NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE
HAS BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO
SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY.  THIS SECURITY AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS
SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT WITH A
REGISTERED BROKER-DEALER OR OTHER LOAN WITH A FINANCIAL INSTITUTION THAT IS AN
“ACCREDITED INVESTOR” AS DEFINED IN RULE 501(a) UNDER THE SECURITIES ACT OR
OTHER LOAN SECURED BY SUCH SECURITIES.

Original Issue Date: 
$                

 
8% ORIGINAL ISSUE DISCOUNT SENIOR SECURED CONVERTIBLE DEBENTURE
DUE ___________

THIS 8% ORIGINAL ISSUE DISCOUNT SENIOR SECURED CONVERTIBLE DEBENTURE is one of a
series of duly authorized and validly issued 8% Original Issue Discount Senior
Secured Convertible Debentures of InspireMD, Inc., a Delaware corporation, (the
“Company”), having its principal place of business at 3 Menorat Hamaor Street,
Tel Aviv, Israel 67448, designated as its 8% Original Issue Discount Senior
Secured Convertible Debentures due ___________ (this debenture, the “Debenture”
and, collectively with the other debentures of such series, the “Debentures”).

FOR VALUE RECEIVED, the Company promises to pay to ___________ or its registered
assigns (the “Holder”), or shall have paid pursuant to the terms hereunder, the
principal sum of $____ on ________ (the “Maturity Date”) or such earlier date as
this Debenture is required or permitted to be repaid as provided hereunder, and
to pay interest to the Holder on the aggregate unconverted and then outstanding
principal amount of this Debenture in accordance with the provisions
hereof.  This Debenture is subject to the following additional provisions:

Section 1.                      Definitions.  For the purposes hereof, in
addition to the terms defined elsewhere in this Debenture, (a) capitalized terms
not otherwise defined herein shall have the meanings set forth in the Purchase
Agreement (as defined below) and (b) the following terms shall have the
following meanings:
 
 
 

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“Alternate Consideration” shall have the meaning set forth in Section 5(d).

“Bankruptcy Event” means any of the following events: (a) the Company or any
Significant Subsidiary (as such term is defined in Rule 1-02(w) of Regulation
S-X) thereof commences a case or other proceeding under any bankruptcy,
reorganization, arrangement, adjustment of debt, relief of debtors, dissolution,
insolvency or liquidation or similar law of any jurisdiction relating to the
Company or any Significant Subsidiary thereof, (b) there is commenced against
the Company or any Significant Subsidiary thereof any such case or proceeding
that is not dismissed within 20 days after commencement, (c) the Company or any
Significant Subsidiary thereof is adjudicated insolvent or bankrupt or any order
of relief or other order approving any such case or proceeding is entered, (d)
the Company or any Significant Subsidiary thereof seeks or suffers any
appointment of any administrator, receiver, custodian or the like for it or any
substantial part of its property that is not discharged or stayed within 20
calendar days after such appointment, (e) the Company or any Significant
Subsidiary thereof makes a general assignment for the benefit of creditors, (f)
the Company or any Significant Subsidiary thereof calls a meeting of its
creditors or makes application to a court to call a meeting of its creditors
with a view to arranging a composition, adjustment or restructuring of its
debts, (g) the Company or any Significant Subsidiary becomes insolvent or is
unable to pay its debts or fails or admits in writing its inability generally to
pay its debts as they become due or (h) the Company or any Significant
Subsidiary thereof, by any act or failure to act, expressly indicates its
consent to, approval of or acquiescence in any of the foregoing or takes any
corporate or other action for the purpose of effecting any of the foregoing.

“Beneficial Ownership Limitation” shall have the meaning set forth in Section
4(e).

“Business Day” means any day except any Saturday, any Sunday, any day which is a
federal legal holiday in the United States or any day on which banking
institutions in the State of New York are authorized or required by law or other
governmental action to close.

“Buy-In” shall have the meaning set forth in Section 4(d)(v).

“Change of Control Transaction” means the occurrence after the date hereof of
any of (a) an acquisition after the date hereof by an individual or legal entity
or “group” (as described in Rule 13d-5(b)(1) promulgated under the Exchange Act)
of effective control (whether through legal or beneficial ownership of capital
stock of the Company, by contract or otherwise) of in excess of 50% of the
voting securities of the Company  (other than by means of conversion or exercise
of the Debentures and the Securities issued together with the Debentures), (b)
the Company merges into or consolidates with any other Person, or any Person
merges into or consolidates with the Company and, after giving effect to such
transaction, the stockholders of the Company immediately prior to such
transaction own less than 50% of the aggregate voting power of the Company or
the successor entity of such transaction, (c) the Company sells or transfers all
or substantially all of its assets to another Person and the stockholders of the
Company immediately prior to such transaction own less than 50% of the aggregate
voting power of the acquiring entity immediately after the transaction, (d) a
replacement at one time or within a three year period of more than one-half of
the members of the Board of Directors which is not approved by a majority of
those individuals who are members of the Board of Directors on the Original
Issue Date (or by those individuals who are serving as members of the Board of
Directors at the time of such election or nomination (“Successor Directors”)
whose nomination to the Board of Directors was approved by a majority of the
members of the Board of Directors who are members on the date hereof or (e) the
execution by the Company of an agreement to which the Company is a party or by
which it is bound, providing for any of the events set forth in clauses (a)
through (d) above.
 
 
 

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“Closing Bid Price” means, for any security as of any date, the closing bid
price of the Common Stock as quoted on the principal Trading Market (as reported
by Bloomberg, L.P. through its “Price Table with Average Daily Volume”
function).

“Company Optional Redemption” shall have the meaning set forth in Section 6(b).

“Company Optional Redemption Date” shall have the meaning set forth in Section
6(b).

“Company Optional Redemption Notice” shall have the meaning set forth in Section
6(b).

“Company Optional Redemption Notice Date” shall have the meaning set forth in
Section 6(b).

“Conversion Adjustment Amount” means an amount equal to the principal amount
being converted multiplied by a fraction, the numerator of which is (a) the sum
of (i) one (1) plus (ii) the number of days elapsed from the Original Issue Date
multiplied by (b) .02222222 and the denominator of which is 100.

“Conversion Date” shall have the meaning set forth in Section 4(a).

“Conversion Price” shall have the meaning set forth in Section 4(c).

“Conversion Schedule” means the Conversion Schedule in the form of Schedule 1
attached hereto.

“Conversion Shares” means, collectively, the shares of Common Stock issuable
upon conversion of this Debenture in accordance with the terms hereof.

“Debenture Register” shall have the meaning set forth in Section 2(b).
 
 
 

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“Equity Conditions” means, during the period in question, (i) the Company shall
have duly honored all conversions and redemptions scheduled to occur or
occurring by virtue of one or more Notices of Conversion of the Holder that are
properly submitted, if any, (ii) the Company shall have paid all liquidated
damages and other amounts owing to the Holder in respect of this Debenture,
(iii)(a) there is an effective Registration Statement pursuant to which the
Holder is permitted to utilize the prospectus thereunder to resell all of the
shares of Common Stock issuable pursuant to the Transaction Documents (and the
Company believes, in good faith, that such effectiveness will continue
uninterrupted for the foreseeable future) or (b) all of the Conversion Shares
may be resold pursuant to Rule 144 without volume or manner-of-sale restrictions
and the Company is in compliance with the current public information
requirements under Rule 144, (iv) the Common Stock is trading on a Trading
Market and all of the shares issuable hereunder are listed or quoted for trading
on such Trading Market (and the Company believes, in good faith, that trading of
the Common Stock on a Trading Market will continue uninterrupted for the
foreseeable future, (v) there is a sufficient number of authorized but unissued
and otherwise unreserved shares of Common Stock for the issuance of all of the
shares issuable hereunder, (vi) there is no existing Event of Default or no
existing event which, with the passage of time or the giving of notice, would
constitute an Event of Default, (vii) there has been no public announcement made
by the Company of a pending or proposed Fundamental Transaction or Change of
Control Transaction that has not been consummated, (viii) the Holder is not in
possession of any information provided by the Company that constitutes, or may
constitute, material non-public information and (ix) to the extent that the
Holder voluntarily converted a portion of the principal amount hereunder the
Company complied in all respects with its obligations under Section 4 below.

