REDHILL BIOPHARMA LTD.
21 Ha'arba'a Street

Tel-Aviv 64739

Israel

NOTICE OF ANNUAL GENERAL MEETING OF SHAREHOLDERS

To Be Held on July 31, 2013

The Annual General Meeting of Shareholders of Redhill Biopharma Ltd (the “Company”), will be held at the offices of the Company, 21 Ha'arba'a Street, Tel-Aviv, Israel on July 31, 2013 at 11:00 am Israel time, or at any adjournments thereof (the "Meeting"), for the following purposes:

In addition, shareholders at the Meeting will have an opportunity to review and ask questions regarding the financial statements of the Company for the fiscal year ended December 31, 2012, pursuant to the provisions of the Israel Companies Law 1999.

The Company currently is unaware of any other matters that may be raised at the General Meeting. Should any other matters be properly raised at the General Meeting, the persons designated as proxies shall vote according to their own judgment on those matters.

Only shareholders and ADR holders of record at the close of business on June 25, 2013 shall be entitled to receive notice of and to vote at the General Meeting. At the close of business on June 25, 2013, the Company had outstanding 61,918,747 Ordinary Shares, each of which is entitled to one vote for each of the matters to be presented at the General Meeting.

The Company's Board of Directors recommends that you vote "FOR" the proposals, as specified on the enclosed form of proxy.

Whether or not you plan to attend the Meeting, it is important that your shares be represented. Accordingly, you are kindly requested to complete, date, sign and mail the enclosed proxy in the envelope provided at your earliest convenience so that it will be received no later than 48 hours prior to the Meeting. Execution of a proxy will not in any way affect a shareholder’s right to attend the Annual General Meeting and vote in person, and any person giving a proxy has the right to revoke it at any time before it is exercised.

Shareholders registered in the Company's shareholders register in Israel and shareholders who hold shares through members of the Tel Aviv Stock Exchange, may also vote through the enclosed proxy by completing, dating, signing and mailing the proxy to the Company's offices. Shareholders registered in the Company's shareholders register in Israel and shareholders who hold shares through members of the Tel Aviv Stock Exchange who vote their shares by proxy must also provide the Company with a copy of their identity card, passport or certification of incorporation, as the case may be. Shareholders who hold shares through members of the Tel Aviv Stock Exchange and intend to vote their shares either in person or by proxy must deliver the Company an ownership certificate confirming their ownership of the Company’s shares on the record date, which certificate must be approved by a recognized financial institution, as required by the Israeli Companies Regulations (Proof of Ownership of Shares for Voting at General Meeting) of 2000, as amended.

Tel-Aviv, Israel

June 26, 2013

REDHILL BIOPHARMA LTD.

21 Ha'arba'a Street

Tel-Aviv 64739

Israel

PROXY STATEMENT

FOR ANNUAL GENERAL MEETING OF SHAREHOLDERS

TO BE HELD ON JULY 31, 2013

This Proxy Statement is furnished to the holders of ordinary shares, par value NIS 0.01 per share (the “Ordinary Shares”), and to holders of American Depository Shares (“ADSs”), evidenced by American Depositary Receipts (“ADRs”) issued by The Bank of New York Mellon (“BNY Mellon”), of RedHill Biopharma Ltd. (the “Company” or “RedHill”) in connection with the solicitation by the board of directors (the "Board") of proxies for use at the Annual General Meeting of Shareholders (the “General Meeting”), to be held on July 31, 2013, at 11:00 am Israel time at the offices of the Company, 21 Ha'arba'a Street, Tel-Aviv, Israel, or at any adjournments thereof.

It is proposed at the General Meeting to adopt the following proposals or to consider the following items:

In addition, shareholders at the General Meeting will have an opportunity to review and ask questions regarding the financial statements of the Company for the fiscal year ended December 31, 2012, pursuant to the provisions of the Israel Companies Law 1999.

The Company currently is unaware of any other matters that may be raised at the General Meeting. Should any other matters be properly raised at the General Meeting, the persons designated as proxies shall vote according to their own judgment on those matters.

Shareholders Entitled to Vote

Only shareholders and ADR holders of record at the close of business on June 25, 2013 shall be entitled to receive notice of and to vote at the General Meeting. At the close of business on June 25, 2013, the Company had outstanding 61,918,747 Ordinary Shares, each of which is entitled to one vote for each of the matters to be presented at the General Meeting.

Proxies

A form of proxy for use at the General Meeting and a return envelope for the proxy are enclosed. By appointing “proxies”, shareholders may vote at the General Meeting whether or not they attend. If a properly executed proxy in the enclosed form is received by the Company at least 48 hours prior to the General Meeting, all of the shares represented by the proxy shall be voted as indicated on the form. Subject to applicable law and the rules of the NASDAQ Stock Market, in the absence of instructions, the shares represented by properly executed and received proxies will be voted “FOR” all of the proposed resolutions to be presented at the General Meeting for which the Board recommends a “FOR”, other than Proposals No. 3, 4, 5, 6 and 7. Shareholders and ADR holders may revoke their proxies at any time before the deadline for receipt of proxies by filing with the Company (in the case of holders of Ordinary Shares) or with BNY Mellon (in the case of holders of ADRs) a written notice of revocation or duly executed proxy bearing a later date.

Expenses and Solicitation

The Board is soliciting proxies for use at the General Meeting. The Company expects to mail this Proxy Statement and the accompanying proxies to shareholders and ADR holders on or about June 26, 2013. In addition to solicitation of proxies by mail, certain officers, directors, employees and agents of the Company, none of whom shall receive additional compensation therefore, may solicit proxies by telephone, telegram or other personal contact. The Company shall bear the cost of the solicitation of the proxies, including postage, printing and handling and shall reimburse the reasonable expenses of brokerage firms and others for forwarding material to beneficial owners of Ordinary Shares or ADRs.

These proxies and proxy cards shall also serve as a voting deed (ktav hatzba’a), as such term is defined under the Israeli Companies Law, 5759-1999 (the “Companies Law”).

Quorum and Voting

Two or more shareholders holding shares conferring in the aggregate at least twenty-five percent (25%) of the voting power of the Company, present in person or by proxy at the General Meeting and entitled to vote thereat, shall constitute a quorum. If within half an hour from the time appointed for the General Meeting a quorum is not present, the General Meeting shall be adjourned to the next business day following the day of the scheduled meeting, at the same time and place, or at such other day, time and place as shall be prescribed by the Board in a notification to the shareholders. At such reconvened meeting, any one shareholder present in person or by proxy shall constitute a quorum regardless of the number of shares represented.

Each of the resolutions to be presented at the General Meeting requires the affirmative vote of at least a majority of the voting power represented at the General Meeting, in person or by proxy, and voting on the matter presented. The approvals of Proposals 3, 4, 5, 6 and 7 require the affirmative vote of the Company's shareholders holding at least a majority of the Company’s Ordinary Shares present, in person or by proxy, and voting on the matter, provided that such majority includes: (i) at least a majority of the shares of the voting shareholders who are non-controlling shareholders and do not have a personal interest in the approval of the proposal (in counting the total votes of such shareholders, abstentions shall not be taken into account) or (ii) the total number of votes against the proposal among the shareholders mentioned in paragraph (i) does not exceed two percent (2%) of the aggregate voting power in the Company (a "Special Majority").

Shareholders wishing to express their position on an agenda item for this General Meeting may do so by submitting a written statement (“Position Statement”) to the Company’s offices, c/o Mr. Ori Shilo, at 21 Ha'arba'a Street, Tel-Aviv, 64739 Israel. Any Position Statement received will be furnished to the Securities and Exchange Commission (the “Commission”) on Form 6-K, and will be made available to the public on the Commission’s website at http://www.sec.gov and in addition at http://www.magna.isa.gov.il or http://maya.tase.co.il .

