20FR12G

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 20-F

(Mark One)
x	REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
o	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the fiscal year ended ______________
OR
o	TRANSITIONAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number _________________________________________________________

XTL BIOPHARMACEUTICALS LTD.

(Exact name of registrant as specified in its charter)

Israel

(Jurisdiction of incorporation or organization)

Kiryat Weizmann Science Park

3 Hasapir Street, Building 3, PO Box 370

Rehovot 76100, Israel

(Address of principal executive offices)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

None.

Securities registered or to be registered pursuant to Section 12(g) of the Act:

American Depositary Shares,

each representing [___] Ordinary Shares, par value NIS 0.02

(Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

None.

Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the annual report.

168,079,196 ordinary shares

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes o   No x

Indicate by a check mark which financial statement item the registrant has elected to follow.

o Item 17     x Item 18

XTL BIOPHARMACEUTICALS LTD.

REGISTRATION STATEMENT ON FORM 20-F

TABLE OF CONTENTS

		Page
SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS		1
PART I
ITEM 1	Identity of Directors, Senior Management and Advisers	2
ITEM 2	Offer Statistics And Expected Timetable	2
ITEM 3	Key Information	3
ITEM 4	Information on the Company	18
ITEM 5	Operating and Financial Review and Prospects	32
ITEM 6	Directors, Senior Management and Employees	45
ITEM 7	Major Shareholders and Related Party Transactions	54
ITEM 8	Financial Information	54
ITEM 9	The Offer and Listing	55
ITEM 10	Additional Information	56
ITEM 11	Quantitative And Qualitative Disclosures About Market Risk	75
ITEM 12	Description of Securities other than Equity Securities	75
PART II
ITEM 13	Defaults, Dividend Arrearages and Delinquencies	81
ITEM 14	Material Modifications to the Rights of Security Holders and Use of Proceeds	81
ITEM 15	Controls and Procedures	81
ITEM 16	Reserved	81
ITEM 16A	Audit Committee Financial Expert	81
ITEM 16B	Code of Ethics	81
ITEM 16C	Principal Accountant Fees And Services	81
ITEM 16D	Exemptions From The Listing Standards For Audit Committees	81
ITEM 16E	Purchases Of Equity Securities By The Issuer And Affiliated Purchasers	81
PART III
ITEM 17	Financial Statements	82
ITEM 18	Financial Statements	82
ITEM 19	Exhibits	82
SIGNATURES		83

This Registration Statement on Form 20-F contains trademarks and trade names of XTL Biopharmaceuticals Ltd., including our name and logo. The following are registered trademarks of XTL Biopharmaceuticals Ltd.: “XTL,” “XTLbio,” “HepeX,” “HepeX-B,” “HepeX-C,” and “Trimera.”

i

SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS

Certain matters discussed in this report, including matters discussed under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” may constitute forward-looking statements for purposes of the Securities Act of 1933, as amended, or the Securities Act, and the Securities Exchange Act of 1934, as amended, or the Exchange Act, and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from the future results, performance or achievements expressed or implied by such forward-looking statements. The words “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “estimate,” and similar expressions are intended to identify such forward-looking statements. Our actual results may differ materially from the results anticipated in these forward-looking statements due to a variety of factors, including, without limitation, those discussed under “Item 3 - Key Information-Risk Factors,” “Item 4 - Information on the Company,” “Item 5 - Operating and Financial Review and Prospects,” and elsewhere in this report, as well as factors which may be identified from time to time in our other filings with the Securities and Exchange Commission, or the SEC, or in the documents where such forward-looking statements appear. All written or oral forward-looking statements attributable to us are expressly qualified in their entirety by these cautionary statements.

The forward-looking statements contained in this report reflect our views and assumptions only as of the date this report is signed. Except as required by law, we assume no responsibility for updating any forward-looking statements.

1

PART I

Unless the context requires otherwise, references in this report to “XTLbio,” the “Company,” “we,” “us” and “our” refer to XTL Biopharmaceuticals Ltd. and our wholly-owned subsidiary, XTL Biopharmaceuticals, Inc.

We have prepared our consolidated financial statements in United States dollars and in accordance with United States generally accepted accounting principles, or U.S. GAAP. All references herein to "dollars" or "$" are to United States dollars, and all references to "Shekels" or "NIS" are to New Israeli Shekels.

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Directors and Senior Management

The following table presents certain information regarding our directors and executive officers as of June 30, 2005.

Name1	Age	Position
Michael S. Weiss2	39	Interim Chairman of the Board of Directors
Rusi K. Kathoke3	57	Non executive Director4
William J. Kennedy, Ph.D	60	Non executive Director
Patricia A. Smith, M.D5	47	Non executive Director4
Jonathan R. Spicehandler, M.D6	56	Non executive Director
Ben Zion Weiner, Ph.D7	61	Non executive Director
Jonathan Burgin	44	Chief Financial Officer
Shlomo Dagan, Ph.D	54	Chief Scientific Officer

1 Unless otherwise indicated, the business address for such director or officer is at the Company’s headquarters: XTL Biopharmaceuticals Ltd., Kiryat Weizmann Science Park, 3 Hasapir Street, Building 3, PO Box 370, Rehovot 76100, Israel.

2 Mr. Weiss’s business address is c/o Keryx Biopharmaceuticals, Inc., 750 Lexington Avenue, 20^th Floor, New York, New York 10022, U.S.A.

3 Mr. Kathoke’s business address is c/o Jenrus Management Limited, 54-58 Athol Street, Douglas, Isle of Man, IM1 1JD, British Isles.

4 Designated as an External Director under the Israeli Companies Act.

5 Dr. Smith’s business address is c/o BMR, BMR House, Parkmore Business Park West, Galway, Ireland.

6 Dr. Spicehandler’s business address is c/o Schering-Plough Research Institute, 2000 Galloping Hill Road, Kenilworth, NJ  07033, U.S.A.

7 Dr. Weiner’s business address is c/o Teva Pharmaceutical Industries Ltd., 5 Basel St. Petah-Tikva 49131, Israel.

Auditors

Kesselman & Kesselman, a member of PricewaterhouseCoopers International Limited, has acted as our auditor since 2001. Kesselman & Kesselman’s offices are located at Trade Tower, 25 Hamered Street, Tel Aviv 68125, Israel.

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable

2

ITEM 3. KEY INFORMATION

Selected Financial Data

The table below presents selected statement of operations and balance sheet data for the fiscal years ended and as of December 31, 2004, 2003, 2002, 2001 and 2000. We have derived the selected financial data for the fiscal years ended December 31, 2004, 2003 and 2002, and as of December 31, 2004 and 2003, from our audited financial statements, included with this registration statement at “Item 18 - Financial Statements.” We have derived the selected financial data for fiscal years ended December 31, 2001 and 2000, and as of December 31, 2002, 2001 and 2000, from other audited financial statements not appearing in this report, which have been prepared in accordance with U.S. GAAP. You should read the selected financial data in conjunction with “Item 5 - Operating and Financial Review and Prospects,” “Item 8 - Financial Information” and “Item 18 - Financial Statements.”

	Years ended December 31,
	2004			2003			2002			2001			2000
	(in thousands, except share and per share amounts)
Statement of Operations Data:
Revenues
Reimbursed out of pocket expenses	$	3,269		$	—		$	—		$	—		$	—
License		185			—			—			—			—
		3,454			—			—			—			—
Cost of revenues
Reimbursed out of pocket expenses		3,269			—			—			—			—
License		32			—			—			—			—
		3,301			—			—			—			—
Gross margin		153			—			—			—			—
Research and development
Research and development costs		11,985			13,668			13,231			12,187			6,002
Less participations		—			3,229			75			1,133			1,821
		11,985			10,439			13,156			11,054			4,181
General and administrative		4,134			3,105			3,638			3,001			2,334
Business development costs		810			664			916			1,067			486
Impairment of asset held for sale		—			354			—			—			—
Operating loss		(16,776	)		(14,562	)		(17,710	)		(15,122	)		(7,001	)
Other income (expense)
Financial income, net		352			352			597			2,448			1,517
Taxes on income		(49	)		(78	)		(27	)		—			(7	)
Net loss	$	(16,473	)	$	(14,288	)	$	(17,140	)	$	(12,674	)	$	(5,491	)
Net loss per ordinary share
Basic and diluted	$	(0.12	)	$	(0.13	)	$	(0.15	)	$	(0.11	)	$	(0.13	)*
Weighted average shares outstanding		134,731,766			111,712,916			111,149,292			110,941,014			40,871,338	*
* Restated

3

	As of December 31,
	2004		2003		2002		2001		2000
	(in thousands)
Balance Sheet Data:
Cash, cash equivalents, bank deposits and marketable securities	$	22,924	$	22,262	$	35,706	$	52,188	$	64,969
Working capital		20,240		19,967		33,396		50,433		53,752
Total assets		25,624		24,853		38,423		55,106		67,876
Long-term obligations		2,489		1,244		1,017		526		707
Total shareholders’ equity		19,602		20,608		34,830		51,953		64,586

Capitalization and Indebtedness

The following table sets forth our capitalization as of December 31, 2004. You should read this table in conjunction with our consolidated financial statements and related notes set forth elsewhere in this registration statement.

	December 31, 2004
	(in thousands)
Shareholders’ equity
Ordinary shares, par value NIS 0.02, 300,000,000 shares authorized, 168,079,196 shares issued and outstanding	$	841
Additional paid-in capital		104,537*
Deferred share-based compensation		—*
Deficit accumulated during the development stage		(85,776	)
Total shareholders’ equity		19,602
Total capitalization	$	19,602
* Reclassified

Risk Factors

You should carefully consider the following risks and uncertainties. If any of the following occurs, our business, financial condition or operating results could be materially harmed. These factors could cause the trading price of our ordinary shares and ADRs to decline, and you could lose all or part of your investment.

Risks Related to Our Business

We have a limited operating history and have incurred substantial operating losses since our inception. We expect to continue to incur losses in the future and may never become profitable.

We have a limited operating history. You should consider our prospects in light of the risks and difficulties frequently encountered by development stage companies. In addition, we have incurred operating losses since our inception and expect to continue to incur operating losses for the foreseeable future. As of December 31, 2004, we had an accumulated deficit of approximately $85.8 million. We may continue to incur substantial operating losses even if we begin to generate revenues from our drug candidates or technologies. Consequently, if those revenues are insufficient to cover development and other expenditures we may incur, we may never become profitable.

4

We have not received approval for the sale of any of our products in any market and, therefore, have not generated any commercial revenues from the sales of our products. We have relied on equity financings to fund our operations.

We have not yet commercialized any of our drug candidates or technologies and cannot be sure we will ever be able to do so. Even if we commercialize one or more of our drug candidates or technologies, we may not become profitable. Our ability to achieve profitability depends on a number of factors, including our ability to complete our development efforts, obtain regulatory approval for our drug candidates and technologies and successfully commercialize them. Moreover, we have relied on equity financings to fund our operations, and we expect to use, rather than generate, funds from operations for the foreseeable future.

If we are unable to successfully complete our clinical trial programs for our drug candidates, or if such clinical trials take longer to complete than we project, our ability to execute our current business strategy will be adversely affected.

Whether or not and how quickly we complete clinical trials is dependent in part upon the rate at which we are able to engage clinical trial sites and, thereafter, the rate of enrollment of patients. Patient enrollment is a function of many factors, including the size of the patient population, the proximity of patients to clinical sites, the eligibility criteria for the study and the existence of competitive clinical trials. If we experience delays in identifying and contracting with sites and/or in patient enrollment in our clinical trial programs, we may incur additional costs and delays in our development programs and may not be able to complete our clinical trials on a cost-effective basis.

If third parties on which we rely for clinical trials do not perform as contractually required or as we expect, we may not be able to obtain regulatory approval for or commercialize our products.

We depend on independent clinical investigators, contract research organizations and other third-party service providers to conduct the clinical trials of our drug candidates and technologies and expect to continue to do so. We rely heavily on these parties for successful execution of our clinical trials, but we do not control many aspects of their activities. Nonetheless, we are responsible for confirming that each of our clinical trials is conducted in accordance with the general investigational plan and protocol. Our reliance on these third parties that we do not control does not relieve us of our responsibility to comply with the regulations and standards of the U.S. Food and Drug Administration, or the FDA, relating to good clinical practices. Third parties may not complete activities on schedule or may not conduct our clinical trials in accordance with regulatory requirements or the applicable trial’s plans and protocols. The failure of these third parties to carry out their obligations could delay or prevent the development, approval and commercialization of our products or result in enforcement action against us.

5

If the clinical data related to our drug candidates and technologies do not track positive preclinical or early clinical data, our corporate strategy and financial results will be adversely impacted.

All of our drug candidates and technologies are in preclinical or early clinical stages. Specifically, one of our drug candidates, HepeX-B, is currently in a Phase IIb trial, and two of our products under development, XTL-6865 and XTL-2125, have not yet been tested in humans. We submitted a U.S. investigational new drug application, known as an IND, to the FDA in order to commence a Phase Ia/Ib clinical trial for XTL-6865 later this year, and we expect to make an IND filing to the FDA for XTL-2125 by early 2006, assuming no toxicity concerns arise from formal toxicity testing. In order for our candidates to proceed to later stage clinical testing, they must show positive preclinical or early clinical data. While HepeX-B and XTL-6865 have shown positive preclinical and early clinical data, preliminary results of pre-clinical or clinical tests do not necessarily predict the final results, and acceptable results in early pre-clinical or clinical testing might not be obtained in later clinical trials. Drug candidates in the later stages of clinical development may fail to show the desired safety and efficacy traits despite having progressed through initial clinical testing. Any negative results from future tests may prevent us from proceeding to later stage clinical testing which would materially impact our corporate strategy and our financial results may be adversely impacted.

We have limited experience in conducting and managing clinical trials necessary to obtain regulatory approvals. If our drug candidates and technologies do not receive the necessary regulatory approvals, we will be unable to commercialize our products.

We have not received, and may never receive, regulatory approval for commercial sale for any of our products. We currently do not have any drug candidates or technologies pending approval with the FDA or with regulatory authorities of other countries. We will need to conduct significant additional research and human testing before we can apply for product approval with the FDA or with regulatory authorities of other countries. Pre-clinical testing and clinical development are long, expensive and uncertain processes. Satisfaction of regulatory requirements typically depends on the nature, complexity and novelty of the product and requires the expenditure of substantial resources. Regulators may not interpret data obtained from pre-clinical and clinical tests of our drug candidates and technologies the same way that we do, which could delay, limit or prevent our receipt of regulatory approval. It may take us many years to complete the testing of our drug candidates and technologies, and failure can occur at any stage of this process. Negative or inconclusive results or medical events during a clinical trial could cause us to delay or terminate our development efforts.

Clinical trials also have a high risk of failure. A number of companies in the pharmaceutical industry, including biotechnology companies, have suffered significant setbacks in advanced clinical trials, even after achieving promising results in earlier trials. If we experience delays in the testing or approval process or if we need to perform more or larger clinical trials than originally planned, our financial results and the commercial prospects for our drug candidates and technologies may be materially impaired. In addition, we have limited experience in conducting and managing the clinical trials necessary to obtain regulatory approval in the United States and abroad and, accordingly, may encounter unforeseen problems and delays in the approval process.

Even if regulatory approval is obtained, our products and their manufacture will be subject to continual review, and there can be no assurance that such approval will not be subsequently withdrawn or restricted. Changes in applicable legislation or regulatory policies, or discovery of problems with the products or their manufacture, may result in the imposition of regulatory restrictions, including withdrawal of the product from the market, or result in increased costs to us.

6

Because we license some of our proprietary technologies from third-parties, some of these third-parties could prevent us from licensing our drug candidates.

We do not own all of our drug candidates and technologies. We have licensed the patent rights to some of our drug candidates and/or the technologies on which they are based from others. Specifically, we have licensed the two human monoclonal antibodies comprising XTL-6865 from Stanford University and DRK-Blutspendedienst Baden-Wurttemberg, and we have licensed XTL-2125 from B&C Biopharm Co. Ltd. We have also licensed the Trimera technology upon which all of our current product candidates are based from the Yeda Research and Development Company Ltd., which we refer to as Yeda. These license agreements require us to meet development or financing milestones and impose development and commercialization due diligence requirements on us. In addition, under these agreements, we must pay royalties on sales of products resulting from licensed drugs and technologies and pay the patent filing, prosecution and maintenance costs related to the licenses. While we have the right to defend patent rights related to our licensed drug candidates and technologies, we are not obligated to do so. In the event that we decide to defend our licensed patent rights, we will be obligated to cover all of the expenses associated with that effort. If we do not meet our obligations in a timely manner or if we otherwise breach the terms of our agreements, our licensors could terminate the agreements, and we would lose the rights to our drug candidates or technologies. For a further discussion on our license agreements, the patent rights related to those licenses, and the expiration dates of those patent rights, see “Item 4: Information on the Company - Business Overview - Intellectual Property and Patents” and “Item 4: Information on the Company - Business Overview - Licensing Agreements and Collaborations” below. In addition, see “Risk Factors- Risks Related to Our Intellectual Property” below regarding potential issues related to the use of patents owned by third-parties.

In addition, under the terms of our license agreement with Yeda, we are required to obtain their approval under the license, in order to grant sub-licenses to collaborative partners to develop or commercialize products or products derived from technologies under the license. The requirement of obtaining these approvals, and any conditions that Yeda may impose upon such approvals, could have the effect of delaying or impeding our ability to enter into agreements with collaborative partners or result in our having to accept terms and conditions that might not be favorable to us. For a discussion of further required approvals, see “Risk Factors- Risks Relating to Operations in Israel” below regarding potential restrictions from the Office of the Chief Scientist regarding the manufacture of our drug candidates outside the State of Israel.

If we do not establish or maintain drug development and marketing arrangements with third parties, we may be unable to commercialize our drug candidates and technologies into products.

We are an emerging company and do not possess all of the capabilities to fully commercialize our drug candidates and technologies on our own. From time to time, we may need to contract with third parties to:

·   assist us in developing, testing and obtaining regulatory approval for some of our compounds and technologies;

·   manufacture our drug candidates; and

·   market and distribute our products.

7

We can provide no assurance that we will be able to successfully enter into agreements with such third-parties on terms that are acceptable to us. If we are unable to successfully contract with third parties for these services when needed, or if existing arrangements for these services are terminated, whether or not through our actions, or if such third parties do not fully perform under these arrangements, we may have to delay, scale back or end one or more of our drug development programs or seek to develop or commercialize our drug candidates and technologies independently, which could result in delays. Further, such failure could result in the termination of license rights to one or more of our drug candidates and technologies. Moreover, if these development or marketing agreements take the form of a partnership or strategic alliance, such arrangements may provide our collaborators with significant discretion in determining the efforts and resources that they will apply to the development and commercialization of our products. Accordingly, to the extent that we rely on third parties to research, develop or commercialize our products, we are unable to control whether such products will be scientifically or commercially successful.

If our products fail to achieve market acceptance, we will never record meaningful revenues.

Even if our products are approved for sale, they may not be commercially successful in the marketplace. Market acceptance of our products will depend on a number of factors, including:

·   perceptions by members of the health care community, including physicians, of the safety and efficacy of our products;

·   the rates of adoption of our products by medical practitioners and the target populations for our products;

·   the potential advantages that our products offer over existing treatment methods or other products that may be developed;

·   the cost-effectiveness of our products relative to competing products;

·   the availability of government or third-party payor reimbursement for our products;

·   the side effects or unfavorable publicity concerning our products or similar products; and

·   the effectiveness of our sales, marketing and distribution efforts.

Because we expect sales of our products to generate substantially all of our revenues in the long-term, the failure of our products to find market acceptance would harm our business and could require us to seek additional financing or other sources of revenue.

If the third parties upon whom we rely to manufacture our products do not successfully manufacture our products, our business will be harmed.

We do not currently have the ability to manufacture ourselves the compounds that we need to conduct our clinical trials and rely upon a limited number of manufacturers to supply our drug candidates. We have no experience in manufacturing compounds for clinical or commercial purposes and do not have any manufacturing facilities. We rely upon, and intend to continue to rely upon, third parties to manufacture our drug candidates for use in clinical trials and for future sales. In order to commercialize our products, such products will need to be manufactured in commercial quantities while adhering to all regulatory and other requirements, all at an acceptable cost. We may not be able to enter into future third-party contract manufacturing agreements on acceptable terms, if at all.

We expect to continue to rely on contract manufacturers and other third parties to produce sufficient quantities of our drug candidates for use in our clinical trials. See “Item 4: Information on the Company - Business Overview - Supply and Manufacturing” below. We believe that our existing manufacturing arrangements with these parties will be adequate to satisfy our planned clinical supply needs for XTL-6865 and our current pre-clinical supply needs for XTL-2125. Future supply of the HepeX-B clinical material will be manufactured by a contract manufacturer to be selected by our partner Cubist Pharmaceuticals Inc. If our contract manufacturers or other third parties fail to deliver our product candidates for clinical use on a timely basis, with sufficient quality, and at commercially reasonable prices, and we fail to find replacement manufacturers, we may be required to delay or suspend clinical trials or otherwise discontinue development and production of our drug candidates.

8

Our contract manufacturers are required to produce our drug candidates in strict compliance with current good manufacturing practices in order to meet acceptable standards for our clinical trials. If such standards change, the ability of contract manufacturers to produce our drug candidates on the schedule we require for our clinical trials may be affected. In addition, contract manufacturers may not perform their obligations under their agreements with us or may discontinue their business before the time required by us to successfully produce and market our drug candidates. Any difficulties or delays in our contractors’ manufacturing and supply of drug candidates could increase our costs, cause us to lose revenue or make us postpone or cancel clinical trials.

In addition, our contract manufacturers will be subject to ongoing periodic, unannounced inspections by the FDA and corresponding foreign governmental agencies to ensure strict compliance with, among other things, current good manufacturing practices, in addition to other governmental regulations and corresponding foreign standards. We will not have control over, other than by contract, third-party manufacturers’ compliance with these regulations and standards. No assurance can be given that our third-party manufacturers will comply with these regulations or other regulatory requirements now or in the future.

In the event that we are unable to obtain or retain third-party manufacturers, we will not be able to commercialize our products as planned. If third-party manufacturers fail to deliver the required quantities of our products on a timely basis and at commercially reasonable prices, our ability to develop and deliver products on a timely and competitive basis may be adversely impacted and our business, financial condition or results of operations will be materially harmed.

If our competitors develop and market products that are less expensive, more effective or safer than our products, our commercial opportunities may be reduced or eliminated.

The pharmaceutical industry is highly competitive. Our commercial opportunities may be reduced or eliminated if our competitors develop and market products that are less expensive, more effective or safer than our products. Other companies have drug candidates in various stages of pre-clinical or clinical development to treat diseases for which we are also seeking to discover and develop drug candidates. For a discussion of these competitors and their drug candidates, see “Item 4: Information on the Company - Business Overview - Competition” below. Some of these potential competing drugs are further advanced in development than our drug candidates and may be commercialized earlier. Even if we are successful in developing safe, effective drugs, our products may not compete successfully with products produced by our competitors, who may be able to more effectively market their drugs.

Our competitors include pharmaceutical companies and biotechnology companies, as well as universities and public and private research institutions. In addition, companies that are active in different but related fields represent substantial competition for us. Many of our competitors have significantly greater capital resources, larger research and development staffs and facilities and greater experience in drug development, regulation, manufacturing and marketing than we do. These organizations also compete with us to recruit qualified personnel, attract partners for joint ventures or other collaborations, and license technologies that are competitive with ours. As a result, our competitors may be able to more easily develop products that could render our technologies or our drug candidates obsolete or noncompetitive.

If we lose our key personnel or are unable to attract and retain additional personnel, our business could be harmed.

As of March 31, 2005, we have 45 full-time employees. To successfully develop our drug candidates and technologies, we must be able to attract and retain highly skilled personnel. The retention of their services cannot be guaranteed. In particular, if we lose the services of Michael S. Weiss, our Interim Chairman, our ability to continue to execute on our business plan could be materially impaired. As there is currently no agreement in place between us and Mr. Weiss, we could not prevent him from terminating his relationship with us. We do not maintain a key man life insurance policy covering Mr. Weiss.

9

Any acquisitions we make may dilute your equity or require a significant amount of our available cash and may not be scientifically or commercially successful.

As part of our business strategy, we may effect acquisitions to obtain additional businesses, products, technologies, capabilities and personnel. If we make one or more significant acquisitions in which the consideration includes our ordinary shares or other securities, your equity in us may be significantly diluted. If we make one or more significant acquisitions in which the consideration includes cash, we may be required to use a substantial portion of our available cash.

Acquisitions involve a number of operational risks, including:

·   difficulty and expense of assimilating the operations, technology and personnel of the acquired business;

·   our inability to retain the management, key personnel and other employees of the acquired business;

·   our inability to maintain the acquired company’s relationship with key third parties, such as alliance partners;

·   exposure to legal claims for activities of the acquired business prior to the acquisition;

·   the diversion of our management’s attention from our core business; and

·   the potential impairment of substantial goodwill and write-off of in-process research and development costs, adversely affecting our reported results of operations.

If any of these risks occur, it could have an adverse effect on both the business we acquire and our existing operations.

We face product liability risks and may not be able to obtain adequate insurance.

The use of our drug candidates and technologies in clinical trials, and the sale of any approved products, exposes us to liability claims. Although we are not aware of any historical or anticipated product liability claims against us, if we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to cease clinical trials of our drug candidates and technologies or limit commercialization of any approved products.

We believe that we have obtained sufficient product liability insurance coverage for our clinical trials. We intend to expand our insurance coverage to include the commercial sale of any approved products if marketing approval is obtained; however, insurance coverage is becoming increasingly expensive. We may not be able to maintain insurance coverage at a reasonable cost. We may not be able to obtain additional insurance coverage that will be adequate to cover product liability risks that may arise. Regardless of merit or eventual outcome, product liability claims may result in:

·   decreased demand for a product;

·   injury to our reputation;

·   inability to continue to develop a drug candidate or technology;

·   withdrawal of clinical trial volunteers; and

·   loss of revenues.

Consequently, a product liability claim or product recall may result in material losses.

10

Risks Related to Our Financial Condition

If we are unable to obtain additional funds on terms favorable to us, or at all, we may not be able to continue our operations.

We expect to use, rather than generate, funds from operations for the foreseeable future, with an average projected cash burn rate of approximately $900,000 per month through the end of 2006. Based on our current plans, we believe our existing cash and cash equivalents and short-term bank deposits will be sufficient to fund our operating expenses and capital requirements through the end of 2006; however, the actual amount of funds that we will need prior to or after that date will be determined by many factors, some of which are beyond our control. As a result, we may need funds sooner or in different amounts than we currently anticipate. These factors include:

·   the progress of our development activities;

·   the progress of our research activities;

·   the number and scope of our development programs;

·   our ability to establish and maintain current and new licensing or acquisition arrangements;

·   our ability to achieve our milestones under our licensing arrangements;

·   the costs involved in enforcing patent claims and other intellectual property rights; and

·   the costs and timing of regulatory approvals.

Based on our current business plan, we will have to raise additional funds within the next 18 months in order to fund our operations beyond 2006. We may seek additional capital through a combination of public and private equity offerings, debt financings and collaborative, strategic alliance and licensing arrangements. We have made no determination at this time as to the amount, method or timing of any such financing. Such additional financing may not be available when we need it. If we are unable to obtain additional funds on terms favorable to us or at all, we may be required to cease or reduce our operating activities or sell or license to third parties some or all of our technology. If we raise additional funds by selling additional shares of our capital stock, the ownership interests of our shareholders will be diluted. If we need to raise additional funds through the sale or license of our drug candidates or technology, we may be unable to do so on terms favorable to us.

Our current restructuring plan may not achieve the results we intend and may harm our business.

In March 2005, we initiated a restructuring plan for our company, which included a workforce reduction of approximately 20 individuals, principally of research personnel and certain managerial and administrative staff, and a streamlining of operations across the business. As of March 31, 2005, following implementation of the restructuring plan, we had 45 full time employees. The restructuring plan includes the deferral of all research and development activity not supporting the lead clinical programs, XTL-6865 and XTL-2125, until proof of concept has been achieved in at least one of the two lead programs. For a further discussion of the restructuring plan, see “Item 8: Financial Information - Significant Changes” below. If we are unable to complete our restructuring plan effectively, we may not successfully achieve our business strategy or reduce our costs. Moreover, we may be required to further reduce our program-specific expenditures, which could require us to further scale back or abandon any of our development activities, or license to others products or technologies we would otherwise have sought to commercialize ourselves.

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Risks Related to Our Intellectual Property

If we are unable to adequately protect our intellectual property, third parties may be able to use our technology, which could adversely affect our ability to compete in the market.

Our commercial success will depend in part on our ability and the ability of our licensors to obtain and maintain patent protection on our drug products and technologies and successfully defend these patents and technologies against third-party challenges. As part of our business strategy, our policy is to actively file patent applications in the U.S. and internationally to cover methods of use, new chemical compounds, pharmaceutical compositions and dosing of the compounds and composition and improvements in each of these. See “Item 4: Information on the Company - Business Overview - Intellectual Property and Patents” below regarding our patent position with regard to our product candidates.

The patent positions of pharmaceutical and biotechnology companies can be highly uncertain and involve complex legal and factual questions. No consistent policy regarding the breadth of claims allowed in biotechnology patents has emerged to date. Accordingly, the patents we use may not be sufficiently broad to prevent others from practicing our technologies or from developing competing products. Furthermore, others may independently develop similar or alternative technologies or design around our patented technologies. The patents we use may be challenged or invalidated or may fail to provide us with any competitive advantage. Moreover, in certain parts of the world, such as in China, western companies are adversely affected by poor enforcement of intellectual property rights. See “Item 4: Information on the Company - Business Overview - License Agreements and Collaborations” below regarding our license to Ab-65, a component of XTL-6865.

Generally, patent applications in the U.S. are maintained in secrecy for a period of 18 months or more. Since publication of discoveries in the scientific or patent literature often lag behind actual discoveries, we are not certain that we were the first to make the inventions covered by each of our pending patent applications or that we were the first to file those patent applications. We cannot predict the breadth of claims allowed in biotechnology and pharmaceutical patents, or their enforceability. Third parties or competitors may challenge or circumvent our patents or patent applications, if issued. If our competitors prepare and file patent applications in the United States that claim compounds or technology also claimed by us, we may choose to participate in interference proceedings declared by the United States Patent and Trademark Office to determine priority of invention, which could result in substantial cost, even if the eventual outcome is favorable to us. While we have the right to defend patent rights related to the licensed drug candidates and technologies, we are not obligated to do so. In the event that we decide to defend our licensed patent rights, we will be obligated to cover all of the expenses associated with that effort. Because of the extensive time required for development, testing and regulatory review of a potential product, it is possible that before we commercialize any of our products, any related patent may expire or remain in existence for only a short period following commercialization, thus reducing any advantage of the patent.

Moreover, we rely on trade secrets to protect technology where we believe patent protection is not appropriate or obtainable. Trade secrets are difficult to protect. While we require our employees, collaborators and consultants to enter into confidentiality agreements, this may not be sufficient to adequately protect our trade secrets or other proprietary information. In addition, we share ownership and publication rights to data relating to some of our drug candidates and technologies with our research collaborators and scientific advisors. If we cannot maintain the confidentiality of this information, our ability to receive patent protection or protect our proprietary information will be at risk.

Specifically, we intend to apply for patent protection for each new monoclonal antibody produced. Such patents may include claims relating to novel human monoclonal antibodies directed at targets for which other human monoclonal antibodies already exist, or at targets which are protected by patents or patent applications filed by third parties. No assurance can be given that any such patent application by a third-party will not have priority over patent applications filed by us.

Several groups are attempting to produce and patent a chimeric mouse with human tissue. To the extent any patents issued to other parties claiming, in general, mouse-human chimeras, the risk increases that the potential products and processes of our or our future strategic partners may give rise to claims of patent infringement.

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We plan to use the recombinant production of antibodies in Chinese Hamster Ovary cells, or CHO cells, in the development and production of some of our products. Patents relating to this method of antibody production are owned by third-parties. We are also aware that third parties have patent protection covering hepatitis antigens and antibodies, which will be needed in order to commercialize our XTL-6865 and HepeX-B products. If we or our collaborative partners are unable to license such patent rights on commercially acceptable terms, the ability to develop, manufacture and sell these products could be impaired. Further, royalties payable to third parties may reduce the payments we will receive from our licensees or development partners.

In addition to patent protection, we may utilize orphan drug regulations to provide market exclusivity for certain of our drug candidates. The orphan drug regulations of the FDA provide incentives to pharmaceutical and biotechnology companies to develop and manufacture drugs for the treatment of rare diseases, currently defined as diseases that exist in fewer than 200,000 individuals in the United States, or, diseases that affect more than 200,000 individuals in the United States but that the sponsor does not realistically anticipate will generate a net profit. Under these provisions, a manufacturer of a designated orphan drug can seek tax benefits, and the holder of the first FDA approval of a designated orphan product will be granted a seven-year period of marketing exclusivity for such FDA-approved orphan product. We believe that certain of the indications for our drug candidates will be eligible for orphan drug designation. However, we cannot guarantee that any drug candidates will qualify, and, if any do qualify, that we will be the holder of the first FDA approval of such qualifying drug candidates.

Litigation or third-party claims of intellectual property infringement could require us to spend substantial time and money defending such claims and adversely affect our ability to develop and commercialize our products.

Third parties may assert that we are using their proprietary technology without authorization. In addition, third parties may have or obtain patents in the future and claim that our products infringe their patents. If we are required to defend against patent suits brought by third parties, or if we sue third parties to protect our patent rights, we may be required to pay substantial litigation costs, and our management’s attention may be diverted from operating our business. In addition, any legal action against our licensors or us that seeks damages or an injunction of our commercial activities relating to the affected products could subject us to monetary liability and require our licensors or us to obtain a license to continue to use the affected technologies. We cannot predict whether our licensors or we would prevail in any of these types of actions or that any required license would be made available on commercially acceptable terms, if at all.

In addition, there can be no assurance that our patents or patent applications or those licensed to us will not become involved in opposition or revocation proceedings instituted by third parties. If such proceedings were initiated against one or more of our patents, or those licensed to us, the defense of such rights could involve substantial costs and the outcome could not be predicted.

Competitors or potential competitors may have filed applications for, may have been granted patents for, or may obtain additional patents and proprietary rights that may relate to compounds or technologies competitive with ours. If patents are granted to other parties that contain claims having a scope that is interpreted to cover any of our products (including the manufacture thereof), there can be no assurance that we will be able to obtain licenses to such patents at reasonable cost, if at all, or be able to develop or obtain alternative technology.

Risks Related to Our Ordinary Shares and ADRs

Our stock price can be volatile, which increases the risk of litigation and may result in a significant decline in the value of your investment.

The trading price of the ADRs representing our ordinary shares is likely to be highly volatile and subject to wide fluctuations in price in response to various factors, many of which are beyond our control. These factors include:

·   developments concerning our drug candidates;

·  announcements of technological innovations by us or our competitors;

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·   introductions or announcements of new products by us or our competitors;

·   announcements by us of significant acquisitions, strategic partnerships, joint ventures or capital commitments;

·   changes in financial estimates by securities analysts;

·   actual or anticipated variations in interim operating results;

·   expiration or termination of licenses, research contracts or other collaboration agreements;

·   conditions or trends in the regulatory climate and the biotechnology and pharmaceutical industries;

·   changes in the market valuations of similar companies; and

·   additions or departures of key personnel.

In addition, equity markets in general, and the market for biotechnology and life sciences companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of companies traded in those markets. These broad market and industry factors may materially affect the market price of our ordinary shares, regardless of our development and operating performance. In the past, following periods of volatility in the market price of a company’s securities, securities class-action litigation has often been instituted against that company. Such litigation, if instituted against us, could cause us to incur substantial costs to defend such claims and divert management’s attention and resources even if we prevail in the litigation, all of which could seriously harm our business.

Our ordinary shares and ADRs will trade on more than one market, and this may result in price variations.

Our ordinary shares are traded on the London Stock Exchange and the Tel Aviv Stock Exchange and ADRs representing our ordinary shares will be traded on the Nasdaq National Market. Trading in our securities on these markets will be made in different currencies and at different times, including as a result of different time zones, different trading days and different public holidays in the United States, Israel and the United Kingdom. Consequently, the effective trading prices of our shares on these three markets may differ. Any decrease in the trading price of our shares on one of these markets could cause a decrease in the trading price of our shares on the other market.

Holders of our ordinary shares who are United States residents may be required to pay additional income taxes.

There is a risk that we will be classified as a Passive Foreign Investment Company, or PFIC. If we are classified as a PFIC, a U.S. Holder of our ordinary shares or ADRs representing our ordinary shares will be subject to special federal income tax rules that determine the amount of federal income tax imposed on income derived with respect to the PFIC shares. We will be a PFIC if either 75% or more of our gross income in a tax year is passive income or the average percentage of our assets (by either value or adjusted basis, depending on the circumstances) that produce or are held for the production of passive income is at least 50%. The risk that we will be classified as a PFIC arises because under applicable rules issued by the U.S. Internal Revenue Service, or the IRS, cash balances, even if held as working capital, are considered to be assets that produce passive income. Therefore, any determination of PFIC status will depend upon the sources of our income and the relative values of passive and non- passive assets, including goodwill. Furthermore, because the goodwill of a publicly-traded corporation is largely a function of the trading price of its shares, the valuation of that goodwill is subject to significant change throughout each year. A determination as to a corporation’s status as a PFIC must be made annually. We believe that we were a PFIC for the taxable years ended 2002, 2003 and 2004. Although such a determination is fundamentally factual in nature and generally cannot be made until the close of the applicable taxable year, based on our current operations, we believe that there is a significant likelihood that we will be classified as a PFIC in the 2005 taxable year and possibly in subsequent years.

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If we are classified as a PFIC at any time during the U.S. holder’s holding period for our stock, the federal income tax imposed on a U.S. holder with respect to income derived from our stock will be determined under a special regime, which applies upon (a) the receipt of any “excess distribution” from us (generally, distributions in any year that are greater than 125% of the average annual distributions received by such U.S. holder in the three preceding years or its holding period, if shorter) and (b) the sale or disposition of our stock. Under this special regime, the excess distribution or realized gain is treated as ordinary income. The federal income tax on such ordinary income is determined under the following steps: (i) the amount of the excess distribution or gain is allocated ratably over the U.S. holder's holding period; (ii) tax is determined for amounts allocated to the first such year in which we qualified as a PFIC and all subsequent years (except the year in which the excess distribution or the sale occurred) by applying the highest applicable tax rate in effect in the year to which the income was allocated; (iii) an interest charge is added to this tax calculated by applying the underpayment interest rate to the tax for each year determined under the preceding sentence for the period from the due date of the income tax return for such year to the due date of the return for the year in which in which the excess distribution or the disposition occurred; and (iv) amounts allocated to a year prior to the first year in the U.S. holder’s holding period in which we were a PFIC or to the year in which the excess distribution or the disposition occurred are taxed as ordinary income.

A U.S. holder may generally avoid this regime by electing to treat its PFIC shares, as a “qualified electing fund.” If a U.S. holder elects to treat PFIC shares as a qualified electing fund, the U.S. holder must include annually in gross income (for each year in which PFIC status is met) his pro rata share of the PFIC’s ordinary earnings and net capital gains, whether or not such amounts are actually distributed to the U.S. holder. From fiscal 2005, we plan to comply with the record-keeping and reporting requirements that are a prerequisite to making a “qualified electing fund” election. However, if meeting those record-keeping and reporting requirements becomes onerous, we may decide, in our sole discretion, that such compliance is impractical and will so notify U.S. holders.

In view of the complexity of the issues regarding our treatment as a PFIC, U.S. shareholders are urged to consult their own tax advisors for guidance as to our status as a PFIC.

For further discussion of tax consequences if we are a PFIC, see “Item 10: Additional Information - Taxation - United States Federal Income Tax Considerations - Tax Consequences If We Are A Passive Foreign Investment Company” below.

Provisions of Israeli corporate law may delay, prevent or affect a potential acquisition of all or a significant portion of our shares or assets and therefore depress the price of our stock.

Israeli corporate law regulates acquisitions of shares through tender offers. It requires special approvals for transactions involving significant shareholders and regulates other matters that may be relevant to these types of transactions. The provisions of Israeli law may delay or prevent an acquisition, or make it less desirable to a potential acquirer and therefore depress the price of our shares. Further, Israeli tax considerations may make potential transactions undesirable to us or to some of our shareholders.

Israeli corporate law provides that an acquisition of shares in a public company must be made by means of a tender offer if, as a result of such acquisition, the purchaser would become shareholder with over 25% of the voting rights in the company. This rule does not apply if there is already another shareholder of the company with 25% or more of the voting rights. Similarly, Israeli corporate law provides that an acquisition of shares in a public company must be made by means of a tender offer if, as a result of the acquisition, the purchaser's shareholdings would entitle the purchaser to over 45% of the voting rights in the company, unless there is a shareholder with 50% or more of the voting rights in the company. These rules do not apply if the acquisition is made by way of a merger. Regulations promulgated under Israeli corporate law provide that these tender offer requirements do not apply to companies whose shares are listed for trading outside of Israel if, according to the law in the country in which the shares are traded, including the rules and regulations of the stock exchange or which the shares are traded, either:

·   there is a limitation on acquisition of any level of control of the company; or

·   the acquisition of any level of control requires the purchaser to do so by means of a tender offer to the public.

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Finally, in general, Israeli tax law treats specified acquisitions less favorably than does U.S. tax law. See "Item 10. Additional Information - Anti-Takeover Provisions under Israeli Law" below.

Risks Relating to Operations in Israel

Conditions in the Middle East and in Israel may harm our operations.

Our headquarters, research and development facilities and some of our suppliers are located in Israel. Political, economic and military conditions in Israel directly affect our operations. Since the establishment of the State of Israel in 1948, a number of armed conflicts have taken place between Israel and its Arab neighbors, as well as incidents of civil unrest, military conflicts and terrorist actions. There has been a significant increase in violence since September 2000, which has continued with varying levels of severity through to the present. This state of hostility has caused security and economic problems for Israel. To date, we do not believe that the political and security situation has had a material adverse impact on our business, but we cannot give you any assurance that this will continue to be the case. Any hostilities involving Israel or the interruption or curtailment of trade between Israel and its present trading partners could adversely affect our operations and could make it more difficult for us to raise capital.

Our commercial insurance does not cover losses that may occur as a result of events associated with the security situation in the Middle East. Although the Israeli government currently covers the reinstatement value of direct damages that are caused by terrorist attacks or acts of war, we cannot assure you that this government coverage will be maintained. Any losses or damages incurred by us could have a material adverse effect on our business. Any armed conflicts or political instability in the region would likely negatively affect business conditions and could harm our results of operations.

Further, in the past, the State of Israel and Israeli companies have been subjected to an economic boycott. Several countries still restrict business with the State of Israel and with Israeli companies. These restrictive laws and policies may have an adverse impact on our operating results, financial condition or the expansion of our business.

Our results of operations may be negatively affected by the obligation of our employees to perform military service.

In certain circumstances, under Israeli law, some of our employees are obligated to perform military reserve duty and are subject to being called to active duty for extended periods of time under emergency conditions. To date, calls to active duty have not affected us materially. However, it is possible that there will be additional call-ups in the future, which may have a material effect on us. The absence of many of our employees concurrently for an extended period of time due to military service could disrupt our operations and may have an adverse impact on our business.

Our results of operations may be adversely affected by inflation and foreign currency fluctuations.

We generate all of our revenues and hold most of our cash, cash equivalents, bank deposits and marketable securities in U.S. dollars. While a substantial amount of our operating expenses are in U.S. dollars, we incur a portion of our expenses in New Israeli Shekels (approximately 20% in 2004). In addition, we also pay for some of our services and supplies in the local currencies of our suppliers. As a result, we are exposed to the risk that the U.S. dollar will be devalued against the New Israeli Shekel or other currencies, and as result our financial results could be harmed if we are unable to guard against currency fluctuations in Israel or other countries in which services and supplies are obtained in the future. Accordingly, we may in the future enter into currency hedging transactions to decrease the risk of financial exposure from fluctuations in the exchange rates of currencies. These measures, however, may not adequately protect us from the adverse effects of inflation in Israel. In addition, we are exposed to the risk that the rate of inflation in Israel will exceed the rate of devaluation of the New Israeli Shekel in relation to the dollar or that the timing of any devaluation may lag behind inflation in Israel.

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The Office of the Chief Scientist may refuse to approve the manufacture of our products outside the State of Israel.

We have in the past participated in programs offered by the Office of the Chief Scientist under the Industry, Trade and Labor Ministry of Israel that supports research and development activities. Through December 31, 2004, we have received $7.8 million in grants from the Office of the Chief Scientist for several projects, some of which are currently under development. Israeli law requires that the manufacture of products developed with government grants be carried out in Israel, unless the Office of the Chief Scientist provides a special approval to the contrary. This approval, if provided, is generally conditioned on an increase in the total amount to be repaid to the Office of the Chief Scientist to between 120% and 300% of the amount of funds granted. While we believe that the Office of the Chief Scientist does not unreasonably withhold approval if the request is based upon commercially justified circumstances and any royalty obligations to the Office of the Chief Scientist are sufficiently assured, the matter is solely within its discretion. We cannot be sure that such approval, if requested, would be granted upon terms satisfactory to us or granted at all. Without such approval, we would be unable to manufacture any products developed by this research outside of Israel, which may greatly restrict any potential revenues from such products.

We may not continue to be entitled to certain tax benefits from the Israeli government.

We are entitled to receive certain tax benefits as a result of the Approved Enterprise status of our existing facilities in Israel. The Law for the Encouragement of Capital Investment, 1959, as amended, provides that a proposed capital investment in eligible facilities may, upon application to the Investment Center of the Ministry of Industry and Trade of the State of Israel, permit a company to recognize taxable income attributable to the Approved Enterprise subject to company tax at the maximum rate of 25% rather than the usual rate in 2004 of 35%. For further discussion of these tax benefits, see “Item 10: Additional Information - Taxation - Israeli Tax Considerations - Tax Benefits Under the Law for the Encouragement of Capital Investments, 1959” below. To date we have not received any such tax benefits because we have not generated any taxable income to date. To maintain our eligibility for these tax benefits, we must continue to meet certain reporting requirements. If we cease to become entitled to tax benefits, we may be required to pay increased taxes on the taxable income that we may generate in the future.

It may be difficult to enforce a U.S. judgment against us, our officers or our directors or to assert U.S. securities law claims in Israel.

Service of process upon us, since we are incorporated in Israel, and upon our directors and officers and our Israeli auditors, some of whom reside outside the United States, may be difficult to obtain within the United States. In addition, because substantially all of our assets and some of our directors and officers are located outside the United States, any judgment obtained in the United States against us or any of our directors and officers may not be collectible within the United States. There is a doubt as to the enforceability of civil liabilities under the Securities Act or the Exchange Act pursuant to original actions instituted in Israel. Subject to particular time limitations and provided certain conditions are met, executory judgments of a United States court for monetary damages in civil matters may be enforced by an Israeli court. For more information regarding the enforceability of civil liabilities against us, our directors and our executive officers, see “Item 10: Additional Information - Memorandum and Articles of Association - Enforceability of Civil Liabilities” below.

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ITEM 4. INFORMATION ON THE COMPANY

History and Development of the Company

Our legal and commercial name is XTL Biopharmaceuticals Ltd. We were established as a private company limited by shares under the laws of the State of Israel on March 9, 1993, under the name Xenograft Technologies Ltd. We re-registered as a public company on June 7, 1993, in Israel, and changed our name to XTL Biopharmaceuticals Ltd. on July 3, 1995. Our ordinary shares are traded on the London Stock Exchange under the symbol “XTL,” and on the Tel Aviv Stock Exchange under the symbol "XTL." We operate under the laws of the State of Israel, under the Israeli Companies Act and the regulations of the United Kingdom Listing Authority, which governs our listing on the London Stock Exchange. Our principal offices are located at the Kiryat Weizmann Science Park, Building 3, 3 Hasapir Street, Rehovot 76100, Israel, and our telephone number is +972-8-930-4444. The principal offices of XTL Biopharmaceuticals, Inc., our wholly-owned U.S. subsidiary and agent for service of process in the U.S., are located at 275 Grove Street, Suite 2-400, Newton, MA 02466, U.S.A., and its telephone number is 1-617-663-4789. Our primary internet address is www.xtlbio.com. None of the information on our website is incorporated by reference into this registration statement.

We were established to use the Trimera technology for discovering, developing and commercializing therapeutic drugs. The Trimera technology, developed at the Weizmann Institute, in Rehovot, Israel, was exclusively licensed to us by Yeda Research and Development Company Ltd., the commercialization arm of the Weizmann Institute. The Trimera technology is a method to introduce functional human tissue into a mouse, which can then be used to generate fully human monoclonal antibodies, or hMAbs, and as a sophisticated animal model of human disease. Until 1999, our therapeutic focus was on the development of human monoclonal antibodies to treat viral, autoimmune and oncological diseases. Our first therapeutic programs focused on antibodies against the hepatitis B virus, interferon - γ and the hepatitis C virus.

We are currently engaged in the acquisition, development and commercialization of pharmaceutical products for the treatment of infectious diseases, particularly the prevention and treatment of hepatitis B and C. One of our products, HepeX-B is designed to prevent re-infection with hepatitis B in liver transplant patients, and is currently in a Phase IIb trial in liver transplant patients. Worldwide rights for HepeX-B were recently licensed to Cubist Pharmaceuticals Inc., or Cubist, in exchange for certain milestone payments and future royalties on Cubist’s net sales. Another of our drug candidates, XTL-6865, is being developed to prevent hepatitis C re-infection following a liver transplant and for the treatment of chronic hepatitis C. Following a pilot clinical program with one monoclonal antibody, or MAb, the program is now in the second stage of the development strategy – evaluation of a dual-MAb product in clinical trials. We are also developing XTL-2125, the lead product candidate from our hepatitis C small molecule development program, which is in preclinical development, targeted at treating chronic hepatitis C.

In September-October 2000, we raised net proceeds of $45.7 million in an initial public offering on the London Stock Exchange, in which we sold 23,750,000 of our ordinary shares, including the exercise of the underwriter’s over-allotment option, at a price of 150 British pence per share. In August 2004, we raised net proceeds of $15.4 million in a placing and open offer transaction of our ordinary shares, resulting in the sale of 56,009,732 ordinary shares at a price of 17.5 British pence per share. Since September 2000, our ordinary shares have been listed on the Official List of the UK Listing Authority and are traded on the London Stock Exchange's market for listed securities under the symbol “XTL.” Since July 12, 2005, our ordinary shares have been listed on the Tel Aviv Stock Exchange and trade under the symbol "XTL."

Since inception, we raised net proceeds of approximately $104.4 million to fund our activities, including net proceeds of $45.7 million from our initial public offering and $15.4 million in a placing and open offer transaction.

For the years ended December 31, 2004, 2003, and 2002 our capital expenditures were $180,000, $81,000 and $659,000, respectively. Our capital expenditures were primarily associated with the purchase of lab equipment for our research and development activities. There were no material divestitures during the years ended December 31, 2004, 2003, and 2002.

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Business Overview

Introduction

We are a biopharmaceutical company engaged in the acquisition, development and commercialization of pharmaceutical products for the treatment of infectious diseases, particularly the prevention and treatment of hepatitis B and C.

We currently have three products under development:

·   HepeX-B is being developed to prevent re-infection with hepatitis B, known as HBV, in liver transplant patients. HepeX-B is a mixture of two fully human monoclonal antibodies, which bind to the HBV surface antigen, or HBsAg. HepeX-B is currently in a Phase IIb trial in liver transplant patients. Worldwide rights for HepeX-B were licensed to Cubist in 2004, in exchange for certain milestone payments and future royalties on Cubist’s net sales.

·   XTL-6865 is being developed to prevent hepatitis C, known as HCV, re-infection following a liver transplant and for the treatment of chronic HCV. XTL-6865 (formerly known as the HepeX-C program) is a combination of two fully human monoclonal antibodies (Ab68 and Ab65) against the hepatitis C virus E2 envelope protein. A single antibody version of this product was tested in a pilot clinical program that included both Phase I and Phase II clinical trials. In April 2005, we submitted an IND to the FDA in order to commence a Phase Ia/Ib clinical trial later this year for XTL-6865, the dual-MAb product.

·   XTL-2125 is the lead product candidate from our hepatitis C small molecule development program, or HCV-SM. XTL-2125 (also referred to as BC2125) is a small molecule non-nucleoside polymerase inhibitor for the treatment of chronic hepatitis C. XTL-2125 is currently in formal toxicity testing, and we expect to make an IND filing to the FDA at the end of 2005 or early in 2006, assuming no toxicity concerns arise.

To date, we have not received approval for the sale of any of our drug candidates in any market and, therefore, have not generated any commercial revenues from the sales of our drug candidates. Moreover, preliminary results of our pre-clinical or clinical tests do not necessarily predict the final results, and acceptable results in early preclinical or clinical testing might not be obtained in later clinical trials. Drug candidates in the later stages of clinical development may fail to show the desired safety and efficacy traits despite having progressed through initial clinical testing. We have received license and reimbursed out of pocket expense revenue pursuant to our agreement with Cubist with respect to HepeX-B, although HepeX-B has not yet been commercialized.

Our Strategy

Under our current strategy, we plan to:

·   continue the clinical development of XTL-6865 and XTL-2125;

·   complete the HepeX-B Phase IIb clinical trial on behalf of our partner Cubist and transition all aspects of HepeX-B development to Cubist; and

·   seek to in-license or acquire additional clinical stage compounds, or compounds in advanced pre-clinical development.

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Products Under Development

HepeX-B (Product for the Prevention of Re-Infection of Hepatitis B)

HepeX-B is being developed to prevent re-infection with HBV in liver transplant patients. Protection of the transplanted liver from recurrent HBV infection is critical to preserving graft function. Life-long HBV prophylactic treatment is typically necessary, since the virus remains in several other body compartments following removal of the infected liver. Without treatment, Hepatitis B infection of the transplanted liver reoccurs rapidly resulting in progressive disease, graft failure, and death.

HepeX-B is a mixture of two fully human monoclonal antibodies which bind to the HBV surface antigen, or HBsAg. HepeX-B is being developed as an alternative to the present standard-of-care, hepatitis B Immunoglobulin, or HBIg, which has several disadvantages, among them complicated and uncomfortable patient administration (intravenous or painful intra-muscular injection). In addition, as HepeX-B is not isolated from human blood, risk of infection from blood-borne organisms is minimal. The present market size of HBIg is estimated to be about $100 million per year worldwide.

HepeX-B is presently being studied in a Phase IIb clinical trial in liver transplant patients. In November 2004, we announced the completion of the first scheduled review of the first 15 patients enrolled in the study by an Independent Data and Safety Monitoring Board, or DSMB. The DSMB recommended the continuation of the trial.

Prior to the initiation of the Phase IIb study in liver transplant patients, we conducted a Phase I clinical study in twelve healthy volunteers to determine the pharmacokinetic properties of HepeX-B. The study evaluated a single intravenous infusion of 10mg or 40mg of HepeX-B with subsequent follow-up over a 12-week period. HepeX-B was well tolerated by all subjects. Trough antibody concentrations achieved with 10mg and 40mg doses of HepeX-B were similar to concentrations achieved with standard doses of HBIg. These concentrations of HepeX-B were achieved with significantly less protein per dose than is required with HBIg, thus enabling the development of a low volume, “patient friendly” formulation.

In June 2004, we announced the completion of a license agreement with Cubist for the worldwide development and commercialization of HepeX-B. Under this agreement we will be responsible for completing the on-going Phase IIb, which will be fully funded by Cubist. Cubist will be responsible for completing the clinical development beyond Phase IIb and for registration and commercialization of the product worldwide.

Under the terms of the agreement, Cubist paid us an initial up-front payment of $1 million upon the signing of the agreement, a further aggregate amount of $2 million as collaboration support to be paid in installments until the end of 2005, of which $1 million has been paid through March 31, 2005, and an additional amount of up to $3 million upon achievement of certain regulatory milestones. Under the agreement, we are entitled to receive royalties from net sales by Cubist, generally ranging from 10% to 17%.

In the event that the actual costs incurred in conducting activities that Cubist determines are necessary or advisable to obtain regulatory approval for HepeX-B for the prevention of recurrent hepatitis B infections in liver transplant patients exceed $33.9 million, any costs in excess shall be borne in equal share by us and Cubist.

Orphan drug status, a regulatory designation that provides exclusive marketing rights to drug candidates that would not otherwise be commercially viable, has been granted for HepeX-B in the U.S. and Europe.

XTL-6865 and XTL-2125 (Products for Prevention of Re-Infection and Treatment for Hepatitis C)

Preventing Re-infection following Liver Transplant

According to the Centers for Disease Control and Prevention, or the CDC, Hepatitis C is the leading cause of liver transplants in the U.S. It is estimated that in 2004, over 2,000 liver transplants were performed in the U.S. in HCV positive patients, based upon data of the Organ Procurement and Transplantation Network, as of June 2005. Although the HCV infected liver is removed during the transplant procedure, the newly transplanted healthy liver is re-infected with HCV from the patient’s serum. Re-infection occurs in all patients within days following the transplant. Recurrent HCV infection is a leading cause of graft failure. According to Dr. M. Charlton, Transplant Center, Mayo Clinic Foundation, 10% of patients will die (or be re-transplanted) by year five due to recurrent HCV disease, and a further 30% of patients will have cirrhosis at the end of year five.

There is no therapy available to prevent re-infection following a liver transplant. Once the liver has been re-infected, clinicians attempt to treat the recurrent disease. Response rate to this treatment is low (ranging from 8% to 25%), according to studies done at the Indiana University Medical Center and the Universite Paris-Sud, Hopital Paul Brousse. Therefore, re-infection following a liver transplant represents a significant unmet medical need.

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One of the potential indications of XTL-6865 is preventing re-infection following a liver transplant. We estimate that a successful therapy for preventing re-infection with HCV following liver transplantation could reach annual worldwide sales of approximately $400 million.

Treating Chronic HCV

Chronic hepatitis C is a serious life-threatening disease, which affects around 170 to 200 million people worldwide, according to a Datamonitor report from April 2005. We estimate that between eight to 10 million of these people reside in the U.S., Europe and Japan. According to the BioSeeker Group, 20% to 30% of chronic hepatitis patients will eventually develop progressive liver disease that may lead to decomposition of the liver or hepatocellular carcinoma (liver cancer). According to the National Digestive Diseases Information Clearing House (NDDIC), each year 10,000 to 12,000 people die from HCV in the U.S. alone. The CDC predicts, that by the end of this decade, the number of deaths due to HCV in the U.S. will surpass the number of deaths due to AIDS.

According to the BioSeeker Group, the present worldwide market for the treatment of chronic HCV is estimated at $3 billion and represents Interferon-based treatments. Interferon alpha was first approved for use against chronic hepatitis C in 1991. At present, the optimal regimen appears to be a 24 or 48 week course of the combination of Pegylated-Interferon and Ribavirin. In studies done at the Saint Louis University School of Medicine, a 24 week course of this combination therapy yields a sustained response rate of approximately 40% to 45% in patients with genotype 1 (the most prevalent genotype in the western world according to the CDC) and a better sustained response with a 48 week course. Despite this improvement in response rates, approximately half of today's patient population in the U.S. and Europe does not respond to therapy and has no therapeutic alternative. Therefore, there is a significant unmet medical need in the treatment of HCV.

XTL-6865

XTL-6865 is being developed to prevent hepatitis C re-infection following a liver transplant and for the treatment of chronic HCV. XTL-6865 is a combination of two fully human monoclonal antibodies (Ab68 and Ab65) against the hepatitis C virus E2 envelope protein. A single antibody version of this product, then referred to as HepeX-C, was tested in a pilot clinical program that included both Phase I and Phase II clinical trials. In April 2005, we submitted an IND to the FDA in order to commence a Phase Ia/Ib clinical trial later this year for XTL-6865, the dual-MAb product.

The two antibodies comprising XTL-6865 were selected by screening a large panel of candidates based on their high level of activity against the virus in our proprietary HCV models. We believe that a combination of two antibodies that bind to different epitopes is essential to provide broad coverage of virus quasispecies, and to minimize the probability for escape from therapy. We have shown that the two antibodies chosen (Ab68 and Ab65) specifically bind and immunoprecipitate viral particles from infected patients’ sera with different HCV genotypes. In addition, both antibodies reduced mean viral load in HCV-Trimera mice. We have also shown that incubation of an infectious human serum with Ab68 or Ab65 prevented the serum’s ability to infect human liver cells and human liver tissue.

The single antibody Hepex-C product candidate (Ab68) was tested in a pilot clinical program, which included:

·   A Phase Ia/Ib Clinical Program in Patients with Chronic HCV, which demonstrated the safety and tolerability of using single and multi-doses of Ab68 up to 120mg for a 28 day dosing period. In terms of efficacy, eight out of 25 patients had at least a 90% reduction in HCV-RNA levels from pre-treatment levels following administration of Ab68. These trials provided safety data, as well as a preliminary indication of anti-viral activity in humans.

·   A Phase IIa Clinical Trial with Ab68 Following Liver Transplant, which demonstrated the safety and tolerability of Ab68 up to 240mg for a 12 week dosing period. The study was planned as a blinded, placebo-controlled, dose-escalating study in a total of 24 liver transplant patients receiving six different doses of Ab68 (20mg, 40mg, 80mg, 120mg, 240mg, and 480mg). The 480mg dose level was not tested due to a clinical hold as a result of an intraoperative death of the first patient tested at the 480mg dose level (later determined by the medical examiner to be related to pulmonary emboli (blood clots in the lung)). The FDA later cleared the clinical hold, but we decided to discontinue the study and focus further development efforts on the dual anti-body product, XTL-6865. No other drug-related serious adverse events were reported during this study. The 120mg and 240mg dose groups had a significantly greater reduction in viral load than the placebo group during the first week when dosed daily. This effect was less evident when dosed less frequently than daily. This data provided additional evidence of anti-viral activity in immunosuppressed patients.

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Based on this information, we had a pre-IND meeting with the FDA in October 2004 regarding XTL-6865, at which we presented data on Ab68 and Ab65, which had just successfully completed pre-clinical development. In April 2005, we submitted an IND to the FDA in order to commence a Phase Ia/Ib clinical trial later this year for XTL-6865, the dual-MAb product.

XTL-2125

XTL-2125 is the lead product candidate from our HCV-SM small molecule development program. XTL-2125, also referred to as BC2125, is a small molecule non-nucleoside polymerase inhibitor for the treatment of chronic hepatitis C.

Our HCV-SM small molecule development program is targeted at treating chronic hepatitis C utilizing novel non-nucleoside polymerase inhibitors. The program is focused on developing synthetic small molecules to be orally-administered to patients for the inhibition of HCV viral RNA replication. We have identified two lead candidates from two distinct chemical series of compounds, which we licensed from B&C Biopharm Co. Ltd.

Each candidate has exhibited activity against HCV in our proprietary in vitro and in vivo preclinical drug validation systems. In preliminary in vivo animal studies, acceptable toxicity profiles and oral absorption have been shown.

XTL-2125 is currently in formal toxicity testing, and we expect to make an IND filing to the FDA at the end of 2005 or early in 2006, assuming no toxicity concerns arise.

Proprietary Technology

Our proprietary Trimera technology is a method for introducing functional human cells or tissue into a mouse. The Trimera technology is a patented tool whereby murine immune systems are ablated by radiation, and bone marrow is transplanted from genetically immuno-deficient mice to re-enable red blood cell production. The result is the production of “radiation chimeras.” As these chimeras have no immune system, they are able to accept implanted human cells, without rejection, thereby creating a “Trimera.” The resulting mouse can be used:

·   to generate humanized monoclonal antibodies, or hMAbs (the “Trimera hMAb Technology”); and/or

·   as an animal model of human disease (the “Trimera Model Technology”).

These models can be used for testing various approaches to treat human disease, including the development of new prophylactic and therapeutic products and have been used to discover the HepeX-B product and to screen the activity of XTL-6865 and XTL-2125.

Intellectual Property and Patents

General

Patents and other proprietary rights are very important to the development of our business. We will be able to protect our proprietary technologies from unauthorized use by third parties only to the extent that our proprietary rights are covered by valid and enforceable patents or are effectively maintained as trade secrets. It is our intention to seek and maintain patent and trade secret protection for our drug candidates and our proprietary technologies. As part of our business strategy, our policy is to actively file patent applications in the U.S. and internationally to cover methods of use, new chemical compounds, pharmaceutical compositions and dosing of the compounds and compositions and improvements in each of these. We also rely on trade secret information, technical know-how, innovation and agreements with third parties to continuously expand and protect our competitive position.

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Generally, patent applications in the U.S. are maintained in secrecy for a period of 18 months or more. Since publication of discoveries in the scientific or patent literature often lag behind actual discoveries, we are not certain that we were the first to make the inventions covered by each of our pending patent applications or that we were the first to file those patent applications. The patent positions of biotechnology and pharmaceutical companies are highly uncertain and involve complex legal and factual questions. Therefore, we cannot predict the breadth of claims allowed in biotechnology and pharmaceutical patents, or their enforceability. To date, there has been no consistent policy regarding the breadth of claims allowed in biotechnology patents. Third parties or competitors may challenge or circumvent our patents or patent applications, if issued. Granted patents can be challenged and ruled invalid at any time, therefore the grant of a patent is not of itself sufficient to demonstrate our entitlement to a proprietary right. The disallowance of a claim or invalidation of a patent in any one territory can have adverse commercial consequences in other territories.

If our competitors prepare and file patent applications in the United States that claim technology also claimed by us, we may choose to participate in interference proceedings declared by the United States Patent and Trademark Office to determine priority of invention, which could result in substantial cost, even if the eventual outcome is favorable to us. While we have the right to defend patent rights related to our licensed drug candidates and technologies, we are not obligated to do so. In the event that we decide to defend our licensed patent rights, we will be obligated to cover all of the expenses associated with that effort. Because of the extensive time required for development, testing and regulatory review of a potential product, it is possible that before we commercialize any of our products, any related patent may expire or remain in existence for only a short period following commercialization, thus reducing any commercial advantage or financial value attributable to the patent.

If patents are issued to others containing preclusive or conflicting claims and these claims are ultimately determined to be valid, we may be required to obtain licenses to these patents or to develop or obtain alternative technology. Our breach of an existing license or failure to obtain a license to technology required to commercialize our products may seriously harm our business. We also may need to commence litigation to enforce any patents issued to us or to determine the scope and validity of third-party proprietary rights. Litigation would create substantial costs. An adverse outcome in litigation could subject us to significant liabilities to third parties and require us to seek licenses of the disputed rights from third parties or to cease using the technology if such licenses are unavailable.

HepeX-B

Three patent families presently cover HepeX-B, including the two human monoclonal antibodies comprising HepeX-B and its use to treat HBV infection. The patents cover both the treatment of chronic HBV patients with the antibodies and the prevention of liver re-infection in liver transplant recipients. Two of the families correspond each to a separate antibody comprising HepeX-B, with one family owned by us, and the second family jointly owned by Yeda and us. A third family concerns treatment of HBV patients with the combination of the antibodies and is owned by us.

Currently, HepeX-B and its use to treat hepatitis B infection is covered by several issued patents that will expire in 2017. The patents covering the combination of antibodies, if issued, will expire in 2021. Based on the provisions of the Patent Term Extension Act, we currently believe that we would qualify for certain patent term extensions. We believe that we will have sufficient time to commercially utilize the inventions directed to the treatment and prevention of hepatitis B infection in liver transplant patients.

XTL-6865

XTL-6865 is a combination of two human monoclonal antibodies against HCV, Ab68 and Ab65. Three patent families presently cover XTL-6865, including the two human monoclonal antibodies comprising XTL-6865 and its use to treat HCV infection. The patents cover both the treatment of chronic HCV patients with the antibodies and the prevention of liver re-infection in liver transplant recipients. One family concerns one antibody comprising XTL-6865, Ab68. Two families concern the second antibody comprising XTL-6865, Ab65.

The patents covering Ab68 are exclusively licensed to us from the DRK-Blutspendedienst Baden-Wurttemberg (Ulm University).

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The patents covering Ab65 are exclusively licensed to us from Stanford University, California in all territories outside China, and in China, it is co-exclusively licensed to us and Applied Immunogenetics.

Currently, XTL-6865 and its use to treat hepatitis C infection is covered by one issued U.S. patent that will expire in 2019. Additional patents, if issued, will expire between 2019 and 2021. Based on the provisions of the Patent Term Extension Act, we currently believe that we would qualify for certain patent term extensions. We believe that we will have sufficient time to commercially utilize the inventions directed to the treatment and prevention of hepatitis C infection.

XTL-2125

Two patent families presently cover our in-licensed anti-HCV small molecules. Each patent family concerns a different compound and covers both the structure of the compound and its use for the treatment of chronic HCV patients. The patent applications cover the unique structure of the molecules and their use as a pharmaceutical composition for the treatment of HCV. The patents covering XTL-2125 are exclusively licensed to us by B&C Biopharm Co. Ltd.

Currently, XTL-2125 and its use to treat the hepatitis C infection are covered by two patent families that, if issued, will expire in 2023. Based on the provisions of the Patent Term Extension Act, we currently believe that we would qualify for certain patent term extensions. We believe that we will have sufficient time to commercially utilize the inventions directed to the treatment and prevention of hepatitis C infection.

Trimera Technology

Three patent families presently cover the Trimera technology, each covering a different use of the basic technology. The patents cover the Trimera mouse, a method for its production, and its various applications. The patents are exclusively licensed to us by Yeda.

Currently, the Trimera mouse and its various applications are covered by several issued patents that will expire between 2010 and 2015. The patents covering the hepatitis animal model will expire between 2012 and 2016. We believe that we will have sufficient time to commercially utilize the inventions directed to the Trimera technology.

Other Intellectual Property Rights

We depend upon trademarks, trade secrets, know-how and continuing technological advances to develop and maintain our competitive position. To maintain the confidentiality of trade secrets and proprietary information, we require our employees, scientific advisors, consultants and collaborators, upon commencement of a relationship with us, to execute confidentiality agreements and, in the case of parties other than our research and development collaborators, to agree to assign their inventions to us. These agreements are designed to protect our proprietary information and to grant us ownership of technologies that are developed in connection with their relationship with us. These agreements may not, however, provide protection for our trade secrets in the event of unauthorized disclosure of such information.

In addition to patent protection, we may utilize orphan drug regulations to provide market exclusivity for certain of our drug candidates. The orphan drug regulations of the FDA provide incentives to pharmaceutical and biotechnology companies to develop and manufacture drugs for the treatment of rare diseases, currently defined as diseases that exist in fewer than 200,000 individuals in the United States, or, diseases that affect more than 200,000 individuals in the United States but that the sponsor does not realistically anticipate will generate a net profit. Under these provisions, a manufacturer of a designated orphan drug can seek tax benefits, and the holder of the first FDA approval of a designated orphan product will be granted a seven-year period of marketing exclusivity for such FDA-approved orphan product. We believe that certain of the indications for our drug candidates will be eligible for orphan drug designation.

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Licensing Agreements and Collaborations

We have formed strategic alliances with a number of companies for the manufacture and commercialization of our products. Our current key strategic alliances are discussed below. See “Item 5: Operating and Financial Review And Prospects - Obligations and Commitments” which describes contingent milestone payments we have undertaken to make to certain licensors over the life of the licenses described below.

Cubist License

We have entered into a licensing agreement with Cubist dated June 2, 2004, under which we granted to Cubist an exclusive, worldwide license (with the right to sub-license) to commercialize HepeX-B and any other product containing a hMAb or humanized monoclonal antibody or fragment directed at the hepatitis B virus owned or controlled by us. In the event that the actual costs incurred in conducting activities that Cubist determines are necessary or advisable to obtain regulatory approval for HepeX-B for the prevention of recurrent hepatitis B infections in liver transplant patients exceed $33.9 million, any costs in excess shall be borne in equal share by us and Cubist.

Cubist paid us an initial up-front payment of $1 million upon the signing of the agreement, a further aggregate amount of $2 million as collaboration support to be paid in installments until the end of 2005, of which $1 million has been paid through March 31, 2005, and an additional amount of up to $3 million upon achievement of certain regulatory milestones.

Under the agreement, we are entitled to receive royalties from net sales by Cubist, generally ranging from 10% to 17%, depending on levels of net sales achieved by Cubist, subject to certain deductions based on patent protection of HepeX-B in that territory, total costs of HepeX-B development, third party license payments and indemnification obligations.

Cubist has the right to sub-license HepeX-B. The sub-licensee fees we will receive in such cases will vary according to the territory, the subject of the sub-license, the patent protection of HepeX-B in that territory, total costs of HepeX-B development, third party license payments, indemnification obligations and local competition. For example, where HepeX-B is not patent protected and a competing product obtains more than an agreed percentage of the local market, we would receive no royalties on sales of HepeX-B.

Cubist has granted us the non-exclusive right of negotiation during the term of the agreement to obtain all or any portion of the rights to manufacture and supply HepeX-B or any other product containing an hMAb or humanized monoclonal antibody or fragment directed at the hepatitis B virus owned or controlled by us. Furthermore, in certain circumstances, we have the exclusive right to negotiate with Cubist to obtain from Cubist a sub-license to market and sell the HepeX-B or such other product in certain territories.

We agreed that during the term of the agreement and for one year thereafter, we will not research, develop or commercialize any competitive product containing a human or humanized monoclonal antibody or fragment that is directed to and binds with the hepatitis B virus.

The agreement expires on the later of the last valid patent claim covering HepeX-B to expire or 10 years after the first commercial sale of HepeX-B on a country-by-country basis.

XTL-6865 License

XTL-6865 is a combination of two human monoclonal antibodies against HCV, Ab68 and Ab65.

In April 2000, we licensed Ab68 under an exclusive worldwide license from the DRK-Blutspendedienst Baden-Wurttemberg (Ulm University, Germany, or Ulm). Under the terms of this agreement, we are obligated to pay Ulm a specified royalty rate on sales of product incorporating Ab68. We can deduct certain payments that are made to third parties from these royalties, subject to a minimum royalty rate. We are also obligated to pay Ulm a specified percentage of any milestone payments we may receive from any sublicensee to whom we may grant a license or sublicense of Ab68 or technology related to the production of Ab68. We can deduct certain of these payments that are made to third parties from the percentage of milestone payments owed to Ulm, subject to a minimum milestone payment amount. Either party may terminate the agreement, by written notice, upon or after the winding up or insolvency of the other party, or upon or after commitment of a material breach by the other party that cannot be cured, or if curable, has not been cured, within 60 days after receipt of notice. In the absence of such termination, the agreement shall expire upon the expiration of the license granted under the agreement.

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In September 2003, we licensed Ab65 from Stanford University under an exclusive license agreement. Under the terms of this agreement, we have exclusive rights to Ab65 worldwide, excluding China. In China, we have co-exclusive rights with Applied Immunogenetics LLC. Under the terms of this agreement, we must use commercially reasonable efforts to commercialize and market Ab65. We are obligated to make royalty payments to Stanford University on sales of product incorporating Ab65, and we are also obligated to make milestone payments upon the occurrence of certain specified events. The license terminates upon the later of the expiration of last of the licensed patents or at the time of our last royalty payment. Notwithstanding the above, we may terminate this agreement upon specified notice to Stanford University. In addition, should we fail to meet certain developmental milestones for Ab65, our rights to the use of Ab65 become non-exclusive upon notice to that effect to us by Stanford University.

In addition, under an agreement entered into in September 2003, we are obligated to make royalty payments on sales of product incorporating Ab65 to Applied Immunogenetics LLC, a company that previously held non-exclusive rights to Ab65 and returned them to Stanford University, enabling us to gain exclusive rights to Ab65 from Stanford University. Our agreement with Applied Immunogenetics LLC expires on the expiration or termination of our exclusive agreement with Stanford University, as described above.

XTL-2125 License

XTL-2125, the lead product candidate from our HCV-SM small molecule development program, has been licensed from B&C Biopharm Co. Ltd. Under the terms of the agreement, we have exclusive rights to XTL-2125 worldwide, with the exception of Asia, which is shared between the two companies, and B&C retains exclusive rights in Korea. Under the terms of the agreement, we are obligated to make certain milestone payments, as well as royalties on product sales. The license terminates upon the expiration of the last of the licensed patents. Notwithstanding the above, we may terminate this agreement upon specified notice to B&C.

Yeda License

In April of 1993, we entered into a research and license agreement with Yeda, which we refer to as the Yeda Agreement, under which Yeda granted us an exclusive worldwide license to use the Trimera patent portfolio and to exclusively use the information derived from the performance of certain research for the purposes specified in the agreement in any country where a licensed patent covers a product sold under the license or other licensed activity until the date on which the last licensed patent expires or until 12 years from the later of the first commercial sale of a product (or first receipts to us from other licensed activity) in such country, and in any other country until 12 years from the first commercial sale of a product (or first receipts to us from other licensed activity) in that country. Under the agreement, any assignment of the license granted by Yeda requires Yeda's prior written consent.

The Yeda Agreement has undergone a number of amendments, one of the end results of which is that we shall pay to Yeda the following fees: a royalty of 3% of all net sales received by us; 25% of amounts received by us on net sales of third parties (less certain royalties payable by us to third parties), but no more than 3% and no less than 1.5% of such net sales; and a royalty ranging between 20% to 40% on any receipts to us other than our net sales or receipts on net sales made by third parties. Furthermore, such amendments have also changed the termination provisions relating to Yeda’s entitlement to terminate the agreement if we do not pay Yeda a certain minimum amount of annual royalties of $100,000 or $200,000, depending on the year.

In the most recent amendment of the Yeda Agreement, in order to facilitate the grant of the license by us to Cubist under the terms of the HepeX-B collaboration, Yeda received the right to receive at least 1.5% of net sales of HepeX-B by Cubist sub-licensees, regardless of the amount received by us from Cubist in respect of such sales.

Competition

Competition in the pharmaceutical and biotechnology industries is intense. Our competitors include pharmaceutical companies and biotechnology companies, as well as universities and public and private research institutions. In addition, companies that are active in different but related fields represent substantial competition for us. Many of our competitors have significantly greater capital resources, larger research and development staffs and facilities and greater experience in drug development, regulation, manufacturing and marketing than we do. These organizations also compete with us to recruit qualified personnel, attract partners for joint ventures or other collaborations, and license technologies that are competitive with ours. To compete successfully in this industry we must identify novel and unique drugs or methods of treatment and then complete the development of those drugs as treatments in advance of our competitors.

The drugs that we are attempting to develop will have to compete with existing therapies. In addition, a large number of companies are pursuing the development of pharmaceuticals that target the same diseases and conditions that we are targeting. Other companies have products or drug candidates in various stages of pre-clinical or clinical development to treat diseases for which we are also seeking to discover and develop drug candidates. Some of these potential competing drugs are further advanced in development than our drug candidates and may be commercialized earlier.

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Competing Products for Preventing Re-Infection with Hepatitis B in Liver Transplant Patients

The present standard-of-care for preventing hepatitis B in liver transplant patients is HBIg. Our strategy is to replace the existing standard of care with HepeX-B.

Key producers of HBIg in the U.S. are NABI Biopharmaceuticals Inc. and Bayer Biological Products, a division of Bayer Healthcare. Key HBIg producers in the European Union, or E.U., are Biotest AG, ZLB Behring, a subsidiary of CSL Ltd., and Berna Biotech AG. We are not aware of any competing monoclonal antibody against HBV currently in clinical development.

Several small molecules against HBV are presently being used in liver transplant patients. They presently include Lamivudine, a product of Glaxo Smith Kline PLC, and Hepsera, a product of Gilead Sciences Inc., and may include additional small molecule drugs presently in Phase III clinical trials. These drugs are commonly prescribed in combination with HBIg, and not as a replacement. However, several centers have terminated HBIg use and maintain patients on small molecule therapy alone. To our knowledge, the impact of this approach on efficacy has not been established.

Competing Products for Preventing Re-Infection with Hepatitis C Following Liver Transplants

There is no approved therapy for preventing re-infection with HCV following liver transplants. Other companies that may be developing competing treatments to XTL-6865 are:

·   NABI, which develops a hepatitis C immunoglobulin (polyclonal antibody preparation). This therapeutic did not prevent re-infection in Phase I/II trials in liver transplant patients.

·   GenMab A/S, which is developing a single MAb against HCV. This antibody is presently in pre-clinical development.

Competing Products for Treatment of Chronic Hepatitis C

We believe that a significant number of drugs are currently under development that will become available in the future for the treatment of hepatitis C.

At present, the only approved therapies for treatment of chronic HCV are Interferon-based. There are multiple drugs presently under development for the treatment of HCV, most of which are in the pre-clinical or Phase I stage of development. These compounds are developed by both established pharmaceutical companies, as well as by biotech companies. Examples of such companies are: Abbott Laboratories, Anadys Pharmaceuticals, Inc., Boehringer Ingelheim International GmbH, Bristol-Myers Squibb Company, F. Hoffman-LaRoche & Co., GlaxoSmithKline plc, Johnson & Johnson, Merck & Co., Inc., Pfizer Inc., Schering-Plough Corporation, Chiron Corporation, Gilead Sciences, Inc., Human Genome Sciences, Inc., Idenix Pharmaceuticals, Inc., InterMune, Inc., Isis Pharmaceuticals, Inc., SciClone Pharmaceuticals, Inc. and Vertex Pharmaceuticals Incorporated. Many of these companies and organizations, either alone or with their collaborative partners, have substantially greater financial, technical and human resources than we do. In addition, our competitors also include smaller private companies such as Pharmasset, Ltd.

Supply and Manufacturing

We currently have no manufacturing capabilities and do not intend to establish any such capabilities.

HepeX-B

For our current HepeX-B clinical trial, we entered into a contract manufacturing agreement in 2001 with a U.S.-based manufacturer for the supply of our drug product. With the initiation of the license agreement with Cubist, the future supply of the clinical and commercial material will be manufactured by a contract manufacturer to be selected by Cubist, which will be responsible for developing a production process for high scale drug supply.

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XTL-6865

In 2000, we entered into a contract manufacturing agreement with a U.S.-based manufacturer for the supply of the HepeX-C drug product, the single antibody version of XTL-6865, and subsequently under that master agreement for the supply of XTL-6865, the dual-MAb product. We believe that this contract manufacturer will be adequate to satisfy our planned clinical supply needs. For commercial supply of XTL-6865, we intend to contract with a manufacturer to develop a production process for high scale drug supply.

XTL-2125

In 2003, we entered into a contract manufacturing agreement with an Israeli-based manufacturer for the supply of XTL-2125. We believe that this contract manufacturer will be adequate to satisfy our current pre-clinical supply needs. For future clinical supply needs, we intend to contract with a manufacturer to produce our clinical supply needs. For commercial supply of XTL-2125, we intend to contract with a manufacturer to develop a production process for high scale drug supply.

General

At the time of commercial sale, to the extent possible and commercially practicable, we plan to engage a back-up supplier for each of our product candidates. Until such time, we expect that we will rely on a single contract manufacturer to produce each of our product candidates under current good manufacturing practice, or cGMP, regulations. Our third-party manufacturers have a limited numbers of facilities in which our product candidates can be produced and will have limited experience in manufacturing our product candidates in quantities sufficient for conducting clinical trials or for commercialization. Our third-party manufacturers will have other clients and may have other priorities that could affect our contractor’s ability to perform the work satisfactorily and/or on a timely basis. Both of these occurrences would be beyond our control.  We anticipate that we will similarly rely on contract manufacturers for our future proprietary product candidates.

We expect to similarly rely on contract manufacturing relationships for any products that we may in-license or acquire in the future. However, there can be no assurance that we will be able to successfully contract with such manufacturers on terms acceptable to us, or at all.

Contract manufacturers are subject to ongoing periodic inspections by the FDA, the U.S. Drug Enforcement Agency and corresponding state agencies to ensure strict compliance with cGMP and other state and federal regulations. Our contractor in Israel faces similar inspections from Israeli regulatory agencies and from the FDA. We do not have control over third-party manufacturers’ compliance with these regulations and standards, other than through contractual obligations.

If we need to change manufacturers, the FDA and corresponding foreign regulatory agencies must approve these new manufacturers in advance, which will involve testing and additional inspections to ensure compliance with FDA regulations and standards and may require significant lead times and delay. Furthermore, switching manufacturers may be difficult because the number of potential manufacturers is limited. It may be difficult or impossible for us to find a replacement manufacturer quickly or on terms acceptable to us, or at all.

Government and Industry Regulation

Numerous governmental authorities, principally the FDA and corresponding state and foreign regulatory agencies, impose substantial regulations upon the clinical development, manufacture and marketing of our drug candidates and technologies, as well as our ongoing research and development activities. None of our drug candidates have been approved for sale in any market in which we have marketing rights. Before marketing in the United States, any drug that we develop must undergo rigorous pre-clinical testing and clinical trials and an extensive regulatory approval process implemented by the FDA, under the Federal Food, Drug and Cosmetic Act of 1938, as amended. The FDA regulates, among other things, the pre-clinical and clinical testing, safety, efficacy, approval, manufacturing, record keeping, adverse event reporting, packaging, labeling, storage, advertising, promotion, export, sale and distribution of biopharmaceutical products.

The regulatory review and approval process is lengthy, expensive and uncertain. We are required to submit extensive pre-clinical and clinical data and supporting information to the FDA for each indication or use to establish a drug candidate’s safety and efficacy before we can secure FDA approval. The approval process takes many years, requires the expenditure of substantial resources and may involve ongoing requirements for post-marketing studies or surveillance. Before commencing clinical trials in humans, we must submit an IND to the FDA containing, among other things, pre-clinical data, chemistry, manufacturing and control information, and an investigative plan. Our submission of an IND may not result in FDA authorization to commence a clinical trial.

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The FDA may permit expedited development, evaluation, and marketing of new therapies intended to treat persons with serious or life-threatening conditions for which there is an unmet medical need under its fast track drug development programs. A sponsor can apply for fast track designation at the time of submission of an IND, or at any time prior to receiving marketing approval of the new drug application, or NDA. To receive fast track designation, an applicant must demonstrate that the drug:

·   is intended to treat a serious or life-threatening condition;

·   is intended to treat a serious aspect of the condition; and

·   has the potential to address unmet medical needs, and this potential is being evaluated in the planned drug development program.

Clinical testing must meet requirements for institutional review board oversight, informed consent and good clinical practices, and must be conducted pursuant to an IND, unless exempted.

For purposes of NDA approval, clinical trials are typically conducted in the following sequential phases:

·   Phase I: The drug is administered to a small group of humans, either healthy volunteers or patients, to test for safety, dosage tolerance, absorption, metabolism, excretion, and clinical pharmacology.

·   Phase II: Studies are conducted on a larger number of patients to assess the efficacy of the product, to ascertain dose tolerance and the optimal dose range, and to gather additional data relating to safety and potential adverse events.

·   Phase III: Studies establish safety and efficacy in an expanded patient population.

·   Phase IV: The FDA may require a Phase IV to conduct post-marketing studies for purposes of gathering additional evidence of safety and efficacy.

