Document:

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                                                                   EXHIBIT 10.49

July 29, 2002

J. Wallace Parce
Caliper Technologies Corp.
605 Fairchild Dr.
Mountain View, CA 94043-2234

Dear Wally:

        This letter constitutes the agreement (the "Agreement") that Caliper
Technologies Corp. (the "Company") is offering to you to effect your desire to
reduce your time commitment at the Company. Your employment will continue on a
reduced schedule followed by a Consulting Period under the terms described in
this Agreement.

        1. SEPARATION. If you sign this Agreement and continue to work for the
Company on the terms set forth below, your employment will continue until
November 30, 2002, at which time your employment will terminate (the "Separation
Date"). If you do not sign this Agreement, you only will be paid accrued salary
and accrued and unused vacation and flex time earned through your actual
termination date, subject to standard payroll deductions and withholdings.

        2. TRANSITION PERIOD.

               (a) DUTIES. Between now and the Separation Date (the "Transition
Period"), you agree to make yourself available to the Company to perform
transition duties as required by the Company as follows: from July 1, 2002
through July 31, 2002 up to twenty-four (24) hours per week; from August 1, 2002
through September 30, 2002 up to sixteen (16) hours per week; and from October
1, 2002 through November 30, 2002 up to eight (8) hours per week. You will be
expected to perform such tasks as the Company's Chief Executive Officer ("CEO"),
or employees designated by him, may request within your area of expertise.
During the Transition Period you are expected to comply with the Company's
policies, the terms of your Employee Proprietary Information and Inventions
Agreement, and the terms of this Agreement and/or any other agreement you have
with the Company.

               (b) COMPENSATION AND BENEFITS. Though you will be providing
services on a less than full-time basis, the Company will continue to compensate
you for your services based on your full-time annual base salary of $265,788
throughout the Transition Period. These payments will be made on the Company's
ordinary payroll dates, and will be subject to standard payroll deductions and
withholdings. You will be eligible to continue your current Company benefits
subject to the terms and limitations of the applicable plans. On the Separation
Date, the Company will pay you all accrued salary and all accrued and unused
vacation and flex time earned through the Separation Date, subject to standard
payroll deductions and withholdings.

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J.Wallace Parce
July 29, 2002
Page 2

               (c) OTHER ACTIVITIES. You may engage in other employment or
consulting relationships in addition to your work for the Company during the
Transition Period, provided that such relationships do not involve providing
services to any competitor of the Company or unreasonably interfere with your
obligations to the Company. If you are not certain if an entity is a competitor
of the Company, you shall, in advance of providing any services to such entity,
notify the Company in writing of the name of the entity for whom services are to
be provided and provide a written description of the services to be provided.
Within seven (7) days of its receipt of such written notification, the Company
will advise you as to whether it will consent to the proposed service
arrangement. The Company agrees to make reasonable arrangements to enable you to
perform your services for the Company at such times and in such a manner so that
it does not unreasonably interfere with other work activities in which you may
engage.

               (d) EARLY TERMINATION OF TRANSITION PERIOD BY THE COMPANY. If you
do not provide the services described above, fail to comply with Company policy,
or breach the terms of this Agreement and/or any other agreement you have with
the Company, including your Proprietary Information and Inventions Agreement,
the Company will terminate the Transition Period and your employment prior to
the Separation Date. In the event of such termination, you only will receive
accrued salary and accrued but unused vacation and flex time (subject to
standard deductions and withholdings) and benefits, including stock option
vesting, through the termination of the Transition Period.

        3. CONSULTANCY. Provided you complete the Transition Period and execute
and allow to become effective the attached Separation Date Release (EXHIBIT B),
the Company agrees to retain you to provide consulting services, under the terms
specified below.

               (a) CONSULTING PERIOD. The consulting relationship shall commence
on December 1, 2002 and continue until the earlier of: (i) December 31, 2003;
(ii) the date you breach your obligations under this Agreement; or (iii) the
date you engage in any activity competitive with the interests of the Company
(the "Consulting Period").

               (b) CONSULTING DUTIES. You agree to make yourself available
during the Consulting Period, upon the Company's reasonable request, to provide
consulting services in any area of your experience or expertise, for a minimum
of ten (10) hours per month ("Consulting Duties"). You shall perform your
Consulting Duties at the request and direction of the CEO, exercising the
highest degree of professionalism and utilizing your expertise and creative
talents.

               (c) CONSULTING FEES. During the Consulting Period, the Company
will make payments to you as earned at a rate of $400 per hour ("Consulting
Fees"). These payments will be made on the Company's ordinary payroll dates.

               (d) TAXES AND WITHHOLDING. Because you will perform your
consulting services as an independent contractor, the Company will not withhold
from the Consulting Fees any amount for taxes, social security or other payroll
deductions. The Company will report your

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J.Wallace Parce
July 29, 2002
Page 3

Consulting Fees on IRS Form 1099. You acknowledge that you will be entirely
responsible for payment of any taxes which may be due with regard to the
Consulting Fees, and you hereby indemnify and save harmless the Company from any
liability for any taxes, penalties or interest that may be assessed by any
taxing authority with respect to the Consulting Fees, with the exception of the
employer's share of social security, if any.

               (e) PROTECTION OF CONSULTING INFORMATION. You agree that, during
the Consulting Period and thereafter, you will not use or disclose any
confidential or proprietary information or materials of the Company which you
obtain or develop in the course of performing the Consulting Duties, except with
the written permission of the Company's CEO. Any and all work product you create
directly in the course of performing the Consulting Duties will be the sole and
exclusive property of the Company. You hereby assign to the Company all right,
title, and interest in all inventions, techniques, processes, materials, and
other intellectual property developed directly in the course of performing the
Consulting Duties.

               (f) AUTHORITY DURING CONSULTING PERIOD. After the Separation
Date, you will have no authority, in the absence of the express written consent
of the Board and CEO, to bind the Company (or to represent that you have
authority to bind the Company) to any contractual obligations, whether written,
oral or implied. You agree that after the Separation Date, you will not
represent or purport to represent the Company in any manner whatsoever to any
third party unless authorized to do so in writing by the CEO.

               (g) FACILITIES USAGE DURING CONSULTING PERIOD. During the
Consulting Period, you will have access to the Company's facilities solely to
the extent authorized in advance by the Company's CEO in connection with the
consulting duties or projects assigned to you. In connection with any use of the
Company's facilities, you agree to abide by all Company policies and procedures.

               (h) OTHER ACTIVITIES. You acknowledge that in providing
consulting services to the Company you will be an independent contractor to the
Company and not an employee, partner, or joint venturer of the Company. You may
engage in other employment or consulting relationships in addition to your work
for the Company during the Consulting Period, provided that such relationships
do not involve providing services to any competitor of the Company or
unreasonably interfere with your provision of consulting services to the
Company. If you are not certain if an entity is a competitor of the Company, you
shall, in advance of providing any services to such entity, notify the Company
in writing of the name of the entity for whom services are to be provided and
provide a written description of the services to be provided. Within seven (7)
days of its receipt of such written notification, the Company will advise you as
to whether it will consent to the proposed service arrangement. The Company
agrees to make reasonable arrangements to enable you to perform your services
for the Company at such times and in such a manner so that it does not
unreasonably interfere with other work activities in which you may engage.

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J.Wallace Parce
July 29, 2002
Page 4

        4. STOCK OPTION VESTING. Your stock option shares will continue to vest
subject to your continuous service during the Transition Period and Consulting
Period under the terms of the applicable stock option plan(s) and stock option
agreement(s). You may exercise your vested option shares pursuant to your
written stock option agreement(s) and the applicable plan(s) governing those
agreement(s).

        5. HEALTH INSURANCE. To the extent provided by the federal COBRA law and
by the Company's current group health insurance policies, you will be eligible
to continue your group health insurance benefits at your own expense after your
employment terminates. Later, you may be able to convert to an individual policy
at your own expense, if you wish.

        6. 401(k) PLAN. You will cease to be eligible to make any further
contributions to your 401(k) plan account after your employment terminates. You
will receive information concerning your distribution and rollover rights with
regard to your 401(k) plan account under separate cover.

        7. EXPENSE REIMBURSEMENTS. You agree that, within thirty (30) days of
the Separation Date or your actual employment termination date, whichever is
earlier, you will submit your final documented expense reimbursement statement
reflecting all business expenses you incurred through your last date of
employment, if any, for which you seek reimbursement. The Company will reimburse
you for these expenses pursuant to its regular business practice.

        8. OTHER COMPENSATION OR BENEFITS. You acknowledge that, except as
expressly provided in this Agreement, you will not receive any additional
compensation, severance or benefits after your employment terminates.

        9. RETURN OF COMPANY PROPERTY. On the Separation Date or your actual
employment termination date, whichever is earlier, you agree to return to the
Company all Company documents (and all copies thereof) and other Company
property which you have had in your possession at any time, including, but not
limited to, all Company files, notes, drawings, records, business plans and
forecasts, financial information, specifications, computer-recorded information,
tangible property (including, but not limited to, computers), credit cards,
entry cards, identification badges and keys; and, any materials of any kind
which contain or embody any proprietary or confidential information of the
Company (and all reproductions thereof) (collectively, "Company Property").
Notwithstanding the above, the Company will allow you to use the laptop(s)
belonging to the Company and currently in your possession until the termination
of the Consulting Period, at which time you agree to return the laptop(s) to the
Company. You agree to conduct a good faith search of your personal belongings
and home and office areas to ensure your compliance with your obligations under
this paragraph. If you are not able to return all Company Property in your
possession on your actual employment termination date, you will have until three
(3) days thereafter to do so.

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J.Wallace Parce
July 29, 2002
Page 5

        10. PROPRIETARY INFORMATION OBLIGATIONS. You hereby acknowledge and
agree to abide by your continuing obligations under your Proprietary Information
and Inventions Agreement, a copy of which is attached hereto as EXHIBIT A.

        11. NONDISPARAGEMENT. You agree not to disparage the Company and the
Company's officers, directors, employees, shareholders and agents, in any manner
likely to be harmful to them or their business, business reputation or personal
reputation; provided that you may respond accurately and fully to any question,
inquiry or request for information consistent with your obligations under this
Agreement.

        12. NONINTERFERENCE. While employed by the Company during the Transition
Period and the Consulting Period, and for ten (10) months immediately following
the end of the Consulting Period, you agree not to interfere with the business
of the Company by soliciting or attempting to solicit any employee of the
Company to terminate his or her employment in order to become an employee,
consultant or independent contractor to or for a business, research enterprise
or academic institution engaged principally in the applications of microfluids
and/or nanotechnologies. Violation of the obligations in this paragraph shall
constitute a material breach of this Agreement.

        13. RELEASE OF CLAIMS. In exchange for the consideration under this
Agreement to which you would not otherwise be entitled, you hereby generally and
completely release the Company and its directors, officers, employees,
shareholders, partners, agents, attorneys, predecessors, successors, parent and
subsidiary entities, insurers, affiliates, and assigns from any and all claims,
liabilities and obligations, both known and unknown, that arise out of or are in
any way related to events, acts, conduct, or omissions occurring prior to
signing this Agreement. This general release includes, but is not limited to:
(1) all claims arising out of or in any way related to your employment with the
Company or the termination of that employment; (2) all claims related to your
compensation or benefits from the Company, including salary, bonuses,
commissions, vacation pay, expense reimbursements, severance pay, fringe
benefits, stock, stock options, or any other ownership interests in the Company;
(3) all claims for breach of contract, wrongful termination, and breach of the
implied covenant of good faith and fair dealing; (4) all tort claims, including
claims for fraud, defamation, emotional distress, and discharge in violation of
public policy; and (5) all federal, state, and local statutory claims, including
claims for discrimination, harassment, retaliation, attorneys' fees, or other
claims arising under the federal Civil Rights Act of 1964 (as amended), the
federal Americans with Disabilities Act of 1990, the Age Discrimination in
Employment Act of 1967 ("ADEA"), and the California Fair Employment and Housing
Act (as amended).

        14. ADEA WAIVER. You acknowledge that you are knowingly and voluntarily
waiving and releasing any rights you may have under the ADEA, and that the
consideration given for the waiver and release in the preceding paragraph is in
addition to anything of value to which you were already entitled. You further
acknowledge that you have been advised by this writing that: (a) your waiver and
release do not apply to any rights or claims that may arise after

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J.Wallace Parce
July 29, 2002
Page 6

the execution date of this Agreement; (b) you should consult with an attorney
prior to executing this Agreement (although you may choose not to do so); (c)
you have twenty-one (21) days to consider this Agreement (although you may
choose to voluntarily execute this Agreement earlier); (d) you have seven (7)
days following the execution of this Agreement by the parties to revoke the
Agreement in a writing to the Company; and (e) this Agreement will not be
effective until the date upon which the revocation period has expired, which
will be the eighth day after the date you execute this Agreement provided that
the Company has also executed this Agreement by that date (the "Effective
Date").

        15. WAIVER. In granting the release of claims herein, you understand
that you are releasing claims that may be both known and unknown to you. You
hereby acknowledge that you have read and understand Section 1542 of the
California Civil Code which reads as follows:

        A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT
        KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE
        RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS
        SETTLEMENT WITH THE DEBTOR.

You hereby expressly waive and relinquish all rights and benefits under Section
1542 and any law or legal principle of similar effect in any jurisdiction with
respect to your release of unknown and unsuspected claims.

        16. SEPARATION DATE RELEASE. You agree, on or after the Separation Date,
to execute and return to the Company the Separation Date Release attached hereto
as EXHIBIT B.

        17. ARBITRATION. To ensure rapid and economical resolution of any
disputes which may arise under this Agreement, you and the Company agree that
any and all disputes or controversies of any nature whatsoever arising from or
regarding the interpretation, performance, enforcement or breach of this
Agreement shall be resolved, to the fullest extent permitted by law, by
confidential, final and binding arbitration conducted before a single arbitrator
with Judicial Arbitration and Mediation Services, Inc. ("JAMS") in San
Francisco, California, under the then-existing JAMS rules. BY AGREEING TO THIS
ARBITRATION PROCEDURE, BOTH YOU AND THE COMPANY WAIVE THE RIGHT TO RESOLVE ANY
SUCH DISPUTE THROUGH A TRIAL BY JURY, JUDGE OR ADMINISTRATIVE PROCEEDING. The
parties shall bear equally the costs and fees of the arbitration; however, the
arbitrator, in his or her sole discretion, shall be authorized to determine
whether and to what extent a party is the prevailing party, and if so, to award
to that prevailing party reimbursement for its reasonable attorneys' fees,
disbursements (including, without limitation, expert witness fees and expenses),
and costs arising from the arbitration. The arbitrator, and not a court, shall
also be authorized to determine whether the provisions of this paragraph apply
to a dispute, controversy or claim sought to be resolved in accordance with
these arbitration procedures. Nothing in this Agreement is intended to prevent
either you or the Company from obtaining injunctive relief in court to prevent
irreparable harm pending the conclusion of any such arbitration.

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J.Wallace Parce
July 29, 2002
Page 7

        18. MISCELLANEOUS. This Agreement, including Exhibits A and B,
constitutes the complete, final and exclusive embodiment of the entire agreement
between you and the Company with regard to this subject matter. It is entered
into without reliance on any promise or representation, written or oral, other
than those expressly contained herein, and it supersedes any other such
promises, warranties or representations. This Agreement may not be modified or
amended except in a writing signed by both you and a duly authorized officer of
the Company. This Agreement shall bind the heirs, personal representatives,
successors and assigns of both you and the Company, and inure to the benefit of
both you and the Company, their heirs, successors and assigns. If any provision
of this Agreement is determined to be invalid or unenforceable, in whole or in
part, this determination will not affect any other provision of this Agreement
and the provision in question shall be modified by the court so as to be
rendered enforceable. This Agreement shall be deemed to have been entered into
and shall be construed and enforced in accordance with the laws of the State of
California as applied to contracts made and to be performed entirely within
California.

If this Agreement is acceptable to you, please sign below and return the
original to me. On the Separation Date, please sign Exhibit B and return the
original to me.

I wish you luck in your future endeavors.

Sincerely,

CALIPER TECHNOLOGIES CORP.

By:  /s/ Michael R. Knapp
     --------------------------------
         MICHAEL R. KNAPP
         CHIEF EXECUTIVE OFFICER

Exhibit A -- Proprietary Information and Inventions Agreement
Exhibit B -- Separation Date Release

AGREED:

/s/ J. Wallace Parce
-------------------------------------
J. WALLACE PARCE

Date: 8/23/02
     --------------------------------

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                                    EXHIBIT A

                PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT

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                           CALIPER TECHNOLOGIES CORP.

                        EMPLOYEE PROPRIETARY INFORMATION
                            AND INVENTIONS AGREEMENT

        In consideration of my employment or continued employment by CALIPER
TECHNOLOGIES CORP. (the "COMPANY"), and the compensation now and hereafter paid
to me, I hereby agree as follows:

Nondisclosure

        1.1 RECOGNITION OF COMPANY'S RIGHTS; NONDISCLOSURE. At all times during
my employment and thereafter, I will hold in strictest confidence and will not
disclose, use, lecture upon or publish any of the Company's Proprietary
Information (defined below), except as such disclosure, use or publication may
be required in connection with my work for the Company, or unless an officer of
the Company expressly authorizes such in writing. I will obtain Company's
written approval before publishing or submitting for publication any material
(written, verbal, or otherwise) that relates to my work at Company and/or
incorporates any Proprietary Information. I hereby assign to the Company any
rights I may have or acquire in such Proprietary Information and recognize that
all Proprietary Information shall be the sole property of the Company and its
assigns.

