AGREEMENT AND PLAN OF MERGER

Exhibit 2.1

EXECUTION COPY

AGREEMENT AND PLAN OF MERGER

by and among

ENDOCARE, INC.,

ORANGE ACQUISITIONS LTD.,

and

GALIL MEDICAL LTD.

Dated as of November 10, 2008

TABLE OF CONTENTS

TABLE OF CONTENTS
(Continued)

TABLE OF CONTENTS
(Continued)

TABLE OF CONTENTS
(Continued)

Exhibits

Exhibit A: Form of Escrow Agreement

Exhibit B: Form of Proposed Amendment to Articles of Association of the Company

Exhibit C: Form of Merger Proposal

Exhibit D: Form of Opinion of Parent Counsel

Exhibit E: Form of Opinion of Company Counsel

Schedules

Schedule 1.1(a): Major Shareholders

Schedule 5.16(i): Board of Directors Composition

Schedule 5.16(ii): Board of Directors Committee Composition

AGREEMENT AND PLAN OF MERGER

     THIS AGREEMENT AND PLAN OF MERGER (this “ Agreement ”), is dated as of November 10, 2008, by and among Endocare, Inc., a Delaware corporation (“ Parent ”), Orange Acquisitions Ltd., an Israeli corporation and a wholly owned subsidiary of Parent (“ Merger Sub ”) and Galil Medical Ltd., an Israeli corporation.

RECITALS

     A. The parties hereto desire to effect a transaction whereby Merger Sub will merge with and into the Company, with the Company surviving such merger by way and upon the terms and conditions set forth in this Agreement and in accordance with the provisions of Sections 314-327 of the Companies Law, following which, Merger Sub will cease to exist, the Company will become a wholly owned Subsidiary of Parent, and the Company Shares will be exchanged for the right to receive shares of Parent Common Stock, all subject to and in accordance with the provisions set forth herein (the “ Merger ”).

     B. The Board of Directors of the Company has: (i) determined that this Agreement, the Merger, the Ancillary Agreements and the other transactions contemplated by this Agreement and the Ancillary Agreements (collectively, the “ Transactions ”) are fair to, and in the best interests of, the Company and its Shareholders, and that, considering the financial position of the merging companies, no reasonable concern exists that the Surviving Company will be unable to fulfill the obligations of the Company to its creditors, (ii) approved this Agreement, the Merger, the Ancillary Agreements to which it is a party and the Transactions, upon the terms and subject to the conditions set forth in this Agreement, and (iii) determined to recommend to the Shareholders the approval of this Agreement, the Merger and the other Transactions.

     C. The Board of Directors of Parent has: (i) approved this Agreement, the Merger, the Ancillary Agreements to which it is a party and the other Transactions, upon the terms and subject to the conditions set forth in this Agreement, and (ii) determined to recommend to the Parent Stockholders the approval of the issuance of shares of Parent Common Stock in connection with the Merger, the Financing and the other Transactions.

     D. The Board of Directors of Merger Sub has (i) determined that this Agreement, the Merger, the Ancillary Agreements and the other Transactions are fair to, and in the best interests of Merger Sub and of Parent as its sole shareholder and that, considering the financial position of the merging companies, no reasonable concern exists that the Surviving Company will be unable to fulfill the obligations of Merger Sub to its creditors, (ii) approved this Agreement, the Merger, the Ancillary Agreements to which it is a party and the other Transactions, and (iii) determined to recommend that Parent, in its capacity as the sole shareholder of Merger Sub, vote to approve this Agreement, the Merger and the other Transactions.

     E. As a condition to and concurrently with the execution of this Agreement, Shareholders representing 75% of the outstanding Ordinary Shares, par value NIS 0.01 per share, of the Company (the “ Company Ordinary Shares ”), Shareholders representing 75% of the outstanding Preferred A-1 Shares, par value NIS 0.01 per share, of the Company (the “ Preferred A-1 Shares ”), and Shareholders representing 75% of the outstanding Preferred A-2 Shares, par

value NIS 0.01 per share, of the Company (the “ Preferred A-2 Shares ” together with the Preferred A-1 Shares, the “ Company Preferred Shares, ” and the Company Preferred Shares collectively with the Company Ordinary Shares, the “ Company Shares ”) have each entered into a voting agreement with Parent (each, a “ Company Shareholders Voting Agreement ”) pursuant to which each such Shareholder has agreed to vote its Company Shares (including any Company Ordinary Shares issued upon conversion of such Company Preferred Shares) in favor of the approval and adoption of this Agreement, the Merger and the other Transactions.

     F. As a condition to and concurrently with the execution of this Agreement, the Major Shareholders have entered into an agreement with Parent (the “ Company Shareholder Agreement ”) pursuant to which each such Major Shareholder has (A) made certain representations and warranties to Parent with respect to its Company Shares (including any Company Ordinary Shares issued upon conversion of such Company Preferred Shares), the Merger and the other Transactions, (B) entered into a mutual general release with Parent relating to pre-Closing matters, such release to become effective at and subject to the Closing, and (C) agreed to indemnify Parent with respect to certain tax liabilities of the Company and its Subsidiaries for tax periods ending on or before the Closing Date to the extent set forth therein.

     G. Parent Stockholders representing no more than 40% of the outstanding common stock, par value $0.001 per share, of Parent (the “ Parent Common Stock ”), have each entered, or may enter, into voting agreements with the Company (each, a “ Parent Stockholders Voting Agreement ” and, together with the Company Shareholders Voting Agreements, the “ Voting Agreements ”) pursuant to which each such Parent Stockholder has agreed, or will agree, to vote its Parent Common Stock in favor of the approval of the issuance of shares of Parent Common Stock in connection with the Merger, the Financing and the other Transactions.

AGREEMENT

     In consideration of the foregoing and the mutual covenants and agreements herein contained, and intending to be legally bound hereby, the parties agree as follows:

ARTICLE I
DEFINITIONS

      Section 1.1 Certain Defined Terms . For purposes of this Agreement:

          “ Action ” means any claim, action, suit, inquiry, proceeding, audit or investigation by or before any Governmental Authority, or any other arbitration, mediation or similar proceeding.

          “ Affiliate ” means, with respect to any Person, any other Person that directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, such first Person.

          “ Ancillary Agreements ” means the Escrow Agreement, the Voting Agreements, the Company Shareholder Agreement and all certificates required to be delivered by any party pursuant to this Agreement.

     “ Beneficially Own ” means, with respect to any Person, in the aggregate, the subject securities that (i) such Person or any of such Person’s Affiliates beneficially owns, directly or indirectly (as determined pursuant to Rule 13d-3 of the Exchange Act); (ii) such Person or any of such Person’s Affiliates, directly or indirectly, has the right to acquire, whether or not immediately exercisable; (iii) are Beneficially Owned, directly or indirectly, by any other Person (or any Affiliate thereof) and with respect to which such first Person or any of such first Person’s Affiliates has any Contract, for the purpose of holding, voting or disposing of such securities; or (iv) are represented by any derivative of the subject securities, which gives such Person the economic equivalent of ownership of an amount of such subject securities due to the fact that the value of the derivative is explicitly determined by reference to the price or value of such subject securities, without regard to whether such derivative conveys any voting rights in such subject securities to such Person, or the derivative is required to be, or capable of being, settled through delivery of such subject securities.

     “ Business Day ” means (i) any day that is not a Saturday, a Sunday or other day on which banks are required or authorized by Law to be closed in the City of New York, New York, USA or (ii) for actions solely to be taken in Israel, any day that is not a Friday, a Saturday, or any other day on which banks are required or authorized by Law to be closed in the State of Israel; provided that if it is not clear where an action is to be taken or if any or all of such action is to be taken outside of Israel, the definition of “Business Day” in clause (i) shall apply.

     “ Capital Stock ” or “ Share Capital ” means (i) any common stock and preferred stock, ordinary shares and preferred shares, partnership interests, limited liability company interests, profits interests or other equity, equity equivalent, or other ownership interests entitling the holder thereof to vote with respect to matters involving the issuer thereof, or to share in its profits, or to share in its distributions upon its liquidation, or the sale or transfer of its assets, and (ii) any securities exercisable, or exchangeable for, or convertible into, such Capital Stock or Share Capital described in clause (i).

     “ Company ” means Galil Medical Ltd., an Israeli corporation, and after the Effective Time, shall mean the Surviving Company.

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

     “ Company Intellectual Property Rights ” means any Intellectual Property, including Company Registered IP, that is owned, used or held for use by the Company or any of its Subsidiaries or necessary for the conduct of the business of the Company or any of its Subsidiaries.

     “ Company Share Option ” means each outstanding option to purchase Company Ordinary Shares under any Company Plan.

     “ Company Transaction Expenses ” means all costs and expenses (including fees of attorneys, accountants and brokers or finders) of the Company or its Shareholders incurred or payable in connection with this Agreement and the Ancillary Agreements, the Financing and the Transactions, including the negotiation and preparation thereof and related diligence and all

amounts owed to the brokers disclosed in Section 4.27 ; provided that the Company Transaction Expenses, in the aggregate, shall not exceed $850,000.

     “ Contract ” means any contract, agreement, or other instrument or understanding of any kind, including any amendment, supplement, modification, extension or renewal in respect of the foregoing, in each case, whether written or oral, express or implied.

     “ control ,” including the terms “ controlled by ” and “ under common control with ,” as to any Person means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, as trustee or executor, as general partner or managing member, by Contract or otherwise, including the ownership, directly or indirectly, of securities having the power to elect a majority of the board of directors or similar body governing the affairs of such Person.

     “ Encumbrance ” means any charge, claim, equitable interest, mortgage, lien, option, pledge, security interest, easement, encroachment, right of first refusal, right of preemption, imperfection in title, or restriction by way of security of any kind or nature or other encumbrance of any kind, including any restriction on or transfer or other assignment, as security or otherwise, of or relating to use, quiet enjoyment, voting, transfer, receipt of income or exercise of any other attribute of ownership.

     “ ERISA Affiliate ” means any trade or business, whether or not incorporated, under common control with the Company or any of its Subsidiaries and that, together with the Company or any of its Subsidiaries, is treated as a single employer within the meaning of Section 414(b), (c), (m) or (o) of the Code.

     “ Escrow Agent ” means Deutsche Bank National Trust Company, or its successor under the Escrow Agreement.

     “ Escrow Agreement ” means the Escrow Agreement to be entered into by Parent, the Shareholder Representative and the Escrow Agent as of the Closing Date, substantially in the form of Exhibit A .

     “ Escrow Period ” means the period from the Closing Date through the due date (without regard to any extensions) of Parent’s required filing with the SEC of its Annual Report on Form 10-K for the fiscal year ended December 31, 2009.

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

     “ Exchange Ratio ” means 0.923077.

     “ Financing ” means the sale of shares of Parent Capital Stock in a private placement or otherwise, pursuant to the Financing Agreement, which provides that such sale will be consummated concurrent with the Closing.

     “ Financing Agreement ” means that certain Purchase Agreement, pursuant to which the Financing will be consummated.

     “ Financing Commitment ” shall mean the binding commitment of each purchaser under the Financing Agreement to purchase the shares it has committed to purchase pursuant thereto, concurrent with the Closing.

     “ Financing Disclosure Package ” means all written information provided, disclosed or otherwise made available to the participants in the Financing in connection with the negotiation of the Financing and entry into the Financing Agreement, including, among other things, this Agreement, the term sheet describing the terms of the Financing, the financial data with respect to Parent, the Company and the Surviving Company, including pro forma financial information.

     “ Fraud ” means fraud or intentional misrepresentation or omission.

     “ GAAP ” means, with respect to any period, United States generally accepted accounting principles and practices as in effect for such period.

     “ Governmental Authority ” means any United States, Israeli or any other non-United States, federal, national, state, provincial, local or similar government, governmental, regulatory or administrative authority, branch, agency, commission or official, or self-regulatory organization or any court, tribunal, or arbitral or judicial body (including any grand jury) or other substantially similar authority.

     “ Health Care Laws ” means any and all Laws regarding healthcare or the delivery of medical services, including (i) all rules and regulations of the Medicare and Medicaid programs, and any other health care programs; (ii) all Laws relating to health care fraud and abuse, including (A) the Anti-Kickback Law, 42 U.S.C. § 1320a 7b(b), (B) the Federal Civil Monetary Penalties statute, 42 U.S.C. § 1320a 7a, (C) the federal physician self-referral prohibition, 42 U.S.C. § 1395nn, 42 C.F.R. § 411.351 et seq., (D) the False Claims Act, 31 U.S.C. § 3729 et seq., (E) any and all parallel state Laws relating to health care fraud and abuse; and (F) any other Laws relating to fraudulent, abusive or unlawful practices connected in any way with the provision of health care items or services, or the billing for or claims for reimbursement for such items or services provided to a beneficiary of any state, federal or other governmental health care or health insurance program or any private payor; (iii) the Federal Food, Drug and Cosmetic Act and all other Laws relating to the manufacture, purchase, sale, packaging, repackaging, labeling, advertising, handling, provision, distribution, prescribing, compounding, dispensing, importation, exportation, or disposal of any medical equipment, supplies, devices or similar products or services bought or sold by the Company or any of its Subsidiaries or by Parent; and (iv) Laws related to the privacy, security, and/or transmission of health information.

     “ HIPAA ” means the Health Insurance Portability and Accountability Act of 1996.

     “ Immediate Family ,” with respect to any specified person, means such person’s spouse, parents, children and siblings, including adoptive relationships and relationships through marriage, or any other relative of such person that shares such person’s home.

