F-1

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TABLE OF CONTENTS
Index To Financial Statements

As filed with the Securities and Exchange Commission on February 11, 2005

Registration No. 333-    •    

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM F-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

Shamir Optical Industry Ltd.
(Exact Name of Registrant as Specified in Its Charter)

Israel
(State or Other Jurisdiction of
Incorporation or Organization) 3851
(Primary Standard Industrial
Classification Code Number) Not Applicable
(I.R.S. Employer
Identification No.)

Kibbutz Shamir
Upper Galilee
12135 Israel
(+972) 4 694 7810
(Address and telephone number of
Registrant's principal executive offices) Shamir USA, Inc.
29800 Agoura Rd., Suite 102
Agoura Hills, CA, 91301-2559
(+1) 818 889 6292
Attention: Secretary and Treasurer
(Name, address and telephone number
of agent for service)

WITH COPIES TO:
Stephan Hutter Shearman & Sterling LLP Gervinusstrasse 17 60322 Frankfurt am Main Germany	Gabriel Hake M. Seligman & Co. Levinstein Tower 23 Menachem Begin Rd. Tel Aviv 66184, Israel	Menahem Gurman Haim Samet, Steinmetz, Haring & Co. Levinstein Tower 23 Menachem Begin Rd. Tel Aviv 66184, Israel	Thomas Thesing Sidley Austin Brown & Wood LLP Woolgate Exchange 25 Basinghall Street London EC2V 5HA, England

        Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.

        If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, check the following box.    o

        If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

        If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

        If this Form is a post-effective amendment filed pursuant to Rule 462 (d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earliest effective registration statement for the same offering.    o

        If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box.    o

CALCULATION OF REGISTRATION FEE

Title of each class of securities to be registered	Amount to be registered(1)	Proposed maximum offering price per security(2)	Proposed maximum aggregate offering price(2)	Amount of registration fee
Common shares of Shamir, with a nominal value of NIS 0.01 each	4,600,000	$15.00	$69,000,000	$8,121.30

(1)

Includes shares that may be purchased pursuant to the underwriters' over-allotment option.

(2)

Estimated pursuant to Rule 457 solely for the purposes of computing the registration fee.

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

SUBJECT TO COMPLETION, DATED FEBRUARY 11, 2005

The information contained in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission becomes effective. This prospectus is not an offer to sell these securities, and we are not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

PROSPECTUS

4,000,000 Common Shares

        This is the initial public offering of common shares of Shamir Optical Industry Ltd., an Israeli limited liability company. The common shares are the ordinary shares of Shamir Optical Industry Ltd., with a par value of NIS 0.01. We are selling 3,400,000 common shares and the selling shareholders are selling 600,000 common shares. We will not receive any of the proceeds from the sale of shares by the selling shareholders.

        We expect that the initial public offering price will be between $13.00 and $15.00 per common share. The market price of the shares after this offering may be higher or lower than this offering price. Prior to this offering, there has been no public market for our shares. We have applied to have our shares approved for listing on the Nasdaq National Market under the symbol "SHMR."

Investing in our shares involves risks. See "Risk Factors" beginning on page 7 of this prospectus about factors you should consider before buying our shares.

Neither the Securities and Exchange Commission nor any State securities commission or other regulatory body has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.

	Per share	Total
Public offering price	$	$
Underwriting discount	$	$
Proceeds, before expenses, to us	$	$
Proceeds to selling shareholders	$	$

        The selling shareholders have granted to the underwriters the option to purchase up to an additional 600,000 shares at the public offering price, less the underwriting discount, within 30 days from the date of this prospectus to cover over-allotments. We will not receive any of the proceeds from the sale of shares by the selling shareholders.

        The underwriters expect to deliver the shares on or about                        , 2005.

William Blair & Company	CIBC World Markets
C.E. Unterberg, Towbin

The date of this prospectus is                        , 2005

TABLE OF CONTENTS

        In this prospectus, unless otherwise provided, references to "Shamir," "we," "us" and "our" refer to Shamir Optical Industry Ltd. (or its predecessor or successor entities) and its subsidiaries, and references to our company refer to Shamir Optical Industry Ltd. (or its predecessor or successor entities) without its consolidated subsidiaries. The terms "euro," "EUR" or "€" refer to the common currency of twelve member states of the European Union, "NIS" refers to New Israeli shekel, and "dollar," "USD" or "$" refers to U.S. dollars.

        We own rights in the following trademarks in various jurisdictions world-wide: Shamir Genesis™, Genesis™, Shamir Piccolo™, Piccolo™, Shamir Office™, Shamir Creation™, Shamir Autograph™, Autograph™, Prescriptor™, Eye Point Technology™ and the Shamir™ name and logo. Our main trademarks are registered or are in the process of being registered in the United States, the European Union, Canada and additional countries in which we operate. All other trademarks or tradenames referred to in this prospectus are the property of their respective owners.

        Our reporting currency is the U.S. dollar. We generate revenues and incur expenses principally in dollars, euros and NIS. See also "Management's Discussion and Analysis of Financial Condition and Results of Operations—Functional Currency and Exchange Rate Fluctuations."

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        The following table sets out the average exchange rates for these currencies per $1.00 for the past five fiscal years and for the first nine months of 2003 and 2004, based on the exchange rates published by the Bank of Israel:

Currency	1999	2000	2001	2002	2003	First nine months 2003	First nine months 2004
EUR	1.064	1.082	1.122	1.025	0.860	0.883	0.816
NIS	4.140	4.077	4.206	4.738	4.548	4.480	4.509

        On February 1, 2005 the exchange rate was NIS 4.383 per $1.00 and € 0.767 per $1.00, as reported by the Bank of Israel.

        This prospectus contains information, statistical data and predictions about our industry and the size of our markets. We operate in an industry in which it is difficult to obtain precise industry and market information. We are not aware of any exhaustive industry and market reports from public sources or industry umbrella organizations. The data contained in the section "Business—Industry Overview" and certain other market data in this prospectus is derived from an industry study that we commissioned from Strategy With Vision Ltd. ("SWV"), a U.K. consulting firm to the eyewear and eye care industries. In compiling the data for this study, SWV relied on published figures and on data it compiled from various participants in the industry. To calculate market size and value, SWV used estimates from companies that are active in the relevant markets, net selling prices of lens manufacturers and its own estimates of optical retail mark-ups. We believe that the industry and market information contained in the prospectus provides fair and accurate estimates of the size of our markets.

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SUMMARY

This summary highlights certain important information contained elsewhere in this prospectus. It may not contain all the information that may be important to you. In addition to this summary, we urge you to read the entire prospectus carefully, including the section entitled "Risk Factors" and the financial statements and related notes included elsewhere in this prospectus, before making an investment decision.

Overview

        We are a leading provider of innovative products and technology to the progressive spectacle lens market. Utilizing our proprietary technology, we develop, design, manufacture and market progressive lenses that we sell to the ophthalmic market. In addition, we utilize our capability to provide design services to optical lens manufacturers under service and royalty agreements. Progressive lenses are used to treat presbyopia, a vision condition where the eye loses its ability to focus on close objects and which affects almost everyone over the age of 45. Progressive lenses combine several optical strengths in a single lens to provide a gradual and seamless transition from near to intermediate to distant vision.

        We differentiate our products from those of our competitors primarily through lens design. Our leading lenses are marketed under a variety of trade names, including Shamir Genesis, Shamir Piccolo, Shamir Office and Shamir Autograph. We believe that we have one of the world's preeminent research and development teams for progressive lenses, molds and complementary technologies and tools.

        We have developed software dedicated to the design of progressive lenses. This software is based on our proprietary mathematical algorithms that optimize designs of progressive lenses for a variety of activities and environments. We have also created software tools specifically designed for our research and development and production requirements, including our Eye Point Technology software that simulates human vision.

        The global market for progressive spectacle lenses was estimated to be approximately $12.1 billion in 2003 and is estimated to grow at a compound annual growth rate of 6.3% to $18.6 billion in 2010. We believe that this growth will be driven by increased awareness of the advantages of progressive lenses; a shift from bifocal to progressive lenses; favorable demographic trends; advancements in lens technologies; fashion trends; and the maturing of new markets.

Competitive Strengths

        We believe that we have a number of competitive strengths that will allow us to capitalize on the current trends in our industry, including:

        Research and Development Expertise.    We believe that we are a technological leader in the progressive spectacle lens market and that we possess expertise in developing a variety of new progressive lens designs and production techniques. Our proprietary Eye Point Technology enables us to calculate the optical performance of lenses and to minimize distortions inherent in the design of progressive lenses.

        Leading Products for the Progressive Lens Market.    We were among the first companies in the world engaged in the design, development and marketing of progressive lenses, and we have focused exclusively on progressive lenses since 1995. Our concentration on progressive lenses has enabled us to develop lens designs and technologies to produce lenses that are considered among the best-performing lenses in the industry.

        Strong Distribution Channels.    We have created two separate distribution strategies for our two principal markets—the United States and Europe—that are specifically tailored to each market. These strategies have enabled us to successfully penetrate each of these markets and generate sales of $36.5 million in Europe and $19.8 million in the United States in 2003.

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        Ability to Leverage Resources.    We apply our research and development expertise and resources to making our own lenses and to providing design services to third party lens manufacturers. In addition to generating direct payments and royalties from these services, we are able to leverage our proprietary intellectual property across a broad spectrum of customers in our established markets.

        Strong Ownership, Dedicated Workforce and Experienced Management Team.    Kibbutz Shamir, our largest shareholder, has been successful in developing and encouraging a creative and dedicated managerial and entrepreneurial team to manage the businesses owned by Kibbutz Shamir. The seven members of our executive management, including at certain subsidiaries, have a cumulative 125 years experience in the ophthalmic industry.

Growth Strategy

        Maintain Technological Leadership.    We plan to further strengthen our research and development efforts to continue to develop innovative optical design tools that will be used to design new optical products. It is further our intention to maintain our position among the leading designers and developers of new innovative products, which we will utilize for our own production and distribution and sell to third parties.

        Capitalize on Positive Demographic Trends and Increase Penetration.    Given our strategic focus on progressive lenses, we believe that we are well positioned to benefit from the aging of the population and increased penetration of progressive lenses. In addition, the multifocal lens market continues to experience a positive transition to progressive lenses as a superior alternative to bifocal lenses.

        Increase Share in Key Markets.    The United States and Europe are currently the largest and fastest growing markets for progressive lenses among developed countries. We plan to expand our sales in Europe by acquiring additional optical laboratories and implementing new sales and marketing programs. We plan to significantly increase our presence in the United States by expanding our sales force and increasing our marketing programs.

        Expand into New Geographic Markets.    Given the population demographics of China, India and Eastern Europe and the low current penetration in these areas, we believe these markets provide significant growth opportunities for our products. In these markets, we have established relationships with optical laboratories and distributors with whom we intend to develop exclusive distribution agreements.

        Implement New Approach for Designing and Manufacturing Personal Lenses.    We have developed an advanced surfacing technology for creating premium lenses customized for the unique needs of each patient. We believe that this free form production method will redefine the traditional ophthalmic business model on an industry-wide basis by enabling optical laboratories to produce personalized lenses at their facilities.

        Focus on Value-Added Materials.    Our lenses are available in a variety of materials, including standard plastics and high refraction index plastics, which allow for thinner lenses. We plan to continue to increase our offerings of lenses made from these materials, which we believe represent the fastest growing segment for progressive lenses and provide enhanced profit margins.

Recent Developments

        Subsequent to our reported results for the nine-month period ended September 30, 2004, we estimate that our consolidated revenues were approximately $19.8 million (unaudited) for the fourth quarter of 2004, which represents an increase of 13.6% compared to the fourth quarter of 2003. For the fiscal year 2004, we estimate that our aggregate consolidated revenues were approximately $71.2 million (unaudited), which represents an increase of 18.6% compared to 2003.

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Risk Factors

        An investment in our shares involves a significant degree of risk, which we describe in more detail in the section entitled "Risk Factors." These risks include:

•

the intense competition in our industry and the fact that many of our competitors have significantly greater financial and human resources than we do;



•

our reliance on optical laboratories in various geographic locations to purchase, market and sell our products;



•

general business risks associated with operating in Israel and other countries outside the United States;



•

the rapid technological change in our industry and the risk that our business will suffer if we are unable to enhance our existing products, develop new products and compete with alternative technologies;



•

the fact that our company is controlled by a majority shareholder, Kibbutz Shamir, whose interests may conflict with yours;



•

the fact that five members of our board of directors or executive management are members of the management board of Kibbutz Shamir, and that they may have conflicts of interest with respect to matters involving us and Kibbutz Shamir;



•

the fact that there has been no prior trading market for our shares and that you may not be able to sell your shares at or above the public offering price for this offering; and



•

the other risk factors referenced in this prospectus.

        We urge you to carefully consider all of the information described in the section entitled "Risk Factors," beginning on page 7.

Company Information

        Our principal executive offices are located at Kibbutz Shamir, Upper Galilee, 12135 Israel, and our telephone number is (+972) 4 694 7810. The address of our website is www.shamir.co.il. The information on our website is not incorporated by reference into this prospectus.

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This Offering

Common shares offered by us	3,400,000 shares
Common shares offered by the selling shareholders	600,000 shares
Common shares outstanding after this offering	16,111,332 shares
Use of proceeds	We expect to receive approximately $42.1 million in net proceeds from this offering based on an assumed initial public offering price of $14.00 per share and after deducting underwriting commissions and estimated expenses. We intend to use these proceeds for:
	•	the expansion of our marketing and distribution network in the United States;
	•	acquisitions or strategic investments in laboratories in Europe or other complementary businesses, technologies or products;
	•	the expansion of our research and development team and facilities;
	•	the construction of new production facilities in Shamir, Israel;
	•	the expansion of our marketing and distribution network in China and other parts of the world;
	•	the payment of our dividend payable;
	•	the repayment of outstanding indebtedness; and
	•	general corporate purposes.
	For further details, see the section entitled "Use of Proceeds."
Nasdaq National Market symbol	SHMR

        Unless otherwise indicated, all share and per share data in this prospectus assumes a 120.48-for-one conversion of interests in Shamir Optical Industries & Development Ltd. into our common shares prior to this offering. See "Reorganization."

        Unless otherwise indicated, the number of shares outstanding assumes no exercise of the over-allotment option granted to the underwriters and excludes:

•

1,298,892 common shares issuable upon the exercise of options to purchase our common shares granted by us with exercise prices ranging from less than $0.01 to $12.74 per share and a weighted average exercise price of $8.64 per share; and



•

127,399 common shares available for issuance under our board's resolution regarding stock options of August 24, 2004.

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Summary Consolidated Financial Data

        You should read the following summary consolidated financial data in conjunction with the section of this prospectus entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and the notes thereto included elsewhere in this prospectus.

        We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States (U.S. GAAP). The following data have been derived from our audited consolidated financial statements as of and for the five years ended December 31, 1999, 2000, 2001, 2002 and 2003, and as of and for the nine-month period ended September 30, 2004, which have been audited by Kost, Forer, Gabay & Kasierer, an independent registered public accounting firm and a member firm of Ernst & Young Global, and our unaudited consolidated interim financial statements as of and for the nine-month period ended September 30, 2003. Our audited consolidated balance sheets as of December 31, 2002 and 2003 and September 30, 2004 and the related audited consolidated statements of income and of cash flows for each of the three years in the period ended December 31, 2003 and the nine months ended September 30, 2004, and our unaudited condensed consolidated interim financial statements as of and for the nine-month period ended September 30, 2003, together with the notes thereto, appear elsewhere in this prospectus. Results for interim periods are not necessarily indicative of the results expected for the entire year.

		Year Ended December 31,															Nine Months Ended September 30,
		1999			2000			2001			2002			2003			2003			2004
																	(unaudited)
(Amounts in thousands, except per share data)
STATEMENT OF OPERATIONS DATA:
Revenues, net		$	13,413		$	15,807		$	29,386		$	48,738		$	60,079		$	42,644		$	51,437
Cost of revenues			5,190			5,646			14,724			24,318			29,955			21,712			24,759
Gross profit			8,223			10,161			14,662			24,420			30,124			20,932			26,678
Operating expenses:
	Research and development costs		918			1,551			1,488			1,594			1,988			1,374			1,461
	Selling and marketing expenses		1,911			2,256			4,411			10,659			13,756			9,411			12,876
	General and administrative expenses		1,292			1,785			2,656			2,756			3,564			2,486			3,060
	Stock-based compensation expenses(1)		—			—			173			—			1,809			1,809			23
Total operating expenses			4,121			5,592			8,728			15,009			21,117			15,080			17,420
Operating income			4,102			4,569			5,934			9,411			9,007			5,852			9,258
Financial and other expenses, net			73			250			395			1,600			1,064			883			643
Income before taxes on income			4,029			4,319			5,539			7,811			7,943			4,969			8,615
Taxes on income			52			17			77			979			1,095			583			1,391
Income after taxes on income			3,977			4,302			5,462			6,832			6,848			4,386			7,224
Equity in losses of affiliates, net			314			87			377			367			47			31			43
Minority interest in losses (earnings) of subsidiary			9			20			62			(244	)		(1,564	)		(1,081	)		(795	)
Net income		$	3,672		$	4,235		$	5,147		$	6,221		$	5,237		$	3,274		$	6,386
Pro forma additional taxes on income (unaudited)(2)			(632	)		(717	)		(631	)		(1,075	)		(1,187	)		(882	)		(1,218	)
Pro forma net income		$	3,040		$	3,518		$	4,516		$	5,146		$	4,050		$	2,392		$	5,168

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Net earnings per share:
	Basic	$	0.36	$	0.41	$	0.44	$	0.52	$	0.43	$	0.27	$	0.51
	Diluted		0.32		0.36		0.43		0.52		0.43		0.27		0.49
Pro forma earnings per share (unaudited):
	Basic	$	0.30	$	0.34	$	0.39	$	0.43	$	0.33	$	0.19	$	0.40
	Diluted		0.26		0.30		0.38		0.43		0.32		0.19		0.39
Weighted average number of shares:
	Basic		10,241		10,241		11,602		12,048		12,048		12,048		12,598
	Diluted		11,615		11,634		11,946		12,048		12,133		12,048		12,935
Weighted average shares used for pro forma:
	Basic		10,241		10,241		11,602		12,048		12,419		12,419		12,970
	Diluted		11,615		11,634		11,946		12,048		12,505		12,419		13,306

	As of September 30, 2004
	Actual		As Adjusted(3)
(Dollars in thousands)
FINANCIAL POSITION DATA:
Cash and cash equivalents	$	8,614	$	38,134
Working capital		7,527		49,647
Total assets		64,566		94,086
Total liabilities		43,494		30,894
Temporary equity(4)		3,000		—
Total debt		19,564		16,164	(5)
Total shareholders' equity		11,747		56,867

(1)

Stock-based compensation expenses include the following:

	Year Ended December 31,										Nine Months Ended September 30,
	1999		2000		2001		2002		2003		2003		2004
											(unaudited)
Research and development costs	$	—	$	—	$	—	$	—	$	1,809	$	1,809	$	—
Selling and marketing expenses		—		—		173		—		—		—		4
General and administrative expenses		—		—		—		—		—		—		19
Total	$	—	$	—	$	173	$	—	$	1,809	$	1,809	$	23

(2)

The pro forma adjustments give effect to our reorganization into an Israeli limited liability company (see "Reorganization"), pursuant to which 105,506 shares in the original agricultural co-operative society were exchanged into 12,711,332 common shares of Shamir Optical Industry Ltd. As the A.C.S. was a pass-through tax entity, the tax liability was not charged to our company but to the owners, pro rata to their holding in the A.C.S. For comparison purposes, we have included in our financial statements and in the selected consolidated financial data in this prospectus our pro forma net income, which reflects the additional income taxes we would have paid during the historical periods presented, assuming we had been a limited liability company during that time.

(3)

As adjusted to give effect to the conversion of $3.0 million of temporary equity into equity, estimated net proceeds of $42.1 million from the sale of 3,400,000 of our common shares by us at an assumed initial public offering price of $14.00 per share, the repayment of $3.4 million of corporate debt and the payment in full of $9.2 million of a short-term, non-interest-bearing liability related to the dividend we declared in August 2004 (of which $4.0 million has been paid as of December 31, 2004). The interest expenses associated with the corporate debt of $3.4 million amounted to $0.1 million in 2003 and $0.1 million for the nine-month-period ended September 30, 2004.

(4)

Represents shares of the company owned by Kibbutz Eyal for which Kibbutz Eyal has a right to put the shares to us. This put option expires upon the reorganization of our company from an A.C.S. into a limited liability company.

(5)

Consists entirely of debt at non-wholly-owned subsidiaries.

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RISK FACTORS

Any investment in our shares involves a high degree of risk. You should consider carefully the specific risk factors described below in addition to the other information contained in this prospectus before making a decision to invest in our shares. If any of these risks actually occur, the trading price of our shares could decline and you may lose part or all of your investment.

Risks Relating to Our Business and the Ophthalmic Industry

The industry in which we operate is highly competitive, and these competitive pressures may harm demand for our products.

        Competition in our industry is intense, and we expect competition to increase. New products are introduced frequently, and we compete primarily on the basis of innovation, quality and breadth of product offerings, customer service and price.

        Many of our main competitors are significantly larger than we are and have significantly greater financial and human resources than we do. They also have greater technical, product development and marketing resources and are more established and enjoy greater market recognition than we do. As a result, these competitors benefit from greater economies of scale and may be able to develop products or services that are more effective than ours and to respond more quickly to new or emerging technologies or changes in customer requirements. They compete with us in some cases by offering lower prices or devoting greater resources to product marketing than we do. Price competition in our industry is often severe and may result in lower prices or reduced demand for our products and a corresponding reduction in our gross margins, which would, in turn, impair our ability to maintain profitability.

        Certain of our competitors also have more developed and substantial direct customer bases than we have and may be able to fund significant direct sale efforts as well as more product development and acquisition efforts. A number of our principal competitors are vertically integrated with optical laboratories to a greater extent than we are. This integration may limit the number of independent optical laboratories to which we can market our products and may limit the amount of purchases of our products by these laboratories. In addition, within a particular market, certain of our competitors may enjoy a "home-country" advantage over foreign competition, and we may also face additional competition if new participants enter the markets in which we operate. The development and successful introduction by a competitor of products or services that are superior in performance to or lower in price than ours could adversely affect our ability to effectively compete in the marketplace for optical lenses.

We rely on optical laboratories in various geographic markets to purchase, market and sell our products worldwide. If we are unable to maintain or expand our relationships with these laboratories, it could have a material adverse effect on the sales and distribution of our products.

        We rely on optical laboratories in the different geographic markets in which we operate to purchase our products from us or to distribute our products to the end-user on our behalf. The number, size, business strategy and operations of these laboratories vary widely from market to market. The success of our sales and distribution channels depends heavily on our successful cooperation with these laboratories in each of our various markets.

        The U.S. ophthalmic market is characterized by a large number of laboratories, many of which are independent, as well as large national retail chains and buying groups, some of which own their own laboratories. We currently distribute our products directly to independent laboratories in the United States; we have not yet established a relationship with any national retail chain or buying group. If a large number of the independent laboratories in the United States cease to be independent—either

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because they are acquired by competitors or national retail chains or for any other reason—we may not be able to sell our products to these laboratories. In addition, if we do not develop relationships with national retail chains or buying groups, our sales in the United States could decline, as these national chains or buying groups may purchase products from other companies, including our key competitors. Each of these factors could have a significant adverse impact on our sales and our results of operations.

        The European ophthalmic market, relative to the U.S. market, has a small number of optical laboratories, of which only a few are still unaffiliated with lens manufacturers or retail chains. Most of the major optical laboratories in Europe are owned by our competitors. Although we also sell our products in Europe through laboratories owned by our competitors, there is a risk that we may lose some of our existing customers and that our sales to European laboratories will significantly decrease if (i) we are unsuccessful in purchasing any of the remaining independent laboratories, (ii) there is further consolidation among laboratories in Europe, or (iii) laboratories owned by our competitors cease to purchase our products.

A significant portion of our business is conducted outside of Israel and the United States, and we intend to continue to expand our operations internationally. As a result, we are subject to a number of risks associated with our foreign operations.

        We derive substantially all of our revenues from sales outside of Israel and a significant majority from sales outside of Israel and the United States. During 2003 we generated approximately 66% of our revenues from sales outside of Israel and the United States, including 61% in Europe. We also sell our products in Australia, Canada, South Africa, South America, and China and other countries in East and South-East Asia. An integral part of our expansion strategy is to enter new foreign markets, principally in China and other Asian countries, and to further penetrate those foreign markets in which we are currently active. Our ability to penetrate certain international markets may be limited, and our international sales and operations and our expansion strategy are subject to numerous risks inherent in international business activities, including:

•

developments in the political and economic environment of some foreign countries, primarily in Asia and South America, that have an adverse effect on our operations in those countries, including the fact that customers in some jurisdictions may not do business with an Israeli company;



•

the imposition of tariffs or exchange controls, technology export license requirements or other trade restrictions;



•

difficulty in managing a large organization spread through various countries, including staffing and managing foreign operations;



•

difficulty enforcing agreements and collecting receivables through certain foreign legal systems, in particular in developing markets in Asia and South America;



•

longer payment cycles for foreign customers than for customers in the United States;



•

currency exchange risks, in particular between the dollar and the NIS and the dollar and the euro;



•

difficulties in complying with a variety of foreign laws and regulations;



•

tax rates in certain foreign countries that exceed those in Israel, and withholding requirements on foreign earnings;



•

greater difficulty in safeguarding intellectual property in certain jurisdictions, in particular in China and other Asian countries; and



•

difficulties in adapting our products to different country-specific requirements.

8

        These and other factors could have a material adverse effect on our international operations or our business as a whole. As we continue to expand our business globally, our success will increasingly depend on our ability to effectively manage these risks.

If we do not continually enhance our existing products and develop and market new products, our product portfolio may become obsolete and we may not achieve broad market acceptance and brand recognition.

        The market for spectacle lenses and lens designs is characterized by:

•

rapid technological change;



•

short product life cycles and frequent product introductions and enhancements;



•

evolving industry performance standards; and



•

changes in customer and end-user requirements.

        Any one of these factors could reduce the demand for our products or require us to expend substantial resources for research, design and development of new products and technologies to avoid technological or market obsolescence. Our success will depend on our ability to continually enhance our existing products and develop or acquire and market new products in an effort to maintain and increase sales and to improve our gross margins. We cannot assure you that we will have sufficient financial resources or otherwise be able to develop the technological advances necessary for us to remain competitive or that any new products that we develop will be accepted in the marketplace, either at all or on a timely basis or at competitive prices. Any delay or failure by us to respond to these market conditions or to technological advances by our competitors would have a material adverse effect on our business, operating results and financial condition.

We compete against alternative technologies and treatments that provide a substitute for spectacle lenses.

        Spectacle lenses compete with other methods of vision correction, including laser surgery and contact lenses. Some of these technologies currently offer limited competition to our progressive lens products, our most significant products in terms of sales. See "Business—Industry Overview—Lenses and Alternatives." As alternative technologies evolve in the future, they may decrease demand for spectacle lenses and progressive lenses, which would have a material adverse effect on our sales and results of operations.

We depend on our manufacturing facilities in Israel. An interruption of manufacturing at these facilities for any reason could have a material adverse effect on our results of operations.

        A significant portion of the development and manufacturing of our products is concentrated at our two manufacturing facilities in Israel. Component and finished product inventories are also stored at these facilities. Although these facilities are in two separate locations, a disruption of our operations at or damage to either of these facilities, whether as a result of fire, natural disaster, act of war, terrorist attack or otherwise, could materially affect our ability to deliver products on a timely basis and could materially adversely affect our results of operations. While we have not experienced any such disruption or damage in the past, we cannot assure you that such disruption or damage will not occur in the future. We have insured the portion of our product inventories stored in these two facilities against loss from any such disruption or damage. See also "Risks Relating to our Operations in Israel."

Our proprietary technology is difficult to protect. Unauthorized use of our proprietary technology by third parties may impair our ability to compete effectively.

        Our success and ability to compete within the ophthalmic industry depend in large part on our ability to protect our proprietary technology. To do so, we currently rely on a combination of patent

9

protection for our technologies and products, trade secret and intellectual property laws, nondisclosure and other contractual agreements, and other technical measures to protect our proprietary rights and maintain the confidentiality of key business and manufacturing processes. We seek to defend and enforce our rights against infringement and to operate without infringing the proprietary rights of others.

        The validity and breadth of claims in patent applications for ophthalmic technology or processes involve complex legal and factual questions and may therefore be highly uncertain. We cannot assure you that:

•

patent authorities will not grant patents based on applications our competitors have filed or may file;



•

the scope of any patent protection we receive will exclude competitors or provide us with competitive advantages;



•

any of the patents that have been or may be issued to us will be held valid if subsequently challenged; or



•

others will not claim rights in or ownership of the patents and other proprietary rights that we hold.

        Furthermore, we cannot assure you that others have not developed or will not develop similar products or technologies, duplicate any of our products or technologies, or design around any patents that have been or may be issued to us. In many countries patent applications remain confidential until the issuance of a patent. We cannot be certain, therefore, that others have not filed earlier applications for inventions covered by our pending patent applications, nor can we be certain that we will not infringe any patents that may be issued to others on such applications.

        Certain of our employees and consultants are subject to confidentiality undertakings in favor of the company, and we also seek these undertakings from some suppliers and customers. However, not all of our employees or suppliers and customers are subject to these undertakings, and even where they are, these measures may not be sufficient to protect our technology from third-party infringement or misappropriation. There can be no assurance that our counterparties will not breach these agreements, and we may not have adequate remedies for any breach. In addition, our competitors may learn of our trade secrets through other methods. Intellectual property law protection may be insufficient to safeguard our proprietary information, and our products may be sold in countries that provide less protection to intellectual property than the United States, Europe or Israel, or no protection at all. These countries include, in particular, China, Thailand, Singapore and other Asian countries in which we do or intend to do business. If any third parties infringe our proprietary technology rights, this infringement could have a material adverse effect on our competitive position.

Our business may suffer if we are involved in disputes or protracted negotiations regarding our intellectual property rights or the intellectual property rights of third parties.

        We are subject to the risk of adverse claims and litigation alleging infringement by us on the intellectual property rights of others. There is an increasing number of patents and patent applications in our industry. Third parties may assert infringement claims in the future, alleging infringement by our current or future products or applications. For example, we have been notified by two companies that they believe that certain of our products infringe patents claimed by those companies. See "Business—Legal Proceedings."

        We may institute or otherwise be involved in litigation to protect our registered patents and/or trade secrets or know-how, challenge the validity of proprietary rights of others or defend against alleged infringement by us of proprietary rights of others. This type of litigation is costly and diverts

10

management's attention from its day-to-day responsibilities of running our business. In addition, an adverse determination in such a litigation could:

•

limit the value of our trade secrets or know how;



•

subject us to significant liabilities to third parties;



•

require us to seek licenses from third parties; or



•

prevent us from manufacturing and selling products,

any of which could have a material adverse effect on our business, financial condition and results of operations.

We are a company focused on research and development, and we cannot assure you that our research and development efforts will result in new products or product enhancements that will receive the market acceptance and demand that we expect.

        We have a strong focus on research and development (R&D), and the success of our business depends substantially on the results of our R&D activities. We conduct R&D both to enhance our existing proprietary technologies and to develop new technologies. We cannot assure you that our R&D efforts will result in product enhancements or new products, or that there will be a market for products related to or based on these new concepts. The success of our R&D efforts depends on the availability of funds as well as on the timely completion of our R&D projects. If we fail to provide the necessary funds to complete our various R&D projects or if we miss our target deadlines, we may lose a competitive advantage of being the first to market. In addition, our competitors that have greater financial resources to commit to R&D efforts may be able to "leap frog" our technological innovations with their own technological innovations and make our innovations obsolete even before we introduce them to market. In addition, some of the agreements pursuant to which we provide design services restrict our ability to offer products with certain qualities that exceed those designed for the customer who is party to the agreement, which may limit our ability to market new product developments outside of those relationships. Our investment of human and financial resources in R&D is therefore highly risky with no guarantees of any development success or investment return.

        We also provide design and manufacturing services to producers, distributors and wholesalers of lenses in accordance with specifications defined by such producers, distributors and wholesalers. Though we are usually compensated for this development work, this compensation is primarily in the form of royalties and depends on the ability of these producers, distributors and wholesalers to sell these products. Their failure to do so may adversely affect our results.

We have experienced a period of rapid growth, and if we cannot adequately manage our growth, our results of operations will suffer.

        Over the past several years, we have experienced rapid growth in our business. Our anticipated future growth may place a significant strain on our managerial, research and development, technical, administrative, operational, financial and marketing resources. We cannot assure you that we have adequately considered all costs and risks associated with our expansion, or that our systems, procedures and managerial controls will be adequate to support our expanded operations. See "—We have not yet evaluated our internal control over financial reporting in compliance with Section 404 of the Sarbanes-Oxley Act." If our systems, procedures or controls prove inadequate to support our operations, we may be unable to achieve our goals for growth. Our growth may also require us to hire additional research, engineering, technical support, sales, accounting, administrative and operational personnel and competition for qualified personnel may be intense. We anticipate incurring expenses before realizing a commensurate increase in sales. Failure to manage our future growth effectively

11

could result in higher-than-anticipated costs and lower-than-anticipated sales and could have a material adverse effect on our operating results and financial condition.

We intend to continue our policy of acquisitions. These acquisitions could divert our resources, create unanticipated expenses, disrupt our business and adversely affect our financial condition.

        Part of our expansion strategy is to pursue acquisitions of other businesses, in particular laboratories, establish joint ventures and acquire complementary businesses or technologies. Negotiating potential acquisitions or joint ventures as well as integrating newly acquired or jointly developed businesses, products or technologies into our operations could divert our management's attention from other business matters and could be expensive and time-consuming. We cannot assure you that we will be successful in integrating acquired businesses, laboratories, technologies or joint ventures or that we will be able to realize the intended sales and cost benefits of the acquisition or joint venture.

        In addition, future acquisitions could require substantial cash expenditures and could result in customer or distributor dissatisfaction, including with respect to independent laboratories that may view our ownership of laboratories in their respective jurisdictions as competitive. We may also experience performance problems with an acquired company, suffer a decrease in our profit margins or incur debt and contingent liabilities from the acquired businesses. In addition, we may issue equity securities in the context of an acquisition that could cause dilution to our existing shareholders at the time, and we may incur impairment charges related to goodwill and amortization of intangibles (such as intellectual property). Likewise, we may write off in-process research and development that we no longer wish to continue to fund. Any of these factors could harm our business, financial condition and results of operations.

We depend on third parties and non-wholly-owned subsidiaries for various parts of our business operations, including research and development and sales. If our relationships with these third parties end or deteriorate, it would have a material adverse effect on our business and results of operations.

        We rely on third parties for certain aspects of our research and development activities and on non-wholly-owned subsidiaries for certain parts of our foreign operations. We are also currently making efforts to position ourselves with national retail chains, optical retail stores and national retail buying groups who, we believe, will make up a growing part of the distribution of spectacle lenses.

        We have minority partners in some of our foreign subsidiaries that contribute significantly to our sales and profitability. These minority partners may object to our management of the subsidiaries, and their consent is required for certain matters regarding their operations, including resolutions that contradict specific existing agreements, issuances of shares, and transactions with related parties (including us) or other transactions outside the ordinary course of business. Dividends and other payments to us from subsidiaries in certain jurisdictions are subject to legal restrictions and may have adverse tax consequences to us. In addition, these payments or loans are contingent on the results of operations of the particular subsidiaries and are subject to various business considerations.

        We have an exclusive arrangement with Altra, a distributor in Europe of which we own 51%, and with Shamir Insight Inc., a distributor in the United States of which we own 57%. Sales in Europe through Altra and in the United States through Shamir Insight accounted for approximately 71% of our total sales in 2003. Should these distributors not perform to our expectations or should other distributors provide vendors or end-users with better incentives than Altra or Shamir Insight, our sales will suffer, which will have a direct and adverse impact on our financial condition and results of operations.

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We are dependent on a small number of suppliers for raw materials.

        Most of the raw materials used in the manufacture of lenses, including our products, are available from a limited number of suppliers. There are currently less than five suitable suppliers of blanks for glass lenses and a similar number of suitable suppliers of monomers for plastic lenses. We purchase our raw materials from some of these suppliers. The loss of any one of these suppliers, or a significant decrease in the supply of glass blanks or monomers, would require us to obtain these raw materials elsewhere. In addition, because the raw materials market is dominated by a small number of suppliers, there is the risk of a price cartel or monopoly. Because these few suppliers offer their supplies for comparable prices, the only way to achieve cost savings in supplies may be to purchase supplies in bulk. Our larger competitors may be able to purchase more supplies at any given time than we are and may therefore achieve lower prices for their supplies than we do. See "—The industry in which we operate is highly competitive, and these competitive pressures may harm demand for our products." If we are unable to obtain glass blanks or monomers from our suppliers (or alternative suppliers) at acceptable prices, we may realize lower margins and experience difficulty in meeting our customers' requirements.

We may not be able to continually reduce manufacturing costs for our products.

        Prices for certain of our products come under pressure, in particular when such products become available from a comparatively large number of suppliers with little product differentiation. To maintain or strengthen our competitive position for these products within the ophthalmic industry, we must continually reduce our product manufacturing costs. In addition to normal cost reduction activities, we have initiated product migration and standardization activities and reduced the number of people employed to manufacture and market such products world-wide. These reductions are necessary to help offset price decreases, inflationary pressures and changes in product and regional mix. To the extent our cost reduction activities are unsuccessful, in part or in full, our ability to compete may be significantly impacted and our profit margin may be reduced.

Our operating results may fluctuate on a periodic basis, which could cause us to fail to meet expectations for a given period and result in a decline in the trading price of our shares.

        Our results of operations may fluctuate significantly in the future on a quarterly and an annual basis due to a number of factors, many of which are beyond our control. These factors include:

•

variations in the timing of orders and shipments of our products and services;



•

variations in the demand from and the size of orders by our customers;



•

the timing and success of new product or technology introductions by us or our competitors;



•

the pricing and profitability of our products or the timing of aggressive low-pricing policies by our competitors;



•

changes in the availability or cost of raw materials;



•

seasonal variations in customer spending in Europe and the United States;



•

the timing of technological innovations for our products or those of our competitors;



•

our ability to bring new products into volume production efficiently;



•

shifts in market and industry emphasis and end-user demands; and



•

market conditions in the ophthalmic industry and in the economy as a whole.

        These factors complicate our planning processes and reduce the predictability of our earnings. This problem is particularly acute for us because of our relatively small size and the dynamics of the industry and markets in which we operate. Fluctuations in our quarterly results could cause us to fail to

13

meet expectations (either our own or those of securities analysts) for the relevant period and could cause the trading price of our shares to decline. Therefore, period-to-period comparisons of our results of operations may not be meaningful, and you should not rely on them as indications of our future performance.

We depend on a limited number of key personnel. If we lose the services of these individuals, our business may be adversely affected.

        Our continued growth and success depend to a large extent on the services of, among others, certain of our senior personnel, in particular our Chief Executive Officer, Giora Ben-Zeev, and our Chief Engineer, Dan Katzman. We also depend to some extent on certain of our sales staff, as well as on researchers with whom we have consulting arrangements. If any of these key personnel should leave our employ or if these consultants should terminate their relationship with us, we may be unable to locate and recruit sufficient replacement personnel without undue delay or additional cost or at all. Any such delay or inability could delay or terminate some or all of our development programs or the commercialization of our products. Even if we are able to attract suitable replacement personnel, to the extent that the process of educating new personnel in our technologies, in the needs of the ophthalmic industry and in our company culture requires a certain transition period, we may incur delays with respect to the further developments of our products. The implementation of our business strategy and our future success will also depend in large part on our continued ability to attract and retain other highly qualified scientific, technical and management personnel.

We generate a significant portion of our revenues and expenses in currencies other than the dollar. As a result, our results of operations may be adversely affected by currency fluctuations.

        We operate globally, and our financial results are subject to both transaction and translation effects resulting from fluctuations in currency exchange rates. We generate our revenues in euros and dollars, and we incur a significant portion of our expenses, principally salaries and related expenses of our staff in Israel, in NIS. In 2003 we generated approximately 39% of our revenues in dollars and 61% in euros, and we incurred approximately 23% of our expenses in NIS, 35% in dollars and 42% in euros. Exchange rate fluctuations between the dollar and the euro materially impact our revenues, cost of revenues and other operating expenses. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Functional Currency and Exchange Rate Fluctuations." We currently do not hedge our currency exposure through financial instruments.

        One currency exchange risk we face is translation risk. In preparing our consolidated financial statements, we convert the results from operations outside the dollar zone into dollars at the average rate for each fiscal quarter. As a result, a strong decline in the value of the euro compared to the dollar will have a negative impact on our sales revenues, while an increase in the value of the NIS or euro to the dollar will have a negative impact on our expenses.

        We are also exposed to transaction risk when our sales are denominated in currencies that are different from those in which we purchase components or incur production costs. If the value of the currency in which the purchase price is denominated declines relative to the currency in which we incur our costs, the profit margin for the transaction will be reduced.

We have not yet evaluated our internal control over financial reporting in compliance with Section 404 of the Sarbanes-Oxley Act.

        We are required to comply with the internal control evaluation and certification requirements of Section 404 of the Sarbanes-Oxley Act by no later than the end of our 2005 fiscal year. We have only recently begun the process of determining whether our existing internal control over financial reporting systems is compliant with Section 404. This process may take up to twelve months to complete. If it is

14

determined that we are not in compliance with Section 404, we may be required to implement new internal control procedures and reevaluate our financial reporting. We may experience higher than anticipated operating expenses as well as outside auditor fees during the implementation of these changes and thereafter. Further, we may need to hire additional qualified personnel in order for us to be compliant with Section 404. If we are unable to implement these changes effectively or efficiently, it could harm our operations, financial reporting or financial results and could result in our being unable to obtain an unqualified report on internal controls from our independent registered public accounting firm.

Risks Related to Our Relationship with Kibbutz Shamir

Kibbutz Shamir is our controlling shareholder, and its interests may conflict with yours.

        After the offering our majority shareholder, Kibbutz Shamir, will hold 61.1% of our shares, or 58.1% if the underwriters exercise their over-allotment option in full. As a result, this single shareholder will have sufficient voting power to effectively control all matters concerning our company that require shareholder approval. For example, Kibbutz Shamir may have the power to affect our legal and capital structure; to elect all of our directors; to prevent or effect changes in our control or management; to approve or reject changes to our operations or strategic direction; to amend our articles of association and change the rights attached to our shares; and to determine whether we may enter into mergers or other business combination transactions in which shareholders could receive a premium over the prevailing market price for our shares. Kibbutz Shamir has contractually agreed with another shareholder to vote for that shareholder's nominee for membership on our board. See "Principal and Selling Shareholders" and "Certain Relationships and Related Party Transactions."

        In addition, as part of a working services agreement between us and Kibbutz Shamir, we have an obligation to give Kibbutz Shamir the first opportunity to provide us with workers for any vacant position in our company specified in the agreement. Kibbutz Shamir also has a right of first refusal to provide us with certain services as part of a services agreement between us and Kibbutz Shamir. Furthermore, we have entered into a sublease agreement with Kibbutz Shamir that is subject to the terms of the long-term lease agreement between Kibbutz Shamir and the Israel Lands Administration ("ILA"). Pursuant to the sub-lease, we granted Kibbutz Shamir a right of first refusal to carry out any construction work on the property that we lease under the sublease agreement. Pursuant to the underlying long-term lease agreement with the ILA, the ILA may cancel the lease in certain circumstances, including if Kibbutz Shamir commences proceedings to disband or liquidate, or in the event that Kibbutz Shamir ceases to exist in the form of a "kibbutz," as defined in the lease. In addition, our sub-lease agreement with Kibbutz Shamir depends upon Kibbutz Shamir maintaining control of us. If Kibbutz Shamir were to cease to control us, we could be required to renegotiate our lease agreements and obtain certain approvals from the ILA. For more information with respect to these agreements, see "Principal and Selling Shareholders" and "Certain Relationships and Related Party Transactions."

        In these and other circumstances, Kibbutz Shamir's interests may conflict with yours and you may be unable to prevent Kibbutz Shamir from acting in conflict with your interests.

Our agreements with Kibbutz Shamir may be less favorable to us than if they had been negotiated with unaffiliated third parties.

        Our headquarters and certain manufacturing facilities are located on the premises of Kibbutz Shamir, which is our majority shareholder. We have entered into certain agreements with Kibbutz Shamir pursuant to which Kibbutz Shamir provides us with, among other things, office facilities, workers to fill certain positions within our company, administrative services, the operation and administration of our information systems operations, security and facilities maintenance, and other

15

services. While these agreements have been negotiated on an arms' length basis, they may contain terms that are different from the terms that would have been included had these agreements been negotiated with unaffiliated third parties. See "Certain Relationships and Related Party Transactions."

Our directors and executive officers who are members of Kibbutz Shamir may have conflicts of interest with respect to matters involving the company.

        Certain of our directors, officers and key employees are members of Kibbutz Shamir, which is our majority shareholder. Some of these individuals are also members of the management board of Kibbutz Shamir. These persons will have fiduciary duties to both us and Kibbutz Shamir. As a result, they may have real or apparent conflicts of interest on matters affecting both us and Kibbutz Shamir and in some circumstances may have interests adverse to ours. Upon completion of this offering, the acting chairman of our board of directors, our chief executive officer and two other executive officers will be members of Kibbutz Shamir and members of Kibbutz Shamir's management board. The acting chairman of our board of directors is also the chairman of the management board of Kibbutz Shamir. In addition, another member of our board of directors, who is not a member of Kibbutz Shamir, also serves on the management board of Kibbutz Shamir. See "Management."

Risks Related to the Offering and to Our Shares

There has been no prior trading market for our shares, the trading price of our shares is likely to be volatile and you may not be able to sell your shares at or above the public offering price for this offering.

        Prior to this offering there has been no public market for our shares. We cannot predict the extent to which investor interest will lead to the development of an active trading market in our common shares or whether that market will be sustained. The lack of a trading market may result in limited research coverage by securities analysts. Additionally, the trading prices of the securities of technology companies have been highly volatile. Accordingly, the trading price of our shares is likely to be subject to wide fluctuations. Factors that could affect the trading price of our shares include:

•

the gain or loss of significant orders or customers;



•

variations in our operating results;



•

announcements of technological innovations, new products or product enhancements, strategic alliances or significant agreements by us or by our competitors;



•

recruitment or departure of key personnel;



•

changes in the estimates of our operating results or changes in recommendations by any securities analysts that elect to follow our common shares; and



•

market conditions in our industry, the industries of our customers and the economy as a whole.

        If our future quarterly or annual operating results are below the expectations of securities analysts or investors, the price of our shares would likely decline. Share price fluctuations may be exaggerated if the trading volume of our shares is limited.

The price of our shares may fluctuate substantially, and your investment may decline in value.

        The initial public offering price for our common shares sold in this offering will be determined by negotiation between the representatives of the underwriters, the selling shareholders and us. This price may not reflect the market price of our shares following this offering. In addition, the market price of our shares is likely to be highly volatile and may fluctuate substantially due to many factors, including:

•

actual or anticipated fluctuations in our results of operations;

16

•

variance in our financial performance from the expectations of market analysts;



•

conditions and trends in the end markets we serve and changes in the estimates of the sizes and growth rates of these markets;



•

announcements of significant contracts by us or our competitors;



•

changes in our pricing policies or the pricing policies of our competitors;



•

loss of one or more of our significant customers;



•

changes in legislation;



•

changes in market valuation or earnings of our competitors;



•

the trading volume of our shares; and



•

general economic conditions.

        In addition, the stock market in general, and the Nasdaq National Market in particular, have experienced substantial price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of particular companies affected. These broad market and industry factors may materially harm the market price of our common shares, regardless of our 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 result in substantial costs and a diversion of management's attention and resources, which could materially harm our business, financial condition, future results and cash flow.

We may require additional capital after the offering, and this additional capital may not be available or may not be available on acceptable terms.

        We may need to raise additional funds if our estimates of revenues, working capital or capital expenditure requirements change or prove inaccurate in order for us to respond to technological changes or marketing hurdles or to take advantage of unanticipated acquisition opportunities. Funds may not be available at the time or times needed, or may be available only on terms unacceptable to us. If adequate funds are not available, or are not available on acceptable terms, we may not be able to take advantage of market opportunities to develop new products, make acquisitions or otherwise respond to competitive pressures. This inability could materially adversely affect our business, operating results and financial condition.

Future sales of our shares could adversely affect the market price of our shares.

        After this offering our current shareholders will hold approximately 75.2% of our outstanding shares (71.4% if the underwriters exercise their over-allotment option in full). These shareholders will not be contractually prohibited from transferring our shares following the 180-day lock-up period after this offering. The shareholders may also transfer their shares prior to the expiration of the 180-day lock-up period with the consent of William Blair & Company, L.L.C., in its sole discretion. In addition, after the expiration of the 180-day lock-up period, we could issue and sell additional shares, subject to the controlling shareholders' consent. See "Certain Relationships and Related Party Transactions." Any sale by us or our current shareholders of our shares in the public market, or the perception that sales could occur, could adversely affect the prevailing market price for our shares.

        After this offering, all of the holders of our common shares prior to the offering will have rights, subject to some limited conditions, to demand that we file a registration statement on their behalf to register their shares or that we include their shares in a registration statement that we file on our

17

behalf or on behalf of other shareholders. See "Shares Eligible for Future Sale—Registration Rights Agreement."

Provisions of our articles of association and Israeli law could inhibit the acquisition of us by others.

        Provisions in our articles of association may make it difficult and expensive for a third party to pursue a tender offer or a change in control or takeover attempt that our management and board of directors oppose. Public shareholders that might desire to participate in one of these transactions may not have an opportunity to do so. For example, our articles of association contain provisions:

•

establishing advance notice requirements for director nominations or other proposals at shareholder meetings;



•

generally requiring the affirmative vote of holders of at least 75% of the voting power of our outstanding voting shares to amend any provision in our articles of association, which could make it more difficult for a third party to remove the provisions we have included to prevent or delay a change of control; and



•

providing for staggered terms for the members of our board of directors.

        These anti-takeover provisions could substantially impede the ability of public shareholders to benefit from a change in control or to change our management and board of directors.

        Some provisions of Israeli corporate law may also have the effect of delaying, preventing or making more difficult a merger with, or acquisition of, us. In addition, Israeli tax law treats some acquisitions, such as stock-for-stock exchanges between an Israeli company and a foreign company, less favorably than U.S. tax laws. See "Description of Share Capital" and "Israeli Taxation."

We will have broad discretion in how we use the proceeds of this offering, and we may apply the proceeds to uses that will not benefit shareholders.

        We intend to use a portion of the net proceeds of this offering to expand our marketing and distribution capabilities, pursue possible acquisitions of companies, expand our research and development capabilities, pay down debt and our dividend payable, and for other general corporate purposes, including working capital needs. While we have estimated the amounts we expect to use for certain of these purposes, a significant portion of the net proceeds is not yet allocated to a specific purpose. See "Use of Proceeds." We will have approximately $17.5 million of net proceeds remaining after allocating the maximum amount of proceeds to those expected uses that we believe are capable of estimation. Our management will have significant discretion in the use of the net proceeds of this offering, particularly the unallocated funds, and you may disagree with the way these funds are utilized. We cannot assure you that these proceeds will be invested to yield a significant return, or any return at all.

Investors in this offering will immediately experience substantial dilution in net tangible book value.

        The initial public offering price of our common shares is considerably more than the net tangible book value per share of our outstanding common shares. Accordingly, investors purchasing common shares in this offering will incur immediate dilution of $10.76 per share, based on an assumed initial public offering price of $14.00 per share.

        In addition, we have issued stock options to acquire 1,298,892 shares at a weighted average exercise price of $8.64 per share. To the extent these outstanding options are exercised at a price below net tangible book value per share, there will be dilution to investors.

18

Risks Relating to Our Operations in Israel

Conducting business in Israel entails special risks.

        Our headquarters and sole research and development and manufacturing facilities are located in the State of Israel, in an area close to its border with Lebanon, and our key employees, our officers and our directors are residents of Israel. Although most of our sales are made to customers outside Israel, we are nonetheless directly influenced by the political, economic and military conditions affecting Israel. Specifically, we could be materially and adversely affected by:

•

any major hostilities involving Israel;



•

a full or partial mobilization of the reserve forces of the Israeli army;



•

the interruption or curtailment of trade between Israel and its present trading partners; or



•

a significant downturn in the economic or financial condition of Israel.

        Since the establishment of the State of Israel in 1948, a number of armed conflicts have taken place between Israel and its Arab neighbors, and a state of hostility, varying from time to time in intensity and degree, has led to security and economic problems for Israel. There is no indication as to how long the current hostilities will last or whether there will be any further escalation. Any continuation of or further escalation in these hostilities or any future armed conflict, political instability or violence in the region may have a negative effect on our business condition, harm our results of operations and adversely affect our share price. Furthermore, there are a number of countries, primarily in the Middle East, as well as Malaysia and Indonesia, that restrict business with Israel or Israeli companies, and we are precluded from marketing our products to these countries. Restrictive laws or policies directed toward Israel or Israeli businesses may have an adverse impact on our operations, our financial results or the expansion of our business. See "Conditions in Israel."

Our operations could be disrupted as a result of the obligation of our key personnel in Israel to perform military service.

        Many of our officers and employees in Israel, including certain key employees, are obligated to perform annual reserve duty in the Israeli army and are subject to being called up for reserve duty at any time. The obligation to perform compulsory military reserve service on an annual basis extends up to a maximum age of 54 for most male Israeli citizens. See "Conditions in Israel—Political Conditions." The absence of one or more of our officers and key employees for significant periods of time due to military service could be disruptive to our operations.

The Israeli government programs and tax benefits in which we have participated in the past and in which we currently participate or from which we receive benefits require us to meet several conditions. These programs or benefits may be terminated or reduced in the future, which could increase our costs.

        We benefit from certain Israeli government programs and tax benefits, particularly from tax exemptions and reductions resulting from the status of our manufacturing facilities in Israel (see "Israeli Taxation"). To be eligible for these programs and tax benefits, we must continue to meet certain conditions, including making specified investments in fixed assets and equipment and financing a percentage of those investments with our share capital. If we fail to meet such conditions in the future, these tax benefits could be cancelled or reduced, and we could be required to refund those tax benefits already received, adjusted for inflation and with interest. These programs and tax benefits may not be continued in the future at their current levels or at all, and our requests for future participation in these programs for any future expansion of our manufacturing facilities may not be approved. In recent years, the Israeli government has reduced the benefits available under these programs (among other things, by shortening the tax moratorium in certain geographic areas of the country), and Israeli

19

governmental authorities have indicated that the government may in the future reduce or eliminate the benefits of these programs. Further changes in the policy of the Israeli Government in particular, and the termination or reduction of these programs and tax benefits specifically, could increase our tax rates, thereby reducing our net profits or increasing our net losses, or otherwise materially adversely affect us.

It may be difficult to enforce a U.S. judgment against us, our officers and directors and some of the experts named in this prospectus or to assert U.S. securities law claims in Israel.

        We are incorporated in Israel. Our executive officers and directors are nonresidents of the United States, and a substantial portion of our assets and the assets of these persons is located outside the United States. Therefore, service of process upon any of our officers and directors may be difficult to effect in the United States. Furthermore, it may be difficult to enforce a judgment obtained in the United States against us or any of these persons, including one based on the civil liability provisions of the U.S. federal securities laws, in both U.S. and non-U.S. courts.

        Additionally, it may be difficult for you to assert U.S. federal securities laws claims or to enforce civil liabilities under U.S. federal securities laws in actions originally instituted in Israel. For more information regarding the enforceability of civil liabilities against us, our directors and our executive officers, please see the section entitled "Enforcement of Civil Liabilities."

20

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

        This prospectus includes forward-looking statements. Forward-looking statements may be, but are not necessarily, identified by words like "believe," "anticipate," "intend," "target," "estimate," "plan," "assume," "may," "will," "should," "could" and similar expressions. Forward-looking statements also include statements containing a projection of revenues, earnings or losses, capital expenditures, dividends, capital structure or other financial terms.

        The forward-looking statements in this prospectus are based upon our management's beliefs, assumptions and expectations of our future operations and economic performance, taking into account currently available information. These statements are not statements of historical fact. Forward-looking statements involve risks and uncertainties, some of which are not currently known to us, that may cause our actual results, performance or financial condition to be materially different from the expectations of future results, performance of financial condition we express or imply in any forward-looking statements. Some of the important factors that could cause our actual results, performance or financial condition to differ materially from expectations are:

•

the effects of competition in our industry, and changes in our relationships with optical laboratories, distributors, research and development partners and other third parties;



•

the effects of the international expansion of our operations and our ability to manage our growth, including our ability to manage potential future acquisitions;



•

our ability to timely develop and market new or enhanced products and the effects of developments in alternative technologies and treatments in our industry;



•

our ability to protect our proprietary technology and intellectual property rights;



•

our ability to capitalize on our research and development capabilities;



•

our ability to retain or recruit key personnel;



•

our relationship with Kibbutz Shamir;



•

the effects of exchange rate fluctuations;



•

the political, military and economic conditions in Israel;



•

our success at managing the risks of the foregoing; and



•

the other factors referenced in this prospectus, including, without limitation, in the sections entitled "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business."

        We undertake no obligation to update forward-looking statements or risk factors in this prospectus to reflect new information, future events or otherwise, except as may be required under applicable securities laws and regulations.

21

REORGANIZATION

        Prior to this offering we were organized as an agricultural co-operative society (A.C.S.), which is a corporate entity organized under Israeli law with shares and limited liability for its members. The principal distinction between an Israeli limited liability company and an A.C.S. is that an A.C.S. is a pass-through tax entity and all the profits and losses of the A.C.S. are attributed to its shareholders pro rata to their shareholding. Historically, the articles of association of our A.C.S. reflected the laws and regulations applicable to such an entity.

        Our A.C.S. was managed under the supervision of a management board that consisted of five members. Its share capital consisted of 105,506 issued and outstanding shares with a par value of NIS 1.00 each. The A.C.S. had eight shareholders, or "members." The following entities were the members of the A.C.S. (along with their percentage holding in the A.C.S.): Kibbutz Shamir (16.11%); Shamir Optical Industry (General Partnership) (16.11%); S.L.A.G. Shamir Plastic Non-Woven Fabrics Industries (Limited Partnership) (16.11%); Shamir Industries (Limited Partnership) (16.11%); Galil Beehive Products Kibbutz Shamir (Limited Partnership) (16.11%); FIBI Investment House Ltd. (14.22%); Kibbutz Eyal (3.95%); and Vision Capital, LLC (1.27%). Kibbutz Shamir directly or indirectly owns Shamir Optical Industry (General Partnership), S.L.A.G. Shamir Plastic Non-Woven Fabrics Industries (Limited Partnership), Shamir Industries (Limited Partnership), and Galil Beehive Products Kibbutz Shamir (Limited Partnership).

        Prior to the closing of this offering, we will change the structure of our company from an A.C.S. into an Israeli limited liability company. To do so, we are relying on a provision of the Israeli Companies Law that allows such a reorganization without having to transfer any assets, rights or liabilities into a new entity and by using the same entity of the A.C.S. in order to change its form into a limited liability company, which will not be considered as a taxable event. As part of this reorganization and in preparation for this offering, we adopted new articles of association and restructured our share capital by splitting the 105,506 existing shares so that each share with a par value of NIS 1.00 was divided into 100 common shares with a par value of NIS 0.01 each. In addition, we distributed to our shareholders out of our equity 2,160,732 new common shares with a par value of NIS 0.01 each. With this distribution, the old shares of the A.C.S. were in effect split at a ratio of 120.48-to-one, and our total issued and outstanding share capital now amounts to NIS 127,113 consisting of 12,711,332 common shares with a par value of NIS 0.01 each. We also created authorized share capital of 100,000,000 common shares with a par value of NIS 0.01 each. In addition, as part of this reorganization, the shareholdings held by the various entities listed above that are owned by Kibbutz Shamir were combined into one entity. See "Principal and Selling Shareholders."

        As part of the reorganization, we are also restructuring our board of directors, which currently consists of four directors. Within a statutory period of three months after becoming an Israeli limited liability company, we will appoint additional directors so that our board will consist of nine directors, five of whom will be independent directors for purposes of the listing standards of the Nasdaq National Market and two of whom will be external directors in accordance with Israeli law. See "Management." We also intend to establish committees of our board in accordance with the Nasdaq National Market listing standards at the same time as we appoint the additional members of our board of directors.

22

USE OF PROCEEDS

        We estimate that our net proceeds from the sale by us of our common shares will be approximately $42.1 million, based on an assumed public offering price of $14.00 per share, after deducting underwriting commissions and estimated offering expenses. We will not receive any of the proceeds from the sale of 600,000 common shares by the selling shareholders or from the sale of 600,000 additional shares by the selling shareholders if the over-allotment option is exercised in full.

        We expect to use the net proceeds from this offering as follows:

•

approximately $8.0 million to build new production facilities in Shamir, Israel, which will focus mainly on the production of sophisticated plastic lenses using high index materials;



•

approximately $4.0 to $5.0 million to expand our marketing and distribution network in the United States;



•

approximately $2.0 to $3.0 million to expand our research and development team and facilities to enable us to develop new and advanced products, technologies and materials;



•

to pay a dividend payable of $5.2 million;



•

to repay outstanding indebtedness of $3.4 million;



•

to pursue possible acquisitions or strategic investments in laboratories in Europe and other complementary businesses, technologies or products;



•

to expand our marketing and distribution network in China and other parts of the world; and



•

to fund working capital requirements and other general corporate purposes.

        As part of our growth strategy, we seek to acquire independent laboratories in Europe in order to strengthen our distribution network and to gain market share. We may also acquire or invest in other businesses to support our marketing and distribution efforts. We may pursue similar acquisitions or investments in China. We continuously seek to identify companies as potential objects of an acquisition, and we are currently investigating the possibility of acquiring one of several potential candidates for an acquisition, but we have not yet entered into any formal negotiations with any company regarding a potential acquisition.

        As of September 30, 2004, we had $3.4 million in short- and long-term debt at the parent-company level, consisting of twelve bank loans with interest rates ranging from LIBOR plus 0.6% to LIBOR plus 1.5% and maturity dates ranging from January 1, 2005 to September 1, 2008. Of this amount, $1.3 million relates to debt that we incurred in connection with our acquisition of Cambridge Optical Group Limited in September 2004. We expect to repay our corporate debt using the proceeds from this offering.

        In August 2004 we declared a dividend to our shareholders in a total amount of $9.2 million in order to take advantage of certain tax benefits for our shareholders. We paid $4.0 million of this dividend to our shareholders on December 1, 2004. The remaining $5.2 million was recorded on the liabilities side of our balance sheet following this payment as a dividend payable. This dividend payable bears no interest and will be distributed to our shareholders in equal monthly installments until December 31, 2005 using the proceeds from this offering. This distribution will be made to our existing shareholders in proportion to their current shareholdings in our company.

        The amount and timing of the expenditures listed above may vary depending upon a number of factors, including, but not limited to, the amount of cash we generate from our operations. Our plans for each of the potential uses of the proceeds from this offering are currently at an early stage. We have not yet defined the precise actions, projects or procedures that will be necessary for each potential use of these proceeds. Certain of these uses (such as for acquisitions) will involve negotiations with

23

third parties that will determine the amounts allocated to that use, and the final amounts could vary widely, depending on the results of the negotiations. As a result, we cannot currently determine with certainty the amounts of proceeds that will be allocated for each of the purposes stated above. While we have estimated the amounts we expect to use for those purposes that we believe are capable of estimation, approximately $17.5 million of the net proceeds is not yet allocated to a specific purpose. Our management will have significant discretion in the use of the net proceeds, particularly the unallocated funds, and you may disagree with the way these funds are utilized. We may find it necessary or advisable to use portions of the net proceeds for other purposes, and we may apply the balance of the net proceeds in other ways than the ones listed above. See "Risk Factors—We will have broad discretion in how we use the proceeds of this offering, and we may apply the proceeds to uses that will not benefit shareholders." Until we use the proceeds of this offering for the above purposes, we intend to invest the funds in short-term and medium-term investment-grade, interest-bearing securities. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources" for additional information regarding our sources and uses of capital.

24

DIVIDEND POLICY

        We declare dividends upon the recommendation of our board of directors. Our board of directors may elect to pay out some or all of the dividend in either stock or cash. Under the Israeli Companies Law, our ability to pay dividends is limited by certain requirements. For a description of these restrictions, see the section in this prospectus entitled "Description of Share Capital."

        We have historically paid dividends from our annual profits. We were also party to an investment agreement with one of our shareholders that required us to pay dividends. In the fiscal years 2001 through 2003, we paid dividends of $2.8 million, $4.0 million and $4.3 million, respectively, and we paid dividends of $2.6 million in the first nine months of 2004.

        In August 2004 we declared a special dividend totaling $9.2 million in order to take advantage of certain tax benefits for our shareholders. We paid $4.0 of this dividend on December 1, 2004. We expect to pay the remainder of this dividend in monthly installments until the end of 2005. We may decide not to maintain the level of dividend payments made during prior years following the completion of this offering, or not to make any dividend payments at all. Any future decisions regarding the distribution of dividends will depend on our net income, our investment policy and our dividend policy at that time.

25

CAPITALIZATION

        The table below sets forth our capitalization and outstanding debt as of September 30, 2004:

•

on an actual basis;



•

on a pro forma basis to reflect our reorganization into a limited liability company through a 120.48-for-one conversion of interests in Shamir Optical Industry & Development Ltd. into our common shares prior to this offering, the conversion of temporary equity into shareholders equity, and the capitalization of the remaining retained earnings into additional paid-in capital as a result of our reorganization; and



•

on a pro forma basis as adjusted to reflect estimated net proceeds of $42.1 million from this offering, after deducting underwriting commissions and estimated expenses, and the repayment of outstanding indebtedness at the parent company.

        This information is derived from our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. You should read this table in conjunction with the section of this prospectus entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and the related notes included elsewhere in this prospectus.

				As of September 30, 2004
				Actual			Pro Forma(1)			Pro Forma As Adjusted(2)
(Dollars in thousands)
Total debt				$	19,564		$	19,564		$	16,164	(3)
Temporary equity(4)					3,000			—			—
Shareholders' Equity:
	Share capital—
		Common shares of par value NIS 0.01:
			Authorized: 100,000,000 shares pro forma; issued and outstanding: 12,711,332 shares pro forma		—			30			38
		Shares of par value NIS 0.01:
			Authorized: 12,711,332 shares; no shares pro forma; issued and outstanding: 12,208,932 shares; no shares pro forma		29			—			—
Additional paid-in-capital					10,053			14,782			56,894
Deferred stock compensation					(903	)		(903	)		(903	)
Accumulated other comprehensive income					838			838			838
Retained earnings					1,730			—			—
Total shareholders' equity					11,747			14,747			56,867
Total capitalization				$	34,311		$	34,311		$	73,031

(1)

On a pro forma basis to reflect our reorganization into a limited liability company through a 120.48-for-one conversion of interests in Shamir Optical Industry & Development Ltd. into our common shares prior to this offering, the conversion of $3.0 million of temporary equity into shareholders equity upon the reorganization of our company, and the capitalization of the remaining retained earnings in an amount of $1.7 million into additional paid-in capital.

(2)

On a pro forma basis as adjusted to give effect to estimated net proceeds of $42.1 million from the sale of 3,400,000 of our common shares by us at an assumed initial public offering price of $14.00 per share and the repayment of $3.4 million of corporate debt.

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(3)

Consists entirely of debt at non-wholly-owned subsidiaries.

(4)

Represents shares of the company owned by Kibbutz Eyal for which Kibbutz Eyal has a right to put the shares to us. This put right expires upon the reorganization of our company from an A.C.S. into a limited liability company.

        The table above excludes 1,426,291 common shares reserved for issuance, of which 1,298,892 shares will be subject to options outstanding at the time of the offering with a weighted average exercise price of $8.64 per share.

27

DILUTION

        As of September 30, 2004 and after giving effect to our reorganization, our net tangible book value was approximately $7.1 million, or approximately $0.58 per common share. Net tangible book value per share represents the amount of our total assets less intangible assets and less our total liabilities, divided by the total number of common shares outstanding.

        After giving effect to the sale of common shares by us in this offering at an assumed initial public offering price of $14.00 per share and our estimated receipt of the net proceeds from the sale, our net tangible book value would have been $3.24 per share. This represents an immediate increase in net tangible book value of $2.66 per share to existing stockholders and results in immediate dilution of $10.76 per share to new investors. The following table illustrates this per-share dilution.

Assumed initial public offering price per share				$	14.00
	Net tangible book value per share before offering	$	0.58
	Increase in net tangible book value per share attributable to this offering	$	2.66
Net tangible book value per share after giving effect to this offering				$	3.24
Dilution in net tangible book value per share to new investors				$	10.76

        The following table summarizes, as of September 30, 2004 and after giving effect to the reorganization and this offering, the difference between the existing stockholders and the new investors with respect to the number of shares of common shares purchased, the total consideration paid and the average price paid per share paid before deducting underwriting discounts and our estimated offering expenses.

				Total Consideration (amount in thousands)
	Shares Purchased
								Average Price per Share
	Number	Percentage		Amount		Percentage
Existing shareholders	12,111,332	75.2	%	$	5,830	9.4	%	$	0.48
New investors	4,000,000	24.8	%	$	56,000	90.6	%	$	14.00
Total	16,111,332	100	%	$	61,830	100	%

        If the over-allotment option is exercised in full, the amount of shares held by existing shareholders will decrease to 11,511,332 or 71.4% of the total number of shares outstanding, and the number held by new investors will increase to 4,600,000 or 28.6% of the total shares outstanding.

        The discussions and tables above assume no exercise of options. We have issued stock options to acquire 1,298,892 shares at a weighted average exercise price of $8.64 per share. Giving effect to the full vesting and exercise of all stock options outstanding at February 1, 2005, the pro-forma net tangible book value per share as of September 30, 2004 would have been $3.64, the dilution per share to new investors would be $10.36, and the consideration paid by the existing shareholders and the new investors would represent 23.3% and 76.7%, respectively, of the total consideration paid for all common shares.

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COMPANY HISTORY

        We began our activity as a limited partnership in the early 1970s as a manufacturer of bifocal lenses. During the first half of the 1980s, we began to develop our own progressive lens. In the mid-1980s, we began to produce and market progressive glass lenses and gradually began to produce glass molds for casting progressive plastic lenses for other manufacturers. In 1994 we established Shamir USA in order to establish a marketing presence in the United States. In 1995 we made a decision to focus exclusively on the development and production of progressive lenses. In 1997 we acquired 25% of Eyal, the manufacturer of Shamir brand plastic progressive lenses. In 1998 we developed the Eye-Point Technology, a proprietary software that simulates human vision, as well as mathematical tools for the optimal design of progressive and aspherical lenses. Using these technologies, we developed the Shamir Genesis, Shamir Office and Shamir Piccolo lenses. In 1998 we, along with Eyal, also established Shamir Insight, our U.S. distributor of Shamir lens brands, and we purchased an additional 25% of Eyal. In the fourth quarter of 2001 we acquired Altra and an additional 1% of Eyal, to give us control of Eyal. In November 2003 we acquired an additional 47% of Eyal, and in May 2004 we acquired the remaining 2% of Eyal's shares. In September 2004 we purchased, through Altra, Cambridge Optical Group, an optical laboratory in the United Kingdom.