Position Statements must be submitted to the Company by no later than July 5, 2013.

Reporting Requirements

The Company is subject to the information reporting requirements of the Securities Exchange Act of 1934, United States (the “Exchange Act”),as amended, applicable to foreign private issuers. The Company fulfills these requirements by filing reports with the Commission. Our filings with the Commission may be inspected without charge at the Commission’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Information on the operation of the Public Reference Room can be obtained by calling the Commission at 1-800-SEC-0330. Our filings are also available to the public on the Commission’s website at http://www.sec.gov .

As a foreign private issuer, we are exempt from the rules under the Exchange Act related to the furnishing and content of proxy statements. The circulation of this notice and proxy statement should not be taken as an admission that the Company is subject to the proxy rules under the Exchange Act.

THE BOARD RECOMMENDS THAT YOU VOTE “ FOR ” EACH OF THE PROPOSALS.

Please note that you are required to indicate on the proxy card whether or not you are a controlling shareholder of the Company, or acting on its behalf, with respect to Proposals 3, 4, 5, 6 and 7 or have a personal interest in the approval of Proposals 3, 4, 5, 6 and 7, no matter whether you vote for or against these Proposals. If you fail to notify the Company as to whether or not you are a controlling shareholder of the Company, or acting on its behalf, with respect to Proposals 3, 4, 5, 6 and 7, or have a personal interest in the approval of Proposals 3, 4, 5, 6 and 7, your vote will not be counted with respect to Proposals 3, 4, 5, 6 and 7.

The lack of a required majority for the adoption of any resolution presented shall not affect the adoption of any other resolutions for which the required majority was obtained.

PROPOSAL NO. 1

APPOINTMENT OF AUDITORS

Under the Companies Law and the Company’s Amended and Restated Articles of Association, the shareholders of the Company are authorized to appoint the Company’s independent auditors. Under the Amended and Restated Articles of Association of the Company, the Board (or a committee, if it is so authorized by the Board) is authorized to determine the independent auditor’s remuneration. In addition, the approval by the Company’s Audit Committee of the independent auditor’s re-appointment and remuneration is required under the corporate governance rules of The NASDAQ Stock Market.

At the General Meeting, shareholders will be asked to approve the re-appointment of Kesselman & Kesselman, certified public accountants in Israel and a member of PricewaterhouseCoopers International Limited, as the Company's auditors for the year ending December 31, 2013 and for an additional period until the next General Annual Meeting. Kesselman & Kesselman has no relationship with the Company or with any affiliate of the Company except as auditors.

Information on fees paid to the Company's independent auditors may be found in the Company's Annual Report on Form 20-F filed with the Securities and Exchange Commission.

It is proposed that at the General Meeting the following resolution be adopted:

“ RESOLVED, that Kesselman & Kesselman be, and hereby is, appointed as the auditors of the Company for the year 2013 and for an additional period until the next General Annual Meeting, and the Board and the Audit Committee be, and they hereby are, authorized to determine the fees of said auditors. ”

The affirmative vote of the holders of a majority of the Ordinary Shares represented at the General Meeting, in person or by proxy and voting thereon, is required to adopt this resolution.

The Audit Committee and Board recommend a vote FOR approval of the proposed resolution.

PROPOSAL NO. 2

ELECTION OF DIRECTORS

According to the Company’s Articles of Association, the directors are divided into three groups with as equal number of directors as possible. Except for the external directors (who are elected according to the provisions of the Israel Companies Law), the term of one group of directors expires each general annual meeting. At this time, the directors of said group are re-nominated to serve an additional three-year term that expires at the general annual meeting held in the third year following such election. At the General Meeting, the terms of Mr. Dan Suesskind and Dr. Shmuel Cabilly expire and the Board has nominated Mr. Suesskind and Dr. Cabilly to be re-elected as directors for an additional three-year term.

Proxies (other than those directing the proxy holders not to vote for the listed nominees) will be voted for the election of each of the nominees to hold office until the 2016 General Annual Meeting and, if applicable, until each of their successors shall have duly taken office, or such earlier time as each may resign or be removed from the Board pursuant to the terms of the Articles of Association of the Company. The Company is not aware of any reason why any of the nominees, if elected, should not be able to serve as a director .

Both Mr. Suesskind and Dr. Cabilly have attested to the Board and to the Company that each one of them meets all the requirements in connection with the election of directors under the Companies Law, per the statement substantially in the form attached hereto as Appendix A .

The nominees to serve on the Board are:

Dan Suesskind has served as a member of the Board since February 21, 2011 and on the audit committee and investment committee since May 5, 2011. From 1977 to 2008, Mr. Suesskind served as the Chief Financial Officer of Teva Pharmaceutical Industries Ltd. Mr. Suesskind served as a director of Teva Pharmaceutical Industries Ltd. from 1981 to 2001 and again since 2010. In addition, Mr. Suesskind currently serves on the board of directors of Migdal Insurance and Financial Holdings Ltd., Syneron Medical Ltd., Israel Corporation Ltd. as well as a member of the board (and finance and investment committee) of the Jerusalem Foundation. He is also a member of the investment committee of the Israel Academy of Science and Humanities and the board of trustees of the Hebrew University. Mr. Suesskind is one of the founders and a member of the steering committee of the Israeli Forum of Chief Financial Officers. Mr. Suesskind holds a BA in Economics and Political Science from the Hebrew University of Jerusalem, Israel and an MBA in Business Administration from the University of Massachusetts in the U.S. The Board has determined that Mr. Suesskind is a financial and accounting expert under Israeli law.

Dr. Shmuel Cabilly has served as a member of the Board since August 26, 2010 and has served on the compensation committee since May 5, 2011. Dr. Cabilly currently serves on the board of directors of BioKine Therapeutics Ltd., Irody Inc., Biologic Design Ltd., Silenseed Ltd., Mobydom Ltd., Neuroderm Ltd., Dentack Implants Ltd., Dia Cardio Ltd., Pixcell Medical Technologies Ltd., Medasense Biometrics Ltd., Algomia Ltd., Velocee Inc., A.G.M. Biological Products Development Ltd., Ornim Inc., N.E.D. Next Dimension Ltd., Oplon B.V., Onecall Ltd., Coeruleus Ltd., Efranat Ltd. BioCep Ltd., Health Watch Technologies Ltd., Raziel Therapeutics Ltd. and VIDAC Pharma Ltd. Dr. Cabilly holds a BSC Biology from Ben Gurion University of Beer Sheva, Israel, an MSC in Immunology and Microbiology from the Hebrew University of Jerusalem, Israel and a PhD in Immunology and Microbiology from the Hebrew University of Jerusalem, Israel.

It is proposed that at the General Meeting the following resolution be adopted:

“RESOLVED, that Mr. Dan Suesskind and Dr. Shmuel Cabilly be, and hereby are, each elected to hold office as directors of the Company for an additional three-year term.”

The affirmative vote of the holders of a majority of the Ordinary Shares represented at the General Meeting in person or by proxy and voting thereon is required to adopt this resolution.

The Board recommends a vote FOR the nominees to the Board.

PROPOSAL NO. 3

APPROVAL OF THE COMPENSATION POLICY FOR THE COMPANY'S DIRECTORS AND OFFICERS

Under Amendment No. 20 to the Companies Law, which came into effect in December, 2012 ("Amendment No. 20"), the employment terms of officers and directors (the “Officers”) of public companies, such as the Company, should be determined in accordance with a D&O compensation policy (the "Compensation Policy"). The Compensation Policy must be approved by (i) the Board of Directors, upon recommendation of the Compensation Committee and (ii) the shareholders of the Company (except in limited circumstances set forth in the Companies Law). All companies subject to Amendment No. 20 are required to adopt a Compensation Policy no later than September, 2013 to be based on the guidelines specified in the amendment. In accordance with Amendment No. 20, the Compensation Policy must be reviewed and re-approved every three years.