     “ Indemnity Escrow Shares ” means a number of shares of Parent Common Stock equal to 7.5% of the total number of shares of Parent Common Stock comprising the aggregate Merger Consideration rounded down to the nearest whole share.

     “ Indemnity Escrow Fund ” means the escrow account into which the Indemnity Escrow Shares are deposited with the Escrow Agent.

     “ Intellectual Property ” means all right, title and interest in and to all proprietary rights arising from or associated with the following, whether protected, created or arising under the Laws of the United States, Israel, any other jurisdiction or any treaty regime or under any international convention: (i) trade names, trademarks, corporate names, brands, and service marks (registered and unregistered), domain names and other Internet addresses or identifiers, trade dress and similar rights, and applications (including intent to use applications) to register any of the foregoing, together with the goodwill associated with any of the foregoing (collectively, “ Marks ”); (ii) patents and patent applications, including continuations, divisionals, continuations-in-part, extensions, reexaminations, renewals, substitutions and reissues, and patents issuing thereon (collectively, “ Patents ”); (iii) copyrights (registered and unregistered) and applications for registration and works of authorship (collectively, “ Copyrights ”); (iv) trade secrets, discoveries, innovations, formulae, software, know-how, inventions, methods, processes, technical data, specifications, research and development information, technology, in each case to the extent any of the foregoing derives economic value (actual or potential) from not being generally known to other Persons who can obtain economic value from its disclosure or use, excluding any Copyrights or Patents that may cover or protect any of the foregoing (collectively, “ Trade Secrets ”); and (v) moral rights, publicity rights, data base rights and any other proprietary or intellectual property rights of any kind or nature that do not comprise or are not protected by Marks, Patents, Copyrights or Trade Secrets.

     “ Israeli Tax Ordinance ” means the Israeli Income Tax Ordinance New Version, 1961, as amended from time to time, and any and all regulations and rules promulgated thereunder, and, where applicable, any interpretation thereof by any Governmental Authority having jurisdiction with respect thereto or charged with the administration thereof.

     “ Knowledge ” means actual knowledge, provided that, in each case, a Person’s Knowledge of any matter will be deemed to include such Knowledge as such Person could have obtained after making reasonable inquiry and investigation of the matter, including, without limitation, in the case of an entity, reasonable consultation with subordinates of the officers of such entity as to whom such officers reasonably believe would have actual knowledge of the matters represented. Knowledge of an entity includes the knowledge of such entity’s officers and directors (or other persons serving in comparable positions).

     “ Law ” means any statute, law, ordinance, regulation, rule, code, executive order or Order of any Governmental Authority, and, where applicable, any interpretation thereof by any Governmental Authority having jurisdiction with respect thereto or charged with the administration thereof.

     “ Leased Real Property ” means all real property leased, subleased or licensed to the Company or any of its Subsidiaries or which the Company or any of its Subsidiaries

otherwise has a right or option to use or occupy, together with all structures, facilities, fixtures, systems, improvements and items of property located thereon, or attached or appurtenant thereto, and all easements, rights and appurtenances relating to the foregoing.

     “ Liability ” means, with respect to any Person, any losses, liabilities, obligations, debts, duties, claims, damages or expenses of such Person of any kind, character or description, whether known or unknown, absolute or contingent, accrued or unaccrued, disputed or undisputed, liquidated or unliquidated, secured or unsecured, joint or several, due or to become due, vested or unvested, executory, determined, determinable or otherwise, whether or not the same is required to be accrued on the financial statements of such Person and whether or not the same is disclosed on any schedule to this Agreement.

     “ Major Shareholder ” means the Persons set forth on Schedule 1.1(a) .

     “ Material Adverse Change ” means with respect to any Person, any change, event, occurrence, condition or circumstance (whether or not covered by insurance) which, individually or in the aggregate, results in a Material Adverse Effect, in each case other than to the extent caused by, arising out of or attributable to any of the following: (i) changes or proposed changes in Law or accounting standards or interpretations thereof applicable to such Person, (ii) changes in global, national or regional economic or political conditions (including acts of war (whether or not declared), armed hostilities, sabotage, military actions or the escalation thereof (whether underway on the date hereof or hereafter commenced), and terrorism) or in general financial, credit, business, or securities market conditions, including changes in interest rates or the availability of credit financing; (iii) changes generally applicable in the industries in which such Person operates, (iv) any failure of such Person to meet internal or analysts’ estimates, projections or forecasts of revenues, earnings or other financial or business metrics (it being understood that the cause of any such failure may be taken into consideration when determining whether a Material Adverse Change has occurred or would be reasonably likely to occur); (v) a decline in the market price, or a change in the trading volume, of the Capital Stock or Share Capital of such Person (it being understood that the cause of any such decline or change may be taken into consideration when determining whether a Material Adverse Change has occurred or would be reasonably likely to occur); provided, in the case of clauses (i) and (ii), that such conditions or changes do not have a materially disproportionate impact on such Person and its Subsidiaries, taken as a whole, relative to other participants in the industries in which such Person operates.

     “ Material Adverse Effect ” means with respect to any Person, one or more events, occurrences, conditions or circumstances (whether or not covered by insurance) which, individually or in the aggregate, result in a material adverse effect on or change in (i) the business, operations, assets, Liabilities, condition (financial or otherwise), prospects, or results of operations of such Person, taken as a whole with its Subsidiaries, or (ii) the ability of such Person (and, in the case of the Company, including the Shareholders) to timely (A) perform his, her or its material obligations under this Agreement or any Ancillary Agreement, or (B) consummate the transactions contemplated in this Agreement and the Ancillary Agreements.

     “ Nasdaq ” means the Nasdaq Capital Market.

     “ Order ” means any award, decision, injunction, judgment, decree, stipulation, order, ruling, subpoena, or verdict entered, issued, made or rendered by any court, administrative agency or other Governmental Authority or by any arbitrator.

     “ Owned Real Property ” means all real property owned by the Company or any of its Subsidiaries, together with all structures, facilities, fixtures, systems, improvements and items of property located thereon, or attached or appurtenant thereto, and all easements, rights and appurtenances relating to the foregoing.

     “ Parent Intellectual Property Rights ” means any Intellectual Property, including Parent Registered IP, that is owned, used or held for use by Parent or any of its Subsidiaries or necessary for the conduct of the business of Parent or any of its Subsidiaries.

     “ Parent Stock Option ” means each outstanding option to purchase shares of Parent Common Stock under any Parent Stock Plan.

     “ Parent Stock Plan ” means Parent’s 1995 Director Option Plan (as amended and restated through March 2, 1999), Parent’s 1995 Stock Plan (as amended through December 30, 2003), Parent’s 2004 Stock Incentive Plan, Parent’s 2004 Non-Employee Director Option Program under 2004 Stock Incentive Plan or any other similar plan under which options to purchase Parent Common Stock are issued.

     “ Parent Stockholder ” means any holder of Parent Common Stock.

     “ Parent Transaction Expenses ” means all costs and expenses (including fees of attorneys, accountants and brokers or finders) of Parent incurred or payable in connection with this Agreement and the Ancillary Agreements, the Financing and the Transactions, including the negotiation and preparation thereof and related diligence and all amounts owed to the brokers disclosed in Section 3.19 , provided that the Parent Transaction Expenses in the aggregate shall not exceed $850,000.

     “ Person ” means an individual, corporation, partnership, limited liability company, limited liability partnership, syndicate, trust, association, organization or other entity, including any Governmental Authority.

     “ Pre-Closing Shareholders Agreement ” means that certain shareholders agreement between the Company and certain of its shareholders, dated November 10, 2008, which provides for certain matters in connection with the consummation of the Transactions hereunder (including, inter alia, for the conversion of all outstanding Company Preferred Shares into Company Ordinary Shares).

     “ Purchaser ” means any Person who has agreed to purchase shares of Parent Capital Stock pursuant to the Financing Agreement.

     “ Related Party ,” with respect to any specified Person, means: (i) any Affiliate of such specified Person; (ii) any Person who serves or within the past two years has served as a director, executive officer, partner, managing member or in a similar capacity of such specified Person; (iii) any Immediate Family member of such specified Person or a Person described in

clause (ii); or (iv) any other Person who holds, individually or together with any Affiliate of such Person, and any Immediate Family member of such Person, more than 5% of the outstanding Capital Stock or Share Capital of such specified Person.

     “ Return ” means any return, declaration, estimate, report, statement, information statement and other document required to be filed with a taxing authority with respect to Taxes, including information returns or reports with respect to withholding or payments to third parties.

     “ SEC ” means the United States Securities and Exchange Commission.

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

     “ Shareholder ” means any holder of Company Shares.

     “ Shareholder Fraud ” means Fraud by any of the Shareholders, or Fraud by any employee or other representative of the Company.

     “ Subsidiary ” means, with respect to any Person, any other Person controlled by such first Person, directly or indirectly, through one or more intermediaries.

     “ Taxes ” means: (i) all federal, state, local, foreign and other net income, gross income, gross receipts, capital stock, value added, estimated, sales, use, ad valorem, transfer, franchise, profits, registration, license, lease, service, service use, withholding, payroll, employment, unemployment, disability, workers’ compensation, social security, national health insurance, excise, severance, stamp, occupation, premium, property, windfall profits, customs duties or other taxes, duties, fees, assessments or charges of any kind whatsoever, together with any interest and any penalties, additions to tax or additional amounts with respect thereto and any interest with respect to such penalties or additions; (ii) any liability for payment of amounts described in clause (i) whether as a result of transferee liability, of being a member of an affiliated, consolidated, combined or unitary group for any period or otherwise through operation of law; and (iii) any liability for the payment of amounts described in clauses (i) or (ii) as a result of any tax sharing, tax indemnity or tax allocation agreement or any other express or implied agreement to indemnify any other Person in connection with such liabilities.

      Section 1.2 Table of Definitions . The following terms have the meanings set forth in the Sections referenced below:

ARTICLE II
THE MERGER

      Section 2.1 The Merger . Subject to the satisfaction or waiver (to the extent permitted hereunder and by applicable Law) of the conditions set forth in Article VI hereof, at the Effective Time and subject to and upon the terms and conditions set forth in this Agreement and the applicable provisions of Sections 314 through 327 of the Companies Law, (i) Merger Sub (as the target company) shall be merged with and into the Company (as the absorbing company), (ii) the separate corporate existence of Merger Sub shall thereupon cease, (iii) the Company shall continue as the surviving company (the “ Surviving Company ”), (iv) the Surviving Company shall continue to be governed by Israeli Law and shall become a wholly owned Subsidiary of Parent, and (v) all the properties, rights, privileges and powers of the Company and Merger Sub shall vest in the Surviving Company, and all debts, liabilities and duties of the Company and Merger Sub shall become the debts, liabilities and duties of the Surviving Company.

      Section 2.2 Closing; Effective Time .

          (a) The closing of the Merger (the “ Closing ”) shall take place at the offices of Gibson, Dunn & Crutcher LLP, 3161 Michelson Drive, Irvine, CA 92612, at 10:00 A.M., California time, on the third Business Day following the satisfaction or, to the extent permitted hereunder and by applicable Law, waiver of all conditions to the obligations of the parties set forth in Article VI (other than such conditions as may, by their terms, only be satisfied at the Closing or on the Closing Date, subject to such satisfaction or waiver thereof), or at such other place or at such other time or on such other date as Parent and the Company mutually agree in writing. The day on which the Closing takes place is referred to as the “ Closing Date .”

          (b) Merger Sub and the Company shall deliver (and Parent shall cause Merger Sub to deliver) to the Registrar of Companies of the State of Israel (the “ Israeli Companies Registrar ”) a notice of the contemplated Merger and the proposed Closing Date on which the Israeli Companies Registrar is requested to issue a certificate evidencing the Merger in

accordance with Section 323(5) of the Companies Law (the “ Merger Certificate ”) after notice that the Closing has occurred is served to the Israeli Companies Registrar. The Merger shall become effective only upon issuance of the Merger Certificate by the Israeli Companies Registrar (the “ Effective Time ”).

      Section 2.3 Effects of the Merger . The Merger shall have the effects provided for herein and in the applicable provisions of the Companies Law.

      Section 2.4 Tax-Free Reorganization . The parties intend to adopt this Agreement as a plan of reorganization within the meaning of Sections 354(a) and 368(a) of the Internal Revenue Code of 1986, as amended (the “ Code ”), and to consummate the Merger in accordance with Section 368(a)(2)(E) of the Code.

      Section 2.5 Articles of Association . The articles of association of Merger Sub in effect immediately prior to the Effective Time, which shall be in a customary form, reasonably acceptable to Parent and the Company, shall be the articles of association of the Surviving Company (the “ Surviving Company Articles ”), until duly amended as provided therein or by applicable Law.

      Section 2.6 Directors and Officers . From and after the Effective Time, (a) the board composition of the Surviving Company shall be Parent’s Chief Executive Officer, Chief Financial Officer and General Counsel until the earlier of the directors’ resignation or removal or until their respective successors are duly elected and qualified, as the case may be, in accordance with the Surviving Company Articles (as amended from time to time), and (b) the officers of the Company serving immediately prior to the Effective Time shall remain the officers of the Surviving Company, and Parent’s Chief Financial Officer will become the Surviving Company’s Treasurer and Parent’s General Counsel shall become the Surviving Company’s Secretary; in each case, until the earlier of their resignation or removal or until their respective successors are duly elected and qualified, as the case may be, in accordance with the Surviving Company Articles (as amended from time to time).

