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<SEC-DOCUMENT>0000930413-03-001080.txt : 20030410
<SEC-HEADER>0000930413-03-001080.hdr.sgml : 20030410
<ACCEPTANCE-DATETIME>20030410091041
ACCESSION NUMBER:		0000930413-03-001080
CONFORMED SUBMISSION TYPE:	6-K
PUBLIC DOCUMENT COUNT:		5
CONFORMED PERIOD OF REPORT:	20030401
FILED AS OF DATE:		20030410

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			BOS BETTER ONLINE SOLUTIONS LTD
		CENTRAL INDEX KEY:			0001005516
		STANDARD INDUSTRIAL CLASSIFICATION:	COMPUTER COMMUNICATIONS EQUIPMENT [3576]
		IRS NUMBER:				0000000
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		6-K
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	001-14184
		FILM NUMBER:		03644738

	BUSINESS ADDRESS:	
		STREET 1:		100 BOS RD
		CITY:			TERADION ISRAEL
		STATE:			L3
		ZIP:			00000

	MAIL ADDRESS:	
		STREET 1:		TERADION INDUSTRIAL PARK
		CITY:			BEIT RABIN
		STATE:			L3
		ZIP:			20179
</SEC-HEADER>
<DOCUMENT>
<TYPE>6-K
<SEQUENCE>1
<FILENAME>c27765_6-k.txt
<TEXT>

                                   FORM 6 - K

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                            Report on Foreign Issuer

                      Pursuant to Rule 13a - 16 or 15d -16
                     of the Securities Exchange Act of 1934

                          For the Month of April, 2003

                      B.O.S. Better On-Line Solutions, Ltd.
                      -------------------------------------
                 (Translation of Registrant's Name into English)

                      100 BOS Road, Teradion 20179, Israel
                      ------------------------------------
                    (Address of Principal Corporate Offices)

Indicate by check mark whether the registrant  files or will file annual reports
under cover Form 20-F or Form 40-F.

             Form 20-F ___X_____               Form 40-F ________

Indicate by check mark whether the  registrant  by  furnishing  the  information
contained  in this  form is  also  thereby  furnishing  the  information  to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

             Yes ________                      No ___X____

If "Yes" is marked, indicate below the file number assigned to the registrant in
connection with Rule 12g3-2(b):  __N/A__

<PAGE>


       Attached hereto and incorporated by reference herein are the following
       documents:

              (i)    A Press Release dated March 31, 2003 issued by the
                     Registrant to announce the Closing of the Catalyst
                     transaction.

              (ii)   A Press Release dated April 2, 2003 issued by the
                     Registrant to announce that a Nasdaq Listing Qualifications
                     Hearing Panel had granted the Registrant a temporary
                     exemption from compliance with certain Nasdaq National
                     Market requirements; provided that, the Registrant meets
                     certain conditions.

              (iii)  An unaudited condensed consolidated pro forma balance sheet
                     of the Registrant as of February 28, 2003, which is being
                     filed to comply with one of the conditions of the Nasdaq
                     listing exception.

              (iv)   The Registrant's notice of meeting and proxy statement for
                     the annual general meeting of shareholders to be held on
                     May 22, 2003.

       Signature

       Pursuant to the requirements of the Securities Exchange Act of 1934, the
       Registrant has duly caused this Report to be signed on its behalf by the
       undersigned, thereunto duly authorized.

                                           B.O.S. Better On-Line Solutions, Ltd.
                                           (Registrant)


                                           By: /s/ Israel Gal
                                               --------------------------
                                               Israel Gal
                                               President and CEO

Dated: April 10, 2003

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.I
<SEQUENCE>3
<FILENAME>c27765_ex99-i.txt
<TEXT>

                     B.O.S. - BETTER ON-LINE SOLUTIONS LTD.

 B.O.S. BETTER ON-LINE SOLUTIONS LTD. ANNOUNCES CLOSING OF CATALYST TRANSACTION

Teradyon,  Israel - March 31, 2003 - B.O.S. Better On-Line Solutions Ltd. ("BOS"
or the "Company")  (NASDAQ:BOSC,  TASE:BOS)  announced  today the Closing of the
transaction  with  Catalyst  Investments,   L.P.,  the  details  of  which  were
previously  disclosed  in the  Company's  press  release  of January  12,  2003.
Catalyst  has been  issued  2,529,100  (16.60%)  BOS  shares,  in  exchange  for
transferring to BOS most of its shares in Surf Communications Solutions Ltd. BOS
is now the largest shareholder in Surf.

Catalyst has also notified the Company today that it has signed an agreement for
the  purchase  of  an  additional   1,260,000   Company  shares,   from  another
shareholder,  at a price of 47 cents per share.  Thus,  Catalyst will become the
largest  shareholder  of  the  Company,   holding  almost  24.9%  of  its  total
outstanding shares.

Israel (Izzy) Gal, B.O.S.' CEO commented:  "We believe that our new shareholder,
Catalyst  Investments,  L.P.,  has much to contribute  to our Company,  and look
forward to a productive business relationship."

ABOUT B.O.S.

Through its wholly owned subsidiary,  BOScom, the Company develops, produces and
markets    technologically    complex,    multi-functional,     cross-enterprise
communication and networking products.  Marketed under the BOSaNOVA brand, these
products are renowned for their simplicity of use, quality, and reliability. The
IP  Telephony  line  offers  innovative  convergence  migration  solutions  that
leverage a  corporation's  existing  equipment  infrastructure.  The legacy line
provides   solutions  for  IBM  midrange-to-PC  and  LAN  connectivity  and  GUI
emulation, and printing solutions that are operating system-independent.

B.O.S.  was established in 1990 and became a public company traded on the NASDAQ
National Market in 1996 (Nasdaq:BOSC),  and on the Tel Aviv Stock Market in 2002
(TASE:BOS).

SURF Communication Solutions Ltd., an affiliated company,  develops and supplies
software-based access solutions that are integrated into manufacturers' original
equipment  in  the  telecommunications,   data  communications,  telephony,  and
consumer electronics industries.  Surf has some high-profile strategic investors
which include:  Intel,  Motorola and Texas Instruments,  and the Israeli venture
funds Pitango, Giza, Sadot and Catalyst.

ABOUT CATALYST

Catalyst,  an Israeli  Venture  Capital Fund that  invests in mature  companies,
private or public, was founded by Cukierman & Co. Investment House Ltd., leading
in European  investments in Israel.  The Investment House has raised for Israeli
companies  approximately  300 Million  Euro from  European  investors.  The Fund
commenced  its  operation  in mid  2000 and it is  jointly  managed  by  Edouard
Cukierman and Boaz Harel. Its Chairman is Yair Shamir.

Catalyst's  investors  include:  HSBC,  ABN AMRO Bank, the OTTO Group as well as
Israel's  Union  bank.  The Fund  raised  US$40  Million  and has  invested in 9
portfolio  companies.  Most of its  funds  are  liquid  and are  intended  to be
invested within the next 2 years.

For further information, please contact Mr. Noam Yellin, at Tel. +972-3-527-4949
nyellin@netvision.net.il.

Please visit our website, http://www.boscorporate.com.

THE FORWARD-LOOKING  STATEMENTS  CONTAINED HEREIN REFLECT  MANAGEMENT'S  CURRENT
VIEWS  WITH  RESPECT  TO  FUTURE   EVENTS  AND  FINANCIAL   PERFORMANCE.   THESE
FORWARD-LOOKING  STATEMENTS ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES  THAT
COULD  CAUSE  THE  ACTUAL  RESULTS  TO  DIFFER  MATERIALLY  FROM  THOSE  IN  THE
FORWARD-LOOKING  STATEMENTS,  ALL OF WHICH ARE  DIFFICULT TO PREDICT AND MANY OF
WHICH ARE BEYOND THE CONTROL OF BOS, INCLUDING,  BUT NOT LIMITED TO, THOSE RISKS
AND UNCERTAINTIES DETAILED IN BOS' PERIODIC REPORTS AND REGISTRATION  STATEMENTS
FILED WITH THE U.S. SECURITIES EXCHANGE COMMISSION.

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.II
<SEQUENCE>4
<FILENAME>c27765_ex99-ii.txt
<TEXT>

                     B.O.S. - BETTER ON-LINE SOLUTIONS LTD.

         BOS GRANTED TEMPORARY NASDAQ LISTING QUALIFICATIONS EXCEPTION

Teradyon,  Israel - April 2, 2003 - B.O.S.  Better On-Line Solutions Ltd. ("BOS"
or the  "Company")  (NASDAQ:BOSC,  TASE:BOS)  announced  today  that the  Nasdaq
Listing   Qualifications  Panel  has  granted  it  a  temporary  exception  from
compliance with certain Nasdaq National Market requirements.

       BOS had previously  announced that it had received notice from the Nasdaq
Stock Market that its ordinary  shares were subject to delisting from the Nasdaq
National Market for failure to meet Nasdaq's minimum bid price and shareholders'
equity  requirements for continued listing on the National Market. BOS requested
a hearing, which was held on February 13, 2003.

       As a result of the hearing and supplemental  information presented to the
Panel by BOS, the Panel, in a letter dated March 31, 2003,  advised BOS that the
Panel was of the opinion that the Company had  presented a definitive  plan that
will  enable it to  evidence  compliance  with all  requirements  for  continued
listing on The Nasdaq National Market within a reasonable  period of time and to
sustain compliance with those requirements over the long term. Accordingly,  the
Panel  determined  to continue the listing of the  Company's  securities  on the
Nasdaq National Market pursuant to the following exception:

1.     On or before April 11, 2003, the Company must file a proxy statement with
       the SEC and Nasdaq evidencing its intent to seek shareholder approval for
       a  reverse  stock  split  sufficient  to  satisfy  the  $1.00  bid  price
       requirement;

2.     In addition,  on or before April 11, 2003, the Company must make a public
       filing  with the SEC and  Nasdaq  evidencing  shareholders'  equity of at
       least $10,000,000.  The filing must contain a balance sheet no older than
       45 days including pro forma  adjustments  for any  significant  events or
       transactions occurring on or before the filing date;

3.     On or  before  May 15,  2003,  the  Company  must file a Form 6-K for the
       quarter  ending  March  31,  2003  with  the  SEC and  Nasdaq  evidencing
       shareholders' equity of at least $10,000,000; and

4.     On or before June 2, 2003,  the Company  must  demonstrate  a closing bid
       price of at least $1.00 per share;  immediately  thereafter,  the Company
       must  evidence  a  closing  bid  price of at least  $1.00 per share for a
       minimum of ten consecutive trading days.

ABOUT BOS

Through its wholly owned subsidiary,  BOScom, the Company develops, produces and
markets    technologically    complex,    multi-functional,     cross-enterprise
communication and networking products.  Marketed under the BOSaNOVA brand, these
products are renowned for their simplicity of use, quality, and reliability. The
IP  Telephony  line  offers  innovative  convergence  migration  solutions  that
leverage a  corporation's  existing  equipment  infrastructure.  The legacy line
provides   solutions  for  IBM  midrange-to-PC  and  LAN  connectivity  and  GUI
emulation, and printing solutions that are operating system-independent.

BOS was  established  in 1990 and became a public  company  traded on the NASDAQ
National Market in 1996 (Nasdaq:BOSC),  and on the Tel Aviv Stock Market in 2002
(TASE:BOS).

For further information, please contact Mr. Noam Yellin, at Tel. +972-3-527-4949
nyellin@netvision.net.il.

Please visit our website, http://www.boscorporate.com.

THE FORWARD-LOOKING  STATEMENTS  CONTAINED HEREIN REFLECT  MANAGEMENT'S  CURRENT
VIEWS  WITH  RESPECT  TO  FUTURE   EVENTS  AND  FINANCIAL   PERFORMANCE.   THESE
FORWARD-LOOKING  STATEMENTS ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES  THAT
COULD  CAUSE  THE  ACTUAL  RESULTS  TO  DIFFER  MATERIALLY  FROM  THOSE  IN  THE
FORWARD-LOOKING  STATEMENTS,  ALL OF WHICH ARE  DIFFICULT TO PREDICT AND MANY OF
WHICH ARE BEYOND THE CONTROL OF BOS, INCLUDING,  BUT NOT LIMITED TO, THOSE RISKS
AND UNCERTAINTIES DETAILED IN BOS' PERIODIC REPORTS AND REGISTRATION  STATEMENTS
FILED WITH THE U.S. SECURITIES EXCHANGE COMMISSION.