29

SELECTED CONSOLIDATED FINANCIAL DATA

        You should read the following selected consolidated financial data in conjunction with the section of this prospectus entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and the notes thereto included elsewhere in this prospectus.

        We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States (U.S. GAAP). The following data have been derived from our audited consolidated financial statements as of and for the five years ended December 31, 1999, 2000, 2001, 2002 and 2003, and as of and for the nine-month period ended September 30, 2004, which have been audited by Kost, Forer, Gabay & Kasierer, an independent registered public accounting firm and a member firm of Ernst & Young Global, and our unaudited consolidated interim financial statements as of and for the nine-month period ended September 30, 2003. Our audited consolidated balance sheets as of December 31, 2002 and 2003 and September 30, 2004 and the related audited consolidated statements of income and of cash flows for each of the three years in the period ended December 31, 2003 and the nine months ended September 30, 2004, and our unaudited condensed consolidated interim financial statements as of and for the nine-month period ended September 30, 2003, together with the notes thereto, appear elsewhere in this prospectus. Results for interim periods are not necessarily indicative of the results expected for the entire year.

		Year Ended December 31,															Nine Months Ended September 30,
		1999			2000			2001			2002			2003			2003			2004
																	(unaudited)
(Amounts in thousands, except per share data)
STATEMENT OF OPERATIONS DATA:
Revenues, net		$	13,413		$	15,807		$	29,386		$	48,738		$	60,079		$	42,644		$	51,437
Cost of revenues			5,190			5,646			14,724			24,318			29,955			21,712			24,759
Gross profit			8,223			10,161			14,662			24,420			30,124			20,932			26,678
Operating expenses:
	Research and development costs		918			1,551			1,488			1,594			1,988			1,374			1,461
	Selling and marketing expenses		1,911			2,256			4,411			10,659			13,756			9,411			12,876
	General and administrative expenses		1,292			1,785			2,656			2,756			3,564			2,486			3,060
	Stock-based compensation expenses(1)		—			—			173			—			1,809			1,809			23
Total operating expenses			4,121			5,592			8,728			15,009			21,117			15,080			17,420
Operating income			4,102			4,569			5,934			9,411			9,007			5,852			9,258
Financial and other expenses, net			73			250			395			1,600			1,064			883			643
Income before taxes on income			4,029			4,319			5,539			7,811			7,943			4,969			8,615
Taxes on income			52			17			77			979			1,095			583			1,391
Income after taxes on income			3,977			4,302			5,462			6,832			6,848			4,386			7,224
Equity in losses of affiliates, net			314			87			377			367			47			31			43
Minority interest in losses (earnings) of subsidiary			9			20			62			(244	)		(1,564	)		(1,081	)		(795	)
Net income		$	3,672		$	4,235		$	5,147		$	6,221		$	5,237		$	3,274		$	6,386
Pro forma additional taxes on income (unaudited)(2)			(632	)		(717	)		(631	)		(1,075	)		(1,187	)		(882	)		(1,218	)
Pro forma net income		$	3,040		$	3,518		$	4,516		$	5,146		$	4,050		$	2,392		$	5,168

30

(Amounts in thousands, except per share data)
Net earnings per share:
	Basic	$	0.36	$	0.41	$	0.44	$	0.52	$	0.43	$	0.27	$	0.51
	Diluted		0.32		0.36		0.43		0.52		0.43		0.27		0.49
Pro forma earnings per share (unaudited):
	Basic	$	0.30	$	0.34	$	0.39	$	0.43	$	0.33	$	0.19	$	0.40
	Diluted		0.26		0.30		0.38		0.43		0.32		0.19		0.39
Weighted average number of shares
	Basic		10,241		10,241		11,602		12,048		12,048		12,048		12,598
	Diluted		11,615		11,634		11,946		12,048		12,133		12,048		12,935
Weighted average shares used for pro forma
	Basic		10,241		10,241		11,602		12,048		12,419		12,419		12,970
	Diluted		11,615		11,634		11,946		12,048		12,505		12,419		13,306

											As of September 30, 2004
	As of December 31,
													Pro forma as Adjusted(3)
	1999		2000		2001		2002		2003		Actual
(Dollars in thousands)
FINANCIAL POSITION DATA:
Cash and cash equivalents	$	380	$	610	$	2,742	$	2,808	$	6,033	$	8,614	$	38,134
Working capital		694		1,443		3,568		8,622		10,035		7,527		49,647
Total assets		11,793		13,429		33,867		41,705		52,922		64,566		94,086
Total liabilities		7,611		7,160		25,225		25,323		31,696		43,494		30,894
Temporary equity(4)		4,120		4,120		—		—		—		3,000		—
Total debt		4,107		3,759		13,570		11,929		16,785		19,564		16,164	(5)
Total shareholders' equity		61		2,126		7,315		11,549		14,945		11,747		56,867

(1)

Stock-based compensation expenses include the following:

	Year Ended December 31,										Nine Months Ended September 30,
	1999		2000		2001		2002		2003		2003		2004
											(unaudited)
Research and development costs	$	—	$	—	$	—	$	—	$	1,809	$	1,809	$	—
Selling and marketing expenses		—		—		173		—		—		—		4
General and administrative expenses		—		—		—		—		—		—		19
Total	$	—	$	—	$	173	$	—	$	1,809	$	1,809	$	23

(2)

The pro forma adjustments give effect to our reorganization into an Israeli limited liability company (see "Reorganization"), pursuant to which 105,506 shares in the original agricultural co-operative society were exchanged into 12,711,332 common shares of Shamir Optical Industry Ltd. As the A.C.S. was a pass-through tax entity, the tax liability was not charged to our company but to the owners, pro rata to their holding in the A.C.S. For comparison purposes, we

31

have included in our financial statements and in the selected consolidated financial data in this prospectus our pro forma net income, which reflects the additional income taxes we would have paid during the historical periods presented, assuming we had been a limited liability company during that time.

(3)

As adjusted to give effect to the conversion of $3.0 million of temporary equity into equity, estimated net proceeds of $42.1 million from the sale of 3,400,000 of our common shares by us at an assumed initial public offering price of $14.00 per share, the repayment of $3.4 million of corporate debt and the payment in full of $9.2 million of a short-term, non-interest-bearing liability related to the dividend we declared in August 2004 (of which $4.0 million has been paid as of December 31, 2004). The interest expenses associated with the corporate debt of $3.4 million amounted to $0.1 million in 2003 and $0.1 million for the nine-month-period ended September 30, 2004.

(4)

Represents shares of the company owned by Kibbutz Eyal for which Kibbutz Eyal has a right to put the shares to us. This put option expires upon the reorganization of our company from an A.C.S. to a limited liability company.

(5)

Consists entirely of debt at non-wholly-owned subsidiaries.

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with our consolidated financial statements and accompanying notes, which appear elsewhere in this prospectus. This discussion contains forward-looking statements that involve risks and uncertainties. See "Special Note Regarding Forward-Looking Statements." Our actual results could differ materially from those anticipated in these forward-looking statements, including as a result of various factors discussed below and included elsewhere in this prospectus, particularly under the heading "Risk Factors."

We prepare our financial statements in accordance with U.S. GAAP, and our reporting currency is the U.S. dollar. We generate revenues and incur expenses principally in dollars, euros and NIS. Certain amounts in this prospectus are subject to rounding adjustments.

Overview

        We are a leading provider of innovative products and technology to the progressive spectacle lens market. Utilizing our proprietary technology, we develop, design, manufacture and market progressive lenses that we sell to the ophthalmic market. In addition, we utilize our technology to provide design services to optical lens manufacturers under service and royalty agreements. Our leading lenses are marketed under a variety of trade names, including Shamir Genesis, Shamir Piccolo, Shamir Office and Shamir Autograph.

        We believe that we have one of the world's pre-eminent research and development teams for progressive lenses, molds and complementary technologies and tools. We have developed software dedicated to the design of progressive lenses. This software is based on our proprietary mathematical algorithms that optimize designs of progressive lenses. We have also created software tools specifically designed for our research and development and production requirements. To maintain our technological leadership, we have pursued investments in new technologies in the ophthalmic field and have established several companies that are developing product technologies in fields such as lens development, lens production and optical measurement and simulation.

Presentation of Financials After Reorganization

        Prior to this offering, we will change our legal structure from an agricultural cooperative society (A.C.S.) to an Israeli limited liability company. See "Reorganization." As the A.C.S. was a pass-through tax entity, the tax liability in respect of our operations was not charged to the company but to the owners, pro rata to their holding in the A.C.S. For comparison purposes, we have included in our financial statements and in the selected consolidated financial data in this prospectus our pro forma net income, which reflects income taxes we would have paid during the historical periods presented, assuming we had been a tax-paying limited liability company during that time.

Functional Currency and Exchange Rate Fluctuations

        The functional currency of Shamir and certain of our subsidiaries is the U.S. dollar, as the dollar is the primary currency of the economic environment in which we and certain of our subsidiaries operate and expect to continue to operate in the foreseeable future.

        The functional currency of Altra, our European distribution subsidiary, is the euro. Accordingly, its assets and liabilities are translated at the year-end exchange rate, and statement of income items are translated at the average exchange rate during the reported period. For 2002 and 2003, the translation adjustments between the dollar and the euro materially impacted our revenues, cost of revenues and other operating expenses.

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        We generate our revenues in euros and dollars, and we incur a significant portion of our expenses in euros and NIS (principally salaries and related expenses of our staff in Israel). A fluctuation in the value of the euro compared to the dollar may have a material impact on our revenues, which is often partially offset by expenses in euro and by price adjustments for some of our euro-priced products to compete with competitors' dollar-priced products. A fluctuation in the value of the NIS compared to the dollar may have a material impact on our expenses. Revenue growth in Europe was 25.2% and 31.3% in 2003 and the nine months ended September 30, 2004, and the average euro-to-dollar exchange rate increased by 16.1% and 7.6% during the same periods. The impact of these increases on our revenues was partially offset by price adjustments for our euro-priced products. Please see "—Results of Operations—Nine Months Ended September 30, 2004 Compared To Nine Months Ended September 30, 2003" and "—Year Ended December 31, 2003 Compared to Year Ended December 31, 2002" for a discussion and quantification of the effect of the fluctuations in the exchange rates between the dollar and the other currencies in which we do business on certain line items of our income statement.

Revenues, Net

        We generate revenues both from selling spectacle lenses to laboratories and opticians and from providing design services to third party manufacturers. Our lenses are sold primarily under Shamir brands through distributors, including our majority-owned subsidiaries. Design services are provided under contracts with other lens manufacturers and include research and development services, production of molds for lenses, and royalties from the sale of lenses made utilizing our designs. In the last three years, we have experienced significant growth in the sale of our lenses, as we have focused our efforts on the marketing and distribution of our own lenses and as our superior designs gain greater acceptance in the market. From 2001 to 2003, revenues from the sale of lenses increased by approximately 192%, while revenues from design services decreased by approximately 35%. The decrease in revenues from design services was due to the completion of the prototype phase of certain major design projects in 2001 and 2002. In the prototype phase, we receive revenue mainly at the beginning of the project until the completion of the main prototype. Following this completion, there is a period during which we receive only limited revenue, if any, from adjustments and improvements to the prototype. Upon commencement of the production stage, we receive revenue from the sales of molds and royalties from sales of lenses made from our designs. The production and sales activities from the major design projects for which we completed research and development in 2001 and 2002 are not yet material.

        We anticipate that revenues from the sale of lenses will continue to provide the majority of our revenues. Our free form technology was only released in the first quarter of 2004 and has not contributed any significant amount to our revenues.

Lenses

        Our primary source of revenues is the sale of semi-finished and finished progressive lenses. Semi-finished and finished progressive lenses represented approximately 88% of our lens sales in 2003. Semi-finished lenses are sold through our distributors, Shamir Insight and Altra; finished lenses are sold throughout Europe by our optical laboratory in Portugal. We recently acquired, through Altra, an additional European optical laboratory in Cambridge, England, through which we expect to increase our sales of finished lenses in the future. Revenues from lenses are recognized when delivery has occurred.

Design Services

        We also generate revenues from design services that we provide to third party manufacturers. We design progressive lenses and produce molds according to the specifications provided to us by our third

34

party manufacturer customers. Design service revenues are recognized at the time research and development services are provided, upon delivery of molds and when royalties are due.

        The following table shows our revenues by product category:

	Year Ended December 31,						Nine Months Ended September 30,
	2001		2002		2003		2003		2004
							(unaudited)
(Dollars in thousands)
Lenses	$	18,081	$	40,450	$	52,767	$	36,961	$	46,290
Design services		11,305		8,288		7,312		5,683		5,147
Total revenues, net	$	29,386	$	48,738	$	60,079	$	42,644	$	51,437

        Since 2001 we have focused primarily on expanding our sales to the United States and Europe, the two largest and most developed markets for our lenses. During that period, our aggregate revenues in the United States increased from $14.8 million in 2001 to $19.8 million in 2003, with an increase in lens sales from $4.8 million to $13.2 million offsetting a decline in design service revenues from $10.0 million to $6.6 million. The increase in lens sales was primarily due to the success of the increased marketing activities of Shamir Insight, our U.S. lens distribution subsidiary. Over this same period, aggregate revenues in Europe increased from $10.3 million in 2001 to $36.5 million in 2003, primarily due to the acquisition in 2001 of the majority shareholder interest in Altra and the subsequent integration of European distribution into our operations. In addition to the distribution through our distribution subsidiaries, Shamir Insight and Altra, we also sell our lenses through local distributors in other countries. Aggregate revenues in these other jurisdictions accounted for approximately 6.3% of our sales in 2003.

        The following table shows our revenues by geographic region:

	Year Ended December 31,						Nine Months Ended September 30,
	2001		2002		2003		2003		2004
							(unaudited)
(Dollars in thousands)
Europe	$	10,315	$	29,156	$	36,507	$	24,459	$	32,110
United States		14,762		15,653		19,808		14,999		16,423
Asia		1,919		1,811		2,184		1,513		1,444
Israel		1,520		1,300		906		502		223
Others		870		818		674		1,171		1,237
Total revenues, net	$	29,386	$	48,738	$	60,079	$	42,644	$	51,437

Cost of Revenues

        Our cost of revenues consists primarily of manufacturing costs incurred in the production of lenses and molds, and is comprised mainly of raw materials, salaries and other personnel expenses for employees engaged in the manufacture of our products. Other expenses include sub-contractor services, depreciation on property and equipment, rent and utilities. We expect moderate improvements in cost of revenues as we improve our efficiency, mainly by reducing waste.

Gross Profit

        Our gross profit margin has been approximately 50% for each of the past three years, and almost 52% for the nine-month period ended September 30, 2004. We have maintained our margins

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throughout this period notwithstanding a significant increase in manufacturing costs corresponding to the significant increase in lens revenues. The decrease in design service revenues has not had a significant impact on our gross profit. Our recently acquired optical laboratory in Cambridge, England currently sells primarily lenses from other manufacturers at lower gross profit margins than those of our overall business. As a result, it may have a negative impact on our gross profit margins as of the fourth quarter 2004. We expect the gross profit margin to return to historical levels as the Cambridge laboratory sells more Shamir brand lenses rather than lenses from other manufacturers.

Research and Development Costs

        Our research and development costs consist primarily of salaries and other personnel-related expenses of employees principally engaged in research and development activities. We also incur external engineering fees, materials costs and other overhead expenses in connection with the design and development of our products. Research and development expenses related to our design services are included in research and development costs instead of cost of revenues because we generally retain ownership of the intellectual property arising from our work. We expense all our research and development costs as incurred. As we expand our operations, we expect our research and development expenditures to increase significantly in absolute dollar terms and moderately as a percentage of revenues.

Selling and Marketing Expenses

        Our selling and marketing expenses consist primarily of salaries, commissions and other personnel-related expenses for those principally engaged in the sales and marketing of our products. Compensation for subsidiary sales managers and sales representatives is based to a significant extent on commissions related to performance. Additional expenses include advertising, trade shows, other promotional costs, and office expenses related to sales and marketing. We expect our selling and marketing expenses to increase in absolute dollar terms as we increase our sales and marketing efforts, primarily in the United States. Although we do not expect such expenses to increase substantially as a percentage of our revenues over time, we will incur costs of salaries and other personnel expenses for new hires before any associated revenues are generated by them.

General and Administrative Expenses

        Our general and administrative expenses consist primarily of salaries and other personnel-related expenses for executive, accounting and administrative personnel, professional fees, office expenses and other general corporate expenses. We expect our general and administrative expenses to increase in absolute dollar terms and as a percentage of revenues due to increased costs resulting from our becoming a public company.

Financial Expenses, Net

        Financial expenses consist of interest expenses on borrowings offset by interest received on short-term deposits. Financial expenses also incorporate the adjustments due to exchange rate variances.

Stock-Based Compensation Expenses

        We recorded stock-based compensation expenses in the amount of $1.8 million in 2003 in connection with options that were granted to one of our employees on September 30, 2003. The options granted were fully vested at the grant date and recorded immediately in our statement of operations. In addition, we issued stock options to acquire 683,120 of our shares at a weighted average exercise price of $11.07 per share in 2004. We expect that these grants will result in stock-based

36

compensation expense of approximately $232,000 per year for each of the next four years. These expenses were calculated under the provisions of APB No. 25. Upon adoption of SFAS No. 123(R), these expenses would be higher. At this stage, we have not yet determined the impact of applying the provisions of SFAS No. 123(R). See "—Recent Accounting Pronouncements." We have also approved options to purchase an additional 288,360 of our shares for issuance in accordance with our board's resolution regarding stock options of August 24, 2004 for future grants to our executives and employees. These option grants may result in recognition of stock-based compensation in future years. In 2001 we also recorded $0.2 million in stock-based compensation expense related to the transfer of 6% of Altra's shares to Altra's chief executive officer at the time.

Equity in Earnings (Losses) of Affiliates, Net

        Equity in earnings (losses) of affiliates is shown in our consolidated financial statements primarily to reflect 18.7% and 45% holdings in e-Vision and Shamir-Or, respectively, as of December 31, 2002 and 18.7% and 50% holdings in e-Vision and Shamir-Or, respectively, as of December 31, 2003. In August 2004 we purchased an additional 0.8% of e-Vision, which increased our holdings in e-Vision to 19.5%.

Minority Interests in Losses (Earnings) of Subsidiaries

        Minority interests are shown in our consolidated financial statements to reflect our non-wholly owned subsidiaries. From January 1, 2001 minority interests in losses (earnings) of subsidiaries included Shamir Insight and Eyal, with a minority percentage of 43.3% and 49%, respectively. The minority interest in Eyal decreased to 2% in December 2003 and was eliminated in May 2004 due to our acquisition of the minority interest in Eyal. From July 2002 to date, the minority percentage in Altra has been 49%.

Pro Forma Additional Taxes on Income

        Our taxes on income consist of changes in deferred tax assets or liabilities and provisions for taxes on income resulting from the activities of our subsidiaries around the world. Prior to this offering, we will change our legal structure from an agricultural co-operative society (A.C.S.) to an Israeli limited liability company. As the A.C.S. was a pass-through tax entity, the tax liability was not charged to the company but directly to the owners, pro rata to their holdings in the A.C.S. For comparison purposes, we have included in our financial statements and in the selected consolidated financial data in this prospectus our pro forma net income, which reflects additional income taxes we would have recorded during the historical periods presented, assuming we had been a limited liability company during that time. Our effective tax rate may vary from period to period based on changes in estimated taxable income or loss, changes to the valuation allowance, changes to state or foreign tax laws, future expansion into geographic areas with varying country, state and local income tax rates, deductibility of certain costs and expenses by jurisdiction and as a result of acquisitions, divestitures and reorganizations.

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Results of Operations

        The following table sets forth certain operating data as a percentage of total revenues for the periods indicated:

		Year Ended December 31,						Nine Months Ended September 30,
		2001		2002		2003		2003		2004
								(unaudited)
Revenues, net		100.0	%	100.0	%	100.0	%	100.0	%	100.0	%
Cost of revenues		50.1		49.9		49.9		50.9		48.1
Gross profit		49.9		50.1		50.1		49.1		51.9
Operating expenses:
	Research and development costs	5.1		3.3		3.3		3.2		2.9
	Selling and marketing expenses	15.0		21.9		22.9		22.1		25.1
	General and administrative expenses	9.0		5.7		5.9		5.8		5.9
	Stock-based compensation expenses	0.6		0.0		3.0		4.2		0.0
Total operating expenses		29.7		30.8		35.1		35.3		33.9
Operating income		20.2		19.3		15.0		13.8		18.0
Financial and other expenses, net		1.3		3.2		1.8		2.1		1.3
Income before taxes on income		18.8		16.0		13.2		11.7		16.7
Taxes on income		0.3		2.0		1.8		1.4		2.7
Income after taxes on income		18.6		14.0		11.4		10.3		14.0
Equity in losses of affiliates, net		1.3		0.8		0.1		0.1		0.1
Minority interest in losses (earnings) of subsidiaries		0.2		(0.5	)	(2.6	)	(2.5	)	(1.5	)
Net income		17.5	%	12.8	%	8.7	%	7.7	%	12.4	%
Pro forma additional taxes on income		(2.1	)	(2.2	)	(2.0	)	(2.1	)	(2.4	)
Pro forma net income		15.4	%	10.6	%	6.7	%	5.6	%	10.0	%

Nine Months Ended September 30, 2004 Compared To Nine Months Ended September 30, 2003

        Revenues, Net.    Total revenues, net were $51.4 million for the nine months ended September 30, 2004, an increase of $8.8 million or 20.6% compared to total revenues of $42.6 million for the nine months ended September 30, 2003. The increase was primarily attributable to increased sales in the United States and Europe through our subsidiaries (Shamir Insight and Altra), as well as the positive impact of exchange rate fluctuations. Increased marketing activities in the United States resulted in $3.5 million of sales growth, while strong demand in Europe contributed $7.3 million (including a positive impact of exchange rate fluctuations in a gross amount of $1.8 million that was partially offset by price reductions). The sale of lenses to the rest of the world and to other third-party manufacturers in the nine months ended September 30, 2004 decreased by $1.9 million compared to the nine months ended September 30, 2003. This decrease was mainly due to a slight decrease in lens sales in the Far East and a decrease in revenues from one third-party lens manufacturer in the United States. Revenues generated from services to third party manufacturers, including research and development services, molds production and royalties, decreased by $0.6 million between these periods, mainly as a result of a research and development customer not receiving research and development services from us in 2004.

        Cost of Revenues.    Cost of revenues was $24.8 million for the nine months ended September 30, 2004, an increase of $3.1 million or 14% compared to cost of revenues of $21.7 million for the nine months ended September 30, 2003. The increase in cost of revenues was primarily due to an increase in

38

the number of lenses manufactured and the negative impact of exchange rate fluctuations of $1.1 million. As a percentage of revenues, our cost of revenues decreased from 50.9% for the nine months ended September 30, 2003 to 48.1% for the nine months ended September 30, 2004, due to moderate improvements in efficiency of production.

        Research and Development Costs.    Research and development costs were $1.5 million for the nine months ended September 30, 2004, an increase of $0.1 million or 6.3% compared to research and development costs of $1.4 million for the nine months ended September 30, 2003. The increase in research and development costs was primarily attributable to the hiring of additional engineers. As a percentage of revenues, research and development costs decreased slightly from 3.2% for the nine months ended September 30, 2003 to 2.9% for the nine months ended September 30, 2004.

        Selling and Marketing Expenses.    Selling and marketing expenses were $12.9 million for the nine months ended September 30, 2004, an increase of $3.5 million or 36.8% compared to selling and marketing expenses of $9.4 million for the nine months ended September 30, 2003. Selling and marketing expenses increased primarily due to the expansion of our U.S. sales and marketing force and related commissions, the acquisition of Interoptic, which contributed $0.3 million to the expenses, and the negative impact of exchange rate fluctuations, which contributed $0.4 million to the expenses. As a percentage of revenues, sales and marketing expenses increased from 22.1% for the nine months ended September 30, 2003 to 25.1% for the nine months ended September 30, 2004.

        General and Administrative Expenses.    General and administrative expenses were $3.1 million for the nine months ended September 30, 2004. The increase of $0.6 million compared to general and administrative expenses of $2.5 million for the nine months ended September 30, 2003 was primarily attributable to an increase in professional fees and consulting activities for legal, financial and business development services. Consistent with the growth we experienced in our business, general and administrative expenses increased as a percentage of revenues from 5.8% for the nine months ended September 30, 2003 to 5.9% for the nine months ended September 30, 2004.

        Stock-Based Compensation Expenses.    We recorded stock-based compensation expenses in the amount of less than $0.1 million in the nine months ended September 30, 2004 in connection with a grant of options in August 2004. The options will vest over a period of four years. In the nine-month period ended September 30, 2003, we recorded stock-based compensation expenses in the amount of $1.8 in connection with options granted to one of our employees on September 30, 2003. These options were fully vested at the grant date, and the compensation expenses were recorded immediately in the statement of income.

        Financial and Other Expenses, Net.    Financial and other expenses, net were $0.6 million for the nine months ended September 30, 2004, a decrease of $0.3 million compared to financial expenses, net of $0.9 million for the nine months ended September 30, 2003. This decrease occurred primarily due to greater interest income earned on higher cash balances in the 2004 period.

        Taxes on Income.    Taxes on income were $1.4 million for the nine-month period ended September 30, 2004, an increase of $0.8 million compared to taxes on income of $0.6 million for the nine-month period ended September 30, 2003. The increase is attributable mainly to the increase in earnings of Eyal and the expiration of the two-year period of full tax exemption for a certain approved enterprise program of Eyal.

        Pro Forma Additional Taxes on Income.    Pro forma additional taxes on income were $1.2 million for the nine-month period ended September 30, 2004, an increase of $0.3 million compared with pro forma additional taxes on income of $0.9 million for the nine-month period ended September 30, 2003. The increase in pro forma additional taxes on income was attributable to the increase in the effective tax rate due to the expiration of the tax benefit period provided by the Israeli government.

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        Equity in Losses of Affiliates, Net.    Equity in losses of affiliates, net was less than $0.1 million for the nine-month period ended September 30, 2004, unchanged from the nine-month period ended September 30, 2003.

        Minority Interests in Losses (Earnings) of Subsidiaries.    Minority interests in earnings were $0.8 million for the nine-month period ended September 30, 2004, a decrease of $0.2 million or 26.5% compared with minority interests in earnings of $1.1 million for the nine-month period ended September 30, 2003. The decrease of minority interest earnings was primarily attributable to the acquisition of the remaining minority interest in Eyal.

Year Ended December 31, 2003 Compared to Year Ended December 31, 2002

        Revenues, Net.    Total revenues, net were $60.1 million for the year ended December 31, 2003, an increase of $11.4 million or 23.3% compared to total revenues, net of $48.7 million for the year ended December 31, 2002. The increase was primarily attributable to increased sales in the United States and Europe through our distribution subsidiaries (Shamir Insight and Altra), as well as the positive impact of exchange rate fluctuations. Increased marketing activities in the United States resulted in $4.6 million of sales growth, while strong performance in Europe contributed $7.5 million (including a positive impact of exchange rate fluctuations in a gross amount of $4.8 million that was partially offset by price reductions). In addition, the sale of lenses to the rest of the world and to other third-party manufacturers contributed $0.2 million of revenue growth in 2003. Revenues generated from design services decreased by $1.0 million, primarily due to a reduction in sales of molds.

        Cost of Revenues.    Cost of revenues was $30.0 million for the year ended December 31, 2003, an increase of $5.7 million or 23.2% compared to cost of revenues of $24.3 million for the year ended December 31, 2002. The increase in cost of revenues was primarily due to an increase in the number of lenses manufactured and the negative impact of exchange rate fluctuations of $2.4 million. As a percentage of revenues, our cost of revenues remained the same between 2002 and 2003.

        Research and Development Costs.    Research and development costs were $2.0 million for the year ended December 31, 2003, an increase of $0.4 million or 24.7% compared to research and development costs of $1.6 million for the year ended December 31, 2002. The increase in research and development costs was primarily attributable to the hiring of additional engineers. As a percentage of revenues, research and development costs remained constant between 2002 and 2003.

        Selling and Marketing Expenses.    Selling and marketing expenses were $13.8 million for the year ended December 31, 2003, an increase of $3.1 million or 29.1% compared to selling and marketing expenses of $10.7 million for the year ended December 31, 2002. Of the increase, $1.5 million was attributable to increased sales and marketing activities in the United States, while the remaining increase was primarily attributable to increased sales and marketing expense in Europe and the rest of the world and the negative impact of exchange rate fluctuations. Exchange rate fluctuations contributed $1.2 million to this increase. Selling and marketing expenses increased primarily due to an increase in personnel costs associated with the expansion of our sales and marketing force and the related commissions. As a percentage of revenues, selling and marketing expenses increased from 21.9% for the year ended December 31, 2002 to 22.9% the year ended December 31, 2003.

        General and Administrative Expenses.    General and administrative expenses were $3.6 million for the year ended December 31, 2003, an increase of $0.8 million or 29.3% compared to general and administrative expenses of $2.8 million for the year ended December 31, 2002. The increase was primarily attributable to costs associated with expanding management and administrative personnel and increased office expenses. As a percentage of revenues, general and administrative expenses increased from 5.7% to 5.9% between 2002 and 2003.

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        Stock-Based Compensation Expenses.    We recorded stock-based compensation expenses in the amount of $1.8 million in 2003 in connection with options that were granted to one of our employees on September 30, 2003. The options granted were fully vested at the grant date and recorded immediately in the statement of income. In 2002 we did not grant any options to our employees or incur any other stock-based compensation expense.

        Financial and Other Expenses, Net.    Financial and other expenses, net were $1.1 million for the year ended December 31, 2003, a decrease of $0.5 million or 33.5% compared to financial expenses, net of $1.6 million for the year ended December 31, 2002. This decrease was due principally to other expenses in the amount of $0.8 million recorded in 2002 resulting from a one-time loss in respect of shares sold to the chief executive officer of Altra at that time. The decrease was partially offset by an increase of $0.3 million in financial expenses, primarily due to greater interest expenses on bank loans.

        Taxes on Income.    Taxes on income were $1.1 million for the year ended December 31, 2003, an increase of $0.1 million compared with taxes on income of $1.0 million for the year ended December 31, 2002. The increase in taxes on income was primarily attributable to the increase in earnings at Altra and Shamir Insight.

        Pro Forma Additional Taxes on Income.    Pro forma additional taxes on income were $1.2 million for the year ended 31, 2003, an increase of $0.1 million compared with pro forma additional taxes on income of $1.1 million for the year ended December 31, 2002.

        Equity in Losses of Affiliates, Net.    Equity in losses of affiliates, net was less than $0.1 million for the year ended December 31, 2003, a decrease of $0.4 million compared with equity in earnings of affiliates, net of $0.4 million for the year ended December 31, 2002. The decrease of equity in losses of affiliates, net was primarily attributable to the investment in e-Vision, which was written off through net losses in 2002.

        Minority Interests in Losses (Earnings) of Subsidiaries.    Minority interests in earnings were $1.6 million for the year ended December 31, 2003, an increase of $1.4 million compared with minority interest in earnings of $0.2 million for the year ended December 31, 2002. The increase in minority interests in earnings was primarily attributable to an increase in the shareholding of the minority shareholder in Altra in July 2002 from 6% to 49%, and to a lesser extent an increase in earnings of Eyal in 2003.

Year Ended December 31, 2002 Compared To Year Ended December 31, 2001

        Revenues, Net.    Total revenues, net were $48.7 million for the year ended December 31, 2002, an increase of $19.3 million or 65.9% compared to total revenues of $29.4 million for the year ended December 31, 2001. This growth was primarily attributable to increased sales in Europe as a result of the acquisition of Altra, as well as increased sales in the United States. Increased sales in Europe contributed $18.8 million to revenue growth in 2002, $9.5 million of which was attributable to the inclusion for a full year of the operations of Altra that we had acquired in the fourth quarter of 2001. In the United States, increased marketing activities resulted in $0.9 million of sales growth. Revenues generated from design services decreased by $3.0 million, primarily due to reduced research and development service fees.

        Cost of Revenues.    Cost of revenues was $24.3 million for the year ended December 31, 2002, an increase of $9.6 million or 65.2% compared to cost of revenues of $14.7 million for the year ended December 31, 2001. The increase in cost of revenues was primarily due to the acquisition of Altra as well as an increase in the number of lenses manufactured. As a percentage of revenues, our cost of revenues changed from 50.1% to 49.9% between December 31, 2001 and December 31, 2002.

        Research and Development Costs.    Research and development costs were $1.6 million for the year ended December 31, 2002, an increase of $0.1 million or 7.1% compared to research and development

41

costs of $1.5 million for the year ended December 31, 2001. The increase in research and development costs was primarily attributable to payments made to external consultants and subcontractors engaged as part of our research and development activities. As a percentage of revenues, research and development costs decreased from 5.1% for the year ended December 31, 2001 to 3.3% the year ended December 31, 2002.

        Selling and Marketing Expenses.    Selling and marketing expenses were $10.7 million for the year ended December 31, 2002, an increase of $6.3 million or 141.6% compared to selling and marketing expenses of $4.4 million for the year ended December 31, 2001. Selling and marketing expenses increased primarily due to the acquisition and consolidation of Altra, beginning in the fourth quarter of 2001. Increased selling and marketing activities in the United States also contributed to the total increase. As a percentage of revenues, selling and marketing expenses increased from 15.0% for the year ended December 31, 2001 to 21.9% for the year ended December 31, 2002.

        General and Administrative Expenses.    General and administrative expenses were $2.8 million for the year ended December 31, 2002, an increase of $0.1 million or 3.8% compared to general and administrative expenses of $2.7 million for the year ended December 31, 2001. The increase was primarily attributable to acquiring elements of the administrative infrastructure associated with the acquisition of Altra. As a percentage of revenues, general and administrative expenses decreased from 9.0% for the year ended December 31, 2001 to 5.7% for the year ended December 31, 2002.

        Stock-Based Compensation Expenses.    We did not grant any options to our employees in 2002 or 2001 or incur any other stock-based compensation expense in 2002. In 2001 we recorded $0.2 million in stock-based compensation expenses related to the transfer of 6% of Altra's shares to Altra's chief executive officer at the time.

        Financial and Other Expenses, Net.    Financial and other expenses, net were $1.6 million for the year ended December 31, 2002, an increase of $1.2 million or 300% compared to financial expenses, net of $0.4 million for the year ended December 31, 2001. This increase was primarily due to $0.8 million of other expenses resulting from losses in respect of shares sold in 2002 to Altra's chief executive officer at the time and to the interest expenses paid as a result of the acquisition of Altra.

        Taxes on income.    Taxes on income were $1.0 million for the year ended December 31, 2002 compared with taxes on income of less than $0.1 million for the year ended December 31, 2001. The increase in taxes on income was primarily attributable to the consolidation of Altra for the whole year in 2002 compared with less than three months in 2001. The increase is also attributable to the increase in earnings of Eyal and to the fact that Shamir Insight became profitable.

        Pro Forma Additional Taxes on Income.    Pro forma additional taxes on income were $1.1 million for the year ended 31, 2002, an increase of $0.5 million compared with pro forma additional taxes on income of $0.6 million for the year ended December 31, 2001. The increase in pro forma additional taxes on income was primarily attributable to the expiration of our first approved enterprise program.

        Equity in Losses of Affiliates, Net.    Equity in losses of affiliates, net was $0.4 million for the year ended December 31, 2002, unchanged from equity in losses of affiliates, net of $0.4 million for the year ended December 31, 2001.

        Minority Interests in Losses (Earnings) of Subsidiaries.    Minority interests in earnings were $(0.2) million for the year ended December 31, 2002, an increase of $0.3 million compared with minority interest in losses of less than $0.1 million for the year ended December 31, 2001. The increase was primarily attributable to an increase in earnings of Eyal in 2002 compared with 2001. The increase in minority interests in earnings was partially offset by the portion of the minority interest in the losses of Altra in 2002 compared with 2001 (51% in 2002 compared with 6% in 2001).

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Unaudited Quarterly Results

        The following table presents certain unaudited quarterly consolidated statements of operations data for 2002, 2003 and the first nine months of 2004. This information has been derived from our unaudited consolidated financial statements. Our unaudited consolidated financial statements have been prepared on substantially the same basis as the audited consolidated financial statements contained in this prospectus and include all adjustments, consisting only of normal recurring adjustments, which we consider to be necessary to present fairly this information when read in conjunction with the consolidated financial statements and notes appearing elsewhere in this prospectus. The results of operations for any quarter are not necessarily indicative of the results to be expected for any future period.

		Quarter Ended
		Mar. 31, 2002			June 30, 2002			Sept. 30, 2002			Dec. 31, 2002			Mar. 31, 2003			June 30, 2003			Sept. 30, 2003			Dec. 31, 2003			Mar. 31, 2004			June 30, 2004			Sept. 30, 2004
		(unaudited)
(Dollars in thousands)
Revenues, net		$	9,429		$	12,488		$	12,787		$	14,034		$	12,519		$	15,769		$	14,356		$	17,435		$	15,537		$	18,169		$	17,731
Cost of revenues			4,431			5,846			6,721			7,320			5,932			7,794			7,986			8,243			7,768			8,110			8,881
Gross profit			4,998			6,642			6,066			6,714			6,587			7,975			6,370			9,192			7,769			10,059			8,850
Operating expenses:
	Research and development costs		403			378			360			453			353			551			470			614			389			613			459
	Selling and marketing expenses		2,063			2,718			2,930			2,948			2,877			3,618			2,916			4,345			3,959			4,756			4,161
	General and administrative expenses		674			972			607			503			764			878			844			1,078			679			1,004			1,377
	Stock-based compensation expenses		0			0			0			0			0			0			1,809			0			0			0			23
Total operating expenses			3,140			4,068			3,897			3,904			3,994			5,047			6,039			6,037			5,027			6,373			6,020
Operating income			1,858			2,574			2,169			2,810			2,593			2,928			331			3,155			2,742			3,686			2,830
Financial and other expenses, net			274			(161	)		764			723			432			506			(55	)		181			94			391			158
Income before taxes on income			1,584			2,735			1,405			2,087			2,161			2,422			386			2,974			2,648			3,295			2,672
Taxes on income			(12	)		241			177			573			167			206			210			512			478			585			328
Income after taxes on income			1,596			2,494			1,228			1,514			1,994			2,216			176			2,462			2,170			2,710			2,344
Equity in earnings (losses) of affiliates, net			83			(114	)		(318	)		(18	)		(6	)		(13	)		(12	)		(16	)		(23	)		(18	)		(2	)
Minority interest in losses (earnings) of subsidiaries			(331	)		(373	)		365			95			(366	)		(427	)		(288	)		(483	)		(204	)		(180	)		(411	)
Net income (loss)		$	1,348		$	2,007		$	1,275		$	1,591		$	1,622		$	1,776		$	(124	)	$	1,963		$	1,943		$	2,512		$	1,931
Pro forma additional taxes on income(1)			280			331			205			259			182			224			476			305			370			439			409
Pro forma net income (loss)		$	1,068		$	1,676		$	1,070		$	1,332		$	1,440		$	1,552		$	(600	)	$	1,658		$	1,573		$	2,073		$	1,522

(1)

The pro forma adjustments give effect to our reorganization into an Israeli limited liability company (see "Reorganization"), pursuant to which 105,506 membership interests in the original agricultural co-operative society were exchanged into 12,711,332 common shares of Shamir Optical Industry Ltd. As the A.C.S. was a pass-through tax entity, the tax liability was not charged to the company but to the owners, pro rata to their holding in the A.C.S. For comparison purposes, we have included in our financial statements and in the selected consolidated financial data in this prospectus our pro forma net income, which reflects income taxes we would have paid during the historical periods presented, assuming we had been a limited liability company during that time.

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Seasonality

        The Company experiences seasonal variations in its quarterly results, with third quarter results generally weaker than the other three quarters and fourth quarter results generally the strongest. Third quarter results are lower as a result of lower sales during the summer vacation season in Europe, while fourth quarter sales reflect seasonal holiday spending and end-of-year promotions.

Liquidity and Capital Resources

        From commencement of our business through September 30, 2004, we have self-funded and grown our business principally from cash flow from operations. During this period, we have raised a total of $8.1 million in net proceeds from private placements of our shares, with $4.1 million in 1999 and $4.0 million in 2004.

        As of September 30, 2004, we had working capital of $7.5 million, cash and cash equivalents of $8.6 million and undrawn lines of credit of approximately $8.0 million.

        We anticipate that the proceeds of this offering and cash flows from operations will be adequate to fund our capital expenditures and other demands and commitments through 2007.

        The following table sets forth elements of our cash flows for the periods indicated:

	Year Ended December 31,									Nine Months Ended September 30,
	2001			2002			2003			2003			2004
										(unaudited)
(Dollars in thousands)
Net cash provided by operating activities	$	2,355		$	9,242		$	11,483		$	9,708		$	4,585
Net cash used in investing activities		(4,856	)		(3,514	)		(4,205	)		(2,607	)		(5,025	)
Net cash provided by (used in) financing activities		4,650			(5,740	)		(4,338	)		(4,397	)		3,056

        We conduct our operations primarily in three different regions: Israel, Europe and the United States. For a description of the different currencies in which we operate, see "—Quantitative and Qualitative Disclosure about Market Risk—Foreign Currency Risk."

        We finance acquisitions and purchases of significant fixed assets through loans and working capital, including, in the future, the proceeds from this offering. We attempt to take these loans in the same currency in which the cash flow from the acquired assets will be generated.

        We anticipate that we will be able to meet our short-term liquidity needs through our working capital and that we will be able to meet our long-term liquidity needs, which may include investments in facilities, acquisitions and fixed assets, through long-term loans and the proceeds from this offering. While we cannot predict the outcome of any legal disputes in which we may be involved or estimate the amounts of damages we may be required to pay, we do not expect that our short- or long-term liquidity or our results of operations will be materially impacted by any current legal proceedings (see "Business—Legal Proceedings").

        Our operating activities provided cash of $2.4 million, $9.2 million, $11.5 million and $4.6 million for the years ended December 31, 2001, 2002 and 2003 and the nine months ended September 30, 2004, respectively. The change in net cash provided by operating activities reflects the growth in sales activity as well as our increased profitability and increasing levels of collection of accounts receivable netted against other working capital items. As revenues grow, we anticipate that our trade receivables and inventory will continue to grow, requiring an increase in our required level of working capital.

        Our investing activities used cash of $4.9 million, $3.5 million, $4.2 million and $5.0 million for the years ended December 31, 2001, 2002 and 2003 and the nine-month period ended September 30, 2004, respectively. Over the last three years, cash used in investing activities was primarily driven by the

44

purchase of property and equipment, as well as the acquisitions of our subsidiaries, Cambridge Optical in 2004 and Eyal and Altra in 2001.

        Our financing activities provided (used) cash of $4.7 million, $(5.7) million, $(4.3) million and $3.1 million for the years ended December 31, 2001, 2002 and 2003 and the nine months ended September 30, 2004, respectively. A principal source of cash from financing activities has been receipt of long-term loans and short-term bank credit. However, repayment of long-term loans have either largely offset or exceeded receipt of credit for each of these periods. Distribution of earnings, which totaled $2.8 million, $4.0 million, $4.3 million and $2.6 million at December 31, 2001, 2002 and 2003 and September 30, 2004, respectively, has been the largest use of cash for financing activities. In 2004 the increased receipt of long- and short-term loans was due to the financing of the acquisition of Cambridge Optical. In 2001 the increased receipt of long- and short-term loans was due to the financing of the acquisition of our European distributor, Altra.

Borrowings

        As of September 30, 2004, we had aggregate short-term (including current maturities of long-term loans) and long-term bank borrowings of $13.4 million and $3.6 million, respectively. These borrowings are divided between our subsidiaries and us as follows: $9.4 million is held by Altra, $4.1 million is held by Eyal and $3.4 million is held by us. These borrowings consist of various notes denominated in dollars, euros, British pounds and NIS, with interest rates (in various currencies and linked to various indices) ranging from approximately 3% to 6.1%, a weighted average interest rate of approximately 5% and maturities of 1 to 4 years. These aggregate bank borrowings included short-term bank credits of $12.1 million in euro with interest rates of LIBOR plus 1–2%, $1.1 million in dollars with interest rates of LIBOR plus 1–2% and $0.2 million in NIS with interest rates of 5.5%.

        Long-term bank borrowings include $1.4 million in euro with interest rates of LIBOR plus 1–2%, $0.5 million in dollars with interest rates of LIBOR plus 1–2%, $0.6 million in British pounds with interests rates of LIBOR plus 1%, and $1.1 million in NIS with interest rates of 5.5% and 1.4%.

        In addition, Shamir and Eyal have undertaken to maintain certain financial ratios in Eyal's financial statements with respect to Eyal's loan from a bank in the amount of $1.1 million at September 30, 2004. As of December 31, 2003 and September 30, 2004, Eyal was in compliance with this ratio.

Contractual Obligations and Commercial Commitments

        The following table summarizes our contractual and commercial obligations and commitments, as well as expected interest expenses, as of September 30, 2004:

	Payments Due In
	Total		Q4 2004		2005		2006		2007		2008		2009 and Thereafter
(Dollars in thousands)
Contractual obligations:
Long-term debt	$	9,934	$	1,661	$	3,612	$	1,240	$	902	$	480	$	2,039
Operating lease obligations		10,491		269		968		946		946		644		6,718
Total contractual obligations	$	20,425	$	1,930	$	4,580	$	2,186	$	1,848	$	1,124	$	8,757
Expected interest expenses	$	1,056	$	99	$	331	$	186	$	137	$	101	$	202

Quantitative and Qualitative Disclosure about Market Risks

        We do not engage in trading market risk instruments or purchasing hedging or "other than trading" instruments that are likely to expose us to market risk, whether interest rate, commodity price

45

or equity price risk. We have not purchased options or entered swap or forward or future contracts. We do not use derivative instruments for speculative trading purposes.

Foreign Currency Risk

        We have direct operations in several countries and relationships in other parts of the world (mainly in Europe). Our foreign operations enter into transactions with clients in their local currency; as a result, we are subject to movements in foreign currency exchange rates in those countries where we conduct business. We may in the future enter into forward foreign currency exchange or other derivative contracts to hedge our exposure to foreign currency exchange rates. We do not currently hedge any foreign currency exposure to offset the effects of changes in exchange rates.

        Our foreign currency exposures give rise to market risks associated with exchange rate movements of the dollar, our functional and reporting currency, against the euro and the NIS. In 2003 we generated approximately 38% of our revenues in dollars and 62% in euros, and we incurred approximately 23% of our expenses in NIS, 34% in dollars and 43% in euros.

        In Europe we operate through our subsidiary Altra, which has assets and liabilities in euros and credit facilities in euros. In the United States we operate through our subsidiaries Shamir Insight and Shamir USA, which have assets and liabilities in dollars. Shamir and our Israeli subsidiary Eyal operate in Israel and have assets and liabilities mainly in dollars, as well as some assets in euros and some liabilities in euros and NIS (for employee compensation). We attempt to match our assets and liabilities in the same currency in order to counteract fluctuations in currency exchange rates.

        As of September 30, 2004, we had $25.4 million in current assets and $17.6 million in current liabilities that are denominated in euros. Additionally, we had $1.6 million in current assets and $3.6 in current liabilities that are denominated in NIS.

Interest Rate Risk

        We believe that we are not exposed to a material interest rate risk due to the fact that the majority of our liabilities are short-term liabilities.

Credit Risk

        Credit risk is the possibility that the value of our assets may become impaired if counterparties cannot meet their obligations in transactions involving financial instruments. While we may in a small number of instances be exposed to credit risk with respect to our customers and our suppliers, we believe that this risk is not material.

Critical Accounting Policies

        The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Our estimates, judgments and assumptions are continually evaluated based on available information and experience; however, actual amounts could differ from those estimates. Our significant accounting policies are described in Note 2 of the Notes to Consolidated Financial Statements.

Revenue Recognition

        We recognize revenues in accordance with Securities and Exchange Commission (SEC) Staff Accounting Bulletin No. 104 (SAB 104), Revenue Recognition in Financial Statements. Revenues include sales of lenses to laboratories.

46

        Revenues from lens sales, net of rebates, are recognized when delivery of the related goods has occurred, as our significant obligations have been satisfied, title and risk of loss has passed to the customer and collectability is probable.

        We have various programs that allow opticians to earn rebates on their accumulated purchases. These rebates are recognized as a reduction of revenues based on the rebates earned and the estimated future payments in accordance with EITF 01-9, "Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor's Products)." The cumulative liability for unredeemed rebates is adjusted over time based on actual experience and trends with respect to program compliance.

        Design services are provided to third party manufacturers and include research and development services, production of molds for lenses and royalties from sales of lenses by third party manufacturers. Revenues from research and development services are recognized at the time the services are provided. Revenues from production of molds are recognized upon delivery of the molds and when other criteria of SAB No. 104 are met. Revenues from minimum royalties are recognized when the royalties become due. Other royalties are recognized quarterly, upon the receipt of sales reports from the third-party manufacturer customers.

        We do not have post shipment obligations, customer acceptance and price protection. Our accounting for revenues is consistently applied across all of our distribution channels.

Inventory Valuation

        At each balance sheet date, we evaluate our inventory balance for excess quantities and obsolescence. This evaluation includes analyses of sales levels by product line and projections of future demand. In addition, we write off inventories that are considered obsolete. Remaining inventory balances are adjusted to the lower of cost or market value. If future demand or market conditions are less favorable than our projections, additional inventory write-downs may be required and would be reflected in cost of revenues in the period the revision is made. Significant unanticipated changes in demand could have a material and significant impact on the future value of our inventory and reported operating results. To date, we have not experienced any significant inventory write-offs.

Impairment of Long-lived Assets

        In accordance with SFAS No. 144, we assess potential impairments to our long-lived assets, comprised of property, plant and equipment and other intangible assets, when there is evidence that events or changes in circumstances indicate that the carrying value may not be recoverable. We recognize an impairment loss when the undiscounted cash flow expected to be generated by an asset (or group of assets) is less than its carrying value. Any required impairment loss is measured as the amount by which the asset's carrying value exceeds its fair value, and is recorded as a reduction in the carrying value of the related asset and charged to results of operations.

Deferred Income Taxes

        We record income taxes using the asset and liability approach. Deferred income tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective income tax bases, and net operating loss and tax credit carry-forwards.

        Immediately prior to this offering, we will change our legal structure from an A.C.S. to an Israeli limited liability company. The A.C.S. is a pass-through tax entity and was not subject to Israeli income tax. Our provision for income taxes is not reflected in our historical financial statements, because the income is passed through to the individual unit holders. For comparison purposes, we have included in our financial statements and in the selected consolidated financial data in this prospectus our pro

47

forma net income, which reflects additional income taxes we would have accrued during the historical periods presented, assuming we had been a limited liability company during that time. Our effective tax rate may vary from period to period based on changes in estimated taxable income or loss, changes to the valuation allowance, changes to state or foreign tax laws, future expansion into geographic areas with varying country, state and local income tax rates, deductibility of certain costs and expenses by jurisdiction and as a result of acquisitions, divestitures and reorganizations.

        Management judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets. We have considered future taxable income, prudent and feasible tax planning strategies and other available evidence in determining the need for a valuation allowance. We evaluate all of these factors to determine whether it is more likely than not that some portion or all of the deferred income tax assets will not be realized. If the realization of deferred tax assets in the future is considered more likely than not, an adjustment to the deferred tax assets would increase net income in the period in which this determination was made.

Contingencies

        From time to time, we are defendant or plaintiff in various legal actions, which arise in the normal course of business. We are required to assess the likelihood of any adverse judgments or outcomes to these matters as well as potential ranges of probable losses. A determination of the amount of reserves required for these contingencies, if any, which would be charged to earnings, is made after careful and considered analysis of each individual action together with our legal advisors. The required reserves may change in the future due to new developments in each matter or changes in circumstances, such as a change in settlement strategy. A change in the required reserves would affect our earnings in the period the change is made.

Recent Accounting Pronouncements

        In May 2003 the Financial Accounting Standards Board ("FASB") issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." SFAS No. 150 establishes standards for how an issuer classifies and measures in its statement of financial position certain financial instruments with characteristics of both liabilities and equity. In accordance with the standard, financial instruments that embody obligations for the issuer are required to be classified as liabilities. SFAS No. 150 will be effective for financial instruments entered into or modified after May 31, 2003 and otherwise will be effective beginning in the first quarter of our fiscal year 2004. With respect to the financial instruments issued in 2003 to the seller of Eyal's shares, we accounted for financial instruments in accordance with SFAS No. 150.

        In January 2003 the FASB issued FIN No. 46, "Consolidation of Variable Interest Entities." The objective of FIN No. 46 is to improve financial reporting by companies involved with variable interest entities. A variable interest entity is a corporation, partnership, trust or any other legal structure used for business purposes that either (a) does not have equity investors with voting rights or (b) has equity investors that do not provide sufficient financial resources for the entity to support its activities. FIN No. 46 requires a variable interest entity to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity's activities or entitled to receive a majority of the entity's residual returns or both. FIN No. 46 also requires disclosures about variable interest entities that the company is not required to consolidate but in which it has a significant variable interest. The consolidation requirements of FIN No. 46 apply immediately to variable interest entities created after January 31, 2003. The consolidation requirements apply to older entities in the first fiscal year or interim period ending after March 15, 2004. Upon adoption of FIN No. 46, there was no impact on our consolidated results of operations or financial position.

48

        In November 2004 the FASB issued SFAS No. 151, "Inventory Costs, an amendment of ARB No. 43, Chapter 4." SFAS 151 amends Accounting Research Bulletin ("ARB") No. 43, Chapter 4, to clarify that abnormal amounts of idle facility expense, freight handling costs and wasted materials (spoilage) should be recognized as current-period charges. In addition, SFAS 151 requires that allocation of fixed production overheads to the costs of conversion be based on normal capacity of the production facilities. SFAS 151 is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. We do not expect that the adoption of SFAS 151 will have a material effect on our financial position or results of operations.

        In December 2004 the FASB issued SFAS No. 153, "Exchanges of Nonmonetary Assets, an amendment of APB Opinion No. 29." The guidance in APB Opinion No. 29, "Accounting for Nonmonetary Transactions," is based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged. APB 29 included certain exceptions to that principle. SFAS 153 amends APB 29 to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. SFAS 153 is effective for nonmonetary assets exchanges occurring in fiscal periods beginning after June 15, 2005. We do not expect that the adoption of SFAS 153 will have a material effect on our financial position or results of operations.

        In December 2004 the FASB issued SFAS No. 123 (revised 2004), "Share-Based Payment." SFAS 123(R) will provide investors and other users of financial statements with more complete and neutral financial information by requiring that the compensation cost relating to share-based payment transactions be recognized in financial statements. That cost will be measured based on the fair value of the equity or liability instruments issued. SFAS 123(R) covers a wide range of share-based compensation arrangements including share options, restricted share plans, performance-based awards, share appreciation rights and employee share purchase plans. SFAS 123(R) replaces SFAS No. 123, "Accounting for Stock-Based Compensation," and supersedes APB No. 25, "Accounting for Stock Issued to Employees." SFAS 123, as originally issued in 1995, established as preferable a fair-value-based method of accounting for share-based payment transactions with employees. However, that Statement permitted entities the option of continuing to apply the guidance in APB No. 25, as long as the footnotes to financial statements disclosed what net income would have been had the preferable fair-value-based method been used. Public entities (other than those filing as small business issuers) will be required to apply SFAS 123(R) as of the first interim or annual reporting period that begins after June 15, 2005. We have not yet determined the impact of applying the various provisions of SFAS No. 123R.

49

BUSINESS

Overview

        We are a leading provider of innovative products and technology to the progressive spectacle lens market. Utilizing our proprietary technology, we develop, design, manufacture and market progressive lenses that we sell to the ophthalmic market. In addition, we utilize our capabilities to provide design services to optical lens manufacturers under service and royalty agreements. Progressive lenses, also known as progressive addition lenses or PALs, combine several optical strengths in a single lens to provide a gradual and seamless transition from near to intermediate to distant vision.

        We differentiate our products from those of our competitors primarily through lens design. We have successfully pursued a strategy of focusing on higher value product categories, and several of our lenses are recognized by industry and research sources for their superior design and quality. Our leading lenses are marketed under a variety of brand names, including Shamir Genesis, Shamir Piccolo, Shamir Office and Shamir Autograph.

        We believe that we have one of the world's preeminent research and development teams for progressive lenses, molds and complementary technologies and tools. Through our research and development team, we have continually enhanced our capabilities and resources to develop new, innovative products and design tools with superior characteristics.

        We have developed software dedicated to the design of progressive lenses. This software is based on our proprietary mathematical algorithms that optimize designs of progressive lenses for a variety of activities and environments. We have also created software tools specifically designed for our research and development and production requirements, including our Eye Point Technology software that simulates human vision. We believe that these proprietary tools, and in particular our optical design software and our Eye Point Technology, provide us with a competitive advantage in our market. To maintain this advantage, we have pursued investments in new technologies in the ophthalmic field and are developing product technologies in fields such as lens development, lens production and optical measurement and simulation.

Industry Overview

        According to Strategy With Vision (SWV)⁽¹⁾, an independent industry research firm, the global ophthalmic retail market was approximately $52 billion in 2003, consisting of various segments, including frames, spectacle lenses, contact lenses and optical accessories. The spectacle lens segment makes up the largest portion of this market, representing approximately 45% or $24 billion of the global ophthalmic market in 2003. The global progressive spectacle lens market represents approximately $12.1 billion or 51% of the $24 billion spectacle lens market and is expected to grow to $18.6 billion in 2010, representing a compound annual growth rate of 6.3% between 2003 and 2010.

(1)

Unless otherwise noted, all of the market data in this section was provided by SWV or calculated from data provided by SWV. See the discussion of SWV's report on page ii of this prospectus.

        Progressive lenses are used to treat presbyopia, a vision condition where the crystalline lens of the eye loses its flexibility and the eye muscles become less powerful causing the eye to lose its ability to focus on close objects. Presbyopia is part of the normal aging process and develops gradually over an extended period of time and affects almost everyone over the age of 45, regardless of whether they have previously had normal vision or have suffered from myopia, astigmatism or other vision conditions. Presbyopia is a degenerative condition that worsens and often requires progressively stronger lenses over time. Presbyopia cannot currently be cured but is treated with lenses that generate optical power assisting the eye to focus on both close and distant objects. According to the United

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Nations, there are expected to be 1.6 billion people over the age of 45 by 2005 worldwide. We believe that almost all of these individuals will suffer from presbyopia.

Lenses and Alternatives

        The spectacle lens market consists of three primary types of lenses.

•

Single Vision Lenses.    Single vision lenses have only one optical power and are primarily used to correct deficiencies in either near or distant vision. Global sales of single vision lenses in 2003 were approximately $8.5 billion and 324.4 million pairs of lenses, representing an average price of $26 per pair. As they are essentially simple magnifying glasses when used to treat near-sightedness, single vision lenses tend to be cheaper than other types of lenses and are readily available in most markets in the world.



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Bifocal Lenses.    Bifocal lenses have two optical powers and are used to correct deficiencies in both near and distant vision. The surface of the bifocal lens is typically divided into two parts, the upper portion for distant vision and part of the lower portion for near vision. The division between the two parts of the lens is clearly visible and forces the eyes to make an abrupt transition. Global sales of bifocal lenses in 2003 were approximately $2.9 billion and 49.7 million pairs of lenses, representing an average price of $58 per pair.



•

Progressive Lenses.    Progressive lenses utilize complex designs to combine several optical powers for different viewing distances, with the optical power gradually increasing from the upper portion of the lens to the lower portion of the lens. The transition between powers is gradual and seamless, thereby eliminating distracting lines between the different vision areas and allowing the user to see at various distances without an image jump, restrictive focal lengths or demarcation lines, although some users have difficulty adapting to the distortion areas of progressive lenses. Global sales of progressive lenses in 2003 were approximately $12.1 billion and 51.7 million pairs of lenses, representing an average price of $234 per pair, and are expected to grow to $18.6 billion and 65.6 million pairs of lenses, for an average price of $283 per pair, in 2010. Progressive lenses are generally the most expensive type of lenses and are less frequently covered by insurance than single vision or bifocal lenses.

        The following charts show the market for spectacle lenses by pairs and dollar value for 2003:

Source: Strategy With Vision (SWV).

        Contact lenses and surgical procedures, including laser surgery, represent the primary alternatives to spectacles for the visually impaired. Both contact lenses and surgical procedures provide solutions for near-sightedness, far-sightedness and astigmatism, but we believe that they are inferior to

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progressive lenses as remedies to treat presbyopia. With progressive lenses, as the wearer naturally shifts his eyes downward or upward when focusing on near or far objects, his eyes move gradually through the different optical powers of the lens. Contact lenses can have multifocal properties, but they are unable to take into account this natural movement of the eyes. Current applications of laser surgery to treat presbyopia seek to modify the optical power of one eye for near distances and that of the other eye for far distances, thereby reducing overall flexibility and quality of vision relative to other treatments. In addition, surgical procedures are invasive and irreversible, can be painful and involve some recuperation time, and do not address the degenerative nature of presbyopia.

        We believe that most users choose progressive spectacle lenses due to the benefits of these lenses over alternative treatments for presbyopia. While these other techniques may evolve to be better suited for the treatment of presbyopia (see "Risk Factors—We compete against alternative technologies and treatments that provide a substitute for spectacle lenses"), we do not believe that they currently represent a significant alternative to progressive lenses.

Market Growth

        The progressive lens segment is estimated to grow at a compound annual growth rate of 6.3% from $12.1 billion in 2003 to $18.6 billion in 2010, while the total spectacles lens market is estimated to grow at a compound annual growth rate of 3.5% from $23.5 in 2003 to $29.8 billion in 2010. The United States and Europe represent the two largest and fastest-growing markets for progressive lenses among developed countries. The United States is the fastest-growing developed geographic market for progressive lenses, with an expected compound annual growth rate of 8.8%, from $4.1 billion in 2003 to an estimated $7.4 billion in 2010. The European progressive lens market is expected to experience a compound annual growth rate of 4.9% from $5.3 billion in 2003 to an estimated $7.4 billion in 2010. In addition, the rate of progressive lens penetration in developing countries including India and China is very low relative to developed countries and is expected to increase significantly.

        We believe the following factors will stimulate growth in the progressive lens market:

•

Increased Awareness.    Over the past few years, there has been an increasing number of advertising, marketing, promotional and educational programs supported by progressive lens manufacturers to increase public awareness of progressive lenses and their advantages. We expect the progressive lens market to continue to benefit from these programs.



•

Shift From Bifocal Lenses.    Progressive lenses will continue to benefit from the shift in demand away from bifocal lenses to progressive lenses as a superior treatment for presbyopia. In the United States, the progressive lens market is expected to grow by nearly $3.3 billion between 2003 and 2010, while the bifocal market is expected to decrease by $200 million during the same period. In Europe, the progressive lens market is expected to grow by nearly $2.1 billion between 2003 and 2010, while the bifocal market is expected to decrease by $200 million during the same period. As technologies evolve and more people begin to require treatment for presbyopia, we expect that the market shift from bifocal to progressive lenses will accelerate.

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The following table shows the actual and estimated market sizes for the years 2000, 2003 and 2010, as well as the estimated compound annual growth rate in the United States, Europe and the world from 2000 to 2010.

	2000		2003		2010		CAGR
(Dollars in billions)
United States
Progressive	$	3.2	$	4.1	$	7.4	8.7	%
Bi-Focal	$	1.2	$	1.1	$	0.9	–2.8	%
Europe
Progressive	$	4.1	$	5.3	$	7.4	6.1	%
Bi-Focal	$	1.1	$	0.9	$	0.7	–4.4	%
Total World
Progressive	$	9.8	$	12.1	$	18.6	6.6	%
Bi-Focal	$	3.3	$	2.9	$	2.3	–3.5	%
Source: Strategy With Vision (SWV).

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Favorable Demographic Trends.    Multifocal lenses, which include bifocal and progressive lenses, are currently the only satisfactory treatments for presbyopia. Because presbyopia generally becomes symptomatic for individuals in their early forties, the primary market for progressive lenses is people over the age of 45. According to the most recent U.S. Census, the U.S. population over the age of 45 is expected to grow to 120 million by 2010 from 103 million in 2003, representing a compound annual growth rate of 2.2%, more than double the average growth rate of the total population. In addition, average life expectancies are also expected to increase during these periods. According to the United Nations, the European population over the age of 45 is expected to grow to 315 million in 2010 from 299 million in 2005, representing a compound annual growth rate of 1.1%, compared to the expected slight decline in the total population during that same period.



•

Advancements in Lens Technologies.    Over the past decade, there have been significant technological advances in lens quality due to the development of design and manufacturing processes, anti-reflective coatings, improved raw materials and other factors. We believe that the continuous introduction of improved technology will also encourage customers to upgrade and replace their lenses.



•

Fashion Trends.    Leading companies in fashion, cosmetics and athletics are promoting multiple spectacle frames of different styles for different activities. We believe this trend will result in increased purchases of spectacles, as fashion-conscious customers will choose a different frame for each specific activity. In addition, we believe that these customers will prefer progressive to bifocal lenses for the lack of visible lines marking the shift in prescription strengths.



•

Maturing of New Markets.    We believe that currently approximately half of all people suffering from presbyopia are left untreated. A significant part of these potential customers reside in China and India. We believe that, as these countries develop and health care becomes more readily accessible, the demand for progressive lenses as a solution to presbyopia will expand as well.

        We believe that we are strongly positioned to benefit from these trends, especially due to our proprietary technology created by our research and development team, which we believe will enable us to continue to design and manufacture top quality lenses, and due to our marketing capabilities.

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Market Structure

        The following graphic shows the flow of orders and goods in the market for optical lenses.

        The current progressive lens market is driven by the eye correction needs of the patient. A patient undergoes an eye examination in which an optical doctor or an optometrist determines the proper prescription and sends it to an optical laboratory. To complete the prescription, the optical laboratory uses semi-finished progressive lens blanks that are supplied by lens manufacturers. Semi-finished progressive lens blanks are lenses that contain the progressive surface on one side and are unfinished on the other. The optical laboratories finish the progressive lenses by surfacing the other side of the lens blanks according to the prescription and may add coating or tinting that the customer may request. The finished lenses are finally cut, edged and mounted onto the frame by the optical laboratory or the optical shop and delivered to the patient.

Competitive Strengths

        From 1999 to 2003, we grew our revenues organically and through acquisitions at a compound annual growth rate of 45.5%. We believe that this growth was mainly based on a number of competitive strengths that allow us to capitalize on the prevailing trends in our industry. These strengths include:

Research and Development Expertise

        We believe that we are a technological leader in the progressive spectacle lens market. Through our research and development efforts, we believe that we possess expertise in developing a variety of new progressive lens designs and production techniques. Our proprietary Eye Point Technology is based on mathematical algorithms that simulate the vision of the human eye in order to calculate the optical performance of the lens. This technology has become the cornerstone of our research and development approach and enables us to minimize distortions inherent in the design of progressive lenses. In addition, we have developed, both independently and with our research affiliates, a number of other technologies in the fields of optical design software, optical and geometric measuring of optical surfaces and computerized processing of optical surfaces and elements, which we believe will help us to maintain our position at the forefront of progressive lens research and development. We believe that the quality of our research and development efforts has been validated by independent industry publications, as well as by our ability to sell exclusively designed progressive lenses and molds to other leading progressive lens manufacturers for the production or sale of their own branded lenses.

Leading Products for the Progressive Lens Market

        When we began operations in the progressive lens field, we were among the first companies in the world engaged in the design, development and marketing of progressive lenses, and we have focused exclusively on progressive lenses since 1995. According to SWV, the progressive lens market represented approximately 51.5% of the $24 billion global spectacle lens market in 2003 and is the fastest growing segment of the optical lens market with the highest average sales price and the most attractive margins. Our concentration on progressive lenses has enabled us to develop lens designs and technologies to produce lenses that are considered among the best-performing lenses in the industry. Our leading product portfolio includes Shamir Genesis, our general purpose lens, Shamir Piccolo for use in small frames, Shamir Office for viewing distances common to an office environment, and Shamir Autograph, which is based on our Direct Lens Technology to allow greater customization of the lens.

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Strong Distribution Channels

        We have created two separate distribution strategies for our two principal markets, the United States and Europe, that are specifically tailored to our target customers in each market. Our sales in Europe accounted for $36.5 million, or 60.8%, of our revenues in 2003, and sales in the United States accounted for $19.8 million, or 33.0%, during the same period. In Europe, where there has been significant consolidation and, as a result, fewer optical laboratories unaffiliated with lens manufacturers or retail chains remain (see "—Marketing and Distribution"), we sell directly to retail optical shops through our vertically integrated optical laboratories in Portugal and the United Kingdom, as well as through our distribution center in Spain. We also sell directly to optical laboratories through our distribution center in Germany.

        In the United States, vertical integration of manufacturers and optical laboratories is less prevalent, which has resulted in a strong customer base made up of more than 100 of the approximately 300 independent U.S. laboratories. Unlike many of our competitors, we have not acquired independent optical laboratories in the United States. We believe that this strategy eliminated an inherent conflict of interest that many of our competitors face when trying to establish a customer relationship with independent laboratories with whom they are also competing for customers. As a result, we are one of the few leading manufacturers not in direct competition with independent laboratories in the United States. We believe that this strategy has contributed to the expansion of our U.S. sales from approximately $14.8 million in 2001 to approximately $19.8 million in 2003, representing a compound annual growth rate of 15.9%.

Ability to Leverage Resources

        We apply our research and development expertise and resources to making our own lenses and to providing design services to third party lens manufacturers. By providing these services to manufacturers, we are able to generate revenues and further expand our intellectual property base. While our design services customers have the right to use the designs we create, in some instances on an exclusive basis, we maintain ownership rights to the intellectual property developed by our research and development teams while developing the designs. Through our design services to third party lens manufacturers, we have successfully introduced our technology to the market without having to bear the cost of marketing and manufacturing. As a result, we are able to generate design service revenues, including royalties, by leveraging our proprietary intellectual property across a broad spectrum of customers in our established markets.

        In addition, we believe that the implementation of our free form production technology and the ability of optical laboratories to produce custom-made progressive lenses to specification, using our innovative software and based on our mathematical algorithms, have the potential to increase our revenues significantly and to enhance our financial results. As laboratories adopt the Free Form Technology and license our software to produce lenses, we are able to generate revenues without incurring the cost of manufacturing. Moreover, as we expand into developing markets, we will further leverage our proven technology across a broader geographic base.

Strong Ownership, Dedicated Workforce and Experienced Management Team

        Kibbutz Shamir is our largest shareholder and will hold 61.1% of our outstanding shares after this offering (assuming no exercise of the over-allotment option). Kibbutz Shamir was founded in 1944 and is a small communal society of approximately 270 members, including 40 of our 344 employees in Israel. As with most kibbutzim, each member of Kibbutz Shamir owns an equal part of the assets of Kibbutz Shamir. Kibbutz Shamir has been successful in developing and encouraging a creative and dedicated managerial and entrepreneurial team to manage the businesses owned by Kibbutz Shamir, including two companies listed on the Tel Aviv stock exchange, Shalag Industries, Ltd. and N.R. Spuntech Industries, Ltd.

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        The seven members of our executive management team, including at certain of our subsidiaries, have a cumulative 125 years of experience in the ophthalmic industry. Led by Giora Ben-Zeev, our President and Chief Executive Officer, our management team supports a particularly creative and dynamic culture, which we believe enhances our ability to innovate. Our executive management group has completed a number of key strategic initiatives, improved our financial performance, successfully completed and integrated acquisitions, strengthened sales and marketing, and enhanced our focus on research and new product development. Three of our directors, including our chief executive officer and our acting chairman of the board, and an additional two executive officers are members of the management board of Kibbutz Shamir.

