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TABLE OF CONTENTS
Index To Financial Statements

As filed with the Securities and Exchange Commission on March 8, 2005

Registration No. 333-122736

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

AMENDMENT NO. 1 TO
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

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 MARCH 8, 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;



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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 had a right to put the shares to us. This put option expired 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 2006 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, two members of our board of directors, including our chief executive officer, and two other executive officers will be members of Kibbutz Shamir and members of Kibbutz Shamir's management board. One of these board members 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).

        On March 6, 2005 we changed the structure of our company from an A.C.S. into an Israeli limited liability company. To do so, we relied 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 also restructured our board of directors, which consisted of four directors prior to the reorganization and currently consists of nine directors, five of whom will be independent directors for purposes of the listing standards of the Nasdaq National Market. Within a statutory period of three months after becoming an Israeli limited liability company, we will appoint two of our nine directors to qualify as external directors in accordance with Israeli law. See "Management." We also established committees of our board in accordance with the Nasdaq National Market listing standards at the same time as we appointed 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.

26

(3)

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

(4)

Represents shares of the company owned by Kibbutz Eyal for which Kibbutz Eyal had a right to put the shares to us. This put right expired 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.

28

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 had a right to put the shares to us. This put option expired 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.

32

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

        On March 6, 2005 we changed 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

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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

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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 million 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

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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.

        On March 6, 2005 we changed our legal structure from an A.C.S. to an Israeli limited liability company. The A.C.S. was 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 was 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 forma net

47

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.

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        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

50

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.



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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:

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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.



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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.



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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.



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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.



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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 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 laboratories and distributors with whom we intend to develop exclusive agreements so that they

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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:

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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. 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
Yair Shamir(3)	59	Director and Chairman of the Board
Uzi Tzur(1)(4)	65	Director
Efrat Cohen(2)	36	Director
Orly Hayardeny Felner	35	Director
Ami Samuels(5)	45	Director
Amos Netzer(5)	49	Director
Zeev Feldman(3)	53	Director
Jed Arkin(3)	41	Director

(1)

Member of Kibbutz Shamir.

(2)

Member of the management board of Kibbutz Shamir.

(3)

Independent board member.

(4)

Chairman of the management board of Kibbutz Shamir.

(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.

        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

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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.

        Yair Shamir.    Mr. Shamir has been the chairman of our board of directors since March 2005. He is currently the chief executive officer and chairman of the board of VCON Telecommunications, a position he has held since 1997. From June 2004 until January 2005 he 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.

        Uzi Tzur.    Mr. Tzur has been a member of our board of directors since its original establishment in 1997. He served as acting chairman of the board from July 2004 until March 2005. 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.

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 has been a member of our board of directors since March 2005. 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 has been a member of our board of directors since March 2005. 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 has been a member of our board of directors since March 2005. 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 has been a member of our board of directors since March 2005. 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

        On March 6, 2005 we reorganized 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 nine directors. Within three months following the closing of this offering, two of these directors will be elected "external" directors in accordance with the Israeli Companies Law (see "—External Directors") at a special meeting of our shareholders. 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."

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        Under our articles of association, our board of directors must have at least two members and no more than eleven. 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.

        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.

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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 has established three standing committees. The three committees 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. Our audit committee is 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. The composition and function of the audit committee 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. The members of our compensation committee are Yair Shamir as chairman, Jed Arkin and Amos Netzer. The composition and functions of the compensation committee meet the requirements of the Nasdaq National Market rules.

Nominating and Governance Committee

        The nominating and governance committee is 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 is responsible for overseeing our corporate governance guidelines and reporting and making recommendations to the board concerning corporate governance matters. The members of the nominating and governance committee are Zeev Feldman as chairman, Jed Arkin and Amos Netzer. The composition and functions of the nominating and governance committee 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 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

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serves as a director or as the general manager of a company. We intend to appoint an internal auditor as soon as practicable after the completion of this offering.

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 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. 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 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 then 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 $12.11 per share, and the options will be exercisable until August 24, 2011. The options will vest in twelve approximated equal parts on a quarterly basis over the course of the three years following the grant date. For accounting purposes, we treat these options as "granted" as of the date of our agreement with Yair Shamir.

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. Three of our directors and two additional executive officers are

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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 recent appointees to 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 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. Except for the options granted to Yair Shamir (whose vesting period is described in "—Compensation of Directors and Management"), 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. One of the members 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 was exercisable between January 1, 2006 and January 10, 2010. It expired upon the reorganization of our company from an A.C.S. 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	489,585	58.07	%	9,355,208
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 our shares through Haklaei Eyal Hasharon A.C.S. Ltd., a company owned by Kibbutz Eyal. Kibbutz Eyal held 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 expired 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.

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(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, 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 16-day period beginning on the last day of the lock-up period. In either case, the lock-up period will be extended for 18 days after the date of the earnings

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release. 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, L.L.C. 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, L.L.C.
	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 16-day period beginning on the last day of the lock-up period. In either case, the lock-up period will be extended for 18 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 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

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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 for a period of 180 days after the date of this prospectus pursuant to Rule 2710(g)(1) of the Conduct Rules of the National Association of Securities Dealers, Inc. and may not be sold, transferred, assigned, pledged or hypothecated except in accordance with such rule.

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 March 6, 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 September 30, 2004 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 March 6, 2005, 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.

*

Filed herewith.

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, on March 8, 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 Member of the Board of Directors	March 8, 2005
/s/  AMIR HAI Amir Hai	Chief Financial Officer (principal financial and accounting officer)	March 8, 2005
/s/  YAIR SHAMIR Yair Shamir	Chairman of the Board of Directors	March 8, 2005
/s/  UZI TZUR Uzi Tzur	Member of the Board of Directors	March 8, 2005
/s/  EFRAT COHEN Efrat Cohen	Member of the Board of Directors	March 8, 2005
/s/  ZEEV FELDMAN Zeev Feldman	Member of the Board of Directors	March 8, 2005
/s/  GIORA BEN-ZEEV Shamir USA, Inc. By: Giora Ben-Zeev	Authorized representative in the United States	March 8, 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.

*

Filed herewith.

EX-1

Exhibit 1

SHAMIR OPTICAL INDUSTRY LTD.

4,000,000 Common Shares(1)

UNDERWRITING AGREEMENT

[          ], 2005

William Blair & Company, L.L.C.

CIBC World Markets Corp.

C.E. Unterberg, Towbin, L.L.C.

As Representatives of the Several

Underwriters Named in Schedule A

c/o William Blair & Company, L.L.C.

222 West Adams Street

Chicago, Illinois 60606

Ladies and Gentlemen:

SECTION 1.          Introductory.  Shamir Optical Industry Ltd., an Israeli limited liability company (“Company”), has an authorized share capital consisting of 100,000,000 ordinary shares, NIS 0.01 par value (“Common Shares”), of which 12,711,332 shares are outstanding on the date hereof.  The Company proposes to issue and sell 3,400,000 shares of its authorized but unissued Common Shares, and certain shareholders of the Company (as named in Schedule B, the “Selling Shareholders”) propose to sell in the aggregate 600,000 shares of the Company’s issued and outstanding Common Shares to the several underwriters named in Schedule A as it may be amended by the Pricing Agreement hereinafter defined (“Underwriters”), who are acting severally and not jointly.  Collectively, such total of 4,000,000 Common Shares proposed to be sold by the Company and the Selling Shareholders is hereinafter referred to as the “Firm Shares.”  In addition, the Selling Shareholders propose to grant to the Underwriters an option to purchase up to 600,000 additional Common Shares (“Option Shares”) as provided in Section 5 hereof.  The Firm Shares and, to the extent such option is exercised, the Option Shares, are hereinafter collectively referred to as the “Shares.”  William Blair & Company, L.L.C. has the authority, subject to the terms and conditions contained herein, to act on behalf of the several Underwriters and the Representatives hereunder.

You have advised the Company and the Selling Shareholders that the Underwriters propose to make a public offering of their respective portions of the Shares as soon as you deem advisable after the registration statement hereinafter referred to becomes effective, if it has not yet become effective, and the Pricing Agreement hereinafter defined has been executed and delivered.

(1)           Plus an option to acquire up to 600,000 additional shares to cover overallotments.

Prior to the purchase and public offering of the Shares by the several Underwriters, the Company, the Selling Shareholders and the Representatives, acting on behalf of the several Underwriters, shall enter into an agreement substantially in the form of Exhibit A hereto (“Pricing Agreement”).  The Pricing Agreement may take the form of an exchange of any standard form of written telecommunication between the Company, the Selling Shareholders and the Representatives and shall specify such applicable information as is indicated in Exhibit A hereto.  The offering of the Shares will be governed by this Agreement, as supplemented by the Pricing Agreement.  From and after the date of the execution and delivery of the Pricing Agreement, this Agreement shall be deemed to incorporate the Pricing Agreement.

The Company and the Selling Shareholders hereby confirm their agreements with the Underwriters as follows:

SECTION 2.          Representations and Warranties of the Company.  The Company represents and warrants to the several Underwriters that:

(a)           A registration statement on Form F-1 (File No. 333-122736) and a related preliminary prospectus with respect to the Shares have been prepared and filed with the Securities and Exchange Commission (“Commission”) by the Company in conformity with the requirements of the Securities Act of 1933, as amended, and the rules and regulations of the Commission thereunder (collectively, the “1933 Act;” unless indicated to the contrary, all references herein to specific rules are rules promulgated under the 1933 Act); and the Company has so prepared and has filed such amendments thereto, if any, and such amended preliminary prospectuses as may have been required to the date hereof and will file such additional amendments thereto and such amended prospectuses as may hereafter be required.  There have been or will promptly be delivered to you a signed copy of such registration statement and amendments, a copy of each exhibit filed therewith, and conformed copies of such registration statement and amendments (but without exhibits) and of the related preliminary prospectus or prospectuses and final forms of prospectus for each of the Underwriters.

Such registration statement (as amended, if applicable) at the time it becomes effective and the prospectus constituting a part thereof (including the information, if any, deemed to be part thereof pursuant to Rule 430A(b) and/or Rule 434), as from time to time amended or supplemented, are hereinafter referred to as the “Registration Statement,” and the “Prospectus,” respectively, except that if any revised prospectus shall be provided to the Underwriters by the Company for use in connection with the offering of the Shares which differs from the Prospectus on file at the Commission at the time the Registration Statement became or becomes effective (whether or not such revised prospectus is required to be filed by the Company pursuant to Rule 424(b)), the term Prospectus shall refer to such revised prospectus from and after the time it was provided to the Underwriters for such use.  If the Company elects to rely on Rule 434 of the 1933 Act, all references to “Prospectus” shall be deemed to include, without limitation, the form of prospectus and the term sheet, taken together, provided to the Underwriters by the Company in accordance with Rule 434 of

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the 1933 Act (“Rule 434 Prospectus”).  Any registration statement (including any amendment or supplement thereto or information which is deemed part thereof) filed by the Company under Rule 462(b) (“Rule 462(b) Registration Statement”) shall be deemed to be part of the “Registration Statement” as defined herein, and any prospectus (including any amendment or supplement thereto or information which is deemed part thereof) included in such registration statement shall be deemed to be part of the “Prospectus”, as defined herein, as appropriate.  The Securities Exchange Act of 1934, as amended, and the rules and regulations of the Commission thereunder are hereinafter collectively referred to as the “Exchange Act.”

(b)           The Commission has not issued any order preventing or suspending the use of any preliminary prospectus, and each preliminary prospectus has conformed in all material respects with the requirements of the 1933 Act and, as of its date, has not included any untrue statement of a material fact or omitted to state a material fact necessary to make the statements therein not misleading; and when the Registration Statement became or becomes effective, and at all times subsequent thereto, up to the First Closing Date or the Second Closing Date hereinafter defined, as the case may be, the Registration Statement, including the information deemed to be part of the Registration Statement at the time of effectiveness pursuant to Rule 430A(b), if applicable, and the Prospectus and any amendments or supplements thereto, contained or will contain all statements that are required to be stated therein in accordance with the 1933 Act and in all material respects conformed or will in all material respects conform to the requirements of the 1933 Act, and neither the Registration Statement nor the Prospectus, nor any amendment or supplement thereto, included or will include any untrue statement of a material fact or omitted or will omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, however, that the Company makes no representation or warranty as to information contained in or omitted from any preliminary prospectus, the Registration Statement, the Prospectus or any such amendment or supplement in reliance upon and in conformity with written information furnished to the Company by or on behalf of any Underwriter through the Representatives specifically for use in the preparation thereof.

(c)           The Company and its subsidiaries have been duly incorporated or formed and are validly existing as corporations or limited liability companies under the laws of their respective places of incorporation or formation, as the case may be, with full power and authority to own their properties and conduct their business as described in the Prospectus; the Company and each of its subsidiaries are duly qualified to do business as foreign corporations or limited liability companies under the laws of each jurisdiction in which they own or lease substantial properties, have an office, or in which substantial business is conducted and such qualification is required except in any such case where the failure to so qualify would not have a material adverse effect upon the condition (financial or otherwise) or results of operations of the Company and its subsidiaries taken as a whole (a “Material Adverse Effect”); and no proceeding of which the Company has knowledge has been instituted in any such jurisdiction, revoking, limiting or curtailing, or seeking to revoke, limit or

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curtail, such power and authority or qualification.  No proceeding has been instituted by the Registrar of Companies in Israel for the dissolution of the Company, and each of the U.S. subsidiaries of the Company is in good standing under the laws of its state of formation.