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.III
<SEQUENCE>5
<FILENAME>c27765_ex99-iii.txt
<TEXT>

               BOS BETTER ON-LINE SOLUTIONS LTD. AND SUBSIDIARIES

           PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)

                                FEBRUARY 28, 2003
<PAGE>


       The following unaudited pro forma condensed consolidated balance sheet of
BOS Better On-Line Solutions Ltd. ("BOS"), as of February 28, 2003, gives effect
to the following transactions as if they had occurred as of February 28, 2003:

       (i)    The  issuance by BOS as of March 30, 2003,  of 2,529,100  ordinary
              shares  of BOS to  Catalyst  Investment  L.P.  ("Catalyst")  for a
              purchase  price of  $1,755,000  in exchange for 191,548  shares of
              Class C  preferred  stock of Surf  Communications  Ltd.  ("Surf"),
              together with the right to acquire  certain  additional  shares of
              Class C preferred  stock and share purchase  warrants of Surf (the
              "Catalyst Transaction"); and

       (ii)   Arrangements entered into by BOS's subsidiary, Pacific Information
              Systems Ltd.  ("PacInfo"),  with certain of PacInfo's creditors to
              compromise the amounts owed to such  creditors in connection  with
              the winding up of PacInfo.

       The information  presented is derived from, should be read in conjunction
with, and is qualified in its entirety by reference to the historical  unaudited
condensed  balance  sheet of BOS.

       The pro forma adjustments are based upon currently available  information
and certain estimates and assumptions described below, and therefore, the actual
adjustments  may  differ  from the  unaudited  pro forma  adjustments.  However,
management  believes  that  the  assumptions  provide  a  reasonable  basis  for
representing the significant  effects of the transactions and that the unaudited
pro forma  adjustments  give  appropriate  effect to those  assumptions  and are
properly applied in the unaudited pro forma condensed balance sheet.

- ---------------------------------------- --------- ----------- ------- ---------
             BALANCE SHEET               UNAUDITED                     PRO-FORMA
               (000 USD)                 --------- ----------- ------- ---------
                                          28.02.03 ADJUSTMENTS   NOTE   28.02.03
                                         --------- ----------- ------- ---------
- ---------------------------------------- --------- ----------- ------- ---------
Cash and cash equivalents                    4,750                         4,750
- ---------------------------------------- --------- ----------- ------- ---------
Trade accounts receivable                    1,686                         1,686
- ---------------------------------------- --------- ----------- ------- ---------
Other receivables                              595        (175)  a           420
- ---------------------------------------- --------- ----------- ------- ---------
Inventories                                  1,017                         1,017
- ---------------------------------------- --------- ----------- ------- ---------
                   TOTAL CURRENT ASSETS      8,048        (175)  a         7,873
- ---------------------------------------- --------- ----------- ------- ---------
Marketable Securities                        3,112                         3,112
- ---------------------------------------- --------- ----------- ------- ---------
Investments                                  2,042       1,843   b         3,885
- ---------------------------------------- --------- ----------- ------- ---------
Property and equipment, net                    920                           920
- ---------------------------------------- --------- ----------- ------- ---------
Other assets                                   520                           520
- ---------------------------------------- --------- ----------- ------- ---------
                           TOTAL ASSETS     14,642       1,668            16,310
- ---------------------------------------- --------- ----------- ------- ---------
Accounts Payable & Accrued Liabilities       3,422                         3,422
- ---------------------------------------- --------- ----------- ------- ---------
Discontinued Net                             3,127      (1,490)  c         1,637
- ---------------------------------------- --------- ----------- ------- ---------
Long Term Debt                                 216                           216
- ---------------------------------------- --------- ----------- ------- ---------
Total Shareholder's Equity                   7,877       3,158   d,e      11,035
- ---------------------------------------- --------- ----------- ------- ---------
                  TOTAL LIABILITIES AND
                   SHAREHOLDERS' EQUITY     14,642       1,668            16,310
- ---------------------------------------- --------- ----------- ------- ---------

- --------------------------------------------------------------------------------
                                       2

<PAGE>


NOTES TO BALANCE SHEET:

a - Decrease in Other Receivables :

              Represents $175,000 in expenses that were incurred by BOS in
       connection with the Catalyst Transaction that were classified under Other
       Receivables pending the closing of the Catalyst Transaction. One-half of
       these expenses will be added to BOS's cost of this investment and
       one-half will reduce shareholders equity.

b - Increase in Investments

              Represents the investment that BOS made in Surf, plus one-half of
       the Transaction expenses described in note a. above. The closing date for
       this Transaction was March 30, 2003.

c - Decrease in Discontinued liabilities, net

              Represents the decrease in BOS's share of the liabilities of its
       subsidiary PacInfo in connection with arrangements entered into by
       PacInfo with certain of its creditors from March 1, 2003 through April 9,
       2003 to compromise amounts owed to these creditors by PacInfo.

d - Increase in Equity

              Represents the increase in BOS's equity as a result of the net
       effect of the following:

              (i)    Issuance of shares ($1,755,000), minus the relative portion
                     of the expenses described in note a. ($88,000).

              (ii)   Gain from reduction of net liabilities in the discontinued
                     segment- $1,490,000.

e - March estimated loss

              The estimated loss of approximately $400,000 for March is not
       included in the adjustments and in the Pro Forma Balance Sheet.

- --------------------------------------------------------------------------------
                                       3

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.IV
<SEQUENCE>6
<FILENAME>c27765_ex99-iv.txt
<TEXT>

                      B.O.S. BETTER ON-LINE SOLUTIONS LTD.
                                   BEIT RABIN
                            TERADION INDUSTRIAL ZONE
                                 MISGAV, ISRAEL

                NOTICE OF ANNUAL GENERAL MEETING OF SHAREHOLDERS

                           TO BE HELD ON MAY 22, 2003

To our Shareholders:

You are invited to attend an Annual  Meeting of  Shareholders  of B.O.S.  Better
On-Line  Solutions  Ltd.  (the  "Company") to be held in Israel at the Company's
offices at Beit Rabin, Teradion Industrial Zone, Misgav, Israel, on May 22, 2003
at 11 a.m.  local time,  and thereafter as it may be adjourned from time to time
(the "Meeting") for the following purposes:

1.   To determine the size of the Board of Directors.

2.   To elect the members of the Board of  Directors  of the  Company,  to serve
     until the next  Annual  General  Meeting of  Shareholders  and until  their
     successors have been duly elected and qualified.

3.   To reappoint Kost, Forer & Gabbay, a member of Ernst & Young International,
     Ltd. as the Company's Independent Public Accountants.

4.   To ratify and approve the adoption of the 2003 Stock Option Plan.

5.   To effect a  reverse-split  of the  Company's  Ordinary  Shares  with a 1:4
     ratio,  and to amend article 4.1 of the Company's  Articles of  Association
     and section 4 of the Company's Memorandum of Association accordingly.

6.   To amend certain articles of the Company's Articles of Association.

7.   To receive the Auditor's  Report and the Company's  Consolidated  Financial
     Statements for the fiscal year ended December 31, 2001.

8.   To transact such other  business as may properly come before the Meeting or
     any adjournments thereof.

Pursuant to the Company's  Articles of  Association,  the Board of Directors has
fixed the close of business on April 23,  2003 as the date for  determining  the
holders of record of  Ordinary  Shares  entitled to notice of and to vote at the
Meeting and any adjournments thereof.

All the proposals are ordinary  resolutions,  which require the affirmative vote
of a majority of the Ordinary  Shares of the Company voted in person or by proxy
at  the  Meeting  on  the  matter  presented  for  passage.  The  votes  of  all
shareholders voting on the matter will be counted.

The Board of Directors  believes that the  shareholders of the Company should be
represented as fully as possible at the Meeting and encourages your  attendance.
Whether  or not you  plan to be  present  kindly  complete,  date  and  sign the
enclosed  proxy  exactly as your name  appears on the envelope  containing  this
Notice  of  Special  Meeting  and mail it  promptly  so that  your  votes can be
recorded.  No postage is required if mailed in the United States. Return of your
proxy does not  deprive you of your right to attend the  Meeting,  to revoke the
proxy or to vote your  shares in  person.  All proxy  instruments  and powers of
attorney  must be  delivered  to the Company no later than 48 hours prior to the
meeting. The Company's Proxy Statement is furnished herewith.

                                       1
<PAGE>


Joint  holders of Ordinary  Shares  should  take note that,  pursuant to Article
14.13 of the Articles of Association  of the Company,  the vote of the senior of
joint  holders of any share who  tenders a vote,  whether in person or by proxy,
will be accepted to the exclusion of the vote(s) of the other joint holder(s) of
the share,  and for this purpose  seniority  will be  determined by the order in
which the names stand in the shareholders' register.

                      By Order of the Board of Directors,

         Zvika Greengold                                 Israel Gal
Chairman of the Board of Directors         President and Chief Executive Officer


April, 2003


YOUR VOTE IS IMPORTANT.  WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE
DATE AND SIGN THE PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED  STAMPED ENVELOPE
FOR WHICH NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED  STATES.  YOU CAN LATER
REVOKE YOUR PROXY,  ATTEND THE MEETING AND VOTE YOUR SHARES IN PERSON. ALL PROXY
INSTRUMENTS AND POWERS OF ATTORNEY MUST BE DELIVERED TO THE COMPANY'S  CORPORATE
OFFICE NO LATER THAN 48 HOURS PRIOR TO THE MEETING.

                                       2
<PAGE>


                      B.O.S. BETTER ON-LINE SOLUTIONS LTD.
                                   BEIT RABIN
                            TERADION INDUSTRIAL ZONE
                                 MISGAV, ISRAEL

                     ANNUAL GENERAL MEETING OF SHAREHOLDERS

                           TO BE HELD ON MAY 22, 2003

                                PROXY STATEMENT

This Proxy  Statement is furnished to the holders of Ordinary  Shares,  NIS 1.00
nominal value (the "Ordinary  Shares"),  of B.O.S. Better On-Line Solutions Ltd.
("BOS" or the  "Company") in connection  with the  solicitation  by the Board of
Directors for use at the Special  Meeting of  Shareholders  of the Company to be
held in Israel at the Company's offices at Beit Rabin, Teradion Industrial Zone,
Misgav,  Israel, on May 22, 2003 at 11 a.m. local time, and thereafter as it may
be adjourned from time to time (the "Meeting"). At the Meeting,  shareholders of
the Company will be asked, to vote upon the following matters:

1.   To determine the size of the Board of Directors.

2.   To elect the members of the Board of  Directors  of the  Company,  to serve
     until the next  Annual  General  Meeting of  Shareholders  and until  their
     successors  have been duly elected and  qualified.

3.   To reappoint Kost, Forer & Gabbay, a member of Ernst & Young International,
     Ltd. as the Company's Independent Public Accountants.

4.   To ratify and approve the adoption of the 2003 Stock Option Plan.

5.   To effect a  reverse-split  of the  Company's  Ordinary  Shares  with a 1:4
     ratio,  and to amend article 4.1 of the Company's  Articles of  Association
     and section 4 of the Company's Memorandum of Association accordingly.

6.   To amend certain articles of the Company's Articles of Association.

7.   To receive the Auditor's  Report and the Company's  Consolidated  Financial
     Statements for the fiscal year ended December 31, 2001.

