Document:

EX-10.10 Merger Agreement and Plan

 

Exhibit 10.10

MERGER AGREEMENT AND PLAN OF REORGANIZATION

     THIS MERGER AGREEMENT AND PLAN OF REORGANIZATION (this “Agreement”) is made and
entered as of August 21, 2006, by and among Orthodontix, Inc., a Florida corporation
(“Parent”), Protalix Acquisition Co., Ltd., an Israeli company (“Acquisition
Subsidiary”), which is a wholly owned subsidiary of Parent, and Protalix Ltd., an Israeli
company (the “Company”).

     WHEREAS, the Boards of Directors of each of Parent, Acquisition Subsidiary and the Company
have, pursuant to the laws of their respective States of incorporation, approved this Agreement and
the consummation of the transactions contemplated hereby, including the merger of Acquisition
Subsidiary with and into the Company (the “Merger”); and the Boards of Directors of each of
the Company and Acquisition Subsidiary have declared that this Agreement is advisable, fair and in
the best interests of their respective shareholders and approved the Merger upon the terms and
conditions set forth in this Agreement.

     NOW, THEREFORE, in consideration of the covenants, promises and representations set forth
herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby
expressly and mutually acknowledged, and intending to be legally bound hereby, the parties hereto
agree as follows:

ARTICLE I

DEFINITIONS

     Unless the context otherwise requires, the terms defined in this Article I shall have the
meanings herein specified for all purposes of this Agreement, applicable to both the singular and
plural forms of any of the terms herein defined.

     “Acquisition Subsidiary” shall have the meaning set forth in the Preamble.

     “Affiliate” means any Person that directly or indirectly controls, is controlled by,
or is under common control with, the indicated Person. For the purpose hereof the term “control”
shall mean the holding of shares in excess of fifty percent (50%) of the voting securities of a
corporate entity.

     “Agreement” shall have the meaning assigned to it in the Preamble.

     “Audited Financial Statements Date” shall have the meaning assigned to it in Section
3.6.

     “Business Day” means any day, other than a Saturday or Sunday, on which the national
banks in New York, New York as a general matter are open for business for substantially all of
their banking functions.

     “Certificate of Merger” shall have the meaning assigned to it in Section 2.2.

     “Closing” shall have the meaning assigned to such term in Section 9.1.

     “Closing Date” shall have the meaning assigned to such term in Section 9.1.

 

 

     “Code” means the Internal Revenue Code of 1986, as amended.

     “Company” shall have the meaning assigned to such term in the Preamble.

     “Company Board” means the Board of Directors of the Company.

     “Company Shares” means, collectively, all of the issued and outstanding Company
Ordinary Shares and Company Preferred Shares, and shall mean immediately following the closing of
the Share Purchase Agreement, all of the issued and outstanding Company Ordinary Shares.

     “Company Option Plan” shall have the meaning set forth in Section 2.8(a).

     “Company Ordinary Shares” means the ordinary shares of the Company, nominal value
NIS0.01 per share.

     “Company Preferred Shares” means, collectively, the Series A Preferred Shares of the
Company, nominal value NIS0.01 per share, the Series B Preferred Shares of the Company, nominal
value NIS0.01 per share, and the Series C Preferred Shares of the company, nominal value NIS0.01
per share.

     “Company Warrants” shall mean all of the Company’s issued and outstanding warrants and
options other than options issued under the Company Option Plan and other than the FG Warrants.

     “Contingent Obligation” means, as to any Person, any direct or indirect liability,
contingent or otherwise, of that Person with respect to any indebtedness, lease, dividend or other
obligation of another Person if the primary purpose or intent of the Person incurring such
liability, or the primary effect thereof, is to provide assurance to the obligee of such liability
that such liability will be paid or discharged, or that any agreements relating thereto will be
complied with, or that the holders of such liability will be protected (in whole or in part)
against loss with respect thereto.

     “Effective Date” means the date that the Registration Statement is first declared
effective by the SEC.

     “Effectiveness Period” has the meaning set forth in Section 8.1.

     “Eligible Market” means the American Stock Exchange.

     “Environmental Laws” means all Israeli, federal, state, local or foreign laws relating
to pollution or protection of human health or the environment (including, without limitation,
ambient air, surface water, groundwater, land surface or subsurface strata), including, without
limitation, laws relating to emissions, discharges, releases or threatened releases of chemicals,
pollutants, contaminants, or toxic or hazardous substances or wastes (collectively, “Hazardous
Materials”) into the environment, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials, as
well as all authorizations, codes, decrees, demands or demand letters, injunctions, judgments,

2

 

licenses, notices or notice letters, orders, permits, plans or regulations issued, entered,
promulgated or approved thereunder.

     “Exchange Act” means the Securities Exchange Act of 1934, as amended.

     “Exchange Ratio” shall have the meaning assigned that term in Section 2.5(b).

     “Existing Company Shareholders” means the holders of Company Shares immediately prior
to the Merger Effective Time.

     “FG Holders” means the holders of Company Ordinary Shares that purchased such Company
Ordinary Shares pursuant to the Share Purchase Agreement.

     “FG Warrants” shall mean those certain warrants issued to the FG Holders pursuant to
the Share Purchase Agreement.

     “GAAP” means United States and Israel generally accepted accounting principles
consistently applied, as in effect from time to time.

     “Governmental Authority” means any foreign, federal, national, state or local
judicial, legislative, executive or regulatory body, authority or instrumentality, including,
without limitation, any such United States or Israeli authorities.

     “Governmental Authorization” means any consent, license, registration, authorization
or permit issued, granted, given or otherwise made available by or under the authority of any
Governmental Authority or pursuant to any Law.

     “Holder” means the holder of any Registrable Securities.

     “Indebtedness” of any Person means, without duplication (A) all indebtedness for
borrowed money, (B) all obligations issued, undertaken or assumed as the deferred purchase price of
property or services (other than trade payables entered into in the ordinary course of business),
(C) all reimbursement or payment obligations with respect to letters of credit, surety bonds and
other similar instruments, (D) all obligations evidenced by notes, bonds, debentures or similar
instruments, including obligations so evidenced incurred in connection with the acquisition of
property, assets or businesses, (E) all indebtedness created or arising under any conditional sale
or other title retention agreement, or incurred as financing, in either case with respect to any
property or assets acquired with the proceeds of such indebtedness (even though the rights and
remedies of the seller or bank under such agreement in the event of default are limited to
repossession or sale of such property), (F) all monetary obligations under any leasing or similar
arrangement which, in connection with GAAP, consistently applied for the periods covered thereby,
is classified as a capital lease, (G) all indebtedness referred to in clauses (A) through (F) above
secured by (or for which the holder of such Indebtedness has an existing right, contingent or
otherwise, to be secured by) any mortgage, lien, pledge, charge, security interest or other
encumbrance upon or in any property or assets (including accounts and contract rights) owned by any
Person, even though the Person which owns such assets or property has not assumed or become liable
for the payment of such indebtedness and (H) all Contingent

3

 

Obligations in respect of indebtedness or obligations of others of the kinds referred to in
clauses (A) through (G) above.

     “Insolvent” means, with respect to any Person, (i) the present fair saleable value of
such Person’s assets is less than the amount required to pay such Person’s total Indebtedness, (ii)
such Person is unable to pay its debts and liabilities, subordinated, contingent or otherwise, as
such debts and liabilities become absolute and matured, (iii) such Person intends to incur or
believes that it will incur debts that would be beyond its ability to pay as such debts mature or
(iv) such Person has unreasonably small capital with which to conduct its business as such business
is now conducted and is proposed to be conducted.

     “Investors” shall have the meaning set forth in the Share Purchase Agreement.

     “Israeli Companies Law” means the Israeli Companies Law, 5759-1999.

     “Laws” means any Israeli, federal, national, state, local or foreign statute, law,
ordinance, regulation, rule, code, order or other requirement or rule of law.

     “Letter of Transmittal” shall have the meaning assigned to it in Section 5.7.

     “Lien” means any mortgage, pledge, security interest, encumbrance, lien or charge of
any kind, including, without limitation, any conditional sale or other title retention agreement,
any lease in the nature thereof and including any lien or charge arising by Law.

     “Losses” means any and all losses, claims, actions, damages, liabilities, penalties,
fines, settlement costs and expenses, including, without limitation, costs of preparation and
reasonable attorneys’ fees.

     “Material Adverse Effect” means, with respect to any Person, a change (or effect) in
the condition (financial or otherwise), properties, assets, liabilities, rights, Business or
results of operations or prospects of the Company, which change (or effect), individually or in the
aggregate, could reasonably be expected to be materially adverse to such condition, properties,
assets, liabilities, rights, Business or results of operations or prospects.

     “Material Permits” means, with respect to any Person, all certificates, authorizations
and permits issued by the appropriate Governmental Authorities necessary to conduct the business of
such Person, the lack of which would have a Material Adverse Effect.

     “Merger” shall have the meaning assigned to it in the Preamble.

     “Merger Effective Time” shall have the meaning assigned to it in Section 2.2.

     “Merger Shares” shall have the meaning assigned to it in Section 2.5(b).

     “Parent” shall have the meaning assigned to it in the Preamble.

     “Parent Board” means the Board of Directors of Parent.

4

 

     “Parent Common Stock” shall mean the common stock, par value $.0001 per share, of
Parent.

     “Person” means all natural persons, corporations, business trusts, associations,
unincorporated organizations, limited liability companies, partnerships, joint ventures and other
entities and Governmental Authorities or any department or agency thereof.

     “Proceeding” means an action, claim, suit, investigation or proceeding (including,
without limitation, an investigation or partial proceeding, such as a deposition), whether
commenced or threatened in writing.

     “Prospectus” means the prospectus included in the Registration Statement (including,
without limitation, a prospectus that includes any information previously omitted from a prospectus
filed as part of an effective registration statement in reliance upon Rule 430A promulgated under
the Securities Act), as amended or supplemented by any prospectus supplement, with respect to the
terms of the offering of any portion of the Registrable Securities covered by the Registration
Statement, and all other amendments and supplements to the Prospectus including post effective
amendments, and all material incorporated by reference or deemed to be incorporated by reference in
such Prospectus.

     “Registrable Securities” means the Merger Shares and the shares of Parent Common Stock
issuable upon exercise of the warrants and the options issued pursuant to Section 5.8 below,
together with any securities issued or issuable pursuant to the adjustment provisions set forth in
the Warrants or upon any stock split, dividend or other distribution, recapitalization, exchange or
similar event with respect to the foregoing.

     “Registration Statement” means each registration statement required to be filed under
Article VIII, including (in each case) the Prospectus, amendments and supplements to such
registration statement or Prospectus, including pre- and post-effective amendments, all exhibits
thereto, and all material incorporated by reference or deemed to be incorporated by reference in
such registration statement.

     “SEC” means the U.S. Securities and Exchange Commission.

     “Securities Act” means the Securities Act of 1933, as amended.

     “Share Purchase Agreement” means that certain Share Purchase Agreement entered into as
of August 21, 2006, by and among the Company and the purchasers signatory thereto.

     “Surviving Corporation” shall have the meaning assigned to it in Section 2.1.

     “Takeover Protections” shall mean any control share acquisition, business combination,
poison pill (including any distribution under a rights agreement) or other similar anti-takeover
provision under an entity’s charter documents or the laws of its state of incorporation.

     “Tax” or “Taxes” means (a) any and all taxes, assessments, customs, duties,
levies, fees, tariffs, imposts, deficiencies and other governmental charges of any kind whatsoever
(including, but not limited to, taxes on or with respect to net or gross income, franchise,
profits, gross

5

 

receipts, capital, sales, use, ad valorem, value added, transfer, real property transfer,
transfer gains, transfer taxes, inventory, capital stock, license, payroll, employment, social
security, unemployment, severance, occupation, real or personal property, estimated taxes, rent,
excise, occupancy, recordation, bulk transfer, intangibles, alternative minimum, doing business,
withholding and stamp), together with any interest thereon, penalties, fines, damages costs, fees,
additions to tax or additional amounts with respect thereto, imposed by Israel, the United States
(federal, state or local) or other applicable jurisdiction; (b) any liability for the payment of
any amounts described in clause (a) as a result of being a member of an affiliated, consolidated,
combined, unitary or similar group or as a result of transferor or successor liability, including,
without limitation, by reason of Section 1.1502-6 of the Treasury Regulations promulgated under the
Code; and (c) any liability for the payments of any amounts as a result of being a party to any tax
sharing agreement or as a result of any express or implied obligation to indemnify any other Person
with respect to the payment of any amounts of the type described in clause (a) or (b).

     “Tax Return” shall include all returns and reports (including elections, declarations,
disclosures, schedules, estimates and information returns required to be supplied to a Tax
authority relating to Taxes.

     “Trading Day” means (a) any day on which the Parent Common Stock is listed or quoted
and traded on its primary Trading Market, (b) if the Common Stock is not then listed or quoted and
traded on any Eligible Market, then a day on which trading occurs on the Eligible Market, or (c) if
trading ceases to occur on the Eligible Market, any Business Day.

     “Trading Market” means any trading market of which the Parent Common Stock is listed
or included for trading including the Eligible Market.

     “Transactions” means the Merger and the other transactions contemplated by or
referenced in this Agreement.

     “Transaction Form 8-K” shall have the meaning assigned to it in Section 5.4.

     “Transaction Documents” means the Agreement and contracts, documents and instruments
contemplated by or referenced in this Agreement.

ARTICLE II

THE MERGER

     Section 2.1 Merger. Subject to the terms and conditions of this Agreement, at the
Merger Effective Time, Acquisition Subsidiary shall be merged with the Company in accordance with
the Israeli Companies Law, the separate legal existence of Acquisition Subsidiary shall cease, and
the Company shall (i) be the surviving corporation of the Merger (sometimes hereinafter referred to
as the “Surviving Corporation”); (ii) be governed and continue its corporate existence
under the laws of the State of Israel; and (iii) succeed to and assume all of the rights and the
properties and obligations of Acquisition Subsidiary and the Company in accordance with the Israeli
Companies Law. With respect to references in this Agreement relating to any obligations or duties
of the Company accruing after the Merger Effective Date, the usage of the defined term
“Company” as opposed to “Surviving Corporation” shall not operate to negate any such
obligation or duties.

6

 

     Section 2.2 Merger Effective Time. The Merger shall become effective on the date and
at the time that the Registrar of Companies of the State of Israel (the “Companies
Registrar”) provides the Surviving Corporation with the certificate of merger in accordance
with Section 323(5) of the Israeli Companies Law (the “Certificate of Merger”) after
receipt from the Company and Acquisition Subsidiary of the Merger Proposal (as defined below)
pursuant to Section 5.9. The time at which the Merger shall become effective as aforesaid is
referred to hereinafter as the “Merger Effective Time.”

     Section 2.3 Articles of Association; Directors and Officers.

          (a) Articles of Association and Memorandum of Association. The Memorandum of
Association of the Company, as in effect immediately prior to the Merger Effective Time, shall be
the Memorandum of Association of the Surviving Corporation from and after the Merger Effective Time
until further amended in accordance with applicable Law. The Company shall amend and restate its
Articles of Association and such amended and restated Articles of Association shall be the Articles
of Association of the Surviving Corporation (the “Company Articles”) from and after the
Merger Effective Time until further amended in accordance with applicable Law.

          (b) Directors and Officers. The directors and officers of the Company immediately
prior to the Merger Effective Time and two designees of Frost Gamma Investments Trust, who
initially shall be Dr. Phillip Frost and Dr. Jane Hsiao, shall be the directors and officers of the
Surviving Corporation, and each shall hold his respective office or offices from and after the
Merger Effective Time until his successor shall have been elected and shall have qualified in
accordance with applicable Law, or as otherwise provided in the Articles of Association of the
Surviving Corporation.

     Section 2.4 Effects of the Merger. The Merger shall have the effects provided for
herein and in the applicable provisions of the Israeli Companies Law. Without limiting the
generality of the foregoing and subject thereto, at the Merger Effective Time, all of the
properties, rights, privileges, powers and franchises of the Company and Acquisition Subsidiary
shall vest in the Surviving Corporation and all debts, liabilities and duties of the Company and
Acquisition Subsidiary shall become the debts, liabilities and duties of the Surviving Corporation.

     Section 2.5 Manner and Basis of Converting Shares.

          (a) Acquisition Subsidiary Ordinary Share Conversion. At the Merger Effective Time,
each ordinary share of Acquisition Subsidiary that shall be outstanding immediately prior to the
Merger Effective Time shall, by virtue of the Merger and without any action on the part of the
holder thereof, be converted into the right to receive one ordinary share of the Surviving
Corporation, so that at the Merger Effective Time, Parent shall be the holder of all of the issued
and outstanding shares of the Surviving Corporation.

          (b) Conversion of Company Shares. At the Merger Effective Time, subject to the
provisions of Section 2.5(c):

7

 

               (i) the Company Shares held by Existing Company Shareholders (other than FG Holders) prior to
the Merger Effective Time (other than securities of the Company cancelled in accordance with
Section 2.5(c)) shall be converted, on a pro rata basis, into the right to receive such number of
shares of Parent Common Stock, which together with securities of Parent issued in exchange of the
Company Options and the Company Warrants and in accordance with Section 2.8 and securities of
Parent reserved in accordance with Section 2.8, shall constitute in the aggregate, 85% of the
issued and outstanding share capital of the Parent upon the Merger Effective Time, calculated on a
fully-diluted basis immediately after the Merger Effective Time, but excluding FG Warrant Shares
and any warrants and options issuable by Parent pursuant to Section 5.8. The exact exchange ratio
shall be computed immediately prior to the Merger Effective Time based on the above (“Exchange
Ratio”);

               (ii) the Company Ordinary Shares held by FG Holders prior to the Merger Effective Time which
were purchased under the Share Purchase Agreement, shall be converted into the right to receive
such number of shares of Parent Common Stock, which, when added to all other securities held by
holders of securities of the Parent immediately prior to the Merger Effective Time, shall
constitute, in the aggregate, 15% of the issued and outstanding share capital of the Parent upon
the Merger Effective Time, calculated on a fully-diluted basis immediately after the Merger
Effective Time, but excluding FG Warrant Shares and any warrants and options issuable by Parent
pursuant to Section 5.8; and

               (iii) each Company Ordinary Share held by FG Holders which was issued in connection with the
exercise of any FG Warrants (the “FG Warrant Shares”) prior to the Merger Effective Time
shall be converted into such number of shares of Parent Common Stock calculated by dividing: (i)
the aggregate exercise price paid by such FG Holders to the Company upon the exercise of the FG
Warrants; by (ii) the Ratio as defined in Section 2.6(c);

all of the shares of Parent Common Stock issuable pursuant to this Section 2.5(b) are referred to
herein collectively as the “Merger Shares”.

          (c) Other Securities. Each of the Company Shares held in the treasury of the Company,
if any, each share of any other class of shares of the Company (other than the Company Shares), if
any, any debt or other securities convertible into or exercisable for the purchase of the Company
Shares, if any, and securities of the Company held by Parent and/or Acquisition Subsidiary, if any,
issued and outstanding immediately prior to the Merger Effective Time shall be canceled without
payment of any consideration therefor and without any conversion thereof.