The reorganization of the Company from an Israeli agricultural co-operative society into an Israeli limited liability company was completed on March 6, 2005 (the “Reorganization”) and was duly authorized by all necessary company action and did not violate any provision of the Company’s articles of association, did not result in the breach, and was not in contravention, of any provision of any material agreement, franchise, license, indenture, mortgage, deed of trust, or other instrument to which the Company or any of its consolidated subsidiaries was or is a party or by which the Company or any of its consolidated subsidiaries or any of their respective properties was or is bound or affected, or any order, rule or regulation applicable to the Company or any of its consolidated subsidiaries of any court or regulatory body, administrative agency or other governmental body having jurisdiction over the Company or any of its consolidated subsidiaries or any of their respective properties, or any order of any court or governmental agency or authority entered in any proceeding to which the Company or any of its consolidated subsidiaries was or is a party or by which any of them was or is bound.  No consent, approval, authorization or other order of any court, regulatory body, administrative agency or other governmental body was required for the completion of the Reorganization except for such consents, approvals, authorizations and other orders that were duly obtained by the Company.

(d)           Each of the subsidiaries of the Company is set forth in Schedule D.  The Company owns directly or indirectly that percentage of the outstanding share capital or limited liability company interests of each subsidiary set forth across from such subsidiary on Schedule D, free and clear of any material claims, liens, encumbrances or security interests and all of such shares or limited liability company interests have been duly authorized and validly issued and are fully paid and nonassessable.

(e)           The issued and outstanding share capital of the Company as set forth in the Prospectus has been duly authorized and validly issued, is fully paid and nonassessable, and conforms to the description thereof contained in the Prospectus.

(f)            The Shares to be sold by the Company have been duly authorized and when issued, delivered and paid for pursuant to this Agreement, will be validly issued, fully paid and nonassessable, and will conform to the description thereof contained in the Prospectus.

(g)           The making and performance by the Company of this Agreement and the Pricing Agreement have been duly authorized by all necessary company action and will not violate any provision of the Company’s articles of association and will not result in the breach, or be in contravention, of any provision of any agreement, franchise, license, indenture, mortgage, or deed of trust to which the Company or any

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subsidiary is a party or by which the Company, any subsidiary or the property of any of them may be bound or affected, or any order, rule or regulation applicable to the Company or any subsidiary of any court or regulatory body, administrative agency or other governmental body having jurisdiction over the Company or any subsidiary or any of their respective properties, or any order of any court or governmental agency or authority entered in any proceeding to which the Company or any subsidiary was or is now a party or by which it is bound, except to the extent any such violation, breach or contravention would not have a Material Adverse Effect.  No consent, approval, authorization or other order of any court, regulatory body, administrative agency or other governmental body is required for the execution and delivery of this Agreement or the Pricing Agreement or the consummation of the transactions contemplated herein or therein, except for compliance with the 1933 Act and blue sky laws applicable to the public offering of the Shares by the several Underwriters and clearance of such offering with the National Association of Securities Dealers, Inc. (“NASD”).  This Agreement has been duly executed and delivered by the Company.  The Company is not required to publish a prospectus in Israel under the laws of the State of Israel.

(h)           The accountants who have expressed their opinions with respect to certain of the financial statements included in the Registration Statement are independent accountants as required by the 1933 Act and such accountants are not in violation of the auditor independence requirements of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”).

(i)            The consolidated financial statements of the Company included in the Registration Statement present fairly the consolidated financial position of the Company as of the respective dates of such financial statements, and the consolidated statements of income, changes in shareholders’ equity and cash flows of the Company for the respective periods covered thereby, all in conformity with United States generally accepted accounting principles consistently applied throughout the periods involved, except as disclosed in the Prospectus, present fairly the information required to be stated therein.  The financial information set forth in the Prospectus under “Selected Consolidated Financial Data” presents fairly on the basis stated in the Prospectus, the information set forth therein.

The pro forma information included in the Prospectus presents fairly the information shown therein, have been prepared in accordance with United States generally accepted accounting principles and the Commission’s rules and guidelines with respect to pro forma information, have been properly compiled on the pro forma basis described therein, and, in the opinion of the Company, the assumptions used in the preparation thereof are reasonable and the adjustments used therein are appropriate under the circumstances.

(j)            Neither the Company nor any subsidiary is in violation of its organizational documents or in default under any consent decree, or in default with respect to any lease, loan agreement, franchise, license, permit or other contract obligation to which it is a party, except to the extent such default would not have a Material Adverse Effect; and there does not exist any state of

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facts which constitutes an event of default as defined in such documents or which, with notice or lapse of time or both, would constitute such an event of default, in each case except for defaults which neither singly nor in the aggregate would have a Material Adverse Effect.

(k)           Except as disclosed in the Prospectus, there are no legal or governmental proceedings pending, or to the Company’s knowledge, threatened to which the Company or any subsidiary is or may be a party or of which property owned or leased by the Company or any subsidiary is or may be the subject, or related to environmental or discrimination matters, except for such proceedings that would not have a Material Adverse Effect and do not question the validity of this Agreement or the Pricing Agreement or any action taken or to be taken pursuant hereto or thereto.

(l)            Except as disclosed in the Prospectus, there are no holders of securities of the Company having rights to registration thereof.  There are no holders of securities of the Company having preemptive rights to purchase Common Shares.

(m)          The Company and each of its subsidiaries have good title to all the properties and assets reflected as owned in the financial statements hereinabove described (or elsewhere in the Prospectus), subject to no lien, mortgage, pledge, charge or encumbrance of any kind except those, if any, reflected in such financial statements (or elsewhere in the Prospectus) and except to the extent the failure to have such good title or the existence of such lien, mortgage, pledge, charge or encumbrance would not have a Material Adverse Effect.  The Company and each of its subsidiaries hold their respective leased properties under valid and binding leases, except where the failure of such leases to be valid and binding would not have a Material Adverse Effect.

(n)           The Company has not taken and will not take, directly or indirectly, any action designed to or which has constituted or which might reasonably be expected to cause or result, under the Exchange Act or otherwise, in stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Shares.

(o)           Subsequent to the respective dates as of which information is given in the Registration Statement and Prospectus, and except as contemplated by the Prospectus, the Company and its subsidiaries, taken as a whole, have not incurred any material liabilities or obligations, direct or contingent, nor entered into any material transactions not in the ordinary course of business and there has not been any change which would have a Material Adverse Effect nor any material change in their share capital, short-term debt or long-term debt.

(p)           There is no material document of a character required to be described in the Registration Statement or the Prospectus or to be filed as an exhibit to the Registration Statement which is not described or filed as required.

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(q)           Except as disclosed in the Prospectus, the Company together with its subsidiaries owns and possesses all right, title and interest in and to, or has duly licensed from third parties, all patents, patent rights, trade secrets, inventions, know-how, trademarks, trade names, copyrights, service marks and other proprietary rights (“Trade Rights”), except where the failure to own and possess such Trade Rights would not have a Material Adverse Effect.  Except as disclosed in the Prospectus, neither the Company nor any of its subsidiaries has received any notice of infringement, misappropriation or conflict from any third party as to such material Trade Rights which has not been resolved or disposed of and neither the Company nor any of its subsidiaries has infringed, misappropriated or otherwise conflicted with material Trade Rights of any third parties, except to the extent that such infringement, misappropriation or conflict would not have a Material Adverse Effect.

(r)            The conduct of the business of the Company and each of its subsidiaries is in compliance in all respects with applicable federal, state, local and foreign laws and regulations, except where the failure to be in compliance would not have a Material Adverse Effect.

(s)           All offers and sales of securities of the Company and its subsidiaries prior to the date hereof were at all relevant times exempt from the registration requirements of the 1933 Act and were duly registered with or the subject of an available exemption from the registration requirements of the applicable federal, state, local and foreign securities or blue sky laws.

(t)            The Company has filed all necessary federal, state, local and foreign income and franchise tax returns and has paid all taxes shown as due thereon, and there is no tax deficiency that has been, or to the knowledge of the Company might be, asserted against the Company or any of its properties or assets that would or could be expected to have a Material Adverse Effect.

(u)           The Company has filed a registration statement pursuant to Section 12(g) of the Exchange Act to register the Common Shares thereunder, has filed an application to list the Shares on the Nasdaq National Market, and has received notification that the listing has been approved, subject to notice of issuance or sale of the Shares, as the case may be.

(v)           The Company has established and maintains disclosure controls and procedures (as defined in Rules 13a-15 and 15d-15 under the Exchange Act) and such controls and procedures are effective in ensuring that material information relating to the Company, including its subsidiaries, is made known to the principal executive officer and the principal financial officer.  The Company has utilized such controls and procedures in preparing and evaluating the disclosures included in the Registration Statement and Prospectus.

(w)          The Company and each of its subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorizations; (ii) transactions are recorded as necessary to

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permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain accountability for assets; (iii) access to assets is permitted only in accordance with management’s general or specific authorization; and (iv) amounts reflected on the Company’s consolidated balance sheet for assets are compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences.

(x)            The Company is not, and does not intend to conduct its business in a manner in which it would become, an “investment company” as defined in Section 3(a) of the Investment Company Act of 1940, as amended (“Investment Company Act”).

(y)           None of the Company and its subsidiaries is involved in any labor dispute nor, to the knowledge of the Company, is any such dispute threatened, which dispute would have a Material Adverse Effect.  The Company is not aware of any existing or imminent labor disturbance by the employees of any of its principal suppliers or contractors which would have a Material Adverse Effect. The Company is not aware of any threatened or pending litigation between the Company and any of its executive officers which, if adversely determined, could have a Material Adverse Effect and has not received notice from any of its executive officers that such officer does not intend to remain in the employment of the Company.

(z)            No transaction has occurred between or among the Company and any of its officers or directors, stockholders or any affiliate or affiliates of any such officer or director or stockholder that is required to be described in and is not described in the Registration Statement and the Prospectus.

(aa)         The Company’s board of directors has validly appointed an audit committee whose composition satisfies the requirements of Rule 4350(d)(2) of the Rules of the National Association of Securities Dealers, Inc. (the “NASD Rules”), and the board of directors or the audit committee has adopted a charter that satisfies the requirements of Rule 4350(d)(1) of the NASD Rules.

(bb)         The Company and its subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as are customary in the businesses in which they are engaged or propose to engage after giving effect to the transactions described in the Prospectus except to the extent that failure to be so insured would not have a Material Adverse Effect; all policies of insurance and fidelity or surety bonds insuring the Company, its subsidiaries and their respective businesses, assets, employees, officers and directors are in full force and effect, except such as would not, individually or in the aggregate, have a Material Adverse Effect; the Company and its subsidiaries are in compliance with the terms of such policies and instruments in all material respects; and the Company has no reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its  business at a cost that is not greater than the current cost except to the extent that such failure to renew or increased cost would not have a Material Adverse Effect.

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(cc)         The operations of the Company and its subsidiaries are and have been conducted at all times in compliance with applicable financial recordkeeping and reporting requirements of all applicable laws and the money laundering statutes and related rules and regulations of all jurisdictions to which the Company or its subsidiaries are subject (collectively, the “Money Laundering Laws”) and no action, suit or proceeding by or before any court or regulatory body, administrative agency or other governmental body having jurisdiction over the Company or any of its subsidiaries or any of their respective properties with respect to the Money Laundering Laws is pending or, to the knowledge of the Company, threatened.

(dd)         None of the Company, its subsidiaries and, to the knowledge of the Company, their respective directors, officers, agents, employees and affiliates is currently subject to any U.S. sanctions administered by the Office of Foreign Assets Control of the U.S. Treasury Department (“OFAC”).

(ee)         None of the Company, its subsidiaries and any of their respective properties has any immunity from the jurisdiction of any court or from any legal process (whether through service or notice, attachment prior to judgment, attachment in aid of execution or otherwise) under the laws of the State of Israel.

(ff)           No stamp or other issuance or transfer taxes or duties and no capital gains, income, withholding or other taxes are payable by or on behalf of the Underwriters to the State of Israel or to any political subdivision or taxing authority thereof or therein in connection with the sale and delivery of the Shares as contemplated herein.

(gg)         The Company is not a Passive Foreign Investment Company (“PFIC”) within the meaning of Section 1296 of the Code and does not expect to become a PFIC in the future; the Company is not a “foreign personal holding company” within the meaning of the Code.

(hh)         The Company is in compliance in all material respects with all conditions and requirements stipulated by the instruments of approval granted to it with respect to the “Approved Enterprise” status of any of the Company’s facilities as well as with respect to the other tax benefits received by the Company as set forth under the caption “Israeli Taxation” in the Prospectus and by Israeli laws and regulations relating to such “Approved Enterprise” status and such other tax benefits received by the Company.  The Company has not received any notice of any proceeding or investigation relating to revocation or modification of any “Approved Enterprise” status granted with respect to any of the Company’s facilities.

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SECTION 3.          Representations, Warranties and Covenants of the Selling Shareholders.

(a)           Each of the Selling Shareholders, severally and not jointly, represents and warrants to, and agrees with, the Company and the Underwriters that:

(i)            Such Selling Shareholder has, and on the First Closing Date or the Second Closing Date hereinafter defined, as the case may be, will have, good and valid title to the Shares proposed to be sold by such Selling Shareholder hereunder on such date and full right, power and authority to enter into this Agreement and the Pricing Agreement and to sell, assign, transfer and deliver such Shares hereunder, free and clear of all voting trust arrangements, liens, encumbrances, equities, claims and community property rights; and upon delivery of and payment for such Shares hereunder, the Underwriters will acquire valid marketable title thereto, free and clear of all voting trust arrangements, liens, encumbrances, equities, claims and community property rights.

(ii)           Such Selling Shareholder has not taken and will not take, directly or indirectly, any action designed to or which might be reasonably expected to cause or result, under the Exchange Act or otherwise, in stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Shares.