        1.2 PROPRIETARY INFORMATION. The term "PROPRIETARY INFORMATION" shall
mean any and all confidential and/or proprietary knowledge, data or information
of the Company. By way of illustration but not limitation, "PROPRIETARY
INFORMATION" includes (a) trade secrets, inventions, ideas, processes, formulas,
products, formulations, developmental or experimental work, publications,
clinical data, test data, methods, samples, media and/or call lines, other works
of authorship, know-how, improvements, discoveries, developments, designs and
techniques (hereinafter collectively referred to as "INVENTIONS"); and (b)
information regarding plans for research, development, new products, marketing
and selling, business plans, budgets and unpublished financial statements,
licenses, prices and costs, suppliers and customers; and (c) information
regarding the skills and compensation of other employees of the Company.
Notwithstanding the foregoing, it is understood that, at all such times, I am
free to use information which is generally known in the trade or industry, which
is not gained as result of a breach of this Agreement, and my own, skill,
knowledge, know-how and experience to whatever extent and in whichever way I
wish.

        1.3 THIRD PARTY INFORMATION. I understand, in addition, that the Company
has received and in the future will receive from third parties confidential or
proprietary information ("THIRD PARTY INFORMATION") subject to a duty on the
Company's part to maintain the confidentiality of such information and to use it
only for certain limited purposes. During the term of my employment and
thereafter, I will hold Third Party Information in the strictest confidence and
will not disclose to anyone (other than Company personnel who need to know such
information in connection with their work for the Company) or use, except in
connection with my work for the Company, Third Party Information unless
expressly authorized by an officer of the Company in writing.

        1.4 NO IMPROPER USE OF INFORMATION OF PRIOR EMPLOYERS AND OTHERS. During
my employment by the Company I will not improperly use or disclose any
confidential information or trade secrets, if any, of any former employer or any
other person to whom I have an obligation of confidentiality, and I will not
bring onto the premises of the Company any unpublished documents or any property
belonging to any former employer or any other person to whom I have an
obligation of confidentiality unless consented to in writing by that former
employer or person. I will use in the performance of my duties only information
which is generally known and used by persons with training and experience
comparable to my own, which is common knowledge in the industry or otherwise
legally in the public domain, or which is otherwise provided or developed by the
Company.

2. ASSIGNMENT OF INVENTIONS.

        2.1 PROPRIETARY RIGHTS. The term "PROPRIETARY RIGHTS" shall mean all
trade secret, patent, copyright, mask work and other intellectual property
rights throughout the world.

        2.2 PRIOR INVENTIONS. Inventions, if any, patented or unpatented, which
I made prior to the commencement of my employment with the Company are excluded
from the scope of this Agreement. To preclude any possible uncertainty, I have
set forth on Exhibit B (Previous Inventions) attached hereto a complete list of
all Inventions that I have, alone or jointly with others, conceived, developed
or reduced to practice or caused to be conceived, developed or reduced to
practice prior to the commencement of my employment with the Company, that I
consider to be my property or the property of third parties and that I wish to
have excluded from the scope of this Agreement (collectively referred to as
"PRIOR INVENTIONS"). If disclosure of any such Prior Invention would cause me to
violate any prior confidentiality agreement, I understand that I am not to list
such Prior Inventions in Exhibit B but am only to disclose a cursory name for
each such invention, a listing of the party(ies) to whom it belongs and the fact
that

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full disclosure as to such inventions has not been made for that reason. A space
is provided on Exhibit B for such purpose. If no such disclosure is attached, I
represent that there are no Prior Inventions. If, in the course of my employment
with the Company, I incorporate a Prior Invention into a Company product,
process or machine, the Company is hereby granted and shall have a nonexclusive,
royalty-free, irrevocable, perpetual, worldwide license (with rights to
sublicense through multiple tiers of sublicensees) to make, have made, modify,
use and sell such Prior Invention. Notwithstanding the foregoing, I agree that I
will not incorporate, or permit to be incorporated, Prior Inventions in any
Company Inventions without the Company's prior written consent.

        2.3 ASSIGNMENT OF INVENTIONS. Subject to Sections 2.4, and 2.6, I hereby
assign and agree to assign in the future (when any such Inventions or
Proprietary Rights are first reduced to practice or first fixed in a tangible
medium, as applicable) to the Company all my right, title and interest in and to
any and all Inventions (and all Proprietary Rights with respect thereto) whether
or not patentable or registrable under copyright or similar statutes, made or
conceived or reduced to practice or learned by me, either alone or jointly with
others, during the period of my employment with the Company. Inventions assigned
to the Company, or to a third party as directed by the Company pursuant to this
Section 2, are hereinafter referred to as "COMPANY INVENTIONS."

        2.4 NONASSIGNABLE INVENTIONS. This Agreement does not apply to an
Invention which qualifies fully as a nonassignable Invention under Section 2870
of the California Labor Code (hereinafter "SECTION 2870"). I have reviewed the
notification on Exhibit A (Limited Exclusion Notification) and agree that my
signature acknowledges receipt of the notification.

        2.5 OBLIGATION TO KEEP COMPANY INFORMED. During the period of my
employment and for six (6) months after termination of my employment with the
Company, I will promptly disclose to the Company fully and in writing all
Inventions authored, conceived or reduced to practice by me, either alone or
jointly with others. In addition, I will promptly disclose to the Company all
patent applications filed by me or on my behalf within a year after termination
of employment. At the time of each such disclosure, I will advise the Company in
writing of any Inventions that I believe fully qualify for protection under
Section 2870; and I will at that time provide to the Company in writing all
evidence necessary to substantiate that belief. The Company will keep in
confidence and will not use for any purpose or disclose to third parties without
my consent any confidential information disclosed in writing to the Company
pursuant to this Agreement relating to Inventions that qualify fully for
protection under the provisions of Section 2870. I will preserve the
confidentiality of any Invention that does not fully qualify for protection
under Section 2870.

        2.6 GOVERNMENT OR THIRD PARTY. I also agree to assign all my right,
title and interest in and to any particular Invention to a third party,
including without limitation the United States, as directed by the Company.

        2.7 WORKS FOR HIRE. I acknowledge that all original works of authorship
which are made by me (solely or jointly with others) within the scope of my
employment and which are protectable by copyright are "works made for hire,"
pursuant to United States Copyright Act (17 U.S.C., Section 101).

        2.8 ENFORCEMENT OF PROPRIETARY RIGHTS. I will assist the Company in
every proper way to obtain, and from time to time enforce, United States and
foreign Proprietary Rights relating to Company Inventions in any and all
countries. To that end I will execute, verify and deliver such documents and
perform such other acts (including appearances as a witness) as the Company may
reasonably request for use in applying for, obtaining, perfecting, evidencing,
sustaining and enforcing such Proprietary Rights and the assignment thereof. In
addition, I will execute, verify and deliver assignments of such Proprietary
Rights to the Company or its designee. My obligation to assist the Company with
respect to Proprietary Rights relating to such Company Inventions in any and all
countries shall continue beyond the termination of my employment, but the
Company shall compensate me at a reasonable rate after my termination for the
time actually spent by me at the Company's request on such assistance.

        In the event the Company is unable for any reason, after reasonable
effort, to secure my signature on any document needed in connection with the
actions specified in the preceding paragraph, I hereby irrevocably designate and
appoint the Company and its duly authorized officers and agents as my agent and
attorney in fact, which appointment is coupled with an interest, to act for and
in my behalf to execute, verify and file any such documents and to do all other
lawfully permitted acts to further the purposes of the preceding paragraph with
the same legal force and effect as if executed by me. I hereby waive and
quitclaim to the Company any and all claims, of any nature whatsoever, which I
now or may hereafter have for infringement of any Proprietary Rights assigned
hereunder to the Company.

3. RECORDS. I agree to keep and maintain adequate and current records (in the
form of notes, sketches, drawings and in any other form that may be required by
the Company) of all Proprietary Information developed by me and all Inventions
made by me during the period of my employment at the Company, which records
shall be

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available to and remain the sole property of the Company at all times.

4. ADDITIONAL ACTIVITIES. I agree that during the period of my employment by the
Company I will not, without the Company's express written consent, engage in any
employment or business activity which is competitive with, or would otherwise
conflict with, my employment by the Company. I agree further that for the period
of my employment by the Company and for one (l) year after the date of
termination of my employment by the Company I will not induce any employee of
the Company to leave the employ of the Company.

5. NO CONFLICTING OBLIGATION. I represent that my performance of all the terms
of this Agreement and as an employee of the Company does not and will not breach
any agreement to keep in confidence information acquired by me in confidence or
in trust prior to my employment by the Company. I have not entered into, and I
agree I will not enter into, any agreement either written or oral in conflict
herewith.

6. RETURN OF COMPANY DOCUMENTS. When I leave the employ of the Company, I will
deliver to the Company any and all drawings, notes, memoranda, specifications,
devices, formulas, and documents, together with all copies thereof, and any
other material containing or disclosing any Company Inventions, Third Party
Information or Proprietary Information of the Company. I further agree that any
property situated on the Company's premises and owned by the Company, including
disks and other storage media, filing cabinets or other work areas, is subject
to inspection by Company personnel at any time with or without notice. Prior to
leaving, I will cooperate with the Company in completing and signing the
Company's termination statement.

7. LEGAL AND EQUITABLE REMEDIES. Because my services are personal and unique and
because I may have access to and become acquainted with the Proprietary
Information of the Company, the Company shall have the right to enforce this
Agreement and any of its provisions by injunction, specific performance or other
equitable relief, without bond and without prejudice to any other rights and
remedies that the Company may have for a breach of this Agreement.

8. NOTICES. Any notices required or permitted hereunder shall be given to the
appropriate party at the address specified below or at such other address as the
party shall specify in writing. Such notice shall be deemed given upon personal
delivery to the appropriate address or if sent by certified or registered mail,
three (3) days after the date of mailing.

9. NOTIFICATION OF NEW EMPLOYER. In the event that I leave the employ of the
Company, I hereby consent to the notification of my new employer of my rights
and obligations under this Agreement.

10. GENERAL PROVISIONS.

        10.1 GOVERNING LAW; CONSENT TO PERSONAL JURISDICTION. This Agreement
will be governed by and construed according to the laws of the State of
California, as such laws are applied to agreements entered into and to be
performed entirely within California between California residents. I hereby
expressly consent to the personal jurisdiction of the state and federal courts
located in San Diego County, California for any lawsuit filed there against me
by Company arising from or related to this Agreement.

        10.2 SEVERABILITY. In case any one or more of the provisions contained
in this Agreement shall, for any reason, be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect the other provisions of this Agreement, and this Agreement
shall be construed as if such invalid, illegal or unenforceable provision had
never been contained herein. If moreover, any one or more of the provisions
contained in this Agreement shall for any reason be held to be excessively broad
as to duration, geographical scope, activity or subject, it shall be construed
by limiting and reducing it, so as to be enforceable to the extent compatible
with the applicable law as it shall then appear.

        10.3 SUCCESSORS AND ASSIGNS. This Agreement will be binding upon my
heirs, executors, administrators and other legal representatives and will be for
the benefit of the Company, its successors, and its assigns.

        10.4 SURVIVAL. The provisions of this Agreement shall survive the
termination of my employment and the assignment of this Agreement by the Company
to any successor in interest or other assignee.

        10.5 EMPLOYMENT. I agree and understand that nothing in this Agreement
shall confer any right with respect to continuation of employment by the
Company, nor shall it interfere in any way with my right or the Company's right
to terminate my employment at any time, with or without cause.

        10.6 WAIVER. No waiver by the Company of any breach of this Agreement
shall be a waiver of any preceding or succeeding breach. No waiver by the
Company of any right under this Agreement shall be construed as a waiver of any
other right. The Company shall not be required to give notice to enforce strict
adherence to all terms of this Agreement.

<PAGE>

        10.7 ENTIRE AGREEMENT. The obligations pursuant to Sections 1 and 2 of
this Agreement shall apply to any time during which I was previously employed,
or am in the future employed, by the Company as a consultant if no other
agreement governs nondisclosure and assignment of inventions during such period.
This Agreement is the final, complete and exclusive agreement of the parties
with respect to the subject matter hereof and supersedes and merges all prior
discussions between us. No modification of or amendment to this Agreement, nor
any waiver of any rights under this Agreement, will be effective unless in
writing and signed by the party to be charged. Any subsequent change or changes
in my duties, salary or compensation will not affect the validity or scope of
this Agreement.

        This Agreement shall be effective as of the first day of my employment
with the Company, namely: _____________, 199__.

        I HAVE READ THIS AGREEMENT CAREFULLY AND UNDERSTAND ITS TERMS. I HAVE
COMPLETELY FILLED OUT EXHIBIT B TO THIS AGREEMENT.

Dated:
      ----------------------------

----------------------------------
SIGNATURE

----------------------------------
(PRINTED NAME)

ACCEPTED AND AGREED TO:

CALIPER TECHNOLOGIES CORP.

By:
   -------------------------------

Title: President
       ---------------------------

----------------------------------
(Address)

<PAGE>

                                    EXHIBIT A

                         LIMITED EXCLUSION NOTIFICATION

        THIS IS TO NOTIFY you in accordance with Section 2872 of the California
Labor Code that the foregoing Agreement between you and the Company does not
require you to assign or offer to assign to the Company any invention that you
developed entirely on your own time without using the Company's equipment,
supplies, facilities or trade secret information except for those inventions
that either:

        (1) Relate at the time of conception or reduction to practice of the
invention to the Company's business, or actual or demonstrably anticipated
research or development of the Company;

        (2) Result from any work performed by you for the Company.

        To the extent a provision in the foregoing Agreement purports to require
you to assign an invention otherwise excluded from the preceding paragraph, the
provision is against the public policy of this state and is unenforceable.

        This limited exclusion does not apply to any patent or invention covered
by a contract between the Company and the United States or any of its agencies
requiring full title to such patent or invention to be in the United States.

        I ACKNOWLEDGE RECEIPT of a copy of this notification.

                                       By:   -----------------------------------
                                             (Printed Name of Employee)

                                       Date:
                                             -----------------------------------

WITNESSED BY:

-----------------------------------
(Printed Name of Representative)

Dated:
      -----------------------------

<PAGE>

                                    EXHIBIT B

     TO:       CALIPER TECHNOLOGIES CORP.

     FROM:
               ---------------------------

     DATE:
               ---------------------------

  SUBJECT:     PREVIOUS INVENTIONS

        1. Except as listed in Section 2 below, the following is a complete list
of all inventions or improvements relevant to the subject matter of my
employment by Caliper Technologies Corp. (the "COMPANY") that have been made or
conceived or first reduced to practice by me alone or jointly with others prior
to my engagement by the Company:

        [ ]    No inventions or improvements.

        [ ]    See below:

               -----------------

               -----------------

               -----------------

[ ]  Additional sheets attached.

        2. Due to a prior confidentiality agreement, I cannot complete the
disclosure under Section 1 above with respect to inventions or improvements
generally listed below, the proprietary rights and duty of confidentiality with
respect to which I owe to the following party(ies):

<TABLE>
<CAPTION>
INVENTION OR IMPROVEMENT            PARTY(ies)                 RELATIONSHIP
------------------------      -----------------------     ----------------------
<S>                           <C>                         <C>
1.
  ----------------------      -----------------------     ----------------------
2.
  ----------------------      -----------------------     ----------------------
3.
  ----------------------      -----------------------     ----------------------
</TABLE>

[ ]  Additional sheets attached.

<PAGE>

                                    EXHIBIT B

                             SEPARATION DATE RELEASE

I understand that my employment with Caliper Technologies Corp. (the "Company")
terminated effective ____________, 2002 (the "Separation Date"). I also
understand that, pursuant to the separation letter agreement between me and the
Company, which I signed on ________________________, 2002 (the "Agreement"), I
am required to sign this Separation Date Release ("Release") in exchange for the
consideration I receive under the Agreement. I further understand that,
regardless of whether I sign this Release, the Company will pay me all accrued
salary and vacation earned through my termination date, to which I am entitled
by law.

I hereby generally and completely release the Company and its directors,
officers, employees, shareholders, partners, agents, attorneys, predecessors,
successors, parent and subsidiary entities, insurers, affiliates, and assigns
from any and all claims, liabilities and obligations, both known and unknown,
that arise out of or are in any way related to events, acts, conduct, or
omissions occurring prior to my signing this Release. This general release
includes, but is not limited to: (1) all claims arising out of or in any way
related to my employment with the Company or the termination of that employment;
(2) all claims related to my compensation or benefits from the Company,
including salary, bonuses, commissions, vacation pay, expense reimbursements,
severance pay, fringe benefits, stock, stock options, or any other ownership
interests in the Company; (3) all claims for breach of contract, wrongful
termination, and breach of the implied covenant of good faith and fair dealing,
including claims arising under or relating to the Company's Change of Control,
Sr. Mgmt. Severance/Equity Acceleration Plan; (4) all tort claims, including
claims for fraud, defamation, emotional distress, and discharge in violation of
public policy; and (5) all federal, state, and local statutory claims, including
claims for discrimination, harassment, retaliation, attorneys' fees, or other
claims arising under the federal Civil Rights Act of 1964 (as amended), the
federal Americans with Disabilities Act of 1990, the Age Discrimination in
Employment Act of 1967 ("ADEA"), and the California Fair Employment and Housing
Act (as amended).