The length of time necessary to complete clinical trials varies significantly and may be difficult to predict. Clinical results are frequently susceptible to varying interpretations that may delay, limit or prevent regulatory approvals. Additional factors that can cause delay or termination of our clinical trials, or that may increase the costs of these trials, include:

·   slow patient enrollment due to the nature of the clinical trial plan, the proximity of patients to clinical sites, the eligibility criteria for participation in the study or other factors;

·   inadequately trained or insufficient personnel at the study site to assist in overseeing and monitoring clinical trials or delays in approvals from a study site’s review board;

·   longer treatment time required to demonstrate efficacy or determine the appropriate product dose;

·   insufficient supply of the drug candidates;

·   adverse medical events or side effects in treated patients; and

·   ineffectiveness of the drug candidates.

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In addition, the FDA may place a clinical trial on hold or terminate it if it concludes that subjects are being exposed to an unacceptable health risk. Any drug is likely to produce some toxicity or undesirable side effects in animals and in humans when administered at sufficiently high doses and/or for a sufficiently long period of time. Unacceptable toxicity or side effects may occur at any dose level at any time in the course of studies in animals designed to identify unacceptable effects of a drug candidate, known as toxicological studies, or clinical trials of drug candidates. The appearance of any unacceptable toxicity or side effect could cause us or regulatory authorities to interrupt, limit, delay or abort the development of any of our drug candidates and could ultimately prevent approval by the FDA or foreign regulatory authorities for any or all targeted indications.

Before receiving FDA approval to market a product, we must demonstrate that the product is safe and effective for its intended use by submitting to the FDA an NDA containing the pre-clinical and clinical data that have been accumulated, together with chemistry and manufacturing and controls specifications and information, and proposed labeling, among other things. The FDA may refuse to accept an NDA for filing if certain content criteria are not met and, even after accepting an NDA, the FDA may often require additional information, including clinical data, before approval of marketing a product.

As part of the approval process, the FDA must inspect and approve each manufacturing facility. Among the conditions of approval is the requirement that a manufacturer’s quality control and manufacturing procedures conform to cGMP. Manufacturers must expend time, money and effort to ensure compliance with cGMP, and the FDA conducts periodic inspections to certify compliance. It may be difficult for our manufacturers or us to comply with the applicable cGMP and other FDA regulatory requirements. If we or our contract manufacturers fail to comply, then the FDA will not allow us to market products that have been affected by the failure.

If the FDA grants approval, the approval will be limited to those disease states, conditions and patient populations for which the product is safe and effective, as demonstrated through clinical studies. Further, a product may be marketed only in those dosage forms and for those indications approved in the NDA. Certain changes to an approved NDA, including, with certain exceptions, any changes to labeling, require approval of a supplemental application before the drug may be marketed as changed. Any products that we manufacture or distribute pursuant to FDA approvals are subject to continuing regulation by the FDA, including compliance with cGMP and the reporting of adverse experiences with the drugs. The nature of marketing claims that the FDA will permit us to make in the labeling and advertising of our products will be limited to those specified in an FDA approval, and the advertising of our products will be subject to comprehensive regulation by the FDA. Claims exceeding those that are approved will constitute a violation of the Federal Food, Drug, and Cosmetic Act. Violations of the Federal Food, Drug, and Cosmetic Act or regulatory requirements at any time during the product development process, approval process, or after approval may result in agency enforcement actions, including withdrawal of approval, recall, seizure of products, injunctions, fines and/or civil or criminal penalties. Any agency enforcement action could have a material adverse effect on our business.

Should we wish to market our products outside the U.S., we must receive marketing authorization from the appropriate regulatory authorities. The requirements governing the conduct of clinical trials, marketing authorization, pricing and reimbursement vary widely from country to country. At present, companies are typically required to apply for foreign marketing authorizations at a national level. However, within the E.U., registration procedures are available to companies wishing to market a product in more than one E.U. member state. If the regulatory authority is satisfied that a company has presented adequate evidence of safety, quality and efficacy, the regulatory authority will grant a marketing authorization. This foreign regulatory approval process involves all of the risks associated with FDA approval discussed above. Our current strategy does call for us to market our drug candidates outside the U.S.

Failure to comply with applicable federal, state and foreign laws and regulations would likely have a material adverse effect on our business. In addition, federal, state and foreign laws and regulations regarding the manufacture and sale of new drugs are subject to future changes. We cannot predict the likelihood, nature, effect or extent of adverse governmental regulation that might arise from future legislative or administrative action, either in the U.S. or abroad.

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Organizational structure

Our wholly-owned subsidiary, XTL Biopharmaceuticals, Inc., is incorporated in Delaware and has its principal place of business in Newton, Massachusetts, U.S.A.

Property, Plants and Equipment

We lease an aggregate of approximately 1,870 square meters of office and laboratory facilities in Rehovot, Israel. The lease in Rehovot expires in December 2006, with an option to extend for an additional year through December 31, 2007.

In addition, XTL Biopharmaceuticals, Inc. leases approximately 60 square meters of office space in Newton, Massachusetts, U.S.A. and approximately 145 square meters in Durham, North Carolina, U.S.A. The lease in Newton expires on August 31, 2005, and the lease in Durham expires on October 31, 2005. We have an option to renew our lease agreements, as needed.

We anticipate that these facilities will be sufficient for our needs through 2006. To our knowledge, there are no environmental issues that affect our use of the properties that we lease.

There are no encumbrances on our rights in these leased properties or on any of the equipment that we own. However, to secure the lease agreements in Israel, we provided a bank guarantee. As of December 31, 2004, the guarantee is secured by pledge on a long-term deposit amounting to $113,000 linked to the Israeli Consumer Price Index (“CPI”), which is included in the balance sheet as a restricted long-term deposit.

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ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

The following discussion and analysis contains forward-looking statements about our plans and expectations of what may happen in the future. Forward-looking statements are based on a number of assumptions and estimates that are inherently subject to significant risks and uncertainties, and our results could differ materially from the results anticipated by our forward-looking statements as a result of many known or unknown factors, including, but not limited to, those factors discussed in “Item 3 - Key Information-Risk Factors” and “Item 4 - Information on the Company.” See also the “Special Cautionary Notice Regarding Forward-Looking Statements” set forth at the beginning of this registration statement.

You should read the following discussion and analysis in conjunction with our audited consolidated financial statements, including the related notes, prepared in accordance with U.S. GAAP for the years ended December 31, 2004, 2003 and 2002, and as of December 31, 2004 and 2003, contained in “Item 18 - Financial Statements” and with any other selected financial data included elsewhere in this registration statement.

Selected Financial Data

The table below presents selected statement of operations and balance sheet data for the fiscal years ended and as of December 31, 2004, 2003, 2002, 2001 and 2000. We have derived the selected financial data for the fiscal years ended December 31, 2004, 2003, and 2002, and as of December 31, 2004 and 2003, from our audited financial statements, included with this registration statement at “Item 18 - Financial Statements.” We have derived the selected financial data for fiscal years ended December 31, 2001 and 2000 and as of December 31, 2002, 2001 and 2000, from other audited financial statements not appearing in this report, which have been prepared in accordance with U.S. GAAP. You should read the selected financial data in conjunction with “Item 5 - Operating and Financial Review and Prospects,” “Item 8 - Financial Information” and “Item 18 - Financial Statements.”

	Years ended December 31,
	2004			2003			2002			2001			2000
	(in thousands, except per share amounts)
Statement of Operations Data:
Revenues
Reimbursed out of pocket expenses	$	3,269		$	—		$	—		$	—		$	—
License		185			—			—			—			—
		3,454			—			—			—			—
Cost of revenues
Reimbursed out of pocket expenses		3,269			—			—			—			—
License		32			—			—			—			—
		3,301			—			—			—			—
Gross margin		153			—			—			—			—
Research and development
Research and development costs		11,985			13,668			13,231			12,187			6,002
Less participations		—			3,229			75			1,133			1,821
		11,985			10,439			13,156			11,054			4,181
General and administrative		4,134			3,105			3,638			3,001			2,334
Business development costs		810			664			916			1,067			486
Impairment of asset held for sale		—			354			—			—			—
Operating loss		(16,776	)		(14,562	)		(17,710	)		(15,122	)		(7,001	)
Other income (expense)
Financial income, net		352			352			597			2,448			1,517
Taxes on income		(49	)		(78	)		(27	)		—			(7	)
Net loss	$	(16,473	)	$	(14,288	)	$	(17,140	)	$	(12,674	)	$	(5,491	)
Net loss per ordinary share
Basic and diluted	$	(0.12	)	$	(0.13	)	$	(0.15	)	$	(0.11	)	$	(0.13	)*
* Restated

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	As of December 31,
		2004		2003		2002		2001		2000
	(in thousands)
Balance Sheet Data:
Cash, cash equivalents, bank deposits and marketable securities	$	22,924	$	22,262	$	35,706	$	52,188	$	64,969
Working capital		20,240		19,967		33,396		50,433		53,752
Total assets		25,624		24,853		38,423		55,106		67,876
Long-term obligations		2,489		1,244		1,017		526		707
Total shareholders’ equity		19,602		20,608		34,830		51,953		64,586

Overview

We are a biopharmaceutical company engaged in the acquisition, research, development and commercialization of pharmaceutical products for the treatment of infectious diseases, particularly the prevention and treatment of hepatitis B and C.

We currently have three products under development:

·   HepeX-B is being developed to prevent re-infection with hepatitis B, known as HBV, in liver transplant patients. HepeX-B is a mixture of two fully human monoclonal antibodies, which binds to the HBV surface antigen, or HBsAg. HepeX-B is currently in a Phase IIb trial in liver transplant patients. Worldwide rights for HepeX-B were licensed to Cubist in 2004, in exchange for certain milestone payments and future royalties on Cubist’s net sales.

·   XTL-6865 is being developed to prevent hepatitis C, known as HCV, re-infection following a liver transplant and for the treatment of chronic HCV. XTL-6865 (formerly known as the HepeX-C program) is a combination of two fully human monoclonal antibodies (Ab68 and Ab65) against the hepatitis C virus E2 envelope protein. A single antibody version of this product was tested in a pilot clinical program that included both Phase I and Phase II clinical trials. In April 2005, we submitted an IND to the FDA in order to commence a Phase Ia/Ib clinical trial later this year for XTL-6865, the dual-MAb product.

·   XTL-2125 is the lead product candidate from our HCV-SM small molecule development program. XTL-2125 is a small molecule non-nucleoside polymerase inhibitor for the treatment of chronic hepatitis C. XTL-2125 is currently in formal toxicity testing, and we expect to make an IND filing to the FDA at the end of 2005 or early in 2006, assuming no toxicity concerns arise.

To date, we have not received approval for the sale of any of our drug candidates in any market and, therefore, have not generated any commercial revenues from the sales of our drug candidates. Moreover, preliminary results of our preclinical or clinical tests do not necessarily predict the final results, and acceptable results in early preclinical or clinical testing might not be obtained in later clinical trials. Drug candidates in the later stages of clinical development may fail to show the desired safety and efficacy traits despite having progressed through initial clinical testing. We have received license and reimbursed out of pocket expense revenue pursuant to our agreement with Cubist with respect to HepeX-B, although HepeX-B has not yet been commercialized.

We were established as a corporation under the laws of the State of Israel in 1993, and commenced operations to use and commercialize technology developed at the Weizmann Institute, in Rehovot, Israel. Since commencing operations, our activities have been primarily devoted to developing our technologies and drug candidates, acquiring pre-clinical and clinical-stage compounds, raising capital, purchasing assets for our facilities, and recruiting personnel. We are a development stage company and have no product sales to date. Our major sources of working capital have been proceeds from various private placements of equity securities, option and warrant exercises, from our initial public offering and from our placing and open offer transaction.

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We are a development stage company and have devoted substantially all of our efforts to the discovery, development and in-licensing of drug candidates. We have incurred negative cash flow from operations each year since our inception. We anticipate incurring negative cash flows from operating activities for the foreseeable future. We have spent, and expect to continue to spend, substantial amounts in connection with implementing our business strategy, including our planned product development efforts, our clinical trials and potential in-licensing and acquisition opportunities.

Our revenues currently consist of license fees and reimbursed out of pocket expenses from Cubist, and may include certain additional payments contingent upon achievement of regulatory milestones and royalties if our collaboration is successful. We recognize the license fee revenues from our agreement with Cubist ratably over the expected term until regulatory approval is obtained, with un-amortized amounts recorded as deferred revenues. We also recognize revenue related to reimbursed out of pocket expenses at the time that that we provide development services to Cubist.

Our cost of revenues consist of costs associated with the Cubist program and consist primarily of salaries and related personnel costs, fees paid to consultants and other third-parties for clinical and laboratory development, facilities-related and other expenses relating to the design, development, testing, and enhancement of our out-licensed product candidate. In addition, we recognize license fee expenses associated with our agreement with Yeda proportional to our license fee agreement with Cubist, with un-amortized amounts recorded as deferred expenses.

Our research and development costs consist primarily of salaries and related personnel costs, fees paid to consultants and other third-parties for clinical and laboratory development, facilities-related and other expenses relating to the design, development, testing, and enhancement of our product candidates, as well as expenses related to in-licensing and acquisition of new product candidates. We expense our research and development costs as they are incurred.

Our participations consist primarily of grants received from the Israeli government in support of our research and development activities. These grants are recognized as a reduction of expense as the related costs are incurred. See “-Research and Development, Patents and Licenses - Israeli Government Research and Development Grants” below.

Our general and administrative expenses consist primarily of salaries and related expenses for executive, finance and other administrative personnel, professional fees, director fees and other corporate expenses, including investor relations, and facilities related expenses. We expense our general and administrative expenses as they are incurred.

Our business development costs consist primarily of salaries and related expenses for business development personnel, travel and professional fees. Our business development activities are related to partnering activities for our drug programs and for seeking new research and development collaborations. We expense our business development expenses as they are incurred.

Our results of operations include non-cash compensation expense as a result of the grants of stock options and warrants. Compensation expense for fixed award options and warrants granted to employees, directors and consultants represents the intrinsic value (the difference between the stock price of the common stock and the exercise price of the options or warrants) of the options and warrants at the date of grant. For variable awards, we consider the difference between the stock price at reporting date and the exercise price, in the case where a measurement date has not been reached. The compensation cost is recorded over the respective vesting periods of the individual stock options and warrants. The expense is included in the respective categories of expense in the statement of operations. We may incur significant non-cash compensation expense in the future, as a result of adopting the revised Statement of Financial Accounting Standards No. 123, “Share-Based Payment,” which we elected to adopt on January 1, 2005 (see “-Recently Issued Accounting Standards” below).

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Our ongoing clinical trials will be lengthy and expensive. Even if these trials show that our drug candidates are effective in treating certain indications, there is no guarantee that we will be able to record commercial sales of any of our product candidates in the near future. In addition, we expect losses to continue as we continue to fund development of our drug candidates. As we continue our development efforts, we may enter into additional third-party collaborative agreements and may incur additional expenses, such as licensing fees and milestone payments. As a result, our periodical results may fluctuate and a period-by-period comparison of our operating results may not be a meaningful indication of our future performance.

Results of Operations

Years Ended December 31, 2004 and 2003

Revenue. Revenue for the year ended December 31, 2004, was $3,454,000, as compared to no revenue for the year ended December 31, 2003. Revenue for the year ended December 31, 2004, was due to $3,269,000 associated with reimbursement for development expenses for HepeX-B that were incurred pursuant to our licensing agreement with Cubist, as well as to $185,000 in licensing revenue pursuant to our agreement with Cubist. We signed our agreement with Cubist in June 2004.

We expect our revenue to increase over the next year as we continue to develop HepeX-B and as we benefit from further reimbursement for development expenses and a full-year of licensing revenue pursuant to our agreement with Cubist.

Cost of Revenues. Cost of revenues for the year ended December 31, 2004, was $3,301,000, as compared to no cost of revenues for the year ended December 31, 2003. Cost of revenues for the year ended December 31, 2004, was due to $3,269,000 in development expenses for HepeX-B that were incurred pursuant to our licensing agreement with Cubist, as well as due to $32,000 in licensing expense pursuant to our licensing agreement with Yeda.

We expect our cost of revenues to increase over the next year as we continue to develop HepeX-B, pursuant to our agreement with Cubist. In addition, we expect to incur a full year of expense amortization of Yeda’s portion of our licensing fee pursuant to our agreement with Cubist.

Research and Development Costs. Research and development costs decreased by $1,683,000 to $11,985,000 for the year ended December 31, 2004, as compared to expenses of $13,668,000 for the year ended December 31, 2003. The decrease in research and development costs was due primarily to the absence of approximately $1,565,000 in expenses related to early stage discovery research activities related to infectious diseases, a $735,000 decrease in expenses related to the development and clinical program of HepeX-B, due to the initiation of the collaboration agreement with Cubist and the subsequent inclusion of development costs related to HepeX-B in Cost of Revenues above and a decrease of approximately $835,000 in expenses related to the XTL-6865 development and clinical program. This decrease was partially offset by an approximate $1,452,000 increase in expenses associated with our HCV-SM small molecule development program (primarily XTL-2125).

We expect our research and development costs to decrease over the next year as a result of the inclusion of development costs related to HepeX-B in Cost of Revenues above and following the implementation of our 2005 restructuring plan, as described in “Trend Information” below.

Participations. There were no participations from the Office of the Chief Scientist for the year ended December 31, 2004, as compared to participations of $3,229,000 in for the year ended December 31, 2003. Participations received in 2003 were due to the Office of the Chief Scientist’s decision to approve our grant applications that we had submitted in 2003 and in 2002. We ceased requesting grants from the Office of the Chief Scientist in 2004 due to the potential contingent liability associated with the transfer of manufacturing rights outside Israel.

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General and Administrative Expenses. General and administrative expenses increased by $1,029,000 to $4,134,000 for the year ended December 31, 2004, as compared to expenses of $3,105,000 for the year ended December 31, 2003. The increase in general and administrative expenses was due primarily to a $646,000 increase in payroll and related costs, which included a $382,000 charge related to the termination of our former Chief Executive Officer pursuant to his employment agreement as well to increased expenses related to patent registration fees and professional fees.

We expect our general and administrative costs to decrease over the next year following the implementation of our 2005 restructuring plan, as described in “Trend Information” below.

Business Development Costs. Business development costs increased by $146,000 to $810,000 for the year ended December 31, 2004, as compared to expenses of $664,000 for the year ended December 31, 2003. The increase in business developments costs was due primarily to a $244,000 increase in professional fees associated with our agreement with Cubist that was signed in June 2004, offset by reduced travel-related expenses.

Impairment of Asset Held For Sale. There was no impairment charge recorded for the year ended December 31, 2004, as compared $354,000 in impairment charges for the year ended December 31, 2003. The impairment charge recorded for the year ended December 31, 2003, was as a result of our decision to sell certain assets associated with early stage discovery research activities, which we decided to cease during 2003.

Financial Income. Financial income for the year ended December 31, 2004, was $352,000, as compared to financial income of $352,000 for the year ended December 31, 2003. Financial income was flat due to reduced interest income earned on lower average cash balances for the year ended December 31, 2004, as compared to the year ended December 31, 2003, offset by an absence of foreign exchange losses which we incurred in 2003.

Income Taxes. Income tax expense decreased by $29,000 to $49,000 for the year ended December 31, 2004, as compared to expenses of $78,000 for year ended December 31, 2003. Our Income tax expense is attributable to taxable income from the continuing operations of our subsidiary in the United States. This income is eliminated upon consolidation of our financial statements.

Years Ended December 31, 2003 and 2002

Revenue. We did not have any revenue for the years ended December 31, 2003, and December 31, 2002.

Cost of Revenues. We did not have any cost of revenue expenses for the years ended December 31, 2003 and December 31, 2002.

Research and Development Costs. Research and development costs increased by $437,000 to $13,668,000 for the year ended December 31, 2003, as compared to expenses of $13,231,000 for the year ended December 31, 2002. The increase in research and development costs was due primarily to an increase of approximately $2,796,000 in expenses related to the XTL-6865 development and clinical program, and a $794,000 increase in expenses associated with our HCV-SM small molecule development program (primarily XTL-2125). This increase was partially offset by a decrease of approximately $2,905,000 in expenses related to early stage discovery research activities related to infectious diseases, which we ceased in 2003, and due to a $248,000 decrease in expenses related to the development and clinical program of HepeX-B.

Participations. Participations increased by $3,154,000 to $3,229,000 for the year ended December 31, 2003, as compared to $75,000 for the year ended December 31, 2002. The increase in participations was due to the Office of the Chief Scientist’s decision to approve our grant applications that we had submitted in the current and prior year.

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General and Administrative Expenses. General and administrative expenses decreased by $533,000 to $3,105,000 for the year ended December 31, 2003, as compared to expenses of $3,638,000 for the year ended December 31, 2002. The decrease in general and administrative expenses was due primarily to a $460,000 decrease in employee compensation expenses and a $370,000 decrease in corporate communications expenses. This decrease was partially offset by a one-time $344,000 expense related to our annual general meeting that took place in June 2003.

Business Development Costs. Business development costs decreased by $252,000 to $664,000 for the year ended December 31, 2003, as compared to expenses of $916,000 for the year ended December 31, 2002. The decrease in business development costs was due primarily to a $159,000 decrease in employee compensation expenses associated with the departure of one of our business development staff.

Impairment of Asset Held for Sale. For the year ended December 31, 2003, we recorded a $354,000 impairment charge as a result of our decision to sell certain assets associated with early stage discovery research activities related to infectious diseases which we decided to cease during 2003. There was no impairment charge recorded for the year ended December 31, 2002.

Financial Income. Financial income for the year ended December 31, 2003 decreased by $245,000 to $352,000 as compared to financial income of $597,000 for the year ended December 31, 2002. The decrease in financial income resulted from a lower level of invested funds and the general decline in market interest rates when compared to the prior year.

Income Taxes. Income tax expense increased by $51,000 to $78,000 for the year ended December 31, 2003, as compared to expenses of $27,000 for year ended December 31, 2002. Our Income tax expense is attributable to taxable income from the continuing operations of our subsidiary in the United States. This income is eliminated upon consolidation of our financial statements.

2003 and 2002 Restructurings

In 2003, we implemented and completed a restructuring, which we sometimes refer to as the “2003 restructuring.” As a result of this restructuring, we ceased all early-stage discovery research activities related to infectious diseases. The 2003 restructuring included a 20-person reduction in our workforce in Israel, 18 of whom were in research and development and two of whom were in general and administrative. As part of the 2003 restructuring, we took a charge in 2003 of $74,000, relating to employee dismissal costs, $58,000 of which was included in research and development costs and $16,000 of which was included in general and administrative expenses. We paid all of these amounts in 2003. As part of the 2003 restructuring, we reevaluated our long-lived assets in accordance with FAS No. 144, “Accounting for the Impairment or Disposal of Long Lived Assets,” and recorded a non-cash impairment charge of $354,000 of fixed assets for the year ended December 31, 2003.

During 2002, we implemented and completed a restructuring, which we sometimes refer to as the “2002 restructuring.” As a result of this restructuring, we reduced certain early stage research expenditures and focused our efforts on our later stage products. The 2002 restructuring included a 16-person reduction in our workforce, primarily in Israel, 11 of whom were in research and development, four of whom were in general and administrative and one of whom was in business development. As part of the restructuring, we took a charge in 2002 of $147,000, relating to employee dismissal costs, $65,000 of which was included in research and development costs, $68,000 of which was included in general and administrative expenses and $14,000 of which was included in business development expenses. We paid all of these amounts in 2002.

Critical Accounting Policies

The discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amount of assets and liabilities and related disclosure of contingent assets and liabilities at the date of our financial statements and the reported amounts of revenues and expenses during the applicable period. Actual results may differ from these estimates under different assumptions or conditions.

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We define critical accounting policies as those that are reflective of significant judgments and uncertainties and which may potentially result in materially different results under different assumptions and conditions. In applying these critical accounting policies, our management uses its judgment to determine the appropriate assumptions to be used in making certain estimates. These estimates are subject to an inherent degree of uncertainty. Our critical accounting policies include the following:

Functional Currency. In preparing our consolidated financial statements, we translate non-U.S. dollar amounts in the financial statements into U.S. dollars. Under relevant accounting guidance, the treatment of any gains or losses resulting from this translation is dependent upon management’s determination of the functional currency. The functional currency is determined based on management’s judgment and involves consideration of all relevant economic facts and circumstances affecting our business. Generally, the currency in which a company transacts a majority of its transactions would be considered the functional currency. The currency of the primary economic environment in which our operations are conducted is the U.S. dollar. We generate all of our revenues in U.S. dollars, and significant parts of our operating expenses and capital expenditures are in U.S. dollars. In addition, we hold most of our cash, cash equivalents, bank deposits and marketable securities in U.S. dollars. Thus, our functional currency is the U.S. dollar.

Since the U.S. dollar is the primary currency in the economic environment in which we operate, monetary accounts maintained in currencies other than the U.S. dollar (principally cash and liabilities) are re-measured using the representative foreign exchange rate at the balance sheet date. Operational accounts and non-monetary balance sheet accounts are measured and recorded at the rate in effect at the date of the transaction.

Revenue Recognition. We recognize the revenue from our licensing agreement with Cubist under the provisions of EITF 00-21 entitled “Revenue Arrangements with Multiple Deliverables” and SAB 104 entitled “Revenue Recognition.” Under those terms, we are required to defer all revenue from multiple-element arrangements if sufficient objective and reliable evidence of fair value does not exist for the allocation of revenue to the various elements of the arrangement. Since we have not been able to determine the fair value of each unit of accounting, the Cubist agreement was accounted for as one unit of accounting, after failing the separation criteria. We, therefore, recognize revenue on the Cubist agreement ratably over the life of the arrangement. If actual future results vary, we may need to adjust our estimates, which could have an impact on the timing and amount of revenue to be recognized.

In addition, Cubist has requested that we provide development services that are reimbursed by them. As required by EITF 01-14 “Income Statement Characterization of Reimbursements Received for “Out-of-Pocket” Expenses Incurred,” amounts paid by us, as a principal, as “out-of-pocket” costs are included in the cost of revenues as reimbursable out-of-pocket expenses, and the reimbursements we receive as a principal are reported as reimbursed out-of-pocket revenues.

Stock Compensation. We have granted options to employees, directors and consultants, as well as warrants to other third parties. We account for stock-based employee compensation arrangements using the intrinsic value method in accordance with provisions of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” or APB 25, and Financial Accounting Standards Board Interpretation No. 28, “Accounting for Stock Appreciation Rights and Other Variable Stock Option or Award Plans,” or FIN 28, and we comply with the disclosure provisions of Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation,” or FAS 123 as amended by FAS No. 148, “Accounting for Stock-Based Compensation-Transition and Disclosure,” or FAS 148.

Under APB 25, compensation expense is based on the difference, if any, on the date of grant, between the fair value of our ordinary shares and the exercise price. When the number of the underlying shares or the exercise price is not known at the grant date, we update each period the compensation expenses until such data becomes known.

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The alternative method to the intrinsic value method of accounting for stock-based compensation is the fair value approach prescribed by FAS 123, as amended by FAS 148. If we followed the fair value approach, we would be required to record deferred compensation based on the fair value of the stock option at the date of grant. The fair value of the stock option is required to be computed using an option-pricing model, such as the Black-Scholes option valuation model, at the date of the stock option grant. The deferred compensation calculated under the fair value method would then be amortized over the respective vesting period of the stock option.

We account for equity instruments issued to non-employees in accordance with the fair value method prescribed by FAS 123 and the provisions Emerging Issues Task Force Issue No. 96-18, "Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling Goods or Services," or EITF 96-18.

Accounting For Income Taxes. In preparing our consolidated financial statements, we are required to estimate our income taxes in each of the jurisdictions in which we operate. This process requires management to estimate our actual current tax exposure and assess temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities. Deferred taxes are determined utilizing the asset and liability method based on the estimated future tax effects of differences between the financial accounting and tax bases of assets and liabilities under the applicable tax laws. Deferred tax balances are computed using the tax rates expected to be in effect when these differences reversed. Valuation allowances are provided if, based upon the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. We must then assess the likelihood that our deferred tax assets will be recovered from future taxable income and, to the extent we believe that recovery is not likely, we must establish a valuation allowance. We have fully offset our Israeli deferred tax assets with a valuation allowance. Our lack of earnings history and the uncertainty surrounding our ability to generate taxable income in the future were the primary factors considered by management in establishing the valuation allowance. Our current income tax expense results from taxes imposed on our U.S.-based subsidiary.

Paragraph 9(f) of FAS 109, “Accounting for Income Taxes”, or FAS 109, prohibits the recognition of deferred tax liabilities or assets that arise from differences between the financial reporting and tax bases of assets and liabilities that are measured from the local currency into dollars using historical exchange rates and that result from changes in exchange rates or indexing for tax purposes. Consequently, the above-mentioned differences were not reflected in the computation of deferred tax assets and liabilities.

Impairment. We have complied with FAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” or FAS 144, since January 1, 2002. Pursuant to FAS 144, long-lived assets to be held and used by an entity are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. Under FAS 144, if the sum of the expected future cash flows (undiscounted and without interest charges) of the long-lived assets held and used is less than the carrying amount of such assets, an impairment loss would be recognized, and the assets are written down to their estimated fair values. Assets “held for sale” are reported at the lower of their carrying amount or fair value less estimated costs to sell.

Recently Issued Accounting Standards

FAS 123 (Revised 2004) Share-based Payment. In December 2004, the Financial Accounting Standards Board, or FASB, issued the revised Statement of Financial Accounting Standards No. 123, “Share-Based Payment,” or FAS 123R, which addresses the accounting for share-based payment transactions in which we obtain employee services in exchange for (a) our equity instruments or (b) liabilities that are based on the fair value of our equity instruments or that may be settled by the issuance of such equity instruments. FAS 123R eliminates the ability to account for employee share-based payment transactions using APB 25, and requires instead that such transactions be accounted for using the grant-date fair value based method. FAS 123R will be effective as of the beginning of the first interim or annual reporting period that begins after June 15, 2005. Early adoption of FAS 123R is encouraged.

On April 15, 2005, the Securities and Exchange Commission approved a new rule allowing companies to implement FAS 123R at the beginning of their first annual period, rather than the first interim period, beginning after June 15, 2005. The SEC’s new rule does not change the accounting required by FAS 123R; it only changes the dates of compliance with the standard.

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We implemented FAS 123R effective January 1, 2005. FAS 123R applies to all awards granted or modified after the statement’s effective date. In addition, compensation cost for the unvested portion of previously granted awards that remain outstanding on the statement’s effective date shall be recognized on or after the effective date, as the related services are rendered, based on the awards’ grant-date fair value as previously calculated for the pro-forma disclosure under FAS 123.

We estimate that the cumulative effect of adopting FAS 123R as of January 1, 2005, based on the awards outstanding as of December 31, 2004, will be approximately $22,000. We expect that upon the adoption of FAS 123R, we will apply the modified prospective application transition method, as permitted by the statement. Under such transition method, upon the adoption of FAS 123R, our financial statements for periods prior to the effective date of the statement will not be restated.

We expect that this statement may have material effect on our financial position and results of operations. The impact of this statement on our financial statements or results of operations in 2005 and beyond will depend upon various factors, among them our future compensation strategy.

FAS 153 “Exchanges of Nonmonetary Assets - An Amendment of APB Opinion No. 29.”In December 2004, the FASB issued FAS No. 153, “Exchanges of Nonmonetary Assets - An Amendment of APB Opinion No. 29” or FAS 153. FAS 153 amends APB Opinion No. 29, Accounting for Nonmonetary Transactions (Opinion 29). The amendments made by FAS 153 are based on the principle that exchanges of non-monetary assets should be measured based on the fair value of the assets exchanged. Further, the amendments eliminate the exception for non-monetary exchanges of similar productive assets and replace it with a general exception for exchanges of non-monetary assets that do not have commercial substance. The provisions in FAS 153 are effective for non-monetary asset exchanges occurring in fiscal periods beginning after December 15, 2005 (January 1, 2006 for us). Early application of the FAS 153 is permitted. The provisions of FAS 153 shall be applied prospectively. We do not expect the adoption of FAS 153 to have a material effect on our financial statements or our results of operations.

Impact of Inflation and Currency Fluctuations

We generate all of our revenues and hold most of our cash, cash equivalents, bank deposits and marketable securities in U.S. dollars. While a substantial amount of our operating expenses are in U.S. dollars, we incur a portion of our expenses in New Israeli Shekels. In addition, we also pay for some of our services and supplies in the local currencies of our suppliers. As a result, we are exposed to the risk that the U.S. dollar will be devalued against the New Israeli Shekel or other currencies, and as result our financial results could be harmed if we are unable to guard against currency fluctuations in Israel or other countries in which services and supplies are obtained in the future. Accordingly, we may enter into currency hedging transactions to decrease the risk of financial exposure from fluctuations in the exchange rates of currencies. These measures, however, may not adequately protect us from the adverse effects of inflation in Israel. In addition, we are exposed to the risk that the rate of inflation in Israel will exceed the rate of devaluation of the New Israeli Shekel in relation to the dollar or that the timing of any devaluation may lag behind inflation in Israel. To date, our business has not been materially adversely affected by changes in the U.S. dollar exchange rate or by effects of inflation in Israel.

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Governmental Economic, Fiscal, Monetary or Political Policies that Materially Affected or Could Materially Affect Our Operations

Israeli companies are generally subject to income tax at the corporate tax rate of 35%, which was reduced to 34% in January 2005 and will be further reduced to 32% in 2006 and 30% in 2007. However, we have been granted approved enterprise status, and we are, therefore, eligible for a reduced corporate tax under the Law for the Encouragement of Capital Investments, 1959. Subject to compliance with applicable requirements, the portion of our profits derived from the approved enterprise program will be tax-exempt for a period of two years commencing in the first year in which we generate taxable income and will be subject, for a period of five to eight years, to a reduced corporate tax of between 10% and 25%, depending on the percentage of non-Israeli investors holding our ordinary shares. The period of tax benefits with respect to our approved enterprise program has not yet commenced because we have yet to realize taxable income. These benefits should result in income recognized by us being tax exempt or taxed at a lower rate for a specified period after we begin to report taxable income and exhaust any net operating loss carry-forwards. However, these benefits may not be applied to reduce the U.S. federal tax rate for any income derived by our U.S. subsidiary. There can be no assurance that such tax benefits will continue in the future at their current levels or otherwise.

As of December 31, 2004, we did not have any taxable income. As of December 31, 2004, our net operating loss carry-forwards for Israeli tax purposes amounted to approximately $92 million. Under Israeli law, these net-operating losses may be carried forward indefinitely and offset against future taxable income, including capital gains, with no expiration date.

For a description of Israeli government policies that affect our research and development expenses, and the financing of our research and development, see "-Research and Development, Patents and Licenses- Israeli Government Research and Development Programs" in this Item 5 below.

Liquidity and Capital Resources

We have financed our operations from inception primarily through our initial public offering, various private placement transactions, our August 2004 placing and open offer transaction and option and warrant exercises. As of December 31, 2004, we had received net proceeds of $45.7 million from our initial public offering, net proceeds of $15.4 million from the recent placing and open offer transaction, net proceeds of approximately $43.3 million from various private placement transactions, and proceeds of $0.5 million from the exercise of options and warrants.

Following the initiation of our 2005 restructuring discussed below, we believe that our current cash, cash equivalents, and short-term bank deposits will provide us with capital to support our clinical and pre-clinical programs for our drug candidates within our portfolio through the end of 2006.

As of December 31, 2004, we had $22.9 million in cash, cash equivalents, and short-term bank deposits, an increase of $0.6 million from December 31, 2003. Cash used in operating activities for the year ended December 31, 2004, was $14.5 million, as compared to $13.3 million for the year ended December 31, 2003. This increase in cash used in operating activities was due primarily to increased expenditures associated with the execution of our business plan. For the year ended December 31, 2004, net cash used in investing activities of $7.7 million was primarily the result of making short-term bank deposits following the placing and open offer transaction that closed in August 2004. For the year ended December 31, 2004, net cash provided by financing activities of $15.4 million was the result of the net proceeds of $15.4 million generated from our placing and open offer transaction that closed in August 2004.

We believe that our $22.9 million in cash, cash equivalents and short-term bank deposits as of December 31, 2004, will be sufficient to enable us to meet our planned operating needs and capital expenditures through the end of 2006. Our cash and cash equivalents and short-term securities, as of December 31, 2004, are invested in highly liquid investments such as cash and short-term bank deposits. As of December 31, 2004, we are unaware of any known trends or any known demands, commitments, events, or uncertainties that will, or that are reasonably likely to, result in a material increase or decrease in our required liquidity. We expect that our liquidity needs throughout 2005 will continue to be funded from existing cash, cash equivalents and short-term bank deposits.

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Our forecast of the period of time through which our cash, cash equivalents and short-term investments will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties. The actual amount of funds we will need to operate is subject to many factors, some of which are beyond our control. These factors include the following

·   the timing of expenses associated with manufacturing and product development of the proprietary drug candidates within our portfolio and those that may be in-licensed, partnered or acquired;

·   our ability to achieve our milestones under licensing arrangements;

·   the timing of the in-licensing, partnering and acquisition of new product opportunities; and

·   the costs involved in prosecuting and enforcing patent claims and other intellectual property rights.

We have based our estimate on assumptions that may prove to be inaccurate. We may need to obtain additional funds sooner or in greater amounts than we currently anticipate. Potential sources of financing may be obtained through strategic relationships, public or private sales of our equity or debt securities, and other sources. We may seek to access the public or private equity markets when conditions are favorable due to our long-term capital requirements. We do not have any committed sources of financing at this time, and it is uncertain whether additional funding will be available when we need it on terms that will be acceptable to us, or at all. If we raise funds by selling additional shares of our ordinary shares or other securities convertible into shares of our ordinary shares, the ownership interest of our existing shareholders will be diluted. If we are not able to obtain financing when needed, we may be unable to carry out our business plan. As a result, we may have to significantly limit our operations, and our business, financial condition and results of operations would be materially harmed.

Off-Balance Sheet Arrangements

We have not entered into any transactions with unconsolidated entities whereby we have financial guarantees, subordinated retained interests, derivative instruments or other contingent arrangements that expose us to material continuing risks, contingent liabilities, or any other obligations under a variable interest in an unconsolidated entity that provides us with financing, liquidity, market risk or credit risk support.

Obligations and Commitments

As of December 31, 2004, we have known contractual obligations, commitments and contingencies of $2,352,000. Of this amount, $1,129,000 relates to research and development agreements, all of which is due within the next year. The additional $1,223,000 relates to our current operating lease obligations, of which $381,000 is due within the next year, with the remaining balance due as per the schedule below.

	Payment due by period
Contractual obligations	Total		Less than 1 year		1-3 years		More than 3 years
Research & development agreements	$	1,129,000	$	1,129,000	$	—	$	—
Operating leases		1,223,000		381,000		842,000		—
Total	$	2,352,000	$	1,510,000	$	842,000	$	—

Additionally, we have undertaken to make contingent milestone payments to certain licensors of up to approximately $14.5 million over the life of the licenses, of which $8.8 million will be due upon or following regulatory approval of the drugs. In some cases, these contingent payments will only be triggered upon receipt of royalties on sales of related products and in certain cases will partially offset royalties we would otherwise owe those licensors.

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In addition, we have undertaken to make contingent payments to the Office of the Chief Scientist of up to approximately $16.1 million, all of which is due from royalties of approximately 3%-5% from proceeds from net sales of products in the research and development of which the Israeli government participated in by way of grants, as discussed in the immediately following section.

Research and Development, Patents and Licenses

Research and development costs for the years ended December 31, 2004, 2003 and 2002 were $11,985,000, $13,668,000 and $13,231,000, respectively, not including government participations of $0 in 2004, $3,229,000 in 2003 and $75,000 in 2002. Research and development expenses consist primarily of salaries and related personnel costs, fees paid to consultants and outside service providers for clinical and laboratory development, facilities-related and other expenses relating to the design, development, testing, and enhancement of our product candidates and technologies, as well as expenses related to in-licensing of new product candidates.

The following table sets forth the research and development costs per project for the periods presented. As discussed in “Results of Operations” above, due to the initiation of the collaboration agreement with Cubist in June 2004, development costs related to HepeX-B were included in Cost of Revenues after that date.

	Years ended December 31,
	2004		2003		2002		Cumulative, as of December 31, 2004
HepeX-B	$	3,301,000	$	4,036,000	$	4,284,000	$	20,973,000
XTL-6865		5,452,000		6,287,000		3,491,000		18,913,000
XTL-2125		3,232,000		1,780,000		986,000		5,998,000

HepeX-B is presently being studied in a Phase IIb clinical trial in liver transplant patients. We submitted an IND to the FDA in order to commence a Phase Ia/Ib clinical trial later this year for XTL-6865. XTL-2125 is currently in formal toxicity testing, and we expect to make an IND filing to the FDA at the end of 2005 or early in 2006, assuming no toxicity concerns arise. Whether or not and how quickly we complete these clinical trials is dependent on a variety of factors, including the rate at which we are able to engage clinical trial sites and the rate of enrollment of patients. As such, the costs associated with the development of our drug candidates may change significantly. For a further discussion of factors that may affect our research and development, see “Item 3: Risk Factors - Risks Related to Our Business,” and “Item 4: Information on the Company - Business Overview - Products Under Development” above.

Israeli Government Research and Development Grants

We participated in programs offered by the Office of the Chief Scientist under the Industry, Trade and Labor Ministry of Israel that support research and development activities. We received grants from the Office of the Chief Scientist for the years ended December 31, 2004, 2003 and 2002 of $0, $3,229,000 and $75,000, respectively. We have not applied for grants from the Office of the Chief Scientist for the years 2004 and 2005.

We received grants from the Office of the Chief Scientist for several projects. Under the terms of these grants, we will be required to pay a royalty ranging between 3% to 5% of the net sales of products developed from an Office of the Chief Scientist-funded project, beginning with the commencement of sales of such products and ending when 100% of the dollar value of the grant is repaid (100% plus LIBOR interest applicable to grants received on or after January 1, 1999). The royalty rate (between 3% and 5%) varies depending on the amount of years that lapse between receipt of the grant and its repayment by us. At the time grants were received, successful development of the related projects was not assured. In the case of failure of a project that was partly financed, as above, we are not obligated to pay any such royalties. At December 31, 2004, the maximum amount of the contingent liability in respect of royalties related to ongoing projects is $3,683,000.

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Israeli law requires that the manufacture of products developed with government grants be carried out in Israel, unless the Office of the Chief Scientist provides a special approval to the contrary. This approval, if provided, is generally conditioned on an increase in the total amount to be repaid to the Office of the Chief Scientist to between 120% and 300% of the amount of funds granted. The specific increase within this range would depend on the extent of the manufacturing to be conducted outside of Israel. Alternatively, the restriction on manufacturing outside of Israel shall not apply to the extent that plans to manufacture were disclosed when filing the application for funding (and provided the application was approved based on the information disclosed in the application). In such circumstances, the Office of the Chief Scientist will take into account the proposal that Office of the Chief Scientist-funded projects will have an overseas manufacturing component. Under applicable Israeli law, Israeli government consent is required to transfer to Israeli third parties technologies developed under projects which the government funded. Transfer of Office of the Chief Scientist funded technologies outside of Israel is prohibited. Israeli law further specifies that both the transfer of know-how as well as the transfer of intellectual property rights in such know-how are subject to the same restrictions. These restrictions do not apply to exports from Israel or the sale of products developed with these technologies.

We have received the approval of the Israeli government for the transfer of manufacturing rights of our HepeX-B product under the terms of the agreement with Cubist. As a consequence, we are obligated to repay the grants received from the Office of the Chief Scientist for the financing of the HepeX-B product from any amounts received by us from Cubist due to the sales of HepeX-B product, at a percentage rate per annum calculated based on the aggregate amount of grants received from the Office of the Chief Scientist divided by all amounts invested by us in the research and development activities of HepeX-B, and up to an aggregate amount of 300% of the original amounts received for such project, including interest at the LIBOR rate. As of December 31, 2004, the aggregate amount received from the Office of the Chief Scientist for the financing of the HepeX-B project including interest and LIBOR rate is equal to $4,145,000. At December 31, 2004, the maximum amount of the contingent liability in respect of royalties related to HepeX-B product is $12,435,000.

Trend Information

Industry Trends

There is a general trend towards consolidation and increased competitiveness in the pharmaceutical industry. Our competitors include pharmaceutical companies and biotechnology companies, as well as universities and public and private research institutions. Many of our competitors have significantly greater capital resources, larger research and development staffs and facilities and greater experience in drug development, regulation, manufacturing and marketing than we do. These organizations also compete with us to recruit qualified personnel, attract partners for joint ventures or other collaborations, and license technologies that are competitive with ours. As a result, our competitors may be able to more easily develop technologies and products that could render our technologies or our drug candidates obsolete or noncompetitive.

2005 Restructuring Plan

On March 31, 2005, we announced that we are implementing a restructuring plan designed to focus our resources on the development of our lead programs, XTL-6865 and XTL-2125, with the goal of moving these programs through to clinical proof of concept. The plan will extend our cash resources through the end of 2006.

The key points of the plan include:

·   a reduction in headcount of approximately 20 individuals, primarily in research and development, as our programs advance into the clinical stages of development and our commercialization partner for HepeX-B, Cubist, takes over more responsibility for its development;

·   a streamlining of operations across the business; and

·   the deferral of all research and development activity not supporting the lead clinical programs until proof of concept has been achieved in at least one of the two lead programs.

In order to diversify our clinical product portfolio, strengthen our franchise in infectious diseases and broaden our clinical pipeline, we will seek to in-license or acquire complementary product candidates.

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ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

Directors and Senior Management

The following sets forth information with respect to our directors and executive officers as of June 30, 2005.

Name	Age	Position
Michael S. Weiss	39	Interim Chairman of the Board of Directors
Rusi K. Kathoke	57	Non executive and external Director
William J. Kennedy, Ph.D	60	Non executive Director
Patricia A. Smith, Ph.D	47	Non executive and external Director
Jonathan R. Spicehandler, M.D	56	Non executive Director
Ben Zion Weiner, Ph.D	61	Non executive Director
Jonathan Burgin	44	Chief Financial Officer
Shlomo Dagan, Ph.D	54	Chief Scientific Officer

Michael S. Weiss has served as a director of our company since November 2004, and was appointed interim Chairman of the Board in March 2005. Mr. Weiss is currently the Chairman and CEO of Keryx Biopharmaceuticals, Inc. (Nasdaq: KERX). Prior to that, from 1999-2002, Mr. Weiss was the founder, chairman and CEO of ACCESS Oncology, Inc., a private cancer company subsequently acquired by Keryx. Prior to that, Mr. Weiss was Senior Managing Director at Paramount Capital, Inc. Mr. Weiss is on the Board of Directors of Genta, Inc., a publicly-traded biotechnology company. From 1991-1993, Mr. Weiss was an attorney at Cravath, Swaine & Moore. Mr. Weiss received his B.A., magna cum laude from State University of New York at Albany and was awarded a Juris Doctorate degree from Columbia University Law School.

Rusi K. Kathoke is a Chartered Accountant and has served as a director of our company since December 2000. As the Chief Financial Officer of BTG plc since 1986, Mr. Kathoke was responsible for negotiating BTG’s employee and management buyout in 1992, for managing its subsequent listing on the London Stock Exchange in 1995, demerging and listing a subsidiary in 1998 and raising further funds from institutional investors. BTG, which is based in London and Philadelphia finds, develops and commercializes technologies, many of which are in the life sciences field. Mr. Kathoke has over 20 years of experience investing in technology, managing early and development stage companies, fund raising and realizing value through the creation, protection and commercialization of intellectual property. He is also a trustee of the Triangle Trust, a charitable foundation established to assist the disabled and disadvantaged.

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William J. Kennedy has served as a director of our company since February 2005. Dr. Kennedy retired as Vice President, Drug Regulatory Affairs, for Zeneca Pharmaceuticals Group in October 1999, and since that time has served as a regulatory consultant to the pharmaceutical industry. Prior to joining Zeneca Pharmaceuticals in 1986, Dr. Kennedy worked in regulatory affairs at G.D. Searle & Co., Kalipharma Inc., Berlex Laboratories, Inc. and Pfizer Pharmaceuticals, Inc. Dr. Kennedy earned a B.S. from Siena College, a M.A. from Clark University and a Ph.D in Pharmacology from SUNY, Buffalo. Prior to joining the industry in 1977, he was an Associate Research Professor at Yale University conducting research in Molecular Biology and Recombinant DNA.

Patricia A. Smith has served as a director of our company since December 2000. Dr. Smith was a practicing physician in hospital cardiology and general medicine for several years before entering the pharmaceutical industry. She has held senior positions in international clinical development and international marketing at Zeneca plc and gained experience in business development and business planning. In 1997, she left her role as U.K. Marketing Director at Zeneca having been involved in 11 drug registrations and product launches in three years, with annual sales of £125 million, to establish an independent healthcare consultancy working with biotechnology companies, big pharma and investment banks to evaluate healthcare opportunities. Dr Smith is CEO of Bio-Medical Research Ltd, an Irish company that designs, develops and distributes EMS, TENS and fitness equipment. Products are available by medical prescription from the medical devices division andby over the counter sale from the consumer division. She is also a director of Paratek Pharmaceuticals (U.S.A), an antibiotic development company. Dr. Smith is a member of the Royal College of Physicians (U.K.).

Jonathan R. Spicehandler has served as a director of our company since February 2005. Dr. Spicehandler is the chairman of Schering-Plough Research Institute, the pharmaceutical research arm of Schering-Plough Corporation, a research-based company engaged in the discovery, development, manufacturing and marketing of pharmaceutical and health care products worldwide. Dr. Spicehandler assumed his present position in March 2002. He serves as a scientific advisor to the Schering-Plough Operating Committee as well as to senior management. He joined the company in 1982 as senior director - immunology and anti-infective clinical research and was appointed Vice President - clinical research in 1985; Vice President - biological research in 1991; Vice President - operations in 1992; and became President, Schering-Plough Research Institute in 1993. Dr. Spicehandler received his B.A. in biology from Union College in New York and his M.D. degree, cum laude, from the St. Louis University School of Medicine.

Ben Zion Weiner has served as a director of our company since February 2005. Dr. Weiner has been with Teva Pharmaceutical Industries Ltd. since 1975, after a Post Doctorate fellowship at Schering-Plough in the U.S.A. He received his Ph.D in Chemistry from the Hebrew University of Jerusalem. Since 2002 he has been Group Vice President, Global Products at Teva, responsible for Global Generic Research and Development, Global Innovative Research and Development and innovative products marketing. Dr. Weiner is a member of Teva's Core Management Committee. He was granted twice the Rothschild Prize for Innovation/Export, in 1989 for the development of alpha D3 for Dialysis and Osteoporosis and in 1999 for the development of Copaxone® for Multiple Sclerosis.

Jonathan Burgin is a C.P.A. and has served as Chief Financial Officer of the Company since August 1999. Before joining the Company, he was the Chief Financial Officer at YLR Capital Markets, a leading Israeli investment bank which was publicly traded on the Tel Aviv Stock Exchange. From 1984 to 1997, Mr. Burgin worked at Kesselman & Kesselman, an accounting firm and a member of PricewaterhouseCoopers International Limited. During the last three years of his tenure there, Mr. Burgin served as Senior Manager.

Shlomo Dagan has served as Chief Scientific Officer of the Company since May 1994. Before joining the Company, Dr. Dagan was Acting Director of Molecular Biology at ImClone Systems. His expertise includes work on cytokine muteines, chimeric, single chain and humanized antibodies. Dr. Dagan also served as Department Head of Clinical Reagents Production at Biomakor from 1974 to 1983, where his group worked on RIA kits, clinical reagents and production of control materials. Dr. Dagan's doctorate in cell biology/immunology was received from the Weizmann Institute of Science.

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Employment Agreements

We have an employment agreement dated, August 1, 1999, as amended, with Jonathan Burgin, our Chief Financial Officer. Mr. Burgin is entitled to an annual base salary of $140,000. He is entitled to receive discretionary bonus payments of up to 25% of his annual base salary on achievement of certain milestones recommended by the Remuneration Committee and set by our Board of Directors. Mr. Burgin is also entitled to receive benefits comprised of managers' insurance (pension and disability insurance), a continuing education plan, and the use of a company car. There is a non-compete clause surviving one year after termination of employment, preventing Mr. Burgin from competing directly or indirectly with us, or soliciting our employees or customers. The employment agreement may be terminated by either party on 14 days prior notice to the other, and in such event, Mr. Burgin is entitled to an additional six months' salary. 

We have an employment agreement dated, May 1, 1994, as amended, with Dr. Shlomo Dagan, our Chief Scientific Officer. Dr. Dagan is entitled to an annual base salary of $165,000. He is entitled to receive discretionary bonus payments of up to 25% of his annual base salary on achievement of certain milestones recommended by the Remuneration Committee and set by our Board of Directors. Dr. Dagan is also entitled to receive benefits comprising managers' insurance (pension and disability insurance), a continuing education plan, and the use of a company car. There is a non-compete clause surviving two years after termination of employment. The employment agreement renews automatically every two years in accordance with its terms, unless terminated by either party upon giving three months' written notice. Any renewals are subject to renegotiation.

Compensation

The aggregate compensation paid by us and by our wholly-owned subsidiary to all persons who served as directors or senior management for the year 2004 (12 persons) was approximately $2.4 million. This amount includes payments made for social security, pension and disability insurance premiums of approximately $0.2 million, as well as payments made in lieu of statutory severance, payments for continuing education plans, payments made for the redemption of accrued vacation, and amounts expended by us for automobiles made available to our officers. In addition, this amount includes a payment that was made to our former Chief Executive Officer in February 2005 for severance and vacation redemption that had been accrued through December 31, 2004.

During 2004, we granted a total of 480,000 options to purchase ordinary shares to our directors and senior management, as a group. These options are exercisable at a range of between $0.236 to $0.485 per share, and expire ten years after their respective date of grant. In 2004, 300,000 of these options were forfeited, and in 2005, 157,500, of these options were forfeited. The remaining 22,500 options are exercisable at $0.301 per share.

All members of our board of directors who are not our employees are reimbursed for their expenses for each meeting attended. Our directors who are not external directors as defined by the Israeli Companies Act are eligible to receive share options under our share option plans. Non-executive directors do not receive any remuneration from us other than their fees for services as members of the board, additional fees if they serve on committees of the board and expense reimbursement.

In accordance with the requirements of Israeli Law, we determine our directors’ compensation in the following manner:

·   first, our audit committee reviews the proposal for compensation;

·   second, provided that the audit committee approves the proposed compensation, the proposal is then submitted to our board of directors for review, except that a director who is the beneficiary of the proposed compensation does not participate in any discussion or voting with respect to such proposal; and

·   finally, if our board of directors approves the proposal, it must then submit its recommendation to our shareholders, which is usually done in connection with our shareholders’ general meeting.

The approval of a majority of the shareholders voting at a duly convened shareholders meeting is required to implement any such compensation proposal.

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Board practices

Election of Directors and Terms of Office

Our board of directors currently consists of six members, including our interim chairman. Other than our two external directors, our new directors are elected by an ordinary resolution at the annual general meeting of our shareholders. The nomination of our directors is proposed by a Nomination Committee of our board of directors, whose proposal is then approved by the board. The current members of the Nomination Committee are William Kennedy, Jonathan Spicehandler and Michael S. Weiss. Our board, following receipt of a proposal of the Nomination Committee, has the authority to add additional directors up to the maximum number of 12 directors allowed under the Articles. Such directors appointed by the board serve until the next annual general meeting of the shareholders in which their term of office shall expire. In November 2004, our board of directors appointed Michael Weiss to serve as one of our directors. In February 2005, at an extraordinary general meeting of our shareholders, Ben Zion Weiner, William Kennedy and Jonathan Spicehandler were appointed to serve as directors of our company. Unless they resign before the end of their term or are removed in accordance with our Articles of Association, all our directors, other than our external directors, will serve as directors until our next annual general meeting of shareholders.

Patricia Smith and Rusi Kathoke are serving as external directors pursuant to the provisions of the Israeli Companies Law for a second three-year term ending in December 2006, as more fully described below. After this date, their term of service may not be renewed.

None of our directors or officers have any family relationship with any other director or officer.

None of our directors are entitled to receive any severance or similar benefits upon termination of his or her service.

Our Articles of Association permit us to maintain directors and officers’ liability insurance and to indemnify our directors and officers for actions performed on behalf of us, subject to specified limitations. We maintain a directors and officers insurance policy which covers the liability of our directors and officers as allowed under Israeli Companies Law.

External and Independent Directors

The Companies Law requires Israeli companies with shares that have been offered to the public either in or outside of Israel to appoint two external directors. No person may be appointed as an external director if that person or that person’s relative, partner, employer or any entity under the person’s control, has or had, on or within the two years preceding the date of that person's appointment to serve as an external director, any affiliation with the company or any entity controlling, controlled by or under common control with the company. The term affiliation includes:

·   an employment relationship;

·   a business or professional relationship maintained on a regular basis;

·   control; and

·   service as an office holder, other than service as an officer for a period of not more than three months, during which the company first offered shares to the public.

No person may serve as an external director if that person’s position or business activities create, or may create, a conflict of interest with that person's responsibilities as an external director or may otherwise interfere with his/her ability to serve as an external director. If, at the time external directors are to be appointed, all current members of the board of directors are of the same gender, then at least one external director must be of the other gender. A director in one company shall not be appointed as an external director in another company if at that time a director of the other company serves as an external director in the first company. In addition, no person may be appointed as an external director if he/she is a member or employee of the Israeli Security Authority, and also not if he/she is a member of the board of directors or an employee of a stock exchange in Israel.

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External directors are to be elected by a majority vote at a shareholders' meeting, provided that either:

·   the majority of shares voted at the meeting, including at least one-third of the shares held by non-controlling shareholders voted at the meeting, vote in favor of election of the director, with abstaining votes not being counted in this vote; or

·   the total number of shares held by non-controlling shareholders voted against the election of the director does not exceed one percent of the aggregate voting rights in the company.

The initial term of an external director is three years and may be extended for an additional three-year term. External directors may be removed only by the same percentage of shareholders as is required for their election, or by a court, and then only if the external directors cease to meet the statutory qualifications for their appointment or if they violate their duty of loyalty to the company. At least one external director must serve on every committee that is empowered to exercise one of the functions of the board of directors.

An external director is entitled to compensation as provided in regulations adopted under the Israeli Companies Law and is otherwise prohibited from receiving any other compensation, directly or indirectly, in connection with service provided as an external director.

Patricia Smith and Rusi Kathoke serve as external directors pursuant to the provisions of the Israeli Companies Law and as our independent directors under the corporate governance codes of practice requirements of the London Stock Exchange. They both serve on our audit committee.

Subject to certain exceptions, issuers that list on Nasdaq must have boards of directors including a majority of independent directors, as such term is defined by Nasdaq. In addition, both SEC and Nasdaq rules mandate that the audit committee of a listed issuer consist of at least three members, all of whom must be independent, as such term is defined by rules and regulations promulgated by the SEC. We intend to comply with both of these requirements not later than our initial listing.

Audit Committee

The Israeli Companies Law requires public companies to appoint an audit committee. The responsibilities of the audit committee include identifying irregularities in the management of the company’s business and approving related party transactions as required by law. An audit committee must consist of at least three directors, including all of its external directors. The chairman of the board of directors, any director employed by or otherwise providing services to the company, and a controlling shareholder or any relative of a controlling shareholder, may not be a member of the audit committee. An audit committee may not approve an action or a transaction with a controlling shareholder, or with an office holder, unless at the time of approval two external directors are serving as members of the audit committee and at least one of the external directors was present at the meeting in which an approval was granted.

Our audit committee is currently comprised of four non-executive directors: The audit committee is chaired by Rusi Kathoke, who serves as the audit committee financial expert, with Ben Zion Weiner, William Kennedy and Patricia Smith as members. The audit committee meets at least twice a year and monitors the adequacy of our internal controls, accounting policies and financial reporting. It regularly reviews the results of the ongoing risk self-assessment process, which we undertake, and our interim and annual reports prior to their submission for approval by the full board of directors. The audit committee oversees the activities of the internal auditor, sets its annual tasks and goals and reviews its reports. The audit committee reviews the objectivity and independence of the external auditors and also considers the scope of their work and fees. In accordance with the Nasdaq requirements, our audit committee is directly responsible for the appointment, compensation and oversight of our independent auditors.

We are currently preparing a written charter for our audit committee, setting forth its responsibilities as outlined by Nasdaq rules and the regulations of the SEC, which we intend to adopt not later than our initial listing with Nasdaq. In addition, our audit committee is developing procedures for the receipt, retention and treatment of complaints we may receive regarding accounting, internal accounting controls, or auditing matters and the submission by our employees of concerns regarding questionable accounting or auditing matters, which will be in place no later than our initial listing.

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Approval of Compensation to Our Officers

The Companies Law prescribes that compensation to officers must be approved by a company's board of directors.

Our remuneration committee consists of four non-executive directors: Michael Weiss (Chairman of the remuneration committee), William Kennedy, Rusi Kathoke and Patricia Smith. The responsibilities of the remuneration committee are to set our overall policy on executive remuneration and to decide the specific remuneration, benefits and terms of employment for each senior manager, including the Chief Executive Officer.

The objectives of the remuneration committee’s policies are that senior managers should receive compensation which is appropriate given their performance, level of responsibility and experience. Remuneration packages should also allow us to attract and retain executives of the necessary caliber while, at the same time, motivating them to achieve the highest level of corporate performance in line with the best interests of shareholders. In order to determine the elements and level of remuneration appropriate to each executive director, the remuneration committee reviews surveys on executive pay, obtains external professional advice and considers individual performance.

Internal Auditor

Under the Israeli Companies Law, the board of directors must appoint an internal auditor, nominated by the audit committee. The role of the internal auditor is to examine, among other matters, whether the company's actions comply with the law and orderly business procedure. Under the Israeli Companies Law, the internal auditor cannot be an office holder, an interested party or a relative of an office holder or interested party, and he or she may not be the company's independent accountant or its representative. We comply with the requirement of the Israeli Companies Law relating to internal auditors. Our internal auditors examine whether our various activities comply with the law and orderly business procedure.

Compliance with Nasdaq Corporate Governance Requirements

Under the Nasdaq corporate governance rules, foreign private issuers are exempt from many of the requirements if they instead elect to comply with home country practices and disclose where they have elected to do so. As noted above, we are currently evaluating the composition of our board of directors and our audit committee and intend to satisfy the respective Nasdaq and SEC requirements no later than our initial listing. Our board of directors and our audit committee are preparing and intend to adopt a written charter for the audit committee setting forth the responsibilities of the audit committee as required by the SEC and Nasdaq. Also as noted above, we currently have a nomination committee to identify, review and recommend to the Board of Directors individuals believed to be qualified to become directors.  We intend to adopt a written charter for the nomination committee, as required by Nasdaq, no later than our initial listing.

We currently have in place a remuneration committee, as discussed in more detail above. Based on the current composition and responsibilities of our remuneration committee, we believe the committee will substantially address the concerns underlying the Nasdaq corporate governance rules, although it may not comply with the technical requirements.

Secondly, we do not intend to adopt a separate code of ethics applicable to all directors, executive officers and employees, as we believe our current corporate governance structure, the existence of the internal auditor, the existing culture of our directors and senior management, and the requirements of Israeli law provide assurances that we will maintain applicable standards.

Employees

As of March 31, 2005, following implementation of the restructuring plan, we had 45 full-time employees. We and our Israeli employees are subject, by an extension order of the Israeli Ministry of Welfare, to a few provisions of collective bargaining agreements between the Histadrut, the General Federation of Labor Unions in Israel and the Coordination Bureau of Economic Organizations, including the Industrialists Associations. These provisions principally address cost of living increases, recreation pay, travel expenses, vacation pay and other conditions of employment. We provide our employees with benefits and working conditions equal to or above the required minimum. Other than those provisions, our employees are not represented by a labor union. We have written employment contracts with our employees, and we believe that our relations with our employees are good.

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For the years ended December 31, 2004, 2003, 2002, the number of our employees engaged in the specified activities, by geographic location, are presented in the table below.

	Year ended December 31,
	2004		2003		2002
Research and Development
Israel		44		42		57
U.S.		8		5		4
		52		47		65
Financial and general management
Israel		7		6		7
U.S.		—		—		—
		7		6		7
Business development
Israel		—		—		—
U.S.		1		2		2
		1		2		2
Total		60		55		74
Average number of full-time employees		58		68		89

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Share Ownership

Share Ownership by Directors and Senior Management

The following table sets forth certain information as of March 31, 2005, regarding the beneficial ownership by our directors and executive officers. All numbers quoted in the table are inclusive of options to purchase shares that are exercisable within 60 days after March 31, 2005.

	Amount and nature of beneficial ownership
	Ordinary shares beneficially owned excluding options		Options exercisable within 60 days after March 31, 2005		Total ordinary shares beneficially owned		Percent of ordinary shares beneficially owned
Michael S. Weiss Interim Chairman of the Board		—		—		—		*
William Kennedy Director		—		—		—		*
Jonathan Spicehandler Director		—		—		—		*
Ben Zion Weiner Director		—		—		—		*
Rusi Kathoke Director		15,000		—		15,000		*
Patricia A. Smith Director		71,890		—		71,890		*
Jonathan Burgin Chief Financial Officer		20,000		1,382,053		1,402,053		*
Shlomo Dagan Chief Scientific Officer		57,000		2,031,333		2,088,333		1.2	%
All directors and executive officers as a group (8 persons)		163,890		3,413,386		3,577,276		2.1	%

 * Less than 1% of ordinary shares.

Share Option Plans

We maintain the following share option plans for our and our subsidiary’s employees, directors and consultants. In addition to the discussion below, see Note 6 of our Consolidated Financial Statements, included at “Item 18 - Financial Statements.”

Our board of directors administers our share option plans and has the authority to designate all terms of the options granted under our plans including the grantees, exercise prices, grant dates, vesting schedules and expiration dates, which may be no more than ten years after the grant date. Options may not be granted with an exercise price of less than the fair market value of our ordinary shares on the date of grant, unless otherwise determined by our board of directors.

As of March 31, 2005, we have granted to employees, officers and directors options that are outstanding to purchase up to 17,536,262 ordinary shares, under the six share option plans discussed below and pursuant to certain grants apart from these plans.

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1993 Share Option Plan

Under a share option plan established in 1993, referred to as the 1993 Plan, we granted options to employees to subscribe at nominal value of NIS 0.02 for ordinary shares, 2,600 of which are outstanding. These options were granted in accordance with Section 102 of the Israeli Income Tax Ordinance 1961, referred to as Tax Ordinance. The options are non-transferrable.

The 1993 Plan terminated in August 2003, but any options granted thereunder and outstanding are exercisable until May 1, 2005. If the options are not exercised and the shares not paid for by such date, all interests and rights of any grantee shall expire. The options were granted for no consideration. All options under the 1993 Plan are fully vested.

1998 Share Option Plan

Under a share option plan established in 1998, referred to as the 1998 Plan, we granted options to our employees which are held by a trustee under section 3(i) of the Tax Ordinance, of which 4,013,810 are outstanding at an exercise price per share of $0.497. The options are non-transferable.

The 1998 Plan will terminate in October 2008. If the options are not exercised and the shares not paid for by such date, all interests and rights of any grantee shall expire. The options were granted for no consideration and are fully vested.

1999 Share Option Plan

Under a share option plan established in 1999, referred to as the 1999 Plan, we granted options to our employees which are held by a trustee under section 3(i) of the Tax Ordinance, of which 1,235,890 are outstanding, at an exercise price of $0.497. The options are non-transferable.

The 1999 Plan will terminate in August 2009. If the options are not exercised and the shares not paid for by such date, all interests and rights of any grantee shall expire. The options were granted for no consideration. All options are fully vested.

1999 International Share Option Plan

Under an international share option plan established in 1999, referred to as the International Plan, we granted options to our employees of which 1,680,000 are outstanding at an exercise price between $0.497 and $1.10. The options are non-transferable.

The options granted thereunder are outstanding and exercisable until October 2007. If the options are not exercised and the shares are not paid for by such date, all interests and rights of any grantee shall expire. The options were granted for no consideration. All options are fully vested.

2000 Share Option Plan

Under a share option plan established in 2000, referred to as the 2000 Plan, we granted options to our employees which are held by a trustee under section 3(i) of the Tax Ordinance, of which 885,300 are outstanding, at an exercise price of $1.10. The options are non-transferable.

The 2000 Plan will terminate in April 2010. If the options are not exercised and the shares not paid for by such date, all interests and rights of any grantee shall expire. The options were granted for no consideration. All options are fully vested.

2001 Share Option Plan

Under a share option plan established in 2001, referred to as the 2001 Plan, we granted options to our employees, including directors who are employees, of which 3,708,742 are outstanding at an exercise price per share between $0.106 and $0.931. These options were granted in accordance with section 102 of the Tax Ordinance, under the capital gains option set out in section 102(b)(2) of the ordinance. The options are non-transferable.

The 2001 Plan will terminate in May 2011, except with regard to options outstanding at that date. The options were granted for no consideration. All options vest on an annual basis over a period of three years. To date, 2,633,706 options are vested.

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Non-Plan Share Options

In addition to the options granted under our share option plans, there are 6,009,920 outstanding options which were granted by our board of directors to employees, directors and consultants not under an option plan. The options were granted at an exercise price per share between $0.196 and $2.111. The options expire between 2007 and 2014. This figure includes options granted to consultants as part of a licensing agreement to purchase a total of up to 320,000 of our ordinary shares at an exercise price per share of $0.196.

ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

Major Shareholders

The following table sets forth certain information regarding beneficial ownership of our ordinary shares as of March 31, 2005 by each person who is known by us to own beneficially more than 5% of our outstanding ordinary shares. The voting rights of our major shareholders do not differ from the voting rights of other holders of our ordinary shares.

Beneficial owner	Number of ordinary shares beneficially owned	Percent of ownership
Bank Julius Baer	18,520,370	11.0	%
Perpetual Income & Growth Investment Trust Inc.	13,624,713	8.1	%

As of March 31, 2005, there were a total of 762 holders of record of our ordinary shares, of which 34 were registered with addresses in the United States. Such United States holders were, as of such date, the holders of record of approximately 3% of the outstanding ordinary shares.

Related Party Transactions

We have not entered into any transactions or loans with a related party during the years ended December 31, 2004, 2003, 2002, respectively.

ITEM 8. FINANCIAL INFORMATION

Consolidated Statements and Other Financial Information

Our consolidated financial statements are included on pages F-1 through F-38 of this registration statement.

Legal Proceedings

Neither we nor our subsidiary is a party to, and our property is not the subject of, any material pending legal proceedings.

Dividend Distributions

We have never declared or paid any cash dividends on our ordinary shares and do not anticipate paying any such cash dividends in the foreseeable future. Any future determination to pay dividends will be at the discretion of our board of directors.

In the event that we decide to pay a cash dividend from income that is tax exempt under our approved enterprise status, we would be liable for corporate tax on the amount distributed at the rate of up to 25%. See Note 8 of our Consolidated Financial Statements and “Item 10: Additional Information - Taxation.” Cash dividends may be paid by an Israeli company only out of retained earnings as calculated under Israeli law. We currently have no retained earnings and do not expect to have any retained earnings in the foreseeable future.

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Significant Changes

On March 31, 2005, we announced that we are implementing a restructuring plan designed to focus our resources on the development of our lead programs, XTL-6865 and XTL-2125, with the goal of moving these programs through to clinical proof of concept. The plan will extend our cash resources through the end of 2006.

The key points of the plan include:

               · a reduction in headcount of approximately 20 individuals, primarily in research and development, as our programs advance into the clinical stages of development, and our commercialization partner for HepeX-B, Cubist, takes over more responsibility for its development;

               · a streamlining of operations across the business; and

               · the deferral of all research and development activity not supporting the lead clinical programs until proof of concept has been achieved in at least one of the two lead programs.

In order to diversify our clinical product portfolio, strengthen our franchise in infectious diseases and broaden our clinical pipeline, we will seek to in-license or acquire complementary product candidates.

As part of this plan, we took a charge in March 2005 of approximately $110,000 relating to employee dismissal costs, $72,000 of which is included in research and development costs and $38,000 of which is included in general and administrative expenses.

ITEM 9. THE OFFER AND LISTING

Markets and Share Price History

The primary trading market for our ordinary shares, having a nominal value of NIS 0.02, is the London Stock Exchange, where our shares have been listed and traded under the symbol “XTL” since our initial public offering in September of 2000. In conjunction with this registration statement, we are seeking to list American Depository Shares representing [____] of our ordinary shares on the Nasdaq National Market under the symbol “XTLB.” As of July 12, 2005, our ordinary shares are also listed on the Tel Aviv Stock Exchange under the symbol "XTL."

The following table sets forth, for the periods indicated, the high and low reported sales prices of the ordinary shares on the London Stock Exchange. For comparative purposes only, we have also provided such figures translated into U.S. Dollars of an exchange rate of 1.8803 U.S. Dollars per British Pound, as reported by the Wall Street Journal on March 31, 2005.

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	British Pence (p)		U.S. Dollar
Last Six Calendar Months	High	Low	High	Low
March 2005	41.50	36.50	0.78	0.69
February 2005	43.50	30.00	0.82	0.56
January 2005	33.00	26.00	0.62	0.49
December 2004	25.50	23.25	0.48	0.44
November 2004	24.25	19.50	0.46	0.37
October 2004	18.00	13.00	0.34	0.24
Financial Quarters During the Past Two Full Fiscal Years
Fourth Quarter of 2004	25.50	13.00	0.48	0.24
Third Quarter 2004	19.50	13.75	0.37	0.26
Second Quarter 2004	32.25	17.00	0.61	0.32
First Quarter 2004	27.25	16.25	0.51	0.31
Fourth Quarter 2003	18.75	12.00	0.35	0.23
Third Quarter 2003	16.50	9.25	0.31	0.17
Second Quarter 2003	11.00	5.75	0.21	0.11
First Quarter 2003	11.50	5.75	0.22	0.11
Last Five Full Financial Years
2004	32.25	13.00	0.61	0.24
2003	18.75	5.75	0.35	0.11
2002	64.00	11.50	1.20	0.22
2001	153.00	33.50	2.88	0.63
2000-commencing September 26, 2000	169.50	137.50	3.19	2.59

ITEM 10. ADDITIONAL INFORMATION

Share Capital

As of December 31, 2004, we had 300,000,000 ordinary shares, par value NIS 0.02, authorized and 168,079,196 ordinary shares issued and outstanding. As of March 31, 2005, we have 300,000,000 ordinary shares, par value NIS 0.02, authorized and 168,502,069 issued and outstanding. All of the outstanding shares are issued and fully paid.

As of March 31, 2005, an additional 17,536,262 ordinary shares are issuable upon the exercise of outstanding options and warrants to purchase our ordinary shares. The exercise price of the options and warrants outstanding is between $0.0046 and $2.1100 per share. In addition see "Item 6: Directors, Senior Management and Employees - Share Ownership - Share Option Plans" above, for a more detailed discussion on options that were granted to employees, directors and consultants, including options granted to consultants as part of a licensing agreement.

As of December 31, 2001, we had 300,000,000 ordinary shares, par value NIS 0.02, authorized and 111,127,038 ordinary shares issued and outstanding. Since such date and through March 31, 2005, we have issued an aggregate of 1,365,299 ordinary shares upon the exercise of options held by our employees and directors under our existing share option plans. In addition, on August 2, 2004, we issued 56,009,732 ordinary shares pursuant to a placing and open offer for new ordinary shares on the London Stock Exchange. 

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Memorandum and Articles of Association

Objects and Purposes of the Company

Pursuant to Part B, Section 3 of our Articles of Association, we may undertake any lawful activity.

Powers and Obligations of the Directors

Pursuant to the Israeli Companies Law and our Articles of Association, a director is not permitted to vote on a proposal, arrangement or contract in which he or she has a personal interest. Also, the directors may not vote compensation to themselves or any members of their body without the approval of our audit committee and our shareholders at a general meeting. The requirements for approval of certain transactions are set forth below in “Item 10: Additional Information-Memorandum and Articles of Association-Approval of Certain Transactions.” The powers of our directors to enter into borrowing arrangements on our behalf is limited to the same extent as any other transaction by us.

The Israeli Companies Law codifies the fiduciary duties that office holders, including directors and executive officers, owe to a company. An office holder’s fiduciary duties consist of a duty of care and a duty of loyalty. The duty of care generally requires an office holder to act with the same level of care as a reasonable office holder in the same position would employ under the same circumstances. The duty of loyalty includes avoiding any conflict of interest between the office holder’s position in the company and such person’s personal affairs, avoiding any competition with the company, avoiding exploiting any corporate opportunity of the company in order to receive personal advantage for such person or others, and revealing to the company any information or documents relating to the company’s affairs which the office holder has received due to his or her position as an office holder.

Indemnification of Directors and Officers; Limitations on Liability

Israeli law permits a company to insure an office holder in respect of liabilities incurred by him or her as a result of an act or omission in the capacity of an office holder for:

·   a breach of the office holder’s duty of care to the company or to another person;

·   a breach of the office holder’s fiduciary duty to the company, provided that he or she acted in good faith and had reasonable cause to believe that the act would not prejudice the company; and

·   a financial liability imposed upon the office holder in favor of another person.

Moreover, a company can indemnify an office holder for any of the following obligations or expenses incurred in connection with the acts or omissions of such person in his or her capacity as an office holder:

·   monetary liability imposed upon him or her in favor of a third party by a judgment, including a settlement or an arbitral award confirmed by the court; and

·   reasonable litigation expenses, including attorneys’ fees, actually incurred by the office holder or imposed upon him or her by a court, in a proceeding brought against him or her by or on behalf of the company or by a third party, or in a criminal action in which he or she was acquitted, or in a criminal action which does not require criminal intent in which he or she was convicted; furthermore, a company can, with a limited exception, exculpate an office holder in advance, in whole or in part, from liability for damages sustained by a breach of duty of care to the company.

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Our Articles of Association allow for insurance, exculpation and indemnification of office holders to the fullest extent permitted by law. We have directors’ and officers’ liability insurance covering our officers and directors for a claim imposed upon them as a result of an action carried out while serving as an officer or director, for (a) the breach of duty of care towards us or towards another person, (b) the breach of fiduciary duty towards us, provided that the officer or director acted in good faith and had reasonable grounds to assume that the action would not harm our interests, and (c) a monetary liability imposed upon him in favor of a third party.

Approval of Certain Transactions

The Israeli Companies Law codifies the fiduciary duties that office holders, including directors and executive officers, owe to a company. An office holder, as defined in the Israeli Companies Law, is a director, general manager, chief business manager, deputy general manager, vice general manager, executive vice president, vice president, other manager directly subordinate to the managing director or any other person assuming the responsibilities of any of the foregoing positions without regard to such person's title. An office holder's fiduciary duties consist of a duty of care and a duty of loyalty. The duty of loyalty includes avoiding any conflict of interest between the office holder's position in the company and his personal affairs, avoiding any competition with the company, avoiding exploiting any business opportunity of the company in order to receive personal advantage for himself or others, and revealing to the company any information or documents relating to the company's affairs which the office holder has received due to his position as an office holder. Each person listed in the table under “Directors and Senior Management,” which is displayed under “Item 6 - Directors, Senior Management and Employees-Directors and Senior Management,” is an office holder of XTLbio. Under the Israeli Companies Law, all arrangements as to compensation of office holders who are not directors require approval of the board of directors, or a committee thereof. Arrangements regarding the compensation of directors also require audit committee and shareholders approval, with the exception of compensation to external directors in the amounts specified in the regulations discussed in “Item 6 - Directors and Senior Management-Compensation.”

The Israeli Companies Law requires that an office holder promptly discloses any personal interest that he or she may have, and all related material information known to him or her, in connection with any existing or proposed transaction by the company. The disclosure must be made to our board of directors or shareholders without delay and prior to the meeting at which the transaction is to be discussed. In addition, if the transaction is an extraordinary transaction, as defined under the Israeli Companies Law, the office holder must also disclose any personal interest held by the office holder's spouse, siblings, parents, grandparents, descendants, spouse's descendants and the spouses of any of the foregoing, or by any corporation in which the office holder is a 5% or greater shareholder, or holder of 5% or more of the voting power, director or general manager or in which he or she has the right to appoint at least one director or the general manager. An extraordinary transaction is defined as a transaction not in the ordinary course of business, not on market terms, or that is likely to have a material impact on the company's profitability, assets or liabilities.

In the case of a transaction which is not an extraordinary transaction (other than transactions relating to a director’s conditions of service), after the office holder complies with the above disclosure requirement, only board approval is required unless the Articles of Association of the company provides otherwise. The transaction must not be adverse to the company's interest. If the transaction is an extraordinary transaction, then, in addition to any approval required by the Articles of Association, the transaction must also be approved by the audit committee and by the board of directors, and under specified circumstances, by a meeting of the shareholders. An office holder who has a personal interest in a matter that is considered at a meeting of the board of directors or the audit committee may not be present at this meeting or vote on this matter.

The Israeli Companies Law applies the same disclosure requirements to a controlling shareholder of a public company, which is defined as a shareholder who has the ability to direct the activities of a company, other than in circumstances where this power derives solely from the shareholder’s position on the Board or any other position with the company, and includes a shareholder that holds 25% or more of the voting rights if no other shareholder owns more than 50% of the voting rights in the company. Extraordinary transactions with a controlling shareholder or in which a controlling shareholder has a personal interest, and the terms of compensation of a controlling shareholder who is an office holder, require the approval of the audit committee, the board of directors and the shareholders of the company. The shareholders’ approval must either include at least one-third of the disinterested shareholders who are present, in person or by proxy, at the meeting, or, alternatively, the total shareholdings of the disinterested shareholders who vote against the transaction must not represent more than one percent of the voting rights in the company.

 

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In addition, a private placement of securities that will increase the relative holdings of a shareholder that holds 5% or more of the company’s outstanding share capital, assuming the exercise by such person of all of the convertible securities into shares held by that person, or that will cause any person to become a holder of more than 5% of the company’s outstanding share capital, requires approval by the board of directors and the shareholders of the company. However, subject to certain exceptions under regulations adopted under the Israeli Companies Law, shareholder approval will not be required if the aggregate number of shares issued pursuant to such private placement, assuming the exercise of all of the convertible securities into shares being sold in such a private placement, comprises less than 20% of the voting rights in a company prior to the consummation of the private placement.

Under the Israeli Companies Law, a shareholder has a duty to act in good faith towards the company and other shareholders and refrain from abusing his power in the company, including, among other things, voting in the general meeting of shareholders on the following matters:

·   any amendment to the Articles of Association;

·   an increase of the company's authorized share capital;

·   a merger; and

·   approval of interested party transactions that require shareholders approval.

In addition, any controlling shareholder, any shareholder who knows it can determine the outcome of a shareholders vote and any shareholder who, under a company’s Articles of Association, can appoint or prevent the appointment of an office holder, is under a duty to act with fairness towards the company. The Israeli Companies Law does not describe the substance of this duty. The Israeli Companies Law requires that specified types of transactions, actions and arrangements be approved as provided for in a company’s articles of association and in some circumstances by the audit committee, by the board of directors and by the shareholders. In general, the vote required by the audit committee and the board of directors for approval of these matters, in each case, is a majority of the disinterested directors participating in a duly convened meeting.

Rights Attached to Ordinary Shares

Our authorized share capital consists of 300,000,000 ordinary shares, par value NIS 0.02 per share.

Holders of ordinary shares have one vote per share, and are entitled to participate equally in the payment of dividends and share distributions and, in the event of our liquidation, in the distribution of assets after satisfaction of liabilities to creditors. No preferred shares are currently authorized. All outstanding ordinary shares are validly issued and fully paid.

Transfer of Shares

Fully paid ordinary shares are issued in registered form and may be freely transferred under our Articles of Association unless the transfer is restricted or prohibited by another instrument or applicable securities laws.

Dividend and Liquidation Rights

We may declare a dividend to be paid to the holders of ordinary shares according to their rights and interests in our profits. In the event of our liquidation, after satisfaction of liabilities to creditors, our assets will be distributed to the holders of ordinary shares in proportion to the nominal value of their holdings.

This right may be affected by the grant of preferential dividend or distribution rights, to the holders of a class of shares with preferential rights that may be authorized in the future. Under the Israeli Companies Law, the declaration of a dividend does not require the approval of the shareholders of the company, unless the company's Articles of Association require otherwise. Our Articles of Association provide that the board of directors may declare and distribute dividends without the approval of the shareholders.

 

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Annual and Extraordinary General Meetings

We must hold our annual general meeting of shareholders each year no later than 15 months from the last annual meeting, at a time and place determined by the board of directors, upon at least 21 days’ prior notice to our shareholders to which we need to add additional 7 days for notices sent outside of Israel. A special meeting may be convened by request of one director in office or one or more shareholders holding at least 10% of our issued and voting share capital. Notice of a general meeting must set forth the date, time and place of the meeting. Such notice must be given at least 21 days but not more than 45 days prior to the general meeting. The quorum required for a meeting of shareholders consists of at least two shareholders present in person or by proxy who hold or represent between them at least 25% of the voting rights in the company. A meeting adjourned for lack of a quorum generally is adjourned to the same day in the following week at the same time and place (with no need for any notice to the shareholders) or until such other later time if such time is specified in the original notice convening the general meeting, or if we serve notice to the shareholders no less than 7 days before the date fixed for the adjourned meeting. If at an adjourned meeting there is no quorum present half an hour after the time set for the meeting, any number participating in the meeting shall represent a quorum and shall be entitled to discuss the matters set down on the agenda for the original meeting.

Voting Rights

Our ordinary shares do not have cumulative voting rights in the election of directors. As a result, the holders of ordinary shares that represent more than 50% of the voting power represented at a shareholders meeting in which a quorum is present have the power to elect all of our directors, except the external directors whose election requires a special majority as described under the section entitled “Item 6 - Directors, Senior Management and Employees-Board Practices-External and Independent Directors.”

Holders of ordinary shares have one vote for each ordinary share held on all matters submitted to a vote of shareholders. Shareholders may vote in person or by proxy. These voting rights may be affected by the grant of any special voting rights to the holders of a class of shares with preferential rights that may be authorized in the future.

Under the Israeli Companies Law, unless otherwise provided in the Articles of Association or by applicable law, all resolutions of the shareholders require a simple majority, and all shareholders’ meetings require prior notice of at least 21 days with an additional 7 days for notices sent outside of Israel. Our Articles of Association provide that all decisions may be made by a simple majority. See “Item 10 - Additional Information-Memorandum and Articles of Association-Approval of Certain Transactions” above for certain duties of shareholders towards the company.

Voting by Proxy and in Other Manners

Our Articles of Association enable a shareholder to appoint a proxy, who need not be a shareholder, to vote at any shareholders meeting. We require that the appointment of a proxy be in writing signed by the person making the appointment or by an attorney authorized for this purpose, and if the person making the appointment is a corporation, by a person or persons authorized to bind the corporation. The document appointing the proxy shall be deposited in our offices or at such other address as shall be specified in the notice of the meeting not less than 48 hours before the time of the meeting at which the person specified in the appointment is due to vote.

Limitations on the Rights to Own Securities

The ownership or voting of ordinary shares by non-residents of Israel is not restricted in any way by our Articles of Association or the laws of the State of Israel, except that nationals of countries which are, or have been, in a state of war with Israel may not be recognized as owners of ordinary shares.