On June 18, 2013, in accordance with the provisions of Amendment No. 20 and following the recommendation of the Compensation Committee, the Board approved the Compensation Policy and recommended its approval by the shareholders, in the form attached hereto as Appendix B . The considerations which guided the Company's Compensation Committee and Board in recommending this policy were: promoting the Company's long-term best interests, its work plan and policy, considering, inter alia , the Company's risk management policy, size and nature of its operations and, with regard to terms of office and employment which include variable components, the officer's contribution to achieving the Company's objectives and to maximizing its earnings, all from the long-term perspective and in accordance with the officer's role.

The Compensation Policy was prepared with due consideration to the nature of the Company's operations in the biomed sector, territories in which the Company operates, market size on the Tel-Aviv Stock Exchange and on the NASDAQ, as well as other criteria including the Company's cash position, capitalization and shareholders' equity. The Compensation Policy will be in effect for three years from the Meeting, if approved by the shareholders.

The principles of the Compensation Policy were set forth after discussions by the Compensation Committee and by the Board, in consultation with an external advisor. The Compensation Policy principles were designed to grant proper, fair and well-considered remuneration to Company Officers, in alignment with the Company's long-term best interests and overall organizational strategy. Part of the rationale is that the policy should encourage the Officers to identify with the Company and its objectives. An increase in Officer satisfaction and motivation should retain the employment of high-quality Officers in the Company's service over the long term.

In designing the principles of the Compensation Policy, the Compensation Committee and the Board took into consideration, inter alia : (a) the education, qualifications, expertise, professional experience and achievements of each officer; (b) the role of the officer, areas of responsibility and previous compensation agreements entered into with him; (c) the ratio between the terms of compensation of the Officers as may be provided under the Compensation Policy and the terms of compensation of other employees of the Company, considering also the average and median annual cost of the fixed component payable to all Company full-time team members; (d) regarding terms of compensation that include variable components, eliminating the ability to limit the exercise value of any equity-based variable component.

It is proposed that at the General Meeting, the following resolution be adopted:

“RESOLVED that, in compliance with the requirements of the Companies Law, 1999, the Compensation Policy for the Company's directors and officers, in the form attached hereto as Appendix B , and as previously approved by the Board at the recommendation of the Compensation Committee, for a term of three years from approval by this General Meeting, be, and the same hereby is, approved.”

The affirmative vote of at least a majority of the votes of shareholders present and voting on the matter is required for shareholders to approve Proposal 3, provided that either (i) such a majority includes at least the majority of the votes of shareholders who (a) are not controlling shareholders of the Company and (b) do not have personal interest in the approval of the proposal (abstentions will not be taken into account); or (ii) the total number of votes against such proposal among the shareholders mentioned in clause (i) above does not exceed two percent (2%) of the total voting rights in the Company (a "Special Majority").

Under certain circumstances and subject to certain exceptions, the Companies Law enables the Board to approve the Compensation Policy despite the objection of the shareholders provided that the Compensation Committee and the Board determine that it is for the benefit of the Company, following additional discussions and supported by detailed arguments.

The Board recommends that the shareholders vote "FOR" the approval of the Compensation Policy for the Company's directors and officers.

PROPOSAL NO. 4

EQUITY GRANT COMPENSATION TO THE COMPANY'S CHAIRMAN OF THE BOARD AND CEO, MR. DROR BEN-ASHER

The Companies Law requires that the terms of service and employment of the Company’s chief executive officer ("CEO") be approved by the Company’s Compensation Committee, the Board and the shareholders of the Company, except in the limited circumstances set forth in the Companies Law . In addition, the Companies Law provides that transactions between a company and its directors regarding their terms of office as director, and with respect to their terms of employment in other positions in the company, are subject to the approval of such company's audit committee, board of directors and shareholders.

Mr. Dror Ben-Asher serves as the Company's CEO and the chairman of the Board. Mr. Ben-Asher is one of the two main individuals who have been leading the Company from its incorporation until today. In light of Mr. Ben-Asher's contribution to the Company, and in accordance with the Company's proposed Compensation Policy, the Board and Compensation Committee have determined that the proposed equity grant described below is appropriate, reasonable and reflects the significant contribution of Mr. Ben-Asher to the Company. The purpose of the grant is, inter alia, to compensate Mr. Ben-Asher for his service and significant contribution to the Company as well as to provide incentive for Mr. Ben-Asher to continue to contribute to the Company's success and results of operations.

When discussing the proposed grant to Mr. Ben-Asher, the Compensation Committee and the Board took into consideration, inter alia : (a) the education, qualifications, expertise, professional experience and achievements of Mr. Ben-Asher; (b) the role of Mr. Ben-Asher, his areas of responsibility and previous compensation agreements entered into with him; (c) the ratio between the terms of compensation of Mr. Ben-Asher and the terms of compensation of other employees of the Company, considering also the average and median annual cost of the fixed component payable to all Company full-time team members; (d) the possibility of reducing the variable components at the discretion of the Board and the possibility to limit the exercise value of the options. It was resolved by the Board not to permit such future reductions and not to limit the exercise value of the proposed options.

The proposed equity grant to Mr. Ben-Asher consists of options to purchase 300,000 Ordinary Shares of the Company at an exercise price of US $1.12 per share, which was calculated as the higher of: (i) the average closing price of the Company's stock on the TASE in the 30 trading days prior to May 26, 2013 (the date of the Board's approval of the grant), plus 10% and (ii) the closing price of the Company's stock on the TASE on May 26, 2013. The options would vest quarterly over four (4) years in equal parts, with 18,750 options vesting each quarter. The last date for exercise of the options would be seven (7) years following the grant date. Vesting is scheduled to commence retroactively on April, 1, 2013 and the options would become fully vested, in accordance with the terms of the grant, on March 31, 2017. The equity grant would be in accordance with the Company's 2010 Stock Options Plan, as amended, and the remaining terms of the equity grant would be in accordance with such Plan. The proposed equity grant represents 0.33% of the total outstanding equity of the Company on a fully diluted basis.

The proposed compensation arrangement with Mr. Ben-Asher is in accordance with the proposed Compensation Policy of the Company that is the subject of Proposal 3 and is in the form attached hereto as Appendix B .

"RESOLVED, to approve a grant of options exercisable into 300,000 Ordinary Shares of the Company to Mr. Dror Ben-Asher in accordance with the Compensation Policy and the Company's 2010 Stock Options Plan, as amended ."

The approval of Proposal 4 requires the affirmative vote of at least a majority of the Company’s shareholders holding Ordinary Shares present, in person or by proxy, and voting on the matter, provided that such majority includes: (i) at least a majority of the shares of the voting shareholders who are non-controlling shareholders and do not have a personal interest in the approval of the equity grant to Mr. Dror Ben-Asher (in counting the total votes of such shareholders, abstentions shall not be taken into account) or (ii) the total number of votes against the proposal among the shareholders mentioned in paragraph (i) does not exceed two percent (2%) of the aggregate voting power in the Company.

The Compensation Committee and Board recommend a vote FOR the approval of the equity grant to Mr. Dror Ben-Asher.

PROPOSAL NO. 5

EQUITY GRANT COMPENSATION TO THE COMPANY'S DEPUTY CEO, FINANCE AND

OPERATIONS, MR. ORI SHILO

The Companies Law provides that transactions between a company and its Officers, regarding their terms of office as director, and with respect to their terms of employment in other positions in the company, are subject to the approval of such company's audit committee, board of directors and shareholders.