“Event of Default” shall have the meaning set forth in Section 8(a).

“Fundamental Transaction” shall have the meaning set forth in Section 5(d).
 
“Holder Optional Redemption” shall have the meaning set forth in Section 6(a).

“Holder Optional Redemption Date” shall have the meaning set forth in Section
6(a).

“Holder Optional Redemption Notice” shall have the meaning set forth in Section
6(a).

“Holder Optional Redemption Notice Date” shall have the meaning set forth in
Section 6(a).

“Interest Payment Date” shall have the meaning set forth in Section 2(a).
 
 
 

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“Mandatory Default Amount” means the sum of (a) 112% of the outstanding
principal amount of this Debenture, (b) 100% of the accrued and unpaid interest
hereon and (c) 100% of the interest on the outstanding principal amount of this
Debenture which would have been payable under Section 2(a) between the date of
the relevant Event of Default and the Maturity Date, plus all other amounts,
costs, expenses and liquidated damages due in respect of this Debenture.

“New York Courts” shall have the meaning set forth in Section 9(d).

“Notice of Conversion” shall have the meaning set forth in Section 4(a).

“Optional Redemption” shall have the meaning set forth in Section 6(b).

“Optional Redemption Amount” means the sum of (a) 112% of the then outstanding
principal amount of the Debenture and 100% of accrued and unpaid interest on the
outstanding principal amount of this Debenture, plus (b) all liquidated damages
and other amounts due hereunder in respect of the Debenture.

“Optional Redemption Date” shall have the meaning set forth in Section 6(b).

“Original Issue Date” means the date of the first issuance of the first
Debenture, regardless of any transfers of any Debenture and regardless of the
number of instruments which may be issued to evidence all such Debentures.

“Permitted Indebtedness” means (a) the indebtedness evidenced by the Debentures,
(b) indebtedness incurred in connection with any inventory financing transaction
and any refinancing or modification of the terms thereof; provided, that such
financing is secured only by inventory, (c) any indebtedness permitted pursuant
to the definition of Permitted Lien (other than clause (c) below), and (d) any
indebtedness that has been expressly subordinated in right of payment to the
indebtedness under the Debentures, provided that the terms of such subordination
have been approved by Majority Holders.

“Permitted Lien” means the individual and collective reference to the following:
(a) Liens for taxes, assessments and other governmental charges or levies not
yet due or Liens for taxes, assessments and other governmental charges or levies
being contested in good faith and by appropriate proceedings for which adequate
reserves (in the good faith judgment of the management of the Company) have been
established in accordance with GAAP, (b) Liens imposed by law which were
incurred in the ordinary course of the Company’s business, such as carriers’,
warehousemen’s and mechanics’ Liens, statutory landlords’ Liens, and other
similar Liens arising in the ordinary course of the Company’s business, and
which (x) do not individually or in the aggregate materially detract from the
value of such property or assets or materially impair the use thereof in the
operation of the business of the Company and its consolidated Subsidiaries or
(y) are being contested in good faith by appropriate proceedings, which
proceedings have the effect of preventing for the foreseeable future the
forfeiture or sale of the property or asset subject to such Lien, (c) Liens
incurred by banks and other financial institutions on deposit and securities
accounts and other accounts with such banks or financial institutions not to
exceed $100,000 at any time, (d) purchase money security interest in equipment
(including capital leases), (e) Liens securing judgments for the payment of
money not constituting an Event of Default, and (f) Liens incurred in connection
with indebtedness referred to in clause (a) or (b) of Permitted Indebtedness.
 
 
 

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“Purchase Agreement” means the Securities Purchase Agreement, dated as of April
__, 2012 among the Company and the original Holders, as amended, modified or
supplemented from time to time in accordance with its terms.

“Registration Rights Agreement” means the Registration Rights Agreement, dated
as of April __, 2012 among the Company and the original Holders, as amended,
modified or supplemented from time to time in accordance with its terms.

“Registration Statement” means a registration statement meeting the requirements
set forth in the Registration Rights Agreement and covering the resale of the
Underlying Shares by each Holder as provided for in the Registration Rights
Agreement.

“Securities Act” means the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.

“Share Delivery Date” shall have the meaning set forth in Section 4(d)(ii).

“Successor Entity” shall have the meaning set forth in Section 5(d).
 
“Trading Day” means a day on which the principal Trading Market is open for
trading.

“Trading Market” means any of the following markets or exchanges on which the
Common Stock is listed or quoted for trading on the date in question: the NYSE
AMEX, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global
Select Market, the New York Stock Exchange or the OTC Bulletin Board or the
OTCQB over-the-counter bulletin board service maintained by OTC Markets Group
Inc. (or any successors to any of the foregoing).

Section 2.            Interest and Prepayment.

a)           Payment of Interest in Cash. The Company shall pay interest to the
Holder on the aggregate unconverted and then outstanding principal amount of
this Debenture at the rate of 8% per annum, payable quarterly in arrears on
January 1, April 1, July 1 and October 1, beginning July 1, 2012, on each
Conversion Date (as to that principal amount then being converted) and on the
Maturity Date (each such date, an “Interest Payment Date”) (if any Interest
Payment Date is not a Business Day, then the applicable payment shall be due on
the next succeeding Business Day), in cash.
 
 
 

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b)           Interest Calculations. Interest shall be calculated on the basis of
a 365-day year, and shall accrue daily commencing on the Original Issue Date
until payment in full of the outstanding principal, together with all accrued
and unpaid interest, liquidated damages and other amounts which may become due
hereunder, has been made.  Interest shall cease to accrue with respect to any
principal amount converted, provided that, the Company actually delivers the
Conversion Shares within the time period required by Section 4(d)(ii)
herein.  Interest hereunder will be paid to the Person in whose name this
Debenture is registered in the records of the Company regarding registration and
transfers of this Debenture (the “Debenture Register”).

c)           Late Fee.  All overdue accrued and unpaid interest to be paid
hereunder shall entail a late fee at an interest rate equal to the lesser of 24%
per annum or the maximum rate permitted by applicable law (the “Default Rate”)
which shall accrue daily from the fifth Trading Day following the date such
interest is due hereunder through and including the date of actual payment in
full.

d)           Prepayment.  Except as otherwise set forth in this Debenture, the
Company may not prepay any portion of the principal amount of this Debenture
without the prior written consent of the Holder.

Section 3.             Registration of Transfers and Exchanges.
 
 
a)           Different Denominations. This Debenture is exchangeable for an
equal aggregate principal amount of Debentures of different authorized
denominations, as requested by the Holder surrendering the same.  No service
charge will be payable for such registration of transfer or exchange.
 
b)           Investment Representations. This Debenture has been issued subject
to certain investment representations of the original Holder set forth in the
Purchase Agreement and may be transferred or exchanged only in compliance with
the Purchase Agreement and applicable federal and state securities laws and
regulations.

c)           Reliance on Debenture Register. Prior to due presentment for
transfer to the Company of this Debenture, the Company and any agent of the
Company may treat the Person in whose name this Debenture is duly registered on
the Debenture Register as the owner hereof for the purpose of receiving payment
as herein provided and for all other purposes, whether or not this Debenture is
overdue, and neither the Company nor any such agent shall be affected by notice
to the contrary.
 