Growth Strategy

        The following plans are the focal points of our strategy to grow our business and increase our revenues. We plan to fund these strategic initiatives largely through the proceeds from this offering. See "Use of Proceeds."

Maintain Technological Leadership

        We plan to further strengthen our research and development efforts to continue to develop innovative optical design tools, which will be used to design new optical products. We plan to maintain our position among the leading designers and developers of new innovative products that we will utilize for our own production and distribution and sell to third parties. We also plan to continue to invest in promising technologies both directly and through our subsidiaries and affiliated entities. We believe that the technologies we are developing will enable us to maintain our technical leadership and create innovative premium products, services and technologies into the future.

Capitalize on Positive Demographic Trends and Increase Penetration

        Given our strategic focus on progressive lenses, we believe that we are well positioned to benefit from the positive demographic trends in developed countries and the increased penetration of progressive lenses in developed and developing regions. Because presbyopia is an age-related process that affects almost all individuals above the age of 45, demand for progressive lenses will continue to benefit from the aging of the population. In addition, the multifocal lens market continues to experience a positive transition to progressive lenses as a superior alternative to bifocal lenses. We intend to capitalize on our strong design and manufacturing capabilities in order to take advantage of these demographic and market trends.

Increase Share in Key Markets

        We plan to expand our sales in Europe by acquiring additional optical laboratories and also plan to implement new sales and marketing programs to further leverage our existing optical laboratories and distribution centers in Germany, Spain, Portugal, France and the United Kingdom. We plan to significantly increase our presence in the United States by expanding our sales force and increasing our marketing programs. We plan to increase awareness and brand recognition world-wide by participating in trade shows, seminars and conventions, and hosting presentations for optometrists, opticians and ophthalmologists. We believe that greater brand recognition, combined with the quality of our products, will enable us to expand our business with existing laboratory customers and generate additional business from potential new customers.

Expand into New Geographic Markets

        Given the population demographics of China, India, Eastern Europe and South Africa, and the low current penetration in these areas, we believe these markets provide significant growth opportunities for our products. In each of these markets, we have established relationships with optical

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laboratories and distributors with whom we intend to develop exclusive agreements so that they distribute only our products, as we have done in other parts of the world. In addition, we plan to explore vertical acquisitions of optical laboratories where appropriate to maintain and increase our market share. By developing new and existing distribution relationships and expanding our sales of technology solutions and design molds into developing markets, we believe that we will be able to further leverage our proven technology across a broader geographic base, deriving even more value from our existing resources.

Implement New Approach of Designing and Manufacturing Personal Lenses

        We were among the first progressive lens manufacturers to provide optical laboratories with a newly developed free form production method. Our free form production method, known as our Direct Lens Technology, is an advanced surfacing technology for creating premium lenses customized for the unique needs of each patient. By combining the patient's exact vision requirements with our proprietary Eye Point Technology, a personal file for a customized progressive lens is created and transferred to advanced cutting and polishing machinery for production. Although we do not expect revenues from the free form technology to be material in the near future, we believe that over time free form production methods will redefine the traditional ophthalmic business model on an industry-wide basis. We are currently utilizing our Direct Lens Technology in the optical laboratory of selected customers, and we intend to increase the number of laboratories to whom we license this technology. We believe that this licensing arrangement will provide software royalties with limited incremental cost.

Focus on Value-Added Materials

        Our lenses are available in a variety of materials, including standard plastics and high refraction index plastics that allow for thinner lenses. We plan to continue to increase our offerings of lenses made from plastic and high index material. While lenses produced from these materials currently represent only a small portion of the total market, we believe that they represent the fastest growing segment for progressive lenses and provide enhanced profit margins. Our increased efforts to capitalize on this growth opportunity include plans to build a new manufacturing facility focused on high index lenses. We believe these strategies will improve the performance of our products and generate increased sales.

Products

        Our products consist of lenses that we sell to optical laboratories and design services, including molds, that we sell to optical lens manufacturers under service and royalty agreements. During 2003 revenues from our sales of lenses accounted for 87.9% of our total revenues, while revenues from our sales of design services accounted for 12.1% of our total revenues.

Lenses

        Premium Lenses.    Over the past several years, we have become a market leader in manufacturing premium progressive lenses in a wide range of materials. These lenses are sold under our own brand names as well as private labels. We currently produce over 50 principal types of progressive lenses,

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which differ from one another in design, color and lens material, as well as in size and shape. The following table shows our primary brands of lenses.

Brand	Characteristics	Available Materials	Other
Shamir Genesis	All-purpose progressive lens	Plastic, Mineral, Trivex	Ranked #1 by "Optometry" journal for fit heights 18 and 22.(1)
Shamir Office	Designed for visual clarity from 1.3 ft. to 10 ft. Allows comfort for people working in closed environments.	Plastic, Mineral
Shamir Piccolo	Designed to fit into any small frame.	Plastic, Mineral, Polycarbonate	Ranked #1 by "Optometry" journal for fit heights 16, 18 and 22.(1)
Shamir AutoGraph	Customized back surface progressive lens. Produced using free form technology.	Plastic

(1)

Rankings are according to a study entitled "Progressive Addition Lenses—Matching the Specific Lens to Patient Needs," by James E. Sheedy, O.D., Ph.D. in Optometry, the Journal of the American Optometric Association, Vol. 75, Nr. 2, February 2004. The report examined lenses with fit heights of 16, 18, 22 and 26 millimeters, those heights that it considered most common. "Fit height" refers to the distance on the lens between the point on the lens directly across from the middle of the pupil and the bottom of the lens. Smaller frames require lower fit heights that must address the transition between viewing distances in a more compact area.

        Free Form Lenses.    In addition to our premium lens offerings described above, we also produce lenses under the Shamir Autograph brand using our new proprietary free form production method known as our Direct Lens Technology. We released this technology in the first quarter of 2004. Our Direct Lens Technology creates a unique personal computer file for a customized progressive lens by combining the patient's exact vision requirements with our proprietary Eye Point Technology. This file can be transferred to advanced cutting and polishing machinery for mold-free lens production. This single process yields a finished lens that contains both the progressive and prescription characteristics and does not require any further surfacing. In addition, this process allows the optical laboratory to place both the progressive and prescription characteristics on the back surface of the lens, which is closer to the patient's eye, thereby enhancing the field of view. By taking into account the patient's personal prescription, measured or traced frame data and the exact pupil position for specifically chosen frames, the Shamir Autograph is a finished, personal adjusted progressive lens that is ready for edging and framing in every type of frame. In addition to producing these lenses ourselves, we are also currently licensing this technology to selected laboratory customers to allow them to produce these advanced lenses tailored to meet their patients' unique requirements. To date, revenues from licenses for this technology have not been material.

Design Services

        Research and Development Services.    We provide third party lens manufacturers with research and development services in which we develop new optical designs and related software tools designed for

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the production processes of lenses and for which we receive ongoing payments and future revenues from royalties. As such we operate as an outsourced research and development arm for third parties. We believe that some of these manufacturers, such as The Spectacle Lens Group, a division of Johnson & Johnson Vision Care, may have the potential to provide us with substantial future revenues from royalties by devoting substantial marketing resources and leveraging their brand recognition and experience in rolling out new products to become significant players in the progressive lens market. See also "—Research and Development."

        Molds.    We specialize in the design and manufacture of sophisticated progressive lens molds for use by plastic lens manufacturers. We believe our customers value our ability to design tailor-made optical molds to satisfy precise requirements regarding size, base curves, markings and other properties. We design and produce several different molds that can be easily adapted to customer needs by changing characteristics including invisible markings, edge configuration and thickness.

Research and Development

        Our research and development group, which includes approximately 35 engineers, mathematicians, physicists, chemists, programmers and optical technicians, is considered one of the world's pre-eminent research and development teams for development of progressive lenses, molds, and complementary technologies and tools. We constantly enhance our capabilities and invest resources in order to develop new innovative products and related tools designed to optimize the production processes. Innovation, technological sophistication and rigorous quality assurance practices have enabled us to position ourselves as a clear technology leader in the progressive segment of the lens market and contributed to our growth.

        In addition to pure optical tools, we have developed complementary software tools specifically designed for our research and development requirements, including proprietary software that simulates human vision, and mathematical tools that optimize the design of progressive and aspheric lenses. These proprietary tools, and in particular our Eye Point Technology, enable us to maintain a strong competitive advantage.

Research and Development Teams

        Our technologies are developed through a cooperative process among our integrated research and development teams that follow the generation of a new concept through to the completion of a new lens or mold design that is ready for production.

        Algorithm and Software.    Our algorithm and software team works to generate mathematical algorithms aimed to optimize lens design and integrate these algorithms into the optical design software that we build for creating our optical products.

        Optical Design.    Our optical design team uses our proprietary software to create innovative progressive lens and molds designs for us and our design services customers.

        Optical Laboratory.    Our optical laboratory team generates prototypes for experimentation and testing of each lens and mold designed by our optical design team, using similar manufacturing systems to those that are in place in our mass production facilities.

        Optical Measurement.    Our optical measurement team utilizes our advanced measurement capabilities to analyze the prototype and provide our optical designers with detailed information from the prototype that our optical laboratory team has produced.

Proprietary Technologies

        Optical Design Technology.    We have developed a unique family of optical design software tools that enable us to create our lenses using unique mathematical algorithms to optimize the optical characteristics of the lens and minimize distortion. These algorithms are continually reviewed and improved to take into account new production methods and advances in raw materials to enable us to quickly integrate new technologies into our design and manufacturing operations.

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        Eye Point Technology.    Our Eye Point Technology utilizes a dedicated ray-tracing program that we developed to compute optical properties and simulate human vision. Capable of calculating the optical performance of thousands of locations covering the surface of a lens, the ray-tracing program takes into account numerous vision parameters essential for developing progressive lenses. We believe this technology represents a significant departure from conventional lens analysis tools and enables us to optimally develop every lens point in order to create progressive lenses meeting precise individual requirements.

        Direct Lens Technology.    Direct Lens Technology is our free form production technology that uses dedicated optical machines that are capable of forming a uniquely designed optical lens by processing the raw material to meet the desired geometrical and surface characteristics. Our Direct Lens Technology creates a unique personal electronic file for a customized progressive lens by using our proprietary Prescriptor software to combine the patient's exact vision requirements with our proprietary Eye Point Technology. This electronic file can be transferred to advanced cutting and polishing machinery for mold-free lens production. This single process yields a finished lens that contains both the progressive and prescription characteristics and does not require any further surfacing. In addition, this process allows the optical laboratory to place both the progressive and prescription characteristics on the back surface of the lens, which is closer to the patient's eye, thereby enhancing the field of view.

        Additional Technologies.    In addition to our own internal research and development efforts, we seek to make investments and form joint ventures to explore additional opportunities for advancements in the optical field. See "—Corporate Structure—Significant Subsidiaries and Equity Investments." These interests include the following relationships:

•

Our subsidiary Inray Ltd. engages in the research and development of algorithms and software that facilitate the development of tools for designing lenses and optimizing their optical characteristics. We own 50.03% of the shares and 50% of the voting rights in Inray, and Dymotech Ltd., a company controlled by the Technion Israel Institute of Technology, and two of the Technion's researchers own one-sixth of the voting rights each. We believe that the technologies developed by Inray are not only relevant to the field of optics and vision lenses, but also germane to developing software to improve vision in the field of contact lenses and measurement of the cornea of the eye prior to surgical operations to repair vision.



•

Shamir Or Ltd. is seeking to develop innovative lenses based on diffractive optics, the manipulation of lens characteristics by means of fine notching on the lens that affects the direction of rays of light. This technology would enable us to improve the optical characteristics of the lens.



•

E-vision LLC is exploring the use of electroactive technologies to create lenses that can change refractive powers to allow users to focus their vision at varying distances.

Marketing and Distribution

        Our marketing efforts focus on two principal product groups, progressive lenses and design services. Our progressive lenses are marketed to optical laboratories, retail chains, buying groups and opticians. Our research and development services, which include molds designed for the production of progressive lenses, are marketed primarily to other manufactures of plastic lenses. We believe we have gained a reputation in the design services market as a quality leader.

Lenses

        Our marketing strategy in the United States differs from the marketing strategy in Europe and the rest of the world. In the United States it is a customary practice for optical shops to determine for its patient the type of lens to be generated whereas in Europe and the rest of the world the optical

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laboratories generally make such determinations. Therefore, marketing in the United States requires a larger marketing force and greater presence in order to reach as many optical shops as possible in the United States.

        United States.    The U.S. ophthalmic market is characterized by a large number of laboratories, many of which are independent, as well as large national retail chains and buying groups, some of which own their own laboratories. We currently market and distribute our products in the United States directly to independent laboratories, using our marketing subsidiary Shamir Insight, which has pursued a proactive marketing campaign through its sales force. Our marketing platform aims to build brand recognition for our lenses through its focus on progressive lenses and sponsorship of industry seminars attended by optometrists, opticians and ophthalmologists. Unlike many of our competitors, we made a strategic decision not to acquire independent optical laboratories in the United States in order not to compete with these laboratories. We focus our U.S. marketing efforts on these laboratories, and our independent status has enabled us to achieve significant growth in this market. To support our marketing efforts and further educate the market on progressive lenses, we developed our "ReCreating Perfect Vision" promotional campaign, in which more than 100 independent laboratories have participated, and utilize the "Eye-View" software, a proprietary program that illustrates differences in lens quality and design. To expand and maintain the quality of our sales force, Shamir Insight only hires account executives with at least five years experience as qualified opticians and has created an advanced sales training program through which it educates all new executives.

        Europe.    The European ophthalmic market has experienced significant consolidation of optical laboratories, and fewer of these laboratories remain unaffiliated with lens manufacturers or retail chains. As a result, the conflict of interest that exists in the United States when acquired laboratories compete directly with independent laboratories (who are also potential customers) is less pronounced in Europe simply because there are fewer independent laboratories; any potential benefit to be gained from not acquiring laboratories and thereby not competing with the remaining independent laboratories is much smaller. In Europe, we market and sell our products through our subsidiary Altra. Altra relies on two primary distribution channels. The first channel is comprised of Altra's distribution centers and optical laboratories in Germany, Spain, Portugal, France and the United Kingdom. From these locations, we distribute progressive lenses and also offer a variety of non-progressive lenses that we source from other manufacturers in order to provide the market with a comprehensive offering of optical lenses. In each of our locations, we employ a professional, well trained sales force that builds our brand name through direct sales efforts and attendance at conventions, presentations and trade shows. Our state of the art distribution center in Germany maintains an inventory of several thousand varieties of semi-finished progressive, bifocal and single vision lenses and finished single vision lenses, has significant capacity, and enables us to provide just-in-time deliveries of nearly any size order to anywhere in Europe. The second channel we pursue consists of optical laboratories, chains and buying groups that market our products primarily under a private label. Due to our delivery capabilities, variety of finished and semi-finished lenses, and customer service provided by our laboratories and distribution centers, we believe we can increase our business with our existing customers while simultaneously obtaining business from new opticians, optical laboratories, retail chains and buying groups.

        The Rest of the World.    We market and sell our products in the rest of the world through distributor relationships or directly to optical laboratories. We have established relationships with distributors in several markets, which we intend to develop so that they distribute only our products as we have done in other parts of the world. We also plan to explore vertical acquisitions of optical laboratories where appropriate to maintain and increase our market share. In addition, we participate in many international optical trade shows, such as OLA and Vision Expo in the United States, Silmo in Paris, Mido in Milan, and also local trade shows in China, India, South Africa, Brazil, Spain, Portugal and the United Kingdom.

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Design Services

        We have established close technological relationships with other lens manufacturers worldwide for whom we design and to whom we sell molds and design services. We maintain these relationships through ongoing contacts between the research and development teams and between the engineering departments of the lens manufacturers.

        In 1994 we established Shamir USA as our marketing channel and distributor of research and development services in the United States. Since then, we have developed supplier-customer relationships with many lens manufacturers in the United States.

Customers

        Our customers are optical laboratories and opticians for spectacle lenses and third-party lens manufacturers for design services. During 2003 our three largest customers accounted for 25% of our revenues. Our largest customer accounted for approximately 11% of our revenues during 2003 and for approximately 6% during the first nine months of 2004. The remaining 75% of our revenues are spread across more than 200 customers, and no other customer, other than our three largest customers, accounted for more than 6% of our revenues.

Manufacturing Operations

        We operate manufacturing and research and development facilities in Kibbutz Shamir in northern Israel and a manufacturing facility in Kibbutz Eyal in central Israel. These facilities produce glass molds and semi-finished glass and plastic lenses. We also produce finished glass and plastic lenses at our optical laboratory in Portugal and will begin production at our optical laboratory in the United Kingdom in the near future.

Production of Semi-Finished Plastic Lenses

        Initial Processing of the Raw Material.    We initially combine a mixture of raw materials to prepare the plastic for casting.

        Mold Assembly.    Two glass molds, one for forming the convex progressive surface of the lens and one for forming the concave surface of the lens are assembled in a plastic ring or tape. The volume between the two molds is sealed by this plastic ring or tape.

        Casting.    The volume between the two molds is filled with the plastic raw material and the two molds are inserted into an oven for polymerization, or hardening, after which time the molds are removed and separated leaving the plastic lens formed by the molds. Following each use, the glass molds are inspected and rinsed with specially designed detergents and chemicals to treat them for re-use.

        Curing and Coating.    After the lens is formed by the molds, it undergoes a curing process in order to alleviate internal stress and is coated in accordance with the customer's request.

        Marking and Quality Assurance.    Once the plastic lens is formed and coated, it is subjected to marking and quality assurance procedures similar to those utilized for glass lenses.

Production of Finished Plastic Lenses by Free Form Technology

        Free form technology refers to a new lens production technology that incorporates special optical machines that are capable of accurately forming an optical surface defined by a computer data file. Using this technology, we surface plastic lenses so that the lenses are made according to the prescription requested by the optometrist. We also license this production method to select optical

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laboratory customers to allow the production of individualized plastic lenses with greater optical accuracy. Using this technology, a spherical semi-finished plastic lens blank is processed on its concave side by a computer-controlled free form optical lathe. The lathe computer is loaded with a surface data file. The surface data file is specifically computed by our proprietary software named Prescriptor to meet a desired prescription. After forming the surface topography by the lathe, the lens is polished by a free form polishing machine to achieve optical surface quality. Using a laser engraving system, we mark reference marks on the concave surface to enable the optician to properly fit the lens into the frame.

Production of Glass Molds and Semi-Finished Glass Lenses

        Initial Processing of the Raw Material.    We receive raw material in the form of glass round blanks, which are then ground, lapped and polished in order to give them an accurate form and high optical quality surface.

        Rinsing.    The blanks are rinsed thorough a series of ultrasonic tanks to remove production residues from the surface and then dried.

        Imprinting the Progressive Attributes.    Each blank is laid on a ceramic mold for imprinting the progressive attributes and passed through a special heating oven in order to relax its form. We produce the ceramic molds using computerized milling equipment, which imprints a topography of the progressive surface on the ceramic mold using our proprietary software. When the glass softens, the ceramic mold structure is copied onto the blank and the progressive attributes are retained on the surface.

        Marking.    Each lens is etched with semi visible and visible marks to aid with the precise adjusting and mounting of the lens in the eyeglass frame and other marks requested by customers, such as a customer's logo.

        Quality Assurance and Control.    Lenses and molds undergo rigorous quality control for cosmetics, such as cracks or nicks, and optics, such as power and geometry. Our production factory is ISO 9002 certified.

        The process for producing lenses and molds is similar, but the production of molds involves additional edge processing to shape the mold's edge so that it will fit the manufacturing systems of the customer to whom we sell the mold.

Free Form Production of Glass Molds

        In addition to the traditional production methods described above, we have begun to use our free form production method for our internal glass molds production process. In this free form production method, advanced grinding and polishing machines are used to surface the mold in accordance with the topography of a surface that was computed by our optical design software. This production technology enables us to create a desired multifocal surface topography of the mold by machining the glass surface instead of forming it by heat. We grind a glass blank with a computer-controlled free form grinding machine. This process creates the needed surface topography. We then polish the lens with dedicated computer-controlled free form polishing machines. The rest of the production process is similar to that of plastic lenses. This production technology involves fewer steps and results in higher surface accuracy than traditional production.

Competition

        We compete primarily with manufacturers of progressive spectacle lenses and molds. Our main competitors include Essilor, Sola, Hoya, Rodenstock and Zeiss for the production of semi-finished

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lenses and molds, and Crossbows for the development and design of molds. Many of our competitors have significantly greater resources than we do and may benefit from greater economies of scale. See "Risk Factors—The industry in which we operate is highly competitive, and these competitive pressures may harm demand for our products." In Europe our competitors' primary distribution channels are the optical laboratories that they own. We compete with these laboratories, as well as with other distributors in Europe who do not own their own labs, through our two optical laboratories in Portugal and the United Kingdom.

        Competition in our industry is based primarily on technological innovation and product quality, as well as on breadth of product offerings, customer service and price. Price competition can be severe in the spectacle lens industry, especially in certain geographic markets and for high-volume, standardized products. We attempt to counter this competition to the extent possible by offering what we believe are among the highest quality progressive lenses in the market. Based on SWV's estimate, we believe that our sales of progressive lenses constituted less than 5% of the global progressive lens market in 2003. We also believe that our providing research and development services gives us a competitive advantage over other progressive lens manufacturers who sell only finished products to the market.

Facilities

        Our principal executive offices and our primary manufacturing facilities are located in Kibbutz Shamir in northern Israel and in Kibbutz Eyal in central Israel. At these facilities we produce molds and semi-finished glass and plastic lenses. See "—Manufacturing Operations." We sublease the facilities in Shamir from Kibbutz Shamir. See "Certain Relationships and Related Party Transactions." Together, the Shamir and Eyal facilities cover approximately 5,370 square meters of manufacturing space, 1,950 square meters of warehouses and 1,130 square meters of office space.

        We also own optical laboratories in Portugal and the United Kingdom, which occupy approximately 2,000 square meters and 1,400 square meters of owned and leased manufacturing and office space, respectively. Our partially owned distributors in the United States, France, Germany, Spain and Portugal also lease or own storage and office facilities in which they conduct their operations.

        The following table gives an overview of our material properties, plants and facilities:

Name/Location	Company	Primary Use	Size	Leased/Owned
Kibbutz Shamir, Israel	Shamir Optical Industry Ltd.	Headquarters, administration; manufacturing	4,700 sq. m.	Leased
Kibbutz Eyal, Israel	Shamir Optical Industry Ltd.	Manufacturing	3,750 sq. m.	Leased
Vilar, Portugal	Altra Optica Lda.	Optical laboratory	2,000 sq. m.	Owned
Niederau, Germany	Altra Trading GmbH	Distribution warehouse	1,765 sq. m.	Owned
San Diego, California	Shamir Insight, Inc.	Distribution warehouse	744 sq. m.	Leased
Cambridge, United Kingdom	Cambridge Optical	Optical laboratory	1,400 sq. m.	Leased

        We anticipate that we will use a portion of the net proceeds of this offering to fund the construction of new production lines in a new manufacturing facility for high index lenses adjacent to our current facilities in Shamir. We currently anticipate that construction of this facility will begin in 2005 and will be completed during 2006.

Employees

        As of September 30, 2004, we had a workforce consisting of 539 people, which includes 506 employees and 33 persons who provide services to us through our working services agreement with Kibbutz Shamir (see "Certain Relationships and Related Party Transactions"). The following table

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shows the breakdown of our workforce by main category of activity and geographic location as of December 31 for the past three years and as of September 30, 2004.

Department or location	2001	2002	2003	2004
Research and development	28	33	34	35
Marketing and sales	19	37	49	56
Management and administration	50	62	71	65
Manufacturing and warehouse	283	288	354	383
Total	380	420	508	539
Israel	289	292	344	344
United States	13	18	30	41
Europe	78	110	134	154
Total	380	420	508	539

        We consider the changes in the numbers of employees in our various departments or geographic regions to be in line with our expectations for our company's growth. We believe that our relations with our employees are good. None of our employees work under any collective bargaining agreements, and we have no relations with any labor unions.

Intellectual Property

        We seek to protect our intellectual property through patents, trademarks, trade secrets and other appropriate protective measures in the primary markets in which we are active. As of September 30, 2004, we held two U.S. patents directly and five through our subsidiary Inray, and several patent applications covering our innovative algorithms and methods of designing multifocal surfaces. We own rights in the following trademarks in various jurisdictions world-wide: Shamir™ and the Shamir logo, Shamir Genesis™, Genesis™, Shamir Piccolo™, Piccolo™, Shamir Office™, Shamir Creation™, Shamir Autograph™, Autograph™, Prescriptor™ and Eye Point Technology™. Our main trademarks are registered or are in the process of being registered in the United States, the European Union, Canada and additional countries. We do not believe that our viability or profitability substantially depends on any single patent, trademark, trade secret or other piece of intellectual property.

        When we create lens designs for our design services customers, these customers generally have the right to use these designs, in some instances on an exclusive basis, while we maintain ownership rights to the intellectual property developed by our research and development teams during the creation of these designs.

Regulation

        We are subject to regulatory requirements governing the manufacture and sale of spectacle lenses in all of the markets in which we operate. In particular, in the United States our lenses—like those of our competitors—must comply with the so-called "drop-ball impact test" to satisfy the safety requirements for the sale of lenses of the U.S. Food and Drug Administration. The drop-ball impact test involves dropping a steel ball of specified size from a specified height onto the center of a lens with a specific size. The lens passes the test if it does not break.

        In Europe our lenses must obtain certifications within the requirements of the Medical Device Directive 93/42 EEC. These certifications relate primarily to the adequacy of the procedures used in the manufacture, testing and sale of spectacle lenses.

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Environmental Matters

        Our operations are subject to stringent environmental regulations throughout the world concerning, in particular, air emissions, waste water discharge and the generation, handling, storage, transport and disposal of hazardous wastes. These laws and regulations have for the most part become increasingly stringent over the years. In order to comply with these laws and regulations, we use non-hazardous materials and chemicals in our manufacturing processes where feasible. Certain of our processes, including cleaning lenses, assembling molds and coating lenses, require a variety of volatile and hazardous substances. Where use of these substances or other hazardous materials is essential, we develop manufacturing processes in compliance with relevant local, national and international environmental and safety standards.

        Our policy is to meet or exceed all applicable environmental and health and safety laws and regulations. We believe that we possess all material permits and licenses necessary for the continuing operation of our business and that our operations are in substantial compliance with the terms of all applicable environmental laws and regulations. We cannot predict the impact of any new environmental laws or regulations or of changes in current environmental laws or regulations on our operations.

Legal Proceedings

        From time to time, we and our subsidiaries may be involved in lawsuits, claims, investigations or other legal or arbitral proceedings that arise in the ordinary course of our business. These proceedings may include general commercial disputes and claims regarding intellectual property. We are currently not involved in any material legal proceedings. We are involved in two disputes concerning allegations of breach of third parties' patents, as described below.

        In November 2003 one of our laboratory customers in the United States was notified by a large lens manufacturer that the manufacturer believes that the sales of a certain lens constitutes an infringement of a certain patent of this manufacturer. We have denied any such infringement allegations and have entered into negotiations with the manufacturer with regard to this patent in order to reach a resolution.

        In September 2003 we received a separate and on its face unrelated notification from a different large lens manufacturer in which the manufacturer claimed that the lenses produced using our Prescriptor software infringe upon a U.S. patent held by the manufacturer. In subsequent correspondence, the manufacturer stated that it believed only one claim of the patent to be infringed. We have denied any such infringement. We have entered into discussions with this manufacturer and have asked for clarification of his claims.

        We currently cannot predict the development or ultimate outcome of the discussions with regard to these two claims.

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Corporate Structure

        In furtherance of our focus on innovative research and development projects, we have acquired equity interests in companies in the optical field. The following chart shows the names and locations of our direct and indirect significant subsidiaries and equity investments, along with our ownership interest in each relevant subsidiary.

(1)

Shamir has a 56.7% ownership interest in Shamir Insight, Inc. and holds 56.7% of the voting power in Shamir Insight, Inc. In addition, Shamir is entitled to vote the shares held by Shamir USA's president, Michael Latzer, in Shamir Insight, Inc., which amount to an additional 10% of the voting power in Shamir Insight, Inc.

(2)

Shamir has a 50.03% ownership interest and holds 50% of the voting rights in Inray Ltd.

(3)

Shamir has a 19.8% ownership interest and holds 19.5% of the voting rights in E-vision LLC.

        The subsidiaries and equity investments shown in the chart above engage in the following business activities:

•

Eyal Optical Industries (1995) Ltd., in which we acquired a 25% stake in 1997 and 100% in 2003, manufactures Shamir plastic progressive and other lenses. We hold Eyal Optical Industries through Eyal Optical Holdings A.C.S. Ltd.

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•

Shamir USA, Inc., which we established in 1994, is one of our marketing and distribution companies in the United States.



•

Shamir Insight, Inc., which we established with our partner Savern in 1999, is our main marketing and distribution company in the United States.



•

Altra Trading GmbH, in which we acquired our stake in 2001, is our main marketing and distribution company in Europe.



•

Inray Ltd., jointly owned by us, the Technion Israel Institute of Technology and two of its researchers, engages in the research and development of algorithms and software for the optics industry to facilitate the development of tools for designing lenses and optimizing their optical capacity.



•

Shamir Or Ltd. seeks to develop innovative lenses based on diffractive optics. Diffractive optics provide for thinner lenses through the manipulation of lens characteristics by means of fine notching on the lens that affects the direction of rays of light.



•

E-vision LLC is exploring the use of electroactive technologies to create lenses that can change refractive powers to allow users to focus their vision at varying distances.



•

Interoptic SARL is our distributor in Paris, France.



•

Altra Optica Espana SL is our distributor in Spain.



•

Altra Optica Lda. is our optical laboratory in Portugal, which serves Portugal, Spain and other western European countries.



•

Cambridge Optical Group Limited is our optical laboratory in the United Kingdom, which we acquired in September 2004 and which we hold through JMH Holding Ltd.

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MANAGEMENT

        The following table lists the current members of our board of directors and our executive officers, as well as the nominees for membership on our board. We expect that the nominees will be elected to the board as soon as practicable, and in any event no later than three months after the closing of this offering. The address for our directors is c/o Shamir Optical Industry, Kibbutz Shamir, Upper Galilee, 12135 Israel. Other than Giora Ben-Zeev and Rami Ben-Zeev, who are brothers, there are no family relationships among members of our board or our executive officers.

Name	Age	Position/Principal Occupation
Giora Ben-Zeev(1)(2)	62	Director; President and Chief Executive Officer
Dan Katzman	50	Chief Engineer, Vice President
Dagan Avishai(1)(2)	44	Executive Vice President, Vice President Marketing
Amir Hai	38	Chief Financial Officer
Rami Ben-Zeev(1)(2)	55	Vice President
Uzi Tzur(1)(3)	65	Director, Acting Chairman of the Board
Yair Shamir(4)	59	Nominee for Director and for Chairman of the Board
Efrat Cohen(2)	36	Director
Orly Hayardeny Felner	35	Director
Ami Samuels(5)	45	Nominee for Director
Amos Netzer(5)	49	Nominee for Director
Zeev Feldman(4)	53	Nominee for Director
Jed Arkin(4)	41	Nominee for Director

(1)

Member of Kibbutz Shamir.

(2)

Member of the management board of Kibbutz Shamir.

(3)

Chairman of the management board of Kibbutz Shamir.

(4)

Independent board member.

(5)

External and independent board member.

Giora Ben-Zeev.    Mr. Ben-Zeev has been our President and Chief Executive Officer since 1994. He was among the founders of our company in 1972 and has worked as Plant Manager, Marketing Director and Assistant President. Previously, he spent five years as marketing director at Sher Israel, a gold refinery. He is a member of the management board of Kibbutz Shamir. Mr. Ben-Zeev graduated from the Technion Israel Institute of Technology in industrial and management engineering.

Dan Katzman.    Mr. Katzman joined our company in 1981 as an engineer and became Chief Engineer in 1985. An internationally recognized expert in optical research and development, he has headed our research and development teams since then. He holds a degree in mechanical engineering from the Technion Israel Institute of Technology and serves as an officer in the Israeli Air Force.

Dagan Avishai.    Mr. Avishai has been our Executive Vice President and Vice President of Marketing since 2003. Prior to joining the company in 1997, he served as financial manager of Kibbutz Shamir for three years. He is a director at Shalag Industries, Ltd. and a member of the management board of Kibbutz Shamir. He holds a BA degree in management and economics from the Ruppin Academic Center and serves as a lieutenant colonel in the Israeli reserve armed forces.

Amir Hai.    Mr. Hai joined the company in August 1999 and has served as our Chief Financial Officer since that date. From 1994 to 1999, he was a senior manager with Ernst & Young responsible for initial public offerings of companies on Nasdaq and on Germany's Neuer Markt. He holds a BA degree in accounting and management from The College of Management in Tel Aviv.

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Rami Ben-Zeev.    Mr. Ben-Zeev joined our company as business manager and Vice President in 2001. Previously he served as financial manager of Kibbutz Shamir from 1992 to 1995 and as chief financial officer of Tel Hay Rodman regional college from 1999 to 2001. He is a member of the management board of Kibbutz Shamir. He holds a BA degree in economics from Hebrew University of Jerusalem and an Executive MBA from Tel Aviv University.

Uzi Tzur.    Mr. Tzur has been a member of our board of directors since its original establishment in 1997. He has served as acting chairman of the board since July 2004. He is also the current chairman of the management board of Kibbutz Shamir, a position he has held since 1992. Mr. Tzur is currently a member of the boards of directors of Shalag Industries, Ltd. and N.R. Spuntech Industries Ltd, the two other companies of Kibbutz Shamir, which are listed on the Tel Aviv stock exchange. He is also chairman of the boards of Mishkai Galil Elion, an umbrella organization of all kibbutzim in northern Israel, and of Hamashbir Hamercazi, an Israeli trading company. He has over twenty years of experience in different managerial positions. He holds a degree in management and economics from the Ruppin Academic Center in Israel and is a retired lieutenant colonel of the Israeli reserve armed forces.

Yair Shamir.    Mr. Shamir is the nominee for chairman of our board of directors. He is currently the chief executive officer and chairman of the board of VCON Telecommunications, a position he has held since 1997. Since June 2004 he has served as chairman of EL AL Israel Airlines, and he is the chairman of Catalyst Fund, an Israel based venture capital fund investing in late-stage companies mainly in the technology sector. He currently serves as a director of DSPG and Mercury Interactive, both listed on Nasdaq, and as a director of several private hi-tech companies. From 1995 to 1997, Mr. Shamir served as executive vice president of the Challenge Fund-Etgar L.P., an Israeli venture capital firm. From 1994 to 1995, he served as chief executive officer of Elite Food Industries Ltd., one of Israel's largest branded food products companies. From 1988 to 1993, he served as executive vice president and general manager of Scitex Corporation Ltd., a leading supplier of computer graphic systems. From 1963 to 1988, Mr. Shamir served as a pilot in the Israeli Air Force and attained the rank of colonel. Mr. Shamir holds a B.Sc. in electronic engineering from the Technion Israel Institute of Technology.

Efrat Cohen.    Mrs. Cohen has been a member of our board of directors since 2001. Since 1997 she has been the chief financial officer of Kibbutz Shamir, and she is a member of the management board of Kibbutz Shamir. Mrs. Cohen holds a BA degree in economics and management from the Ruppin Academic Center.

Orly Hayardeny Felner.    Mrs. Hayardeny Felner has been a member of our board of directors since January 2005. Since 1998 she has been the chief financial officer of FIBI Investment House Ltd., a shareholder in our company and a subsidiary of FIBI Holding Company Ltd., the holding company of the First International Bank of Israel. From 1993 until 1998 she worked as an accountant at KPMG Somekh Chaikin, certified public accountants, in Israel. She currently serves as a director of Intergama Investment Company Ltd., Rapac Electronics Ltd. and Rapac Technologies Ltd., all companies listed on the Tel Aviv Stock Exchange, as well as of several private companies in which FIBI Investment House Ltd. holds investments. She holds a BA degree in economics and accounting from Tel Aviv University and has completed the course work toward an MBA with a specialization in finance from Bar Ilan University.

Ami Samuels.    Mr. Samuels is a nominee for membership on our board of directors. He is currently a partner in Star Ventures, an international investment company. From 2001 until 2003, he served as vice president and chief financial officer of Satlynx, a company specializing in two-way satellite broadband services. From 1998 until 2001, he was vice president for broadband networks at Gilat Satellite Networks, and from 1989 until 1998, he was a senior vice president of investment banking at Lehman Brothers. He holds a BA degree from Haifa University and a master's degree in management from Yale University.

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Amos Netzer.    Mr. Netzer is a nominee for membership on our board of directors. Since 2000 he has been the managing director of Palram Industries Ltd., a public company traded on the Tel Aviv Stock Exchange. From 1998 until 2000 he was the managing director of SMS, a private company engaged in the production and distribution of plastic products to world markets, which Mr. Netzer also founded. Between 1993 and 1997, he was president of Suntuf, Inc., a U.S.-based manufacturer of corrugated polycarbonate building panels, and responsible for the establishment of the North American marketing and distribution network of Palram-Paltough Ltd. He holds a B.Sc. degree in industry and administrative engineering from the Technion Institute in Haifa and an MS degree in public policy and business administration from Tel Aviv University.

Zeev Feldman.    Mr. Feldman is a nominee for membership on our board of directors. He is currently the chief executive officer of Feldz Investments Ltd. and a member of the board of directors of Cellcom Israel Ltd., Solbar Industries Ltd., Azimuth Ltd. and Union Bank's Mutual Funds Ltd. From 1998 until 2003 he was the chief executive officer of FIBI Investment House Ltd. and FIBI Holdings Ltd. He has served as a director on the boards of FIBI Investment House Ltd., Intergama Ltd., RPK Electronics Ltd., Medison Tech Ltd., Jordan Gate Projects Ltd. and Elleran Investments Ltd. He holds a BA degree in economics and accounting from Tel Aviv University and is a certified public accountant.

Jed Arkin.    Mr. Arkin is a nominee for membership on our board of directors. He has served as chairman of PeerPressure, Inc., a company that provides peer-to-peer content protection systems, since January 2000; as chairman of MadahCom Communications Ltd., a spread-spectrum communications company, since January 2000; as a director of Orckit Communications Ltd., a Nasdaq-listed company, since July 2001; and as a director of Corrigent Systems, Ltd., a manufacturer of metro-optical transport equipment, since December 2003. From 1999 until 2001, he served as general manager of merchant banking for Oscar Gruss & Son, a New York-based investment bank. From 1995 until 1998, he served as vice president of The Challenge Fund, an Israeli venture capital firm. He holds a B.A. from St. John's College in Annapolis, Maryland, an M.B.A. from Harvard Business School and a J.D. from Harvard Law School.

Board of Directors

        Prior to the closing of this offering, we will reorganize our company into an Israeli limited liability company. See "Reorganization." Upon the closing of this offering, we will become a public company, as the term is defined under the Israeli Companies Law. As a limited liability public company, we are managed by a single board of directors and by our executive officers. Under the Israeli Companies Law and our articles of association, the board of directors is responsible, among other things, for establishing the company's policies and overseeing the performance and activities of our chief executive officer, convening shareholders' meetings, preparing and approving our financial statements, reviewing and approving fundamental strategic, financial and organizational decisions on behalf of the company, and issuing securities and distributing dividends. The board also appoints and may remove the chief executive officer of the company.

        Our board of directors currently consists of four directors. Within three months following the closing of this offering, our board of directors will consist of nine directors. Two of these directors will be "external" directors in accordance with the Israeli Companies Law (see "—External Directors"). These two external directors and three additional directors will qualify as independent directors for purposes of the listing requirements of the Nasdaq National Market. Pursuant to an agreement among our shareholders, Kibbutz Shamir has agreed with another shareholder to vote for their respective nominees for membership on our board. See "Certain Relationships and Related Party Transactions—Shareholders Agreement."

        Assuming we maintain our status as a foreign private issuer, the rules of the Nasdaq National Market specify that our board of directors must consist of a majority of independent directors by

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July 31, 2005. We intend to comply with this requirement as soon as possible after the closing of this offering and in any event no later than at the special meeting of our shareholders to elect external directors under the Israeli Companies Law, which we are required to hold within three months of the closing of this offering. It is our intention that the persons nominated as external directors also will enable us to satisfy the majority-independence requirements under the Nasdaq National Market listing requirements.

        Under our articles of association, our board of directors must have at least two members and no more than nine. The members of our board of directors, other than the external directors, for whom special election requirements apply (see "—External Directors"), are elected and may in certain circumstances be removed by the majority of our shareholders. Our articles of association provide that our board of directors, other than the external directors, will be divided into three classes. Each class of directors will serve for a term of three years. The term of office of the directors assigned to class A will expire at our second annual meeting of shareholders, which will take place in the year following and not later than 15 months after the initial annual meeting of our shareholders, and at each third succeeding annual meeting thereafter. The term of office of the directors assigned to class B will expire at the third annual meeting of shareholders, which will take place during the year following but not later than 15 months after the previous annual meeting, and at each third succeeding annual meeting thereafter. The term of office of the directors assigned to class C will expire at the fourth annual meeting of shareholders, which will take place during the year following but not later than 15 months after the previous annual meeting, and at each third succeeding annual meeting thereafter. We anticipate that Giora Ben-Zeev, Zeev Feldman and Uzi Tzur will serve as class A directors, Efrat Cohen, Jed Arkin and Orly Hayardeny Felner will serve as class B directors and Yair Shamir will serve as the class C director. This classification of the board of directors may delay or prevent a change of control of our company or in our management.

        If a vacancy arises because of the death or resignation of a board member, the replacement can only be appointed at a general meeting of our shareholders. There is no limitation on the number of terms that a director (other than an external director) may serve. External directors may only serve a maximum of two terms of three years each.

        The board of directors appoints its chairman from among its members in accordance with our articles of association. Pursuant to our articles of association, the chairman convenes and presides over the meetings of the board. A quorum consists of two-thirds of the members of the board, and decisions are taken by a vote of the majority of the members present. A director may appoint an alternate director to attend a meeting in his or her place, but this alternate must be approved by the board prior to the relevant meeting.

        Directors are required to comply with all applicable laws and with our articles of association. They may be jointly and severally liable for any actions that they take in violation of their fiduciary duty and duty of care toward the company and/or others.

        The Israeli Companies Law provides that an Israeli company cannot exculpate an office holder from liability with respect to a breach of fiduciary duties, but may exculpate in advance an office holder from liability to the company, in whole or in part, with respect to a breach of duties of care. Our articles of association provide that, subject to any restrictions imposed by applicable law, we may enter into a contract for the insurance of the liability of any of our officers and directors with regard to an act performed by them in their capacity as such and with regard to certain actions specified in the Companies Law and in our articles of association.

        In compliance with the Israeli Companies Law, our articles of association include a provision authorizing us to undertake, in advance, to indemnify an office holder, provided that the undertaking is limited to types of events and to an amount that the board of directors deems to be reasonable under the circumstances. Our articles also contain a provision authorizing us to retroactively indemnify an office holder.

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        We have acquired directors' and officers' liability insurance covering our officers and directors and the officers and directors of our subsidiaries against certain claims, and we intend to provide our directors and officers with indemnification for liabilities or expenses incurred as a result of acts done by them in their capacity as directors and officers of our company.

External Directors

        We are subject to the Israeli Companies Law. Under the Companies Law, Israeli companies whose shares have been offered to the public in or outside of Israel are required to appoint at least two external directors to serve on their board of directors. The external directors must be appointed by a special meeting of our shareholders held within three months of the date we first offered our shares to the public. In addition, each committee of the board of directors entitled to exercise any powers of the board is required to include at least one external director. The audit committee must include all of the external directors. See "—Board Practices" below.

        A person may not serve as an external director if at the date of the person's appointment or within the preceding two years, the person or his or her relatives, partners, employers or entities under the person's control have or had any affiliation with us or with any entity controlling, controlled by or under common control with us. Under the Companies Law, "affiliation" includes an employment relationship, a business or professional relationship maintained on a regular basis or control or service as an office holder, excluding service as a director for a period of no more than three months during which we first offered our shares to the public.

        A person may not serve as an external director if that person's position or other activities create, or may create, a conflict of interest with the person's service as a director or may otherwise interfere with the person's ability to serve as a director. If at the time any external director is appointed, all members of the board are of the same gender, then the external director to be appointed must be of the other gender.

        External directors are elected by a majority vote at a shareholders' meeting, as long as either:

•

the majority of shares voted for the election includes at least one-third of the shares of non-controlling shareholders voted at the meeting; or



•

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

        The Companies Law provides for an initial three-year term for an external director, which may be extended for one additional three-year term. External directors may be removed only by the same special majority 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. In the event of a vacancy created by an external director, our board of directors is required under the Companies Law to call a shareholders meeting to appoint a new external director.

        External directors must be compensated in accordance with regulations adopted under the Companies Law. The regulations provide two alternatives for cash compensation to external directors: a fixed amount within a range prescribed in the regulations or an amount that is not higher than the average compensation of other directors who are not controlling shareholders of the company or employees or service providers of the company or its affiliates and not lower than the minimum compensation received by any such director. A company may also issue shares or options to an external director at the average amount granted to directors who are not controlling shareholders of the company or employees or service providers of the company or its affiliates. Cash compensation at the fixed amount determined by the regulations does not require shareholder approval. Compensation determined in any other manner requires the approval of the company's audit committee, board of directors and shareholders. The compensation of external directors must be communicated to them prior to their consent to serve as external directors.

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Board Practices

        Our board of directors intends to establish three standing committees as soon as our shareholders have formally approved the appointment to the board of directors of the current nominees to the board. The three committees we intend to establish are an audit committee, a compensation committee and a nominating and governance committee.

Audit Committee

        Under the Israeli Companies Law, the audit committee must consist of at least three independent directors and must include both of the external directors. In addition, the rules of the Nasdaq National Market require that at least one member of our audit committee be a financial expert. We anticipate that our audit committee will be comprised of Ami Samuels as chairman, Amos Netzer and Zeev Feldman. At least one of these members will qualify as the committee's financial expert. It is our intention that, at the time the audit committee is established, its composition and function will meet the requirements of the Sarbanes-Oxley Act of 2002 and the rules and regulations thereunder, as well as the Nasdaq National Market rules.

        The audit committee provides assistance to the board of directors in fulfilling its legal and fiduciary obligations in matters involving our accounting, auditing, financial reporting, internal control and legal compliance functions by approving the services performed by our independent accountants and reviewing their reports regarding our accounting practices and systems of internal accounting controls. The audit committee also oversees the audit efforts of our independent accountants and takes those actions it deems necessary to satisfy itself that the accountants are independent of management. Under the Israeli Companies Law, the audit committee also is required to monitor deficiencies in the administration of the company, including by consulting with the internal auditor, and to review and approve related-party transactions.

Compensation Committee

        The compensation committee makes recommendations to the board of directors regarding the issuance of employee share options under our share option and benefit plans and determines salaries and bonuses for our executive officers and incentive compensation for our other employees. We anticipate that the members of our compensation committee will be Yair Shamir as chairman, Jed Arkin and Amos Netzer. It is our intention that, at the time the compensation committee is established, its composition and functions will meet the requirements of the Nasdaq National Market rules.

Nominating and Governance Committee

        The nominating and governance committee will be responsible for making recommendations to the board of directors regarding candidates for directorships and the size and composition of the board. In addition, the committee will be responsible for overseeing our corporate governance guidelines and reporting and making recommendations to the board concerning corporate governance matters. We anticipate that the members of the nominating and governance committee will be Zeev Feldman as chairman, Jed Arkin and Amos Netzer. It is our intention that, at the time the nominating and governance committee is established, its composition and functions will meet the requirements of the Nasdaq National Market rules.

Internal Auditor

        Under the Israeli Companies Law, the board of directors of a public company must appoint an internal auditor nominated by the audit committee. The role of the internal auditor is to examine whether a company's actions comply with the law and proper business procedure. The internal auditor may be an employee of the company but may not be an interested party or office holder, or a relative

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of any interested party or office holder, and may not be a member of the company's independent accounting firm or its representative. The Companies Law defines an interested party as a holder of 5% or more of the shares or voting rights of a company, any person or entity that has the right to nominate or appoint at least one director or the general manager of the company or any person who serves as a director or as the general manager of a company. We intend to appoint an internal auditor once we have established our audit committee.

Compensation of Directors and Management

        Except as described below, we have not paid and, prior to this offering, will not pay any compensation to any of the members of our board of directors for their services as directors. Directors are reimbursed for expenses incurred in order to attend board or committee meetings. Our executive officers who serve as directors on our board receive compensation as part of their employment agreement as executive officers but do not receive any compensation for their service as directors.

        In August 2004 we paid a retirement grant in the amount of $165,000 to the chairman of our board, who has since retired. We intend to pay compensation to our external directors in accordance with the range provided by the Israeli Companies Law for compensation of external directors. After the closing of this offering, we intend to pay our directors, with the exception of the chairman of our board of directors and our chief executive officer, compensation of $1,500 per meeting attended (or $300 per meeting attended by telephone). We also intend to grant our directors, other than our chairman and our chief executive officer, options to purchase 23,540 of our common shares. We do not plan to pay any compensation to our chief executive officer for his service as a director. We have entered into an agreement with the nominee for chairman of our board of directors, Yair Shamir, according to which we will pay him $6,000 per month for his services as chairman of the board, beginning upon his appointment to our board of directors. Pursuant to the agreement, we also agreed to grant Mr. Shamir options to purchase our common shares, as described below.

        The aggregate direct compensation we paid to our officers as a group (five persons), either directly or through Kibbutz Shamir as part of our working services agreement with Kibbutz Shamir (see "Certain Relationships and Related Party Transactions") for the year ended December 31, 2004 was $0.8 million, including amounts set aside or accrued to provide for pension, retirement or similar benefits. This amount does not include expenses we incurred for other payments, including dues for professional and business associations, business travel and other expenses, and other benefits commonly reimbursed or paid by companies in Israel. We have also granted options to purchase our common shares to our officers as part of their overall compensation; see "—Employee Share Ownership." We did not pay our directors any compensation during 2004 other than reimbursement for attending our board meetings.

        As of the date of this prospectus, there were outstanding options to purchase 964,100 common shares granted to our directors and officers (five persons, including the nominee for chairman of our board of directors), at exercise prices ranging from less than $0.01 to $12.74. See "—Employee Share Ownership" for a description of the options granted to our officers. These shares may be purchased at a weighted average exercise price of $7.64 and would have an aggregate market price of approximately $13.5 million, based on an assumed initial public offering price of $14.00 per share.

        The options described in the preceding paragraph include options to purchase 160,961 of our common shares which we agreed in January 2005 to grant to the nominee for chairman of our board of directors, Yair Shamir. The grant date for these options will be one year following our initial listing on a U.S. stock exchange. The exercise price for these options will be $12.74 per share, and the options will be exercisable until August 24, 2011. Twenty-five percent of the options will vest on the grant date. The remaining 75% of the options will vest in 48 equal parts on a monthly basis over the course of the four years following the grant date. For accounting purposes, we treat these options as "granted" as of the date of our agreement with Yair Shamir.

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Loans Extended and Guarantees Provided

        We have not extended any loans to members of our board of directors or to our executive officers, nor have we guaranteed any loans on their behalf. We have extended a loan of $370,000 to our majority shareholder, Kibbutz Shamir. The acting chairman of our board of directors, two additional directors and two additional executive officers are members of the management board of Kibbutz Shamir. See "Certain Relationships and Related Party Transactions—Loan Agreement with Kibbutz Shamir."

Employee Share Ownership

        As of the date of this prospectus, none of our directors or officers directly hold any of our shares. Our directors and officers (including the nominees for our board of directors) hold options to purchase 964,100 of our common shares. As described below, these options are held by Giora Ben-Zeev, Amir Hai, Dagan Avishai and Dan Katzman, as well as by the nominee for chairman of our board of directors, Yair Shamir.

        On August 24, 2004 our board of directors granted options to purchase 683,120 of our shares to certain of our executive officers and other employees. Out of these options, the board granted options to purchase up to 301,376 of our shares to our chief executive officer, Giora Ben-Zeev, and options to purchase up to 66,973 of our shares to each of our chief financial officer, Amir Hai, and our executive vice president, Dagan Avishai. The exercise price for these options was set at $10.30 per share. Also out of these options, the board granted options to purchase a total of up to 214,312 of our shares to certain employees in research and development and options to purchase up to 33,486 of our shares to certain development managers. The exercise price for these options is $12.43. The 33,486 options for development managers were granted to Dan Katzman. The board authorized our chief executive officer to finally determine the allocation of the options among the development employees. Furthermore, the board approved options to purchase an additional 288,360 of our shares for future grants to directors or employees. On January 1, 2005, we agreed to grant 160,961 out of these 288,360 additional options to Yair Shamir (see "—Compensation of Directors and Management"), leaving 127,399 additional options for future grants to directors or employees.

        The options described in the preceding paragraph (including the 127,399 additional options for future grants) are exercisable until August 24, 2011. The options will vest in four tranches of 25% per year, beginning on the first anniversary of this offering. The options were granted and authorized pursuant to Section 102 of the Israeli Income Tax Ordinance, which grants certain tax advantages to the employee grantees of options. In order for these tax advantages to take effect, the options must be held by a trustee, and the underlying shares cannot be sold, until the end of the second fiscal year after the year in which they were granted.

        On September 30, 2003 our board of directors granted options to purchase 167,226 of our shares to Dan Katzman. The exercise price of these options is less than $0.01 per share. On the same date, the board granted Mr. Katzman additional options to purchase 167,105 of our outstanding shares. The exercise price of these options is $2.46 per share. The options in both tranches are exercisable for a period of ten years following the grant date and vested immediately. The options were granted pursuant to Section 102 of the Israeli Income Tax Ordinance and are subject to its holding requirements, as described above. In addition, our board of directors granted options to purchase 33,486 shares to Mr. Katzman on August 24, 2004 on the terms described above.

        In 2000 our board of directors granted options to purchase 120,480 of our shares to Michael Latzer, the president of Shamir USA. The exercise price of these options is $9.96 per share. The options are exercisable until December 31, 2008 and are currently fully vested.

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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

        We have, from time to time, entered into agreements with our shareholders and affiliates. We describe certain relationships and the principal transactions entered into since 2001 below.

Relationship with Kibbutz Shamir

        Our majority shareholder is Kibbutz Shamir, a small communal society with approximately 270 members and 600 total residents located in upper Galilee, in northern Israel. Established in 1944, Kibbutz Shamir is a largely self-governed community of members who share certain social ideals and professional interests and who live in a distinct geographic area, which they own and develop on a communal basis. Initially, the social idea behind the formation of the kibbutzim in Israel was to create a communal society in which all members share equally in all of the society's resources and which provides for the needs of the community. Over the years, the structure of the kibbutzim has evolved, and today there are a number of different economic and social arrangements adopted by various kibbutzim. Kibbutz Shamir has moved toward more private ownership and voluntary participation in communal activities, although each member continues to own an equal part of the assets of Kibbutz Shamir. The members of Kibbutz Shamir are engaged in a number of economic activities, from farming to research and development of progressive spectacle lenses. In addition to being our majority shareholder, Kibbutz Shamir also owns two other companies that, like us, are located on the grounds of Kibbutz Shamir: Shalag Industries, Ltd. and N.R. Spuntech Industries, Ltd., both of which are engaged in the manufacture and sale of non-woven cloth and are listed on the Tel Aviv Stock Exchange. The kibbutz community holds in common all land, buildings and production assets of these companies.

        Most of the members of Kibbutz Shamir work in one of the production activities of Kibbutz Shamir, according to the requirements of Kibbutz Shamir and the career objectives of the individual concerned. Some other members work outside of Kibbutz Shamir in businesses owned by other entities. Each member receives an income based on the position the member holds and his or her economic contribution to the community, as well as on the size and composition of his or her family. Each member's income depends on the income of Kibbutz Shamir from its economic activities. Each member has a personal pension fund that is funded by Kibbutz Shamir, and all accommodation, educational, health and old age care services, as well as social and municipal services, are provided either by or through Kibbutz Shamir and are subsidized by Kibbutz Shamir.

        The economic activities and strategy of Kibbutz Shamir are managed by an elected management board. This board is the key economic decision-making body of Kibbutz Shamir. Its members are elected by the members of the council of Kibbutz Shamir for terms of three years. The chairman of the management board is elected for a term of four years directly by the members of Kibbutz Shamir. Kibbutz Shamir's council is elected annually by the Kibbutz Shamir members. The council may remove a member of the management board by simple majority vote. The boards of directors of Kibbutz Shamir's companies operate independently from the management board of Kibbutz Shamir itself. The acting chairman of our company's board of directors, Uzi Tzur, is also the chairman of the management board of Kibbutz Shamir and a member of Kibbutz Shamir. Our board member and chief executive officer, Giora Ben-Zeev, and two of our company's executive officers, Dagan Avishai and Rami Ben Zeev, are also members Kibbutz Shamir and of the management board of Kibbutz Shamir. Another one of our directors, Efrat Cohen, is a member of the management board of Kibbutz Shamir but not a member of Kibbutz Shamir itself. About 40 members of our 344-person workforce in Israel are also members of Kibbutz Shamir. Our headquarters and main production facilities, which we lease from Kibbutz Shamir, are located on the premises of Kibbutz Shamir, and we have entered into several professional agreements with Kibbutz Shamir that are described below. While these agreements have been negotiated on an arms' length basis, they may contain terms that are different from the terms that would have been included had these agreements been negotiated with unaffiliated third parties.

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Working Services Agreement with Kibbutz Shamir

        On January 5, 1999 we signed a working services agreement with Kibbutz Shamir, our majority shareholder, pursuant to which Kibbutz Shamir supplies us, at our request, with labor services staffed by kibbutz members.

        Kibbutz Shamir agreed to staff up to 59 positions upon demand, including up to one managing director, up to six vice presidents, up to eight persons for senior management or development positions, up to nine heads of departments, up to 12 professional workers, up to 10 other permanent workers and up to 13 positions for temporary workers and short term assistance. A position is defined as 186 hours of work per month to be provided by members of Kibbutz Shamir.

        In return for the services, we pay to Kibbutz Shamir monthly fees set forth in the agreement for each position filled by a kibbutz member. The fees are linked to the consumer price index and are to be reviewed every two-and-a-half years. The amount of the fee payment is calculated based on the number of positions actually supplied to us during the preceding month. We are not responsible for paying any other work-related expenses, other than the monthly fees (and any applicable company-wide bonuses), for Kibbutz Shamir members who fill positions with us. Other benefits are provided directly by Kibbutz Shamir.

        We may, in our sole discretion, refuse to accept workers referred to us by Kibbutz Shamir or demand the replacement of existing workers for reasonable cause. Similarly, Kibbutz Shamir may replace any worker with proper notice, provided that his or her replacement possesses similar skills and experience. The replacement of the general manager or any vice president requires 90 days notice. Kibbutz Shamir has a right of first refusal to provide additional services that we may require, and we shall not unreasonably refuse such provision of services by kibbutz members.

        In 2003 and the first nine months of 2004, we paid totals of $1.6 million and $1.2 million, respectively, to Kibbutz Shamir under the working services agreement.

        On February 9, 2005 we entered into a new working services agreement with Kibbutz Shamir. The new agreement will become effective immediately upon the listing of our securities for trading on a U.S. stock exchange. With the effectiveness of the new agreement, the prior working services agreement of January 5, 1999 will terminate.

        Under the new agreement, Kibbutz Shamir undertakes on a best efforts basis (but is not strictly obligated) to provide us with individuals to fill the relevant positions for which we request staffing. In addition, we are obligated to grant Kibbutz Shamir a first opportunity to provide such individuals for any positions for which we seek staffing. Those kibbutz members who are already filling positions with the company will continue their service under the new agreement, with the exception of our chief executive officer, Giora Ben-Zeev, and our Executive Vice President, Dagan Avishai, who will be paid directly and will no longer be part of the working services agreement. Subject to the above, we are entitled to determine, with respect to all kibbutz members who provide services to us, the type of position to be filled by kibbutz members, the number of positions, the scope of each position, as well as, with respect to new workers provided by Kibbutz Shamir, the fees to be paid in consideration for the member's services. The fees to be paid by us to Kibbutz Shamir are linked to the Israeli Consumer Price Index published by the Israeli Central Bureau of Statistics. The fees are increased or decreased by the same percentage as the price index increases or decreases in each month and are paid at the beginning of each month in accordance with the actual positions supplied to us during the preceding month. We believe that, except for the salaries of our chief executive officer and our Executive Vice President, which will be paid directly and not as part of the working services agreement, the fees to be paid under the new agreement will for the foreseeable future be substantially similar to the amounts we have paid under the prior agreement, to the extent that Kibbutz Shamir provides us with substantially the same number of workers for substantially the same positions. As with the prior working services

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agreement, we may, for reasonable cause, refuse to accept workers referred to us by Kibbutz Shamir or demand the replacement of existing workers.

        We have agreed not to employ any kibbutz member directly, with the exception of the chief executive officer and the executive vice president. The agreement specifies that Kibbutz Shamir will indemnify us for any liabilities that might arise under an imputed employer-employee relationship between us and the members of Kibbutz Shamir who provide the services. The agreement includes a non-disclosure undertaking by Kibbutz Shamir on its own behalf and on behalf of Kibbutz Shamir members through whom services are provided to us.

        The initial term of the agreement is 60 months from the listing of our securities for trading on a U.S. stock exchange, with subsequent automatic extensions for additional periods of five years, unless one party notifies the other, in writing, at least 180 days before the end of the then current effective period.

Service Agreement with Kibbutz Shamir

        We entered into a service agreement with Kibbutz Shamir on January 1, 1999, pursuant to which Kibbutz Shamir provides us with catering, security, laundry, switchboard and communications, maintenance and landscaping, and trash removal services. In return, we pay Kibbutz Shamir a monthly service fee, which also includes our municipality tax. The fee is linked to the consumer price index.

        Kibbutz Shamir has a right of first refusal to supply any additional services of this type that we may require. In the event that we have not received an offer for these services from a third party, the consideration for the additional services is determined by an external, neutral appraiser and is subject to the approval of our audit committee.

        In 2003 and the first nine months of 2004, we paid totals of $224,000 and $215,000, respectively, to Kibbutz Shamir under the service agreement.

        On February 9, 2005 we entered into a new service agreement with Kibbutz Shamir, which will become effective upon the listing of our securities for trading on a U.S. stock exchange. With effectiveness of the new agreement, the old service agreement of January 1, 1999 will terminate.

        The services to be provided by Kibbutz Shamir pursuant to the new service agreement include the same services as under the old agreement, except security services, as well as internet access, use and maintenance of common outdoor areas, water supply and other additional services.

        The fee for these services, including the new services, remains the same as in the prior agreement and is initially fixed at NIS 92,000 per month. Fees for water usage are calculated separately. The fee is linked to the consumer price index and reviewed every 5 years. In the event that the cost to Kibbutz Shamir of providing these services increased or decreased during the final year of the agreement's term as compared to the date of effectiveness, the service fee shall be adjusted accordingly. If the costs increase or decrease by 30% or more in any particular year during the term of the agreement, the service fee will be adjusted for the following year. If Kibbutz Shamir provides additional services to us, the fee shall be adjusted accordingly. The fee for catering services is adjusted continuously based on the actual number of employees using these services. We believe that, to the extent Kibbutz Shamir continues to provide substantially the same services to us for substantially the same number of employees, the fees to be paid under the new agreement will for the foreseeable future be substantially similar to the amounts we have paid under the prior agreement.

        The agreement specifies that Kibbutz Shamir will indemnify us for any liabilities that might arise under an imputed employer-employee relationship between us and the members of Kibbutz Shamir who provide the services.

        The other operative terms of the new agreement remain unchanged from the prior agreement.

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        The initial term of the agreement is 60 months from the listing of our securities for trading on a U.S. stock exchange, with automatic renewal for periods of five years, unless terminated earlier by either party upon 12 months written notice.

Lease and Sublease Agreements with Kibbutz Shamir

        Our principal offices, manufacturing and research and development facilities are located on the grounds of Kibbutz Shamir and include a building of approximately 4,700 square meters and a yard of approximately 1,800 square meters (the "Facilities"). The Facilities are subleased from Kibbutz Shamir, which has a long-term lease on the property from the Israel Lands Administration (the "ILA").

        The lease agreement between Kibbutz Shamir and the ILA was signed on December 27, 1990 for a term of 49 years, with an option to extend for an additional 49 years. Pursuant to the lease, Kibbutz Shamir may use the lands for agricultural and residential purposes and services to members of Kibbutz Shamir and for commercial purposes, including the Company's factory.

        The ILA may cancel the lease in certain circumstances, including if Kibbutz Shamir commences proceedings to disband or liquidate or in the event that Kibbutz Shamir ceases to be a "kibbutz" as defined in the lease (i.e., a registered cooperative society classified as a kibbutz).

        Pursuant to the lease, Kibbutz Shamir may, with permission from the ILA and without additional fees, sublease the parcel to a corporation under its control.

        On January 5, 1999 we and Kibbutz Shamir signed a sublease agreement pursuant to which Kibbutz Shamir subleased to us the Facilities for a period of twenty years beginning on January 1, 1999. Rental payments are $1 for each square meter of yard and $4 for each square meter of building. At that time, the Facilities included a building of approximately 3,238 square meters and a yard of approximately 2,740 square meters. Kibbutz Shamir constructed an additional 1,462 square meters of building at its own expense, for which we pay rent of $6 per square meter.

        The rent is paid every six months in advance. Every two years, the rent will be adjusted in accordance with market rental prices for similar properties.

        The agreement also states that any construction or changes in the building located on the property are subject to Kibbutz Shamir's prior consent and all such construction will belong to Kibbutz Shamir. Kibbutz Shamir has the right of first refusal to carry out any construction work for us with respect to the subleased property. Kibbutz Shamir may demand that we finance the cost of the construction, and we are entitled to set off construction costs related only to buildings against our rental payments. Any additional internal construction work will be at our expense and is not subject to this offsetting. In the event of a disagreement between the parties with respect to the cost of construction, the cost shall be determined by a licensed appraiser.

        In the event of additional construction, the rental fee for the property is increased to $6 for each additional square meter of building. We have agreed to insure the Facilities and to add Kibbutz Shamir as a beneficiary in the insurance policy.

        The sublease will be terminated in the event that Kibbutz Shamir holds, directly or indirectly, less than 50% of our share capital, unless the ILA agrees otherwise. We are entitled to terminate the sublease agreement by a prior written notice of 36 months.

        In 2003 and the first nine months of 2004 we paid totals of $273,000 and $218,000, respectively, to Kibbutz Shamir under the sublease agreement.

        On February 9, 2005 we entered into an amendment to the sublease agreement with Kibbutz Shamir governing the facilities we use that are located on the premises of Kibbutz Shamir. The amendment will become effective upon the listing of our securities for trading on a U.S. stock

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exchange. Except as noted below, the operative terms of the new agreement remain unchanged from the prior agreement.

        The term of the amended agreement is extended from 20 years to 24 years and 11 months. The base rent will be updated every five years rather than two years, to a level comparable to that of similar property in the area. We will continue to be entitled to provide Kibbutz Shamir with a 36-month written termination notice after 10 years of lease.

        Rental payments under the amended agreement are the same as under the prior agreement, except that the amended agreement specifies that any additional construction of industrial facilities will be charged a rent of $4 per square meter, while additional construction of offices will continue to be charged $6 per square meter. The rent for any other additional construction will be negotiated in good faith. In addition, the rent for a specific production area identified in the agreement is reduced from $6 to $4 per square meter. Except for these changes, we believe that the payments to be made under the amended agreement will for the foreseeable future be substantially similar to the amounts we have paid under the prior agreement.

        If the agreement is terminated for any reason other than a breach by Kibbutz Shamir, Kibbutz Shamir shall not be obligated to repay any loans that we have provided for construction unless the newly constructed parts of the building are occupied by a third party or used by Kibbutz Shamir.

        The ILA may, from time to time, change its regulations governing the lease agreement, and these changes could affect the terms of the sublease agreement, as amended, including the provisions governing its termination.

Loan Agreement with Kibbutz Shamir

        In accordance with our sublease agreement with Kibbutz Shamir dated January 5, 1999, as amended in 2004, we granted a loan of $370,000 to Kibbutz Shamir in several installments in 2004 in order to fund the construction of an extension to our premises in Kibbutz Shamir. The loan is to be repaid in quarterly equal installments over a period of four years commencing March 31, 2005 through deductions of the rental fees we pay to Kibbutz Shamir. The loan bears interest at 1.5% per year.

Investment Agreement with F.I.B.I. Investment House Ltd

        On January 5, 1999 we signed an agreement, which was amended in April 1999, with Kibbutz Shamir and F.I.B.I. Investment House Ltd. ("FIBI"), an Israeli investment company, pursuant to which FIBI acquired 15 percent of our issued and outstanding share capital (in case we are converted into a limited liability company and for purposes of dividend distributions) in consideration for $4,147,050.

        The agreement lists a number of issues for which the unanimous consent of all of our members is required, including accepting any new member to the agricultural cooperative society, amending the articles of association and terminating or winding up our business.

        Pursuant to the agreement, we are required to distribute a yearly dividend of at least 35% of our distributable profits to our members. Following our conversion into a limited liability company, the board of the company will be entitled to determine the timing and amounts of dividend distributions.

        Under the agreement any sale of shares by one of our members is subject to a right of first refusal granted to the other members. In addition, each of our members is entitled to appoint one director to our board of directors and the other members will vote for each of these appointments at the relevant shareholders meeting.

        We agreed to pay FIBI fees in the amount of NIS 33,000 per month, plus V.A.T., beginning January 14, 1999 and until the earlier of (i) the lapse of 24 months or (ii) an IPO, for tax consulting services provided to us by FIBI through Mr. Zeev Feldman. This original term was extended, and

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accordingly, we paid FIBI $90,000, $84,000 and $73,000 for the years 2001, 2002, 2003, respectively. We did not pay FIBI any fees in 2004.

        With the listing of our securities for trading on a U.S. stock exchange, this investment agreement will terminate and will be replaced by a new shareholders agreement, as described below.

Shareholders Agreement

        On February 9, 2005 certain of our shareholders entered into a new shareholders agreement, which will become effective upon the listing of our securities for trading on a U.S. stock exchange.

        The agreement gives FIBI the right to nominate one director to our board of directors. The agreement obligates Kibbutz Shamir and the other shareholders party to the agreement to vote in favor of FIBI's nominee, and FIBI to vote in favor of the directors nominated by Kibbutz Shamir.

        In addition, the agreement gives FIBI, Scorpio BSG Ltd., Gishrei Asia Ltd. and JFJ International Trading Ltd. a tag-along right to participate in a sale (other than a transfer to an affiliate or sales to the public on the stock exchange on which our shares are listed) of our shares by Kibbutz Shamir to a third party on a pro rata basis and on the same terms as those negotiated by Kibbutz Shamir with the third party.

        Finally, the agreement gives Kibbutz Shamir a right of first offer to purchase any of our shares held by FIBI, Scorpio BSG Ltd., Gishrei Asia Ltd. and JFJ International Trading Ltd. that any one of these entities intends to offer for sale to a third party and which constitutes at least 2.5% of our share capital on the same terms as those to be offered by the selling entity to the third party. This right of first offer will not apply to transfers to affiliates or sales to the public on the stock exchange on which our shares are listed.