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Anti-Takeover Provisions under Israeli Law

The Israeli Companies Law permits merger transactions with the approval of each party’s board of directors and shareholders. In accordance with the Israeli Companies Law, a merger may be approved at a shareholders meeting by a majority of the voting power represented at the meeting, in person or by proxy, and voting on that resolution. In determining whether the required majority has approved the merger, shares held by the other party to the merger, any person holding at least 25% of the outstanding voting shares or means of appointing the board of directors of the other party to the merger, or the relatives or companies controlled by these persons, are excluded from the vote.

Under the Israeli Companies Law, a merging company must inform its creditors of the proposed merger. Any creditor of a party to the merger may seek a court order blocking the merger, if there is a reasonable concern that the surviving company will not be able to satisfy all of the obligations of the parties to the merger. Moreover, a merger may not be completed until at least 70 days have passed from the time that a merger proposal was filed with the Israeli Registrar of Companies.

The Israeli Companies Law provides that an acquisition of shares in a public company must be made by means of a tender offer if, as a result of such acquisition, the purchaser would become shareholder with over 25% of the voting rights in the company. This rule does not apply if there is already another shareholder of the company with 25% or more of the voting rights. Similarly, the Israeli Companies Law provides that an acquisition of shares in a public company must be made by means of a tender offer if, as a result of the acquisition, the purchaser’s shareholdings would entitle the purchaser to over 45% of the voting rights in the company, unless there is a shareholder with 50% or more of the voting rights in the company. These rules do not apply if the acquisition is made by way of a merger. Regulations promulgated under the Israeli Companies Law provide that these tender offer requirements do not apply to companies whose shares are listed for trading external of Israel if, according to the law in the country in which the shares are traded, including the rules and regulations of the stock exchange or which the shares are traded, either:

·   there is a limitation on acquisition of any level of control of the company; or

·   the acquisition of any level of control requires the purchaser to do so by means of a tender offer to the public.

The Israeli Companies Law provides specific rules and procedures for the acquisition of shares held by minority shareholders, if the majority shareholder holds more than 90% of the outstanding shares. Israeli tax law treats specified acquisitions, including a stock-for-stock swap between an Israeli company and a foreign company, less favorably than does U.S. tax law. These laws may have the effect of delaying or deterring a change in control of us, thereby limiting the opportunity for shareholders to receive a premium for their shares and possibly affecting the price that some investors are willing to pay for our securities.

Rights of Shareholders

Under the Israeli Companies Law, our shareholders have the right to inspect certain documents and registers including the minutes of general meetings, the register of shareholders and the register of substantial shareholders, any document held by usthat relates to an act or transaction requiring the consent of the general meeting as stated above under “Approval of Certain Transactions,” our Articles of Association and our financial statements, any other document which we are required to file under the Israeli Companies Law or under any law with the Registrar of Companies or the Israeli Securities Authority, and is available for public inspection at the Registrar of Companies or the Securities Authority, as the case may be.

If the document required for inspection by one of our shareholders relates to an act or transaction requiring the consent of the general meeting as stated above,we may refuse the request of the shareholder if in our opinion the request was not made in good faith, the documents requested contain a commercial secret or a patent, or disclosure of the documents could prejudice our good in some other way.

The Israeli Companies Law provides that with the approval of the court any of our shareholders or directors may file a derivative action on our behalf if the court finds the action is a priori, to our benefit, and the person demanding the action is acting in good faith. The demand to take action can be filed with the court only after it is serviced to us, and we decline or omit to act in accordance to this demand.

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Enforceability of Civil Liabilities

We are incorporated in Israel and some of our directors and officers and the Israeli experts named in this prospectus reside outside the United States. Service of process upon them may be difficult to effect within the United States. Furthermore, because substantially all of our assets, and those of our non-United States directors and officers and the Israeli experts named herein, are located outside the United States, any judgment obtained in the United States against us or any of these persons may not be collectible within the United States.

We have been informed by our legal counsel in Israel, Kantor & Co Law Offices, that there is doubt as to the enforceability of civil liabilities under the Securities Act or the Exchange Act, pursuant to original actions instituted in Israel. However, subject to particular time limitations, executory judgments of a United States court for monetary damages in civil matters may be enforced by an Israeli court, provided that:

·   the judgment was obtained after due process before a court of competent jurisdiction, that recognizesand enforces similar judgments of Israeli courts, and the court had authority according to the rules ofprivate international law currently prevailing in Israel;

·   adequate service of process was effected and the defendant had a reasonable opportunity to be heard;

·   the judgment is not contrary to the law, public policy, security or sovereignty of the State of Israel andits enforcement is not contrary to the laws governing enforcement of judgments;

·   the judgment was not obtained by fraud and does not conflict with any other valid judgment in the samematter between the same parties;

·   the judgment is no longer appealable; and

·   an action between the same parties in the same matter is not pending in any Israeli court at the time thelawsuit is instituted in the foreign court.

We have irrevocably appointed XTL Biopharmaceuticals Inc., our U.S. subsidiary, as our agent to receive service of process in any action against us in any United States federal court or the courts of the State of New York arising out of this offering or any purchase or sale of ordinary shares in connection therewith.

Foreign judgments enforced by Israeli courts generally will be payable in Israeli currency. The usual practice in an action before an Israeli court to recover an amount in a non-Israeli currency is for the Israeli court to render judgment for the equivalent amount in Israeli currency at the rate of exchange in force on the date of the judgment. Under existing Israeli law, a foreign judgment payable in foreign currency may be paid in Israeli currency at the rate of exchange for the foreign currency published on the day before date of payment. Current Israeli exchange control regulations also permit a judgment debtor to make payment in foreign currency. Pending collection, the amount of the judgment of an Israeli court stated in Israeli currency ordinarily may be linked to Israel’s consumer price index plus interest at the annual statutory rate set by Israeli regulations prevailing at that time. Judgment creditors must bear the risk of unfavorable exchange rates.

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Material Contracts

Yeda License Agreement

In April of 1993, we entered into a research and license agreement with Yeda, which we refer to as the Yeda Agreement, under which Yeda granted us an exclusive worldwide license to use the Trimera patent portfolio and to exclusively use the information derived from the performance of certain research for the purposes specified in the agreement in any country where a licensed patent covers a product sold under the license or other licensed activity until the date on which the last licensed patent expires or until 12 years from the later of the first commercial sale of a product (or first receipts to us from other licensed activity) in such country, and in any other country until 12 years from the first commercial sale of a product (or first receipts to us from other licensed activity) in that country. Under the agreement, any assignment of the license granted by Yeda requires Yeda's prior written consent.

The Yeda Agreement has undergone a number of amendments, one of the end results of which is that we shall pay to Yeda the following fees: a royalty of 3% of all net sales received by us; 25% of amounts received by us on net sales of third parties (less certain royalties payable by us to third parties), but no more than 3% and no less than 1.5% of such net sales; and a royalty ranging between 20% to 40% on any receipts to us other than our net sales or receipts on net sales made by third parties. Furthermore, such amendments have also changed the termination provisions relating to Yeda’s entitlement to terminate the agreement if we do not pay Yeda a certain minimum amount of annual royalties of $100,000 or $200,000, depending on the year.

In the most recent amendment of the Yeda Agreement, in order to facilitate the grant of the license by us to Cubist under the terms of the HepeX-B collaboration, Yeda received the right to receive at least 1.5% of net sales of HepeX-B by Cubist sub-licensees, regardless of the amount received by us from Cubist in respect of such sales.

Cubist Collaboration

We have entered into a licensing agreement with Cubist dated June 2, 2004, under which we granted to Cubist an exclusive, worldwide license (with the right to sub-license) to commercialize HepeX-B and any other product containing a hMAb or humanized monoclonal antibody or fragment directed at the hepatitis B virus owned or controlled by us. In the event that the actual costs incurred in conducting activities that Cubist determines are necessary or advisable to obtain regulatory approval for HepeX-B for the prevention of recurrent hepatitis B infections in liver transplant patients exceed $33.9 million, any costs in excess shall be borne in equal share by us and Cubist.

Cubist paid us an initial up-front payment of $1 million upon the signing of the agreement, a further aggregate amount of $2 million as collaboration support to be paid in installments until the end of 2005, of which $1 million has been paid through March 31, 2005, and an additional amount of up to $3 million upon achievement of certain regulatory milestones.

Under the agreement, we are entitled to receive royalties from net sales by Cubist, generally ranging from 10% to 17%, depending on levels of net sales achieved by Cubist, subject to certain deductions based on patent protection of HepeX-B in that territory, total costs of HepeX-B development, third party license payments and indemnification obligations.

Cubist has the right to sub-license HepeX-B. The sub-licensee fees we will receive in such cases will vary according to the territory, the subject of the sub-license, the patent protection of HepeX-B in that territory, total costs of HepeX-B development, third party license payments, indemnification obligations and local competition. For example, where HepeX-B is not patent protected and a competing product obtains more than an agreed percentage of the local market, we would receive no royalties on sales of HepeX-B.

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Cubist has granted us the non-exclusive right of negotiation during the term of the agreement to obtain all or any portion of the rights to manufacture and supply HepeX-B or any other product containing an hMAb or humanized monoclonal antibody or fragment directed at the hepatitis B virus owned or controlled by us. Furthermore, in certain circumstances, we have the exclusive right to negotiate with Cubist to obtain from Cubist a sub-license to market and sell the HepeX-B or such other product in certain territories.

We agreed that during the term of the agreement and for one year thereafter, we will not research, develop or commercialize any competitive product containing a human or humanized monoclonal antibody or fragment that is directed to and binds with the hepatitis B virus.

The agreement expires on the later of the last valid patent claim covering HepeX-B to expire or 10 years after the first commercial sale of
HepeX-B on a country-by-country basis.

DRK-Blutspendedienst Baden-Wurttemberg (Ulm University, Germany)

In April 2000, we licensed Ab68 under an exclusive worldwide license from the DRK-Blutspendedienst Baden-Wurttemberg (Ulm University, Germany, or Ulm). Under the terms of this agreement, we are obligated to pay Ulm a specified royalty rate on sales of product incorporating Ab68. We can deduct certain payments that are made to third parties from these royalties, subject to a minimum royalty rate. We are also obligated to pay Ulm a specified percentage of any milestone payments we may receive from any sublicensee to whom we may grant a license or sublicense of Ab68 or technology related to the production of Ab68. We can deduct certain of these payments that are made to third parties from the percentage of milestone payments owed to Ulm, subject to a minimum milestone payment amount. Either party may terminate the agreement, by written notice, upon or after the winding up or insolvency of the other party, or upon or after commitment of a material breach by the other party that cannot be cured, or if curable, has not been cured, within 60 days after receipt of notice. In the absence of such termination, the agreement shall expire upon the expiration of the license granted under the agreement.

Stanford University

In September 2003, we licensed Ab65 from Stanford University under an exclusive license agreement. Under the terms of this agreement, we have exclusive rights to Ab65 worldwide, excluding China. In China, we have co-exclusive rights with Applied Immunogenetics LLC. Under the terms of this agreement, we must use commercially reasonable efforts to commercialize and market Ab65. We are obligated to make royalty payments to Stanford University on sales of product incorporating Ab65, and we are also obligated to make milestone payments upon the occurrence of certain specified events. The license terminates upon the later of the expiration of last of the licensed patents or at the time of our last royalty payment. Notwithstanding the above, we may terminate this agreement upon specified notice to Stanford University. In addition, should we fail to meet certain developmental milestones for Ab65, our rights to the use of Ab65 become non-exclusive upon notice to that effect to us by Stanford University.

In addition, under an agreement entered into in September 2003, we are obligated to make royalty payments on sales of product incorporating Ab65 to Applied Immunogenetics LLC, a company that previously held non-exclusive rights to Ab65 and returned them to Stanford University, enabling us to gain exclusive rights to Ab65 from Stanford University. Our agreement with Applied Immunogenetics LLC expires on the expiration or termination of our exclusive agreement with Stanford University, as described above.

Exchange controls

Under Israeli Law, Israeli non-residents who purchase ordinary shares with certain non-Israeli currencies (including dollars) may freely repatriate in such non-Israeli currencies all amounts received in Israeli currency in respect of the ordinary shares, whether as a dividend, as a liquidating distribution, or as proceeds from any sale in Israel of the ordinary shares, provided in each case that any applicable Israeli income tax is paid or withheld on such amounts. The conversion into the non-Israeli currency must be made at the rate of exchange prevailing at the time of conversion.

Taxation

The following discussion of Israeli and United States tax consequences material to our shareholders is not intended and should not be construed as legal or professional tax advice and does not exhaust all possible tax considerations. To the extent that the discussion is based on new tax legislation, which has not been subject to judicial or administrative interpretation, the views expressed in the discussion might not be accepted by the tax authorities in question. This summary does not purport to be a complete analysis of all potential tax consequences of owning ordinary shares or ADRs. In particular, this discussion does not take into account the specific circumstances of any particular investor (such as tax-exempt entities, certain financial companies, broker-dealers, investors subject to Alternative Minimum Tax, investors that actually or constructively own 10% or more of our voting securities, investors that hold ordinary shares or ADRs as part of straddle or hedging or conversion transaction, traders in securities that elect mark to market, banks and other financial institutions or investors whose functional currency is not the U.S. dollar), some of which may be subject to special rules.

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We urge shareholders and prospective purchasers of our ordinary shares and ADRs to consult their own tax advisors as to the U.S., Israeli, or other tax consequences of the purchase, ownership and disposition of ordinary shares and ADRs, including, in particular, the effect of any foreign, state or local taxes.

Israeli Tax Considerations

The following discussion refers to the current tax law applicable to companies in Israel, with special reference to its effect on us. This discussion also includes specified Israeli tax consequences to holders of our ordinary shares and Israeli Government programs benefiting us.

Tax Reform

On January 1, 2003 a comprehensive tax reform took effect in Israel (the Law for Amendment of the Income Tax Ordinance (Amendment No. 132), 5762-2002, as amended). Pursuant to the reform, resident companies are subject to Israeli tax on income on a worldwide basis. In addition, the concept of controlled foreign corporation was introduced according to which an Israeli company may become subject to Israeli taxes on certain income of a non-Israeli subsidiary if the subsidiary’s primary source of income is passive income (such as interest, dividends, royalties, rental income or certain capital gains). An Israeli company that is subject to Israeli taxes on the income of its non-Israeli subsidiaries will receive a credit for income tax paid by the subsidiary in its country of resident subject to certain limitations. The tax reform also substantially changed the system of taxation of capital gains.

Corporate Tax Rate

The regular tax rate in Israel in 2004 is 35%. This rate is currently scheduled to decrease as follows: in 2005-34%, 2006-32%, 2007 and onward-30% for undistributed earnings. However, the effective tax rate of a company which derives income from an approved enterprise may be considerably less, as further discussed below.

Tax Benefits Under the Law for the Encouragement of Capital Investments, 1959

The Law for the Encouragement of Capital Investment, 1959, as amended, commonly referred to as the Investment Law, provides that a proposed capital investment in eligible facilities may, upon application to the Investment Center of the Ministry of Industry and Trade of the State of Israel, be designated as an Approved Enterprise. Each certificate of approval for an Approved Enterprise relates to a specific investment program delineated both by its financial scope, including its capital sources, and by its physical characteristics, for example, the equipment to be purchased and utilized under the program. The tax benefits derived from any certificate of approval relate only to taxable income attributable to the specific Approved Enterprise. If a company has more than one approval or only a portion of its capital investments is approved, its effective tax rate is the result of a weighted average of the applicable rates.

Taxable income of a company derived from an Approved Enterprise is subject to company tax at the maximum rate of 25% rather than the usual rate in 2004 of 35% (as mentioned above, gradually scheduled to be reduced to 30% in 2007), for the benefit period. This period is ordinarily seven years, or ten years if the company qualifies as a foreign investors’ company as described below, commencing with the year in which the Approved Enterprise first generates taxable income. However, this period is limited to 12 years from commencement of production or 14 years from the date of approval, whichever is earlier.

A company that has been granted the status of an Approved Enterprise may elect to forego entitlement to grants otherwise available for an Approved Enterprise, in return for an alternative package of benefits. Under the alternative package of benefits, a company’s undistributed income derived from an Approved Enterprise will be exempt from company tax for a period of between two and ten years from the first year of taxable income, depending on the geographic location of the Approved Enterprise within Israel, and the company will be eligible for a reduced tax rate for the remainder of the benefits period.

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A company that has elected the alternative package of benefits and that subsequently pays a dividend out of income derived from the approved enterprise during the tax exemption period will be subject to tax on the amount distributed, including any company tax on these amounts, at the rate which would have been applicable had it not elected the alternative package of benefits, generally 10%-25%, depending on the percentage of the company’s shares held by foreign shareholders. The dividend recipient is taxed at the reduced rate applicable to dividends from approved enterprises, which is 15%, if the dividend is distributed during the tax exemption period or within 12 years after this period, or in the case of a foreign investors’ company, without time limitation. The company must withhold this tax at source, regardless of whether the dividend is converted into or paid in foreign currency.

A company that has an Approved Enterprise program is eligible for enhanced tax benefits if it qualifies as a foreign investors’ company. A foreign investors' company is a company more than 25% of whose share capital and combined share and loan capital is owned by non-Israeli residents. A company which qualifies as a foreign investors' company and has an Approved Enterprise program is eligible for tax benefits for a ten-year benefit period. The company tax rate applicable to income earned from approved enterprise programs in the benefit period by a company meeting these qualifications is as follows:

For a company with foreign investment of	Company tax rate
More than 25% and less than 49%	25%
49% or more and less than 74%	20%
74% or more and less than 90%	15%
90% or more	10%

The determination of foreign ownership is made on the basis of the lowest level of foreign ownership during the tax year. Such tax rates, are applicable only to a foreign investors company that submitted an application for the grant of Approved Enterprise status prior to March 31, 2005.

Subject to applicable provisions concerning income under the alternative package of benefits, all dividends are considered to be attributable to the entire enterprise and their effective tax rate is the result of a weighted average of the various applicable tax rates. Under the Investment Law, a company that has elected the alternative package of benefits is not obliged to attribute part of the dividend to exempt profits, and may generally decide from which year's profits to declare dividends. We currently intend to reinvest any income derived from our Approved Enterprise programs and not to distribute the income as a dividend.

The Investment Center bases its decision whether or not to approve an application on the criteria set forth in the Investment Law and regulations, the then prevailing policy of the Investment Center, and the specific objectives and financial criteria of the applicant. Therefore, we cannot assure you that any applications we may make in the future will be approved. In addition, the benefits available to an Approved Enterprise are conditioned upon the fulfillment of conditions stipulated in the Investment Law and its regulations and in the criteria in the specific certificate of approval, as described above. If a company does not meet these conditions, it would be required to refund the amount of tax benefits, together with consumer price index linkage adjustment and interest.

Additionally after receiving the certificate of approval from the Investment Center, a company must meet certain reporting requirements. The company must file periodic audited reports on the progress in implementing the program. Additionally, where a company has completed the implementation of investing in fixed assets, a final implementation report must be filed with, and reviewed by, the Investment Center. Should the Investment Center determine that the investments in assets were made in accordance with the certificate of approval and that the required minimum capital has been invested, it will issue a final approval of implementation, which will also indicate the year that will be the first year of potential benefits under the Approved Enterprise.

On March 29, 2005, the Israeli Parliament enacted an amendment to the Investment Law, which is intended to provide expanded tax benefits to local and foreign investors and to simplify the bureaucratic process relating to approval of investments qualifying under the Investment Law.

The amendment to the Investment Law does not retroactively apply for investment programs having an Approved Enterprise approval certificate from the Investment Center issued up to December 31, 2004 (even when investments under these programs are conducted after January 1, 2005). Consequently, the amendment to the Investment Law should not impact an existing Approved Enterprise, that received an approval certificate prior to December 2004. The new tax regime will only apply to a for a new Approved Enterprise and to an Approved Enterprise expansion for which the first year of benefits was 2004 or later.  

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Under the amended Investment Law the approval of a certain investment plant as an Approved Enterprise is subject to the discretion of the Investment center. This approval is generally based on the criteria set forth in the amended Investment Law and regulations, the then-prevailing policy of the Investment Center, and the specific objectives and financial criteria of the applicant. We cannot assure you that any applications we may make in the future will be approved.

The Investment Center has granted us Approved Enterprise status, which approval was granted prior to December 31, 2004, and is therefore entitled to the benefits afforded by the Investment Law prior to its amendment. Accordingly, our taxable income derived from this program will be tax exempt for a period of two years beginning with the year in which we first generate taxable income, and thereafter will be subject to a reduced tax rate of 25% or less, if we qualify as a foreign investors' company, for a period of between five and eight years, depending on the percentage of our capital held by non-Israeli shareholders. To date, we have not generated taxable income.

Tax Benefits for Research and Development

Israeli tax law allows, under specific conditions, a tax deduction in the year incurred for expenditures, including capital expenditures, relating to scientific research and development projects, if the expenditures are approved by the relevant Israeli government ministry, determined by the field of research, and the research and development is for the promotion of the company and is carried out by or on behalf of the company seeking the deduction. Expenditures not so approved are deductible over a three-year period. Expenditures made out of proceeds made available to us through government grants are automatically deducted during a one year period.

Tax Benefits Under the Law for the Encouragement of Industry (Taxes), 1969

The Law for the Encouragement of Industry (Taxes), 1969, generally referred to as the Industry Encouragement Law, provides several tax benefits for industrial companies. An industrial company is defined as a company resident in Israel, at least 90% of the income of which in a given tax year exclusive of income from specified government loans, capital gains, interest and dividends, is derived from an industrial enterprise owned by it. An industrial enterprise is defined as an enterprise whose major activity in a given tax year is industrial production activity.

Under the Industry Encouragement Law, industrial companies are entitled to a number of corporate tax benefits, including:

·   deduction of purchase of know-how and patents over an eight-year period; and

·   the right to elect, under specified conditions, to file a consolidated tax return with additional related Israeli industrial companies and an industrial holding company.

Under some tax laws and regulations, an industrial enterprise may be eligible for special depreciation rates for machinery, equipment and buildings. These rates differ based on various factors, including the date the operations begin and the number of work shifts. An industrial company owning an approved enterprise may choose between these special depreciation rates and the depreciation rates available to the approved enterprise.

Eligibility for benefits under the Industry Encouragement Law is not subject to receipt of prior approval from any governmental authority.

We believe that we currently qualify as an industrial company within the definition of the Industry Encouragement Law. We cannot assure you that the Israeli tax authorities will agree that we qualify, or, if we qualify, that we will continue to qualify as an industrial company or that the benefits described above will be available to us in the future.

Special Provisions Relating to Taxation under Inflationary Conditions

The Income Tax Law (Inflationary Adjustments), 1985, generally referred to as the Inflationary Adjustments Law, represents an attempt to overcome the problems presented to a traditional tax system by an economy undergoing rapid inflation. The Inflationary Adjustments Law is highly complex. Its features, which are material to us, can be described as follows:

·   where a company's equity, as defined in the law, exceeds the cost of fixed assets, a deduction from taxable income that takes into account the effect of the applicable annual rate of inflation on the excess is allowed up to a ceiling of 70% of taxable income in any single tax year, with the unused portion permitted to be carried forward on a linked basis. If the cost of fixed assets exceeds a company's equity, then the excess multiplied by the applicable annual rate of inflation is added to taxable income;

·   subject to specified limitations, depreciation deductions on fixed assets and losses carried forward are adjusted for inflation based on the increase in the consumer price index; and

·   in specified circumstances, gains on traded securities, which might otherwise be eligible for reduced rates of tax, will be liable to company tax at the usual rate in 2004 of 35% (as mentioned above, gradually scheduled to be reduced to 30% in 2007).

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Israeli Estate and Gift Taxes

Israel does not currently impose taxes on inheritance or bona fide gifts. For transfer of assets by inheritance or gift that would normally be subject to capital gains tax or land appreciation tax, the recipient’s tax cost basis and date of purchase are generally deemed to be the same as those for the transferor of the property.

Capital Gains Tax on Sale of our Ordinary Shares by Both Residents and Non-Residents of Israel

Israeli law generally imposes a capital gains tax on the sale of capital assets located in Israel, including shares in Israeli resident companies, by both residents and non-residents of Israel, unless a specific exemption is available or unless a treaty between Israel and the country of the non-resident provides otherwise. Regulations promulgated under the Israeli Income Tax Ordinance provide for an exemption from Israeli capital gains tax for gains accrued before January 1, 2003, and derived from the sale of shares of an “Industrial Company,” as defined by the Industry Encouragement Law, that are traded on specified non-Israeli markets, including The Nasdaq National Market, provided that the sellers purchased their shares either in the company’s initial public offering or in public market transactions thereafter.

This exemption does not apply to shareholders who are in the business of trading securities, or to shareholders that are Israeli resident companies subject to the Income Tax (Adjustments for Inflation) Law- 1985, or to shareholders who acquired their shares prior to an initial public offering. We believe that we are currently an Industrial Company, as defined by the Industry Encouragement Law. Our status as an Industrial Company may be reviewed by the tax authorities from time to time. There can be no assurance that the Israeli tax authorities will not deny our status as an Industrial Company, possibly with retroactive effect.

On January 1, 2003, the Law for Amendment of the Income Tax Ordinance (Amendment No. 132), 5762-2002, known as the tax reform, came into effect thus imposing capital gains tax at a rate of 15% on gains accrued on or after January 1, 2003 from the sale of shares in Israeli companies publicly traded on a recognized stock exchange outside of Israel. This tax rate does not apply to: (1) dealers in securities; (2) shareholders that report in accordance with the Income Tax Law (Inflationary Adjustment) - 1985; (3) shareholders who acquired their shares prior to an initial public offering; or (4) related party sales. The tax basis of shares acquired prior to January 1, 2003, will be determined in accordance with the average closing share price in the three trading days preceding January 1, 2003.

Non-Israeli residents shall be exempt from Israeli capital gains tax on any gains derived from the sale of shares publicly traded on a stock exchange recognized by the Israeli Ministry of Finance, provided such shareholders did not acquire their shares prior to an initial public offering. In any event, the provisions of the tax reform shall not affect the exemption from capital gains tax for gains accrued before January 1, 2003, as described in the previous paragraph.

In addition, pursuant to the Convention Between the Government of the United States of America and the Government of Israel with Respect to Taxes on Income, as amended (the “United States- Israel Tax Treaty”), the sale, exchange or disposition of ordinary shares by a person who qualifies as a resident of the United States within the meaning of the United States-Israel Tax Treaty and who is entitled to claim the benefits afforded to such person by the United States- Israel Tax Treaty (a “Treaty United States Resident”) generally will not be subject to the Israeli capital gains tax unless such “Treaty United States Resident” holds, directly or indirectly, shares representing 10% or more of the Company’s voting power during any part of the twelve- month period preceding such sale, exchange or disposition, subject to certain conditions. However, under the United States-Israel Tax Treaty, such “Treaty United States Resident” would be permitted to claim a credit for such taxes against the United States federal income tax imposed with respect to such sale, exchange or disposition, subject to the limitations in United States laws applicable to foreign tax credits.

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Taxation of Dividends

Non-residents of Israel are subject to income tax on income accrued or derived from sources in Israel

These sources of income include passive income, including dividends, royalties and interest, as well as non-passive income from services rendered in Israel. On distribution of dividends other than bonus shares or stock dividends, income tax is withheld at source, at the rate of 25%, or 12.5% for dividends not generated by an approved enterprise if the non-resident is a U.S. corporation and holds at least 10% of our voting power (during our taxable year preceding the distribution of the dividend and the portion of our taxable year in which the dividend was distributed), and 15% for dividends generated by an approved enterprise, unless in each case a different rate is provided in a treaty between Israel and shareholder's country of residence. Under the U.S.-Israel tax treaty, the maximum tax on dividends paid to a holder of ordinary shares who is a U.S. resident will be 25%. However, under the Investment Law, dividends generated by an approved enterprise are taxed at the rate of 15%.

Stamp Duty

We are obligated under the Israeli Stamp Duty Act 1961 to pay one percent of the proceeds of any issuance of our ordinary shares as stamp duty within 30 days from such issuance.

United States Federal Income Tax Considerations

The following discusses the material United States federal income tax consequences to a holder of our ordinary shares and qualifies as a U.S. Holder, which is defined as:

·   a citizen or resident of the United States;

·   a corporation created or organized under the laws of the United States, the District of Columbia, or any state; or

·   a trust or estate, treated, for United States federal income tax purposes, as a domestic trust or estate.

This opinion is based on current provisions of the Internal Revenue Code of 1986, as amended, which we refer to as the Code, current and proposed Treasury regulations promulgated under the Code, and administrative and judicial decisions as of the date of this prospectus, all of which are subject to change, possibly on a retroactive basis. This opinion does not address any aspect of state, local or non-U.S. tax laws. Further, this opinion does not purport to be a comprehensive description of all of the tax considerations that may be relevant to U.S. Holders entitled to special treatment under U.S. federal income tax laws, for example, financial institutions, insurance companies, tax-exempt organizations and broker/dealers, and it does not address all aspects of U.S. federal income taxation that may be relevant to any particular shareholder based on the shareholder's individual circumstances. In particular, this opinion does not address the potential application of the alternative minimum tax, or the special U.S. federal income tax rules applicable in special circumstances, including to U.S. Holders who:

·   have elected mark-to-market accounting;

·   hold our ordinary shares as part of a straddle, hedge or conversion transaction with other investments;

·   own directly, indirectly or by attribution at least 10% of our voting power;

·   are tax exempt entities;

·   are persons who acquire shares in connection with employment or other performance of services; and

·   have a functional currency that is not the U.S. dollar.

Additionally, this opinion does not consider the tax treatment of partnerships or persons who hold ordinary shares through a partnership or other pass-through entity or the possible application of U.S. federal gift or estate taxes. Material aspects of U.S. federal income tax relevant to a holder other than a U.S. Holder are also described below.

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Taxation of Dividends Paid on Ordinary Shares

A U.S. Holder will be required to include in gross income as ordinary income the amount of any distribution paid on ordinary shares, including any Israeli taxes withheld from the amount paid, to the extent the distribution is paid out of our current or accumulated earnings and profits as determined for U.S. federal income tax purposes. Distributions in excess of these earnings and profits will be applied against and will reduce the U.S. Holder’s basis in the ordinary shares and, to the extent in excess of this basis, will be treated as gain from the sale or exchange of ordinary shares.

Certain dividend income may be eligible for a reduced rate of taxation. Dividend income will be taxed at the applicable long-term capital gains rate if the dividend is received from a “qualified foreign corporation,” and the shareholder of such foreign corporation holds such stock for more than 60 days during the 120 day period that begins on the date that is 60 days before the ex-dividend date for the stock. The holding period is tolled for any days on which the shareholder has reduced his risk of loss. A “qualified foreign corporation” is one that is eligible for the benefits of a comprehensive income tax treaty with the United States. A foreign corporation will be treated as qualified with respect to any dividend paid, if its stock is readily tradable on an established securities market. However, a foreign corporation will not be treated as qualified if it is a Passive Foreign Investment Company (as discussed below) for the year in which the dividend was paid or the preceding year. Distributions of current or accumulated earnings and profits paid in foreign currency to a U.S. Holder will be includible in the income of a U.S. Holder in a U.S. dollar amount calculated by reference to the exchange rate on the day the distribution is received. A U.S. Holder that receives a foreign currency distribution and converts the foreign currency into U.S. dollars subsequent to receipt will have foreign exchange gain or loss based on any appreciation or depreciation in the value of the foreign currency against the U.S. dollar, which will generally be U.S. source ordinary income or loss.

As described above, we will generally be required to withhold Israeli income tax from any dividends paid to holders who are not resident in Israel. See “Israeli Tax Considerations—Taxation of Non-Resident Holders of Shares.” If a U.S. Holder receives a dividend from us that is subject to Israeli withholding, the following would apply:

·   You must include the gross amount of the dividend, not reduced by the amount of Israeli tax withheld, in your U.S. taxable income.

·   You may be able to claim the Israeli tax withheld as a foreign tax credit against your U.S. income tax liability.

·   The foreign tax credit is subject to significant and complex limitations. Generally, the credit can offset only the part of your U.S. tax attributable to your net foreign source passive income. Additional special rules apply to taxpayers predominantly engaged in the active conduct of a banking, insurance, financing or similar business. Additionally, if we pay dividends at a time when 50% or more of our stock is owned by U.S. persons, you may be required to treat the part of the dividend attributable to U.S. source earnings and profits as U.S. source income, possibly reducing the allowable credit, unless you elect to calculate your foreign tax credit separately with respect to XTLbio dividends.

·   A U.S. Holder will be denied a foreign tax credit with respect to Israeli income tax withheld from dividends received on the ordinary shares to the extent the U.S. Holder has not held the ordinary shares for at least 16 days of the 30-day period beginning on the date which is 15 days before the ex-dividend date or to the extent the U.S. Holder is under an obligation to make related payments with respect to substantially similar or related property. Any days during which a U.S. Holder has substantially diminished its risk of loss on the ordinary shares are not counted toward meeting the 16-day holding period required by the statute.

·   If you do not elect to claim foreign taxes as a credit, you will be entitled to deduct the Israeli income tax withheld from your XTLbio dividends in determining your taxable income.

·   Individuals who do not claim itemized deductions, but instead utilize the standard deduction, may not claim a deduction for the amount of the Israeli income taxes withheld.

·   If you are a U.S. corporation holding our stock, you cannot claim the dividends-received deduction with respect to our dividends.

Special rules, described below, apply if XTLbio is a passive foreign investment company.

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Taxation of the Disposition of Ordinary Shares

Subject to the description of the passive foreign investment company rules below, upon the sale, exchange or other disposition of our ordinary shares, a U.S. Holder will recognize capital gain or loss in an amount equal to the difference between the U.S. Holder's basis in the ordinary shares, which is usually the cost of these shares, and the amount realized on the disposition. Capital gain from the sale, exchange or other disposition of ordinary shares held more than one year is long-term capital gain and is eligible for a reduced rate of taxation for non-corporate holders. In general, gain realized by a U.S. Holder on a sale, exchange or other disposition of ordinary shares generally will be treated as U.S. source income for U.S. foreign tax credit purposes. A loss realized by a U.S. Holder on the sale, exchange or other disposition of ordinary shares is generally allocated to U.S. source income. However, regulations require the loss to be allocated to foreign source income to the extent certain dividends were received by the taxpayer within the 24-month period preceding the date on which the taxpayer recognized the loss. The deductibility of a loss realized on the sale, exchange or other disposition of ordinary shares is subject to limitations for both corporate and individual shareholders.

A U.S. Holder that uses the cash method of accounting calculates the U.S. dollar value of the proceeds received from a sale of ordinary shares as of the date that the sale settles, and will generally have no additional foreign currency gain or loss on the sale, while a U.S. Holder that uses the accrual method of accounting is required to calculate the value of the proceeds of the sale as of the trade date and may therefore realize foreign currency gain or loss, unless the U.S. Holder has elected to use the settlement date to determine its proceeds of sale for purposes of calculating this foreign currency gain or loss. In addition, a U.S. Holder that receives foreign currency upon disposition of our ordinary shares and converts the foreign currency into U.S. dollars subsequent to receipt will have foreign exchange gain or loss based on any appreciation or depreciation in the value of the foreign currency against the U.S. dollar, which will generally be U.S. source ordinary income or loss.

Tax Consequences If We Are A Passive Foreign Investment Company

Special tax rules apply to the timing and character of income received by a U.S. Holder of a Passive Foreign Investment Company, or PFIC. We will be a PFIC if either 75% or more of our gross income in a tax year is passive income or the average percentage of our assets (by either value or adjusted basis, depending on the circumstances) that produce or are held for the production of passive income is at least 50%. The U.S. Internal Revenue Service, or IRS, has indicated that cash balances, even if held as working capital, are considered to be assets that produce passive income. Therefore, any determination of PFIC status will depend upon the sources of our income, and the relative values of passive and non-passive assets, including goodwill. Furthermore, because the goodwill of a publicly-traded corporation such as us is largely a function of the trading price of its shares, the valuation of that goodwill is subject to significant change throughout each year. Accordingly, it is possible that we may become a PFIC due to changes in the nature of its income or its assets, or as the result of a decrease in the trading price of its shares. An initial determination that we are a PFIC will generally apply for subsequent years (whether or not we meet the requirements for PFIC status in those years) with respect to any U.S. Holder at the time of such determination. A determination as to a corporation’s status as a PFIC must be made annually. We believe that we were a PFIC for the taxable years ended 2002, 2003 and 2004. Although such a determination is fundamentally factual in nature and generally cannot be made until the close of the applicable taxable year, based on our current operations, we believe that there is a significant likelihood that we will be classified as a PFIC in the 2005 taxable year and possibly in subsequent years.

 

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If we were classified as a PFIC, a special tax regime would apply to both (a) any “excess distribution” by us (generally, the U.S. Holder's ratable share of distributions in any year that are greater than 125% of the average annual distributions received by such U.S. Holder in the three preceding years or its holding period, if shorter) and (b) any gain realized on the sale or other disposition of your ordinary shares. Under this special regime, any excess distribution and realized gain would be treated as ordinary income and the federal income tax on such ordinary income is determined under the following steps. (i) The amount of the excess distribution or gain is allocated ratably over the U.S. Holder's holding period for our ordinary shares. (ii) Tax is determined for amounts allocated to the first year in the holding period in which we were classified as a PFIC and all subsequent years (except the year in which the excess distribution was received or the sale occurred) by applying the highest applicable tax rate in effect in the year to which the income was allocated. (iii) An interest charge is added to this tax calculated by applying the underpayment interest rate to the tax for each year determined under the preceding sentence from the due date of the income tax return for such year to the due date of the return for the year in which the excess distribution or sale occurs, (iv) Amounts allocated to a year prior to the first year in the U.S. Holder’s holding period in which we were classified as a PFIC or to the year in which the excess distribution or the sale occurred are taxed as ordinary income and no interest charge applies.

A U.S. Holder may generally avoid the special PFIC regime by electing to treat his PFIC shares as a “qualified electing fund.” If a U.S. Holder elects to treat PFIC shares as a qualified electing fund, also known as QEF Election, the U.S. Holder must include annually in gross income (for each year in which PFIC status is met) his pro rata share of the PFIC’s ordinary earnings and net capital gains, whether or not such amounts are actually distributed to the U.S. Holder.

A U.S. Holder may make a QEF Election with respect to a PFIC for any taxable year in which s/he was a shareholder. A QEF Election is effective for the year in which the election is made and all subsequent taxable years of the U.S. Holder. Procedures exist for both retroactive elections and the filing of protective statements. A U.S. Holder making the QEF Election must make the election on or before the due date, as extended, for the filing of the U.S. Holder's income tax return for the first taxable year to which the election will apply.

A U.S. Holder must make a QEF Election by completing Form 8621, Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund, and attaching it to their U.S. federal income tax return, and must satisfy additional filing requirements each year the election remains in effect. From fiscal 2005, we plan to comply with the record-keeping and reporting requirements that are a prerequisite to making a “qualified electing fund” election. However, if meeting those record-keeping and reporting requirements becomes onerous, we may decide, in our sole discretion, that such compliance is impractical and will so notify U.S. holders.

As an alternative to or in addition to the qualified electing fund election, a so-called “mark-to- market” election may be made by a U.S. Holder with respect to ordinary shares owned at the close of such holder's taxable year, provided that we are a PFIC and the ordinary shares are considered “marketable stock.” The ordinary shares will be marketable stock if they are listed on a national securities exchange that is registered with the Securities and Exchange Commission, or the national market system established pursuant to section 11A of the Securities and Exchange Act of 1934, or an equivalent regulated and supervised foreign securities exchange. If a U.S. Holder were to make a mark-to-market election with respect to ordinary shares, such holder generally would include as ordinary income (or, to the extent of prior unreversed inclusions, be allowed an ordinary loss deduction, as the case may be) an amount equal to the difference between the fair market value of the holder's ordinary shares as of the close of the holder's taxable year and its adjusted basis. Gains from an actual sale or other disposition of the ordinary shares will be treated as ordinary income, and any losses incurred on an actual sale or other disposition of the ordinary shares will be treated as ordinary loss to the extent of any prior unreversed inclusions. The mark-to-market election is made on a shareholder-by-shareholder basis and is effective for the taxable year for which made and all subsequent years until either (a) the ordinary shares cease to be marketable stock or (b) the election is revoked with the consent of the IRS.

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A U.S. Holder who did not make a QEF Election either to (i) treat us as a “qualified electing fund,” or (ii) mark our ordinary shares and/or ADRs to market, will be subject to the following:

·   gain recognized by the U.S. Holder upon the disposition of, as well as income recognized upon receiving certain dividends on the ordinary shares and/or ADRs would be taxable as ordinary income;

·   the U.S. Holder would be required to allocate such dividend income and/or disposition gain ratably over such U.S. Holder's entire holding period for such XTLbio ordinary shares and/or ADRs;

·   the amount allocated to each year other than the year of the dividend payment or disposition would be subject to tax at the highest applicable tax rate, and an interest charge would be imposed with respect to the resulting tax liability;

·   the U.S. Holder would be required to file an annual return on IRS Form 8621 regarding distributions received on, gain recognized on dispositions of, our ordinary shares and/or ADRs; and

·   any U.S. Holder who acquired the ordinary shares and/or ADRs upon the death of the shareholder would not receive a step-up to market value of his income tax basis for such ordinary shares and/or ADRs. Instead such U.S. Holder beneficiary would have a tax basis equal to the decedent's basis, if lower.

In view of the complexity of the issues regarding our treatment as a PFIC, U.S. shareholders are urged to consult their own tax advisors for guidance as to our status as a PFIC.

United States Federal Income Tax Consequences for Non-U.S. Holders of Ordinary Shares

Except as described in "Information Reporting and Back-up Withholding" below, a Non-U.S. Holder of ordinary shares will not be subject to U.S. federal income or withholding tax on the payment of dividends on, and the proceeds from the disposition of, ordinary shares, unless:

·   the item is effectively connected with the conduct by the Non-U.S. Holder of a trade or business in the United States and, in the case of a resident of a country which has a tax treaty with the United States, the item is attributable to a permanent establishment or, in the case of an individual, a fixed place of business, in the United States;

·   the Non-U.S. Holder is subject to tax under the provisions of United States tax law applicable to U.S. expatriates; or

·   the individual non-U.S. Holder is present in the United States for 183 days or more in the taxable year of the sale and certain other conditions are met.

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Information Reporting and Back-Up Withholding

U.S. Holders generally are subject to information reporting requirements with respect to dividends paid in the United States on ordinary shares. Existing regulations impose back-up withholding on dividends paid in the United States on ordinary shares unless the U.S. Holder provides IRS Form W-9 or otherwise establishes an exemption. U.S. Holders are subject to information reporting and back-up withholding at a rate of 28% on proceeds paid from the disposition of ordinary shares unless the U.S. Holder provides IRS Form W-9 or otherwise establishes an exemption.

Non-U.S. Holders generally are not subject to information reporting or back-up withholding with respect to dividends paid on, or upon the disposition of, ordinary shares, provided that the non-U.S. Holder provides a taxpayer identification number, certifies to its foreign status, or otherwise establishes an exemption to the U.S. financial institution holding the ordinary shares. Non U.S. Holders holding stock in a foreign corporation in a foreign bank or financial institution have no U.S. reporting requirements.

Prospective investors should consult their tax advisors concerning the effect, if any, of these Treasury regulations on an investment in ordinary shares. The amount of any back-up withholding will be allowed as a credit against a U.S. or Non-U.S. Holder's United States federal income tax liability and may entitle the Holder to a refund, provided that specified required information is furnished to the IRS.

The above comments are intended as a general guide to the current position. Any person who is in any doubt as to his taxation position, and who requires more detailed information than the general outline above or who is subject to tax in a jurisdiction other than the United States should consult his professional advisers.

Dividends and Paying Agents

We have never declared or paid any cash dividends on our ordinary shares and do not anticipate paying any such cash dividends in the foreseeable future. Any future determination to pay dividends will be at the discretion of our board of directors. Accordingly, we have not appointed any paying agents.

Documents on Display

When this registration statement becomes effective, we will be required to file reports and other information with the SEC under the Securities Exchange Act of 1934, as amended, and the regulations thereunder applicable to foreign private issuers. You may inspect and copy reports and other information filed by us with the SEC at the SEC’s public reference facilities described below. Although as a foreign private issuer we are not required to file periodic information as frequently or as promptly as U.S. companies, we generally announce publicly our interim and year-end results promptly and will file that periodic information with the SEC under cover of Form 6-K. As a foreign private issuer, we are also exempt from the rules under the Exchange Act prescribing the furnishing and content of proxy statements, and our officers, directors and principal shareholders are exempt from the reporting and other provisions in Section 16 of the Exchange Act.

You may review and obtain copies of our filings with the SEC, including any exhibits and schedules, at the SEC’s public reference facilities in Room 1580, 100 F. Street, N.E., Washington, D.C. 20549. You may call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. Our periodic filings will also be available on the SEC’s website at www.sec.gov. These SEC filings are also available to the public from commercial document retrieval services. Any statement in this registration statement about any of our contracts or other documents is not necessarily complete. If the contract or document is filed as an exhibit to this registration statement, the contract or document is deemed to modify the description contained in this registration statement. We urge you to review the exhibits themselves for a complete description of the contract or document.

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ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk. The primary objective of our investment activities is to preserve principal while maximizing our income from investments and minimizing our market risk. We invest in government, investment-grade corporate debt securities, and bank deposits in accordance with our investment policy. Some of these instruments in which we invest may have market risk. This means that a change in prevailing interest rates may cause the principal amount of the investment to fluctuate. For example, if we hold a security that was issued with a fixed interest rate at the then-prevailing rate and the prevailing interest rate later rises, the principal amount of our investment will probably decline. As of December 31, 2004, our portfolio of financial instruments consists of cash equivalents and short-term bank deposits with multiple institutions. The average duration of all of our investments held as of December 31, 2004, was less than one year. Due to the short-term nature of these investments, we believe we have no material exposure to interest rate risk arising from our investments.

Foreign Currency and Inflation Risk. We generate all of our revenues and hold most of our cash, cash equivalents, bank deposits and marketable securities in U.S. dollars. While a substantial amount of our operating expenses are in U.S. dollars, we incur a portion of our expenses in New Israeli Shekels. In addition, we also pay for some of our services and supplies in the local currencies of our suppliers. As a result, we are exposed to the risk that the U.S. dollar will be devalued against the New Israeli Shekel or other currencies, and as result our financial results could be harmed if we are unable to guard against currency fluctuations in Israel or other countries in which services and supplies are obtained in the future. Accordingly, we may enter into currency hedging transactions to decrease the risk of financial exposure from fluctuations in the exchange rates of currencies. These measures, however, may not adequately protect the Company from the adverse effects of inflation in Israel. In addition, we are exposed to the risk that the rate of inflation in Israel will exceed the rate of devaluation of the New Israeli Shekel in relation to the dollar or that the timing of any devaluation may lag behind inflation in Israel.

ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

American Depositary Shares

The Bank of New York will execute and deliver American Depositary Receipts, or ADRs, representing American Depositary Shares, or ADSs. One ADS will represent an ownership interest in [] of our ordinary shares. The ordinary shares (or the right to receive ordinary shares) will be deposited by us with the Tel Aviv office of Bank Hapoalim B.M., or the London office of The Bank of New York, each a custodian for the depositary. Each ADR will also represent securities, cash or other property deposited with The Bank of New York but not distributed to ADR holders. The Bank of New York's Corporate Trust Office is located at 101 Barclay Street, New York, NY 10286, U.S.A. The principal executive office of the Depositary is located at One Wall Street, New York, NY 10286, U.S.A.

You may hold ADRs either directly or indirectly through your broker or other financial institution. If you hold ADRs directly, you are an ADR holder. This description assumes you hold your ADRs directly. If you hold the ADRs indirectly, you must rely on the procedures of your broker or other financial institution to assert the rights of ADR holders described in this section. You should consult with your broker or financial institution to find out what those procedures are.

Because The Bank of New York will actually hold the ordinary shares, you must rely on it to exercise the rights of a shareholder. Our obligations and the obligations of The Bank of New York are set out in an agreement among us, The Bank of New York and you, as an ADR holder. The agreement and the ADRs are generally governed by New York law.

The following is a summary of the agreement. Because it is a summary, it does not contain all the information that may be important to you. For more complete information, you should read the entire agreement and the ADR. Directions on how to obtain copies of these are provided in the section entitled "Additional Information."

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Share Dividends and Other Distributions

The Bank of New York has agreed to pay to you the cash dividends or other distributions it or the custodian receives on shares or other deposited securities after deducting its fees and expenses. You will receive these distributions in proportion to the number of shares your ADRs represent.

Cash. The Bank of New York will convert any cash dividend or other cash distribution we pay on the shares into U.S. dollars, if it can do so on a reasonable basis and can transfer the U.S. dollars to the U.S. If that is not possible or if any approval from any government or agency thereof is needed and cannot be obtained, the agreement allows The Bank of New York to distribute the foreign currency only to those ADR holders to whom it is possible to do so. It will hold the foreign currency it cannot convert for the account of the ADR holders who have not been paid. It will not invest the foreign currency and it will not be liable for the interest.

Before making a distribution, any withholding taxes that must be paid under U.S. law will be deducted. See “Item 10 - Additional Information—Taxation—United States Federal Income Tax Considerations—Taxation of Dividends Paid On Ordinary Shares.” The Bank of New York will distribute only whole U.S. dollars and cents and will round fractional cents to the nearest whole cent. If the exchange rates fluctuate during a time when The Bank of New York cannot convert the foreigncurrency, you may lose some or all of the value of the distribution.

Shares. The Bank of New York may distribute new ADRs representing any shares we may distribute as a dividend or free distribution, if we furnish it promptly with satisfactory evidence that it is legal to do so. The Bank of New York will only distribute whole ADRs. It will sell shares which would require it to use a fractional ADR and distribute the net proceeds in the same way as it does with cash. If The Bank of New York does not distribute additional ADRs, each ADR will also represent the new shares.

Rights to receive additional shares. If we offer holders of our ordinary shares any rights to subscribe for additional shares or any other rights, The Bank of New York may make these rights available to you. We must first instruct The Bank of New York to do so and furnish it with satisfactory evidence that it is legal to do so. If we do not furnish this evidence and/or give these instructions, and The Bank of New York decides it is practical to sell the rights, The Bank of New York will sell the rights and distribute the proceeds, in the same way as it does with cash. The Bank of New York may allow rights that are not distributed or sold to lapse. In that case, you will receive no value for them.

If The Bank of New York makes rights available to you, upon instruction from you, it will exercise the rights and purchase the shares on your behalf. The Bank of New York will then deposit the shares and issue ADRs to you. It will only exercise rights if you pay it the exercise price and any other charges the rights require you to pay.

U.S. securities laws may restrict the sale, deposit, cancellation and transfer of the ADRs issued after exercise of rights. For example, you may not be able to trade the ADRs freely in the U.S. In this case, The Bank of New York may issue the ADRs under a separate restricted deposit agreement which will contain the same provisions as the agreement, except for the changes needed to put the restrictions in place.

Other Distributions. The Bank of New York will send to you anything else we distribute on deposited securities by any means it thinks is legal, fair and practical. If it cannot make the distribution in that way, The Bank of New York has a choice. It may decide to sell what we distributed and distribute the net proceeds in the same way as it does with cash or it may decide to hold what we distributed, in which case the ADRs will also represent the newly distributed property.

The Bank of New York is not responsible if it decides that it is unlawful or impractical to make a distribution available to any ADR holders. We have no obligation to register ADRs, shares, rights or other securities under the Securities Act. We also have no obligation to take any other action to permit the distribution of ADRs, shares, rights or anything else to ADR holders. This means that you may not receive the distribution we make on our shares or any value for them if it is illegal or impractical for us to make them available to you.

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Deposit, Withdrawal and Cancellation

The Bank of New York will issue ADRs if you or your broker deposit shares or evidence of rights to receive shares with the custodian upon payment of its fees and expenses and of any taxes or charges, such as stamp taxes or stock transfer taxes or fees. The Bank of New York will register the appropriate number of ADRs in the names you request and will deliver the ADRs at its corporate trust office to the persons you request.

You may turn in your ADRs at The Bank of New York's corporate trust office. Upon payment of its fees and expenses and of any taxes or charges, such as stamp taxes or stock transfer taxes or fees, The Bank of New York will deliver (1) the underlying shares to an account designated by you and (2) any other deposited securities underlying the ADR at the office of the custodian. Or, at your request, risk and expense, The Bank of New York will deliver the deposited securities at its corporate trust office.

Voting Rights

You may instruct The Bank of New York to vote the shares underlying your ADRs but only if we ask The Bank of New York to ask for your instructions. Otherwise, you won't be able to exercise your right to vote unless you withdraw the shares. However, you may not know about the meeting enough in advance to withdraw the shares.

If we ask for your instructions, The Bank of New York will notify you of the upcoming vote and arrange to deliver our voting materials to you. The materials will (1) describe the matters to be voted on and (2) explain how you, on a certain date, may instruct The Bank of New York to vote the shares or other deposited securities underlying your ADRs as you direct. For instructions to be valid, The Bank of New York must receive them on or before the date specified. The Bank of New York will try, as far as practical, subject to Israeli law and the provisions of our Articles of Association, to vote or to have its agents vote the shares or other deposited securities as you instruct. The Bank of New York will only vote or attempt to vote as you instruct. 

We cannot assure you that you will receive the voting materials in time to ensure that you can instruct The Bank of New York to vote your shares. In addition, The Bank of New York and its agents are not responsible for failing to carry out voting instructions or for the manner of carrying out voting instructions. This means that you may not be able to exercise your right to vote and there may be nothing you can do if your shares are not voted as you requested.

Fees and Expenses

ADR holders must pay:	For:
$5.00 (or less) per 100 ADSs (or portion thereof)	Each issuance of an ADS, including as a result of a distribution of shares or rights or other property. Each cancellation of an ADS, including if the agreement terminates.
$0.02 (or less) per ADS	Any cash payment.
Registration or Transfer Fees	Transfer and registration of shares on the share register of the Foreign Registrar from your name to the name of The Bank of New York or its agent when you deposit or withdraw shares.
Expenses of The Bank of New York	Conversion of foreign currency to U.S. dollars. Cable, telex and facsimile transmission expenses. Servicing of shares or deposited securities.
$0.02 (or less) per ADS per calendar year (if the depositary has not collected any cash distribution fee during that year)	Depositary services.
Taxes and other governmental charges	As necessary The Bank of New York or the Custodian have to pay on any ADR or share underlying an ADR, for example, stock transfer taxes, stamp duty or withholding taxes.
A fee equivalent to the fee that would be payable if securities distributed to you had been ordinary shares and the ordinary shares had been deposited for issuance of ADSs	Distribution of securities distributed to holders of deposited securities which are distributed by the depositary to ADR holders.

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Payment of Taxes

You will be responsible for any taxes or other governmental charges payable on your ADRs or on the deposited securities underlying your ADRs. The Bank of New York may refuse to transfer your ADRs or allow you to withdraw the deposited securities underlying your ADRs until such taxes or other charges are paid. It may apply payments owed to you or sell deposited securities underlying your ADRs to pay any taxes owed and you will remain liable for any deficiency. If it sells deposited securities, it will, if appropriate, reduce the number of ADRs to reflect the sale and pay to you any proceeds, or send to you any property, remaining after it has paid the taxes.

Reclassifications, Recapitalizations and Mergers

If we:

Then:

Change the nominal or par value of our shares; Reclassify, split up or consolidate any of the deposited securities; Distribute securities on the shares that are not distributed to you; or Recapitalize, reorganize, merge, liquidate, sell all or substantially all of our assets, or takes any similar action.

The cash, shares or other securities received by The Bank of New York will become deposited securities. Each ADR will automatically represent its equal share of the new deposited securities.The Bank of New York may, and will if we ask it to, distribute some or all of the cash, shares or other securities it received. It may also issue new ADRs or ask you to surrender your outstanding ADRs in exchange for new ADRs, identifying the new deposited securities.

Amendment and Termination

We may agree with The Bank of New York to amend the agreement and the ADRs without your consent for any reason. If the amendment adds or increases fees or charges, except for taxes and other governmental charges or registration fees, cable, telex or facsimile transmission costs, delivery costs or other such expenses, or prejudices an important right of ADR holders, it will only become effective thirty days after The Bank of New York notifies you of the amendment. At the time an amendment becomes effective, you are considered, by continuing to hold your ADR, to agree to the amendment and to be bound by the ADRs and the agreement is amended.

The Bank of New York will terminate the agreement if we ask it to do so. The Bank of New York may also terminate the agreement if The Bank of New York has told us that it would like to resign and we have not appointed a new depositary bank within sixty days. In both cases, The Bank of New York must notify you at least thirty days before termination.

After termination, The Bank of New York and its agents will be required to do only the following under the agreement: collect distributions on the deposited securities, sell rights and other property and deliver ordinary shares and other deposited securities upon cancellation of ADRs. After termination, The Bank of New York will, if practical, sell any remaining deposited securities by public or private sale. After that, The Bank of New York will hold the proceeds of the sale, as well as any other cash it is holding under the agreement for the pro rata benefit of the ADR holders that have not surrendered their ADRs. It will not invest the money and will have no liability for interest. The Bank of New York's only obligations will be to account for the proceeds of the sale and other cash. After termination our only obligations will be with respect to indemnification and to pay certain amounts to The Bank of New York.

78

Limitations on Obligations and Liability to ADR Holders

The agreement expressly limits our obligations and the obligations of The Bank of New York, and it limits our liability and the liability of The Bank of New York. We and The Bank of New York:

·   are only obligated to take the actions specifically set forth in the agreement without negligence or bad faith;

·   are not liable if either is prevented or delayed by law or circumstances beyond their control from performing their obligations under the agreement;

·   are not liable if either exercises discretion permitted under the agreement;

·   have no obligation to become involved in a lawsuit or other proceeding related to the ADRs or the agreement on your behalf or on behalf of any other party; and

·   may rely upon any documents they believe in good faith to be genuine and to have been signed or presented by the proper party.

In the agreement, we and The Bank of New York agree to indemnify each other under certain circumstances.

Requirements for Depositary Actions

Before The Bank of New York will issue or register transfer of an ADR, make a distribution on an ADR, or make a withdrawal of shares, The Bank of New York may require:

·   payment of stock transfer or other taxes or other governmental charges and transfer or registration fees charged by third parties for the transfer of any shares or other deposited securities;

·   production of satisfactory proof of the identity and genuineness of any signature or other information it deems necessary, and

·   compliance with regulations it may establish, from time to time, consistent with the agreement, including presentation of transfer documents.

The Bank of New York may refuse to deliver, transfer, or register transfers of ADRs generally when the books of The Bank of New York or our books are closed, or at any time if The Bank of New York or we think it advisable to do so.

You have the right to cancel your ADRs and withdraw the underlying shares at any time except:

·   when temporary delays arise because: (1) The Bank of New York or we have closed its transfer books; (2) the transfer of shares is blocked to permit voting at a stockholders' meeting; or (3) we are paying a dividend on the shares; or

·   when it is necessary to prohibit withdrawals in order to comply with any laws or governmental regulations that apply to ADRs or to the withdrawal of shares or other deposited securities.

This right of withdrawal may not be limited by any other provision of the agreement.

79

Pre-Release of ADRs

In certain circumstances, subject to the provisions of the agreement, The Bank of New York may issue ADRs before deposit of the underlying shares. This is called a pre-release of the ADR. The Bank of New York may also deliver shares upon cancellation of pre-released ADRs (even if the ADRs are cancelled before the pre-release transaction has been closed out). A pre-release is closed out as soon as the underlying shares are delivered to The Bank of New York. The Bank of New York may receive ADRs instead of shares to close out a pre-release. The Bank of New York may pre-release ADRs only under the following conditions: (1) before or at the time of the pre-release, the person to whom the pre-release is being made must represent to The Bank of New York in writing that it or its customer owns the shares or ADRs to be deposited; (2) the pre-release must be fully collateralized with cash or other collateral that The Bank of New York considers appropriate; and (3) The Bank of New York must be able to close out the pre-release on not more than five business days' notice. In addition, The Bank of New York will limit the number of ADRs that may be outstanding at any time as a result of pre-release, although The Bank of New York may disregard the limit from time to time, if it thinks it is appropriate to do so.

Inspection of Books of the Depositary

Under the terms of the agreement, holders of ADRs may inspect the transfer books of the depositary at any reasonable time, provided, that such inspection shall not be for the purpose of communicating with holders of ADRs in the interest of a business or object other than either our business or a matter related to the deposit agreement or ADRs.

80

PART II

ITEM 13.  DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

Not applicable.

ITEM 14.  MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

Not applicable.

ITEM 15.  CONTROLS AND PROCEDURES

Not applicable.

ITEM 16.  RESERVED

Not applicable.

ITEM 16A.  AUDIT COMMITTEE FINANCIAL EXPERT

Not applicable.

ITEM 16B.  CODE OF ETHICS

Not applicable.

ITEM 16C.  PRINCIPAL ACCOUNTANT FEES AND SERVICES

Not applicable.

ITEM 16D.  EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

Not applicable.

ITEM 16E.  PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

Not applicable.

81

PART III

ITEM 17. FINANCIAL STATEMENTS

We have elected to furnish financial statements and related information specified in Item 18.

ITEM 18. FINANCIAL STATEMENTS

See pages F-1 to F-38 of this Registration Statement.

ITEM 19. EXHIBITS

Exhibit Number	Exhibit Description
1	*Articles of Association
2.1	* Deposit Agreement Between The Bank of New York, XTL Biopharmaceuticals Ltd. and the Owners and Holders of American Depositary Receipts, dated []
2.2	*Ordinary / ADR share specimen
4.1	Research and License Agreement Between Yeda Research and Development Company Ltd. and Xenograft Technologies Ltd. dated April 7, 1993 **
4.2	Amendment of Research and License Agreement Between Yeda Research and Development Company Ltd. and XTL Biopharmaceuticals Ltd. dated August 31, 1995 **
4.3	Second Extension Agreement Between Yeda Research and Development Company Ltd. and XTL Biopharmaceuticals Ltd. dated August 14, 1996 **
4.4	Third Extension Agreement Between Yeda Research and Development Company Ltd. and XTL Biopharmaceuticals Ltd. dated November 25, 1997 **
4.5	Amendment No. 2 to Research and License Agreement dated April 7, 1993, as amended on August 31, 1995, between Yeda Research and Development Company Ltd. and XTL Biopharmaceuticals Ltd. dated January 25, 1998 **
4.6	Amendment No. 3 to Research and License Agreement dated April 7, 1993 between Yeda Research and Development Company Ltd. and XTL Biopharmaceuticals Ltd. dated January 26, 2003 **
4.7	Amendment No. 4 to Research and License Agreement dated April 7, 1993 between Yeda Research and Development Company Ltd. and XTL Biopharmaceuticals Ltd. dated June 2, 2004 **
4.8	License Agreement Between XTL Biopharmaceuticals Ltd. and Cubist Biopharmaceuticals, Inc., dated June 2, 2004 **
4.9	License Agreement Between XTL Biopharmaceuticals Ltd. and DRK-Blutspendedienst Baden-Wurttemberg (Ulm University, Germany) dated April 18, 2000 **
4.10	License Agreement Between XTL Biopharmaceuticals Ltd. and Stanford University, dated September 12, 2003 **
4.11	License Agreement Between XTL Biopharmaceuticals Ltd. and Applied Immunogenetics LLC, dated September 12, 2003 **
4.12	1998 Share Option Plan dated October 19, 1998
4.13	1999 Share Option Plan dated June 1, 1999
4.14	1999 International Share Option Plan Dated June 1, 1999
4.15	2000 Share Option Plan dated April 12, 2000
4.16	2001 Share Option Plan dated February 28, 2001
10.1	* Employment Agreement, dated August 1, 1999, between XTL Biopharmaceuticals Ltd. and Johathan Burgin
10.2	* Employment Agreement, dated May 1, 1994, between XTL Biopharmaceuticals Ltd. and Shlomo Dagan
15.1	Consent of PricewaterhouseCoopers, dated July 13, 2005
15.2	Consent of KPMG, dated July 13, 2005

* To be filed by amendment

** Portions of this exhibit have been omitted pursuant to a request for confidential treatment

82

SIGNATURES

The registrant hereby certifies that it meets all the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this registration statement on its behalf.

	XTL BIOPHARMACEUTICALS LTD. (Registrant)
	By:	/s/ Jonathan Burgin
		Jonathan Burgin Chief Financial Officer
Date: July 14, 2005

83

XTL BIOPHARMACEUTICALS LTD.

(A Development Stage Company)

2004 ANNUAL REPORT

TABLE OF CONTENTS

	Page
Reports of Independent Registered Public Accounting Firm	F-2
Consolidated Balance Sheets as of December 31, 2004 and 2003	F-4
Consolidated Statements of Operations for the years ended December 31, 2004, 2003 and 2002, and the period from March 9, 1993 to December 31, 2004	F-5
Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2004, 2003, and 2002, and the period from March 9, 1993 to December 31, 2001	F-6
Consolidated Statements of Cash Flows for the years ended December 31, 2004, 2003 and 2002, and the period from March 9, 1993 to December 31, 2004	F-10
Notes to the Consolidated Financial Statements	F-12

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders of

XTL BIOPHARMACEUTICALS LTD.

(A Development Stage Company)

We have audited the consolidated balance sheets of XTL Biopharmaceuticals Ltd. (A Development Stage Company; hereafter - the "Company") and its subsidiary as of December 31, 2004 and 2003 and the related consolidated statements of operations, changes in shareholders' equity and cash flows for each of the three years ended December 31, 2004 and cumulatively for the period from January 1, 2001 to December 31, 2004 (see also below). These consolidated financial statements are the responsibility of the Company's Board of Directors and management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We did not audit the cumulative totals of the Company for the period from March 9, 1993 (date of incorporation) to December 31, 2000, which totals reflect a deficit of $25,201,000 accumulated during the development stage. Those cumulative totals were audited by an other independent registered public accounting firm whose report, dated May 3, 2005, expressed an unqualified opinion on the cumulative amounts through December 31, 2000. Our opinion, insofar as it relates to amounts included for that period is based on the report of the other independent registered public accounting firm, mentioned above.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States of America) and with auditing standards generally accepted in Israel, including those prescribed by the Israeli Auditors (Mode of Performance) Regulations, 1973. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the Company’s Board of Directors and management, as well as evaluating the overall financial statement presentation. We believe that our audits and the report of other independent registered public accounting firm provide a reasonable basis for our opinion.

In our opinion, based upon our audits and the report of the other independent registered public accounting firm, the consolidated financial statements referred to above, present fairly, in all material respects, the consolidated financial position of the Company and its subsidiary as of December 31, 2004 and 2003, and the consolidated results of operations, changes in shareholders' equity, and cash flows for each of the three years in the period ended December 31, 2004 and for the cumulative period from March 9, 1993 (incorporation date) to December 31, 2004, in conformity with accounting principles generally accepted in the United States of America.

As discussed in note 1a to the financial statements, continuation of the Company’s current operations after utilizing its current cash reserves during 2006, is dependent upon the generation of additional financial resources, either through agreements for the commercialization of its product portfolio or through external financing.

/s/ Kesselman & Kesselman              

Kesselman & Kesselman

Certified Public Accountants (Israel)

A Member of PricewaterhouseCoopers International Limited

Tel-Aviv, Israel

May 3, 2005

F-2

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of XTL Biopharmaceuticals Ltd.

(A Development Stage Company):

We have audited the accompanying consolidated statements of operations, changes in shareholders' equity and comprehensive income, and cash flows of XTL Biopharmaceuticals Ltd. (A Development Stage Company) (the "Company") and its subsidiary for the period from March 9, 1993 to December 31, 2000. These consolidated financial statements are the responsibility of the Company's management and of the Company's Board of Directors. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the Standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated results of operations of the Company and its subsidiary and their cash flows for the period from March 9, 1993 to December 31, 2000, in conformity with generally accepted accounting principles in the United States of America.

/s/ Somekh Chaikin

Somekh Chaikin

Certified Public Accountants (Isr.)

A member firm of KPMG International

Tel-Aviv, Israel

May 3, 2005

F-3

XTL BIOPHARMACEUTICALS LTD.

(A Development Stage Company)

CONSOLIDATED BALANCE SHEETS

(in thousands of U.S. dollars)

	December 31
	2004			2003
ASSETS
CURRENT ASSETS:
Cash and cash equivalents (note 1e)	12,788			4,184
Short-term bank deposits (note 9a)	10,136			17,329
Marketable securities (note 9b)	—			749
Accounts receivable - trade (note 2)		543			—
Accounts receivable - other (note 9c)		306			706
Total current assets		23,773			22,968
SEVERANCE PAY FUNDS (note 5)		830			673
RESTRICTED LONG-TERM DEPOSIT (note 7b(1))		113			159
PROPERTY AND EQUIPMENT (note 4):
Cost		3,312			3,143
Less - accumulated depreciation and amortization		2,404			2,090
		908			1,053
Total assets		25,624			24,853
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable and accruals (note 9d)		3,134			3,001
Deferred gain (notes 1j and 2)		399			—
Total current liabilities		3,533			3,001
LIABILITY FOR EMPLOYEE RIGHTS UPON RETIREMENT (note 5)		1,291			1,244
DEFERRED GAIN (notes 1j and 2)		1,198			—
COMMITMENTS AND CONTINGENCIES (note 7)
Total liabilities		6,022			4,245
SHAREHOLDERS’ EQUITY (note 6):
Ordinary shares of NIS 0.02 par value (authorized: 300,000,000 as of December 31, 2004 and 2003; issued and outstanding: 168,079,196 as of December 31, 2004 and 112,019,464 as of December 31, 2003)		841			594
Additional paid in capital		104,537	*		89,303	*
Deferred share-based compensation		—	*		—	*
Accumulated other comprehensive loss		—			14
Deficit accumulated during the development stage		(85,776	)		(69,303	)
Total shareholders’ equity		19,602			20,608
Total liabilities and shareholders’ equity		25,624			24,853

/s/ Rusi K. Kathoke	/s/ Jonathan Burgin
Rusi K. Kathoke	Jonathan Burgin
Director	Chief Financial Officer

* Reclassified

Date of approval of the financial statements: May 3, 2005

The accompanying notes are an integral part of the financial statements.

F-4

XTL BIOPHARMACEUTICALS LTD.

(A Development Stage Company)

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands of U.S. dollars, except share and per share amounts)

										Period from
										March 9, 1993*
	Year ended December 31									to December 31,
	2004			2003			2002			2004
REVENUES (notes 1j and 2):
Reimbursed out-of-pockets expenses	3,269			—			—			3,269
License	185			—			—			185
		3,454			—			—			3,454
COST OF REVENUES (notes 1j and 2):
Reimbursed out-of-pockets expenses		3,269			—			—			3,269
License (with respect to royalties)		32			—			—			32
		3,301			—			—			3,301
GROSS MARGIN		153			—			—			153
RESEARCH AND DEVELOPMENT COSTS(note 9e)		11,985			13,668			13,231			75,223
LESS - PARTICIPATIONS (note 7a(3))		—			3,229			75			10,950
		11,985			10,439			13,156			64,273
GENERAL AND ADMINISTRATIVE EXPENSES (note 9f)		4,134			3,105			3,638			23,555
BUSINESS DEVELOPMENT COSTS (note 9g)		810			664			916			4,286
IMPAIRMENT OF ASSET HELD FOR SALE (note 4c)		—			354			—			354
OPERATING LOSS		16,776			14,562			17,710			92,315
FINANCIAL INCOME - net (note 9h)		352			352			597			6,700
LOSS BEFORE TAXES ON INCOME		16,424			14,210			17,113			85,615
TAXES ON INCOME		49			78			27			161
NET LOSS FOR THE YEAR		16,473			14,288			17,140			85,776
BASIC AND DILUTED PER SHARE DATA:
Loss per ordinary share	$	( 0.12	)	$	( 0.13	)	$	( 0.15	)
Weighted average number of shares used to compute loss per ordinary share		134,731,766			111,712,916			111,149,292

* Incorporation date, see note 1a.

The accompanying notes are an integral part of the financial statements.

F-5

XTL BIOPHARMACEUTICALS LTD.

(A Development Stage Company)

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

(in thousands of U.S. dollars, except share amounts)

	Preferred shares				Ordinary shares
	Number of shares		Amount		Number of shares	Amount	Additional paid-in  capital
CHANGES DURING THE PERIOD FROM MARCH 9, 1993 (DATE OF INCORPORATION) TO DECEMBER 31, 2001:
Comprehensive loss:
Net loss	—		—		—	—	—
Net unrealized loss	—		—		—	—	—
Comprehensive loss	—		—		—	—	—
Deferred share-based compensation	—		—		—	—	377
Amortization of deferred compensation expenses	—		—		—	—	—
Non-employee stock option expenses	—		—		—	—	106
Exercise of share warrants	—		—		1,707,980	8	414
Exercise of employee stock options	15,600		**		221,638	1	26
Issuance of share capital, net of share issue expenses	43,571,850		250		—	—	26,187
Bonus shares	7,156,660		41		19,519,720	97	(138	)
Conversion of preferred shares into ordinary shares	(50,744,110	)	(291	)	50,744,110	291	—
Receipts in respect of share warrants (expired in 1999)	—		—		—	—	89
Issuance of share capital	—		—		15,183,590	75	16,627
Initial public offering (“IPO”) of the Company’s shares under a prospectus dated September 20, 2000 (net of $ 5,199 - issuance expenses)	—		—		23,750,000	118	45,595
BALANCE AT DECEMBER 31, 2001	—		—		111,127,038	590	89,283	*

*   Reclassified

** Represents an amount less than $1,000

The accompanying notes are an integral part of the financial statements.

F-6

XTL BIOPHARMACEUTICALS LTD.

(A Development Stage Company)

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (continued)

(in thousands of U.S. dollars, except share amounts)

	Deferred share- based compensation			Accumulated other comprehensive income (loss)			Deficit accumulated during the development stage			Total
CHANGES DURING THE PERIOD FROM MARCH 9, 1993 (DATE OF INCORPORATION) TO DECEMBER 31, 2001:
Comprehensive loss:
Net loss		—			—			(37,875	)		(37,875	)
Net unrealized loss		—			(45	)		—			(45	)
Comprehensive loss		—			(45	)		(37,875	)		(37,920	)
Deferred share-based compensation		(377	)		—			—			—
Amortization of deferred compensation expenses		377			—			—			377
Non-employee stock option expenses		—			—			—			106
Exercise of share warrants		—			—			—			422
Exercise of employee stock options		—			—			—			27
Issuance of share capital, net of share issue expenses		—			—			—			26,437
Bonus shares		—			—			—			—
Conversion of preferred shares into ordinary shares		—			—			—			—
Receipts in respect of share warrants (expired in 1999)		—			—			—			89
Issuance of share capital		—			—			—			16,702
Initial public offering (“IPO”) of the Company’s shares under a prospectus dated September 20, 2000 (net of $ 5,199 - issuance expenses)		—			—			—			45,713
BALANCE AT DECEMBER 31, 2001		—	*		(45	)		(37,875	)		51,953

The accompanying notes are an integral part of the financial statements.

* Reclassified

F-7

XTL BIOPHARMACEUTICALS LTD.

(A Development Stage Company)

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (continued)

(in thousands of U.S. dollars, except share amounts)

	Ordinary shares
	Number of  shares		Amount		Additional paid in capital
BALANCE AT DECEMBER 31, 2001 - brought forward		111,127,038		590		89,283	*
CHANGES DURING 2002:
Comprehensive loss:
Net loss		—		—		—
Net unrealized loss		—		—		—
Comprehensive loss		—		—		—
Exercise of employee stock options		38,326		**		20
BALANCE AT DECEMBER 31, 2002		111,165,364		590		89,303	*
CHANGES DURING 2003:
Comprehensive loss:
Net loss		—		—		—
Net unrealized gain		—		—		—
Comprehensive loss		—		—		—
Exercise of employee stock options		854,100		4		—
BALANCE AT DECEMBER 31, 2003		112,019,464		594		89,303	*
CHANGES DURING 2004:
Comprehensive loss:
Net loss		—		—		—
Net unrealized gain		—		—		—
Comprehensive loss		—		—		—
Non-employee stock option expenses		—		—		32
Exercise of employee stock options		50,000		**		19
Issuance of shares, net of $2,426 share issuance expenses		56,009,732		247		15,183
BALANCE AT DECEMBER 31, 2004		168,079,196		841		104,537	*

 *   Reclassified

 ** Represents an amount less than $ 1,000.

The accompanying notes are an integral part of the financial statements.

F-8

XTL BIOPHARMACEUTICALS LTD.

(A Development Stage Company)

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (continued)

(in thousands of U.S. dollars, except share amounts)

	Deferred share- based compensation			Accumulated other comprehensive income (loss)			Deficit accumulated during the development stage			Total
BALANCE AT DECEMBER 31, 2001 - brought forward	—		*	(45		)	(37,875		)	51,953
CHANGES DURING 2002:
Comprehensive loss:
Net loss	—			—			(17,140		)	(17,140		)
Net unrealized loss	—			(3		)	—			(3		)
Comprehensive loss		—			(3	)		(17,140	)		(17,143	)
Exercise of employee stock options		—			—			—			20
BALANCE AT DECEMBER 31, 2002		—	*		(48	)		(55,015	)		34,830
CHANGES DURING 2003:
Comprehensive loss:
Net loss		—			—			(14,288	)		(14,288	)
Net unrealized gain		—			62			—			62
Comprehensive loss		—			62			(14,288	)		(14,226	)
Exercise of employee stock options		—			—			—			4
BALANCE AT DECEMBER 31, 2003		—	*		14			(69,303	)		20,608
CHANGES DURING 2004:
Comprehensive loss:
Net loss		—			—			(16,473	)		(16,473	)
Net unrealized gain		—			(14	)		—			(14	)
Comprehensive loss		—			(14	)		(16,473	)		(16,487	)
Non-employee stock option expenses		—			—			—			32
Exercise of employee stock options		—			—			—			19
Issuance of shares, net of $2,426 share issuance expenses		—			—			—			15,430
BALANCE AT DECEMBER 31, 2004		—	*		—			(85,776	)		19,602

*Reclassified

The accompanying notes are an integral part of the financial statements.

F-9

XTL BIOPHARMACEUTICALS LTD.

(A Development Stage Company)

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands of U.S. dollars)

Year ended December 31			Period from  March 9, 1993 (b)
2004	2003	2002	to December 31, 2004

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss for the period	(16,473	)	(14,288	)	(17,140	)	(85,776	)
Adjustments to reconcile loss to net cash used in operating activities:
Depreciation and amortization	319		440		470		2,587
Capital loss (gain) on sale of property and equipment	1		2		(1	)	12
Change in liability for employee rights upon retirement	30		129		333		1,469
Impairment of asset held for sale	—		354		—		354
Loss (gain) from marketable securities, net	13		(27	)	41		(410	)
Stock based compensation expenses	32		—		—		515
Loss (gain) on amounts funded in respect of employee	(4	)	5		(1	)	(85	)
Changes in operating asset and liability items:
Increase in accounts receivable - trade	(543	)	—		—		(543	)
Decrease (increase) in accounts receivable - other	400		(440	)	606		(259	)
Increase (decrease) in accounts payable and accruals	133		499		(20	)	3,087
Increase in deferred gain	1,597		—		—		1,597
Net cash used in operating activities (a)	(14,495	)	(13,326	)	(15,712	)	(77,452	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Short-term deposits, net	7,193		14,724		1,058		(10,136	)
Long-term deposits, net	46		(20	)	2		(113	)
Investment in available for sale securities	—		(71	)	(1,219	)	(3,363	)
Proceeds from sales of available for sale securities	722		1,048		716		3,773
Severance pay funded	(136	)	(112	)	(97	)	(841	)
Purchase of property and equipment	(180	)	(81	)	(659	)	(3,983	)
Proceeds from sale of property and equipment	5		2		8		122
Net cash provided by (used in) investing activities	7,650		15,490		(191	)	(14,541	)

The accompanying notes are an integral part of the financial statements.

F-10

XTL BIOPHARMACEUTICALS LTD.

(A Development Stage Company)

CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

(in thousands of U.S. dollars)

Year ended December 31				Period from  March 9, 1993 (b)
	2004	2003	2002	to December 31, 2004

CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of share capital - net of share issuance expenses	15,430		—		—		104,371
Exercise of share warrants and employee stock options	19		4		20		492
Proceeds from long-term debt	—		—		—		399
Proceeds from short-term debt	—		—		—		50
Repayment of long-term debt	—		—		—		(399	)
Repayment of short-term debt	—		—		—		(50	)
Net cash provided by financing activities	15,449		4		20		104,863
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	8,604		2,168		(15,883	)	12,788
BALANCE OF CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD	4,184		2,016		17,899		—
BALANCE OF CASH AND CASH EQUIVALENTS AT END OF PERIOD	12,788		4,184		2,016		12,788
Supplementary information on financing activity not involving cash flows -
Conversion of convertible subordinated debenture into shares	—		—		—		1,700
Supplemental disclosures of cash flow information:
Income taxes paid (mainly - tax advance in respect of excess expenses)	107		161		79		321
Interest paid	—		—		—		350
(a) Including effect of changes in the exchange rate on cash	(73	)	(9	)	(709	)	(1,839	)
(b) Incorporation date, see note 1a.

The accompanying notes are an integral part of the financial statements.

F-11

XTL BIOPHARMACEUTICALS LTD.

(A Development Stage Company)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES

 a. General:

1) XTL Biopharmaceuticals Ltd. (“the Company”) was incorporated under the Israel Companies Ordinance on March 9, 1993. The Company is a development stage company in accordance with Financial Accounting Standard 7 (“FAS”) “Accounting and Reporting by Development Stage Enterprises.”

The Principal activity of the Company is the development of therapeutic pipelines for the treatment of infectious diseases.

The Company has licensed its product HepeX-B to Cubist Pharmaceuticals, Inc. (hereinafter “Cubist”) during 2004, see notes 1j and 2 as to details of the agreement.

The Company has a wholly-owned subsidiary in the United States - XTL Biopharmaceuticals Inc. (“Subsidiary”), which was incorporated in 1999 under the law of the state of Delaware. The subsidiary is primarily engaged in clinical activities and business development.

          2) Through December 31, 2004, the Company has incurred losses in an aggregate amount of U.S.$86 million. Such losses have resulted from the Company’s activities as a development stage company. It is expected that the Company will be able to finance its operations from its current reserves for the coming year. Continuation of the Company’s current operations after utilizing its current cash reserves during 2006 is dependent upon the generation of additional financial resources either through agreements for the commercialization of its product portfolio or through external financing.

                                3) The consolidated financial statements are prepared in accordance with generally accepted accounting principles (GAAP) in the United States.

                                4) The preparation of the financial statements, in conformity with GAAP, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities, at the date of the financial statements, and the reported expenses during the reporting periods. Actual results may vary from these estimates.

F-12

XTL BIOPHARMACEUTICALS LTD.

(A Development Stage Company)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (continued):

b.  Functional currency

The currency of the primary economic environment in which the operations of the Company are conducted is the U.S. dollar ("$" or "dollar").

Most of the Company's research and development expenses are incurred in dollars. A significant part of the Company's capital expenditures and most of its financing is in dollars.

Thus, the functional currency of the Company is dollar.

Since the U.S. dollar is the primary currency in the economic environment in which the Company operates, monetary accounts maintained in currencies other than the U.S. dollar (principally cash and liabilities) are remeasured using the representative foreign exchange rate at the balance sheet date. Operational accounts and nonmonetary balance sheet accounts are measured and recorded at the rate in effect at the date of the transaction. The effects of foreign currency remeasurement are reported in current operations and have not been material to date.

c.  Principles of consolidation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary. All intercompany transactions and balances were eliminated in consolidation.

d. Impairment of long-lived assets

Pursuant to FAS 144 “Accounting for the Impairment or Disposal of Long-Lived Assets” (“FAS 144”), long-lived assets, to be held and used by an entity, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. Under FAS 144, if the sum of the expected future cash flows (undiscounted and without interest charges) of the long-lived assets held and used is less than the carrying amount of such assets, an impairment loss would be recognized, and the assets are written down to their estimated fair values. Assets “held for sale” are reported at the lower of their carrying amount or fair value less estimated costs to sell (see also note 4c).

e.  Cash equivalents

Highly liquid investments, which include short-term bank deposits (up to three months from date of deposits), that are not restricted as to withdrawal or use, are considered by the Company and its subsidiary to be cash equivalents.

F-13

XTL BIOPHARMACEUTICALS LTD.

(A Development Stage Company)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (continued):

f. Marketable securities

Pursuant to FAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities," the Company's investment in debt securities (mainly debentures) have been designated as available-for-sale. Available-for-sale securities are carried at fair value, which is determined based upon the quoted market prices of the securities, with unrealized gains and losses reported in accumulated other comprehensive income, a component of shareholders' equity. Realized gains and losses and declines in value judged to be other than temporary on available-for-sale securities are included in financial income. The Company views its available-for-sale portfolio as available for use in its current operations. Interest, premium and discount amortization, and dividends on securities classified as available-for-sale are included in financial income.

g. Property and equipment

These assets are carried at cost less depreciation and impairment charges. Depreciation is computed using the straight-line method over the estimated useful life of the assets.

Annual rates of depreciation are as follows:

	%
Laboratory equipment	10-20 (mainly 15)
Computers	33
Furniture and office equipment	6-15

Leasehold improvements are amortized by the straight-line method over the term of the lease, which is shorter than the estimated useful life of the improvements.

h. Deferred income taxes

Deferred taxes are determined utilizing the asset and liability method based on the estimated future tax effects of differences between the financial accounting and tax bases of assets and liabilities under the applicable tax laws. Deferred tax balances are computed using the tax rates expected to be in effect when these differences reversed. Valuation allowances are provided if, based upon the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.

Paragraph 9(f) of FAS 109, “Accounting for Income Taxes,” prohibits the recognition of deferred tax liabilities or assets that arise from differences between the financial reporting and tax bases of assets and liabilities that are measured from the local currency into dollars using historical exchange rates, and that result from changes in exchange rates or indexing for tax purposes. Consequently, the abovementioned differences were not reflected in the computation of deferred tax assets and liabilities.

F-14

XTL BIOPHARMACEUTICALS LTD.

(A Development Stage Company)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (continued):

i. Research and development costs and participations

Research and development costs are expensed as incurred and consist primarily of personnel, sub-contractors, facilities, equipment and supplies for research and development activities.

Participations from government (and from others) for development of approved projects are recognized as a reduction of expense as the related costs are incurred (see also note 7).

j. Revenue Recognition

The Company recognizes the revenue from the licensing agreement with Cubist (see also note 2) under the provisions of the EITF 00-21 entitled “Revenue Arrangements with Multiple Deliverables” and SAB 104 entitled “Revenue Recognition.” Under those terms, companies are required to defer all revenue from multiple-element arrangements if sufficient objective and reliable evidence of fair value does not exist for the allocation of revenue to the various elements of the arrangement. Since the Company does not have the ability to determine the fair value of each unit of accounting, the agreement was accounted for as one unit of accounting, after failing the separation criteria, and the Company recognizes revenue on the abovementioned agreement ratably over the life of the arrangement.