      Section 2.7 Subsequent Actions . If, at any time after the Effective Time, the Surviving Company shall consider or be advised that any deeds, bills of sale, assignments, assurances or any other actions or things are necessary or desirable to vest, perfect or confirm of record or otherwise in the Surviving Company its right, title or interest in, to or under any of the rights, properties or assets of either the Company or Merger Sub acquired or to be acquired by the Surviving Company as a result of or in connection with the Merger or otherwise to carry out this Agreement, the officers and directors of the Surviving Company shall be authorized to execute and deliver, in the name of and on behalf of either the Company or Merger Sub, as applicable, all such deeds, bills of sale, assignments and assurances and to take and do, in the name and on behalf of each of such corporations or otherwise, all such other actions and things as may be necessary or desirable to vest, perfect or confirm any and all right, title and interest in, to and under such rights, properties or assets in the Surviving Company or otherwise to carry out this Agreement.

      Section 2.8 Conversion of Shares of the Company and Merger Sub . At the Effective Time, by virtue of the Merger and without any further action on the part of Parent, Merger Sub,

the Company or any holder of any Company Shares or any shares of Capital Stock of Merger Sub:

     (a) Each Company Share issued and outstanding immediately prior to the Effective Time (other than any Company Shares described in Sections 2.8(b) and (c) ) shall be converted into the right to receive a number of fully paid, nonassessable shares of Parent Common Stock equal to (i) the Closing Date Per Share Merger Consideration, plus (ii) any Indemnity Escrow Fund Per Share Merger Consideration payable pursuant to the Escrow Agreement, at the respective times and subject to the contingencies specified herein and therein.

     (b) Each Company Share that is owned by Parent or Merger Sub immediately prior to the Effective Time shall automatically be cancelled and retired and shall cease to exist, and no Parent Common Stock or other consideration shall be delivered or deliverable in exchange therefor.

     (c) Each Company Share that is held in the treasury of the Company or owned by the Company or any of its wholly owned Subsidiaries immediately prior to the Effective Time shall automatically be cancelled and retired and shall cease to exist, and no Parent Common Stock or other consideration shall be delivered or deliverable in exchange therefor.

     (d) Each ordinary share, par value NIS 1.00 per share, of Merger Sub issued and outstanding immediately prior to the Effective Time shall be converted into one fully paid ordinary share, par value NIS 0.01 per share, of the Surviving Company and shall be registered in the name of Parent in the shareholder register of the Surviving Company, and such ordinary shares shall constitute the only outstanding Share Capital of the Surviving Company.

     (e) For purposes of this Agreement:

          (i) “ Merger Consideration ” means the product of the Exchange Ratio and the number of shares of Parent Common Stock outstanding calculated using the treasury method at the Effective Time, without giving effect to the Merger or the Financing;

          (ii) “ Closing Date Merger Consideration ” means (A) the Merger Consideration minus (B) the Indemnity Escrow Shares;

          (iii) “ Closing Date Per Share Merger Consideration ” means the number of whole shares of Parent Common Stock (rounded down) equal to (A) the Closing Date Merger Consideration, divided by (B) the number of Company Shares outstanding immediately prior to the Effective Time calculated using the treasury method; and

          (iv) “ Indemnity Escrow Fund Per Share Merger Consideration ” means the number of whole shares of Parent Common Stock (rounded down) equal to (A) the number of Indemnity Escrow Shares payable out of the Indemnity Escrow Fund to the Shareholders pursuant to the Escrow Agreement, if any, after payment of all claims pursuant to Article VII ,

divided by (B) the number of Company Shares outstanding immediately prior to the Effective Time .

          (f) Notwithstanding anything contained herein, if, between the date of this Agreement and the Effective Time, the outstanding shares of Parent Common Stock or the Company Shares have been changed into a different number of shares or a different class by reason of any stock dividend, subdivision, reclassification, recapitalization, split, combination, exchange of shares or similar event, then the Exchange Ratio shall be correspondingly adjusted to reflect such stock dividend, subdivision, reclassification, recapitalization, split, combination, exchange of shares or similar event, to the extent required to retain the same relative post-Closing allocation between the Parent Stockholders and the Shareholders as existed prior to such event.

      Section 2.9 Associated Parent Common Stock Rights . All references in this Agreement to “Parent Common Stock” shall include, unless the context requires otherwise, the associated preferred share purchase rights (“ Parent Rights ”) issued pursuant to the Rights Agreement, dated as of March 31, 1999, between Parent and U.S. Stock Transfer Corporation (as amended from time to time prior to the Effective Time, the “ Parent Rights Agreement ”), to the extent associated with outstanding Parent Common Stock at the Effective Time.

      Section 2.10 Company Share Options .

          (a) At the Effective Time, unless otherwise agreed by Parent and any affected Company Share Option holder, each outstanding Company Share Option (whether vested or unvested) shall be converted into an option to purchase, on the same terms and conditions as such Company Share Option, a number of shares of Parent Common Stock equal to the number of shares of Parent Common Stock (rounded up to the nearest whole share) that the holder of such Company Share Option would have been entitled to receive pursuant to the provisions of this Article II had such holder exercised such Company Share Option immediately prior to the Effective Time, at an exercise price per share of Parent Common Stock (rounded down to the nearest whole cent) equal to (x) the aggregate existing exercise price for the Company Shares purchasable pursuant to such Company Share Option divided by (y) the number of shares of Parent Common Stock for which the Company Stock Option will become exerciseable.

          (b) Within 20 Business Days after the Effective Time, Parent shall deliver to the holders of Company Share Options notices setting forth such holders’ rights pursuant to the relevant Company Plan and that the agreements evidencing the grants of such Company Share Options shall continue in effect on the same terms and conditions (subject to the adjustments required by this Section 2.10 after giving effect to the Merger). Parent shall assume and comply with the terms of the Company Plans and the conversion of each Company Share Option into an option to purchase Parent Common Stock pursuant to this Section 2.10 shall comply with the requirements of Treasury Regulation Section 1.409A-1(b)(5)(v)(D), provided that the conversion of each Company Share Option that is intended to be an incentive stock option under Section 422 of the Code into an option to purchase Parent Common Stock shall comply with the requirements of Treasury Regulation Section 1.424-1(a). Company Share Options subject to Section 102 of the Israeli Tax Ordinance, under the “Capital Gains Track” pursuant to Section 102(b)(2) of the Israeli Tax Ordinance or any other special tax treatment, if applicable, prior to the Effective

Time shall continue to qualify as options subject to Section 102(b)(2) of the Israeli Tax Ordinance or any other special tax treatment (as applicable) after the Effective Time.

          (c) Parent shall take all corporate action necessary to reserve for issuance a sufficient number of shares of Parent Common Stock for delivery upon exercise of Company Share Options assumed in accordance with this Section 2.10 . As soon as practicable after the Effective Time, Parent shall, if no registration statement is in effect covering the shares of Parent Common Stock issuable upon exercise of the Company Share Options under this Section 2.10 , file a registration statement on Form S-8 (or any successor form) with respect to the shares of Parent Common Stock issuable upon exercise of such Company Share Options to the extent registrable on Form S-8 (or any successor form) and shall maintain the effectiveness of such registration statement for so long as such Company Share Options remain outstanding.

          (d) At or prior to the Effective Time, the Company shall, to the extent necessary, cause to be effected, in a manner reasonably satisfactory to Parent, amendments to the Company Plans and any other documents governing the Company Share Options to give effect to the foregoing provisions of this Section 2.10 .

      Section 2.11 Exchange Fund . Prior to the Effective Time, Parent shall appoint a commercial bank or trust company, or a Subsidiary thereof, reasonably acceptable to the Company, to act as exchange agent hereunder for the purpose of exchanging Certificates for the Merger Consideration (the “ Exchange Agent ”). At or prior to the Effective Time, Parent shall deposit with the Exchange Agent, in trust for the benefit of holders of Company Shares, the shares of Parent Common Stock representing the Closing Date Merger Consideration. Any Parent Common Stock deposited with the Exchange Agent is referred to herein as the “ Exchange Fund .”

      Section 2.12 Exchange of Shares .

          (a) As soon as practicable after the Effective Time, the Exchange Agent will mail to each holder of record of one or more certificates representing Company Shares immediately prior to the Effective Time (each, a “ Certificate ”) a letter of transmittal in customary form satisfactory to Parent (which will specify, among other things, that delivery will be effected, and risk of loss and title to the Certificates will pass, only upon delivery of the Certificates to the Exchange Agent) and instructions for use in effecting the surrender of the Certificates. Upon proper surrender of a Certificate for exchange and cancellation or an affidavit of the fact that such Certificate has been lost, stolen or destroyed pursuant to Section 2.12(g) , to the Exchange Agent, together with such properly completed letter of transmittal, duly executed, the holder of such Certificate will be entitled to receive in exchange therefor, (i) promptly thereafter a stock certificate representing the number of whole shares of Parent Common Stock (a “ Parent Certificate ”) equal to the product of (A) the number of Company Shares represented by the surrendered Certificate and (B) the Closing Date Per Share Merger Consideration (rounded down to the nearest whole share), (ii) a check representing the amount of any dividends or distributions then payable pursuant to Section 2.12(b)(i) , and (iii) at the time set forth in the Escrow Agreement, a Parent Certificate equal to the product of (A) the number of Company Shares represented by the surrendered Certificate and (B) the Indemnity Escrow Fund Per Share Merger Consideration, if any (rounded down to the nearest whole share), and upon such

surrender the Certificates so surrendered will forthwith be cancelled. No interest will be paid or accrued on any unpaid dividends and distributions payable to holders of Certificates.

          (b) No dividends or other distributions declared with respect to Parent Common Stock will be paid to the holder of any unsurrendered Certificate until the holder thereof surrenders such Certificate in accordance with this Article II . After the surrender of a Certificate in accordance with this Article II , the record holder thereof will be entitled to receive (i) within 10 Business Days thereafter the amount of any dividends or other distributions with a record date after the Effective Time theretofore paid, without any interest thereon, with respect to the whole shares of Parent Common Stock represented by such Certificate, and (ii) at the appropriate payment date, the amount of any dividends or other distributions with a record date after the Effective Time but prior to surrender and a payment date subsequent to surrender, with respect to whole shares of Parent Common Stock represented by such Certificate.

          (c) If any Parent Certificate is to be issued in a name other than that in which the Certificate surrendered in exchange therefor is registered, it will be a condition to the issuance thereof that the Certificate so surrendered is properly endorsed (or accompanied by an appropriate instrument of transfer) and otherwise in proper form for transfer, and that the Person requesting such exchange pays to the Exchange Agent, in advance, any transfer or other Taxes required by reason of the issuance of a Parent Certificate in any name other than that of the registered holder of the Certificate surrendered, or required for any other reason, or establishes to the satisfaction of the Exchange Agent that such Tax has been paid or is not payable.

          (d) After the Effective Time, there will be no transfers on the stock transfer books of the Company or the Surviving Company of Company Shares that were issued and outstanding immediately prior to the Effective Time. If, after the Effective Time, Certificates representing such Company Shares are presented for transfer to the Exchange Agent, they will be cancelled and exchanged for Parent Certificates as provided in this Article II , promptly after receipt of a properly completed letter of transmittal.

          (e) Notwithstanding anything to the contrary contained in this Agreement, no certificates or scrip representing fractional shares of Parent Common Stock will be issued upon the surrender of Certificates for exchange. Each Shareholder shall only be entitled to such number of shares of Parent Common Stock rounded down to the nearest whole number as set forth herein, and no Shareholder shall be entitled to any fractional shares, or any consideration in lieu thereof, and no dividend or distribution with respect to Parent Common Stock will be payable on or with respect to any fractional share.

          (f) Any portion of the Exchange Fund that remains unclaimed by the former Shareholders as of the six month anniversary of the Effective Time will be paid by the Exchange Agent to Parent. Any former Shareholders who have not theretofore complied with this Article II will thereafter look only to Parent for payment of the shares of Parent Common Stock and any unpaid dividends and distributions on Parent Common Stock deliverable in respect of each Company Share that such Shareholder holds immediately prior to the Effective Time, in each case, as determined pursuant to this Agreement, and without any interest thereon. Notwithstanding the foregoing, none of Parent, the Company, Merger Sub, the Surviving Company, the Exchange Agent or any other Person will be liable to any former holder of

Company Shares for any amount delivered in good faith to a public official pursuant to applicable abandoned property, escheat or similar Laws.

          (g) In the event any Certificate has 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 delivery of a properly completed letter of transmittal and, if reasonably required by Parent or the Exchange Agent, the posting by such Person of a bond in such amount as Parent or the Exchange Agent may determine is reasonably necessary as indemnity against any claim that may be made against it with respect to such Certificate, the Exchange Agent will issue in exchange for such lost, stolen or destroyed Certificate the shares of Parent Common Stock payable pursuant to the terms hereof.

          (h) The Exchange Agent will invest any cash included in the Exchange Fund, as directed by Parent. Any interest and other income resulting from such investments will be for the benefit of and paid to Parent.

      Section 2.13 Escrow Deposits . At the Closing, Parent shall deposit or cause to be deposited with the Escrow Agent for deposit into the Indemnity Escrow Fund, the Indemnity Escrow Shares. The Indemnity Escrow Fund shall be held and distributed as provided in the Escrow Agreement and this Agreement.