Mr. Ori Shilo currently serves as the Deputy CEO, Finance and Operations of the Company and is responsible for finance & operations. Mr. Shilo has been a leading figure in the Company since its incorporation date, both in terms of day-to-day management and in terms of strategy and vision. The Board considers Mr. Shilo a major factor in setting the Company's vision and a key person needed to successfully implement the Company's business strategy over the coming years.

In light of Mr. Shilo's contribution to the Company, and in accordance with the Company's proposed Compensation Policy, the Board and Compensation Committee have determined that the proposed equity grant is appropriate and reasonable and reflects the significant contribution of Mr. Shilo to the Company. The purpose of the grant is, inter alia, to compensate Mr. Shilo for his service and his significant contribution to the Company as well as to provide an incentive for him to continue to contribute to the Company's success and results of operations.

When discussing the proposed grant to Mr. Shilo, the Compensation Committee and the Board took into consideration, inter alia ,: (a) the education, qualifications, expertise, professional experience and achievements of Mr. Shilo; (b) the role of Mr. Shilo, areas of responsibility and previous compensation agreements entered into with him; (c) the ratio between the terms of compensation of Mr. Shilo and the terms of compensation of other employees of the Company, considering also the average and median annual cost of the fixed component payable to all Company full-time team members; and (d) eliminating the possibility to limit the exercise value of any equity-based variable component. It was resolved by the Board not to permit any future reductions or to limit the exercise value of any equity-based variable component.

The proposed equity grant to Mr. Ori Shilo consists of 250,000 options to purchase Ordinary Shares of the Company at an exercise price of US $1.12 per share, which was calculated as the higher of: (i) the average closing price of the Company's stock on the TASE in the last 30 trading days prior to May 26, 2013 (the date of the Board's approval of the grant), plus 10% and (ii) the closing price of the Company's stock on the TASE on May 26, 2013. The options would vest quarterly over four (4) years in equal parts, with 15,625 options vesting each quarter. The last date for exercise of the options would be seven (7) years following the grant date. Vesting would commence retroactively on April, 1, 2013 and the options would become fully vested, in accordance with the terms of the grant, on March 31, 2017. The equity grant would be in accordance with the Company's 2010 Stock Options Plan, as amended, and the remaining terms of the equity grant would be in accordance with such plan. The proposed equity grant represents 0.28% of the total outstanding equity of the Company on a fully diluted basis.

The proposed compensation arrangement with Mr. Shilo is in accordance with the proposed Compensation Policy of the Company that is the subject of Proposal 3 and is in the form attached hereto as Appendix B .

"RESOLVED, to approve a grant of 250,000 options exercisable into Ordinary Shares of the Company to Mr. Ori Shilo, in accordance with the Compensation Policy and the Company's 2010 Stock Options Plan, as amended ."

The approval of Proposal 5 requires the affirmative vote of at least a majority of the Company’s shareholders holding Ordinary Shares present, in person or by proxy, and voting on the matter, provided that such majority includes: (i) at least a majority of the shares of the voting shareholders who are non-controlling shareholders and do not have a personal interest in the approval of the proposal (in counting the total votes of such shareholders, abstentions shall not be taken into account) or (ii) the total number of votes against the proposal among the shareholders mentioned in paragraph (i) does not exceed two percent (2%) of the aggregate voting power in the Company.

The Compensation Committee and Board of Directors recommend a vote FOR the approval of the equity grant to Mr. Ori Shilo.

PROPOSAL NO. 6

EQUITY GRANT COMPENSATION TO THREE NON-MANAGEMENT DIRECTORS (OTHER THAN EXTERNAL DIRECTORS)

Under the Companies Law, directors who do not qualify as external directors may be compensated in accordance with the Company's Compensation Policy, as approved by the Compensation Committee, Board and shareholders of the Company. It is proposed to provide equity grants to the following non-management directors: Dr. Kenneth Reed, Eric Swenden and Dan Suesskind. These non-management directors of the Company have the experience, knowledge, skills and leadership abilities in the fields relevant to the Company's activities.

In light of each director's contribution to the Company, and in accordance with the Company's proposed Compensation Policy, the Board and Compensation Committee have determined that the proposed equity grants to each director is appropriate, reasonable and reflects each of their significant contributions to the Company. The purpose of the grant is, inter alia, to compensate each director for his service and significant contribution to the Company as well as to provide an incentive to continue to contribute to the Company's success and results of operations.

Such grants comply with the principles of the proposed Compensation Policy, in the form attached hereto as Appendix B . When discussing the proposed grant to Dr. Reed, Mr. Swenden and Mr. Suesskind, the Compensation Committee and the Board took into consideration, inter alia, : (a) the education, qualifications, expertise, professional experience and achievements of such directors; (b) their roles and areas of responsibility and previous compensation agreements; (c) the ratio between their terms of compensation and the terms of compensation of other employees of the Company, considering also the average and median annual cost of the fixed component payable to all Company fulltime team members; (d) to eliminate the possibility of reducing the variable components at the discretion of the Board and the possibility to limit the exercise value of the options. It was resolved by the Board not to permit such future reductions and not to limit the exercise value of the proposed options.

The background and qualifications of Dan Suesskind are detailed in Proposal 3 of this Proxy. Below are summaries of the background and qualifications of Eric Swenden and Dr. Kenneth Reed.

Eric Swenden has served as a member of the Board since May 3, 2010, and has served on the investment committee since May 5, 2011. From 1966 until 2001 Mr. Swenden served in various positions including Chief Executive Officer (since 1985) and Executive Chairman (since 1990) of Vandemoortele Food Group, a privately held Belgium-based European food group with revenue of approximately EUR 2 billion. He currently serves on the board of directors of Lifeline Scientific, Inc., TBC S.A., ERDA S.A., Alterpharma N.V. and Gudrun N.V. Mr. Swenden holds an M.A. in Commercial Science from the University of Antwerp, Belgium. The Board has determined that Mr. Swenden is a financial and accounting expert under Israeli law.

Dr. Kenneth Reed has served as a member of the Board since December 15, 2009. Dr. Reed is a board-certified dermatologist, practicing in a private practice under the name of Kenneth Reed MD PC. Dr. Reed currently serves on the board of directors of Minerva Biotechnologies Corporation. Dr. Reed received his B.A from Brown University in the United States and an M.D. from the University of Medicine and Dentistry of New Jersey in the U.S. Dr. Reed has amassed over 25 years of clinical experience since completing the Harvard Medical School Residency Program in Dermatology.

The proposed equity grants to the non-management directors of the Company (other than external directors) consist of 100,000 options to purchase Ordinary Shares of the Company granted to each of the three directors at an exercise price of US $1.12 per share, which was calculated as the higher of: (i) the average closing price of the Company's stock on the TASE in the last 30 trading days prior to the May 26, 2013 (the date of the Board's approval of the grant), plus 10% and (ii) the closing price of the Company's stock on the TASE on May 26, 2013. Each director's options would vest quarterly over four (4) years in equal parts, with 6,250 options vesting each quarter. The last date for exercise of the options will be seven (7) years following the grant date. Vesting is scheduled to commence retroactively on April, 1, 2013 and the options will become fully vested, in accordance with the terms of the grant, on March 31, 2017. The equity grant would be in accordance with the Company's 2010 Stock Options Plan, as amended, and the remaining terms of the equity grant would be in accordance with such plan. The proposed equity grant to each director represents 0.11% of the total outstanding equity of the Company on a fully diluted basis.

