Unassociated Document


    
      EXHIBIT
10.17

       

       

       

      SUBSCRIPTION
AND REGISTRATION RIGHTS AGREEMENT

       

      This
Subscription and Registration Rights Agreement (this “Agreement”), dated as of June 22,
2008, is entered into by and between BioCancell Therapeutics Inc., a Delaware
corporation (the “Company”), and Clal
Biotechnology Industries Ltd. (the “Purchaser”).

       

      The
parties hereto agree as follows:

       

      1. Investment and Loan.
In consideration of and upon the basis of the representations, warranties and
agreements and subject to the terms and conditions set forth in this
Agreement:

       

      (a) Purchase and Sale.
The Purchaser agrees to purchase from the Company, and the Company shall issue
and allot to the Purchaser, on the Closing Date (as defined below), in
accordance with Section 2 below, 255,843 shares (the “Purchased Shares”) of
the Company’s common stock, par value $0.01 per share (the “Common
Stock”), at a price per share of
Common Stock equal to US$ 0.782 (“PPS”) (which on the
relevant date was equal to NIS 2.55), for an aggregate purchase price equal to
two hundred thousand dollars (USD 200,000) (the “Share Purchase”).
Notwithstanding the foregoing, in the event that the average closing price of
the shares of Common Stock of the Company, as reported on the Tel Aviv Stock
Exchange, for the sixty (60) trading days immediately preceding the date which
is two days (the “Determination Date”)
before the Closing (as defined below) (the “Average Price”), is lower than US$ 0.743 or higher
than US$ 0.821 (i.e., five percent lower or higher than the PPS), the PPS and
the corresponding number of Purchased Shares shall be adjusted such that the PPS
shall be equal to the Average Price. The Average Price shall be denominated in
US$ by dividing the Average Price denominated in NIS by the exchange rate of the
US$ to NIS at
the close of business on the Determination Date.

       

      (b) Convertible Debenture. The Company shall
issue to the Purchaser an assignable convertible debenture in the form attached
hereto as Exhibit
1(b) (the “Convertible
Debenture”), in consideration for the extension of a loan by the
Purchaser to the Company in the amount of eight hundred thousand dollars (USD
800,000) (the “Loan Amount”).

       

      (c) Warrants. The Company
shall grant to the Purchaser a warrant, in the form attached hereto as Exhibit 1(c), to
purchase a minimum of 1,155,705 and up to 1,371,897 shares of Common Stock (the
“Warrant”).

       

      (d) The
Purchased Shares, and the shares of Common Stock underlying the Convertible
Debenture and the Warrant shall be referred to herein as the “Issued Shares” and the consideration paid
therefor shall be referred to herein as the “Purchase Price”.


         

      

      (e) Upon the
terms and subject to the conditions set forth in this Agreement, the closing of
(i) the sale and purchase of the Purchased Shares, (ii) the issuance of the
Convertible Debenture and (iii) the grant of the Warrant (the “Closing”) shall take
place at the offices of Baratz, Horn & Co., 1 Azrieli Center, Tel Aviv, at
10:00 a.m. on the date that is one business day after the satisfaction of all
conditions set forth in Sections 1(g) and 1(h) hereof, but not later than 90
days from the execution hereof, or such other place or date as may be agreed to
by the Company and Purchaser. The date upon which the Closing shall occur is
herein referred to as the “Closing
Date.”

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      (f) All
payments payable hereunder, shall be made in US dollars.

       

      (g) Conditions Precedent to the
Obligation of the Purchaser to Close. The obligation hereunder of the
Purchaser to purchase the Purchased Shares and to extend the Loan Amount is
subject to the fulfillment at or before the Closing (which shall take place
simultaneously as part of a single transaction, together with the closing of the
investment by Tikero Technologies Ltd. (“Tikero”) pursuant to the
Subscription and Registration Rights Agreement by and between Tikero and the
Company dated as of June 2008) of the following conditions precedent any one or
more of which may be waived in writing, in whole or in part, by the Purchaser,
which waiver shall be at the sole discretion of the Purchaser:

       

      (i) Accuracy of the Company’s
Representations and Warranties. Each of the representations and
warranties of the Company shall be true and correct in all respects as of the
date when made and shall be true and correct in all material respects as of the
Closing, as though made at that time.

       

      (ii)
Performance by the
Company. The Company shall have performed, satisfied and complied in all
material respects with all covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by the Company at or prior
to the Closing.

       

      (iii)
All
Deliverables Ready. All documents and other items to be delivered
to the Purchaser at the Closing as specified in Sections 2(A) and 2(B) shall be
duly executed, ready for delivery to the Purchaser, and in form and substance
reasonably satisfactory to counsel for the Purchaser.

       

      (iv)
Executive
Committee. The Board of Directors of the Company shall have
designated an executive committee comprised of four members of the Board of
Directors as follows: Prof. Hochberg, an external director who initially shall
be Nava Epstein, a representative of the Purchaser and a representative of
Tikcro Technologies Ltd. (the “Executive
Committee”). The approval of the Executive Committee shall be required
for the consummation of any material transaction of the Company, adoption of the
Company’s annual budget, decisions relating to investment policy and working
plan.

       

      (v)
Approval of each of the Company’s undertakings and the transactions contemplated
herein, in the Convertible Debenture and in the Warrant to the extent such
transactions or undertakings require shareholder approval under applicable law,
at the Company’s General Meeting, which shall be convened for such purpose as
soon as practicable following the date hereof.

       

      
        
          
          

        

        
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      (vi) The
Purchaser shall have entered into a voting agreement with each of Prof. Avraham
Hochberg, Tickro Technologies Ltd. and Mr. Avi Barak, effective as of the
Closing, substantially in the form of Exhibit
1(g)(vi) attached hereto.

       

      Notwithstanding
anything to the contrary in this Agreement, the Purchaser shall not be obligated
to consummate the transactions set forth in this Agreement if the Company
suffers a Material Adverse Effect prior to the Closing.

       

      (h) Conditions
Precedent to the Obligation of the Company
to Close. The obligation hereunder of the Company to issue and
sell the Purchased Shares, to issue the Convertible Debenture and to grant the
Warrant to the Purchaser, is subject to the fulfillment at or before the Closing
of the following conditions precedent, any one or more of which (excluding the
condition set forth in sub section (iv) below) may be waived in writing, in
whole or in part, by the Company, which waiver shall be at the sole discretion
of the Company.

       

      (i) Accuracy of the Purchaser’s
Representations and Warranties. Each of the representations and
warranties of the Purchaser shall be true and correct in all respects as of the
date when made and shall be true and correct in all material respects as of the
Closing, as though made at that time.

       

      (ii)
Performance by the
Purchaser. The Purchaser shall have performed, satisfied and complied in
all material respects with all covenants, agreements and conditions required by
this Agreement to be performed, satisfied or complied with by the Purchaser at
or prior to the Closing.

       

      (iii)
Approval by the Tel Aviv Stock Exchange (“TASE”) of the
registration of the Issued Shares under the TASE rules.

       

      2. Closing. The Closing
shall take place on the Closing Date in the manner set forth below. The
deliveries specified in this Section 2 shall be deemed to occur simultaneously
as part of a single transaction, and no delivery shall be deemed to have been
made until all such deliveries have been made.