(iii)          Such Selling Shareholder has executed and delivered a Power of Attorney (“Power of Attorney”) among the Selling Shareholder and one of Orly Felner Hayardeni, Efrat Cohen or Daniel Sisso (each an “Agent”, naming the Agent as such Selling Shareholder’s attorney-in-fact (and, by the execution by such Agent of this Agreement, such Agent hereby represents and warrants that he or she has been duly appointed as attorney-in-fact by the applicable Selling Shareholder pursuant to the Power of Attorney) for the purpose of entering into and carrying out this Agreement and the Pricing Agreement, and the Power of Attorney has been duly executed by such Selling Shareholder and a copy thereof has been delivered to you.

(iv)          Such Selling Shareholder further represents, warrants and agrees that such Selling Shareholder has deposited in custody, under a Custody Agreement (“Custody Agreement”) with Dagan Avishai, as custodian (“Custodian”), certificates in negotiable form or share transfer deeds, as applicable for the Shares to be sold hereunder by such Selling Shareholder, for the purpose of further delivery pursuant to this Agreement.  Such Selling Shareholder agrees that the Shares to be sold by such Selling Shareholder on deposit with the Custodian are subject to the interests of the Company, the Underwriters and the other Selling Shareholders, that the arrangements made for such custody, and the appointment of the Agent pursuant to the Power of Attorney, are to that extent irrevocable, and that the obligations of such Selling Shareholder hereunder and under the Power of Attorney and the Custody Agreement shall not be terminated except as provided in this Agreement, the Power of Attorney or the Custody Agreement by any act of such Selling Shareholder, by operation of law, whether, in the case of an individual Selling Shareholder, by the death or incapacity of such Selling Shareholder or, in the case of a trust

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or estate, by the death of the trustee or trustees or the executor or executors or the termination of such trust or estate, or, in the case of a partnership or corporation, by the dissolution, winding-up or other event affecting the legal life of such entity, or by the occurrence of any other event.  If any individual Selling Shareholder, trustee or executor should die or become incapacitated, or any such trust, estate, partnership or corporation should be terminated, or if any other event should occur before the delivery of the Shares hereunder, the documents evidencing Shares then on deposit with the Custodian shall be delivered by the Custodian in accordance with the terms and conditions of this Agreement as if such death, incapacity, termination or other event had not occurred, regardless of whether or not the Custodian shall have received notice thereof.  The applicable Agent has been authorized by such Selling Shareholder to execute and deliver this Agreement and the Pricing Agreement and the Custodian has been authorized to receive and acknowledge receipt of the proceeds of sale of the Shares to be sold by such Selling Shareholder against delivery thereof and otherwise act on behalf of such Selling Shareholder.  The Custody Agreement has been duly executed by such Selling Shareholder and a copy thereof has been delivered to you.

(v)           Each preliminary prospectus, insofar as it has related to such Selling Shareholder, as of its date, has not included any untrue statement of a material fact or omitted to state a material fact necessary to make the statements therein not misleading; and neither the Registration Statement nor the Prospectus, nor any amendment or supplement thereto, as it relates to such Selling Shareholder included or will include any untrue statement of a material fact or omitted or will omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading.

In order to document the Underwriter’s compliance with the reporting and withholding provisions of the Internal Revenue Code of 1986, as amended, with respect to the transactions herein contemplated, each of the Selling Shareholders agrees to deliver to you prior to or on the First Closing Date, as hereinafter defined, a properly completed and executed United States Treasury Department Form W-8 or W-9 (or other applicable form of statement specified by Treasury Department regulations in lieu thereof).

SECTION 4.          Representations and Warranties of the Underwriters.  The Representatives, on behalf of the several Underwriters, represent and warrant to the Company and the Selling Shareholders that the information set forth (a) on the cover page of the Prospectus with respect to price, underwriting discount and terms of the offering and (b) in all paragraphs under “Underwriting” in the Prospectus, except paragraphs 6, 13, 14 and 15 thereof, was furnished to the Company by and on behalf of the Underwriters for use in connection with the preparation of the Registration Statement and is correct and complete in all material respects.

SECTION 5.          Purchase, Sale and Delivery of Shares.  On the basis of the representations, warranties and agreements herein contained, but subject to the terms and conditions herein set forth, the

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Company and each of the Selling Shareholders, severally and not jointly, agree to sell to the Underwriters named in Schedule A hereto, and the Underwriters agree, severally and not jointly, to purchase from the Company and each of the Selling Shareholders, respectively, 3,400,000 Firm Shares from the Company and the number of Firm Shares set forth opposite the name of each Selling Shareholder in Schedule B hereto at the price per share set forth in the Pricing Agreement.  The obligation of each Underwriter to the Company shall be to purchase from the Company that number of full shares which (as nearly as practicable, as determined by you) bears to 3,400,000, the same proportion as the number of Shares set forth opposite the name of such Underwriter in Schedule A hereto bears to the total number of Firm Shares to be purchased by all Underwriters under this Agreement.  The obligation of each Underwriter to each of the Selling Shareholders shall be to purchase from such Selling Shareholders the number of full shares which (as nearly as practicable, as determined by you) bears to that number of Firm Shares set forth opposite the name of such Selling Shareholder in Schedule B hereto, the same proportion as the number of Shares set forth opposite the name of such Underwriter in Schedule A hereto bears to the total number of Firm Shares to be purchased by all Underwriters under this Agreement.  The initial public offering price and the purchase price shall be set forth in the Pricing Agreement.

At 9:00 A.M., Chicago Time, on the fourth business day, if permitted under Rule 15c6-1 under the Exchange Act, (or the third business day if required under Rule 15c6-1 under the Exchange Act or unless postponed in accordance with the provisions of Section 12) following the date the Registration Statement becomes effective (or, if the Company has elected to rely upon Rule 430A, the fourth business day, if permitted under Rule 15c6-1 under the Exchange Act, (or the third business day if required under Rule 15c6-1 under the Exchange Act) after execution of the Pricing Agreement), or such other time not later than ten business days after such date as shall be agreed upon by the Representatives and the Company, the Company and the Custodian will deliver to you at the offices of counsel for the Underwriters or through the facilities of The Depository Trust Company for the accounts of the several Underwriters, certificates representing the Firm Shares to be sold by them, respectively, against payment of the purchase price therefor by delivery of federal or other immediately available funds, by wire transfer or otherwise, to the Company and the Custodian.  Such time of delivery and payment is herein referred to as the “First Closing Date.” The certificates for the Firm Shares so to be delivered will be in such denominations and registered in such names as you request by notice to the Company and the Custodian prior to 10:00 A.M., Chicago Time, on the second business day preceding the First Closing Date, and will be made available at the Company’s expense for checking and packaging by the Representatives at 10:00 A.M., Chicago Time, on the business day preceding the First Closing Date.  Payment for the Firm Shares so to be delivered shall be made at the time and in the manner described above at the offices of counsel for the Underwriters.

In addition, on the basis of the representations, warranties and agreements herein contained, but subject to the terms and conditions herein set forth, the Selling Shareholders hereby grant an option to the several Underwriters to purchase, severally and not jointly, up to an aggregate of 600,000 Option Shares, at the same purchase price per share to be paid for the Firm Shares, for use solely in covering any overallotments made by the Underwriters in the sale and distribution of the Firm Shares.  The option granted hereunder may

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be exercised at any time (but not more than once) within 30 days after the date of the initial public offering upon notice by you to the Company and the Agents setting forth the aggregate number of Option Shares as to which the Underwriters are exercising the option, the names and denominations in which the certificates for such shares are to be registered and the time and place at which such certificates will be delivered.  Such time of delivery (which may not be earlier than the First Closing Date), being herein referred to as the “Second Closing Date,” shall be determined by you, but if at any time other than the First Closing Date, shall not be earlier than three nor later than 10 full business days after delivery of such notice of exercise.  The number of Option Shares to be purchased from each such Selling Shareholder if all of the Option Shares are purchased is set forth in Schedule B hereto.  If less than all of the Option Shares are purchased, the number of Option Shares to be sold by each Selling Shareholder shall be reduced from such maximum number on a pro rata basis.  The number of Option Shares to be purchased by each Underwriter shall be determined by multiplying the number of Option Shares to be sold by the Selling Shareholders pursuant to such notice of exercise by a fraction, the numerator of which is the number of Firm Shares to be purchased by such Underwriter as set forth opposite its name in Schedule A and the denominator of which is the total number of Firm Shares (subject to such adjustments to eliminate any fractional share purchases as you in your absolute discretion may make).  Certificates for the Option Shares will be made available at the Company’s expense for checking and packaging at 10:00 A.M., Chicago Time, on the business day preceding the Second Closing Date.  The manner of payment for and delivery of the Option Shares shall be the same as for the Firm Shares as specified in the preceding paragraph.

You have advised the Company and the Selling Shareholders that each Underwriter has authorized you to accept delivery of its Shares, to make payment and to receipt therefor.  You, individually and not as the Representatives of the Underwriters, may make payment for any Shares to be purchased by any Underwriter whose funds shall not have been received by you by the First Closing Date or the Second Closing Date, as the case may be, for the account of such Underwriter, but any such payment shall not relieve such Underwriter from any obligation hereunder.

SECTION 6.          Covenants of the Company.  The Company covenants and agrees that:

(a)           The Company will advise you and each of the Selling Shareholders promptly of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or of the institution of any proceedings for that purpose, or of any notification of the suspension of qualification of the Shares for sale in any jurisdiction or the initiation or threatening of any proceedings for that purpose, and will also advise you and each of the Selling Shareholders promptly of any request of the Commission for amendment or supplement of the Registration Statement, of any preliminary prospectus or of the Prospectus, or for additional information.

(b)           The Company will give you and each of the Selling Shareholders notice of its intention to file or prepare any amendment to the Registration Statement (including any post-effective amendment) or any Rule 462(b) Registration Statement or any amendment or supplement to the

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Prospectus (including any revised prospectus which the Company proposes for use by the Underwriters in connection with the offering of the Shares which differs from the prospectus on file at the Commission at the time the Registration Statement became or becomes effective, whether or not such revised prospectus is required to be filed pursuant to Rule 424(b) and any term sheet as contemplated by Rule 434) and will furnish you and each of the Selling Shareholders with copies of any such amendment or supplement a reasonable amount of time prior to such proposed filing or use, as the case may be, and will not file any such amendment or supplement or use any such prospectus to which you or counsel for the Underwriters shall reasonably object.

(c)           If the Company elects to rely on Rule 434 of the 1933 Act, the Company will prepare a term sheet that complies with the requirements of Rule 434.  If the Company elects not to rely on Rule 434, the Company will provide the Underwriters with copies of the form of prospectus, in such numbers as the Underwriters may reasonably request, and file with the Commission such prospectus in accordance with Rule 424(b) of the 1933 Act by the close of business in New York City on the second business day immediately succeeding the date of the Pricing Agreement.  If the Company elects to rely on Rule 434, the Company will provide the Underwriters with copies of the form of Rule 434 Prospectus, in such numbers as the Underwriters may reasonably request, by the close of business in New York on the business day immediately succeeding the date of the Pricing Agreement.

(d)           If at any time when a prospectus relating to the Shares is required to be delivered under the 1933 Act any event occurs as a result of which the Prospectus, including any amendments or supplements, would include an untrue statement of a material fact, or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, or if it is necessary at any time to amend the Prospectus, including any amendments or supplements thereto and including any revised prospectus which the Company proposes for use by the Underwriters in connection with the offering of the Shares which differs from the prospectus on file with the Commission at the time of effectiveness of the Registration Statement, whether or not such revised prospectus is required to be filed pursuant to Rule 424(b) to comply with the 1933 Act, the Company promptly will advise you thereof and will promptly prepare and file with the Commission an amendment or supplement which will correct such statement or omission or an amendment which will effect such compliance; and, in case any Underwriter is required to deliver a prospectus nine months or more after the effective date of the Registration Statement, the Company upon request, but at the expense of such Underwriter, will prepare promptly such prospectus or prospectuses as may be necessary to permit compliance with the requirements of Section 10(a)(3) of the 1933 Act.

(e)           Neither the Company nor any of its subsidiaries will, prior to the earlier of the Second Closing Date or termination or expiration of the related option, incur any material liability or obligation, direct or contingent, or enter into any material transaction, other than in the ordinary course of business, except as contemplated by the Prospectus.

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(f)            Neither the Company nor any of its subsidiaries will acquire any shares of the Company prior to the earlier of the Second Closing Date or termination or expiration of the related option nor will the Company declare or pay any dividend or make any other distribution upon the Common Shares payable to shareholders of record on a date prior to the earlier of the Second Closing Date or termination or expiration of the related option (other than any payments of previously declared dividends as set forth in the Prospectus).

(g)           As soon as practicable, but not later than eighteen months after the date hereof, the Company will make generally available to its security holders an earnings statement (which need not be audited) covering a period of at least 12 months beginning after the effective date of the Registration Statement, which will satisfy the provisions of the last paragraph of Section 11(a) of the 1933 Act.

(h)           During such period as a prospectus is required by law to be delivered in connection with offers and sales of the Shares by an Underwriter or dealer, the Company will furnish to you at its expense, subject to the provisions of subsection (d) hereof, copies of the Registration Statement, the Prospectus, each preliminary prospectus and all amendments and supplements to any such documents in each case as soon as available and in such quantities as you may reasonably request, for the purposes contemplated by the 1933 Act.

(i)            The Company will use its best efforts in cooperating with the Underwriters to qualify and register the Shares for sale under the blue sky laws of such jurisdictions as you designate, and to continue such qualifications in effect so long as reasonably required for the distribution of the Shares.  The Company shall not be required to qualify as a foreign corporation or limited liability company or to file a general consent to service of process in any such jurisdiction where it is not currently qualified or where it would be subject to taxation as a foreign corporation or limited liability company.