In addition, Cubist has requested the Company to provide development services that are reimbursed by Cubist. As required by EITF 01-14 “Income Statement Characterization of Reimbursements Received for "Out-of-Pocket" Expenses Incurred,” amounts paid by the Company, as a principal, as an “out-of-pocket” costs are included in the cost of revenues as reimbursable out-of-pocket expenses and the reimbursements the Company receives as a principal are reported as reimbursed out-of-pocket revenues.

k. Business development costs

Costs associated with business development are comprised of costs related to partnering activities for the Company’s programs and seeking for new research and development collaborations. The Business development expenses are expensed as incurred.

F-15

XTL BIOPHARMACEUTICALS LTD.

(A Development Stage Company)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (continued):

l. Loss per share (“LPS”)

Basic and diluted losses per share are presented in accordance with FAS No. 128. “Earnings per share” (“FAS 128”), for all the years presented. Outstanding share options, and warrants have been excluded from the calculation of the diluted loss per share because all such securities are antidilutive for all the years presented. The total number of ordinary shares related to outstanding options and warrants excluded from the calculations of diluted net loss per share were 18,187,062, 17,721,724 and 19,789,011 for the years ended December 31, 2004, 2003 and 2002, respectively.

m. Comprehensive loss

Comprehensive loss, presented in shareholders’ equity consists of net loss for the period and net unrealized gains or losses on available for sale marketable securities.

n. Stock- based compensation

The Company accounts for stock-based employee compensation arrangements using the intrinsic value method in accordance with provisions of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (“APB 25”), and Financial Accounting Standards Board Interpretation No. 28, Accounting for Stock Appreciation Rights and Other Variable Stock Option or Award Plans (“FIN 28”), and complies with the disclosure provisions of Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (“FAS 123”) as amended by FAS No. 148, Accounting for Stock-Based Compensation-Transition and Disclosure (see also p below).

Under APB 25, compensation expense is based on the difference, if any, on the date of grant, between the fair value of the Company’s common stock and the exercise price. When the number of the underlying shares or the exercise price is not known at the grant date, the Company updates each period the compensation expenses until such data becomes known.

FAS 123 defines a “fair value” based method of accounting for an employee stock option. The pro forma disclosures of the difference between the compensation expense included in net loss and the related cost measured by the fair value method are presented below.

The alternative method to the intrinsic value method of accounting for stock-based compensation is the fair value approach prescribed by FAS 123, as amended by FAS 148. If the Company followed the fair value approach, the Company would be required to record deferred compensation based on the fair value of the stock option at the date of grant. The fair value of the stock option is required to be computed using an option-pricing model, such as the Black-Scholes option valuation model, at the date of the stock option grant. The deferred compensation calculated under the fair value method would then be amortized over the respective vesting period of the stock option.

F-16

XTL BIOPHARMACEUTICALS LTD.

(A Development Stage Company)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (continued):

The following table illustrates the effect on loss and loss per share assuming the Company had applied the fair value recognition provisions of FAS 123 to its stock-based employee compensation:

	Year ended December 31			Period from March 9, 1993* to December 31,
	2004	2003	2002	2004
	($ in thousands, except per share amounts)
Net loss for the period, as reported	16,473	14,288	17,140	85,776
Deduct: stock- based employee compensation expense, included in reported loss	--	--	--	(483	)
Add: stock- based employee compensation expense determined under fair value method for all awards	239	821	1,297	6,355
Net loss - pro-forma	16,712	15,109	18,437	91,648
Basic and diluted loss per share:
As reported	0.12	0.13	0.15
Pro-forma	0.12	0.14	0.17
* Incorporation date, see note 1a.

Refer to note 6b(2) for the assumptions that were included in the Black-Scholes option valuation calculation.

The Company accounts for equity instruments issued to non-employees in accordance with the fair value method prescribed by FAS 123 and the provisions Emerging Issues Task Force Issue No. 96-18, Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling Goods or Services (“EITF 96-18”).

o. Reclassifications

Certain comparative figures have been reclassified to conform to the current year presentation.

F-17

XTL BIOPHARMACEUTICALS LTD.

(A Development Stage Company)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (continued):

p. Recently issued accounting pronouncements in the United States:

(1)     FAS 123 (Revised 2004) Share-based Payment

In December 2004, the Financial Accounting Standards Board (“FASB”) issued the revised Statement of Financial Accounting Standards (“FAS”) No. 123, Share-Based Payment (FAS 123R), which addresses the accounting for share-based payment transactions in which the Company obtains employee services in exchange for (a) equity instruments of the Company or (b) liabilities that are based on the fair value of the Company’s equity instruments or that may be settled by the issuance of such equity instruments. This Statement eliminates the ability to account for employee share-based payment transactions using APB 25, and requires instead that such transactions be accounted for using the grant-date fair value based method. This Statement will be effective as of the beginning of the first interim or annual reporting period that begins after June 15, 2005. Early adoption of FAS 123R is encouraged.

On April 15, 2005, the Securities and Exchange Commission (the “SEC”) approved a new rule allowing companies to implement FAS 123R at the beginning of their first annual period, rather than the first interim period, beginning after June 15, 2005. The SEC’s new rule does not change the accounting required by FAS 123R; it only changes the dates of compliance with the standard.

The Company decided to adopt this statement on January 1, 2005. This Statement applies to all awards granted or modified after the Statement’s effective date. In addition, compensation cost for the unvested portion of previously granted awards that remain outstanding on the Statement’s effective date shall be recognized on or after the effective date, as the related services are rendered, based on the awards’ grant-date fair value as previously calculated for the pro-forma disclosure under FAS 123 (see also n above).

The Company estimates that the cumulative effect of adopting FAS 123R as of its adoption date by the Company (January 1, 2005), based on the awards outstanding as of December 31, 2004, will be approximately $22,000. The Company expects that upon the adoption of FAS 123R, the Company will apply the modified prospective application transition method, as permitted by the Statement. Under such transition method, upon the adoption of FAS 123R, the Company’s financial statements for periods prior to the effective date of the Statement will not be restated.

The company expects that this statement may have material effect on it's financial position and results of operations. The impact of this statement on the Company’s financial statements or its results of operations in 2005 and beyond will depend upon various factors, among them the Company’s future compensation strategy.

F-18

XTL BIOPHARMACEUTICALS LTD.

(A Development Stage Company)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (continued):

(2)     FAS 153 Exchanges of Nonmonetary Assets - An Amendment of APB Opinion No. 29

In December 2004, the FASB issued FAS No. 153, Exchanges of Nonmonetary Assets - An Amendment of APB Opinion No. 29 (FAS 153).  FAS 153 amends APB Opinion No. 29, Accounting for Nonmonetary Transactions (Opinion 29). The amendments made by FAS 153 are based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged. Further, the amendments eliminate the exception for nonmonetary exchanges of similar productive assets and replace it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. The provisions in FAS 153 are effective for nonmonetary asset exchanges occurring in fiscal periods beginning after December 15, 2005 (January 1, 2006 for the Company).  Early application of the FAS 153 is permitted. The provisions of this Statement shall be applied prospectively. The Company does not expect the adoption of FAS 153 to have a material effect on the Company’s financial statements or its results of operations.

NOTE 2 - LICENSE AGREEMENT WITH CUBIST

The Company entered into a licensing agreement with Cubist in June 2004, under which the Company granted to Cubist an exclusive, worldwide license (with the right to sub-license) to commercialize HepeX-B and any other product containing a hMAb or humanized monoclonal antibody or fragment directed at the hepatitis B virus owned or controlled by the Company. See also note 1j for the revenue recognition treatment.

Cubist paid the Company an initial up front nonrefundable payment of U.S.$1 million upon the signing of the agreement, and a payment of U.S.$1 million (out of which $185,000 was recorded as revenue in the year ended December 31, 2004) out of an aggregate amount of U.S.$2 million as collaboration support to be paid in installments until the end of 2005 and an additional amount of U.S.$3 million upon achievement of certain regulatory milestones till 2007 or an amount of U.S.$2 million upon achievement of the same certain regulatory milestones till 2008.

The Company accounts for the payments resulting from the agreement, as follows (i) the $1 million up-front fee and the installment payments aggregating $2 million are recorded as deferred revenue upon receipt and amortized through 2008 or date regulatory approval obtained, if earlier, and (ii) the milestone contingent payments will be recorded as revenue upon regulatory approval milestones obtained.

F-19

XTL BIOPHARMACEUTICALS LTD.

(A Development Stage Company)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

 NOTE 2 - LICENSE AGREEMENT WITH CUBIST (continued):

Under the agreement, the Company is entitled to receive royalties from net sales by Cubist, if any, generally ranging from 10% to 17%, depending on levels of net sales achieved by Cubist, subject to certain deductions based on patent protection of HepeX-B in that territory, total costs of HepeX-B development, third party license payments and indemnification obligations.

The agreement expires on the later of the last valid patent claim covering Hepex-B to expire, or 10 years after the first commercial sale of HepeX-B on a country by country basis.

Under a research and license agreement (see note 7 a(1) for details), the Company paid during 2004, $250,000 with respect to the $1 million up front fee received in June 2004, out of which $32,000 was recorded as cost of revenues in 2004.

The balance of the deferred gain, related to the revenue from Cubist, as of December 31, 2004, was presented in the balance sheet, net of the above mentioned payment, as follows:

December 31, 2004

($ in thousands)

Deferred revenue	1,815
Less - Deferred expenses related to Yeda	218
Deferred gain	1,597

For the commitment to the Government of Israel, related to the transfer of manufacturing rights of the Company’s HepeX-B product, under the terms of the agreement with Cubist, see note 7a(3).

NOTE 3 - INVESTMENT IN ASSOCIATED COMPANY

During March 2001, the Company acquired 20% of the shares of U.S. based iviGene Corporation (hereafter - iviGene) for $ 1 million and agreed to fund certain research activities at iviGene. The acquisition of shares and the ongoing funding were charged to Research and Development costs in the statement of operations. During 2002, the Company terminated funding research activities at iviGene. The Company had an option to acquire the remaining shares of iviGene for $ 4 million in cash and $ 16 million in the Company’s shares. This option expired in 2002.

The Company will not have the title for benefits from future developments beyond its holding rights, or any obligations to fund the operations of iviGene.

F-20

XTL BIOPHARMACEUTICALS LTD.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 4 - PROPERTY AND EQUIPMENT:

a. Composition of the assets, grouped by major classifications, is as follows:

December 31
2004	2003
($ in thousands)

Cost:
Laboratory equipment	1,828	1,727
Computers	517	497
Leasehold improvements	698	698
Furniture and office equipment	269	221
	3,312	3,143
Accumulated depreciation and amortization:
Laboratory equipment	1,120	932
Computers	488	438
Leasehold improvements	691	639
Furniture and office equipment	105	81
	2,404	2,090
	908	1,053

b. Depreciation and amortization totaled $ 319,000, $ 440,000 and $ 470,000 in the years ended December 31, 2004, 2003 and 2002, respectively.

c. Asset held for sale

During 2003, the Company’s management determined to put on hold early stage research activities, and consequently, to sell an asset used in one of these activities. Under the provisions of FAS 144, the Company’s management reviewed the carrying value of this asset (original cost $ 415,000, depreciated amount - $ 354,000) and determined to write it off. An impairment charge in an amount of $ 354,000 was recorded.

F-21

XTL BIOPHARMACEUTICALS LTD.

(A Development Stage Company)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 5 - EMPLOYEE RIGHTS UPON RETIREMENT:

a. The Company

Israeli labor law generally requires payment of severance pay upon dismissal of an employee or upon termination of employment in certain other circumstances. The following principal plans relate to the Company:

          1) On June 30, 2001 the Company entered into an agreement with each employee implementing Section 14 of the Severance Compensation Act, 1963 (the “Law”) and the General Approval of the Labor Minister issued in accordance to the said Section 14, mandating that upon termination of such employee’s employment, the Company shall release to the employee all the amounts accrued in its Insurance Policies. Accordingly, the Company remits each month to each of its employee’s Insurance Policy, the amounts required by law to cover the severance pay liability.

The severance pay liabilities covered by these contribution plans are not reflected in the financial statements as the severance pay risks have been irrevocably transferred to the severance funds.

          2) Insurance policies for certain employees (senior managers): the policies provide most of the coverage for severance pay and pension liabilities of managerial personnel, the remainder liabilities are covered by the Company.

The Company has recorded a severance pay liability for the amount that would be paid if all those employees were dismissed at the balance sheet date, on an undiscounted basis, in accordance with Israeli labor law. This liability is computed based upon the number of years of service multiplied by the latest monthly salary. The amount of accrued severance pay represents the Company’s severance pay liability in accordance with labor agreements in force and based on salary components, which in management’s opinion, create an entitlement to severance pay.

The Company may only utilize the insurance policies for the purpose of disbursement of severance pay.

b. The subsidiary

The subsidiary’s severance pay liability is calculated based on the agreements between the subsidiary and its employees.

c. Severance pay expenses

Severance pay expenses totaled $ 30,000, $ 129,000 and $ 333,000 for the years ended December 31, 2004, 2003 and 2002, respectively.

Loss (gain) on amounts funded in respect of employee rights upon retirement totaled $(4,000), $5,000 and $(1,000) for the years ended December 31, 2004, 2003 and 2002, respectively.

F-22

XTL BIOPHARMACEUTICALS LTD.

(A Development Stage Company)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 5 - EMPLOYEE RIGHTS UPON RETIREMENT (continued):

d. Cash flow information regarding the company’s liability for employee rights upon retirement:

          1. The Company contributed in 2004, 2003 and 2002 to the insurance companies in respect to its severance pay obligations to Israeli employees, $276,000, $348,000 and $327,000, respectively, and expects to contribute, in 2005, $ 290,000 to the insurance companies in respect to its severance pay obligations to Israeli employees.

          2. The Company expects to pay between 2012 to 2014 future benefits to certain employees who have reached retirement age during these years in the amount of $61,000.

The above amounts were determined based on the employees’ current salary rates and the number of service years that will be accumulated upon their retirement date. These amounts do not include amounts that might be paid to employees that will cease working with the Company before their normal retirement age.

NOTE 6 - SHAREHOLDERS’ EQUITY:

a. Share Capital

As of December 31, 2004, the shares are traded on the London Stock Exchange. The quoted price per share, as of December 31, 2004
is 25.25 p (U.S. $ 0.49).

On August 10, 2000, the Company raised in a private offering an amount of $16.7 million- 15,183,590 ordinary shares of NIS 0.02.

Prior to the Company’s Initial Public Offering (“IPO”), of its Ordinary Shares on the London Stock Exchange, see also below, all classes of shares were respectively reclassified as 30,000,000 authorized Ordinary Shares of nominal value of NIS 0.2 each, of which 7,106,381 Ordinary Shares of NIS 0.2 each were issued and outstanding.

On August 10, 2000, the Company split the share capital so that each Ordinary Share of NIS 0.2 shall be divided into 10 Ordinary Shares of NIS 0.02 each, so that following the split, the authorized share capital consists of 300,000,000 Ordinary Shares of NIS 0.02 each, of which 71,063,810 Ordinary Shares of NIS 0.02 each were issued and outstanding.

F-23

XTL BIOPHARMACEUTICALS LTD.

(A Development Stage Company)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 6 - SHAREHOLDERS’ EQUITY (continued):

On September 20, 2000 the Company completed an IPO, as result of which 20,900,000 Ordinary Shares of NIS 0.02 each have been issued. The proceeds of the issuance of shares in the amount of ₤ 31.3 million (before deduction of share issue expenses) were received as $ 44.7 million. The underwriters of the IPO were granted an over-allotment option. Accordingly, on October 26, 2000, the Company issued 2,850,000 Ordinary Shares of NIS 0.02 for a consideration of $ 6.2 million (before deduction of share issue expenses) at the price of ₤ 1.5 per share or $2.1 per share (the IPO price) to meet over-allotments in connection with the placing.

On August 2 2004, the Company completed a Placing and Open Offer for new ordinary shares, as result of which 56,009,732 Ordinary shares of NIS 0.02 each have been issued. The gross proceeds of the issuance of shares amount to ₤9.8 million - $17.8 million (approximately ₤8.5 million - $15.4 million, net of issuance costs).

b. Summary of the Company's stock options

In May 2001, the Company’s board of directors approved a stock option plan for employees of the Company and its subsidiary (hereafter - the 2001 plan), according to which up to 11,000,000 options are available to be granted. Under this plan, each option is exercisable to purchase one ordinary share of NIS 0.02 par value of the Company. The lock up period of the options is two years from the date of grant. As of December 31, 2004, the remaining number of options available for future grants in this pool is 6,250,600. Other than the option available for future grants for the 2001 plan, there are no option available for future grants for previous plans.

1) The following table summarizes information about stock options granted from the date of incorporation (March 9, 1993) to December 31, 2004:

					Number	Exercise
Grant	The		Grant		of	price per	Vesting
number	grantees		date		options	option	period
1		Employees of the Company		May 1995	900,900	NIS 0.02	4 year period on a yearly basis
2		Employees of the Company		February 1997	3,955,090	$ 0.365	4 year period on a yearly basis
3		Employees of the Company		August 1998	423,680	$ 0.497	4 year period on a yearly basis, starting December 3, 1997
4		Senior officers of the Company		October 1998	5,038,360	$ 0.497	4 year period on a monthly basis

F-24

XTL BIOPHARMACEUTICALS LTD.

(A Development Stage Company)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 6 - SHAREHOLDERS’ EQUITY (continued):

Grant number	The grantees		Grant date		Number of options	Exercise price per option	Vesting period
5		Employees of the Company and its subsidiary		June 1999	1,672,500	$0.497	4 year period on a yearly basis
6		Senior officers of the Company		August 1999	678,720	$0.497	4 year period on a monthly basis
7		Employees of the Company and its subsidiary		April 2000	1,870,000	$1.1	4 year period on a monthly or yearly basis
8		Employees of the Company and its subsidiary		May 2001	1,942,900	$0.931	3 year period on a yearly basis starting May 2003
9		Employees of the Company and its subsidiary		September 2001	306,400	$0.766	3 year period on a yearly basis starting September 2003
10		Employees of the Company and its subsidiary		March 2002	425,800	$0.851	3 year period on a yearly basis starting March 2004
11		Employees of the Company and its subsidiary		September 2002	877,400	$0.482	3 year period on a yearly basis starting September 2004
12		Employees of the Company and its subsidiary		February 2003	699,900	$0.1055	3 year period on a yearly basis starting February 2005
13		Employees of the Company and its subsidiary		September 2003	125,000	$0.25	3 year period on a yearly basis starting September 2005
14		Employees of the Company		March 2004	103,200	$0.486	3 year period on a yearly basis starting March 2006
15		Employees of the Company		September 2004	148,800	$0.315	3 year period on a yearly basis starting September 2006
16		Senior officer of the Company		October 2004	120,000	$0.243	3 year period on a yearly basis starting October 2006

F-25

XTL BIOPHARMACEUTICALS LTD.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 6 - SHAREHOLDERS’ EQUITY (continued):

In addition, on May 2001, the Company granted 2,120,000 options to senior officers and directors without consideration, with an exercise price of $ 0.931 (par value) each.

These senior officers and directors were entitled to exercise the options based on achievement of certain performance conditions. According to the performance criterias, only one third of the conditions were achieved and therefore, two thirds were expired.

The Company applied “variable-plan” accounting treatment in respect of this grant.

General conditions:

(1)   All options were granted without consideration.

(2)   The options are exercisable over a period of 10 years, from the grant date.

2)Stock Options granted are as follows:

	Year ended December 31
	2004				2003				2002
				Weighted				Weighted				Weighted
				average				average				average
				exercise				exercise				exercise
	Number			price	Number			price	Number			price
				$				$				$
Balance outstanding at beginning of year		15,552,661		0.59		17,816,823		0.61		17,279,890		0.62
Changes during the year:
Granted *		372,000		0.34		824,900		0.13		1,303,200		0.61
Exercised		(50,000	)	0.365		(854,100	)	0.01		(38,326	)	0.50
Expired and forfeited		(129,000	)	0.68		(2,234,962	)	0.83		(727,941	)	0.83
Balance outstanding at end of year		15,745,661		0.58		15,552,661		0.59		17,816,823		0.61
Balance exercisable at end of year		14,059,136		0.60		9,960,260		0.45		12,083,088		0.48

* The options exercise price was equal to the share price in the grant date.

The weighted average fair value of options granted during the year, estimated by using the Black & Scholes option-pricing model, was $ 0.10, $ 0.07 and $ 0.08 for the year ended December 31, 2004, 2003 and 2002, respectively. The fair value of the options was estimated on the date of grant, based on the following weighted average assumptions: dividend yield of 0% for all relevant years; expected volatility of: 2004- 35%, 2003 - 45% and 49% for 2002; risk-free interest rates (in dollar terms) of: 2004- 2.9%, 2003 - 2.75% and 2.9% for 2002; and expected lives of 2 to 4 years, for all the reported years, depending on the vesting period of the options.

F-26

XTL BIOPHARMACEUTICALS LTD.

(A Development Stage Company)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 6 - SHAREHOLDERS’ EQUITY (continued):

3)   The following table summarizes information about stock options outstanding and exercisable at December 31, 2004:

	Options outstanding				Options exercisable
			Weighted				Weighted
			average				average
	Balance at		remaining		Balance at		remaining
	December 31,		contractual		December 31,		contractual
	2004		life		2004		life
	Number		In years		Number		In years
Exercise prices:
NIS 0.02		2,600		0.22		2,600	0.22
U.S.$ 0.1055		537,400		8.16		—	—
U.S.$ 0.243		120,000		9.20		—	—
U.S.$ 0.25		125,000		8.68		—	—
U.S.$ 0.315		148,800		9.33		—	—
U.S.$ 0.365		3,511,780		2.11		3,511,780	2.11
U.S.$ 0.482		711,400		7.68		313,016	7.68
U.S.$ 0.486		103,200		9.75		—	—
U.S.$ 0.497		6,395,880		3.66		6,395,880	3.66
U.S.$ 0.766		147,600		6.71		113,652	6.71
U.S.$ 0.851		167,000		7.20		101,035	7.20
U.S.$ 0.931		2,049,701		6.38		1,895,873	6.38
U.S.$ 1.1		1,725,300		5.28		1,725,300	5.28
		15,745,661				14,059,136

F-27

XTL BIOPHARMACEUTICALS LTD.

(A Development Stage Company)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 6 - SHAREHOLDERS’ EQUITY (continued):

       c. Share Purchase Options:

         1) According to specific agreements signed with consultants, directors and members of the Scientific Advisory Board, the Company has granted them options to purchase ordinary shares as described below. These shares are not part of the plans described in b. above. Each option entitles the holder to purchase one ordinary share of NIS 0.02 par value of the Company.

The following table summarizes information about share purchase options granted.

December 31
2004	2003	2002
Number of options

Balance outstanding at beginning of year	2,205,000	2,280,000		2,430,000
Changes during the year:
Granted	380,000	—		—
Forfeited	—	(75,000	)	(150,000	)
Total at end of year (1)	2,585,000	2,205,000		2,280,000
(1)Exercise price:
$ 0.497-0.538	930,000	930,000		930,000
$ 2.11	1,275,000	1,275,000		1,350,000
$ 0.238-0.306	380,000	—		—
	2,585,000	2,205,000		2,280,000
Exercisable by year end:
Exercise price:
$ 0.497-0.538	922,188	894,063		847,188
$ 2.11	1,275,000	1,275,000		1,125,000
$ 0.238-0.306	75,901	—		—
	2,273,089	2,169,063		1,972,188

The charges for stock compensation relating to options granted to consultants were $32,000 in 2004 (of which $30,000 was charged to research and development costs, and $2,000 was charged to general and administrative expenses).

See note 6b(1) for the weighted average assumptions used in the calculation of Black & Scholes option-pricing model.

F-28

XTL BIOPHARMACEUTICALS LTD.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 7 - COMMITMENTS AND CONTINGENCIES:

  a. Royalty Bearing Agreements:

          1) Under a Research and License agreement with Yeda Research and Development Company Ltd. (“Yeda”), the Company is committed to pay royalty payments at rates determined in the agreement not exceeding 3% of net sales, or royalty rates mainly between 20% to 25% of sublicensing fees, for products in development and research under such an agreement. (See also note 2).

          2) Although the Company usually conducts its own research and development, it also enters where appropriate into participation agreements with third parties in respect of particular projects. In connection with such agreements the Company may incur royalty and milestone obligations commitments at varying royalty rates not exceeding 5 % of future net sales or 25 % of sublicensing fees of products developed, based on such agreements.

          3) The Company is committed to pay royalties to the Government of Israel on proceeds from sales of products in the research and development of which the Government participates by way of grants. At the time grants were received, successful development of the related projects was not assured. In the case of failure of a project that was partly financed as above, the Company is not obligated to pay any such royalties. Under the terms of company's funding from the Israeli Government, royalties of 3% - 5% are payable on sales of products developed from projects so funded, up to 100% of the amount of the grant received by the Company (dollar linked); as from January 1, 1999 - with the addition of an annual interest based on Libor.

At December 31, 2004, the maximum amount of the contingent liability in respect of royalties related to ongoing projects to the government is $3,683,000.

In addition, the Company has received the approval of the Government of Israel for the transfer of manufacturing rights of its HepeX-B product, under the terms of the agreement with Cubist (see note 2). As a consequence, thereof, the Company is obligated to re-pay the grants received from the Government of Israel for the financing of the HepeX-B product from any amounts received by the Company from Cubist due to the sales of HepeX-B product, at a percentage rate per annum calculated based on the aggregate amount of grants received from theGovernment of Israel divided by all amounts invested by the Company in the research and development activities of HepeX-B, and up to an aggregate amount of 300% of the original amounts received for such project, including interest at the LIBOR rate. As of December 31, 2004, the aggregate amount received from the Government of Israel for the financing of the HepeX-B project including interest and Libor rate is equal to $4,145,000

 4) The Company entered into a licensing agreement with Cubist, see notes 2 and a(3) above for details.

F-29

XTL BIOPHARMACEUTICALS LTD.

(A Development Stage Company)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 7 - COMMITMENTS AND CONTINGENCIES (continued):

        b. Rental Commitments:

      1) Premises occupied by the Company in Israel are rented under operating lease agreements until 2006, with an option to renew the lease agreements till 2007.

Future minimum rental payments under these agreements (dominated in U.S. dollars) are as follows:

December 31, 2004

 ($ in thousands)

In 2005	306
In 2006	355
In 2007	366
	1,027

To secure the lease agreements in Israel, the Company provided a bank guarantee. As of December 31, 2004, the guarantee is secured by pledge on a long-term deposit amounting to $113,000 (December 31, 2003- $159,000) linked to the Israeli Consumer Price Index (“CPI”), which is included in the balance sheet as long-term deposit.

Premises occupied by the subsidiary in the U.S. are on a monthly renewal basis.

Rental expenses during the year ended December 31, 2004 amounted to $ 394,000, December 31, 2003 - $ 427,000 and December 31, 2002 - $ 362,000.

       2) The Company leases vehicles under the terms of certain operating lease agreements. These agreements expire in the years 2006 and 2007 .

Future minimum lease payments - linked to the CPI - are as follows:

December 31, 2004
	($ in thousands)

In 2005	75
In 2006	72
In 2007	49
	196

Vehicles expense during the year ended December 31, 2004 amounted to $ 84,000, December 31, 2003 - $ 105,000 and December 31, 2002 - $ 121,000.

      c. Other Commitments

The Company has commitments to pay amounts aggregating $ 1,129,000 in respect of research and development costs (mainly for subcontractors) for the year 2005.

F-30

XTL BIOPHARMACEUTICALS LTD.

(A Development Stage Company)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 8 - TAXES ON INCOME:

               a. The Company

Measurement of results for tax purposes under the Income Tax (Inflationary Adjustments) Law, 1985:

Under this law, results for tax purposes are measured in real terms, having regard to the changes in the CPI. The Company is taxed under this law.

Results for tax purposes are measured on a real basis - adjusted for the increase in the Israeli CPI. As explained in note 1b, the financial statements are presented in dollars. The difference between the change in the Israeli CPI and the NIS-dollar exchange rate - both on annual and cumulative bases - causes a difference between taxable income and income reflected in these financial statements (see also note 1i).

Tax benefits under the Israeli Law for Encouragement of Capital Investments, 1959

The Company has been granted an “approved enterprise” status under the Israeli Law for Encouragement of Capital Investments, 1959. Income derived from the approved enterprise during a period of 10 years from the year in which this enterprise first realize taxable income, provided the maximum period to which it is restricted by the law has not elapsed, is entitled to tax benefits as follows:

Tax exemption for 2 years and reduced tax rate for the remaining 8 years. The Company has not yet incurred taxable income. The reduced tax rate is dependent upon the percentage of foreign-owned holdings (10% - 25%). Since the Company is currently over 49% foreign owned, it is entitled to reduced tax at the rate of 20%.

The Company has an "approved enterprise" plan from 2001. The expiration of this plan is in 2015.

If the Company distributed dividends from income derived from the approved enterprise during the period when it was tax exempt, the applicable tax rate will be 20%.

The entitlement to the above benefits is conditional upon the Company fulfilling the conditions stipulated by the law, regulations published there-under and the instruments of approval for the specific investment in approved enterprise. In the event of failure to comply with these conditions, the benefits may be cancelled and the company may be required to refund the amount of the benefits, in whole or in part, with the addition of interest.

Tax benefits under the Israeli law for the Encouragement of Industry (Taxation), 1969

The Company qualifies as “industrial company” under the above law. In accordance with this law the company is entitled to certain benefits including accelerated depreciation on industrial buildings and equipment, a deduction of 12.5% per year of the purchase price of a good-faith acquisition of patent and certain other intangible property rights.

F-31

XTL BIOPHARMACEUTICALS LTD.

(A Development Stage Company)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 8 - TAXES ON INCOME (continued):

Tax rates in Israeli applicable to income from other sources

Income not eligible for “approved enterprise” benefits, mentioned above, was taxed at the regular rate of 36% through December 31, 2003. In July 2004, an amendment to the Israeli Income Tax Ordinance was enacted. One of the provisions of this amendment is that the corporate tax rate is to be gradually reduced from 36% to 30%, in the following manner: the rate for 2004 will be 35%, in 2005 - 34%, in 2006 - 32%, and in 2007 and thereafter - 30%. Currently, it is not applicable to the Company.

b. The subsidiary

The U.S. subsidiary is taxed according with U.S. tax laws.

c. Current tax losses for tax purposes:

           1) Company

Income tax of the Company is computed on the basis of the income in Israeli currency as determined for statutory purposes.

The Company incurred losses for tax purposes from inception.

The carryforward tax loss for tax purposes at December 31, 2004 is approximately $ 92 million (linked to the CPI), which may be offset against future taxable income, (including capital gains) with no expiration date.

 2) Subsidiary

The U.S. subsidiary is taxed under the applicable U.S. tax laws, and is working under a Cost Plus agreement with the Company. The subsidiary has incurred taxable income and recorded tax expenses.

           3) The following table summarizes the taxes on income for the Company and its subsidiary for 2004, 2003 and 2002:

2004			2003			2002
($ in thousands)			($ in thousands)			($ in thousands)
	Company	Subsidiary		Company	Subsidiary		Company	Subsidiary

Gain (loss) before taxes on income	(16,582	)	158	(14,327	)	117	(17,211	)	98
Taxes on income	—		49	—		78	—		27
Net gain (loss) for the year	(16,582	)	109	(14,327	)	39	(17,211	)	71

F-32

XTL BIOPHARMACEUTICALS LTD.

(A Development Stage Company)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 8 - TAXES ON INCOME (continued):

d. Deferred income taxes

As of December 31, 2004, the Company had no tax exempt income. Virtually all of the Company temporary differences are in respect to carryforward tax losses. The Company expects that during the period its tax losses would be utilized, its income will be substantially tax exempt.

Accordingly, no deferred tax assets have been included in these financial statements in respect to the Company’s carryforward tax losses.

e. Reconciliation of the theoretical tax expense to actual tax expense

The main reconciling item, between the statutory tax rate of the Company and the effective rate is the non-recognition of tax benefits from carryforward tax losses due to the uncertainty of the realization of such tax benefits (see above).

f. Tax assessments

The Company received tax assessments for the years up to and including the 1998 tax year. The subsidiary has not been assessed for tax purposes since incorporation.

F-33

XTL BIOPHARMACEUTICALS LTD.
(A Development Stage Company)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 9 - SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION:

a.      Short-term bank deposits

The deposits are denominated in dollar and bear a weighted average annual interest rate of 1.81 % as of December 31, 2004 (as of December 31, 2003 - 1.17%).

  b. Marketable securities:

                                1) As of December 31, 2004, there are no marketable securities. The balance as of December 31, 2003 composed as follows:

December 31, 2003
	Amortized cost	Unrealized holding gains	Unrealized holding losses	Estimated fair market value
($ in thousands)

Debentures:
Linked to the Israeli CPI	71	—	(2	)	69
Unlinked	561	19	(17	)	563
	632	19	(19	)	632
Short-term treasury notes and bonds:
Linked to the U.S. dollar	10	—	—		10
Unlinked	93	14	—		107
	103	14	—		117
	735	33	(19	)	749

F-34

XTL BIOPHARMACEUTICALS LTD.

(A Development Stage Company)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 9 - SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION (continued):

                       2) Changes in marketable securities held for sale are as follows:

2004	2003	2002
($ in thousands)

Balance at beginning of year	749		1,637		1,178
Investments	—		71		1,219
Proceeds from sales	(722	)	(1,048	)	(716	)
Reclassifications into earnings (loss) from other comprehensive income (loss)	(14	)	62		(3	)
Realized gain (loss) from sales	(13	)	27		(41	)
	—		749		1,637

             c. Accounts receivable - other:

December 31
	2004	2003
	($ in thousands)

Office of the Chief Scientist of the Israeli Ministry of Industry (“OCS”)	—	537
Prepaid expenses	165	119
Employees	24	36
Value Added Tax authorities	101	6
Sundry	16	8
	306	706

             d. Accounts payable and accruals:

Suppliers	1,108	1,334
Accrued expenses	1,337	1,077
Institutions and employees in respect of salaries and related benefits	294	280
Provision for vacation pay and recreation pay	385	300
Sundry	10	10
	3,134	3,001

F-35

XTL BIOPHARMACEUTICALS LTD.

(A Development Stage Company)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 9 - SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION (continued):

Statements of operations:

            e. Research and development costs:

				Period from
				March 9, 1993
Year ended December 31				to December 31,
	2004	2003	2002		2004
($ in thousands)

Wages, salaries and related benefits	2,776	3,450	3,958	20,945
Sub-contractors expenses	6,430	6,799	5,575	33,856
Laboratories supplies	754	1,128	1,653	8,406
Consulting	549	494	396	3,194
Rent and maintenance	725	866	926	4,004
Depreciation and amortization	277	369	415	2,717
Other	474	562	308	2,101
	11,985	13,668	13,231	75,223

            f. General and administrative expenses:

Wages, salaries and related benefits	1,890	1,244	1,704	11,080
Corporate communications	289	228	598	2,210
Professional fees	647	564	662	3,515
Director fees	243	183	181	1,387
Rent and maintenance	90	104	135	865
Communication	34	33	43	195
Depreciation and amortization	42	70	55	589
Patent registration fees	271	125	71	1,017
Other	628	554	189	2,697
	4,134	3,105	3,638	23,555

             g. Business development costs:

Wages, salaries and related benefits	410	408	567	2,501
Travel	36	136	140	742
Professional fees	364	120	209	1,043
	810	664	916	4,286

F-36

XTL BIOPHARMACEUTICALS LTD.

(A Development Stage Company)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 9 - SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION (continued):

             h. Financial income, net:

				March 9, 1993
Year ended December 31				to December 31,
	2004	2003	2002		2004
($ in thousands)

Financial income:
Interest received	297	458	1,360	8,725
Foreign exchange differences gain	67	—	—	203
Gain from available for sale securities	13	62	—	(13	)
Other	—	—	—	156
	377	520	1,360	9,097
Financial expenses:
Foreign exchange differences loss	—	148	733	1,921
Interest paid	—	—	—	374
Loss from available for sale securities	—	—	3	14
Other	25	20	27	88
	25	168	763	2,397
Financial income, net	352	352	597	6,700

NOTE 10 - FINANCIAL INSTRUMENTS AND RISK MANAGEMENT:

              a. Linkage terms of balances in non-dollars currency:

         1) As follows:

		December 31, 2004
		Israeli currency	Other
		Unlinked
	($ in thousands)
Assets		837	432
Liabilities		1,458	237

The above balances do not include Israeli currency balances linked to the dollar.

F-37

XTL BIOPHARMACEUTICALS LTD.

(A Development Stage Company)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 10 - FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued):

      2) Data regarding the changes in the exchange rate of the dollar and the Israeli CPI:

	Year ended December 31
	2004		2003		2002
Devaluation (evaluation) of the Israeli currency against the dollar		(1.6%)		(7.6%)		7.3%
Changes in the Israeli CPI		1.2%		(1.9%)		6.5%
Exchange rate of one dollar (at end of year)		NIS 4.308		NIS 4.379		NIS 4.737

b.   Fair value of financial instruments

The financial instruments of the Company and of its subsidiary consist of non-derivative assets and liabilities, included in working capital.

In view of their nature, the fair value of this financial instruments is usually identical or close to their carrying value.

c.   Concentration of credit risks

Most of the Company’s and its subsidiary’s cash and cash equivalents and short-term investments at balance sheet dates were deposited with Israeli banks. The Company is of the opinion that the credit risk in respect of those balances is remote.

NOTE 11 - SUBSEQUENT EVENT:

On March 31, 2005, the Company announced that it is implementing a restructuring plan designed to focus its resources on the development of its lead programs. As part of this plan, the Company took a charge in March 2005 of approximately $110,000 relating to employee dismissal costs.

F-38

EX-4.1

***** Confidential material redacted and filed separately with the Commission.

CONFIDENTIAL TREATMENT REQUESTED. Confidential portions of this document have been redacted and separately filed with the Commission.

RESEARCH AND LICENCE AGREEMENT

By and Between

YEDA RESEARCH AND DEVELOPMENT COMPANY LTD,

a company duly incorporated and existing under the laws of the State of Israel, of P.O.Box 29, Rehovot, Israel

(hereinafter “Yeda”),

of the one part,

and

XENOGRAFT TECHNOLOGIES LTD,

a company duly registered and existing under the laws of the State of Israel,

of Kiryat Weizmann, P.O. Box 370, Rehovot, Israel

(hereinafter “the Corporation”),

of the other part,

WHEREAS in the course of research conducted at the Weizmann Institute of Science, Rehovot (hereinafter “the Institute”), ***** (hereinafter “*****”) has developed certain technology constituting the subject matter of the patent applications listed in the attachment hereto marked “A” and constituting an integral part hereof (hereinafter collectively “the Existing Applications” and “the Existing Technology”);and

WHEREAS the Corporation is interested in the performance of further research at the Institute under the supervision of ***** in the field of the ExistingTechnology as specified in the research program attached hereto, marked “B” and forming an integral part hereof (hereinafter “the Research Program” and “the Research”); and

WHEREAS certain of the Research has already been performed pursuant to the agreement dated as of September 1, 1992, between Yeda and Yeda Holdings, Inc; (hereinafter “the YH Agreement”);

WHEREASin consideration of the Corporation’s undertakings hereunder and the fulfilment thereof, Yeda is willing, subject to and in accordance with the terms and conditions of this Agreement, to procure the continuance of the performance of the Research at the Institute under the supervision of ***** as aforesaid; and

WHEREAS the Corporation is willing, subject to and in accordance with the termsand conditions of this Agreement, to finance the continuance of the performance of the Research; and

WHEREASpursuant to an agreement between the Institute of the first part, Yeda of the second part, and the scientists employed by the Institute (including *****) of the

1

***** Confidential material redacted and filed separately with the Commission.

third part, all right, title and interest in the Existing Technology and in any information deriving from the performance of the Research vests and will vest in Yeda; and

WHEREASsubject to and in accordance with the terms and conditions of this Agreement, the Corporation wishes to receive, and Yeda is willing to grant the Corporation, an exclusive worldwide license for the use of the Existing Technology and of information deriving from the performance of the Research and Yeda Holdings Inc has waived all rights under the YH Agreement and has agreed to the grant of the said licence to the Corporation;

NOW THEREFORE IT IS AGREED BY THE PARTIES HERETO AS FOLLOWS;

1. Status of Recitals

The recitals hereto form an integral part of this Agreement.

2. Performance of Research

(a) In consideration of the sums to be paid by the Corporation pursuant to Paragraph 3 below and subject to the execution of such payments, Yeda undertakes to procure the continuance of performance of the Research at the Institute under the supervision of ***** during the period commencing on the effective date of this Agreement and ending on July 31, 1995, (hereinafter “the Research Period”).

(b) Subject to Paragraphs 3(e)(ii) and 3(b) below, the Research shall be performed in accordance with the Research Program and within the framework of the budget attached thereto (hereinafter “the Research Budget”).

(c) If *****shall cease to be available for the supervision of the performance of the Research, Yeda shall use its best efforts to find from among the staff of the Institute a replacement scientist acceptable to the Corporation (such acceptance not to be unreasonably withheld) but no undertaking to find such replacement is given by Yeda. Should no such acceptable replacement scientist be found within 60 (sixty) days of ***** becoming unavailable, then the Research Period and the performance of Research hereunder shall cease at the end of a further period of 60 (sixty) days, but without prejudice to any licence already then granted pursuant to this Agreement end the terms and provisions hereof relating thereto.

(d) For the avoidance of doubt, it is agreed that nothing in this Agreement constitutes or shall constitute a warranty or representation by Yeda that any results will be achieved by the Research or that the Existing Technology or any results achieved by the Research are or will be commercially exploitable or of any other value.

3. Funding of the Research

(a) In consideration of Yeda’s undertaking to procure the performance of the Research, the Corporation undertakes to provide Yeda with funds to be used for financing the Research, as follows:

(i) ***** United States Dollars) in ***** equal instalments payable at the commencement of each quarter year during the period commencing June 1, 1993 and ending February 28, 1994, (funds for the financing of the Research until the data hereof end untilMay 31, 1993 having been provided by Yeda Holdings Inc under the YH Agreement);

2

***** Confidential material redacted and filed separately with the Commission.

(ii) Subject to achievement by January 31, 1994 of the milestones specified in the attachment hereto, marked “C” and forming an integral part hereof “C” (hereinafter “the Milestones”), a further ***** United States Dollars) in ***** equal instalments payable at the commencement of each quarter year during the period commencing on March 1, 1994 and ending on August 31, 1995.

(b) It is understood that it may become necessary, having regard to the results obtained in the course of the performance of the Research and in order to expedite or facilitate progress therein or the achievement of the objects of the Research, to make variations in the Research Program and consequent reallocations of the Budget and it is agreed, upon the written, detailed and reasoned recommendation of *****, that such variations and/or reallocations shall be made, provided:

(i) that in no event shall the Corporation be obliged, without its prior written consent, to increase the amount of funds which it is obliged to provide to Yeda hereunder or to accelerate the payment thereof; and

(ii) that reallocation from one major expense category in the Budget to another such category in excess of ***** in a quarter year shall require the prior written approval of the Corporation.

(c) Should any of the Milestones not have been achieved by January 31, 1994, the Corporation shall have the right to terminate this Agreement by service of written notice an Yeda, by no later than February 28, 1994. Upon service of such notice, the Licence granted hereunder shall terminate and the Corporation shall be released of any obligations to make any payment pursuant to Para 3(a)(ii) above. If such notice shall not have been served by February 28, 1994, then the Agreement shall continue in full force and effect and the performance of the Research shall continue in accordance with the Research Program, with any modifications thereto that may be recommended by ***** and accepted by the Corporation.

(d) The parties agree that in the event of a dispute between them as to whether the Milestones shall have been achieved, the matter shall be resolved by majority vote of the Founding Members of the Scientific Advisory Board to be established by the parties and which shall advise in connection with the scientific aspects of the performance of this Agreement. Unless otherwise agreed by the parties, the Founding Members of the Scientific Advisory Board shall be *****. If any of the Founding Members of the Scientific Advisory Board should resign or not be available for any reason, the surviving Founding Members shall be competent to resolve the said dispute by majority vote. The Founding Members of the Scientific Advisory Hoard shall be requested to make their determination by no later than February 15, 1994. If the votes of the Founding Members participating in such determination are tied, the Milestones shall be deemed not to have been achieved.

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Nothing herein shall prevent the parties from adding additional members to the Scientific Advisory Board after prior consultation between them, but the resolution of the said dispute shall be according to the vote of the Founding Members only as aforesaid.

4. Reporting by Yeda

(a) Yeda will submit to the Corporation a detailed written report on the progress of the Research in each 6 month period during the Research Period, within 30 days of the end of each such 6 month period, and written report summarising the results of the Research within 60 days of the end of the Research Period. In addition, Yeda will submit to the Corporation an interim written report on the progress of the Research in the first half of each such 6 month period, such report to contain a general outline of progress in the Research made in that first half and to be provided within 30 days of the end of such first half. Further, prompt written reports will be submitted by Yeda on significant breakthroughsin the Research and the authorized scientific representatives of the Corporation shall be given the opportunity, from time to time, and at mutually convenient times, to discuss the progress of the Research with *****.

(b) Further, Yeda shall submit to the corporation, with respect to each 3 (three) month period of the Research Period, a financial report setting forth the monies received and expended in connection with the Research during such 3 (three) month period. Each report as aforesaid shall be submitted to the Corporation not later than 45 (forty-five) days after the end of the period covered by such report. Charges in respect of indirect Research expenditures shall be made at the rate of *****% of direct expenses incurred. Within 90 days of the end of each year during the Research Period or within 90 days of the Corporation’s written request, whichever is the later, Yeda shall provide the Corporation with a written report from the CPA acting as Yeda's outside auditor, certifying the Research expenditures incurred in the said year.

(c) Reports already made under the YH Agreement shall be deemed to have been made hereunder and the Corporation acknowledges receipt thereof.

5. Title

(a) Subject to the licence granted to the Corporation in terms hereof, it is hereby agreed that all right, title and interest, in and to the Existing Technology and any products, inventions, materials, methods, processes, techniques, knowhow, data, information and other results which are discovered or which accrue in the course of, or which arise or stem from the performance of the Research (hereinafter “the Program Technology”) as well as in and to any drawings, plans, diagrams, specifications and other documents in any way embodying the Existing Technology or the Program Technology (the Existing Technology, the Program Technology and all said drawings, plans, diagrams, specifications and other documents being referred to hereinafter collectively as “the Technology”), shall vest in Yeda exclusively. At the request of Yeda from time to time, the Corporation shall take and shall procure the taking of all acts necessary to give formal effect to the aforegoing provisions of this Paragraph 5.

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(b) With 45 (forty-five) days of receipt of any report from Yeda under paragraph 4(a) above, the Corporation shall be entitled to advise Yeda by notice in writing that the Corporation has no interest in obtaining e licence from Yeda to all or any of the Technology contained in the said report, whereupon such specified Technology (hereinafter “the Excluded Technology”) shall not be included in the licence granted hereunder, the Corporation shall maintain the Excluded Technology in strict confidence and shall not thereafter make any use thereof, and Yeda shall be entirely free to deal with the Excluded Technology as it deems fit by way of grant of license to a third party or otherwise howsoever. In this Agreement below, the term “the Licensed Technology” shall mean all the Technology disclosed in the Existing Applications and in the reports submitted by Yeda pursuant to Paragraph 4(a) above, except the Excluded Technology.

6. Patents

(a) At the initiative of either party, the parties shall consult with one another regarding the filing of patent applications in respect of any portion of the Licensed Technology including, but without limitation, the timing of the filing of such applications and the contents thereof. Following such consultations, Yeda shall, at the Corporation’s written request, file and prosecute applications as aforesaid. The Corporation confirms that it will seek patent protection for all patentable Licensed Technology in at least the countries listed in Appendix D. The applications filed under the YH Agreement are included in Attachment A and shall be deemed applications filed by Yeda at the request of the Corporation pursuant to this subparagraph (a).

(b) (i) All patent applications to be filed by Yeda in terms of sub-paragraph (a) above, shall be filed in the name of Yeda or should the law so require, in the name of the inventor and then assigned to Yeda. The Corporation shall bear all costs and fees incurred by Yeda in the preparation, filing, prosecution, maintenance and the like of all patent applications filed in accordance with the provisions of sub-paragraph (a) above and in the maintenance of all patents issuing therefrom. In addition, the Corporation agrees to reimburse Yeda for all costs and fees incurred by Yeda until the date hereof (to the extent not already reimbursed by then) in connection with the filing and prosecution of the Existing Applications listed in Attachment “A” hereto up to a maximum of ***** and to bear all costs incurred by Yeda after the date hereof in the further prosecution, maintenance and the like of the Existing Applications and in the maintenance of all patents issuing therefrom. Yeda hereby acknowledges receipt of ***** under the YH Agreement in reimbursement of patent costs and fees incurred by Yeda in connection with the filing and prosecution of the Existing Applications.

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(ii) At the request of the Corporation, Yeda shall take such action as shall be available to protect or to sue for infringement of any patent which shall have issued from any of the patent applications referred to in or filed pursuant to subparagraph (b)(i) above and Yeda may also take such action at its own initiative and without the Corporation’s request. However, before initiating any such action, Yeda shall advise the Corporation in writing of its intention to do so and the Corporation shall have the right ***** of receipt of such notice, to elect by notice in writing to Yeda that such action be treated as being taken at the Corporation’s request and/or to become a party in such action. In any action taken at the Corporation’s request (or so treated), counsel representing Yeda (and the Corporation. should the Corporation wish to become a party to the action) shall be selected by the Corporation, with Yeda's written approval (not to be unreasonably withheld) andYeda confirms that the firm of ***** is acceptable to it for action in the USA. All costs involved in any action taken at the Corporation's request (or so treated or in which the Corporation has elected to become a party), (including, inter alia, legal casts and other sums awarded to the counter-party in such action) shall be borne by the Corporation exclusively. Any recovery in any such action financed by the Corporation shall first be applied to cover costs and thereafter divided ***** to the Corporation and *****to Yeda. All costs involved in any such action taken by Yeda without the Corporation’s request (or not being an action so treated or not being an action in which the Corporation has elected to become a party as aforesaid), including any costs or other sums awarded to the counter party, shall be borne by Yeda exclusively, the conduct and discontinuance of such action shall be matters entirely within Yeda’s discretion and any recovery in any such action shall be retained by Yeda in full. The Corporation shall cooperate with Yeda in pursuing any actions undertaken under this sub-paragraph (b)(ii).

(c) For the removal of doubt, it is agreed - without derogating from the provisions of subparagraph (a) above, that the provisions of the said subparagraph shall not prevent Yeda from filing patent applications with respect to any portion of the Licensed Technology (in addition to those filed by it at the Corporation’s written request pursuant to the said subparagraph), it being agreed:

(aa) that at least ***** days before filing any such patent application. Yeda shall send the Corporation written notice of its intention to do so;

(bb) that within ***** days of receipt of such written notice, the Corporation shall be entitled to advise Yeda in writing that it wishes such patent application to be filed and treated in all respects as an application filed at the Corporation's request, pursuant to subparagraph (a) above;

(cc) that should the Corporation not send such notice as aforesaid, then:

(1) the subject-matter of such application shall thereupon be deemed Excluded Technology;

(2) all costs and fees incurred in connection with the preparation, filing, maintenance, prosecution, protection and the like of such patent applications and patents issuing therefrom shall be borne by Yeda exclusively; and

(3) the Corporation shall not be entitled to cause Yeda to take any action whatsoever for the protection of or for infringement of patents issuing on such patent applications, the taking of any such action shall be entirely within Yeda’s discretion, the costs of any such action, as well as any costs and other sums awarded to any counter-party in such action, shall be paid by Yeda exclusively and any recovery in any such action shall be retained by Yeda.

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(d) The Corporation agrees to pay any amount due to Yeda pursuant to sub-paragraph (b) above within 30 (thirty) days of Yeda's first written request supported by invoice or other appropriate document.

(e) Nothing herein contained shall be deemed to be a warranty by Yeda that the Existing Applications or any of them or any patent applications relating to the Licensed Technology or any portion thereof will be granted, or that any patents obtained on any of the said patent applications, if obtained, are or will be valid or will afford proper protection.

7. Licensing

(a) Subject to the terms and conditions hereinafter set forth, Yeda hereby grants the Corporation and the Corporation accepts, an exclusive worldwide licence (“the Licence”) (i) under the Licensed Patents (as hereinafter defined) (if any), and (ii) the Licensed Technology, to make, use, practise and sell the products and services covered in whole or in part by the claims of the Existing Applications and or of the other patent applications filed by Yeda at the request of the Corporation or treated as such as hereinbefore provided (whether or not patents including such claims issue on all or any of such applications) and/or the making, use and practice of which is covered in whole or in part by the claims of the said applications (whether or not patents including such claims issue on all of any of such applications) (the said products being referred to hereinafter as “the Products” and the said services being referred to hereinafter as “the Services”). The Licence includes the right to grant sublicences, subject to the provisions of subparagraph (c) below,

(b) (i) In this Agreement the term “Licensed Patents” shall mean the patents issuing on the Existing Applications or on patent applications filed by Yeda in accordance with the Corporation’s written request pursuant to Paragraph 6(a) above or treated as such pursuant to Paragraph 6(c) above.

(ii) The Licence shall remain in force (if not previously terminated according to the provisions of this Agreement) with respect to any of the Products or Services in any country as follows:

(aa) in a country where a Licensed Patent or Patents issues including claims covering, in whole or in part, such Product or Service, *****;

(bb) in any other country, *****. The Corporation shall notify Yeda in writing immediately upon the entering into of each such first commercial transaction, specifying its date.

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(c) Yeda recognizes that the Corporation contemplates the grant of a sublicence or sublicences as part of its plan for commercialization under the Licence, but the Corporation agrees that no sub-licence under the Licence may be granted by the Corporation without Yeda’s prior written consent, *****, it being agreed that Yeda’s consent may not be sought unless the proposed sublicence is for monetary considerationexclusively in a bona fide arms-length commercial transaction, is made by written agreement, the provisions of which are consistent with the terms of the Licence and contain, inter alia, the following terms and conditions:

(i) on the termination of the Licence for any reason, the sublicence shall expire automatically;

(ii) the party receiving the sublicence (hereinafter “the Sublicensee”) shall be bound by provisions substantially similar to those in Paragraph 10 below binding the Corporation (the obligations of the Sublicensee so arising being addressed also to Yeda directly);

(iii) all terms necessary to enable performance by the Corporation of its obligations under Paragraphs 7(d)(iii) and 9(b) hereof;

(iv) that any act or omission by the Sublicensee which would have constituted a breach of this Agreement by the Corporation had it been the act or omission of the Corporation, shall constitute a breach of this Agreement by the Corporation;

(v) that the sublicence shall not be assignable or further sublicenseable;

(vi) that a copy of the agreement granting the sublicence shall be made available to Yeda at least ***** prior to its execution.

Notwithstanding the aforegoing, should Yeda refuse its consent to a sub-licence and the Corporation should contend that such refusal is unreasonable, the dispute between the parties shall be resolved by the Expert (as such expression is defined below) at the request of the Corporation made no later than ***** days after receipt by the Corporation of Yeda’s said refusal. The Expert shall act as an expert and not as arbitrator and shall conduct the hearing of the dispute as he deems fit. His decision shall be binding on the parties. The Expert may order that the Expert's costs be borne by one of the parties or shared by them in such proportion as the Expert shall direct, and the parties shall comply with such order. The Expert shall be *****, or if he shall be unable or unwilling to act or continue to act in such capacity, the President for the time being of the Hebrew University of Jerusalem or, if he should be unable or unwilling to act or continue to act in such capacity, then the person nominated by him to act as the Expert.

(d) (i)  In this Agreement, the term “Net Sales” shall mean the *****:

(aa) *****

(bb) *****.

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(ii) In consideration for the Licence, the Corporation shall pay Yeda a royalty of ***** of all Net Sales received by the Corporation ***** of all amounts received by the Corporation for or from the grant of sublicences and/or pursuant thereto (hereinafter “Sublicensing Receipts”), provided that on any Sublicensing Receipts received by the Corporation which are calculated on the basis of proceeds received by a Sublicensee from sales of Products or provision of Services by it, the royalty payable to Yeda by the Corporation shall be ***** of such Sublicensing Receipts as aforesaid or the amount being ***** of the Net Sales of the Sublicensee form the sales of Products or provision of Services generating such Sublicensing Receipts, which is the higher.

                (iii) (aa)  Amounts payable to Yeda in terms of this Paragraph 7(d) shall be paid to Yeda on a quarterly basis and no later than ***** days after the end of each calendar quarter, commencing with the first calendar quarter in which any Net Sales or Sublicensing Receipts are received.

(bb) All amounts payable to Yeda hereunder in respect of Net Sales or Sublicensing Consideration which are received by the Corporation or its Sublicencee in a currency other than Israeli currency shall be paid to Yeda in the same foreign currency to the extent permitted by law, and to the extent not, by payment of the equivalent amount of Israeli currency calculated at the representative rate of exchange last published by the Bank of Israel at the time of payment to Yeda. Amounts due to Yeda in respect of Net Sales or Sublicensing Consideration which are received by the Corporation or its Sublicencee in Israeli currency shall be linked to the Consumer Price Index published by the Israel Government’s Central Bureau of Statistics from the date payment is reached by the Corporation or its Sublicencee until it is due to Yeda (and thereafter subject to interest payments as provided in Paragraph 13(b)(v) below) .

(cc) The Corporation shall, within a period of ***** days from the end of each calendar quarter commencing with the first calendar quarter in which any Net Sales or Sublicensing Receipts are received, submit to Yeda a full and detailed report, setting out all amounts owing to Yeda in respect of the quarter to which the report refers, and with full details (1) of payments received by the Corporation and Sublicensees constituting Net Sales or Sublicensing Receipts including, without derogating from the generality of the aforegoing, a breakdown of Net Sales according to country and identity of buyer, a breakdown of Sublicensing Receipts according to country and identity of Sublicencee, currency of the payments and date of receipt thereof; and (2) of any other matter necessary to enable the determination of the amounts payable hereunder.

(dd) The Corporation shall keep and shall cause Sublicensees to keep complete and correct books of account and records consistent with sound business and accounting principles and practices and in such form and in such details as to enable the determination of the amounts due to Yeda in terms hereof. The Corporation shall supply Yeda at the end of each year, commencing with the first year in which any amount is payable under this Paragraph 7(d), a report certified by a Chartered Public Accountant in respect of the amounts due to Yeda pursuant to this Paragraph 7(d) in respect of the year covered by the said report, it being understood that insofar as such amounts relate to Net Sales of Sublicences, the said Chartered Public Accountant shall be entitled to rely in his report on certificates issued by other Chartered Public Accountants relating to such Net Sales, such certificates to be attached to the said report.

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(ee) Yeda or its authorised representatives shall have the right at reasonable times up to ***** per year during normal business hours to inspect the Corporation’s and Sublicensees’ books of accounts, records and other documentation to the extent relevant or necessary in or for the ascertaining or verification of the amounts due to Yeda under this Paragraph 7(d).

8. Development and Commercialization

(a) It is understood and agreed that subject to termination of this Agreement and the Licence thereunder pursuant to Paragraph 3(d) above or to the other provisions of this Agreement, should the Corporation wish to have further research (beyond that to be performed at the Institute and to be funded pursuant to Paragraph 3 above) conducted outside the Corporation's own facilities with respect to all or any part of the Licenced Technology then such additional research shall be performed at the Institute, (to the extent that Yeda confirms the availability of the necessary facilities) under the supervision of *****, should he declare himself available, willing and able to perform such further research, provided that the cost of performing such research at the Institute (includingthe cost of acquisition of any necessary equipment), shall not be substantially more than such cost at a reputable institution which has declared itself willing to undertake the performance of such further research.

(b) The Corporation undertakes to act diligently and to make reasonable efforts to expedite the commencement of commercial sale of the Products and commercial provision of the Services and without derogating from the generality of the aforegoing, the performance of necessary research, toxicological tests, pharmacological and efficacy tests, pre-clinical tests, clinical trials, the steps required for obtaining regulatory approvals from the US Food and Drug Administration and other regulatory authorities and the development of procedures and facilities for large-scale commercial production of the Products and provision of the Services. The Corporation further undertakes to continue to act diligently in the exercise of the Licence and to take all reasonable steps to maximize such exercise throughout the period of the Licence.

(c) (i)  Should Yeda be of the opinion that the Corporation is in breach of its obligations pursuant to Paragraph 8(b) above with respect to the research, development and commercialization activities relating to any Product or Service, it may so advise the Corporation and notify the Corporation that unless certain steps are taken by the Corporation within a certain time as specified in the said notice, the Licence shall lapse. Should the Corporation not refer the matter to arbitration pursuant to subparagraph (ii) below nor take the said specified steps within the said specified time, the Licence and this Agreement shall thereupon terminate.

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(ii) Should the Corporation not accept the terms of Yeda’s said notice, it shall be entitled, within 30 days of receipt of Yeda’s said notice, to advise Yeda that it does not accept the terms of the said notice and to refer the dispute for resolution by arbitration pursuant to Paragraph 14 below.

9. Reports by Corporation

The Corporation will provide Yoda with full written reports on the progress and results of research, tests and trials conducted and all other actions taken by the Corporation pursuant to paragraph 8(c) above, such reports to be made on a ***** basis, within ***** of the end of each ***** period during the term of the Agreement. Further, written reports on significant developments in such activities shall be made by the Corporation to Yeda promptly.

10. Confidentiality

(a) The corporation shall use its reasonable best efforts to maintain the Technology in confidence, except and to the extent that it is in the public domain at the date of the signing hereof or becomes pert of the public domain thereafter other than through a violation by the Corporation of this undertaking of confidentiality and except that the Corporation shall be released from its obligation of confidentiality with regard to that portion of the Technology expressly released therefrom by Yeda by notice in writing.

Notwithstanding the foregoing, the Corporation may disclose to its personnel and to other third parties (including permitted Sublicencees) such confidential information as shall be necessary for the exercise by it of its rights hereunder or in the fulfilment of its obligations hereunder, provided that it shall bind such personnel and other third parties with a similar undertaking of confidentiality in writing. It is agreed, for the removal of doubt, that the aforegoing obligation of confidentiality shall not prevent the Corporation from disclosing the general net of the research and development activities engaged in pursuant to this Agreement.

(b) In addition to and without derogating from the aforegoing, the Corporation undertakes not to make mention and not to allow Subliceneees to make mention of the names of Yeda or the Institute or ***** in any advertising, sales literature, promotional material, other publications, private placement memoranda, public offering registration statements and the like, unless the prior written approval of Yeda thereto has been obtained (such approval not to be unreasonably withheld). Once an approval has been granted by Yeda to a certain form of words for use in a particular context. then the same form of words can be used again by the Corporation or by Sublicencees in the same context, without further approval from Yeda.

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(c) For the removal of doubt, nothing in subparagraphs (a) or (b) above contained shall be deemed to prevent the Corporation from mentioning the names of Yeda and/or the Institute or ***** or to prevent the Corporation from disclosing any information where such mention or disclosure is to competent authorities for the purposes of obtaining approval or permission for the exercise of the License or is in the fulfilment of any legal duty owed to any competent authority. For the purpose of this paragraph, such mention in a private placement_. memoranda or a public offering registration statement shall not be deemed fulfilment of a legal duty to a competent authority.

(d) Yeda shall use its reasonable best efforts to maintain the Licenced Technology in confidence except and to the extent that it is in the public domain at the date of signing hereof or becomes part of the public domain thereafter other than through a violation by Yeda of this undertaking of confidentiality, and it being expressly agreed that Yeda shall have the tight to allow ***** (and, with ***** consent, ***** students) publish articles relating to the Licenced Technology in scientific publications, provided that at least 60 days before the intended date of such publication, the text thereof shall be submitted to the Corporation in order to enable it to request the filing of patent application relating to the subject- matter of the article before the publication takes place and Yeda shall procure that such filing shall take place within 30 days of the Corporation's written request pursuant to Paragraph 6(a) above.

(e) No termination of this Agreement, for whatever reason, shall release the Corporation from any of its obligations under this Paragraph 10 and such obligations shall survive termination as aforesaid.

11. No Assignment

Except as expressly provided herein, the Corporation may not assign all or any of its tights or obligations under this Agreement or arising therefrom without the prior written consent of Yeda.

12. Indemnification

The Corporation shall indemnify and hold harmless ***** and the officers and employees of them from and against an loss, damage, liability and expense (including attorney fees and legal costs) arising out of or resulting from the exercise of the License, including the grant or exercise of Sublicences. This obligation shall survive the termination of this Agreementfor any reason.

13. Terms and Terminated

(a) Unless previously terminated in accordance with the provisions hereof, this Agreement terminates upon expiry of the License specified in Paragraph 7(b) above.

(b) Without derogating from the parties’ rights hereunder or under another agreement or by law to any other or additional remedy or relief:

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(i) Yeda may terminate this Agreement by serving a written notice to that effect on the Corporation if the aggregate payment made under Paragraph 7(d) above in the ***** or any subsequent year of the term of the Licence shall be less than US ***** United States Dollars) *****.

(ii) Either Yeda or the Corporation may terminate this Agreement and the Licence hereunder by serving a written notice to that effect on the other, upon or after the winding up or insolvency of the other, or upon or after the commitment of a material breach hereof by the other (which breach cannot be cured or, if curable, has not been cured by the party in breach within 45 (forty-five) days after receipt of a written notice for the other party in respect of such breach); and in such event this Agreement and the Licence hereunder shall be terminated forthwith upon receipt of notice as aforesaid. For the purposes of this Paragraph 13(b)(ii), “material breach” shall not include the breaches governed by subparagraph (i) above, but shall include - without limitation - default in any payment payable hereunder to Yeda, except that if the aggregate of amounts owing by the Corporation to Yeda at any time and in arrears shall not exceed ***** United States Dollars) and the Corporation shall have advised Yeda in good faith that it disputes its liability to pay the said amount setting out the reasons for such view and having initiated  arbitration proceedings pursuant to Paragraph 14 below with respect to such dispute, then the existence of such debt shall not entitle Yeda to terminate this Agreement unless and until the arbitrator has confirmed that all or any of the said amount is due to Yeda and the Corporation has failed, within 15 days of the arbitrator's award, to pay the amount due together with any interest and casts awarded by the arbitrator.

(iii) The Corporation shall be entitled at any time after completion of the financing by the Corporation of the Research Program pursuant to the provision of this Agreement, to terminate this Agreement and the Licence hereunder, by service of written notice to that effect on Yeda, such notice to be served at least 6 (six) months in advance of the desired date of termination.

(iv) Yeda may terminate this Agreement by service of written notice on the Corporation, if:

(aa) the total of equity funds invested in the Corporation by March 1994 shall be less than *****: or

(bb) *****; or

(cc) the total of equity funds invested in the Corporation by March 1995 shall be less than *****.

                 (v) (aa) Except as otherwise expressly provided herein, payments of amounts due hereunder which are expressed in US Dollars shall be made by payment of the equivalent amount in Israeli currency calculated at the representative rate lest published by the Bank of Israel at the time of payment.

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(bb) Where Yeda is liable to pay VAT on any amount payable to it hereunder the payer shall pay Yeda the amount of the VAT due together with the payment in respect of which it is due, against VAT invoice from Yeda.

(vi) Any amount payable hereunder by one of the parties to the other, which has not been paid by its due date of payment, shall bear interest from its due date of payment until the date of actual payment, as follows:

(aa) if it is payable in foreign currency (i.e. not Israeli currency), at the rate charged by Bank Leumi Le Israel B.M on loans to Israeli residents in that currency over the period of the arrears; or,

(bb) if it is payable in Israel currency, at the highest rate of interest charged by Bank Leumi Le Israel B.M on unapproved overdrafts in Israel currency over the period of the arears.

(c) Upon the termination of this Agreement for whatever reason, *****.

(d) The termination of this Agreement for any reason shall not relieve the parties of any obligations to make payments thereunder which shall have accrued prior to such termination.

(e) (i) Upon termination of this Agreement and the Licence thereunder pursuant to subparagraph (b) above, all rights in the Licensed Technology vested in the Corporation shall revert to Yeda, and the Corporation shall not thereafter be entitled to make any use of the Licensed Technology.

(ii) Upon termination of this Agreement by Yeda pursuant to subparagraphs (b)(1), (ii) or (iv) above or by the Corporation pursuant to subparagraph (iii) above or upon termination pursuant to Paragraphs 3(c) or 8(c)(ii) above, all rights, title and interest in any technology deriving from research and development activities performed by the Corporation in connection with the Licenced Technology shall vest in Yeda and the Corporation shall take all steps necessary to procure and perfect such vesting.

14. Governing Law and Forum

This Agreement shall be governed by the laws of Israel and any disputes arising in connection therewith (except those to be resolved by the Expert as hereinbefore provided) shall be resolved by arbitration by a single arbitrator in Israel in accordance with the Israel Arbitration Law as amended from time to time, such arbitrator to be agreed by the parties, or failing agreement within 15 days of a candidate first being proposed, to be appointed by the President of the Israel Bar Association at the request of either party. The arbitrator shall resolve the dispute in accordance with the substantive law and shall give the reasons for his award, but he shall not be bound by the rules of court procedure or the rules of evidence. The arbitrator shall be entitled, inter alia, to grant interim and/or

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interlocutory relief. The arbitrator shall be requested to issue his award with all due speed and i£ possible within 120 days of appointment of the arbitrator and the parties shall cooperate in expediting the arbitration. Any award of the arbitrator shall be enforceable in any competent court.

15. Entire Agreement

This Agreement constitutes the entire Agreement between the parties. Any addition or amendment thereto shall not be effective unless in writing signed by the authorised signatories of both parties.

16. Notices

(a) Notices to be given hereunder shall be given if available by telex or telecopier or, if neither of these is available, as required by Paragraph 16(b). If notice is sent by telex or telecopier, it shall be deemed to have been served 24 hours after transmission. All notices given by telex or telecopier shall be confirmed by letter despatched in the manner appearing in Paragraph 16(b) within 24 hours of transmission.

(b) Any other notices to be given hereunder shall be served on a party by prepaid express registered letter (or nearest equivalent) to its address given herein or such other address as many from time to time be notified for this purpose and any notice so served shall he deemed to have been served 7 (seven) days after the time at which it was posted and in proving such service it shall be sufficient to prove that the notice was properly addressed and posted,

IN WITNESS WHEREOF the parties hereto have set their signatures as of the 7^th day of April, 1993.

For YEDA RESEARCH AND DEVELOPMENT COMPANY LTD.	For XENOGRAFT TECHNOLOGIES LTD.
By: _______________________________	By: _______________________________
Title: ______________________________	Title: ______________________________

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APPENDIX A

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Note that confidential treatment has been requested and one (1) page of material from this Appendix A has been omitted and filed separately with the Commission.

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APPENDIX B

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1. *****

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1.3.b *****

*****

1.4. *****

*****

2. *****

2.1.(*) *****

*****

*****

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	*****
*****		*****
*****		*****
*****		*****
*****	*****	*****
*****		*****
*****		*****

*****

Note that confidential treatment has been requested and two pages of material from this Appendix B have been omitted and filed separately with the Commission.

18

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ATTACHMENT “C”

*****

1.*****

2.*****

3.*****

Note that confidential treatment has been requested and one (1) page of material from this Attachment C has been omitted and filed separately with the Commission.

19

***** Confidential material redacted and filed separately with the Commission.

ATTACHMENT “D”

1. *****

2. *****

3. *****

4. *****

5. *****

6. *****

7. *****

8. *****

9. *****

10. *****

11. *****

Note that confidential treatment has been requested and one (1) page of material from this Attachment D has been omitted and filed separately with the Commission.

20

EX-4.2

***** Confidential material redacted and filed separately with the Commission.

Confidential Treatment Requested. Confidential portions of this document have been redacted and separately filed with the Commission.

Date: August 31, 1995

TO: Yeda Research and Development Company Ltd.

P.O. Box 95

Rehovot 76100

ATTENTION: MR. *****

Dear Sirs,

Re: Amendment of Research and License Agreement

This letter, when counter-signed by an authorized representative of Yeda Research and Development Ltd. (“Yeda”) will constitute an agreement between Yeda and XTL Biopharmaceuticals Ltd. (formerly named Xenograft Technologies Ltd.-“XTL”) to extend the period of research under the Research and License Agreement entered into by Yeda and XTL on April 7, 1993 (the “R&L Agreement”) and otherwise to amend the R&L Agreement, as hereinafter provided (unless otherwise herein defined, all capitalized terms appearing herein having the meanings ascribed to them in the R&L Agreement):

1. General

1.1. XTL has advised Yeda that XTL *****.

1.2. XTL wishes to modify and diversify the rates of royalties due to Yeda under the R&L Agreement as hereinafter provided and Yeda agrees thereto.

1.3. XTL wishes to receive, and Yeda is willing to grant to XTL, a grace period prior to commencement of certain royalty payments under the R&L Agreement, as hereinafter provided.

2. Royalties

2.1. Royalty Rates

Instead of the royalties payable as specified in Clause 7(d)(ii) of the R&L Agreement, and subject to Section 2.2 below, the royalties payable to Yeda by XTL in consideration of the Licence granted under the R&L Agreement, shall be as follows:

2.1.1. ***** percent) of Net Sales (as hereinafter defined) from sales by XTL of pharmaceutical products developed and/or made under and/or using the Licensed Patents and/or the Licensed Technology. “Net Sales” as used herein shall have the meaning ascribed to the term in the R&L Agreement, references therein to “the Products” being read as references to the pharmaceutical products referred to hereinbefore.

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2.1.2. ***** percent) of all amounts received by XTL from third parties (except the amounts governed by Section 2.1.4 below) under or pursuant to agreements allowing *****, provided that if XTL shall be obliged to pay a royalty of more than ***** per cent) on any such amounts to a third party pursuant to a bona fide arms-length agreement with such third party (“a third party royalty”), then the rate of royalty payable to Yeda pursuant to this Section 2.1.2 on amounts subject to a third party royalty shall be reduced by the percentage - up to a maximum ***** per cent) - by which the third party royalty rate exceeds ***** per cent), so thatif, for example, the third party royalty rate is ***** per cent) the rate of royalty payable to Yeda pursuant to this Section 2.1.2 shall be ***** per cent), and if, as a further example, the third party royalty rate is ***** per cent), the rate of royalty payable to Yeda pursuant to this Section 2.1.2 shall be reduced by ***** per cent).

2.1.3. ***** percent) of all amounts received by XTL from a third party payable ***** the Licensed Patents and/or the Licensed Technology.

2.1.4. ***** percent) of all amounts received by XTL under or pursuant to agreements with third parties ***** using the Licensed Patents and/or the Licensed Technology.

2.1.5. ***** percent) of all amounts received by XTL as a result of *****, other than those specified in Sections 2.1.1, 2.1.2, 2.1.3 or 2.1.4 above. Where the amounts received by XTL are the result of activities not involving the grant of sublicences to third parties (“Direct Activities”) and are amounts received in a transaction other than at arms length, the royalty due to Yeda shall be calculated on the amount that would have been received by XTL in a transaction at arms length.

2.1.6. For the avoidance of doubt, it is expressly stated that royalties shall not be due pursuant to Sections 2.1.2, 2.1.4 or 2.1.5 above on *****.

2.1.7. For the avoidance of doubt, it is expressly stated, that nothing in this Section 2.1 above or elsewhere in this letter shall be deemed to derogate from the provisions of Clause 7(c) of the R&L Agreement governing the grant of sublicences.

2.2. Commencement of Payment of Royalties

Royalties due under the R&L Agreement (as herein amended) shall become payable as follows:

2.2.1. XTL's obligation to pay royalties to Yeda pursuant to Sections 2.1.1, 2.1.2 or 2.1.5 above, shall relate only to amounts received by and/or due to XTL on or after the “Due Date” (as hereinafter defined). The “Due Date” means the earlier of the following dates: (a) the date of expiry of the period *****, and (b) the date on which the aggregate amount received by *****.

2.2.2. XTL’s obligation to pay royalties to Yeda pursuant to Section 2.1.3 above shall apply to all amounts subject to royalty under that Section whenever received, provided that actual payment of royalties due to Yeda pursuant to that Section on amounts received by XTL before the Due Date shall be due and made within 30 days of the Due Date.

2

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2.2.3. Subject to the provisions of this Section 2.2 above, the provisions of Clause 7(d)(iii) of the R&L Agreement shall apply, mutatis mufandis, to the royalties payable to Yeda pursuant to Section 2.1 above, references to “Net Sales” in the said Clause 7(d)(iii) being deemed references to “Net Sales” as defined in Section 2.1.1 above for the purpose of that Section and to amounts received by XTL from Direct Activities (as defined in Section 2.1.5 above) and references to “Sublicensing Receipts” in Clause 7(d)(iii) being deemed references to amounts subject to royalty payment to Yeda pursuant to Sections 2.1.2, 2.1.3, 2.1.4 or 2.1.5 above (not being amounts resulting from Direct Activities (as defined in Section 2.1.5 above)).

2.2.4. For the avoidance of doubt, it is expressly stated that there shall be no grace period of any kind regarding payment of royalties pursuant to Section 2.1.4 above and they shall be paid on the periodic basis specified in Clause 7(d)(iii) of the R&L Agreement.

2.3. For the avoidance of doubt, it is expressly stated that the periods during which royalties shall be payable under the R&L Agreement shall be as follows:

2.3.1. Payment of royalties pursuant to Section 2.1.1 shall commence as provided in Section 2.2 and shall continue with respect to sales of any pharmaceutical product as follows:

(aa) if the product sold is made and/or sold in a country where a Licensed Patent or Patents issue including claims covering, in whole or in part, such product or the manufacture thereof-then, (i) *****;

(bb) on sales of a product made and sold in any other country, *****.

2.3.2. Payment of royalties pursuant to Section 2.1.2 shall commence as provided in Section 2.2 and shall continue as follows:

(aa) payment of royalties on amounts paid to XTL and attributable to activities of the paying third parry under a Licensed Patent or Patents in a particular country shall continue *****;

(bb) payment of royalties on amounts paid to XTL and attributable to activities of the paying third party in a particular country in which there is no Licensed Patent *****;

(cc) payment of royalties on amounts paid to XTL and not attributable to the paying third party's activities in any particular country, shall continue until *****.

2.3.3. Payment of royalties pursuant to Section 2.1.3 shall commence as provided in Section 2.2 and shall continue as follows:

(aa) payment of royalties on amounts paid to XTL and attributable to activities of XTL or of the paying third party under a Licensed Patent or Patents in a particular country shall continue *****,

3

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(bb) payment of royalties on amounts paid to XTL and attributable to activities of XTL or the paying third party in a particular country in which there is no Licensed Patent *****;

(cc) payment of royalties on amounts paid to XTL and not attributable to XTL's or the third party's activities in any particular country shall continue until *****.

2.3.4. Payment of royalties pursuant to Section 2.1.4 shall commence as provided in Section 2.2 and shall continue as follows:

(aa) payment of royalties on amounts paid to XTL and attributable to activities of the paying third party under a Licensed Patent or Patents in a particular country shall continue *****;

(bb) payment of royalties on amounts paid to XTL and attributable to activities of the paying third party in a country in which *****;

(cc) payment of royalties on amounts paid to XTL and not attributable to the third party's activities in any particular country shall continue, until *****.

2.3.5. Payment of royalties pursuant to Section 2.1.5 shall commence as provided in Section 2.2 and shall continue as follows:

(A) where the royalties are on amounts received by XTL on any Direct Activity, the duty to pay royalties shall continue:

(aa) if the activity or any part thereof is carried out in any country under a Licensed Patent or Patents-then, *****;

(bb) if the activity is carried out in any other country, *****;

(B) Where the royalties are due on amounts received by XTL on activities not being a Direct Activity, the duty to pay royalties shall continue as follows::

(aa) payment of royalties on amounts paid to XTL and attributable to activities of the paying third party under a Licensed Patent or Patents in a particular country shall continue *****;

(bb) payment of royalties on amounts paid to XTL and attributable to activities of the paying third party in a particular country in which there is no Licensed Patent shall continue *****;

(cc) payment of royalties on amounts paid to XTL and not attributable to the third party's activities in any particular country shall continue, *****.

2.4. The “relevant grace period” for the purpose of any of subsections 2.3.1, 2.3.2 and 2.3.5 above, shall mean the period by which commencement of payment of royalties due under subsections 2.1.1, 2.1.2 and 2.1.5, respectively, has been delayed, pursuant to Section 2.2 above.

4

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2.5. The License granted under the R&L Agreement shall remain in force (if not previously terminated according to the provisions of the R&L Agreement (as amended hereby)) for the purpose of each of the activities specified in Sections 2.1.1, 2.1.2, 2.1.3, 2.1.4 and 2.1.5, as long as there is a duty to pay royalties in respect of such activity, as provided in Section 2.3 above. Clause 7(b)(iii) of the R&L Agreement is replaced by the provisions of this Section 2.5 above.

3. Payments for Sponsored R&D

3.1. Subject to the amendments contained herein, the period of research which XTL is obliged to fund under the R&L Agreement is hereby extended by 1 (one) year and shall continue until August 31, 1996 (the “Extension Period”).

3.2. XTL shall pay Yedaan aggregate amount in New Israel Sheqels equal (at the representative rate of exchange in force on the date of payment) to ***** (plus VAT against VAT invoice) in consideration of Yeda’s undertaking to procure the performance (under the supervision of *****) of research in the Extension Period in accordance with the Research Plan and the Budget attached hereto as Appendices “A” and “B”, respectively, as follows:

3.2.1. An amount in New Israel Sheqels equal (at the representative rate of exchange in force on the date of payment) to ***** (plus VAT against VAT invoice) on March 31, 1996;

3.2.2. An amount in New Israel Sheqels equal to ***** (plus VAT against VAT invoice) on each of May 15, 1996 and July 31, 1996.

3.3. Simultaneously with counter-signature hereof by Yeda,XTL shall provide Yeda with a bank guarantee from an Israeli bank, in form acceptable to Yeda, in order to secure XTL’s obligations under Sections 3.2.1 and 3.2.2 above. ***** of the bank charges and commissions actually paid by XTL to the issuing bank in respect of the bank guarantee shall be reimbursed by Yeda to XTL, against proof of the amount paid by XTL, forthwith upon receipt by Yeda of the amount payable by XTL pursuant to Section 3.2.1 above.

4. Entire Agreement

Except as set forth in this letter, all the terms of the R&L Agreement shall remain unchanged. The R&L Agreement, as amended hereunder, sets forth the entire understanding between Yeda and XTL regarding the R&L Agreement (except as supplemented by written instrument of even or subsequent date), and supersedes any other prior agreement or understanding, oral or written.

Please indicate your acceptance of the terms of this letter by affixing your signature below.

Very truly yours,

XTL Biopharmaceuticals Ltd.

Martin Becker, Ph.D.

President andCEO

5

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Agreed and Accepted:

Yeda Research and Development Company Ltd.

By: *****, President / Prof. *****, Chairman of the Board of Directors

6

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Research Plan

1. Milestones for Contract Research: Year 1

A. *****

B. *****

2. Basic Research: Year 1

A. *****

B. *****

C. *****

Note that confidential treatment has been requested and one (1) page of material has been omitted and filed separately with the Commission.

7

***** Confidential material redacted and filed separately with the Commission.

Budget

1. *****

a. *****

b. *****

c. *****

d. *****

2. *****

a. *****

b. *****

c. *****

d. *****

e. *****

*****

Note that confidential treatment has been requested and one (1) page of material has been omitted and filed separately with the Commission.

8

***** Confidential material redacted and filed separately with the Commission.

Date: 13 February, 1996

To:

Yeda Research and Development Co (Yeda)

Dear Sirs,

Research and Development Agreement between XTL Biopharmaceuticals Ltd. ("XTL") and Neoprobe Corporation (“Neoprobe”)

With reference to the Research and Development Agreement between XTL Biopharmaceuticals Ltd. and Neoprobe Corporation dated as of February 13, 1996 (“the Research Agreement”), XTL, hereby confirms, acknowledges and agrees:

(a) that any agreement by XTL to the amendment of the Research Agreement (and/or Exhibit B thereto) requires Yeda’s prior written consent;

(b) that any agreement by XTL to the sublicensing or assignment of the Research Agreement (and/or Exhibit B thereto) by Neoprobe requires Yeda’s prior written consent;

(c) that any assignment by XTI. of its rights and obligations under the Research Agreement (and/or Exhibit B thereto) requires Yeda’s prior written consent;

(d) that if XTL shall grant its agreement in either of the cases specified in subparagraphs (a) or (b) without first obtaining Yeda’s prior written consent thereto or purport to make an assignment without first obtaining Yeda's prior written consent as required in subparagraph (c), XTL, shall be in material breach of the Research and License Agreement dated as of April 7, 1993 between Yeda and XTL (as amended) ("the RLA”);

(e) that at Yeda’s request, XTL will exercise its right under Exhibit B of the Research Agreement to inspect the books and accounts of Neoprobe;

(f) that Yeda’s consent to the Research Agreement in no way derogates from the provisions of the RLA, including - without limitation - Paragraph 7(c)(iv) thereof, or from Yeda's rights and XTL's obligations thereunder;

(g) that, at Yeda's request, XTL will exercise its legal rights under the Research Agreement (and/or Exhibit B thereto) against Neoprobe in the event of a breach of the Research Agreement (and/or Exhibit B thereto) by Neoprobe having an adverse effect for Yeda, including - without limitation - failure by Neoprobe to pay royalties due to XTL, under the Research Agreement.

Yours Faithfully,

XTL Biopharmaceuticals Ltd.

Agreed:

Yeda Research and Development Co. Ltd.

9

February 13, 1996

To:

Yeda Research and Development Co. Ltd. (Yeda)

Dear Sirs,

Research and Development Agreement between XTL BiopharmaceuticalsLtd (“XTL”) and Neoprobe Corporation (“Neoprobe”)

With reference to the Research and Development Agreement between XTL Biopharmaceuticals Ltd. and Neoprobe Corporation dated as of February 13, 1996 (“the Research Agreement"). XTL hereby confirms, acknowledges and agrees:

(a) that any agreement by XTL to the amendment of the Research Agreement (and/or Exhibit B thereto) requires Yeda's prior written consent;

(b) that any agreement by XTL the sublicensing or assignment of the Research Agreement (and/or Exhibit B thereto) by Neoprobe requires Yeda’s prior written consent;

(c) that any assignment by XTL of its rights and obligations under the Research Agreement (and/or Exhibit B thereto) requires Yeda’s prior written consent;

(d) that if XTL shall grant its agreement in either of the cases specified in subparagraphs (a) or (b) without first obtaining Yeda’s prior written consent thereto or purport to make an assignment without first obtaining Yeda's prior written consent as required in subparagraph (c), XTL shall be in material breach of the Research and License Agreement dated as of April 7, 1993 between Yeda and XTL (as amended) (“the RLA”);

(e) that at Yeda’s request, XTL will exercise its right under Exhibit B of the Research Agreement to inspect the books and accounts of Neoprobe;

(f) that Yeda's consent to the Research Agreement in no way derogates from the provisions of the RLA, including - without limitation - Paragraph 7(c)(iv) thereof, or from Yeda’s rights and XTL’s obligations thereunder;

(g) that, at Yeda's request, XTL will exercise its legal rights under the Research Agreement (and/or Exhibit B thereto) against Neoprobe in the event of a breach of the Research Agreement (and/or Exhibit B thereto) by Neoprobe having an adverse effect for Yeda, including - without limitation - failure by Neoprobe to pay royalties due to XTL under the Research Agreement.