       

      (A) The
Purchaser shall have received from the Company the following
documents:

       

      (a) True and
correct copies of the resolutions of the Company’s Board of Directors,
approving, among other things, the transactions contemplated herein, the
issuance of the Purchased Shares, the issuance of the Convertible Debenture, the
grant of the Warrant and the appointment of a representative of the Purchaser as
a member to the Company’s Board of Directors until the next annual general
meeting of the stockholders of the Company;

       

      (b) (i) one
or more validly issued share certificates of the Common Stock of the Company
representing, in aggregate, the Purchased Shares issued in the name of the
Purchaser in consideration for the Purchase Price paid to the Company; (ii) a
duly executed copy of this Agreement, (iii) a duly executed Convertible
Debenture, and (iv) a duly executed Warrant;

       

      
        
          
          

        

        
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      (c) A
certificate duly executed by an officer of the Company dated as of the Closing
Date (the “Compliance
Certificate”) in the form attached hereto as Exhibit
2(A)(c);

       

      (d) Audited
annual financial statements for 2007 and audited financial statements for the
first quarter (and, to the extent required by SEC rules or regulations, first
half) of 2008, both prepared and presented in accordance with US GAAP (together
with audited comparison numbers for 2006 and 2005) and such other information as
may be required by Purchaser to comply with its obligations pursuant to SEC
rules and regulations; and

       

      (B) The
Company shall have obtained, and delivered to the Purchaser copies of, the
Required Approvals and Notices (as defined below) which shall be attached to
this Agreement as Exhibit
2(B).

       

      (C) Purchase Price; Purchaser
Deliverables. At the Closing, the Purchaser shall pay the Purchase Price
by wire transfer of immediately available funds to the account of the Company
set forth on Exhibit
2(C) hereto, and shall deliver to the Company (i) a duly executed copy of
this Agreement, (ii) a duly executed copy of the Convertible Debenture, and (iv)
a duly executed copy of the Warrant.

       

      3. Representations and
Warranties of the Company. The Company hereby represents and warrants to
the Purchaser as follows:

       

      (a) Organization. The
Company has been duly incorporated, is validly existing and in good standing
under the laws of Delaware. The Company is duly qualified to conduct its
business and has the requisite corporate power and authority and any necessary
governmental authority, franchise, license or permit to own, operate, lease and
otherwise to hold and operate its assets and properties and to carry on its
businesses. Any entity in which the Company owns at least 50% of either the
voting shares and/or the equity (each, a “Subsidiary” and,
collectively, the “Subsidiaries”) is
listed in page 6 of the Periodical Report with respect to fiscal year 2007 filed
by the Company with the TASE on March 12, 2008 {the “Periodical Report”).
The Periodical Report also lists all other equity or similar interests, or any
interest convertible or exchangeable or exercisable for any such equity or
similar interest, in any other entities held by the Company or any
Subsidiary.

       

      
        
          
          

        

        
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      (b) Corporate Authorization;
Execution; Validity of Agreement. The execution, delivery and performance
of this Agreement and each of the other agreements, certificates or other
instruments required to be delivered hereunder by the Company at or prior to
Closing (the “Transaction
Documents”), including the authorization, sale, issuance and delivery of
the Purchased Shares, the Convertible Debenture, the Warrant, and the Issued
Shares have been duly authorized by the Company and no other corporate
proceedings on the part of the Company shall be necessary to authorize this
Agreement and each of the other Transaction Documents or to consummate the
transactions contemplated hereby and thereby. The Agreement and the Transaction
Documents have been duly executed and delivered by the Company and, when duly
authorized, executed and delivered by the Purchaser, will be valid and binding
agreements enforceable against the Company in accordance with their terms,
subject to bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance and other similar laws of general applicability relating to or
affecting creditors’ rights generally and to general principles of
equity.

       

      (c) Corporate Authority.
The Company has full corporate power and authority necessary to enter into this
Agreement and each of the Transaction Documents, to perform its obligations
hereunder and thereunder and to consummate the transactions contemplated hereby
and thereby.

       

      (d) Validity of Common
Stock. When issued to the Purchaser against payment therefore, all Issued
Shares will have been duly and validly issued, fully paid and non-assessable;
shall not be subject to call or forfeiture rights and will be free and clear of
any security interests, liens, claims, encumbrances or other adverse interests,
other than those restrictions contemplated by the federal and state securities
laws of the United States and the securities laws of Israel, and the rules of
the TASE; and will not have been issued or sold in violation of any preemptive
or other similar rights of the holders of any securities of the
Company.

       

      (e) Organizational
Documents. Set forth in Exhibit 3(e) is a
complete and correct copy of the Certificate of Incorporation and Bylaws of the
Company, as amended to date. All of such organizational documents are in full
force and effect.

       

      (f) Capitalization.

       

      (i) The
capitalization table of the Company prior to and immediately following the
Closing, in each case on a fully diluted basis, is set forth in Exhibit
3(f) attached hereto. As more fully set forth in the post-Closing
capitalization table, the Purchased Shares, together with Purchaser’s current
holdings will constitute, immediately following the Closing, 26.96% of the
Company’s share capital, and the Issued Shares will constitute, immediately
following the Closing, 21.61% of the Company’s share capital, on a fully diluted
basis. Except as set forth in Exhibit 3(f), there are no other shares,
convertible or other securities, outstanding warrants, options, or other rights
to subscribe for, purchase, or acquire from the Company any securities of the
Company, and there are no contracts or binding commitments providing for the
issuance of, or the granting of rights to acquire securities of the Company from
the Company, or under which the Company is, or may become, obligated to issue
any of its securities.

       

      
        
          
          

        

        
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      (ii) The
Company has not issued or granted any bonds, debentures, notes or other
indebtedness having the right to vote on any matters on which the Company’s
shareholders may vote. There are no outstanding contractual obligations of the
Company or any of its Subsidiaries to repurchase, redeem or otherwise acquire
any of the Company’s securities. All of the issued and outstanding share capital
of the Company has been duly authorized and validly issued and is fully paid and
nonassessable.

       

      (g) No Conflict; Required
Filings and Consents.

       

      (i) The
execution and delivery of this Agreement by the Company does not, and the
execution and delivery by the Company of each of the other Transaction Documents
and the performance by the Company of its obligations under this Agreement and
each of the other Transaction Documents, will not, with or without the giving of
notice or the lapse of time or both, (i) conflict with or violate the
organizational documents of the Company or any of its Subsidiaries, (ii) subject
to obtaining the Required Approvals and Notices, conflict with or violate any
law, statute, ordinance, rule, regulation, order, judgment or decree applicable
to the Company or any Subsidiary or by which any of their respective properties
or assets is bound or affected, or (iii) result in any breach of or constitute a
default under, or give to others any rights of termination, amendment,
acceleration or cancellation of any Material Agreement (as defined below), or
result in the creation of any Encumbrance (as defined below) on the properties
or assets of the Company pursuant to, any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument or
obligation to which the Company is a party or by which the Company is bound or
affected. The term “Encumbrance’’ means and includes any interest or equity of
any person (including any right to acquire, option, or right of preemption) or
any mortgage, charge, pledge, lien, or assignment, or any other encumbrance or
security interest or arrangement of whatsoever nature over or in the relevant
property.

       

      (ii) The
execution and delivery of this Agreement by the Company does not, and the
execution and delivery of each of the other Transaction Documents and the
performance of this Agreement and each of the other Transaction Documents by the
Company, will not, require any consent, approval, authorization or permit of or
filing with or notification to any Governmental Entity (as defined below) or
other third party, by or with respect to the Company, except (i) for applicable
requirements, if any, of the consents, approvals, authorizations, permits or
notification described in Exhibit 3(g) (the
“Required Approvals
and Notices”), and (ii) where failure to obtain the required consents,
approvals, authorizations or permits, or to make such filings or notifications
would not prevent or delay consummation of any of the transactions contemplated
by this Agreement or any other Transaction Document in any material respect, or
otherwise prevent the Company from performing its obligations under this
Agreement or any other Transaction Document in any material respect. The term
“Governmental
Entity” means any governmental or legal authority exercising executive,
legislative, judicial, regulatory or administrative function of or pertaining to
government.

       

      (h) Financial
Statements.