I acknowledge that I am knowingly and voluntarily waiving and releasing any
rights I may have under the ADEA, as amended. I also acknowledge that the
consideration given for the waiver and release in the preceding paragraph hereof
is in addition to anything of value to which I was already entitled. I further
acknowledge that I have been advised by this writing, as required by the ADEA,
that: (a) my waiver and release do not apply to any rights or claims that may
arise after the execution date of this Release; (b) I have been advised hereby
that I have the right to consult with an attorney prior to executing this
Release (although I may choose not to do so); (c) I have twenty-one (21) days to
consider this Release (although I may choose to voluntarily execute this Release
earlier); (d) I have seven (7) days following the execution of this Release by
the parties to revoke the Release in a writing to the Company; and (e) this
Release will not be effective until the date upon which the revocation period
has expired, which will be the eighth day after this Release is executed by me
("Separation Date Release Effective Date").

<PAGE>

I UNDERSTAND THAT THIS AGREEMENT INCLUDES A RELEASE OF ALL KNOWN AND UNKNOWN
CLAIMS. In giving this release, which includes claims that may be unknown to me
at present, I acknowledge that I have read and understand Section 1542 of the
California Civil Code which reads as follows: "A GENERAL RELEASE DOES NOT EXTEND
TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT
THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY
AFFECTED HIS SETTLEMENT WITH THE DEBTOR." I expressly waive and relinquish all
rights and benefits under that section and any law of any jurisdiction of
similar effect with respect to my release of any unknown or unsuspected claims I
may have against the Company.

HAVING READ AND UNDERSTOOD THE FOREGOING, I HEREBY AGREE TO THE TERMS AND
CONDITIONS STATED ABOVE.

------------------------------                    ------------------------------
J. Wallace Parce                                  Date<PAGE>
FINAL

                                                                   EXHIBIT 10.35

                        Series B1 Warrant Exercise Notice

      WHEREAS, The Company issued to all the undersigned Series B1 Warrants
(each the "WARRANT", and collectively the "WARRANTS") in connection with a
certain convertible loan (the "LOAN") provided to the Company under a
Convertible Loan Agreement executed as of August 1, 2001 (the "CONVERTIBLE LOAN
AGREEMENT") between the Company and all the undersigned (the "LENDERS"); and

      WHEREAS, notwithstanding any section of the Warrant to the contrary,
including without limitation section 3 thereto, all Lenders, severally and not
collectively, agree to be issued upon conversion of the Loan, Series B Preferred
Shares par values NIS 0.01 each of the Company ("PREFERRED B SHARES"), instead
of Series B1 Preferred Shares par values NIS 0.01 each of the Company.

      NOW THEREFORE, Each of the Lenders herby provide the Company a notice of
its request to convert the Loan into such number of Preferred B Shares as set
forth opposite each Lender's name in the table attached hereto as Exhibit A (the
"SHARES"). Upon issuance, the Shares will be duly authorized, validly issued,
fully paid, nonassessable, and free of any preemptive rights, and will have the
rights, preferences, privileges, and restrictions as set forth in the Company's
Amended and Restated Articles of Associations of the Company in the form
attached hereto as Exhibit B, as amended from time to time, and will be free and
clear of any pledges, liens, claims, encumbrances or third party rights of any
kind.

Each of the Lenders hereby confirm that this Series B1 Warrant Exercise Notice
shall be deemed "Notice" as such term is defined in section 3 to the Warrants.

Each of the Lenders hereby confirms that the issuance of the Shares to it
hereunder shall constitute complete and final repayment of the Loan under the
Convertible Loan Agreement.

Each of the Lenders hereby unconditionally and irrevocably waives, as of the
issuance of the Shares, all rights under or pursuant to or in connection with
the Warrant, including but not limited to all rights with respect to the
interest accrued to the Loan, and these rights shall be as of the issuance of
the Shares forever exhausted.

                           [Signature Page to Follow]

<PAGE>
                                     - 2 -

              [Signature Page to Series B1 Warrant Exercise Notice
                               dated July__, 2002]

-------------------------------------

Red Bend Ltd.

By:
    ---------------------------------

Title:
       ------------------------------

/s/ YITZHAK AVIDOR                          /s/ YITZHAK AVIDOR
-------------------------------------    ---------------------------------------

Carmel Software Fund (Israel) LP         Carmel Software Fund (Cayman) LP

By: Carmel V.C. Limited                  By: Carmel Software Limited

                                         By: Carmel Software L.P.

By: Yitzhak Avidor                       By: Yitzhak Avidor
    ---------------------------------        -----------------------------------

Title:                                   Title:
       ------------------------------           --------------------------------

/s/ YITZHAK AVIDOR                       /s/ YITZHAK AVIDOR
-------------------------------------    ---------------------------------------

Carmel Software Fund (Delaware) LP       Carmel VC Ltd. (for Siemens Venture
                                         Capital GmbH)

By: Carmel Software Limited              By: Yitzhak Avidor
                                             -----------------------------------

By: Carmel Software L.P.

By: Yitzhak Avidor                       Title:
    ---------------------------------          ---------------------------------

Title:
       ------------------------------
                                         /s/ YITZHAK AVIDOR
                                         ---------------------------------------
                                         Carmel Software Fund GbR

                                         By: Carmel Software Limited

                                         By: Carmel Software L.P.

                                         By: Yitzhak Avidor
                                             -----------------------------------

                                         Title:
                                                --------------------------------

-------------------------------------    ---------------------------------------
FBR Infinity II Ventures (Israel) LP     FBR Infinity II Ventures LP

By:                                      By:
    ---------------------------------        -----------------------------------

Title:                                   Title:
       ------------------------------           --------------------------------

  /s/  ELI BARKAT
-------------------------------------

Backweb Technologies Ltd.

By:   Eli Barkat
    ---------------------------------

Title:   CEO
       ------------------------------

<PAGE>
                                     - 3 -

                                    EXHIBIT A

<TABLE>
<CAPTION>
-------------------- ------------------------ ---------------
Lender               Address                  Amount of
                                              Shares to be
                                              issued
-------------------- ------------------------ ---------------
<S>                  <C>                      <C>
Carmel               Delta House, 16
Software Fund        Hagalim Ave.,              1,123,755
(Israel) LP          Herzeliya 46725
-------------------- ------------------------ ---------------
Carmel               c/o Carmel Software
Software Fund        Fund (Israel) LP           1,387,723
(Cayman) LP
-------------------- ------------------------ ---------------
Carmel               c/o Carmel Software
Software Fund        Fund (Israel) LP            606,006
(Delaware) LP
-------------------- ------------------------ ---------------
Carmel VC Ltd.       c/o Carmel Software
(for Siemens         Fund (Israel) LP            199,672
Venture Capital
GmbH)
-------------------- ------------------------ ---------------
Carmel               c/o Carmel Software
Software Fund        Fund (Israel) LP             99,836
GbR
-------------------- ------------------------ ---------------
FBR Infinity II      Bermuda- 3 Azrieli
Ventures (Israel)    Center, 42nd Floor,         533,354
LP                   Tel-Aviv 67023, Israel
--------------------                          ---------------
FBR Infinity II
Ventures LP                                      471,644
-------------------- ------------------------ ---------------
Backweb              2077 Gateway Place,
Technologies         Suite 500, San Jose,       1,339,997
Ltd.                 CA 95110, USA
==================== ======================== ===============
Total                                           5,761,987
-------------------- ------------------------ ---------------
</TABLE>

<PAGE>
                                     - 4 -

            EXHIBIT B- AMENDED AND RESTATED ARTICLES OF ASSOCIATIONS
<PAGE>
                                                                           FINAL

                           A COMPANY LIMITED BY SHARES

                           ARTICLES OF ASSOCIATION OF

                                  RED BEND LTD.

PRELIMINARY

1. In these Articles of Association, unless the context otherwise requires the
following expressions shall have the meaning which appears beside them:

ARTICLES -- shall mean the Articles of Association of the Company as shall be in
force from time to time.

CARMEL VENTURE FUNDS ENTITIES -- shall mean any of the following Carmel Venture
Funds entities: Carmel Software Fund (Israel) LP, Carmel Software Fund (Cayman)
LP, Carmel Software Fund (Delaware) LP, Carmel VC Ltd. (for Siemens Venture
Capital GmbH), or Carmel Software Fund GbR, or any related entity which
qualifies as a Permitted Transferee (as such term is defined in Article 26(d)),
and holds Shares of the Company.

COMPANY -- shall mean RED BEND LTD.

FOUNDERS -- shall mean Gadi Gonen and Sharon Peleg.

INFINITY VENTURE FUNDS ENTITIES -- shall mean any of the following FBR Infinity
Venture Funds entities: FBR Infinity II Ventures (Israel) LP, or FBR Infinity II
Ventures LP, or any related entity which qualifies as a Permitted Transferee (as
such term is defined in Article 26(d)), and holds Shares of the Company.

IPO -- shall mean the initial public offering of the Company.

LAW -- shall mean the Companies Law 5759-1999, as shall be in effect from time
to time and any other law that shall be in effect from time to time with respect
to companies and that shall apply to the Company.

OFFICE -- shall mean the registered office of the Company, as it shall be from
time to time.

ORDINARY RESOLUTION -- shall mean a resolution that requires a majority of more
than fifty percent (50%) of the votes of the shareholders of the Company,
present (in person or by proxy) at a shareholders meeting and entitled to vote,
or, as the case may be, of the votes of the directors of the Company present (in
person or by proxy) at a board of directors meeting and entitled to vote.

PREFERRED A HOLDERS -- shall mean holders of Preferred A Shares of the Company.

PREFERRED A SHARES -- shall mean the Series A Preferred Shares issued or to be
issued by the Company.

<PAGE>
                                       2

PREFERRED B HOLDERS -- shall mean holders of Preferred B Shares.

PREFERRED B SHARES -- shall mean the Series B Preferred Shares issued or to be
issued by the Company.

PREFERRED B1 HOLDERS -- shall mean holders of Preferred B1 Shares.

PREFERRED B1 SHARES -- shall mean the Series B1 Preferred Shares issued or to be
issued by the Company.

PREFERRED HOLDERS -- shall mean the Preferred A Holders, the Preferred B Holders
and the Preferred B1 Holders.

PREFERRED SHARES -- shall mean the Preferred A Shares, the Preferred B Shares
and the Preferred B1 Shares.

QUALIFIED IPO -- shall mean an underwritten initial public offering of the
Company's Ordinary Shares, in which the net cash proceeds to the Company are at
least twenty million U.S. dollars ($20,000,000), at a price per share of at
least US $5.16957 (subject to adjustments as a result of splits, distribution of
bonus shares and other recapitalization).

SHARES -- shall mean Ordinary Shares and Preferred Shares.

Words and expressions defined in the Memorandum of Association of the Company
shall have the meanings defined therein.

In these Articles, subject to this Article 1 and unless the context otherwise
requires, expressions defined in the Law, or any modification thereof in force
at the date at which these Articles become binding on the Company, shall have
the meanings so defined; and words importing the singular shall include the
plural, and vice versa, and words importing the masculine gender shall include
the female, and words importing persons shall include bodies corporate. The
titles of the Articles are not part of the Articles.

In the event that an Article has been added to these Articles which contradicts
an original Article found in these Articles - the Article added shall have
precedence.

PRIVATE COMPANY

2. The Company is a private Company as defined under the Law, and accordingly -

        (a) the right to transfer the shares of the Company shall be restricted
in the manner hereinafter appearing;

        (b) The number of Shareholders in the Company at any time shall not
exceed fifty (50), excluding employees of the Company and former employees,
under the terms and conditions set forth in Section 175(a)(3) of the Law;
provided, however, that if two or more individuals hold a share or shares of the
Company, jointly, they shall be deemed to be one Shareholder for purposes of
this Article; and

<PAGE>
                                       3

        (c) no invitation shall be issued to the public to subscribe for any
shares or debentures or debenture stocks of the Company.

LIMITED LIABILITY

3. The liability of the shareholders for the Company's obligations is limited to
the payment of the nominal value of the Company's shares, all subject to
Sections 181 and 304 of the Law.

OFFICE

4. The registered office of the Company shall be at such place, as the directors
of the company (the "DIRECTORS") shall from time to time appoint.

THE CAPITAL

5. The share capital of the Company is comprised of NIS 520,680 divided into
28,500,000 Ordinary Shares, 1,068,000 Preferred A Shares, 8,000,000 Preferred B
Shares and 14,500,000 Preferred B1 Shares, all of nominal value NIS 0.01 per
share.

RIGHTS, PREFERENCES AND RESTRICTIONS OF PREFERRED SHARES

6. The rights, preferences, privileges, and restrictions granted to and imposed
on the Preferred Shares, are as set forth below.

7. DIVIDEND PREFERENCE.

The Preferred B1 Shares and Preferred B Shares shall confer upon the holders
thereof a preference over holders of all other equity securities of the Company
(including Preferred A Shares) in the event dividends are being distributed, to
receive for each Preferred B1 Shares and each Preferred B Share an amount to be
accrued, from the date of issuance thereof until the date of distribution of
such dividends, at the rate of eight (8) percent per annum, compounded annually,
calculated on the US$ price per share paid for each such Preferred B1 Shares and
Preferred B Share (subject to appropriate adjustments for recapitalizations and
similar events). Thereafter, dividend distributions shall be effected on a
pro-rata and pari passu basis, among the Company's Ordinary and Preferred
Shareholders (on an as-converted basis).

8. LIQUIDATION.

Until a Qualified IPO, if the Company should be wound-up, in bankruptcy,
liquidation, dissolution or similar proceeding, then subject to applicable law,
all the assets of the Company available for distribution among its shareholders
shall be distributed to them in the following order and preference:

        (a) First, each of the holders of Preferred B1 Shares shall be entitled
to a per share distribution in the amount equal to two and a half (2.5) times
the price per share paid by each such holder, adjusted for share combinations or
subdivisions or other recapitalizations of the Company's shares (the "PREFERENCE
B1"), plus an amount equal to

<PAGE>
                                       4

the amount of any cash dividends declared by the Company but not distributed to
the holders of Preferred B1 Shares prior to the distribution of the Preference
B1 and minus an amount equal to the amount of any cash dividends distributed to
the holders of Preferred B1 Shares prior to the distribution of the Preference
B1. In the event that the assets of the Company available for distribution shall
be insufficient to make such per share distributions, all of such assets shall
be distributed pro rata among the holders of Preferred B1 Shares in proportion
to the full Preference B1 such holders would otherwise be entitled to receive
hereunder.

        (b) Second, each of the holders of Preferred B Shares shall be entitled
to receive a per share distribution in the amount equal to two (2) times the
price per share paid by each such holder, adjusted for share combinations or
subdivisions or other recapitalizations of the Company's shares (the "PREFERENCE
B") plus an amount equal to the amount of any cash dividends declared but not
distributed by the Company to the holders of Preferred B Shares prior to the
distribution of the Preference B and minus an amount equal to the amount of any
cash dividends distributed to the holders of Preferred B Shares prior to the
distribution of the Preference B. In the event that the assets of the Company
available for distribution (after distribution of Preference B1) shall be
insufficient to make such per share distributions, all of such assets (after
distribution of Preference B1) shall be distributed pro rata among the holders
of Preferred B Shares in proportion to the full Preference B such holders would
otherwise be entitled to receive hereunder.

        (c) Third, after payment of the Preference B1 pursuant to Article 8(a)
above and the Preference B pursuant to Article 8(b) above, the holders of
Preferred A Shares shall be entitled to receive, in US dollars, the amount equal
to the price per share paid for each Preferred A Share (as adjusted for any
bonus shares, combinations or splits with respect to such shares) (the
"PREFERENCE A") plus an amount equal to the amount of any cash dividends
declared and not distributed to the holders of Preferred A Shares prior to the
distribution of the Preference A, and minus an amount equal to the amount of any
cash dividends distributed by the Company to the holders of Preferred A Shares
prior to the distribution of the Preference A. In the event that the assets of
the Company available for distribution (after distribution of Preference B1 and
Preference B) shall be insufficient to make such per share distributions, all of
such assets (after distribution of Preference B1 and Preference B) shall be
distributed pro rata among the holders of Preferred A Shares in proportion to
the full Preference A such holders would otherwise be entitled to receive
hereunder.

        (d) Fourth, after payment of the Preference B1 pursuant to Article 8(a)
above, Preference B pursuant to Article 8(b) and the Preference A pursuant to
Article 8(c) above, the holders of the Ordinary Shares and the Preferred B1
Holders (on as-converted basis) shall be entitled to a per share distribution in
proportion to the respective percentage holdings of all of the Ordinary Shares;
provided, however, that in the event that the amount which would be distributed
per Preferred B Share or Preferred A Share if the provisions of this Articles
8(b) and 8(c) were disregarded and all assets were distributed in proportion to
the respective holdings of all of the Ordinary Shares (on an as-converted basis)
(the " PRO-RATA PORTION") will be higher than the Preference B or preference A
respectively, than the provisions of Articles 8(b) and 8(c) will be disregarded
and each of the holders of Preferred B Shares or Preferred A shares shall be
entitled to receive only its Pro-Rata Portion.