     Section 2.6 Surrender and Exchange of Securities. (a) As soon as practicable after
the Merger Effective Time and upon (i) surrender of a certificate or certificates representing the
Company Shares that were outstanding immediately prior to the Merger Effective Time to Parent (or,
in case such certificates shall be lost, stolen or destroyed, an affidavit of that fact by the
holder thereof) (each a “Certificate”) and (ii) delivery
to Parent of an executed Letter of Transmittal (as described in Section 5.7), Parent shall
deliver to the record holder of the Company Shares surrendering such certificate or certificates, a
certificate or certificates (or evidence of shares in book-entry form) registered in the name of
such shareholder representing the number of shares of Parent Common Stock to which such holder is
entitled under Section

8

 

2.5, including any cash paid in lieu of any fractional shares pursuant to
Section 2.6(c). In the event of a transfer of ownership of Company Shares that is not registered
in the transfer records of the Company, a certificate (or evidence of shares in book-entry form)
representing the proper number of whole shares of Parent Common Stock may be issued to a Person
other than the Person in whose name the Certificate so surrendered is registered, if, upon delivery
by the holder thereof at the Closing, such Certificate shall be properly endorsed or shall
otherwise be in proper form for transfer and the Person requesting such issuance shall have paid
any transfer and other Taxes required by reason of the issuance of shares of Parent Common Stock to
a Person other than the registered holder of such Certificate or shall have established to the
reasonable satisfaction of Parent that such Tax either has been paid or is not applicable. As of
the Merger Effective Time, each Company Share issued and outstanding immediately prior to the
Merger Effective Time shall no longer be outstanding and shall automatically be canceled and
retired and until the certificate or certificates evidencing such shares are surrendered, each
certificate that immediately prior to the Merger Effective Time represented any outstanding Company
Share shall be deemed at and after the Merger Effective Time to represent only the right to receive
upon surrender as aforesaid the consideration specified in Section 2.5 for the holder thereof.

          (b) Transfer Books; No Further Ownership Rights in Company Shares. All shares of
Parent Common Stock issued upon the surrender for exchange of Certificates in accordance with the
terms of this Article II (including any cash paid in lieu of any fractional shares pursuant to
Section 2.6(c)) shall be deemed to have been issued (and paid) in full satisfaction of all rights
pertaining to the Company Shares previously represented by such Certificates, and at the Merger
Effective Time, the share transfer books of the Company shall be closed and thereafter there shall
be no further registration of transfers on the share transfer books of the Surviving Corporation of
the Company Shares that were outstanding immediately prior to the Merger Effective Time. From and
after the Merger Effective Time, the holders of Certificates that evidenced ownership of the
Company Shares outstanding immediately prior to the Merger Effective Time shall cease to have any
rights with respect to such shares, except as otherwise provided for herein or by applicable Law.

          (c) No Fractional Shares. No fraction of a share of Parent Common Stock shall be
issued upon the surrender for exchange of a Certificate (or evidence of such shares in book-entry
form), no dividends or other distributions of Parent shall relate to such fractional share
interests and such fractional share interests will not entitle the owner thereof to vote or to any
rights of a stockholder of Parent. In lieu of such fractional share interests, Parent shall pay to
each holder of a Certificate (upon surrender thereof as provided in this Article II) an amount in
cash equal to the product obtained by multiplying the fractional share interest to which such
holder (after aggregating all shares of Parent Common Stock into which the Company Shares held at
the Merger Effective Time by such holder are exchangeable) would otherwise be entitled by the
quotient obtained by dividing (A) US$106.67 million by (B) the aggregate number of issued and
outstanding shares of Parent Common Stock, on a fully diluted basis, calculated immediately upon
the Merger Effective Time, excluding any shares of Parent Common Stock
issued upon the Closing in exchange for the FG Warrant Shares or issuable upon conversion or
exercise of any warrants and options issuable by Parent pursuant to Section 5.8 (such quotient
being referred to as the “Ratio”).

9

 

          (d) Lost, Stolen or Destroyed Certificates. If any Certificate shall have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the Person claiming such
Certificate to be lost, stolen or destroyed and, if required by Parent, the written agreement by
such Person to indemnify Parent and the Surviving Corporation against any claim that may be made
against it with respect to such Certificate, Parent will issue, in exchange for such lost, stolen
or destroyed Certificate, the Merger Shares and cash in lieu of any fractional shares of Parent
Common Stock to which such Person would be entitled pursuant to Section 2.6(c), in each case
pursuant to this Agreement.

          (e) No Liability. Notwithstanding any provision of this Agreement to the contrary,
none of the parties hereto or the Surviving Corporation shall be liable to any Person in respect of
any shares of Parent Common Stock (or dividends or other distributions with respect thereto) or
cash in lieu of any fractional shares of Parent Common Stock, in each case required to be delivered
and delivered to a public official pursuant to any applicable abandoned property, escheat or
similar Law.

     Section 2.7 Parent Common Stock. Parent agrees that it will issue the Merger Shares
into which the Company Shares are converted at the Merger Effective Time pursuant to Section 2.5 to
the respective holder under Section 2.5 and will pay any cash amount in lieu of any fractional
shares as set forth in Section 2.6(c).

     Section 2.8 Company Options; Company Warrants.

          (a) Before the Closing, the Company Board shall adopt such resolutions or take such other
actions as may be required to effect the following:

               (i) adjust the terms of all outstanding options of the Company to purchase Company Ordinary
Shares under the Company’s 2003 Stock Option Plan (“Company Options” and “Company
Option Plan”), whether vested or unvested, as necessary to provide that, at the Merger
Effective Time, each Company Option outstanding immediately prior to the Merger Effective Time
shall be assumed and converted into an option to acquire, on the same terms and conditions as were
applicable under the Company Options and the Company Option Plan, the number of shares of Parent
Common Stock (rounded down to the nearest whole share) determined by Existing Holder multiplying
the number of Company Ordinary Shares subject to the Company Options by the Exchange Ratio (each,
as so converted, an “Assumed Option”); provided, that the aggregate exercise price
of each Company Option shall remain unchanged; and

               (ii) make such other changes to the Company Option Plan as appropriate to give effect to the
Merger and any rulings or tax benefits of Israeli tax authorities with respect to the Assumed
Options, including the Israeli Income Tax Ruling referred to below.

          (b) At the Merger Effective Time, by virtue of the Merger and without the need of any further
corporate action, Parent shall assume the Company Option Plan with the result that all obligations
of the Company under the Company Option Plan, including with respect to Company Options outstanding
at the Merger Effective Time, shall become the obligations of Parent following the Merger Effective
Time, entitling the holders thereof to the Assumed Options referred to in Section 2.8(a).

10

 

          (c) As soon as practicable after the Merger Effective Time, Parent shall deliver to the
holders of Company Options appropriate notices setting forth such holders’ rights under the Assumed
Options subject to the adjustments required and limitations imposed by Section 2.8(a).

          (d) Except as otherwise contemplated by Section 2.8 and except to the extent required under
the respective terms of the Company Options, all restrictions or limitations on transfer and
vesting with respect to Company Options awarded under the Company Option Plan or any other plan,
program or arrangement of the Company, to the extent that such restrictions or limitations shall
not have already lapsed, shall remain in full force and effect with respect to such Assumed Options
after giving effect to the Merger and any rulings of Israeli tax authorities as set forth in
Section 2.8(a).

          (e) Each Company Warrant shall similarly be assumed by Parent and amended and converted into
the right to acquire upon exercise thereof the number of shares of Parent Common Stock (rounded
down to the nearest whole share) determined by multiplying the number of Company Ordinary Shares
issuable upon the exercise of each Company Warrant by the Exchange Ratio; provided, that
the aggregate exercise price of each Company Warrant shall remain unchanged.

     Section 2.9 Further Assurances. From time to time, from and after the Merger
Effective Time, as and when requested by Parent or its respective successors or assigns, the proper
officers and directors of the Company or Acquisition Subsidiary (as applicable) in office
immediately prior to the Merger Effective Time shall, for and on behalf and in the name of the
Company or Acquisition Subsidiary (as applicable), execute and deliver all such deeds, bills of
sale, assignments and other instruments and take or cause to be taken such further actions as
Parent or its respective successors or assigns may deem necessary or desirable in order to confirm
or record or otherwise transfer to the Surviving Corporation title to and possession of all of the
properties, rights, privileges, powers, franchises and immunities of the Company and the
Acquisition Subsidiary or otherwise to carry out fully the provisions and purposes of this
Agreement and the Certificate of Merger.

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

     The Company hereby represents and warrants to Parent and Acquisition Subsidiary that the
statements contained in this Article III are true and correct, except as set forth in the
disclosure schedule provided by the Company to Parent and Acquisition Subsidiary, as of the date
hereof (the “Company Disclosure Schedules”). For purposes of this Article III, the phrase
“to the knowledge of the Company” or any phrase of similar import shall be deemed to refer to
the actual knowledge of the Chief Executive Officer of the Company and Dr. Yoseph Shaaltiel, the
founder of the Company, as well as any other knowledge which such persons would have possessed had
they made reasonable inquiry of appropriate officers and employees (whether current or former),
agents and affiliates of the Company with respect to the matter in question.

     Section 3.1 Subsidiaries. The Company does not own or control, directly or
indirectly, any interest in any other corporation, partnership, company, association, limited

11

 

liability company or other business entity. The Company is not a party to, or a participant in,
any joint venture, partnership or similar arrangement. Except as set forth on Schedule 3.1 of the
Company Disclosure Schedules, the Company is not a party to, or a participant in, any joint venture
or similar arrangement, including strategic relationships to develop or promote the Company’s
products and services, which relationships are conducted through contractual relationships between
the Company and third parties, but do not involve any interest of the Company in any separate legal
entities.

     Section 3.2 Organization and Qualification. The Company is duly organized and validly
existing under the laws of the State of Israel and has all requisite corporate power and authority
to own, lease and operate its assets and properties and to carry on its business (the
“Business”) as now conducted. Except as set forth on Schedule 3.2 of the Company
Disclosure Schedules, the Company is duly qualified to transact business under the laws of the
State of Israel and in such other jurisdictions where the character of the properties owned, leased
or operated by it or the nature of the Business makes such qualification or licensing necessary and
has not taken any action or failed to take any action, which action or failure, as applicable, are
reasonably expected to interfere in any material respect with, preclude or prevent the Company from
carrying on its Business as now conducted. The Company is not in default with respect to the
Company Articles.

     Section 3.3 Capitalization.

          (a) The registered share capital of the Company as of the date hereof consists of NIS 22,900
divided into: 1,516,468 Ordinary Shares, 190,486 Series A Preferred Shares, nominal value NIS 0.01
per share, 183,046 Series B Preferred Shares, nominal value NIS 0.01 per share and 400,000 Series C
Preferred Shares, nominal value NIS 0.01 per share. As of the closing of the Share Purchase
Agreement, all issued and outstanding Company Preferred Shares shall be converted into Company
Ordinary Shares and the registered share capital of the Company shall consist of NIS 22,900 divided
into 2,290,000 Ordinary Shares.

          (b) The issued and outstanding Company Shares have been duly authorized and validly issued,
are fully paid, non-assessable, and have been issued in compliance with the Israeli Securities Law,
1968, other applicable securities laws, and the rules and regulations promulgated thereunder. The
issued and outstanding share capital of the Company, on a fully diluted basis, including a true and
correct list of the holders (beneficially and of record) of shares
or rights (vested or contingent) to acquire shares in the Company dated as of the date hereof
is as set forth in Schedule 3.3 of the Company Disclosure Schedules.

          (c) Except: (i) as set forth in this Agreement and as specified in Schedule 3.3 of the Company
Disclosure Schedules, (ii) as set forth in the Articles; and (iii) as set forth in the Amendment to
the Shareholders’ Rights Agreement between the Company and certain shareholders of the Company (the
“Amended Shareholders Agreement”), the Company is not a party or subject to any agreement
or understanding with respect to any security of the Company and there are no outstanding options,
warrants, convertible securities, rights (including registration rights, voting rights, conversion
or preemptive rights and rights of first refusal), or agreements of any kind for the purchase or
acquisition of securities from the Company.

12

 

          (d) Attached to Schedule 3.3 of the Company Disclosure Schedules is a true and correct copy of
the Company Option Plan. True and correct copies of all Company Options and Company Warrants were
provided to Parent.

          (e) Except as set forth in the Company Articles, the Amended Shareholders Agreement and as
specified in Schedule 3.3 of the Company Disclosure Schedules, the Company is not a party or
subject to any agreement or understanding, and, to the Company’s knowledge, there is no agreement
or understanding between any other persons and/or entities that affects or relates to the voting or
giving of written consents with respect to any security or the voting by a director or shareholder
of the Company.

          (f) Except as set forth on Schedule 3.3 of the Company Disclosure Schedules, there is no share
option plan, share purchase, option or other right, or any agreement or understanding, between the
Company and any holder of its securities (or of any right to obtain a security), or to the
Company’s knowledge, any agreement or understanding between shareholders of the Company that (i)
provides for redemption, acceleration or other changes in the vesting provisions or other terms of
such agreement or understanding, as a result of any merger, consolidation, sale of shares or
assets, change in control or similar transaction in respect of the Company or (ii) that relates to
the acquisition (including, without limitation, through anti-dilution, conversion, preemptive
(contractual or otherwise) or similar rights), disposition or registration for the public sale of
any securities of the Company. Except as set forth on Schedule 3.3 of the Company Disclosure
Schedules, the Company does not have any right to purchase or otherwise acquire from any third
party (including, without limitation, employees, officers, directors, consultants and business
parties) shares of the Company or rights to acquire the same.

     Section 3.4 Authorization. Except as set forth on Schedule 3.4 of the Company
Disclosure Schedules, all corporate action on the part of the Company, its officers and directors
necessary for: (i) the due authorization, execution and delivery of this Agreement and (ii) the
performance of all obligations of the Company hereunder has been taken as of the date hereof,
except as set forth in Section 5, 6 and 9. All corporate action on the part of the Company’s
shareholders necessary for the due authorization, execution and delivery of this Agreement and the
performance of all obligations of the Company hereunder has been or will be taken prior to or upon
the Closing. The requisite number of the Company’s shareholders has executed the Amended
Shareholders
Agreement as of the closing of the Share Purchase Agreement. This Agreement has been duly
executed by the Company and, assuming the due authorization, execution and delivery by the other
parties thereto, constitutes and will constitute a valid and legally binding obligation of the
Company, (i) subject, to applicable bankruptcy, insolvency, reorganization, fraudulent conveyance,
moratorium or similar laws of general application affecting the enforcement of creditors’ rights
generally, (ii) subject to a court’s discretionary authority with respect to the granting of
specific performance, injunctive relief or other equitable remedies and (iii) except to the extent
the indemnification and contribution provisions, if any, contained in any such agreement may be
limited by Israeli securities laws or unenforceable as against public policy.

     Section 3.5 Compliance with Other Instruments; No Conflict. The Company is not in
violation or breach of, conflict with, or in default under (with or without the passage of time or
the giving of notice or both) any provision of (a) the Company Articles or (b) any mortgage,

13

 

indenture, lease, license or any other agreement or instrument, judgment, order, writ or decree to
which it is a party or by which it or its properties is bound, or, any statute, rule or regulation
applicable to it or its properties, except, in the case of clause (b) above for such possible
violations, breaches, conflicts or defaults which could not, individually or in the aggregate,
result in a Material Adverse Effect. Except as set forth in Schedule 3.5 of the Company Disclosure
Schedules, the execution, delivery and performance of this Agreement, and the consummation of the
transactions contemplated hereby will not, to the Company’s knowledge, result in any such
violation, breach, conflict or default or result in the creation of any Lien upon any assets of the
Company or the suspension, revocation, impairment, forfeiture or nonrenewal of any franchise,
permit, license, authorization or approval applicable to the Company or the Business which
individually or in the aggregate (a) could reasonably be expected to have a Material Adverse Effect
on the Company; or (b) prevent or materially delay the consummation of the transactions
contemplated hereby.

     Section 3.6 Absence of Changes. Since December 31, 2005, the date of the latest
audited financial statements provided to Parent (the “Audited Financial Statements Date”),
except as disclosed in Schedule 3.6 of the Company Disclosure Schedules or incident to the
transactions contemplated hereby or in connection with the Merger, (i) there has been no event,
occurrence or development that, individually or in the aggregate, has had or that could result in a
Material Adverse Effect, (ii) the Company has not incurred any material liabilities or Indebtedness
that has had or could result in a Material Adverse Effect other than (A) trade payables and
expenses incurred in the ordinary course of business consistent with past practice and (B)
liabilities not required to be reflected in the Company’s financial statements pursuant to GAAP,
(iii) the Company has not altered its method of accounting or the identity of its auditors, except
as disclosed in its audited financial statements, (other than the Company’s election to start
preparing the Company Financial Statements (as defined below) in accordance with GAAP (as defined
below)), (iv) the Company has not declared or made any dividend or distribution of cash or other
property to its shareholders, in their capacities as such, or purchased, redeemed or made any
agreements to purchase or redeem any of its share capital and (v) the Company has not issued any
equity securities to any officer, director or Affiliate, except pursuant to an existing Company
Option Plan. Set forth on Schedule 3.6 of the Company Disclosure Schedules is a list of all
Options issued since December 31, 2005, including the identity of the persons to whom such Options
were issued and the exercise prices thereof. The Company has not taken any steps to seek
protection pursuant to any bankruptcy law nor does the Company have any knowledge or reason to
believe that its creditors intend to initiate involuntary bankruptcy proceedings or any actual
knowledge of any fact that would reasonably lead a creditor to do so. The Company is not Insolvent
as of the date hereof, and after giving effect to the transactions contemplated hereby to occur at
the Closing, will not be Insolvent.

     Section 3.7 Absence of Litigation.

          (a) There is no action, suit, claim or Proceeding pending, or to the knowledge of the Company
currently threatened, against the Company, and the Company is not aware of any event or
circumstance that may form a basis for any such action, suit, claim, proceeding other than those
set forth on Schedule 3.7(a) of the Company Disclosure Schedules that might result, either
individually or in the aggregate, in any Material Adverse Effect. The foregoing includes, to the
Company’s knowledge, actions, suits, claims or proceedings pending or

14

 

threatened against the
Company (or any basis therefor known to the Company) involving the prior employment of any of the
Company’s employees, their use in connection with the Business of any information or techniques
allegedly proprietary to any of their former employers, or their obligations under any agreements
with former employers.

          (b) Except as set forth on Schedule 3.7(b) of the Company Disclosure Schedules, the Company is
not a party or subject to the provisions of any order, writ, injunction, judgment or decree of any
court or Government Authority that might, individually or in the aggregate, have a Material Adverse
Effect on the Company.

          (c) There is no action, suit, claim or proceeding by the Company that is currently pending or
that the Company intends to initiate.

          (d) There is no action, suit, claim or proceeding pending or, to the knowledge of the Company,
threatened, that questions the validity of this Agreement or the right of the Company to enter into
this Agreement, or to consummate the transactions contemplated hereby.

     Section 3.8 Compliance. The Company, except in each case as could not, individually
or in the aggregate, reasonably be expected to have or result in a Material Adverse Effect, (i) is
not in default under or in violation of (and no event has occurred that has not been waived that,
with notice or lapse of time or both, would result in a default by the Company under), nor has the
Company received written notice of a claim that it is in default under or that it is in violation
of, any indenture, loan or credit agreement or any other agreement or instrument to which it is a
party or by which it or any of its properties is bound (whether or not such default or violation
has been waived), (ii) is not in violation of any order of any court, arbitrator or governmental
body or (iii) is not or has not been in violation of any statute, rule or regulation of any
Governmental Authority.

     Section 3.9 Title to Assets. The Company does not own any real property and has good and marketable title in all
personal property owned by the Company that is material to the Business, in each case free and
clear of all Liens, except for Liens that do not, individually or in the aggregate, have or result
in a Material Adverse Effect. Any real property and facilities held under lease by the Company are
held by the Company under valid, subsisting and enforceable leases of which the Company is in
material compliance.