        The agreement terminates when the aggregate holdings of FIBI, Scorpio BSG Ltd., Gishrei Asia Ltd. and JFJ International Trading Ltd. decrease below 5% of our issued and outstanding share capital and remain below 5% for a period of at least 90 consecutive days.

Registration Rights Agreement

        We have entered into a registration rights agreement with our current shareholders. See "Shares Eligible for Future Sale—Registration Rights Agreement."

Relationship with Kibbutz Eyal

        Kibbutz Eyal holds 3.95% of our shares prior to this offering⁽¹⁾. We acquired our wholly-owned manufacturing subsidiary, Eyal Optical Industries (1995) Ltd. ("Eyal"), from Kibbutz Eyal in a series of transactions between 1997 and 2003. Eyal is located on the premises of Kibbutz Eyal pursuant to a lease agreement between Eyal and Kibbutz Eyal.

(1)

Kibbutz Eyal holds our shares through Haklaei Eyal Hasharon A.C.S. Ltd., a company owned by Kibbutz Eyal. The options and agreements discussed in this sub-section have been granted to or entered into with Haklaei Eyal Hasharon A.C.S. Ltd.

        In December 2003 we granted Kibbutz Eyal a call option exercisable until January 10, 2004 to purchase 502,400 of our shares in consideration for an exercise price of $2.0 million. Kibbutz Eyal exercised the call option on January 4, 2004. We also granted Kibbutz Eyal a put option to sell the shares subject to the call option to us in consideration for $3.0 million. The put option is exercisable between January 1, 2006 and January 10, 2010. It will expire upon the reorganization of our company from an A.C.A. into an Israeli limited liability company.

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        As long as Kibbutz Eyal holds at least 3% of our shares, it has the right to appoint a member of our board of directors, as well as a tag-along right to join a sale of our shares by Kibbutz Shamir in certain circumstances. Kibbutz Eyal has waived its right to appoint a member of our board of directors, effective as of the closing of this offering. Prior to an initial public offering of our shares, Kibbutz Eyal may be required to join in a sale of our shares if shareholders holding at least 60% of our shares receive an offer to sell their shares.

        Kibbutz Eyal has the right to appoint one member of the board of directors of Eyal for as long as it is entitled to appoint a board member to our board of directors, and longer in certain circumstances.

Relationship with Altra's Former Chief Executive Officer

        In the fourth quarter of 2001, we acquired 100% of the shares of Altra Trading GmbH. Shortly thereafter, we transferred 6% of Altra's shares to Altra's chief executive officer at that time, Michael Oppenheimer. In 2002 we sold an additional 43% of Altra's shares to Mr. Oppenheimer. In the context of this purchase, we entered into a shareholder agreement with Mr. Oppenheimer pursuant to which Mr. Oppenheimer's consent is required for certain resolutions or transactions, including any shareholder resolution that contradicts any of the existing commercial agreements between Altra, Eyal Optical Industry (1995) Ltd. and us; issuances of shares or securities, except at an agreed-upon company valuation; any transaction between Altra and a related party or any other transaction outside the ordinary course of business, and the distribution of any dividends that exceed 50% of Altra's net profit. Mr. Oppenheimer has a put option exercisable for seven years beginning December 31, 2004 to sell 15% of the shares he holds in Altra to us per year, at a price based on the fair value of the net assets of Altra at the time of sale. We have a right of first refusal to purchase any shares in Altra not held by us, and Mr. Oppenheimer has a tag-along right to participate in any sale of shares for as long as he holds more than 5% of Altra's shares, as well as a drag-along obligation to sell his Altra shares if we receive an offer from a third party to purchase 100% of Altra's shares.

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PRINCIPAL AND SELLING SHAREHOLDERS

        The following table and footnotes set forth information, as of the date of this prospectus and as adjusted to reflect the sale of our common shares in this offering, regarding the beneficial ownership of our common shares by:

•

each person or entity that we know beneficially owns more than 5% of our outstanding common shares;



•

each of our directors or executive officers who beneficially owns any of our shares; and



•

each of the selling shareholders.

        Beneficial ownership of shares is determined in accordance with the rules of the SEC and generally includes any shares over which a person exercises sole or shared voting or investment power. Common shares that are subject to warrants or stock options that are presently exercisable or exercisable within 60 days of the date of this offering are deemed to be outstanding and beneficially owned by the person holding the warrants or stock options for the purpose of computing the percentage ownership of that person, but are not treated as outstanding for the purpose of computing the percentage of any other person.

        Our shareholders have entered into a shareholder agreement that governs certain of their rights and obligations toward one another. This agreement is described in "Certain Relationships and Related Party Transactions."

        Except as indicated in the footnotes to this table, each shareholder in the table has sole voting and investment power for the shares shown as beneficially owned by them. All of our shareholders have the same voting rights. Percentage ownership is based on 12,711,332 common shares outstanding as of the date of this prospectus and 16,111,332 common shares outstanding following the closing of the offering. There are no holders of record of our equity securities who are, to our knowledge, U.S. persons. Except as otherwise disclosed, each shareholder's address is c/o Shamir Optical Industry, Kibbutz Shamir, Upper Galilee, 12135 Israel. FIBI's address is FIBI Investment House Ltd., 17^th Floor, Africa Israel Building, 14 Ehad Ha-Am Street, Tel Aviv, Israel. Kibbutz Eyal's address is D.N. Hasharon Hatichon, 45840 Israel.

									Beneficial Ownership After Offering Assuming Full Exercise of the Over-Allotment Option
	Beneficial Ownership Before Offering				Beneficial Ownership After Offering(1)
								Number of Shares Subject to Over-Allotment Option
Name of Beneficial Owner	Percent of Shares		Number of Shares	Number of Shares Offered	Percent of Shares		Number of Shares		Percent of Shares		Number of Shares
Kibbutz Shamir(2)	80.56	%	10,240,775	395,982	61.10	%	9,844,793	489,584	58.07	%	9,355,209
FIBI Investment House Ltd.(3)	14.22	%	1,807,196	180,000	10.10	%	1,627,196	86,397	9.56	%	1,540,798
Kibbutz Eyal(4)	3.95	%	502,400	24,018	2.97	%	478,382	24,018	2.82	%	454,364
Dan Katzman(5)	2.81	%	367,817	0	2.23	%	367,817	0	2.23	%	367,817

(1)

Assuming no exercise of the over-allotment option.

(2)

Kibbutz Shamir holds shares in our company through Shamir Optica Holdings A.C.S. Ltd. The management board of Kibbutz Shamir manages the economic activities and strategy of Kibbutz Shamir and makes the voting and investment decisions of Kibbutz Shamir (by majority vote) with regard to our shares. The management board of Kibbutz Shamir has 16 members. Giora Ben-Zeev, Efrat Cohen, Dagan Avishai, Rami Ben-Zeev and Uzi Tzur are directors or officers of our company and also members of the management board of Kibbutz Shamir, and our shares held by

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Kibbutz Shamir may be attributed to them. The other members of the management board of Kibbutz Shamir are Edy Kudlash, Nili Ven Der Veen, Yitzchak Cahana, Avraham Hadar, Zeev Markman, Ilan Pickman, Pinchas Carmi, Yossi Michaeli, Jacon Gotlib, Maya Segal and Omry Rotem.

(3)

Consists of shares held by FIBI Investment House for its own account, as well as shares held by the following investors who invested with FIBI Investment House: Scorpio (BSG) Ltd. ("Scorpio"), Gishrei Asia Ltd. ("Gishrei") and JFJ International Trading Ltd. ("JFJ"). FIBI makes the voting and investment decisions for all of these shares. The voting and investment decisions for FIBI Investment House are made by the chief executive officer of FIBI Investment House. The chief executive officer may also request the approval of the board of FIBI Investment House with regard to unusually important votes. In case of a disposition of all or substantially all of our shares by FIBI Investment House, a decision regarding this disposition will be taken by the board of directors of FIBI Holdings Ltd., the parent company of FIBI Investment House. The chief executive officer of FIBI Investment House is Guy Vaadia. The members of the board of directors of FIBI Investment House are Zadik Bino, Gil Bino and Garry Stock. The members of the board of directors of FIBI Holdings Ltd. are Zadik Bino, Gil Bino, Garry Stock, Harry (Hersh) Cooper, Yossef Alchech, Gabriel Roter, Nilli Even-Chen, Mordechai Ben Shach and Gabi Barbash.

Prior to the closing of this offering, FIBI Investment House will formally transfer the shares that it holds for the accounts of Scorpio, Gishrei and JFJ to these entities, who will then make the voting and investment decisions for these shares. Accordingly, Scorpio, Gishrei and JFJ will be selling shareholders in this offering. The beneficial ownership of these entities prior to and after the offering is as follows:

									Beneficial Ownership After Offering Assuming Full Exercise of the Over-Allotment Option
	Beneficial Ownership Before Offering				Beneficial Ownership After Offering
								Number of Shares Subject to Over-Allotment Option
Name of Beneficial Owner	Percent of Shares		Number of Shares	Number of Shares Offered	Percent of Shares		Number of Shares		Percent of Shares		Number of Shares
FIBI	9.81	%	1,246,965	124,200	6.97	%	1,122,765	59,614	6.60	%	1,063,151
Scorpio	2.84	%	361,439	36,000	2.02	%	325,439	17,279	1.91	%	308,160
Gishrei	1.21	%	153,612	15,300	0.86	%	138,312	7,344	0.81	%	130,967
JFJ	0.36	%	45,180	4,500	0.25	%	40,680	2,160	0.24	%	38,520

The natural persons who make the investment decisions for the shares held by Scorpio are the members of Scorpio's board of directors, who are Beny Steinmetz and Shimon Menahem.

The natural person who makes the investment decisions for the shares held by Gishrei is Gishrei's managing director, Dr. Yair T. Weil.

The natural person who makes the investment decisions for the shares held by JFJ is JFJ's managing director, Arye Jakobsohn.

(4)

Kibbutz Eyal holds a put option to sell to us 502,400 shares for $3.0 million between January 1, 2006 and January 10, 2010. This put option will expire upon the reorganization of our company from an A.C.S. to a limited liability company. Kibbutz Eyal also has the right to appoint one of our directors. Kibbutz Eyal has waived this right, effective with the closing of this offering. The management board of Kibbutz Eyal makes the voting and investment decisions of Kibbutz Eyal with regard to our shares. The management board of Kibbutz Eyal has 17 members.

(5)

Consists entirely of currently exercisable options to acquire our shares. The percentages of shares held by Dan Katzman are based on the number of our shares outstanding at the relevant time,

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partially diluted to include the number of shares corresponding to the options held by Dan Katzman.

        As of the date of this prospectus, there were outstanding options to purchase 964,100 common shares, or 7.6% of our total outstanding shares, to our directors and officers at a weighted average exercise price of $7.64 per share.

        FIBI Investment House Ltd. is an affiliate of a broker-dealer. FIBI Investment House Ltd. has represented to us that it purchased the shares being registered for resale in the ordinary course of business and that, at the time of the purchase, it had no agreements or understandings, directly or indirectly, with any person to distribute the securities.

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DESCRIPTION OF SHARE CAPITAL

        As of the date of this prospectus, our authorized share capital consists of one class of shares, which are our common shares. Out of our authorized share capital of 100,000,000 common shares, par value NIS 0.01 per common share, 16,111,332 common shares will be outstanding upon completion of this offering.

        All of our issued and outstanding common shares are duly authorized, validly issued and fully paid. Our common shares do not have preemptive rights. During the year ended December 31, 2003, no options to purchase common shares were exercised. Our articles of association and the laws of the State of Israel do not restrict the ownership or voting of common shares by non-residents of Israel, except for certain restrictions by law with respect to ownership by nationals of some countries that are, or have been, in a state of war with Israel.

Transfer of Shares and Notices

        Our fully paid common shares are issued in registered form and are freely transferable under our articles of association. Under the Companies Law and our articles of association, shareholders' meetings require prior notice of at least 21 days.

Anti-Takeover Provisions; Mergers and Acquisitions Under Israeli Law

        The Israeli Companies Law regulates mergers where the target company is dissolved into the acquiring company and allows such a merger to be effected if the merger receives the approval of the boards of directors of each of the merging companies and a majority of the shareholders present and voting at the general shareholders' meeting of each of the merging companies, or by a majority of 75% of the shareholders present and voting on the proposed merger in case a company was incorporated under the Israeli Companies Ordinance. In addition to the approval of the merger by the requisite majority at the shareholders' general meeting, in case the other party to the merger or a person holding 25% or more of the shares of the other party to the merger, then the majority must include a majority of the shares held by those shareholders present who do not have an interest in the other party. Upon petition by a creditor of a merging company, the court may delay or prevent the consummation of the merger, if it deems there to be a reasonable concern that as a result of the merger, the surviving company will not be able to meet the obligation to creditors of either of the merging companies. A merger may not be completed until 70 days have passed from the time that the merger proposal has been filed with the Israeli Registrar of Companies, including all approvals necessary for its completion.

        The Israeli Companies Law also provides that an acquisition of shares in a public company such as us must be made by means of a tender offer if, as a result of the acquisition, the purchaser would become a 25% shareholder of the company. This rule does not apply if there is already another 25% shareholder of the company. 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 would become more than a 45% shareholder of the company, unless there is already a majority shareholder of the company. These rules do not apply if the acquisition is made by way of a private issue. In order to be accepted, the special tender offer must be accepted by a majority of the offerees and result in the acquisition of no less than 5% of the voting rights in the company. These restrictions do not apply if according to the laws of the country where the securities are registered for trading there are restrictions in respect of an acquisition of certain control rights or the acquisition of certain control rights obligates the purchaser to also make a tender offer to the public.

        An acquisition of shares following which the purchaser would become a holder of more than 90% of a public company's shares must be made by a tender offer for the purchase of all the remaining shares (a full tender offer); if a full tender offer is accepted by holders to the extent that non-accepting

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holders hold less than 5% of the company's issued shares, then the holders of the remaining shares must sell their shares to the acquirer on the terms of the tender offer. However, if the acquirer is unsuccessful in completing a full tender offer, the acquirer will not be permitted to acquire tendered shares to the extent that the acquisition of those shares would bring the acquirer's holdings to more than 90% of the target company's shares. Offerees of a successful full tender offer may petition the courts to raise the purchase price on the basis that it is an "unfair" price.

        In addition, a shareholder who holds more than 90% of the shares of a public company may not purchase additional shares as long as the shareholder holds more than 90%. Shares acquired in violation of these provisions become dormant and cease to confer any rights upon their holder as long as they are held by the acquirer.

Dividend and Liquidation Rights

        Our board of directors may, without seeking shareholder approval, declare a dividend to be paid to the holders of common shares out of our retained earnings or our earnings derived over the two most recent years, whichever is higher, as reflected in the last audited or reviewed financial report for a period ending less than six months prior to distribution ("the Profit Requirement"), provided that there is no reasonable concern that a payment of a dividend will prevent us from satisfying our existing and foreseeable obligations as they become due. If we do not meet the Profit Requirement, a court may allow us to distribute a dividend, as long as the court is convinced that there is no reasonable concern that a distribution might prevent us from being able to meet our existing and anticipated obligations as they become due. Dividends are distributed to shareholders in proportion to the nominal value of their respective holdings.

        In the event of our liquidation, after satisfaction of liabilities to creditors, our assets will be distributed to the holders of common shares in proportion to the nominal value of their respective holdings. This right may be affected by the grant of preferential dividend or distribution rights to the holders of any class of shares with preferential rights that may be authorized in the future. Our shareholders would need to approve any class of shares with preferential rights.

Tax Law

        Israeli tax law treats some acquisitions, particularly stock-for-stock swaps between an Israeli company and a foreign company, less favorably than U.S. tax law. Israeli tax law may, for example, subject a shareholder who exchanges our shares for shares in a foreign corporation to immediate Israeli taxation. See "Israeli Taxation."

Modification of Class Rights

        Unless otherwise provided by the articles of association, an amendment to the articles of association that prejudices the rights of a particular class of shares may be adopted by a resolution of the holders of a 75% majority of the shares of that class present at a separate class meeting, in addition to the approval of the general meeting of all classes of shares.

Election of Directors

        Our common shares do not have cumulative voting rights in the election of directors. Therefore, the holders of common shares representing more than 50% of the voting power at the general meeting of the shareholders, in person or by proxy, have the power to elect all of the directors whose positions are being filled at that meeting, to the exclusion of the remaining shareholders. External directors are elected by a majority vote at a shareholders' meeting, provided that either: (i) the majority of shares voting for the election includes at least one-third of the shares of non-controlling shareholders present at the meeting; or (ii) the total number of shares of non-controlling shareholders voting against the

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election of the external director does not exceed one percent of the aggregate voting rights in the company.

Voting, Shareholders' Meetings and Resolutions

        Holders of common shares have one vote for each common share held on all matters submitted to a vote of the shareholders. These voting rights may be affected by the grant of special voting rights to the holders of any class of shares with preferential rights that may be authorized in the future; however, currently no holders of our shares have any special voting rights.

        An annual meeting of the shareholders must be held every year, and not later than 15 months following the last annual meeting. A special meeting of the shareholders may be convened by the board of directors at its decision to do so or upon the demand of any of: (1) two of the directors or 25% of the then serving directors, whichever is fewer; (2) shareholders owning at least 10% of the issued share capital and at least 1% of the voting rights in the company; or (3) shareholders owning at least 10% of the voting rights in the company. If the board does not convene a meeting upon a valid demand of any of the above, then whoever made the demand, and in the case of shareholders, those shareholders holding more than half of the voting rights of the persons making the demand, may convene a meeting of the shareholders to be held within three months of the demand. Alternatively, upon petition by the individuals making the demand, a court may order that a meeting be convened.

        The quorum required for any general meeting of shareholders consists of at least two shareholders present in person or by proxy who hold or represent between them at least 33¹/3% of the voting rights. 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 or to a later date specified in the summon or notice of the meeting. At the reconvened meeting, the required quorum consists of any number of shareholders present. In any shareholders' meeting, a shareholder can vote either in person or by proxy. General meetings of shareholders will be held in Israel, unless decided otherwise by our board.

        Under Israeli law, unless otherwise provided in the articles of association or applicable law, all resolutions of the shareholders require a simple majority. Under our articles of association, resolutions requiring special voting procedures include any amendments of a provision in our articles of association, which requires the approval of the holders of 75% of the voting rights represented at the meeting and voting on the resolution.

        Under the Israeli Companies Law, a shareholder has a duty to act in good faith and in a customary manner in exercising his rights and duties towards the company and other shareholders, to refrain from prejudicing the rights of other shareholders and to refrain from abusing his power in the company. The rights and duties apply, among other things, to voting at the general meeting of the shareholders on any of the following matters: (1) amendments to the articles of association, (2) increasing our registered share capital, (3) a merger, or (4) an approval of those related party transactions that require shareholder approval.

        In addition, shareholders who are one of the following are under a duty to act fairly toward the company: (1) a controlling shareholder; (2) a shareholder who knows that its vote will determine the outcome of a shareholder vote; or (3) a shareholder who, under the provisions of the articles, has the power to appoint or to prevent the appointment of an office holder in the company or holds other powers with respect to the company.

Transfer Agent and Registrar

        We have appointed American Stock Transfer & Trust Company as the transfer agent and registrar for our common shares.

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Israeli Securities Law Requirements

        According to the Israeli Securities Law, the publication of this prospectus does not require the approval of the Israeli Securities Authority.

Listing

        We have applied to have our common shares approved for quotation on the Nasdaq National Market under the symbol "SHMR."

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SHARES ELIGIBLE FOR FUTURE SALE

        Prior to the offering, there has been no public market in the United States or elsewhere for our shares. We have applied to have our shares approved for quotation on the Nasdaq National Market under the symbol "SHMR."

        We cannot predict the effect, if any, that market sales of shares or the availability of shares for sale will have on the market price prevailing from time to time. As we describe below, only a limited number of shares will be available for sale shortly after this offering due to contractual and legal restrictions on resale. Nevertheless, sales of our common shares in the public market after the restrictions lapse, or the perception that those sales may occur, could cause the prevailing market price to decrease or to be lower than it might be in the absence of those sales or perceptions.

Sale of Restricted Shares

        Upon the closing of this offering, we will have 16,111,332 common shares outstanding, which includes the 12,711,332 common shares outstanding following our reorganization into a limited liability company and assumes the issuance of 3,400,000 common shares in this offering, and no exercise of share options. The common shares sold in this offering will be freely tradable without restriction or further registration under the Securities Act. However, if shares are purchased by "affiliates," as that term is defined in Rule 144 under the Securities Act, their sales of common shares would be subject to volume limitations and other restrictions that are described below.

        Other than shares to be sold in this offering, the remaining common shares outstanding upon completion of this offering will be "restricted securities." We issued and sold these shares in reliance on exemptions from the registration requirements of the Securities Act or in transactions outside of the United States and not subject to the Securities Act. Restricted securities may be sold in the public market only if they are registered under the Securities Act, or if they qualify for an exemption from registration under Rule 144 or Rule 701. In addition, restricted securities may be sold outside the United States by our non-U.S. shareholders and employees pursuant to Regulation S under the Securities Act.

        Assuming the underwriters exercise their over-allotment option, our common shares outstanding upon closing of this offering will be eligible for sale into the public market as follows:

Approximate Number of Shares	Description
4,600,000	After the date of this prospectus, freely tradeable shares sold in this offering.
11,511,332	In addition, after 180 days from the date of this prospectus, except as otherwise discussed below, the lock-up period will expire, and these common shares will be saleable under Rule 144, subject to holding periods and volume limitations.

Lock-up Agreements

        Our officers and directors and all of our existing shareholders, who collectively hold an aggregate of 12,711,332 common shares, have agreed that they will not sell any common shares owned by them without the prior written consent of William Blair & Co. for a period of 180 days from the date of the lock-up agreement. We have agreed to allow certain transfers of common shares subject to a lock-up agreement to take place during the lock-up period, provided that the transferee in each case agrees to be bound by a similar lock-up agreement and the transfer does not involve a sale or other disposition for value. The 180-day lock-up period will be extended if (1) we issue an earnings release during the last 17 days of the lock-up period, or (2) prior to the expiration of the lock-up period, we announce that we will release earnings results during the 17-day period beginning on the last day of the lock-up period. In either case, the lock-up period will be extended for 17 days after the date of the earnings

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release. In addition, holders of options to purchase our shares which vest and become exercisable prior to the expiration of the lock-up period have entered into similar lock-up agreements, and we have agreed not to accelerate the vesting of any of our other option holders prior to the expiration of the lock-up period subject to limited exceptions. To the extent shares are released before the expiration of the lockup period and these shares are sold into the market, the market price of our common shares could decline. Immediately following the 180-day lockup period, common shares outstanding after this offering will become available for sale, subject to compliance with Rule 144 and Rule 701, if applicable.

Registration Rights Agreement

        On February 9, 2005 we entered into a registration rights agreement with our current shareholders according to which these shareholders, who hold a total of 12,711,332 shares prior to the offering, will have the right, after the offering and subject to some limited conditions, to demand that we file a registration statement on their behalf to register their shares under the U.S. Securities Act of 1933. Each of the shareholders has the right to make two such demands, with the exception of Vision Capital LLC, which has the right to make one such demand. According to the agreement, we will bear the registration fees, filing fees and certain other costs incurred in connection with the registration resulting from the first of these demands by each shareholder, while the shareholders will bear the costs resulting from a second such demand. Under the agreement, the shareholders also have the right to demand that we include their shares in a registration statement that we file on our behalf or on behalf of other shareholders. These rights become effective six months after the effective date of our first registration statement and will terminate either six years after the date of the agreement or, with respect to any shareholder, at such a time when that shareholder either disposes of its shares or will be able to sell all of the registrable securities it holds without registration and without restrictions in compliance with Rule 144.

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UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS

        The following discussion is a summary of certain material U.S. federal income tax considerations applicable to the ownership and disposition of shares by U.S. holders. In general you will be a "U.S. holder" if:

•

you are the beneficial owner of shares;



•

you are either (i) an individual resident or citizen of the United States, (ii) a corporation or certain other entities treated as a corporation for U.S. federal income tax purposes created in or organized under the laws of the United States or any state thereof, (iii) an estate whose income is subject to U.S. federal income taxation regardless of its source, or (iv) a trust if a U.S. court can exercise primary supervision over the administration of the trust and one or more U.S. persons are authorized to control all substantial decisions of the trust;



•

you own our shares as capital assets;



•

you own directly or indirectly less than 10% of our outstanding voting stock;



•

you are fully eligible for benefits under the Limitation on Benefits article of the Income Tax Treaty between the United States of America and the State of Israel, signed 20 November 1975 (the "Treaty"); and



•

you are not also a resident of Israel for Israeli tax purposes.

        The Treaty benefits discussed below generally are not available to holders who hold shares in connection with the conduct of business through a permanent establishment, or the performance of personal services through a fixed base, in Israel.

        If a partnership holds shares, the tax treatment of a partner generally will depend upon the status of the partner and the activities of the partnership. If you are a partner in a partnership that holds shares, you are urged to consult your own tax advisor regarding the specific tax consequences of owning and disposing of your shares.

        The summary does not purport to be a comprehensive description of all of the tax considerations that may be relevant to any particular holder, including tax considerations that arise from rules of general application or that are generally assumed to be known by U.S. holders. This summary is based on provisions of the Internal Revenue Code of 1986, as amended (the "Code"), existing and proposed U.S. Treasury Regulations, rulings, administrative pronouncements and judicial decisions in effect as of the date of this prospectus. All of the authorities are subject to change, possibly with retroactive effect, and to differing interpretations. In addition, this summary does not discuss all aspect of U.S. federal income taxation that may be applicable to investors in light of their particular circumstances or to U.S. holders who are subject to special treatment under U.S. federal income tax law, including insurance companies, dealers in stocks or securities, financial institutions, tax-exempt organizations, persons subject to the alternative minimum tax, and persons having a functional currency other than the U.S. dollar.

        U.S. holders are urged to consult with their own tax advisors regarding the tax consequences of the ownership and disposition of shares, including the effects of U.S. federal, state, local, Israeli, foreign and other tax laws with respect to their particular circumstances.

        This discussion assumes that we will not be considered a passive foreign investment company, as discussed below.

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Dividends

        If we make any distributions of cash or other property to you, you generally will be required to include in gross income as ordinary dividend income the amount of any distributions (including the amount of any Israeli taxes withheld in respect of such distribution as described below in the section "—Israeli Taxation"), to the extent that such distributions are paid out of our current or accumulated earnings and profits as determined for U.S. federal income tax purposes. Distributions in excess of our earnings and profits will be applied against and will reduce your tax basis in your shares and, to the extent in excess of such tax basis, will be treated as gain from a sale or exchange of such shares. Dividends paid by us will not be eligible for the dividends received deduction applicable in some cases to U.S. corporations.

        Any dividend paid in Israeli shekels, including the amount of any Israeli taxes withheld therefrom, will be includible in your gross income in an amount equal to the U.S. dollar value of the Israeli shekels calculated by reference to the spot rate of exchange in effect on the date the dividend is received by you, regardless of whether the Israeli shekels are converted into U.S. dollars. Any gain or loss resulting from currency exchange fluctuations during the period from the date the dividend is includible in your gross income to the date such payment is converted into U.S. dollars will be treated as U.S. source ordinary income or loss.

        Any dividends paid by us to you with respect to shares will be treated as foreign source income and will be characterized as "passive income" or, in the case of some U.S. holders, "financial services income" for U.S. foreign tax credit purposes. Subject to the foreign tax credit limitation, you may elect to claim a foreign tax credit against your U.S. federal income tax liability for Israeli income tax withheld from dividends received in respect of shares at a rate not in excess of that provided for in the Treaty. Taxes withheld in excess of the Treaty rate will not be creditable against your U.S. federal income tax liability. The rules relating to the determination of the foreign tax credit are complex. Accordingly, you should consult your own tax advisor to determine whether and to what extent you would be entitled to the credit. If you do not elect to claim a foreign tax credit, you may instead claim a deduction for Israeli income tax withheld, but only for a year in which you elect to do so with respect to all foreign income taxes.

        Recently enacted amendments to the Code generally have reduced the rates of tax payable by individuals (as well as certain trusts and estates) on many items of income. Regarding dividends, "qualified dividend income" received by individuals in taxable years beginning on or before December 31, 2008 generally will be taxed at the rates applicable to capital gains (that is, a maximum rate of 15%) rather than the rates applicable to other items of ordinary income. For this purpose, "qualified dividend income" generally includes dividends paid on shares of U.S. corporations as well as dividends paid on shares of certain non-U.S. corporations if, among other things, (i) the shares of the non-U.S. corporation are readily tradable on an established securities market in the United States, or (ii) the non-U.S. corporation is eligible with respect to substantially all of its income for the benefits of a comprehensive income tax treaty with the United States which contains an exchange of information program (the Treaty has been identified by the U.S. Treasury as a qualifying treaty). Dividends paid by us with respect to the shares should constitute "qualified dividend income" for U.S. federal income tax purposes and therefore U.S. holders who are individuals should, subject to applicable limitations, be entitled to the reduced rates of tax.

Sale or exchange of shares

        Upon the sale or other disposition of shares, you generally will recognize capital gain or loss equal to the difference between the amount realized on the disposition and your adjusted tax basis in your shares. Gain or loss upon the disposition of shares generally will be U.S. source gain or loss, and will be treated as long-term capital gain or loss if, at the time of the disposition, your holding period for

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the shares exceeds one year. If you are an individual, any capital gains generally will be subject to U.S. federal income tax at preferential rates if specified minimum holding periods are met. For shares held for over one year and sold or exchanged in taxable years beginning on or before December 31, 2008, the maximum rate of tax for individuals generally will be 15%. The deductibility of capital losses is subject to significant limitations.

Passive Foreign Investment Company status

        We do not expect to be a Passive Foreign Investment Company (a "PFIC") for U.S. federal income tax purposes for our 2004 taxable year or in the foreseeable future. However, this conclusion is a factual determination that must be made annually and thus may be subject to change. A non-U.S. corporation will be classified as a PFIC for any taxable year if at least 75% of its gross income consists of passive income (such as dividends, interest, rents, royalties, or gains on the disposition of certain minority interests), or at least 50% of the average value of its assets consists of assets that produce, or are held for the production of, passive income, taking into account a proportionate share of the income and assets of corporations at least 25% owned by such corporation. If we were characterized as a PFIC for any taxable year, you could suffer adverse tax consequences. These consequences may include having gains realized on the disposition of shares and certain dividends treated as ordinary income earned over your holding period for the shares taxable at maximum rates applicable during the years in which it is treated as earned and subject to punitive interest charges for the deemed deferral benefit. Furthermore, dividends paid by a PFIC would not be "qualified dividend income" as discussed above.

U.S. information reporting and backup withholding

        Dividend payments with respect to shares and proceeds from the sale, exchange, redemption, or other disposition of shares may be subject to information reporting to the IRS and possible U.S. backup withholding at a current rate of 28%. Certain exempt recipients (such as corporations) are not subject to these information reporting requirements. Backup withholding will also not apply to a holder who furnishes a correct taxpayer identification number or certificate of foreign status and makes any other required certification. U.S. persons who are required to establish their exempt status generally must provide IRS Form W-9 (Request for Taxpayer Identification Number and Certification).

        Backup withholding is not an additional tax. Amounts withheld as backup withholding may be credited against a holder's U.S. federal income tax liability, and a holder may obtain a refund of any excess amounts withheld by filing the appropriate claim for refund with the IRS and furnishing any required information a timely manner.

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ISRAELI TAXATION

        The following summary describes the current tax structure applicable to companies in Israel, with special reference to its effect on us. It also discusses Israeli tax consequences material to persons purchasing our common shares. To the extent that the summary is based on new tax legislation yet to be judicially or administratively interpreted, we cannot be sure that the views expressed will be consistent with any future interpretation. The summary is not intended, and should not be considered, to be legal or professional tax advice and does not exhaust all possible tax considerations. Therefore, you should consult your own tax advisor about the particular tax consequences of an investment in our common shares.

Tax Reform in Israel

        On January 1, 2003 a comprehensive tax reform took effect in Israel. Pursuant to the reform, resident companies are subject to Israeli tax on income accrued or derived in Israel or abroad. 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 capital gains). The tax reform also substantially changed the system of taxation of capital gains.

General Corporate Tax Structure

        Israeli companies are currently subject to tax at the rate of 34% of taxable income. Beginning from 2004, there has been a gradual reduction in the Israeli corporate tax rate from 35% in 2004 to 34% in 2005, 32% in 2006 and 30% from 2007 onward. However, the effective tax rate payable by a company that 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 Investments, 1959, provides that upon application to the Investment Center of the Ministry of Industry and Commerce of the State of Israel, a proposed capital investment in eligible facilities may 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, such as the equipment to be purchased and utilized under the program. The tax benefits derived from any certificate of approval relate only to taxable income derived from growth in manufacturing revenues attributable to the specific Approved Enterprise. If a company has more than one approval or only a portion of its capital investments are approved, its effective tax rate is the result of a weighted combination of the applicable rates. The tax benefits under the law are not available for income derived from products manufactured outside of Israel.

        Taxable income of a company derived from an Approved Enterprise is subject to tax at the maximum rate of 25%, rather than the usual rate described above, for the benefit period. This period is ordinarily seven years beginning with the year in which the Approved Enterprise first generates taxable income, and is limited to 12 years from when production begins or 14 years from the date of approval, whichever is earlier. A company owning an Approved Enterprise may elect to receive an alternative package of benefits, which allows the company to receive tax exemptions rather than grants. Under the alternative package, the company's undistributed income derived from an Approved Enterprise will be exempt from 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 the tax benefits under the law for the remainder of the benefit period.

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        The Investment Center bases its decision of whether to approve or reject a company's application for designation as an Approved Enterprise on criteria described in the law and related regulations, the then prevailing policy of the Investment Center and the specific objectives and financial criteria of the applicant. Therefore, a company cannot be certain in advance whether its application will be approved. In addition, the benefits available to an approved enterprise are conditional upon compliance with the conditions stipulated in the law and related regulations and the criteria described in the specific certificate of approval. If a company violates these conditions, in whole or in part, it would be required to refund the amount of tax benefits and any grants received plus an amount linked to the Israeli consumer price index and interest.

        A portion of our production facilities has been granted the status of Approved Enterprises under three programs, the first of which was completed in 2001. Income arising from our Approved Enterprise facilities is exempted from tax for two years and entitled to a reduced tax rates based on the level of foreign ownership for a period of five to eight years. We have derived and expect to continue to derive a certain portion of our income from our Approved Enterprise facilities. Subject to compliance with applicable requirements, the current benefits will continue until 2005 in respect of the second approved enterprise and until 2007 with respect to the third approved enterprise program. Our current investments in new facilities are in the process of approval, and we cannot anticipate when the tax benefit period will commence. A portion of the facilities of our subsidiary Eyal has also been granted the status of an Approved Enterprise under the alternative pack of benefit described above.

        All dividends are considered to be attributable to the entire enterprise and their effective tax rate is the result of a weighted combination of the applicable tax rates. If we pay a cash dividend from tax-exempt income that is derived from our approved enterprise, we would be required to pay tax on the amount intended to be distributed as dividends at the reduced tax rate (maximum 25%). We would also be required to withhold on behalf of the dividend recipient an additional 15% of the amount distributed as dividends. The law also provides that an Approved Enterprise is entitled to accelerated depreciation on its property and equipment that are included in an approved investment program.

        We anticipate that the Law for the Encouragement of Capital Investments will be subject to substantial revision during 2005.

Tax Benefits for Research and Development

        Israeli tax law allows a tax deduction in the year incurred for expenditures, including capital expenditures, in scientific research and development projects, if the expenditures are approved by the relevant Israeli government ministry and the research and development is for the promotion of the enterprise. Expenditures not so approved are deductible over a three-year period.

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

        According to the Law for the Encouragement of Industry (Taxes), 1969, an industrial company is a company resident in Israel, at least 90% of the income of which, exclusive of income from defense loans, capital gains, interest and dividends, is derived from an industrial enterprise owned by it. An industrial enterprise is defined as an enterprise whose primary activity in a given tax year is industrial production activity. We believe that we currently qualify as an industrial company under this definition.

        Under the law, industrial companies are entitled to the following preferred corporate tax benefits:

•

deduction of purchases of know-how and patents over an eight-year period for tax purposes;



•

the option to file a consolidated tax return with related Israeli industrial corporations that satisfy conditions described in the law; and



•

accelerated depreciation rates on equipment and buildings.

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        Our status as an industrial company is not contingent upon the receipt of prior approval from any governmental authority. However, entitlement to certain benefits under the law is conditioned upon receipt of approval from Israeli tax authorities. Also, the Israeli tax authorities may determine that we do not qualify as an Industrial Company, which would entail the loss of the benefits that relate to this status. In addition, we might not continue to qualify for Industrial Company status in the future, in which case the benefits described above might not be available to us in the future.

Special Provisions Relating to Taxation Under Inflationary Conditions

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

•

Under a special tax adjustment for the preservation of equity, corporate assets are classified broadly as either (a) fixed or inflation immune assets or (b) non-fixed or soft assets. If shareholders' equity exceeds the depreciated cost of a company's fixed assets, the company may be entitled to a deduction of up to 70% in any tax year. The amount of the deduction is determined by multiplying this excess by the annual rate of inflation. If the depreciated cost of fixed assets exceeds a company's equity, then this excess is multiplied by the annual rate of inflation. The resulting amount is added to taxable income.



•

Subject to limitations described in the law, depreciation deductions on fixed assets and losses carried forward are adjusted for inflation based on the increase of the Israeli consumer price index.



•

Real gains, excluding inflationary gains, on traded securities held by companies that are not dealers in securities are taxable under the law, subject to the regular corporate tax rate.



•

In 2001, new regulations were enacted regarding inflationary adjustments. Pursuant to these regulations, the minister of finance is entitled to suspend the application of the law of inflationary adjustment with respect to a tax year, if the inflation rate for that tax year was less than 3 percent in the previous year.

Capital Gains Tax Applicable to Resident and Non-Resident Shareholders

        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.

        On January 1, 2003, the Law for Amendment of the Income Tax Ordinance (Amendment No. 132), known as the tax reform, came into effect thus imposing capital gains tax at a rate of 15% on gains derived 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; or (3) shareholders who acquired their shares prior to an initial public offering. 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 will be exempt from Israeli capital gains tax on any gains derived from the sale of shares publicly traded on a stock exchange outside Israel provided such shareholders did not acquire their shares prior to an initial public offering. On January 1, 2004 the Israeli Ministry of Finance issued regulations with a new definition of "stock exchange." According to the regulations, the definition includes stock exchanges outside of Israel for securities and forward transactions that are managed in accordance with rules promulgated by the authorized regulatory entity in the country where the stock exchange is

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managed. The exemption does not apply to foreign residents who held the securities prior to an initial public offering or who pay taxes according to the Inflationary Adjustments Lat, or if the capital gain derived from the sale is attributed to a Permanent Establishment in Israel.

        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, or the United States– Israel Tax Treaty, the sale, exchange or disposition of common 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, or a Treaty U.S. Resident, generally will not be subject to the Israeli capital gains tax unless such Treaty U.S. Resident holds, directly or indirectly, shares representing 10% or more of our voting power during any part of the 12-month period preceding such sale, exchange or disposition, subject to certain conditions. A sale, exchange or disposition of common shares by a Treaty U.S. Resident who holds, directly or indirectly, shares representing 10% or more of our voting power at any time during such preceding 12-month period would be subject to such Israeli tax, to the extent applicable; however, under the United States–Israel Tax Treaty, such Treaty U.S. Resident would be permitted to claim a credit for such taxes against the U.S. federal and state income tax imposed with respect to such sale, exchange or disposition, subject to the limitations in U.S. laws applicable to foreign tax credits.

Taxation of Non-Resident Shareholders

        Non-residents of Israel are subject to Israeli income tax on income accrued or derived from sources in Israel, including passive income such as dividends, royalties and interest. On distributions of dividends, other than bonus shares and stock dividends, income tax at the rate of 25% is withheld at the source, unless a different rate is provided in a treaty between Israel and the shareholder's country of residence. Under the U.S.–Israel Tax Treaty, the maximum tax on dividends paid to a holder of common shares who is a Treaty U.S. Resident will be 25% or 12.5% for dividends not generated by an approved enterprise if the non-resident is a U.S. corporation and holds 10% or more of our voting power throughout a certain period; however, under the Investment Law, dividends generated by an approved enterprise are taxed at the rate of 15%.

Foreign Exchange Regulations

        Non-residents of Israel who hold our common shares are able to receive any dividends, and any amounts payable upon the dissolution, liquidation and winding up of our affairs, freely repatriable in non-Israeli currency at the rate of exchange prevailing at the time of conversion. However, Israeli income tax is required to have been paid or withheld on these amounts. In addition, the statutory framework for the potential imposition of exchange controls has not been eliminated, and may be restored at any time by administrative action.

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CONDITIONS IN ISRAEL

        We are incorporated under Israeli law, and our principal offices are located in Israel. Therefore, political, economic and military conditions in Israel directly affect our operations. Our operations would be substantially impaired if major hostilities involving Israel occur or if trade between Israel and its present trading partners is curtailed.

Political Conditions

        Since the establishment of the State of Israel in 1948, a number of armed conflicts have taken place between Israel and its Arab neighbors. A state of hostility, varying from time to time in intensity and degree, has led to security and economic problems for Israel. In 1979 however Israel signed a peace agreement with Egypt under which full diplomatic relations were established. In October 1994 a peace treaty was signed between Israel and Jordan which provides, among other things, for the commencement of full diplomatic relations between the two countries. To date, there are no peace treaties between Israel and Syria or Lebanon.

        Since 1993, several agreements have been signed between Israel and Palestinian representatives about conditions in the West Bank and Gaza, outlining several interim Palestinian self-government arrangements. The implementation of these agreements with the Palestinian representatives has been subject to difficulties and delays and a resolution of all of the differences between the parties remains uncertain.

        Since September 2000, relations between Israel and the Palestinian Authority have deteriorated, and Israel has experienced continuing unrest in the areas administrated by the Palestinian Authority, which has resulted in terror attacks against Israeli targets and citizens both in Israel and in the areas administrated by the Palestinian Authority.

        Despite the progress toward peace between Israel and its Arab neighbors, there are countries, companies and organizations that continue to participate in a boycott of Israeli firms and others doing business with Israel or with Israeli companies. Although we are precluded from marketing our products to these countries, we believe that in the past the boycott has not had a material adverse effect on our business. However, restrictive laws, policies or practices directed toward Israel or Israeli businesses could possibly have an adverse impact on the expansion of our business.

        Unless exempt, all male citizens and permanent residents of Israel up to a maximum age of 54 are obligated to perform military reserve duty annually. In addition, all these individuals are subject to being called to active duty at any time under emergency circumstances. Many of our officers and employees are currently obligated to perform annual reserve duty. Although we have operated effectively under these requirements since we began operations, we cannot assess the full impact of these requirements on our workforce or business if conditions should change. In addition, we cannot predict the effect on our business of a state of emergency in which large numbers of individuals are called up for active duty.

Economic Conditions

        Israel's economy has been subject to numerous destabilizing factors, including a period of rampant inflation in the early to mid-1980s, low foreign exchange reserves, fluctuations in world commodity prices, military conflicts and civil unrest. The Israeli government has intervened in the economy by utilizing fiscal and monetary policies, import duties, foreign currency restrictions and control of wages, prices and exchange rates. The Israeli government has periodically changed its policies in all these areas.

        The domestic security situation in Israel and the global slowdown in demand for high-tech imports continue to be the main factors affecting economic activity in Israel in 2002 and 2003. Nevertheless, in

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the second half of 2003, business sector activity showed signs of recovery, based on the rise in export and private consumption. Toward the end of 2003, budgetary restraint was exercised as a result of the economic program. The economic program placed much emphasis on immediately reducing the deficit and on measures expected to lead to its permanent reduction, and it therefore boosted the credibility of the fiscal policy and placed the economy on a declining budget deficit path.

        During the first nine months of 2004, the expansion of the economic activity and growth that the Israeli economy has experienced since the second half of 2003, has continued. Unemployment decreased slightly, to a rate of 10.7%. During this period inflation reached a rate of 1.2%, and the level expected by the Bank of Israel for the next 12 months is between 1% and 3%. Interest rates have remained level throughout the year at approximately 4.1%.

        The Israeli government's monetary policy contributed to relative price and exchange rate stability in recent years, despite fluctuating rates of economic growth and a high rate of unemployment. There can be no assurance that the Israeli government will be successful in its attempts to keep prices and exchange rates stable. Price and exchange rate instability may have a material adverse effect on our business.

        The following table shows, for the periods indicated, the Israeli consumer price index, the rate of inflation in Israel, the rate of devaluation of the shekel in Israel and the rate of inflation adjusted for devaluation. For purposes of this table, the Israeli consumer price index figures use 2000 as a base equal to 100. These figures are based on reports of the Israel Central Statistics Bureau.

Year ended December 31,	Israel Consumer Price Index	Inflation Israeli Rate %		Devaluation Rate %		Inflation Adjusted For Devaluation %
1998	98.9	8.6		17.6		(9.0	)
1999	100.2	1.3		(0.2	)	1.5
2000	100.2	0		(2.7	)	2.7
2001	101.6	1.4		9.3		(7.9	)
2002	108.2	6.5		7.3		(0.8	)
2003	106.1	(1.9	)	(7.6	)	5.7
2004 (through September 30)	107.4	1.2		2.4		(1.2	)

Trade Relations

        Israel is a member of the United Nations, the International Monetary Fund, the International Bank for Reconstruction and Development and the International Finance Corporation. Israel is also a member of the World Trade Organization and is a signatory of the global agreement on trade in services and to the agreement on basic telecommunications services. In addition, Israel has been granted preferences under the generalized system of preferences from the United States, Australia, Canada and Japan. These preferences allow Israel to export the products covered by these programs either duty-free or at reduced tariffs.

        Israel and the European Economic Community, now known as the European Union, concluded a free trade agreement in 1975. This agreement confers advantages to Israeli exports to most European countries and obligates Israel to lower its tariffs on imports from these countries over a number of years. In November 1995, Israel entered into a new agreement with the European Union, which redefines rules of origin and other improvements, such as providing for Israel to become a member of the research and technology programs of the European Union. In 1985, Israel and the United States entered into an agreement to establish a free trade area. The free trade area has eliminated all tariff and some non-tariff barriers on most trade between the two countries. On January 1, 1993, an agreement between Israel and the EFTA, which includes Austria, Norway, Finland, Sweden, Switzerland, Iceland and Liechtenstein, established a free-trade zone between Israel and the EFTA

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nations. In recent years, Israel has established commercial and trade relations with a number of other nations, including Russia, China, India, Turkey and other nations in Eastern Europe and Asia.

Assistance from the United States

        Israel receives significant amounts of economic assistance from the United States, averaging approximately $3 billion annually over the last several years. We cannot assure you that U.S. economic assistance will continue at or near amounts received in the past. If U.S. economic assistance is eliminated or reduced significantly, the Israeli economy could suffer material adverse consequences which could have a material adverse impact on our financial condition and results of operations.

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ENFORCEABILITY OF CIVIL LIABILITIES

        We are a corporation organized under the laws of Israel. Our and most of our subsidiaries' directors and officers, as well as certain of the experts named in this prospectus, are non-U.S. residents, and a substantial portion of our assets and the assets of our directors and officers and of these experts are and will be located outside the United States. As a result, you may not be able to effect service of process within the United States upon these persons or to enforce, in U.S. courts, against these persons judgments of U.S. courts predicated upon any civil liability provisions of the U.S. federal or state securities laws or other laws of the United States. The United States and Israel currently do not have a treaty providing for reciprocal recognition and enforcement of judgments in civil and commercial matters, and there is a doubt as to the enforceability in original actions in Israeli courts of liabilities based on U.S. federal securities laws and as to the enforceability in Israeli courts of judgments of U.S. courts obtained in actions based on the civil liability provisions of U.S. federal securities laws. Therefore, it may not be possible to enforce those actions against us, our non-U.S. directors and officers or the experts named in this prospectus. However, subject to certain time limitations, an Israeli court may declare a foreign civil judgment enforceable if it finds that:

•

the judgment was rendered by a court which was, according to the laws of the jurisdiction of the court, competent to render the judgment;



•

the judgment is no longer appealable;



•

the obligation imposed by the judgment is enforceable according to the rules relating to the enforceability of judgments in Israel and the substance of the judgment is not contrary to public policy; and



•

the judgment can be executed in the country in which it was given.

        A foreign judgment will not be declared enforceable if it was given in a country whose laws do not provide for the enforcement of judgments of Israeli courts (subject to exceptional cases) or if its enforcement is likely to prejudice the sovereignty or security of the State of Israel. An Israeli court also will not declare a foreign judgment enforceable if it is proven to the Israeli court that:

•

the judgment was obtained by fraud;



•

there was no due process;



•

the judgment was rendered by a court not competent to render it according to the laws of private international law in Israel;



•

the judgment is at variance with another judgment that was given in the same matter between the same parties and which is still valid; or



•

at the time the action was brought in the foreign court, a suit in the same matter and between the same parties was pending before a court or tribunal in Israel.

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UNDERWRITING

        The underwriters named below, for which William Blair & Company, L.L.C., CIBC World Markets Corp. and C.E. Unterberg, Towbin are acting as representatives, have severally agreed, subject to the terms and conditions set forth in the underwriting agreement by and among the underwriters, the selling shareholders and us, to purchase from us and the selling shareholders, the respective number of common shares set forth opposite each underwriter's name in the table below.

Name		Number of Shares
William Blair & Company, L.L.C.
CIBC World Markets Corp.
C.E. Unterberg, Towbin
	Total	4,000,000

        This offering will be underwritten on a firm commitment basis. In the underwriting agreement, the underwriters have agreed, subject to the terms and conditions set forth therein, to purchase the common shares being sold pursuant this prospectus at a price per share equal to the public offering price less the underwriting discount specified on the cover page of this prospectus. According to the terms of the underwriting agreement, the underwriters either will purchase all of the shares or none of them. In the event of default by any underwriter, in certain circumstances, the purchase commitments of the non-defaulting underwriters may be increased or the underwriting agreement may be terminated.

        The representatives of the underwriters have advised us and the selling shareholders that the underwriters propose to offer the common shares to the public initially at the public offering price set forth on the cover page of this prospectus and to selected dealers at such price less a concession of not more than $        per share. The underwriters may allow, and such dealers may re-allow, a concession not in excess of $        per share to certain other dealers. The underwriters will offer the shares subject to prior sale and subject to receipt and acceptance of the shares by the underwriters. The underwriters may reject any order to purchase shares in whole or in part. The underwriters expect that we and the selling shareholders will deliver the shares to the underwriters through the facilities of The Depository Trust Company in New York, New York on or about                    , 2005. At that time, the underwriters will pay us and the selling shareholders for the shares in immediately available funds. After commencement of the public offering, the representatives may change the public offering price and other selling terms.

        The selling shareholders have granted the underwriters an option, exercisable within 30 days after the date of this prospectus, to purchase up to an aggregate of 600,000 additional common shares at the same price per share to be paid by the underwriters for the other shares offered hereby solely for the purpose of covering over-allotments. If the underwriters purchase any such additional shares pursuant to this option, each of the underwriters will be committed to purchase such additional shares in approximately the same proportion as set forth in the table above. The underwriters may exercise the option only for the purpose of covering excess sales, if any, made in connection with the distribution of the common shares offered hereby. The underwriters will offer any additional shares that they purchase on the terms described in the preceding paragraph.

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        The following table summarizes the compensation to be paid by us and the selling shareholders to the underwriters. This information assumes either no exercise or full exercise by the underwriters of their over-allotment option:

	Per Share	Without Over-Allotment	With Over-Allotment
Public Offering Price
Underwriting discount paid by us
Underwriting discount paid by selling shareholders
Proceeds, before expenses, to us
Proceeds to the selling shareholders

        We estimate that our total expenses for this offering, excluding the underwriting discount, will be approximately $2.1 million.

        We and each of our directors, executive officers and existing shareholders, who in the aggregate have the right of disposition over approximately 12,711,332 common shares, have agreed, subject to limited exceptions described below, for a period of 180 days after the date of this prospectus, not to, without the prior written consent of William Blair & Company, L.L.C.:

•

directly or indirectly, offer, sell (including "short" selling), assign, transfer, encumber, pledge, contract to sell, grant an option to purchase, establish an open "put equivalent position" within the meaning of Rule 16a-1(h) under the Exchange Act, or otherwise dispose of any common shares or securities convertible or exchangeable into, or exercisable for, common shares held of record or beneficially owned (within the meaning of Rule 13d-3 under the Exchange Act); or



•

enter any swap or other arrangement that transfers all or a portion of the economic consequences associated with the ownership of any common shares.

        The 180-day lock-up period will be extended if (1) we issue an earnings release during the last 17 days of the lock-up period, or (2) prior to the expiration of the lock-up period, we announce that we will release earnings results during the 17-day period beginning on the last day of the lock-up period. In either case, the lock-up period will be extended for 17 days after the date of the earnings release.

        This agreement does not extend to bona fide gifts to immediate family members of such persons who agree to be bound by such restrictions. In determining whether to consent to a transaction prohibited by these restrictions, William Blair & Company, L.L.C. will take into account various factors, including the number of shares requested to be sold, the anticipated manner and timing of sale, the potential impact of the sale on the market for the common shares, and market conditions generally. We may grant options and issue common shares under existing stock option plans and issue unregistered shares in connection with any outstanding convertible securities or options during the lock-up period. For more information, see "Shares Eligible for Future Sale."

        We and Kibbutz Shamir have agreed to indemnify the underwriters and their controlling persons against certain liabilities for misstatements in the registration statement of which this prospectus forms a part, including liabilities under the Securities Act, or to contribute to payments the underwriters may be required to make in respect thereof.

        The representatives have informed us that the underwriters will not confirm, without client authorization, sales to their client accounts as to which they have discretionary authority. The representatives have also informed us that the underwriters intend to deliver all copies of this prospectus via hand delivery or through mail or courier services and only printed forms of the prospectus are intended to be used.

        In connection with this offering, the underwriters and other persons participating in this offering may engage in transactions which affect the market price of the common shares. These may include

105

stabilizing and over-allotment transactions and purchases to cover syndicate short positions. Stabilizing transactions consist of bids or purchases for the purpose of pegging, fixing or maintaining the price of the common shares. An over-allotment involves selling more common shares in this offering than are specified on the cover page of this prospectus, which results in a syndicate short position. The underwriters may cover this short position by purchasing common shares in the open market or by exercising all or part of their over-allotment option. In addition, the representatives may impose a penalty bid. This allows the representative to reclaim the selling concession allowed to an underwriter or selling group member if common shares sold by such underwriter or selling group member in this offering are repurchased by the representative in stabilizing or syndicate short covering transactions. These transactions, which may be effected on the Nasdaq National Market or otherwise, may stabilize, maintain or otherwise affect the market price of the common shares and could cause the price to be higher than it would be without these transactions. The underwriters and other participants in this offering are not required to engage in any of these activities and may discontinue any of these activities at any time without notice. We, the selling shareholders and the underwriters make no representation or prediction as to whether the underwriters will engage in such transactions or choose to discontinue any transactions engaged in or as to the direction or magnitude of any effect that these transactions may have on the price of the common shares.

        Prior to this offering, there has been no public market for our common shares. Consequently, we, the selling shareholders and representatives of the underwriters will negotiate to determine the initial public offering price. We and they will consider current market conditions, our operating results in recent periods, the market capitalization of other companies in our industry and estimates of our potential. The estimated price range specified on the cover page of this prospectus may change because of market conditions and other factors.

        We have applied to list our common shares on the Nasdaq National Market under the symbol "SHMR."

        In the ordinary course of business, some of the underwriters and their affiliates may provide investment banking, commercial banking and other services to us for which they receive customary fees or other compensation.

        In June 2004 we sold 160,961 of our common shares to Vision Capital LLC for $2.0 million. Vision Capital is owned by principals and employees of William Blair & Company, L.L.C., which is the lead underwriter of this offering. These shares are subject to restrictions on transfer for a period of 180 days after the date of this prospectus pursuant to Rule 3710(g)(1) of the Conduct Rules of the National Association of Securities Dealers, Inc.

106

LEGAL MATTERS

        The validity of the shares and certain other legal matters in connection with the offering will be passed upon by M. Seligman & Co., our Israeli counsel, and certain legal matters in connection with the offering with respect to U.S. law will be passed upon by Shearman & Sterling LLP, our U.S. counsel, and Sidley Austin Brown & Wood LLP, U.S. counsel for the underwriters, and with respect to Israeli law by Haim Samet, Steinmetz, Haring & Co., Israeli counsel for the underwriters.

EXPERTS

        Kost Forer Gabbay & Kasierer, independent registered public accounting firm and a member of Ernst and Young Global, have audited our consolidated financial statements, at December 31, 2002 and 2003 and at September 30, 2004, and for each of the three years in the period ended December 31, 2003 and for the nine months ended September 30, 2004, as set forth in their report. We have included our financial statements in the prospectus and elsewhere in the registration statement in reliance on Kost Forer Gabbay & Kasierer's report, given on their authority as experts in accounting and auditing.

OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

        The following table summarizes the estimated expenses, other than underwriting commissions, that we will incur in connection with this offering.

	Amount
Securities and Exchange Commission registration fee	$	8,121
NASDAQ National Market filing fee and expenses		100,000
National Association of Securities Dealers, Inc. filing fee		7,000
Printing and engraving expenses		200,000
Legal fees and expenses		550,000
Accounting fees and expenses		280,000
Premiums for insurance of directors and officers		400,000
Israeli stamp duty		443,000
Transfer agent and registrar fees		10,000
Miscellaneous		150,000
Total	$	2,148,121

WHERE YOU CAN FIND MORE INFORMATION

        We have filed a registration statement on Form F-1 with the U.S. Securities and Exchange Commission of which this prospectus forms a part. This prospectus does not contain all of the information included in the registration statement, certain parts of which have been omitted in accordance with the rules and regulations of the SEC. For further information about us and our shares, you should refer to our registration statement and its exhibits. This prospectus summarizes the content of contracts and other documents that we refer you to. Since this prospectus may not contain all of the information that is important to you, you should review the full text of these documents. We have included copies of these documents as exhibits to our registration statement.

        As a result of this offering, we will become subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, and file reports, including annual reports on Form 20-F, and other information with the SEC. However, as we are a foreign private issuer, we and our shareholders are exempt from some of the Exchange Act reporting requirements. The reporting requirements that do not apply to us or our shareholders include the proxy solicitation rules and Section 16 short-swing

107

profit reporting for our officers and directors and for holders of more than 10% of our shares. In addition, we are not required to file annual, quarterly or current reports and financial statements with the SEC as frequently or as promptly as U.S. companies whose securities are registered under the Exchange Act. However, we will file with the SEC, as long as we are required to do so, within 180 days after the end of each fiscal year, an annual report on Form 20-F containing financial statements audited by an independent accounting firm. We also intend to file periodic reports on Form 6-K. You may read and obtain copies, at the prescribed rate, of any document we file with the SEC at its public reference room at 450 Fifth Street, N.W., Washington D.C. 20549. Please call the SEC at 1-800-SEC-0330 for more information on the public reference rooms and their copy charges. Our SEC filings, including the registration statement, are also available to you on the SEC's web site at www.sec.gov.

108

SHAMIR OPTICAL INDUSTRY LTD.

AND ITS SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

AS OF SEPTEMBER 30, 2004

(in U.S. dollars)

INDEX

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders of

SHAMIR OPTICAL INDUSTRY LTD.

        We have audited the accompanying consolidated balance sheets of Shamir Optical Industry Ltd. ("Shamir") and its subsidiaries as of December 31, 2002 and 2003 and as of September 30, 2004, and the related consolidated statements of income, changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 2003 and for the nine month period ended September 30, 2004. These financial statements are the responsibility of Shamir's management. Our responsibility is to express an opinion on these 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 the Shamir's 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 financial position of Shamir and its subsidiaries as of December 31, 2002 and 2003 and September 30, 2004, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2003 and for the nine month period ended September 30, 2004, in conformity with U.S. generally accepted accounting principles.

Tel-Aviv, Israel
January 5, 2005 Except for Note 12(a), as which the date is •	KOST FORER GABBAY & KASIERER A Member of Ernst & Young Global

        The foregoing report is in the form that will be signed upon the completion of the reorganization of Shamir's equity as described in Note 12(a) and the change of its legal status from an Agricultural Cooperative Society to a corporation as described in Note 1(a) to the financial statements.

Tel-Aviv, Israel February 10, 2005 KOST FORER GABBAY & KASIERER
A Member of Ernst & Young Global

F-2

SHAMIR OPTICAL INDUSTRY LTD. AND ITS SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(U.S. dollars in thousands)

	December 31,
					September 30, 2004
	2002		2003
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	2,808	$	6,033	$	8,614
Trade receivables (net of allowance for doubtful accounts of $541 and $450 as of December 31, 2002 and 2003, respectively and $493 as of September 30, 2004		12,837		13,123		14,665
Other receivables and prepaid expenses		1,993		2,105		3,451
Inventory		10,461		12,782		15,940
Total current assets		28,099		34,043		42,670
LONG-TERM INVESTMENTS:
Severance pay fund		999		1,501		1,724
Investments in affiliates		696		572		676
Total long-term investments		1,695		2,073		2,400
PROPERTY, PLANT AND EQUIPMENT, NET		11,573		14,193		14,848
OTHER INTANGIBLE ASSETS, NET		—		579		1,083
GOODWILL		338		2,034		3,565
Total assets	$	41,705	$	52,922	$	64,566

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

F-3

											Pro Forma Shareholders' Equity as of September 30, 2004
				December 31,
								September 30, 2004
				2002		2003
											(unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
	Short-term bank credit and loans			$	4,644	$	8,426	$	9,630
	Current maturities of long-term loans				2,826		3,784		3,720
	Trade payables				4,595		3,456		3,611
	Dividend payable				—		—		9,200
	Accrued expenses and other liabilities				7,412		8,342		8,982
Total current liabilities					19,477		24,008		35,143
LONG-TERM LIABILITIES:
	Long-term loans				4,459		4,575		6,214
	Accrued severance pay				1,300		1,754		1,977
	Deferred taxes				87		—		160
	Other long-term liability				—		1,359		—
Total long-term liabilities					5,846		7,688		8,351
MINORITY INTERESTS					4,833		6,281		6,325
COMMITMENTS AND CONTINGENT LIABILITIES (Note 10)
TEMPORARY EQUITY
	Issued and outstanding: No shares at December 31, 2002 and 2003; 502,400 shares at September 30, 2004				—		—		3,000		$	—
SHAREHOLDERS' EQUITY:
	Share capital
		Common shares of NIS 0.01 par value:
			Authorized: No shares at December 31, 2002 and 2003 and at September 30, 2004; 100,000,000 shares pro forma at September 30, 2004 (unaudited)
			Issued and outstanding: No shares at December 31, 2002 and 2003 and at September 30, 2004; 12,711,332 shares pro forma at September 30, 2004 (unaudited)		—		—		—			30
		Shares of NIS 0.01 par value:
			Authorized: 12,047,971 shares at December 31, 2002 and 2003 and 12,711,332 shares at September 30, 2004; No shares pro forma at September 30, 2004 (unaudited)
			Issued and outstanding: 12,047,971 shares at December 31, 2002 and 2003 and 12,208,932 shares at September 30, 2004; No shares pro forma at September 30, 2004 (unaudited)		29		29		29			—
	Additional paid-in capital				5,014		6,823		10,053			14,782
	Deferred stock compensation				—		—		(903	)		(903	)
	Accumulated other comprehensive income				314		921		838			838
	Retained earnings				6,192		7,172		1,730			—
Total shareholders' equity					11,549		14,945		11,747		$	14,747
Total liabilities and shareholders' equity				$	41,705	$	52,922	$	64,566

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

F-4

SHAMI R OPTICAL INDUSTRY LTD. AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(U.S. dollars in thousands except per share data)

			Year Ended December 31,									Nine Months Ended September 30,
			2001			2002			2003			2003			2004
												(unaudited)
Revenues, net			$	29,386		$	48,738		$	60,079		$	42,644		$	51,437
Cost of revenues				14,724			24,318			29,955			21,712			24,759
Gross profit				14,662			24,420			30,124			20,932			26,678
Operating expenses:
	Research and development costs			1,488			1,594			1,988			1,374			1,461
	Selling and marketing expenses			4,411			10,659			13,756			9,411			12,876
	General and administrative expenses			2,656			2,756			3,564			2,486			3,060
	Stock based compensation(*)			173			—			1,809			1,809			23
Total operating expenses				8,728			15,009			21,117			15,080			17,420
Operating income				5,934			9,411			9,007			5,852			9,258
Financial expenses and other, net				395			1,600			1,064			883			643
Income before taxes on income				5,539			7,811			7,943			4,969			8,615
Taxes on income				77			979			1,095			583			1,391
Income after taxes on income				5,462			6,832			6,848			4,386			7,224
Equity in losses of affiliates, net				(377	)		(367	)		(47	)		(31	)		(43	)
Minority interest in losses (earnings) of subsidiaries				62			(244	)		(1,564	)		(1,081	)		(795	)
Net income			$	5,147		$	6,221		$	5,237		$	3,274		$	6,386
Pro forma data (unaudited):
	Pro forma—additional taxes on income		$	631		$	1,075		$	1,187		$	882		$	1,218
Pro forma net income			$	4,516		$	5,146		$	4,050		$	2,392		$	5,168
Net earnings per share:
	Basic		$	0.44		$	0.52		$	0.43		$	0.27		$	0.51
	Diluted		$	0.43		$	0.52		$	0.43		$	0.27		$	0.49
Pro forma net earnings per share (unaudited) (Note 2r):
	Basic		$	0.39		$	0.43		$	0.33		$	0.19		$	0.40
	Diluted		$	0.38		$	0.43		$	0.32		$	0.19		$	0.39
(*)   Stock based compensation includes the following:
		Research and development costs	$	—		$	—		$	1,809		$	1,809		$	—
		Selling and marketing expenses		173			—			—			—			4
		General and administrative expenses		—			—			—			—			19
			$	173			—		$	1,809		$	1,809		$	23

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

F-5

SHAMIR OPTICAL INDUSTRY LTD.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(U.S. dollars in thousands except share data)

		Number of Shares		Share Capital		Additional Paid-in Capital			Deferred Stock Compensation			Accumulated Other Comprehensive Income			Retained Earnings			Total Comprehensive Income			Total Shareholders' Equity
Balance as of January 1, 2001		10,240,776		$	26	$	28		$	—		$	—		$	2,064					$	2,118
Distribution of earnings to the shareholders		—			—		—			—			—			(3,985	)					(3,985	)
Capitalization of retained earnings into additional paid-in capital		—			—		679			—			—			(679	)					—
Conversion of redeemable shares into Shamir's shares		1,807,195			3		4,117			—			—			—						4,120
Comprehensive income:
	Foreign currency translation adjustments	—			—		—			—			(93	)		—		$	(93	)		(93	)
	Net income	—			—		—			—			—			5,147			5,147			5,147
Total comprehensive income																		$	5,054
Balance as of December 31, 2001		12,047,971			29		4,824			—			(93	)		2,547						7,307
Distribution of earnings to the shareholders		—			—		—			—			—			(2,386	)					(2,386	)
Capitalization of retained earnings into additional paid-in capital		—			—		190			—			—			(190	)					—
Comprehensive income:
	Foreign currency translation adjustments	—			—		—			—			407			—		$	407			407
	Net income	—			—		—			—			—			6,221			6,221			6,221
Total comprehensive income																		$	6,628
Balance as of December 31, 2002		12,047,971			29		5,014			—			314			6,192						11,549
Distribution of earnings to shareholders		—			—		—			—			—			(4,257	)					(4,257	)
Compensation related to grant of options to an employee		—			—		1,809			—			—			—						1,809
Comprehensive income:
	Foreign currency translation adjustments	—			—		—			—			607			—		$	607			607
	Net income	—			—		—			—			—			5,237			5,237			5,237
Total comprehensive income																		$	5,844
Balance as of December 31, 2003		12,047,971			29		6,823			—			921			7,172						14,945
Distribution of earnings to shareholders		—			—		—			—			—			(11,828	)					(11,828	)
Issuance of shares, net		160,961			(*)—		1,945			—			—			—						1,945
Classification of liability into temporary equity and exercise of call option		502,400			(*)—		3,359			—			—			—						3,359
Reclassification of puttable shares into temporary equity		(502,400	)		(*)—		(3,000	)		—			—			—						(3,000	)
Deferred stock compensation related to grant of options to employees		—			—		926			(926	)		—			—						—
Amortization of deferred stock compensation		—			—		—			23			—			—						23
Comprehensive income:
	Foreign currency translation adjustments	—			—		—			—			(83	)		—		$	(83	)		(83	)
	Net income	—			—		—			—			—			6,386			6,386			6,386
Total comprehensive income																		$	6,303
Balance as of September 30, 2004		12,208,932		$	29	$	10,053		$	(903	)	$	838		$	1,730					$	11,747

(*)

Represents an amount less than $1.

The accompanying note is an integral part of the consolidated financial statements.