 
 

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Section 4.             Conversion.
 
a)           Voluntary Conversion. This Debenture shall be convertible, in whole
or in part, into shares of Common Stock at the option of the Holder, at any time
and from time to time (subject to the conversion limitations set forth in
Section 4(e)); provided that a partial conversion of the principal shall be made
in increments of $100,000. The Holder shall effect conversions by delivering to
the Company a Notice of Conversion, the form of which is attached hereto as
Annex A (each, a “Notice of Conversion”), specifying therein the principal
amount of this Debenture to be converted and, if the Holder determines in its
sole discretion to convert such accrued and unpaid interest (or a portion
thereof), the amount of accrued and unpaid interest thereon to be converted and
the date on which such conversion shall be effected; provided that a Holder may
only convert the portion of the accrued interest that corresponds to the
principal being converted (such date, the “Conversion Date”).  If no Conversion
Date is specified in a Notice of Conversion, the Conversion Date shall be the
date that such Notice of Conversion is deemed delivered hereunder.  To effect
conversions hereunder, the Holder shall not be required to physically surrender
this Debenture to the Company unless the entire principal amount of this
Debenture, plus all accrued and unpaid interest thereon, has been so converted
or otherwise been repaid to the Holder. Conversions hereunder shall have the
effect of lowering the outstanding principal amount of this Debenture in an
amount equal to the principal amount converted in such conversion.  The Holder
and the Company shall maintain records showing the principal amount(s) converted
and the date of such conversion(s).  The Company may deliver an objection to any
Notice of Conversion within two (2) Business Days of delivery of such Notice of
Conversion.  In the event of any dispute or discrepancy, the records of the
Holder shall be controlling and determinative in the absence of manifest error.
The Holder, and any assignee by acceptance of this Debenture, acknowledge and
agree that, by reason of the provisions of this paragraph, following conversion
of a portion of this Debenture, the unpaid and unconverted principal amount of
this Debenture may be less than the amount stated on the face hereof.
 
b)           Forced Conversion.  Notwithstanding anything herein to the
contrary, if for each of any 20 consecutive Trading Days (such period the
“Threshold Period”), (i) the Closing Bid Price equals or exceeds 165% of the
Conversion Price (which shall reflect adjustment for reverse and forward stock
splits, stock dividends, stock combinations and other similar transactions of
the Common Stock that occur after the Original Issue Date) and (ii) the minimum
daily trading volume in the Common Stock on the principal Trading Market is
$1,100,000, the Company may, within 1 Trading Day after the end of any such
Threshold Period, deliver a written notice to the Holder (a “Forced Conversion
Notice” and the date such notice is delivered to the Holder, the “Forced
Conversion Notice Date”) to cause the Holder to convert all or part of the then
outstanding principal amount of this Debenture plus, if so specified in the
Forced Conversion Notice, accrued but unpaid interest, liquidated damages and
other amounts owing to the Holder under this Debenture, it being agreed that the
“Conversion Date” for purposes of Section 4 shall be deemed to occur on the
third Trading Day following the Forced Conversion Notice Date (such third
Trading Day, the “Forced Conversion Date”).  The Company may not deliver a
Forced Conversion Notice, and any Forced Conversion Notice delivered by the
Company shall not be effective, unless all of the Equity Conditions are met on
each Trading Day occurring during the applicable Threshold Period through and
including the later of the Forced Conversion Date and the Trading Day after the
date such Conversion Shares pursuant to such conversion are delivered to the
Holder.
 
 
 

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c)           Conversion Price.  The Conversion Price in effect on any Conversion
Date shall be equal to $1.75 and shall be subject to adjustment as provided in
Section 5 (the “Conversion Price”).

 
d)
Mechanics of Conversion.

 
i.           Conversion Shares Issuable Upon Conversion of Debenture.  The
number of Conversion Shares issuable upon a conversion hereunder shall be
determined by the quotient obtained by dividing (x) the sum of (a) the
outstanding principal amount of this Debenture to be converted, (b) at the
option of the Holder, a portion or all of any accrued and unpaid interest on
this Debenture to be converted and (c) the Conversion Adjustment Amount by (y)
the Conversion Price.

ii.           Delivery of Certificate Upon Conversion. Not later than three (3)
Trading Days after each Conversion Date (the “Share Delivery Date”), the Company
shall deliver, or cause to be delivered, to the Holder (A) a certificate or
certificates representing the Conversion Shares which, on a Legend Removal
Qualification Event shall be free of restrictive legends and trading
restrictions (other than those which may then be required by the Purchase
Agreement) representing the number of Conversion Shares being acquired upon the
conversion of this Debenture and (B) if the Holder elects not to convert the
accrued and unpaid interest on this Debenture (or a portion thereof) to be
converted, a bank check in the amount of such accrued and unpaid interest. If
(i) there is an effective registration statement permitting the issuance of
Conversion Shares to or resale of the Conversion Shares by the Holder or (ii)
following the six month anniversary of the Closing Date, the Conversion Shares
are eligible for sale under Rule 144 without volume or manner-of-sale
restrictions and as of such date the Company is in compliance with the current
public information required under Rule 144 as to such Conversion Shares, the
Company shall deliver any certificate or certificates required to be delivered
by the Company under this Section 4(d) by causing such certificates to be
transmitted by the Transfer Agent to the Holder by crediting the account of the
Holder’s prime broker with The Depository Trust Company through its Deposit or
Withdrawal at Custodian (“DWAC”) system if the Company is then a participant in
such system or another established clearing corporation performing similar
functions.
 
iii.           Failure to Deliver Certificates.  If, in the case of any Notice
of Conversion, such certificate or certificates are not credited to the account
of the Holder’s broker with The Depository Trust Company through its DWAC system
or another established clearing corporation performing similar functions, if the
Company is then a participant in any such system, or delivered to or as directed
by the applicable Holder by the Share Delivery Date, the Holder shall be
entitled to elect by written notice to the Company at any time on or before such
crediting or its receipt of such certificate or certificates, to rescind such
Conversion, in which event the Company shall promptly return to the Holder any
original Debenture delivered to the Company and the Holder shall promptly return
to the Company the Common Stock certificates (or any shares of Common Stock
received electronically) issued to such Holder pursuant to the rescinded
Conversion Notice.
 
 
 

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iv.           Obligation Absolute; Partial Liquidated Damages.  The Company’s
obligations to issue and deliver the Conversion Shares upon conversion of this
Debenture in accordance with the terms hereof are absolute and unconditional,
irrespective of any action or inaction by the Holder to enforce the same, any
waiver or consent with respect to any provision hereof, the recovery of any
judgment against any Person or any action to enforce the same, or any setoff,
counterclaim, recoupment, limitation or termination, or any breach or alleged
breach by the Holder or any other Person of any obligation to the Company (other
than Holder’s obligations hereunder with respect to the conversion, including
the delivery of a Notice of Conversion) or any violation or alleged violation of
law by the Holder or any other Person, and irrespective of any other
circumstance which might otherwise limit such obligation of the Company to the
Holder in connection with the issuance of such Conversion Shares; provided,
however, that such delivery shall not operate as a waiver by the Company of any
such action the Company may have against the Holder.  In the event the Holder of
this Debenture shall elect to convert any or all of the outstanding principal
amount hereof, the Company may not refuse conversion based on any claim by the
Company or any Affiliate thereof that the Holder or anyone associated or
affiliated with the Holder has been engaged in any violation of law, agreement
or for any other reason, unless an injunction from a court, on notice to Holder,
restraining and or enjoining conversion of all or part of this Debenture shall
have been sought and obtained, and the Company posts a surety bond for the
benefit of the Holder in the amount of 150% of the outstanding principal amount
of this Debenture, which is subject to the injunction, which bond shall remain
in effect until the completion of arbitration/litigation of the underlying
dispute and the proceeds of which shall be payable to the Holder to the extent
it obtains judgment.  In the absence of such injunction, the Company shall issue
Conversion Shares or, if applicable, cash, upon a properly noticed
conversion.  If the Company fails when required hereunder for any reason to
deliver to the Holder such certificate or certificates pursuant to Section
4(d)(ii) by the third Trading Day following the Share Delivery Date, the Company
shall pay to the Holder, in cash, as liquidated damages and not as a penalty,
for each $1,000 of principal amount being converted, $5 per Trading Day
(increasing to $10 per Trading Day on the fifth (5th) Trading Day after such
liquidated damages begin to accrue) for each Trading Day commencing on the third
Trading Day after such Share Delivery Date until such certificates are delivered
or Holder rescinds such conversion.  Nothing herein shall limit the Holder’s
right to pursue actual damages (provided such damages may be reduced by the
payments previously made hereunder) or declare an Event of Default pursuant to
Section 8 hereof for the Company’s failure to deliver Conversion Shares within
the period specified herein and the Holder shall have the right to pursue all
remedies available to it hereunder, at law or in equity including, without
limitation, a decree of specific performance and/or injunctive relief.  The
exercise of any such rights shall not prohibit the Holder from seeking to
enforce damages pursuant to any other Section hereof or under applicable law.
 