The proposed equity grant compensation is in accordance with the proposed Compensation Policy of the Company that is the subject of Proposal 3 and is in the form attached hereto as Appendix B .

"RESOLVED, to approve a grant of 100,000 options exercisable into Ordinary Shares of the Company to each of Dr. Kenneth Reed, Eric Swenden, and Dan Suesskind, in accordance with the Compensation Policy and the Company's 2010 Stock Options Plan, as amended."

The approval of Proposal 6 requires the affirmative vote of at least a majority of the Company’s shareholders holding Ordinary Shares present, in person or by proxy, and voting on the matter, provided that such majority includes: (i) at least a majority of the shares of the voting shareholders who are non-controlling shareholders and do not have a personal interest in the approval of the proposal (in counting the total votes of such shareholders, abstentions shall not be taken into account) or (ii) the total number of votes against the proposal among the shareholders mentioned in paragraph (i) does not exceed two percent (2%) of the aggregate voting power in the Company.

The Compensation Committee and Board of Directors recommend a vote FOR the approval of the equity grants to Dr. Kenneth Reed, Eric Swenden, and Dan Suesskind.

PROPOSAL NO. 7

INCREASE IN THE AMOUNT FOR WHICH THE

COMPANY MAY UNDERTAKE TO INDEMNIFY ITS DIRECTORS AND

OFFICERS

Under the Companies Law, a prospective undertaking by a company to indemnify its officers and directors must be approved first by a company's compensation committee and then by its board of directors and subsequently by a company's shareholders. At the Company's general meeting on January 26, 2011, the shareholders of the Company adopted Letters of Exemption and Indemnification to indemnify the Company's directors and officers, which were later amended at Company's general meeting on February 15, 2012 (the "Letters of Exemption and Indemnification"). The current Letters of Exemption and Indemnification provide that the Company and its subsidiaries may prospectively undertake to indemnify the Company's directors and officers, a total amount of US $3,000,000.

In light of the expected expansion of the Company's business and in accordance with the Compensation Policy, the Compensation Committee and Board recommend to increase the maximum amount of indemnification that the Company may prospectively undertake to provide to its directors and officers and to amend the Letters of Exemption and Indemnification to reflect this increase,.

The shareholders are requested to approve an increase in the maximum amount for which the Company and its subsidiaries may prospectively undertake to indemnify the Company's directors and officers, from an aggregate amount of US $3,000,000 to an aggregate amount of US $5,000,000. The Board has determined that considering the scope and the activity of the Company that this amount is reasonable.

The proposed increase in indemnification is in accordance with the proposed Compensation Policy of the Company that is the subject of Proposal 3 and is in the form attached hereto as Appendix B .

It is proposed that the following resolutions be adopted at the General Meeting:

“RESOLVED, to approve an increase in the maximum amount of indemnification that the Company may prospectively undertake to indemnify its directors and officers from US $3,000,000 to US $5,000,000, and to amend the existing Letters of Exemption and Indemnification to reflect this increase.”

The approval of Proposal 7 requires the affirmative vote of at least a majority of the Company’s shareholders holding Ordinary Shares present, in person or by proxy, and voting on the matter, provided that such majority includes: (i) at least a majority of the shares of the voting shareholders who are non-controlling shareholders and do not have a personal interest in the approval of the proposal (in counting the total votes of such shareholders, abstentions shall not be taken into account) or (ii) the total number of votes against the proposal among the shareholders mentioned in paragraph (i) does not exceed two percent (2%) of the aggregate voting power in the Company.

The Audit Committee and Board of Directors recommend a vote "FOR" the foregoing proposed resolutions.

PROPOSAL NO. 8

INCREASE OF ISSUED SHARE CAPITAL

The Company's authorized share capital is currently NIS 1,000,000, consisting of 100,000,000 Ordinary Shares, NIS 0.01 par value per share. As a result, as of May 25, 2013, the Company had approximately 14,735,000 Ordinary Shares available for future issuance after taking into account the shares issuable under existing options and warrants.

The Board recommends that at the General Meeting, the shareholders approve an increase of the authorized share capital of the Company by an additional NIS 1,000,000 such that the authorized share capital shall be NIS 2,000,000, consisting of 200,000,000 Ordinary Shares, NIS 0.01 par value per share. The Board believes that the proposed increase in the Company's share capital is necessary to ensure that the Company will have sufficient authorized share capital available to pursue opportunities in the future without undue delay and expenses. These opportunities could include, without limitation, subject to receipt of all requisite approvals under the Israeli Law, the issuance of additional shares to acquire other businesses, to raise additional capital for the Company's business or to make future grants under the Company's 2010 Stock Options Plan, as amended.

"RESOLVED, to approve the increase of the authorized share capital of the Company from NIS 1,000,000, consisting of 100,000,000 Ordinary Shares, NIS 0.01 par value per share, to NIS 2,000,000, consisting of 200,000,000 Ordinary Shares."

The affirmative vote of the holders of Ordinary Shares representing a majority of the votes cast is required to approve the above resolution.

The Board recommends that you vote "FOR" the approval of the increase of authorized share capital.

OTHER BUSINESS

         Other than as set forth above, as of the mailing of this Proxy Statement, management knows of no business to be transacted at the General Meeting, but, if any other matters are properly presented at the General Meeting, the persons named in the enclosed form of proxy will vote upon such matters in accordance with their best judgment.

By Order of the Board of Directors

Dror Ben-Asher

Chairman of the Board
Dated: June 26, 2013

Appendix A - Form of Statement of a Candidate to Serve as a Director  

The undersigned, ____________________, hereby declares to Redhill Biopharma Ltd. (the “Company”), effective as of ____________________________, as follows:

I am making this statement as required under Section 224B of the Israeli Companies Law, 5759-1999 (the “Israeli Companies Law”).  Such provision requires that I make the statements set forth below prior to, and as a condition to, the submission of my election as a director of the Company to the approval of the Company's shareholders.

I possess the necessary qualifications and skills and have the ability to dedicate the appropriate time for the purpose of performing my service as a director in the Company, taking into account, among other things, the Company's special needs and its size.

My qualifications were presented to the Company. In addition, attached hereto is a biographical summary as contained in the Company's most recent Form 20-F, which includes a description of my academic degrees, as well as previous experience relevant for the evaluation of my suitability to serve as a director.

I am not restricted from serving as a director of the Company under any items set forth in Sections 226 ¹ , 226A ² or 227 ³ of the Israeli Companies Law, which include, among other things, restrictions relating to on the appointment of a minor, a person who is legally incompetent, a person who was declared bankrupt, a person who has prior convictions or anyone whom the administrative enforcement committee of the Israel Securities Law 5728-1968 (the “Israel Securities Law”) prohibits from serving as a director.

I am aware that this statement shall be presented at the Annual General Meeting of Shareholders of the Company in which my election shall be considered, and that pursuant to Section 241 of the Israeli Companies Law it shall be kept in the Company’s registered office and shall be available for review by any person.

Should a concern arise that I will be aware of and/or that will be brought to my attention, pursuant to which I will no longer fulfill one or more of the requirements and/or the declarations set forth above, I shall notify the Company immediately, in accordance with Section 227A of the Israeli Companies Law.

IN WITNESS WHEREOF, the undersigned have signed this statement as of the date set forth above.