<PAGE>
                                       5

(e) Deemed Liquidation. For purposes of this Article 8, in addition to any
liquidation, dissolution, or winding up of the Company under applicable law, the
Company shall be deemed to be liquidated in the event of a consolidation, merger
or reorganization of the Company with or into, or a sale of all or substantially
all of the Company's assets, or substantially all of the Company's issued and
outstanding share capital, to any other company, or any other entity or person,
or in the event of a Change in Control (as defined below) (collectively, "DEEMED
LIQUIDATION"). Upon any Deemed Liquidation of the Company as described in this
Article 8(e) and at the election of holders of a majority of the then
outstanding Preferred B Shares and Preferred B1 Shares voting as one class (on
as-converted basis) by written notice to the Company, at the closing of the
transaction at which the Company is deemed for purposes of this Article 8(e) to
be liquidated, the holders of Preferred B1 Shares shall be paid in cash,
securities or a combination thereof, an amount equal to the amount per Preferred
B1 Share which would be payable thereto pursuant to this Article 8 if all
consideration received by the Company and its shareholders in connection with
such transaction was distributed in a liquidation of the Company and only
thereafter, the holders of Preferred B Shares shall be paid in cash, securities
or a combination thereof, an amount equal to the amount per Preferred B Share
which would be payable thereto pursuant to this Article 8 if all consideration
received by the Company and its shareholders in connection with such transaction
was distributed in a liquidation of the Company. For the purpose of this Article
8(e), "CHANGE IN CONTROL" - shall mean any transaction following which (i) more
than fifty percent (50%) of the Company's voting rights under the issued and
outstanding share capital is held by a legal entity which, prior to such
transaction, held less than fifty percent (50%) of the voting rights under the
Company's issued and outstanding share capital; or (ii) more than fifty percent
(50%) of the Company's Directors may be appointed by legal entity which, prior
to such transaction, had the right to appoint up to fifty percent (50%) of the
Company's Directors.

9. CONVERSION.

The holders of the Preferred Shares shall have conversion rights as follows (the
"CONVERSION Rights"):

        (a) Optional Conversion. Each Preferred Share shall be convertible at
the option of the holder thereof, at any time after the date of issuance of such
share, at the office of the Company, into one fully paid and non assessable
Ordinary Share (subject to adjustment as set herein) of the same par value.

        (b) Automatic Conversion of Preferred A Shares. Each Preferred A Share
shall automatically be converted into one fully paid and non assessable Ordinary
Share (subject to adjustment as set herein), upon the following: (i) at the
election of holders of a majority of the then outstanding Preferred A Shares
voting as a class, or (ii) the conversion into Ordinary Shares of the Preferred
B Shares or Preferred B1 Shares.

        (c) Automatic Conversion of Preferred B Shares. Each Preferred B Share
shall automatically be converted into one fully paid and non assessable Ordinary
Share (subject to adjustment as set herein), upon the following: (i) at the
election of holders of a majority of the then outstanding Preferred B Shares
voting as a class, or (ii) at the election of holders of a majority of the then
outstanding Preferred B Shares and Preferred B1 Shares voting as one class, or
(iii) the consummation of a Qualified IPO.

<PAGE>
                                       6

        (d) Automatic Conversion of Preferred B1 Shares. Each Preferred B1 Share
shall automatically be converted into one fully paid and non assessable Ordinary
Share (subject to adjustment as set herein), upon the following: (i) at the
election of holders of a majority of the then outstanding Preferred B1 Shares
voting as a class, or (ii) the consummation of a Qualified IPO.

        (e) Before any holder of Preferred Shares shall be entitled (in the case
of a conversion at such holder's option) to convert the same into Ordinary
Shares, he shall surrender the certificate or certificates therefor, duly
endorsed, at the office of the Company, and shall give written notice by mail,
postage prepaid, to the Company at its principle corporate office, of the
election to convert the same and shall state therein the name or names of any
nominee for such holder in which the certificate or certificates for Ordinary
Shares are to be issued. Such conversion (in the case of a conversion at such
holder's option) shall be deemed to have been made immediately prior to the
close of business on the date of such surrender of the certificate representing
the Preferred Shares to be converted, and the person or persons entitled to
receive the Ordinary Shares issuable upon such conversion shall be treated for
all purposes as the record holder or holders of such Ordinary Shares as of such
date. If the conversion is in connection with a Qualified IPO, then the
conversion shall be deemed to have taken place automatically regardless of
whether the certificates representing such shares have been tendered to the
Company, but from and after such conversion any such certificates not tendered
to the Company shall be deemed to evidence solely the Ordinary Shares received
upon such conversion and the right to receive a certificate for such Ordinary
Shares. If the conversion is in connection with a Qualified IPO, the conversion
may, at the option of any holder tendering Preferred Shares for conversion, be
conditioned upon the closing with the underwriter of the sale of securities
pursuant to such offering, in which event the person(s) entitled to receive the
Ordinary Shares issuable upon such conversion of the Preferred Shares shall not
be deemed to have converted such Preferred Shares until immediately prior to the
closing of such offer of securities. The Company shall, as soon as practicable
after the conversion and tender of the certificate for the Preferred Shares
converted, issue and deliver at such office to such holder of Preferred Shares
or to the nominee or nominees of such holder of Preferred Shares, a certificate
or certificates for the number of Ordinary Shares to which such holder shall be
entitled as aforesaid.

            (f) The conversion rate of the Preferred Shares will be
appropriately adjusted to the extent necessary for the holder thereof to
maintain its proportionate equity interest in the Company on a fully diluted
basis ("PROPORTIONATE ADJUSTMENT") in the event that the Company:

               (1) declares a dividend, or otherwise makes a distribution, only
for the outstanding Ordinary Shares;

               (2) splits or otherwise reclassifies the outstanding shares into
a greater or lesser number of shares;

               (3) is a party to any transaction (including, without limitation,
a merger, consolidation, sale of substantially all of the company's assets,
liquidation, or recapitalization of the shares) where the Shares are to be
changed into or exchanged for different securities of the Company or ordinary
shares/common stock or other securities of another corporation.

<PAGE>
                                       7

            (g) The Preferred B1 Holders and the Preferred B Holders shall be
entitled to "full ratchet" anti dilution protection in accordance with the
following provisions:

Upon each issuance (or deemed issuance, as described below), at any time prior
to a Qualified IPO by the Company of any Additional Shares (as defined herein)
at a price per share lower than US$ 0.373135 (the "INITIAL CONVERSION PRICE")
("LOW PRICE OFFERING"), as adjusted for share combinations or subdivisions or
other recapitalizations of the Company's shares, or as otherwise adjusted
hereunder, the Initial Conversion Price shall automatically and without further
action be adjusted (such adjusted Initial Conversion Price, as it shall be from
time to time, shall hereinafter be termed the "ADJUSTED CONVERSION PRICE"), so
that upon conversion of the Preferred B1 Shares or the Preferred B Shares, as
the case may be, each holder thereof shall be entitled to be issued a number of
additional Ordinary Shares (the "COVER SHARES"), according to the following
formula:

                      X =   Y (A - B)
                            ---------
                                B

                             Where:

                                    X = The number of Cover Shares to be issued
                                    to the holders of Preferred B1 Shares and
                                    the Preferred B Shares, as applicable

                                    Y = The number of Shares held by the holders
                                    of Preferred B1 Shares and Preferred B
                                    Shares, as applicable.

                                    A = The Initial Conversion Price.

                                    B = The price of each Additional Share.

        (h) No fractional shares will be issued in connection with any issuance
of Cover Shares according to Articles 9(a)(b)(c)(d)(f).

        (i) The consideration for the issuance of Additional Shares shall be
deemed to be the amount of cash (including value of freely transferable
securities traded on a recognized stock exchange) received therefor.

        (j) In the case of the issuance of options to purchase or rights to
subscribe for Ordinary Shares, or securities by their terms convertible into or
exchangeable for Ordinary Shares or options to purchase or rights to subscribe
for such convertible or exchangeable securities, the aggregate maximum number of
Ordinary Shares deliverable upon exercise (assuming the satisfaction of any
conditions to exercisability, including without limitation, the passage of time,
but without taking into account potential anti-dilution adjustments) of such
options to purchase or rights to subscribe for Ordinary Shares, or upon the
exchange or conversion of such security, shall be deemed to have been issued at
the time of the exercise of such options, rights or securities, at a
consideration equal to the consideration (determined in the manner provided in
Articles 9(i) and 9(k), received by the Company upon the issuance

<PAGE>
                                       8

of such options, rights or securities plus any additional consideration payable
to the Company pursuant to the term of such options, rights or securities
(without taking into account potential anti-dilution adjustments) for the
Ordinary Shares covered thereby.

        (k) For the purposes of this Article 9, the consideration for any
Additional Shares shall be taken into account, at the U.S. Dollar equivalent
thereof, on the day such Additional Shares are issued or deemed to be issued
pursuant to Article 9(j).

        (l) "ADDITIONAL SHARES" shall mean any Ordinary Shares or Preferred
Shares issued, or deemed to have been issued pursuant to Article 9(j), by the
Company other than:

                                    (1) Ordinary Shares issued upon exercise of
                                 options granted to employees, consultants,
                                 officers and directors of the Company pursuant
                                 to stock purchase or stock option plans
                                 approved by the Board;

                                    (2) any subdivision or combination of
                                 shares;

                                    (3) any distribution of bonus shares to all
                                 the shareholders of the company;

                                    (4) any Ordinary Shares issued upon
                                 conversion of Preferred Shares;

                                    (5) up to 105,000 Preferred A Shares issued
                                 to Yaacov Palevich upon exercise of the warrant
                                 issued by the Company on October 20, 1999
                                 provided that concurrently with such issuance
                                 an equal number of ordinary shares held by Gadi
                                 Gonen shall be converted into Deferred Shares.
        (m) Reserved.

        (n) No shareholder of the Company shall have any rights of first
refusal, preemptive rights, anti-dilution, blocking or any other rights with
respect to the issuance of the Cover Shares. In the event any such rights are
nevertheless exercised, the number of Cover Shares to be issued to the Preferred
B1 Holders and to the Preferred B Holders shall be increased by such number as
is required to give such holders the full economic value of Articles 9(a)-(d),
9(f) or 9(g), as applicable.

        (o) The Company will not, by amendment of these Articles or through any
reorganization, recapitalization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary action, avoid or
seek to avoid the observance or performance of any of the terms to be observed
or performed hereunder in this Article 9 by this Company, but will at all times
in good faith assist in the carrying out of all the provisions of this Article 9
and in taking of all such action as may be necessary or appropriate in order to
protect the conversion rights of the holders of the Preferred Shares against
impairment.

        (p) Upon the occurrence of each adjustment or readjustment of the
Conversion Price or the Adjusted Conversion Price pursuant to this Article 9,
the Company, at is expense, shall promptly compute such adjustment or
readjustment in accordance with the terms

<PAGE>
                                       9

hereof and prepare and furnish to each holder entitled to adjustment or
readjustment a certificate setting forth each adjustment or readjustment and
showing in detail the facts upon which such adjustment or readjustment is based.
The Company shall furnish or cause to be furnished to such holder a like
certificate setting forth (A) such adjustment or readjustment, (B) the Adjusted
Conversion Price, as the case may be, at the time in effect, and (C) the number
of Ordinary Shares and the amount, if any, of other property which at the time
would be received upon the conversion of a Preferred Share.

        (q) In the event of any taking by the Company of a record of the holders
of any class of securities for the purpose of determining the holders thereof
who are entitled to receive any dividend (including a cash dividend) or other
distribution, any right to subscribe for, purchase or otherwise acquire any
shares of any class or any other securities or property, or to receive any other
right, the Company shall mail to each holder of Preferred Shares, at least
twenty (20) days prior to the date specified therein, a notice specifying the
date on which any such record is to be taken for the purpose of such dividend,
distribution or right, and the amount and character of such dividend,
distribution or right.

        (r) The Company shall at all times reserve and keep available out of its
authorized but unissued Ordinary Shares, solely for the purpose of effecting the
conversion of the Preferred Shares, such number of its Ordinary Shares as shall
from time to time be sufficient to effect the conversion of all issued and
outstanding Preferred Shares; and if at any time the number of authorized but
unissued Ordinary Shares shall not be sufficient to effect the conversion of all
then outstanding Preferred Shares, in addition to such other remedies as shall
be available to the holders of such Preferred Shares, the Company will take such
corporate action as may, in the opinion of its counsel, be necessary to increase
its authorized but unissued Ordinary Share capital to such number of shares as
shall be sufficient for such purposes.

10. VOTING RIGHTS; PROTECTIVE PROVISIONS.

        (a) In all shareholders' meetings, the holders of any of the classes of
Preferred Shares shall vote together with the holders of Ordinary Shares, and
not as separate classes, except as provided by Article 10(b) below or as
required otherwise by law. The holder of each share of Preferred Shares shall
have the right to one vote for each share of Ordinary Shares into which such
Preferred Shares could then be converted (with any fractional share determined
on an aggregate conversion basis being rounded to the nearest whole share), and
with respect to such vote, such holder shall have full voting rights and powers
equal to the voting rights and powers of the holders of Ordinary Shares, and
shall be entitled, notwithstanding any provision hereof, to notice of any
shareholders' meeting in accordance with these Articles, and shall be entitled
to vote, together with holders of Ordinary Shares, with respect to any question
upon which holders of Ordinary Shares have the right to vote.

        (b) Until the consummation of a Qualified IPO, any action or resolution
of the Company's general meeting or of the Company's Board of Directors (or any
committee thereof), as applicable, regarding any of the following issues, shall
require the consent of the majority of the holders of the then outstanding
Preferred B1 Shares and the majority of the then outstanding Preferred B Shares,
or if such action or resolution is at the discretion of the Board of Directors -
the majority of the Directors appointed by the Preferred B Holders and the
Preferred B1 Holders: (1) amending the Memorandum, Articles of Association or
other action which would have the affect of amending the rights, preferences or
privileges of the

<PAGE>
                                       10

Preferred B1 Shares or the Preferred B Shares, as applicable; without derogating
from the generality of the above, the provisions of this Sub-Article 10(b)(1)
shall apply, amongst others, to amendment or cancellation of Articles 7, 8, 9,
10, 11, 12, 26, 27, 28, 31, 32, 52, 61(b); (2) the issuance of Ordinary Shares
or any further Preferred Shares or other securities with rights equal to or
superior to the rights of the Preferred B1 Shares or the Preferred B Shares, as
applicable; (3) the merger of the Company or sale of substantially all the
Company's assets; (4) increase in the number of the Company's directors to more
than seven; (5) declaration or payment of any dividend or other distribution of
cash, shares, or other assets; (6) interested party transactions; (7) making any
loans or advances to employees other than in ordinary course of business; (8)
making any guarantee in excess of US$ 200,000 or not in the ordinary course of
business; (9) mortgaging, pledging or creating a security interest ("PLEDGE") on
all or substantially all of the assets of the Company or a subsidiary, or on any
of their material assets; (10) formation of or investment in any entity which is
not wholly owned by the Company; (11) appointment and removal of executive
management, including the CEO, and their employment terms; (12) making any
material changes in the nature of the Company's business; (13) the appointment
and removal of the Company's auditors; (14) any sale, transfer, license, or
pledge or similar transaction (including waiver of rights) in relation to the
Company's (including any subsidiary's) intellectual property, which is not made
in the ordinary course of its business; and (15) approval of the annual
operating plan and budget.

11. PREEMPTIVE RIGHTS.

        (a) Until a Qualified IPO, the Preferred Holders shall be entitled to
preemptive rights to purchase, pro-rata, all of New Securities (as defined
below) that the Company may, from time to time, propose to sell and issue. The
pro rata share of the holders of Preferred Shares shall be the ratio of the
respective number of Ordinary Shares held by each of them (on an as-converted
basis) at the date of the Rights Notice (as defined below), to the sum of the
total number of Ordinary Shares (on an as-converted basis) as of such date. The
preemptive right herein shall be subject to the following provisions:

        (b) "NEW SECURITIES" shall mean any Ordinary Shares or preferred shares
of any kind of the company, whether now or hereafter authorized, and rights,
options, or warrants to purchase said Ordinary Shares or preferred shares, and
securities of any type whatsoever that are, or may become, convertible into said
Ordinary Shares or Preferred Shares; provided, however, that New Securities
shall not include: (i) Ordinary Shares or Preferred Shares issued in connection
with any stock split, stock dividend, recapitalization, reclassification or
similar event by the Company; (ii) Ordinary Shares issued pursuant to a share
purchase or share option plan approved by the Board; (iii) Ordinary Shares
issued upon conversion of Preferred Shares; (iv) up to 105,000 Preferred A
Shares issued to Yaacov Palevich upon exercise of the warrant issued by the
Company on October 20, 1999.