 
 

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v.           Compensation for Buy-In on Failure to Timely Deliver Certificates
Upon Conversion. In addition to any other rights available to the Holder, if the
Company fails for any reason to deliver to the Holder such certificate or
certificates by the Share Delivery Date pursuant to Section 4(d)(ii), and if
after such Share Delivery Date the Holder is required by its brokerage firm to
purchase (in an open market transaction or otherwise), or the Holder’s brokerage
firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a
sale by the Holder of the Conversion Shares which the Holder was entitled to
receive upon the conversion relating to such Share Delivery Date (a “Buy-In”),
then the Company shall (A) pay in cash to the Holder (in addition to any other
remedies available to or elected by the Holder) the amount, if any, by which (x)
the Holder’s total purchase price (including any brokerage commissions) for the
Common Stock so purchased exceeds (y) the product of (1) the aggregate number of
shares of Common Stock that the Holder was entitled to receive from the
conversion at issue multiplied by (2) the actual sale price at which the sell
order giving rise to such purchase obligation was executed (including any
brokerage commissions) and (B) at the option of the Holder, either reissue (if
surrendered) this Debenture in a principal amount equal to the principal amount
of the attempted conversion (in which case such conversion shall be deemed
rescinded) or deliver to the Holder the number of shares of Common Stock that
would have been issued if the Company had timely complied with its delivery
requirements under Section 4(d)(ii).  For example, if the Holder purchases
Common Stock having a total purchase price of $11,000 to cover a Buy-In with
respect to an attempted conversion of this Debenture with respect to which the
actual sale price of the Conversion Shares (including any brokerage commissions)
giving rise to such purchase obligation was a total of $10,000 under clause (A)
of the immediately preceding sentence, the Company shall be required to pay the
Holder $1,000.  The Holder shall provide the Company written notice indicating
the amounts payable to the Holder in respect of the Buy-In and, upon request of
the Company, evidence of the amount of such loss.  Nothing herein shall limit a
Holder’s right to pursue any other remedies available to it hereunder, at law or
in equity including, without limitation, a decree of specific performance and/or
injunctive relief with respect to the Company’s failure to timely deliver
certificates representing shares of Common Stock upon conversion of this
Debenture as required pursuant to the terms hereof.
 
 
 

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vi.           Reservation of Shares Issuable Upon Conversion. The Company
covenants that it will at all times reserve and keep available out of its
authorized and unissued shares of Common Stock for the sole purpose of issuance
upon conversion of this Debenture and payment of interest on this Debenture,
each as herein provided, free from preemptive rights or any other actual
contingent purchase rights of Persons other than the Holder (and the other
holders of the Debentures), not less than such aggregate number of shares of the
Common Stock as shall (subject to the terms and conditions set forth in the
Purchase Agreement) be issuable (taking into account the adjustments and
restrictions of Section 5) upon the conversion of the then outstanding principal
amount of this Debenture and payment of interest hereunder.  The Company
covenants that all shares of Common Stock that shall be so issuable shall, upon
issue, be duly authorized, validly issued, fully paid and nonassessable and, if
the Registration Statement is then effective under the Securities Act, shall be
registered for public resale in accordance with such Registration Statement
(subject to such Holder’s compliance with its obligations under the Registration
Rights Agreement).

vii.           Fractional Shares. No fractional shares or scrip representing
fractional shares shall be issued upon the conversion of this Debenture.  As to
any fraction of a share which the Holder would otherwise be entitled to purchase
upon such conversion, the Company shall at its election, either pay a cash
adjustment in respect of such final fraction in an amount equal to such fraction
multiplied by the Conversion Price or round up to the next whole share.

viii.           Transfer Taxes.  The issuance of certificates for shares of the
Common Stock on conversion of this Debenture shall be made without charge to the
Holder hereof for any documentary stamp or similar taxes that may be payable in
respect of the issue or delivery of such certificates, provided that, the
Company shall not be required to pay any tax that may be payable in respect of
any transfer involved in the issuance and delivery of any such certificate upon
conversion in a name other than that of the Holder of this Debenture so
converted and the Company shall not be required to issue or deliver such
certificates unless or until the Person or Persons requesting the issuance
thereof shall have paid to the Company the amount of such tax or shall have
established to the satisfaction of the Company that such tax has been paid.
 
 
 

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    e)    Holder’s Conversion Limitations. The Company shall not effect any
conversion of this Debenture, and a Holder shall not have the right to convert
any portion of this Debenture, to the extent that after giving effect to the
conversion set forth on the applicable Notice of Conversion, the Holder
(together with the Holder’s Affiliates, and any Persons acting as a group
together with the Holder or any of the Holder’s Affiliates) would beneficially
own in excess of the Beneficial Ownership Limitation (as defined below). For
purposes of the foregoing sentence, the number of shares of Common Stock
beneficially owned by the Holder and its Affiliates shall include the number of
shares of Common Stock issuable upon conversion of this Debenture with respect
to which such determination is being made, but shall exclude the number of
shares of Common Stock which are issuable upon (i) conversion of the remaining,
unconverted principal amount of this Debenture beneficially owned by the Holder
or any of its Affiliates and (ii) exercise or conversion of the unexercised or
unconverted portion of any other securities of the Company (including, without
limitation, any other Debenture or the Warrants) beneficially owned by the
Holder or any of its Affiliates. Except as set forth in the preceding sentence,
for purposes of this Section 4(e), beneficial ownership shall be calculated in
accordance with Section 13(d) of the Exchange Act and the rules and regulations
promulgated thereunder. To the extent that the limitation contained in this
Section 4(e) applies, the determination of whether this Debenture is convertible
(in relation to other securities owned by the Holder together with any
Affiliates) and of which principal amount of this Debenture is convertible shall
be in the sole discretion of the Holder, and the submission of a Notice of
Conversion shall be deemed to be the Holder’s determination of whether this
Debenture may be converted (in relation to other securities owned by the Holder
together with any Affiliates) and which principal amount of this Debenture is
convertible, in each case subject to the Beneficial Ownership Limitation. To
ensure compliance with this restriction, the Holder will be deemed to represent
to the Company each time it delivers a Notice of Conversion that such Notice of
Conversion has not violated the restrictions set forth in this paragraph and the
Company shall have no obligation to verify or confirm the accuracy of such
determination. In addition, a determination as to any group status as
contemplated above shall be determined in accordance with Section 13(d) of the
Exchange Act and the rules and regulations promulgated thereunder. For purposes
of this Section 4(e), in determining the number of outstanding shares of Common
Stock, the Holder may rely on the number of outstanding shares of Common Stock
as stated in the most recent of the following: (i) the Company’s most recent
periodic or annual report filed with the Commission, as the case may be, (ii) a
more recent public announcement by the Company, or (iii) a more recent written
notice by the Company or the Company’s transfer agent setting forth the number
of shares of Common Stock outstanding. Upon the written or oral request of a
Holder, the Company shall within two Trading Days confirm orally and in writing
to the Holder the number of shares of Common Stock then outstanding. In any
case, the number of outstanding shares of Common Stock shall be determined after
giving effect to the conversion or exercise of securities of the Company,
including this Debenture, by the Holder or its Affiliates since the date as of
which such number of outstanding shares of Common Stock was reported. The
“Beneficial Ownership Limitation” shall be 4.99% of the number of shares of the
Common Stock outstanding immediately after giving effect to the issuance of
shares of Common Stock issuable upon conversion of this Debenture held by the
Holder. The Holder, upon not less than 61 days’ prior notice to the Company, may
increase or decrease (provided that, in no case may the Holder decrease the
Beneficial Ownership Limitation below 4.99%) the Beneficial Ownership Limitation
provisions of this Section 4(e), provided that the Beneficial Ownership
Limitation in no event exceeds 9.99% of the number of shares of the Common Stock
outstanding immediately after giving effect to the issuance of shares of Common
Stock upon conversion of this Debenture held by the Holder and the Beneficial
Ownership Limitation provisions of this Section 4(e) shall continue to apply.
Any such increase or decrease will not be effective until the 61st day after
such notice is delivered to the Company. The Beneficial Ownership Limitation
provisions of this paragraph shall be construed and implemented in a manner
otherwise than in strict conformity with the terms of this Section 4(e) to
correct this paragraph (or any portion hereof) which may be defective or
inconsistent with the intended Beneficial Ownership Limitation contained herein
or to make changes or supplements necessary or desirable to properly give effect
to such limitation. The limitations contained in this paragraph shall apply to a
successor holder of this Debenture.