F-6

SHAMIR OPTICAL INDUSTRY LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(U.S. dollars in thousands)

		Year Ended December 31,									Nine Months Ended September 30,
		2001			2002			2003			2003			2004
											(unaudited)
Cash flows from operating activities:
Net income		$	5,147		$	6,221		$	5,237		$	3,274		$	6,386
Adjustments required to reconcile net income to net cash provided by operating activities:
	Depreciation and amortization		1,744			2,439			3,658			2,041			2,197
	Stock based compensation		173			—			1,809			1,809			23
	Increase (decrease) in accrued severance pay, net		63			(14	)		(48	)		123			—
	Currency fluctuations of long-term loans		(211	)		827			988			583			(398	)
	Deferred taxes, net		(22	)		(34	)		(335	)		(234	)		90
	Equity in losses of affiliates, net		377			367			47			31			43
	Minority interest in earnings (losses) of subsidiaries		(62	)		244			1,564			1,081			795
	Foreign currency translation losses (gains)		—			(380	)		(1,821	)		(2,128	)		418
	Decrease (increase) in trade receivables		(2,523	)		(2,735	)		1,971			1,255			(119	)
	Increase in other receivables and prepaid expenses		(290	)		(20	)		(465	)		(673	)		(474	)
	Decrease (increase) in inventory		488			(1,653	)		(350	)		620			(2,614	)
	Increase (decrease) in trade payables		(2,293	)		1,523			(1,812	)		539			(839	)
	Increase (decrease) in accrued expenses and other liabilities		(313	)		1,703			1,040			1,387			(923	)
	Others		77			754			—			—			—
Net cash provided by operating activities			2,355			9,242			11,483			9,708			4,585
Cash flows from investing activities:
Loans granted to affiliates			(183	)		(42	)		(52	)		(59	)		(56	)
Repayment of loans by affiliates			—			60			129			135			—
Investment in affiliates			—			—			—			—			(91	)
Acquisition of Altra(a)			(2,167	)		(365	)		—			—			—
Acquisition of Eyal(b)			338			—			—			—			(49	)
Acquisition of Cambridge(c)			—			—			—			—			(2,688	)
Acquisition of Interoptic			—			—			—			—			298
Purchase of property, plant and equipment			(3,090	)		(4,317	)		(5,270	)		(3,489	)		(2,491	)
Government participation in purchase of property, plant and equipment			233			638			143			—			—
Proceeds from sale of property, plant and equipment			13			10			84			45			52
Proceeds from sale of shares in Altra			—			502			761			761			—
Net cash used in investing activities			(4,856	)		(3,514	)		(4,205	)		(2,607	)		(5,025	)

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

F-7

	Year Ended December 31,									Nine Months Ended September 30,
	2001			2002			2003			2003			2004
										(unaudited)
Cash flows from financing activities:
Distribution of earnings to shareholders		(2,842	)		(3,978	)		(4,257	)		(3,027	)		(2,628	)
Short-term bank credit, net		2,901			(663	)		434			551			1,353
Proceeds from exercise of call option		—			—			—			—			2,000
Issuance of shares		—			—			—			—			2,000
Receipt of long-term loans		6,550			1,610			2,442			1,007			2,256
Repayment of long-term loans		(1,959	)		(2,709	)		(2,957	)		(2,928	)		(1,835	)
Dividend paid to minority by a subsidiary		—			—			—			—			(90	)
Net cash provided by (used in) financing activities		4,650			(5,740	)		(4,338	)		(4,397	)		3,056
Effect of exchange rate differences on cash and cash equivalents		(17	)		78			285			332			(35	)
Increase in cash and cash equivalents		2,132			66			3,225			3,036			2,581
Cash and cash equivalents at beginning of period		610			2,742			2,808			2,808			6,033
Cash and cash equivalents at end of period	$	2,742		$	2,808		$	6,033		$	5,844		$	8,614
Supplemental information and disclosures of non-cash investing and financing activities:
Issuance expenses	$	—		$	—		$	—		$	—		$	55
Receivables in respect of sale of Altra's shares	$	—		$	664		$	—		$	—		$	—
Distribution of earnings not yet paid	$	1,583		$	—		$	—		$	—		$	9,200
Cash paid during the period for:
Interest	$	374		$	532		$	722		$	295		$	294
Income taxes	$	89		$	462		$	1,856		$	1,621		$	1,503

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

F-8

		Year Ended December 31,								Nine Months Ended September 30,
		2001			2002		2003			2003	2004
										(unaudited)
(a)	Acquisition of Altra:
	Fair value of assets acquired and liabilities assumed at the acquisition date:
	Working capital (excluding cash and cash equivalents)	$	216
	Property, plant and equipment		2,375
	Long-term loans		(59	)
			2,532
	Amount paid in 2002		(365	)	$	365
		$	2,167		$	365
(b)	Acquisition of Eyal:
	Fair value of assets acquired and liabilities assumed at the acquisition date:
	Working capital (excluding cash and cash equivalents)	$	1,003				$	128			$	49
	Property and equipment		2,563					—				—
	Investment in affiliates		(1,638	)				—				—
	Goodwill		385					1,696				—
	Other intangible assets		—					579				—
	Long-term loans		(1,743	)				—				—
	Accrued severance pay, net		(8	)				—				—
	Minority interest		(900	)				2,767				—
			(338	)				5,170				49
	Less—amounts acquired by assuming short-term bank credit		—					(2,330	)			—
	Less—amounts acquired by assuming long-term loans		—					(1,481	)			—
	Less—amounts acquired by issuance of combined put and call option		—					(1,359	)			—
		$	(338	)			$	—			$	49
(c)	Acquisition of Cambridge:
	Fair value of assets acquired and liabilities assumed at the acquisition date:
	Working capital (excluding cash and cash equivalents)										$	990
	Property and equipment											452
	Other intangible assets											591
	Goodwill											1,551
	Long-term loans											(896	)
											$	2,688

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

F-9

SHAMIR OPTICAL INDUSTRY LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(U.S. dollars in thousands except share and per share data)

NOTE 1: GENERAL

a.     Shamir Optical Industry Ltd. ("Shamir") was incorporated under the laws of the State of Israel in the early 1970s. Upon an Initial Public Offering ("IPO"), Shamir will change its legal status from an Agricultural Cooperative Society to a corporation. Shamir and its subsidiaries (Collectively—"the Group") design, develop, manufacture and market optical progressive lenses and molds. The Group's products are marketed in the U.S through its U.S. subsidiaries, Shamir U.S.A. and Shamir Insight Inc. and in Europe through its German subsidiary Altra Trading GmbH.

        As for major customers data, see Note 14c.

b.

Acquisition of Eyal Optical Industries (1998) Ltd. ("Eyal"):

        Up until January 1, 2001, Shamir held 50% of Eyal (an Israeli based company). Eyal is engaged in production processes for advanced plastic progressive lenses. Shamir followed the equity method of accounting because of an absence of control over the operations of Eyal.

        On January 1, 2001, Shamir signed an agreement with Kibbutz Eyal to purchase another 1% of Eyal's equity in consideration of $400. Following the acquisition, Shamir obtained control over the operations of Eyal. The results of Eyal's operations have been included in Shamir's consolidated statements of income since January 1, 2001. As a result of Eyal's acquisition, the Group's obtained control also over the operations of Shamir Insight Inc. ("SII"), through the holding share of Eyal in SII. Commencing January 1, 2001, the results of SII have been included in the Group's consolidated statements of income.

        In the fourth quarter of 2003, Shamir entered into an agreement with Kibbutz Eyal to purchase additional 47% of Eyal's equity in an aggregate amount of $5,170, by assuming short-term bank credits in the amount of $2,330, long-term loans in the amount of $1,481. In addition, Shamir issued to the seller a Call option ("the Call option") to purchase 502,400 shares of Shamir for a total exercise price of $2,000, exercisable through January 10, 2004. Shamir also wrote a Put option ("the Put option") to the seller to sell the underlying shares (upon exercise of the Call option) back to Shamir for $3,000, from January 1, 2006 through January 10, 2010, or on the occurrence of earlier events concerning the structure or legal decisions by Shamir. Upon an IPO the Put option expires.

        The acquisition was accounted for by the purchase method and accordingly, the purchase price has been allocated according to the estimated fair value of the assets acquired and liabilities assumed of Eyal. The Call and Put options were recorded at their fair value as other long-term liability in accordance with Statement of Financial Accounting Standard Board ("SFAS") No. 150 "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity" (See also Note 2(u)). The fair value of the combined Call and Put options was $1,359 and was considered as part of the purchase price. On January 4, 2004, Kibbutz Eyal exercised its option to purchase 502,400 shares of Shamir for the amount of $2,000. Upon exercise of the Call option, as the related outstanding shares were redeemable for cash outside the control of Shamir, the Group recorded an amount of $3,000 as temporary equity.

F-10

        The following table summarizes the fair values of the assets acquired and the buyout of the minority interest:

Current assets	$	128
Technology		96
Customer relationship		483
Goodwill and assembled workforce		1,696
Total assets acquired		2,403
Minority interest buyout		2,767
	$	5,170

        Acquired intangible assets in the amount of $579 with definite lives are amortized using the straight-line method at annual weighted average rate of approximately 17%.

        On May 3, 2004, the Group acquired the remaining 2% of Eyal's shares for the amount of $49.

c.

Acquisition of Altra Trading GmbH ("Altra"):

        On September 25, 2001, Shamir entered into an agreement to acquire 100% of the shares of Altra, a German based company, in consideration of $2,850. Altra and its subsidiaries are engaged in the marketing of lenses in Europe. The closing date was October 25, 2001. The results of Altra's operations have been included in Shamir's consolidated statements of income since the closing date. Shortly after the acquisition, Shamir entered into negotiations with Altra's CEO to sell 49% of Altra's shares. In 2001, Shamir transferred 6% of Altra's shares to Altra's CEO at the time for no consideration. The Group recorded compensation expenses relating to the shares transferred in an amount of $173 in 2001. In 2002, Shamir and Altra's CEO finalized the sale of 43% of Altra's shares. Losses in respect of the shares sold amounted to $754 and were recorded in financial expenses and other, net in 2002.

d.

Acquisition of Cambridge Optical Group Limited ("Cambridge"):

        On August 31, 2004, Altra acquired all of the outstanding shares of Cambridge, a UK based company. Altra paid £1,500 (approximately $2,700). Under the terms of the acquisition agreement ("the agreement"), contingent cash payments will be paid if certain financial performance criteria are met in respect of future earnings of Cambridge for the 12 month period ending February 28, 2005.

        Should any contingent payment be made under the agreement in the future, the additional consideration, when determined, will increase the purchase price and accordingly additional goodwill will be recorded. The contingent payment resulting from the earn-out is currently estimated to be £1,000 (approximately $1,800). The contingent payment will be paid in three equal installments during 2005 through 2007.

        The acquisition was accounted for by the purchase method and accordingly, the purchase price has been allocated to the estimated fair value of the assets acquired and liabilities assumed of Cambridge. The results of Cambridge's operations have been included in the consolidated financial statements of the Group starting August 31, 2004.

F-11

        With the acquisition of Cambridge, the Group significantly expanded its customer base and its presence in Europe.

        The following table summarizes the preliminary fair values of the assets acquired and liabilities assumed:

Trade receivables	$	1,048
Other receivables and prepaid expenses		709
Inventories		254
Property and equipment		452
Technology		143
Customer relationship		448
Goodwill		1,551
Total assets acquired		4,605
Trade payables		(1,021	)
Long-term loans		(896	)
Total liabilities assumed		(1,917	)
Net assets acquired	$	2,688

        Acquired intangible assets with in the amount of $591 with definite lives are amortized using the straight-line method at annual weighted average rate of 22%.

        The following represents the unaudited pro-forma condensed results of operations for the year ended December 31, 2003 and for the nine months ended September 30, 2004, assuming that the acquisition occurred on January 1, 2003 and 2004, respectively. The pro-forma information is not necessarily indicative of the results of operations, which actually would have occurred if the acquisition had been consummated at the beginning of each year presented, nor does it purport to represent the results of operations for future periods.

	Year Ended December 31, 2003		Nine Months Ended September 30, 2004
	(unaudited)
Revenues, net	$	66,505	$	58,463
Net income	$	5,212	$	7,227
Basic net earnings per share	$	0.41	$	0.54
Diluted net earnings per share	$	0.40	$	0.53

F-12

NOTE 2: SIGNIFICANT ACCOUNTING POLICIES

        The consolidated financial statements have been prepared according to United States Generally Accepted Accounting Principles ("US GAAP").

a.

Use of estimates:

        The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

b.

Unaudited information:

(i)

Unaudited pro-forma additional taxes on income and shareholders' equity:

In August 2004, the Board of Directors authorized the management of Shamir to file a registration statement with the Securities and Exchange Commission permitting Shamir to sell its shares to the public. If the IPO is consummated under the terms presently anticipated, Shamir will change its legal status from Cooperative to a corporation. Pro-forma additional taxes on income are presented on the face of statements of income to give effect to income taxes as if the Cooperative had been a taxable entity. Likewise, if the offering is completed, Shamir will execute a 1 to 120.48 stock split to be effected as stock dividend and the temporary equity in an amount of $3,000 will be converted into equity. Unaudited pro-forma shareholders' equity as of September 30, 2004, as adjusted for the assumed reorganization of the equity, is presented in the consolidated balance sheets. Retained earnings in the amount of $1,730 have been reclassified into additional paid-in capital in the pro-forma information.

(ii)

Unaudited interim consolidated financial statements:

The financial statements include the unaudited consolidated statements of income and cash flows for the nine month period ended September 30, 2003. This unaudited information has been prepared by the Group's management on the same basis as the audited consolidated financial statements and, in management's opinion, reflects all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of the financial information and results of operations in accordance with generally accepted accounting principles, for the periods presented.

c.

Financial statements in U.S. dollars:

        The functional currency of Shamir and certain subsidiaries is the U.S. dollar ("dollar"), as the dollar is the primary currency of the economic environment in which Shamir and certain subsidiaries have operated and expect to continue to operate in the foreseeable future. The functional and reporting currency of the Group is the dollar.

        Accordingly, monetary accounts maintained in currencies other than the dollar are remeasured into dollars in accordance with SFAS No. 52 "Foreign Currency Translation". All transaction gains and losses of the remeasured monetary balance sheet items are reflected in the statement of income as financial income or expenses, as appropriate.

        For those foreign subsidiaries whose functional currency has been determined to be their local currency, assets and liabilities are translated at year-end exchange rates and statement of income items

F-13

are translated at average exchange rates prevailing during the year. Translation adjustments are recorded in other comprehensive income, as a separate component of the shareholders' equity.

d.

Principles of consolidation:

        The consolidated financial statements include the accounts of Shamir and its wholly and majority owned subsidiaries. Intercompany transactions and balances including profit from intercompany sales not yet realized outside the Group, have been eliminated upon consolidation.

e.

Cash equivalents:

        Cash equivalents are short-term highly liquid investments that are readily convertible to cash with maturities of three months or less at the date acquired.

f.

Inventories:

        Inventories are stated at the lower of cost or market value. Cost is determined as follows:

        Raw materials and work-in-progress—using the method of "first in–first out".

        Finished products—recorded on the basis of direct manufacturing costs with the addition of allocable indirect manufacturing costs.

        Inventory provisions are provided to cover risks arising from slow-moving items, excess inventories and discontinued products. Inventory provisions for the years ended December 31, 2001, 2002 and 2003, were $513, $836 and $1,249, respectively, and for September 30, 2003 and 2004, were $1,344 (unaudited) and $1,915, respectively, and have been included in cost of revenues.

g.

Investments in affiliates:

        Affiliated companies are companies over which the Group can exercise significant influence on their operating and financial policies even though the Group holds less than 20%. The investment in affiliated companies is accounted for by the equity method of accounting.

h.

Property, plant and equipment:

        Property, plant and equipment are stated at cost, net of accumulated depreciation and investment grants. Depreciation is calculated by the straight-line method over the estimated useful lives of the assets at the following annual rates:

	%
Machinery and equipment	10–15
Furniture and equipment	10–33
Motor vehicles	15
Buildings	4

        Leasehold improvements are depreciated by the straight-line method over the term of the lease or the estimated useful life of the improvements, whichever is shorter.

F-14

i.

Other intangible assets, net:

        Intangible assets are amortized over their useful lives using a method of amortization that reflects the pattern in which the economic benefits of the intangible assets are consumed or otherwise used, in accordance with SFAS No. 142 "Goodwill and Other Intangible Assets".

        Amortization is calculated using the straight-line method over the estimated useful lives at the following annual rates:

	%
Technology	33
Customer relationship	14

j.

Impairment of long-lived assets:

        The Group's long-lived assets are reviewed for impairment in accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. As of September 30, 2004, no impairment losses have been identified.

k.

Goodwill:

        Goodwill represents excess of the costs over the net assets of businesses acquired. Under SFAS No. 142, goodwill acquired in a business combination on or after July 1, 2001, is not amortized and all goodwill is not amortized after January 1, 2002.

        SFAS No. 142 requires goodwill to be tested for impairment on adoption (January 1, 2002) and at least annually thereafter or between annual tests in certain circumstances, and written down when impaired, rather than being amortized as previous accounting standards required. Goodwill attributable to the Group's reporting unit is tested for impairment by comparing the fair value of each reporting unit with its carrying value. Fair value is determined using discounted cash flows and market multiples. Significant estimates used in the methodologies include estimates of future cash flows, future short-term and long-term growth rates and estimates of market multiples for the reportable unit. As of September 30, 2004, no impairment losses have been identified.

l.

Revenue recognition:

        The Group derives its revenues from sales of lenses and from design services to third party lens manufacturers.

        Revenues from sale of lenses are recognized in accordance with Staff Accounting Bulletin ("SAB") No. 104 "Revenue Recognition in Financial Statements", when delivery has occurred, persuasive evidence of an agreement exists, the vendor's fee is fixed or determinable, no further obligation exists and collectability is probable. The Group has various programs that allow opticians to earn rebates on

F-15

their accumulated purchases. Rebates are recognized as a reduction of revenues, in accordance with EITF No. 01-9, "Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor's Products)".

        Design services are provided to third party manufacturers and include research and development services, production of molds for lenses and royalties from sales of lenses by third party manufacturers. Revenues from research and development services are recognized at the time services are provided. Revenues from production of molds are recognized upon delivery of the molds when all other criteria of SAB No. 104 are met. Revenues from minimum royalties are recognized when due. Other royalties are recognized quarterly, upon the receipt of sales reports from the third party manufacturer customers.

m.

Research and development costs:

        Research and development costs are charged to the statement of income as incurred.

n.

Income taxes:

        No provision for income taxes is reflected in respect of Shamir in these financial statements, since the tax effects of Shamir's income are passed through to the individual shareholders.

        Shamir's subsidiaries account for income taxes in accordance with SFAS No. 109, "Accounting for Income Taxes". This Statement prescribes the use of the liability method whereby deferred tax assets and liability account balances are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Group provides a valuation allowance, if necessary, to reduce deferred tax assets to their estimated realizable value.

o.

Advertising expenses:

        Advertising costs are expensed as incurred. Advertising expenses for the years ended 2001, 2002 and 2003, and for the nine month period ended September 30, 2004, were $849, $2,000, $2,895 and $1,879, respectively.

p.

Concentrations of credit risk:

        Financial instruments that potentially subject the Group to concentrations of credit risk consist principally of cash and cash equivalents and trade receivables. The majority of the Group's cash and cash equivalents is invested mainly in dollar instruments with major banks in Israel, the U.K. and the U.S. Management believes that the financial institutions that hold the Group's investments are financially sound and accordingly, minimal credit risk exists with respect to these investments.

        The Group's trade receivables are derived from sales to customers located mainly in the U.S. and Europe. The Group performs ongoing credit evaluations of its customers and to date has not experienced any material losses. In certain circumstances, the Group may require letters of credit or prepayments. An allowance for doubtful accounts is determined with respect to those amounts that the Group has determined to be doubtful of collection.

        The Group had no off-balance-sheet concentration of credit risk such as foreign exchange contracts, or other hedging arrangements.

F-16

q.

Severance pay:

        The Group's liability for severance pay is calculated pursuant to Israeli Severance Pay Law based on the most recent salary of the Group's Israeli employees multiplied by the number of years of employment, as of balance sheet date. These employees are entitled to one month's salary for each year of employment or a portion thereof. The Group's liability for these employees is fully provided by monthly deposits for insurance policies and by an accrual.

        The deposited funds include profits accumulated up to the balance sheet date. The deposited funds may be withdrawn only upon the fulfillment of the obligation pursuant to Israeli Severance Pay Law or labor agreements. The value of the deposited funds is based on the cash surrendered value of these policies and includes immaterial profits.

        Severance expenses for the years ended December 31, 2001, 2002 and 2003 and for the nine month period ended September 30, 2004, amounted to $354, $255, $362 and $251, respectively.

r.

Net earnings per share:

        Basic net earnings per share are computed based on the weighted average number of shares outstanding during each year. Diluted net earnings per share are computed based on the weighted average number of shares outstanding during each year, plus dilutive potential shares considered outstanding during the year, in accordance with SFAS No. 128, "Earnings Per Share".

        The total weighted average number of shares related to the outstanding options excluded from the calculations of diluted net earnings per share because these securities are anti-dilutive was 120,480 for the years ended December 31, 2001, 2002 and 2003 and for the nine month period ended September 30, 2003 and 0 for the nine month period ended September 30, 2004.

        Basic and diluted net earnings per share, as presented in the statements of income, have been calculated as described above and also give effect to the effect of pro-forma taxes on income and to conversion of the share capital into Common shares that will occur upon closing of the IPO. Pro forma basic and diluted net earnings per share for the year ended December 31, 2003 and for the nine month period ended September 30, 2003 and 2004, also give effect to the increase in the number of shares whose proceeds will be used to pay the dividend.

s.

Accounting for stock-based compensation:

        The Group has elected to follow Accounting Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued to Employees" and FASB Interpretation ("FIN") No. 44 "Accounting for Certain Transactions Involving Stock Compensation" in accounting for its employee share option plan. Under APB No. 25, when the exercise price of an employee share option is equivalent to or above the market price of the underlying stock on the date of grant, no compensation expense is recognized.

        Pro-forma information regarding the Group's net income and net earnings per share is required by SFAS No. 123 "Accounting for Stock-Based Compensation" and SFAS No. 148 "Accounting for Stock-Based Compensation—Transition and Disclosure" and has been determined as if the Group had accounted for its employee share options under the fair value method prescribed by SFAS No. 123.

F-17

        The fair value for options granted in 2003 and 2004 is amortized over their vesting period and estimated at the date of grant using the Black-Scholes options pricing model with the following assumptions: dividend yield—0%, expected volatility—0.34%, risk free interest rate—1% and expected life of 4 years.

        Pro forma information under SFAS No. 123 is as follows:

		Year Ended December 31,									Nine Months Ended September 30,
		2001			2002			2003			2003			2004
		(unaudited)
Net income available to shareholders—as reported		$	5,147		$	6,221		$	5,237		$	3,274		$	6,386
Add—stock-based employee compensation—intrinsic value			—			—			1,809			1,809			23
Deduct—stock-based employee compensation—fair value			(305	)		(305	)		(1,968	)		(1,968	)		(70	)
Pro forma:
	Net income	$	4,842		$	5,916		$	5,078		$	3,115		$	6,339
Basic net earnings per share as reported		$	0.44		$	0.52		$	0.43		$	0.27		$	0.51
Diluted net earnings per share as reported		$	0.43		$	0.52		$	0.43		$	0.27		$	0.49
Pro forma basic net earnings per share		$	0.42		$	0.49		$	0.42		$	0.26		$	0.50
Pro forma diluted net earnings per share		$	0.41		$	0.49		$	0.42		$	0.26		$	0.49

t.

Fair value of financial instruments:

        The following methods and assumptions were used by the Group in estimating fair value and disclosures for financial instruments:

        The carrying amount reported in the balance sheet for cash and cash equivalents, trade receivables, short-term credit and trade payables approximate their fair values due to the short-term maturities of such instruments. The fair value of long-term loans is estimated by discounting the future cash flows using the current interest rate for loans of similar terms and maturities. Carrying amount of the long-term loans approximate their fair value.

u.

Impact of recently issued accounting standards:

        In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity". SFAS No. 150 establishes standards for how an issuer classifies and measures in its statement of financial position certain financial instruments with characteristics of both liabilities and equity. In accordance with the standard, financial instruments that embody obligations for the issuer are required to be classified as liabilities. SFAS No. 150 shall be effective for financial instruments entered into or modified after May 31, 2003 and otherwise shall be effective beginning in our first quarter of fiscal year 2004. In respect of the financial instruments issued in 2003 to the seller of Eyal's shares, the Group accounted for financial instruments in accordance with SFAS No. 150.

F-18

        In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable Interest Entities". The objective of FIN No. 46 is to improve financial reporting by companies involved with variable interest entities. A variable interest entity is a corporation, partnership, trust or any other legal structure used for business purposes that either (a) does not have equity investors with voting rights or (b) has equity investors that do not provide sufficient financial resources for the entity to support its activities. FIN No. 46 requires a variable interest entity to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity's activities or entitled to receive a majority of the entity's residual returns or both. FIN No. 46 also requires disclosures about variable interest entities that the company is not required to consolidate but in which it has a significant variable interest. The consolidation requirements of FIN No. 46 apply immediately to variable interest entities created after January 31, 2003. The consolidation requirements apply to older entities in the first fiscal year or interim period ending after March 15, 2004. Upon adoption of FIN No. 46, there was no impact on the Group's consolidated results of operations or financial position.

        In December 2004, the FASB issued SFAS No.123 (revised 2004), "Share-Based Payment". SFAS 123(R) will provide investors and other users of financial statements with more complete and neutral financial information by requiring that the compensation cost relating to share-based payment transactions be recognized in financial statements. That cost will be measured based on the fair value of the equity or liability instruments issued. SFAS 123(R) covers a wide range of share-based compensation arrangements including share options, restricted share plans, performance-based awards, share appreciation rights and employee share purchase plans. SFAS 123(R) replaces SFAS No. 123, Accounting for Stock-Based Compensation, and supersedes APB No. 25, Accounting for Stock Issued to Employees. SFAS 123, as originally issued in 1995, established as preferable a fair-value-based method of accounting for share-based payment transactions with employees. However, that Statement permitted entities the option of continuing to apply the guidance in APB No. 25, as long as the footnotes to financial statements disclosed what net income would have been had the preferable fair-value-based method been used. Public entities (other than those filing as small business issuers) will be required to apply SFAS 123(R) as of the first interim or annual reporting period that begins after June 15, 2005. The Group has not yet determined the impact of applying the various provisions of SFAS No. 123R.

        In November 2004, the FASB issued SFAS No. 151, "Inventory Costs, an amendment of ARB No. 43, Chapter 4.". SFAS 151 amends Accounting Research Bulletin ("ARB") No. 43, Chapter 4, to clarify that abnormal amounts of idle facility expense, freight handling costs and wasted materials (spoilage) should be recognized as current-period charges. In addition, SFAS 151 requires that allocation of fixed production overheads to the costs of conversion be based on normal capacity of the production facilities. SFAS 151 is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The Company does not expect that the adoption of SFAS 151 will have a material effect on its financial position or results of operations.

        In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary Assets, an amendment of APB Opinion No. 29". The guidance in APB Opinion No. 29, Accounting for Nonmonetary Transactions ("APB 29"), is based on the principle that exchanges of nonmonetary assets should be measure based on fair value of the assets exchanged. APB 29 included certain exceptions to that principle. SFAS 153 amends APB 29 to eliminate the exception for nonmonetary exchanges of

F-19

similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. SFAS 153 is effective for nonmonetary assets exchanges occurring in fiscal periods beginning after June 15, 2005. The Company does not expect that the adoption of SFAS 153 will have a material effect on its financial position or results of operations.

NOTE 3: OTHER RECEIVABLES AND PREPAID EXPENSES

	December 31,
					September 30, 2004
	2002		2003
Prepaid expenses	$	379	$	487	$	532
Government authorities		569		556		1,044
Deferred tax assets		195		443		941
Related parties		—		141		389
Receivables in respect of sale of Altra's shares		664		—		—
Others		186		478		545
	$	1,993	$	2,105	$	3,451

NOTE 4: INVENTORY

	December 31,
					September 30, 2004
	2002		2003
Raw materials	$	1,348	$	1,675	$	1,642
Work-in-progress		306		179		850
Finished goods		8,807		10,928		13,448
	$	10,461	$	12,782	$	15,940

F-20

NOTE 5: PROPERTY, PLANT AND EQUIPMENT

		December 31,
						September 30, 2004
		2002		2003
Cost:
	Machinery and equipment	$	12,512	$	16,441	$	18,882
	Furniture and equipment		2,149		2,480		2,904
	Motor vehicles		557		469		474
	Land, buildings and leasehold improvements		3,807		4,739		5,038
			19,025		24,129		27,298
Accumulated depreciation			7,452		9,936		12,450
Depreciated cost		$	11,573	$	14,193	$	14,848

        Depreciation expense totaled $1,701, $2,439, $3,658 and $2,110 for the years ended December 31, 2001, 2002 and 2003 and for the nine month period ended September 30, 2004, respectively.

        As for pledges, see Note 10c.

NOTE 6: GOODWILL

        The changes in the carrying amount of goodwill for the year ended December 31, 2003 and for the nine month period ended September 30, 2004, are as follows:

Balance as of January 1, 2003		$	338
	Goodwill acquired during the year		1,696
Balance as of December 31, 2003			2,034
	Goodwill acquired during the period		1,551
	Foreign currency translation adjustments		(20	)
Balance as of September 30, 2004		$	3,565

        Pro-forma results of operations to reflect the impact on results of operations had the Group adopted the non-amortization provisions of SFAS No. 142 effective January 1, 2001, for the year ended December 31, 2001, are not presented due to immateriality.

F-21

NOTE 7: ACCRUED EXPENSES AND OTHER LIABILITIES

	December 31,
					September 30, 2004
	2002		2003
Employees and payroll accruals	$	1,236	$	1,811	$	1,832
Accrued expenses		3,959		4,771		4,430
Advances from customers		465		406		416
Government authorities		644		1,078		1,559
Related party		56		15		—
Others		1,052		261		745
	$	7,412	$	8,342	$	8,982

NOTE 8: SHORT-TERM BANK CREDIT AND LOANS

        Short-term bank credit and loans are classified by currencies as follows:

		Weighted Average Interest Rate
		December 31,			December 31,
				September 30, 2004					September 30, 2004
		2002	2003		2002		2003
		(%)
Short-term bank loans:
	Dollars	3.1	3.2	3.2	$	244	$	2,982	$	421
	Euro	4.5	3.7	3.7		4,175		5,103		9,021
	NIS	8.3	5.7	5.5		45		325		155
						4,464		8,410		9,597
Short-term bank credit		8.3	5.75	4.2		180		16		33
Total short-term bank credit and loans		4.6	3.6	3.7	$	4,644	$	8,426	$	9,630

        As of September 30, 2004, the Group has authorized unused credit lines from banks in the amount of approximately $8,000.

F-22

NOTE 9: LONG-TERM LOANS

a.

Long-term loans are classified by currencies as follows:

	Interest Rate
	December 31,			December 31,
			September 30, 2004					September 30, 2004
	2002	2003		2002		2003
	(%)
Banks:
Dollars	5.1	3.9	3.6	$	2,343	$	1,623	$	977
Euro	5.2	4.9	3.5		4,247		4,229		4,390
GBP	—	—	6.1		—		—		588
NIS	5.5	4.9	5.5		386		1,878		1,729
					6,976		7,730		7,684
Others:
Dollars	3.9	3	4		262		346		145
Euro	6.4	5.5	3.9		—		232		1,430
GBP	—	—	6.1		—		—		675
NIS	4	4	—		47		51		—
					309		629		2,250
Total long-term loans					7,285		8,359		9,934
Less—current maturities					2,826		3,784		3,720
				$	4,459	$	4,575	$	6,214

b.

Long-term loans mature as follows:

Remaining three months of 2004		$	1,661
First nine months of 2005			2,059
Current maturities			3,720
Remaining three months of 2005			1,553
	2006		1,240
	2007		902
2008 and thereafter			2,519
		$	9,934

c.

Covenant:

        Shamir and Eyal have undertaken to maintain a certain financial ratio in Eyal's financial statements in respect of Eyal's loan from a bank (at September 30, 2004 $1.1 thousand). As of September 30, 2004, Eyal was in compliance with this ratio.

F-23

NOTE 10: COMMITMENTS AND CONTINGENT LIABILITIES

a.

Legal proceedings:

        In November 2003, one of the Group's laboratory customers in the United States was notified by a large lens manufacturer that the manufacturer believes that lenses produced by the laboratory using the Group's prescription software infringe upon a U.S. patent held by the manufacturer. The Group has entered into negotiations with the manufacturer with regard to this patent in order to reach an amicable resolution of the matter. The Group cannot predict the outcome of the claim nor can it make any estimate of the amount of damages, if held responsible.

        In September 2003, the Group received a separate and, on the face of it, unrelated notification from a different large lens manufacturer in which the manufacturer claimed that the lenses produced using the Group's prescription software infringe upon a U.S. patent held by the manufacturer. The Group has denied any such infringement. The Group has entered into negotiations with this manufacturer and has asked for clarification of his claims. The Group cannot predict the outcome of the claim nor can it make any estimate of the amount of damages, if held responsible.

b.

Lease commitments:

        The land and certain of the Group's facilities are leased under operating lease agreements. Future minimum lease commitments under non-cancelable operating leases for the specified periods ending after Septe are as follows:

2004 (three remaining months)	$	269
2005		968
2006		946
2007		946
2008		644
Thereafter		6,718
	$	10,491

        Lease expenses for the years ended December 31, 2001, 2002 and 2003 and for the nine month period ended September 30, 2004, were approximately $267, $248, $273 and $423, respectively.

c.

Pledges:

1.

In order to secure grants that Shamir received under the "Approved Enterprise" programs pursuant to the Law for the Encouragement of Capital Investments, 1959, Shamir granted pledges in favor of the State of Israel on all of its assets, by floating pledges unlimited in amount (See also Note 11d).

2.

To secure the fulfillment of Shamir's liabilities, Shamir granted a fixed pledge, unlimited in amount, in favor of banks, on its issued and outstanding share capital and goodwill and a floating pledge on all of its assets and rights.

F-24

NOTE 11: TAXES ON INCOME

a.     Shamir is not assessed for tax purposes and its business results are passed through to its shareholders, therefore tax expenses of Shamir are not included in the statements of income.

b.

Measurement of taxable income under the Income Tax (Inflationary Adjustments) Law, 1985:

        Results for tax purposes of Israeli entities are measured and reflected in real terms in accordance with the change in the Israeli Consumer Price Index ("CPI"). As explained in Note 2c, the consolidated financial statements are presented in dollars. The differences between the change in the Israeli CPI and in the NIS/ dollar exchange rate cause a difference between taxable income or loss and the income or loss before taxes reflected in the consolidated financial statements. In accordance with paragraph 9(f) of SFAS No. 109, the Group has not provided deferred income taxes on this difference between the reporting currency amount and the tax basis of assets and liabilities.

c.     Tax benefits under Israel's Law for the Encouragement of Industry (Taxation), 1969:

        Shamir and Eyal are "Industrial companies", as defined by the above-mentioned law, and as such, are entitled to certain tax benefits including the right to deduct public issuance expenses and accelerated depreciation for tax purposes.

d.     Tax benefits under the Israel Law for the Encouragement of Capital Investments, 1959 ("the Law"):

        Three programs of Shamir have been granted an "Approved Enterprise" status under the Law. According to the Law, Shamir is entitled to investment grants (up to 30% of investment cost) and also to a tax benefit, which grants Shamir tax exemption for a period of two years and a reduced tax rate of 25% for a period of five years. The period of benefits in respect of the first program was terminated in 2001. The period of benefits in respect of the last two programs of Shamir will terminate in the years 2005 and 2008. Shamir has applied for a fourth program, for which the period of benefits has not commenced yet.

        Certain programs of Eyal's production facilities have been granted "Approved Enterprise" status under the Law. For these programs, Eyal has elected alternative benefits, waiving grants in return for tax exemptions. Income derived from the expansion programs is tax-exempt for a period of two years and is taxed at the reduced corporate tax rate of 25% for an additional period of five years. Income of Eyal from sources other than the "Approved Enterprise" during the period of benefits is taxable at the regular corporate tax rate of 36%.

        The period of tax benefits detailed above is subject to limits of the earlier of 12 years from the commencement of production or 14 years from receiving the approval.

        The Law also entitles Shamir and Eyal to claim accelerated depreciation on equipment used by the "Approved Enterprise" during five tax years.

        The entitlement to the above benefits is subject to fulfilling the conditions stipulated by the Law, regulations published thereunder and instruments of approval for the specific investments in "Approved Enterprises". In the event of failure to comply with these conditions, the benefits may be canceled and Shamir or Eyal may be required to refund the amount of the benefits, in whole or in part, including interest. As of September 30, 2004, Management believes that both Shamir and Eyal are meeting all conditions of the approvals.

F-25

e.

Deferred tax assets (liabilities):

        Deferred taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for tax purposes. Components of the Group's deferred tax assets and liabilities are as follows:

		December 31,
							September 30, 2004
		2002			2003
Deferred tax assets:
	Inventory	$	104		$	324	$	450
	Other		91			119		491
Total deferred tax assets			195			443		941
Deferred tax liabilities:
	Property and equipment		(87	)		—		(160	)
Total deferred tax liabilities			(87	)		—		(160	)
Net deferred tax assets(*)		$	108		$	443	$	781

(*)

Deferred tax assets of $195, $443 and $941 have been included in other receivables and prepaid expenses as of December 31, 2002 and 2003 and September 30, 2004, respectively.

f.

A reconciliation of the Group's effective tax rate to the statutory tax rate in Israel is as follows:

	Year Ended December 31,
										Nine Months Ended September 30, 2004
	2001			2002			2003
Income before taxes on income	$	5,539		$	7,811		$	7,943		$	8,615
Statutory tax rate in Israel		36	%		36	%		36	%		35	%
Increase (decrease) in tax expenses resulting from:
Income passed through to Shamir's shareholders		(36.5	%)		(18.1	%)		(14.4	%)		(17.4	%)
"Approved Enterprise" benefits		(0.5	%)		(5.4	%)		(7.6	%)		(3.0	%)
Others		2.4	%		0.7	%		0.8	%		1.5	%
Effective tax rate		1.4	%		13.2	%		14.8	%		16.1	%
Pro-forma additional taxes on income in respect of income passed to the shareholders		11.4	%		13.8	%		15.0	%		14.1	%
Pro-forma effective tax rate		12.8	%		27.0	%		29.7	%		30.2	%
Basic and diluted net earnings per share amounts of the benefit resulting from the "Approved Enterprise" status	$	—		$	0.03		$	0.05		$	0.02

F-26

g.

Income before taxes on income is comprised as follows:

	Year Ended December 31,
							Nine Months Ended September 30, 2004
	2001		2002		2003
Domestic	$	5,438	$	5,886	$	4,439	$	6,551
Foreign		101		1,925		3,504		2,064
	$	5,539	$	7,811	$	7,943	$	8,615

h.

Taxes on income are comprised as follows:

	Year Ended December 31,
										Nine Months Ended September 30, 2004
	2001			2002			2003
Current taxes	$	95		$	1,039		$	1,539		$	1,991
Taxes in respect of prior years		4			(26	)		(109	)		(212	)
Deferred tax benefit		(22	)		(34	)		(335	)		(388	)
	$	77		$	979		$	1,095		$	1,391
Domestic	$	(24	)	$	114		$	(214	)	$	855
Foreign		101			865			1,309			536
	$	77		$	979		$	1,095		$	1,391

NOTE 12: SHAREHOLDERS' EQUITY

a.

General:

        All share and per share data included in these financial statements for all periods presented have been retroactively adjusted to reflect the reorganization of Shamir's equity approved on    •    , according to which each 1 share of Shamir was converted into 120.48 Common shares of the reorganized corporation.

b.

Share rights:

        Common shares of Shamir confer upon their holders the right to receive notice to participate and vote in the general meetings of Shamir and the right to receive dividends when declared.

c.

Conversion of redeemable shares:

        On January 1, 1999, Shamir issued 1,807,195 redeemable shares to a third party investor for a net aggregate amount of $4,120. The investor had the right to redeem its shares within 90 days, commencing January 1, 2001 and ending March 31, 2001. In 2001, upon the expiration of the redemption right, Shamir converted the redeemable shares into equity.

d.

Issuance of shares:

        On June 28, 2004, Shamir issued 160,961 shares to a third party investor for a net amount of $1,945.

F-27

e.

Share option plan:

        In 2003, Shamir adopted an employee share option plan ("the 2003 Option Plan"). Under the 2003 Option Plan, employees and officers of the Group may be granted options to acquire shares. The number of options to acquire Common shares and the related exercise price are determined by the Board of Directors of Shamir. Starting 2004 all new grants of options will vest in four tranches of 25% per year. Options granted during 2004 will expire no later than August 2011.

        A summary of the activity in the share options granted to employees and related information is as follows:

	December 31,
										September 30, 2004
	2001			2002			2003
	Number of Options	Weighted Average Exercise Price		Number of Options	Weighted Average Exercise Price		Number of Options	Weighted Average Exercise Price		Number of Options	Weighted Average Exercise Price
Outstanding at the beginning of the period	120,480	$	9.96	120,480	$	9.96	120,480	$	9.96	454,811	$	3.54
Granted	—		—	—		—	334,331		1.23	683,120		11.07
Outstanding at the end of the period	120,480		9.96	120,480		9.96	454,811		3.54	1,137,931		8.06
Exercisable at the end of the period	63,131	$	9.96	103,371	$	9.96	454,811	$	3.54	472,123	$	3.82

        The options outstanding as of September 30, 2004, have been separated into exercise price categories as follows:

Ranges of Exercise Price	Options Outstanding as of September 30, 2004	Weighted Average Remaining Contractual life	Weighted Average Exercise Price	Options Exercisable as of September 30, 2004	Weighted Average Exercise Price of Options Exercisable
$		(Years)	$		$
0.00	167,226	9.01	0.00	167,226	0.00
2.46	167,165	9.01	2.46	167,105	2.46
9.96–12.43	803,600	6.50	10.91	137,792	10.10
	1,137,931	7.24	8.06	472,123	3.82

F-28

        Weighted average fair values and weighted average exercise prices of options whose exercise price is lower than the market price of the shares at date of grant are as follows:

	Weighted Average Fair Value of Options Granted at an Exercise Price								Weighted Average Exercise Price of Options Granted at an Exercise Price
	Year ended December 31,								Year ended December 31,
							September 30, 2004								September 30, 2004
	2001		2002		2003				2001		2002		2003
Equal to fair value at date of grant	$	—	$	—	$	—	$	3.49	$	—	$	—	$	—	$	12.43
Lower than fair value at date of grant	$	—	$	—	$	5.50	$	4.40	$	—	$	—	$	1.23	$	10.30

        Compensation expenses were $1,809 and $23 in the year ended December 31, 2003 and in the period ended September 30, 2004, respectively.

NOTE 13: TRANSACTIONS WITH RELATED PARTIES

a.

Manpower Agreement with Kibbutz Shamir ("the Kibbutz"):

        In 1999, Shamir signed a manpower agreement with the Kibbutz, its principal shareholder, pursuant to which the Kibbutz supplies labor services at Shamir's request. Pursuant to the agreement, the Kibbutz claims that the services provided by it are provided in its capacity as a contractor and that an employee-employer relationship shall not apply between Shamir and the members of the Kibbutz who provide the services. The Kibbutz is solely responsible for the performance of all obligations applicable to an employer with respect to the persons through whom it supplies labor services to Shamir. Manpower service fees amounted to $1,518, $1,602, $1,619 and $1,211 for the years ended December 31, 2001, 2002 and 2003 and for the nine month period ended September 30, 2004, respectively.

b.

Service Agreement with the Kibbutz:

        Shamir signed a service agreement with Kibbutz Shamir, pursuant to which the Kibbutz provides Shamir with services that include catering, security, laundry, switchboard and communications, maintenance, landscaping and trash removal, and payment of local authority taxes. Shamir paid the Kibbutz service fees amounting to $205, $186, $224 and $215 for the years ended December 31, 2001, 2002 and 2003 and for the nine month period ended September 30, 2004, respectively.

c.

Lease Agreement:

        Shamir's offices, manufacturing, and research and development facilities are located on the grounds of Kibbutz Shamir. The facilities are sub-leased from Kibbutz Shamir, which has a long-term lease on the property from the Israel Lands Administration (the "ILA"). On January 5, 1999, Shamir and the Kibbutz signed a sub-lease agreement pursuant to which the Kibbutz sub-leased to Shamir the facilities for a period of twenty years beginning on January 1, 1999. Rental payments amounted to $267,

F-29

$248, $273 and $218 for the years ended December 31, 2001, 2002 and 2003 and for the nine month period ended September 30, 2004, respectively.

d.

Consultancy services:

        One of Shamir's shareholders provides Shamir with consultancy services. Consultancy fees amounted to $90, $84, $73 and $0 for the years ended December 31, 2001, 2002 and 2003 and for the nine month period ended September 30, 2004, respectively.

NOTE 14: MAJOR CUSTOMER AND GEOGRAPHIC INFORMATION

a.

The Group manages its business on the basis of one reportable segment. The data is presented in accordance with SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information". Total revenues are attributed to geographic areas based on the location of end customers.

        The following presents total revenues and long-lived assets for the years ended December 31, 2001, 2002 and 2003 and for the period ended September 30, 2004 and as of December 31, 2001, 2002 and 2003 and as September 30, 2004, respectively:

	December 31,
													September 30, 2004
	2001				2002				2003
	Total Revenues		Long-Lived Assets		Total Revenues		Long-Lived Assets		Total Revenues		Long-Lived Assets		Total Revenues		Long-Lived Assets
Israel	$	1,520	$	7,830	$	1,300	$	7,473	$	906	$	11,068	$	223	$	10,709
United States		14,762		75		15,653		123		19,808		352		16,423		435
Europe		10,315		2,385		29,156		4,315		36,507		5,386		32,110		8,352
Asia		1,919		—		1,811		—		2,184		—		1,444		—
Others		870		—		818		—		674		—		1,237		—
	$	29,386	$	10,290	$	48,738	$	11,911	$	60,079	$	16,806	$	51,437	$	19,496

b.

Product lines:

        Total revenues from external customers divided on the basis of the Group's product lines are as follows:

	Year Ended December 31,
							Nine Months Ended September 30, 2004
	2001		2002		2003
Lenses	$	18,081	$	40,450	$	52,767	$	46,290
Design services		11,305		8,288		7,312		5,147
	$	29,386	$	48,738	$	60,079	$	51,437

F-30

c.

Major customers data as a percentage of total revenues:

	Year Ended December 31,
				Nine Months Ended September 30, 2004
	2001	2002	2003
Customer A	17%	7%	11%	6%
Customer B	15%	6%	8%	8%
	32%	13%	19%	14%

NOTE 15: SUPPLEMENTARY DATA ON SELECTED STATEMENTS OF INCOME

			Year Ended December 31,
												Nine Months Ended September 30, 2004
			2001			2002			2003
a.     Financial expenses and other, net
		Financial expenses:
		Interest in respect of long-term loans	$	335		$	421		$	1,049		$	209
		Interest in respect of short-term loans		157			142			330			512
		Interest in respect of loans from related parties		13			340			—			—
				505			903			1,379			721
		Financial income:
		Income in respect of loans to related parties		—			—			(94	)		—
		Other financial income		(110	)		(57	)		(221	)		(78	)
				(110	)		(57	)		(315	)		(78	)
	Other expenses			—			754			—			—
			$	395		$	1,600		$	1,064		$	643

F-31

b.

Net earnings per share:

        The following table sets forth the computation of basic and diluted net earnings per share:

			Year Ended December 31,						Nine Months Ended September 30,
			2001		2002		2003		2003		2004
									Unaudited
1.     Numerator:
	Numerator for basic and diluted net earnings per share—
	Net income available to shareholders		$	5,147	$	6,221	$	5,237	$	3,274	$	6,386
2.     Denominator:
	Denominator for basic net earnings per share—
	Weighted average shares—Shareholders' equity			11,602		12,048		12,048		12,048		12,103
	Weighted average shares—Temporary equity			—		—		—		—		495
	Weighted average number of shares			11,602		12,048		12,048		12,048		12,598
	Effect of dilutive securities:
		Add—Redeemable shares		344		—		—		—		—
		Add—Call option		—		—		16		—		5
		Add—Employee stock options		—		—		69		—		332
				344		—		85		—		337
	Denominator for diluted net earnings per share—adjusted weighted average shares			11,946		12,048		12,133		12,048		12,935

F-32

4,000,000 Common Shares

Prospectus

          , 2005

William Blair & Company

CIBC World Markets

C.E. Unterberg, Towbin

You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with information different from that which is set forth in this prospectus. We are offering to sell common shares and seeking offers to buy common shares only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus.

Until          , 2005 all dealers that effect transactions in our common shares, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

Item 6. Indemnification of Directors and Officers

        In accordance with articles 56 and 57 of our articles of association and to the extent permitted by the Israeli Companies Law, we provide liability insurance for and may indemnify our directors and officers for liabilities or expenses incurred as a result of acts done by them in their capacity as directors and officers of our company.

Item 7. Recent Sales of Unregistered Securities

Security	Date	Syndicate	Consideration		Exemption	Terms	Use of proceeds
160,961 common shares	June 28, 2004	N/A	$	2.0 million	Private placement; single transaction sale to one private investor, Vision Capital LLC.	Sale of equity with no special terms	General corporate purposes
502,400 common shares	January 10, 2004	N/A	$	2.0 million	Offshore private placement; single transaction sale to one private Israeli investor, Kibbutz Eyal, pursuant to its exercise of its call option.	Sale of equity with no special terms	General corporate purposes

Item 8. Exhibits and Financial Statement Schedules

        The following exhibits are filed as part of this Registration Statement:

Exhibit Number	Description
1	Form of Underwriting Agreement.*
3.1	Articles of Association of Shamir.
5.1	Opinion of M. Seligman & Co. as to the validity of the shares.*
10.1	Lease agreement between Kibbutz Eyal and Eyal Optical Industries (1995) Ltd.
10.2	Working services agreement between Shamir and Kibbutz Shamir.
10.3	Service agreement between Shamir and Kibbutz Shamir.
10.4	Lease agreement between Kibbutz Shamir and the Israel Lands Administration.
10.5	Sublease agreement between Shamir and Kibbutz Shamir, including amendment.
10.6	Loan agreement between Shamir and Kibbutz Shamir.
10.7	Shareholders agreement among the shareholders of Shamir.
10.8	Registration rights agreement between Shamir and certain of its shareholders.
21	Subsidiaries of Shamir.
23.1	Consent of Kost Forer Gabbay & Kasierer, independent registered public accounting firm, and member of Ernst & Young Global.
23.2	Consent of M. Seligman & Co. (included in its opinion filed as Exhibit 5.1).

II-1

23.3	Consent of Strategy With Vision Ltd.
23.4	Consent of Ami Samuels.
23.5	Consent of Amos Netzer.
23.6	Consent of Zeev Feldman.
23.7	Consent of Jed Arkin.
23.8	Consent of Yair Shamir.

*

To be filed by amendment

Item 9. Undertakings

        Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the provisions described under "Indemnification of Directors and Officers" above, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.

        The undersigned registrant hereby undertakes that:

(1)

For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.



(2)

For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.



(3)

The undersigned registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreement certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.

II-2

SIGNATURES

        Pursuant to the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form F-1 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Kibbutz Shamir, Israel on February 11, 2005.

SHAMIR OPTICAL INDUSTRY LTD.
By:	/s/  GIORA BEN-ZEEV Giora Ben-Zeev Chief Executive Officer
By:	/s/  AMIR HAI Amir Hai Chief Financial Officer

        Pursuant to the requirements of the Securities Act of 1933, the registration statement has been signed by the following persons in the capacities and on the dates indicated.

Name	Title	Date
/s/  GIORA BEN-ZEEV Giora Ben-Zeev	Chief Executive Officer	February 11, 2005
/s/  AMIR HAI Amir Hai	Chief Financial Officer (principal financial and accounting officer)	February 11, 2005
/s/  UZI TZUR Uzi Tzur	Member of the Board of Directors	February 11, 2005
/s/  EFRAT COHEN Efrat Cohen	Member of the Board of Directors	February 11, 2005
/s/  GIORA BEN-ZEEV Shamir USA, Inc. By: Giora Ben-Zeev	Authorized representative in the United States	February 11, 2005

II-3

EXHIBIT INDEX

Exhibit Number	Description
1	Form of Underwriting Agreement.*
3.1	Articles of Association of Shamir.
5.1	Opinion of M. Seligman & Co. as to the validity of the shares.*
10.1	Lease agreement between Kibbutz Eyal and Eyal Optical Industries (1995) Ltd.
10.2	Working services agreement between Shamir and Kibbutz Shamir.
10.3	Service agreement between Shamir and Kibbutz Shamir.
10.4	Lease agreement between Kibbutz Shamir and the Israel Lands Administration.
10.5	Sublease agreement between Shamir and Kibbutz Shamir, including amendment.
10.6	Loan agreement between Shamir and Kibbutz Shamir.
10.7	Shareholders agreement among the shareholders of Shamir.
10.8	Registration rights agreement between Shamir and certain of its shareholders.
21	Subsidiaries of Shamir.
23.1	Consent of Kost Forer Gabbay & Kasierer, independent registered public accounting firm, and member of Ernst & Young Global.
23.2	Consent of M. Seligman & Co. (included in its opinion filed as Exhibit 5.1).
23.3	Consent of Strategy With Vision Ltd.
23.4	Consent of Ami Samuels.
23.5	Consent of Amos Netzer.
23.6	Consent of Zeev Feldman.
23.7	Consent of Jed Arkin.
23.8	Consent of Yair Shamir.

*

To be filed by amendment

EX-3.1

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Exhibit 3.1

The Companies Law, 5759—1999

Articles of Association
of

SHAMIR OPTICAL INDUSTRY LTD.

A COMPANY LIMITED BY SHARES

GENERAL

1.

Definition and Interpretation

1.1

The following terms in these Articles of Association shall have the respective meanings ascribed to them below:

Articles	The Articles of Association of the Company, as set forth herein and or as amended, from time to time.
Board	The Board of Directors of the Company.
Business Day	Sunday to Thursday, inclusive, with the exception of holidays and officials days of rest in the State of Israel.
Companies Law	The Israeli Companies Law, 1999, as may be amended from time to time, and any law replacing it.
Companies Regulations	Regulations issued pursuant to the Companies Law.
Law	The provisions of any law as defined in the Interpretation Law, 1981.
General Manager	the general manager of the Company pursuant to the Companies Law which is known also by the term Chief Executive Officer or CEO.
Ordinary Majority	More than fifty percent (50%) of the votes of the Shareholders who are entitled to vote and who voted in a General Meeting in person, by means of a proxy or by means of a proxy card.
Securities Law	The Securities Law, 1968.
Securities Regulations	Regulations issued pursuant to the Securities Law.
Shareholder	Anyone registered as a shareholder in the Shareholder Register of the Company.
Special Majority	A majority of at least three quarters (75%) of the votes of the Shareholders who are entitled to vote and who voted in a General Meeting, in person, by means of a proxy or by means of a proxy card.
The Company	Shamir Optical Industry Ltd., or any other name by which it will be called, in the event of the Company replacing or changing its name.
In writing	In script, in print, by means of a typewriter, photocopying, telex, cable, facsimile, electronic mail or in any other legible form, or which is produced in any other visual substitute for writing, including a combination of two or more methods, and "signed" shall be understood accordingly.

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1.2

Unless the subject or the context otherwise requires, each word and expression not specifically defined herein and defined in the Companies Law as in effect on the date when these Articles or any amendment hereto, as the case maybe first became effective, shall have the same meaning herein, and to the extent that no meaning is attached to it in the Companies Law, the meaning ascribed to it in the Companies Regulations, and if no meaning is ascribed thereto in the Companies Regulations, the meaning ascribed to it in the Securities Law or Securities Regulations; words and expressions importing the singular shall include the plural and vice versa; words and expressions importing the masculine gender shall include the feminine gender and vice versa; and words and expressions importing persons shall include corporate entities.



1.3

The captions in these Articles are for convenience only and shall not be deemed a part hereof or affect the construction of any provision hereof.



1.4

The specific provisions of these articles supersede the provisions of the companies Law to the extent permitted under the companies Law with respect to any matter that is not specifically addressed in these articles, the provisions of the companies Law shall govern.

2.

Public Company

The Company is a public company.

3.

The Purpose and objectives of the Company

The purpose of the Company is to engage, directly or indirectly, in any lawful business activity or occupation whatsoever; provided, however, that the Company may donate reasonable amounts to worthy causes, as the Board may determine in its discretion, even if such donations are not within the framework of business considerations.

4.

Limited Liability

The liability of each Shareholder for the company's obligations is limited to the unpaid sum, if any, owing to the company in consideration for the issuance of the shares allotted to him.

SHARE CAPITAL

5.

Share Capital

5.1

The authorized share capital of the Company is one million New Israeli Shekels (NIS 1,000,000) divided into one hundred million Ordinary Shares NIS 0.01 par value each.

5.2

The ordinary shares of the company confer on the holders thereof rights to receive notice of, attend, and vote in meetings of the shareholders, rights to receive dividends, rights to receive a distribution of assets upon liquidation and certain other rights all as specified in these Articles.

6.

Increase of Share Capital

6.1

The Company may, from time to time, by a resolution of the General Meeting adopted by an Ordinary Majority, whether or not all the shares then authorized have been issued, and whether or not all the shares theretofore issued have been called up for payment, increase its share capital by the creation of new shares. Any such increase shall be in such amount and shall be divided into shares of such nominal value, and such shares shall confer such rights and preferences, and shall be subject to such restrictions, as such resolution of the General Meeting shall provide.

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6.2

Except to the extent otherwise provided in such resolution of the General Meeting, such new shares shall be subject to all the provisions applicable to the shares of the original capital.

7.

Special Rights; Modifications of Rights

7.1

Without prejudice to any special rights previously conferred upon the holders of existing shares in the Company, the Company may, from time to time, by a resolution of the Board, issue shares with such preferred or deferred rights or rights of redemption or other special rights and/or restrictions, whether with respect to liquidation, dividends, voting, conversion, repayment of share capital or otherwise, as may be stipulated in such resolution.

7.2

If at any time the issued share capital is divided into different classes of shares, the rights attached to any class, unless otherwise provided by these Articles, may be modified or abrogated by the Company, by a resolution of the General Meeting adopted by an Ordinary Majority, subject to the consent of the holders of more than fifty percent (50%) of the issued shares of such class or the sanction of a resolution of a separate General Meeting of the holders of the shares of such class adopted by an Ordinary Majority, except if no rights in the Company are attached to that class of shares other than the receipt of their par value on a winding-up of the Company ("Deferred Shares") and unless the issue terms of those shares provide otherwise.

7.3

Unless otherwise provided by these Articles, the increase of the authorized number of shares of an existing class of shares, or the issuance of additional shares thereof or the creation of a new class of shares identical to an existing class of shares in all respects, shall not be deemed, for purposes of this Article 7, to modify or abrogate the rights attached to the previously issued shares of such class or of any other class.

8.

Consolidation. Subdivision. Cancellation and Reduction of Share Capital

8.1

The Company may, from time to time, by a resolution of the General Meeting adopted by an Ordinary Majority (subject, however, to the provisions of Articles 7.2 and 7.3 hereof and to the Companies Law):

8.1.1

Consolidate and divide all or any of its issued or unissued share capital into shares of larger nominal value than its existing shares;

8.1.2

Subdivide its shares, issued or unissued, or any of them, into shares of smaller nominal value than is fixed by these Articles, subject to the provisions of the Companies Law, and the resolution whereby any share is subdivided may determine that, as among the holders of the shares resulting from such subdivision, one or more of the shares may, as compared with the others, have any such preferred or deferred rights or rights of redemption or other special rights, or be subject to any such restrictions, as the Company has power to attach to unissued or new shares.

8.1.3

Cancel any shares which, at the date of the adoption of such resolution of the General Meeting, have not been allotted, so long as the Company is not under an obligation to allot these shares, and diminish the amount of its share capital by the amount of the shares so cancelled; or

8.1.4

Reduce its share capital in any manner, subject to any authorization or consent required by Law.

8.2

With respect to any consolidation of issued shares into shares of larger nominal value, and with respect to any other action which may result in fractional shares, the Board may settle

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any difficulty which may arise with regard thereto, as it deems appropriate, including, inter alia, resort to one or more of the following actions:

8.2.1

Determine, as to the holder of shares so consolidated, which issued shares shall be consolidated into each share of larger nominal value;



8.2.2

Allot, in contemplation of or subsequent to such consolidation or other action, such shares or fractional shares sufficient to preclude or remove fractional share holdings;



8.2.3

Redeem, in the case of redeemable shares, and subject to applicable Law, such shares or fractional shares sufficient to preclude or remove fractional share holdings;



8.2.4

Cause the transfer of fractional shares by certain Shareholders to other Shareholders so as to most expediently preclude or remove any fractional shareholdings, and cause the transferees to pay the transferors the fair value of the fractional shares so transferred, and the Board is hereby authorized to act as agent for the transferors and transferees with power of substitution for purposes of implementing the provisions of this Article 8.2.4.

SHARES

9.

Issuance of Share Certificates: Replacement of Lost Certificates

9.1

Share certificates shall be issued under the seal or stamp of the Company and shall bear the signature of a Director, or of any other person or persons so authorized by the Board.

9.2

Each Shareholder shall be entitled to one numbered certificate for all the shares of any class registered in his name, and if the Board so approves, to several certificates, each for one or more of such shares. Each certificate may specify the serial numbers of the shares represented thereby and may also specify the amount paid up thereon.

9.3

A share certificate registered in the names of two or more persons shall be delivered to the person first named in the Shareholder Register in respect of such co-ownership ("the first Co-Owner").

9.4

If a share certificate is defaced, lost or destroyed, it may be replaced, upon payment of such fee, and upon the furnishing of such evidence of ownership and such indemnity, as the Board may deem appropriate.

10.

Registered Holder

Except as otherwise provided in these Articles, the Company shall be entitled to treat the registered holder of any share as the absolute owner thereof, and, shall be entitled to treat the holder of any share in trust as a Shareholder and to issue to him a share certificate, in condition that the trustee notifies the Company of the identity of the beneficiary, and, accordingly, shall not, except as ordered by a court of competent jurisdiction, or as required by Law, be bound to recognize any equitable or other claim to, or interest in, such share on the part of any other person.

11.

Issuance of Shares and other Securities

11.1

The unissued shares from time to time shall be under the control of the Board, which shall have the power to allot shares or otherwise dispose of them to such persons, on such terms and conditions (including inter alia terms relating to calls as set forth in Article 13 ("Calls on Shares") hereof), and either at par or at a premium, or, subject to the provisions of the Companies Law, at a discount, and at such times, as the Board may deem appropriate, and the power to give to any person the option to acquire from the Company any shares, either at

5

par or at a premium, or, subject as aforesaid, at a discount, during such time and for such consideration as the Board may deem appropriate.

11.2

The Board may determine to issue a series of bonds or other debt securities, as part of its authority or to take a loan on behalf of the Company, and within the limits of such authority.



11.3

The Shareholders of the Company at any given time shall not have any preemptive right or priority or any other right whatsoever with respect to the acquisition of Securities of the Company. The Board, in its sole discretion, may decide to offer Securities of the Company first to existing Shareholders or to anyone or more of them.



11.4

The Company is entitled to pay a commission (including underwriting fees) to any person, in consideration for underwriting services, or the marketing or distribution of Securities of the Company, whether reserved or unreserved, as determined by the Board. Payments, as stated in this Article 11.4, may be paid in cash or in Securities of the Company, or in a combination thereof or in any other manner.

12.

Payment in Installments

If by the terms of issuance of any share, the whole or any part of the price thereof shall be payable in installments, every such installment shall, when due, be paid to the Company by the then registered holder(s) of the share or the person(s) entitled thereto.

13.

Calls on Shares

13.1

The Board may, from time to time, make such calls as it may deem appropriate upon Shareholders in respect of any sum unpaid in respect of shares held by such Shareholders which is not, by the terms of issuance thereof or otherwise, payable at a fixed time, and each Shareholder shall pay the amount of every call so made upon him (and of each installment thereof if the same is payable in installments), to the person(s) and at the time(s) and place(s) designated by the Board, as any such time(s) may be thereafter extended and/or such person(s) or place(s) changed. Unless otherwise stipulated in the resolution of the Board (and in the notice referred to in Article 13.2), each payment in response to a call shall be deemed to constitute a pro rata payment on account of all shares in respect of which such call was made.

13.2

Notice of any call shall be given in writing to the applicable Shareholder(s) not less than fourteen (14) days prior to the time of payment, specifying the time and place of payment, and designating the person to whom such payment shall be made; provided, however, that before the time for any such payment, the Board may, by notice in writing to such Shareholder(s), revoke such call in whole or in part, extend such time, or alter such designated person and/or place. In the event of a call payable in installments, only one notice thereof need be given.

13.3

If, by the terms of allotment of any share or otherwise, any amount is made payable at any fixed time, every such amount shall be payable at such time as if it were a call duly made by the Board and of which due notice had been given, and all the provisions herein contained with respect to calls shall apply to each such amount.

13.4

Any amount unpaid in respect of a call shall bear interest from the date on which it is payable until actual payment thereof, at such rate (not exceeding the then prevailing debitory rate charged by leading commercial banks in Israel), and at such time(s) as the Board may prescribe.

13.5

Upon the allotment of shares, the Board may provide for differences among the allottees of such shares as to the amount of calls and/or the times of payment thereof

6

13.6

The joint holders of a share shall be jointly and severally liable to pay all calls in respect thereof and all interest payable thereon.

14.

Prepayment

With the approval of the Board, any Shareholder may pay to the Company any amount not yet payable in respect of his shares, and the Board may approve the payment of interest on any such amount until the same would be payable if it had not been paid in advance, at such rate and time(s) as may be approved by the Board. The Board may, at any time cause the Company to repay all or any part of the money so advanced, without premium or penalty. Nothing in this Article 14 shall derogate from the right of the Board to make any call before or after receipt by the Company of any such advance.

15.

Forfeiture and Surrender

15.1

If any Shareholder fails to pay any amount payable in respect of a call, or interest thereon as provided herein, on or before the day fixed for payment of the same, the Company, by resolution of the Board, may at any time thereafter, so long as such amount or interest remains unpaid, forfeit all or any of the shares in respect of which such call had been made. Any expense incurred by the Company in attempting to collect any such amount or interest, including, inter alia, attorneys' fees and costs of suit, shall be added to, and shall, for all purposes (including the accrual of interest thereon), constitute a part of the amount payable to the Company in respect of such call.

15.2

Upon the adoption of a resolution of forfeiture, the Board shall cause notice thereof to be given to the Shareholder whose shares are the subject of such forfeiture, which notice shall state that, in the event of the failure to pay the entire amount so payable within a period stipulated in the notice (which period shall not be less than fourteen (14) days and which may be extended by the Board), such shares shall be ipso facto forfeited, provided, however, that, prior to the expiration of such period, the Board may nullify such resolution of forfeiture, but no such nullification shall estop the Board from adopting a further resolution of forfeiture in respect of the non-payment of such amount.

15.3

Whenever shares are forfeited as herein provided, all distributions theretofore declared in respect thereof and not actually paid or distributed shall be deemed to have been forfeited at the same time.

15.4

The Company, by resolution of the Board, may accept the voluntary surrender of any share.

15.5

Any share forfeited or surrendered as provided herein shall become the property of the Company, and the same, subject to the provisions of these Articles, may be sold, re-allotted or otherwise disposed of as the Board deems appropriate.

15.6

Any Shareholder whose shares have been forfeited or surrendered shall cease to be a Shareholder in respect of the forfeited or surrendered shares, but shall, notwithstanding, be liable to pay, and shall forthwith pay, to the Company, all calls, interest and expenses owing upon or in respect of such shares at the time of forfeiture or surrender, together with interest thereon from the time of forfeiture or surrender until actual payment, at the rate prescribed in Article 13.4 above, and the Board, in its discretion, may enforce the payment of such moneys, or any part thereof, but shall not be under any obligation to do so. In the event of such forfeiture or surrender, the Company, by resolution of the Board, may accelerate the date(s) of payment of any or all amounts then owing by the Shareholder in question (but not yet due) in respect of all shares owned by such Shareholder, solely or jointly with another, and in respect of any other matter or transaction whatsoever.

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15.7

The Board may at any time, before any share so forfeited or surrendered shall have been sold, re-allotted or otherwise disposed of, nullify the forfeiture or surrender on such conditions as it deems appropriate, but no such nullification shall estop the Board from re-exercising its powers of forfeiture pursuant to this Article 15.

16.

Lien

16.1

Except to the extent the same may be waived or subordinated in writing, the Company shall have a first and paramount lien upon all the shares registered in the name of each Shareholder which are not fully paid up (without regard to any equitable or other claim or interest in such shares on the part of any other person), and upon the proceeds of the sale thereof, for such shareholder's debts, liabilities and engagements arising from any cause whatsoever, solely or jointly with another, to or with the Company, whether the period for the payment, fulfillment or discharge thereof shall have actually arrived or not. Such lien shall extend to all distributions from time to time declared in respect of such shares. Unless otherwise provided, the registration by the company of a transfer of shares shall be deemed to be a waiver on the part of the company of the lien (if any) existing on such shares immediately prior to such transfer.

16.2

The Board may cause the Company to sell any shares subject to such lien when any such debt, liability or engagement has matured, in such manner as the Board may deem appropriate, but no such sale shall be made unless such debt, liability or engagement has not been satisfied within fourteen (14) days after written notice of the Company's intention to sell shall have been served on such Shareholder, his executors, administrators or assignees.

16.3

The net proceeds of any such sale, after payment of the costs thereof, shall be applied in or toward satisfaction of the debts, liabilities or engagements of such Shareholder (whether or not the same have matured), or any specific part of the same (as the Board may determine), and the balance, if any, shall be paid to the Shareholder, his executors, administrators or assigns.

17.

Sale after Forfeiture or Surrender or in Enforcement of Lien

Upon any sale of shares after forfeiture or surrender or for enforcing a lien, the Board may appoint a person to execute a proper instrument of transfer of the shares so sold and cause the purchaser's name to be entered in the Shareholders Register in respect of such shares, and the purchaser shall not be bound to see to the regularity of the proceedings, or to the application of the purchase money, and after his name has been entered in the Shareholder Register in respect of such shares, the validity of the sale shall not be impeached by any person, and the remedy of any person aggrieved by the sale shall be in damages only and against the Company exclusively.

18.

Redeemable Shares

The Company may, by resolution of the Board, issue redeemable securities and the provisions of section 312 of the Companies Law will apply to the issue of such securities. The Board shall determine which securities of the redeemable securities shall be redeemed, from time to time, and it shall furnish written notice thereof of at least 14 days to the holders of the above-mentioned securities, regarding the place, the date and the conditions of the redemption.

19.

Transfer of Shares

19.1

No transfer of shares shall be registered unless the Company receives a deed of transfer or other proper instrument of transfer (in form and substance satisfactory to the Board), together with any share certificate(s). Until the transferee has been registered in the Shareholders Register in respect of the shares so transferred, the Company may continue to regard the transferor as the owner thereof. The Board may, from time to time, prescribe a reasonable fee for registration of a transfer. A Deed of Transfer shall be in the following form or in any substantially similar form, including any such form as is acceptable to the transfer agent for the Company's shares, or in any form otherwise approved by the board.

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Deed of transfer

"I,            , (hereinafter: "The Transferor") of,             , do hereby transfer, in consideration for             ,to             (hereinafter: "The Transferee"),             share(s) NIS              par value each of Shamir Optical Industry Ltd. (hereinafter: "The Company") to be held by the Transferee and/or his executors, administrators and assigns, subject to the same terms and conditions under which I held the same at the time of execution hereof; and I, the said Transferee, do hereby agree to take the said share(s) subject to the conditions aforesaid.

In witness whereof we hereby execute this Deed of Transfer, this            day of              20            ."

The Transferee	The Transferor
Name: Signature:	Name: Signature:
Witness to Signature	Witness to Signature
Name: Signature:	Name: Signature:

19.2

The transfer of shares which were not fully paid for, or shares on which the Company has a lien, shall have no validity unless approved by the Board, which may, in its absolute discretion and without giving any reason thereto, decline the registration of such transferor impose conditions on the transfer.



19.3

The board may suspend the registration of transfers for such periods as it deems appropriate, and no such transfers shall be registered during any period in which the shareholders is so closed, provided such periods shall not exceed 30 days each year and provided that no such suspension shall take place in any 14 days precluding the recode date for any general meeting or to any distribution.



19.4

Upon the death of a Shareholder



19.4.1

In case of a share registered in the names of two or more holders, the Company may recognize the survivor(s) as the sole owner(s) thereof.



19.4.2

Any person becoming entitled to a share in consequence of the death of any person, upon producing evidence of the grand of probate or letters of administration or deceleration of succession (or such other evidence as the Board of Directors may reasonably deem sufficient that he sustains the character in respect of which he proposes to act under this Article or of his title), shall be registered as a shareholder in respect of such shares, or may, subject to the regulations as to transfer herein contained, transfer such share.



19.5

The Company may recognize the receiver or liquidator of any corporate Shareholder in liquidation or dissolution, or the receiver or trustee in bankruptcy of any Shareholder, as being entitled to the shares registered in the name of such Shareholder, after receipt of evidence to the entitlement thereto, as determined by the Board.



19.6

A person acquiring a right in shares as a result of being a custodian, administrator of the estate, executor of a will or the heir of a Shareholder, or a receiver, liquidator or a trustee in a liquidation, dissolution or bankruptcy of a Shareholder or according to another provision of Law, is entitled, after producing evidence of his right to the satisfaction of the Board, to be registered as the Shareholder or to transfer such shares to another person, subject to the provisions of this Article 19.