     Section 3.10 Proprietary Rights. The Company does not have any knowledge of, and the
Company has not received any notice of, any pending conflicts with or infringement of the rights of
others with respect to any patents, patent applications, inventions, trademarks, trade names,
applications for registration of trademarks, service marks, service mark applications, copyrights,
know-how, manufacturing processes, formulae, trade secrets, licenses and rights in any thereof
which are material to the Business, as now conducted or as proposed to be conducted (herein called
the “Company Proprietary Rights”). No action, suit, arbitration or legal, administrative
or other Proceeding is pending or, to the Company’s knowledge, threatened which involves any
Company Proprietary Rights. The Company is not subject to any judgment, order, writ, injunction or
decree of any court or any local, foreign or other governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, or any arbitrator, and the Company has not
entered into nor is the Company a party to any contract which restricts or

15

 

impairs the use of any
such Company Proprietary Rights in a manner which could have a Material Adverse Effect. To the
Company’s knowledge, the Company owns or licenses all the Company Proprietary Rights which are
necessary for the Business as now conducted and as contemplated to be conducted, and has the right
to use such Company Proprietary Rights without payment to a third party, other than in respect of
the licenses disclosed in Schedule 3.10 of the Company Disclosure Schedules. Except as disclosed
in Schedule 3.10 of the Company Disclosure Schedules, the Company has not granted or assigned to
any other person or entity any right to manufacture, have manufactured or assemble the products or
proposed products or to provide the services or proposed services of the Company. Except as
disclosed in Schedule 3.10 of the Company Disclosure Schedules, the Company does not have any
obligation to compensate any person for the use of any Company Proprietary Rights nor has the
Company granted to any person any license or other rights to use in any manner any Company
Proprietary Rights of the Company. Except as disclosed in Schedule 3.10 of the Company Disclosure
Schedules, all of the issued patents included in the Company Proprietary Rights are valid and
enforceable.

     Section 3.11 Insurance. The Company maintains third party liability, fire, theft,
equipment and employee claim insurance and such other customary insurance policies of types and in
amounts as necessary to conduct its Business.

     Section 3.12 Permits. Except as set forth on Schedule 3.12 of the Company Disclosure
Schedules, the Company has all Material Permits necessary for the conduct of the Business as now
conducted. The Company is not in material breach of or default under any of such Material Permits.

     Section 3.13 Interested and Related-Party Transactions. Except as set forth in
Schedule 3.13 of the Company Disclosure Schedules, no shareholder, officer or director of the
Company is indebted to the Company, nor is the Company indebted to (or committed to make loans or
extend or guarantee credit of) any of them. Except as set forth in Schedule 3.13 of the Company
Disclosure Schedules, to the Company’s knowledge, no shareholder, officer or director of the
Company (i) has any direct or indirect interest in any contract to which the Company is a party or
by which it or its properties may be bound or affected, (ii) has any direct or indirect interest in
any entity which transacts business with the Company, (iii) has a direct or indirect interest in
any property, asset or right which is used by the Company in the conduct of its Business or (iv)
owns any asset used by the Company in connection with its Business.

     Section 3.14 Employee Relations. The Company is not a party to any collective
bargaining agreement nor does the Company employ any member of a union. The Company believes that
its relations with its employees are good. No executive officer of the Company has notified the
Company that such officer intends to leave the Company or otherwise terminate such officer’s
employment with the Company. The Company is in compliance with all applicable laws and regulations
respecting labor, employment and employment practices and benefits, terms and conditions of
employment and wages and hours, except where failure to be in compliance would not, either
individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect on
the Company.

     Section 3.15 Environmental Laws. The Company (i) is in compliance with any and all
Environmental Laws applicable to the Company, (ii) has received all permits, licenses or other

16

 

approvals required of the Company under applicable Environmental Laws to conduct the Business and
(iii) is in compliance with all terms and conditions of any such permit, license or approval where,
in each of the foregoing clauses (i), (ii) and (iii), the failure to so comply could be reasonably
expected to have, individually or in the aggregate, a Material Adverse Effect on the Company.

     Section 3.16 Tax Status. The Company has timely made or filed all material income and
all other tax returns, reports and declarations required by any taxing authority to which it is
subject (unless and only to the extent that the Company is contesting in good faith such unpaid and
unreported taxes and has set aside on its respective books provisions reasonably adequate for the
payment of all such unpaid and unreported taxes), all such tax returns have been prepared in
compliance with all applicable laws and regulations and all such tax returns are true, accurate and
complete in all respects. The Company has timely paid all taxes and other governmental assessments
and charges, that are material in amount, shown or determined to be due on such returns, reports
and declarations, except those being contested in good faith, and has set aside on its books
provisions reasonably adequate for the payment of all taxes for periods subsequent to the periods
to which such returns, reports or declarations apply. To the knowledge of the Company, there are
no unpaid taxes in any material amount claimed to be due by the taxing authority of any
jurisdiction, other than those incurred in the ordinary course of business and liabilities
which are reflected in the Company Financial Statements. The Company has not executed a waiver
with respect to the statute of limitations relating to the assessment or collection of any Israeli,
foreign, federal, state or local tax. None of the Company’s tax returns are presently being
audited or the subject of any action, suit or Proceeding by any taxing Governmental Authority, and,
to the best of the Company’s knowledge, no such audit, action, suit or Proceeding is being
threatened against the Company by such taxing Governmental Authority. The Company has made
available to Parent true, correct and complete copies of all Tax Returns with respect to income
taxes filed by or with respect to it with respect to taxable periods ended on or after December 31,
2003, and has delivered or made available to Parent all relevant documents and information with
respect thereto, including without limitation work papers, records, examination reports, and
statements of deficiencies assessed against or agreed to by the Company. There are no outstanding
adjustments, deficiencies, additional assessments or refund claims proposed or outstanding with
respect to any Tax or Tax Return of the Company. The Company is not a party to or bound by any tax
sharing or allocation agreement and has no current or potential contractual obligation to indemnify
any other Person with respect to Taxes.

     Section 3.17 “Approved Enterprise” Status. Except as set forth on Schedule 3.17 of
the Company Disclosure Schedules, the Company is in compliance with all conditions and requirements
stipulated by (i) the instruments of approval granted to it with respect to the “Approved
Enterprise” status of any of the facilities of the Company as well as with respect to the other tax
benefits received by the Company and (ii) Israeli laws and regulations relating to such “Approved
Enterprise” status and the aforementioned other tax benefits received by the Company, except to the
extent that noncompliance with the foregoing, individually or in the aggregate, would not result in
a Material Adverse Effect and would not prevent or delay the consummation of the transactions
contemplated hereby. The Company has not received any notice of any proceeding or investigation
relating to revocation or modification of any “Approved Enterprise” status granted with respect to
any of the facilities of the Company and the Transactions will not result in any such revocation or
modification.

17

 

     Section 3.18 Manipulation of Price. The Company has not, and to its knowledge no one
acting on its behalf has, (i) taken, directly or indirectly, any action designed to cause or to
result in the stabilization or manipulation of the price of Parent Common Stock, (ii) sold, bid
for, purchased, or paid any compensation for soliciting purchases of, any shares of Parent Common
Stock or (iii) paid or agreed to pay to any Person any compensation for soliciting another to
purchase any shares of Parent Common Stock.

     Section 3.19 Material Agreements. A list of the oral and written material agreements
of the Company is set forth on Schedule 3.19 of the Company Disclosure Schedules (each a
“Material Agreement”). The Company, to the extent applicable, and to the Company’s
knowledge, each other party thereto, have in all material respects performed all the obligations
required to be performed by them to date (or such non-performing party has received a valid,
enforceable and irrevocable written
waiver with respect to its non-performance), have received no notice of default and are not in
default (with due notice or lapse of time or both) under any Material Agreement. The Company has
no knowledge of any breach or anticipated breach by the other party to any Material Agreement to
which the Company is a party.

     Section 3.20 Office of Chief Scientist. Except as set forth on Schedule 3.20 of the
Company Disclosure Schedules, the Company has satisfied all conditions and requirements of the
instruments of approval granted to it by the Office of Chief Scientist of the Israeli Ministry of
Industry and Trade (the “OCS”) and any applicable laws and regulations, including the Law
for the Encouragement of Industrial Research and Development, 1984, with respect to any research
and development grants given to it by such office, except to the extent that noncompliance with the
foregoing, individually or in the aggregate, would not result in a Material Adverse Effect and
would not prevent or delay the consummation of the transactions contemplated hereby. All
information supplied by the Company with respect to such applications was true, correct and
complete in all material respects when supplied to the appropriate authorities.

     Section 3.21 Disclosure. All disclosures provided by the Company to Parent and
Acquisition Subsidiary regarding the Company, the Business and the transactions contemplated
hereby, including the Company Disclosure Schedules, are true and correct in all material respects
and do not contain any untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements made therein, in the light of the circumstances under
which they were made, not misleading as of the date hereof.

     Section 3.22 Consents. Except as set forth in Schedule 3.22 of the Company Disclosure
Schedules, no consent, approval, order or authorization of, or registration, qualification,
designation, declaration or filing with, any Government Authority, or any other Person, is required
in connection with the execution and delivery of, and the consummation of the transactions
contemplated by, this Agreement, except any filing required any applicable securities laws or
regulations or as set forth herein.

     Section 3.23 Broker’s and other Fees. The Company has not incurred, nor will it
incur, directly or indirectly, any liability for brokerage or finders fees or agent’s commissions
or any similar charges in connection with this Agreement or any transaction contemplated hereby.

18

 

     Section 3.24 Application of Takeover Protections. Except as described in Schedule
3.24 of the Company Disclosure Schedules, to the knowledge of the Company, there are no Takeover
Protections that are or could become applicable to the Company as a result of the Company, Parent
and Acquisition Subsidiary fulfilling their obligations or exercising their rights under the
Transaction Documents.

     Section 3.25 Financial Statements.

          (a) The Company has delivered to Parent copies of: (i) the balance sheets of the Company as of
December 31, 2005 and December 31, 2004, and the statements of operations, and changes in
shareholders’ equity and cash flows for the years ended December 31, 2005, December 31, 2004 and
December 31, 2003, in each case accompanied by the audit report of PriceWaterhouseCoopers, LLP –
Kesselman & Kesselman, independent accountants with respect to the Company, and (ii) the unaudited
balance sheets of the Company as of June 30, 2006 (the “Company June Balance Sheets”) and
the unaudited statements of operations, and shareholders’ equity and cash flows for the six-month
period ended June 30, 2006 (collectively, the “Company Financial Statements”). The Company
Financial Statements (including the related notes) have been prepared in accordance with United
States and Israeli generally accepted accounting principles consistently applied (“GAAP”)
during the periods involved (except as may be indicated therein or in the notes thereto), and
present fairly the consolidated financial position of the Company as of the respective dates set
forth therein, and the consolidated results of the Company’s operations and its cash flows for the
respective periods set forth therein in accordance with GAAP (subject, in case of any unaudited
interim financial statements, to normal year-end adjustments).

          (b) The books and records of the Company are being maintained in material compliance with
applicable legal and accounting requirements.

     Section 3.26 Foreign Corrupt Practices. Neither the Company nor any director,
officer, agent, employee or other Person acting on behalf of the Company has, in the course of its
actions for, or on behalf of, the Company (i) used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expenses relating to political activity, (ii)
made any direct or indirect unlawful payment to any foreign or domestic government official or
employee from corporate funds, (iii) violated or is in violation of any provision of the U.S.
Foreign Corrupt Practices Act of 1977, as amended, or (iv) made any unlawful bribe, rebate, payoff,
influence payment, kickback or other unlawful payment to any foreign or domestic government
official or employee.

     Section 3.27 OFAC. The Company (i) is not a Person whose property or interest in
property is blocked or subject to blocking pursuant to Section 1 of Executive Order 13224 of
September 23, 2001 Blocking Property and Prohibiting Transactions with Persons Who Commit, Threaten
to Commit, or Support Terrorism (66 Fed. Reg. 49079 (2001)), (ii) does not engage in any dealings
or transactions prohibited by Section 2 of such executive order, or is otherwise associated with
any such Person in any manner violative of Section 2 of such executive order or (iii) is not a
Person on the list of Specially Designated Nationals and Blocked Persons or subject to the
limitations or prohibitions under any other U.S. Department of Treasury’s Office of Foreign Assets
Control regulation or executive order.

19

 

     Section 3.28 Patriot Act. Assuming the foregoing were applicable to the Company, the
Company would be in compliance, in all material respects, with the (i) Trading with the Enemy Act,
as amended, and each of the foreign assets control regulations of the United States Treasury
Department (31 CFR, Subtitle B, Chapter V, as amended) and any other enabling legislation or
executive order relating thereto and (ii) Uniting and Strengthening America by Providing
Appropriate Tools Required to Intercept and Obstruct Terrorism (USA Patriot Act of 2001).

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF PARENT,

AND ACQUISITION SUBSIDIARY

     Each of Parent and Acquisition Subsidiary represents and warrants to the Company that the
statements contained in this Article IV are true and correct, except as set forth in the disclosure
schedule provided by Parent and Acquisition Subsidiary to the Company, as of the date hereof (the
“Parent Disclosure Schedules”). For purposes of this Article IV, the phrase “to the
knowledge of Parent” or any phrase of similar import shall be deemed to refer to the actual
knowledge of the executive officers of Parent, as well as any other knowledge which such executive
officers would have possessed had they made reasonable inquiry of appropriate officers and
employees (whether current or former), agents and affiliates of Parent with respect to the matter
in question.

     Section 4.1 Subsidiaries. Except for Parent’s 100% interest in Acquisition
Subsidiary, neither Parent nor Acquisition Subsidiary owns or controls, directly or indirectly, any
interest in any other corporation, partnership, company, association, limited liability company or
other business entity. Except as set forth on Schedule 4.1 of the Parent Disclosure Schedules,
neither Parent nor Acquisition Subsidiary is a party to, or a participant in, any joint venture or
similar arrangement, including strategic relationships to develop or promote Parent’s and/or
Acquisition Subsidiary’s products and services, which relationships are conducted through
contractual relationships between Parent or Acquisition Subsidiary and third parties, but do not
involve any interest of Parent or Acquisition Subsidiary in any separate legal entities.

     Section 4.2 Organization, Good Standing and Qualification. Parent is a corporation
duly organized and validly existing and in good standing under the laws of the State of Florida and
has all corporate power and authority to carry on its business as now conducted. Acquisition
Subsidiary is a corporation duly organized and validly existing under the laws of the State of
Israel and has all requisite corporate power and authority to carry on its business as now
conducted. Each of Parent and Acquisition Subsidiary is duly qualified to transact business and is
in good standing in each jurisdiction in which the failure to be so qualified could have
a Material Adverse Effect on Parent and/or Acquisition Subsidiary. Parent is not in default with
respect to its Articles of Incorporation (as may be amended or supplemented from time to time, the
“Parent Articles”). Acquisition Subsidiary is not in default with respect to its Articles
of Association (as may be amended or supplemented from time to time, the “Sub Articles”).
Complete and correct copies of the Parent Articles and Sub Articles were provided to Company.

     Section 4.3 Authorization. All corporate action on the part of each of Parent and
Acquisition Subsidiary, its officers and directors necessary for the (i) due authorization,
execution and delivery of this
Agreement and (ii) performance of all obligations of Parent and/or

20

 

Acquisition Subsidiary
hereunder has been taken as of the date hereof. All corporate action on the part of the
stockholders of each of Parent and Acquisition Subsidiary necessary for the (i) due authorization,
execution and delivery of this Agreement and (ii) performance of all obligations of Parent and/or
Acquisition Subsidiary hereunder has been taken or will be taken prior to the Closing. This
Agreement has been duly executed by each of Parent and Acquisition Subsidiary and, assuming the due
authorization, execution and delivery by the other parties thereto, constitutes and will constitute
a valid and legally binding obligation of both Parent and Acquisition Subsidiary, (i) subject to
applicable bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or similar
laws of general application affecting the enforcement of creditors’ rights generally, (ii) subject
to a court’s discretionary authority with respect to the granting of specific performance,
injunctive relief or other equitable remedies and (iii) except to the extent the indemnification
and contribution provisions, if any, contained in any such agreement may be limited by Israeli or
United States securities laws or unenforceable as against public policy.

     Section 4.4 Authorized Securities. The Merger Shares shall be duly authorized and,
when issued in accordance with this Agreement, will be duly and validly issued, fully paid and
non-assessable, free and clear of all Liens and shall not be subject to preemptive or similar
rights of stockholders. The Assumed Options, any warrants or options issued by Parent in exchange
for the Company Warrants and all options and warrants issuable by Parent pursuant to Section 5.8
shall be duly issued and authorized when issued in accordance with this Agreement and any share of
Parent Common Stock issued upon the exercise thereof according to the terms thereof will be duly
and validly issued, fully paid and non-assessable, free and clear of all Liens and shall not be
subject to preemptive or similar rights of stockholders.

     Section 4.5 Capitalization. The authorized share capital of Parent and Acquisition
Subsidiary is as set forth on Schedule 4.5 of the Parent Disclosure Schedules.

     Section 4.6 Valid Issuance. The issued and outstanding capital stock of Parent have
been duly authorized and issued, are fully paid and non-assessable, and have been issued in
compliance with applicable securities laws. The issued and outstanding capital stock of Parent, on
a fully diluted basis, including a true and correct list of the record holders of shares or rights
(vested or contingent) to acquire shares in Parent immediately prior to the Closing is as set forth
in Schedule 4.6 of the Parent Disclosure Schedules. All issued and outstanding share capital of
Acquisition Subsidiary has been duly authorized and issued, is fully paid and non-assessable, and
has been issued in compliance with Israeli securities laws. All issued and outstanding share
capital of Acquisition Subsidiary, on a fully diluted basis, is held by Parent immediately prior to
the Closing. As of the Closing, Parent will assume the Company Option Plan to provide for the
issuance of the Assumed Options and will, prior to the Closing, reserve sufficient number of shares
of Parent Common Stock available for issuance upon the exercise of the Assumed Options, any
warrants or options issued in exchange for the Company Warrants or as otherwise undertaken by Parent to
be issued following the Closing.

     Section 4.7 SEC Reports; Financial Statements. Parent has duly filed all reports
required to be filed by it under the Exchange Act, including pursuant to Sections 13(a) or 15(d)
thereof, for the two years preceding the date hereof (the foregoing materials (together with any
materials filed by Parent under the Exchange Act, whether or not required) being collectively

21

 

referred to herein as the “SEC Reports”) on a timely basis or has received a valid
extension of such time of filing and has filed any such SEC Reports prior to the expiration of any
such extension. As of their respective dates, the SEC Reports complied in all material respects
with the requirements of the Securities Act and the Exchange Act and the rules and regulations of
the SEC promulgated thereunder, and none of the SEC Reports, when filed, contained any untrue
statement of a material fact or omitted to state a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the circumstances under which
they were made, not misleading. The financial statements of Parent included in the SEC Reports
comply in all material respects with applicable accounting requirements and the rules and
regulations of the SEC with respect thereto as in effect at the time of filing. Such financial
statements have been prepared in accordance with GAAP applied on a consistent basis, except as may
be otherwise specified in such financial statements or the notes thereto, and fairly present in all
material respects the financial position of Parent as of and for the dates thereof and the results
of operations and cash flows for the periods then ended, subject, in the case of unaudited
statements, to normal, year-end audit adjustments. Except as set forth on Schedule 4.7 of the
Parent Disclosure Schedules, all material agreements to which Parent or Acquisition Subsidiary is a
party or to which the property or assets of Parent or the Acquisition Subsidiary are subject are
included as part of or specifically identified in the SEC Reports.