¹  As of the date hereof, Section 226 of the Israeli Companies Law generally provides that a candidate shall not be appointed as a director of a public company (i) if the person was convicted of an offense not listed below but the court determined that due to its nature, severity or circumstances, he/she is not fit to serve as a director of a public company for a period that the court determined which shall not exceed five years from judgment or (ii) if he/she has been convicted of one or more offences specified below, unless five years have elapsed from the date the convicting judgment was granted or if the court has ruled, at the time of the conviction or thereafter, that he/she is not prevented from serving as a director of a public company:

(1) offences under Sections 290-297 (bribery), 392 (theft by an officer), 415 (obtaining a benefit by fraud), 418-420 (forgery), 422-428 (fraudulent solicitation, false registration in the records of a legal entity, manager and employee offences in respect of a legal entity, concealment of information and misleading publication by a senior officer of a legal entity, fraud and breach of trust in a legal entity, fraudulent concealment, blackmail using force, blackmail using threats) of the Israel Penal Law 5737-1997; and offences under sections 52C, 52D (use of inside information), 53(a) (offering shares to the public other than by way of a prospectus, publication of a misleading detail in the prospectus or in the legal opinion attached thereto, failure to comply with the duty to submit immediate and period reports) and 54 (fraud in securities) of the Israel Securities Law;

(2) conviction by a court outside of the State of Israel of an offence of bribery, fraud, offences of directors/managers in a corporate body or exploiting inside information.

²  As of the date hereof, Section 226A of the Israeli Companies Law provides that if the administrative enforcement committee of the Israel Securities Authority has imposed on a person enforcement measures that prohibited him/her from holding office as director of a public company, that person shall not be appointed as a director of a public company in which he/she is prohibited to serve as a director according to this measure.

³ As of the date hereof, Section 227 of the Israeli Companies Law provides that a candidate shall not be appointed as a director of a company if he/she is a minor, legally incompetent, was declared bankrupt and not discharged, and with respect to a corporate body – in case of its voluntary dissolution or if a court order for its dissolution was granted.

Appendix B

RedHill Biopharma Ltd.

(the "Company")

Compensation Policy
(the “Policy” or “Compensation Policy”)

As approved by the Company's Compensation Committee on June 18, 2013

and by the Company’s Board of Directors on June 18, 2013.

On December 12, 2012, Amendment 20 to the Companies Law came into effect. The Amendment governs the structure of compensation of Officers of public companies and debenture companies, and specifies a process for approval thereof. In conformity with the Amendment, the Compensation Committee and Board of Directors have adopted this Compensation Policy.

The principles of the Compensation Policy were set forth after discussions by the Compensation Committee and the Board, in consultation with an external advisor. Policy principles were designed to grant proper, fair and well-considered compensation to Officers, in alignment with the Company's long-term best interests and organizational strategy. Part of the rationale is that the policy should encourage a sense of identification with the Company and its objectives on the part of its Officers. An increase in Officer satisfaction and motivation should retain the employment of high-quality Officers in the Company's service over the long term.

The Compensation Policy considers, inter alia , the Company's risk management policy, size and nature of its operations and, with regard to terms of office and employment which include variable components, the Officer's long-term contribution to achieving the Company's objectives and to maximizing its earnings, taking into account the scope and reach of the Officer's role.

The Compensation Policy was prepared with due consideration to the nature of the Company’s operations in the biomed sector, territories where the Company operates, market size on the Tel-Aviv Stock Exchange and on the NASDAQ, as well as other criteria including, the Company's cash position, capitalization and shareholders' equity.

In addition, in designing the Compensation Policy, the Compensation Committee and Board considered the average and median annual cost of the fixed component payable to all Company full-time Team Members. The Company estimates that the gaps between the Officers’ compensation, assuming implementation of the new Policy, will have no effect on the working relationships in the Company.

The compensation principles are a tool based on targets and benchmarks derived, inter alia , form the Company's annual work plan and from long-term plans as determined by the Board of Directors from time to time.

Compensation Policy components will include each of the following:

Provisions of this Compensation Policy only apply to Company Officers (as defined above).

While the Company's employment agreements and /or consulting agreements may be in NIS or in USD, the Company's compensation costs (including salaries, benefits and consulting) are reported in the Company's financial statements in USD. Thus, all compensation components are presented in this policy in USD.

The language of this Compensation Policy uses the male pronoun only as a measure of comfort. This policy applies to both male and female Officers.

Subject to the Companies Law and any other relevant rules and regulations, the Compensation Committee and the Board may waive, in exceptional cases, the aforementioned required education and/or experience should they deem the candidate have special business experience or skills which, in their opinion, would make a considerable contribution to the Company if appointed Chairman of the Board of Directors.

The annual cost of the fixed compensation component for the Senior VP Research and Development shall not exceed 90% of the fixed compensation component for the Company CEO.

In addition, such Officer will be entitled to reimbursement of reasonable expenses incurred in the course of discharging his office, including expenses with respect to attending meetings, travel and entertainment expenses, against provision of receipts. Such expenses will not exceed US $2,000 per month. The Company may pay the Officer's expenses by credit card. Expense reimbursement for overseas travel will be in conformity with Company policy.

The maximum annual cost of the fixed compensation component that can be payable to the Senior VP of Research and Development according to this policy, as per the aforementioned, is 50% higher than the current annual cost of such component according to the Senior VP Research and Development’s current employment agreement as of the date of this policy.

The annual cost of the fixed compensation component for the Chief Business Officer shall not exceed 90% of the fixed compensation component for the Company CEO.

In addition, such Officer will be entitled to reimbursement of reasonable expenses incurred in the course of discharging his office, including expenses with respect to attending meetings, travel and entertainment expenses, against provision of receipts. Such expenses will not exceed US $2,000 per month. The Company may pay the Officer's expenses by credit card. Expense reimbursement for overseas travel will be in conformity with Company policy.

The maximum annual cost of the fixed compensation component that can be payable for the Chief Business Officer according to this policy, as per the aforementioned, is the same as the current annual cost of such component according to the Chief Business Officer’s current employment agreement as of the date of this policy.

The annual cost of the fixed compensation component for the Senior VP Product & Corporate Development shall not exceed 85% of the fixed compensation component for the Company CEO.

In addition, such Officer will be entitled to reimbursement of reasonable expenses incurred in the course of discharging his office, including expenses with respect to attending meetings, travel and entertainment expenses, against provision of receipts. Such expenses will not exceed US $2,000 per month. The Company may pay the Officer's expenses by credit card. Expense reimbursement for overseas travel will be in conformity with Company policy.

The maximum annual cost of the fixed compensation component that can be payable to the Senior VP Product & Corporate Development according to this policy, as per the aforementioned, is 67% higher than the current annual cost of such component according to the Senior VP Product & Corporate Development’s current employment agreement as of the date of this policy.

The annual cost of the fixed compensation component for the Senior VP Business Development & Licensing shall not exceed 85% of the fixed compensation component for the Company CEO.

In addition, such Officer will be entitled to reimbursement of reasonable expenses incurred in the course of discharging his office, including expenses with respect to attending meetings, travel and entertainment expenses, against provision of receipts. Such expenses will not exceed US $2,000 per month. The Company may pay the Officer's expenses by credit card. Expense reimbursement for overseas travel will be in conformity with Company policy.

The maximum annual cost of the fixed compensation component that can be payable to the Senior VP Business Development & Licensing according to this policy, as per the aforementioned, is 42% higher than the annual cost of such component according to the Senior VP Business Development & Licensing’s current employment agreement as of the date of this policy.

The Company decided currently not to implement a bonus plan in its Compensation Policy. If in the future the Board of Directors decides to implement such bonus plan, it shall be implemented according to the guidelines outlined in section 5.1.5 of this Policy.

Such bonus plan’s goal shall be to provide mid-term incentive to the Company's Team Members while the equity-based variable component (as described herein) provides long-term incentive to the Team Members.

The Compensation Committee and the Board of Directors may decide to award a special bonus regardless of implementation of a bonus plan. Such special bonus shall be awarded according to section 5.1.5 of this Policy.