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20.

Bearer Share

The Company shall not issue bearer shares.

GENERAL MEETINGS

21.

Annual Meeting

An annual General Meeting shall be held once in every calendar year at such time within a period of not more than fifteen (15) months after the last preceding annual General Meeting and at such place either within or outside of the State of Israel as may be determined by the Board. These General Meetings shall be referred to as "Annual Meetings."

22.

Extraordinary Meetings

22.1

All General Meetings other than Annual Meetings shall be referred to as "Extraordinary Meetings".

22.2

The Board may, whenever it deems appropriate, convene an Extraordinary Meeting at such time and place, within or outside of the State of Israel, as may be determined by the Board, and shall be obliged to do so upon the demand in writing of one of the following:

22.2.1

Any two Directors or a quarter of the Directors, whichever is lower; or

22.2.2

One or more Shareholders, holding alone or together at least ten percent (10%) of the issued share capital of the Company, and at least one percent (1%) of the voting rights in the company; or

22.2.3

One or more Shareholders holding at least ten percent (10%) of the voting rights in the company. The demand shall set forth the reasons for convening of the meeting and shall be delivered to the registered office of the Company.

22.3

The Board, upon demand to convene an Extraordinary Meeting in accordance with Article 22.2.2 above, shall announce the convening of the General Meeting within twenty one (21) days from the receipt of a demand in that respect; provided, however, that the date fixed for the Extraordinary Meeting shall not be more than thirty five (35) days from the date of the announcement of the Extraordinary Meeting, or such other period as may be permitted by the Companies Law or Companies Regulations.

23.

Class Meetings

The provisions of these Articles of Association with respect to General Meetings shall apply, mutatis mutandis, to meetings of the holders of a class of shares of the Company (hereinafter: "Class Meetings"); provided, however, that the requisite quorum at any such Class Meeting shall be one or more Shareholders present in person, by proxy or by proxy card, and holding together not less than fifty percent (50%) of the issued shares of such class.

24.

Notice of General Meetings

24.1

The Company is not required to give notice under section 69(b) of the Companies Law.

24.2

General Meeting requires prior notice of at least 21 days.

PROCEEDINGS AT GENERAL MEETINGS

25.

The Agenda of General Meetings

25.1

The agenda of General Meetings shall be determined by the Board and shall also include issues for which an Extraordinary Meeting is being convened in accordance with Article 22

10

above, or as otherwise may be required in accordance with the provisions of the Companies Law.

25.2

The General Meeting shall only adopt resolutions on issues or act upon items which are on its agenda.



25.3

The General Meeting is entitled to accept or reject a proposed resolution which is on the agenda of the General Meeting. Subject to applicable Law, the General Meeting may adopt a resolution which is different from the description thereof included in the announcement of the General Meeting, provided that such resolution is not materially different from the proposed resolution.



25.4

Any Shareholder entitled to be present and vote in a General Meeting may bring any proposal with respect to any of the matters on the agenda of such General Meeting, provided however the Shareholder submits his written proposal specifying his intention to present it to the General Meeting at the Company's Registered office, within three (3) days of the announcement of the convening of the General Meeting.

26.

Quorum

26.1

No business shall be transacted at a General Meeting, or at any adjournment thereof, unless alawful quorum is present when the meeting proceeds to business.

26.2

Subject to the requirements of the Companies Law, the rules of Nasdaq National Market and any other exchange on which the Company's securities are or may become quoted or listed, and the provisions of these Articles, any two or more Shareholders (not in default in payment of any sum referred to in Article 13 hereof), present in person or by proxy, or who have delivered to the Company proxy card indicating their manner of voting, and who hold or represent shares conferring in the aggregate at least thirty-three and one-third percent (33¹/3%) of the voting power of the Company, shall constitute a lawful quorum at General Meetings. A Shareholder or his proxy, who also serves as a proxy for other Shareholder(s), shall be regarded as two or more Shareholders, in accordance with the number of Shareholders he is representing.

26.3

If within an hour from the time appointed for the General Meeting a quorum is not present, the meeting, if convened by the Board upon demand under Article 22.2 or, if not convened by the Board, if convened by the persons making or court demanding in accordance with the provisions of the Companies Law, shall be dissolved, but in any other case it shall stand adjourned to the same day in the next week, at the same time and place, or to such day and at such time and place as the Chairman may determine with the consent of the holders of a majority of the voting power represented at the meeting in person or by proxy and voting on the question of adjournment. No business shall be transacted at any adjourned meeting except business which might lawfully have been transacted at the meeting as originally called. At such adjourned meeting, any number of Shareholders present in person or by proxy or by proxy card, shall constitute a lawful quorum.

27.

Chairman

The Chairman of the Board shall preside as Chairman at every General Meeting. If there is no such Chairman, or if the Chairman is not present within fifteen (15) minutes after the time fixed for holding such meeting or is unwilling to act as Chairman, the Shareholders present shall choose someone of their number or any other person to be Chairman. The position of Chairman shall not, by itself, entitle the holder thereof to vote at any General Meeting nor shall it entitle such holder to a second or casting vote (without derogating, however, from the rights of such Chairman to vote

11

as a Shareholder or proxy of a Shareholder if, in fact, he is also a Shareholder or proxy, respectively).

28.

Adjourned Meeting

A General Meeting at which a lawful quorum is present (hereinafter: "The Original General Meeting"), may resolve by an Ordinary Majority to adjourn the General Meeting, from time to time, to another time and/or place (hereinafter: an "Adjourned Meeting"). In the event that a General Meeting is adjourned for twenty one (21) days or more, a notice of the Adjourned Meeting shall be given in the same manner as the notice of the Original General Meeting. With the exception of the aforesaid, a Shareholder shall not be entitled to receive a notice of an Adjourned Meeting or of the issues which are to be discussed in the Adjourned Meeting. The Adjourned Meeting shall only discuss issues that could have been discussed at the Original General Meeting, and with respect to which no resolution was adopted.

29.

Adoption of Resolutions at General Meetings

29.1

Except with respect to matters which require the approval of a special majority under the Companies Law or these Articles, all resolutions of the General Meeting, shall be deemed adopted if approved by an Ordinary Majority. A resolution of the General Meeting approving an amendment to these Articles shall be deemed adopted only if approved by Special Majority.

29.2

Every matter submitted to a General Meeting shall be decided by a show of hands, but if a written ballot is demanded by any Shareholder present in person, by proxy or by proxy card and entitled to vote at the meeting, the same shall be decided by such ballot. A written ballot may be demanded before the proposed resolution is voted upon or immediately after the declaration by the Chairman of the results of the vote by a show of hands. If a vote by written ballot is taken after such declaration, the results of the vote by a show of hands shall be of no effect, and the proposed resolution shall be decided by such written ballot. The demand for a written ballot may be withdrawn at any time before the same is conducted, in which event another Shareholder may then demand such written ballot. The demand for a written ballot shall not prevent the continuance of the meeting for the transaction of business other than the question on which the written ballot has been demanded.

29.3

A declaration by the Chairman of the meeting that a resolution has been adopted unanimously, or adopted by a particular majority, or rejected, and an entry to that effect in the minute book of the Company, shall be conclusive evidence of the fact without proof of the number or proportion of the votes recorded in favor of or against such resolution.

30.

Power to Adjourn

(a) The Chairman of a General Meeting at which a quorum is present may, with the consent of the holders of a majority of the voting power represented in person or by proxy and voting on the question of adjournment (and shall if so directed by the meeting), adjourn the meeting from time to time and from place to place, but no business shall be transacted at any adjournment meeting except business which might lawfully have been transacted at the meeting as originally called. (b) It shall not be necessary to announce an adjournment, unless the meeting is adjourned for thirty (30) days or more in which event announcement thereof shall be given in the manner required for the meeting as originally called.

31.

Voting Power

Subject to the provisions of Article 32.1 and subject to any provision hereof conferring special rights as to voting, or restricting the right to vote, every Shareholder shall have one vote for each share held by him of record, on every resolution, without regard to whether the vote thereon is

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conducted in person, by proxy or by proxy card, by a show of hands, by written ballot or by any other means.

32.   Voting Rights

32.1

No Shareholder shall be entitled to vote at any General Meeting (or be counted as a part of the lawful quorum thereat), unless all calls and other sums then payable by him in respect of his shares in the Company have been paid, but this Article shall not apply to Class Meetings pursuant to Article 23.



32.2

A company or other corporate entity being a Shareholder of the Company may authorize any person to be its representative at any General Meeting. Any person so authorized shall be entitled to exercise on behalf of such Shareholder all the power which the latter could have exercised if it were an individual shareholder. Upon the request of the Chairman of the General Meeting, written evidence of such authorization (in form acceptable to the Chairman) shall be delivered to him.



32.3

Any Shareholder entitled to vote may vote either personally (or, if the Shareholder is a company or other corporate entity, by a representative authorized pursuant to Article 32.2) or by proxy (subject to Article 34 below), or by proxy card.



32.4

The Board may determine, in its discretion, matters that may be voted upon at the meeting by proxy card in addition to the matters listed in section 87(a) to the Companies Law.



32.5

If two or more persons are registered as joint holders of any share, the vote of the senior who tenders a vote, in person, by proxy or by proxy card, shall be accepted to the exclusion of the vote(s) of the other joint holder(s), and for this purpose seniority shall be determined by the order in which the names stand in the Shareholder Register.

33.

The Record Date with Respect to Participation and Voting

The Shareholders who are entitled to participate and vote at a General Meeting shall be those Shareholders who are registered in the Shareholder Register of the Company on the date determined by the Board, provided that such date is not be more than twenty one (21) days, nor less than four (4) days, prior to the date of the General Meeting, except as otherwise permitted by the Companies Law or the Companies Regulations.

PROXIES

34.

Voting by Means of a Proxy

34.1

A Shareholder is entitled to appoint by deed of authorization a proxy (who is not required to be a Shareholder of the Company) to participate and vote in his stead, whether at a certain General Meeting or generally at General Meetings of the Company (e.g, until the occurrence of such date or event as is specified in the deed of authorization), whether personally, by proxy or by means of a proxy card.

34.2

In the event that the deed of authorization is not limited to a certain General Meeting, then the deed of authorization, which was deposited prior to a certain General Meeting, shall also be good for other General Meetings thereafter, subject to the terms of the deed of authorization. This Article 34 shall also apply to a Shareholder which is a corporation, appointing a person to participate and vote in a General Meeting in its stead.

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35.

A Deed of Authorization

35.1

The deed of authorization shall be in writing and shall be substantially in the form specified below, or in any usual or common form or in such other form as may be approved by the Board. It shall be duly signed by the appointer or his duly authorized attorney or, if such appointer is a company or other corporate entity, under its common seal or stamp or the hand of its duly authorized agent(s) or attorney(s). signed by the appointing shareholder or by his attorney duly authorized in writing, and shall be in the following form or any form similar thereto:

SHAMIR OPTICAL INDUSTRY LTD ("the Company")

I,              of              being a shareholder of the Company hereby appoint Mr.              of              or, in his absence, Mr.              of              as proxy to vote for me and on my behalf at the general (ordinary or special) meeting of the Company (as the case may be) to be convened on the              day of              and at every adjournment thereof.

Signed this              day of             ".

(Signature of Appointer)

35.2

The deed of authorization (and the power of attorney or other authority, if any, under which such instrument has been signed) shall either be delivered to the Company (at its registered office, or at its principal place of business, or at the office of its registrar and/or transfer agent or at such place as the Board may specify) not less than two (2) hours (or not less than twenty four (24) hours with respect to a General Meeting to be held outside of Israel) before the timefixed for the meeting, at which the person named in the deed of authorization proposes to vote, or presented to the Chairman at such meeting.

36.

Effect of Death of Appointer or Revocation of Appointment

A vote cast pursuant to a deed of authorization shall be valid notwithstanding the previous death, incapacity or bankruptcy, or if a company or other corporate entity, the liquidation, of the appointing Shareholders (or of his attorney-in fact, if any, who signed such instrument), or the revocation of the appointment provided no written notice of any such event shall have been received by the Company or by the Chairman of the General Meeting before such vote is cast and provided, further, that the appointing Shareholder, if present in person at said General Meeting, may revoke the appointment by means of a written or oral notification to the Chairman, or otherwise.

37.

The Disqualification of Proxy Cards and Deed of Authorization

Subject to the provisions of applicable Law, the corporate secretary of the Company and/or the Chairman of the Board may, in his discretion, disqualify proxy card and deed of authorization and so notify the Shareholder who submitted a proxy card or deed of authorization in the following cases:

37.1

If there is a reasonable suspicion that they are forged or falsified;



37.2

If they are not duly executed or completed, as set forth in Article 35.1 above, if applicable



37.3

If they are given with respect to shares for which one or more proxy cards or deeds of authorization have been given and not withdrawn;



37.4

If more than one choice is marked for the same resolution; or



37.5

With respect to resolutions which require that the majority for their adoption include a certain percentage of those not having a personal interest in the approval of the resolution, where it

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was not marked, or otherwise notified to the Company, whether or not the relevant Shareholder has a personal interest.

BOARD OF DIRECTORS

38.

The Authority of the Board

38.1

The authority of the Board is as specified in the Companies Law and in the provisions of these Articles. Without derogating from the generality of the aforesaid, The management of the business of the Company shall be vested in the Board, which may exercise all such powers and do all such acts and things as the Company is authorized to exercise and do, and are not hereby or by law required to be exercised or done by the company in a General Meeting. The authority conferred on the Board by this Article 38 shall be subject to the provisions of the Companies Law, of these Articles and any regulation or resolution consistent with these Articles adopted from time to time by the Company in a General Meeting, provided, however, that no such regulation or resolution shall invalidate any prior act done by or pursuant to a decision of the Board which would have been valid if such regulation or resolution had not been adopted.

38.2

Without derogating from the generality of Articles 38.1 above, the Board's authority shall include the following:

38.2.1

The Board may, from time to time, in its discretion, cause the Company to borrow or secure the payment of any sum or sums of money for the purposes of the Company, and may secure or provide for the repayment of such sum or sums in such manner, at such times and upon such terms and conditions in all respects as it deems appropriate, including, without limitation, by the issuance of bonds, perpetual or redeemable debentures or other securities, or any mortgages, charges, or other liens on the undertaking or the whole or any part of the property of the Company, both present and future, including its uncalled or called but unpaid capital.

38.2.2

Subject to the provisions of Article 35 below and subject to the provisions of any applicable law, the Board may, from time to time, set aside any amount(s) out of the profits of the Company as a reserve or reserves for any purpose(s) which the Board, in its sole discretion, shall deem appropriate, and may invest any sum so set aside in any manner and from time to time deal with and vary such investments, and dispose of all or any part thereof, and employ any such reserve or any part thereof in the business of the Company without being bound to keep the same separate from other assets of the Company, and may subdivide or re-designate any reserve or cancel the same or apply the funds therein for another purpose, all as the Board may from time to time deem appropriate.

38.2.3

Subject to the provisions of any Law, the Board may, from time to time, authorize any person to be the representative of the Company with respect to those objectives with such powers, discretions and authorities subject to those conditions and for that time period, as the Board deems appropriate, and any such appointment may contain such provisions for the protection and convince of persons dealing with such representative as the board may deem it and may also grant any such representative the authority to delegate any or all of the authorities, powers and discretions vested in him by the Board.

38.2.4

The Board may, at any time in its sole discretion, adopt protective measures to prevent or delay a coercive takeover of the company, including without limitation the adoption of a "Shareholder Rights Plan".

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39.

Board Meetings

39.1

Convening Meetings of the Board

39.1.1

The Chairman of the Board may convene a meeting of the Board at any time; provided that a meeting of the Board be convened at least once every three (3) months.

39.1.2

The Chairman of the Board shall convene a meeting of the Board at any time or in any event that such meeting is required by the provisions of the Companies Law.

39.2

Notice of a Meeting of the Board

39.2.1

Any notice with respect to a meeting of the Board may be given orally or in writing, so long as the notice is given at least seven (7) days prior to the date fixed for the meeting, unless all members of the Board or their Alternate Directors (as described in Article 41 below) or their representatives agree on a shorter time period. Such notice shall be delivered personally, by mail, or transmitted via facsimile or e-mail or through another means of communication, to the address, facsimile number or to the e-mail address or to an address where messages can be delivered through other means of communication, as the case may be, as the Director or its alternate informed the Company in advance.

39.2.2

A notice with respect to a meeting of the Board shall include the venue, date and time of the meeting of the Board, the issues on its agenda and any other material that the Chairman of the Board requests to be included in the notice with respect to the meeting.

39.3

The Agenda of Board Meetings

The agenda of any meeting of the Board shall be as determined by the Chairman of the Board, and shall include the following matters:

39.3.1

Matters for which the meeting is required to be convened in accordance with the Companies Law;



39.3.2

Any matter requested by a Director or by the Chief Executive Officer to be included in the agenda of the meeting within at least 24 hours (taking into account the nature of the matter) prior to the meeting;



39.3.3

Any other matter determined by the Chairman of the Board.



39.4

Quorum

Unless otherwise unanimously decided by the Board, a quorum at a meeting of the Board shall be constituted by the presence of two thirds (²/3) of the members of the Board then in office who are lawfully entitled to participate in the meeting (as conclusively determined by the Chairman of the Board), but shall not be less than two Directors.

39.5

Conducting a Meeting through Means of Communication

The Board may conduct a meeting of the Board through the use of any means of communication, provided all of the participating Directors can hear each other simultaneously. A resolution approved by use of means of communications as aforesaid, shall be deemed to be a resolution lawfully adopted at a meeting of the Board.

39.6

Voting in the Board

Unless otherwise provided by these Articles, issues presented at meetings of the Board shall be decided upon by a majority of the votes of Directors present (or participating, in the case of a vote through a permitted means of communications) and lawfully voting thereon (as conclusively determined by the Chairman of the Board). Subject to the provision of Article 41.2below, with respect to representatives of Directors that are companies, each Director shall have a single vote.

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39.7

Written Resolution

A resolution in writing signed by all Directors then in office and lawfully entitled to vote thereon (as conclusively determined by the Chairman of the Board) or to which all such Directors have given their consent (by letter, telegram, telex, facsimile, e-mail or other written forms), or their oral consent by telephone (provided that a written summary thereof has been approved and signed by the Chairman of the Board), shall be deemed to have been unanimously adopted by a meeting of the board duly convened and held. In the event of the adoption of a resolution pursuant to this article, the Chairman of the Board shall state in the minutes the manner in which each Director voted in the resolution and the fact that all Directors consented to the adoption of a resolution without the convening of a meeting.

40.

The Appointment of Directors

40.1

The Number of Directors

The Board shall consist of such number of Directors, not less than two (2) nor more than nine (9) (including two External Directors, as defined by the Companies Law).

40.2

Classes & Term of Directors Office

The Directors on the Board, other than the External Directors, are divided into three classes, Class A, Class B and Class C. Class A and Class B shall consist of up to 3 Directors each and Class C shall consist of one Director.

The term of office of the directors assigned to Class A will expire at the Company's second Annual Meeting, and at each third succeeding Annual Meeting thereafter.

The term of office of the directors assigned to Class B will expire at the third annual meeting of shareholders and at each third succeeding Annual Meeting thereafter.

The term of office of the directors assigned to Class C will expire at the forth annual meeting of shareholders and at each third succeeding Annual Meeting thereafter.

External Directors shall be elected and serve terms in accordance with the Companies Law.

40.3

Directors Generally

40.3.1

Subject to the provisions of the Companies Law, a Director may hold another position in the Company.



40.3.2

A company or other corporate entity may serve as a Director in the Company.



40.3.3

The Board shall include External Directors as may be required to comply with the requirements of the Companies Law, the Nasdaq Stock Market or any other securities exchange on which the securities of the Company are or may become quoted or listed.



40.4

The Election of Directors and their Terms of Office

40.4.1

Directors (other than the External Directors) shall be elected only at Annual Meetings, unless other provided in these Articles, and shall so serve until the expiration of their term of office pursuant to these Articles. A Director whose office is terminated shall be eligible for re-election (subject to the provisions of the Companies Law applicable to External Directors). The Annual Meeting and in the case of External Directors and directors appointed pursuant to Article 42 also the General meeting, at the time of election of a Director, shall classify such Director to Class A, Class B or Class C as set forth above, subject however to the provisions of the Companies Law.

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40.4.2

The Annual Meeting may elect any person(s) as Director(s) if such person served as a Director up until the date of the Annual Meeting, if such person was nominated by the Board or if such person was nominated by a Shareholder in accordance with Article 40.4.1 above.



40.4.3

The Annual Meeting shall not be entitled to remove from office any Director.



40.4.4

Deleted.



40.4.5

Except for External Directors, the General Meeting may elect any person or persons as a Director(s), to fill an office which became vacant to the same class of directors and the same duration of office which would have been applicable to the Director whose office became vacant, had his/her office would not have been terminated.



40.4.6

In addition to the aforesaid, and subject to the provisions of the Companies Law with respect to External Directors, the office of a Director shall vacate with the occurrence of one or more of the events listed in section 228 of the Companies Law (with the exception of section 230 of the Companies Law which shall not apply) as well as in the event the Director dies, is declared by the court to be incapable or, in the event of a company or another corporate entity upon adaptation of a resolution for its voluntary liquidation or the issuance of a liquidation order.



40.4.7

(a) Notwithstanding anything to the contrary herein, the term of a Director may commence of a date later than the date of the Shareholders Resolution electing said Director, is so specified in said Shareholders Resolution. (b) The election and removal of External Directors shall be governed by the Companies Law, provided, however, that the company shall not have more than three "External Directors".

41.

Alternate Directors and Representative of a Director that is a Company

41.1

Alternate Directors

41.1.1

Subject to the provisions of the Companies Law, any Director may, by written notice to the Company, appoint an alternate for himself (in these Articles, an "Alternate Director"), dismiss such Alternate Director and appoint another Alternate Director in place of any Alternate Director appointed by him whose office has been vacated for any reason whatsoever, whether for a certain meeting or a certain period of time or generally. Any notice given to the Company pursuant to this Article shall be in writing, delivered to the Company and signed by the appointing or dismissing Director, and shall become effective on the date fixed therein, or upon the delivery thereof to the Company, whichever is later.

41.1.2

Anyone who is not qualified to be appointed as a Director and/or anyone serving as a Director or as an existing Alternate Director may not be appointed and may not serve as an Alternate Director.

41.2

Representative of a Director that is a Company

41.2.1

A Director that is a company or other corporate entity shall appoint an individual, qualified to be appointed as a Director in the Company, in order to serve on its behalf, eitherfor a certain meeting or for a certain period of time or generally and such company or other entity may also dismiss that individual and appoint another in his stead (hereinafter: "Director's Representatives"). Any notice given to the Company pursuant to this Article shall be in writing, delivered to the Company and signed by the appointing or dismissing body, and shall become effective on the date fixed therein, or upon the delivery thereof to the Company, whichever is later.

18

41.2.2

Subject to Article 41.2.1, any person, whether or not a Director may serve as a Director's Representative. One person may act as a Director's Representative of several Directors, and in such event he shall have a number of votes (and shall be treated as the number of persons for purposes of establishing a quorum) equal to the number of Directors for whom he acts as a Director's Representative. If a Director's Representative is also a Director in his own right, his rights as a Director's Representative shall be in addition to his rights as a Director.



41.3

Provisions with Respect to Alternate Directors and Director's Representatives



41.3.1

An Alternate Director and a Director's Representative shall have all the authority of the Director who appointed him, provided, however, that he may not in turn appoint an alternate or a representative for himself (unless the instrument appointing him otherwise expressly provides), and provided further that an Alternate Director and a Director's Representative shall have no standing at any meeting of the Board or any committee thereof while the Director who appointed him is present.



41.3.2

The office of an Alternate Director or a Director's Representative shall be vacated under the circumstances, mutatis mutandis, set forth in Article 40.4.6, and such office shall ipso facto be vacated if the Director who appointed such Alternate Director or Director's Representative ceases to be a Director.

42.

Continuing Directors in the Event of Vacancies

In the event of one or more vacancies in the Board, the continuing Directors may continue to act in every matter; provided, however, that if the number of continuing Directors is less than the minimum number provided for pursuant to Article 40.1 hereof, and unless the vacancy or vacancies is filled by the General Meeting pursuant to Article 40.4.5, they may only act for the convening of a General Meeting for the purpose of electing Director(s) to fill any or all vacancies.

43.

Personal Interest of a Director

Subject to compliance with the provisions of the Companies Law and the Nasdaq rules, the Company may enter into any contract or otherwise transact any business with any Director and may enter into any contract or otherwise transact any business with any third party in which contract or business a Director has a personal interest, directly or indirectly.

44.

Committees of the Board of Directors

44.1

Subject to the provisions of the Companies Law, the Board may delegate its authorities or any part of thereof to committees, as it deems appropriate, and it may from time to time cancel the delegation of any such authority. Any such committee shall, in the exercise of the powers delegated , fulfil all of the instructions given to it from time to time by the Board.

44.2

Subject to the provisions of the Companies Law, the rules of the Nasdaq National Market or any other exchange on which the Company's securities are or may become quoted or listed, each committee of the Board shall consist of at least two (2) Directors, of which at least one shall be an External Director; provided that the audit committee shall consist of at least three (3) Directors, and all of the External Directors of the Company shall be members of it.

44.3

The provisions of these Articles with respect to meetings of the Board shall apply, mutatis mutandis, to the meetings and discussions of each committee of the Board, so far as they are not superseded by any regulations adopted by the Board under this Article., and provided that the lawful quorum for the meetings of the committee, as stated, shall be at least a majority of the members of the committee, unless otherwise Required by Law.

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45.

Chairman of the Board

45.1

Appointment

45.1.1

The Board shall choose one of its members to serve as the Chairman of the Board. Unless otherwise provided in the appointing resolution, the Chairman of the Board shall be appointed every [calendar year] at the first meeting of the Board held after the General Meeting in which Directors were appointed to the Company.

45.1.2

In the event that the Chairman of the Board ceases to serve as a Director in the Company, the Board, in its first meeting held thereafter, shall appoint one of its members to serve as a new Chairman who will serve in his position for the term set in the appointment resolution, and if no period is set, until the appointment of a new Chairman, as provided in this Article.

45.1.3

In the event that the Chairman of the Board is absent from a meeting of the Board within fifteen (15) minutes of the time fIxed for the meeting, or if he is unwilling to preside at the meeting, the Board shall appoint one of the Directors present to preside at the meeting.

45.2

Authority

45.2.1

The Chairman of the Board shall preside over meetings of the Board and shall sign the minutes of the meetings.

45.2.2

In the event of deadlock vote, the Chairman of the Board shall not have an additional or casting vote.

45.2.3

The Chairman of the Board is entitled, at all times, at his initiative or pursuant to a resolution of the Board, to require reports from the General Manager in matters pertaining to the business affairs of the Company.

45.2.4

The Chairman of the Board shall not serve as the General Manager of the Company, unless he is appointed in accordance with the provisions of the Companies Law.

45.2.5

The Chairman of the Board shall not serve as a member of the audit committee.

46.

Validity of Acts despite Defects

Subject to the provisions of the Companies Law, all acts done bona fide at any meeting of the Board, or of a committee of the Board, or by any person(s) acting as Director(s), shall, notwithstanding that it may afterwards be discovered that there was some defect in the appointment of the participants in such meetings or any of them or any person(s) acting as aforesaid, or that they or any of them were disqualified, be as valid as if there was no such defect or disqualification.

MINUTES

47.

Minutes

47.1

minutes of each General Meeting and of each meeting of the Board shall be recorded and duly entered in books provided for that purpose. Such minutes shall set forth all resolutions adopted at the meeting and, with respect to minutes of board meetings, the names of the persons present at the meeting

47.2

Any minutes as aforesaid, if purporting to be signed by the Chairman of the meeting or by the Chairman of the next succeeding meeting, shall constitute prima facie evidence of the matters recorded therein.

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OFFICERS; AUDITOR

48.

The General Manager

48.1

The Board shall appoint a General Manager, and may appoint more than one General Manager. Subject to Article 45.2.4, the General Manager may be a Director. Such appointment(s) may be either for a fixed term or without any limitation of time, and the Board of Directors may from time to time (subject to the provisions of the Companies Law and of any contract between any such person and the Company) fix his or their salaries and emoluments, remove or dismiss him or them from office and appoint another or others in his or their place or places.

48.2

The Authority of the General Manager

48.2.1

The General Manager is responsible for the day-to-day management of the affairs of theCompany within the framework of the policies set by the Board and subject to its instructions.

48.2.2

The General Manager shall have all managerial and operational authorities which were not conferred by Law or pursuant to these Articles to any other organ of the Company, and he shall be under the supervision of the Board.

48.2.3

In the event the Board appoints more than one General Manager, the Board may determine the respective positions and functions of the General Managers and allocate their authorities as the Board may deem appropriate.

48.2.4

The Board may assume the authority granted to the General Manager, either with respect to a certain issue or for a certain period of time.

48.2.5

In the event that the General Manager is unable to exercise his authority, the Board may exercise such authority in his stead, or authorize another to exercise such authority.

48.2.6.

The General Manager, with the approval of the Board, may delegate to his subordinates any of his authority.

49.

Internal Auditor

49.1

The Board shall appoint an internal auditor to the Company in accordance with the proposal of the audit committee and with the provisions of the Companies Law. The internal auditor shall report to the Chairman of the Board, the General Manager and the Chairman of the audit committee, all to the extent required by Law.

49.2

The internal auditor shall file with the Board a proposal for an annual or other periodic work plan, which shall be approved by the Board, subject to any changes it deems appropriate.

50.

Other Officers of the Company

The Board may appoint, in addition to the General Manager and the internal auditor, other officers, define their positions and authorities, and set their compensation and terms of employment. The Board may authorize the General Manager to exercise any or all of its authorities stated in this Article.

51.

The Auditor

51.1

The Shareholders at the Annual Meeting shall appoint an auditor for a period until the close of the following Annual Meeting or for a period not to extend beyond the close of the third Annual Meeting following the Annual Meeting in which he was appointed. Subject to the provisions of the Companies Law, the General Meeting is entitled at any time to terminate the service of the auditor.

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51.2

The Board shall fix the compensation of the auditor of the Company for his auditing activities, and shall also fix the compensation of the auditor for additional services, if any, which are not auditing activities, and, in each case, shall report thereon to the Annual Meeting.

DISTRIBUTIONS

52.

General

The Company may effect a distribution to its Shareholders to the extent permitted by the Companies Law.

53.

Dividend and Bonus Shares

53.1

Right to Dividend or Bonus Shares

53.1.1

A shareholder shall be entitled to receive dividends or bonus shares, upon the resolution of the Company in accordance with Article 53.2 below, consistent with the rights attached to the shares held by such Shareholder.

53.1.2

The Shareholders entitled to receive dividends or bonus shares shall be those who are registered in the Shareholder Register on the date of the resolution approving the distribution or allotment, or on such later date, as may be determined in such resolution.

53.2

Resolution of the Company with Respect to a Dividend or Bonus Shares

The resolution of the Company with respect to the distribution of a dividend or bonus shares shall be adopted by the General Meeting by an Ordinary Majority, after presentation of the recommendation of the Board. The General Meeting may accept the Board's recommendation or decrease the amount recommended, but may not increase it, provided in each case the distribution is permitted in accordance with the provisions of the Companies Law.

53.3

Specific Dividend

Upon the recommendation of the Board approved by a resolution of the General Meeting adopted by an Ordinary Majority, a dividend may be paid, in whole or in part, by the distribution of specific assets of the Company or by distribution of paid up shares, debentures or other securities of the Company or of any other companies, or in any combination thereof.

53.4

Deductions from Dividends

The Board may deduct from any distribution or other moneys payable to any Shareholder in respect of a share any and all sums of money then payable by him to the Company on account of calls or otherwise in respect of shares of the Company and/or on account of any other matter or transaction whatsoever.

53.5

Retention of Dividends



53.5.1

The Board may retain any dividend, bonus shares or other moneys payable or property distributable in respect of a share on which the Company has a lien, and may apply the same in or toward satisfaction of the debts, liabilities, or engagements in respect of which the lien exists.



53.5.2

The Board may retain any dividend, bonus shares or other moneys payable or property distributable in respect of a share in respect of which any person is, under Article 19.5, entitled to become a Shareholder, or which any person is, under said Articles, entitled to transfer, until such person shall become a Shareholder in respect of such share or shall transfer the same.

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53.6

Mechanics of Payment

Any dividend or other moneys payable in cash in respect of a share may be paid by check sent by registered mail to, or left at, the registered address of the person entitled thereto or by transfer to a bank account specified by such person (or, if two or more persons are registered as joint holders of such share or are entitled jointly thereto as a result of the death or bankruptcy of the holder or otherwise, to anyone of such persons or to his bank account), or to such person and at such address as the person entitled thereto may direct in writing. Every such check shall be made payable to the order of the person to whom it is sent, or to such person as the person entitled thereto as aforesaid may direct, and payment of the check by the banker upon whom it is drawn shall be a good discharge to the Company. Every such check shall be sent at the risk of the person entitled to the money represented thereby.

53.7

An Unclaimed Dividend

All unclaimed dividends or other moneys payable in respect of a share may be invested or otherwise made use of by the Board for the benefit of the Company until claimed. The payment by the Board of any unclaimed dividend or such other moneys into a separate account shall not constitute the Company a trustee in respect thereof, and any dividend unclaimed after a period of seven (7) years from the date of declaration of such dividend, and any such other moneys unclaimed after a like period from the date the same were payable, shall be forfeited and shall revert to the Company; provided, however, that the Board may, at its discretion, cause the Company to pay any such dividend or such other moneys, or any part thereof, to a person who would have been entitled thereto had the same not reverted to the Company.

53.8

Receipt from a Joint Holder

If two or more persons are registered as joint holders of any share, or are entitled jointly thereto as a result of the death or bankruptcy of the holder or otherwise, anyone of them may give effectual receipts for any dividend, bonus shares or other moneys payable or property distributable in respect of such share.

53.9

Manner of Capitalization of Profits and the Distribution of Bonus Shares

Upon the recommendation of the Board approved by a resolution of the General Meeting adopted by an Ordinary Majority, the Company may cause any moneys, investments, or other assets forming part of the undivided profits of the Company, standing to the credit of a reserve fund, or to the credit of a reserve fund for the redemption of capital, or in the hands of the Company and available for distribution, or representing premiums received on the issuance of shares and standing to the credit of the share premium account, to be capitalized and distributed as capital among such of the Shareholders as would be entitled to receive the same if distributed by way of dividend and in the same proportion, or may cause any part of such capitalized fund to be applied on behalf of such Shareholders in paying up in full, either at par or at such premium as the resolution may provide, any un issued shares or debentures or other securities of the Company which shall be distributed accordingly, in payment, in full or in part, of the uncalled liability on any issued shares or debentures or other securities, and may cause such distribution or payment to be accepted by such Shareholders in full satisfaction of their interest in such capitalized sum.

53.10

The Board may settle, as it deems fit, any difficulty arising with regard to the distribution of bonus shares, distributions referred to in Articles 53.2 and 53.9 hereof or otherwise, and in particular, to issue certificates for fractions of shares and sell such fractions of shares in order to pay their consideration to those entitled thereto, to set the value for the distribution ofcertain assets and to determine that cash payments shall be paid to the Shareholders on the

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basis of such value, or that uactions whose value is less than NIS 0.01 shall not be taken into account. The Board may pay cash or convey these certain assets to a trustee in favor of those people who are entitled to a dividend or to a capitalized fund, as the Board shall deem appropriate.

53.11

The provisions of this chapter shall also apply to the distribution of Securities.

54.

Acquisition of Shares

54.1

The Company is entitled to acquire or to finance an acquisition, directly or indirectly, of shares of the Company or securities convertible or exercisable into shares of the Company, including incurring an obligation to take any of these actions, subject to the fulfillment of the conditions of a permitted distribution under the Companies Law. In the event that the Company so acquired any of its shares, any such share shall become a dormant share, and shall not confer any rights, so long as it held by the Company.

54.2

A subsidiary or another company controlled by the Company is entitled to acquire or finance an acquisition, directly or indirectly, of shares of the Company or securities convertible or exercisable into shares of the Company, or incur an obligation with respect thereto, to the same extent that the Company may make a distribution, subject to the terms of, and in accordance with the Companies Law. In the event a subsidiary or such controlled company so acquired any of the Company's shares, any such share shall not confer any voting rights, so long as it is held by such subsidiary or controlled company.

INSURANCE, INDEMNIFICATION AND RELEASE OF OFFICE HOLDERS

55.

Definition

For purposes of Articles 56, 57 and 58 below, the term "Office Holder" shall have the meaning ascribed to such term in the Companies Law.

56.

Insurance of Office Holders

56.1

The Company may, to the extent permitted by the Companies Law, enter into a contract for the insurance of the liability of an Office Holder of the Company, in respect of a liability imposed on him as a result of an act done by him in his capacity as an Office Holder of the Company, in any of the following:

56.1.1

A breach of his duty of care to the Company or to another person;

56.1.2

A breach of his duty of loyalty to the Company, provided that the Office Holder acted in good faith and had reasonable grounds to assume that such act would not harm the Company;

56.1.3

A financial liability imposed on him in favor of another person.

57.

Indemnification of Office Holders

57.1

The Company may, to the extent permitted by the Companies Law, indemnify an Office Holder of the Company for liability or expense he incurs as a result of an act done by him in his capacity as an Office Holder of the Company, as follows:

57.1.1

A financial liability imposed on him in favor of another person by a court judgment, including a settlement judgment or an arbitrator's award approved by a court;

57.1.2

reasonable litigation expenses, including attorneys' fees, expended by an Office Holder or charged to him by a court, in a proceeding filed against him by the Company or on its behalf or by another person, or in a criminal charge from which he was acquitted, or in a

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criminal charge of which he was convicted of a crime which does not require a finding of criminal intent.

57.2

The Company may indemnify an Office Holder of the Company pursuant to this Article 57 retrospectively, and may also undertake in advance to indemnify an Office Holder of the Company, provided the undertaking is limited to events of a kind which the Board believes can be anticipated at the time of such undertaking, and in an amount that the Board determines is reasonable under the circumstances.

58.

Release of Office Holders

The Company may, to the extent permitted by the Companies Law, release an Office Holder of the Company, in advance, from his liability, in whole or in part, for damages resulting from the breach of his duty of care to the Company.

59.

General

The provisions of Articles 56, 57 and 58 above are not intended, and shall not be interpreted, to restrict the Company in any manner in respect of the procurement of insurance and/or in respect of indemnification and/or release from liability in connection with any person who is not an Office Holder, including, without limitation, any employee, agent, consultant or contractor of the Company who is not an Office Holder, or in connection with any Office Holder to the extent that such insurance and/or indemnification and/or release from liability us permitted under the law.

LIQUIDATION

60.

Liquidation

60.1

Subject to applicable Law and to the rights of shares with special rights upon liquidation, the assets of the Company available for distribution among the Shareholders shall be distributed to them in proportion to the amount paid or credited as paid on the par value of their respective holdings of the shares in respect of which such distribution is being made.

60.2

In the event that the Company is liquidated, whether voluntarily or otherwise, the liquidator, with the approval of a General Meeting, may make a distribution in kind to the Shareholders of all or part of the property of the Company, and he may, with the approval of the General Meeting, deposit any part of the property of the Company with trustees in favor of the Shareholders, as the liquidator with the aforementioned approval, deems appropriate.

ACCOUNTS

61.

Books of Account

The Board shall cause accurate books of account to be kept in accordance with the provisions of the Companies Law and of any other applicable Law. Such books of account shall be kept at the registered office of the Company, or at such other place or places as the Board may deem appropriate, and they shall always be open to inspection by all Directors. No Shareholder, not being a Director, shall have any right to inspect any account or book or other similar document of the Company, except as conferred by Law or authorized by the Board or by a resolution of the General Meeting adopted by an Ordinary Majority.

62.

Audit

Without derogating from the requirements of any applicable Law, at least once in every fiscal year the accounts of the Company shall be audited and the accuracy of the profit and loss account and balance sheet certified by one or more duly qualified auditors.

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RIGHTS OF SIGNATURE, STAMP AND SEAL

63.

Rights of Signature. Stamp and Seal

63.1

The Board shall be entitled to authorize any person or persons (who may not be Directors) to act and sign on behalf of the Company, and the acts and signature of such person(s) on behalf of the Company shall bind the Company insofar as such person(s) acted and signed within the scope of his or their authority.

63.2

The Company shall have at least one official stamp.

63.3

The Board may provide for a seal. If the Board so provides, it shall also provide for the safe custody thereof. Such seal shall not be used except by the authority of the Board and in the presence of the person(s) authorized to sign on behalf of the Company, who shall sign every instrument to which such seal is affixed.

NOTICES

64.

Notices

64.1

Any written notice or other document may be served by the Company upon any Share holder either personally or by sending it by prepaid registered mail (airmail if sent to a place outside Israel) addressed to such Shareholder at his address as described in the Shareholder Register or such other address as he may have designated in writing for the receipt of notices and other documents. Any written notice or other document may be served by any Shareholder upon the Company by tendering the same in person to the corporate secretary or the General Manager of the Company at the principal office of the Company or by sending it by prepaid registered mail (airmail if posted outside Israel) to the Company at its registered office. Any such notice or other document shall be deemed to have been served two (2) Business Days after it has been posted (seven (7) Business Days if sent internationally), or when actually received by the addressee if sooner than two days or seven days, as the case may be, after it has been posted, or when actually tendered in person, to such Shareholder (or to the corporate secretary or the General Manager), provided, however, that notice may be sent by cablegram, telex, facsimile or other electronic means and confirmed by registered mail as aforesaid, and such notice shall be deemed to have been given twenty four (24) hours after such cablegram, telex, facsimile or other electronic communication has been sent or when actually received by such Shareholder (or by the Company), whichever is earlier. If a notice is, in fact, received by the addressee, it shall be deemed to have been duly served, when received, notwithstanding that it was defectively addressed or failed, in some respect, to comply with the provisions of this Article 64.1. Unless otherwise provided in these Articles, the provisions of this Article 64.1 shall also apply to written notices permitted or required to be given by the Company to any Director or by any Director to the Company.

64.2

All notices to be given to the Shareholders shall, with respect to any share held by persons jointly, be given to whichever of such persons is named first in the Shareholder Register, and any notice so given shall be sufficient notice to the holders of such share.

64.3

Any Shareholder whose address is not described in the Shareholder Register, and who shall not have designated in writing an address for the receipt of notices, shall not be entitled to receive any notice from the Company.

64.4

Any Shareholder and any Director may waive his right to receive notices generally or during a specific time period and he may consent that a General Meeting of the Company or a meeting of the Board, as the case may be, shall be convened and held notwithstanding the fact that he did not receive a notice with respect thereto, or notwithstanding the fact that the notice was not received by him within the required time, in each case subject to the provisions of any Law prohibiting any such waiver or consent.

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QuickLinks

Articles of Association of SHAMIR OPTICAL INDUSTRY LTD.
A COMPANY LIMITED BY SHARES GENERAL
SHARE CAPITAL
SHARES
Deed of transfer
GENERAL MEETINGS
PROCEEDINGS AT GENERAL MEETINGS
PROXIES
SHAMIR OPTICAL INDUSTRY LTD ("the Company")
BOARD OF DIRECTORS
MINUTES
OFFICERS; AUDITOR
DISTRIBUTIONS
INSURANCE, INDEMNIFICATION AND RELEASE OF OFFICE HOLDERS
LIQUIDATION
ACCOUNTS
RIGHTS OF SIGNATURE, STAMP AND SEAL
NOTICES

EX-10.1

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Exhibit 10.1

TRANSLATION FOR CONVENIENCE ONLY

TENANCY AGREEMENT

Made and signed this 1 day of December 2003

BETWEEN	Kibbutz Eyal Cooperative Agricultural Society Ltd., No. 57-000507-4 Mobile Post Central Sharon, 45840, Kibbutz Eyal (hereinafter—"the Kibbutz")
AND	Eyal Hasharon Farmers Agricultural Cooperative Society Ltd., No. 57-003560-0 Mobile Post Central Sharon, 45840, Kibbutz Eyal (hereinafter: "the Society") (The Kibbutz and the Society being hereinafter jointly called—"the Landlord").
	of the one part:
AND:	Eyal Optical Industries (1995) Ltd. Private company No. 51-210163-5 Mobile Post Central Sharon, 45840, Kibbutz Eyal (hereinafter—"the Company" and/or "the Tenant").
	of the other part:
Whereas	the Landlord is the holder of a long-term headlease in the land and buildings known as Block 7589, part of Parcel 8 delineated in red on the plan attached as Appendix 'A' hereto (hereinafter—"the Factory" or "the Complex"—as appropriate); and
Whereas	the Tenant has requested from the Landlord and the Landlord is desirous of granting to the Tenant, an unprotected tenancy of the Premises (as hereinafter defined); and
Whereas	the parties are desirous of regulating the rights and obligations and the agreement between them as more particularly set out in this Agreement;

It is therefore declared, agreed and stipulated between the parties as follows:

1.

Preamble and Appendices

1.1

The preamble and Appendices hereto constitute an integral part thereof.

1.2

The headings in this Agreement have been inserted for convenience only.

2.

Definitions

Unless the context otherwise requires, the following terms in this Agreement shall bear the meanings set out opposite them:

"the Factory"—	the factory building having an area of approximately 970 square meters delineated in blue on the plan attached hereto as Appendix 'B'.
"the Warehouses"—	the Warehouses having an area of approximately 1,198 square meters delineated in green on the plan attached hereto as Appendix 'B'.
"the Premises"—	the Factory and the Warehouses (as hereinbefore defined) including the Additional Buildings and New Construction (as defined in section 6.1.3 hereof).
"Shamir"—	Shamir Development and Optical Industry Agricultural Co-operative Society Ltd., No. 57-003541-0, having its address at Upper Galilee Mobile Post 2135, Kibbutz Shamir.
"the Agreement"—	This Agreement, including the Appendices thereto.
"Dollar"—	US Dollar.
"representative rate of exchange"—	The representative rate of exchange of the Dollar compared with the New Shekel, published by the Bank of Israel from time to time being the last representative rate of exchange known on the date of making the particular payment, provided that payment will be made on the date on which banks conduct transactions in foreign currency, and in any event not later than 12:00 noon of the date of making the payment.
	If any payment is paid on a day on which the representative rate of exchange is not published, or after 12:00 noon, such payment will be computed in accordance with the representative rate of exchange first published after the date of making the payment (hereinafter—"the New Rate"). Accordingly, such payment will be made in accordance with the representative rate of exchange known on the date of payment, and immediately after publication of the New Rate, an adjustment of the amount will be made and the party liable will pay (or refund) to the entitled party the difference immediately upon publication of the New Rate.
	If the Bank of Israel ceases to regularly publish the representative rate of exchange, the representative rate of exchange of the Dollar in New Shekels will be fixed for purposes of this Agreement in accordance with the mean rate between the buying and the selling rate of the US Dollar for transfers and checks in Bank Hapoalim BM on the date payment is made.
"CPI"—	The Consumer Price Index (including fruit and vegetables), published by the Central Bureau of Statistics, even if published by any other governmental institution, including any other official index in substitution therefor; in the absence of any official index, the CPI for purposes of this Contract will be that customary in Bank Hapoalim BM.
"CPI—Linked"—	The amount linked increased by the rate of increase of the Consumer price index in accordance with the New CPI known in comparison with the Base CPI.
"Base CPI"—	The CPI known on the date of making this Agreement, that is for the month of November 2003.

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3.

Approvals

The parties are aware that the tenancy of the Factory to which this Agreement relates is in accordance with Decision No. 834 of the Israel Lands Administration.

4.

The Tenancy

4.1

The Landlord hereby grants to the Tenant and the Tenant hereby takes from the Landlord, a tenancy of the Premises.

4.2

The tenancy is for the term and on the conditions set out in this Agreement.

4.3

The purpose of the tenancy is to continue the operation of an optics plant (hereinafter—"the Tenancy Purpose") subject to the performance of all the Tenant's undertakings under this Agreement, including performance of its undertakings to make all the payments under this Agreement.

4.4

The Tenant undertakes not to make any use of the Premises other than for the Tenancy Purpose, unless it first receives the prior written approval of the Landlord.

5.

Term of the Tenancy

5.1

The tenancy of the Premises under this Agreement is for a term of 10 (ten) years commencing in January 2003 and expiring not later than 31 December 2012 (hereinafter—"the Tenancy Term").

Delivery of possession in the Premises will be effective on the date of the commencement of the Tenancy Term.

5.2

The Landlord may bring this Agreement to an end before the expiration of the Tenancy Term in the event of the Tenant committing a fundamental breach of this Agreement.



5.3

Notwithstanding the foregoing, the Tenant will be entitled, after 5 (five) years from the commencement of the Tenancy Term, to bring this Agreement to an end by 12 months' prior notice to the Landlord in the event of a decision being adopted by the executive of Shamir to terminate production of plastic lenses in Israel on a commercial basis and the Company no longer requiring the Premises.



5.4

If such a decision mentioned in section 5.3 above is adopted, the Tenant will be entitled to sub-lease the Premises or any part thereof, provided the prior written consent of the Landlord will have been received to the identity of the sub-tenant and the use that it will make of the Premises, by its authorized signatories, and subject to the Landlord's rights in accordance with this Agreement not being prejudiced and subject to the Tenant remaining jointly and severally liable with the sub-tenant for the performance of its obligations under this Agreement.

The Landlord will not unreasonably withhold its consent to the identity of and use to be made by, the sub-tenant of the Premises.

6.

Rent

6.1

The rent in respect of the term of this Agreement and the manner of the payment thereof will be as follows:

6.1.1

In respect of the Factory, the Tenant will pay the Landlord for each month the amount in Shekels equal to the sum of $4,035 (four thousand and thirty five Dollars) (hereinafter—"the Factory Rent").

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6.1.2

In respect of the Warehouses, the Tenant will pay the Landlord for each month the amount in Shekels equal to the sum of $2,800 (two thousand eight hundred Dollars) (hereinafter—"the Warehouse Rent").



6.1.3

The Kibbutz will, in addition, during the term of this Agreement (and for a period not exceeding 10 (ten) years), provide for the use of the Tenant at the rent set out in Appendix 'C' additional buildings having an area of approximately 1,272 square meters (delineated in orange on the plan attached as Appendix 'B' to this Agreement) (hereinafter—"the Additional Buildings") including additional buildings and/or installations as the Tenant will, if at all, build, subject to the provisions of this Agreement and subject also to the provisions prescribed in Appendix 'C' (hereinafter—"the New Construction").

(The Factory Rent, Warehouse Rent, rent in respect of the Additional Buildings and rent in respect of the New Construction will be (hereinafter collectively called—"the Rent").

6.2

To all the sums (including interest) mentioned in section 6 (including the sub-sections thereof) Value Added Tax will be added in accordance with the statutory rate thereof on the date of actual payment of the Rent.



6.3

Each payment of Rent will be paid against a lawful tax invoice being provided.



6.4

For the removal of any doubt it is clarified that the Rent prescribed in sections 6.1.1—6.1.3 above is absolute and final and will not be affected by discounts and/or concessions in respect of consideration that the Tenant may provide to its customers and/or on account of the Tenant's lost or doubtful debts, and the foregoing shall not operate to reduce and/or vary the Rent and/or the payment dates prescribed in this Agreement unless otherwise agreed between the Tenant and the Landlord.



6.5

Procedure for paying the Rent and the Accounting in respect of making up Payments

The procedure for paying the Rent, as prescribed in sections 6.1 - 6.3 above will be as follows:

6.5.1

To facilitate collection, the Tenant will deposit with the Landlord on the date of signature of this Agreement and at the beginning of each year of the tenancy, 12 post-dated checks for the 15^th of each month, each of which being in the Shekel sum equivalent to                        according to the representative rate of exchange of the Dollar on the date of the signature of this Agreement, with the addition of Value Added Tax in accordance with the law.



6.5.2

The Tenant will additionally pay to the Landlord exchange rate differentials, if due, in respect of each post-dated check that has fallen due, in accordance with the representative rate of exchange of the Dollar on the date of actual payment, not being later than 7 (seven) business days after the date on which a written demand for payment of such exchange rate differentials will have been received.



6.5.3

The Landlord agrees that so long as the Tenant (as defined above) will be the party leasing the Premises mentioned, the Tenant will not be required to perform the terms contained in sections 6.5.1, 6.5.2 and 6.5.5 contained herein during the currency of the Tenancy Term, and the Rent will be paid to the Landlord monthly in advance, by not later than the 15^th of each month in which it is payable, to the Landlord's account in the United Mizrachi Bank Branch No. 424 to account number 101761 or in such other manner as will be notified by the Landlord to the Tenant from time to time. Save that if the Premises or any part thereof will be sub-leased by the Tenant, as defined in section 5.4 above and/or the Tenant's rights in any of the bodies corporate (which constitute a party to this Agreement) will be assigned and/or transferred and/or sold to

4

third parties, the Tenant will strictly perform the provisions of sections 6.5.1, 6.5.2 and 6.5.5 herein, as a condition for the Landlord's consent to the sub-tenancy and/or all for the purpose of that stated in section 13 hereof.

6.5.4

Once every half-year (at the end of every six months), an accounting will be made between the parties and the Tenant will make up to the Landlord the shortfall amounts to the extent such exist or the Landlord will repay to the Tenant overpaid amounts, to the extent such have been paid.



6.5.5

A delay exceeding 7 days in paying the Rent will incur linkage differentials to the CPI with the addition of interest according to the interest for unauthorised drawings customary in Bank Hapoalim BM for overdraft accounts as from the date prescribed for payment until the date of actual payment.



6.6

In the event of the Tenant being desirous of acquiring from the Tenant [sic] additional services and the Landlord being desirous of supplying the same to the Tenant, and the Landlord being able to supply such services, the parties will draw up an agreement accordingly.

7.

Declarations and Covenants of the Tenant

7.1

The Tenant declares that it has the ability and has available the financing and resources to perform all its obligations under this Agreement.

7.2

The Tenant undertakes to fulfil and abide by all statutory provisions, Regulations, Orders or By-laws relating to the Premises or the possession or use thereof in accordance with the Tenancy Purpose.

7.3

The Tenant declares that it is familiar with the Premises, has examined and double, checked the Premises and found them to be in their present condition, suitable for its needs for the Tenancy Purpose, and hereby waives any claim of defect and/or fault in connection therewith.

7.4

To the extent the matter pertains to the Tenant's ongoing maintenance and/or activity, the Tenant undertakes to maintain the Premises in the customary and reasonable manner, perform and fulfil all statutory provisions and obligatory Regulations applicable now or hereafter, from time to time, to the Factory and/or the activity therein carried on, including maintaining suitable conditions of maintenance, cleaning and safety, in compliance with the demands of the competent authorities.

7.5

The Tenant undertakes to keep the Premises in good, proper and safe condition and not to effect any act or deed which could endanger and/or harm and/or damage the same.

7.6

The Tenant undertakes to keep the Premises and the surroundings thereof clean.

7.7

Damages that will be caused to the Premises and which fall within the responsibility of the Tenant will be fixed by the Tenant as soon as possible after they have been caused or come about. Damages that will be caused to the Premises and falling within the responsibility of the Landlord will be fixed by the Landlord promptly after receiving notice and/or a demand for that purpose.

7.8

The Landlord and/or its representatives will have the right to enter upon the Premises at any reasonable time by prior arrangement, and examine the performance of the provisions of this Agreement and the Tenant undertakes to allow the Landlord's representatives entry to the Premises for the purpose of the foregoing.

7.9

The Tenant hereby expressly declares, as a fundamental and basic condition of this Agreement, that it has not paid nor undertaken to pay nor will it purport to pay any key money in any form whatsoever in connection with the Premises and/or the tenancy

5

relationship under this Agreement, and the Tenant in no way, event or situation will be regarded as a protected tenant in accordance with the provisions of the Tenants Protection Law (Consolidated Version) 5732-1972, and will not be entitled to claim, in any event or situation that this law and any other law that will be added to or replace the same or be substituted therefor will apply to this Agreement and/or the Tenant and/or the Premises.

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8.

Alterations and Additions to the Premises and New Construction

8.1

The Tenant will not make any external alteration and/or do any works at the Premises (other than within the Premises) (hereinafter—"Refurbishing Works") without requesting and receiving the Landlord's consent thereto. If such consent in writing is given by the Landlord, the Tenant may carry out the Refurbishing Works independently and at its own expense in accordance with but subject to the Landlord's consent and according to any law.

8.2

The Tenant will, from the date the Refurbishing Works commence at the Premises as mentioned in this section, ensure that the works will be carried out by it or on its behalf in a manner as will not harm or create any disturbance to the regular activity in the environment of the Premises.

8.3

All repairs and/or alterations and/or additions relating to or permanently obtained with the Premises that have been carried out by the Tenant with the Landlord's consent will, upon the termination of the Tenancy Term, pass to and into the ownership of the Landlord without the Tenant being able to demand or receive any compensation or payment for them unless otherwise agreed by and between the parties.

8.4

Notwithstanding the foregoing, the Tenant may dismantle and take possession of the investments which are suitable for its own needs provided this does not harm the Premises.

8.5

For the avoidance of any doubt it is hereby declared and agreed that nothing in the foregoing shall confer upon the Tenant any right whatsoever, including any right pursuant to the Tenants Protection Laws.

8.6

Should the Tenant effect at the Premises alterations and/or refurbishing that will require a building permit to be obtained, the Landlord will be responsible for obtaining all the necessary licences and permits, at the Tenant's expense, and the Landlord and/or the Tenant, as appropriate, will sign all the necessary documentation, applications and maps to the extent required. The Tenant will reimburse the Landlord for all costs incurred by the Landlord for which the Tenant is liable as stated in this sub-section (for the removal of any doubt it is clarified that the Landlord's costs do not include its direct costs which arise by the intrinsic filing of the application, such as costs in respect of the time invested by the Landlord in filing the application, travelling costs and the like).

8.7

The Tenant undertakes to compensate and indemnify the Landlord in respect of all and any damage and/or claim and/or payment that it will be compelled to pay under judgment as a result of any problem or defect and/or non-compliance with building permits according to section 8.6 above, provided the Landlord notifies the Tenant in writing of the existence of such claim of demand or damage in respect of which the Tenant owes indemnity under this section, within a reasonable time of becoming apprised of the filing of such claim or demand and has enabled it to enter a defence against them.

8.8

Everything stated above will, mutatis mutandis, similarly apply to New Construction, to the extent the Tenant decides to effect the same.

9.

Payments and Taxes

9.1

The Tenant undertakes to bear, from the commencement of the Tenancy Term and for the entire duration thereof, all payments, taxes, and other compulsory payments applicable to the party occupying the land, including municipal taxes, electricity, water, telephone, gas, signage fees, guarding, sewerage fees and any other payment applicable to the Premises.

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9.2

The payment, with the addition of VAT in respect thereof, for the use of electricity, water and gas will be made in accordance with a reading taken from the meters installed at the Premises.



9.3

The Tenant undertakes to pay all the foregoing payments on their due date according to law or upon the date prescribed by the party demanding payment.



9.4

The Tenant will not be bound to pay any tax, levy, or compulsory payment applicable to the owner of land or which apply by law or custom to the Landlord.



9.5

The Landlord will bear all payments, levies, fees and/or taxes that will be imposed on property owners.

10.

Licensing and Permits

10.1

The Landlord will be liable for submitting the application to receive any licence or permit required by law for the performance of this Agreement and/or the activity thereunder, whereas the Tenant undertakes to comply with all the conditions required under such licence or permit and will further bear all costs involved therein except for the Landlord's direct costs involved in the submitting the application (time, travelling expenses). For the removal of any doubt it is clarified that the Landlord's duty as mentioned will only apply to the submission of applications relating to a license or permit involving construction and/or extensions or improvements of the Factory buildings. The submission of licenses and/or permits relating to the Tenant's commercial or industrial activity will be borne solely by and be at the Tenant's full responsibility.

10.2

The Landlord undertakes to sign all documents and/or applications required for any permit or license for performing this Agreement and/or activity for which the Landlord's consent is required, and will not unreasonably withhold his consent therefor.

10.3

The Tenant undertakes to do everything required by law in order to ensure that all the licenses and permits required for performing this Agreement or the activity thereunder (if any) will remain in force for the entire duration of the term of this Agreement.

11.

Liability

11.1

The Tenant will be liable fro (while the Landlord will be exempt from), any duty in respect of any loss, damage or harm to person or property of any kind whatsoever caused to the Landlord or persons on its behalf or to the Tenant and/or its customers and/or persons on its behalf and/or to any third party in all matters relating to or deriving from the Tenant's activity at the Premises.

11.2

The Tenant will be liable for, (while the Landlord will be exempt from), any duty in respect of damage or spoilage or malfunction that will be caused at the Premises of any kind whatsoever that will be caused in respect of any acts or omissions of the Tenant or its customers or employees or persons representing it in any matter relating to and deriving from the Tenant's activity at the Premises, fair wear and tear excepted as caused by natural causes.

11.3

All current expenses involved in repairing any damage, spoilage or malfunction at the Premises will be expended at the responsibility and expense of the Tenant.

11.4

The Tenant undertakes to fully indemnify the Landlord within 30 days of receiving its demand to do so for any such damage or spoilage to the extent of the payments or expenses which the Landlord will bear or become liable for in respect of such damage or spoilage.

11.5

The Tenant will fully indemnify the Landlord within 30 days of receiving its demand for any damage or spoilage or loss or harm that has been caused to any third party and which the

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Landlord has laid out to the extent of the amount of the payments or expenses that the Landlord will bear or become liable to pay in respect of such damage or spoilage, all without derogating from the Landlord's rights under this Agreement and/or under any law for any other relief or remedy provided that a statement of claim has been filed against the Landlord and a copy thereof has been forwarded to the Tenant and the latter enabled to enter a defence against the claims alleged therein in court.

11.6

The Landlord will not pay nor compromise in respect of any damage that has been caused and which is the responsibility of the Tenant as mentioned above without giving notice thereof to the Tenant and affording it an opportunity to defend the claims for damages within a reasonable time.



11.7

The liability for repairing all damages at the Premises, including the costs involved in improving direct infrastructures in the yards of the Premises or the Warehouses or the New Construction and/or resulting from the use of the Premises, will fall on the Tenant.



11.8

The responsibility of repairing damages in buildings which do not fall within the responsibility of the Tenant as provided in section 7.5 above will be borne by the Landlord provided that the damages result from reasonable use of the buildings.



11.9

The Tenant will be entitled (but not obliged) to effect any repair or replacement for which the Landlord is liable under this Agreement but has not performed, this being at the Landlord's expense provided that written notice of the necessity of making the repair will have been given to the Landlord 7 (seven) days in advance.

12.

Insurance

12.1

The Landlord will insure the buildings comprising the Premises at its own expense.

12.2

The Tenant undertakes to effect and maintain at its own expense and for the entire duration of the term of this Agreement, the following insurances:

12.2.1

Insurance of the insured property at its full reinstatement value against loss or damage resulting from fire, smoke, lightning, explosion, earthquake, storm, tempest, flood, damages caused by liquids, vehicle or aircraft damage or injury, burglary, robbery, strikes, disturbances, malicious damage.

The term "insured property" means the cleaning system, fixtures and fittings that have been added to the Premises by the Tenant and which are permanently affixed thereto, including installation equipment, accessories, improvements and investments in inventory of merchandise and contents of any other kind whatsoever that have been moved into the Premises by the Tenant.

12.2.2

Consequential loss insurance and loss of income to the Tenant following damage to the Premises by the risks enumerated in section 11.2.1 above.

The Tenant's compulsory legal insurance towards third parties relating to or resulting from the activity at the Premises or the Tenant's occupation of the Premises within the liability limits of not less than $1,000,000 per event and for the period. The policy will be extended to include the Landlord in respect of its liability for the Tenant's acts and/or omissions.

This insurance will not include any reservation or exception (if such exists) relating to a claim under the National Insurance Law, nor any exception or provision which causes the lapse of or limits any cover for damage caused in consequence of lifting devices, loading and unloading, fire excavations, steam, explosion, flood, toxic or harmful materials in food or drink, defective sanitary devices, contractors and sub-contractors.

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12.2.3

Employers' liability insurance in respect of all the workers employed by the Tenant, including sub-contractors with liability limits of not less than $5,000,000 per claimant, event and for the period. The policy will be extended to indemnity the Landlord in the event of its being deemed to be an employer of the Tenant's employees.

12.3

The insurance policies will include the following clauses:



12.3.1

The Landlord will be included as an additional assured under a third party policy.



12.3.2

Third party liability insurances will include a cross-liability clause.



12.3.3

All policies will include a waiver clause of subrogation claims of the insurer against the Landlord, its members, directors, employees provided that such waiver of subrogation will not apply for the benefit of any party who has caused damage with malicious intent.



12.3.4

An express condition whereby the above insurances will not be limited or cancelled for the entire duration of this Agreement unless at least 30 (thirty) days' prior notice is given to the Landlord to that effect by registered mail before the requested date of cancellation.



12.3.5

A condition that the insurances according to this section 11 [sic]take priority as against any insurance made by the Landlord, and the insurer waives any demand or claim concerning the sharing of the Landlord's insurances.



12.4

Without derogating from the generality of the foregoing, the Tenant undertakes to produce to the Landlord within 30 (thirty) days of the date of signing this Agreement, a certificate of the existence of the above insurances. The Tenant undertakes to produce the insured policies to the Landlord for approval prior to signing the same. It is clarified that nothing contained in this section shall operate to impose any liability whatsoever on the Landlord which falls within the responsibility of the Tenant as expressly stated in this Agreement.



12.5

The Tenant undertakes to punctually pay the insurance premiums. Any insurance premiums not punctually paid by the Tenant may be paid by the Landlord at its sole determination, after 7 (seven) days' notice being given to pay the unpaid amount and the Tenant will be bound to repay the amounts so paid with the addition of interest at the unauthorized drawing rate on overdraft accounts customary in Bank Hapoalim with the addition of all costs incurred by reason thereof.



12.6

The partners agree that in the event of an insurance event occurring in respect of which any insurance monies are paid out, such monies will be transferred to the Landlord who will allocate the same for the benefit of restoring the damage, provided that the insurance monies actually received will be sufficient to perform such restoration works.

To the extent the insurance money received will be insufficient to cover the damage restoration costs, the Landlord will be entitled, at its sole determination, to decide whether to restore the damage or not and the Tenant will have no claim or demand against the Landlord in this connection unless the Tenant notifies the Landlord in writing within 7 (seven) days of being apprised that the insurance monies received are insufficient to cover the costs of the damage, of its wish to make up such damage restoration costs.

13.

Assignment of the Agreement

13.1

Subject as provided in section 5.4 above, the Tenant undertakes not, without receiving the prior written consent of the Landlord, to transfer, dispose of, sell or charge or assign its rights under this Agreement in whole or in part to any person or body nor suffer any other party to use the same.

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13.2

Section 13.1 above will not apply to a transfer, disposal, sale, charge or assignment of rights under this Agreement to a body corporate controlled by the Tenant provided that the Tenant's rights in the transferee body corporate will be not less than 75% of the capital and control and the Tenant will continue to be liable for its undertakings under this Agreement.



13.3

The Landlord will be entitled to transfer its rights in the Premises to any other party or parties subject to the Tenant's rights hereunder not being prejudiced and the Landlord will remain jointly and severally liable with the transferee for the performance of its undertakings under this Agreement.

14.

Work at the Premises and Prevention of Nuisance

14.1

The Tenant will be entitled to execute any work or use or action at the Premises pursuant to the Tenancy Purpose in accordance with the provisions of any law.

14.2

The Tenant undertakes to operate the Premises without causing nuisances and subject to the statutory provisions dealing with nuisances, including those relating to the environment. The Tenant will reasonably act to find suitable solutions in order to reduce any nuisance to the satisfaction of the Landlord, having regard to the Tenancy Purpose.

14.3

The Tenant undertakes to remove all waste (if any) from its activity at the Premises, at its own expense.

14.4

To the extent that any fine or other sanction will be imposed on the Landlord by judgment on account of any nuisance under this Agreement, the Tenant will indemnify the Landlord for any payment which it is compelled to pay provided the Landlord has notified the Tenant in writing of the existence of such penalty or sanction in respect of which the Tenant is liable to indemnity under this section, within a reasonable time of its having become aware of the filing of the claim or the demand or the penalty or the section and, to the extent it depends on it, the Tenant has been afforded an opportunity to defend against such claim, demand, penalty or sanction.

15.

Fundamental Breach

Without derogating from the provisions of any law and the terms of this Agreement it is agreed that the parties' undertakings contained in sections 4.3; 5; 6; 7; 8; 9; 10; 11; 12; 13; and 14 are fundamental undertakings the breach of which by any of the parties will be a fundamental breach, provided the party claiming such fundamental breach has notified the other in writing of the breach and it has not been cured within five business days of the date on which it was informed of the breach (hereinafter—"Fundamental Breach").

16.

Termination or Rescission of the Tenancy Term

16.1

The Tenant undertakes, at the expiration of the Tenancy Term, as appropriate, or upon the termination of this Agreement for any reason, to quit the Premises and surrender the same in clean, vacant, good and usable condition except for reasonable wear by reason of regular use.

16.2

The Premises will be delivered up to the Landlord including all alterations, refurbishing, addition, repair, and installation permanently affixed to the Premises including also those added or installed by the Tenant at its own expense unless the Landlord has demanded the removal of such addition / installation, and the Tenant will have no claim or demand against the Landlord to receive any consideration or compensation in respect thereof. Notwithstanding that stated, it is agreed that the Tenant will be entitled to dismantle and remove from the Premises fixtures belonging to the Tenant provided it restores the Premises to the condition in which it was as of the date of the commencement of the tenancy.

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The Tenant hereby declares that if it fails to independently quit the Premises on the date mentioned above, the Landlord will be entitled to evict any person and remove any thing belonging to the Tenant from the Premises, all at the Landlord's sole determination, the costs of such eviction and removal to fall on the Tenant.

17.

Dispute Resolution

17.1

All disputes and differences between the parties pertaining to this Agreement, including the validity, interpretation, performance and breach thereof will be resolved by the parties themselves, and all determinations and conclusions that will be agreed on with the CEO of the Company and the Kibbutz Housekeeping Coordinator will be binding upon the parties.

17.2

All disputes and differences between the parties pertaining to this Agreement that remain unresolved as mentioned above and/or through their attorneys will be submitted for clarification to a mediator that will be selected by the parties who will act to settle the dispute quickly and positively. The mediation procedures will not commence if any party has notified that it does not desire them and will be immediately terminated on the date on which such party gives notice to that effect, any party being entitled to give such a notice for any reason whatsoever and even without providing any reasons.

17.3

The dispute will be referred to the determination of an arbitrator if the differences between the parties have not been resolved by consent or in accordance with section 17.2 above.

17.4

The arbitrator will be appointed with the agreement of the parties. Absence of agreement by the parties regarding the arbitrator's identity within 14 days of the demand for such appointment first being requested by either of the parties will lead to the arbitrator being appointed by Advocate Ossnat Naveh, by application of either of the parties.

17.5

The arbitrator will not be bound by procedure and rules of evidence but will be subject to substantive law and be empowered to issue temporary awards and be bound to provide reasons for his award. The arbitrator will give his reasoned decision in writing after hearing the parties, and to the extent possible within 60 days of the matter being referred to him.

17.6

The provisions of this section will be deemed to be an arbitration agreement between the parties according to the Arbitration Law, 5728-1968.

18.

Miscellaneous

18.1

This Agreement and the Appendices thereto expressly provide for and encompass all the conditions, undertakings and provisions applicable to the engagement between the parties. This Agreement supersedes all and any undertaking, agreement, declaration and understanding (if made) between the parties to this Agreement in writing or verbally, prior to the signature thereof.