       

      The term
“Financial
Statements” means the audited consolidated financial statements of the
Company for each of the two years ended on December 31. 2006 and 2007, and the
unaudited but reviewed financial statements for the quarter ended on March 31,
2008, including its balance sheet, statements of income, cash-flow and changes
in shareholder equity for the periods ended thereon, prepared in accordance with
Israeli generally accepted accounting principles (“GAAP”) by a recognized firm of independent
certified public accountants, including all notes and reports
thereto.

       

      
        
          
          

        

        
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      (1) Each of
the Financial Statements, attached as Exhibit 3(h)(1)
hereto has been prepared in accordance with GAAP consistently applied. Each of
the Financial Statements fairly reflects, in accordance with GAAP, the financial
condition and results of operations of the Company and its Subsidiaries at the
relevant dates and for the periods indicated therein, and in the case of the
unaudited but reviewed financial statements, to year-end audit
adjustments.

       

      (2) A
complete list of the Company’s loan facilities in excess of US$100,000 as of the
date hereof, is set forth in Exhibit 3(h)(2).

       

      (3) Since
December 31, 2007 and except as specifically disclosed in Exhibit
3(h)(3):

       

      (i) the
Company has not entered into any material transaction which was not in the
ordinary course of its business or which was not reported to the TASE as
required under applicable law;

       

      (ii)
there has been no material adverse change in the Company’s operations results,
assets, liabilities, debts, or financial condition;

       

      (iii) the
Company has not declared or paid any cash dividend or made any distribution on
its shares; and

       

      (iv)
there has been no sale, assignment, or transfer of any tangible or intangible
material asset of the Company.

       

      (i) Operations in the Ordinary
Course. Between December 31, 2007 and the date of this Agreement, the
Company has operated its business in the usual and ordinary course consistent
with past practices and has not suffered any Material Adverse Effect. The term
“Material Adverse Effect” means a material adverse effect on the business, as
now conducted or as proposed to be conducted by, the assets, condition
(financial or otherwise), liabilities or operations of, the Company and its
Subsidiaries taken as a whole. It is hereby clarified that a decrease in the
price of the Company’s shares, as reported on the TASE, following the execution
hereof, shall not be regarded as a Material Adverse Effect; provided that the
underlying reasons for such decrease may nevertheless constitute a Material
Adverse Effect.

       

      (j) Litigation. Except as
set forth in Exhibit
3(j) hereto, there are no claims, actions or proceedings pending or, to
the Company’s knowledge, threatened against the Company or any of its
Subsidiaries, any of their respective properties or any of their respective
officers or directors, in their capacity as such, before any court,
administrative, governmental, arbitral, mediation or regulatory authority or
body, domestic or foreign.

       

      
        
          
          

        

        
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      (k) Compliance with Laws.
To the Company’s knowledge, the Company is not in violation of Applicable Law
which would reasonably be likely to have a Material Adverse Effect. The term
“Applicable
Law” means any provision of any statute, law, ordinance, rule,
regulation, decree, order, concession, grant, permit or license or other
governmental authorization or approval applicable to the Company.

       

       (l)
Intellectual
Property.

       

      (i) The
Company and its Subsidiaries, to the extent applicable, own and have good and
valid title to, or have the exclusive right to use, free and clear of any
Encumbrances, all patents, trademarks, service marks, logos, slogans, designs,
copyrights, trade names, design registrations, and other intellectual property
and any trade secrets, know-how, computer programs, documentation and technology
which can reasonably be anticipated to be material to the conduct of the
businesses of the Company and its Subsidiaries, taken as a whole (all of the
foregoing items collectively referred to as the “Intellectual
Property”).

       

        
(ii)     (a) No proceedings are pending or, to the
Company’s knowledge,
threatened, which challenge the validity of the ownership (to the extent
applicable), or the exclusive right to use, by the Company and/or any of its
Subsidiaries of the Intellectual Property; (b) the Company has no knowledge of
any infringement or infringing use of any of the Intellectual Property or
licenses by any person or entity; (c) no infringement by the Company of any
intellectual property right or other proprietary right of any third party has
occurred and no claim has been made by any third party based upon an allegation
of any such infringement; and (d) other than as set forth in the agreements
listed in Schedule 3(l)(ii) hereto and the obligations of the Company towards
the OCS, there are no restrictions on the direct or indirect transfer of any
license, or any interest therein, held by the Company or any Subsidiary in
respect of the Intellectual Property.

       

      (iii) The
Company takes commercially reasonable efforts to ensure that all officers,
employees and consultants of the Company and its Subsidiaries sign and deliver
to their respective employer an agreement regarding the protection of
proprietary information and the assignment to such entity of any intellectual
property arising from services performed for such employer by such persons, all
in form satisfactory to the Company.

       

      (iv) The
Company takes commercially reasonable efforts to ensure that all use, disclosure
or appropriation of confidential information of the Company or any of its
Subsidiaries by or to a third party shall be subject to the terms of a written
agreement between the Company or such Subsidiary and such third party, all in
form satisfactory to the Company.

       

      (m) Material Agreements.
The material agreements to which the Company or any of its Subsidiaries is a
party (the “Material
Agreements”) are listed and described in section 1.24 of the Periodical
Report. Such Material Agreements are valid and in full force and effect on the
date hereof, and neither the Company nor, to the Company’s knowledge, any other
party, has violated any material provision thereof, or committed or failed to
perform any act which with or without notice, lapse of time or both would
constitute a material default under the provisions of, any Material
Agreement.

       

      
        
          
          

        

        
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      (n) Employees.

       

      The
employment agreements currently in force for each of the three most highly paid
individuals employed by the Company and its Subsidiaries (treated as a group for
such purposes) are listed and described in section 1.18 of the Periodical
Report.

       

      (o) Taxation.

       

      (i) The
Financial Statements make full provision for all taxation for which the Company
was then or thereafter became or may hereafter become liable or accountable in
respect of or by reference to any income, sales, value added, profit, receipt,
gain, transaction, agreement, distribution or event which was earned, accrued,
received, or realized, entered into, paid, made or accrued on or before December
31, 2007, and the Company has promptly paid or provided in its books of account
for all taxation for which it has or may hereafter become liable or accountable
in the period from that date and until the date hereof.

       

      (ii) The
Company has at all times and within the requisite time limits promptly, fully
and accurately observed, performed and complied with all material obligations or
conditions imposed on it, or to which any claim, deduction, allowance or relief
made, claimed by or afforded to it was made subject, under any legislation
relating to taxation.

       

      (iii) The
Company is not aware of any circumstances which will or may, whether by lapse of
time or the issue of any notice of assessment or otherwise, give rise to any
dispute with any relevant taxation authority in relation to its liability or
accountability for taxation, any claim made by it, any relief, deduction, or
allowance afforded to it, or in relation to the status or character of the
Company or any of its enterprises under or for the purpose of any provision of
any legislation relating to taxation.

       

      (p) Insurance. The
Company has the benefit of adequate insurance against such risks as are usually
and reasonably insured against by companies carrying on the same or a similar
business.

       

      (q) Properties and
Assets.

       

       
The real property owned and leased by the Company and any other Company interest
in real property (including any facilities used by the Company in consideration
for service fees, e.g. labs etc.) is listed and described in section 1.15 of the
Periodical Report.

       

      (r) Brokers. Except as
set forth in the Agreement attached hereto as Exhibit 3(r) hereto
as to amounts payable by the Company, no person or firm has, or will have, as a
result of any act or omission by the Company or anyone acting on behalf of the
Company, any right, interest or valid claim against the Company or the Purchaser
for any commission, fee or other compensation as a finder or broker or in any
similar capacity with respect to the transactions contemplated under this
Agreement.