        (c) If the Company proposes to issue New Securities, it shall give the
Preferred Holders written notice (the "RIGHTS NOTICE") of its intention,
describing the New Securities, the price, the general terms upon which the
Company proposes to issue them, and the number of shares that each of the
Preferred Holders has the right to purchase under this Article 11. Each of
Preferred Holders shall have fourteen (14) days from delivery of the Rights
Notice (the "EXERCISE PERIOD") to agree to purchase all but not less than all of
its pro-rata share of such New Securities, for the price and upon the general
terms specified in the Rights Notice. Within three (3) days from the termination
of the Exercise Period, the

<PAGE>
                                       11

Company shall give the Preferred Holders who exercise their preemptive right set
forth herein (the "EXERCISING HOLDERS"), a written notice of the number of New
Securities which remains unexercised by the other holders of Preferred Shares.
Each of the Exercising Holders shall have seven (7) days from delivery of such
notice to agree to purchase all or any part of the pro-rata shares of any such
non-exercising shareholders, to the extent remaining unexercised by such
shareholders, in each case for the price and upon the general terms specified in
the Rights Notice, by giving written notice to the Company setting forth the
amount of New Securities to be purchased. If the Exercising Holders elect to
purchase, in the aggregate, all but not less than all of the New Securities,
then such New Securities shall be sold to such Exercising Shareholders in
accordance with the respective amounts requested by each Exercising Shareholder;
If the Exercising Holders who elect to purchase their full pro- rata shares also
elect to purchase, in the aggregate, more than the number of the New Securities,
then such New Securities shall be sold to the Exercising Shareholders pro-rata
amongst themselves, provided that no Exercising Shareholder shall be forced to
purchase more than the number of New Securities requested by it.

        (d) If the Preferred Holders fail to exercise the right of preemption
for the entire amount of the proposed New Securities within the period or
periods specified in Article 11(c), the New Securities may be sold by the
Company within one hundred and eighty (180) days after delivery of the Rights
Notice, at a price and upon general terms no more favorable to the purchasers
thereof than specified in the Rights Notice. If the Company has not sold the New
Securities within the said one hundred eighty (180) day period, the Company
shall not thereafter issue or sell any New Securities without first offering
such securities to the Preferred Holders in the manner provided above.

12. DELIVERY OF FINANCIAL STATEMENTS AND ADDITIONAL INFORMATION.

The Company shall deliver to any holder of Preferred Shares (provided that the
Carmel Venture Funds Entities as a group, Infinity Venture Capital Funds
Entities as a group and BackWeb and its affiliates as a group, may be
considered, each such group, as one holder for the purpose of this Article 12)
holding at least five (5) percent of the outstanding share capital of the
Company (on an as-converted basis) (in this Article 12, a "HOLDER") financial
statements and additional information as follows:

        (a) As soon as practicable, but in any event within sixty (60) days
after the end of each fiscal year of the Company, a consolidated balance sheet
of the Company as of the end of such year, and statements of income and
statements of cash flow of the Company for such year, setting forth in each case
in comparative form the figures for the previous fiscal year, all in reasonable
detail, United States dollar-denominated, prepared in accordance with GAAP,
audited by a firm of Independent Certified Public Accountants in the State of
Israel forming part of the "big 4" CPA firms who are members of the Israeli
Institute of Certified Public Accountants, and accompanied by an opinion of such
firm, in the customary form, which opinion shall state that such balance sheet
and statements of income and cash flow have been prepared in accordance with
GAAP applied on a basis consistent with that of the preceding fiscal year
(unless required otherwise by a governmental authority), and present fairly and
accurately the financial position of the Company as of their date, and that the
audit by such accountants in connection with such financial statements has been
made in accordance with generally accepted auditing principles.

<PAGE>
                                       12

        (b) As soon as practicable, but in any event within forty-five (45) days
after the end of each of the first three (3) quarters of each fiscal year of the
Company, an unaudited (but reviewed) consolidated balance sheet of the Company
as at the end of each such period and unaudited (but reviewed) consolidated
statements of: (i) income; and (ii) cash flow of the Company for such period and
for the period from the beginning of the current fiscal year to the end of such
quarterly period, setting forth in each case in comparative form the figures for
the corresponding period of the previous fiscal year, all in reasonable detail,
United States dollar-denominated, and certified by the chief financial officer
(or if none, by the chief executive officer) of the Company, that such financial
statements were prepared in accordance with GAAP applied on a basis consistent
with that of preceding periods and, except as otherwise stated therein, fairly
present the financial position of the Company as of their date. As soon as
practicable, but in any event within forty-five (45) days after the end of each
quarter of each fiscal year of the Company, the Company shall provide the
Preferred B Holders and the Preferred B1 Holders quarterly management reports.

        (c) Within thirty (30) days after the end of each month, the Company
shall provide each Holder monthly reports in the form of a statement of revenues
and expenses, as shall be determined by the Board.

        (d) The Company will permit an authorized representative of each Holder
full and free access, at all reasonable times, and upon reasonable coordination,
to any of the properties of the Company, including its books and records, and to
discuss its affairs, finances and accounts with the Company's officers and
auditor. In addition, the Company will make available to any Holder, with
reasonable promptness, such other information and data with respect to the
Company, as a Holder may from time to time reasonably request. This Article 12
shall not be in limitation of any rights, which the Preferred B Holders,
Preferred B1 Holders or the Director(s) designated by the Preferred B Holders or
the Preferred B1 Holders may have under applicable law. In addition, and not as
a limitation on any of the foregoing, the Company will provide reasonable
disclosure and information regarding the Company's affairs at meetings of the
Board, annual general meetings of the shareholders, and special meetings of the
shareholders.

        (e) The Company's obligation to deliver the financial statements and
other information under Articles 12(a), 12(b) and 12(c) hereof, shall terminate
and shall be of no further force or effect upon the closing of an IPO. Following
an IPO, the Company shall deliver to any Holder, and any of its assignees or
transferees, copies of all filings with the Securities and Exchange Commission
promptly after filing, and such financial information as the Company from time
to time provides to other holders of its securities.

        (f) Any Preferred B Holder and Preferred B1 Holder which is subject to
disclosure duties under applicable securities laws shall have the right to make
any disclosure of the Company's information provided to it hereunder only to the
extent required under such laws.

        (g) A Holder will be withheld from exercising its rights set forth in
this Article 12 in relation to any matters which the Board of Directors of the
Company shall determine, by a majority of the Directors, may give rise to a
conflict of interest between the Company, its business, operations and or
potential or proposed transactions thereof and such Holder.

RIGHTS AND RESTRICTIONS OF DEFERRED SHARES

<PAGE>
                                       13

12A. Deferred Shares shall be entitled to receive the par value thereof in an
event of liquidation or winding up of the Company, and shall not be entitled to
any other rights or privileges. Any shareholder's right and/or privilege as set
forth in these Articles shall only apply to the holders of Preferred Shares
and/or Ordinary Shares, as the case may be, and any reference to "shareholder"
shall be deemed as reference to Preferred Shares and/or Ordinary Shares, as the
case may be.

ALLOTMENT OF SHARES

13. Subject to the provisions of Article 14, the unissued shares shall be under
the control of the Board of Directors, who shall have the power to allot shares
or otherwise dispose of them to such persons, on such terms and conditions
(including inter-alia terms relating to calls as set forth in Article 29
hereof), and either at nominal value or at a premium, or, subject to the
provisions of the Law, at a discount, and at such times, as the Board of
Directors may think fit, and the power to give any person the option to acquire
from the Company any shares, either at nominal value or at premium, or, subject
as aforesaid, at a discount, during such time and for such consideration as the
Board of Directors may think fit.

REGISTERED HOLDER

14. (a) If two or more persons are registered as joint holders of a share they
shall be jointly and severally liable for any calls or any other liability with
respect to such share. However with respect to voting, power of attorney and
furnishing notices, the one registered first in the register of shareholders
shall be deemed to be the sole owner of the share, insofar as all the registered
joint holders shall not notify the Company in writing to relate to another one
of them as the sole owner of the share, as aforesaid.

        (b) In the case that two or more persons are registered together as
holders of a share, each one of them shall be permitted to give receipts binding
all the joint holders for dividends or other monies in connection with the share
and the Company shall be permitted to pay all the dividends or other monies due
with respect to the share to one or more of the joint holders, as it shall
choose.

SHARE CERTIFICATE

15. (a) A shareholder shall be entitled to receive from the Company without
payment, one certificate that shall contain that number of shares registered in
the name of such shareholder, their class and serial numbering. However, in the
event of joint holders holding a share, the Company shall not be obligated to
issue more than one certificate to all of the joint holders, and the delivery of
such a certificate to one of the joint holders shall be deemed to be a delivery
to all of the joint holders.

        (b) Each certificate shall carry the signature or signatures of those
persons appointed by the Board for this purpose and the rubber stamp or the seal
of the Company.

        (c) If a share certificate is defaced, lost or destroyed, it may be
replaced upon payment of such fee, if any, and on such terms, if any, as to
evidence and indemnity as the Board of Directors may think fit.

<PAGE>
                                       14

MODIFICATIONS OF SHARE RIGHTS

16. Without derogating from the provisions of Articles 10 (b), if at any time
the share capital is divided into different classes of shares (unless otherwise
provided for by the terms of issue of the shares of that class), the Board shall
be permitted to change, convert, broaden, add or vary in any other manner the
rights, advantages, restrictions and provisions attached at that time to one or
more of the classes, after receiving the written consent of the holders of more
than fifty (50) percent of the issued shares of that class, or with the sanction
of an Ordinary Resolution passed at a separate general meeting of the holders of
the shares of that class. The provisions of these Articles relating to general
meetings shall apply, mutatis-mutandis, to every such separate general meeting.
Any holder of shares of that class present, either personally or by proxy, may
request a secret ballot.

PLEDGE

17. (a) The Company shall have a lien and first pledge on all the shares, not
fully paid, registered in the name of any shareholder (whether registered in his
name only or together with another or others) for any amount still outstanding
with respect to that share, whether presently payable or not. Such a pledge
shall exist whether the dates of payment or fulfillment or execution of the
obligations, debts or commitments have become due or not, and shall apply to all
dividends that shall be decided upon from time to time in connection with these
shares. No benefit shall be created with respect to such share based upon the
rules of equity, which shall frustrate such pledge; however, the directors may
declare at any time with respect to any share that it is released, wholly or in
part, temporarily or permanently, from the provisions of this Article.

(b) The Company may sell, in such manner and at such time as the Directors think
fit, any of the pledged shares, but no sale shall be made unless the date of
payment of the monies or a part thereof has arrived, or the date of fulfillment
and performance of the obligations and commitments in consideration of which the
pledge exists has arrived, and after a written request has been furnished to the
shareholder or person who has acquired a right in the shares, which sets out the
amount or obligation or commitment due from him and which demands their payment,
fulfillment or execution, and which informs the person of the Directors' desire
to sell the shares in the event of non-fulfillment of the notice, and the person
has not fulfilled his obligation pursuant to the notice within seven days after
the notice had been sent to him.

(c) The net proceeds of such sale shall be applied in payment of such sum due to
the Company or to the fulfillment of the obligation or commitment, and the
remainder (if there shall be any) shall be paid to the shareholder or to the
person who has acquired a right in the share sold pursuant to the above.

(d) After execution of a sale as aforesaid, the Directors shall be permitted to
sign or to appoint someone to sign a deed of transfer of the sold shares and to
register the buyer's name in the register of shareholders as the owner of the
sold shares and it shall not be the obligation of the buyer to supervise the
application of monies nor will his right in the shares be affected by a defect
or illegality in the sale proceedings after his name has been registered in the
register of shareholders with respect to those shares.

<PAGE>
                                       15

The sole remedy of any person aggrieved by the sale shall be in damages only and
against the Company exclusively.

TRANSFER OF SHARES

18. Subject to the rights of first refusal, co-sale provisions, no-sale
provisions and bring along provisions set forth in these Articles, each
shareholder may freely transfer his shares; provided, however, that in the event
that the intended transferee is a direct competitor of the Company, such
transfer shall be contingent on the approval of such transfer by the Company's
Board of Directors following receipt of notification to that effect from the
transferor. In the event of receipt of such notification, the Board of Directors
shall approve or refuse such transfer within fourteen (14) days thereafter.
Failure of the Board of Directors to refuse such transfer within said time
period shall be deemed an approval of such transfer by the Board of Directors.

19. Each transfer of shares shall be made in writing in the form appearing
herein below, or in a similar form, or in any form as to be determined upon by
the Directors from time to time, such form shall be delivered to the office
together with the transferred share certificates and any other proof the
directors shall require, if they shall so require, in order to prove the title
of the transferor.

Deed of Transfer of Shares

I, _________ of _______________, in consideration of the sum of NIS ____ (New
Israeli Shekels) paid to me by __________, of _____________ (hereinafter called
the "TRANSFEREE") do hereby transfer to the said transferee ________ share(s)
having par value of NIS __ each one numbered _____ until _____ inclusive in Red
Bend Ltd., to hold unto the transferee, his executors, administrators, and
assigns, subject to the several conditions on which I held the same at the time
of the execution hereof; and I, the transferee, do hereby agree to take the said
share (or shares) subject to the conditions aforesaid. As witness we have
hereunto set our hands the ___ day of _____, 200_.

-----------------------------------          -----------------------------------
Transferee                                   Transferor

-----------------------------------          -----------------------------------
Address & Profession                         Address & Profession

-----------------------------------          -----------------------------------
Witness to the                               Witness to the
Transferee's Signature                       Transferor's Signature

-----------------------------------          -----------------------------------
Address of Witness                           Address of Witness

20. The deed of share transfer shall be executed both by the transferor and
transferee, and the transferor shall be deemed to remain a holder of the share
until the name of the transferee is entered into the register of shareholders in
respect thereof.

21. The Board shall be permitted to demand a fee for registration of transfer,
in a reasonable rate as to be determined by the directors from time to time.

22. The register may be closed at such dates and for such other periods as
determined by the directors from time to time, upon the condition that the
register shall not be closed for more than thirty (30) days every year.

<PAGE>
                                       16

23. Upon the death of a shareholder the remaining holders (in the event that the
deceased was a joint holder in a share) or the administrators or executors or
heirs of the deceased (in the event the deceased was the sole holder of the
share or was the only one of the joint holders of the share to remain alive)
shall be recognized by the Company as the sole holders of any title to the
shares of the deceased. However, nothing aforesaid shall release the estate of a
joint holder of a share from any obligation with respect to the share that he
held jointly with any other holder.

24. Any person becoming entitled to a share in consequence of the death or
bankruptcy or liquidation of a shareholder shall, upon such evidence being
produced as may from time to time be required by the Directors, have the right,
either to be registered as a shareholder in respect of the share upon the
consent of the Directors (who have the right to refuse pursuant to Article 25
above) or, instead of being registered himself, to transfer such share to
another person, subject to the provisions contained in these Articles with
respect to transfers.

25. A person becoming entitled to a share because of the death of a shareholder
shall not be entitled to receive notices with respect to Company meetings or to
participate or vote therein with respect to that share, or aside from the
aforesaid, to use any right of a shareholder, until he has been accepted as a
shareholder with respect to that share.

26. RIGHT OF FIRST REFUSAL; RIGHT OF CO-SALE.

        (a) In the event that any of the shareholders of the Company (in this
Article, a "SELLING SHAREHOLDER"), proposes to transfer all or any of its
securities other than to a Permitted Transferee, as defined below (the "OFFERED
SECURITIES"), such Selling Shareholder shall first offer such Offered Securities
to each of the other shareholders of the Company holding at least one (1)
percent of the then issued and outstanding share capital of the Company (the
"OTHER SHAREHOLDERS") by delivering to each one a written notice of such
proposal (the "OFFER"). The Offer shall state the identity of the Selling
Shareholder, the identity of the proposed transferee(s) and the proposed terms
of sale of the Offered Securities. Each of the Other Shareholders may accept the
Offer, on a pro rata basis among the Other Shareholders, in respect of all of
the Offered Securities, by giving such Selling Shareholder and the Company
notice to that effect within thirty (30) days after receiving the Offer (the
"ACCEPTANCE PERIOD"). In the event that the Other Shareholders accept the Offer,
then they shall acquire all the Offered Securities, on the terms set forth in
the Offer, and on a pro-rata basis among themselves (determined for each of them
as the result of the multiplication of the number of Offered Securities by a
fraction the numerator of which is the number of ordinary shares held by such
holder (on as converted basis), and the denominator of which is the aggregate
number of all Ordinary Shares held by all Other Shareholders (on an as converted
basis)). In the Event the Other Shareholders do not accept the Offer in full,
then, within 3 (three) days from the termination of the Acceptance Period, the
Selling Shareholders shall give the Other Shareholders who exercise their right
of first refusal set forth herein (the "ACCEPTING SHAREHOLDERS") and the
Company, a written notice of the number of Offered Securities which remains
unexercised by the Other Shareholders (the "REMAINING SHARES"). Each of the
Accepting Shareholders shall have 7 (seven) days from delivery of such notice to
agree to purchase the Remaining Shares on a pro rata basis among the Accepting
Shareholders. The calculation of the pro rata basis with respect to the
Remaining Shares shall be according to the calculation set herein above mutatis
mutandis. In the event that the Other Shareholders do not accept the Offer in
full then the Selling Shareholder shall, at the expiration of the aforementioned
seven (7) day period, be entitled to

<PAGE>
                                       17

transfer all of the Offered Securities to the proposed transferee(s) identified
in the Offer; provided, however, that in no event shall the Selling Shareholder
transfer any of the Offered Securities to any transferee other than the
Accepting Shareholders or such proposed transferee(s), or transfer the same on
terms more favorable to the buyer(s) than those stated in the Offer; and
provided, further, that any of the Offered Securities not transferred within one
hundred and twenty (120) days after the expiration of such seven (7) day period
shall again be subject to the provisions of this Article 26(a).