      Section 2.14 Withholding Rights . Each of Parent, the Surviving Company, the Exchange Agent and the Escrow Agent shall be entitled, with respect to payments made by each such entity, to deduct and withhold from the Merger Consideration and any other amounts otherwise payable pursuant to this Agreement such amounts as it reasonably determines it is required to deduct and withhold with respect to the making of such payment under the Israeli Withholding Tax Ruling, if obtained, the Code, the Israeli Tax Ordinance or under any other applicable Law, provided that no withholding or a reduced rate of withholding, as applicable, under Israeli Tax Law will be made from any consideration payable hereunder to a holder of Company Shares to the extent that such Shareholder has provided Parent, the Exchange Agent or the Escrow Agent with an appropriate unequivocal exemption by the Israeli Tax Authority confirming that no withholding of Israeli Tax is required with respect to the particular Shareholder in question, prior to the time such payment is made. To the extent that amounts are so withheld by Parent, the Surviving Company, the Exchange Agent or the Escrow Agent, as the case may be, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the Shareholders, in respect to which such deduction and withholding was made by Parent, the Surviving Company, the Exchange Agent or the Escrow Agent, as the case may be. Any amounts deducted and withheld pursuant to this Section 2.14 shall be remitted to the appropriate Tax authority in accordance with applicable Law.

      Section 2.15 Shareholder Representative .

          (a) The Shareholders shall at all times maintain a representative (the “ Shareholder Representative ”) for purposes of taking certain actions and giving certain consents on behalf of the Shareholders, as specified herein. Pursuant to the Company Shareholder Agreement, the Major Shareholders appointed Thomas, McNerney Representative, LLC, as the initial Shareholder Representative, and immediately upon the approval of this Agreement by the

requisite vote or written consent of the Shareholders, each other Shareholder shall be deemed to have consented to such appointment (or any applicable successor) and the terms hereof. Another person shall be appointed as the Shareholder Representative if the person so designated (or any successor thereof) is unwilling or unable to so act. Actions taken, consents given and representations made by the Shareholder Representative pursuant hereto shall be final, binding and conclusive upon the Shareholders, including all actions under Article VII and under the Escrow Agreement and the Company Shareholder Agreement. This appointment and grant of power and authority by each Shareholder is coupled with an interest and is irrevocable and shall not be terminated by any act of any Shareholder or by operation of Law, whether by the death or incapacity of any individual Shareholder, or by the occurrence of any other event. The Shareholder Representative is entitled to authorize delivery to the Parent Indemnified Parties of the funds or other property from the Indemnity Escrow Fund in satisfaction of claims by the Parent Indemnified Parties, to agree to, negotiate, enter into settlements and compromises of, and comply with orders of courts and awards of arbitrators with respect to such claims, and to take all actions on behalf of all of the Shareholders deemed necessary or appropriate in the judgment of the Shareholder Representative to accomplish the foregoing or to facilitate or administer the transactions contemplated by this Agreement, the Escrow Agreement and the Company Shareholder Agreement, including, without limitation, executing such other documents or instruments as the Shareholder Representative deems necessary or appropriate, provided however, that no such action may incur additional liabilities on the Shareholders, other than as set forth in this Agreement. The Escrow Agent and Parent may rely upon any decision, act, consent or instruction of the Shareholder Representative as being the decision, act, consent or instruction of each and every Shareholder. The Shareholder Representative may resign at any time, and may be removed for any reason or no reason by the vote or written consent of Shareholders holding a majority of the aggregate Company Ordinary Shares (on an as-converted basis) outstanding immediately prior to the Effective Time. No bond shall be required of the Shareholder Representative.

          (b) The Shareholder Representative shall not be liable to the Shareholders for actions taken pursuant to this Agreement, the Company Shareholder Agreement or the Escrow Agreement, except to the extent such actions shall have been determined in a final and non-appealable judgment by a court of competent jurisdiction to have constituted willful misconduct or Fraud. Except in cases where a court of competent jurisdiction has made such a finding in a final and non-appealable judgment, the Shareholders shall jointly and severally indemnify and hold harmless, first from the Indemnity Escrow Fund (if any, after payment of all claims to which the Parent Indemnified Parties are entitled to payment pursuant to Article VII ) and thereafter directly, the Shareholder Representative from and against any and all Damages (including reasonable legal and expert fees and expenses incurred by the Shareholder Representative in investigating or defending (including any appeal) any claim for indemnification made against the Shareholders or Major Shareholders), arising out of and in connection with his or her activities as Shareholder Representative under this Agreement, the Company Shareholder Agreement, the Escrow Agreement or otherwise.

          (c) The approval of this Agreement by the requisite vote or written consent of the Shareholders shall also be deemed to constitute approval of all arrangements relating to the transactions contemplated hereby and to the provisions hereof binding upon the Shareholders, including, without limitation, those set forth in Article VII . All actions taken, consents given and

representations made by the Shareholder Representative pursuant hereto shall be binding upon the Shareholders after the Closing, including all actions under Article VII and under the Escrow Agreement.

ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF PARENT AND MERGER SUB

     Except as set forth in the Disclosure Schedule of Parent and Merger Sub attached hereto and delivered concurrently herewith that is arranged in Sections corresponding to the numbered and lettered Sections contained in this Agreement (the “ Parent Disclosure Schedule ”), or the Parent SEC Reports filed prior to the date hereof, Parent and Merger Sub hereby represent and warrant to the Company as follows:

      Section 3.1 Organization and Qualification .

          (a) Parent is (i) a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, and has full corporate power and authority to own, lease and operate its properties and to carry on its business as it is now being conducted and (ii) duly qualified or licensed as a foreign corporation to do business, and is in good standing (to the extent the concept of good standing is recognized in the applicable jurisdiction), in each jurisdiction where the character of the properties owned, leased or operated by it or the nature of its business makes such qualification or licensing necessary, except for any such failure to be so qualified or licensed and in good standing as that, individually or in the aggregate, have not had and would not reasonably be expected to have a Material Adverse Effect on Parent. Merger Sub is a company duly organized and validly existing under the laws of the State of Israel. Parent owns, beneficially and of record, all of the outstanding capital stock of Urohealth B.V., a company duly organized, validly existing and in good standing (to the extent the concept of good standing is recognized in the applicable jurisdiction) under the laws of The Netherlands. Urohealth B.V. is an inactive subsidiary which does not currently conduct any business activities. Except for Merger Sub and Urohealth B.V. (collectively, the “ Parent Subs ”), Parent does not have any Subsidiaries.

          (b) Parent has heretofore furnished to the Company a complete and correct copy of the certificate of incorporation and bylaws, each as amended to date, of Parent and a complete and correct copy of the articles of association of Merger Sub. Such certificate of incorporation, bylaws and articles of association are in full force and effect. Neither Parent nor Merger Sub is in violation of any of the provisions of its certificate of incorporation, bylaws or articles of association, as applicable. Copies of the minutes of all meetings of shareholders, the Board of Directors and each committee of the Board of Directors of each of Parent and Merger Sub, in each case since January 1, 2004 through the date hereof, have been made available for inspection by the Company prior to the date hereof and such copies are true and complete.

      Section 3.2 Authority .

          (a) Each of Parent and Merger Sub have full corporate power and authority to execute and deliver this Agreement and each of the Ancillary Agreements to which it is or will

be a party and, subject to obtaining approval of the stockholders representing a majority of the shares of Parent Common Stock present in person or by proxy at a meeting of the Parent Stockholders called to approve the issuance of Parent Common Stock in the Merger and the Financing (the “ Parent Stockholder Approval ”), to perform its obligations hereunder and thereunder and to consummate the Transactions. The execution, delivery and performance by each of Parent and Merger Sub of this Agreement and each of the Ancillary Agreements to which it is or will be party and the consummation by it of the Transactions have been duly and validly authorized by the Board of Directors of Parent or Merger Sub, as applicable. Except for obtaining the Parent Stockholder Approval, no other corporate proceedings on the part of Parent or Merger Sub are necessary to authorize the execution, delivery or performance of this Agreement or any Ancillary Agreement or to consummate the Transactions. This Agreement has been, and upon their execution and delivery each of the Ancillary Agreements to which Parent or Merger Sub is or will be a party has or, with respect to the Ancillary Agreements to be entered into after the date hereof as of delivery, will have been, duly executed and delivered by Parent or Merger Sub, as applicable. This Agreement constitutes, and upon their execution each of the Ancillary Agreements to which Parent or Merger Sub is or, with respect to the Ancillary Agreements to be entered into after the date hereof, will be, a party do or will as of the date of delivery constitute, the legal, valid and binding obligations of Parent or Merger Sub, as applicable, enforceable against Parent or Merger Sub in accordance with their respective terms.

          (b) The Board of Directors of Parent, at a meeting duly called, and held on November 8, 2008, (i) approved this Agreement, the Merger, the Financing, the Ancillary Agreements to which it is a party and the other Transactions, and (ii) determined to recommend to the Parent Stockholders the approval pursuant to this Agreement of the issuance of shares of Parent Common Stock in connection with the Merger, the Financing and the other Transactions.

          (c) The Board of Directors of Merger Sub, by unanimous written consent, dated as of November 10, 2008, (i) determined that this Agreement, the Merger, the Ancillary Agreements and the Transactions would be advisable and fair to, and in the best interests of Merger Sub and of Parent as its sole stockholder and that, considering the financial position of the merging companies, no reasonable concern exists that the Surviving Company will be unable to fulfill the obligations of Merger Sub to its creditors, (ii) approved this Agreement, the Merger, the Ancillary Agreements and the other Transactions to which it is a party, and (iii) recommended that Parent, in its capacity as the sole shareholder of Merger Sub, vote to approve this Agreement, the Merger and the other Transactions.

      Section 3.3 Application of Anti-takeover Protections . Parent has taken all necessary action, if any, in order to render inapplicable any control share acquisition, business combination, poison pill, shareholder rights agreements or other similar anti-takeover provision under Parent’s certificate of incorporation or bylaws or any applicable state laws that is or could become applicable to each Shareholder’s acquisition or ownership of Parent Common Stock issued to such Shareholder pursuant to the terms hereof.

      Section 3.4 Termination of License Agreement with Sanarus . Parent represents and warrants that, except as set forth on Schedule 3.4 of the Parent Disclosure Schedule, all agreements between Parent and Sanarus Medical Incorporated (“Sanarus”) have been terminated as evidenced by the Mutual Termination Agreement dated as of June 19, 2008 between Parent

and Sanarus, and Sanarus has no continuing rights in, or licenses to, Parent’s Intellectual Property in the fields of gynecological and breast diseases, disorders and conditions to develop, make, sell or use cryomedical devices within such fields.

      Section 3.5 No Conflict; Required Filings and Consents .

          (a) The execution, delivery and performance by Parent and Merger Sub of this Agreement and each of the Ancillary Agreements to which Parent or Merger Sub is or will be a party, and the consummation of the Transactions, do not and will not:

               (i) conflict with or violate the certificate of incorporation or, except as set forth on Schedule 3.5(a)(i) of the Parent Disclosure Schedule, bylaws of Parent or the articles of association or equivalent constituent documents of either of the Parent Subs;

               (ii) conflict with or violate any Law applicable to Parent or either of the Parent Subs or by which any property or asset of Parent or either of the Parent Subs is bound; or

               (iii) except as set forth on Schedule 3.5(a)(iii) of the Parent Disclosure Schedule, result in any breach of, constitute a default (or an event that, with notice or lapse of time or both, would become a default) under, require any consent of any Person pursuant to, give to others any right of termination, amendment, modification, acceleration or cancellation of, allow the imposition of any fees or penalties, require the offering or making of any payment or redemption, give rise to any increased, guaranteed, accelerated or additional rights or entitlements of any Person or otherwise adversely affect any rights of Parent or either of the Parent Subs under, or result in the creation of any Encumbrance on any property, asset or right of Parent or either of the Parent Subs pursuant to, any note, bond, mortgage, indenture, agreement, lease, license, permit, franchise, instrument, obligation or other Contract to which Parent or either of the Parent Subs is a party or by which any of their respective properties, assets or rights are bound;

except, in the case of clauses (ii) and (iii), for any such conflicts, breaches, defaults or other occurrences that, individually or in the aggregate, have not had and would not reasonably be expected to have a Material Adverse Effect on Parent.

          (b) Neither Parent nor either of the Parent Subs is required to file, seek or obtain any notice, authorization, approval, order, permit or consent of or with any Governmental Authority in connection with the execution, delivery and performance by Parent or Merger Sub of this Agreement and each of the Ancillary Agreements to which Parent and Merger Sub is or will be a party or the consummation by Parent or Merger Sub of the Transactions, except for such filings, notices, authorizations, approvals, orders permits or consents as may be required by any applicable federal or state securities or “blue sky” Laws.

      Section 3.6 Capitalization .

          (a) As of the date hereof, the authorized Capital Stock of Parent consists of 51,000,000 shares of Capital Stock (the “ Parent Capital Stock ”), divided into 50,000,000 shares of Parent Common Stock and 1,000,000 shares of preferred stock, par value $0.001 per share

(the “ Parent Preferred Stock ”). As of the date hereof, (i) 11,811,451 shares of Parent Common Stock, are issued and outstanding, (ii) no shares of Parent Preferred Stock are issued or outstanding, (iii) 2,270,723 shares of Parent Common Stock are issuable upon exercise or payout of currently outstanding stock options and restricted stock units previously granted under Parent Stock Plans; (iv) 78,363 shares of Parent Common Stock are issuable upon payout of deferred stock units under Parent’s Employee Deferred Stock Unit Program; (v) 165,981 shares of Parent Common Stock are issuable upon payout of deferred stock units under Parent’s Non-Employee Director Deferred Stock Unit Program; (vi) 474,437 shares of Parent Common Stock remain available for future awards under Parent’s 2004 Stock Incentive Plan; (vii) 606,292 shares of Parent Common Stock remain available for future awards under Parent’s Employee Deferred Stock Unit Program; (viii) 234,019 shares of Parent Common Stock remain available for future awards under Parent’s Non-Employee Director Deferred Stock Unit Program; (ix) 689,113 shares of Parent Common Stock are issuable upon exercise of currently outstanding Series A Warrants; (x) 694,637 shares of Parent Common Stock are issuable upon exercise of currently outstanding Series B Warrants; and (xi) 250,000 shares of Parent Preferred Stock have been designated as “Series A Junior Participating Preferred Stock,” par value $0.001 per share, and are reserved for issuance upon exercise of Parent Rights issued pursuant to the Parent Rights Agreement. Each issued and outstanding share of Parent Capital Stock is, and each share of Parent Capital Stock reserved for issuance as specified above will be, upon issuance on the terms and conditions specified in the instruments pursuant to which it is issuable, duly authorized, validly issued, fully paid, nonassessable and free of preemptive rights or similar rights, and has been, or will be, issued in compliance in all respects with applicable Law and Parent’s bylaws and certificate of incorporation.