       

      
        
          
          

        

        
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      (s) Compliance with Israeli
securities rules and regulations. The Company is, and at all times has
been, in all material respects, in compliance with all applicable regulatory
requirements, including without limitation, all filing requirements stipulated
by the Israeli Securities Law, 1968 and the regulations promulgated thereunder
(the “Filings”). The,
Filings contain all statements required to be included therein. The Filings were
prepared in accordance with applicable law and regulations.

       

      (t) Related Party
Transactions. Except as set forth in Exhibit 3(t) attached hereto, no
Related Party (as defined below) has any direct or indirect interest in any
asset used in or otherwise relating to the business of the Company or any of its
Subsidiaries; (b) no Related Party is indebted to the Company or any of its
Subsidiaries; (c) no Related Party has entered into, or has had any direct or
indirect financial interest in, any agreement, transaction or business dealing
with or involving the Company or any of its Subsidiaries; (d) no Related Party
is competing directly or indirectly with the Company or any of its Subsidiaries;
and (e) no Related Party has any claim or right against the Company or any of
its Subsidiaries (other than rights to receive
amounts not yet due with respect to compensation for services performed as an
employee or director of the Board of Directors of the Company or any of its
Subsidiaries).

       

      For
purposes of this Agreement, “Related Party” means any person or entity who is,
or who has at any time since December 31, 2005 been, an “Interested Party”, or a “Relative”  of an “Interested Party”, both
terms as defined in the Israeli Companies Law, 1999.

       

      4. Representations and
Warranties of the Purchaser. The Purchaser
hereby represents and warrants to the Company as follows:

       

      (a) Corporate Authorization;
Validity of Agreement. The execution, delivery and performance of this
Agreement by the Purchaser have been duly authorized by all requisite corporate
actions and no further corporate consent or authorization of the Purchaser or
its shareholders is required. This Agreement has been duly executed and
delivered by the Purchaser and, when duly authorized, executed and delivered by
the Company, will be a valid and binding agreement enforceable against the
Purchaser in accordance with its terms, subject to bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance and other similar laws of
general applicability relating to or affecting creditors’ rights generally and
to general principles of equity.

       

      (b) Accredited Investor
Status. The Purchaser is an “accredited investor” as that term is defined
in Rule 501(a)(3) of Regulation D promulgated under the U.S.
Securities Act of 1933, as amended (the “Securities Act”).

       

      
        
          
          

        

        
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      (c) Reliance on
Exemptions. The Purchaser understands that the Issued Shares are being
offered and sold to in reliance on specific exemptions from the registration
requirements of the United States federal and state securities laws and that the
Company is relying in part upon the truth and accuracy of the Purchaser’s
representations and warranties set forth herein in order to determine the
availability of such exemptions and the eligibility of the Purchaser to acquire
the Issued Shares.

       

      (d) The Purpose. The
Purchaser is purchasing the Issued Shares for its own account not with a view to
or for resale in connection with, the public sale or distribution thereof,
except pursuant to sales registered under the Securities Act (such as those
contemplated by Section 6 hereof) or an exemption therefrom.

       

      (e) Knowledge and
Experience. The Purchaser has such knowledge and experience in financial
and business matters as to be capable of evaluating the merits and risks of
purchasing the securities of the Company, has the ability to bear the economic
risks of such purchase for an indefinite period of time, can afford the complete
loss of the value of the securities it is purchasing and recognizes that such
purchase of securities of the Company involves substantial risk; provided,
however, that nothing set forth herein shall be deemed to detract from the
Company’s representations and
warranties as set forth herein or from the Purchaser’s right to fully rely
thereon.

       

      (f) Transfer or Resale.
The Purchaser understands and acknowledges that (i) the Issued Shares, the
Convertible Debenture and the Warrant are restricted for resale through the TASE
in accordance to the Israeli Securities Law, 5728-1968 for the periods and
amounts specified therein; and (ii) unless the Issued Shares are registered
under the Securities Act as set forth in Section 6 below and qualified under any
state or foreign securities laws, the Issued Shares may not be offered for sale,
sold, assigned or transferred except through an exemption from the registration
and prospectus delivery requirements of the Securities Act, to the extent
applicable.

       

      5. Legend. Until a
registration statement under the Securities Act as described in Section 6 below
is in effect, the Purchaser understands that the certificates or other
instruments representing the Issued Shares shall bear a restrictive legend
composed of exactly the following words capitalized below:

       

      “THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
U.S. SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”) OR ANY STATE SECURITIES
LAWS. SUCH SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED. ASSIGNED,
PLEDGED, HYPOTHECATED OR OTHERWISE DISTRIBUTED IN THE ABSENCE OF REGISTRATION
UNDER THE ACT OR RECEIPT BY THE COMPANY OF AN OPINION OF COUNSEL SATISFACTORY TO
THE COMPANY AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE
ACT”.

       

      
        
          
          

        

        
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      Additional
language may be added at any time to the legend to the extent required to be
placed thereon by applicable securities laws, contract or
otherwise.

       

      6. Registration.

       

      6.1 Filing of Registration
Statement. Subject to Section 6.4 hereof, the Company shall use its best
efforts to prepare and file a registration statement which shall include the
Issued Shares within nine (9) months from the Closing Date, on a registration
statement on Form S-l or such other applicable form of registration available
under the Securities Act (the “Registration
Statement”). Following such filing, the Company shall use its best
efforts to cause the Registration Statement to be declared effective under the
Securities Act as promptly as practicable after the filing thereof, subject to
the resolution of any comments received from the staff of the United States
Securities and Exchange Commission (the “SEC”). The Registration Statement
shall be effective for a continuous period of at least four (4) years following
the declaration thereof as effective. Immediately after the Registration
Statement is declared effective, the Company shall list the shares of the
Company for trading in NASDAQ (and if the Company does not meet NASDAQ
qualifications for listing, list the shares at the OTCQX). The Company shall
make best efforts to
cause a market maker to trade in the Company’s shares in order to allow
for sufficient trading volume on the stock exchange.

       

      6.2 Demand
Registration.

       

      (a) Form S-l Demand. If
at any time after six (6) months following the end of the effectiveness of the
Registration Statement or following twelve (12) months of the Closing Date if a
Registration Statement is not in effect by that time, the Purchaser requests in
writing that the Company file a registration statement on Form S-l (or such
other applicable form for registration of such Registrable Securities) for the
registration under the Securities Act of Registrable Securities in an amount
equal to at least 25% of the Registrable Securities, then the Company shall as
soon as practicable, and in any event within sixty (60) days after the date of
receipt of such request, file a Form S-l registration statement (or such other
applicable form) under the Securities Act covering all Registrable Securities
that the Purchaser requested to be registered as specified in such notice, and
including any other securities of the Company that the Company deems proper to
include in such registration, in each case subject to the limitations set forth
in this Section 6.2 and 6.4..

       

      (b) The
Company shall be permitted to register other Common Stock in any registration
contemplated by 6.2(a) provided, however, that subject to the last sentence of
Section 8.4 below, if the managing underwriter advises the Company in writing
that marketing factors require a limitation of the number of shares to be
underwritten, the Purchaser’s Registrable Securities shall be subject to
customary underwriter cutbacks applicable to all holders of securities subject
to registration in such offering; provided further that such cutbacks shall
apply to the Purchaser and other participants in such offering on a pro rata
basis. The Company shall not be obligated to effect, or to take any action to
effect, any registration pursuant to this Section 6.2 (i) during the period that
is sixty (60) days before the Company’s good faith estimate of the date of
filing of, and ending on date that is one hundred eighty (180) days after the
effective date of, a Company-initiated registration, provided, that the Company is
actively employing in good faith all reasonable efforts to cause such
registration statement to become effective. The Company shall not be required to
effect more than two (2) registrations pursuant to this Section 6.2. The Company
shall not be required to effect any registration statement demanded by Purchaser
under this Section 6.2 if any registration statement demanded by Purchaser was
effective within the twelve (12) months prior to the Company’s receipt of the
demand for registration under this Section 6.2, unless the Purchaser shall bear
all cost and expenses of such registration statement.