(j)            During the period of two years hereafter, the Company will furnish you with a copy (i) as soon as practicable after the filing thereof, of each report filed by the Company with the Commission, any securities exchange or the NASD; (ii) as soon as practicable after the release thereof, of each material press release in respect of the Company; and (iii) as soon as available, of each report of the Company mailed to shareholders.

(k)           The Company will use the net proceeds received by it from the sale of the Shares being sold by it substantially in the manner specified in the Prospectus and will not, directly or indirectly, use the proceeds of the offering of the Shares, or lend, contribute or otherwise make available such proceeds to any subsidiary, joint venture partner or other person or entity for the purpose of financing the activities of any person currently subject to any U.S. sanctions administered by OFAC

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(l)            If, at the time of effectiveness of the Registration Statement, any information shall have been omitted therefrom in reliance upon Rule 430A and/or Rule 434, then immediately following the execution of the Pricing Agreement, the Company will prepare, and file or transmit for filing with the Commission in accordance with such Rule 430A, Rule 424(b) and/or Rule 434, copies of an amended Prospectus, or, if required by such Rule 430A and/or Rule 434, a post-effective amendment to the Registration Statement (including an amended Prospectus), containing all information so omitted.  If required, the Company will prepare and file, or transmit for filing, a Rule 462(b) Registration Statement not later than the date of the execution of the Pricing Agreement.  If a Rule 462(b) Registration Statement is filed, the Company shall make payment of, or arrange for payment of, the additional registration fee owing to the Commission required by Rule 111.

(m)          For so long as it subject to the Exchange Act or listed on the Nasdaq National Market, as applicable, the Company will comply with all registration, filing and reporting requirements of the Exchange Act and the Nasdaq National Market and will file with the Commission in a timely manner all reports on Form SR required by Rule 463 and will furnish you copies of any such reports as soon as practicable after the filing thereof; and the Company and its subsidiaries will comply in all material respects with all applicable provisions of the Sarbanes-Oxley Act.

(n)           For as long as it is subject to the Exchange Act or listed on the Nasdaq National Market, the Company and its subsidiaries will maintain such controls and other procedures, including without limitation those required by the Sarbanes-Oxley Act and the applicable regulations thereunder, that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms, including without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive officer and its principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure, to ensure that material information relating to Company, including its subsidiaries, is made known to them by others within those entities.

(o)           For as long as it is subject to the Exchange Act or listed on the Nasdaq National Market, the Company and its subsidiaries will maintain a system of internal accounting controls designed to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorizations; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain accountability for assets; (iii) access to assets is permitted only in accordance with management’s general or specific authorization; and (iv) amounts reflected on the Company’s consolidated balance sheet for assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences.

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(p)           The Company agrees not to, directly or indirectly, (i) 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 (ii) enter any swap or other arrangement that transfers all or a portion of the economic consequences associated with the ownership of any Common Shares (except, in each case, Common Shares issued pursuant to currently outstanding options, warrants or convertible securities and except for options to be granted under existing approved board resolutions in the ordinary course or as disclosed in the Prospectus) for a period of 180 days after this Agreement becomes effective without the prior written consent of William Blair & Company, L.L.C; provided, however, that if (1) during the last 17 days of the initial Lock-Up Period, the Company releases earnings results or (2) prior to the expiration of the initial Lock-Up Period, the Company announces that it will release earnings results during the 16-day period beginning on the last day of the initial Lock-Up Period, then in either case the Lock-Up Period will be extended until the expiration of the 18-day period beginning on the date of release of the earnings results or the occurrence of the material news or material event, as applicable, unless William Blair & Company, L.L.C. waives, in writing, such extension.  The Company has obtained similar agreements from each of its officers and directors and current shareholders.

SECTION 7.          Payment of Expenses.  Whether or not the transactions contemplated hereunder are consummated or this Agreement becomes effective as to all of its provisions or is terminated, the Company agrees to pay (i) all costs, fees and expenses (other than legal fees and disbursements of counsel for the Underwriters and the expenses incurred by the Underwriters) incurred in connection with the performance of the Company’s obligations hereunder, including without limiting the generality of the foregoing, all fees and expenses of legal counsel for the Company and of the Company’s independent accountants, all costs and expenses incurred in connection with the preparation, printing, filing and distribution of the Registration Statement, each preliminary prospectus and the Prospectus (including all exhibits and financial statements) and all amendments and supplements provided for herein, this Agreement, the Pricing Agreement and the Blue Sky Memorandum, (ii) all costs, fees and expenses (including legal fees and disbursements of counsel for the Underwriters, not to exceed $15,000) incurred by the Underwriters in connection with qualifying or registering all or any part of the Shares for offer and sale under blue sky laws, including the preparation of a blue sky memorandum relating to the Shares and clearance of such offering with the NASD; and (iii) all fees and expenses of the Company’s transfer agent, printing of the certificates for the Shares and all transfer taxes, if any, with respect to the sale and delivery of the Shares to the several Underwriters.

The provisions of this Section shall not affect any agreement which the Company and the Selling Shareholders may make for the allocation or sharing of such expenses and costs.

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SECTION 8.          Conditions of the Obligations of the Underwriters.  The obligations of the several Underwriters to purchase and pay for the Firm Shares on the First Closing Date and the Option Shares on the Second Closing Date shall be subject to the accuracy of the representations and warranties on the part of the Company and each of the Selling Shareholders herein set forth as of the date hereof and as of the First Closing Date or the Second Closing Date, as the case may be, to the accuracy of the statements of officers of the Company made pursuant to the provisions hereof, to the performance by the Company and each of the Selling Shareholders of their respective obligations hereunder, and to the following additional conditions:

(a)           The Registration Statement shall have become effective either prior to the execution of this Agreement or not later than 1:00 P.M., Chicago Time, on the first full business day after the date of this Agreement, or such later time as shall have been consented to by you but in no event later than 1:00 P.M., Chicago Time, on the third full business day following the date hereof; and prior to the First Closing Date or the Second Closing Date, as the case may be, no stop order suspending the effectiveness of the Registration Statement shall have been issued and no proceedings for that purpose shall have been instituted or shall be pending or, to the knowledge of the Company, the Selling Shareholders or you, shall be contemplated by the Commission.  If the Company has elected to rely upon Rule 430A and/or Rule 434, the information concerning the initial public offering price of the Shares and price-related information shall have been transmitted to the Commission for filing pursuant to Rule 424(b) within the prescribed period and the Company will provide evidence satisfactory to the Representatives of such timely filing (or a post-effective amendment providing such information shall have been filed and declared effective in accordance with the requirements of Rules 430A and 424(b)).  If a Rule 462(b) Registration Statement is required, such Registration Statement shall have been transmitted to the Commission for filing and become effective within the prescribed time period and, prior to the First Closing Date, the Company shall have provided evidence of such filing and effectiveness in accordance with Rule 462(b).

(b)           The Shares shall have been qualified for sale under the blue sky laws of such states as shall have been specified by the Representatives.

(c)           The legality and sufficiency of the authorization, issuance and sale or transfer and sale of the Shares hereunder, the validity and form of the certificates representing the Shares, the execution and delivery of this Agreement and the Pricing Agreement, and all company proceedings and other legal matters incident thereto, and the form of the Registration Statement and the Prospectus (except financial statements) shall have been approved by counsel for the Underwriters exercising reasonable judgment.

(d)           You shall not have advised the Company that the Registration Statement or the Prospectus or any amendment or supplement thereto, contains an untrue statement of fact, which, in the opinion of counsel for the Underwriters, is material or omits to state a fact which, in the opinion of

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such counsel, is material and is required to be stated therein or necessary to make the statements therein not misleading.

(e)           Subsequent to the execution and delivery of this Agreement, there shall not have occurred any change, or any development involving a prospective change, in or affecting the business or properties of the Company or its subsidiaries, taken as a whole, whether or not arising in the ordinary course of business, which, in the judgment of the Representatives, would have an effect that is so adverse and material to the business or properties of the Company and its subsidiaries, taken as a whole, as to make it impractical or inadvisable to proceed with the public offering or purchase of the Shares as contemplated hereby.

(f)            There shall have been furnished to you, as Representatives of the Underwriters, on the First Closing Date or the Second Closing Date, as the case may be, except as otherwise expressly provided below:

(i)            Opinions of Shearman & Sterling LLP and M. Seligman & Co., counsel for the Company, and opinions of counsel to such subsidiaries as you have requested as of the date hereof, in each case addressed to the Underwriters and dated the First Closing Date or the Second Closing Date, as the case may be, to the collective effect that:

(1)           the Company has been duly organized and is validly existing as a limited liability company under the laws of the State of Israel and registered at the Israeli Companies Registrar under Company no. 513659565 with limited liability company power and authority to own its properties and conduct its business as described in the Prospectus; to such counsel’s knowledge, no proceeding has been instituted by the Registrar of Companies in Israel for the dissolution of the Company;

(2)           all of the issued and outstanding share capital or limited liability company interests of each subsidiary of the Company incorporated under the laws of the State of Israel has been duly authorized, validly issued and is fully paid and nonassessable, and the Company owns directly or indirectly that percentage of the outstanding share capital or limited liability company interests of each subsidiary set forth across from such subsidiary on Schedule D and, and to the best knowledge of such counsel, such shares or interests are owned free and clear of any claims, liens, encumbrances or security interests;

(3)           an opinion to the same general effect as clauses (1) and (2) of this subparagraph (i) in respect of such subsidiaries as you have requested as of the date hereof;

(4)           the authorized share capital of the Company, of which there are outstanding the number of shares set forth in the Registration Statement and

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Prospectus (except for subsequent issuances, if any, pursuant to options to purchase shares or other rights referred to in the Prospectus), conforms as to legal matters in all material respects to the description thereof in the Registration Statement and Prospectus;

(5)           the issued and outstanding share capital of the Company has been duly authorized and validly issued and is fully paid and nonassessable;

(6)           the certificates for the Shares to be delivered hereunder are in due and proper form, and when duly countersigned by the Company’s transfer agent and delivered to you or upon your order against payment of the agreed consideration therefor in accordance with the provisions of this Agreement and the Pricing Agreement, the Shares represented thereby will be duly authorized and validly issued, fully paid and nonassessable;

(7)           the Registration Statement has been declared effective by the Commission under the 1933 Act, and, to the best knowledge of such counsel, no stop order suspending the effectiveness of the Registration Statement has been issued and no proceedings for that purpose have been instituted or are pending or contemplated under the 1933 Act, and the Registration Statement (including the information deemed to be part of the Registration Statement at the time of effectiveness pursuant to Rule 430A(b) and/or Rule 434, if applicable), the Prospectus and each amendment or supplement thereto (except for the financial statements and other statistical or financial data included therein as to which such counsel need express no opinion) comply as to form in all material respects with the requirements of the 1933 Act; such counsel have no reason to believe that either the Registration Statement (including the information deemed to be part of the Registration Statement at the time of effectiveness pursuant to Rule 430A(b) and/or Rule 434, if applicable) or the Prospectus, or the Registration Statement or the Prospectus as amended or supplemented (except as aforesaid), as of their respective effective or issue dates, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading or that the Prospectus as amended or supplemented, if applicable, as of the First Closing Date or the Second Closing Date, as the case may be, contained any untrue statement of a material fact or omitted to state any material fact necessary to make the statements therein not misleading in light of the circumstances under which they were made; the statements in the Registration Statement and the Prospectus summarizing Israeli statutes, rules and regulations are accurate and fairly and correctly present the information presented in all material respects;

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(8)           the statements under the captions “Reorganization,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Borrowings,” “Certain Relationships and Related Transactions,” “Description of Share Capital,” “Shares Eligible for Future Sale,” “United States Federal Income Tax Considerations,” “Israeli Taxation,” and “Enforceability of Civil Liabilities” in the Prospectus, insofar as such statements constitute a summary of documents referred to therein or matters of law, are accurate summaries and fairly and correctly present, in all material respects, the information called for with respect to such documents and matters;

The Reorganization has been consummated and was duly authorized by all necessary company action and did not violate any provision of the Company’s articles of association, did not result in the breach, or was not in contravention, of any provision of any agreement, franchise, license, indenture, mortgage, deed of trust, or other instrument to which the Company is, to such counsel's knowledge, a party or by which the Company or any of its properties was or is, to such counsel's knowledge, bound or affected, or any order, rule or regulation applicable to the Company of any court or regulatory body, administrative agency or other governmental body in Israel having jurisdiction over the Company or any of its properties, or any order of any court or governmental agency or authority entered in any proceeding to which the Company or any of its subsidiaries was or is a party or by which any of them was or is bound.  No consent, approval, authorization or other order of any court, regulatory body, administrative agency or other governmental body was required for the completion of the Reorganization.