          (b) Except for the items described above in subsection (a) and under this Agreement and the Financing Agreement, as of the date hereof, there are no outstanding subscriptions, options, calls, contracts, commitments, understandings, restrictions, arrangements, rights or warrants, including any right of conversion or exchange under any outstanding security, instrument or other Contract and also including any rights plan or other similar agreement, obligating Parent to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of Parent Capital Stock or obligating Parent to grant, extend or enter into any such Contract or commitment. As of the date hereof, there are no obligations, contingent or otherwise, of Parent to (i) repurchase, redeem or otherwise acquire any shares of Parent Capital Stock or (ii) provide material funds to, or make any material investment in (in the form of a loan, capital contribution or otherwise), or provide any guarantee with respect to the obligations of, any Person. There are no outstanding stock appreciation rights or similar derivative securities or rights of Parent. There are no bonds, debentures, notes or other indebtedness of Parent having the right to vote (or convertible into, or exchangeable for, securities having the right to vote) on any matters on which stockholders of Parent may vote. There are no voting trusts, irrevocable proxies or other Contracts to which Parent is a party or is bound with respect to the voting of any shares of Parent Capital Stock.

          (c) Each of the issued and outstanding shares of Share Capital of Merger Sub has been duly authorized and validly issued, is fully paid and nonassessable, has not been issued in violation of any preemptive or similar rights, and has been issued in compliance in all respects with all applicable Laws and the provisions of its articles of association, and Parent owns, directly or indirectly, one hundred percent of the outstanding shares of Share Capital of Merger

Sub. There are no (i) securities convertible into or exchangeable for shares of Share Capital or other securities of Merger Sub, or (ii) subscriptions, options, warrants, puts, calls, phantom stock rights, stock appreciation rights, stock-based performance units, agreements, understandings, claims or other Contracts or rights of any type granted or entered into by Parent or Merger Sub relating to the issuance, sale, repurchase or transfer of any securities of Merger Sub or that give any Person, other than Parent, the right to receive any economic benefit or right similar to or derived from the economic benefits and rights of securities of Merger Sub.

          (d) Each share of Parent Common Stock to be issued as Merger Consideration has been duly authorized, and upon issuance in accordance with the terms hereof, such shares of Parent Common Stock shall be (i) validly issued, fully paid and non-assessable and (ii) free from all taxes, liens and charges with respect to the issue thereof (other than any taxes, liens and charges arising from the acts or omissions of the Shareholders). Prior to the Closing, Parent shall have duly authorized and reserved for issuance sufficient shares of Parent Common Stock for issuance to the Shareholders upon consummation of the Financing and the Merger.

          (e) Except for Merger Sub and Urohealth B.V., and except as set forth on Schedule 3.6(e) of the Parent Disclosure Schedule, Parent does not, directly or indirectly, own any equity, partnership, membership or similar interest in, or any interest convertible into, exercisable for the purchase of or exchangeable for any such equity, partnership, membership or similar interest in, any Person, or is under any current or prospective obligation to form or participate in, provide funds to, make any loan, capital contribution or other investment in, or assume any liability or obligation of, any Person, in each case, other than as contemplated by this Agreement or the Transactions.

      Section 3.7 SEC Reports; Financial Statements; No Undisclosed Liabilities .

          (a) Parent has filed all material forms, reports and documents required to be filed by Parent with the SEC since January 1, 2007 (collectively, the “ Parent SEC Reports ”), each of which complied at the time of filing in all material respects with all applicable requirements of the Securities Act and the Exchange Act. None of the Parent SEC Reports contained when filed 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 light of the circumstances under which they were made not misleading, except to the extent superseded by a subsequently filed Parent SEC Report prior to the date hereof.

          (b) True and complete copies of (i) the audited consolidated balance sheet of Parent as of December 31, 2005, December 31, 2006 and December 31, 2007, and the related audited consolidated statements of income, retained earnings, shareholders’ equity and changes in financial position of Parent for the periods covered therein, together with all related notes and schedules thereto, accompanied by the reports thereon of Parent’s independent auditors (collectively, the “ Parent Annual Financial Statements ”), (ii) the unaudited consolidated balance sheet of Parent as of June 30, 2008, and the related consolidated statements of income, retained earnings, shareholders’ equity and changes in financial position of Parent for the six months and quarter then ended, together with all related notes and schedules thereto, (iii) the unaudited consolidated balance sheet of Parent as of July 31, 2008, August 31, 2008 and September 30, 2008, and the related consolidated statements of income, retained earnings, shareholders’ equity

and changes in financial position of Parent for the month then ended, and (iv) any subsequent financials delivered pursuant to Section 5.20 (collectively, the financial statements delivered pursuant to clauses (ii) through (iv), the “ Parent Interim Financial Statements ”, and with the Parent Annual Financial Statements, the “ Parent Financial Statements ”), with respect to the financial statements described in clauses (i) and (ii) have been delivered or made available to the Company, with respect to the financial statements described in clause (iii), attached hereto as Schedule 3.7(b) of the Parent Disclosure Schedule, or with respect to any financial statements to be delivered pursuant to Section 5.20 , will be delivered to the Company pursuant thereto. Each of the Parent Financial Statements are, or in the case of the Parent Interim Financial Statements to be delivered pursuant to Section 5.20 , when so delivered will be (i) correct and complete in all material respects and have been prepared in accordance with the books and records of Parent; (ii) have been prepared in accordance with GAAP applied on a consistent basis throughout the periods indicated (except as may be indicated in the notes thereto); and (iii) fairly present, in all material respects, the consolidated financial position, results of operations and cash flows of Parent as at the respective dates thereof and for the respective periods indicated therein, except as otherwise noted therein and subject, in the case of the Parent Interim Financial Statements, to normal and recurring year-end adjustments that will not, individually or in the aggregate, be material. The Parent Financial Statements do not contain any material items of a special or nonrecurring nature, except as expressly stated therein. Except for the Parent Subs, no financial statements of any other Person are required by GAAP to be consolidated in the financial statements of Parent.

          (c) Except for those liabilities that are reflected or reserved against on the audited consolidated balance sheet of Parent as of December 31, 2007 (such balance sheet, together with all related notes and schedules thereto, the “ Parent Balance Sheet ”), and for liabilities incurred in the ordinary course of business consistent with past practice after such date, Parent has not incurred any liability, whether or not required by GAAP to be reflected in a consolidated balance sheet of Parent or disclosed in the notes thereto, except those liabilities and obligations that are not, individually or in the aggregate, material to Parent and that do not exceed $100,000 in the aggregate.

           Section 3.8 Absence of Certain Changes or Events . Since the date of the Parent Balance Sheet: (a) the business of Parent has been conducted, in all material respects, only in the ordinary course of business consistent with past practice; (b) there has not been any change, event or development or prospective change, event or development that, individually or in the aggregate, has had or would be reasonably likely to have a Material Adverse Change on Parent; (c) Parent has not suffered any material loss, damage, destruction or other casualty affecting any of its material properties or assets, whether or not covered by insurance; and (d) except as set forth on Schedule 3.8 of the Parent Disclosure Schedule, Parent has not taken any action that, if taken after the date of this Agreement, would constitute a breach of any of the covenants set forth in Section 5.2 .

           Section 3.9 Litigation . Except as set forth on Schedule 3.9 of the Parent Disclosure Schedule, there is no material Action pending or, to the Knowledge of Parent, threatened against Parent or any of its Subsidiaries, or any material property or asset of Parent or any of its Subsidiaries, nor to its Knowledge is there any event, circumstance or fact existing or that has occurred that would reasonably be expected to result in any such material Action. There is no

Action pending or, to the Knowledge of Parent, threatened, seeking to prevent, hinder, modify, delay or challenge the Transactions. There is no pending or outstanding Order or, pending, or to the Knowledge of Parent, threatened, investigation by, any Governmental Authority relating to Parent or any of its Subsidiaries, any of its properties or assets or the Transactions. There is no Action by Parent or any of its Subsidiaries pending, or which Parent or any of its Subsidiaries has commenced preparations to initiate, against any other Person.

      Section 3.10 Compliance with Applicable Law .

          (a) Each of Parent and the Parent Subs is and has been in compliance in all material respects with all Laws applicable to it. Parent has not received during the past seven years, nor is there any basis for, any notice, order, complaint or other communication from any Governmental Authority or any other Person that Parent or either of the Parent Subs is not and has not been in compliance in any material respect with any Law applicable to it.

          (b) Parent is in possession of all licenses, franchises, permits, certificates, approvals, variances, registrations, accreditations, permissions and billing and other authorizations that are required for Parent to own, lease and operate its properties and to carry on its business in all material respects as currently conducted (the “ Parent Permits ”). Parent is and has been in compliance in all respects with all Parent Permits, except where the failure to so comply has not and would not reasonably be expected to have a material detriment on Parent and its Subsidiaries, taken as a whole, in excess of $250,000. Except as set forth on Schedule 3.10 of the Parent Disclosure Schedule, no suspension, cancellation, modification, revocation or nonrenewal of any Parent Permit is pending or, to the Knowledge of Parent, threatened, and Parent will continue to have the use and benefit of all Parent Permits following consummation of the Transactions. No Parent Permit is held in the name of any employee, officer, director, shareholder, agent or otherwise on behalf of Parent.

      Section 3.11 Intellectual Property .

          (a)  Schedule 3.11 of the Parent Disclosure Schedule sets forth a true and complete list of all material Intellectual Property including registered and material unregistered Marks, Patents and registered Copyrights, including any pending applications to register any of the foregoing, owned (in whole or in part) by or exclusively licensed to Parent or either of the Parent Subs, identifying for each whether it is owned by or exclusively licensed to Parent. Schedule 3.11 of the Parent Disclosure Schedule lists the record owner of each such item of Intellectual Property, and the jurisdiction in which each such item of Intellectual Property has been issued or registered or in which each such application for the issuance or registration of such item of Intellectual Property has been filed. The Parent Intellectual Property includes all Intellectual Property necessary and sufficient to enable Parent to conduct its business as it is currently and proposed to be conducted. To the Knowledge of Parent, the Parent Intellectual Property Rights are valid and enforceable.

          (b) No registered Mark identified on Schedule 3.11 of the Parent Disclosure Schedule has been or is now involved in any opposition or cancellation proceeding and, to the Knowledge of Parent, no such proceeding is or has been threatened with respect to any of such Marks. No Patent identified on Schedule 3.11 of the Parent Disclosure Schedule has been or is

now involved in any interference, reissue or reexamination proceeding and, to the Knowledge of Parent, no such proceeding is or has been threatened with respect to any of such Patents.

          (c) Parent is the sole and exclusive owner of all right, title and interest in and to, free and clear of any and all liens, licenses (royalty bearing or royalty-free), obligations or other Encumbrances to others requiring payment to any Person or any obligation to grant any right to any Person, of all Intellectual Property identified on Schedule 3.11 of the Parent Disclosure Schedule and all other Intellectual Property used in Parent’s business, other than Intellectual Property that is licensed to Parent by a third party licensor pursuant to a written license agreement that remains in effect. Parent has valid licenses to all material software and technology and other material Intellectual Property that is licensed to Parent by a third party licensor and used by Parent in the ordinary course of business, free and clear of all Encumbrances, except to the extent such a failure is the result of a defect in the license of the third party owner. Parent has not received any notice or claim challenging Parent’s ownership of any of the Intellectual Property owned (in whole or in part) by Parent, nor to the Knowledge of Parent is there a reasonable basis for any claim that Parent does not so own any of such Intellectual Property.

          (d) Parent has taken all reasonable steps in accordance with standard industry practices to protect its rights in its Intellectual Property and at all times has taken adequate security measures to protect the secrecy, confidentiality and value of all information that constitutes or constituted a Trade Secret of Parent and any other confidential information. To the Knowledge of Parent, during the most recent two years, there have been no material unauthorized disclosures of Parent’s trade secrets and non-public proprietary information to a third party. All current and former employees and consultants of Parent have executed and delivered proprietary information, trade secret and confidentiality and assignment agreements substantially in Parent’s standard forms. In addition, all current and former employees and consultants involved in research or development for Parent or who otherwise develop or conceive of any Intellectual Property for or on behalf of Parent have executed and delivered enforceable Contracts that assign to Parent all such employee’s or consultant’s rights, title and interests in any Intellectual Property conceived, developed, authorized or reduced to practice by such employee or consultant relating to the business of Parent. To the Knowledge of Parent, no current employee or consultant of Parent is in default or breach of any material term of any such Contract with Parent.