     Section 4.8 Absence of Changes. Since the date of the latest audited financial
statements included within the SEC Reports, except as specifically disclosed in the SEC Reports or
in Schedule 4.8 of the Parent Disclosure Schedules or incident to the transactions contemplated
hereby or in connection with the Merger, (i) there has been no event, occurrence or development
that, individually or in the aggregate, has had or that could result in a Material Adverse Effect
on Parent, (ii) Parent has not incurred any material liabilities, (iii) Parent has not altered its
method of accounting or the identity of its auditors, except as disclosed in its SEC Reports, (iv)
Parent has not declared or made any dividend or distribution of cash or other property to its
stockholders, in their capacities as such, or purchased, redeemed or made any agreements to
purchase or redeem any shares of its capital stock and (v) Parent has not issued any equity
securities to any officer, director or affiliate. Parent has not taken any steps to seek
protection pursuant to any bankruptcy law nor does Parent have any knowledge or reason to believe
that its creditors intend to initiate involuntary bankruptcy proceedings or any actual knowledge of
any fact that would reasonably lead a creditor to do so. Parent is not Insolvent as of the date
hereof, and after giving effect to the transactions contemplated hereby to occur at the Closing,
will not be Insolvent.

     Section 4.9 Absence of Litigation.

          (a) There is no action, suit, claim or proceeding pending, or to the knowledge of Parent
currently threatened, against Parent and/or Acquisition Subsidiary, and Parent is not aware of any
event or circumstance that may form a basis for any such action, suit, claim, proceeding other than
those set forth on Schedule 4.9(a) of the Parent Disclosure Schedules. The foregoing includes, to
Parent and/or Acquisition Subsidiary’s knowledge, actions, suits, claims or proceedings pending or
threatened against Parent and/or Acquisition Subsidiary (or any basis therefor known to Parent
and/or Acquisition Subsidiary) involving the prior employment of any of Parent’s and/or Acquisition
Subsidiary’s employees, their use in connection with the Business

22

 

of any information or techniques
allegedly proprietary to any of their former employers, or their obligations under any agreements
with former employers.

          (b) To Parent’s and/or Acquisition Subsidiary’s knowledge, neither Parent nor Acquisition
Subsidiary is party or subject to the provisions of any order, writ, injunction, judgment or decree
of any court or Government Authority other than those set forth on Schedule 4.9(b) of Parent
Disclosure Schedules.

          (c) There is no action, suit, claim or proceeding by Parent and/or Acquisition Subsidiary that
is currently pending or that Parent and/or Acquisition Subsidiary intends to initiate.

          (d) To Parent’s and/or Acquisition Subsidiary’s knowledge, there is no action, suit, claim or
proceeding pending or, to the knowledge of Parent and/or Acquisition Subsidiary, threatened, that
questions the validity of this Agreement or the right of Parent and/or Acquisition Subsidiary to
enter into this Agreement, or to consummate the transactions contemplated hereby.

     Section 4.10 No Assets; No Liabilities. Except as specifically disclosed
in the SEC Reports, neither Parent nor Acquisition Subsidiary has the right to own, or will have
the right to own prior to the Closing, any assets (including without limitation, tangible and
intangible, personal and real property) and neither is involved in the operation of any business or
property. As of the date hereof, other than as specifically disclosed in the SEC Reports and those
liabilities related to this Agreement set forth on Schedule 4.10 of the Parent Disclosure
Schedules, neither Parent nor Acquisition Subsidiary has any direct or indirect liability,
indebtedness or obligation (including without limitation, known or unknown, absolute or contingent,
liquidated or unliquidated or due or to become due).

     Section 4.12 Application of Takeover Protections. Except as described in Schedule
4.12 of the Parent Disclosure Schedules, there are no Takeover Protections that are or could become
applicable to Parent as a result of the Company, Parent and Acquisition Subsidiary fulfilling their
obligations or exercising their rights under the Transaction Documents, including, without
limitation, as a result of Parent’s issuance of the Merger Shares or any other warrant or option as
specified in this Agreement.

     Section 4.13 Disclosure. All disclosure provided by Parent and Acquisition Subsidiary to the Company regarding
Parent and Acquisition Subsidiary, their respective businesses and the transactions contemplated
hereby, including the Schedules to this Agreement, furnished by or on the behalf of Parent and
Acquisition Subsidiary are true and correct in all material respects and do not contain any untrue
statement of a material fact or omit to state any material fact necessary in order to make the
statements made therein, in the light of the circumstances under which they were made, not
misleading as of the date hereof. To Parent’s and Acquisition Subsidiary’s knowledge, no event or
circumstance has occurred or information exists with respect to Parent or Acquisition Subsidiary or
their respective business, properties, operations or financial conditions, which, under applicable
law, rule or regulation, requires public disclosure or announcement by Parent but which has not
been so publicly announced or disclosed. Parent and Acquisition Subsidiary acknowledge and agree
that the Company has not made nor will make any

23

 

representations or warranties with respect to the
transactions contemplated hereby other than those specifically set forth in the Transaction
Documents.

     Section 4.14 Operations of Acquisition Subsidiary. Acquisition Subsidiary is a
direct, wholly owned subsidiary of Parent, was formed solely for the purpose of engaging in the
transactions contemplated by this Agreement, has engaged in no other business activities and has
conducted its operations only as contemplated by this Agreement.

     Section 4.15 Sarbanes-Oxley Act. Parent is in compliance with all applicable
requirements of Sarbanes-Oxley Act of 2002 and applicable rules and regulations promulgated by the
SEC thereunder, except where such noncompliance would not have, individually or in the aggregate, a
Material Adverse Effect on Parent.

     Section 4.16 Manipulation of Price. Neither Parent nor Acquisition Subsidiary has,
and to their knowledge no one acting on their behalf has, (i) taken, directly or indirectly, any
action designed to cause or to result in the stabilization or manipulation of the price of any
security of Parent or to facilitate the sale or resale of any of Parent Common Stock, (ii) sold,
bid for, purchased or paid any compensation for soliciting purchases of, any of Parent Common Stock
or (iii) paid or agreed to pay to any Person any compensation for soliciting another to purchase
any other securities of Parent.

     Section 4.17 Material Agreements. A list of the material agreements of each of Parent
and Acquisition Subsidiary is set forth on Schedule 4.17 of the Parent Disclosure Schedules. Each
of Parent and Acquisition Subsidiary, to the extent applicable, and to Parent’s and/or Acquisition
Subsidiary’s knowledge, each other party thereto, have in all material respects performed all the
obligations required to be performed by them to date (or such non-performing party has received a
valid, enforceable and irrevocable written waiver with respect to its non-performance), have
received no notice of default and are not in default (with due notice or lapse of time or both)
under any material agreement specified in Schedule 4.17 of the Parent Disclosure Schedules. Except
as set forth on
Schedule 4.17 of the Parent Disclosure Schedules, immediately following the Closing all
agreements to which the Parent or the Acquisition Subsidiary is a party shall be terminated and of
no further force and effect with no liability to Parent, Acquisition Subsidiary or the Surviving
Corporation.

     Section 4.18 Foreign Corrupt Practices. Neither Parent nor Acquisition Subsidiary nor
any director, officer, agent, employee or other Person acting on behalf of Parent or Acquisition
Subsidiary has, in the course of its actions for, or on behalf of, Parent and Acquisition
Subsidiary (i) used any corporate funds for any unlawful contribution, gift, entertainment or other
unlawful expenses relating to political activity, (ii) made any direct or indirect unlawful payment
to any foreign or domestic government official or employee from corporate funds, (iii) violated or
is in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended, or
(iv) made any unlawful bribe, rebate, payoff, influence payment, kickback or other unlawful payment
to any foreign or domestic government official or employee.

     Section 4.19 OFAC. Neither Parent nor Acquisition Subsidiary (i) is a Person whose
property or interest in property is blocked or subject to blocking pursuant to Section 1 of
Executive Order 13224 of September 23, 2001 Blocking Property and Prohibiting Transactions

24

 

with Persons Who Commit, Threaten to Commit, or Support Terrorism (66 Fed. Reg. 49079 (2001)), (ii)
engages in any dealings or transactions prohibited by Section 2 of such executive order, or is
otherwise associated with any such Person in any manner violative of Section 2 of such executive
order or (iii) is a Person on the list of Specially Designated Nationals and Blocked Persons or
subject to the limitations or prohibitions under any other U.S. Department of Treasury’s Office of
Foreign Assets Control regulation or executive order.

     Section 4.20 Patriot Act. To the extent applicable, each of Parent and Acquisition
Subsidiary is in compliance, in all material respects, with the (i) Trading with the Enemy Act, as
amended, and each of the foreign assets control regulations of the United States Treasury
Department (31 CFR, Subtitle B, Chapter V, as amended) and any other enabling legislation or
executive order relating thereto and (ii) Uniting and Strengthening America by Providing
Appropriate Tools Required to Intercept and Obstruct Terrorism (USA Patriot Act of 2001).

ARTICLE V

ADDITIONAL AGREEMENTS

     Section 5.1 Publicity. Until the Merger Effective Time, no party shall issue any
press release or public announcement pertaining to the Merger that has not been agreed upon in
advance by Parent and the Company, except as Parent reasonably determines to be necessary in order
to comply with the rules of the SEC or of the principal trading exchange or market for Parent
Common Stock and as the Company reasonably determines to be necessary in accordance with the
performance of its obligations under Section 5.9; provided, however, that to the
maximum extent practicable, Parent and the Company shall give prior notice thereof to the other, as
applicable, and consult with each other regarding the same.

     Section 5.2 Tax Returns; Cooperation. From and after the Closing, the Company, on the one hand, and Parent, on the other, will
cooperate with each other and provide such information as the other party may require in order to
file any return to determine Tax liability or a right to a Tax refund or to conduct a Tax audit or
other Tax Proceeding. Such cooperation shall include making employees available on a mutually
convenient basis to explain any documents or information provided hereunder or otherwise as
required in the conduct of any audit or other proceeding. In addition, each of the parties shall
use all commercially reasonable efforts to take, or cause to be taken, all actions, and to do, or
cause to be done, and to assist and cooperate with the other parties in doing, all things
necessary, proper or advisable to consummate and make effective, as soon as reasonably practicable,
the Merger and the other Transactions contemplated by this Agreement.

     Section 5.3 Tax Free Exchange. Each of Parent and the Company shall use its
respective reasonable efforts to cause the Merger to qualify as a tax free exchange of the Merger
Shares under the Code. For purposes of the foregoing, this Agreement shall constitute a plan of
reorganization.

     Section 5.4 Transaction Form 8-K; Other Filings. As promptly as practicable (but in
no event, with respect to filing, later than the date required under applicable Law), Parent will
prepare and file a current report on Form 8-K (the “Transaction Form 8-K”) and any filings
required to be filed by it under the Exchange Act, the Securities Act or any other Federal, foreign

25

 

or blue sky or related Laws relating to the execution of this Agreement and the consummation of the
Transactions, as well as under the stock exchange or trading system on which shares of Parent
Common Stock are listed or quoted and such other governmental agencies as may require the filing of
such other filings. The Company will work together with Parent as promptly as practicable to
prepare the Transaction Form 8-K and other filings referred to above and provide Parent whatever
information is necessary to accurately complete such filings in a timely manner.

     Section 5.5 Notices from Governmental Agencies. Subject to applicable Laws relating
to the exchange of information, each party will promptly furnish to the other Parties copies of
written communications (and memoranda setting forth the substance of all oral communications)
received by such party, or any of their respective subsidiaries, affiliates or associates (as such
terms are defined in Rule 12b-2 under the Exchange Act as in effect on the date hereof), from, or
delivered by any of the foregoing to, any Governmental Authority relating to or in respect of the
transactions contemplated under this Agreement.

     Section 5.6 Parent Directors and Officers.

          (a) Directors. Immediately following the Merger Effective Time, Parent and the Parent
Board shall take all necessary actions to ensure that the Parent Board shall consist of the
directors of the Company as of the Merger Effective Time, including the two designees of Frost
Gamma Investments Trust, one of which shall be Dr. Phillip Frost and one of whom shall be Dr. Jane
Hsiao, to be appointed and removed in accordance with a Voting Agreement
substantially in the form attached hereto as Exhibit B, subject to any limitations imposed by
applicable law or the rules of the Eligible Market.

          (b) Officers. Immediately following the Merger Effective Time, the officers of Parent
shall consist of those individuals appointed by the Parent Board.

     Section 5.7 Letters of Transmittal.

     A reasonable amount of time prior to the Merger Effective Time, Parent shall provide to each
Existing Company Shareholder a letter of transmittal (“Letter of Transmittal”) which shall
contain additional representations, warranties and covenants of such shareholder as to the
following matters: (a) such shareholder has full right, power and authority to deliver such Company
Shares and Letter of Transmittal; (b) the delivery of such Company Shares will not violate or be in
conflict with, result in a breach of or constitute a default under, any indenture, loan or credit
agreement, deed of trust, mortgage, security agreement or other agreement or instrument to which
such shareholder is bound or affected; (c) such shareholder has good, valid and marketable title to
all Company Shares indicated in such Letter of Transmittal and that such stockholder is not
affected by any voting trust, agreement or arrangement affecting the voting rights of such Shares;
(d) such shareholder is acquiring the Parent Common Stock for investment purposes and not with a
view to selling or otherwise distributing such Parent Common Stock in violation of the Securities
Act or the securities Laws of any state, subject to any limitations imposed by the Israeli Tax
Ruling; (e) such shareholder has had an opportunity to ask and receive answers to any questions
such stockholder may have had concerning the terms and conditions of the Merger and Parent Common
Stock and has obtained any additional information that such stockholder has requested; and (f) such
shareholder acknowledges that the stock

26

 

certificates evidencing the shares of Parent Common Stock
to be issued to such shareholder shall bear a restrictive legend customarily used in connection
with restricted securities within the meaning of Rule 144 under the Securities Act subject to and
until the registration thereof as set forth below. The Merger Shares shall be issued to such
shareholder, only upon delivery to Parent (or an agent of Parent) of (x) certificates acceptable to
Parent and its transfer agent evidencing ownership thereof as contemplated by Section 2.6(a) (or
affidavit of lost certificate acceptable to Parent and its transfer agent) and (y) the Letter of
Transmittal containing the representations, warranties and covenants contemplated by this Section
5.7.

     Section 5.8 Issuance of Additional Warrants and Options. Parent shall issue the
replacement warrants and the options in accordance with Section 1.3(b) and (c) of the Share
Purchase Agreement.

     Section 5.9 Merger Proposal.

          (a) As promptly as practicable (i) the Company and Acquisition Subsidiary shall cause a merger
proposal (in the Hebrew language) (the “Merger Proposal”) to be executed in accordance with
Section 316 of the Israeli Companies Law, (ii) each of the Company and Acquisition Subsidiary shall
convene a shareholders meeting (the “Company General Meeting” and “Acquisition
Subsidiary General Meeting”), and (iii) each of the Company and Acquisition Subsidiary shall
deliver the Merger Proposal to the Companies Registrar. The Company and Acquisition Subsidiary
shall cause a copy of the Merger Proposal to be delivered to each of their
secured creditors, if any, no later than three days after the date on which the Merger
Proposal is delivered to the Companies Registrar and shall promptly inform their non-secured
creditors of the Merger Proposal and its contents in accordance with Section 318 of the Israeli
Companies Law and the regulations promulgated thereunder. Promptly after the Company and
Acquisition Subsidiary shall have complied with the preceding sentence but in any event no more
than three days following the date on which such notice was sent to the creditors, the Company and
Acquisition Subsidiary shall inform the Companies Registrar, in accordance with Section 317(b) of
the Companies Law, that notice was given to their creditors under Section 318 of the Israeli
Companies Law and the regulations promulgated thereunder.

          (b) Notice to creditors pursuant to Section 318 shall be provided as set forth below and each
of the Company and, if applicable, Acquisition Subsidiary shall publish a notice to its creditors,
stating that a Merger Proposal was submitted to the Companies Registrar and that the creditors may
review the Merger Proposal at the Companies Registrar, the Company’s registered offices or at such
other locations as Company shall determine, in (A) two daily Hebrew newspapers, on the day that the
Merger Proposal is submitted to the Companies Registrar and (B) a popular newspaper in any foreign
jurisdiction, no later than three Business Days following the day on which the Merger Proposal was
submitted to the Companies Registrar if the Company or Acquisition Subsidiary, as applicable, has
any Material Creditor in such jurisdiction. For the purpose hereof “Material Creditor”
means any creditor to which the Company or the Acquisition Subsidiary, as applicable, is indebted
in an amount equal to the higher of NIS100,000 or an amount equal to 15% or more of the equity of
the Company or the Acquisition Subsidiary, as applicable, or as such term is otherwise defined in
the regulations promulgated under the Israeli Companies Law.

27

 

          (c) Within four Business Days from the date of submitting the Merger Proposal to the Companies
Registrar, the Company and Acquisition Subsidiary, as applicable, shall send a notice by registered
mail to all of the Material Creditors that each is aware of, in which it shall state that a Merger
Proposal was submitted to the Companies Registrar and that the creditors may review the Merger
Proposal at such additional locations, if such locations were determined in the notice referred to
in Section 5.9(b).

          (d) With respect to the Company, since it employs 50 or more persons, the Company shall send
to the “workers committee” or display in a prominent place at the Company’s premises, a copy of the
notice published in a daily Hebrew newspaper (as referred to in Section 5.9(b)(A)), no later than
three Business Days following the day on which the Merger Proposal was submitted to the Companies
Registrar.

     Section 5.10 General Meetings.

          (a) Promptly after the execution and delivery of this Agreement, the Company shall take all
action necessary under all applicable legal requirements to convene, give notice of and hold a
Company General Meeting to vote on the proposal to approve the Merger, this Agreement and the
transactions contemplated hereby. In the event that Parent, or any “affiliate” thereof (as such
term is defined in the Israeli Companies Law), shall cast any votes in respect of the Merger,
Parent shall, prior to such vote, disclose to Company its interest or its affiliates respective
interests in such shares so voted and any votes by such shares shall not be counted
with respect to such Company General Meeting. Required under applicable law The Company may
adjourn or postpone the Company General Meeting if, as of the time for which the Company General
Meeting is originally scheduled there are insufficient Company Shares represented (either in person
or by proxy) to constitute a quorum necessary to conduct the business of the Company General
Meeting. Without derogating from Section 6.3 below, the Board of Directors of the Company shall
note to the Company’s shareholders its approval and recommendation for approval by the shareholders
of the Company of this Agreement and the consummation of the transactions contemplated hereby,
including the Merger and the Board of Director’s declaration that this Agreement is advisable, fair
and in the best interests of their respective shareholders and approved the Merger upon the terms
and conditions set forth in this Agreement.

          (b) Parent (as the sole shareholder of Acquisition Subsidiary) shall approve the Merger at an
Acquisition Subsidiary General Meeting.

          (c) Each of the Company and Acquisition Subsidiary shall (in accordance with Section 317(b) of
the Israeli Companies Law and the regulations thereunder) inform the Companies Registrar of the
decision of the respective General Meetings with respect to the Merger within three days following
the adoption of the respective resolution but in any event not later than 50 days following the
delivery of the Merger Proposal to Companies Registrar.

     Section 5.11 Notification. Either party shall give prompt notice to the other party
upon becoming aware that any representation or warranty made by it contained in this Agreement has
become untrue or inaccurate in any material respect, or of any failure of such party to comply with
or satisfy in any material respect any covenant, condition or agreement to be complied with

28

 

or satisfied by it under this Agreement. Each party to this Agreement shall promptly inform the other
parties of any communication to or from the Israeli Restrictive Trade Practices Commissioner, the
OCS, the Investment Center, the Israel Securities Authority, the Companies Registrar or any other
Governmental Authority regarding the Merger or any of the other Transactions contemplated by this
Agreement.

     Section 5.12 Israeli Approvals.