8.   To transact such other business as may properly come before  the Meeting or
     any  adjournments thereof.

     A form of proxy for use at the Meeting and a return  envelope for the proxy
are also enclosed. By appointing "proxies," shareholders may vote their Ordinary
Shares at the Meeting whether or not they attend. Upon the receipt of a properly
signed  and dated  proxy in the form  enclosed,  the  persons  named as  proxies
therein will vote the Ordinary Shares represented thereby in accordance with the
instructions  of the  shareholder  indicated  thereon,  or, if no  direction  is
indicated,  in accordance with the  recommendations of the Board of Directors of
the  Company.  The  Company  knows of no other  matters to be  submitted  at the
Meeting  other  than as  specified  in the Notice of Annual  General  Meeting of
Shareholders  enclosed  with this  Proxy  Statement.  If any other  business  is
properly brought before the Meeting, however, it is the intention of the persons
named as  proxies  to vote in  respect  thereof  in  accordance  with their best
judgment. Shares represented by executed and unrevoked proxies will be voted. On
all matters considered at the Meeting, abstentions and broker non-votes will not
be treated as either a vote "for" or "against" the matter, although they will be
counted to determine if a quorum is present.

     The proxy solicited hereby may be revoked at any time prior to its exercise
by means of a written  notice  delivered to the Company at its mailing  address,
which is c/o American Stock Transfer & Trust Company,  40 Wall Street, New York,
NY 10005, USA, by the substitution of a new proxy bearing a later

                                       3
<PAGE>


date or by a  request  for the  return of the  proxy at the  Meeting.  All proxy
instruments  and powers of attorney  must be  delivered  to the Company no later
than 48 hours prior to the meeting.

     The Company  expects to mail this Proxy  Statement and the enclosed form of
proxy  to  shareholders  on or  about  April  24,  2003.  All  expenses  of this
solicitation  will be borne by the Company.  In addition to the  solicitation of
proxies by mail,  directors,  officers and  employees  of the  Company,  without
receiving additional compensation  therefore,  may solicit proxies by telephone,
telegraph,  in person or by other means. Brokerage firms, nominees,  fiduciaries
and other custodians have been requested to forward proxy solicitation materials
to the  beneficial  owners of Ordinary  Shares of the Company  held of record by
such persons,  and the Company will reimburse such  brokerage  firms,  nominees,
fiduciaries and other custodians for reasonable  out-of-pocket expenses incurred
by them in connection therewith.

     SHAREHOLDERS ENTITLED TO VOTE. Only holders of record of Ordinary Shares at
the close of business on April 23, 2003 are entitled to notice of and to vote at
the Meeting.  The Company had 15,238,156  Ordinary Shares issued and outstanding
on April 1, 2003,  each of which is  entitled  to one vote on each  matter to be
voted on at the  Meeting.  The  Articles  of  Association  of the Company do not
provide for cumulative voting for the election of the directors or for any other
purpose.  The  presence,  in person or by  proxy,  of at least two  shareholders
holding  at least 25% of the  voting  rights,  will  constitute  a quorum at the
Meeting.

     VOTES REQUIRED.  All proposals are ordinary resolutions,  which require the
affirmative  vote of a majority of the Ordinary  Shares of the Company  voted in
person or by proxy at the Meeting on the matter presented for passage. The votes
of all shareholders voting on the matter will be counted.


I.   PRINCIPAL SHAREHOLDERS

     The following  table sets forth,  as of April 1, 2003,  information  to the
best of the  Company's  knowledge,  as to each person known to the Company to be
the beneficial owner of more than five percent (5%) of the Company's outstanding
Ordinary  Shares and as to all directors and officers of the Company as a group.
There were 15,238,156 shares outstanding as of April 1, 2003.

- --------------------------------------------------------------------------------
                                                   Shares Beneficially Owned
- --------------------------------------------------------------------------------
Name and Address                               Number              Percent
- --------------------------------------------------------------------------------
Catalyst Investments, LP                       3,789,100           24.9%
3 Daniel Frisch Street,
Tel-Aviv 64731, Israel
- --------------------------------------------------------------------------------
Mr. Israel Gal (1)                             1,285,329            8.4%
C/o B.O.S. Better OnLine Solutions Ltd.
100 Bos Drive
Teradion 20197, Israel
- --------------------------------------------------------------------------------
Ms. Yael Gal (2)                               977,869            6.4%
C/o B.O.S. Better OnLine Solutions Ltd.
100 Bos Drive
Teradion 20197, Israel
- --------------------------------------------------------------------------------
Mr. Jacob Lee                                  507,620            3.3%
2230 Brandon Place West
Linn, Oregon 97068, USA
- --------------------------------------------------------------------------------
Ms. Miran Lee                                  507,618            3.3%
2230 Brandon Place West
Linn, Oregon 97068, USA
- --------------------------------------------------------------------------------
M. Wertheim Holdings, Ltd. (3)                 1,119,832          7.3%
Twin Towers 2, 35 Zabotinski Street
Ramat-Gan, Israel
- --------------------------------------------------------------------------------
Isal Amlat (1993) Ltd. (4)                     800,876            5.2%
16 Hagalim Blvd
- --------------------------------------------------------------------------------

                                       4
<PAGE>


- --------------------------------------------------------------------------------
Herzliya 46733, Israel                         800,876              5.2%
D. Partners (Israel) LP(5)
16 Hegalim Blvd
Herzliya 46733, Israel
- --------------------------------------------------------------------------------
D. Partners (BVI) LP(6)                        800,876              5.2%
Craigmuir Chambers
Road Town Tortola
P.O. Box 71
British Virgin Islands
- --------------------------------------------------------------------------------
Officers and directors as a group (7)          1,285,329            8.4%
- --------------------------------------------------------------------------------


(1)  Does not include indirect ownership of 977,869 Ordinary Shares owned by Ms.
Yael Gal, Mr.  Israel Gal's  spouse,  as to which Mr. Gal  disclaims  beneficial
ownership.  Does not include  375,000  options held by Mr. Gal. Does not include
indirect  ownership in 1,015,238  Ordinary Shares owned by Mr. Jacob Lee and Ms.
Miran Lee, with whom Mr. Israel Gal as Ms. Yael Gal have a voting agreement.

(2)  Does not include indirect  ownership of 1,285,329  Ordinary Shares owned by
Mr. Israel Gal, Ms. Yael Gal's spouse, as to which Ms. Gal disclaims  beneficial
ownership.  Does not include  indirect  ownership in 1,015,238  Ordinary  Shares
owned by Mr. Jacob Lee and Ms. Miran Lee,  with whom Mr.  Israel Gal as Ms. Yael
Gal have a voting agreement.

(3)  Does not include  338,520  exercisable  warrants held by this group,  at an
exercise price of $10 per warrant.

(4)  Includes indirect  ownership of 22,039 Ordinary Shares owned by D. Partners
(Israel)  LP and  indirect  ownership  of  40,929  Ordinary  Shares  owned by D.
Partners  (BVI) LP, under a mutual voting  agreement.  Does not include  349,830
exercisable  warrants  held by  this  group,  at an  exercise  price  of $10 per
warrant.

(5)  Includes indirect  ownership of 40,929 Ordinary Shares owned by D. Partners
(BVI) LP and indirect  ownership of 737,908  Ordinary Shares owned by Isal Amlat
(1993)  Ltd,  under  a  mutual  voting  agreement.   Does  not  include  349,830
exercisable  warrants  held by  this  group,  at an  exercise  price  of $10 per
warrant.

(6)  Includes indirect  ownership of 22,039 Ordinary Shares owned by D. Partners
(Israel) LP and  indirect  ownership  of 737,908  Ordinary  Shares owned by Isal
Amlat (1993) Ltd,  under a mutual  voting  agreement.  Does not include  349,830
exercisable  warrants  held by  this  group,  at an  exercise  price  of $10 per
warrant.

(7)  Does not include indirect ownership of 977,869 Ordinary Shares owned by Ms.
Yael Gal, Mr.  Israel Gal's  spouse,  as to which Mr. Gal  disclaims  beneficial
ownership.  Does not include  indirect  ownership in 1,015,238  Ordinary  Shares
owned by Mr. Jacob Lee and Ms. Miran Lee,  with whom Mr.  Israel Gal as Ms. Yael
Gal have a voting  agreement.  Does not  include  675,000  options  to  purchase
Ordinary  Shares of the Company  granted to  Officers  and/or  Directors  of the
Company.


II.  RESOLUTIONS

1.   DETERMINATION OF THE SIZE OF THE BOARD

     In April 2001,  the  shareholders  resolved to set the number of  directors
serving on the  Company's  Board of  Directors,  at eleven.  Article 16.1 of the
Company's  Articles of  Association  provides  that the number shall not be less
than four nor more than  eleven.  The Board of  Directors is of the opinion that
the maximum  number of directors  should be reduced,  due to efficiency and cost
reduction  considerations.  At the meeting,  the Board of Directors will propose
that the  following  resolution be adopted (in addition to the proposal to amend
article 16.1 - see proposal 6 ahead):

"RESOLVED, to set the size of the Board of Directors at 9 members."

     Upon  receipt of a  properly  signed  and dated  proxy and under  otherwise
constructed on the Proxy,  the persons named in the enclosed proxy will vote the
shares represented thereby FOR the above-mentioned proposal.

2.   ELECTION OF DIRECTORS

     At the Meeting six (6) directors are nominated to be elected,  out of which
three  currently serve on the Board of Directors at this time (together with the
two external directors, as explained below).

                                       5
<PAGE>


     Section 239 of the Israeli  Companies  Law,  1999,  requires that companies
whose  shares are publicly  traded have at least two  external  directors on the
board of directors. Dr. Yael Ilan (elected in November 2002) and Prof. Adi Raveh
(elected in February 2003) currently serve as external directors.  Their service
term is three years.

     The rest of the  directors  are  elected at the annual  general  meeting of
shareholders to serve until the next annual general meeting of shareholders  and
until their  respective  successors  are duly elected and  qualified.  It is the
intention of the persons  named in the proxy to vote for the election of the six
nominees named below,  each to hold office until the next annual general meeting
of  shareholders  and until their  respective  successors  are duly  elected and
qualified,  unless  any  office is  vacated  earlier  pursuant  to the  relevant
provisions of the Articles of Association of the Company. The Company is unaware
of any  reason  why any  nominee,  if  elected,  should  be unable to serve as a
director.  If any of the nominees are unable to serve,  the persons named in the
proxy will vote the shares for the election of such other  nominees as the Board
of Directors  may propose.  All nominees  listed below have advised the Board of
Directors that they intend to serve as directors if elected.

NOMINEES FOR THE BOARD OF DIRECTORS

Certain information concerning the nominees:

- ------------------------ ----- --------------------- --------------- -----------
NAME                      AGE   POSITION              ORDINARY        PERCENTAGE
                                                      SHARES          OF
                                                      BENEFICIALLY    BENEFICIAL
                                                      OWNED           HOLDINGS
- ------------------------ ----- --------------------- --------------- -----------
Mr. Zvi Greengold(2)(3)    51   Chairman of the           -----         -----
                                Board of Directors
- ------------------------ ----- --------------------- --------------- -----------
Mr. Israel Gal(3)          52   Director, Chief       1,285,329 (4)      8.4%
                                Executive Officer
                                and President
- ------------------------ ----- --------------------- --------------- -----------
Mr. Eli Ben-Mayor(1)       62   Director                  -----         -----
- ------------------------ ----- --------------------- --------------- -----------
Mr. Yair Shamir            58                               *             *
- ------------------------ ----- --------------------- --------------- -----------
Mr. Edouard Cukierman      38                             -----         -----
- ------------------------ ----- --------------------- --------------- -----------
Mr. Boaz Harel             39                             -----         -----
- ------------------------ ----- --------------------- --------------- -----------

*    Represents indirect holdings of less than 1%.

(1)  Member of the Audit Committee.

(2)  Member of the Investment Committee.

(3)  Member of the Remuneration Committee.

(4)  Does not include indirect ownership of 979,169 Ordinary Shares owned by Ms.
     Yael Gal, Mr. Israel Gal's spouse, as to which Mr. Gal disclaims beneficial
     ownership.

