Compiled by Dan Kaznelson, Senior Director

Introduction by Peter Sheldon, Chairman of the Board:

The Board of BATM recognises that good standards of Corporate Governance are essential, not only to comply with the statutory framework within which public companies operate but also to benefit the company's operations. They clarify the relationship between the Company and its various stakeholders and provide safeguards against wilful or misguided corporate activity.

BATM, as a company which is both listed on the London Stock Exchange and registered in Israel, has put in place appropriate structures and guidelines of procedure to comply, as far as practical, with the standards applicable to a company of its standing. It will review those structures and procedures, from time to time, to ensure that they remain relevant to the Company's needs and are in accordance with appropriate statutory and regulatory requirements.

Compliance with the New Code of Market Conduct

The Board supports the principles of corporate governance outlined in the revised Code of Conduct (of 1 July 2005) regarding Market Abuse and control of Inside Information. The Company studied an outline of the revised Rules and has put into place tools for observing these principles, including the maintaining of a list of people with access to Inside Information.

The Board has appointed an Insider List Committee to be comprised of the Chairman of the Audit Committee, the Chief Financial Officer and the Company's external legal counsel which will be responsible to oversee the maintaining of the Insider List, in compliance with the revised Rules. In addition, the Company appointed a Disclosure Rules Compliance Committee comprised of the Chairman of the Board, the Chief Executive Officer, Chief Financial Officer and the Committee will consult with the Company's external legal advisers, as and when needed. This Committee will supervise the proper handling and disclosure to the public of price sensitive information, in full compliance with the revised Rules.

Compliance with the Combined Code

The Board supports the principles of corporate governance outlined in the Combined Code on Corporate Governance (Code). The following contains information relevant to the guidelines and principles set out in the code.

Directors

The members of the Board of Directors are:

Peter Sheldon FCA, (1941), non-executive Chairman, is a Chartered Accountant and International Business Consultant. He is a former finance director of Hambros Bank and has held positions as Chairman and Director of a number of publicly quoted and private companies. He recently retired as Honorary President of a major British charity. His only other commercial appointment is as Non-executive Chairman of Video Domain Technologies Ltd a private Israeli video technology company. He has been a member of the Board of BATM since 1998 and became Chairman in October 1999. He is Chairman of the Company's Nomination Committee.

Dr. Dan Kaznelson, M.D., D.M.D. (1941), Senior non-executive, is a Physician, a former Lecturer at The Tel-Aviv University, a self-educated Database Systems Analyst and Programmer, and a reserve Colonel in the Israel Defense Forces. He has held positions as Chairman and Director of a number of private and publicly quoted companies. He has been a member of the Board of BATM since 1996 and is at present Chairman of the Audit and Remuneration Committees.

Dr. Zvi Marom (1954), Chief Executive Officer, founded BATM in 1992. He holds degrees in Engineering and Medicine. Prior to establishing BATM, he was the head of the department of Electronics at the Israeli Open University and senior consultant to several industrial and academic institutions. He graduated in excellence from the naval academy and served in combat command posts. He was awarded the Techmark "Technology Man of the Year" award from the London Stock Exchange in 2000.

Ofer Bar-Ner (1964), Chief Financial Officer, joined BATM in 1999. From 1996 he was Chief Financial Officer of Silver Arrow LP, a subsidiary of Elbit Systems and EL-OP, and between 1989 and 1993 he was group manager in the finance Department of Elbit. He graduated in Industrial Engineering and Management from the Technion in Haifa and has an MBA and MA in accounting from Northeastern University in Boston, MA.

Ariella Zochovitzky (1957), CPA, MBA, non-executive, is the general manager & partner of C.I.G. Capital Investments Group Ltd. She is currently a director of a number of public and private companies in Israel including Gazit Globe (1982) Ltd., New Applicom Ltd., Pension Funds at Israel Discount Bank Ltd., Scitex Ltd., Inspire Investments Ltd and Elco Holdings Ltd. She has been a member of the Board of BATM since September 2004.

Koti Gavish (1944), non-executive, is the Chief Executive Officer of Eihut Capital market Ltd. He is currently a director of a number of public and private companies in Israel including Libber Infrastructure Industries Ltd., Pegasus Technologies Ltd., Ampa Ltd., Superior Cables Ltd., Spark Enterprise Ltd and the Provident Funds of Bank Mercantil Discount Ltd. He has been a member of the Board of BATM since September 2004.