(9)           this Agreement and the Pricing Agreement and the performance of the Company’s obligations hereunder have been duly authorized by all necessary company action and all company action required by the laws of the State of Israel and this Agreement and the Pricing Agreement have been duly executed and delivered by and on behalf of the Company, and are legal, valid and binding agreements of the Company, except as enforceability of the same may be limited by

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bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors’ rights and by the exercise of judicial discretion in accordance with general principles applicable to equitable and similar remedies and except as to those provisions relating to indemnities for liabilities arising under the 1933 Act as to which no opinion need be expressed; and no authorization, approval or other action by, and no notice to or filing with, any United States federal or New York governmental authority or regulatory body, is required for the offer and sale of the Shares by the Company in the United States pursuant hereto or for the due execution, delivery or performance by the Company of this Agreement and the Pricing Agreement, except as have been obtained and are in full force and effect under the Securities Act or as may be required under the securities or blue sky laws of any jurisdiction in the United States in connection with the offer and sale of the Shares;

(10)         the execution and performance of this Agreement will not contravene any of the provisions of, or result in a default under, any agreement, franchise, license, indenture, mortgage, deed of trust, or other instrument known to such counsel, of the Company or any of its subsidiaries or by which the property of any of them is bound and which contravention or default would be material to the Company and its subsidiaries taken as a whole; or violate any of the provisions of the organizational documents of the Company or any of its subsidiaries or, so far as is known to such counsel, violate any statute, order, rule or regulation of any regulatory or governmental body having jurisdiction over the Company or any of its subsidiaries;

(11)         the Company is not an “investment company” or a person “controlled by” an “investment company” within the meaning of the Investment Company Act;

(12)         the Company is not required to publish a prospectus in Israel under the laws of the State of Israel with respect to the offering of the Shares;

(13)         to ensure the legality, validity or admissibility into evidence of each of this Agreement, the Pricing Agreement and any other document required to be furnished hereunder or thereunder in the State of Israel, it is not necessary that (a) this Agreement, the Pricing Agreement or any such other document be filed or recorded with any court or other authority in the State of Israel or (b) any stamp, registration or similar tax be paid to the State of Israel on or in respect of any such document or the Shares in connection with the sale of Shares to the Underwriters;

(14)         under the laws of the State of New York relating to personal jurisdiction, (i) the Company has, under this Agreement, validly submitted to the personal jurisdiction of any state or federal court located in the State of New York,

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County of New York in any action arising out of or relating to this Agreement and the transactions contemplated herein and has validly and effectively waived any objection to the venue of a proceeding in any such court as provided in Section 21 hereof, (ii) the Company’s appointment thereunder of CT Corporation as their authorized agent for service of process is valid, legal and binding, and (iii) service of process in the manner set forth in Section 21 hereof will be effective to confer valid personal jurisdiction of such court over the Company;

(15)         under the laws of Israel, the submission by the Company under this Agreement to the jurisdiction of any court sitting in New York and the designation of New York law to apply to this Agreement, is binding upon the Company and, if properly brought to the attention of a court or administrative body in accordance with the laws of Israel, would be enforceable in any judicial or administrative proceeding in Israel; subject to certain time limitations, Israeli courts are empowered to enforce foreign final executory judgments for liquidated amounts in civil matters, obtained after completion of process before a court of competent jurisdiction which recognizes similar Israeli judgments, provided such judgments or the enforcement thereof are not contrary to Israeli law, public policy, security or the sovereignty of the State of Israel; the enforcement of judgments is conditional upon: (a) adequate service of process being effected and the defendant having had a reasonable opportunity to be heard; (b) such judgment having been obtained before a court of competent jurisdiction according to the rules of private international law prevailing in Israel; (c) such judgment not being in conflict with another valid judgment in the same matter between the same parties; (d) such judgment not having been obtained by fraudulent means; and (e) an action between the same parties in the same matter not pending in any Israeli court at the time the lawsuit is instituted in the foreign court; and

(16)         other than stamp duty that may become payable in certain circumstances set forth in such opinion, no stamp or other issuance or transfer taxes or duties and no capital gains, income, withholding or other taxes are payable by or on behalf of the Company to the State of Israel or to any political subdivision or taxing authority thereof or therein in connection with the issuance and delivery to the Underwriters of the Shares as contemplated herein.

In rendering such opinion, such counsel may state that they are relying upon the certificate of American Stock Transfer & Trust Company, the transfer agent for the Common Shares, as to the number of Common Shares at any time or times outstanding, and that insofar as their opinion under clause (7) above relates to the accuracy and completeness of the Prospectus and Registration Statement, it is based upon a general review with the Company’s representatives and independent accountants of the information contained therein, without independent verification by such counsel of the accuracy or completeness of such

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information.  Such counsel may also rely upon the opinions of other competent counsel and, as to factual matters, on certificates of officers of the Company and of state officials, in which case their opinion is to state that they are so doing and copies of said opinions or certificates are to be attached to the opinion unless said opinions or certificates (or, in the case of certificates, the information therein) have been furnished to the Representatives in other form.

(ii)           Opinions of counsel for each of the Selling Shareholders, in each case addressed to the Underwriters and dated the First Closing Date or the Second Closing Date, as the case may be, to the effect that:

(1)           this Agreement and the Pricing Agreement have been duly authorized, executed and delivered by or on behalf of such Selling Shareholder; the Agent and the Custodian for such Selling Stockholder have been duly and validly authorized to carry out all transactions contemplated herein on behalf of such Selling Stockholder, and the performance of this Agreement and the Pricing Agreement and the consummation of the transactions herein contemplated by such Selling Shareholder will not result in a breach or violation of any of the terms and provisions of, or constitute a default under, any Israeli, New York or U.S. Federal statute or any order, rule or regulation known to such counsel of any Israeli or U.S. court or governmental agency or body having jurisdiction over such Selling Shareholder or any of its properties; and no consent, approval, authorization or order of any Israeli or U.S. court or governmental agency or body is required for the consummation of the transactions contemplated by this Agreement and the Pricing Agreement in connection with the sale of Shares to be sold by such Selling Shareholder hereunder, except such as have been obtained under the 1933 Act and such as may be required under applicable blue sky laws in connection with the purchase and distribution of such Shares by the Underwriters and the clearance of such offering with the NASD;

(2)           such Selling Shareholder has full right, power and authority to enter into this Agreement and the Pricing Agreement and to sell, transfer and deliver the Shares to be sold on the First Closing Date or the Second Closing Date, as the case may be, by such Selling Shareholder hereunder and good and valid title to such Shares so sold, to such counsel’s knowledge, free and clear of all voting trust arrangements, liens, encumbrances, equities, claims and community property rights whatsoever, will be transferred to the Underwriters (who counsel may assume to be bona fide purchasers) who will purchase such Shares hereunder on the First Closing Date or the Second Closing Date, as the case may be;

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(3)           under the laws of the State of New York relating to personal jurisdiction, (i) such Selling Shareholder has, under this Agreement, validly submitted to the personal jurisdiction of any state or federal court located in the State of New York, County of New York in any action arising out of or relating to this Agreement and the transactions contemplated herein and has validly and effectively waived any objection to the venue of a proceeding in any such court as provided in Section 21 hereof, (ii) such Selling Shareholder’s appointment thereunder of CT Corporation as its authorized agent for service of process is valid, legal and binding, and (iii) service of process in the manner set forth in Section 21 hereof will be effective to confer valid personal jurisdiction of such court over such Selling Shareholder;

(4)           this Agreement and the Pricing Agreement are legal, valid and binding agreements of such Selling Shareholder except as enforceability of the same may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors’ rights and by the exercise of judicial discretion in accordance with general principles applicable to equitable and similar remedies and except with respect to those provisions relating to indemnities for liabilities, as to which no opinion need be expressed; and

(5)           under the laws of Israel, the submission by such Selling Shareholder under this Agreement to the jurisdiction of any court sitting in New York and the designation of New York law to apply to this Agreement, is binding upon such Selling Shareholder and, if properly brought to the attention of the court or administrative body in accordance with the laws of Israel, would be enforceable in any judicial or administrative proceeding in Israel; subject to certain time limitations, Israeli courts are empowered to enforce foreign final non-appealable executory judgments for liquidated amounts in civil matters, obtained after completion of process before a court of competent jurisdiction which enforces similar Israeli judgments, provided such judgments or the enforcement thereof are not contrary to Israeli law, public policy, security or the sovereignty of the State of Israel; the enforcement of judgments is also conditional upon: (a) adequate service of process being effected and the defendant having had a reasonable opportunity to be heard; (b) such judgment having been obtained before a court of competent jurisdiction according to the rules of private international law prevailing in Israel; (c) such judgment not being in conflict with another valid judgment in the same matter between the same parties; (d) such judgment not having been obtained by fraudulent means; and (e) an action between the same parties in the same matter not pending in any Israeli court at the time the lawsuit is instituted in the foreign court.

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(iii)          Such opinion or opinions of Sidley Austin Brown & Wood LLP and Haim Samet, Steinmetz, Haring & Co., counsel for the Underwriters, dated the First Closing Date or the Second Closing Date, as the case may be, with respect to the organization of the Company, the validity of the Shares to be sold by the Company, the Registration Statement and the Prospectus and other related matters as you may reasonably require, and the Company shall have furnished to such counsel such documents and shall have exhibited to them such papers and records as they request for the purpose of enabling them to pass upon such matters.

(iv)          A certificate of the chief executive officer and the principal financial officer of the Company, dated the First Closing Date or the Second Closing Date, as the case may be, to the effect that:

(1)           the representations and warranties of the Company set forth in Section 2 of this Agreement are true and correct as of the date of this Agreement and as of the First Closing Date or the Second Closing Date, as the case may be, and the Company has complied with all the agreements and satisfied all the conditions on its part to be performed or satisfied at or prior to such Closing Date;

(2)           the Commission has not issued an order preventing or suspending the use of the Prospectus or any preliminary prospectus filed as a part of the Registration Statement or any amendment thereto; no stop order suspending the effectiveness of the Registration Statement has been issued; and to the best knowledge of the respective signers, no proceedings for that purpose have been instituted or are pending or contemplated under the 1933 Act; and

(3)           subsequent to the date of the most recent financial statements included in the Registration Statement and Prospectus, and except as set forth or contemplated in the Prospectus, (A) none of the Company and its consolidated subsidiaries has incurred any material liabilities or obligations, direct or contingent, or entered into any material transactions not in the ordinary course of business, and (B) there has not been any change that has had or would have a Material Adverse Effect  or any change in the share capital or any material change in their short-term debt or long-term debt.

The delivery of the certificate provided for in this subparagraph shall be and constitute a representation and warranty of the Company as to the facts required in the immediately foregoing clauses (1) and (2) of this subparagraph to be set forth in said certificate.

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(v)           A certificate of each of the Selling Shareholders dated the First Closing Date or the Second Closing Date, as the case may be, to the effect that the representations and warranties of such Selling Shareholder set forth in Section 3 of this Agreement are true and correct as of such date and such Selling Shareholder has complied with all the agreements and satisfied all the conditions on the part of such Selling Shareholder to be performed or satisfied at or prior to such date.

(vi)          At the time the Pricing Agreement is executed and also on the First Closing Date or the Second Closing Date, as the case may be, there shall be delivered to you a letter addressed to you, as Representatives of the Underwriters, from Kost Forer Gabbay & Kasierer, a Member of Ernst & Young Global, independent accountants, the first one to be dated the date of the Pricing Agreement, the second one to be dated the First Closing Date and the third one (in the event of a second closing) to be dated the Second Closing Date, to the effect set forth in Schedule C.  There shall not have been any change or decrease specified in the letters referred to in this subparagraph which makes it impractical or inadvisable in the judgment of the Representatives to proceed with the public offering or purchase of the Shares as contemplated hereby.

(vii)         A certificate of the chief executive officer and the principal financial officer of the Company, dated the First Closing Date or the Second Closing Date, as the case may be, verifying the truth and accuracy of any statistical or financial figure included in the Prospectus which has not been otherwise verified by the letters referred to in clause (v) above, such verification to include the provision of documentary evidence supporting any such statistical or financial figure.

(viii)        Such further certificates and documents as you may reasonably request.

All such opinions, certificates, letters and documents shall be in compliance with the provisions hereof only if they are satisfactory to you and to Sidley Austin Brown & Wood LLP, counsel for the Underwriters, which approval shall not be unreasonably withheld.  The Company shall furnish you with three manually signed or conformed copies of such opinions, certificates, letters and documents.

If any condition to the Underwriters’ obligations under this Section 8 to be satisfied prior to or at the First Closing Date is not so satisfied, this Agreement at your election will terminate upon notification to the Company and the Selling Shareholders without liability on the part of any Underwriter or the Company or the Selling Shareholders, except for the expenses to be paid or reimbursed by the Company pursuant to Sections 7 and 9 hereof and except to the extent provided in Section 11 hereof.

SECTION 9.          Reimbursement of Underwriters’ Expenses.  If the sale to the Underwriters of the Shares on the First Closing Date is not consummated because any condition of the Underwriters’ obligations

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hereunder is not satisfied or because of any refusal, inability or failure on the part of the Company to perform any agreement herein or to comply with any provision hereof, unless such failure to satisfy such condition or to comply with any provision hereof is due to the default or omission of any Underwriter, the Company agrees to reimburse you and the other Underwriters upon demand for all out-of-pocket expenses (including reasonable fees and disbursements of counsel) that shall have been reasonably incurred by you and them in connection with the proposed purchase and the sale of the Shares.  Any such termination shall be without liability of any party to any other party except that the provisions of this Section, Section 7 and Section 11 shall at all times be effective and shall apply.

SECTION 10.        Effectiveness of Registration Statement.  You, the Company and the Selling Shareholders will use your, its and their best efforts to cause the Registration Statement to become effective, if it has not yet become effective, and to prevent the issuance of any stop order suspending the effectiveness of the Registration Statement and, if such stop order be issued, to obtain as soon as possible the lifting thereof.