MR. ZVI  GREENGOLD,  51, has been a director  since June 2002, and was appointed
Chairman in September  2002.  Mr.  Greengold is currently  self-employed  in the
field of industrial management, promotion and consulting, and serves as Chairman
of  Polysac  Ltd.  From 2000 to 2001 he served as  Managing  Director  Caribbean
Petroleum,  Corp.,  a company that  manufactures  and markets  fuel  products in
Puerto Rico.  From 1999 to 2000 he served as General  Manager of the Israeli Oil
Refineries  Ltd. From 1996 to 1998 Mr Greengold  served as Managing  Director of
Electrochemical   Industries   (1952)  Ltd.  (traded  on  TASE),   company  that
manufactures  polyvinyl chloride and unorganic  chemicals.  From 1986 to 1996 he
held various positions with  Electrochemical  Industries (1952) Ltd.,  including
Chief  Financial  Officer,  Vice  President  Organization  and  Logistics,  Vice
President of Finance and Organization and Vice Managing  Director.  Mr Greengold
currently  serves as an external  director of two public Israeli  companies.  He
holds a B.A  degree  Economics  and  Administration  from the Rupin  College  in
Israel.

MR. ISRAEL GAL, 52, B.O.S.' founder,  served as B.O.S.' Chief Executive  Officer
and President  from  inception in 1990 until  January 2002,  and then again from
September  2002 until today.  Mr. Gal was the Chairman of the Board of Directors
from  1990  until  2000  and  also  serves  as the  CEO of one of the  Company's
subsidiaries,  BOScom Ltd.  From 1983 to 1989,  Mr. Gal served as IBM  mid-range
product manager at IIS. In 1989, Mr. Gal served as the product manager for sales
and marketing of IIS in the United  States.  In 1979,  Mr. Gal  co-founded  Liad
Electronics  Ltd. where he worked until 1983.  From 1976 to 1979, Mr. Gal served
as research and development  engineer and product manager for Elbit Ltd. Mr. Gal
received a

                                       6
<PAGE>


Bachelors  of  Science  in  Electronic   Engineering  from  the  Technion-Israel
Institute of Technology (the "Technion").

MR.  ELI  BEN-MAYOR,  62, has been a director  since  June 2002.  Mr.  Ben-Mayor
currently  serves as  General  Manager of ACME  International  Trading  Ltd.,  a
subsidiary  of  a  multi-national  corporation,   specializing  in  importation,
packaging and  distribution of white cement,  operating an advanced  storage and
production facility near the Ashdod port.  Previously he was the General Manager
of Rogosin Ltd. where he implemented a program geared to improve the operational
and financial situation of the company.  Prior to joining Rogosin, Mr. Ben-Mayor
served as General Manager of several companies within the Clal Industries group.
Recently  he  concluded  a  five-year  service  term as a director of ICL Israel
Chemicals  Financing  and Issuing Ltd.  Mr.  Ben-Mayor  holds a B.Sc.  degree in
Mechanical  Engineering from the Technion - Israel Institute of Technology,  and
an MBA from Tel-Aviv University.

MR. YAIR SHAMIR,  58, is the Chairman of the Catalyst Fund since 1999. He served
as VCON Communication Chief Executive Officer and Director since 1997. From 1995
to 1997,  Mr.  Shamir  served  as  Executive  Vice  President  of the  Challenge
Fund-Etgar  L.P., an Israeli  venture capital firm. From 1993 to 1995, he served
as Chief  Executive  Officer  of Elite Food  Industries  Ltd.,  one of  Israel's
largest  branded  food  product  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 in the Israeli Air Force as a pilot and commander. During his term in the
Air  Force,  he  attained  the rank of  colonel  and the  served  as head of the
Electronics Department, the highest professional electronics position within the
Air Force. Mr. Shamir currently serves as a director of several public companies
listed on the NASDAQ including,  Orckit  Communications Ltd, Mercury Interactive
Corporation  and DSP Group  Corporation  as well as  serving  as a  director  of
several private  companies.  Mr. Shamir is the Chairman of The Catalyst Fund, an
Israel-based  venture capital fund investing in late-stage  companies  mainly in
the high technology  sector.  Mr Shamir holds a B.Sc. in Electronic  Engineering
from the Technion - Israel Institute of Technology.

MR. EDOUARD  CUKIERMAN,  38, is the Chairman of Cukierman & Co. Investment House
and CEO of the Catalyst  Fund. He served until March 2000 as General  Manager of
Astra  Technological  Investment  Ltd.,  the first Israeli firm listed in Paris.
Edouard  Cukierman  is on the board of numerous  High-Tech  companies  including
VCON,  MTI and  Orex.  He is also a  board  member  of  Lamina  Technologies  in
Switzerland,  of Compagnie  Financiere Otto in Paris, a French  investment house
and the Vice  Chairman  of Citec  Environnement  in  France.  In  addition,  Mr.
Cukierman is on the board of the  Israel-France  Chamber of Commerce and Sar-El,
an Israeli Defense Forces volunteer organization.  Mr. Cukierman holds an M.B.A.
from  INSEAD,  Fontainebleau,  France  and a B.Sc.  from the  Technion  - Israel
Institute of Technology.

MR. BOAZ HAREL,  39,  serves as the managing  partner in  Catalyst,  bringing 14
years of management  experience in various  industries  including hi-tech to the
Catalyst  management  team.  From January  1993 until June 1997,  Boaz served as
President  and CEO of Leedan  Holdings,  a holding  company with major stakes in
approximately  25 companies with  accumulated  revenues in excess of $1 Billion.
From June 1996 until  January  2001, he worked in Leedan's NY office in order to
develop these investments.  Boaz oversaw  acquisitions and new investments,  and
developed a reputation as a company turn-around specialist.  In January 1990, he
established  Mashik-  Research  &  Systems  for  Business  Development  Ltd.,  a
consulting  firm   consisting  of  40  management   consultants  and  industrial
engineers. Mr. Harel holds a B.Sc. in Industrial and Management Engineering from
the Technion - Israel Institute of Technology.

INFORMATION REGARDING THE INCUMBENT EXTERNAL DIRECTORS:

DR. YAEL ILAN,  54, has been an external  director since November 2002. Dr. Ilan
is the president of Yedatel Ltd., an economic consulting company,  and serves as
a director in a number of corporations,  most of them in the technology  sector.
Until 1998 she served on the board of Bezeq - Israel's Telecommunication Company
in which she headed the committee of technological policy and infrastructure and
was a member of the audit committee and the committee for strategic planning and
investment.  From 1998 through 2000 she served as an external  director of Elron
Industries.  In 2000-01 she founded and managed Optichrom,  an optical component
start-up.  From 1995  through 2000 Dr. Ilan served as the head of program of the
Broad  Band  Communication,  a  consortium  of MAGNET - the  Israeli  Government
hi-tech cooperation initiative. Dr. Ilan holds a Ph.D. in industrial engineering
from  Stanford  University,  a Ph.D.  in  physical  chemistry  from  the  Hebrew
University  and a Masters  degree in  business  administration  from the  Hebrew
University.

                                       7
<PAGE>


PROF. ADI RAVEH,  55, has been an external  director since February 2003.  Prof.
Raveh is a  professor  and head of the B.A.  Program at the  School of  Business
Administration,  Hebrew  University,  Jerusalem.  Since  1998  he  served  as an
external  director at Clal  Insurance  Company Ltd.  Since 2002 he served as the
Chairman of the Board of Jerusalem Capital Markets Underwriting limited. He also
serves as a director of Meitav - a Mutual Funds Management company (since 1995),
and as a  director  of Peilim - a  Portfolio  Management  company  -part of Bank
Hapoalim  Group (since  1996).  Since 1992 he is a director who  represents  the
Hebrew  University  at  Hi-Tech  -  a  Technology  Entrepreneurship  located  at
Har-Hahotzvim,  Jerusalem. Prof. Raveh also serves as a director of two start-up
companies:  A.D.M  (Advanced  Dialysis  Methods Ltd.) and Virtouch Ltd.  Between
1994-1999 he served as a director and a member of the executive committee of the
Bank of  Jerusalem,  Ltd.  Between  1996-1998 he served as a member of an ad-hoc
committee of the Council of Higher  Education.  In 1999 he served as a member of
the Budget Committee for Research at the Israel Science Foundation.  Prof. Raveh
holds a  Ph.D.  from  the  Hebrew  University.  He is the  author  of  about  50
professional  publications,  was a visiting  professor  at Stanford  University,
Columbia  University  and Baruch  College,  N.Y.,  and has  received a number of
grants and honors.

COMPENSATION OF DIRECTORS AND OFFICERS

     The  following  table  sets  forth the  aggregate  compensation  paid to or
accrued on behalf of all  directors  and  officers of the Company as a group for
the year ended December 31, 2002:

- ------------------------------ --------------------------- ---------------------
                                Salaries, Directors' Fees,  Pension, Retirement
                                Service Fees, Commissions   and Similar Benefits
                                and Bonuses
- ------------------------------ --------------------------- ---------------------
2002 - All directors and
officers as a group (9 persons)          $507,000                   $28,000
- ------------------------------ --------------------------- ---------------------

     Such  remuneration  does not  include  amounts  expended by the Company for
expenses,  including business association dues and expenses,  reimbursed to said
officers and other fringe benefits  commonly  reimbursed or paid by companies in
the  location  in which the  particular  executive  officer  of the  Company  is
located, as the case may be.

At the  Meeting,  the  Board  of  Directors  will  propose  that  the  following
resolution be adopted:

"RESOLVED,  to elect the  following  persons to serve as members of the Board of
Directors of the company:  Zvika  Greengold,  Israel Gal,  Eli  Ben-Mayor,  Yair
Shamir, Edouard Cukierman and Boaz Harel, to serve until the next Annual General
Meeting of  Shareholders  and until their  successors have been duly elected and
qualified."

     Upon the receipt of a properly signed and dated proxy and unless  otherwise
instructed on the proxy,  the persons named in the enclosed  proxy will vote the
shares represented thereby FOR the above-mentioned proposal.

3.   APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS

     The Board of Directors  recommends  that the  shareholders  reappoint Kost,
Forer  &  Gabbay,  a  member  of  Ernst  &  Young  International,  Ltd.,  as the
independent  public  accountants  of the Company,  until the next annual general
meeting of  shareholders.  Kost,  Forer & Gabbay  have  served as the  Company's
auditors since the first quarter of 2002.

At the  Meeting,  the  Board  of  Directors  will  propose  that  the  following
resolution be adopted:

"RESOLVED,  that Kost,  Forer & Gabbay be, and they hereby are,  reappointed  as
independent  public  accountants  of the company,  until the next annual general
meeting of shareholders."

                                       8
<PAGE>


     Upon the receipt of a properly signed and dated proxy and unless  otherwise
instructed on the proxy,  the persons named in the enclosed  proxy will vote the
shares represented thereby FOR the above-mentioned proposal.

4.   APPROVAL OF 2003 STOCK OPTION PLAN

     The Board of Directors  recommends that the Shareholders ratify and approve
the adoption of the 2003 Stock Option Plan (the "2003 Plan"), a copy of which is
attached hereto as APPENDIX A, under which employees, directors, consultants and
service  providers  of  the  Company  or its  subsidiaries  may  be  offered  an
opportunity to acquire Ordinary Shares of the Company. 2,500,000 Ordinary Shares
par value NIS 1.00 will be reserved from the Company's  authorized  but unissued
share capital (or 625,000  Ordinary Shares par value NIS 4.00, in the event that
the shareholders  will approve a reverse-split  with a ratio of 1:4, as proposed
in proposal 5), in order to grant options  pursuant to the 2003 Plan. Due to the
recently  implemented  Israeli  tax  reform,  further  issuances  are no  longer
possible under some of the Company's  existing  employee option plans. The Board
has  resolved  that no further  grants  shall be made from the  existing  plans,
which, as of December 31, 2002, had in the aggregate  1,096,000 options left for
issuance from the existing option pools previously approved by the shareholders.

At the  Meeting,  the  Board  of  Directors  will  propose  that  the  following
resolution be adopted:

"RESOLVED,  to ratify and approve the adoption of the 2003 Stock Option Plan, as
recommended by the Board of Directors."

     Upon the receipt of a properly signed and dated proxy and unless  otherwise
instructed on the proxy,  the persons named in the enclosed  proxy will vote the
shares represented thereby FOR the above-mentioned proposal.