        (b) Except to the extent that the first refusal rights set forth in
Article 26(a) above are exercised by Other Shareholders, if any Founder receives
one or more bona fide offers (a "PURCHASE OFFER") from any person or entity
other than shareholders of the Company (the "THIRD Party"), to purchase from
such Founder any or all of its securities in the Company (the "FOUNDER
SECURITIES"), the holders of Preferred B1 Shares and the holders of Preferred B
Shares shall have the right to participate in the Founder's sale of securities
on a pro rata as converted basis, in accordance with this Article 26(b),
pursuant to the specified terms and conditions of such Purchase Offer. Upon
receipt of a Purchase Offer, the Founder shall promptly notify the holders of
Preferred B1 Shares and the holders of Preferred B Shares in writing of the name
and address of the Third Party and the terms and conditions of such Purchase
Offer (the "ARTICLE 26(b) NOTICE"). Each of the holders of Preferred B1 Shares
and of Preferred B Shares shall be entitled, upon written notice to such Founder
within thirty (30) business days after receipt of the Article 26(b) Notice (the
"PARTICIPATION NOTICE"), to sell to the Third Party up to that number of the
securities in the Company owned by such holders of Preferred B1 Shares and of
Preferred B Shares (the "EQUITY SHARES") which is determined by multiplying the
number of Founder Securities by a fraction the numerator of which is the number
of Ordinary Shares owned by such holders of Preferred B1 Shares and of Preferred
B Shares on an as-converted basis, as applicable, and the denominator of which
is the total number of Ordinary Shares owned by such Founder plus the number of
Ordinary Shares held by such holders of Preferred B1 Shares and of Preferred B
Shares on an as-converted basis, as applicable, plus the number of Ordinary
Shares held by all other shareholders entitled to similar rights of co-sale (on
an as-converted basis). Such Participation Notice shall indicate, subject to the
terms of this Article 26(b), the number of Equity Shares that the holders of
Preferred B1 Shares and of Preferred B Shares, as applicable, intend to transfer
to the Third Party. At the closing of the sale of securities to the Third Party,
the Founder shall transfer its shares to the Third Party only if the Third Party
concurrently therewith purchases, on the same terms and conditions specified in
the Article 26(b) Notice, all of the Equity Shares as to which the Participation
Notice has been delivered.

        (c) if the Founders sell in one or more transactions more than fifty
(50) percent of their shares in the Company, then in any subsequent sale the
holders of the Preferred B1 Shares and the holders of Preferred B Shares will
have a right of co-sale to sell all of their shares along with and prior to any
additional sale by the Founders.

        (d) Notwithstanding anything in this Article 26 to the contrary, the
foregoing first refusal and co-sale rights shall not apply (i) to the transfer
of securities by a shareholder to a Permitted Transferee (as defined below);
(ii) the transfers of up to 150,000 and up to 30,000 shares of the Company,
respectively, from Gadi Gonen and Sharon Peleg to Ami Rosenblat.

        As a condition precedent to any transfer to a Permitted Transferee, such
Permitted Transferee shall undertake in writing towards the Company and its
shareholders all of the

<PAGE>
                                       18

transferor's obligations under this Agreement and shall send a copy thereof to
the Preferred B Holders, the Preferred B1 Holders and to the Company.

In these Articles, a "PERMITTED TRANSFEREE" means with respect to any
shareholder (i) any person or entity, directly or indirectly, that controls or
is controlled by or is under common control with the respective transferor (ii)
any fund (or shareholder or partner of any such fund) or any beneficiary of a
trust or an account or other arrangement, or any fund managed by the general
partner or managing entity(ies) of the Preferred Holders and -- the general or
limited partner(s) or managing entity(ies) of such Preferred Holders or fund, or
any affiliate of such funds, shareholder or partner under common or related
management or control with the transferor, including, without limitation
transfers by a Carmel Venture entity among Carmel Venture entities and with
respect to the Carmel Venture entities -- including but not limited to --
Siemens Venture Capital GmbH, or any affiliate thereof; (iii) Immediate family
of the transferor, including spouse, parents, brothers and sisters, and children
of such shareholder in the event that shares are held by individuals; and in
respect to each Preferred B Holders and Preferred B Holders also to other
Preferred B Holders and Preferred B Holders. In addition a "Permitted
Transferee" shall mean a shareholder (or a former shareholder of the Company),
when such transfer is made by a Permitted Transferee to such shareholder (or
former shareholder) who originally transferred the shares to such Permitted
Transferee.

        (e) The first refusal and co-sale rights granted in this Article 26
shall terminate upon a Qualified IPO.

27. RESTRICTIONS ON SALE BY FOUNDERS.

Notwithstanding anything contained herein to the contrary, none of the Founders
shall be permitted to sell, pledge, transfer or make other dispositions of any
of his shares, prior to an IPO of the Ordinary Shares or to a merger of the
Company. Notwithstanding the aforesaid, (i) each Founder shall be permitted to
sell up to fifteen (15) percent of the number of shares of the Company held by
such Founder; (ii) the Founders shall be permitted to sell all of their shares
as part of a sale of all or substantially all of the shares of the Company to a
third party; (iii) the Founders shall be permitted to sell all of their shares
to their Permitted Transferees; and (iv) Sharon Peleg shall be permitted to sell
such number of his shares as required to comply with the terms of repayment of
that certain loan stipulated in the Loan Agreement between the Company and
Sharon Peleg, dated October 16, 2000, and not before 30 days prior to the date
of repayment.

28. BRING-ALONG RIGHT.

(a) At any time prior to a Qualified IPO, in the event that holders of at least
seventy five (75) percent of the Company's outstanding shares (the "PROPOSING
SHAREHOLDERS") shall accept in writing a detailed offer by any person or
persons, to purchase all of the Company's securities or shares, as the case may
be (the "PURCHASE OFFER"), then all remaining shareholders (in this Article the
"REMAINING SHAREHOLDERS"), shall be compelled to sell their securities in the
Company pursuant to the terms of the Purchase Offer.

(b) At the closing of the proposed transaction (which date, place and time shall
be designated by the Proposing Shareholders and provided to such Remaining
Shareholders in writing at least five (5) business days prior thereto), each
such Remaining Shareholders shall (if required by the Proposing Shareholders or
the Company), deliver certificates evidencing

<PAGE>
                                       19

all his or her securities, duly endorsed, or accompanied by written instruments
of transfer in form satisfactory to the proposed purchaser, duly executed by
such holder, free and clear of any liens, against delivery of the purchase price
therefor.

CALLS

29. (a) A shareholder shall not be entitled to receive dividends nor to use any
right a shareholder has, unless he has paid all the calls that shall be made
from time to time, with respect of money unpaid on all of his shares, whether he
is the sole holder or holds the shares together with another person, in addition
to interest and expenses if there shall be any.

(b) The Directors may, subject to the provisions of these Articles, make calls
upon the shareholders from time to time in respect of any moneys unpaid on their
shares, as they shall determine proper, upon the condition that there shall be
given prior notice of fourteen (14) days on every call and each shareholder
shall be obligated to pay the total amount requested from him, or the
installment on account of the call (if there shall so be) at the times and
places to be determined by the Directors.

(c) The calls for payment shall be deemed to have been requested from the date
the Directors shall have decided upon the calls for payment.

(d) The joint holders of a share shall be jointly and severally liable to pay
the calls for payment in full and the installment on account, in connection with
such calls.

(e) If a sum called in respect of a share is not duly paid, the holders of the
share or the person to whom it has been issued shall be liable to pay interest
and linkage differentials (the "INTEREST") upon the amount of the call or the
payments on account, as determined by the Board of Directors, commencing from
the day designated for the payment thereof to the time of actual payment, but
the Directors shall be at liberty to waive payment of that Interest, in whole or
in part.

(f) Any amount that according to the condition of issuance of a share must be
paid at the time of issuance or at a fixed date, whether on account of the
nominal value of the share or as premium, shall be deemed for the purposes of
these Articles to be a call of payment that was duly made and the date of
payment shall be the date designated for payment. In the event of non-payment of
such amount, all of the Articles herein dealing with payment of interest,
expenses, forfeiture, pledge and the like and all the other Articles connected
therewith, shall apply, as if this sum had been duly requested and notice had
been given, as aforesaid.

(g) The Directors may make arrangements at the time of issue of shares for a
difference between the holders with respect to the amount of calls to be paid
and the times of payment, and the rate of Interest.

(h) The Directors may, if they think fit, receive from any shareholder willing
to pay in advance all of the monies or a part thereof that shall be due on
account of his shares, in addition to any amounts for which payment has been
requested, and they shall be permitted to pay such shareholder interest at the
rate the Directors and such shareholder shall agree upon, for the amounts paid
in advance as aforesaid, or upon the part thereof which is in excess of the
amounts for which payment was at the time requested on account of his shares,

<PAGE>
                                       20

in addition to paying dividends that will be paid for that part of the shares
which has been paid in advance.

FORFEITURE OF SHARES

30. Subject to the provisions of Section 181 of the Law:

(a) If a shareholder fails to pay any call or installment of a call on the day
designated for payment thereof, the Directors may, at any time thereafter during
such time as any part of such call or installment remains unpaid, serve a notice
on such shareholder requiring payment of that portion of the call or installment
as is unpaid, together with any interest which may have accrued and any expenses
that were incurred as a result of such non-payment.

(b) The notice shall name a specified day, not earlier than the expiration of
seven (7) days from the date of the notice, on or before which the amount of the
call or installment or a part thereof is to be made together with interest and
any expenses incurred as a result of such non-payment. The notice shall also
state the place the payment is to be made and that in the event of non-payment,
at or before the time appointed, the shares in respect of which the call was
made will be liable to be forfeited.

(c) If the requirements of any such notice as aforesaid are not complied with,
any share in respect of which the notice has been given may at any time
thereafter, before the payment required by the notice has been made, be
forfeited by a resolution of the Directors to that effect. The forfeiture shall
include those dividends that were declared but not yet distributed, with respect
to the forfeited shares.

(d) A share so forfeited shall be deemed to be the property of the Company and
can be sold or otherwise disposed of, on such terms and in such manner as the
Directors think fit. At any time before such sale or disposition, the forfeiture
may be canceled on such terms as the Directors think fit.

(e) A person whose shares have been forfeited shall cease to be a shareholder in
respect of the forfeited shares, but shall notwithstanding remain liable to pay
to the Company all monies which, at the date of forfeiture, were presently
payable by him to the Company in respect of the shares, but his liability shall
cease if and when the Company receives payment in full of the nominal amount of
the shares.

(f) The forfeiture of a share shall cause, at the time of forfeiture, the
cancellation of all rights in the Company or any claim or demand against it with
respect to that share and the other rights and obligations between the share
owner and the Company attached to the share, except for those rights and
obligations not included in such a cancellation according to these Articles or
that the Law imposes upon former shareholders.

(g) The provisions of these Articles as to forfeiture shall apply in the case of
non-payment of any sum which, by the terms of issue of a share, becomes payable
at a fixed time, whether on account of the nominal value of the share, or by way
of premium, as if the same had been payable by virtue of a call duly made and
notified.

<PAGE>
                                       21

MODIFICATION OF CAPITAL

31. Subject to Article 10 hereof, the Company may, from time to time, by
Ordinary Resolution:

        (a) consolidate and divide all or any of its issued or unissued share
capital into shares of larger nominal value than its existing shares;

        (b) cancel any shares which have not been taken or agreed to be taken by
any person;

        (c) by subdivision of its existing shares, or any of them, divide the
whole, or any part, of its share capital into shares of smaller amounts than is
fixed in Article 5 above; subject, however, to the provisions of the Law, and in
a manner enabling the Company in the division resolution, with respect to the
shares created as a result of such division, to grant to one or more shares a
preferable right or advantage with respect to dividend, capital, voting or
otherwise over the remaining share or other similar shares;

        (d) reduce its share capital and any fund reserved for capital
redemption in the manner that it shall deem to be correct, all in accordance
with the provisions of the Law.

INCREASE OF SHARE CAPITAL

32. The Company shall be permitted, subject to the provisions of Article 10,
from time to time, by an Ordinary Resolution, to increase its share capital by
the creation of new shares - whether or not all its shares have been issued, and
whether or not the shares issued have been paid in full. Such new capital shall
be in such an amount, divided into such number of shares, have such preferable
or deferred or other special rights (subject always to the special rights
conferred upon an existing class of share), and be subject to such conditions
and restrictions with respect to dividends, return of capital, voting or
otherwise, as shall be directed by the general meeting in its resolution
sanctioning the increase of the share capital.

33. Subject to any decision to the contrary in the resolution sanctioning the
increase in share capital, and pursuant to these Articles, the new share capital
shall be deemed to be part of the original share capital of the Company and
shall be subject to the same provisions with respect to payment of calls, liens,
title, forfeiture, transfer and otherwise as apply to the original share
capital.

GENERAL MEETINGS

34. A general meeting shall be held once every year, at such time being not more
than fifteen (15) months after the holding of the preceding general meeting, and
at such place as may be prescribed by the Directors. The above-mentioned general
meetings shall be called "ORDINARY MEETINGS". All other general meetings shall
be called "SPECIAL MEETINGS". An Annual Meeting or a Special Meeting of the
shareholders shall be referred to as a "GENERAL MEETING". A meeting of holders
of a class of shares shall be referred to as a "CLASS MEETING" or "CATEGORY
MEETING".

35. Subject to the provisions of these Articles and to the provisions of the
Law, the function of the Ordinary Meeting shall be to receive and to discuss
profit and loss

<PAGE>
                                       22

statements, balance sheets, ordinary reports and accounts of the Directors and
auditors, and to declare dividends, to appoint auditors and to fix their
salaries and to transact any other business which under these Articles or under
the Law are to be transacted at a shareholders' meeting, all as shall be
determined by the Board of Directors of the Company from time to time.

36. The Directors may, whenever they think fit, and upon a request in writing as
provided for in Section 63 of the Law, will be required to, convene a Special
Meeting. Every such request shall include the objects for which a meeting should
be convened, shall be signed by the persons making the request and shall be sent
to the registered office of the Company. If the Board of Directors does not
convene a meeting within twenty-one (21) days from the date of the submission of
the request as aforesaid, the persons making the request may convene by
themselves a meeting, in accordance with the provisions of Section 64 of the
Law. However, the meeting which was so convened shall not be held after three
(3) months have passed since the date of the submission of the request.

NOTICE OF GENERAL MEETINGS

37. (a) A prior notice of at least seven (7) days but not more than forty-five
(45) days shall be given with respect to the place, date and hour of the
meeting, and a description of the general nature of each item to be acted upon
therein. The notice shall be given, as provided below, to the shareholders
entitled to receive notices from the Company pursuant to these Articles. If, by
chance, a notice as aforesaid was not given or not received by a shareholder,
this shall not amount to a disqualification of the resolution passed or
disqualification of the proceedings held at that meeting. With the consent of
all the shareholders who are entitled, at that time, to receive notices, the
Company shall be permitted to convene all meetings and to resolve all types of
resolutions, upon a shorter advance notice or without any notice and in such
manner, generally, as shall be approved by the shareholders.

(b) Without prejudice and subject to the provisions of Article 12, until
otherwise decided by the Board of Directors, the Company will not send copies of
the financial reports to the Company's shareholders prior to the Ordinary
Meeting. If one of the issues on the agenda of a shareholder's meeting is a
transaction between the Company and a controlling shareholder as described in
Section 270(4) of the Law, then each shareholder shall notify the Company prior
to that meeting, whether or not he has a personal interest in such transaction.
Votes of shareholders who did not notify the company whether they have such
personal interest, shall not be counted.

QUORUM

38. No deliberation shall be commenced with respect to any matter at the general
meeting unless there shall be present a quorum at the time when the general
meeting proceeds to deliberate. In any meeting a quorum shall be formed when
there are present personally or by proxy not less than two (2) shareholders who
hold or represent together more than 50% of the voting rights of the issued
share capital of the Company.

39. If within half an hour from the time appointed for the meeting a quorum is
not present, the meeting shall stand adjourned to the same day in the next week
at the same place and

<PAGE>
                                       23

time, or any other day and/or any other hour and/or any other place as the
Directors shall notify the shareholders, and, if at the second meeting a quorum
is not present within half an hour from the time appointed for the meeting, any
two (2) shareholders present personally or by proxy shall be a quorum, and shall
be entitled to deliberate and to resolve in respect of the matters for which the
meeting was convened. However, if the meeting was convened upon a request made
in accordance with Sections 63 and 64 of the Law, then the adjourned meeting
shall only be held if the number of shareholders participating in such meeting
constitute the minimum number of shareholders as required in accordance with the
provisions of Sections 63 and 64 of the Law. No business shall be transacted at
any adjourned meeting, except business, which might lawfully have been
transacted at a meeting as originally called.

40. Shareholders may participate by means of telephone conference call or other
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and subject to a confirmation of attendance to
the Chairman made by the Secretary, such participation in the meeting shall
constitute attendance in person at the meeting.