       

      
        
          
          

        

        
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      6.3 S-3 Registration; Piggyback
Registration. The Purchaser shall have the right to request the Company
to register Registrable Securities on a registration statement Form S-3 at any
time that the Company is eligible to use a Form S-3 under applicable United
State securities law. If the Company at any time proposes to register any of its
securities (other than (i) in a demand registration under Section 6.2, (ii) in a
registration relating solely to employee benefit plans; (iii) in a registration
relating solely to a Rule 145 transaction (such as a registered stock merger
transaction); or (iv) in a registration relating to a corporate reorganization
or other transaction on Form S-4, or in each case a foreign equivalent thereof)
under the Securities Act, it shall give notice to the Purchaser of such
intention. Upon the written request of the Purchaser given to the Company within
twenty (20) days after receipt of any such notice, the Company shall include in
such registration all of the Registrable Securities requested to be registered
in such request. The Company will cause the managing underwriter or
underwriters, if any, of any proposed registration of securities of the Company
through underwriters in such offering to permit the Purchaser, if holding
Registrable Securities requested to be included in such registration in the
Shareholder’s notice, to include in the registration for such offering all such
requested Registrable Securities on the same terms and conditions as any
securities of the Company included therein; provided, that the Purchaser
shall have given customary representations and warranties and indemnifications
in connection therewith. Subject to the last sentence of Section 8.4 below, if
the managing underwriter advises the Company in writing that marketing factors
require a limitation of the number of shares to be underwritten, the Purchaser’s
Registrable Securities shall be subject to customary underwriter cutbacks
applicable to all holders of securities subject to registration in such
offering; provided,
that such cutbacks shall apply to the Purchaser and other participants in
such offering on a pro rata basis.

       

      6.4 Blackout Periods.
Notwithstanding the foregoing obligations in Section 6.1, 6.2 and 6.3, if the
Company furnishes to the Purchaser a certificate signed by the Company’s chief
executive officer stating that in the good faith judgment of the Company’s Board
of Directors it would be materially detrimental to the Company to maintain the
effectiveness of such Registration Statement (or, if no Registration Statement
has yet been filed or become effective, to file such a Registration Statement or
cause it to become effective) because such action would (i) require the public
disclosure of material non-public information concerning any transaction or
negotiations involving the Company or any of its affiliates that would interfere
with such transaction or negotiations, (ii) otherwise require premature
disclosure of information, in either case that would be significantly
disadvantageous or (iii) render the Company unable to comply with requirements
under the Securities Act, the Securities and Exchange Act of 1934 and/or the
securities laws of Israel or the Tel Aviv Stock Exchange (a “Disadvantageous
Condition”), then the Company shall have the right to defer taking action
with respect to any filing or cause such Registration Statement or other filing
to become unavailable for use, in each case for such period as a Disadvantageous
Condition shall exist; provided, that the Company
shall not exercise such rights for a period of more than sixty (60) consecutive
days from the date of delivery of such notice to the Purchaser, and in any event
when aggregated with any other Disadvantageous Condition not more than an
aggregate of one hundred (100) days in any 365-day period. If the Company
exercises such right, it will provide written notice thereof to the Purchaser,
and upon the receipt of any such notice, the Purchaser shall forthwith
discontinue use of the prospectus contained in such registration statement as
provided in this Section 6 and otherwise act as instructed in such notice. If
any Disadvantageous Condition shall cease to exist, the Company shall promptly
notify the Purchaser to such effect.

       

      
        
          
          

        

        
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      6.5 Definitions. As used
in this Agreement,

       

      (a) “Registrable
Securities” shall mean the Issued Shares and any Common Stock issued or
issuable with respect to any Issued Shares, including by way of conversion,
exercise, stock split or stock dividend, in connection with a recapitalization
or merger, consolidation or other reorganization, or pursuant to a distribution;
provided that any such
Registrable Securities shall cease to be considered Registrable Securities if
and when (i) a registration statement with respect to the disposition of such
securities shall have become effective under the Securities Act and such
securities shall have been disposed of pursuant to such effective registration
statement, (ii) such securities shall have been sold under circumstances in
which all of the applicable conditions of Rule 144 (or any similar provisions
then in force) are met, (iii) such securities may be sold pursuant to Rule
144(k) or otherwise in the public market without being registered pursuant to
the Securities Act, or (iv) such securities shall have ceased to be outstanding,
provided, further, that
any such securities that have ceased to be Registrable Securities pursuant any
of the foregoing clauses cannot thereafter become Registrable Securities and
securities that are issued or distributed following the date of such disposition
or sale by way of dividends or otherwise in respect of such securities that has
ceased to be Registrable Securities shall not be Registrable
Securities.

       

      (b) “Damages” shall mean
any losses, damages, claims, liabilities, joint or several, costs and expenses
(including any amounts paid in any settlement effected with the Company’s
consent) to which a party hereto or its underwriter or controlling person may
become subject under the Securities Act, the Securities Exchange Act of 1934,
the Israeli Securities Law, 1968, as amended, or other United States federal or
state law or foreign securities laws, insofar as such losses, damages, claims,
liabilities (or actions or proceedings in respect thereof), costs or expenses
arise out of or are based upon (i) any untrue statement or alleged untrue
statement of any material fact contained in the registration statement or
included in the prospectus, as amended or supplemented, or (ii) the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein, in the light of the circumstances
in which they are made, not misleading.

       

      6.6 Purchaser to Furnish
Information. The Company may require the Purchaser to furnish to the
Company a certified statement as to the number of shares of Common Stock that it
beneficially owns and, if required by the SEC, the person thereof that has
voting and dispositive control over such Common Stock. It shall be a condition
precedent of the Company to take any action pursuant to this Section 6 with
respect to the Registrable Securities of the Purchaser, that the Purchaser shall
furnish to the Company such information regarding itself, the Registrable
Securities held by it, and the intended method of disposition of such securities
as is reasonably required to effect the registration of the Purchaser’s
Registrable Securities.

       

      
        
          
          

        

        
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      6.7 Registration
Procedures. In connection with the Company’s registration obligations
hereunder, the Company shall:

       

      (a) Prepare
and file with the SEC a registration statement with respect to such Registrable
Securities and use all commercially reasonable efforts to cause such
registration statement to become effective, and keep such registration statement
(or in the case of Section 6.1, the Registration Statement) effective for up to
forty eight (48) months after the applicable effective date or, if earlier,
until the Purchaser has completed the distribution related thereto.

       

      (b) Not less
than five (5) business days prior to the filing of the Registration Statement or
any related prospectus or any amendment or supplement thereto, the Company shall
furnish to the Purchaser copies of all such documents proposed to be filed. The
Company shall not file in the Registration Statement or any such prospectus or
any amendments or supplements thereto information to which the Purchaser shall
reasonably object in good faith, provided that such objection by the
Purchaser is based solely on information provided in writing to the Company by
the Purchaser relating to information contained therein regarding the Purchaser,
and provided, the Company is notified of
such objection in writing no later than three (3) business days after the
Purchaser has been so furnished copies of such documents. The Purchaser shall
within five (5) business days after receipt of the request therefor by the
Company provide revised information which the Company reasonably requests for
purposes of compliance with the rules and regulations governing the Registration
Statement and the exhibits and documents in connection therewith.

       

      (c) Prepare
and file with the SEC such amendments and supplements to such Registration
Statement, and the prospectus used in connection with such registration
statement, as may be necessary to comply with the Securities Act in order to
enable the disposition of all securities covered by such Registration
Statement.