          (e) All registered Marks, issued Patents and registered Copyrights identified on Schedule 3.11 of the Parent Disclosure Schedule (“ Parent Registered IP ”) are valid and subsisting and, to the Knowledge of Parent, enforceable, and Parent has not received any notice or claim or cease-and-desist letters or invitations to license patent letters or written threats from any third party challenging the validity or enforceability of any Parent Registered IP or alleging any misuse of such Parent Registered IP. Parent has not taken any action or failed to take any action that could reasonably be expected to result in the abandonment, cancellation, forfeiture, relinquishment, invalidation or unenforceability of any Parent Registered IP (including the failure to pay any filing, examination, issuance, post registration and maintenance fees, annuities and the like and the failure to disclose any known material prior art in connection with the prosecution of patent applications). All necessary registration, maintenance, renewal and other relevant filing fees in connection with Parent Registered IP have been paid and all necessary

documents, certificates and other relevant filings in connection with Parent Registered IP have been timely filed with the relevant patent, trademark, copyright or other relevant authorities in the United States or other jurisdictions, for the purpose of maintaining Parent Registered IP in the relevant jurisdiction.

          (f) To Parent’s Knowledge, the development, manufacture, sale, distribution or other commercial exploitation of products, and the provision of any services, by or on behalf of Parent or either of the Parent Subs, and all of the other activities or operations of Parent or either of the Parent Subs, have not interfered with, infringed upon, misappropriated, violated, diluted or constituted the unauthorized use of, any Intellectual Property of any third party. Except as set forth on Schedule 3.11(f) of the Parent Disclosure Schedule, neither Parent nor either of the Parent Subs has received any notice or claim or cease-and-desist letters or invitations to license patent letters or written threats from any third party asserting or suggesting that any such infringement, misappropriation, violation, dilution or unauthorized use is or may be occurring or has or may have occurred, nor to the Knowledge of Parent, is there a reasonable basis therefor. No Intellectual Property owned by or licensed to Parent or either of the Parent Subs is subject to any outstanding Order or Contract restricting the use or licensing thereof by Parent or either of the Parent Subs. To the Knowledge of Parent, no third party is misappropriating, infringing, diluting or violating any Intellectual Property owned by or exclusively licensed to Parent in a material manner.

          (g) Neither Parent nor either of the Parent Subs has transferred ownership of, or granted any exclusive license with respect to, any material Intellectual Property. No loss or expiration of any of the material Intellectual Property used by Parent in the conduct of its business is threatened, pending or reasonably foreseeable.

          (h) To the Knowledge of Parent, Parent’s business does not constitute unfair competition or trade practices and Parent has not engaged and does not engage in any false or misleading advertising or practices under the Laws of any jurisdiction in which Parent operates or markets any of its products or services.

          (i) Parent and each of the Parent Subs maintains policies and procedures regarding data security and privacy that are in compliance with all applicable Laws. To the Knowledge of Parent, there have been no security breaches relating to violations or any security policy or any unauthorized access of any data or information of Parent’s software or technology systems in the last two years. Except as would not have a Material Adverse Effect on Parent, the use and dissemination by Parent of any and all data or information concerning individuals is in compliance with all such privacy policies and applicable Laws, including HIPAA, and with respect to Parent and Merger Sub, the transactions contemplated to be consummated hereunder as of the Closing will not violate any such privacy policies or Laws.

      Section 3.12 Parent Information . The registration statement on Form S-4 (or any successor form) to be filed with the SEC by Parent in connection with the issuance of shares of Parent Common Stock in the Merger, and any amendment or supplement thereto (the “ Form S-4 ”) will not at the time the Form S-4 is filed with the SEC and at the time it becomes effective under the Securities Act 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 not

misleading. The Proxy Statement will not as of the date mailed to stockholders of Parent and at the time of the meeting of the stockholders of Parent to be held for the purpose of obtaining the Parent Stockholder Approval (the “ Parent Stockholders’ Meeting ”) contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading. The information included in the Financing Disclosure Package did not as of the date provided, disclosed or otherwise made available to the participants in the Financing contain any untrue statement of material fact or omit to state any material fact necessary in order to make the statements therein in light of the circumstances under which they were made not misleading, and no amendment or supplement to the Financing Disclosure Package will, as of the date provided, disclosed or otherwise made available to the participants in the Financing subsequent to the date hereof contain any untrue statement of material fact or omit to state any material fact necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading. Notwithstanding the foregoing, neither Parent nor Merger Sub makes any representation or warranty with respect to any information supplied or required to be supplied by the Company or the Shareholders that is contained in or omitted from any of the foregoing documents.

      Section 3.13 Health Care Regulatory Compliance . Without limiting the provisions of Section 3.10 :

          (a) Except as set forth on Schedule 3.13(a) of the Parent Disclosure Schedule, parent has all Parent Permits necessary for the conduct of its businesses and the use of its properties and assets as presently conducted and used, and Parent’s employees and agents have all Parent Permits necessary for the conduct of their professional activities, and all such Parent Permits are in full force and effect. Parent has had at all times during the previous three years all Parent Permits necessary for the conduct of its business and the use of its properties and assets as conducted and used at such respective times. Parent’s employees have and have had at all times during the previous three years all Parent Permits necessary for the conduct of their professional activities at such respective times. Parent has not received written notice from any Governmental Authority, nor does Parent have Knowledge, that any Parent Permit is subject to revocation, suspension, or any other disciplinary or adverse administrative action by any Governmental Authority. No Parent Permit applicable to Parent is subject to a consent order or any other final adverse disciplinary or administrative action, any of which is still in force and effect. The consummation of the Merger will not cause the revocation or cancellation of any Parent Permit.

          (b) Parent is in material compliance with all Health Care Laws and the terms of all Parent Permits to the extent applicable to Parent, or its business or operations.

          (c) Parent in compliance with all requirements of the Food and Drug Administration (the “ FDA ”), or any other Governmental Authority engaged in the regulation of Parent’s products, including but not limited to FDA’s requirements pertaining to establishment registration, product listing, manufacturing ( i.e. , cGMPs/QSR,), labeling and advertising and promotion, adverse event reporting and record keeping and reporting requirements.

          (d) Parent is not currently, and has not been at any time: (i) excluded from participation in any federal or state health care program, including those defined in 42 U.S.C. § 1320a–7b(f), (ii) convicted of any civil or criminal offense under any Health Care Law, (iii) debarred or disqualified from participation in any Federal health care program or other regulated activities for any violation or alleged violation of any Health Care Law, (iv) listed on the General Services Administration List of Parties Excluded from Federal Programs, (v) debarred pursuant to the Generic Drug Enforcement Act (21 U.S.C. §§ 301 et seq .) or disqualified as a clinical investigator pursuant to 21 C.F.R. § 812.119 or § 312.70, or (vi) a party to or subject to, or, to the Knowledge of Parent, threatened to be made a party to or subject to, any Action concerning any of the matters described in clauses (i), (ii), (iii), (iv) or (v).

          (e) The products introduced into interstate commerce by Parent were neither adulterated nor misbranded at the time of introduction into commerce, nor based on the actions of Parent, adulterated or misbranded after introduction into commerce.

      Section 3.14 General Tax Matters .

          (a) Each of Parent and its Subsidiaries has accurately prepared and properly and timely filed (including any extensions) all material Returns required to be filed by it under any applicable Law. Such Returns are true, complete, accurate and correct in all material respects and do not contain a disclosure statement under Section 6662 of the Code or any predecessor provision or comparable provision of state, local or foreign Law. Each of Parent and its Subsidiaries is and has been in material compliance with all applicable Laws pertaining to Taxes, including all applicable Laws relating to record retention.

          (b) Each of Parent and its Subsidiaries has timely paid all Taxes (whether or not shown on any Return) it is required to have paid except where contested in good faith by appropriate proceedings. All Taxes of Parent and its Subsidiaries accrued following the end of the most recent period covered by the Parent Interim Financial Statements delivered on or prior to the date hereof have been accrued in the ordinary course of business and do not exceed comparable amounts incurred in similar periods in prior years (taking into account any changes in Parent’s or the applicable Subsidiary’s operating results).

          (c) No claim has been made by any taxing authority in any jurisdiction where Parent or any of its Subsidiaries does not file Returns that it is or may be subject to Tax by that jurisdiction. No extensions or waivers of statutes of limitations with respect to any Returns have been given by or requested from Parent or any of its Subsidiaries.

          (d)  Schedule 3.14(d) of the Parent Disclosure Schedule sets forth (i) the taxable years of Parent and each of its Subsidiaries as to which the applicable statutes of limitations on the assessment and collection of Taxes have not expired, (ii) those years for which examinations by the taxing authorities have been completed and (iii) those taxable years for which examinations by taxing authorities are presently being conducted.

          (e) Except as disclosed on Schedule 3.14(e) of the Parent Disclosure Schedule, neither Parent nor any of its Subsidiaries is a party to any Action by any taxing

authority, nor does Parent or any of its Subsidiaries have Knowledge of any pending or threatened Action by any taxing authority.

          (f) All deficiencies asserted or assessments made against Parent or any of its Subsidiaries as a result of any examinations by any taxing authority have been fully paid and no rationale underlying a claim for Taxes has been asserted previously by any taxing authority that reasonably could be expected to be asserted in any other period.

          (g) There are no Encumbrances for Taxes, other than Encumbrances for current Taxes not yet due and payable, upon the assets of Parent or any of its Subsidiaries.

          (h) Neither Parent nor any of its Subsidiaries is a party to or bound by any Tax indemnity, Tax sharing or Tax allocation Contract.

          (i) Neither Parent nor any of its Subsidiaries is a party to or bound by any closing agreement, Tax ruling or offer in compromise with any taxing authority.

          (j) Neither Parent nor any of its Subsidiaries has been a member of an affiliated group of corporations, within the meaning of Section 1504 of the Code, or a member of a combined, consolidated or unitary group for state, local or foreign Tax purposes, other than a group of which Parent is the common parent. Neither Parent nor any of its Subsidiaries has any liability for Taxes of any Person other than Parent and its Subsidiaries under Treasury Regulations Section 1.1502-6 or any corresponding provision of state, local or foreign Tax Law, as transferee or successor, by Contract or otherwise. Neither Parent nor any of its Subsidiaries has participated in an international boycott within the meaning of Section 999 of the Code.

          (k) Neither Parent nor any of its Subsidiaries has agreed to make, or is required to make, any adjustment under Sections 481(a) or 263A of the Code or any comparable provision of state, local or foreign Tax Laws by reason of a change in accounting method or otherwise. Neither Parent nor any of its Subsidiaries has taken any action that is not in accordance with past practice that could defer a liability for Taxes of Parent or any Subsidiary from any taxable period ending on or before the Closing Date to any taxable period ending after such date. Each of Parent and its Subsidiaries has at all times used the accrual method of accounting for income Tax purposes.

          (l) Neither Parent nor any of its Subsidiaries is a party to any Contract or plan that has resulted or would result, separately or in the aggregate, in connection with this Agreement or any change of control of Parent or any of its Subsidiaries, in the payment of any “excess parachute payments” within the meaning of Section 280G of the Code.

          (m)  Schedule 3.14(m) of the Parent Disclosure Schedule sets forth all foreign jurisdictions in which Parent and its Subsidiaries are subject to Tax, are engaged in business or have a permanent establishment. Neither Parent nor any of its Subsidiaries has entered into a gain recognition agreement pursuant to Treas. Reg. § 1.367(a)-8. Neither Parent nor any of its Subsidiaries has transferred an intangible the transfer of which would be subject to the rules of Section 367(d) of the Code.

          (n) Neither Parent nor any of its Subsidiaries is a party to any joint venture, partnership, or other arrangement or Contract that could be treated as a partnership for federal income tax purposes. Schedule 3.14(n) of the Parent Disclosure Schedule sets forth all elections pursuant to Treas. Reg. § 301.7701-3 that have been made by business entities in which Parent or any of its Subsidiaries owns an equity interest.

          (o) Neither Parent nor any of its Subsidiaries is, or has been, a United States real property holding corporation, as defined in Section 897(c)(2) of the Code, during the applicable period specified in Section 897(c)(1)(A) of the Code.

          (p) Neither Parent nor any of its Subsidiaries is an “investment company” within the meaning of Section 368(a)(2)(F)(iii) and (iv) of the Code.

          (q) Except as set forth on Schedule 3.14(q) of the Parent Disclosure Schedule, Parent (i) does not own, directly or indirectly, a single member limited liability company that is treated as a disregarded entity; (ii) is not a direct or indirect stockholder of a “controlled foreign corporation” as defined in Section 957 of the Code; and (iii) is not and has not been a direct or indirect stockholder in a “passive foreign investment company” within the meaning of Section 1297 of the Code.

          (r) Neither Parent nor any of its Subsidiaries has or has ever had a branch or similar establishment, including a permanent establishment (as defined in any applicable Tax treaty between the United States and a foreign jurisdiction) or a disregarded entity, in any foreign jurisdiction.

          (s) Neither Parent nor any of its Subsidiaries will be required to include any item of income in, or exclude any item of deduction from, taxable income for any period (or any portion thereof) ending after the Closing Date as a result of any (i) deferred intercompany gain or any excess loss account described in the Treasury Regulations under Section 1502 of the Code (or any corresponding provision of state, local or foreign Tax Law), (ii) installment sale or other open transaction disposition made on or prior to the Closing Date, or (iii) material prepaid amount received on or prior to the Closing Date.

          (t) Each of Parent and its Subsidiaries is in compliance, in all material respects, with all transfer pricing requirements in all relevant jurisdictions. Each of Parent and its Subsidiaries has contemporaneous documentation of, and Parent has made available to the Company, or, in the case of each of its Subsidiaries, has made available or caused each such Subsidiary to make available, all transfer pricing methodologies, including a transfer pricing analysis or study for each material or ongoing intercompany or related party transaction. Parent has made available to the Company or, in the case of each of its Subsidiaries, has made available or caused each such Subsidiary to make available, all intercompany Contracts relating to transfer pricing.