5.   REVERSE-SPLIT OF THE COMPANY SHARES

     The Company's  ordinary  shares have been trading under the $1.00 per share
continued  listing  requirement of the Nasdaq National Market,  for the past few
months.  The  Company  received  notice  from the Nasdaq  Stock  Market that its
ordinary  shares were subject to delisting from the Nasdaq  National  Market for
failure to meet Nasdaq's minimum bid price and shareholders' equity requirements
($10  million) for  continued  listing on the National  Market,  and requested a
hearing,  which was held on  February  13,  2003.  At the  hearing  the  Company
informed  the Nasdaq  Listing  Qualifications  Panel of its intent to attempt to
cure this  deficiency by seeking  shareholder  approval at the annual meeting to
effect a reverse split.

     As a result of the hearing and  supplemental  information  presented to the
Nasdaq Listing Qualifications Panel by the Company, the Panel, in a letter dated
March  31,  2003,  advised  that it was of the  opinion  that  the  Company  had
presented a definitive plan that will enable it to evidence  compliance with all
requirements  for  continued  listing on the  Nasdaq  National  Market  within a
reasonable period of time and to sustain compliance with those requirements over
the long term. Accordingly,  the Panel determined to continue the listing of the
Company's  securities  on the  Nasdaq  National  Market  pursuant  to a detailed
exception,  which includes the filing of a proxy statement evidencing its intent
to seek shareholder approval for a reverse stock split sufficient to satisfy the
$1.00 bid price requirement,  and the demonstration of a closing bid price of at
least  $1.00 per share on or before  June 2, 2003,  and  immediately  thereafter
evidencing  such a closing  bid price for a minimum of ten  consecutive  trading
days.

     The Board of  Directors  recommends  effecting a  reverse-split  with a 1:4
ratio,  where four Ordinary Shares of the Company NIS 1 nominal value each, will
be consolidated  into one Ordinary Share, NIS 4 nominal value.  This would bring
about a reclassification  of the Company's  registered and issued share capital,
such that the Company's registered share capital would be comprised of 8,750,000
Ordinary  Shares NIS 4 nominal value each, and its issued share capital would be
approximately   3,809,539   Ordinary  Shares  NIS  4  nominal  value  each.  The
reverse-split will affect all Company shareholders uniformly and will not affect
any shareholder's  percentage  ownership interest in the Company,  except to the
extent that the  reverse-split  will result in any of the shareholders  owning a
fractional share or option (see below).

                                       9
<PAGE>


     The exercise  price and the number of shares  issuable  pursuant to certain
outstanding  options and warrants will  automatically  be adjusted in accordance
with such  reverse-split.  Thus, for every 4 old shares previously issuable upon
exercise of the options or warrants, the holders of these convertible securities
will,  upon exercise  thereof,  now receive one Ordinary  Share of NIS 4 nominal
value for the same aggregate amount of consideration paid.

     No  fractional  shares  will be issued  as a result  of the  reverse-split.
Instead,  all  fractional  shares  which  are  one-half  share  or more  will be
increased to the next higher whole  number of shares and all  fractional  shares
which are which are less than one-half share will be decreased to the next lower
whole number of shares.

     It is anticipated by the Board of Directors, that the increase in the price
level of the Ordinary  Shares as a  consequence  of the  reverse-split  might be
proportionately  less  than  the  decrease  in the  number  of  Ordinary  Shares
outstanding,  thus reducing the aggregate market value of the Company.  However,
although no assurance can be given,  it is anticipated  that this  reverse-split
will have the  effect of  sufficiently  raising  the bid price of the  Company's
Ordinary Shares above $1.00 per share. The Company cannot however assure that it
will be able to  continue  to meet this or other  Nasdaq  requirements  (such as
publicly  held shares with a value of at least $5  million,  another  deficiency
that recently arose),  to maintain its Nasdaq National Market listing,  in which
case it will apply for a transfer of its Ordinary Shares to the Nasdaq Small Cap
Market.

     After the  effective  date of the  reverse-split  (to be  determined by the
Board), shareholders will be notified and requested to surrender their old share
certificates  for certificates  representing  new shares.  Until so surrendered,
each  certificate  representing  old  shares  will be deemed  for all  corporate
purposes after such  effective  date to evidence  ownership of new shares in the
appropriate reduced number. The transfer agent for the Company is American Stock
Transfer and Trust  Company,  40 Wall Street,  New York, NY 10005.  Shareholders
holding Company shares in "street name" through a bank,  broker or other nominee
will effect the reverse-split for their beneficial owners.

At the  meeting,  the  Board  of  Directors  will  propose  that  the  following
resolution be adopted:

"RESOLVED,  to effect a  reverse-split  of the Company's  Ordinay Shares (on the
effective  date to be determined  by the Board) where each four Ordinary  Shares
NIS 1 nominal value each will be consolidated  into one single Ordinary Share of
NIS 4 nominal value,  such that the registered share capital of the Company will
be 8,750,000 Ordinary Shares NIS 4 nominal value each, ranking pari passu in all
respects, as recommended by the Board of Directors.  All fractional shares which
are one-half  share or more will be increased to the next higher whole number of
shares and all  fractional  shares which are which are less than one-half  share
will be decreased to the next lower whole  number of shares.  Concurrently  with
the  reverse-split,  it is hereby resolved to amend article 4.1 of the Company's
Articles of Association and section 4 of the Company's Memorandum of Association
accordingly, to comply with the reverse-split effected."

     Upon the receipt of a properly signed and dated proxy and unless  otherwise
instructed on the proxy,  the persons named in the enclosed  proxy will vote the
shares represented thereby FOR the above-mentioned proposal.

     Notwithstanding approval of this proposal by the shareholders, the Board of
Directors may, in its sole discretion, determine not to effect, and abandon, the
reverse-split without further action by the shareholders.

6.   AMENDMENTS TO THE COMPANY'S ARTICLES OF ASSOCIATION

     The Board of Directors  recommends adopting the following amendments to the
Company's Articles of Association:

     (a)  that article 16.1, currently reading:  "THE NUMBER OF DIRECTORS IN THE
          COMPANY (INCLUDING  EXTERNAL  DIRECTORS) SHALL BE DETERMINED FROM TIME
          TO TIME BY THE ANNUAL GENERAL  MEETING,  PROVIDED THAT IT SHALL NOT BE
          LESS THAN FOUR NOR MORE THAN ELEVEN."

                                       10
<PAGE>


          shall be amended to read as follows:  "THE NUMBER OF  DIRECTORS IN THE
          COMPANY (INCLUDING  EXTERNAL  DIRECTORS) SHALL BE DETERMINED FROM TIME
          TO TIME BY THE ANNUAL GENERAL  MEETING,  PROVIDED THAT IT SHALL NOT BE
          LESS THAN FOUR NOR MORE THAN NINE"

          The purpose of this proposed  amendment is that the maximum  number of
          directors  be nine  instead  of  eleven,  due to  efficiency  and cost
          reduction considerations.

     (b)  article 14.7,  currently reading: " A SHAREHOLDER MAY STATE THE WAY IN
          WHICH HE IS VOTING IN THE VOTING INSTRUMENT AND SEND IT TO THE COMPANY
          BY  THE  MEETING'S  COMMENCEMENT.  A  VOTING  INSTRUMENT  IN  WHICH  A
          SHAREHOLDER  STATES THE WAY IN WHICH HE IS VOTING,  WHICH  REACHES THE
          COMPANY BY THE  COMMENCEMENT  OF THE MEETING  (INCLUDING THE ADJOURNED
          MEETING),  SHALL BE DEEMED  PRESENCE AT THE MEETING FOR THE PURPOSE OF
          CONSTITUTING THE QUORUM AS PROVIDED IN PARAGRAPH 13.1 ABOVE."

          shall be amended to read as follows: " A SHAREHOLDER MAY STATE THE WAY
          IN WHICH HE IS  VOTING  IN THE  VOTING  INSTRUMENT  AND SEND IT TO THE
          COMPANY'S  REGISTERED  OFFICE AT LEAST 48 HOURS PRIOR TO THE MEETING'S
          COMMENCEMENT.  A VOTING  INSTRUMENT IN WHICH A SHAREHOLDER  STATES THE
          WAY IN WHICH HE IS VOTING,  WHICH  REACHES  THE  COMPANY'S  REGISTERED
          OFFICE AT LEAST 48 HOURS PRIOR TO THE MEETING (INCLUDING THE ADJOURNED
          MEETING),  SHALL BE DEEMED  PRESENCE AT THE MEETING FOR THE PURPOSE OF
          CONSTITUTING THE QUORUM AS PROVIDED IN PARAGRAPH 13.1 ABOVE."

          The purpose of this proposed amendment is to resolve the contradiction
          and to align this article with  article  14.10 that reads:  "The proxy
          instrument  and power of attorney or a copy  certified  by an attorney
          shall be  deposited  at the  Company's  REGISTERED  OFFICE AT LEAST 48
          HOURS PRIOR TO the time fixed for the meeting or the adjourned meeting
          at which the person mentioned in the documents intends voting pursuant
          thereto."

     (c)  article 16.9,  currently  reading:  "EVERY BOARD OF DIRECTORS'  MEMBER
          MAY,  WITH THE BOARD OF DIRECTORS'  CONSENT,  APPOINT AN ALTERNATE FOR
          HIMSELF,  PROVIDED  THAT SOMEONE WHO WAS APPOINTED AS AN ALTERNATE FOR
          ANOTHER  DIRECTOR  AND/OR WHO IS ALREADY  SERVING AS A DIRECTOR OF THE
          COMPANY MAY NOT BE APPOINTED AS AN ALTERNATE..."

          shall be amended to read as follows: "EVERY BOARD OF DIRECTORS' MEMBER
          MAY  APPOINT  AN  ALTERNATE   FOR  HIMSELF,   PROVIDED  THAT  SUCH  AN
          APPOINTMENT  SHALL NOT BE FOR A PERIOD  EXCEEDING ONE MONTH,  AND THAT
          SOMEONE WHO WAS APPOINTED AS AN ALTERNATE FOR ANOTHER  DIRECTOR AND/OR
          WHO IS  ALREADY  SERVING  AS A  DIRECTOR  OF THE  COMPANY  MAY  NOT BE
          APPOINTED AS AN ALTERNATE..."

          The purpose of this proposed amendment is to cancel the need for Board
          consent  when a director  appoints  an  alternate  for  himself  (such
          consent is not required by the Israeli  Companies Law,  1999),  and to
          limit the term of an alternate director to one month.

At the  meeting,  the  Board  of  Directors  will  propose  that  the  following
resolution be adopted:

"RESOLVED,  to amend articles 16.1,  14.7 and 16.9 of the Company's  Articles of
Association as recommended by the Board of Directors. "

     Upon the receipt of a properly signed and dated proxy and unless  otherwise
instructed on the proxy,  the persons named in the enclosed  proxy will vote the
shares represented thereby FOR the above-mentioned proposal.

7.   RECEIPT OF AUDITORS' REPORT AND FINANCIAL STATEMENTS.

     At the Meeting the  shareholders  shall  receive and consider the Auditors'
Report and the Consolidated  Financial  Statements of the Company for the fiscal
year ended December 31, 2001.

                                       11
<PAGE>


8.   OTHER BUSINESS

     The Meeting is called for the purposes set forth in the Notice accompanying
this Proxy Statement. As of the date of the Notice, the Board of Directors knows
of no business  which will be presented for  consideration  at the Meeting other
than the foregoing matters.  If other matters not now known properly come before
the Meeting,  however, it is intended that the persons named as proxies or their
substitutes will vote the Ordinary Shares in accordance with their best judgment
with respect to such matters.

                       By Order of the Board of Directors,

          Zvika Greengold                                Israel Gal
Chairman of the Board of Directors         President and Chief Executive Officer

April, 2003

                                       12
<PAGE>


                                                                      APPENDIX A

                       B.O.S BETTER ON-LINE SOLUTION LTD.

                       THE 2003 ISRAELI SHARE OPTION PLAN

   (*IN COMPLIANCE WITH AMENDMENT NO. 132 OF THE ISRAELI TAX ORDINANCE, 2002)

This plan, as amended from time to time, shall be known as B.O.S. Better On-Line
Solution Ltd 2003 Israeli Share Option Plan (the "ISOP").