       

      (d) Furnish
to the Purchaser such number of copies of a prospectus, including a preliminary
prospectus, as required by the Securities Act, and such other documents as the
Purchaser may reasonably request in order to facility its disposition of the
Registrable Securities.

       

      (e) Use its
commercially reasonable efforts to register and qualify the securities covered
by such Registration Statement under such blue-sky laws in the United States as
shall be necessary for compliance by the Purchaser with such laws; provided, that the Company shall not
be required to qualify to do business or to file a general consent to service of
process in any such states or jurisdictions, unless the Company is already
subject to service in such jurisdiction and except as may be required by the
Securities Act.

       

      
        
          
          

        

        
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      (f)
Notify the Purchaser, promptly after the Company receives notice thereof, of the
time when a Registration Statement has been declared effective by the SEC, when
a supplement to any prospectus forming a party of such Registration Statement
has been filed, and when there is any request by the SEC that the Company amend
or supplement such Registration Statement or prospectus.

       

      (g)
Provide a transfer agent and registrar for all Registrable Securities registered
pursuant to this Agreement and provide a CUSIP number for all such Registrable
Securities, in each case not later than the effective date of such
registration.

       

      7. Indemnification relating to
Registration. In the event of any registered offering of Registrable
Securities pursuant to Section 6 of this Agreement:

       

      (a) The
Company will indemnify and hold harmless, to the fullest extent permitted by
law, the Purchaser, any underwriter for the Purchaser, and each person, if any,
who controls the Purchaser, from and against any and all Damages, and the
Company will reimburse the Purchaser, such underwriter and each such controlling
person of the Purchaser, promptly upon demand, for any reasonable legal or any
other expenses reasonably incurred by them in connection with investigating or
defending against such loss, claim, Damages, liability, action or proceeding;
provided, however, that
the Company will not be liable in any such case to the extent that any such
loss, damage, liability, cost or expense arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission so
made in conformity with information furnished in writing by or on behalf of the
Purchaser, such underwriter or such controlling persons expressly for use in
connection with such registration; provided, that this indemnity
shall not be deemed to relieve any underwriter of any of its due diligence
obligations; and provided,
further, that the indemnity agreement contained in this subsection 7(a)
shall not apply to amounts paid in settlement of any such claim, loss, damage,
liability or action if such settlement is effected without the consent of the
Company, which consent shall not be unreasonably withheld.

       

      (b) The
Purchaser will indemnify and hold harmless, to the fullest extent permitted by
law, the Company, any underwriter for the Company, and each person, if any, who
controls the Company, from and against any and all Damages, and the Purchaser
will reimburse the Company, any underwriter and each such controlling person of
the Company, promptly upon demand, for any reasonable legal or other expenses
incurred by them in connection with investigating, preparing to defend or
defending against such loss, claim, Damages, liability, action or proceeding; in
each case to the extern, but only to the extent, that such loss, claim, Damages,
liability, action or proceeding arise out or are based upon actions or omissions
made in reliance upon and in conformity with written information furnished by or
on behalf of the Purchaser expressly for use in connection with such
registration; provided,
that this indemnity shall not be deemed to relieve any underwriter of any
of its due diligence obligations; and provided, further, that the
indemnity agreement contained in this subsection 7(b) shall not apply to amounts
paid in settlement of any such claim, loss, damage, liability or action if such
settlement is effected without the consent of the Purchaser, as the case may be,
which consent shall not be unreasonably withheld. In no event shall the
liability of a Purchaser exceed the net proceeds from the offering received by
such Purchaser, except in the case of fraud or willful misconduct by the
Purchaser.

       

      
        
          
          

        

        
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      (c) The
foregoing indemnity agreement in Section 7(a) and (b) is subject to the
condition that, insofar as it relates to any such untrue statement (or alleged
untrue statement) or omission (or alleged omission) made in the preliminary
prospectus but eliminated or remedied in the amended prospectus at the time the
registration statement becomes effective or in the final prospectus, such
indemnity agreement shall not inure to the benefit of an indemnified party
hereunder if a copy of the final prospectus was not furnished to the person or
entity asserting the loss, liability, claim or damage at or prior to the time
such furnishing is required by the Securities Act.

       

      (d)
Promptly after receipt by an indemnified party pursuant to the provisions of
Sections 7(a) or 7(b) of notice of the commencement of any action involving the
subject matter of the foregoing indemnity provisions, such indemnified party
will, if a claim thereof is to be made against the indemnifying party pursuant
to the provisions of said 7(a) or 7(b), promptly notify the indemnifying party
of the commencement thereof; but the omission to notify the indemnifying party
will not relieve it from any liability which it may have to any indemnified
party otherwise than hereunder. In case such action is brought against any
indemnified party and it notifies the indemnifying party of the commencement
thereof, the indemnifying party shall have the right to participate in, and, to
the extent that it may wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof with counsel reasonably satisfactory to
such indemnified party; provided, however, that if
the defendants in any action include both the indemnified party and the
indemnifying party and there is a conflict of interests which would prevent
counsel for the indemnifying party from also representing the indemnified party,
the indemnified party or parties shall have the right to select one separate
counsel to participate in the defense of such action on behalf of such
indemnified party or parties. After notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party pursuant to the
provisions of said Sections 7(a) or 7(b) for any legal or other expense
subsequently incurred by such indemnified party in connection with the defense
thereof, unless (i) the indemnified party shall have employed counsel in
accordance with the provision of the preceding sentence, (ii) the indemnifying
party shall not have employed counsel reasonably satisfactory to the indemnified
party to represent the indemnified party within a reasonable time after the
notice of the commencement of the action and within fifteen (15) days after
written notice of the indemnified party’s intention to employ separate counsel
pursuant to the previous sentence, or (iii) the indemnifying party has
authorized the employment of counsel for the indemnified party at the expense of
the indemnifying party. No indemnifying party will consent to entry of any
judgment or enter into any settlement which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such indemnified party
of a release from all liability in respect to such claim or
litigation.

       

      
        
          
          

        

        
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      (e) If
recovery is not available under the foregoing indemnification provisions, for
any reason other than as specified therein, the parties entitled to
indemnification by the terms thereof shall be entitled to contribution to
liabilities and expenses as more fully set forth in an underwriting agreement to
be executed in connection with such registration. In determining the amount of
contribution to which the respective parties are entitled, there shall be
considered the parties’ relative knowledge and access to information concerning
the matter with respect to which the claim was asserted, the opportunity to
correct and prevent any statement or omission, and any other equitable
considerations appropriate under the circumstances.

       

      8. Anti Dilution and Most
Favored Nation Protection

       

      8.1
Adjustment due to Future Issuance of Securities. Until such time in which an
aggregate amount of US$ 15,000,000 has been invested in the Company (excluding
the Excluded Capital (as defined below)), in any event that the Company issues
any additional securities to Purchaser or to any third party, save for Excluded
Issuances (as defined below), either at a purchase price, conversion price or
exercise price per share less than any of the purchase price, conversion price
or exercise price per share paid or payable for an Issued Share, the Purchaser
will benefit from a “full ratchet” anti-dilution protection, such that the price
paid or payable in consideration for such Issued Share shall be reduced
retroactively to the Closing Date to the lowest of the purchase price,
conversion price or exercise price per share at which such additional new
securities have been issued and if such price reduction applies for the purchase
price, the Company shall immediately upon issuance of such shares issue to the
Purchaser a number of additional shares of Common Stock that is equal to the
difference between the number of Common Stock issued to the Purchaser before the
relevant anti-dilution adjustment and the number of Common Stock that would have
been issued to the Purchaser at the reduced purchase price per
share.