Yours Faithfully,

XTL Biopharmaceuticals Ltd.

Agreed:

Yeda Research and Development Co. Ltd.

10

February 13, 1996

Yeda Research and Development Co. Ltd.

P.O. Box 95

Rehovot 76100

Israel

Re: “Research and Development Agreement”

Between XTL Biopharmaceuticals Ltd. and Neoprobe Corporation

Gentlemen:

In this subject agreement dated February 13, 1996, XTL granted an exclusive license to Neoprobe for the results of certain XTL research from XTL. This research will be based on certain XTL disease modeling and target agent technology. By this letter, Yeda Research and Development Company Limited (“Yeda”) and Neoprobe agree to the following:

a. Yeda acknowledges and consents to the Research and Development Agreement between XTL and Neoprobe and to the Sublicense Agreement attached therein;

b. Neoprobe confirms that Yeda is a third party beneficiary under the Research and Development Agreement as stated therein;

c. Yeda agrees that, in the event that XTL defaults on the Research and License Agreement between XTL and Yeda dated as of April 7, 1993 (as amended) (the “RLA”), then, unless Yeda terminates the RLA, the exclusive grant described in Article 6.1 of the Research and Development Agreement (and the rest of the Research and Development Agreement) and the Sublicense Agreement attached thereto will not be affected. If the RLA is terminated for any reason, the Research and Development Agreement will terminate automatically (except for Articles 2.1.3, 3, 4.1 (a) - (e) and (f) (provided that the grant under Article 6.1 still is in effect) and 4.2, 5, 7 and 11 thereof, which shall survive), but the grant in Article 6.1 of the Research and Development Agreement and the Sublicense Agreement attached thereto shall be assumed (if still in force) by Yeda directly, subject to Neoprobe’s continued performance under the Sublicense Agreement, which obligations will, in such circumstances, be deemed to be owed directly to Yeda. For the guidance of all doubt, it is expressly stated that except for the assumption of Article 6.1 and the Sublicense Agreement as aforesaid, Yeda will not assume the research and development of any other aspects of the Research and Development Agreement, will not under any circumstances be obliged to indemnify Neoprobe in respect of any claims, and will not be subject to Article 4 of the Sublicense Agreement.

d. Neoprobe acknowledges that any agreement by XTL to any amendment to the Research and Development Agreement requires XTL to obtain Yeda’s prior written consent, which consent will not be unreasonably withheld; and

e. Neoprobe agrees that it will not make mention of the name of Yeda or the Weizmann Institute or any of the scientists thereof in any advertising, sales, literature, promotional material, other publications, private placement memoranda, public

11

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offering registration statements and the like, unless the prior written approval of Yeda thereto has been obtained (such approval not to be unreasonably withheld) and except as required by law. Once an approval has been granted by Yeda to a certain form of words for use in a particular context, then the same form of words can be used again by Neoprobe in the same context, without further approval from Yeda.

Please sign and date the attached copy of this letter and return it to me for my files.

Neoprobe Corporation

*****

Agreed and Accepted:

Yeda Research and Development Company Ltd.

**********

**********

Agreed:

XTL Biopharmaceuticals Ltd.

Martin Becker, President

12

EX-4.3

Confidential Treatment Requested. Confidential portions of this document have been redacted and separately filed with the Commission.

SECOND EXTENSION AGREEMENT

Between

YEDA RESEARCH AND DEVELOPMENT CO. LTD.

of P.O. Box 95, Rehovot 76100, Israel

(hereinafter "Yeda")

and

XTL BIOPHARMACEUTICALS LTD.

of Kiryat Weizmann PO Box 370 Rehovot 76100, Israel

(hereinafter "the Company")

WHEREAS Yeda and the Company have entered into a Research and Licence Agreement dated April 7, 1993 (hereinafter “the Main Agreement”) which was extended in an Amendment of the Research and Licence Agreement on August 31, 1995 (hereinafter "the Amendment Agreement"); and

WHEREAS Yeda and the Company desire to further extend the Research Period and agree to the 1997 Budget and the 1997 Research Plan (as these terms are hereinafter defined) for said period;

NOW THEREFORE IT IS AGREED BY THE PARTIES HERETO AS FOLLOWS:

1. Appendices

The Appendices listed below which are attached hereto shall constitute an integral part hereof:

Appendix 1 - the 1997 Research Programme

Appendix 2 - the 1997 Research Budget

2. Definitions

2.1. “Yeda” shall mean Yeda Research and Development Co. Ltd. of P.O. Box 95, Rehovot 76100, Israel.

2.2. “The Company” shall mean XTL Biopharmaceuticals Ltd., of Kiryat Weizmann, P.O. Box 370, Rehovot 76100, Israel.

2.3. “The Main Agreement” shall mean the Research and Licence Agreement between Yeda and the Company, dated April 7, 1993.

2.4. “The Amendment Agreement” shall mean the Amendment of Research and Licence Agreement dated August 31, 1995.

2.5. “The Research” shall mean the Research contemplated under the 1997 Research Programme.

2.6. “The 1997 Research Programme” shall mean the research programme attached hereto as Appendix 1.

***** Confidential material redacted and filed separately with the Commission.

2.7. “The 1997 Research Period” shall mean the period commencing on September 1, 1996 and ending on August 31, 1997.

2.8. “The 1997 Budget” shall mean the Budget for the Research as set forth in Appendix 2 attached hereto.

3. This Second Extension Agreement shall be read together with the Amendment Agreement and the Main Agreement and subject to the amendments and modifications contained herein, the provisions of said Amendment Agreement and Main Agreement shall remain unaltered and in full force and effect. Any words and phrases included in this Extension Agreement which are defined in the Main Agreement shall (unless the context otherwise requires) have the same meaning attributed to such words or phrases in the Main Agreement.

4. Performance of the 1997 Research

In consideration of the sums to be paid by the Company pursuant to Paragraph 5 below and subject to the execution of such payments, Yeda undertakes to procure the performance at the Institute of the 1997 Research Programme in whole or in part at the discretion of and under the supervision of the Scientist during the 1997 Research Period.

5. Funding of the 1997 Research

The Company shall provide Yeda with the total amount of ***** United States Dollars) to be used for financing the performance of the 1997 Research under Paragraph 3 above.

The funds shall be paid in *****, each payable in advance on September 1, 1996 and then on March 1, 1997.

IN WITNESS WHEREOF OF the parties have caused their respective representatives to execute this Agreement in two (2) counterparts, each of which shall be deemed as original.

for XTL BIOPHARMACEUTICALS LTD.   Martin Becker, President August 12, 1996 For YEDA RESEARCH AND DEVELOPMENT CO. LTD. ********** ********** August 13, 1996

I hereby confirm that I have read the above Agreement and I agree to act, to the best of my ability, in accordance with the terms and conditions of this Agreement insofar as it relates to me.

*****

August 14, 1996

***** Confidential material redacted and filed separately with the Commission.

APPENDIX 1

*****

*****

1. *****

a. *****

b. *****

c. *****

2. *****

*****

3. *****

*****:    a. *****

                 b. *****

4. *****

*****

*****

*****

Note that confidential treatment has been requested and one (1) page of material from this Appendix 1 has been omitted and filed separately with the Commission.

***** Confidential material redacted and filed separately with the Commission.

APPENDIX 2

*****

*****

*****

Note that confidential treatment has been requested and one (1) page of material from this Appendix 2 has been omitted and filed separately with the Commission.

EX-4.4

Confidential Treatment Requested. Confidential portions of this document have been redacted and separately filed with the Commission.

THIRD EXTENSION AGREEMENT

Between

YEDA RESEARCH AND DEVELOPMENT CO. LTD.

of P.O. Box 95, Rehovot 76100, Israel

(hereinafter “Yeda”)

and

XTL BIOPHARMACEUTICALS LTD.

of Kiryat Weizmann

PO Box 370

Rehovot 76100, Israel

(hereinafter “the Company”)

WHEREAS Yeda and the Company have entered into a Research and Licence Agreement dated April 7, 1993 (hereinafter “the Main Agreement”) which was extended in an Amendment of the Research and Licence Agreement on August 31, 1995 (hereinafter “the Amendment Agreement”) and in the Second Extension Agreement on August 12, 1996 (“the Second Extension Agreement”); and

WHEREAS Yeda and the Company desire to further extend the Research Period and agree to the 1998 Budget and the 1998 Research Plan (as these terms are hereinafter defined) for said period;

NOW THEREFORE IT IS AGREED BY THE PARTIES HERETO AS FOLLOWS:

1, Appendices

The Appendix listed below which is attached hereto shall constitute an integral part hereof:

Appendix 1 - the 1998 Research Programme and Budget

2. Definitions

2.1. “Yeda” shall mean Yeda Research and Development Co. Ltd. of P.O. Box 95, Rehovot 76100, Israel.

2.2. “The Company” shall mean XTL Biopharmaceuticals Ltd., of Kiryat Weizmann, P.O. Box 370, Rehovot 76100, Israel.

2.3. “The Main Agreement” shall mean the Research and Licence Agreement between Yeda and the Company, dated April 7, 1993.

2.4. “The Amendment Agreement” shall mean the Amendment of Research and Licence Agreement dated August 31, 1995.

2.5. “The Second Extension Agreement” shall mean the agreement extending the Research Period untill August 31, 1997.

2.6. “The 1998 Research” shall mean the Research contemplated under the 1998 Research Programme. The term “Research” in the Main Agreement shall be deemed to include the 1998 Research and the Research performed under the Amendment Agreement and the Second Extension Agreement.

2.7. “The 1998 Research Programme” shall mean the research programme attached hereto as Appendix 1.

2.8. “The 1998 Research Period” shall mean the period commencing on September 1, 1997 and ending on August 31, 1998.

2.9. “The 1998 Budget” shall mean the Budget for the Research as set forth in Appendix 1 attached hereto.

3. This Third Extension Agreement shall be read together with the Second Extension Agreement , the Amendment Agreement and the Main Agreement and subject to the amendments and modifications contained herein, the provisions of said Second Extension Agreement, Amendment Agreement and Main Agreement shall remain unaltered and in full force and effect. Any words and phrases included in this Third Extension Agreement which are defined in the Main Agreement or the Amendment Agreement, shall (unless the context otherwise requires) have the same meaning attributed to such words or phrases in the Main Agreement.

4. Performance of the 1998 Research

In consideration of the sums to be paid by the Company pursuant to Paragraph 5 below and subject to the execution of such payments, Yeda undertakes to procure the performance at the Institute of the 1998 Research in accordance with the 1998 Research Programme in whole or in part at the discretion of and under the supervision of the Scientist during the 1998 Research Period.

5. Funding of the 1998 Research

***** Confidential material redacted and filed separately with the Commission.

The Company shall provide Yeda with the total amount of US$ ***** United States Dollars to be used for financing the performance of the 1998 Research under Paragraph 3 above.

The funds shall be paid in *****, one payable in advance on November 15, 1997 and the other on March 1, 1998.

IN WITNESS WHEREOF OF the parties have caused their respective representatives to execute this Agreement in two (2) counterparts, each of which shall be deemed as original.

__________________________ for XTL BIOPHARMACEUTICALS LTD.	_____________________________ for YEDA RESEARCH AND DEVELOPMENT CO. LTD.
By: ________________________ Title: _______________________ Date: ______________________	By: ________________________ Title: _______________________ Date: ______________________

I hereby confirm that I have read the above Agreement and I agree to act, to the best of my ability, in accordance with the terms and conditions of this Agreement insofar as it relates to me.

_________________________	__________________________
*****	Date:

***** Confidential material redacted and filed separately with the Commission.

Appendix 1

*****

*****

1. *****

a. *****

b. *****

c. *****

2. *****

*****

*****

*****

*****

*****

Note that confidential treatment has been requested and one (1) page of material from this Appendix 1 has been omitted and filed separately with the Commission.

EX-4.5

Confidential Treatment Requested. Confidential portions of this documents have been redacted and separately filed with the Commission.

***** Confidential material redacted and filed separately with the Commission.

Date: January 25, 1998

Yeda Research and Development Co. Ltd. Rehovot

Dear Sirs,

Re: Amendment No. 2 to Research and Licence Agreement dated April 7, 1983

(“the Agreement”) as amended on August 31, 1885, “Amendment No. 1”)

We set out below the amendments to the Agreement (as already amended by Amendment No. 1) and to Amendment No. 1 agreed between Yeda Research and Development Co. Ltd. (“Yeda”) and XTL Biopharmaceuticals, Ltd. (“the Corporation”) following discussions between the parties conducted at the Corporation’s request:

1. Clause 13(b)(i) of the Agreement shall be and is hereby replaced by the following:

"(i) (A) Yeda may terminate this Agreement by giving written notice to that effect to the Corporation if the aggregate of the royalties due to Yeda (x) under Paragraph 2.1.1 of - the letter agreement between the parties dated August 31, 1995 (and amended on January 25, 1998) amending this Agreement (hereinafter ‘the Amendment’) and (y) under Paragraph 2.1.2 of the Amendment on Third Party Sales Receipts (as such expression is defined below), (hereinafter collectively ‘Product Sale Royalties’) and actually paid to Yeda on due date in respect of the ***** of the term of the Licence shall be less than ***** United States Dollars) (hereinafter in this subparagraph (A) ‘the Default Year’), *****. Yeda shall give. any such notice of termination within ***** days of the end of the Default Year.

‘Collaboration Partner’ shall mean an entity providing funding for the said Development Activities to the Corporation or on its behalf pursuant to an agreement between the Corporation and such entity whereby a sublicence has been granted to such entity with Yeda’s consent in accordance with Paragraph 7(c) above. ‘Third Party Sale Receipts’shall mean amounts received by XTL from third- parties on which Yeda is entitled to a royalty pursuant to Paragraph 2.1.2 of the Amendment and which are calculated on sales of pharmaceutical products by such third parties;

(B) If the aggregate payment due to Yeda on Product Sale Royalties and actually made to Yeda in respect of the ***** of the term of the Licence shall be less than ***** United States Dollars) (hereinafter in this Subparagraph (B) ‘the Default Year’), the Corporation shall pay Yeda within 30 (thirty) days of the end of the Default Year, the amount by which the Product Sale Royalties actually paid to Yeda in respect of the Default Year shall be less than ***** (hereinafter in this subparagraph (B) ‘the Shortfall Amount’). Payment of the Shortfall Amount (except to the extent that, it represents payments due and payable to Yeda in respect of the Product Sale Royalties other than pursuant to this subparagraph (B)) shall be fully credited against future Product Sale Royalties becoming due to Yeda but shall not be refundable in any event.

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It is agreed, without, derogating from Yeda's rights to other or additional relief and remedies, including the right to sue for the Shortfall Amount, that failure to make the Shortfall Payment as aforesaid shall entitle Yeda to terminate this Agreement by giving written notice of termination to the Corporation within ***** of the end of the Default Year.

(C) If the aggregate payment due to Yeda as Product Sale Royalties and actually paid to Yeda in respect ofthe ***** year of the term of the Licence shall be less than US ***** US Dollars) (hereinafter in this subparagraph (C) ‘the Default Year’), *****. Payment of the Shortfall Amount (except to the extent that it represents payments due and payable to Yeda in respect of Product Sales Royalties other than pursuant to this subparagraph (C)) shall be fully credited against future Product Sale Royalties becoming due to Yeda but shall not be refundable in any event. Yeda shall give any such notice of termination within *****daysof the end of the Default Year.

(D) If the aggregate payment due to Yeda as Product Sale Royalties and actually paid to Yeda on due date in respect of the ***** shall be less than US ***** US Dollars) (hereinafter in this subparagraph (D) ‘the Default Year’), Yeda shall be entitled to terminate the Agreement by service of written notice to that effect on the Corporation within ***** days of the end of the Default Year.

(E) If commercial exercise of the Licence by way of sale of Yeda Royalty Bearing Products, once commenced, shall cease thereafter for a period of ***** consecutive months or more, Yeda shall be entitled to terminate the Agreement by service of written notice to that effect on the Corporation within 60 days of the end of such period and, unless sales of Yeda Royalty Bearing Products shall have been renewed in the meantime, also at any time thereafter,provided, however, in the event Yeda desires to terminate the Agreement after such ***** period, Yeda shall give the Corporation written notice at least ***** days in advance of the desired date of termination.

(F) Nothing in this Clause 13(b)(i) above shall be deemed to justify failure to make any payment due and payable to Yeda under any of the provisions of this Agreement other than under this Clause 13(b)(i) above or to derogate from Yeda's rights with respect to such failure pursuant to Clause 13(b)(ii) below or otherwise."

2. The following provision shall be added as Clause 13(b)(vii) to the Agreement:

"For the removal of doubt, the parties record that the effective commencement date of the Licence shall be deemed to be April 7, 1993 and the years of the Licence term shall be determined accordingly."

3. Amendment No. 1 is hereby amended as shown in the restated version thereof attached hereto as Appendix A.

4. Yeda acknowledges that the Corporation has made the payments and provided the guarantee referred to in Paragraphs 3.2 and 3.3 of Amendment No. 1.

5. The Agreement (including Amendment No. 1) continues in full force as amended above.

Please confirm your agreement to the amendments provided hereinbefore, whereupon they shall become effective.

Yours sincerely,

Martin Backer, Ph.D.

President and CEO

XTL Biopharmaceuticals Ltd.

Agreed

YEDA RESEARCH AND DEVELOPMENT CO. LTD.

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Appendix A

XTL BIOPHARMACEUTICALS LTD.

Restated version effective as of January 25, 1998, (replacing original version dated August 31, 1995 of Amendment No. 1 to Research and

Licence Agreement between Yeda Research and Development Co Ltd and XTL Biopharmaceuticals Ltd (previously Xenograft Technologies Ltd))

To: Yeda Research and Development Company Ltd.

PO Box 95

Rehovot 76100

Dear Sirs,

Re: Amendment of Research and License Agreement

This letter, when counter-signed by an authorized representative of Yeda Research and Development Ltd. (“Yeda”) will constitute an agreement between Yeda and XTL Biopharmaceuticals Ltd. (formerly named Xenograft Technologies Ltd.-”XTL”) to extend the period of research under the Research and License Agreement entered into by Yeda and XTL on April 7, 1993 (the “R&L Agreement”) and otherwise to amend the R&L Agreement, as hereinafter provided (unless otherwise herein defined, all capitalized terms appearing herein having the meanings ascribed to them in the R&L Agreement):

1. General

1.1. XTL has advised Yeda that XTL contemplates promoting certain of its major activities by allowing third parties to develop and manufacture products using the results, including the products, obtainedby XTL as a result, inter alia, of the exercise by it of the License granted by Yeda to XTL under the R&L Agreement and, subject to compliance with the provisions of the R&L Agreement (as herein amended), including those governing the grant of sublicences, Yeda has no objection thereto.

1.2. XTL wishes to modify and diversifythe rates of royalties due to Yeda under the R&L Agreement as hereinafter provided and Yeda agrees thereto.

2. Royalties

2.1. Royalty Rates

Instead of the royalties payable as specified in Clause 7(d)(ii) of the R&L Agreement, the royalties payable to Yeda by XTL in consideration of the Licence granted under the R&L Agreement, shall be as follows:

2.1.1. ***** percent) of Net Sales (as hereinafter defined) from sales by XTL of pharmaceutical products developed and/or made under and/or using the Licensed Patents and/or the Licensed Technology. “Net Sales” as used herein shall have the meaning ascribed to the term in the R&L Agreement, references therein to “the Products” being read as references to the pharmaceutical products referred to hereinbefore.

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2.1.2. ***** percent) of all amounts received by XTL from third parties (except the amounts governed by Section 2.1.4 below) under or pursuant to agreements allowing such third parties the use of results, including products, developed and/or made by XTL under and/or using the Licensed Patents and/or the Licensed Technology (including, without limitation, results obtained by XTL’s use of *****), provided that if XTL shall be obliged to pay a royalty of more than ***** per cent) on any such amounts to a third party pursuant to a bona fide arms-length agreement with such third party (“a third party royalty”), then the rate of royalty payable to Yeda pursuant to this Section 2.1.2 on amounts subject to a third party royalty shall be reduced by the percentage - up to a maximum of ***** per cent) - by which the third party royalty rate ***** cent), so that if, for example, the third party royalty rate is ***** per cent) the rate of royalty payable to Yeda pursuant to this Section 2.1.2 shall be ***** per cent), and if, as a further example, the third party royalty rate is ***** per cent), the rate of royalty payable to Yeda pursuant to this Section 2.1.2 shall be reduced by ***** (and not by *****) and shall be ***** per cent).

2.1.3. ***** percent) of all amounts received by XTL from a third party payable upon XTL reaching milestones specified in an agreement with such third party providing for performance of development activities by XTL for such third party under and/or using the Licensed Patents and/or the Licensed Technology.

2.1.4. ***** percent) of all amounts received by XTL under or pursuant to agreements with third parties allowing such third parties to use outside XTL’s premises chimeric mammals or other animal models (collectively, “Models”) made and/or developed by XTL under and/or using the Licensed Patents and/or the Licensed Technology or allowing such third parties to produce Models under and/or using the Licensed Patents and/or the Licensed Technology.

2.1.5. ***** percent) of all amounts received by XTL as a result of any activities under and/or using the Licensed Patents and/or the Licensed Technology (including the grant of sublicences to third parties to carry out activities under and/or using the Licensed Patents and/or the Licensed Technology), other than those specified in Sections 2.1.1, 2.1.2, 2.1.3 or 2.1.4 above. Where the amounts received by XTL are the result of activities not involving the grant of sublicences to third parties (“Direct Activities”) and are amounts received in a transaction other than at arms length, the royalty due to Yeda shall be calculated on the amount that would have been received by XTL in a transaction at arms length.

2.1.6. For the avoidance of doubt, it is expressly stated that royalties shall not be due pursuant to Sections 2.1.2. 2.1.4 or 2.1.5 above on funds received by XTL which are paid by a third party in order to cover, and are actually applied by XTL in covering, the cost of research and development by XTL for such third party of products generating any of the amounts in respect of which royalties are payable pursuant to Sections 2.1.2, 2.1.4 or 2.1.5 above.

2.1.7. For the avoidance of doubt, it is expressly stated, that nothing in this Section 2.1 above or elsewhere in this letter shall be deemed to derogate from the provisions of Clause 7(c) of the R&L Agreement governing the grant of sublicences.

2.2. Payment of Royalties

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The provisions of Clause 7(d)(iii) of the R&L Agreement shall apply, mutatis mutandis, to the royalties payable to Yeda pursuant to Section 2.1 above, references to “Net Sales” in the said Clause 7(d)(iii) being deemed references to “Net Sales” as defined in Section 2.1.1 above for the purpose of that Section and to amounts received by XTL from Direct Activities (as defined in Section 2.1.5 above) and references to “Sublicensing Receipts” in Clause 7(d)(iii) being deemed references to amounts subject to royalty payment to Yeda pursuant to Sections 2.1.2, 2.1.3, 2.1.4 or 2.1.5 above (not being amounts resulting from Direct Activities (as defined in Section 2.1.5 above)).

2.3. For the avoidance of doubt, it is expressly stated that payment of royalties under the R&L Agreement shall continue as follows:

2.3.1. Payment of royalties pursuant to Section 2.1.1 shall continue with respect to sales of any pharmaceutical product as follows:

(aa) if the product sold is made and/or sold in a country where a Licensed Patent or Patents issue including claims covering, in whole or in part, such product or the manufacture thereof-then, (i) until the date of expiry of the last of the Licensed Patents covering such product in such country to expire, or (ii) until termination of the ***** commencing on the date of the first commercial sale of such product in such country, whichever is the longer period;

(bb) on sales of a product made and sold in any other country, until the date of expiry of a period of ***** years commencing on the date of the first commercial sale of such product in such country.

2.3.2. Payment of royalties pursuant to Section 2.1.2 shall continue as follows:

(aa) payment of royalties on amounts paid to XTL and attributable to activities of the paying third party under a Licensed Patent or Patents in a particular country shall continue (i) until the expiry of the last to expire of the said Licensed Patents, or (ii) until termination of the ***** period commencing on the first date on which XTL receives an amount relating to activities in such country on which a royalty is due to Yeda pursuant to Section 2.1.2, whichever is the longer period;

(bb) payment of royalties on amounts paid to XTL and attributable to activities of the paying third party in a particular country in which there is no Licensed Patent shall continue until termination of the ***** commencing on the first date on which XTL receives an amount relating to activities in such country on which a royalty is due to Yeda pursuant to Section 2.1.2;

(cc) payment of royalties on amounts paid to XTL and not attributable to the paying third party’s activities in any particular country, shall continue until *****, whichever is the longer period.

2.3.3. Payment of royalties pursuant to Section 2.1.3 shall continue as follows:

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(aa) payment of royalties on amounts paid to XTL and attributable to activities of XTL or of the paying third party under a Licensed Patent or Patents in a particular country shall continue *****, whichever is the longer period,

(bb) payment of royalties on amounts paid to XTL and attributable to activities of XTL or the paying third party in a particular country in which there is no Licensed Patent shall continue until termination of the ***** commencing on the date on which XTL first receives an amount relating to activities in such country on which a royalty is due to Yeda pursuant to Section 2.1.3;

(cc) payment of royalties on amounts paid to XTL and not attributable to XTL’s or the third party’s activities in any particular country shall continue until *****, whichever is the longer period.

2.3.4. Payment of royalties pursuant to Section 2.1.4 shall continue as follows:

(aa) payment of royalties on amounts paid to XTL and attributable to activities of the paying third party under a Licensed Patent or Patents in a particular country shall continue *****, whichever is the longer period;

(bb) payment of royalties on amounts paid to XTL and attributable to activities of the paying third party in a country in which there is no Licensed Patent shall continue until termination of the ***** commencing on the date on which XTL first receives an amount relating to activities in such country on which a royalty is due to Yeda pursuant to Section 2.1.4;

(cc) payment of royalties on amounts paid to XTL and not attributable to the third party’s activities in any particular country shall continue, until *****, whichever is the longer period.

2.3.5. Payment of royalties pursuant to Section 2.1.5 shall continue as follows:

(A) Where the royalties are on amounts received by XTL on any Direct Activity, the duty to pay royalties shall continue:

(aa) if the activity or any part thereof is carried out in any country under a Licensed Patent or Patents-then, *****, whichever is the longer period;

(bb) if the activity is carried out in any other country, until the date of expiry of a period of ***** commencing on the first date on which XTL receives an amount as a result of that activity in that country;

(B) Where the royalties are due on amounts received by XTL on activities not being a Direct Activity, the duty to pay royalties shall continue as follows:

(aa) payment of royalties on amounts paid to XTL and attributable to activities of the paying third party under a Licensed Patent or Patents in a particular country shall continue *****, whichever is the longer period;

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(bb) payment of royalties on amounts paid to XTL and attributable to activities of the paying third party in a particular country in which there is no licensed Patent shall continue until termination of the ***** commencing on the first date on which XTL receives an amount relating to activities in such country on which a royalty is due to Yeda pursuant to Section 2.1.5;

(cc) payment of royalties on amounts paid to XTL and not attributable to the third party’s activities in any particular country shall continue, *****, whichever is the longer period.

2.4. The License granted under the R&L Agreement shall remain in force (if not previously terminated according to the provisions of the R&L Agreement (as amended hereby)) for the purpose of each of the activities specified in Sections 2.1.1, 2.1.2, 2.1.3, 2.1.4 and 2.1.5, as long as there is a duty to pay royalties in respect of such activity, as provided in Section 2.3 above. Clause 7(b)(ii) of the R&L Agreement is replaced by the provisions of this Section 2.4 above.

3. Payments for Sponsored R&D

3.1. Subject to the amendments contained herein, the period of research which XTL is obliged to fund under the R&L Agreement is hereby extended by 1 (one) year and shall continue until August 31, 1996 (the “Extension Period”).

3.2. XTL shall pay Yeda an aggregate amount in New Israel Sheqels equal (at the representative rate of exchange in force on the date of payment) to ***** (plus VAT against VAT invoice) in consideration of Yeda’s undertaking to procure the performance (under the supervision of Prof. Reisner) of research in the Extension Period in accordance with the Research Plan and the Budget attached hereto as Appendices “A” and “B”, respectively, as follows:

3.2.1. an amount in New Israel Sheqels equal (at the representative rate of exchange in force on the date of payment) to US ***** (plus VAT against VAT invoice) on March 31, 1996;

3.2.2. an amount in New Israel Sheqels equal to US ***** (plus VAT against VAT invoice) on each of May 15, 1996 and July 31, 1996.

3.3. Simultaneously with counter-signature hereof by Yeda, XTL shall provide Yeda with a bank guarantee from an Israeli bank, in form acceptable to Yeda, in order to secure XTL’s obligations under Sections 3.2.1 and 32.2 above. 50% of the bank charges and commissions actually paid by XTL to the issuing bank in respect of the bank guarantee shall be reimbursed by Yeda to XTL, against proof of the amount paid by XTL, forthwith upon receipt by Yeda of the amount payable by XTL pursuant to Section 3.2.1 above.

4. Entire Agreement

Except as set forth in this letter, all the terms of the R&L Agreement shall remain unchanged. The R&L Agreement, as amended hereunder, sets forth the entire

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understanding between Yeda and XTL regarding the R&L Agreement (except as supplemented by written instrument of even or subsequent date), and supersedes any other prior agreement or understanding, oral or written.

Please indicate your acceptance of the terms of this letter by affixing your signature below.

Very truly yours,

Martin Backer, Ph.D.

President and CEO

XTL Biopharmaceuticals Ltd.

Agreed and Accepted:

YEDA RESEARCH AND DEVELOPMENT COMPANY LTD.

**********

**********

EX-4.6

Confidential Treatment Requested. Confidential portions of this document have been redacted and separately filed with the Commission.

***** Confidential material redacted and filed separately with the Commission.

January 26, 2003

To:

Yeda Research and

Development Company Ltd.

Rehovot

Dear Sirs,

Re: Amendment No. 3 to Research and Licence Agreement dated April 7, 1993 (“the R&L Agreement”) as amended on August 31, 1995 (“Amendment No. 1”) (restated on January 25, 1998) and on January 25, 1998 (“Amendment No. 2”)

We set out below the amendments to Amendments No. 1 and No. 2 agreed between Yeda Research and Development Company Ltd. (“Yeda”) and XTL Biopharmaceuticals Ltd. (“the Corporation”) following discussions between the parties conducted at the Corporation’s request (capitalised terms herein having the meanings ascribed thereto in the R&L Agreement, unless otherwise defined herein):

1. Effective on the date of signature hereof, Clause 2 of Amendment No. 1 is hereby replaced by the following:

“2. Royalties

2.1. Royalty Rates

Instead of the royalties payable as specified in Clause 7(d)(ii) of the R&L Agreement, the royalties payable to Yeda by XTL in consideration of the Licence granted under the R&L Agreement, shall be as follows:

2.1.1. (a) ***** percent) of Net Sales (as hereinafter defined) from ***** using the Licensed Patents and/or the Licensed Technology (‘the Therapeutical Products’). ‘Net Sales’ as used herein shall have the meaning ascribed to the term in the R&L Agreement, references therein to ‘the Products’ being read as references to the Therapeutical Products.

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(b) ***** percent) of any amount received by XTL from any third party and calculated on ***** (as defined below) (“the XTL Net Royalty”)_, provided (i) that if ***** of the XTL Net Royalty is greater than ***** percent) of Net Sales from such sales by such third party of such Therapeutical Products, then the royalty payable to Yeda by XTL on such amount shall be ***** per cent) of Net Sales from such sales by such third party and (ii) if ***** per cent) of the XTL Net Royalty is less than ***** per cent) of Net Sales from such sales by such third party of such Therapeutical Products, then the royalty payable to Yeda by XTL on such amount shall be *****) of Net Sales from such sales by such third party;

‘Third Party Royalties’, for the purpose of a deduction to be made from any amount received by XTL pursuant to this Section 2.1.1(b) above, shall mean any royalty calculated on the said amount and payable by XTL to a third party for the right to the use of a compound included in the Therapeutical Product in respect of which the amount has been received and/or for the right to the use of technology used directly in the development or production of the Therapeutical Product in respect of which the amount has been received, provided always that the duty to pay the royalty to the third party has been established at arms length and in good faith and the size of such royalty is no greater than what would be due in an arms length transaction entered into in good faith. “Third party” in this definition of “Third Party Royalties” shall include Yeda itself, in the event a royalty as aforesaid in the said definition is payable to Yeda by XTL in respect of a compound or technology other than that licensed under the R&L Agreement.

2.1.2. ***** percent) of all amounts received by XTL from third parties (except the amounts governed by Section 2.1.1(b) above or Section 2.1.4 below) under or pursuant to agreements allowing such third parties the use of *****.

2.1.3. ***** percent) of all amounts received by XTL from a third party payable upon *****.

2.1.4. ***** percent) of all amounts received by XTL under or pursuant to agreements with third parties *****.

2.1.5. ***** percent) of all amounts received by XTL as a result of any activities under and/or *****. Where the amounts received by XTL as aforesaid are the result of activities not involving the grant of sublicences to third parties (‘Direct Activities’) and are amounts received in a transaction other than at arms length, the royalty due to Yeda shall be calculated on the amount that would have been received by XTL in a transaction at arms length.

2.1.6. For the avoidance of doubt, it is expressly stated that royalties shall not be due pursuant to Sections 2.1.2, 2.1.4 or 2.1.5 above on *****.

2.1.7. For the avoidance of doubt, it is expressly stated, that nothing in this Section 2.1 above or elsewhere in this letter shall be deemed to derogate from the provisions of Clause 7(c) of the R&L Agreement governing the grant of sublicences.

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2.1.8. A table exemplifying the provisions of Clause 2.1 above is attached as Appendix A hereto. If there shall be any contradiction between the table and the provisions of Clause 2.1, the provisions of Clause 2.1 shall govern.

2.1.9. *****.

2.2. Payment of Royalties

The provisions of Clause 7(d)(iii) of the R&L Agreement shall apply, mutatis mutandis, to the royalties payable to Yeda pursuant to Section 2.1 above, references to ‘Net Sales’ in the said Clause 7(d)(iii) being deemed references to ‘Net Sales’ as defined in Section 2.1.1 above for the purpose of that Section and to amounts received by XTL from Direct Activities (as defined in Section 2.1.5 above) and references to "Sublicensing Receipts" in Clause 7(d)(iii) being deemed references to amounts subject to royalty payment to Yeda pursuant to Sections 2.1.2, 2.1.3, 2.1.4 or 2.1.5 above (not being amounts resulting from Direct Activities (as defined in Section 2.1.5 above)).

2.3. For the avoidance of doubt, it is expressly stated that payment of royalties under the R&L Agreement shall continue as follows:

2.3.1. Payment of royalties pursuant to Section 2.1.1 shall continue with respect to sales of any Therapeutical Product as follows:

(aa) if the Therapeutical Product sold is made and/or sold in a country where a Licensed Patent or Patents issue including claims covering, in whole or in part, such product or the manufacture thereof—then, *****;

(bb) on sales of a Therapeutical Product made and sold in any other country, *****.

2.3.2. Payment of royalties pursuant to Section 2.1.2 shall continue as follows:

(aa) payment of royalties on amounts paid to XTL and attributable to activities of the paying third party under a Licensed Patent or Patents in a particular country shall continue: *****;

(bb) payment of royalties on amounts paid to XTL and attributable to activities of the paying third party in a particular country in which there is no Licensed Patent shall continue *****;

(cc) payment of royalties on amounts paid to XTL and not attributable to the paying third party's activities in any particular country, shall continue until: *****.

2.3.3. Payment of royalties pursuant to Section 2.1.3 shall continue as follows:

***** Confidential material redacted and filed separately with the Commission.

(aa) payment of royalties on amounts paid to XTL and attributable to activities of XTL or of the paying third party under a Licensed Patent or Patents in a particular country shall continue: *****,

(bb) payment of royalties on amounts paid to XTL and attributable to activities of XTL or the paying third party in a particular country in which there is no Licensed Patent shall continue *****;

(cc) payment of royalties on amounts paid to XTL and not attributable to XTL's or the third party's activities in any particular country shall continue until: *****.

2.3.4. Payment of royalties pursuant to Section 2.1.4 shall continue as follows:

(aa) payment of royalties on amounts paid to XTL and attributable to activities of the paying third party under a Licensed Patent or Patents in a particular country shall continue: *****;

(bb) payment of royalties on amounts paid to XTL and attributable to activities of the paying third party in a country in which there is no Licensed Patent shall continue *****;

(cc) payment of royalties on amounts paid to XTL and not attributable to the third party's activities in any particular country shall continue, until: *****.

2.3.5. Payment of royalties pursuant to Section 2.1.5 shall continue as follows:

(A) where the royalties are on amounts received by XTL on any Direct Activity, the duty to pay royalties shall continue:

(aa) if the activity or any part thereof is carried out in any country under a Licensed Patent or Patents—then: *****;

(bb) if the activity is carried out in any other country, *****;

(B) Where the royalties are due on amounts received by XTL on activities not being a Direct Activity, the duty to pay royalties shall continue as follows:

(aa) payment of royalties on amounts paid to XTL and attributable to activities of the paying third party under a Licensed Patent or Patents in a particular country shall continue: *****;

(bb) payment of royalties on amounts paid to XTL and attributable to activities of the paying third party in a particular country in which there is no licensed Patent shall continue *****;

***** Confidential material redacted and filed separately with the Commission.

(cc) payment of royalties on amounts paid to XTL and not attributable to the third party's activities in any particular country shall continue: *****.

2.4. The License granted under the R&L Agreement shall remain in force (if not previously terminated according to the provisions of the R&L Agreement (as amended hereby)) for the purpose of each of the activities specified in Sections 2.1.1, 2.1.2, 2.1.3, 2.1.4 and 2.1.5, as long as there is a duty to pay royalties in respect of such activity, as provided in Section 2.3 above. Clause 7(b)(ii) of the R&L Agreement is replaced by the provisions of this Section 2.4 above.”

2. Effective of the date of signature hereof, Clause 1 of Amendment No. 2 is replaced by the following:

“1. Clause 13(b)(i) of the R&L Agreement shall be and is hereby replaced by the following:

(i) (A) Yeda may terminate this Agreement by giving written notice to that effect to the Corporation if the aggregate of the royalties due to Yeda under Paragraph 2.1.1 of the letter agreement between the parties dated August 31, 1995 (and amended on January 25, 1998) amending this Agreement (hereinafter 'the Amendment') (hereinafter collectively 'Product Sale Royalties') and actually paid to Yeda on due date in respect of the ***** year of the term of the Licence shall be less than US $***** United States Dollars) (hereinafter in this subparagraph (A) 'the Default Year'), UNLESS the Corporation shall have proved to Yeda's reasonable satisfaction within ***** days of the end of the Default Year that the Corporation and/or Collaboration Partners (as such expression is defined below) have spent at least US ***** United States Dollars) in the Default Year in funding the cost of the activities described in Clause 8(b) above (hereinafter 'Development Activities') towards commercialisation of Therapeutical Products in respect of the sale of which Yeda is entitled to royalties under Paragraph 2.1.1 of Amendment No. 1 (hereinafter collectively 'Yeda Royalty Bearing Products'). Yeda shall give any such notice of termination within ***** of the end of the Default Year.

'Collaboration Partner' shall mean an entity providing funding for the said Development Activities to the Corporation or on its behalf pursuant to an agreement between the Corporation and such entity whereby a sublicence has been granted to such entity with Yeda's consent in accordance with Paragraph 7(c) above.

(B) If the aggregate payment due to Yeda on Product Sale Royalties and actually made to Yeda in respect of the ***** year of the term of the Licence shall be less than US $***** United States Dollars) (hereinafter in this subparagraph (B) 'the Default Year'), the Corporation shall pay Yeda within ***** days of the end of the Default Year, the amount by which the Product Sale Royalties actually paid to Yeda in respect of the Default Year shall be less than US $***** (hereinafter in this subparagraph (B) 'the Shortfall Amount'). Payment of the Shortfall Amount (except to the extent that it represents payments due and payable to Yeda in respect of the Product Sale Royalties other than pursuant to this subparagraph (B)) shall be fully credited against future Product Sale Royalties becoming due to Yeda but shall not be refundable in any event.

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It is agreed, without derogating from Yeda's rights to other or additional relief and remedies, including the right to sue for the Shortfall Amount, that failure to make the Shortfall Payment as aforesaid shall entitle Yeda to terminate this Agreement by giving written notice of termination to the Corporation within ***** days of the end of the Default Year.

(C) If the aggregate payment due to Yeda as Product Sale Royalties and actually paid to Yeda in respect of the ***** year or the ***** year of the term of the Licence shall be less than US $***** US Dollars) (hereinafter in this subparagraph (C) 'the Default Year'), *****. Payment of the Shortfall Amount (except to the extent that it represents payments due and payable to Yeda in respect of Product Sales Royalties other than pursuant to this subparagraph (C)) shall be fully credited against future Product Sale Royalties becoming due to Yeda but shall not be refundable in any event. Yeda shall give any such notice of termination within ***** days of the end of the Default Year.

(D) If the aggregate payment due to Yeda as Product Sale Royalties and actually paid to Yeda on due date in respect of the ***** or any subsequent year of the term of the Licence shall be less than US ***** US Dollars) (hereinafter in this subparagraph (D) 'the Default Year'), Yeda shall be entitled to terminate the Agreement by service of written notice to that effect on the Corporation within ***** days of the end of the Default Year.

(E) If commercial exercise of the Licence by way of sale of Yeda Royalty Bearing Products, once commenced, shall cease thereafter for a period of ***** consecutive months or more, Yeda shall be entitled to terminate the Agreement by service of written notice to that effect on the Corporation within ***** days of the end of such period and, unless sales of Yeda Royalty Bearing Products shall have been renewed in the meantime, also at any time thereafter, provided, however, in the event Yeda desires to terminate the Agreement after such ***** period, Yeda shall give the Corporation written notice at least ***** days in advance of the desired date of termination.

(F) Nothing in this Clause 13(b)(i) above shall be deemed to justify failure to make any payment due and payable to Yeda under any of the provisions of this Agreement other than under this Clause 13(b)(i) above or to derogate from

Yeda's rights with respect to such failure pursuant to Clause 13(b)(ii) below or otherwise."

3. Except as set forth in this letter, all the terms of the R&L Agreement (as amended by Amendments No. 1 and No. 2 (as they are amended hereby)) shall remain unchanged. The R&L Agreement, as amended as aforesaid, sets forth the entire understanding between Yeda and XTL regarding the R&L Agreement and supersedes any other prior agreement or understanding, oral or written.

Please indicate your acceptance of the terms of this letter by affixing your signature below.

Very truly yours,

XTL BIOPHARMACEUTICALS LTD.

By: _________________________

Title: _________________________

Agreed and accepted:

YEDA RESEARCH AND DEVELOPMENT

COMPANY LTD.

By: _________________________                            By: ___________________________

Title: _________________________                        Title: ____________________________

Includes confidential material redacted in the to-be-publicly-filed copy of the Agreement.

APPENDIX A

(to Amendment No. 3 to Research and License Agreement dated April 7, 1993

(“the R&L Agreement”) as amended on August 31, 1995 (“Amendment No. 1”) (restated on January 25, 1998) and on January 25, 1998 (“Amendment No. 2”)

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Note: One page of material has been redacted and filed separately with the Commission.

EX-4.7

Confidential Treatment Requested. Confidential portions of this document have been redacted and separately filed with the Commission.

***** Confidential material redacted and filed separately with the Commission.

Date: June 2, 2004

To:

Yeda Research and Development Company Ltd.

Rehovot

Re: Amendment No. 4 to Research and Licence Agreement dated April 7, 1993 between Yeda Research and Development Company Ltd. (“Yeda”) and XTL Biopharmaceuticals Ltd. (previously known as Xenograft Technologies Ltd.) (“XTL”) (as amended on August 31, 1995; as such amendment was restated on January 25, 1998) (“Amendment No. 1”), on January 25, 1998 (“Amendment No. 2”) and on January 26, 2003 ("Amendment No. 3")) ("the Agreement")

We set out below the amendment to the Agreement (as already amended by Amendment No.1, Amendment No.2 and Amendment No. 3), following discussions between the parties conducted at the Corporation's request:

1. Clauses 8(c)(i) and 13(b) of the Agreement shall be deemed amended so as to allow Yeda to elect, in its absolute discretion, in the event it is entitled, under the said clauses 8(c)(i) or 13(b), to terminate the Agreement and the licence thereunder entirely, in lieu of total termination of the Agreement and the licence thereunder (“Total Termination”), to terminate the Agreement and the licence thereunder partially, i.e. so as to leave them in force only to the extent necessary to support the grant of any license granted by the Corporation to any sub-licensee of the Corporation, under a sub-license agreement approved by Yeda (“Partial Termination”). In the event Yeda and XTL shall not have agreed, in writing, within ***** days (or such longer period as Yeda and XTL may agree in writing) of receipt by XTL of notice of Partial Termination on the precise terms and conditions of the Agreement following Partial Termination, the Partial Termination shall be converted into Total Termination, upon written notice of Yeda to the Corporation, such notice to be sent no later than ***** days after termination of the said *****. At the request of either XTL or Yeda, any dispute regarding the said terms and conditions, shall be submitted to non-binding mediation by an agreed mediator, provided that such mediation proceedings shall not continue beyond the said *****, unless otherwise agreed by the parties in writing.

2. The parties agree that the Agreement shall be amended as provided in this paragraph 2 below:

(a) the word “lower” appearing in clause 2.1.6 of Amendment No. 1 (as replaced by Amendment No. 3) shall be and is hereby substituted by the word "higher";

(b) the reference in clause 7(c)(iii) of the Agreement to paragraph 9(a) of the Agreement shall be and is hereby replaced by a reference to clause 9 of the Agreement;

(c) the reference in clause 9 of the Agreement to paragraph 8(c) of the Agreement shall be and is hereby replaced by a reference to clause 8(b) of the Agreement;

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(d) the phrase “*****” in clause 13(b)(i) (B) of the Agreement (as amended pursuant to Amendment No. 2 and Amendment No. 3) shall be and are hereby replaced by the phrase “***** year”;

(e) the references in clause 13(b)(i)(C) of the Agreement (as amended pursuant to Amendment No. 2 and Amendment No. 3) to “*****” shall be and hereby are replaced by “*****”, respectively, and the references in the said clause 13(b)(i)(C) (as amended as aforesaid) to “US$ ***** US Dollars)” shall be are hereby replaced by references to “US$ ***** US Dollars)”;

(f) the reference in clause 13(b)(i)(D) of the Agreement (as amended pursuant to Amendment No. 2 and Amendment No. 3) to “*****” shall be and hereby is replaced by “*****”.

(g) before clause 13(b)(i)(C) of the Agreement (as amended pursuant to Amendment No. 2, Amendment No. 3 and this Amendment No. 4), a new clause 13(b)(i)(B1) shall be inserted reading as follows:

(B1) In the event that not later than the end of the fifteenth year of the term of the License, the Corporation or any sub-licensee of the Corporation shall have entered into phase 3 clinical trials with a Royalty Bearing Product, then (i) the provisions of clause 13(b)(i)(B) above shall also apply to the ***** years of the term of the Licence, except that with respect to the ***** years of the term of the Licence, the reference to $***** in the said clause 13(b)(i)(B) shall be deemed replaced by a reference to $*****; and (ii) the timelines under clause 13(b)(i)(C) and (D) below shall be extended by ***** years so that the words “*****” and “*****” appearing in clause 13(b)(i)(C) shall be replaced by “*****” and “*****”, respectively, the reference to $***** referred to in the said clause 13(b)(i)(C) shall be deemed replaced by a reference to $*****, and the word “*****” appearing in clause 13(b)(i)(D) shall be replaced by “*****”.

3. This letter shall be deemed to constitute an amendment of the Agreement and it and the Agreement shall be read together as one and, for the avoidance of doubt, a breach of this letter shall constitute a breach of the Agreement.

4. The Agreement, as amended herein, remains in full force and effect.

Please countersign this letter as confirmation of your consent to the contents.

Yours faithfully,

XTL BIOPHARMACEUTICALS LTD.

YEDA RESEARCH AND DEVELOPMENT COMPANY LTD.

[SIGNATURE PAGE TO FOURTH AMENDMENT]

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EX-4.8

Confidential Treatment Requested. Confidential portions of this document have been redacted and separately filed with the Commission.

LICENSE AGREEMENT

This LICENSE AGREEMENT (this “Agreement”), effective as of June 2, 2004 (the “Effective Date”), is between CUBIST PHARMACEUTICALS, INC., a corporation organized and existing under the laws of Delaware (together with its Affiliates referred to herein as “CUBIST”) and XTL BIOPHARMACEUTICALS LTD., a corporation organized and existing under the laws of Israel (together with its Affiliates referred to herein as “XTL”). XTL and CUBIST are sometimes hereinafter referred to each as a “Party” and collectively as the “Parties.”

Background

XTL has developed monoclonal antibodies that are active against Hepatitis B using XTL Know-How and has rights to XTL Patent Rights. CUBIST desires to obtain a license under the XTL Patent Rights and XTL Know-How upon the terms and conditions set forth herein in order to Obtain Regulatory Approval and commercialize such monoclonal antibodies, and XTL desires to grant such a license. In consideration of the foregoing premises and the mutual covenants herein contained, the Parties hereby agree as follows:

Terms

Section 1.DEFINITIONS.

1.1Defined Terms. Unless specifically set forth to the contrary herein, the following terms, whether used in the singular or plural, shall have the respective meanings set forth below:

“Additional HBV Products” shall mean any and all compounds, products, methods or systems, other than a Product or a Directly Competitive Product, in any formulation for the treatment or prevention of Hepatitis B, that is Controlled by XTL as of the Effective Date or at any time during the term of this Agreement.

“Affiliate” shall mean, with respect to any Person, (a) any other Person of which fifty percent (50%) or more of the securities or other ownership interests representing the equity, the voting stock or general partnership interest are owned, controlled, or held, directly or indirectly by, or under common ownership or control with, such Person; or (b) any other Person that, directly or indirectly, owns, controls, or holds fifty percent (50%) or more of the securities or other ownership interests representing the equity, the voting stock or, if applicable, the general partnership interest, of such Person.

“Aggregate Designated Costs” shall have the meaning set forth in Section 7.4.

“Approved Third Party Licenses” shall have the meaning set forth in Section 12.10(c).

“Change of Control” shall mean, with respect to either Party, that a Third Party shall have become the beneficial owner of securities representing at least fifty percent (50%) or more of the aggregate voting power of the then outstanding voting securities of such Party, or any sale by such Party of all or substantially all of such Party’s assets; provided that in no event shall the sale by a Party of securities in connection with a financing or offering undertaken to raise working capital be deemed to be a Change of Control unless, as a result of such financing or offering, a Person owns 50% or more of the voting power of the Party.

“Code” shall have the meaning set forth in Section 13.6(d).

“Combination Product” shall mean (a) any product, or biologic or pharmaceutical composition comprising, among other things, at least two distinct active ingredients, one of which shall be a Product and at least one of the other active ingredients is not a Product, or (b) two or more products, or biologic or pharmaceutical compositions that are marketed and sold together in the same package, where at least one of such products, or biologic or pharmaceutical compositions is a Product and at least one of the other products, or biologic or pharmaceutical compositions are not Products (including, without limitation, (i) a pharmaceutical or biologic composition containing an active ingredient distinct from the active ingredient of such Product, (ii) a delivery device or (iii) a delivery system).

“Commercialize” shall mean all activities relating to the commercialization of a Product including, without limitation, promotion, marketing, sales and distribution, whether conducted by a Party or for such Party by another, and “Commercialization” shall be interpreted accordingly.

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“Commercially Reasonable Efforts” means (a) with respect to any objective by any Party, commercially reasonable, diligent, good faith efforts to accomplish such objective as such Party would normally use to accomplish a similar objective under similar circumstances; and (b) with respect to any CUBIST objective to Obtain Regulatory Approval of or Commercialize any Product, efforts and resources normally used by such Party with respect to a product owned by such Party or to which such Party has similar rights which is of similar market potential at a similar stage in the development or life of such product, taking into account all relevant factors in all relevant jurisdictions, taken as a whole, including, but not limited to, issues of safety, efficacy, product profile, the competitiveness of the marketplace, the proprietary position of the product (including whether the Product is reasonably likely to infringe the intellectual property or other proprietary rights of a Third Party in any jurisdiction), the regulatory structure involved and the Regulatory Approval for the Product in each jurisdiction (including but not limited to, the extent of the indications for such Product has been approved), the level of reimbursement available for the Product in each jurisdiction, and the perceived market potential of the Product (including the anticipated profitability of the Product).

“Consent Agreement” shall mean that certain Consent and Amendment Agreement by and among CUBIST, XTL, and Yeda executed on or about the Effective Date.

“Contract Year” shall mean each twelve month period during the term of this Agreement commencing on January 1, and ending on December 31; provided that the first Contract Year during the term of this Agreement will commence on the Effective Date and end on December 31 and the last Contract Year during the term of this Agreement will commence on January 1 and end upon expiration or termination of this Agreement.

“Control” shall mean with respect to (a) any item of information or (b) any intellectual property right or (c) any HBV Antibody (including any intellectual property or other proprietary right embodied therein or related thereto, including without limitation any method or process of manufacturing thereof or any use thereof), the possession of the right (whether directly or indirectly and whether by ownership, license or otherwise, other than pursuant to this Agreement) by a Party to grant to the other Party access or a license as provided in this Agreement under such item of information or intellectual property right without violating the terms of any agreement or other arrangements existing before or after the Effective Date between such Party and any Third Party, and the term “Controlled” shall be interpreted accordingly.

“Coordinator” shall have the meaning set forth in Section 3.2.

“CUBIST Designated Costs” shall mean, with respect to any period, the Designated Costs attributed to CUBIST.

“CUBIST Indemnitees” shall have the meaning set forth in Section 11.3(b).

“CUBIST Inventions” shall have the meaning set forth in Section 12.1.

“CUBIST Know-How” shall mean all inventions (including without limitation all CUBIST Inventions), discoveries, improvements, methods, processes, formulas, materials, data, know-how, technology, trade secrets and information, whether or not patentable, that (a) are owned or Controlled by CUBIST as of the Effective Date or at any time during the term of this Agreement, (b) are not, as of the Effective Date or at any time thereafter, in the public domain or generally known or available to the public or disclosed in any CUBIST Patents, and (c) are necessary or useful to Obtain Regulatory Approval, manufacture, market, promote, sell, import or export Products in the Territory.

“CUBIST Patents” shall mean any and all Patents that: (a) are owned or Controlled by CUBIST as of the Effective Date or at any time during the term of this Agreement; and (b) claim or cover any invention (including, without limitation, any CUBIST Invention), discovery, improvement, method, process, formula, material, trade secret, technology, data or information, solely to the extent necessary or useful to Obtain Regulatory Approval, manufacture, market, promote, sell, import or export Products in the Territory; provided, however, that the CUBIST Patents are all to the extent and only to the extent that CUBIST has the right to grant licenses or sublicenses thereunder.

“CUBIST Trademark” shall mean any Trademark Controlled by CUBIST.

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“Designated Costs” shall mean the direct costs and expenses, in Dollars, excluding any general and administrative overhead costs and expenses, actually incurred from and after the Effective Date in performing those activities that are necessary or advisable to Obtain Regulatory Approval for a commercially viable formulation of HepeX-B for the prevention of recurrent Hepatitis B infections in liver transplant patients in the Territory. Subject to the foregoing provisions of this definition, Designated Costs shall include: internal human resources costs of either Party (calculated using actual local salary and employee benefit rates for each Full Time Equivalent), expenses paid to contractors, consultants or other third parties (such as testing laboratories, clinical consultants, clinical research organizations, contract manufacturing organizations and preclinical laboratories), including costs and expenses associated with regulatory fees (such as PDUFA fees), laboratory supplies, office supplies, travel expenses, and reasonable allocations of facility and information technology costs. Designated Costs shall not include expenses for corporate overhead, profit margin, expenses for market research, manufacture or supply for commercial use, commercial launch and other Commercialization activities, post-marketing studies not required as a condition to Obtaining Regulatory Approval in the Territory, or participation on the Joint Alliance Team. If the Parties are unable to agree whether a particular cost or expense is a Designated Cost, either Party may submit the matter to the dispute resolution procedures set forth in Section 14.

“Directly Competitive Product” shall mean any pharmaceutical or biologic composition (other than a Product Commercialized by or for CUBIST or its Affiliates or Sublicensees) that contains an HBV Antibody in any formulation for the treatment or prevention of Hepatitis B.

“Disagreement Notice” shall have the meaning ascribed to it in Section 2.2.

“Dollars” shall mean U.S. dollars.

“ECACC” shall mean the European Collection of Cell Cultures.

“FDA” shall mean the United States Food and Drug Administration and any successor agency.

“First Commercial Sale” shall mean, with respect to a Product, any transfer for value in an arm’s-length transaction to a Third Party distributor, agent or end user in a country or jurisdiction after obtaining all necessary Regulatory Approvals as may be necessary for such transfer in such country or jurisdiction.

“HBIg” shall mean the immunoglobulin product containing polyclonal antibodies (derived from human plasma) to hepatitis B surface antigen, and occasionally referred to as “HBIg”.

“HBV Antibody”shall mean any and all human or humanized monoclonal immunoglobulins, including intact immunoglobulin molecules and any portion or fragment of an immunoglobulin molecule, *****, that is directed to and binds to the Hepatitis B virus or any portion of the Hepatitis B virus.

“HepeX-B” shall mean, without regard to the actual trade name used, any Product containing the human monoclonal antibody *****, and the human monoclonal antibody *****, and no other antibodies or fragments of other antibodies.

“HepeX-B Plan” shall have the meaning set forth in Section 5.2.

“ICC” shall have the meaning set forth in Section 14.2(a).

“ICC Rules” shall have the meaning set forth in Section 14.2(a).

“IND” shall mean an Investigational New Drug Application, or its foreign equivalent, regarding Product filed with a Regulatory Authority.

“Joint Alliance Team” shall have the meaning set forth in Section 3.1.

“Joint Invention” shall have the meaning set forth in Section 12.1.

“Joint Patent” shall have the meaning set forth in Section 12.2.

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“Know-How Royalty Rate” shall have the meaning set forth in Section 10.2.

“Legal Opinion” shall mean a legal opinion that satisfies each of the following conditions: (a) is addressed to CUBIST for CUBIST’s benefit, (b) provides that CUBIST’s exercise of its rights and licenses under, and its activities under and pursuant to, this Agreement, to Obtain Regulatory Approval, make, have made, use, promote, market, sell, have sold, offer to sell, import, export, and Commercialize HepeX-B, would not infringe or misappropriate the intellectual property rights addressed in that opinion (including by literal infringement and infringement under the doctrine of equivalents and/or other applicable legal standards), or that such intellectual property rights are invalid or unenforceable, (c) is provided by a nationally recognized United States law firm reasonably acceptable to both Parties, and (d) was obtained in connection with a joint defense agreement pursuant to which such nationally recognized law firm enters into an attorney-client relationship with both XTL and CUBIST for the purpose of providing such legal opinion.

“Losses” shall have the meaning set forth in Section 11.3(a).

“Marketing Inquiry” shall have the meaning ascribed to it in Section 2.2.

“Major Markets”shall mean the United States of America, the United Kingdom, Spain, Italy, France, Germany and Japan.

“Milestone Event” shall have the meaning set forth in Section 9.2(a).

“Net Sales” shall mean the aggregate gross sales ***** by CUBIST from sales of a Product sold directly by CUBIST or its Affiliate to a Third Party (that is not an Affiliate or Sublicensee of CUBIST unless the Affiliate or Sublicensee is the end user of the Product) after deducting, if not previously deducted, from the amount received the following amounts related specifically to such sales and not otherwise recovered or reimbursed to CUBIST or its Affiliate: (a) trade and quantity discounts in amounts customary in the trade and actually allowed and taken; (b) returns, rebates, credits and allowances in amounts customary in the trade; (c) chargebacks paid on sale or dispensing of Product; and (d) sales or excise taxes, freight, postage, transportation, insurance charges, custom duties and other governmental charges.

For purposes of clarification, sales of a Product sold directly by a Sublicensee shall not be included in the calculation of Net Sales, and amounts received by CUBIST and its Affiliates for the sale of Products among CUBIST and its Affiliates for resale shall not be included in the computation of Net Sales hereunder.

In the event that a Product is sold as a component of a Combination Product, then Net Sales shall be determined by multiplying the Net Sales of the Combination Product by the fraction A/(A+B) where A equals the average selling price of such Product sold separately in finished form and B equals the aggregate average selling price of the relevant other product sold separately in finished form, in each case in the relevant country in which sales were made. In the event that no separate sale of either Product or the relevant other product is made during the applicable royalty reporting period and in the relevant country in which the sale of the Combination Product was made, then Net Sales shall be determined by multiplying the Net Sales of the Combination Product by a fraction (C/(C+D)), where C equals CUBIST’s standard fully-absorbed cost of Product and D equals the standard fully-absorbed cost of the relevant other product, in each case determined in accordance with United States generally accepted accounting principles for the relevant country in which sales were made. If the relevant other product is sold separately in finished form and Product is not, then Net Sales shall be determined by multiplying the Net Sales of the Combination Product by the fraction (E - B)/E, where E equals the average selling price of the Combination Product for the country in which sales were made.

“Obtain Regulatory Approval” shall mean those actions required or advisable to prepare and submit commercially viable Products for Regulatory Approval as soon as reasonably practicable, including without limitation formulation, modification and refinement activities, determination of dosage, conducting clinical trials, and labeling the Products.

“OCS” shall have the meaning set forth in Section 11.2(h).

“OCS Technology” shall have the meaning set forth in Section 12.1.

“Patent Royalty Rate” shall have the meaning set forth in Section 10.1.

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“Patents” shall mean (a) unexpired letters patent (including inventor’s certificates) which have not been revoked or cancelled by a government agency or held invalid or unenforceable by a court of competent jurisdiction, from which no appeal can be taken or has been taken within the required time period, including without limitation any substitution, extension, registration, confirmation, reissue, re-examination, renewal or any like filing thereof; (b) pending applications for letters patent, including without limitation any provisional application, utility application, continuing prosecution or continuation application, divisional application, reissue application and/or continuation in part thereof and (c) any foreign or international equivalents or counterparts of such unexpired letters patent and pending applications for letters patent.

“Person” shall mean any individual, entity, association, corporation, partnership, limited liability company, government (or agency or subdivision thereof), trust, joint venture, or proprietorship.

“Product(s)” shall mean any or all pharmaceutical or biological composition(s) containing an HBV Antibody Controlled by XTL as of the Effective Date or any time thereafter during the term of this Agreement, alone or in combination with another antibody, antibody fragment or other active compound, for all indications, in any formulation, by any route of administration, including without limitation, HepeX-B. Each distinct formulation of any of the items referred to in the foregoing sentence shall be treated as a separate Product.

“Proprietary Information” shall mean all inventions, discoveries, improvements, processes, formulas, materials, know-how and trade secrets, and all other scientific, clinical, regulatory, marketing, financial and commercial information or data, whether communicated in writing or orally or by sensory detection, which is provided by, or on behalf of, one Party to the other Party in connection with this Agreement.

“Recalculated Royalties” shall have the meaning set forth in Section 10.1.

“Regulatory Approval” shall mean any approvals (including supplements, variations, amendments, pre- and post-approvals), licenses, registrations or authorizations of any national, state or local regulatory agency, department, bureau, commission, council or other governmental entity, necessary for the sale, import or Commercialization of Products in the Territory.

“Regulatory Authority”shall mean the FDA or any foreign counterpart of the FDA, as applicable.

“Retroactive Payment Quarter” shall have the meaning set forth in Section 10.1.

“Retroactive Royalty Country” shall have the meaning set forth in Section 10.1.

“Retroactive Royalty Year” shall have the meaning set forth in Section 10.1.

“Retroactive Valid Claim” shall have the meaning set forth in the definition of Valid Claim.

“Sublicensee” shall mean, without derogating from the Consent Agreement, any Person (other than an Affiliate of CUBIST) to whom CUBIST grants a sublicense to the license rights granted by XTL to CUBIST hereunder.

“Sublicensee Revenues” shall mean the aggregate upfront, milestone, royalty and other payments actually received by CUBIST or its Affiliates from each of its Sublicensees (other than XTL, if applicable) with respect to XTL Technology or Products, excluding payments made to reimburse CUBIST for any verifiable costs actually incurred by CUBIST in connection with (a) activities to Obtain Regulatory Approval, manufacture, market, promote, sell, offer to sell, import or export Product and (b) the transaction contemplated between CUBIST and such Sublicensee.

“Territory” shall mean all countries of the world.

“Third Party”shall mean a Person other than CUBIST or XTL or an Affiliate of either Party.

“Third Party Infringement Claim” shall have the meaning set forth in Section 12.6(a).

“Third Party Transaction” shall have the meaning set forth in Section 2.3.

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“TM Infringement” shall have the meaning set forth in Section 12.5.

"Trademark" shall mean any word, phrase, slogan, design, symbol or product packaging used or intended to be used to identify the Products or distinguish them from competitive or related products, and shall include any application to register or registration of or common law rights of the foregoing.

“Unlicensed Product” shall mean, with respect to any given country or jurisdiction within the Territory, any pharmaceutical or biological composition containing an HBV Antibody (except for HBIg), for sale or use for the treatment or prevention of Hepatitis B infection or re-infection in such country within the Territory, other than as a result of any license, sublicense, distribution or otherarrangement with respect to a Product or the rights or licensees granted by XTL to CUBIST hereunder granted or entered into by CUBIST or any of its Affiliates or distributors.

“Valid Claim” shall mean an unexpired claim of an issued patent within XTL Patents which has not been found to be invalid or unenforceable by a court or other competent authority in the subject country, from which decision no appeal is taken or can be taken. In the event a claim in a pending patent application Controlled by XTL issues in a country and such issued claim has not been found to be invalid or unenforceable by a court or other competent authority in the subject country, from which decision no appeal is taken or can be taken, such claim shall retroactively be deemed a Valid Claim in such country for the purposes of royalty and Sublicensee Revenues payments under Section 10.1(b) and Section 10.3(e) as of the date the applicable patent application was filed in such country (a “Retroactive Valid Claim”).

“XTL Activities” shall have the meaning set forth in Section 5.1(b).

“XTL Designated Costs” shall mean, with respect to any period, the Designated Costs attributed to XTL.

“XTL Indemnitees” shall have the meaning set forth in Section 11.3(a).

“XTL Inventions” shall have the meaning set forth in Section 12.1.

“XTL Know-How” shall mean all inventions (including without limitation all XTL Inventions), discoveries, improvements, methods, processes, formulas, materials, data, know-how, technology, trade secrets and information, whether or not patentable, that (a) are owned or Controlled by XTL as of the Effective Date or at any time during the term of this Agreement, (b) are not, as of the Effective Date or at any time thereafter, in the public domain or generally known or available to the public or disclosed in any XTL Patents, and (c) are necessary or reasonably useful to Obtain Regulatory Approval, manufacture, market, promote, sell, import or export Products in the Territory.

“XTL Licensor Payments” shall mean any amounts that are required to be paid to Yeda pursuant to the XY Agreement as supplemented by the Consent Agreement, or any amounts that XTL is required to pay to any other Third Party licensors pursuant to written agreements entered into prior to the Effective Date which are identified on Exhibit E to the extent that such payments are required (a) with respect to sales of Product, or (b) with respect to milestone or royalty payments that XTL receives, or is deemed to have received under XTL’s agreements with such Third Parties, from CUBIST.

“XTL Patents” shall mean any and all Patents that: (a) are owned or Controlled by XTL as of the Effective Date or at any time during the term of this Agreement; and (b) claim or cover any invention (including, without limitation, any XTL Invention), discovery, improvement, method, process, formula, material, trade secret, technology, data or information, solely to the extent necessary or reasonably useful to Obtain Regulatory Approval, manufacture, market, promote, sell, import or export Products in the Territory (including, without limitation, those Patents listed on Exhibit A); provided, however, that the XTL Patents are all to the extent and only to the extent that XTL has the right to grant licenses or sublicenses thereunder.

“XTL Technology” shall mean XTL Patents and XTL Know-How.

“XTL Trademarks” shall mean the trademarks Controlled by XTL as of the Effective Date and set forth on Exhibit B hereto.

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“XY Agreement” shall mean that certain Research and License Agreement between Xenograft Technologies Ltd. (now known as XTL Biopharmaceuticals Ltd.) and Yeda Research and Development Company Ltd. (hereinafter “Yeda”) executed on or about April 7, 1993, as amended on or about August 31, 1995, January 25, 1998, and January 26, 2003 and as further amended as of the Effective Date.

“Yeda Technology” shall have the meaning set forth in Section 12.1.

Section 2.LICENSE; DILIGENCE; RIGHT OF FIRST NEGOTIATION.

2.1License Grant. Subject to the terms and conditions of this Agreement and the provisions of the Consent Agreement, XTL hereby grants to CUBISTthe exclusive right and license (even as to XTL), including the right, subject to the Consent Agreement, to sublicense (which includes the sublicense to XTL under Section 2.5 below), under the XTL Technology and XTL Trademarks to Obtain Regulatory Approval, make, have made (including under Section 3.3 below), use, promote, market, sell, have sold, offer to sell, import or export Products in the Territory. CUBIST (excluding Cubist Affiliates) may grant sublicenses of the rights licensed to CUBIST pursuant to this Section 2.1 (subject to the limitations and obligations imposed pursuant to the Consent Agreement). Any sublicense by CUBIST to a Sublicensee of the rights licensed by XTL to CUBIST hereunder shall be consistent with the terms and conditions of this Agreement and the Consent Agreement, and shall include an obligation for the Sublicensee to comply with the obligations of this Agreement applicable to Sublicensees, including, without limitation, the applicable obligations contained in Section 4.1(b) pertaining to reports, Section 8.1 pertaining to confidentiality and Section 8.5 pertaining to records and audits. CUBIST hereby agrees to remain liable for performance under this Agreement by all Sublicensees (including CUBIST Affiliates).

2.2CUBIST Diligence.(a) Subject to, and in accordance with, the terms and conditions of this Agreement and all requirements of applicable laws, rules and regulations, CUBIST shall use Commercially Reasonable Efforts to Obtain Regulatory Approval for HepeX-B in each of the Major Markets, and subsequent to obtaining Regulatory Approval in a Major Market, to Commercialize HepeX-B in such Major Market. The sole remedy of XTL for any breach by CUBIST of its obligations under this Section 2.2 with respect to any Major Market is to terminate CUBIST’s rights and licenses under this Agreement with respect to such Major Market pursuant to Section 13.4. In the event CUBIST breaches its obligations under Section 2.2 with respect to ***** or more Major Market countries, XTL shall also have the right pursuant to Section 13.4 to terminate CUBIST’s rights and licenses under this Agreement with respect to each country that is not a Major Market country in which CUBIST is not then using Commercially Reasonable Efforts to Obtain Regulatory Approval for HepeX-B, and subsequent to obtaining Regulatory Approval in such country, to Commercialize HepeX-B in such country. For the avoidance of doubt, CUBIST shall not be considered to be in violation of its diligence obligations under this Section 2.2 if the failure to use Commercially Reasonable Efforts as required under this Section 2.2 is caused in material part by the wrongful acts or omissions of XTL or any breach of this Agreement by XTL.

(b)CUBIST shall be deemed to have used Commercially Reasonable Efforts for all purposes of this Section 2.2 at all times following such time as CUBIST (and its Affiliates and Sublicensees) has achieved worldwide Net Sales and Sublicensee Revenues which, combined, exceed the aggregate amount of $50,000,000. Notwithstanding anything to the contrary in this Agreement, the “safe harbor” provisions of this Section 2.2(b) are not intended to set minimum standards of performance by CUBIST, and CUBIST shall be entitled to demonstrate that other efforts with respect to the Product should be deemed to be Commercially Reasonable Efforts.

(c)As set forth in Section 2.2(a), the parties agree that XTL’s sole and exclusive remedy with respect to a material breach by CUBIST of its obligations set forth in Section 2.2(a) shall be to terminate the rights and licenses granted by XTL to CUBIST under this Agreement with respect to those jurisdictions within the Territory in which CUBIST shall have failed to use Commercially Reasonable Efforts; provided that within sixty (60) days after receipt of any report provided by CUBIST under Section 4.1(b), XTL shall have delivered to CUBIST written notice (a “Disagreement Notice”) of such failure, which notice shall set forth in reasonable detail the nature of the alleged failure; provided further that such failure has not been cured or waived within 60 calendar days following delivery of such notice. If XTL does not deliver a Disagreement Notice under this Section 2.2(c) within such sixty (60) day period, CUBIST shall be deemed to be in full compliance with the terms of Section 2.2(a) with respect to the time period covered by such CUBIST report. XTL shall not bring, commence, continue or prosecute any claim, legal action or proceeding under, in relation to, arising out of or in connection with a breach of Section 2.2(a), except as set forth in Section 2.2(d).

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(d)If XTL and CUBIST are not able to resolve their disagreement with respect to CUBIST’s compliance with Section 2.2(a) within sixty (60) days after CUBIST’s receipt of a Disagreement Notice, then either XTL or CUBIST, acting alone, may at any time following receipt of such Disagreement Notice by delivery to the other party of a written notice indicating such party’s election to have the disagreement resolved by arbitration (a “Marketing Inquiry”), cause the matter to be submitted to binding arbitration under Section 14.2; provided that (i) the arbitrators shall be entitled to review and resolve only whether or not CUBIST failed to materially comply with its obligations under Section 2.2(a) during the applicable reporting period of time that is the subject of the Marketing Inquiry, and (ii) the arbitrators shall be individuals who are knowledgeable in the field of the development, manufacture, and sale of drugs and drug products, and shall have no current or prior business relationships with any of XTL, CUBIST, or any of their respective Affiliates.

2.3Rights to Additional HBV Product. Subject to the limitation set forth below in this Section 2.3, in the event that XTL intends to grant a license or sublicense (or to otherwise transfer rights other than pursuant to a Change of Control of XTL) to a Third Party to obtain regulatory approval or commercialize Additional HBV Products (a "Third Party Transaction"), XTL shall so notify CUBIST (and shall provide together with such notice all such information necessary or useful to CUBIST to determine whether to exercise its rights under this Section 2.3 with respect to the Additional HBV Products as is in XTL’s possession or control) prior to entering into negotiations or discussions with such Third Party Transaction. If, within ***** days after CUBIST has received such notice (and information) from XTL, CUBIST notifies XTL in writing that it wishes to negotiate to obtain a license or sublicense (or otherwise acquire rights to) such Additional HBV Products, then the Parties shall negotiate in good faith for a period of ***** days to see if the Parties can reach agreement on commercially reasonable terms pursuant to which XTL would license or sublicense (or otherwise transfer rights to) such Additional HBV Products to CUBIST. During the ***** day period in which CUBIST and XTL are negotiating pursuant to this Section 2.3, such negotiations shall be exclusive and XTL cannot carry on discussions or negotiations with any Third Party regarding the grant of a license or sublicense (or other transfer of rights) to such Third Party to obtain regulatory approval or commercialize Additional HBV Products in any country or jurisdiction within the Territory. If XTL and CUBIST cannot reach agreement on such terms within such ***** days, then XTL shall be free to enter into negotiations and discussions with such Third Party, and enter into a Third Party Transaction; provided, however, in no event will XTL enter into an agreement with such Third Party to obtain regulatory approval or commercialize such Additional HBV Products on terms, considered in the totality of the circumstances, any less favorable than the terms last offered or proposed by CUBIST pursuant to the preceding provisions of this Section 2.3 without providing CUBIST with written notice of such terms and giving CUBIST ***** days to accept them. Notwithstanding anything expressed or implied in the foregoing provisions of this Section 2.3, in the event of a Change of Control of XTL, CUBIST’s rights under this Section 2.3 shall terminate with respect to any Additional HBV Product of which CUBIST was informed by XTL in writing pursuant to Section 15.4 (without copies to legal counsel) at least thirty (30) days prior to the Change of Control of XTL; provided that if CUBIST notifies XTL in writing that it wishes to negotiate to obtain a license or sublicense (or otherwise acquire rights to) such Additional HBV Product within ***** days after XTL informed CUBIST of such Additional HBV Product, CUBIST’s rights under this Section 2.3 shall not terminate with respect to such Additional HBV Product unless and until XTL has negotiated in good faith for a period of up to ***** days and has failed to reach agreement on commercially reasonable terms pursuant to which XTL would license or sublicense (or otherwise transfer rights to) such Additional HBV Product to CUBIST.

2.4Directly Competitive Product. During the term of this Agreement and until the earlier to occur of (a) the first anniversary of the effective date of expiration or termination of this Agreement in its entirety, and (b) the effective date of *****; XTL shall not develop, research, market, sell, distribute or otherwise Commercialize a Directly Competitive Product in the Territory, nor will XTL provide any services, data or information to any Third Party in the furtherance of, or with respect to, any of the foregoing; provided, however, that the restrictions in this Section 2.4 shall not apply in any jurisdictions with respect to which Cubist’s rights and licenses granted by XTL under this Agreement have been terminated pursuant to Section 2.2.

2.5Sublicensing.(a) If CUBIST proposes to sublicense to a Third Party any rights to distribute promote, market or sell Product in the United States and/or in more than ***** Major Markets in the European Union, then CUBIST will notify XTL in writing thereof. If, within ***** days after XTL has received such notice from XTL, XTL notifies CUBIST in writing that it wishes to negotiate to become CUBIST’s Sublicensee with respect to the activities to distribute, promote, market or sell Product described in CUBIST’s notice with respect to such countries, then the Parties shall negotiate in good faith for a period of ***** days to see if the Parties can reach agreement on commercially reasonable terms pursuant to which XTL would serve as such Sublicensee. During the ***** day period in which CUBIST and XTL are negotiating pursuant to this Section 2.5, such negotiations shall be exclusive and CUBIST cannot carry on discussions or negotiations with any Third Party regarding the opportunity to serve as such Sublicensee in such countries. If XTL and CUBIST cannot reach agreement on such terms within such ***** days, then CUBIST shall be free to enter into negotiations and discussions with such Third Party, and grant such a sublicense to such Third Party; provided, however, in no event will CUBIST grant such a sublicense to such Third Party on terms, considered in the totality of the circumstances, any less favorable to CUBIST than the terms last offered or proposed by XTL pursuant to the preceding provisions of this Section 2.5 without providing XTL with written notice of such terms and giving XTL ***** days to accept them.

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(b)Without limiting clause (a) above, if CUBIST proposes to sublicense to a Third Party any rights to distribute promote, market, and sell Product *****, then CUBIST will notify XTL in writing thereof and thereafter, XTL, to the extent that it remains so interested, shall be included among the interested parties with whom CUBIST holds discussions for such rights until such time as CUBIST selects the party with whom it wishes to enter into negotiations for a definitive agreement for such rights. XTL acknowledges that beyond inclusion and participation in the discussions for such rights, XTL has no additional right or expectation whatsoever, and CUBIST has no additional obligation to XTL in respect of such rights under this Section 2.5(b).

(c)Notwithstanding anything expressed or implied in this Section 2.5, in the event of a Change of Control of CUBIST, XTL’s rights under this Section 2.5 shall terminate (except with respect to any separate written agreement entered into between CUBIST and XTL prior to the effective date of such Change of Control; provided that CUBIST has promptly complied with the notice provisions set forth in this Section 2.5 prior to such Change of Control).

2.6Trademarks. XTL hereby grants CUBIST an exclusive, royalty-free license under its entire right, title and interest in and to the XTL Trademarks, if any, to use and display the XTL Trademarks in connection with the Commercialization of Product within the Territory. CUBIST shall not be obligated to use XTL Trademarks, and shall be free to select, create and use its own trade names and marks for its use, in connection with the Commercialization of Product in the Territory.

Section 3.COORDINATION.

3.1Joint Alliance Team.

(a)Within thirty (30) days after the Effective Date, CUBIST and XTL shall establish a committee to exchange information regarding, and to discuss activities to Obtain Regulatory Approval and manufacture and supply of Product in the Territory (the “Joint Alliance Team”), which shall (i) monitor activities to Obtain Regulatory Approval under the HepeX-B Plan, (ii) discuss, formulate, and recommend proposed modifications to the HepeX-B Plan for review by CUBIST and XTL, (iii) serve as a forum for the review and discussion of the Parties’ efforts to Obtain Regulatory Approval and efforts to manufacture Product, (iv) serve as a vehicle to facilitate the transfer to CUBIST of certain information, data and technology related to Products, and (v) serve as a forum for the discussion of disputes between the Parties before resorting to the dispute resolution mechanism in Section 14 of this Agreement.

(b)The Joint Alliance Team shall be composed of named representatives of CUBIST and named representatives of XTL. Each Party shall appoint its respective representatives to the Joint Alliance Team from time to time, and may substitute one or more of its representatives, in its sole discretion, effective upon notice to the other Party of such change. Of the initial representatives to be designated by each Party, there shall be expertise in preclinical development, process development, regulatory activities, clinical development, and manufacturing and supply matters. The Parties shall be free to change their representatives from time to time and at any time. Each representative serving on the Joint Alliance Team shall have appropriate technical credentials, experience and knowledge, and ongoing familiarity in the specific area of such representative’s expertise. The chief business officer, or his/her designee, of each Party shall serve as co-chair to the Joint Alliance Team. Additional representatives or consultants may from time to time, by mutual consent of the Parties, be invited to attend Joint Alliance Team meetings, subject to compliance with the provisions of Section 8.1 of this Agreement. The co-chairpersons shall be responsible for calling meetings, preparing and circulating an agenda in advance of each meeting, and preparing and issuing minutes of each meeting within thirty (30) days thereafter.

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(c)The Joint Alliance Team shall hold meetings at such times as it elects to do so, but in no event shall such meetings be held less frequently than once every three (3) months unless otherwise agreed by the Parties. The first meeting of the Joint Alliance Team shall be held no later than sixty (60) days after the Effective Date. Meetings of the Joint Alliance Team may be held by audio or video teleconference with the consent of each Party; provided that at least two (2) meetings per year shall be held in person, one (1) per year at the location of each party or such other location as the Parties may mutually agree. Each Party shall be responsible for all of its own expenses of participating in the Joint Alliance Team. The co-chairpersons will alternate responsibility for preparing minutes of each meeting of the Joint Alliance Team, which minutes will not be finalized until the co-chairperson that did not prepare such minutes reviews and confirms the accuracy of such minutes in writing.

(d)The Joint Alliance Team shall operate by consensus. If the Joint Alliance Team is unable to reach consensus on any particular issue, CUBIST shall have the right in its sole discretion to make the final decision. The Joint Alliance Team shall not have the power resolve any disputes concerning the validity, interpretation or construction of, or the compliance with or breach of, this Agreement, which disputes shall be resolved pursuant to Section 14. The rights and responsibilities of each Party shall be governed by this Agreement, including the exhibits hereto, and the Joint Alliance Team shall not have any power to amend, modify or waive compliance with this Agreement.

(e)Notwithstanding anything express or implied to the contrary in this Agreement, CUBIST may terminate the Joint Alliance Team and its functions hereunder, in whole or in part, in its sole discretion upon thirty (30) days’ prior written notice to XTL. Upon termination of the Joint Alliance Team, CUBIST shall assume sole responsibility to update the HepeX-B Plan from time to time in accordance with Section 5.2.

3.2  Coordinators.  Each Party shall appoint a designee (a “Coordinator”) to coordinate its activities under this Agreement. The Coordinators shall serve as primary contacts between the Parties with respect to this Agreement. Each Party shall notify the other Party within thirty (30) days of the date of this Agreement of the appointment of its Coordinator and shall notify the other Party as soon as practicable upon changing such appointment. The Coordinator appointed by each Party shall be responsible for (a) preparing such Party’s representatives serving on the Joint Alliance Team for meetings of the Joint Alliance Team, (b) coordinating the distribution and exchange of information to, from and among such Party’s representatives serving on the Joint Alliance Team, and (c) assisting in the coordination of the day-to-day activities of such Party’s representatives serving on the Joint Alliance Team so that the Joint Alliance Team can function effectively and such representatives can more effectively discharge their responsibilities as members of the Joint Alliance Team.

3.3Non-exclusive Right of Negotiation for Manufacturing Rights. Subject to the provisions of this Section 3.3, CUBIST hereby grants XTL a non-exclusive right of negotiation during the term of this Agreement to obtain all or any portion of the rights to manufacture and supply Product in the Territory. In the event that CUBIST proposes to engage a Third Party manufacturer to manufacture and supply Product in the Territory, then CUBIST will notify XTL in writing thereof and thereafter, XTL, to the extent that it remains so interested, shall be included among the interested parties with whom CUBIST holds discussions for the right to manufacture Products in the Territory until such time as CUBIST selects the party with whom it wishes to enter into negotiations for a definitive agreement for such rights. XTL acknowledges that beyond inclusion and participation in the discussions for such rights, XTL has no additional right or expectation whatsoever, and CUBIST has no additional obligation to XTL in respect of such non-exclusive negotiation rights. CUBIST shall consider commercially reasonable criteria in selecting its Third Party manufacturers, including without limitation, the Product specifications, the cost of goods sold, regulatory requirements and prior experience and performance. Without limiting the generality of the foregoing, XTL acknowledges that CUBIST shall have complete liberty to select its manufacturing partners, and to determine all manufacturing activities, as CUBIST, in its sole discretion, sees fit, but consistent with CUBIST’s obligations to use Commercially Reasonable Efforts as set forth in Section 2.2. Notwithstanding anything expressed or implied to the contrary in this Section 3.3, XTL shall be afforded the opportunity to participate in such negotiations only once during the term of this Agreement and in the event that XTL foregoes its non-exclusive right of negotiation for the manufacture and supply of a particular Product, or if XTL participates in such negotiations but is not selected by CUBIST, then XTL’s non-exclusive rights under this Section 3.3 shall terminate. XTL’s rights under this Section 3.3 will terminate upon a Change of Control of CUBIST (except with respect to any separate written manufacturing agreement entered into between CUBIST and XTL prior to the effective date of such Change of Control; provided that CUBIST has promptly complied with the notice provisions set forth in this Section 3.3 prior to such Change of Control).

3.4Independence.  Subject to the terms of this Agreement, the activities and resources of each Party shall be managed by such Party, acting independently and in its individual capacity. The relationship between CUBIST and XTL is that of independent contractors, and neither Party shall have the power to bind or obligate the other Party in any manner, other than as is expressly set forth in this Agreement.

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Section 4.INFORMATION SHARING.