SECTION 11.        Indemnification.  (a) The Company agrees to indemnify and hold harmless each Underwriter and each person, if any, who controls any Underwriter within the meaning of the 1933 Act or the Exchange Act against any losses, claims, damages or liabilities, joint or several, to which such Underwriter or such controlling person may become subject under the 1933 Act, the Exchange Act or other federal, state, local or foreign statutory law or regulation, at common law or otherwise (including in settlement of any litigation if such settlement is effected with the written consent of the Company), insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the Registration Statement, including the information deemed to be part of the Registration Statement at the time of effectiveness pursuant to Rule 430A and/or Rule 434, if applicable, any preliminary prospectus, the Prospectus, or any amendment or supplement thereto, or arise out of or are based upon 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; and will reimburse each Underwriter and each such controlling person for any legal or other expenses reasonably incurred by such Underwriter or such controlling person in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the Company will not be liable in any such case to the extent that (i) any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in the Registration Statement, any preliminary prospectus, the Prospectus or any amendment or supplement thereto in reliance upon and in conformity with the information described in Section 4 of this Agreement; or (ii) if such statement or omission was contained or made in any preliminary prospectus and corrected in the Prospectus and (1) any such loss, claim, damage or liability suffered or incurred by any Underwriter (or any person who controls any Underwriter) resulted from an action, claim or suit by any person who purchased Shares which are the subject thereof from such Underwriter in the offering and (2) such Underwriter failed to deliver or provide a copy of the Prospectus to such person at or prior to the confirmation of the sale of such Shares in any case where such delivery is required by the 1933 Act.  In addition to its other obligations under this Section 11(a), the Company agrees

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that, as an interim measure during the pendency of any claim, action, investigation, inquiry or other proceeding arising out of or based upon any statement or omission, or any alleged statement or omission, described in this Section 11(a), it will reimburse the Underwriters on a monthly basis for all reasonable legal and other expenses incurred in connection with investigating or defending any such claim, action, investigation, inquiry or other proceeding, notwithstanding the absence of a judicial determination as to the propriety and enforceability of the Company’s obligation to reimburse the Underwriters for such expenses and the possibility that such payments might later be held to have been improper by a court of competent jurisdiction.  This indemnity agreement will be in addition to any liability which the Company may otherwise have.

(b)           Each Underwriter will severally indemnify and hold harmless the Company, each of its directors, each of its officers who signed the Registration Statement, and the Selling Shareholders and each person, if any, who controls the Company within the meaning of the 1933 Act or the Exchange Act, against any losses, claims, damages or liabilities to which the Company, or any such director, officer, Selling Shareholder or controlling person may become subject under the 1933 Act, the Exchange Act or other federal or state statutory law or regulation, at common law or otherwise (including in settlement of any litigation, if such settlement is effected with the written consent of such Underwriter), insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue or alleged untrue statement of any material fact contained in the Registration Statement, any preliminary prospectus, the Prospectus, or any amendment or supplement thereto, or arise out of or are based upon 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, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in the Registration Statement, any preliminary prospectus, the Prospectus, or any amendment or supplement thereto in reliance upon and in conformity with the information described in Section 4 of this Agreement; and will reimburse any legal or other expenses reasonably incurred by the Company, or any such director, officer, Selling Shareholder or controlling person in connection with investigating or defending any such loss, claim, damage, liability or action.  In addition to their other obligations under this Section 11(b), the Underwriters agree that, as an interim measure during the pendency of any claim, action, investigation, inquiry or other proceeding arising out of or based upon any statement or omission, or any alleged statement or omission, described in this Section 11(b), they will reimburse the Company and the Selling Shareholders on a monthly basis for all reasonable legal and other expenses incurred in connection with investigating or defending any such claim, action, investigation, inquiry or other proceeding, notwithstanding the absence of a judicial determination as to the propriety and enforceability of the Underwriters’ obligation to reimburse the Company and the Selling Shareholders for such expenses and the possibility that such payments might later be held to have been improper by a court of

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competent jurisdiction.  This indemnity agreement will be in addition to any liability which such Underwriter may otherwise have.

(c)           Promptly after receipt by an indemnified party under this Section of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against an indemnifying party under this Section, notify the indemnifying party of the commencement thereof; but the omission so to notify the indemnifying party will not relieve it from any liability which it may have to any indemnified party except to the extent that the indemnifying party was prejudiced by such failure to notify.  In case any such action is brought against any indemnified party, and it notifies an indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate in, and, to the extent that it may wish, jointly with all other indemnifying parties similarly notified, to assume the defense thereof, with counsel satisfactory to such indemnified party; provided, however, if the defendants in any such action include both the indemnified party and the indemnifying party and the indemnified party shall have reasonably concluded that there may be legal defenses available to it and/or other indemnified parties which are different from or additional to those available to the indemnifying party, or the indemnified and indemnifying parties may have conflicting interests which would make it inappropriate for the same counsel to represent both of them, the indemnified party or parties shall have the right to select separate counsel to assume such legal defense and otherwise to participate in the defense of such action on behalf of such indemnified party or parties.  Upon receipt of notice from the indemnifying party to such indemnified party of its election so to assume the defense of such action and approval by the indemnified party of counsel, the indemnifying party will not be liable to such indemnified party under this Section for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof unless (i) the indemnified party shall have employed such counsel in connection with the assumption of legal defense in accordance with the proviso to the next preceding sentence (it being understood, however, that the indemnifying party shall not be liable for the expenses of more than one separate counsel, approved by the Representatives in the case of paragraph (a) representing all indemnified parties not having different or additional defenses or potential conflicting interest among themselves who are parties to such action), (ii) the indemnifying party shall not have employed counsel satisfactory to the indemnified party to represent the indemnified party within a reasonable time after notice of commencement of the action or (iii) the indemnifying party has authorized the employment of counsel for the indemnified party at the expense of the indemnifying party.  No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened proceeding in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party, unless such settlement includes an unconditional release of such indemnified party from all liability arising out of such proceeding.

(d)           If the indemnification provided for in this Section is unavailable to an indemnified party under paragraphs (a) or (b) hereof in respect of any losses, claims, damages or liabilities referred to therein, then each applicable indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (i) in such proportion as is appropriate to reflect the relative benefits received by the Company, the

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Selling Shareholders and the Underwriters from the offering of the Shares or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company, the Selling Shareholders and the Underwriters in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations.  The respective relative benefits received by the Company, the Selling Shareholders and the Underwriters shall be deemed to be in the same proportion in the case of the Company and the Selling Shareholders, as the total price paid to the Company and the Selling Shareholders for the Shares by the Underwriters (net of underwriting discount but before deducting expenses), and in the case of the Underwriters as the underwriting discount received by them bears to the total of such amounts paid to the Company and the Selling Shareholders and received by the Underwriters as underwriting discount in each case as contemplated by the Prospectus.  The relative fault of the Company and the Selling Shareholders and the Underwriters 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 Company or by the Selling Shareholders or by the Underwriters and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission.  The amount paid or payable by a party as a result of the losses, claims, damages and liabilities referred to above shall be deemed to include any legal or other fees or expenses reasonably incurred by such party in connection with investigating or defending any action or claim.

The Company, each of the Selling Shareholders and the Underwriters agree that it would not be just and equitable if contribution pursuant to this Section 11(d) were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph.  Notwithstanding the provisions of this Section 11(d), no Underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Shares underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages which such Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission.  No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation.  The Underwriters’ obligations to contribute pursuant to this Section are several in proportion to their respective underwriting commitments and not joint.

(e)           The provisions of this Section shall survive any termination of this Agreement.

Section 12.            Default of Underwriters.  It shall be a condition to the agreement and obligation of the Company and each of the Selling Shareholders to sell and deliver the Shares hereunder, and of each Underwriter to purchase the Shares hereunder, that, except as hereinafter in this paragraph provided, each of the Underwriters shall purchase and pay for all Shares agreed to be purchased by such Underwriter hereunder upon tender to the Representatives of all such Shares in accordance with the terms hereof.  If any Underwriter or Underwriters default in their obligations to purchase Shares hereunder on the First Closing Date and the

31

aggregate number of Shares which such defaulting Underwriter or Underwriters agreed but failed to purchase does not exceed 10 percent of the total number of Shares which the Underwriters are obligated to purchase on the First Closing Date, the Representatives may make arrangements satisfactory to the Company and the Selling Shareholders for the purchase of such Shares by other persons, including any of the Underwriters, but if no such arrangements are made by the First Closing Date the nondefaulting Underwriters shall be obligated severally, in proportion to their respective commitments hereunder, to purchase the Shares which such defaulting Underwriters agreed but failed to purchase on the First Closing Date.  If any Underwriter or Underwriters so default and the aggregate number of Shares with respect to which such default or defaults occur is more than the above percentage and arrangements satisfactory to the Representatives and the Company and the Selling Shareholders for the purchase of such Shares by other persons are not made within 36 hours after such default, this Agreement will terminate without liability on the part of any nondefaulting Underwriter or the Company or the Selling Shareholders, except for the expenses to be paid by the Company pursuant to Section 7 hereof and except to the extent provided in Section 11 hereof.

In the event that Shares to which a default relates are to be purchased by the nondefaulting Underwriters or by another party or parties, the Representatives or the Company shall have the right to postpone the First Closing Date for not more than seven business days in order that the necessary changes in the Registration Statement, Prospectus and any other documents, as well as any other arrangements, may be effected.  As used in this Agreement, the term “Underwriter” includes any person substituted for an Underwriter under this Section.  Nothing herein will relieve a defaulting Underwriter from liability for its default.

SECTION 13.        Effective Date.  This Agreement shall become effective immediately as to Sections 7, 9, 11 and 14 and as to all other provisions upon execution and delivery of the Pricing Agreement.

SECTION 14.        Termination.  Without limiting the right to terminate this Agreement pursuant to any other provision hereof:

(a)           This Agreement may be terminated by the Company by notice to you and the Selling Shareholders or by you by notice to the Company and the Selling Shareholders at any time prior to the time this Agreement shall become effective as to all its provisions, and any such termination shall be

32

without liability on the part of the Company or the Selling Shareholders to any Underwriter (except for the expenses to be paid or reimbursed pursuant to Section 7 hereof and except to the extent provided in Section 11 hereof) or of any Underwriter to the Company or the Selling Shareholders.

(b)           This Agreement may also be terminated by you prior to the First Closing Date, and the option referred to in Section 5, if exercised, may be cancelled at any time prior to the Second Closing Date, if (i) trading in any securities of the Company shall have been suspended or materially limited by the Commission or the Nasdaq National Market or trading generally on the New York Stock Exchange or the Nasdaq National Market shall have been suspended or minimum or maximum prices shall have been established or maximum ranges for prices shall have been required on such exchange or market, or (ii) a banking moratorium shall have been declared by New York, United States, or Israeli authorities or a material disruption shall have occurred in commercial banking or securities settlement or clearance services in the United States or Israel, or (iii) there shall have been any adverse change in financial markets or in political, economic or financial conditions which, in the opinion of the Underwriters, either renders it impracticable or inadvisable to proceed with the offering and sale of the Shares on the terms set forth in the Prospectus or materially and adversely affects the market for the Shares, or (iv) there shall have been an outbreak or escalation of major armed hostilities between the United States or Israel and any foreign power or terrorist organization or other calamity or crisis or change or development involving a prospective change in political, economic or financial conditions which in the opinion of the Underwriters makes it impractical or inadvisable to offer or sell the Shares.  Any termination pursuant to this paragraph (b) shall be without liability on the part of any Underwriter to the Company or the Selling Shareholders or on the part of the Company to any Underwriter or the Selling Shareholders (except for expenses to be paid or reimbursed pursuant to Section 7 hereof and except to the extent provided in Section 11 hereof).  In the event that you make a determination to terminate this Agreement pursuant to this Section 14(b), you shall notify the Company and the Selling Shareholders of each determination.

SECTION 15.        Representations and Indemnities to Survive Delivery.  The respective indemnities, agreements, representations, warranties and other statements of the Company, of its officers, of the Selling Shareholders, and of the several Underwriters set forth in or made pursuant to this Agreement will remain in full force and effect, regardless of any investigation made by or on behalf of any Underwriter or the Company or any of its or their partners, principals, members, officers or directors or any controlling person, or the Selling Shareholders as the case may be, and will survive delivery of and payment for the Shares sold hereunder.

SECTION 16.        Notices.  All communications hereunder will be in writing and, if sent to the Underwriters will be mailed, delivered or telegraphed and confirmed to you c/o William Blair & Company, L.L.C., 222 West Adams Street, Chicago, Illinois 60606, with a copy to Thomas Thesing c/o Sidley Austin Brown & Wood LLP, Woolgate Exchange, 25 Basinghall Street, London EC2V 5HA, England; if sent to the Company will be mailed, delivered or telegraphed and confirmed to the Company at its headquarters with a copy to Stephan Hutter, Shearman & Sterling LLP, Gervinusstrasse 17, 60322 Frankfurt am Main, Germany;  if sent to one of the Selling Shareholders will be mailed, delivered or telegraphed

33

and confirmed to the Agents and the Custodian at such address as they have previously furnished to the Company and the Representatives.

SECTION 17.        Successors.  This Agreement and the Pricing Agreement will inure to the benefit of and be binding upon the parties hereto and their respective successors, personal representatives and assigns, and to the benefit of the officers and directors and controlling persons referred to in Section 11, and no other person will have any right or obligation hereunder.  The term “successors” shall not include any purchaser of the Shares as such from any of the Underwriters merely by reason of such purchase.

SECTION 18.        Representation of Underwriters.  You will act as Representatives for the several Underwriters in connection with this financing, and any action under or in respect of this Agreement taken by you will be binding upon all the Underwriters.

SECTION 19.        Partial Unenforceability.  If any section, paragraph or provision of this Agreement is for any reason determined to be invalid or unenforceable, such determination shall not affect the validity or enforceability of any other section, paragraph or provision hereof.

SECTION 20.        Applicable Law.  This Agreement and the Pricing Agreement shall be governed by and construed in accordance with the laws of the State of New York.