1.     PURPOSE OF THE ISOP

       The ISOP is intended to provide an incentive to retain,  in the employ of
       the Company and its Affiliates (as defined  below),  persons of training,
       experience,   and   ability,   to  attract  new   employees,   directors,
       consultants, service providers and any other entity which the Board shall
       decide  their  services  are  considered  valuable  to  the  Company,  to
       encourage the sense of proprietorship  of such persons,  and to stimulate
       the active  interest of such  persons in the  development  and  financial
       success of the Company by providing them with  opportunities  to purchase
       shares in the Company, pursuant to the ISOP.

2.     DEFINITIONS

       For  purposes of the ISOP and  related  documents,  including  the Option
       Agreement, the following definitions shall apply:

       2.1    "AFFILIATE"  means any "employing  company"  within the meaning of
       Section 102(a) of the Ordinance.

       2.2    "APPROVED 102 OPTION" means an Option granted  pursuant to Section
       102(b) of the Ordinance and held in trust by a Trustee for the benefit of
       the Optionee.

       2.3    "BOARD" means the Board of Directors of the Company.

       2.4    "CAPITAL GAIN OPTION (CGO)" as defined in Section 5.4 below.

       2.5    "CAUSE"  means,  (i)  conviction  of any  felony  involving  moral
       turpitude  or  affecting  the  Company;  (ii) any  refusal to carry out a
       reasonable  directive of the chief  executive  officer,  the Board or the
       Optionee's direct supervisor,  which involves the business of the Company
       or its  Affiliates  and was capable of being  lawfully  performed;  (iii)
       embezzlement of funds of the Company or its  Affiliates;  (iv) any breach
       of the  Optionee's  fiduciary  duties or  duties of care of the  Company;
       including without  limitation  disclosure of confidential  information of
       the  Company;  and (v) any  conduct  (other  than  conduct in good faith)
       reasonably  determined by the Board to be materially  detrimental  to the
       Company.

       2.6    "CHAIRMAN" means the chairman of the Committee.

       2.7    "CODE" means the United States  Internal  Revenue Code of 1986, as
       now in effect or as hereafter amended.

       2.8    "COMMITTEE"  means a share  option  compensation  committee of the
       Board, designated from time to time by the resolution of the Board, which
       shall  consist of no fewer than two members of the Board.  The  Committee
       shall  consist of  directors  who are "outside  directors"  as defined in
       Section  162(m) of the Code and  "Non-Employee  Directors"  as defined in
       Rule 16b-3  promulgated by the Securities and Exchange  Commission  under
       the United States Securities Exchange Act of 1934. The Board will be able
       to delegate its  authorities  to the Committee  subject to any applicable
       law.

       2.9    "COMPANY"  means B.O.S Better  On-line  Solution  Ltd., an Israeli
       company.

                                       13
<PAGE>


       2.10   "COMPANIES LAW" means the Israeli Companies Law 5759-1999.

       2.11   "CONTROLLING SHAREHOLDER" shall have the meaning ascribed to it in
       Section 32(9) of the Ordinance.

       2.12   "DATE  OF  GRANT"  means,  the  date of  grant  of an  Option,  as
       determined by the Board and set forth in the Optionee's Option Agreement.

       2.13   "EMPLOYEE"  means a person who is  employed  by the Company or its
       Affiliates,  including an  individual  who is serving as a director or an
       office holder, but excluding Controlling Shareholder.

       2.14   "EXPIRATION  DATE"  means  the date  upon  which an  Option  shall
       expire, as set forth in Section 10.2 of the ISOP.

       2.15   "FAIR  MARKET  VALUE"  means as of any date,  the value of a Share
       determined as follows:

       (i)    If the Shares are listed on any  established  stock  exchange or a
       national market system,  including without limitation the NASDAQ National
       Market system,  or the NASDAQ SmallCap Market of the NASDAQ Stock Market,
       the Fair Market  Value  shall be the closing  sales price for such Shares
       (or the  closing  bid,  if no sales  were  reported),  as  quoted on such
       exchange  or  system  for the last  market  trading  day prior to time of
       determination,  as  reported in the Wall  Street  Journal,  or such other
       source as the Board deems reliable.

       Without derogating from the above,  solely for the purpose of determining
       the tax liability  pursuant to Section 102(b)(3) of the Ordinance,  if at
       the Date of Grant the  Company's  shares  are  listed on any  established
       stock  exchange or a national  market system or if the  Company's  shares
       will be registered for trading within ninety (90) days following the Date
       of Grant,  the Fair Market Value of a Share at the Date of Grant shall be
       determined in accordance  with the average value of the Company's  shares
       on the thirty (30)  trading  days  preceding  the Date of Grant or on the
       thirty (30) trading days following the date of registration  for trading,
       as the case may be;

       (ii)   If the  Shares are  regularly  quoted by a  recognized  securities
       dealer but selling  prices are not reported,  the Fair Market Value shall
       be the mean  between the high bid and low asked  prices for the Shares on
       the last market trading day prior to the day of determination, or;

       (iii)  In the absence of an established  market for the Shares,  the Fair
       Market Value thereof shall be determined in good faith by the Board.

       2.16   "ISOP" means this 2003 Israeli Share Option Plan.

       2.17   "ITA" means the Israeli Tax Authorities.

       2.18   "NON-EMPLOYEE"  means a  consultant,  adviser,  service  provider,
       Controlling Shareholder or any other person who is not an Employee.

       2.19   "ORDINARY INCOME OPTION (OIO)" as defined in Section 5.5 below.

       2.20   "OPTION"  means an option to  purchase  one or more  Shares of the
       Company pursuant to the ISOP.

       2.21   "102 OPTION"  means any Option  granted to  Employees  pursuant to
       Section 102 of the Ordinance.

       2.22   "3(I) OPTION" means an Option granted  pursuant to Section 3(i) of
       the Ordinance to any person who is Non-Employee.

       2.23   "OPTIONEE"  means a person who  receives or holds an Option  under
       the ISOP.

       2.24   "OPTION  AGREEMENT" means the share option  agreement  between the
       Company  and an  Optionee  that sets out the terms and  conditions  of an
       Option.

       2.25   "ORDINANCE"  means the 1961  Israeli  Income  Tax  Ordinance  [New
       Version] 1961 as now in effect or as hereafter amended.

                                       14
<PAGE>


       2.26   "PURCHASE  PRICE"  means the price for each  Share  subject  to an
       Option.

       2.27   "RETIREMENT"   shall  mean  Optionee's   retirement   pursuant  to
       applicable  law or in  accordance  with the  terms  of any  tax-qualified
       retirement  plan  maintained  by the Company or any of its  Affiliates in
       which the Optionee participates.

       2.28   "SECTION  102" means section 102 of the Ordinance as now in effect
       or as hereafter amended.

       2.29   "SHARE" means the ordinary shares, 1.00 NIS par value each, of the
       Company.

       2.30   "SUCCESSOR  COMPANY"  means any entity the Company is merged to or
       is acquired by, in which the Company is not the surviving entity.

       2.31   "TRANSACTION"  means (i) merger,  acquisition or reorganization of
       the Company  with one or more other  entities in which the Company is not
       the  surviving  entity,  (ii) a sale of all or  substantially  all of the
       assets of the Company.

       2.32   "TRUSTEE"  means any individual  appointed by the Company to serve
       as a  trustee  and  approved  by the  ITA,  all in  accordance  with  the
       provisions of Section 102(a) of the Ordinance.

       2.33   "UNAPPROVED  102  OPTION"  means an  Option  granted  pursuant  to
       Section 102(c) of the Ordinance and not held in trust by a Trustee.

       2.34   "VESTED  OPTION"  means any Option,  which has already been vested
       according to the Vesting Dates.

       2.35   "VESTING DATES" means, as determined by the Board,  the date as of
       which the  Optionee  shall be entitled to exercise the Options or part of
       the Options, as set forth in section 11 of the ISOP.

3.     ADMINISTRATION OF THE ISOP

       3.1    The Board  shall  have the power to  administer  the ISOP,  all as
       provided by applicable law and in the Company's Articles of Association.

       3.2    The Committee  shall select one of its members as its Chairman and
       shall hold its  meetings at such times and places as the  Chairman  shall
       determine.  The  Committee  shall keep  records of its meetings and shall
       make such rules and  regulations  for the  conduct of its  business as it
       shall deem advisable.

       3.3    The  Board  shall  have the  full  power  and  authority  to:  (i)
       designate  participants;  (ii)  determine the terms and provisions of the
       respective Option Agreements,  including,  but not limited to, the number
       of Options to be  granted  to each  Optionee,  the number of Shares to be
       covered by each Option,  provisions concerning the time and the extent to
       which the  Options  may be  exercised  and the  nature  and  duration  of
       restrictions  as to  the  transferability  or  restrictions  constituting
       substantial  risk of  forfeiture  and to cancel  or  suspend  awards,  as
       necessary; (iii) determine the Fair Market Value of the Shares covered by
       each Option; (iv) make an election as to the type of Approved 102 Option;
       and (v) designate the type of Options.

       In  Addition  the Board  shall have the full power and  authority  to (i)
       alter any restrictions and conditions of any Options or Shares subject to
       any  Options  (ii)   interpret   the   provisions   and   supervise   the
       administration  of the ISOP; (iii) accelerate the right of an Optionee to
       exercise  in  whole or in  part,  any  previously  granted  Option;  (iv)
       determine  the Purchase  Price of the Option;  (v)  prescribe,  amend and
       rescind  rules and  regulations  relating to the ISOP;  and (vi) make all
       other determinations deemed necessary or advisable for the administration
       of the ISOP.

       3.4    The Board shall have the authority to grant, at its discretion, to
       the holder of an  outstanding  Option,  in exchange for the surrender and
       cancellation  of such Option,  a new Option having a purchase price equal
       to, lower than or higher than the Purchase  Price of the original  Option
       so  surrendered   and  canceled  and  containing  such  other  terms  and
       conditions as the Board may prescribe in accordance  with the  provisions
       of the ISOP.

                                       15
<PAGE>


       3.5    Subject to the Company's  Articles of  Association,  all decisions
       and  selections  made by the Board pursuant to the provisions of the ISOP
       shall be made by a majority of its  members  except that no member of the
       Board shall vote on, or be counted for quorum  purposes,  with respect to
       any proposed  action of the Board relating to any Option to be granted to
       that  member.  Any  decision  reduced to  writing  shall be  executed  in
       accordance with the provisions of the Company's  Articles of Association,
       as the same may be in effect from time to time.

       3.6    The  interpretation and construction by the Board of any provision
       of the ISOP or of any  Option  Agreement  thereunder  shall be final  and
       conclusive unless otherwise determined by the Board.

       3.7    Subject to the Company's Articles of Association and the Company's
       decision,  and to all  approvals  legally  required,  including,  but not
       limited to the  provisions of the Companies Law, each member of the Board
       or the Committee  shall be  indemnified  and held harmless by the Company
       against any cost or expense (including counsel fees) reasonably  incurred
       by him, or any liability (including any sum paid in settlement of a claim
       with the approval of the  Company)  arising out of any act or omission to
       act in connection  with the ISOP unless  arising out of such member's own
       fraud or bad faith,  to the extent  permitted  by  applicable  law.  Such
       indemnification shall be in addition to any rights of indemnification the
       member may have as a director or otherwise  under the Company's  Articles
       of Association,  any agreement, any vote of shareholders or disinterested
       directors, insurance policy or otherwise.

4.     DESIGNATION OF PARTICIPANTS

       4.1    The persons  eligible for  participation  in the ISOP as Optionees
       shall include any Employees and/or Non-Employees of the Company or of any
       Affiliate;  provided, however, that (i) Employees may only be granted 102
       Options;  (ii) Non-Employees may only be granted 3(i) Options;  and (iii)
       Controlling Shareholders may only be granted 3(i) Options.