 
 

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Section 5.                      Certain Adjustments.
 
a)           Stock Dividends and Stock Splits.  If the Company, at any time
while this Debenture is outstanding: (i) pays a stock dividend or otherwise
makes a distribution or distributions payable in shares of Common Stock on
shares of Common Stock or any Common Stock Equivalents (which, for avoidance of
doubt, shall not include any shares of Common Stock issued by the Company upon
conversion of, or payment of interest on, the Debentures), (ii) subdivides
outstanding shares of Common Stock into a larger number of shares, (iii)
combines (including by way of a reverse stock split) outstanding shares of
Common Stock into a smaller number of shares or (iv) issues, in the event of a
reclassification of shares of the Common Stock, any shares of capital stock of
the Company, then the Conversion Price shall be multiplied by a fraction of
which the numerator shall be the number of shares of Common Stock (excluding any
treasury shares of the Company) outstanding immediately before such event, and
of which the denominator shall be the number of shares of Common Stock
outstanding immediately after such event.  Any adjustment made pursuant to this
Section shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or distribution
and shall become effective immediately after the effective date in the case of a
subdivision, combination or re-classification.
 
b)           Subsequent Rights Offerings.  If the Company, at any time while
this Debenture is outstanding, shall issue rights, options or warrants to all
holders of Common Stock (and not to the Holder) entitling them to subscribe for
or purchase shares of Common Stock (the “Purchase Rights”), then, upon any
conversion of this Debenture, the Holder will be entitled to acquire, upon the
terms applicable to such Purchase Rights, the aggregate Purchase Rights that the
Holder could have acquired if the Holder had held the number of Conversion
Shares issued upon such conversion of this Debenture immediately before the date
on which a record is taken for the grant, issuance or sale of such Purchase
Rights, or, if no such record is taken, the date as of which the record holders
of shares of Common Stock are to be determined for the grant, issue or sale of
such Purchase Rights (provided, however, to the extent that the Holder’s right
to participate in any such Purchase Right would result in the Holder exceeding
the Beneficial Ownership Limitation, then the Holder shall not be entitled to
participate in such Purchase Right to such extent (or beneficial ownership of
such shares of Common Stock as a result of such Purchase Right to such extent)
and such Purchase Right to such extent shall be held in abeyance for the Holder
until such time, if ever, as its right thereto would not result in the Holder
exceeding the Beneficial Ownership Limitation).
 
 
 

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c)           Pro Rata Distributions. If the Company, at any time while this
Debenture is outstanding, shall distribute to all holders of Common Stock (and
not to the Holder) evidences of its indebtedness or assets (including cash and
cash dividends) or rights or warrants to subscribe for or purchase any security
other than the Common Stock (a “Distribution”), then, upon any conversion of
this Debenture, the Holder shall be entitled to participate in such Distribution
to the same extent that the Holder would have participated therein if the Holder
had held the number of Conversion Shares issued upon such conversion of this
Debenture immediately before the date on which a record is taken for such
Distribution, or, if no such record is taken, the date as of which the record
holders of shares of Common Stock are to be determined for the participation in
such Distribution.
 
d)           Fundamental Transaction. If, at any time while this Debenture is
outstanding, (i) the Company, directly or indirectly, in one or more related
transactions effects any merger or consolidation of the Company with or into
another Person, (ii) the Company, directly or indirectly, effects any sale,
lease, license, assignment, transfer, conveyance or other disposition of all or
substantially all of its assets in one or a series of related transactions,
(iii) any, direct or indirect, purchase offer, tender offer or exchange offer
(whether by the Company or another Person) is completed pursuant to which
holders of Common Stock are permitted to sell, tender or exchange their shares
for other securities, cash or property and has been accepted by the holders of
50% or more of the outstanding Common Stock, (iv) the Company, directly or
indirectly, in one or more related transactions effects any reclassification,
reorganization or recapitalization of the Common Stock or any compulsory share
exchange pursuant to which the Common Stock is effectively converted into or
exchanged for other securities, cash or property, (v) the Company, directly or
indirectly, in one or more related transactions consummates a stock or share
purchase agreement or other business combination (including, without limitation,
a reorganization, recapitalization, spin-off or scheme of arrangement) with
another Person whereby such other Person acquires more than 50% of the
outstanding shares of Common Stock (not including any shares of Common Stock
held by the other Person or other Persons making or party to, or associated or
affiliated with the other Persons making or party to, such stock or share
purchase agreement or other business combination) (each a “Fundamental
Transaction”), then, upon any subsequent conversion of this Debenture, the
Holder shall have the right to receive, for each Conversion Share that would
have been issuable upon such conversion immediately prior to the occurrence of
such Fundamental Transaction (without regard to any limitation in Section 4(e)
on the conversion of this Debenture), the number of shares of Common Stock of
the successor or acquiring corporation or of the Company, if it is the surviving
corporation, and any additional consideration (the “Alternate Consideration”)
receivable as a result of such Fundamental Transaction by a holder of the
 
 
 

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number of shares of Common Stock for which this Debenture is convertible
immediately prior to such Fundamental Transaction (without regard to any
limitation in Section 4(e) on the conversion of this Debenture).  For purposes
of any such conversion, the determination of the Conversion Price shall be
appropriately adjusted to apply to such Alternate Consideration based on the
amount of Alternate Consideration issuable in respect of one (1) share of Common
Stock in such Fundamental Transaction, and the Company shall apportion the
Conversion Price among the Alternate Consideration in a reasonable manner
reflecting the relative value of any different components of the Alternate
Consideration.  If holders of Common Stock are given any choice as to the
securities, cash or property to be received in a Fundamental Transaction, then
the Holder shall be given the same choice as to the Alternate Consideration it
receives upon any conversion of this Debenture following such Fundamental
Transaction.  The Company shall cause any successor entity in a Fundamental
Transaction in which the Company is not the survivor (the “Successor Entity”) to
assume in writing all of the obligations of the Company under this Debenture and
the other Transaction Documents (as defined in the Purchase Agreement) in
accordance with the provisions of this Section 5(d) pursuant to written
agreements in form and substance reasonably satisfactory to the Holder and
approved by the Holder (without unreasonable delay) prior to such Fundamental
Transaction and shall, at the option of the holder of this Debenture, deliver to
the Holder in exchange for this Debenture a security of the Successor Entity
evidenced by a written instrument substantially similar in form and substance to
this Debenture which is convertible for a corresponding number of shares of
capital stock of such Successor Entity (or its parent entity) equivalent to the
shares of Common Stock acquirable and receivable upon conversion of this
Debenture (without regard to any limitations on the conversion of this
Debenture) prior to such Fundamental Transaction, and with a conversion price
which applies the conversion price hereunder to such shares of capital stock
(but taking into account the relative value of the shares of Common Stock
pursuant to such Fundamental Transaction and the value of such shares of capital
stock, such number of shares of capital stock and such conversion price being
for the purpose of protecting the economic value of this Debenture immediately
prior to the consummation of such Fundamental Transaction), and which is
reasonably satisfactory in form and substance to the Holder. Upon the occurrence
of any such Fundamental Transaction, the Successor Entity shall succeed to, and
be substituted for (so that from and after the date of such Fundamental
Transaction, the provisions of this Debenture and the other Transaction
Documents referring to the “Company” shall refer instead to the Successor
Entity), and may exercise every right and power of the Company and shall assume
all of the obligations of the Company under this Debenture and the other
Transaction Documents with the same effect as if such Successor Entity had been
named as the Company herein.