          (a) Government Filings. Each party to this Agreement shall use all commercially
reasonable efforts to deliver and file, as promptly as practicable after the date of this
Agreement, each notice, report or other document required to be delivered by such party to or filed
by such party with any Israeli Governmental Authority with respect to the Merger. Without limiting
the generality of the foregoing:

               (i) as promptly as practicable after the date of this Agreement, the Company and Parent shall
prepare and file any notification required under the Israeli Restrictive Trade Practices Law in
connection with the Merger; and

               (ii) the Company shall use all reasonable efforts to obtain, as promptly as practicable after
the date of this Agreement, the following consents, and any other consents that may be required in
connection with the Merger: (i) approval of the OCS and (ii) approval of
the Investment Center. In this connection, if required, Parent shall provide to the OCS and
the Investment Center any information reasonably requested by such authorities and shall, without
limitation of the foregoing, execute an undertaking in customary form in which Parent undertakes to
comply with the OCS laws and regulations and confirm to the OCS and the Investment Center that the
Company shall continue after the Merger Effective Time to operate in a manner consistent with its
previous undertakings to the OCS and the Investment Center.

          (b) Israeli Income Tax Ruling. The parties acknowledge that the Company has caused
its Israeli counsel, advisors and accountants to prepare and file with the Israeli Income Tax
Commissioner an application for a ruling: (i) deferring any obligation to pay capital gains tax on
the exchange of the Company Shares in the Merger subject to the restrictions imposed on the
Existing Company Shareholders and the Parent pursuant to Section 103(k) of the Israeli Tax
Ordinance and (ii) confirming that the conversion of the Company Options into the Assumed Options
will not result in a requirement for an immediate Israeli tax payment and that the Israeli taxation
will be deferred until the exercise of the warrants or options issued in exchange of the Company
Options and Warrants, or in the event of Assumed Options which are part of a “Section 102
Plan,” until the actual sale of the shares of Parent Common Stock by the option holders (the
“Israeli Income Tax Ruling”). The Company shall use reasonable efforts to promptly take,
or cause to be taken, all action and to do, or cause to be done, all things necessary, proper or
advisable under applicable Law to obtain the Israeli Income Tax Rulings.

     Section 5.13 Indemnification and D&O Insurance. From and after the Closing, Parent
will cause the Surviving Corporation to fulfill and honor in all respects the obligations of
Company pursuant to any indemnification agreements between Company and its directors and officers
(the “Company Indemnitees”) in effect immediately prior to the Merger Effective Time and
any indemnification provisions under the Company Articles to the maximum extent

29

 

permitted by law. The Articles of Association of the Surviving Corporation will contain provisions with respect to
exculpation and indemnification that are at least as favorable to the Company Indemnitees as those
contained in the Company Articles, which provisions will not be amended, repealed or otherwise
modified in any manner that would adversely affect the rights thereunder of individuals who,
immediately prior to the Merger Effective Time, were directors, officers, employees or agents of
Company, unless such modification is required by Law. see in SPA

     Section 5.14 Conduct of Business. During the period from the date of this Agreement
to the Merger Effective Time, each of Parent and the Company shall:

               (i) conduct its business only in the ordinary course and consistent with prudent and prior
business practice, except for transactions permitted hereunder, or with the prior written consent
of the other party, which consent will not be unreasonably withheld; and

               (ii) confer on a reasonable basis with each other regarding operational matters and other
matters related to the Merger.

     Section 5.15 Prohibited Actions Pending Closing. Except as provided in this Agreement and as disclosed in Schedule 5.15 to either the
Company Disclosure Schedules or to the Parent Disclosure Schedules, during the period from the date
of this Agreement to the Merger Effective Time, neither the Company nor Parent shall:

               (i) amend or otherwise change their respective Articles of Association or Articles of
Incorporation, as the case may be, or other governing documents;

               (ii) issue or sell or authorize for issuance or sale, or grant any options or make other
agreements with respect to, any shares of their respective capital stock, any options or any other
of their respective securities;

               (iii) declare, set aside, make or pay any dividend or other distribution to their respective
shareholders, or redeem, purchase or otherwise acquire, directly or indirectly, any of their
capital stock, or authorize or effect any reverse stock split, split-up or any recapitalization or
make any changes in the amount of their authorized or issued capital stock;

               (iv) sell, license or otherwise dispose of, or agree to sell, license or dispose of, any of
their respective assets or properties, other than any assets or properties where such sale, license
or disposition occurs or is to occur in the ordinary course of their respective business consistent
with past practice;

               (v) take any action or omit to take any action for the purpose of preventing, delaying or
impeding the consummation of the Merger or the other transactions contemplated hereby; or

               (vi) pay any finders or investment bankers’ fees in connection with the transactions
contemplated by this Agreement (other than any fees incurred in connection with the delivery of a
fairness opinion contemplated by Section 6.2(d)).

30

 

     Section 5.16 Further Assurances. Subject to the terms and conditions herein provided,
each of the parties hereto agrees to use reasonable efforts to take, or cause to be taken, all
action and to do, or cause to be done, all things necessary, proper or advisable under applicable
laws and regulations to satisfy the conditions to Closing and to consummate and make effective the
transactions contemplated by this Agreement, including, without limitation, using reasonable
efforts to lift or rescind any injunction or restraining order or other order adversely affecting
the ability of the parties to consummate the transactions contemplated by this Agreement and using
reasonable efforts to prevent the breach of any representation, warranty, covenant or agreement of
such party contained or referred to in this Agreement and to promptly remedy the same. In case at
any time after the Merger Effective Time any further action is necessary or desirable to carry out
the purposes of this Agreement, the proper officers and directors of each party to this Agreement
shall take all such necessary action. Nothing in this Section 5.16 shall be construed to require
any party to participate in any threatened or actual legal, administrative or other proceedings
(other than proceedings, actions or investigations to which it is a party or subject or threatened
to be made a party or subject) in connection with consummation of the transactions contemplated by
this Agreement unless such party shall consent in advance and in writing to such participation and
the other party agrees to reimburse and indemnify such party for and against any and all costs and
damages related thereto.

     Section 5.17 Initial Listing Application. After the execution of this Agreement,
Parent shall use its best efforts, to the extent allowed under the rules of the Eligible Market, to
prepare all filings and other documents necessary to be filed with the Eligible Market in
connection with the initial listing application for the inclusion of the Parent Common Stock on the
Eligible Market, conduct ongoing negotiations with the Eligible Market with the participation of
the Company and its counsel with respect to such listing and perform all acts requested by the
Eligible Market to the satisfaction of the Company and its counsel.

     Section 5.18 Financial Statements. The Company shall have initiated a system of
internal accounting controls sufficient to provide reasonable assurance that (i) transactions are
executed in accordance with management’s general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in conformity with GAAP and to
maintain asset accountability, (iii) access to assets is permitted only in accordance with
management’s general or specific authorization and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences. The Company shall disclose to the Company’s outside auditors (A) all
significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the Company’s ability to
record, process, summarize and report financial data and (B) any fraud, whether or not material,
that involves management or other employees who have a significant role in the Company’s internal
controls over financial reporting.

     Section 5.19 Shareholder Approvals. Unless this Agreement is terminated, the Company
hereby agrees to enforce its rights under the Amended and Restated Shareholder Agreement between
the Company and its shareholders.

     Section 5.20 Access to Parent and Acquisition Subsidiary. Parent shall afford to the
Company and its officers, directors, agents and counsel access at times and upon conditions

31

 

reasonably convenient to Parent and make available all properties, books, records, contracts and
documents of Parent and Acquisition Subsidiary, and an opportunity to make such investigations as
they shall reasonably desire to make of Parent and Acquisition Subsidiary; and Parent shall furnish
or cause to be furnished to the Company and its authorized representatives all such information
with respect to the business and affairs of Parent and Acquisition Subsidiary as the Company and
its authorized representatives may request and make the officers, directors, employees, auditors
and counsel of Parent and Acquisition available for consultation and permit access to other third
parties reasonably requested for verification of any information so obtained.

     Section 5.21 Access to the Company. The Company shall afford to Parent and its
officers, directors, agents and counsel access at times and upon conditions reasonably convenient
to the Company and make available all properties, books, records, contracts and documents of the
Company, and an opportunity to make such investigations as it shall reasonably desire to make of
the Company; and the Company shall furnish or cause to be furnished to Parent and its authorized
representatives all such information with respect to the business and affairs of the Company as
Parent and its authorized representatives may request and make the officers,
directors, employees, auditors and counsel of the Company available for consultation and
permit access to other third parties reasonably requested for verification of any information so
obtained.

ARTICLE VI

CONDITIONS OF PARTIES’ OBLIGATIONS

     Section 6.1 Conditions Precedent to Each Party’s Obligation to Effect the Merger. The
respective obligations of each party to effect the Merger shall be subject to the fulfillment or
satisfaction, prior to or on the Closing Date, of the following conditions:

          (a) Shareholder Approval; Board Approval. The Merger shall have been duly approved by
the requisite vote of the outstanding Company Shares entitled to vote thereon in accordance with
Israeli law (the “Company Shareholder Approval”), by the Company Board according to Section
6.3 and, if necessary under applicable Laws or the rules of an applicable exchange, the requisite
vote of the outstanding shares of capital stock of Parent entitled to vote thereon.

          (b) No Material Adverse Change. No event shall have occurred which would have a
Material Adverse Effect on either of the Company or Parent.

          (c) Governmental Authorities Approvals. All Governmental Authorities approvals
required for the consummation of the Merger shall have been obtained including, without limitation,
all Israeli Governmental Authorities approvals such as the Certificate of Merger, approval of the
OCS, the Investment Center, the Israeli Income Tax Ruling and the Israeli Commissioner of
Restrictive Trade Practices required by applicable Law.

     Section 6.2 Conditions Precedent to Obligations of Parent and Acquisition Subsidiary.
Parent’s and Acquisition Subsidiary’s obligation to effect the Merger and consummate the other
transactions contemplated to occur in connection with the Closing and thereafter is subject to the
satisfaction of each condition precedent listed below. All corporate and other proceedings and
actions taken in connection with the transactions contemplated hereby and, where such

32

 

instruments are not exhibits to this Agreement, all certificates, opinions, agreements, instruments and
documents mentioned herein or incident to any such transactions, shall be satisfactory in form and
substance to Parent and Acquisition Subsidiary. The Company shall furnish to Parent and
Acquisition Subsidiary such supporting documentation and evidence of the satisfaction of any or all
of the conditions precedent specified in this Section 6.2 as Parent or its counsel may reasonably
request.

          (a) Representations and Warranties. As of the Closing, each representation and
warranty set forth in Article III shall be accurate and complete in all material respects after
giving full effect to any supplements to the schedules as amended from time to time so long as such
modification does not constitute a Company Material Adverse Effect.

          (b) Actions. No action or Proceeding is pending or threatened by or before any
Governmental Authority, arbitrator, or mediator that seeks to restrain, prohibit, invalidate, or
collect any substantial damages arising out of the Transactions.

          (c) Miscellaneous Closing Documents. Parent and Acquisition Subsidiary shall have
received the following:

               (i) copies of resolutions of the Company and the shareholders of the Company, certified by the
Secretary or chief executive officer of the Company, authorizing and approving the execution,
delivery and performance of the Transaction Documents;

               (ii) A certificate of the Company’s Chief Executive Officer certifying as of the Closing Date
that there are not more than 706,888 Company Shares issued and outstanding (excluding any shares
held by FG Holders) and not more than 283,015 Company Shares underlying outstanding options,
warrants and other convertible securities (excluding any securities held by FG Holders and/or the
FG Warrants); and

               (iii) and such additional supporting documentation and other information with respect to the
transactions contemplated hereby as the Company may reasonably request.

          (d) Fairness Opinion. Parent shall have received an opinion from an independent
financial advisor or investment banking firm that the Merger is fair to the shareholders of Parent.

          (e) Lockup Agreements. The majority of the shareholder of the Company shall have
delivered to Parent an executed lockup letter agreement in the form to be provided to the Israeli
Tax Authorities pursuant to the Israeli Income Tax Ruling.

     Section 6.3 Conditions Precedent to Obligation of the Company. The Company’s
obligations to effect the Merger and consummate the other transactions contemplated to occur in
connection with the Closing and thereafter is subject to the satisfaction of each condition
precedent listed below. All corporate and other proceedings and actions taken in connection with
the transactions contemplated hereby and, where such instruments are not exhibits to this
Agreement, all certificates, opinions, agreements, instruments and documents mentioned herein or
incident to any such transactions shall be satisfactory in form and substance to the Company.

33

 

Parent and Acquisition Subsidiary shall furnish to the Company such supporting documentation and
evidence of satisfaction of any or all of the conditions specified in this Section 6.3 as the
Company may reasonably request.

          (a) Representations and Warranties. As of the Closing, each representation and
warranty set forth in Article IV shall be accurate and complete in all material respects, after
giving full effect to any supplements to the schedules as amended from time to time so long as such
modification does not constitute a Material Adverse Effect on Parent.

          (b) Listing on the Eligible Market. Parent shall have complied with its obligations
under Section 5.17 to the reasonable satisfaction of the Company Board and the Company Board shall
be reasonably satisfied that Parent shall be included for listing on the Eligible Market within a
reasonable amount of time after the Closing.

          (c) Actions. No action or Proceeding is pending or threatened by or before any
Governmental Authority, arbitrator, or mediator that seeks to restrain, prohibit, invalidate or
collect any substantial damages arising out of the Transactions.

          (d) Director and Officer Resignations. Each of the directors and officers of Parent
shall have delivered to Parent and the Company an executed resignation letter with an effective
date and time agreed upon by the Company.

          (e) Lockup Agreements. Each Investor shall have delivered to Parent and the Company
an executed a lockup letter agreement substantially in the form of Exhibit B hereto.

          (f) Miscellaneous Closing Documents. The Company shall have received the following:

               (i) Copies of resolutions of Parent’s and Acquisition Subsidiary’s respective board of
directors and shareholders, certified by their respective Secretaries, authorizing and approving,
to the extent applicable, the execution, delivery and performance of the Transaction Documents;

               (ii) A certificate of Parent’s transfer agent and registrar certifying as of the Closing Date
that there are not more than 5,830,856 shares of Parent Common Stock issued and outstanding; and

               (iii) Such additional supporting documentation and other information with respect to the
transactions contemplated hereby as the Company may reasonably request.

          (g) Israeli Income Tax Ruling. The Company shall have obtained the Israeli Income Tax
Ruling.

34

 

ARTICLE VII

SURVIVAL

     Section 7.1 Survival. The representations, warranties, covenants and agreements made
or deemed made by any party to another shall not survive the Merger Effective Time but shall
terminate as of the Merger Effective Time.

ARTICLE VIII

REGISTRATION RIGHTS

     Section 8.1 Shelf Registration.

          (a) As soon as practicable after the listing of the Parent Common Stock on the Eligible
Market, Parent shall file with the SEC a Registration Statement on Form S-3 (or any other
registration statement deemed appropriate by the Parent Board) covering the resale of all the
Registrable Securities for an offering to be made on a continuous basis pursuant to Rule 415 under
the Securities Act. After such Registration Statement has been declared effective by the
SEC, Parent shall maintain the effectiveness of the Registration Statement until such time as
Parent is no longer obligated to maintain a registration statement for the Registrable Securities
pursuant to the terms hereof.

          (b) Parent shall use reasonable best efforts to cause the Registration Statement to be
declared effective by the SEC as promptly as possible after the filing thereof and shall use its
best efforts to keep the Registration Statement continuously effective under the Securities Act
until the earlier of the date that all Registrable Securities covered by such Registration
Statement have been sold or can be sold publicly under Rule 144(k) (the “Effectiveness
Period”).

          (c) Notwithstanding anything in this Agreement to the contrary, after 60 consecutive Trading
Days of continuous effectiveness of the initial Registration Statement filed and declared effective
pursuant to this Agreement, Parent may, by written notice to the Holders, suspend sales under a
Registration Statement after the Effective Date thereof and/or require that the Holders immediately
cease the sale of shares of the Parent Common Stock pursuant thereto and/or defer the filing of any
subsequent Registration Statement if Parent is engaged in a material merger, acquisition or sale or
an underwritten public offering of Parent’s securities and the Parent Board determines in good
faith, by appropriate resolutions, that, as a result of such activity, (A) it would be materially
detrimental to Parent (other than as relating solely to the price of the Parent Common Stock) to
maintain a Registration Statement at such time and (B) it is in the best interests of Parent to
defer proceeding with such registration at such time. Notwithstanding the foregoing, Parent shall
not, and shall cause each of its respective officers, directors, employees and agents not to,
provide any Holder with any material nonpublic information regarding Parent or any of its
subsidiaries about the foregoing merger, sale or acquisition or public offering without the express
written consent of such Holder. Upon receipt of such notice, each Holder shall immediately
discontinue any sales of Registrable Securities pursuant to such registration until such Holder has
received copies of a supplemented or amended Prospectus or until such Holder is advised in writing
by Parent that the then-current Prospectus may be used and has received copies of any additional or
supplemental filings that are incorporated or deemed incorporated by reference in such Prospectus.
In no event, however,

35

 

shall this right be exercised to suspend sales beyond the period during which
(in the good faith determination of the Parent Board) the failure to require such suspension would
be materially detrimental to Parent. Parent’s rights under this Section 8.1(c) may be exercised
for a period of no more than 60 days at a time and not more than three times in any 12-month
period. Immediately after the end of any suspension period under this Section 8.1(c), Parent shall
take all necessary actions (including filing any required supplemental prospectus) to restore the
effectiveness of the applicable Registration Statement and the ability of the Holders to publicly
resell their Registrable Securities pursuant to such effective Registration Statement.

     Section 8.2 Registration Procedures. In connection with Parent’s registration
obligations hereunder, Parent shall:

          (a) (i) Subject to Section 8.1(c), prepare and file with the SEC such amendments, including
post-effective amendments, to the Registration Statement and the Prospectus used in connection
therewith as may be necessary to keep the Registration Statement continuously effective, as to the
applicable Registrable Securities for the Effectiveness Period
and prepare and file with the SEC such additional Registration Statements in order to register
for resale under the Securities Act all of the Registrable Securities; (ii) cause the related
Prospectus to be amended or supplemented by any required Prospectus supplement, and as so
supplemented or amended to be filed pursuant to Rule 424; (iii) respond as promptly as reasonably
possible, and in any event within 15 Trading Days (except to the extent that Parent reasonably
requires additional time to respond to accounting comments), to any comments received from the SEC
with respect to the Registration Statement or any amendment thereto and as promptly as reasonably
possible provide the Holders true and complete copies of all correspondence from and to the SEC
relating to the Registration Statement; and (iv) comply in all material respects with the
provisions of the Securities Act and the Exchange Act with respect to the disposition of all
Registrable Securities covered by the Registration Statement during the applicable period in
accordance with the intended methods of disposition by the Holders thereof set forth in the
Registration Statement as so amended or in such Prospectus as so supplemented.

          (b) Notify each Holder as promptly as reasonably possible of any of the following events: (i)
any Registration Statement or any post-effective amendment is declared effective; (ii) the SEC or
any other Federal or state governmental authority requests any amendment or supplement to any
Registration Statement or Prospectus or requests additional information related thereto; (iii) the
SEC issues any stop order suspending the effectiveness of any Registration Statement or initiates
any Proceedings for that purpose; (iv) Parent receives notice of any suspension of the
qualification or exemption from qualification of any Registrable Securities for sale in any
jurisdiction, or the initiation or threat of any Proceeding for such purpose; or (v) the financial
statements included in any Registration Statement become ineligible for inclusion therein or any
statement made in any Registration Statement or Prospectus or any document incorporated or deemed
to be incorporated therein by reference is untrue in any material respect or any revision to a
Registration Statement, Prospectus or other document is required so that it will not contain any
untrue statement of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in the light of the circumstances under which
they were made, not misleading.

