Research & Development The Israeli Advantage

1. State of Israel Ministry of Industry, Trade & Labor - Foreign Trade Administration Investment Promotion Center Research & DevelopmentThe Israeli Advantage June, 2005

2. Main Indicators 2005 2001 2002 2003 2004 2.4 Inflation(%) 1.4 6.5 -1.9 1.2 9.0 Unemployment(%) 9.3 10.5 10.9 10.0 44.4 Imports ($ billion) 33.3 33.1 34.2 41.1 36.5 Exports ($ billion) 29.0 29.3 31.8 38.5 123.7 GDP ($ billions) 109.5 102.7 109.1 117.2 17,848 GDP/Cap ($) 17,180 15,468 16,312 17,200 * May 2005

3. דוגמאות למסרים לקידום ישראל Investment climate in Israel Foreign Direct Investment in Israel Millions USD Source: Bank of Israel Not including traded securities

4. Investment climate in IsraelCapital Raised by Israeli High-Tech Companies

5. Foreign Companies Invested in Israel- Some Examples US Europe Asia • Microsoft • Pratt & Whitney • AOL Time Warner • Intel • IBM • Boeing Enterprises • Cisco Systems • GE • Lucent • 3Com • Hewlett Packard • Merrill Lynch • Motorola • Sun Microsystems • British Telecom • Sap • Philips • Alcatel • Siemens • DaimlerChrysler • Volvo • Cable & Wireless • Deutsche Telekom • Telecom Italia • Generali • L’Oreal • Danone • Unilever • Villmorim • Veolia • Samsung Electronics • Daewoo • Nomura • Hutchison Telecomm. • LG Group • Sony • Toyo Ink • Hyundai • Acer Computers • Sumitomo Trading • Fuji • Honda

6. Investment climate in IsraelForeign Companies Invested in Israel - Some Examples USA

7. Investment climate in IsraelForeign Companies Invested in Israel - Some Examples USA

8. Investment climate in IsraelForeign Companies Invested in Israel - Some Examples USA

9. Investment climate in IsraelForeign Companies Invested in Israel - Some Examples ASIA EUROPE

10. Investment climate in Israel Supportive Business Environment • Worldwide taxation and customs treaties • Protection of trademarks, patents and intellectual property of all kinds • Comprehensive legal protection of foreign companies • State of the art telecommunications • A highly advanced banking and financial sector

11. “The World's Rising Innovation Hot Spots" India China Russia Israel Singapore Taiwan S. Korea R&D Spending 1% OF GDP 1.2% OF GDP 1.2% OF GDP 4.7% OF GDP 2.2% OF GDP 2.3% OF GDP 2.9% OF GDP U.S Patents 5,300 3,952 1,188 764 366 438 354 268 306 30 60 62 39 62 “Israel's strengths: Optical and wireless communications, chips, software, sensors” BusinessWeek, October 11, 2004

12. Innovation climate in IsraelScientists & Technicians per 10,000 Workers

13. Innovation climate in IsraelEntrepreneurship Source: IMD World Competitiveness Yearbook, 2002

14. דוגמאות למסרים לקידום ישראל IMD World Report 2004 Country Rank  1st 2nd 3rd 4th Source: IMD World Competitiveness Yearbook- 2004

15. דוגמאות למסרים לקידום ישראל WEF –Competitiveness Report 2004 – 2005 Country Rank  1st 2nd 3rd 4th WEF – The Global Competitiveness Report 2004 – 2005

16. Gold Winner Sun Microsystems Laboratories U.S. New method for chips to transmit data inside a computer up to 100 times faster than today's top speed. Silver Winner Given Imaging Ltd. Israel Pill-shaped video camera screens the esophagus for disorders. Bronze Winner ISightenc Image Guided Treatment Ltd. Israel Device destroys tumors using ultrasound waves together with magnetic resonance imaging. Honorable Winner Flarion Technologies Inc. U.S. New approach to mobile broadband networks, based on Internet protocol. Honorable Mention Witten Technologies Inc. U.S. Technology that creates detailed images of conditions underground. Innovation climate in IsraelWall Street Journal - 2004 Technology Innovation Awards • The Wall Street Journal received 585 applications from around the world for the 2004 Technology Innovation Awards.

17. Innovation climate in Israel Patents Number of patents (per 10,000) registered in the U.S. during 2003 Israel - An annual increase of 20% Source: BDI - Business Data Israel

18. Recent trends and developmentsRecent M&A

19. Recent trends and developmentsRecent M&A

20. Recent trends and developmentsRecent M&A

21. Investment in Technologies According to foreign investors, following the Silicon Valley and Boston, Israel is the main center to search for new technologies High Tech Investments Q1-Q3 2004 Ernst and Young, October 2004

22. Major R&D EffortsStretching Boundaries of Imagination & Ingenuity • Innovative synergistic industry-academy cooperation, supported by the Chief Scientist, Ministry of Industry & Trade. • Over 100 industrial & academic participants. • Focused on establishment of the technological infrastructure for the next generation. • Key telecommunications R&D activities: • Digital wireless • Satellite systems • Broadband & optical technology • Internet & Multimedia • Telemedicine • Microelectronics • Network management

23. Recently Established R&D Centers • 18-December-2004 - Telynx (USA) - Data-processing, software and services: Opening of a research and development center in northern Israel • 18-December-2004 - BrainStorm (Canada) - Biotechnologies : Announced a new research center in Kiryat Ha'Mada Ve Ha'Technologia • 15-November-2004 - Huawei Technologies (China) - Data-processing, software and services : Establishing $2m Israeli R&D center • 25-October-2004 - 3M (USA) - Drugs: Minnesota-based giant, 3M, o invest in R&D operations in Israel Source: ANIMA

24. Technology Start-ups • Israel is one of the largest world centers for start-up enterprises, with ~800 (year 2003) active start-ups. • Innovative, technology-intensive activity, representing several technology breakthroughs. • Major international activity: • Strategic alliances and joint ventures. • Raising capital - venture, seed & risk investments.