SECTION 21.        Jurisdiction.  Each of the Company and the Selling Shareholders agrees that any suit, action or proceeding against the Company brought by any Underwriter, the directors, officers, employees and agents of any Underwriter, or by any person who controls any Underwriter, arising out of or based upon this Agreement, the Pricing Agreement or the transactions contemplated hereby or thereby may be instituted in any New York Court, and waives any objection which it may now or hereafter have to the laying of venue of any such proceeding, and irrevocably submits to the non-exclusive jurisdiction of such courts in any suit, action or proceeding. Each of the Company and each Selling Shareholder has appointed CT Corporation as its authorized agent (the “Authorized Agent”) upon whom process may be served in any suit, action or proceeding arising out of or based upon this Agreement, the Pricing Agreement or the transactions contemplated herein or therein which may be instituted in any New York Court, by any Underwriter, the directors, officers, employees and agents of any Underwriter, or by any person who controls any Underwriter, and expressly accepts the non-exclusive jurisdiction of any such court in respect of any such suit, action or proceeding. Each of the Company and the Selling Shareholders hereby represents and warrants that the Authorized Agent has accepted such appointment and has agreed to act as said agent for service of process, and the Company agrees to take any and all action, including the filing of any and all documents that may be necessary to continue such appointment in full force and effect as aforesaid. Service of process upon the Authorized Agent shall be deemed, in every respect, effective service of process upon the Company and the Selling Shareholders. Notwithstanding the foregoing, any action arising out of or based upon this Agreement, the Pricing Agreement or the transactions contemplated herein or therein may be instituted by any Underwriter, the directors, officers, employees and agents of any Underwriter, or by any person who controls any Underwriter, in any court of competent

34

jurisdiction in the State of Israel.  The provisions of this Section 21 shall survive any termination of this Agreement, in whole or in part.

SECTION 22.        Currency.  Each reference in this Agreement or the Pricing Agreement to U.S. Dollar or “$” (the “relevant currency”) is of the essence. To the fullest extent permitted by law, the obligations of each of the Company and the Selling Shareholders in respect of any amount due under this Agreement will, notwithstanding any payment in any other currency (whether pursuant to a judgment or otherwise), be discharged only to the extent of the amount in the relevant currency that the party entitled to receive such payment may, in accordance with its normal procedures, purchase with the sum paid in such other currency (after any premium and costs of exchange) on the business day immediately following the day on which such party receives such payment. If the amount in the relevant currency that may be so purchased for any reason falls short of the amount originally due, the Company or the Selling Shareholder making such payment will pay such additional amounts, in the relevant currency, as may be necessary to compensate for the shortfall. Any obligation of any of the Company or the Selling Shareholders not discharged by such payment will, to the fullest extent permitted by applicable law, be due as a separate and independent obligation and, until discharged as provided herein, will continue in full force and effect.

SECTION 23.        Waiver of Immunity.  To the extent that any of the Company or the Selling Shareholders has or hereafter may acquire any immunity (sovereign or otherwise) from any legal action, suit or proceeding, from jurisdiction of any court or from set-off or any legal process (whether service or notice, attachment in aid or otherwise) with respect to itself or any of its property, each of the Company and the Selling Shareholders hereby irrevocably waives and agrees not to plead or claim such immunity in respect of its obligations under this Agreement or the Pricing Agreement.

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If the foregoing is in accordance with your understanding of our agreement, kindly sign and return to us the enclosed duplicates hereof, whereupon it will become a binding agreement among the Company, the Selling Shareholders and the several Underwriters including you, all in accordance with its terms.

Very truly yours,

SHAMIR OPTICAL INDUSTRY LTD

By:

Name:

Title:

SHAMIR OPTICA HOLDINGS A.C.S. LTD.

By:

Name:  Efrat Cohen

Title: Attorney-in-fact

HAKLAEI EYAL HASHARON A.C.S. LTD.

By:

Name:  Daniel Sisso

Title: Attorney-in-fact

FIBI INVESTMENT HOUSE LTD.
SCORPIO BSG LTD.
JFS INTERNATIONAL TRADING LTD.
GISHREI ASIA LTD.

By:

Name: Orly Felner Hayardeni

Title: Attorney-in-Fact

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The foregoing Agreement is hereby

confirmed and accepted as of

the date first above written.

WILLIAM BLAIR & COMPANY, L.L.C.

CIBC WORLD MARKETS CORP.

C.E. UNTERBERG, TOWBIN, L.L.C.

Acting as Representatives of the

several Underwriters named in

Schedule A.

By: William Blair & Company, L.L.C.

By:

Principal

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SCHEDULE A

Underwriter	Number of Firm Shares to be Purchased
William Blair & Company, L.L.C.
CIBC World Markets Corp.
C.E. Unterberg, Towbin, L.L.C.
TOTAL

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SCHEDULE B

	Number of Firm Shares to be Sold	Number of Option Shares to be Sold
Company	3,400,000	0
Shamir Optica Holdings A.C.S. Ltd.	395,982	489,585
Haklaei Eyal Hasharon A.C.S. Ltd.	24,018	24,018
FIBI Investment House Ltd.	124,200	59,614
Scorpio BSG Ltd.	36,000	17,279
JFJ International Trading Ltd.	4,500	2,160
Gishrei Asia Ltd.	15,300	7,344
TOTAL	4,000,000	600,000

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SCHEDULE C

Comfort Letter of Kost Forer Gabbay & Kasierer, a Member of Ernst & Young Global

(1)They are independent public accountants with respect to the Company and its subsidiaries within the meaning of the 1933 Act.

(2)In their opinion the consolidated financial statements of the Company and its subsidiaries included in the Registration Statement and the consolidated financial statements of the Company from which the information presented under the caption “Selected Consolidated Financial Data” has been derived which are stated therein to have been examined by them comply as to form in all material respects with the applicable accounting requirements of the 1933 Act.

(3)On the basis of specified procedures (but not an examination in accordance with United States generally accepted auditing standards), including inquiries of certain officers of the Company and its subsidiaries responsible for financial and accounting matters as to transactions and events subsequent to [                 ], a reading of minutes of meetings of the shareholders and directors of the Company and its subsidiaries since [                 ], a reading of the latest available interim unaudited consolidated financial statements of the Company and its subsidiaries (with an indication of the date thereof) and other procedures as specified in such letter, nothing came to their attention which caused them to believe that (i) the unaudited consolidated financial statements of the Company and its subsidiaries included in the Registration Statement do not comply as to form in all material respects with the applicable accounting requirements of the 1933 Act or that such unaudited financial statements are not fairly presented in accordance with United States generally accepted accounting principles applied on a basis substantially consistent with that of the audited financial statements included in the Registration Statement; (ii) the pro forma information of the Company and its subsidiaries included in the Registration Statement do not comply as to form in all material respects with the applicable accounting requirements of the 1933 Act or that such pro forma information are not fairly presented in accordance with United States generally accepted accounting principles or that the assumptions used in the preparation thereof are not reasonable and the adjustments used therein are not appropriate under the circumstances; and (iii) at a specified date not more than five days prior to the date thereof in the case of the first letter and not more than two business days prior to the date thereof in the case of the second and third letters, there was any change in the capital stock or long-term debt or short-term debt (other than normal payments) of the Company and its subsidiaries on a consolidated basis or any decrease in consolidated net current assets or consolidated shareholders’ equity as compared with amounts shown on the latest unaudited balance sheet of the Company included in the Registration Statement or for the period from the date of such balance sheet to a date not more than five days prior to the date thereof in the case of the first letter and not more than two business days prior to the date thereof in the case of the second and third letters, there were any decreases, as compared with the corresponding period of the prior year, in consolidated net sales, consolidated

40

income before income taxes or in the total or per share amounts of consolidated net income except, in all instances, for changes or decreases which the Prospectus discloses have occurred or may occur or which are set forth in such letter.

(4)They have carried out specified procedures, which have been agreed to by the Representatives, with respect to certain information in the Prospectus specified by the Representatives, and on the basis of such procedures, they have found such information to be in agreement with the general accounting records of the Company and its subsidiaries.

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SCHEDULE D

Subsidiaries

Subsidiary	Jurisdiction of Formation	Ownership Percentage
Eyal Optical Industries (1995) Ltd.	Israel	100%
Eyal Optics Holdings A.C.S. Ltd.	Israel	100%
E.S.P. Optics Ltd.	Israel	100%
Shamir USA, Inc.	USA	100%
Shamir Insight, Inc.	USA	56.7%
Altra Trading GmbH	Germany	51%
Inray Ltd.	Israel	50%
Shamir Or Ltd.	Israel	50%
E-vision LLC	USA	19.8%
Interoptic SA RL	France	51%
Altra Optica Espana SL	Spain	51%
Altra Optica Lda.	Portugal	51%
Cambridge Optical Group Limited	U.K.	51%
JMH Holding Ltd.	U.K.	51%
P.D.A. Advanced Optics Systems Ltd.	Israel	30%

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EXHIBIT A

SHAMIR OPTICAL INDUSTRY LTD.

4,000,000 Common Shares(1)

PRICING AGREEMENT

               , 2005

WILLIAM BLAIR & COMPANY, L.L.C.

CIBC WORLD MARKETS CORP.

C.E. UNTERBERG, TOWBIN, L.L.C.

As Representatives of the Several

Underwriters

c/o William Blair & Company, L.L.C.

222 West Adams Street

Chicago, Illinois 60606

Ladies and Gentlemen:

Reference is made to the Underwriting Agreement dated                  , 2005 (the “Underwriting Agreement”) relating to the sale by the Company and the Selling Shareholders and the purchase by the several Underwriters for whom William Blair & Company, L.L.C., CIBC World Markers Corp. and C.E. Unterberg, Towbin, L.L.C. are acting as representatives (the “Representatives”), of the above Shares.  All terms herein shall have the definitions contained in the Underwriting Agreement except as otherwise defined herein.

Pursuant to Section 5 of the Underwriting Agreement, the Company and each of the Selling Shareholders agree with the Representatives as follows:

1.The initial public offering price per share for the Shares shall be $          .

2.The purchase price per share for the Shares to be paid by the several Underwriters shall be $             , being an amount equal to the initial public offering price set forth above less $             per share.

Upon execution of this Pricing Agreement, the Underwriting Agreement shall become effective as to all provisions.

(1)Plus an option to acquire up to 600,000 additional shares to cover overallotments.

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If the foregoing is in accordance with your understanding of our agreement, kindly sign and return to us the enclosed duplicates hereof, whereupon it will become a binding agreement among the Company, the Selling Shareholders and the several Underwriters, including you, all in accordance with its terms.

Very truly yours,

SHAMIR OPTICAL INDUSTRY LTD

By:

Name:

Title:

SHAMIR OPTICA HOLDINGS A.C.S. LTD.

By:

Name:  Efrat Cohen

Title: Attorney-in-fact

HAKLAEI EYAL HASHARON A.C.S. LTD.

By:

Name:  Daniel Sisso

Title: Attorney-in-fact

FIBI INVESTMENT HOUSE LTD.
SCORPIO BSG LTD.
JFS INTERNATIONAL TRADING LTD.
GISHREI ASIA LTD.

By:

Name: Orly Felner Hayardeni

Title: Attorney-in-Fact

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The foregoing Agreement is hereby

confirmed and accepted as of the

date first above written.

WILLIAM BLAIR & COMPANY, L.L.C.

CIBC WORLD MARKETS CORP.

C.E. UNTERBERG, TOWBIN, L.L.C.

Acting as Representatives of the

several Underwriters

By: William Blair & Company, L.L.C.

By:

Principal

45

EX-3.1

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

1.1The 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	Sundayto 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.

1.2Unless 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.

1.3The captions in these Articles are for convenience only and shall not be deemed a part hereof or affect the construction of any provision hereof.

1.4The 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

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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

5.1The 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.

5.2The 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

6.1The 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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6.2Except 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

7.1Without 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.

7.2If 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.

7.3Unless 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 Article7, 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

8.1The 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):

8.1.1Consolidate and divide all or any of its issued or unissued share capital into shares of larger nominal value than its existing shares;

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8.1.2Subdivide 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.

8.1.3Cancel 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

8.1.4Reduce its share capital in any manner, subject to any authorization or consent required by Law.

8.2With 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 any difficulty which may arise with regard thereto, as it deems appropriate, including, inter alia, resort to one or more of the following actions:

8.2.1Determine, as to the holder of shares so consolidated, which issued shares shall be consolidated into each share of larger nominal value;

8.2.2Allot, in contemplation of or subsequent to such consolidation or other action, such shares or fractional shares sufficient to preclude or remove fractional share holdings;

8.2.3Redeem, in the case of redeemable shares, and subject to applicable Law, such shares or fractional shares sufficient to preclude or remove fractional share holdings;

8.2.4Cause 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 Article8.2.4.

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SHARES

9.Issuance of Share Certificates: Replacement of Lost Certificates

9.1Share 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.

9.2Each 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.

9.3A 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”).

9.4If 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

11.1The 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

6

may deem appropriate, and the power to give to any person the option to acquire from the Company any shares, either at 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.

11.2The 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.

11.3The 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.

11.4The 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 Article11.4, 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

13.1The 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 Article13.2), 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.

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13.2Notice 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.

13.3If, 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.

13.4Any 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.

13.5Upon 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

13.6The 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

15.1If 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

8

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.

15.2Upon 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.

15.3Whenever 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.

15.4The Company, by resolution of the Board, may accept the voluntary surrender of any share.

15.5Any 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.

15.6Any 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

9

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.

15.7The 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 Article15.

16.Lien

16.1Except 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.

16.2The 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.

16.3The 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.

10

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

19.1No 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.

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      .”

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	The Transferee	The Transferor
	Name:	Name:
	Signature:	Signature:
Witness to Signature		Witness to Signature
Name:		Name:
Signature:		Signature:

19.2The 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.