36

 

          (c) Use its reasonable efforts to avoid the issuance of or, if issued, obtain the withdrawal
of (i) any order suspending the effectiveness of any Registration Statement or (ii) any suspension
of the qualification (or exemption from qualification) of any of the Registrable Securities for
sale in any jurisdiction, as soon as possible.

          (d) During the Effectiveness Period, maintain the listing of such Registrable Securities on
the Eligible Market.

          (e) Cooperate with the Holders to facilitate the timely preparation and delivery of
certificates representing Registrable Securities to be delivered to a transferee pursuant to a
Registration Statement, which certificates shall be free, to the extent permitted by this Agreement
and under law, of all restrictive legends, and to enable such Registrable Securities to be in such
denominations and registered in such names as any such Holders may reasonably request.

          (f) Upon the occurrence of any event described in Section 8.2(b)(v), as promptly as reasonably
possible, prepare a supplement or amendment, including a post-effective
amendment, to the Registration Statement or a supplement to the related Prospectus or any
document incorporated or deemed to be incorporated therein by reference, and file any other
required document so that, as thereafter delivered, neither the Registration Statement nor such
Prospectus will contain an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.

          (g) Cooperate with any reasonable due diligence investigation undertaken by the Holders in
connection with the sale of Registrable Securities, including, without limitation, by making
available documents and information; provided, that Parent shall not deliver or make
available to any Holder material, nonpublic information unless such Holder specifically requests in
advance to receive material, nonpublic information in writing.

          (h) Comply with all rules and regulations of the SEC applicable to the registration of the
Registrable Securities.

     Section 8.3 Registration Expenses. Parent shall pay all fees and expenses incident to
the performance of or compliance with Article VIII by the Surviving Corporation, including without
limitation (a) all registration and filing fees and expenses, including without limitation those
related to filings with the SEC, any Trading Market and in connection with applicable state
securities or Blue Sky laws, (b) printing expenses (including without limitation expenses of
printing certificates for Registrable Securities), (c) messenger, telephone and delivery expenses,
(d) fees and disbursements of counsel for Parent, (e) fees and expenses of all other Persons
retained by Parent in connection with the Registration Statement and (f) all listing fees to be
paid by Parent to the Eligible Market. Holders shall pay all fees and disbursements of counsel
retained for Holders in connection with such Registration Statement as well as all underwriter
discounts associated with any public offering conducted on such Holder’s behalf.

37

 

     Section 8.4 Indemnification.

          (a) Indemnification by the Surviving Corporation. Parent shall indemnify and hold
harmless each Holder, the officers, directors, partners, members, agents and employees of each of
them, each Person who controls any such Holder (within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act) and the officers, directors, partners, members, agents and
employees of each such controlling Person, to the fullest extent permitted by applicable law, from
and against any and all Losses (as determined by a court of competent jurisdiction in a final
judgment not subject to appeal or review), arising out of or relating to any untrue or alleged
untrue statement of a material fact contained in the Registration Statement, any Prospectus or any
form of Parent prospectus or in any amendment or supplement thereto or in any Parent preliminary
prospectus, or arising out of or relating to any omission or alleged omission of a material fact
required to be stated therein or necessary to make the statements therein (in the case of any
Prospectus or form of prospectus or supplement thereto, in the light of the circumstances under
which they were made) not misleading, except to the extent, but only to the extent, that (A) such
untrue statements, alleged untrue statements, omissions or alleged omissions are based solely upon
information regarding such Holder furnished in writing to Parent by such Holder for use therein, or
to the extent that such information relates to such Holder or such Holder’s proposed method of
distribution of Registrable Securities, or (B) in the case of an occurrence of an event of the type
specified in Section 8.2(b)(v)-(vii), the use by such Holder of an outdated or defective Prospectus
after Parent has timely notified such Holder that the Prospectus is outdated or defective and prior
to the receipt by such Holder of the Advice contemplated in Section 8.5. Parent shall notify the
Holders promptly of the institution, threat or assertion of any Proceeding of which the Surviving
Corporation is aware in connection with the transactions contemplated by this Agreement.

          (b) Indemnification by Holders. Each Holder shall, severally and not jointly,
indemnify and hold harmless Parent, its directors, officers, agents and employees, each Person who
controls Parent (within the meaning of Section 15 of the Securities Act and Section 20 of the
Exchange Act), and the directors, officers, partners, members, agents or employees of each such
controlling Persons, to the fullest extent permitted by applicable law, from and against all Losses
(as determined by a court of competent jurisdiction in a final judgment not subject to appeal or
review) arising out of or relating to any untrue or alleged untrue statement of a material fact
contained in the Registration Statement, any Prospectus, or any Prospectus, or in any amendment or
supplement thereto, or arising out of or relating to any omission or alleged omission of a material
fact required to be stated therein or necessary to make the statements therein (in the case of any
Prospectus or form of prospectus or supplement thereto, in the light of the circumstances under
which they were made) not misleading to the extent, but only to the extent, that such untrue
statement or omission is contained in any information so furnished by such Holder to Parent
specifically for inclusion in such Registration Statement or such Prospectus or to the extent that
(i) such untrue statements or omissions are based solely upon information regarding such Holder
furnished to Parent by such Holder expressly for use therein, or to the extent that such
information relates to such Holder or such Holder’s proposed method of distribution of Registrable
Securities and was reviewed and expressly approved in writing by such Holder expressly for use in
the Registration Statement, such Prospectus or such form of
Prospectus or in any amendment or supplement thereto or (ii) in the case of an occurrence of
an event of the type specified in Section 8.2(b)(v)-(vii), the use by such Holder of an outdated or

38

 

defective Prospectus after Parent has notified such Holder that the Prospectus is outdated or
defective and prior to the receipt by such Holder of the Advice contemplated in Section 8.5. In no
event shall the liability of any selling Holder hereunder be greater in amount than the dollar
amount of the net proceeds received by such Holder upon the sale of the Registrable Securities
giving rise to such indemnification obligation.

          (c) Conduct of Indemnification Proceedings. If any Proceeding shall be brought or
asserted against any Person entitled to indemnity hereunder (an “Indemnified Party”), such
Indemnified Party shall promptly notify the Person from whom indemnity is sought (the
“Indemnifying Party”) in writing, and the Indemnifying Party shall assume the defense
thereof, including the employment of counsel reasonably satisfactory to the Indemnified Party and
the payment of all fees and expenses incurred in connection with defense thereof; provided,
that the failure of any Indemnified Party to give such notice shall not relieve the Indemnifying
Party of its obligations or liabilities pursuant to this Agreement, except (and only) to the extent
that it shall be finally determined by a court of competent jurisdiction (which determination is
not subject to appeal or further review) that such failure shall have proximately and materially
adversely prejudiced the Indemnifying Party.

     An Indemnified Party shall have the right to employ separate counsel in any such Proceeding
and to participate in the defense thereof, but the fees and expenses of such counsel shall be at
the expense of such Indemnified Party or Parties unless: (i) the Indemnifying Party has agreed in
writing to pay such fees and expenses; or (ii) the Indemnifying Party shall have failed promptly to
assume the defense of such Proceeding and to employ counsel reasonably satisfactory to such
Indemnified Party in any such Proceeding; or (iii) the named parties to any such Proceeding
(including any impleaded parties) include both such Indemnified Party and the Indemnifying Party,
and such Indemnified Party shall have been advised by counsel that a conflict of interest is likely
to exist if the same counsel were to represent such Indemnified Party and the Indemnifying Party
(in which case, if such Indemnified Party notifies the Indemnifying Party in writing that it elects
to employ separate counsel at the expense of the Indemnifying Party, the Indemnifying Party shall
not have the right to assume the defense thereof and such counsel shall be at the expense of the
Indemnifying Party). It being understood, however, that the Indemnifying Party shall not, in
connection with any one such Proceeding be liable for the fees and expenses of more than one
separate firm of attorneys at any time for all Indemnified Parties, which firm shall be appointed
by a majority of the Indemnified Parties; provided, however, that in the case a
single firm of attorneys would be inappropriate due to actual or potential differing interests of
conflicts between such Indemnified Parties and any other party represented by such counsel in such
Proceeding or otherwise, then the Indemnifying Party shall be liable for the fees and expenses of
one additional firm of attorneys with respect to such Indemnified Parties. The Indemnifying Party
shall not be liable for any settlement of any such Proceeding effected without its written consent,
which consent shall not be unreasonably withheld. No Indemnifying Party shall, without the prior
written consent of the Indemnified Party, effect any settlement of any pending Proceeding in
respect of which any Indemnified Party is a party, unless such settlement includes an unconditional
release of such Indemnified Party from all liability on claims that are the subject matter of such
Proceeding.

     All fees and expenses of the Indemnified Party (including reasonable fees and expenses to the
extent incurred in connection with investigating or preparing to defend such Proceeding in

39

 

a manner not inconsistent with this Section) shall be paid to the Indemnified Party, as incurred, within 10
Trading Days of written notice thereof to the Indemnifying Party (regardless of whether it is
ultimately determined that an Indemnified Party is not entitled to indemnification hereunder;
provided, that the Indemnifying Party may require such Indemnified Party to undertake to reimburse
all such fees and expenses to the extent it is finally judicially determined that such Indemnified
Party is not entitled to indemnification hereunder).

          (d) Contribution. If a claim for indemnification under Section 8.4(a) or (b) is
unavailable to an Indemnified Party (by reason of public policy or otherwise), then each
Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall contribute to the amount
paid or payable by such Indemnified Party as a result of such Losses, in such proportion as is
appropriate to reflect the relative fault of the Indemnifying Party and Indemnified Party in
connection with the actions, statements or omissions that resulted in such Losses as well as any
other relevant equitable considerations. The relative fault of such Indemnifying Party and
Indemnified Party shall be determined by reference to, among other things, whether any action in
question, including any untrue or alleged untrue statement of a material fact or omission or
alleged omission of a material fact, has been taken or made by, or relates to information supplied
by, such Indemnifying Party or Indemnified Party, and the parties’ relative intent, knowledge,
access to information and opportunity to correct or prevent such action, statement or omission.
The amount paid or payable by a party as a result of any Losses shall be deemed to include, subject
to the limitations set forth in Section 8.4(c), any reasonable attorneys’ or other reasonable fees
or expenses incurred by such party in connection with any Proceeding to the extent such party would
have been indemnified for such fees or expenses if the indemnification provided for in this Section
was available to such party in accordance with its terms.

     The parties hereto agree that it would not be just and equitable if contribution pursuant to
this Section 8.4(d) were determined by pro rata allocation or by any other method of allocation
that does not take into account the equitable considerations referred to in the immediately
preceding paragraph. No Person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not
guilty of such fraudulent misrepresentation.

     The indemnity and contribution agreements contained in this Section 8.4 are in addition to any
liability that the Indemnifying Parties may have to the Indemnified Parties.

     Section 8.5 Dispositions. Each Holder agrees that it will comply with the prospectus
delivery requirements of the Securities Act as applicable to it in connection with sales of
Registrable Securities pursuant to the Registration Statement. Each Holder further agrees that,
upon receipt of a notice from Parent of the occurrence of any event of the kind described in
Section 8.2(b)(v), (vi) or (vii), such Holder will discontinue disposition of such Registrable
Securities under the Registration Statement until such Holder’s receipt of the copies of the
supplemented Prospectus and/or amended Registration Statement contemplated by Section 8.2(i), or
until it is advised in writing (the “Advice”) by Parent that the use of the applicable
Prospectus may be resumed, and, in either
case, has received copies of any additional or supplemental filings that are incorporated or
deemed to be incorporated by reference in such Prospectus or Registration Statement. Parent may
provide appropriate stop orders to enforce the provisions of this Section 8.5.

40

 

ARTICLE IX

CLOSING

     Section 9.1 Closing. The closing of the Merger (the “Closing”) shall occur at
the offices of Morrison & Foerster LLP, 1290 Avenue of the Americas, New York, NY 10104 on October
30, 2006, at 10:00 A.M., Eastern time or such other date mutually agreeable to the parties hereto
(the “Closing Date”) which shall be no later than the later to occur of (i) the second Business Day
after the satisfaction or waiver of the conditions set forth in Article VI or (ii) the Merger
Effective Time.

     Section 9.2 Deliveries. At the Closing, or as promptly thereafter as practicable,
Parent shall deliver to each Existing Company Shareholder the certificates representing the Merger
Shares to be issued pursuant to the provisions of Section 2.5 and to the holders of Company Options
and Company Warrants substituting options and warrants as applicable pursuant to the provisions of
Section 2.8. Such presentment for delivery shall be against delivery to Parent and Acquisition
Subsidiary of the certificates, opinions, agreements and other instruments referred to in Section
6.2. All of the other documents, instruments, certificates and agreements referenced in Section
6.2 will also be executed and delivered as described therein.

ARTICLE X

TERMINATION; NON-SOLICITATION

     Section 10.1 Termination. This Agreement may be terminated at any time prior to the
Merger Effective Time, by action taken or authorized by the Board of Directors of the terminating
party or parties, and except as provided below, whether before or after the requisite approvals of
the shareholders of the Company:

          (a) By mutual written consent of Parent and the Company;

          (b) By either the Company or Parent if:

               (i) (A) The Merger Effective Time shall not have occurred on or before October 31, 2006 (the
“End Date”); provided that the End Date shall be automatically extended for three months
if, on the End Date, only the condition set forth in Section 6.3(g) shall not have been satisfied,
and (B) the party seeking to terminate this Agreement pursuant to this Section 10.1(b) shall not
have breached in any material respect its obligations under this Agreement in any manner that shall
have proximately caused the failure to consummate the Merger on or before such date;

               (ii) (A) Any Governmental Authority of competent jurisdiction that must grant an approval of
the Merger, the issuance of the Merger Shares or the issuance of Company Shares to the Investors by
the Company pursuant to the Share Purchase Agreement has denied such approval and such denial has
become final and nonappealable or (B) any Governmental Authority of competent authority located in
a jurisdiction where either Parent or the Company have substantial revenues or operations shall
have issued an injunction, judgment or order or taken any other action prohibiting the consummation
of the Merger, the issuance of the Merger Shares or the issuance of the Company Shares to the
Investors and such injunction, judgment, order or other action is or shall have become final and
nonappealable; or

41

 

               (iii) The Company’s shareholders shall have refused to grant the Company Shareholder Approval
contemplated by this Agreement or, if necessary under applicable Law or pursuant to the rules of
any applicable exchange, the Parent’s shareholders shall have refused to grant approval of the
Transactions; ]

          (c) By Parent:

               (i) If the Company shall have breached or failed to perform in any material respect any of its
representations, warranties, covenants or other agreements contained in this Agreement, or any such
representation or warranty shall have become inaccurate, which breach, inaccuracy or failure to
perform would result in a failure of a condition set forth in Sections 6.1 or 6.2;
provided, however, that prior to any termination pursuant to this Section 10.1(c),
(A) Parent shall deliver written notice to the Company no fewer than 10 days prior to the date of
termination stating Parent’s intention to terminate this Agreement pursuant to Section 10.1(c) and
the basis for such termination and (B) if such breach, inaccuracy or failure to perform is curable
by the Company prior to the End Date, then Parent shall not terminate this Agreement pursuant to
this Section 10.1(c); provided, that the Company continues to use commercially reasonable
efforts to cure such breach, inaccuracy or failure to perform (it being understood that Parent may
not terminate this Agreement pursuant to this Section 10.1(c) if it shall have materially breached
this Agreement).

               (ii) If an event shall have occurred which would have a Material Adverse Effect on the
Company.

          (d) By the Company:

               (i) If Parent or Acquisition Subsidiary shall have breached or failed to perform in any
material respect any of their respective representations, warranties, covenants or other agreements
contained in this Agreement, or any such representation or warranty shall have become inaccurate,
which breach, inaccuracy or failure to perform would result in a failure of a condition set forth
in Section 6.1 or 6.3; provided, however, that prior to any termination pursuant to
this Section 10.1(d), (A) the Company shall deliver written notice to Parent no fewer than 10 days
prior to the date of termination stating the Company’s intention to terminate this Agreement
pursuant to Section 10.1(d) and the basis for such termination and (B) if such breach, inaccuracy
or failure to perform is curable by Parent or Acquisition Subsidiary, as applicable, prior to the
End Date, then the Company shall not terminate this Agreement pursuant to this Section 10.1(d);
provided, that Parent and Acquisition Subsidiary continue to use their respective
commercially reasonable efforts to cure such breach, inaccuracy or failure to perform (it
being understood that the Company may not terminate this Agreement pursuant to this Section 10.1(d)
if it shall have materially breached this Agreement).

               (ii) If the Company Board has reasonably concluded that the Parent Common Stock will not be
included for trading on the Eligible Market within a reasonable amount of time after the Closing.

               (iii) If an event shall have occurred which would have a Material Adverse Effect on Parent or
Acquisition Subsidiary.

42

 

               (iv) At any time during the three week period following the receipt of the due diligence
materials requested from Parent, if the Company is not reasonably satisfied with the results of the
due diligence review of Parent and Acquisition Subsidiary by the Company and its counsel.

     Section 10.2 No Solicitation. Except as set forth in Schedule 5.15 of the Company
Disclosure Schedules, unless and until this Agreement shall have been terminated pursuant to and in
compliance with this Article X, the Company shall not, nor shall it authorize its officers,
directors, agents, employees, representatives or advisors to, (i) solicit, initiate, encourage
(including by way of furnishing information) or take any action to facilitate the submission of any
inquiries, proposals or offers (whether or not in writing) from any person (other than Parent and
its respective Affiliates) relating to (A) any acquisition or purchase of all or substantially all
the assets of the Company, or of any class of equity securities of the Company, (B) any tender
offer (including a self tender offer) or exchange offer, (C) any merger, consolidation, business
combination, sale of substantially all assets, recapitalization, liquidation, dissolution or
similar transaction involving the Company, or (D) any other transaction the consummation of which
would or would reasonably be expected to impede, interfere with, prevent or materially delay the
Merger or which would or would reasonably be expected to materially dilute the benefits to the
other party hereto of the transactions contemplated by this Agreement (collectively,
“Acquisition Proposals”), or agree to, recommend or endorse any Acquisition Proposal, (ii)
enter into or execute any agreement with respect to any of the foregoing or (iii) enter into or
participate in any discussions or negotiations regarding any of the foregoing.

     Section 10.3 Liability. In the event of termination of this Agreement pursuant to
this Article X, this Agreement shall terminate and there shall be no other liability on the part of
the Company or Parent to the other except liability arising out of an intentional breach of this
Agreement, in which case the aggrieved party shall be entitled to all rights and remedies available
at law or in equity.

ARTICLE XI

MISCELLANEOUS

     Section 11.1 Notices. Any notice, request or other communication hereunder shall be given in writing and shall be
delivered personally or mailed, certified or registered mail, return receipt requested, or
delivered by overnight courier service, to the following addresses, or such other addresses as
shall be given by notice delivered hereunder, and shall be deemed to have been given upon delivery,
if delivered personally, five days after mailing, if mailed, one Business Day after timely delivery
to the overnight courier service, if delivered by overnight courier service, or upon receipt when
delivery is made by facsimile transmission or email:

If to Parent or Acquisition Subsidiary, to:

Orthodontix, Inc.

1428 Brickell Avenue, Suite 105

Miami, Florida 33131

Attn: Glenn L. Halpryn, CEO

Fax: 305.579.9724

Email: ghalpryn@twinvestment.com

43

 

With a copy to:

To the persons and addresses indicated on the signature pages

of the Share Purchase Agreement.