25. Venture Capital • Investments by venture capital funds constitute an added value above financial contributions - in management, world market familiarity, strategic guidance and economic credibility. • Capital raised by Israeli VCs Surges to $724m in 2004 • Capital available for investment now at $1 billion • $1.5 billion projected to be raised by VCs in 2005 Source: IVC Research Center (2004)

26. Israeli Revenue-driving Innovations • The cellular phone, Motorola Israel • The Pentium MMX Chip technology, the Pentium-4 microprocessor and the Centrino processor, Intel Israel • Medinol’s minimally-invasive cardiovascular stent technology • AOL Instant Messenger technology, ICQ

27. Israeli Revenue-driving Innovations • Most of the Windows NT and XP operating systems, Microsoft-Israel • VocalTec’s award-winning voice and audio compression technology • Given Imaging’s ingestible video camera • AND MANY MORE…

28. You quest we quote! Julien Nguyen, Managing Partner, Applied Materials Ventures September 2003 “ Outside the US, we invest in only one other country. That’s Israel. ”

29. You quest we quote! “ The level of entrepreneurship and innovation in Israel is amazing ” Promod Haque, Managing Partner, Norwest Venture Partners, November 2004

30. You quest we quote! “ ” To invest in Israel is to profit in the long term Alan Hevesi, New York State Comptroller, October 2004

31. You quest we quote! “ ” Land of Tech Promise - Again “ After years of a long slump, Israel is seeing a slew of IPO’s, mergers and new startups ” BusinessWeek, September 20, 2004

32. You quest we quote! “ Israel enjoys the highest concentration of high-thech companies in the world, out side of Silicon Valley ” Robert Greifeld, President & CEO Nasdaq, November 2004

33. You quest we quote! “ In two days here I saw more opportunities then I saw in a year in the entire world ” Paul Smit, Senior Vice President. Philips Medical, July 2004

34. You quest we quote! Sven Lingjaerarde – Co-Founder & General Partner Vision Capital – September 2003 “ Israel is a small country with a tiny population, and yet it has many significant high-tech success stories. ”

35. Incentives for R&D Centers Tax relief program: “Cost +” Three priority areas: A, B, C Area C Center of Israel Area B preferred regions of Israel Area A most preferred regions of Israel 2 years - tax exemption 6 years - tax exemption 10 years - tax exemption 8 years – only 10% taxes 4 years – only 10% taxes National Priority Zone A National Priority Zone B Central Israel

36. Grant Benefit Path Fixed asset benefit level pending zone Grant Rates for Fixed Asset Priority Zone A Priority Zone B Central Israel Industrial Projects (Up to 140M NIS) 24% 10% Not Applicable Industrial Projects (Above 140M NIS) 20% 10% Tax Benefit Grant Program Priority Zone A Priority Zone B Priority Zone C Tax Exemption 2 Years Not Applicable Not Applicable Reduced Company Tax Israeli Investors 5 Years 7 Years Not Applicable Foreign Inventors 8 Years 10 Years Not Applicable

37. Tax Exemption Path Tax Program Priority Zone A Priority Zone B Priority Zone C Tax Exemption 10 Years 6 Years 2 Years Reduced Company Tax Israeli Investors Not Applicable 1 Year 5 Years Foreign Inventors Not Applicable 4 Years 8 Years

38. Tax Benefits Table ( in %) Tax Benefit Example Not an Approved Enterprise Approved Enterprise Percent of Enterprise owned by Foreign Investors 0-49% 49-74% 74-90% 90-100% Taxable Income 100 100 100 100 100 Company Tax 34 25 20 15 10% Balance 66 75 80 85 90 Dividend Tax Percentage 25 25 20 15 10 Dividend Tax 16.5 11.25 12 12.75 13.5 Total Tax on Distributed income 50.5 36.25 32 27.75 23.5

39. Government Support of R&D Expenses The Chief Scientist of the Ministry of Industry, Trade and Labor offers conditional R&D grants of up to 50% of approved R&D programs. If successful the developers are obligated to pay back royalties, up to the amount of the grant.

40. International Centers for R&D About 60 foreign R&D centers are located in Israel AND MORE…

41. Thank You! State of Israel Ministry of Industry, Trade & Labor Foreign Trade Administration Investment Promotion Center 5 Bank Israel St., Kiryat Ben-Gurion Jerusalem, Israel www.investinisrael.gov.ilinfoipc@moital.gov.il Tel: +972-2-6662607 Fax:+972-2-6662983