       

      “Excluded
Capital” means the Purchase Price, the Loan Amount, the aggregate exercise price
of the Warrant, any amounts invested in the Company up to US$ 5,000,000
(including the Share Purchase and the Loan Amount) within 3 months from the
Closing Date, any amount invested by the Purchaser, any amounts received by the
Company not for equity or securities convertible into equity, funds from the OCS
or other governmental funding (including BIRD) and all other types of funded
R&D either for royalties or for other non-equity consideration.

       

      8.2
“Excluded Issuances” shall mean any of the following: (i) securities issued in
the ordinary course of business to directors, officers, employees, or
consultants of the Company pursuant to any stock option or stock incentive plan
reserved for Company officers, directors, employees or consultants and approved
by the Company’s Board, and, if applicable, any securities issued upon the
exercise of such securities; (ii) securities issued pursuant to any stock split,
recapitalization, reclassification or payment of any dividend or distribution
with respect to the Company’s issued and outstanding share capital, including
any bonus shares; (iii) securities issued upon the conversion of any issued and
outstanding options or warrants granted as of the date of the Closing; or (iv)
securities issued in connection with an acquisition transaction of another
entity in the field of business of the Company as approved by the Company’s
Board of Directors, which issuances shall not exceed in the aggregate 15% of the
Company’s issued and outstanding share capital as of the date of this Agreement
and provided that the current assets of the acquired entity do not exceed its
current liabilities as reflected in the last audited financial statements of
such entity immediately preceding the acquisition.

       

      
        
          
          

        

        
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      8.3
Whenever the purchase price is adjusted pursuant hereto, the Company shall
promptly mail to the Purchaser a notice setting forth the conversion price after
such adjustment and setting forth a brief statement of the facts requiring such
adjustment.

       

      8.4 Most Favored Terms.
Until such time as an aggregate amount of US$ 15,000,000 has been invested in
the Company (excluding the Excluded Capital), in the event that any person or
entity is issued any type of security including, but not limited to, any type of
debt, warrant or equity securities of the Company under terms more favorable
than those set forth in this Agreement, the Convertible Debenture or the Warrant
(collectively, the “Issued Securities”), then, at the option of the Purchaser,
the Issued Securities shall be construed as containing the more favorable terms
afforded to such third party, as though such terms were previously provided
herein retroactively from the Closing Date. In the event that the Company issues
convertible debentures which are publicly traded, the Purchaser shall have the
right to replace the Convertible Debenture with such publicly traded convertible
debentures in an amount equal to the outstanding Loan Amount at such time, the
Convertible Debenture shall be cancelled and the provisions of the publicly
traded debentures shall apply. For example, if the Company issues shares of the
Company with a higher purchase price per share but with liquidation preferences
rights and/or anti-dilution rights that are superior to the rights of the
Purchased Shares, the Purchased Shares shall be deemed to include such superior
liquidation preference and/or anti-dilution rights while all other terms of the
Purchased Shares will remain unchanged and in effect. The Company shall
immediately (subject to applicable law) notify the Purchaser in writing on the
terms of any issuance of equity of the Company. In the event that any person or
entity is granted by the Company registration rights (including, but not limited
to, preferences in underwriter’s cutbacks) under terms more favorable than
Purchaser’s rights then in effect, such favorable rights shall be deemed to have
been granted to Purchaser as of the Closing Dates.

       

      8.5 Any
dispute on matters under this Section 8 shall be referred to a resolution by
Giza Singer Even and Kesselmam and Kesselman (PWC Israel). In the event of
different determinations by Giza Singer Even and PWC, the dispute shall be
resolved by calculating the average between the values determined by each of
Giza Singer Even and PWC with respect to each parameter of their determination.
The determination of Giza Singer Even and PWC will be exclusive and final. The
non-prevailing party in such dispute shall bear the expenses of Giza Singer Even
and PWC. The Company hereby acknowledges that the Purchaser and its affiliates
retain the services of Giza Singer Even and PWC in the ordinary course of
business for various tasks (including, but not limited to, accounting, tax,
financial and fairness opinion, advisory services and the like) and that they
will not be limited from retaining them also in the future. In that respect the
Company waives any claim it may have against the Purchaser and its affiliates in
connection with a conflict of interest regarding the matters contemplated in
this Section 8.5.

       

      
        
          
          

        

        
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      8A. Appointment of Director by
Purchaser. Prior to the
Closing, a person designated by the Purchaser (a “Purchaser Designated
Director”) shall have been appointed to the Company’s Board of Directors. So
long as Purchaser holds securities (on an as-converted basis) that represent
more than 7% of the Company’s issued and outstanding share capital of the
Company, in the event the Company’s Board of Directors does not include a
Purchaser Designated Director, other than by reason of the resignation or death
of the Purchaser Designated Director previously in office, then an Event of
Default shall have occurred and the Purchaser shall have the rights set forth in
section 3.3 of the Note.

       

      9. Survival of Representations,
Warranties, etc. The respective representations, warranties, and
agreements made herein by or on behalf of the parties hereto shall remain in
full force and effect, regardless of any investigation made by or on behalf of
the other party to this Agreement or any officer, director or employee of, or
person controlling or under common control with, such party and will survive
delivery of and payment for the Purchased Shares issuable hereunder; provided that the
representations and warranties made herein shall survive until the third
anniversary of the Closing Date; and provided further, that any
such representations, warranties or agreements that survive for a time expressly
provided herein shall only survive for such period of time.

       

      10. Information Rights:
Insurance.

       

      10.1 The
Company recognizes that the Purchaser is a public company with financial
reporting requirements. The Company will cooperate with the Purchaser to enable
the timely reporting of its financial statements as follows: (a) the Company
shall make best efforts to provide its quarterly financial statements to the
Purchaser within 30 days following the end of the relevant fiscal quarter of the
Company but not later than 45 days after such date; (b) the Company shall make
best efforts to provide its audited annual financial statements to the Purchaser
within 45 days following the end of the fiscal fourth quarter of the Company but
not later than 60 days after such date; and (c) shall translate all immediate
reports filed with the TASE and all press releases (including press releases
relating to annual and quarterly financial results) to English.

       

      10.2 If the
Purchaser notifies the Company in writing that applicable securities laws or
regulations require the Purchaser to include certain information about the
Company in the Purchaser’s publicly filed documents, the Company shall, subject
to applicable law, provide such information to the Purchaser that is reasonably
required by the Purchaser in order to timely comply with any applicable law or
regulation requiring public disclosure of such information, and shall use best
efforts to provide such information within seven (7) days following the receipt
of such request.

       

      10.3 If any
request set forth in Section 10.2 hereof would include a request for any
non-public information about the Company, the Purchaser shall coordinate the
delivery of such information with the Company such that it is in compliance with
applicable law; provided,
that if required pursuant to applicable law, the Purchaser shall
coordinate the form and the timing of such publication, subject to any law or
regulations, with the Company in a way which will enable the Company to publish
the non-public information prior to its publication by the Purchaser. The
parties hereto acknowledge and agree that all information provided herein is
subject to applicable law and may be subject to the restrictions applicable to
inside information (or material non-public information) and the parties hereto
agree to comply with applicable law regarding use or disclosure of this
information.

       

      
        
          
          

        

        
          20

          
            

          

        

        
          
          

        

      

       

      10.4 The
agreements contained in this Section 10 shall survive only so long as the
Purchaser is required to include the Company’s financial statements on an equity
basis in the Purchaser’s consolidated financial statements under applicable law
or is otherwise so required by reporting requirements applicable to Purchaser
pursuant to SEC rules or requirements. All financial statements of the
Company shall be audited or reviewed (as required) in accordance with U.S. GAAP
by a firm of Independent Certified Public Accountants which is affiliated with
one of the “big four” accounting firms.