If to the Company or the Surviving Corporation, to:

Protalix Ltd.

2 Snunit Street, Science Park

P.O.B. 455

Carmiel 20100, Israel

Attn: David Aviezer, Ph.D.

Fax: 011.972.4.988.9489

Email: david@protalix.com

With a copy to:

Morrison & Foerster LLP

1290 Avenue of the Americas

New York, NY 10104

Phone: 212.468.8000

Fax: 212.468.7900

Attention: James R. Tanenbaum

Email: jtanenbaum@mofo.com

and

Baratz, Horn & Co.

1 Azrieli Center

Round Tower, 18th Floor

Tel Aviv 67021, Israel

Attention: Yuval Horn, Adv.

Phone: 011.972.3.607.3777

Fax: 011.972.3.607.3778

Email: y.horn@bar-law.com

     Notices shall be deemed received at the earlier of actual receipt or three Business Days
following mailing.

     Section 11.2 Entire Agreement. This Agreement, including the schedules and exhibits
attached hereto, contains the entire understanding of the parties hereto with respect to the
subject matter hereof. This Agreement supersedes all prior oral or written agreements and
undertakings between the parties with respect to such subject matter.

     Section 11.3 Expenses. If the Merger is not consummated, each party shall bear and
pay all of the legal, accounting and other costs and expenses incurred by it in connection with the

44

 

transactions contemplated by this Agreement. If the Merger is consummated, Parent shall pay the
reasonable costs and expenses of Parent, Acquisition Subsidiary and the Company.

     Section 11.4 Severability. Any provision of this Agreement that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.

     Section 11.5 Successors and Assigns; Assignment. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective successors, assigns and heirs;
provided, however, that neither the Company, Parent nor Acquisition Subsidiary shall directly or
indirectly transfer or assign any of its rights hereunder in whole or in part without the written
consent of the Company (in the case of Parent and Acquisition Subsidiary) or Parent (in the case of
the Company), which written shall not be unreasonably withheld or delayed, and any such transfer or
assignment without such written consent shall be void.

     Section 11.6 No Third Parties Benefited. This Agreement is made and entered into for
the sole protection and benefit of the parties hereto, their successors, assigns and heirs, and no
other Person shall have any right or action under this Agreement.

     Section 11.7 Counterparts. This Agreement may be executed in one or more counterparts, with the same effect as if all
parties had signed the same document. Each such counterpart shall be an original, but all such
counterparts together shall constitute a single agreement. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and binding obligation of
the party executing (or on whose behalf such signature is executed) the same with the same force
and effect as if such facsimile signature page was an original thereof.

     Section 11.8 Recitals, Schedules and Exhibits. The Recitals, Schedules and Exhibits
to this Agreement are incorporated herein and, by this reference, made a part hereof as if fully
set forth herein.

     Section 11.9 Section Headings and Gender. The Section headings used herein are
inserted for reference purposes only and shall not in any way affect the meaning or interpretation
of this Agreement. All personal pronouns used in this Agreement shall include the other genders,
whether used in the masculine, feminine or neuter gender, and the singular shall include the
plural, and vice versa, whenever and as often as may be appropriate.

     Section 11.10 Governing Law. This Agreement is to be construed in accordance with and
governed by the internal laws of the State of Israel without giving effect to any choice of law
rule that would cause the application of the laws of any jurisdiction other than the internal laws
of the State of Israel to the rights and duties of the parties. Any dispute, controversy or claim
arising out of or relating to this Agreement shall be settled by arbitration in accordance with the
International Chamber of Commerce (“ICC”) Arbitration Rules as at present in force and
shall be held at London, England in the English language by one arbitrator.

45

 

     Section 11.11 Specific Performance; Remedies. Each of Parent and the Company
acknowledges and agrees that the other party would be damaged irreparably if any provision of this
Agreement is not performed in accordance with its specific terms or is otherwise breached.
Accordingly, each of Parent, Acquisition Subsidiary and the Company agrees that the other party
will be entitled to seek an injunction or injunctions to prevent breaches of the provisions of this
Agreement and to enforce specifically this Agreement and its terms and provisions in any action
instituted in any court of competent jurisdiction, in addition to any other remedy to which they
may be entitled, at law or in equity. Except as expressly provided herein, the rights, obligations
and remedies created by this Agreement are cumulative and in addition to any other rights,
obligations or remedies otherwise available at law or in equity, and nothing herein will be
considered an election of remedies.

     Section 11.12 No Jury Trial. EACH PARTY HERETO HEREBY WAIVES ITS RIGHTS TO A JURY
TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT, THE OTHER
TRANSACTION DOCUMENTS, THE SECURITIES OR THE
SUBJECT MATTER HEREOF OR THEREOF. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL-ENCOMPASSING
OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATTER OF
THIS TRANSACTION, INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY
CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS. THIS SECTION HAS BEEN FULLY DISCUSSED BY
EACH OF THE PARTIES HERETO AND THESE PROVISIONS WILL NOT BE SUBJECT TO ANY EXCEPTIONS. EACH PARTY
HERETO HEREBY FURTHER WARRANTS AND REPRESENTS THAT SUCH PARTY HAS REVIEWED THIS WAIVER WITH ITS
LEGAL COUNSEL, AND THAT SUCH PARTY KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING
CONSULTATION WITH LEGAL COUNSEL. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED
EITHER ORALLY OR IN WRITING, AND THIS WAIVER WILL APPLY TO ANY SUBSEQUENT AMENDMENTS, SUPPLEMENTS
OR MODIFICATIONS TO (OR ASSIGNMENTS OF) THIS AGREEMENT. IN THE EVENT OF LITIGATION, THIS AGREEMENT
MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL (WITHOUT A JURY) BY THE COURT.

     Section 11.13 Amendment and Waivers. This Agreement may be amended by action taken by
or on behalf of the respective Boards of Directors of Parent, Acquisition Subsidiary and the
Company, and the observance of any term of this Agreement may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with the written consent of
the Company, Parent and Acquisition Subsidiary at any time prior to the Merger Effective Time;
provided, that notwithstanding the foregoing, after the Existing Company Shareholders
approve and adopt this Agreement and the Merger, no amendment to this Agreement may be made that
would reduce the amount of or change the Merger Shares or otherwise would require the Existing
Company Shareholders to approve such amendment under Israeli Law, unless the Existing Company
Shareholders approve such amendment in accordance with Israeli Law. Amendments to this Agreement
must be in writing and signed by the Parties.

46

 

     Section 11.14 Electronic Signatures.

          (a) Execution on Paper. Notwithstanding the Electronic Signatures in Global and
National Commerce Act (15 U.S.C. Section 7001 et seq.), the Uniform Electronic
Transactions Act or any other Law relating to or enabling the creation, execution, delivery or
recordation of any contract or signature by electronic means, and notwithstanding any course of
conduct engaged in by the Company, Acquisition Subsidiary and Parent, neither the Company, Parent
or Acquisition Subsidiary will be deemed to have executed a transaction document or other document
contemplated thereby (including any amendment or other change thereto) unless and until such party
shall have executed such transaction document or other document on paper by a handwritten original
signature or any other symbol executed or adopted by that party with the current intention to
authenticate such transaction document or such other document contemplated.

          (b) Electronic Delivery. Delivery of a copy of a transaction document or such other
document bearing an original signature by facsimile transmission (whether directly from one
facsimile device to another by means of a dial-up connection or whether mediated by the worldwide
web), by electronic mail in “portable document format” (“.PDF”) form, or by any other electronic
means intended to preserve the original graphic and pictorial appearance of a document, will have
the same effect as physical delivery of the paper document bearing the original signature.
“Originally signed” or “original signature” means or refers to a signature that has not been
mechanically or electronically reproduced.

     Section 11.15 Construction. The parties hereto have participated jointly in the
negotiation and drafting of this Agreement. If an ambiguity or question of intent or
interpretation arises, this Agreement will be construed as if drafted jointly by the parties hereto
and no presumption or burden of proof will arise favoring or disfavoring any party because of the
authorship of any provision of this Agreement. Any reference to any Law will be deemed also to
refer to law as amended and all rules and regulations promulgated thereunder, unless the context
requires otherwise. The words “include,” “includes,” and “including” will be deemed to be followed
by “without limitation.” Pronouns in masculine, feminine, and neuter genders will be construed to
include any other gender, and words in the singular form will be construed to include the plural
and vice versa, unless the context otherwise requires. The words “this Agreement,” “herein,”
“hereof,” “hereby,” “hereunder,” and words of similar import refer to this Agreement as a whole and
not to any particular subdivision unless expressly so limited. The parties hereto intend that each
representation, warranty, and covenant contained herein will have independent significance. If any
party hereto has breached any representation, warranty, or covenant contained herein in any
respect, the fact that there exists another representation, warranty or covenant relating to the
same subject matter (regardless of the relative levels of specificity) which that party has not
breached will not detract from or mitigate the fact that such party is in breach of the first
representation, warranty or covenant. The language used in this Agreement is deemed to be the
language chosen by the parties to express their mutual intent, and no rules of strict construction
will be applied against any party.

[Signature Page Follows]

47

 

     IN WITNESS WHEREOF, the parties hereto have executed this Agreement to be binding and
effective as of the day and year first set forth above.

	 	 	 	 	 
	 	ORTHODONTIX, INC.

 	 
	 	By:  	/s/ Glenn L. Halpryn
 	 
	 	 	Name:  	Glenn L. Halpryn 	 
	 	 	Title:  	Chief Executive Officer 	 
	 
	 	PROTALIX ACQUISITION CO. LTD.

 	 
	 	By:  	/s/ Glenn L. Halpryn
 	 
	 	 	Name:  	Glenn L. Halpryn 	 
	 	 	Title:  	President 	 
	 
	 	PROTALIX LTD.

 	 
	 	By:  	/s/ David Aviezer
 	 
	 	 	Name:  	David Aviezer, Ph.D. 	 
	 	 	Title:  	Chief Executive Officer 	 
	 

48

 

EXHIBIT A

Form of Voting Agreement

49

 

EXHIBIT B

Form of Lockup Agreement

Protalix Ltd.

2 Snunit Street, Science Park

P.O.B. 455

Carmiel 20100, Israel

Attn: David Aviezer, Ph.D.

Ladies and Gentlemen:

          The undersigned, a holder of shares of Protalix Ltd., an Israeli company (the
“Company”), and/or Orthodontix, Inc., a Florida corporation (“Orthodontix”),
desires that the Company merge with and into a wholly-owned subsidiary of Orthodontix (the
“Merger”). For good and valuable consideration, the undersigned hereby irrevocably agrees
that following the closing of the Merger, the undersigned will not, directly or indirectly, (1)
offer for sale, sell, pledge or otherwise dispose of (or enter into any transaction or device that
is designed to, or could be expected to, result in the disposition by any person at any time in the
future of) any (A) ordinary shares of the Company, nominal value NIS 0.01 per share, (B) shares of
common stock, par value $0.0001 per share, of Orthodontix or (C) any other securities of either the
Company or Orthodontix (collectively, the “Shares”), including, without limitation, Shares
that may be deemed to be beneficially owned by the undersigned in accordance with the rules and
regulations of the Securities and Exchange Commission and Shares that may be issued upon exercise
of any options or warrants, or securities convertible into or exercisable or exchangeable for
Shares, (2) enter into any swap or other derivatives transaction that transfers to another, in
whole or in part, any of the economic benefits or risks of ownership of Shares, whether any such
transaction described in clause (1) or (2) above is to be settled by delivery of Shares or other
securities, in cash or otherwise, (3) make any demand for or exercise any right or cause to be
filed a registration statement, including any amendments thereto, with respect to the registration
of any Shares or securities convertible into or exercisable or exchangeable for Shares or any other
securities of the Company or Orthodontix or (4) publicly disclose the intention to do any of the
foregoing, for a period commencing on the date of the closing of the Merger and ending on the
second anniversary of the closing of the Merger. Notwithstanding the above, up to ___
1Shares shall be exempt from and shall not be subject to this Lock-Up Letter Agreement
and the undertakings set forth herein.

          In furtherance of the foregoing, Orthodontix and its transfer agent on its behalf are hereby
authorized to decline to make any transfer of securities if such transfer would constitute a
violation or breach of this Lock-Up Letter Agreement.

 

			
	1	 	Insert number equal to ten percent (10%) of the
Shares held by person executing the Agreement.

50

 

          It is understood that if the Merger Agreement entered into in connection with the Merger has
been terminated without the consummation of the Merger, this Lock-Up Letter Agreement shall be
cancelled and of no further force and effect.

          The undersigned understands that the Company will proceed with the Merger in reliance on this
Lock-Up Letter Agreement.

          The undersigned hereby represents and warrants that the undersigned has full power and
authority to enter into this Lock-Up Letter Agreement and that, upon request, the undersigned will
execute any additional documents necessary in connection with the enforcement hereof. Any
obligations of the undersigned shall be binding upon the heirs, personal representatives,
successors and assigns of the undersigned.

	 	 	 	 	 
	 	Very truly yours,

 	 
	 	By:  	

 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 

Dated:                     

51EX-4.1 COMMON STOCK PURCHASE WARRANT/150,000 SHARE

 

Exhibit 4.1

THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
ANY STATE SECURITIES LAWS. THIS WARRANT AND THE COMMON STOCK ISSUABLE UPON EXERCISE
OF THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS WARRANT UNDER SAID ACT AND
ANY APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO VERSO TECHNOLOGIES, INC. THAT SUCH REGISTRATION IS NOT REQUIRED.

Right to Purchase up to 150,000 Shares of Common Stock of

VERSO TECHNOLOGIES, INC.

(subject to adjustment as provided herein)

COMMON STOCK PURCHASE WARRANT

			
	No. VC0105
	 	Issue Date: December 29, 2006

     VERSO TECHNOLOGIES, INC., a corporation organized under the laws of the State of Minnesota
(the “Company”), hereby certifies that, for value received, LAURUS MASTER FUND, LTD., or assigns
(the “Holder”), is entitled, subject to the terms set forth below, to purchase from the Company (as
defined herein) from and after the Issue Date of this Warrant and at any time or from time to time,
up to 150,000 fully paid and nonassessable shares of Common Stock (as hereinafter defined), $0.01
par value per share, at the applicable Exercise Price per share (as defined below). The number and
character of such shares of Common Stock and the applicable Exercise Price per share are subject to
adjustment as provided herein.

     As used herein the following terms, unless the context otherwise requires, have the following
respective meanings:

     (a) The term “Company” shall include Verso Technologies, Inc. and any person or entity
which shall succeed, or assume the obligations of, Verso Technologies, Inc. hereunder.

     (b) The term “Common Stock” includes (i) the Company’s Common Stock, par value $0.01
per share; and (ii) any other securities into which or for which any of the securities
described in the preceding clause (i) may be converted or exchanged pursuant to a plan of
recapitalization, reorganization, merger, sale of assets or otherwise.

     (c) The term “Other Securities” refers to any stock (other than Common Stock) and other
securities of the Company or any other person (corporate or otherwise) which the holder of
the Warrant at any time shall be entitled to receive, or shall have received, on the
exercise of the Warrant, in lieu of or in addition to Common Stock, or

Warrant

 

 

which at any time shall be issuable or shall have been issued in exchange for or in
replacement of Common Stock or Other Securities pursuant to Section 4 or otherwise.

     (d) The “Exercise Price” applicable under this Warrant shall be a price of $.01.

     1. Exercise of Warrant.

          1.1 Number of Shares Issuable upon Exercise. From and after the date hereof the
Holder shall be entitled to receive, upon exercise of this Warrant in whole or in part, by delivery
of an original or fax copy of an exercise notice in the form attached hereto as Exhibit A (the
“Exercise Notice”), shares of Common Stock of the Company, subject to adjustment pursuant to
Section 4.

          1.2 Fair Market Value. For purposes hereof, the “Fair Market Value” of a share of
Common Stock as of a particular date (the “Determination Date”) shall mean:

     (a) If the Company’s Common Stock is traded on the American Stock Exchange or another
national exchange or is quoted on the National or Capital Market of The Nasdaq Stock Market,
Inc. (“Nasdaq”), then the closing or last sale price, respectively, reported for the last
business day immediately preceding the Determination Date.

     (b) If the Company’s Common Stock is not traded on the American Stock Exchange or
another national exchange or on the Nasdaq but is traded on the NASD Over The Counter
Bulletin Board, then the mean of the average of the closing bid and asked prices reported
for the last business day immediately preceding the Determination Date.

     (c) Except as provided in clause (d) below, if the Company’s Common Stock is not
publicly traded, then as the Holder and the Company agree or in the absence of agreement by
arbitration in accordance with the rules then in effect of the American Arbitration
Association, before a single arbitrator to be chosen from a panel of persons qualified by
education and training to pass on the matter to be decided.

     (d) If the Determination Date is the date of a liquidation, dissolution or winding up,
or any event deemed to be a liquidation, dissolution or winding up pursuant to the Company’s
charter, then all amounts to be payable per share to holders of the Common Stock pursuant to
the charter in the event of such liquidation, dissolution or winding up, plus all other
amounts to be payable per share in respect of the Common Stock in liquidation under the
charter, assuming for the purposes of this clause (d) that all of the shares of Common Stock
then issuable upon exercise of the Warrant are outstanding at the Determination Date.

          1.3 Company Acknowledgment. The Company will, at the time of the exercise of this
Warrant, upon the request of the holder hereof acknowledge in writing its continuing obligation to
afford to such holder any rights to which such holder shall continue to be entitled after such
exercise in accordance with the provisions of this Warrant. If the holder

Warrant

2

 

shall fail to make any such request, such failure shall not affect the continuing obligation
of the Company to afford to such holder any such rights.

          1.4 Trustee for Warrant Holders. In the event that a bank or trust company shall have
been appointed as trustee for the holders of this Warrant pursuant to Subsection 3.2, such bank or
trust company shall have all the powers and duties of a warrant agent (as hereinafter described)
and shall accept, in its own name for the account of the Company or such successor person as may be
entitled thereto, all amounts otherwise payable to the Company or such successor, as the case may
be, on exercise of this Warrant pursuant to this Section 1.

     2. Procedure for Exercise.

          2.1 Delivery of Stock Certificates, Etc., on Exercise. The Company agrees that the
shares of Common Stock purchased upon exercise of this Warrant shall be deemed to be issued to the
Holder as the record owner of such shares as of the close of business on the date on which this
Warrant shall have been surrendered and payment made for such shares in accordance herewith. As
soon as practicable after the exercise of this Warrant in full or in part, and in any event within
three (3) business days thereafter, the Company at its expense (including the payment by it of any
applicable issue taxes) will cause to be issued in the name of and delivered to the Holder, or as
such Holder (upon payment by such Holder of any applicable transfer taxes) may direct in compliance
with applicable securities laws, a certificate or certificates for the number of duly and validly
issued, fully paid and nonassessable shares of Common Stock (or Other Securities) to which such
Holder shall be entitled on such exercise, plus, in lieu of any fractional share to which such
holder would otherwise be entitled, cash equal to such fraction multiplied by the then Fair Market
Value of one full share, together with any other stock or other securities and property (including
cash, where applicable) to which such Holder is entitled upon such exercise pursuant to Section 1
or otherwise.

          2.2 Exercise.

     (a) Payment may be made either (i) in cash or by certified or official bank check
payable to the order of the Company equal to the applicable aggregate Exercise Price, (ii)
by delivery of this Warrant, or shares of Common Stock and/or Common Stock receivable upon
exercise of this Warrant in accordance with the formula set forth in subsection (b) below,
or (iii) by a combination of any of the foregoing methods, for the number of Common Shares
specified in such Exercise Notice (as such exercise number shall be adjusted to reflect any
adjustment in the total number of shares of Common Stock issuable to the Holder per the
terms of this Warrant) and the Holder shall thereupon be entitled to receive the number of
duly authorized, validly issued, fully-paid and non-assessable shares of Common Stock (or
Other Securities) determined as provided herein.