e)           Calculations.  All calculations under this Section 5 shall be made
to the nearest cent or the nearest 1/100th of a share, as the case may be.  For
purposes of this Section 5, the number of shares of Common Stock deemed to be
issued and outstanding as of a given date shall be the sum of the number of
shares of Common Stock (excluding any treasury shares of the Company) issued and
outstanding.
 
 
 

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f)           Notice to the Holder.

i.           Adjustment to Conversion Price.  Whenever the Conversion Price is
adjusted pursuant to any provision of this Section 5, the Company shall within
10 calendar days of such adjustment deliver to each Holder a notice setting
forth the Conversion Price after such adjustment and setting forth a brief
statement of the facts requiring such adjustment.
 
ii.           Notice to Allow Conversion by Holder.  If (A) the Company shall
declare a dividend (or any other distribution in whatever form) on the Common
Stock, (B) the Company shall declare a special nonrecurring cash dividend on or
a redemption of the Common Stock, or (C) the Company shall authorize the
granting to all holders of the Common Stock of rights or warrants to subscribe
for or purchase any shares of capital stock of any class or of any rights, (D)
the approval of any stockholders of the Company shall be required in connection
with any reclassification of the Common Stock, any consolidation or merger to
which the Company is a party, any sale or transfer of all or substantially all
of the assets of the Company, or any compulsory share exchange whereby the
Common Stock is converted into other securities, cash or property or (E) the
Company shall authorize the voluntary or involuntary dissolution, liquidation or
winding up of the affairs of the Company, then, in each case, the Company shall
cause to be filed at each office or agency maintained for the purpose of
conversion of this Debenture, and shall cause to be delivered to the Holder at
its last address as it shall appear upon the Debenture Register, at least twenty
(20) calendar days prior to the applicable record or effective date hereinafter
specified, a notice stating (x) the date on which a record is to be taken for
the purpose of such dividend, distribution, redemption, rights or warrants, or
if a record is not to be taken, the date as of which the holders of the Common
Stock of record to be entitled to such dividend, distributions, redemption,
rights or warrants are to be determined or (y) the date on which such
reclassification, consolidation, merger, sale, transfer or share exchange is
expected to become effective or close, and the date as of which it is expected
that holders of the Common Stock of record shall be entitled to exchange their
shares of the Common Stock for securities, cash or other property deliverable
upon such reclassification, consolidation, merger, sale, transfer or share
exchange, provided that the failure to deliver such notice or any defect therein
or in the delivery thereof shall not affect the validity of the corporate action
required to be specified in such notice.  To the extent that any notice provided
hereunder constitutes, or contains, material, non-public information regarding
the Company or any of the Subsidiaries, the Company shall simultaneously file
such notice with the Commission pursuant to a Current Report on Form 8-K.  The
Holder shall remain entitled to convert this Debenture during the 20-day period
commencing on the date of such notice through the effective date of the event
triggering such notice except as may otherwise be expressly set forth herein.
 
 
 

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Section 6.             Redemption.

a)           Optional Redemption at Election of Holder. At any time or from time
to time the Holder may deliver written notice to the Company (a “Holder Optional
Redemption Notice” and the date such notice is deemed delivered hereunder, the
“Holder Optional Redemption Notice Date”) of its irrevocable election to require
the Company to prepay some or all of the then outstanding principal amount of
this Debenture for cash in an amount equal to the Optional Redemption Amount (or
in the event of a partial redemption that prorated amount) on the later of (x)
the date which is 18 months after the Original Issue Date and (y) the 10th
Trading Day following the Holder Optional Redemption Notice Date (such date, the
“Holder Optional Redemption Date”, and such redemption, the “Holder Optional
Redemption”).  The Company covenants and agrees that it will honor all Notices
of Conversion tendered from the time of delivery of the Holder Optional
Redemption Notice through the date all amounts owing thereon are due and paid in
full.

b)           Optional Redemption at Election of Company.  Subject to the
provisions of this Section 6(b), at any time after the date which is 6 months
after the Original Issue Date, the Company may deliver a notice to the Holder (a
“Company Optional Redemption Notice” and the date such notice is deemed
delivered hereunder, the “Company Optional Redemption Notice Date”) of its
irrevocable election to prepay some or all of the then outstanding principal
amount of this Debenture for cash in an amount equal to the Optional Redemption
Amount (or in the event of a partial redemption that prorated amount) on the
10th Trading Day following the Company Optional Redemption Notice Date (such
date, the “Company Optional Redemption Date” and together with the Holder
Optional Redemption Date, each an "Optional Redemption Date"), and such
redemption, the “Company Optional Redemption” and together with the Holder
Option Redemption, each an "Optional Redemption").

c)           Redemption Procedure.  The payment of cash pursuant to an Optional
Redemption shall be payable on the applicable Optional Redemption Date.  If any
portion of the payment pursuant to an Optional Redemption shall not be paid by
the Company by the Optional Redemption Date, interest shall accrue on the
aggregate amount payable by the Company at the Default Rate until such amount is
paid in full.
 
Section 7.            Negative Covenants. As long as any portion of this
Debenture remains outstanding, unless the holders of at least 60% in principal
amount of the then outstanding Debentures (the “Majority Holders”) shall have
otherwise given prior written consent, the Company shall not, and shall not
permit any of the Subsidiaries to, directly or indirectly:
 
a)           other than for the Permitted Indebtedness, enter into, create,
incur, assume, guarantee or suffer to exist any indebtedness for borrowed money
of any kind, including, but not limited to, a guarantee, on or with respect to
any of its property or assets now owned or hereafter acquired or any interest
therein or any income or profits therefrom;
 
 
 

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b)           other than for  Permitted Liens, enter into, create, incur, assume
or suffer to exist any Liens of any kind, on or with respect to any of its
property or assets now owned or hereafter acquired or any interest therein or
any income or profits therefrom;

c)           amend its charter documents, including, without limitation, its
certificate of incorporation and bylaws, in any manner that materially and
adversely affects any rights of the Holder;

d)           repay, repurchase or offer to repay, repurchase or otherwise
acquire more than a de minimis number of shares of its Common Stock or Common
Stock Equivalents other than as to the Conversion Shares or Warrant Shares as
permitted or required under the Transaction Documents;

e)           repay, repurchase or offer to repay, repurchase or otherwise
acquire any Indebtedness, other than (x) scheduled payments on Permitted
Indebtedness and (y) the Debentures on a pro-rata basis;

f)           pay cash dividends or distributions on any equity securities of the
Company;

g)           enter into any transaction with any Affiliate of the Company which
would be required to be disclosed in any public filing with the Commission,
unless such transaction is made on an arm’s-length basis and expressly approved
by a majority of the disinterested directors of the Company (even if less than a
quorum otherwise required for board approval); or

h)           enter into any agreement with respect to any of the foregoing.
 