4.1Product Information. (a)During the term of this Agreement, XTL shall have an ongoing obligation to transfer to CUBIST all information, including technical data, in XTL’s possession or Control and related to the Product as CUBIST may reasonably require; provided that in the event that XTL is unable to transfer any information or technology to CUBIST required to be transferred under this Agreement, upon CUBIST’s written request, XTL shall arrange for the prompt transfer of such information or technology to an Israeli subsidiary of CUBIST at XTL’s expense. On the first business day of each quarter during the term of this Agreement, XTL shall provide CUBIST with a written report detailing the activities undertaken by XTL under the HepeX-B Plan and the results obtained from such activities. At any time during the term of this Agreement, upon reasonable request by CUBIST, XTL shall deliver to CUBIST or its designee copies of all files in the possession or control of XTL or its agents that relate to the Product or activities undertaken by XTL under the HepeX-B Plan. During the term of this Agreement and for one (1) year thereafter, XTL shall maintain all data and other records in XTL’s possession that are obtained or generated by XTL, its Affiliates or its Third Party service providers in the course of providing services under the HepeX-B Plan (collectively, “Records”) in a safe and secure manner and in accordance with all applicable laws and regulations. XTL shall make available all Records to CUBIST for examination and duplication, during normal business hours and at mutually agreeable times. During the term of this Agreement, XTL shall provide CUBIST with reasonable access to pertinent XTL employees or members of Third Party contractors that are engaged in the activities undertaken by XTL under the HepeX-B Plan or have experience with or information related to any Products. For the purposes of calculating Designated Costs, XTL’s activities under this Section 4.1(a) (with the exception of XTL’s obligation to transfer information or technology to an Israeli subsidiary of CUBIST) in connection with HepeX-B shall be considered to be activities necessary or advisable to Obtain Regulatory Approval for a commercially viable formulation of HepeX-B for the prevention of recurrent Hepatitis B infections in liver transplant patients in the Territory.

(b)On or before February 1st and August 1st of each Contract Year, CUBIST shall provide to XTL written progress reports summarizing in reasonable detail CUBIST’s activities to Obtain Regulatory Approval during the six- (6) month period ending on the preceding December 31st and June 30^th, respectively, as well as anticipated activities to be undertaken during the subsequent six-month period. CUBIST shall also notify XTL in writing of any material developments as a result of CUBIST’s activities to Obtain Regulatory Approval within thirty (30) days thereafter.

4.2Pre-Clinical and Clinical Data; Regulatory Filings. XTL will provide to CUBIST all relevant pre-clinical or clinical information (including without limitation that with respect to Product safety) relating to or in connection with Product in a timely fashion and to permit CUBIST to comply with any applicable law or regulation. No later than five (5) days after the Effective Date, XTL will provide CUBIST copies of all regulatory filings, INDs, and orphan drug designations, and the results of all pre-clinical and clinical testing of Products performed by or on behalf of XTL. On an ongoing basis during the term of this Agreement, XTL will provide to CUBIST (i) all information in XTL’s possession or control regarding pre-clinical testing and clinical testing performed or to be performed by or on behalf of XTL with respect to the Products (including, without limitation, information concerning the design and plans with respect to such pre-clinical testing or clinical testing) as such information becomes available, (ii) the results of all pre-clinical and clinical testing performed by or on behalf of XTL with respect to the Products as such information becomes available, (iii) all information in XTL’s possession regarding Products necessary or useful for making regulatory filings in the Territory with respect to Products as such information becomes available, and (iv) copies of all regulatory filings made by or on behalf of XTL with respect to Products promptly after such regulatory filings are made. CUBIST shall have a right of access, a right of reference and the right to use and incorporate all information provided to it pursuant to this Section 4.2 in its applications for Regulatory Approval of Products within the Territory and for all other purposes related to Obtaining Regulatory Approval, manufacture and Commercialization of Products. For the purposes of calculating Designated Costs, XTL’s activities under this Section 4.2 in connection with HepeX-B shall be considered to be activities necessary or advisable to Obtain Regulatory Approval for a commercially viable formulation of HepeX-B for the prevention of recurrent Hepatitis B infections in liver transplant patients in the Territory.

4.3No Retained Rights. Notwithstanding anything expressed or implied in the foregoing provisions of this Section 4 to the contrary, nothing in this Section 4 or elsewhere in this Agreement is intended to diminish the scope of the exclusive rights licensed by XTL to CUBIST pursuant to Section 2 or to suggest that, from and after the Effective Date, XTL retains any rights to Obtain Regulatory Approval for, manufacture, use or Commercialize any Product for the prevention or treatment of Hepatitis B, except to the extent necessary for XTL to perform its obligations under the HepeX-B Plan in accordance with the provisions of this Agreement.

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Section 5.REGULATORY APPROVAL ACTIVITIES.

5.1Regulatory Approval Activities.(a)Subject to, and in accordance with, the terms and conditions of this Agreement and all requirements of applicable laws, rules, and regulations, XTL shall use Commercially Reasonable Efforts to conduct its activities to Obtain Regulatory Approval set forth in the HepeX-B Plan; provided, however, that subject to Section 5.1(b), XTL shall not have any obligation to perform activities to Obtain Regulatory Approval under the HepeX-B Plan or, prior to the first iteration of the HepeX-B Plan, under the guidelines attached as Exhibit C (other than the XTL Activities and such other XTL obligations as are expressly set forth in this Agreement) to which XTL has not consented if (i) prior to the first iteration of the HepeX-B Plan, CUBIST attempts to impose obligations that materially deviate in scope from the guidelines set forth in Exhibit C, (ii) the initial HepeX-B Plan materially deviates in scope from the guidelines attached in Exhibit C, and/or (iii) material changes are made to the HepeX-B Plan without XTL’s prior written consent; provided that in all cases, XTL may not refuse to provide any data or information pursuant to Sections 4.1(a) or 4.2. XTL hereby acknowledges and agrees that it shall not be entitled to engage in any activities to Obtain Regulatory Approval with respect to any Product intended for treatment or prevention of Hepatitis B, unless and until such activities have been incorporated into the HepeX-B Plan and CUBIST shall have provided written consent to XTL engaging in such development activities. The Parties shall use Commercially Reasonable Efforts to minimize the costs and expenses incurred by them as a result of the performance of their obligations under this Section 5. Notwithstanding anything in this Section 5 or elsewhere in this Agreement to the contrary, XTL shall cease any activities to Obtain Regulatory Approval, including any pre-clinical and clinical activity for Products, upon receipt of written notice from CUBIST to cease such activity, or as soon as practicable thereafter.

(b)If and to the extent requested by CUBIST and included in the HepeX-B Plan, XTL shall use Commercially Reasonable Efforts to deliver to CUBIST the following (collectively, as described in Exhibit D and as revised from time to time by mutual written consent of the Parties, the “XTL Activities”): (i) a commercially viable method to manufacture Product using *****, including development and implementation of a testing plan to demonstrate comparability to Products produced from *****; (ii) a commercially viable, concentrated parenteral formulation of Product for both intravenous and subcutaneous injection; (iii) complete the phase 2b study and the PK/PD bridging study for HepeX-B undertaken by XTL and underway as of the Effective Date.

5.2.HepeX-B Plan. All activities of the Parties (including allocation of responsibilities of each Party or its designee) contemplated under this Agreement to Obtain Regulatory Approval, including without limitation, pre-clinical and clinical Product activities, any XTL Activities requested by CUBIST, and all scientific, clinical, manufacturing, regulatory and other activities to be undertaken for a commercially viable Product, and a budget for the foregoing, shall be set forth in a plan, as modified from time to time (the “HepeX-B Plan”). In addition, the HepeX-B Plan will indicate whether any budgeted costs are Designated Costs. Within ***** days after the Effective Date, the Joint Alliance Team shall propose a detailed initial HepeX-B Plan for each Party’s review. An initial guideline identifying major concepts for inclusion in the HepeX-B Plan is attached as Exhibit C; if requested by CUBIST, any or all of the XTL Activities shall also be included in the HepeX-B Plan. The Joint Alliance Team will propose recommended changes to the HepeX-B Plan at least *****. No modification to the HepeX-B Plan will be effective unless and until approved by CUBIST and provided to XTL pursuant to Section 15.4 (without copies to legal counsel). CUBIST will have the sole right to determine whether to ***** CUBIST’s sole discretion, but subject to *****. XTL has the right to review ***** to the HepeX-B Plan for the purpose of (a) ***** under the HepeX-B Plan should constitute *****; and (b) to ***** under the modified HepeX-B Plan (other than XTL Activities) as contemplated in Section 5.1(a). XTL shall have ***** days from receipt of any proposed modified HepeX-B Plan pursuant to Section 15.4 (without copies to legal counsel) to inform CUBIST whether it disputes the categorization of any such costs as Designated Costs. If XTL timely informs CUBIST that *****, the Parties shall then have ***** business days to discuss *****, and if the Parties cannot agree after good faith discussions whether any *****, the matter shall be resolved in accordance with the dispute resolution process set forth in Section 14. If XTL does not inform CUBIST within ***** days after receipt of any proposed modified HepeX-B Plan that it agrees to ***** proposed under the modified HepeX-B Plan as contemplated in Section 5.1(a), XTL will be deemed to have elected *****.

5.3Use of Data by XTL. All data generated by XTL from any activities engaged in by XTL pursuant to, and in accordance with, the provisions of this Section 5 shall not be used by XTL and its Affiliates, except to support Regulatory Approval in the Territory of Product or to Commercialize Product in the Territory without the prior written consent of CUBIST, which shall not be unreasonably withheld.

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5.4Costs and Expenses. The costs and expenses incurred by both Parties in connection with any and all activities engaged in pursuant to, and in accordance with, the provisions of this Section 5, shall be allocated in the manner set forth in Section 7.

5.5Health Hazards. Each Party will notify the other Party of any material health hazards with respect to Products that may impact employees involved in the activities to Obtain Regulatory Approval, manufacture, production or supply of Products as soon as practicable, and in any event within forty-eight (48) hours, after such Party becomes aware of such hazards.

5.6XTL Compliance. In connection with any activities undertaken by XTL to Obtain Regulatory Approval in connection with any Product, XTL shall comply with all applicable laws, rules and regulations regarding such activities, as such laws, rules and regulations are in effect where such activities are undertaken.

5.7 No Debarred Personnel.  In the course of the development of Product or any component thereof, XTL has not used prior to the Effective Date, and neither XTL nor CUBIST shall not use during the term of this Agreement, the services of any employee, consultant, contractor, or clinical investigator that has been debarred by the FDA or any other Regulatory Authorities or that is the subject of debarment proceedings by the FDA or any other Regulatory Authority.

Section 6.REGULATORY ACTIVITIES

6.1Regulatory Activities. Subject to, and in accordance with, the terms and conditions of this Agreement (including Section 6.3), and all requirements of applicable laws, rules, and regulations, CUBIST shall be responsible for filing and obtaining Regulatory Approvals for Products in the Territory. XTL shall not be entitled to engage in any regulatory activities with respect to any Product without the prior written consent of CUBIST. XTL shall use Commercially Reasonable Efforts to assist CUBIST in complying with all requirements of applicable laws, rules, and regulations related to Regulatory Approval of Product in the Territory. Notwithstanding anything in this Section 6 or elsewhere in this Agreement to the contrary, XTL shall cease any regulatory activity and all attempts to Obtain Regulatory Approval with respect to any Product upon receipt of written notice from CUBIST to cease such activity, or as soon as practicable thereafter.

6.2Regulatory Approvals.  To the extent permitted by applicable laws, rules and regulations,CUBIST shall file in its own name, and own, all drug, biologic and device approval applications and Regulatory Approvals for Products in the Territory, and shall be solely responsible for all communications with Regulatory Authorities in such countries relating thereto. Upon CUBIST’s reasonable request, XTL shall cooperate with and assist CUBIST in the communication with any Regulatory Authority or in the preparation and submission of any regulatory filing regarding Product, and will provide such information and data in XTL’s possession or control that is necessary to Obtain Regulatory Approval. If XTL is required by applicable laws or regulations or a Regulatory Authority having jurisdiction in the Territory to disclose information directly to such Regulatory Authority relating to Product, XTL shall notify CUBIST in writing of the requirement and the particulars of the information required to be disclosed, and XTL shall coordinate with CUBIST in making any such disclosure. Further, with respect to any such required disclosures, CUBIST shall have the right to be present and to participate at all face-to-face meetings and scheduled conference calls between XTL and such Regulatory Authority with respect to Product and CUBIST shall have the right to lead any such face-to-face meetings or scheduled conference calls. Promptly after the Effective Date, XTL shall transfer and assign to CUBIST any and all such drug, biologic and device approval applications, INDs, orphan drug designations or Regulatory Approvals held by XTL as of the Effective Date.

6.3Costs and Expenses. The costs and expenses incurred by both Parties in connection with any and all regulatory activities engaged in pursuant to, and in accordance with, the provisions of this Section 6, shall be allocated in the manner set forth in Section 7.

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Section 7.PRODUCT COSTS AND EXPENSES.

7.1Collaboration Support. The Parties acknowledge that XTL will incur costs from and after the Effective Date in furtherance of its activities set forth in the HepeX-B Plan. Subject to the last sentence of this Section 7.1, CUBIST shall pay XTL $2,000,000 in contemplation of costs, of which (a) ***** after the Joint Alliance Team’s initial presentation of the HepeX-B Plan for approval, unless CUBIST dissolves the Joint Alliance Team prior to such initial presentation, in which case, CUBIST will pay such amount within ***** days after *****; (b) ***** shall be paid on or prior to *****; and (c) ***** shall be paid on the last business day of *****. Notwithstanding anything to the contrary express or implied in this Section 7.1, CUBIST shall have no obligation to make any payment under this Section 7.1 if XTL is in material breach of its obligations under this Agreement.

7.2Overall Designated Costs. The Parties shall use Commercially Reasonable Efforts to minimize the Designated Costs. It is the intent of the Parties, to the extent practicable, to endeavor to limit the Designated Costs to not more than $33,900,000.

7.3Designated Costs.(a) In addition to the payments under Section 7.1, and subject to Section 7.4, CUBIST shall bear all Designated Costs; provided that any XTL Designated Costs are incurred in the performance of activities that are set forth in an approved HepeX-B Plan in effect as of the time XTL incurred such Designated Costs or became obligated to incur such Designated Costs. XTL shall submit quarterly invoices in Dollars to CUBIST no later than ***** after the end of each quarter which set forth in reasonable detail the XTL Designated Costs for the immediately preceding quarter. If not previously approved by CUBIST in writing, CUBIST shall inform XTL within ***** days of receipt of an invoice whether it disputes the categorization of any such costs listed in such invoice as Designated Costs. The Parties shall have ***** business days to discuss such costs, and if the Parties cannot agree after good faith discussions whether any itemized costs listed in such invoice are Designated Costs, the matter shall be resolved in accordance with the dispute resolution process set forth in Section 14. CUBIST shall not be responsible for any costs set forth in an invoice that are not Designated Costs. Subject to the immediately preceding sentence and Section 7.4 below, CUBIST shall reimburse Designated Costs that are not subject to a good faith dispute within ***** days after receipt of such invoice.

(b)CUBIST shall provide to XTL, no later than ***** days after the end of each quarter, a report which sets forth in reasonable detail the CUBIST Designated Costs for the immediately preceding quarter. XTL shall inform CUBIST within ***** days of receipt of any such report whether it disputes the categorization of any such costs listed in such invoice as Designated Costs. The Parties shall have ***** business days to discuss such costs, and if the Parties cannot agree after good faith discussions whether any itemized costs listed in such report are Designated Costs, the matter shall be resolved in accordance with the dispute resolution process set forth in Section 14.

7.4CUBIST Designated Costs Cap. Notwithstanding anything express or implied to the contrary contained herein, CUBIST shall be responsible for up to $33,900,000 of the Designated Costs (whether incurred by CUBIST or XTL). Thereafter, the Parties shall each bear fifty percent (50%) of the Designated Costs in excess of $33,900,000. From and after the date that the aggregate amount of undisputed Designated Costs is equal to or greater than $33,900,000, after receipt of each invoice from XTL, CUBIST shall determine the aggregate Designated Costs for such quarter by adding the undisputed XTL Designated Costs for such quarter (to the extent such Designated Costs are in excess of the aggregate Designated Costs of $33,900,000) plus the undisputed CUBIST Designated Costs for such quarter (to the extent such Designated Costs are in excess of the aggregate Designated Costs of $33,900,000) (the sum of the XTL Designated Costs and the CUBIST Designated Costs for such quarter referred to herein as the “Aggregate Designated Costs”). If the undisputed XTL Designated Costs for such quarter are greater than fifty percent (50%) of the Aggregate Designated Costs for such quarter, then CUBIST shall pay to XTL an amount equal to (i) the XTL Designated Costs for such quarter minus (ii) the result of the Aggregate Designated Costs for such quarter divided by two (2). CUBIST shall pay such amount within ***** days of receipt of the invoice for XTL Designated Costs for such quarter. If the undisputed CUBIST Designated Costs for such quarter are greater than fifty percent (50%) of the Aggregate Designated Costs for such quarter, then XTL shall pay to CUBIST an amount equal to (I) the CUBIST Designated Costs for such quarter minus (II) the result of the Aggregate Designated Costs for such quarter divided by two (2). CUBIST shall deliver an invoice to XTL for such amount, which invoice shall set forth in reasonable detail the CUBIST Designated Costs for the immediately preceding calendar quarter. XTL may either make such payment within ***** days of receipt of the invoice or ***** under ***** hereunder such that the ***** are no less than the *****, until XTL’s share of Designated Costs is offset in full. A one-time fee of ***** shall be assessed on every amount that ***** pursuant to this Section 7.4. In addition, interest shall accrue pursuant to Section 10.8 on all ***** that XTL ***** pursuant to this Section 7.4 beginning ***** months after XTL’s receipt of CUBIST’s invoice therefor. XTL shall have no obligation to pay any Designated Costs that have not been ***** as of the termination or expiration of this Agreement. XTL shall have no obligation to share in any Designated Costs incurred *****, and interest shall cease to accrue with respect to any previously incurred Designated Costs. For the avoidance of doubt, XTL’s obligation to share in any Designated Costs under this Section 7.4 shall be limited to HepeX-B, unless otherwise agreed by the Parties in writing.

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7.5Practices. XTL will perform its activities under the HepeX-B Plan in accordance with then current Good Laboratory Practices, Good Clinical Practices (as required of a sponsor of a clinical trial), and Good Manufacturing Practices, if and to the extent required by the HepeX-B Plan, and in such event, XTL will include in each agreement with each of its subcontractors, if any, performing any such activities contemplated under the HepeX-B Plan a requirement that such subcontractors perform its activities in accordance with then current Good Laboratory Practices, Good Clinical Practices, and Good Manufacturing Practices, as and if applicable.

Section 8.CONFIDENTIALITY; PUBLICATION; RECORDS.

8.1Nondisclosure Obligation. All Proprietary Information disclosed by or on behalf of one Party to the other Party under this Agreement that is marked “confidential” or “proprietary”, and in the case of oral information, is summarized in a writing that is marked “confidential” or “proprietary” and delivered to the other Party within thirty (30) days of disclosure of such information, shall be maintained in confidence by the receiving Party and shall not be disclosed to a non-Party or used for any purpose whatsoever without the prior written consent of the other Party, except to the extent that such Proprietary Information:

(a)is known by recipient at the time of its receipt, and not through a prior disclosure by or on behalf of the disclosing Party, as documented by contemporaneous business records;

(b)is properly in the public domain through no fault of the recipient;

(c)is subsequently disclosed to a receiving Party by a Third Party who may lawfully do so and is not directly or indirectly under an obligation of confidentiality to the disclosing Party, as documented by written business records in existence prior to the receipt of such information from the disclosing Party;

(d)is developed by the recipient independently of, and without reference to or use of, Proprietary Information received from the disclosing Party;

(e)is required to be disclosed to governmental or other regulatory agencies in order to obtain patents, to obtain approval to conduct clinical trials or to market Products, or to comply with applicable governmental or stock exchange or quotation system regulations; provided, however, that such disclosure may be only to the extent reasonably necessary to obtain patents or approval, or to comply with laws or regulations as appropriate and that confidential treatment will be sought to the extent reasonably practicable;

(f)is disclosed to actual or potential permitted sublicensees or permitted assignees and/or other third parties (1) for the purpose of conducting activities under this Agreement (or for such actual or potential permitted sublicensees or permitted assignees and/or other third parties to determine their interest in performing such activities) in accordance with this Agreement or (2) for the purpose of allowing the Party making such disclosure to effectively exploit its rights under this Agreement and obtain all of the benefits under this Agreement to which such Party is entitled as contemplated by this Agreement; provided, however, that such actual or potential permitted sublicensees or permitted assignees and/or other third parties have agreed to be bound by confidentiality obligations substantially equivalent to the terms herein for no less than five years from the date of disclosure;

(g)is disclosed to employees, officers, directors, consultants, agents, investors or potential investors of, or lenders or potential lenders to, the Party making such disclosure; provided, however, that such employees, officers, directors, consultants, agents, investors, potential investors, lenders and potential lenders have agreed to be bound by confidentiality obligations substantially equivalent to the terms herein for no less than five years from the date of disclosure; and provided further that notwithstanding the provisions set forth above in this subsection (g), neither Party shall disclose Proprietary Information of the other Party to potential investors or potential lenders except to the extent that such disclosure is made in the context of such potential investors’ or potential lenders’ due diligence investigation of the Party making such disclosure;

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(h)is used by the receiving Party for the purpose of conducting activities under this Agreement in accordance with its respective terms or is used by the receiving Party for the purpose of allowing the receiving Party to effectively exploit its rights under this Agreement and obtain all of the benefits under this Agreement to which such receiving Party is entitled as contemplated by this Agreement; or

(i)is required to be disclosed by law, regulation or court order; provided that notice is promptly delivered to the other Party in order to provide an opportunity to challenge or limit the disclosure obligations; and providedfurther that such disclosure may be only to the extent reasonably necessary to comply with the applicable law, regulation or court order.

The disclosing Party shall identify any Proprietary Information delivered to the receiving Party that is confidential information of a Third Party and the disclosing Party shall inform the receiving Party of any restrictions, limitations and qualifications imposed on such Proprietary Information by such Third Party. XTL agrees that with respect to any CUBIST Proprietary Information disclosed to Yeda as contemplated by the XY Agreement and the Consent Agreement, that XTL shall mark all such CUBIST Proprietary Information as “confidential” or “proprietary”, and in the case of oral information, XTL shall summarize such CUBIST Proprietary Information in a writing that is marked “confidential” or “proprietary” and deliver such summary to Yeda within thirty (30) days of disclosure of such CUBIST Proprietary Information.

8.2No Disclosure of Terms. Either Party may disclose the existence of this Agreement, but, except to the extent otherwise provided below in this Section 8.2, neither Party shall disclose the terms of this Agreement without the prior written consent of the other Party. Notwithstanding the foregoing, either Party may disclose the terms of this Agreement pursuant to the provisions of subparagraphs (b), (e), (f) (with financial terms redacted), (g), or (i) of Section 8.1 to the same extent as if the terms of this Agreement were Proprietary Information of the non-disclosing Party.

8.3No Publication. XTL shall not publish or publicly present any information (a) relating to this Agreement, (b) any activities conducted under or in relation to this Agreement, or (c) relating to any Product, in all cases without the prior written consent of CUBIST. Neither Party shall make public use of the other Party’s name or identifying marks except as otherwise permitted under this Agreement, with the prior written consent of the other Party or as required by applicable law or regulation. CUBIST shall not use the names of Yeda, the Weizmann Institute of Science, Rehovot, or Professor Yair Reisner in any advertising, sales literature, or promotional material unless (i) the prior written approval of Yeda thereto has been obtained or (ii) such use or disclosure is to governmental authorities for the purposes of obtaining approval or permission for the exercise of its license rights to any XTL Technology licensed to XTL pursuant to the XY Agreement or is in the fulfillment of any legal duty owed to any governmental authority or is required by applicable law. Nothing in this Section 8.3 shall limit XTL’s ability to apply for any patent protection.

8.4Press Releases, Etc. Notwithstanding anything set forth in Section 8.1, 8.2 or 8.3 above to the contrary, XTL may not issue any news release or other public announcement relating to this Agreement or to the Parties’ performance hereunder, without the prior written consent of CUBIST, which shall not be unreasonably withheld or delayed, except to the extent required by applicable law, regulation or stock exchange or quotation system requirement; provided that XTL uses Commercially Reasonable Efforts to submit to CUBIST a draft of such news release or public announcement at least five (5) days prior to the date of planned issuance thereof and shall review and consider in good faith any comments provided by CUBIST. CUBIST may issue any news release or other public announcement relating to Product without the prior written consent of XTL, subject to the confidentiality provisions of Sections 8.1, 8.2 and 8.3; provided, however, that CUBIST may not issue any news release or other public announcement relating to this Agreement or to XTL’s performance hereunder, without the prior written consent of XTL, which shall not be unreasonably withheld or delayed, except to the extent required by applicable law, regulation or stock exchange or quotation system requirement; and provided further that, unless precluded by applicable law, regulation or stock exchange or quotation system requirement, CUBIST will use Commercially Reasonable Efforts to submit to XTL a draft of such news release or public announcement at least five (5) days prior to the date of planned issuance thereof so as to afford XTL the opportunity to object if such proposed press release would violate applicable Israeli law, regulation or stock exchange or quotation system requirement. In the event of such objection, the parties will diligently cooperate to arrive at a revised draft of such proposed press release that does not so violate such applicable Israeli law, regulation or stock exchange or quotation system requirement.

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8.5Records; Audit Rights. Each Party shall keep or cause to be kept full and accurate books of account and records containing all particulars that may be necessary to determine, in a manner consistent with generally accepted accounting principles in the United States, the sums or credits due under this Agreement, including, but not limited to Designated Costs, Net Sales and Sublicensee Revenues. At the written request (and expense) of either Party, the other Party and its Affiliates, and in the case of CUBIST, its licensees and sublicensees shall permit an independent certified public accountant appointed by such Party and reasonably acceptable to the other Party, accompanied by representatives of the financial department of the audited Party at reasonable times, upon reasonable notice and no more frequently than once per Contract Year, to examine only those records as may be necessary to determine the correctness or completeness of any report or payment made under this Agreement, including but not limited to Designated Costs, Net Sales and Sublicensee Revenues (including a breakdown of the components thereof so as to enable calculation of royalties payable to Yeda under the XY Agreement), with respect to any Contract Year ending not more than ***** prior to such Party’s request. Results of any such examination shall be (i) made available to both Parties, (ii) limited to information necessary to report any error in any payment or report made under this Agreement and (iii) subject to the provisions of this Section 8. The Party requesting the audit shall bear the full cost of the performance of any such audit, unless such audit discloses a variance of more than ***** from the amount of the original report, royalty or payment calculation. In such case, the Party being audited shall bear the full cost of the performance of such audit.

Section 9.LICENSE AND MILESTONE PAYMENTS.

9.1Consideration for License. In consideration for the licenses granted to CUBIST under Section 2, CUBIST shall make a cash payment to XTL of USD $1,000,000 within three (3) business days after the Effective Date of this Agreement.

9.2Milestones. (a) Subject to the terms and conditions in this Agreement (including, without limitation, the provisions of Sections 9.2(b), 9.2(c) and 9.3 below), CUBIST shall make cash payments to XTL in the respective amounts set forth below upon attainment of the milestones events (each a “Milestone Event”) set forth below:

Milestone Event	Payment Amount
*****	USD $*****
*****	USD $*****

(b)CUBIST shall promptly notify XTL in writing upon the achievement of any of the milestones set forth above in Section 9.2(a) and CUBIST shall have ***** days after the occurrence of the Milestone Event to make the corresponding milestone payment due. All milestone payments shall be in Dollars.

(c)CUBIST shall make only one of the payments set forth in Section 9.2(a) and only upon the first achievement of the applicable Milestone Event by the first iteration of HepeX-B to achieve such milestone. After the achievement of a given Milestone Event and the payment required to be made by CUBIST pursuant to Section 9.2(a), no further payment shall be due or owed by CUBIST in connection with any Milestone Event, regardless of how many times the same Milestone Event is achieved by different or multiple Products. If the first achievement of the Milestone Event occurs after December 31, 2008, then no payment shall be due or owed by CUBIST pursuant to Section 9.2(a).

9.3Reduction of Milestone Payments. Notwithstanding any provision in this Section 9 or elsewhere in this Agreement to the contrary, CUBIST shall be entitled to reduce payments required pursuant to Section 9.2 above as set forth in Section 7.4, Section 11.3, or Section 12.10, or pursuant to the Consent Agreement, as further contemplated under Section 10.4.

Section 10.ROYALTIES.

10.1Royalties on Net Sales of HepeX-B covered by a Valid Claim.(a)For each Contract Year during the term of this Agreement, CUBIST shall pay to XTL, subject to the terms and conditions of this Agreement (including, without limitation, the provisions of Sections 10.2, 10.4, 10.5 and 10.9), a royalty with respect to Net Sales of HepeX-B sold by CUBIST or its Affiliates, in any and all countries where the manufacture, use or sale of HepeX-B are covered by a Valid Claim in such country (each a “Patent Country”), equal to:

(i)if Net Sales of HepeX-B in Patent Countries during such Contract Year are equal to or less than *****, ten percent (10%) of the aggregate Net Sales for HepeX-B sold in Patent Countries during such Contract Year, and

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(ii)if Net Sales of HepeX-B in Patent Countries during such Contract Year are greater than *****, then the lesser of (A) the Patent Royalty Rate, and (B) seventeen percent (17%); multiplied by the aggregate Net Sales for HepeX-B sold in Patent Countries during such Contract Year.

For purposes of this Section 10, the “Patent Royalty Rate” shall equal:

[			]
	*****	*****
	$*****			*****
				]

For purposes of illustration only, if aggregate Net Sales of HepeX-B in Patent Countries during a Contract Year is equal to *****, then the Patent Royalty Rate shall equal to *****, or *****.

(b)In the event of the issuance of a Retroactive Valid Claim in a country that was not a Patent Country prior to such filing (the “Retroactive Royalty Country”), for each Contract Year during which the application for the Retroactive Valid Claim was pending (but in no event more than ***** prior to the date of issuance of such Retroactive Valid Claim in the Retroactive Royalty Country), through the date of issuance (each such Contract Year, a “Retroactive Royalty Year”), CUBIST shall recalculate the aggregate royalties payable under Sections 10.1(a) and 10.2 for each such Retroactive Royalty Year by including the Net Sales of such Retroactive Royalty Country in the calculations for Patent Countries under Section 10.1(a), and reducing by such amount the Net Sales in the calculations for Know-How Countries under Section 10.2 (collectively the “Recalculated Royalties”). CUBIST will pay to XTL, subject to the terms and conditions of this Agreement (including, without limitation, the provisions of Sections 10.2, 10.4, 10.5 and 10.9), a retroactive royalty with respect to each Retroactive Royalty Year in an amount equal to (i) the Recalculated Royalties, minus (ii) any amounts paid or payable to XTL under Section 10.1(a) and Section 10.2 for such Retroactive Royalty Year prior to effecting any setoffs or offsets under this Agreement. For the first Retroactive Royalty Year, such retroactive payment will only apply for Net Sales effected after the effective date of filing of the application for the Retroactive Valid Claim. Such retroactive royalty payments will be paid in *****, each ***** after each of the next ***** (each a *****; provided that if such aggregate payment together with amounts payable under Section 10.3(e) for the same Retroactive Valid Claim(s) exceeds ***** of the royalties paid or payable prior to effecting any setoffs or offsets under this Agreement for the Contract Year immediately preceding the Contract Year in such Retroactive Valid Claim issued, then CUBIST may elect to pay such retroactive royalty payments in ***** after each of the next *****. If CUBIST elects to pay in *****, interest shall accrue pursuant to Section 10.8 on all such retroactive royalty payments beginning on the thirty-first (31^st) day after the ***** that are then unpaid.

10.2Know-How Royalties. Notwithstanding any provision in this Section 10 or elsewhere in this Agreement to the contrary but subject to Section 10.4(a), for each Contract Year during the term of this Agreement, CUBIST shall pay to XTL a royalty with respect to annual Net Sales of HepeX-B sold by CUBIST or its Affiliates in any country where the manufacture, use or sale of HepeX-B is not covered by a Valid Claim in such country (each a “Know-How Country”) in an amount equal to:

(a)if Net Sales of HepeX-B in the Territory during such Contract Year are equal to or less than ***** of the aggregate Net Sales for HepeX-B sold in Know-How Countries during such Contract Year, and

(b)if Net Sales of HepeX-B in the Territory during such Contract Year are greater than $*****, then the lesser of (i) the Know-How Royalty Rate, and (ii) *****; multiplied by the aggregate Net Sales for HepeX-B sold in all Know-How Countries during such Contract Year.

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For purposes of this Section 10, the “Know-How Royalty Rate” shall equal:

[			]
	*****	*****
	*****			*****

For purposes of illustration only, if aggregate Net Sales of HepeX-B by CUBIST or its Affiliates during a Contract Year in the Territory is equal to ***** (representing ***** of aggregate Net Sales in Patent Countries and $***** of aggregate Net Sales in Know-How Countries), then the Know-How Royalty Rate under this Section 10.2 shall equal *****, or *****.

10.3Royalties on Net Sublicensee Revenues.(a) Subject to Sections 10.3(b), (c) and (d), for each Contract Year during the term of this Agreement, CUBIST shall pay to XTL, subject to the terms and conditions of this Agreement, an amount equal to ***** of the aggregate annual Sublicensee Revenues for such Contract Year.

(b)Notwithstanding anything to the contrary in Section 10.3(a) above, but subject to the other terms and conditions of this Agreement, for each Contract Year during the term of this Agreement, CUBIST shall pay to XTL an amount equal to (i) ***** of the aggregate annual Sublicensee Revenues for such Contract Year with respect to rights to Commercialize Product in the United States of America, and(ii) if CUBIST sublicenses rights to Commercialize Product in more than ***** European Major Markets, CUBIST shall pay to XTL ***** of the aggregate annual Sublicense Revenues for such Contract Year with respect to rights to Commercialize Product in the ***** European Major Market country in which CUBIST has sublicensed rights to Commercialize Product. In the event it is not clear which of several countries are the ***** European Major Market countries in which CUBIST has sublicensed rights to Commercialize Product, CUBIST shall have the right in its sole discretion to identify which ***** of those countries are the ***** European Major Market countries; provided that such determination may not be subsequently changed by CUBIST without XTL’s prior written consent. To the extent that Sublicensee Revenues are applicable to more than one country listed above, the percentage of such Sublicensee Revenues that CUBIST shall be required to pay to XTL shall be calculated based on an appropriate weighted average of the applicable countries.

(c)With respect to Sublicensee Revenues that relate solely to Know-How Countries in a particular Contract Year, the amount payable by CUBIST to XTL under Sections 10.3(a) or 10.3(b) will be reduced by *****.

(d)With respect to Sublicensee Revenues (other than Sublicensee Revenues based on sales) from a particular Sublicensee that relate to both Patent Countries and Know-How Countries in a particular Contract Year, the amount payable by CUBIST to XTL under Sections 10.3(a) and 10.3(b) will be reduced by a percentage between ***** (in the event that all countries are Know-How Countries) calculated using a weighted average. The weighted average shall be based on the reasonable estimate provided in good faith by CUBIST to XTL within thirty (30) days after execution of the underlying sublicense agreement of *****. If XTL disputes such good faith estimate, then XTL may submit the matter to the dispute resolution procedures set forth in Section 14.

(e)For each Retroactive Royalty Year applicable for a particular country that was not a Patent Country during such Retroactive Royalty Year absent such Retroactive Valid Claim, CUBIST will pay to XTL, subject to the terms and conditions of this Agreement (including, without limitation, the provisions of Sections 10.2, 10.4, 10.5 and 10.9), a retroactive royalty in an amount equal to (i) the amounts that would have been payable with respect to such country under Sections 10.3(a), (b), or (d), minus (ii) any amounts paid or payable to XTL under Section 10.3 with respect to such country prior to effecting any setoffs or offsets. For the first Retroactive Royalty Year, such retroactive payment will only apply for Sublicensee Revenues received after the effective date of filing of the application for the Retroactive Valid Claim. Such retroactive royalty payments will be paid in ***** after each of the next *****; provided that if such aggregate payment together with amounts payable under Section 10.1(b) for the same Retroactive Valid Claim(s) exceeds ***** of the royalties paid for the Contract Year immediately preceding the Contract Year in such Retroactive Valid Claim issued, then CUBIST may elect to pay such retroactive payments in *****. If CUBIST elects to pay in *****, interest shall accrue pursuant to Section 10.8 on all such retroactive royalty payments beginning on the thirty-first (31^st) day after the ***** that are then unpaid.

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10.4Setoffs and Offsets.(a) Notwithstanding any provision in this Section 10 or elsewhere in this Agreement to the contrary but subject to Section 10.4(b), CUBIST shall be entitled to reduce payments otherwise required pursuant to this Section 10 pursuant to Section 7.4, 11.3, or 12.10, or pursuant to the Consent Agreement. In addition, notwithstanding any provision in this Agreement to the contrary except Section 10.4(b), for any given country within the Territory, CUBIST shall have no obligation to make payments to XTL under Section 10.2 or 10.3 for any Contract Year with respect to a country where Product is not covered by a Valid Claim, if the aggregate unit sales of Unlicensed Products during such Contract Year by all Third Parties in such country constitute more than ***** of the market share on a per unit basis with respect to all unit sales of both such Unlicensed Products and HepeX-B in such country. CUBIST shall have no obligation to make payments to XTL under Section 10.2 or Section 10.3 for any Contract Year in any country within the Territory: (i) that is not a *****; (ii) where HepeX-B is *****; and (iii) where unit sales of Unlicensed Product that is also covered by a Valid Claim by all Third Parties in such country constitute more than ***** of the market share on a per unit basis with respect to all unit sales of both such Unlicensed Product and HepeX-B.

(b)With respect to any amount payable by CUBIST to XTL under Section 9 or Section 10, in no event may CUBIST setoff or offset amounts under Section 7.4, Section 11.3, or Section 12.10 or pursuant to the Consent Agreement against such payment in an amount exceeding such amount payable. Setoffs and offsets permitted pursuant to Section 9.3, Section 11.3, and Section 10.4 will be applied in the following order: (i) first to reductions pursuant to *****; and (ii) second to reductions pursuant to *****; (iii) third to reductions pursuant to *****; and (iv) fourth to reductions pursuant to *****; provided that in no event will such offsets or setoffs reduce any such payment to an amount less than the amount of the XTL Licensor Payment applicable for such payment period. Any amounts setoff or offset amounts that are not actually setoff or offset against a particular payment amount, will be carried forward to the next milestone or royalty payment period.

(c)XTL shall use any XTL Licensor Payment amount received under this Section 10.4 for the sole and exclusive purpose of paying such Third Parties; if XTL fails to use such amounts for such purpose, and does not remedy such failure as soon as reasonably practicable, and in any event no later than ***** days after receipt of written notice from CUBIST, and except as otherwise agreed in the Consent Agreement with respect to Yeda, CUBIST may withhold XTL Licensor Payment amounts from subsequent payments under Section 9 or Section 10 to apply against any setoffs or offsets under Section 7.4, Section 11.3, or Section 12.10.

(d)It is agreed that the references to the Consent Agreement in the definition of the XTL Licensor Payments and in Sections 9.3 and 10.4(a) and (b) shall not derogate from the rights of Yeda under the Consent Agreement, and for the purpose of those rights, shall be deemed not to have been made.

10.5Term of Royalties. XTL’s right to receive (and CUBIST’s obligation to pay) royalties under this Section 10 with respect to any country in the Territory shall expire (and Net Sales in such country after expiration will not be applied in the calculation of any royalty rates hereunder) upon the later of (a) ten (10) years from the First Commercial Sale of HepeX-B in such country, or (b) the expiration of the last to expire Valid Claim, if any, covering the manufacture, use, or sale of HepeX-B in such country; provided that if there is no such Valid Claim in such country, then the period described in clause (a) above shall control; and further provided that if clause (a) controls and if the XY Agreement requires XTL to pay royalties with respect to sales of HepeX-B under this Agreement for up to an additional two (2) years after such ten (10) year period, then during such additional period, CUBIST will pay directly to Yeda on behalf of XTL, such royalty amount to which Yeda is entitled under the XY Agreement and the Consent Agreement, calculated as if CUBIST were to continue to pay to XTL the amounts due to XTL under this Agreement and the Consent Agreement during the said two (2) year period. In the event that, in accordance with the provisions of this Section 10.5, the right of XTL to receive (and CUBIST’s obligation to pay) royalties under this Section 10 in connection with sales of HepeX-B in any country in the Territory expires, CUBIST shall nevertheless remain obligated to pay accrued royalties to XTL in connection with all sales of HepeX-B in such country that occurred prior to the effective date of such expiration.

10.6Royalty Payments and Reports. Royalties shall be calculated by converting all applicable Net Sales and Sublicensee Revenues into Dollars in accordance with the provisions of Section 10.8 below and applying the appropriate royalty percentages set forth in, or determined in accordance with, Section 10.1 or Section 10.2 or Section 10.3, as applicable. During the term of this Agreement, royalties accrued to XTL pursuant to this Section 10 shall be paid within ***** days after the close of each Contract Year. Royalty payments shall be made in Dollars. Within ***** days of the end of each Contract Year, CUBIST shall furnish to XTL a report showing: (i) the calculation of Net Sales for HepeX-B that were sold in the Territory on a country-by-country basis during such Contract Year, (ii) the calculation of Sublicensee Revenues attributed to HepeX-B that was sold in the Territory on a country-by-country basis during such Contract Year, (iii) royalties accrued to XTL pursuant to Section 10.1 and pursuant to Section 10.2 during such Contract Year, and (v) the currency exchange rates used in determining the amount of Dollars payable to XTL. If no royalty payments are due for any Contract Year hereunder, CUBIST shall so report. All reports delivered pursuant to this Section 10.6 and any information that can be derived therefrom shall constitute Proprietary Information of CUBIST for purposes of Section 8.1.

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10.7Exchange Rate. The rate of exchange to be used in computing Designated Costs, Net Sales and Sublicensee Revenues in each country within the Territory shall be made at the average rate of exchange for such country’s currency published in the Wall Street Journal (New York Edition) for the last business day of each month in the applicable period.

10.8Interest on Overdue Payments. Any amounts not paid by CUBIST or XTL when due under this Agreement shall be subject to interest from and including the date payment is due through and including the date upon which CUBIST or XTL has made such payment calculated at the annual rate equal to the prime rate plus ***** percent, as prime is reported in the Wall Street Journal (New York Edition), as determined for each month on the last business day of the previous month. For the avoidance of doubt, this Section 10.8 shall not apply to amounts XTL has elected to have CUBIST offset against future payments pursuant to Section 7.4.

10.9Taxes. If CUBIST is required by law, rule or regulation to withhold taxes from any payments due to XTL from CUBIST hereunder, CUBIST will (i) deduct those taxes from the remittable amount, (ii) pay the taxes to the proper taxing authority, and (iii) send evidence of the obligation together with proof of payment to XTL within thirty (30) business days following that payment. CUBIST will provide to XTL such assistance as XTL may reasonably require at XTL’s expense (including without limitation submission of documents to relevant revenue authorities) in claiming exemption from any such withholding requirements or seeking deductions under any double taxation or other similar treaty or agreement from time to time in force. In the event that XTL delivers to CUBIST an opinion from legal counsel reasonably acceptable to CUBIST that tax withholding is not required,CUBIST shall not make such withholding, in which case, XTL shall, pursuant to the procedures in Section 11.3, indemnify, defend and hold harmless the CUBIST Indemnitees with respect to any Losses resulting from a Third Party claim arising out of CUBIST’s not making such withholding. Without limiting the generality of the foregoing provisions of this Section 10.9, but subject to the immediately preceding sentence, CUBIST shall be responsible for all taxes imposed on or attributable to it under applicable law, and XTL shall be responsible for all taxes imposed on or attributable to it under applicable law.

10.10Products other than HepeX-B.(a) If, at any time during the term of this Agreement before sales of HepeX-B are being made by CUBIST or a Sublicensee, CUBIST ceases to conduct any material activities to Obtain Regulatory Approval for HepeX-B, CUBIST shall be obligated, at all times during the remainder of the term of this Agreement, under the diligence requirements under Section 2.2 with respect to at least one other Product.

(b)Prior to Commercializing any Product other than HepeX-B (irrespective of whether sales of HepeX-B are made or not): (i) by written notice to XTL, CUBIST may elect to abide by the royalty provisions of this Section 10 with respect to such Product, and references to “HepeX-B” in Section 10, except with respect to this Section 10.10, will be deemed to include such Product, except that CUBIST shall have the right to make setoffs and offsets pursuant to Section 10.4 only with respect to Designated Costs, infringement claims and payments pursuant to Third Party licenses in connection with HepeX-B, which CUBIST could not setoff or offset against royalties or milestones otherwise payable to XTL with respect to HepeX-B; or (ii) if requested by CUBIST, the Parties agree to negotiate in good faith the financial terms and diligence obligations associated with such Product to account for any material increases in costs and expenses with respect to such Product.

(c)In the event CUBIST invokes clause (ii) of Section 10.10(b), if after good faith negotiation, the Parties are unable to mutually agree upon financial terms for such Product, then the matter shall be submitted to the dispute resolution procedures set forth in Section 14. In the event of arbitration, the arbitrator will determine commercially reasonable financial terms in light of (i) any additional costs required to Obtain Regulatory Approval for such new Product, (ii) the anticipated market for such new Product, (iii) the commercial viability of HepeX-B and the respective investment of the Parties in HepeX-B, and (iv) financial and due diligence terms for other similarly situated products in the marketplace.

Section 11.RISK ALLOCATION.

11.1Mutual Representations and Warranties. Each Party hereby represents and warrants to the other Party that:

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(a)it is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction in which it is incorporated, and has full corporate power and authority and the legal right to own and operate its property and assets and to carry on its business as it is now being conducted and as contemplated in this Agreement;

(b)it has the corporate power and authority and the legal right to enter into this Agreement and perform its obligations hereunder; it has taken all necessary corporate action on its part required to authorize the execution and delivery of this Agreement and the performance of its obligations hereunder; and this Agreement has been duly executed and delivered on behalf of such Party, and constitutes a legal, valid and binding obligation of such Party that is enforceable against it in accordance with its terms;

(c)it has not entered, and will not enter, into any agreement with any Third Party that is in conflict with the rights granted to the other Party under this Agreement, and has not taken and will not take any action that would in any way prevent it from granting the rights granted to the other Party under this Agreement, or that would otherwise materially conflict with or adversely affect the rights granted to the other Party under this Agreement; and

(d)its performance and execution of this Agreement will not result in a breach of any other contract to which it is a party.

11.2XTL Representations and Warranties. XTL represents and warrants that:

(a)XTL has not taken any action or omission to encumber any of its right, title and interest in and to the XTL Technology in the Territory in any way that would have a material adverse effect on the rights and licenses granted to CUBIST hereunder;

(b)XTL has sufficient rights in and to the XTL Patents and XTL Know-How to grant the rights set forth in this Agreement to CUBIST, and XTL will do all such things and take all such actions as may be necessary to maintain such sufficient rights in good standing during the term of this Agreement, including the payment of any amounts and the performance of any obligations to any Third Party licensor of XTL Technology as required under any agreement or arrangement with any such Third Party (including without limitation the XY Agreement);

(c)XTL has not misappropriated the trade secrets (or, to XTL’s knowledge after due and reasonable investigation, infringed) the intellectual property rights of any other Person in its activities to Obtain Regulatory Approval hereunder, and, to XTL’s knowledge after due and reasonable investigation, the exercise of the licenses granted to CUBIST under the XTL Patents and XTL Know-How, including to Obtain Regulatory Approval, Commercialize, or manufacture Products in the Territory do not infringe any patent rights Controlled by any Third Party which such patent is granted or published as a patent application on or prior to the Effective Date;

(d)XTL is unaware of any activities by any Third Party that would constitute infringement of any XTL Patents or misappropriation of any XTL Know-How;

(e)XTL is not aware of any claims, judgments or settlements against or owed by XTL and has not received notice of any pending or threatened claims or litigation relating to Product, the XTL Patents or XTL Know-How;

(f)to XTL’s knowledge, after due and reasonable investigation, XTL has not used, prior to the Effective Date, in connection with HepeX-B, the services of any employee, consultant or clinical investigator that has been debarred by the FDA or any other regulatory authority or is the subject of debarment proceedings by the FDA or any other regulatory authority;

(g)XTL has obtained the consent of the Office of the Chief Scientist of Israel (the “OCS”) to the transfer out of Israel of manufacturing rights as detailed under this Agreement by XTL and no provision of this Agreement, including the license grant set forth in Section 2.1, or the performance by either Party of their respective obligations hereunder will violate or be in conflict with any statute, regulation, rule, judgment, order, decree or injunction of any governmental agency or bodyof Israel;

(h)CUBIST is not and will not be liable to OCS for any loan or obligation incurred by XTL without CUBIST’s prior express, written consent;

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(i)neither the execution and delivery of this Agreement by XTL nor the performance of its obligations hereunder will constitute a violation of, or be in conflict with, or constitute or create a default or accelerate or adversely affect any obligations under, any agreement or commitment to which XTL is a party or by which any XTL Patent or XTL Know-How is subject, including without limitation the XY Agreement;

(j)there is no fact known to XTL that has not been disclosed in writing to CUBIST (i) that could reasonably be expected to have a material adverse effect upon the right to the XTL Patents or the XTL Know-How granted hereunder, or (ii) that could reasonably be expected to materially and adversely affect the ability of XTL to perform its obligations under this Agreement;

(k)XTL owns or Controls the human monoclonal antibody *****, as referred to and described in *****, and the human monoclonal antibody *****, as referred to and described in *****; and

(l)to XTL's actual knowledge, (i) any clinical studies of HepeX-B undertaken by or on behalf of XTL complied with applicable then current Good Clinical Practices, (ii) any HepeX-B manufactured by or on behalf of XTL for use in humans complied with applicable then current Good Manufacturing Practices and (iii) any pre-clinical activities undertaken by or on behalf of XTL and intended by XTL for inclusion in an application for Regulatory Approval complied with applicable then current Good Laboratory Practices.

11.3 Indemnity. (a) CUBIST hereby agrees to defend, hold harmless and indemnify XTL and its agents, directors, officers and employees (the “XTL Indemnitees”) from and against any and all suits, claims, actions, demands, liabilities, expenses and/or losses, including, without limitation, reasonable legal expenses and attorneys’ fees (collectively “Losses”) resulting directly or indirectly from a claim of a Third Party with respect to: (i) the manufacture, handling, storage, use, promotion, sale, offer for sale, distribution, importation or exportation of Products by or on behalf of CUBIST or its Sublicensees (other than by XTL or other than such Losses that result from claims arising out of an XTL indemnification obligation under Section 11.3(b)), (ii) a material breach of any of the provisions of this Agreement by CUBIST or any of its agents or employees; or (iii) the negligence, recklessness, or willful misconduct by CUBIST or any of its agents or employees in the performance of any obligations of CUBIST under this Agreement. The foregoing indemnification obligations will not apply in the event and to the extent that such Losses arose as a result of any XTL Indemnitee’s negligence, willful misconduct, or breach of this Agreement.

(b)XTL hereby agrees to defend, hold harmless and indemnify CUBIST and its agents, directors, officers, employees, Sublicensees and distributors (the “CUBIST Indemnitees”) from and against any and all Losses resulting directly or indirectly from a claim of a Third Party with respect to: (i) a material breach of any of the provisions of this Agreement by XTL or any of its agents or employees; (ii) the negligence, recklessness, or willful misconduct by XTL or any of its agents or employees in the performance of any obligations of XTL under this Agreement; (iii) the infringement of any Third Party intellectual property right which such intellectual property is issued or published prior to the Effective Date caused by Obtaining Regulatory Approval, Commercialization, or the manufacture, use, promotion, marketing, sale, offer for sale, importation or exportation of HepeX-B in the Territory by CUBIST and its sublicensees or distributors; or (iv) the misappropriation of any Third Party intellectual property right by XTL or any of its agents or employees which is known after due and reasonable investigation as of the Effective Date.

(c)XTL hereby agrees to defend, hold harmless and indemnify CUBIST Indemnitees from and against fifty percent (50%) of any and all Losses resulting directly or indirectly from a claim of a Third Party with respect to: (i) the infringement of any Third Party intellectual property right which such intellectual property is not issued or published prior to the Effective Date caused by Obtaining Regulatory Approval, Commercialization, and the manufacture, use, promotion, marketing, sale, offer for sale, importation or exportation of HepeX-B in the Territory by CUBIST and its Sublicensees or distributors; and (ii) the misappropriation of any Third Party intellectual property right by XTL or any of its agents or employees which is not known or knowable as of the Effective Date.

(d)If either Party is seeking indemnification under this Section 11.3 in connection with a Third Party claim: (i) it shall inform the indemnifying Party of such Third Party claim giving rise to the obligation to indemnify as soon as reasonably practicable after receiving notice of the claim; (ii) except as provided in Section 11.3(d)(iii) with respect to claims under Section 11.3(b)(iii), Section 11.3(b)(iv) or Section 11.3(c), the indemnifying Party shall have the right to assume the defense of, and take control of, any such Third Party claim for which it is obligated to indemnify the indemnified Party under this Section 11.3, the indemnified Party shall cooperate with the indemnifying Party (and its insurer) as the indemnifying Party may reasonably request, the indemnified Party shall have the right to participate, at its own expense and with counsel of its choice, in the defense of any claim or suit that has been assumed by the indemnifying Party, and neither Party shall have any obligation to indemnify the other Party in connection with any settlement made without the indemnifying Party’s written consent, provided that the indemnifying Party does not unreasonably withhold or delay any such written consent; and (iii) with respect to claims under Section 11.3(b)(iii), Section 11.3(b)(iv) or Section 11.3(c), CUBIST shall have the right to assume the defense of, and take control of, any such claim, XTL will cooperate with CUBIST as CUBIST may reasonably request, XTL shall have the right to participate, at its own expense and with counsel of its choice, in the defense of any such claim or suit that has been assumed by CUBIST, and XTL shall not have any obligation to indemnify CUBIST in connection with any settlement made without XTL’s written consent, provided that XTL does not unreasonably withhold or delay any such written consent.

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(e)Notwithstanding anything expressed or implied to the contrary in this Section 11, the amount of any Losses subject to indemnification shall be reduced by the amount of any insurance proceeds received by the indemnified Party with respect to such Losses; and there shall be no obligation under this Agreement to indemnify such indemnified Party for the amount of Losses so reduced.

(f)XTL ***** under its indemnification obligations as set forth in Section 11.3(b)(iii) and (iv) and under Section 11.3(c), or ***** such that the ***** are no less than the *****, until XTL’s indemnification payment obligations under Section 11.3(b)(iii) and (iv) and under Section 11.3(c) are *****. Interest shall begin to accrue on any such XTL payment obligations commencing as of the date first due at a rate determined in accordance with Section 10.8 on any such amounts *****. XTL shall have no obligation to pay any amounts under its indemnification obligations as set forth in Section 11.3(b)(iii) and (iv) and under Section 11.3(c) that have not been ***** as of the termination or expiration of this Agreement.

11.4Limitation of Liability. EXCEPT (i) AS A RESULT OF ANY INFRINGEMENT BY A PARTY OF THE INTELLECTUAL PROPERTY RIGHTS OF THE OTHER PARTY, (ii) AS A RESULT OF THE FAILURE OF SUCH PARTY TO PERFORM AND OBSERVE ITS CONFIDENTIALITY OBLIGATIONS TO THE OTHER PARTY UNDER THIS AGREEMENT OR (iii) PURSUANT TO A PARTY’S INDEMNIFICATION OBLIGATIONS UNDER SECTION 11.3, NEITHER PARTY SHALL BE LIABLE TO THE OTHER PARTY FOR LOST PROFITS OR FOR ANY INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL, PUNITIVE OR EXEMPLARY DAMAGES OF THE OTHER PARTY IN CONNECTION WITH THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT, HOWEVER CAUSED, UNDER ANY THEORY OF LIABILITY.

11.5Insurance. XTL and CUBIST shall each procure and maintain insurance, including product liability insurance, adequate to cover its obligations hereunder and that are consistent with normal business practices of prudent companies similarly situated. It is understood that such insurance shall not be construed to create a limit of the Parties’ liability with respect to its indemnification obligations under this Section 11. CUBIST and XTL shall provide each other with written evidence of such insurance upon request (which evidence need not necessarily be insurance certificates). CUBIST and XTL shall provide the other with written notice at least ten (10) days prior to the cancellation, non-renewal or material change in such insurance that materially adversely affects the other Party’s rights hereunder.

Section 12.INTELLECTUAL PROPERTY.

12.1Inventions. (a) The entire right, title and interest in and to all discoveries, improvements, processes, formulas, data, inventions, enhancements, know-how and trade secrets, patentable or otherwise, that arise from activities under this Agreement or that are necessary or useful in connection with Obtaining Regulatory Approval, manufacture, marketing, promotion, sale, import or export of Products, and that were or are developed or invented: (i) solely by employees of CUBIST (“CUBIST Inventions”) shall be owned solely by CUBIST; (ii) solely by employees of XTL (“XTL Inventions”) shall be owned solely by XTL; and (iii) jointly by employees of CUBIST and XTL (“Joint Inventions”) shall be owned jointly by CUBIST and XTL; provided, however, that if the joint ownership by CUBIST and XTL of any Joint Invention conceived using technology funded in whole or in part by OCS (“OCS Technology”) would result in the transfer of any rights outside of Israel in breach or violation of Section 19b1 of the Israeli Encouragement of Development and Research in Industry Law, 1984, then such Joint Invention shall be solely owned by XTL, and XTL hereby grants to CUBIST, for any such Joint Invention: (A) an exclusive, perpetual, worldwide, irrevocable, fully paid up license (with the right to sublicense) to Obtain Regulatory Approval, make, have made, use, promote, market, sell, have sold, offer to sell, import or export Products, and (B) a co-exclusive perpetual, worldwide, irrevocable, fully paid up license (with each Party having the right to sublicense) for any and all other purposes. Notwithstanding anything to the contrary above, none of the foregoing shall serve to or require (x) CUBIST to assign or transfer, or otherwise relinquish, any of CUBIST’s right, title or interest in or to any CUBIST Invention, Joint Invention, CUBIST Patent, Joint Patent or CUBIST Know-How without the prior written consent of CUBIST, or (y) XTL to assign or transfer, or otherwise relinquish, any of XTL’s right, title or interest in or to any XTL Invention, Joint Invention, XTL Patent, Joint Patent or XTL Know-How without the prior written consent of XTL. Commencing as of the Effective Date, XTL shall not use any OCS Technology in the performance of its obligations under this Agreement unless prior to such use (1) XTL notifies CUBIST in writing of XTL’s intent to use OCS Technology, (2) XTL specifically identifies the OCS Technology contemplated to be used and the purpose for which XTL intends to use it, and (3) CUBIST gives its prior written consent to such use of such OCS Technology. Inventorship shall be determined in accordance with U.S. patent law. All clinical data collected pursuant to services paid for in whole or in part by CUBIST will be owned by CUBIST.

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(b)Notwithstanding anything to the contrary in this Agreement, in the case any CUBIST Invention, XTL Invention or Joint Invention is conceived through the use of the Licensed Technology or Licensed Patents (as such terms are defined under the XY Agreement) (excluding the human monoclonal antibody *****, as referred to and described in *****, and the human monoclonal antibody *****, as referred to and described in *****, including any portions or fragments thereof) (collectively the “Yeda Technology”), the parties shall not *****, which shall include the terms and conditions for such registration or use of the CUBIST Invention, XTL Invention or Joint Invention and relating to the ownership thereof. It is agreed, without derogating from the Consent Agreement, that commencing as of the Effective Date, XTL shall not use any Yeda Technology in the performance of its obligations under this Agreement unless prior to such use (i) XTL notifies CUBIST in writing of XTL’s intent to use Yeda Technology (in which case XTL shall also deliver a copy of such notice to Yeda), (ii) XTL specifically identifies the Yeda Technology contemplated to be used and the purpose for which XTL intends to use it, and (iii) CUBIST gives its prior written consent to such use of such Yeda Technology.

12.2Filing, Prosecution and Maintenance of Patents.(a) CUBIST shall be entitled to file, prosecute and maintain in the Territory all patent applications and patents that claim any CUBIST Inventions at its sole expense.

(b)XTL agrees to file, prosecute and maintain the XTL Patents at its sole expense, provided, however, that XTL shall (i) use outside counsel reasonably acceptable to CUBIST, (ii) provide CUBIST with all material documentation and correspondence from, sent to or filed with patent offices in the Territory regarding any XTL Patent, (iii) provide CUBIST with a reasonable opportunity to review and comment upon all filings with such patent offices in advance of submissions to such patent offices, and (iv) shall consider, in good faith, incorporating any comments provided by CUBIST. In the event that XTL is unwilling, unable or otherwise fails to file or prosecute any XTL Patent in any country in the Territory, CUBIST shall have the right, but not the obligation, and

XTL shall provide CUBIST with thirty (30) days written notice to permit CUBIST to, file, prosecute and/or maintain such XTL Patent in such country, and XTL shall execute such documents and perform such acts as may be reasonably necessary to allow CUBIST to file, prosecute and maintain such XTL Patent in such country in a timely manner; provided that in any event any such XTL Patents shall always be registered in XTL’s name or in the name of the relevant licensor of XTL as identified in writing to CUBIST by XTL.

(c)With respect to all filings, prosecution and maintenance of any Patent pursuant to this Section 12.2, the filing Party shall be responsible for payment of all costs and expenses related to such Patent filing, prosecution or maintenance.

(d)With respect to any Joint Inventions, CUBIST shall have the first right to file, prosecute and maintain in the Territory, upon appropriate consultation with XTL, Patents that claim or cover any Joint Invention (a “Joint Patent”); however, in the event that CUBIST elects not to file any patent application in the Territory with respect to any Joint Invention, XTL shall have such right and upon exercise by XTL of such right, XTL shall have the right to prosecute and maintain in the Territory, upon appropriate consultation with CUBIST, the Joint Patents to which such Joint Invention relates. Each of XTL and CUBIST shall execute such documents and perform such acts as may be reasonably necessary to allow CUBIST, in the first instance, and XTL, in the second instance, to file, prosecute and maintain Joint Patents in any country within the Territory in a timely basis. CUBIST shall promptly give notice to XTL of the grant, lapse, revocation, surrender, invalidation or abandonment in the Territory of any Joint Patent being prosecuted by CUBIST. XTL shall promptly give notice to CUBIST of the grant, lapse, revocation, surrender, invalidation or abandonment of any Joint Patent being prosecuted by XTL.

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12.3Option of the Parties to Prosecute and Maintain Patents. Each Party shall give notice to the other Party of any desire to cease prosecution of patent applications and/or maintenance in the Territory of XTL Patents that such Party is then prosecuting or maintaining, and, in such case, shall permit the other Party, in its sole discretion, to continue such prosecution or maintenance in the Territory at its own expense. If the other Party then elects to continue prosecution or maintenance in the Territory, each Party shall execute such documents and perform such acts as may be reasonably necessary to allow continuation of such prosecution or maintenance in the Territory.

12.4Legal or Administrative Proceedings. (a) Each Party shall, within ten (10) days of learning of such event, inform the other of any request for, or filing or declaration of, any interference, opposition, reexamination, revocation, nullity proceeding or declaration of non-infringement and/or invalidity, whether by administrative or legal proceeding, sounding in equity or in law (or the equivalent of any of the foregoing), whether initiated by a Third Party or any patent office, in the Territory relating to any XTL Patent. XTL and CUBIST shall thereafter consult and cooperate fully to determine a course of action with respect to any such proceeding. Each Party shall have the right to review and comment upon any submission to be made in connection with such proceeding and the Party responsible for prosecuting or maintaining the Patent at issue in such proceeding shall consider, in good faith, incorporating any comments provided by the other Party.

(b)Neither Party shall initiate any reexamination, interference, reissue, revocation, nullity or declaration of non-infringement proceeding in the Territory with respect to XTL Patents or Joint Patents without the prior written consent of the other Party.

(c)In connection with any interference, opposition, reexamination, revocation, nullity proceeding or declaration of non-infringement and/or invalidity, whether by administrative or legal proceeding, sounding in equity or in law (or the equivalent of any of the foregoing), whether initiated by a Third Party or any Patent Office, in the Territory relating to any XTL Patent or Joint Patent, XTL and CUBIST will cooperate fully and will provide each other with any information or assistance that either may reasonably request. The Parties shall keep each other informed of developments in any such action or proceeding, including to the extent permissible by law and contracts, the status of any settlement negotiations and the terms of any offer related thereto.

(d)XTL, in the case of XTL Patents, shall bear the expense of any interference, opposition, reexamination, revocation, nullity proceeding or declaration of non-infringement and/or invalidity, whether by administrative or legal proceeding, sounding in equity or in law (or the equivalent of any of the foregoing), whether initiated by a Third Party or any Patent Office, relating thereto. The expenses of any interference, opposition, reexamination, revocation, nullity proceeding or declaration of non-infringement and/or invalidity, whether by administrative or legal proceeding, sounding in equity or in law (or the equivalent of any of the foregoing), whether initiated by a Third Party or any Patent Office, with respect to Joint Patents shall be shared equally by the Parties.

(e)This Section 12.4 applies to any proceeding before the United States Patent and Trademark Office or similar patent authority in the Territory and to any proceeding before a court, arbitration panel or similar body of competent jurisdiction.

12.5Enforcement. (a) Either Party shall give written notice to the other Party of (i) any actual, alleged or threatened infringement of any XTL Trademark or CUBIST Trademark or of any unfair trade practices, trade dress imitation, passing off of counterfeit goods, or like offenses, or any such claims brought by a Third Party against a Product (hereinafter “TM Infringement”), (ii) any infringement of any XTL Patent and/or CUBIST Patent, and/or Joint Patent, and (iii) any misappropriation or misuse of XTL Know-How and/or CUBIST Know-How and/or Joint Inventions; in each case that such Party has knowledge of. XTL and CUBIST shall thereafter consult and cooperate fully to determine a course of action, including but not limited to the commencement of legal action by either or both XTL and CUBIST, to terminate any infringement of XTL Patents Joint Patents, or Joint Inventions or to terminate any misappropriation or misuse of XTL Know-How. CUBIST shall have the first right to initiate and prosecute legal action anywhere in the Territory, at CUBIST’s expense and in its own name, and, as necessary, in the name of XTL, with respect to XTL Patents, XTL Know-How, Joint Patents, and Joint Inventions. Subject to the provisions of this Section 12.5, CUBIST shall control and conduct such legal action in its sole discretion, including without limitation, the terms and conditions of any settlement. In the event that CUBIST notifies XTL in writing that it elects not to initiate and/or prosecute any such legal action, or if CUBIST does not take material action to abate any such actual, alleged or threatened infringement within ninety (90) days after the date of notice to CUBIST of such actual, alleged or threatened infringement, XTL shall thereafter have the right to initiate and prosecute such action in the Territory in its own name.

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(b)For any infringement action concerning XTL Patents or Joint Patents or any misappropriation or misuse of XTL Know-How or Joint Inventions, in the event that CUBIST elects to initiate or prosecute such action but is unable to do so solely in its own name, XTL will join such action voluntarily, and at CUBIST’s expense, will execute all documents necessary for CUBIST to initiate, prosecute and/or maintain such action. In the event that XTL elects to be represented by its own counsel in connection with any matter pertaining to such action, XTL shall pay all of the costs and expenses of its own counsel. In connection with any such action, XTL and CUBIST will cooperate fully and will provide each other with any information or assistance that either may reasonably request, provided, however, CUBIST shall control and conduct such legal action in its sole discretion, including without limitation, the terms and conditions of any settlement. The Parties shall keep each other informed of developments in any such action or proceeding, including to the extent permissible by law and contracts, the status of any settlement negotiations and the terms of any offer related thereto.

(c)Any recovery of damages or an award received by either or both of XTL and CUBIST in connection with or as a result of any action contemplated by this Section 12.5 or Section 12.6 below, whether by settlement or otherwise, shall be shared in order as follows:

(i)the Party or Parties that prosecuted the action shall recoup all of its or their costs and expenses incurred in connection with the action;

(ii)the other Party (to the extent that it did not prosecute the action) shall then, from funds remaining, recover its costs and expenses incurred in connection with the action to the extent that such costs and expenses are reasonably incurred to comply with such Party’s obligations under Section 12.5 or to the extent that such other Party participates in the prosecution of such action but not as a party thereto; and

(iii)any amount remaining shall be included for royalty payment purposes under Section 10.1 within Net Sales in Patent Countries for the royalty period in which such amount was received.

12.6Avoidance of Third Party Infringement Claims. If a Product becomes the subject of a claim by a Third Party that the activities undertaken to Obtain Regulatory Approval, manufacture, use, sell, Commercialize or export or import Product constitutes, causes or results in infringement of any patent rights of such Third Party or other related intellectual property rights (any such claim, a “Third Party Infringement Claim”), the Party first having notice of such Third Party Infringement Claim shall promptly notify the other Party. In the event that there is a Third Party Infringement Claim that arises from the use or practice of any XTL Patents or XTL Know-How in connection or associated with the activities undertaken to Obtain Regulatory Approval, manufacture, use, sell, offer for sale, Commercialize, export or import Product, the Parties shall confer in good faith as promptly as practicable after both Parties become aware of such Third Party Infringement Claim as to whether it is feasible to alter their approach to their activities with respect to the Product so as to avoid such Third Party Infringement Claim without adversely affecting their rights under this Agreement. In the event the Parties determine in good faith that it is feasible to alter their approach to such activities without adversely affecting their rights under this Agreement, the Parties shall implement such alternative approach to such activities.

12.7Patent Term Restoration and Regulatory Data Exclusivity. The Parties shall cooperate with each other in obtaining patent term restoration or extension, supplementary protection certificates, or their equivalents, with respect to XTL Patents, CUBIST Patents, Joint Patents, and regulatory data exclusivity and the like, with respect to HepeX-B, in the Territory.

12.8Patent Marking. CUBIST shall mark all Products sold with appropriate patent numbers or indicia at XTL’s request to the extent required and/or permitted by law.

12.9Trademarks.(a) CUBIST shall have the right to determine appropriate trademark, trade dress and other related intellectual property usage in connection with marketing Products under this Agreement. CUBIST shall have the exclusive right to use any trademarks in connection with marketing Products under this Agreement in the Territory.

(b)XTL agrees to file, prosecute and maintain the XTL Trademarks at its sole expense, provided, however, that XTL shall (i) use outside counsel reasonably acceptable to CUBIST, (ii) provide CUBIST with all material documentation and correspondence from, sent to or filed with trademark offices in the Territory regarding any XTL Trademark, (iii) provide CUBIST with a reasonable opportunity to review and comment upon all filings with such trademark offices in advance of submissions to such patent offices, and (iv) shall consider, in good faith, incorporating any comments provided by CUBIST. In the event that XTL is unwilling, unable or otherwise fails to file or prosecute any XTL Trademark in any country in the Territory, XTL shall provide CUBIST with thirty (30) days notice to permit CUBIST to file, prosecute and/or maintain such XTL Trademark in such country, and XTL shall execute such documents and perform such acts as may be reasonably necessary to allow CUBIST to file, prosecute and maintain such XTL Trademark in such country in a timely manner.

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(c)With respect to all filings, prosecution and maintenance of any Trademark pursuant to this Section 12.9, the filing Party shall be responsible for payment of all costs and expenses related to such Trademark filing prosecution or maintenance.

12.10Third Party Licenses.(a) The Parties shall confer and discuss whether any license from a Third Party is necessary or advisable to avoid, settle, resolve or satisfy any claim that the activities to Obtain Regulatory Approval, make, have made, use, promote, market, sell, have sold, offer to sell, import or export HepeX-B by CUBIST or its Sublicensees in any country within the Territory infringes or misappropriates any intellectual property rights of such Third Party. Prior to September 30, 2004, the Parties shall confer and agree upon a strategy as to how to address any Third Parties, if any, then known to the Parties from whom it would be necessary or advisable to obtain a license to avoid, settle resolve, or satisfy any claim that the activities to Obtain Regulatory Approval, Commercialize, manufacture, use, promote, market, sell, offer, import or export of HepeX-B by CUBIST or its Sublicensees in any country within the Territory infringes or misappropriates any intellectual property rights of such Third Party (the “Strategy”). To assist in devising the Strategy, CUBIST shall engage the services of a nationally recognized law firm with sufficient knowledge and expertise in the field of patent rights. If the parties, after good faith discussion and due consideration of the input of such law firm, are unable to mutually agree upon the Strategy, then CUBIST may, acting in good faith, make final decisions with respect to devising the Strategy. The Strategy may be modified from time to time pursuant to the mutual agreement of the Parties; provided that if the parties, after good faith discussion and due consideration of the input from the above-referenced law firm, are unable to mutually agree, then CUBIST may, acting in good faith, make final decisions with respect to revising the Strategy.

(b)CUBIST shall be responsible for obtaining licenses identified in the Strategy on commercially reasonable terms. CUBIST will provide XTL with five (5) business days to review and ***** the scope of such license is reasonably limited to permit CUBIST to exercise its rights and licenses under, and its activities under and pursuant to, this Agreement to Obtain Regulatory Approval, make, have made, use, promote, market, sell, have sold, offer to sell, import, export, and Commercialize HepeX-B, and whether such license contains commercially reasonable terms; such *****. If XTL does not ***** within such *****, XTL will be deemed to have *****. CUBIST shall pay all amounts required to be paid to the Third Parties pursuant to such licenses described in Section 12.10(b). If and to the extent practicable, CUBIST shall endeavor to use reasonable efforts to obtain a clause in any such license permitting assignment of such license to XTL; provided that in no event shall CUBIST be in breach of this Agreement or in any way otherwise liable for any failure to obtain any such assignment clause in any such license; and further provided that CUBIST will have no obligation to include or accept an assignment clause that requires CUBIST to retain or incur any further liability under such license subsequent to such assignment. XTL may not reject any such license due to the failure of such license to contain such assignment clause as contemplated under this Section 12.10(b).

(c)With respect to licenses obtained pursuant to Section 12.10(b) which were *****, or with respect to which ***** (“Approved Third Party Licenses”) wherein the intellectual property rights were described in an issued patent or published in a patent application as of the Effective Date, unless with respect to any such licenses that were not mutually agreed-upon in the Strategy, XTL obtains a Legal Opinion, at XTL’s expense, that is in form and substance reasonably acceptable to CUBIST (provided that CUBIST must notify XTL within thirty (30) days after receipt of the executed Legal Opinion if CUBIST deems such Legal Opinion to not be reasonably acceptable), CUBIST shall have the right to reduce milestone and royalty payments otherwise owed to XTL pursuant to Sections 9 and 10 by the amounts paid to such Third Parties for such licenses such that the reduced milestone and royalty payments are no less than the *****. In the event that CUBIST cannot fully offset such amounts against milestone and royalty payments otherwise owed to XTL, unless paid by XTL, interest shall begin to accrue as of the date CUBIST first makes such payment to such Third Party at a rate determined in accordance with Section 10.8 on any such amounts not able to be offset. CUBIST will reasonably cooperate with the law firm agreed to by the Parties to provide such information as may be reasonably necessary to enable the law firm to render its opinion.

After a Change of Control of CUBIST, (i) amounts previously paid by CUBIST with respect to the licenses described under this Section 12.10(c), plus any accrued interest through the date of the Change of Control, and not yet paid by XTL or offset pursuant to this Section 12.10(c), will continue to be offset against milestone and royalty payments otherwise owed to XTL pursuant to Sections 9 and 10 before any other offsets pursuant to this Agreement; provided that such milestones and royalties shall not be reduced by more than fifty percent (50%), (ii) only fifty percent (50%) of amounts required to be paid by CUBIST pursuant to such licenses after a Change of Control of CUBIST shall be offset against milestone and royalty payments otherwise owed to XTL pursuant to Sections 9 and 10 before any other offsets pursuant to this Agreement; provided that such milestones and royalties shall not be reduced by more than fifty percent (50%), and (iii) interest shall cease to accrue on all amounts paid by CUBIST pursuant to the licenses obtained or to be obtained under this Section 12.10(c) but not otherwise offset as permitted under this Agreement.

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(d)With respect to Approved Third Party Licenses wherein the intellectual property rights were neither described in an issued patent nor published in a patent application as of the Effective Date, unless with respect to any such licenses that were not mutually agreed-upon in the Strategy, XTL obtains a Legal Opinion, at XTL’s expense, that is in form and substance reasonably acceptable to CUBIST (provided that CUBIST must notify XTL within thirty (30) days after receipt of the executed Legal Opinion if CUBIST deems such Legal Opinion to not be reasonably acceptable), CUBIST shall have the right to reduce milestone and royalty payments otherwise owed to XTL pursuant to Sections 9 and 10 by fifty percent (50%) of the amounts paid to such Third Parties for such licenses such that the reduced milestone and royalty payments are no less than the XTL Licensor Payments. In the event that CUBIST cannot fully offset such amounts against milestone and royalty payments otherwise owed to XTL, unless paid by XTL, interest shall begin to accrue as of the date CUBIST first makes such payment to such Third Party at a rate determined in accordance with Section 10.8 on any such amounts not able to be offset. CUBIST will reasonably cooperate with the law firm agreed to by the Parties to provide such information as may be reasonably necessary to enable the law firm to render its opinion.

After a Change of Control of CUBIST, (i) amounts previously paid by CUBIST with respect to the licenses described under this Section 12.10(d), plus any accrued interest through the date of the Change of Control, and not yet paid by XTL or offset pursuant to this Section 12.10(d), will continue to be offset against milestone and royalty payments otherwise owed to XTL pursuant to Sections 9 and 10 before any other offsets pursuant to this Agreement; provided that such milestones and royalties shall not be reduced by more than fifty percent (50%), and (ii) interest shall cease to accrue on all amounts paid by CUBIST pursuant to the licenses obtained or to be obtained under this Section 12.10(d) but not otherwise offset as permitted under this Agreement.

(e)XTL shall have no obligation to pay any amounts incurred by CUBIST pursuant to the Third Party licenses obtained under this Section 12.10, which amounts have not been offset against milestone and royalty payments as of the termination or expiration of this Agreement.

12.11Limitation. Notwithstanding any other provision in this Section 12, except with respect to the Patents listed in Exhibit A, (a) neither Party shall be obligated to prepare, file, prosecute and maintain Patents, or to bring or pursue enforcement proceedings or defend declaratory judgment actions under this Section 12 if, and to the extent that, such Party is not entitled to do so under its licenses from Third Parties, and (b) any rights conveyed under this Section 12 permitting a Party to prepare, file, prosecute and maintain certain Patents, or to bring and pursue enforcement proceedings, or defend declaratory judgment actions shall be subject to all applicable licenses from Third Parties, and are conveyed only to the extent permitted under such agreements. With respect to Patents Controlled by XTL after the Effective Date, XTL shall promptly notify CUBIST in writing if XTL is not entitled under its licenses to such Patents from Third Parties to perform the activities listed in (a) above, or if any rights listed in (b) above that have been conveyed to CUBIST are restricted by XTL’s licenses from Third Parties to such Patents.

Section 13.TERM AND TERMINATION.

13.1Term. This Agreement shall be effective as of the Effective Date and remain in effect until the earlier of (a) the effective date of termination pursuant to Section 13.2 or Section 13.3 below, and (b) the expiration of the term of this Agreement on the date on which CUBIST is no longer obligated, pursuant to this Agreement, to make payment to XTL of any royalties in connection with sales of Products in the Territory. In the event that the term of this Agreement expires pursuant to clause (b) of this Section 13.1, then the licenses granted by XTL to CUBIST shall survive such expiration and shall be fully paid-up, royalty-free, perpetual and irrevocable licenses.

13.2Termination by CUBIST.(a) This Agreement may be terminated by CUBIST at any time during the term of this Agreement for any reason or no reason if CUBIST gives at least one hundred and eighty (180) days prior written notice of termination to XTL.

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(b)CUBIST may terminate this Agreement upon twenty (20) days’ prior written notice to XTL if (i) in CUBIST’s judgment continuation of the activities contemplated hereunder is inappropriate, impractical, or inadvisable either for reasons of safety or efficacy; or (ii) the emergence of any adverse event or side effect with the Product is of such magnitude or incidence in the opinion of CUBIST to support termination. Upon CUBIST’s delivery of such notice to XTL, CUBIST shall have no further obligations under this Agreement except as provided under Section 13.5.

(c)CUBIST may terminate this Agreement pursuant to this Section 13.2 on a Product by Product or country by country basis.

13.3Termination By Either Party Upon Bankruptcy or Insolvency. This Agreement may be terminated in its entirety by either Party by giving written notice of termination to the other Party in the event that such other Party files or institutes any bankruptcy, liquidation or receivership proceedings, or in the event that such other Party makes an assignment of a substantial portion of the assets of such other Party for the benefit of its creditors; provided, however, that, in the case of any involuntary bankruptcy proceeding such right to terminate shall only become effective if such other Party consents to the involuntary bankruptcy or such proceeding is not dismissed within sixty (60) days after the filing thereof.

13.4Termination for Breach.(a)   If either Party (the “Non-Breaching Party”) believes that the other Party (the “Breaching Party”) is in material breach of this Agreement with respect to one or more Products, then the Non-Breaching Party may deliver notice of such breach to the Breaching Party. The Breaching Party shall have thirty (30) days to cure such breach; provided that, if cure cannot be reasonably effected within such thirty (30) day period, the Breaching Party may elect to deliver to the Non-Breaching Party within such thirty (30) day period a plan to cure such breach within a timeframe that is reasonably prompt in light of the circumstances then prevailing, and the Non-Breaching Party shall have the right to approve or reject in writing such proposed plan in its absolute discretion. If the Non-Breaching Party approves in writing such proposed plan, then the cure period will be extended in accordance with the terms of such plan and the Breaching Party shall use Commercially Reasonable Efforts to carry out such plan and cure the breachin accordance with the provisions of such plan.

(b)   If the Breaching Party fails to cure such breach as provided for in Section 13.4(a), the Non-Breaching Party may terminate this Agreement either in its entirety or with respect to one or more Products upon written notice to the Breaching Party; provided that, the Non-Breaching Party gives such written notice of termination within six (6) months after the Breaching Party has failed to cure such breach as provided for in Section 13.4(a).

(c)   If the Non-Breaching Party gives notice of termination under this Section 13.4 and the Breaching Party disputes whether such termination is proper under this Section 13.4, then the issue of whether this Agreement may properly be terminated upon expiration of the notice period (unless such breach is cured as provided in Section 13.4(a)) shall be resolved in accordance with Section 14 (Dispute Resolution). If as a result of such dispute resolution process it is determined that the notice of termination was proper, then such termination shall be deemed to have been effective thirty (30) days following the date of the notice of termination. If as a result of such dispute resolution process it is determined that the notice of termination was improper, then no termination shall have occurred and this Agreement shall remain in effect.

13.5Effect of Expiration or Termination of this Agreement. (a) In the event of termination or expiration of this Agreement, then, except to the extent otherwise provided in this Section 13.5(a) and Section 13.5(f) below, neither Party shall have any liability or obligation to the other Party under this Agreement. Notwithstanding the foregoing sentence, the licenses granted to CUBIST under Section 2 shall survive expiration of this Agreement pursuant to Section 13.1(b), and in such event, such licenses shall be deemed to be fully paid up, irrevocable and perpetual.

(b)In the event that CUBIST terminates this Agreement pursuant to Section 13.4, then this Agreement shall terminate, and, except to the extent otherwise provided in Section 13.5(f) below, neither Party shall have any liability or obligation to the other Party under this Agreement.

(c)In the event that CUBIST terminates this Agreement pursuant to Section 13.2, or in the event that XTL terminates this Agreement pursuant to Section 13.4, then this Agreement shall terminate, and, except to the extent otherwise provided in this Section 13.5(c), Section 13.5(d) and Section 13.5(f) below, neither Party shall have any further liability or obligation to the other Party under this Agreement, including with respect to Section 9 and Section 10. The licenses granted to CUBIST under Section 2 shall terminate. Notwithstanding anything to the contrary in this Section 13.5(c), in the event that CUBIST terminates this Agreement pursuant to Section 13.2 or XTL terminates this Agreement pursuant to Section 13.4, CUBIST shall have the right to sell in the Territory all of its inventory of Products for a period of twelve (12) months from the effective date of termination, subject to CUBIST’s payment obligations under Section 10.

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(d)If requested by XTL within ten (10) days after the effective date of a termination pursuant to Section 13.2 or a termination by XTL pursuant to Section 13.4, either with respect to this Agreement in its entirety, or with respect to a particular Product in one or more countries, CUBIST will: (i) transfer to XTL all INDs, Regulatory Approval applications, Regulatory Approvals and orphan drug designations for such terminated Products in the terminated countries in effect as of the time of any such termination, (ii) subject to the scope of use limitations described in clause (iii) below, provide to XTL a copy of all information, data, records and reports (but specifically excluding know-how of CUBIST and CUBIST Patents) in Cubist's Control created or obtained in the performance of CUBIST's or XTL’s activities under this Agreement that are directly related to the Products (or in the event of a termination with respect to a particular Product, such terminated Product) and necessary or reasonably useful for XTL to Obtain Regulatory Approval and Commercialize the Products (or in the event of a termination with respect to a particular Product, such terminated Product) in the terminated countries (collectively, the “Data”), and (iii) grant to XTL a non-exclusive license in the terminated countries in and to the Data solely for the purpose of using and incorporating the Data in its applications for and in the maintenance of Regulatory Approval of Products (or in the event of a termination with respect to a particular Product, such terminated Product) within the terminated countries and to Obtain Regulatory Approval, manufacture and Commercialize Products (or in the event of a termination with respect to a particular Product, such terminated Product) in the terminated countries, and (iv) if permitted under any Third Party licenses obtained by CUBIST after the Effective Date pursuant to the Strategy, CUBIST will assign to XTL such licenses, or if any such license covers countries other than the terminated countries will grant to XTL a sublicense under such license with respect to the terminated countries, to Obtain Regulatory Approval, make, have made, use, promote, market, sell, have sold, offer to sell, import or export HepeX-B in the terminated countries; provided that if any such license requires consents of the Third Party licensor to effect such assignment, CUBIST will request such consent and if such consent is not provided or is otherwise qualified, CUBIST will have no obligation to assign such license. In addition, upon any such termination, CUBIST shall either (y) negotiate in good faith with XTL to enter into an agreement to supply such terminated Product to XTL on commercially reasonable terms, or (z) if such termination terminated this Agreement in its entirety, provide to XTL all biological materials in CUBIST’s Control created or obtained under this Agreement with respect to Products (subject to CUBIST’s sell-off rights with respect to inventory under Section 13.5(c)), and a copy of all information, data, records and reports (but specifically excluding know-how of CUBIST and CUBIST Patents) in Cubist's Control created or obtained in the performance of CUBIST's or XTL’s activities under this Agreement that are directly related to the terminated Products and necessary or reasonably useful for XTL to manufacture such terminated Products, and such data and information shall be deemed to be included within the Data. Notwithstanding the foregoing, CUBIST will have no obligation to assign or otherwise transfer to XTL any INDs, Regulatory Approval applications, Regulatory Approvals or orphan drug designations if any of the foregoing are in effect with respect to any country other than the terminated countries. XTL and CUBIST will negotiate in good faith with respect to mutually agree upon reasonable and appropriate compensation to CUBIST for the commercial value received as a result of the transfers and licenses provided as set forth in this Section 13.5(d); if the Parties are unable to so mutually agree within ninety (90) days after the effective date of termination of this Agreement the Parties shall refer the matter to the dispute resolution process set forth in Section 14, and in any arbitration, the arbitrator will take into consideration, among other factors, the investment of CUBIST in creating or obtaining the Data and the Parties’ investment in obtaining such transferred INDs, Regulatory Approval applications, Regulatory Approvals and orphan drug designations, and amounts paid by CUBIST but offset under Section 10.4 with respect to any assigned Third Party licenses.