The Board

The Board generally meets every three months. This is in compliance with Israeli company legislation. There is not a formal schedule of matters specifically reserved to the Board for decision, as set out in A.1.2 of the Code, however, provisions in the Israeli company legislation set out the responsibilities and duties of, and areas of decision for, the Board. These provisions have been fully complied with.

The Board comprises six directors, four of whom are non-executive directors, under the chairmanship of Peter Sheldon. The Chief Executive is Dr. Zvi Marom. The senior non-executive director is Dr. Dan Kaznelson. All the directors are of a high calibre and standing. Dr. Zvi Marom, Dr. Dan Kaznelson, Peter Sheldon and Ofer Bar-Ner hold shares in the company and their shareholdings are set out the annual report. All the non-executive directors are independent of management and not involved in any business or other relationship, which could materially interfere with the exercise of their independent judgment. The members of the Board receive a memorandum on the responsibilities and liabilities of directors on their appointment to the Board. There are also presentations to the directors on the activities of the company. The CEO regularly invites the directors to visit the company premises and its manufacturing facilities. Once per month each director receives a "Flash report" on the company's activities, and information on the performance of the company and a report on the trading and quarterly results of the company are provided at every board meeting. Once per year a budget is discussed and approved by the Board for the following year. All directors are properly briefed on issues arising at Board meetings and any further information requested by a director is always made available. Under Israeli law it is not a mandatory requirement for a company to have a secretary and the company does not therefore have a formally appointed secretary. However, Mr. Arthur Moher, who is also one of the company's legal advisers, provides the company with all the functions of company secretary and all the directors have access to Mr. Moher's services. The directors are therefore of the opinion that the spirit of A.1.4 of the Code has been complied with.

The directors may take independent professional advice at the company's expense in furtherance of their duties. Independent outside counsel is always present at Board meetings.

The Board has a nominations committee which is chaired by Peter Sheldon. Individuals nominated as directors are appointed by the shareholders in general meeting. Executive and non-executive directors are appointed by the shareholder's General Meeting for a term of one year. Non-executive public "external" directors are appointed for a term of three years, which is renewable for a further term of three years. The re-appointment of a director must be approved by the shareholders in general meeting.

Audit Committee

The company has an Audit Committee which consists of three out of the four non-executive directors, Dr. Dan Kaznelson (chairman), Mrs Ariella Zochovitzky, and Mr Koti Gavish. The Audit Committee meets a minimum of twice a year and the internal and external auditors also attend the meetings. The Audit Committee adheres to the functions and requirements prescribed to it by the Israeli Companies Act and Israeli law. The Chairman of the Audit Committee maintains close contact with the company on a weekly basis.

Terms of Reference for the Audit Committee
Duties, Powers and Guidelines

While all directors have a duty to act in the interest of the company, the Audit Committee has a particular role, acting independently from the executive, to ensure that the interest of the shareholders are properly protected in relation to financial reporting and internal control.

Formal meetings of the Audit Committee are the heart of its work. However it is expected that the Audit Committee chairman, and to a lesser extent the other members will keep in touch on a continuing basis with the key people involved in the company's governance, including the board chairman, the CEO, the CFO, the external audit lead partner, and the internal auditor.

The results of the tasks of the Audit Committee shall be reported to and considered by the board. In doing so it shall identify any matters in respect of which it considers that action or improvement is needed and make recommendations as to the steps to be taken.

The Audit Committee shall review and approve the statements included in the annual report in relation to internal control and the management of risk.

The Audit Committee shall review and approve the internal audit function's reports. The Audit Committee shall ensure that the function has the necessary resources and access to information to enable it to fulfill its mandate and is equipped to perform in accordance with appropriate professional standards for internal auditors.

The Audit Committee must be comprised of at least three members and all the external (independent) directors must be members of this committee. One member of the Audit Committee shall have a financial background and experience. The external directors on the committee shall have independent access to the Company's external auditors.

The Audit Committee remains a committee of the board. Any disagreement between the Audit Committees members and the rest of the board shall be resolved at board level.

The Audit Committee must fulfill both a "judicial" or semi-judicial function as well as supervisory/control functions.

(a) Judicial functions: The Audit Committee is required under the Israeli Companies Law to approve any transactions between the Company and between any officers, directors or "interested parties". These kinds of transactions require the approval of the Board of Directors and shareholders' meeting and must be approved in advance by the Audit Committee. The Audit Committee may deal with and approve transactions between the Company and "officers" of the Company or transactions in which an officer may have a personal interest, if the committee is convinced that the officer disclosed his interest in the proposed transaction to the Company, acted in good faith and the approval of the action or transaction will not harm the interests of the Company.