18.2

No modification to the provisions of this Agreement will be of any effect nor binding unless made in writing and signed by all the parties.

18.3

Any concession, time or waiver granted by one party to the other or other forbearance in connection with any breach of this Agreement will not constitute any waiver of the rights of the party injured by such breach or waiver of the undertakings of the infringing party or consent to any further breach of this Agreement, and will be in effect for the specific instance and time only and create no estoppel in the future.

18.4

All notices under this Agreement given by hand or by fax or by registered mail sent within Israel according to the parties' addresses as set out at the beginning of this Agreement or to such other address as will be notified in accordance with this section will be deemed to have been received on the date of delivery thereof by an authorized representative of such party or

11

24 hours after the date of the transmission by fax provided that a telephonic acknowledgement of receipt of the fax has been received from the recipient or 72 hours from the date the letter is sent by registered mail.

In witness whereof the parties have set their hands:

Kibbutz Eyal

Eyal Hasharon Farmers

Eyal Optical Industries (1995) Ltd.

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Appendix 'C'

Rent in Respect of Additional and New Buildings

1.

The Rent in respect of the office building and the approach leading thereto, aggregating 263 square meters, will be paid commencing 11 years after the end of the construction of the building, namely 1 January 2011.

2.

The Rent in respect of extending the building north-west and south, aggregating 302 square meters, will be paid commencing 10 years after the end of the construction of the building, namely 1 July 2008.

3.

The Rent in respect of the two storey building, aggregating 707 square meters will be paid commencing from 10 years after the end of the construction of the building, namely 1 December 2012.

New Construction, if any, after the date of the commencement of the Agreement will be carried out and paid for by the Tenant. The Rent in respect of New Construction will be paid commencing from 10 years after the end of construction.

Kibbutz Eyal

Eyal Hasharon Farmers

Eyal Optical Industries (1995) Ltd.

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QuickLinks

TENANCY AGREEMENT
In witness whereof the parties have set their hands
Rent in Respect of Additional and New Buildings

EX-10.2

Exhibit 10.2

TRANSLATION FOR CONVENIENCE ONLY

Labor Services Supply Agreement
Made and executed in Kibbutz Shamir on this 9th day of February 2005

BETWEEN:	Kibbutz Shamir Co-operative Society Registered Society no. 57-000272-5 Mobile Post Upper Galilee 12135 (hereinafter: "the Kibbutz")
	of the one part
AND:	Shamir Optic Development and Industry—Agricultural Co-operative Society Ltd. Agricultural Co-operative Society no. 57-003541-0 or such limited company as will derive from the Agricultural Co-operative Society Of Kibbutz Shamir, Mobile Post Upper Galilee 12135 (hereinafter: "the Company")
	of the other part
WHEREAS	On the date of execution of this Agreement the Company is incorporated as an agricultural co-operative society limited; and
WHEREAS	It is the Company's intention to vary, on or about the Operative Date (as hereinafter defined) its corporate configuration in accordance with section 345 of the Companies Law, 5759-1999, from an agricultural co-operative society limited to a company limited by shares in a manner whereby all its rights and obligations, including under this Agreement, will belong to and be within the responsibility of such limited company; and
WHEREAS	The Company is proprietor of a factory which develops, manufactures, markets and sells spectacle lenses and moulds for producing plastic spectacle lenses (hereinafter: "the Plant"); and
WHEREAS	The Company receives from the Kibbutz, in addition to salaried employees, labor services through kibbutz members and/or candidates for membership according to an agreement dated January 1, 1999 (hereinafter: "the Existing Agreement"); and
WHEREAS	The Company is desirous of continuing to receive from the Kibbutz labor services for the purpose of operating the Plant according to the terms of this Agreement; and
WHEREAS	The Kibbutz has agreed to make available to the Company for the purpose of operating the Plant, labor services by kibbutz members pursuant to the conditions hereinafter set out;

It is therefore agreed, stipulated and declared between the parties as follows:

1.     Preamble and Interpretation

1.1

The preamble to this Agreement and the Appendices thereto constitute an integral part thereof.



1.2

The section headings in this Agreement are for convenience only and no meaning will be attributed thereto for purposes of interpreting this Agreement.

1.3

Save as otherwise expressly stated, the following expressions used in this Agreement shall bear the meanings set out opposite them:

"the Operative Date"—the date on which the Company will list its shares for trading on NASDAQ.

"the Existing Agreement"—as defined above.

"the Services"—the labor services to be provided by the Kibbutz to the Company through the staff as mentioned below in this Agreement.

"Kibbutz Member/s"—Kibbutz member/s and/or candidate/s for membership in the Kibbutz.

"Staff"—Kibbutz members through whom the Services are currently or will in the future be provided to the Company in accordance with the terms hereof, as hereinafter provided.

"the Base Consideration"—the gross consideration for a full time position to any future Staff.

"Working Hour"—a full hour during which work will be carried out for the Company by a Staff employee.

"Job"—labor services to be supplied by a Staff employee to the extent of 186 working hours per month.

2.     The Services

2.1

The Kibbutz will use its best endeavors to supply to the Company, upon demand, for the entire duration of this Agreement, the Services and fill the Jobs pursuant to the Company's needs and for the Staff in charge of the Kibbutz.



2.2

In the event of the Company being in need of additional labor services, the Kibbutz will be afforded the first opportunity to offer employees to the Company from among the Kibbutz members and the Company will have the sole discretion to accept the Kibbutz's offer provides it will not unreasonably refuse to accept the Services through such additional employees from among the Kibbutz Members.



2.3

Subject as provided in section 2.1 above, the Company will be entitled to determine, at its sole discretion, the number and type of the Jobs to be supplied to it by the Kibbutz, the number of working hours to be supplied to it by each of the Staff employees, and the Base Consideration of each of them who (a) will start performing the services following the signature of this Agreement; or (b) whose services to be supplied to the Company will change after the signature date of this Agreement .



2.4

Any modification to the Base Consideration of the Staff employees will be made with the written consent of both parties hereto.



2.5

The Company will not employ directly nor turn to any of the Staff or Kibbutz Member offering to employ him/her otherwise than through the Kibbutz as provided by this Agreement, except in respect of the positions of managing director and deputy managing director who, as of the Operative Date, will be employed by the Company directly.



2.6

The Kibbutz undertakes to use its best endeavors in order to supply the Services to the Company through Staff having the ability, skill and experience required to carry out the duties for which they will appointed in the Company.



2.7

The Kibbutz undertakes to use its best endeavors to ensure that the Staff through whom the Services will be provided will carry out their positions with devotion, skill and loyalty, in accordance with the instructions of the Company's management and his/her direct superiors.

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2.8

The Company may, at its sole discretion, demand that the Kibbutz replace at any time, a particular Staff employee through whom the Services are provided or refuse to hire for work any Staff employee, on reasonable grounds. In such a case, the Kibbutz undertakes to use its best endeavors to provide in lieu of such Staff employee, a substitute. In the absence of suitable substitute Staff, as solely determined by the Company, the Company will be under not constraint to hire an employee not being a kibbutz member.



2.9

The Company may send, at its own expense, Staff employees for professional or vocational studies or other continuing education relating to the Company's activity.



2.10

For the avoidance of any doubt, notice by the Kibbutz to the Company to the effect that it is unable or does not have the appropriate Staff to fill the Job requested by the Company, will not be regarded as a breach of this Agreement by the Kibbutz.

3.     Consideration

        In consideration for providing the Services, the Company will pay the Kibbutz the following consideration:

3.1

The Company will pay the Kibbutz a monthly payment to be computed as set out in Appendix 'A'.



3.2

Deleted.



3.3

The tariffs in respect of Jobs provided to the Company as set out in Appendix 'A' will be linked to the Consumer Price Index (hereinafter: "the CPI"), the base CPI being that published on the Operative Date. Consideration for future Staff will be updated in a manner whereby the base CPI will be that known on the date on which the future Staff joins the Company.



3.4

The payment mentioned in section 3.1 above plus linkage differentials in respect thereof will be made on the 10^th of each month in respect of the preceding month.



3.5

VAT as required by law will be added to every payment and be paid to the Kibbutz against the provision of a tax invoice to the Company.



3.6

Every payment, tax or levy of any kind whatsoever (except for VAT), applicable to the payments mentioned in this section will apply to and be exclusively paid by, the Kibbutz. Should the Company make any such payment or levy or tax, the Kibbutz will indemnify it in respect of such expense immediately upon the Company's first demand.



3.7

Any payment mentioned in this section which has not been paid on due date will bear arrears interest at the average rate customary for the time being in Bank Hapoalim B.M., Bank Leumi le-Israel B.M., and the First International Bank of Israel Ltd., in respect of payments in arrear as from the maturity date thereof through the date of actual payment.

4.     Bonus

Whenever any bonuses are divided by the Company to the Company employees, the Company will pay the Kibbutz for the Staff employees through whom the Kibbutz supplies the labor services under the Agreement, a cash bonus in a sum to be fixed for each individual employee of the Staff employees according to the same criteria according to which the bonuses to the Company employees are fixed.

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5.     Staff status

5.1

The Kibbutz hereby declares that in supplying the Services to the Company it will do so as an independent contractor.



5.2

The Kibbutz will be solely responsible for performing all obligations which apply (if at all) towards the Staff as employer in connection with the employer-employee relationship.



5.3

Pursuant to the foregoing, the Kibbutz alone will bear all costs and payments originating from, and in the termination of, the employer-employee relationship in respect of the Staff, including any tax attracted by such relationship.

6.     Insurance

6.1

The Company shall be responsible for acquiring an employers' liability insurance policy, at its own expense, to cover all the Staff, under which the beneficiaries will be the Kibbutz and/or the Company, and for keeping such policy in force for the entire duration of this Agreement.



6.2

The Company will furnish the Kibbutz with a copy of the policy mentioned in section 6.1 above, and of any renewal thereof or of the documents pertaining thereto, immediately upon receipt.

7.     Confidentiality, copyright and non-competition

7.1

The Kibbutz undertakes to keep confidential and use its best endeavors to procure that the Staff will keep confidential, all commercial, technical or other information that it receives from the Company or becomes apprised of within the framework of providing the Services to the Company, including, but without limitation, production and development techniques, contracts, software, customer and supplier lists and prices, with the exception of know-how that is in the public domain (hereinafter: "the Know-how"). The Kibbutz further undertakes not to use, and ensure, to the best of its ability, that the staff will not make or use any Know-how otherwise than for purposes of the Company's activity, and prevent the disclosure of the Know-how or any part thereof to any third party except where required for purposes of providing the Services to the Company, subject to the Company's directions in this regard, and/or as will be required of it by any competent authority, pursuant to any statutory provisions.

This section will continue to survive the rescission or other termination of this Agreement for any reason whatsoever.

7.2

All rights relating to technological developments and/or inventions that will be developed by the Staff during the period that the Services are provided by them to the Company and for a period of 12 months commencing from the date of the termination of the provision of the Services by them, in connection with the Company's activity, will be the Company's exclusive property and neither the Kibbutz nor the Staff will have any claim or demand in connection with such rights.



7.3

The Kibbutz will use its best endeavors to ensure the Staff's fulfillment of the provisions of this section, and undertakes to sign, and use its best ability to obtain the Staff employees' signature to any document required for purposes of securing the fulfillment of the provisions of this section, including the documents required for transferring or assigning rights and/or any waiver thereof.

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8.     Term and termination of this Agreement

8.1

This Agreement will endure for a period of 60 (sixty) months commencing from the Operative Date (hereinafter: "the Initial Period") and will automatically be extended for further periods of five years each, unless either party to this Agreement notifies the other, in writing, of its desire not to extend the Agreement at least 180 days prior to the expiration of the Initial Period or any extended period.



8.2

Each party will be entitled to bring this Agreement to an end by written notice to the other party if the other party has committed a fundamental breach of this Agreement and fail to cure the same within 30 days of receiving written notice from the other party of the existence of the fundamental breach.



8.3

For the avoidance of any doubt the undertakings of the Kibbutz mentioned in sections 5.3 and 7 above will survive the termination or other rescission of this Agreement for any reason, and remain in effect and be binding upon the Kibbutz.

9.     Condition precedent

9.1

This Agreement is conditional upon the Company's securities being listed for trading on an American exchange. If, by the 31^st day of December, 2005 such condition precedent will not be fulfilled, this Agreement will be null and void and the parties will have no claim or demand or cavil in relation to the Agreement. For the avoidance of any doubt in the event of a rescission of this Agreement as stated above, the relationship between the parties hereto will be governed by the terms of the Existing Agreement.



9.2

Immediately upon the condition precedent being fulfilled, the Existing Agreement will come to an end and no longer be of any effect and the parties will act in accordance with the present Agreement. Upon this Agreement entering into effect, the parties declare and covenant that they have no mutual claims and demands and waive any claim that may exist.

10.   Arbitration

10.1

Any disputes relating to this Agreement, the application and interpretation thereon will be referred to a mediation process and in the absence of a determination in that process, will be exclusively subject to the determination of a sole arbitrator to be appointed with the consent of the parties, and, in the absence thereof, will be appointed by the Chairman of the Auditors Council.



10.2

The arbitrator will be subject to substantive law and be bound to assign reasons for his decision but will not be subject to the rules of evidence.



10.3

This section constitutes an arbitration agreement within the meaning of the Arbitration Law, 5728-1968.

11.   Whole Agreement, modification and waiver

11.1

This Agreement and all the Appendices hereto exclusively determine and encompass all the conditions and provisions applicable to the engagement between the parties in relation to the provisions therein contained. Commencing from the Operative Date, this Agreement supersedes any agreement, declaration and understanding made (if any) between either of the parties hereto and any other party or parties to this Agreement, verbally or in writing, prior to this Agreement having been signed.

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The parties regard the overall stipulations contained in this Agreement as a single, overall obligation and declare that they have entered into this Agreement with the intention that all the stipulations thereof will be fulfilled as part of a single transaction.

11.2

No variation to the provisions of this Agreement will be valid or have any binding effect unless made in writing and duly signed by all the parties.

No waiver by a party to this Agreement of any of its rights will be of any effect unless made in writing and if valid will only be effective at the time and for the particular matter for which it is made only, and will create no estoppel or forebearance as regards the future.

11.3

Even if this Agreement will be severable as stated in section 19 of the Contracts (General Part) Law, 5733-1973, if any right of rescission arises for any of the parties pertaining to a specific part or parts thereof, it will not be possible to rescind such part only.

12.   Costs

12.1

Each party will bear its own costs in connection with this Agreement.



12.2

Stamp duty, if applicable to this Agreement, will be borne by the Company.

13.   Notices

13.1

Any notice sent by one party to the other will be sent in writing by registered mail according to the addresses appearing in the preamble to this Agreement or be served personally. Notice given by mail will be deemed to have been received within 72 hours of dispatch by registered mail. Notice given personally will be deemed to have been received upon delivery.



13.2

For purposes of this section, Sabbaths and Jewish Festivals will not be taken into account.

In witness whereof the parties have set their hands:

/s/  UZI TZUR Uzi Tzur	/s/  EFRAT COHEN Efrat Cohen	/s/  RAMI BEN-ZEEV Rami Ben-Zeev	/s/  AVRAHAM HADAR Avraham Hadar
Kibbutz Shamir		Shamir Optic Development and Industry—Agricultural Co-operative Society Ltd.

6

EX-10.3

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Exhibit 10.3

TRANSLATION FOR CONVENIENCE ONLY

Service Supply Agreement

Made and executed in Kibbutz Shamir this 9th day of February, 2005

BETWEEN:	Kibbutz Shamir Co-operative Society Registered Society no. 57-000272-5 Mobile Post Upper Galilee 12135 (hereinafter: "the Kibbutz")
	of the one part
AND:	Shamir Optic Development and Industry—Agricultural Co-operative Society Ltd. Agricultural Co-operative Society no. 57-003541-0 or such limited company that will derive from the Agricultural Co-operative Society Of Kibbutz Shamir, Mobile Post Upper Galilee 12135 (hereinafter: "the Company")
	of the other part
WHEREAS	On the date of execution of this Agreement the Company is incorporated as an agricultural co-operative society limited; and
WHEREAS	It is the Company's intention to vary, on or about the Operative Date (as hereinafter defined) its corporate configuration in accordance with section 345 of the Companies Law, 5759-1999, from an agricultural co-operative society limited to a company limited by shares in a manner whereby all its rights and obligations, including under this Agreement, will belong to and be within the responsibility of such limited company; and
WHEREAS	The Company is proprietor of a factory which develops, manufactures, markets and sells spectacle lenses and moulds for producing plastic spectacle lenses (hereinafter: "the Plant"); and
WHEREAS	The Kibbutz supplies to the Company various services that are required for the Plant for its operation according to a service agreement dated January 1, 1999 (hereinafter: "the Existing Service Agreement"); and
WHEREAS	The Company is desirous of continuing to acquire from the Kibbutz and the Kibbutz has agreed to continue providing the Company with, various services as more particularly set out in this Agreement;

It is therefore agreed, stipulated and declared between the parties as follows:

1.

Preamble and Interpretation

1.1

The preamble to this Agreement and the Appendices thereto constitute an integral part thereof.

1.2

The section headings in this Agreement are for convenience only and no meaning will be attributed thereto for purposes of interpreting this Agreement.

1.3

Save as otherwise expressly stated, the following expressions used in this Agreement shall bear the meanings set out opposite them:

"the Service Fees"—as defined in section 3.1 hereof.
"the Plant"—as defined above.
"the Existing Service Agreement"—as defined above.

"the Services"—the services set out in Appendix A hereto.
"the Operative Date"—the date on which the Company will list its shares for trading on NASDAQ.

2.

Supply of the Services

2.1

The Kibbutz will supply to the Company and the Company will acquire from the Kibbutz the Services pursuant to the terms hereinafter set forth and in the Appendices thereto.

2.2

The Kibbutz undertakes to provide the Services skillfully and at the customary level, use suitable materials, equipment and staff and operate in accordance with the provisions of law in relation to providing the Services.

2.3

The Kibbutz will provide the Services in accordance with the Company's reasonable instructions and demands.

2.4

The Kibbutz will be entitled to provide the Services through Kibbutz members, salaried employees or sub-contractors, at its discretion, on condition the Kibbutz will be exclusively responsible towards the Company for the quality of the Services and for all the obligations deriving from the employment of the staff through which the Services will be supplied.

2.5

The Kibbutz hereby declares that the Services will be supplied to the Company by it or by persons on its behalf, as an independent contractor and it is agreed by the parties that the Kibbutz will bear all payments and costs that will apply, if at all, originating from an employer-employee relationship or the termination thereof in respect of the kibbutz members, the employees and sub-contractors and any other party through whom the Services will be supplied.

2.6

The Kibbutz will not raise any claim of the existence of an employer-employee relationship between the Company and any person on its behalf through whom the Services will be supplied and hereby undertakes to indemnify the Company in respect of any loss, damage, liability or expense, including legal costs, that will be incurred by the Company in respect of any claim of the existence of such employer-employee relationship, regardless of whether such claim will have been raised by the Kibbutz or by any third party.

3.

Consideration

3.1

In consideration of the Services, the Company will pay the Kibbutz a monthly sum equal to NIS. 92,000 (hereinafter: "the Service Fees"). The Service Fees will be linked to the Consumer Price Index that will be known on the Operative Date.

3.2

The Service Fees will be adjusted as follows:

3.2.1

At the end of each five year period commencing from the Operative Date, the Service Fees will be examined and adjusted on the basis of the overall cost of the Services effectively provided in the year preceding the update.

3.2.2

In the event of the overall cost to the Kibbutz in respect of the Services in any year during the term of this Agreement having increased or reduced by 30% or more compared with the Service Fees paid to the Kibbutz in respect of the preceding calendar year, disregarding non-recurring factors which are not in the ordinary course of business, the Service Fees will be adjusted for the period commencing at the expiration of the calendar year in respect of which the check was made, at a rate identical to that of such increase or reduction.

3.2.3

Payments in respect of food services will be adjusted on a current basis pursuant to the number of employees effectively enjoying such service.

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3.3

The Service Fees will be paid on the 10^th of each month in respect of the preceding month.



3.4

VAT as required by law will be added to all the payments mentioned in sections 3.1 and 3.2 above and such payments will be paid against a tax invoice that will be submitted to the Company by the Kibbutz.



3.5

Every payment mentioned in this section which has not been paid on due date will bear arrears interest at the average rate customary for the time being in Bank Hapoalim B.M., Bank Leumi le-Israel B.M., and the First International Bank of Israel Ltd., in respect of payments in arrear as from the maturity date thereof through the date of actual payment.

4.

Additional services

4.1

To the extent the Company will be desirous of acquiring additional services, in addition to the Services (as defined above) (hereinafter: "the Additional Services"), the Kibbutz will be granted a first right of refusal to supply such services.

4.2

Nothing contained in this section shall operate to derogate from any provision by law which applies now or hereafter to any transaction between the Company and the Kibbutz.

4.3

The provisions contained in sections 3.3 - 3.5 above will, mutatis mutandis, similarly apply to payment in respect of Additional Services as provided in this section.

4.4

The payment in respect of the Additional Services will be added to the Service Fees mentioned in section 3.1 above to which the provisions of sections 3.3 to 3.5 will, mutatis mutandis, apply.

5.

Hot and cold water

5.1

Hot and cold water will be supplied by the Kibbutz on the conditions and for the consideration mentioned in Appendix 5.1 (hereinafter: "the Water Price").

5.2

Payment in respect of the Water Price will be added to the Service Fees mentioned in section 3.1 above to which the provisions of sections 3.3 - 3.5 will, mutatis mutandis, apply.

6.

Term and termination of this Agreement

6.1

This Agreement will endure for a period of 60 (sixty) months commencing from the Operative Date (hereinafter: "the Initial Period") and will automatically be extended for further periods of five years each, unless either party to this Agreement notifies the other, in writing, of its desire not to extend the Agreement at least 12 (twelve) months prior to the expiration of the Initial Period or any extended period.

6.2

Each party will be entitled to bring this Agreement to an end by written notice to the other party if the other party has committed a fundamental breach of this Agreement and failed to cure the same within 30 days of receiving written notice from the other party of the existence of the fundamental breach.

7.

Condition precedent

7.1

This Agreement is conditional upon the Company's securities being listed for trading on an American exchange. If, by the 31st day of December 2005 such condition precedent will not have been fulfilled, this Agreement will be null and void and the parties will have no claim or demand or cavil in relation to the Agreement. For the avoidance of any doubt in the event of a rescission of this Agreement as stated above, the relationship between the parties hereto will be governed by the terms of the Agreement dated January 1, 1999.

7.2

Immediately upon the condition precedent being fulfilled, the existing Service Agreement dated January 1, 1999 will come to an end and no longer be of any effect and the parties will

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act in accordance with the present Agreement. Upon this Agreement entering into effect, the parties declare and covenant that they have no mutual claims and demands and waive any claim that may exist.

8.

Arbitration

8.1

Any disputes relating to this Agreement, the application and interpretation thereon will be referred to a mediation process and in the absence of a determination in that process, will be exclusively subject to the determination of a sole arbitrator to be appointed with the consent of the parties, and, in the absence thereof, to be appointed by the Chairman of the Auditors Council.

8.2

The arbitrator will be subject to substantive law and be bound to assign reasons for his decision but will not be subject to the rules of evidence.

8.3

This section constitutes an arbitration agreement within the meaning of the Arbitration Law, 5728-1968.

9.

Whole Agreement, modification and waiver

9.1

This Agreement and all the Appendices hereto exclusively determine and encompass all the conditions and provisions applicable to the engagement between the parties in relation to the provisions therein contained. Commencing from the Operative Date, this Agreement supersedes any agreement, declaration and understanding made (if any) between either of the parties hereto and any other party or parties to this Agreement, verbally or in writing, prior to this Agreement having been signed.

9.2

The parties regard the overall stipulations contained in this Agreement as a single, overall obligation and declare that they have entered into this Agreement with the intention that all the stipulations thereof will be fulfilled as part of a single transaction.

9.3

No variation to the provisions of this Agreement will be valid or have any binding effect unless made in writing and duly signed by all the parties.

No waiver by a party to this Agreement of any of its rights will be of any effect unless made in writing and if valid will be effective at the time and for the particular matter for which it is made only, and will only create no estoppel or forebearance as regards the future.

9.4

Even if this Agreement will be severable as stated in section 19 of the Contracts (General Part) Law, 5733-1973, if any right of rescission arises in favour of either of the parties pertaining to a specific part or parts thereof, it will not be possible to rescind such part only.

10.

Costs

10.1

Each party will bear its own costs in connection with this Agreement.

10.2

Stamp duty, if applicable, to this Agreement, will be borne by the Company.

11.

Notices

11.1

Any notice sent by one party to the other will be sent in writing by registered mail according to the addresses appearing in the preamble to this Agreement or be served personally. Notice given by mail will be deemed to have been received within 72 hours of dispatch by registered mail. Notice given personally will be deemed to have been received upon delivery.

11.2

For purposes of this section, Sabbaths and Jewish Festivals will not be taken into account.

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In witness whereof the parties have set their hands:

/s/  UZI TZUR Uzi Tzur	/s/  EFRAT COHEN Efrat Cohen	/s/  RAMI BEN-ZEEV Rami Ben-Zeev	/s/  AVRAHAM HADAR Avraham Hadar
Kibbutz Shamir		Shamir Optic Development and Industry—Agricultural Co-operative Society Ltd.

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Appendix 'A'
Services to be supplied by the Kibbutz

1.	Food services;
2.	Laundry services;
3.	Exchange and communication services;
4.	Decoration, garbage and maintenance services;
5.	Local authority and municipal taxes;
6.	Use of the Internet;
7.	Use of infrastructures and maintaining common infrastructures outside the Plant's premises;

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Appendix 5.1
(Hot and Cold Water)

        Shamir will supply water to the Company to the standard of drinking water at a price of NIS 0.85 plus VAT per cubic meter.

        The above price is exclusive of the production price payable to the Water Commissioner by Law, such price to be borne by the Company according to the amount actually used.

        Hot water will be supplied at the price of NIS 8.5 plus VAT per cubic meter.

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QuickLinks

Service Supply Agreement
In witness whereof the parties have set their hands
Appendix 'A' Services to be supplied by the Kibbutz
Appendix 5.1 (Hot and Cold Water)

EX-10.4

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Exhibit 10.4

TRANSLATION FOR CONVINIENCE

Kibbutz Shamir

Lease Contract for a Kibbutz

Ministry of Justice
Registration and Land Settlement Department

In                        

Application no. Deed no.                                    

Lease Contract for a Kibbutz

Made in Upper Nazareth on 27 December, 1990

On 14^th Teveth, 5751

Between:

Israel Lands Administration by virtue of its authority as the party administering Israel lands (hereinafter: "the Administration")

Of the one part

And:

Kibbutz Shamir
(hereinafter: "the Kibbutz")

STAMP
True copy of the original
4.2.1996
Signed (illegible) Of the other part

A true and proper copy of the original
Advocate
Date: 4 February, 1996
Signature (signed)

TRANSLATION FOR CONVINIENCE

WHEREAS	The Kibbutz is a collective settlement which is a separate settlement maintaining a cooperative company of its members, organized on the foundations of common ownership of property, self-labors and equality and partnership in all productive, consumption and educational areas, that has been classified by the Registrar of Cooperative Societies as a Kibbutz, and whose articles contain a provision whereby the society does not distribute its profits and its property in any form whatsoever; and
WHEREAS	For the purpose of implementing the foregoing objectives, the Kibbutz has applied to lease the land described in this Contract on which it resides; and
WHEREAS	The above land is part of Israel lands, within the meaning of Basic Law: Israel Lands, and is administered by virtue of statutory provisions by the Administration, and the Administration agrees to lease the same to the Kibbutz for the purposes set out in this Contract; and
WHEREAS	according to the terms of the Treaty between the State of Israel and the Jewish National Fund (hereinafter: "the Fund"), which was published in Government Publications no. 1456 dated 11 Sivan 5725 [1965] on page 1897, administration of the land owned by the Fund, including the leasing thereof and the grant or refusal to grant consent to transfer the leasehold rights therein is to be effected by the Administration, subject to the Memorandum and Articles of Association of the Fund, and the Kibbutz hereby declares that it is aware that solely on the basis of this fundamental condition precedent is the Administration prepared to enter into this Lease Contract with it;

The parties have therefore agreed as follows:

        Preamble to this Contract constitutes an Integral Part Thereof.

Definitions.

1.

In this Contract:

(a)

"Premises"—means the land of the size and as detailed in Schedule no. 1 hereto including everything constructed and planted now or hereafter thereon, including anything permanently affixed to the land.

(b)

"Israel Lands Administration"—within the meaning of the Israel Lands Administration Law, 5720-1960, including any body in substitution therefor by virtue of any law and including the Director of the Israel Lands Administration or any person in his stead or authorised by him.

(c)

"Israel Lands Council"—within the meaning of the Israel Lands Administration Law, including any body in substitution therefor by virtue of any law (hereinafter—"the Council").

(d)

"Agricultural Settlement"—means land used or designed to be used by the Kibbutz and its members to produce agricultural produce and/or raise animals and fish for their sustenance, or for landscaping and specific purposes and/or for purposes of residential buildings and/or for the Kibbutz's public purposes and/or for purposes of an agricultural settlement, service or workshops, including buildings for purposes of youth clubs, Hebrew study and the like—all with the exception of a "Factory."

(e)

"Factory"— (1) Use of an area of land being part of the Premises which is used or designed to be used for industry, health and leisure buildings, camping grounds, fuel stations and commercial swimming pools or for any other business purpose not being an "Agricultural Settlement."

(2)

A building or installation for service or a workshop designed for purposes of the Kibbutz and its members only (including for purposes of youth groups, Hebrew study etc., as stated in subparagraph (d) above), which supplies service or

workshop services to other persons also, will not be deemed to be a Factory unless the consideration received from such person/s exceeds one hundred (100) new shekels per annum. This sum will be linked to the Consumer Price Index of August 1981 and updated as of 1st of October in each year.

(f)

"Zoning"—the zoning of the land as prescribed in an Approved Plan within the meaning of the Planning and Building Law, 5725-1965, or any other statute in substitution therefor (hereinafter—"the Plan", including a Special Plan within the meaning of such Law.



(g)

"Value of the Land"—the value of the land to be prescribed by a government appraiser, as vacant land having regard to the zoning and/or use of such area of land to which the evaluation relates.



(h)

"Estate"—an area of land the size of which has been fixed by the Minister of Agriculture or any other body or person empowered by him for the purpose of settling a single family on the Kibbutz.



(i)

"Consumer Price Index"—the Consumer Price Index published periodically by the Central Bureau of Statistics or by any other official body in substitution therefor.



(j)

"The New Index"—the Consumer Price Index last published prior to the actual payment date of the rent.



(k)

"The Owners"—the owners of the land in whose name and on whose behalf the Administration administers, by virtue of the provisions of the Israel Lands Administration Law, the land.

Engagement of the parties

2.

a.

The Administration hereby undertakes to lease to the Kibbutz and the Kibbutz hereby undertakes to take from the Administration on lease, the Premises for the purpose of the Kibbutz settling on the Premises, all on the conditions and for the term prescribed in this Contract.

b.

The size of the area leased has been fixed having regard to the number of Estates specified in clause 30(b) of this Contract.

Term of the Lease

3.

a.

The term of the Lease is 49 (forty nine) years as set out in clause 30(a) of this Contract, (hereinafter—"the Lease Term"), which will be renewed as stated in clause 3(b) at the expiration of 49 years, for a further 49 years.

b.

Upon the expiration of the First Lease Term, the Administration will be bound, at the request of the Kibbutz, to renew the Lease Term for a further period of 49 years (hereinafter—"the Further Term") according to the conditions that will then be customary at the Administration with respect to leases of land to Kibbutzim, for purposes of leases similar to those mentioned in clause 4 hereof.

c.

Renewal of the Contract for such Further Term will be by way of the parties signing a new Lease Contract, in accordance with that stated in sub-paragraph (b) above.

2

Purposes of the Lease

4.

(a)

The Premises are being leased to the Kibbutz for purposes of an "Agricultural Settlement" and "Factory" (hereinafter—"the Purpose of the Lease").

(b)

The Kibbutz will not be entitled to use the Premises or any part thereof in any manner whatsoever otherwise than for the Purposes of the Lease as prescribed in this Contract.

Limitations on Use of the Premises

5.

(a)

The Kibbutz may, during the Lease Term, make use of the Premises for various uses within the scope of clause 4 above and vary the same from time to time without needing the Administration's consent, all within the framework of the Purpose of the Lease mentioned in clause 4 above and subject to the conditions hereof.

Notwithstanding the foregoing, the Kibbutz undertakes not to submit plans for the construction of a building for the purpose of a Factory for the approval of the competent authorities, until after the Administration signs the same; the Administration will be entitled to stipulate as a condition for its signature to the plans, that the Kibbutz fulfils the undertakings according to this Contract.

b.

Notwithstanding the provisions herein contained, the Kibbutz will not be entitled to use the Premises for a housing factory or a factory for dwellings.



c.

Without derogating from that stated in clause 9(c) hereof, the Kibbutz will not be entitled to use the areas of the Premises for any use that is not in accordance with its zoning.



d.

The Kibbutz may use any part of the Premises that have been designated for a Factory, for an Agricultural Settlement also, on condition that it will not be entitled to receive back from the Administration any payment that it has paid in respect of such area, including initial rent and annual rent that it has paid for it as a Factory.

Rent

6.

a.

For the areas of the Premises used as an Agricultural Settlement, the Kibbutz will pay—

(1)

Annual rent at the rate of the annual rate for an Estate multiplied by the number of Estates that have been prescribed for this Kibbutz by the Minister of Agriculture or any other body or person who has been empowered by him. Such rent will be set annually pursuant to the decisions of the Council that will be in force at the beginning of each year of the Lease.

(2)

The number of Estates that has been fixed for the Kibbutz is as stated in clause 30(b) hereof.

(3)

The annual rent for a single Estate is as set out in clause 30(c) hereof.

b.

For areas of the Premises used for a Factory, the Kibbutz will pay—

(1)

Non-recurring initial rent and annual rent or capitalised rent or royalties or any other payment, as customary with the Administration with respect to a Factory of such kind.

3

(2)

The initial or capitalised rent will be a certain percentage of the value of the land used as a Factory, as determined from time to time by the Council with respect to the leasing of land used for a Factory in a Kibbutz.



(3)

The annual rent will be at the rate of 5% or such other rate as will be determined from time to time by the Council, of the value of the land after reducing the initial rent that will have been paid pursuant to sub-clause (2) above.



(4)

The annual rent will be linked to the last Consumer Price Index known on the date of determining the value of the land of such Factory (hereinafter: "the Base Index").

In the event of a change occurring in the Base Index—the annual rent will be varied on the eve of each year of the Lease in proportion to the variation rate between the last Consumer Price Index known immediately prior to each year of the lease, on the one hand, and the Base Index, on the other.

(5)

With respect to a Factory existing before the time of the signature of this Contract for which a signed agreement exists with the Administration (hereinafter: "the Previous Agreement")—the terms of this Agreement will replace those of the Previous Agreement, except for the terms thereof relating to the rent and the rates thereof to which the provisions of the Previous Agreement will continue to apply until the expiration of the Lease Term according to such Agreement, and the Previous Agreement will be regarded as having been cancelled without any consideration.

The Kibbutz hereby undertakes to indemnify and/or compensate the Administration in respect of any damage that will be incurred by it or in respect of any sum that it will be sued to pay and/or in respect of any claim that will be filed against it by any third party as a result of such cancellation.

(6)

As regards a Factory that exists before the time of the signature of this Agreement for which an agreement with the Administration has yet to be signed and no initial rent has been paid—the conditions of this Contract will apply, including payment of initial or capitalised rent that will be fixed according to the value of the land as of the date of the signature of this Contract.



(7)

As regards a Factory existing before the time of the signature of this Contract and for which an agreement with the Administration has not yet been signed but for which initial rent has been paid—the conditions of this Contract will apply save that the Kibbutz will not be required to pay any additional payment of initial rent for the term of 49 years from the date such initial rent has been paid. The operative date for determining the Index mentioned in sub-clause (4) above will be that of the valuation of the land according to which such initial rent so paid has been calculated.



(8)

An existing Factory to which the provisions of sub-clauses (5) and (7) above apply will be liable for payment, at the end of the term during which the provisions of such sub-clauses apply, initial or capitalised rent, all if and as then determined pursuant to the decisions of the Council in respect of the residue of the Lease Term according to this Contract.



(9)

Land which is rezoned as a Factory after the date of this Contract—will have its value determined as of the date of rezoning or as of the beginning of the construction of the Factory, as elected by the Kibbutz, and land which has been rezoned as a Factory before the signature of this Contract but has not actually being used for a Factory in practice—will have its value fixed as of the date of the signature of this Contract or as of the date of the commencement of construction of the Factory, all at the election of the Kibbutz.

4

Payment of the initial rent or the capitalised rent for such land will apply on the date such value is determined.

If no notification is given by the Kibbutz to the Administration in writing within 60 days of the date of the rezoning with respect to the first case abovementioned, or from the date of this Contract with respect to the second case mentioned above, of its electing one of the two above dates, the Administration will be free to determine the value of the land as of one of those dates, as it wishes. The initial rent (but not the annual rent) will be at the rate which the residual Lease Term according to this Contract bears to the Lease term of 49 years. With respect to capitalised rent such rent will be calculated for the residuary Term mentioned according to the capitalisation rules in force at the Administration at the time of payment.

(10)

If the use or zoning of any area used for a Factory is changed from one type of Factory to another, and the initial or capitalised or annual rent which has been calculated according to the value of the land for the other type of Factory will be higher than that actually paid in respect of the area—the Kibbutz will pay the difference between the amount actually paid and the amount applicable to the area in accordance with the other type of use.



(11)

The Kibbutz undertakes to convey to the Administration promptly on demand all the documents and particulars that will be required for the purpose of determining the value of the land.

Date of Payment of Rent

7.

a.

Payment of the annual rent will apply to each year in advance save that the parties may agree between them on different payment dates and conditions.

b.

The initial or capitalised rent for parts of the Premises that were used on the signature date of this Contract for purposes of a Factory will be paid on the date of the signature of this Contract, if not paid previously. The initial or capitalised rent for parts of the premises the zoning or use of which has been varied following the signature of this Contract, will be paid not later than 30 days of the date of the Administration's demand.

8.

a.    A schedule of the existing Factories at the Premises as of the date of the signature of this Contract, containing an itemisation of the name, area, rent for the Factory and the operative date of the Index with respect to each Factory (hereinafter—"the Factories Schedule") is attached to this Contract as Schedule no. 2.

A map of the Factories (hereinafter:- "the Factories' Map") is similarly attached to this Contract as Schedule 3.

b.

The Kibbutz undertakes to notify the Administration immediately of any change applying following a rezoning or changes in the type of use or following the erection of new Factories on the Premises and, pursuant to such notices, the Factories' Schedule, the Factories Map and the rent will be updated.

Rezoning

9.

a.

The Kibbutz will be entitled to pursue the rezoning of any part of the Premises provided it gives notice to that effect in writing to the Administration before embarking on such action

5

and subject to a further condition that the rezoning will not extend beyond the Purposes of the Lease or necessitate prohibited use according to clause 5(b) hereof. If, following such rezoning, the Administration requires the registration of consolidation and/or distribution or severance and the like, the Kibbutz will be bound to effect all the acts required for implementing such registration, all at is own expense. If the Kibbutz fails to do so within two years of the date of the demand the Administration will be entitled to do this instead of and at the expense of the Kibbutz.

b.

It is a fundamental condition that the Kibbutz will not be entitled to commence using any area forming part of the Premises which has been rezoned for the purpose of a Factory unless it first notifies the Administration in writing of the rezoning and has paid the Administration all sums it is bound to pay to it according to this Contract.



c.

In the event of the use specified in Schedule no. 1 with respect to any area is otherwise than in accordance with the zoning and no approval was at any time given by the Administration prior to the signature of this Contract, the Kibbutz undertakes to immediately do everything required in order to match the zoning of the area to the use that is actually made of it.



d.

The Administration may submit applications to the competent authorities to vary the zoning of any area or areas within the Premises according to the needs of any of the State authorities, and to work towards approving such applications, on condition it notifies the Kibbutz thereof in writing and in advance, ninety days prior to submitting the application.

Liability of the Kibbutz in tort

10.

a.

The Kibbutz undertakes to keep the Premises in the manner of a reasonable owner and to take all legal measures for ejecting any trespasses and removing nuisances, for the purpose of protecting the Kibbutz's rights of possession in the Premises deriving from this Contract against any third party, except for the Administration and the owners or any of their successors, and the Kibbutz will be entitled to act as owner of the Premises. The expenses of such operations by the Kibbutz and the consequences thereof will be borne solely by the Kibbutz.

b.

The Kibbutz undertakes to fulfil all legal provisions relating to the use and/or implementation of any act at the Premises.

c.

The Kibbutz is responsible towards the Administration or the owners in respect of any damage that will be caused to the Premises and/or to any body or the property of any third party, including agents of the Administration following the possession and use of the Premises.

d.

The Kibbutz undertakes to employ all precautionary measures required to prevent fires at the Premises, according to law, and bear all payments required by law regarding fire prevention and extinguishing, whether such payment applies to owners or to occupiers.

e.

With respect to the provisions of any law imposing duties on owners of land or any responsibility for any act or omission, including liability in tort, the Kibbutz will be regarded as owner and solely bear all consequences and costs by reason of the nonperformance of such provision or by reason of such act or omission. Should suit be brought solely against the Administration based on such a ground, and it fail to file a defence and in consequence become liable to make any payment—it will have no recourse against the Kibbutz to demand such payment, but if the Administration files a defence and a copy thereof is furnished by the Administration to the Kibbutz, the Administration will be entitled to have recourse to the Kibbutz to make a demand for indemnity.

6

Taxes and development payments

11.

The Kibbutz will bear all taxes, levies, city taxes and compulsory payments of their various kinds applicable by law to the Premises, whether falling on an occupier or owner of the Premises, and whether or not presently or hereafter existing. It will further bear the expenses for the various developments which have already been made by it with its consent or at its initiative, at the Premises.

7

Transfer of leasehold rights and sub-lease

12.

a.

The Kibbutz will be prohibited from transferring to others the leasehold rights or from leasing the Premises or any part thereof by way of sub-lease, or letting the Premises or any part thereof or authorising the use or possession thereof or part thereof to others, directly or indirectly, or sharing with others the Premises or any part thereof or any right deriving from the lease excepting by licence of use to youth groups, Hebrew study premises and the like.

b.

Notwithstanding the provisions of sub-clause (a) above, the Kibbutz will be entitled, from time to time, after receiving the Administration's approval, and without payment of any consent fees, to transfer by way of sub-lease its rights under this Contract with respect to any area designed or used as a Factory, except for a right of headlease, to a body corporate exclusively controlled by the Kibbutz.

It is a fundamental condition for such licence that the sub-lease contract will contain all the provisions herein contained, mutatis mutandis, recognising the intrinsic substance, and will not include any other provision, and it is a further fundamental condition that the exclusive control in such body corporate will be retained by the Kibbutz for the entire duration of the sub-lease contract term. The Kibbutz will be entitled, by the sub-lease contract, to limit the use of the area to be sub-let compared with the permitted uses according to this Contract.

The Kibbutz may determine the duration of sub-lease as it wishes, provided it does not extend beyond the Lease Term according to this Contract. The Kibbutz may determine in the sub-lease contract, such provisions in respect of breach of contract as it deems fit, provided such provisions will not affect nor derogate from the Administration's rights under this Contract.

The Kibbutz will be bound to furnish to the Administration a signed copy of the sublease contract and further produce, at any time required by the Administration, the appropriate documents required to prove that the conditions mentioned for the transfer of rights have indeed been fulfilled.

c.

The Kibbutz will be regarded as the exclusive party controlling a body corporate only if the shareholder, member or partner other than the Kibbutz does not participate in the capital of the body corporate, either by way of investment or by founders' loan to the body corporate or otherwise, except to the extent of the nominal amounts required by virtue of law in order to enable such shareholder, member or partner to hold such capacity for the purpose of funding and maintaining the body corporate.

Notwithstanding the foregoing, a body corporate will not cease to remain in the control of the Kibbutz if it is granted a loan by its shareholder or member or partner which is part of an assistance covenant organization within the meaning of the Cooperative Societies Regulations, 1934, in which the Kibbutz is a member, or a credit institution or financial or economic institution of such assistance covenant or is related thereto—according to its rules, by branch connection, on condition that the foregoing will not prejudice the provisions contained in the first passage of this sub-clause. The foregoing will similarly apply in a case where such shareholder, member or partner other than the Kibbutz is another or other kibbutz or kibbutzim provided the control in such body corporate will remain vested in the Kibbutz under this Contract.

In this sub-clause "control" means a holding of 51% or more of the paid-up share capital of the body corporate, and the right to appoint one half or more of the directors of such body corporate and its general manager.

7

d.

In the event of a breach of any of the provisions contained in this clause by the Kibbutz, this Contract will be void with respect to the area that has been transferred to such body corporate, and the Administration will be entitled and have the right to take and regain possession of such area without being liable for any payment to the Kibbutz or the body corporate. The Administration may exercise its rights under this clause only if, within 60 days of the Administration's demand, such breach has not been rectified.



e.

Nothing contained in sub-clause (a) above, shall prejudice the right of the Kibbutz to authorize members of the Kibbutz and those mentioned in clause 1(d) hereof, to have use of the Premises.

Pledge

13.

a.

The Kibbutz may not pledge or charge the Premises in any way, without first receiving the written consent of the Administration.

b.

The Administration's consent to a pledge or charge of the Premises will be conditional on the stipulation that in the event of a realization of the mortgage or other charge, the right charged will not be transferred except to a party which is, according to the decisions of the Council, fit to take a lease on Agricultural Land of the Administration and the Administration's written consent has been given to such party, subject to the further condition that all the payments due to the Administration will be paid to the Administration out of the proceeds receivable following the transfer of such right and only the balance of the proceeds will be applied in repaying the debt under such mortgage or charge.

c.

The restrictions contained in sub-clause (b) above on the transfer of the rights following a realization of a mortgage or other charge will similarly apply to a transfer occurring within the framework of bankruptcy or execution proceedings.

Payments—Arrears and Refunds

14.

a.

All payments due and owing from the Kibbutz to the Administration and not punctually paid will bear interest on arrears from the date due until actual payment, at the maximum rate prescribed by statute for the time being, or at such rate as will be determined by the Minister of Finance or the Accountant-General from time to time with respect to payments in arrears resulting from transactions with or undertakings towards the State. The Administration will be entitled to demand, in lieu of such arrears interest, linkage differentials to the extent of increases in the Consumer Price Index as of the actual date of payment compared with the Index which existed on the date on which the Kibbutz was liable to make the payment in arrears, with the addition of lawful interest.

b.

Where the Administration is required to pay any sum by reason of any matter enumerated in clause 10 hereof, it will give 30 days' prior notice to the Kibbutz of its intention to pay such sum to the demanding party. Should the Kibbutz fail to pay such sum within 30 days of receiving the notice or fail to take measures to stay or cancel the payment demand, the Administration will be entitled to pay the sum to the demanding party and be reimbursed by the Kibbutz within 30 days of payment. Where the Kibbutz has, within 30 days of receiving the demand, taken steps to stay, cancel or amend the payment demand and has also given notice to that effect to the Administration in writing, the Administration will not pay the amount demanded or any part thereof until the clarification procedures have been completed, including legal proceedings on the objections raised by the Kibbutz. Should the Kibbutz fail to

8

pay the amount fixed as the sum it is liable to pay, the Administration may pay the same, and the Kibbutz will reimburse the Administration in up-to-date values together with all costs, by no later than 30 days following the payment date. The Kibbutz shall indemnify the Administration in respect of any such sum or debt paid by the Administration following the employment of enforcement measures against the Administration.

c.

The Kibbutz undertakes to forward to the Administration, immediately upon receipt, any document relating to a payment demand which applies to the Administration, but will be entitled to reach an arrangement with the claimant in such claim, provided such arrangement will not be binding upon the Administration.

Unused areas

15.

a.

Should the Kibbutz cease using any area leased or part thereof for the Purposes of the Lease, the Administration will be entitled, after 60 days' prior notice sent to the Kibbutz by registered mail, to rescind the Contract with respect to such part of the Premises that the Kibbutz has ceased using or has not used, and repossess the same. Lack of use for a period of five years will not confer upon the Administration the right to sue for repossession of the area requested.

b.

The Kibbutz undertakes, upon the Administration's demand, to appear at the Land Registry and sign all and any documents required in order to rescind the lease with respect to such area from the remaining area leased that will remain in the Kibbutz's possession on the basis of this Contract. Should the Kibbutz fail to perform this undertaking, the Administration will be entitled, after at least 90 days' prior notice to the Kibbutz, to take such action independently, at the expense of the Kibbutz, and the signature of the Kibbutz on this Contract constitutes the grant of a power of attorney by the Kibbutz to the Administration to effect such acts.

Natural resources and antiquities

16.

a.

This Contract confers no rights whatsoever on the Kibbutz or its members in respect of mines, stone quarries, sand and gravel and any minerals of their various kinds that will be found at the area leased, including oil, natural gas, water resources and antiquities (all the foregoing being hereinafter referred to as—"Natural Resources"). The provisions contained in this sub-clause do not apply to the well belonging to the Kibbutz which it operates by virtue of a pumping licence granted to the Kibbutz by the Water Commissioner of the Ministry of Agriculture.

b.

The Administration may rescind the lease with respect to those areas within the Premises in which Natural Resources are found.

c.

The Kibbutz may mine or remove in any other form from the Premises, solely for its purposes and use, stone, sand and gravel on condition it gives prior written notice to that effect to the Administration and pays it such amount as will be determined by the Administration for those materials, and on the further condition that the removal of those materials will be subject to the restrictions and conditions now or hereafter imposed by the Administration and/or by law.

d.

Subject to receiving the Administration's prior written consent, including prior consent in writing with respect to the type of the minerals and the materials that will be quarried, the Kibbutz may use certain of the areas of the Premises for purposes of a quarry-type Factory,

9

such use also to be subject to the restrictions and the conditions mentioned in sub-clause (c) above.

e.

The Kibbutz will have a preferential right to lease areas for which the lease will have been cancelled, as stated in sub-clause (b) and which will be leased for purposes of sand, gravel and stone mining, this also being subject to the provisions of the Mining Ordinance, as in force from time to time, and according to such conditions as will be fixed by the Administration or by law.



f.

If the Lease with respect to areas according to sub-clause (b) will be cancelled and no compensation paid for the cancellation, the Kibbutz will have a preferential right to receive the area after mining, quarrying, etc., as appropriate, ceases, if, after restoration, the area will be usable for the Purposes of the Lease stated in clause 4.

Administration's Rights to carry out acts and Inspect the Premises

17.

a.

The Administration and any person on its behalf will be entitled to enter upon the Premises at any reasonable time in order to examine whether the conditions of this Contract are being fulfilled. It is hereby expressly agreed that such examination is not to be construed as imputing any knowledge to the Administration of any breach whatsoever of this Contract or as acquiescence to such a breach, even if the Administration fails to take any measures by reason of such breach.

b.

The Administration will have the right to transfer or allow others to transfer through, within or above the Premises water, drainage, sewage, gas pipes, electricity and telephone pylons, run electricity, telephone wires and the like all according to the plan which will have been approved by the competent planning authorities or according to any other law. The Kibbutz will allow the Administration, its workers and/or agents as well as any person authorized by it, to enter upon the Premises and carry out the works required for such purpose as well as all repairs which will be required from time to time, provided 30 days' prior notice will be given to the Kibbutz except in cases which cannot be delayed in which case no advance notice will be necessary. This right of the Administration shall not serve to affect the right of the Kibbutz to demand compensation from the party so authorized, in respect of financial damage incurred by the Kibbutz (to the extent incurred) as a result of carrying out the work by such party or by any other persons on its behalf. The Kibbutz will be entitled to impose as a condition for implementing the work at the Premises by the party authorized the giving of an appropriate guarantee by it to secure payment of compensation in respect of financial damage which may be caused to the Kibbutz following the implementation of such work, the type and amount of the guarantee to be fixed by agreement between the parties within 15 days of the prior notice mentioned above have been given to the Kibbutz.

Prior termination of the Lease

18.

a.

If the Premises or any part thereof are rezoned by a valid plan or by any law, except for a rezoning according to clause 9(a) of this Contract, the Administration will be entitled to bring the Lease under this Contract to an end with respect to such rezoned part, even if the Lease Term or any Further Term has not yet expired and repossess such area. The Administration will give the Kibbutz prior notice of the date of such termination of the Lease, nothing in this clause mentioned being in derogation of that stated in the last passage of clause 9(d).

For purposes of this clause, the grant of a permit by law to erect a security installation will be tantamount to rezoning.

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b.

If the Administration has notified the Kibbutz of the termination of the Lease as mentioned, the Kibbutz will be entitled to remove from the Premises all the fixtures and fittings that are not permanently connected to the land.



c.

The Kibbutz will be entitled to compensation for its rights and investments existing as of the date of the termination of the Lease in the area for which the above Lease has terminated, including in the fixtures that remain in the area. Such compensation will be fixed by the Compensation Committee appointed by decisions of the Council (hereinafter: "the Compensation Committee"). For purposes of this clause, investments of a body corporate controlled by the Kibbutz will be the equivalent of investments by the Kibbutz. The parties will be entitled to appeal the decision of the Compensation Committee before an Appeals Committee to be set up by the Council.



d.

The compensation fixed according to sub-clause (c) above will be paid within 30 days of the date of the Compensation Committee's decision, provided that by such date, the area to be returned to the Administration's possession will have been redelivered, and in the event of the area not having been so redelivered to the Administration's possession within 30 days, the compensation will be paid on the date it is vacated and possession actually redelivered to the Administration. If payment on due date is not made, the Kibbutz will be entitled to linkage differentials and interest in respect of the period up to the date of payment.

Vacation of the Premises

19.

a.

If the Lease has not been renewed at the expiration of the Lease Term or upon the expiration of the Further Term and also in the case of a prior termination of the Lease with respect to the Premises or any part thereof by reason of the cancellation of the Lease, or for any other reason, as appropriate, the Kibbutz will be under an obligation to vacate the Premises or any part thereof for which the Lease will have terminated, as mentioned, within 90 days, and leave the same vacant of any person and thing and redeliver possession thereof to the Administration in proper condition and free of any debt, attachment, mortgage, charge or third party rights and it undertakes not to uproot any plantation nor destroy any building nor dismantle any thing permanently affixed to the land (all the foregoing being hereinafter referred to as—"the Fixtures") unless required to do so by the Administration.

In the absence of the performance of such undertaking by the Kibbutz, the Administration will be entitled to enter upon the area and seize possession thereof.

b.

Should the Kibbutz be required by the Administration to remove the above Fixtures and fails to do so within the period prescribed by it, the Administration will be entitled to remove the same at the expense of the Kibbutz. The Kibbutz will be bound to reimburse the Administration with all its expenses within 30 days of receiving a demand to do so from the Administration.



c.

If the Kibbutz is not required by the Administration to remove the above Fixtures, and they are sold or leased by the Administration—the Kibbutz will be entitled, except in cases where the Lease is cancelled following a breach of the Contract of Lease by the Kibbutz, to receive for those Fixtures from the Administration, payment from the proceeds so received by the Administration, provided that in no event will such payment exceed the value of the Fixtures as determined by a government appraiser. In determining the value of the Fixtures, the value of the land or the rights therein will be disregarded.



d.

The provisions of sub-clause (c) above will not apply to the vacation of an area according to clause 18 hereof.

11

Registration of the Leasehold Right

20.

a.

The Kibbutz undertakes to do all that is required in order to enable the registration of the Premises in the Land Registration Registers as parcels registered in their entirety in the name of the owners (hereinafter: "the Parcellation Registration").

The Kibbutz further undertakes to do all that is required to register the Lease in its name in the Land Registry, and register the same within 2 years of the date of this Contract.

b.

Registration of the Lease in the Kibbutz's name in the Land Registration Registers will only be made after the areas of the Premises will be registered in the Land Registry as parcels registered in their entirety in the name of the owners.

Fundamental conditions and Rescission of the Contract

21.

a.

The parties agree that a breach of any of the conditions contained in clauses 4, 5, 6, 7, 9(a) and (b), 10, 12, 13 and 16 is a fundamental breach.

b.

In the event of a fundamental breach by the Kibbutz, the Administration will be entitled to rescind the Lease with respect to such part of the Premises in respect of which the breach was committed, provided it gives the Kibbutz 90 days' prior notice to rectify the breach. Such notice will be in writing and be sent by registered mail.

c.

In addition to the Administration's right to rescind the Contract, the Administration will be entitled to damages from the Kibbutz as well as to any other relief by law, consequent upon a breach of the conditions of the Contract by the Kibbutz. The Administration will further be entitled, in the event of such a breach, to proper user fees from the Kibbutz at the customary rate in the free market.

d.

(1)

In the event the Kibbutz ceases to be such within the meaning of the preamble to this Contract, in addition to any other event in which proceedings for the winding-up or dissolution or striking out of the Kibbutz will be commenced, this Contract will lapse upon such proceedings commencing, whereupon the provisions contained in clause 19 hereof will, mutatis mutandis, apply, and the Premises will be revert to the Administration.

(2)

Notwithstanding the provisions contained in sub-clause (1) above, if the Kibbutz becomes an agricultural co-operative society other than a kibbutz, the Administration will sign with such society a lease contract in the form and on the conditions that will be customary for the time being at the Administration with respect to the leasing of land to a society of such type, provided that the Minister of Agriculture or any person appointed by him in that behalf will grant his consent to the signature of the Contract with such society and determine the size of the area to be so leased and the boundaries thereof.

Miscellaneous.

22.

If the areas of the Premises have not yet been registered in the registers in the Land Registry as parcels registered in the name of the owners in their entirety, the area of the Premises and the boundaries thereof may change or be rectified following a requisition according to the laws on expropriation and purchase, or following a land arrangement scheme at the area, or following the exercise of the Administration's rights according to clause 15 hereof, or in order to adjust the area

12

of the Premises and/or the boundaries thereof, as this will be required in order to prepare a map for registration purposes.

23.

Forbearance by the Administration or of the Kibbutz, as appropriate, from exercising any right conferred upon it according to this Contract on account of the breach of any of the provisions thereof by the Kibbutz or by the Administration, as appropriate, will not be construed as a waiver of any right nor will it be regarded as acquiescence to such a breach.

Without derogating from the generality of the foregoing, receipt of any payment from the Kibbutz following such a breach will not be regarded as consent on the part of the Administration to such breach.

24.

In the event of any other agreement existing between the Kibbutz and the Administration in connection with any area of the Premises, this present contract will replace such agreement in all respects; and if the Kibbutz was liable to the Administration or any other body by virtue of the provisions of such agreement, for any payments with respect to the period culminating on the commencement of the term of this Contract, the Kibbutz will remain liable for such payments. This clause does not prejudice that stated in the last passages of clause 6(b)(5) and clause 6(b)(7) respectively, to this Contract.

25.

If the Administration and the Kibbutz agree to any amendment, modification or substitution of the Lease Contract for the Kibbutz in the form for the time being customary at the Administration with respect to kibbutzim generally, such amendment, modification or substitution will apply as from the time the parties sign the same and thenceforth from that date, the parties will act in accordance with the new form, and if the Lease is registered with the Land Registry the Kibbutz will do all that is required to register such amendment, modification or substitution in the Land Registers.

26.

The Kibbutz will be prohibited, without receiving the prior written consent of the Jewish National Fund, to mine and/or uproot forests and/or tree arbors, and/or trees generally that have been planted by the Jewish National Fund in the area of the Premises. This clause is in addition to and does not derogate from the provisions of the Forests Ordinance.

27.

The stamp duty costs of this Contract will be borne in their entirety by the Kibbutz.

28.

The headings to the clauses of this Contract do not constitute part of the Contract nor will they be applied in the interpretation thereof.

29.

Without derogating from the provisions of this Contract, it is agreed that for purposes of protecting the Kibbutz's right of possession under this Contract against claims or third party pleas, except for the Administration and/or the owners and/or their successors or assigns, the Kibbutz will be entitled to act as owners of the Premises on condition that the results of such activity will be solely borne by it.

30.

a.

The Lease Term commences on the 1^st day of October, 1990 and will expire on 30 September, 2039.

b.

The number of Estates existing at the time of signing this Contract is 120 (one hundred and twenty).

c.

The annual rent per Estate is NIS. 247.94, although the Administration may adjust the same from time to time in accordance with the decision of the Council. Translator's note: next passage deleted in the original.

13

31.

The addresses of the parties are:
The Administration, Upper Nazareth, P.O.B. 580, Zip Code 17 000
The Kibbutz: Kibbutz Shamir, Upper Galilee, Zip Code 12 195
And any notice sent by one party to the other by registered mail will be deemed to have been duly received three days after the date of dispatch.

32.

Special conditions:
The Premises mentioned in clause 1(a) hereof relate to land having an area of 3,370.183 dunams and a further 427.146 dunams approximately.

Details of such land are registered in the Schedules marked "Schedule no. 1", and which are attached to this Contract and constitute an integral part hereof.

In witness whereof the parties have set their hands:

The Administration (signed) The Kibbutz (signed)

1.	Name
	Description
	Signature
2.	Name	Rachel (illegible)
	Description
	Signature
	Signed and stamped bearing the stamp of the Israel Lands Administration on behalf of the State Development Authority Jewish National Fund

14

TRANSLATION FOR CONVINIENCE

Schedules

Schedule no. 1	—	Schedule of parcels (clause no. 1(a))
Schedule no. 2	—	Schedule of factories (clause no. 8(a))
Schedule no. 3	—	Factories' Map (clause no. 8(a))
Schedule no. 3(A)	—	Factories' Map
Schedule no. 4	—	(clause no. 32)

TRANSLATION FOR CONVINIENCE

Page no. 1
Of 2 pages

Schedule no. 1

To the Lease Agreement dated 27/12/1990 with Kibbutz Shamir (clause no. 1(a)).

1.

Area of leased property 3,370.183 dunams

2.

Schedule of parcels included in the leased property:

Block	Parcel	Area in dunams	Use on the date of signature of the Contract
13412	3	425.402	Agricultural settlement as determined in the Contract
"	4	144.419	"
13413	2	108.937	"
"	3	328.799	"
"	4	419.080	"
"	5	237.150	"
"	6	439.324	"
"	7	243.111	"
"	8	350.873	"
"	10	165.936	"
13414	2	102.952	"
13414	3	294.041	"
"	4	63.833	Factory as that term is defined in the Contract
"	5	25.152	Agricultural settlement as defined in the Contract
"	6	6.795	"
"	8	3.809	"
"	11	.696	"
"	12	2.636	"
"	13	.132	"
"	14	.468	"
"	15	.434	"
"	16	1.329	"
"	17	4.875	Factory as that term is defined in the Contract
Israel Lands Administration On behalf of the State Development Authority Jewish National Fund
			(signed) Kibbutz Shamir

TRANSLATION FOR CONVINIENCE

Page no. 2
Out of 2 pages

Schedule no. 1

To the Lease Agreement dated 27.12.1990 with Kibbutz Shamir (clause no. 1(a)).

1.

Leased area 427.146 dunams approximately, as delineated in the frame in brown on the map on the scale of 1:10,000 signed by both parties attached to this Schedule as an integral part hereof.

2.

In the event of any divergence between the map set out in paragraph 1 above and the schedule the list of parcels in paragraph 4 hereof, the map will take precedence.

3.

It is agreed between the parties that the final size of the leased property will be determined according to the maps to be prepared according to clause 20 of this Contract.

4.

Schedule of parcels included in the leased property and their types of use:

Block	Parcels in their entirety	Incomplete Parcels	Use on the date of signature of the Contract
13413		9	Agricultural settlement as determined in the Contract
13419		4
Israel Lands Administration On behalf of the State Development Authority Jewish National Fund
			(signed) Kibbutz Shamir

Schedule no. 3
To the Lease Agreement dated 27/12/1990 with Kibbutz Shamir
(clause no. 3(a)).

Factories Map

On a scale of: 1:2500

		Parcel
No. of plant on map	Block	In whole	In part	Area of property in	Name of Factory	No. of file in ILA
	13414	17		1.330 dunams	Optical Industries Plant	2000361-9
				3.545 dunams	" " "	214821-6
	13414		4	8.250	S.L.A.G.	214820-8

	(signed)
	Kibbutz Shamir
Israel Lands Administration On behalf of the State Development Authority Jewish National Fund

2

TRANSLATION FOR CONVINIENCE

Schedule no. 2
To the Lease Agreement dated 27/12/1990 with Kibbutz Shamir
(clause no. 8(a)).

Factories Schedule

				Date of linkage to the CPI (x)
			Annual rent on the date of the signature of this Agreement (in shekels)			Date of end of period according to clause 6b.(5) & 17
							Percentage of value period or capitalized as initial rent
No. of Factory on the map	Factory name	Area of the Factory in dunams		Month & year	Points				District file no.	Account Remarks
	Optical Industries Plant	1.330 dunams		4—1971	143.9	31/3/2020	80	%	200361-9	00254013
	-" -	3.545 dunams				27/11/2039	Capitalized		214821-6	352242911
	S.L.A.G. Factory	8.250 dunams				27/11/2039	Capitalized		214820-8	352242903

(signed)
Kibbutz Shamir

Israel Lands Administration
On behalf of the State
Development Authority
Jewish National Fund

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Kibbutz Shamir
Lease Contract for a Kibbutz
Ministry of Justice Registration and Land Settlement Department In
TRANSLATION FOR CONVINIENCE
In witness whereof the parties have set their hands
Schedules

EX-10.5

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Exhibit 10.5

LEASE AGREEMENT

Made and entered into at Shamir Kibbutz on            day of January 1999

Between:	Kibbutz Shamir Agricultural Cooperative Society Registered society 57-000272-5 Mobile post Galil Elyon 12135 (hereinafter: "the kibbutz")
	Of the One Part
And:	Shamir Optics Development and Industry—Agricultural Cooperative Society. Kibbutz Shamir, Mobile post Galil Elyon 12135 (hereinafter: "A.C.S.")
	Of the Other Part
Whereas	The Kibbutz is the owner of a tenancy right in the property as defined below, from the Israel Lands Administration;
And Whereas	The Kibbutz is the holder, correct to the date of this agreement, directly and indirectly, of the entire rights to the A.C.S;
And Whereas	The Kibbutz is the owner of the entire rights in the registered cooperative Shamir Optics Development and Industry (hereinafter: "the cooperative"), which is the owner and manager of a development, manufacturing, marketing and sales plant for spectacle lenses and formations for the manufacturing of plastic lenses for spectacles. (hereinafter: "the plant");
And Whereas	In the agreement of January 5th 1999 between the Kibbutz, the cooperative and the A.C.S, the parties agreed to the transfer of the plant to the A.C.S;
And Whereas	As part of the transfer of the plant to the A.C.S, the A.C.S wishes to sublet the property from the Kibbutz, and the Kibbutz has agreed to sublet the property to the A.C.S, as stated in this agreement hereinafter;
And Whereas	The Israel Lands Administration has agreed to the subletting subject to the special conditions hereinafter (sections 1.2-1.3 of this agreement);

Now therefore it is declared, stipulated and agreed between the parties as follows:

1.

Preface and Definitions

1.1

The preamble to this agreement and annexes attached hereto constitute an integral part hereof.

1.2

The conditions of this agreement are subject to the terms of the tenancy contract as defined in section 1.5 hereinafter, and in case of a contradiction, the conditions of the tenancy contract shall overcome the terms of this agreement

1.3

The A.C.S is aware that in relation to the tenancy contract, any act or omission of the A.C.S by way of the tenancy contract shall be regarded, towards the administration, as an act or omission of the Kibbutz.

1

1.4

This agreement, including all terms and special conditions herein, does not and shall not, in any way, diminish the rights of the Israel Agriculture Bank LTD according to the irrevocable undertakings of the Israel Lands Administration regarding the registering of a first degree mortgage in his favor and to his advantage, in as much as it relates to the area constituting the property area.



1.5

Definitions in this contract:

One. "property" land of the size stated in annex a and according to the specification stated in annex a to this agreement, including all that is built and planted at present and/or in the future, including anything of permanent fixture to the ground.

Two. "premises" a 2,740 squared metre area of the property which is not built upon.

Three. "the structure" a two-storey built area 3,238 square metres located on the property.

Four. "the administration" Israel Lands Administration.

Five. "the council" The Israel Lands Council as stated in the Israel Land Administration Act, 1960, including any other body in its place under law.

Six. "the tenancy contract" the tenancy contract between the administration and the Kibbutz of 27.12.90.

Seven. "the owners" The owners of the land in who's name and on who's behalf the Administration manages the land, under the Israel Lands Administration Act.

Eight.h. "the transfer agreement" an agreement of January 5^th 1999 between the Kibbutz, the A.C.S and the cooperative regarding the transfer of the activity to the A.C.S.

Nine. "base index" Consumer Price Index published on December 15, 1998.

Ten. "the activity" development, manufacturing, marketing and sales of spectacle lenses formation for the manufacturing of plastic lenses for spectacles.

2.

Contractual Agreement of the Parties

The Kibbutz hereby undertakes to lease to the A.C.S, and the A.C.S hereby undertakes to lease the property from the Kibbutz, thus under the conditions and for the period stated in this contract.

3.

The Lease Period

The lease period is 20 (twenty) years commencing on 1.1.1999 and terminating on 31.12.2018 (hereinafter—"the lease period").

During the lease period, A.C.S shall be granted, the right to reasonable access and right of way in the Kibbutz areas which are not part of the property, as required for the purpose of performing the activity.

4.

The Purpose of the Lease

4.1

The property is being let to A.C.S for the purpose of performing the activity.

4.2

A.C.S shall not be permitted to use the property or any part of it, in any manner, for any purpose other than that stated in this contract.

5.

Rent

5.1

In exchange for the subletting, A.C.S shall pay a monthly rent at the amount of 1 American dollar for every square metre of the area of the premises, and 4 American dollars for every square metre of the building area, according to the known representative dollar rate of

2

exchange of the American dollar on the day this agreement is signed (hereinafter: "the basic rent").

5.2

Every two years the basic rent shall be updated according to the accepted rent for similar properties in the area of the property (hereinafter: "updated rent").



5.3

The updated basic rent shall be paid in NIS together with value added tax due thereon, six months in advance and against a proper tax invoice, linked to the consumer price index, in a manner by which they shall be raised at a rate equal to the rate of the raise in index known at the day of payment corresponding to the basic index.



5.4

Without derogating from any claim and/or relief to the Kibbutz's favour, any payment not paid by the A.C.S on time shall bear arrears interest at the average rate customary at Bank HapoalimLTD, Bank Leumi l'Israel LTD and The First Israel International Bank LTD at that time, for payments in arrears. In this section, a delay of up to seven (7) days in any payment by the A.C.S shall not be considered as a payment not paid on time.

6.

The use of the Property and A.C.S's Responsibility

6.1

The A.C.S undertakes to keep the property in a good and orderly condition as the owner would, and to perform any repairs required for maintaining the property in the same condition, at its expense. Furthermore, the A.C.S undertakes to take any legal action required for removing any trespassers and nuisances. With respect to defending the A.C.S's right of holding the property, deriving from this contract against any third party, save for the Kibbutz, the Administration and the owners of the property or anyone in their place, the A.C.S shall be permitted to use the property as its owner. The expenses of these actions by the A.C.S and their consequences shall be paid by it alone.