CHAIRMAN

41. Subject to the provisions of the Law, the chairman of the Board of Directors
shall preside as chairman at all general meetings. If there is no chairman or he
is not present within fifteen (15) minutes from the time appointed for the
meeting or if he shall refuse to preside over the meeting, the shareholders
present shall elect one of the Directors to act as chairman, and if only one
Director is present, he shall act as chairman. If no Directors are present or if
they all refuse to preside over the meeting, the shareholders present shall
elect one of the shareholders present to preside over the meeting. The Chairman
shall have no special voting or other rights or privileges, except as stipulated
in these Articles.

POWER TO ADJOURN

42. The chairman may, with the consent of any meeting at which a quorum is
present, and shall if so directed by the meeting, adjourn the meeting from time
to time and from place to place, as the meeting shall decide. If the meeting
shall be adjourned for ten (10) days or more, a notice shall be given of the
adjourned meeting as in the case of an original meeting. Except as aforesaid, no
shareholder shall be entitled to receive any notice of an adjournment or of the
business to be transacted at the adjourned meeting. At an adjourned meeting no
matters shall be discussed except for those allowed to be discussed at that
meeting which decided upon the adjournment.

ADOPTION OF RESOLUTIONS

43. At every meeting, a resolution put to the vote of the meeting shall be
decided upon by a show of hands, unless before or upon the declaration of the
result of the show of hands a secret ballot in writing be demanded by the
chairman (if he is entitled to vote) or by any shareholder present, in person or
by proxy, and entitled to vote at the meeting. Except if a secret vote is
demanded as aforesaid, the declaration of the chairman that the resolution has
been adopted or adopted unanimously or by a particular majority, or rejected, or
not adopted by a particular majority, shall be final, and an entry to that
effect in the minute book of the Company, shall be conclusive evidence of the
fact without the necessity of proving the

<PAGE>
                                       24

number or proportion of the votes recorded in favor or against such a
resolution. Except where otherwise stated in these Articles, a resolution shall
be deemed to be passed at a general meeting if it received the majority required
to pass an Ordinary Resolution.

44. If a secret ballot is duly demanded, it shall be taken in such manner as the
chairman directs, whether immediately or after an adjournment or in a postponed
manner or otherwise, and the results of the ballot shall be deemed to be a
resolution of the meeting wherein the secret ballot was demanded. The persons
requesting a secret ballot can withdraw their request at any time before the
secret ballot is held. A secret ballot demanded on the election of a chairman or
on a question of adjournment, shall be taken forthwith. A secret ballot demanded
on any other question shall be taken at such time as the chairman of the meeting
directs. A demand for a secret ballot shall not prevent the continuation of the
meeting with respect to the transaction of any other business, except for the
matter with respect to which the secret ballot was demanded.

VOTES OF SHAREHOLDERS

45. Subject to and without derogating from the right or preference rights or
restrictions existing at that time with respect to a certain classes of shares
forming part of the capital of the Company, each shareholder present at a
meeting, personally or by proxy, shall be entitled, whether at a vote by show of
hands or by secret ballot, to one vote for each share held by him, provided that
no shareholder shall be permitted to vote at a general meeting or appoint a
proxy to vote therein except if he has paid all calls for payment and all monies
due to the Company from him with respect to his shares.

46. In the case of joint holders the vote of the senior who tenders a vote,
whether in person or by proxy, shall be accepted to the exclusion of the votes
of the other joint holders; and for the purpose of this article seniority shall
be determined by the order in which the names stand in the register of
shareholders. Joint holders of a share of which one of them is present at a
meeting shall not vote by proxy. The appointment of a proxy to vote on behalf of
a share held by joint holders shall be executed by the signature of the senior
of the joint holders.

PROXIES

47. (a) In every vote a shareholder shall be entitled to vote either personally
or by proxy. A proxy present at a meeting shall also be entitled to request a
secret ballot. A proxy need not be a shareholder of the Company.

        (b) A shareholder of the Company that is a corporation or partnership
shall be entitled by decision of its Board of Directors or by a decision of a
person or other body, according to its articles, to appoint a person who it
shall deem fit to be its representative at every meeting of the Company. The
representative, appointed as aforesaid, shall be entitled to perform on behalf
of the corporation he represents all the powers that the corporation itself may
use just as if it was a person.

48. (a) A vote pursuant to an instruction appointing a proxy shall be valid
notwithstanding the death of the appointor or the appointor becoming of unsound
mind or the cancellation of the proxy or its expiration in accordance with any
law, or the transfer of

<PAGE>
                                       25

the shares with respect to which the proxy was given, unless a notice in writing
was given of such an event, and was received at the office before the meeting
took place.

        (b) A shareholder is entitled to vote by a separate proxy with respect
to each share held by him, provided that each proxy as aforesaid shall have a
separate letter of appointment containing the serial number of the shares with
respect to which the proxy is entitled to vote. If a specific share is included
by the holder in more than one letter of appointment, that share shall not
entitle any of the holders of such instrument to a vote.

INSTRUMENT OF APPOINTMENT

49. A letter of appointment of a proxy or power of attorney or other certificate
(if there shall be such) pursuant to which the appointee is acting, shall be in
writing, and the signature of the appointor shall be confirmed by an advocate or
public notary or bank or in any other manner acceptable to the Directors, and
such instrument or a copy thereof confirmed as aforesaid shall be deposited in
the office, or in another place in Israel or abroad - as the Directors shall
direct from time to time generally or with respect to a particular case, no
later than twenty-four (24) hours prior to the commencement of the meeting or
adjourned meeting wherein the person referred to in the instrument is appointed
to vote, otherwise that person shall not be entitled to vote that share. An
instrument appointing a proxy and which is not limited in time shall not be
valid twelve (12) months after the date of its execution. If the appointment
shall be for a limited period, the instrument shall be valid for the period
contained therein.

50. An instrument appointing a proxy (whether for a specific meeting or
otherwise) may be in the following form or in any other similar form which the
circumstances shall permit:-

"I, ________, of __________, a shareholder holding shares in ______ and entitled
to ___ votes hereby appoint _________, of ________, or in his place _________,
of _______, to vote in my name and in my place at the general meeting (regular,
special, adjourned - as the case may be) of the Company to be held on the ____
day of ______, 200__ and at any adjournment thereof.

In witness whereof, I have hereby affixed my signature the __ day of _____,
200__.

---------------------------------------
Appointor's Signature

I hereby confirm that the foregoing
instrument was signed by the appointor.

---------------------------------------
(name, profession and address)

<PAGE>
                                       26

RESOLUTION IN WRITING

51. A resolution in writing signed by all shareholders of the Company then
entitled to attend and vote at shareholders meetings or to which all such
shareholders have given their written consent (by letter or facsimile) shall be
deemed to have been unanimously adopted by a shareholders meeting duly convened
and held.

DIRECTORS

52. (a) The Company's Board of Directors shall be comprised of up to seven (7)
directors, as follows:

               (i) one (1) director shall be appointed by the Founders and the
Preferred A Holders as a group,

               (ii) one (1) director shall be the Company's CEO;

               (iii) two (2) directors shall be appointed by the holders of the
majority of the Preferred B Shares;

               (iv) two (2) directors shall be appointed by the holders of the
majority of the Preferred B1 Shares (the "PREFERRED B1 DIRECTORS"), provided
however that at least one (1) of the Preferred B1 Directors shall be appointed
by the Carmel Venture Funds Entities as a group; and

               (v) one (1) director shall be a person with relevant industry
experience and shall be appointed by the Company's Board.

        (a1) As long as the Infinity Venture Capital Entities shall hold at
least 8% (eight percent) of the outstanding share capital of the Company (on as
converted and fully diluted basis), then the Infinity Venture Capital Entities
shall be entitled, as a group, to appoint one (1) observer to the Board of
Directors. Such observer shall be entitled to attend all the meetings of the
Board of Directors but will not be entitled to vote at any meeting of the Board
of Directors, all - only upon the execution by such observer of an undertaking
which would have the effect of taking upon himself or herself duties and
obligations similar to fiduciary duties of directors of the Company.

        (b) Each director or observer appointed hereunder shall enter into a
non-disclosure agreement in a form customarily used by the Company.

        (c) A director or an observer appointed hereunder shall not, during the
time of serving as a Director or an observer, serve as a director, officer or
otherwise as an employee of a company which directly competes with the business
of the company, as shall be from time to time. The determination whether or not
such competition exists shall be made by a resolution of the Board of Directors
of the Company, in which such director shall not participate.

        (d) Notwithstanding anything in these Articles to the contrary, any
increase in the number of members of the Board of Directors over seven (7)
members, shall require the consent at least seventy five (75) percent of the
votes of the issued and outstanding share capital, present or otherwise
represented at the relevant shareholders meeting, and entitled to vote thereon.

<PAGE>
                                       27

53. The right to appoint a person to the Board of Directors shall include the
right to remove and replace such Director or observer. Appointments, removals
and replacements shall be effected by furnishing written notification to the
Company. Any notice regarding the appointment, removal or replacement of a
Director or an observer shall be delivered to the Company in writing, and shall
become effective on the date fixed in such notice, or upon the delivery thereof
to the Company, whichever is later. Where any person, entity or group loses the
right to appoint one or more Directors or observers, the office of the Directors
or observers appointed by such person, entity or group shall automatically
terminate and be vacated.

ALTERNATE DIRECTOR

54. (a) A Director may by a written notice to the Company appoint any person, to
serve as a substitute director provided such substitute director is qualified to
be appointed as a Director, and provided further that such substitute director
does not already serve as a director or a substitute director in the Company.

        (b) A substitute director shall have, subject to the provisions of the
instrument by which he was appointed, all the powers and authorities that the
director for whom he is serving as director has, provided, however, that he may
not in turn appoint a substitute for himself and shall have no standing at any
meeting of the Board of Directors or any committee thereof while the director
who appointed him is present.

        (c) The provision of these Articles with respect to the appointment of a
director shall apply with respect to an appointment of a substitute director.

        (d) The office of a substitute director shall be automatically vacated
if his appointment is terminated by the director who appointed him in accordance
with these provisions, or upon the occurrence of one of the events described in
sections (i)-(vi) of Article 64 or, if the office of the shareholder of the
Board of Directors with respect to whom he serves as a substitute director shall
be vacated for any reason whatsoever.

        (e) The substitute director has the right to receive notice of convening
of a Board of Directors meeting and may participate or vote at such meeting only
if the director appointing said substitute director is absent from said meeting.

55. Subject to the provisions of these Articles or to the provisions of an
existing contract, the tenure of the Director or an observer shall automatically
by terminated:-

        (i) if he was declared bankrupt, and if he is a corporate body -- if it
        has voluntarily decided upon liquidation or if a liquidation order has
        been issued against it;

        (ii) if he is declared mentally incompetent;

        (iii) if he has resigned by an instrument in writing to the Company;

        (iv) if his successor is appointed pursuant to Article 52 above;

        (v) with his death;

<PAGE>
                                       28

        (vi)  with the liquidation of the Company;

REMUNERATION OF DIRECTORS

56. Shareholders of the Board of Directors, not being employees of the Company
or professionals providing special professional services for consideration to
its shareholders, shall not receive a salary from funds of the Company unless
the general meeting has so decided and in the amount that the general meeting
shall decide upon. The Directors and their substitutes shall be entitled to
receive expenses, in customary amounts, for travel expenses, board and lodging
that have been expended for or during the performance of their duties as
Directors, including travel expenses to the Directors' meetings and return. If
pursuant to a decision of the Directors, one of the Directors shall perform
services or tasks in addition to his regular duties as a Director, whether as a
result of his particular profession or by a trip or stay abroad or otherwise,
the Directors may decide to pay him a special wage in addition to his regular
salary, and such a wage shall be paid by way of salary, commission,
participation in profits or otherwise and this wage shall be in addition to his
regular salary, if there shall be any, or will be in place thereof, as shall be
decided.

POWERS AND DUTIES OF DIRECTORS

57. The business of the Company shall be managed by the Directors. They shall be
entitled to exercise all the powers and authorities that the Company has and to
perform in its name all the acts that it is entitled to do according to its
Memorandum and/or Articles and/or under law, except for those which are by law
or under these Articles vested in the general meeting of the Company, subject to
any provisions in the law or in these Articles or the regulations that the
Company shall adopt in its general meeting (insofar as they do not contradict
the law or these Articles). However any article adopted by the Company in its
general meeting shall not affect the legality of any prior act of the Directors
that would be legal and valid, if not for such an article.

58. A Director shall not be required to hold qualifying shares.

CONFLICT OF INTEREST

59. Subject to Article 10, a Director shall not be prohibited from fulfilling
his rights and duties under these Articles or from entering into contracts with
the Company whether as a seller, buyer or otherwise, and no such contract or
arrangement which shall be made on behalf of the Company or in its name wherein
the Director is or will be an interested party, either directly or indirectly,
shall be void, provided however that:

        (a) any transaction between a director and the Company must be approved
in accordance with the provisions of Sections 268 through 284 of the Law; and

        (b) under certain circumstances, all as described in Section 278 of the
Law, the interested Director may not participate or vote at the Board of
Directors Meeting at which approval is sought; and

        (c) the interested Director must disclose all information as required
under Section 269 of the Law in connection with the substance of his interest in
the transaction for

<PAGE>
                                       29

which approval is sought, and must further disclose any material facts and
documents relating thereto, all as set forth in the Law.

The provisions of this Article shall apply also to a substitute or alternate
Director, as applicable.

60. Subject to the provisions of the Law, a Director may hold another paid
position or function in the Company or in any other Company of which the Company
is a shareholder or in which it has some other interest, together with his
position as a Director (except an auditor) upon those conditions with respect to
salary and other matters as decided by the Directors.

FUNCTIONS OF THE DIRECTORS

61. (a) The Directors may meet in order to transact business, to adjourn their
meetings or to organize them otherwise as they shall deem fit and to determine
the legal quorum necessary to conduct business.

(b) If it shall not be otherwise decided by seventy five (75) percent of the
shareholders of the Board of Directors, and without derogating from the
protective provisions under Article 10, the quorum of a meeting of the Directors
shall be a majority of the Directors then in office, present personally or
represented by their substitute.

CHAIRMAN

62. The Directors may from time to time elect a chairman, and decide the period
of time he shall hold such an office, and he shall preside at the meetings of
the Board of Directors. However, if such a chairman is not elected or if he is
not present at any meeting, Directors may choose one of their number to serve as
chairman of that meeting. The Chairman shall have no rights or privileges other
than those granted to Directors. The Chairman of the Board shall not have a
casting vote.

MEETINGS

63. Subject to any contrary resolution adopted by the Board of Directors, a
shareholder of the Board of Directors may at any time call a Board of Directors'
meeting, and the Secretary shall be required on the request of such shareholder
to convene such a meeting. The Board will convene at least five (5) times per
year. At least once per year, no later than December 31, the Board will be
presented with an operating budget for the Company for the subsequent year, with
monthly breakdowns.

64. (a) Any notice of a Board of Directors' meeting can be given orally, by
telephone, in writing, or by telegram, telex, or facsimile provided that the
notice is given ten (10) days before the time appointed for the meeting, unless
all the shareholders of the Board of Directors shall agree to such a shorter
notice.

        (b) Prior and timely notice of the convening of a Board of Directors'
meeting shall be given to all Directors.

<PAGE>
                                       30

        (c) Without derogating from the protective provisions under Article 10,
if applicable, all acts and determinations of the Board of Directors shall be
determined by a simple majority of the Directors attending the meeting.

        (d) Shareholders of the Board of Directors, or any committee designated
by the Board of Directors, may participate in a meeting of the Board of
Directors, or any committee, by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and such participation in a meeting shall
constitute attendance in person at the meeting.

<PAGE>
                                       31

DELEGATION OF POWER

65. (a) Notwithstanding anything in these Articles of Association to the
contrary, the Board of Directors may not delegate any of their executive powers
to committee(s) without receiving the affirmative consent of the majority of the
shareholders of the Board of Directors in office at such time. The Board of
Directors may appoint committees, comprised of Directors, to discuss and
generate recommendations regarding issues set forth by the Board of Directors,
but such committee(s) shall not have executive powers whatsoever, except in the
event such appointment is effected as aforesaid in this Article 65(a).

        (b) In the exercise of any power delegated to them by the Board of
Directors, all committees shall conform to any regulations that may be imposed
upon them by the Directors, if there shall be any such regulation. Subject to
Sub-article (a) above, if no such regulations are adopted by the Board of
Directors or if there are no complete and encompassing regulations, the
committees shall act pursuant to these Articles dealing with organization of
meetings, meetings and functions of the Board of Directors, mutatis mutandis,
insofar as no provision of the Board of Directors shall replace it pursuant to
this Article.

66. All actions performed in a bona fide fashion by the Board of Directors or by
a committee of the Board of Directors, or by any person acting as a Director or
as a substitute shall be as valid, even if at a later date a flaw shall be
discovered in the appointment of such a Director or such a person acting as
aforesaid, or that all or some of them were unfit as if each and every one of
those persons shall have been duly appointed and fit to serve as a Director or
substitute as the case may be.