       

      10.5 Any of
the above reports or any other consent or approvals of the auditors of the
Company which the Company is otherwise required to prepare or obtain for itself
pursuant to any applicable securities laws or stock exchange rules and
regulations shall be prepared at the Company’s expense. Notwithstanding anything
to the contrary contained in this Agreement, in the event that compliance with
any of the Purchaser’s requests under this Section 10 shall cause the Company to
bear direct and reasonable costs and expenses that are in excess of the cost and
expense required to be borne by the Company in order to comply with its own
disclosure requirements according to applicable law, the Purchaser shall pay or
shall cause to be paid, subject to a prior written approval of the Purchaser
(which approval shall be necessary before the Company is obligated to fulfill
the Purchaser’s request), any and all costs or expenses of the Company relating
to compliance with the Purchaser request which, in aggregate with all other
requests of Purchaser, exceed 20,000 New Israeli Shekels during any fiscal year
of the Company; provided, however, that the requirement to complete the audited
financial statements of the Company for calendar years 2005-2007 and for the
first quarter and half of 2008 in accordance with U.S. GAAP shall not be deemed
to have been performed at Purchaser’s request.

       

      10.6 Public Announcement.
The parties hereto will agree in advance on a press release or any other
statement or communication regarding the subject matter of this Agreement or the
transactions contemplated hereby.

       

      10.7 Within 9
months of the Closing Date, the Company will obtain a key-man insurance policy
with coverage similar to those of comparable companies applying for registration
of their securities as set forth in Section 6.

       

      11. Notices. All notices,
consents, waivers or other communications required or permitted hereunder shall
be in writing and shall be mailed by registered or certified mail, return
receipt requested, postage prepaid or otherwise delivered by hand, messenger,
internationally recognized courier or facsimile transmission, addressed as set
forth below or at such other address as the party shall have furnished to the
other party in writing in accordance with this provision:

      


      If sent
to the Company to:

       

      8 Hartom
St. Har Hotzvim

      Jerusalem
97775

      Fax:02-5486550

       

      
        
          
          

        

        
          21

          
            

          

        

        
          
          

        

      

       

      Email:
avi.barak@biocancell.com


      Attention:
Avi Barak

       

      with a
copy (which shall not constitute notice) to:

       

              Baratz, Horn &
Co.

              1 Azrieli
Center

              Tel Aviv, Israel
67021

              Fax:
+972-3-6960986

              Email: y.horn@bar-law.com

              Attention: Yuval
Horn, Adv.

       

              If sent to the
Purchaser to:

      Clal
Biotechnology Industries Ltd.

      
                ______________________

                ______________________

         

      

      With a
copy to:

      ______________________

      ______________________

       

      Each such
notice or other communication shall for all purposes of this Agreement be
treated as effective or as having been given (1) if mailed, seven (7) business
days after mailing, (ii) if sent by hand or by messenger, upon delivery, and
(iii) if sent via facsimile transmission, twenty four (24) hours after
electronic confirmation of receipt, except if such facsimile transmission was
transmitted and received on a non-business day, on the first business day
following transmission and electronic confirmation of receipt.

       

      12. Miscellaneous

       

      (a) Immediately
following the Closing, the board representative of Purchaser will be added to
the indemnification and insurance arrangements currently existing in the Company
with respect to all members of the Board of Directors.

       

      (b) THIS
AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
ISRAEL, WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES THEREOF.

       

      (c) This
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto, and their respective successors and assigns, and no other person will
have any rights or obligation hereunder. Either Party may freely assign or
transfer the rights granted pursuant to this Agreement. If, as a result of such
assignment by the Purchaser, the Company is required under applicable law to
file any registration statement or prospectus with the US Securities and
Exchange Commission or any stock exchange or other similar institution in any
jurisdiction, that the Company would not be required to file under this
Agreement, the Party that seeks such assignment will cover the Company’s
expenses for such filing. Notwithstanding the foregoing, the Anti Dilution and
Most Favored Nation rights set forth in Section 8 herein shall not be
transferable to any third party.

       

      
        
          
          

        

        
          22

          
            

          

        

        
          
          

        

      

       

      (d) This
Agreement and the Transaction Documents constitute the full and entire
understanding and agreement between the parties hereto with regard to the
subject matter hereof and supersede all prior oral or written (and all
contemporaneous oral) agreements or understandings with respect to the subject
matter hereof.

       

      (e) No delay
or omission to exercise any right power or remedy accruing to any party hereto
upon any breach or default of the other party hereto under this Agreement shall
impair any such right, power or remedy or such party, nor shall it be construed
to be a waiver of any such breach or default, or an acquiescence therein, or of
or in any similar breach or default thereunder occurring; nor shall any waiver
of any single breach or default be deemed a waiver of any other breach or
default therefore or thereafter occurring. Any waiver, permit, consent or
approval of any kind or character on the part of any party hereto of any breach
or default under this agreement, or any waiver on the part of any party hereto
of any provisions or conditions of this Agreement, must be in writing and shall
be effective only to the extent specifically set forth in such writing. All
remedies, either under this Agreement, or by law or otherwise afforded to any
party, shall be cumulative and not alternative.

       

      (f) This
Agreement may be executed in any number of counterparts, each of which may be
executed by less than all of the parties hereto, each of which shall be
enforceable against the parties actually executing such counterparts, and all of
which together shall constitute one instrument.

       

      (g) If
any provision of this Agreement, or its application to any party hereto, shall
be, or be found by an authority of competent jurisdiction to be, invalid or
unenforceable in whole or in part, such provision shall be constructed and
applied so as to give effect, to the greatest extent possible, the original
intent of the parties hereto. The invalidity or unenforceability of any of the
provisions of this Agreement shall not affect the other validity herein, all of
which shall remain in full force and effect.

       

      (h) This
Agreement may be amended, modified or supplemented only by a written instrument
signed by each of the Purchaser and the Company.

       

      [Signature
Page Follows]

       

      
        
          
          

        

        
          23

          
            

          

        

        
          
          

        

      

       

      IN
WITNESS WHEREOF, the parties hereto have duly executed and delivered this
Subscription and Registration Rights Agreement as of the date first written
above.

       

      
        
          	 
      	
                  
                    BIOCANCELL
      THERAPEUTICS INC.

                  

                
	 
      	 
      
	 	 	 
	 
      	
                  By:

                	
                  /s/ Avi Barak 

                	/s/ A.
      Hochberg
	 
      	 
      	
                  Name:
      Avi Barak 

                	A. Hochberg
	 
      	 
      	
                  
                    Title:

                  

                	
                   

                


        

      

      
        
          
            
              
                
                  
                    
                      
                        
                          
                            
                              
                                
                                  
                                    
                                      
                                        	 	 
	 
      	 
      
	 
      	
                                                CLAL
      BIOTECHNOLOGY INDUSTRIES LTD.

                                              
	 
      	 
      
	 	 	 
	 
      	
                                                By:

                                              	
                                                /s/
      Ofer Goldberg

                                              	
                                                /s/ Ruben Krupik

                                              
	 
      	 
      	Name: Ofer
      Goldberg	
                                                Ruben
      Krupik

                                              
	 
      	 
      	
                                                Title:    VP

                                              	
                                                CEO

                                              


                                      

                                    

                                  

                                

                              

                            

                          

                        

                      

                    

                  

                

              

            

          

        

      

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      Exhibit
1(b)

       

      CONVERTIBLE
DEBENTURE

       

      (attached)

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      Exhibit
1(c)

       

      WARRANT

       

      (attached)

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      Exhibit
2(a)

       

      COMPANY
WIRE INSTRUCTIONS

       

      Bank
Leumi Le Israel Ltd. Branch 968, Har Hotzvim, Account 724100/97

      


      Name:
BioCancell Therapeutics Inc.