(b) Supervisory functions: The main supervisory function is to find any defects in the business management of the Company, also in consultation with the Company's Internal Auditor or with its external auditor and to propose to the Board ways of correcting or remedying the defects. In order to fulfill this function correctly:

• the Audit Committee shall give notice to the Internal Auditor of its meetings and he may attend them, if he deems it necessary;
  
• The Internal Auditor may request the chairman of the Audit Committee to convene a meeting of the committee to discuss topics he found in his internal auditor's report.
  
• If the Audit Committee intends to discuss the Company's audited financial reports, draft reports then the Audit Committee shall invite the external auditor to attend the meeting.
  
• The Audit Committee shall, in consultation with the Company's management and the Internal Auditor, define on a yearly basis the topics to be checked by the Internal Auditor and the framework of what he should investigate. In addition, if the Audit Committee discovers while fulfilling its supervisory functions any particular issue or topic which in its opinion requires a professional checking to verify that the management of that issue is being carried out according to proper procedures, then it shall instruct the Internal Auditor on a piecemeal basis to investigate that issue.
  
• The Audit Committee shall periodically review the written procedures in effect in the Company in order to check that there are sufficient "checks and balances" to ensure proper corporate governance.
  

Responsibilities of the Audit Committee include:

• to monitor the integrity of the financial statements of the Company and reviewing significant financial reporting judgments contained in them;
  
• to review the Company's internal financial controls and review the Company's internal control and risk management systems;
  
• to monitor and review the effectiveness of the Company's internal audit function;
  
• to make recommendations to the Board in relation to the appointment, re-appointment or removal of the external auditors and to approve the remuneration and terms of engagement of the external auditor;
  
• to review and monitor the external auditor's independence and objectivity and effectiveness of the audit process;
  
• to develop and implement policy on the engagement of the external auditors to supply non-audit services, taking into account relevant ethical guidance regarding the provision of non-audit services by the external audit firm;
  
• The committee shall review arrangements by which staff of the Company may, in confidence, raise concerns about possible improprieties in matters of financial reporting or other matters by approaching the Audit Committee;
  
• The committee shall monitor and review the effectiveness of the internal audit activities and function.

The above terms of reference were compiled using guidelines, recommendations and provisions from the following sources: The Combined Code on Corporate Governance, Financial Reporting Counsel, July 2003. Guidance on Audit Committees (The Smith Guidance), idem. The Israeli Companies Law, 1999

Remuneration Committee

The Board has a Remuneration Committee, which consists of three out of the four non-executive directors, Dr. Dan Kaznelson (chairman), Mrs. Ariella Zochovitzky, and Mr. Koti Gavish. Information about the service contracts of the executive directors and the remuneration of directors is set out in the annual Remuneration Report.

Nominations Committee

The Board has a nominations committee which consists of three out of the four non-executive directors and the CEO of the company. The members are Peter Sheldon (chairman), Dr. Zvi Marom, Dr. Dan Kaznelson, and Mrs. Ariella Zochovitzky.

Internal Control

The Board of directors has overall responsibility for ensuring that the company maintains adequate systems of internal control. To this end, in accordance with Israeli Company Law requirements, the company's Board of Directors appointed Mr. Ezra Yehuda, CPA, as an independent internal auditor, after he was interviewed and recommended by the Audit Committee, as prescribed by Israeli corporate law. The internal auditor reports to the Audit Committee, and is responsible for ensuring that the company is run according to good corporate practice.

Risk management is currently reviewed on an ongoing basis by the Board as a whole. The key features of the financial controls of the company include a comprehensive system of financial reporting, budgeting and forecasting, and clearly laid down accounting policies and procedures. The Board of the company is furnished with detailed financial information on a monthly basis.

Statement of Directors' Responsibilities

The Directors are continuously provided with relevant information in order to assure with a reasonable measure of certainty that the Company and its subsidiaries have adequate resources to continue in operational existence for the foreseeable future. For this reason, they have adopted the going concern basis in preparing the financial statements.

Company law requires the Directors to prepare financial statements for each financial period, which give a true and fair view of the state of affairs of the Company and the group, and of the profit and loss of the group for the period. In preparing these financial statements, the Directors are required to: select suitable accounting policies and then apply them consistently; make judgments and estimates that are reasonable and prudent; state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; and prepare the financial statements on the going concern basis unless it is inappropriate to presume that the group will continue in business.

The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the group and to ensure that the financial statements comply with the Companies Act 1985. They are also responsible for safeguarding the assets of the group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.