(e)In the event this Agreement is terminated due to the rejection of this Agreement by or on behalf of a Party under Section 365 of the United States Bankruptcy Code (the “Code”), and the equivalent provisions, if any, of the bankruptcy laws of other countries in which CUBIST exercises the license granted hereunder, all licenses and rights to licenses granted under or pursuant to this Agreement by one Party to the other are, and shall otherwise be deemed to be, for purposes of Section 365(n) of the Code, and any such equivalent law, licenses of rights to “intellectual property” as defined under Section 101(35A) of the Code. The Parties agree that the licensed Party, as a licensee of such rights under this Agreement, shall retain and may fully exercise all of its rights and elections under the Code, and any such equivalent law, and that upon commencement of a bankruptcy proceeding by or against a Party under the Code, the other Party shall be entitled to a complete duplicate of or complete access to, any such intellectual property and all embodiments of such intellectual property. Such intellectual property and all embodiments thereof shall be promptly delivered to the other Party (i) upon any such commencement of a bankruptcy proceeding upon written request therefor by a Party, unless the Party elects to continue to perform all of its obligations under this Agreement or (ii) if not delivered under (i) above, upon the rejection of this Agreement by or on behalf of the Party upon written request therefor. The foregoing is without prejudice to any rights either Party may have arising under the Code or other applicable law.

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(f)Termination of this Agreement shall not relieve either Party of any obligation of such Party accruing prior to such termination. Any termination of this Agreement shall be without prejudice to the rights of either Party against the other accrued or accruing under this Agreement prior to termination. The provisions of Section 1, Section 8.2, Section 8.3, Section 8.4, Section 11.3, Section 11.4, Section 12.1, Section 13, Section 14 and Section 15 shall survive the termination of this Agreement. Section 8.1 and Section 8.5 shall survive termination of this Agreement for a period of five (5) years.

(g)CUBIST shall reimburse XTL for all non-cancelable out-of-pocket expenses XTL incurs after a termination of this Agreement (by CUBIST pursuant to Section 13.2, or by XTL pursuant to Section 13.4) with respect to Third Party service providers contracted by XTL to assist in the performance of XTL’s obligations hereunder; provided that (i) such obligations are set forth in a written agreement between XTL and such Third Party service provider, (ii) the terms and provisions of such written agreement, including those relating to such non-cancelable expenses, are commercially reasonable, (iii) XTL has used commercially reasonable efforts to minimize such non-cancelable expenses; and (iv) such non-cancelable expenses relate solely and directly to the performance of XTL obligations under this Agreement.

Section 14.DISPUTE RESOLUTION.

14.1Escalation. The Parties recognize that disputes as to certain matters may from time to time arise during the term of this Agreement which relate to either Party’s rights and/or obligations hereunder. It is the objective of the Parties to establish procedures to facilitate the resolution of disputes arising under this Agreement in an expedient manner by mutual cooperation and without resort to litigation. To accomplish this objective, the Parties agree to follow the procedures set forth in this Section 14.1 if and when a dispute arises under this Agreement. Any dispute arising under this Agreement shall, by either Party providing written notice to the other Party, be referred to the respective chief executive officers of the Parties for attempted resolution by good faith negotiations within fourteen (14) days after such notice is received. In the event that the designated officers are not able to resolve such dispute within such fourteen (14) day period, and do not agree to extend the time period for resolving the dispute, or if the terms and conditions of the resolution or settlement of the dispute are breached, the dispute shall be submitted for mediation by a mutually acceptable Third Party within thirty (30) days after expiration of the previous fourteen (14) day period, unless the Parties agree to extend the period for submitting the dispute for mediation. In the event that such dispute is not resolved within thirty (30) days after such dispute is submitted for mediation, unless the parties otherwise agree to extend the time period for resolving the dispute, then such dispute shall be resolved by arbitration pursuant to the provisions of Section 14.2. Pending resolution of any dispute covered by this Section 14.1, both Parties will continue their performance under this Agreement of any obligations (including, without limitation, payment obligations) that are not the subject of such dispute.

14.2Arbitration. (a) Any claim, dispute, or controversy arising out of or relating to this Agreement that is not resolved in accordance with the provisions of Section 14.1 and that the Parties agree to submit to binding arbitration pursuant to this Section 14.2 will be submitted by the parties to arbitration under rules then in effect (“ICC Rules”) of the International Chamber of Commerce (“ICC”) in New York City, New York, U.S.A. as modified herein or by agreement of the Parties. Any such arbitration shall be conducted in New York City, New York, U.S.A. by three (3) arbitrators. Each Party shall select one (1) arbitrator and such arbitrators shall jointly appoint the third arbitrator who shall act as the chairman. If either Party fails to appoint an arbitrator within thirty (30) days of a request by the other Party, or if the arbitrators selected by the parties cannot agree on a chairman within thirty (30) days after they have been selected, then either Party may request the ICC to appoint such co-arbitrator (for the non-responsive Party) or the chairman. Such appointment shall be binding on the Parties. Each Party irrevocably and unconditionally (i) consents to the jurisdiction of any such proceeding and waives any objection that it may have to personal jurisdiction or the laying of venue of any such proceeding; and (ii) knowingly and voluntarily waives its rights to have disputes tried and adjudicated by a judge and jury except as otherwise expressly provided herein. The Parties will cooperate with each other in causing the arbitration to be held in as efficient and expeditious a manner as practicable. Unless the Parties agree otherwise, they shall be limited in their discovery to directly relevant documents. Responses or objections to a document request shall be served twenty (20) days after receipt of the request. The arbitrators shall resolve any discovery disputes. Nothing herein shall prevent the Parties from settling any dispute by mutual agreement at any time.

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(b)The arbitration shall be of each Party’s individual claims only, and no claim of any other Party shall be subject to arbitration in such proceeding. Except as otherwise required by law, the Parties and the arbitrator(s) shall maintain as confidential all information or documents obtained during the arbitration process, including the resolution of the dispute. The arbitration shall be conducted in English language.

(c)The arbitrator(s) shall not have the authority to award any injunctive relief or to award exemplary or punitive damages, and the Parties expressly waive any right to such damages. The arbitrator(s) shall have the authority to award actual money damages (including interest on unpaid amounts from the date due). The costs and expenses of the arbitration, but not the costs and expenses of the Parties, shall be shared equally by the Parties; provided that the non-prevailing Party in any arbitration shall pay the other Party’s costs and expenses (including travel expenses) and reimburse such Party for its portion of the arbitration costs. In the event that neither Party wins totally, reimbursement shall be made proportionally in accordance with the ICC Rules. Any award rendered by the arbitrator(s) shall be final and binding upon the Parties. Judgment upon the award may be entered in any court of competent jurisdiction. If a Party fails to proceed with arbitration, unsuccessfully challenges the arbitration award, or fails to comply with the arbitration award, the other Party is entitled to costs, including reasonable attorneys’ fees, for having to compel arbitration or defend or enforce the award.

Section 15.MISCELLANEOUS.

15.1Force Majeure. Neither Party shall be held liable or responsible to the other Party nor be deemed to have defaulted under or breached the Agreement for failure or delay in fulfilling or performing any term of the Agreement when such failure or delay is caused by or results from causes beyond the reasonable control of the affected Party including, but not limited to, earthquakes, fire, floods, embargoes, insurrections, riots, civil commotions, strikes, lockouts or other labor disturbances, acts of God, acts of war or terrorism, or acts, omissions or delays in acting by any governmental authority or the other Party. The affected Party shall notify the other Party of such force majeure circumstances as soon as reasonably practical.

15.2Assignment.Neither party may assign its rights or obligations hereunder without the prior written consent of the other party which will not be unreasonably withheld or delayed; provided that either may assign this Agreement to one of its Affiliates, or pursuant to a merger, consolidation or sale of substantially all of its assets or stocks or other ownership interests without such prior written consent. The Parties agree that the issue of whether prior written consent to an assignment was unreasonably withheld or delayed by a Party shall be governed by the laws of the Commonwealth of Massachusetts without reference to any rules of conflicts of laws. This Agreement will bind and inure to the benefit of the parties hereto and their respective successors and permitted assigns.

15.3Severability. In the event any one or more of the provisions contained in this Agreement should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby, unless the absence of the invalidated provision(s) adversely affect the substantive rights of the Parties. The Parties shall in such an instance use their best efforts to replace the invalid, illegal or unenforceable provision(s) with valid, legal and enforceable provision(s) that, insofar as practical, implement the purposes of this Agreement.

15.4Notices. All notices or other communications that are required or permitted hereunder shall be in writing and sufficient if delivered personally, sent by telecopier (and promptly confirmed by personal delivery, registered or certified mail or overnight courier), sent by internationally-recognized overnight courier, addressed as follows:

If to CUBIST, to:	If to XTL, to:
CUBIST Pharmaceuticals, Inc. 65 Hayden Avenue Lexington, MA 02421 Attention: Chief Executive Officer Telecopier No.: (781) 861-1412	XTL Biopharmaceuticals Ltd. Building 3 Kiryat Weizmann Rehovot 76100 Israel Attention: Chief Executive Officer Telecopier No.: (972) 8.940.5017

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With a copy to:	With a copy to:
CUBIST Pharmaceuticals, Inc. 65 Hayden Avenue Lexington, MA 02421 Attention: General Counsel Telecopier No.: (781) 860-1407 And Bingham McCutchen LLP 150 Federal Street Boston, MA 02110 Attention: Julio E. Vega, Esq. Telecopier No.: (617) 951-8736	Heller Ehrman White & McAuliffe LLP 4350 La Jolla Village Drive, 7th Floor San Diego, CA 92122 Attention: Stephen C. Ferruolo Telecopier No.: (858) 450-8499

or to such other address as the Party to whom notice is to be given may have furnished to the other Party in writing in accordance herewith. Any such communication shall be deemed to have been given when delivered if personally delivered or sent by telecopier on a business day, on the business day after dispatch if sent by internationally-recognized overnight courier.

15.5English Language. All notices, disclosures or information delivered or made available by either Party or its employees and agents to the other Party and its employees or agents pursuant to this Agreement shall be made in English. The English language version of this Agreement shall control notwithstanding the translation of this Agreement into any other language.

15.6Applicable Law. Except as otherwise expressly set forth in Section 15.2, this Agreement shall be governed by and construed in accordance with the laws of the United States and the State of New York without reference to any rules of conflict of laws. The Parties irrevocably consent to the exclusive personal jurisdiction (except as to actions for the enforcement of a judgment, in which case such jurisdiction shall be non-exclusive) of the federal and state courts located in New York, New York, and venue in New York, New York.

15.7Entire Agreement. The Agreement contains the entire understanding of the Parties with respect to the subject matter hereof. All express or implied agreements and understandings, either oral or written, heretofore made are expressly merged in and made a part of the Agreement. Except as expressly set forth in this Agreement, the Agreement may be amended, or any term hereof modified, only by a written instrument duly executed by both Parties.

15.8Headings. The captions to the several sections hereof are not a part of the Agreement, but are merely guides or labels to assist in locating and reading the several sections hereof.

15.9Independent Contractors. It is expressly agreed that CUBIST and XTL shall be independent contractors and that the relationship between the two Parties shall not constitute a partnership, joint venture or agency. Neither CUBIST nor XTL shall have the authority to make any statements, representations or commitments of any kind, or to take any action, which shall be binding on the other, without the prior consent of the other Party.

15.10Waiver. The waiver by either Party hereto of any right hereunder or the failure to perform or of a breach by the other Party shall not be deemed a waiver of any other right hereunder or of any other breach or failure by said other Party whether of a similar nature or otherwise.

15.11Counterparts. The Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

15.12Waiver of Rule of Construction. Each Party has had the opportunity to consult with counsel in connection with the review, drafting and negotiation of this Agreement. Accordingly, the rule of construction that any ambiguity in this Agreement shall be construed against the drafting Party shall not apply.

15.13Third Party Beneficiaries. Except as otherwise expressly provided in this Agreement, nothing herein expressed or implied is intended or shall be construed to confer upon or to give to any Third Party any rights or remedies by reason of this Agreement. Except as otherwise expressly provided in this Agreement, there are no intended Third Party beneficiaries under or by reason of this Agreement.

[The remainder of this page is intentionally left blank.]

34

IN WITNESS WHEREOF, the Parties have executed this License Agreement as of the Effective Date.

XTL BIOPHARMACEUTICALS LTD.	CUBIST PHARMACEUTICALS, INC.
By: /s/ Martin Becker	By: /s/ Oliver Fetzer
Name: Martin Becker	Name: Oliver Fetzer
Title: CEO and President	Title: SVP, Corporate Development and CBO

[SIGNATURE PAGE TO LICENSE AGREEMENT]

35

***** Confidential material redacted and filed separately with the Commission.

Exhibit A

(XTL Patents as of the Effective Date)

*****	*****	*****	*****	*****	*****
*****	*****	*****	*****	*****	*****
*****	*****	*****	*****	*****	*****
*****	*****	*****	*****	*****	*****
*****	*****	*****	*****	*****	*****
*****	*****	*****	*****	*****	*****
*****	*****	*****	*****	*****	*****

Antibody 17 Patents

*****	*****	*****	*****	*****	*****
*****	*****	*****	*****	*****	*****
*****	*****	*****	*****	*****	*****
*****	*****	*****	*****	*****	*****
*****	*****	*****	*****	*****	*****
*****	*****	*****	*****	*****	*****
*****	*****	*****	*****	*****	*****

Antibody19 [Combination]

*****	*****	*****	*****	*****	*****
*****	*****	*****	*****	*****	*****
*****	*****	*****	*****	*****	*****

Note that confidential treatment has been requested and one (1) page of material from this Exhibit B has been omitted and filed separately with the Commission.

***** Confidential material redacted and filed separately with the Commission.

Exhibit B

(XTL Trademarks)

Note that confidential treatment has been requested and one (1) page of material from this Exhibit B has been omitted and filed separately with the Commission.

*****	*****	*****	*****	*****	*****
*****	*****	*****	*****	*****	*****
*****	*****	*****	*****	*****	*****
*****	*****	*****	*****	*****	*****
*****	*****	*****	*****	*****	*****
*****	*****	*****	*****	*****	*****
*****	*****	*****	*****	*****	*****
*****	*****	*****	*****	*****	*****
*****	*****	*****	*****	*****	*****
*****	*****	*****	*****	*****	*****
*****	*****	*****	*****	*****	*****
*****	*****	*****	*****	*****	*****

***** Confidential material redacted and filed separately with the Commission.

Exhibit C

(HepeX-B Plan Guidelines)

Note that confidential treatment has been requested and one (1) page of material from this Exhibit C has been omitted and filed separately with the Commission.

Exhibit C provides guidelines for developing the detailed HepeX-B Plan. The Guidelines outline the scientific, clinical, regulatory and manufacturing activities that are currently contemplated to be required to Obtain Regulatory Approval for a commercially viable formulation of HepeX-B for the prevention of recurrent Hepatitis B infections in liver transplant patients in the US and the EU. A preliminary budget for 2004 and 2005 is included and subject to change as the detailed HepeX-B Plan is developed. These guidelines are subject to section 5.2 of the Agreement. Activities include:

1. *****

2. *****

3. *****

4. *****

5. *****

6. *****

It is contemplated that the HepeX-B Plan will also *****. However, the Parties recognize that additional activities ***** may also be required, and cannot be specified at this stage.

 

*****

Note: There might be some redundancy in costs identified in *****. The preliminary budget does not include costs of *****

***** Confidential material redacted and filed separately with the Commission.

Exhibit D

(XTL Obligations)

Specific XTL obligations are identified in the following activities:

1. Complete production of material for *****

2. Complete the development of an ***** of HepeX-B]

3. Complete the following clinical studies

a. *****

i. ***** to be completed by April 2005

ii. ***** to be completed by April 2006

b. ***** to be completed by January 2005]

Complete production of material for *****

*****

***** clones ***** and for ***** were selected and adapted to ***** produced were ***** and found similar to the ***** produced in *****.

***** for each ***** was produced by *****

*****: Preparation of a ***** consisting of ***** was completed. The ***** was tested by *****, and passed all ***** required by*****; however, a ***** result was obtained by ***** with the *****. ***** will perform necessary testing to demonstrate that the results do not represent an ***** (e.g., ***** of three ***** to a study using *****. ***** will deliver a ***** that is fully compliant with ***** and is acceptable for entry to ***** (i.e., must pass ***** testing) by *****. Additionally, ***** will provide ***** with all reports and data associated with the *****.

*****: Preparation of a ***** consisting of ***** was completed. The ***** was tested by *****, and passed all ***** required by *****; *****, in light of the ***** test result obtained above, ***** will perform all tests that may be necessary (in the same manner as is being done for the *****) should the ***** in any relevant *****. ***** will deliver a ***** that is fully compliant with *****-required tests and is acceptable for entry to ***** (i.e., must pass ***** testing) by *****. Additionally, ***** will provide ***** with all reports and data associated with the *****.

***** Confidential material redacted and filed separately with the Commission.

*****

About ***** was produced in *****. Material was ***** is stored until *****. The ***** described above must be complete prior to release of this material *****, which is to be completed by *****. If the ***** does not meet the requirements described above, this lot of ***** (i.e. the lot produced from the *****) must be rejected. ***** will provide ***** with the ***** and all ***** associated with its production (e.g., batch records, results of in-process testing).

Production of ***** is expected to start during *****. The retesting of the ***** described above must be complete prior to ***** of this *****, which is to be completed by *****. If the ***** does not meet the requirements described above, ***** (i.e. the lot produced from the *****) must be *****. ***** will provide ***** with the ***** associated with its *****.

Purified ***** will be formulated in the same***** and will be vialed in the *****. Because the ***** studies are not ***** and ***** must be done with the ***** formulated in *****, as was done in earlier studies.

***** will have completed real ***** for each ***** produced at *****.

***** will provide to ***** all records and data in ***** possession or control that are associated with the ***** work to enable ***** to continue *****, including ***** and full *****.

The material manufactured at ***** is intended for use in the ***** referenced below and this ***** must be comparable (based upon acceptance criteria) ***** must so that the ***** may be included in this *****.

*****

*****

***** will develop an ***** to ***** the ***** for the HepeX-B ***** (based on *****. ***** will provide ***** with all ***** reports and data related to this *****, as well as ***** and subsequent technical support.

In addition to performing ***** on the ***** will also aid in ***** for all other ***** previously developed for and relevant to the HepeX-B program.

Complete development of an ***** for HepeX-B

***** studies were performed at ***** to develop a ***** at a high concentration *****. ***** was completed. Three lead ***** were selected in which the *****. ***** will provide ***** with all records, including final study reports, relating to the ***** and the *****. ***** development for ***** will be completed by *****. ***** will provide ***** with all records, including final study reports, relating to the ***** and the *****. Until further testing to ***** is completed, the ***** must be ***** separately for *****.

By *****, ***** will complete an ***** on the ***** in combination at one ***** in the same *****.

2

***** Confidential material redacted and filed separately with the Commission.

Complete the following clinical studies:

Clinical Activities - ***** - Synopsis

Name of Sponsor: *****	Name of Active Ingredient: HepeX-BÔ	Study number: *****
Title of study: A ***** Study to Compare the ***** of HepeX-BÔ, a Mixture of Two Monoclonal Antibodies, as Compared to ***** for Treatment of *****
Investigators: Approximately ***** investigators in *****
Study centers: *****
Study period: Approximately***** (***** weeks of recruitment + ***** weeks treatment in the *****, with the possibility of enrolling in the ***** of the trial for an additional ***** weeks of treatment. All patients will be observed for ***** after completion of treatment).		Phase of development: *****
Objectives: The primary objective will be to compare the ***** of HepeX-BÔto ***** as measured by *****, in patients who have received ***** for treatment of *****. ***** is the primary measure of ***** and is defined as ***** measured on two consecutive assessments ***** days apart. Secondary objectives will be to compare the ***** concentrations and to describe the safety of the reference and test agents.
Methodology: This is a ***** study of the ***** of HepeX-BÔas compared to standard ***** in patients who have received ***** for treatment of ***** and who are currently receiving ***** and concomitant treatment with an *****. Up to ***** patients may be enrolled in order to achieve at least ***** evaluable patients (***** patients per treatment group). Eligible patients will be *****. Patients will receive an ***** of study medication every ***** for ***** in the *****, with the possibility of an additional ***** all patients enrolled in the ***** of the trial. All patients will be observed for ***** after completion of treatment. Periodic ***** will be collected for determination of *****. ***** will be monitored by a Data and Safety Monitoring Board (DSMB). After successful completion of this study, patients may be eligible for participation in a 12-month follow-on study to examine *****.
Number of subjects: Up to ***** patients may be enrolled in order to obtain ***** evaluable patients *****. To be considered evaluable, patients must either receive ***** and complete the ***** follow-up visit, or must have met the criteria for treatment failure. Patients who terminate the study prematurely for reasons other than treatment failure will be replaced.
Main Inclusion Criteria: Patients who are at least ***** post first ***** for treatment of *****, who have received ***** from the time of ***** through the time of entry into the study, who have received an ***** for at least the ***** immediately prior to entry into the study, and who have undetectable ***** on two consecutive tests within the ***** screening period, are eligible for the study.
Main Exclusion Criteria: Patients who are *****, or who have received other ***** are ineligible to participate.

3

***** Confidential material redacted and filed separately with the Commission.

Test product, dose and mode of administration: HepeX-BÔwill be *****.

· HepeX-BÔ***** every ***** for ***** for all patients enrolled in the *****, with the possibility of an additional ***** for all patients enrolled in the ***** of the trial. All patients will be observed for ***** after completion of treatment.

· HepeX-BÔ***** every ***** for***** for all patients enrolled in the *****, with the possibility of an additional ***** for all patients enrolled in the ***** of the trial. All patients will be observed for ***** after completion of treatment.

Reference therapy, dose and mode of administration: *****.

· ***** for all patients enrolled in the *****, with the possibility of an additional ***** for all patients enrolled in the ***** of the trial. All patients will be observed for ***** after completion of treatment.

Duration of treatment and observation: ***** for all patients enrolled in the *****, with the possibility of an additional ***** for all patients enrolled in the ***** phase of the trial. All patients will be observed for ***** after completion of treatment.

Anti-viral assessments: ***** will be determined prior to and ***** following each *****. ***** results will be confirmed by repeat testing at least *****.

***** assessments: ***** will be determined immediately prior to each *****, at the end of each *****, ***** after the completion of each *****, and at***** after each *****. The ***** determined immediately prior to each ***** will be considered the *****.

Safety assessments: Safety will be evaluated by periodic ***** and reported and observed *****. Emergence of ***** (as indicated by detectable *****) will also be reviewed as a safety measure. Selected safety measures, including ***** status, will be reviewed periodically by an independent Data Safety Monitoring Board (DSMB). Criteria will be prospectively established to terminate one or both of the experimental arms in the event of unacceptable risk to study participants.

Criteria for Evaluation: Theprimary endpoint will be the ***** in each treatment regimen without *****. ***** is defined as the ***** of detectable ***** measured on two consecutive assessments ***** apart. Secondary endpoints will be a comparison of *****, including the proportion of subjects in each arm of the study with *****, and a description of safety (i.e., *****) throughout the study.

Statistical Methods: Hypothesis testing will be done for the primary endpoint using a ***** approach at an alpha of *****.

*****: HepeX-BÔ is not inferior to the active comparator, *****, using a maximum delta of *****

To test the null hypothesis, the lower bound of the two-sided 95% confidence interval (CI) of the difference between the proportions of response in HepeX-BÔ and the active comparator will be compared to the pre-set threshold (***** difference). The difference will be calculated HepeX-BÔ minus active comparator.

Categorical variables (nominal or ordinal) will be summarized by sample size, number (frequency), and percentage of subjects at each level of the variable. Continuous variables will be summarized by sample size, mean, median, standard deviation (SD), minimum, and maximum values.

For the efficacy analyses, the proportion of patients without ***** breakthrough will be presented by treatment regimen for each analysis population. Summaries of ***** will be presented for the evaluation of safety. Listings of ***** will be provided as well as summaries of the *****. The primary analysis for the study will be conducted when the last patient enrolled has received ***** and completed ***** of follow-up. At this time, the ***** data for all patients will be analyzed. A secondary analysis will be performed when ***** has been completed by ***** patients and will include all of the data accumulated during the *****,

4

***** Confidential material redacted and filed separately with the Commission.

***** Study - Synopsis

It is understood that Cubist will determine the precise timing and scope of ***** prior to their start, and that ***** will be responsible for study execution.

1.1.1.1.1 Name of Sponsor *****	Name of Active Ingredient *****	Study number:
Title of study: *****
Investigator:
Study center:
Study period: *****	Phase of development: *****
Objectives: The primary objectives of this study are to ·assess the *****, as determined from ***** administered by ***** (prepared from *****) administered by ***** ·assess the relative *****, as determined from *****, of single doses of ***** (prepared from *****) administered by ***** (prepared from *****) administered by ***** The secondary objectives of this study are to ·assess the relative *****, as determined from *****, of single doses ***** (prepared from *****) administered by ***** (prepared from *****) administered by ***** ·evaluate the safety of the ***** of single doses of ***** (prepared from *****) compared to ***** (prepared from *****)
Methods: This study will be conducted in *****. Subjects will be screened for eligibility. Subjects will be randomly assigned to receive a *****: Group 1: ***** subjects will receive a ***** prepared from ***** Group 2: ***** subjects will receive a ***** prepared from ***** and administered over *****. Group 3: ***** subjects will receive a ***** prepared from ***** and administered over *****. Subjects will remain at the study center for at least ***** after the ***** for collection of ***** and safety monitoring. Subjects will return to the study center on Study Days ***** for collection of ***** and safety monitoring. Subjects will return to the study center on Study Day ***** for collection of ***** and completion of a Follow-up visit].

5

***** Confidential material redacted and filed separately with the Commission.

[Population: ***** volunteers, *****, who are *****, and who have a body mass index (BMI) between *****. Subjects who received ***** and those who use any concomitant medications that may impact ***** within 30 days prior to study entry are not eligible to participate.

Number of subjects: ***** volunteers will be entered randomly into one of three dose groups (*****). Subjects who terminate prematurely before completing the sample collections through Study Day ***** will be replaced.

Test product, dose and mode of administration: ***** (prepared from *****) administered as a *****

·*****

·***** (the route of administration, *****, will be based on the results of ***** efforts currently ongoing).

Reference therapy, dose and mode of administration: ***** (prepared from *****) administered as a *****

Duration of treatment and observation: On Study Day ***** subjects will receive a *****. Subjects will remain at the study center for at least ***** hours after commencement of the *****. ***** will be collected at intervals while the subjects remain at the study center, and the subjects will be monitored regularly for safety. Subjects will return to the study center on Study Days ***** for collection of ***** and safety monitoring. Subjects will return to the study center on Study Day ***** for collection of ***** and for completion of a Termination Visit.

***** assessments: ***** concentrations will be determined in ***** collected at the following times:

§Study Day *****: immediately prior to commencement of the *****, and at approximately Hours *****

§Study Day *****: at approximately *****

§Study Day *****: at approximately *****

§Study Day *****: at approximately *****

§Study Days *****

Safety assessments: Safety will be evaluated by periodic *****.

6

***** Confidential material redacted and filed separately with the Commission.

Statistical Methods:

*****:

The ***** analysis will be based on all subjects who have evaluable *****. The individual concentration-time profiles of ***** will be evaluated using *****. Data permitting, the following pharmacokinetic parameters will be determined:

*****

Descriptive statistics (N, mean, standard deviation, CV, median, minimum, and maximum) will be used to summarize ***** concentration data at each planned sampling time point for each treatment. ***** parameters calculated from the concentrations will also be summarized by treatment using descriptive statistics.

Bioequivalence will be evaluated for ***** (prepared from *****) compared to ***** (prepared from *****) with an analysis of their log-transformed *****. ***** with terms for subject and treatment will be performed for the parameters ***** From these analyses, 90% confidence intervals (CIs) for the geometric test/reference mean ratios will be obtained. Group 1 will be compared with Group 2, with Treatment Group 2 as the reference. Bioequivalence will be declared if the 90% confidence limits for the test to reference ratios fall within *****.

Bioeavailability will be evaluated for ***** (prepared from *****) compared to both ***** (prepared from *****) ***** (prepared from *****) using the same ***** model described above. Group 3 will be compared with Group 1 as well as Group 2, with Treatment Group 1 and Treatment Group 2 as the reference, respectively. For these comparisons, the bioavailability ratio and 95% C.I. will be calculated using the difference between the *****

A sample size of ***** per group has been calculated to provide greater than 90% power to demonstrate equivalence using a CV of *****. The CV of ***** was the largest CV calculated for the log transformed ***** parameters using data from the following study: *****

Safety: Descriptive summaries will be provided by treatment group for demographics. The frequency of adverse events will be tabulated. Baseline, within study and end-of-study, and change from baseline clinical laboratories, and vital signs will be summarized. Descriptive statistics will be computed for safety parameters as appropriate. Further statistical evaluations will be applied for select endpoints, if warranted. All baseline data and safety data collected during the study will be listed for each subject and dose group].

7

***** Confidential material redacted and filed separately with the Commission.

***** Study - Synopsis

1.1.1.1.2 [Name of Sponsor *****	Name of Active Ingredient *****	Study number:
Title of study: *****
Investigator: *****
Study center: *****
Study period: *****	Phase of development: *****
Objectives: The primary objectives of this study are to ·Compare the *****, as determined by the relative changes in ***** in response to a ***** (prepared from *****) administered by ***** (prepared from *****) *****. ·Compare the *****, as determined by the relative changes in ***** in response to a ***** (prepared from *****) administered by ***** (prepared from *****) administered by *****. The secondary objectives of this study are to ·Compare the *****, as determined by the relative changes in ***** in response to a ***** (prepared from *****) administered by ***** (prepared from *****) administered by *****. ·Evaluate the safety of the ***** (prepared from *****) compared to ***** (prepared from *****).
Methods: This study will be conducted in an *****. Subjects will be screened for eligibility and randomly assigned to receive each of the following treatments on Study Day *****. ***** washout period between study doses will separate each treatment period. Treatment A: ***** prepared from ***** Treatment B:  ***** prepared from ***** and administered over *****. Treatment C: ***** prepared from ***** and administered over *****. During each treatment period, subjects will remain at the study center for at least ***** after the administration of study medication for collection of ***** and safety monitoring. Following period *****, subjects will return to the study center on Study Day ***** for completion of a Follow-up visit].

8

***** Confidential material redacted and filed separately with the Commission.

Population: Eligible patients will be *****, with a minimum ***** at screening for subject inclusion to allow better cross-over comparison.

Number of subjects: ***** subjects will be entered into the study. Subjects who terminate prematurely before completing the ***** will be replaced.

Test product, dose and mode of administration: ***** (prepared from *****) administered as *****

·*****

·***** (the route of administration, *****, will be based on the results of ***** efforts currently ongoing).

Reference therapy, dose and mode of administration: *****

Duration of treatment and observation: The study duration will be approximately ***** for each subject. Subjects will be screened within ***** of administration of *****. During each treatment period, subjects will receive *****. Subjects will remain at the study center for at least ***** after commencement of *****. Subjects will check out on Day ***** following the ***** and return on Day ***** for the *****. Subjects will be monitored regularly for safety. A washout of ***** between doses will separate each treatment period. Following period *****, subjects will return to the study center between Day ***** for completion of a Follow-up visit.

***** and ***** assessments: ***** concentrations and***** concentrations will be determined in ***** collected at screening and at the following times during each treatment period:

§Study Day *****: immediately prior to commencement of *****, and at approximately ***** commencement

§Study Day *****: ***** commencement

§Study Day *****: ***** commencement

Safety assessments: Safety will be evaluated by periodic *****.

Criteria for evaluation:

*****: The primary variable for comparison of the ***** is the change in ***** (in percent) following ***** administration compared to the concentration immediately prior to administration on Day ***** of each treatment period.

*****: As secondary variable for comparison, ***** concentration-time data will be compared for the *****. ***** in healthy normal volunteers has been previously evaluated. However, the ***** has not been previously evaluated in patients with *****. ***** are expected to be highly variable between patients due to the complex relationship to ***** concentration, changes in ***** over time will be evaluated for each treatment.

*****.

9

***** Confidential material redacted and filed separately with the Commission.

Statistical Methods:

Pharmacodynamics:

The pharmacodynamic analysis will be based on all subjects who have evaluable change in ***** For each concentration-time point, a change from baseline value (in percent) will be calculated as follows: ***** The individual percent change from baseline values of ***** will be evaluated using model-independent methods as implemented in *****. Data permitting, the following pharmacodynamic parameters will be determined: *****

The rational for deriving partial average changes from baseline for select time intervals is the *****:

a) ***** concentrations appears to be correlated to the baseline ***** concentration which could affect interpretation of the changes in ***** in the later portion of the concentration-time profile

b) Intersubject variability due to the severity of the disease state is likely to affect the rate of ***** which could affect interpretation of the changes in ***** in the later portion of the concentration-time profile

c) The potential of differences in ***** may affect the *****

Descriptive statistics (N, mean, standard deviation, CV, median, minimum, and maximum) will be used to summarize the percent change from baseline concentration data at each planned sampling time point for each treatment. Change from baseline pharmacodynamic parameters will also be summarized by treatment using descriptive statistics.

Similarity in ***** will be evaluated for the percent change from baseline pharmacodynamic parameters for ***** (prepared from *****) relative to ***** (prepared from *****)] with an analysis of their pharmacodynamic parameters. An ***** with terms for subject, period, sequence, and treatment will be performed for the parameters ***** above. One-sided 95% confidence intervals (CI) for the test/reference mean ratios will be estimated from the ***** to assess ***** of the test treatments using *****. The test treatment will be compared with the reference treatment and ***** will be declared if the 95% confidence limit for the test to reference ratios are greater than ***** for all of the identified parameters.

Similarity in ***** be evaluated for the percent change from baseline pharmacodynamic parameters for ***** (prepared from *****) relative to both ***** (prepared from *****) and ***** (prepared from *****)] using the same ***** model described above. One-sided 95% confidence intervals (CIs) for the test/reference mean ratios will be estimated from the ***** to assess ***** of the test treatments using *****. Treatment A will be compared to Treatment C and to Treatment B, with Treatments C and B treated as reference. Non-inferiority will be declared if the 95% confidence limit for the test to reference ratios are greater than ***** for all of the identified parameters.

A sample size of ***** yields just over 80% power to show ***** in the cross-over design using the following assumptions.

·         There is no difference between the *****. ***** defined as the test treatment yielding responses no less than ***** of the reference treatment. The intra-patient CV is at most *****. ***** one-sided significance level.

Pharmacokinetics:

Descriptive statistics (N, mean, standard deviation, CV, median, minimum, and maximum) will be used to summarize ***** concentration data at each planned sampling time point for each treatment. An attempt will be made to perform a pharmacokinetic analysis for those subjects who have ***** that follow a traditional pattern of *****. The individual concentration-time profiles of ***** will be evaluated using model-independent methods as implemented in *****. Data permitting, the following pharmacokinetic parameters will be determined:

*****

***** pharmacokinetic parameters calculated from the concentrations will also be summarized by treatment using descriptive statistics. Differences in concentration-time data and/or pharmacokinetic parameters will be evaluated graphically.

Safety: Descriptive summaries will be provided by treatment group for demographics. The frequency of adverse events will be tabulated. Baseline, within study and end-of-study, and change from baseline clinical laboratories, and vital signs will be summarized. Descriptive statistics will be computed for safety parameters as appropriate. Further statistical evaluations will be applied for select safety endpoints, if warranted. All baseline data and safety data collected during the study will be listed for each subject and dose group.

10

***** Confidential material redacted and filed separately with the Commission.

Exhibit E

(XTL Licensor Payments)

Note that confidential treatment has been requested and one (1) page of material from this Exhibit E has been omitted and filed separately with the Commission.

*****

***** Confidential material redacted and filed separately with the Commission.

Exhibit E

(XTL Licensor Payments)

Note that confidential treatment has been requested and one (1) page of material from this Exhibit E has been omitted and filed separately with the Commission.

*****

EX-4.9

Confidential Treatment Requested. Confidential portions of this document have been redacted and filed separately with the Commission.

***** Confidential material redacted and filed separately with the Commission.

RESEARCH AND LICENSE AGREEMENT

RESEARCH AND LICENSE AGREEMENT (the “Agreement”) made and entered into as of April 18, 2000 the “Effective Date”), by and between DRK BLUTSPENDEDIENDST BADEN-WURTTENBERG, INSTITUT ULM (the “Licensor”), having an address at Postfach 15 64, U-89005 Ulm, Germany, and XTL BIOPHARMACEUTICALS, LTD. (the “Company”), having an address at Kiryat Weizmann, P.O. Box 370, Rehovot, 76100, Israel.

RECITALS

A.***** has conducted research and made new inventions with respect to technology relating to antibodies to HCV;

B.The Company is willing to partially finance the performance of further research at the laboratories, and under the supervision, of ***** relating to antibodies to HCV;

C.The Company is also willing to provide ***** antigens for HCV and access to its animal models to screen antibodies to HCV; and

D.Subject to and in accordance with the terms and conditions of this Agreement, the Company wishes to acquire, and Licensor is willing to grant the Company, the exclusive license set forth in this Agreement

NOW, THEREFORE, in consideration of the mutual promises and agreements contained herein, the parties hereto agree as follows:

1

1.Definitions

“Affiliate” means any corporation or other entity that directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with the designated party but only for so long as such relationship exists. For the purposes of this section, “Control” shall mean ownership of at least 50% (or such lesser percent as may be the maximum that may be owned by foreign interests pursuant to the laws of the country of incorporation) of the shares of stock entitled to vote for directors in the case of a corporation and at least 50% (or such lesser percent as may be the maximum that may be owned by foreign interests pursuant to the laws of the country of domicile) of the interests in profits in the case of a business entity other than a corporation.

“Antibodies” mean those cell lines secreting antibodies to HCV listed on Exhibit A hereto and other cell lines secreting antibodies to HCV developed by Licensor as a result of the Research.

“Effective Date” means the date set forth at the beginning of this Agreement.

“Existing Technology” means all Patent Rights and Know-How of Licensor in the Field existing as of the Effective Date, including without limitation, the Patent Rights and Know-How listed on Exhibit B hereto.

“Field” means HCV therapeutics and diagnostics.

“Know-How” means all unpatented or nonpatentable chemical and biological materials (including cell lines, antibodies and other biological materials), inventions, ideas, data, formulations, processes, techniques, specifications, and other trade secrets or know-how.

“License” means the exclusive license granted to the Company by Licensor pursuant to Section 6.1.

2

***** Confidential material redacted and filed separately with the Commission.

“Licensed Product” shall mean any product that incorporates one or more Antibodies or a part of the Licensed Technology for use in the Field.

“Licensed Technology” means the Existing Technology and the Research Technology.

“Net Sales” shall mean the *****.

“Patent Rights” means (i) all patents and patent applications useful in the Field conceived and reduced to practice by Licensor during the Research Period and the patents and patent applications listed in Exhibit B hereto; (ii) all patents and patent applications relating to the Antibodies and (iii) any divisionals, continuations, continuations-in-part, reissues, reexaminations, extensions or other governmental actions which extend any of the subject matter of the patent applications or patents in (i) or (ii) above, and any substitutions, confirmations, registrations or revalidations of any of the foregoing, in each case, which is owned or controlled, in whole or part, by license, assignment or otherwise by Licensor during the term of this Agreement.

“Research” means the research to be undertaken at the laboratories, and under the supervision of *****, as specified in the work plan attached hereto to Exhibit C.

“Research Period” means the period commencing on the Effective Date and, unless extended by written agreement of the parties or sooner terminated as provided herein, terminating on the first anniversary of the Effective Date.

“Research Technology” means Patent Rights and Know-How created, discovered or developed by Licensor during the Research Period or as a result of the Research during the three-month period following the Research Period.

“Sublicensee” shall mean a third party to whom the Company has granted a license or sublicense to make, have made, import, use, offer for sale or sell a Licensed Product.

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2.Performance of Research

2.1.In consideration of the aggregate sum of ***** to be paid by the Company to Licensor *****, Licensor shall perform, or cause to be performed, the Research during the Research Period.

2.2.In further consideration of this Agreement, XTL agrees to pay consulting fees in the aggregate sum of *****, to be paid by the Company to *****.

2.3.During the Research Period, Licensor shall not collaborate with any third party in the Field; provided, however, that the Licensor shall have the right to collaborate with academic partners for research purposes only.

2.4.In further consideration of the sums to be paid to Licensor ***** under Section 2.1 and Section 2.2, respectively, and the royalties payable to Licensor under Section 6 below, Licensor shall provide the Company with Antibodies pursuant to a Materials Transfer Agreement in the form attached hereto as Exhibit D.

2.5.During the Research Period, Licensor shall provide XTL employees access to the laboratories where the Research is being conducted and shall instruct them on how to practice the Licensed Technology.

2.6.The Company shall provide Licensor antigens for HCV and access to its animal models to screen antibodies for HCV and shall also provide any necessary Know-How related thereto. Any such XTL Know-How shall be treated by Licensor as confidential information subject to the obligations of Section 8.1 below.

3.Reporting

Licensor will submit to the Company a detailed written report on the progress of the Research ***** during the Research Period, within 30 days of the end of each ***** period, and a written report summarizing the results of the Research within 60 days of the end of the Research Period. Further, prompt written reports will be submitted by Licensor to the Company on each significant development in the Research during the Research Period and for the three-month period thereafter.

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4.Title

Subject to the License granted to the Company hereunder, it is hereby agreed that all right, title and interest in and to the Licensed Technology shall vest in Licensor, exclusively. All right, title and interest in and to the Company’s animal models shall be retained by the Company, exclusively, and no license or other right to such technology is granted or implied hereby.

5.Patents and Patent Applications

5.1.The parties shall consult with one another regarding the filing of patent applications in respect of any portion of the Licensed Technology including, but without limitation, the content and the timing of the filing of such applications. The Company shall have primary responsibility for the preparation, filing, prosecution and maintenance of such patent applications through counsel of its choice. In the event the Company decides not to pursue such preparation, filing, prosecution or maintenance, it shall so inform Licensor in writing, and Licensor shall assume responsibility for such preparation, filing, prosecution and maintenance through counsel of its choice reasonably satisfactory to the Company. The Company shall bear all costs and fees related to the preparation, filing, prosecution and maintenance of the Patent Rights.

5.2.The Company shall have the right to take such action as shall be necessary to protect or to sue for infringement of any Patent Rights. At its option, the Company may bring suit against an infringer and join Licensor as a party plaintiff in any such suit. At the request of the Company, Licensor shall also take such action as the Company shall deem necessary to protect any Patent Rights. All costs (including legal costs and other sums awarded to the counter-party in such action) involved in any action taken at the Company’s request, or by the Company, shall be borne by the Company exclusively. Any recovery in any such action shall be retained by the Company ***** and by Licensor *****, after the deduction of all legal costs and expenses.

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6.License

6.1.Subject to the terms and conditions hereinafter set forth, Licensor hereby grants the Company an exclusive worldwide license, with the right to sublicense, under the Licensed Technology to develop, make, have made, use, import, offer for sale or sell the Licensed Product.

6.2.The License shall remain in force (if not previously terminated according to the provisions of this Agreement) until the later of *****.

7.Royalties

7.1.In consideration of the License, the Company shall pay Licensor a royalty of ***** of all Net Sales. In the event the Company shall have to pay a royalty to a third party to commercialize the Licensed Product, the Company may reduce royalty payments on Net Sales to Licensor by ***** royalty paid by the Company to such third party; provided that the Company’s royalty paid to Licensor on Net Sales shall not be less than *****.

7.2.In consideration of the License, the Company shall also pay Licensor ***** of any milestone payments received by the Company from its Sublicensees. In the event the Company shall have to pay a license fee or royalty to a third party to commercialize the Licensed Product, the Company may credit against the amounts otherwise due Licensor on milestones, ***** made to such third party; provided that the percentage of milestone payments paid to Licensor shall not be less than *****.

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7.3.Amounts payable to Licensor under this Section 7 shall be paid to Licensor on a quarterly basis and no later than ***** after the end of each calendar quarter, commencing with the first calendar quarter in which any Net Sales or milestone payments are received; provided, however, payments on Net Sales by Sublicensees shall be paid to Licensor no later than ***** after the end of the calendar quarter when such payments are received by the Company. The Company shall take all reasonable actions as shall be necessary to protect the interests of Licensor to receive royalties hereunder, including the submission of reports and the maintenance of detailed accounts substantiating the calculations of royalties being paid to Licensor. Licensor is authorized to appoint an independent certified public accountant reasonably acceptable to the Company to audit such accounts during normal business hours and upon reasonable advance notice, solely for the purpose of verifying the accuracy of the payment calculations made. Such inspection shall be at Licensor’s sole expense unless it reveals an underpayment of at least ***** of the amount due, in which case the reasonable costs of such inspection shall be promptly reimbursed by the Company together with prompt payment for any unpaid amounts that are discovered. The Company shall pay to Licensor interest on amounts payable to Licensor from the date such payments were due at the base rate of the German Federal Bank plus ***** per annum.

8.Confidentiality

8.1.The Company and Licensor each shall use reasonable care to avoid disclosure of the Licensed Technology to any third party, and each party shall be liable to the other for unauthorized disclosure or failure to exercise such reasonable care. Neither party shall have any obligation with respect to the Licensed Technology to the extent that it (a)  is in the public domain at the Effective Date or becomes part of the public domain thereafter other than through a violation of this undertaking of confidentiality, (b) was known to such party at the time of disclosure, or (c) was subsequently disclosed to such party by a third party not in breach of any confidentiality obligations.

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8.2.In addition to and without derogating from the foregoing, the Company undertakes not to use the names of Licensor ***** in any advertising, sales literature, promotional material or other publications, but excluding private placement memoranda and public offering registration statements, without the prior written approval of Licensor (such approval not to be unreasonably withheld or delayed). Once an approval has been granted by Licensor to a certain form of words for use in a particular context, then the same form of words can be used again by the Company in the same context, without further approval from Licensor.

8.3.For the removal of doubt, nothing in Sections 8.1 and 8.2 above contained shall be deemed to prevent the Company from mentioning the names of Licensor *****, or to prevent the Company from disclosing any information, where such mention or disclosure is to competent authorities for the purposes of obtaining approval or permission for the exercise of the License or is in the fulfillment of any legal duty owed to any competent authority.

8.4.The obligations of Licensor under Section 8.1 above to the contrary notwithstanding, it is hereby expressly agreed that ***** shall have the right to (and, with ***** consent, his students shall have the right to) publish articles relating to the Licensed Technology in scientific publications, provided that at least ***** before the intended date of such publication, the text thereof shall be submitted to the Company in order to enable it to file, or request the filing of, a patent application relating to the subject-matter of the article before the publication takes place. Licensor shall, and shall use its reasonable efforts to cause ***** to use its or his, as the case may be, reasonable efforts to include the name of the Company in any such article or publication.

9.No Assignment

Except as expressly provided herein, the Company may not assign all or any of its rights or obligations under this Agreement without the prior written consent of Licensor, which shall not be unreasonably withheld or delayed, except that the Company may, without such consent, assign this Agreement and its rights and obligations under this Agreement, in whole or in part, to its Affiliates, to any purchaser or other transferee of all or substantially all of its assets in the line of business to which this Agreement pertains, or to any successor corporation resulting from any merger or consolidation of the Company with or into another entity.

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10.Term and Termination

10.1.Unless previously terminated or extended in accordance with the provisions hereof, the respective obligations of the parties hereto under Sections 2 and 3 above shall terminate at the expiration of the Research Period. The Company may extend the Research Period by ***** by the giving of written notice of extension to Licensor at ***** days prior to the expiration of the initial Research Period. Upon the giving of such notice, the parties shall negotiate, in good faith, the funding obligations of the Company during, and with respect to, such extended period. The provisions of this Section 10.1 will not affect the rights of the parties with respect to the License or the Licensed Technology, which will be governed by Section 10.2 below.

10.2.Unless this Agreement is previously terminated in accordance with this Section 10.2, the License shall continue in full force and effect as set forth in Section 6.2. Either Licensor or the Company may terminate this Agreement and the License hereunder by serving a written notice to that effect on the other, upon or after the winding up or insolvency of the other, or upon or after the commitment of a material breach hereof by the other (which breach cannot be cured or, if curable, has not been cured by the party in breach within 60 days after receipt of a written notice to the other party in respect of such breach); and in such event this Agreement and the License hereunder shall be terminated forthwith upon receipt of notice as aforesaid.

10.3.Upon termination of this Agreement and the License thereunder pursuant to Section 10.2, all rights to the Licensed Technology vested in the Company shall revert to Licensor, and the Company shall not thereafter be entitled to make any use of the Licensed Technology. The termination of this Agreement for any reason shall not relieve the parties of any obligations to make payments thereunder which shall have accrued prior to such termination.

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11.Representations

11.1.The Company hereby represents to Licensor as follows:

(a)The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Israel. The Company has been granted all requisite power and authority to carry on its business and to own and operate its properties and assets. The execution, delivery and performance of this Agreement have been duly authorized by the Board of Directors of the Company;

(b)There is no pending or, to the Company’s knowledge, threatened litigation involving the Company which would have any material adverse effect on this Agreement or on the Company’s ability to perform its obligations hereunder; and

(c)There is no indenture, contract, or agreement to which the Company is a party or by which the Company is bound which prohibits or would prohibit the execution and delivery by the Company of this Agreement or the performance or observance by the Company of any material term or condition of this Agreement.

11.2.Licensor represents to the Company as follows:

(a)The execution and delivery of this Agreement have been duly authorized by all requisite action on the part of Licensor and Licensor has all right, power and authority necessary to grant the License and perform its other obligations hereunder.

(b)There is no pending or, to Licensor’s knowledge, threatened litigation involving Licensor which would have any material adverse effect on this Agreement or Licensor’s ability to perform its obligations hereunder;

(c)To the best of Licensor’s knowledge, Licensor holds exclusive worldwide rights in and to the Existing Technology and, as of the Effective

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(d) Date, there are no restrictions on its rights to license the Existing Technology to the Company. Licensor has not received notice of, and has no knowledge of any basis for, any claim that the Existing Technology infringes on any patent or other intellectual property right or trade secret of any third party; and

(e)Licensor has not previously granted, and will not grant, during the term of this Agreement, any right, license or interest in or to the Licensed Technology in the Field or with respect to the Licensed Product.

12.Governing Law and Forum

This Agreement shall be governed by the laws of England and Wales. The parties agree to submit to the jurisdiction of the courts of London, England.

13.Entire Agreement

This Agreement, together with the Exhibits constitutes the entire agreement between the parties pertaining to the subject matter hereof. The parties expressly intend that this Agreement shall supersede that certain Research and License Agreement between the parties dated ***** and that the terms of this Agreement shall apply to the Antibodies listed on Exhibit A. Any addition or amendment of this Agreement shall not be effective unless in writing signed by the authorized signatories of both parties.

14.Notices

All notices shall be in writing mailed via certified mail, return receipt requested, or overnight express mail, courier providing evidence of delivery, addressed as follows, or to such other address as may be designated by written notice so given from time to time:

If to Licensor	DRK Blutspendediendst Baden-Wurttenberg, Institut Ulm
	Helmholtzstrasse 10
	89081 Ulm Germany
	Attention: *****

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If to the Company:	XTL Pharmaceuticals Ltd.
	Kiryat Weizmann
	P.O. Box 370
	Rehovot 76100, Israel
	Attention: Chief Executive Officer

Notices shall be deemed given as of the date received.

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IN WITNESS WHEREOF the parties hereto have set their signatures as of the 18th day of April, 2000.

DRK BLUTSPENDEDIENDST BADEN-WURTTENBERG, INSTITUT ULM	XTL BIOPHARMACEUTICALS, LTD.
By: _______________________________	By: _______________________________
Title: ______________________________	Title: ______________________________

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Exhibit A

*****

**********

**********

**********

**********

**********

Note that confidential treatment has been requested and one (1) page of material from this Exhibit A has been omitted and filed separately with the Commission.

1

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Exhibit B

Existing Technology

*****

*****:

*****

*****

*****

*****

*****

*****

*****

*****

*****

*****

Note that confidential treatment has been requested and one (1) page of material from this Exhibit B has been omitted and filed separately with the Commission.

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Exhibit C

Work Plan

- *****

- *****

- *****

- *****

- *****

- *****

- *****

Note that confidential treatment has been requested and one (1) page of material from this Exhibit C has been omitted and filed separately with the Commission.

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Exhibit D

MATERIALS TRANSFER AGREEMENT

*****.

1.*****.

2.*****.

3.*****.

4.*****.

5.*****.

6.*****.

7.*****.

8.*****.

9.*****.

10.*****.

11.*****.

12.*****.

13.*****:

*****	*****
	*****
	*****
	*****
*****	*****
	*****
	*****
	*****
	*****

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*****.

*****.

*****	*****
*****	*****
*****	*****
*****	*****
*****	*****

Note that confidential treatment has been requested and two pages of material from this Exhibit D have been omitted and filed separately with the Commission.

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Exhibit 1

*****

1.*****

*****

*****

*****

*****

*****

*****

*****

2.*****

*****	*****	*****	*****
*****	*****	*****	*****
*****	*****	*****	*****
*****	*****	*****	*****
*****	*****	*****	*****
*****	*****	*****	*****
*****	*****	*****	*****
*****	*****	*****	*****

3.*****

*****

*****.

Note that confidential treatment has been requested and one (1) page of material from this Exhibit 1 has been omitted and filed separately with the Commission.

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EX-4.10

Confidential Treatment Requested. Confidential portions of this document have been redacted and separately filed with the Commission.

***** Confidential material redacted and filed separately with the Commission.

LICENSE AGREEMENT

Effective as of September 12, 2003 ("Effective Date"), THE BOARD OF TRUSTEES OF THE LELAND STANFORD JUNIOR UNIVERSITY, a body having corporate powers under the laws of the State of California ("STANFORD"), and XTL Biopharmaceuticals Ltd., a corporation organized under the laws of Israel having a principal place of business at Kiryat Weizmann, P.O. Box 370, Rehovot, 76100 Israel ("LICENSEE"), agree as follows:

1. BACKGROUND

1.1 STANFORD has an assignment of HCV Monoclonal Antibodies Recognizing Divergent HCV Genotypes from the laboratory of *****.

1.2 STANFORD has certain technical data and information as herein defined ("Technology") pertaining to Inventions.

1.3 STANFORD desires to have the Technology and Inventions developed and marketed at the earliest possible time in order that products resulting therefrom may be available for public use and benefit.

1.4 STANFORD and LICENSEE previously entered into an agreement dated *****, giving LICENSEE *****, which the parties agree shall be of no further force and effect upon their execution of this Agreement.

1.5 LICENSEE now desires to receive, and STANFORD desires to grant to LICENSEE, an exclusive license under said Technology, Inventions, and Licensed Patents to develop, manufacture, use, offer for sale, sell and import Licensed Products in the field of use of human therapeutic applications.

1.6 The Technology and Inventions were made in the course of research supported by *****.

2. DEFINITIONS

2.1 “Affiliate” means any corporation or other entity that directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with the designated party, where “control” shall mean ownership of at least fifty percent (50%) (or such lesser percentage as may be the maximum that may be owned by foreign interests pursuant to the laws of the country of incorporation or domicile) of the voting securities of such corporation or other entity entitled to vote in the election of directors or corresponding managing authority.

2.2 “Exclusive” means that, subject to Article 4, STANFORD shall not grant further licenses in the Licensed Territory in the Licensed Field of Use.

2.3 "Licensed Antibodies" means those antibodies set forth on Schedule 2.2 hereto.

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2.4 "Licensed Field of Use" means use of the Licensed Patents for human therapeutics other than active immunization

2.5 "Licensed Patents" means any Letters Patent issued upon STANFORD's U.S. Patent Application, ***** and/or any additional patent applications, divisions, continuations, foreign applications, counterparts or reissues of any of the foregoing.

2.6 "Licensed Products" means any product or part thereof in the Licensed Field of Use, the manufacture, use, offer for sale, sale or import of which:

(a) Is covered by a valid claim of an issued, unexpired Licensed Patent (“Valid Claim”) directed to the Inventions. A claim of an issued, unexpired Licensed Patent shall be presumed to be valid unless and until it has been held to be invalid by a final judgment of a court of competent jurisdiction from which no appeal can be or is taken;

(b) Is covered by any claim being prosecuted in a pending application directed to the Inventions; or

(c) Incorporates any of the Technology.

2.7 "Licensed Territory" means *****.

2.8 "Net Sales" means the *****.

2.9 "Technology" means existing technical data, biological materials and information, including, but not limited to, the information contained in the patent application pertaining to the Inventions and provided to the LICENSEE whether or not it is of a confidential nature. Biological materials include *****.

3. GRANT

3.1 STANFORD hereby grants and LICENSEE hereby accepts a license under the Licensed Patents and Technology in the Licensed Field of Use to make, use, offer for sale, sell and import Licensed Products in the Licensed Territory.

3.2 Subject to Sections 3.3 and 3.4, the license rights granted hereunder, including the right to sublicense pursuant to Article 13, in the Licensed Field of Use are Exclusive in the Licensed Territory.

3.3 The license rights granted with respect to those Licensed Antibodies identified on Schedule 2.2 *****.

3.4 STANFORD shall have the right to practice the Inventions and use the Technology only for its own bona fide research, including sponsored research and collaborations. STANFORD shall have the right to publish any information included in Technology and Licensed Patents.

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4. GOVERNMENT RIGHTS

This Agreement is subject to all of the terms and conditions of Title 35 United States Code Sections 200 through 204, including an obligation that Licensed Products sold or produced in the United States be "manufactured substantially in the United States," and LICENSEE agrees to take all reasonable action necessary on its part as licensee to enable STANFORD to satisfy its obligation thereunder, relating to Inventions.

5. DILIGENCE

5.1 As an inducement to STANFORD to enter into this Agreement, LICENSEE agrees to use commercially reasonable efforts and diligence to proceed with the development, manufacture, offering for sale, and sale or lease of Licensed Products and to diligently develop markets for the Licensed Products.

5.2 LICENSEE shall provide a development plan for each Licensed Antibody by *****. In the event that LICENSEE does not provide a development plan for ***** Licensed Antibodies, the license rights granted hereunder with respect to such Licensed Antibody(ies) only shall become nonexclusive upon ***** notice from STANFORD.

5.3 If LICENSEE or its sublicensees have not made substantial progress on or completed preclinical studies that serve as a basis for LICENSEE’s development plan with respect to the Licensed Antibody *****, LICENSEE agrees that the license rights granted hereunder with respect to ***** only shall become nonexclusive upon ***** notice from STANFORD. If LICENSEE or its sublicensees have not made substantial progress on or completed preclinical studies that serve as a basis for LICENSEE’s development plan with respect to any other Licensed Antibody by *****, LICENSEE agrees that the license rights granted hereunder with respect to such Licensed Antibody only shall become nonexclusive upon ***** notice from STANFORD.

5.4 If LICENSEE or its sublicensees have not initiated *****, LICENSEE agrees that the license rights granted hereunder with respect to ***** only shall become nonexclusive upon ***** notice from STANFORD. If LICENSEE or its sublicensees have not initiated *****, LICENSEE agrees that the license rights granted hereunder with respect to such Licensed Antibody only shall become nonexclusive upon ***** notice from Stanford.

5.5 If LICENSEE or its sublicensees have not initiated *****, LICENSEE agrees that the license rights granted hereunder with respect to ***** only shall become nonexclusive upon ***** notice from STANFORD. If LICENSEE or its sublicensees have not initiated *****, LICENSEE agrees that the license rights granted hereunder with respect to such Licensed Antibody only shall become nonexclusive upon ***** notice from Stanford.

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5.6 LICENSEE and STANFORD agree to meet *****, to discuss and agree upon further diligence milestones, including the date by which a Licensed Product will first be available for commercial sale.

5.7 If neither LICENSEE nor any of its sublicensees has sold a Licensed Product for a period of ***** after such Licensed Product is first offered for commercial sale, the license rights granted hereunder with respect to such Licensed Product shall become nonexclusive upon ***** notice from STANFORD.

5.8 Progress Report - ***** until LICENSEE markets a Licensed Product, LICENSEE shall make a written ***** report to STANFORD covering *****, regarding the progress of LICENSEE toward commercial use of Licensed Products. Such report shall include, as a minimum, information sufficient to enable STANFORD to satisfy reporting requirements of the U.S. Government and for STANFORD to ascertain progress by LICENSEE toward meeting the diligence requirements of this Article 5.

6. ROYALTIES

6.1 LICENSEE agrees to pay to STANFORD ***** as reimbursement for patent prosecution expenses incurred by STANFORD prior to the Effective Date, such payment to be made to STANFORD within ***** of the Effective Date.

6.2 Upon the first anniversary of the Effective Date, and each anniversary thereafter, LICENSEE shall pay to STANFORD a yearly royalty of *****. Said yearly royalty payments are nonrefundable, but they are creditable against earned royalties to the extent provided in Section 6.6.

6.3 In addition, LICENSEE shall pay STANFORD earned royalties on Net Sales of ***** in countries where the Licensed Product is the subject of a Valid Claim. For any period in which the Licensed Product is not the subject of a Valid Claim in a country, the royalty rate shall be reduced to ***** in such country for that period.

6.4 Notwithstanding Section 6.3, if a Licensed Product is part of a combination product in which the Licensed Product is combined with other material which contributes in some material respect to the functioning or efficacy of the product as a whole, then the earned royalties shall be calculated as follows: *****.

6.5 Notwithstanding Sections 6.3 and 6.4, earned royalty rates payable to STANFORD shall be reduced by ***** with respect to any Licensed Product for which LICENSEE’s license rights hereunder have become nonexclusive pursuant to Article 5.

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6.6 Creditable payments under this Agreement shall be an offset to LICENSEE against up to ***** of each earned royalty payment which LICENSEE would be required to pay pursuant to Section 6.3 until the entire credit is exhausted.

6.7 LICENSEE shall also pay STANFORD the following one-time milestone payments:

(a) *****; and

(b) *****.

6.8 If this Agreement is not terminated in accordance with other provisions hereof, LICENSEE shall be obligated to pay royalties hereunder for*****. LICENSEE shall be obligated to pay royalties on all Licensed Products that are either sold or produced under the licenses granted in Article 3, *****.

6.9 The royalty on sales in currencies other than U.S. Dollars shall be calculated using the appropriate foreign exchange rate for such currency quoted by the Bank of America (San Francisco) foreign exchange desk, on the close of business on the last banking day of each *****. Royalty payments to STANFORD shall be in U.S. Dollars. *****.

6.10 Within ***** after receipt of a statement from STANFORD, LICENSEE shall reimburse STANFORD for all costs incurred by Stanford in connection with the preparation, filing and prosecution of all Licensed Patents after the Effective Date.

7. ROYALTY REPORTS, PAYMENTS, AND ACCOUNTING

7.1 Beginning with the first sale of a Licensed Product, LICENSEE shall make written reports (even if there are no sales) and earned royalty payments to STANFORD within ***** after the end of each *****. This report shall be in the form of the report of Appendix B and shall state *****. Concurrent with the making of each such report, LICENSEE shall include payment due STANFORD of royalties for *****.

7.2 LICENSEE also agrees to make a written report to STANFORD within ***** after the expiration of the license pursuant to Section 14.1. LICENSEE shall continue to make reports pursuant to the provisions of this Section 7.2 concerning royalties payable in accordance with Article 6 in connection with the sale of Licensed Products after expiration of the license, until such time as all such Licensed Products produced under the license have been sold or destroyed. Concurrent with the submittal of each post-termination report, LICENSEE shall pay STANFORD all applicable royalties.

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7.3 LICENSEE agrees to keep and maintain records for a period of ***** showing the manufacture, offer for sale, sale, use, and other disposition of products sold or otherwise disposed of under the license herein granted. Such records will include general ledger records showing cash receipts and expenses, and records which include production records, customers, serial numbers, and related information in sufficient detail to enable the royalties payable hereunder by LICENSEE to be determined. LICENSEE further agrees to permit its books and records to be examined by STANFORD from time to time to the extent necessary to verify reports provided for in Section 7.1 and 7.2, but Stanford shall not conduct more than *****. Such examination is to be made by STANFORD or its designee, at the expense of STANFORD, except in the event that the results of the audit reveal an underreporting of royalties due STANFORD of ***** or more, then the audit costs shall be paid by LICENSEE.

8. WARRANTIES; NEGATION OF WARRANTIES

8.1 STANFORD represents and warrants that it has not granted rights or licenses to the Inventions that are inconsistent with those granted to LICENSEE hereunder.

8.2 Nothing in this Agreement is or shall be construed as:

(a) A warranty or representation by STANFORD as to the validity or scope of any Licensed Patents;

(b) A warranty or representation that anything made, used, sold, or otherwise disposed of under any license granted in this Agreement is or will be free from infringement of patents, copyrights, and other rights of third parties;

(c) An obligation to bring or prosecute actions or suits against third parties for infringement, except to the extent and in the circumstances described in Article 12;

(d) Granting by implication, estoppel, or otherwise any licenses or rights under patents or other rights of STANFORD or other persons other than Licensed Patents, regardless of whether such patents or other rights are dominant or subordinate to any Licensed Patents; or

(e) An obligation to furnish any technology or technological information other than the Technology.

8.3 Except as expressly set forth in this Agreement, STANFORD MAKES NO REPRESENTATIONS AND EXTENDS NO WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED. THERE ARE NO EXPRESS OR IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, OR THAT THE USE OF THE LICENSED PRODUCTS WILL NOT INFRINGE ANY PATENT, COPYRIGHT, TRADEMARK, OR OTHER RIGHTS OR ANY OTHER EXPRESS OR IMPLIED WARRANTIES.

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8.4 LICENSEE agrees that nothing in this Agreement grants LICENSEE any express or implied license or right under or to *****.

9. INDEMNITY

9.1 LICENSEE agrees to indemnify, hold harmless, and defend STANFORD,Stanford Health Services and Stanford Hospitals and Clinics and their respective trustees, officers, employees, students, and agents against any and all claims for death, illness, personal injury, property damage, and improper business practices arising out of the manufacture, use, sale, or other disposition of Inventions, Licensed Patents, Licensed Products, or Technology by LICENSEE or sublicensees, or their customers.

9.2 Except for damages arising out of, or related to, STANFORD’s breach of Section 3.4, STANFORD shall not be liable for any indirect, special, consequential or other damages whatsoever, whether grounded in tort (including negligence), strict liability, contract or otherwise. STANFORD shall not have any responsibilities or liabilities whatsoever with respect to Licensed Products.

9.3 LICENSEE shall at all times comply, through insurance or self-insurance, with all statutory workers' compensation and employers' liability requirements covering any and all employees with respect to activities performed under this Agreement.

9.4 In addition to the foregoing, LICENSEE shall maintain, or cause its sublicensees to maintain, during the term of this Agreement, Comprehensive General Liability Insurance, including Products Liability Insurance, with reputable and financially secure insurance carriers to cover the activities of LICENSEE and its sublicensees. Upon initiation of ***** and shall include as additional insureds STANFORD, Stanford Health Services, Stanford Hospitals and Clinics, and their trustees, directors, officers, employees, students, and agents who have been involved directly or indirectly with the Technology, the Inventions or the Licensed Products. Such insurance shall be written to cover claims incurred, discovered, manifested, or made during or after the expiration of this Agreement and should be placed with carriers with ratings of at least A- as rated by A.M. Best. Within ***** of the Effective Date of this Agreement, LICENSEE shall furnish a Certificate of Insurance evidencing primary coverage and additional insured requirements and requiring ***** prior written notice of cancellation or material change to STANFORD. LICENSEE shall advise STANFORD, in writing, that it maintains excess liability coverage (following form) over primary insurance for at least the minimum limits set forth above. All such insurance of LICENSEE shall be primary coverage; insurance of STANFORD, Stanford Health Services, and Stanford Hospitals and Clinics shall be excess and noncontributory.

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10. MARKING

Prior to the issuance of patents on the Inventions, LICENSEE agrees to mark Licensed Products (or their containers or labels) made, sold, or otherwise disposed of by it under the license granted in this Agreement with the words "Patent Pending," and following the issuance of one or more patents, with the numbers of the Licensed Patents.

11. STANFORD NAMES AND MARKS

LICENSEE agrees not to identify STANFORD in any promotional advertising or other promotional materials to be disseminated to the public or any portion thereof or to use the name of any STANFORD faculty member, employee, or student or any trademark, service mark, trade name, or symbol of STANFORD, Stanford Hospitals and Clinics or Stanford Health Services, or that is associated with any of them, without STANFORD's prior written consent, it being understood that this limitation shall not apply to any disclosure LICENSEE is required to make pursuant to applicable law or regulations. Any use of STANFORD's name shall be limited to statements of fact and shall not imply endorsement of LICENSEE's products or services.

12. PROSECUTION OF PATENTS; INFRINGEMENT BY OTHERS: PROTECTION OF PATENTS

12.1 Following the Effective Date, LICENSEE will be responsible for preparing, filing and prosecuting the Licensed Patents for STANFORD’s benefit in the Licensed Territory and for maintaining all Licensed Patents. LICENSEE will notify STANFORD before taking any substantive actions in prosecuting the claims, and STANFORD will have final approval on how to proceed with any such actions, which approval shall not be unreasonably withheld or delayed. To aid LICENSEE in this process, STANFORD will provide information, execute and deliver documents and do other acts as LICENSEE shall reasonably request from time to time. LICENSEE will reimburse STANFORD for STANFORD’s reasonable costs incurred in complying with such requests.

12.2 Each of the parties shall promptly inform the other of any suspected infringement of any Licensed Patents by a third party. During the period of this Agreement in which LICENSEE has Exclusive rights in the Licensed Field of Use, STANFORD and LICENSEE each shall have the right to institute an action for infringement of the Licensed Patents against such third party in accordance with the following:

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(a) If STANFORD and LICENSEE agree to institute suit jointly, the suit shall be brought in both their names, the out-of-pocket costs thereof shall be borne equally, and any recovery or settlement shall be shared equally. LICENSEE and STANFORD shall agree to the manner in which they shall exercise control over such action. STANFORD may, if it so desires, also be represented by separate counsel of its own selection, the fees for which counsel shall be paid by STANFORD;

(b) In the absence of LICENSEE's agreement to institute a suit jointly, STANFORD may institute suit, and, at its option, join LICENSEE as a plaintiff. If STANFORD decides to institute suit, then it shall promptly notify LICENSEE in writing. LICENSEE's failure to notify STANFORD in writing, within ***** after the date of the notice, that it will join in enforcing the patent pursuant to the provisions hereof, shall be and be deemed conclusively to be LICENSEE's assignment to STANFORD of all rights, causes of action, and damages resulting from any such alleged infringement. STANFORD shall bear the entire cost of such litigation and shall be entitled to retain the entire amount of any recovery or settlement; and

(c) In the absence of agreement to institute a suit jointly and if STANFORD decides not to join in or institute a suit, as provided in (a) or (b) above, LICENSEE may institute suit. LICENSEE shall bear the entire cost of such litigation, including out-of-pocket expenses incurred by STANFORD. Any recovery in excess of litigation costs will be shared with STANFORD as follows:

1. Any payment for past sales will be deemed to be Net Sales and LICENSEE will pay STANFORD royalties thereon at the rates specified in Section 6.3 and;

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2. Any payment which covers future sales will be deemed a sublicense and royalties will be shared as specified in Article 13.

LICENSEE and STANFORD agree to negotiate in good faith an appropriate compensation to STANFORD for any non-cash settlement or non-cash cross-license. STANFORD will not share in the portion of the recovery, if any, that is payment for “willful infringement.”

12.3 Should either STANFORD or LICENSEE commence a suit under the provisions of Section 12.2 and thereafter elect to abandon the same, it shall give timely notice to the other party who may, if it so desires, continue prosecution of such suit, provided, however, that the sharing of expenses and any recovery in such suit shall be as agreed upon between STANFORD and LICENSEE.

13. SUBLICENSES

13.1 LICENSEE may grant sublicenses to make, have made, use, offer for sale, sell, have sold or offered for sale, and import Licensed Products in the Licensed Territory.

13.2 If LICENSEE is unable or unwilling to serve or develop a potential market or market territory for which there is a willing sublicensee, LICENSEE will, at STANFORD’s request, negotiate in good faith a sublicense for such market or potential market hereunder.

13.3 Any sublicenses granted by LICENSEE under this Agreement shall be subject and subordinate to terms and conditions of this Agreement, except that:

(a) Any sublicensee that is not an Affiliate of LICENSEE may not grant further sublicenses without STANFORD’s prior written consent, which shall not be unreasonably withheld or delayed, except that such consent shall not be required with respect to sublicenses to a sublicensee’s Affiliates or sublicensess solely to exercise the sublicensee’s rights to have Licensed Products made or have Licensed Products sold or offered for sale; and

(b) The earned royalty rate specified in the sublicenses may be at higher rates than the rates in this Agreement (in which event any excess shall be retained by LICENSEE).

13.4 Any such sublicenses also shall expressly include provisions substantially similar to Articles 7, 8 and 9 for the benefit of STANFORD. In addition, any such sublicenses shall survive and provide for the transfer of all obligations, including the payment of royalties specified in such sublicenses, to STANFORD or its designee, in the event that this Agreement is terminated.

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13.5 LICENSEE agrees to provide STANFORD a copy of any sublicense granted pursuant to this Article 13.

13.6 LICENSEE shall pay to STANFORD ***** of all sublicensing income, except earned royalties on sublicensees' Net Sales, which LICENSEE acknowledges are subject to Section 6.3, and any milestone payment received by LICENSEE upon ***** which LICENSEE pays STANFORD the milestone payment set forth in Section 6.7(a) above.

13.7 LICENSEE may grant royalty-free or non-cash sublicenses or cross-licenses provided LICENSEE pays all royalties due STANFORD from sublicensees' Net Sales.

14. TERM; TERMINATION

14.1 Unless terminated earlier pursuant to this Article 14, this Agreement shall terminate upon the later of the expiration of the last to expire Licensed Patent or payment by LICENSEE of the last royalty payment due hereunder.

14.2 LICENSEE may terminate this Agreement or the license rights with respect to any Licensed Antibodyby giving STANFORD notice in writing at least ***** in advance of the effective date of termination selected by LICENSEE.

14.2 STANFORD may terminate this Agreement if LICENSEE:

(a) Is in default in payment of royalty or providing of reports;

(b) Is in material breach of any provision hereof; or

(c) Provides any materially false report;

and LICENSEE fails to remedy any such default, breach, or false report within ***** after written notice thereof by STANFORD.

14.3 Surviving any termination or expiration are:

(a)LICENSEE's obligation to pay royalties accrued or accruable;

(b)Any cause of action or claim of LICENSEE or STANFORD, accrued or to accrue, because of any breach or default by the other party; and

(c)The provisions of Articles 7, 8, and 9 and any other provisions that by their nature are intended to survive.

15. DISPOSITION OF LICENSED PRODUCT ON HAND UPON TERMINATION

Upon termination of this Agreement LICENSEE is entitled to dispose of all previously made or partially made Licensed Product, but no more, within a period of ***** provided that the sale of Licensed Product is subject to the terms of this Agreement, including but not limited to the rendering of reports and payment of royalties required under this Agreement.

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16. ASSIGNMENT

This Agreement may not be assigned, except that LICENSEE may assign this Agreement as part of a sale, regardless of whether such a sale occurs through an asset sale, stock sale, merger or other combination, or any other transfer of (a) LICENSEE’s entire business, or (b) that part of LICENSEE’s business that exercises all rights granted under this Agreement. Prior to any assignment, the new assignee must agree in writing to STANFORD to be bound by this Agreement. Any other attempt to assign this Agreement is null and void. Upon a permitted assignment of this Agreement by LICENSEE, LICENSEE will be released of liability under this Agreement and the term “LICENSEE” in this Agreement will mean the assignee.

17. ARBITRATION

17.1 Any controversy arising under or related to this Agreement, and any disputed claim by either party against the other under this Agreement excluding any dispute relating to patent validity or infringement arising under this Agreement, shall be settled by arbitration in accordance with the Licensing Agreement Arbitration Rules of the American Arbitration Association.

17.2 Upon request by either party, arbitration will be by a third party arbitrator mutually agreed upon in writing by LICENSEE and STANFORD within ***** of such arbitration request. Judgment upon the award rendered by the arbitrator shall be final and nonappealable and may be entered in any court having jurisdiction thereof.

17.3 The parties shall be entitled to discovery in like manner as if the arbitration were a civil suit in the California Superior Court. The Arbitrator may limit the scope, time and/or issues involved in discovery.

17.4 Any arbitration shall be held at Stanford, California, unless the parties hereto mutually agree in writing to another place.

18. NOTICES

All notices under this Agreement shall be deemed to have been fully given when done in writing and hand-delivered or sent by registered mail, postage prepaid and return-receipt requested, or by express international courier, and addressed as follows:

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To STANFORD: Office of Technology Licensing Stanford University 1705 El Camino Real Palo Alto, CA 94306-1106   Attention: Director

To LICENSEE: XTL Biopharmaceuticals Ltd. Kiryat Weizmann   P.O. Box 370 Rehovot, 76100 Israel   Attention:President and CEO

With a Copy to:

Heller Ehrman White & McAuliffe LLP

4350 La Jolla Village Drive

San Diego, California 92122

Attention: *****

Either party may change its address upon written notice to the other party.

19. WAIVER

None of the terms of this Agreement can be waived except by the written consent of the party waiving compliance.

20. APPLICABLE LAW

This Agreement shall be governed by the laws of the State of California applicable to agreements negotiated, executed and performed wholly within California, without regard to principles of conflicts of laws.

21. MODIFICATIONS

No amendment or modification of this Agreement is valid or binding on the parties unless made in writing and signed on behalf of each party.

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22. ENTIRE UNDERSTANDING

This Agreement embodies the entire understanding of the parties and supersedes all previous communications, representations or understandings, whether oral or written, between the parties relating to the subject matter hereof.

23. SEVERABILITY

In case any of the provisions contained in this Agreement are held to be invalid, illegal or unenforceable in any respect, that invalidity, illegality or unenforceability will not affect any other provisions of this Agreement, and this Agreement will be construed as if the invalid, illegal, or unenforceable provisions had never been contained in it.

24. FORCE MAJEURE

Neither party shall be responsible for delay or failure in performance caused by any government act, law, regulation, order or decree, by communication line or power failures beyond its control, or by fire, flood or other natural disasters or by other causes beyond its reasonable control, nor shall any such delay or failure be considered to be a breach of this Agreement; provided that the delayed party gives the other party prompt written notice thereof and uses commercially reasonable efforts to resume performance.

25. RELATIONSHIP BETWEEN THE PARTIES

None of the provisions of this Agreement are intended to create any form of association, partnership or joint venture between the parties, rights in third parties or rights that are enforceable by any third party. Neither party will have the power to bind the other party or incur obligations on the other party's behalf without the other party's prior written consent.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement in duplicate originals by their duly authorized officers or representatives.

THE BOARD OF TRUSTEES OF THE LELAND

STANFORD JUNIOR UNIVERSITY

Signature_______________________________

Name__________________________________

Title___________________________________

Date___________________________________

XTL BIOPHARMACEUTICALS LTD.

Signature_______________________________

Name__________________________________

Title___________________________________

Date___________________________________

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APPENDIX A

LICENSED PATENTS AS OF AUGUST 1, 2003

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*****	*****		*****	*****	*****	*****

*****

Note that confidential treatment has been requested and one (1) page of material from this Appendix A has been omitted and filed separately with the Commission.

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APPENDIX B

FORM OF ROYALTY REPORT

*****-

*****

*****:*****

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*****	*****
*****	*****
*****	*****
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*****	*****
*****	*****

Note that confidential treatment has been requested and one (1) page of material from this Appendix B has been omitted and filed separately with the Commission.

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SCHEDULE 2.2

LICENSED ANTIBODIES

*****

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*****

*****

Note that confidential treatment has been requested and one (1) page of material from this Schedule 2.2 has been omitted and filed separately with the Commission.

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EX-4.11

Confidential Treatment Requested. Confidential portions of this document have been redacted and separately filed with the Commission.

***** Confidential material redacted and filed separately with the Commission.

AGREEMENT

This Agreement (“Agreement”) is entered into as of September 12, 2003, (the “Effective Date”) by and among XTL Biopharmaceuticals Ltd., a corporation organized under the laws of Israel (“XTL”), Applied Immunogenetics LLC (“AI”), a Delaware limited liability company, ***** and *****.

A. XTL and The Board of Trustees of the Leland Stanford Junior University (“Stanford”) are parties to that certain Agreement effective as of ***** (the “XTL Nonexclusive License Agreement”), pursuant to which Stanford granted a nonexclusive license to XTL with respect to certain HCV monoclonal antibodies (the “Licensed Antibodies”).

B. AI and Stanford are parties to that certain License Agreement effective as of ***** (the “AI License Agreement”), pursuant to which Stanford granted an exclusive license, subject to XTL’s rights under the XTL Nonexclusive License Agreement, to the Licensed Antibodies as well as other related inventions.

C. ***** and XTL are parties to that certain Consultancy, Confidential Information and Inventions Agreement dated as of ***** (the “Original ***** Consulting Agreement”), pursuant to which ***** agreed to provide certain consulting services to XTL.

D. AI and Stanford have agreed to enter into an amended and restated AI License Agreement (the “Amended and Restated AI License Agreement”), pursuant to which AI is granting back to Stanford its rights to the Licensed Antibodies in the field of human therapeutics in all territories of the world with the exception of the Peoples Republic of China, as more fully set forth therein.

E. Stanford and XTL have agreed to terminate the XTL Nonexclusive License Agreement and enter into an exclusive license agreement (the “XTL Exclusive License Agreement”), pursuant to which Stanford is granting to XTL an exclusive license to the Licensed Antibodies in the human therapeutic field of use for all territories of the world with the exception of the Peoples Republic of China, as more fully set forth therein.

F. XTL and ***** have agreed to terminate the Original ***** Consulting Agreement and are entering into a new consulting agreement (the “New ***** Consulting Agreement”), pursuant to which ***** will provide certain consulting services to XTL.

G. XTL and ***** are entering into a consulting agreement (the “***** Consulting Agreement”), pursuant to which ***** will provide certain consulting services to XTL.

***** Confidential material redacted and filed separately with the Commission.

NOW, THEREFORE, in consideration for the terms and conditions set forth herein, the Parties agree as follows:

1. OTHER AGREEMENTS

As of the Effective Date, the parties hereto will enter into the following agreements:

a. AI shall execute the Amended and Restated AI License Agreement.

b. XTL shall execute the Exclusive XTL License Agreement.

c. XTL and ***** shall execute the New ***** Consulting Agreement.

d. XTL and ***** shall execute the ***** Consulting Agreement.

2. INITIAL PAYMENT BY XTL

In partial consideration for AI’s agreeing to transfer the license rights back to Stanford pursuant to the Amended and Restated AI License Agreement thereby enabling those rights to be licensed to XTL, XTL will pay to AI ***** within ***** of the Effective Date.

3. ADDITIONAL PAYMENTS BY XTL

As further consideration for AI’s agreeing to transfer the license rights back to Stanford pursuant to the Amended and Restated AI License Agreement thereby enabling those rights to be licensed to XTL, XTL will make additional payments to AI as set forth in this Section 3 for so long as XTL is required to make earned royalty payments to Stanford under the Exclusive XTL License Agreement, as it may be amended.

a. For purposes of this Agreement, the terms “Licensed Field of Use,”“Licensed Patents,”“Licensed Products,”“Net Sales” and “Valid Claim” shall have the meanings given those terms in the Exclusive XTL License Agreement.

b. XTL shall make periodic payments to AI equal to ***** of Net Sales *****. For any period in which a Licensed Product is not the subject of a Valid Claim in a country, the payments shall be equal to ***** of Net Sales in such country for that period *****.

c. Notwithstanding Section 3(b), if a Licensed Product is part of a combination product, as described in the Exclusive XTL License Agreement, then the payments due to AI shall be calculated as follows: *****.

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d. Notwithstanding Sections 3(b) and (c), the periodic payment rates therein shall be reduced by ***** with respect to any Licensed Product for which XTL’s license rights under the XTL Exclusive License Agreement have become nonexclusive pursuant to Article 5 thereunder.

e. Payments calculated on the basis of Net Sales made in currencies other than U.S. Dollars shall be calculated using the appropriate foreign exchange rate for such currency quoted by the Bank of America (San Francisco) foreign exchange desk, on the close of business on the last banking day of each *****. All payments to AI shall be in U.S. Dollars.

f. Beginning with the first sale of a Licensed Product, XTL shall make any payments due to AI under this Section 3 ***** after the end of each ***** for Net Sales during such *****.

g. XTL agrees to keep and maintain records for a period of ***** showing cash receipts and expenses and any related information in sufficient detail to enable the payments due to AI hereunder to be determined. XTL further agrees to permit these books and records to be examined by from time to time (but not more than ***** per *****) to the extent necessary to verify the payments made to AI. Such examination is to be made by an independent certified accountant reasonably acceptable to XTL, at the expense of AI, except in the event that the results of the audit reveal an underreporting of payments due AI of ***** or more, then the audit costs shall be paid by XTL.

4. PATENT PROSECUTION

a. Within ***** after receipt of XTL’s invoice, AI shall reimburse XTL for payments made by XTL to reimburse Stanford pursuant to the XTL Exclusive License Agreement for costs incurred by Stanford in connection with the preparation, filing and prosecution of Licensed Patents covering the Licensed Antibodies identified on Schedule 2.2 of the XTL Exclusive License Agreement as ***** in the Peoples Republic of China.

b. Within ***** after receipt of XTL’s invoice, AI shall reimburse XTL for ***** of XTL’s costs and expenses incurred in connection with the preparation, filing and prosecution of Licensed Patents covering the Licensed Antibodies identified on Schedule 2.2 of the XTL Exclusive License Agreement as ***** in the Peoples Republic of China. XTL shall keep AI fully informed as to the status of such patent matters, including, without limitation, by providing AI with the opportunity to review and comment on any documents to be filed in the Peoples Republic of China in connection therewith and by providing AI with copies of any documents received by XTL from the Peoples Republic of China, including notices of all interferences, reexaminations, oppositions or requests for patent term extensions. AI shall cooperate with and assist XTL in connection with such activities at XTL’s request. In the event that XTL declines or fails to prepare, file, prosecute or maintain any Licensed Patents covering the ***** in the Peoples Republic of China, including patent applications, which, if filed, would be included in the Licensed Patents, XTL shall promptly, and in no event later than ***** prior to any filing deadline, provide written notice to AI. Subject to any rights of Stanford, AI shall have the right to assume such responsibilities at its own expense using counsel of its choice.

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5. REPRESENTATIONS AND WARRANTIES

a. Each of XTL and AI hereby represents and warrants that it is duly authorized to enter into this Agreement and the other Agreements attached hereto to which it is a party and to perform its respective obligations hereunder and thereunder.

b. Each of the parties hereby represents and warrants that this Agreement does not and will not conflict with any other right or obligation provided under any other agreement or obligation that it or he has with any third party.

c. AI hereby represents and warrants that it has not executed and shall not execute any agreements, has not granted and shall not grant any rights and has not taken and shall not take any actions in conflict with the terms and provisions of this Agreement or the Amended and Restated AI License Agreement or with the rights and licenses previously held by AI that were granted back to Stanford pursuant to the Amended and Restated AI License Agreement and granted to XTL pursuant to the XTL Exclusive License Agreement.