          (u) Neither Parent nor any of its Subsidiaries has participated in a “reportable transaction,” as currently defined in Treas. Reg. § 1.6011-4(b) or Section 6111 of the Code or any analogous provision of state, local or foreign Law.

      Section 3.15 Material Contracts .

          (a) Except as disclosed in the Parent SEC Reports or as disclosed on Schedule 3.15(a) of the Parent Disclosure Schedule, neither Parent nor any of its Subsidiaries is a party to nor are their assets or properties bound by any Contract of the following nature (such Contracts as are set forth or required to be set forth on Schedule 3.15(a) of the Parent Disclosure Schedule being “ Parent Material Contracts ”):

               (i) any Contract pursuant to which Parent has provided funds to or made any loan, capital contribution or other investment in, or assumed any liability or obligation of, any Person, including take-or-pay Contracts or keepwell agreements, or any Contract relating to or evidencing indebtedness of Parent, including mortgages, other grants of security interests, guarantees or notes; all except such agreements entered into by the Parent in the ordinary course of business;

               (ii) any Contract for the purchase of any debt or equity security or other ownership interest of any Person, or for the issuance of any debt or equity security or other ownership interest, or the conversion of any obligation, instrument or security into debt or equity securities or other ownership interests of Parent;

               (iii) any lease, sublease or similar Contract under which (A) Parent is a lessor or sublessor of real property owned by any other Person, or makes available for use by any Person, any portion of any premises otherwise occupied, leased or subleased by it, or (B) Parent is a lessee or sublessee of, or holds or uses any real property owned by any other Person;

               (iv) any lease, sublease or similar Contract under which (A)  Parent is a lessee or sublessee of, or holds or uses, any machinery, equipment, vehicle or other tangible personal property owned by any Person, or (B) Parent is a lessor or sublessor of, or makes available for use by any Person, any tangible personal property owned or leased by it;

               (v) any Contract with any customer, distributor or supplier;

               (vi) any Contract with any Governmental Authority;

               (vii) any Tax sharing or Tax allocation Contract;

               (viii) any Contract with any Related Party of Parent;

               (ix) any employment or consulting Contract;

               (x) any Contract that limits, or purports to limit, the ability of Parent to compete in any line of business or with any Person or in any geographic area or during any period of time, or that restricts the right of Parent to sell to or purchase from any Person or to hire any Person, or that grants the other party or any third person exclusive rights (including any exclusive license or right to use any Intellectual Property) or “most favored nation” status or any type of special discount rights;

               (xi) any Contract providing for indemnification to or from any Person, except for such indemnification provisions granted to distributors, representatives, consultants or customers of Parent pursuant to Parent’s standard Contracts with such parties;

               (xii) any royalty Contract and any Contract relating in whole or in part to any Intellectual Property;

               (xiii) any joint venture or partnership, merger, asset or stock purchase or divestiture Contract (other than Contracts for the purchase or sale of assets in the ordinary course of business);

               (xiv) any Contract relating to settlement of any administrative, judicial or arbitration proceedings within the past five years;

               (xv) any Contract that results in any Person holding a power of attorney from Parent that relates to Parent or its business;

               (xvi) any Contract, whether or not made in the ordinary course of business that (A) involves a future or potential liability or receivable, as the case may be, in excess of $100,000 on an annual basis or in excess of $250,000 over the current Contract term, or (B) has a term greater than one year and cannot be cancelled by Parent without penalty or further payment and without more than 60 days’ notice; and

               (xvii) any other Contract not referenced in the foregoing clauses (i) through (xvi) that is material to the business, operations, assets, financial condition, results of operations or prospects of Parent, taken as a whole.

          (b) (i) Each of the Parent Material Contracts is valid, binding and in full force and effect and is enforceable against Parent, and to the Knowledge of Parent, the other parties thereto, in accordance with its terms, except as enforcement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar Laws affecting creditors’ rights generally and by general principles of equity (regardless of whether considered in a proceeding in equity or at Law), (ii)  Parent has performed all material obligations required to be performed by it under the Parent Material Contracts and it is not (with or without the lapse of time or the giving of notice, or both) in breach or default in any material respect thereunder, (iii) to the Knowledge of Parent, (A) no other party to any Parent Material Contract is (with or without the lapse of time or the giving of notice, or both) in breach or default in any material respect thereunder, and (B) no event has occurred or circumstance or condition exists (with or without the lapse of time or the giving of notice, or both) that may contravene, conflict with, or result in a violation or breach of any Parent Material Contract, result in the termination or in a right of termination or cancellation of, or accelerate the performance required by, or result in the triggering of any payment obligations under, or result in the creation of any Encumbrance upon any of the assets or properties of Parent under, or result in being declared void, voidable, or without further binding effect, or result in any other modification of or trigger any right or obligation under, any Parent Material Contract or provisions thereof; (iv) no party to any Parent Material Contract has given any written notice of an alleged breach thereof or otherwise threatened such a breach; and (v)  Parent has not received any written notice that any party to any

Parent Material Contract intends to cancel or terminate such Parent Material Contract, to renegotiate such Parent Material Contract, or to exercise or not exercise any options thereunder, and, to the Knowledge of Parent, no such intent to cancel, terminate, renegotiate or exercise has been otherwise threatened.

          (c) The execution and delivery by Parent of this Agreement and the Ancillary Agreements to which it is a party, and the consummation by Parent of the Transactions contemplated hereby and thereby in accordance with the terms hereof and thereof, will not violate, or conflict with, or result in a material breach of any provision of, or constitute a material default (or an event that, with notice or lapse of time or both, would constitute a material breach or default) under, or result in the termination or in a right of termination or cancellation of, or accelerate the performance required by, or result in the triggering of any payment obligations under, or result in the creation of any Encumbrance upon any of the assets or properties of Parent under, or result in being declared void, voidable, or without further binding effect, or result in any other modification of or trigger any right or obligation under, any Parent Material Contract or provision thereof.

          (d) Except as set forth on Schedule 3.15(d) of the Parent Disclosure Schedule, no consent of any party to a Parent Material Contract is required in connection with the execution, delivery and performance of this Agreement and the Ancillary Agreements and the consummation of the Transactions.

          (e) True, complete and accurate copies (or, as to oral Contracts, written summaries of the terms), of the Parent Material Contracts entered into on or prior to the date hereof have been provided or made available to the Company and true, complete and accurate copies (or, as to oral Contracts, written summaries of the terms) of any Parent Material Contracts entered into after the date hereof and prior to or on the Closing Date will be provided or made available to the Company promptly after being so entered into.

      Section 3.16 Customers and Suppliers .

          (a) Except as set forth on Schedule 3.16 of the Parent Disclosure Schedule, during the past two years, neither Parent nor Merger Sub has received from: (i) any current or former customer of Parent any written notice or assertion of breach, misrepresentation, breach of warranty, design errors or malfunctions, or other failures of Parent to deliver upon any promises or legal or contractual obligations, and no such assertion of breach, misrepresentation, breach of warranty, design errors or malfunctions, or other failures have been otherwise threatened; or (ii) any current customer of Parent any written notice that such customer has ceased or intends to cease or terminate its use of the products or services of Parent, or reduced or intends to reduce such use, whether or not as a result of the transactions contemplated hereby, or has sought to change the terms for its purchases of products and services, and no customer has otherwise threatened such a cessation, termination, or change in use or terms, except in each case where such alleged breach, misrepresentation, breach of warranty, design errors or malfunctions, or cessation, termination or reduction has not and would not reasonably be expected to result in Parent incurring, individually or in the aggregate with all other instances thereof, any loss of revenue or other Liability in excess of $100,000.

          (b) Except as set forth on Schedule 3.16 of the Parent Disclosure Schedule, during the past two years, neither Parent nor Merger Sub has received from: (i) any current or former supplier of Parent any notice or assertion of breach, misrepresentation, breach of warranty, or other failures of Parent to deliver upon any promises or legal or contractual obligations; or (ii) any current supplier of Parent any notice that such supplier has ceased or intends to cease or terminate supplying the products or services to Parent, or reduced or intends to reduce such supply, whether or not as a result of the transactions contemplated hereby, or has sought to change the terms for the supply of such products and services, other than general and customary changes in the terms in the ordinary course of business, consistent with past practice, except in each case where such alleged breach, misrepresentation, breach of warranty, failure to deliver, or cessation, termination or reduction has not and would not reasonably be expected to result in Parent incurring, individually or in the aggregate with all other instances thereof, any additional expense or other Liability in excess of $100,000.

      Section 3.17 Affiliate Interests and Transactions .

          (a) Except as set forth on Schedule 3.17 of the Parent Disclosure Schedule and except for ownership (of record or as a beneficial owner) of less than five percent of the outstanding Capital Stock or Share Capital of any Person that is publicly traded on any national or foreign stock exchange, or over-the-counter market, no Related Party of Parent to the Knowledge of Parent, (i) owns or has, since January 1, 2005, owned, directly or indirectly, any equity or other financial or voting interest in any competitor, supplier, licensor of Intellectual Property or distributor of Parent, (ii) owns or has, since January 1, 2005, owned, directly or indirectly, or has or has had any interest in any material property (real or personal, tangible or intangible) that Parent uses or has used in or pertaining to the business of Parent, (iii) has or has had since January 1, 2005, any business dealings or a financial interest in any transaction with Parent or involving any assets or property of Parent, or has derived, received, or was entitled to, any interest, incentive, or other form of benefit in connection with Parent’s business, or any of the Contracts to which Parent is a party.

          (b) There are no outstanding notes payable to, accounts receivable from or advances by Parent to, and Parent is not otherwise a debtor or creditor of, or has any liability or other obligation of any nature to, any Related Party of Parent. Except as set forth on Schedule 3.17 of the Parent Disclosure Schedule, Parent has not incurred any outstanding obligation or liability to, or entered into or agreed to enter into any agreement or transaction with or for the benefit of, any Related Party of Parent, other than the Transactions and the Financing.

      Section 3.18 No Prior Activities . Except for obligations incurred in connection with its organization, entry into this Agreement and anticipation of the Transactions, Merger Sub has neither incurred any obligation or liability nor engaged in any business or activity of any type or kind whatsoever or entered into any agreement or arrangement with any Person.

      Section 3.19 Brokers’ Fees . Other than Oppenheimer & Co. Inc. and Seven Hills Partners LLC, whose fees will be paid by Parent, no broker, finder or investment banker is entitled to any brokerage, finder’s or other fee or commission in connection with the Transactions based upon arrangements made by or on behalf of Parent or Merger Sub. Parent has furnished to Company a complete and correct copy of all agreements between Parent and

Oppenheimer & Co. Inc. or Seven Hills Partners LLC pursuant to which such firm would be entitled to any payment relating to the Transactions.

      Section 3.20 Parent Disclosure . None of the representations or warranties of Parent contained in this Agreement or any Ancillary Agreement and none of the information contained in any schedule, certificate or other document delivered by Parent or that will at anytime be delivered by Parent pursuant hereto or thereto or in connection with the Transactions contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements herein or therein not misleading.

ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY

     Except as set forth in the Disclosure Schedule of the Company attached hereto and delivered concurrently herewith that is arranged in Sections corresponding to the numbered and lettered Sections contained in this Agreement (the “ Company Disclosure Schedule ”), the Company hereby represents and warrants to Parent and Merger Sub as follows:

      Section 4.1 Organization and Qualification .

          (a) Each of the Company and its Subsidiaries is (i) a corporation duly organized, validly existing and in good standing (to the extent the concept of good standing is recognized in the applicable jurisdiction) under the laws of the jurisdiction of its incorporation as set forth on Schedule 4.1(a) of the Company Disclosure Schedule, and has full corporate power and authority to own, lease and operate its properties and to carry on its business as it is now being conducted, and (ii) duly qualified or licensed as a foreign corporation to do business, and is in good standing (to the extent the concept of good standing is recognized in the applicable jurisdiction), in each jurisdiction where the character of the properties owned, leased or operated by it or the nature of its business makes such qualification or licensing necessary, except in each case for any such failure to be so qualified or licensed and in good standing that, individually or in the aggregate, have not had and would not reasonably be expected to have a Material Adverse Effect on the Company. Galil Medical (USA), Inc. is an inactive subsidiary, which does not currently conduct any business activities.

          (b) The Company has heretofore furnished to Parent a complete and correct copy of the Memorandum of Association and Articles of Association of the Company, as amended to date (the “ Company Charter Documents ”), and the certificate of incorporation and bylaws or equivalent organizational documents, each as amended to date, of the Company and each of its Subsidiaries. Such Company Charter Documents, the certificates of incorporation, bylaws and equivalent organizational documents are in full force and effect. Neither the Company nor any of its Subsidiaries is in violation of any of the provisions of its Charter Documents, certificate of incorporation, bylaws or equivalent organizational documents. Copies of the transfer books and the minutes of all meetings of shareholders, the Board of Directors and each committee of the Board of Directors of each of the Company and its Subsidiaries have been made available for inspection by Parent prior to the date hereof and such copies are true and complete.

      Section 4.2 Authority .