The Company may award an annual bonus to an Officer based on the following guidelines:

The Company may engage an Officer as an independent contractor rather than as a salaried employee. In such a case, the maximum cost of employment would be calculated based on the maximum cost for a salaried employee in a similar position, and guidelines of the Compensation Policy would apply to such an officer mutatis mutandis .

The maximum salary for an Officer who resides overseas (outside of Israel) for discharging their position may exceed the maximum salary for the Officer pursuant to this Policy, had he been employed in Israel, by up to 50%.

The Compensation Policy will be in effect for a 3 years’ term starting on the approval date of the Compensation Policy by the General Annual Meeting of Company shareholders. Should the General Annual Meeting of Company shareholders fail to approve the Compensation Policy, the Company Board of Directors may adopt it, despite such objection by the General Annual Meeting, and in such case the Compensation Policy would be in effect for 1 year from its approval date by the Board of Directors.

*          *          *          *          *

Exhibit A to Compensation Policy

RedHill Biopharma Ltd.

(the “Company”)

OPTION PLAN (2010)

Originally Adopted by the Board of Directors on February 4, 2010,

As been amended from time to time , and

As most recently amended by the Board of Directors on May 2, 2013

TABLE OF CONTENTS

APPENDICES

The Company, however, does not warrant that the Plan will be recognized by the income tax authorities in any jurisdiction or that future changes will not be made to the provisions of applicable laws, or rules or regulations which are promulgated from time to time thereunder, or that any exemption or benefit currently available, whether pursuant to Section 102 or otherwise, will not be abolished.

The consideration to be paid by a grantee for each Share purchased by exercising an option (the “Option Exercise Price” ) shall be as determined by the Board on the date of grant, provided that the Option Exercise Price shall not be less than the nominal value of the Shares subject to the option , and if on the date of grant the Company’s Shares are listed on any established stock exchange or a national market or quotation system , then except as otherwise determined by the Board, the Option Exercise Price shall not be less than the closing price on the date of grant on the Tel Aviv Stock Exchange . The Option Exercise Price shall be denominated in the currency of the primary economic environment of, either the Company or the grantee (that is the functional currency of the Company or the currency in which the grantee is paid) as determined by the Company.

The Board may, in its discretion, grant to the holder of an outstanding option, in exchange for the surrender and cancellation of such option, a new option having an Option Exercise Price lower than provided in the option so surrendered and canceled, and containing such other terms and conditions as the Board may prescribe in accordance with the provisions of this Plan provided that such new Option Exercise Price shall not be less than the nominal value of the Shares subject to the new option.

7.6 Termination of Employment

Each of the following shall be a “ Significant Event ”: a consolidation or merger of the Company with or into another corporation in which the Company is the continuing or surviving corporation or in which, if the Company is not the continuing or surviving corporation, the continuing or surviving corporation (or, if such transaction is effected through a subsidiary, the parent of such continuing or surviving corporation) assumes the option or substitutes it with an appropriate option in the surviving corporation (or in the parent as aforesaid).

Without derogating from the above, solely for the purpose of determining the tax liability pursuant to Section 102(b)(3) of the Income Tax Ordinance, if at the date of grant the Company’s Shares are listed on any established stock exchange or a national market or quotation system, the Fair Market Value of an Ordinary Share at the date of grant shall be determined in accordance with the average value of the Company’s Shares during the thirty (30) trading days preceding the Date of Grant , or in the thirty (30) trading days following the date of registration for trading, as the case may be.

*                 *                 * 

RedHill Biopharma Ltd.

Appendix A

to

RedHill Biopharma Ltd.’s Option Plan (2010), as amended

(Section 9.2)

NOTICE OF EXERCISE

Date: ______________

To: ESOP Management and Trust Services Ltd. , By Fax: 972-3-7602636

To: RedHill Biopharma Ltd., Fax: 972-3-5413144 or Email: uri@redhillbio.com 

Dear Sir/Madam:

Re: Notice of Exercise

I hereby wish to inform you that it is my desire to exercise ____________ options (“ Options ”) out of the ____________________ options which were granted on my name on ______________________ [Date] under the RedHill Biopharma Ltd. Option Plan (2010), as amended (“ Plan ”), and tenders herewith payment of the purchase price for such shares in full.

The exercise price of said Options is USD ___________ per share, all in accordance with the Plan and the Israeli Securities Law of 1968 or any state securities laws.

The total amount for the exercise of the Options of USD _________________ was paid to RedHill Biopharma by me on the date of ______________________. I am aware that the exercise of the Options will be done only after RedHill will transfer to you written confirmation that the exercise amount was paid in full.

I am aware that all the shares will be allotted to you, registered in your name and that you will hold all the share certificates representing such shares. Likewise, I am aware of and agree to all the other provisions of the Plan and applicable laws. 

The Receipt of this form by ESOP must be verified by phone (No. 1700-70-ESOP or 972-3-7536823).

RedHill Biopharma Ltd.

Appendix B

to RedHill Biopharma Ltd.’s Employee Option Plan (2010) , as amended

(Section 9.2)

NOTICE OF EXERCISE

Date: ______________

RedHill Biopharma Ltd.

Dear Sirs :

Re: Notice of Exercise

Please be advised that on the date of ________________ we received instruction from ______________________________ (“the Grantee”) to exercise ________ ____ options (“ Option s”) out of the ____________________ options which were granted in his/her name on ______________________ [Date] under the RedHill Biopharma Ltd. Option Plan (2010) , as amended ( “ Plan ”).

The exercise price of said Options is USD ___________ per share, all in accordance with the Plan and the Israeli Securities Law of 1968 or any state securities laws.

The total amount for the exercise of the Options of USD _________________ should have been paid to you in full by the Grantee. Upon reception of a written confirmation from you that you received this amount in full, we will exercise the Options for shares and register these shares under the ESOP's name.

Attached to this Notice is the exercise notice sent to us by the Grantee.

Exhibit B to Compensation Policy

Letter of Exemption and Indemnification

Redhill Biopharma Ltd .

Public Co. Reg. No. 51-430400-5

21 Ha’arba’a Street, Tel Aviv, Israel

Telephone: 972-3-5413131; Fax: 972-3-5413144

________ _________, 201_

To Mr. / Ms.                             

Dear Sir or Madam;

Letter of Exemption and Indemnification

Chapter One: Interpretation

In this Letter of Exemption and Indemnification, each of the terms below will have the meaning set out opposite it, unless expressly stated otherwise.

Chapter Two: Exemption

Subject to the provisions of any law, the Company hereby exempts you in advance from any liability for any damage incurred by it, either directly or indirectly, due to the breach of your duty of care vis-à-vis the Company, by your acts in your capacity as an officer.

Without limitation to the generality of the foregoing, it is hereby clarified that so long as same is not permitted under law, the Company does not exempt you in advance from your liability to the Company for a breach of the duty of care upon Distribution, to the extent applicable to you, if any.

Nothing in the Company's undertaking to exempt you in advance (as set forth in section 3 above) will derogate from the Company's undertaking to indemnify you in accordance with this Letter.

To the extent permitted by any law, the Company exempts you from any liability for any damage incurred by it, either directly or indirectly, due to the breach of your duty of care vis-à-vis the Company, by your acts in your capacity as an officer prior to the entry into force of this Letter of Exemption and Indemnification.

Chapter Three: Indemnification

To remove any doubts, it should be clarified that the Company's undertaking to indemnify you will only apply with respect to the balance of your liabilities following the full utilization of your rights for insurance and indemnification in a related corporation in connection with your office in a related corporation and following the utilization in full of your rights for officers' insurance of the Company.

