1. Produce, Research & Develop The Israeli Advantage State of Israel Ministry of Industry, Trade & Labor Foreign Trade Administration Investment Promotion Center

2. Main Indicators 2000-2004 2003200220012000 -1.96.51.40.0 Inflation (%) 10.710.39.38.8 Unemployment (%) 33.732.630.935.2 Imports ($ billion) 27.925.827.428.3 Exports ($ billion) 109.1102.7109.5110.1 GDP ($ billions) 16,31215,46817,18017,581 GDP/Cap ($) 2004 F 1.1 10.2 40.5 33.7 113.7 17,200

3. Investment climate in Israel Foreign Direct Investment in Israel Source:Bank of Israel Not including traded securities

4. Investment climate in Israel Sources of Foreign Investment -2003 Source: Israel Venture Association, March 2003

5. Investment climate in Israel Foreign Companies Invested in Israel- Some Examples Microsoft Microsoft Pratt & Whitney Pratt & Whitney AOL Time Warner AOL Time Warner Intel Intel IBM IBM Boeing Enterprises Boeing Enterprises Cisco Systems Cisco Systems GE GE Lucent Lucent 3Com 3Com Hewlett Packard Hewlett Packard Merrill Lynch Merrill Lynch Motorola Motorola Sun Microsystems Sun Microsystems Siemens Siemens DaimlerChrysler DaimlerChrysler Volvo Volvo Cable & Wireless Cable & Wireless Baan Baan Volkswagen Volkswagen Deutsche Telecom Deutsche Telecom L ’ Oreal L ’ Oreal British Telecom British Telecom Danone Danone Ares Sereno Ares Sereno Unilever Unilever US EuropeAsia Samsung Electronics Samsung Electronics Daewoo Daewoo Nomura Nomura Hutchison Telecomm. Hutchison Telecomm. LG Group LG Group Sony Sony Toyo Ink Toyo Ink Hyundai Hyundai Acer Computers Acer Computers Sumitomo Trading Sumitomo Trading Fuji Fuji Honda Honda

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

7. “ The World's Rising Innovation Hot Spots" INDIA S. KOREA TAIWANSINGAPOREISRAELRUSSIACHINA “Israel's strengths: Optical and wireless communications, chips, software, sensors” BusinessWeek, October 11, 2004 2.9% OF GDP 2.3% 2.2% 4.7% 1.2% 1.2% 1% R&D Spending U.S Patents 30354 60366 62268306 1,188 39 438 62 5,300 764 3,952

8. Innovation climate in Israel Scientists & Technicians per 10,000 Workers

9. Innovation climate in Israel Entrepreneurship Source: IMD World Competitiveness Yearbook, 2002

10. Innovation climate in Israel IMD World Report 2002 Country Rank  1st 2 nd 3 rd Quality of basic research United States FinlandIsrael Legal environment for technology development and application FinlandIsraelSingapore Quality of university education IsraelFinlandIreland Number of outstanding engineers IndiaSlovakiaIsrael University-industry collaboration FinlandIsrael United States Technological tie-ups between companies FinlandSwedenIsrael Source: IMD World Competitiveness Yearbook- 2002 Edition, White Paper on International Trade 2002

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

12. Innovation climate in Israel Patents Israel - An annual increase of 20% Source: BDI - Business Data Israel

13. Recent trends and developments Recent M&A Israeli CompanyTechnologyAcquirerSumTime P-CUBETraffic ManagementCISCO$200 millionAugust 2004 ENVARAWireless infrastructureINTEL$40 millionMarch 2004 EMBLAZEChips for Mobile-device applications ZORAN$54 millionJune 2004 ACTONA TECHNOLOGIES Enterprise softwareCISCO$100 millionJune 2004 A2IContent management software SAP$10 millionJuly 2004 SANCTUMEWeb securityWATCHFIRE$45 millionJuly 2004 AgisPharmaceuticalPerrigo$900 millionNovember 2004 ART Technologies & Phonetic Systems Speech ApplicationsScansoft$100 millionNovember 2004

14. 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 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

15. VC Investments (by quarter) Source: IVC Online

16. Major R&D Efforts Stretching 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

17. 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 - 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 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 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 25-October-2004 - 3M (USA) - Drugs: Minnesota- based giant, 3M, o invest in R&D operations in Israel Source: ANIMA

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

19. Venture Capital Investments by venture capital funds constitute an added value above financial contributions - in management, world market familiarity, strategic guidance and economic credibility. Investments by venture capital funds constitute an added value above financial contributions - in management, world market familiarity, strategic guidance and economic credibility. During 2003, 371 Israeli companies raised $1.01 billion (compared to 352 companies & $1.14 billion during 2002). During 2003, 371 Israeli companies raised $1.01 billion (compared to 352 companies & $1.14 billion during 2002). 43% ($421 million) was invested by Israeli venture capital funds. 43% ($421 million) was invested by Israeli venture capital funds. The active sectors are communications (33%), software (19%), life sciences (18%), semiconductors (12%) & Internet (4%). The active sectors are communications (33%), software (19%), life sciences (18%), semiconductors (12%) & Internet (4%). Source: IVC Research Center (2004)

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

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

22. You quest we quote! Source for Technologies “There are few places like Israel where one can find leading technologies in almost every field.” Y. Hasson – Senior Vice President Nokia Venture Partners (London) September 2003

23. You quest we quote! The promised land “ 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

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

25. You quest we quote! Happy Investors “ If you liked investing in Israel in the late 1990 ’ s, you ’ ve got to love it today – Same talent. Same opportunity. Better prices. ” Stanley Gold, CEO Shamrock Holdings Director of Walt Disney Company, July 2002

26. You quest we quote! Innovation “ Israel is important to our goal because it has historically been a hotbed of new raw technology and scientific developments. ” Matthew I. Growney, Managing Director Motorola Ventures September 2003

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

28. You quest we quote! Touched For The Very First Time “ I would like to emphasize the fact that I feel very safe and very welcome. ” “ Israel as safe as NYC ” Madonna, a visit to Israel, Sep. 2004 Madonna, a visit to Israel, Sep. 2004

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

30. Grant Benefit Path Fixed asset benefit level pending zone Fixed asset benefit level pending zone Tax Benefit Tax Benefit Central Israel Industrial Projects (Up to 140M NIS) Industrial Projects (Above 140M NIS) 20%10% Priority Zone APriority Zone B Grant Rates for Fixed Asset 24%10% Central Israel Central Israel

31. Tax Exemption Path Central Israel

32. An example of the Tax Benefit

33. Government Support of R&D Expenses Lower risk: The chief scientist of the Ministry of Industry Trade and Labor can share up to 50% of R&D expenses, in exchange to future royalties. Lower risk: The chief scientist of the Ministry of Industry Trade and Labor can share up to 50% of R&D expenses, in exchange to future royalties.

34. International Centers for R&D About 60 foreign R&D centers are located in Israel

35. 35 State of Israel Ministry of Industry, Trade & Labor Foreign Trade Administration Investment Promotion Center 5 Bank Israel St., Kiryat Ben-Gurion Jerusalem, Israel www.moital.gov.il danny@moital.gov.il