          (a) The Company has full corporate power and authority to execute and deliver this Agreement, and each of the Ancillary Agreements to which it will be a party, and, subject to obtaining the Company Shareholder Approval, to perform its obligations hereunder and thereunder and to consummate the Transactions. The execution, delivery and performance by the Company of this Agreement and each of the Ancillary Agreements to which the Company is or will be party and the consummation by the Company of the Transactions have been duly and validly authorized by the Board of Directors of the Company. Except for obtaining Company Shareholder Approval, no other corporate proceedings on the part of the Company are necessary to authorize the execution, delivery or performance of this Agreement or any Ancillary Agreement or to consummate the Transactions. This Agreement has been, and upon their execution and delivery each of the Ancillary Agreements to which the Company will be a party will have been, duly executed and delivered by the Company. This Agreement constitutes, and upon their execution and delivery each of the Ancillary Agreements to be entered into after the date hereof to which the Company will be a party, will as of the date of delivery constitute, the legal, valid and binding obligations of the Company, enforceable against the Company in accordance with their respective terms.

          (b) The Board of Directors of the Company, at a meeting thereof duly called, and held on November 9, 2008, (i) determined that this Agreement, the Merger, the Ancillary Agreements and the other Transactions are fair to, and in the best interests of, the Company and its Shareholders, and that, considering the financial position of the merging companies, no reasonable concern exists that the Surviving Company will be unable to fulfill the obligations of the Company to its creditors, (ii) approved this Agreement, the Merger, the Ancillary Agreements to which it is a party and the other Transactions, and (iii) determined to recommend to the Shareholders the approval of this Agreement, the Merger and the other Transactions.

      Section 4.3 No Conflict; Required Filings and Consents .

          (a) The execution, delivery and performance by the Company of this Agreement and each of the Ancillary Agreements to which the Company will be a party, and the consummation of the Transactions, do not and will not:

               (i) conflict with or violate the certificate of incorporation or bylaws or equivalent organizational documents of the Company or any of its Subsidiaries;

               (ii) conflict with or violate any Law applicable to the Company or any of its Subsidiaries or by which any property or asset of the Company or any of its Subsidiaries is bound; or

               (iii) except as set forth on Schedule 4.3(a)(iii) of the Company Disclosure Schedule, result in any breach of, constitute a default (or an event that, with notice or lapse of time or both, would become a default) under, require any consent of any Person pursuant to, give to others any right of termination, amendment, modification, acceleration or cancellation of, allow the imposition of any fees or penalties, require the offering or making of any payment or redemption, give rise to any increased, guaranteed, accelerated or additional rights or

entitlements of any Person or otherwise adversely affect any rights of the Company or any of its Subsidiaries under, or result in the creation of any Encumbrance on any property, asset or right of the Company or any of its Subsidiaries pursuant to, any note, bond, mortgage, indenture, agreement, lease, license, permit, franchise, instrument, obligation or other Contract to which the Company or any of its Subsidiaries is a party or by which any of their respective properties, assets or rights are bound,

except, in the case of the foregoing clauses (ii) and (iii), for any such conflicts, breaches, defaults or other occurrences that, individually or in the aggregate, have not had and would not reasonably be expected to have a Material Adverse Effect on the Company.

          (b) The execution, delivery and performance by the Company of this Agreement and the consummation by the Company of the Merger and the other Transactions do not and will not require any filing or registration with, notification to, or authorization, permit, consent or approval of, or other action by or in respect of, any Governmental Authority by the Company or any of its Subsidiaries other than (i) filing of the Merger Certificate, (ii) notice to the Office of the Chief Scientist of the Israeli Ministry of Industry, Trade & Labor (“ OCS ”) and, to the extent applicable, the MAGNET Program in the OCS (“ MAGNET ”) to the change in ownership of the Company to be effected by the Merger and the filing by Parent of an undertaking in customary form in favor of the OCS and the MAGNET to comply with the applicable Law, (iii) filings with, and approval by, the Investment Center of the Israeli Ministry of Industry, Trade & Labor (the “ Investment Center ”) of the change in ownership of the Company to be effected by the Merger, (iv) obtaining the Israeli Withholding Tax Ruling, the Israeli Options Tax Ruling and the Israeli Escrow Tax Ruling, if applicable, and (v) obtaining the Israeli Securities Exemption.

          (c) Subject to the provisions of Section 320 of the Companies Law, the affirmative vote (in person or by proxy) of (i) the holders of 75% of the Company Shares present and voting at the general meeting of the shareholders of the Company (voting together as a single class on an as-converted basis), (ii) the holders of 75% of the Company Ordinary Shares at a class meeting of such shareholders, (iii) the holders of 75% of the Preferred A-1 Shares of the Company at a class meeting of such shareholders, and (iv) the holders of 75% of the Preferred A-2 Shares of the Company at a class meeting of such shareholders, or (in each case) any adjournment or postponement thereof, in favor of the approval of this Agreement, the Merger and the other Transactions (collectively, the “ Company Shareholder Approval ”) are the only votes or approvals of the holders of any class or series of shares of the Company or any of its Subsidiaries that may be necessary to approve this Agreement, the Merger and the other Transactions. If Parent, Merger Sub or any Person holding twenty-five percent (25%) or more of either the voting rights or the right to appoint directors of Parent (any such Person is described in this paragraph as a “ Parent Affiliate ”) holds Company Shares, then the Company Shareholder Approval shall also include the additional requirement that a majority of the voting power present and voting at the Company Shareholders’ Meeting in person or by proxy (excluding abstentions, Parent, Parent Affiliates, or anyone acting on their behalf, including their family members or entities under their control) shall not have voted against the Merger.

          (d) Other than as set forth in the Companies Law, neither the Company or any Subsidiary thereof is subject to any business combination, control share acquisition, fair price or similar statute that applies to the Merger or any other Transaction.

      Section 4.4 Capitalization .

          (a) As of the date hereof, the authorized Share Capital of the Company consists of NIS 2,664,906, divided into 184,781,744 Ordinary Shares, 74,962,170 Preferred A-1 Shares and 6,746,596 Preferred A-2 Shares.

          (b) As of the date hereof, (i)  85,308,120 Company Ordinary Shares are issued and outstanding, (ii) 74,962,166 Preferred A-1 Shares are issued or outstanding, (iii) 6,746,596 Preferred A-2 Shares are issued and outstanding, (iv)  586,258 Company Ordinary Shares are held in the treasury of Company (included in the outstanding), (v) 25,209,334 Company Ordinary Shares are reserved for issuance upon exercise of Company Share Options issued and outstanding, (vi) 74,962,166 Company Ordinary Shares reserved for issuance upon conversion of the Preferred A-1 Shares, (vii) 6,746,596 Company Ordinary Shares reserved for issuance upon conversion of the Preferred A-2 Shares, and (viii) 4,230,416 Company Ordinary Shares are authorized and reserved for future issuance pursuant to the Company Option Plans (other than Company Ordinary Shares authorized and reserved for future issuance upon exercise of Company Share Options issued and outstanding). Each issued and outstanding Company Share is, and each Company Share reserved for issuance as specified above is, or will be, upon issuance on the terms and conditions specified in the instruments pursuant to which it is issuable, duly authorized, validly issued, fully paid, nonassessable and free of preemptive rights or similar rights, and has been, or will be, issued in compliance in all respects with applicable Law and the Company Charter Documents.

          (c) The authorized Share Capital of the Company immediately prior to the Closing shall consist of NIS 3,950,089.28 divided into 395,008,924 Ordinary Shares and 4 Preferred A-1 Shares.

          (d) As of immediately prior to the Closing (and following consummation of the transactions contemplated by the Pre-Closing Shareholders Agreement), and assuming no exercise of any outstanding Company Share Options following the date hereof, (i) 365,569,174 Company Ordinary Shares shall be issued and outstanding, (ii) 25,209,334 Company Ordinary Shares shall be reserved for issuance upon exercise of Company Share Options issued and outstanding, and (iii) 4,230,416 Company Ordinary Shares shall be authorized and reserved for future issuance pursuant to the Company Option Plans (other than Company Ordinary Shares authorized and reserved for future issuance upon exercise of Company Share Options issued and outstanding). Each issued and outstanding Company Share will be, and each Company Share reserved for issuance as specified above will be, upon issuance on the terms and conditions specified in the instruments pursuant to which it is issuable, duly authorized, validly issued, fully paid, nonassessable and free of preemptive rights or similar rights, and will be issued in compliance in all respects with applicable Law and the Company Charter Documents.

          (e) Except as set forth on Schedule 4.4(e) of the Company Disclosure Schedule, since January 1, 2008, (i) no Company Shares have been issued, except in connection

with the exercise of Company Share Options issued and outstanding on such date and (ii) no options, warrants, securities convertible into, or commitments with respect to the issuance of, Company Ordinary Shares have been issued, granted or made.

          (f)  Schedule 4.4(f) of the Company Disclosure Schedule accurately sets forth, as of the date hereof: (i) the name of each Person that is the record owner of any Company Shares or any other securities or instrument relating to the Share Capital of the Company; (ii) each such Person’s country and, if applicable, state of residence opposite that Person’s name, as set forth in the Company’s register of members or otherwise in the Company’s records; and (iii) the number of such Company Shares or other securities or instruments so owned by such Person and the number of Company Ordinary Shares that would be owned by such Person assuming conversion of all the Company Preferred Shares or any other security or instrument of the Company (including any option, restricted stock or warrant granted to such Person) convertible or exchangeable into or exercisable for Company Ordinary Shares so owned by such Person giving effect to all anti-dilution and similar adjustments, and to the transactions contemplated by the Pre-Closing Shareholders Agreement.

          (g) Except for Company Share Options, Preferred A-1 Shares and Preferred A-2 Shares issued and outstanding on the date hereof and listed on Schedules 4.4(f) or 4.4(h) of the Company Disclosure Schedule, as applicable, there are no outstanding subscriptions, options, calls, restrictions, arrangements, rights, warrants or other Contracts, including any right of conversion or exchange under any outstanding security, instrument or other Contract and also including any rights plan or other similar agreement, obligating the Company to issue, deliver or sell, or cause to be issued, delivered or sold, additional Company Shares or obligating the Company to grant, extend or enter into any such Contract. There are no obligations, contingent or otherwise, of the Company to (i) repurchase, redeem or otherwise acquire any Company Shares or (ii) provide material funds to, or make any material investment in (in the form of a loan, capital contribution or otherwise), or provide any guarantee with respect to the obligations of, any Person. There are no outstanding stock appreciation rights or similar derivative securities or rights of the Company. There are no bonds, debentures, notes or other indebtedness of the Company having the right to vote (or convertible into, or exchangeable for, securities having the right to vote) on any matters on which Shareholders may vote. Except as set forth on Schedule 4.4(g) of the Company Disclosure Schedule, there are no voting trusts, irrevocable proxies or other Contracts to which the Company is a party or is bound with respect to the voting of any shares of Company Share Capital.

          (h)  Schedule 4.4(h)(1) of the Company Disclosure Schedule lists each outstanding Company Share Option, the Company Plan under which such Company Share Option was granted, the holder thereof, the number of Company Shares issuable thereunder and the exercise price thereof and each such holder’s country and, if applicable, state of residence opposite such holder’s name, as set forth in the Company’s records. Except as set forth on Schedule 4.4(h)(2) of the Company Disclosure Schedule, neither the Company nor any of its Subsidiaries has agreed to register any securities under the Securities Act, any state securities Law or any other applicable securities Law or granted registration rights to any Person.

          (i) As of the date hereof the Company has, and as of the Closing Date the Company will have, less than 35 Shareholders (whether individuals, corporations or other

Persons) who are residents in Israel and which are entitled to receive shares of Parent Common Stock in accordance with the provisions of Article II (assuming no additional exercise of options occur). Without limiting the foregoing, from the date hereof until and including the Closing Date, the Company will promptly notify Parent of each exercise of any Company Share Option.

      Section 4.5 Equity Interests .

          (a) Except for the Subsidiaries listed on Schedule 4.1(a) of the Company Disclosure Schedule, neither the Company nor any of its Subsidiaries directly or indirectly owns any equity, partnership, membership or similar interest in, or any interest convertible into, exercisable for the purchase of or exchangeable for any such equity, partnership, membership or similar interest or any Person, or is under any current or prospective obligation to form or participate in, provide funds to, make any loan, capital contribution or other investment in, or assume any liability or obligation of, any Person.

          (b) Each of the issued and outstanding shares of Capital Stock of each of the Subsidiaries of the Company listed on Schedule 4.1(a) of the Company Disclosure Schedule (the “ Subsidiary Shares ”) has been duly authorized and validly issued and are fully paid and nonassessable, have not been issued in violation of any preemptive or similar rights and were issued in compliance in all respects with the applicable Laws and the provisions of their respective memorandum of association, articles of association, certificate of incorporation, bylaws or equivalent organizational documents, and the Company owns, directly or indirectly, one hundred percent of all outstanding Subsidiary Shares. There are no (i) securities convertible into or exchangeable for shares of Capital Stock or other securities of any Subsidiary of the Company, or (ii) subscriptions, options, warrants, puts, calls, phantom stock rights, stock appreciation rights, stock-based performance units, agreements, understandings, claims or other Contracts or rights of any type granted or entered into by the Company or any of its Subsidiaries relating to the issuance, sale, repurchase or transfer of any securities of any Subsidiary of the Company or that give any Person the right to receive any economic benefit or right similar to or derived from the economic benefits and rights of securities of any Subsidiary of the Company.

      Section 4.6 Financial Statements; No Undisclosed Liabilities .

          (a) True and complete copies of (i) the audited consolidated balance sheet of the Company and its Subsidiaries as of December 31, 2005, December 31, 2006 and December 31, 2007, and the related audited consolidated statements of income, retained earnings, shareholders’ equity and changes in financial position of the Company and its Subsidiaries for the periods covered therein, together with all related notes and schedules thereto, accompanied by the reports thereon of the Company’s independent auditors (collectively, the “ Company Annual Financial Statements ”), (ii) the unaudited consolidate