The Company's undertaking to indemnify you in advance, as set forth in section 6 above, will apply due to any liability, payment or expense imposed on or incurred by you, as follows:

In order to clarify the calculation method detailed in this subsection 8.2, the following example is provided: assume that compensation payments were ruled against Officer A for the sum of $100. These payments are recoupable, and thus Officer A demands indemnification from the Company for these payments. Assume further that the maximum indemnification sum is 25% (twenty-five percent) from Company's consolidated shareholders' equity, which was set according to the last consolidated annual financial statements, that existed as of the actual date of payment for the indemnification, is $1,000. Therefore, the maximum indemnification sum is, as of the payment date of $100 to Officer A, is $250. Therefore, after payment for the indemnification or Officer A, and until the new consolidated annual financial statements, law suits are filed against Officers B, C and D, who demand repayment of $100, $200 and $300 – respectively. In such a case, since the latest claimed indemnification sum ($600) is higher than the balance maximum indemnification sum ($150), the balance shall be divided pro rata between the Officers as follows: Officer B shall receive 150*100/600, Officer C shall receive 150*200/600 and Officer D shall receive 150*300/600. In case after the specified above, and before the Company updates its consolidated annual financial statements the Company will learn that Officer A was not entitled to the Indemnification, the sum of $100 will become available and return to the general indemnification sum. The returned sum ($100) shall be divided pro rata between the Officers as follows: Officer B shall receive a further payment of 100*100/600, Officer C shall receive a further payment of 100*200/600 and Officer D shall receive a further payment of 100*300/600.

In any event in respect of which you are likely to be prima facie entitled to indemnity pursuant to this Letter, you and the Company will act as follows:

It should be clarified that if you breach the Duty to Give Notice and Deliver Documents, this will not release the Company from its undertaking in accordance with this Exemption Letter, unless the breach committed by you as aforesaid, will have a material adverse effect on the Company's rights and/or its ability to defend in its name (in the event that the Company is also a party to the same Proceeding) and/or in your name against the Proceeding.

At the Company’s request, you will sign any document empowering the Company and/or any attorney as aforesaid, to handle your defense within such Proceeding on your behalf and to represent you in any matter pertaining thereto, as aforesaid.

It should be clarified that in the event that the Company has paid litigation costs to you or on your behalf, including lawyer's fee, in connection with any investigation or proceeding conducted against you by a competent authority or in connection with a criminal proceeding instituted against you, such amounts will be deemed as a loan extended to you by the Company, under such terms as are set forth in this section. If and where it transpires that the Company may, by law, indemnify you for such amounts, these amounts will become indemnity amounts which have been paid to you by the Company pursuant to this Indemnification Letter, you will not be required to refund same to the Company, the interest thereon will be written off and the Company will bear the tax payments applicable to you in consequence thereof, if any.

Subject to the provisions of the Company's Articles Of Association and to the resolution of the Company's competent organs, nothing in the foregoing in this Letter shall derogate from the Company's right to indemnify you retroactively.

Chapter Four: General Provisions

The Company does not exempt you in advance and will not indemnify you for any of the following:

The Company's obligations under this Letter of Exemption and Indemnification will be available to you and/or to your estate and/or to alternate directors duly appointed by you, without a time limitation, as well as subsequent to the termination of your capacity as officer in the Company and/or in a related corporation, as the case may be, provided that the acts forming the subject of this Letter of Exemption and Indemnification were committed in the course of your capacity as an officer in the Company and/or in a related corporation, as the case may be.

To remove any doubts, it should be clarified that this Letter may not be assigned. Notwithstanding the foregoing, in the event of your demise (G-d forbid), this Letter shall apply to you and to your estate.

To remove any doubts, it should be clarified that this Letter will not be interpreted as intending to grant any right or benefit to any third party whatsoever, including any insurer.

Israeli Law shall exclusively apply to this Letter, and to any dispute arising with respect to this Letter. The exclusive jurisdiction in respect of everything related to and arising from this Letter, including with respect to its validity, breach and interpretation hereof, will vest in the competent courts in the district of Tel – Aviv only.

The Parties' addresses are as follows:

Any notice forwarded by one Party to the other in accordance or in connection with this Letter will be sent by registered mail and by electronic mail or hand delivered. A notice to be delivered to the Company should be delivered, as aforesaid, to two addresses. A notice which is hand delivered will be deemed to have reached its addressee on the actual date of delivery, provided that it is a business day and if it is not a business day, then on the first business day subsequently. A notice sent by registered mail will be deemed to have reached its addressee within three (3) business days from its dispatch, and a notice transmitted via electronic mail will be deemed to have reached its addressee on the date of transmitting the notice, subject to receipt of an electronic confirmation of the transmission thereof.

In Witness Whereof the Company Has Signed, via its duly authorized signatories.

Redhill Biopharma Ltd .

I have read this Letter of Exemption and Indemnification thoroughly, I have fully understood its contents, and I confirm receipt of this Letter of Exemption and Indemnification and confirm my consent to all its provisions. I am aware that in respect of this Letter of Exemption and Indemnification, the Company's legal advice does not represent me and that I cannot rely thereon.

Addendum

* * *

Notice to Owners of American Depositary Receipts (ADRs)

RedHill Biopharma Ltd.

CUSIP # 757468103 ISIN#: US7574681034

Owners of record on June 25, 2013 of American Depositary Receipts (each representing ten Ordinary Shares of nominal value of RedHill Biopharma Ltd.) issued under the Deposit Agreement, dated as of December 26, 2012, between The Bank of New York Mellon, as Depositary (the “Depositary”), RedHill Biopharma Ltd. (the “Company”), and Owners, are hereby notified that The Bank of New York Mellon, as Depositary, has received notice from the Company of an upcoming Annual General Meeting of the Company to be held on July 31, 2013 in Israel.

Pursuant to Condition 4.07 of the aforementioned Deposit Agreement, Owners of American Depositary Receipts are entitled, subject to any applicable provision of Israeli law, specific notification by the Company and/or the Articles of Association of the Company, to instruct the Depositary as to the exercise of the voting rights, if any, pertaining to the amount of Shares or other Deposited Securities represented by their respective American Depositary Receipts upon the written request of an Owner on such record date, received on or before 12:00 pm EDT on July 25, 2013 , the Depositary shall endeavor, in so far as practicable, to vote or cause to be voted the amount of Shares or other Deposited Securities represented by such American Depositary Receipts in accordance with the instructions set forth in such request.

If no voting instructions are received by the Depositary from a Holder with respect to any or all of the Deposited Shares represented by such Holder’s American Depositary Receipts on or before 12:00 pm EDT on July 25, 2013 , such Holder shall be deemed to have instructed the Depositary to give a discretionary proxy to a person designated by the Company with respect to such Deposited Shares, and the Depositary shall give a discretionary proxy to a person designated by the Company to vote such Deposited Shares.

The Bank of New York Mellon,

as Depositary

Dated: June 26, 2013

ANNUAL GENERAL MEETING OF

REDHILL BIOPHARMA LTD.

RedHill BiopharmaLtd.

Annual General Meeting

July 31, 2013

The above-noted holder of American Depositary Receipts (ADRs) of RedHill Biopharma Ltd. (the “Company”) hereby requests and instructs The Bank of New York Mellon, as Depositary, to endeavor insofar as practicable, to vote or cause to be voted the number of Deposited Securities underlying the American Depositary Receipts held as of close of business on June 25, 2013 at the Annual General Meeting of the Company to be held in Israel on July 31, 2013 at 11:00 a.m. Israel time in respect of the following resolutions:

ANNUAL GENERAL MEETING OF

REDHILL BIOPHARMA LTD.  

ANNUAL GENERAL MEETING OF

REDHILL BIOPHARMA LTD.

End of resolutions