Section 8.              Events of Default.

a)           “Event of Default” means, wherever used herein, any of the
following events (whatever the reason for such event and whether such event
shall be voluntary or involuntary or effected by operation of law or pursuant to
any judgment, decree or order of any court, or any order, rule or regulation of
any administrative or governmental body):
 
i.           any default in the payment of (A) the principal amount of any
Debenture or (B) interest, liquidated damages and other amounts owing to a
Holder on any Debenture, as and when the same shall become due and payable
(whether on an Interest Payment Date, a Conversion Date or the Maturity Date or
by acceleration or otherwise), and solely with respect to payment of interest
such failure continues for three (3) Trading Days after an Interest Payment
Date;
 
 
 

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ii.           the Company shall fail to observe or perform any other covenant or
agreement contained in a Transaction Document (other than (x) a breach by the
Company of its obligations to deliver shares of Common Stock to the Holder upon
conversion or a breach by the Company of its obligations to deliver shares of
Common Stock to the holder of a Warrant upon exercise thereof which breaches are
addressed in clause (viii) below or (y) any failure by the Company to observe or
perform any covenant or agreement contained in the Registration Rights
Agreement, except as set forth in clause (xiii) below) which failure, unless a
cure period is specifically provided with respect to such failure to observe or
perform, is not cured, if possible to cure, within the earlier to occur of (A) 4
Trading Days after notice of such failure sent by the Holder or by any other
Holder to the Company and (B) 7 Trading Days after the Company has become or
should have become aware of such failure;

iii.           any representation or warranty made in this Debenture or any
other Transaction Documents, any written statement pursuant hereto or thereto or
any other report, financial statement or certificate made or delivered to the
Holder or any other Holder shall be untrue or incorrect in any material respect
as of the date when made or deemed made;

iv.          a Bankruptcy Event shall occur;

v.           the Company or any Subsidiary shall default on any of its
obligations under any mortgage, credit agreement or other facility, indenture
agreement, factoring agreement or other instrument under which there may be
issued, or by which there may be secured or evidenced, any indebtedness for
borrowed money or money due under any long term leasing or factoring arrangement
that (a) involves an obligation greater than $375,000, whether such indebtedness
now exists or shall hereafter be created, and (b) results in such indebtedness
becoming or being declared due and payable prior to the date on which it would
otherwise become due and payable;

vi.          the Common Stock shall not be eligible for listing or quotation for
trading on a Trading Market and shall not become eligible to resume listing or
quotation for trading thereon within five (5) Trading Days thereafter;

vii.         the Company shall be a party to any Change of Control Transaction
or a Fundamental Transaction or shall agree to sell or dispose of all or in
excess of 50% of its assets in one transaction or a series of related
transactions (whether or not such sale would constitute a Change of Control
Transaction);

viii.        the Company shall fail for any reason to deliver certificates to a
Holder prior to the third Trading Day after the Share Delivery Date pursuant to
Section 4(d) or fail to deliver certificates to a holder of Warrants prior to
the third Trading Day after the Warrant Share Delivery Date (as defined in the
Warrants) or the Company shall provide at any time notice to the Holder,
including by way of public announcement, of the Company’s intention to not honor
requests for conversions of any Debentures in accordance with the terms hereof
or exercise of the Warrants in accordance with the terms thereof;
 
 
 

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ix.           Sol J. Barer, Ph.D. shall cease to serve as Chairman of the Board
of Directors; provided, however, that it shall not be an Event of Default if (A)
Dr. Barer ceases to serve as Chairman of the Board of Directors due to (1) Dr.
Barer’s resignation as a director due to a material adverse change to the
condition of Dr. Barer or any member of Dr. Barer’s immediate family or (2) a
vote or written consent of stockholders of the Company, in which the requisite
majority for approval of such removal by the stockholders of the Company does
not include any stockholders who serve on the Board of Directors or who are
Affiliates of any individuals who serve on the Board of Directors, (B) two
designees of Genesis are appointed to serve on the Board of Directors within
five (5) Trading Days following Dr. Barer’s departure pursuant to Section 4.20
of the Purchase Agreement and (C) immediately following Dr. Barer’s departure as
Chairman of the Board of Directors and the appointment of the Genesis Designees,
(i) a majority of the members of the Board of Directors of the Company qualify
as independent directors under Section 5605(a)(2) of the rules of the Nasdaq
Stock Market (the “Independence Rules”) and remain so qualified until the
Debentures are either repaid or converted in full and (ii) the chairman of the
Board of Directors of the Company qualifies as an independent director under the
Independence Rules and remains so qualified until the Debentures are either
repaid or converted in full;

x.            any monetary judgment, writ or similar final process shall be
entered against the Company, any subsidiary or any of their respective property
or other assets for more than $375,000, and such judgment, writ or similar final
process shall remain unvacated, unbonded or unstayed for a period of 45 calendar
days;

xi.           the Company fails to meet the current public information
requirements under Rule 144 in respect of the Underlying Shares for more than 5
consecutive Trading Days;

xii.          the Company shall have failed to complete the initial enrollment
of the Company’s MASTER trial (as defined in the Company’s SEC Documents) by
January 1, 2013, subject to any required patient follow-up; or
 
xiii.         the Company shall fail to pay when due any liquidated damages
under the Registration Rights Agreement as and when the same shall become due
and payable and such failure continues for 30 calendar days.
 
 
 

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b)           Remedies Upon Event of Default. If any Event of Default has
occurred and is continuing, the outstanding principal amount of this Debenture,
plus accrued but unpaid interest, liquidated damages and other amounts owing in
respect thereof through the date of acceleration, shall become, at the Majority
Holders’ election, immediately due and payable in cash at the Mandatory Default
Amount.  Commencing 5 calendar days after the occurrence of any Event of Default
that results in the eventual acceleration of this Debenture, interest on the
Mandatory Default Amount shall accrue at the Default Rate.  Upon the payment in
full of the Mandatory Default Amount, the Holder shall promptly surrender this
Debenture to or as directed by the Company.  In connection with such
acceleration described herein, the Holder need not provide, and the Company
hereby waives, any presentment, demand, protest or other notice of any kind, and
the Holder may immediately and without expiration of any grace period enforce
any and all of its rights and remedies hereunder and all other remedies
available to it under applicable law.  Such acceleration may be rescinded and
annulled by the Holder at any time prior to payment hereunder and the Holder
shall have all rights as a holder of the Debenture until such time, if any, as
the Holder receives full payment pursuant to this Section 8(b).  No such
rescission or annulment shall affect any subsequent Event of Default or impair
any right consequent thereon.

Section 9.             Miscellaneous.
 
a)           Notices.  Any and all notices or other communications or deliveries
to be provided by the Holder hereunder, including, without limitation, any
Notice of Conversion, shall be in writing and delivered personally, by facsimile
or email, or sent by an internationally recognized overnight courier service,
addressed to the Company, set forth in the Purchase Agreement, or such other
facsimile number, email address or address as the Company may specify for such
purposes by notice to the Holder delivered in accordance with this Section
9(a).  Any and all notices or other communications or deliveries to be provided
by the Company hereunder shall be in writing and delivered, by facsimile or
email, or sent by an internationally recognized overnight courier service
addressed to each Holder at the facsimile number, email address or address of
the Holder appearing on the books of the Company, or if no such facsimile
number, email address or address appears on the books of the Company, at the
principal place of business of such Holder, as set forth in the Purchase
Agreement.  Any notice or other communication or deliveries hereunder shall be
deemed given and effective on the earliest of (i) the date of transmission, if
such notice or communication is delivered via facsimile or email at the
facsimile number or email address set forth on the signature pages attached
hereto prior to 5:30 p.m. (New York City time) on any date, (ii) the next
Trading Day after the date of transmission, if such notice or communication is
delivered via facsimile or email at the facsimile number or email address set
forth on the signature pages attached hereto on a day that is not a Trading Day
or later than 5:30 p.m. (New York City time) on any Trading Day, (iii) the
second Trading Day following the date of mailing, if sent by U.S. recognized
overnight courier service or (iv) upon actual receipt by the party to whom such
notice is required to be given.
 
