the  Plan is  expressly  conditioned  upon:  (a) the
Company's  completion of any registration or other qualifications of such Shares
under all applicable  laws,  rules and  regulations or (b)  representations  and
undertakings by the Grantee (or his legal  representative,  heir or legatee,  in
the event of the Grantee's death) to assure that the sale of the Shares complies
with any  registration  exemption  requirements  which the  Company  in its sole
discretion shall deem necessary or advisable.  Such required representations and
undertakings  may include  representations  and agreements that such Grantee (or
his legal representative,  heir, or legatee):  (a) is purchasing such Shares for
investment and not with any present intention of selling or otherwise  disposing
thereof;  and (b)  agrees  to have  placed  upon  the face  and  reverse  of any
certificates   evidencing   such  Shares  a  legend  setting   forth:   (i)  any
representations  and undertakings which such Grantee has given to the Company or
a  reference  thereto  and  (ii)  that,  prior  to  effecting  any sale or other
disposition  of any such  Shares,  the  Grantee  must  furnish to the Company an
opinion of counsel,  satisfactory to the Company,  that such sale or disposition
will not violate the applicable laws,  rules,  and  regulations,  whether of the
State of Israel or of the United  States or any other State having  jurisdiction
over the Company and the Grantee.

13.      DIVIDENDS

         With respect to all Shares (but excluding,  for avoidance of any doubt,
any  unexercised  Options)  allocated  or issued  upon the  exercise  of Options
purchased by the Grantee and held by the Grantee or by the Trustee,  as the case
may be, the Grantee shall be entitled to receive  dividends in  accordance  with
the  quantity  of  such  Shares,  subject  to the  provisions  of the  Company's
organizational  documents  (and  all  amendments  thereto)  and  subject  to any
applicable taxation on distribution of dividends, and when applicable subject to
the provisions of Section 102 and the rules,  regulations or orders  promulgated
thereunder.

14.      RESTRICTIONS ON ASSIGNABILITY AND SALE OF OPTIONS

         14.1  No  Option  or  any  right  with  respect  thereto,   purchasable
hereunder, whether fully paid or not, shall be assignable, transferable or given
as  collateral,  or any  right  with  respect  to it  given to any  third  party
whatsoever,  except as specifically  allowed under the Plan. During the lifetime
of the  Grantee,  each  and all of such  Grantee's  rights  to  purchase  Shares
hereunder shall be exercisable only by the Grantee.

                                       11
<PAGE>

                  Any such action made directly or indirectly,  for an immediate
validation or for a future one, shall be void.

         14.2 As long as the  Shares  are held by the  Trustee  on behalf of the
Grantee,  all rights of the Grantee  over the Shares are personal and may not be
transferred,  assigned,  pledged or mortgaged, other than by will or pursuant to
the laws of descent and distribution.

15.      EFFECTIVE DATE AND DURATION OF THE PLANS

         The Plan shall be  effective  upon the earlier to occur of its adoption
by the  Board or its  approval  by the  stockholders  of the  Company  and shall
continue in effect until  terminated by the Board or until the expiration of the
term of the Plan as provided in Section 23 below.

16.      AMENDMENTS OR TERMINATION

         16.1 The Board may at any time, and when applicable, after consultation
with the  Trustee,  amend,  alter,  suspend  or  terminate  the Plan,  provided,
however,  that no such  amendment  shall be made  without  the  approval  of the
Company's  stockholders  to the extent such  approval is required by  applicable
laws or the rules of any applicable stock exchange or national market system, or
if such  amendment  would  change any of the  provisions  of Section 3.4 or this
Section 16.1.

         16.2 No amendment,  alteration,  suspension or  termination of the Plan
shall impair the rights of any Grantee, unless mutually agreed otherwise between
the Grantee and the Company,  which  agreement  must be in writing and signed by
the  Grantee  and the  Company.  Termination  of the Plan  shall not  affect the
Committee's  ability to exercise the powers granted to it hereunder with respect
to Options granted under the Plan prior to the date of such termination.

17.      GOVERNMENT REGULATIONS

         The Plan, and the granting and exercise of Options  hereunder,  and the
obligation of the Company to sell and deliver  Shares under such Options,  shall
be subject to all applicable laws, rules, and regulations,  whether of the State
of Israel or of the United  States or any other State having  jurisdiction  over
the Company and the Grantee,  including the registration of the Shares under the
United States Securities Act of 1933, and the Ordinance and to such approvals by
any governmental  agencies or national securities  exchanges as may be required.
Nothing  herein  shall be deemed to require the  Company to register  the Shares
under the securities laws of any jurisdiction.

18.      CONTINUANCE OF EMPLOYMENT OR HIRED SERVICES

         Neither the Plan nor the Option Agreement with the Grantee shall impose
any obligation on the Company or an Affiliate  thereof,  to continue any Grantee
in its employ or  service,  and  nothing  in the Plan or in any  Option  granted
pursuant  thereto  shall  confer  upon any  Grantee any right to continue in the
employ or service of the Company or an  Affiliate  thereof or restrict the right
of the Company or an Affiliate  thereof to terminate such  employment or service
at any time.

                                       12
<PAGE>

19.      GOVERNING LAW & JURISDICTION

         The Plan shall be governed by and  construed and enforced in accordance
with the laws of the  State of Israel  applicable  to  contracts  made and to be
performed therein,  without giving effect to the principles of conflict of laws.
The competent courts of the city of Haifa,  Israel shall have sole  jurisdiction
in any matters pertaining to the Plan.

20.      TAX CONSEQUENCES

         20.1 Any tax  consequences  arising  from the grant or  exercise of any
Option,  from the payment for Shares covered  thereby or from any other event or
act  (of the  Company  and/or  its  Affiliates,  the  Trustee  or the  Grantee),
hereunder,  shall be  borne  solely  by the  Grantee.  The  Company  and/or  its
Affiliates and/or the Trustee shall withhold taxes according to the requirements
under the applicable laws, rules, and regulations,  including withholding taxes.
Furthermore,  the  Grantee  shall  agree to  indemnify  the  Company  and/or its
Affiliates  and/or the Trustee and hold them  harmless  against and from any and
all liability for any such tax or interest or penalty thereon, including without
limitation,  liabilities  relating  to the  necessity  to  withhold,  or to have
withheld, any such tax from any payment made to the Grantee.

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

21.      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 than under the Plan, and such arrangements may
be either applicable generally or only in specific cases.

22.      MULTIPLE AGREEMENTS

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

23.      TERM OF PLAN

         The Plan shall  terminate  ten (10) years  after the Plan is adopted by
the Board,  and no Option shall be granted pursuant to the Plan after that date,
subject to earlier termination as provided in Paragraph 10 above.