       4.2    The  grant  of an  Option  hereunder  shall  neither  entitle  the
       Optionee to participate  nor  disqualify the Optionee from  participating
       in, any other grant of Options  pursuant to the ISOP or any other  option
       or share plan of the Company or any of its Affiliates.

       4.3    Anything in the ISOP to the contrary  notwithstanding,  all grants
       of Options  to  directors  and office  holders  shall be  authorized  and
       implemented in accordance with the provisions of the Companies Law or any
       successor act or regulation, as in effect from time to time.

5.     DESIGNATION OF OPTIONS PURSUANT TO SECTION 102

       5.1    The Company may designate Options granted to Employees pursuant to
       Section 102 as Unapproved 102 Options or Approved 102 Options.

       5.2    The grant of Approved  102  Options  shall be made under this ISOP
       adopted  by the Board as  described  in  Section  15 below,  and shall be
       conditioned  upon the  approval  of this ISOP by the ITA as  required  by
       Section 102.

       5.3    Approved  102  Option  may either be  classified  as Capital  Gain
       Option ("CGO") or Ordinary Income Option ("OIO").

       5.4    Approved  102 Option  elected  and  designated  by the  Company to
       qualify  under the capital  gain tax  treatment  in  accordance  with the
       provisions of Section 102(b)(2) shall be referred to herein as CGO.

       5.5    Approved  102 Option  elected  and  designated  by the  Company to
       qualify under the ordinary  income tax  treatment in accordance  with the
       provisions of Section 102(b)(1) shall be referred to herein as OIO.

       5.6    The Company's  election of the type of Approved 102 Options as CGO
       or OIO granted to  Employees  (the  "ELECTION"),  shall be  appropriately
       filed with the ITA before the Date of Grant of an  Approved  102  Option.
       Such Election shall become effective beginning the first Date of Grant of
       an Approved  102 Option  under this ISOP and shall remain in effect until
       the end of the year  following  the year during  which the Company  first
       granted Approved 102 Options.  The Election shall obligate the Company to
       grant  ONLY the type of  Approved  102 Option it has  elected,  and shall
       apply to all Optionees who were

                                       16
<PAGE>


       granted Approved 102 Options during the period indicated  herein,  all in
       accordance  with the provisions of Section  102(g) of the Ordinance.  For
       the avoidance of doubt,  such Election shall not prevent the Company from
       granting Unapproved 102 Options simultaneously.

       5.7    All Approved  102 Options  must be held in trust by a Trustee,  as
       described in Section 6 below.

       5.8    For the avoidance of doubt,  the  designation  of  Unapproved  102
       Options  and  Approved  102  Options  shall be  subject  to the terms and
       conditions set forth in Section 102 of the Ordinance and the  regulations
       promulgated thereunder.

       5.9    With regards to Approved 102 Options,  the  provisions of the ISOP
       and/or the Option Agreement shall be subject to the provisions of Section
       102 and the Tax Assessing  Officer's permit,  and the said provisions and
       permit  shall be deemed an  integral  part of the ISOP and of the  Option
       Agreement.  Any  provision of Section 102 and/or the said permit which is
       necessary in order to receive and/or to keep any tax benefit  pursuant to
       Section 102,  which is not expressly  specified in the ISOP or the Option
       Agreement,   shall  be  considered  binding  upon  the  Company  and  the
       Optionees.

6.     TRUSTEE

       6.1    Approved 102 Options  which shall be granted under the ISOP and/or
       any Shares allocated or issued upon exercise of such Approved 102 Options
       and/or other shares  received  subsequently  following any realization of
       rights,  including without limitation bonus shares, shall be allocated or
       issued to the Trustee and held for the benefit of the  Optionees for such
       period of time as required by Section  102 or any  regulations,  rules or
       orders or procedures  promulgated  thereunder (the "HOLDING PERIOD").  In
       the case the  requirements for Approved 102 Options are not met, then the
       Approved 102 Options may be treated as  Unapproved  102  Options,  all in
       accordance with the provisions of Section 102 and regulations promulgated
       thereunder.

       6.2    Notwithstanding  anything to the  contrary,  the Trustee shall not
       release  any Shares  allocated  or issued upon  exercise of Approved  102
       Options  prior to the full  payment  of the  Optionee's  tax  liabilities
       arising from  Approved  102 Options  which were granted to him and/or any
       Shares allocated or issued upon exercise of such Options.

       6.3    With respect to any Approved 102 Option, subject to the provisions
       of  Section  102 and any rules or  regulation  or  orders  or  procedures
       promulgated thereunder,  an Optionee shall not sell or release from trust
       any Share received upon the exercise of an Approved 102 Option and/or any
       share  received   subsequently   following  any  realization  of  rights,
       including  without  limitation,  bonus  shares,  until  the  lapse of the
       Holding   Period   required   under   Section   102  of  the   Ordinance.
       Notwithstanding  the above, if any such sale or release occurs during the
       Holding  Period,  the  sanctions  under  Section 102 of the Ordinance and
       under  any  rules or  regulation  or  orders  or  procedures  promulgated
       thereunder shall apply to and shall be borne by such Optionee.

       6.4    Upon  receipt of Approved 102 Option,  the  Optionee  will sign an
       undertaking  to release the Trustee from any  liability in respect of any
       action or decision duly taken and bona fide executed in relation with the
       ISOP, or any Approved 102 Option or Share granted to him thereunder.

7.     SHARES RESERVED FOR THE ISOP; RESTRICTION THEREON

       7.1  The  Company  has  reserved  2,500,000  (two  million,five   hundred
       thousand)  authorized but unissued  Shares,  for the purposes of the ISOP
       and for the purposes of any other share option plans which may be adopted
       by the  Company  in the  future,  subject to  adjustment  as set forth in
       Section 9 below.  Any  Shares  which  remain  unissued  and which are not
       subject to the  outstanding  Options at the termination of the ISOP shall
       cease to be reserved for the purpose of the ISOP,  but until  termination
       of the ISOP the Company shall at all times reserve  sufficient  number of
       Shares to meet the  requirements  of the ISOP.  Should any Option for any
       reason expire or be canceled prior to its exercise or  relinquishment  in
       full,  the Shares  subject to such  Option may again be  subjected  to an
       Option under the ISOP or under the Company's other share option plans.

                                       17
<PAGE>


       7.2    Each Option granted  pursuant to the ISOP, shall be evidenced by a
       written Option  Agreement  between the Company and the Optionee,  in such
       form as the Board shall from time to time approve.  Each Option Agreement
       shall  state,  among  other  matters,  the  number of Shares to which the
       Option  relates,  the type of Option granted  thereunder  (whether a CGO,
       OIO,  Unapproved  102 Option or a 3(i) Option),  the Vesting  Dates,  the
       Purchase Price per share,  the  Expiration  Date and such other terms and
       conditions as the Board in its discretion  may  prescribe,  provided that
       they are consistent with this ISOP.

8.     PURCHASE PRICE

       8.1    The  Purchase  Price of each Share  subject to an Option  shall be
       determined by the Board in its sole and absolute discretion in accordance
       with  applicable  law,  subject to any guidelines as may be determined by
       the Board from time to time.  Each  Option  Agreement  will  contain  the
       Purchase Price determined for each Optionee.

       8.2    The  Purchase  Price  shall be payable  upon the  exercise  of the
       Option in a form satisfactory to the Board, including without limitation,
       by cash or check. The Board shall have the authority to postpone the date
       of payment on such terms as it may determine.

       8.3    The  Purchase  Price shall be  denominated  in the currency of the
       primary economic  environment of either the Company or the Optionee (that
       is the  functional  currency of the Company or the  currency in which the
       Optionee is paid) as determined by the Company.

9.     ADJUSTMENTS

       Upon the occurrence of any of the following described events,  Optionee's
       rights to purchase  Shares  under the ISOP shall be adjusted as hereafter
       provided:

       9.1    In  the  event  of  Transaction,   the  unexercised  Options  then
       outstanding  under  the  ISOP  shall be  assumed  or  substituted  for an
       appropriate  number of shares of each class of shares or other securities
       of the  Successor  Company (or a parent or  subsidiary  of the  Successor
       Company)  as were  distributed  to the  shareholders  of the  Company  in
       connection  and  with  respect  to the  Transaction.  In the case of such
       assumption and/or substitution of Options,  appropriate adjustments shall
       be made to the Purchase  Price so as to reflect such action and all other
       terms and  conditions of the Option  Agreements  shall remain  unchanged,
       including  but not  limited to the vesting  schedule,  all subject to the
       determination of the Board or the Board, which  determination shall be in
       their sole discretion and final. The Company shall notify the Optionee of
       the  Transaction in such form and method as it deems  applicable at least
       ten (10) days prior to the effective date of such Transaction.

       9.2    Notwithstanding  the above and subject to any applicable  law, the
       Board shall have full power and  authority to  determine  that in certain
       Option  Agreements  there shall be a clause  instructing  that, if in any
       such Transaction as described in section 9.1 above, the Successor Company
       (or parent or  subsidiary  of the  Successor  Company)  does not agree to
       assume  or  substitute  for the  Options,  the  Vesting  Dates  shall  be
       accelerated so that any unvested  Option or any portion  thereof shall be
       immediately  vested as of the date  which is ten (10)  days  prior to the
       effective date of the Transaction.

       9.3    For the  purposes  of  section  9.1  above,  an  Option  shall  be
       considered  assumed or substituted  if,  following the  Transaction,  the
       Option  confers  the  right  to  purchase  or  receive,  for  each  Share
       underlying  an  Option   immediately   prior  to  the  Transaction,   the
       consideration  (whether  shares,  options,  cash, or other  securities or
       property)  received in the  Transaction  by holders of shares held on the
       effective  date of the  Transaction  (and if such  holders were offered a
       choice of consideration,  the type of consideration chosen by the holders
       of a majority of the outstanding shares); provided, however, that if such
       consideration  received in the  Transaction is not solely ordinary shares
       (or  their  equivalent)  of  the  Successor  Company  or  its  parent  or
       subsidiary,  the Board may,  with the consent of the  Successor  Company,
       provide for the  consideration  to be received  upon the  exercise of the
       Option  to be  solely  ordinary  shares  (or  their  equivalent)  of  the
       Successor  Company or its parent or subsidiary equal in Fair Market Value
       to the per Share  consideration  received by holders of a majority of the
       outstanding  shares in the  Transaction;  and  provided  further that the
       Board may determine,  in its discretion,  that in lieu of such assumption
       or  substitution  of Options for options of the Successor  Company or its
       parent or subsidiary, such Options

                                       18
<PAGE>


       will be  substituted  for any other type of asset or  property  including
       cash which is fair under the circumstances.

       9.4    If the  Company  is  voluntarily  liquidated  or  dissolved  while
       unexercised  Options remain outstanding under the ISOP, the Company shall
       immediately  notify all unexercised  Option holders of such  liquidation,
       and the  Option  holders  shall then have ten (10) days to  exercise  any
       unexercised  Vested Option held by them at that time, in accordance  with
       the exercise  procedure  set forth  herein.  Upon the  expiration of such
       ten-days  period,  all  remaining   outstanding  Options  will  terminate
       immediately.

       9.5    If the  outstanding  shares  of the  Company  shall at any time be
       changed or exchanged by declaration of a share dividend  (bonus  shares),
       share split, combination or exchange of shares, recapitalization,  or any
       other  like  event by or of the  Company,  and as often as the same shall
       occur, then the number,  class and kind of the Shares subject to the ISOP
       or subject to any Options  therefore  granted,  and the Purchase  Prices,
       shall be  appropriately  and  equitably  adjusted so as to  maintain  the
       proportionate  number of Shares without  changing the aggregate  Purchase
       Price,  provided,  however, that no adjustment shall be made by reason of
       the distribution of subscription  rights (rights offering) on outstanding
       shares.  Upon happening of any of the foregoing,  the class and aggregate
       number of Shares issuable pursuant to the ISOP (as set forth in Section 7
       hereof),  in respect of which Options have not yet been exercised,  shall
       be appropriately  adjusted,  all as will be determined by the Board whose
       determination shall be final.