6.2

During the entire period of lease The A.C.S alone shall be responsible for the fulfillment of any provisions under law concerning the maintenance and use of the property and concerning the construction on the property, and for the fulfillment of any duty by law falling on the Kibbutz regarding the property—and shall bear all expenses with no right to claim compensation from the Kibbutz.

6.3

The A.C.S alone shall be responsible towards the Kibbutz, and towards any third party, for any damage to any persons body or property (including the A.C.S) and for damages imposed due to or as a result of actions or omissions in the property or with respect to its use or maintenance, and the Kibbutz shall not be liable for it.

6.4

The A.C.S undertakes to take all precautions required for the prevention of fires in the property, according to any law, and shall pay all expenses according to any law for the prevention of fires and their extinguishing, whether such payment is due from the owner or whether due from the holder.

6.5

Regarding provisions of any law which impose duties on the owners of the land or any liability for any action or omission, including tort liability, the A.C.S shall be considered as the owner and it alone shall bear any consequences and expenses for the non-compliance of the provision or for the action or omission.

The Kibbutz shall notify the A.C.S of any suit and/or claim against it or against the Administration regarding the above cause.

6.6

The A.C.S declares and confirms that it has read the tenancy contract between the Kibbutz and the Administration concerning the property and has understood it, and it undertakes not to perform any action and/or omission which might lead to the breach of the above mentioned

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tenancy contract and/or might impose on the Kibbutz a financial liability and/or other towards the Administration and/or towards any third party.

7.

Taxes and Obligatory Payments

7.1

Commencing at the beginning of the lease period or the holding in the property—the antedated—the A.C.S shall bear alone all taxes, levies, debts and any kind of obligatory payments, municipal and governmental imposed on the property under any law, whether due from the holder of the property or from the owner of the property, whether existing in the present or in the future, during the entire period of lease, save for betterment levy with respect to any construction addition performed on the property after this date of which the Kibbutz shall bear alone. In addition, the A.C.S shall bear any fee expenditure and development costs of any form due from the property, including costs of electricity connecting, sewage and water fees, water supply arrangements, sewage installation, sewerage, road surfacing and paving, sanitary facilities and activities etc.

Notwithstanding the above, in the case of such payments due with respect to the a period longer than the leasing period, the A.C.S shall pay a relative part of those expenses at a value equivalent to the proportion between the remainder of the leasing period and the remainder of the tenancy period of the Kibbutz according to the lease agreement, including the optional period granted to the Kibbutz according to the tenancy contract.

7.2

The A.C.S undertakes to pay value added tax due thereon for any one of the payments due by the A.C.S according to this agreement, according to the rate of the value added tax at the time of payment.



7.3

The A.C.S shall pay the property electricity, water and telephone bills, on time, and shall furnish, on demand, to the Kibbutz, copies of the paid bills mentioned above.

8.

Construction and Alterations to the Property

8.1

The A.C.S shall not be permitted to build on the property area or perform alterations to the building without the prior written consent of the Kibbutz. The Kibbutz undertakes that it shall not refuse an approval of any building or alterations as mentioned above without reasonable cause, and subject to the tenancy contract between the Kibbutz and the Administration. The Kibbutz shall be entitled to demand the eviction and cancellation of any alteration performed to the property without its consent.

In any event, any addition and/or alteration performed in the property shall be the sole property of the Kibbutz and the A.C.S shall have no entitlement of any form in the addition and/or alteration aforesaid, save for a right of use according to the terms of this agreement.

8.2

In the event of any construction as aforesaid, the kibbutz shall be entitled to a first right of refusal to perform the construction work. The aforementioned right of refusal shall be applied after the A.C.S shall choose from a number of proposals and select the proposal most acceptable to it for the performance of the work, and shall notify the Kibbutz of it. If the Kibbutz decides to realize its aforesaid right, it will be entitled to demand that the A.C.S finance the building expenses, and the A.C.S undertakes to finance the building expenses (hereinafter: "the financing").

The A.C.S shall be entitled to write off the financing from the rent which it is indebted to the Kibbutz for the property, as mentioned in section 5 at the date set for their payment.

The remainder of the financing which is not written-off as aforesaid from the rent during the period of letting, if such exists, shall be paid by the Kibbutz with the termination of the letting period.

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The financing shall be linked to the consumer price index from the day of producing to the Kibbutz and until the day of payment by the Kibbutz and/or writing-off by the A.C.S.

8.3

Should the Kibbutz not realize its first right of refusal as mentioned in section 8.2 above and the A.C.S shall carry out the construction work at its expense, the actual construction costs shall be written-off from the rent in the same manner as stated in section 8.2 with respect to the return of the financing in a manner in which the writing-off shall be performed commencing at the day in which the construction work terminates.

In case of a dispute between the parties with respect to the cost of construction, the cost shall be determined by an agreed appraiser.

8.4

For every squared metre added to the property as stated in



8.5

sections 8.2 or 8.3, the A.C.S shall pay the Kibbutz an additional rent at a sum equivalent to 2 American Dollars in addition to the fixed rent for the built area (according to the known representative exchange rate at the day of signing this agreement, updated and coordinated to the index change with respect to the basic index, as specified above), which will be added to the basic rent as stated in section 5.1 above and the provisions of section 5 above shall apply with the necessary adaptations.



8.6

Concerning this section "the cost of building" is the cost of the case building alone. To remove all doubt, and without derogating from section 8.1 aforesaid, it is hereby clarified that the building work which is not included in the case shall be at the expense of the A.C.S, with no possibility of writing-off as aforesaid.

9.

Transfer of the Letting and Subletting Right

The A.C.S is forbidden to transfer to any other its right of lease or to sublet the property or any part of it, or to let the property or any part of it, or to allow the use or holding of it or any part of it, to another, directly or indirectly, and/or let anyone participate in the property or any part of it or in any entitlement deriving from the letting.

The Kibbutz is permitted to transfer to another its rights and obligations according to this agreement, without the need for the A.C.S's consent, subject to the terms of the tenancy contract, and the A.C.S undertakes, in case of such a transfer, to fulfill all its obligations according to this agreement, towards the beneficiary of the transfer.

10.

Mortgaging

10.1

The A.C.S is not permitted to mortgage the property in any way, without prior written consent of the Kibbutz and the Administration.

10.2

It is Known to the A.C.S. that the Administration shall not allow the mortgaging or subjugation of the property, unless the mortgager undertakes, prior to giving consent, that in any case of realization of the mortgage, or as a result of executing a judgement or any other document which may be executed as a judgement, or as a result of a sale by the Execution Office Chamber or by any other authority by law—the Administration shall be paid a consenting fee due according to the tenancy contract, however the Administration's consent for the actual mortgaging shall not be conditioned by a financial payment.

11.

The Administration and Kibbutz's Entitlement to Perform Acts at the Property and Examine it

11.1

The Administration, and/or anyone on its behalf or by its permission and/or the Kibbutz and/or anyone on its behalf or by its permission, shall be permitted to enter the property at any reasonable time, for the purpose of examining the use of the property according to the provisions of the tenancy contract and this agreement and for the purpose of transferring

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water, sewage and gas pipes, electricity or telephone poles and extending electricity or telephone wires through the property, inside it or above it, and/or for other purposes alike. The A.C.S shall enable the Administration and/or anyone on its behalf or by its permission and/or the Kibbutz and/or anyone on its behalf or by its permission, to enter the property and perform the examinations and work aforesaid. The Kibbutz undertakes to compensate the A.C.S for any damage caused to the A.C.S as a result of these examinations or work.

11.2

It is hereby explicitly agreed that the aforesaid examinations in section 11.1 shall not be regarded as an knowledge on the part of the Administration and/or the Kibbutz as to a breach of any kind of this agreement, or consent to such a breach, even though measures are not been taken as a result of the breach.

12.

Alteration of the Proprty Limits and the Final Determination of its Area Size

12.1

The A.C.S hereby declares that it is aware of the fact that the area of the property and its limits are not final and that alterations may occur as a result of changes in the planning under the Planning and Construction Act, 1965, land regularization etc.

12.2

The A.C.S hereby declares that it is aware of the fact that taking measurements for the purpose of registration may discover that the area of the property is smaller or larger than the area stated in annex a of this agreement.

12.3

Should the area of the property be enlarged or reduced or its limits altered as a result of alterations as aforesaid in section 12.1, and in the event that it is discovered as stated in section 12.2 aforesaid that the area of the property is smaller or larger than the area stated in annex a of this agreement, the A.C.S undertakes to:

12.3.1

agree to any alteration to the limits and/or area of the property as determined consequent to a measuring for the purpose of registration as mentioned in section 12.1 above.

12.3.2

agree to any findings regarding the area of the property as determined after a measurement for the purpose of registering as mentioned in section 12.2 above.

12.3.3

regard the property and its new limits and area as the subject of the leasing and accept holding of it.

12.4

Should the area of the property change according to sections 12.1 and 12.2 above, in a manner by which the area available for the use of the A.C.S according to this agreement shall be reduced or enlarged, the definition of "the premises" and "the building" in the preface to this agreement shall be amended in accordance with the alteration, and the provisions of section 5 above shall apply to the amended area with the required alterations, so that the rent due for the property shall be reduced or raised in accordance with the alteration in the property area.

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13.   Early Termination of the Leasing Agreement

13.1

This agreement shall terminate immediately if the Kibbutz holds less than 50% of the A.C.S capital stock, directly or indirectly, unless the Kibbutz receives the permission of the Administration for the continuation of the subletting despite the reduction in the holding aforesaid, and the provisions of this section shall apply with the required alterations.



13.2

In addition, the A.C.S shall be entitled to bring this agreement to an end at any time by notifying the Kibbutz at least 36 months in advance.

14.   Cures in Case of a Breach of the Agreement

14.1

Without derogating from the right for other reliefs under any law and according to this agreement, for the breach of this agreement, the parties hereby agree that any one of the breaches specified in section 14.1 hereafter shall be considered a fundamental breach of the agreement for which the Kibbutz shall be entitled to cancel the contract by giving notice in writing and with a registered letter:



14.1.1

A breach of any of the terms in sections 5, 8, 9 and 10.



14.1.2

Should the A.C.S, without the prior written consent of the Kibbutz, alter or cause the altering of the lease purpose or designation or use the property in a manner which is not compatible with them.



14.2

Upon the cancellation of the agreement by the Kibbutz, the A.C.S shall be obliged to:



14.2.1

Immediately vacate the property and return it to the Kibbutz as stated in section 15 below.



14.2.2

Compensate the Kibbutz for any damage and loss caused to it now or in the future as a result of the breach of the agreement and its cancellation (including damage and loss due to the letting of the property to another).



14.3

Without derogating from the above and from any relief or remedy to which the Kibbutz is entitled to under law, the A.C.S. undertakes to compensate the Kibbutz for any expense, loss and/or damage which it bears due to the breach of the provisions of section 6.6 above by the A.C.S.

15.   Eviction of the Property

Upon the termination of the lease period and/or upon the termination of the tenancy period according to the lease contract and/or upon the early termination of the tenancy according to the tenancy contract regarding the property or any part of it as a result of the tenancy cancellation or for any other reason, accordingly, the antedated, the A.C.S shall be required to vacate the property or any part of it with respect to the which the leasing has terminated as stated immediately, of any person or item in a manner which will enable its return to the Kibbutz and/or the Administration, accordingly, in an orderly condition and free of any debt, attachment, mortgage, or third party rights. Should the A.C.S not comply with her obligations aforesaid, the Kibbutz or the Administration shall be entitled to perform all the stated acts at the expense of the A.C.S, and to collect all expenses paid by them, together with interest and linkage from the date of expenditure up until the day of actual payment.

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16.   Insurance

The A.C.S undertakes to insure the property, at its expense, during the entire period of lease at terms similar to those of the existing insurance with respect to the property at the date of signing this agreement and to add the Kibbutz as a beneficiary according to the insurance policy

The insurance shall include third party insurance, fire and natural damage insurance.

The A.C.S undertakes to furnish to the Kibbutz, on its demand, a copy of the insurance policy as aforesaid within 30 days from the day of demand.

17.   Suspending Condition

The validity of this agreement is suspended with the entering of the transfer agreement into effect until 1.6.1999. Upon the occurrence of the suspending condition, this agreement shall enter into effect, commencing from 1.1.1999.

Should the suspending condition not occur, this agreement shall be cancelled,

18.   Arbitration

18.1

Any dispute with regard to this agreement, its application and exposition, shall be decided exclusively by a sole arbitrator, which will be appointed at the agreement of the parties, and in case of lack of agreement, he shall be appointed by the President of the Accountancy Council.



18.2

The arbitrator shall be subject to the substantive law and shall be obliged to give reason to his decision, however he shall not be subject to the substantive law.

19.   Miscellaneous

19.1

The A.C.S is prohibited, without prior written consent from the Jewish National Fund (Keren Kayemet Le'Israel), to cut and/or uproot forests and or tree coloumns, and/or tree's bearing no fruit planted by the Jewish National Fund in the property area.

This section comes to add and not diminish the provisions of the Forest Act.

19.2

The A.C.S hereby declares that it has examined the property and found it suitable for its purposes and it waives any claim of incompatibility.



19.3

The A.C.S shall bear the payment of stamp duty for this contract.



19.4

The headlines of the contract sections do not constitute any part hereof and shall not serve in its commentary.



19.5

The A.C.S undertakes to compensate the Kibbutz for any sum which the Kibbutz is demanded to pay any person as compensation for damage which the A.C.S is liable for according to the provisions of this agreement or under any law.



19.6

Parties Addresses:

The A.C.S: Shamir Kibbutz, Mobile post, Galil Elyon 12135.

The Kibbutz; Shamir Kibbutz, Mobile post, Galil Elyon 12135.

2

In witness whereof the parties have affixed their signatures:

Shamir Optics Development
And Industry
Shamir Kibbutz

3

TRANSLATION FOR CONVENIENCE ONLY

Agreement of Amendment

Amendment to the Lease Agreement of January 1999

Made and signed in Kibbutz Shamir on this 9th day of February 2005

Between:	Kibbutz Shamir Agricultural Society Registered Society 57-000272-5 Mobile Post Upper Galilee 12135 hereinafter: ("the Kibbutz")
	of the one part;
And:	Shamir Optics Development and Industry—Agricultural Cooperative Society Ltd. Agricultural Cooperative Society No. 57-003541-0 Of Kibbutz Shamir Mobile Post Upper Galilee 12135 Or such limited company as will derive from the Agricultural Cooperative Society, (hereinafter: "the Company")
	of the other part;
Whereas	On 05 January 1999, the parties entered into the Lease Agreement annexed hereto as Appendix "A" (hereinafter: "the Lease Agreement"); and
Whereas	It is the Company's intention to vary on or about the Operative Date (as hereinafter defined) the corporate configuration thereof in accordance with section 345 of the Companies Law, 5759-1999, from an agricultural cooperative society to a company limited by shares in a manner whereby all its rights and obligations, including under the present Agreement, will belong to and be within the responsibility of such limited company; and
Whereas	The Company is desirous of continuing to lease from the Kibbutz and the Kibbutz is desirous of continuing to lease to the Company the Premises under the Lease Agreement and the amendment thereto in accordance with the conditions hereinafter set forth;

It is therefore declared, stipulated and agreed between the parties as follows:

1.     Preamble and Definitions

1.1

The preamble and the Appendices to this Agreement constitute an integral part thereof.



1.2

The headings to the clauses are for convenience only and are not to be used in the interpretation of this Agreement.



1.3

All the provisions contained in the Lease Agreement which have not been amended hereby, will remain in full force and effect.



1.4

The expressions defined in the Lease Agreement will when used herein, bear the same meaning as therein prescribed unless otherwise expressly defined.



1.5

Save where otherwise expressly stated, the following terms in the present Agreement will bear the meanings set out opposite them:



1.5.1

The Company—as that term is defined in the preamble to this Agreement of Amendment;



1.5.2

The Lease Agreement—as hereinbefore defined;

1

1.5.3

The Operative Date—the date on which the Company's securities will be listed for trading on the Nasdaq;



1.5.4

The Kibbutz—as that term is defined in the preamble to this Agreement of Amendment above;



1.5.5

Agreement of Amendment—This Agreement amending the Lease Agreement.

2.     Condition Precedent

This Agreement of Amendment is conditional upon the Company's securities being listed for trading on an American exchange. If the above condition precedent is not fulfilled by 31 December 2005, this Agreement of Amendment will be null and void and the parties will have no claims or demands or complaints in relation to this Agreement of Amendment. For the avoidance of any doubt in the event of this Agreement of Amendment being avoided as stated above, the provisions of the Lease Agreement will apply to the relationship between the parties hereto.

3.     Amendment of the Agreement

3.1

The term "A.C.S." as defined in the Lease Agreement will be replaced by the term "Company" as defined in this Agreement of Amendment.



3.2

Sub-section 1.5 (Eleven) will be added as follows: "Additional Rent" is the cumulative sum of the rent in respect of each constructed sq.m that will be added to the area of the Premises as mentioned in section 8.2 or 8.3 hereof, less an amount equal to the rent payable for the yard (unconstructed) areas having a size equal to that of the land on which the relevant constructed area has been erected".



3.3

Section 3 of the Lease Agreement will be amended in a manner whereby the words: "... lease period is 20 (twenty) years commencing on 5.1.1999 and terminating on 31.12.2018" will be replaced by "... lease period is 24 (twenty four) years and 11 (eleven) months commencing on 5.1.1999 and terminating on 31.11.2023."



3.4

The wording of section 5.1 of the Lease Agreement will be replaced by the following:

"In exchange for the sub-letting, the Company will pay the Kibbutz monthly rental as follows:

An amount in Shekels equal to US$4 for each sq.m of constructed area marked on Appendix "B" attached according to the representative rate of exchange of the U.S. dollar known on the date of actual payment;

An amount in Shekels equal to US $1 in respect of each sq.m of yard area according to the representative rate of the US Dollar known on the date of payment. Upon the yard area or part thereof becoming a constructed area, the Company will be charged for each sq.m that has become constructed area the relevant rent as set out below that will replace the rent mentioned in this sub-section above for the yard area.

An amount in Shekels equal to US $4 in respect of each sq.m of constructed area that will be added to the area of the premises as mentioned in sections 8.2 or 8.3 hereof by industrial construction customary for light-industry companies according to the representative rate of exchange of the US Dollar known on the day of actual payment.

An amount in Shekels equal to US $6 in respect of each sq.m of constructed area that will be added to the area of the premises as mentioned in sections 8.2 or 8.3 hereof by standard office construction according to the representative rate of exchange of the US Dollar known on the day of actual payment.

2

In the event of industrial construction being carried out which is neither customary nor standard office construction as stated above the parties will negotiate in good faith the amount of the monthly rent to be payable in respect of such construction.

Notwithstanding the foregoing, starting from 1.1.2005, the monthly rent for the building marked on Appendix "C" attached hereto (the oven building) will be an amount in Shekels equal to US $4 for each constructed sq.m calculated according to the representative rate of exchange of the US Dollar known on the date of actual payment.

It is hereby clarified that the Company will be charged payment for constructed area that will be added to the area of the premises as from the inception of the actual leasing thereof by the Company. The rent mentioned in this section 5.1 will be hereinafter collectively called: "Basic rent"."

3.5

Section 5.2 of the Lease Agreement will be amended by replacing the words: "two years" with "five years".



3.6

Section 5.3 of the Lease Agreement will be amended by deleting therefrom the words: "linked to the consumer price index, in a manner whereby they shall be raised at a rate equal to the rate of the raise in index known on the day of payment corresponding to the basic index".



3.7

Section 8.2 of the Lease Agreement will be amended as follows:



3.7.1

The first two lines of the second sub-paragraph of section 8.2 will be replaced by the following:

"The Company will be entitled to set off the financing from additional rent (as defined above) that it owes the Kibbutz in respect of the Premises mentioned in section 5 above on the date prescribed for payment thereof".

3.7.2

The following will be added at the end of the second line of the second sub-paragraph of section 8.2:

"It is hereby clarified that in the event of this Agreement coming to an end for any reason whatsoever, the Kibbutz will continue to repay to the Company the financing refund payments provided the premises or any part thereof will be leased to another sub-tenant and/or use will be made by the Kibbutz thereof. Subject to the undertaking of the Kibbutz to use its best endeavors to find a tenant for the premises as stated below, in the event of the premises not being leased or used by the Kibbutz for any period following the termination of this Agreement but prior to the Kibbutz having completed repaying to the Company all the financing refund payments, the financing repayment payments will be deferred in respect of that period until the period following the expiration of the financing repayment period according to the repayments schedule that was agreed by the parties at the time the financing was granted and during which the premises will be leased to a sub-tenant and/or be used by the Kibbutz.

The Kibbutz hereby undertakes to use its best endeavors to find tenants for the area of the premises by the time the repayment of the financing amount to the Company will have been completed.

3.8

The wording of section 8.3 will be replaced by the following:

"Should the Kibbutz not realise its first right of refusal as mentioned in section 8.2 above and the Company carry out the construction work at its own expense, the actual construction cost will be set off against the additional rent in the same manner as stated in section 8.2 with respect to the repayment of the financing in a manner whereby the set off will be carried out commencing from the date on which the construction work terminates.

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In case of a dispute between the parties with respect to the cost of the construction, the cost shall be determined by an agreed appraiser".

3.9

Section 8.4 will be deleted.



3.10

Section 13.1 will be amended in a manner whereby that stated in this section will be deleted and replaced by: "this agreement shall terminate if the administration's relevant directives published from time to time will require the termination thereof in accordance with the law."



3.11

Section 13.2 of the Agreement will be amended in a manner whereby that stated in this section will be deleted and replaced by: "in addition to the foregoing, after the expiration of ten years from the Operative Date and so long as this agreement is in effect, the Company will be entitled to give the Lessor 36 months' prior notice for terminating this Agreement".



3.12

Section 13.3 in the following text will be added: "notwithstanding the foregoing, the Company will be entitled to bring this Agreement to an end at any time provided (a) that it finds a substitute sub-tenant that will assume all the liabilities of the Company by virtue of this Agreement towards the Kibbutz; and (b) the Kibbutz has granted its prior consent to the identity of such substitute sub-tenant, it being clarified that such consent may not unreasonably be withheld. Should the Kibbutz refuse to grant its consent, it will set out the reasons for such refusal in writing."



3.13

Except as expressly stated herein, all the remaining sections of the Lease Agreement will remain in full force and effect without any variation.

In witness whereof the parties have set their hands:

/s/ Uzi Tzur	/s/ Efrat Cohen	/s/ Rami Ben-Zeev	/s/ Avraham Hadar
Uzi Tzur	Efrat Cohen	Rami Ben-Zeev	Avraham Hadar
Kibbutz Shamir		The Company

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QuickLinks

LEASE AGREEMENT Made and entered into at Shamir Kibbutz on day of January 1999
It is therefore declared, stipulated and agreed between the parties as follows
In witness whereof the parties have set their hands

EX-10.6

Exhibit 10.6

TRANSLATION FOR CONVENIENCE ONLY

ATTN:	Shamir Optica Avran Adar, Accountant Amir Hai, CFO
FROM:	Kibbutz Shamir—Efrat Cohen, CFO

Dear all,

RE: Financing the Extension of Premises—Loan Payment

With respect to the founders' agreement, Shamir Optics financed the extension of the premises of the plant. The repayment of the loan shall be deducted from the rental fees.

The loan will be repaid in quarterly equal installments over 4 years. The loan will bare a yearly interest of 1.5% and will be US Dollar-linked.

Regrads,
Efrat Cohen,
CFO

Loan schedule for Client 00160—Loan No. 00794

Client Name	Shamir	Duration of loan	18 month
Annual Interest	1.50%	Loan type	Long term
Fund linking	100%	Index Currency	US Dollar
Interest linking	100%
Date of Loan	31.12.2004
1st Fund Pmt	31.3.2005
1st Interest Pmt	31.3.2005
Total loan	3,700,000.00
Base Index	5%

Pmt No.	Pmt Date	Fund	Interest	Total	Balance
1	31.3.2005	23,125.00	1,387.50	24,512.50	346,875.00
2	30.6.2005	23,125.00	1,300.78	24,425.78	323,750.00
3	30.9.2005	23,125.00	1,214.06	24,339.06	300,625.00
4	30.12.2005	23,125.00	1,127.34	24,252.34	277,500.00
Total		92,500.00	5,029.88	97,529.68
5	30.3.2006	23,125.00	1,040.63	24,165.63	254,375.00
6	30.6.2006	23,125.00	953.91	24,078.91	231,250.00
7	30.9.2006	23,125.00	867.19	23,992.19	208,125.00
8	30.12.2006	23,125.00	780.47	23,905.47	185,000.00
Total		92,500.00	3,642.20	96,142.20
9	30.3.2007	23,125.00	693.75	23,818.75	161,875.00
10	30.6.2007	23,125.00	607.03	23,732.03	138,750.00
11	30.9.2007	23,125.00	520.31	23,645.31	115,625.00
12	30.12.2007	23,125.00	133.59	23,258.59	92,500.00
Total		92,500.00	1,954.68	94,454.68
13	30.3.2008	23,125.00	346.88	23,471.88	69,375.00
14	30.6.2008	23,125.00	260.16	23,385.16	46,250.00
15	30.9.2008	23,125.00	173.44	23,298.44	23,125.00
16	30.12.2008	23,125.00	86.72	23,211.72
Total		92,500.00	867.20	93,367.20
Total Loan		370,000.00	11,493.76	381,493.76

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EX-10.7

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Exhibit 10.7

SHAREHOLDERS AGREEMENT

        THIS SHAREHOLDERS AGREEMENT (the "Agreement") made as of the 9th day of February, 2005, by and among Shamir Optica Holdings A.C.S. Ltd. Reg. No. 570039115, Upper Galilee 12135, Israel (hereinafter "Shamir"); Fibi Investment House Ltd. Reg No. 520031188 with a principal place of business at 14 Ehad Ha'am Street, Tel Aviv (hereinafter "Fibi"); Scorpio BSG Ltd. with a principal place of business at 85 Medinat Hayehudim, Herzliya (hereinafter "Scorpio"); JFJ International Trading Ltd. with a principal place of business at                        (hereinafter "Jacobson"); and Gishrei Asia Ltd. with a principal place of business at                        (hereinafter "GA") (each shall be referred to as "Shareholder" and collectively, the "Shareholders"). For the purposes of this Agreement, the term "Fibi Group" means Fibi, together with Scorpio, Jacobson and GA, and any permitted assignee pursuant to section 5.4 below.

W I T N E S S E T H:

WHEREAS, the Shareholders desire to set forth certain matters regarding their rights vis-à-vis each other and their shares in Shamir Optical Industry Ltd. (the "Company") in the event the Company consummates an initial public offering of its shares in the United States.

NOW, THEREFORE, in consideration of the mutual promises and covenants set forth herein, the parties hereby agree as follows:

1.

Conditions Precedent

1.1

The effectiveness of this Agreement shall be contingent upon and subject to: (a) the closing of the Company's initial public offering of its shares (the "IPO") in the United States on or prior to December 31, 2005, such closing to be confirmed in writing by the Company to the Shareholders; (b) the entering into effect of a Registration Rights Agreement among Fibi, the Company and others prior to consummation of the IPO, in the form attached hereto as Annex A; and (c) due adoption by the Company of articles of association that are not in contradiction with the terms of this Agreement with effect as of closing of the IPO ("Post-IPO Articles"). The form of the Post-IPO Articles and any amendment thereof prior to closing of the IPO shall require all approvals for amendment of the Company's articles of association required under the Shareholders Agreement between Fibi, Shamir and others dated January 5, 1999 (the "Existing Shareholder Agreement"). In the event that any of the said contingencies are not fulfilled on or prior to December 31, 2005, this Agreement and the Post-IPO Articles shall not become effective and shall be of no force or effect.

1.2

Simultaneously with the fulfillment of the above-mentioned contingencies and upon this Agreement becoming effective, the Existing Shareholder Agreement shall be replaced by this Agreement, and the Existing Shareholder Agreement shall be of no further force or effect.

1.3

The parties agree to adopt articles of association to be in effect from the time of the change of the Company's status from an Agriculture Cooperative Society ("A.C.S.") into a limited company and until the closing of the IPO (the "Pre-IPO Articles") in the form attached hereto as Annex B.

1.4

Unless and until this Agreement becomes effective, the Existing Shareholders Agreement and the existing articles of association of the Company in its current status as an A.C.S., or in the event the status of the Company has been changed into a limited company, the Pre-IPO Articles, shall continue in full force and effect. Furthermore, unless and until this Agreement becomes effective, in the event of any conflict between the Existing Shareholders Agreement and the relevant articles of association then in effect, the provisions of the Existing Shareholders Agreement shall govern.

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2.

Board Of Directors

The Shareholders shall vote for the election of directors to the board of directors of the Company, as follows:

2.1

At all times during the term of this Agreement, Fibi shall be entitled to nominate one director to the board of directors, and to remove such director from office and nominate another person in such director's place ("Fibi's Director"), and Shamir shall be entitled to nominate all other directors, and to remove any such directors from office and nominate other persons in such directors' place provided each such director is eligible to be a director on the Board pursuant to any applicable law and the Post-IPO Articles ("Shamir Director(s)"). (Fibi's Director and Shamir Director(s)' respectively, shall be hereinafter referred to as the "Nominated Directors").



2.2

Prior to any Shareholders' General Meeting of the Company (the "General Meeting"), the agenda of which includes a resolution to appoint a director to and/or, to the extent permitted by the Post-IPO Articles, to remove a director from the board of directors of the Company (the "Board"), Shamir and Fibi will meet and each shall inform the other of its respective Nominated Directors to be appointed to or removed from, the Board.



2.3

The Shareholders undertake to vote in any General Meeting only and strictly in accordance with the instructions given in the aforesaid prior meeting, provided however, that each such nominee is eligible to be a director on the Board pursuant to any applicable law and the Post-IPO Articles.



2.4

In case the position of Fibi's Director becomes vacant, Fibi may recommend a new nominee for the position, the Shareholders shall demand the convening of a General Meeting of the shareholders of the Company and the Shareholders shall vote in the General Meeting to be convened by the Company for this purpose in favor of the appointment of such nominee as a director provided however, that such nominee is eligible to be a director on the Board pursuant to any applicable law and the Post-IPO Articles. The Shareholders shall act to cause the convening of this General Meeting as promptly as possible upon the request of Fibi.

3.

Tag Along

Each Fibi Group member shall be entitled to a tag along right as follows:

3.1

In any case whereby Shamir desires to transfer by sale, assignment or series of sales or assignments (a "Transfer") shares of the Company held by Shamir (in this Section, the "Offered Shares") to any third party or parties other than (i) to a Shamir Affiliate, as defined below, who agrees to assume all rights, privileges and obligations under this Agreement with respect to the Transferred shares; or (ii) in a sale or sales of shares to the public executed on the securities exchange on which the Company's shares are listed for trading, and unless such sale is made in a registered public offering upon the "demand" of Shamir made in accordance with the Registration Right Agreement or as a selling shareholder in a registered public offering initiated by the Company, Shamir shall first give a written notice thereof to each member of the Fibi Group 21 days prior to any Transfer of such Offered Shares (in this Section, the "Sale Notice").

For the purposes of this Agreement the term "Affiliate" means an entity controlled by, controlling, or under common control with such Shareholder.

3.2

The Sale Notice to the members of the Fibi Group shall specify in reasonable detail the identity of the prospective transferee(s), (other than in the event of a registered public offering) the number of shares to be transferred and the consideration per share and other material terms and conditions of the Transfer. Any member of the Fibi Group may elect to

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participate in the contemplated Transfer at the same consideration per share and on the same terms and conditions by delivering written notice to Shamir within 21 days after delivery of the Sale Notice. The Sale Notice shall constitute an irrevocable offer (the "Offer") by Shamir to members of the Fibi Group to participate in the Transfer. This right in favor of the Fibi Group is referred to herein as the "Tag-Along Right." If any member or members of the Fibi Group elect to participate in such Transfer, it or they shall be entitled to sell Existing Shares in the contemplated Transfer, at the same consideration per share and on the same terms, as those of the Offered Shares. Each Fibi Group member shall have the right to sell that number of Existing Shares as shall be equal to the number of the Offered Shares, multiplied by the fraction, the numerator of which is the sum of Existing Shares held by such Fibi Group member, and denominator of which is the sum of all Existing Shares and all shares held by Shamir, as of the date of the Sale Notice, and Shamir shall be entitled to sell the remainder of the shares to be sold in the contemplated Transfer. In the event of a sale or sale by Shamir in a "demand" made pursuant to the Registration Rights Agreement, the allocation of shares to be sold as among Shamir and the members of the Fibi Group shall be as set forth in this Section 3, notwithstanding any provision of the Registration Rights Agreement.

3.3

Notwithstanding section 3.2 above, in the event that the shareholding of Shamir as a result of the proposed Transfer of the Offered Shares would be reduced to 10% or lower of the outstanding share capital of the Company, any member or members of the Fibi Group electing to participate in such Transfer shall be entitled to sell all of its Existing Shares in the contemplated Transfer, at the same consideration per share and on the same terms, and not just its pro rata share.

For example: (a) if the Sale Notice contemplated a sale of 100 shares by Shamir, and if Shamir at such time owns 160 shares and if members of the Fibi Group own 40 Existing Shares, members of the Fibi Group would be entitled to sell 20 shares and Shamir would be entitled to sell the remaining 80 shares; (b) if the Sale Notice contemplated a sale of 140 shares by Shamir (which would reduce its percentage shareholding in the Company to 10%) members of the Fibi Group would be entitled to sell all 40 of their shares to the prospective transferee according to the Sale Notice and Shamir would be entitled to sell the remaining balance.

3.4

All Shareholders participating in a Transfer shall pay their pro rata share, which shall be a several but not joint obligation (based on the number of shares actually sold), of the reasonable, third-party expenses incurred by Shamir in connection with such Transfer. The only representations or warranties that may be required of a participating Fibi Group member shall be as to title and ownership of its Existing Shares sold.



3.5

If the sale as described in the Sale Notice is not completed within 145 days, the Transfer of any shares of the Company by Shamir shall continue to be subject to all of the provisions of this Section 3.



3.6

For purposes of this Agreement, "Existing Shares" shall mean:



(a)

all shares of the Company that have been held by members of the Fibi Group since immediately prior to the IPO, and



(b)

any shares of the Company received by members of the Fibi Group with respect to the foregoing shares, by way of bonus shares, or any other shares issued as a dividend or other distribution with respect to, or in exchange for or in replacement of the foregoing shares, and including shares obtained by members of the Fibi Group through a rights offering of the Company which offering has an economically dilutive effect on the shares of the Company.

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4.

Shamir Right of First Offer

4.1

In any case whereby a member or members of the Fibi Group (the "Seller") desire to Transfer shares of the Company it holds constituting 2.5% or more of the issued and outstanding capital of the Company (in this Section, the "Offered Shares") to any third party other than (i) in a sale to the public executed on the securities exchange on which the Company's shares are listed for trading; or (ii) to an Affiliate, as defined above, who agrees to assume all rights, privileges and obligations under this Agreement with respect to the Transferred shares, the Seller shall first give a written notice thereof to Shamir at least 21 days prior to any Transfer (in this Section, the "Sale Notice"). The Sale Notice to Shamir shall specify in reasonable detail Seller's intention to make such Transfer, the number of Offered Shares to be transferred, the price (the "Offer Price") at which such Seller proposes to dispose of the Offered Shares, and the material terms and conditions of the prospective Transfer, and if the Seller is Fibi, whether Fibi intends to assign its right to nominate the Fibi Director together with the Offered Shares.

4.2

The Sale Notice shall constitute an irrevocable offer (the "Offer") by the Seller to Shamir to sell the Offered Shares to Shamir, and Shamir shall have the right to purchase all (but not less than all) of the Offered Shares at the Offer Price and otherwise on the same terms as set forth in the Sale Notice. This right in favor of Shamir is referred to herein as the "First Offer Right."

4.3

Shamir's First Offer Right shall be exercisable by the delivery, within 21 days from the date of receipt by Shamir of the Sale Notice, (the "Purchase Notice") in which Shamir states whether or not it accepts the Seller's Offer to purchase the Offered Shares. If Shamir exercises its First Offer Right and accepts the Offer, the Seller must sell the Offered Shares, and Shamir must purchase the Offered Shares, as stated in the Purchase Notice, to Shamir within 30 days after the date of receipt of the Purchase Notice, in accordance with the terms set forth in the Sale Notice.

4.4

The First Offer Right granted to Shamir pursuant to this Section 4 with respect to a Transfer set forth in a specific Sale Notice shall terminate if unexercised for more than 21 days after receipt of the Sale Notice.

4.5

If Shamir's Purchase Notice has not been delivered within 21 days from the date of receipt by Shamir of the Sale Notice, or, Shamir has notified the Fibi Group member that it has determined not to exercise its First Offer Right, then the Seller shall have the right, for a period of 145 days thereafter, to sell the Offered Shares at a price no lower than the Offer Price set forth in the Sale Notice. If the Seller fails to complete such sale within 145 days after the expiration of the First Offer Right, the Offered Shares shall again become subject to all of the restrictions of this Section 4.

5.

Miscellaneous

5.1

Termination.    (a)    In the event that the aggregate holdings of the members of the Fibi Group shall decrease below 5% of the issued and outstanding share capital of the Company, and shall remain below 5% for a period of at least consecutive 90 days, this Agreement shall terminate automatically and be of no further force and effect.

(b)    In order to ensure the resignation of Fibi's Director (i) in the event this Agreement terminates pursuant to Section 5.1(a) above or (ii) in the event of an assignment of Fibi's rights, privileges and obligations under this Agreement by a Fibi transferee in an assignment that is not permitted under Section 5.4(a), Fibi's Director shall deposit with counsel to the Company reasonably acceptable to Fibi, as trustee (the "Trustee"), a signed, but undated resignation letter. The Trustee shall hold the letter in trust, and date and release it to the

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Company only upon occurrence of either of the events described in clauses (i) or (ii) in the preceding sentence.

5.2

Further Assurances.    Each of the parties hereto shall perform such further acts and execute such further documents as may reasonably be necessary to carry out and give full effect to the provisions of this Agreement and the intentions of the parties as reflected thereby, including, to the extent necessary, any amendments to the Company's Articles of Association to reflect the terms hereof.



5.3

Governing Law; Jurisdiction.    This Agreement shall be governed by and construed in accordance with the laws of the State of Israel, without reference to choice of law principles thereof, and the parties agree to exclusively submit to the jurisdiction and venue of Israel and exclusively to the courts of Tel-Aviv-Jaffa.



5.4

Assignment.    (a)    Unless otherwise expressly stated in this Agreement, none of the rights, privileges, or obligations set forth in, arising under, or created by this Agreement may be assigned or transferred, except to an Affiliate, provided however, that Fibi may make a one-time assignment (without the right to re-assign) of all of its rights, privileges, or obligations set forth in, arising under, or created by this Agreement to any person or entity acquiring shares held by Fibi, provided that such party agrees, in writing, to assume all rights, privileges and obligations in place of Fibi and becomes part of the Fibi Group.

(b)    A Nominated Director proposed by a Fibi assignee pursuant to Section 2 above shall be subject to the approval of Shamir, provided however, that a decision by Shamir not to approve an assignee's Nominated Director may be made only upon reasonable grounds, and based strictly on the qualifications of the Nominated Director and not on the identity of the assignee. In addition, no Nominated Director may be a competitor, or an Affiliate of a competitor, of the Company.

5.5

Entire Agreement; Amendment and Waiver.    This Agreement and the Schedules hereto, if any, constitute the full and entire understanding and agreement between the parties with regard to the subject matters hereof and thereof. Any term of this Agreement may be amended and the observance of any term hereof may be waived (either prospectively or retroactively and either generally or in a particular instance) only with the written consent of all of the parties to this Agreement. All article and section headings are inserted for convenience only and shall not modify or affect the construction or interpretation of any provision of this Agreement. The preamble and schedules to this Agreement are incorporated herein and form an integral part hereto.



5.6

Notices, etc.    All notices and other communications required or permitted hereunder to be given to a party to this Agreement shall be in writing and shall be telecopied or mailed by registered or certified mail, postage prepaid, or otherwise delivered by hand or by messenger, addressed to such party's address as set forth hereinabove or such other address with respect to a party as such party shall notify each other party in writing as above provided. Any notice sent in accordance with this Section 5.6 shall be effective (i) if mailed, five (5) business days after mailing, (ii) if sent by messenger, upon receipt, and (iii) if sent via telecopier, upon transmission and electronic confirmation of receipt or (if transmitted and received on a non-business day) on the first business day following transmission and electronic confirmation of receipt (provided, however, that any notice of change of address shall only be valid upon receipt).

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5.7

Delays or Omissions.    No delay or omission to exercise any right, power, or remedy accruing to any party upon any breach or default under this Agreement, shall be deemed a waiver of any other breach or default threreto or thereafter occurring. Any waiver, permit, consent, or approval of any kind or character on the part of any party of any breach or default under this Agreement, or any waiver on the part of any party of any provisions or conditions of this Agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement or by law or otherwise afforded to any of the parties, shall be cumulative and not alternative.



5.8

Severability.    If any provision of this Agreement is held by a court of competent jurisdiction to be unenforceable under applicable law, then such provision shall be excluded from this Agreement and the remainder of this Agreement shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms; provided, however, that in such event this Agreement shall be interpreted so as to give effect, to the greatest extent consistent with and permitted by applicable law, to the meaning and intention of the excluded provision as determined by such court of competent jurisdiction.



5.9

Counterparts.    This Agreement may be executed in any number of counterparts, each of which shall be deemed an original and enforceable against the parties actually executing such counterpart, and all of which together shall constitute one and the same instrument.

IN WITNESS WHEREOF, the parties have signed this Agreement as of the date first hereinabove set forth.

Shamir Optica Holdings A.C.S. Ltd.	Fibi Investment House Ltd.
By:  /s/	By:  /s/
By:  /s/	By:  /s/

Scorpio BSG Ltd.	JFJ International Trading Ltd.
By:	By:  /s/
By:  /s/	By:

Gishrei Asia Ltd.

By:  /s/

By:

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SHAREHOLDERS AGREEMENT

EX-10.8

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Exhibit 10.8

EXECUTION COPY

REGISTRATION RIGHTS AGREEMENT

        THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made as of the 7th day of February, 2005 by and among Shamir Optical Industry Ltd., a limited liability company formed in Israel (the "Company"), and certain investors in the Company listed in the signature block of this Agreement (collectively, the "Investors").

RECITALS

        WHEREAS, the Company and the Investors desire to provide for certain arrangements with respect to the registration of ordinary shares of the Company under the United States Securities Act of 1933, as amended.

        NOW, THEREFORE, in consideration of the mutual promises and covenants contained in this Agreement, the parties agree as follows:

1.

Definitions. For purposes of this Agreement:

(a)

The term "Act" means the United States Securities Act of 1933, as amended.

(b)

The term "Exchange Act" or "1934 Act" shall mean the United States Securities Exchange Act of 1934, as amended.

(c)

The term "Form F-3" means such form under the Act as in effect on the date hereof or any registration form under the Act subsequently adopted by the SEC which permits inclusion or incorporation of substantial information by reference to other documents filed by the Company with the SEC.

(d)

The term "Holder" means each of the holders listed in Schedule A hereto.

(e)

The term "Initiating Holders" has the meaning set forth in Section 2(c).

(f)

Except as otherwise provided in Section 2(a)(y), the term "register", "registered" and "registration" refer to a registration effected by preparing and filing a registration statement or similar document in compliance with the Act, and the declaration or ordering of effectiveness of such registration statement or document.

(g)

The term "Registrable Securities" means (i) the Company's ordinary shares held by the Holders as of the date hereof as set forth in Schedule A and any shares issuable or issued upon conversion of such shares held by, or entitled to be exercised by, the Holder (whether currently issued or hereafter acquired) and (ii) ordinary shares issued as (or issuable upon the conversion or exercise of any warrant, right or other security that is issued as) a dividend or other distribution with respect to, or in exchange for or in replacement of the shares referenced in (i) above. Notwithstanding the foregoing, "Registrable Securities" shall exclude any Registrable Securities to the extent (A) they are sold or otherwise transferred by a Holder to a third party, unless the rights under this agreement have been assigned or transferred together with such Registrable Securities pursuant to Section 11, or (B) the registration rights with respect to such Registrable Securities have been terminated pursuant to Section 13. "Registrable Securities" shall also not include any shares or other securities of the Company acquired by the Holders after the date hereof.

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(h)

The term "Rule 144" means Rule 144 promulgated under the Act, as such rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC as a replacement thereto having substantially the same effect as such rule.



(i)

The term "SEC" shall mean the United States Securities and Exchange Commission.



(j)

The term "Violation" has the meaning set forth in Section 9(a).



(k)

The term "FIBI" shall mean FIBI Investment House Ltd.



(l)

The term "FIBI Group" shall mean FIBI Investment House Ltd. and any of its assignees or transferees pursuant to Section 11(b), Scorpio (BSG) Ltd., Gishrei Asia Ltd. and JFJ International Trading Ltd. For purposes of this agreement, the FIBI Group shall be treated collectively as one Holder, and the rights to cause a registration of Registrable Securities under this Agreement shall inure upon the FIBI Group as a group, but not upon any of its members individually. FIBI shall act in all respects on behalf of and shall be able to exercise the rights of the FIBI Group under this Agreement. No other member of the FIBI Group shall act on behalf of or be able to exercise the rights of the FIBI Group for as long as FIBI holds any of the Company's shares. If FIBI does not hold any of the Company's shares, that member of the FIBI Group who holds the greatest number of Company shares of all the members of the FIBI Group shall act on behalf of and be able to exercise the rights of the FIBI Group under this Agreement.

2.     Request for Registration

(a)

At any time after the Company's initial registration of ordinary shares (but not prior to the date that is six months after the effective date of a first registration statement either (x) for a public offering of securities of the Company or (y) under the Exchange Act), each of the Holders shall have the right (a "demand registration right") to request in writing that the Company file a registration statement under the Act covering the registration of a distribution of all or part of such Holder's Registrable Securities, provided that, with the exception of Vision Capital, the amount of shares a Holder requests to register must be equal to at least 2% of the Company's ordinary shares on a fully diluted basis at the time of the demand and have a market value of at least $4.0 million. This limit shall not apply to Vision Capital, who shall have a demand registration right regardless of whether it requests to register 2% or $4.0 million of the Company's ordinary shares.



(b)

After the respective Holder makes the request referred to in Section 2(a) above, the Company shall:



(1)

within ten (10) days of the receipt thereof, give written notice of such request to all Holders; and



(2)

use its best efforts to effect within ninety (90) days and no longer than one-hundred-and-eighty (180) days following the receipt of such request, the registration under the Act of all Registrable Securities that the Holders request in writing to be registered within twenty (20) days of the mailing of such notice by the Company in accordance with Section 2(b)(1).



(c)

If the Holders initiating the registration request hereunder (the "Initiating Holders") intend to distribute the Registrable Securities covered by their request by means of an underwriting, they shall so advise the Company as a part of their request made pursuant to Section 2(a) and the Company shall include such information in the written notice referred to in Section 2(b)(1). The underwriter will be selected by the Company. In such event, the right of any Holder to include his Registrable Securities in such registration shall be conditioned upon

2

such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting (unless otherwise mutually agreed by a majority in interest of the Initiating Holders and such Holder) to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall (together with the Company as provided in Section 4(e)) enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting. Notwithstanding any other provision of this Section 2, if the underwriter advises the Initiating Holders in writing that marketing factors require a limitation of the number of shares to be underwritten, then the Initiating Holders shall so advise all Holders of Registrable Securities that would otherwise be underwritten pursuant hereto, and the Initiating Holders shall have priority over all other Holders to include the Initiating Holders' shares in the underwriting. If there is more than one Initiating Holder, and if the number of shares of Registrable Securities held by the Initiating Holders and requested to be included in the underwriting exceeds the number of shares of Registrable Securities the underwriters determine in their sole discretion is compatible with the success of the offering, then the number of shares of Registrable Securities that may be included in the underwriting shall be allocated among the Initiating Holders in proportion (as nearly as practicable) to the amount of Registrable Securities of the Company owned by each Initiating Holder. If the number of shares or Registrable Securities held by the Initiating Holders and requested to be included in the underwriting is less than the number of shares of Registrable Securities the underwriters determine in their sole discretion is compatible with the success of the offering, then the excess number of shares of Registrable Securities that may be included in the underwriting shall be allocated among the Holders thereof who are not Initiating Holders and who elect to include shares in the offering in proportion (as nearly as practicable) to the amount of Registrable Securities of the Company owned by each such Holder participating in the offering, or in such other proportions as shall mutually be agreed to by such Holders.

(d)

Notwithstanding the foregoing, if the Company shall furnish to Holders requesting a registration statement pursuant to this Section 2 a certificate signed by the President of the Company stating that in the good faith judgment of the Board of Directors of the Company, it would be seriously detrimental to the Company for such registration statement to be filed and it is therefore essential to defer the filing of such registration statement, the Company shall have the right to defer taking action with respect to such filing for a period of not more than ninety (90) days after receipt of the request of the Initiating Holders; provided, however, that the Company may not utilize this right more than once in any twelve (12) month period. For the avoidance of doubt: the 90-day and 180-day time limits described in Section 2(b)(2) will not begin to run during this 90-day deferral period.



(e)

With the exception of Vision Capital LLC, each Holder shall be entitled to request two (2) such registrations pursuant to this Section 2. Vision Capital LLC shall be entitled to request only one (1) such registration pursuant to this Section 2. The expenses for these registrations shall be borne in accordance with Section 6, below.



(f)

Notwithstanding anything to the contrary in this Agreement, the Company shall not be required to effect more than one (1) registration pursuant to this Section 2 per twelve-month period.

3.

Company Registration. If at any time after the date that is six months after the Company's initial public offering (but without any obligation to do so) the Company proposes to register (including for this purpose a registration effected by the Company for shareholders other than the Holders) any of its shares or other securities under the Act in connection with the public offering of such securities solely for cash (other than a registration relating solely to the sale of securities to participants in a Company share plan or a registration on Form F-4 or any similar successive

3

form), the Company shall, at such time, promptly give each Holder who holds Registrable Securities written notice of such registration. Upon the written request of each Holder given within twenty (20) days after mailing of such notice by the Company, the Company shall, subject to the provisions of Section 7, include in the registration statement all the Registrable Securities that each such Holder has requested to be registered.

4.

Obligations of the Company. Whenever required under this Agreement to effect the registration of any Registrable Securities, the Company shall, as expeditiously as reasonably possible:

(a)

Prepare and file with the SEC a registration statement with respect to such Registrable Securities and use its best efforts to cause such registration statement to become effective as soon as practicable, and, upon the request of the Holders of a majority of the Registrable Securities registered thereunder, keep such registration statement effective for a period of up to two years or until the Holders have completed the distribution described in the registration statement relating thereto, whichever first occurs.

(b)

Prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Act with respect to the disposition of all securities covered by such registration statement.

(c)

Furnish to the Holders such numbers of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Act, and such other documents as they may reasonably request in order to facilitate the disposition of Registrable Securities owned by them.

(d)

Use its best efforts to register and qualify the securities covered by such registration statement under such other securities or "Blue Sky" laws of such jurisdictions as shall be reasonably requested by the Holders; provided, however, that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions.

(e)

In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form (including, without limitation, procurement and delivery of a customary opinion of counsel for the Company and a customary "comfort" letter signed by the independent public accountants of the Company), with the underwriters of such offering. Each Holder participating in such underwriting shall also enter into and perform its obligations under such an agreement.

(f)

Notify each Holder of Registrable Securities covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under the Act of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing.

(g)

Enter into such agreements and take such other actions as sellers of such Registrable Securities holding 50% of the shares so to be sold shall reasonably request in order to expedite or facilitate the disposition of such Registrable Securities, including with respect to depositing Company shares with a designated depositary to facilitate the issuance and sale of such shares.

(h)

Cause all such Registrable Securities registered pursuant hereunder to be listed on each securities exchange or nationally recognized quotation system on which similar securities issued by the Company are then listed.

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5.

Furnish Information. It shall be a condition precedent to the obligations of the Company to take any action pursuant to this Agreement with respect to the Registrable Securities of any selling Holder that such Holder shall furnish to the Company such information regarding itself, the Registrable Securities held by it, and the intended method of disposition of such securities as shall be reasonably required to effect the registration of such Holder's Registrable Securities.

6.

Expenses of Registration. The Company shall bear all registration, filing and qualification fees, printers' and accounting fees, and fees and disbursements of counsel for the Company in connection with registrations, filings or qualifications pursuant to Section 3 of this Agreement and in connection with the first registration requested by a Holder pursuant to Section 2 of this Agreement. In connection with the second registration requested by a Holder pursuant to Section 2 of this Agreement, the selling Holders shall bear, on a pro rata basis of shares sold, all expenses incurred in connection with such registration, including (without limitation) all registration, filing and qualification fees, printers' and accounting fees, fees and disbursements of counsel for the Company, and all out-of pocket expenses of the Company. For the avoidance of doubt: the Company will not charge the Holders for the time expended by its management in relation to a registration under this Agreement.

7.     Underwriting Requirements.

(a)

In connection with any offering involving an underwriting of the Company's shares, the Company shall not be required under Section 3 to include Registrable Securities of a Holder in such underwriting unless the Holder of such Registrable Securities accepts the terms of the underwriting as agreed upon between the Company and the underwriters selected by it, and then only in such quantity as the underwriters determine in their sole discretion will not adversely affect their ability to market the offering. If the total amount of Registrable Securities requested by Holders to be included in such offering exceeds the amount of securities sold other than by the Company that the underwriters determine in their sole discretion is compatible with the success of the offering, then the Company shall be required to include in the offering only that number of such securities, including Registrable Securities, that the underwriters determine in their sole discretion will not adversely affect their ability to market the offering (the securities so included to be apportioned pro rata among the selling Holders according to the total amount of securities owned by each selling Holder or in such other proportions as shall mutually be agreed to by such selling Holders).



(b)

In connection with any offering involving an underwriting of shares of the Holders' Registrable Securities pursuant to Section 2, the Company shall not be permitted to sell its securities in such underwriting unless the Company accepts the terms of the underwriting as agreed upon between the Holders and the underwriters, and then the Company may include only such quantity as the underwriters determine in their sole discretion will not adversely affect their ability to market the offering. If the total amount of securities requested by the Company to be included in such offering exceeds the amount the underwriters determine in their sole discretion is compatible with the success of the offering, then the Company shall be permitted to include in the offering only that number of such securities that the underwriters determine in their sole discretion will not adversely affect their ability to market the offering.

8.

Delay of Registration. No Holder shall have any right to obtain or seek an injunction restraining or otherwise delaying any such registration as the result of any controversy that might arise with respect to the interpretation or implementation of this Agreement.

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9.

Indemnification. In the event any Registrable Securities are included in a registration statement under this Agreement:

(a)

To the extent permitted by law, the Company will indemnify and hold harmless each Holder, any underwriter (as defined in the Act) for such Holder and each person, if any, who controls such Holder or underwriter within the meaning of the Act or the 1934 Act, against any losses, claims, damages, or liabilities (joint or several) to which they may become subject under the Act, the 1934 Act or other federal or state securities law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (collectively a "Violation"): (i) any untrue statement or alleged untrue statement of a material fact contained in such registration statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto, (ii) the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading, or (iii) any violation or alleged violation by the Company of the Act, the 1934 Act, any state securities law or any rule or regulation promulgated under the Act, the 1934 Act or any state securities law; and the Company will pay to each such Holder, underwriter or controlling person, as incurred, any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability, or action; provided, however, that the indemnity agreement contained in this Section 9(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability, or action if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld), nor shall the Company be liable in any such case for any such loss, claim, damage, liability, or action to the extent that it arises out of or is based upon a Violation that occurs in reliance upon and in conformity with written information furnished expressly for inclusion in a registration statement in connection with such registration by any such Holder, underwriter or controlling person.

(b)

To the extent permitted by law, each selling Holder will indemnify and hold harmless the Company, each of its directors, each of its officers who has signed the registration statement, each person, if any, who controls the Company within the meaning of the Act, any underwriter, any other Holder selling securities in such registration statement and any controlling person of any such underwriter or other Holder, against any losses, claims, damages, or liabilities (joint or several) to which any of the foregoing persons may become subject, under the Act, the 1934 Act or other federal or state securities law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereto) arise out of or are based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with information furnished by such Holder in connection with the drafting of the registration statement related to such registration; and each such Holder will pay, as incurred, any legal or other expenses reasonably incurred by any person intended to be indemnified pursuant to this Section 9(b), in connection with investigating or defending any such loss, claim, damage, liability, or action; provided, however, that the indemnity agreement contained in this Section 9(b) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Holder, which consent shall not be unreasonably withheld; provided, however, that in no event shall any indemnity under this Section 9(b) exceed the net proceeds from the offering received by such Holder.

(c)

Promptly after receipt by an indemnified party under this Section 9 of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 9, deliver to the indemnifying party a written notice of the commencement thereof and the

6

indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties; provided, however, that an indemnified party (together with all other indemnified parties that may be represented without conflict by one counsel) shall have the right to retain one separate counsel, with the reasonable fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate (in the sole judgment of counsel for the indemnified party) due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action, if materially prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this Section 9, but the omission so to deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 9.

(d)

If the indemnification provided for in this Section 9 is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any loss, liability, claim, damage, or expense referred to therein, then the indemnifying party, in lieu of indemnifying such indemnified party hereunder, shall contribute to the amount paid or payable by such indemnified party as a result of such loss, liability, claim, damage, or expense in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and of the indemnified party on the other in connection with the statements or omissions that resulted in such loss, liability, claim, damage, or expense as well as any other relevant equitable considerations. The relative fault of the indemnifying party and of the indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties' relative intent, knowledge, access to information, and opportunity to correct or prevent such statement or omission.



(e)

The obligations of the Company and Holders under this Section 9 shall survive the completion of any offering of Registrable Securities in a registration statement under this Agreement, and otherwise.

10.

Reports Under Securities Exchange Act of 1934. With a view to making available to the Holders the benefits of Rule 144 and any other rule or regulation of the SEC that may at any time permit a Holder to sell securities of the Company to the public without registration or pursuant to a registration on Form F-3, the Company agrees to:

(a)

make and keep public information available, as those terms are understood and defined in Rule 144, at all times after the effective date of the first registration statement filed by the Company for the offering of its securities to the general public;

(b)

file with the SEC in a timely manner all reports and other documents required of the Company under the Act and the 1934 Act; and

(c)

furnish to any Holder, for so long as the Holder owns any Registrable Securities, forthwith upon request (i) a written statement by the Company that it has complied with the reporting requirements of Rule 144 (at any time after the first anniversary of the effective date of the first registration statement filed by the Company), the Act and the 1934 Act (at any time after it has become subject to such reporting requirements), or that it qualifies as a registrant whose securities may be resold pursuant to Form F-3 (at any time after it so qualifies), (ii) a copy of the most recent annual or quarterly report of the Company and such other reports

7

and documents so filed by the Company, and (iii) such other information as may be reasonably requested in availing any Holder of any rule or regulation of the SEC that permits the selling of any such securities without registration or pursuant to such form.

11.   Assignment and Transfer of Registration Rights.

(a)

The rights to cause the Company to register Registrable Securities pursuant to this Agreement inure specifically to each of the Holders listed in Schedule A and may not be assigned or transferred by a Holder to any other party, other than an affiliate of the transferring party. An "affiliate" of a party shall mean an entity controlled by, controlling or under common control with such party.



(b)

Notwithstanding anything in Section 11(a), FIBI may assign or transfer (but only with all related obligations) its rights pursuant to this Agreement to cause the Company to register the Registrable Securities held by FIBI to a transferee or assignee of such securities who, after such assignment or transfer, holds at least 20% of FIBI's Registrable Securities and 2% of the Company's ordinary shares on a fully diluted basis; provided, however, that the Company be, within a reasonable time after such transfer, furnished with written notice of the name and address of such transferee or assignee and the securities with respect to which such registration rights are being assigned or transferred. Any assignee or transferee of FIBI's rights may not assign or transfer these rights.

12.

Limitations on Subsequent Registration Rights. From and after the date of this Agreement, the Company shall not, without the prior written consent of the Holders of a majority of the Registrable Securities then outstanding, enter into any agreement with any holder or prospective holder of any securities of the Company that would allow such holder or prospective holder to include such securities in any registration filed under Section 2 hereof, unless under the terms of such agreement, such holder or prospective holder may include such securities in any such registration only to the extent that the inclusion of his securities will not reduce the amount of the Registrable Securities of the Holders that is included.

13.

Effectiveness and Termination of Registration Rights. The effectiveness of this Agreement is contingent upon and subject to the completion of an initial public offering of the Company's ordinary shares in the United States on or prior to December 31, 2005 and the effectiveness of the related registration statement concerning the Company's ordinary shares in compliance with the Act. In the event that such a public offering does not occur on or prior to December 31, 2005, this Agreement shall not become effective. This Agreement terminates as of the earlier of (a) the sixth anniversary of this Agreement, or (b) as to any Holder, such time at which all Registrable Securities held by such Holder can be sold without restriction and without registration in compliance with Rule 144, or (c) as to any Registrable Securities held by each Holder, such time at which such Registrable Securities have either been registered or sold or otherwise transferred to another party by such Holder.

14.

Mergers. The Company shall not, directly or indirectly, enter into any merger, consolidation or reorganization in which the Company shall not be the surviving corporation unless the proposed surviving corporation shall, prior to such merger, consolidation or reorganization, agree in writing to assume the obligations of the Company under this Agreement, and for that purpose references hereunder to Registrable Securities shall be deemed to be references to the securities which the Holders would be entitled to receive in exchange for Registrable Securities under any such merger, consolidation or reorganization; provided, however, that the provisions of this Section 14 shall not apply in the event of any merger, consolidation or reorganization in which the Company is not the surviving corporation if all Holders are entitled to receive in exchange for their Registrable Securities consideration consisting solely of (i) cash, (ii) securities of the acquiring corporation

8

which may be immediately sold to the public without registration under the Securities Act, or (iii) securities of the acquiring corporation which the acquiring corporation has agreed to register within 90 days of completion of the transaction for resale to the public pursuant to the Securities Act.

15.   Miscellaneous

(a)

Successors and Assigns. The terms and conditions of this Agreement shall inure solely to the benefit of and be binding upon the respective parties to this agreement, as well as their successors or assigns. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors or assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement.



(b)

Governing Law. This Agreement shall be governed by and construed under the laws of the State of New York.



(c)

Counterparts. This 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.



(d)

Headings. The headings used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement.



(e)

Notices. Unless otherwise provided, any notice required or permitted under this Agreement shall be given in writing and shall be deemed effectively given upon personal delivery to the party to be notified or upon delivery by facsimile or overnight courier at the address indicated for such party on the signature page hereof, or at such other address as such party may designate.



(f)

Expenses. If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorneys' fees, costs and necessary disbursements in addition to any other relief to which such party may be entitled.



(g)

Amendments and Waivers. Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and all Holders who hold at least 2% of the Company's ordinary shares on a fully diluted basis at the time of the amendment or waiver; provided, however, that this Agreement may be amended or a term of this Agreement waived with the consent of the Holders of less than all Registrable Securities only in a manner which affects all Registrable Securities in the same fashion. No waivers of or exceptions to any term, condition or provision of this Agreement, in any one or more instances, shall be deemed to be, or construed as, a further or continuing waiver of any such term, condition or provision.



(h)

Severability. If one or more provisions of this Agreement are held to be unenforceable under applicable law, such provision shall be excluded from this Agreement, and the balance of the Agreement shall be interpreted as if such provision were so excluded, and shall be enforceable in accordance with its terms.

9

IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first above written.

COMPANY:
SHAMIR OPTICAL INDUSTRY LTD.
By:	/s/
Name: Title:

INVESTORS:
SHAMIR OPTICA HOLDINGS A.C.S. LTD.
By:	/s/
Name: Title:
FIBI INVESTMENT HOUSE LTD.
By:	/s/
Name: Title:
HAKLAEI EYAL HASHARON A.C.S. LTD.
By:	/s/
Name: Title:
VISION CAPITAL LLC
By:	/s/  RICHARD P. KIPHART
Name: Richard P. Kiphart Title: Director
SCORPIO (BSG) LTD.
By:	/s/  JEFFREY LEVINE
Name: Jeffrey Levine Title: C.F.O.
GISHREI ASIA LTD.
By:	/s/
Name: Title:

10

JFJ INTERNATIONAL TRADING LTD.
By:	/s/
Name: Title:

11

Schedule A

HOLDERS:

1.	SHAMIR OPTICA A.C.S. LTD. Kibbutz Shamir Upper Galilee 12135 Israel Number of Registrable Securities held: 10,240,775
2.	FIBI GROUP c/o FIBI Investment House Ltd. 17th Floor, Africa Israel Building 14 Ehad Ha-Am Street Tel Aviv, Israel Number of Registrable Securities held: 1,807,196
3.	HAKLAEI EYAL HASHARON A.C.S. LTD. Kibbutz Eyal D.N. Hasharon Hatichon 45840 Israel Number of Registrable Securities held: 502,400
4.	VISION CAPITAL LLC c/o William Blair & Company, L.L.C. 222 West Adams Street Chicago, IL 60606 USA Number of Registrable Securities held: 160,961

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REGISTRATION RIGHTS AGREEMENT
RECITALS
Schedule A

EX-21

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Exhibit 21

SUBSIDIARIES OF SHAMIR OPTICAL INDUSTRY LTD.

        List of subsidiary and associated undertakings and other significant holdings of Shamir Optical Industry Ltd. as at February 11, 2005. None of the companies listed below operates under a name other than its registered company name.

Company Name	Country of Incorporation
Eyal Optical Industries (1995) Ltd.	Israel
Eyal Optics Holdings A.C.S. Ltd.	Israel
E. S. P. Optics Ltd.	Israel
Aspect Optics Ltd (not active)	Israel
Shamir USA, Inc.	USA
Shamir Insight, Inc.	USA
Altra Trading GmbH	Germany
Inray Ltd.	Israel
Shamir Or Ltd.	Israel
E-vision LLC	USA
Interoptic SARL	France
Altra Optica Espana SL	Spain
Altra Optica Lda.	Portugal
Cambridge Optical Group Limited	UK
JMH Holding Ltd.	UK
Alpha Optik GmbH (not active)	Germany
P.D.A. Advanced Optics Systems Ltd.	Israel

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SUBSIDIARIES OF SHAMIR OPTICAL INDUSTRY LTD.

EX-23.1

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Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

        We consent to the reference to our firm under the captions "Experts" and "Selected Consolidated Financial Data" and to the use of our report dated January 5, 2005, (except as to Note 12(a), as to which the date is XXXX, 2005) in this Registration Statement on Form F-1 and related Prospectus of Shamir Optical Industry Ltd. dated February 11, 2005.

/s/ Kost Forer Gabbay & Kasierer
A Member of Ernst & Young Global Tel-Aviv, Israel
XXXX, 2005

        The foregoing consent is in the form that will be signed upon the completion of the reorganization of Shamir's equity as described in Note 12(a) to the consolidated financial statements and the change of its legal status from an A.C.S. to a corporate as described in Note 1(a) to the consolidated financial statements.

/s/ Kost Forer Gabbay & Kasierer
A Member of Ernst & Young Global Tel-Aviv, Israel
February 10, 2005

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CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

EX-23.3

Exhibit 23.3

[STRATEGY WITH VISION Letterhead]

20 October 2004

Re: Initial public offer for shares in Shamir Optical Industry

We hereby consent to the use in this Registration Statement on Form F-1 of our report dated 29^th of September 2004 relating to certain market and industry data in the worldwide markets for spectacle lenses, in particular in the markets for progressive lenses, which data appears in such Registration Statement. We also consent to the references to us in the legends of the prospectus and under the headings "Experts" and in such Registration Statement.

Yours sincerely,

/s/ Mark T. Mackenzie

Mark T. Mackenzie

CEO SWV Ltd.

Cc Dagan Avishai, Shamir

EX-23.4

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Exhibit 23.4

CONSENT OF NOMINEE TO THE BOARD OF DIRECTORS
OF SHAMIR OPTICAL INDUSTRY LTD.

        Pursuant to Rule 438 of the U.S. Securities Act of 1933, I, Ami Samuels, hereby consent to the use in the prospectus constituting a part of this Registration Statement on Form F-1 of my name as a nominee for membership on the board of directors of Shamir Optical Industry Ltd. and of my biographical information under the caption "Management."

/s/  AMI SAMUELS
Name:	Ami Samuels
Date:	February 7, 2005

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CONSENT OF NOMINEE TO THE BOARD OF DIRECTORS OF SHAMIR OPTICAL INDUSTRY LTD.

EX-23.5

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Exhibit 23.5

CONSENT OF NOMINEE TO THE BOARD OF DIRECTORS
OF SHAMIR OPTICAL INDUSTRY LTD.

        Pursuant to Rule 438 of the U.S. Securities Act of 1933, I, Amos Netzer, hereby consent to the use in the prospectus constituting a part of this Registration Statement on Form F-1 of my name as a nominee for membership on the board of directors of Shamir Optical Industry Ltd. and of my biographical information under the caption "Management."

/s/  AMOS NETZER
Name:	Amos Netzer
Date:	1 February 2005

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CONSENT OF NOMINEE TO THE BOARD OF DIRECTORS OF SHAMIR OPTICAL INDUSTRY LTD.

EX-23.6

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Exhibit 23.6

CONSENT OF NOMINEE TO THE BOARD OF DIRECTORS
OF SHAMIR OPTICAL INDUSTRY LTD.

        Pursuant to Rule 438 of the U.S. Securities Act of 1933, I, Zeev Feldman, hereby consent to the use in the prospectus constituting a part of this Registration Statement on Form F-1 of my name as a nominee for membership on the board of directors of Shamir Optical Industry Ltd. and of my biographical information under the caption "Management."

/s/  ZEEV FELDMAN
Name:	Zeev Feldman
Date:	February 7, 2005

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CONSENT OF NOMINEE TO THE BOARD OF DIRECTORS OF SHAMIR OPTICAL INDUSTRY LTD.

EX-23.7

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Exhibit 23.7

CONSENT OF NOMINEE TO THE BOARD OF DIRECTORS
OF SHAMIR OPTICAL INDUSTRY LTD.

        Pursuant to Rule 438 of the U.S. Securities Act of 1933, I, Jed Arkin, hereby consent to the use in the prospectus constituting a part of this Registration Statement on Form F-1 of my name as a nominee for membership on the board of directors of Shamir Optical Industry Ltd. and of my biographical information under the caption "Management."

/s/  JED ARKIN
Name:	Jed Arkin
Date:	February 7, 2005

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CONSENT OF NOMINEE TO THE BOARD OF DIRECTORS OF SHAMIR OPTICAL INDUSTRY LTD.

EX-23.8

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Exhibit 23.8

CONSENT OF NOMINEE TO THE BOARD OF DIRECTORS
OF SHAMIR OPTICAL INDUSTRY LTD.

        Pursuant to Rule 438 of the U.S. Securities Act of 1933, I, Yair Shamir, hereby consent to the use in the prospectus constituting a part of this Registration Statement on Form F-1 of my name as a nominee for membership on the board of directors of Shamir Optical Industry Ltd. and of my biographical information under the caption "Management."

/s/  YAIR SHAMIR
Name:	Yair Shamir
Date:	6 Feb 2005

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CONSENT OF NOMINEE TO THE BOARD OF DIRECTORS OF SHAMIR OPTICAL INDUSTRY LTD.