6. TERM AND TERMINATION

The term of this Agreement shall begin on the Effective Date and, unless sooner terminated as provided herein, shall expire upon the expiration or termination of the Exclusive XTL License Agreement. XTL may terminate this Agreement if AI materially breaches this Agreement upon ***** advance written notice and such breach is not cured within the notice period. Upon expiration or termination of this Agreement, Sections 4, 8 and 11 shall survive and remain in full force and effect.

7. LICENSED PATENT INFRINGEMENT BY THIRD PARTIES

XTL and AI shall each promptly notify the other of any suspected infringement of any Licensed Patents by a third party. Subject to Stanford’s rights under the Amended and Restated AI License Agreement and the Exclusive XTL License Agreement, XTL shall have the first right, but not the obligation, to institute an action for infringement of the Licensed Patents against any third party. In the event that XTL fails to institute an infringement suit or take other reasonable action in response to the infringement within *****, subject to Stanford’s rights under the Amended and Restated AI License Agreement and the Exclusive XTL License Agreement, AI shall have the right, upon ***** notice to XTL, to institute such suit or take other appropriate action. Regardless of which party brings the action, the other party hereby agrees to cooperate reasonably in any such effort, including if required to bring a legal action, furnishing a power of attorney and shall have the right to participate in such action at its own expense with its own counsel. Any recovery obtained by settlement or otherwise shall be allocated between XTL and AI in proportion to their respective expenses paid in connection with the action.

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8. ARBITRATION

a. Any controversy arising under or related to this Agreement, and any disputed claim by either party against the other under this Agreement, shall be settled by arbitration in accordance with the Licensing Agreement Arbitration Rules of the American Arbitration Association.

b. Upon request by either party, arbitration will be by a third party arbitrator mutually agreed upon in writing by AI and XTL within ***** of such arbitration request. Judgment upon the award rendered by the arbitrator shall be final and nonappealable and may be entered in any court having jurisdiction thereof.

c. The parties shall be entitled to discovery in like manner as if the arbitration were a civil suit in the California Superior Court. The arbitrator may limit the scope, time and/or issues involved in discovery.

d. Any arbitration shall be held in San Francisco, California, unless the parties hereto mutually agree in writing to another place.

9. NOTICES

All notices under this Agreement shall be deemed to have been fully given when done in writing and hand-delivered or sent by registered mail, postage prepaid and return-receipt requested, or by express international courier, and addressed as follows:

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To AI, ***** or *****: ***** Stanford, California 94305 Attention: *****

To XTL: XTL Biopharmaceuticals Ltd. Kiryat Weizmann, P.O. Box 370 Rehovot, 76100 Israel Attention:President and CEO

With a copy to: Heller Ehrman White & McAuliffe LLP 4350 La Jolla Village Drive San Diego, California 92122 USA Attention: *****

A party may change its address upon written notice to the other parties.

10. WAIVER

None of the terms of this Agreement can be waived except by the written consent of the party waiving compliance.

11. APPLICABLE LAW

This Agreement shall be governed by the laws of the State of California applicable to agreements negotiated, executed and performed wholly within California, without regard to principles of conflicts of laws.

12. MODIFICATIONS

No amendment or modification of this Agreement is valid or binding on the parties unless made in writing and signed by XTL and AI.

13. SEVERABILITY

In case any of the provisions contained in this Agreement are held to be invalid, illegal or unenforceable in any respect, that invalidity, illegality or unenforceability will not affect any other provisions of this Agreement, and this Agreement will be construed as if the invalid, illegal, or unenforceable provisions had never been contained in it.

14. FORCE MAJEURE

No party shall be responsible for delay or failure in performance caused by any government act, law, regulation, order or decree, by communication line or power failures beyond its control, or by fire, flood or other natural disasters or by other causes beyond its reasonable control, nor shall any such delay or failure be considered to be a breach of this Agreement; provided that the delayed party gives the other parties affected prompt written notice thereof and uses its commercially reasonable efforts to resume performance.

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15. RELATIONSHIP BETWEEN THE PARTIES

None of the provisions of this Agreement are intended to create any form of association, partnership or joint venture among the parties, rights in third parties or rights that are enforceable by any third party. No party will have the power to bind the other parties or incur obligations on another party's behalf without such other party's prior written consent.

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement in duplicate originals by themselves or their duly authorized officers or representatives.

XTL Biopharmaceuticals Ltd. By:____________________________ Name:__________________________ Date:___________________________	Applied Immunogenetics LLC By:____________________________ Name:__________________________ Date:___________________________
***** _______________________________ Date:___________________________	***** _______________________________ Date:___________________________

EX-4.12

XTL Biopharmaceuticals LTD.

1998 EMPLOYEE SHARE OPTION PLAN

A. NAME AND PURPOSE

1. Name: This plan, as amended from time to time, shall be known as the “XTL Biopharmaceuticals Ltd. 1998 Employee Share Option Plan” (the “Plan”).

2. Purpose: The purpose and intent of the Plan is to provide incentives to the employees of XTL Biopharmaceuticals Ltd. (the "Company") and its subsidiaries by providing them with options to purchase Ordinary Shares, nominal value 0.20 New Israeli Shekels each (the "Shares"), of the Company.

B. GENERAL TERMS AND CONDITIONS OF THE PLAN

3. Administration:

3.1The Plan will be administered by the Board of Directors of the Company (the "Board") or by a committee appointed by the Board (the "Committee"), which, if appointed, will consist of such number of Directors of the Company as may be fixed, from time to time, by the Board. If a Committee is not appointed, the term Committee, whenever used herein, shall mean the Board. The Board shall appoint the members of the Committee, may from time to time remove members from, or add members to, the Committee and shall fill vacancies in the Committee however caused.

3.2The Committee shall select one of its members as its Chairman and shall hold its meetings at such times and places as it shall determine. Actions taken by a majority of the members of the Committee, at a meeting at which a majority of its members is present, or acts reduced to or approved in writing by all members of the Committee, shall be the valid acts of the Committee. The Committee may appoint a Secretary, who shall keep records of its meetings and shall make such rules and regulations for the conduct of its business as it shall deem advisable.

3.3Subject to the general terms and conditions of this Plan, the Committee shall have the full authority in its sole and absolute discretion, from time to time and at any time, to determine (i) the persons ("Grantees") to whom options to purchase Shares ("Option(s)") shall be granted, (ii) the number of Shares to be covered by each Option, (iii) the time or times at which the same shall be granted, (iv) the schedule and conditions on which such Options may be exercised and on which such Shares shall be paid for, and/or (v) any other matter which is necessary or desirable for, or incidental to, the administration of the Plan.

3.4The Committee may, from time to time, adopt such rules and regulations for carrying out the Plan as it may deem necessary. No member of the Board or of the Committee shall be liable for any act or determination made in good faith with respect to the Plan or any Option granted thereunder.

3.5The interpretation and construction by the Committee of any provision of the Plan or of any Option thereunder shall be final and conclusive unless otherwise determined by the Board.

4. Eligible Grantees: The Committee, at its discretion, may grant Options to any employee of the Company (including officers, directors who are employees) or its subsidiaries. Anything in this Plan to the contrary notwithstanding, all grants of Options to Directors and Office Holders -"Nosei Misra" - as such term is defined in the Israeli Companies Ordinance (New Version), 1983, as amended from time to time (the "Companies Ordinance") - shall be authorized and implemented only in accordance with the provisions of the Companies Ordinance. The grant of an Option to a Grantee hereunder, shall neither entitle such Grantee to participate, nor disqualify him from participating, in any other grant of options pursuant to this Plan or any other stock option plan of the Company.

5. Grant of Options in Trust:

5.1 Subject to Section 7.1 hereof, the effective date of the grant of an Option (the "Date of Grant") shall be the date specified by the Committee in its determination relating to the award of such Option. The Committee shall promptly give the Grantee written notice (the “Notice of Grant”) of the grant of an Option.

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5.2Anything herein to the contrary notwithstanding, all Options granted under the Plan shall be granted by the Company to a trustee designated by the Board (the "Trustee"), the Trustee shall hold each such Option in trust (the "Trust") for the benefit of the Grantee in respect of whom such Option was granted (the "Beneficial Grantee"), and no Options shall be released from the Trust until the vesting of such Options pursuant to Section 7.2 hereof (the "Release Date"). From and after the Release Date, upon the written request of any Beneficial Grantee, the Trustee shall release from the Trust the Options granted and exercise them on behalf of such Beneficial Grantee, by executing and delivering to the Company such instrument(s) as the Company may require, giving due notice of such release to such Beneficial Grantee, provided, however, that the Trustee shall not so release and exercise any such Options on behalf of the Beneficial Grantee unless the latter, prior to, or concurrently with, such release and exercise, provides the Trustee with evidence, satisfactory in form and substance to the Trustee, that all taxes and/or compulsory payments, if any, required to be paid upon such release and exercise have, in fact, been paid.

6. Reserved Shares: The Company has reserved 503,836 authorized but unissued Shares for purposes of the Plan subject to adjustments as provided in Section 11 hereof. All Shares under the Plan, in respect of which the right hereunder of a Grantee to purchase the same shall, for any reason, terminate, expire or otherwise cease to exist, shall again be available for grant through Options under the Plan.

7. Grant of Options:

7.1The Committee in its discretion may award to Grantees Options to purchase Shares in the Company available under the Plan. Options may be granted at any time after receipt of a pre-ruling from the Income Tax Authorities that the exercise of Options granted under the Plan will be subject to tax in accordance with the provisions of Section 3(i) of the Income Tax Ordinance [New Version] 1961.

7.2The Notice of Grant shall state, inter alia, the number of Shares covered thereby, the schedule pursuant to which such Options shall vest, the Beneficial Grantee thereof shall be entitled to pay for, and acquire, the Shares, the exercise price, and such other terms and conditions as the Committee at its discretion may prescribe, provided that they are consistent with this Plan.

7.3Without derogating from the rights and powers of the Committee under Section 7.2 hereof, unless otherwise specified in the Notice of Grant, each Option under the Plan shall be for a term of ten (10) years.

8. Exercise Price: The exercise price per Share covered by each Option shall be determined by the Committee in its sole and absolute discretion.

9. Exercise of Options:

9.1Options shall be exercisable pursuant to the terms under which they were awarded and subject to the terms and conditions of the Plan.

9.2The exercise of an Option shall be made by a written notice of exercise (the "Notice of Exercise") delivered by the Trustee (after receipt of written instructions from the Beneficial Grantee) to the Company at its principal executive office, specifying the number of Shares to be purchased and accompanied by the payment therefor, and containing such other terms and conditions as the Committee shall prescribe from time to time.

9.3Anything herein to the contrary notwithstanding, but without derogating from the provisions of Section 10 hereof, if any Option has not been exercised and the Shares covered thereby not paid for within ten (10) years after the Date of Grant (or any shorter period set forth in the Notice of Grant), such Option and the right to acquire such Shares shall terminate, all interests and rights of the Grantee in and to the same shall ipso facto expire, and, in the event that in connection therewith any Options are still held in the Trust as aforesaid, the Trust with respect thereto shall ipso facto expire and the Trustee shall thereafter hold such Options in an unallocated pool until instructed by the Company that some or all of such Options are again to be held in trust for one or more Grantees.

9.4Each payment for Shares shall be in respect of a whole number of Shares, and shall be effected in cash or by a cashier's check payable to the order of the Company, or such other method of payment acceptable to the Company.

10.Termination of Employment:

10.1In the event that a Grantee ceases, for any reason, to be employed by the Companies, all Options theretofore granted to such Grantee shall terminate as follows:

(a)If the Grantee’s termination of employment is due to such Grantee’s death or “Disability” (as hereinafter defined), such Option (to the extent exercisable at the time of the Grantee’s termination of employment) shall be exercisable by the Grantee’s legal representative, estate of other person to whom the Grantee’s rights are transferred by will or by laws of descent of distribution for a period of six (6) months following such termination of employment (but in no event after the expiration date of such Option), and shall thereafter terminate. For purposes hereof, Disability shall mean the inability, due to illness or injury, to engage in any gainful occupation for which the individual is suited by education, training or experience, which condition continues for at least six (6) months.

(b)If the Grantee’s termination of employment is for any other reason, such Options (to the extent exercisable at the time of the Grantee's termination of employment) shall be exercisable for a period of thirty (30) days following such termination of employment, and shall thereafter terminate; provided, however, that if the Grantee’s dies within such thirty-day period, such Options (to the extent exercisable at the time of the Grantee's termination of employment) shall be exercisable by the Grantee's legal representative, estate or other person to whom the Grantee's rights are transferred by will or by laws of descent or distribution for a period of six (6) months following the Grantee’s death (but in no event after the expiration date of such Option), and shall thereafter terminate.

10.2Notwithstanding the foregoing provisions of Section 10.1, the Committee may provide, either at the time an Option is granted or thereafter, that such Option may be exercised after the periods provided for in Section 10.1, but in no event beyond the term of the Option.

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11. Adjustment Upon Changes in Capitalization:

11.1Subject to any required action by the shareholders of the Company, the number of Shares covered by each outstanding Option, and the number of Shares which have been authorized for issuance under the Plan but as to which no Options have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Option, as well as the price per share of Shares covered by each such outstanding Option, shall be proportionately adjusted for any increase or decrease in the number of issued Shares resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Shares or the payment of a stock dividend (bonus shares) with respect to the Shares or any other increase or decrease in the number of issued Shares effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Committee, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of Shares subject to an Option.

11.2In the event of the proposed dissolution or liquidation of the Company, the Committee shall notify each Grantee at least fifteen (15) days prior to such proposed action. To the extent it has not been previously exercised, each Option will terminate immediately prior to the consummation of such proposed action. In the event of a consolidation or the merger of the Company with or into another corporation, each Option shall be assumed or an equivalent option shall be substituted by such successor corporation or a parent or subsidiary of such successor corporation.

12.Non-Transferability:No Option shall be assignable or transferable by the Grantee to whom granted otherwise than by will or the laws of descent and distribution, and an Option may be exercised during the lifetime of the Grantee only by such Grantee or by such Grantee's guardian or legal representative. The terms of such Option shall be binding upon the beneficiaries, executors, administrators, heirs and successors of such Grantee.

13.Terms and Amendment of the Plan:

13.1The Plan was authorized by the Board on October 19, 1998, and shall expire on October 19, 2008 (except as to Options outstanding on that date), but such expiration shall not affect the instructions contained herein or in any applicable law with respect to the Options and Shares held in the Trust at such time of expiration.

13.2Subject to applicable laws, the Board may, at any time and from time to time, terminate or amend the Plan in any respect. In no event may any action of the Company alter or impair the rights of a Grantee, without his consent, under any Option previously granted to him.

14. Tax Consequences: All tax consequences and/or obligations regarding other compulsory payment arising from the grant or exercise of any Option, from the payment for, or the subsequent disposition of, Shares covered thereby or from any other event or act (of the Company or the Grantee) hereunder, shall be borne solely by the Grantee, and the Grantee shall indemnify the Company and the Trustee and hold them harmless against and from any and all liability for any such tax (and compulsory payment, if any) or interest or penalty thereon, including without limitation, liabilities relating to the necessity to withhold, or to have withheld, any such tax (and compulsory payment, if any) from any payment made to the Grantee.

15. Miscellaneous:

15.1 Continuance of Employment: Neither the Plan nor the grant of an Option thereunder shall impose any obligation on the Company to continue the employment of any Grantee, and nothing in the Plan or in any Option granted pursuant thereto shall confer upon any Grantee any right to continue in the employ of the Company, or restrict the right of the Company to terminate such employment at any time.

15.2 Governing Law: The Plan and all instruments issued thereunder or in connection therewith, shall be governed by, and interpreted in accordance with, the laws of the State of Israel.

15.3 Application of Funds: The proceeds received by the Company from the sale of Shares pursuant to Options granted under the Plan will be used for general corporate purposes of the Company.

15.4 Multiple Agreements: The terms of each Option may differ from other Options granted under the Plan at the same time, or at any other time. The Committee may also grant more than one Option to a given Grantee during the term of the Plan, either in addition to, or in substitution for, one or more Options previously granted to that Grantee. The grant of multiple Options may be evidenced by a single Notice of Grant or multiple Notices of Grants, as determined by the Committee.

15.5 Non-Exclusivity of the Plan: The adoption of the Plan by the Board shall not be construed as amending, modifying or rescinding any previously approved incentive arrangement or as creating any limitations on the power of the Board to adopt such other incentive arrangements as it may deem desirable, including, without limitation, the granting of stock options otherwise than under the Plan, and such arrangements may be either applicable generally or only in specific cases.

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EX-4.13

XTL Biopharmaceuticals LTD.

1999 DIRECTORS, CONSULTANTS AND EMPLOYEES SHARE OPTION PLAN

A. NAME AND PURPOSE

1. Name: This plan, as amended from time to time, shall be known as the “XTL Biopharmaceuticals Ltd. 1999 Directors, Consultants and Employee Share Option Plan” (the “Plan”).

2. Purpose: The purpose and intent of the Plan is to provide incentives to the directors, consultants and employees of XTL Biopharmaceuticals Ltd. (the "Company") and its subsidiaries by providing them with options to purchase Ordinary Shares, nominal value 0.02 New Israeli Shekels each (the "Shares"), of the Company.

B. GENERAL TERMS AND CONDITIONS OF THE PLAN

3. Administration:

3.1 The Plan will be administered by the Board of Directors of the Company (the "Board") or by a committee appointed by the Board (the "Committee"), which, if appointed, will consist of such number of Directors of the Company as may be fixed, from time to time, by the Board. If a Committee is not appointed, the term Committee, whenever used herein, shall mean the Board. The Board shall appoint the members of the Committee, may from time to time remove members from, or add members to, the Committee and shall fill vacancies in the Committee however caused.

3.2 The Committee shall select one of its members as its Chairman and shall hold its meetings at such times and places as it shall determine. Actions taken by a majority of the members of the Committee, at a meeting at which a majority of its members is present, or acts reduced to or approved in writing by all members of the Committee, shall be the valid acts of the Committee. The Committee may appoint a Secretary, who shall keep records of its meetings and shall make such rules and regulations for the conduct of its business as it shall deem advisable.

3.3 Subject to the general terms and conditions of this Plan, the Committee shall have the full authority in its sole and absolute discretion, from time to time and at any time, to determine (i) the persons ("Grantees") to whom options to purchase Shares ("Option(s)") shall be granted, (ii) the number of Shares to be covered by each Option, (iii) the time or times at which the same shall be granted, (iv) the schedule and conditions on which such Options may be exercised and on which such Shares shall be paid for, and/or (v) any other matter which is necessary or desirable for, or incidental to, the administration of the Plan.

3.4 The Committee may, from time to time, adopt such rules and regulations for carrying out the Plan as it may deem necessary. No member of the Board or of the Committee shall be liable for any act or determination made in good faith with respect to the Plan or any Option granted thereunder.

3.5 The interpretation and construction by the Committee of any provision of the Plan or of any Option thereunder shall be final and conclusive unless otherwise determined by the Board.

4. Eligible Grantees: The Committee, at its discretion, may grant Options to any employee of the Company (including officers, directors who are employees) or its subsidiaries. Anything in this Plan to the contrary notwithstanding, all grants of Options to Directors and Office Holders -"Nosei Misra" - as such term is defined in the Israeli Companies Ordinance (New Version), 1983, as amended from time to time (the "Companies Ordinance") - shall be authorized and implemented only in accordance with the provisions of the Companies Ordinance. The grant of an Option to a Grantee hereunder, shall neither entitle such Grantee to participate, nor disqualify him from participating, in any other grant of options pursuant to this Plan or any other stock option plan of the Company.

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5. Grant of Options in Trust:

5.1  Subject to Section 7.1 hereof, the effective date of the grant of an Option (the "Date of Grant") shall be the date specified by the Committee in its determination relating to the award of such Option. The Committee shall promptly give the Grantee written notice (the “Notice of Grant”) of the grant of an Option.

5.2 Anything herein to the contrary notwithstanding, all Options granted under the Plan shall be granted by the Company to a trustee designated by the Board (the "Trustee"), the Trustee shall hold each such Option in trust (the "Trust") for the benefit of the Grantee in respect of whom such Option was granted (the "Beneficial Grantee"), and no Options shall be released from the Trust until the vesting of such Options pursuant to Section 7.2 hereof (the "Release Date"). From and after the Release Date, upon the written request of any Beneficial Grantee, the Trustee shall release from the Trust the Options granted and exercise them on behalf of such Beneficial Grantee, by executing and delivering to the Company such instrument(s) as the Company may require, giving due notice of such release to such Beneficial Grantee, provided, however, that the Trustee shall not so release and exercise any such Options on behalf of the Beneficial Grantee unless the latter, prior to, or concurrently with, such release and exercise, provides the Trustee with evidence, satisfactory in form and substance to the Trustee, that all taxes and/or compulsory payments, if any, required to be paid upon such release and exercise have, in fact, been paid.

6. Reserved Shares: The Company has reserved 151,000 authorized but unissued Shares for purposes of the Plan subject to adjustments as provided in Section 11 hereof. All Shares under the Plan, in respect of which the right hereunder of a Grantee to purchase the same shall, for any reason, terminate, expire or otherwise cease to exist, shall again be available for grant through Options under the Plan.

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7. Grant of Options:

7.1 The Committee in its discretion may award to Grantees Options to purchase Shares in the Company available under the Plan. Options may be granted at any time after receipt of a pre-ruling from the Income Tax Authorities that the exercise of Options granted under the Plan will be subject to tax in accordance with the provisions of Section 102 of the Income Tax Ordinance [New Version] 1961.

7.2 The Notice of Grant shall state, inter alia, the number of Shares covered thereby, the schedule pursuant to which such Options shall vest, the Beneficial Grantee thereof shall be entitled to pay for, and acquire, the Shares, the exercise price, and such other terms and conditions as the Committee at its discretion may prescribe, provided that they are consistent with this Plan.

7.3 Without derogating from the rights and powers of the Committee under Section 7.2 hereof, unless otherwise specified in the Notice of Grant, each Option under the Plan shall be for a term of ten (10) years.

8. Exercise Price: The exercise price per Share covered by each Option shall be determined by the Committee in its sole and absolute discretion.

9. Exercise of Options:

9.1 Options shall be exercisable pursuant to the terms under which they were awarded and subject to the terms and conditions of the Plan.

9.2 The exercise of an Option shall be made by a written notice of exercise (the "Notice of Exercise") delivered by the Trustee (after receipt of written instructions from the Beneficial Grantee) to the Company at its principal executive office, specifying the number of Shares to be purchased and accompanied by the payment therefor, and containing such other terms and conditions as the Committee shall prescribe from time to time.

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9.3 Anything herein to the contrary notwithstanding, but without derogating from the provisions of Section 10 hereof, if any Option has not been exercised and the Shares covered thereby not paid for within ten (10) years after the Date of Grant (or any shorter period set forth in the Notice of Grant), such Option and the right to acquire such Shares shall terminate, all interests and rights of the Grantee in and to the same shall ipso facto expire, and, in the event that in connection therewith any Options are still held in the Trust as aforesaid, the Trust with respect thereto shall ipso facto expire and the Trustee shall thereafter hold such Options in an unallocated pool until instructed by the Company that some or all of such Options are again to be held in trust for one or more Grantees.

9.4 Each payment for Shares shall be in respect of a whole number of Shares, and shall be effected in cash or by a cashier's check payable to the order of the Company, or such other method of payment acceptable to the Company.

10.Termination of Employment:

10.1In the event that a Grantee ceases, for any reason, to be employed by the Companies, all Options theretofore granted to such Grantee shall terminate as follows:

(a) If the Grantee’s termination of employment is due to such Grantee’s death or “Disability” (as hereinafter defined), such Option (to the extent exercisable at the time of the Grantee’s termination of employment) shall be exercisable by the Grantee’s legal representative, estate of other person to whom the Grantee’s rights are transferred by will or by laws of descent of distribution for a period of six (6) months following such termination of employment (but in no event after the expiration date of such Option), and shall thereafter terminate. For purposes hereof, Disability shall mean the inability, due to illness or injury, to engage in any gainful occupation for which the individual is suited by education, training or experience, which condition continues for at least six (6) months.

(b) If the Grantee’s termination of employment is for any other reason, such Options (to the extent exercisable at the time of the Grantee's termination of employment) shall be exercisable for a period of thirty (30) days following such termination of employment, and shall thereafter terminate; provided, however, that if the Grantee’s dies within such thirty-day period, such Options (to the extent exercisable at the time of the Grantee's termination of employment) shall be exercisable by the Grantee's legal representative, estate or other person to whom the Grantee's rights are transferred by will or by laws of descent or distribution for a period of six (6) months following the Grantee’s death (but in no event after the expiration date of such Option), and shall thereafter terminate.

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10.2Notwithstanding the foregoing provisions of Section 10.1, the Committee may provide, either at the time an Option is granted or thereafter, that such Option may be exercised after the periods provided for in Section 10.1, but in no event beyond the term of the Option.

11.Adjustment Upon Changes in Capitalization

11.1 Subject to any required action by the shareholders of the Company, the number of Shares covered by each outstanding Option, and the number of Shares which have been authorized for issuance under the Plan but as to which no Options have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Option, as well as the price per share of Shares covered by each such outstanding Option, shall be proportionately adjusted for any increase or decrease in the number of issued Shares resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Shares or the payment of a stock dividend (bonus shares) with respect to the Shares or any other increase or decrease in the number of issued Shares effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Committee, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of Shares subject to an Option.

11.2 In the event of the proposed dissolution or liquidation of the Company, the Committee shall notify each Grantee at least fifteen (15) days prior to such proposed action. To the extent it has not been previously exercised, each Option will terminate immediately prior to the consummation of such proposed action. In the event of a consolidation or the merger of the Company with or into another corporation, each Option shall be assumed or an equivalent option shall be substituted by such successor corporation or a parent or subsidiary of such successor corporation.

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12. Non-Transferability:

No Option shall be assignable or transferable by the Grantee to whom granted otherwise than by will or the laws of descent and distribution, and an Option may be exercised during the lifetime of the Grantee only by such Grantee or by such Grantee's guardian or legal representative. The terms of such Option shall be binding upon the beneficiaries, executors, administrators, heirs and successors of such Grantee.

13.Terms and Amendment of the Plan:

13.1 The Plan was authorized by the Board on June 1, 1999 and shall expire on June 1, 2009 (except as to Options outstanding on that date), but such expiration shall not affect the instructions contained herein or in any applicable law with respect to the Options and Shares held in the Trust at such time of expiration.

13.2 Subject to applicable laws, the Board may, at any time and from time to time, terminate or amend the Plan in any respect. In no event may any action of the Company alter or impair the rights of a Grantee, without his consent, under any Option previously granted to him.

14.Tax Consequences: All tax consequences and/or obligations regarding other compulsory payment arising from the grant or exercise of any Option, from the payment for, or the subsequent disposition of, Shares covered thereby or from any other event or act (of the Company or the Grantee) hereunder, shall be borne solely by the Grantee, and the Grantee shall indemnify the Company and the Trustee and hold them harmless against and from any and all liability for any such tax (and compulsory payment, if any) or interest or penalty thereon, including without limitation, liabilities relating to the necessity to withhold, or to have withheld, any such tax (and compulsory payment, if any) from any payment made to the Grantee.

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15.Miscellaneous:

15.1Continuance of Employment: Neither the Plan nor the grant of an Option thereunder shall impose any obligation on the Company to continue the employment of any Grantee, and nothing in the Plan or in any Option granted pursuant thereto shall confer upon any Grantee any right to continue in the employ of the Company, or restrict the right of the Company to terminate such employment at any time.

15.2Governing Law: The Plan and all instruments issued thereunder or in connection therewith, shall be governed by, and interpreted in accordance with, the laws of the State of Israel.

15.3Application of Funds: The proceeds received by the Company from the sale of Shares pursuant to Options granted under the Plan will be used for general corporate purposes of the Company.

15.4Multiple Agreements: The terms of each Option may differ from other Options granted under the Plan at the same time, or at any other time. The Committee may also grant more than one Option to a given Grantee during the term of the Plan, either in addition to, or in substitution for, one or more Options previously granted to that Grantee. The grant of multiple Options may be evidenced by a single Notice of Grant or multiple Notices of Grants, as determined by the Committee.

15.5Non-Exclusivity of the Plan: The adoption of the Plan by the Board shall not be construed as amending, modifying or rescinding any previously approved incentive arrangement or as creating any limitations on the power of the Board to adopt such other incentive arrangements as it may deem desirable, including, without limitation, the granting of stock options otherwise than under the Plan, and such arrangements may be either applicable generally or only in specific cases.

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EX-4.14

XTL Biopharmaceuticals LTD.

INTERNATIONAL EMPLOYEE STOCK OPTION PLAN

A. NAME AND PURPOSE

1.Name and Purpose: XTL Biopharmaceuticals Ltd. sponsors this plan, as amended from time to time, which shall be known as the "XTL Biopharmaceuticals Ltd. 1999 International Employee Stock Option Plan" (the "Plan"). The purpose and intent of the Plan is to provide incentives to officers, employees and consultants of non-Israeli subsidiaries of XTL Biopharmaceuticals Ltd. (hereinafter, together with their subsidiaries, the "Companies") by providing them with opportunities to purchase Common A Shares, nominal value 0.20 New Israeli Shekels each ("Shares"), of the parent company of the Companies, XTL Biopharmaceuticals Ltd. (the "Parent").

2.Definitions:

2.1"Code" means the Internal Revenue Code of 1986, as amended.

2.2"Incentive Stock Option" means an "incentive stock option" within the meaning of Section 422 of the Code.

2.3"Nonqualified Stock Option" means an Option that is not an Incentive Stock Option.

2.4"Ten-Percent Stockholder" means an Eligible Grantee, who, at the time an Incentive Stock Option is to be granted to such Eligible Grantee, owns (within the meaning of Section 422(b)(6) of the Code) stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company, a parent or a subsidiary within the meaning of Sections 424(e) and 424(f), respectively, of the Code.

B. GENERAL TERMS AND CONDITIONS OF THE PLAN

3.Administration:

3.1The Plan will be administered by the Board of Directors of the Parent (the "Board") or by a committee appointed by the Board (the "Committee"), which, if appointed, will consist of such number of Directors of the Parent as may be fixed, from time to time, by the Board. If a Committee is not appointed, the term Committee, whenever used herein, shall mean the Board. The Board shall appoint the members of the Committee, may from time to time remove members from, or add members to, the Committee and shall fill vacancies in the Committee however caused.

3.2The Committee shall select one of its members as its Chairman and shall hold its meetings at such times and places as it shall determine. Actions taken by a majority of the members of the Committee, at a meeting at which a majority of its members is present, or acts reduced to or approved in writing by all members of the Committee, shall be the valid acts of the Committee. The Committee may appoint a Secretary, who shall keep records of its meetings and shall make such rules and regulations for the conduct of its business as it shall deem advisable.

3.3Subject to the general terms and conditions of this Plan, the Committee shall have the full authority in its sole and absolute discretion, from time to time and at any time, to determine (i) the persons ("Grantees") to whom options to purchase Shares ("Option(s)") shall be granted, (ii) the number of Shares to be covered by each Option, (iii) the time or times at which the same shall be granted, (iv) the price, vesting schedule and conditions on which such Options may be exercised and on which such Shares shall be paid for, and/or (v) interpret or construe the Plan or make determinations with respect to any other matter which is necessary or desirable for, or incidental to, the administration of the Plan. In determining the number of Shares covered by the Option to be granted to each Grantee, the Committee may consider, among other things, the Grantee's salary and the duration of the Grantee's employment by the Parent.

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3.4The Committee may, from time to time, adopt such rules and regulations for carrying out the Plan as it may deem necessary. No member of the Board or of the Committee shall be liable for any act or determination made in good faith with respect to the Plan or any Option granted thereunder.

3.5The interpretation and construction by the Committee of any provision of the Plan or of any Option thereunder shall be final and conclusive unless otherwise determined by the Board, in which event the Board's determination shall be final and conclusive.

4.Eligible Grantees: The Committee, at its discretion, may grant Options to any officer, director or consultant of the Parent or its subsidiaries, provided that such person is not an employee of the Parent resident in Israel, provided, however, that Incentive Stock Options shall be granted only to employees of the Parent or its subsidiaries. Anything in this Plan to the contrary notwithstanding, all grants of Options to Directors and Office Holders -"Nosei Misra" - as such term is defined in the Israeli Companies Ordinance (New Version), 1983, as amended from time to time (the "Companies Ordinance") - shall be authorized and implemented only in accordance with the provisions of the Companies Ordinance. The grant of an Option to a Grantee hereunder, shall neither entitle such Grantee to participate, nor disqualify him from participating, in any other grant of options pursuant to this Plan or any other stock option plan of the Parent.

5.Grant of Options and Issuance of Shares: Subject to any applicable law, the effective date of the grant of an Option (the "Date of Grant") shall be the date specified by the Committee in its determination relating to the award of such Option. The Committee shall promptly give the Grantee written notice of the grant of an Option, and the Grantee shall execute an agreement evidencing such grant and the rights and obligations of the Grantee and the Company with respect to such Option Agreement (the "Option Agreement").

6.Reserved Shares: The Parent has reserved 168,000 authorized but unissued Shares for purposes of the Plan, and for other stock option plans of the Parent, subject to adjustments as provided in Section 11 hereof. All Shares under the Plan, in respect of which the right hereunder of a Grantee to purchase the same shall, for any reason, terminate, expire or otherwise cease to exist, shall again be available for grant through Options under the Plan.

7.Grant of Options:

7.1The Committee in its discretion may award to Grantees Options to purchase Shares in the Parent available under the Plan.

7.2The Option Agreement shall state, inter alia, the number of Shares covered thereby, the dates when the Option may be exercised, the exercise price, and such other terms and conditions as the Committee at its discretion may prescribe, provided that they are consistent with this Plan.

7.3Options granted thereunder shall be for such term as the Committee shall determine, provided that (i) no Incentive Stock Option shall be execrable after the expiration of ten (10) years from the date it is granted (five (5) years in the case of an Incentive Stock Option granted to a Ten-Percent Stockholder) and (ii) no Nonqualified Stock Option shall be exercisable after the expiration of ten (10) years and one (1) day from the date it is granted. The Committee may, subsequent to the granting of any Option, extend the term thereof but in no event shall the term as so extended exceed the maximum term provided for in the preceding sentence.

7.4The schedule pursuant to which such Options shall vest, and the Grantee shall be entitled to pay for, and acquire, the Shares, shall be determined by the Committee at its sole discretion. Unless the Committee decides otherwise, no Options granted hereunder will be exercisable prior to (1) the registration of the Parent’s Shares for trading on the Tel Aviv Stock Exchange or on any other exchange, or (2) the consolidation or the merger of the Parent with or into another corporation, or the acquisition of all of the Parent's outstanding share capital by a third party. Vesting of Options granted hereunder will continue only during periods when the employer-employee or other service-provider relationship exist between the relevant Company and the Grantee. For the purposes of this paragraph 7.4, the employer-employee or other service-provider relationship will not be deemed to exist with regard to periods during which the Grantee is on an unpaid leave of absence from the Company.

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8.Exercise Price: The exercise price per Share covered by each Option shall be determined by the Committee in its sole and absolute discretion; provided, however:

8.1In the case of an Incentive Stock Option granted to any Eligible Grantee other than a Ten-Percent Stockholder, the per Share exercise price shall be no less than 100% of the Fair Market Value per Share on the date of the grant.

8.2In the case of a Nonqualified Stock Option granted to any Grantee other than a Ten-Percent Stockholder, the per Share exercise price shall be no less than 85% of the Fair Market Value per Share on the date of the grant.

8.3In the case of an Incentive Stock Option granted to any Ten-Percent Stockholder, the per Share exercise price shall be no less than 110% of the Fair Market Value per Share on the date of the grant.

8.4In no event shall the exercise price of an Option be less than the nominal value of the Shares into which such Option is exercisable.

8.5Subject to the foregoing, the Committee may reduce the exercise price of any outstanding Nonqualified Stock Option. In the event of such amendment, the Date of Grant of such Option shall thereafter be considered to be the date of such amendment; provided, however, that for purposes of vesting, the Option shall continue to be exercisable based on the terms set forth in the original Option Agreement.

8.6For the purposes hereof, "Fair Market Value" means the fair market value of the Shares as determined by the Committee; provided, however, that (A) if the Shares are admitted to trading on a national securities exchange, Fair Market Value on any date shall be the last sale price reported for the Shares on such exchange on such date or on the last date preceding such date on which a sale was reported, (B) if the Shares are admitted to quotation on the National Association of Securities Dealers Automated Quotation System ("NASDAQ") or other comparable quotation system and have been designated as a National Market System ("NMS") security, Fair Market Value on any date shall be the last sale price reported for the Shares on such system on such date or on the last day preceding such date on which a sale was reported, or (C) if the Shares are admitted to quotation on NASDAQ and have not been designated as a NMS Security, Fair Market Value on any date shall be the average of the closing bid and closing asked prices of the Shares on such system on such date.

8.7Notwithstanding any other provision of the Plan to the contrary, the aggregate Fair Market Value (determined as of the date of grant) of the Shares with respect to which Incentive Stock Options granted to a Grantee by the Parent or any parent or subsidiary of the Parent are exercisable for the first time shall not exceed $100,000 in any calendar year; provided, however, that any Option designated as an Incentive Stock Option under the Plan or any portion thereof that exceeds the foregoing limit or that is otherwise disqualified as an incentive stock option by operation of Section 422(d) or any other provision of the Code, shall be treated as a Nonqualified Stock Option for purposes of the Plan.

9.Exercise of Options:

9.1Options shall be exercisable pursuant to the terms under which they were awarded and subject to the terms and conditions of this Plan and the Option Agreement.

9.2The exercise of an Option shall be made by a written notice of exercise (the "Notice of Exercise") delivered by the Grantee to the Parent at its principal executive office, specifying the number of Shares to be purchased and accompanied by the payment therefor, and containing such other terms and conditions as the Committee shall prescribe from time to time. An Option may be exercised in whole or in part to the extent exercisable under the Plan and Option Agreement.

9.3Anything herein to the contrary notwithstanding, but without derogating from the provisions of Section 10 hereof, if any Option has not been exercised and the Shares covered thereby not paid for within ten (10) years after the Date of Grant (or any shorter period set forth in the Option Agreement), such Option and the right to acquire such Shares shall terminate, and all interests and rights of the Grantee in and to the same shall ipso facto expire.

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9.4Each payment for Shares shall be in respect of a whole number of Shares, and shall be effected in cash or by a cashier's check payable to the order of the Parent, or such other method of payment acceptable to the Parent.

10.Termination of Employment:

10.1In the event that a Grantee ceases, for any reason, to be employed by the Companies, all Options theretofore granted to such Grantee shall terminate as follows, subject to the provisions of 7.4 above and 11.3 below:

(a)All Options which are not vested and not exercisable at the time of the cessation of employment shall terminate immediately.

(b)If the Grantee ceases to be employed by reason of such Grantee's death or "Disability" (as hereinafter defined), such Options (to the extent exercisable at the time of the Grantee's cessation of employment) shall be exercisable by the Grantee, Grantee's legal representative, estate of other person to whom the Grantee's rights are transferred by will or by laws of descent or distribution at any time until thirty (30) days after the Initial Public Offering of the Parent’s shares (“IPO”) (but in no event after the expiration date of such Option), and shall thereafter terminate. In the event of Disability, the Committee will be authorized, at its sole discretion, to decide that the Grantee is entitled to continue to benefit from the Plan, with or without being subject to additional terms or restrictions. For purposes hereof, Disability shall mean a physical or mental impairment constituting a permanent and total disability within the meaning of Section 22(e)(3) of the Code.

(c)If the Grantee ceases to be employed for any other reason, such Options (to the extent exercisable at the time of the Grantee's cessation of employment) shall be exercisable at any time until the end of six (6) months from the cessation of the Employees employment (but in no event after the expiration date of such Option), and shall thereafter terminate; provided, however, that if the Grantee dies within such six (6) months period, such Options (to the extent exercisable at the time of the Grantee's termination of employment) shall be exercisable by the Grantee's legal representative, estate or other person to whom the Grantee's rights are transferred by will or by laws of descent or distribution at any time until the end of six (6) months from the Employee's death (but in no event after the expiration date of such Option), and shall thereafter terminate.

(d)Notwithstanding the aforesaid in Section 10.1(c) above, if the Grantee’s termination of employment is due to (i) breach of the Grantee’s fiduciary duties towards any of the Companies, or (ii) breach of the Grantee’s duty of care towards any of the Companies, or (iii) the Grantee has committed any flagrant criminal offense, or (iv) the Grantee has committed a fraudulent act towards any of the Companies, or (v) the Grantee caused intentionally, by act or omission, any financial damage to any of the Companies, all the Options whether vested or not shall ipso facto expire immediately and be of no legal effect. For the purposes of this Section 10.1(d), the date of termination of employment shall be the date on which the termination notice is sent to the Grantee, or the date on which the resignation notice is sent to the employer, as the case may be, regardless of the actual date of cessation of work.

(e)Notwithstanding the aforesaid, if the Grantee ceases to be a full-time employee of any of the Companies and becomes a part-time employee, such Options (to the extent exercisable at the time the Grantee ceases to be a full-time employee of any of the Companies) shall be exercisable for a period of six (6) months following such cessation of the full-time employment, and shall thereafter terminate. All Options that are not vested at the time of cessation of the full-time employment shall ipso facto expire and be of no legal effect.

(f)If a Grantee should retire (as such term is defined by the Committee at its sole and absolute discretion) he shall, subject to the approval of the Committee, continue to enjoy such rights, if any, under the Plan and on such terms and conditions, with such limitations and subject to such requirements as the Committee in its discretion may determine.

10.2Whether the cessation of employment of a particular Grantee is for reason of “Disability” for the purposes of paragraph 10.1(b) hereof or by virtue of “retirement” for purposes of paragraph 10.1(f) hereof, or is a termination of employment other than by reason of such Disability or retirement, or is for reasons as set forth in paragraph 10.1(d) hereof, shall be finally and conclusively determined by the Committee in its absolute discretion.

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10.3Notwithstanding the foregoing provisions of Section 10.1, the Committee may provide, either at the time an Option is granted or thereafter, that such Option may be exercised after the periods provided for in Section 10.1, but in no event beyond the term of the Option.

11.Adjustment Upon Changes in Capitalization

11.1Subject to any required action by the shareholders of the Parent, the number of Shares covered by each outstanding Option, and the number of Shares which have been authorized for issuance under the Plan but as to which no Options have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Option, as well as the price per share of Shares covered by each such outstanding Option, shall be proportionately adjusted for any increase or decrease in the number of issued Shares resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Shares or the payment of a stock dividend (bonus shares) with respect to the Shares or any other increase or decrease in the number of issued Shares effected without receipt of consideration by the Parent; provided, however, that conversion of any convertible securities of the Parent shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made in the sole and absolute discretion of the Committee, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Parent of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of Shares subject to an Option.

11.2Any such adjustment in the Shares or other securities subject to outstanding Incentive Stock Options (including any adjustments in the purchase price) shall be made in such manner as not to constitute a modification as defined by Section 424 (h) (3) of the Code and only to the extent otherwise permitted by Sections 422 and 424 of the Code.

11.3In the event of the proposed dissolution or liquidation of the Parent, the Committee shall notify each Grantee at least fifteen (15) days prior to such proposed action. To the extent it has not been previously exercised, each Option will terminate immediately prior to the consummation of such proposed action.

11.4If upon a merger, consolidation, reorganization, recapitalization or the like with or into another corporation, the shares of the Company shall be exchanged for other securities of a successor corporation or a parent or subsidiary of such successor corporation (the “Successor Entity”), then, each Option shall, at the sole and absolute discretion of the Committee, either:

(a)be substituted for options to purchase shares of either the Company or Successor Entity, and appropriate adjustments shall be made in the purchase price per share to reflect such exchange; or

(b) be assumed by the Successor Entity such that the Employee may exercise the Options for such number of shares of either the Company or Successor Entity or amount of other securities thereof, and appropriate adjustments shall be made in the purchase price per share to reflect such exchange.

11.5In the event of sale of substantially all the assets of the Company, as a result of which the proceeds to the Company are cash or cash equivalent, the non vested Options granted to a Grantee, which are to be vested within three (3) months following such sale, will immediately vest and be exercisable. Following the completion of such sale, the Company will notify the Grantee, in writing, twenty-one (21) days prior to the payment of any dividend, and the Grantee will be entitled to exercise the Options, in order to receive the dividend, at any time from the receipt of notice from the Company and until seven (7) days prior to the payment of such dividend.

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12.Non-Transferability:

No Option shall be assignable or transferable by the Grantee to whom granted otherwise than by will or the laws of descent and distribution, and an Option may be exercised during the lifetime of the Grantee only by such Grantee or by such Grantee's guardian or legal representative. The terms of such Option shall be binding upon the beneficiaries, executors, administrators, heirs and successors of such Grantee.

13. Terms and Amendment of the Plan:

13.1The Plan shall expire on June 1, 2009 (except as to Options outstanding on that date).

13.2Subject to applicable laws, the Board may, at any time and from time to time, terminate or amend the Plan in any respect. In no event may any action to amend or terminate the Plan of the Parent alter or impair the rights of a Grantee, without his consent, under any Option previously granted to him.

14.Tax Consequences: All tax consequences arising from the grant or exercise of any Option, from the payment for, or the subsequent disposition of, Shares covered thereby or from any other event or act (of the Parent or the Grantee) hereunder, shall be borne solely by the Grantee, and the Grantee shall indemnify the Parent and hold it harmless against and from any and all liability for any such tax or interest or penalty thereon, including without limitation, liabilities relating to the necessity to withhold, or to have withheld, any such tax from any payment made to the Grantee.

15.Restricted Stock:

15.1The Shares issuable upon exercise of the Options granted herein will be "restricted securities" under the Securities Act of 1933 and the regulations promulgated hereunder (the "Act") and may not be resold absent registration under the Act or an available exemption thereunder. In the event that an owner of Shares issued pursuant to this Plan effects a sale or transfer of such Shares under an available exemption under the Act, such owner shall, before effecting such sale or transfer, (i) notify the Parent in writing of the proposed disposition and the name of the proposed transferees, (ii) furnish the Parent with an opinion of counsel satisfactory in form and content to the Parent, and (iii) furnish the Parent with an agreement in writing from the transferee pursuant to which such transferee agrees to be bound by the provisions contained herein and in the Option Agreement, or (iv) the Parent shall have waived, expressly and in writing, its rights under clauses (i), (ii) and (iii) of this subsection.

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15.2The Shares issuable upon exercise of the Options granted herein, once any such Option is exercised and the Shares issued, will be subject to a lock-up for 180 days (or for such longer period as may be requested by the Parent's underwriter or underwriters) following the date immediately subsequent to the first date of the effectiveness of the first underwritten public offering of any of the Parent's securities. In connection with any subsequent underwritten public offering of the Parent's securities, the Shares issuable upon exercise of the Options granted herein, once any such Option is exercised and the Shares issued, will be subject to a lock-up for 120 days (or such longer period as may be requested by the Parent's underwriter or underwriters) following the date immediately subsequent to the first date of the effectiveness of such public offering. During such periods, if the owner of the option Shares is not participating in such public offering, the owner of the option Shares will not be allowed to sell or transfer, or offer to sell or transfer, any Shares without the prior written consent of the Parent's underwriter or underwriters.

16.Miscellaneous:

16.1Continuance of Employment: Neither the Plan nor the grant of an Option thereunder shall impose any obligation on the Parent to continue the employment of any Grantee, and nothing in the Plan or in any Option granted pursuant thereto shall confer upon any Grantee any right to continue in the employ of the Parent, or restrict the right of the Parent to terminate such employment at any time.

16.2Governing Law; Regulations and Approvals:

16.2.1The Plan and all instruments issued thereunder or in connection therewith, shall be governed by, and interpreted in accordance with, the laws of the State of Israel.

16.2.2The obligation of the Parent to sell or deliver Shares with respect to Options granted under the Plan shall be subject to all applicable laws, rules and regulations and the obtaining of all such approvals by governmental agencies as may be deemed necessary or appropriate by the Committee.

16.2.3Subject to Section 9, the Board may make such changes as may be necessary or appropriate to comply with the rules and regulations of any government authority or to obtain for Optionees granted Incentive Stock Options the tax benefits under the applicable provisions of the Code and regulations promulgated thereunder.

16.2.4Each Option is subject to the requirement that, if at any time the Committee determines, in its absolute discretion, that the listing, registration or qualification of Shares issuable pursuant to the Plan is required by any securities exchange or under any state or federal law, or the consent or approval of any state or federal law, or the consent or approval of any governmental regulatory body is necessary or desirable as a condition of, or in connection with, the grant of an Option or the issuance of Shares, no Options shall be granted or payment made or Shares issued, in whole or in part, unless listing, registration, qualification, consent or approval has been effected or obtained free of any conditions that are not acceptable to the Committee.

16.3Application of Funds: The proceeds received by the Parent from the sale of Shares pursuant to Options granted under the Plan will be used for general corporate purposes of the Parent.

16.4Multiple Agreements: The terms of each Option may differ from other Options granted under the Plan at the same time, or at any other time. The Committee may also grant more than one Option to a given Grantee during the term of the Plan, either in addition to, or in substitution for, one or more Options previously granted to that Grantee. The grant of multiple Options may be evidenced by a single Option Agreement or multiple Option Agreements, as determined by the Committee.

16.5Non-Exclusivity of the Plan: The adoption of the Plan by the Board shall not be construed as amending, modifying or rescinding any previously approved incentive arrangement or as creating any limitations on the power of the Board to adopt such other incentive arrangements as it may deem desirable, including, without limitation, the granting of stock options otherwise than under the Plan, and such arrangements may be either applicable generally or only in specific cases.

16.6Withholding of Taxes: The Parent shall have the right to deduct from any payment of cash to any Optionee an amount equal to the income taxes and other amounts required by law to be withheld with respect to any Option. Notwithstanding anything to the contrary contained herein, if an Optionee is entitled to receive Shares upon exercise of an Option, the Parent shall have the right to require such Optionee, prior to the delivery of such Shares, to pay to the Parent the amount of any income taxes and other amounts that the Parent is required by law to withhold. With respect to any Incentive Stock Options granted under this Plan, if the Optionee makes a disposition, within the meaning of Section 424(c) of the Code and regulations promulgated thereunder, of any Share or Shares issued to such Optionee pursuant to such Optionee's exercise of the Incentive Stock Option, and such disposition occurs within the two-year period commencing on the day after the date of grant of such Option or within the one-year period commencing on the day after the date of issuance of the Share or Shares to the Optionee pursuant to the exercise of such Option, such Optionee shall, within ten (10) days of such disposition, notify the Parent thereof and thereafter immediately deliver to the Parent any amount of income taxes and other amounts that the Parent informs the Optionee the Parent is required to withhold.

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EX-4.15

XTL Biopharmaceuticals LTD.

2000 DIRECTORS, CONSULTANTS AND EMPLOYEES SHARE OPTION PLAN

A. NAME AND PURPOSE

1.Name: This plan, as amended from time to time, shall be known as the “XTL Biopharmaceuticals Ltd. 2000 Directors, Consultants and Employee Share Option Plan” (the “Plan”).

2.Purpose: The purpose and intent of the Plan is to provide incentives to the directors, consultants and employees of XTL Biopharmaceuticals Ltd. (the "Company") and its subsidiaries by providing them with options to purchase Ordinary Shares, nominal value 0.02 New Israeli Shekels each (the "Shares"), of the Company.

B. GENERAL TERMS AND CONDITIONS OF THE PLAN

3.Administration:

3.1The Plan will be administered by the Board of Directors of the Company (the "Board") or by a committee appointed by the Board (the "Committee"), which, if appointed, will consist of such number of Directors of the Company as may be fixed, from time to time, by the Board. If a Committee is not appointed, the term Committee, whenever used herein, shall mean the Board. The Board shall appoint the members of the Committee, may from time to time remove members from, or add members to, the Committee and shall fill vacancies in the Committee however caused.

3.2The Committee shall select one of its members as its Chairman and shall hold its meetings at such times and places as it shall determine. Actions taken by a majority of the members of the Committee, at a meeting at which a majority of its members is present, or acts reduced to or approved in writing by all members of the Committee, shall be the valid acts of the Committee. The Committee may appoint a Secretary, who shall keep records of its meetings and shall make such rules and regulations for the conduct of its business as it shall deem advisable.

3.3Subject to the general terms and conditions of this Plan, the Committee shall have the full authority in its sole and absolute discretion, from time to time and at any time, to determine (i) the persons ("Grantees") to whom options to purchase Shares ("Option(s)") shall be granted, (ii) the number of Shares to be covered by each Option, (iii) the time or times at which the same shall be granted, (iv) the schedule and conditions on which such Options may be exercised and on which such Shares shall be paid for, and/or (v) any other matter which is necessary or desirable for, or incidental to, the administration of the Plan.

3.4The Committee may, from time to time, adopt such rules and regulations for carrying out the Plan as it may deem necessary. No member of the Board or of the Committee shall be liable for any act or determination made in good faith with respect to the Plan or any Option granted thereunder.

3.5The interpretation and construction by the Committee of any provision of the Plan or of any Option thereunder shall be final and conclusive unless otherwise determined by the Board.

4.Eligible Grantees: The Committee, at its discretion, may grant Options to any employee of the Company (including officers, directors who are employees) or its subsidiaries. Anything in this Plan to the contrary notwithstanding, all grants of Options to Directors and Office Holders -"Nosei Misra" - as such term is defined in the Israeli Companies Ordinance (New Version), 1983, as amended from time to time (the "Companies Ordinance") - shall be authorized and implemented only in accordance with the provisions of the Companies Ordinance. The grant of an Option to a Grantee hereunder, shall neither entitle such Grantee to participate, nor disqualify him from participating, in any other grant of options pursuant to this Plan or any other stock option plan of the Company.

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5.Grant of Options in Trust:

5.1 Subject to Section 7.1 hereof, the effective date of the grant of an Option (the "Date of Grant") shall be the date specified by the Committee in its determination relating to the award of such Option. The Committee shall promptly give the Grantee written notice (the “Notice of Grant”) of the grant of an Option.

5.2Anything herein to the contrary notwithstanding, all Options granted under the Plan shall be granted by the Company to a trustee designated by the Board (the "Trustee"), the Trustee shall hold each such Option in trust (the "Trust") for the benefit of the Grantee in respect of whom such Option was granted (the "Beneficial Grantee"), and no Options shall be released from the Trust until the vesting of such Options pursuant to Section 7.2 hereof (the "Release Date"). From and after the Release Date, upon the written request of any Beneficial Grantee, the Trustee shall release from the Trust the Options granted and exercise them on behalf of such Beneficial Grantee, by executing and delivering to the Company such instrument(s) as the Company may require, giving due notice of such release to such Beneficial Grantee, provided, however, that the Trustee shall not so release and exercise any such Options on behalf of the Beneficial Grantee unless the latter, prior to, or concurrently with, such release and exercise, provides the Trustee with evidence, satisfactory in form and substance to the Trustee, that all taxes and/or compulsory payments, if any, required to be paid upon such release and exercise have, in fact, been paid.

6.Reserved Shares: The Company has reserved 187,000 authorized but unissued Shares for purposes of the Plan subject to adjustments as provided in Section 11 hereof. All Shares under the Plan, in respect of which the right hereunder of a Grantee to purchase the same shall, for any reason, terminate, expire or otherwise cease to exist, shall again be available for grant through Options under the Plan.

7.Grant of Options:

7.1The Committee in its discretion may award to Grantees Options to purchase Shares in the Company available under the Plan. Options may be granted at any time after receipt of a pre-ruling from the Income Tax Authorities that the exercise of Options granted under the Plan will be subject to tax in accordance with the provisions of Section 102 of the Income Tax Ordinance [New Version] 1961.

7.2The Notice of Grant shall state, inter alia, the number of Shares covered thereby, the schedule pursuant to which such Options shall vest, the Beneficial Grantee thereof shall be entitled to pay for, and acquire, the Shares, the exercise price, and such other terms and conditions as the Committee at its discretion may prescribe, provided that they are consistent with this Plan.

7.3Without derogating from the rights and powers of the Committee under Section 7.2 hereof, unless otherwise specified in the Notice of Grant, each Option under the Plan shall be for a term of ten (10) years.

8.Exercise Price: The exercise price per Share covered by each Option shall be determined by the Committee in its sole and absolute discretion.

9.Exercise of Options:

9.1Options shall be exercisable pursuant to the terms under which they were awarded and subject to the terms and conditions of the Plan.

9.2The exercise of an Option shall be made by a written notice of exercise (the "Notice of Exercise") delivered by the Trustee (after receipt of written instructions from the Beneficial Grantee) to the Company at its principal executive office, specifying the number of Shares to be purchased and accompanied by the payment therefor, and containing such other terms and conditions as the Committee shall prescribe from time to time.

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9.3Anything herein to the contrary notwithstanding, but without derogating from the provisions of Section 10 hereof, if any Option has not been exercised and the Shares covered thereby not paid for within ten (10) years after the Date of Grant (or any shorter period set forth in the Notice of Grant), such Option and the right to acquire such Shares shall terminate, all interests and rights of the Grantee in and to the same shall ipso facto expire, and, in the event that in connection therewith any Options are still held in the Trust as aforesaid, the Trust with respect thereto shall ipso facto expire and the Trustee shall thereafter hold such Options in an unallocated pool until instructed by the Company that some or all of such Options are again to be held in trust for one or more Grantees.

9.4Each payment for Shares shall be in respect of a whole number of Shares, and shall be effected in cash or by a cashier's check payable to the order of the Company, or such other method of payment acceptable to the Company.

10.Termination of Employment:

10.1In the event that a Grantee ceases, for any reason, to be employed by the Companies, all Options theretofore granted to such Grantee shall terminate as follows:

(a)If the Grantee’s termination of employment is due to such Grantee’s death or “Disability” (as hereinafter defined), such Option (to the extent exercisable at the time of the Grantee’s termination of employment) shall be exercisable by the Grantee’s legal representative, estate of other person to whom the Grantee’s rights are transferred by will or by laws of descent of distribution for a period of six (6) months following such termination of employment (but in no event after the expiration date of such Option), and shall thereafter terminate. For purposes hereof, Disability shall mean the inability, due to illness or injury, to engage in any gainful occupation for which the individual is suited by education, training or experience, which condition continues for at least six (6) months.

(b)If the Grantee’s termination of employment is for any other reason, such Options (to the extent exercisable at the time of the Grantee's termination of employment) shall be exercisable for a period of thirty (30) days following such termination of employment, and shall thereafter terminate; provided, however, that if the Grantee’s dies within such thirty-day period, such Options (to the extent exercisable at the time of the Grantee's termination of employment) shall be exercisable by the Grantee's legal representative, estate or other person to whom the Grantee's rights are transferred by will or by laws of descent or distribution for a period of six (6) months following the Grantee’s death (but in no event after the expiration date of such Option), and shall thereafter terminate.

10.2Notwithstanding the foregoing provisions of Section 10.1, the Committee may provide, either at the time an Option is granted or thereafter, that such Option may be exercised after the periods provided for in Section 10.1, but in no event beyond the term of the Option.

11.Adjustment Upon Changes in Capitalization

11.1Subject to any required action by the shareholders of the Company, the number of Shares covered by each outstanding Option, and the number of Shares which have been authorized for issuance under the Plan but as to which no Options have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Option, as well as the price per share of Shares covered by each such outstanding Option, shall be proportionately adjusted for any increase or decrease in the number of issued Shares resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Shares or the payment of a stock dividend (bonus shares) with respect to the Shares or any other increase or decrease in the number of issued Shares effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Committee, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of Shares subject to an Option.

11.2In the event of the proposed dissolution or liquidation of the Company, the Committee shall notify each Grantee at least fifteen (15) days prior to such proposed action. To the extent it has not been previously exercised, each Option will terminate immediately prior to the consummation of such proposed action. In the event of a consolidation or the merger of the Company with or into another corporation, each Option shall be assumed or an equivalent option shall be substituted by such successor corporation or a parent or subsidiary of such successor corporation.

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12.Non-Transferability:

No Option shall be assignable or transferable by the Grantee to whom granted otherwise than by will or the laws of descent and distribution, and an Option may be exercised during the lifetime of the Grantee only by such Grantee or by such Grantee's guardian or legal representative. The terms of such Option shall be binding upon the beneficiaries, executors, administrators, heirs and successors of such Grantee.

13.Terms and Amendment of the Plan:

13.1The Plan was authorized by the Board on April 12, 2000, and shall expire on April 12, 2010 (except as to Options outstanding on that date), but such expiration shall not affect the instructions contained herein or in any applicable law with respect to the Options and Shares held in the Trust at such time of expiration.

13.2Subject to applicable laws, the Board may, at any time and from time to time, terminate or amend the Plan in any respect. In no event may any action of the Company alter or impair the rights of a Grantee, without his consent, under any Option previously granted to him.

14.Tax Consequences: All tax consequences and/or obligations regarding other compulsory payment arising from the grant or exercise of any Option, from the payment for, or the subsequent disposition of, Shares covered thereby or from any other event or act (of the Company or the Grantee) hereunder, shall be borne solely by the Grantee, and the Grantee shall indemnify the Company and the Trustee and hold them harmless against and from any and all liability for any such tax (and compulsory payment, if any) or interest or penalty thereon, including without limitation, liabilities relating to the necessity to withhold, or to have withheld, any such tax (and compulsory payment, if any) from any payment made to the Grantee.

15.Miscellaneous:

15.1Continuance of Employment: Neither the Plan nor the grant of an Option thereunder shall impose any obligation on the Company to continue the employment of any Grantee, and nothing in the Plan or in any Option granted pursuant thereto shall confer upon any Grantee any right to continue in the employ of the Company, or restrict the right of the Company to terminate such employment at any time.

15.2Governing Law: The Plan and all instruments issued thereunder or in connection therewith, shall be governed by, and interpreted in accordance with, the laws of the State of Israel.

15.3Application of Funds: The proceeds received by the Company from the sale of Shares pursuant to Options granted under the Plan will be used for general corporate purposes of the Company.

15.4Multiple Agreements: The terms of each Option may differ from other Options granted under the Plan at the same time, or at any other time. The Committee may also grant more than one Option to a given Grantee during the term of the Plan, either in addition to, or in substitution for, one or more Options previously granted to that Grantee. The grant of multiple Options may be evidenced by a single Notice of Grant or multiple Notices of Grants, as determined by the Committee.

15.5Non-Exclusivity of the Plan: The adoption of the Plan by the Board shall not be construed as amending, modifying or rescinding any previously approved incentive arrangement or as creating any limitations on the power of the Board to adopt such other incentive arrangements as it may deem desirable, including, without limitation, the granting of stock options otherwise than under the Plan, and such arrangements may be either applicable generally or only in specific cases.

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EX-4.16

XTL BIOPHARMACEUTICALS LTD.

2001 EMPLOYEE SHARE OPTION PLAN

A. NAME AND PURPOSE

1.Name: This plan, as amended from time to time, shall be known as the "XTL Biopharmaceuticals Ltd. 2001 Employee Share Option Plan” (the "Plan").

2.Purpose: The purpose and intent of the Plan is to provide incentives to the employees and selected directors of XTL Biopharmaceuticals Ltd. (the "Company") and its subsidiaries by providing them with options to purchase Ordinary Shares, nominal value 0.02 New Israeli Shekels each (the "Shares"), of the Company in order to (a) align the interests of employees, directors and consultants with shareholders interests; (b) create a long-term incentive to employees, directors and consultants; (c) to attract skilled managers and employees to the Company; and (d) to achieve greater motivation of employees and enhance employee retention.

B. GENERAL TERMS AND CONDITIONS OF THE PLAN

3.Administration:

3.1The Plan will be administered by the Board of Directors of the Company (the "Board") or by a remuneration committee appointed by the Board (the "Committee"), which, if appointed, will consist of such number of Directors of the Company as may be fixed, from time to time, by the Board. If a Committee is not appointed, the term Committee, whenever used herein, shall mean the Board. The Board shall appoint the members of the Committee, may from time to time remove members from, or add members to, the Committee and shall fill vacancies in the Committee however caused.

3.2The Committee shall select one of its members as its Chairman and shall hold its meetings at such times and places as it shall determine. Actions taken by a majority of the members of the Committee, at a meeting at which a majority of its members is present, or acts reduced to or approved in writing by all members of the Committee, shall be the valid acts of the Committee. The Committee may appoint a Secretary, who shall keep records of its meetings and shall make such rules and regulations for the conduct of its business as it shall deem advisable.

3.3Subject to the general terms and conditions of this Plan, the Committee shall have the full authority in its discretion, from time to time and at any time, to determine (i) the persons ("Grantees") to whom options to purchase Shares ("Option(s)") shall be granted, (ii) the number of Shares to be covered by each Option, (iii) the time or times at which the same shall be granted, (iv) the schedule and conditions on which such Options may be exercised and on which such Shares shall be paid for, and/or (v) any other matter which is necessary or desirable for, or incidental to, the administration of the Plan. Notwithstanding the aforesaid, the actual issuance of the Options to the Grantees will only be valid following a resolution of a duly convened Board meeting of the Company.

3.4The Committee may, from time to time, adopt such rules and regulations for carrying out the Plan as it may deem necessary. In addition to the aforesaid, the Committee shall have full authority in its discretion to create sub-plans to the Plan which shall incorporate such amendments as the Committee shall deem fit in order to facilitate the operation of the Plan in any jurisdiction required taking into consideration, among other things, tax issues, corporate governance issues and applicable securities and regulatory regulations and legislation (the “Sub-plans”, the term Plan shall hereinafter be deemed to include any Sub-plan created by the Committee). No member of the Board or of the Committee shall be liable for any act or determination made in good faith with respect to the Plan or any Option granted thereunder.

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3.5The interpretation and construction by the Committee of any provision of the Plan or of any Option thereunder shall be final and conclusive unless otherwise determined by the Board.

4.Eligible Grantees: The Committee, at its discretion, may determine to grant Options to any employee of the Company or its subsidiaries (including officers and directors who are employees), who devote substantially the whole of their working time to the business of the Company and its subsidiaries. Anything in this Plan to the contrary notwithstanding, all grants of Options to Directors and Office Holders -"Nosei Misra" - as such term is defined in the Israeli Companies Act - 1999, as amended from time to time (the "Companies Act") -shall be authorized and implemented only in accordance with the provisions of the Companies Act. The grant of an Option to a Grantee hereunder, shall neither entitle such Grantee to participate, nor disqualify him from participating, in any other grant of options pursuant to this Plan or any other stock option plan of the Company.

5.Grant of Options in Trust:

5.1Subject to Section 7.1 hereof, the effective date of the grant of an Option (the "Date of Grant") shall be the date upon which the Board decided to issue the Options to the Grantee in accordance with the determination of the Committee to award such Options to the Grantee; except that in the event of grant of options in accordance with Section 10.1(a) below, the decision of the Board to issue the Options to the Grantee shall be at least 30 days after the delivery by the Company to the appropriate income tax authorities of a notice pertaining to the appointment of the Trustee and the adoption of the Plan. The Committee shall promptly give the Grantee written notice (the "Notice of Grant") of the grant of an Option following the official issuance of the Options by the Board. Options may only be granted subject to the terms herein and the grant must fall during a period of forty two days (“Open Periods”) immediately following the date of any of the following:-

(a)the approval and adoption of the Plan by the Company in general meeting;

(b)the announcement of the interim results of the Company;

(c)the preliminary announcement of the final results of the Company;

(d)the issue of any prospectus, listing particulars or other document containing equivalent information relating to Shares;

(e)in relation to any Director of the Company or subsidiary of the Company (an “Executive”) who the Committee determines shall be granted an Option upon his becoming an Executive, his so becoming an Executive; or

(f)an event which the Committee in its absolute discretion deems sufficiently exceptional to justify the grant of an Option.

5.2Anything herein to the contrary notwithstanding, all Options granted under the Plan shall be granted by the Company to a trustee designated by the Board and approved by the appropriate tax authorities (the "Trustee"). The Trustee shall hold each such Option in trust (the "Trust") for the benefit of the Grantee in respect of whom such Option was granted (the "Beneficial Grantee"), and no Options shall be released from the Trust until the vesting of such Options pursuant to Section 10.3 hereof and in the event of the grant of Options under Section 10.1(a), until at least two (2) years from the Date of Grant have expired (the "Release Date") taking into consideration the tax implications from such release. From and after the Release Date, upon the written request of any Beneficial Grantee, the Trustee shall release from the Trust the Options granted and exercise them on behalf of such Beneficial Grantee, by executing and delivering to the Company such instrument(s) as the Company may require, giving due notice of such release to such Beneficial Grantee, provided, however, that the Trustee shall not so release and exercise any such Options on behalf of the Beneficial Grantee unless the latter, prior to, or concurrently with, such release and exercise, provides the Trustee with evidence, satisfactory in form and substance to the Trustee, that all taxes and/or compulsory payments, if any, required to be paid upon such release and exercise have, in fact, been paid or the Trustee has withheld any and all taxes required to be paid on such options prior to the release and exercise for payment by the Trustee to the appropriate tax authorities.

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6.Limits (the Company)

6.1No Option to subscribe for Shares shall be granted if immediately thereafter (the “relevant time"):

(a)the aggregate nominal amount of Shares in respect of which options to subscribe for Shares (“Subscription Options”) would then have been granted would, when added to the aggregate nominal amount of the issued and outstanding share capital of the Company (the “Ordinary Share Capital”) which has already been placed under option to be issued (whether or not issued at the relevant time) under any other share option schemes or has already been issued under any other employees' share schemes of the Company (other than share option schemes) during the ten years preceding the relevant time exceed 10% of the aggregate nominal amount of the Ordinary Share Capital at the relevant time or

(b)the aggregate nominal amount of Shares in respect of which Subscription Options (other than Options which are Super Options, as defined below) would then have been granted would, when added to the aggregate nominal amount of Ordinary Share Capital which has already been placed under option to be issued (whether or not issued at the relevant time) under any other share option schemes of the Company (other than options under savings related share option schemes approved under Schedule 9 to the United Kingdom Companies Act 1985 (the “Act”) and other than options which are Super Options) during the ten years preceding the relevant time exceed 5% of the aggregate nominal amount of Ordinary Share Capital in issue at the relevant time

6.2In this Section 6 and in Sections 7 and 8 references to Shares in respect of which Subscription Options have been granted and to Shares or Ordinary Share Capital placed under option to be issued shall exclude Shares or Ordinary Share Capital in respect of which:

(a) an option has lapsed or has been cancelled; and

(b)Subscription Options have been granted before September 26, 2000, the date upon which the Company’s ordinary share capital was admitted to the Official List of London Stock Exchange (“Flotation”)

7.Limits (“Executives”)

7.1No Option shall be granted to any Grantee if his normal anticipated retirement date is within 2 years of the Date of Grant.

8.Super Options

8.1A “Super Option” is an Option or other option to acquire Shares the exercise of which is subject to performance conditions considered by the Committee to be materially more stretching than those commonly applied by similar companies whose shares are listed on the Official List of the UK Listing Authority

8.2No Subscription Option which is a Super Option shall be granted if immediately thereafter (the “relevant time") the aggregate nominal amount of Shares in respect of which Subscription Options which are Super Options would then have been granted would, when added to the aggregate nominal amount of Ordinary Share Capital in respect of which options to subscribe which are Super Options have been granted under any other share option schemes during the ten years preceding the relevant time exceed 5% of the aggregate nominal amount of Ordinary Share Capital in issue at the relevant time.

9.Reserved Shares: The Company has reserved 11,000,000 authorized but unissued Shares for purposes of the Plan subject to adjustments as provided in Section 14 hereof. All Shares under the Plan, in respect of which the right hereunder of a Grantee to purchase the same shall, for any reason, terminate, expire or otherwise cease to exist, shall again be available for grant through Options under the Plan.

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10.Grant of Options:

10.1The Committee in its discretion may determine to award to Grantees Options to purchase Shares in the Company available under the Plan in accordance with Sub-plans created to facilitate any of the following tax rules:

(a)To Israeli Grantees-

(i)in accordance with the provisions of Section 102 of the Income Tax Ordinance [New Version] 1961 (the “Israeli Tax Ordinance”); or

(ii)in accordance with the provisions of Section 3(9) of the Israeli Tax Ordinance; and

(b)To US Grantees-

(i)“Incentive stock options” within the meaning of section 422 of the United States Internal Revenue Code of 1986 (the “Code”); or

(ii)“Nonqualified stock options” as defined in the Code.

10.2The Notice of Grant shall state, inter alia, the number of Shares covered thereby, the schedule pursuant to which such Options shall vest, the Beneficial Grantee thereof, the terms and conditions under which the Beneficial Grantee shall be entitled to pay for, and acquire, the Shares, the exercise price, and such other terms and conditions as the Committee at its discretion may prescribe, provided that they are consistent with this Plan. The Committee shall take into consideration in its determination of the allocation of Options to Grantees, among other matters, the following considerations:

(a)The current market demand for similar positions of the Grantees;

(b)The required experience needed by the position held by the Grantee;

(c)The level of managerial responsibility afforded to the Grantee; and

(d)The possible negative impact of the Grantee’s termination of legal relationship with the Company.

10.3The Options granted under the Plan shall be issued subject to a vesting schedule providing that the Grantee may exercise one third (1/3) of any Options granted to him/her upon the second, third and fourth anniversary of the Date of Grant (each of such dates a “Vesting Date”) provided that at each Vesting Date a legal relationship exists between the Grantee and the Company.

10.4Without derogating from the rights and powers of the Committee under Section 10.2 hereof, unless otherwise specified in the Notice of Grant, each Option under the Plan shall be for a term of ten (10) years.

11.Exercise Price:The exercise price per Share covered by each Option shall be the market value of a Share on the Date of Grant of such Option as determined by the Committee or (if the Shares are for the time being listed in the Daily Official List of the London Stock Exchange) the average of the middle market quotations (as derived from the said Daily Official List) of a Share for the three immediately preceding dealing days before the Date of Grant of such Option. That average price shall be in US Dollars calculated in accordance with the representative rate of US Dollars in GB Sterling on the day preceding the Date of Grant (the “Exercise Price”).

12.Exercise of Options:

12.1Options shall be exercisable pursuant to the terms under which they were awarded and subject to the terms and conditions of the Plan.

12.2The exercise of an Option shall be made by a written notice of exercise (the "Notice of Exercise") delivered by the Trustee (after receipt of written instructions from the Beneficial Grantee) to the Company at its principal executive office, specifying the number of Shares to be purchased and accompanied by the payment of the Exercise Price therefor, and containing such other terms and conditions as the Committee shall prescribe from time to time.

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12.3Anything herein to the contrary notwithstanding, but without derogating from the provisions of Section 13 hereof, if any Option has not been exercised and the Shares covered thereby not paid for within ten (10) years after the Date of Grant (or any shorter period set forth in the Notice of Grant), such Option and the right to acquire such Shares shall terminate, all interests and rights of the Grantee in and to the same shall ipso facto expire, and, in the event that in connection therewith any Options are still held in the Trust as aforesaid, the Trust with respect thereto shall ipso facto expire and the Trustee shall thereafter hold such Options in an unallocated pool until instructed by the Company that some or all of such Options are again to be held in trust for one or more Grantees.

12.4Each payment of the Exercise Price for Shares shall be in respect of a whole number of Shares, and shall be effected in cash or by a cashier's check payable to the order of the Company, or such other method of payment acceptable to the Company.

13.Termination of Legal Relationship:

13.1In the event that a legal relationship between the Company and the Grantee ceases, for any reason, all Options theretofore granted to such Grantee shall terminate as follows:

(a)If the Grantee’s cessation of legal relationship is due to such Grantee’s death or “Disability” (as hereinafter defined), such Option (to the extent exercisable at the time of the Grantee’s cessation of legal relationship) shall be exercisable by the Grantee’s legal representative, estate of other person to whom the Grantee’s rights are transferred by will or by laws of descent of distribution for a period of twelve (12) months following such cessation of legal relationship (but in no event after the expiration date of such Option), and shall thereafter terminate. For purposes hereof, Disability shall mean the inability, due to illness or injury, to engage in any gainful occupation for which the individual is suited by education, training or experience, which condition continues or is expected to continue for at least twelve (12) months.

 (b)If the Grantee’s cessation of legal relationship by the Company (hereinafter “Dismissal”) is for “cause”, such Grantee’s Options, both vested and unvested, shall expire immediately upon Dismissal. For the purpose hereof “cause” is defined as willful misconduct, disregard of directives and policies of the board of directors of the Company, conviction of a felony, acts of theft, embezzlement or self dealing, misappropriation of trade secrets, or any material breach of the agreement between the Grantee and the Company where such breach is not remedied within thirty (30) days after service of notice by the Company specifying the breach complained of and (if remediable) requiring remedy of it.

(c)If the Grantee’s Dismissal is not for “cause” (as defined in subsection (b) above), the Grantee shall be entitled to exercise, in addition to all Options vested up to his/her date of Dismissal, a relative number of unvested Options included in the next Vesting Date, such relative number to be calculated as the number of full days completed (as of the date of Dismissal) since the previous Vesting Date (or the date of Grant, as applicable), divided by the number of days between the previous Vesting Date (or the date of Grant, as applicable) and the next Vesting Date. Exercise may take place at any time during the twelve (12) months following such cessation of legal relationship (but in no event after the expiration date of such option), and shall thereafter terminate. In the event that the Dismissal occurs prior to the first anniversary of the Grant of Options, the Grantee shall not be entitled to any Options and all Options granted to the Grantee shall ipso facto expire and cease to have any legal effect.

(d)If the Grantee’s cessation of legal relationship is for any other reason, such Options which have vested prior to such termination (to the extent exercisable at the time of the Grantee’s cessation of legal relationship) shall be exercisable for a period of ninety (90) days following such cessation of legal relationship, and shall thereafter terminate; provided, however, that if the Grantee’s dies within such ninety-day period, such Options (to the extent exercisable at the time of the Grantee’s cessation of legal relationship) shall be exercisable by the Grantee’s legal representative, estate or other person to whom the Grantee’s rights are transferred by will or by laws of descent of distribution for a period of twelve (12) months following the Grantee’s death (but in no event after the expiration date of such Option), and shall thereafter terminate. Notwithstanding the aforesaid, the Committee may, in its sole discretion, extend the ninety-day period by an additional ninety-day period in the case of a Substantial Lack of Trading in the Company’s shares. A “Substantial Lack of Trading” is defined when in the preceding four (4) weeks the average weekly trade in the Company’s shares was less than 0.5% of the Company’s issued and outstanding share capital.

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(e)If the Grantee’s cessation of legal relationship is due to such Grantee’s retirement, such Option (to the extent exercisable at the time of the Grantee’s cessation of legal relationship) shall be exercisable by the Grantee for a period of twelve (12) months following such cessation of legal relationship (but in no event after the expiration date of such Option), and shall thereafter terminate. provided, however, that if the Grantee’s dies within such twelve-month period, such Options (to the extent exercisable at the time of the Grantee’s cessation of legal relationship) shall be exercisable by the Grantee’s legal representative, estate or other person to whom the Grantee’s rights are transferred by will or by laws of descent of distribution for a period of twelve (12) months following the Grantee’s death (but in no event after the expiration date of such Option), and shall thereafter terminate.

13.2Notwithstanding the foregoing provisions of Section 13.1, the Committee may provide, either at the time an Option is granted or thereafter, that such Option may be exercised after the periods provided for in Section 13.1, but in no event beyond the term of the Option.

14.Adjustment Upon Changes in Capitalization

14.1Subject to any required action by the shareholders of the Company, the number of Shares covered by each outstanding Option, and the number of Shares which have been authorized for issuance under the Plan but as to which no Options have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Option, as well as the price per share of Shares covered by each such outstanding Option, shall be proportionately adjusted for any increase or decrease in the number of issued Shares resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Shares or the payment of a stock dividend (bonus shares) with respect to the Shares or any other increase or decrease in the number of issued Shares effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Committee, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of Shares subject to an Option.

14.2In the event of the proposed dissolution or liquidation of the Company, the Committee shall notify each Grantee at least fifteen (15) days prior to such proposed action. To the extent it has not been previously exercised, each Option will terminate immediately prior to the consummation of such proposed action.

14.3In the event of a consolidation or the merger of the Company with or into another corporation as a result of which the Company is not the surviving entity, each Option shall be assumed or an equivalent option shall be substituted by such successor corporation or a parent or subsidiary of such successor corporation, and the following shall apply:

(a)The vesting of the Options shall remain the same except that 25% of the remaining unvested Options at the time of consolidation or merger shall become immediately vested; and

(b)In the event that the Grantee shall be dismissed prior to the first anniversary of the consolidation or merger not for “cause”, then an additional 25% of the remaining unvested Options at the time of consolidation or merger shall become immediately vested upon such dismissal.

15.Changes in Control

15.1If at any time before the expiry of the Option Period of an Option any person obtains control (as such term is defined in Section 840 of the Income and Corporation Taxes Act 1988, a United Kingdom Statute) (“Control”) of the Company as a result of making:

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(a)a general offer to acquire the whole of the issued Ordinary Share Capital of the Company (or the whole other than any such share capital already held at the date of the offer by, or by a nominee for, the offeror or any subsidiary thereof), which offer is made on a condition such that if it is satisfied the person making the offer will have Control of the Company,

or

(b)a general offer to acquire all the Shares (or all other than any such Shares already held at the date of the offer by, or by a nominee for, the offeror or any subsidiary thereof) the Option Holder shall be entitled within a period of six months beginning with the time when the person making the offer has obtained Control of the Company and any condition subject to which the offer is made has been satisfied:

(i)to exercise that Option (but only within that period) subject to the vesting of such Options as set out in Section 10.3 above, or

(ii)if the offeror is a company, by agreement with the offeror, to release that Option in consideration of the grant to him of an equivalent option (as envisaged by Section 14.3)

15.2If at any time before an Option has lapsed any person obtains Control of the Company as a result of an agreement with one or more shareholders of the Company to acquire any of the issued Ordinary Share Capital of the Company, the Option Holder shall be entitled within a period of six months beginning with the time such person has obtained Control of the Company and such agreement has become unconditional to exercise that Option (but only within that period) or if the offeror is a company, by agreement with the offeror, to release that Option in consideration of the grant to him of an equivalent option (as envisaged by Section 14.3).

15.3An exercise of an Option pursuant to this Section 15 may take place before the Option has vested pursuant to Section 10.3 but may not take place after that Option has lapsed or expired.

16.Non-Transferability:

No Option shall be assignable or transferable by the Grantee to whom granted otherwise than by will or the laws of descent and distribution, and an Option may be exercised during the lifetime of the Grantee only by such Grantee or by such Grantee's guardian or legal representative. The terms of such Option shall be binding upon the beneficiaries, executors, administrators, heirs and successors of such Grantee.

17.Terms and Amendment of the Plan:

17.1The Plan was authorized by the Board on February 28, 2001 and by the shareholders of the company on May 3, 2001. The Plan shall expire on May 2, 2011 (except as to Options outstanding on that date), but such expiration shall not affect the instructions contained herein or in any applicable law with respect to the Options and Shares held in the Trust at such time of expiration.

17.2 Subject to applicable laws, the Board may, at any time and from time to time, terminate or amend the Plan in any respect save that

(a)no amendment to the advantage of Executives or Option Holders may be made to the provisions of this Plan relating to:

(1)the persons to whom Options may be granted;

(2)the limitations on the number or amount of Ordinary Shares subject to this Scheme;

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(3)the basis for determining the entitlement of an Executive or Option Holder to, and the terms of, Shares and for the adjustment thereof in the event of variation of capital (Rule without the prior approval of the Company in general meeting (save for minor amendments to benefit the administration of this Plan, to take account of a change in legislation or to obtain or maintain favourable tax, exchange control or regulatory treatment for Executives or Option Holders or for the Company or the Group); and

(b) In no event may any action of the Company alter or impair the rights of a Grantee, without his consent, under any Option previously granted to him.

18.Tax Consequences: All tax consequences and/or obligations regarding other compulsory payments arising from the grant or exercise of any Option, from the payment for, or the subsequent disposition of, Shares covered thereby or from any other event or act (of the Company or the Grantee) hereunder, shall be borne solely by the Grantee, and the Grantee shall indemnify the Company and the Trustee and hold them harmless against and from any and all liability for any such tax (and compulsory payment, if any) or interest or penalty thereon, including without limitation, liabilities relating to the necessity to withhold, or to have withheld, any such tax (and compulsory payment, if any) from any payment made to the Grantee.

19.Miscellaneous:

19.1Continuance of Legal Relationship: Neither the Plan nor the grant of an Option thereunder shall impose any obligation on the Company to continue the legal relationship between the Company and any Grantee, and nothing in the Plan or in any Option granted pursuant thereto shall confer upon any Grantee any right to continue the legal relationship with the Company, or restrict the right of the Company to terminate such legal relationship at any time.

19.2Governing Law: The Plan and all instruments issued thereunder or in connection therewith, shall be governed by, and interpreted in accordance with, the laws of the State of Israel.

19.3Application of Funds: The proceeds received by the Company from the sale of Shares pursuant to Options granted under the Plan will be used for general corporate purposes of the Company.

19.4Multiple Agreements: The terms of each Option may differ from other Options granted under the Plan at the same time, or at any other time. The Committee may also grant more than one Option to a given Grantee during the term of the Plan,. The grant of multiple Options may be evidenced by a single Notice of Grant or multiple Notices of Grant, as determined by the Committee.

19.5Non-Exclusivity of the Plan: The adoption of the Plan by the Board shall not be construed as amending, modifying or rescinding any previously approved incentive arrangement or as creating any limitations on the power of the Board to adopt such other incentive arrangements as it may deem desirable, including, without limitation, the granting of stock options otherwise than under the Plan, and such arrangements may be either applicable generally or only in specific cases.

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EX-15.1

Consent of Independent Registered Public Accounting Firm

The Board of Directors

XTL Biopharmaceuticals Ltd.

We consent to the use in the Annual Report on Form 20-F of XTL Biopharmaceuticals Ltd., filed with the United States Securities and Exchange Commission, of our report dated May 3, 2005 on the consolidated balance sheets of XTL Biopharmaceuticals Ltd., and its subsidiary at December 31, 2004 and the consolidated statements of income, retained earnings and changes in financial position for the years ended December 31, 2004, 2003 and 2002.

/s/ Kesselman & Kesselman

Kesselman & Kesselman

Certified Public Accountant (Isr.)

A member of PricewaterhouseCoopers

International Limited

Tel Aviv, Israel

July 13, 2005

EX-15.2

Consent of Independent Registered Public Accounting Firm

The Board of Directors

XTL Biopharmaceuticals Ltd.

Rehovot

Israel

We consent to the use of our report dated May 3, 2005, with respect to consolidated statements of operations, changes in shareholders' equity and comprehensive income, and cash flows of XTL Biopharmaceuticals Ltd. (A Development Stage Company) and its subsidiary for the period from March 9, 1993 to December 31, 2000, incorporated herein by reference.

/s/ Somekh Chaikin

Somekh Chaikin

Certified Public Accountants (Isr.)

(A member firm of KPMG International)

Tel Aviv, Israel

July 13, 2005