 
 

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b)           Absolute Obligation. Except as expressly provided herein, no
provision of this Debenture shall alter or impair the obligation of the Company,
which is absolute and unconditional, to pay the principal of, liquidated damages
and accrued interest, as applicable, on this Debenture at the time, place, and
rate, and in the coin or currency, herein prescribed.  This Debenture is a
direct debt obligation of the Company.  This Debenture ranks pari passu with all
other Debentures now or hereafter issued under the terms set forth herein.
 
c)           Lost or Mutilated Debenture.  If this Debenture shall be mutilated,
lost, stolen or destroyed, the Company shall execute and deliver, in exchange
and substitution for and upon cancellation of a mutilated Debenture, or in lieu
of or in substitution for a lost, stolen or destroyed Debenture, a new Debenture
for the principal amount of this Debenture so mutilated, lost, stolen or
destroyed, but only upon receipt of evidence of such loss, theft or destruction
of such Debenture, and of the ownership hereof and a lost Debenture affidavit,
reasonably satisfactory to the Company.

d)           Governing Law.  All questions concerning the construction,
validity, enforcement and interpretation of this Debenture shall be governed by
and construed and enforced in accordance with the internal laws of the State of
New York, without regard to the principles of conflict of laws thereof.  Each
party agrees that all legal proceedings concerning the interpretation,
enforcement and defense of the transactions contemplated by any of the
Transaction Documents (whether brought against a party hereto or its respective
Affiliates, directors, officers, shareholders, employees or agents) shall be
commenced in the state and federal courts sitting in the City of New York,
County of New York (the “New York Courts”).  Each party hereto hereby
irrevocably submits to the exclusive jurisdiction of the New York Courts for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein (including with respect to
the enforcement of any of the Transaction Documents), and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of such New York Courts,
or such New York Courts are improper or inconvenient venue for such
proceeding.  Each party hereby irrevocably waives personal service of process
and consents to process being served in any such suit, action or proceeding by
mailing a copy thereof via registered or certified mail or overnight delivery
(with evidence of delivery) to such party at the address in effect for notices
to it under this Debenture and agrees that such service shall constitute good
and sufficient service of process and notice thereof.  Nothing contained herein
shall be deemed to limit in any way any right to serve process in any other
manner permitted by applicable law. EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES,
TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY
JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS DEBENTURE OR THE
TRANSACTIONS CONTEMPLATED HEREBY. IF ANY PARTY SHALL COMMENCE AN ACTION OR
PROCEEDING TO ENFORCE ANY PROVISIONS OF THIS DEBENTURE, THEN THE PREVAILING
PARTY IN SUCH ACTION OR PROCEEDING SHALL BE REIMBURSED BY THE OTHER PARTY FOR
ITS ATTORNEYS FEES AND OTHER COSTS AND EXPENSES INCURRED IN THE INVESTIGATION,
PREPARATION AND PROSECUTION OF SUCH ACTION OR PROCEEDING.
 
 
 

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e)           Waiver.  Any waiver by the Company or the Holder of a breach of any
provision of this Debenture shall not operate as or be construed to be a waiver
of any other breach of such provision or of any breach of any other provision of
this Debenture.  The failure of the Company or the Holder to insist upon strict
adherence to any term of this Debenture on one or more occasions shall not be
considered a waiver or deprive that party of the right thereafter to insist upon
strict adherence to that term or any other term of this Debenture on any other
occasion.  Any waiver by the Company or the Holder must be in writing.

f)           Severability.  If any provision of this Debenture is invalid,
illegal or unenforceable, the balance of this Debenture shall remain in effect,
and if any provision is inapplicable to any Person or circumstance, it shall
nevertheless remain applicable to all other Persons and circumstances.  If it
shall be found that any interest or other amount deemed interest due hereunder
violates the applicable law governing usury, the applicable rate of interest due
hereunder shall automatically be lowered to equal the maximum rate of interest
permitted under applicable law. The Company covenants (to the extent that it may
lawfully do so) that it shall not at any time insist upon, plead, or in any
manner whatsoever claim or take the benefit or advantage of, any stay, extension
or usury law or other law which would prohibit or forgive the Company from
paying all or any portion of the principal of or interest on this Debenture as
contemplated herein, wherever enacted, now or at any time hereafter in force, or
which may affect the covenants or the performance of this Debenture, and the
Company (to the extent it may lawfully do so) hereby expressly waives all
benefits or advantage of any such law, and covenants that it will not, by resort
to any such law, hinder, delay or impede the execution of any power herein
granted to the Holder, but will suffer and permit the execution of every such as
though no such law has been enacted.
 
g)           Next Business Day.  Whenever any payment or other obligation
hereunder shall be due on a day other than a Business Day, such payment shall be
made on the next succeeding Business Day.

h)           Headings.  The headings contained herein are for convenience only,
do not constitute a part of this Debenture and shall not be deemed to limit or
affect any of the provisions hereof.

i)           Secured Obligation.  The obligations of the Company under this
Debenture are secured by all assets of the Company and each Subsidiary pursuant
to the Security Agreement and the Israeli Security Agreement, each dated as of
April __, 2012 among the Company, the relevant Subsidiaries of the Company and
the Secured Parties (as defined therein).

j)           Amendments.  This Debenture and each of the other Debentures issued
under the Purchase Agreement may be amended upon the written consent of the
Company and the Majority Holders.
 
 
 

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*********************

 
(Signature Pages Follow)
 
IN WITNESS WHEREOF, the Company has caused this Debenture to be duly executed by
a duly authorized officer as of the date first above indicated.

 

 
INSPIREMD, INC.
         
 
By:
        Name:       Title:    
Facsimile No. for delivery of Notices: 972-3-691-7692
Email address for delivery of Notices: craigs@inspiremd.com
 

 
 
 
[Signature Page – Debenture]
 
 
 

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ANNEX A

NOTICE OF CONVERSION

The undersigned hereby elects to convert principal under the 8% Original Issue
Discount Senior Secured Convertible Debenture due ________ of InspireMD, Inc., a
Delaware corporation (the “Company”), into shares of common stock (the “Common
Stock”), of the Company according to the conditions hereof, as of the date
written below.  If shares of Common Stock are to be issued in the name of a
person other than the undersigned, the undersigned will pay all transfer taxes
payable with respect thereto and is delivering herewith such certificates and
opinions as reasonably requested by the Company in accordance therewith.  No fee
will be charged to the holder for any conversion, except for such transfer
taxes, if any.

By the delivery of this Notice of Conversion the undersigned represents and
warrants to the Company that its ownership of the Common Stock does not exceed
the amounts specified under Section 4 of this Debenture, as determined in
accordance with Section 13(d) of the Exchange Act.

The undersigned agrees to comply with the prospectus delivery requirements under
the applicable securities laws in connection with any transfer of the aforesaid
shares of Common Stock.

Conversion calculations:
Date to Effect Conversion:

Principal Amount of Debenture to be Converted:

Accrued and Unpaid Interest Amount of Debenture to be Converted

Conversion Adjustment Amount to be Converted

Number of shares of Common Stock to be issued:

Signature:

Name:

Address for Delivery of Common Stock Certificates:

Or

DWAC Instructions:

Broker No:_________________________
Account No:_______________________
 
 
 

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Schedule 1

CONVERSION SCHEDULE

The 8% Original Issue Discount Senior Secured Convertible Debentures due on
________ in the aggregate principal amount of $____________ are issued by
InspireMD, Inc., a Delaware corporation.  This Conversion Schedule reflects
conversions made under Section 4 of the above referenced Debenture.

Dated:

 
Date of Conversion
(or for first entry, Original Issue Date)
 
Amount of Conversion
 
Aggregate Principal Amount Remaining Subsequent to Conversion
(or original Principal Amount)
 
Company Attest