     (b) Notwithstanding any provisions herein to the contrary, if the Fair Market Value of
one share of Common Stock is greater than the Exercise Price (at the date of calculation as
set forth below), in lieu of exercising this Warrant for cash, the Holder may elect to
receive shares equal to the value (as determined below) of this Warrant (or the portion
thereof being exercised) by surrender of this Warrant at the principal office of the Company
together with the properly endorsed Exercise Notice in which event the

Warrant

3

 

     Company shall issue to the Holder a number of shares of Common Stock computed using the
following formula:

	 	 	 	 	 	 	 
	 

	 	X=
	 	Y(A-B)
 

   A
	 	 

	 	 	 	 	 
	 

	 	Where X =
	 	the number of shares of Common Stock to be issued to the Holder
	 
	 	 	 	 
	 

	 	Y =
	 	the number of shares of Common Stock purchasable under this Warrant or, if
only a portion of this Warrant is being exercised, the portion of this Warrant being
exercised (at the date of such calculation)
	 
	 	 	 	 
	 

	 	A =
	 	the Fair Market Value of one share of the Company’s Common Stock (at the date
of such calculation)
	 
	 	 	 	 
	 

	 	B =
	 	the Exercise Price per share (as adjusted to the date of such calculation)

        3. Effect of Reorganization, Etc.; Adjustment of Exercise Price.

          3.1 Reorganization, Consolidation, Merger, Etc. In case at any time or from time to
time, the Company shall (a) effect a reorganization, (b) consolidate with or merge into any other
person, or (c) transfer all or substantially all of its properties or assets to any other person
under any plan or arrangement contemplating the dissolution of the Company, then, in each such
case, as a condition to the consummation of such a transaction, proper and adequate provision shall
be made by the Company whereby the Holder, on the exercise hereof as provided in Section 1 at any
time after the consummation of such reorganization, consolidation or merger or the effective date
of such dissolution, as the case may be, shall receive, in lieu of the Common Stock (or Other
Securities) issuable on such exercise prior to such consummation or such effective date, the stock
and other securities and property (including cash) to which such Holder would have been entitled
upon such consummation or in connection with such dissolution, as the case may be, if such Holder
had so exercised this Warrant, immediately prior thereto, all subject to further adjustment
thereafter as provided in Section 4.

          3.2 Dissolution. In the event of any dissolution of the Company following the
transfer of all or substantially all of its properties or assets, the Company, concurrently with
any distributions made to holders of its Common Stock, shall at its expense deliver or cause to be
delivered to the Holder the stock and other securities and property (including cash, where
applicable) receivable by the Holder pursuant to Section 3.1, or, if the Holder shall so instruct
the Company, to a bank or trust company specified by the Holder and having its principal office in
New York, NY as trustee for the Holder.

          3.3 Continuation of Terms. Upon any reorganization, consolidation, merger or transfer
(and any dissolution following any transfer) referred to in this Section 3, this Warrant shall
continue in full force and effect and the terms hereof shall be applicable to the shares of stock
and other securities and property receivable on the exercise of this Warrant after the consummation
of such reorganization, consolidation or merger or the effective date of dissolution following any
such transfer, as the case may be, and shall be binding upon the issuer

Warrant

4

 

of any such stock or other securities, including, in the case of any such transfer, the person
acquiring all or substantially all of the properties or assets of the Company, whether or not such
person shall have expressly assumed the terms of this Warrant as provided in Section 4. In the
event this Warrant does not continue in full force and effect after the consummation of the
transactions described in this Section 3, then the Company’s securities and property (including
cash, where applicable) receivable by the Holder will be delivered to the Holder or the Trustee as
contemplated by Section 3.2.

     4. Extraordinary Events Regarding Common Stock. In the event that the Company shall
(a) issue additional shares of the Common Stock as a dividend or other distribution on outstanding
Common Stock or any preferred stock issued by the Company, (b) subdivide its outstanding shares of
Common Stock, (c) combine its outstanding shares of the Common Stock into a smaller number of
shares of the Common Stock, then, in each such event, the Exercise Price shall, simultaneously with
the happening of such event, be adjusted by multiplying the then Exercise Price by a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding immediately prior to
such event and the denominator of which shall be the number of shares of Common Stock outstanding
immediately after such event, and the product so obtained shall thereafter be the Exercise Price
then in effect. The Exercise Price, as so adjusted, shall be readjusted in the same manner upon the
happening of any successive event or events described herein in this Section 4. The number of
shares of Common Stock that the holder shall thereafter, on the exercise hereof as provided in
Section 1, be entitled to receive shall be adjusted to a number determined by multiplying the
number of shares of Common Stock that would otherwise (but for the provisions of this Section 4) be
issuable on such exercise by a fraction of which (a) the numerator is the Exercise Price that would
otherwise (but for the provisions of this Section 4) be in effect, and (b) the denominator is the
Exercise Price in effect on the date of such exercise (taking into account the provisions of this
Section 4). Notwithstanding the foregoing, in no event shall the Exercise Price be less than the
par value of the Common Stock.

     5. Certificate as to Adjustments. In each case of any adjustment or readjustment in
the shares of Common Stock (or Other Securities) issuable on the exercise of this Warrant, the
Company at its expense will promptly cause its Chief Financial Officer or other appropriate
designee to compute such adjustment or readjustment in accordance with the terms of this Warrant
and prepare a certificate setting forth such adjustment or readjustment and showing in detail the
facts upon which such adjustment or readjustment is based, including a statement of (a) the
consideration received or receivable by the Company for any additional shares of Common Stock (or
Other Securities) issued or sold or deemed to have been issued or sold, (b) the number of shares of
Common Stock (or Other Securities) outstanding or deemed to be outstanding, and (c) the Exercise
Price and the number of shares of Common Stock to be received upon exercise of this Warrant, in
effect immediately prior to such adjustment or readjustment and as adjusted or readjusted as
provided in this Warrant. The Company will forthwith mail a copy of each such certificate to the
holder and any Warrant agent of the Company (appointed pursuant to Section 11 hereof).

     6. Reservation of Stock, Etc., Issuable on Exercise of Warrant. The Company will at
all times reserve and keep available, solely for issuance and delivery on the exercise of this

Warrant

5

 

Warrant, shares of Common Stock (or Other Securities) from time to time issuable on the
exercise of this Warrant.

     7. Assignment; Exchange of Warrant. Subject to compliance with applicable securities
laws, this Warrant, and the rights evidenced hereby, may be transferred by any registered holder
hereof (a “Transferor”) in whole or in part. On the surrender for exchange of this Warrant, with
the Transferor’s endorsement in the form of Exhibit B attached hereto (the “Transferor Endorsement
Form”) and together with evidence reasonably satisfactory to the Company demonstrating compliance
with applicable securities laws, which shall include, without limitation, a legal opinion from the
Transferor’s counsel (at the Company’s expense) that such transfer is exempt from the registration
requirements of applicable securities laws, the Company at its expense (but with payment by the
Transferor of any applicable transfer taxes) will issue and deliver to or on the order of the
Transferor thereof a new Warrant of like tenor, in the name of the Transferor and/or the
transferee(s) specified in such Transferor Endorsement Form (each a “Transferee”), calling in the
aggregate on the face or faces thereof for the number of shares of Common Stock called for on the
face or faces of the Warrant so surrendered by the Transferor.

     8. Replacement of Warrant. On receipt of evidence reasonably satisfactory to the
Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of any such
loss, theft or destruction of this Warrant, on delivery of an indemnity agreement or security
reasonably satisfactory in form and amount to the Company or, in the case of any such mutilation,
on surrender and cancellation of this Warrant, the Company at its expense will execute and deliver,
in lieu thereof, a new Warrant of like tenor.

     9. Registration Rights. The Holder has been granted certain registration rights by
the Company. These registration rights are set forth in a Registration Rights Agreement entered
into by the Company and Holder dated as of the date hereof, as the same may be amended, modified
and/or supplemented from time to time.

     10. Maximum Exercise. Notwithstanding anything herein to the contrary, in no event
shall the Holder be entitled to exercise any portion of this Warrant in excess of that portion of
this Warrant upon exercise of which the sum of (1) the number of shares of Common Stock
beneficially owned by the Holder and its Affiliates (other than shares of Common Stock which may be
deemed beneficially owned through the ownership of the unexercised portion of the Warrant or the
unexercised or unconverted portion of any other security of the Holder subject to a limitation on
conversion analogous to the limitations contained herein) and (2) the number of shares of Common
Stock issuable upon the exercise of the portion of this Warrant with respect to which the
determination of this proviso is being made, would result in beneficial ownership by the Holder and
its Affiliates of any amount greater than 9.99% of the then outstanding shares of Common Stock
(whether or not, at the time of such exercise, the Holder and its Affiliates beneficially own more
than 9.99% of the then outstanding shares of Common Stock). As used herein, the term “Affiliate”
means any person or entity that, directly or indirectly through one or more intermediaries,
controls or is controlled by or is under common control with a person or entity, as such terms are
used in and construed under Rule 144 under the Securities Act. For purposes of the proviso to the
second preceding sentence, beneficial ownership shall be determined in accordance with Section
13(d) of the Securities Exchange Act of 1934, as

Warrant

6

 

amended, and Regulations 13D-G thereunder, except as otherwise provided in clause (1) of such
proviso. The limitations set forth herein (x) may be waived by the Holder upon provision of no
less than sixty-one (61) days prior notice to the Company and (y) shall automatically become null
and void following notice to the Company upon the occurrence and during the continuance of an Event
of Default (as defined in the Security Agreement dated as of the date hereof among the Holder, the
Company and various subsidiaries of the Company (as amended, modified, restated and/or supplemented
from time to time, the “Security Agreement”)), except that at no time shall the number of shares of
Common Stock beneficially owned by the Holder exceed 19.99% of the outstanding shares of Common
Stock. Notwithstanding anything contained herein to the contrary, the number of shares of Common
Stock issuable by the Company and acquirable by the Holder pursuant to the terms of this Warrant,
the Security Agreement, any Ancillary Agreement (as defined in the Security Agreement) or
otherwise, shall not exceed an aggregate of 7,390,182 shares of Common Stock
(subject to appropriate adjustment for stock splits, stock dividends, or other similar
recapitalizations affecting the Common Stock) (the “Maximum Common Stock Issuance”), unless the
issuance of Common Shares hereunder in excess of the Maximum Common Stock Issuance shall first be
approved by the Company’s shareholders. If at any point in time and from time to time the number
of shares of Common Stock issued pursuant to the terms of this Warrant, the Security Agreement, any
Ancillary Agreement (as defined in the Security Agreement) or otherwise, together with the number
of shares of Common Stock that would then be issuable by the Company to the Holder in the event of
a conversion pursuant to the terms of this Warrant, the Security Agreement, any Ancillary Agreement
(as defined in the Security Agreement) or otherwise, would exceed the Maximum Common Stock Issuance
but for this Section 10, the Company shall promptly call a shareholders meeting to solicit
shareholder approval for the issuance of the shares of Common Stock hereunder in excess of the
Maximum Common Stock Issuance.

     11. Warrant Agent. The Company may, by written notice to the each Holder of the
Warrant, appoint an agent for the purpose of issuing Common Stock (or Other Securities) on the
exercise of this Warrant pursuant to Section 1, exchanging this Warrant pursuant to Section 7, and
replacing this Warrant pursuant to Section 8, or any of the foregoing, and thereafter any such
issuance, exchange or replacement, as the case may be, shall be made at such office by such agent.

     12. Transfer on the Company’s Books. Until this Warrant is transferred on the books
of the Company, the Company may treat the registered holder hereof as the absolute owner hereof for
all purposes, notwithstanding any notice to the contrary.

     13. Notices, Etc. All notices and other communications from the Company to the Holder
shall be mailed by first class registered or certified mail, postage prepaid, at such address as
may have been furnished to the Company in writing by such Holder or, until any such Holder
furnishes to the Company an address, then to, and at the address of, the last Holder who has so
furnished an address to the Company.

     14. Miscellaneous. This Warrant and any term hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the party against which
enforcement of such change, waiver, discharge or termination is sought. THIS WARRANT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF

Warrant

7

 

THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS. ANY ACTION BROUGHT
CONCERNING THE TRANSACTIONS CONTEMPLATED BY THIS WARRANT SHALL BE BROUGHT ONLY IN STATE COURTS OF
NEW YORK OR IN THE FEDERAL COURTS LOCATED IN THE STATE OF NEW YORK; PROVIDED, HOWEVER, THAT THE
HOLDER MAY CHOOSE TO WAIVE THIS PROVISION AND BRING AN ACTION OUTSIDE THE STATE OF NEW YORK. The
individuals executing this Warrant on behalf of the Company agree to submit to the jurisdiction of
such courts and waive trial by jury. The prevailing party shall be entitled to recover from the
other party its reasonable attorneys’ fees and costs. In the event that any provision of this
Warrant is invalid or unenforceable under any applicable statute or rule of law, then such
provision shall be deemed inoperative to the extent that it may conflict therewith and shall be
deemed modified to conform with such statute or rule of law. Any such provision which may prove
invalid or unenforceable under any law shall not affect the validity or enforceability of any other
provision of this Warrant. The headings in this Warrant are for purposes of reference only, and
shall not limit or otherwise affect any of the terms hereof. The invalidity or unenforceability of
any provision hereof shall in no way affect the validity or enforceability of any other provision
hereof. The Company acknowledges that legal counsel participated in the preparation of this
Warrant and, therefore, stipulates that the rule of construction that ambiguities are to be
resolved against the drafting party shall not be applied in the interpretation of this Warrant to
favor any party against the other party.

[BALANCE OF PAGE INTENTIONALLY LEFT BLANK;

SIGNATURE PAGE FOLLOWS]

Warrant

8

 

     IN WITNESS WHEREOF, the Company has executed this Warrant as of the date first written above.

	 	 	 	 	 	 	 	 	 
	 	 	 	 	VERSO TECHNOLOGIES, INC.	 	 
	WITNESS:
	 	 	 	 	 	 	 	 
	 

	 	 	 	By:	 	 /s/ Martin D. Kidder	 	 
	 

	 	 	 	 	 	 	 	 
	 

	 	 	 	Name:	 	 Martin D. Kidder	 	 
	 

	 	 	 	 	 	 	 	 
	 /s/ Jeffrey
Richards

	 	 	 	Title:	 	 CFO	 	 
	 

	 	 	 	 	 	 	 	 
	  Jeffrey
Richards

	 	 	 	 	 	 	 	 

Warrant

9

 

IRREVOCABLE PROXY

     For good and valuable consideration, receipt of which is hereby acknowledged, Laurus Master
Fund, Ltd. (“Laurus”), hereby appoints                      (the “Proxy Holder” or the “Company”),
with a mailing address at                                         , with full power of substitution, as proxy,
to vote all shares of Common Stock of the Company, now or in the future owned by Laurus to the
extent such shares are issued to Laurus upon its exercise of the Common Stock Purchase Warrant (the
“Warrant”), issued by the Company to Laurus as of the date hereof (the “Shares”).

     This proxy is irrevocable and coupled with an interest. Upon the sale or other transfer of
the Shares, in whole or in part, or the assignment of the Warrant, this proxy shall automatically
terminate (x) with respect to such sold or transferred Shares at the time of such sale and/or
transfer, or (y) with respect to all Shares in the case of an assignment of the Warrant, at the
time of such assignment, in each case, without any further action required by any person.

     Laurus shall use its best efforts to forward to Proxy Holder within two (2) business days
following Laurus’ receipt thereof, at the address for Proxy Holder set forth above, copies of all
materials received by Laurus relating, in each case, to the solicitation of the vote of
shareholders of the Company.

     This proxy shall remain in effect with respect to the Shares of the Company during the period
commencing on the date hereof and continuing until the payment in full of all obligations and
liabilities owing by the Company to Laurus (as the same may be amended, restated, extended or
modified from time to time).

     IN
WITNESS WHEREOF, the undersigned has executed this irrevocable proxy as of the ___ day of
                     200_.

	 	 	 	 	 
	 	LAURUS MASTER FUND, LTD.

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 

Warrant

10

 

EXHIBIT A

FORM OF SUBSCRIPTION

(To Be Signed Only On Exercise Of Warrant)

			
	TO:	 	Verso Technologies, Inc.

400 Galleria Parkway

Suite 200

Atlanta, Georgia 30339

			
		 	Attention:  Chief Financial Officer

     The undersigned, pursuant to the provisions set forth in the attached Warrant (No.___),
hereby irrevocably elects to purchase (check applicable box):

	 	 	 
	                    

	 	                     shares of the common stock covered by such warrant; or
	 
	 	 
	                    

	 	the maximum number of shares of common stock covered by such
warrant pursuant to the cashless exercise procedure set forth in
Section 2.

     The undersigned herewith makes payment of the full Exercise Price for such shares at the price
per share provided for in such Warrant, which is $                    . Such payment takes the form of
(check applicable box or boxes):

	 	 	 
	                    

	 	$                      in lawful money of the United States; and/or
	 
	 	 
	                    

	 	the cancellation of such portion of the attached Warrant as is
exercisable for a total of                      shares of Common Stock (using
a Fair Market Value of $                      per share for purposes of this
calculation); and/or
	 
	 	 
	                    

	 	the cancellation of such number of shares of Common Stock as is
necessary, in accordance with the formula set forth in Section
2.2, to exercise this Warrant with respect to the maximum number
of shares of Common Stock purchasable pursuant to the cashless
exercise procedure set forth in Section 2.

     The undersigned requests that the certificates for such shares be issued in the name of, and
delivered to                                                              whose address is
                                                                                .

     The undersigned represents and warrants that (i) all offers and sales by the undersigned of
the securities issuable upon exercise of the within Warrant shall be made pursuant to registration
of the Common Stock under the Securities Act of 1933, as amended (the “Securities Act”) or pursuant
to an exemption from registration under the Securities Act; and (ii) that the undersigned is an
accredited investor within the meaning of Regulation D under the Securities Act.

	 	 	 	 	 	 	 	 	 
	Dated:
	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 	 	 	 	 	 	(Signature must conform to name of holder as specified on the face
of the Warrant)
	 	 	 	 	 	 	Address:
	 

	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 

Warrant

11

 

\

EXHIBIT B

FORM OF TRANSFEROR ENDORSEMENT

(To Be Signed Only On Transfer Of Warrant)

     For value received, the undersigned hereby sells, assigns, and transfers unto the person(s)
named below under the heading “Transferees” the right represented by the within Warrant to purchase
the percentage and number of shares of Common Stock of Verso Technologies, Inc. into which the
within Warrant relates specified under the headings “Percentage Transferred” and “Number
Transferred,” respectively, opposite the name(s) of such person(s) and appoints each such person
Attorney to transfer its respective right on the books of [Newco]Verso Technologies, Inc. with full
power of substitution in the premises.

	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	Percentage	 	 	Number	 
	Transferees	 	Address	 	 	 	Transferred	 	 	Transferred	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 

	 	 	 	 	 	 	 	 	 
	Dated:
	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 	 	 	 	 	 	(Signature must conform to name of holder as
specified on the face of the Warrant)
	 

	 	 	 	 	 	Address:	 	 
	 

	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	SIGNED IN THE PRESENCE OF:
	 
	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 	 	 	 	 	 	(Name)

	 	 	 
	ACCEPTED AND AGREED:
	 	 
	[TRANSFEREE]
	 	 
	 
	 	 
	 

(Name)

	 	 

Warrant

12

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00115-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00115-of-00352.parquet"}]]