19.3The 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.

19.4Upon the death of a Shareholder

19.4.1In 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.

19.4.2Any 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.

19.5The 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.

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19.6A 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.

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

22.1All General Meetings other than Annual Meetings shall be referred to as “Extraordinary Meetings”.

22.2The 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:

22.2.1Any two Directors or a quarter of the Directors, whichever is lower; or

22.2.2One 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

22.2.3One 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.

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22.3The 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

24.1The Company is not required to give notice under section 69(b) of the Companies Law.

24.2General Meeting requires prior notice of at least 21 days.

PROCEEDINGS AT GENERAL MEETINGS

25.The Agenda of General Meetings

25.1The 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 above, or as otherwise may be required in accordance with the provisions of the Companies Law.

25.2The General Meeting shall only adopt resolutions on issues or act upon items which are on its agenda.

25.3The 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 ofthe General Meeting, provided that such resolution is not materially different from the proposed resolution.

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25.4Any 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

26.1No business shall be transacted at a General Meeting, or at any adjournment thereof, unless alawful quorum is present when the meeting proceeds to business.

26.2Subject 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 (33 1/3%) 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.

26.3If 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.

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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 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

29.1Except 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.

29.2Every 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

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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.

29.3A 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 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

32.1No 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 Article23.

32.2A 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

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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.

32.3Any 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 Article32.2) or by proxy (subject to Article 34 below), or by proxy card.

32.4The 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.

32.5If 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

34.1A 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.

34.2In 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

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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.

35.A Deed of Authorization

35.1The 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)

35.2The 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 time fixed for the meeting, at which the person named in the deed of authorization proposes to vote, or presented to the Chairman at such meeting.

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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:

37.1If there is a reasonable suspicion that they are forged or falsified;

37.2If they are not duly executed or completed, as set forth in Article 35.1 above, if applicable

37.3If they are given with respect to shares for which one or more proxy cards or deeds of authorization have been given and not withdrawn;

37.4If more than one choice is marked for the same resolution; or

37.5With 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 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

38.1The 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

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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.

38.2Without derogating from the generality of Articles 38.1 above, the Board’s authority shall include the following:

38.2.1The 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.

38.2.2Subject 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.

38.2.3Subject 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

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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.

38.2.4The 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”.

39.Board Meetings

39.1Convening Meetings of the Board

39.1.1The 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.

39.1.2The 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.

39.2Notice of a Meeting of the Board

39.2.1Any 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.

39.2.2A 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

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material that the Chairman of the Board requests to be included in the notice with respect to the meeting.

39.3The 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:

39.3.1Matters for which the meeting is required to be convened in accordance with the Companies Law;

39.3.2Any 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;

39.3.3Any other matter determined by the Chairman of the Board.

39.4Quorum

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.

39.5Conducting 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.

39.6Voting 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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39.7Written 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

40.1The Number of Directors

The Board shall consist of such number of Directors, not less than two (2) nor more than eleven (11) (including two External Directors, as defined by the Companies Law).

40.2Classes & 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, consisting of up to 3 Directors each.

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.

40.3Directors Generally

40.3.1Subject to the provisions of the Companies Law, a Director may hold another position in the Company.

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40.3.2A company or other corporate entity may serve as a Director in the Company.

40.3.3The 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.

40.4The Election of Directors and their Terms of Office

40.4.1Directors (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.

40.4.2The 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.

40.4.3The Annual Meeting shall not be entitled to remove from office any Director.

40.4.4Deleted.

40.4.5Except 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.

40.4.6In 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

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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

41.1Alternate Directors

41.1.1Subject 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.

41.1.2Anyone 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.

41.2Representative of a Director that is a Company

41.2.1A 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, either for a certain meeting or for a certain period of time or generally and such company or other entity may also dismiss that

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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.

41.2.2Subject 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.

41.3Provisions with Respect to Alternate Directors and Director’s Representatives

41.3.1An 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.

41.3.2The 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

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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

44.1Subject to the provisions of the Companies Law, the Board may delegate its authorities orany  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.

44.2Subject 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.

44.3The 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.

45.Chairman of the Board

45.1Appointment

45.1.1The 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

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meeting of the Board held after the General Meeting in which Directors were appointed to the Company.

45.1.2In 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.

45.1.3In 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.

45.2Authority

45.2.1The Chairman of the Board shall preside over meetings of the Board and shall sign the minutes of the meetings.

45.2.2In the event of deadlock vote, the Chairman of the Board shall not have an additional or casting vote.

45.2.3The 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.

45.2.4The 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.

45.2.5The 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.

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MINUTES

47.Minutes

47.1minutes 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

47.2Any 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.

OFFICERS; AUDITOR

48.The General Manager

48.1The 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.

48.2The Authority of the General Manager

48.2.1The 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.

48.2.2The 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.

48.2.3In 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.

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48.2.4The Board may assume the authority granted to the General Manager, either with respect to a certain issue or for a certain period of time.

48.2.5In 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.

48.2.6The General Manager, with the approval of the Board, may delegate to his subordinates any of his authority.

49.Internal Auditor

49.1The 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.

49.2The 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

51.1The 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.

51.2The 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

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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

53.1Right to Dividend or Bonus Shares

53.1.1A 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.

53.1.2The 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.

53.2Resolution 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 Board in accordance with the provisions of the Companies Law.

53.3Specific Dividend

The Board will determine the way and method of payment of any dividend or bonus shares.

53.4Deductions 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.

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53.5Retention of Dividends

53.5.1The Board may retain any dividend, bonus shares or other moneys payable or propertydistributable 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.

53.5.2The 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 Article19.5, 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.

53.6Mechanics 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.

53.7An 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

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person who would have been entitled thereto had the same not reverted to the Company.

53.8Receipt 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.

53.9Manner of Capitalization of Profits and the Distribution of Bonus Shares

Upon the resolution of the Board 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.

53.10The 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 of certain assets and to determine that cash payments shall be paid to the Shareholders on the basis of such value, or that fractions 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.

53.11The provisions of this chapter shall also apply to the distribution of Securities.

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54.Acquisition of Shares

54.1The 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.

54.2A 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 Articles56, 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

56.1The 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:

56.1.1A breach of his duty of care to the Company or to another person;

56.1.2A 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;

56.1.3A financial liability imposed on him in favor of another person.

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57.Indemnification of Office Holders

57.1The 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:

57.1.1A 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;

57.1.2reasonable 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 criminal charge of which he was convicted of a crime which does not require a finding of criminal intent.

57.2The 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.

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LIQUIDATION

60.Liquidation

60.1Subject 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.

60.2In 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

63.1The 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.

63.2The Company shall have at least one official stamp.

63.3The 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

64.1Any 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

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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.

64.2All 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.

64.3Any 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.

64.4Any 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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EX-5.1

Exhibit 5.1

	M. SELIGMAN & CO. ADVOCATES AND NOTARIES
ELI ZOHAR
GABRIEL HAKE	23 MENACHEM BEGIN ROAD • P.O.B. 36090 •
ZVI BAR-NATHAN	TEL-AVIV 66184 ISRAEL
AARON MICHAELI
ROY BLECHER
YOAV FRUCHTMAN	TEL. (972-3) 7101616
MICHAL MANY-MEDAN	FAX (972-3) 7101617
RAKEFET PELED	E-MAIL seligman@seligman.co.il
NILI ZOHAR
ERAN BALINT
DAN ALON
SHONE HELIN-GRINBOM
ORIT ZILONY-KLINMAN	TEL. Direct (972-3) 7101656
TAMAR LUZ	FAX Direct (972-3) 5669355
AMIT KRISPIN	E-MAIL nitzan@seligman.co.il
DAPHNA ZADICARIO-ELY
DANA DORON
ITAI ZOHAR
EFRAT KALASH-MISHAN
NITZAN LEIBOVITZ
AVISHAI HALFON	Date 7 March 2005
INGA MICHAELI
MERAV BARUCH
YEHUDIT LIBIN-HIRSCH
TAL LAUFER
AHIKAM SHIMONI
SHARON LULACHI
YEHUDA ROSENTHAL
MERAV ISRAELI
MICHAL VARDI
YANIV TESLER
SHANI SHAVIT
ARIK RUBIN
SAGY PARDO
YANIV STEIN
MAX KRITZMAN (FOUNDER) (1914-2003)	File No. 358\00058\G260416
MAX SELIGMAN (FOUNDER)
(1902-1987)

To:

Shamir Optical Industry Ltd.

Kibbutz Shamir

Upper Galilee

Israel 12135

Ladies and Gentlemen:

We act as Israeli counsel to Shamir Optical Industry Ltd. (Company No. 513659565) a limited liability company incorporated under the Law of the State of Israel (the “Company”). We refer to the registration statement and amendments thereto on Form F-1 (the “Registration Statement”), filed by the Company with the Securities and Exchange Commission under the U.S. Securities Act of 1933, as amended, (the “Act”) relating to the public offering of up to an aggregate of 4,000,000 Ordinary Shares (the “Shares”) of a nominal value of NIS 0.01each of the Company, consisting of 3,400,000 shares to be sold by the Company, an additional 600,000 shares to be sold by certain shareholders thereof (the “Selling Shareholders”) and 600,000 shares which may be purchased by the underwriters if they exercise the option granted to them to cover over-allotments.

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1.             The opinions hereafter expressed are subject to the following qualifications:

For the purpose of this Opinion we have examined originals, or copies certified or otherwise identified to our satisfaction, of the following documents and items:

1.1           The Company’s articles of association;

1.2           The Company’s certificate of incorporation;

1.3           The approval of the cooperative registrar for the conversion of Shamir Optical Industry and Development ACS Ltd. into a limited liability Company.

1.4           Minutes of the Management Board meeting of Shamir Optical Industry and Development ACS Ltd.dated Februay 8, 2005;

1.5           Minutes of the Shareholders meeting of Shamir Optical Industry and Development ACS Ltd. dated February 21, 2005;

The documents listed above shall be referred to collectively as “Applicable Documents.”

2.             In rendering an opinion on the matters set forth herein, we have assumed the genuineness of all signatures, the legal capacity of all natural persons, the authenticity of all documents submitted to us as originals and the conformity to original documents of all documents submitted to us as copies and the authenticity of the originals of such latter documents. In making our examination of documents executed or assumed to be executed by corporate or other entities, other than the Company, we have assumed that such entities had the power, corporate or other, to enter into and perform all obligations thereunder and have also assumed that due authorization by all requisite action, corporate or other, and due execution and delivery by such entities on such documents and the validity and binding effect thereof. As to any facts material to this opinion we did not independently establish or verify, we have relied solely upon statements, representations, executed minutes and certificates of officers and other representatives of the Company.

3.             This opinion letter is governed by, and shall be interpreted solely in accordance with the laws of the State of Israel. Based upon and subject to all the qualifications set forth in this opinion letter we are of the opinion that:

3.1           The Shares to be issued and sold by the Company have been duly and validly authorized and when sold in the manner contemplated by the Underwriting Agreement filed as an exhibit to the Registration Statement, upon receipt by the Company of payment therefore as provided in such agreement and subject to the payment of Israeli stamp tax upon the issuance thereof, if applicable, will be legally issued, fully paid and non-assessable.

3.2           The shares to be sold by the Selling Shareholders pursuant to the Registration Statement have been duly and validly authorized and issued and are fully paid-up and non-assessable.

4.             Our opinion expressed above are further subject to the following additional qualifications, assumptions, limitations and exceptions:

4.1           We express no opinion as to any laws other than the laws of the State of Israel as the same are in force on the date hereof and we have not, for the purpose of giving this opinion, made any investigation of the laws of any other jurisdiction nor we made any investigation with respect to any issues of conflict of laws between the law of the State of Israel and the law of other jurisdictions, and any issue which may arise with respect to this opinion will be resolved solely pursuant to the laws of the state of

2

Israel. Furthermore, we have not undertaken any independent investigation to determine the accuracy of representations made to us by officers of the Company and any limited inquiry undertaken by us during the preparation of this opinion should not be regarded as such as investigation; no inference as to our knowledge of any matters bearing on the accuracy of any such statement should be drawn from the fact of our representation of the Company.

4.2           Our opinions are subject to the effect of judicial decisions which may permit the introduction of extrinsic evidence to interpret the terms of written contracts.

4.3           We express no opinion with respect to any tax matters and matters of choice of law and jurisdiction.

4.4           We express no opinion with respect to the financial condition of the Company.

4.5           This opinion is limited to the matters stated herein and no opinion is implied or may be inferred beyond the matters expressly stated. This opinion letter speaks only as of its date, and we disclaim any express or implied undertaking or obligation to advise of any subsequent change of law or fact (even though the change may affect the legal analysis, and legal conclusion or an informational confirmation in this opinion letter).

4.6           This opinion is subject to the laws relating to liquidation, bankruptcy, reorganization, insolvency or composition generally effecting creditors’ rights, and any reference to the enforceability of an obligation is not to be taken as a reference to the obligation being enforceable by the remedy of specific performance.

4.7           This opinion is provided only with respect to the Registration Statement. We hereby consent to the filing of this opinion as exhibit to the Registration Statement. We also consent to the reference to our firm under the caption “Legal Matters” in the Registration Statement. In giving this consent, we do not thereby admit that we are included in the category of persons whose consent is required under the provisions of the Act or the rules and regulations of the Securities and Exchange Commission.

Yours sincerely,

M. Seligman & Co.

/s/ M. Seligman & Co.

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EX-23.1

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 March 6, 2005) in this Registration Statement on Form F-1 and related Prospectus of Shamir Optical Industry Ltd.

/s/ Kost Forer Gabbay & Kasierer	Tel-Aviv, Israel
A Member of Ernst & Young Global	March 7, 2005