10.    TERM AND EXERCISE OF OPTIONS

       10.1   Options  shall be  exercised  by the  Optionee  by giving  written
       notice to the Company and/or to any third party designated by the Company
       (the  "REPRESENTATIVE"),  in such form and method as may be determined by
       the Company and when  applicable,  by the Trustee in accordance  with the
       requirements  of Section 102,  which  exercise  shall be  effective  upon
       receipt of such notice by the Company and/or the  Representative  and the
       payment of the Purchase  Price at the  Company's or the  Representative's
       principal  office.  The notice  shall  specify  the number of Shares with
       respect to which the Option is being exercised.

       10.2   Options, to the extent not previously  exercised,  shall terminate
       forthwith  upon the  earlier  of:  (i) the date set  forth in the  Option
       Agreement;  and (ii) the expiration of any extended  period in any of the
       events set forth in section 10.5 below.

       10.3   The Options may be  exercised by the Optionee in whole at any time
       or in part from  time to time,  to the  extent  that the  Options  become
       vested and exercisable,  prior to the Expiration Date, and provided that,
       subject to the provisions of section 10.5 below, the Optionee is employed
       by or providing services to the Company or any of its Affiliates,  at all
       times  during the period  beginning  with the  granting of the Option and
       ending upon the date of exercise.

       10.4   Subject to the  provisions of section 10.5 below,  in the event of
       termination of Optionee's employment or services, with the Company or any
       of its Affiliates,  all Options granted to such Optionee will immediately
       expire.  A notice of termination of employment or service shall be deemed
       to constitute  termination of employment or service. For the avoidance of
       doubt, in case of such termination of employment or service, the unvested
       portion  of the  Optionee's  Option  shall not vest and shall not  become
       exercisable.

       10.5   Notwithstanding  anything to the contrary  hereinabove  and unless
       otherwise determined in the Optionee's Option Agreement, an Option may be
       exercised  after the date of  termination  of  Optionee's  employment  or
       service with the Company or any Affiliates during an additional period of
       time beyond the date of such  termination,  but only with  respect to the
       number of Vested Options at the time of such termination according to the
       Vesting Dates, if:

       (i)    termination  is without  Cause,  in which event any Vested  Option
       still in force and unexpired  may be exercised  within a period of ninety
       (90) days after the date of such termination; or-

       (ii)   termination  is the result of death or disability of the Optionee,
       in which  event any Vested  Option  still in force and  unexpired  may be
       exercised subject to the period determined in section 15.

                                       19
<PAGE>


       (iii)  prior to the date of such  termination,  the Board shall authorize
       an extension of the terms of all or part of the Vested Options beyond the
       date of such  termination  for a period not to exceed  the period  during
       which the Options by their terms would otherwise have been exercisable.

       (iv)   termination is the result of Retirement of the Optionee,  in which
       event any Vested  Option  still in force and  unexpired  may be exercised
       within a period of twelve (12) months after the date of such termination;

       For avoidance of any doubt,  if  termination  of employment or service is
       for  Cause,  any  outstanding   unexercised  Option  (whether  vested  or
       non-vested),  will  immediately  expire and  terminate,  and the Optionee
       shall not have any right in connection to such outstanding Options.

       10.6   To avoid doubt,  the Optionees shall not have any of the rights or
       privileges  of  shareholders  of the  Company  in  respect  of any Shares
       purchasable upon the exercise of any Option,  nor shall they be deemed to
       be a class of shareholders or creditors of the Company for purpose of the
       operation of sections 350 and 351 of the  Companies  Law or any successor
       to such  section,  until  registration  of the Optionee as holder of such
       Shares in the  Company's  register of  shareholders  upon exercise of the
       Option in  accordance  with the  provisions  of the ISOP,  but in case of
       Options  and Shares held by the  Trustee,  subject to the  provisions  of
       Section 6 of the ISOP.

       10.7   Any form of Option  Agreement  authorized  by the ISOP may contain
       such  other  provisions  as the  Board  may,  from  time  to  time,  deem
       advisable.

       10.8   With respect to Unapproved 102 Option,  if the Optionee  ceases to
       be employed by the Company or any Affiliate, the Optionee shall extend to
       the Company  and/or its Affiliate a security or guarantee for the payment
       of tax due at the  time of sale of  Shares,  all in  accordance  with the
       provisions of Section 102 and the rules, regulation or orders promulgated
       thereunder.

11.    VESTING OF OPTIONS

       11.1   Subject to the  provisions  of the ISOP,  each  Option  shall vest
       following  the  Vesting  Dates  and for the  number of Shares as shall be
       provided in the Option Agreement. However, no Option shall be exercisable
       after the Expiration Date.

       11.2   An Option may be subject to such other terms and conditions on the
       time  or  times  when  it  may  be  exercised,  as  the  Board  may  deem
       appropriate. The vesting provisions of individual Options may vary.

12.    PURCHASE FOR INVESTMENT

       The Company's  obligation to issue or allocate Shares upon exercise of an
       Option  granted  under the ISOP is expressly  conditioned  upon:  (a) the
       Company's  completion of any registration or other qualifications of such
       Shares  under  all  applicable   laws,   rules  and  regulations  or  (b)
       representations   and   undertakings   by  the  Optionee  (or  his  legal
       representative, heir or legatee, in the event of the Optionee's death) to
       assure  that  the  sale of the  Shares  complies  with  any  registration
       exemption  requirements  which the Company in its sole  discretion  shall
       deem   necessary  or  advisable.   Such  required   representations   and
       undertakings  may  include   representations  and  agreements  that  such
       Optionee  (or  his  legal  representative,  heir,  or  legatee):  (a)  is
       purchasing such Shares for investment and not with any present  intention
       of selling or otherwise disposing thereof;  and (b) agrees to have placed
       upon the face and reverse of any  certificates  evidencing  such Shares a
       legend setting forth (i) any  representations and undertakings which such
       Optionee  has given to the Company or a reference  thereto and (ii) that,
       prior to effecting any sale or other disposition of any such Shares,  the
       Optionee must furnish to the Company an opinion of counsel,  satisfactory
       to the  Company,  that  such sale or  disposition  will not  violate  the
       applicable laws,  rules, and regulations,  whether of the State of Israel
       or of the United States or any other State having  jurisdiction  over the
       Company and the Optionee.

                                       20
<PAGE>


13.    DIVIDENDS

       With respect to all Shares (but  excluding,  for  avoidance of any doubt,
       any unexercised Options) allocated or issued upon the exercise of Options
       purchased by the Optionee and held by the Optionee or by the Trustee,  as
       the case may be, the Optionee  shall be entitled to receive  dividends in
       accordance with the quantity of such Shares, subject to the provisions of
       the Company's  Articles of Association  (and all amendments  thereto) and
       subject to any applicable taxation on distribution of dividends, and when
       applicable  subject  to the  provisions  of  Section  102 and the  rules,
       regulations or orders promulgated thereunder.

14.    RESTRICTIONS ON ASSIGNABILITY AND SALE OF OPTIONS

       14.1   No  Option  or  any  right  with  respect   thereto,   purchasable
       hereunder,  whether fully paid or not, shall be assignable,  transferable
       or given as collateral or any right with respect to it given to any third
       party  whatsoever,  except as  specifically  allowed under the ISOP,  and
       during  the  lifetime  of the  Optionee  each and all of such  Optionee's
       rights to purchase  Shares  hereunder  shall be  exercisable  only by the
       Optionee.

       Any such action made directly or indirectly,  for an immediate validation
       or for a future one, shall be void.

       14.2   As long as Options and/or Shares are held by the Trustee on behalf
       of the Optionee, all rights of the Optionee over the Shares are personal,
       can not be  transferred,  assigned,  pledged or mortgaged,  other than by
       will or pursuant to the laws of descent and distribution.

15.    EFFECTIVE DATE AND DURATION OF THE ISOP

       The ISOP shall be effective as of the day it was adopted by the Board and
       shall terminate at the end of ten (10) years from such day of adoption.

16.    AMENDMENTS OR TERMINATION

       The Board may at any time, but when applicable,  after  consultation with
       the Trustee,  amend, alter,  suspend or terminate the ISOP. No amendment,
       alteration, suspension or termination of the ISOP shall impair the rights
       of any Optionee,  unless mutually agreed  otherwise  between the Optionee
       and the  Company,  which  agreement  must be in writing and signed by the
       Optionee  and the Company.  Termination  of the ISOP shall not affect the
       Board's  ability to  exercise  the powers  granted to it  hereunder  with
       respect  to  Options  granted  under  the ISOP  prior to the date of such
       termination.

17.    GOVERNMENT REGULATIONS

       The ISOP,  and the granting and  exercise of Options  hereunder,  and the
       obligation of the Company to sell and deliver  Shares under such Options,
       shall be subject to all applicable laws, rules, and regulations,  whether
       of the State of Israel or of the United  States or any other State having
       jurisdiction   over  the  Company  and  the   Optionee,   including   the
       registration  of the Shares  under the United  States  Securities  Act of
       1933,  and  the  Ordinance  and to  such  approvals  by any  governmental
       agencies or national  securities  exchanges as may be  required.  Nothing
       herein  shall be deemed to require  the  Company to  register  the Shares
       under the securities laws of any jurisdiction.

18.    CONTINUANCE OF EMPLOYMENT OR HIRED SERVICES

       Neitherthe  ISOP nor the Option  Agreement with the Optionee shall impose
       any  obligation on the Company or an Affiliate  thereof,  to continue any
       Optionee  in its  employ or  service,  and  nothing in the ISOP or in any
       Option granted  pursuant thereto shall confer upon any Optionee any right
       to  continue  in the  employ or service  of the  Company or an  Affiliate
       thereof or restrict the right of the Company or an  Affiliate  thereof to
       terminate such employment or service at any time.

                                       21
<PAGE>


19.    GOVERNING LAW & JURISDICTION

       The ISOP shall be governed by and  construed  and enforced in  accordance
       with the laws of the State of Israel  applicable to contracts made and to
       be performed therein, without giving effect to the principles of conflict
       of  laws.  The  competent  courts  of  Haifa,   Israel  shall  have  sole
       jurisdiction in any matters pertaining to the ISOP.

20.    TAX CONSEQUENCES

       20.1   Any tax  consequences  arising  from the grant or  exercise of any
       Option,  from the  payment for Shares  covered  thereby or from any other
       event or act (of the Company  and/or its  Affiliates,  the Trustee or the
       Optionee),  hereunder, shall be borne solely by the Optionee. The Company
       and/or its Affiliates  and/or the Trustee shall withhold taxes  according
       to the requirements  under the applicable  laws,  rules, and regulations,
       including  withholding taxes at source.  Furthermore,  the Optionee shall
       agree to indemnify the Company and/or its  Affiliates  and/or the Trustee
       and hold them  harmless  against and from any and all  liability  for any
       such tax or interest or penalty thereon,  including  without  limitation,
       liabilities  relating to the necessity to withhold,  or to have withheld,
       any such tax from any payment made to the Optionee.

       20.2   The Company  and/or,  when  applicable,  the Trustee  shall not be
       required  to  release  any Share  certificate  to an  Optionee  until all
       required payments have been fully made.

21.    NON-EXCLUSIVITY OF THE ISOP

       The adoption of the ISOP by the Board shall not be construed as amending,
       modifying or rescinding any previously approved incentive arrangements or
       as creating any limitations on the power of the Board to adopt such other
       incentive  arrangements  as it may  deem  desirable,  including,  without
       limitation,  the granting of Options  otherwise  than under the ISOP, and
       such arrangements may be either applicable  generally or only in specific
       cases.

       For the  avoidance  of doubt,  prior grant of options to Optionees of the
       Company under their  employment  agreements,  and not in the framework of
       any  previous  option  plan,  shall not be deemed an  approved  incentive
       arrangement for the purpose of this Section.

22.    MULTIPLE AGREEMENTS

       The terms of each Option may differ from other Options  granted under the
       ISOP at the same  time,  or at any other  time.  The Board may also grant
       more than one  Option to a given  Optionee  during  the term of the ISOP,
       either  in  addition  to, or in  substitution  for,  one or more  Options
       previously granted to that Optionee.

                                       22

</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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