MANAGEMENT

67. Subject to the provisions of the Law:

        (a) The Directors may from time to time appoint one or more persons,
whether or not he is a shareholder of the Board of Directors, as the president
and/or CEO and/or the General Manager of the Company, either for a fixed period
of time or without limiting the time that he or they will stay in office, and
the Directors may from time to time (subject to any provision in any contract
between him or them and the company) release him or them from their office and
appoint another or others in his or their place.

        (b) The Board of Directors may from time to time grant to and vest in
the president and/or CEO, at that time, those powers and authorities that it
exercises pursuant to these Articles, as it shall deem fit, and may grant those
powers and authorities for such period, and to be exercised for such objectives
and purposes and in such time and conditions, and on such restrictions, as it
shall decide; and it may grant such authorities whether concurrently with the
Board of Directors' powers in that area, or in excess of them, or in place
thereof or any one of them, and it can from time to time revoke, repeal, or
change any one or all of those authorities.

        (c) The wages of the president and/or CEO shall be determined from time
to time by the Board of Directors (subject to any provision in any contract
between him and the Company) and it may be paid by way of a fixed salary or
commission or dividends, or a percentage of profits or turnover of the Company
or of any other entity that the Company

<PAGE>
                                       32

has an interest in, or by participation in such profits, or in one or more of
the aforementioned methods.

MINUTES

68. (a) The Directors shall cause minutes to be taken of all general meetings of
the Company, of the appointments of officials of the Company, of Board of
Directors' meetings and of committee meetings that shall include the following
items, if applicable:

(1) names of the shareholders present;

(2) matters discussed at the meeting;

(3) results of votes and resolution adopted; and

(4) directives given in the meeting to the committees.

(b) The minutes of any meeting, signed or appearing to be signed by the chairman
of the meeting or by the chairman of the meeting held immediately after that
meeting, shall serve as a prima facie proof as to the facts in the minutes.

RESOLUTION IN WRITING

69. A resolution in writing signed by all the shareholders of the Board of
Directors or of a committee, or such a resolution that all the shareholders of
the Board of Directors or a committee have agreed to in writing by letter or
facsimile, shall be valid for every purpose as a resolution adopted at a Board
of Directors' or a committee's meeting, as the case may be, that was duly
convened and held. In place of a Director such resolution may be signed and
delivered by his substitute.

STAMP AND SIGNATURES

70. (a) The Company shall have at least one rubber stamp. The Directors shall
ensure that such a stamp is kept in a safe place.

        (b) The Board of Directors may designate and authorize any person or
persons (even if they are not shareholders of the Board of Directors) to act and
to sign in the name of the Company, and the acts and signatures of such a person
or persons shall bind the Company, insofar as such person or persons have acted
and signed within the limits of their aforesaid authority.

        (c) The printing of the name of the Company by a typewriter or by hand
next to the signatures of the authorized signatories of the Company, pursuant to
Sub-article (b) above, shall be valid as if the rubber stamp of the Company was
affixed.

<PAGE>
                                       33

BRANCH REGISTERS

71. The Company may, subject to the provisions of the Law, keep in every other
country where those provisions shall apply, a register or registers of
shareholders living in that other country as aforesaid, and to exercise any
other powers referred to in the laws with respect to such branch registers.

SECRETARY, OFFICERS AND ATTORNEYS

72. (a) The Board of Directors may appoint a secretary of the Company upon the
conditions that they seem fit. The Directors may as well, from time to time,
appoint an associate secretary who shall be deemed to be the secretary for the
period of his appointment.

(b) The Board of Directors may, from time to time appoint to the Company,
officers, workers, agents and functionaries to permanent, temporary or special
positions, as they shall, from time to time, see fit and set compensation for
them.

(c) The Directors may, at any time and from time to time, authorize any company,
firm, person or group of people, whether this authorization is made by the
Directors directly or indirectly, to be the attorneys in fact of the Company for
those purposes and with those powers and discretion which shall not exceed those
conferred upon the Board of Directors or that the Board of Directors can
exercise pursuant to these Articles - and for such a period of time and upon
such conditions as the Directors deem proper, and every such authorization may
contain such directives as the Board of Directors deems proper for the
protection and benefit of the persons dealing with such attorneys.

DIVIDEND

73. Subject to the provisions of these Articles (including Articles 7 and 10)
and subject to any rights or conditions of Preferred Shares and other rights and
conditions attached at that time to any share in the capital of the Company
granting preferential, special or deferred rights or not granting any rights
with respect to dividends, the profits of the Company shall be distributable to
the shareholders of the Company according to the proportion of the nominal value
paid up on account of the shares held by them at the date so appointed by the
Company, without regard to the premium paid in excess of the nominal value.
Actual distribution, setting aside or declaration of dividend requires a
decision of the Board of Directors.

74. The Board of Directors may issue any share upon the condition that a
dividend shall be paid at a certain date or that a portion of the declared
dividend for a certain period shall be paid, or that the period for which a
dividend shall be paid shall commence at a certain date, or a similar condition,
all as decided by the Board of Directors. In every such case - subject to the
provision mentioned in the beginning of this Article - the dividend shall be
paid in respect of such a share in accordance with such a condition.

75. At the time of declaration of a dividend, the Company may decide that such a
dividend shall be paid in part or in whole, by way of distribution of certain
properties, especially by way of distribution of fully paid up shares or
debentures or debenture stock of the Company, or by way of distribution of fully
paid up shares or debentures or debenture

<PAGE>
                                       34

stock of any other company or in one or more of the aforesaid ways. For purposes
of any such distribution, the outstanding Preferred Shares shall be deemed to
have been converted into Ordinary Shares as of the time appointed by the Company
for the purpose of determining entitlement to participate in such distribution.

76. The Directors may, from time to time, pay to the shareholders on account of
the forthcoming dividend such interim dividend as shall be deemed just with
regard to the situation of the Company, subject to and in accordance with the
provisions of Sections 301 through 307 of the Law.

77. The Board of Directors may put a lien on any dividend on which the Company
has a charge, and it may use it to pay any debts, obligations or commitments
with respect to which the charge exists.

78. A transfer of shares shall not transfer the right to a dividend, which has
been declared after the transfer but before the registration of the transfer.
The person registered in the register as a shareholder on the date appointed by
the Company for that purpose shall be the person entitled to receive a dividend.

79. The Company may declare a dividend to be paid to the shareholders, at a
general meeting, according to their rights and benefits in the profits and to
decide the time of payment. A dividend in excess of that proposed by the Board
of Directors shall not be declared. However, the Company may declare at a
general meeting a smaller dividend.

80. A notice of the declaration of a dividend, whether an interim dividend or
otherwise, shall be given to the shareholders registered in the register, in the
manner provided for in these Articles.

81. If no other provision is given, the dividend may be paid by check or payment
order to be mailed to the registered address of a shareholder or person entitled
thereto in the register or, in the case of registered joint owners, to the
addresses of one of the joint owners as registered in the register. Every such
check shall be made out to the person it is sent to. The receipt of the person
who, on the date of declaration of dividend, is registered as the holder of any
share or, in the case of joint holders, of one of the joint holders, shall serve
as a release with respect to payments made in connection with that share.

82. Subject to the provisions of the Law relating to the distribution of
dividends:

        (a) If at any time the share capital shall be divided into different
classes of shares, the distribution of fully paid up shares shall be made in one
of the two following manners as to be decided upon by the Directors:

               (i) In such a manner so that all the holders of a share entitled
to fully paid up shares shall receive one uniform class of shares; or

               (ii) In such manner so that each holder of shares entitled to
fully paid up shares as aforesaid shall receive shares of the class of shares
held by him and entitling him to fully paid up shares, as aforesaid.

<PAGE>
                                       35

        (b) In order to give effect to any resolution in connection with
distribution of dividends, or distribution of property, fully paid-up shares or
debentures, the Board of Directors may resolve any difficulty that shall arise
with distribution as it shall deem necessary, especially to issue certificates
for fractional shares and to determine the value of certain property for
purposes of distribution, and to decide that payment in cash shall be made to
the shareholder on the basis of the value decided for that purpose, or that
fractions the value of which is less than one New Israeli Shekel shall not be
taken into account for the purpose of coordinating the rights of all the
parties. The Board of Directors shall be permitted, in this regard, to grant
cash or property to trustees in escrow for the benefit of persons entitled
thereto, as the Directors shall see beneficial. Wherever required, an agreement
shall be submitted to the registrar of companies and the Directors may appoint a
person to execute such an agreement in the name of the persons entitled to a
dividend, property, fully paid up shares or debentures as aforesaid, and such an
appointment shall be valid.

        (c) The Company shall not be obligated to pay interest on a dividend,
unless as set forth in Article 7 herein above.

        (d) The Board of Directors may, with respect to all dividends not
collected within one year after their declaration, invest or use them in another
way for the benefit of the Company, until they shall be demanded. The Company
shall not pay interest for dividends or interest not collected.

ACCOUNTS AND AUDIT

83. The Directors shall cause correct accounts to be kept in accordance with the
provisions of the Law or any other applicable law, including but not limited to:

        (a) of the assets and liabilities of the Company;

        (b) of any amount of money received or expended by the Company and the
matters for which such sum of money is expended or received; and

        (c) of all purchases and sales made by the Company.

The account books shall be kept in the office or at such other place as the
Directors deem fit and they shall also be open for inspection by the Directors.

84. The Company shall prepare financial reports that shall include a balance
sheet as of December 31 of each year, and a profit and loss account for the
preceding financial year. In addition, the Company shall prepare any additional
financial reports as shall be required by accepted book keeping rules, and as it
shall undertake to do in any agreement.

85. The Company shall prepare annual financial reports within nine (9) months
following the end of each fiscal year. At least once in every fiscal year the
accounts of the Company shall be audited and the correctness of the profit and
loss account and balance sheet certified by one or more duly qualified auditors.

86. The appointment, authorities, rights and duties of the auditor(s) of the
Company, shall be regulated by applicable law, provided however, that in
exercising its authority to fix

<PAGE>
                                       36

the remuneration of the auditor(s), the shareholders in a general meeting may by
an Ordinary Resolution, act (and in absence of any action in connection
therewith shall be deemed to have so acted) to authorize the Board of Directors
to fix such remuneration subject to such criteria and standards as may be
provided in such Ordinary Resolution, and if no such criteria and standards are
so provided, such remuneration shall be fixed in an amount commensurate with the
volume and nature of the services rendered by such auditor(s).

NOTICES

87. (a) A notice or any other document may be served by the Company upon any
shareholder either personally or by sending it by telegram, or telex or
facsimile addressed to such shareholder at his address, wherever situated, as
appearing in the register of shareholders.

(b) All notices directed to be given to the shareholders shall, with respect to
any shares to which persons are jointly entitled, be given to one of the joint
holders, and any notice so given shall be sufficient notice to the holders of
such share.

(c) Prior and timely notice of the convening of a shareholders meeting shall be
given to each shareholder, wherever situated, at the last address provided by
the shareholder. Any shareholder registered in the register who shall, from time
to time, furnish the Company with an address at which notices may be served,
shall be entitled to receive all notices he is entitled to receive according to
these Articles at that address.

(d) A notice may be given by the Company to the persons entitled to a share in
consequence of the death or bankruptcy of a shareholder by sending it by mail in
a prepaid letter or postcard or telegram, telex or facsimile addressed to them
by name, at the address, if any, in Israel furnished for the purpose by the
persons claiming to be so entitled or, until such an address has been so
furnished, by giving the notice in any manner in which the same might have been
given if the death or bankruptcy had not occurred.

(e) Any notice or other document if served or sent by mail shall be deemed to
have been served or delivered ten (10) days after the time when the letter or
telegram or telex or facsimile containing the same was delivered at the post
office or at such time as the telex or facsimile was sent, and in proving such
service it shall be sufficient to prove that the letter or telegram or telex or
facsimile containing the notice was properly addressed and delivered at the post
office or sent by telex or facsimile. Any list kept in the ordinary manner in
any mail list of the Company or any copy of any telex or facsimile in the
Company's possession shall be prima facie proof of the delivery.

(f) In any case where it is necessary to give prior notice of a certain number
of days or a notice valid for a certain period, the date of delivery shall be
taken into account in the number of days or period.

(g) In addition to the furnishing of a notice pursuant to the preceding Article,
the Company may furnish a notice to the shareholders entitled to receive notice,
or to part of them, by publication of a notice in a newspaper distributed in the
area where the office is located, or any other place, in Israel or abroad, as
the Directors shall determine from time to time.

<PAGE>
                                       37

REORGANIZATION OF THE COMPANY

88. Subject to Article 10, at the time of sale of the Company's material assets
the Board of Directors may, or at the time of liquidation the liquidators may,
if authorized by a Resolution of the general meeting of the Company by a
majority of 75% of the votes of the shareholders who are participating and
voting, receive shares paid in full or in part, debentures or other securities
of any other company, whether already existing at that time or whether about to
be established for the purpose of acquiring the property of the Company, or a
part thereof. The Board of Directors (if the profits of the Company so permit)
or the liquidators (at the time of liquidation) may distribute among the
shareholders the shares or aforesaid securities or any other property of the
Company without realizing them, or deposit them with trustees for the
shareholders, and every Ordinary Resolution can resolve as to the distribution
or the setting aside of cash, the shares or other securities and the rights or
property of the Company in a manner not entirely consistent with the legal
rights of the shareholders of the Company, or its participants, and such a
resolution may value the securities or property aforesaid at such price and in
such manner as the meeting shall decide. All shareholders shall be required to
accept all valuation or distribution decided as aforesaid and to waive all their
rights in this regard, except, in the case where the Company is at a liquidation
stage or in the process of liquidation, with respect to such legal rights (if
any) which according to the provisions of the law cannot be altered or
renounced.

INDEMNITY

89. Subject to the provisions of the Law, including the receipt of all approvals
as required therein or under any applicable law, the Company may indemnify any
office holder to the fullest extent permitted by the Law. The Company may
indemnify its office holders, as this term is defined in the Law, with respect
to liabilities or expenses, as listed below, provided that (a) the Board of
Directors resolves in advance those categories of events, which in the opinion
of the Board of Directors can be foreseen at the time the undertaking to
indemnify is given; (b) the Board of Directors sets a reasonable limit to the
amounts for such indemnification under the circumstances; or (c) the Board of
Directors resolves to retroactively indemnify the Company's office holder(s):

        (1) a monetary liability imposed on an office holder pursuant to a
judgement in favor of another person, including a judgment imposed on such
office holder in a compromise or in an arbitration decision that was approved by
a court; and

        (2) reasonable legal expenses, including attorney's fees, which the
office holder incurred or with which he was charged by a court, in a proceeding
brought against him, by the Company or by another in its name, or in a criminal
prosecution in which he was found innocent, or in a criminal prosecution in
which he was convicted of an offense that does not require proof of criminal
intent.

90. (a) Subject to the provisions of the Law, including the receipt of all
approvals required therein or under any applicable law, the Company may enter
into an agreement to insure an office holder for any liability that may be
imposed on such office holder in connection with an act performed by him by
virtue of his office, with respect to each of the following:

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               (1) breach of the duty of care of the office holder towards the
Company or towards another person;

               (2) breach of the fiduciary duty against the Company, provided
that the office holder acted in good faith and with reasonable grounds to assume
that the action in question would not cause harm to the Company;

               (3) a monetary obligation that will be imposed on the office
holder for the benefit of another person.

        (b) Articles 89 and 90(a) shall not apply under any of the following
circumstances:

               (1) a breach of an Office Holder's fiduciary duty, in which the
Officer Holder did not act in good faith and with reasonable grounds to assume
that the action in question was in the best interest of the Company;

               (2) a gross negligent or intentional violation of an Office
Holder's duty of care;

               (3) an intentional action by an Office Holder in which such
Officer Holder intended to reap a personal gain illegally; and

               (4) a fine or ransom levied on an Office Holder.

91. The Company may procure insurance for or indemnify any person who is not an
office holder, including without limitation, any employee, agent, consultant or
contractor, provided however, that any such insurance and/or indemnification is
in accordance with the provisions of these Articles and the Law.

92. The Board of Directors may resolve in advance to exempt an office holder
from all or part of his/her responsibility and/or liability for damages caused
to the Company due to a breach of such office holder's duty of care towards the
Company.

WINDING UP

93. If the Company be wound up, then, subject to applicable law and to the
rights of the holders of shares with special rights upon winding up as
specified, inter alia, in Article 8 above, the assets of the Company available
for distribution among the Shareholders as such shall first be distributed to
the Shareholders entitled thereto an amount equal to the paid-up capital
attributable to their respective holdings of the shares in respect of which such
distribution is being made, provided, however, that if such assets do not
suffice to make such distribution in full, such assets shall be distributed to
said Shareholders in proportion to the paid-up capital attributable to their
respective holdings of such shares. The paid-up capital attributable to any
share issued at a premium or at a lawful discount shall be the nominal value of
such share, provided, however, that if less than the full issuance price of such
share has been paid to the Company, the paid-up capital attributable thereto
shall be such proportion of the nominal value as the amount paid to the Company
bears to such full issuance price.

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                                       39

94. The assets, if any, remaining after the distribution pursuant to Article 93
hereof, shall, subject to applicable law and to the rights of the holders of
shares with special rights as aforesaid, be distributed to the Shareholders
entitled thereto in proportion to the nominal value of their respective holdings
of the shares in respect of which such distribution is being made, whether or
not the issuance price, or any portion thereof, has been paid.

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